<PAGE>
As filed with the Securities and Exchange Commission on October 20, 1997
Registration No. 333-33401
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
EMERGING COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813 66-0547028
(PRIMARY STANDARD (I.R.S.
(STATE OR OTHER INDUSTRIALCLASSIFICATION EMPLOYERIDENTIFICATION
JURISDICTION CODE NUMBER) NUMBER)
OFINCORPORATION OR
ORGANIZATION)
---------------
CHASE FINANCIAL CENTER
P.O. BOX 1730
ST. CROIX, U.S. VIRGIN ISLANDS 00821
TELEPHONE: 340-777-7700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JEFFREY J. PROSSER
CHASE FINANCIAL CENTER
P.O. BOX 1730
ST. CROIX, U.S. VIRGIN ISLANDS 00821
TELEPHONE: 340-777-7700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ROGER MELTZER, ESQ.
CAHILL GORDON & REINDEL
80 PINE STREET
NEW YORK, NEW YORK 10005
TELEPHONE: (212) 701-3000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
ATLANTIC TELE-NETWORK, INC.
CHASE FINANCIAL CENTER
P.O. BOX 1730
ST. CROIX, U.S. VIRGIN ISLANDS 00821
(809) 777-8000
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
To the Stockholders of Atlantic Tele-Network, Inc.:
Notice is Hereby Given that a Special Meeting of Stockholders (including any
adjournments or postponements thereof, the "Special Meeting") of Atlantic
Tele-Network, Inc., a Delaware corporation (the "Company"), will be held on
, 1997 at 10:00 a.m., local time, at [location of Special Meeting], for the
following purposes, which are more fully described in the accompanying Proxy
Statement-Prospectus:
To consider and vote upon a single, unified proposal relating to the
proposed reorganization of the Company (the "Transaction"):
A. to approve and adopt the Subscription Agreement, dated as of August
11, 1997 (as such may be amended, supplemented or modified from time to
time, the "Subscription Agreement"), between the Company and Emerging
Communications, Inc., a Delaware corporation and newly formed wholly owned
subsidiary of the Company ("ECI"), pursuant to which the Company will
transfer certain assets and liabilities to ECI so that all of the assets,
liabilities and operations of (i) the Company's business and operations in
the Virgin Islands will be owned by ECI and (ii) the Company's business and
operations in Guyana will continue to be owned by the Company;
B. to approve and adopt the Repurchase and Recapitalization Agreement,
dated as of August 11, 1997 (as such may be amended, modified or
supplemented from time to time, the "Recapitalization Agreement"), among
the Company, Cornelius B. Prior Jr., individually and as trustee of the
1994 Prior Charitable Remainder Trust (the "Trust"), and Jeffrey J.
Prosser, pursuant to which the Company will repurchase 416,998 shares of
common stock of the Company, par value $.01 per share ("Company Common
Stock"), owned by Mr. Prior and 348,564 shares of Company Common Stock
owned by the Trust at a repurchase price of $22.7284 per share, Mr. Prior
will exchange all of his remaining 2,927,038 shares of Company Common Stock
for a like number of shares of a new class of common stock of the Company
to be designated Class B Common Stock, and Mr. Prosser will exchange all of
his 3,325,000 shares of Company Common Stock for a like number of shares of
a new class of common stock of the Company to be designated Class A Common
Stock;
C. to approve and adopt the Agreement and Plan of Merger, dated as of
August 11, 1997 (as such may be amended, supplemented or modified from time
to time, the "Merger Agreement"), between ATN Merger Co., a newly organized
Delaware corporation and a wholly owned subsidiary of the Company
("Mergerco"), and the Company, pursuant to which (i) Mergerco will be
merged with and into the Company (the "Merger"), (ii) each share of Company
Common Stock (but not the newly created Class A Common Stock and Class B
Common Stock to be issued prior to the Merger to Mr. Prosser and Mr. Prior,
respectively, pursuant to the Recapitalization Agreement) will be converted
into the right to receive four-tenths (0.4) of a share of Company Common
Stock and one share of ECI Common Stock; (iii) the outstanding shares of
Class A Common Stock of the Company held by Mr. Prosser will be converted
into the right to receive in the aggregate 5,704,231 shares of ECI Common
Stock, and (iv) the outstanding shares of Class B Common Stock of the
Company held by Mr. Prior will be converted into the right to receive in
the aggregate 2,807,040 shares of Company Common Stock;
D. to approve an amendment (the "Charter Amendment") to the Certificate
of Incorporation of the Company, as amended, which will create and
authorize a new class of Class A Common Stock of the Company and a new
class of Class B Common Stock of the Company to be issued prior to the
Merger to Mr. Prosser and Mr. Prior pursuant to the Recapitalization
Agreement;
E. to approve the following agreements attached as exhibits to the
Subscription Agreement (as they may be amended, supplemented or modified
from time to time): (i) the Non-Competition Agreement, (the "Non-
Competition
<PAGE>
Agreement"), among the Company, ECI and Mr. Prosser, (ii) the Indemnity
Agreement (the "Indemnity Agreement"), among the Company, ECI, Mr. Prior
and Mr. Prosser, (iii) the Technical Assistance Agreement (the "Technical
Assistance Agreement"), among the Company, Atlantic Tele-Network, Co.,
Virgin Islands Telephone Corporation, and Vitelcom Cellular, Inc., (iv) the
Tax Sharing and Indemnification Agreement (the "Tax Sharing and
Indemnification Agreement"), among the Company, ECI, Mr. Prior and Mr.
Prosser and (v) the Employee Benefits Agreement (the "Employee Benefits
Agreement") between the Company and ECI; and
F. to approve the transactions contemplated by the foregoing agreements
and the Charter Amendment.
II. To transact such other business, including, without limitation, the
adjournment of the Special Meeting (including an adjournment of the Special
Meeting to allow for the fulfillment of certain conditions precedent to the
Transaction) as may properly come before the Special Meeting or any
adjournments or postponements thereof.
The Subscription Agreement, Recapitalization Agreement, Merger Agreement,
Charter Amendment, Non-Competition Agreement, Indemnity Agreement, Technical
Assistance Agreement, Tax Sharing and Indemnification Agreement and Employee
Benefits Agreement will all be voted upon together as part of the Transaction,
and none of these agreements will be effected separately.
The Board of Directors of the Company has fixed the close of business on
, 1997 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Special Meeting and any
adjournments or postponements thereof. Only holders of record of shares of the
Company Common Stock at the close of business on the Record Date are entitled
to notice of, and to vote at, the Special Meeting. A list of such stockholders
will be available for examination at [location of Special Meeting] for a
period of at least ten days prior to the Special Meeting.
A Proxy Statement-Prospectus containing more detailed information with
respect to the matters to be considered at the Special Meeting accompanies
this notice.
Your vote is very important regardless of how many shares of Company Common
Stock you own. Whether or not you plan to attend the special meeting, you are
requested to sign, date and return the enclosed proxy without delay in the
enclosed postage-paid envelope. You may revoke your proxy at any time prior to
its exercise. If you are present at the special meeting or any adjournments or
postponements thereof, you may revoke your proxy and vote personally on the
matters properly brought before the special meeting.
By Order of the Board of Directors,
Jeffrey J. Prosser
Secretary
St. Croix, U.S. Virgin Islands
, 1997
IMPORTANT
All stockholders are cordially invited to attend the Special Meeting in
person.
Whether or not you plan to attend the Special Meeting in person, in order
to assure your representation at the meeting, you are urged to complete,
sign, and date the enclosed proxy card, which is being solicited by the
Board of Directors, and promptly return it in the self-addressed return
envelope enclosed for that purpose. The envelope requires no postage if
mailed in the United States. Any stockholder who signs and sends in a proxy
card may revoke it at any time prior to the vote at the Special Meeting by
following the procedures set forth above and in the accompanying Proxy
Statement-Prospectus.
DO NOT SEND ANY STOCK
CERTIFICATES AT THIS TIME.
<PAGE>
PROXY STATEMENT-PROSPECTUS
PROSPECTUS
EMERGING COMMUNICATIONS, INC.
SHARES OF COMMON STOCK
AND
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
OF
ATLANTIC TELE-NETWORK, INC.
TO BE HELD ON , 1997
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This Proxy Statement-Prospectus (the "Proxy Statement-Prospectus") is being
furnished to the stockholders of Atlantic Tele-Network, Inc., a Delaware
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Company Board") in the form
enclosed to be used at the Company's special meeting of stockholders (the
"Special Meeting") to be held on , 1997, at the time and place and for
the purposes set forth in the Company's accompanying Notice of Special Meeting
of Stockholders. This Proxy Statement-Prospectus is first being mailed to the
Company's stockholders on or about , 1997. This Proxy Statement-
Prospectus relates to the proposed reorganization of the Company, whereby the
Company will transfer certain assets and liabilities to Emerging
Communications, Inc., a Delaware corporation and newly formed wholly owned
subsidiary of the Company ("ECI"), and the Company will undertake an amendment
to its certificate of incorporation (the "Charter Amendment"), a
recapitalization and a merger (the "Merger") with ATN Merger Co., a newly
organized Delaware corporation and a wholly owned subsidiary of the Company
("Mergerco"), pursuant to which the Company will repurchase 416,998 shares of
Company Common Stock owned by Cornelius B. Prior Jr. and 348,564 shares of
Company Common Stock owned by the 1994 Prior Charitable Remainder Trust (the
"Trust") at a repurchase price of $22.7284 per share, Mr. Prior will exchange
all of his remaining 2,927,038 shares of Company Common Stock for a like
number of shares of Class B Common Stock, and the outstanding shares of common
stock of ECI, par value $.01 per share ("ECI Common Stock") will be
distributed to Jeffrey J. Prosser and the remaining stockholders of the
Company (other than Mr. Prior). Collectively, the above transactions herein
are referred to as the "Transaction."
This Proxy-Statement-Prospectus also constitutes a prospectus of ECI with
respect to the shares of ECI Common Stock to be distributed to holders of
Company Common Stock and Class A Common Stock in the Merger.
Pursuant to the Transaction, (a) the Company has entered into a Subscription
Agreement, dated as of August 11, 1997 (as such may be amended, supplemented
or modified from time to time, the "Subscription Agreement"), with ECI,
pursuant to which the Company will transfer certain assets and liabilities to
ECI so that all of the assets, liabilities and operations of (i) the Company's
business and operations in the Virgin Islands will be owned and operated by
ECI and (ii) the Company's business and operations in Guyana will continue to
be owned and operated by the Company; (b) the Company, Mr. Prior, individually
and as trustee of the Trust, and Mr. Prosser have entered into a Repurchase
and Recapitalization Agreement, dated as of August 11, 1997 (as such may be
amended, modified or supplemented from time to time, the "Recapitalization
Agreement"), pursuant to which the Company will repurchase 416,998 shares of
Company Common Stock owned by Mr. Prior and 348,564 shares of Company Common
Stock owned by the Trust at a repurchase price of $22.7284 per share, Mr.
Prior will exchange all of his remaining 2,927,038 shares of Company Common
Stock for a like number of shares of a new class of common stock of the
Company to be designated Class B Common Stock, and Mr. Prosser will exchange
all of his 3,325,000 shares of Company Common Stock for a like number of
shares of a new class of common stock of the Company to be designated Class A
Common Stock; (c) the Company has entered into an Agreement and Plan of
Merger, dated as of August 11, 1997 (as such may be amended, supplemented or
modified from time to time, the "Merger Agreement"), with Mergerco, pursuant
to which (i) Mergerco will be merged with and into the Company, (ii) each
share of Company Common Stock (but not the newly created Class A Common Stock
and Class B Common Stock to be issued prior to the Merger) will be converted
into the right to receive four-tenths (0.4) of a share of Company Common Stock
and one share of ECI Common Stock; (iii) the outstanding shares of Class A
Common Stock of the Company will be converted into the right to receive in the
aggregate 5,704,231 shares of ECI Common Stock, and (iv) the outstanding
shares of Class B Common Stock of the Company will be converted into the right
to receive in the aggregate 2,807,040 shares of Company Common Stock; (d) the
Company will amend (the "Charter Amendment") its Certificate of Incorporation,
as amended, to create and authorize the Company Class A Common Stock and the
Class B Common Stock to be issued prior to the Merger to Mr. Prosser and Mr.
Prior, respectively, pursuant to the Recapitalization Agreement; and (e) the
following agreements attached as exhibits to the Subscription Agreement (as
they may be amended, supplemented or modified from time to time) will be
entered into on or prior to the effective date (the "Effective Date") of the
Transaction: (i) the Non-Competition Agreement, among the Company, ECI, Mr.
Prior and Mr. Prosser (the "Non-Competition Agreement"), (ii) the Indemnity
Agreement, among the Company, ECI, Mr. Prior and Mr. Prosser (the "Indemnity
Agreement"), (iii) the Technical Assistance Agreement, among the Company,
Atlantic Tele-Network, Co., Virgin Islands Telephone Corporation, and Vitelcom
Cellular, Inc. (the "Technical Assistance Agreement"), (iv) the Tax Sharing
and Indemnification Agreement among the Company, ECI, Mr. Prior and Mr.
Prosser (the "Tax Sharing and Indemnification Agreement"), and (v) the
Employee Benefits Agreement, between the Company and ECI (the "Employee
Benefits Agreement").
THE COMPANY BOARD HAS UNANIMOUSLY (WITH MR. PRIOR AND MR. PROSSER
ABSTAINING) APPROVED THE TRANSACTION AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE TRANSACTION.
FOR MATTERS THAT SHOULD BE CONSIDERED WITH RESPECT TO THE TRANSACTION, THE
ECI COMMON STOCK ISSUABLE IN CONNECTION THEREWITH, AND THE COMPANY COMMON
STOCK THAT WILL REMAIN OUTSTANDING AFTER CONSUMMATION OF THE TRANSACTION SEE
"RISK FACTORS" BEGINNING ON PAGE 14 HEREOF.
It is expected that after the Transaction the Company Common Stock will
continue to be listed on the American Stock Exchange (the "AMEX") under the
symbol "ANK."
There has not been a trading market in ECI Common Stock. ECI Common Stock
has been approved for listing, on notice of issuance, on the AMEX under the
symbol "ECM."
---------------
THE SECURITIES TO BE ISSUED IN THE TRANSACTION HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS , 1997.
<PAGE>
(COVER PAGE CONTINUED)
The Transaction is conditioned upon, among other things, approval of the
Transaction at the Special Meeting by the holders of a majority of the
outstanding shares of Company Common Stock, completion of at least $17.4
million of long-term financing by ECI or Atlantic Tele-Network, Co. (which
will become a subsidiary of ECI), receipt of a favorable ruling (the "Tax
Ruling") from the Internal Revenue Service ("IRS") that the transactions
contemplated by the Subscription Agreement and Merger Agreement will be tax-
free for U.S. federal income tax purposes to the Company and ECI and to the
holders of Company Common Stock and Class A Common Stock, and the absence of
any material adverse change in the businesses to be conducted after the
Effective Date by the Company and ECI, respectively.
Mr. Prosser and Mr. Prior, who in the aggregate own a majority of the
outstanding shares of Company Common Stock, have agreed to vote in favor of
approval of the Transaction at the Special Meeting.
The Transaction is currently expected to become effective as promptly as
practicable after the Tax Ruling is received. Each holder of record of Company
Common Stock on the Effective Date will be entitled to receive one share of
ECI Common Stock and four-tenths (0.4) of a share of Company Common Stock for
each share of Company Common Stock held on that date. No fractional shares of
Company Common Stock will be issued. In lieu thereof, an Exchange Agent
selected by the Company will aggregate all fractional shares of Company Common
Stock and sell such shares at the prevailing market prices. Each holder of
record of Company Common Stock who would otherwise have been entitled to a
fraction of a share of Company Common Stock will receive cash (without
interest) in an amount equal to such holder's proportionate interest in the
net proceeds from such sale or sales by the Exchange Agent.
After the Effective Date, (i) the "public stockholders" of the Company
(i.e., all stockholders other than Mr. Prior, the Trust and Mr. Prosser and
his family) will continue to hold approximately 43% of the Company Common
Stock (the same percentage as they hold on the date of this Proxy Statement-
Prospectus) and Mr. Prior will hold the remaining 57%, although the number of
shares of Company Common Stock will have been reduced by 60% from 12,272,500
shares to 4,909,000, (ii) the public stockholders will hold 5,254,900 shares
of ECI Common Stock (the same number of shares as they hold in the Company on
the date of this Proxy Statement-Prospectus) and (iii) Mr. Prosser will hold
the remaining 5,704,231 shares of ECI Common Stock, with the result that the
public stockholders' percentage interest in ECI will be approximately 48% and
Mr. Prosser's percentage interest will be approximately 52%.
After the Effective Date, the Company and ECI will be independent companies
with separate boards of directors and management. Mr. Prior and Mr. Prosser,
through their ownership of a majority of the outstanding common stock of the
Company and ECI, respectively, will have the ability to elect all of the
directors of the Company and ECI, respectively, and generally to exercise
significant control over the affairs of such companies. Although consummation
of the Transaction is conditioned on receipt of the Tax Ruling, such a Ruling
is based on certain facts and representations contained in the Company's
request for the Tax Ruling, and if such facts or representations were to be
incomplete or untrue in any material respect, or if the facts upon which the
Tax Ruling was based were to be materially different from the facts at the
time of the Transaction, the IRS could modify or revoke its ruling
retroactively. If the Tax Ruling were to be revoked retroactively, the Company
and ECI could have substantial federal income tax liabilities and public
stockholders of the Company could recognize dividend income and gain from the
sale or exchange of Company Common Stock by reason of their receipt of ECI
Common Stock in the Transaction. See "The Transaction--Certain US Federal
Income Tax Consequences".
After the Effective Date, the Company and ECI will each be a smaller, less
diversified company than the Company is today. The Company will continue to
own the Company's Guyana operations. ECI will own the Company's Virgin Islands
operations. A subsidiary of ECI will have incurred $18.3 million of long term
debt, and $17.4 million of the proceeds of such debt will have been paid to
the Company and used to repurchase from Mr. Prior and the Trust of a portion
of their shares of ATN Common Stock in the Transaction. The Company's Guyana
operations and Virgin Islands operations are each subject to a number of
separate and distinct risk factors, and each of these risk factors will have a
greater potential adverse impact on the Company or ECI individually after the
Effective Date than they currently have on the combined operations of the
Company. See "Risk Factors--Risks Relating to New ATN" and "Risk Factors--
Risks Relating to ECI".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 1
SUMMARY................................................................... 2
RISK FACTORS.............................................................. 14
Risks Relating to the Transaction....................................... 14
Risks Relating to New ATN............................................... 16
Risks Relating to ECI................................................... 18
THE SPECIAL MEETING....................................................... 20
Introduction............................................................ 20
Matters to be Considered................................................ 20
Voting Rights and Proxy Information..................................... 21
Solicitation of Proxies................................................. 22
No Appraisal Rights..................................................... 22
Adjournment of the Special Meeting...................................... 22
THE TRANSACTION........................................................... 23
Background and Reasons for the Transaction.............................. 23
Recommendation of Company Board......................................... 25
Opinion of Investment Banker............................................ 26
Documentation for the Transaction....................................... 29
The Credit Facility..................................................... 34
Manner of Effecting the Transaction..................................... 35
Listing and Trading of ECI Common Stock................................. 36
Listing and Trading of New ATN Common Stock............................. 36
Expenses................................................................ 37
Conditions; Termination................................................. 37
Certain U.S. Federal Income Tax Consequences............................ 37
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY......................... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMPANY..................................... 43
NEW ATN PRO FORMA FINANCIAL DATA.......................................... 50
BUSINESS AND PROPERTIES OF NEW ATN........................................ 54
International Traffic................................................... 54
Domestic Service........................................................ 56
Expansion Program....................................................... 57
Other Services.......................................................... 58
Significant Revenue Sources............................................. 58
Political Risk Insurance................................................ 58
Regulation.............................................................. 59
Taxation--United States................................................. 62
Taxation--Guyana........................................................ 63
Employees............................................................... 63
Properties.............................................................. 63
SELECTED HISTORICAL FINANCIAL DATA OF ATN-VI.............................. 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ATN-VI..................................................... 66
ECI PRO FORMA FINANCIAL DATA.............................................. 71
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
BUSINESS AND PROPERTIES OF ECI............................................. 75
Local Service............................................................ 75
Access for Long-Distance Services........................................ 76
Other Services........................................................... 76
Significant Revenue Sources.............................................. 76
Physical Plant........................................................... 76
Cellular and Other Operations............................................ 77
Competition.............................................................. 77
Regulation............................................................... 79
Taxation--United States.................................................. 82
Taxation--U.S. Virgin Islands............................................ 82
Employees................................................................ 83
Properties............................................................... 83
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF THE COMPANY COMMON
STOCK..................................................................... 84
Principal Stockholders................................................... 84
Security Ownership of Directors and Officers............................. 85
DIRECTORS AND MANAGEMENT OF NEW ATN........................................ 86
Directors Of New ATN..................................................... 86
Executive Officers of New ATN............................................ 86
Executive Officers of GT&T............................................... 86
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF ECI COMMON STOCK........ 88
DIRECTORS AND MANAGEMENT OF ECI............................................ 89
Executive Officers and Directors of ECI.................................. 89
Directors Of ECI......................................................... 89
ECI Board Committees..................................................... 90
Officers of ECI.......................................................... 90
COMPENSATION OF EXECUTIVE OFFICERS OF ECI.................................. 91
Employment Agreement..................................................... 91
Stock Option Plans....................................................... 92
CERTAIN TRANSACTIONS....................................................... 92
PRICE RANGE AND DIVIDEND HISTORY OF THE COMPANY COMMON STOCK............... 93
DESCRIPTION OF NEW ATN CAPITAL STOCK....................................... 93
Authorized Capital Stock................................................. 93
New ATN Common Stock..................................................... 93
New ATN Preferred Stock.................................................. 93
DESCRIPTION OF ECI CAPITAL STOCK........................................... 94
Authorized Capital Stock................................................. 94
ECI Common Stock......................................................... 94
ECI Preferred Stock...................................................... 94
Antitakeover Effects of Certain Provisions of the Certificate and By-
laws.................................................................... 95
LEGAL MATTERS.............................................................. 98
EXPERTS.................................................................... 98
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
ANNEX A--SUBSCRIPTION AGREEMENT
ANNEX B--OPINION OF PRUDENTIAL SECURITIES INCORPORATED
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
ECI has filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
ECI Common Stock issuable in connection with the Transaction. As permitted by
the rules and regulations of the SEC, this Proxy Statement-Prospectus does not
contain all of the information set forth in the Registration Statement or the
exhibits thereto. Statements contained herein concerning provisions of
documents are necessarily summaries of the documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the SEC. Information regarding ECI can be found under "Risk
Factors," "ATN-VI Management Discussion and Analysis of Financial Condition
and Results of Operations" and "Business and Properties of ECI." Information
regarding the Company can be found under "Risk Factors" and "Business and
Properties of New ATN."
The Company is (and, upon the effectiveness of the Registration Statement,
ECI will be) subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files (or will file) reports, proxy statements and other
information with the SEC.
The Registration Statement and exhibits thereto filed by ECI, and the
reports, proxy statements, and other information filed with the SEC by the
Company and ECI can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Regional Offices located at 7 World Trade Center, 13th
Floor, New York, New York, 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago Illinois 60661. Copies of such materials may be obtained
by mail, at prescribed rates, from the Public Reference Section of the SEC at
450 Fifth Street, N.W. Washington D.C. 20549 or accessed electronically on the
SEC's Web site at (http://www.sec.gov). The Company Common Stock is listed on
the AMEX, and reports and other information concerning the Company can be
inspected at the AMEX, 86 Trinity Place, New York, New York 10006.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THE PROXY STATEMENT-
PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ECI. THIS
PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED HEREBY, NOR DOES
IT CONSTITUTE THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT-
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES AS CONTEMPLATED HEREIN SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY OR ECI SINCE THE DATE HEREOF, OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
Until , 1997 (90 days after the effective date of this Registration
Statement), all dealers effecting transactions in the ECI Common Stock may be
required to deliver a Proxy Statement-Prospectus.
1
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement-Prospectus. Reference is made to the more detailed information
contained or incorporated by reference in this Proxy Statement-Prospectus.
Stockholders of the Company are urged to read this Proxy Statement-Prospectus
and the Annexes attached hereto in their entirety. As used in this Proxy
Statement-Prospectus, unless the context otherwise requires: the "Company"
means Atlantic Tele-Network, Inc.; "New ATN" means the Company as it will be
constituted after the Effective Date; and "ECI" means, with respect to periods
prior to the Effective Date, the Company's business and operations in the
Virgin Islands (all of which is conducted by the Company's subsidiary, Atlantic
Tele-Network Co., a Virgin Islands corporation ("ATN-VI") and its
subsidiaries), and, with respect to periods subsequent to the Effective Date,
Emerging Communications, Inc., a Delaware corporation, which will own the
Company's Virgin Islands business and operations.
SPECIAL MEETING
Date, Time and Place of
Special Meeting............ The Special Meeting of stockholders of the
Company, will be held at [location of Special
Meeting], at 10:00 A.M., local time, on ,
1997.
Purposes of the Special At the Special Meeting the stockholders will be
Meeting.................... asked to consider and vote upon:
(1) a single, unified proposal relating to the
Transaction:
(a) to approve and adopt the Subscription
Agreement, pursuant to which the Company will
transfer certain assets and liabilities to
ECI so that all of the assets, liabilities
and operations of (i) the Company's business
and operations in the Virgin Islands will be
owned and operated by ECI and (ii) the
Company's business and operations in Guyana
will continue to be owned and operated by the
Company;
(b) to approve and adopt the Recapitalization
Agreement, pursuant to which the Company will
repurchase 416,998 shares of Company Common
Stock owned by Mr. Prior and 348,564 shares
of Company Common Stock owned by the Trust at
a repurchase price of $22.7284 per share, Mr.
Prior will exchange all of his remaining
2,927,038 shares of Company Common Stock for
a like number of shares of a new class of
common stock of the company to be designated
Class B Common Stock, and Mr. Prosser will
exchange all of his 3,325,000 shares of
Company Common Stock for a like number of
shares of a new class of common stock of the
Company to be designated Class A Common
Stock;
(c) to approve and adopt the Merger
Agreement, pursuant to which (i) Mergerco
will be merged with and into the Company,
(ii) each share of Company Common Stock (but
not the newly created Class A Common Stock
and Class B Common Stock to
3
<PAGE>
be issued prior to the Merger) will be
converted into the right to receive four-
tenths (0.4) of a share of Company Common
Stock and one share of ECI Common Stock;
(iii) the outstanding shares of Class A
Common Stock of the Company will be converted
into the right to receive in the aggregate
5,704,231 shares of ECI Common Stock, and
(iv) the outstanding shares of Class B Common
Stock of the Company will be converted into
the right to receive in the aggregate
2,807,040 shares of Company Common Stock;
(d) to approve the Charter Amendment to the
Certificate of Incorporation of the Company,
as amended, which will create and authorize
the Class A Common Stock and the Class B
Common Stock to be issued prior to the Merger
to Mr. Prosser and Mr. Prior, respectively,
pursuant to the Recapitalization Agreement;
(e) to approve the Non-Competition Agreement,
the Indemnity Agreement, the Technical
Assistance Agreement, the Tax Sharing and
Indemnification Agreement and the Employee
Benefits Agreement; and
(f) to approve the transactions contemplated
by the foregoing agreements and the Charter
Amendment; and
(2) to transact such other business, including,
without limitation, the adjournment of the
Special Meeting (including an adjournment of the
Special Meeting to allow for the fulfillment of
certain conditions precedent to the Transaction)
as may properly come before the Special Meeting
or any adjournments or postponements thereof.
Record Date................. , 1997
Voting...................... At the Special Meeting, each holder of record as
of the Record Date of the Company Common Stock is
entitled to one vote for each share held. The
affirmative vote of at least a majority of the
outstanding shares of the Company Common Stock as
of the Record Date is required to approve the
Transaction. As of the Record Date, Cornelius B.
Prior, Jr., held voting authority over 3,692,600
shares of the Company Common Stock, or
approximately 30.1% of the outstanding shares of
the Company Common Stock, and Jeffrey J. Prosser,
held voting authority over 3,011,250 shares of
the Company Common Stock, or approximately 25% of
the outstanding shares of the Company Common
Stock. Mr. Prior and Mr. Prosser together have
the necessary votes to ensure approval of the
Transaction, and they have agreed to vote their
shares in favor of the Transaction. See "The
Special Meeting--Voting Rights and Proxy
Information."
No Appraisal Rights......... Stockholders of the Company will not be entitled
to appraisal rights in connection with the
Transaction.
4
<PAGE>
THE COMPANIES PRIOR TO THE TRANSACTION
The Company.................
Atlantic Tele-Network, Inc. is a Delaware
corporation that provides telecommunications
services primarily through its two principal
subsidiaries, the Guyana Telephone and Telegraph
Company Limited ("GT&T") and ATN-VI and its
primary subsidiary the Virgin Islands Telephone
Corporation ("Vitelco"). Vitelco provides
subscribers with local telephone service in the
U.S. Virgin Islands, access to long-distance
companies for interstate and international
telephone service, and provides those companies
with access to its local network. ATN-VI also
provides cellular telephone service and sells and
leases telecommunications equipment in the U.S.
Virgin Islands through its other subsidiaries.
GT&T provides local service and domestic long-
distance telecommunications service within the
Co-operative Republic of Guyana and international
telephone service between Guyana and foreign
points.
Principal Executive Offices
of the Company.............
The principal executive offices of the Company
are located at Chase Financial Center, P.O. Box
1730, St. Croix, U.S. Virgin Islands 00821. Its
telephone number is (340) 777-8000.
ECI......................... Emerging Communications, Inc. is a newly formed
Delaware corporation which, prior to the
Effective Date, will be a wholly owned subsidiary
of the Company with no operations.
Principal Executive Offices The principal executive offices of ECI are
of ECI..................... located at Chase Financial Center, P.O. Box 1730,
St. Croix, U.S. Virgin Islands 00821. Its
telephone number is (340) 777-7700.
THE TRANSACTION
Organization of Emerging
Communications, Inc........ The Company will transfer to ECI all of the
assets and liabilities associated with the
Company's business and operations in the Virgin
Islands and certain other assets and liabilities
in exchange for all of the capital stock of ECI.
Charter Amendment........... The Company will amend its Certificate of
Incorporation to create a class of Class A Common
Stock and a class of Class B Common Stock.
Repurchase and The Company will repurchase 416,998 shares of
Recapitalization........... Company Common Stock owned by Mr. Prior and
348,564 shares of Company Common Stock owned by
the Trust at a repurchase price of $22.7284 per
share, or $17,400,000 in the aggregate. Mr. Prior
will exchange all of his remaining 2,927,038
shares of Company Common Stock for a like number
of shares of a new class of common stock of the
Company to be designated Class B Common Stock,
and Mr. Prosser will exchange all of his
3,325,000 shares of Company Common Stock for a
like number of shares of a new class of common
stock of the Company to be designated Class A
Common Stock.
5
<PAGE>
Merger...................... Mergerco will be merged with and into the
Company, with the Company surviving in the
Merger. Pursuant to the Merger, each share of
Company Common Stock (but not the newly created
Class A Common Stock and Class B Common Stock to
be issued prior to the Merger) will be converted
into the right to receive four-tenths (0.4) of a
share of Company Common Stock and one share of
ECI Common Stock; the outstanding shares of Class
A Common Stock of the Company will be converted
into the right to receive in the aggregate
5,704,231 shares of ECI Common Stock; and the
outstanding shares of Class B Common Stock of the
Company will be converted into the right to
receive in the aggregate 2,807,040 shares of
Company Common Stock.
Fractional Shares........... No fractional shares of Company Common Stock will
be issued. In lieu thereof, an Exchange Agent
selected by the Company will aggregate all
fractional shares of Company Common Stock and
sell such shares at the prevailing market prices.
Each holder of record of Company Common Stock who
would otherwise have been entitled to a fraction
of a share of Company Common Stock will receive
cash (without interest) in an amount equal to
such holder's proportionate interest in the net
proceeds from such sale or sales by the Exchange
Agent.
Effective Date..............
The Transaction is currently expected to become
effective as soon as practicable after the Tax
Ruling is received and the Special Meeting of
stockholders has been held.
Conditions to the
Transaction................ The Transaction is conditioned upon, among other
things, approval of the Transaction at the
Special Meeting by the holders of a majority of
the outstanding shares of Company Common Stock,
completion of at least $17.4 million of long-term
financing by ECI or ATN-VI, receipt of the Tax
Ruling from the IRS with respect to the tax-free
treatment for U.S. federal income tax purposes to
the Company and ECI and to the holders of Company
Common Stock and Class A Common Stock of the
transactions contemplated by the Subscription
Agreement and the Merger Agreement, the listing
of ECI Common Stock on the AMEX, the continued
listing of New ATN Common Stock on the AMEX and
the absence of any material adverse change in the
businesses to be conducted after the Effective
Date by the Company and ECI, respectively. Mr.
Prosser and Mr. Prior, who in the aggregate own a
majority of the outstanding shares of Company
Common Stock, have agreed to vote in favor of
approval of the Transaction at the Special
Meeting.
Reasons for the The Company Board has determined unanimously that
Transaction................ the long-term prospects of the Company's business
will be improved if the Company is divided into
two separate publicly-owned companies.
Consummation of the Transaction will resolve
material disagreements that have arisen between
Mr. Prior and Mr. Prosser, the Company's two
principal stockholders and co-chief executive
6
<PAGE>
officers, pertaining to the management and
direction of the Company. The material
disagreements between Mr. Prior and Mr. Prosser
concerning the management and direction of the
Company and related matters have resulted in
litigation between the two and a management
deadlock that has impaired the Company's ability
to function other than in the ordinary course of
business. After devoting considerable time and
effort to resolving these differences, Mr.
Prosser, Mr. Prior and the Company Board have
unanimously (with Mr. Prosser and Mr. Prior
abstaining) approved the Transaction and the
agreements for the Transaction. ECI will be owned
by Mr. Prosser and the Company's public
stockholders, and New ATN will be owned by Mr.
Prior and the Company's public stockholders.
Recommendation of the
Company Board.............. At its July 7, 1997 meeting, the Company Board
unanimously (with Mr. Prosser and Mr. Prior
abstaining) approved the Transaction and the
transactions contemplated thereby, including the
Merger, and recommended that stockholders vote
for the Transaction. See "The Transaction--
Recommendation of the Company Board."
Investment Banker's Prudential Securities Incorporated ("Prudential
Opinion.................... Securities") has rendered an opinion (the
"Opinion") to the Company Board to the effect
that, as of the date of the Opinion, the basic
economic terms of the transaction as provided for
in the Subscription Agreement, the
Recapitalization Agreement and the Merger
Agreement, are fair to the public stockholders
(i.e. all stockholders of the Company other than
Mr. Prior, the Trust, and Mr. Prosser and his
family) from a financial point of view. A copy of
the Opinion, which sets forth the assumptions
made, matters considered, and the limits of
review, is attached to this Proxy Statement-
Prospectus as Annex B, and should be read
carefully by the holders of the Company Common
Stock. On , 1997, Prudential Securities
confirmed the Opinion as of that date. See "The
Transaction--Opinion of Investment Banker."
Financing...................
ATN-VI, which will become a subsidiary of ECI,
has received a commitment for a long-term loan in
the amount of $18.3 million (the "Credit
Facility") from Rural Telephone Finance
Cooperative ("RTFC") to provide $17.4 million of
funds needed by the Company to repurchase a
portion of the Company Common Stock held by Mr.
Prior and all of such stock held by the Trust in
connection with the Transaction as described
above under "Repurchase and Recapitalization."
See "The Transaction--The Credit Facility."
Certain U.S. Federal Tax
Consequences...............
It is a condition to the consummation of the
Transaction that the Company receive a Tax Ruling
from the IRS to the effect, among other things,
that for U.S. federal income tax purposes the
Company's transfer of various of its assets and
liabilities to ECI and the distribution of ECI
Common Stock to the holders of Company
7
<PAGE>
Common Stock and Class A Common Stock will be tax
free to the Company and ECI and to such holders.
If the Tax Ruling is received and is not
subsequently revoked, the Transaction should
result in no federal income tax to the Company,
ECI or any of the stockholders of the Company,
except for taxes payable by Mr. Prior in respect
of the repurchase of shares of Company Common
Stock from him and the Trust and those payable
under certain circumstances by stockholders of
the Company as a result of their receipt of cash
in lieu of fractional shares of New ATN Common
Stock. If the Tax Ruling is not received, the
Transaction will not be consummated.
The Company's request for the Tax Ruling
contains certain facts and representations. If
these facts and representations were to be
incomplete or untrue in any material respect, or
if the facts upon which the Tax Ruling was based
are materially different from the facts at the
time of the Transaction, the IRS could modify or
revoke its ruling retroactively. If the
Transaction were to be consummated in reliance on
the Tax Ruling and the Ruling were subsequently
to be revoked, the Company and ECI could incur
substantial federal income tax liabilities and
public stockholders of the Company could
recognize dividend income and gain from the sale
or exchange of Company Common Stock as a result
of the Transaction. See "Risk Factors--Risks
Relating to the Transaction--Potential U.S.
Federal Income Tax Liabilities" and "The
Transaction--Certain U.S. Federal Income Tax
Consequences."
NEW ATN
New ATN..................... The Company will retain the Company's business
and operations in Guyana. In this Proxy
Statement-Prospectus, the Company as it will be
constituted on and after the Effective Date is
sometimes referred to as "New ATN." See "Business
and Properties of New ATN."
Principal Office............ The principal office of New ATN will be at 19
Estate Thomas, Havensite, P.O. Box 12030, St.
Thomas, U.S. Virgin Islands 00802. Its telephone
number will be 340-777-8000.
Board of Directors.......... On the Effective Date, the Board of Directors of
New ATN is expected to consist of the following
five individuals: James B. Ellis, Andrew F. Lane,
Robert A.R. Maclennan, Cornelius B. Prior, Jr.,
and Henry Wheatley. Except for Mr. Ellis and Mr.
Wheatley, each of the proposed directors is
currently a director of the Company. See
"Directors and Management of New ATN--Directors
of New ATN."
Shares Outstanding.......... On the Effective Date, New ATN will have
4,909,000 shares of Common Stock outstanding, of
which Mr. Prior will own 2,807,040 shares (57%)
and Mr. Prosser will own none.
8
<PAGE>
The New ATN Common Stock is expected to continue
Trading Market.............. to be listed on the AMEX under the symbol "ANK."
The trading prices of the New ATN Common Stock
will be substantially affected by the
Transaction. See "The Transaction--Listing and
Trading of New ATN Common Stock."
EMERGING COMMUNICATIONS, INC.
Emerging Communications, Emerging Communications, Inc. ("ECI"), is a newly
Inc........................ formed Delaware corporation which, following the
Effective Date, will own and operate the
Company's business and operations in the Virgin
Islands. See "Business and Properties of ECI."
Principal Office............
The principal office of ECI will be at Chase
Financial Center, P.O. Box 1730, St. Croix, U.S.
Virgin Islands 00821. Its telephone number will
be 340-777-7700.
Board of Directors.......... On the Effective Date, the Board of Directors of
ECI is expected to consist of the following six
individuals: Jeffrey J. Prosser, John P. Raynor,
Sir Shridath S. Rampal, Salvatore Muoio, John G.
Vondras and Richard N. Goodwin. Except for Mr.
Muoio, Mr. Vondras and Mr. Goodwin, each of the
proposed ECI directors is currently a director of
the Company. See "Directors and Management of
ECI--Directors of ECI."
Shares Outstanding..........
On the Effective Date, ECI will have 10,959,131
shares of Common Stock outstanding, of which Mr.
Prosser will own 5,704,231 shares (52%) and Mr.
Prior will own none.
Trading Market..............
There is currently no public market for ECI
Common Stock. ECI Common Stock has been approved
for listing, on notice of issuance, on the AMEX
under the symbol "ECM." Listing is a condition to
consummation of the Transaction. See "The
Transaction--Listing and Trading of ECI Common
Stock."
Certain Provisions of
Restated Certificate of Certain provisions of ECI's Restated Certificate
Incorporation and By-laws.. of Incorporation and By-laws may have the effect
of making an acquisition of control of ECI more
difficult or expensive. See "Description of ECI
Capital Stock--Anti-takeover Effects of Certain
Provisions of the Certificate and By-Laws."
9
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF THE COMPANY AND
SUMMARY PRO FORMA FINANCIAL DATA OF NEW ATN
The following summary historical financial data of the Company and its
subsidiaries as of and for the years ended December 31, 1996, 1995 and 1994
have been derived from the Company's audited consolidated financial statements.
The following summary historical financial data for the six months ended June
30, 1997 and 1996 have been derived from the unaudited consolidated condensed
interim financial statements which, in the opinion of management, reflects all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation. The historical data presented below includes
the financial data of the businesses to be transferred to ECI in the
Transaction as well as those businesses to be retained by New ATN. The
consolidated financial data for the six months ended June 30, 1997 are not
necessarily indicative of the operating results to be expected for the entire
fiscal year.
Also set forth below are summary unaudited pro forma consolidated statements
of operations data and consolidated balance sheet data for New ATN. The pro
forma consolidated balance sheet data as of June 30, 1997 give effect to the
Transaction, as if it occurred on June 30, 1997. The pro forma consolidated
statement of operations data for the year ended December 31, 1996 and the six
months ended June 30, 1997 give effect to the Transaction, as if it occurred on
January 1, 1996. The Transaction is accounted for as a non-pro rata split-off
of New ATN, and accordingly New ATN is accounted for at fair value. New ATN is
considered to be the split-off entity since it is anticipated that ECI will
have larger market capitalization (based on the Opinion), ECI will have greater
asset value, ECI will retain more of the top management of the Company, and ECI
had greater net income for the six months ended June 30, 1997. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred if the Transaction had occurred at the beginning of the periods
indicated, nor is it necessarily indicative of future operating results or
financial position.
The summary historical and pro forma financial data should be read in
conjunction with the Company's consolidated financial statements and notes
thereto, as of December 31, 1996 and for each of the three years in the period
ended December 31, 1996, the Company's unaudited consolidated condensed interim
financial statements and notes thereto as of June 30, 1997 and for the six
months ended June 30, 1997 and 1996 and the unaudited pro forma consolidated
condensed balance sheet of New ATN as of June 30, 1997 and the unaudited pro
forma consolidated condensed statements of operations of New ATN for the year
ended December 31, 1996 and the six months ended June 30, 1997, all of which
are included elsewhere in this Proxy Statement-Prospectus. All dollar amounts
are in thousands, except per share data.
10
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF THE COMPANY AND
SUMMARY PRO FORMA FINANCIAL DATA OF NEW ATN
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ----------------------------
PRO FORMA PRO FORMA
STATEMENT OF OPERATIONS 1994 1995 1996 1996 1996 1997 1997
DATA: -------- -------- -------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Telephone operations:
Total revenue.......... $134,867 $184,632 $206,002 $148,253 $102,339 $90,968 $58,902
Total expense.......... 89,320 130,575 155,174 111,577 75,277 69,609 48,134
-------- -------- -------- -------- -------- ------- -------
Income from telephone
operations............. 45,547 54,057 50,828 36,676 27,062 21,359 10,768
Income from other
operations............. 1,942 2,639 2,684 -- 1,686 610 --
Non-operating revenue
and expense (other than
interest), net......... (9,341) (10,219) (9,458) (6,870) (6,906) (4,956) (3,184)
-------- -------- -------- -------- -------- ------- -------
Income from continuing
operations before
interest expense,
income taxes and
minority interest...... 38,148 46,477 44,054 29,806 21,842 17,013 7,584
Interest expense, net... 12,798 11,540 10,831 3,399 5,503 5,159 1,652
-------- -------- -------- -------- -------- ------- -------
Income from continuing
operations before
income taxes and
minority interest...... 25,350 34,937 33,223 26,407 16,339 11,854 5,932
Income taxes (2)........ 10,465 15,250 13,039 11,471 6,876 (6,612) 2,712
-------- -------- -------- -------- -------- ------- -------
Income from continuing
operations before
minority interest...... 14,885 19,687 20,184 14,936 9,463 18,466 3,220
Minority interest....... (1,743) (2,477) (2,177) (2,096) (1,272) (308) (304)
-------- -------- -------- -------- -------- ------- -------
Income from continuing
operations............. $ 13,142 $ 17,210 $ 18,007 $ 12,840 $ 8,191 $18,158 $ 2,916
======== ======== ======== ======== ======== ======= =======
Income per share from
continuing operations
(1).................... $ 2.62 $ 0.59
======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
AS OF DECEMBER 31, 1997
-------------------------- ------------------
PRO FORMA
1994 1995 1996 1997 1997
BALANCE SHEET DATA: -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Fixed assets, net................ $242,548 $226,660 $251,996 $252,135 $34,528
Total assets..................... 340,113 371,939 389,324 382,189 94,362
Short-term debt (including
current portion of long-term
debt)........................... 19,249 24,841 30,095 28,658 5,237
Long-term debt, net.............. 141,214 128,362 116,227 109,580 17,620
Stockholders' equity............. 114,861 130,956 149,791 167,949 45,286
</TABLE>
- --------
(1) Historical income per share amounts have not been presented as this
information is not considered meaningful.
(2) In May 1997, Vitelco received approval from the Virgin Islands Industrial
Development Commission for a five year exemption (commencing October 1,
1998) from 90% of Virgin Islands income taxes and 100% of Virgin Islands
gross receipts, excise and property taxes. In accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, the
Company has adjusted its deferred tax assets and liabilities to reflect the
change in tax rates applicable to Vitelco during the benefit period. This
change resulted in the Company recording a non-recurring credit to income
tax expense of approximately $10.9 million in the six months ended June 30,
1997.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF ECI
The following summary historical financial data have been derived from the
audited consolidated financial statements of the Company, the predecessor
company to ECI, as of and for the years ended December 31, 1996, 1995 and 1994.
The following summary historical financial data for the six months ended June
30, 1997 and 1996 have been derived from the unaudited consolidated condensed
interim financial statements of the Company which, in the opinion of
management, reflects all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation. The historical data
presented below includes the financial data of the business to be retained by
New ATN as well as those businesses to be transferred to ECI in the
Transaction. The consolidated financial data for the six months ended June 30,
1997 are not necessarily indicative of the operating results to be expected for
the entire fiscal year.
Also set forth below are summary unaudited pro forma consolidated statement
of operations data and consolidated balance sheet data for ECI. The pro forma
consolidated balance sheet data as of June 30, 1997 give effect to the
Transaction, as if it occurred on June 30, 1997. The pro forma consolidated
statement of operations data for the year ended December 31, 1996 and the six
months ended June 30, 1997 give effect to the Transaction, as if it occurred on
January 1, 1996. The Transaction is accounted for as a non-pro rata split-off
of New ATN and New ATN is accounted for at fair value. New ATN is considered to
be the split-off entity since it is anticipated that ECI will have greater
market capitalization (based on the Opinion), ECI will have greater asset
value, ECI will retain more of the top management of the Company, and ECI had
greater net income for the six months ended June 30, 1997. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred if the Transaction had occurred at the beginning of the periods
indicated, nor is it necessarily indicative of future operating results or
financial position.
The summary historical and pro forma financial data should be read in
conjunction with the consolidated financial statements and notes thereto of the
Company and ATN-VI, as of December 31, 1996 and for each of the three years in
the period ended December 31, 1996, the Company's and ATN-VI's unaudited
consolidated condensed interim financial statements and notes thereto as of
June 30, 1997 and for the six months ended June 30, 1997 and 1996, the
unaudited pro forma consolidated condensed balance sheet of ECI as of June 30,
1997 and the unaudited pro forma consolidated condensed statements of
operations of ECI for the year ended December 31, 1996 and the six months ended
June 30, 1997, all of which are included elsewhere in this Proxy Statement-
Prospectus. All dollar amounts are in thousands, except per share data.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF ECI
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 (3) 1996 1997 1997
-------- -------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Telephone operations:
Total revenue.......... $134,867 $184,632 $206,002 $ 57,749 $102,339 $ 90,968 $ 32,066
Total expense.......... 89,320 130,575 155,174 40,912 75,277 69,609 20,133
-------- -------- -------- ---------- -------- -------- ----------
Income from telephone
operations............. 45,547 54,057 50,828 16,837 27,062 21,359 11,933
Income from other opera-
tions.................. 1,942 2,639 2,684 2,684 1,686 610 610
Non-operating revenues
and expenses (other
than interest), net.... (9,341) (10,219) (9,458) (2,937) (6,906) (4,956) (1,947)
-------- -------- -------- ---------- -------- -------- ----------
Income from continuing
operations before
interest expense,
income taxes and
minority interest...... 38,148 46,477 44,054 16,584 21,842 17,013 10,596
Interest expense, net... 12,798 11,540 10,831 8,714 5,503 5,159 4,148
-------- -------- -------- ---------- -------- -------- ----------
Income from continuing
operations before
income taxes and
minority interest...... 25,350 34,937 33,223 7,870 16,339 11,854 6,448
Income taxes (2)........ 10,465 15,250 13,039 2,250 6,876 (6,612) (8,982)
-------- -------- -------- ---------- -------- -------- ----------
Income from continuing
operations before
minority interest...... 14,885 19,687 20,184 5,620 9,463 18,466 15,430
Minority interest....... (1,743) (2,477) (2,177) (81) (1,272) (308) (4)
-------- -------- -------- ---------- -------- -------- ----------
Income from continuing
operations............. $ 13,142 $ 17,210 $ 18,007 $ 5,539 $ 8,191 $ 18,158 $ 15,426
======== ======== ======== ========== ======== ======== ==========
Income per share from
continuing operations
(1).................... $ 0.51 $ 1.41
========== ==========
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------- ---------------------
PRO FORMA
1994 1995 1996 1997 1997
-------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Fixed assets, net....... $242,548 $226,660 $251,996 $ 252,135 $156,590
Total assets............ 340,113 371,939 389,324 382,189 224,226
Short-term debt
(including current
portion of long-term
debt).................. 19,249 24,841 30,095 28,658 23,199
Long-term debt, net..... 141,214 128,362 116,227 109,580 110,276
Stockholders' equity.... 114,861 130,956 149,791 167,949 59,653
</TABLE>
- --------
(1)Historical income per share amounts have not been presented as this
information is not considered meaningful.
(2) In May 1997, Vitelco received approval from the Virgin Islands Industrial
Development Commission for a five year exemption (commencing October 1,
1998) from 90% of Virgin Islands income taxes and 100% of Virgin Islands
gross receipts, excise and property taxes. In accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, the
Company has adjusted its deferred tax assets and liabilities to reflect the
change in tax rates applicable to Vitelco during the benefit period. This
change resulted in the Company recording a non-recurring credit to income
tax expense of approximately $10.9 million ($.99 per share on a pro forma
basis) in the six months ended June 30, 1997.
(3) Does not reflect the non-recurring loss of $45.6 million on the split-off
and fair valuation of the net assets of New ATN.
13
<PAGE>
RISK FACTORS
The following factors, in conjunction with the other information included in
this Proxy Statement-Prospectus (including the documents incorporated by
reference herein), should be considered by stockholders of the Company in
evaluating the matters presented herein.
RISKS RELATING TO THE TRANSACTION
Conditions to the Transaction. Consummation of the Transaction is
conditioned upon, among other things, (i) receipt of the Tax Ruling, (ii) the
completion of at least $17.4 million of long-term financing by ECI or ATN-VI
to provide the funds needed by the Company to repurchase certain shares of
Company Common Stock owned by Mr. Prior and the Trust, and (iii) no material
adverse changes having occurred in the businesses to be conducted by either
New ATN or ECI after the Effective Date. There can be no assurance that such
conditions will be satisfied favorably to the Company or at all. Even if all
conditions are satisfied, Mr. Prior, Mr. Prosser and the Company Board may, if
they all agree, abandon, defer or modify the Transaction at any time prior to
the Effective Date. The Company Board will not, however, consent to any
changes in the terms of the Transaction after the Transaction is approved by
stockholders unless the Company Board determines that such changes would not
be materially adverse to the Company's stockholders.
Less Diversification. After the Effective Date, each of ECI and New ATN will
be a smaller and less diversified company than the Company is prior to the
Effective Date. The operations and business of the Guyana Telephone &
Telegraph Company Limited ("GT&T"), which will be retained by New ATN, and the
operations and businesses of ATN-VI and its subsidiaries, which will be
acquired by ECI, are each subject to a number of separate and distinct risk
factors. After the Effective Date, each of these separate risk factors will
have a greater potential for adverse impact on New ATN or ECI individually
than they currently have on the combined operations of the Company. See "--
Risks Relating to New ATN" and "--Risks Relating to ECI."
Potential Disruptions in Operations. The division of the staff and
operations of the Company between ECI and New ATN may result in some temporary
dislocations and inefficiencies in the business operations of New ATN and ECI,
and may also result in the duplication of certain personnel, administrative
and other expenses required for the operation of ECI and New ATN as
independent companies. There can be no assurance that such transition in the
management of the current businesses of the Company will not disrupt, at least
temporarily, the operations of these businesses. Nevertheless, the Company
Board believes that the separation of the businesses of the Company between
New ATN and ECI will also result in long-term operating efficiencies as a
result of eliminating the difficulties and disagreements which have adversely
affected the Company's operations in the past and allowing the management of
ECI and New ATN and their respective subsidiaries to focus on their respective
businesses.
Repurchase Price for Mr. Prior's Stock. As a part of the Transaction, the
Company will repurchase 416,998 shares of Company Common Stock owned by Mr.
Prior and 348,564 shares of Company Common Stock owned by the Trust at a
repurchase price of $22.7284 per share, or $17,400,000 in the aggregate. The
repurchase price was determined by arm's length negotiations between Mr. Prior
and Mr. Prosser. At , 1997, the closing market price for Company Common
Stock on the American Stock Exchange (the "AMEX") was $ per share. The
repurchase price is also likely to be significantly higher than the market
price of Company Common Stock on the Effective Date.
Potential Responsibility for Liabilities Not Expressly Assumed. The
Subscription Agreement, the Indemnity Agreement and the Tax Sharing and
Indemnification Agreement allocate among New ATN and ECI responsibility for
various debts, liabilities and obligations of the Company. It is possible that
a court would disregard this contractual allocation of debts, liabilities and
obligations among the parties and require either New ATN or ECI or their
respective subsidiaries to assume responsibility for obligations allocated to
another party, particularly if such other party were to refuse or be unable to
pay or perform any of its allocated obligations.
14
<PAGE>
Potential U.S. Federal Income Tax Liabilities. Consummation of the
Transaction is conditioned, among other things, on receipt of the Tax Ruling,
a ruling letter from the Internal Revenue Service ("IRS") to the effect that
the Company's transfer of various of the assets and liabilities to ECI and the
distribution of ECI Common Stock to holders of Company Common Stock and Class
A Common Stock will be tax free for U.S. federal income tax purposes to the
Company and ECI and to such holders. Such a ruling, while generally binding
upon the IRS, is based upon certain facts and representations contained in the
Company's request for the Tax Ruling. If such facts or representations were to
be incomplete or untrue in any material respect, or if the facts upon which
the Tax Ruling was based are materially different from the facts at the time
of the Transaction, the IRS could modify or revoke its ruling retroactively.
Each of Mr. Prior, Mr. Prosser, New ATN and ECI has agreed to certain
restrictions on his or its future actions, including certain mergers or
acquisitions involving New ATN or ECI, certain stock issuances or redemptions
by New ATN or ECI, and discontinuances or dispositions of any of New ATN's or
ECI's businesses, which might jeopardize the tax-free treatment of the
Transaction for U.S. federal income tax purposes. See the discussion of the
Tax Sharing and Indemnification Agreement under "The Transaction--
Documentation for the Transaction."
If the distribution of ECI Common Stock were not to qualify as a tax free
distribution under Section 355 of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company would recognize taxable gain for U.S.
federal income tax purposes on the difference between the fair market value of
the ECI Common Stock distributed and the Company's adjusted tax basis in such
stock. Furthermore, if the distribution of ECI Common Stock were not to
qualify as a tax-free distribution under Section 355 of the Code, each holder
of Company Common Stock who received shares of ECI Common Stock in the
Transaction would be treated as if such holder received a taxable distribution
in an amount equal to the fair market value of the ECI Common Stock received,
which would result in (i) a dividend to the extent of such holder's pro rata
share of the Company's earnings and profits for 1997, which would include any
gain recognized by the Company on the distribution (the Company did not have
any accumulated earnings and profits as of the beginning of 1997); (ii) a
reduction in such stockholder's tax basis in Company Common Stock to the
extent that the amount received exceeded the amount referenced in clause (i);
and then (iii) gain from the sale or exchange of Company Common Stock to the
extent the amount received exceeded the sum of the amounts referenced in
clauses (i) and (ii). The result for Mr. Prosser would be a taxable capital
gain to the extent the fair market value of the ECI Common Stock received by
him exceeded his tax basis in his Class A Common Stock exchanged therefor. See
"The Transaction--Certain U.S. Federal Income Tax Consequences."
Uncertainty Regarding Trading Prices of and Markets for Stock Following the
Transaction. It is a condition to consummation of the Transaction that the
Common Stock of New ATN remain listed on the AMEX and that the ECI Common
Stock be listed on the AMEX. However, there is currently no public market for
the ECI Common Stock, and the Company Common Stock currently represents an
investment in a larger and more diversified company than New ATN will be
immediately after the Effective Date. ECI and New ATN will each have a smaller
number of shares outstanding and a smaller market capitalization than the
Company currently has. There can be no assurance that a public trading market
will continue for New ATN Common Stock or will develop for ECI Common Stock
or, assuming such public trading markets develop, as to the prices at which
New ATN Common Stock or ECI Common Stock will trade after the Effective Date.
Upon completion of the Transaction, the market prices of ECI Common Stock and
New ATN Common Stock may be influenced by many factors, including the depth
and liquidity of the market for each of these stocks, investor perceptions of
ECI and of New ATN and general economic and other conditions. There also can
be no assurance as to whether the combined market value after the Effective
Date of one share of ECI Common Stock and 0.4 of a share of New ATN Common
Stock will be less than, equal to or greater than the market value of one
share of Company Common Stock prior to the Effective Date. Until shares of ECI
Common Stock and New ATN Common Stock are fully distributed and an orderly
market develops, the prices at which trading in such shares occurs may
fluctuate significantly.
15
<PAGE>
RISKS RELATING TO NEW ATN
Sole Dependence on GT&T. Following the Effective Date, New ATN will continue
to own 80% of the outstanding capital stock of GT&T, and GT&T will be New
ATN's only operating subsidiary and the only source of New ATN's revenues and
income.
Regulatory Risks. Many aspects of GT&T's business and operations are subject
to regulation by the Guyana Public Utilities Commission (the "PUC"). Since
GT&T's commencement of operations as a subsidiary of the Company in 1991, GT&T
has had delays and difficulties in obtaining from the PUC the rate increases
that GT&T believed it was entitled to receive under applicable Guyana law. The
PUC has also issued orders prohibiting GT&T from paying advisory fees and
intercompany debt to the Company, and there are currently pending before the
Guyana courts proceedings with respect to these matters. There is also pending
an appeal by the PUC from a court order invalidating a PUC rate decrease
order.
The PUC is currently holding hearings, with the next hearing scheduled for
November 10, 1997, on a complaint by the Guyana government with regard to the
failure of GT&T to complete an expansion plan which was established in
connection with the commencement of GT&T's operations as a subsidiary of the
Company in January 1991. These proceedings could result in monetary penalties
to GT&T, cancellation of its license as the sole telecommunications carrier in
Guyana or other action by the PUC or the government of Guyana which could have
a material adverse effect on GT&T's business and prospects. There can be no
assurance that any of these actions will be resolved favorably to the Company.
See "Business and Properties of New ATN--Regulation." It is possible that, if
the Company ceased doing business within a short period of time after the
consummation of the Transaction as a result of a termination of the License,
the IRS might revoke the Tax Rule retroactively, with the result that the
distribution of ECI Common Stock might not be tax free for U.S. federal income
tax purposes to the Company and the holders of Company Stock and Class A
Common Stock. See "The Transaction--Certain U.S. Federal Income Tax
Consequences."
In August 1997, the United States FCC adopted a future mandatory settlement
rate benchmark for countries, including Guyana, which is significantly less
than the current settlement rate, and the FCC stated that it expects U.S.
licensed carriers to negotiate annual reductions in rates. Any significant
reduction in the international accounting rate for U.S.--Guyana traffic could
have a significant adverse impact on GT&T's earnings. See "Business and
Properties of New ATN--Regulation--FCC Matters".
Political Risks. The Company's presence in Guyana exposes it to potential
economic and political risks. Since 1985, Guyana has been making the
transition to a market economy with private industry from a socialist system
with nationalized industry which was in effect since the mid-1970s. Although
the country is rich in natural resources, it has had a low per-capita gross
national product and substantial unemployment. Guyana was governed from 1968
until 1992 by a single political party, the PNC. It was under this party that
industry was nationalized in the mid-1970s and that the basic steps to change
to a market economy were made between 1985 and 1992. One of the most
significant of these steps was the transfer of the operations of the country's
monopoly telephone company from government ownership to GT&T in January 1991.
In October 1992, elections were held in Guyana and a new government,
consisting of a coalition of the PPC and Civic parties and headed by Dr.
Cheddi Jagan, came to power. That government has been less active than the
previous government in seeking to privatize government-owned businesses and to
encourage foreign private investment. Dr. Jagan died in March, 1997. He was
succeeded as President by Mr. Samuel Hinds, the Prime Minister and the head of
the Civic party (which is by far the smaller of the two parties in the
government coalition), and Mrs. Janet Jagan, Dr. Jagan's widow, became Prime
Minister. Under the Guyana constitution, new elections must be held by the end
of 1997.
When the Company made its initial investment in Guyana in 1991, the Company
obtained political risk insurance for its investment from the Overseas Private
Investment Corporation ("OPIC"), an agency of the U.S. government. While OPIC
has never, to the Company's knowledge, formally announced that it has
suspended writing political risk insurance for U.S. investments in Guyana, it
is the Company's understanding that OPIC
16
<PAGE>
ceased providing such insurance around the beginning of 1993 because of its
concern about developments between the Guyana government and two U.S.
companies which had been insured by OPIC. The Company's difficulties in
obtaining rate increases from the PUC was one of OPIC's concerns.
Separately, in December 1996, OPIC canceled the Company's political risk
insurance because of OPIC's objections to GT&T's provision of
telecommunications services to international audiotext providers, and the
Company was able to obtain other political risk insurance with respect to its
investment in GT&T in the private insurance market at substantially higher
rates than the Company had received from OPIC. These insurance policies cover
only specified risks and contain a number of limitations and exclusions. The
aggregate insurance coverage is significantly less than the fair market value
of the Company's investment in GT&T and does not insure against loss of future
revenues or profits. See "Business and Properties of New ATN--Political Risk
Insurance."
Audiotext Traffic Risks. A substantial portion of New ATN's revenues have
been derived from GT&T's provision of telecommunication services to
international audiotext providers. GT&T is one of many companies around the
world which provides such services. The business is highly competitive, and
GT&T's revenues and profits from this traffic have declined substantially in
1997. GT&T's contracts with audiotext providers are all terminable on short
notice, and such providers can quickly shift their traffic to another foreign
telecommunications carrier that offers higher compensation or better service.
A substantial portion of GT&T's audiotext business comes from one service
bureau which acts as an intermediary with many other audiotext providers.
GT&T's profit margins for these services have been declining and may decline
further as a result of competition from other foreign carriers, regulatory
pressures from the Federal Communications Commission ("FCC") to reduce the
rates paid by U.S. carriers to GT&T for the portion of this traffic that
originates in the United States, pressure from foreign carriers for receiving
carriers such as GT&T to bear a portion of the relatively high risk of non-
collection for audiotext calls which have heretofore been borne by the sending
carriers, activities of one foreign carrier in mislabeling the origin of
certain traffic, and the strength of the U.S. dollar against various foreign
currencies.
A substantial portion of the audiotext traffic is sexual in nature. As a
result, GT&T has from time to time been subject to criticism and pressure from
governmental and other sources in Guyana to limit or discontinue carrying such
traffic. See "Business and Properties of New ATN--International Traffic."
Currency Risks. From February 1991 until early 1994, the Guyana dollar
remained relatively stable at the rate of approximately 125 to the U.S.
dollar. In 1994, the Guyana dollar declined in value to approximately 142 to
the U.S. dollar, and it has remained relatively stable at approximately that
rate since 1994. Although the majority of GT&T revenues and expenditures are
transacted in U.S. dollars or other hard currencies, GT&T's results of
operations nevertheless could be adversely affected by a devaluation of the
Guyana dollar unless and until GT&T obtained regulatory permission to adjust
its rates to local subscribers for such devaluation. Following a significant
devaluation of the Guyana dollar in January 1991, GT&T encountered substantial
regulatory delays in obtaining permission to adjust its rates. See "Business
and Properties of New ATN--Regulation--PUC Law and Telecommunications Law."
The Company has not in the past, and has no plans for the future, to hedge
against this currency risk.
Tax Issues. Since March 1997, the government of Guyana has levied a
substantial tax assessment against GT&T and initiated an audit with an advance
public announcement that the audit could result in an assessment against GT&T
of as much as $40 million in back taxes. While both of these actions have been
stayed pending the determination of applications made by GT&T to the Guyana
High Court, no assurance can be given as to the ultimate outcome of these
issues. See "Business and Properties of New ATN--Taxation--Guyana."
Capital Resources. If and when New ATN settles outstanding issues with the
Guyana government and the PUC with regard to GT&T's expansion plan and its
rates for service, GT&T may require substantial external financing to enable
GT&T to further expand its telecommunications facilities. There can be no
assurance that New ATN or GT&T will be able to obtain any such financing.
17
<PAGE>
Control by a Single Stockholder. After the Effective Date, Cornelius B.
Prior, Jr. will own approximately 57% of the New ATN Common Stock then
outstanding. As a result, he will have the power to significantly control the
affairs of New ATN, including to amend New ATN's Certificate of Incorporation,
to elect all of its directors, to effect fundamental corporate transactions
such as mergers, acquisitions, asset sales and the sale of New ATN and
otherwise direct New ATN's business and affairs without the approval of any
other stockholder.
Future Acquisitions. It is the intention of Mr. Prior, as the controlling
stockholder of New ATN, after the Effective Date to endeavor to expand New
ATN's operations through the acquisition of other telecommunications
businesses, primarily in the Caribbean region. New ATN cannot predict whether
it will be successful in pursuing such acquisition opportunities or what the
consequences of any such acquisition would be. The evaluation and negotiation
of such business acquisitions may involve significant expenditures by New ATN.
There can be no assurance that New ATN will be able to acquire or successfully
integrate any such businesses, and acquisitions that are consummated may
involve the incurrence of significant amounts of debt by New ATN and/or the
dilution of existing stockholders' interests in New ATN through the issuance
of additional shares of New ATN capital stock. In addition, pursuant to the
terms of the Tax Sharing Agreement, each of Mr. Prior and New ATN have agreed
to certain restrictions on his or its future actions which may limit the
ability of New ATN to pursue certain future acquisitions. See "The
Transaction--Certain U.S. Federal Income Tax Consequences--Disqualifying
Acquisitions."
RISKS RELATING TO ECI
Sole Dependence on Virgin Islands Operations. Following the Effective Date,
ECI will own all of the outstanding capital stock of ATN-VI, which in turn
will own all of the outstanding capital stock of the Virgin Islands Telephone
Corporation ("Vitelco") and 90% of the outstanding capital stock of Vitelcom
Cellular, Inc. ("VitelCellular") and will continue to conduct directly the
business currently conducted by Vitelcom, Inc. ("Vitelcom"). These companies,
which currently conduct all of the Company's operations in the Virgin Islands,
will be ECI's only operating subsidiaries.
Regulatory Risks. Vitelco's local telephone operations, including the
services offered and the rates for these services, are subject to the
jurisdiction of the U.S. Virgin Islands Public Service Commission (the "PSC").
Since 1987 when the Company acquired Vitelco, each time the PSC has dealt with
Vitelco's rates for local service, rates have been reduced as a result of
settlement agreements between Vitelco and PSC. The latest agreement provided
that Vitelco's local rates would remain unchanged until January 1, 1995 at the
earliest, and that either Vitelco or the PSC could initiate proceedings to
change local rates with effect after that date. See "Business and Properties
of ECI--Regulation."
In May 1997, Vitelco received a five year rebate of 90% of its Virgin
Islands income taxes and 100% of its Virgin Islands gross receipts, excise and
property taxes from the Virgin Islands Industrial Development Commission to
assist Vitelco in recovering these Hurricane-related costs without a rate
increase. On October 9, 1997 the Virgin Islands' Public Service Commission
instituted a proceeding to determine whether Vitelco's rates were just and
reasonable in light of this tax rebate. There can be no assurance as to the
outcome of this proceeding.
The Telecommunications Act of 1996 has eliminated Vitelco's legally
protected monopoly as the sole provider of wired local telephone service in
the U.S. Virgin Islands. There can be no assurance that Vitelco will
successfully compete in a more open market. The 1996 Act also requires local
exchange carriers such as Vitelco to provide various services to competitive
carriers for compensation to be fixed by the local public service commission.
There can be no assurance that Vitelco will receive adequate compensation for
providing these services. See "Business and Properties of ECI--Competition."
Wind Storm Risks. Although the U.S. Virgin Islands are in an area where
hurricanes frequently occur, from 1928 until 1989 they escaped any substantial
hurricane damage. Vitelco's outside plant suffered substantial damage in
September 1989 from Hurricane Hugo, and again in September 1995 from Hurricane
Marilyn. Capital
18
<PAGE>
expenditures by Vitelco to repair and upgrade its facilities following these
two hurricanes amounted to approximately $60 million following Hurricane Hugo
and approximately $41 million following Hurricane Marilyn. The Company
recently obtained insurance coverage for damage caused by windstorm to its
outside plant in the amount of $30 million per storm and $55 million in the
aggregate.
Control by a Single Stockholder. After the Effective Date, Jeffrey J.
Prosser will own approximately 52% of the ECI Common Stock then outstanding.
As a result, he will have the power to significantly control the affairs of
New ATN, including to amend ECI's Certificate of Incorporation, to elect all
of its directors, to effect fundamental corporate transaction, such as
mergers, acquisitions, asset sales and the sale of ECI and otherwise direct
ECI's business and affairs without the approval of any other stockholder.
Future Acquisitions. It is the intention of Mr. Prosser, as the controlling
stockholder of ECI, after the Effective Date to endeavor to expand ECI's
operations through the acquisition of other businesses. ECI cannot predict
whether it will be successful in pursuing such acquisition opportunities or
what the consequences of any such acquisition would be. The evaluation and
negotiation of such business acquisitions may involve significant expenditures
by ECI. There can be no assurance that ECI will be able to acquire or
successfully integrate any such businesses, and acquisitions that are
consummated may involve the incurrence of significant amounts of debt by ECI
and/or the dilution of existing stockholders' interests in ECI through the
issuance of additional shares of ECI capital stock. No assurances can be given
that any such acquisitions will be consummated or that, if completed, they
will be successful. Furthermore, there can be no assurance that ECI's
management will be able to manage effectively any resulting business or that
any acquisition will benefit ECI. Depending upon the nature, size and timing
of acquisitions, ECI may be required to raise financing. There can be no
assurance that the Credit Facility, or any other loan agreements to which ECI
may become a party will permit such additional financing or that such
additional financing will be available to ECI on terms acceptable to its
management or at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of ECI--Liquidity and Capital Resources."
In addition, pursuant to the terms of the Tax Sharing Agreement, each of Mr.
Prosser and ECI have agreed to certain restrictions on his or its future
actions which may limit the ability of ECI to pursue certain future
acquisitions. See "The Transaction--Certain U.S. Federal Income Tax
Consequences--Disqualifying Acquisitions."
19
<PAGE>
THE SPECIAL MEETING
INTRODUCTION
This Proxy Statement-Prospectus is being furnished to the stockholders of
Atlantic Tele-Network, Inc. in connection with the solicitation of proxies by
the Company Board from holders of record of the Company's outstanding shares
of Company Common Stock, as of the close of business on , 1997 (the
"Record Date") for use at the Special Meeting of Stockholders of the Company
(the "Special Meeting") to be held on , 1997 at the time and place
specified in the accompanying Notice of Special Meeting of Stockholders, or
any adjournment or postponement thereof. This Proxy Statement-Prospectus is
first being mailed to the Company stockholders on or about , 1997.
MATTERS TO BE CONSIDERED
The purpose of the Special Meeting is to consider and vote upon the proposed
Transaction including: (a) the approval and adoption of the Subscription
Agreement, as a result of which (i) the Company's business and operations in
the Virgin Islands will be owned and operated by ECI, and (ii) the Company's
business and operations in Guyana will continue to be owned and operated by
the Company; (b) the approval and adoption of the Repurchase and
Recapitalization Agreement pursuant to which the Company will repurchase
418,998 shares of Company Common Stock owned by Mr. Prior and 348,564 shares
of Company Common Stock owned by the Trust at a repurchase price of $22.7284
per share, Mr. Prior will exchange all of his remaining 2,927,038 shares of
Company Common Stock for a like number of shares of a new class of common
stock of the Company to be designated Class B Common Stock and Mr. Prosser
will exchange all of his 3,325,000 shares of Company Common Stock for a like
number of shares of a new class of common stock of the Company to be
designated Class A Common Stock; (c) the approval and adoption of the Merger
Agreement pursuant to which (i) Mergerco will be merged with and into the
Company, (ii) each share of Company Common Stock (but not the newly created
Class A Common Stock and Class B Common Stock to be issued prior to the
Merger) will be converted into the right to receive four-tenths (0.4) of a
share of Company Common Stock and one share of ECI Common Stock, (iii) the
outstanding shares of Class A Common Stock of the Company will be converted
into the right to receive in the aggregate 5,704,231 shares of ECI Common
Stock and (iv) the outstanding shares of Class B Common Stock of the Company
will be converted into the right to receive in the aggregate 2,807,040 shares
of Company Common Stock; (d) the approval of the Charter Amendment which will
create and authorize the Company Class A Common Stock and the Company Class B
Common Stock to be issued prior to the Merger to Mr. Prosser and Mr. Prior
pursuant to the Recapitalization Agreement; (e) the approval of (i) the Non-
Competition Agreement, (ii) the Indemnity Agreement, (iii) the Technical
Assistance Agreement, (iv) the Tax Sharing and Indemnification Agreement and
(v) the Employee Benefits Agreement; and (f) the approval of the transactions
contemplated by the foregoing agreements and the Charter Amendment.
The purpose of the Special Meeting also is to transact such other business,
including, without limitation, the adjournment of the Special Meeting
(including an adjournment of the Special Meeting to allow for the fulfillment
of certain conditions precedent to the Transaction) as may properly come
before the Special Meeting or any adjournments or postponements thereof.
The Subscription Agreement, Recapitalization Agreement, Merger Agreement,
Charter Amendment, Non-Competition Agreement, Indemnity Agreement, Technical
Assistance Agreement, Tax Sharing and Indemnification Agreement and Employee
Benefits Agreement will all be voted upon together as part of the Transaction,
and none of these agreements will be effected unless the Transaction as a
whole is approved at the Special Meeting.
Each copy of this Proxy Statement-Prospectus mailed to the Company
stockholders is accompanied by a form of proxy for use at the Special Meeting.
This Proxy Statement-Prospectus is also being furnished to the Company
stockholders as a prospectus of ECI with respect to the shares of ECI Common
Stock issuable to the Company stockholders upon consummation of the Merger.
20
<PAGE>
COMPANY BOARD RECOMMENDATION
THE COMPANY BOARD (WITH MR. PROSSER AND MR. PRIOR ABSTAINING) RECOMMENDS
THAT THE COMPANY STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
TRANSACTION.
VOTING RIGHTS AND PROXY INFORMATION
Only holders of record of shares of the Company Common Stock as of the close
of business on , 1997 (the "Record Date") will be entitled to notice of
and to vote at the Special Meeting. On the Record Date 12,272,500 shares of
the Company Common Stock were outstanding. Each share of Company Common Stock
entitles the holder thereof as of the Record Date to one vote on each matter
to be considered at the Special Meeting. The holders of at least a majority of
the outstanding shares of the Company Common Stock as of the Record Date must
be present in person or represented by proxy at the Special Meeting in order
to establish a quorum for the consideration of the Transaction or for the
transaction of any additional business to properly come before the Special
Meeting (except as may otherwise be provided by applicable law, the
Certificate of Incorporation or the Company's By-laws) at the Special Meeting.
Approval and adoption of the Transaction by the Company stockholders at the
Special Meeting requires the affirmative vote of holders of a majority of the
outstanding shares of the Company Common Stock as of the Record Date. Any
other business to properly come before the Special Meeting (except as
otherwise provided by applicable law, the Certificate of Incorporation or the
Company's By-laws) will require the affirmative vote of holders of a majority
of the shares of the Company Common Stock present in person or by proxy at the
Special Meeting. Abstentions will be counted for purposes of determining the
presence or absence of a quorum at the Special Meeting. Broker non-votes
(which occur when brokers holding shares as nominees for their customers do
not have authority to vote on a matter absent specific instructions from the
beneficial owners of the shares) will be counted for purposes of determining
the presence or absence of a quorum at the Special Meeting. Because approval
of the Transaction requires the affirmative vote of the majority of the
outstanding shares of the Company Common Stock, abstentions, broker non-votes
and failures to vote in person or by proxy at the Special Meeting will have
the effect of votes against the Transaction. With respect to all other
business to properly come before the Special Meeting, abstentions, broker non-
votes and failures to vote shares represented and entitled to vote will have
the effect of votes cast against.
Cornelius B. Prior, Jr. and Jeffrey J. Prosser, holders of voting authority
over 3,692,600 and 3,011,250 shares of the Company Common Stock, respectively,
as of the Record Date, have agreed to vote all such shares in favor of the
Transaction. Because such shares will represent more than a majority of the
outstanding shares of the Company Common Stock as of the Record Date, it thus
is expected that the requisite vote as described in the immediately preceding
paragraph will be effectively secured.
Stockholders of record as of the Record Date are entitled to cast their
votes, in person or by properly executed proxy, at the Special Meeting. All
shares of the Company Stock represented at the Special Meeting by properly
executed proxies received prior to the Special Meeting, unless properly
revoked, will be voted at the Special Meeting in accordance with the
instructions indicated on such proxies. IF A PROXY IS SIGNED AND RETURNED BY A
HOLDER OF THE COMPANY STOCK WITHOUT INDICATING ANY VOTING INSTRUCTIONS, THE
SHARES OF THE COMPANY STOCK REPRESENTED BY SUCH PROXY WILL BE VOTED FOR
APPROVAL AND ADOPTION OF THE TRANSACTION. Any proxy given by a Company
stockholder pursuant to this solicitation may be revoked by the person giving
it at any time before the proxy is voted by (a) filing with the Secretary of
the Company, at or before the Special Meeting, a written notice of revocation
bearing a date later than the date of the proxy; (b) duly executing a
subsequent proxy relating to the same shares and delivering it to the
Secretary of the Company before the Special Meeting; or (c) attending the
Special Meeting and voting in person (although attendance at the Special
Meeting will not in and of itself constitute a revocation of a proxy).
The Company Board is not aware of any business to be acted upon at the
Special Meeting other than as described in this Proxy Statement-Prospectus.
If, however, other business is properly brought before the Special
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<PAGE>
Meeting, the persons appointed as proxies or their substitutes will have
discretion to vote or act thereon according to their best judgment and
applicable law unless the proxy indicates otherwise, except that no proxy that
directs the proxy holders to vote the shares represented thereby against, or
to abstain from voting on, the Transaction shall be voted in favor of any
adjournment or postponement of the Special Meeting.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
SOLICITATION OF PROXIES
In connection with the Special Meeting, proxies are being solicited by and
on behalf of the Company Board. In addition to solicitation by use of the
mails, proxies may be solicited by directors, officers and employees of the
Company in person, by telephone, telegram or other means of communication.
Such directors, officers and employees will not be specifically compensated
for such services but may be reimbursed for out-of-pocket expenses in
connection with such solicitation. Arrangements will be made with brokerage
houses, nominees, fiduciaries and custodians for forwarding of proxy
solicitation materials to beneficial owners of the Company Stock held of
record by such persons, and the Company may reimburse such nominees,
fiduciaries and custodians for their reasonable expenses incurred in
connection therewith.
All expenses of the solicitation of proxies from the Company stockholders in
connection with the Special Meeting will be borne by the Company. However, ECI
must reimburse the Company for 50% of all such expenses if the Transaction is
consummated. See "The Transaction--Expenses."
NO APPRAISAL RIGHTS
The stockholders of the Company will not be entitled to any appraisal rights
under Delaware law in connection with the Transaction and the Merger.
ADJOURNMENT OF THE SPECIAL MEETING
If the Special Meeting is adjourned to another time and place, notice of the
adjourned meeting will not be given if the time and place of the adjourned
meeting are announced at the Special Meeting. If the adjournment is for more
than 30 days, or if after the adjournment the Company Board fixes a new record
date for the adjourned meeting, a notice of the Special Meeting will be given
to each of the Company's stockholders of record entitled to vote at the
adjourned meeting.
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THE TRANSACTION
BACKGROUND AND REASONS FOR THE TRANSACTION
The Company Board has determined, for the reasons set forth below, that the
long-term prospects of the Company's businesses will be improved if the
Company is divided into two separate publicly-owned companies.
The Company's two principal stockholders and co-chief executive officers,
Mr. Prior and Mr. Prosser, organized the Company in 1987 to acquire the Virgin
Islands Telephone Corporation ("Vitelco"). Under the joint leadership of Mr.
Prior and Mr. Prosser, the Company completed that acquisition, refinanced its
acquisition debt, substantially rebuilt Vitelco's telephone network following
devastating destruction from Hurricane Hugo in September 1989, acquired an 80%
equity interest in GT&T in January 1991 and successfully completed an initial
public offering of the Company Common Stock in November 1991.
Since early 1993, material disagreements have arisen between Mr. Prior and
Mr. Prosser pertaining to the management and direction of the Company and its
businesses. These disagreements related to many aspects of the Company's
business, including: (i) the merits of various acquisition opportunities, (ii)
the level of expenditures for acquisition exploratory efforts, (iii) the
timing and structuring of long term financing for the Company, (iv) strategy
and tactics in dealing with regulatory issues in the Virgin Islands and Guyana
and before the FCC, (v) strategy and tactics in dealing with litigation
involving the Company, (vi) whether and how to sell or terminate the Company's
former business of providing cellular telephone services to ships in coastal
waters, (vii) whether and how to sell or terminate the Company's former long
distance telephone business in the Virgin Islands, (viii) how to sell or
terminate the Company's former long distance telephone business in Puerto
Rico, and (ix) whether to enter the cable television business or the business
of "wireless cable television" distribution in the Virgin Islands, and (x) a
number of executive personnel issues.
These disagreements created a management deadlock which resulted in
extensive litigation between Mr. Prior and Mr. Prosser from June 1995 to
February 1996 and has significantly impaired the Company's ability to function
other than in the ordinary course of business. The management deadlock has
hindered strategic and corporate planning and hiring of employees relating to
the Company's businesses and has contributed to the Company's failure to
complete any additional significant acquisitions or to undertake any other
major initiatives out of the ordinary course of business (other than Vitelco's
making major repairs to its telecommunications network following damage from a
hurricane in September 1995). Since October 1993, Mr. Prosser, Mr. Prior and
the Company Board have devoted considerable time and effort to resolving these
differences, with limited success.
In early February 1996, Mr. Prior and Mr. Prosser entered into a Global
Settlement Agreement and Release in which they agreed to terminate, settle
with prejudice and release all claims they had against each other and the
other parties to such litigation, without admitting any wrongdoing or
liability. In connection with this settlement, the Company hired two
nationally recognized investment banking firms, Prudential Securities
Incorporated and PaineWebber Incorporated, to find an acquirer for the
Company. After contacting 36 potential acquirers, it became apparent by the
latter part of 1996 that an acquirer for the Company as a whole or any
substantial part of the Company on economically attractive terms could not be
found. Shortly thereafter, on January 29, 1997, Mr. Prosser, Mr. Prior and the
Company Board approved a Principal Terms Agreement (the "Principal Terms
Agreement") for the Transaction, the consummation of which will result in two
separate public companies: ECI, which will own all of the Company's Virgin
Islands operations and will be controlled by Mr. Prosser; and New ATN which
will continue to own the Company's Guyana operations and will be controlled by
Mr. Prior.
The basic economic terms of the Transaction were established by arms-length
negotiation between Mr. Prosser and Mr. Prior. The major objective of these
negotiations was that as a result of the consummation of the Transaction: (i)
Mr. Prosser and Mr. Prior would not have any economic interest in the company
controlled by the other; (ii) the public stockholders of the Company would not
have any reduction in their economic interest in
23
<PAGE>
the Company's businesses as a result of the Transaction; and (iii) the agreed
value received or retained in the Transaction by each of Mr. Prosser, Mr.
Prior, and the public stockholders would be equal to the agreed value of their
current respective interests in the Company's businesses. In these
negotiations, Mr. Prosser and Mr. Prior recognized that the value of the
Company's businesses to be transferred to ECI in the Transaction would
significantly exceed the value of the businesses to be retained by New ATN,
and that immediately prior to the consummation of the transaction, the
outstanding shares of Company Common Stock would be held as follows:
<TABLE>
<S> <C>
Mr. Prior............................ 3,692,600 shares
Mr. Prosser.......................... 3,325,000 shares
Others............................... 5,254,900 shares
-----------------
TOTAL.............................. 12,272,500 shares
</TABLE>
The foregoing share ownership numbers include as shares owned by Mr. Prior and
Mr. Prosser, respectively, shares owned by the Trust and by Mr. Prosser's
children and certain additional shares as to which Mr. Prosser holds an option
to purchase.
By arm's length negotiation during late 1996 and January 1997, Mr. Prosser
and Mr. Prior reached agreement that the Company's Virgin Islands operations
had a value equivalent to $13.00 per share of Company Common Stock and that
the Company's Guyana operations had a value of $9.48 per share of Company
Common Stock. On this basis, the value of Mr. Prior's interest in the
Company's Guyana operations was approximately $31,500,000, the value of Mr.
Prior's interest in the Company's Virgin Islands operations was approximately
$48,000,000, and for Mr. Prior to receive securities in the Transaction
equivalent to the interest in the Virgin Islands operations which he then
owned, he would need to receive $16.5 million in value of securities in the
company (ECI) which would own the Company's Virgin Islands operations. At
$13.00 per share, this would have amounted to approximately 1,269,000 shares
or slightly in excess of 10% of the ECI Common Stock to be outstanding after
consummation of the Transaction.
On January 29, 1997, the Company Board, including Mr. Prior and Mr. Prosser,
unanimously approved the Principal Terms Agreement, establishing basic terms
for the Transaction. The Principal Terms Agreement provided that the Company
would transfer to a newly-organized corporation substantially the same assets
and liabilities as are to be transferred to ECI in the Transaction and that
the stock of this newly-organized corporation would be distributed to the
stockholders in such fashion that Mr. Prior would own or control approximately
60% of the outstanding voting securities of the Company and Mr. Prosser would
own or control approximately 60% of the outstanding voting securities of the
newly-organized corporation. Under the Principal Terms Agreement, Mr. Prosser
or the newly organized corporation was to purchase from Mr. Prior for
$16,500,000 the approximately 1,269,000 share interest in the newly-organized
corporation which Mr. Prior would otherwise have been entitled to receive in
the Transaction. The Principal Terms Agreement also specifically contemplated
that the purchase by Mr. Prosser of Mr. Prior's excess shares would be treated
as long term capital gain for income tax purposes. The Principal Terms
Agreement contained summary provisions, substantially the same in purpose and
intent as the Subscription Agreement and Exhibits thereto attached to this
Proxy Statement--Prospectus, with regard to closing adjustments, the
allocation of employees between the Company and the newly-organized
corporation, responsibility for unknown or contingent liabilities, non-
competition by Mr. Prosser with the Company in the audiotext business, use of
the name "Atlantic Tele-Network, Inc." and a prohibition on Mr. Prior from
acquiring more than 5% of the outstanding voting securities of ECI and on Mr.
Prosser from acquiring more than 5% of the outstanding voting securities of
the Company. Although, the Principal Terms Agreement expired by its terms on
March 31, 1997, Mr. Prosser and Mr. Prior continued thereafter to negotiate
the agreements for the Transaction.
Subsequent to the execution of the Principal Terms Agreement, Mr. Prosser
determined that ECI, rather than he personally, should obtain the financing
for the funds needed to purchase Mr. Prior's excess interest in the Company as
contemplated by the Principal Terms Agreement, and there was a concern that a
sale by Mr. Prior of his interest to Mr. Prosser would be inconsistent with
the transaction qualifying as a tax-free spin-off for
24
<PAGE>
U.S. federal income tax purposes. Accordingly, three refinements were made to
the terms of the Transaction as established by the Principal Terms Agreement:
first, the Company, with funds borrowed by ECI or its subsidiary ATN-VI, is to
repurchase the excess interest which Mr. Prior currently holds in the Company,
and this repurchase will be taxable to Mr. Prior as ordinary income to the
extent of the earnings and profits of the Company for 1997, rather than being
taxable entirely as long-term capital gain (this change appears to be
consistent with the transaction qualifying as a tax-free spin-off); second,
the price to be paid to Mr. Prior was increased to $17.4 million to compensate
for the additional income taxes estimated to be payable by Mr. Prior in
respect of this repurchase (to accomplish the price increase, the agreed value
of the Company's Virgin Islands operations was increased from $13.00 to
$13.2484 per share of the Company Common Stock); and third, the number of
shares in ECI to be held by Mr. Prosser immediately after the transaction was
reduced from 7,017,600 (58%) to 5,704,231 (52%) to reflect the fact that ECI,
rather than Mr. Prosser personally, would be financing the Company's
acquisition of Mr. Prior's excess shares. The economic effect on ECI and its
stockholders of this reduction in the number of ECI shares is the same as if
ECI had issued one share for each outstanding share of the Company and then
repurchased 1,313,369 shares of ECI Common Stock at $13.2484 per share. The
repurchase price to be paid to Mr. Prior and the Trust is $22.7284 per share
of Company Common Stock (i.e. the sum of the agreed values of $9.48 and
$13.2484 for the Company's Guyana and Virgin Islands operations). These values
were established by arms-length bargaining between Mr. Prosser and Mr. Prior.
In negotiating and agreeing on these values, Mr. Prosser and Mr. Prior each
relied on his own knowledge of the business and affairs of the Company. They
each took note of the fact that the shares of the Company common stock traded
at prices in excess of $22.7284 per share on many days in 1996, during the
period when the Company was seeking to find an acquiror. No detailed financial
analysis of the values of the Company's Guyana or Virgin Islands operations
was prepared by Mr. Prior or Mr. Prosser in connection with their negotiations
of these values, and neither of them was assisted in these negotiations by any
professional financial advisor. The agreed values established by Mr. Prosser
and Mr. Prior as outlined above are indicative only of the intrinsic values
each of them place on the assets and businesses of the Company. They are not
necessarily indicative of what the market price of Company Common Stock, New
ATN Common Stock or ECI Common Stock will be immediately prior to the
Transaction, immediately after the Transaction or at any other time. The
agreed value of $13.2484 per share of Company Common Stock for the Company's
Virgin Islands operations is within the range of implied per share values
($7.12 to $14.92) determined by Prudential Securities in arriving at the
Opinion discussed under "Opinion of Investment Banker" below, while the agreed
value of $9.48 per share of Company Common Stock for the Company's Guyana
operations is significantly higher than the implied per share value determined
by Prudential Securities for the New ATN Common Stock (this valuation per
share of Company Common Stock amounts to $2.69 to $4.69 after multiplying
Prudential Securities' derived implied per share valuation of the New ATN
Common Stock of $6.72 to $11.73 by 0.4 to reflect the 60% reduction in the
number of outstanding shares of the Company as a result of the Transaction).
RECOMMENDATION OF THE COMPANY BOARD
At its July 7, 1997 meeting, the Company Board unanimously (with Mr. Prosser
and Mr. Prior abstaining) approved the Transaction and found that the
Transaction, considered as a whole, was fair to the public stockholders of the
Company (i.e., all stockholders of the Company other than Mr. Prior, the Trust
and Mr. Prosser and his family) and recommended that stockholders vote for the
approval of the Transaction and the various documents needed to consummate the
Transaction. In making their determination and recommendation, the members of
the Company Board other than Mr. Prosser and Mr. Prior (the "disinterested
directors"), took into account (i) the opinion of Prudential Securities
discussed below (see "Opinion of Investment Banker"), (ii) the comparable
company analysis employed by Prudential Securities to establish an implied
valuation range for the ECI Common Stock and the discounted cash flow analysis
employed by Prudential Securities to establish an implied valuation for the
ECI Common Stock and for the New ATN Common Stock, as discussed below under
"Opinion of Investment Banker," (iii) the then current market value of the
Company Common Stock, and (iv) the prices at which the Company Common Stock
traded in the past. The disinterested directors, also took into account (i)
the legal, political and regulatory problems facing GT&T, (ii) the resources
which New ATN would have standing alone to fund regulatory and court
proceedings necessary to protect its interests, (iii) the fact that
25
<PAGE>
the Transaction was structured so that public shareholders would increase
their percentage interests in ECI and would retain their current percentage in
New ATN, and (iv) the fact that the Transaction would be consummated only if a
favorable Tax Ruling was obtained. In considering the Transaction, the
disinterested directors did not assign relative weights or priorities to the
various factors considered by them.
OPINION OF INVESTMENT BANKER
On July 7, 1997, Prudential Securities Incorporated ("Prudential
Securities") delivered an opinion (the "Opinion") to the Company Board that,
as of such date, the basic economic terms of the transaction as provided for
in the Subscription Agreement, the Recapitalization Agreement and the Merger
Agreement, were fair from a financial point of view to the public stockholders
of the Company (i.e., all stockholders of the Company other than Mr. Prior,
the Trust, and Mr. Prosser and his family) (the "Public Stockholders").
Prudential Securities made a presentation of the financial analysis underlying
the Opinion at a meeting of the Company Board on July 7, 1997. This analysis,
as presented to the Company Board, is summarized below. All of the members of
the Company Board were present at the meeting (one via teleconference) and had
an opportunity to ask questions regarding the presentation and the Opinion At
one point, Mr. Prior, Mr. Prosser, and their respective counsel withdrew and
the remaining directors had an opportunity to ask questions regarding the
presentation and the Opinion and to discuss the economic terms of the
transaction, as provided for in the Subscription Agreement, the
Recapitalization Agreement and the Merger Agreement, in the absence of these
persons. Prudential Securities discussed with the Company Board the financial
data and other factors considered by Prudential Securities in conducting its
analysis, all of which are summarized below. On , 1997, Prudential
Securities confirmed its Opinion as of that date.
In requesting the Opinion, the Company Board did not give any special
instructions to Prudential Securities or impose any limitations upon the scope
of the investigation that Prudential Securities deemed necessary to enable it
to deliver the Opinion. A copy of the Opinion, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached to this Proxy Statement-Prospectus as Annex B and is incorporated
herein by reference. The summary of the Opinion set forth below is qualified
in its entirety by reference to the full text of the Opinion. The Public
Stockholders are urged to read the Opinion in its entirety.
THE OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE BASIC ECONOMIC TERMS OF
THE TRANSACTION, AS PROVIDED FOR IN THE SUBSCRIPTION AGREEMENT, THE
RECAPITALIZATION AGREEMENT AND THE MERGER AGREEMENT, TO THE PUBLIC
STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT
THE SPECIAL MEETING.
In conducting its analysis and arriving at the Opinion, Prudential
Securities reviewed such information and considered such financial data and
other factors as Prudential Securities deemed relevant under the
circumstances, including, among others, the following: (i) drafts, dated June
16, 1997, of the Subscription Agreement (excluding the schedules to the
Subscription Agreement), the Recapitalization Agreement, the Merger Agreement
and certain ancillary agreements and exhibits to the Subscription Agreement;
(ii) a draft dated June 27, 1997 of the Proxy Statement-Prospectus; (iii) a
copy of the Rural Telephone Finance Cooperative loan commitment letter, dated
April 14, 1997; (iv) certain publicly-available historical financial and
operating data of the Company, including, but not limited to, (a) the Annual
Reports on Form 10-K of the Company for the fiscal years ended December 31,
1994, 1995 and 1996, (b) the Quarterly Report on Form 10-Q of the Company for
the quarter ended March 31, 1997, (c) the Proxy Statement for the Annual
Meeting of the Company Stockholders held on April 30, 1997; (v) certain
information relating to New ATN and ECI, including projected income
statements, balance sheets and cash flow data for the fiscal years ending
December 31, 1997, 1998, 1999 and 2000 which were prepared by the management
of the Company; (vi) publicly available financial, operating, and stock market
data concerning certain companies engaged in businesses Prudential Securities
deemed comparable to ECI, or otherwise relevant to Prudential Securities'
inquiry; (vii) the historical stock prices and trading volumes, and current
trading multiplies of the Company Common Stock; and (viii) such other
financial studies,
26
<PAGE>
analyses, reviews and investigations that Prudential Securities deemed
appropriate. Prudential Securities assumed, with the Company's consent, that
the drafts of the Subscription Agreement, the Recapitalization Agreement and
the Merger Agreement which Prudential Securities reviewed would conform in all
material respects to those documents when in final form. In connection with
its confirmation of the Opinion on , 1997, Prudential Securities reviewed (i)
executed copies of the Subscription Agreement, the Recapitalization Agreement
and the Merger Agreement, and (ii) the forms of the Indemnity Agreement, the
Technical Assistance Agreement and the Tax Sharing and Indemnification
Agreement attached as Annex A to this Proxy Statement-Prospectus (which
agreements Prudential Securities assumed, with the Company's consent, would
conform in all material respects to those agreements when finally executed at
or prior to the Effective Date).
Prudential Securities met with the senior management of the Company to
discuss (i) the prospects for the respective businesses of New ATN and ECI,
(ii) their estimates of such businesses' future financial performance, (iii)
the financial impact of the transaction as provided for by the Subscription
Agreement, the Recapitalization Agreement and the Merger Agreement on the
respective companies and (iv) such other matters that Prudential Securities
deemed relevant.
In connection with its review and analysis and in arriving at the Opinion,
Prudential Securities assumed and relied upon the accuracy and completeness of
the financial and other information provided to it by the Company, and
Prudential Securities has not assumed any responsibility for the verification
of such information or any independent valuation or appraisal of any of the
assets or liabilities of New ATN or these to be transferred to or assumed by
ECI. With respect to certain projected financial data provided to Prudential
Securities by the Company for New ATN and for ECI, Prudential Securities has
assumed that such information (and the assumptions and bases therefor) has
been reasonably prepared and represents management's best currently available
estimate as to the future financial performance of New ATN and of ECI. The
Opinion is predicated on (i) the Company's transfer of certain of its assets
and liabilities to ECI qualifying as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) the distribution of ECI Common Stock to the holders of
the Company Common Stock being treated as tax-free for federal income tax
purposes to the Company under Section 355(c)(1) or 361(c)(1) of the Code and
to such holders under Section 355(a) of the Code. Further, the Opinion is
necessarily based on economic, financial and market conditions as they
existed, and can only be evaluated, as of the date of the Opinion.
The Opinion does not address nor should it be construed to address the
relative merits of the Transaction. In addition, the Opinion does not in any
manner address the prices at which the New ATN Common Stock or the ECI Common
Stock will trade following consummation of the Transaction.
In arriving at the Opinion, Prudential Securities performed a variety of
financial analyses, including those summarized herein. The summary set forth
below of the analyses presented to the Company Board at the July 7, 1997
meeting does not purport to be a complete description of the analyses
performed. The preparation of a fairness opinion is a complex process that
involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not necessarily
susceptible to partial analyses or summary description. Prudential Securities
believes that its analysis must be considered as a whole and that selecting
portions thereof or portions of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying the Opinion. Prudential Securities made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
the control of the Company, New ATN and ECI. Any estimates contained in
Prudential Securities' analyses are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable
than suggested by such analyses. Additionally, estimates of the values of
businesses and securities do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
Subject to the foregoing, the following is a summary of the material financial
analyses presented by Prudential Securities to the Company Board in connection
with the Opinion.
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<PAGE>
Comparable Company Analysis. A comparable company analysis was employed by
Prudential Securities to establish an implied per share valuation range for
the ECI Common Stock. Prudential Securities analyzed publicly-available
historical and projected financial results, including multiples of current
stock price to latest twelve months ("LTM") net income ("LTM Net Income"),
projected calendar year 1997 earnings per share ("1997 EPS") and projected
calendar year 1998 earnings per share ("1998 EPS"), enterprise value (defined
as current stock price multiplied by the number of shares outstanding plus net
indebtedness) to LTM earnings before interest and taxes ("LTM EBIT") and LTM
earnings before interest, taxes, depreciation and amortization ("LTM EBITDA")
of certain companies considered by Prudential Securities to be reasonably
similar to ECI. The companies analyzed included: Alltel Corporation, Aliant
Communications, Inc., Cincinnati Bell Telephone Company, Century Telephone
Enterprises, Inc., Frontier Corporation and Southern New England
Telecommunications Corporation (together, the "Comparable Companies"). All of
the trading multiples of the Comparable Companies were based on closing stock
prices on July 3, 1997 (the "July 3rd Closing Price") and all of the earnings
per share estimates of the Comparable Companies were published by First Call,
an on-line data service available to subscribers which compiles estimates
developed by research analysts. The estimates published by First Call were not
prepared in connection with the Transaction or at the request of Prudential
Securities. The Company provided the projected 1997 EPS and 1998 EPS estimates
of ECI.
The Comparable Companies were found to have a July 3rd Closing Price
estimated to be equal to 13.2x to 16.3x LTM Net Income, 12.6x to 21.6x 1997
EPS and 12.5x to 18.6x 1998 EPS, and an enterprise value estimated to be equal
to 7.6x to 10.9x LTM EBIT and 4.8x to 9.8x LTM EBITDA. Applying such multiples
to ECI's pro forma LTM Net Income ($6.8 million), 1997 EPS ($0.81), 1998 EPS
($0.96), pro forma LTM EBIT ($18.0 million) and pro forma LTM EBITDA ($33.6
million) resulted in an implied per share valuation of the ECI Common Stock of
$7.12 to $14.29.
None of the companies utilized in the above analysis for comparative
purposes is, of course, identical to ECI. Accordingly, a complete analysis of
the results of the foregoing calculations cannot be limited to a quantitative
review of such results and involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Comparable Companies and other factors that could affect the public trading
value of the Comparable Companies as well as that of ECI.
Discounted Cash Flow Analysis--ECI. A discounted cash flow analysis was
employed by Prudential Securities to establish an implied per share valuation
for the ECI Common Stock. Prudential Securities calculated the net present
value of ECI's projected four-year stream of unlevered free cash flows and
projected fiscal year 2000 terminal values, which in turn, were based on a
range of multiples of ECI's projected fiscal year 2000 earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The Company
provided the financial projections that Prudential Securities utilized in this
analysis. Prudential Securities applied discount rates ranging from 6.0% to
8.0% and multiples of fiscal year 2000 EBITDA ranging from 5.75x to 7.00x. The
discount rates utilized reflect ECI's pro forma cost of capital, and the
terminal EBITDA multiples reflect the range of trading multiples of the
Comparable Companies. Based on this analysis, Prudential Securities derived an
implied per share valuation of the ECI Common Stock of $9.86 to $14.92.
Discounted Cash Flow Analysis--New ATN. A discounted cash flow analysis was
employed by Prudential Securities to establish an implied per share valuation
for the New ATN Common Stock. Prudential Securities calculated the net present
value of New ATN's projected four year stream of unlevered free cash flows and
projected fiscal year 2000 terminal values, which in turn, were based on a
range of multiples of New ATN's projected fiscal year 2000 EBITDA. The Company
provided the financial projections that Prudential Securities utilized in this
analysis. Prudential Securities applied discount rates ranging from 20.0% to
30.0% and multiples of fiscal year 2000 EBITDA ranging from 2.50x to 3.50x.
The discount rates and terminal multiples reflect the declining profit margins
and volumes associated with audiotext and certain political and regulatory
risks. Prudential Securities adjusted for the 20% minority interest in Guyana
Telephone & Telegraph Company Limited. Prudential Securities derived an
implied per share valuation of the New ATN Common Stock of $6.72 to $11.73.
28
<PAGE>
Projected financial and other information concerning New ATN and ECI are not
necessarily indicative of future results. All projected financial information
is subject to numerous contingencies, many of which are beyond the control of
management of the Company, New ATN and ECI.
Stock Trading History and Current Trading Multiples. Prudential Securities
also analyzed the history of the trading prices and volume for the Company
Common Stock. Prudential Securities observed that between the Company's
initial public offering on November 14, 1991 and July 2, 1997, the Company
Common Stock traded in the range of $6.375 and $27.250 a share. Prudential
Securities also analyzed the trading multiples (as of July 2, 1997) of the
Company Common Stock. Prudential Securities analyzed that the Company was
trading (as of July 2, 1997) at 7.2x LTM earnings per share, 4.1x LTM EBITDA,
and 5.9x LTM EBIT.
The Company selected Prudential Securities to provide a fairness opinion
because it is a nationally recognized investment banking firm engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions and for other purposes, because it has substantial experience in
transactions similar to the Transaction and because it already had substantial
information about the Company as a result of its engagement by the Company in
1996 as described below. The engagement letter with Prudential Securities
provides that Prudential Securities will be paid an advisory fee equal to
$500,000. In addition, the engagement letter with Prudential Securities
provides that Prudential Securities will be reimbursed for its out-of-pocket
expenses and the Company, New ATN and ECI will indemnify Prudential Securities
and certain related persons against certain liabilities, including liabilities
under securities laws, arising out of the Transaction or its engagement. The
Company has also agreed to engage Prudential Securities for a fee of $50,000
to evaluate the relative values of certain assets of ATN-VI in connection with
the Company's application for the Tax Ruling. In 1996, the Company engaged
Prudential Securities as its financial advisor in connection with the
Company's exploration of strategic alternatives. In the ordinary course of
business, Prudential Securities may actively trade the shares of the Company
Common Stock for its own account and for the accounts of customers and
accordingly, may at any time hold a long or short position in such security.
DOCUMENTATION FOR THE TRANSACTION
The Transaction will be effected pursuant to the Subscription Agreement,
Recapitalization Agreement, Merger Agreement, Charter Amendment, Non-
Competition Agreement, Indemnity Agreement, Technical Assistance Agreement,
Tax Sharing and Indemnification Agreement and Employee Benefits Agreement
(collectively, the "Agreements"), copies of which are attached as Annex A to
this Proxy Statement-Prospectus. The following description of the terms and
conditions of these Agreements is qualified in its entirety by reference to
the Agreements. In the event of any inconsistency between the provisions of
any of the Agreements and the description thereof in this Proxy Statement-
Prospectus, the provisions of the Agreements shall control.
Division of Properties and Assets. The Subscription Agreement defines the
properties and assets to be transferred to ECI or retained by New ATN.
Pursuant to the Subscription Agreement, the Company will transfer to ECI the
following properties and assets of the Company in exchange for 10,959,131
shares of ECI Common Stock which will be distributed to Mr. Prosser and all
other holders of Company Common Stock other than Mr. Prior and the Trust:
(i) all of the outstanding capital stock of ATN-VI, which together with
its subsidiaries, Vitelco, Vitel Cellular and Vitelcom, currently conduct
all of the Company's Virgin Islands operations;
(ii) all of the outstanding capital stock of Atlantic Aircraft, Inc., a
subsidiary of the Company which owns and operates a jet aircraft and a
propeller aircraft used in the Company's business;
(iii) all indebtedness of any of the foregoing subsidiaries of the
Company (the "Transferred Subsidiaries") to the Company except $23 million
(the "Retained Indebtedness") currently owing from ATN-VI to the Company
(the remaining balance of Retained Indebtedness after giving effect to the
Closing Adjustment discussed below will be transferred to ECI); and
(iv) certain miscellaneous assets.
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<PAGE>
New ATN will retain:
(i) all of the Company's stock and debt investments in the Guyana
Telephone & Telegraph Company Limited ("GT&T");
(ii) the Company's advisory agreement with GT&T, pursuant to which the
Company provides a wide variety of managerial, technical, sales and
marketing services to GT&T for a fee equal to 6% of GT&T's revenues; and
(iii) certain miscellaneous assets.
Division of Liabilities. Pursuant to the Subscription Agreement, (i) ECI
will assume all liabilities of the Company pertaining to the Transferred
Subsidiaries, the lease and other liabilities pertaining to the Company's St.
Croix executive office, and certain miscellaneous liabilities, (ii) New ATN
will remain responsible for all liabilities of the Company pertaining to GT&T,
the lease and other liabilities pertaining to the Company's St. Thomas
executive office, and certain miscellaneous liabilities and (iii), except as
otherwise described under "Indemnity" below, ECI and New ATN will each be
responsible for one-half of all remaining liabilities of the Company on the
Effective Date including contingent liabilities arising out of events
occurring on or prior to the Effective Date.
Closing Adjustments. The Subscription Agreement provides that ECI will cause
ATN-VI to pay New ATN in repayment of the $23 million of Retained Indebtedness
(or ECI will pay directly to New ATN if the Retained Indebtedness is
exhausted) $17.4 million plus (or minus) a Closing Adjustment. After the
Closing Adjustment has been finally determined and paid, New ATN will transfer
to ECI any remaining Retained Indebtedness. As the Closing Adjustment, ECI
will be credited with one-half of the carrying value on the Company's
unconsolidated balance sheet as of April 30, 1997 of all assets of the Company
other than capital stock of GT&T or the Transferred Subsidiaries or the
principal amount of indebtedness of GT&T or any of the Transferred
Subsidiaries to the Company, and ECI will be charged with one half of all
accrued liabilities on the unconsolidated balance sheet of the Company as of
April 30, 1997. Credits or charges also will be made for various cash
transfers to or from GT&T or the Retained Subsidiaries and for operating
expenses of the Company between April 30, 1997 and the Effective Date.
Repurchase and Recapitalization. In accordance with the terms of the
Recapitalization Agreement, the Company will repurchase 416,998 shares of
Company Common Stock owned by Mr. Prior and 348,564 shares of Company Common
Stock owned by the Trust at a repurchase price of $22.7284 per share, Mr.
Prior will exchange all of his remaining 2,927,038 shares of Company Common
Stock for a like number of shares of a new class of common stock of the
company to be designated Class B Common Stock, and Mr. Prosser will exchange
all of his 3,325,000 shares of Company Common Stock for a like number of
shares of a new class of common stock of the Company to be designated Class A
Common Stock. The Company will adopt the Charter Amendment to create Company
Class A Common Stock and Company Class B Common Stock to be exchanged with Mr.
Prior and Mr. Prosser, respectively, for their shares of Company Common Stock
as described above. The Class A Common Stock and Class B Common Stock will
vote together with the Company Common Stock (except where a separate class
vote is required by law) and will otherwise have the same attributes as the
Company Common Stock except that each of the new classes of Common Stock will
be entitled to receive different consideration than the other class or the
Company Common Stock receives in a merger, consolidation or liquidation of the
Company as determined by the Company Board.
Merger. In accordance with the terms of the Merger Agreement, Mergerco will
be merged with and into the Company with the Company surviving the Merger,
each share of Company Common Stock (but not the newly created Class A Common
Stock and Class B Common Stock to be issued prior to the Merger) will be
converted into the right to receive four-tenths (0.4) of a share of Company
Common Stock and one share of ECI Common Stock; the outstanding shares of
Class A Common Stock of the Company will be converted into the right to
receive in the aggregate 5,704,231 shares of ECI Common Stock, and the
outstanding shares of Class B Common Stock of the Company will be converted
into the right to receive in the aggregate 2,807,040 shares of
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Company Common Stock. Immediately after the Merger, the outstanding common
stock of New ATN and ECI will be held as follows:
<TABLE>
<CAPTION>
NEW ATN ECI
---------------- -----------------
SHARES % SHARES %
--------- ------ ---------- ------
<S> <C> <C> <C> <C>
Mr. Prosser............................ -- -- 5,704,231 52.05
Mr. Prior.............................. 2,807,040 57.18 -- --
Public................................. 2,101,960 42.82 5,254,900 47.95
--------- ------ ---------- ------
Total................................ 4,909,000 100.00 10,959,131 100.00
========= ====== ========== ======
</TABLE>
Non-Competition. Pursuant to the Non-Competition Agreement, ECI and Mr.
Prosser are to agree not to engage in, or assist others in engaging in any
business which competes anywhere in the world in any material respect with the
provision by New ATN or any of its subsidiaries of telecommunications services
to persons who generate international audiotext telecommunications traffic
(except for the provision of any telecommunications services as a common
carrier which does not involve the installation of special equipment to
facilitate the generation of international audiotext telecommunications
traffic or the payment of any fee, commission or other compensation through
sharing of accounting or settlement rates, rate discounts or otherwise to
persons generating such traffic). The term of the Non-Competition Agreement
will be a period of 10 years after the Effective Date. The telecommunications
service covered by the Non-Competition Agreement include both carrying and/or
terminating telecommunications traffic. The agreement covers the provision of
services directly, or indirectly through service bureaus or other
intermediaries, to persons who generate the traffic, and the traffic covered
includes both telephone and computer traffic. Although international audiotext
traffic accounts for only a small percentage of the total minutes of
telecommunications traffic (including both local and international traffic)
carried by GT&T and although this traffic utilizes only a small fraction of
GT&T's physical facilities, international audiotext traffic generated
approximately 72% of GT&T's total revenues in 1996 and approximately 61% of
its total revenues in the first six months of 1997. In the Non-Competition
Agreement, ECI and Mr. Prosser will also agree to hold in strict confidence
all information of the proprietary nature relating to GT&T's and New ATN's
business of providing telecommunications services with regard to international
audiotext traffic.
Indemnity. In accordance with the provisions of the Indemnity Agreement:
(i) Mr. Prosser is to agree to indemnify New ATN, its subsidiaries after
the Effective Date, their respective officers, directors and agents and Mr.
Prior, individually and as Trustee of the Trust, from and against any and
all losses, liabilities, damages, costs and expenses ("Losses") relating to
or arising out of (a) any action, suit or proceeding brought by or on
behalf of any stockholder of the Company or of ECI arising out of or
relating to the repurchase by the Company of shares of Company Common Stock
owned by Mr. Prior and/or the Trust pursuant to the Recapitalization
Agreement or the number of shares of ECI Common Stock to be received by Mr.
Prosser or members of his family pursuant to the Merger Agreement or (b)
any action, suit or proceeding of any kind arising out of or relating to
any untrue or alleged untrue statement of a material fact contained in this
Proxy Statement-Prospectus, or the omission or alleged omission to state
herein a material fact required to be stated herein or necessary to make
the statements herein not misleading, but the indemnity described in this
clause (b) applies only with respect to the biographical information of Mr.
Prosser contained in this Proxy Statement-Prospectus and the information
contained herein concerning the beneficial ownership of Company Common
Stock by Mr. Prosser and the members of his family and his or their
affiliates,
(ii) Mr. Prior has agreed to indemnify ECI, the entities that will become
its subsidiaries after the Effective Date, their respective officers,
directors and agents and Mr. Prosser from and against any and all Losses
relating to or arising out of (a) any action, suit or proceeding brought by
or on behalf of any stockholder of the Company or ECI arising out of or
relating to the number of shares of Company Common Stock to be received by
Mr. Prior or members of his family pursuant to the Merger Agreement or (b)
any action, suit or proceeding of any kind arising out of or relating to
any untrue or alleged untrue statement of
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<PAGE>
a material fact contained in this Proxy Statement-Prospectus, or the
omission or alleged omission to state herein a material fact required to be
stated herein or necessary to make the statements herein not misleading,
but the indemnity described in this clause (b) applies only with respect to
the biographical information of Mr. Prior contained in this Proxy
Statement-Prospectus and the information contained herein concerning the
beneficial ownership of Company Common Stock by Mr. Prior and the members
of his family and his or their affiliates,
(iii) ECI has agreed to indemnify New ATN, its subsidiaries after the
Effective Date, their respective officers, directors and agents and Mr.
Prior from and against any and all Losses relating to or arising out of (a)
the business or operations of ECI and the Transferred Subsidiaries before
or after the Effective Date or any other subsidiaries of ECI after the
Effective Date, or any of the liabilities specifically to be assumed by ECI
pursuant to the Subscription Agreement or (b) any action, suit or
proceeding arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in this Proxy Statement-Prospectus
or the omission or alleged omission to state herein a material fact
required to be stated herein or necessary to make the statements herein not
misleading, but the indemnity described in this clause (b) applies only
with respect to the information contained in this Proxy Statement-
Prospectus concerning the business, prospects or planned or proposed
activities of ECI and its Subsidiaries after the Effective Date, the
activities of ECI or the Transferred Subsidiaries after April 30, 1997, and
prospective acquisitions of businesses or other transactions not in the
ordinary course of business planned or contemplated by ECI, the Transferred
Subsidiaries or Mr. Prosser.
(iv) New ATN has agreed to indemnify ECI and the entities which will
become its subsidiaries after the Effective Date, their respective
officers, directors and agents and Mr. Prosser from and against any and all
Losses relating to or arising out of (a) the business or operations
conducted by GT&T before or after the Effective Date or the business and
operations of New ATN after the Effective Date, or any of the liabilities
of the Company specifically excluded by the Subscription Agreement from the
liabilities to be assumed by ECI or (b) any action, suit or proceeding
arising out of or relating to any untrue or alleged untrue statement of a
material fact contained in this Proxy Statement-Prospectus or the omission
or alleged omission to state herein a material fact required to be stated
herein or necessary to make the statements herein not misleading, but the
indemnity described in this clause (b) applies only with respect to the
information contained in this Proxy Statement-Prospectus concerning the
business, prospects or planned or proposed activities of New ATN and its
Subsidiaries after the Effective Date, the activities of GT&T and New ATN
with respect to GT&T after April 30, 1997, and prospective acquisitions of
businesses or other transactions not in the ordinary course of business
planned or contemplated by GT&T or Mr. Prior.
Technical Assistance. New ATN and the Transferred Subsidiaries are to enter
into a Technical Assistance Agreement in connection with the Transaction. In
accordance with the terms of the Technical Assistance Agreement, each of the
Transferred Subsidiaries will agree to provide, at the request of the Company,
personnel and facilities to assist and support the Company in carrying out the
Company's continuing obligations to provide technical and professional
service, advice and assistance under an advisory contract it has entered into
with GT&T. The Transferred Subsidiaries are to be paid approximately 200% of
the direct compensation cost incurred by them in performing services at the
request of New ATN under the Technical Assistance Agreement and 100% of all
"out-of-pocket" expenses incurred by them in performing such services.
Tax Sharing and Indemnification. In accordance with the terms of the Tax
Sharing and Indemnification Agreement:
(i) New ATN, ECI, Mr. Prior and Mr. Prosser will each agree not to take
certain actions after the Effective Date which might jeopardize the
Transaction qualifying for tax-free treatment under the Code. Under the
terms of the Tax Sharing Agreement, unless otherwise approved by the IRS or
legal counsel or agreed to by both the Company and ECI, the Company and ECI
will not at any time after the Effective Date take any action which may be
inconsistent with the tax treatment of the Transaction as contemplated in
the Company's Ruling request. Without limiting the generality of the
foregoing, the Company and ECI will not, within two years after the
Effective Date: (a) liquidate or merge with or into any other corporation;
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<PAGE>
(b) issue any capital stock that in the aggregate exceeds 45%, by vote or
value, of its capital stock issued and outstanding immediately after the
Distribution; (c), with certain exceptions, redeem, purchase or otherwise
reacquire its capital stock issued and outstanding immediately after the
Distribution; (d) make a material disposition or cessation of operations by
means of a sale or exchange of assets or capital stock, a distribution to
stockholders, or otherwise, of the assets constituting the trades or
businesses relied upon in the Company's Ruling request to satisfy Section
355(b) of the Code; or (e) discontinue the active conduct of the trades or
businesses relied upon in the Ruling request to satisfy Section 355(b) of
the Code.
(ii) New ATN is to agree to be liable for, and shall indemnify and hold
harmless ECI and its affiliates from and against, (a) any taxes resulting
from any income or gain recognized as a result of the Transaction,
including any taxes resulting from any income or gain recognized as a
result of the Transaction failing to qualify for tax-free treatment under
the Code, which arise from any breach by New ATN of its representations or
covenants under the Tax Sharing and Indemnification Agreement, or from
certain actions by New ATN or its affiliates which may be inconsistent with
the tax treatment of the Transaction as contemplated in the application for
the Tax Ruling, or the inaccuracy of any factual statements or
representations made in or in connection with the application for the Tax
Ruling with respect to the activities of New ATN and its affiliates after
the Effective Date, (b) any taxes taken into account as debits for purposes
of calculating the Final Closing Adjustment under the terms of the
Subscription Agreement, (c) certain taxes arising from the Company's
operations between April 30, 1997 and the Effective Date, (d) any
withholding of foreign income taxes imposed with respect to payments from
GT&T to the Company and (e) fifty percent (50%) of all other taxes of the
Company or Aircraft Corp. with respect to any period prior to and including
the Effective Date, except for taxes described in clauses (a), (b) or (c)
of the following section (iii).
(iii) ECI is to agree to be liable for, and shall indemnify and hold
harmless New ATN and its affiliates from and against, (a) any taxes
resulting from any income or gain recognized as a result of the
Transaction, including any taxes resulting from any income or gain
recognized as a result of the Transaction failing to qualify for tax-free
treatment under the Code, which arise from any breach by ECI of its
representations or covenants under the Tax Sharing and Indemnification
Agreement, or from certain actions by ECI or its affiliates which may be
inconsistent with the tax treatment of the Transaction as contemplated the
application for the Tax Ruling, or the inaccuracy of any factual statements
or representations made in or in connection with the application for the
Tax Ruling with respect to the activities of ECI and its affiliates after
the Effective Date, (b) one hundred percent (100%) of all taxes of ECI
(computed on a separate company basis) with respect to any period prior to
and including the Effective Date, (c) any withholding of foreign income
taxes imposed with respect to payments from ATN-VI or any of its
subsidiaries to the Company except to the extent taken into account as
debits for purposes of computing the Final Closing Adjustment under the
terms of the Subscription Agreement, and (d) fifty percent (50%) of all
other taxes of the Company or Aircraft Corp. with respect to any period
prior to and including the Effective Date, except for taxes described in
clauses (a), (b), (c) and (d) of the preceding section (ii).
(iv) Mr. Prior is to agree to be liable for, and to indemnify and hold
harmless the Company, ECI, and their respective affiliates from and
against, any taxes resulting from any income or gain recognized as a result
of the Transaction, including any taxes resulting from any income or gain
recognized as a result of the Transaction failing to qualify for tax-free
treatment under the Code, which arise from (a) any breach of Mr. Prior's
representations and covenants under the Tax Sharing and Indemnification
Agreement or (b) the inaccuracy of any factual statements or
representations relating to Mr. Prior or members of Mr. Prior's family made
in the application for the Tax Ruling or in any certificate provided by Mr.
Prior in connection with the application for the Tax Ruling or in
connection with an opinion of tax counsel with respect to the Transaction.
(v) Mr. Prosser is to agree to be liable for, and to indemnify and hold
harmless the Company, ECI, and their respective affiliates from and against
any liability for any taxes resulting from any income or gain recognized as
a result of the Transaction, including any taxes resulting from any income
or gain recognized as a result of the Transaction failing to qualify for
tax-free treatment under the Code, which arise from (a)
33
<PAGE>
any breach of Mr. Prosser's representations and covenants under the Tax
Sharing and Indemnification Agreement or (b) the inaccuracy of any factual
statements or representations relating to Mr. Prosser or members of Mr.
Prosser's family made in the application for the Tax Ruling or in any
certificate provided by Mr. Prosser in connection with the application for
the Tax Ruling or in connection with an opinion of tax counsel with respect
to the Transaction.
Employee Benefits. The Company and ECI are to enter into an Employee
Benefits Agreement in connection with the Transaction. In accordance with the
terms of the Employee Benefits Agreement, ECI is to agree to adopt as its own
the Company's Defined Benefit Plan for Salaried Employees, the Company's
Management Employees' Savings Plan, and the Company's Employees' Stock
Ownership Plan, each of the trusts (and all assets thereof) forming a part of
such plans will be assumed by ECI, and ECI and the Company are to agree to
take all necessary actions, including amendments to such plans (or the trusts
forming a part thereof) in order for ECI to be the sponsor and "Employer" as
defined under such plans. All employee benefit plans previously maintained by
ATN-VI or Vitelco will continue to be sponsored by such entities after the
Effective Date. As of the Effective Date, employees of New ATN and its
subsidiaries will cease participation in all the employee benefit plans
maintained by ECI or any of its subsidiaries.
THE CREDIT FACILITY
In order to finance the repurchase of Company Common Stock from Mr. Prior
and the Trust, ATN-VI will enter into the Credit Facility with Rural Telephone
Finance Corporation ("RTFC"), as lender (the "Lender"). A copy of the form of
Credit Facility has been filed as an exhibit to the Registration Statement of
which this Proxy Statement--Prospectus forms a part, and the following summary
of the material terms of the Credit Facility is qualified in its entirety by
reference thereto.
Borrower. The borrower under the Credit Facility will be ATN-VI (the
"Borrower").
Structure. The Credit Facility will consist of a fifteen year secured term
loan facility in the amount of $18,315,789, including $915,789 for the
purchase of RTFC 5% Subordinated Capital Certificates ("SCCs"). Borrowings
under the Credit Facility will be utilized by the Borrower to fund the
repurchase of 765,562 shares of Company Common Stock currently owned by Mr.
Prior and the Trust.
Availability. The funds will be immediately available upon the satisfaction
of customary terms and conditions contained in the Credit Facility but in no
event later than the second anniversary of the date of the Credit Facility.
Security. The Credit Facility will be secured (i) by a first mortgage lien
on the assets and revenue of the Borrower and; (ii) pledges from the Borrower
of all of the present and future outstanding common stock of Vitelco, Vitelcom
and Vitel Cellular owned by the Borrower.
Interest. Borrowings under the term loan facility will bear interest at
Lender's standard variable rate and/or fixed rate for long-term loans with 5%
SCC's. As of October 16, 1997, these notes were 6.65% and 8.0% per annum,
respectively. The Borrower may, at any time, convert all or a portion of
outstanding loan funds from a variable rate to a fixed interest rate for a
Borrower-specified period of time without a fee.
Equity Requirement. The Borrower will be required to purchase a non-interest
bearing amortizing SCC equal to 5% of the total amount borrowed. The SCC is
amortized annually, beginning one year after purchase of the SCC, in order to
maintain a 5% SCC-to-outstanding loan ratio. Amounts amortized are paid in
cash to the Borrower. The Borrower may elect to purchase the SCC using either
(a) the Borrowing Option pursuant to which the SCC is included in the loan
amount and is purchased with each advance of loan funds or (b) the Installment
Plan Option pursuant to which the Borrower purchases the SCCs in full with its
general funds over 5 years in 20 equal quarterly installments. If the Borrower
elects this option, the amount of equity requirement will be reduced to equal
5% of the loan proceeds.
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<PAGE>
Patronage Capital. Subject to approval of the Lender, Borrower will receive
a share of Lender's net margins in the form of patronage capital refunds.
Patronage capital is allocated annually to Borrower based on the percentage
that Borrower's interest payments contributed to Lender's gross margins.
Patronage capital is currently paid in cash (retired) in the following two
classes: Class One pursuant to which 70% of the allocation will be retired
during the year in which it is allocated and Class Two pursuant the balance of
the allocation will be retired on RTFC's Board approval rotation cycle
(currently 15 years).
Commitment Fee. A refundable commitment fee of $36,632 was paid to the
Lender. The total commitment fee will be refunded in its entirety at the time
of the final advance of the Loan. If the Loan if not fully advanced the fee
will be refunded on a pro rata basis. The commitment fee will also be refunded
if the Transaction does not occur for reasons that, in Lender's reasonable
belief, are beyond the Borrower's control. Under all other circumstances, the
Commitment Fee will be retained by RTFC.
Covenants. The Credit Facility will contain the following material covenants
that restrict the Borrower from, among other things (i) with certain
exceptions, engaging in consolidations, mergers and sales of assets; (ii) with
certain exceptions, creating, incurring, assuming or suffering to exist other
indebtedness; (iii) with certain exceptions, making investments or loans in
any other person or entity; (iv) acquiring assets or capital stock of other
entities except for certain permitted acquisitions; and (v) redeeming,
retiring or purchasing capital stock of the Borrower or declaring or paying
dividends on the capital stock of the Borrower, without, in each case, the
prior written approval of the Lender. In addition, the Credit Facility will
also require the Borrower to maintain (a) a specified average "TIER," defined
as, for a single year, interest on total net income plus income taxes plus
interest payable on long-term debt for such year divided by interest on long-
term debt payable for such year, as measured on a consolidated basis for the
two highest of the last three years and (b) a specified average "DSC" ratio,
defined, for a single year, as total net income plus depreciation and
amortization plus interest payable on long-term debt for such years divided by
principal and interest payable on long-term debt in such year, as measured on
a consolidated basis for the two highest of the last three years. Such ratios
are determined by averaging each of the two highest annual ratios during the
three most recent fiscal years. The Credit Facility requires the Borrower to
maintain a TIER of not less than 1.50 and a DSC of not less than 1.25. For the
twelve months ended December 31, 1996, the Borrower's TIER was 1.84 and it's
DSC was 1.80.
MANNER OF EFFECTING THE TRANSACTION
The Transaction will occur promptly following the satisfaction of the
conditions described herein.
Prior to the Effective Date, the Company will select The Bank of New York
(or such other person or persons reasonably satisfactory to the Company) to
act as Exchange Agent for the Merger (the "Exchange Agent"). As soon as
practicable after the Effective Date, the Company will make available, and
each holder of record of Company Common Stock will be entitled to receive,
upon surrender to the Exchange Agent of one or more certificates
("Certificates") representing such Company Common Stock for cancellation,
certificates representing the number of shares of New ATN Common Stock and ECI
Common Stock into which such shares are converted in the Merger and cash in
consideration of fractional shares.
No certificates representing less than one full share of Company Common
Stock will be issued upon the surrender for exchange of Certificates
representing Company Common Stock pursuant to the Merger. In lieu of any such
fractional share, each holder of record of Company Common Stock who would
otherwise have been entitled to a fraction of a share of Company Common Stock
upon surrender of Certificates for exchange pursuant to the Merger will be
paid upon such surrender cash (without interest) in an amount equal to such
holder's proportionate interest in the net proceeds from the sale or sales in
the open market by the Exchange Agent, on behalf of all such holders, of the
aggregate fractional Company Common Stock issued pursuant to the Merger.
As soon as practicable following the Effective Date, the Exchange Agent
shall determine the excess of (i) the number of full shares of Company Common
Stock delivered to the Exchange Agent by the Company over (ii) the aggregate
number of full shares of Company Common Stock to be distributed to holders of
record of
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<PAGE>
Company Common Stock (such excess being herein called the "Excess Shares")
pursuant to the Merger, and the Exchange Agent, as agent for the former
holders of record of Company Common Stock, will sell the Excess Shares at the
prevailing prices on the American Stock Exchange ("AMEX"). The sale of the
Excess Shares by the Exchange Agent will be executed on the AMEX through one
or more member firms of the AMEX and will be executed in round lots to the
extent practicable. New ATN and ECI will each bear one-half of the cost of all
commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred in
connection with such sale of Excess Shares. Until the net proceeds of such
sale have been distributed to the former holders of record of Company Common
Stock, the Exchange Agent will hold such proceeds in trust for such former
stockholders (the "Fractional Securities Fund"). As soon as practicable after
the determination of the amount of cash to be paid to former holders of record
of Company Common Stock in lieu of any fractional interests, the Exchange
Agent will make available in accordance with the Merger Agreement such amount
to such former stockholders.
No holder of Company Common Stock will be required to pay cash or other
consideration for the shares of ECI Common Stock received in the Merger.
LISTING AND TRADING OF ECI COMMON STOCK
There is currently no public market for ECI Common Stock. Prices at which
ECI Common Stock may trade prior to the Transaction on a "when-issued" basis
or after the Transaction cannot be predicted. Until the ECI Common Stock is
fully distributed and an orderly market develops, the price at which trading
in such stock occurs may fluctuate significantly. The prices at which ECI
Common Stock trades will be determined by the marketplace and may be
influenced by many factors, including among others, the depth and liquidity of
the market for ECI Common Stock, investor perception of ECI and the Virgin
Islands economy generally, ECI's dividend policy and general economic and
market conditions.
ECI Common Stock has been approved for listing, on notice of issuance, on
the AMEX under the symbol "ECM."
Shares of ECI Common Stock distributed to the Company's stockholders in the
Transaction will be freely transferable, except for securities received by
persons who may be deemed to be "affiliates" of ECI within the meaning of Rule
145 under the Securities Act of 1933 as amended (the "Securities Act"). Such
affiliates may not publicly offer or sell the ECI Common Stock received in
connection with the Transaction except pursuant to a registration statement
under the Securities Act or pursuant to Rule 145 under the Securities Act.
LISTING AND TRADING OF NEW ATN COMMON STOCK
It is a condition to the Transaction that the Company Common Stock will
continue to be listed and traded on the AMEX after the Transaction under the
symbol "ANK." Following the Transaction, because of the transfer of the Virgin
Islands' operations of the Company to ECI, which will be a separate publicly-
traded company, New ATN's consolidated earnings will be substantially lower
than the Company's consolidated earnings prior to the Transaction.
Accordingly, as a result of the Transaction, the aggregate market value of New
ATN Common Stock immediately after the Effective Date is expected to be
significantly lower than the aggregate market value of Company Common Stock
immediately prior to the Effective Date. However, since the number of
outstanding shares of New ATN will be only 40% of the number of outstanding
shares immediately prior to the Effective Date, the Company is unable to
predict whether the trading price of one share of New ATN Common Stock will be
less than, equal to or more than the trading price of one share of Company
Common Stock prior to the Effective Date.
The combined trading prices of four-tenths (0.4) of a share of New ATN
Common Stock and one share of ECI Common Stock after the distribution of ECI
Common Stock to the holders of Company Common Stock and Class A Common Stock
(the "Distribution") may be less than, equal to or greater than the trading
price of the Company Common Stock prior to the Distribution. The prices at
which New ATN Common Stock trades after the Distribution will be determined by
the marketplace and may be influenced by many factors, including, among
others, the continuing depth and liquidity of the market for New ATN Common
Stock, investor perception of New ATN, investment conditions in Guyana
generally and general economic and market conditions.
36
<PAGE>
EXPENSES
New ATN and ECI will each pay fifty percent (50%) of all costs and expenses
incurred by the Company, Mr. Prosser or Mr. Prior in connection with the
Transaction.
CONDITIONS; TERMINATION
The Transaction is conditioned upon (i) approval of the Transaction at the
Special Meeting by the holders of a majority of the outstanding shares of
Company Common Stock, (ii) completion of $17.4 million of long-term financing
by ECI or ATN-VI, (iii) receipt of the Tax Ruling from the Internal Revenue
Service ("IRS") with respect to the tax-free treatment for U.S. federal income
tax purposes of the transactions contemplated by the Subscription Agreement
and the Merger Agreement to the Company and ECI and to the holders of Company
Common Stock and Class A Common Stock, (iv) the absence of any material
adverse changes in the businesses to be conducted after the Effective Date by
New ATN or ECI, respectively, (v) the Registration Statement on Form S-4 under
the Securities Act filed by ECI with the SEC having become effective and no
stop order being in effect, (vi) the listing of ECI Common Stock on the AMEX,
and (vii) the continued listing of New ATN Common Stock on the AMEX. The Tax
Ruling may be received significantly later than the date of the Special
Meeting. Even if all conditions are satisfied, Mr. Prior, Mr. Prosser and the
Company Board may, if they all agree, abandon, defer or modify the Transaction
at any time prior to the Effective Date. The Company Board will not, however,
consent to any changes in the terms of the Transaction after the Transaction
is approved by stockholders unless the Company Board determines that such
changes would not be materially adverse to the Company's stockholders.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the material U.S. federal income
tax consequences of the Transaction. This summary is for general information
purposes only and is not intended as a complete description of all of the tax
consequences of the Transaction and does not discuss tax consequences under
the laws of any state or local government or of any other jurisdiction.
Moreover, the tax treatment of a stockholder may vary depending upon his, her
or its particular situation. In this regard, certain stockholders (including,
without limitation, (i) insurance companies, tax-exempt organizations,
financial institutions or broker-dealers, certain U.S. expatriates and persons
who are not citizens or residents of the United States or who are foreign
corporations, foreign partnerships or foreign trusts or estates as defined for
U.S. federal income tax purposes, and (ii) stockholders that hold shares as
part of a position in a "straddle" or as part of a "hedging" or "conversion"
transaction for U.S. federal income tax purposes and stockholders with a
"functional currency" other than the U.S. dollar) may be subject to special
rules not discussed below. In addition, this summary applies only to shares
which are held as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code").
THE FOLLOWING DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
CODE, FINAL AND TEMPORARY TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT
TO CHANGE WHICH MAY OR MAY NOT BE RETROACTIVE, AND ANY SUCH CHANGES COULD
AFFECT THE VALIDITY OF THE FOLLOWING DISCUSSION.
EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE TRANSACTION DESCRIBED
HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS, AND THE POSSIBLE EFFECTS OF CHANGES OF APPLICABLE TAX LAWS.
Tax Ruling The Company has applied for the Tax Ruling from the IRS, to the
effect, among other things, that for U.S. federal income tax purposes:
(a) the Company's transfer of certain of its assets and liabilities to
ECI (the "Contribution") will be a tax-free reorganization under Section
368(a)(1)(D) of the Code and, therefore, will be tax-free to the Company
and ECI; and
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<PAGE>
(b) the distribution of ECI Common Stock to the holders of Company Common
Stock and Class A Common Stock (the "Distribution") will be tax-free to the
Company under Section 355(c)(1) or 361(c)(1) of the Code and to such
holders under Section 355(a) of the Code.
Receipt of the Tax Ruling is a condition to consummation of the Transaction.
The Company's request for the Tax Ruling contains certain representations as
to factual matters, including among other representations, that (i) there is
no plan or intention by Mr. Prior or Mr. Prosser, and the management of the
Company, to its best knowledge, is not aware of any plan or intention on the
part of any particular remaining shareholder of the Company, to sell,
exchange, transfer by gift, or otherwise dispose of any stock in either the
Company or ECI after the Transaction, (ii) there is no plan or intention by
either the Company or ECI to purchase any of its outstanding stock after the
Transaction (subject to certain exceptions), and (iii) there is no plan or
intention to liquidate either the Company or ECI, to merge either the Company
or ECI with any other corporation, or to sell or otherwise dispose of the
assets of either the Company or ECI after the Transaction, except in the
ordinary course of business. The Company's request for the Tax Ruling also
contains certain factual statements regarding the Company's provision of a
wide variety of managerial, technical, sales and marketing services to GT&T
pursuant to the advisory agreement with GT&T and a representation to the
effect that the Company will continue to provide such services to GT&T as
described in the request for the Tax Ruling.
The Tax Ruling, while generally binding on the IRS, may under certain
circumstances be retroactively revoked or modified by the IRS. The Tax Ruling
will be based on the facts and representations contained in the Company's
request for the Tax Ruling. Generally, the Tax Ruling would not be revoked or
modified retroactively provided that (i) there has been no misstatement or
omission of material facts, (ii) the facts at the time of the Transaction are
not materially different from the facts upon which the Tax Ruling was based,
(iii) the representations upon which the Tax Ruling was based are not
incomplete or untrue in any material respect, and (iv) there has been no
change in the applicable law. See "Risk Factors--Risks Relating to the
Transaction--Potential Federal Income Tax Liabilities."
The Contribution. It is expected that the Company will receive a Tax Ruling
that the Contribution will qualify as a tax-free reorganization under Section
368(a)(1)(D) of the Code. Assuming that the Contribution so qualifies, (i) no
gain or loss will be recognized by, and no amount will be included in the
income of, the Company or ECI as a result of the Contribution, (ii) the tax
basis of the property received by ECI in the Contribution will be the same as
the tax basis of such property in the hands of the Company immediately prior
to the Contribution, and (iii) the holding period of the property received by
ECI in the Contribution will include the period during which such property was
held by the Company.
The Repurchase. It is expected that, assuming the Transaction is consummated
in 1997, the cash received by Mr. Prior and the Trust pursuant to the
repurchase of all of the Trust's and certain of Mr. Prior's shares of Company
Common Stock will be treated as a dividend to the extent of the Company's
earnings and profits (as calculated for U.S. federal income tax purposes) for
1997 (the Company had no accumulated earnings and profits as of the beginning
of 1997) and, to the extent the cash received exceeds the sum of the Company's
earnings and profits for 1997 and the tax basis of Mr. Prior's and the Trust's
shares so repurchased, as gain from the sale of the shares so repurchased.
The Distribution. It is expected that the Company will receive a Tax Ruling
that the Distribution will qualify as a tax-free distribution under Section
355 of the Code. Assuming that the Distribution so qualifies, (i) the holders
of Company Common Stock will not recognize any gain or loss upon receipt
solely of shares of ECI Common Stock, (ii) each holder of Company Common Stock
will allocate his, her or its aggregate tax basis in the Company Common Stock
immediately before the Distribution between the Company Common Stock and the
ECI Common Stock in proportion to their respective fair market values at the
time of the Distribution, (iii) the holding period of each holder of Company
Common Stock for the ECI Common Stock will include the holding period for his,
her or its Company Common Stock, provided that the Company Common Stock is
held
38
<PAGE>
as a capital asset at the time of the Distribution, and (iv) the Company will
not recognize any gain or loss as a result of the Distribution. The tax
consequences to Mr. Prosser upon his receipt of shares of ECI Common Stock
will be similar to those described above with respect to the holders of
Company Common Stock (except for clause (ii)).
Current Treasury regulations require that each holder of stock of the
Company which receives ECI Common Stock pursuant to the Distribution to attach
to his, her or its U.S. federal income tax return for the year in which the
Distribution occurs a detailed statement setting forth such data as may be
appropriate to show the applicability of Section 355 of the Code to the
Distribution. The Company will provide each stockholder with the information
necessary to comply with this requirement.
If the Distribution did not qualify as a tax-free distribution under Section
355 of the Code, then each holder of Company Common Stock who received shares
of ECI Common Stock in the Distribution, other than Mr. Prosser, would be
treated as if such stockholder received a taxable distribution in an amount
equal to the fair market value of the ECI Common Stock received. Such
distribution would be treated as (i) a dividend to the extent of such
stockholder's pro rata share of the Company's earnings and profits for 1997
(the computation of which would include any gain recognized by the Company on
the Distribution, as discussed below), then (ii) a reduction in such
stockholder's tax basis in Company Common Stock to the extent the amount
received exceeded the amount referenced in clause (i), and then (iii) gain
from the sale or exchange of Company Common Stock to the extent the amount
received exceeded the sum of the amounts referenced in clauses (i) and (ii).
As a result of the complete termination of Mr. Prosser's interest in the
Company, the distribution of ECI Common Stock to Mr. Prosser would be treated
as capital gain to the extent that the fair market value of the ECI Common
Stock received by him exceeded his tax basis in the stock of the Company
exchanged therefor. Each stockholder's tax basis in his, her or its ECI Common
Stock would be equal to the fair market value of such stock at the time of the
Distribution.
In addition, if the Distribution did not qualify as a tax-free distribution
under Section 355 of the Code, then, in general, a corporate level U.S.
federal income tax would be payable by the consolidated group of which the
Company is the common parent based upon the gain (computed as the difference
between the fair market value of the ECI Common Stock distributed and the
Company's adjusted tax basis in such stock) recognized by the Company on the
Distribution. Under the terms of the Tax Sharing Agreement, each of ECI and
the Company would be liable for 50% of any such additional taxes incurred by
the Company by reason of the Distribution being taxable. However, if the
Distribution failed to qualify for tax-free treatment under Section 355 of
Code as a result of the inaccuracy of certain factual statements or
representations made with respect to Mr. Prior or Mr. Prosser in connection
with the request for the Tax Ruling or as a result of Mr. Prior or Mr. Prosser
taking any action which was inconsistent with any factual statements or
representations or the tax treatment of the Distribution as contemplated in
the Tax Ruling, then Mr. Prior or Mr. Prosser, as the case may be, would be
required to indemnify each of ECI and the Company for any such additional
taxes incurred by the Company. If the Distribution failed to qualify for tax-
free treatment under Section 355 of Code as a result of the inaccuracy of
certain factual statements or representations made with respect to ECI or the
Company in connection with the request for the Tax Ruling or as a result of
ECI or the Company taking any action which was inconsistent with any factual
statements or representations or the tax treatment of the Distribution as
contemplated in the Tax Ruling, then ECI or the Company, as the case may be,
would be liable for 100% of any such additional taxes incurred by the Company.
See the discussion of the Tax Sharing Agreement under "The Transaction--
Documentation for the Transaction."
Disqualifying Acquisitions. Under an amendment to the Code generally
effective after April 16, 1997, if the distributing corporation or the
controlled corporation in a transaction otherwise qualifying as a tax-free
distribution under Section 355 of the Code is acquired pursuant to a plan or
arrangement in existence on the date of the distribution to acquire that
corporation (a "Disqualifying Acquisition"), then the distributing corporation
will recognize taxable gain immediately before the distribution in an amount
equal to the excess of the fair market value of the stock of the controlled
corporation over the distributing corporation's adjusted tax basis in that
stock. A Disqualifying Acquisition would be treated as occurring if a person
or persons acquired 50% or
39
<PAGE>
more of the stock of the distributing corporation or the controlled
corporation, as the case may be, pursuant to such a plan or arrangement, and a
plan or arrangement to acquire that corporation would be presumed to exist on
the date of the distribution if the acquisition occurred during the four-year
period commencing two years prior to the distribution (unless it could be
demonstrated that the acquisition was unrelated to the distribution).
The Tax Sharing Agreement contains provisions which are intended to prevent
the occurrence of such a Disqualifying Acquisition during the two-year period
following the date of the Distribution. Under the terms of the Tax Sharing
Agreement, unless otherwise approved by the IRS or legal counsel or agreed to
by both the Company and ECI, the Company and ECI will not at any time after
the Effective Date take any action which may be inconsistent with the tax
treatment of the Transaction as contemplated in the Company's Ruling request.
Without limiting the generality of the foregoing, the Company and ECI will
not, within two years after the Effective Date: (a) liquidate or merge with or
into any other corporation; (b) issue any capital stock that in the aggregate
exceeds 45%, by vote or value, of its capital stock issued and outstanding
immediately after the Distribution; (c), with certain exceptions, redeem,
purchase or otherwise reacquire its capital stock issued and outstanding
immediately after the Distribution; (d) make a material disposition or
cessation of operations by means of a sale or exchange of assets or capital
stock, a distribution to stockholders, or otherwise, of the assets
constituting the trades or businesses relied upon in the Company's Ruling
request to satisfy Section 355(b) of the Code; or (e) discontinue the active
conduct of the trades or businesses relied upon in the Ruling request to
satisfy Section 355(b) of the Code. Accordingly, it can be expected that New
ATN, ECI, Mr. Prior and Mr. Prosser will not enter into any transaction which
might constitute a Disqualifying Acquisition, and, consequently, the ability
of New ATN and ECI to enter into business combinations with other companies or
to issue additional stock may be restricted.
Fractional Shares. No fractional shares of New ATN Common Stock will be
issued in the Transaction. A holder of Company Common Stock who receives cash
in lieu of fractional shares of New ATN Common Stock will be treated as having
received such fractional shares of New ATN Common Stock in the Transaction and
then as having received such cash in a sale of such fractional shares of New
ATN Common Stock. Such holder generally will recognize gain or loss pursuant
to such deemed sale equal to the difference (if any) between the amount of
cash received and such holder's adjusted tax basis in the fractional share of
New ATN Common Stock deemed to be received and then sold. Such gain or loss
will be capital gain or loss (provided the Company Common Stock is held as a
capital asset at the Effective Date).
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The following selected historical financial data of the Company and its
subsidiaries as of and for the years ended December 31, 1996, 1995, 1994, 1993
and 1992 have been derived from the Company's audited consolidated financial
statements. The following selected historical financial data for the six
months ended June 30, 1997 and 1996 have been derived from the Company's
unaudited consolidated condensed interim financial statements which, in the
opinion of management, reflects all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation. The
historical data presented below includes the financial data of the businesses
to be transferred to ECI in the Transaction as well as those businesses to be
retained by New ATN. The selected historical consolidated financial data
should be read in conjunction with the Company's audited consolidated
financial statements and related notes thereto, as of December 31, 1996 and
for each of the three years in the period ended December 31, 1996 and the
Company's unaudited consolidated condensed financial statements and notes
thereto as of June 30, 1997 and for the six months ended June 30, 1997 and
1996 which are included elsewhere in this Proxy Statement-Prospectus. The
selected historical consolidated financial data for the six months ended June
30, 1997 are not necessarily indicative of the operating results to be
expected for the entire fiscal year. All dollar amounts are in thousands,
except per share data.
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<PAGE>
SELECTED STATEMENT OF OPERATIONS DATA OF THE COMPANY
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Telephone operations:
Revenues:
Local exchange
service.............. $22,846 $22,345 $23,836 $22,966 $25,585 $12,589 $14,476
Access charges........ 13,493 14,845 14,689 13,608 16,124 7,076 8,599
International long-
distance revenues.... 37,495 44,299 76,820 128,939 145,080 73,473 57,117
Universal Service
Fund................. 11,168 13,201 12,081 12,151 11,360 5,604 7,042
Billing and other
revenues............. 4,427 4,490 4,525 4,238 5,290 2,304 2,820
Directory advertising. 3,420 3,020 2,916 2,730 2,563 1,293 914
------- ------- ------- ------- ------- ------- -------
Total revenue.......... 92,849 102,200 134,867 184,632 206,002 102,339 90,968
Total expense.......... 53,356 66,307 89,320 130,575 155,174 75,277 69,609
------- ------- ------- ------- ------- ------- -------
Income from telephone
operations............. 39,493 35,893 45,547 54,057 50,828 27,062 21,359
Income from other
operations............. 1,443 1,550 1,942 2,639 2,684 1,686 610
Non-operating revenues
and expenses (other (4,653) (12,921) (9,341) (10,219) (9,458) (6,906) (4,956)
than interest), net.... ------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before
interest expense,
income taxes and
minority interest...... 36,283 24,522 38,148 46,477 44,054 21,842 17,013
Interest expense, net... 9,109 11,837 12,798 11,540 10,831 5,503 5,159
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before
income taxes and
minority interest...... 27,174 12,685 25,350 34,937 33,223 16,339 11,854
Income taxes (1)........ 9,562 5,458 10,465 15,250 13,039 6,876 (6,612)
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before
minority interest...... 17,612 7,227 14,885 19,687 20,184 9,463 18,466
Minority interest....... (2,056) (1,030) (1,743) (2,477) (2,177) (1,272) (308)
------- ------- ------- ------- ------- ------- -------
Income from continuing $15,556 $ 6,197 $13,142 $17,210 $18,007 $ 8,191 $18,158
operations............. ======= ======= ======= ======= ======= ======= =======
Income per share from
continuing operations.. $ 1.27 $ 0.50 $ 1.07 $ 1.40 $ 1.47 $ 0.67 $ 1.48
Dividends per share..... $ 0.32 $ 0.20 -- -- -- -- --
Weighted average number
of shares.............. 12,273 12,273 12,273 12,273 12,273 12,273 12,273
</TABLE>
SELECTED BALANCE SHEET DATA OF THE COMPANY
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
-------------------------------------------- -----------
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- -----------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Fixed assets, net....... $225,886 $249,415 $242,548 $226,660 $251,996 $252,135
Total assets............ 315,019 336,564 340,113 371,939 389,324 382,189
Short-term debt
(including current
portion of long-term
debt).................. 10,540 19,362 19,249 24,841 30,095 28,568
Long-term debt, net..... 159,637 152,453 141,214 128,362 116,227 109,580
Stockholders' equity.... 99,959 101,300 114,861 130,956 149,791 167,949
</TABLE>
- --------
(1) In May 1997, Vitelco received approval from the Virgin Islands Industrial
Development Commission for a five year exemption (commencing October 1,
1998) from 90% of Virgin Islands income taxes and 100% of Virgin Islands
gross receipts, excise and property taxes. In accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, the
Company has adjusted its deferred tax assets and liabilities to reflect the
change in tax rates applicable to Vitelco during the benefit period. This
change resulted in the Company recording a non-recurring credit to income
tax expense of approximately $10.9 million ($.89 per share) in the six
months ended June 30, 1997.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF
OPERATIONS OF THE COMPANY
INTRODUCTION
The Company's revenues and income from continuing operations have been
derived principally from the operations of its telephone subsidiaries, Vitelco
and GT&T. Vitelco derives most of its revenues from local telephone and long-
distance access services. GT&T derives almost all of its revenues from
international telephone services. Other operations in the Company's
Consolidated Statements of Operations include: VitelCellular, which provides
cellular telephone service in the U.S. Virgin Islands; and Vitelcom, which
supplies customer premises equipment in the U.S. Virgin Islands.
The principal components of operating expenses for the Company's telephone
operations are plant specific operations expenses, plant non-specific
operations expenses, customer operations expenses, corporate operations
expenses, long-distance expenses and taxes other than income taxes. These
categories are consistent with FCC accounting practices. Plant specific
operations expenses relate to support and maintenance of telephone plant and
equipment and include vehicle expense, land and building expense, central
office switching expense and cable and wire expense. Plan non-specific
operations expenses and network administration , engineering, power, materials
and supplies, provisioning and plan network testing. Customer operations
expenses relate to marketing, providing operator services for call completion
and directory assistance, and establishing and servicing customer accounts.
Corporate operations expenses include Vitelco's and GT&T's expenses for
executive management and administration, corporate planning, accounting and
finance, external relations, personnel, labor relations, data processing,
legal services, procurement and general insurance. International long-distance
expenses consist principally of charges from international carriers for
outbound international calls from Guyana and payments to audiotext providers
from whom GT&T derives international audiotext traffic. Taxes other than
income taxes include gross receipts taxes, property taxes, and other
miscellaneous taxes.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Revenues from telephone operations for the six months ended June 30, 1997
were $91.0 million as compared to $102.3 million for the corresponding period
of the prior year, a decrease of $11.4 million, or 11%. The decrease was
principally due to a $19.1 million decrease in audiotext traffic revenues at
GT&T for the six months ended June 30, 1997.
GT&T's volume of audiotext traffic peaked in August 1995 at slightly in
excess of 10 million minutes per month and fluctuated between 9 and 10 million
minutes per month in 1996. Through the first six months of 1997, the volume of
audiotext traffic has averaged about 12% less than in the comparable period of
1996. During the six months ended June 30, 1997, revenues from audiotext
traffic were adversely impacted by changes in the traffic mix, reduction in
some accounting rates, the strength of the U.S. dollar against certain foreign
currencies, chargebacks from a foreign carrier, and a foreign carrier's
mislabeling of the origin of certain traffic. As a result of the above items,
GT&T's revenues from audiotext traffic in the first six months of 1997 were
approximately 35% less than in the comparable period of 1996 and GT&T's profit
margins from this traffic also declined significantly.
Vitelco's telephone operations revenues increased $4.7 million for the six
months ended June 30, 1997. This increase was primarily the result of the
recovery from Hurricane Marilyn in September 1995 and an increase in Universal
Service Fund revenues of $1.4 million for the six months ended June 30, 1997,
as a result of increased
investment in net fixed assets. At June 30, 1997 Vitelco had 61,055 lines in
service compared to 58,824 at the corresponding date in the prior year. This
revenue increase at Vitelco was more than offset by a decrease of $19.0
million for the six months ended June 30, 1997 in international inbound long
distance revenues at GT&T principally due to lower audiotext revenues, as a
result of items previously discussed. Offsetting this was an
43
<PAGE>
increase of $2.6 million in GT&T's unprofitable international outbound
revenues. In January 1997, the Guyana High Court voided a Guyana PUC order of
October 1995 which had substantially reduced outbound rates in 1996, and
permitted GT&T to restore its rates for outbound traffic to their pre-October
1995 level.
Consolidated telephone operating expenses for the six months ended June 30,
1997 were $69.6 million, a decrease of $5.7 million or 8%, from consolidated
telephone operating expenses of $75.3 million for the corresponding period of
the prior year. The decrease was due principally to decreases in audiotext and
outbound traffic expenses at GT&T of $7.7 million for the six months ended
June 30, 1997, due to decreased traffic volumes. Offsetting this decrease were
increases in plant non-specific expenses which increased as a result of
increased plant in service. As a percentage of revenues from telephone
operations, consolidated telephone operating expenses increased to
approximately 77% for the six month period ended June 30, 1997 from
approximately 74% for the corresponding period of 1996.
Income from telephone operations decreased $5.7 million for the six months
ended June 30, 1997. These changes occurred principally as a result of factors
affecting revenues from telephone operations and consolidated telephone
operating expenses discussed above. GT&T's contribution to income from
telephone operations decreased by $9.2 million, or 49%, for the six months
ended June 30, 1997, while Vitelco's contribution to income from telephone
operations increased by $3.5 million, or 48%, for the same period.
Income before income taxes and minority interest decreased $4.5 million for
the six months ended June 30, 1997. The significant factors that contributed
to this increase were:
(i) the $5.7 million decrease in income from telephone operations
discussed above;
(ii) $1.1 million decrease in income from other operations, principally
from decreased cellular operations;
(iii) $344,000 decrease in net interest expense due to reduced debt;
(iv) a $2.0 million decrease in other non operating revenues and
expenses. This was principally due to a non-recurring charge of $2.8
million in the first quarter of 1996 for the companies obligation to
reimburse its two Co-Chief Executive Officers for certain litigation
expenses in connection with a management dispute settled in February 1996,
offset by a charge of approximately $1.3 million related to the suspension
of the acquisition of the Congo national phone system.
As discussed in Note C to the Consolidated Condensed Financial Statements,
Vitelco received approval from the Virgin Islands Industrial Development
Commission for a five year exemption (commencing October 1, 1998) from 90% of
Virgin Islands income taxes and 100% of Virgin Islands gross receipts, excise
and property taxes. In accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, the Company has adjusted its
deferred tax assets and liabilities to reflect the change in the tax rates
applicable to Vitelco during the benefit period. This change has resulted in
the Company recording a non-recurring credit to income tax expense of
approximately $10.9 million in the six months ended June 30, 1997. The effect
of the tax exemption on future current taxes payable during the benefit period
will be reflected in the Company's financial statements during the benefit
period. On October 9, 1997 the Virgin Islands Public Service Commission
("PSC") instituted a proceeding to determine whether Vitelco's rates were just
and reasonable in light of this tax rebate. There can be no assurance as to
the outcome of this proceeding.
Before giving effect to the change in deferred taxes discussed above, the
Company's effective tax rate for the six months ended June 30, 1997 was 36.2%
as compared to 42.1% for the corresponding period of the prior year. The lower
effective tax rate is primarily attributable to significantly lower earnings
at GT&T.
The minority interest in earnings consists primarily of the Guyana
government's 20% interest in GT&T.
44
<PAGE>
YEARS ENDED DECEMBER 31, 1995 AND 1996
Revenues from telephone operations for the year ended December 31, 1996 were
$206 million as compared to $184.6 million for the prior year, an increase of
$21.4 million (12%). The increase was due principally to a $14.9 million
increase in audiotext traffic revenues at GT&T and a $4.3 million increase in
local exchange and access charges at Vitelco for the year ended December 31,
1996. Vitelco's telephone operations revenues increased $4.3 million for the
year ended December 31, 1996, principally as a result of restored lines in
service to pre-Hurricane Marilyn levels. Hurricane Marilyn struck the Virgin
Islands putting approximately 37,800 of Vitelco's approximately 60,000 access
lines out of service on September 15, 1995. At December 31, 1996 Vitelco had
59,470 lines in service.
Consolidated telephone operating expenses increased $24.6 million (19%) for
the year ended December 31, 1996. This increase was due principally to
increases in audiotext and outbound traffic expenses at GT&T of $20.1 million
due to increased traffic volume. As a result of a rate decrease ordered by the
Guyana PUC on October 11, 1995, GT&T's outbound international traffic has
increased by approximately 44% during the year ended December 31, 1996
resulting in an approximately $6.5 million increase in outbound traffic
expenses. An additional factor contributing to the increase in consolidated
telephone operating expenses was plant specific expense which increased as a
result of increased plant in service, although certain expenses at Vitelco
were reduced in the first quarter of 1996 as Vitelco's work force was shifted
from maintenance activities to repairing the damage caused by Hurricane
Marilyn.
Overall, income from telephone operations decreased $3.2 million (6%) for
the year ended December 31, 1996. The decrease occurred principally because of
negative margins on outbound traffic at GT&T which in turn, was caused
principally by rate decreases ordered by the PUC in October 1995. In January
1997, the Guyana High Court voided the PUC's order and permitted GT&T to
restore its rates for outbound traffic to their pre-October 1995 level. While
these rates are also less than the associated outbound expense, had these
rates been in effect throughout 1996, the Company estimates that GT&T's income
from telephone operations in 1996 would have been approximately $8.5 million
greater than it was, assuming GT&T's volume of traffic remained unchanged.
Audiotext traffic increased 20.7 million minutes and other GT&T inbound paid
and outcollect traffic increased 2.4 million minutes for the year ended
December 31, 1996. These revenue increases at GT&T were more than offset by
increased international long distance, plant, and other operating expenses.
This resulted in a decrease in GT&T's contribution to income from telephone
operations of $4.6 million (12%) for the year ended December 31, 1996. This
was offset by a $1.4 million increase in the contribution to income from
telephone operations at Vitelco caused by the restoration of lines in service
after Hurricane Marilyn's impact discussed above.
GT&T's audiotext traffic increased sharply in the first 8 months of 1995
hitting a peak of 11.7 million minutes for the month of August 1995. Since
then audiotext traffic has fluctuated between approximately 9 million and 11
million minutes per month. Audiotext is a highly competitive business, and
GT&T may experience significant increases or decreases in the volume of its
audiotext traffic during 1997. Profit margins from this traffic decreased
approximately 4% in 1996 principally due to a shift in traffic mix to less
profitable countries and reductions some in accounting rates. In addition,
margins are expected to decrease in 1997 as certain foreign carriers insist
that terminating carriers of audiotext traffic bear a portion of the risk of
non-collection associated with such traffic.
Income before minority interest decreased $1.7 million (5%) for the year
ended December 31, 1996. The significant factors that contributed to this for
the year ended December 31, 1996 were:
(i) the $3.2 million decrease in income from telephone operations
discussed above;
(ii) a $709,000 decrease in net interest expense due to decreased
interest rates and lower outstanding debt,
(iii) a $761,000 net decrease in other non operating revenue and expense,
(iv) a $2.2 million decrease in income tax expense, principally due to
lower taxable income at GT&T which has a higher effective tax rate than the
balance of the Company.
45
<PAGE>
The Company's effective tax rate for the year ended December 31, 1996 was
39.2% as compared to 43.6% for the prior year.
The minority interest in earnings consists primarily of the Guyana
government's 20% interest in GT&T.
YEARS ENDED DECEMBER 31, 1994 AND 1995
Revenues from telephone operations for the year ended December 31, 1995 were
$184.6 million as compared to $134.9 million for the prior year, an increase
of $49.7 million (37%). The increases were due to a $52 million increase in
audiotext traffic revenues at GT&T for the year ended December 31, 1995.
Vitelco's telephone operations revenues decreased $3.2 million for the year
ended December 31, 1995, principally as a result of Hurricane Marilyn which
put approximately 37,800 of Vitelco's approximately 60,000 access lines out of
service on September 15, 1995. See "Business--Vitelco." At December 31, 1995
Vitelco had 40,761 lines in service. Principally as a result of the impact of
Hurricane Marilyn on Vitelco's lines in service in the fourth quarter of 1995,
Vitelco's local exchange revenues decreased by $1.7 million (8%) and Vitelco's
interstate access charge revenues decreased by $1.1 million for the year ended
December 31, 1995.
Consolidated telephone operating expenses increased $41.3 million (46%) for
the year ended December 31, 1995. This increase was due principally to
increased audiotext and outbound traffic expenses at GT&T of $38.4 million,
due to increased traffic volume. In addition, plant specific and plant non-
specific expenses increased as a result of increased plant in service,
although certain expenses at Vitelco were reduced in the fourth quarter of
1995 as Vitelco's work force was shifted from maintenance activities to
repairing the damage caused by Hurricane Marilyn.
Overall, income from telephone operations increased $8.5 million (19%) for
the year ended December 31, 1995. The increase occurred principally because of
increased audiotext traffic at GT&T. Audiotext traffic increased 62.5 million
minutes and other GT&T inbound paid and outcollect traffic increased 2.1
million minutes for the year ended December 31, 1995. These revenue increases
at GT&T were partially offset by increased international long distance, plant,
and other operating expenses. This resulted in an increase in GT&T's
contribution to income from telephone operations of $11.1 million (40%) for
the year ended December 31, 1995. This was offset by an approximately $1.5
million decrease in the contribution to income from telephone operations at
Vitelco caused by the impact of Hurricane Marilyn on Vitelco's revenues and
expenses discussed above.
GT&T's audiotext traffic increased sharply in the first 8 months of 1995
hitting a peak of 11.7 million minutes for the month of August. Since then
audiotext traffic has held relatively steady at about 10 million minutes per
month. Audiotext is a highly competitive business, and GT&T may experience
significant increases or decreases in the volume and profit margins of its
audiotext traffic during 1996.
Income from continuing operations before minority interest increased $4.8
million (32%) for the year ended December 31, 1995. The significant factors
that contributed to this for the year ended December 31, 1995 were:
(i) the $8.5 million increase in income from telephone operations
discussed above;
(ii) a $1.3 million decrease in interest expense due to decreased rates
and debt,
(iii) a $697,000 increase in income from other operations,
(iv) a $4.8 million increase in income tax expense, principally due to
higher taxable income.
The Company's effective tax rate for the year ended December 31, 1995 was
43.6% as compared to 41.3% for the prior year.
The minority interest in earnings consists primarily of the Guyana
government's 20% interest in GT&T.
46
<PAGE>
REGULATORY CONSIDERATIONS
Upon the acquisition of GT&T in January 1991, GT&T entered into an agreement
with the government of Guyana to expand significantly GT&T's existing
facilities and telecommunications operations and to improve service within a
three-year period pursuant to an expansion and service improvement plan (the
"Plan"). The Plan was modified in certain respects and the date for completion
of the Plan was extended to February 1995. The government has referred to the
Guyana Public Utilities Commission ("PUC") the failure of GT&T to complete the
Plan by February 1995. The PUC is currently holding hearings on this matter.
Failure to timely fulfill the terms of the Plan could result in monetary
penalties, cancellation of the License, or other action by the PUC or the
government which could have a material adverse affect on the Company's
business and prospects. It is possible that, if the Company ceased doing
business within a short period of time after the consummation of the
Transaction as a result of a termination of the License, the IRS might revoke
the Tax Ruling retroactively, with the result that the distribution of ECI
Common Stock might not be tax free for U.S. federal income tax purposes to the
Company and the holders of Common Stock and Class A Common Stock. See "The
Transaction--Certain U.S. Federal Income Tax Consequences."
In October 1995, the PUC issued an order that rejected the request of GT&T
for substantial increases in all telephone rates and temporarily reduced rates
for outbound long-distance calls to certain countries. In most cases, the
existing rates were already less than GT&T's payment obligations to foreign
carriers. In January 1997, on an appeal by GT&T, the Guyana High Court voided
the PUC's order in regard to rates and the rates were returned to the rates in
existence in October 1995. The lost revenue was approximately $10 million for
the period when the order was effective. GT&T initially instituted such a
surcharge effective May 1, 1997, but temporarily withdrew it when the Guyana
Consumers Advisory Bureau (a non-governmental group in Guyana) instituted a
suit to block it. The PUC has appealed the January 1997 decision of the Guyana
High Court to the Guyana Court of Appeals, and in May 1997 the Consumer
Advisory Bureau sought an injunction from the Guyana High Court restoring
telephone rates to those imposed by the PUC in its October 1995 order. The
PUC's appeal and the Consumer Advisory Bureau's application are still pending.
In September 1997, the Guyana High Court denied an order which the Consumer
Advisory Bureau had sought to temporarily enjoin GT&T from putting into effect
a surcharge to recover the approximately $10 million over a period of 18
months. GT&T put such surcharge into effect on October 1, 1997 pending an
ultimate trial on the merits.
In January 1997, the PUC ordered GT&T to cease paying advisory fees to the
Company and to recover from the Company approximately $25 million of such fees
paid by GT&T to the Company since January 1991. GT&T has appealed the PUC's
order to the Guyana High Court and obtained a stay of the PUC's order pending
determination of that appeal.
At December 31, 1996, GT&T owed the Company approximately $23 million for
advances made from time to time for the working capital and capital
expenditure needs of GT&T. GT&T's indebtedness to the Company was evidenced by
a series of promissory notes. In March 1997, the PUC voided all of the
promissory notes then outstanding for failure to comply with certain
provisions of the PUC law. The PUC ordered that no further payments be made on
any of the outstanding notes and that GT&T recover from the Company all
amounts theretofore paid. The order also provided that the PUC would be
willing to authorize the payment of any amounts properly proven to the
satisfaction of the PUC to be due and payable from GT&T to the Company. GT&T
has appealed the PUC's order to the Guyana High Court and obtained a stay of
the PUC's order pending determination of that appeal.
In late April 1997, the PUC applied to the Guyana High Court for orders
prohibiting GT&T from paying any monies to the Company on account of
intercompany debt, advisory fees or otherwise pending the determination of
GT&T's appeals from the January 1997 and March 1997 orders mentioned above.
The PUC's application is still pending.
As a result of the decline in GT&T's revenues and profits from audiotext
traffic in 1997 as previously discussed, GT&T is preparing to file an
application with the PUC for a significant increase in local and outbound
international rates. There can be no assurance as to whether or when GT&T will
receive any such rate increase.
47
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company depends upon funds received from subsidiaries to meet its
capital needs, including servicing existing debt and its ongoing program of
seeking to acquire telecommunications licenses and businesses. The major
sources of funds for the Company has been advisory fees received from GT&T and
interest payments by GT&T and ATN-VI on intercompany debt.
As a result of the Transaction, the Company's liquidity and capital
resources may change significantly, and the Company might have fewer resources
and significantly reduced operations. The Company's primary sources of funds
have been advisory fees, repayment of loans, and interest from GT&T. The PUC
orders in January and March 1997, discussed above under "Regulatory
Considerations", could have a material adverse impact on the Company's
liquidity.
GT&T is not subject to any contractual restrictions on the payment of
dividends. However, GT&T's own capital needs and debt service obligations have
precluded GT&T from paying any significant funds to the Company other than the
advisory fees and interest on intercompany debt mentioned above.
If and when the Company settles outstanding issues with the Guyana
government and the PUC with regard to GT&T's Expansion Plan and its rates for
service, GT&T may require additional external financing to enable GT&T to
further expand its telecommunications facilities. There can be no assurance
that the Company will be able to obtain any such financing.
The continued expansion of GT&T's network is dependent upon the ability of
GT&T to purchase equipment with U.S. dollars. A portion of GT&T's taxes in
Guyana may be payable in U.S. dollars or other hard currencies. The Company
anticipates that GT&T's foreign currency earnings will enable GT&T to service
its debt and pay its hard currency tax obligations. There are no Guyana legal
restrictions on the conversion of Guyana's currency into U.S. dollars or on
the expatriation of foreign currency from Guyana.
Until the effective date of the Transaction, other potential sources of
funds to the Company are from repayment of loans or dividends from ATN-VI.
However, the RTFC Loan limits the payment of dividends by ATN-VI unless ATN-VI
meets certain financial ratios (which were not met at June 30, 1997).
Consequently ATN-VI was restricted from paying dividends at that date. At June
30, 1997, the Company also holds a note of ATN-VI in the amount of
approximately $24 million which may be repaid by ATN-VI in whole or in part
without regard to the limit on the payment of dividends by ATN-VI.
ATN-VI's ability to service its debt is dependent on funds from its parent
or its subsidiaries . The RUS loan and applicable RUS regulations restrict
Vitelco's ability to pay dividends based upon certain net worth tests except
for limited dividend payments authorized when specific security instrument
criteria are unable to be met. Settlement agreements made in 1989 and 1991
with the PSC also contain certain restrictions on dividends by Vitelco which,
in general, are more restrictive than those imposed by the RUS. Dividends by
Vitelco are generally limited to 60% of its net income, although additional
amounts are permitted to be paid for the sole purpose of servicing ATN-VI's
debt to the RTFC. Under the above restrictions, at June 30, 1997,
Vitelco's dividend paying capacity was approximately $8.4 million in excess of
the amounts permitted for servicing ATN-VI's debt. The RTFC Loan and RUS Loan
agreements also require, among other things, maintenance of minimum debt
service and times interest earned coverage and restrictions on issuance of
additional long-term debt. As of June 30, 1997, the Company was in compliance
with all covenants contained in its long-term debt agreements.
At June 30, 1997, Vitelco had outstanding $5 million of borrowings under a
$5 million line of credit with the RTFC expiring in March 2000, and an
additional $5 million under a $15 million line of credit with the RTFC
expiring in October 1997. These borrowings were incurred to finance part of
the costs of repairing damage to Vitelco's telephone plant caused by Hurricane
Marilyn in September 1995. Vitelco has also received approval from the RUS for
$35.7 million of long-term financing, which may be used to repay Vitelco's
outstanding line
48
<PAGE>
of credit borrowings from the RTFC. Borrowings under Vitelco's $5 million line
of credit are required to be repaid within 12 months of the date of the
borrowing, but may be repaid from the proceeds of borrowings under the $15
million line of credit. Borrowings under Vitelco's $15 million line of credit
will mature on October 31, 1997, at which date, if long-term loan funds from
RUS have not yet been made available to Vitelco, Vitelco will have the option
of rolling the outstanding amount borrowed under that line of credit into a
15-year term loan from RTFC having terms substantially similar to those
contained in Vitelco's existing long-term loan from the RTFC. The Company's
short term bank credit facility, under which the Company has $5.5 million of
loans outstanding, expired on October 1, 1994. The bank has orally agreed to
renew this facility through October 1, 1998 and to waive the prohibition on
borrowing under the facility during the first thirty days of the renewal
period.
IMPACT OF DEVALUATION AND INFLATION
Although the majority of GT&T's revenues and expenditures are transacted in
U.S. dollars or other hard currencies, the results of operations nevertheless
may be affected by changes in the value of the Guyana dollar. From February
1991 until early 1994, the Guyana dollar remained relatively stable at the
rate of approximately 125 to the U.S. dollar. In 1994, however, the Guyana
dollar has declined in value to the current rate of approximately 142 to the
U.S. dollar, and it has remained relatively stable at approximately that rate
since 1994.
The effect of inflation on the Company's financial results of telephone
operations in the U.S. Virgin Islands has not been significant in recent
years. The effect of inflation on the cost of providing telephone service in
the U.S. Virgin Islands has generally been offset (without any increase in
local subscribers' rates) by increased revenues resulting from growth in the
number of subscribers and from regulatory cost recovery practices in
determining access revenues.
49
<PAGE>
NEW ATN
PRO FORMA FINANCIAL DATA
The following are unaudited pro forma consolidated condensed statements of
operations and consolidated condensed balance sheet for New ATN. The pro forma
consolidated condensed balance sheet as of June 30, 1997 give effect to the
Transaction, as if it occurred on June 30, 1997. The unaudited pro forma
consolidated condensed statement of operations for the year ended December 31,
1996 and the six months ended June 30, 1997 gives effect to the Transaction,
as if it occurred on January 1, 1996. The Transaction is accounted for as a
non-pro rata split-off of New ATN, and accordingly New ATN is accounted for at
fair value. New ATN is considered to be the split-off entity since it is
anticipated that ECI will have larger market capitalization (based on the
Opinion), ECI will have greater asset value, ECI will retain more of the top
management of the Company, and ECI had greater net income for the six months
ended June 30, 1997. The pro forma adjustments are described in the
accompanying notes hereto. The pro forma consolidated condensed balance sheet
and statements of operations should be read in conjunction with the Company's
consolidated financial statements and notes thereto, as of December 31, 1996
and for each of the three years in the period ended December 31, 1996 and the
Company's unaudited consolidated condensed interim financial statements and
notes thereto as of June 30, 1997 and for the six months ended June 30, 1997
and 1996 which are included elsewhere in this Proxy Statement-Prospectus. The
pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that
would have occurred if the Transaction had occurred on January 1, 1996 or June
30, 1997, respectively, nor is it necessarily indicative of future operating
results or financial position. All dollar amounts are in thousands, except per
share data.
50
<PAGE>
NEW ATN
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMPANY PRO FORMA FAIR VALUE AS
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 11,441 $ (6,164)(1) $ 5,107 $ 5,107
17,400 (2)
(17,400)(3)
(170)(4)
Accounts receivable..... 56,092 (13,865)(1) 42,022 42,022
(205)(4)
Other current assets.... 15,622 (11,694)(1) 3,928 3,928
-------- --------- -------- -------- -------
Total current assets.... 83,155 (32,098) 51,057 0 51,057
Net fixed assets........ 252,135 (156,133)(1) 95,545 (61,017)(6) 34,528
(457)(4)
Other assets............ 46,899 (20,892)(1) 8,777 8,777
(17,400)(2)
170 (4)
-------- --------- -------- -------- -------
$382,189 $(226,810) $155,379 $(61,017) $94,362
======== ========= ======== ======== =======
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities..... $ 60,807 $ (38,494)(1) $ 16,725 $16,725
($5,588)(4)
Long-term debt.......... 109,580 (91,816)(1) 17,620 17,620
(144)(4)
Other liabilities and
minority interest...... 43,853 (10,215)(1) 33,638 (18,907)(6) 14,731
Total stockholders'
equity................. 167,949 (68,223)(1) 87,396 (42,110)(6) 45,286
(17,400)(3)
5,070 (4)
-------- --------- -------- -------- -------
$382,189 $(226,810) $155,379 $(61,017) $94,362
======== ========= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
51
<PAGE>
NEW ATN
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------
PRO FORMA
COMPANY PRO FORMA FAIR VALUE PRO FORMA
HISTORICAL ADJUS- ADJUST- AS
RESULTS TMENTS PRO FORMA MENTS ADJUSTED
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Telephone opera-
tions:
Net revenues.... $206,002 ($57,749)(1) $148,253 $148,253
Net expenses.... 155,174 (40,912)(1) 114,262 (2,685)(7) 111,577
-------- -------- -------- ------ --------
Income from tele-
phone operations. 50,828 (16,837)(1) 33,991 2,685 36,676
Income from other
operations....... 2,684 (2,684)(1) 0 0
Non-operating
revenues and
expenses (other
than interest),
net.............. (9,458) 2,588 (1) (6,870) (6,870)
-------- -------- -------- ------ --------
Income from
continuing
operations before
interest
expense, minority
interest and
income taxes..... 44,054 (16,933) 27,121 2,685 29,806
Interest expense,
net.............. 10,831 (9,082)(1) 3,399 3,399
1,650 (5)
-------- -------- -------- ------ --------
Income from
continuing
operations before
income taxes and
minority
interest......... 33,223 (9,501) 23,722 2,685 26,407
Income taxes..... 13,039 (2,215)(1) 10,263 1,208 (7) 11,471
(561)(5)
-------- -------- -------- ------ --------
Income from
continuing
operations before
minority
interest......... 20,184 (6,725) 13,459 1,477 14,936
Minority inter-
est.............. (2,177) 81 (1) (2,096) (2,096)
-------- -------- -------- ------ --------
Income from con-
tinuing opera-
tions............ $ 18,007 ($6,644) $ 11,363 $1,477 $ 12,840
======== ======== ======== ====== ========
Income per share
from continuing
operations....... $ 2.62
========
Weighted average
shares outstand-
ing.............. 4,909
========
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------------
PRO FORMA
COMPANY PRO FORMA FAIR VALUE PRO FORMA
HISTORICAL ADJUST- ADJUST- AS
RESULTS MENTS PRO FORMA MENTS ADJUSTED
-------------- -------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Telephone opera-
tions:
Net revenues.... $90,968 ($32,066)(1) $58,902 $58,902
Net expenses.... 69,609 (20,133)(1) 49,476 (1,342)(7) 48,134
-------------- -------------- --------- ------------ ---------
Income from tele-
phone operations. 21,359 (11,933) 9,426 1,342 10,768
Income from other
operations....... 610 (610)(1) 0 0
Non-operating
revenues and
expenses (other
than interest),
net.............. (4,956) 1,772 (1) (3,184) (3,184)
-------------- -------------- --------- ------------ ---------
Income from
continuing
operations before
interest
expense, minority
interest and
income taxes..... 17,013 (10,771) 6,242 1,342 7,584
Interest expense,
net.............. 5,159 (4,339)(1) 1,652 1,652
832 (5)
-------------- -------------- --------- ------------ ---------
Income from
continuing
operations before
income taxes and
minority
interest......... 11,854 (7,264) 4,590 1,342 5,932
Income taxes..... (6,612) (8) 9,003 (1) 2,108 604 (7) 2,712
(283)(5)
-------------- -------------- --------- ------------ ---------
Income from
continuing
operations before
minority
interest......... 18,466 (15,984) 2,482 738 3,220
Minority inter-
est.............. (308) 4 (1) (304) (304)
-------------- -------------- --------- ------------ ---------
Income from con-
tinuing opera-
tions............ $18,158 ($15,980) $ 2,178 738 $ 2,916
============== ============== ========= ============ =========
Income per share
from continuing
operations....... $ 0.59
=========
Weighted average
shares outstand-
ing.............. 4,909
=========
</TABLE>
The accompanying notes are an integral part of this statement.
52
<PAGE>
NEW ATN
NOTES TO PRO FORMA FINANCIAL DATA
The Transaction is accounted for as a non-pro rata split-off of New ATN, and
accordingly New ATN is accounted for at fair value. New ATN is considered to
be the split-off entity since it is anticipated that ECI will have larger
market capitalization (based on the Opinion), ECI will have greater asset
value, ECI will retain more of the top management of the Company, and ECI had
greater net income for the six months ended June 30, 1997.
(1) To reflect the transfer of the capital stock of ATN-VI and Atlantic
Aircraft, Inc. to ECI.
(2) To reflect the $17.4 million payment of intercompany debt by ATN-VI.
(3) To reflect the repurchase of 765,564 shares of Company stock.
(4) To reflect the net transfer of miscellaneous assets, the assumption of
certain bank indebtedness by ECI, the payment of assumed transaction costs
of $3.5 million and the payment of the final closing adjustment based on
the assumed transaction costs.
(5) To reflect the reversal of (a) interest income paid by the Transferred
Subsidiaries to the Company of $2,155,000 and $1,086,000, (b) interest
expense on certain bank indebtedness to be assumed by ECI of $505,000 and
$254,000 and (c) the related tax impact of such items of $561,000 and
$283,000 for the year ended December 31, 1996 and the six months ended June
30, 1997, respectively.
(6) To record the split-off of New ATN at fair value and related deferred
taxes. The assumed fair value is $9.23 per share, which is the midpoint in
the range of implied values for the New ATN common stock determined by
Prudential Securities in connection with the Opinion.
(7) To record the amortization of fair value adjustments and the related tax
impact of such.
(8) In May 1997, Vitelco received approval from the Virgin Islands Industrial
Development Commission for a five year exemption (commencing October 1,
1998) from 90% of Virgin Islands gross receipts, excise and property taxes.
In accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, the Company has adjusted its deferred tax
assets and liabilities to reflect the change in tax rates applicable to
Vitelco during the benefit period. This change resulted in the Company
recording a non-recurring credit to income tax expense of approximately
$10.9 million in the six months ended June 30, 1997.
(9) The Company shares certain general and administrative costs with its
affiliated entity, ATN-VI. These shares costs have historically been
allocated to ATN-VI in approximately the same proportion as operating
revenues of ATN-VI bears to the Company's total operating revenues.
Management believes the allocation methods used are reasonable. However,
such costs are not necessarily indicative of the costs that would have been
incurred if the companies had been operated as unaffiliated entities. It is
not practical to estimate these costs on a stand-alone basis.
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BUSINESS AND PROPERTIES OF NEW ATN
On and immediately after the Effective Date, New ATN's sole operating
subsidiary will be the Guyana Telephone & Telegraph Company Limited ("GT&T").
GT&T provides all local service and domestic long-distance telecommunications
service within the Co-operative Republic of Guyana and international telephone
service between Guyana and foreign points. During 1996, approximately $148
million, or 100% (on a pro forma basis), of New ATN's total revenues was
derived from the operations of GT&T.
The Company acquired 80% of the capital stock of GT&T from the government of
Guyana for $16.5 million on January 28, 1991 (the "GT&T Acquisition"). The
government of Guyana owns the remaining 20% of the capital stock of GT&T. In
1991, GT&T was a newly organized company that had acquired substantially all
of the assets and certain liabilities of Guyana Telecommunication Corporation
("GTC"), a corporation wholly owned by the government of Guyana. GTC had been
the exclusive provider of telecommunications services in Guyana for more than
20 years.
The Company also provides managerial, technical, sales and marketing
services to GT&T in exchange for advisory fees equal to 6% of Revenues. See
"Risk Factors--Risks Relating to New ATN--Regulatory Risks."
New ATN expects from time to time to evaluate opportunities for establishing
or acquiring other telecommunications business through privatization of
government-owned business or otherwise in the Caribbean area and in developing
countries in other parts of the world, and may make investments in such
businesses in the future. New ATN expects to focus its attention on wire line
and cellular telephone business and cable television.
INTERNATIONAL TRAFFIC
GT&T's revenues and earnings are highly dependent upon international long-
distance calls, particularly international audiotext traffic, other calls
originating outside of Guyana and collect calls from Guyana to foreign points.
The following table sets forth data with respect to the volume of GT&T's
international traffic for the periods indicated:
INTERNATIONAL TRAFFIC (IN THOUSANDS OF MINUTES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
------------- -------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inbound Paid and
Outbound Collect....... 35,784 (38%) 37,920 (24%) 40,350 (21%) 29,797 (21%) 32,750 (25%)
Audio Text.............. 39,291 (42%) 101,763 (63%) 122,476 (64%) 93,217 (64%) 78,147 (60%)
------ ------ ------- ------ ------- ------ -------- ------- -------- -------
Total Inbound........... 75,075 (80%) 139,683 (87%) 162,826 (85%) 123,014 (85%) 110,897 (85%)
Outbound................ 18,368 (20%) 20,725 (13%) 29,768 (15%) 21,593 (15%) 18,848 (15%)
------ ------ ------- ------ ------- ------ -------- ------- -------- -------
Total................. 93,443 (100%) 160,408 (100%) 192,594 (100%) 144,607 (100%) 129,745 (100%)
====== ====== ======= ====== ======= ====== ======== ======= ======== =======
</TABLE>
GT&T has agreements with foreign telecommunications administrations and
private carriers covering all international calls into or out of Guyana. These
agreements govern the rates of payment by GT&T to the foreign carriers for the
use of their facilities in connecting international calls billed in Guyana,
and by the foreign carriers to GT&T for the use of its facilities in
connecting international calls billed abroad. The rates of payment under such
agreements are negotiated with each foreign carrier and are known as
"accounting rates."
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The different classes of international traffic described in the above table
produce significantly different profit margins for GT&T. In the case of
regular inbound traffic and outbound collect traffic, GT&T receives a payment
from the foreign telecommunications carrier equal to one-half of the
applicable "accounting rate" (e.g., in the case of traffic from the United
States, a payment of 85 cents per minute), and GT&T has no significant direct
expenses associated with such traffic except for earth station, satellite and
tropospheric system costs which are applicable to all of GT&T's international
traffic. In the case of audiotext traffic, GT&T receives a payment from the
foreign carrier equal to one-half of the applicable accounting rate, and GT&T
pays a fee or commission to the audiotext traffic provider at rates which are
negotiated from time to time and are typically more than half of the amount
received by GT&T from the foreign carrier. In the case of outbound
international traffic, GT&T must pay the foreign carrier one-half of the
applicable international accounting rate, and GT&T collects from its
subscriber a rate which is regulated by the PUC. Currently, the amount which
GT&T collects from its subscribers for outbound international traffic is
usually less than the amount which GT&T is required to pay the foreign carrier
(e.g., for the United States, GT&T collects approximately $.74 per minute and
pays the carrier $.85 per minute). GT&T does not allow a significant volume of
collect calls into Guyana.
Historically, the volume of calls into Guyana from the United States, Canada
and the United Kingdom (including credit card and collect calls from Guyana)
has greatly exceeded the volume of paid outbound calls from Guyana to these
countries. Except for audiotext traffic, the volume of traffic with other
countries has been more evenly balanced. Management of GT&T believes that the
disparity in traffic with these countries, which has produced a steady stream
of hard currency revenues for GT&T, stems from the fact that the vast majority
of GT&T's traffic with these countries consists of personal calls between
Guyanese expatriates and their friends and family in Guyana and that the
average income of most Guyanese residents is substantially lower than that of
their Guyanese expatriate friends or relatives in these countries. There can
be no assurance that, as GT&T expands and improves its local telephone
facilities and changes occur in the Guyanese economy, inbound international
traffic will continue to be as significant a part of GT&T's total revenues.
Any decrease in the net margin of inbound over outbound traffic is likely to
have an adverse effect on GT&T's earnings. In addition, in August 1997 the FCC
issued a Report and Order requiring significant reductions over the next four
years in the accounting rates used by U.S. carriers in paying GT&T for
terminating U.S. traffic in Guyana. See "--Regulation."
In 1996, GT&T's outbound traffic increased 44% over the prior year while
inbound and outbound collect traffic (other than audiotext) increased only 6%.
GT&T believes that this was due to a substantial reduction in GT&T's rates for
outbound traffic which was ordered by the PUC in October 1995. This PUC order
was voided by the Guyana High Court in January 1997, which had the result of
reinstating for the time being GT&T's rates for outbound traffic which existed
prior to October 1995.
A significant portion of GT&T's international traffic arises from the
provision by GT&T of telecommunications services to audiotext providers in a
number of foreign countries. GT&T began providing telecommunications services
to audiotext providers in June 1992 and its audiotext traffic has increased
significantly since that date. GT&T's audiotext revenues amounted to
approximately $39 million, $91 million, and $106 million in 1994, 1995 and
1996, respectively. GT&T's volume of audiotext traffic peaked in August 1995
at slightly in excess of 10 million minutes per month and fluctuated between
approximately 9 million and 10 million minutes per month in 1996.
Audiotext traffic and audiotext revenues averaged about 12 percent less and
35 percent less, respectively, in the first six months of 1997, compared to
the same period a year earlier. GT&T's profit margins from audiotext also
significantly declined. Management attributes these declines to increased
competition, changes in the traffic mix, reduction in some accounting rates,
the strength of the U.S. dollar against certain foreign currencies, and a
foreign carrier's mislabeling the origin of certain traffic. Also, from late
1996 through the current year, a foreign carrier required GT&T to bear part of
the risk of non-collection for audiotext calls. Previously, this risk was
assumed by the sending carrier.
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<PAGE>
Audiotext providers offer telephone information services comparable to those
available in the United States on an area code 900 basis. By making a
telephone call, the caller can obtain information (generally in the form of a
recorded message) on subjects such as weather, sports, business news or
material of a sexual nature. Some audiotext providers also establish "chat
lines" on which the callers can talk to one another.
GT&T is one of many telephone companies around the world that are providing
telecommunications services to international audiotext providers. Audiotext
traffic utilizes only excess capacity on GT&T's international circuits and
GT&T's main switch in Georgetown. No use of GT&T's local network within Guyana
is involved, and none of the telephone numbers assigned to audiotext providers
by GT&T can be accessed by a normal telephone call made in Guyana. GT&T's
agreements with audiotext providers are subject to termination by either party
on short notice, and an audiotext provider can readily shift its operations to
another foreign telecommunications carrier merely by changing the telephone
numbers in its advertisements, if the other carrier provides better service or
higher compensation.
At the present time, in the United States and many other countries,
audiotext calls to GT&T or another foreign telecommunications carrier are
treated as ordinary international traffic and are not subject to the
regulations applicable to domestic audiotext traffic. GT&T's agreements with
audiotext providers obligate such providers to comply with applicable
regulations in the countries in which they advertise their services and to
refrain from using obscene or indecent material. From time to time a country's
regulatory authorities or national telecommunications carrier have taken steps
to restrict or eliminate international audiotext traffic.
Because a substantial portion of GT&T audiotext traffic involves material of
a sexual nature, GT&T has from time to time been subject to criticism and
pressure from governmental and other sources in Guyana to limit or cease
carrying this traffic. In 1994 the National Frequency Management Unit (the
"NFMU") an agency of the Guyana government, notified GT&T that the agency
considered GT&T's provision of telecommunication services to audiotext
providers to be a violation of the Telecommunications Act and GT&T's license.
After consulting with counsel, GT&T advised the NFMU that it believed that its
actions were lawful and that it was precluded by the Telecommunications Act
from modifying or interfering with any telecommunications messages sent over
its facilities. Since then, no further communications have been received from
the NFMU. Moreover, in an order in October 1995, the Guyana PUC prohibited
GT&T from discontinuing the carrying of audiotext traffic. In September 1996,
the Washington Post published an article which dealt generally with
international audiotext traffic and emphasized the "phone sex" nature of much
of the traffic. In this article, the Post stated that Guyana "now is tied with
the Netherlands Antilles as the world leader" in the international audiotext
traffic market. Following publications of this article, President Cheddi Jagan
of Guyana severely criticized GT&T for handling this traffic, threatened to
call in interested investors from the United States to buy out GT&T if the
firm continued its phone sex international traffic, and noted that GT&T's
agreements with the previous government of Guyana could be broken by
Parliament although, President Jagan said, his administration "does not want
to do that." The Trade Minister of Guyana, Michael Shree Chan (who has
responsibility for the telecommunications sector) also called on GT&T to cease
carrying audiotext traffic. In March and April 1997, the Trade Minister
announced the appointment of a task force to probe whether GT&T should have
paid withholding taxes on the fees paid by it to international audiotext
providers. An audit initiated by this task force has currently been stayed by
the Guyana High Court. See "Taxation--Guyana". Except for this tax audit, GT&T
is not the subject of any governmental investigation or inquiry at the present
time with regard to its provision of telecommunications services to
international audiotext providers.
DOMESTIC SERVICE
At December 31, 1996, GT&T had 50,190 subscriber access lines in service.
This number of access lines represents approximately 7 lines per 100
inhabitants. Of all lines in service, 52% were in the area of Georgetown (the
nation's capital), and 85% were in the largest urban areas, consisting of
Georgetown, Linden, New Amsterdam, Diamond and Beterverwagting. Ninety percent
of Guyana's population lives on the coastal plain where Georgetown,
Beterverwagting, and New Amsterdam are located. Most rural areas do not have
telephone service.
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<PAGE>
GT&T's revenues from local telephone and other services, which are not
significant (accounting for approximately 2% of GT&T's total revenues in
1996), consist of installation charges for new lines, monthly line rental
charges, monthly measured service charges based on the number and duration of
calls and other charges for maintenance and other customer services. For each
category of revenues, rates differ for residential and commercial customers.
Residential and commercial customers have contributed approximately equally to
GT&T's revenues from local service. GT&T's current monthly charge per access
line is approximately $.25 for residential customers and approximately $.60
for business customers, and the average monthly bill for residential and
business service (excluding charges for international calls and cellular
service) is $1.99 and $2.61, respectively. See "Business and Properties of New
ATN--Regulation."
In December 1991, GT&T inaugurated a mobile cellular telephone system within
a thirty-mile radius of Georgetown. Prior to July 15, 1995, there was no
charge for local mobile cellular telephone service. Commencing July 15, 1995,
the PUC approved tariffs. See "Business and Properties of New ATN--
Regulation." Cellular subscribers are offered various calling plans and are
charged a monthly fee plus air time based on the selected plan. GT&T's current
average monthly charge per cellular subscriber is approximately $89 including
monthly rental and airtime charges. As of December 31, 1996, GT&T had
approximately 1,200 active mobile cellular subscribers.
In the second quarter of 1997 GT&T completed a test installation of a
Northern Telecom Proximity I fixed wireless network in a rural area about 60
kilometers west of Georgetown. GT&T is currently in the process of installing
this wireless telephone service to about 2,000 subscribers in the same area.
GT&T may use this system in lieu of wireline network for much of GT&T's future
expansion of its network. The normal rates for land line telephones apply to
GT&T's fixed cellular and fixed wireless network services.
EXPANSION PROGRAM
Pursuant to the purchase agreement between the government of Guyana and the
Company (the "GT&T Agreement") and GT&T's license from the government of
Guyana (the "License"), the Company and GT&T agreed to implement an expansion
plan (the "Expansion Plan"), which required substantially expanding and
improving the service provided by GT&T's predecessor. Pursuant to the
Expansion Plan, GT&T has significantly expanded and rebuilt its
telecommunications network. The number of access lines has increased from
approximately 13,000 working lines in January 1991 to 50,190 lines at December
31, 1996. Approximately 95% of GT&T's access lines are now digitally switched
lines. The Intelsat B earth station, which provides the principal link with
Guyana and the rest of the world, was upgraded and digitalized to increase the
number of circuits in operation from 75 in January 1991 to 1,026 currently.
GT&T has installed public telephones in over 150 locations across the
country providing telecommunications for both local and international calls to
areas that had not previously enjoyed service. Currently, in addition to the
public telephones, GT&T maintains three public "telephone centers" at which
the public can, upon payment of the charges in cash to GT&T personnel who
staff these centers, use an ordinary residential-type telephone to make
international and domestic calls.
GT&T has purchased capacity in two international fiber optic cables--the
Americas I cable, which runs from Brazil to Trinidad, the United States Virgin
Islands and the United States mainland, and the Columbus II cable, which runs
from the Caribbean region to the Azores and Spain. The Company is presently
participating in talks with other international carriers to expand the
capacity of Americas I cable and to build an Americas II cable that would
provide a leg to Guyana, Suriname and French Guyana.
The Company and GT&T were originally required to complete the Expansion Plan
by January 28, 1994. With the Government's consent, this date was extended
first to August 28, 1994 and then to February 28, 1995. The Company and GT&T
repeatedly advised the government that their inability to obtain adjusted
rates fully to compensate for the 1991 devaluation in Guyana's currency
severely hampered their ability to obtain financing needed to complete the
Expansion Plan. The Company and GT&T also repeatedly sought to negotiate
changes
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<PAGE>
in the Expansion Plan in order to reflect current needs and technology.
Through December 31, 1996, GT&T had expended nearly $86 million on the
Expansion Plan and the Company had advanced an aggregate of approximately $23
million to GT&T principally for the Expansion Plan.
A proceeding initiated by the government of Guyana with regard to the
noncompletion of the Expansion Plan by its scheduled completion date of
February 28, 1995, is pending before the PUC. See "--Regulation."
OTHER SERVICES
GT&T is also licensed to provide various telephone-related services that
extend beyond basic telephone service, including yellow pages and other
directory services, and it has an exclusive license to sell, lease or service
various kinds of telecommunications equipment. Under the License, GT&T's rates
for most of these services must be specified in a tariff approved by the PUC.
See "--Regulation."
SIGNIFICANT REVENUE SOURCES
Revenues from the following carriers of international traffic to Guyana
constituted the following percentages of GT&T's revenues in the past three
years:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
AT&T....................................................... 42% 37% 36%
MCI........................................................ 17% 21% 21%
British Telecom............................................ 13% 19% 12%
Teleglobe (Canada)......................................... 26% 13% 12%
</TABLE>
A significant portion of GT&T's international long distance revenue
discussed above is generated by GT&T's audiotext providers which operate as
service bureaus or intermediaries for a number of audiotext information
providers. The following service bureaus accounted for more than 10% of GT&T's
total revenues in the years indicated below:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Beylen Telecommunications, Ltd............................. 40% 60% 57%
Islands Telephone Company Limited.......................... -- 10% 14%
</TABLE>
No other revenue source accounted for more than 10% of GT&T's total revenues
in 1994, 1995 or 1996.
POLITICAL RISK INSURANCE
At the time of its initial investment in GT&T, the Company obtained
political risk insurance with respect to its investment in GT&T (including its
guarantee of GT&T's obligations to Northern Telecom International Finance,
B.V. ("NTIF") from the Overseas Private Investment Corporation ("OPIC"), an
agency of the United States Government. While OPIC has not formally announced
that is has suspended writing political risk insurance or guarantees for U.S.
investments in Guyana, it is the Company's understanding that since the
beginning of 1993 OPIC has provided no new insurance or guarantees for
investments in that country because of its concern about developments between
the Guyana government and two U.S. companies which had been insured by OPIC.
The Company's difficulties in obtaining rate increases from the PUC was one of
OPIC's concerns. Separately, in December 31, 1996, OPIC terminated the
Company's political risk insurance because of OPIC's objections to GT&T's
provision of telecommunication services to international audiotext providers.
Following such termination, the Company obtained other political risk
insurance with respect to its investment in GT&T in the private insurance
market. Under the Company's current insurance policies, the Company is insured
against risks of currency inconvertibility, expropriation and political
violence. The Company's current insurance is limited to 60% of the book value
of the affected property up to a maximum insured amount of $35 million plus
100% in the first year and 85% thereafter of any amounts which the Company is
called upon to pay with respect to its guaranty of GT&T obligations to NTIF as
a result of an insured risk. The insurance policies
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cover only specified risks and contain a number of limitations and exclusions.
The aggregate insurance coverage is significantly less than the fair market
value of the Company's investment in GT&T.
REGULATION
Prior to the Company's acquisition of its 80% interest in GT&T in January
1991, the government of Guyana had no experience in regulating a privately-
owned public utility. GT&T is subject to regulation in Guyana by virtue of the
provisions of the License and of the Guyana Public Utilities Commission Bill
1990 ("PUC Law") and the Guyana Telecommunications Bill 1990
("Telecommunications Law"). Certain provisions of the License, the PUC Law,
and the Telecommunications Law applicable to GT&T are summarized below.
License. The License, which was issued on December 19, 1990, grants GT&T an
exclusive franchise to provide in Guyana (i) for a period of 20 years
(renewable for 20 years at the option of GT&T), public telephone, radio
telephone (except private radio telephone systems which do not interconnect
with GT&T's network) and pay station telephone services and national and
international voice and data transmission, sale of advertising in any
directories of telephone subscribers and switched or non-switched private line
service; and (ii) for a period of 10 years (renewable for 10 years on a non-
exclusive basis at the option of GT&T) supply of terminal and customer
premises equipment and telefax, telex and telegraph service and telefax
network service (without prejudice to the right of any other person to
undertake any of the following operations: (a) sale of telefax or teleprinter
machines, (b) maintenance of telefax or teleprinter equipment, or (c)
operation of any facility for the sending or receiving of telefax copies or
teleprinter messages). In addition, GT&T was granted a non-exclusive license
to provide, for a period of 20 years (renewable for 20 years at the option of
GT&T), cellular radio telephone service provided that the license does not
prejudice the right of Guyana's Institute of Applied Sciences and Technology
to make provision for, or to provide, any telecommunications services in the
course of, or in connection with, the carrying out of its functions.
The Telecommunications Law, the GT&T Agreement and the License include
various provisions under which the License may be terminated before its
scheduled expiration date. Under the applicable Guyana law and the GT&T
Agreement, Guyana's director of telecommunications may cause early termination
of the License in certain cases, including contravention of any of the
provisions of the Telecommunications Law or the conditions of the License, or
the failure of GT&T to implement the Expansion Plan in a timely fashion. See
"Business and Properties of New ATN--Expansion Program." If GT&T believes that
the License has been terminated unlawfully, it may appeal to the courts of
Guyana. Pursuant to the GT&T Agreement, upon non-renewal of the License, the
government will be entitled to purchase the Company's interest in GT&T or the
assets of GT&T on such terms as may be agreed upon by the Company and the
government or, upon failure to reach such agreement, as determined by
arbitration conducted by the International Centre for the Settlement of
Investment Disputes. The PUC is currently holding hearings, with the next
hearing scheduled for November 10, 1997, in a proceeding initiated by the
government of Guyana, with regard to the noncompletion of the Expansion Plan
by its scheduled completion date of February 28, 1995. Under the PUC Law, GT&T
will have the opportunity to explain why the Expansion Plan is unfinished. If
the PUC concludes that GT&T failed or refused to complete the Expansion Plan
in a timely manner without legal justification, it may impose a fine, which
could range from $71 (G $10,000) up to the cost of completing the Expansion
Plan (which GT&T estimates to be no more than $5 million). The PUC could also
recommend to the government that it cancel the License. The Guyana government
is not bound to act on a PUC recommendation. GT&T will have the right of
appeal to the Guyana High Court from any adverse ruling of the PUC. It is
possible that, if the Company ceased doing business within a short period of
time after the consummation of the Transaction as a result of a termination of
the License, the IRS might revoke the Tax Ruling retroactively, with the
result that the distribution of ECI Common Stock might not be tax free for
U.S. federal income tax purposes to the Company and the holders of Company
Stock and Class A Common Stock. See "The Transaction--Certain U.S. Federal
Income Tax Consequences."
PUC Law and Telecommunications Law. The PUC Law and the Telecommunications
Law provide the general framework for the regulation of telecommunications
services in Guyana. The PUC Law provides the basis for setting the rates of a
telecommunications licensee. Subject to the certain limitations, applicable to
the
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years 1991-1994, GT&T is entitled, pursuant to the GT&T Agreement and the PUC
Law, to a minimum return to GT&T of 15% per annum on its rate base. Pursuant
to an amendment to the PUC Law enacted in 1994, the PUC is required to "act in
a manner that is consistent with, and gives effect to, the provisions of" the
GT&T Agreement.
The PUC is an independent statutory body with the principal responsibility
for regulating telecommunications services in Guyana. The PUC has broad powers
to monitor GT&T's compliance with the License and to require GT&T to supply it
with such technical, administrative and financial information as it may
request.
Since GT&T commenced operations as a subsidiary of the Company in 1991, GT&T
has had difficulties in obtaining from the PUC the rate increases to which it
believed it was entitled. In February 1991 the official rate of exchange for
Guyanese currency was changed, allowing the currency to float. This resulted
in a devaluation of approximately 184 percent, and in April 1991, GT&T filed
for a rate increase of 184 percent to compensate for the devaluation. The PUC
in November 1991 granted GT&T, in principal, an increase in rates for
international calls which amounted to approximately 160 percent or less and,
in principal, authorized GT&T to impose a surcharge on these rates in order to
recover over a period of not less than 30 months, the approximately $3.5
million difference between the rates actually in effect from May 1991 through
December 31, 1991 and the revenue which GT&T would have received during this
period if the newly approved rates had been in effect.
Shortly after the issuance of its initial November 1991 order, the PUC
authorized the collection of the new rates (but not any surcharge) for calls
to the United Kingdom, Canada, the United States and Antigua. The PUC declined
to authorize any increase in rates to 165 other countries covered by GT&T's
application on the grounds that GT&T had not submitted original documentary
evidence to the PUC regarding the accounting rates then in effect with these
countries. GT&T's failure to submit such documentation arose because neither
it nor its predecessor, the government-owned telephone company, had such
documentation in their records.
In October 1992, elections were held in Guyana and a new party came to
power. Shortly thereafter, several changes occurred in the membership of the
PUC. After considerable negotiation with the new government and further
applications to the PUC, in December 1993 the PUC authorized 70 percent of the
surcharges requested by GT&T on calls to the United States, United Kingdom,
Canada and Antigua, and in January 1994 the PUC temporarily authorized rate
adjustments in respect of 83 of the remaining countries which amounted to 70
percent or less of the rate increases approved in principal by the PUC in its
initial November 1991 order. Later in 1994, the PUC authorized full surcharges
as requested by GT&T for the United Kingdom, Canada, the United States, and
Antigua, and in 1995, the PUC finally authorized full rates and surcharges for
the 83 countries covered by its temporary order of January 1994 and rejected
GT&T's application for any rate increases on the remaining 82 countries.
In May 1995, GT&T applied to the PUC for substantial increases in all of its
telephone rates to enable it to earn the minimum return of 15% per annum on
its rate base to which it is entitled under the terms of the GT&T Agreement,
and the PUC Law. On October 11, 1995 the PUC issued an order that rejected
GT&T's application for increased rates and temporarily reduced rates for
outbound international calls by 10%, and during off-peak hours by an
additional 50% of the reduced rate. GT&T filed a motion against the October
11, 1995 order to the Guyana High Court and in January 1997 obtained an order
voiding the PUC's order in respect of these rates. When the PUC thereafter
scheduled a hearing to consider fixing new temporary rates for GT&T and
inquiring into the propriety of GT&T's reinstating its pre-October 11, 1995
rates, the Guyana High Court granted a further stay of all PUC proceedings on
these subjects. The PUC has appealed the January 1997 decision of the Guyana
High Court to the Guyana Court of Appeals, and in May 1997, the Consumer
Advisory Bureau (a non-governmental group in Guyana) sought an injunction from
the Guyana High Court, restoring telephone rates to those imposed by the PUC
in its October 1995 order. At the date of this Proxy Statement-Prospectus, the
PUC's appeal and the Consumer Advisory Bureau's application are still pending.
In September 1997 the Guyana High Court denied an order which the Consumer
Advisory Bureau had sought to temporarily enjoin GT&T from putting into effect
a surcharge to recover the approximately $10 million of lost revenues from the
period October
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<PAGE>
1995 to January 1997. GT&T put such surcharge into effect as of October 1,
1997 pending an ultimate trial on the merits.
Since January 1991, the Company has had an agreement with GT&T, which was
approved at its inception by several officials of the Guyana government as
well as the government's representatives on GT&T's Board of Directors,
pursuant to which GT&T paid the Company an advisory fee equal to 6% of GT&T's
revenues for a variety of managerial and advisory services furnished by the
Company to GT&T. On January 2, 1997, the PUC ordered GT&T to cease paying
these advisory fees to the Company and to recover from the Company
approximately $25 million of fees paid under the agreement since January 1991.
GT&T has filed a motion against the PUC's order in the Guyana High Court and
has obtained an order staying the effectiveness of the PUC's order pending
determination of that motion.
At December 31, 1996, GT&T owed the Company approximately $23 million for
advances made from time to time for working capital and capital expenditure
needs of GT&T. The PUC law requires permission of the PUC for GT&T to issue
any debentures or any other evidence of indebtedness payable more than one
year from the date of issue. GT&T's indebtedness to the Company was evidenced
by a series of promissory notes, many of which through clerical error had a
maturity of more than one year from the date of issue. In March 1997, the PUC
rejected GT&T's contention of clerical error and voided all of the promissory
notes then outstanding, including a number which had less than one year
maturities but were issued in consolidation or renewal of earlier notes which
had a more than one year maturity. The PUC ordered that no payments be made on
any of the outstanding notes, and that GT&T recover from the Company all
amounts theretofore paid. The order also provided that the PUC would be
willing to authorize the payment for any amounts properly proven to the
satisfaction of the PUC to be due and payable from GT&T to the Company. GT&T
has appealed the PUC's order to the Guyana High Court and obtained a stay of
the PUC's order pending determination of that appeal.
In late April 1997, the PUC applied to the Guyana High Court for orders
prohibiting GT&T from paying any monies to the Company on account of
intercompany debt, advisory fees or otherwise pending the determination of
GT&T's appeals from the January 1997 and March 1997 PUC orders mentioned
above. At the date of this Proxy Statement-Prospectus, the PUC's application
is still pending.
As a result of the decline in 1997 in GT&T's revenues and profits from
audiotext traffic, GT&T is preparing to file an application to the PUC for a
significant increase in local and outbound international rates. There can be
no assurance as to whether or when GT&T will receive any such rate increase.
FCC Matters. On August 7, 1997, the FCC issued a Report and Order in a
rulemaking procedure which it initiated in December 1996, in which it adopted
mandatory international accounting and settlement rate benchmarks for many
countries, including Guyana. The FCC classified countries as low-income,
middle-income or high-income based upon World Bank data. Guyana is classified
as a low-income country. The FCC adopted a mandatory settlement rate benchmark
of $.23 per minute for low-income countries and required that settlement rates
between the U.S. and low-income countries be reduced to $.23 per minute by
January 1, 2002. The FCC stated in the release that it expects U.S. licensed
carriers to negotiate proportionate annual reductions.
Numerous foreign carriers and Government authorities have opposed the FCC's
proceedings in this area, and GT&T and a number of other carriers have filed
an appeal from the FCC's August 7, 1997 Report and Order to the U.S. Court of
Appeals for the District of Columbia. In general, those parties believe that
accounting and settlement rates should continue to be established, as they are
today, through bilateral negotiations between carriers. Opponents of the FCC's
proposal believe that the proposal is contrary to binding treaty obligations
of the United States relating to duly-constituted multilateral organizations,
and that the FCC does not possess the necessary legal authority to adopt such
proposals. Opponents also believe that the FCC's proposals are legally and
factually deficient in other ways.
The FCC stated in the release that it encourages foreign governments and
carriers to work with the United States toward an effective international
agreement that achieves lower settlement rates, and that it may refrain from
enforcing its Order if a satisfactory multilateral solution can be reached
that will produce substantially equivalent results in a timely manner.
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The current settlement rate for U.S.-Guyana traffic is $.85 per minute. AT&T
has previously sought the Company's agreement to a reduction in that
settlement rate. GT&T has taken the position that the settlement rate was
fixed through bilateral negotiations and sees no reason to change the rate at
this time. GT&T believes that the rate should remain the same until the
parties mutually agree to change it. The Company is unable to predict or what
actions the FCC or U.S. carriers may take in an effort to secure lower
settlement rates on the U.S.-Guyana route.
Since inbound traffic from the United States to Guyana significantly exceeds
outbound traffic from Guyana to the United States, any significant reduction
in the settlement rate for U.S.-Guyana traffic could have a significant
adverse impact on GT&T's earnings. Any significant reduction in the settlement
rate also might make it difficult for GT&T to continue to attract audiotext
traffic from the United States on a profitable basis. Any of these events
would provide GT&T with a basis to seek a rate increase so as to permit GT&T
to earn its contractually provided 15% rate of return. However, there can be
no assurance as to when or whether GT&T would receive such a rate increase.
FTC Matters. The Federal Trade Commission ("FTC") has pending a proceeding
in which it has asked parties for comments and information as to whether the
FTC should expand the definition of "pay-per-call" services to include
audiotext services such as those which GT&T terminates in Guyana. The FTC has
received formal comments and conducted a workshop in connection with the
proceeding but has taken no action. It is unclear what the exact impact would
be if the FTC were to include international audiotext traffic from the United
States in the definition of "pay-per-call." Two requirements which currently
apply in the United States to area code 900 traffic, but not to international
audiotext traffic which, in general, is treated like any other international
telephone call, are: (i) the caller must receive a short preamble at the
beginning of the call advising the caller of the cost of the call and
permitting the caller to terminate the call without charge if terminated
immediately, and (ii) local telephone companies are not permitted to
disconnect a subscriber's telephone service for failure to pay charges for
area code 900 calls. If the effect of the FTC's including international
audiotext traffic from the United States in the definition of "pay-per-call"
were to apply these requirements to international audiotext traffic from the
United States, it would probably be technically impossible for recipients of
international audiotext traffic, such as GT&T, to comply with the free
preamble requirement. Moreover, the loss of the collection advantage which
international audiotext has under existing regulations may make it difficult
for international audiotext providers who use Guyana and other foreign
telephone companies to compete on a cost basis with domestic U.S. providers of
area code 900 services.
TAXATION--UNITED STATES
As a U.S. corporation, the Company is subject to U.S. federal income tax on
its worldwide net income, currently at rates up to 35%. GT&T will be
classified as a controlled foreign corporation ("CFC") for purposes of the
Subpart F provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). Under those provisions, the Company may be required to include in
income certain earnings and profits ("E&P") of a CFC subsidiary at the time
such E&P are earned by the subsidiary, or at certain other times, prior to
their being distributed to the Company. At present, no material amount of such
subsidiary E&P is includible in the U.S. taxable income of the Company before
being distributed to it. Pursuant to the foreign tax credit provisions of the
Code, and subject to complex limitations contained in those provisions, New
ATN would be entitled to credit foreign withholding taxes on dividends or
interest received, and foreign corporate income taxes of its subsidiaries paid
with respect to income distributed as dividends or deemed distributed under
Subpart F from such subsidiaries, against New ATN's U.S. federal income tax.
A U.S. corporation is classified as a Personal Holding Company ("PHC") if
(a) more than 50% of its capital stock is owned directly or indirectly by or
for five or fewer individuals (or pension plans); and (b) at least 60% of its
adjusted ordinary gross income consists of certain types of income
(principally passive income, including interest and dividends) included in the
Code definition of "PHC Income." For any taxable year that a corporation is a
PHC, the "undistributed personal holding company income" of such corporation
for that year (i.e., the net income of the corporation as reflected on its
U.S. corporate income tax return, with certain
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adjustments, minus, in general, federal income tax and dividends distributed
or deemed distributed for this purpose) would be subject to an additional PHC
tax of 39.6%. The Company currently satisfies, and immediately upon the
consummation of the Transaction will continue to satisfy, the above ownership
criterion but the Company believes that it does not satisfy the income
criterion for classification as a PHC.
TAXATION--GUYANA
In 1991, GT&T's worldwide income was subject to Guyanese tax at an overall
rate of 45%. The tax rate was reduced to 35% effective for GT&T as of January
1, 1992 and was again increased to 45% effective for GT&T as of January 1,
1993. The GT&T Agreement provides that the repatriation of dividends to the
Company and the payment of interest on GT&T debt denominated in foreign
currency are not subject to withholding taxes. It also provides that fees
payable by GT&T to the Company or any of its subsidiaries for management
services they are engaged to render shall be payable in foreign currency and
that their repatriation to the United States shall not be subject to currency
restrictions.
In May 1997, GT&T received a letter from the Guyanese department of Inland
Revenue indicating that GT&T's tax returns for 1992 through 1996 had been
selected for an audit under the direct supervision of the Trade Minister with
particular focus on the withholding tax on payments to international audiotext
providers. In March and April 1997, the Guyanese Trade Minister publicly
announced that he had appointed a task force to probe whether GT&T should pay
withholding taxes on fees paid by GT&T to international audiotext providers.
The Minister announced that if GT&T were found guilty of tax evasion it could
owe as much as $40 million in back taxes. In July 1997, GT&T applied to the
Guyana High Court for an order prohibiting this audit on the grounds that the
decision of the Minister of Trade to set up this task force and to control and
direct its investigation was beyond his authority, violated the provisions of
the Guyanese Income Tax Act, interfered with the independence of the
Commissioner of Inland Revenue and was done in bad faith, and the court issued
an order effectively staying the audit pending a determination by the court of
the merits of GT&T's application.
In June 1997, GT&T received an assessment of approximately $3.9 million from
the Commissioner of Inland Revenue for taxes for the current year based on the
disallowance as a deduction for income tax purposes of five-sixths of the
advisory fees payable by GT&T to the Company. The deductibility of these
advisory fees in an earlier year had been upheld in a decision of the High
Court in August 1995. In July 1997, GT&T applied to the High Court for an
order prohibiting the Commissioner of Inland Revenue from further proceeding
with this assessment on the grounds that the assessment was arbitrary and
unreasonable and capriciously contrary to the August 1995 decision of the
Guyana High Court, and GT&T obtained an order of the High Court effectively
prohibiting any action on the assessment pending the determination by the
court of the merits of GT&T's application. There can be no assurance as to the
ultimate outcome of these pending tax issues.
EMPLOYEES
As of December 31, 1996, GT&T employed approximately 745 persons of whom
approximately 565 are represented by the Guyana Postal and Telecommunications
Workers Union. GT&T's current contract with this union expired on March 31,
1997, and GT&T is currently in negotiations with the union on a new contract.
The Company considers its employee relations to be satisfactory. The Clerical
& Commercial Workers Union, in February 1996, sought recognition to represent
supervisors, junior managers and senior managers employed by GT&T. These
levels of employees are not now unionized, but the Clerical & Commercial
Workers Union has claimed that more than 50% of this level of staff are
members of the Union. GT&T has responded that its current policy does not
provide for collective bargaining of its management employees, and has
requested evidence of the more that 50% membership.
PROPERTIES
At December 31, 1996, GT&T utilized approximately 254,000 square feet of
building space on approximately 41 acres of land in various locations
throughout Guyana, all of which is owned by GT&T. In addition, GT&T leases
approximately 3,000 square feet of office space in Georgetown, Guyana. For
additional information, see "Business and Properties of New ATN--Expansion
Program." GT&T carries insurance against damage to equipment and buildings,
but not to outside plant.
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SELECTED HISTORICAL FINANCIAL DATA OF ATN-VI
The following selected historical financial data have been derived from the
audited consolidated financial statements of ATN-VI and its subsidiaries,
which includes the Company's operations in the U.S. Virgin Islands to which
ECI will succeed, as of and for the years ended December 31, 1996, 1995, 1994,
1993 and 1992. The following selected historical financial data for the six
months ended June 30, 1997 and 1996 have been derived from the unaudited
consolidated condensed interim financial statements of ATN-VI which, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation. The
selected historical consolidated financial data should be read in conjunction
with the audited consolidated financial statements and related notes thereto
of ATN-VI, as of December 31, 1996 and for each of the three years in the
period ended December 31, 1996 and ATN-VI's unaudited consolidated condensed
interim financial statements and notes thereto as of June 30, 1997 and for the
six months ended June 30, 1997 and 1996 which are included elsewhere in this
Proxy Statement-Prospectus. The consolidated financial data for the six months
ended June 30, 1997 are not necessarily indicative of the operating results to
be expected for the entire fiscal year. All dollar amounts are in thousands,
except per share data.
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SELECTED STATEMENT OF OPERATIONS DATA OF ATN-VI
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Telephone operations:
Revenues:
Local exchange serv-
ice.................. $22,471 $21,779 $23,082 $21,335 $23,122 $11,376 $13,091
Access charges and
revenues............. 13,493 14,845 14,689 13,608 16,124 7,076 8,599
Universal Service
Fund................. 11,168 13,201 12,081 12,151 11,360 5,604 7,042
Billing and other rev-
enues................ 3,997 4,210 3,943 3,638 4,580 1,990 2,420
Directory advertising. 3,420 3,020 2,916 2,730 2,563 1,293 914
------- ------- ------- ------- ------- ------- -------
Total revenue.......... 54,549 57,055 56,711 53,462 57,749 27,339 32,066
Total expense.......... 35,367 38,462 38,690 38,001 40,912 18,913 20,133
------- ------- ------- ------- ------- ------- -------
Income from telephone
operations............. 19,182 18,593 18,021 15,461 16,837 8,426 11,933
Income from other opera-
tions.................. 1,443 1,550 1,942 2,639 2,684 1,686 610
Non-operating revenues
and expenses (other
than interest), net.... (644) (9,341) (2,279) (3,138) (2,588) (1,555) (1,772)
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before in-
terest expense, income
taxes and minority in-
terest................. 19,981 10,802 17,684 14,962 16,933 8,557 10,771
Interest expense, net... 10,053 10,054 9,520 8,862 9,082 4,569 4,339
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before in-
come taxes and
minority interest...... 9,928 748 8,164 6,100 7,851 3,988 6,432
Income taxes (2)........ 3,659 352 3,054 1,631 2,215 1,170 (9,003)
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before mi-
nority interest........ 6,269 396 5,110 4,469 5,636 2,818 15,435
Minority interest....... (14) (23) (47) (87) (81) (63) (4)
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations............. $ 6,255 $ 373 $ 5,063 $ 4,382 $ 5,555 $ 2,755 $15,431
======= ======= ======= ======= ======= ======= =======
Dividends per share..... -- -- -- -- -- -- --
</TABLE>
SELECTED BALANCE SHEET DATA OF ATN-VI
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
-------------------------------------------- -----------
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- -----------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed assets, net....... $145,010 $154,940 $146,706 $129,810 $149,574 $148,823
Total assets............ 203,789 200,906 199,206 211,918 216,817 218,356
Short-term debt
(including current
portion of long-term
debt).................. 6,807 7,909 7,184 8,665 18,498 17,061
Long-term debt, net..... 117,488 110,223 102,644 99,093 93,079 89,341
Stockholders equity..... 27,058 26,751 32,233 35,500 41,883 57,314
</TABLE>
- --------
- -------------------------------------------------------------------------------
(1) Historical income per share amounts have not been presented as this
information is not considered meaningful.
(2) In May 1997, Vitelco received approval from the Virgin Islands Industrial
Development Commission for a five year exemption (commencing October 1,
1998) from 90% of Virgin Islands income taxes and 100% of Virgin Islands
gross receipts, excise and property taxes. In accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, the
Company has adjusted its deferred tax assets and liabilities to reflect
the change in tax rates applicable to Vitelco during the benefit period.
This change resulted in the Company recording a non-recurring credit to
income tax expense of approximately $10.9 million in the six months ended
June 30, 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ATN-VI
INTRODUCTION
ATN-VI includes the Company's operations in the U.S. Virgin Islands to which
ECI will succeed. ATN-VI's revenues and income from continuing operations are
derived principally from the operations of its telephone subsidiary, Vitelco.
Vitelco derives most of its revenues from local telephone and long-distance
access services. Other operations in ATN-VI's Consolidated Statements of
Operations include: Vitelcom Cellular, Inc. d/b/a VitelCellular, which
provides cellular telephone service in the U.S. Virgin Islands; and Vitelcom,
which supplies customer premises equipment in the U.S. Virgin Islands.
The principal components of operating expenses for ATN-VI's telephone
operations are plant specific operations expenses, plant non-specific
operations expenses, customer operations expenses, corporate operations
expenses, and taxes other than income taxes. These categories are consistent
with FCC accounting practices. Plant specific operations expenses relate to
support and maintenance of telephone plant and equipment and include vehicle
expense, land and building expense, central office switching expense and cable
and wire expense. Plant non-specific operations expenses consist of
depreciation charges for telephone plant and equipment and expenses related to
telephone plant and network administration, engineering, power, materials and
supplies, provisioning and plant network testing. Customer operations expenses
relate to marketing, providing operator services for call completion and
directory assistance, and establishing and servicing customer accounts.
Corporate operations expenses include Vitelco's expenses for executive
management and administration, corporate planning, accounting and finance,
external relations, personnel, labor relations, data processing, legal
services, procurement and general insurance. Taxes other than income taxes
include gross receipts taxes, property taxes, and other miscellaneous taxes.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Revenues from telephone operations for the six months ended June 30, 1997
were $32.1 million as compared to $27.3 million for the corresponding period
of the prior year, an increase of $4.7 million, or 17%. This increase was
primarily the result of recovery from Hurricane Marilyn in September 1995 and
an increase in Universal Service Fund revenues of $1.4 million for the six
months ended June 30, 1997, as a result of increased investment in net fixed
assets. At June 30, 1997 Vitelco had 61,055 lines in service compared to
58,824 at the corresponding date in the prior year.
Consolidated telephone operating expenses for the six months ended June 30,
1997 were $20.1 million, an increase of $1.2 million, or 6%, from consolidated
telephone operating expenses of $18.9 million for the corresponding period of
the prior year. The increase is principally the result of a $1.3 million
increase in plant non-specific operations, as depreciation increased due to
increased telephone plant in service. As a percentage of revenues from
telephone operations, consolidated telephone operating expenses decreased to
approximately 63% for the six month period ended June 30, 1997, from
approximately 69% for the corresponding period of 1996.
Income from telephone operations from the six months ended June 30, 1997 was
$11.9 million, as compared to $8.4 million for the corresponding period of the
prior year, an increase of $3.5 million, or 42%. The change occurred
principally as a result of factors affecting revenues from telephone
operations and consolidated telephone operating expenses discussed above.
Income before income taxes and minority interest for the six months ended
June 30, 1997 was $6.4 million, as compared to $4.0 million for the
corresponding period of the prior year, an increase of $2.4 million, or 61%.
The significant factors that contributed to the increase for the six months
ended June 30, 1997, were: (i) the $3.5 million increase in income from
telephone operations discussed above; (ii) $1.1 million decrease in income
from other operations, principally from decreased cellular operations; (iii)
$230,000 decrease in net interest expense due to reduced debt; and (iv) a
$217,000 increase in other revenues and expenses, due to increased corporate
activity.
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As discussed in Note C to the Consolidated Condensed Financial Statements,
Vitelco received approval from the Virgin Islands Industrial Development
Commission for a five year exemption (commencing October 1, 1998) from 90% of
Virgin Islands income taxes and 100% of Virgin Islands gross receipts, excise
and property taxes. In accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, the Company has adjusted its
deferred tax assets and liabilities to reflect the change in the tax rates
applicable to Vitelco during the benefit period. This change has resulted in
ATN-VI recording a non-recurring credit to income tax expense of approximately
$10.9 million in the six months ended June 30, 1997. The effect of the tax
exemption on future current taxes payable during the benefit period will be
reflected in ATN-VI's financial statements during the benefit period. On
October 9, 1997, the Virgin Islands Public Service Commission instituted a
proceeding to determine whether Vitelco's rates are just and reasonable in
light of this tax rebate. There can be no assurance as to the outcome of this
proceeding.
Before giving effect to the change in deferred taxes discussed above, ATN-
VI's effective tax rate for the six months ended June 30, 1997 was 29% as
compared to 29% for the corresponding period of the prior year.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues from telephone operations for the year ended December 31, 1996 were
$57.7 million, an increase of $4.2 million, or 8%, from revenues from
telephone operations of $53.5 million for the year ended December 31, 1995.
The increase was primarily the result of increases of $1.8 million, or 8%, in
local exchange revenues and $2.5 million, or 18%, in access charge revenues at
Vitelco for the year ended December 31, 1996. The increase in these revenues
is a result of restored lines in service to pre-Hurricane Marilyn levels. At
December 31, 1996 Vitelco had 59,470 lines in service.
Telephone operating expenses for the year ended December 31, 1996 were $40.9
million, an increase of $2.9 million, or 8%, from telephone operating expenses
of $38.0 million for the year ended December 31, 1995. The increase was
primarily the result of increases in plant-specific expenses of $2.5 million,
or 27%, as a result of additional maintenance costs related to Hurricane
Marilyn and subsequent storms and an increase of $884,000, or 6%, in plant
non-specific expenses due to increased depreciation as a result of additional
telephone plant in service, partially offset by the capitalization of certain
expenses at Vitelco in the first quarter of 1996 as Vitelco's work force was
shifted from maintenance activities to repairing the damage caused by
Hurricane Marilyn. As a percentage of revenues from telephone operations,
telephone operating expenses were approximately 71% for the years ended
December 31, 1995 and 1996.
Income from telephone operations for the year ended December 31, 1996 was
$16.8 million, an increase of $1.4 million, or 9%, from income from telephone
operations of $15.5 million for the year ended December 31, 1995. The increase
resulted from the $4.2 million increase in telephone operating revenues,
partially offset by the $2.9 million increase in telephone operating expenses
as the restoration of lines in service after Hurricane Marilyn's impact
progressed to a pre-hurricane level.
Income before income taxes and minority interest for the year ended December
31, 1996 was $7.9 million, an increase of $1.8 million, or 29%, from $6.1
million for the year ended December 31, 1995. This increase was primarily the
result of the $1.4 million increase in income from telephone operations
discussed above and a $550,000 net decrease in non-operating expenses due to
lower corporate expenses, partially offset by a $220,000 increase in net
interest expenses as a result of a decrease in interest income due to reduced
cash on hand resulting from hurricane repair expenditures.
ATN-VI's effective tax rate for the year ended December 31, 1996 was 28.2%
as compared to 26.7% for the year ended December 31, 1995.
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<PAGE>
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues from telephone operations for the year ended December 31, 1995 were
$53.5 million, a decrease of $3.2 million, or 6% from telephone operations of
$56.7 million for the prior year. The decrease was primarily the result of
Hurricane Marilyn which put approximately 37,800 of Vitelco's approximately
60,000 access lines out of service on September 15, 1995. At December 31,
1995, Vitelco had 40,761 lines in service. Principally as a result of the
impact of Hurricane Marilyn on Vitelco's lines in service in the fourth
quarter, Vitelco's local exchange revenues decreased by $1.7 million, or 8%,
and Vitelco's access charge revenues decreased by $1.1 million, or 7%, for the
year ended December 1995.
Telephone operating expenses for the year ended December 31, 1995 were $38.0
million, a decrease of $689,000, or 2%, from telephone operating expenses of
$38.7 million for the year ended December 31, 1994. This decrease was
primarily the result of a shifting in the fourth quarter of 1995 of Vitelco's
work force from maintenance activities to repairing the damage caused by
Hurricane Marilyn. As a percentage of revenues from telephone operations,
telephone operating expenses increased to approximately 71% for the year ended
December 31, 1995 from approximately 68% for the year ended December 31, 1994.
Income from telephone operations from the year ended December 31, 1995 was
$15.5 million, a decrease of $2.6 million, or 14%, from income from telephone
operations of $18.0 million for the year ended December 31, 1994. The decrease
resulted primarily from the $3.2 million decrease in telephone operating
revenues, partially offset by the $689,000 decrease in telephone operating
expenses discussed above.
Income before income taxes and minority interest for the year ended December
31, 1995 was $6.1 million, a decrease of $2.1 million, or 25%, from income
before income taxes and minority interest of $8.2 million for the year ended
December 31, 1994. This decrease was primarily the result of the $2.6 million
decrease in income from telephone operations described above and an $859,000
increase in net non-operating expense due to increased corporate activity,
partially offset by a $697,000 increase in income from other operations due
primarily to increased cellular revenues in the aftermath of Hurricane Marilyn
and a $658,000 decrease in net interest expenses due to an increase in
interest income on cash reserves.
ATN-VI's effective tax rate for the year ended December 31, 1995 was 26.7%
as compared to 37.4% for the year ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
ECI will depend upon funds received from its subsidiaries to meet its
capital needs, including servicing debt and financing of any future
acquisitions.
In the Transaction ECI will assume approximately $5.5 million of bank debt
of the Company which is currently outstanding under a short-term credit
facility which under an oral agreement with the bank expires October 1, 1998.
In connection with the Transaction, ATN-VI will borrow approximately $17.4
million, net, from the RTFC under the 15 year Credit Facility. This facility
will provide for quarterly amortization of principal and interest of
approximately $500,000 commencing on the first full billing cycle after
disbursement. For additional information on the Credit Facility, see "The
Transaction--The Credit Facility."
ATN-VI's loan agreements with the RTFC will limit the payment of dividends
by ATN-VI to ECI unless ATN-VI maintains an average times interest expense
coverage ("TIER") of at least 1.5 for two of the past three fiscal years and,
after giving effect to the dividend, shows a consolidated shareholders equity
for ATN-VI and its subsidiaries that is not less than 30% of its total assets
on a consolidated basis as shown on its most recent quarterly balance sheet,
provided, however, that ATN-VI may make an otherwise prohibited dividend
payment if, after giving effect to such dividend payment, the consolidated
stockholders equity of ATN-VI and its subsidiaries will not be less than 20%
of total assets on a consolidated basis and aggregate dividend payments for
the fiscal year do not exceed 50% of total net income for the prior fiscal
year. At June 30, 1997, ATN-VI would have been able to pay approximately $2.8
million of dividends to ECI under this limitation.
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A portion of the amount outstanding on the ATN-VI note payable to the RTFC
bears interest at RTFC's standard variable rate, which at June 30, 1997, was
6.65% for $1.3 million outstanding, with the balance of $17.2 bearing interest
at a fixed rate of 8%. Interest on the $11.5 million and $10.7 million
outstanding on the Vitelco notes payable to RTFC is fixed at 9.75% and 8%,
respectively.
ATN-VI's ability to service its debt will be dependent on funds from its
parent or its subsidiaries, primarily Vitelco. The RUS loan and applicable RUS
regulations restricts Vitelco's ability to pay dividends based upon certain
net worth tests except for limited dividend payments authorized when specific
security instrument criteria are unable to be met. Settlement agreements made
in 1989 and 1991 with the PSC also contain certain restrictions on dividends
by Vitelco which, in general, are more restrictive than those imposed by the
RUS. Dividends by Vitelco are generally limited to 60% of its net income,
although additional amounts are permitted to be paid for the sole purpose of
servicing ATN-VI's debt to the RTFC. Under the above restrictions, at June 30,
1997, Vitelco's dividend paying capacity was approximately $8.4 million in
excess of the amounts permitted for servicing ATN-VI debt.
The RUS Loan Agreement calls for fixed monthly principal and interest
payments of $7.04 per $1,000 of loan balance with any remaining balance due
May 2012. At June 30, 1997, the amount outstanding was $55.6 million, bearing
interest at a fixed rate of 5%.
The RTFC Loan and RUS Loan agreements also require, among other things,
maintenance of minimum debt service ("DSC") and TIER and restrictions on
issuance of additional long-term debt. The RTFC Loan Agreement requires ATN-VI
to maintain a DSC of at least 1.35 and a TIER of at least 1.5 for each fiscal
year and Vitelco to maintain DSC of at least 1.25 and a TIER of at least 1.5
for two the last three fiscal years. Vitelco may incur additional debt with
RUS without prior approval from RTFC if Vitelco maintains a DSC of not less
than 1.25 and a TIER of not less than 1.5.
The RTFC Loan Agreement contains covenants, which, with certain exceptions,
restrict: (i) Vitelco from entering into any business venture with respect to
business in which it is not currently engaged and ATN-VI from entering into
any business venture other than as a holding company for its subsidiaries;
(ii) ATN-VI from selling and permitting any liens upon the capital stock of
Vitelco, (iii) ATN-VI from incurring additional indebtedness, (iv) ATN-VI from
declaring or paying any dividends, unless certain criteria are met, (v) ATN-VI
and Vitelco from engaging in mergers or consolidations, (vi) ATN-VI from
making or committing to make any investment in any person except as otherwise
permitted, (vii) ATN-VI from creating, assuming, incurring or suffering to
exist any lien upon any of its property or assets or the property or assets of
Vitelco, (viii) ATN-VI from forming or acquiring any subsidiaries, and (ix)
ATN-VI from permitting any subsidiary to sell or transfer any asset for
purposes of effecting a lease.
The RUS Loan Agreements contain covenants, which, with certain exceptions
restrict Vitelco from: (i) engaging in mergers and consolidations, (ii)
selling, leasing or transferring any capital assets, (iii) entering into any
contract for the management of its business or operations or maintenance of
its properties, (iv) declaring or paying dividends, unless certain criteria
are met, (v) guaranteeing or incurring additional indebtedness, and (vi)
making investments except as otherwise permitted. As of June 30, 1997, ATN-VI
and Vitelco were in compliance with all covenants contained in their long-term
debt agreements.
At June 30, 1997, Vitelco had outstanding $5 million of borrowings under a
$5 million line of credit with the RTFC expiring in March 2000, and an
additional $5 million under a $15 million line of credit with the RTFC
expiring in October 1997, each with interest rates of 7.25%. These borrowings
were incurred to finance part of the costs of repairing damage to Vitelco's
telephone plant caused by Hurricane Marilyn in September 1995. Vitelco has
also received approval from the RUS for $35.7 million of long-term financing,
which may be used to repay Vitelco's outstanding line of credit borrowings
from the RTFC. Borrowings under Vitelco's $5 million line of credit are
required to be repaid within 12 months of the date of the borrowing, but may
be repaid from the proceeds of borrowings under the $15 million line of
credit. Borrowings under Vitelco's $15 million line of
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credit will mature on October 31, 1997, at which date, if long-term loan funds
from RUS have not yet been made available to Vitelco, Vitelco will have the
option of rolling the outstanding amount borrowed under that line of credit
into a 15-year term loan from RTFC having terms substantially similar to those
contained in Vitelco's existing long-term loan from RTFC.
The effect of inflation on ATN-VI's financial results of telephone
operations in the U.S. Virgin Islands has not been significant in recent
years. The effect of inflation on the cost of providing telephone service in
U.S. Virgin Islands has generally been offset (without any increase in local
subscribers' rates) by increased revenues resulting from growth in the number
of subscribers and from regulatory cost recovery practices in determining
access revenues.
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ECI
PRO FORMA FINANCIAL DATA
The following are unaudited pro forma consolidated condensed statements of
operations data and consolidated condensed balance sheet data for ECI. The pro
forma consolidated condensed balance sheet data as of June 30, 1997 gives
effect to the Transaction, as if it occurred on June 30, 1997. The unaudited
pro forma consolidated condensed statement of operations data for the year
ended December 31, 1996 and the six months ended June 30, 1997 gives effect to
the Transaction, as if it occurred on January 1, 1996. The Transaction is
accounted for as a non-pro rata split-off of New ATN and New ATN is accounted
for at fair value. New ATN is considered to be the split-off entity since it
is anticipated that ECI will have greater market recapitalization (based on
the Opinion), ECI will have greater asset value, ECI will retain more of the
top management of the Company, and ECI had greater net income for the six
months ended June 30, 1997. The pro forma adjustments are described in the
accompanying notes hereto. The pro forma consolidated condensed balance sheet
and statements of operations data should be read in conjunction with the
consolidated financial statements and notes thereto of the Company and ATN-VI,
which includes the Company's operations in the U.S. Virgin Islands to which
ECI will succeed, as of December 31, 1996 and for each of the three years in
the period ended December 31, 1996 and the Company's and ATN-VI's unaudited
consolidated condensed interim financial statements and notes thereto as of
June 30, 1997 and for the six months ended June 30, 1997 and 1996 which are
included elsewhere in this Proxy Statement-Prospectus. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred if the Transaction had occurred on January 1, 1996 or June 30, 1997,
respectively, nor is it necessarily indicative of future operating results or
financial position. All dollar amounts are in thousands, except per share
amounts.
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ECI
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ATN-VI PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash......................................... $ 6,160 $ 4 (1) $ 2,834
17,400 (2)
(20,730)(3)
Accounts receivable.......................... 13,663 202 (1) 14,070
205 (3)
Other current assets......................... 11,590 104 (1) 11,694
-------- -------- --------
Total current assets....................... 31,413 (2,815) 28,598
Net fixed assets............................. 148,823 7,310 (1) 156,590
457 (3)
Regulatory Asset............................. 22,250 22,250
Other assets................................. 15,870 2 (1) 16,788
916 (2)
-------- -------- --------
$218,356 $ 5,870 $224,226
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.......................... $ 37,692 $ 802 (1) $ 44,082
5,588 (3)
Long-term debt............................... 89,341 2,475 (1) 110,276
18,316 (2)
144 (3)
Due to Atlantic Tele-Network, Inc. .......... 24,134 (24,134)(3) 0
Other liabilities and minority interest...... 9,875 340 (1) 10,215
Total stockholders' equity:.................. 57,314 4,005 (1) 59,653
(1,666)(3)
-------- -------- --------
$218,356 $ 5,870 $224,226
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
72
<PAGE>
ECI
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 30, 1997
---------------------------------- ------------------------------------
ATN-VI ATN-VI
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
RESULTS ADJUSTMENTS PRO FORMA RESULTS ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Telephone operations:
Net revenues.......... $57,749 $57,749 $32,066 $32,066
Net expenses.......... 40,912 40,912 20,133 20,133
------- ------ ------- ------- ----- -------
Income from telephone
operations............. 16,837 0 16,837 11,933 0 11,933
Income from other
operations............. 2,684 2,684 610 610
Non-operating revenues
and expenses (other
than interest), net.... (2,588) (349)(6) (2,937) (1,772) (175)(6) (1,947)
------- ------ ------- ------- ----- -------
Income from continuing
operations before
interest expense,
minority interest and
income taxes........... 16,933 (349) 16,584 10,771 (175) 10,596
Interest expense, net... 9,082 1,282 (4) 8,714 4,339 641 (4) 4,148
(1,650)(5) (832)(5)
------- ------ ------- ------- ----- -------
Income from continuing
operations before
income taxes and
minority interest...... 7,851 19 7,870 6,432 16 6,448
Income taxes............ 2,215 (480)(4) 2,250 (9,003)(7) (240)(4) (8,982)
634 (5) 320 (5)
(119)(6) (59)(6)
------- ------ ------- ------- ----- -------
Income from continuing
operations before
minority interest...... 5,636 (16) 5,620 15,435 (5) 15,430
Minority interest....... (81) (81) (4) (4)
------- ------ ------- ------- ----- -------
Income from continuing
operations............. $ 5,555 $ (16) $ 5,539 $15,431 $ (5) $15,426
======= ====== ======= ======= ===== =======
Income per share from
continuing operations.. $ 0.51 $ 1.41
======= =======
Weighted average shares
outstanding............ 10,959 10,959
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE>
ECI
NOTES TO PRO FORMA FINANCIAL DATA
The Transaction is accounted for as a non-pro rata split-off of New ATN and
New ATN is accounted for at fair value. New ATN is considered to be the split-
off entity since it is anticipated that ECI will have greater market
recapitalization (based on the Opinion), ECI will have greater asset value,
ECI will retain more of the top management of the Company, and ECI had greater
net income for the six months ended June 30, 1997.
The non-recurring loss on the split-off and fair valuation of the net assets
of New ATN of $45.6 million is not reflected in the pro forma consolidated
condensed statement of operations.
(1) To reflect the transfer to ECI of the capital stock of Atlantic Aircraft,
Inc. and indebtedness owed by Atlantic Aircraft, Inc. to the Company.
(2) To reflect the $18.3 million of long-term financing under the Credit
Facility and the related acquisition of Subordinated Capital Certificates.
(3) To reflect (a) the payment of intercompany debt owed by ATN-VI to the
Company of $17.4 million plus the final closing adjustment under the
Subscription Agreement based on assumed transaction costs of $3.5 million,
(b) the contribution to ECI of the remaining indebtedness of ATN-VI owing
to the Company, (c) the assumption of certain bank indebtedness by ECI and
(d) the transfer of miscellaneous assets to ECI.
(4) To record interest expense and related tax benefit on the new borrowing of
$18.3 million under the Credit Facility.
(5) To reflect the reversal of (a) interest expense paid on intercompany debt
owed by ATN-VI to the Company of $2,155,000 and $1,086,000, (b) record
interest expense on certain bank indebtedness to be assumed by ECI of
$505,000 and $254,000 and (c) record their related income tax impacts of
$634,000 and $320,000 for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively.
(6) To record additional compensation expense in accordance with ECI's
employment agreement with Jeffrey J. Prosser and the related income tax
benefit.
(7) In May 1997, Vitelco received approval from the Virgin Islands Industrial
Development Commission for a five year exemption (commencing October 1,
1998) from 90% of Virgin Islands income taxes and 100% of Virgin Islands
gross receipts, excise and property taxes. In accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, the
Company has adjusted its deferred tax assets and liabilities to reflect
the change in tax rates applicable to Vitelco during the benefit period.
This change resulted in the Company recording a non-recurring credit to
income tax expense of approximately $10.9 million ($.99 per share on a pro
forma basis) in the six months ended June 30, 1997.
(8) The Company shares certain general and administrative costs with its
affiliated entity, ATN-VI. These shared costs have historically been
allocated to ATN-VI in approximately the same proportion as operating
revenues of ATN-VI bears to the Company's total operating revenues.
Management believes the allocation methods used are reasonable. However,
such costs are not necessarily indicative of the costs that would have
been incurred if the companies had been operated as unaffiliated entities.
It is not practical to estimate these costs on a stand-alone basis.
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BUSINESS AND PROPERTIES OF ECI
ECI is a newly formed Delaware corporation, incorporated in 1997, which,
following the Effective Date, will own and operate the Company's business and
operations in the Virgin Islands. On and immediately after the Effective Date,
ECI's principal subsidiary will be Vitelco. Vitelco is the exclusive provider
of local telephone service in the U.S. Virgin Islands. Vitelco provides
subscribers with local telephone service in the U.S. Virgin Islands, access to
long-distance companies for interstate and international telephone service,
and provides those companies with access to its local network. ECI will also
be engaged, through its wholly owned subsidiary ATN-VI in selling and leasing
telecommunications equipment in the US Virgin Islands (a business now
conducted by Vitelcom) and, through its 90 percent owned subsidiary,
VitelCellular, in providing cellular telephone service in the U.S. Virgin
Islands to land-based and marine subscribers.
It is the intention of Mr. Prosser, as the controlling stockholder of ECI,
after the Effective Date to endeavor to expand ECI's operations through the
acquisition of other businesses. ECI cannot predict whether it will be
successful in pursuing such acquisition opportunities or what the consequences
of any such acquisition would be. The evaluation and negotiation of such
business acquisitions may involve significant expenditures by ECI. There can
be no assurance that ECI will be able to acquire or successfully integrate any
such businesses, and acquisitions that are consummated may involve the
incurrence of significant amounts of debt by ECI and/or the dilution of
existing stockholders' interests in ECI through the issuance of additional
shares of ECI capital stock. No assurances can be given that any acquisitions
will be consummated or that, if completed, they will be successful.
Furthermore, there can be no assurance that ECI's management will be able to
manage effectively any resulting business or that any acquisition will benefit
ECI. Depending upon the nature, size and timing of acquisitions, ECI may be
required to raise financing. There can be no assurance that the Credit
Facility, or any other loan agreements to which ECI or its subsidiaries may
become a party will permit such additional financing or that such additional
financing will be available to ECI on terms acceptable to management or at
all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of ECI--Liquidity and Capital Resources."
LOCAL SERVICE
In 1995, based upon access line data provided by the United States Telephone
Association (the "USTA"), Vitelco was the 28th largest local telephone company
of more than 1,000 local telephone companies in the United States.
Approximately 40% of Vitelco's total revenue in 1996 was derived from the
provision of local service.
ECI believes that Vitelco's telephone business is essentially non-cyclical,
and (except for its growth in access lines) is not materially reduced in times
of recession. In 1996, Vitelco's growth rate in access lines was 2%. ECI
believes that future growth in access lines will occur primarily as a result
of construction of new residential and commercial properties in the U.S.
Virgin Islands. However, growth should also occur from an increase in the
number of households that have telephones, and an increase in lines per
subscriber is anticipated as facsimile machines, computer data communication
and other technological innovations become more widespread. All of these
factors affecting the rate of growth of access lines are likely to be
sensitive to changes in general economic conditions.
As of December 31, 1996, approximately 67% of Vitelco's 59,470 access lines
were residential lines, and the remainder were business lines. Vitelco's
current monthly charge per access line, which includes unlimited calls between
points in St. Croix, St. John and St. Thomas and is regulated by the U.S.
Virgin Islands Public Services Commission (the "PSC"), is $18.55 for
residential customers and $49.85 for business customers. In June 1987, when
the Company acquired Vitelco, Vitelco's residential rate was $21.90, and its
business rate was $58.45.
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ACCESS FOR LONG-DISTANCE SERVICES
In addition to providing local service, Vitelco provides subscribers with
access to long-distance companies for interstate and international services
and provides those companies with access to its local network and, thereby, to
local subscribers. Vitelco is compensated for providing this access by long-
distance carriers and by its subscribers in accordance with tariffs, which are
subject to review by the FCC. See "Business and Properties of ECI--
Regulation." The principal long-distance carrier in the U.S. Virgin Islands is
AT&T of the Virgin Islands, Inc., a local subsidiary of AT&T ("AT&T-VI").
Approximately 28% of Vitelco's total revenues in 1996 was derived from access
charges.
OTHER SERVICES
During 1996 Vitelco received approximately 12% of its revenues from
providing billing and collection services for long distance carriers and from
yellow-pages directory advertising. Vitelco's current billing and collection
contract with AT&T-VI expires in May 2000.
SIGNIFICANT REVENUE SOURCES
Revenues from AT&T, derived principally from interstate network access and
billing and collection services of Vitelco, comprised approximately 13%, 12%
and 13% of ATN-VI's consolidated total revenues in 1994, 1995 and 1996,
respectively. No other revenue source accounted for more than 10% of ATN-VI's
total revenues in 1994, 1995 or 1996.
PHYSICAL PLANT
Vitelco operates a modern, fully digital telecommunications network in the
U.S. Virgin Islands. Vitelco initiated a modernization program with the
installation of its first fiber-optic cable in 1981 and its first digital
switch in 1982. Upon the completion of the modernization program in 1987,
Vitelco's network became the first multi-switch, all digital telephone system
in the Caribbean. Modern digital systems, which are more cost effective and
permit higher quality transmissions than analog systems, permit speech, text
and computer data to be transmitted simultaneously and on the same network.
Vitelco's policy is to upgrade plant and equipment, as necessary or
appropriate, pursuant to an ongoing construction and development program. The
program allows Vitelco to increase revenues and reduce costs, while enhancing
service, by taking advantage of technological developments in the
telecommunications industry, such as digital switching and fiber optics.
On September 17, 1989, a substantial portion of Vitelco's outside plant was
destroyed by Hurricane Hugo, which was the first hurricane to inflict
substantial damage in the U.S. Virgin Islands since 1928. While Hurricane Hugo
did relatively little damage to Vitelco's switching equipment, it resulted in
a decrease in the number of access lines in service from 46,968 to fewer than
12,000. Within seven months following the hurricane, Vitelco substantially
completed the restoration of the damaged and destroyed plant. On St. Croix,
which suffered the most damage, Vitelco replaced a substantial portion of its
aerial cable, including all cables connecting its remote switches on St.
Croix, with approximately 125 miles of underground cables, which have greater
capacity than the lines in place prior to the hurricane. On St. Thomas, where
the hurricane damage was less substantial, Vitelco replaced all damaged
outside plant, and, in addition, upgraded its network by installing an
underground fiber-optic cable to connect its microwave facility with its main
switch. In addition to greater capacity, underground cable provides greater
reliability and reduces the destructive impact of the elements, including the
impact of hurricanes. The total cost to Vitelco for replacement of plant due
to Hurricane Hugo was approximately $60 million. The Company received
approximately $23.6 million in respect of insurance coverage for damages
resulting from Hurricane Hugo.
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On September 15, 1995, Hurricane Marilyn struck the U.S. Virgin Islands
again causing extensive damage to Vitelco's outside telephone plant. Hurricane
Marilyn put out of service approximately 37,800 lines. The damage was most
extensive in St. Thomas and St. John, where respectively 90% and 50% of the
access lines were damaged as compared with the loss of only 30% in St. Croix.
The total cost to Vitelco for replacement of plant due to Hurricane Marilyn
was approximately $41 million.
The Company had been unable to obtain insurance coverage for any of its
outside plant or for any damage caused by windstorm at commercially reasonable
rates. However, the Company recently obtained insurance coverage for windstorm
damage in the amount of $30 million per storm and $55 million in the
aggregate.
CELLULAR AND OTHER OPERATIONS
The Company is engaged in other telecommunications operations, including
providing cellular telephone service in the U.S. Virgin Islands and selling
and leasing telecommunications equipment in the U.S. Virgin Islands.
VitelCellular provides cellular telephone service to land-based and marine
customers in the U.S. Virgin Islands. In September 1989, following Hurricane
Hugo, VitelCellular was granted special temporary authority by the FCC to
construct and operate cellular systems in the two U.S. Virgin Islands Rural
Service Areas (as defined by the FCC) and, as such, was the second cellular
system to become operational in a Rural Service Area in the United States.
Since late 1990, VitelCellular has been providing service in such Rural
Service Areas pursuant to regular authority from the FCC.
Comsat Mobile Investments, Inc. ("CMI"), a subsidiary of Communications
Satellite Corporation ("Comsat"), owns 10% of the common stock of
VitelCellular which it purchased in October 1990 for $1.4 million. Pursuant to
the agreement by which CMI acquired its stock interest in VitelCellular, CMI
was entitled to representation on the board of directors of VitelCellular and
CMI's approval was required for annual budgets and certain other corporate
actions. The Company has advised CMI that, in the Company's opinion, CMI
materially breached that agreement by failing to maintain a representative on
VitelCellular's board of directors, failing to consider request for approvals
in good faith in the best interest of VitelCellular and its shareholders and
refusing to give formal consent to an equipment purchase and related financing
which had previously been approved by CMI's former board representative in an
effort to force the Company to buy out CMI's investment in VitelCellular at an
exorbitant price, and that the Company has terminated that agreement by reason
of CMI's breach. CMI has disputed the Company's assertion of material breach,
but neither CMI nor the Company have initiated any proceedings to resolve the
issue.
Vitelcom earns revenues from the sale, lease and servicing of customer
premises equipment, facsimile machines, radio paging devices and private
branch exchanges in the U.S. Virgin Islands. Vitelcom recently participated in
the FCC auction process for Personal Communication Services ("PCS") spectrum
in the U.S. Virgin Islands Basic Trading Area ("BTA") and was awarded and
purchased the 10 MHz "E" block of spectrum for the U.S. Virgin Islands. The
Company is currently evaluating the build-out of this service and has until
April 2002 to build out the system.
COMPETITION
The 1996 Telecommunications Act ("1996 Act") worked a fundamental
restructuring of the telecommunications industry in the United States. Its
primary effect will be to enable a number of companies to enter new
telecommunications market segments where they were formerly precluded from
competing.
Prior to the 1996 Act, local telephone companies had state-protected
monopolies for the provision of local and intrastate toll telephone service.
This precluded other companies from offering the same services over wire.
Since 1980, however, cellular telephone companies could provide local
telecommunications service that, to a limited extent, replaced local wired
telephone service. In addition, telephone companies were precluded from
77
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providing cable TV services in their telephone service territories unless they
operated in communities of less than 10,000 persons or received a waiver from
the FCC.
The 1996 Act broke down these industry segment barriers. States are now
precluded from preventing other companies from offering local and intrastate
toll telephone services. It also permits telephone companies to provide cable
TV service within their service territories. The 1996 Act also opens up other
telecommunications segments to competition by a greater number of industry
segments. For example, Bell operating companies can now qualify to enter the
long distance business in their own telephone service territories. The
collective impact of these procompetition laws will be to increase both the
opportunities and risks for all industry segments and players, including
Vitelco.
Vitelco's previous protection as the sole provider of wired local telephone
service in the U.S. Virgin Islands is no longer in effect. Therefore, Vitelco
may be subject to competition in the provision of its local telephone services
in the future. No company currently is providing competing wired local
telephone services in the U.S. Virgin Islands. Two cellular companies are
currently operating in the U.S. Virgin Islands, one of which is controlled by
Vitelco's parent company, ATN-VI. A third company, operating from the British
Virgin Islands, provides cellular service to boats in U.S. Virgin Islands
waters. Additional wireless providers, using personal communications service
frequencies, have been awarded FCC licenses and may become operational in the
future. One such company executed an interconnection agreement with Vitelco in
June 1997.
AT&T recently completed the installation of an underwater fiber optic cable
connecting St. Croix to St. Thomas, where the connection between the two
islands had heretofore been solely by Vitelco's microwave facilities. The
terms and conditions of the cable license do not prohibit AT&T or other
carriers from routing telephone calls over the cable. Thus, some traffic
between these islands may be provided on facilities other than Vitelco's, and
may reduce access charges that otherwise would be paid to Vitelco.
Vitelco is also required under the 1996 Act to provide potential competitors
with interconnection to Vitelco's telephone network to enable others to offer
telecommunications services, including local telephone service.
Pursuant to Section 251(b) of the 1996 Act, local exchange carriers
("LECs"), including both existing telephone companies and new competitive
carriers, are required to (1) allow others to resell their services at retail
rates, (2) ensure that customers can keep their telephone numbers when
changing carriers, (3) ensure that competitors' customers can use the same
number of digits when dialing and to provide nondiscriminatory access to
telephone numbers, operator service, directory assistance and directory
listing, (4) ensure access to telephone poles, ducts, conduits and rights of
way, and (5) compensate competitors for the competitors' costs of completing
calls to competitors' customers. Competitors are required to compensate the
local telephone company for the cost of providing these interconnection
services.
Pursuant to Section 251(f)(2) Vitelco, as a small carrier, is eligible to
request exemption, suspension or modification of any or all of these Section
251(b) requirements from the Virgin Islands Public Service Commission
("VIPSC"). Vitelco expects to request such exemption, suspension or
modification from some or all of these requirements in the future. The VIPSC
may grant such a petition to the extent that it determines that such
suspension or modification is necessary to avoid a significant averse economic
impact on telecommunications users, to avoid imposing a requirement that is
unduly economically burdensome or to avoid imposing a requirement that is
technically infeasible and that such suspension or modification is consistent
with the public interest. It is not known at this time how the VIPSC will
respond to such a request. If the VIPSC denies some or all of that request and
if the VIPSC does not allow Vitelco adequate compensation for the costs of
providing the interconnection, Vitelco's costs could increase. In addition,
with such a denial competitors could enjoy benefits that would make their
services more attractive than if they did not receive such interconnection
rights.
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Pursuant to Section 251(c) of the 1996 Act, incumbent LECs ("ILECs"), which
only include local telephone companies like Vitelco, are required to (1)
interconnect their facilities and equipment with any requesting
telecommunications carrier at any technically feasible point, (2) unbundle and
provide nondiscriminatory access to network elements (e.g., local loops,
switches and transport facilities) at nondiscriminatory rates and on
nondiscriminatory terms and conditions, (3) offer their retail services for
resale at wholesale rates, (4) provide reasonable notice of changes in the
information necessary for transmission and routing of services over the ILEC's
facilities or to information necessary for interoperability, and (5) to
provide, at rates, terms and conditions that are just, reasonable and
nondiscriminatory, for the physical co-location of equipment necessary for
interconnection or access to unbundled network elements at the premises of the
ILEC. Competitors are required to compensate the local telephone company for
the cost of providing these interconnection services.
Pursuant to Section 251(f)(l) Vitelco, as a rural carrier, is automatically
exempt from Section 251(c)'s interconnection requirements. This exemption can
be lifted or modified by the VIPSC if a competing carrier files a bona fide
request for such interconnection. No such request is pending before the VIPSC.
If such a request is filed, Vitelco would ask the VIPSC to retain the
exemption. The VIPSC may grant such a petition to the extent that it
determines such interconnection request is not unduly economically burdensome,
is technically feasible and is consistent with universal service obligations.
It is not known how the VIPSC would rule on these requests. If the VIPSC lifts
such exemption in whole or in part and if the VIPSC does not allow Vitelco
adequate compensation for the costs of providing the interconnection,
Vitelco's costs could significantly increase and it could suffer a significant
loss of customers to competition. Finally, the FCC issued an order in May 1997
that directed that incumbent local exchange carriers could not impose access
charges on long distance and other carriers that purchased unbundled network
elements from the incumbent. This decision could serve to reduce access
revenues for Vitelco and other incumbents. Several parties have appealed this
and other aspects of the FCC's May 1997 order, but Vitelco is unable to
determine the outcome of such appeals at this time.
The risk to Vitelco from competitive entry for local telephone services must
be weighed against any new opportunities Vitelco could take advantage of in
terms of new service offerings, such as interstate, Internet access, personal
communications or other wireless service, cable TV, or international services.
These new service offerings could produce revenues that could offset lost
revenues due to local service competition.
REGULATION
The Company's long-distance access services and its radio-based services in
the U.S. Virgin Islands are regulated by the FCC; Vitelco's local telephone
service in the U.S. Virgin Islands is regulated by the PSC. The 1996 Act may
significantly change many aspects of the regulation of Vitelco's business.
Franchise. Vitelco provides basic local telephone service in the U.S. Virgin
Islands pursuant to a franchise granted by the government of the Virgin
Islands on October 9, 1959. The franchise is for an indefinite term unless and
until terminated by the government of the U.S. Virgin Islands upon two years'
prior written notice. In the event of such a termination, the franchise
provides that the U.S. Virgin Islands government shall expropriate the entire
business, plant and facilities of Vitelco. Vitelco has no reason to believe
that the government of the U.S. Virgin Islands intends to exercise its right
of termination in the foreseeable future. Vitelco derives local telephone
service revenues from fixed monthly local service charges to subscribers at
rates regulated by the PSC.
The FCC. The FCC has jurisdiction over the rates for access services
provided by local exchange carriers to long-distance carriers, as well as
other matters relating to these services and has established a system of
access charges to compensate local exchange carriers for the costs of
originating and terminating long-distance services, including a fair return on
investment. The FCC established the National Exchange Carrier Association,
Inc. ("NECA") to prepare and file access charge tariffs for both traffic
sensitive and non-traffic sensitive rate elements on behalf of all telephone
companies that do not file separate tariffs or concur in a joint access tariff
of another telephone company for all access elements and to administer the
Universal Service Fund ("USF"), a pool funded by long-distance carriers, which
is intended to assist local exchange carriers with higher than average
79
<PAGE>
non-traffic sensitive costs. Vitelco files its own access tariff with the FCC,
which specifies Vitelco's charges to long-distance carriers for traffic
sensitive access elements and references the NECA tariff for non-traffic
sensitive access elements. Vitelco participates in and receives reimbursement
from the non-traffic sensitive access charge revenue pool administered by
NECA.
The non-traffic sensitive portion of Vitelco's costs allocated to long-
distance service is recovered through (i) flat-rate per line monthly access
charges to subscribers and (ii) allocations to Vitelco from NECA's non-traffic
sensitive pool of receipts from long-distance carriers. The revenues derived
from the USF are considered to be local revenues for ratemaking purposes,
rather than long-distance revenues, thereby reducing the rates payable by
local subscribers.
In May 1997, the FCC issued a decision modifying its rules and policies
governing interstate exchange access services of incumbent local exchange
carriers. That decision applied, with limited exceptions, solely to incumbent
local exchange carriers who are governed by the FCC's price cap system of
regulation. As regards incumbent local exchange carriers (such as Vitelco) who
are subject to federal rate-of-return regulation, the FCC stated that it plans
to initiate a separate access reform proceeding later this year. Vitelco is
not in a position to speculate on what reforms the FCC will propose in that
proceeding or what impact such reforms might have on the Company's business.
Vitelco also is not in a position to speculate on the outcome of the pending
petitions for reconsideration or the court appeals filed by various parties
regarding the FCC's May 1997 decision.
In May 1997, the FCC also issued a decision modifying its federal universal
service rules and policies pursuant to Section 254 and other provisions of the
new law. In that decision, the FCC adopted rules defining universal service,
establishing the eligibility criteria for carriers other than incumbent local
exchange carriers to receive universal service support, establishing the
criteria to determine which carriers must contribute to universal service
support and the manner in which such contributions will be determined and
administered, moving long term support from interstate exchange access charges
to universal service support, and establishing new universal service
mechanisms for schools, libraries and health care providers. At the present
time, no carrier other than Vitelco qualifies to receive federal universal
service support in the U.S. Virgin Islands.
With respect to federal high cost support, the FCC held that rural carriers
in high cost areas, such as Vitelco, should continue to receive universal
service support through existing mechanisms, with some modifications, based
upon such carriers' embedded costs. As stated in the FCC's May 1997 and
subsequent decisions, those modifications include, among other things, an
indexed cap on the growth of the high cost fund and limitations on the
corporate operations expenses that qualify for universal service support. Such
modifications may limit the federal universal service support available to
Vitelco now and in the future and could adversely impact Vitelco's operations
in the future. Additionally, until the FCC has ruled on pending
reconsiderations of these decisions, the final outcome remains uncertain.
The FCC endorsed the policy that universal service support for all high cost
carriers should be determined based upon forward-looking economic costs rather
than embedded costs. However, the FCC deferred adopting such a requirement for
rural carriers such as Vitelco pending further FCC and other proceedings. The
FCC stated that it would commence a proceeding by October 1998 to establish
forward-looking economic cost mechanisms for rural carriers. The FCC stated
that any such requirement that it might adopt in the future would not apply to
rural carriers such as Vitelco until at least January 1, 2001. Vitelco
believes that, while the use of forward-looking economic cost mechanisms to
determine universal service support could have an adverse impact upon Vitelco,
it would be premature for Vitelco to predict the potential impact of the FCC's
new and prospective universal service rules and policies.
With respect to carriers serving insular areas, the FCC deferred deciding
whether such carriers should be required to shift to universal service support
mechanisms based upon forward-looking economic costs at the same time as other
rural carriers. Various parties have filed petitions for reconsideration and
appeals of the FCC's decision adopting universal service rules and policies.
Vitelco is unable to predict the impact that these future decisions might have
upon its business interests.
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<PAGE>
Cellular licenses and other public land mobile licenses are issued by the
FCC for a term of ten years. Near the conclusion of the term, licensees must
file applications for renewal to obtain authority to operate for an additional
ten-year term. These applications may be denied for cause and other parties
may file competing applications for the authorization. On March 11, 1993, the
FCC adopted an order regarding the standards to be applied in cellular license
renewal proceedings, which may involve a hearing if qualified competitors for
the authorization file applications.
The PSC. Vitelco's local telephone operations, including the services
offered and the rates for those services, are subject to the jurisdiction of
the PSC, which has jurisdiction over public utilities and transportation in
the U.S. Virgin Islands pursuant to Title 30 of the U.S. Virgin Islands Code.
Under Title 30 of the U.S. Virgin Islands Code and the rules and regulations
promulgated thereunder, Vitelco is allowed to charge local service rates that
will permit it to earn a reasonable return on investment and to recover its
operating expenses. The rate of return is the amount of money earned by a
utility in excess of operating costs, stated as a percentage of the utility's
rate base, which is the value of the utility's property devoted to the
provision of telephone service minus accumulated depreciation. The rate of
return must be adequate to permit the utility to maintain its credit and to
attract new capital. Vitelco may file new rates thirty days prior to the time
the rates are intended to be effective. The new rates will become effective
unless the PSC suspends them and initiates an investigation into their
reasonableness. If the PSC determines that the proposed rates are
unreasonable, the PSC may order that rates for the future be reduced. The PSC
also may initiate an investigation of existing rates if it believes that these
rates are unreasonable. In May 1997, Vitelco received a five year rebate of
90% of its Virgin Islands income taxes and 100% of its Virgin Islands gross
receipts, excise and property taxes from the Virgin Islands Industrial
Development Commission to assist Vitelco in recovering these Hurricane-related
costs without a rate increase. There can be no assurance that the PSC will
not, as a result of this tax rebate, seek to reduce rates. On October 9, 1997
the PSC instituted a proceeding to determine whether Vitelco's rates were just
and reasonable in light of this tax rebate. There can be no assurance as to
the outcome of this proceeding.
Between 1987, when the Company acquired Vitelco, and 1992 the Company and
certain of its subsidiaries were involved in numerous legal and administrative
proceedings with the PSC and entered into several settlement agreements with
the PSC. These agreements resulted in rate reductions in 1989 (retroactive to
1988) and September 1, 1992. The latest agreement between Vitelco and the PSC
with respect to rates provided that Vitelco's local rates would remain
unchanged until January 1, 1995 at the earliest and that, if Vitelco earned
more than an 11.5% return on its local rate base during the years 1993 to
1994, it would reduce its local rate base (and telephone plant on which
depreciation is computed) in the following years by an amount equal to 50% of
such excess earnings. These agreements also (i) require the prior approval of
the PSC for any direct or indirect transfer of 51% or more of Vitelco's common
stock, (ii) contain certain restrictions on intercompany transactions between
Vitelco and its affiliated companies and on advisory fees, (iii) prohibit
loans to or payments on behalf of affiliated companies by Vitelco, (iv) where
allocation of expense between Vitelco and an affiliate is necessary, require
the affiliate to repay Vitelco within 60 days with interest at 1% above the
prime rate, (v) require Vitelco to maintain an equity ratio of 25%, (vi)
except for payments to service ATN-VI's debt obligations to the RTFC, prevent
Vitelco from paying dividends in excess of 60% of net income so long as its
equity ratio is below 40%, (vii) except for payments to service ATN-VI's debt
obligations to RTFC, prohibit from paying any dividends if its equity ratio
falls below 25% and (viii) require that the chief executive officer of Vitelco
not be an employee, executive or member of the board of directors of any
affiliate of Vitelco or have any ownership interest in excess of 5% in any
affiliate of Vitelco and that such chief executive officer be allowed the
normal range of discretion for a chief executive officer of a public utility.
Although the latest agreement between Vitelco and the PSC essentially expired
on January 1, 1995, Vitelco has been operating since that date at the rates
established in that Agreement.
The PSC does not currently regulate cellular telephone service or rates;
however, in April 1993, the PSC reopened a proceeding, originally initiated in
1990, to consider whether and to what extent to regulate cellular rates and
services and whether to direct Vitelco to tariff interconnection rates. On
August 10, 1993, Congress enacted an amendment to the Communications Act of
1934 that preempts state regulation of cellular rates and entry. Although
states may petition the FCC to continue or initiate rate regulation, the FCC
has stated that a petitioning state will have to clear substantial hurdles to
be allowed to regulate rates for cellular service.
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TAXATION--UNITED STATES
As a U.S. corporation, ECI will be subject to U.S. federal income tax on its
worldwide net income, currently at rates up to 35%. ECI's Virgin Islands
subsidiaries will be classified as controlled foreign corporations ("CFCs")
for purposes of the Subpart F provisions of the Internal Revenue Code of 1986,
as amended (the "Code"). Under those provisions, ECI may be required to
include in income certain earnings and profits ("E&P") of a CFC subsidiary at
the time such E&P are earned by the subsidiary, or at certain other times,
prior to their being distributed to ECI. At present, no material amount of
such subsidiary E&P is includible in the U.S. taxable income of the Company
before being distributed to it. Pursuant to the foreign tax credit provisions
of the Code, and subject to complex limitations contained in those provisions,
ECI would be entitled to credit foreign withholding taxes on dividends or
interest received, and foreign corporate income taxes of its subsidiaries paid
with respect to income distributed as dividends or deemed distributed under
Subpart F from such subsidiaries, against ECI's U.S. federal income tax. The
10% Virgin Islands withholding tax applicable to dividends from the Virgin
Islands is likely to constitute an additional cost of distributing any such
dividends, because, after credit for allocable Virgin Islands corporate tax,
ECI may not benefit from the potential credit for the withholding tax.
A U.S. corporation is classified as a Personal Holding Company ("PHC") if
(a) more than 50% of its capital stock is owned directly or indirectly by or
for five or fewer individuals (or pension plans); and (b) at least 60% of its
adjusted ordinary gross income consists of certain types of income
(principally passive income, including interest and dividends) included in the
Code definition of "PHC Income." For any taxable year that a corporation is a
PHC, the "undistributed personal holding company income" of such corporation
for that year (i.e., net income as reflected on the corporation's U.S.
corporate income tax return, with certain adjustments, minus, in general,
federal income tax and dividends distributed or deemed distributed for this
purpose) would be subject to an additional PHC tax of 39.6%. Immediately after
consummation of the Transactions, ECI will satisfy the above ownership
criterion but ECI believes that it will not satisfy the income criterion for
classification as a PHC.
TAXATION--U.S. VIRGIN ISLANDS
Although the U.S. Virgin Islands is a taxing jurisdiction separate from the
United States, the U.S. Internal Revenue Code of 1986, as amended, is the
controlling taxing statute in the U.S. Virgin Islands, with the words "Virgin
Islands" substituted for the words "United States" where appropriate. A
corporation organized under the laws of the U.S. Virgin Islands is generally
taxed at a 35% marginal rate on its worldwide income, subject to reduction by
foreign tax credits, if available, plus a surcharge equal to 10% of the basic
tax (i.e., an additional 3.5%). A corporation which is not organized under the
laws of the U.S. Virgin Islands is generally subject to corporate income tax
at a 35% rate, plus an additional 3.5% surcharge, on income effectively
connected with a trade or business in the U.S. Virgin Islands, and to an 11%
branch profits tax on effectively connected earnings and profits which are not
reinvested in its U.S. Virgin Islands trade or business. Corporations not
organized in the U.S. Virgin Islands are generally subject to a 10% U.S.
Virgin Islands withholding tax on interest or dividends received from sources
within the U.S. Virgin Islands (other than any dividends received from a
corporation not organized under the laws of the U.S. Virgin Islands). Further,
Section 1274(b) of the Tax Reform Act of 1986 authorized the U.S. Virgin
Islands to enact non-discriminatory local income taxes. Corporations and other
taxpayers are also generally subject to property, gross receipts, excise and
stamp taxes in the U.S. Virgin Islands. Under the U.S. Virgin Islands
Industrial Development Commission (the "IDC"), the U.S. Virgin Islands may
offer tax benefits to qualifying businesses for the purpose of promoting the
growth, development and diversification of the U.S. Virgin Islands economy.
ATN-VI, Vitelco, Vitelcom and VitelCellular (the "ATN-VI Group") file a
consolidated income tax return in the U.S. Virgin Islands. Pursuant to the IDC
and subject to the satisfaction of certain conditions by Vitelco, Vitelco was
granted the following tax benefits through September 30, 1996: (i) a rebate of
11.25% of Vitelco's U.S. Virgin Islands income tax, income tax surcharge and
customs duties and other taxes on raw materials which are attributable to the
operations of Vitelco; and (ii) an exemption from 12.5% of Vitelco's U.S.
Virgin Islands real property, gross receipts and excise taxes. The amount of
these benefits in 1996 was $329,000. In May 1997
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Vitelco was granted a rebate of 90% of Virgin Islands income taxes and 100% of
Virgin Islands gross receipts, excise and property taxes for the five year
period beginning October 1, 1998. On June 19, 1997 the Virgin Islands' Senate
unanimously passed a resolution calling on the PSC to reduce Vitelco's rates
by 20%. On October 9, 1997 the PSC instituted a proceeding to determine
whether Vitelco's rates were just and reasonable in light of this tax rebate.
There can be no assurance as to the outcome of this proceeding.
Dividends from ATN-VI to ECI and interest payments from any member of the
ATN-VI Group of companies to ECI or any affiliates not organized in the U.S.
Virgin Islands may be subject to a 10% U.S. Virgin Islands withholding tax.
EMPLOYEES
At December 31, 1996, Vitelco employed approximately 409 individuals.
Approximately 274 of Vitelco's employees are represented by the United Steel
Workers of America (the "Steel Workers"). Vitelco's contract with the Steel
Workers expires on September 30, 1999.
PROPERTIES
At December 31, 1996, Vitelco, VitelCellular and Vitelcom utilized
approximately 132,000 square feet of building space on approximately 16 acres
of land in various locations throughout the U.S. Virgin Islands. Of this
space, approximately 116,000 square feet of building space on approximately 12
acres was owned (subject to a first priority security interest securing
certain indebtedness to the RTFC and the Rural Utilities Service, an agency of
the U.S. government) and 16,000 square feet on approximately 4 acres was
leased. Vitelco carries insurance in an aggregate amount of $50 million
against damage to any of its property and business interruption insurance for
damage to any of its properties other than telephone poles, cables and lines
("outside plant"). In addition, ATN-VI has insurance with respect to its
outside plant in the amount of $30 million per storm and $55 million in the
aggregate.
Vitelco's network system principally utilizes the ITT System 1210 Digital
Switch (the "1210 Switch") interconnected by fiber optic cable (on an intra-
island basis) and digital microwave radio (on an inter-island basis). In
addition, in January 1989, Vitelco purchased a DMS-100 switch (the "DMS-100
Switch") from Northern Telecom (CALA) Corporation and installed the switch in
July 1989 in its main office in St. Thomas. The DMS-100 Switch has increased
Vitelco's capacity to serve access lines.
VitelCellular's system in the U.S. Virgin Islands consists of four full
power cell sites and one high power enhancer on St. Thomas, a full power cell
site and a high power enhancer on St. John, and two full power cell sites and
one high power enhancer on St. Croix, which cover most of the land area of the
islands and the surrounding waters. Despite the small land area of the
islands, the mountainous terrain requires multiple radio sites for adequate
coverage. The mobile telephone switching office that controls all of the radio
sites is located on St. Thomas. All of VitelCellular's switching equipment is
manufactured by Northern Telecom, Inc.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OF THE COMPANY COMMON STOCK
PRINCIPAL STOCKHOLDERS
As of August 11, 1997, the Company knows of no person who may be deemed to
own beneficially more than 5% of the Company Common Stock except as set forth
below:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA(1)
------------------------- -----------------------
AMOUNT AND
NATURE OF AMOUNT OF
NAME AND ADDRESS BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK OWNERSHIP COMMON STOCK
- ------------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Cornelius B. Prior, Jr....... 3,693,400(2) 30.1% 2,807,040 57.2%
P.O. Box 6100
48A Kronprindsens Gade
Charlotte Amalie
St. Thomas
U.S. Virgin Islands 00801
Jeffrey J. Prosser........... 3,325,000(3) 27.1% -- --
Chase Financial Center
P.O. Box 1730
St. Croix
U.S. Virgin Islands 00821
Fidelity Management & Re-
sources Corp................ 1,056,700(4) 8.6% 422,680 8.6%
82 Devonshire Street
Boston, MA 02109
Chancellor L.G.T. Asset Man-
agement, Inc................ 633,000(4) 5.1% 253,200 5.1%
50 California, 27th Floor
San Francisco, CA 94111
</TABLE>
- --------
(1) After giving effect to the Transaction.
(2) Includes 300 shares owned by Mr. Prior's children, as to which Mr. Prior
disclaims beneficial ownership. Also includes 500 shares owned by Gertrude
Prior, Mr. Prior's wife, as to which Mr. Prior disclaims beneficial
ownership. Also includes 348,564 shares held by the 1994 Prior Charitable
Remainder Trust as to which Mr. Prior is the sole Trustee.
(3) Includes 56,750 shares owned by Mr. Prosser's children, as to which Mr.
Prosser disclaims beneficial ownership, and 257,000 shares as to which Mr.
Prosser holds an option to purchase.
(4) Based on available public filings and conversations with Fidelity
Management & Resources Corp. and Chancellor L.G.T. Asset Management, Inc.
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SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
Set forth below is the ownership, as of August 11, 1997, of the number of
shares and percentage of the Company Common Stock beneficially owned by (i)
each director of the Company, (ii) the President and Co-Chief Executive
Officer and each of the six other most highly compensated executive officers
of the Company, and (iii) all executive officers and directors of the Company.
<TABLE>
<CAPTION>
SHARES OF
THE PERCENT OF
COMPANY THE COMPANY
COMMON COMMON
STOCK STOCK
DIRECTORS OWNED OUTSTANDING
--------- --------- -----------
<S> <C> <C>
Andrew F. Lane.................................. -- --
Robert A.R. Maclennan........................... -- --
Cornelius B. Prior, Jr.......................... 3,693,400(1) 30%
Jeffrey J. Prosser.............................. 3,325,000(2) 27%
Sir Shridath S. Ramphal......................... -- --
John P. Raynor.................................. -- --
<CAPTION>
EXECUTIVE OFFICERS
------------------
<S> <C> <C>
James J. Heying................................. 11,057(3) *
Craig A. Knock.................................. 1,000 *
Sharon Smalls................................... 453(3) *
David L. Sharp.................................. 2,454(3) *
Thomas Minnich.................................. -- --
All executive officers and directors as a group
(11)........................................... 7,033,814 57%
</TABLE>
- --------
* Less than 1%
(1) Includes 300 shares owned by Mr. Prior's children, as to which Mr. Prior
disclaims beneficial ownership. Also includes 500 shares owned by Gertrude
Prior, Mr. Prior's wife, as to which Mr. Prior disclaims beneficial
ownership. Also includes 348,564 shares held by the 1994 Prior Charitable
Remainder Trust as to which Mr. Prior is the sole Trustee.
(2) Includes 56,750 shares owned by Mr. Prosser's children, as to which Mr.
Prosser disclaims beneficial ownership, and 257,000 shares as to which Mr.
Prosser holds an option to purchase.
(3) All of the shares owned by Ms. Smalls, 937 of the shares owned by Mr.
Heying and 554 of the shares owned by Mr. Sharp are allocated to them as
participants in the Company's Employees' Stock Ownership Plan.
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DIRECTORS AND MANAGEMENT OF NEW ATN
DIRECTORS OF NEW ATN
Following the Transaction, the Board of Directors of New ATN (the "New ATN
Board") is expected to consist of five individuals. Of the current members of
the Company Board, it is intended that Andrew F. Lane, Robert A.R. Maclennan
and Cornelius B. Prior, Jr., will serve as directors of New ATN, and Jeffrey
J. Prosser, John P. Raynor and Sir Shridath S. Rampal will resign from the
Company Board. The remaining members of the New ATN Board will be James B.
Ellis and Henry Wheatley.
CORNELIUS B. PRIOR, JR., 63, has been Co-Chief Executive Officer and
President of the Company since June 1987, when the Company, through ATN-VI,
acquired Vitelco. He was Chairman of the Board of Vitelco from June 1987 to
March 1997 and became Chairman of the Board of GT&T in April 1997. From 1980
until June 1987, Mr. Prior was a managing director and stockholder of Kidder,
Peabody & Co. Incorporated, where he directed the Telecommunications Finance
Group.
ANDREW F. LANE, 62, has been a director of the Company since February 1,
1992. Mr. Lane has practiced law in Boston, Massachusetts for more than the
past five years and was a partner in the law firm of Warner and Stackpole from
1991 to May 1996.
ROBERT A.R. MACLENNAN, 60, has been a director of the Company since February
1, 1992. He has been a member of the British Parliament since 1966. Mr.
Maclennan is the president of the Liberal Democrat party and the party's
spokesman in the House of Commons on the National Heritage, Art, Broadcasting
and the Constitution. From 1981 through 1989, he was European counsel to the
New York law firm, Proskauer, Rose, Goetz & Mendelsohn.
JAMES B. ELLIS, 57, has been President and Treasurer of MLB Resources Inc.,
an investment, real estate and construction firm, since 1987. Prior to 1992,
Mr. Ellis was an executive of SBC Communications Inc. (formerly known as
Southwestern Bell), a telecommunications firm based in the United States. From
1960 until 1992, Mr. Ellis worked in the telecommunications business,
primarily at Southwestern Bell, where he was President of SBC Communications-
Oklahoma Division from 1990 to 1992.
HENRY WHEATLEY, 65, has been a director of Vitelco since 1994. Since 1973 he
has been the President of Wheatley Realty Corporation, where he manages the
development of shopping centers. Mr. Wheatley is also Chairman of the Board of
Coral World (Virgin Islands), Inc., and has been vice president and trustee of
Islands Resources Foundation since 1972.
EXECUTIVE OFFICERS OF NEW ATN
Following the Transaction, Cornelius B. Prior, Jr., Co-Chief Executive
Officer and President of the Company is expected to be Chairman of the Board
and Chief Executive Officer of New ATN. Craig Knock is expected to be
Treasurer and the Chief Financial Officer.
For information concerning Mr. Prior, see "Directors of New ATN"
Craig Knock has been Chief Financial Officer and Vice-President of the
Company since April 1993. From July 1992 until April 1993, he was an Assistant
Controller of the Company. From 1987 to 1992, Mr. Knock was a C.P.A. and Audit
Manager at Deloitte & Touche LLP, an international accounting firm. Mr. Knock
obtained a B.B.A. degree in accounting from the University of Iowa in 1986.
EXECUTIVE OFFICERS OF GT&T
The following employees of GT&T are expected to make significant
contributions to New ATN's business.
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<PAGE>
THOMAS R. MINNICH, General Manager of GT&T--Mr. Minnich will continue to
serve as the General Manager of GT&T until the Effective Date, after which
time he is expected to serve as the Chief Operating Officer of ECI.
RAYMOND ROOPNAUTH, Director, Technical Operations Mr. Roopnauth has been
Director of Technical Operations at GT&T since 1991. His responsibilities
include overseeing switching, national and international transmission, power
systems, external plant and operator services. Mr. Roopnauth has formerly held
the position of Senior Engineer for network development and international
systems at Guyana Telephone Co. He has more than 24 years experience in the
field of telecommunications engineering.
TERRENCE HOLDER, Deputy General Manager of Public Relations--Mr. Holder has
been Deputy General Manager of GT&T since 1991. His responsibilities entail
public relations communications, advertising, public notifications, press
releases and all other communications on behalf of GT&T. Mr. Holder has
formerly held positions as President--Caribbean Broadcasting Union, Chairman
of the Board of the Guyana Broadcasting Corporation, Ministry of Infomation--
Guyana. He has more than 15 years of experience in broadcasting and public
relations with the Guyana Broadcasting Corporation, where he achieved the
position of General Manager.
SONITA JAGAN, Controller--Ms. Jagan joined GT&T in March 1993 as Assistant
Controller and was promoted to Controller in May 1994. Her responsibilities
include reporting financial position and results of operations, internal
management reporting, and providing internal accounting control mechanisms
over purchasing, warehousing, receipts and disbursements, among other duties.
Prior to her employment with GT&T, Ms. Jagan resided in Canada, where she was
employed at GN Navtel (Canada) Inc., as Controller. Ms. Jagan has a Bachelors
of Business Administration majoring in Finance and Economics from University
of Western Ontario.
GODFREY S. STATIA, Treasurer--Mr. Statia has been with GT&T from June 1993,
joining as Manager--Revenue and Taxation. He was promoted to the position of
Treasurer in May 1994. As Treasurer, Mr. Statia is responsible for cash flow
forecasting, revenue accounting, regulatory matters, tax compliance and
planning, and financing and debt service. Mr. Statia works closely with the
Controller in carrying out their various responsibilities. Before joining
GT&T, he was the Senior Deputy Commissioner of Inland Revenue for the Inland
Revenue Department for Guyana, where he had acquired nearly 22 years of
working experience. Mr. Statia holds an MBA in Accounting and Finance from
Rutgers University, a CPA Certificate, and is a member of the American
Institute of Certified Public Accountants and the Illinois Society of
Certified Public Accountants.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF ECI COMMON STOCK
Following the Transaction, the number of shares and percentage of ECI Common
Stock beneficially owned by (i) each director of ECI, (ii) each executive
officer of ECI and (iii) persons who may be deemed to own beneficially more
than 5% of ECI Common Stock will be as follows:
<TABLE>
<CAPTION>
NAMES AND ADDRESS OF 5% SHARES
STOCKHOLDERS, DIRECTORS BENEFICIALLY PERCENT OF
AND EXECUTIVE OFFICERS OWNED COMMON STOCK
----------------------- ------------ ------------
<S> <C> <C>
DIRECTORS:
Jeffrey J. Prosser........................... 5,704,231(1) 52%
Richard N. Goodwin........................... -- --
Salvatore Muoio.............................. 4,600 *
John P. Raynor............................... -- --
Sir Shridath S. Ramphal...................... -- --
John G. Vondras.............................. -- --
EXECUTIVE OFFICERS:
Jeffrey J. Prosser .......................... 5,704,231(1) 52%
Chairman, Chief Executive Officer, Secretary
and acting Chief Financial Officer
Thomas R. Minnich............................ -- --
Chief Operating Officer
Edwin Crouch................................. 8,014(2) *
Vice President
James J. Heying.............................. 11,057(3) *
Executive Vice President for Acquisitions
All Directors and Executive
Officers as a Group (8 persons)............. 5,715,738 52%
5% BENEFICIAL OWNERS:
Fidelity Management & Resources Corp.
82 Devonshire Street
Boston, MA 02109............................ 1,056,700(4) 9.6%
Chancellor L.G.T. Asset
Management, Inc.
50 California, 27th Floor
San Francisco, CA 94111..................... 633,000(4) 5.8%
</TABLE>
- --------
* Less than 1% ownership.
(1) Includes 97,358 shares owned by Mr. Prosser's children, as to which Mr.
Prosser disclaims ownership, and assumes that Mr. Prosser exercises the
option he currently holds to purchase 257,000 shares of ATN Common Stock.
(2) Includes 288 shares owned by Mr. Crouch that are allocated to him as a
participant in the Company's Employee Stock Ownership Plan, 1,726 shares
owned by Mr. Crouch pursuant to his IRA, and 6,000 shares owned by the
Edwin C. Crouch Revocable Trust.
(3) Includes 937 shares owned by Mr. Heying that are allocated to him as a
participant in the Company's Employee Stock Ownership Plan.
(4) Based on available public filings and conversations with Fidelity
Management & Resources Corp. and Chancellor L.G.T. Asset Management, Inc.
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DIRECTORS AND MANAGEMENT OF ECI
EXECUTIVE OFFICERS AND DIRECTORS OF ECI
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Jeffrey J. Prosser.......... 40 Chairman of the Board, Chief Executive Officer,
Secretary and Acting Chief Financial Officer
Thomas R. Minnich........... 60 Chief Operating Officer
Edwin Crouch................ 49 Vice President
James J. Heying............. 43 Executive Vice President for Acquisitions
Richard N. Goodwin.......... 63 Director
Salvatore Muoio............. 38 Director
Sir Shridath Ramphal........ 69 Director
John P. Raynor.............. 46 Director
John G. Vondras............. 50 Director
</TABLE>
DIRECTORS OF ECI
Following the Transaction, the Board of Directors of ECI (the "ECI Board")
is expected to consist of six individuals. Of the current members of the
Company Board, it is intended that Jeffrey J. Prosser, John P. Raynor and Sir
Shridath S. Rampal will resign from the Company Board upon consummation of the
Transaction and will be directors of ECI. The remaining directors of ECI are
intended to be Salvatore Muoio, John G. Vondras and Richard N. Goodwin.
JEFFREY J. PROSSER, 40, has been Chairman of the Board, Co-Chief Executive
Officer and Secretary of the Company since June 1987. He was the Chairman of
the Board of GT&T from January 1991 to April 1997 and was President of Vitelco
from June 1987 through February 1992. He became Chairman of the Board of
Vitelco in April 1997. From 1980 until 1987, Mr. Prosser was a managing
shareholder of Prosser & Prosser, P.C. ("Prosser & Prosser"), an accounting
firm.
RICHARD N. GOODWIN, 63, is an author, columnist and a member of the
Massachusetts Bar, who has also spent much of his life in public service. Mr.
Goodwin serves as a consultant to the Government of the U.S. Virgin Islands
and to several private corporations and has done so since 1985. Mr. Goodwin is
an occasional columnist for the Los Angeles Times, and is the author of
"Triumph or Tragedy: Reflections on Vietnam," "The Sowers Seed--a Tribute to
Adlai Stevenson," "Promises to Keep--A Call for a New American Revolution,"
and "Remembering America," and the to-be-published "The Hinge of the World."
In the 1960s, he served as Special Consultant to House Subcommittee on
Legislative Oversight, where he conducted investigation of rigged television
quiz show, Assistant Special Counsel to President John F. Kennedy, Deputy
Assistant Secretary of State for Inter-American Affairs, and Special Assistant
to President Lyndon Johnson. Mr. Goodwin also served as a law clerk to Mr.
Justice Felix Frankfurter, U.S. Supreme Court in 1959.
SALVATORE MUOIO, 38, is a principal and general partner of S. Muoio and Co.
LLC. He was a securities analyst for Lazard Freres & Co. LLC from 1995 to 1996
in the telecommunications and media sectors, and for Gabelli & Co., Inc. from
1985 to 1995, serving as a generalist and in the communications sector. From
1993 to 1995, Mr. Muoio was portfolio manager for Gabelli Global
Telecommunications Fund, Inc. and from 1990 to 1995 also served as Director of
Research for GAMCO Investors. He has been a director of Lynch Corporation
since November 1995.
JOHN P. RAYNOR, 46, has been a director of the Company since June 1987. From
March 1, 1982 to March 31, 1987, Mr. Raynor was a partner of Schumacher &
Gilroy, a law firm located in Omaha, Nebraska. Since April 1, 1987, Mr. Raynor
has been a partner of Raynor, Rensch & Pfeiffer (or its predecessors), a law
firm located in Omaha, Nebraska.
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<PAGE>
SIR SHRIDATH S. RAMPHAL, 69, has been a director of the Company since
February 1, 1992. An international consultant, he has been chancellor of the
University of Warwick (United Kingdom) and chancellor of the University of the
West Indies since 1989. He is also currently co-chairman of the international
commission on Global Governance and chairman of the Leadership for
Environmental and Developmental (LEAD) Programs. He was president of the
International Union for the Conservation of Nature from December 1990 to
January 1994, chairman of the West Indian Commission from July 1990 to
February 1993, and chancellor of the University of Guyana from 1988 to 1992.
He was secretary-general of the British Commonwealth from 1975 to 1990. A
native of Guyana, Sir Shridath served as Guyana's attorney general and
minister of Foreign Affairs from 1965 to 1975.
JOHN G. VONDRAS, 50, is President Director of PT ARIAWEST International, the
joint venture company operating the West Java KSO partnership with PT TELKOM.
Prior to October, 1995, Mr. Vondras was Executive Director--Finance (Auditing)
and Executive Director--International Network Strategies (May 1992 to November
1993) for U.S. West Inc. He has over 25 years experience in the
telecommunications industry in both line and staff functions.
ECI BOARD COMMITTEES
On or before the Effective Date, the ECI Board will establish an Audit
Committee and a Compensation Committee. The members and functions of these
committees are as follows:
The Audit Committee, a majority of which will be independent directors, has
the authority, among other things, to appoint the auditors of ECI and to
approve their audit fee, to review all financial statements and report to the
ECI Board and to review and assess ECI's internal audit program and the
adequacy of ECI's accounting, financial and operating policies and controls.
The members of the Audit Committee will be John P. Raynor and John G. Vondras.
The Compensation Committee, a majority of which will be independent
directors, has the authority, among other things, to review recommendations
from the Chief Executive Officer regarding (i) general compensation and
contractual policies to be applied to the Directors and Executive Officers and
(ii) options and incentive schemes, and to submit recommendations to the Board
of Directors on those areas as well as to determine the compensation and
employment conditions for the Chief Executive Officer and Chairman and to
approve the service contracts of Directors. The members of the Compensation
Committee will be Salvatore Muoio, Sir Shridath S. Ramphal and John P. Raynor.
OFFICERS OF ECI
For information regarding Mr. Prosser, see "--Directors of ECI".
Thomas R. Minnich has been employed by the Company since August 1995 and was
named General Manager--GT&T in March 1996. From September 1994 until August
1995, he was Senior Vice President-- Telecommunications & Government Affairs
for ICS Communications. From 1985 to 1994, Mr. Minnich was President and CEO
of Mantanuska Telephone Association, one of Alaska's primary telephone
companies. Previously, Mr. Minnich worked in various capacities for GTE for
over 30 years.
James J. Heying has been Chief Operating Officer and Vice President of the
Company since April 1993. Previously, from January 1990 until April 1993, Mr.
Heying was Chief Financial Officer and Treasurer of both the Company and
Vitelco. From 1981 until 1983, Mr. Heying was a staff accountant and a tax
consultant at Touche Ross & Co. (a predecessor of Deloitte & Touche LLP, an
international accounting firm), and, from 1983, until 1989, was employed by
Prosser & Prosser, P.C. as a manager and Certified Public Accountant. Mr.
Heying also served as a financial advisor to the Company and Vitelco from 1987
until 1989. Mr. Heying obtained a B.B.A. degree in accounting and an M.A.
degree in accounting from the University of Iowa in 1979 and 1981,
respectively.
Edwin Crouch has been Vice President, Investor Relations of the Company
since 1990.
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS OF ECI
The following Summary Compensation Table sets forth the individual
compensation information for the Chairman of the Board and Chief Executive
Officer the other two executive officers of ECI who were paid compensation by
the Company in excess of $100,000 for all services rendered in all capacities
to the Company and its subsidiaries for each of the prior three years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(A) BONUS COMPENSATION(B)
- --------------------------- ---- --------- ----- ---------------
<S> <C> <C> <C> <C>
Jeffrey J. Prosser...................... 1996 250,667 --
Chairman of the Board, Chief Executive
Officer, Secretary and Acting Chief Fi- 1995 250,667 --
nancial Officer 1994 250,665 --
Thomas R. Minnich....................... 1996 195,825 --
Chief Operating Officer 1995 46,321(c) --
1994 --
James J. Heying......................... 1996 188,673 4,750
Executive Vice President for Acquisi- 1995 237,142 4,620
tions 1994 155,672 4,607
David L. Sharp.......................... 1996 173,067 4,750
President of Vitelco 1995 173,066 4,620
1994 181,521 4,607
Edwin Crouch............................ 1996 166,305 4,750
Vice President--Investor Relations 1995 93,640 2,465
1994 75,670 2,250
</TABLE>
- --------
(a) Includes salary deferrals under the Company's 401(k) profit sharing plan
(the "401(k) Plan").
(b) Consists of Company matching contributions under the 401(k) Plan.
(c) Reflects salary of Mr. Minnich from July 1995, when Mr. Minnich joined the
Company, through December 31, 1995.
EMPLOYMENT AGREEMENT
ECI's employment agreement (the "Employment Agreement") with Mr. Prosser
will be for an initial five year term and will be renewable for successive
five year terms thereafter. The Employment Agreement will provide for a base
salary of $600,000 for the first year, subject to annual review and adjustment
in the subsequent years. In addition to the base salary, an annual bonus may
be awarded at the discretion of the ECI Board or any duly authorized committee
thereof. The Employment Agreement also provides for a grant of options to
purchase 2.5% of the total outstanding shares of ECI Common Stock pursuant to
ECI's 1996 Long Term Incentive and Share Award Plan. In the event Mr.
Prosser's employment is terminated for other than cause or disability by ECI
or for good reason by Mr. Prosser, Mr. Prosser will be entitled to receive a
lump sum severance payment equal to 500% of the sum of his base salary for the
year including the date of termination and his highest annual bonus earned
during the five years immediately preceding the date of termination.
The Employment Agreement also provides that, so long as Mr. Prosser
beneficially owns at least 3% of the outstanding shares of Common Stock of
ECI, ECI will, at its own expense and subject only to Mr. Prosser's bearing
his own pro rata share of all underwriting commissions and discounts incurred
in connection with any offering of registrable stock (as defined in the
Employment Agreement), (1) prepare and file with the SEC registration
statements and other documents as may be necessary to permit a public offering
and sale of Mr. Prosser's registrable stock and (2) include in any
registration statement of ECI (other than a registration statement
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<PAGE>
on Form S-4 or S-8 or filed in connection with an exchange offer or an
offering of securities solely to the existing shareholders or employees of
ECI) such number of Mr. Prosser's registrable stock as he may elect to
include. In the event that Mr. Prosser's registrable stock is included in a
registration statement, ECI will indemnify Mr. Prosser against certain claims
or liabilities under the Securities Act.
STOCK OPTION PLANS
Prior to the Transaction, ECI will adopt the ECI 1997 Long Term Incentive
And Share Award Plan (the "Plan"). The purpose of the plan is to provide a
means to attract, retain and motivate employees and directors of ECI upon
whose judgment, initiative and efforts the continued success, growth and
development of ECI depends.
The plan will be administered by the Compensation Committee of the ECI Board
or such other committee designated by the ECI Board; consisting of two or more
non-employee directors (the "Committee"). Any employee of ECI or its affiliate
who is responsible for or contributes to the management, growth or
profitability of ECI or its affiliate will be eligible to participate in the
Plan. Subject to the terms of the Plan, the Compensation Committee will select
the participants and determine the terms and conditions of the awards,
including the type of award granted, the number of shares granted and the type
of consideration to be paid to ECI upon exercise of the awards. The total
number of shares reserved for awards under the Plan is 1,095,913. In the event
of a stock split, reverse stock split, reorganization, merger or similar
capital adjustment, the Committee may adjust the total number of shares
covered under the Plan, the number of shares covered by each award and the
exercise price, grant price or purchase price to prevent dilution or
enlargement of the rights under the Plan. In the event of a change of control
of ECI, all outstanding awards shall become fully exercisable subject to
conditions in the Plan. For a period of 60 days following a change of control,
participants in the Plan may also elect to surrender any outstanding awards
and receive cash payments based on either the change of control price of any
shares or the fair market value of any property other than shares relating to
such award.
The Committee is authorized to grant awards which may consist of incentive
stock options ("ISOs"), nonqualified stock options ("NQSOs") and stock
appreciation rights ("SARs") as well as other types of awards. At the
discretion of the Committee, awards granted under the Plan may be granted
alone or in addition to, in tandem with, or in exchange or substitution for,
any other award granted under the Plan or under any other plan or agreement of
ECI The Committee shall have the authority to determine the exercise price,
the time or times at which an option may be exercised in whole or in part, the
methods by which such exercise price may be paid and the form of such payment.
The Committee may impose on any award or exercise thereof, additional terms
and conditions not inconsistent with the provisions of the Plan.
The Board generally has the power to amend, alter, suspend, discontinue or
terminate the Plan or the Committee's authority to grant awards under the Plan
without the approval of the ECI's shareholders; provided that the Board shall
not amend the Plan to materially and adversely affect rights therefore granted
to a participant without the consent of such participant.
CERTAIN TRANSACTIONS
The law firm of Raynor, Rensch & Pfeiffer has from time to time performed
legal services for the Company, for which it has received its customary fees.
Following the Transaction, such legal services likely will be performed for
ECI. John P. Raynor, who will be a director of ECI following the Transaction,
is a partner in this firm. In 1996, Raynor, Rensch & Pfeiffer was paid
$533,000 for such legal services.
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<PAGE>
PRICE RANGE AND DIVIDEND HISTORY
OF THE COMPANY COMMON STOCK
The Company Common Stock is traded on the AMEX (symbol "ANK").
The high and low prices of the Company Common Stock for each quarter during
1995, 1996, the first three quarters of 1997, and through October 16, 1997,
for the fourth quarter of 1997 were as follows (in U.S. dollars):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
1995
Market prices
High.................................... 9 3/4 8 5/8 12 5/8 12 1/4
Low..................................... 6 1/4 6 8 1/4 10
1996
Market prices
High.................................... 23 1/4 27 1/2 25 3/4 22
Low..................................... 10 5/8 20 1/2 18 14 5/8
1997
Market prices
High.................................... 17 1/2 13 13/16 14 1/4 13 1/2
Low..................................... 11 10 1/4 11 12 1/16
</TABLE>
The Company has not paid cash dividends in the past and does not intend to
pay cash dividends in the foreseeable future.
DESCRIPTION OF NEW ATN CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
New ATN's authorized capital stock will consist of 20,000,000 shares of
Common Stock, par value $.01 per share, of which 4,909,000 shares will be
outstanding immediately after the consummation of the Transaction, and
10,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"), none of which will be outstanding immediately after the consummation
of the Transaction.
NEW ATN COMMON STOCK
All of the outstanding shares of the New ATN's Common Stock after the
consummation of the Transaction will be fully paid and nonassessable. Each
outstanding share is entitled to one vote on all matters submitted to a vote
of stockholders. There are no cumulative voting rights, meaning that the
holders of a majority of the shares voting for the election of directors can
elect all the directors if they choose to do so. Subject to the preferential
rights of any outstanding series of Preferred Stock, the holders of Common
Stock will be entitled to such dividends as may be declared from time to time
by the Board of Directors from funds legally available therefor, and will be
entitled to receive pro rata all assets of the New ATN upon the liquidation,
dissolution or winding up of the New ATN. Holders of Common Stock will have no
redemption, conversion or preemptive rights to purchase or subscribe for
securities of the New ATN.
NEW ATN PREFERRED STOCK
The New ATN Board of Directors will be authorized to divide the Preferred
Stock into series and, with respect to each series, to determine the dividend
rights, dividend rate, conversion rights, voting rights, redemption rights and
terms, liquidation preferences, sinking fund provisions, the number of shares
constituting the series
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<PAGE>
and the designation of such series. The New ATN Board of Directors could,
without stockholder approval, issue Preferred Stock with voting rights and
other rights that could adversely affect the voting power of holders of Common
Stock and could be used to prevent a hostile takeover of New ATN. New ATN has
no present plans to issue any shares of Preferred Stock.
DESCRIPTION OF ECI CAPITAL STOCK
The following discussion reflects an amendment and restatement of ECI's
Certificate of Incorporation and By-laws which will be adopted prior to the
Effective Date.
AUTHORIZED CAPITAL STOCK
Under ECI's Restated Certificate of Incorporation (the "Certificate"), ECI's
authorized capital stock will consist of 40,000,000 shares of ECI Common Stock
and 10,000,000 shares of Preferred Stock, par value $.01 per share ("ECI
Preferred Stock").
ECI COMMON STOCK
The holders of ECI Common Stock will be entitled to one vote for each share
on all matters on which stockholders generally are entitled to vote, and
except as otherwise required by law or provided in any resolution adopted by
the ECI Board with respect to any series of ECI Preferred Stock, the holders
of ECI Common Stock will possess 100% of the voting power. The Certificate
does not provide for cumulative voting.
Subject to the preferential rights of any outstanding ECI Preferred Stock
that may be created by the ECI Board under the Certificate, the holders of ECI
Common Stock will be entitled to such dividends as may be declared from time
to time by the ECI Board and paid from funds legally available therefor, and
the holders of ECI Common Stock will be entitled to receive pro rata all
assets of the Company available for distribution upon liquidation. All shares
of ECI Common Stock issued in connection with the Transaction will be fully
paid and nonassessable, and the holders thereof will not have any preemptive
rights.
There is no established public trading market for ECI Common Stock, although
a "when issued" market is expected to develop prior to the Effective Date. On
October 16, 1997, the American Stock Exchange approved the listing of such
shares upon notice of issuance.
The declaration of dividends on ECI Common Stock will be at the discretion
of the ECI Board. The ECI Board has not adopted a dividend policy as such.
Subject to legal and contractual restrictions, its decisions regarding
dividends will be based on all considerations that in its business judgment
are relevant at the time, including past and projected earnings, cash flows,
economic, business and securities market conditions and anticipated
developments concerning ECI's business and operations.
ECI's cash flow and the consequent ability of ECI to pay any dividends on
ECI Common Stock will be substantially dependent upon ECI's earnings and cash
flow available after its debt service and the availability of such earnings to
ECI by way of dividends, distributions, loans and other advances. ECI does not
intend to pay any dividends on the ECI Common Stock in the foreseeable future.
ECI PREFERRED STOCK
Under the Certificate, the ECI Board is authorized to issue ECI Preferred
Stock, in one or more series, and to fix the number of shares constituting
such series and the designation of such series, the voting powers (if any) of
the shares of such series, and the preferences and relative, participating,
optional or other special rights, if any, and any qualifications, limitations
or restrictions thereof, of the shares of such series. See "--Antitakeover
Effects of Certain Provisions of the Certificate and By-laws."
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<PAGE>
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS
The Certificate and ECI's By-laws contain certain provisions, that could
make the acquisition of ECI by means of a tender offer, a proxy contest or
otherwise more difficult. The description set forth below is intended as a
summary only and is qualified in its entirety by reference to the Certificate
and the By-laws, which are attached as exhibits to ECI's Registration
Statement on Form S-4 relating to the ECI Common Stock.
Classified Board of Directors. The Certificate provides that the ECI Board
will be divided into three classes of directors, with the classes to be as
nearly equal in number as possible. The ECI Board consists of the persons
referred to in "Directors of ECI" above. The Certificate provides that, of the
initial directors of ECI, approximately one-third will continue to serve until
the first succeeding annual meeting of ECI's stockholders, approximately one-
third will continue to serve until the second succeeding annual meeting of
ECI's stockholders following the effectiveness of the Certificate and
approximately one-third will continue to serve until the second succeeding
annual meeting of ECI's stockholders following the effectiveness of the
Certificate. Of the initial directors, Salvatore Muoio and Richard Goodwin
will serve until such first succeeding annual meeting of ECI's stockholders,
John G. Vondras and Sir Shridath S. Ramphal will serve until such second
succeeding annual meeting of ECI's stockholders and Jeffrey J. Prosser and
John P. Raynor will serve until such third succeeding annual meeting of ECI's
stockholders. At each annual meeting of ECI's stockholders, successors to the
class of directors whose term expires at the annual meeting will be elected
for a term expiring at the third succeeding annual meeting of stockholders.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the ECI Board. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the members of the ECI Board.
Such a delay may help ensure that ECI's directors, if confronted by a
stockholder attempting to force a proxy contest, a tender or exchange offer or
an extraordinary corporate transaction, would have sufficient time to review
the proposal as well as any available alternatives to the proposal and to act
in what they believe to be the best interest of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the ECI Board would be
beneficial to ECI and its stockholders and whether or not a majority of ECI's
stockholders believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of ECI, even though such an attempt
might be beneficial to ECI and its stockholders. The classification of the ECI
Board could thus increase the likelihood that incumbent directors will retain
their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of ECI's Common Stock by purchasers
whose objective is to take control of ECI and remove a majority of the members
of the ECI Board, the classification of the ECI Board could tend to reduce the
likelihood of fluctuations in the market price of ECI Common Stock that might
result from accumulations of large blocks for such a purpose. Accordingly,
stockholders could be deprived of certain opportunities to sell their shares
of ECI Common Stock at a higher market price than might otherwise be the case.
Notwithstanding the foregoing, the Certificate provides that whenever the
holders of any one or more series of ECI Preferred Stock have the right,
voting separately as a class or series, to elect directors, such directors
will not be classified, unless expressly provided by the terms of such series
of ECI Preferred Stock.
Number of Directors; Removal; Filling Vacancies. The Certificate provides
that the business and affairs of ECI will be managed by or under the direction
of a board of directors, consisting of not less than three nor more than
fifteen directors, the exact number thereof to be determined from time to time
by affirmative vote of a majority of the entire ECI Board. In addition, the
Certificate provides that any vacancy on the ECI Board that results from an
increase in the number of directors, and any other vacancy occurring in the
ECI Board only may be filled by a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director.
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<PAGE>
Under the Delaware General Corporation Law (the "DGCL"), unless otherwise
provided in the Certificate, directors serving on a classified board may only
be removed by the stockholders for cause. The Certificate does not provide
that directors may be removed without cause.
Notwithstanding the foregoing, the Certificate provides that whenever the
holders of any one or more series of ECI Preferred Stock have the right,
voting separately as a class or series, to elect directors, the election,
removal, term of office, filling of vacancies and other features of such
directorships will be governed by the terms of the Certificate applicable
thereto.
Special Meetings. The By-laws provide that special meetings of stockholders
will be called by the ECI Board. Moreover, the business permitted to be
conducted at any special meeting of stockholders is limited to the purposes
specified in the notice of meeting given by ECI.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. The By-laws establish an advance notice procedure for stockholders
to make nominations of candidates for election of directors, or to bring other
business before an annual meeting of stockholders of ECI (the "Stockholder
Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the ECI Board, or by a stockholder who
has given timely written notice to the Secretary of ECI prior to the meeting
at which directors are to be elected, will be eligible for election as
directors of ECI. The Stockholder Notice Procedure provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the ECI Board or by a stockholder who has
given timely written notice to the Secretary of ECI of such stockholder's
intention to bring such business before such meeting. Under the Stockholder
Notice Procedure, for stockholder notice in respect of the annual meeting of
ECI's stockholders to be timely, such notice must be delivered to the
Secretary of ECI not less than 70 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
20 days, or delayed by more than 70 days, from such anniversary date, notice
by stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 70th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting is first
made.
Under the Stockholder Notice Procedure, a stockholder's notice to ECI
proposing to nominate a person for election as a director must contain certain
information, including, without limitation, the identity and address of the
nominating stockholder, the class and number of shares of stock of ECI that
are beneficially owned by such stockholder and, as to each person whom the
stockholder proposes to nominate for election or reelection as a director, (i)
the name, age, business address and residence of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number
of shares of capital stock of ECI that are beneficially owned by the person
and (iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14A under the Exchange Act. Under the Stockholder Notice Procedure, a
stockholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business
and about the proposing stockholder, including, without limitation, a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name
and address of such stockholder, the class and number of shares of stock of
ECI beneficially owned by such stockholder, and any material interest of such
stockholder in the business so proposed. If the chairman of the meeting
determines that a person was not nominated, or other business was not brought
before the meeting, in accordance with the Stockholder Notice Procedure, such
person will not be eligible for election as a director, or such business will
not be conducted at any such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the ECI Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the ECI Board, to inform stockholders about such qualifications.
By requiring advance
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<PAGE>
notice of other proposed business, the Stockholder Notice Procedure will also
provide a more orderly procedure for conducting annual meetings of
stockholders and, to the extent deemed necessary or desirable by the ECI
Board, will provide the ECI Board with an opportunity to inform stockholders,
prior to such meetings, of any business proposed to be conducted at such
meetings, together with any recommendations of the ECI Board regarding action
to be taken with respect to such business, so that stockholders can better
decide whether to attend such a meeting or to grant a proxy regarding the
disposition of any such business.
Although the By-laws do not give the ECI Board any power to approve or
disapprove stockholder nominations for the election of directors or proper
stockholder proposals for action, they may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to ECI and its stockholders.
Stockholder Meetings. The By-laws provide that the ECI Board and the
chairman of a meeting may adopt rules for the conduct of stockholder meetings
and specify the types of rules that may be adopted (including the
establishment of an agenda, rules relating to presence at the meeting of
persons other than stockholders, restrictions on entry at the meeting after
commencement thereof and the imposition of time limitations for questions by
participants at the meeting).
ECI Preferred Stock. The Certificate authorizes the ECI Board to provide for
series of ECI Preferred Stock and, with respect to each such series, to fix
the number of shares constituting such series and the designation of such
series, the voting power (if any) of the shares of such series, and the
preferences and relative, participating, optional or other special rights, if
any, and any qualifications, limitations or restrictions thereof, of the
shares of such series.
ECI believes that the ability of the ECI Board to issue one or more series
of ECI Preferred Stock will provide ECI with flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs which might arise. The authorized shares of ECI Preferred Stock, as well
as shares of ECI Common Stock, will be available for issuance without further
action by ECI's stockholders, unless such action is required by applicable law
or the rules of any stock exchange or automated quotation system on which
ECI's securities may be listed or traded. The American Stock Exchange
currently requires stockholder approval as a prerequisite to listing shares in
several instances, including where the present or potential issuance of shares
could result in a 20% increase in the number of shares of common stock
outstanding or in the amount of voting securities outstanding. If the approval
of ECI's stockholders is not required for the issuance of shares of ECI
Preferred Stock or ECI Common Stock, the ECI Board may determine not to seek
stockholder approval.
Although the ECI Board has no intention at the present time of doing so, it
could issue a series of ECI Preferred Stock that could, depending on the terms
of such series, impede the completion of a merger, tender offer or other
takeover attempt. The ECI Board will make any determination to issue such
shares based on its judgment as to the best interests of ECI and its
stockholders. The ECI Board, in so acting, could issue ECI Preferred Stock
having terms that could discourage an acquisition attempt through which an
acquiror may be able to change the composition of the ECI Board, including a
tender offer or other transaction that some, or a majority, of ECI's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
Amendment of Certain Provisions of the Certificates and By-laws. Under the
DGCL, the stockholders of a corporation have the right to adopt, amend or
repeal the by-laws and, with the approval of the board of directors, the
certificate of incorporation of a corporation. In addition, if the certificate
of incorporation so provides, the by-laws may be adopted, amended or repealed
by the board of directors. The Certificate provides that the By-laws may be
amended by the ECI Board or by the stockholders.
97
<PAGE>
Elimination of Liability of Directors. The Certificate provides that a
director of ECI will not be personally liable to ECI or its stockholders for
monetary damages for breach of fiduciary duty as a director except for
liability (i) for any breach of the director's duty of loyalty to ECI or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, which concerns unlawful payments of dividends, stock purchases or
redemptions, or (iv) for any transactions from which the director derived an
improper personal benefit.
LEGAL MATTERS
Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York, counsel to the Company, ECI, and Mr. Prosser
has delivered its opinion to the effect that the ECI Common Stock to be
distributed to holders of Company Common Stock in the Transaction, when
distributed in accordance with the terms of the Merger Agreement, will be
validly issued, fully paid and nonassessable.
EXPERTS
The financial statements of Atlantic Tele-Network, Inc. and Atlantic Tele-
Network Co. as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996 included in this Proxy
Statement/Prospectus and the related financial statement schedules included
elsewhere in the Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
98
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES OF ATLANTIC TELE-NETWORK,
INC. AND SUBSIDIARIES--AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Independent Auditors' Report........................................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholders' Equity........................ F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF ATLANTIC TELE-NETWORK,
INC. AND SUBSIDIARIES--AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997
Consolidated Condensed Balance Sheets.................................. F-22
Consolidated Condensed Statements of Operations........................ F-23
Consolidated Condensed Statements of Cash Flows........................ F-24
Notes to Consolidated Condensed Financial Statements................... F-25
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES OF ATLANTIC TELE-NETWORK
CO. AND SUBSIDIARIES--AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE YEARS
ENDED DECEMBER 31, 1994, 1995 AND 1996
Independent Auditors' Report........................................... F-28
Consolidated Balance Sheets............................................ F-29
Consolidated Statements of Income...................................... F-30
Consolidated Statements of Stockholder's Equity........................ F-31
Consolidated Statements of Cash Flows.................................. F-32
Notes to Consolidated Financial Statements............................. F-33
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF ATLANTIC TELE-NETWORK CO.
AND SUBSIDIARIES--AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE
30, 1996 AND 1997
Consolidated Condensed Balance Sheets.................................. F-42
Consolidated Condensed Statements of Operations........................ F-43
Consolidated Condensed Statements of Cash Flows........................ F-44
Notes to Consolidated Condensed Financial Statements................... F-45
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Atlantic Tele-Network, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheets of Atlantic
Tele-Network, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of Atlantic Tele-Network, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Atlantic Tele-Network, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Omaha, Nebraska
March 25, 1997
F-2
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 18,822 $ 11,540
Accounts receivable, net................................. 63,353 63,660
Materials and supplies................................... 8,656 9,658
Prepayments and other current assets..................... 5,781 4,110
--------- --------
Total current assets.................................. 96,612 88,968
Fixed assets:
Property, plant and equipment............................ 286,856 328,895
Less accumulated depreciation............................ (101,729) (117,031)
Franchise rights and cost in excess of underlying book
value, less accumulated amortization of $9,769,000 and
$11,170,000............................................. 41,533 40,132
--------- --------
Net fixed assets...................................... 226,660 251,996
Property costs recoverable from future revenues, less
accumulated amortization of $1,406,000 in 1996......... 20,000 22,905
Uncollected authorized rate increases..................... 4,339 3,119
Other assets.............................................. 24,328 22,336
--------- --------
$ 371,939 $389,324
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................ $ 6,969 $ 17,153
Accounts payable......................................... 19,568 25,021
Accrued taxes............................................ 6,177 2,457
Advance payments and deposits............................ 2,719 2,701
Other current liabilities................................ 8,815 8,231
Current portion of long-term debt........................ 17,872 12,942
--------- --------
Total current liabilities............................. 62,120 68,505
Deferred income taxes and tax credits..................... 28,188 33,066
Long-term debt, excluding current portion................. 128,362 116,227
Pension and other long-term liabilities................... 9,457 6,702
Minority interest......................................... 12,856 15,033
Contingencies and commitments (Notes J and K)
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000
shares authorized; none issued and outstanding........... -- --
Common stock, par value $.01 per share; 20,000,000 shares
authorized; 12,272,500 shares issued and outstanding..... 123 123
Paid-in capital........................................... 81,852 81,852
Retained earnings......................................... 48,981 67,816
--------- --------
Total stockholders' equity............................ 130,956 149,791
--------- --------
$ 371,939 $389,324
========= ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Telephone Operations:
Revenues:
Local exchange service....................... $ 23,836 $ 22,966 $ 25,585
Access charges............................... 14,689 13,608 16,124
International long-distance revenues......... 76,820 128,939 145,080
Universal Service Fund....................... 12,081 12,151 11,360
Billing and other revenues................... 4,525 4,238 5,290
Directory advertising........................ 2,916 2,730 2,563
-------- -------- --------
Total revenues............................. 134,867 184,632 206,002
Expenses:
Plant specific operations.................... 11,655 12,879 16,447
Plant nonspecific operations................. 19,336 21,530 22,487
Customer operations.......................... 5,355 5,657 6,399
Corporate operations......................... 13,993 13,085 12,081
International long-distance expenses......... 35,969 74,335 94,457
Taxes other than income...................... 3,012 3,089 3,303
-------- -------- --------
Total expenses............................. 89,320 130,575 155,174
-------- -------- --------
Income from telephone operations........... 45,547 54,057 50,828
Other Operations:
Revenues:
Cellular services............................ 3,616 5,910 5,480
Product sales and rentals.................... 4,879 5,128 5,435
-------- -------- --------
Total revenues............................. 8,495 11,038 10,915
Expenses of other operations................... 6,553 8,399 8,231
-------- -------- --------
Income from other operations................. 1,942 2,639 2,684
Non-operating Revenues and Expenses:
Interest expense............................... (13,044) (12,511) (11,289)
Interest income................................ 246 971 458
Other revenues and expenses, net............... (9,341) (10,219) (9,458)
-------- -------- --------
Non-operating revenues and expenses, net..... (22,139) (21,759) (20,289)
-------- -------- --------
Income before income taxes and minority inter-
est............................................. 25,350 34,937 33,223
Income taxes..................................... (10,465) (15,250) (13,039)
Minority interest................................ (1,743) (2,477) (2,177)
-------- -------- --------
Net income....................................... $ 13,142 $ 17,210 $ 18,007
======== ======== ========
Net income per share............................. $ 1.07 $ 1.40 $ 1.47
======== ======== ========
Weighted average shares outstanding.............. 12,273 12,273 12,273
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ------- -------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994....................... $123 $81,852 $19,325 $101,300
Minimum pension liability adjustment, net of
income taxes of $250,000.................... -- -- 419 419
Net income................................. -- -- 13,142 13,142
---- ------- ------- --------
Balance, December 31, 1994..................... 123 81,852 32,886 114,861
Minimum pension liability adjustment, net of
income tax benefit of $666,000.............. -- -- (1,115) (1,115)
Net income................................. -- -- 17,210 17,210
---- ------- ------- --------
Balance, December 31, 1995..................... 123 81,852 48,981 130,956
Minimum pension liability adjustment, net of
income taxes of $494,000.................... -- -- 828 828
Net income................................. -- -- 18,007 18,007
---- ------- ------- --------
Balance, December 31, 1996..................... $123 $81,852 $67,816 $149,791
==== ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 13,142 $ 17,210 $18,007
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization................. 17,319 18,584 19,272
Deferred income taxes......................... 6,118 4,651 5,528
Minority interest............................. 1,743 2,477 2,177
Changes in operating assets and liabilities:
Accounts receivable......................... (12,235) (29,733) (307)
Materials, supplies and other current
assets..................................... 1,856 743 (512)
Uncollected authorized rate increases....... (508) 2,946 1,220
Accounts payable............................ (2,640) 7,248 5,453
Accrued taxes............................... 357 4,659 (3,720)
Other....................................... 4,314 2,321 (317)
-------- -------- -------
Net cash flows from operating activities.. 29,466 31,106 46,801
Cash flows from investing activities:
Capital expenditures............................ (18,368) (22,539) (47,202)
Insurance proceeds.............................. 10,074 -- --
-------- -------- -------
Net cash flows from investing activities.. (8,294) (22,539) (47,202)
Cash flows from financing activities:
Repayment of long-term debt..................... (11,402) (12,436) (18,401)
Issuance of long-term debt...................... 18 5,291 1,336
Net borrowings (repayments) on notes............ 32 (115) 10,184
-------- -------- -------
Net cash flows from financing activities.. (11,352) (7,260) (6,881)
-------- -------- -------
Net change in cash................................ 9,820 1,307 (7,282)
Cash, Beginning of Year........................... 7,695 17,515 18,822
-------- -------- -------
Cash, End of Year................................. $ 17,515 $ 18,822 $11,540
======== ======== =======
Supplemental cash flow information:
Interest paid................................... $ 12,299 $ 12,090 $10,920
======== ======== =======
Income taxes paid............................... $ 3,409 $ 4,113 $11,186
======== ======== =======
Non-cash activities:
Change in minimum pension liability............. $ (918) $ 1,842 $(1,071)
======== ======== =======
Change in pension intangibles................... $ (249) $ 61 $ 251
======== ======== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
A. SIGNIFICANT ACCOUNTING POLICIES
GENERAL--Atlantic Tele-Network, Inc. (the Company or ATN) is engaged
principally in providing telecommunications services, including local
telephone service, access to long-distance service, and cellular service, in
the U.S. Virgin Islands and the Cooperative Republic of Guyana.
BASIS OF PRESENTATION--The consolidated financial statements include the
accounts of the Company, and all of its wholly-owned subsidiaries, including
Atlantic Tele-Network Co. (ATN-VI) and its subsidiary, the Virgin Island
Telephone Corporation (Vitelco), and majority-owned subsidiaries, including
Guyana Telephone and Telegraph Company Limited (GT&T). All material
intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform with the 1996 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REGULATORY ACCOUNTING--The Company's telephone subsidiaries follow the
accounting for regulated enterprises prescribed by Statement of Financial
Accounting Standards No. 71, Accounting for the Affects of Certain Types of
Regulation (SFAS 71). This accounting recognizes the economic effects of rate
regulation by recording cost and a return on investment as such amounts are
recovered through rates authorized by regulatory authorities. Accordingly
under SFAS 71, plant and equipment is depreciated over lives approved by
regulators and certain costs and obligations are deferred based upon approvals
received from regulators to permit recovery of such amounts in future years.
CASH--For purposes of the statement of cash flows, the Company considers all
investments with a maturity at acquisition of three months or less to be cash
equivalents.
MATERIALS AND SUPPLIES--Materials and supplies are carried in inventory
principally at weighted average cost.
FIXED ASSETS--The original cost of fixed assets in service and under
construction includes an allocation of indirect costs applicable to
construction. Fixed assets also include the acquisition cost of Vitelco in
excess of underlying book value and the acquisition of GT&T franchises, all of
which are being amortized over forty years on the straight-line method.
DEBT ISSUANCE COSTS--Costs relating to the issuance of debt are being
amortized over the term of the debt.
DEPRECIATION--The Company provides for depreciation using the straight-line
and equal life group methods. This has resulted in a composite annualized rate
of 6.4%, 6.9% and 6.3% for Vitelco and 4.7%, 4.7% and 4.1% for GT&T for the
years ended December 31, 1994, 1995 and 1996, respectively. With respect to
regulated subsidiaries, the original cost of depreciable property retired,
together with removal cost less any salvage realized, is charged to
accumulated depreciation. No gain or loss is recognized in connection with
ordinary retirements of depreciable property. Repairs and replacements of
minor items of property are charged to maintenance expense.
F-7
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
REVENUE--Local exchange service, exchange access charges and international
long-distance revenues are recognized when earned, regardless of the period in
which they are billed. In determining revenue, the Company estimates usage by
foreign exchanges of the Company's local exchange network to determine the
appropriate rate to apply to long distance minutes carried by the Company.
Additionally, the Company establishes reserves for possible unreported or
uncollectible minutes from foreign exchange carriers and doubtful accounts
from customers. The amounts the company will ultimately realize upon
settlement could differ significantly in the near term from the amounts
assumed in estimating these revenues and the related accounts receivable.
INCOME TAXES--The Company uses an asset and liability approach for reporting
of income taxes and measures deferred tax assets and liabilities based on
temporary differences existing at each balance sheet date using enacted tax
rates. The Company and its U.S. subsidiary file a consolidated U.S. tax
return. ATN-VI files a consolidated U.S. Virgin Islands income tax return with
its Virgin Islands subsidiaries and GT&T files in Guyana. Investment tax
credits related to regulated telephone operations have been deferred and are
being amortized into income over the service lives of the related property.
FOREIGN CURRENCY TRANSACTIONS--With regard to GT&T operations, for which the
U.S. dollar is the functional currency, foreign currency transaction gains and
losses are included in determining net income for the period in which the
transaction is settled. At each balance sheet date, balances denominated in
Guyana currency are adjusted to reflect the current exchange rate. Currency
transaction losses approximated $673,000 for the period ended December 31,
1994 and have not been material for any of the other periods presented.
IMPAIRMENT OF LONG-LIVED ASSETS--In 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 (SFAS 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
The Statement establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles and goodwill related to those
assets. Under provisions of the Statement, impairment losses are recognized
when expected future cash flows are less than the assets' carrying value.
Accordingly, when indicators of impairment are present, the Company evaluates
the carrying value of property, plant and equipment and intangibles in
relation to the operating performance and future undiscounted cash flows of
the underlying business. The Company adjusts the net book value of the
underlying assets if the sum of expected future cash flows is less than book
value. The adoption of SFAS 121 did not have a material effect on the
Company's financial statements.
INCOME PER SHARE--Income per share is computed on the basis of the weighted
average number of shares outstanding.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1994 and
1995 amounts to conform to the 1996 presentation.
F-8
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
B. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Subscribers and installment sales, net of allowance for
doubtful
accounts of $3,004,000 and $2,145,000................... $13,464 $12,577
Connecting companies..................................... 48,173 49,636
Other.................................................... 1,716 1,447
------- -------
$63,353 $63,660
======= =======
</TABLE>
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Used in Telephone Operations:
Outside plant......................................... $124,530 $158,860
Central office equipment.............................. 72,520 80,936
Land and building..................................... 19,953 21,124
Station equipment..................................... 9,151 9,739
Furniture and office equipment........................ 5,168 5,493
Construction in process............................... 17,504 15,603
Other................................................. 13,823 11,593
-------- --------
Total used in telephone operations.................. 262,649 303,348
-------- --------
Used in Other Operations.............................. 24,207 25,547
-------- --------
$286,856 $328,895
======== ========
</TABLE>
All property, plant and equipment used in telephone operations are recorded
at the original cost of the acquired company except for the property, plant
and equipment of GT&T, which were recorded at their fair market value of
$16,052,000 at the date of acquisition.
D. PROPERTY COSTS RECOVERABLE FROM FUTURE REVENUES
On September 15, 1995, Hurricane Marilyn struck the Virgin Islands causing
extensive damage to the outside telephone plant of Vitelco. None of the damage
was covered by insurance. Vitelco's estimate of the historical cost of the
facilities damaged or destroyed by Hurricane Marilyn is approximately $26.3
million with associated accumulated depreciation of approximately $9.1
million. These costs have been removed from the property accounts and along
with certain excess maintenance costs and costs of removal of $7.1 million
have been classified as property costs recoverable from future revenues
because the Company anticipates that future revenue in an amount at least
equal to the capitalized cost will result from inclusion of these costs in
allowable costs for rate making purposes. Vitelco has received approval from
the Federal Communications Commission to include the interstate portion of
these costs in its rate base and amortize them over a five year period.
Vitelco has
F-9
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
applied to the Virgin Islands Industrial Development Corporation (IDC) for a
five year rebate of 90% of its Virgin Island income taxes and 100% of its
Virgin Islands gross receipts and certain other taxes to assist in recovering
the intrastate portion of the telecommunications plant. The application is
still pending before the IDC.
E. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Rural Telephone Finance Corporation subordinated capital
certificates............................................. $ 8,065 $ 6,490
Rural Telephone Finance Corporation patronage capital
certificates and patronage dividends receivable.......... 5,057 5,781
Debt service reserve fund and escrow account.............. 3,900 3,900
Pension and retirement plan intangibles................... 2,741 1,877
Debt issuance costs....................................... 1,937 1,626
Deferred costs and intangibles, net....................... 685 872
Other..................................................... 1,943 1,790
------- -------
$24,328 $22,336
======= =======
</TABLE>
F. NOTES PAYABLE
The Company has in place a $5.5 million line of credit, bearing interest at
0.75% over prime rate, which has expired and has been verbally extended to
October 1997. The interest rate was 9.25% and 9% at December 31, 1995 and
1996, respectively. As of December 31, 1995 and 1996, $5.5 million was
outstanding under this arrangement.
At December 31, 1995 and 1996, Vitelco had short-term notes payable to an
insurance company of $457,000 and $431,000, respectively, with interest rates
of 5.5% and 5.7%, respectively.
Vitelco has a $5 million revolving line of credit with a variable rate of
interest with the Rural Telephone Finance Corporation (RTFC) which expires in
March 2000 and a $15 million revolving line of credit with a variable rate of
interest also with the RTFC expiring April 1997. As of December 31, 1995, no
amounts were borrowed under these lines of credit. At December 31, 1996,
Vitelco has borrowings of $5 million for the line of credit expiring in March
2000 and $6 million for the line of credit expiring April 1997, both with
interest rates of 6.9%.
At December 31, 1995 and 1996, the Company had demand notes payable to a
stockholder of $1,012,000 and $222,000, respectively, with an interest rate of
9.58%.
F-10
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
G. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
COMPANY:
Note payable to ITT, paid January 1996..................... $ 4,000 $ --
SUBSIDIARIES:
Notes payable to RTFC, with principal and interest payments
due quarterly through December 30, 2002:
ATN-VI................................................... 21,203 19,098
Vitelco.................................................. 27,934 24,142
-------- --------
49,137 43,240
Notes payable to Rural Utilities Service ("RUS") with
principal and interest payments due monthly through 2012.... 57,594 56,901
Notes payable to Northern Telecom International Finance B.V.
("NTIF") by GT&T under an $11,500,000 supply loan (the "GT&T
Supply Loan") and $34 million equipment financing agreement
(the "GT&T Equipment Loan")................................. 30,465 25,447
Note payable to be repaid with semi-annual payments and a
balloon payment of $1,925,000 on December 31, 1999.......... 3,850 3,300
Other........................................................ 1,188 281
-------- --------
146,234 129,169
Less current portion......................................... 17,872 12,942
-------- --------
$128,362 $116,227
======== ========
</TABLE>
Interest on the Vitelco note payable to RTFC is fixed at 9.75%. On the ATN-
VI note payable, $1.4 million and $1.3 million with a variable interest rate
of 6.35% and 6.3% was outstanding at December 31, 1995 and 1996, respectively,
with the balance bearing a fixed rate of 8%.
The RUS note arrangement calls for fixed monthly principal and interest
payments of $7.04 per $1,000 of loan balance with any remaining balance due
May 2012. The interest rate on these notes is fixed at 5%.
The RUS and RTFC debt agreements contain provisions which may require
prepayments of RTFC debt in the event of future advances from the RUS. Vitelco
has received approval from the RUS for an additional $35.7 million of long-
term financing under terms similar to its existing RUS debt.
The RTFC and RUS agreements require, among other things, maintenance of
minimum debt service and times interest earned coverages and restrictions on
issuance of additional long-term debt. The RTFC agreement also limits the
payment of dividends by ATN-VI to 40% of ATN-VI's consolidated net income,
contingent upon ATN-VI's ability to meet certain financial ratios (which were
not met at December 31, 1996). Therefore, ATN-VI was prohibited from paying
dividends. At December 31, 1996, the ability of ATN-VI to service its debt was
dependent on funds from its parent or its subsidiaries. The RUS loan and
applicable RUS regulations restrict
F-11
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
Vitelco's ability to pay dividends based upon certain net worth tests with an
exception for limited dividend payments authorized when specific security
instrument criteria are unable to be met. Settlement agreements made in 1989
and 1991 with the U.S. Virgin Islands Public Service Commission (PSC) also
contain restrictions on dividends by Vitelco which, in general, are more
restrictive than those imposed by the RUS. Dividends by Vitelco are generally
limited to 60% of its net income, although additional amounts are permitted to
be paid for the sole purpose of servicing ATN-VI's debt to the RTFC. Under the
above restrictions, at December 31, 1996, Vitelco had approximately $200,000
of retained earnings available for dividends.
As a condition of being granted the RTFC loan, the Company was required to
invest in subordinated capital certificates with the RTFC (included in other
assets). No capital certificates were amortized during 1995. In 1996, the
Company received a cash repayment of $1,575,000. These certificates are non-
interest bearing. As a member of the RTFC, the Company shares proportionately
in the net earnings of the RTFC. The Company's share of RTFC earnings,
included as an offset to interest expense, was $532,000, $528,000 and $551,000
for the years ended December 31, 1994, 1995 and 1996, respectively. RTFC
distributions of net earnings are made primarily through issuances of
patronage capital certificates (included in other assets) which are redeemed
at the option of the RTFC.
The GT&T Supply Loan, which had a balance of $6,034,000 and $4,314,000 at
December 31, 1995 and 1996, respectively, requires monthly principal and
interest payments with final maturity on January 15, 1999. The GT&T Supply
Loan was fixed at 11.75%. The GT&T Equipment Loan, which had a balance of
$24,431,000 and $21,133,000 at December 31, 1995 and 1996, respectively,
require monthly principal payments totaling $275,000 plus interest with all
outstanding balances maturing in 2004 through 2005. The interest rates on the
GT&T Equipment Loan are at fixed rates from 9.17% to 11.29%.
The GT&T Equipment Loan is guaranteed by the Company and secured by a pledge
of all the GT&T stock owned by the Company and a security interest in all net
toll revenues due to GT&T from U.S., British and Canadian carriers. GT&T is
also required to maintain a debt service reserve fund under this loan
agreement. The balance of this fund, included in other assets, was $3.9
million at December 31, 1995 and 1996. The GT&T Supply Loan is secured by a
security interest in certain of GT&T's international net toll revenues.
The $3.3 million note payable is collateralized by property with a book
value of $6.9 million as of December 31, 1996. The variable interest rate was
7.2% at December 31, 1996.
F-12
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
The annual requirements for principal payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING TOTAL
------------ --------
<S> <C>
1997........................................................... $ 12,940
1998........................................................... 13,683
1999........................................................... 12,235
2000........................................................... 12,520
2001........................................................... 13,065
Thereafter..................................................... 64,726
--------
$129,169
========
</TABLE>
H. INCOME TAXES
The following is a reconciliation from the tax computed at statutory income
tax rates to the Company's income tax expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Tax computed at statutory U.S. federal income
tax rates..................................... $ 8,872 $12,228 $11,628
Guyana income taxes in excess of statutory U.S.
rate.......................................... 1,613 2,906 2,038
Other, net..................................... (20) 116 (627)
------- ------- -------
Income tax expense............................. $10,465 $15,250 $13,039
======= ======= =======
</TABLE>
The components of income tax expense are comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current:
United States and U.S. Virgin Islands........ $ 2,011 $ 1,210 $ 3,096
Foreign...................................... 2,696 10,370 4,948
Deferred....................................... 6,118 4,651 5,528
Amortization of regulatory liability and in-
vestment
tax credits................................... (360) (981) (533)
------- ------- -------
$10,465 $15,250 $13,039
======= ======= =======
</TABLE>
F-13
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
The significant components of deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of property........... $20,823 $24,887
Revenues not recognized for tax purposes..................... 2,229 1,680
Property costs recoverable from future revenues.............. 7,480 8,566
Other........................................................ -- 73
------- -------
Deferred tax assets:
Non-deductible expense....................................... 1,602 1,067
Operating loss carryforwards................................. 3,309 --
Pension costs not currently deductible....................... 929 507
Regulatory liability......................................... 1,510 1,297
Other........................................................ 344 --
------- -------
7,694 2,871
------- -------
Total deferred tax liability............................... 22,838 32,335
Valuation allowance.......................................... 834 --
------- -------
Net deferred tax liabilities............................... $23,672 $32,335
======= =======
</TABLE>
Upon the adoption of SFAS 109, the Company recorded regulatory assets and
liabilities for the cumulative effect of the adoption on the Company's
regulated subsidiaries since it was anticipated that these amounts would be
recovered from or returned to customers through future rates. At December 31,
1995 and 1996 the Company has a regulatory liability of approximately $4.0
million and $3.5 million which is included in other long term liabilities in
the consolidated balance sheet.
At December 31, 1996, unremitted earnings of foreign subsidiaries were
approximately $81,178,000. Since it is the Company's intention to indefinitely
reinvest these earnings, no U.S. taxes have been provided. The determination
of the amount of U.S. tax which would be payable if such unremitted foreign
earnings were repatriated through dividend remittances is not practicable in
that any U.S. taxes payable on such dividends would be significantly offset by
foreign tax credits. Additionally, distributions from ATN-VI and its
subsidiaries could be subject to 10% withholding taxes imposed by the U.S.
Virgin Islands. ATN-VI has not paid any dividends to the Company in the past
and does not intend to remit any dividends in the foreseeable future. The
cumulative undistributed earnings of ATN-VI amounted to $38,883,000 as of
December 31, 1996. Pursuant to the term of the purchase agreement with the
government of Guyana, there are no withholding taxes applicable to
distributions from GT&T.
F-14
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
I. RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans for eligible
hourly union employees and salaried employees who are not members of a
collective bargaining unit, and who meet certain age and employment criteria.
The funding policy is to contribute to the Plan such amounts that are
necessary to fund the Plan in accordance with funding requirements of ERISA.
Contributions are intended to provide not only for benefits attributed for
service to date, but also for those expected to be earned in the future. The
benefits are based on the participants' average salary for the "salaried plan"
and credited service years for the "hourly plan."
Net periodic pension cost was:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost................................. $ 711 $ 600 $ 811
Interest on projected benefit obligation..... 774 890 1,061
Actual return on assets...................... (130) (1,292) (1,331)
Net amortization and deferral................ 276 1,052 1,085
-------- -------- --------
Net periodic pension cost.................... $ 1,631 $ 1,250 $ 1,626
======== ======== ========
</TABLE>
The following table sets forth the funded status, the amounts recognized in
the balance sheet of the Company at December 31, 1995 and 1996, and the
principal assumptions of the Company's plans:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits..................................... $ 11,894 $ 13,681
Nonvested benefits.................................. 509 39
-------- --------
Accumulated plan benefits............................. $ 12,403 $ 13,720
======== ========
Projected benefit obligation.......................... $(13,977) $(16,027)
Fair value of plan assets............................. 9,973 12,389
-------- --------
Plan projected benefit obligation in excess of assets. (4,004) (3,638)
Unrecognized net loss................................. 3,481 2,699
Unrecognized prior service costs...................... 793 1,257
Unrecognized net obligation at January 1, 1987........ 1,096 939
-------- --------
Pension prepaid included in the balance sheet......... $ 1,366 $ 1,257
======== ========
</TABLE>
For Vitelco, ATN-VI and ATN, Inc. the discount rate was 7.0% and 7.4% at
December 31, 1995 and 1996 and the expected rate return on invested assets was
8.0% for both years. The Guyana discount rate was 15.0% and 13.0% and the
expected Guyana rate of return on invested assets was 12% and 10.0% for the
GT&T plan at December 31, 1995 and 1996.
In accordance with Statement of Financial Accounting Standards No. 87, at
December 31, 1995 and 1996, the Company has recorded an additional minimum
pension liability equal to the unfunded pension benefit obligation of
$4,303,000 and $3,234,000, and an intangible asset (to the extent of the
additional liability) equal to the aggregate of the prior service cost and
transition obligation of $1,622,000 and $1,877,000. The change in
F-15
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
the excess of the minimum pension liability over the intangible of $669,000,
$(1,781,000) and $1,322,000 at December 31, 1994, 1995 and 1996, respectively,
has been recorded as a credit to (reduction in) equity, net of taxes
(benefits) of $250,000, $(666,000) and $494,000.
In addition, the Company and its subsidiaries have an investment and savings
plan for all salaried employees which covers all employees of the Company and
its subsidiaries (except GT&T) who are not members of a collective bargaining
unit and who meet certain age and employment criteria. With respect to such
plan, the Company expensed $158,000, $178,000 and $181,000 for the years ended
December 31, 1994, 1995 and 1996, respectively. The Company also has a 401(k)
plan for hourly union employees who meet certain age and employment
requirements. Employee contributions are elective and no contributions are
required by the Company.
In 1991, the Company established an Employees' Stock Ownership Plan ("ESOP")
to provide a means for employees to participate in the ownership of the
Company. All non-craft salaried and hourly employees of the Company and its
participating affiliates who are not members of a collective bargaining unit
and who have attained age 21 and completed one year of service are eligible to
participate in the ESOP.
The Company may make discretionary contributions to the ESOP in the form of
Company stock (or cash which is used to acquire stock of ATN, Inc., either on
the open market or directly from the Company). The ESOP is permitted to borrow
money to purchase Company stock. No Company contributions were made in 1994,
1995 or 1996.
In addition to providing pension benefits, the Company provides unfunded
noncontributory defined medical, dental, vision and life benefits for both
retired, hourly and salaried employees (except GT&T) who meet certain age and
employment criteria. The cost of these postretirement benefits is accrued
during the employee's active service period.
Net postretirement benefit cost was:
<TABLE>
<CAPTION>
YEARS
ENDED
DECEMBER
31,
---------
1995 1996
---- ----
<S> <C> <C>
Service cost................................................... $ 68 $ 73
Interest cost.................................................. 108 116
Transition obligation.......................................... 38 38
Net other amortization and deferral............................ 51 68
---- ----
Net postretirement benefit cost.............................. $265 $295
==== ====
</TABLE>
F-16
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
The following table sets forth the funded status and the amounts recognized
in the balance sheet of the Company:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1995
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................ $ 251 $ 281
Eligible actives........................................ 338 412
Non-eligible actives.................................... 1,127 1,053
------ ------
1,716 1,746
Fair value of plan assets................................. -- --
Accumulated benefit obligation in excess of assets........ (1,716) (1,746)
Unrecognized net loss (gain).............................. (143) (263)
Unrecognized prior service costs.......................... 615 543
Unrecognized net obligation............................... 643 605
------ ------
Pension liability included in the balance sheet........... $ (601) $ (861)
====== ======
</TABLE>
In determining the accumulated postretirement benefit obligations, the
discount rate was assumed to be 7.0% in 1995 and 7.4% in 1996. For 1996, the
assumed health care cost trend rate was 9.9% and 8.9% for pre-age 65 and post-
age 65 participants, respectively, declining gradually to 5.5% and 5.75% over
the next 15 years. A 1% increase in assumed health care cost trend rate would
increase the service and interest cost expense by $19,000 for 1996 and
increase the accumulated postretirement benefits obligations by $163,000.
J. REGULATORY MATTERS
In October 1995, the Guyana Public Utilities Commission ("PUC") issued an
order that rejected the request of GT&T for substantial increases in all
telephone rates and temporarily reduced rates for outbound long-distance calls
to certain countries. In most cases, the existing rates were already less than
GT&T's payment obligations to foreign carriers. In January 1997, on an appeal
by GT&T, the Guyana High Court voided the PUC's order in regard to rates and
the rates were returned to the rates in existence in October 1995. The lost
revenue was approximately $10 million for the period when the order was
effective. In March 1997, GT&T notified the PUC that it would be putting into
effect a surcharge on long distance rates designed to recover these lost
revenues over a period of 18 months. The PUC has taken the position that GT&T
may not put the surcharge into effect without the permission of the PUC, and
this matter has not yet been resolved.
In January 1997, the PUC ordered GT&T to cease paying advisory fees to the
Company and to recover from the Company approximately $25 million of fees paid
by GT&T to the Company since January 1991. GT&T has appealed the PUC's order
to the Guyana High Court and obtained a stay of the PUC's order pending
determination of that appeal.
At December 31, 1996, GT&T owed the Company approximately $23 million for
advances made from time to time for working capital and capital expenditure
needs of GT&T. GT&T's indebtedness to the Company was evidenced by a series of
promissory notes. In March 1997, the PUC voided all of the promissory notes
then outstanding for failure to comply with certain provisions of the PUC law.
The PUC ordered that no payments be made on any of the outstanding notes, and
that GT&T recover from ATN all amounts theretofore paid. The order
F-17
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
also provided that the Commission would be willing to authorize the payment
for any amounts properly proven to the satisfaction of the PUC to be due and
payable from GT&T to ATN. GT&T is planning to appeal the PUC's order to the
Guyana High Court.
K. CONTINGENCIES AND COMMITMENTS
The Company presently has no coverage for its outside plant or for damages
caused by wind storms. The Company continues to explore various alternatives
to enable it to insure these risks in whole or in part, but believes that such
insurance is currently not available at commercially reasonable terms.
Upon the acquisition of GT&T in January 1991, GT&T entered into an agreement
with the government of Guyana to expand significantly GT&T's existing
facilities and telecommunications operations and to improve service within a
three-year period pursuant to an expansion and service improvement plan (the
Plan). The Plan was modified in certain respects and the date for completion
of the Plan was extended to February 1995. The government has referred to the
PUC the failure of GT&T to complete the Plan by February 1995. However, all
proceedings by the PUC with respect to GT&T's obligations under its Expansion
Plan were stayed by the Guyana High Court during GT&T's appeal to the Court
from the PUC's October, 1995 order with regard to telephone rates discussed in
Note J. As a result of the High Court's decision in January 1997 on this
appeal, the stay is no longer in effect. The PUC scheduled a hearing on this
matter for March 1997 and at GT&T's request, the hearing has been postponed
and has not yet been rescheduled. Failure to timely fulfill the terms of the
Plan could result in monetary penalties, cancellation of the License, or other
action by the PUC or the government which could have a material adverse affect
on the Company's business and prospects.
The Company has various litigation cases and claims in the normal course of
business the resolution of which, in the opinion of management, is not
expected to have a material effect on the financial statements.
F-18
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
L. FAIR VALUE DISCLOSURE
Management has determined the carrying amounts of cash, accounts receivable,
accounts payable and notes payable are a reasonable estimate of fair value.
The fair value of long-term debt is estimated using a discounted cash flow
analysis. At December 31, 1995 and 1996, the carrying value of long-term debt
was $146,234,000 and $129,169,000 and the estimated fair value was
$140,205,000 and $127,783,000, respectively.
M. GEOGRAPHIC AND CREDIT CONCENTRATIONS
Geographic data:
<TABLE>
<CAPTION>
UNITED
STATES GUYANA CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
1996 Telephone operations:
Total revenues............................ $ 57,749 $148,253 $206,002
Income from telephone operations.......... 16,837 33,991 50,828
Identifiable assets....................... 230,714 158,610 389,324
1995 Telephone operations
Total revenues............................ $ 53,462 $131,170 $184,632
Income from telephone operations.......... 15,461 38,596 54,057
Identifiable assets....................... 223,428 148,511 371,939
</TABLE>
Revenues from AT&T comprised approximately 25%, 27% and 29% of consolidated
total revenues in 1994, 1995 and 1996, respectively. Revenues from MCI
comprised approximately 13% and 15% in 1995 and 1996, respectively. British
Telecom comprised approximately 11% of consolidated total revenues in 1995.
These revenues consist principally of international and long distance service,
interstate network access, and billing and collection service revenues. No
other revenue source accounted for more than 10% of total revenues for the
years presented.
A significant portion of the Company's international long-distance revenue
discussed above is generated by GT&T's audiotext providers, which operate as
service bureaus or intermediaries for a number of audiotext information
providers. One such audiotext provider accounted for $28 million, $78 million
and $83 million of these revenues for the years ended December 31, 1994, 1995
and 1996, respectively.
F-19
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
N. QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of the Company's quarterly results of operations for
the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1996
Operating revenues................ $52,320 $55,882 $57,035 $51,680
Operating expenses................ 38,450 41,004 43,250 40,701
------- ------- ------- -------
Operating profit.................. 13,870 14,878 13,785 10,979
Non-operating revenues and
expenses, net.................... 7,168 5,241 4,677 3,203
------- ------- ------- -------
Income before provision for income
taxes and minority interest...... 6,702 9,637 9,108 7,776
Income taxes...................... 2,924 3,952 3,608 2,555
------- ------- ------- -------
Net income before minority inter-
est.............................. 3,778 5,685 5,500 5,221
Minority interest................. 592 680 588 317
------- ------- ------- -------
Net income........................ $ 3,186 $ 5,005 $ 4,912 $ 4,904
======= ======= ======= =======
Net income per share.............. $ 0.26 $ 0.41 $ 0.40 $ 0.40
======= ======= ======= =======
Weighted average shares outstand-
ing.............................. 12,273 12,273 12,273 12,273
======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1995
Operating revenues................ $40,179 $48,102 $52,117 $55,272
Operating expenses................ 27,788 33,462 38,372 39,352
------- ------- ------- -------
Operating profit.................. 12,391 14,640 13,745 15,920
Non-operating revenues and
expenses, net.................... 5,363 6,442 5,541 4,413
------- ------- ------- -------
Income before provision for income
taxes and minority interest...... 7,028 8,198 8,204 11,507
Income taxes...................... 2,885 3,485 3,467 5,413
------- ------- ------- -------
Net income before minority
interest......................... 4,143 4,713 4,737 6,094
Minority interest................. 457 637 594 789
------- ------- ------- -------
Net income........................ $ 3,686 $ 4,076 $ 4,143 $ 5,305
======= ======= ======= =======
Net income per share.............. $ 0.30 $ 0.33 $ 0.34 $ 0.43
======= ======= ======= =======
Weighted average shares
outstanding...................... 12,273 12,273 12,273 12,273
======= ======= ======= =======
</TABLE>
F-20
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
O. SUBSEQUENT EVENT
On January 29, 1997 the Company announced that its Board of Directors and
its two principal stockholders had approved the terms of the split-up of the
Company into two separate public companies. One, a new company, will contain
all of the Company's Virgin Islands operations. The other will continue the
Company's Guyana operations. As a condition to the transaction, the new
company is required to raise in excess of $17.4 million which will be paid to
the Company in repayment of certain intercompany indebtedness and will be used
by the Company to redeem a portion of the stock held by one of the principal
stockholders. The split-up is subject to the execution of definitive
documentation, the receipt of certain regulatory approvals, including a ruling
from the Internal Revenue Service that the distribution of shares of the new
company will be tax free for federal income tax purposes to the Company and
its stockholders under Section 355 of the Internal Revenue Code of 1986, as
amended, and an opinion from an investment banking firm as to the fairness of
the split-up from a financial point of view to the public stockholders of the
Company.
F-21
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 11,540 $ 11,441
Accounts receivable, net............................ 63,660 56,092
Materials and supplies.............................. 9,658 9,427
Prepayments and other current assets................ 4,110 6,195
--------- ---------
Total current assets.............................. 88,968 83,155
Fixed assets:
Property, plant and equipment....................... 328,895 336,761
Less accumulated depreciation....................... (117,031) (124,058)
Franchise rights and cost in excess of underlying
book value, less
accumulated amortization of $11,170,000 and
$11,870,000........................................ 40,132 39,432
--------- ---------
Net fixed assets.................................. 251,996 252,135
Property costs recoverable from future revenues....... 22,905 22,250
Uncollected authorized rate increases................. 3,119 2,920
Other assets.......................................... 22,336 21,729
--------- ---------
$ 389,324 $ 382,189
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................... $ 17,153 $ 15,722
Accounts payable.................................... 25,021 20,377
Accrued taxes....................................... 2,457 1,970
Advance payments and deposits....................... 2,701 3,065
Other current liabilities........................... 8,231 6,737
Current portion of long-term debt................... 12,942 12,936
--------- ---------
Total current liabilities......................... 68,505 60,807
Deferred income taxes and tax credits................. 33,066 22,059
Long-term debt, excluding current portion............. 116,227 109,580
Pension and other long-term liabilities............... 6,702 6,453
Minority interest..................................... 15,033 15,341
Contingencies and commitments (Note E)
Stockholders' equity:
Preferred stock, par value $.01 per share;
10,000,000 shares authorized; none issued and
outstanding........................................ -- --
Common stock, par value $.01 per share; 20,000,000
shares authorized; 12,272,500 shares issued and
outstanding........................................ 123 123
Paid-in capital..................................... 81,852 81,852
Retained earnings................................... 67,816 85,974
--------- ---------
Total stockholders' equity........................ 149,791 167,949
--------- ---------
$ 389,324 $ 382,189
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
F-22
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
Telephone Operations:
Revenues:
Local exchange service.................................. $ 12,589 $ 14,476
Access charges.......................................... 7,076 8,599
International long-distance revenues.................... 73,473 57,117
Universal Service Fund.................................. 5,604 7,042
Billing and other revenues.............................. 2,304 2,820
Directory advertising................................... 1,293 914
-------- --------
Total revenues........................................ 102,339 90,968
Expenses:
Plant specific operations............................... 7,869 7,990
Plant nonspecific operations............................ 10,135 11,853
Customer operations..................................... 3,224 3,306
Corporate operations.................................... 6,127 6,111
International long-distance expenses.................... 46,294 38,593
Taxes other than income................................. 1,628 1,756
-------- --------
Total expenses........................................ 75,277 69,609
Income from telephone operations...................... 27,062 21,359
Other Operations:
Revenues:
Cellular services....................................... 3,219 2,146
Product sales and rentals............................... 2,644 2,334
-------- --------
Total revenues........................................ 5,863 4,480
Expenses of other operations.............................. 4,177 3,870
-------- --------
Income from other operations.......................... 1,686 610
Non-operating Revenues and Expenses:
Interest expense.......................................... (5,730) (5,317)
Interest income........................................... 227 158
Other revenues and expenses............................... (6,906) (4,956)
-------- --------
Non-operating revenues and expenses, net.............. (12,409) (10,115)
-------- --------
Income before income taxes and minority interest............ 16,339 11,854
Income taxes................................................ 6,876 (6,612)
-------- --------
Income before minority interest............................. 9,463 18,466
Minority interest........................................... (1,272) (308)
-------- --------
Net income.................................................. $ 8,191 $ 18,158
======== ========
Net income per share........................................ $ 0.67 $ 1.48
======== ========
Weighted average shares outstanding......................... 12,273 12,273
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
F-23
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
Net cash flows provided by
operating activities....... $ 22,567 $ 18,304
Cash flows from investing
activities:
Capital expenditures...... (28,839) (10,319)
-------- --------
Net cash used in
investing activities... (28,839) (10,319)
Cash flows from financing
activities:
Repayment of long-term
debt..................... (11,608) (6,653)
Net borrowings
(repayments) on notes.... 8,808 (1,431)
-------- --------
Net cash flows provided
(used) by financing
activities............. (2,800) (8,084)
-------- --------
Net decrease in cash........ (9,072) (99)
Cash, Beginning of Period... 18,822 11,540
-------- --------
Cash, End of Period......... $ 9,750 $ 11,441
======== ========
Supplemental cash flow
information:
Interest paid............. $ 5,797 $ 5,233
======== ========
Income taxes paid......... $ 8,523 $ 3,683
======== ========
Depreciation and
Amortization Expense..... $ 9,154 $ 10,920
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
F-24
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
A. GENERAL
Significant Accounting Policies
The consolidated balance sheet of Atlantic Tele-Network, Inc. and
subsidiaries (the "Company") at December 31, 1996 has been taken from audited
financial statements at that date. All other consolidated condensed financial
statements contained herein have been prepared by the Company and are
unaudited. The consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Audited financial statements for the year ended
December 31, 1996.
The unaudited interim consolidated condensed financial statements furnished
herein reflect all adjustments, which are, in the opinion of management,
necessary to fairly present the financial results for the interim periods
presented. The results for the six months ended June 30, 1996 and 1997 are not
necessarily indicative of the operating results for the full year not yet
completed.
B. PROPERTY COSTS RECOVERABLE FROM FUTURE REVENUES
On September 15, 1995, Hurricane Marilyn struck the Virgin Islands causing
extensive damage to the outside telephone plant of Vitelco. None of the damage
was covered by insurance. The historical cost of the facilities damaged or
destroyed by Hurricane Marilyn was approximately $26.3 million with associated
accumulated depreciation of approximately $9.1 million. These costs have been
removed from the property accounts and along with certain excess maintenance
costs and costs of removal of $7.1 million have been classified as property
costs recoverable from future revenues because the Company anticipates that
future revenue in an amount at least equal to the capitalized cost will result
from inclusion of these costs in allowable costs for rate making purposes.
Vitelco has received approval from the Federal Communications Commission to
include the interstate portion of these costs in its rate base and amortize
them over a five year period. In May 1997, Vitelco received approval from the
Virgin Islands Industrial Development Commission for a five year exemption
(commencing October 1, 1998) from 90% of Virgin Islands income taxes and 100%
of Virgin Islands gross receipts, excise and property taxes to assist in
recovering the intrastate portion of the hurricane related costs.
C. ACCOUNTING FOR INCOME TAXES
As discussed in Note B above, Vitelco received approval from the Virgin
Islands Industrial Development Commission in May 1997 for a five year
exemption (commencing October 1, 1998) from 90% of Virgin Islands income taxes
and 100% of Virgin Islands gross receipts, excise and property taxes. In
accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, the Company has adjusted its deferred tax assets
and liabilities to reflect the change in the tax rates applicable to Vitelco
during the benefit period. This change has resulted in the Company recording a
non-recurring credit to income tax expense of approximately $10.9 million in
the six months ended June 30, 1997. On October 9, 1997 the Virgin Islands
Public Service Commission instituted a proceeding to determine whether
Vitelco's rates were just and reasonable in light of this tax rebate. There
can be no assurance as to the outcome of this proceeding.
D. REGULATORY MATTERS
In October 1995, the Guyana Public Utilities Commission ("PUC") issued an
order that rejected the request of GT&T for substantial increases in all
telephone rates and temporarily reduced rates for outbound long-distance calls
to certain countries. In most cases, the existing rates were already less than
GT&T's payment obligations to foreign carriers. In January 1997, on an appeal
by GT&T, the Guyana High Court voided the PUC's order in regard to rates and
the rates were returned to the rates in existence in October 1995. The lost
revenue was
F-25
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
approximately $10 million for the period when the order was effective. GT&T
initially instituted such a surcharge effective May 1, 1997, but temporarily
withdrew it when the Guyana Consumers Advisory Bureau (a non-governmental
group in Guyana) instituted a suit to block it. The PUC has appealed the
January 1997 decision of the Guyana High Court to the Guyana Court of Appeals,
and in May 1997 the Consumer Advisory Bureau sought an injunction from the
Guyana High Court restoring telephone rates to those imposed by the PUC in its
October 1995 order. The PUC's appeal and the Consumer Advisory Bureau's
application are still pending. In September 1997, the Guyana High Court denied
an order which the Consumer Advisory Bureau had sought to temporarily enjoin
GT&T from putting into effect a surcharge to recover the approximately $10
million over a period of 18 months. GT&T put such surcharge into effect on
October 1, 1997 pending an ultimate trial on the merits.
In January 1997, the PUC ordered GT&T to cease paying advisory fees to the
Company and to recover from the Company approximately $25 million of such fees
paid by GT&T to the Company since January 1991. GT&T has appealed the PUC's
order to the Guyana High Court and obtained a stay of the PUC's order pending
determination of that appeal.
At December 31, 1996, GT&T owed the Company approximately $23 million for
advances made from time to time for the working capital and capital
expenditure needs of GT&T. GT&T's indebtedness to the Company was evidenced by
a series of promissory notes. In March 1997, the PUC voided all of the
promissory notes then outstanding for failure to comply with certain
provisions of the PUC law. The PUC ordered that no further payments be made on
any of the outstanding notes and that GT&T recover from the Company all
amounts theretofore paid. The order also provided that the PUC would be
willing to authorize the payment of any amounts properly proven to the
satisfaction of the PUC to be due and payable from GT&T to the Company. GT&T
has appealed the PUC's order to the Guyana High Court and obtained a stay of
the PUC's order pending determination of that appeal.
In late April 1997, the PUC applied to the Guyana High Court for orders
prohibiting GT&T from paying any monies to the Company on account of
intercompany debt, advisory fees or otherwise pending the determination of
GT&T's appeals from the January 1997 and March 1997 orders mentioned above.
The PUC's application is still pending.
E. CONTINGENCIES AND COMMITMENTS
The Company previously had no insurance coverage for its outside plant for
damages caused by wind storms. Effective June 1997, the Company has obtained
such insurance coverage in the amount of $30 million per storm and $55 million
in the aggregate.
Upon the acquisition of GT&T in January 1991, GT&T entered into an agreement
with the government of Guyana to expand significantly GT&T's existing
facilities and telecommunications operations and to improve service within a
three-year period pursuant to an expansion and service improvement plan (the
"Plan"). The Plan was modified in certain respects and the date for completion
of the Plan was extended to February 1995. The government has referred to the
PUC the failure of GT&T to complete the Plan by February 1995. The PUC is
currently holding hearings on this matter. Failure to timely fulfill the terms
of the Plan could result in monetary penalties, cancellation of the License,
or other action by the PUC or the government which could have a material
adverse affect on the Company's business and prospects.
F-26
<PAGE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
In May 1997, GT&T received a letter from the Guyanese department of Inland
Revenue indicating that GT&T's tax returns for 1992 through 1996 had been
selected for an audit under the direct supervision of the Trade Minister with
particular focus on the withholding tax on payments to international audiotext
providers. In March and April 1997, the Guyanese Trade Minister publicly
announced that he had appointed a task force to probe whether GT&T should pay
withholding taxes on fees paid by GT&T to international audiotext providers.
The Minister announced that if GT&T were found guilty of tax evasion it could
owe as much as $40 million in back taxes. In July 1997, GT&T applied to the
Guyana High Court for an order prohibiting this audit on the grounds that the
decision of the Minister of Trade to set up this task force and to control and
direct its investigation was beyond his authority, violated the provisions of
the Guyanese Income Tax Act, interfered with the independence of the
Commissioner of Inland Revenue and was done in bad faith, and the court issued
an order effectively staying the audit pending a determination by the court of
the merits of GT&T's application.
In June 1997, GT&T received an assessment of approximately $3.9 million from
the Commissioner of Inland Revenue for taxes for the current year based on the
disallowance as a deduction for income tax purposes of five-sixths of the
advisory fees payable by GT&T to the Company. The deductibility of these
advisory fees in an earlier year had been upheld in a decision of the High
Court in August 1995. In July 1997, GT&T applied to the High Court for an
order prohibiting the Commissioner of Inland Revenue from further proceeding
with this assessment on the grounds that the assessment was arbitrary and
unreasonable and capriciously contrary to the August 1995 decision of the
Guyana High Court, and GT&T obtained an order of the High Court effectively
prohibiting any action on the assessment pending the determination by the
court of the merits of GT&T's application.
F. SPLIT-UP TRANSACTION
The Company has filed a Registration Statement dated August 12, 1997, which
includes a Proxy Statement-Prospectus to consider and vote upon a proposed
transaction to divide the Company into two separate publicly-owned companies (
the "Transaction"). Emerging Communications, Inc. (ECI) will contain all the
outstanding stock of Atlantic Tele-Network Co. (ATN-VI), which owns and
conducts the Company's business and operations in the U.S. Virgin Islands, and
certain other assets and liabilities. The Company will retain its business and
operations in Guyana and certain other assets and liabilities. The Transaction
is conditioned upon, among other things, approval of the Transaction by the
holders of a majority of the outstanding shares of the Company Common Stock,
completion of $17.4 million of long-term financing by ECI or ATN-VI, receipt
from the Internal Revenue Service of a tax ruling to the effect that the
transfer of assets and liabilities to ECI and the distribution of ECI common
stock to shareholders of the Company will be tax free for federal income tax
purposes to the Company and its shareholders, the listing of ECI Common Stock
on the American Stock Exchange and the continued listing of the Company Common
Stock on the American Stock Exchange and the absence of any material adverse
change in the business of the Companies.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Atlantic Tele-Network Co. and subsidiaries
We have audited the accompanying consolidated balance sheets of Atlantic
Tele-Network Co. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholder's equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of Atlantic Tele-Network Co.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Atlantic Tele-Network Co. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Omaha, Nebraska
March 25, 1997
F-28
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 14,143 $ 3,352
Accounts receivable, net................................. 14,275 14,236
Materials and supplies................................... 6,510 7,016
Prepayments and other current assets..................... 8,163 3,436
-------- --------
Total current assets................................... 43,091 28,040
Fixed assets:
Property, plant and equipment............................ 185,084 216,589
Less accumulated depreciation............................ (87,530) (98,239)
Cost in excess of underlying book value, less accumulated 32,256 31,224
amortization of $8,874,000 and $9,906,000............... -------- --------
Net fixed assets....................................... 129,810 149,574
Property costs recoverable from future revenues, net of ac-
cumulated amortization of $1,406,000 in 1996.............. 20,000 22,905
Other assets............................................... 19,017 16,298
-------- --------
$211,918 $216,817
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable............................................ $ 457 $ 11,431
Accounts payable......................................... 10,317 10,373
Accrued taxes............................................ 3,301 645
Advance payments and deposits............................ 2,102 2,074
Other current liabilities................................ 7,455 6,119
Current portion of long-term debt........................ 8,208 7,067
-------- --------
Total current liabilities.............................. 31,840 37,709
Deferred income taxes and tax credits...................... 12,364 13,891
Long-term debt, excluding current portion.................. 99,093 93,079
Other long-term liabilities................................ 9,457 6,702
Due to affiliates.......................................... 23,411 23,219
Minority interest.......................................... 253 334
Contingencies and commitments (Note L)
Stockholder's equity:
Common Stock, par value $10 per share; 50,000 shares au-
thorized, 2,000 shares issued and outstanding........... 20 20
Paid-in capital.......................................... 2,980 2,980
Retained earnings........................................ 32,500 38,883
-------- --------
Total stockholder's equity............................. 35,500 41,883
-------- --------
$211,918 $216,817
======== ========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Telephone operations:
Revenues:
Local exchange service.... $ 23,082 $ 21,335 $ 23,122
Access charges and
revenues................. 14,689 13,608 16,124
Universal Service Fund.... 12,081 12,151 11,360
Billing and other
revenues................. 3,943 3,638 4,580
Directory advertising..... 2,916 2,730 2,563
-------- -------- --------
Total revenues.......... 56,711 53,462 57,749
Expenses:
Plant specific operations. 8,955 9,059 11,546
Plant nonspecific
operations............... 14,262 15,586 16,470
Customer operations....... 4,152 3,835 3,925
Corporate operations...... 8,652 6,907 6,242
Taxes other than income... 2,669 2,614 2,729
-------- -------- --------
Total expenses.......... 38,690 38,001 40,912
-------- -------- --------
Income from telephone
operations............. 18,021 15,461 16,837
Other operations:
Revenues:
Cellular services......... 3,616 5,910 5,480
Product sales and rentals. 4,879 5,128 5,435
-------- -------- --------
Total revenues.......... 8,495 11,038 10,915
Expenses of other
operations................. 6,553 8,399 8,231
-------- -------- --------
Income from other
operations............... 1,942 2,639 2,684
Non-operating revenues and
expenses:
Interest expense............ (9,764) (9,811) (9,353)
Interest income............. 244 949 271
Other revenues and expenses,
net........................ (2,279) (3,138) (2,588)
-------- -------- --------
Non-operating revenues and
expenses, net............ (11,799) (12,000) (11,670)
-------- -------- --------
Income before income taxes and
minority interest............ 8,164 6,100 7,851
Income taxes.................. (3,054) (1,631) (2,215)
Minority interest............. (47) (87) (81)
-------- -------- --------
Net income.................... $ 5,063 $ 4,382 $ 5,555
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------ ------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1994................. $20 $2,980 $23,751 $26,751
Minimum pension liability adjustment,
net of income taxes of $250,000....... -- -- 419 419
Net income............................. -- -- 5,063 5,063
--- ------ ------- -------
BALANCE, December 31, 1994............... 20 2,980 29,233 32,233
Minimum pension liability adjustment,
net of income tax benefit of $666,000. -- -- (1,115) (1,115)
Net income............................. -- -- 4,382 4,382
--- ------ ------- -------
BALANCE, December 31, 1995............... 20 2,980 32,500 35,500
Minimum pension liability adjustment,
net of income taxes of $494,000....... -- -- 828 828
Net income............................. -- -- 5,555 5,555
--- ------ ------- -------
BALANCE, December 31, 1996............... $20 $2,980 $38,883 $41,883
=== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 5,063 $ 4,382 $ 5,555
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization................ 12,567 13,485 14,276
Deferred income taxes........................ 1,403 2,677 903
Minority interest............................ 47 87 81
Changes in operating assets and liabilities:
Accounts receivable........................ (795) (2,838) 39
Materials and supplies..................... 898 (1,631) (506)
Accounts payable........................... (343) 3,668 56
Accrued taxes.............................. (257) (2,328) (2,656)
Other...................................... 947 (362) 4,502
-------- -------- --------
Net cash flows from operating activities... 19,530 17,140 22,250
Cash flows from investing activities:
Capital expenditures........................... (11,712) (16,314) (36,668)
Insurance proceeds............................. 10,074 -- --
-------- -------- --------
Net cash flows from investing activities... (1,638) (16,314) (36,668)
Cash flows from financing activities:
Issuance of long-term debt, net of issuance
costs......................................... 18 4,936 1,336
Repayment of long-term debt.................... (8,354) (6,891) (8,491)
Net borrowings (repayments) on notes........... 32 (115) 10,974
Change in affiliate borrowings................. (461) (506) (192)
-------- -------- --------
Net cash flows from financing activities... (8,765) (2,576) 3,627
-------- -------- --------
Net change in cash............................... 9,127 (1,750) (10,791)
Cash, beginning of year.......................... 6,766 15,893 14,143
-------- -------- --------
Cash, end of year................................ $ 15,893 $ 14,143 $ 3,352
======== ======== ========
Supplemental cash flow information:
Interest paid.................................. $ 7,500 $ 7,075 $ 9,171
======== ======== ========
Income taxes paid.............................. $ 2,150 $ 1,900 $ --
======== ======== ========
Non-Cash Activities:
Change in minimum pension liability............ $ (918) $ 1,842 $ (1,071)
======== ======== ========
Change in pension intangibles.................. $ (249) $ 61 $ 251
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
A. SIGNIFICANT ACCOUNTING POLICIES
GENERAL--Atlantic Tele-Network, Co. (ATN-VI), a wholly-owned subsidiary of
Atlantic Tele-Network, Inc. (ATN, Inc.), is engaged principally in providing
telecommunication services, including local telephone service, access to long-
distance service, and cellular service, in the U.S. Virgin Islands.
BASIS OF PRESENTATION--The consolidated financial statements include the
accounts of ATN-VI, and its wholly-owned subsidiaries, including the Virgin
Island Telephone Corporation (Vitelco), Vitelcom, Inc., and its 90% owned
subsidiary, Vitelcom Cellular, Inc. The accounting policies of ATN-VI and its
subsidiaries conform to generally accepted accounting principles and as to
Vitelco, reflect practices appropriate to the telephone industry as prescribed
by Part 32 Uniform System of Accounts prescribed by the Federal Communications
Commission (the FCC). All material intercompany transactions and balances have
been eliminated in consolidation. Certain reclassifications have been made to
the 1994 and 1995 financial statements to conform with the 1996 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REGULATORY ACCOUNTING--ATN-VI's telephone subsidiary follows the accounting
for regulated enterprises prescribed by Statement of Financial Accounting
Standards No. 71, Accounting for the Affects of Certain Types of Regulation
(SFAS 71). This accounting recognizes the economic effects of rate regulation
by recording cost and a return on investment as such amounts are recovered
through rates authorized by regulatory authorities. Accordingly under SFAS 71,
plant and equipment is depreciated over lives approved by regulators and
certain costs and obligations are deferred based upon approvals received from
regulators to permit recovery of such amounts in future years.
CASH--ATN-VI considers all investments with a maturity at acquisition of
three months or less to be cash equivalents.
MATERIALS AND SUPPLIES--Materials and supplies are carried in inventory
principally at weighted average cost.
FIXED ASSETS--Property, plant and equipment are recorded at original cost.
The original cost of telephone plant in service and under construction
includes an allocation of indirect costs applicable to construction. Fixed
assets also include the acquisition cost of Vitelco in excess of the
underlying book value, which is being amortized over forty years on the
straight-line method, and is not considered in the determination of rates.
DEPRECIATION--ATN-VI calculates depreciation on outside plant used to
provide interstate access (acquired after December 31, 1989) and on local
regulated plant (acquired after December 31, 1991) using the equal life group
method. The remaining telephone plant in service is depreciated on the
straight-line method. This has resulted in a composite annualized rate of
6.4%, 6.9% and 6.3% for the years ended December 31, 1994, 1995 and 1996,
respectively. The original cost of depreciable property retired, together with
removal cost less any salvage realized, is charged to accumulated
depreciation. No gain or loss is recognized in connection with ordinary
retirements of depreciable property. Repairs and replacements of minor items
of property are charged to maintenance expense.
F-33
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DEBT ISSUANCE COSTS--Costs related to the issuance of debt are being
amortized over the term of the debt.
INCOME TAXES--ATN-VI uses an asset and liability approach for reporting
taxes and measures deferred tax assets and liabilities based on temporary
differences existing at each balance sheet date using enacted tax rates. ATN-
VI files a consolidated U.S. Virgin Islands income tax return with its
subsidiaries. Investment tax credits related to regulated telephone operations
have been deferred and are being amortized to income over the service lives of
the related property.
REVENUE--Local exchange service revenues, exchange access charges and
revenues are recognized when earned, regardless of the period in which they
are billed. Exchange access charges are billed by ATN-VI to the long distance
carriers (primarily AT&T) for interconnection with local facilities and to
end-user business and residential customers for access to long distance
facilities.
IMPAIRMENT OF LONG-LIVED ASSETS--In 1996, ATN-VI adopted Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
The Statement establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles and goodwill related to those
assets. Under provisions of the Statement, impairment losses are recognized
when expected future cash flows are less than the assets' carrying value.
Accordingly, when indicators of impairment are present, ATN-VI evaluates the
carrying value of property, plant and equipment and intangibles in relation to
the operating performance and future undiscounted cash flows of the underlying
business. ATN-VI adjusts the net book value of the underlying assets if the
sum of expected future cash flows is less than book value. The adoption of
SFAS 121 did not have a material effect on ATN-VI's financial statements.
INCOME PER SHARE--Income per share has not been presented as this
information is not considered meaningful due to the reorganization of ATN Inc.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1994 and
1995 amounts to conform to the 1996 presentation.
B. REORGANIZATION OF ATLANTIC TELE-NETWORK, INC.
On January 29, 1997, ATN Inc. announced that its Board of Directors and its
two principal stockholders had approved the terms of the split-up of ATN Inc.
into two separate public companies (the Transaction). Emerging Communications,
Inc. (ECI), will contain all the outstanding stock of ATN-VI and certain other
assets and liabilities. ATN Inc. will retain its business and operations in
Guyana and certain other assets and liabilities. The Transaction is
conditioned upon, among other things, approval of the Transaction by the
holders of a majority of the outstanding shares of ATN Inc. common stock,
completion of $17.4 million of long-term financing by ECI or ATN-VI, receipt
from the Internal Revenue Service of a tax ruling to the effect that the
transfer of assets and liabilities to ECI and the distribution of ECI common
stock to the shareholders of ATN Inc. will be tax free for federal income tax
purposes to ATN Inc. and its shareholders, the listing of ECI common stock on
the American Stock Exchange and the continued listing of ATN Inc. common stock
on such exchange and the absence of any material adverse change in the
businesses of the companies.
C. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Subscribers and installment sales, net of allowance for
doubtful accounts of $1,626,000 and $1,588,000........ $ 12,030 $ 10,907
Connecting companies................................... 1,748 3,117
Other.................................................. 497 212
-------- --------
$ 14,275 $ 14,236
======== ========
</TABLE>
F-34
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
D. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Outside plant........................................ $ 84,145 $ 114,101
Central office equipment............................. 40,453 43,302
Land and building.................................... 13,247 13,562
Station equipment.................................... 5,894 5,973
Furniture and office equipment....................... 3,463 3,516
Construction in process.............................. 15,613 12,344
Other................................................ 9,469 9,557
--------- ---------
Total used in telephone operations................. 172,284 202,355
Used in other operations............................. 12,800 14,234
--------- ---------
$ 185,084 $ 216,589
========= =========
E. PROPERTY COSTS RECOVERABLE FROM FUTURE REVENUES
On September 15, 1995, Hurricane Marilyn struck the Virgin Islands causing
extensive damage to the outside telephone plant of Vitelco. None of the damage
was covered by insurance. Vitelco's estimate of the historical cost of the
facilities damaged or destroyed by Hurricane Marilyn is approximately $26.3
million with associated accumulated depreciation of approximately $9.1 million.
These costs have been removed from the property accounts and along with certain
excess maintenance costs and costs of removal of $7.1 million have been
classified as property costs recoverable from future revenues because ATN-VI
anticipates that future revenue in an amount at least equal to the capitalized
cost will result from inclusion of these costs in allowable costs for rate
making purposes. Vitelco has received approval from the FCC to include the
interstate portion of these costs in its rate base and amortize them over a
five year period. Vitelco has applied to the Virgin Islands Industrial
Development Corporation (IDC) for a five year rebate of 90% of its Virgin
Island income taxes and 100% of its Virgin Islands gross receipts and certain
other taxes to assist in recovering the intrastate portion of the
telecommunications plant. At the date of this report, the application is still
pending before the IDC.
F. OTHER ASSETS
Other assets include the following:
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Rural Telephone Finance Corporation subordinated
capital certificates................................ $ 8,065 $ 6,490
Rural Telephone Finance Corporation patronage capital
certificates and dividends receivable............... 5,057 5,781
Pension and retirement plan intangibles.............. 2,741 1,877
Debt issuance costs.................................. 1,736 1,460
Other................................................ 1,418 690
--------- ---------
$ 19,017 $ 16,298
========= =========
</TABLE>
G. NOTES PAYABLE
At December 31, 1995 and 1996, Vitelco had short-term notes payable to an
insurance company of $457,000 and $431,000, respectively, with interest rates
of 5.5% and 5.7%, respectively.
F-35
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Vitelco has a $5 million revolving line of credit with a variable rate of
interest with the Rural Telephone Finance Corporation (RTFC) which expires in
March 2000 and a $15 million revolving line of credit with a variable rate of
interest also with the RTFC expiring April 1997. As of December 31, 1995, no
amounts were borrowed under these lines of credit. At December 31, 1996,
Vitelco has borrowings of $5 million for the line of credit expiring in March
2000 and $6 million for the line of credit expiring April 1997, both with
interest rates of 6.9%.
H. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Notes payable to RTFC, with principal and interest
payments due quarterly through December 30, 2002:
ATN-VI................................................. $21,203 $19,098
Vitelco................................................ 27,934 24,142
------- -------
49,137 43,240
Notes payable to Rural Utilities Service (RUS) with
principal and interest payments due monthly through
2012.................................................... 57,594 56,901
Other.................................................... 570 5
------- -------
107,301 100,146
Less current portion..................................... 8,208 7,067
------- -------
$99,093 $93,079
======= =======
</TABLE>
Interest on the Vitelco note payable to RTFC is fixed at 9.75%. On the ATN-
VI note payable, $1.4 million and $1.3 million with a variable interest rate
of 6.35% and 6.3% was outstanding at December 31, 1995 and 1996, respectively,
with the balance bearing a fixed rate of 8%.
The RUS note arrangement calls for fixed monthly principal and interest
payments of $7.04 per $1,000 of loan balance with any remaining balance due
May 2012. The interest rate on these notes is fixed at 5%.
The RUS and RTFC debt agreements contain provisions which may require
prepayments of RTFC debt in the event of future advances from the RUS. Vitelco
has received approval from the RUS for an additional $35.7 million of long-
term financing under terms similar to its existing RUS debt.
The RTFC and RUS agreements require, among other things, maintenance of
minimum debt service and times interest earned coverages and restrictions on
issuance of additional long-term debt. The RTFC agreement also limits the
payment of dividends by ATN-VI to 40% of ATN-VI's consolidated net income,
contingent upon ATN-VI's ability to meet certain financial ratios (which were
not met at December 31, 1996). Therefore, ATN-VI was prohibited from paying
dividends. At December 31, 1996, the ability of ATN-VI to service its debt was
dependent on funds from its parent or its subsidiaries. The RUS loan and
applicable RUS regulations restrict Vitelco's ability to pay dividends based
upon certain net worth tests with an exception for limited dividend payments
authorized when specific security instrument criteria are unable to be met.
Settlement agreements made in 1989 and 1991 with the U.S. Virgin Islands
Public Service Commission (PSC) also contain restrictions on dividends by
Vitelco which, in general, are more restrictive than those imposed by the RUS.
Dividends by Vitelco are generally limited to 60% of its net income, although
additional amounts are permitted to be paid for
F-36
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the sole purpose of servicing ATN-VI's debt to the RTFC. Under the above
restrictions, at December 31, 1996, Vitelco had approximately $200,000 of
retained earnings available for dividends.
As a condition of being granted the RTFC loan, ATN-VI was required to invest
in subordinated capital certificates with the RTFC (included in other assets).
No capital certificates were amortized during 1995. In 1996, ATN-VI received a
cash repayment of $1,575,000. These certificates are non-interest bearing. As
a member of the RTFC, ATN-VI shares proportionately in the net earnings of the
RTFC. ATN-VI's share of RTFC earnings, included as an offset to interest
expense, was $532,000, $528,000 and $551,000 for the years ended December 31,
1994, 1995 and 1996, respectively. RTFC distributions of net earnings are made
primarily through issuances of patronage capital certificates (included in
other assets) which are redeemed at the option of the RTFC.
The ATN-VI/RTFC loan is secured by a lien on substantially all of the assets
of ATN-VI, and the Vitelco/RTFC loan and the RUS loan are ratably secured by
liens on substantially all of the assets of Vitelco and Vitelcom.
The annual requirements for principal payments for the years 1997 through
2001 are as follows:
<TABLE>
<CAPTION>
RTFC DEBT
--------------
YEARS ENDED DECEMBER 31, VITELCO ATN-VI RUS DEBT OTHER DEBT
------------------------ ------- ------ -------- ----------
<S> <C> <C> <C> <C>
1997.................................. $3,368 $1,162 $2,532 $ 5
1998.................................. 3,642 1,256 2,662 --
1999.................................. 3,938 1,360 2,798 --
2000.................................. 4,258 1,472 2,941 --
2001.................................. 4,604 1,593 3,092 --
</TABLE>
I. INCOME TAXES
The following is a reconciliation from the tax computed at statutory income
tax rates to ATN-VI's income tax expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Tax computed at statutory U.S. federal in-
come tax rates............................. $ 2,857 $ 2,135 $ 2,669
U.S. Virgin Islands surtax.................. 286 213 267
Amortization of investment tax credits and
regulatory liability....................... (360) (981) (533)
Amortization of cost in excess of underlying
book value not
deductible for tax purposes................ 386 386 386
Other, net.................................. (115) (122) (574)
-------- -------- --------
Income tax expense.......................... $ 3,054 $ 1,631 $ 2,215
======== ======== ========
</TABLE>
The components of income tax expense allocated to operations are comprised
of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
U.S. Virgin Islands........................ $ 2,011 $ (65) $ 1,845
Deferred.................................... 1,403 2,677 903
Amortization of investment tax credits and
regulatory liability....................... (360) (981) (533)
-------- -------- --------
$ 3,054 $ 1,631 $ 2,215
======== ======== ========
</TABLE>
F-37
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of property....... $ 7,340 $ 7,270
Property costs recoverable from future revenues.......... 7,480 8,566
------- -------
14,820 15,836
Deferred tax assets:
Non-deductible expenses.................................. 761 823
Operating loss carryforwards............................. 2,474 --
Pension costs not currently deductible................... 1,002 507
Regulatory liability..................................... 1,510 1,297
------- -------
5,747 2,627
Total deferred tax liability........................... $ 9,073 $13,209
======= =======
</TABLE>
Upon the adoption of SFAS 109, Accounting for Income Taxes, ATN-VI recorded
a regulatory liability for the cumulative effect of the adoption on ATN-VI's
regulated subsidiary since it was anticipated that these amounts would be
returned to customers through future rates. At December 31, 1995 and 1996,
ATN-VI had a regulatory liability of approximately $4.0 million and $3.5
million which is included in other long term liabilities.
J. PENSION AND RETIREMENT PLANS
ATN-VI's subsidiaries have noncontributory defined benefit plans (the
"Plan") for eligible hourly union employees and salaried employees who are not
members of a collective bargaining unit, who meet certain age and employment
criteria. ATN-VI's funding policy is to contribute to the Plan such amounts
that are necessary to fund the Plan in accordance with funding requirements of
Employee Retirement Income Security Act of 1974. Contributions are intended to
provide not only for benefits attributed to service date, but also for those
expected to be earned in the future. The benefits are based on the
participants' average salary preceding termination for the "salaried plan" and
credited service years for the "hourly plan".
Net periodic pension cost was:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Service cost..................................... $ 624 $ 497 $ 676
Interest on projected benefit obligation......... 730 825 960
Actual return on assets.......................... (111) (1,217) (1,252)
Net amortization and deferral.................... 239 1,007 1,055
------ ------ -------
Net periodic pension cost........................ $1,482 $1,112 $ 1,439
====== ====== =======
</TABLE>
F-38
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status, the amounts recognized in
the balance sheets of ATN-VI at December 31, 1995 and 1996, and the principle
assumptions of ATN-VI's plans:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.................................... $ 11,746 $ 13,364
Nonvested benefits................................. 484 356
-------- --------
Accumulated plan benefits............................ $ 12,230 $ 13,720
======== ========
Projected benefit obligation......................... $(13,306) $(14,982)
Fair value of plan assets............................ 9,430 11,767
-------- --------
Plan projected benefit obligation in excess of as-
sets................................................ (3,876) (3,215)
Unrecognized net loss................................ 3,454 2,547
Unrecognized prior service costs..................... 530 1,010
Unrecognized net obligation at January 1, 1987....... 1,096 939
-------- --------
Pension prepaid included in the balance sheet........ $ 1,204 $ 1,281
======== ========
</TABLE>
In determining the post retirement benefit obligation, the discount rate was
7.0% and 7.4% at December 31, 1995 and 1996, respectively, and the expected
rate of return on invested assets was 8.0% for both years.
In accordance with Statement of Financial Accounting Standards No. 87,
Employers Accounting for Pensions, at December 31, 1995 and 1996, ATN-VI has
recorded an additional minimum pension liability equal to the unfunded pension
benefit obligation of $4,303,000 and $3,234,000, and an intangible asset (to
the extent of the additional liability) equal to the aggregate of the prior
service cost and transition obligation of $1,622,000 and $1,877,000. The
change in the excess of the minimum pension liability over the intangible of
$669,000, $(1,781,000) and $1,322,000 at December 31, 1994, 1995 and 1996,
respectively, has been recorded as a credit to (reduction in) equity, net of
taxes (benefits) of $250,000, $(666,000) and $494,000 at December 31, 1994,
1995 and 1996, respectively.
In addition, ATN-VI and its subsidiaries have an investment and savings plan
for all salaried employees which covers all employees of ATN-VI and its
subsidiaries who are not members of a collective bargaining unit and who meet
certain age and employment criteria. With respect to such plan, ATN-VI
expensed $146,000, $165,000 and $165,000 for the years ended December 31,
1994, 1995 and 1996. ATN-VI also has a 401(k) plan for hourly union employees
who meet certain age and employment requirements. Employee contributions are
elective and no contributions are required by ATN-VI.
In 1991, ATN-VI established an Employees' Stock Ownership Plan (ESOP) to
provide a means for employees to participate in the ownership of ATN-VI. All
non-craft salaried and hourly employees of ATN-VI and its participating
affiliates who are not members of a collective bargaining unit and who have
attained age 21 and completed one year of service are eligible to participate
in the ESOP.
ATN, Inc. may make discretionary contributions to the ESOP in the form of
ATN, Inc. stock (or cash which is used to acquire stock of ATN, Inc., either
on the open market or directly from ATN, Inc.). The ESOP is permitted to
borrow money to purchase ATN, Inc. stock, although such borrowing is not
currently contemplated. No contributions were made in 1994, 1995 or 1996.
F-39
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition to providing pension benefits, ATN-VI provides unfunded
noncontributory defined medical, dental, vision and life benefits for both
retired, hourly and salaried employees who meet certain age and employment
criteria. The cost of these postretirement benefits is accrued during the
employee's active service period.
Net postretirement benefit cost was:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost................................... $ 57 $ 68 $ 73
Interest cost.................................. 90 108 116
Transition obligation.......................... 38 38 38
Net other amortization and deferral............ 51 51 68
-------- -------- --------
Net postretirement benefit cost.............. $ 236 $ 265 $ 295
======== ======== ========
</TABLE>
The following table sets forth the funded status and the amounts recognized
in the balance sheet of ATN-VI:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................. $ 251 $ 281
Eligible actives...................................... 338 412
Non-eligible actives.................................. 1,127 1,053
------- -------
1,716 1,746
Fair value of plan assets............................... -- --
------- -------
Accumulated benefit obligation in excess of assets...... (1,716) (1,746)
Unrecognized net gain................................... (143) (263)
Unrecognized prior service costs........................ 615 543
Unrecognized net obligation............................. 643 605
------- -------
Pension liability included in the balance sheet......... $ (601) $ (861)
======= =======
</TABLE>
In determining the accumulated postretirement benefit obligations, the
discount rate was assumed to be 7.0% in 1995 and 7.4% in 1996. For 1996, the
assumed health care cost trend rate was 9.9% and 8.9% for pre-age 65 and post-
age 65 participants, respectively, declining gradually to 5.5% and 5.75% over
the next 15 years. A 1% increase in assumed health care cost trend rate would
increase the service and interest cost expense by $19,000 for 1996 and
increase the accumulated postretirement benefits obligations by $163,000.
K. TRANSACTIONS WITH AFFILIATES
ATN-VI had a note payable to ATN-Inc. of $23,411,000 and $23,219,000 at
December 31, 1995 and 1996, respectively. A variable interest rate is charged
on this note which was 7.5% and 9.75% at December 31, 1995 and 1996,
respectively. Interest expense for the years ended December 31, 1994, 1995 and
1996, was $1,812,000, $2,250,000 and $2,155,000, respectively. Interest is not
charged on intercompany balances to affiliates.
ATN-VI shares general and administrative costs, such as legal, accounting
and consulting, rent and telephone, with ATN, Inc. These shared costs have
historically been allocated to ATN-VI in approximately the same proportion as
operating revenues of ATN-VI bear to ATN Inc.'s total operating revenues. ATN-
VI's share
F-40
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of these general and administrative costs for the years ended December 31,
1994, 1995 and 1996 was $2,988,000, $2,049,000 and $1,398,000, respectively.
Management believes the allocation methods used are reasonable. However, such
costs are not necessarily indicative of the costs that would have been
incurred if ATN-VI had been operated as an unaffiliated entity. It is not
practical to estimate these costs on a stand-alone basis.
L. CONTINGENCIES AND COMMITMENTS
At the date of this report, ATN-VI had no coverage for its outside plant or
for damages caused by wind storms.
ATN-VI has various litigation cases and claims in the normal course of
business, the resolution of which, in the opinion of management, is not
expected to have a material effect on the financial statements.
M. FAIR VALUE DISCLOSURE
Management has determined the carrying amounts of cash, accounts receivable,
accounts payable, and notes payable are a reasonable estimate of their fair
value. The fair value of long-term debt is estimated using a discounted cash
flow analysis. At December 31, 1995 and 1996, the carrying value of long-term
debt was $107,301,000 and $100,146,000 and the estimated fair value was
$100,064,000 and $99,040,000, respectively.
N. CREDIT CONCENTRATIONS
Revenues from AT&T comprised approximately 13%, 12% and 13% of consolidated
total revenues in 1994, 1995 and 1996, respectively. These revenues consist
principally of interstate network access and billing and collection service
revenues. No other revenue source accounted for more than 10% of total
revenues for the years presented.
F-41
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 3,352 $ 6,160
Accounts receivable, net............................ 14,236 13,663
Materials and supplies.............................. 7,016 6,696
Prepayments and other current assets................ 3,436 4,894
-------- ---------
Total current assets.............................. 28,040 31,413
Fixed assets:
Property, plant and equipment....................... 216,589 220,659
Less accumulated depreciation....................... (98,239) (102,544)
Franchise rights and cost in excess of underlying
book value, less accumulated amortization of
$9,906,000 and $10,422,000......................... 31,224 30,708
-------- ---------
Net fixed assets.................................. 149,574 148,823
Property costs recoverable from future revenues....... 22,905 22,250
Other assets.......................................... 16,298 15,870
-------- ---------
$216,817 $ 218,356
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................... $ 11,431 $ 10,000
Accounts payable.................................... 10,373 10,839
Accrued taxes....................................... 645 1,013
Advance payments and deposits....................... 2,074 2,556
Other current liabilities........................... 6,119 6,223
Current portion of long-term debt................... 7,067 7,061
-------- ---------
Total current liabilities......................... 37,709 37,692
Deferred income taxes and tax credits................. 13,891 3,084
Long-term debt, excluding current portion............. 93,079 89,341
Pension and other long-term liabilities............... 6,702 6,453
Due to affiliates..................................... 23,219 24,134
Minority interest..................................... 334 338
Contingencies and commitments (Note D)
Stockholders' equity:
Common stock, par value $10 per share; 50,000 shares
authorized;
2,000 shares issued and outstanding................. 20 20
Paid-in capital..................................... 2,980 2,980
Retained earnings................................... 38,883 54,314
-------- ---------
Total stockholders' equity........................ 41,883 57,314
-------- ---------
$216,817 $ 218,356
======== =========
</TABLE>
See notes to consolidated condensed financial statements.
F-42
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
Telephone Operations:
Revenues:
Local exchange service.................................. $ 11,376 $ 13,091
Access charges.......................................... 7,076 8,599
Universal Service Fund.................................. 5,604 7,042
Billing and other revenues.............................. 1,990 2,420
Directory advertising................................... 1,293 914
-------- --------
Total revenues........................................ 27,339 32,066
Expenses:
Plant specific operations............................... 5,460 5,223
Plant nonspecific operations............................ 7,101 8,380
Customer operations..................................... 1,917 2,094
Corporate operations.................................... 3,069 2,946
Taxes other than income................................. 1,366 1,490
-------- --------
Total expenses........................................ 18,913 20,133
-------- --------
Income from telephone operations...................... 8,426 11,933
Other Operations:
Revenues:
Cellular services....................................... 3,219 2,146
Product sales and rentals............................... 2,644 2,334
-------- --------
Total revenues........................................ 5,863 4,480
Expenses of other operations............................ 4,177 3,870
-------- --------
Income from other operations.......................... 1,686 610
Non-operating Revenues and Expenses:
Interest expense.......................................... (4,771) (4,412)
Interest income........................................... 202 73
Other revenues and expenses............................... (1,555) (1,772)
-------- --------
Non-operating revenues and expenses, net................ (6,124) (6,111)
-------- --------
Income before income taxes and minority interest............ 3,988 6,432
Income taxes................................................ 1,170 (9,003)
Minority interest........................................... (63) (4)
-------- --------
Net income.................................................. $ 2,755 $ 15,431
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
F-43
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
Net cash flows provided by operating activities............. $ 7,783 $ 14,506
Cash flows from investing activities:
Capital expenditures...................................... (21,692) (6,523)
-------- --------
Net cash used in investing activities................... (21,692) (6,523)
Cash flows from financing activities:
Repayment of long-term debt............................... (4,685) (3,744)
Net borrowings (repayments) on notes...................... 9,543 (1,431)
-------- --------
Net cash flows provided (used) by financing activities.... 4,858 (5,175)
-------- --------
Net increase (decrease) in cash............................. (9,051) 2,808
Cash, Beginning of Period................................... 14,143 3,352
-------- --------
Cash, End of Period......................................... $ 5,092 $ 6,160
======== ========
Supplemental cash flow information:
Interest paid............................................. $ 3,695 $ 3,501
======== ========
Income taxes paid......................................... -- --
======== ========
Depreciation and Amortization Expense..................... $ 6,517 $ 8,015
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
F-44
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
A. GENERAL
Significant Accounting Policies--The consolidated balance sheet of ATN-VI at
December 31, 1996 has been taken from audited financial statements at that
date. All other consolidated condensed financial statements contained herein
have been prepared by ATN-VI and are unaudited. ATN-VI is a wholly owned
subsidiary of Atlantic Tele-Network, Inc. (ATN Inc.). the consolidated
condensed financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in ATN-VI's
Audited Financial Statements for the year ended December 31, 1996.
The accompanying interim consolidated financial statements have not been
audited by independent auditors. However, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary to fairly present the financial statements have been included. The
consolidated financial statements should be read in conjunction with the
audited financial statements and note thereto. The results of operations for
the six months ended June 30, 1996 and 1997 are not necessarily indicative of
the operating results which may be expected for the entire fiscal year 1997.
B. PROPERTY COSTS RECOVERABLE FROM FUTURE REVENUES
On September 15, 1995, Hurricane Marilyn struck the Virgin Islands causing
extensive damage to the outside telephone plant of Vitelco. None of the damage
was covered by insurance. The historical cost of the facilities damaged or
destroyed by Hurricane Marilyn was approximately $26.3 million with associated
accumulated depreciation of approximately $9.1 million. These costs have been
removed from the property accounts and along with certain excess maintenance
costs and costs of removal of $7.1 million have been classified as property
costs recoverable from future revenues because ATN-VI anticipates that future
revenue in an amount at least equal to the capitalized cost will result from
inclusion of these costs in allowable costs for rate making purposes. Vitelco
has received approval from the Federal Communications Commission to include
the interstate portion of these costs in its rate base and amortize them over
a five year period. In May 1997, Vitelco received approval from the Virgin
Islands Industrial Development Commission for a 5-year exemption commencing
October 1, 1998 from 90% of Virgin Islands income taxes and 100% of Virgin
Islands gross receipts, excise and property taxes to assist in recovering the
intrastate portion of the hurricane related costs.
C. ACCOUNTING FOR INCOME TAXES
As discussed in Note B above, Vitelco received approval from the Virgin
Islands Industrial Development Commission in May 1997 for a five year
exemption (commencing October 1, 1998) from 90% of Virgin Islands income taxes
and 100% of Virgin Islands gross receipts, excise and property taxes. In
accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, the Company has adjusted its deferred tax assets
and liabilities to reflect the change in the tax rates applicable to Vitelco
during the benefit period. This change has resulted in the Company recording a
non-recurring credit to income tax expense of approximately $10.9 million in
the six months ended June 30, 1997.
D. CONTINGENCIES AND COMMITMENTS
ATN-VI has various litigation cases and claims in the normal course of
business the resolution of which, in the opinion of management, is not
expected to have a material effect on the financial statements.
F-45
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
E. SPLIT UP TRANSACTION
ATN, Inc. has filed a Registration Statement dated August 12, 1997, which
includes a Proxy Statement-Prospectus to consider and vote upon a proposed
transaction to divide the ATN, Inc. into two separate publicly-owned companies
(the "Transaction"). Emerging Communications, Inc. (ECI) will contain all the
outstanding stock of ATN-VI and certain other assets and liabilities. ATN,
Inc. will retain its business and operations in Guyana and certain other
assets and liabilities. The Transaction is conditioned upon, among other
things, approval of the Transaction by the holders of a majority of the
outstanding shares of the ATN, Inc. common stock, completion of $17.4 million
of long-term financing by ECI or ATN-VI, receipt from the Internal Revenue
Service of a tax ruling to the effect that the transfer of assets and
liabilities to ECI, and the distribution of ECI common stock to shareholders
of the Company will be tax free for federal income tax purposes to ATN, Inc.
and its shareholders, the listing of ECI Common Stock on the American Stock
Exchange and the continued listing of ATN, Inc. Common Stock on the American
Stock Exchange and the absence of any material adverse change in the business
of the Companies.
F-46
<PAGE>
ANNEX A
TO
PROXY STATEMENT-PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
----------------------------------------
SUBSCRIPTION AGREEMENT
----------------------------------------
BETWEEN
ATLANTIC TELE-NETWORK, INC.
AND
EMERGING COMMUNICATIONS, INC.
DATED AUGUST 11, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
Definitions
Section 1.01. Definitions................................................. 2
Section 1.02. Rules of Construction....................................... 6
ARTICLE II
Subscription For and Acquisition of the Shares
Section 2.01. Subscription for the Shares................................. 6
Section 2.02. Acquisition of the Shares................................... 6
Section 2.03. Excluded Assets............................................. 7
Section 2.04. Issuance of the Shares...................................... 7
Section 2.05. Assumption of Liabilities................................... 7
Section 2.06. Excluded Liabilities........................................ 8
Section 2.07. Restricted Assets........................................... 8
Section 2.08. Access to Information....................................... 8
ARTICLE III
Closing Adjustment
Section 3.01. Preliminary Closing Adjustment.............................. 8
Section 3.02. Final Closing Adjustment.................................... 8
ARTICLE IV
No Representations or Warranties
Section 4.01. No Representations or Warranties............................ 9
Section 4.02. Condition of Assets, Disclaimers............................ 9
ARTICLE V
Certain Agreements of The Company and ECI
Section 5.01. Use of Retained Names....................................... 10
Section 5.02. Severance................................................... 10
Section 5.03. Aircraft Corp. Costs........................................ 10
Section 5.04. Exchange of Indebtedness.................................... 10
ARTICLE VI
Conditions to Closing
Section 6.01. Third-Party Approvals....................................... 10
Section 6.02. Registration Statement and Stockholder Approval............. 10
Section 6.03. Internal Revenue Service Ruling............................. 11
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 6.04. Fairness Opinion........................................... 11
Section 6.05. [Intentionally Omitted].................................... 11
Section 6.06. Liquidation of Vitelcom.................................... 11
Section 6.07. Minimum Borrowing Capacity................................. 11
Section 6.08. No Material Adverse Change................................. 11
Section 6.09. No Litigation.............................................. 11
Section 6.10. Agreements in Full Force................................... 11
Section 6.11. Listing.................................................... 11
Section 6.12. Performance................................................ 11
Section 6.13. ECI Charter................................................ 11
Section 6.14. Boards of Directors and Officers........................... 11
Section 6.15. Non-Competition Agreement.................................. 12
Section 6.16. Indemnity Agreement........................................ 12
Section 6.17. Personal Debts............................................. 12
Section 6.18. Employee Benefits Agreement................................ 12
Section 6.19. Tax Sharing and Indemnification Agreement.................. 12
Section 6.20. Assumed Liabilities........................................ 12
Section 6.21. Technical Assistance Agreement............................. 12
Section 6.22. Recapitalization Agreement Closing......................... 12
Section 6.23. Merger Agreement Closing................................... 12
ARTICLE VII
Closing Date; Closing
Section 7.01. Closing Date; Closing...................................... 12
Section 7.02. Further Assurances......................................... 13
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. Termination................................................ 13
Section 8.02. Entire Agreement........................................... 13
Section 8.03. Governing Law.............................................. 13
Section 8.04. Headings................................................... 13
Section 8.05. Counterparts............................................... 13
Section 8.06. Benefits................................................... 13
Section 8.07. Assignment................................................. 13
Section 8.08. Amendment and Waiver....................................... 13
Section 8.09. Notices.................................................... 14
</TABLE>
SCHEDULES
<TABLE>
<C> <S>
SCHEDULE 1.01A Prosser Designated Employees
SCHEDULE 1.01B Counsel
SCHEDULE 1.01C Undesignated Employees
SCHEDULE 2.02(i) Certain Assets
SCHEDULE 2.05(d) Certain Assumed Liabilities
SCHEDULE 5.02 Employees To Be Terminated
</TABLE>
ii
<PAGE>
EXHIBITS
<TABLE>
<C> <S>
EXHIBIT A Recapitalization Agreement
EXHIBIT B Merger Agreement
EXHIBIT C Form of Technical Assistance Agreement
EXHIBIT D Form of ECI Charter
EXHIBIT E Form of Non-Competition Agreement
EXHIBIT F Form of Indemnity Agreement
EXHIBIT G Form of Employee Benefits Agreement
EXHIBIT H Form of Tax Sharing Agreement
</TABLE>
iii
<PAGE>
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Subscription Agreement") is entered into
as of the 11th day of August, 1997 by and between Atlantic Tele-Network, Inc.,
a Delaware corporation (the "Company"), and Emerging Communications, Inc., a
Delaware corporation ("ECI").
WHEREAS, to eliminate corporate disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company has
entered into a Principal Terms Agreement dated January 29, 1997 among the
Company and its co-chief executive officers and principal stockholders,
Cornelius B. Prior, Jr. ("Prior") and Jeffrey J. Prosser ("Prosser"), which
contemplates the separation of the businesses and assets of the Company in the
manner set forth herein and in the Recapitalization Agreement (as defined
below) and the Merger Agreement (as defined below); and
WHEREAS, in order to accomplish such separation, subject to the terms and
conditions set forth herein, the Company desires to transfer to ECI all of the
capital stock of its wholly owned subsidiaries, Atlantic Tele-Network, Co., a
Virgin Islands corporation ("ATNCo."), and Atlantic Aircraft, Inc., a Delaware
corporation ("Aircraft Corp."), as well as certain other assets of the Company
as more fully described herein relating to businesses conducted by ATNCo., its
subsidiaries, Virgin Islands Telephone Corporation, a Virgin Islands
corporation ("VITELCO"), Vitelcom Cellular Inc., a Virgin Islands corporation
("VCI"), and Vitelcom, Inc., a Virgin Islands corporation ("Vitelcom" and,
together with ATNCo., Aircraft Corp., VITELCO and VCI, the "Transferred
Subsidiaries"), and Aircraft Corp. in exchange for 10,959,131 shares of common
stock, par value $0.01 per share (the "ECI Common Stock"), of ECI; and
WHEREAS, in order to accomplish such separation, subject to the terms and
conditions set forth herein, in consideration of the transfer to it of the
Assets (as defined herein), ECI desires to issue to the Company 10,959,131
shares of ECI Common Stock and assume the Assumed Liabilities (as defined
herein); and
WHEREAS, the Company, Prior, individually and as Trustee of the 1994 Prior
Charitable Remainder Trust (the "Trust"), and Prosser have entered into a
Recapitalization Agreement dated of even date herewith attached hereto as
Exhibit A (the "Recapitalization Agreement"), pursuant to which, subject to
the terms and conditions set forth therein, (a) the Company has agreed to
repurchase (the "Repurchase") an aggregate of 765,562 shares of common stock,
par value $.01 per share (the "Company Common Stock"), of the Company owned by
Prior and the Trust, and (b) Prosser has agreed to exchange 3,325,000 shares
of Company Common Stock owned by Prosser and certain members of his family for
3,325,000 shares of a new series of common stock of the Company to be
designated Class A Common Stock and Prior has agreed to exchange 2,927,038
shares of Company Common Stock owned by Prior and certain members of his
family for 2,927,038 shares of a new series of common stock of the Company to
be designated Class B Common Stock (the "Recapitalization"); and
WHEREAS, the Company and ATN MergerCo., a Delaware corporation ("Merger
Sub"), have entered into an Agreement and Plan of Merger of even date herewith
attached hereto as Exhibit B (the "Merger Agreement"), pursuant to which,
subject to the terms and conditions contained therein, Merger Sub will merge
with and into the Company, with each share of Company Common Stock being
converted into one share of ECI Common Stock and 0.4 shares of Company Common
Stock, the outstanding shares of Class A Common Stock will be converted into
an aggregate of 5,704,231 shares of ECI Common Stock and the outstanding
shares of Class B Common Stock will be converted into an aggregate of
2,807,040 shares of Company Common Stock (the "Merger"); and
WHEREAS, the consummation of the Closing (as defined herein) is a condition
to the consummation of the Repurchase and Recapitalization pursuant to the
Recapitalization Agreement and a condition to the consummation of the Merger
pursuant to the Merger Agreement;
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. As used in this Subscription Agreement, the
following terms shall have the meanings ascribed to them in this Section 1.01
"Aircraft Corp." has the meaning set forth in the recitals hereto.
"Aircraft Receivables" means all indebtedness owing from Aircraft Corp. to
the Company.
"Assets" has the meaning set forth in Section 2.02 hereof.
"Assumed Liabilities" has the meaning set forth in Section 2.05 hereof.
"ATNCo." has the meaning set forth in the recitals hereto.
"Auditor" has the meaning set forth in Section 3.02 hereof.
"Banco Popular Indebtedness" means Indebtedness outstanding under the loan
agreement dated May 29, 1990, as amended February 25, 1993, and as amended
October 6, 1993, between the Company and Banco Popular de Puerto Rico.
"Business Day" shall mean any day, excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized or required by law or other governmental
actions to close.
"Cash Equivalents" shall mean (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (b) marketable direct
obligations issued by any State of the United States of America or any local
government or other political subdivision thereof, (c) U.S. dollar denominated
time deposits, certificates of deposit and bankers' acceptances, (d)
commercial paper and variable or fixed rate notes maturing within one year of
the Closing Date and (e) repurchase agreements maturing within one year of the
Closing Date.
"Closing" has the meaning set forth in Section 7.01 hereof.
"Closing Date" has the meaning set forth in Section 7.01 hereof.
"Commission" means the Securities and Exchange Commission.
"Company" has the meaning set forth in the first paragraph hereof.
"Company Common Stock" has the meaning set forth in the recitals hereto.
"Company Projects" has the meaning set forth in Section 2.03 hereof.
"Credits" means, collectively, (a) an amount equal to 50% of the cash and
Cash Equivalents of the Company as of April 30, 1997, (b) an amount equal to
50% of all accounts receivable and other receivables of the Company (other
than (w) the principal amount of any Indebtedness owing to the Company by any
of its Subsidiaries, (x) any receivables identified on Schedule 2.02(i)
hereof, (y) the Aircraft Receivables or (z) any receivables (other than
receivables owing from any Subsidiary of the Company) which remain unpaid on
the Closing Date), including, without limitation, all accrued and unpaid
advisory and management fees, intercompany interest and stockholders'
receivables, as of April 30, 1997, (c) an amount equal to 50% of the current
assets of the Company as of April 30, 1997 (other than those included in or
specifically excluded by
2
<PAGE>
clause (a) or (b) above), (d) an amount equal to 50% of all principal payments
made by Transferred Subsidiaries after December 31, 1996 and on or prior to
April 30, 1997 on Indebtedness owing to the Company, (e) an amount equal to
50% of all dividends paid by Transferred Subsidiaries to the Company after
December 31, 1996 and on or prior to April 30, 1997, (f) an amount equal to
50% of the principal amount of all loans by the Company to, and of all capital
contributions by the Company to, GTT after December 31, 1996 and on or prior
to April 30, 1997, (g) an amount equal to 50% of all costs and expenses
incurred by the Company after December 31, 1996 and on or prior to April 30,
1997 relating to the Company Projects or any potential acquisitions (including
any which may have been abandoned after December 31, 1996) to be consummated
by the Company or any of its Subsidiaries (other than the Transferred
Subsidiaries), (h) an amount equal to 100% of all principal payments made by
the Transferred Subsidiaries after April 30, 1997 and on or prior to the
Closing Date on Indebtedness (other than with respect to the Aircraft
Receivables) owing to the Company, (i) an amount equal to 100% of all
dividends paid by Transferred Subsidiaries to the Company after April 30, 1997
and on or prior to the Closing Date, (j) an amount equal to 100% of all
payments of interest accruing after April 30, 1997 and made by Transferred
Subsidiaries to the Company (other than with respect to the Aircraft
Receivables) after April 30, 1997 and on or prior to the Closing Date on
Indebtedness owing to the Company, (k) an amount equal to 50% of the book
value as of April 30, 1997 of the furniture, fixtures, equipment and leasehold
improvements at the St. Thomas Office, (l) an amount equal to 100% of all
payments received by the Company after April 30, 1997 on any receivables
identified on Schedule 2.02(i) hereof and (m) an amount equal to 100% of the
principal amount of and accrued interest on the Indebtedness listed in
Schedule 2.05(d) as of the Closing Date. Any amounts comprising the Credits
which are denominated in a currency other than U.S. dollars shall be converted
into a U.S. dollar amount using the applicable exchange rate in effect as of
the fifth Business Day prior to the Closing Date, in the case of the Estimated
Statement, and as of the Closing Date, in the case of the Final Statement, as
published in The Wall Street Journal on the next succeeding Business Day.
"Debits" means, collectively, (a) an amount equal to 50% of the Indebtedness
(including Banco Popular Indebtedness) of the Company owing to banks or listed
on Schedule 2.05(d) attached hereto or as of April 30, 1997, (b) an amount
equal to 50% of all other current liabilities of the Company as of April 30,
1997 (other than Excluded Liabilities), (c) an amount equal to 50% of the
total severance payments with respect to the persons set forth on Schedule
5.02 attached hereto, (d) an amount equal to 50% of all principal payments
made by GTT on Indebtedness owing to the Company after December 31, 1996 and
on or prior to April 30, 1997, (e) an amount equal to 50% of all dividends
paid by GTT to the Company after December 31, 1996 and on or prior to April
30, 1997, (f) an amount equal to 50% of the principal amount of all loans by
the Company to, and all capital contributions by the Company to, Transferred
Subsidiaries (other than Aircraft Receivables) after December 31, 1996 and on
or prior to April 30, 1997, (g) an amount equal to 50% of all costs and
expenses incurred by the Company after December 31, 1996 and on or prior to
April 30, 1997 relating to the project for the privatization of the telephone
company for the Republic of Congo or any potential acquisitions (including any
which may have been abandoned after December 31, 1996) to be consummated by
ECI or any of the Transferred Subsidiaries, (h) an amount equal to 100% of the
principal amount of all loans made by the Company to, and of all capital
contributions by the Company to, Transferred Subsidiaries (including Aircraft
Receivables, unless the proceeds relating thereto were used by Aircraft Corp.
to repay third-party Indebtedness) after April 30, 1997 and on or prior to the
Closing Date, (i) an amount equal to 100% of all interest accrued as of April
30, 1997 which has not been paid to the Company on or prior to the Closing
Date on Indebtedness owing by Transferred Subsidiaries (other than with
respect to the Aircraft Receivables) to the Company, (j) an amount equal to
100% of all costs and expenses incurred by the Company after April 30, 1997
and on or prior to the Closing Date relating to the project for the
privatization of the telephone company for the Republic of Congo or any
potential acquisitions (including any which may have been abandoned after
December 31, 1996) to be consummated by ECI or any of the Transferred
Subsidiaries, (k) an amount equal to 100% of all costs and expenses incurred
by the Company after April 30, 1997 and on or prior to the Closing Date
relating to furniture, fixtures, equipment and leasehold improvements at, or
otherwise pertaining to, the St. Croix Office, (l) an amount equal to 50% of
the book value as of April 30, 1997 of the furniture, fixtures, equipment and
leasehold improvements at the St. Croix Office, (m) an amount equal to 100% of
the compensation and other expenses incurred by the Company after April 30,
1997 and on or prior to the Closing Date relating to the employees and
consultants identified on
3
<PAGE>
Schedule 1.01A attached hereto, (n) an amount equal to 50% of all fees and
expenses incurred by Prior, Prosser, the Company, ECI and their respective
Subsidiaries relating to the Transactions and all agreements, documents and
proceedings in connection therewith, including, without limitation, all fees
and expenses of each counsel set forth on Schedule 1.01B attached hereto,
accountants and investment bankers, filing fees with the Commission and state
securities agencies, stock exchange listing fees, transfer agent fees,
transfer taxes and filing fees with the State of Delaware, it being expressly
understood and agreed that the payment of all such fees and expenses (but, as
to counsel fees and expenses, limited to the counsel named in Schedule 1.01B)
shall be the obligation of the Company, (o) an amount equal to 50% of the
compensation and other expenses incurred by the Company after April 30, 1997
and on or prior to the Closing Date relating to the employees identified on
Schedule 1.01C attached hereto, (p) an amount equal to 50% of (i) the "blue
book" values of the two aircraft owned by Aircraft Corp. as of the latest
"blue book" available to the parties on the third Business Day prior to the
Closing Date less (ii) the amount of all Indebtedness and accrued interest
owing by Aircraft Corp. to third parties as of the Closing Date, (q) an amount
equal to 50% of the carrying value as of April 30, 1997 of the assets
identified on Schedule 2.02(i) hereof, (r) an amount equal to the provision
for Income Tax expense of the Company which would be accrued on a hypothetical
statement of operations of the Company for the period after April 30, 1997 to
and including the Closing Date which statement of operations includes as
revenues or gross income only dividends paid by the Transferred Subsidiaries
to the Company during such period and interest accrued during such period on
Indebtedness of the Transferred Subsidiaries to the Company and includes as
expense only the expenses charged to ECI under clauses (c), (j), (k), (m),
(n), (o) and (s) of this definition of "Debits" (and only to the extent such
charges represent expenses which are deductible for Income Tax purposes), and
(s) an amount equal to 50% of all expenses incurred by the Company after April
30, 1997 and on or prior to the Closing Date (including interest accrued on
Indebtedness listed on Schedule 2.05(d)) to the extent such expenses are of a
type which do not constitute a Credit hereunder or a Debit pursuant to any
other clause of this definition of "Debits." Any amount comprising the Debits
which are denominated in a currency other than U.S. dollars shall be converted
into a U.S. dollar amount using the applicable exchange rate in effect as of
the fifth Business Day prior to the Closing Date, in the case of the Estimated
Statement, and as of the Closing Date, in the case of the Final Statement, as
published in The Wall Street Journal on the next succeeding Business Day.
"ECI" has the meaning set forth in the first paragraph hereof.
"ECI Common Stock" has the meaning set forth in the recitals hereto.
"Estimated Statement" has the meaning set forth in Section 3.01 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" has the meaning set forth in Section 2.03.
"Excluded Liabilities" has the meaning set forth in Section 2.06.
"Final Statement" has the meaning set forth in Section 3.02.
"Goods" has the meaning set forth in the Uniform Commercial Code of the
State of New York.
"GTT" has the meaning set forth in Section 2.03.
"Income Tax" has the meaning set forth in the Tax Sharing Agreement.
"Indebtedness" of any person shall mean, without duplication, (a) all
indebtedness of such person for borrowed money, (b) the deferred purchase
price of assets or services which in accordance with generally accepted
accounting principles would be shown on the liability side of the balance
sheet of such person, (c) the face amount of all letters of credit issued for
the account of such person and, without duplication, all drafts drawn
thereunder and (d) all Indebtedness of a second person secured by any lien on
any property owned by such first person, whether or not such Indebtedness has
been assumed by such first person.
"Materials" has the meaning set forth in Section 5.01 hereof.
4
<PAGE>
"Merger" has the meaning set forth in the recitals hereto.
"Merger Agreement" has the meaning set forth in the recitals hereto.
"Prior" has the meaning set forth in the recitals hereto.
"Prosser" has the meaning set forth in the recitals hereto.
"Recapitalization" has the meaning set forth in the recitals hereto.
"Recapitalization Agreement" has the meaning set forth in the recitals
hereto.
"Repurchase" has the meaning set forth in the recitals hereto.
"Retained Indebtedness" has the meaning set forth in Section 2.02.
"Retained Names" has the meaning set forth in Section 5.01 hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" has the meaning set forth in Section 2.01 hereof.
"Special Meeting" has the meaning set forth in the Merger Agreement.
"St. Croix Office" means the office of the Company located at Chase
Financial Center, Orange Grove, Christiansted, St. Croix, U.S. Virgin Islands
00821.
"St. Croix Office Lease" means the current lease between Chase Manhattan
Bank and VITELCO for the St. Croix Office, any and all renewals, extensions or
amendments thereof and any new lease for the St. Croix Office entered into on
or prior to the Closing Date.
"St. Thomas Office" means the office of the Company located at 19 Estate
Thomas, Havensite, St. Thomas, U.S. Virgin Islands 00802.
"St. Thomas Office Lease" means the lease agreement dated October 1, 1992,
as amended July 22, 1993, between the Company and St. Thomas Liquor Co., Ltd.
for the St. Thomas Office.
"Subscription Agreement" has the meaning set forth in the first paragraph
hereof.
"Subsidiary" shall mean, of any person at any time,
(a) any corporation of which a majority (by number of shares or number of
votes) of any class of outstanding capital stock normally entitled to vote
for the election of one or more directors (regardless of any contingency
which does or may suspend or dilute the voting rights of such class) is at
such time owned directly or indirectly, beneficially or of record, by such
person or one or more Subsidiaries of such person;
(b) any trust of which a majority of the beneficial interest is at such
time owned directly or indirectly, beneficially or of record, by such
person or one or more Subsidiaries of such person; and
(c) any partnership, joint venture or other entity of which ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at such time
owned directly or indirectly, beneficially or of record, by, or which is
otherwise controlled directly, indirectly or through one or more
intermediaries by, such person or one or more Subsidiaries of such person.
"Tax" or "Taxes" means any income, gross income, gross receipts, profits,
capital stock, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp, excise,
severance, occupation, service, sales, use, license, lease, transfer, import,
export, value added,
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alternative minimum, estimated or other similar tax (including any fee,
assessment or other charge in the nature of or in lieu of any tax) imposed by
any governmental entity or political subdivision thereof, and any interest,
penalties, additions to tax or additional amounts in respect of the foregoing.
"Transactions" has the meaning set forth in Section 6.02 hereof.
"Transferred Subsidiaries" has the meaning set forth in the recitals hereto.
"Trust" has the meaning set forth in the recitals hereto.
"VCI" has the meaning set forth in the recitals hereto.
"VITELCO" has the meaning set forth in the recitals hereto.
"Vitelcom" has the meaning set forth in the recitals hereto.
Section 1.02. Rules of Construction. Unless the context otherwise requires:
(a) a capitalized term used herein has the meaning ascribed to such term;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the plural
include the singular; and
(d) "herein," "hereof" and other words of similar import refer to this
Subscription Agreement as a whole and not to any particular Article,
Section or other subdivision.
ARTICLE II
SUBSCRIPTION FOR AND ACQUISITION OF THE SHARES
Section 2.01. Subscription for the Shares. The Company hereby subscribes for
and, subject to the terms and conditions contained herein, agrees to acquire
at the Closing 10,959,131 shares of ECI Common Stock (the "Shares").
Section 2.02. Acquisition of the Shares. In consideration of the issuance of
the Shares by ECI and the performance of its other obligations hereunder,
subject to the terms and conditions contained herein, the Company agrees to
transfer, convey, assign and deliver, or cause to be transferred, conveyed,
assigned and delivered, at the Closing to ECI the following assets (which are
collectively referred to herein as the "Assets"):
(a) all of the issued and outstanding capital stock of ATNCo.;
(b) all of the issued and outstanding capital stock of Aircraft Corp.;
(c) all Indebtedness of each Transferred Subsidiary owing to the Company
except the Subordinated Demand Note of ATNCo. payable to the order of the
Company, which had an unpaid principal amount of $22,031,586 at April 30,
1997 (the "Retained Indebtedness");
(d) all rights of the Company under the St. Croix Office Lease;
(e) all equipment, furniture, fixtures and leasehold improvements of the
Company located at the St. Croix Office;
(f) all rights of the Company under any leases of equipment located at
the St. Croix Office;
(g) all rights of the Company and GTT (including any capitalized costs
relating thereto) relating to the project for the privatization of the
telephone company for the Republic of Congo;
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(h) all books, records and other data and papers held by the Company at
the Closing relating to the operation of the businesses of the Transferred
Subsidiaries;
(i) all of the right, title and interest of the Company in the assets set
forth on Schedule 2.02(i) attached hereto; and
(j) 50% of all receivables of the Company as of April 30, 1997 which
remain unpaid as of the Closing Date (other than Indebtedness owing to the
Company by any of its Subsidiaries and any receivables identified on
Schedule 2.02(i)).
Section 2.03. Excluded Assets. For the avoidance of doubt, each of the
parties hereto acknowledges and agrees that there shall not be included in
Assets to be transferred, conveyed, assigned and delivered to ECI at the
Closing any of the following assets (which are collectively referred to herein
as the "Excluded Assets"):
(a) any of the capital stock of Guyana Telephone & Telegraph Company
Ltd., a Guyana corporation ("GTT");
(b) any Indebtedness of GTT owing to the Company;
(c) any rights of the Company under the St. Thomas Office Lease;
(d) any equipment, furniture, fixtures and leasehold improvements of the
Company located at the St. Thomas Offices;
(e) any rights of the Company under any leases of equipment located at
the St. Thomas Office;
(f) any rights of the Company or GTT (including any capitalized costs
relating thereto) relating to the projects for the privatization of the
Suriname telephone company, the purchase of the St. Martin cellular
operation or the long distance telephone opportunity in Jamaica (the
"Company Projects"); and
(g) any rights of the Company under any advisory or management agreement
between GTT and the Company.
Section 2.04. Issuance of the Shares. At the Closing, subject to the terms
and conditions contained herein, ECI agrees to issue and deliver the Shares to
the Company.
Section 2.05. Assumption of Liabilities. In consideration of the transfer,
conveyance, assignment and delivery of the Assets and the performance by the
Company of its other obligations hereunder, subject to the terms and
conditions contained herein, ECI agrees to assume at the Closing in accordance
with their respective terms the following liabilities (which are collectively
referred to herein as the "Assumed Liabilities"):
(a) all obligations of the Company under the St. Croix Office Lease;
(b) all obligations of the Company under all of the leases of equipment
located at the St. Croix Office and all other leases of equipment located
at the St. Croix Office entered into by the Company after the date of this
Subscription Agreement and prior to the Closing;
(c) all obligations of the Company arising out of or relating to the
Transferred Subsidiaries and the project for the privatization of the
telephone company for the Republic of Congo;
(d) the obligations of the Company set forth on Schedule 2.05(d);
(e) certain Tax liabilities of the Company as more particularly described
in the Tax Sharing and Indemnification Agreement; and
(f) except as otherwise provided in the Indemnity Agreement, one-half of
all liabilities and obligations of the Company, whether known or unknown,
arising out of events or acts or omissions occurring at or prior to the
Closing, except for (i) any Tax liabilities, (ii) any liabilities or
obligations that are taken into account in clauses (b) and (c) of the
definition of "Debits" for purposes of calculating the Final Closing
Adjustment and (iii) any liabilities and obligations that are Assumed
Liabilities pursuant to clauses (a)-(d) of this Section 2.05 or Excluded
Liabilities pursuant to clauses (a)-(c) of Section 2.06.
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Section 2.06. Excluded Liabilities. For the avoidance of doubt, each of the
parties hereto acknowledges and agrees that ECI does not hereby assume or
agree to assume any of the following obligations or liabilities (which are
collectively referred to herein as the "Excluded Liabilities"):
(a) any obligations of the Company under the St. Thomas Office Lease;
(b) any obligations of the Company under the leases of equipment located
at the St. Thomas Office; and
(c) any liability or obligation of the Company, whether known or unknown,
or matured or contingent, arising out of or relating to GTT or the Company
Projects.
Section 2.07. Restricted Assets. In the event that any Asset is not
assignable or transferable to ECI at the Closing by its terms or under
applicable law (each, a "Restricted Asset"), the Company shall use all
reasonable efforts, and ECI shall cooperate reasonably with the Company, to
promptly obtain the consents and waivers necessary to cause to be assigned or
transferred to ECI such Restricted Asset. After the Closing and continuing for
the duration of the useful life of each Restricted Asset, the Company shall
use reasonable efforts to provide ECI with the benefits of such Restricted
Asset and enforce at the request of ECI, or allow ECI to enforce, any rights
of the Company under such Restricted Asset; provided that the reasonable costs
and expenses of the Company incurred at ECI's request with respect to any such
enforcement shall be reimbursed by ECI.
Section 2.08. Access to Information. Each of the parties shall give to the
other reasonable access to information necessary to consummate the
transactions contemplated by this Subscription Agreement and shall deliver at
its expense all records relating to businesses and operations of the other
party and its Subsidiaries which may inadvertently remain in its possession
after the Closing. Each of the parties shall retain records relating to the
businesses and operations of the other party and its Subsidiaries in its
possession for a period of five years after the Closing Date.
ARTICLE III
CLOSING ADJUSTMENT
Section 3.01. Preliminary Closing Adjustment.
(a) On the third Business Day prior to the Closing Date, the Company
shall deliver to ECI an estimated statement of the Debits and the Credits
(the "Estimated Statement"), which Estimated Statement shall be in form and
substance reasonably satisfactory to ECI. The difference between the Debits
and the Credits shown on the Estimated Statement is herein called the
"Closing Date Adjustment." If the Debits exceed the Credits the Closing
Date Adjustment shall be a positive amount representing the sum resulting
from the Closing Date Adjustment due by ECI to the Company. If the Credits
exceed the Debits the Closing Date Adjustment shall be a negative amount
representing the sum resulting from the Closing Date Adjustment due by the
Company to ECI.
(b) ECI shall cause ATNCo to pay on the Closing Date, by wire transfer of
immediately available funds, as a payment of the Retained Indebtedness,
$17.4 million increased by the sum of the Closing Date Adjustment should
such adjustment be a positive amount or decreased by the Closing Date
Adjustment should such amount be a negative amount. If the amount of the
payment to be made by ATNCo. under this Section 3.01 exceeds the principal
amount of the Retained Indebtedness, such excess amount shall be paid by
ECI to the Company.
Section 3.02. Final Closing Adjustment.
(a) As promptly as practicable after the Closing Date, the Company shall
deliver to ECI a statement of Debits and Credits as of the Closing Date
(the "Closing Date Statement"). The Company and ECI shall engage the Omaha,
Nebraska office of Deloitte & Touche LLP (the "Auditor") to perform an
audit of the Debits and Credits shown on the Closing Date Statement. The
Auditor shall, within 60 days after the
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Closing Date, deliver to the parties a report of the calculation of the
Debits and the Credits (the "Final Statement"). The Final Statement shall
be conclusive and binding upon the parties, absent fraud or manifest error.
Each of the parties shall give the Auditor full access to its books,
records, facilities and employees in connection with the Auditor's audit of
the Final Statement. The fees and disbursements of the Auditor shall be
paid equally by the Company and ECI. The amount by which the amount of the
Debits shown on the Final Statement exceeds the amount of the Credits shown
on the Final Statement is herein called the "Final Closing Adjustment." If
the amount of Credits exceeds the amount of Debits, the Final Closing
Adjustment shall be a negative amount.
(b) If the Final Closing Adjustment exceeds the amount of the Closing
Date Adjustment, then within three Business Days after receipt of the Final
Statement by ECI, ECI shall cause ATNCo. to pay to the Company on account
of the principal amount of the Retained Indebtedness by wire transfer of
immediately available funds to an account specified by the Company therefor
an amount in cash in U.S. dollars equal to the amount by which the Final
Closing Adjustment exceeds the Closing Date Adjustment. If the amount of
the payment to be made by ATNCo. under this clause (b) exceeds the
remaining principal amount of the Retained Indebtedness, such excess amount
shall be paid by ECI to the Company.
(c) If the Final Closing Adjustment is less than the Closing Date
Adjustment, then within three Business Days after receipt of the Final
Statement by the Company, the Company shall pay to ECI by wire transfer of
immediately available funds to an account specified by ECI therefor an
amount in cash in U.S. dollars equal to the amount by which the Final
Closing Adjustment is less than the amount of the Closing Date Adjustment.
(d) For the avoidance of doubt, it is hereby acknowledged and agreed that
a positive amount is always larger than any negative amount (e.g. $10 is
$110 larger than -$100), that a negative amount is always less than a
positive amount (e.g. -$100 is $110 less than $10), and that a larger
negative number is "less than" a smaller negative number (e.g. -$110 is $10
less than -$100).
(e) Immediately following the payment specified in clause (b) or (c) of
this Section 3.02, the Company shall note on the promissory note evidencing
the Retained Indebtedness the aggregate amount of the payments, if any,
received by it with respect to the Retained Indebtedness pursuant to
Section 3.01 and this Section 3.02 and assign and deliver the Retained
Indebtedness to ECI.
ARTICLE IV
NO REPRESENTATIONS OR WARRANTIES;
CONDITION OF ASSETS, DISCLAIMERS
Section 4.01. No Representations or Warranties. Each of the parties
understands and agrees that no party is making, in this Subscription Agreement
or in any other agreement or document entered into in connection with the
Transactions, representations or warranties to the other in any way as to the
business or operations of the Company prior to or after the Closing or as to
the business or operations of ECI after the Closing, or as to any consents or
approvals required in connection therewith.
Section 4.02. Condition of Assets, Disclaimers. All Goods to be conveyed
pursuant to this Subscription Agreement are expressly agreed to be conveyed
"AS IS" and "WITH ALL FAULTS." All of the Assets to be transferred and
assigned to ECI pursuant to the provisions of this Subscription Agreement
shall be transferred and assigned to ECI as is, where is, in the condition
thereof and subject to the state of title thereto, the rights of any parties
in possession, and the right of ownership of others therein, and are subject
to all applicable laws, rules, regulations, ordinances, licenses, permits,
franchises, judgments, orders and other governmental actions, whether now in
effect or hereafter taken, and without representations or warranties of any
kind by the Company or any person acting or purporting to act on its behalf.
The Company makes no warranty or representation, express or implied, as to the
title, design, condition, value, operation, workmanship, merchantibility or
suitability for a particular purpose of the Assets, or any portion thereof, or
any other warranty or representation, express or implied, of any kind
whatsoever with respect to the Assets or any portion thereof.
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ARTICLE V
CERTAIN AGREEMENTS OF THE COMPANY AND ECI
Section 5.01. Use of Retained Names. After the Closing, ECI shall not, and
shall cause its Subsidiaries not to, put into use any products, signs,
purchase orders, sales orders, labels, letterheads, or other materials
(collectively, "Materials") not in existence on the Closing Date that bear the
name "Atlantic Tele-Network, Inc." or "ATN" (the "Retained Names"). After the
Closing, ECI and its Subsidiaries shall be entitled to use any Materials in
existence as of the Closing that bear the Retained Names for a period not
exceeding 30 days.
Section 5.02. Severance. Prior to the Closing, the Company shall terminate
the employment of each of its employees identified on Schedule 5.02 attached
hereto.
Section 5.03. Aircraft Corp. Costs. Effective May 1, 1997, the Transferred
Subsidiaries, the project for the privatization of the telephone company for
the Republic of Congo, the Company Projects, and GTT shall be charged for use
of Aircraft Corp.'s jet aircraft only in an amount equal to the cost incident
to such use computed in the same manner and on the same basis as Prosser and
Prior have heretofore been charged for personal use of such aircraft, and all
remaining expenses of Aircraft Corp. with respect to the jet aircraft for the
period after April 30, 1997 and on or prior to the Closing Date shall be
charged to the Company as an expense to be allocated 50% to ECI pursuant to
clause(s) of the definition of "Debits" in this Subscription Agreement.
Section 5.04. Exchange of Indebtedness. Upon receipt of Indebtedness of
Transferred Subsidiaries pursuant to Section 2.02(c), ECI shall immediately
exchange any such Indebtedness for a promissory note with a term of at least
ten years at a variable rate of interest at least equal to the variable rate
of interest under the senior credit facility between Atlantic Tele-Network,
Co. and Rural Telephone Finance Cooperative and under which the obligor has
the right to prepay such note at any time without premium or penalty.
ARTICLE VI
CONDITIONS TO CLOSING
The obligations of the parties to consummate the purchase and sale of the
Shares, the assumption of the Assumed Liabilities and the other transactions
to be consummated by the parties hereto at the Closing shall be subject to the
satisfaction of the following conditions on or prior to the Closing Date:
Section 6.01. Third-Party Approvals. All consents, approvals,
authorizations, permits and orders with respect to the transactions
contemplated by this Subscription Agreement, the Recapitalization Agreement
and the Merger Agreement and the other agreements to be entered into pursuant
hereto and thereto required from any person, entity or court or governmental
agency, authority or instrumentality, federal, state or local, having or
asserting rights against or jurisdictions over the Company, ECI, or such
transactions (including, without limitation, from the Rural Telephone Finance
Corporation, the Rural Utilities Service, and Northern Telecom International
Finance B.V.) shall have been obtained and be valid and in full force and
effect.
Section 6.02. Registration Statement and Stockholder Approval. The
Registration Statement registering the Shares to be issued to stockholders of
the Company pursuant to the Merger Agreement under the Securities Act shall
have become effective in accordance with the provisions of the Securities Act;
no stop order suspending the effectiveness of such Registration Statement
shall have been issued by the Commission and remain in effect; all necessary
state securities or blue sky authorizations shall have been received. The
approval and adoption of this Subscription Agreement, the Recapitalization
Agreement, the Merger Agreement and the other agreements to be entered into
pursuant hereto and thereto and the transactions contemplated hereby and
thereby (the "Transactions"), by a majority of the outstanding shares of
Company Common Stock shall have been obtained.
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Section 6.03. Internal Revenue Service Ruling. The Company shall have
received rulings from the Internal Revenue Service reasonably acceptable to
the Company and ECI, which rulings shall be in full force and effect as of the
Closing Date, to the effect that:
(i) the transactions contemplated by the Subscription Agreement will be a
tax-free reorganization as described in Section 368(a)(1)(D) of the Code;
and
(ii) the distribution of ECI Common Stock to the holders of Company
Common Stock and the holders of the Class A Common Stock pursuant to the
Merger Agreement will be tax-free for federal income tax purposes to the
Company under Section 355(c) or 361(c) of the Code and to the holders of
Company Common Stock and the holders of the Class A Common Stock under
Section 355(a) of the Code.
Section 6.04. Fairness Opinion. The Board of Directors of the Company shall
have received an opinion from Prudential Securities Inc. dated July 7, 1997
and reaffirmed within five Business Days prior to the date a definitive proxy
statement is mailed to the holders of Company Common Stock under the Exchange
Act to the effect that the Transactions are fair from a financial point of
view to the public stockholders of the Company.
Section 6.05. [Intentionally Omitted]
Section 6.06. Liquidation of Vitelcom. Vitelcom shall be liquidated or
merged into ATN Co. and the business of Vitelcom shall be continued by ATN
Co., which may continue such business as a separate division of ATN Co. but
not as a separate corporate Subsidiary.
Section 6.07. Minimum Borrowing Capacity. Each of the Company and ECI shall
have minimum available borrowing capacity with reputable lenders or available
cash on hand necessary to make and, in ECI's case, to cause ATNCo. to make the
payments expected to be required under Article III hereof.
Section 6.08. No Material Adverse Change. Since the date of this Agreement,
there shall have been no material adverse change in the business to be
conducted by either (a) the Company and its Subsidiaries after the Closing or
(b) ECI and its Subsidiaries after the Closing.
Section 6.09. No Litigation. No action, suit, investigation or other
proceeding shall be pending or threatened before any arbitrator, court or
governmental agency which, in the opinion of at least one-half of the members
of the Board of Directors of either the Company or ECI, presents a substantial
risk of the restriction or prohibition of any material component of the
Transactions, or obtaining material damages or other relief in connection
therewith.
Section 6.10. Agreements in Full Force. Each of the Merger Agreement and the
Recapitalization Agreement shall be in full force and effect and no party
thereto shall be in material breach of any of its obligations thereunder.
Section 6.11. Listing. The Shares issuable in the Merger shall have been
authorized for listing on the American Stock Exchange subject to a final
notice of issuance. The outstanding Common Stock of the Company shall be
listed on the American Stock Exchange, and no proceedings shall be pending or
threatened to delist such stock from such Exchange.
Section 6.12. Performance. Each of the parties shall have performed and
complied in all material respects with all obligations and conditions required
by this Subscription Agreement to be performed or complied with by it at or
prior to the Closing and such party shall furnish to the other an officer's
certificate to evidence such performance and compliance.
Section 6.13. ECI Charter. ECI shall have adopted and filed with the
Secretary of State of Delaware a Restated Certificate of Incorporation
substantially in the form of Exhibit D attached hereto.
Section 6.14. Boards of Directors and Officers. The Board of Directors and
officers of ECI and each Transferred Subsidiary shall consist of those persons
designated in writing by Prosser to the Company on the
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Business Day preceding the Closing Date. The Board of Directors and officers
of the Company and GTT shall consist of those persons designated in writing by
Prior to the Company on the business day preceding the Closing Date.
Section 6.15. Non-Competition Agreement. ECI and Prosser shall have entered
into a Non-Competition Agreement substantially in the form of Exhibit E
attached hereto, and such agreement shall be in full force and effect and no
party thereto shall be in material default of any of its obligations
thereunder.
Section 6.16. Indemnity Agreement. The Company, ECI, Prior and Prosser shall
have entered into an Indemnity Agreement substantially in the form of Exhibit
F attached hereto, and such agreement shall be in full force and effect and no
party thereto shall be in material default of any of its obligations
thereunder.
Section 6.17. Personal Debts. Each of Prior and Prosser shall have repaid
all personal debts owing to the Company or any of its Subsidiaries (including
any Transferred Subsidiaries); and Prior shall have caused the repayment of
all amounts owing by Prior's private wireless cable television business to
Vitelcom as of the Closing Date.
Section 6.18. Employee Benefits Agreement. The Company and ECI shall have
entered into an Employee Benefits Agreement substantially in the form of
Exhibit G attached hereto, and such agreement shall be in full force and
effect and no party thereto shall be in material default of any of its
obligations thereunder.
Section 6.19. Tax Sharing and Indemnification Agreement. The Company and ECI
shall have entered into a Tax Sharing and Indemnification Agreement
substantially in the form of Exhibit H attached hereto (the "Tax Sharing
Agreement"), and such agreement shall be in full force and effect and no party
thereto shall be in material default of any of its obligations thereunder.
Section 6.20. Assumed Liabilities. ECI shall have assumed all obligations of
the Company with respect to the Assumed Liabilities outstanding as of the
Closing Date.
Section 6.21. Technical Assistance Agreement. The Company, ATNCo., VITELCO
and VCI shall have entered into a Technical Assistance Agreement substantially
in the form of Exhibit C attached hereto (the "Technical Services Agreement"),
and such agreement shall be in full force and effect and no party thereto
shall be in material default of any of its obligations thereunder.
Section 6.22. Recapitalization Agreement Closing. Each of the conditions to
the closing under the Recapitalization Agreement (the "Recapitalization
Agreement Closing") shall have been satisfied or, with the consent of each of
the parties hereto waived; and all parties thereto shall appear ready, willing
and able to consummate the transactions therein provided to be consummated at
the Recapitalization Agreement Closing.
Section 6.23. Merger Agreement Closing. Each of the conditions to the
closing under the Merger Agreement (the "Merger Agreement Closing") shall have
been satisfied or, with the consent of each of the parties hereto waived; and
all parties thereto shall appear ready, willing and able to consummate the
transactions therein provided to be consummated at the Merger Agreement
Closing.
ARTICLE VII
CLOSING DATE; CLOSING
Section 7.01. Closing Date; Closing. The closing of the acquisition and
issuance of the Shares hereunder (the "Closing") shall take place on the same
Business Day as the Recapitalization Agreement Closing and the Merger
Agreement Closing and shall be held as soon as reasonably practicable after
satisfaction or waiver by the parties hereto of the conditions set forth in
Article VI hereof. The date on which the Closing occurs is referred to herein
as the "Closing Date." The Closing shall take place at the offices of Cahill
Gordon &
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Reindel, 80 Pine Street, New York, New York 10005. At the Closing, (i) ECI
shall issue the Shares to the Company registered in such names and
denominations as the Company shall request, (ii) the transfer, conveyance,
assignment and delivery of the Assets shall be effected by the delivery by the
Company of such deeds, bills of sale, endorsements, assignments, certificates
or other instruments as ECI shall reasonably request, (iii) the assumption of
the Assumed Liabilities shall be effected by the delivery by ECI of such
instruments of assumption as the Company shall reasonably request and (iv) ECI
shall have consummated or caused ATNCo. to have consummated the wire transfer
contemplated by Section 3.01 hereof.
Section 7.02. Further Assurances. Each of the parties agrees that after the
Closing, upon reasonable request of the other party, it will do, execute,
deliver and acknowledge, and will cause to be done, executed, delivered and
acknowledged, all such further acts, deeds, certificates, assignments,
assumptions, transfers, conveyances, powers of attorney and other documents as
may be reasonably required to consummate the transactions contemplated hereby.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.01. Termination. This Subscription Agreement shall terminate upon
the termination of the Recapitalization Agreement or the Merger Agreement. In
addition, this Subscription Agreement may be terminated at any time prior to
the Closing by the Board of Directors of the Company and the Board of
Directors of ECI without the authorization or consent of the Company's or
ECI's stockholders. In the event of any such termination, neither party shall
have any liability of any kind to the other party.
Section 8.02. Entire Agreement. This Subscription Agreement, together with
all other written agreements which may be entered into between the parties in
connection herewith and the transactions contemplated hereby and all other
documents and instruments delivered in connection herewith and therewith and
the transactions contemplated hereby and thereby, set forth the full and
complete understanding of the parties hereto with respect to the transactions
contemplated hereby.
Section 8.03. Governing Law. This Subscription Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
reference to the conflict of laws rules thereof.
Section 8.04. Headings. The headings in this Subscription Agreement are
intended solely for convenience of reference and shall be given no effect in
the interpretation of this Subscription Agreement.
Section 8.05. Counterparts. This Subscription Agreement may be executed in
two counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
Section 8.06. Benefits. This Subscription Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns, and no other person will have any right or obligation
hereunder.
Section 8.07. Assignment. Neither this Subscription Agreement nor any right
hereunder may be assigned by the parties hereto without the prior written
consent of the other party. Subject to the foregoing, this Subscription
Agreement shall be binding upon and inure to the benefit of the successors,
heirs, representatives and assigns of each party hereto.
Section 8.08. Amendment and Waiver. This Subscription Agreement may be
amended only by an instrument in writing signed on behalf of each of the
parties hereto. Any term, condition or provision of this Subscription
Agreement may be waived (if in writing) at any time by the party or each of
the parties entitled to the benefits thereof.
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Section 8.09. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with receipt
confirmed) or by registered mail, return receipt requested, addressed as
follows (or to such other address as a party may designate by notice to the
other):
(a) If to the Company:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b) If to ECI:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
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IN WITNESS WHEREOF, each of the Company and ECI has caused this Subscription
Agreement to be executed on the date first written above.
Atlantic Tele-Network, Inc.
By: /s/ Cornelius B. Prior
__________________________________
Name: Cornelius B. Prior
Title:Co-Chief Executive Officer
By: /s/ Jeffrey J. Prosser
__________________________________
Name: Jeffrey J. Prosser
Title:Co-Chief Executive Officer
Emerging Communications, Inc.
By: /s/ Jeffrey J. Prosser
__________________________________
Name: Jeffrey J. Prosser
Title:Chief Executive Officer
15
<PAGE>
SCHEDULE 1.01A
PROSSER DESIGNATED EMPLOYEES AND CONSULTANTS
James J. Heying
Sharon Smalls
Edwin Crouch
Steve Ross
Deseree Rodriquez
Liz Goggins
Eling Joseph
Wilhelm Samuel
David Stuedell
Gary Fisher
Kevin Cullwood
Ronald Sanders
James Dishman
Sir Shridath S. Ramphal
Paul Singer
16
<PAGE>
SCHEDULE 1.01B
COUNSEL
Cahill Gordon & Reindel
Fried, Frank, Harris, Shriver & Jacobson
Raynor, Rensch & Pfeiffer
Richards, Layton & Finger
Brown & Wood LLP
Kelley Drye & Warren
Wiley, Rein & Fielding
17
<PAGE>
SCHEDULE 1.01C
UNDESIGNATED EMPLOYEES
Pacita Donovan
18
<PAGE>
SCHEDULE 2.02(I)
CERTAIN ASSETS
- --Any loans or advances to or other receivables from Jeffrey J. Prosser or any
of the persons listed on Schedule 1.01A hereof
- --AS400 Computer currently located at the premises of Vitelco
- --Key-man life insurance policies on the life of Jeffrey J. Prosser, including
pre-paid premiums relating thereto
- --Rent deposits relating to the St. Croix Office or leases relating to
equipment located at the St. Croix Office
- --Any other prepaid expenses, deposits or similar assets of the Company
relating to assets to be transferred to ECI under this Agreement, relating to
assets, liabilities, or operations of any of the Transferred Subsidiaries or
relating to Jeffrey J. Prosser of any of the person listed on Schedule 1.01A
hereof.
19
<PAGE>
SCHEDULE 2.05(D)
CERTAIN ASSUMED LIABILITIES
- --Banco Popular Indebtedness
- --Indebtedness relating to the AS400 Computer
- --Any other indebtedness of the Company that is secured by assets to be
transferred to ECI or assets of a Transferred Subsidiary
20
<PAGE>
SCHEDULE 5.02
EMPLOYEES TO BE TERMINATED
Pacita Donovan
21
<PAGE>
EXHIBIT A
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-----------------------------------------------
REPURCHASE AND RECAPITALIZATION AGREEMENT
-----------------------------------------------
AMONG
ATLANTIC TELE-NETWORK, INC.,
CORNELIUS B. PRIOR, JR.,
1994 PRIOR CHARITABLE REMAINDER TRUST
AND
JEFFREY J. PROSSER
DATED AUGUST 11, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
REPURCHASE
<C> <S> <C>
Section 1.01. Purchase of Shares......................................... 1
Section 1.02. Sale of Shares............................................. 2
ARTICLE II
RECAPITALIZATION
Section 2.01. Issuance of Class A Common Stock........................... 2
Section 2.02. Issuance of Class B Common Stock........................... 2
ARTICLE III
CONDITIONS TO CLOSING
Section 3.01. Subscription Agreement Closing............................. 2
Section 3.02. Merger Agreement Closing................................... 2
Section 3.03. Performance................................................ 2
Section 3.04. Charter Amendment.......................................... 2
ARTICLE IV
CLOSING DATE; CLOSING
Section 4.01. Closing Date; Closing...................................... 3
Section 4.02. Further Assurances......................................... 3
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Termination................................................ 3
Section 5.02. Entire Agreement........................................... 3
Section 5.03. Governing Law.............................................. 3
Section 5.04. Headings................................................... 4
Section 5.05. Counterparts............................................... 4
Section 5.06. Benefits................................................... 4
Section 5.07. Assignment................................................. 4
Section 5.08. Amendment and Waiver....................................... 4
Section 5.09. Notices.................................................... 4
Section 5.10. Best Efforts............................................... 5
Section 5.11. Tax Treatment.............................................. 5
EXHIBIT
Exhibit A-- Form of Charter Amendment
</TABLE>
i
<PAGE>
REPURCHASE AND RECAPITALIZATION AGREEMENT
THIS REPURCHASE AND RECAPITALIZATION AGREEMENT (this "Recapitalization
Agreement") is entered into as of the 11th day of August, 1997 by and among
Atlantic Tele-Network, Inc., a Delaware corporation (the "Company"), Cornelius
B. Prior, Jr. ("Prior"), individually and as Trustee of the 1994 PRIOR
CHARITABLE REMAINDER TRUST (the "Trust"), and Jeffrey J. Prosser ("Prosser").
WHEREAS, to eliminate corporate disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company has
entered into a Principal Terms Agreement dated January 29, 1997 among the
Company, Prior and Prosser, which contemplates the separation of the
businesses and assets of the Company in the manner set forth herein and in the
Subscription Agreement (as defined below) and the Merger Agreement (as defined
below); and
WHEREAS, the Company and Emerging Communications, Inc., a Delaware
corporation ("ECI"), have entered into a Subscription Agreement of even date
herewith (the "Subscription Agreement"), pursuant to which in order to
accomplish such separation, subject to the terms and conditions set forth in
the Subscription Agreement, the Company has agreed to transfer to ECI all of
the capital stock of its wholly owned subsidiaries, Atlantic Tele-Network,
Co., a Virgin Islands corporation ("ATNCo."), and Atlantic Aircraft, Inc., a
Delaware corporation ("Aircraft Corp."), as well as certain other assets of
the Company as more fully described therein relating to businesses conducted
by ATNCo., its subsidiaries, Virgin Islands Telephone Corporation, a Virgin
Islands corporation, Vitelcom Cellular Inc., a Virgin Islands corporation, and
Vitelcom, Inc., a Virgin Islands corporation, and Aircraft Corp. in exchange
for 10,959,131 shares of common stock, par value $0.01 per share (the "ECI
Common Stock"), of ECI; and
WHEREAS, subject to the terms and conditions set forth herein, (a) the
Company desires to repurchase an aggregate of 765,562 shares of common stock,
par value $.01 per share (the "Company Common Stock"), of the Company owned by
Prior and the Trust, and (b) Prosser desires to exchange 3,325,000 shares of
Company Common Stock owned by Prosser and certain members of his family
(including shares which he holds under an option to purchase) for 3,325,000
shares of a new series of common stock of the Company to be designated Class A
Common Stock and Prior desires to exchange 2,927,038 shares of Company Common
Stock owned by Prior and certain members of his family for 2,927,038 shares of
a new series of common stock of the Company to be designated Class B Common
Stock; and
WHEREAS, the Company and ATN MergerCo., a Delaware corporation ("Merger
Sub"), have entered into an Agreement and Plan of Merger of even date herewith
(the "Merger Agreement"), pursuant to which, subject to the terms and
conditions contained therein, Merger Sub will merge with and into the Company,
with each share of Company Common Stock being converted into one share of ECI
Common Stock and 0.40 shares of Company Common Stock, the outstanding shares
of Class A Common Stock will be converted into an aggregate of 5,704,231
shares of ECI Common Stock and the outstanding shares of Class B Common Stock
will be converted into an aggregate of 2,807,040 shares of Company Common
Stock (the "Merger"); and
WHEREAS, the consummation of the Closing (as defined herein) is a condition
to the consummation of the Merger pursuant to the Merger Agreement;
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
ARTICLE I
REPURCHASE
Section 1.01. Purchase of Shares. Subject to the terms and conditions
contained herein, the Company agrees to purchase at the Closing (as defined
herein) 416,998 shares of Company Common Stock owned by Prior (the "Prior
Repurchase Shares") at a purchase price of $22.7284 per share and 384,564
shares of Company Common Stock owned by the Trust (the "Trust Shares") at a
purchase price of $22.7284 per share.
1
<PAGE>
Section 1.02. Sale of Shares. Subject to the terms and conditions contained
herein, (i) Prior agrees to sell and deliver to the Company at the Closing the
Prior Repurchase Shares for a purchase price of $22.7284 per share and (ii)
the Trust agrees to sell and deliver to the Company the Trust Shares for a
purchase price of $22.7284 per share.
ARTICLE II
RECAPITALIZATION
Section 2.01. Issuance of Class A Common Stock. (a) Subject to the terms and
conditions contained herein, the Company agrees to issue and deliver to
Prosser at the Closing 3,325,000 shares of the Company's Class A Common Stock,
par value $0.01 per share (the "Class A Common Stock"), to be authorized
pursuant to the Charter Amendment (as defined herein) in exchange for all of
the 3,325,000 shares of Company Common Stock owned by Prosser and certain
members of his family or as to which Prosser currently holds an option to
purchase (the "Prosser Shares").
(b) Subject to the terms and conditions contained herein, Prosser agrees to
deliver to the Company at the Closing the Prosser Shares in exchange for
3,325,000 shares of the Class A Common Stock.
Section 2.02. Issuance of Class B Common Stock. (a) Subject to the terms and
conditions contained herein, the Company agrees to issue and deliver to Prior
at the Closing 2,927,038 shares of the Company's Class B Common Stock, par
value $0.01 per share (the "Class B Common Stock"), to be authorized pursuant
to the Charter Amendment in exchange for 2,927,038 shares of Company Common
Stock owned by Prior and certain members of his family (the "Prior Exchange
Shares").
(b) Subject to the terms and conditions contained herein, Prior agrees to
deliver to the Company at the Closing the Prior Exchange Shares in exchange
for 2,927,038 shares of the Class B Common Stock.
ARTICLE III
CONDITIONS TO CLOSING
The obligations of the parties to consummate the transactions to be
consummated by the parties at the Closing shall be subject to the satisfaction
of the following conditions on or prior to the Closing Date:
Section 3.01. Subscription Agreement Closing. Each of the conditions to the
closing under the Subscription Agreement (the "Subscription Agreement
Closing") shall have been satisfied or, with the consent of each of the
parties hereto, waived; and the Subscription Agreement Closing shall have been
consummated in accordance with the provisions of the Subscription Agreement.
Section 3.02. Merger Agreement Closing. Each of the conditions to the
Closing under the Merger Agreement (the "Merger Agreement Closing") shall have
been satisfied or with the consent of each of the parties hereto waived; and
all parties thereto shall appear ready, willing and able to consummate the
transactions therein provided to be consummated at the Merger Agreement
Closing.
Section 3.03. Performance. Each of the parties hereto shall have performed
and complied in all material respects with all obligations and conditions
required by this Recapitalization Agreement to be performed or complied with
by it at or prior to the Closing.
Section 3.04. Charter Amendment. The Company shall have adopted and filed
with the Secretary of State of Delaware a Restated Certificate of
Incorporation substantially in the form of Exhibit A attached hereto (the
"Charter Amendment").
2
<PAGE>
ARTICLE IV
CLOSING DATE; CLOSING
Section 4.01. Closing Date; Closing. The closing of the purchase and sale of
the Prior Repurchase Shares and Trust Shares and, immediately thereafter, the
closing of the exchange of the Prosser Shares for the Class A Common Stock and
the Prior Exchange Shares for the Class B Common Stock hereunder
(collectively, the "Closing") shall take place on the same day as the
Subscription Agreement Closing and the Merger Agreement Closing (and shall
occur after the Subscription Agreement Closing and prior to the Merger
Agreement Closing) and shall be held as soon as reasonably practicable after
satisfaction or waiver by the parties hereto of the conditions set forth in
Article VI hereof. The date on which the Closing occurs is referred to herein
as the "Closing Date". The Closing shall take place at the offices of Cahill
Gordon & Reindel, 80 Pine Street, New York, New York 10005. At the Closing,
(i) the Company shall pay by wire transfer of immediately available funds to
an account specified therefor by Prior the aggregate purchase price for the
Prior Repurchase Shares, (ii) the Company shall pay by wire transfer of
immediately available funds to an account specified therefor by the Trust the
aggregate purchase price for the Trust Shares, (iii) Prior shall deliver to
the Company the Prior Repurchase Shares duly endorsed in blank for transfer or
accompanied by a duly executed stock power assigning the Prior Repurchase
Shares in blank, (iv) the Trust shall deliver to the Company the Trust Shares
duly endorsed in blank for transfer or accompanied by a duly executed stock
power assigning the Trust Shares in blank, (v) the Company shall issue
3,325,000 shares of Class A Common Stock to Prosser registered in such names
and denominations as Prosser shall request, (vi) the Company shall issue
2,927,038 shares of Class B Common Stock to Prior registered in such names and
denominations as Prior shall request, (vii) Prosser shall deliver to the
Company the Prosser Shares duly endorsed in blank or accompanied by a duly
executed stock power assigning the Prosser Shares in blank and (viii) Prior
shall deliver to the Company the Prior Exchange Shares duly endorsed in blank
or accompanied by a duly executed stock power assigning the Prior Exchange
Shares in blank.
Section 4.02. Further Assurances. Each of the parties agrees that after the
Closing, upon reasonable request of the other party, it will do, execute,
deliver and acknowledge, and will cause to be done, executed, delivered and
acknowledged, all such further acts, deeds, certificates, assignments,
transfers, conveyances, powers of attorney and other documents as may be
reasonably required to consummate the transactions contemplated hereby. Each
of Prior, Prosser and the Trust agree to vote all shares of Company Common
Stock owned or controlled by them in favor of the Transactions at the Special
Meeting (as defined in the Merger Agreement).
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Termination. This Recapitalization Agreement shall terminate
upon any termination of the Subscription Agreement or the Merger Agreement. In
addition, this Recapitalization Agreement may be terminated at any time prior
to the Closing by mutual written consent of each party hereto. In the event of
any such termination, no party shall have any liability of any kind to any
other party.
Section 5.02. Entire Agreement. This Recapitalization Agreement, together
with all other written agreements which may be entered into between the
parties in connection herewith and the transactions contemplated hereby and
all other documents and instruments delivered in connection herewith and
therewith and the transactions contemplated hereby and thereby, set forth the
full and complete understanding of the parties hereto with respect to the
transactions contemplated hereby.
Section 5.03. Governing Law. This Recapitalization Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without reference to the conflict of laws rules thereof.
3
<PAGE>
Section 5.04. Headings. The headings in this Recapitalization Agreement are
intended solely for convenience of reference and shall be given no effect in
the interpretation of this Recapitalization Agreement.
Section 5.05. Counterparts. This Recapitalization Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
Section 5.06. Benefits. This Recapitalization Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns, and no other person will have any right or obligation
hereunder.
Section 5.07. Assignment. Neither this Recapitalization Agreement nor any
right hereunder may be assigned by the parties hereto without the prior
written consent of the other parties. Subject to the foregoing, this
Recapitalization Agreement shall be binding upon and inure to the benefit of
the successors, heirs, representatives and assigns of each party hereto.
Section 5.08. Amendment and Waiver. This Recapitalization Agreement may be
amended only by an instrument in writing signed on behalf of each of the
parties hereto. Any term, condition or provision of this Recapitalization
Agreement may be waived (if in writing) at any time by the party or each of
the parties entitled to the benefits thereof.
Section 5.09. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with receipt
confirmed) or by registered mail, return receipt requested, addressed as
follows (or to such other address as a party may designate by notice to the
other):
(a)If to the Company or Prior:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b)If to Prosser:
c/o Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
4
<PAGE>
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
(c)If to the Trust:
c/o Cornelius B. Prior
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
Section 5.10. Best Efforts. Each of the parties hereto shall use his or its
best efforts to cause the Transactions to be consummated. Without limiting the
generality of the foregoing, (i) Prior, individually and as trustee of the
Trust, and Prosser agree to vote all of their shares of Company Common Stock
in favor of the approval of the Transactions and the adoption of the Merger
Agreement and the Charter Amendment, (ii) each of the parties hereto shall
execute all contracts, documents and instruments, the execution of which is
contemplated as a condition to closing under this Recapitalization Agreement,
the Subscription Agreement or the Merger Agreement, (iii) each of the parties
shall promptly, at the request of counsel to the Company or counsel to ECI,
supply such counsel with letters of representation reasonable under the
circumstances as to facts or statements of intention represented to the
Internal Revenue Service in connection with the Company's application for the
Tax Ruling (as defined in the Subscription Agreement) and (iv) each of the
parties shall take all steps within his or its control to cause the other
conditions to closing of the Transactions to be consummated and shall
generally use his or its best efforts to cause the Transactions to be
consummated.
Section 5.11. Tax Treatment. The Company and Prior, individually and as
trustee of the Trust, agree to report for tax purposes the purchase of the
Prior Repurchase Shares and the Trust Shares pursuant to Article I hereof as
distributions of property to which Section 301 of the Internal Revenue Code of
1986, as amended, applies.
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Recapitalization Agreement to be duly executed, all as of the date first
written above.
ATLANTIC TELE-NETWORK, INC.
By: /s/ Cornelius B. Prior
__________________________________
Name: Cornelius B. Prior
Title: Co-Chief Executive Officer
By: /s/ Jeffrey J. Prosser
__________________________________
Name: Jeffrey J. Prosser
Title: Co-Chief Executive Officer
1994 PRIOR CHARITABLE REMAINDER
TRUST
By: /s/ Cornelius B. Prior
__________________________________
Name: Cornelius B. Prior
Title: Trustee
/s/ Cornelius B. Prior
___________________________________
Cornelius B. Prior
/s/ Jeffrey J. Prosser
___________________________________
Jeffrey J. Prosser
6
<PAGE>
EXHIBIT A TO
REPURCHASE AND
RECAPITALIZATION
AGREEMENT
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ATLANTIC TELE-NETWORK, INC.
ATLANTIC TELE-NETWORK, INC., a corporation organized and existing under the
laws of the State of Delaware, does hereby certify as follows:
FIRST: The name of the Corporation is ATLANTIC TELE-NETWORK, INC. (the
"Corporation"). The original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on August 4, 1989.
SECOND: This Amended and Restated Certificate of Incorporation has been
duly adopted pursuant to Section 245 of the General Corporation Law of the
State of Delaware (the "GCL"). The Corporation certifies that amendments
effected by this Amended and Restated Certificate of Incorporation have
been adopted in accordance with Section 242 of the GCL.
THIRD: The text of the Corporation's Certificate of Incorporation as
heretofore amended or supplemented is hereby further amended and restated
to read in its entirety as follows:
ARTICLE ONE
NAME
The name of the Corporation is Atlantic Tele-Network, Inc.
ARTICLE TWO
REGISTERED OFFICE
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE THREE
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE FOUR
CAPITAL STOCK
1. Authorized Capital Stock. The total number of shares of all classes of
capital stock which the Corporation shall have the authority to issue is
36,252,038 shares divided into two classes of which
(i)10,000,000 shares, par value $.01 per share, shall be designated
Preferred Stock,
(ii)20,000,000 shares, par value $.01 per share, shall be designated Common
Stock,
(iii)3,325,000 shares, par value $.01 per share, shall be designated Class
A Common Stock, and
(iv)2,927,038 shares, par value $.01 per share, shall be designated Class B
Common Stock.
<PAGE>
2. Terms of the Preferred Stock
2.1 Issuance. The Board of Directors is expressly authorized, subject to
limitations prescribed by law, to provide for the issuance of shares of
Preferred Stock in one or more series, to establish the number of shares to be
included in each such series, and to fix the designations, powers,
preferences, and rights of the shares of each such series, and any
qualifications, limitations, or restrictions thereof.
The authority of the Board with respect to each series shall include, but not
be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and whether they shall be payable in preference to, or in another
relation to, the dividends payable to any other class or classes or
series of stock;
(c) Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion or exchange privileges, and,
if so, the terms and conditions of such conversion or exchange,
including provision for adjustment of the conversion or exchange rate
in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the manner
of selecting shares for redemption if less than all shares are to be
redeemed, the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall be entitled to the benefit of a sinking fund
to be applied to the purchase or redemption of shares of that series,
and, if so, the terms and amounts of such sinking fund;
(g) The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Corporation or
any subsidiary, upon the issue of any additional stock (including
additional shares of such series or of any other series) and upon the
payment of dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by the Corporation or any
subsidiary of any outstanding stock of the Corporation;
(h) The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
and whether such rights shall be in preference to, or in another
relation to, the comparable rights of any other class or classes or
series of stock; and
(i) Any other power, preference or relative, participating, optional or
other special rights, qualifications, limitations or restrictions of
that series.
3. Terms of the Common Stock
3.1 Dividends. Subject to the preferential rights, if any, of the Preferred
Stock, the holders of shares of Common Stock, Class A Common Stock and Class B
Common Stock shall be entitled to receive, when and if declared by the Board
of Directors, out of the assets of the Corporation which are by law available
therefor, dividends payable either in cash, in property, or in shares of the
Corporation's capital stock.
3.2 Voting Rights. Subject to the preferential rights, if any, of the
Preferred Stock and except as otherwise provided by applicable law, at every
annual or special meeting of stockholders of the Corporation, every holder of
Common Stock, Class A Common Stock and Class B Common Stock shall be entitled
to one vote, in person or by proxy, for each share of Common Stock, Class A
Common Stock and Class B Common Stock standing in his name on the books of the
Corporation.
2
<PAGE>
3.3 Liquidation, Dissolution, or Winding Up. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation, after payment or provision for payment of the debts and other
liabilities of the Corporation and of the preferential amounts, if any, to
which the holders of Preferred Stock shall be entitled, the holders of all
outstanding shares of Common Stock, Class A Common Stock and Class B Common
Stock shall be entitled to share ratably in the remaining net assets of the
Corporation.
3.4 Rights of Class A Common Stock and Class B Common Stock. All rights of
the Class A Common Stock and Class B Common Stock shall be identical to the
rights of the Common Stock, except in a merger, consolidation or sale of
assets of the Corporation the Class A Common Stock and the Class B Common
Stock shall have the right to receive separate and distinct consideration from
the Common Stock as determined by the Board of Directors.
ARTICLE FIVE
DIRECTORS
1. Management. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors of the Corporation.
2. By-Laws. The board of directors is expressly authorized to adopt, amend,
or repeal the by-laws of the Corporation.
3. No Ballot. Elections of directors need not be by written ballot unless
the by-laws of the Corporation shall otherwise provide.
4. Limitation of Liability. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided, however, that the
foregoing shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware is hereafter amended to
permit further elimination or limitation of the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware as so amended. Any repeal or
modification of this Article FIVE shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
ARTICLE SIX
EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE SEVEN
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions
of Section 291 of Title 8 of the Delaware Code or on the application of
trustees
3
<PAGE>
in dissolution or of any receiver or receivers appointed for this Corporation
under the provisions of Section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned
in such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which said application has been made, be binding on all the
creditors or class of creditors, and/or on all of the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE EIGHT
AMENDMENT
The Corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
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IN WITNESS WHEREOF, Atlantic Tele-Network, Inc. has caused this Amended and
restated Certificate of Incorporation to be signed and attested by its duly
authorized officers, this day of October, 1997.
Atlantic Tele-Network, Inc.
By: ____________________________
Name:
Title:
Attest:
By: _________________________________
Name:
Title:
5
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EXHIBIT B
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
--------------------------------------
AGREEMENT AND PLAN OF MERGER
--------------------------------------
BETWEEN
ATLANTIC TELE-NETWORK, INC.
AND
ATN MERGERCO.
DATED AS OF AUGUST 11, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
THE MERGER
<C> <S> <C>
Section 1.01. The Merger................................................ 1
Section 1.02. Effective Time............................................ 2
Certificate of Incorporation and By-Laws of Surviving
Section 1.03. Corporation.............................................. 2
Section 1.04. Directors and Officers of Surviving Corporation........... 2
Section 1.05. Stockholders' Meeting..................................... 2
Section 1.06. Filing of Certificate of Merger........................... 2
Section 1.07. Further Assurances........................................ 2
ARTICLE II
CONVERSION OF SHARES
Section 2.01. Shares.................................................... 2
Section 2.02. Exchange of Shares........................................ 3
Section 2.03. Dividends, Transfer Taxes................................. 3
Section 2.04. No Fractional Shares...................................... 3
ARTICLE III
CONDITIONS TO CLOSING
Section 3.01. Stockholder Approval...................................... 4
Section 3.02. Closings.................................................. 4
Section 3.03. Performance............................................... 4
ARTICLE IV
CLOSING DATE; CLOSING
Section 4.01. Closing Date; Closing..................................... 4
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Termination............................................... 5
Section 5.02. Entire Agreement.......................................... 5
Section 5.03. Governing Law............................................. 5
Section 5.04. Headings.................................................. 5
Section 5.05. Counterparts.............................................. 5
Section 5.06. Benefits.................................................. 5
Section 5.07. Assignment................................................ 5
Section 5.08. Amendment and Waiver...................................... 5
Section 5.09. Notices................................................... 5
</TABLE>
i
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") is entered into
as of the 11th day of August, 1997 by and between Atlantic Tele-Network, Inc.,
a Delaware corporation (the "Company"), and ATN MergerCo., a Delaware
corporation ("Newco").
WHEREAS, to eliminate corporate disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company has
entered into a Principal Terms Agreement dated January 29, 1997 among the
Company and its co-chief executive officers and principal stockholders,
Cornelius B. Prior, Jr. ("Prior") and Jeffrey J. Prosser ("Prosser"), which
contemplates the separation of the businesses and assets of the Company in the
manner set forth herein and in the Recapitalization Agreement (as defined
below) and the Subscription Agreement (as defined below); and
WHEREAS, in order to accomplish such separation, the Company and Emerging
Communications, Inc., a Delaware corporation ("ECI"), have entered into a
Subscription Agreement of even date herewith (the "Subscription Agreement"),
pursuant to which, subject to the terms and conditions set forth therein, the
Company has agreed to transfer to ECI all of the capital stock of its wholly
owned subsidiaries, Atlantic Tele-Network, Co., a Virgin Islands corporation
("ATNCo."), and Atlantic Aircraft, Inc., a Delaware corporation, as well as
certain other assets of the Company as more fully described therein relating
to businesses conducted by ATNCo., its subsidiaries, Virgin Islands Telephone
Corporation, a Virgin Islands corporation ("VITELCO"), Vitelcom Cellular Inc.,
a Virgin Islands corporation, and Vitelcom, Inc., a Virgin Islands
corporation, and Aircraft Corp. in exchange for 10,959,131 shares of common
stock, par value $0.01 per share (the "ECI Common Stock"), of ECI; and
WHEREAS, the Company, Prior, Prosser and the 1994 Prior Charitable Remainder
Trust have entered into a Recapitalization Agreement dated of even date
herewith (the "Recapitalization Agreement"), pursuant to which, subject to the
terms and conditions set forth therein, (a) the Company has agreed to
repurchase an aggregate of 765,852 shares of common stock, par value $.01 per
share (the "Company Common Stock"), of the Company owned by Prior and the
Trust, and (b) Prosser has agreed to exchange 3,325,000 shares of Company
Common Stock owned by Prosser and certain members of his family for 3,325,000
shares of a new class of common stock, par value $0.01 per share, of the
Company denominated Class A Common Stock ("Class A Common Stock") and Prior
has agreed to exchange 2,927,038 shares of Company Common Stock owned by Prior
for 2,927,038 shares of a new class of common stock, par value $0.01 per
share, of the Company denominated Class B Common Stock (the "Class B Common
Stock" and, together with the Company Common Stock and the Class A Common
Stock, the "Common Stock"); and
WHEREAS, Newco desires to merge with the Company and the Company desires to
merge with Newco, all upon the terms and subject to the conditions of this
Merger Agreement.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.01. The Merger. (a) In accordance with the provisions of this
Merger Agreement and the General Corporation Law of the State of Delaware (the
"Delaware Act"), at the Effective Time (as hereinafter defined), Newco shall
be merged (the "Merger") with and into the Company, and the Company shall be
the surviving corporation (hereinafter sometimes called the "Surviving
Corporation") and shall continue its corporate existence under the laws of the
State of Delaware. The name of the Surviving Corporation shall be the same as
that of the Company. At the Effective Time, the separate existence of Newco
shall cease.
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(b) The Merger shall have the effects on Newco and the Company as
constituent corporations of the Merger as provided under the Delaware Act.
Section 1.02. Effective Time. The Merger shall become effective at the time
of filing of, or at such later time specified in, a certificate of merger, in
the form required by and executed in accordance with the Delaware Act, with
the Secretary of State of the State of Delaware in accordance with the
provisions of (S) 251 of the Delaware Act (the "Certificate of Merger"). The
date and time when the Merger shall become effective is herein referred to as
the "Effective Time."
Section 1.03. Certificate of Incorporation and By-Laws of Surviving
Corporation. At the Effective Time, the Certificate of Incorporation shall be
amended and restated in its entirety in the form set forth in Exhibit 1.03
hereto and the Certificate of Incorporation as so amended and the By-Laws of
the Company, as in effect immediately prior to the Effective Time, shall be
the Certificate of Incorporation and By-Laws of the Surviving Corporation
until thereafter amended as provided by law.
Section 1.04. Directors and Officers of Surviving Corporation. The directors
of Newco immediately prior to the Effective Time will be, from and after the
Effective Time, the directors of the Surviving Corporation, and the officers
of the Company immediately prior to the Effective Time will be, from and after
the Effective Time, the officers of the Surviving Corporation, in each case
until their successors are elected and qualified.
Section 1.05. Stockholders' Meeting. The Company will take all action
necessary in accordance with applicable law and its Restated Certificate of
Incorporation and By-Laws to convene a special meeting of its stockholders
(the "Special Meeting") as soon as practicable to consider and vote upon the
approval and adoption of this Merger Agreement and the other components of the
Transactions (as defined in the Subscription Agreement). The Company, through
its Board of Directors, shall recommend to its stockholders approval and
adoption of this Merger Agreement (which recommendation shall be contained in
the related proxy statement) and shall use all commercially reasonable efforts
to solicit from its stockholders proxies in favor of approval and adoption of
this Merger Agreement and the other components of the Transactions.
Section 1.06. Filing of Certificate of Merger. At the Closing (as
hereinafter defined), Newco and the Company shall cause a Certificate of
Merger to be executed and filed with the Secretary of State of the State of
Delaware as provided in (S) 251 of the Delaware Act, and shall take any and
all other lawful actions and do any and all other lawful things to cause the
Merger to become effective.
Section 1.07. Further Assurances. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills
of sale, assignments, assurances or any other actions or things are necessary
or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the constituent corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Merger Agreement,
the officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of each of the constituent
corporations or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of the
constituent corporations or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Merger Agreement.
ARTICLE II
CONVERSION OF SHARES
Section 2.01. Shares. (a) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive (i) 0.40 shares of Common Stock, par value $0.01 per
share, of the Surviving Corporation ("Surviving Corporation Common Stock") and
(ii) one share of ECI Common Stock.
2
<PAGE>
(b) The outstanding shares of Class A Common Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holders thereof, be converted into the
right to receive 5,704,231 shares of ECI Common Stock in the aggregate.
(c) The outstanding shares of Class B Common Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive 2,807,040 shares of Surviving Corporation Common Stock in the
aggregate.
(d) Each share of Common Stock, par value $0.01 per share, of Newco shall,
by virtue of the Merger and without any action on the part of any holder
thereof, be cancelled and no consideration shall be issued in respect thereof.
(e) All shares of Class A Common Stock, Class B Common Stock, Company Common
Stock and all shares of common stock, par value $0.01 per share, of Newco, by
virtue of the Merger and without any action on the part of holders thereof,
shall no longer be outstanding and shall be canceled and retired and cease to
exist. Each holder of Company Common Stock, Class A Common Stock or Class B
Common Stock immediately prior to the Effective Time shall, after the Merger,
cease to have any rights with respect such Company Common Stock, Class A
Common Stock or Class B Common Stock except the right to receive the
applicable Merger consideration set forth in Section 2.01 upon surrender of
certificates therefor in accordance with Section 2.02.
Section 2.02. Exchange of Shares. Prior to the Effective Time, the Company
shall select The Bank of New York or such other person or persons reasonably
satisfactory to the Company to act as Exchange Agent for the Merger (the
"Exchange Agent"). As soon as practicable after the Effective Time, the
Company shall make available, and each holder of certificates formerly
representing Company Common Stock, Class A Common Stock and Class B Common
Stock (each, a "Company Holder") will be entitled to receive, upon surrender
to the Exchange Agent of one or more certificates representing such stock
("Certificates") for cancellation, certificates representing the number of
shares of Surviving Corporation Common Stock and ECI Common Stock into which
such shares are converted in the Merger and cash in consideration of
fractional shares as provided in Section 2.04. Such shares of Surviving
Corporation Common Stock and ECI Common Stock issued in the Merger shall each
be deemed, for all purposes including the right to receive notices of and to
vote at meetings of stockholders and the right to receive dividends, if any,
to have been issued at the Effective Time.
Section 2.03. Dividends, Transfer Taxes. Notwithstanding Section 2.02
hereof, no dividends or other distributions that are declared or made on
Surviving Corporation Common Stock or ECI Common Stock will be paid to persons
entitled to received certificates representing Surviving Corporation Common
Stock or ECI Common Stock pursuant to this Merger Agreement until such persons
surrender their Certificates formerly representing Company Common Stock. Upon
such surrender, there shall be paid to the person in whose name the
certificates representing such Surviving Corporation Common Stock or ECI
Common Stock shall be issued any dividends or other distributions which shall
have become payable with respect to such stock in respect of a record date
after the Effective Time. In no event shall the persons entitled to receive
such dividends be entitled to receive interest on such dividends. In the event
that any certificates for any shares of Surviving Corporation Common Stock are
to be issued in a name other than that in which the Certificates formerly
representing shares of Company Common Stock surrendered in exchange therefor
are registered, it shall be a condition of such exchange that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such shares of
Surviving corporation Common Stock or ECI Common Stock or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a Company Holder for any shares of Surviving
Corporation Common Stock, ECI Common Stock or dividends thereon delivered to a
public official pursuant to any applicable escheat or similar abandoned
property laws.
Section 2.04. No Fractional Shares. Notwithstanding anything herein to the
contrary, no certificates or scrip representing less than one full share of
Surviving Corporation Common Stock or ECI Common Stock shall
3
<PAGE>
be issued upon the surrender for exchange of Certificates representing Company
Common Stock, Class A Common Stock or Class B Common Stock pursuant to Section
2.02. In lieu of any such fractional share, each Company Holder who would
otherwise have been entitled to a fraction of a share of Surviving Corporation
Common Stock or ECI Common Stock pursuant to Section 2.01 shall be paid upon
surrender of Certificates for exchange pursuant to Section 2.02 cash (without
interest) in an amount equal to such holder's proportionate interest in the
net proceeds from the sale or sales in the open market by the Exchange Agent,
on behalf of all such holders, of the Excess Shares (as defined below). As
soon as practicable following the Effective Date, the Exchange Agent shall
determine the excess of (i) the number of full shares of Surviving Corporation
Common Stock and ECI Common Stock delivered to the Exchange Agent by the
Surviving Corporation over (ii) the aggregate number of full shares of
Surviving Corporation Common Stock and ECI Common Stock to be distributed to
holders of Company Common Stock, Class A Common Stock and Class B Common Stock
(such excess being herein called the "Excess Shares"), and the Exchange Agent,
as agent for each of the former Company Holders, shall sell the Excess Shares
at the prevailing prices on the American Stock Exchange. The sale of the
Excess Shares by the Exchange Agent shall be executed on the American Stock
Exchange through one or more member firms of the American Stock Exchange and
shall be executed in round lots to the extent practicable. The Surviving
Corporation shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with such sale of Excess Shares. Until the net
proceeds of such sale have been distributed to the former Company Holders, the
Exchange Agent will hold such proceeds in trust for each of such former
stockholders (the "Fractional Securities Fund"). As soon as practicable after
the determination of the amount of cash to be paid to former Company Holders
in lieu of any fractional interests, the Exchange Agent shall make available
in accordance with this Merger Agreement such amount to such former
stockholders.
ARTICLE III
CONDITIONS TO CLOSING
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing of each of the following
conditions:
Section 3.01. Stockholder Approval. This Merger Agreement and the
Transactions (as defined in the Subscription Agreement) shall have been
approved and adopted by the holders of a majority of the outstanding shares of
Company Common Stock.
Section 3.02. Closings. Each of the conditions to the closing under the
Subscription Agreement (the "Subscription Agreement Closing") and the closing
under the Recapitalization Agreement (the "Recapitalization Agreement
Closing") shall have been satisfied or, with the consent of each party hereto,
waived; the Subscription Agreement Closing shall have been consummated in
accordance with the provisions of the Subscription Agreement; and the
Recapitalization Agreement Closing shall have been consummated in accordance
with the provisions of the Recapitalization Agreement.
Section 3.03. Performance. Each of the parties hereto shall have performed
and complied in all material respects with all obligations and conditions
required by this Merger Agreement to be performed or complied with by it at or
prior to the Closing.
ARTICLE IV
CLOSING DATE; CLOSING
Section 4.01. Closing Date; Closing. The closing of the Merger (the
"Closing") shall take place on the same day as the Subscription Agreement
Closing and the Recapitalization Agreement Closing and shall be held
immediately after consummation of such closings as soon as practicable after
satisfaction or waiver by the
4
<PAGE>
parties hereto of the conditions set forth in Article III hereof. The date on
which the Closing occurs is referred to herein as the "Closing Date." The
Closing shall take place at the offices of Cahill Gordon & Reindel, 80 Pine
Street, New York, New York 10005. At the Closing, the Company and Newco shall
cause to be executed and filed with the Secretary of State of Delaware the
Certificate of Merger in accordance with the applicable provisions of the
Delaware Act and shall take any and all other lawful actions and do any and
all other lawful things necessary to cause the Merger to become effective.
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Termination. This Merger Agreement shall terminate upon any
termination of the Subscription Agreement or the Recapitalization Agreement.
In addition, this Merger Agreement may be terminated, notwithstanding
stockholder approval hereof, at any time prior to the Effective Time by the
Board of Directors of the Company and the Board of Directors of Newco without
the authorization or consent of the Company's or Newco's stockholders. In the
event of any such termination, neither party shall have any liability of any
kind to the other party.
Section 5.02. Entire Agreement. This Merger Agreement, together with all
other written agreements which may be entered into between the parties in
connection herewith and the transactions contemplated hereby and all other
documents and instruments delivered in connection herewith and therewith and
the transactions contemplated hereby and thereby, set forth the full and
complete understanding of the parties hereto with respect to the transactions
contemplated hereby.
Section 5.03. Governing Law. Except where the laws of the State of Delaware
are by their terms applicable, this Merger Agreement shall be governed by and
construed in accordance with the laws of the State of New York without
reference to the conflict of laws rules thereof.
Section 5.04. Headings. The headings in this Merger Agreement are intended
solely for convenience of reference and shall be given no effect in the
interpretation of this Merger Agreement.
Section 5.05. Counterparts. This Merger Agreement may be executed in two
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
Section 5.06. Benefits. This Merger Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns, and no other person will have any right or obligation hereunder.
Section 5.07. Assignment. Neither this Merger Agreement nor any right
hereunder may be assigned by the parties hereto without the prior written
consent of the other party. Subject to the foregoing, this Merger Agreement
shall be binding upon and inure to the benefit of the successors, heirs,
representatives and assigns of each party hereto.
Section 5.08. Amendment and Waiver. This Merger Agreement may be amended
only by an instrument in writing signed on behalf of each of the parties
hereto. Subject to the Delaware Act any term, condition or provision of this
Merger Agreement may be waived (if in writing) at any time by the party or
each of the parties entitled to the benefits thereof.
Section 5.09. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with
5
<PAGE>
receipt confirmed) or by registered mail, return receipt requested, addressed
as follows (or to such other address as a party may designate by notice to the
other):
(a)If to the Company or Newco:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
and
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 00801-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
and
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
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IN WITNESS WHEREOF, each of the Company and Newco has caused this Merger
Agreement to be executed on the date first written above.
Atlantic Tele-Network, Inc.
By: /s/ Cornelius B. Prior
__________________________________
Name: Cornelius B. Prior
Title: Co-Chief Executive Officer
By: /s/ Jeffrey J. Prosser
__________________________________
Name: Jeffrey J. Prosser
Title: Co-Chief Executive Officer
ATN MergerCo.
By: /s/ Cornelius B. Prior
__________________________________
Name: Cornelius B. Prior
Title: President
7
<PAGE>
EXHIBIT 1.03 TO AGREEMENT
AND PLAN OF MERGER
RESTATED CERTIFICATE OF INCORPORATION
OF
ATLANTIC TELE-NETWORK, INC.
ARTICLE ONE
NAME
The name of the Corporation is Atlantic Tele-Network, Inc.
ARTICLE TWO
REGISTERED OFFICE
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE THREE
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
ARTICLE FOUR
CAPITAL STOCK
1. Authorized Capital Stock. The total number of shares of all classes of
capital stock which the Corporation shall have the authority to issue is
30,000,000 shares divided into two classes of which 10,000,000 shares, par
value $.01 per share, shall be designated Preferred Stock and 20,000,000
shares, par value $.01 per share, shall be designated Common Stock.
2. Terms of the Preferred Stock
2.1 Issuance. The Board of Directors is expressly authorized, subject to
limitations prescribed by law, to provide for the issuance of shares of
Preferred Stock in one or more series, to establish the number of shares to be
included in each such series, and to fix the designations, powers,
preferences, and rights of the shares of each such series, and any
qualifications, limitations, or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and whether they shall be payable in preference to, or in another
relation to, the dividends payable to any other class or classes or
series of stock;
(c) Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
8
<PAGE>
(d) Whether that series shall have conversion or exchange privileges, and,
if so, the terms and conditions of such conversion or exchange,
including provision for adjustment of the conversion or exchange rate
in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the manner
of selecting shares for redemption if less than all shares are to be
redeemed, the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall be entitled to the benefit of a sinking fund
to be applied to the purchase or redemption of shares of that series,
and, if so, the terms and amounts of such sinking fund;
(g) The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Corporation or
any subsidiary, upon the issue of any additional stock (including
additional shares of such series or of any other series) and upon the
payment of dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by the Corporation or any
subsidiary of any outstanding stock of the Corporation;
(h) The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
and whether such rights shall be in preference to, or in another
relation to, the comparable rights of any other class or classes or
series of stock; and
(i) Any other power, preference or relative, participating, optional or
other special rights, qualifications, limitations or restrictions of
that series.
3. Terms of the Common Stock
3.1 Dividends. Subject to the preferential rights, if any, of the Preferred
Stock, the holders of shares of Common Stock shall be entitled to receive,
when and if declared by the Board of Directors, out of the assets of the
Corporation which are by law available therefor, dividends payable either in
cash, in property, or in shares of the Corporation's capital stock.
3.2 Voting Rights. Subject to the preferential rights, if any, of the
Preferred Stock and except as otherwise provided by applicable law, at every
annual or special meeting of stockholders of the Corporation, every holder of
Common Stock shall be entitled to one vote, in person or by proxy, for each
share of Common Stock standing in his name on the books of the Corporation.
3.3 Liquidation, Dissolution, or Winding Up. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation, after payment or provision for payment of the debts and other
liabilities of the Corporation and of the preferential amounts, if any, to
which the holders of Preferred Stock shall be entitled, the holders of all
outstanding shares of Common Stock shall be entitled to share ratably in the
remaining net assets of the Corporation.
ARTICLE FIVE
DIRECTORS
1. Management. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors of the Corporation.
2. By-Laws. The board of directors is expressly authorized to adopt, amend,
or repeal the by-laws of the Corporation.
3. No Ballot. Elections of directors need not be by written ballot unless
the by-laws of the Corporation shall otherwise provide.
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<PAGE>
4. Limitation of Liability. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided, however, that the
foregoing shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware is hereafter amended to
permit further elimination or limitation of the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware as so amended. Any repeal or
modification of this Article FIVE shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
ARTICLE SIX
EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE SEVEN
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions
of Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of Title 8 of the Delaware
Code order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which said application has been made, be
binding on all the creditors or class of creditors, and/or on all of the
stockholders or class of stockholders, of this Corporation, as the case may
be, and also on this Corporation.
ARTICLE EIGHT
AMENDMENT
The Corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
10
<PAGE>
EXHIBIT C
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
---------------------------------
TECHNICAL ASSISTANCE AGREEMENT
---------------------------------
AMONG
ATLANTIC TELE-NETWORK, INC.,
ATLANTIC TELE-NETWORK CO.,
VIRGIN ISLANDS TELEPHONE CORPORATION
AND
VITELCOM CELLULAR INC.
DATED [ ], 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
SERVICES
<C> <S> <C>
Section 1.01. Services to be Provided.................................... 1
Section 1.02. Payment for Services....................................... 1
Section 1.03. Requests for Services...................................... 2
ARTICLE II
CERTAIN AGREEMENTS
Section 2.01. Advisory Contract.......................................... 2
Section 2.02. Indemnity.................................................. 2
ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.01. Termination................................................ 2
Section 3.02. Entire Agreement........................................... 3
Section 3.03. Governing Law.............................................. 3
Section 3.04. Headings................................................... 3
Section 3.05. Counterparts............................................... 3
Section 3.06. Benefits................................................... 3
Section 3.07. Assignment................................................. 3
Section 3.08. Amendment and Waiver....................................... 3
Section 3.09. Notices.................................................... 3
EXHIBIT A Advisory Contract
</TABLE>
i
<PAGE>
TECHNICAL ASSISTANCE AGREEMENT
THIS TECHNICAL ASSISTANCE AGREEMENT (this "Technical Assistance Agreement")
is entered into as of the [ ] day of [ ], 1997 by and among ATLANTIC
TELE-NETWORK, INC., a Delaware corporation (the "Company"), ATLANTIC TELE-
NETWORK CO., a U.S. Virgin Islands corporation ("ATNCo."), VIRGIN ISLANDS
TELEPHONE CORPORATION, a U.S. Virgin Islands corporation ("VITELCO"), and
VITELCOM CELLULAR INC., a U.S. Virgin Islands corporation ("VCI").
WHEREAS, pursuant to an agreement between the Company and Guyana Telephone
and Telegraph Company Limited ("GTT"), dated as of January 28, 1991 (the
"Advisory Contract"), a copy of which is attached as Exhibit A hereto, the
Company has the continuing obligation to provide technical and professional
service, advice and assistance to GTT in the operation by GTT of its telephone
business, which services and assistance will be conducive to the economical
and efficient development and operation of GTT's telephone system and will
enhance its ability to provide dependable, state-of-art telephone service to
its subscribers;
WHEREAS, ATNCo., VITELCO and VCI have personnel at their disposal who are
trained and experienced in the telecommunications field and who are familiar
with the economical and efficient organization, development and operation of
telecommunications systems and services and have extensive experience in
finance, law, accounting, regulatory matters and the development of
communications apparatus, equipment and services and the rapidly changing
technological and regulatory environment affecting the telecommunications
industry, and the Company has from time to time in the past called upon ATNCo,
VITELCO and/or VCI to assist the Company in providing services and advice to
GTT pursuant to the Advisory Contract; and
WHEREAS, this Technical Assistance Agreement is being entered into in
connection with and in consideration of the transfer by the Company to
Emerging Communications, Inc., pursuant to the Subscription Agreement dated
August 11, 1997 between them, of all of the outstanding capital stock of
ATNCo., which transfer will provide significant benefits to ATNCo., VITELCO
and VCI by resolving certain management problems which have heretofore
affected such corporations.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
ARTICLE I
SERVICES
Section 1.01. Services to be Provided. Subject to the terms and conditions
of this Technical Services Agreement, each of ATNCo., VITELCO and VCI agrees
to make available its employees to the Company at its request from time to
time during the term of this Agreement to assist and support the Company in
carrying out its obligations under the Advisory Contract. Such support and
assistance shall include performing services at the premises of ATNCo.,
VITELCO, VCI, the Company or GTT or their respective affiliates. ATNCo,
VITELCO or VCI, as the case may be, shall determine (in consultation with the
Company) which of its employees will perform any services requested hereunder.
Notwithstanding anything contained in this Technical Services Agreement to the
contrary, (a) none of ATNCo., VITELCO or VCI shall be required to make
available to the Company pursuant to this Technical Assistance Agreement at
any one time more than the greater of 3% of its employees or three employees
in the aggregate for all of them, (b) no employee of ATNCo., VITELCO or VCI
shall be required to be made available to the Company pursuant to this
Technical Assistance Agreement for a period of greater than 20 hours during
any calendar month and (c) none of ATNCo., VITELCO or VCI shall be required to
make available to the Company any employee to the extent that doing so would
interfere in any material respect with the performance of such employee's
duties to ATNCo., VITELCO or VCI, as the case may be, or otherwise cause a
burden to ATNCo., VITELCO or VCI, as the case may be.
Section 1.02. Payment for Services. The Company agrees to reimburse ATNCo.,
VITELCO and VCI, on a monthly basis, (a) for the services of each employee of
ATNCo., VITELCO or VCI, as the case may be,
1
<PAGE>
who provides services to the Company hereunder during such month, an amount
equal to the product of (i) two times the cost to ATNCo., VITELCO or VCI, as
the case may be, of the salary, wages and benefits of such employee for such
month and (ii) a fraction, the numerator of which is the number of hours such
employee provided services to the Company hereunder and the denominator of
which is the product of (x) eight and (y) the number of days during such month
when ATNCo., VITELCO or VCI, as the case may be, was open for business and (b)
for 100% of all "out-of-pocket expenses," including travel and lodging of any
employee, incurred by ATNCo., VITELCO or VCI, as the case may be, in
performing its obligations hereunder. Payments by the Company pursuant to this
Section 1.02 shall be made within ten days of receipt of an invoice from
ATNCo., VITELCO or VCI, as the case may be, showing in reasonable detail the
amounts due hereunder with respect to any month.
Section 1.03. Requests for Services. ATNCo., VITELCO and VCI shall have no
obligation to perform any services hereunder except such as may be requested
of them by the Company on reasonable notice to them, and they shall not be
entitled to any payments under Section 1.02 from the Company except for
services requested of them by the Company.
ARTICLE II
CERTAIN AGREEMENTS
Section 2.01. Advisory Contract. The Company shall not, without the prior
written consent of each of ATNCo., VITELCO and VCI (which consents shall not
be unreasonably withheld or delayed), enter into any amendment, modification,
waiver, renewal or replacement of the Advisory Contract.
Section 2.02. Indemnity. The Company shall indemnify and hold harmless each
of ATNCo., VITELCO and VCI, each of their respective affiliates and each of
their respective officers, directors, employees, agents and controlling
persons (each an "Indemnified Person") from and against any and all losses,
claims, damages, liabilities and expenses, joint or several, to which any such
Indemnified Person may become subject arising out of or in connection with
this Technical Services Agreement and the services provided hereunder, or any
claim, litigation, investigation or proceedings relating to the foregoing
regardless of whether any of such Indemnified Persons is a party thereto, and
to reimburse such Indemnified Persons for any legal or other out-of-pocket
expenses as they are incurred in connection with investigating or defending
any of the foregoing. The indemnity obligations of the Company under this
Section 2.02 shall be in addition to any liability which the Company may
otherwise have to an Indemnified Party.
ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.01. Termination. This Technical Services Agreement (other than the
provisions of Sections 1.02, 2.02 and 2.03 which shall survive any
termination) (a) may be terminated (i) by the Company at any time upon written
notice to each of the other parties hereto or (ii) by ATNCo., VITELCO or VCI
upon written notice to the Company if the Company shall have breached or
violated any of the terms or provisions of this Technical Services Agreement
and (b) shall automatically terminate upon (i) the termination of the Advisory
Contract or (ii) a Change of Control (as defined below) of the Company.
As used herein, "Change of Control" means the occurrence of one or more of
the following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all
of the assets of the Company or GTT to any person or group of related persons
for purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Group"); (ii) the approval by the holders of
capital stock of the Company or GTT, as the case may be, of any plan or
proposal for the liquidation or dissolution of the Company or GTT, as the case
may be; or (iii) the acquisition in one or more
2
<PAGE>
transactions of "beneficial ownership" (within the meaning of Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time) by any person, entity or Group (other than a Permitted Holder
(as defined below) or a Group controlled by any Permitted Holder) of any
capital stock of the Company or GTT such that, as a result of such
acquisition, such person, entity or Group either (A) beneficially owns (within
the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, more than 50% of then outstanding voting securities of the Company
or GTT entitled to vote on a regular basis in an election for a majority of
the board of directors of the Company or GTT or (B) otherwise has the ability
to elect, directly or indirectly, a majority of the members of the board of
directors of the Company or GTT.
As used herein, "Permitted Holders" means Cornelius B. Prior, Jr. and his
estate, heirs and legatees, and the legal representatives of any of the
foregoing, including, without limitation, the trustee of any trust of which
one or more of the foregoing are the sole beneficiaries.
Section 3.02. Entire Agreement. This Technical Assistance Agreement,
together with all other written agreements which may be entered into between
the parties in connection herewith and the transactions contemplated hereby
and all other documents and instruments delivered in connection herewith and
therewith and the transactions contemplated hereby and thereby, set forth the
full and complete understanding of the parties hereto with respect to the
transactions contemplated hereby.
Section 3.03. Governing Law. This Technical Assistance Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without reference to the conflicts of laws rules thereof.
Section 3.04. Headings. The headings in this Technical Assistance Agreement
are intended solely for convenience of reference and shall be given no effect
in the interpretation of this Technical Assistance Agreement.
Section 3.05. Counterparts. This Technical Assistance Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
Section 3.06. Benefits. This Technical Assistance Agreement will inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns, and no other person will have any right or obligation
hereunder.
Section 3.07. Assignment. Neither this Technical Assistance Agreement nor
any right hereunder may be assigned by the parties hereto without the prior
written consent of the other parties. Subject to the foregoing, this Technical
Assistance Agreement shall be binding upon and inure to the benefit of the
successors, heirs, representatives and assigns of each party hereto.
Section 3.08. Amendment and Waiver. This Technical Assistance Agreement may
be amended only by an instrument in writing signed on behalf of each of the
parties hereto. Any term, condition or provision of this Technical Assistance
Agreement may be waived (if in writing) at any time by the party or each of
the parties entitled to the benefits thereof.
Section 3.09 Notices. All notices, requests, demands, and, other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with
3
<PAGE>
receipt confirmed) or by registered mail, return receipt requested, addressed
as follows (or to such other address as a party may designate by notice to the
other):
(a) If to the Company:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 6100
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b) If to ATNCo., VITELCO or VCI:
c/o Emerging Communications, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Technical
Assistance Agreement to be duly executed, all as of the date first written
above.
Atlantic Tele-Network, Inc.
By: _________________________________
Name: Cornelius B. Prior
Title:Co-Chief Executive Officer
By: _________________________________
Name: Jeffrey J. Prosser
Title:Co-Chief Executive Officer
Atlantic Tele-Network Co.
By: _________________________________
Name:
Title:
Virgin Islands Telephone Corporation
By: _________________________________
Name:
Title:
Vitelcom Cellular Inc.
By: _________________________________
Name:
Title:
5
<PAGE>
EXHIBIT D TO SUBSCRIPTION AGREEMENT
RESTATED CERTIFICATE OF INCORPORATION
OF
EMERGING COMMUNICATIONS, INC.
* * * * *
The present name of the corporation is Emerging Communications, Inc. (the
"Corporation"). The corporation was incorporated under that name by the filing
of its original Certificate of Incorporation with the Secretary of State of
the State of Delaware on March 17, 1997. This Restated Certificate of
Incorporation of the Corporation, which both restates and further amends the
provisions of the Corporation's Certificate of Incorporation, was duly adopted
in accordance with the provisions of Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware. The Corporation's board of directors
(the "Board of Directors") adopted a resolution approving the following
amendments to and restatement of the Certificate of Incorporation of the
Corporation. The Certificate of Incorporation of the Corporation is hereby
amended and restated to read in its entirety as follows:
FIRST: The name of the Corporation is Emerging Communications, Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, 19801. The name of its registered agent at such address
is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware. The Corporation is to have perpetual existence.
FOURTH: A. The total number of shares of all classes of stock that the
Corporation shall be authorized to issue is 50,000,000 shares, divided into
40,000,000 shares of Common Stock, par value $.01 per share (herein called
"Common Stock"), and 10,000,000 shares of Preferred Stock, par value $.01 per
share (herein called "Preferred Stock").
B. The Board of Directors is hereby expressly authorized, by resolution or
resolutions thereof, to provide, out of the unissued shares of Preferred
Stock, for series of Preferred Stock and, with respect to each such series, to
fix the number of shares constituting such series and the designation of such
series, the voting powers (if any) of the shares of such series, and the
preferences and relative, participating, optional or other special rights, if
any, and any qualifications, limitations or restrictions thereof, of the
shares of such series. The powers, preferences and relative, participating,
optional and other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
C. Except as may otherwise be provided in this Restated Certificate of
Incorporation (including any certificate filed with the Secretary of State of
the State of Delaware establishing the terms of a series of Preferred Stock in
accordance with Section B of this Article FOURTH) or by applicable law, each
holder of Common Stock, as such, shall be entitled to one vote for each share
of Common Stock held of record by such holder on all matters on which
stockholders generally are entitled to vote, and no holder of any series of
Preferred Stock, as such, shall be entitled to any voting powers in respect
thereof. The number of authorized shares of Common Stock and Preferred Stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority in voting
power of the stock of the Corporation entitled to vote thereon irrespective of
the provisions of Section 242(b)(2) of the General Corporation Law of the
State of Delaware (or any successor provision thereto), and no vote of the
holders of either the Common Stock or the Preferred Stock voting separately as
a class shall be required therefor.
1
<PAGE>
D. Subject to applicable law and the rights, if any, of the holders of any
outstanding series of Preferred Stock, dividends may be declared and paid on
the Common Stock at such times and in such amounts as the Board of Directors
in its discretion shall determine.
E. Upon the dissolution, liquidation or winding up of the Corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock, the holders of the Common Stock shall be entitled to receive
the assets of the Corporation available for distribution to its stockholders
ratably in proportion to the number of shares held by them.
F. The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
FIFTH: A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, consisting of not less than
three nor more than fifteen directors, with the exact number of directors
constituting the entire Board of Directors to be determined from time to time
by resolution adopted by the affirmative vote of a majority of the entire
Board of Directors. For purposes of this Restated Certificate of
Incorporation, "the entire Board of Directors" shall mean the number of
directors that would be in office if there were no vacancies nor any unfilled
newly created directorships.
The Board of Directors shall be divided into three classes--Class I, Class
II and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the number of directors constituting the entire Board of
Directors. Class I directors shall be initially elected for a term expiring at
the first succeeding annual meeting of stockholders following the
effectiveness of this Restated Certificate of Incorporation, Class II
directors shall be initially elected for a term expiring at the second
succeeding annual meeting of stockholders following the effectiveness of this
Restated Certificate of Incorporation, and Class III directors shall be
initially elected for a term expiring at the third succeeding annual meeting
of stockholders following the effectiveness of this Restated Certificate of
Incorporation. At each annual meeting of the stockholders following the
effectiveness of this Restated Certificate of Incorporation, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a term expiring at the third succeeding annual meeting of stockholders. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any
class elected to fill a newly created directorship resulting from an increase
in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case shall a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors that results from an increase in the
number of directors may only be filled and any other vacancy occurring in the
Board of Directors may only be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Directors
chosen to fill any such vacancy shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to
which they have been elected expires and until such directors' successors
shall have been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class
or series, to elect directors, the election, removal, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation (including any certificate
filed with the Secretary of State of the State of Delaware establishing the
terms of a series of Preferred Stock in accordance with Section B of Article
FOURTH hereof) applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Article FIFTH unless expressly provided
by such terms.
2
<PAGE>
B. The Board of Directors shall be authorized to adopt, make, amend, alter,
change, add to or repeal the By-Laws of the corporation, subject to the power
of the stockholders to amend, alter, change, add to or repeal the By-Laws made
by the Board of Directors.
C. Unless and except to the extent that the By-Laws of the Corporation shall
so require, the election of the members of the Board of Directors need not be
by written ballot.
SIXTH: The Corporation does hereby elect not to be governed by the
provisions of Section 203 of the General Corporation Law of the State of
Delaware.
SEVENTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit.
EIGHTH: A. Each person who was or is a party or is threatened to be made a
party to, or is involved, in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or, while a
director or officer of the Corporation, is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the laws of the State of
Delaware, as the same exists or may hereafter be amended, against all expense,
liability and loss (including attorneys' fees, judgments, amounts paid in
settlement, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) actually and reasonably incurred or suffered by such
person in connection therewith, and such indemnification shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators.
Notwithstanding the preceding sentence, the Corporation shall be required to
indemnify an indemnitee in connection with a proceeding (or part thereof)
commenced by such indemnitee only if the commencement of such proceeding (or
part thereof) by the indemnitee was authorized by the Board of Directors of
the Corporation.
B. The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any expense, liability or
loss incurred by such person in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability.
C. Neither the amendment nor repeal of this Article EIGHTH, nor the adoption
of any provision of this Restated Certificate of Incorporation or the By-Laws
of the Corporation, nor, to the fullest extent permitted by the laws of the
State of Delaware, any modification of law, shall eliminate or reduce the
effect of this Article EIGHTH in respect of any acts or omissions occurring
prior to such amendment, repeal, adoption or modification.
NINTH: Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the General Corporation Law of the
State of Delaware) outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the By-
Laws of the Corporation.
3
<PAGE>
TENTH: Subject to the provisions of this Restated Certificate of
Incorporation and applicable law, the Corporation reserves the right at any
time and from time to time to amend, alter, change or repeal any provision
contained in this Restated Certificate of Incorporation, and any other
provisions authorized by the laws of the State of Delaware at the time in
force may be added or inserted, in the manner now or hereafter prescribed
herein or by applicable law, and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in
its present form or as hereafter amended are granted subject to the right
reserved in this Article TENTH.
IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate
of Incorporation this day of , 1997.
Emerging Communications, Inc.
By__________________________________:
Name:
Office:
4
<PAGE>
EXHIBIT E
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
----------------------------------------------
NON-COMPETITION AGREEMENT
----------------------------------------------
AMONG
EMERGING COMMUNICATIONS, INC.,
ATLANTIC TELE-NETWORK, INC.
AND
JEFFREY J. PROSSER
DATED [ ], 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<C> <S> <C>
Section 1.01. Definitions................................................ 1
ARTICLE II
AGREEMENT NOT TO COMPETE; DISCLOSURE OF INFORMATION
Section 2.01. Agreement Not To Compete................................... 2
Section 2.02. Disclosure of Information.................................. 2
ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.01. Remedies................................................... 3
Section 3.02. Benefits................................................... 3
Section 3.03. Severability; Blue Penciling............................... 3
Section 3.04. Notices.................................................... 3
Section 3.05. Complete Agreement; Amendments; Prior Agreements........... 4
Section 3.06. Governing Law.............................................. 4
Section 3.07. Counterparts............................................... 4
Section 3.08. Jurisdiction............................................... 4
Section 3.09. Expenses of Enforcement.................................... 4
</TABLE>
i
<PAGE>
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Non-Competition Agreement") is entered
into as of the [ ] day of [ ], 1997 by and among Emerging
Communications, Inc., a Delaware corporation ("ECI"), Atlantic Tele-Network,
Inc., a Delaware corporation (the "Company"), and Jeffrey J. Prosser,
("Prosser").
WHEREAS, to eliminate corporate disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company and
its co-chief executive officers and principal stockholders, Cornelius B.
Prior, Jr. ("Prior") and Prosser, entered into a Principal Terms Agreement
dated January 29, 1997 which contemplated the separation of the businesses and
assets of the Company; and
WHEREAS, in order to accomplish such separation, the Company and ECI entered
into a Subscription Agreement (the "Subscription Agreement"), the Company,
Prior and Prosser entered into a Recapitalization Agreement (the
"Recapitalization Agreement") and the Company and ATN MergerCo. entered into
an Agreement and Plan of Merger (the "Merger Agreement"), all dated as of
August 11, 1997;
WHEREAS, Prior and the other stockholders of the Company are relying on the
covenants of ECI and Prosser in this Non-Competition Agreement in making
and/or retaining their investments in the Common Stock of the Company; and
WHEREAS, the execution and delivery of this Non-Competition Agreement by the
parties hereto is contemplated by the Subscription Agreement and is a
condition to the Closing (as defined in the Subscription Agreement); and
WHEREAS, each of the parties hereto desires to consummate, and will secure
substantial benefits from the consummation of, the Closing.
NOW, THEREFORE, for and in consideration of the covenants herein contained
and subject to the conditions hereinafter set forth, the parties hereto agrees
as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Capitalized terms used in this Non-Competition
Agreement without definition shall have the respective meanings ascribed to
such terms in the Subscription Agreement. As used in this Agreement, the
following terms have the meanings assigned to them below:
"Competitive Business" means any business which competes anywhere in the
world in any material respect with the conduct of the Subject Business by
the Company or any of its Subsidiaries.
"Confidential Information" means all information of a proprietary nature
and documents or other tangible items that record information of a
proprietary nature relating to the Subject Business, including without
limitation, books, records, customer lists, vendor lists, supplier lists,
pricing information, cost information, plans, strategies, forecasts,
financial statistics, budgets and projections, other than any such
information which is generally within the public domain at the time of
receipt thereof by ECI or Prosser or at the time of use or disclosure of
such information by ECI or Prosser (other than as a result of the breach by
ECI or Prosser of its or his agreement hereunder).
"Subject Business" means the business of providing telecommunications
services (including carrying and/or terminating telecommunications
traffic), directly or indirectly through service bureaus or other
intermediaries, to persons who generate international audiotext
telecommunications traffic (whether voice or data); provided, however, that
the Subject Business shall not include the provision of any
telecommunications services as a common carrier which does not involve the
installation of special
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equipment to facilitate the generation of international audiotext
telecommunications traffic or, directly or indirectly, the payment of any
fee, commission or other compensation, through sharing of accounting or
settlement rates, rate discounts or otherwise to persons generating such
traffic.
ARTICLE II
AGREEMENT NOT TO COMPETE;
DISCLOSURE OF INFORMATION
Section 2.01. Agreement Not To Compete. (a) Each of ECI and Prosser
recognizes the highly competitive nature of the Subject Business and agrees
that the value and goodwill of the Company and its Subsidiaries would be
substantially impaired if it or he, as the case may be, failed to comply with
its or his obligations hereunder. Accordingly, each of ECI and Prosser hereby
agrees from the consummation of the Merger that during a period of ten years
thereafter, each of ECI and Prosser shall not, directly or indirectly, on its
or his own behalf, as the case may be, or on behalf of any other person or
entity:
(i) engage in any Competitive Business, whether such engagement shall be
as an employer, officer, director, owner, employee, partner, advisor,
consultant, stockholder, investor, agent or other participant in any
Competitive Business (or in any similar capacity in which it or he, as the
case may be, derives an economic benefit from a Competitive Business);
(ii) assist others in engaging in any Competitive Business in the manner
described in the foregoing clause (i);
(iii) solicit, entice or induce any director, employee, consultant or
other agent of the Company or any current or future Subsidiary of the
Company materially involved in the Subject Business to terminate his or her
employment or other relationship with the Company or such current or future
Subsidiary or to engage in any Competitive Business;
(iv) solicit, entice or induce any vendor or distributor of the Company
or any current or future Subsidiary materially involved in the Subject
Business to terminate or materially diminish its relationship with the
Company or such current or future Subsidiary; or
(v) solicit, entice or induce any subscriber or customer of the Company
or any current or future Subsidiary of the Company with respect to the
Subject Business to purchase the products or services of any Competitive
Business, or to cease purchasing the services of the Subject Business from
the Company or any current or future Subsidiary of the Company.
(b) Anything contained in this Non-Competition Agreement to the contrary
notwithstanding, no provision of this Agreement shall prohibit (i) ECI or
Prosser from owning, as a passive investment, in the aggregate less than 5% of
a class of publicly-traded securities issued by any person or entity engaged
in a Competitive Busi- ness or (ii) the provision of services by ATNCO,
VITELCo or VCI pursuant to terms of the Technical Assistance Agreement.
Section 2.02. Disclosure of Information. From and after the date hereof,
each of ECI and Prosser shall hold in strict confidence and shall not use or
disclose to any person, firm, corporation or other business entity, except as
required by law or judicial process, any Confidential Information for any
reason or purpose whatsoever, nor shall ECI or Prosser make use of any of the
Confidential Information for ECI's or Prosser's purposes or for the benefit of
any person or entity except the Company or any affiliate thereof.
Section 2.03. Acknowledgment. Prosser acknowledges that the provisions of
this Agreement are not designed to prevent Prosser from earning a living or
fostering his own career. The provisions of this Agreement are designed to
prevent any Competitive Business from gaining unfair advantage from Prosser's
and ECI's knowledge of confidential and proprietary information relating to
the Subject Business.
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ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.01. Remedies. Each of ECI and Prosser acknowledges that a remedy
at law for any breach or threatened breach of the provisions of this Non-
Competition Agreement would be inadequate and therefore agrees that the
Company shall be entitled to injunctive relief; provided, however, that
nothing contained herein shall be construed as prohibiting the Company from
pursuing any other remedies available for any such breach or threatened
breach.
Section 3.02. Benefits. This Non-Competition Agreement and the rights and
obligations of the parties hereto shall bind and inure to the benefit of any
successor or successors of the Company by reorganization, merger or
consolidation or otherwise and any assignee of all or substantially all of its
business and properties.
Section 3.03. Severability, Blue Penciling. It is the desire and intent of
the parties hereto that the provisions of this Non-Competition Agreement shall
be enforced to the fullest extent permissible under the laws and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Non-Competition Agreement
shall be adjudicated to be invalid or unenforceable, such provision shall be
deemed amended to delete therefrom the portion thus adjudicated to be invalid
or unenforceable, such deletion to apply only with respect to the operation of
such provision in the particular jurisdiction in which such adjudication is
made. In addition, if any one or more of the provisions contained in this Non-
Competition Agreement shall for any reason be held to be excessively broad as
to duration, geographical scope, activity or subject, it shall be construed by
limiting and reducing it so as to be enforceable to the extent compatible with
the applicable law as it shall then appear.
Section 3.04. Notices. All notices or other communications required or
permitted hereunder shall be in writing and sufficient if (a) delivered
personally, (b) sent by nationally-recognized overnight courier or (c) sent by
certified mail, postage prepaid, return receipt requested, addressed as
follows:
if to the Company, to:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
if to ECI or Prosser, to:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
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or, in each case, to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Any such communication shall be deemed to have been given (i) when delivered,
if personally delivered, (ii) on the business day after dispatch, if sent by
nationally-recognized overnight courier and (iii) on the third business day
after dispatch, if sent by mail.
Section 3.05. Complete Agreement; Amendments; Prior Agreements. The
foregoing is the entire agreement of the parties with respect to the subject
matter hereof and may not be amended, supplemented, canceled or discharged
except by a written instrument executed by the parties hereto. This Non-
Competition Agreement supersedes any and all prior agreements among the
parties hereto with respect to the matters covered hereby.
Section 3.06. Governing Law. This Non-Competition Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and performed wholly therein.
Section 3.07. Counterparts. This Non-Competition Agreement may be executed
in any number of counterparts, and each such counterpart shall be deemed to be
an original instrument, but all such counterparts together shall constitute
but one agreement.
Section 3.08. Jurisdiction. Any action or proceeding brought by any party to
this Non-Competition Agreement against any other party hereto with respect to
the enforcement or breach of this Non-Competition Agreement may be brought in
the courts of the State of New York or of the United States for the Southern
District of New York. Each of the parties hereto irrevocably submits to the
jurisdiction of each such court in respect of any such action or proceeding,
irrevocably waives any objection that it may now or hereafter have to the
laying of venue of any such action or proceeding in any such court and any
claim that any such action or proceeding brought in any such court has been
brought in an inconvenient forum, and irrevocably consents that service of
process or other legal summons for purposes of any such action or proceeding
may be served on it by personal service within or without the State of New
York or by mailing a copy thereof by registered mail, or a form of mail
substantially equivalent to registered mail, addressed to such party at its
address as provided for notices hereunder.
Section 3.09. Expenses of Enforcement. In the event of any breach of this
Non-Competition Agreement by any party hereto, any other party hereto which is
aggrieved by such breach (an "Aggrieved Breach") shall be entitled to recover
from the party in breach, any and all costs and expenses, including without
limitation reasonable attorneys' fees, incurred by the Aggrieved Party as a
result of such breach or in connection with enforcing the provisions of this
Non-Competition Agreement with respect to such breach.
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<PAGE>
IN WITNESS WHEREOF, this Non-Competition Agreement has been executed and
delivered by the parties hereto as of the date first above written.
Atlantic Tele-Network, Inc.
By: _________________________________
Name:
Title:
Emerging Communications, Inc.
By: _________________________________
Name:
Title:
-------------------------------------
Jeffrey J. Prosser
5
<PAGE>
EXHIBIT F
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-----------------------------------
INDEMNITY AGREEMENT
-----------------------------------
AMONG
ATLANTIC TELE-NETWORK, INC.,
EMERGING COMMUNICATIONS, INC.,
CORNELIUS B. PRIOR, JR.
AND
JEFFREY J. PROSSER
DATED [ ], 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<C> <S> <C>
Section 1.01. Definitions................................................ 1
ARTICLE II
INDEMNIFICATION
Section 2.01. Indemnification by Prosser................................. 1
Section 2.02. Indemnification by Prior................................... 1
Section 2.03. Indemnification by ECI..................................... 2
Section 2.04. Indemnification by the Company............................. 2
Section 2.05. No Third Party Rights...................................... 2
Section 2.06. Indemnification Procedures................................. 2
ARTICLE III
FORBEARANCE; STANDSTILL
Section 3.01. Forbearance................................................ 4
Section 3.02. Standstill................................................. 4
ARTICLE IV
MISCELLANEOUS PROVISIONS
Section 4.01. Effectiveness.............................................. 5
Section 4.02. Entire Agreement........................................... 5
Section 4.03. Governing Law.............................................. 5
Section 4.04. Headings................................................... 5
Section 4.05. Counterparts............................................... 5
Section 4.06. Benefits................................................... 5
Section 4.07. Assignment................................................. 5
Section 4.08. Amendment and Waiver....................................... 5
Section 4.09. Notices.................................................... 5
Section 4.10. Jurisdiction............................................... 6
Section 4.11. Expenses of Enforcement.................................... 6
</TABLE>
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INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (this ("Indemnity Agreement") is entered into as of
the [ ] day of [ ], 1997 by and among Atlantic Tele-Network, Inc., a
Delaware corporation (the "Company"), Emerging Communications, Inc., a
Delaware corporation ("ECI"), Cornelius B. Prior, Jr. ("Prior") and Jeffrey J.
Prosser ("Prosser").
WHEREAS, the execution and delivery of this Indemnity Agreement by the
parties hereto is contemplated by the Subscription Agreement dated as of
August 11, 1997 (the "Subscription Agreement") between the Company and ECI and
is a condition to the Closing (as defined in the Subscription Agreement); and
WHEREAS, each of the parties hereto desires to consummate, and will receive
substantial benefits from the consummation of, the Closing.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and subject to the conditions hereinafter set
forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Capitalized terms used in this Indemnity
Agreement without definition shall have the respective meanings ascribed to
such terms in the Subscription Agreement.
"Affiliate" of any person shall mean any other person which controls, is
controlled by, or is under common control with such person, and "person" for
purposes hereof means and includes any individual, partnership, limited
liability company, firm, corporation or other entity.
ARTICLE II
INDEMNIFICATION
Section 2.01. Indemnification by Prosser. Subject to the terms and
conditions contained herein, Prosser hereby agrees to indemnify and hold
harmless the Company, its Subsidiaries after the Closing, their respective
officers, directors and agents and Prior, individually and as Trustee of the
1994 Prior Charitable Remainder Trust, from and against any and all losses,
liabilities, damages, costs, and expenses (including, without limitation,
reasonable attorney's fees and any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending any action, suit or
proceeding, commenced or threatened) of any kind and nature (collectively,
"Losses") (A) which relate to or arise out of any action, suit or proceeding
brought by or on behalf of any stockholder of the Company or ECI arising out
of or relating to (i) the repurchase by the Company of shares of Company
Common Stock owned by Prior and/or the Trust pursuant to the Recapitalization
Agreement or (ii) the number of shares of ECI Common Stock to be received by
Prosser pursuant to the Merger Agreement, or (B) which relate to or arise out
of any action, suit or proceeding arising out of relating to an untrue
statement of a material fact or alleged untrue statement of a material fact
contained in the proxy statement/prospectus to be delivered to holders of
Company Common Stock (the "Proxy Statement") or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with respect
to the beneficial ownership of stock of the Company by Prosser and/or members
of his family and his or their Affiliates and biographical information with
respect to Mr. Prosser.
Section 2.02. Indemnification by Prior. Subject to the terms and conditions
contained herein, Prior hereby agrees to indemnify and hold harmless ECI, the
entities which will become its Subsidiaries after the Closing, their
respective officers, directors and agents and Prosser from and against any and
all Losses (A) which
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<PAGE>
relate to or arise out of any action, suit or proceeding brought by or on
behalf of any stockholder of the Company or ECI arising out of or relating to
the number of shares of Surviving Corporation Common Stock (as defined in the
Merger Agreement) to be received by Prior pursuant to the Merger Agreement or
(B) an untrue statement of a material fact or alleged untrue statement of a
material fact contained in the Proxy Statement or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with respect
to the beneficial ownership of stock of the Company by Prior and/or members of
his family and his or their Affiliates and biographical information with
respect to Mr. Prior.
Section 2.03. Indemnification by ECI. Subject to the terms and conditions
contained herein, ECI hereby agrees to indemnify and hold harmless the
Company, its Subsidiaries after the Closing, their respective officers,
directors and agents and Prior from and against any and all Losses which
relate to or arise out of, (i) the business or operations conducted by ECI and
the Transferred Subsidiaries before or after the Closing, or any other
Subsidiaries of ECI after the Closing, (ii) the Assumed Liabilities or (iii)
any action, suit or proceeding arising out of or relating to an untrue
statement of a material fact or alleged untrue statement of a material fact
contained in the Proxy Statement or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with respect to (a) the business,
prospects or planned or proposed activities of ECI and its Subsidiaries after
the Closing Date, (b) activities of ECI or the Transferred Subsidiaries after
April 30, 1997 and (c) prospective acquisitions of businesses or other
transactions not in the ordinary course of business planned or contemplated by
ECI, the Transferred Subsidiaries or Prosser.
Section 2.04. Indemnication by the Company. Subject to the terms and
conditions contained herein, the Company hereby agrees to indemnify and hold
harmless ECI, the entities which will become its Subsidiaries after the
Closing, their respective officers, directors and agents and Prosser from and
against any and all Losses which relate to or arise out of (i) the business
and operations conducted by GTT before or after the Closing or the business
and operations after the Closing of the Company or any other entity which will
be a Subsidiary of the Company after the Closing, (ii) the Excluded
Liabilities or (iii) any action, suit or proceeding arising out of or relating
to an untrue statement of a material fact or alleged untrue statement of a
material fact contained in the Proxy Statement or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with respect
to (a) the business, prospects or planned or proposed activities of the
Company and its Subsidiaries after the Closing Date, (b) activities of GTT and
the Company with respect to GTT after April 30, 1997 and (c) prospective
acquisitions of businesses or other transactions not in the ordinary course of
business planned or contemplated by GTT or Prior.
Section 2.05. No Third Party Rights. Nothing in this Indemnity Agreement,
express or implied, is intended or shall be construed to give to any person,
firm or corporation, other than an Indemnified Party (as defined below), any
rights, remedy, claim or cause of action under or by reason of this Indemnity
Agreement, or any terms, covenants or conditions hereof.
Section 2.06. Indemnification Procedures. (a) If any party or person which
may seek indemnification hereunder (an "Indemnified Party") determines that it
is or may be entitled to indemnification by any party hereto (an "Indemnifying
Party") under this Agreement (other than in connection with any Third Party
Claim (as defined below) subject to clause (b) of this Section 2.06), the
Indemnified Party shall deliver to the Indemnifying Party a written notice
specifying, to the extent reasonably practicable, the basis for its claim for
indemnification and the amount for which the Indemnified Party reasonably
believes it is entitled to be indemnified. After the Indemnifying Party shall
have been notified of the amount for which the Indemnified Party seeks
indemnification, the Indemnifying Party shall, within 30 days after receipt of
such notice, pay the Indemnified Party such amount in cash or other
immediately available funds (or reach agreement with the Indemnified Party as
to a mutually agreeable alternative payment schedule) unless the Indemnifying
Party objects to the claim for indemnification or the amount thereof. If the
Indemnifying Party does not give the Indemnified Party written notice
objecting to such claim and setting forth the grounds therefor within the same
30 day period, the Indemnifying Party shall be deemed to have acknowledged its
liability for such claim and the Indemnified Party may exercise any and all of
its rights under applicable law to collect such amount.
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<PAGE>
(b) Promptly following the earlier of (i) receipt of notice of the
commencement by a third party of any action, suit or proceeding against or
otherwise involving any Indemnified Party or (ii) receipt of information from
a third party alleging the existence of a claim against an Indemnified Party,
in either case, with respect to which indemnification may be sought pursuant
to this Indemnity Agreement (a "Third-Party Claim"), the Indemnified Party
shall give the Indemnifying Party prompt written notice thereof. The failure
of the Indemnified Party to give notice as provided in this clause (b) shall
not relieve the Indemnifying Party of its obligations under this Indemnity
Agreement, except to the extent that the Indemnifying Party is materially
prejudiced by such failure to give notice. Within 30 days after receipt of
such notice, the Indemnifying Party may (i) by giving written notice thereof
to the Indemnified Party, acknowledge liability for and at its option elect to
assume the defense of such Third-Party Claim at its sole cost and expense or
(ii) object to the claim of indemnification set forth in the notice delivered
by the Indemnified Party pursuant to the first sentence of this clause (b);
provided that if the Indemnifying Party does not within the same 30 day period
give the Indemnified Party written notice objecting to such claim and setting
forth the grounds therefor or electing to assume the defense, the Indemnifying
Party shall be deemed to have acknowledged its liability for such Third-Party
Claim. Any contest of a Third-Party Claim as to which the Indemnifying Party
has elected to assume the defense shall be conducted by attorneys employed by
the Indemnifying Party and reasonably satisfactory to the Indemnified Party,
and the Indemnifying Party shall not be liable to the Indemnified Party for
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation, except as provided in the following sentence. The Indemnified
Party shall have the right to participate in the defense against the Third
Party Claim and to be represented by attorneys of its own choosing, but the
fees and expenses of such attorneys shall be at the expense of the Indemnified
Party unless (i) the Indemnifying Party and the Indemnified Party shall have
mutually agreed to the retention of such attorneys by the Indemnified Party or
(ii) representation of both parties by the same counsel in respect of such
Third Party Claim would be inappropriate due to actual or potential differing
interests between them (in which case the Indemnifying Party shall not be
entitled to assume or direct the defense of such proceeding on behalf of the
Indemnified Party); provided that in no event shall the Indemnifying Party be
required to pay the fees and expenses of more than one separate counsel (in
addition to local counsel) in any one proceeding representing the Indemnified
Parties who are parties thereto. If the Indemnifying Party assumes the defense
of a Third-Party Claim, the Indemnifying Party may settle or compromise the
claim without the prior written consent of the Indemnified Party; provided
that without the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld, the Indemnifying Party may not agree to
any such settlement or compromise unless such settlement or compromise
includes an unconditional release of the Indemnified Party from all liability
on claims that are or could be the subject matter of such proceeding. If the
Indemnifying Party does not assume the defense of a Third-Party Claim for
which it has acknowledged liability for indemnification as described herein,
the Indemnified Party may require the Indemnifying Party to reimburse it on a
current basis for its reasonable expenses of investigation, reasonable
attorney's fees and reasonable out-of-pocket expenses incurred in defending
against such Third-Party Claim and the Indemnifying Party shall be bound by
the result obtained with respect thereto by the Indemnified Party; provided
that the Indemnifying Party shall not be liable for any settlement effected
without its consent, which consent shall not be unreasonably withheld. The
Indemnifying Party shall pay to the Indemnified Party in cash the amount for
which the Indemnified Party is entitled to be indemnified (if any) within 15
days after the final resolution of such Third-Party Claim (whether by the
final nonappealable judgment of a court of competent jurisdiction or
otherwise) or, in the case of any Third-Party Claim as to which the
Indemnifying Party has not acknowledged liability, within 15 days after such
Indemnifying Party's objection has been resolved by settlement, compromise or
the final nonappealable judgment of a court of competent jurisdiction.
(c) This Section 2.06 shall have no applicability to any claim for
indemnification with respect to any income, gross income, gross receipts,
profits, capital stock, franchise, withholding, payroll, social security,
workers compensation, unemployment, disability, property, ad valorem, stamp,
excise, severance, occupation, service, sales, use, license, lease, transfer,
import, export, value added, alternative minimum, estimated or other similar
tax (including any fee, assessment, or other charge in the nature of or in
lieu of any tax) imposed by any governmental entity or political subdivision
thereof, and any interest, penalties, additions to tax, or additional amounts
in respect of the foregoing (collectively "Taxes"), it being understood that
the procedures for
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<PAGE>
indemnification with respect to Taxes are covered in that separate Tax Sharing
and Indemnification Agreement dated the date hereof among the parties hereto.
ARTICLE III
FORBEARANCE; STANDSTILL
Section 3.01. Forbearance. Except with respect to enforcing specific
provisions of an agreement entered into in connection with the Transactions,
including, without limitation, this Indemnity Agreement, (a) Prosser and ECI
hereby agree not to bring any action, suit or proceeding against Prior or the
Company with respect to any of the matters constituting the Transactions, or
arising out or relating to the business, operations or management of the
Company or any of its Subsidiaries prior to and including the Closing and (b)
Prior and the Company hereby agree not to bring any action, suit or proceeding
against Prosser or ECI with respect to any of the matters constituting the
Transactions or arising out of or relating to the business, operations or
management of the Company or any of its Subsidiaries prior to and including
the Closing.
Section 3.02. Standstill.
(a) Each of Prosser and ECI agrees that for a period of ten years after the
Closing Date, he or it, as the case may be, shall not, and shall not permit
his or its, as the case may be, Controlled Affiliates (as defined below) to,
without the prior written consent of the Company, duly authorized by its Board
of Directors:
(i) be the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of greater than 5% of the outstanding Voting Securities (as
defined below) of the Company; or offer or agree to purchase any Voting
Securities of the Company if, after giving effect to such purchase, he or
it, as the case may be, would be the beneficial owner of greater than 5% of
the outstanding Voting Securities of the Company; or
(ii) make, or in any way participate in, any "solicitation" of "proxies"
(as such terms are defined in Rule 14a-1 under the Exchange Act) with
respect to Voting Securities of the Company; become a participant in any
"election contest" (within the meaning of Rule 14a-11 of the Exchange Act)
with respect to the Company; seek to advise or influence any person with
respect to the voting of any Voting Securities of the Company; execute any
written consent in lieu of a meeting of holders of any class or series of
Voting Securities of the Company; or initiate, propose or otherwise solicit
holders of Voting Securities of the Company for the approval or rejection
of a proposal for a vote of holders of Voting Securities of the Company.
(b) Each of Prior and the Company agrees that for a period of ten years
after the Closing Date, he or it, as the case may be, shall not, and shall not
permit his or its, as the case may be, Controlled Affiliates (as defined
below) to, without the prior written consent of ECI, duly authorized by its
Board of Directors:
(i) be the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of greater than 5% of the outstanding Voting Securities (as
defined below) of ECI; or offer or agree to purchase any Voting Securities
of ECI if, after giving effect to such purchase, he or it, as the case may
be, would be the beneficial owner of greater than 5% of the outstanding
Voting Securities of ECI; or
(ii) make, or in any way participate in, any "solicitation" of "proxies"
(as such terms are defined in Rule 14a-1 under the Exchange Act) with
respect to Voting Securities of ECI; become a participant in any "election
contest" (within the meaning of Rule 14a-11 of the Exchange Act) with
respect to ECI; seek to advise or influence any person with respect to the
voting of any Voting Securities of ECI; execute any written consent in lieu
of a meeting of holders of any class or series of Voting Securities of ECI;
or initiate, propose or otherwise solicit holders of Voting Securities of
ECI for the approval or rejection of a proposal for a vote of holders of
Voting Securities of ECI.
(c) As used in this Section 3.02, the following terms have the meanings
assigned to them below:
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"Controlled Affiliate" of any person means any other person under the
control of such person. As used in this definition, "control" means the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a person, whether through ownership of
Voting Securities, by contract or otherwise.
"Voting Securities" of any person means securities, the holders of which
are, at the applicable time in question, entitled to vote for the election of
directors of such person.
ARTICLE IV
MISCELLANEOUS PROVISIONS
Section 4.01. Effectiveness. This Indemnity Agreement shall become operative
upon consummation of the Merger.
Section 4.02. Entire Agreement. This Indemnity Agreement, together with all
other written agreements which may be entered into between the parties in
connection herewith and the transactions contemplated hereby and all other
documents and instruments delivered in connection herewith and therewith and
the transactions contemplated hereby and thereby, set forth the full and
complete understanding of the parties hereto with respect to the transactions
contemplated hereby.
Section 4.03. Governing Law. This Indemnity Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
reference to the conflict of laws rules thereof.
Section 4.04. Headings. The headings in this Indemnity Agreement are
intended solely for convenience of reference and shall be given no effect in
the interpretation of this Indemnity Agreement.
Section 4.05. Counterparts. This Indemnity Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
Section 4.06. Benefits. This Indemnity Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns, and no other person (other than an Indemnified Party) will have any
right or obligation hereunder.
Section 4.07. Assignment. Neither this Indemnity Agreement nor any right
hereunder may be assigned by the parties hereto without the prior written
consent of the other parties. Subject to the foregoing, this Indemnity
Agreement shall be binding upon and inure to the benefit of the successors,
heirs, representatives and assigns of each party hereto.
Section 4.08. Amendment and Waiver. This Indemnity Agreement may be amended
only by an instrument in writing signed on behalf of each of the parties
hereto. Any term, condition or provision of this Indemnity Agreement may be
waived (if in writing) at any time by the party or each of the parties
entitled to the benefits thereof.
Section 4.09. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with
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<PAGE>
receipt confirmed) or by registered mail, return receipt requested, addressed
as follows (or to such other address as a party may designate by notice to the
other):
(a) If to the Company or Prior:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b) If to ECI or Prosser:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-8000
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
Section 4.10. Jurisdiction. Any action or proceeding brought by any party to
this Indemnity Agreement against any other party hereto with respect to the
enforcement or breach of this Indemnity Agreement may be brought in the courts
of the State of New York or of the United States for the Southern District of
New York. Each of the parties hereto irrevocably submits to the jurisdiction
of each such court in respect of any such action or proceeding, irrevocably
waives any objection that it may now or hereafter have to the laying of venue
of any such action or proceeding in any such court and any claim that any such
action or proceeding brought in any such court has been brought in an
inconvenient forum, and irrevocably consents that service of process or other
legal summons for purposes of any such action or proceeding may be served on
it by personal service within or without the State of New York or by mailing a
copy thereof by registered mail, or a form of mail substantially equivalent to
registered mail, addressed to such party at its address as provided for
notices hereunder.
Section 4.11. Expenses of Enforcement. In the event of any breach of this
Indemnity Agreement by any party hereto, any other party hereto which is
aggrieved by such breach (an "Aggrieved Party") shall be entitled to recover
from the party in breach, any and all costs and expenses, including without
limitation reasonable attorneys fees, incurred by the Aggrieved Party as a
result of such breach or in connection with enforcing the provisions of this
Indemnity Agreement with respect to such breach.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Indemnity
Agreement to be duly executed, all as of the date first written above.
Atlantic Tele-Network, Inc.
By: _________________________________
Name: Cornelius B. Prior
Title: Co-Chief Executive Officer
By: _________________________________
Name: Jeffrey J. Prosser
Title: Co-Chief Executive Officer
Emerging Communications, Inc.
By: _________________________________
Name:
Title:
_____________________________________
Cornelius B. Prior, Jr.
_____________________________________
Jeffrey J. Prosser
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<PAGE>
EXHIBIT G
TO
SUBSCRIPTION AGREEMENT
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-------------------------------
EMPLOYEE BENEFITS AGREEMENT
-------------------------------
BETWEEN
EMERGING COMMUNICATIONS, INC.,
AND
ATLANTIC TELE-NETWORK, INC.
DATED [ ], 1997
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- --------------------------------------------------------------------------------
<PAGE>
EMPLOYEE BENEFITS AGREEMENT
THIS EMPLOYEE BENEFITS AGREEMENT (this "Employee Benefits Agreement") is
entered into as of the [ ] day of [ ] 1997 by and between Emerging
Communications, Inc., a Delaware Corporation (the "ECI"), and Atlantic Tele-
Network, Inc., a Delaware corporation (the "Company" or "ATNI").
WHEREAS, to eliminate corporation disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company, and
its co-chief executive officers and principal stockholders, Cornelius B.
Prior, Jr. ("Prior") and Jeffrey J. Prosser ("Prosser"), entered into a
Principal Terms Agreement dated January 29, 1997 which contemplated the
separation of the businesses and assets of the Company; and
WHEREAS, in order to accomplish such separation, the Company and New ATN
entered into a Subscription Agreement (the "Subscription Agreement"), the
Company, Prior and Prosser entered into a Recapitalization Agreement (the
"Recapitalization Agreement") and the Company and ATN MergerCo. entered into
an Agreement and Plan of Merger (the "Merger Agreement"), all dated as of
August 11, 1997;
WHEREAS, the execution and delivery of this Employee Benefits Agreement by
the parties hereto is contemplated by the Subscription Agreement and is a
condition to the Closing (as defined in the Subscription Agreement); and
WHEREAS, each of the parties hereto desires to consummate, and will secure
substantial benefits from the consummation of, the Closing.
NOW, THEREFORE, for and in consideration of the covenants herein contained
and subject to the conditions hereinafter set forth, the parties hereto agree
as follows:
1. Effective as of the Closing, (i) ECI shall adopt as its own the Atlantic
Tele-Network, Inc. Defined Benefit Plan for Salaried Employees, the Atlantic
Tele-Network, Inc. Management Employees' Savings Plan, and the Atlantic Tele-
Network, Inc. Employees' Stock Ownership Plan (collectively, the "ATNI
Plans"), (ii) each of the trusts (and all assets thereof) forming a part of
the ATNI Plans shall be assumed by ECI, and (iii) ECI and the Company shall
take such action, including amendments to the ATNI Plans (or the trusts
forming a part thereof), as is necessary in order for ECI to be the sponsor
and "Employer" under such ATNI Plans. As of the Closing, employees of the
Company and its subsidiaries shall cease participation in the ATNI Plans
maintained by ECI or any of its subsidiaries.
2. All other employee benefit plans maintained by ATN Co., a U.S. Virgin
Islands corporation ("ATNC"), by Virgin Islands Telephone Corp., a U.S. Virgin
Islands corporation ("Vitelco") or by any of their subsidiaries (the
"ATNC/Vitelco Plans"), including but not limited to the Virgin Islands
Telephone Corporation Pension Plan for Hourly Employees, the United
Steelworkers of America 401(k) Plan for Bargaining Unit Employees of Vitelco,
the Welfare Plan for Salaried Employees and the Welfare Plan for Bargaining
Employees, shall continue to be sponsored by such entities after the Closing.
As of the Closing, employees of the Company and its subsidiaries shall cease
participation in the ATNC/Vitelco Plans maintained by ECI, ATNC, Vitelco or
any of their subsidiaries.
3. Effective as of the Closing, ECI and its subsidiaries shall assume all
employment-related liabilities and obligations of ATNI toward those employees
who prior to the Closing were employed by ATNI and who after the Closing will
be employed by ECI or its subsidiaries. Such employment-related liabilities
and obligations shall include, but are not limited to, liabilities and
obligations with respect to wages, withholding taxes, benefits, accrued
vacation, employee benefit plan contributions and administrative expenses,
whether incurred or accrued before, on or after the Closing and whether or not
reported as of the Closing.
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4. All notices or other communications required or permitted hereunder shall
be in writing and sufficient if (a) delivered personally, (b) sent by
nationally-recognized overnight courier or (c) sent by certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company, to:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 6100
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: [(809) 774-7790]
if to ECI, to:
Emerging Communications, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
or, in each case, to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Any such communication shall be deemed to have been given (i) when delivered,
if personally delivered, (ii) on the business day after dispatch, if sent by
nationally-recognized overnight courier and (iii) on the third business day
after dispatch, if sent by mail.
5. The foregoing is the entire agreement of the parties with respect to the
subject matter hereof and may not be amended, supplemented, canceled or
discharged except by a written instrument executed by the parties hereto. This
Employee Benefits Agreement supersedes any and all prior agreements among the
parties hereto with respect to the matters covered hereby.
6. This Employee Benefits Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed wholly therein.
7. This Employee Benefits Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8. Any action or proceeding brought by any party to this Employee Benefits
Agreement against any other party hereto with respect to the enforcement or
breach of this Employee Benefits may be brought in the courts of the State of
New York or of the United States for the Southern District of New York. Each
of the parties hereto irrevocably submits to the jurisdiction of each such
court in respect of any such action or proceeding, irrevocably waives any
objection that it may now or hereafter have to the laying of venue of any such
action or proceeding
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<PAGE>
in any such court and any claim that any such action or proceeding brought in
any such court has been brought in an inconvenient forum, and irrevocably
consents that service of process or other legal summons for purposes of any
such action or proceeding may be served on it by personal service within or
without the State of New York or by mailing a copy thereof by registered mail,
or a form of mail substantially equivalent to registered mail, addressed to
such party at its address as provided for notices hereunder.
9. In the event of any breach of this Employee Benefits Agreement by any
party hereto, any other party hereto which is aggrieved by such breach (an
"Aggrieved Breach") shall be entitled to recover from the party in breach, any
and all costs and expenses, including without limitation reasonable attorneys'
fees, incurred by the Aggrieved Party as a result of such breach or in
connection with enforcing the provisions of this Non-Competition Agreement
with respect to such breach.
IN WITNESS WHEREOF, this Employee Benefits Agreement has been executed and
delivered by the parties hereto as of the date first above written.
Atlantic Tele-Network, Inc.
By:__________________________________
Name:
Title:
Emerging Communications, Inc.
By:__________________________________
Name:
Title:
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<PAGE>
EXHIBIT H
TO
SUBSCRIPTION AGREEMENT
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---------------------------------
TAX SHARING AND INDEMNIFICATION AGREEMENT
---------------------------------
AMONG
ATLANTIC TELE-NETWORK, INC.,
EMERGING COMMUNICATIONS, INC.,
CORNELIUS B. PRIOR
AND
JEFFREY J. PROSSER
DATED [ ], 1997
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- --------------------------------------------------------------------------------
<PAGE>
TAX SHARING AND INDEMNIFICATION AGREEMENT
This Tax Sharing and Indemnification Agreement is entered into as of [ ],
1997 by and among Atlantic Tele-Network, Inc., a Delaware corporation ("ATN"),
Emerging Communications, Inc., a Delaware corporation ("ECI"), Cornelius B.
Prior, Jr. ("Prior") and Jeffrey J. Prosser ("Prosser"). Capitalized terms
used in this Agreement are defined in Section 1 below. Unless otherwise
indicated, all "Section" references in this Agreement are to sections of this
Agreement.
RECITALS
WHEREAS, as of the date hereof ATN is the common parent of an affiliated
group of corporations, including ECI and Atlantic Aircraft, Inc., a Delaware
corporation ("Aircraft Corp."), which has elected to file consolidated Federal
and combined Delaware income tax returns; and
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is contemplated by the Subscription Agreement dated as of August 11, 1997 (the
"Subscription Agreement") between ATN and ECI and is a condition to the
Closing (as defined in the Subscription Agreement); and
WHEREAS, as a result of the Transactions, ECI and Aircraft Corp. will cease
to be members of the affiliated group of which ATN is the common parent as of
the end of the day which is the Closing Date; and
WHEREAS, ATN, ECI, Prior and Prosser desire to provide for and agree upon
the allocation among them of liabilities for Taxes arising prior to and as a
result of the Transactions, and to provide for and agree upon other matters
relating to Taxes;
NOW THEREFORE, in consideration of the mutual agreements contained herein,
ATN, ECI, Prior and Prosser hereby agree as follows:
Section 1. Definition of Terms. For purposes of this Agreement (including
the recitals hereof), the following terms have the following meanings:
"ACCOUNTING CUTOFF DATE" means, with respect to each of ATN and ECI, any
date as of the end of which there is a closing of the financial accounting
records for such entity.
"ACCOUNTING FIRM" shall have the meaning provided in Section 15.
"AFFILIATE" means any entity that directly or indirectly "controls" or is
"controlled" by the person or entity in question. "Control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether through
ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this Tax Sharing and Indemnification Agreement.
"ATN GROUP" means ATN and its Affiliates as determined immediately after the
Transactions.
"CLOSING" means the Closing as that term is defined in the Subscription
Agreement.
"CLOSING DATE" means the Closing Date as that term is defined in the
Subscription Agreement.
"CODE" means the U.S. Internal Revenue Code of 1986, as amended, or any
successor law.
"COMPANIES" means ATN and ECI and "Company" means either ATN or ECI.
"DEBITS" shall have the meaning ascribed to it in the Subscription
Agreement.
"DISTRIBUTION" means the distribution to certain ATN shareholders on the
Closing Date of all of the outstanding stock of ECI owned by ATN.
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<PAGE>
"ECI GROUP" means ECI and its Affiliates as determined immediately after the
Transactions.
"FEDERAL INCOME TAX" means any Tax imposed by Subtitle A of the Code, or to
the extent related to such Tax, any Tax imposed by Subtitle F of the Code.
"FINAL CLOSING ADJUSTMENT" shall have the meaning ascribed to it in the
Subscription Agreement.
"FINAL DETERMINATION" means the final resolution of any Tax liability for a
Tax Period, including any related interest or penalties, by (i) a decision of
the Tax Court or judgment, decree, or other order by a court of competent
jurisdiction, which has become final and unappealable; (ii) IRS Form 870-AD
(or any successor forms thereto), on the date of acceptance by or on behalf of
the Internal Revenue Service, or by a comparable agreement form under other
applicable Tax Laws; except that a Form 870-AD or comparable form that by its
terms reserves the right of the taxpayer to file a claim for refund and/or the
right of the Tax Authority to assert a further deficiency shall not constitute
a final determination; (iii) a closing agreement under Section 7121 of the
Code or under corresponding provisions of any subsequently enacted federal Tax
Laws, or comparable agreements under other applicable Tax Laws; and (iv) any
other final disposition by reason of the expiration of the applicable statute
of limitations.
"FOREIGN INCOME TAX" means any Tax imposed by any foreign country or any
territory or possession of the United States, or by any political subdivision
of any foreign country or United States territory or possession, which is an
income tax as defined in Treasury Regulation Section 1.901-2.
"GROUP" means the ATN Group or the ECI Group, as the context requires.
"GT&T" means Guyana Telephone & Telegraph Company Limited, a Guyana
corporation.
"INCOME TAX" means any Federal Income Tax, State Income Tax, or Foreign
Income Tax.
"INTERCOMPANY TAX ALLOCATION AGREEMENTS" means any written or oral agreement
or any other arrangements relating to allocation of Taxes existing between ATN
and Aircraft Corp. or any other member of the ECI Group in effect as of the
Closing Date (other than this Agreement).
"LETTER REQUEST" means the letter filed by ATN with the Internal Revenue
Service requesting a ruling from the Internal Revenue Service regarding
certain tax consequences of the Transactions, including the job descriptions
of certain officers and employees of ATN attached as Exhibit 9 to such letter
and the Revenue Procedure 96-30 Checklist attached as Exhibit 1 to such letter
and any amendment or supplement to such letter or such exhibits.
"PAYMENT DATE" means (i) with respect to any Tax Return relating to Federal
Income Taxes, the due date for any required installment of estimated taxes
determined under Code Section 6655, the due date (determined without regard to
extensions) for filing the Tax Return determined under Code Section 6072, and
the date the Tax Return is filed, and (ii) with respect to any Tax Return
relating to other Taxes, the corresponding dates determined under the
applicable Tax Law.
"PERMITTED PLEDGE" means a bona fide pledge of stock or securities of ATN or
ECI by Prior or Prosser to a bank or brokerage firm as collateral for a full
recourse loan to Prior or Prosser.
"POST-DISTRIBUTION PERIOD" means any Tax Period beginning after the Closing
Date, and, in the case of any Straddle Period, the portion of such Straddle
Period beginning the day after the Closing Date.
"PRE-DISTRIBUTION PERIOD" means any Tax Period ending on or before the
Closing Date, and, in the case of any Straddle Period, the portion of such
Straddle Period ending on the Closing Date.
"PRIME RATE" means the base rate on corporate loans charged by Citibank,
N.A., New York, New York from time to time, compounded daily on the basis of a
year of 365 or 366 (as applicable) days and actual days elapsed.
"REPURCHASE AND RECAPITALIZATION AGREEMENT" means that certain repurchase
and recapitalization agreement dated as of August 11, 1997 by and among ATN,
Prior, individually and as Trustee of the 1994 Prior Charitable Remainder
Trust, and Prosser.
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<PAGE>
"RESPONSIBLE COMPANY" means, with respect to any Tax Return, the Company
having responsibility for preparing and filing such Tax Return under this
Agreement.
"RESTRUCTURING TAX" means any Taxes resulting from any income or gain
recognized as a result of the Transactions including, without limitation, any
Taxes resulting from any income or gain recognized as a result of the
Transactions failing to qualify for tax-free treatment under Code Sections 355
or 361 or other provisions of the Code (as contemplated by the Ruling Request)
and any Taxes resulting from any income or gain recognized under Treasury
Regulations Section 1.1502-13 or 1.1502-19 (or any corresponding provisions of
other applicable Tax Laws) as a result of the Transactions.
"RULING REQUEST" means the letter filed by ATN with the Internal Revenue
Service requesting a ruling from the Internal Revenue Service regarding
certain tax consequences of the Transactions (including all attachments,
exhibits, and other materials submitted with such ruling request letter) and
any amendment or supplement to such ruling request letter.
"SPECIFIED ACTION" shall have the meaning provided in Section 10.
"STRADDLE PERIOD" means any Tax Period that begins on or before and ends
after the Closing Date.
"STATE INCOME TAX" means any Tax imposed by any State of the United States
or by any political subdivision of any such State which is imposed on or
measured by net income, including state and local franchise or similar Taxes
measured by net income.
"TAINTING ACT" shall have the meaning provided in Section 10.
"TAX" or "TAXES" means any Income Tax, any Tax on gross income, gross
receipts, profits, or capital stock, or any franchise, withholding, payroll,
social security, workers compensation, unemployment, disability, property, ad
valorem, stamp, excise, severance, occupation, service, sales, use, license,
lease, transfer, import, export, value added, alternative minimum, estimated
or other similar tax (including any fee, assessment, or other charge in the
nature of or in lieu of any tax) imposed by any governmental entity or
political subdivision thereof, and any interest, penalties, additions to tax,
or additional amounts in respect of the foregoing.
"TAX AUTHORITY" means, with respect to any Tax, the governmental entity or
political subdivision thereof that imposes such Tax, and the agency (if any)
charged with the collection of such Tax for such entity or subdivision.
"TAX CONTEST" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes or any claim for refund or credit of Taxes of any of ATN,
ECI or the Aircraft Corp. (including any administrative or judicial review
thereof) for any Tax Period ending on or before the Closing Date or any
Straddle Period.
"TAX ITEM" means, with respect to any Income Tax, any item of income, gain,
loss, deduction, or credit.
"TAX LAW" means the law of any governmental entity or political subdivision
thereof relating to any Tax.
"TAX PERIOD" means, with respect to any Tax, the period for which the Tax is
reported as provided under the Code or other applicable Tax Law.
"TAX RECORDS" means Tax Returns, Tax Return workpapers, documentation
relating to any Tax Contests, and any other books of account or records
required to be maintained under the Code or other applicable Tax Laws or under
any record retention agreement with any Tax Authority.
"TAX RETURN" means any report of Taxes due, any claim for refund or credit
of Taxes paid, any information return with respect to Taxes, or any other
similar report, statement, declaration, or document required or permitted to
be filed under the Code or other Tax Law, including any attachments, exhibits,
or other materials submitted with any of the foregoing, and including any
amendments or supplements to any of the foregoing.
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"TRANSACTIONS" shall have the meaning ascribed to that term in the
Subscription Agreement.
"TRANSFER" shall have the meaning set forth in Section 11(a).
"TREASURY REGULATIONS" means the regulations promulgated from time to time
under the Code as in effect for the relevant Tax Period.
Section 2. Allocation of Tax Liabilities. The provisions of this Section 2
are intended to determine each of ATN's, ECI's, Prior's and Prosser's
liability for Taxes with respect to Pre-Distribution Periods. Once the
liability has been determined under this Section 2, Section 5 determines the
time when payment of the liability is to be made, and whether the payment is
to be made to the Tax Authority directly or to ATN or ECI, as the case may be.
2.01 Taxes of GT&T and the Virgin Islands Subsidiaries. This Agreement does
not allocate liability for Taxes imposed on GT&T, Atlantic Tele-Network Co., a
Virgin Islands corporation, or any of the subsidiaries of Atlantic Tele-
Network Co. (except for any withholding of Foreign Income Taxes imposed with
respect to payments made by any of such companies to ATN) and, as between the
parties to this Agreement, such Taxes and Tax Returns relating to such Taxes
shall be solely the responsibility of the legal entity on which such Taxes are
imposed.
2.02 ATN and ECI Liability.
(a) ATN Liability. Notwithstanding the provisions of Section 2.03, as
between ATN and ECI, ATN shall be liable for, and shall indemnify and hold
harmless the ECI Group from and against:
(i) any Restructuring Taxes which arise from any breach by ATN of its
representations or covenants under Section 10 or from any Tainting Act by
ATN or its Affiliates or the inaccuracy of any factual statements or
representations made in or in connection with the Ruling Request with
respect to the activities of ATN and its Affiliates after the Closing;
(ii) all Taxes to the extent taken into account in clauses (b) or (r) of
the definition of "Debits" for purposes of calculating the Final Closing
Adjustment;
(iii) an amount of Income Tax equal to the provision for income tax
expense of ATN which would be accrued on a hypothetical statement of
operations of ATN for the period after April 30, 1997 to and including the
Closing Date which statement of operations includes as revenues or gross
income only dividends paid by GT&T to ATN during such period, interest
accrued during such period on indebtedness of GT&T to ATN and advisory fees
payable by GT&T to ATN during such period (computed on an accrual basis)
and includes as expense all expenses of ATN during such period (to the
extent such expenses are deductible for Income Tax purposes) except for
expenses charged to ECI under clauses (c), (j), (k), (m), (n), (o), and (s)
of the definition of "Debits" in the Subscription Agreement;
(iv) any withholding of Foreign Income Taxes imposed with respect to
payments from GT&T to ATN; and
(v) 50% of all other Taxes (including Restructuring Taxes) of ATN or
Aircraft Corp. (in each case, whether computed on a separate company or
consolidated basis) with respect to all Pre-Distribution Periods, except
for Taxes described in clauses (i), (ii) or (iii) of Section 2.02(b).
(b) ECI Liability. Notwithstanding the provisions of Section 2.03, as
between ATN and ECI, ECI shall be liable for, and shall indemnify and hold
harmless the ATN Group from and against:
(i) Any Restructuring Taxes which arise from any breach by ECI of its
representations or covenants under Section 10 or from any Tainting Act by
ECI or its Affiliates or the inaccuracy of any factual statements or
representations made in or in connection with the Ruling Request with
respect to the activities of ECI and its Affiliates after the Closing;
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(ii) 100% of all Taxes of ECI (computed on a separate company basis) for
all Pre-Distribution Periods;
(iii) any withholding of Foreign Income Taxes imposed with respect to
payments from Atlantic Tele-Network Co. or any of its subsidiaries to ATN
except to the extent taken into account in clauses (b) or (r) of the
definition of "Debits" for purposes of calculating the Final Closing
Adjustment; and
(iv) 50% of all other Taxes (including Restructuring Taxes) of ATN or
Aircraft Corp. (in each case, whether computed on a separate company or
consolidated basis) for all Pre-Distribution Periods, except for Taxes
described in clauses (i), (ii), (iii) or (iv) of Section 2.02(a).
Section 2.03 Liability of Prior and Prosser.
(a) Prior Liability. Prior shall be liable for, and shall indemnify and hold
harmless the ATN Group and the ECI Group from and against any liability for,
any Restructuring Taxes which arise from (x) any breach of Prior's
representations and covenants under Section 11(a) or (y) the inaccuracy of any
factual statements or representations relating to Prior or members of Prior's
family made in the Letter Request or in any certificate provided by Prior in
connection with the Ruling Request or in connection with an opinion of tax
counsel with respect to the Transactions.
(b) Prosser Liability. Prosser shall be liable for, and shall indemnify and
hold harmless the ATN Group and the ECI Group from and against any liability
for any Restructuring Taxes which arise from (x) any breach of Prosser's
representations and covenants under Section 11(b) or (y) the inaccuracy of any
factual statements or representations relating to Prosser or members of
Prosser's family made in the Letter Request or in any certificate provided by
Prosser in connection with the Ruling Request or in connection with an opinion
of tax counsel with respect to the Transactions.
Section 2.04. Expenses. Each of ATN, ECI, Prior and Prosser shall be liable
for all fees, costs and expenses, including without limitation reasonable
attorneys' fees, arising out of, or incident to, any proceeding before any Tax
Authority, or any judicial authority, with respect to any Taxes for which it
or he (as the case may be) is liable under Section 2.02(a) (in the case of
ATN), 2.02(b) (in the case of ECI), 2.03(a) (in the case of Prior) or 2.03(b)
(in the case of Prosser). In addition, an indemnified party under Section 2.02
or 2.03 shall be entitled to recover from the indemnifying party thereunder
all fees, costs and expenses, including without limitation reasonable
attorneys' fees, incurred by the indemnified party in connection with
enforcement of its rights to indemnification against the indemnifying party.
Section 3. Proration of Taxes for Straddle Periods.
3.01 General Method of Proration. For purposes of Section 2, in the case of
any Straddle Period, Tax Items shall be apportioned between Pre-Distribution
Periods and Post-Distribution Periods in accordance with the principles of
Treasury Regulation Section 1.1502-76(b). No election shall be made under
Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to ratable
allocation of a year's items). If the Closing Date is not an Accounting Cutoff
Date, the provisions of Treasury Regulation Section 1.1502-76(b)(2)(iii) will
be applied to ratably allocate the items (other than extraordinary items) for
the month which includes the Closing Date.
3.02 Transaction Treated as Extraordinary Item. In determining the
apportionment of Tax Items between Pre-Distribution Periods and Post-
Distribution Periods, any Tax Item relating to the Transactions shall be
treated as an extraordinary item described in Treasury Regulation Section
1.1502-76(b)(2)(ii)(C) and shall be allocated to Pre-Distribution Periods, and
any Taxes related to any such Tax Item (including Restructuring Taxes) shall
be treated under Treasury Regulation Section 1.1502-76(b)(2)(iv) as relating
to such extraordinary item and shall be allocated to Pre-Distribution Periods.
3.03 Proration of Other Taxes. For purposes of Section 2, in the case of any
Straddle Period, Taxes that are not susceptible to apportionment in the manner
described in Section 3.01 (e.g., real and personal property taxes) shall be
apportioned between Pre-Distribution Periods and Post-Distribution Periods on
a pro rata basis based on the number of days in the relevant Tax Period.
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Section 4. Preparation and Filing of Tax Returns.
4.01 General.
(a) All Tax Returns shall be prepared and filed when due (including
extensions) by the person obligated to file such Tax Returns under the Code or
applicable Tax Law. ATN and ECI shall provide, and shall cause their
respective Affiliates to provide, assistance and cooperate with one another in
accordance with Section 6 with respect to the preparation and filing of all
Tax Returns, including, without limitation, providing information required to
be provided in Section 6.
(b) ECI shall, for each Tax Period or portion thereof for which ECI or
Aircraft Corp. is included in a Tax Return required to be filed by ATN,
provide ATN with (i) a true and correct schedule in the form of a separate
Federal Income Tax Return for each of ECI and Aircraft Corp., and (ii) a
reconciliation of book income to federal taxable income for ECI and Aircraft
Corp. ECI hereby agrees to use its best efforts to provide ATN with such
schedules and computations no later than the first day of the sixth month
following the end of the period to which such schedules and computations
relate.
4.02 Manner of Filing.
(a) All Tax Returns filed or caused to be filed by ATN or ECI after the
Closing Date shall be prepared on a basis that is consistent with (i) any IRS
ruling obtained by ATN in connection with the Transactions, (ii) the treatment
of ATN's purchase pursuant to Article I of the Repurchase and Recapitalization
Agreement of 416,998 shares of common stock at ATN owned by Prior and 384,564
shares of common stock of ATN owned by the 1994 Prior Charitable Remainder
Trust as distributions of property to which Section 301 of the Code applies,
and (iii) the treatment of the transactions contemplated by Article II of the
Repurchase and Recapitalization Agreement as tax-free to ATN, Prior and
Prosser for Federal Income Tax purposes by reason of such transactions
qualifying as reorganizations within the meaning of Section 368(a) of the Code
or otherwise (in each case, in the absence of a controlling change in law or
circumstances), and shall be filed on a timely basis by the Responsible
Company.
(b) Except as otherwise agreed in writing by ATN and ECI, and in the absence
of a controlling change in law or circumstances, all Tax Returns filed or
caused to be filed by ATN or ECI after the Closing Date shall be prepared
consistent with past practices, elections, accounting methods, conventions,
and principles of taxation used for the most recent taxable periods for which
Tax Returns involving similar items have been filed prior to the Closing Date,
except that, with respect to any Tax Item not relating to the Transactions,
one party may take an inconsistent position without the agreement of the other
party only to the extent such position does not create a Tax detriment to the
other party or any member of such other party's Group.
Section 5. Tax Payments and Intercompany Billings.
5.01 Payment of Taxes With Respect to Pre-Distribution or Straddle Period
Returns Filed After the Distribution Date. In the case of any Tax Return
required to be filed by ATN under Section 4.01 with respect to a Pre-
Distribution Period or Straddle Period the due date for which Tax Return
(including extensions) is after the Closing Date, at least 10 business days
prior to any Payment Date, ATN (i) shall compute the amount of Tax required to
be paid to the relevant Tax Authority (taking into account the requirements of
Section 4.02(b) relating to consistent accounting practices) with respect to
such Tax Return on such Payment Date and (ii) shall send to ECI a written
notice and demand for payment by ECI of its share (if any) of such Tax payment
determined by ATN in accordance with Section 2.02(b) and accompanied by a
statement detailing the Taxes to be paid and describing in reasonable detail
the particulars relating thereto. ECI shall deliver to ATN on or before the
business day immediately preceding such Payment Date a cashier's check made to
the order of the applicable Tax Authority for the amount of ECI's share of
such Tax Payment, and ATN shall remit such check and make the remainder of
such Tax payment to the relevant Tax Authority on or before such Payment Date.
5.02 Payment of Tax Related to Adjustments. ATN shall pay to the relevant
Tax Authority when due any additional Taxes required to be paid as a result of
any adjustment to Taxes with respect to any Pre-
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Distribution Period. At least 10 business days before such additional Tax
payment is due to be paid by ATN, ATN shall send to ECI, Prior or Prosser, as
the case may be, a written notice and demand from ATN for payment by it or
him, as the case may be, of its or his share (if any) of any such additional
Tax payment determined by ATN in accordance with Section 2 accompanied by a
statement detailing the Taxes to be paid and describing in reasonable detail
the particulars relating thereto; provided, however, that ATN will not make a
demand for an indemnification payment attributable to any Restructuring Taxes
under Section 2.02(b)(i) or 2.03 until the liability for such Restructuring
Taxes either (i) is established by a Final Determination or (ii) subject to
Section 8.02, is otherwise agreed to in writing by ATN with the applicable Tax
Authority. ECI, Prior or Prosser, as the case may be, shall pay to ATN, in
immediately available funds, ECI's or his share (if any) of any such
additional Tax Payment on or before the business day immediately preceding the
date such additional Tax is due to be paid by ATN; provided, however, that if
any portion of such additional Tax payment is indemnified by Prior or Prosser
under Section 2.03, (x) ECI may reduce the amount of its payment to ATN under
this Section 5.02 in respect of such additional Tax payment by 50% of the
amount of any indemnification payment in respect of such additional Tax
payment actually received by ATN from Prior or Prosser, as the case may be, on
or prior to the date that ECI is required to make such payment to ATN, and (y)
ATN shall immediately remit to ECI 50% of the amount of any indemnification
payment in respect of such additional Tax payment actually received by ATN
from Prior or Prosser, as the case may be, after ECI actually made a payment
to ATN under this Section 5.02 in respect of such additional Tax payment.
5.03 Indemnification Payments. Without overriding the procedures set forth
in Sections 5.01 and 5.02, if a Company (the "payor") pays to a Tax Authority
a Tax for which the other Company (the "responsible party") is liable under
this Agreement, the responsible party shall reimburse the payor within 10
business days of delivery by the payor to the responsible party of an invoice
for the amount due, accompanied by evidence of payment and a statement
detailing the Taxes paid and describing in reasonable detail the particulars
relating thereto. The reimbursement shall include interest on the Tax payment
computed at the Prime Rate based on the number of days from the date of the
payment to the Tax Authority to the date of reimbursement under this Section
5.03.
Section 6. Assistance and Cooperation.
6.01 General. After the Closing Date, each of ATN and ECI shall cooperate
(and cause their respective Affiliates to cooperate) with each other and with
each other's agents, including accounting firms and legal counsel, in
connection with Tax matters relating to ATN and ECI and their respective
Affiliates including, without limitation, (i) preparation and filing of Tax
Returns, (ii) determining the liability for and amount of any Taxes due
(including estimated Taxes) or the right to and amount of any refund of Taxes,
(iii) examinations of Tax Returns, and (iv) any administrative or judicial
proceeding in respect of Taxes assessed or proposed to be assessed. Such
cooperation shall include making all information and documents in their
possession relating to the other Company and its Affiliates reasonably
available to such other Company as provided in Section 7. Each of the
Companies shall also make available to each other, as reasonably requested and
available, personnel (including officers, directors, employees and agents of
the Companies or their respective Affiliates) responsible for preparing,
maintaining, and interpreting information and documents relevant to Taxes, and
personnel reasonably required as witnesses or for purposes of providing
information or documents in connection with any administrative or judicial
proceedings relating to Taxes. Any information or documents provided under
this Section 6 shall be kept confidential by the Company receiving the
information or documents, except as may otherwise be necessary in connection
with the filing of Tax Returns or in connection with any administrative or
judicial proceedings relating to Taxes.
6.02 Income Tax Return Information. Each Company will provide to the other
Company information and documents relating to its Group required by the other
Company to prepare Tax Returns. The Responsible Company shall determine a
reasonable compliance schedule for such purpose in accordance with ATN's past
practices. Any additional information or documents the Responsible Company
requires to prepare such Tax Returns will be provided in accordance with past
practices, if any, or as the Responsible Company reasonably requests and in
sufficient time for the Responsible Company to file such Tax Returns timely.
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Section 7. Tax Records.
7.01 Retention of Tax Records. Except as provided in Section 7.02, each of
ATN and ECI shall preserve and keep all Tax Records exclusively relating to
the assets and activities of its Group for Pre-Distribution Tax Periods and
all other Tax Records relating to Taxes of the Groups for Pre-Distribution Tax
Periods, for so long as the contents thereof may become material in the
administration of any matter under the Code or other applicable Tax Law, but
in any event until the later of (i) the expiration of any applicable statutes
of limitation, and (ii) seven years after the Closing Date. If, prior to the
expiration of the applicable statute of limitation and such seven-year period,
a Company reasonably determines that any Tax Records which it is required to
preserve and keep under this Section 7 are no longer material in the
administration of any matter under the Code or other applicable Tax Law, such
Company may dispose of such records upon 90 days prior notice to the other
Company. Such notice shall include a list of the records to be disposed of
describing in reasonable detail each file, book, or other record accumulation
to be disposed of. The notified Company shall have the opportunity, at its
cost and expense, to copy or remove, within such 90-day period, all or any
part of such Tax Records.
7.02 State and Foreign Income Tax Returns. Tax Returns with respect to State
Income Taxes and Foreign Income Taxes and workpapers prepared in connection
with preparing such Tax Returns shall be preserved and kept, in accordance
with the guidelines of Section 7.01, by the person responsible for preparing
and filing the applicable Tax Return.
7.03 Access to Tax Records. The Companies and their respective Affiliates
shall make available to each other for inspection and copying during normal
business hours upon reasonable notice all Tax Records in their possession to
the extent reasonably required by the other Company in connection with the
preparation of Tax Returns, audits, litigation, or the resolution of items
under this Agreement.
Section 8. Tax Contests.
8.01 Notice. Each of ATN and ECI shall provide prompt notice to the other
and to Prior and Prosser of any pending or threatened Tax audit, assessment or
proceeding or other Tax Contest of which it becomes aware related to Taxes for
Tax Periods for which it is indemnified by the other or Prior or Prosser, as
the case may be, hereunder. Such notice shall contain factual information (to
the extent known) describing any asserted Tax liability in reasonable detail
and shall be accompanied by copies of any notice and other documents received
from any Tax Authority in respect of any such matters. If an indemnified party
has knowledge of an asserted Tax liability for which it is to be indemnified
hereunder and such party fails to give the indemnifying party prompt notice of
such asserted Tax liability, such failure to give notice will not relieve the
indemnifying party of its obligations hereunder, except to the extent that the
indemnifying party is materially prejudiced by such failure.
8.02 Control of Tax Contests. Each of ATN and ECI shall have full
responsibility and discretion in handling, settling or contesting any Tax
Contest involving a Tax Return for which it has filing responsibility pursuant
to Section 4 of this Agreement; provided, however, ECI, Prior or Prosser, at
it or his sole cost and expense, may participate in any Tax Contest with
respect to any Restructuring Taxes for which it or he has liability or an
indemnification obligation with respect to such Taxes under this Agreement;
provided, further, that ECI, at its sole cost and expense and employing Cahill
Gordon & Reindel or other counsel reasonably acceptable to ATN, shall be
permitted to jointly share with ATN, employing Fried, Frank, Harris, Shriver &
Jacobson or other counsel reasonably acceptable to ECI, the responsibility and
discretion in handling, settling or contesting any Tax Contest with respect to
any Taxes for which ECI has liability or an indemnification obligation to ATN
with respect to such Taxes, unless ECI fails to provide to ATN a written
acknowledgment of ECI's potential liability for such Taxes or indemnification
obligation to ATN with respect to such Taxes within 10 business days of ECI's
receipt of a written request by ATN therefor. Except as otherwise provided in
Section 2.04 hereof, any costs incurred in handling, settling or contesting
any Tax Contest shall be borne by the party having full responsibility and
discretion thereof.
Section 9. Effective Date; Termination of Prior Intercompany Tax Allocation
Agreements. This Agreement shall be effective on the Closing Date. Immediately
prior to the close of business on the Closing Date, all Intercompany Tax
Allocation Agreements shall be terminated.
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Section 10. No Inconsistent Actions.
(a) Each of the Companies covenants and agrees that, except as disclosed in
the Letter Request, it will not take any action, and it will cause its
Affiliates to refrain from taking any action, which may be inconsistent with
the Tax treatment of the Transactions as contemplated in the Ruling Request
(any such action is referred to in this Section 10 as a "Tainting Act"),
unless (i) the Company or Affiliate thereof proposing such Tainting Act (the
"Requesting Party") either (A) obtains a ruling with respect to the Tainting
Act from the Internal Revenue Service or other applicable Tax Authority that
is reasonably satisfactory to the other Company (the "Requested Party")
(except that the Requesting Party shall not submit any such ruling request if
a Requested Party determines in good faith that filing such request might have
a materially adverse effect upon such Requested Party), or (B) obtains an
unqualified opinion, reasonably satisfactory in form and substance to
Requested Party, of Fried, Frank, Harris, Shriver & Jacobson or Cahill Gordon
& Reindel or other independent nationally recognized tax counsel acceptable to
the Requested Party, on a basis of assumed facts and representations
consistent with the facts at the time of such action, that such Tainting Act
will not affect the Tax treatment of the Transactions as contemplated in the
Ruling Request, or (ii) the Requested Party consents in writing to such
Tainting Act, which consent shall be granted or withheld in the sole and
absolute discretion of the Requested Party. Without limiting the foregoing:
(i) Specified Actions. During the two-year period beginning on (and
including) the Closing Date, unless clause (i) or (ii) of the preceding
paragraph is satisfied with respect to the applicable action, and except as
disclosed in the Letter Request, ATN and ECI will not (and neither will
cause or permit any of its Affiliates to) (A) liquidate or merge with or
into any other corporation; (B) issue any capital stock that in the
aggregate exceeds 45%, by vote or value, of its capital stock issued and
outstanding immediately after the Distribution; (C) redeem, purchase or
otherwise reacquire its capital stock issued and outstanding immediately
after the Distribution (other than through stock purchases meeting the
requirements of section 4.05(1)(b) of Rev. Proc. 96-30); (D) make a
material disposition (including transfers from one member of a Group to
another member of that Group) or cessation of operations by means of a sale
or exchange of assets or capital stock, a distribution to stockholders, or
otherwise, of the assets constituting the trades or businesses relied upon
in the Ruling Request to satisfy Section 355(b) of the Code; or (E)
discontinue or cause to be discontinued the active conduct of the trades or
businesses relied upon in the Ruling Request to satisfy Section 355(b) of
the Code (each of the foregoing, a "Specified Action").
(ii) No Inconsistent Plan or Intent. Each of ATN and ECI represents and
warrants that it shall, and shall cause each of its Affiliates to, comply
with each factual statement and representation in the Ruling Request, and
that neither it nor any of its Affiliates has any plan or intent to take
any Specified Action or any action which is inconsistent with any factual
statements or representations in the Ruling Request. Regardless of any
change in circumstances, each of ATN and ECI covenants and agrees that it
will not take, and it will cause its Affiliates to refrain from taking, any
such Specified Action or inconsistent action on or before the last day of
the calendar year ending after the second anniversary of the Closing Date
other than as permitted in this Section 10.
(iii) Amended or Supplemental Rulings. Each of ATN and ECI covenants and
agrees that it will not file, and it will cause its Affiliates to refrain
from filing, any amendment or supplement to the Ruling Request subsequent
to the Closing Date without the consent of the other, which consent shall
not be unreasonably withheld.
(b) Notwithstanding anything to the contrary in this Agreement, each Company
shall be solely liable for, and shall indemnify and hold harmless the other
Company from any Restructuring Tax resulting from a Tainting Act by such first
Company or its Affiliates, regardless of whether clause (i) or (ii) of Section
10(a) was satisfied with respect to such Tainting Act.
Section 11. Certain Representations and Covenants of Prior and Prosser.
(a) Representations and Covenants of Prior.
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(i) Transfer Restrictions. Prior represents and warrants that he has no
plan or intention to sell, exchange, transfer by gift, pledge or otherwise
dispose of or encumber, whether actually or constructively by means of a
short sale, equity swap, forward or futures contract, option or otherwise
(collectively, a "Transfer") any stock or securities of ATN, or any
beneficial or financial interest therein, after the Transactions except for
Permitted Pledges. Prior covenants and agrees that during the two-year
period beginning on (and including) the Closing Date, without the prior
written consent of ECI (which consent ECI may grant or withhold in its sole
discretion), he will not Transfer any stock or securities of ATN, or any
beneficial or financial interest therein, except for Permitted Pledges,
unless he first obtains either (A) a ruling with respect to the Transfer
from the Internal Revenue Service or other applicable Tax Authority that is
reasonably satisfactory to ECI (acting on advice of counsel, such counsel
to be reasonably satisfactory to ATN) or (B) an unqualified opinion,
reasonably satisfactory in form and substance to ECI (acting on advice of
counsel, such counsel to be reasonably satisfactory to ATN), of Fried,
Frank, Harris, Shriver & Jacobson or other independent nationally
recognized tax counsel acceptable to ECI, on a basis of assumed facts and
representations consistent with the facts at the time of such Transfer,
that such Transfer will not affect the Tax treatment of the Transactions as
contemplated in the Ruling Request. In order to ensure compliance with the
requirements of this Section 11(a)(i), during the two-year period beginning
on (and including) the Closing Date, Prior shall maintain at least a
majority of the outstanding common stock of ATN (or all stock or securities
in ATN owned by him if he shall then own less than a majority of the
outstanding common stock of ATN) in accounts with one or more banks or
brokerage firms (collectively, "Financial Institutions"), which accounts
may be margin accounts, provided that each such Financial Institution shall
deliver a written undertaking to ECI stating that such Financial
Institution will not permit any Transfer of Mr. Prior's stock or securities
in ATN from such account without the prior written approval of ECI except
for (i) sales of such stock or securities made by such Financial
Institution for the purpose of obtaining repayment of any loans or advances
made to Prior by such Financial Institution following a default by Prior in
respect of such loans or advances, and (ii) any Transfer of such stock or
securities from an account of Prior with such Financial Institution to an
account of Prior with another Financial Institution which shall have given
ECI a written undertaking described in this Section 11(a)(i).
Notwithstanding anything to the contrary in this Agreement, Prior shall be
liable for, and shall indemnify and hold harmless the ATN Group and the ECI
Group from and against any liability for, any Restructuring Taxes which
arises out of any Transfer of any of his stock or securities in ATN or any
beneficial or financial interest therein (including, without limitation,
any sale of stock subject to a Permitted Pledge on foreclosure of such
pledge) regardless of whether the provisions of this Section 11(a)(i) were
satisfied with respect to such Transfer.
(ii) No Inconsistent Plan or Intent. Prior represents and warrants that
he has no plan or intent to cause ATN or any of its Affiliates to take any
Tainting Act (including any Specified Action) or any action inconsistent
with any factual statement or representation in the Letter Request. Prior
covenants and agrees that, so long as he owns a majority of the voting
power of the outstanding capital stock of ATN, he will cause ATN and its
Affiliates to refrain from taking any Tainting Act (including any Specified
Action) or any action inconsistent with any factual statement or
representation in the Letter Request on or before the last day of the
calendar year ending after the second anniversary of the Closing Date other
than as permitted in Section 10.
(b) Representations and Covenants of Prosser.
(i) Transfer Restrictions. Prosser represents and warrants that he has no
plan or intention to sell, exchange, transfer by gift, pledge or otherwise
dispose of or encumber, whether actually or constructively by means of a
short sale, equity swap, forward or futures contract, option or otherwise
(collectively, a "Transfer") any stock or securities of ECI, or any
beneficial or financial interest therein, after the Transactions except for
Permitted Pledges. Prosser covenants and agrees that during the two-year
period beginning on (and including) the Closing Date, without the prior
written consent of ATN (which consent ATN may grant or withhold in its sole
discretion), he will not Transfer any stock or securities of ECI, or any
beneficial or financial interest therein, except for Permitted Pledges,
unless he first obtains either (A) a ruling with respect to the Transfer
from the Internal Revenue Service or other applicable Tax Authority that
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is reasonably satisfactory to ATN (acting on advice of counsel, such
counsel to be reasonably satisfactory to ECI) or (B) an unqualified
opinion, reasonably satisfactory in form and substance to ATN (acting on
advice of counsel, such counsel to be reasonably satisfactory to ECI), of
Cahill Gordon & Reindel or other independent nationally recognized tax
counsel acceptable to ATN, on a basis of assumed facts and representations
consistent with the facts at the time of such Transfer, that such Transfer
will not affect the Tax treatment of the Transactions as contemplated in
the Ruling Request. In order to ensure compliance with the requirements of
this Section 11(b)(i), during the two-year period beginning on (and
including) the Closing Date, Prosser shall maintain at least a majority of
the outstanding common stock of ECI (or all stock or securities in ECI
owned by him if he shall then own less than a majority of the outstanding
common stock of ECI) in accounts with one or more banks or brokerage firms
(collectively, "Financial Institutions"), which accounts may be margin
accounts, provided that each such Financial Institution shall deliver a
written undertaking to ATN stating that such Financial Institution will not
permit any Transfer of Mr. Prosser's stock or securities in ECI from such
account without the prior written approval of ATN except for (i) sales of
such stock or securities made by such Financial Institution for the purpose
of obtaining repayment of any loans or advances made to Prosser by such
Financial Institution following a default by Prosser in respect of such
loans or advances, and (ii) any Transfer of such stock or securities from
an account of Prosser with such Financial Institution to an account of
Prosser with another Financial Institution which shall have given ATN a
written undertaking described in this Section 11(b)(i). Notwithstanding
anything to the contrary in this Agreement, Prosser shall be liable for,
and shall indemnify and hold harmless the ATN Group and the ECI Group from
and against any liability for, any Restructuring Taxes which arises out of
any Transfer of any of his stock or securities in ECI or any beneficial or
financial interest therein (including, without limitation, any sale of
stock subject to a Permitted Pledge on foreclosure of such pledge)
regardless of whether the provisions of this Section 11(b)(i) were
satisfied with respect to such Transfer.
(ii) No Inconsistent Plan or Intent. Prosser represents and warrants that
he has no plan or intent to cause ECI or any of its Affiliates to take any
Tainting Act (including any Specified Action) or any action inconsistent
with any factual statement or representation in the Letter Request. Prosser
covenants and agrees that, so long as he owns a majority of the voting
power of the outstanding capital stock of ECI, he will cause ECI and its
Affiliates to refrain from taking any Tainting Act (including any Specified
Action) or any action inconsistent with any factual statement or
representation in the Letter Request on or before the last day of the
calendar year ending after the second anniversary of the Closing Date other
than as permitted in Section 10.
(c) Upon compliance by Prior or Prosser with the requirements for a Transfer
specified in Sections 11(a)(i) or 11(b)(i), ECI or ATN, as the case may be,
shall promptly give written permission for such Transfer to the Financial
Institution holding the stock or securities proposed to be Transferred).
Section 12. Survival of Obligations. The representations, warranties,
covenants and agreements set forth in this Agreement shall be unconditional
and absolute and shall remain in effect without limitation as to time.
Section 13. Treatment of Payments; Tax Gross Up.
13.01 Treatment of Tax Indemnity Payments. In the absence of any change in
tax treatment under the Code or other applicable Tax Law, any Tax indemnity
payments made by a Company under Section 5 shall be reported for Tax purposes
by the payor and the recipient as distributions or capital contributions, as
appropriate, occurring immediately before the Distribution on the Closing
Date, but only to the extent the payment does not relate to a Tax allocated to
the payor in accordance with Treasury Regulation Section 1.1502-33(d) (or
under corresponding principles of other applicable Tax Laws).
13.02 Tax Gross Up. If notwithstanding the manner in which Tax indemnity
payments were reported, there is an adjustment to the Tax liability of a
Company as a result of its receipt of a Tax indemnity payment in
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respect of Restructuring Taxes resulting from a breach of a representation or
covenant made hereunder by the indemnifying party, such payment shall be
appropriately adjusted so that the amount of such payment, reduced by the
amount of all Income Taxes payable with respect to the receipt thereof, shall
equal the amount of the payment which the Company receiving such payment would
otherwise be entitled to receive pursuant to this Agreement.
Section 14. Disagreements. If after good faith negotiations the parties
cannot agree on the application of this Agreement to any matter, then the
matter will be referred to a nationally recognized accounting firm acceptable
to each of the parties (the "Accounting Firm"). The Accounting Firm shall
furnish written notice to the parties of its resolution of any such
disagreement as soon as practical, but in any event no later than 45 days
after its acceptance of the matter for resolution. Any such resolution by the
Accounting Firm will be conclusive and binding on all parties to this
Agreement. In accordance with Section 17, each party shall pay its own fees
and expenses (including the fees and expenses of its representatives) incurred
in connection with the referral of the matter to the Accounting Firm. All fees
and expenses of the Accounting Firm in connection with such referral shall be
shared equally by the parties affected by the matter.
Section 15. Late Payments. Any amount owed by one party to another party
under this Agreement which is not paid when due shall bear interest at the
Prime Rate plus two percent, compounded semiannually, from the due date of the
payment to the date paid. To the extent interest required to be paid under
this Section 15 duplicates interest required to be paid under any other
provision of this Agreement, interest shall be computed at the higher of the
interest rate provided under this Section 15 or the interest rate provided
under such other provision.
Section 16. Expenses. Except as provided in Section 14 and Section 2.04,
each party and its Affiliates shall bear their own expenses incurred in
connection with preparation of Tax Returns, Tax Contests, and other matters
related to Taxes under the provisions of this Agreement.
Section 17. General Provisions
17.01 Addresses and Notices. Any notice, demand, request or report required
or permitted to be given or made to any party under this Agreement shall be in
writing and shall be deemed given or made when delivered in party or when sent
by first class mail or by other commercially reasonable means of written
communication (including delivery by an internationally recognized courier
service or by facsimile transmission) to the party at the party's address as
follows:
If to ATN or Prior:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
With a copy to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver
& Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
12
<PAGE>
If to ECI or Prosser:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-8000
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
With a copy to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
A party may change the address for receiving notices under this Agreement by
providing written notice of the change of address to the other parties.
17.02 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and assigns.
17.03 Waiver. No failure by any party to insist upon the strict performance
of any obligation under this Agreement or to exercise any right or remedy
under this Agreement shall constitute waiver of any such obligation, right, or
remedy or any other obligation, rights, or remedies under this Agreement.
17.04 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein
shall not be affected thereby.
17.05 Further Action. The parties shall execute and deliver all documents,
provide all information, and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement, including
the execution and delivery to the other parties and their Affiliates and
representatives of such powers of attorney or other authorizing documentation
as is reasonably necessary or appropriate in connection with Tax Contests (or
portions thereof) under the control of such other parties in accordance with
Section 8.
17.06 Integration. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter of this Agreement and supersedes all
prior agreements and understandings pertaining thereto. In the event of any
inconsistency between this Agreement and any other agreements relating to the
Transactions, the provisions of this Agreement shall control.
17.07 Construction. The language in all parts of this Agreement shall in all
cases be construed according to its fair meaning and shall not be strictly
construed for or against any party.
17.08 No Double Recovery; Subrogation. No provision of this Agreement shall
be construed to provide an indemnity or other recovery for any costs, damages,
or other amounts for which the damaged party has been fully compensated under
any other provision of this Agreement or under any other agreement or action
at law or equity. Unless expressly required in this Agreement, a party shall
not be required to exhaust all remedies available under other agreements or at
law or equity before recovering under the remedies provided in this Agreement.
Subject to any limitations provided in this Agreement, the indemnifying party
shall be subrogated to all rights of the indemnified party for recovery from
any third party.
13
<PAGE>
17.09 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same instrument.
17.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
executed in and to be performed in that State.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
the respective officers as of the date set forth above.
Atlantic Tele-Network, Inc.
By: _________________________________
Its: ________________________________
Emerging Communications, Inc.
By: _________________________________
Its: ________________________________
Cornelius B. Prior, Jr.
-------------------------------------
Jeffrey P. Prosser
-------------------------------------
14
<PAGE>
ANNEX B
PRIVATE AND CONFIDENTIAL
July 7, 1997
The Board of Directors
Atlantic Tele-Network, Inc.
Chase Financial Center
PO Box 1730
St. Croix, U.S. Virgin Islands, 00821
Members of the Board:
We understand that Atlantic Tele-Network, Inc., a Delaware corporation (the
"Company"), proposes to effect a reorganization and separation of the
businesses of the Company involving the adoption by the stockholders of the
Company of the following agreements:
(i) the Subscription Agreement between the Company and Emerging
Communications, Inc., a Delaware corporation and newly formed wholly owned
subsidiary of the Company ("ECI"), pursuant to which the Company will
transfer certain assets and liabilities to ECI so that all of the assets,
liabilities and operations of (a) the Company's business and operations of
the Virgin Islands and certain other assets and liabilities of the Company
will be owned by ECI and (b) the Company's business and operations in
Guyana will continue to be owned by the Company (the Company, after
consummation of the transaction, to be hereinafter referred to as "New
ATN") (the "Subscription Agreement");
(ii) the Recapitalization Agreement, among the Company, Mr. Cornelius
Prior, co-chief executive officer and a principal stockholder of the
Company ("Prior"), individually and as trustee of the 1994 Charitable
Remainder Trust (the "Trust"), and Mr. Jeffrey Prosser, co-chief executive
officer and a principal stockholder of the Company ("Prosser"), pursuant to
which the Company will repurchase in the aggregate 765,562 shares of
Company Common Stock (as defined in the Recapitalization Agreement) owned
by Prior and the Trust at $22.7284 per share. Prior will exchange all of
his remaining 2,927,038 shares of Company Common Stock for a like number of
shares of a new series of common stock of the Company to be designated
Class B Common Stock (as defined in the Recapitalization Agreement), and
Prosser will exchange all of his 3,325,000 shares of Company Common Stock
for a like number of shares of a new series of common stock of the Company
to be designated Class A Common Stock (as defined in the Recapitalization
Agreement) (the "Recapitalization Agreement"); and
(iii) the Agreement and Plan of Merger, between ATN Merger Co., a
Delaware corporation ("Mergerco"), and the Company, pursuant to which (i)
Mergerco will be merged with and into the Company (the "Merger"), (ii) each
share of Company Common Stock (but not the newly created Class A Common
Stock and Class B Common Stock to be issued prior to the Merger) will be
converted into the right to receive four-tenths (0.4) of a share of New ATN
common stock, par value $0.01 (the "New ATN Common Stock"), and one share
(1.0) of ECI common stock, par value $0.01 (the "ECI Common Stock"), (iii)
the outstanding shares of Class A Common Stock of the Company will be
converted into the right to receive in the aggregate 5,704,231 shares of
ECI Common Stock, and (iv) the outstanding shares of Class B Common Stock
of the Company will be converted into the right to receive in the aggregate
2,807,040 shares of New ATN Common Stock (the "Merger Agreement" and
together with the Subscription Agreement and the Recapitalization
Agreement, the "Agreements").
1
<PAGE>
You have requested our opinion as to the fairness from a financial point of
view of the basic economic terms of the transaction provided for by the
Agreements to the Public Stockholders (defined as all holders of the Company
Common Stock except for Prior, the Trust, and Prosser and his family) of the
Company.
In conducting our analysis and arriving at the opinion expressed herein, we
have reviewed such materials and analyzed such financial and other factors as
we deemed relevant under the circumstances, including, but not limited to:
(i) drafts dated June 16, 1997 of the Agreements (excluding the schedules
to the Subscription Agreement) and certain ancillary agreements and
exhibits to the Subscription Agreement;
(ii) a draft dated June 27, 1997 of the Proxy Statement/Prospectus on
Form S-4;
(iii) a copy of the Rural Telephone Finance Cooperative loan commitment
letter, dated April 14, 1997;
(iv) certain publicly-available historical financial and operating data
of the Company, including, but not limited to, (a) the Annual Reports on
Form 10-K of the Company for the fiscal years ended December 31, 1994, 1995
and 1996, (b) the Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, and (c) the Proxy Statement for the Annual Meeting of
Stockholders held on April 30, 1997;
(v) certain information relating to New ATN and ECI, including projected
income statements, balance sheets and cash flow data for the fiscal years
ending December 31, 1997, 1998, 1999 and 2000 which were prepared by the
management of the Company;
(vi) publicly available financial, operating and stock market data
concerning certain companies engaged in businesses we deemed comparable to
ECI, or otherwise relevant to our inquiry;
(vii) the historical stock prices and trading volumes, and current
trading multiples of the Company Common Stock; and
(viii) such other financial studies, analyses, reviews and investigations
that we deemed appropriate.
We have assumed, with your consent, that the drafts of the Agreements which
we reviewed (as referred to above) will conform in all material respects to
those documents when in final form.
We have met with the senior management of the Company to discuss (i) the
prospects for the respective businesses of New ATN and ECI, (ii) their
estimates of such businesses' future financial performance, (iii) the
financial impact of the transaction as provided for by the Agreements on the
respective companies and (iv) such other matters that we deemed relevant.
In connection with our review and analysis and in arriving at our opinion,
we have assumed and relied upon the accuracy and completeness of the financial
and other information provided to us by the Company and we have not assumed
any responsibility for the verification of such information or any independent
valuation or appraisal of any of the assets or liabilities of New ATN or those
to be transformed or assumed by ECI. With respect to certain projected
financial data, provided to us by the Company for New ATN and for ECI, we have
assumed that such information (and the assumptions and bases therefor) has
been reasonably prepared and represents management's best currently available
estimate as to the future financial performance of New ATN and of ECI. Our
opinion is predicated on (i) the Company's transfer of certain of its assets
and liabilities to ECI qualifying as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) the distribution of ECI Common Stock to the holders of the Company
Common Stock being treated as a tax-free exchange for federal income tax
purposes to the Company under Section 355 (c)(1) or 361(c)(1) of the Code and
to such holders under Section 355(a) of the Code. Further, our opinion is
necessarily based on economic, financial and market conditions as they exist
and can only be evaluated as of the date hereof.
2
<PAGE>
Our opinion does not address nor should it be construed to address the
relative merits of the transaction . In addition, this opinion does not in any
manner address the prices at which New ATN Common Stock or the ECI Common
Stock will trade following consummation of the transaction.
As you know, we have been retained by the Board of Directors of the Company
to render this opinion in connection with the transaction provided for by the
Agreements and will receive a fee for such services, which fee is not
contingent upon the consummation of the transaction. In 1996, we were engaged
as the Company's financial advisor in connection with the Company's
exploration of strategic alternatives. Pursuant to our prior engagement
letter, we did not receive a fee for such services. In the ordinary course of
business we may actively trade the shares of the Company Common Stock for our
own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such security.
This letter and the opinion expressed herein are for the use of the Board of
Directors of the Company. This opinion is not intended to be and does not
constitute a recommendation to the stockholders of the Company as to how such
stockholders should vote or as to any other action such stockholders should
take regarding the transaction. This opinion may not be reproduced,
summarized, excerpted from or otherwise publicly referred to or disclosed in
any manner, without our prior written consent; except that the Company may
include this opinion in its entirety in any proxy statement relating to the
transaction sent to the Company's stockholders which we have had prior
opportunity to review.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the basic economic terms of the transaction provided for by
the Agreements is fair to the Public Stockholders of the Company from a
financial point of view.
Very truly yours,
Prudential Securities Incorporated
3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF ECI
LIMITATION OF LIABILITY OF DIRECTORS
The Restated Certificate of Incorporation of ECI provides that a director
will not be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware,
which concerns unlawful payments of dividends, stock purchases or redemptions
or (iv) for any transaction from which the director derived an improper
personal benefit.
While these provisions provide directors with protection from award for
monetary damages for breaches of their duty of care, they do not eliminate
such duty. Accordingly, these provisions will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. The provisions described
above apply to an officer of the corporation only if he or she is a director
of the corporation and is acting in his or her capacity as director, and do
not apply to officers of the corporation who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation and By-Laws of ECI will provide
that each person who was or is a party or is threatened to be made a party to,
or is involved, in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or, while a
director or officer of the corporation, is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer , employee or agent, will be indemnified and held harmless by the
corporation to the fullest extent permitted by the laws of the State of
Delaware, as the same exists or may hereafter be amended, against all expense,
liability and loss (including attorneys' fees, judgments, amounts paid in
settlement, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) actually and reasonably incurred or suffered by such
person in connection therewith, and such indemnification will continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators.
Notwithstanding the preceding sentence, the corporation will be required to
indemnify an indemnitee in connection with a proceeding (or part thereof)
commenced by such indemnitee only if the commencement of such proceeding (or
part thereof) by the indemnitee was authorized by the Board of directors of
the corporation.
ECI will be authorized to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any expense, liability or
loss incurred by such person in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability.
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
2.1 Subscription Agreement, dated as of August 11, 1997, between Atlantic
Tele-Network, Inc. and Emerging Communications, Inc. (included in Annex A
to Proxy Statement--Prospectus).
2.2 Repurchase and Recapitalization Agreement, dated as of August 11, 1997,
among Atlantic Tele-Network, Inc., Cornelius B. Prior, Jr., individually
and as trustee of the 1994 Prior Charitable Remainder Trust, and Jeffrey
J. Prosser (included in Annex A to Proxy Statement--Prospectus).
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
2.3 Agreement and Plan of Merger, dated as of August 11, 1997, between ATN
Merger Co, and Atlantic Tele-Network, Inc. (included in Annex A to
Proxy Statement--Prospectus)
2.4 Principal Terms Agreement, dated as of January 29, 1997, Relating to
the Division of Atlantic Tele-Network, Inc. by and among Atlantic Tele-
Network, Inc., Cornelius B. Prior, Jr. and Jeffrey J. Prosser.
3.1 Form of Restated Certificate of Incorporation of Emerging
Communications, Inc. (included in Annex A to Proxy Statement--
Prospectus)
3.2 Form of By-laws of Emerging Communications, Inc.
4.1 Specimen Form of Emerging Communications, Inc.'s Stock Certificate
4.2 Supplemental Stockholders' Agreement, dated as of December 29, 1987,
among Mr. Prosser, Mr. Prior, E.F. Hutton LBO, Inc., Atlantic Tele-
Network Co. and the Rural Telephone Finance Cooperative, as amended
April 30, 1991.
5.1 Opinion of Cahill Gordon & Reindel with respect to the legality of the
securities registered hereby.
10.1 Form of Employment Agreement, between Emerging Communications, Inc. and
Mr. Prosser.
10.2 Loan Agreement, dated as of December 29, 1987, among Atlantic Tele-
Network, Co. and Virgin Islands Telephone Corporation, as Borrowers,
and the Rural Telephone Finance Cooperative, as Lender, as amended on
July 7, 1989, May 10, 1990, April 30, 1991, August 21, 1991, May 18,
1994 and June 9, 1994 (excluding exhibits).**
10.3 Guarantee and Pledge Agreement, dated as of December 29, 1987, between
Atlantic Tele-Network Co. and the Rural Telephone Finance Cooperative,
as amended on August 31, 1988.
10.4 Telephone Loan Contract, dated as of May 15, 1990, between Virgin
Islands Telephone Corporation and the United States of America, acting
through the Administrator of the Rural Electrification
Administration.***
10.5 Supplemental Mortgage and Security Agreement, dated as of May 29, 1990,
among Virgin Islands Telephone Corporation, as Mortgagor, the United
States of America and Rural Telephone Finance Cooperative, as
Mortgagee, Vitelcom, Inc. (excluding exhibits).***
10.6 Supplemental Agreement, dated as of May 10, 1990, among Virgin Islands
Telephone Corporation, as Mortgagor, Vitelcom, Inc., and the Rural
Telephone Finance Cooperative, as Mortgagee.
10.7 Virgin Islands Public Service Commission Order, dated April 19, 1989,
approving Settlement Order, dated April 19, 1989, among Virgin Islands
Telephone Corporation, Atlantic Tele-Network Co., the Rural Telephone
Finance Cooperative, Vitelcom, Inc. and the Virgin Islands Public
Service Commission.***
10.8 Virgin Islands Public Service Commission Order, dated November 4, 1991,
embodying the Settlement Agreement, effective as of July 26, 1991,
among Virgin Islands Telephone Corporation, Atlantic Tele-Network Co.
and the Virgin Islands Public Service Commission.***
10.9 Virgin Islands Public Service Commission Order, dated August 12, 1992,
embodying the Settlement Agreement, effective as of August 5, 1992,
between Virgin Islands Telephone Corporation and the Virgin Islands
Public Service Commission, annexed thereto.***
10.10 Settlement Agreement, dated June 22, 1993, between Virgin Islands
Telephone Corporation and the Virgin Islands Public Service
Commission.****
10.11 Memorandum of Understanding, dated as of June 23, 1993, between the
Government of the Virgin Islands, by and through its Police Department,
and Virgin Islands Telephone Corporation.****
</TABLE>
- --------
* To be filed by amendment.
** Filed as an Exhibit to Atlantic Tele-Network, Inc.'s Registration
Statement (File No. 33-43012) and incorporated by reference herein,
except for amendments dated May 18, 1994 and June 9, 1994, which are
filed herewith.
*** Filed as an Exhibit to Atlantic Tele-Network, Inc.'s Registration
Statement (File No. 33-43012) and incorporated herein by reference
herein.
**** Filed as an Exhibit to Atlantic Tele-Network, Inc.'s Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1993 and incorporated by
reference herein.
+ Previously filed.
II-2
<PAGE>
<TABLE>
<C> <S>
10.12 Loan Agreement, dated as of May 29, 1990 between Atlantic Tele-Network,
Inc. and Banco Popular de Puerto Rico, as amended February 25, 1993 and
October 6, 1993.
10.13 Franchise to Virgin Islands Telephone Corporation for Telephone Service
to the Virgin Islands, dated October 30, 1959.
10.14 Atlantic Tele-Network, Inc. Defined Benefit Plan for Salaried Employees.
10.15 Atlantic Tele-Network, Inc. Management Employees Savings Plan.
10.16 Atlantic Tele-Network, Inc. Employees' Stock Ownership Plan.
10.17 Line of Credit Application and Agreement, dated March 20, 1995, between
Virgin Islands Telephone Corporation, as Borrower, and Rural Telephone
Finance Cooperative, as Lender.
10.18 Line of Credit Application and Agreement, dated March 10, 1996, between
Virgin Islands Telephone Corporation, as Borrower, and Rural Telephone
Finance Cooperative, as Lender.
10.19 Form of Senior Credit Facility between Atlantic Tele-Network Co., as
Borrower, and Rural Telephone Finance Cooperative, as Lender.
10.20 Form of 1997 Long Term Incentive and Share Award Plan of Emerging
Communications, Inc.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Cahill Gordon & Reindel (included in Exhibit 5.1 to this
Proxy Statement-Prospectus).
23.3 Consent of Prudential Securities Incorporated (also included in Annex B
to Proxy Statement--Prospectus).
23.4 Consent of Messrs. Ellis and Wheatley.
24.1 Power(s) of Attorney.
99.1 Form of proxy to be mailed to shareholders of Atlantic Tele-Network,
Inc.
(b) Financial Statement Schedules.
Atlantic Tele-Network, Inc. and Subsidiaries.
99.2 Independent Auditors' Report on Financial Statement Schedules.
99.3 Schedule I--Condensed Financial Statements of Atlantic Tele-Network,
Inc. (Parent Company Only).
99.4 Schedule II--Valuation and Qualifying Accounts.
Atlantic Tele-Network Co. and Subsidiaries.
99.5 Independent Auditors' Report on Financial Statement Schedules.
99.6 Schedule I--Condensed Financial Statements of Atlantic Tele-Network Co.
(Parent Company Only).
99.7 Schedule II--Valuation and Qualifying Accounts.
(c) Reports, Opinions or Appraisal.
99.8 Opinion of Prudential Securities Incorporated. (Included in Annex B to
Proxy Statement-Prospectus)
99.9 Form of Notice of Transmittal.*
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.
ITEM 22. UNDERTAKINGS.
The Undersigned Registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an
II-3
<PAGE>
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(2) That every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a) (3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EMERGING
COMMUNICATIONS, INC. HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION
STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF CHRISTIANSTED, THE ISLAND OF ST. CROIX, U.S.
VIRGIN ISLANDS, ON OCTOBER 20, 1997.
Emerging Communications, Inc.
/s/ Jeffrey J. Prosser
By __________________________________
JEFFREY J. PROSSER CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED ON OCTOBER 20, 1997
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURES TITLE
/s/ Jeffrey J. Prosser
- ------------------------------------- Chairman, Chief
JEFFREY J. PROSSER Executive Officer,
Acting Chief
Financial Officer
and Director
(Principal
Executive Officer
and Principal
Financial and
Accounting Officer)
Director
*
- -------------------------------------
SALVATORE MUOIO
/s/ John P. Raynor Director
- -------------------------------------
JOHN P. RAYNOR
Director
*
- -------------------------------------
SIR SHRIDATH S. RAMPHAL
Director
*
- -------------------------------------
JOHN G. VONDRAS
Director
*
- -------------------------------------
RICHARD N. GOODWIN
/s/ Jeffrey J. Prosser
*By_____________________________
ATTORNEY-IN-FACT
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<PAGE>
EXHIBIT 2.4
-----------
PRINCIPAL TERMS AGREEMENT
RELATING TO THE DIVISION
OF
ATLANTIC TELE-NETWORK, INC.
BY AND AMONG
ATLANTIC TELE-NETWORK, INC.
CORNELIUS B. PRIOR, JR.
AND JEFFREY J. PROSSER
January 29, 1997
<PAGE>
PRINCIPAL TERMS AGREEMENT
-------------------------
This Principal Terms Agreement (the "Agreement") governs the prospective
division of the assets and liabilities of Atlantic Tele-Network, Inc. ("Old
ATNI") through the distribution of certain assets and liabilities, consisting of
the assets and liabilities associated with Atlantic Tele-Network, Co.
("ATNCo."), the Virgin Islands Telephone Corporation, Vitelcom Cellular Inc. and
Vitelcom, Inc. (collectively, the "Virgin Islands Subsidiaries"), to a new
holding company, to be incorporated under the laws of Delaware ("New ATN"). To
effect such division, the Agreement further contemplates the distribution to
stockholders of Old ATNI of shares of common stock of New ATN and the allocation
of prospective corporate opportunities and ongoing projects (collectively, the
"Transaction"). Upon consummation of the Transaction, (i) the principal assets
and liabilities of Old ATNI will consist of the assets and liabilities
associated with the operations of the Guyana Telephone & Telegraph Company
("GT&T"); (ii) the principal assets and liabilities of New ATN will consist of
the assets and liabilities associated with the Virgin Islands Subsidiaries;
(iii) Jeffrey J. Prosser ("Prosser"), co-chief-executive officer of Old ATNI,
will own or control through affiliates approximately 60% of the voting
securities of New ATN; and (iv) Cornelius B. Prior, Jr. ("Prior'),
co-chief-executive officer of Old ATNI, will own or
<PAGE>
-2-
control approximately 60% of the voting securities of Old ATNI. Upon completion
of the Transaction, the public will own approximately 40% of the outstanding
voting securities of each of Old ATNI and New ATN.
RECITALS
WHEREAS, Messrs. Prior and Prosser entered into a Global Settlement
Agreement and Release dated as of February 7, 1996 (the "Settlement Agreement)
pursuant to which certain outstanding litigation between Messrs. Prior and
Prosser was settled and certain agreements with respect to the governance of Old
ATNI and its subsidiaries were reached;
WHEREAS, in connection with the Settlement Agreement, the Board of
Directors of Old ATNI agreed to engage two nationally recognized investment
banking firms to pursue various opportunities to enhance stockholder value,
including the potential sale of old ATNI, in whole or in part through the sale
of either of its principal operating businesses;
WHEREAS, to date, the efforts to consummate any transaction which would
enhance stockholder value through the sale of all or any of the principal
businesses of Old ATNI have not been successful and there are no material
prospects for any such transaction in the near future;
<PAGE>
-3-
WHEREAS, Messrs. Prior and Prosser and Old ATNI believe that it is in the
best interests of the businesses of Old ATNI and its subsidiaries and of the
stockholders of old ATNI to resolve their ongoing management and governance
disputes by terminating their joint ownership of Old ATNI as well as their
status as co-chief executive officers;
WHEREAS, as a result of the foregoing, Messrs. Prior and Prosser, in their
capacities as stockholders and directors, agree to support the Transaction and
recommend it for approval to the Board of Directors of Old ATNI; and
WHEREAS, the Board of Directors of Old ATNI and Messrs. Prior and Prosser
believe that the most advantageous available option to enhance stockholder value
and to provide additional benefits to Old ATNI is to effect the Transaction;
NOW, THEREFORE, in consideration of these premises and the mutual
representations, warranties and agreements contained herein, each of the parties
agrees as follows:
1. Binding Agreement. This Agreement is intended to set forth the principal
-----------------
terms and parameters of a definitive agreement to be entered into in connection
with the Transaction and, with respect to the terms of the Transaction
specifically set forth in this Agreement only, is intended to be a binding
<PAGE>
-4-
and enforceable obligation of the respective parties until and unless superseded
by the execution of the definitive documentation governing the Transaction (the
"Definitive Documentation") or expiration pursuant to Section 15 hereof. Each of
the parties acknowledges that any breach of the Agreement with respect to the
terms of the Transaction specifically set forth in this Agreement could, unless
waived, subject the breaching party to monetary damages and, should the
circumstances warrant, injunctive and other forms of equitable relief.
2. Transaction. Each of the parties agrees that they will support
-----------
resolutions for adoption by the Board of Directors and stockholders of Old ATNI
that require Old ATNI to form New ATN and contribute the assets and liabilities
of Old ATNI associated with Old ATNI's Virgin Islands operations, including the
capital stock of ATNCo. (which owns the capital stock of all of the other Virgin
Islands Subsidiaries) and certain other agreed upon assets and liabilities as
more fully described herein, and distribute to stockholders of Old ATNI shares
of New ATN common stock on a basis which will be tax free to all holders of Old
ATNI common stock, Old ATNI, New ATN and their respective subsidiaries pursuant
to the internal revenue codes of the United States and the U.S. Virgin Islands
except with respect to the Cash Payment described and defined in Section 3
below. In addition, the parties "agree to take or
<PAGE>
-5-
cause to be taken all required actions necessary to effect the Transaction under
all applicable federal and state securities laws such that, upon consummation
of, and as a condition to, the Transaction (the "Closing Date"), the common
stock of each of Old ATNI and New ATN will be listed and available for public
trading in the National Market System of NASDAQ or on a recognized securities
exchange without restriction except with respect to common stock held by persons
who may be deemed "affiliates" of either Old ATNI or New ATN under applicable
federal securities laws.
3. Equity Ownership of Messrs. Prior and Prosser. After giving effect to
---------------------------------------------
the Transaction, Mr. Prior shall own or control through affiliates approximately
60% of the outstanding voting securities of Old ATNI and Mr. Prosser shall own
or control through affiliates approximately 60% of the outstanding voting
securities of New ATN. The balance of the outstanding voting securities of each
of Old ATNI and New ATN shall be owned by the public. Because of the relative
values attributed to the assets and liabilities being contributed to New ATN in
connection with the Transaction, Mr. Prosser or New ATN shall purchase from Mr.
Prior and his-trustees the number of shares of voting securities to which he
would otherwise be entitled in New ATN and shall pay to Mr. Prior for such
shares, in cash, in immediately available funds, on the Closing Date, $16.5
million
<PAGE>
-6-
(the "Cash Payment"). It is intended that the purchase of the voting securities
of New ATN referred to in the preceding sentence will be treated for federal
income tax purposes as long term capital gain under the Internal Revenue Code of
1986, as amended. Mr. Prosser shall provide Mr. Prior, within 45 days of the
execution of this Agreement, with reasonably documented assurances as to the
financial wherewithal to make the Cash Payment including a commitment letter,
subject to customary terms and conditions, from a money center bank, if such
Cash Payment is to be funded from borrowings, failing which Mr. Prior may
terminate this Agreement (and the Definitive Documentation if executed within
such 45 day period).
4. Division of other Assets and Liabilities.
----------------------------------------
(a) All personal debts owed by either Mr. Prior or Mr. Prosser to Old ATNI
shall be repaid prior to, or concurrently with, the Closing Date;
(b) On or prior to the Closing Date, the following assets shall be
transferred to New ATN (in addition to the stock of ATNCo.);
(i) 50% of cash on hand and cash equivalents ("Cash and Cash
Equivalents"), accounts receivables, accrued and unpaid advisory fees
and intercom-
<PAGE>
-7-
pany interest and any stockholders' receivables as of the Closing
Date;
(ii) Intercompany indebtedness outstanding as of the Closing Date owed by
ATNCo. or any of the other Virgin Islands Subsidiaries to Old ATNI;
(iii) The lease, furniture, fixtures and leasehold improvements pertaining
to Old ATNI's office in St. Croix;
(iv) The capital stock and intercompany debt owing to Old ATNI by Atlantic
Aircraft Corporation ("the Aircraft Corporation");
(v) All of Old ATNI's rights with respect to its ongoing project to
privatize the Congo telephone company; and
(vi) All Advisory Fee Agreements, if any, relating to the Virgin Islands
Subsidiaries.
(c) It is specifically intended that the following assets of Old ATNI will
be allocated to, and remain with, old ATNI;
(i) 50% of Cash and Cash Equivalents, accounts receivables, accrued and
unpaid advisory fees and
<PAGE>
-8-
intercompany interest and any stockholders' receivables as of the
Closing Date;
(ii) Old ATNI's capital stock interest in GT&T;
(iii) Intercompany indebtedness outstanding as of the Closing Date owed by
GT&T to Old ATNI;
(iv) Old ATNI's Advisory Fee Agreement with GT&T;
(v) The lease, furniture and fixtures and leasehold improvements
pertaining to Old ATNI's office in St. Thomas; and
(vi) All of Old ATNI's rights with respect to its efforts currently or in
the past with regard to (a) a long distance telephone project in
Jamaica; (b) the privatization of the Suriname Telephone Company and
(c) the purchase of the St. Martin cellular operations;
(d) By separate letter agreement (the "Side Letter") Mr. Prior and Mr.
Prosser have identified certain employees of Old ATNI (parent company only) who
will be employed after the consummation of the Transaction by New ATN
("employees designated by Mr. Prosser") and certain employees who will be
em-
<PAGE>
-9-
ployed by Old ATNI after the consummation of the Transaction ("employees
designated by Mr. Prior").
(e) New ATN will assume the following liabilities:
(i) One half of Old ATNI's indebtedness to banks outstanding at the
Closing Date;
(ii) All of Old ATNI's obligations with respect to its St. Croix office,
including its office lease, any equipment leases and other obligations
pertaining to said office;
(iii) Any and all commitments and contingent liabilities, known or unknown,
specifically relating to the Virgin Island Subsidiaries or the
Aircraft Corporation or to projects specifically allocated to New ATN
pursuant to this Agreement;
(iv) One half of all liabilities, including undisclosed and unknown
liabilities, of Old ATNI existing at the Closing Date or arising out
of events or acts or omissions occurring on or prior to the Closing
Date (including without limitation, liabilities for taxes with respect
to any periods ending on or prior to the Closing Date) excepting only
contingent liabilities and
<PAGE>
-10-
commitments specifically relating to subsidiaries or projects
specifically allocated to New ATN or Old ATNI pursuant to this
Agreement; and
(v) one half of the severance cost of any Old ATNI employees who have not
been designated by either Mr. Prior or Mr. Prosser in the Side Letter.
(f) The following liabilities are specifically intended to remain the
responsibility of Old ATNI following the consummation of the Transaction:
(i) One half of Old ATNI's indebtedness to banks outstanding at the
Closing Date;
(ii) All of Old ATNI's obligations with respect to its St. Thomas office,
including its office lease, any equipment leases and other obligations
pertaining to said office;
(iii) Any and all commitments and contingent liabilities known or unknown,
specifically relating to GT&T or to projects specifically allocated to
Old ATNI pursuant to this Agreement;
(iv) One half of all liabilities, including undisclosed and unknown
liabilities, of old ATNI ex-
<PAGE>
-11-
isting at the Closing Date or arising out of events or acts or
omissions occurring on or prior to the Closing Date (including without
limitation, liabilities for taxes with respect to any periods ending
on or prior to the Closing Date) excepting only contingent liabilities
and commitments specifically relating to subsidiaries or projects
specifically allocated to New ATN or Old ATNI pursuant to this
agreement; and
(v) One half of the severance cost of any Old ATNI employees who have not
been designated by either Mr. Prior or Mr. Prosser in the Side Letter.
(g) on the Closing Date New ATN shall pay to Old ATNI in cash in
immediately available funds, a sum equal to one-half of the blue book values of
the two aircraft owned by the Aircraft Corporation as of the latest blue book
available to the parties on the third business day prior to the Closing Date
minus the indebtedness of the Aircraft Corporation to third parties as of the
Closing Date.
(h) As and for a closing adjustment (the "Closing Adjustment"), Old ATNI
and New ATN, respectively, shall be credited with (1) all payments of
intercompany debt or dividends to Old ATNI made after December 31, 1996 and
prior to the
<PAGE>
-12-
Closing Date from the subsidiaries allocated to Old ATNI and New ATN,
respectively, and (2) all payments to Old ATNI of interest on intercompany debt
and advisory fees made after April 30, 1997 and prior to the Closing Date by
such subsidiaries, and Old ATNI and New ATN shall be charged for the following:
(i) The book value, as of the Closing Date of the furniture, fixtures and
leasehold improvements of Old ATN's offices in St. Thomas and St.
Croix shall be charged to Old ATNI and new ATN, respectively;
(ii) All advances made by Old ATNI after December 31, 1996 and prior to the
Closing Date to the subsidiaries allocated to Old ATNI and New ATNI
shall be charged to Old ATNI and New ATN, respectively;
(iii) All expenses paid or incurred after December 31, 1996 in respect of
the Congo privatization project shall be charged to New ATN, and all
expenses paid or incurred after December 31, 1996 in respect of the
Jamaica Long Distance Telephone project, or the Suriname Telephone
Company privatization project or the purchase of the St.
<PAGE>
-13-
Martin cellular operations shall be charged to Old ATNI;
(iv) All expenses pertaining to Old ATNI's office in St. Thomas and all
compensation or other expenses pertaining to the employees designated
by Mr. Prior which are paid or accrued after April 30, 1997 shall be
charged to Old ATNI and all expenses pertaining to the Old ATNI's
office in St. Croix and all compensation or other expenses pertaining
to employees designated by Mr. Prosser which are paid or accrued after
April 30, 1997 shall be charged to New ATN; and
(v) 50% of all other expenses and expenditures of old ATNI for the period
from April 30, 1997 to the Closing Date shall be charged to each of
Old ATNI and New ATN, respectively. The parties may agree upon other
specific allocations of Old ATNI expenses in the Definitive
Documentation.
If Old ATNI's balance of Cash and Cash Equivalents (the "Cash Balance') on
the Closing Date is less than the Cash Balance at April 30, 1997, New ATN shall
be credited with 50% of the difference and if the Cash Balance on the Closing
Date
<PAGE>
-14-
is more than the Cash Balance at April 30, 1997, New ATN shall be charged with
one-half of the difference.
If the charges to Old ATNI for purposes of the Closing Adjustment shall
exceed the amount credited to Old ATNI, Old ATNI shall pay to New ATN an amount
equal to one half of the net charge; on the other hand, if the amounts credited
to Old ATNI for purposes of the Closing Adjustment shall exceed the amounts
charged to Old ATNI, Old ATNI shall be entitled to receive a payment from New
ATN equal to one half of the net credit. Additionally, if the amounts charged to
New ATN for purposes of the Closing Adjustment shall exceed the amounts credited
to New ATN, New ATN shall pay to Old ATNI an amount equal to one half of the net
charge; and if the amounts credited to New ATN shall exceed the amounts charged
to New ATN, New ATN shall be entitled to receive from Old ATNI an amount equal
to one half of the net credit. The aggregate or net amount payable by Old ATNI
to New ATN, or by New ATN to Old ATNI, shall be paid, on an estimated basis on
the Closing Date in immediately available funds. Deloitte & Touche shall be
engaged to audit the amount of the Closing Adjustment and to report thereon
within 30 days after the Closing Date. If the estimated payment shall differ
from the final determination of the Closing Adjustment by Deloitte & Touche, an
appropriate payment shall be made by the responsible party so that the fi-
<PAGE>
-15-
nal amount paid shall correspond to the Closing Adjustment determined by
Deloitte and Touche. Deloitte & Touche's determination of the Closing Adjustment
shall be final and binding on the parties.
5. Non-Competition Agreement. It shall be a condition to the consummation
-------------------------
of the Transaction that New ATN and Mr. Prosser enter into a ten (10) year
worldwide non-competition agreement, binding upon them and their respective
affiliates and in form and substance reasonably satisfactory to the parties,
relating to the audiotext business which currently constitutes a material
portion of the business operations of GT&T.
6. Resignations of Certain Directors, Officers and Employees. Upon
---------------------------------------------------------
consummation of the Transaction, Mr. Prosser, Mr. John P. Raynor and Sir
Shridath S. Rampal shall resign from the Board of Directors of Old ATNI; Mr.
Prosser and any employee designated by Mr. Prosser in the Side Letter shall
resign as officers and directors of Old ATNI and GT&T and of any other
corporation which shall remain a subsidiary of Old ATNI after the Closing Date;
Mr. Prior and any employees designated by Mr. Prior in the Side Letter shall
resign as officers and directors of the Virgin Islands Subsidiaries and of any
other corporation which will become a subsidiary of New ATN after the
<PAGE>
-16-
Closing Date; Mr. Raynor and Mr. Ron Sanders shall resign from the board of
directors of GT&T; and Mr. Lewis A. Stern shall resign from the boards of
directors of ATNCo. and the Virgin Islands Telephone Corporation.
Prior to April 30, 1997, Old ATNI shall not pay any employee or consultant
any bonus or extraordinary compensation without the consent of the co-Chief
Executive Officers.
7. No Representations or Warranties; Exceptions. Each of the parties
--------------------------------------------
understands and agrees that no other party is, in this Agreement or in any other
agreement or document entered into in connection with the Transaction,
representing or warranting to the other in any way as to the business of Old
ATNI prior to or after the Closing Date or as to the business of New ATN after
the Closing Date or as to any consent or approvals required in connection with
the consummation of the transactions contemplated by this Agreement, it being
agreed and understood that the Transaction and all related transactions are
being consummated on an "as is, where is" basis.
8. Indemnification, Releases and Covenants not to Sue. Simultaneously with
--------------------------------------------------
the execution of the Definitive Documentation, each of the parties and New ATN
will execute an indemnity and release agreement ("Indemnity Agreement") in form
<PAGE>
-17-
and substance satisfactory to the parties, providing in substance as follows:
(i) except with respect to enforcing the specific provisions of the
Definitive Documentation none of the parties will sue any of the other
parties with respect to any of the matters constituting the
Transaction or with respect to any matters arising from the business
operations or management of Old ATNI or any of its subsidiaries prior
to the Closing Date.
(ii) Mr. Prior and Old ATNI will indemnify Mr. Prosser and New ATN against
any claims by any stockholders of Old ATNI or New ATN arising from or
based upon any actions taken by Mr. Prior or Old ATNI in connection
with the Transaction or arising from or based upon any actions taken
by Mr. Prior or Old ATNI or any of its subsidiaries after the
consummation of the Transaction.
(iii) Mr. Prosser and New ATN will indemnify Mr. Prior and Old ATNI against
any claims by any stockholders of Old ATNI or New ATN arising from or
based upon any actions taken by Mr. Prosser or New ATN in connection
with the Transaction or
<PAGE>
-18-
arising from or based upon any actions taken by Mr. Prosser or New ATN
or any of its subsidiaries after the consummation of the Transaction.
9. Use of Name. At the time of the consummation of the Transaction, Old
-----------
ATNI shall be entitled to the use of the corporate name "Atlantic Tele-Network,
Inc." On the Closing Date, New ATN shall adopt a name that may not be confused
or conflict with "Atlantic Tele-Network, Inc."
10. Additional Conditions to the Transaction. In addition to the conditions
----------------------------------------
which may otherwise be set forth herein, the following shall be additional
conditions to the consummation of the Transaction:
(a) the receipt of all required third party consents and approvals,
including any which may be required from the Rural Telephone Finance
Corporation, the Rural Utilities Service and Northern Telecom International
Finance B.V.;
(b) the receipt by Mr. Prosser of the funds from the financing
necessary to make the Cash Payment;
(c) the receipt of an opinion from a nationally recognized investment
banking firm dated the date a definitive information statement is mailed to
the holders of Old
<PAGE>
-19-
ATNI common stock under the Securities Exchange Act of 1934, as amended,
and reconfirmed as of the Closing Date, to the effect that the Transaction
is fair from a financial point of view to the public stockholders of Old
ATNI;
(d) no material adverse change in the principal business of either of
New ATN or Old ATNI as each will be constituted subsequent to the Closing
Date;
(e) each of New ATN and Old ATNI shall have minimum available
borrowing capacity with reputable lenders or available cash on hand
necessary to assume or pay one half of Old ATNI's indebtedness to banks
outstanding on the Closing Date and to make all payments expected to be
required pursuant to Section 4 hereof;
(f) the receipt of customary officers' certificates and opinions of
counsel (including with respect to the tax free nature of the Transaction
and the treatment of the Cash Payment as long term capital gain) in form
and substance satisfactory to the parties;
(g) the receipt of all required governmental and regulatory approvals;
and
(h) the receipt of all required approvals of the stockholders and
Board of Directors of Old ATNI.
<PAGE>
-20-
11. Employee Benefit Matters. Each of the employee benefit and pension
------------------------
plans with respect to the employees employed in the business of Old ATNI or New
ATN, as the case may be, in existence prior to the Closing Date shall be adopted
in substantially similar form or remain in effect thereafter, as the case may
be, such that employees of each of Old ATNI and New ATN shall have the same
benefits after the consummation of the Transaction as they were entitled to
prior to the Closing Date. Obligations under any such employee benefit or
pension plan with respect to Messrs. Prior and Prosser shall be allocated to Old
ATNI and New ATN, as the case may be, and the funds held under any such plans
shall be divided and placed under control of trustees or custodians designated
by Old ATNI and New ATN, respectively.
12. Access to Information. Each of the parties shall give to the others
---------------------
reasonable access to information necessary to consummate the Transaction and
shall deliver at its expense applicable records to the other party which may
inadvertently remain in its possession after the Transaction. Each of the
parties shall be required to retain records of the other in its possession for
no less than five years from the Closing Date.
<PAGE>
-21-
13. Standstill Agreement. Neither Mr. Prior nor Mr. Prosser nor any of
--------------------
their affiliates shall directly or indirectly acquire more than 5% of the
outstanding voting securities of New ATN or Old ATNI, respectively, for a period
of ten years from the Closing Date.
14. Vitelcom, Inc. Personnel of Vitelcom, Inc. providing services for Mr.
-------------
Prior's private wireless cable television business will continue to do so until
the Closing Date on the same basis as heretofore provided. Payments due and
owing from Mr. Prior shall be paid on an estimated basis, on the Closing Date
with final adjustment and payment to be made within 30 days after the Closing
Date. Any dispute as to the amount owing from Mr. Prior shall be determined by
Deloitte & Touche whose determination shall be final and binding on the parties.
15. Termination. This Agreement shall terminate upon the earlier of the
-----------
execution of the Definitive Documentation or March 30, 1997 unless such date
shall have been extended by the parties. The Definitive Documentation shall
provide that such Definitive Documentation may be terminated if the Transaction
has not occurred on or prior to July 31, 1997 unless such date shall have been
extended by the parties.
<PAGE>
-22-
16. Further Assurances. Each party hereto agrees that it will from time to
------------------
time on or after the Closing Date promptly do, execute, acknowledge and deliver
and will cause to be done, executed, acknowledged and delivered, all such
further acts, deeds, certificates, assignments, transfers, conveyances, powers
of attorney, assurances and other documents as may be requested by any other
party hereto to consummate the Transaction contemplated hereby.
17. Governing Law. This Agreement shall be construed and interpreted
-------------
according to the laws of the State of New York applicable to a contract made and
to be performed entirely within such state.
18. Assignment. Neither this Agreement nor any right hereunder may be
----------
assigned by the parties hereto without the prior written consent of the other
parties. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the successors, heirs, representatives and assigns of
each party hereto.
19. Amendment and Waiver. This Agreement may be amended only by an
--------------------
instrument in writing signed on behalf of each of the parties hereto. Any term,
condition or provision of this Agreement may be waived (if in writing) at any
time by
<PAGE>
-23-
the party or each of the parties entitled to the benefits thereof.
20. Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing and shall be deemed to have been given if
delivered by hand, or when sent by telex or telecopier (with receipt confirmed)
or by registered mail, return receipt requested, addressed as follows (or to
such other address as a party may designate by notice to the others):
(a) If to Prior and Old ATNI:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 6100
St. Thomas, U.S. Virgin Islands 00801
(809) 774-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver
& Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
<PAGE>
-24-
and to:
James C. Morphy, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
(212) 558-4000
Telecopy: (212) 558-3588
(b) If to Prosser and New ATN:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(809) 777-8000
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
21. Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. Headings References. The headings in the Articles and Sections of this
-------------------
Agreement are inserted for convenience only and shall not constitute a part
hereof. Unless otherwise indicated, all Section, Article, Exhibit and Schedule
<PAGE>
-25-
references are to Sections, Articles, Exhibits and Schedules of this Agreement.
23. Entire Agreement. This Agreement, including the agreements, schedules
----------------
and Exhibits referred to herein, constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter covered
hereby and supersedes all other prior agreements and understandings, written or
oral, between the parties with respect to said subject matter.
<PAGE>
-26-
IN WITNESS WHEREOF, each of the Old ATNI, Prior and Prosser have caused
this Agreement to be executed on the date first written above.
ATLANTIC TELE-NETWORK, INC.
By: /s/Jeffrey J. Prosser
-------------------------------
Co-Chief Executive Office
By: /s/Cornelius B. Prior, Jr.
-------------------------------
Co-Chief Executive Officer
By: /s/Cornelius B. Prior, Jr.
-------------------------------
Cornelius B. Prior
By: /s/Jeffrey J. Prosser
-------------------------------
Jeffrey J. Prosser
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
EMERGING COMMUNICATIONS, INC.
ARTICLE I
PLACE OF STOCKHOLDER MEETINGS;
NO STOCKHOLDER WRITTEN CONSENT
Section 1. All meetings of the stockholders shall be held at
such place or places, within or without the State of Delaware, as may from time
to time be fixed by the Board of Directors of the corporation (the "Board"), or
as shall be specified or fixed in the respective notices or waivers of notice
thereof. A stockholder vote may only be taken at a duly convened Annual Meeting
or Special Meeting of Stockholders in accordance with those By-Laws and not by
written consent in lieu of such a meeting.
NOTICE OF MEETING
Section 2. Written or printed notice, stating the place, day
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be prepared and delivered by the corporation not less than ten
days nor more than sixty days before the date of the meeting, either personally,
or by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at his
address as it appears on the stock transfer books of the corporation. Such
further notice shall be given as may be required by law. Meetings may be held
without notice if all stockholders entitled to vote are present (except as
otherwise provided by law), or if notice is waived by those not present. Any
previously scheduled meeting of the stockholders may be postponed and (unless
the Certificate of Incorporation otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board upon public notice
given prior to the time previously scheduled for such meeting of stockholders.
NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS
Section 3. (A) Annual Meetings of Stockholders. (1)
Nominations of persons for election to the Board of the corporation and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the corporation's notice of
meeting delivered pursuant to Section 2.4 of these By-Laws, (b) by or at the
direction of the Chairman of the Board or the Board or (c) by any stockholder of
the corporation who is entitled to vote at the meeting, who complied with the
notice procedures
<PAGE>
set forth in clauses (2) and (3) of this paragraph (A) of this By-Law and who
was a stockholder of record at the time such notice is delivered to the
Secretary of the corporation.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not less than seventy days nor more than
ninety days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than twenty days, or delayed by more than seventy
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule l4a-11 thereunder, including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner and (iii) whether the proponent intends or is part of a group
which intends to solicit proxies from other stockholders in support of such
nomination or proposal. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-Law to the contrary, in the event that the number of
directors to be elected to the Board of the corporation is increased and there
is no public announcement naming all of the nominees for director or specifying
the size of the increased Board made by the corporation at least eighty days
prior to the first anniversary of the preceding year's annual meeting, a
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stockholder's notice required by this By-Law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by the
corporation.
(B) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the corporation's notice of meeting pursuant to
Section 2.4 of these By-Laws. Nominations of persons for election to the Board
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (a) by or at the
direction of the Board or (b) by any stockholder of the corporation who is
entitled to vote at the meeting, who complies with the notice procedures set
forth in this By-Law and who is a stockholder of record at the time such notice
is delivered to the Secretary of the corporation. In the event the corporation
calls a special meeting of stockholders for the purpose of electing one or more
directors to the Board, any such stockholder may nominate a person or persons
(as the case may be), for election to such position(s) as are specified in the
corporations Notice of Meeting, if the stockholder's notice as required by
paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the
principal executive offices of the corporation not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General. (1) Only persons who are nominated in accordance
with the procedures set forth in this By-Law shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this By-Law. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this By-Law and, if any proposed nomination or business is not in compliance
with this By-Law, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the
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Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
QUORUM
Section 4. Unless otherwise provided by statute, the holders
of shares of stock entitled to cast a majority of votes at a meeting, present
either in person or by proxy, shall constitute a quorum at such meeting. The
Secretary of the corporation or in his absence an Assistant Secretary or an
appointee of the presiding officer of the meeting, shall act as the Secretary of
the meeting.
VOTING
Section 5. Except as otherwise provided by law or the
Certificate of Incorporation, each stockholder entitled to vote at any meeting
shall be entitled to one vote, in person or by written proxy, for each share
held of record on the record date fixed as provided in Section 4 of Article V of
these By-Laws for determining the stockholders entitled to vote at such meeting.
At all meetings of stockholders for the election of directors a plurality of the
votes cast shall be sufficient to elect. All other elections and questions
shall, unless otherwise provided by the certificate of incorporation, these
By-Laws, the rules or regulations of any stock exchange applicable to the
corporation, as otherwise provided by law or pursuant to any regulation
applicable to the corporation, be decided by the affirmative vote of the holders
of a majority in voting power of the shares of stock of the corporation which
are present in person or by proxy and entitled to vote thereon.
Elections of directors need not be by written ballot; provided,
however, that by resolution duly adopted, a vote by written ballot may be
required.
PROXIES
Section 6. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A proxy shall be irrevocable if
it states that it is irrevocable and if, and only as long as, it is coupled with
an interest sufficient in law to support an irrevocable power.
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A stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument revoking the proxy or by
delivering a proxy in accordance with applicable law bearing a later date to the
Secretary of the corporation. In order to be exercised at a meeting of
stockholders, proxies shall be delivered to the Secretary of the corporation or
his representative at or before the time of such meeting.
INSPECTORS
Section 7. At each meeting of the stockholders, the polls
shall be opened and closed; the proxies and ballots shall be received and be
taken in charge, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall to the extent
required by applicable law, be decided by one or more Inspectors, a majority of
whom shall have power to make a decision. Such Inspectors , if any, shall be
appointed by the Board before the meeting, or in default thereof by the
presiding officer at the meeting, and shall be sworn to the faithful performance
of their duties. If any of the Inspectors previously appointed shall fail to
attend or refuse or be unable to serve, substitutes shall be appointed by the
presiding officer.
CONDUCT OF MEETINGS
Section 8. The date and time of the opening and the closing of
the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting by the chairman of the meeting. The Board may
adopt by resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board, the chairman of any
meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the meeting. Such
rules, regulations or procedures, whether adopted by the Board or prescribed by
the chairman of the meeting, may include, without limitation, the following: (i)
the establishment of an agenda or order of business for the meeting; (ii) rules
and procedures for maintaining order at the meeting and the safety of those
present, (iii) limitations on attendance at or participation in the meeting to
stockholders of record of the corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with the rules of parliamentary procedure.
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ARTICLE II
BOARD OF DIRECTORS
NUMBER; METHOD OF ELECTION;
TERMS OF OFFICE AND QUALIFICATION
Section 1. The business and affairs of the corporation shall
be managed under the direction of the Board. The number of directors which shall
constitute the entire Board shall not be less than [ ] nor more than [ ] and
shall be determined from time to time by resolution adopted by a majority of the
entire Board.
Any director may resign his office at any time by delivering his
resignation in writing to the corporation, and the acceptance of such
resignation unless required by the terms thereof shall not be necessary to make
such resignation effective.
MEETINGS
Section 2. The Board may hold its meetings and have an office
in such place or places within or without the State of Delaware as the Board by
resolution from time to time may determine.
The Board may in its discretion may provide for regular or
stated meetings of the Board. Notice of regular or stated meetings need not be
given. Special meetings of the Board shall be held whenever called by direction
of the Chief Executive Officer, the President or any two of the directors.
Notice of any special meeting shall be given by the Secretary
to each director either by mail or by telegram, facsimile, telephone or other
electronic communication or transmission. If mailed, such notice shall be deemed
adequately delivered when deposited in the United States mails so addressed,
with postage thereon prepaid, at least three days before such meeting. If by
telegram, such notice shall be deemed adequately delivered when the telegram is
delivered to the telegraph corporation at least twenty-four hours before such
meeting. If by facsimile, telephone or other electronic communication or
transmission, such notice shall be transmitted at least twenty-four hours before
such meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Except as otherwise provided by applicable law, at any meeting
at which every director shall be present, even though without notice, any
business may be transacted. No notice of any adjourned meeting need be given.
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The Board shall meet immediately after election, following the
Annual Meeting of Stockholders, for the purpose of organizing, for the election
of corporate officers as hereinafter specified, and for the transaction of any
other business which may come before it. No notice of such meeting shall be
necessary.
QUORUM
Section 3. Except as otherwise expressly required by these
By-Laws or by statute, a majority of the directors then in office (but not less
than one-third of the total number of directors constituting the entire Board)
shall be present at any meeting of the Board in order to constitute a quorum for
the transaction of business at such meeting, and the vote of a majority of the
directors present at any such meeting at which quorum is present shall be
necessary for the passage of any resolution or for an act to be the act of the
Board. In the absence of a quorum, a majority of the directors present may
adjourn such meeting from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given.
COMPENSATION OF BOARD OF DIRECTORS
Section 4. Each director (other than a director who is a
salaried officer of the corporation or of any subsidiary of the corporation), in
consideration of his serving as such, shall be entitled to receive from the
corporation such amount per annum and such fees for attendance at meetings of
the Board or of any committee of the Board (a "Committee"), or both, as the
Board shall from time to time determine. The Board may likewise provide that the
corporation shall reimburse each director or member of a Committee for any
expenses incurred by him on account of his attendance at any such meeting.
Nothing contained in this Section shall be construed to preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
ARTICLE III
COMMITTEES OF THE BOARD
COMMITTEES
Section 1. The Board shall elect from the directors a
Compensation Committee and an Audit Committee and any other Committee which the
Board may by resolution prescribe. Any such other Committee shall be comprised
of such persons and shall possess such authority as shall be set forth in such
resolution.
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PROCEDURE
Section 2. (1) Each Committee shall fix its own rules of
procedure and shall meet where and as provided by such rules. Unless otherwise
stated in these By-Laws, a majority of a Committee shall constitute a quorum.
(2) In the absence or disqualification of a member of any
Committee, the members of such Committee present at any meeting, and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Fees in connection with such
appointments shall be established by the Board.
REPORTS TO THE BOARD
Section 3. All completed actions by the Audit and Compensation
Committees shall be reported to the Board at the next succeeding Board meeting
and shall be subject to revision or alteration by the Board, provided, that no
acts or rights of third parties shall be affected by any such revision or
alteration.
COMPENSATION COMMITTEE
Section 4. The Board shall elect a Compensation Committee
consisting of at least two members of the Board, none of whom shall be officers
or employees of the corporation or of any subsidiary corporation. The Board
shall appoint a chairman of such Committee who shall be one of its members. The
Compensation shall have such authority and duties as the Board by resolution
shall prescribe.
AUDIT COMMITTEE
Section 5. The Board shall elect from among its members an
Audit Committee consisting of at least [two [can be one]] members. The Board
shall appoint a chairman of said Committee who shall be one of its members. The
Audit Committee shall have such authority and duties as the Board by resolution
shall prescribe.
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ARTICLE IV
OFFICERS
GENERAL PROVISIONS
Section 1. The corporate officers of the corporation shall
consist of the following: a Chairman, a Chief Executive Officer, a Secretary, a
Treasurer, a Controller, and such other officers as the Board may from time to
time designate. Insofar as permitted by statute, the same person may hold two or
more offices. All officers chosen by the Board shall each have such powers and
duties as generally pertain to their respective offices, subject to the specific
provisions of this Article IV.
The Chairman, Chief Executive Officer, Secretary, Treasurer
and Controller shall be elected by the Board. Each such officer shall hold
office until his successor is elected or appointed and qualified or until his
earlier death, resignation or removal.
Any officer may be removed, with or without cause, at any time by the
Board.
A vacancy in any office may be filled for the unexpired portion of the
term in the same manner as provided in these By-Laws for election or appointment
to such office.
POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER
Section 2. The Chief Executive Officer shall have general
charge and management of the affairs, property and business of the corporation,
subject to the Board, and the provisions of these By-Laws. The Chief Executive
Officer, or in his absence such other individual as the Board may select, shall
preside at all meetings of the stockholders. He shall also preside at meetings
of the Board, and in his absence the Board shall appoint one of their number to
preside.
The Chief Executive Officer shall perform all duties assigned
to him in these By-Laws and such other duties as may from time to time be
assigned to him by the Board. He shall have the power to appoint and remove,
with or without cause, such officers, other than those elected by the Board as
provided for in these By-Laws, as in his judgment may be necessary or proper for
the transaction of the business of the corporation, and shall determine their
duties, all subject to ratification by the Board.
POWERS AND DUTIES OF OTHER OFFICERS
Section 3. The Chairman shall perform such duties as may from
time to time be assigned to him by the Board or the Chief Executive Officer.
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Section 4. The Secretary shall record the proceedings of all
meetings of the Board and the stockholders, in books kept for that purpose. The
Secretary shall be the custodian of the corporate seal, and he shall affix the
same to and countersign papers requiring such acts; and he shall perform such
other duties as may be required by the Board or the Chief Executive Officer.
Section 5. The Treasurer shall have care and custody of all
funds of the corporation and disburse and administer the same under the
direction of the Board or the Chief Executive Officer and shall perform such
other duties as the Board or the Chief Executive Officer shall assign to him.
Section 6. The Controller shall maintain adequate records of
all assets, liabilities and transactions of the corporation and see that audits
thereof are currently and regularly made; and he shall perform such other duties
as may be required by the Board or the Chief Executive Officer.
SALARIES AND APPOINTMENTS
Section 7. The salaries of corporate officers shall be fixed
by the Compensation Committee provided for in Section 5 of Article III hereof,
except that the fixing of salaries below certain levels, determinable from time
to time by the Compensation Committee, may in the discretion of the Compensation
Committee be delegated to the Chief Executive Officer, subject to the approval
of the Board.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8. (1) The corporation shall indemnify and hold
harmless, to fullest extent permitted by applicable law as it presently exists
or may hereafter be amended, any person (an "Indemnitee") who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit or
proceedings, whether civil, criminal, administrative or investigative, including
appeals (a "proceeding"), by reason of the fact that he, or a person for whom he
is the legal representative, is or was a director or officer of the corporation
or, while a director or officer of the corporation, is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Indemnitee. Notwithstanding the preceding sentence, except as
otherwise provided in paragraph (3) of this Section 8, the corporation shall be
required to indemnify an Indemnitee in connection with a proceeding (or part
hereof) commenced by such Indemnitee only if the commencement of such proceeding
(or part thereof) by the Indemnitee was authorized by the Board.
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(2) The corporation shall pay the expenses (including
attorneys' fees) incurred by an Indemnitee in defending any proceeding in
advance of its final disposition, provided, however, that, to the extent
required by law, such payment of expenses in advance of the final disposition of
the proceeding shall be made only upon receipt of an undertaking by the
Indemnitee to repay all amounts advanced if it should be ultimately determined
that the Indemnitee is not entitled to be indemnified under this Section 8 or
otherwise.
(3) If a claim for indemnification or payment of expenses
under this Section 8 is not paid in full within thirty days after a written
claim therefor by the Indemnitee has been received by the corporation, the
Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
(4) The rights conferred on any Indemnitee by this Section 8
shall not be exclusive of any other rights which such Indemnitee may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
(5) The corporation's obligation, if any, to indemnify or to
advance expenses to any Indemnitee who was or is serving at its request as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, enterprise or nonprofit entity shall be reduced by any amount
such Indemnitee may collect as indemnification or advancement of expenses from
such other corporation, partnership, joint venture, trust, enterprise or
nonprofit enterprise.
(6) Any repeal or modification of the foregoing provisions of
this Section 8 shall not adversely affect any right or protection hereunder of
any Indemnitee in respect of any act or omission occurring prior to the time of
such repeal or modification.
(7) This Section 8 shall not limit the right of the
corporation, to the extent and in the manner permitted by law, to indemnify and
to advance expenses to persons other than Indemnitees when and as authorized by
appropriate corporate action.
ARTICLE V
CAPITAL STOCK
CERTIFICATES OF STOCK
Section 1. Certificates of stock certifying the number of
shares owned shall be issued to each stockholder in such form not inconsistent
with the Certificate of Incorporation as shall be approved by the Board. Such
certificates of stock shall be numbered and
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registered in the order in which they are issued and shall be signed by the
Chairman or the Chief Executive Officer and by the Treasurer or the Secretary.
Any and all the signatures on the certificates may be a facsimile.
TRANSFER OF SHARES
Section 2. Transfers of shares shall be made only upon the
books of the corporation by the holder, in person, or by power of attorney duly
executed and filed with the Secretary of the corporation, and on the surrender
of the certificate or certificates of such shares, properly assigned. The
corporation may, if and whenever the Board shall so determine, maintain one or
more offices or agencies, each in charge of an agent designated by the Board,
where the shares of the capital stock of the corporation shall be transferred
and/or registered. The Board may also make such additional rules and regulations
as it may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 3. The corporation may issue a new certificate of
capital stock of the corporation in place of any certificate theretofore issued
by the corporation, alleged to have been lost, stolen or destroyed, and the
corporation may, but shall not be obligated to, require the owner of the alleged
lost, stolen or destroyed certificate, or his legal representatives, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate, as the officers of the
corporation may, in their discretion require.
FIXING OF RECORD DATE
Section 4. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board, and (3) in
the
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case of any other action, shall not be more than sixty days prior to such other
action. If no record date is fixed by the Board: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held, and (2) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting, provided,
however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VI
MISCELLANEOUS
DIVIDENDS AND RESERVES
Section 1. Dividends upon the capital stock of the corporation
may be declared as permitted by law by the Board at any regular or special
meeting. Before payment of any dividend or making any distribution of profits,
there may be set aside out of the surplus or net profits of the corporation such
sum or sums as the Board, from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or for such other purposes as
the Board shall think conducive to the interests of the corporation, and any
reserve so established may be abolished and restored to the surplus account by
like action of the Board.
SEAL
Section 2. The seal of the corporation shall bear the
corporate name of the corporation, the year of its incorporation and the words
"Corporate Seal, Delaware".
WAIVER
Section 3. Whenever any notice whatever is required to be
given by statute or under the provisions of the Certificate of Incorporation or
these By-Laws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the stockholders or the Board, as
the case may be, need be specified in any waiver of notice of such meeting.
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FISCAL YEAR
Section 4. The fiscal year of the corporation shall begin with
January first and end with December thirty-first.
CONTRACTS
Section 5. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
corporation by such officer or officers of the corporation as the Board may from
time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the Chief
Executive Officer, the Treasurer and the Secretary may execute bonds, contracts,
deeds, leases and other instruments to be made or executed for or on behalf of
the corporation subject to any restrictions imposed by the Board, the Chairman
of the Board, the Chief Executive Officer, the Treasurer and the Secretary of
the corporation may delegate contractual powers to others under this
jurisdiction, it being understood, however, that any such delegation of power
shall not relieve such officer of responsibility with respect to the exercise of
such delegated power.
PROXIES
Section 6. Unless otherwise provided by resolution adopted by
the Board, the Chairman of the Board, the Chief Executive Officer, the Treasurer
and the Secretary may from time to time appoint an attorney or attorneys or
agent or agents of the corporation, in the name and on behalf of the
corporation, to cast the votes which the corporation may be entitled to cast as
the holder of stock or other securities in any other corporation or other
entity, any of whose stock or other securities may be held by the corporation,
at meetings of the holders of the stock or other securities may other
corporation or other entity, or to consent in writing, in the name of the
corporation as such holder, to any action by such other corporation or other
entity, and may instruct the person or persons so appointed as to the manner of
casting such votes or giving such consent, and may execute or cause to be
executed in the name and on behalf of the corporation and under its corporate
seal or otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises.
AMENDMENTS
Section 7. The Board from time to time shall have the power to
make, alter, amend or repeal any and all of these By-Laws, but any By-Laws so
made, altered or repealed by the Board may be amended, altered or repealed by
the stockholders.
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CERTIFICATION
The undersigned hereby certifies that he is the duly elected and acting
Secretary of Emerging Communications, Inc., a Delaware corporation, and the
keeper of its corporate records and minutes. The undersigned further hereby
certifies that the above and foregoing is a true and correct copy of the By-Laws
of said corporation, as in force at the date hereof.
WITNESS the hand of the undersigned and the seal of said corporation,
this [ ] day of [ ], 1997.
-------------------------------------
----------------------------Secretary
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EXHIBIT 4.1
-----------
S P E C I M E N
NUMBER SHARES
EMERGING COMMUNCIATIONS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 29089K 10 8
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
EMERGING COMMUNICATIONS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/S/ Jeffrey J. Prosser (SEAL) /S/ Jeffrey J. Prosser
- ---------------------- -----------------------
Secretary Chairman
Countersigned and Registered
THE BANK OF NEW YORK
TRANSFER AGENT AND REGISTRAR
By
----------------------------
Authorized Signature
<PAGE>
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN _______ Custodian _______
ACT - (Cust.) (Minor)
TEN ENT - as tenants by the under Uniform Gifts to
entireties Minors
JT TEN - as joint tenants with Act ___________________
right of ownership and (State)
not as tenants in common
Additional abbreviations may also be used though not in the above list.
For value received _________________________ hereby sell and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
------------------------------------
- -----------------------------------------------------------------------------
Please print or type name and address, including zip code of assignee
- -----------------------------------------------------------------------------
- ---------------------------------------------------------------------- Shares
- -------------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, ______________
------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration, or enlargement, or any change whatever.
<PAGE>
EXHIBIT 4.2
-----------
SUPPLEMENTAL STOCKHOLDERS' AGREEMENT
------------------------------------
AGREEMENT dated as of December 29, 1987 by and among Jeffrey J.
Prosser ("Prosser"), Cornelius B. Prior, Jr. ("Prior"), E.F. Hutton LBO Inc.
("Hutton"), Atlantic Tele-Network Management Company ("Management"), Atlantic
Tele-Network Co. ("ATN") and Rural Telephone Finance Cooperative ("RTFC"). This
Supplemental Stockholders' Agreement, as it may be amended or supplemented from
time to time, is hereinafter referred to as "this Agreement."
RECITALS
--------
1. All of the above-named parties other than RTFC are parties to a
Stockholders' Agreement dated as of June 23, 1987 (the "Stockholders'
Agreement"). All defined terms used herein are as defined in the Stockholders'
Agreement unless otherwise defined herein.
2. ATN is the owner of all of the issued and outstanding shares of
capital stock of Virgin Islands Telephone Corporation ("Vitelco").
3. Hutton owns 45% of the common stock, $1.00 par value, of ATN ("ATN
Common Stock"). Prosser and Prior each own 27.5% of the ATN Common Stock,
either directly or indirectly through their ownership of Management.
4. To assist ATN in purchasing the stock of Vitelco, ATN and the
parent of Hutton, E.F. Hutton Group Inc. ("Hutton Group"), entered into a Loan
Agreement dated as of June 23, 1987 (as amended, the "Hutton Loan Agreement"),
providing for a bridge loan by Hutton Group to ATN in the principal amount of
$94,000,000 and the issuance to Hutton Group of ATN's Promissory Note dated June
24, 1987 (the "Note") also in such principal amount.
5. ATN, Vitelco, Hutton Prosser, Prior and Hutton Group desire that
the Note be paid in full. Accordingly, RTFC has agreed to make loans to each of
ATN and Vitelco (the "Refinancing Loans"), the proceeds of which are to be used
to repay the Note, pursuant to a Loan Agreement dated as of December 29, 1987
between RTFC as lender and ATN and Vitelco, respectively, as borrowers (the
"Loan Agreement").
<PAGE>
-2-
6. In order to induce RTFC to make the Refinancing Loans, the parties
hereto have agreed (a) immediately to provide RTFC with a representative on the
Board of Directors of ATN, (b) to enable RTFC to appoint a majority of the
members of the Board of Directors of ATN upon the occurrence and during the
continuance of certain Events of Default (as defined herein) and (c) to
supersede and modify the Stockholders' Agreement to the extent necessary to
accomplish the foregoing and certain other purposes, but otherwise to reaffirm
the Stockholders' Agreement without change.
AGREEMENT
---------
In consideration of the premises and of the terms and conditions
herein contained, the parties hereto mutually agree as follows:
Section 1. RTFC Representative on the ATN Board of Director.
(a) Simultaneously with the execution and delivery hereof and during
the term of this Agreement, RTFC shall be entitled to designate one of the three
Hutton Directors to the Board of Directors of ATN (such Hutton Director
designated by RTFC is hereinafter referred to as the "RTFC Director"), and the
Stockholders shall have taken such actions as may be necessary (including
obtaining the resignation of a member of the ATN Board of Directors) to cause
the individual designated in writing by RTFC as the RTFC Director to take the
place of the Hutton Director designated in writing by Hutton (or if no such
designation has been made by Hutton, the Hutton Director so designated by RTFC)
on ATN's Board of Directors.
(b) Thereafter, RTFC shall have the same rights with respect to the
RTFC Director as the Stockholders have with respect to directors that they are
presently entitled to designate under the Stockholders' Agreement, including but
not limited to the removal of directors and the filling of vacancies, and the
Stockholders will take such actions with respect to the RTFC Director as they
agree in the penultimate sentence of Section 1.01(b) of the Stockholders'
Agreement to take with respect to the election of directors nominated in
accordance with that Section.
<PAGE>
-3-
Section 2. RTFC's Right to Elect a Majority of the ATN Directors.
(a) The provisions of Section 1.01(b) of the Stockholders' Agreement
to the contrary notwithstanding, upon the occurrence of and during the
continuance of an Event of Default (as defined below), (i) RTFC shall be
entitled to designate a number of directors constituting a simple majority of
the Board of Directors of ATN, (ii) Hutton shall be entitled to designate one
member of the Board of Directors of ATN and (iii) Prosser and Prior shall each
be entitled to designate one member of the Board of Directors of ATN so long as
Prosser or Prior, as the case may be, shall own at least ten percent of the
outstanding shares of ATN Common Stock.
(b) Promptly upon receipt from RTFC of notice of the occurrence of an
Event of Default, the Stockholders shall take such actions as may be necessary
(including, without limitation, obtaining resignations of members of the ATN
Board of Directors, voting their shares of ATN Common Stock and entering into
consents with respect thereto) to cause the membership of the ATN Board of
Directors to be reconstituted in accordance with the preceding sentence. The
ATN directors to be removed and the persons to be designated in their places in
accordance with the previous sentence shall be as set forth in writing by RTFC,
Hutton, Prosser or Prior, as applicable; provided, that if any of Hutton,
Prosser or Prior fails to make any such designation, RTFC shall be entitled to
make a designation on behalf of such party.
(c) Thereafter, until the termination of this Agreement, RTFC,
Hutton, Prosser and Prior shall have the same rights with respect to the
respective directors to be designated by them pursuant to this Section as the
Stockholders presently have with respect to directors that they are entitled to
designate under Section 1.01(b) of the Stockholders' Agreement, including but
not limited to the removal of directors and the filling of vacancies, and the
Stockholders will take such actions with respect to the election of directors in
accordance with this Section 2 as they agree in the penultimate sentence of
Section 1.01(b) of the Stockholders' Agreement to take with respect to the
election of directors nominated in accordance with that Section.
(d) RTFC shall cause any director that it has designated to serve on
the ATN Board of Directors to resign from such Board at any time at which such
director is no longer entitled to serve pursuant to Section 1 or this Section 2,
pro-
<PAGE>
-4-
vided that the foregoing shall not preclude RTFC's designating additional
directors upon the subsequent occurrence of an Event of Default in accordance
with paragraph (a) hereof.
(e) For purposes of this Agreement, the term "Event of Default" shall
mean the occurrence of an event described in Section 8.02 or Section 8.04 of the
Loan Agreement (regardless of whether RTFC has exercised any remedy with respect
to any such event under the Loan Agreement).
Section 3. Cumulative Voting. The provisions of the last sentence of
Section 1.01(b) of the Stockholders' Agreement to the contrary notwithstanding,
the Stockholders will not take any action to provide for cumulative voting at
elections of directors during the term of this Agreement.
Section 4. Vitelco Board of Directors. (a) During the term of this
Agreement, the RTFC Director shall be entitled to receive notices of and to
attend (but, except as provided in paragraph (b) below, not vote at) all
meetings of the Vitelco Board of Directors, and the other parties hereto shall
use their best efforts to cause Vitelco to cooperate with and give effect to the
terms of this paragraph (a).
(b) The provisions of paragraph (a) above to the contrary
notwithstanding, upon the occurrence and during the continuance of an Event of
Default:
(i) the Stockholders and RTFC shall take whatever actions shall be
necessary to cause the Board of Directors of Vitelco to be restructured in
the same manner as is provided for the Board of Directors of ATN in Section
2(a) hereof, including by obtaining the resignations of the Stockholders'
designees on the Vitelco Board of Directors; and
(ii) the provisions of Section 1.05 of the Stockholders' Agreement
shall be suspended and of no force and effect.
<PAGE>
-5-
Section 5. Director Resignations. For purposes of enforcing the
provisions of Sections 1, 2 and 4 hereof, the Stockholders shall, concurrently
with the execution and delivery hereof, cause directors constituting at least a
majority of the members of each of the ATN and Vitelco Boards of Directors to
submit an undated letter of resignation of his position as a director to the
corporate secretary of ATN or Vitelco, respectively. Thereafter, ATN shall
cause its corporate secretary and the corporate secretary of Vitelco to date and
deliver any appropriate resignation (including resignations delivered in
accordance with the next sentence) to the ATN or Vitelco Board of Directors, as
the case may be, in order to give effect to the provisions of Section 1, 2 and 4
of this Agreement. At all times during the term of this Agreement, the
Stockholders will cause directors constituting a majority of the Board of
Directors of each of ATN and Vitelco to have on file with the appropriate
corporate secretary undated letters of resignation for disposition in accordance
with this Section 5.
Section 6. Transfers of ATN Common Stock Ownership. Notwithstanding
the provisions of Sections 2, 3, 4 and 5 of the Stockholders' Agreement to the
contrary, during the terms of this Agreement, none of the Stockholders shall
sell or otherwise transfer or dispose of any of his or its shares of ATN Common
Stock if any such sale, transfer or disposition would have the result of causing
Stockholders who are subject to the terms and conditions of the Stockholders'
Agreement to own, in the aggregate, beneficially and of record, 50% or less of
the outstanding shares of ATN Common Stock.
Section 7. Waiver of Section 2,02(d). By entering into this
Agreement, each of the parties hereto that is a party to the Stockholders'
Agreement hereby waives compliance by all the other parties thereto with the
provisions of Section 2.02(d) of the Stockholders' Agreement insofar as such
Section purports to prevent such parties from entering into an arrangement in
the nature of this Agreement.
Section 8. Termination of Stockholders' Agreement. Notwithstanding
the provisions of Section 12 of the Stockholders' Agreement to the contrary:
(a) the Stockholders' Agreement shall not terminate as set forth in
paragraph (d) of such Section 12 as long as this Agreement is in effect; and
(b) the parties to the Stockholders' Agreement agree that the ten
year term set forth in paragraph (e) of such Sec-
<PAGE>
-6-
tion 12 shall be renewed automatically and without any further action on their
parts through the date of the termination of this Agreement as provided in
paragraph (e) of Section 9 hereof.
Section 9. Miscellaneous.
(a) Further Assurances. The parties hereto shall perform any and all
such acts and execute and deliver any and all such documents as may be necessary
or appropriate to carry out fully the provisions of this Agreement, including
but not limited to causing the Articles of Incorporation or By-laws (or
comparable instruments) of ATN and Vitelco to be amended in such manner as RTFC
may reasonably request.
(b) Amendments to the Stockholders' Agreement. During the term of
this Agreement, each of the parties hereto that is a party to the Stockholders'
Agreement (i) will not enter into any amendment or supplement to the
Stockholders' Agreement, or into any other arrangement with any other person,
that would be contrary to or inconsistent with the provisions of this Agreement
and RTFC's rights hereunder, and (ii) will promptly give RTFC notice of any
amendment or supplement to the Stockholders' Agreement or any other arrangement
known to such party relating to or affecting the voting of shares of ATN Common
Stock.
(c) References to "this Agreement" in the Stockholders' Agreement.
Every reference in the Stockholders' Agreement to "this Agreement," as well as
any other reference therein to the Stockholders' Agreement through the use of
terms such as "herein" or "hereof," shall be deemed to refer to the
Stockholders' Agreement as amended, supplemented and otherwise affected by this
Agreement and any amendment or supplement hereto.
(d) Endorsement of Stock Certificates. In addition to the
endorsement to be affixed to certificates representing shares of ATN Common
Stock pursuant to Section 8 of the Stockholders' Agreement, each such
certificate shall also bear an endorsement substantially as follows:
"The shares represented by this certificate are also subject to
certain rights of Rural Telephone Finance Cooperative and certain
stockholders of the Corporation to designate directors of the Corporation
in accordance with the provisions of a Supplemental Stockholders' Agreement
dated as of December 29, 1987
<PAGE>
-7-
by and among Rural Telephone Finance Cooperative and the parties to the
aforementioned Stockholders' Agreement, a copy of which Supplemental
Stockholders' Agreement may be obtained from the Corporation or from the
holder of this certificate.".
(e) Termination. This Agreement shall terminate upon the earlier to
occur of (i) the payment to RTFC of all amounts outstanding under the Loan
Agreement and the satisfaction of all obligations owed to RTFC by ATN and
Vitelco thereunder and under the other documents referred to therein and (ii)
ATN having maintained both a DSC (as defined in the Loan Agreement) of at least
1.35 and a TIER (as defined in the Loan Agreement) of at least 1.5 in each of
five consecutive fiscal years (commencing with the fiscal year ended December
31, 1988) if at the end of such fifth year the consolidated stockholders' equity
of ATN and its Subsidiaries is at least equal to 40% of consolidated total
assets, in each case as set forth in ATN's audited financial statements for the
year then ended.
(f) Headings. Section headings are inserted herein for convenience
only and do not form a part of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors, heirs
and permitted assigns. No party hereto may assign his or its obligations under
this Agreement except in accordance with a transfer of his or its shares of ATN
Common Stock in accordance with this Agreement and the Stockholders' Agreement,
except that RTFC may assign its rights and obligations hereunder to National
Rural Utilities Cooperative Finance Corporation in connection with the
assignment by RTFC of its rights and obligations under the Loan Agreement to
such entity.
(i) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
(j) Notices. RTFC shall be treated as a Stockholder for purposes of
the last sentence of Section 14.10 of the Stockholders' Agreement, and may
request the list of addresses
<PAGE>
-8-
referred to in such Section. For purposes hereof, notices to be given to RTFC
shall be addressed as follows:
Rural Telephone Finance Cooperative
P.O. Box 39191
Washington, D.C. 20016
Attention: Loan Officer
(k) Injunctive Relief. It is acknowledged that it will be impossible
to measure in money the damages that would be suffered if the parties fail to
comply with any of the obligations herein imposed on them and that, in the event
of any such failure, an aggrieved person will be irreparably damaged and will
not have an adequate remedy at law. Any such person shall, therefore, be
entitled to injunctive relief, including specific performance, to enforce such
obligations, and if any action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall raise the defense
that there is an adequate remedy at law.
(l) Effectiveness of the Stockholders' Agreement. Except as
expressly modified hereby, the Stockholders' Agreement shall continue in full
force and effect.
/s/ Jeffrey J. Prosser
----------------------
Jeffrey J. Prosser
/s/ Cornelius B. Prior, Jr.
---------------------------
Cornelius B. Prior, Jr.
E.F. HUTTON LBO INC.
By /s/ W. Gerald Giminski
----------------------------
Name: W. Gerald Giminski
Title: Senior Vice President
ATLANTIC TELE-NETWORK MANAGEMENT
COMPANY
By /s/ Cornelius B. Prior, Jr.
----------------------------
Name: Cornelius B. Prior, Jr.
Title:
<PAGE>
-9-
ATLANTIC TELE-NETWORK CO.
By /s/ Cornelius B. Prior, Jr.
----------------------------
Name: Cornelius B. Prior, Jr.
Title: President
RURAL TELEPHONE FINANCE
COOPERATIVE
By /s/ Richard B. Bulman
----------------------------
Name: Richard B. Bulman
Title: Assistant Secretary-
Treasurer
<PAGE>
AMENDMENT NO. 1 TO SUPPLEMENTAL STOCKHOLDERS' AGREEMENT
-------------------------------------------------------
AGREEMENT dated as of April 30, 1991 by and among Jeffrey J. Prosser
("Prosser"), Cornelius B. Prior, Jr. ("Prior"), Atlantic Tele-Network Inc. ("ATN
Inc."), Atlantic Tele-Network Co. ("ATN Co.") and Rural Telephone Finance
Cooperative ("RTFC").
RECITALS
--------
1. The parties hereto are parties (or successors to parties) to a
Supplemental Stockholders' Agreement dated as of December 29, 1987 (the
"Supplemental Stockholders' Agreement") by and among Prosser, Prior, E.F. Hutton
LBO Inc. (which has assigned all of its rights thereunder to ATN Inc.), Atlantic
Tele-Network Management Company (a predecessor by merger of ATN Inc.), ATN Co.
and RTFC.
2. The parties hereto desire to amend the Supplemental Stockholders'
Agreement to the extent provided herein.
AGREEMENT
---------
In consideration of the premises and of the terms and conditions
hereunder contained, the parties hereto mutually agree as follows:
<PAGE>
-2-
1. Section 1(a) of the Supplemental Stockholders' Agreement is hereby
amended to provide that at all times during the term of said Supplemental
Stockholders' Agreement, RTFC shall be entitled to designate two directors to
the Board of Directors of ATN Co. and two directors of the Board of Directors of
Vitelco. All references in the Supplemental Stockholders' Agreement to the
"RFTC Director" shall refer to each and all of the directors so designated by
RTFC.
2. Except as expressly modified hereby, the Supplemental
Stockholders' Agreement shall continue in full force and effect.
/s/ Jeffrey J. Prosser
----------------------
Jeffrey J. Prosser
/s/ Cornelius B. Prior, Jr.
---------------------------
Cornelius B. Prior, Jr.
ATLANTIC TELE-NETWORK INC.
By:/s/
-------------------------
Title:
---------------------
ATLANTIC TELE-NETWORK CO.
By:/s/
-------------------------
Title:
----------------------
<PAGE>
-3-
RURAL TELEPHONE FINANCE
COOPERATIVE
By:/s/
-------------------------
Title:
----------------------
<PAGE>
EXHIBIT 5.1
-----------
[CAHILL GORDON & REINDEL LETTERHEAD]
October 17, 1997
(212) 701-3000
Emerging Communications, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 00821
Re: Emerging Communications, Inc.
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
This opinion is being rendered in connection with the Registration
Statement on Form S-4 (the "Registration Statement") filed by Emerging
Communications, Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission (the "Commission") registering under the
Securities Act of 1933, as amended (the "Act"), 10,959,131 shares (the "Shares")
of the Company's common stock, par value $.01 per share (the "Common Stock"), to
be issued to holders of the Common Stock of Atlantic Tele-Network, Inc., a
Delaware corporation ("ATN"), upon the consummation of the merger of ATN with
ATN MergerCo., a Delaware corporation.
We advise you that, in our opinion, the Shares to be issued, when issued
in the manner and for the consideration described in the Registration Statement,
will be duly and validly issued, fully paid and nonassessable.
<PAGE>
-2-
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and to the reference to our firm under
the caption "Legal Matters" in said Registration Statement and the related
prospectus. In giving such consent, we do not admit that we are in the category
of persons whose consent is required under Section 7 of the Act.
Very truly yours,
/S/ Cahill Gordon & Reindel
<PAGE>
EXHIBIT 10.1
------------
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
[ ] day of [ ], 1997 by and between Emerging Communications, Inc., a
Delaware Corporation (the "Company"), and Jeffrey J. Prosser ("Employee").
WHEREAS, the Company desires to employ the Employee and to enter into
this Agreement to embody the terms of such employment; and
WHEREAS, the Employee desires such employment and to enter into this
Agreement.
NOW, THEREFORE, for and in consideration of the premise and mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. As used in this Agreement, the following
terms have the meanings ascribed to them below:
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Change of Control" shall be deemed to have occurred upon the
happening of any of the following:
(a) The acquisition by any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of 1934, as amended
(the "Exchange Act"), (excluding the Employee) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of
either the then outstanding shares of the Company's common stock or the combined
voting power of the Com-
<PAGE>
-2-
pany's then outstanding voting securities entitled to vote generally in the
election of directors; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person who first
becomes director subsequent to the date hereof whose recommendation, election or
nomination for election by the Company's stockholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of the individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of the Company, as described in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the Incumbent
Board; or
(c) Approval by the stockholders of the Company of a reorganization,
share exchange, merger or consolidation with respect to which, in any such case,
the persons who were the stockholders of the Company immediately prior to such
reorganization, share exchange, merger or consolidation do not, immediately
thereafter, own more than 60% of the combined voting power entitled to vote in
the election of directors of the reorganized, merged or consolidated company; or
(d) Liquidation or dissolution of the Company or a sales of all or
substantially all the assets of the Company.
"Salary Adjustment Amount" means an amount equal to the percentage
increase (if any) in the "Consumer Price Index for all Urban Consumers" (the
"Index") published by the Bureau of Labor Statistics of the United States
Department of Labor for the twelve month period ending with the December
immediately preceding such determination of the Salary Adjustment Amount.
Appropriate adjustment shall be promptly made in case there is a published
amendment of the Index figures upon which the computation is based. In the
event the Index is discontinued, the parties hereto shall accept comparable
statistics on the cost of living published by an agency of the United States or
a responsible financial periodical of recognized authority.
<PAGE>
-3-
ARTICLE II
TERMS OF EMPLOYMENT
SECTION 2.01. Employment Term. The Employee shall be employed by the
Company for a period commencing on the date of this Agreement and ending five
years from such date (such date, and each five year anniversary of such date, is
hereinafter refereed to as the "Renewal Date"); provided that, unless the
Company, as authorized by its Board of Directors, shall have delivered to the
Employee written notice of its intent not to renew the employment of the
Employee under this Agreement at least six months prior to the Renewal Date, the
term of the employment of Employee under this Agreement shall extend for a
period of five years from the applicable Renewal Date. The period of the
Employee's employment hereunder, including any renewal thereof pursuant to the
previous sentence, is referred to herein as the "Employment Term."
SECTION 2.02. Position and Duties. The Employee shall serve as Chief
Executive Officer of the Company. During the Employment Term, excluding any
periods of vacation and sick leave to which the Employee is entitled, the
Employee agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Employee hereunder, to use the
Employee's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Term, it shall not be a violation of
this Agreement for the Employee to serve on corporate, civic or charitable
boards or committees, deliver lectures, fulfill speaking engagements or teach at
educational institutions, manage personal investments or engage in other
activities which do not materially and adversely interfere with the performance
of the Employee's responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Employee prior to the date
hereof, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereof) subsequent to the date hereof shall not be
deemed to interfere with the performance of the Employee's responsibilities to
the Company hereunder.
<PAGE>
-4-
SECTION 2.03. Compensation.
(a) Base Salary. The Company shall pay to the Employee a base salary
of $600,000 during the first year of the Employment Term. For each subsequent
year during the Employment Term, the Company shall pay to the Employee a base
salary in an amount at least equal to the base salary for the previous year,
plus an amount equal to the Salary Adjustment Amount multiplied by the
Employee's Base Salary for the immediately preceding year. The base salary
payable during any year during the Employment Term, including the applicable
adjustment pursuant to the Salary Adjustment Amount and as otherwise increased
is referred to herein as the "Base Salary" for such year. During the Employment
Term, the Base Salary shall be reviewed at least annually and shall be increased
at least to the extent of any percentage increase awarded to another executive
officer of the Company for such year. An increase is Base Salary shall not
serve to limit or reduce any other obligation to the Employee under this
Agreement. Base Salary shall not be reduced during the Employment Term.
(b) Annual Bonus. In addition to Base Salary, the employee shall be
entitled to receive such annual bonus, if any, as the Board of Directors of the
Company, or any duly authorized committee thereof, shall in its discretion
determine; provided that after the occurrence of a Change of Control during the
Employment Term, the Employee shall be granted an annual bonus payable in cash
on each anniversary of the date of this Agreement following such Change of
Control during the Employment Term in an amount at least equal to the highest
annual bonus paid to the Employee by the Company during the preceding five
years.
(c) Incentive, Savings and Retirement Plans. In addition to Base
Salary and annual bonus payable as hereinabove provided, the Employee shall be
entitled to participate during the Employment Term in all incentive, saving and
retirement plans, practices, policies and programs which are applicable to other
key employees of the Company. After the occurrence of a Change in Control
during the Employment Term, the compensation, benefits and reward opportunities
provided to the Employee pursuant to such plans, practices, policies and
programs, in the aggregate, shall during the Employment Term, be at least as
favorable as the most favorable of such compensation, benefits and reward
opportunities in such plans, practices, policies and programs as in effect at
any time during the 90-day period immediately preceding such Change of Control
or, if more favor-
<PAGE>
-5-
able to the Employee, as provided at any time thereafter with respect to other
key employees of the Company.
(d) Welfare Benefit Plans. During the Employment Term, the Employee
and/or the Employee's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
and programs). After the occurrence of a Change of Control during the
Employment Term, the benefits provided to the Employee and/or Employee's family
pursuant to such plans, practices, policies and programs shall during the
Employment Term at all times be at least as favorable as the most favorable of
such plans, practices, policies and programs in effect at any time during the
90-day period immediately preceding such Change of Control or, if more favorable
to the Employee and/or the Employee's family, as in effect at any time
thereafter with respect to other key employees of the Company.
(e) Options. The Employee shall be eligible to participate in the
Company's stock incentive and option plans (including, without limitation the
Company's 1997 Long Term Incentive and Share Award Plan). On the date hereof,
the Company shall grant to the Employee options (the "Options") to purchase
[ ]/1/ shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"), at an exercise price of $[ ]/2/ per share pursuant to the
Company's the Company's 1997 Long Term Incentive and Share Award Plan (the
"Plan"), of which Options (subject to Section 3.05 hereof) 25% shall vest
immediately upon the granting thereof and the remainder shall vest and become
exercisable ratably and daily (rounded up to the nearest share) over three years
from the date of grant. Subject to Section 3.05 hereof, the Options will be
exercisable for the period of ten years.
- -------------------
/1/ To represent 2.5% of the outstanding shares of Common Stock on a fully
diluted basis.
/2/ To represent the last sale price per share of the Common Stock on Amex on
the closing date of the Merger.
<PAGE>
-6-
SECTION 2.04. Additional Rights of the Employee and Obligations of
the Company.
(a) Expenses. During the Employment Term, the Employee shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Employee in accordance with the policies, practices and procedures of the
Company in effect from time to time.
(b) Fringe Benefits. During the Employment Term, in addition to the
other benefits provided herein, the Employee shall be entitled to fringe
benefits made generally available to key employees of the Company in accordance
with the plans, practices, policies and programs of the Company.
(c) Insurance. During the Employment Term and for a period a period
of ten years thereafter, the Company shall maintain term life insurance payable
to beneficiaries designated in writing by the Employee providing coverage of not
less than $10.0 million. The Company shall maintain directors and officers
liability insurance and general liability insurance with full defense coverage
in an amount reasonably acceptable to the Employee, covering the Employee with
regard to all actions taken by the Employee in his capacity as an officer,
director and employee of the Company or any of its subsidiaries or otherwise at
the direction of the Board of Directors of the Company during the Employment
Term.
(d) Travel. During the Employment Term, the Employee shall be
entitled to use an automobile of his choice leased by the Company. The Company
shall pay all amounts in respect of premiums for liability and comprehensive
insurance coverage (in amounts reasonably determined by the Employee) and will
reimburse the Employee for all operating, maintenance and repair expense.
During the Employment Term, in order to ensure the person safety of the Employee
the Employee shall, whenever practicable, utilize the corporate aircraft owned
or leased by the Company or any of its subsidiaries (at the expense of the
Company or such subsidiary, as the case may be) in connection with all travel
requiring air transportation (whether or not related to the performance of his
duties hereunder). For a period of five years after the termination of the
Employment Term, the Employee shall be provided reasonable use of such aircraft;
provided that the reasonable operating costs associated with such use shall be
reimbursed by the Employee.
(e) Estate Planning. The Company shall pay up to $20,000 during each
year of the Employment Term and for five
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years thereafter for legal, accounting and other professionals of the Employee's
choice who provide estate, nuptial arrangements, tax planning and related
services to the Employee.
(f) Office and Support Staff. During the Employment Term, the
Employee shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance,
commensurate with that typical for a chief executive officer of a public
corporation.
(g) Vacation. During the Employment Term, the Employee shall be
entitled to four weeks paid vacation.
(h) Indemnification. The Employee shall be entitled during the
Employment Term, and thereafter with respect to occurrences during the
Employment Term, to the benefit of the indemnification provisions contained in
the Articles of Incorporation or By-Laws of the Company and in any contract
entered into pursuant thereto as in effect on the date hereof or, if more
favorable to the Employee, as in effect at any time thereafter, to the extent
permitted by applicable law at the time of the assertion of any liability
against the Employee.
ARTICLE III
TERMINATION
SECTION 3.01. Death or Disability. The Employee's employment under
this Agreement shall terminate automatically upon the Employee's death. If the
Company determines in good faith that the Employee has become Disabled (as
defined below), it may give to the Employee written notice of its intention to
terminate the Employee's employment. In such event, the Employee's employment
with the Company shall terminate effective on the 90th day after receipt of such
notice by the Employee (the "Disability Effective Date"), provided that, within
the 90 days after such receipt, the Employee shall not have returned to full-
time performance of the Employee's duties. For purposes of this Agreement, the
Employee shall be regarded "Disabled" if either (a) a majority of the Board of
Directors by resolution determines that the Employee is physically or mentally
incapacitated in a manner that renders him incapable of performing his duties
hereunder for a period of six month or (b) the Employee applies for and is
determined to be eligible to receive disability benefits under a Company long-
term disability plan.
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SECTION 3.02. Cause. During the Employment Term, the Company may
only terminate the Employee's employment under Section 3.01 or for Cause (as
defined). For purposes of this Agreement, "Cause" means (i) an act or acts of
personal dishonesty engaged in by the Employee and intended to result in
substantial personal enrichment of the Employee at the expense of the Company,
(ii) repeated violations by the Employee of the Employee's obligations under
Section 2.02 of this Agreement which are demonstrably willful and deliberate on
the Employee's part and which are not remedied in a reasonable period of time
after receipt of written notice from the Company pursuant to a resolution of its
Board of Directors or (iii) the non-appealable conviction of the Employee of a
felony.
SECTION 3.03. Good Reason. Notwithstanding anything to the contrary
contained herein, during the Employment Term, the Employee's employment may be
terminated by the Employee for Good Reason (as defined) and such termination
shall be deemed a constructive discharge of the Employee by the Company. For
purposes of this Agreement, "Good Reason" means:
(a) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (included status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 2.02 of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities;
(b) any failure by the Company to comply with any of the provisions of
this Agreement;
(c) the Company's requiring the Employee to be based at any office or
location other than the Company's corporate headquarters as of the date hereof
in St. Croix, U.S. Virgin Islands, except for travel reasonably required in the
performance of the Employee's responsibilities; or
(d) any purported termination by the Company of the Employee's
employment otherwise than as expressly permitted by this Agreement.
For purposes of this Section 3.03, any good faith determination of
"Good Reason" made by the Employee shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Employee for any
reason during the eighteen month period immediately following a Change of
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Control shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
SECTION 3.04. Notice of Termination. Any termination of the
Employee's employment by the Company for Cause or by the Employee for Good
Reason shall be communicated by Notice of Termination (as defined) to the other
party hereto given in accordance with Section 5.03 of this Agreement. As used
in this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the termination date. The failure
by the Employee to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not waive any
right of the Employee hereunder or preclude the Employee from asserting such
fact or circumstance in enforcing his rights hereunder. As used in this
Agreement, "Date of Termination" means the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be; provided,
however, that (i) if the Employee's employment is terminated by the Company
other than for Cause or Disability or by reason of death, the Date of
Termination shall be the date on which the Company notifies the Employee of such
termination and (ii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
SECTION 3.05. Obligations of the Company upon Termination.
(a) Termination Because of Death. If the Employee's employment is
terminated by reason of the Employee's death, such employment shall terminate
without further obligations under this Agreement (except as expressly provided
herein) to the Employee's representatives, other than those obligations accrued
or earned and vested (if applicable) by the Employee as of the Date of
Termination, including, for this purpose (i) the Employee's full Base Salary
accrued but unpaid through the Date of Termination at the rate in effect on the
Date of Termination, (ii) the product of the annual bonus paid to the Employee
for the last year of the Employment Term and a fraction, the numerator of which
is the number of days in the current year of the Employment Term through the
Date of Termination, and the
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denominator of which is 360, (iii) any compensation previously deferred by the
Employee (together with any accrued earnings thereon) and not yet paid by the
Company and any accrued vacation pay not yet paid by the Company and (iv) all
amounts payable to the estate or designated beneficiaries of the Employee under
any pension, savings, life insurance or other plans, practices, policies and
programs of the Company, and/or all other amounts payable pursuant to Sections
2.03(c) and 2.04(c) hereof (such amounts specified in clauses (i), (ii), (iii)
and (iv) are hereinafter referred to as "Accrued Obligations"). The Accrued
Obligations specified in clauses (i), (ii) and (iii) hereof shall be paid to the
Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30
days of the Date of Termination, and the other Accrued Obligations shall be paid
in accordance with the Employee's specific elections pursuant to, and otherwise
in accordance with the terms of, any such plan, practice, policy or program.
Anything in this Agreement to the contrary notwithstanding, the Employee's
family shall be entitled to receive benefits at least equal to the most
favorable benefits provided by the Company or any of its subsidiaries to
surviving families of key employees the Company or any such subsidiary under
such plans, practices, policies or programs relating to family death benefits on
the Date of Termination. If the Employee's employment is terminated by reason of
death, all options to purchase Common Stock then owned by the Employee shall
become immediately vested and exercisable and the exercisability thereof shall
be extended for a period of ten years following the Date of Termination.
(b) Termination Because of Disability. If the Employee's employment
is terminated by reason of the Employee's Disability, such employment shall
terminate without further obligations to the Employee, other than those
obligations accrued or earned and vested (if applicable) by the Employee as of
the Date of Termination, including for this purpose, all Accrued Obligations.
The Accrued Obligations specified in clauses (i), (ii) and (iii) of Section
3.05(a) hereof shall be paid to the Employee in a lump sum in cash within 30
days of the Date of Termination, and the other Accrued Obligations shall be paid
in accordance with the Employee's specific elections pursuant to, and otherwise
in accordance with the terms of, any plan, practice, policy or program providing
benefits forming a part of the Accrued Obligations. Anything in this Agreement
to the contrary notwithstanding, the Employee shall be entitled after the
Disability Effective Date to receive disability and other benefits at least
equal to the most favorable of those provided by the Company and any of its
subsidiaries to disabled employees and/or their families in accordance with such
plans, practices,
<PAGE>
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policies and programs relating to disability of the Company and its subsidiaries
in effect on the Disability Effective Date. If the Employee's employment is
terminated by reason of Disability, all options to purchase Common Stock then
owned by the Employee shall become immediately vested and exercisable and the
exercisability thereof shall be extended for a period ten years following the
Disability Effective Date.
(c) Termination For Cause by the Company or For Other Than Good Reason
by the Employee. If the Employee's employment shall be terminated for Cause, or
if the Employee terminates his employment other than for Good Reason, the
Employee's employment under this Agreement shall terminate without further
obligations to the Employee, other than those obligations accrued or earned and
vested (if applicable) by the Employee through the Date of Termination,
including for this purpose, all Accrued Obligations. The Accrued Obligations
specified in clauses (i), (ii) and (iii) of, Section 3.05(a) hereof shall be
paid to the Employee in a lump sum in cash within 30 days of the Date of
Termination, and the other Accrued Obligations shall be paid in accordance with
the Employee's specific elections pursuant to, and otherwise in accordance with
the terms of, any plan, practice, policy or program providing benefits forming a
part of the Accrued Obligations. If the Employee's employment is terminated for
Cause by the Company or for other than Good Reason by the Employee, all unvested
options to purchase Common Stock then owned by the Employee shall terminate.
(d) Termination For Good Reason by the Employee or For Other Than
Cause or Disability by the Company or Other Than As a Result of Death. If,
during the Employment Term, the Employee's employment shall be terminated by the
Company other than for Cause or Disability or other than as a result of the
Employee's death or if the Employee shall terminate his employment for Good
Reason, the Company shall pay to the Employee in a lump sum in cash within 30
days after the Date of Termination (or in accordance with the Employee's
specific elections pursuant to, and otherwise in accordance with the terms of,
any plan, practice, policy or program providing benefits forming a part of the
Accrued Obligations specified in clause (iv) of Section 3.05(a) hereof) the
aggregate of the following amounts and shall provide the following benefits:
(i) The Employee's full Base Salary and vacation pay (for vacation
not taken) accrued but unpaid through the Date of Termination at the rate
in effect at the time of the Notice of Termination plus an amount equal to
the
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product of the highest annual bonus paid to the Employee for the last
five years of the Employment Term and a fraction, the numerator of which is
the number of days in the current year through the Date of Termination and
the denominator of which is 360, plus all other amounts to which the
Employee is entitled under any compensation plan, practice, policy or
program of the Company in effect at the time such payments are due;
(ii) In the event any compensation has been previously deferred by
the Employee, all amounts previously deferred (together with any accrued
earnings thereon) and not yet paid by the Company;
(iii) A lump sum severance payment in an amount equal to 500% of
the sum of (x) the Employee's Base Salary (on an annualized basis) for the
year which includes the Date of Termination and (y) the highest annual
bonus earned (whether or not deferred) by the Employee during the five
years immediately preceding the year which includes the Date of
Termination;
(iv) Following the Employee's termination of employment, the
Company shall continue to cover the Employee and his family under, or
provide the Employee and his family with insurance coverage no less
favorable than, the Company's life, disability, health, dental or other
employee welfare benefit plans or programs (as in effect on the Date of
Termination) for a period of five years following the Date of Termination;
(v) Following the Employee's termination of employment, the Company
shall treat the Employee as if he had continued participation and benefit
accruals under any the Company's Retirement Plan in which he participates
for five years following the Date of Termination, or the Company shall
provide an equivalent benefit outside such plan with the result that an
additional five years of age and service shall be granted to the Employee;
and
(vi) All options to purchase Common Stock then owned by the
Employee shall become immediately vested and exercisable and the
exercisability thereof shall be extended for a period of ten years
following the Date of Termination.
<PAGE>
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ARTICLE IV
ADDITIONAL AGREEMENTS
SECTION 4.01. Successor in Interest. The Employee may designate a
successor (or successors) in interest to receive any and all amounts due the
Employee in accordance with this Agreement should the Employee be deceased at
any time of payment. Such designation of successor(s) in interest shall be made
in writing signed by the Employee, and delivered to the Company pursuant to
Section 5.03 hereof. Any such designation may be made to any legal person,
persons, trust or the Employee's estate as he shall determine in his sole
discretion. In the event any designation shall be incomplete, or in the event
the Employee shall fail to designate a successor in interest, his estate shall
be deemed to be his successor in interest to receive such portion of all of the
payments due hereunder. The Employee may amend, change or revoke any such
designation at any time and from time to time, in the same manner. This Section
4.01 shall not supersede any designation of beneficiary or successor in interest
made by the Employee, or separately covered, under any other plan, practice,
policy or program of the Company.
SECTION 4.02. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Employee's continuing or future participation in any
benefit, bonus, incentive or other plans, practices, policies or programs
provided by the Company or any of its subsidiaries and for which the Employee
may qualify, nor shall anything herein limit or otherwise affect such rights as
the Employee may have under any stock option or other agreements with the
Company or any of its subsidiaries. Amounts which are vested benefits or which
the Employee is otherwise entitled to receive under any plan, practice, policy
or program of the Company or any of its subsidiaries at or subsequent to the
Date of Termination shall be payable in accordance with such plan, practice,
policy or program.
SECTION 4.03. Full Settlement; Legal Expenses. The Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Employee or others. In no event shall the Employee
be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Employee under any of the provisions of
this Agreement. The Com-
<PAGE>
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pany agrees to pay, upon written demand therefor by the Employee, all legal fees
and expenses which the Employee may incur as a result of any dispute or contest
(regardless of the outcome thereof) by or with the Company or others regarding
the validity or enforceability of, or liability under, any provision of this
Agreement (including as a result of any contest by the Employee about the amount
of any payment pursuant to this Agreement), plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code. In any
such action brought by the Employee for damages or to enforce any provisions of
this Agreement, he shall be entitled to seek both legal and equitable relief and
remedies, including, without limitation, specific performance of the Company's
obligations hereunder, in his sole discretion. If the parties hereto so agree in
writing, any disputes under this Agreement may be settled by arbitration.
SECTION 4.04. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution made, or benefit
provided (including, without limitation, the acceleration of any payment,
distribution or benefit), by the Company to or for the benefit of the Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 4.04) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code (or any similar excise tax) or
any interest or penalties are incurred by the Employee with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Employee
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Employee of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment and any interest or penalties
imposed with respect to such taxes, the Employee retains from the Gross-Up
Payment an amount equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 4.04(c), all determinations
required to be made under this Section 4.04, including determination of whether
a Gross-Up Payment is required and of the amount of any such Gross-Up Payment,
shall be made by Deloitte & Touche (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company
<PAGE>
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and the Employee within 15 business days of the Date of Termination, if
applicable, or such earlier time as is requested by the Company, provided that
any determination that an Excise Tax is payable by the Employee shall be made on
the basis of substantial authority. The initial Gross-Up Payment, if any, as
determined pursuant to this Section 4.04(b), shall be paid to the Employee
within five business days of the receipt of the Accounting Firm's determination.
If the Accounting Firm determines that no Excise Tax is payable by the Employee,
it shall furnish the Employee with a written opinion that has substantial
authority not to report any Excise Tax on his Federal income tax return. Any
determination by the Accounting Firm meeting the requirements of this Section
4.04(b) sha11 be binding upon the Company and the Employee; subject only to
payments pursuant to the following sentence based on a determination that
additional Gross-Up Payments should have been made, consistent with the
calculations required to be made hereunder (the amount of such additional
payments are referred to herein as the "Gross-Up Underpayment"). In the event
that the Company exhausts its remedies pursuant to Section 4.04(c) and the
Employee thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Gross-Up Underpayment that has
occurred and any such Gross-Up Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee. The fees and disbursements of the
Accounting Firm shall be paid by the Company.
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable after the Employee receives written notice of such claim and shall
apprise the Company of the nature of such claim and the date on which such claim
is requested to be paid. The Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the Employee
in writing prior to the expiration of such period that it desires to contest
such claim and that it will bear the costs and provide the indemnification as
required by this sentence, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in
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writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney selected by the
Company and satisfactory to the Employee;
(iii) reasonably cooperate with the Company in order effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 4.04(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax,
including interest or penalties with respect thereto, imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to the payment of taxes for the taxable year of the Employee with respect to
which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
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(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 4.04(c), the Employee becomes entitled to receive
any refund with respect to such claim, the Employee shall (subject to the
Company's complying with the requirements of Section 4.04(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 4.04(c), a
determination is made that the Employee shall not be entitled to any refund with
respect to such claim and the Company does not notify the Employee in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then any obligation of the Employee to repay such
advance shall be forgiven and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 4.05. Registration Rights.
(a) So long as the Employee beneficially owns at least 3% of the
outstanding shares of Common Stock, the Company, upon the Employee's written
request, shall prepare and file with the Securities and Exchange Commission from
time to time registration statements and such other documents, if then required,
as may be necessary to permit a public offering and sale of shares of the Common
Stock by the Employee (the "Registrable Stock") in compliance with the
provisions of the Securities Act of 1933, as amended (the "Securities Act").
(b) The Company shall not have the right to include in any
registration statement filed pursuant to Section 4.05(a) any other securities of
the Company or any other person.
(c) If the Company proposes to register shares of Common Stock or
securities convertible into or exercisable for Common Stock under the Securities
Act (other than pursuant to a registration statement on Form S-4 or S-8 or any
successor form, or filed in connection with an exchange offer or an offering of
securities solely to the existing shareholders or employees of the Company),
then the Company shall give written notice of such proposed filing to the
Employee at least thirty days before the anticipated filing date, and such
notice shall offer the Employee the opportunity to register such number of
shares of Registrable Stock as the Employee may request. The Employee shall
notify the Company in writing specifying whether or not he elects to include any
Registrable Stock in such registration statement within twenty days after
delivery of the
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Company's notice to the Employee. The Company shall cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
Employee to include such securities in such offering on the same terms and
conditions as any similar securities of the Company included therein.
Notwithstanding the foregoing, if, at any time after giving written notice of
its intention to register Common Stock or other securities convertible into or
exercisable for Common Stock and prior to the effectiveness of the registration
statement filed in connection with such registration, the Company determines for
any reason either not to effect such registration or to delay such registration,
the Company, at its election, by delivery or written notice to the Employee, (i)
in the case of a determination not to effect registration, may relieve itself of
its obligations to register any Registrable Stock in connection with such
registration, or (ii) in the case of determination to delay the registration,
may delay the registration of such Registrable Stock for the same period as the
delay in the registration of such other shares of Common Stock or other
securities convertible into or exercisable for Common Stock.
(d) The Employee shall furnish to the Company such reasonable
information regarding the Employee, the Registrable Stock, and the intended
method of disposition of such securities as are required to effect the
registration of Registrable Stock as to which the Employee has requested
registration.
(e) All expenses incident to the Company's performance of or
compliance with this Section 4.05 including, without limitation, all
registration and filing fees, fees and expenses of complying with state
securities or blue sky laws, printing expenses and fees and disbursements of
counsel for the Company and the Employee and of independent public accountants
(including the expense of any special audit), but excluding underwriting
commissions and discounts for the Employee, shall be borne by the Company. The
Employee shall bear his own pro rata share (calculated according to the number
of his shares as a fraction of the total number of shares covered by such
registration statement) of all underwriting commissions and discounts incurred
in connection with any offering of Registrable Stock with respect to a
registration pursuant to this Section 4.05.
(f) In the event any shares of Registrable Stock are included in a
registration statement under this Section 4.05:
(i) The Company shall indemnify, defend and hold harmless the
Employee against any losses, claims, damages,
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or liabilities (joint or several) to which he may become subject under the
Securities Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading.
(ii) Promptly after receipt by the Employee under this Section
4.05(f) of notice of the commencement of any action (including any
governmental action), the Employee shall deliver to the Company a written
notice of the commencement thereof and the Company shall have the right to
participate in, and, to the extent the Company so desires, to assume the
defense thereof with counsel mutually satisfactory to the parties. The
Employee shall have the right to retain its own counsel, however, but the
fees and expenses of such counsel shall be at the expense of the Employee,
unless (x) the employment of such counsel has been specifically authorized
in writing by the Company, (y) the Company has failed timely to assume the
defense and employ counsel or (z) the named parties to any such action
(including any impleaded parties) include both the Employee and the
Company, and the Employee shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different
from or additional to those available to the Company (in which case the
Company shall not have the right to assume the defense of such action on
behalf of the Employee, it being understood, however, that the Company
shall not, in connection with any one such action or separate substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses
of more than one separate firm of attorneys). The failure to deliver
written notice to the Company within a reasonable time of the commencement
of any such action, if materially prejudicial to its ability to defend such
action, shall relieve the Company of any liability to the Employee under
this Section 4.05(f), but the omission so to deliver written notice to the
Company shall not relieve it of any liability that it may have to the
Employee otherwise than under this Section 4.05(f).
<PAGE>
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(iii) If the indemnification provided for in subsection (i) of
this Section 4.05(f) is unavailable or insufficient to hold harmless the
Employee under such subsection in respect of any losses, claims, damages or
liabilities or action in respect thereof or referred to therein, then the
Company, in lieu of indemnifying the Employee, shall contribute to the
amount paid or payable by the Employee as a result of such losses, claims,
damages, liabilities or actions in such proportion as is appropriate to
reflect the relative fault of the Company, on the one hand, and the
Employee on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or actions as well as
any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact relates to information supplied
by the Company, on the one hand, or the Employee, on the other hand, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company
and the Employee agree that it would not be just and equitable if
contribution pursuant to this Section 4.05(f)(iii) were determined by pro
rata allocation or by any other method of allocation which did not take
account of the equitable considerations referred to above in this
subsection. No person guilty of fraudulent misrepresentations (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.01. Successors.
(a) This Agreement is personal to the Employee and without the prior
written consent of the Company shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Employee's legal
representatives or successor(s) in interest.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
<PAGE>
-21-
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
SECTION 5.02. Governing Law; Headings; Amendments. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, without reference to principles of conflict of laws. The headings of
this Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
SECTION 5.03. Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Employee:
Jeffrey J. Prosser
5 and 10A Estate Shoys
St. Croix, U.S. Virgin Islands 00820
If to the Company:
Emerging Communications, Inc.
Chase Financial Center
Orange Grove, Christiansted
St. Croix, U.S. Virgin Islands 00821
Attention: Chairman of Board of Directors
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
<PAGE>
-22-
SECTION 5.04. Invalidity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
SECTION 5.05. No Waiver. The Employee's failure to insist upon
strict compliance with any provision hereof shall not be deemed to be a waiver
of such provision or any other provision hereof.
SECTION 5.06. Entire Agreement. This Agreement contains the entire
understanding of the Company and the Employee with respect to the subject matter
hereof but does not supersede or override the provisions of any stock option,
employee benefit or other plan, program, policy or practice in which Employee is
a participant or under which Employee is a beneficiary.
<PAGE>
-23-
IN WITNESS WHEREOF, the Employee has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed as of the day and year first above written.
EMERGING COMMUNICATIONS, INC.
By:
------------------------------------
Name:
Title:
---------------------------------------
Jeffrey J. Prosser
<PAGE>
EXHIBIT 10.2
------------
<TABLE>
<S> <C> <C>
RURAL TELEPHONE Woodland Park
FINANCE 2201 Cooperative Way
COOPERATIVE Herndon, Virginia 22071-3025
RTFC 703-709-6700
</TABLE>
June 9, 1994
Mr. Cornelius B. Prior, Jr.
President
Atlantic Tele-Network Company
Post Office Box 6100
St. Thomas, U.S. Virgin Islands, 00801
Dear Neil:
Re: Fifth Amendment dated May 18, 1994 to Loan Agreement (VI502-A-9001)
As we discussed the enclosed documents are to be used instead of the Fifth
Amendment dated April 11, 1994. The enclosed amendment has a revised maturity
date of December 30, 2002 which is one quarter longer than the maturity date
contained in the Fifth Amendment dated April 11, 1994.
As was pointed out by Lewis Stern, the amortization schedule attached as Exhibit
A to the Fifth Amendment dated April 11, 1994 contained an error with an
outstanding balance remaining on the stated maturity date. The amortization
schedule now includes a corrected payment amount for September 30, 2006 and a
final payment date of December 31, 2006. All other payments remain unchanged
from the original Exhibit A.
The documents have been signed for administrative convenience and are subject to
clearance by RTFC. Please return the executed documents and opinion of counsel
to my attention. If you have any question you may reach me at 1-800-(346-7095).
Sincerely,
/s/ Linda Y. Graham
- -------------------
Linda Y. Graham
Senior Loan Analyst
cc: Lewis A. Stern, P.C.
Providing Financing for Independent Rural Telephone Companies
and Cooperatives Nationwide
<PAGE>
ATLANTIC TEL-NETWORK COMPANY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL OUTSTANDING
PAYMENT PRINCIPAL INTEREST PMTS ESTIMATED ESTIMATED PRINCIPAL
DUE AFTER DUE AFTER BASED ON 8.00% 6% VIR TOTAL PAYMENT DUE AFTER
QUARTER ADJUSTMENT 5/94 ADJUST. INTEREST RATE INTEREST RATE DUE PAYMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mar-94 861,032.34 485,608.51 $ 1,346,640.85 25,505,878.17
Jun-94 870,083.21 435,014.60 479,813.21 22,728.27 937,583.08 25,070,836.57
Sep-94 879,311.25 439,655.62 471,112.38 22,728.27 933,496.27 24,631,108.94
Dec-94 888,719.93 444,359.96 462,319.26 22,728.27 929,407.49 24,186,820.98
Mar-95 898,312.78 449,156.39 453,432.06 22,728.27 925,316.72 23,737,664.59
Jun-95 908,093.41 454,046.71 444,448.94 22,728.27 921,223.91 23,283,617.88
Sep-95 918,065.50 459,032.75 435,368.00 22,728.27 917,129.02 22,824,585.13
Dec-95 928,232.80 464,116.40 426,187.35 22,728.27 913,032.01 22,360,468.73
Mar-96 938,599.12 469,299.56 416,905.02 22,728.27 908,932.84 21,891,169.17
Jun-96 949,168.36 474,584.18 407,519.03 22,728.27 904,831.47 21,416,585.00
Sep-96 959,944.49 479,972.24 398,027.34 22,728.27 900,727.85 20,936,612.75
Dec-96 970,931.56 485,465.78 388,427.90 22,728.27 896,621.95 20,451,146.97
Mar-97 982,133.71 491,066.85 378,718.58 22,728.27 892,513.70 19,960,080.12
Jun-97 993,555.14 496,777.57 368,897.25 22,728.27 888,403.08 19,463,302.55
Sep-97 1,005,200.14 502,600.07 358,961.70 22,728.27 884,290.03 18,960,702.48
Dec-97 1,017,073.09 508,536.55 348,909.69 22,728.27 880,174.51 18,452,165.93
Mar-98 1,029,178.46 514,589.23 338,738.96 22,728.27 876,056.46 17,937,576.70
Jun-98 1,041,520.79 520,760.40 328,447.18 22,728.27 871,935.84 17,416,816.31
Sep-98 1,054,104.72 527,052.36 318,031.97 22,728.27 867,812.60 16,889,763.94
Dec-98 1,066,934.96 533,467.49 307,490.92 22,728.27 863,686.68 16,356,296.45
Mar-99 1,060,016.40 540,008.20 296,821.57 22,728.27 859,558.04 15,816,288.25
Jun-99 1,093,353.88 546,676.94 286,021.41 22,728.27 855,426.62 15,269,611.31
Sep-99 1,106,952.44 553,476.22 275,087.87 22,728.27 851,292.36 14,716,135.09
Dec-99 1,120,817.20 560,406.60 264,018.35 22,728.27 847,155.21 14,155,726.49
Mar-2000 1,134,953.36 567,476.66 252,810.17 22,728.27 843,015.12 13,588,249.81
Jun-2000 1,149,366.23 574,683.12 241,460.64 22,728.27 838,872.02 13,013,566.70
Sep-2000 1,164,061.24 582,030.62 229,966.96 22,728.27 834,725.86 12,431,536.06
Dec-2000 435,041.60 218,326.37 22,728.27 676,096.24 11,996,494.48
Mar-2001 439,655.62 209,625.53 22,728.27 672,009.42 11,556,838.85
Jun-2001 444,359.96 200,832.42 22,728.27 667,920.65 11,112,478.89
Sep-2001 449,156.39 191,945.22 22,728.27 663,829.88 10,663,322.50
Dec-2001 454,046.71 182,962.09 22,728.27 659,737.07 10,209,275.79
Mar-2002 459,032.75 173,881.16 22,728.27 655,642.18 9,750,243.04
Jun-2002 464,116.40 164,700.51 22,728.27 651,545.17 9,286,126.64
Sep-2002 469,299.56 155,418.18 22,728.27 647,446.00 8,816,827.09
Dec-2002 474,584.18 146,032.19 22,728.27 643,344.63 8,342,242.91
Mar-2003 479,972.24 136,540.50 22,728.27 639,241.01 7,862,270.66
Jun-2003 485,465.78 126,941.06 22,728.27 635,135.11 7,376,804.88
Sep-2003 491,066.85 117,231.74 22,728.27 631,026.86 6,885,738.03
Dec-2003 496,777.57 107,410.40 22,728.27 626,916.24 6,388,960.46
Mar-2004 502,600.07 97,474.85 22,728.27 622,803.19 5,886,360.39
Jun-2004 506,536.55 87,422.85 22,728.27 618,687.67 5,377,823.84
Sep-2004 514,589.23 77,252.12 22,728.27 614,589.62 4,863,234.61
Dec-2004 520,760.40 66,960.34 22,728.27 610,449.00 4,342,474.22
Mar-2005 527,052.36 56,545.13 22,728.27 606,325.76 3,815,421.86
Jun-2005 533,467.49 46,004.06 22,728.27 602,199.84 3,261,954.36
Sep-2005 540,006.20 35,334.73 22,728.27 596,071.20 2,741,946.16
Dec-2005 546,676.94 24,534.57 22,728.27 593,939.77 2,195,269.22
Mar-2006 553,476.22 13,601.03 22,728.27 589,805.52 1,641,793.00
Jun-2006 560,406.60 2,531.50 22,728.27 585,668.37 1,081,384.40
Sep-2006 567,476.68 0.00 22,728.27 590,204.95 513,907.73
Dec-2006 513,907.73 0.00 22,728.27 536,636.00 (0.00)
Mar-2007 0.00 0.00 0.00 0.00 0.00
Jun-2007 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------
TOTAL $25,505,878.17 $13,540,040.12 $1,159,141.60 $41,909,540.80 $1,389,529,302.24
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.3
------------
GUARANTEE AND PLEDGE AGREEMENT
GUARANTEE AND PLEDGE AGREEMENT ("this Agreement") dated as of December
29, 1987 between ATLANTIC TELE-NETWORK CO., a corporation duly organized and
validly existing under the laws of the United States Virgin Islands (the "Parent
Guarantor"), and RURAL TELEPHONE FINANCE COOPERATIVE, a South Dakota cooperative
association (the "Lender").
The Parent Guarantor, the Lender and the Parent Guarantor's wholly
owned subsidiary, VIRGIN ISLANDS TELEPHONE CORPORATION, a United States Virgin
Islands corporation ("Vitelco"), are parties to a Loan Agreement dated as of
December 29, 1987 (as modified and supplemented and in effect from time to time,
the "Loan Agreement"), providing, subject to the terms and conditions thereof,
for an extension of credit to be made by the Lender to the Parent Guarantor in
the principal or face amount of $44,444,444 and an extension of credit to be
made by the Lender to Vitelco in the principal or face amount of $60,000,000.
To induce the Lender to enter into the Loan Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parent Guarantor has agreed to guarantee the Guaranteed
Obligations (as hereinafter defined), to subordinate the Subordinated Debt (as
hereinafter defined) and to pledge and grant a security interest in the
Collateral (as hereinafter defined) as security for the Secured Obligations (as
hereinafter defined). Accordingly, the parties hereto agree as follows:
Section 1. Definitions. To the extent not inconsistent herewith,
terms defined in the Loan Agreement are used herein as defined therein. In
addition, as used herein:
"Basic Documents" shall mean the Loan Agreement, the ATN Note, the
Vitelco Note, the Vitelco Guarantee, the Supplemental Stockholders'
Agreement and the Vitelco Mortgage.
"Collateral" shall have the meaning ascribed thereto in Section 4
hereof.
"Guaranteed Obligations" shall have the meaning ascribed thereto in
Section 2.01 hereof.
<PAGE>
-2-
"Obligors" shall mean Vitelco and the Parent Guarantor.
"Parent Guarantor Pledged Stock" shall have the meaning ascribed
thereto in Section 4 hereof.
"Secured Obligations" shall mean, collectively, (i) the Guaranteed
Obligations, (ii) all obligations of the Parent Guarantor to the Lender
under the Loan Agreement and (iii) all obligations of the Parent Guarantor
to the Lender hereunder and under any of the other Basic Documents to which
it is a party.
"Subordinated Debt" shall have the meaning ascribed thereto in Section
3 hereof.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect from time to time in the applicable jurisdiction.
"Vitelco Lender Debt" shall have the meaning ascribed thereto in
Section 3 hereof.
Section 2. The Guarantee.
2.01 Guarantee. The Parent Guarantor hereby guarantees to the Lender
and its successors and assigns the prompt payment in full when due (whether at
stated maturity, by acceleration or otherwise) of the principal of and interest
on the Vitelco Loan and the Vitelco Note and all other amounts from time to time
owing to the Lender by Vitelco under the Loan Agreement and under the Vitelco
Note, in each case strictly in accordance with the terms thereof (such
obligations being herein collectively called the "Guaranteed Obligations"). The
Parent Guarantor hereby further agrees that if Vitelco shall fail to pay in full
when due (whether at stated maturity, by acceleration or otherwise) any of the
Guaranteed Obligations, the Parent Guarantor will promptly pay the same, without
any demand or notice whatsoever, and that in the case of any extension of time
of payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.
2.02 Obligations Unconditional. The obligations of the Parent
Guarantor under Section 2.01 hereof are absolute and unconditional, irrespective
of the value, genuineness, validity, regularity or enforceability of the Loan
Agreement or the
<PAGE>
-3-
Vitelco Note, or any substitution, release or exchange of any other guarantee of
or security for any of the Guaranteed Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 2.02 that the
obligations of the Parent Guarantor hereunder shall be absolute and
unconditional under any and all circumstances. Without limiting the generality
of the foregoing, it is agreed that the occurrence of any one or more of the
following shall not affect the liability of the Parent Guarantor hereunder:
(i) at any time or from time to time, without notice to the Parent
Guarantor, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
(ii) any of the acts mentioned in any of the provisions of the
Basic Documents shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under the Basic
Documents shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor of, the
Lender as security for any of the Guaranteed Obligations shall fail to be
perfected.
The Parent Guarantor hereby expressly waives diligence, presentment, demand of
payment, protest and all notices whatsoever, and any requirement that the Lender
exhaust any right, power or remedy or proceed against Vitelco or any of its
Subsidiaries or any other Subsidiaries of ATN under the Basic Documents, or
against any other Person under any other guarantee of, or security for, any of
the Guaranteed Obligations.
2.03 Reinstatement. The obligations of the Parent Guarantor under
this Section 2 shall be automatically reinstated if and to the extent that for
any reason any payment by or on behalf of Vitelco in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of
<PAGE>
-4-
any proceedings in bankruptcy or reorganization or otherwise and the Parent
Guarantor agrees that it will indemnify the Lender on demand for all reasonable
costs and expenses (including, without limitation, fees of counsel) incurred by
the Lender in connection with such rescission or restoration.
2.04 Subrogation. The Parent Guarantor hereby agrees that until the
payment and satisfaction in full of all Guaranteed Obligations and the
termination of the obligations of the Lender under the Loan Agreement it shall
not exercise any right or remedy arising by reason of any performance by it of
its guarantee in Section 2.01 hereof, whether by subrogation or otherwise,
against Vitelco or any other guarantor of any of the Guaranteed Obligations or
any security for any of the Guaranteed Obligations.
2.05 Remedies. The Parent Guarantor agrees that, as between the
Parent Guarantor and the Lender, the obligations of Vitelco under the Loan
Agreement and the Vitelco Note may be declared to be forthwith due and payable
as provided in Section 9.01 of the Loan Agreement for purposes of Section 2.01
hereof notwithstanding any stay, injunction or other prohibition preventing such
declaration as against Vitelco and that, in the event of such declaration, such
obligations (whether or not due and payable by Vitelco) shall forthwith become
due and payable by the Parent Guarantor for purposes of said Section 2.01.
2.06 Continuing Guarantee. The guarantee in this Section 2 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
Section 3. Subordination.
(a) The Parent Guarantor hereby agrees that all obligations of Vitelco
to the Parent Guarantor (such obligations, whether matured or unmatured,
absolute or contingent or now existing or hereafter arising being herein
referred to as the "Subordinated Debt") are and shall be subordinate and subject
in right of payment to the prior payment in full of all obligations of Vitelco
to the Lender under the Loan Agreement (such obligations including, without
limitation, interest accruing after the date of any filing by Vitelco of any
petition in bankruptcy or the commencement of the bankruptcy, insolvency or
similar proceedings with respect to Vitelco being hereinafter referred to as the
"Vitelco Lender Debt"), and agrees that it will not ask, demand, sue for, take
or receive from Vitelco, by set-off or in any other manner, payment of the whole
or any part of the Subordinated Debt, or any security therefor, unless
<PAGE>
-5-
and until all of the Vitelco Lender Debt shall have been fully paid. The Parent
Guarantor hereby directs Vitelco to make such prior payment to the Lender of the
Vitelco Lender Debt.
(b) Anything in this Agreement to the contrary notwithstanding, so
long as no Event of Default, and no event which with the lapse of time or the
giving of notice or both would become an Event of Default, has occurred and is
continuing, Vitelco may make payments on the Subordinated Debt in accordance
with its terms.
(c) In furtherance of, and to make effective, the subordination
provided for in this Section 3, the Parent Guarantor further agrees as follows:
(i) In the event of any distribution, division or application,
partial or complete, voluntary or involuntary, by operation of law or
otherwise, of all or any part of the assets of Vitelco or the proceeds
thereof, to creditors of Vitelco, or upon any indebtedness of Vitelco, by
reason of the liquidation, dissolution or other winding up, partial or
complete, of Vitelco or Vitelco's business, or any sale, receivership,
insolvency or bankruptcy proceeding, or assignment for the benefit of
creditors, or any proceeding by or against Vitelco for any relief under any
bankruptcy or insolvency law or laws relating to the relief of debtors,
readjustment of indebtedness, arrangements, reorganizations, compositions
or extensions, then and in any such event any payment or distribution of
any kind or character, either in cash, securities or other property, which
but for this Agreement would be payable or deliverable upon or with respect
to any or all of the Subordinated Debt shall instead be paid or delivered
direct to the Lender for application on the Vitelco Lender Debt, whether
then due or not due, until the Vitelco Lender Debt shall have first been
fully paid and satisfied.
(ii) The Parent Guarantor hereby irrevocably authorizes and
empowers the Lender to demand, sue for, collect and receive every such
payment or distribution and give acquittance therefor, and to file and/or
vote claims and take such other proceedings, in the Lender's own name or in
the name of the Parent Guarantor, or otherwise, as the Lender may deem
necessary or advisable for the enforcement of this Agreement. The Parent
Guarantor agrees duly and promptly to take such action as may be requested
by the Lender to assist in the collection of the Subordinated Debt for the
account of the Lender and/or to file appro-
<PAGE>
-6-
priate proofs of claim in respect to the Subordinated Debt, and to execute
and deliver to the Lender on demand such powers of attorney, proofs of
claim, assignments of claim or other instruments as may be requested by the
Lender to enable the Lender to enforce any and all claims upon or with
respect to the Subordinated Debt, and to collect and receive any and all
payments or distributions which may be payable or deliverable at any time
upon or with respect to the Subordinated Debt.
(iii) Should any payment or distribution or security or proceeds
of any security be received by the Parent Guarantor upon or with respect to
the Subordinated Debt prior to the payment in full of the Vitelco Lender
Debt, the Parent Guarantor will forthwith deliver the same to the Lender in
precisely the form received (except for the endorsement or assignment of
the Parent Guarantor where necessary), for application on the Vitelco
Lender Debt, whether then due or not due, and, until so delivered, the same
shall be held in trust by the Parent Guarantor as property of the Lender.
In the event of the failure of the Parent Guarantor to make any such
endorsement or assignment, the Lender, or any of its officers or employees,
is hereby irrevocably authorized to make the same.
(iv) The Parent Guarantor agrees that it will not transfer, assign,
pledge or encumber the Subordinated Debt or any part thereof or any
instrument evidencing the same unless the respective instrument of
assignment specifically provides that the assignee takes the respective
Subordinated Debt subject to the provisions of this Agreement. The Parent
Guarantor agrees that it will not exchange, forgive, waive or cancel the
Subordinated Debt or any part thereof or reduce the principal amount of the
Subordinated Debt in whole or in part.
(d) The subordination effected by this Agreement is a continuing
subordination, and the Parent Guarantor hereby agrees that at any time and from
time to time, without notice to it:
(i) the time for Vitelco's performance of or compliance with any of
its agreements contained in the Loan Agreement may be extended or such
performance or compliance may be waived by the Lender;
(ii) any of the acts mentioned in the Loan Agreement may be done;
<PAGE>
-7-
(iii) the Loan Agreement may be amended for the purpose of adding
any provisions thereto or changing in any manner the rights of any of the
parties thereto;
(iv) payment of any Vitelco Lender Debt may be renewed in whole or
in part; and
(v) the maturity of any Vitelco Lender Debt may be accelerated, or
any collateral security therefor may be exchanged, sold, surrendered,
released or otherwise dealt with, in accordance with the terms of any
present or future agreement;
a1l without impairing or affecting the obligations of the Parent Guarantor
hereunder.
(e) The Parent Guarantor hereby unconditionally waives notice of the
incurring of the Vitelco Lender Debt or any part thereof and reliance by the
Lender upon the subordination of the Subordinated Debt to the Vitelco Lender
Debt.
Section 4. The Pledge and Security Interest. As collateral security
for the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the Secured Obligations, the Parent Guarantor
hereby pledges, grants, assigns, transfers, convoys and sets over to the Lender
a security interest in all of the Parent Guarantor's right, title and interest
in the following property, whether now owned by the Parent Guarantor or
hereafter acquired and whether now existing or hereafter coming into existence
(all being collectively referred to herein as "Collateral"):
(a) all shares of capital stock of whatever class of Vitelco, now or
hereafter owned by such Guarantor, together with the certificates
evidencing the same, accompanied by undated stock powers duly executed in
blank (the "Parent Guarantor Pledged Stock");
(b) all shares, securities, moneys or property representing a dividend
on any of the Parent Guarantor Pledged Stock, other than a dividend payable
in cash and permitted by the Loan Agreement, or representing a distribution
or return of capital upon or in respect of the Parent Guarantor Pledged
Stock, or resulting from a split-up, revision, reclassification or other
like change of the Parent Guarantor Pledged Stock or otherwise received in
exchange therefor, and any subscription warrants, rights
<PAGE>
-8-
or options issued to the holders of, or otherwise in respect of, the Parent
Guarantor Pledged Stock;
(c) without affecting any provision prohibiting such action hereunder
or under the Loan Agreement, in the event of any consolidation or merger in
which Vitelco is not the surviving corporation, all shares of each class of
the capital stock of the successor corporation formed by or resulting from
such consolidation or merger distributed in respect of the Parent Guarantor
Pledged Stock;
(d) any payment due or to become due under the Management Advisory
Contract dated as of June 24, 1987 (the "Advisory Agreement") between the
Parent Guarantor and Vitelco; and
(e) all proceeds of and to any of the property described in clauses
(a) through (d) above in this Section 4 and, to the extent related to any
property described in said clauses or above in this clause (e), all books,
correspondence, credit files, records, invoices and other papers.
Section 5. Further Assurances; Remedies. In furtherance of the grant
of the pledge and security interest pursuant to Section 4 hereof, the Parent
Guarantor hereby agrees with the Lender as follows:
5.01 Delivery and Other Perfection. The Parent Guarantor shall:
(i) deliver to the Lender, endorsed in blank for transfer or
accompanied by duly executed stock powers or other instruments of
assignment and transfers in such form and substance as the Lender may
request, all stock certificates or other securities representing any of the
Collateral;
(ii) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that may
be necessary or desirable (in the judgment of the Lender) to create,
preserve, perfect or validate the security interest granted pursuant hereto
or to enable the Lender to exercise and enforce its rights hereunder with
respect to such pledge and security interest;
<PAGE>
-9-
(iii) permit representatives of the Lender, upon reasonable
notice, at any time during normal business hours to inspect and make
abstracts from the books and records pertaining to the Collateral, and
permit representatives of the Lender to be present at the Parent
Guarantor's place of business to receive copies of all communications and
remittances relating to the Collateral, all in such manner as the Lender
may require; and
(iv) deliver to the Lender on or prior to the date hereof a true,
correct and complete copy of the Advisory Agreement.
5.02 Other Financing Statements. Without the prior written consent of
the Lender, the Parent Guarantor shall not file or suffer to be on file, or
authorize or permit to be filed or to be on file, in any jurisdiction, any
financing statement or like instrument with respect to the Collateral in which
the Lender is not named as the sole secured party for the benefit of the Lender.
5.03 Preservation of Rights. The Lender shall not be required to
take steps necessary to preserve any rights against prior parties to any of the
Collateral.
5.04 Stock Collateral. So long as no Event of Default under the Loan
Agreement shall have occurred and be continuing, the Parent Guarantor shall have
the right to exercise all of its voting, consensual and other powers of
ownership pertaining to the Collateral for all purposes not inconsistent with
the terms of this Agreement, or any of the Basic Documents, or any other
instrument or agreement referred to herein or therein, provided that the Parent
Guarantor agrees that it will not vote the Collateral in any manner that is
inconsistent with the terms of this Agreement, any of the Basic Documents or any
such other instrument or agreement. The Lender shall execute and deliver to the
Parent Guarantor or cause to be executed and delivered to the Parent Guarantor
all such proxies, powers of attorney, dividend and other orders, and all such
instruments, without recourse, as the Parent Guarantor may reasonably request
for the purpose of enabling it to exercise its rights and powers which it is
entitled to exercise pursuant to this Section 5.04.
5.05 Events of Default, etc. During the period an Event of Default
under the Loan Agreement shall have occurred and be continuing:
<PAGE>
-10-
(i) the Lender shall have all of the rights and remedies with
respect to the Collateral of a secured party under the Uniform Commercial
Code (whether or not said Code is in effect in the jurisdiction where the
rights and remedies are asserted);
(ii) the Lender in its discretion may, in its name or in the name
of the Parent Guarantor or otherwise, demand, sue for, collect or receive
any money or property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation to do
so;
(iii) the Lender may, upon 15 business days' prior written notice
to the Parent Guarantor of the time and place, with respect to the
Collateral or any part thereof which shall then be or shall thereafter come
into the possession, custody or control of the Lender or any of its agents,
sell or otherwise dispose of all or any part of such Collateral, at such
place or places as the Lender deems best, and for cash or on credit or for
future delivery (without thereby assuming any credit risk), at public or
private sale, without demand of performance or notice of intention to
effect any such disposition or of time or place of sale (except such notice
as in required above or by applicable statute and cannot be waived) and the
Lender or anyone else may be the purchaser or recipient of any or all of
the Collateral so disposed of at any public sale (or, to the extent
permitted by law, at any private sale), and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including any
right or equity of redemption (statutory or otherwise) of the Parent
Guarantor, any such demand, notice or right or equity being hereby
expressly waived and released. The proceeds of each collection, sale or
other disposition under this Section 5.05 shall be applied in accordance
with Section 5.09; and
(iv) the Lender shall be entitled to notify Vitelco to make payment
of amounts due under the Advisory Agreement directly to the Lender, and any
payments received by the Parent Guarantor contrary to the instructions of
the Lender on account of the Advisory Agreement shall be immediately
endorsed and delivered to the Lender.
5.06 Deficiency. If the proceeds of sale, collection or other
realization of or upon the Collateral are insufficient to cover the costs and
expenses of such realization and
<PAGE>
-11-
the payment in full of the Secured Obligations, the Parent Guarantor shall
remain liable for any deficiency in respect of which the Parent Guarantor is
obligated under this Agreement.
5.07 Private Sale. The Lender shall incur no liability as a result
of the sale of the Collateral, or any part thereof, at any private sale
conducted in a commercially reasonable manner. The Parent Guarantor hereby
waives any claims against the Lender arising by reason of the fact that the
price at which the Collateral may have been sold at such a private sale was less
than the price which might have been obtained at a public sale or was less than
the aggregate amount of the Secured Obligations, unless the related sale was not
conducted in a commercially reasonable manner.
5.08 Removals, Etc. Without 15 days' prior written notice to the
Lender, the Parent Guarantor shall not maintain any of its books and records
with respect to the Collateral at any office other than its office at 51-A
Kronprindsens Gade, Charlotte Amalie, St. Thomas, Virgin Islands 00801, or
maintain its office or its principal place of business at any other place other
than at such location.
5.09 Application of Proceeds. Except as otherwise herein expressly
provided, the proceeds of any collection, sale or other realization of all or
any part of the Collateral, and any other cash at the time held by the Lender
under this Section 5, shall be applied by the Lender:
First, to the payment of the costs and expenses of such collection,
sale or other realization, including reasonable compensation to the Lender
and its agents and counsel, and all expenses, and advances made or incurred
by the Lender in connection therewith;
Second, to the payment in full of the Secured Obligations of the type
described in clause (ii) of the definition of such term in Section 1
hereof;
Third, to the payment in full of the Secured Obligations of the type
described in clause (i) of the definition of such term in Section 1 hereof;
Fourth, to the payment in full of all other Secured Obligations,
equally and ratably in accordance with the respective amounts thereof then
due and owing or as the Lender may otherwise direct; and
<PAGE>
-12-
Finally, to the payment to the Parent Guarantor, or its successors or
assigns, or as a court of competent jurisdiction may direct, of any surplus
then remaining.
As used in this Section 5, "proceeds" of Collateral shall mean cash, securities
and other property realized in respect of, and distributions in kind of,
Collateral, including any thereof received under any reorganization, liquidation
or adjustment of debt of the Parent Guarantor or any issuer of or obligor on any
of the Collateral.
5.10 Attorney-in-Fact. Without limiting any rights or powers granted
by this Agreement to the Lender while no Event of Default under the Loan
Agreement has occurred and is continuing, upon the occurrence and during the
continuance of any Event of Default under the Loan Agreement the Lender is
hereby appointed the attorney-in-fact of the Parent Guarantor for the purpose of
carrying out the provisions of this Section 5 and taking any action and
executing any instruments which the Lender may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest, provided that the Lender shall not
take any action pursuant to the authority granted to it in this Section 5.10
without first notifying the Parent Guarantor thereof. Without limiting the
generality of the foregoing, so long as the Lender shall be entitled under this
Section 5 to make collections in respect of the Collateral, the Lender shall
have the right and power to receive, endorse and collect all checks made payable
to the order of the Parent Guarantor representing any dividend, payment or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.
5.11 No Performance Required of the Lender. It is expressly agreed
by the Parent Guarantor that, anything herein to the contrary notwithstanding,
the Parent Guarantor shall not be relieved of any obligation it may have under
the Advisory Agreement by reason of the security interest granted to the Lender
hereby, or by any actions taken or not taken by the Lender hereunder; and the
Lender shall have no obligation under the Advisory Agreement, nor shall the
Lender be required or obligated in any manner to perform any obligation of the
Parent Guarantor under or pursuant to the Advisory Agreement or to present or
file any claim or to take any other action to collect or enforce the payment of
any amounts which have been assigned to the Lender or to which the Lender is
entitled hereunder.
<PAGE>
-13-
Section 6. Miscellaneous.
6.01 Initial Financing Statements. Prior to or concurrently with the
execution and delivery of this Agreement, the Parent Guarantor shall file such
financing statements and other documents in such offices as the Lender may
request to perfect the pledge and security interests granted by this Agreement.
6.02 Further Assurances. The Parent Guarantor agrees that, from time
to time upon the written request of the Lender, the Parent Guarantor will
execute and deliver such further documents and do such other acts and things as
the Lender may reasonably request in order fully to effect the purposes of this
Agreement.
6.03 No Waiver. No failure on the part of the Lender or any of its
agents to exercise, and no course of dealing with respect to, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Lender or any of its
agents of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein are cumulative and are not exclusive of any remedies provided by
law.
6.04 Expenses. The Parent Guarantor agrees to pay to the Lender all
reasonable out-of-pocket expenses (including reasonable expenses for legal
services of every kind) of, or incident to, the enforcement of any of the
provisions of this Agreement, or performance by the Lender of any obligations of
the Parent Guarantor in respect of the Collateral which the Parent Guarantor has
failed or refused to perform, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement in respect of any of the
Collateral, and for the care of the Collateral and defending or asserting rights
and claims of the Lender in respect thereof, by litigation or otherwise and all
such expenses shall be Secured Obligations to the Lender secured under Section 4
hereof.
6.05 Taxes. The Parent Guarantor agrees to pay before delinquency
any tax or other governmental charge which is or can become through assessment,
distraint or otherwise a lien on the Collateral and to pay any tax or other
governmental charge which may be levied on the transactions hereunder, provided
that nothing herein shall require the Parent Guarantor to pay any such tax or
other governmental charge with respect to which the Parent Guarantor is
prosecuting in good faith appeal
<PAGE>
-14-
or other proceedings for review and as to which any foreclosure or other
enforcement proceedings shall have been fully bonded or otherwise effectively
stayed.
6.06 Termination. Subject to Section 2.03 hereof, when all
Guaranteed Obligations and Secured Obligations shall have been paid in full and
the Loan Agreement shall have terminated, this Agreement shall terminate, and
the Lender shall forthwith cause to be assigned, transferred and delivered,
against receipt but without any recourse, warranty or representation whatsoever,
any remaining Collateral and money received in respect thereof, to or on the
order of the Parent Guarantor.
6.07 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, provided that as
to Collateral located in any jurisdiction other than the State of New York, the
Lender shall have all the rights to which a secured party under the laws of such
jurisdiction is entitled.
6.08 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given to such party at its address or telecopy number set forth on the
signature page hereto or such other address or telecopy number an such party may
hereafter specify for the purpose by notice to the other party hereto. Each
such notice, request or other communication shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified in
this Section, (ii) if given by mail, 72 hours after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or (iii) if given by any other means, when delivered at the address specified in
this Section.
6.09 Waivers, etc. The terms of this Agreement may be waived,
altered or amended only by an instrument in writing duly executed by the Parent
Guarantor and the Lender.
6.10 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the respective successors and assigns of the Parent
Guarantor, the Lender, and each subsequent holder of the Guaranteed or Secured
Obligations (provided, however, that the Parent Guarantor shall not assign or
transfer its rights hereunder without the prior written consent of the Lender).
<PAGE>
-15-
6.11 Counterparts. This Agreement may be executed in one or more
counterparts and all of such counterparts taken together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Guarantee and
Pledge Agreement to be duly executed as of the day and year first above written.
ATLANTIC TELE-NETWORK CO.
By /s/ Cornelius B. Prior, Jr.
-----------------------------
Name: Cornelius B. Prior, Jr.
Title: President
Address for Notices:
P.O. Box 6100
St. Thomas
United States Virgin Islands 00801
Attention: Cornelius B. Prior, Jr.
Telecopy No.: 809-776-9856
RURAL TELEPHONE FINANCE COOPERATIVE
By /s/ Richard B. Bulman
----------------------
Name: Richard B. Bulman
Title: Assistant Secretary-Treasurer
Address for Notices:
P.O. Box 39191
Washington, D.C. 20016
Attention: Loan Officer
Telecopy No.: 212-944-2523
<PAGE>
RURAL TELEPHONE 1115 30th Street, N.W.
FINANCE Washington, D.C. 2000
COOPERATIVE 202-337-6700
RTFC
August 31, 1988
Atlantic Tele-Network Co.
P.O. Box 6100
St. Thomas, U.S. Virgin Islands 00801
Attention: Cornelius B. Prior, Jr.
Dear Sirs:
Reference is made to that certain Guarantee and Pledge Agreement dated as of
December 29, 1987 (the "Guarantee and Pledge Agreement") between ATLANTIC TELE-
NETWORK CO., a corporation duly organized and validly existing under the laws of
the United States Virgin Islands (the "Parent Guarantor"), and RURAL TELEPHONE
FINANCE COOPERATIVE, a South Dakota cooperative association (the "Lender"). All
terms defined in the Guarantee and Pledge Agreement are used herein as defined
therein.
The Virgin Islands Telephone Corporation ("Vitelco"), pursuant to a real
property and asset transfer agreement dated as of December 31, 1987 (the
"Transfer Agreement"), has, subject to the terms and conditions thereof,
transferred certain real property and assets owned by Vitelco to the Parent
Guarantor, subject to its instructions to transfer the real property and assets
to VITELCOM, Inc., a corporation duly organized and validly existing under the
laws of the United States Virgin Islands ("VITELCOM") and a wholly owned
subsidiary of the Parent Guarantor. To induce Lender to consent to the
transfers under the Transfer Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parent Guarantor has agreed to add to the Collateral all the shares of VITELCOM
it owns as well as various other property. Accordingly, the parties hereto
agree as follows:
1. Section 4(a) of the Guarantee and Pledge Agreement is hereby amended by
substituting the following therefor:
(a) all shares of capital stock of whatever class of Vitelco, now or
hereafter owned by such Parent Guarantor, together with the certificates
evidencing the same, accom-
<PAGE>
-2-
panied by undated stock powers duly executed in blank, and all shares of
capital stock of whatever class of VITELCOM now or hereafter owned by such
Parent Guarantor, together with the certificates evidencing the same,
accompanied by undated stock powers duly executed in blank (collectively,
the "Parent Guarantor Pledged Stock");
2. Section 4(c) of the Guarantee and Pledge Agreement is hereby amended by
substituting the following therefor:
(c) without affecting any provision prohibiting such action hereunder
or under the Loan Agreement, in the event of any consolidation or merger in
which Vitelco or VITELCOM is not the surviving corporation, all shares of
each class of the capital stock of the successor corporation formed by or
resulting from such consolidation or merger distributed in respect of the
Parent Guarantor Pledged Stock;
3. Section 4(d) of the Guarantee and Pledge Agreement is hereby amended
substituting the following therefor:
(d) any payment due or to become due under the Management Advisory
Contract dated as of June 24, 1987 between the Parent Guarantor and Vitelco
or under any management advisory contract to be entered into between the
Parent Guarantor and VITELCOM (collectively, such contracts the "Advisory
Agreement"); and
4. The Parent Guarantor shall deliver to the Lender endorsed in blank for
transfer or accompanied by duly executed stock powers, all stock certificates or
other securities representing the Parent Guarantor's shares of stock of whatever
class of VITELCOM.
5. This amendment may be executed in one or more counterparts and all of such
counterparts taken together shall constitute one and the same instrument.
<PAGE>
-3-
By executing this letter in the spaces provided below, the Parent Guarantor will
thereby agree with the undersigned that the Guarantee and Pledge Agreement is
amended on and as of the date of your acknowledgement as set forth above.
Very truly yours,
RURAL TELEPHONE FINANCE COOPERATIVE
By: /s/
--------------------------------
Title: Acting CEO
The undersigned hereby
acknowledges receipt of
and agreement with the
foregoing letter as of
the 12th day of Septem-
ber, 1988.
ATLANTIC TELE-NETWORK CO.
By: /s/ Cornelius B. Prior, Jr.
---------------------------
Title: President
<PAGE>
EXHIBIT 10.6
------------
AGREEMENT, dated as of May 10, 1990, made by and among VIRGIN ISLANDS
TELEPHONE CORPORATION ("Vitelco" or the "Mortgagor"), a corporation existing
under the laws of the United States Virgin Islands, VITELCOM, Inc., a
corporation existing under the laws of the United States Virgin Islands
("VITELCOM"), and the RURAL TELEPHONE FINANCE COOPERATIVE (the "RTFC").
WHEREAS Vitelco, VITELCOM, RTFC, and UNITED STATES OF AMERICA (the
"Government") have entered into that certain Supplemental Mortgage and Security
Agreement, dated as of May 29, 1990 (the "Joint Mortgage"); and
WHEREAS Vitelco, VITELCOM, and RTFC as among them have reached certain
agreements and understandings in addition to those contained in the Joint
Mortgage; and
WHEREAS Vitelco, VITELCOM and RTFC desire as between them to be bound
by those certain agreements and understandings; and
WHEREAS Vitelco, VITELCOM and RTFC are authorized to enter into this
Agreement;
NOW, THEREFORE, in consideration of the premises, the parties hereto
agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, terms which
are defined in the Joint Mortgage and used herein are so used as so defined.
SECTION 2. Additional Notes Secured by the Joint Mortgage. RTFC hereby
consents that the Mortgagor may execute and deliver Additional REA Notes to
evidence up to $96,000,000 aggregate principal amount of loans from the
Government to the Mortgagor without regard to the limitations contained in
Section 2.01(b) of the Joint Mortgage.
SECTION 3. Preservation of Corporate Existence, etc. As between the
parties to this Agreement, Section 3.04(a) of the Joint Mortgage shall be
construed to read as follows:
(a) The Mortgagor will at all times, so long as any of the Notes shall
be outstanding, take or cause to be taken all such action as from time to time
may be necessary to preserve its corporate existence and to preserve and renew
all material franchises, rights of way, easements, permits and licenses now or
hereafter to it granted or upon it conferred, and
<PAGE>
-2-
will comply with all valid laws, ordinances, regulations and requirements
applicable to it or its property, the failure to comply with which would have a
material adverse effect on the business, financial condition or prospects of the
Mortgagor.
SECTION 4. Limitations on Contracts. As between the parties to this
Agreement, Section 3.09(a) of the Joint Mortgage shall be construed to read as
follows:
(a) enter into any contract for management of its business or any part
thereof, for the operation or maintenance of all or any part of its property,
for the use by others of any of the Mortgage Property, to the extent that such
use by others would be likely to materially impair the Mortgagor's ability to
conduct its business in the ordinary course, or for toll traffic, operator
assistance, extended area service or switching services to be furnished by or
for connection companies or other companies; provided, however, that such
approval shall not be required for any toll traffic or operator assistance
contract which in form and substance conforms with contracts in general use in
the telephone industry; or
SECTION 5. Insurance; Restoration of Damaged Mortgaged Property. As
between the parties to this Agreement, Section 3.07(b) of the Joint Mortgage
shall be construed to read as follows:
In the event of damage to or the destruction or loss of any portion of
the Mortgaged Property which shall be covered by insurance, the proceeds thereof
(the "Insurance Proceeds") shall be immediately deposited in the Special
Construction Account and shall be applied by the Mortgagor, at the option of the
Mortgagor:
(i) to replace or restore such damaged, destroyed or lost portion so
that the Mortgaged Property shall be in substantially the same condition as
it was in prior to such damage, destruction or loss promptly after such
damage, destruction or loss shall have occurred, and to pay or cause to be
paid out of the proceeds of such insurance all costs and expenses in
connection therewith so that such replacement or restoration shall be so
completed that the portion of the Mortgaged Property so replaced or
restored shall be free and clear of all mechanics' liens and other claims;
or
(ii) to the payment of indebtedness secured by this Mortgage as
provided in Section 3.03 hereof; or
<PAGE>
-3-
(iii) for retention in the Special Construction Account for
disposition pursuant to Section 3.23 hereof.
SECTION 6. Payment of Dividends, etc. RTFC agrees that, so long as all
the indebtedness of the Mortgagor to RTFC which is secured by the Joint Mortgage
is guaranteed by Mortgagor's parent company, Atlantic Tele-Network Co., the
provisions of Section 3.15 of the Joint Mortgage and the provisions of the
authorization letter from the REA and RFTC to Mortgagor ("Letter of
Authorization") relating to said Section 3.15 of the Joint Mortgage are solely
for the protection of the REA and may be waived or amended by the REA at any
time without the consent of RTFC.
SECTION 7. Letter of Authorization. If RTFC shall modify or terminate
any provision in Section 1 of the Letter of Authorization without the written
approval of the Mortgagor, Mortgagor's obligations to make prepayments to RTFC
under clause (i) of Section 2.04(c) of the Loan Agreement dated as of December
19, 1987 by and among Atlantic Tele-Network Co., the Mortgagor and RTFC, as
heretofore amended, shall terminate.
SECTION 8. Counterparts. This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
VIRGIN ISLANDS TELEPHONE CORPORATION
By: /s/ Cornelius B. Prior, Jr.
---------------------------
Title: Chairman
VITELCOM, INC.
By: /s/ Cornelius B. Prior, Jr.
---------------------------
Title: Secretary
<PAGE>
-4-
RURAL TELEPHONE FINANCE COOPERATIVE
By: /s/ Richard B. Bulman
-------------------------------------
Title: Assistant Secretary-Treasurer
<PAGE>
EXHIBIT 10.12
-------------
LOAN AGREEMENT
--------------
LOAN AGREEMENT dated the 29th day of May, 1990, by and between ATLANTIC
TELE-NETWORK, INC., a Delaware corporation, whose mailing address is P.O. Box
6100, St. Thomas, U.S. Virgin Islands 00804 (hereinafter referred to as the
"Company"), and BANCO POPULAR DE PUERTO RICO, a commercial banking institution
having an address at P.O. Box 8580, St. Thomas, U.S. Virgin Islands 00801
(hereinafter referred to as the "Bank").
W I T N E S S E T H :
-------------------
1. REPRESENTATIONS. The Company represents, covenants and warrants that:
---------------
1.1 CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
-----------------------------
incorporated and validly existing under the laws of the state of Delaware and
has corporate power to make this Agreement and to borrow hereunder.
1.2 CORPORATE AUTHORITY. The making and performance by Company of this
-------------------
Agreement has been duly authorized by all necessary corporate action and will
not violate any provision of law or of its Articles of Incorporation or By-Laws
or result in the breach of, or constitute a default under, or result in the
creation of any lien, charge or encumbrance upon any prop-
<PAGE>
-2-
erty or assets of the Company pursuant to any indenture or bank loan or credit
agreement, or other agreement or instrument to which the Company is a party or
by which the Company or its property may be bound or affected.
1.3 FINANCIAL CONDITION. The most recent balance sheet of the Company, the
-------------------
statements of income and loss and surplus of the Company for the periods ending
on those dates, and other related information, heretofore furnished to the Bank,
are complete and correct and fairly represent the financial condition of the
Company as of the date(s) of said documents and as of the date(s) such financial
information was provided. To the best of the Company's knowledge and belief, the
Company has no material contingent obligations, liabilities for taxes, or
unusual forward or long term commitments, not disclosed by, or reserved against,
in said balance sheet, and, at the present time, there are no materials
unrealized or anticipated losses from any unfavorable commitments of the
Company. Said financial statements have been prepared in accordance with
generally accepted accounting principles and practices consistently maintained
by the Company throughout the period involved. Since the dates of such financial
statements, and since the date of the other financial information provided to
the Bank, there have been no material adverse changes in the financial condition
of the Company from that set forth in said
<PAGE>
-3-
balance sheet or in said other financial information as of the date thereof, and
dividends or other distributions have been declared or paid or made to its
stockholders.
1.4 LITIGATION. Except as the Bank has been advised in writing, there are
----------
no suits or proceedings pending, or, to the knowledge of the Company,
threatened, against or affecting the Company which, if adversely determined,
would have a material adverse effect on the financial condition or business of
the Company. There are no undisclosed proceedings by or before any governmental
commission, bureau or other administrative agency pending or, to the knowledge
of the Company, threatened against the Company.
1.5 TITLES; LIENS. The Company has good and marketable title to each of the
-------------
fixed properties and assets reflected in its balance sheet free and clear of all
mortgages, liens and encumbrances not otherwise disclosed in said balance sheet.
2. THE LOAN.
--------
2.1 AMOUNT. The Bank agrees, on the terms and conditions of this Agreement,
------
to extend to the Company a loan in the aggregate maximum principal sum of FIVE
HUNDRED THOUSAND DOLLARS ($500,000.00) (the "Loan"), which the Company hereby
accepts.
<PAGE>
-4-
2.2 PURPOSE. The purpose of the Loan is for the financing of letters of
-------
credit, letters of guaranty and to provide working capital to the Company.
2.3 TYPE. The Loan shall be in the form of a Five Hundred Thousand Dollar
----
($500,000.00) revolving line of credit (the "Line of Credit") with any
outstanding balance due and payable three hundred sixty (360) days from the date
hereof. During the term of the Line of Credit, the Company, subject to the terms
and provisions stated herein, shall have the right, from time to time, to repay
all or any part of the principal balance outstanding and to request from the
Bank readvances of principal on the Loan. However, at no time during the term of
the Loan shall the principal sum outstanding on the Line of Credit exceed Five
Hundred Thousand Dollars ($500,000.00).
2.4 INTEREST. The Loan shall bear interest on the aggregate principal sum
--------
advanced and outstanding at a per annum rate equal to one-quarter of one percent
(1/4%) above the prime rate of Chase Manhattan Bank, N.A. ("Chase") from time to
time in effect (any change in interest resulting from the change in the prime
rate to be determined and effective at the start of the business day on which
such change is announced). The term "prime rate," as used herein, means that
rate of interest from time to time so designated and established by Chase at its
<PAGE>
-5-
principal offices in New York, New York, as its prime commercial lending rate,
which is not necessarily the lowest rate charged by Chase on its commercial
loans. Interest shall be calculated daily on a three hundred sixty (360) day
basis on the outstanding principal balance on the Loan, and shall be paid
monthly on the first day of each month.
2.5 PRINCIPAL REPAYMENTS. The Company shall repay the Line of Credit from
--------------------
time to time on a basis satisfactory to the Bank, provided that the entire
principal balance outstanding shall be due and payable in full three hundred
sixty (360) days from the date hereof together with all outstanding interest
accrued thereon. All payments under the Loan shall be applied first to accrued
interest and the remainder to the outstanding principal balance.
2.6 RENEWAL OF LINE OF CREDIT. The Line of Credit shall expire three
-------------------------
hundred sixty (360) days from the date hereof, unless there has been a prior
default in which case it shall immediately terminate. Upon maturity and
repayment in full of any funds then outstanding under the Line of Credit, the
Company may apply to the Bank for a renewal of the Line of Credit by submitting
to the Bank such updated financial statements and other information of the
Company as the Bank may then require which statements and information shall be
<PAGE>
-6-
prepared in such manner and by such persons as are acceptable to the Bank;
provided, however, that for a period of thirty (30) consecutive days after the
initial term of the Line of Credit, and after the end of each renewal period
thereafter (if any) the Company shall have paid the Loan in full and shall have
no principal and interest outstanding under the Line of Credit. Upon review and
analysis of the updated financial statements and other information of the
Company and its Subsidiaries (as hereinafter defined), the Bank may, in its sole
discretion, renew the Line of Credit for such period of time as the Bank shall
advise the Company in writing.
2.7 THE NOTE. The Loan shall be evidenced by a Five Hundred Thousand Dollar
--------
($500,000.00) umbrella demand promissory note evidencing the Line of Credit
dated the date hereof, payable to the order of the Bank and due upon demand
according to its terms (the "Note").
3. CONDITIONS OF LENDING. The obligation of the Bank to make the initial
---------------------
advance under the Loan is subject to the following conditions precedent:
3.1 APPROVAL OF BANK COUNSEL. All legal matters incident to the
------------------------
transactions hereby contemplated shall be satisfactory to counsel for the Bank.
<PAGE>
-7-
3.2 OPINION OF BORROWER'S COUNSEL. The Bank shall have received the written
-----------------------------
opinion of counsel for the Company, satisfactory to the Bank and its counsel in
form and substance, covering the organization and corporate existence of the
Company and the power of the Company to make and perform their respective
obligations under this Agreement and the other agreements herein referred to.
3.3 PROOF OF CORPORATE ACTION. The Bank shall have received certified
-------------------------
copies of all corporate action taken by the Company to authorize the execution
and delivery of this Agreement, the Note and the borrowing hereunder, and such
other documents as the Bank shall reasonably request.
3.4 COMMITMENT FEE. A non-refundable Commitment fee of Five Thousand
--------------
Dollars ($5,000.00) shall have been paid by the Company to the Bank.
4. AFFIRMATIVE COVENANTS. The Company agrees that as long as credit shall
---------------------
remain available hereunder and until payment in full of the Note, unless the
Bank shall otherwise consent in writing, it will:
4.1 FURNISH FINANCIAL STATEMENTS. Furnish the Bank within one hundred
----------------------------
twenty (120) days after the end of each fiscal year of the Company with a
consolidated balance sheet of
<PAGE>
-8-
the Company as well as the balance sheets for its subsidiaries, Atlantic
Tele-Network Company and Virgin Islands Telephone Corporation (VITELCO) (the
"Subsidiaries") as of the close of such fiscal year, and a statement of profit
and loss and surplus of the Company and the Subsidiaries for each such year, all
of said statements prepared by independent certified publc accountants
acceptable to the Bank.
4.2 PAYMENT OF TAXES. Pay and discharge or cause to be paid and discharged
----------------
all taxes, assessments and governmental charges or liens imposed upon it or upon
its income or profits, or upon any property belonging to it, prior to the date
on which penalties attach thereto, and all lawful claims which, if unpaid, might
become a lien or charge upon the property of the Company, provided that the
Company shall not be required to pay any such tax, assessment, charge, levy or
claim the payment of which is being contested in good faith and by proper
proceedings.
4.3 NOTICE OF LITIGATION. Promptly give notice in writing to the Bank of
--------------------
all litigation and of all proceedings by or before any governmental regulatory
agency, against or affecting the Company, where the amount involved is in excess
of Fifty Thousand Dollars ($50,000.00) or which, if adversely de-
<PAGE>
-9-
termined, would otherwise have a materially adverse affect on the financial
condition or business of the Company.
4.4 DEPOSITS. Maintain a deposit account of the Company with the Bank.
--------
5. NEGATIVE COVENANTS. The Company agrees that so long as credit shall
------------------
remain available hereunder and until payment in full of the Note, and all other
credit advanced by the Bank to the Company, without the prior written consent of
the Bank, it will not:
5.1 LIMITATION OF LIENS. Mortgage, pledge, hypothecate, assign, transfer,
-------------------
suffer to exist, or voluntarily subject to any lien or encumbrance to secure any
indebtedness, any of the property or assets of the Company, now owned or
hereafter acquired; excluding, however, from the operation of this covenant,
liens, mortgages or encumbrances in favor of the Bank.
5.2 LIMITATION OF INDEBTEDNESS. Create or incur any indebtedness or
--------------------------
obligation for borrowed money or issue or sell any obligations of the Company,
excluding, however, from the operation of this covenant, the Loan hereunder or
other loans made by the Bank.
5.3 CONSOLIDATED OR MERGER. Merge into or consolidate with or into any
----------------------
corporation. For the purposes of this
<PAGE>
-10-
Section 5.3, the acquisition by the Company of all or substantially all of the
assets, together with the assumption of all or substantially all of the
obligations and liabilities, of any corporation shall be deemed to be a
consolidation of such corporation with the Company.
5.4 DISPOSITION OF ASSETS. Sell, lease, transfer or otherwise dispose of
---------------------
any of its assets (other than obsolete or worn-out property not used or useful
in its business), whether now owned or hereafter acquired, except in the
ordinary and regular course of the Company's business.
5.5 ACQUISITION OF STOCK OF COMPANY. Purchase, acquire, redeem or retire,
-------------------------------
or make any commitment to purchase, acquire, redeem or retire, any of the
capital stock of the Company whether now or hereafter outstanding.
5.6 CHANGE OF BUSINESS. Effect, cause, or permit any change from the
------------------
business now conducted by the Company.
6. EXPENSES. The Company agrees to pay all expenses (including legal
--------
expenses and attorneys' fees) payable in connection with the execution and
delivery of this Agreement and the Note, as well as all expenses (including
legal expenses and reasonable attorneys' fees) of every kind of or incidental
<PAGE>
-11-
to the collection or enforcement of this Agreement and the Note.
7. EVENTS OF DEFAULT. If any one of the following "events of defaults"
-----------------
shall occur:
7.1 any representation or warranty made by the Company herein proves to
have been incorrect in any material respect as of the date of this Agreement or
as of the date on which it is made, or any statement, certificate or data
furnished by the Company hereunder proves to have been incorrect in any material
respect as of the date when the facts therein set forth were stated or
certified; or
7.2 default by the Company in the performance of any covenant or agreement
herein (except as set forth in Section 7.3 herein), which shall remain
unremedied for thirty (30) days after written notice thereof shall have been
given by the Bank; or
7.3 default in the due payment of the principal of the Note, or default in
the payment of interest on the Note, or of any other indebtedness owing by the
Company to the Bank now existing or hereafter incurred, for fifteen (15) days
after the same shall be due; or
<PAGE>
-12-
7.4 a judgment for the payment of money shall be rendered against the
Company and any such judgment shall remain unsatisfied and in effect for any
period of sixty (60) consecutive days without a stay of execution; or
7.5 the Company shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of the Company, or of all or a substantial part
of the assets of the Company, (ii) be unable, or admit in writing, to the
inability to pay debts as they mature, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, or (v) file a
voluntary petition in bankruptcy or an answer seeking reorganization or an
arrangement with creditors or to take advantage of any insolvency law or an
answer admitting the material allegations of a petition filed against the
Company in any bankruptcy, reorganization or insolvency proceeding, or corporate
action shall be taken by the Company for the purpose of effecting any of the
foregoing; or
7.6 an order, judgment or decree shall be entered, without the application,
approval or consent of the Company, by any court of competent jurisdiction,
approving a petition seeking reorganization of the Company or appointing a
receiver, trustee or liquidator of the Company or of all or a substantial part
of the assets of the Company, and such order, judgment or
<PAGE>
-13-
decree shall continue unstayed and in effect for any period of sixty (60)
consecutive days;
THEN, the Bank, at its option, may by written notice to the Company (i)
immediately terminate the Line of Credit and all commitments of the Bank
hereunder, and (ii) declare all principal and interest accrued on the Note, and
all other liabilities of the Company to the Bank to be forthwith due and
payable, whereupon the same shall become forthwith due and payable.
8. NO WAIVER; REMEDIES CUMULATIVE. No failure to exercise, and no delay in
------------------------------
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and are not exclusive of any remedies provided by law.
9. DEFINITIONS.
-----------
9.1 Any accounting term used herein shall, unless the context otherwise
specifies, be defined as most commonly defined in accordance with generally
accepted accounting principles.
10. CHANGE OF PARTIES. The Company will not assign this Agreement or any of
-----------------
the monies due hereunder without the
<PAGE>
-14-
prior written consent of the Bank. In the event of any such approved assignment
the Bank shall elect to continue to make the Loan hereunder or any part thereof
to the Company or its successor or assignee, all sums so advanced shall be
deemed advances under this Agreement and not in modification hereof. If the
Company is in default under this Agreement, or as a part of the sale,
consolidation, liquidation or merger of the Bank, the Bank may assign this
Agreement and the Note, in which event all of the terms hereof shall continue to
apply to the Loan, the Note, and any other documents entered into pursuant to
the Loan. All sums so advanced shall be deemed advances under this Agreement and
not in modification hereof.
11. NOTICE. Any notice required herein shall be deemed to have been
------
properly served if sent by United States registered mail, postage prepaid,
addressed to the parties hereto at the addresses set forth above, or at such
other address as shall later be designated in writing.
12. CONSTRUCTION. This Agreement is being executed in and shall be
------------
construed in accordance with the laws of the United States Virgin Islands.
<PAGE>
-15-
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
day and year first above written.
ATLANTIC TELE-NETWORK, INC.
By: /s/Cornelius B. Prior, Jr.
-------------------------------------
Cornelius B. Prior, Jr.
President
(SEAL)
Attest: /s/Elizabeth A. Clark
-------------------------------------
Elizabeth A. Clark
Assistant Secretary
BANCO POPULAR DE PUERTO RICO
By: /s/Valentino I. McBean
-------------------------------------
Valentino I. McBean
Regional Vice President
<PAGE>
[COPY]
Atlantic Tele-Network, Inc.
Page 1 of 4
DEMAND NOTE
-----------
$500,000.00 St. Thomas, U.S.V.I.
May 29, 1990
FOR VALUE RECEIVED, ATLANTIC TELE-NETWORK, INC. (the "undersigned")
promises to pay to BANCO POPULAR DE PUERTO RICO (the "Bank"), or ORDER, the
principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00), or so much thereof
as may be advanced or upon repayment, readvanced by the Bank from time to time
after the date hereof pursuant to the terms of the Loan Agreement hereinafter
referred to, lawful money of the United States of America, with interest from
the date of any advance hereunder at a rate per annum equal to one-quarter of
one percent (1/4%) above the prime rate of the Chase Manhattan Bank ("Chase")
from time to time in effect (any change in interest resulting from the change in
such prime rate to be determined and effective at the beginning of the business
day on which each such change in the prime rate is announced). The term "prime
rate," as used herein, means that interest rate (which is not necessarily the
lowest rate charged by Chase) from time to time announced by Chase at its
principal offices in New York, New York, as its prime commercial lending rate.
Interest will be calculated daily on the outstanding principal sum on a three
hundred sixty (360) day basis and shall be due and pay-
<PAGE>
-2-
able monthly at the office of the Bank commencing on the first day of the month
following the date hereof and continuing on the first day of each subsequent
month until the principal and all accrued interest is paid in full. All payments
shall be applied first toward interest then accrued and the remainder, if any,
to the outstanding principal balance. The outstanding principal shall be payable
ON DEMAND at the offices of the Bank in St. Thomas, U.S. Virgin Islands, or at
such other place as the holder may, from time to time, designate in writing.
AND IT IS EXPRESSLY AGREED that the credit evidenced hereby is a revolving
line of credit in the maximum principal sum of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00), which, along with all interest accrued thereon, shall expire and
shall be due and payable three hundred sixty (360) days from the date hereof if
no prior default or demand shall have occurred. The undersigned may apply to the
Bank for renewal of the revolving line of credit in accordance with the terms
and provisions of the Loan Agreement of even date herewith (the "Loan
Agreement"); provided, however, that for a period of thirty (30) consecutive
days after the initial three hundred sixty (360) day period and for a period of
thirty (30) consecutive days after the end of each renewal period thereafter, if
renewed by the Bank, Borrower shall have paid the Loan in full and have no
principal and interest outstanding under this Note.
<PAGE>
-3-
This Note is subject to all of the terms, covenants and conditions of the
Loan Agreement and may not be changed orally, but only by an agreement in
writing signed by the party against whom enforcement of any change, waiver,
modification or discharge is sought.
In case recourse to the courts by the Bank or Note holder becomes necessary
in order to collect the whole or any unpaid part hereof together with all
accrued interest thereon, the undersigned agrees to pay any and all court
expenses, disbursements and attorneys' fees which may be incurred. The
undersigned expressly authorizes and empowers the Bank, at its option, at any
time, to appropriate and to apply to the payment of this Note and any other
obligation or obligations now existing or hereafter arising of the undersigned
to the Bank any and all moneys now or hereafter in the hands of the Bank on
deposit or otherwise to the Credit of or belonging to the undersigned.
Presentment for payment, notice of dishonor, protest and notice of protest
are hereby waived.
This Note is being issued pursuant to the Loan Agreement and any default
under the Loan Agreement shall constitute a default under this Note.
<PAGE>
-4-
This Note may be prepaid at any time, and from time to time, in whole or in
part, without any premium or penalty therefor; provided, however, that all such
prepayments shall be applied first toward interest then accrued.
Executed as a sealed instrument as of the date set forth above.
ATLANTIC TELE-NETWORK, INC.
By: /s/Cornelius B. Prior, Jr.
---------------------------------------
Cornelius B. Prior, Jr.
President
(SEAL)
ATTEST:
/s/Elizabeth A. Clark
- ---------------------------
Elizabeth A. Clark
Assistant Secretary
<PAGE>
ADDENDUM TO LOAN AGREEMENT
--------------------------
This Agreement is made this 25th day of February, 1993 between ATLANTIC
TELE-NETWORK, INC., a Delaware corporation, whose mailing address is P.O. Box
6100, Charlotte Amalie, U.S. Virgin Islands 00804 (hereinafter referred to as
the "Company") and BANCO POPULAR DE PUERTO RICO, a commercial banking
institution, whose mailing address is P.O. Box 8580, Charlotte Amalie, U.S.
Virgin Islands 00801 (hereinafter referred to as the "Bank").
WHEREAS, the Company and the Bank entered into a loan agreement dated May
29, 1990 (the "Loan Agreement") under the terms of which the Bank loaned to
Company the original principal sum Of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00) in the form of a revolving line of credit facility; and
WHEREAS, the Bank and the Company wish to modify the terms of said Loan
Agreement to, among other things, increase the amount available under the line
of credit facility to THREE MILLION FIVE HUNDRED THOUSAND DOLLARS
($3,500,000.00) and to additionally provide for the issuance of corporate
VISA/Master Cards to authorized employees of the Company with an aggregate
credit limit of FIFTY THOUSAND DOLLARS ($50,000.00) for all credit cards issued.
<PAGE>
-2-
NOW, THEREFORE, the parties hereby agree as follows:
1. Except where otherwise specifically defined herein, all capitalized
terms used herein shall have the same meanings as originally defined in the Loan
Agreement.
2. Substitute the following language for Section 2.1 of the Loan Agreement:
2.1 AMOUNT. The Bank agrees, on the terms and conditions of this
------
Agreement, to extend to the Company loans in the aggregate maximum
principal sum of THREE MILLION FIVE HUNDRED FIFTY THOUSAND DOLLARS
($3,550,000.00) (collectively, the "Loan"), which the Company hereby
accepts.
3. Substitute the following language for Section 2.2 of the Loan Agreement:
2.2 TYPE. The Loan shall be comprised of the following facilities:
----
(a) A Three Million Five Hundred Thousand Dollar ($3,500,000.00)
revolving line of credit facility (the "Line of Credit"). The amount
under the Line of Credit available to be advanced to the Company shall
be reduced by the aggregate of any outstanding prior advances and the
total of all outstanding advances shall never exceed in the aggregate
the sum of Three Million Five Hundred Thousand Dollars
($3,500,000.00).
(b) A Corporate VISA/Master Card revolving credit card account (the
"Credit Card Account") with an aggregate credit limit of Fifty
Thousand Dollars ($50,000.00) for all credit cards issued to
authorized users designated by the Company pursuant to the terms and
conditions of the Corporate/Businesscard Agreement (the "Card
Agreement") executed simultaneously herewith.
<PAGE>
-3-
4. Substitute the following language for Section 2.3 of the Loan Agreement:
2.3 PURPOSE. (i) The proceeds of the Line of Credit are to be
-------
used for financing of irrevocable letters of credit, irrevocable
standby letters of credit, sight drafts, acceptances and normal
working capital requirements (including short term funding
requirements for working capital and expenditures in the course of
present and future telecommunications expansion, internal and external
plant and facilities acquisitions); provided, however, that usage
under the Line of Credit is limited to $1,000,000.00 for any foreign
telecommunications acquisition and expenditures in Guyana. Any such
acquisition or expenditures under the Line of Credit shall be in
writing and must have the prior approval of the Bank and be fully
secured up to the amount drawn-down under the $1,000,000.00 sub-limit.
(ii) The Credit Card Account shall be used by the users authorized by
the Company for such purposes as shall be approved by the Company not
otherwise inconsistent with the terms of this Agreement or the Card
Agreement.
5. Substitute the following language for Section 2.4 of the Loan Agreement:
2.4 INTEREST. (i) The Line of Credit shall bear interest at a
--------
rate per annum equal to three quarters of one percent (.75%) above the
prime rate as it varies (any change in interest resulting from the
change in the prime rate to be effective at the beginning of the day
on which such change in the prime rate is announced). The term "prime
rate" as used herein means that rate of interest from time to time
announced by The Chase Manhattan Bank, N.A. at its principal offices
in New York, New York as its commercial loan prime rate. Interest
shall be calculated daily on a three hundred sixty (360) day basis at
the rate hereinabove set forth. Interest accrued on the principal sum
from time to time outstanding on the Line of Credit at the rate
hereinabove set forth shall be payable monthly commencing on the first
day of the month following the date of the first draw hereunder
<PAGE>
-4-
and continuing until the entire principal sum and all acquired
interest is fully paid. (ii) Interest on the Credit Card Account shall
be calculated, and shall be paid by the Company, pursuant to the terms
of the Card Agreement.
6. Delete the word "hereof" in the first sentence of Section 2.5 of the
Loan Agreement and substitute the words "of the Addendum" therefor. Delete the
word "Loan" in the last sentence of Section 2.5 and substitute "Line of Credit"
therefor. Insert the words "late charges, if any, second to" between the words
"to" and "accrued" in the last sentence of Section 2.5. Add the following at the
end of Section 2.5:
The outstanding principal balance on the Credit Card Account shall be
repaid consistent with the terms of the Card Agreement.
7. Delete the word "hereof" in the first sentence of Section 2.6 of the
Loan Agreement and substitute the words "of the Addendum" therefor.
8. Substitute the following language for Section 2.7 of the Loan Agreement:
2.7 THE NOTE. The Line of Credit shall be evidenced by the substitute
--------
demand promissory note of the Company in the amount of THREE MILLION FIVE
HUNDRED THOUSAND AND 00/100 DOLLARS ($3,500,000.00) dated the date of the
Addendum (the "Note"), due and payable to the order of the Bank as
hereinabove and therein set forth.
9. Delete the words "the initial advance under" in Section 3 of the Loan
Agreement.
<PAGE>
-5-
10. Section 3.2 is hereby designated as Section 3.2.1 and the following new
section 3.2.2 is hereby added to the Loan Agreement:
3.2.2 OPINION OF BORROWER'S COUNSEL. For the Addendum, the Bank shall
-----------------------------
have received from counsel for the Company a favorable opinion dated the
date of the Addendum addressed to the Bank and satisfactory in scope and
form to the Bank and its counsel, covering the matters referred to in
Section 3.2.1 above.
11. Add the following to Section 3.4 of the Loan Agreement:
For the Addendum, the Bank shall have received from the Company a
non-refundable Commitment Fee in the amount of Thirty-Five Thousand Dollars
($35,000.00) and an Application Fee of ($150.00).
12. Add the following sub sections to Section 3 of the Loan Agreement:
3.5 CUSTOMARY CREDIT CHARGES. The Company shall be charged the
------------------------
standard fees of the Bank then in effect for the issuance of each letter of
credit or sight draft.
3.6 DRAW FEE. The Bank shall receive a draw fee equal to one-eighth of
--------
one percent (.125%) of each advance under the Line of Credit.
3.7 ANNUAL RENEWAL FEE. Subject to the provisions of Section 2.6
------------------
hereof, the Bank shall receive an annual renewal fee of one-half of one
percent (.5%) of the amount at which the Line of Credit is renewed.
3.8 BANK APPROVAL OF ACQUISITIONS. Prior to any disbursements under
-----------------------------
the Line of Credit for short term funding of present or future
telecommunication
<PAGE>
-6-
acquisitions, any such acquisition, must be detailed in writing and must
have the approval of the Bank.
14. Substitute the following language for Section 4.1 of the Loan
Agreement:
4.1 FURNISH FINANCIAL STATEMENTS. Furnish the Bank (1) within sixty
----------------------------
(60) days after the end of each fiscal year of the Company, in such form as
is acceptable to the Bank, the audited financial statements of (a) the
Company, including the Company's balance sheet, income statement and
auditor's notes accompanying the statements, and (b) the Company's
subsidiaries, Atlantic Tele-Network Company and Virgin Islands Telephone
Corporation (VITELCO) (the "Subsidiaries"), all of said statements prepared
by independent certified public accountants satisfactory to the Bank (2)
with such further information regarding the business affairs and financial
condition of the Company, at such times, in such form and in such manner,
as the Bank may require, and (3) with copies of quarterly 10Q reports of
the Company filed with the Securities and Exchange Commission.
15. Add the word "or" after the semicolon in Section 7.6 and add the
following Section 7.7 to the Loan Agreement;
7.7 a default by the Company under any of the conditions of the Card
Agreement.
16. Add the following Section 13 to the Loan Agreement:
13. LENDER'S OPTION TO ACCELERATE. Notwithstanding anything contained
-----------------------------
herein to the contrary and whether or not the Company is in default of the
terms hereof, the Bank reserves for itself, in its full discretion, and at
anytime, the right to suspend the Company's authority to obtain advances
under the Line of Credit and to declare the principal balance outstanding
under the Note to be due and payable; whereupon all sums advanced and
outstanding under the
<PAGE>
-7-
Line of Credit together with all interest accrued thereon shall be
immediately due and payable by the Company to the Bank.
17. All representations, warranties, affirmative covenants and negative
covenants made by the Company and all conditions of lending agreed to by, and
applicable to, the Company in connection with the Loan Agreement are herein
restated and reaffirmed on the date of this Addendum.
18. Except as hereby modified, all other terms and provisions of the Loan
Agreement are hereby ratified and confirmed and incorporated herein by this
reference.
19. Except as specifically herein approved or waived by the Bank, no
default(s) of the Company, and no state of facts, which, if allowed to continue,
would constitute a default under the Loan Agreement, is hereby accepted,
approved or waived by the Bank. Notwithstanding the execution of this Addendum,
the Bank specifically reserves its right to declare the Company in default under
the Loan Agreement should any state of facts exist at the date hereof, known or
unknown to the Bank, which constitutes a default under the Loan Agreement as
modified by this Addendum.
<PAGE>
-8-
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
set forth above.
ATLANTIC TELE-NETWORK, INC.
By: /s/ James E. Kean
-------------------------------------
James E. Kean
Executive Vice President
[SEAL]
Attest: /s/ Adriane J. Dudley
-----------------------------------
Adriane J. Dudley
Assistant Secretary
BANCO POPULAR DE PUERTO RICO
By: /s/ Valentino I. McBean
------------------------------------
Valentino I. McBean
Senior Vice President
<PAGE>
[COPY]
SUBSTITUTE DEMAND NOTE
----------------------
$5,500,000.00 St. Thomas, U.S.V.1.
October 6, 1993
FOR VALUE RECEIVED, ATLANTIC TELE-NETWORK, INC., a Delaware corporation,
(the "undersigned") promises to pay to BANCO POPULAR DE PUERTO RICO (the
"Bank"), or ORDER, the principal sum of FIVE MILLION FIVE HUNDRED THOUSAND
DOLLARS ($5,500,000.00), lawful money of the United States of America, or so
much thereof as may be advanced or upon repayment readvanced by the Bank from
time to time after the date hereof pursuant to the terms of the Loan Agreement
dated May 29, 1990 as modified by the Addendum to Loan Agreement dated February
25, 1993 and the Second Addendum to Loan Agreement of even date herewith between
the undersigned and the Bank (collectively, the "Loan Agreement"), with interest
from the date drawn at a rate per annum equal to three-quarters of one percent
(.75%) above the prime rate as it varies (any change in interest resulting from
a change in the prime rate is to be effective at the beginning of the day on
which each such change in the prime rate is announced), calculated on a three
hundred sixty (360) day basis. The term "prime rate" as used herein means that
rate of interest from time to time announced by The Chase Manhattan Bank, N.A.
at its principal offices in New York, New York as its commercial loan prime
rate. Interest accrued on
<PAGE>
-2-
the principal sun from time to time outstanding at the rate hereinabove set
forth shall be payable monthly commencing on the first day of the month
following the date of the first draw hereunder and continuing until the entire
principal sum and all accrued interest is fully paid. The outstanding principal
shall be payable ON DEMAND at the office of the Bank in St. Thomas, U.S. Virgin
Islands, or at such other place as the holder may, from time to time, designate
in writing.
AND IT IS EXPRESSLY AGREED that the credit evidenced hereby is a revolving
line of credit in the maximum principal sum of FIVE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($5,500,000.00), which, along with all interest accrued
thereon, shall expire and shall be due and payable three hundred sixty (360)
days from the date hereof if no prior default or demand shall have occurred;
provided, however, that the maturity date set forth herein may be extended by
the bank annually, in its sole discretion, in accordance with the terms and
provisions of, and as provided in, the Loan Agreement and provided, further,
that after the initial three hundred sixty (360) day period of this Note, and at
the end of each renewal period thereafter, there shall be a thirty (30) day
period during which there shall be no principal or interest outstanding under
this Note.
<PAGE>
-3-
THE FOREGOING NOTWITHSTANDING, THIS NOTE IS AND SHALL BE CONSIDERED TO BE A
DEMAND INSTRUMENT SUBJECT TO CALL AT ANYTIME BY THE BANK IN ITS DISCRETION.
This Note may not be changed orally, but only by an agreement in writing
signed by the party against whom enforcement of any change, waiver, modification
or discharge is sought.
In case recourse to the courts by the holder of this Note becomes necessary
in order to collect the whole or any unpaid part thereof together with all
accrued interest thereon, the undersigned agrees to pay any and all court
expenses, disbursements, and attorneys' fees that may be incurred. The
undersigned expressly authorizes and empowers the Bank, at its option, at any
time, to appropriate and to apply to the payment of this Note, and any other
obligation or obligations now existing or hereafter arising of the undersigned
to the Bank, any and all monies now or hereafter in the hands of the Bank on
deposit or otherwise to the credit of or belong to the undersigned.
Presentment for acceptance or payment, notice of dishonor, protest and
notice of protest are hereby waived.
<PAGE>
-4-
This Note is being issued pursuant to the Loan Agreement and any default by
the undersigned under the Loan Agreement shall constitute a default under this
Note.
This Note may be prepaid at any time, and from time to time, in whole or in
part, without any premium, or penalty therefor; provided, however, that all such
prepayments shall be applied first toward late charges, if any, second to
interest accrued on this Note, and then toward the outstanding principal
balance.
Executed as a sealed instrument as of the date set forth above.
ATLANTIC TELE-NETWORK, INC.
By: /s/ Cornelius B. Prior, Jr.
---------------------------------
Cornelius B. Prior, Jr.
President
[SEAL]
Attest: /s/ Jeffrey I. Prosser
--------------------------------
Jeffrey I. Prosser
Secretary
<PAGE>
SECOND ADDENDUM TO LOAN AGREEMENT
---------------------------------
This Agreement is made this 6th day of October, 1993 between ATLANTIC
TELE-NETWORK, INC., a Delaware corporation, whose mailing address is P.O. Box
1730, St. Croix, U.S. Virgin Islands 00821 (hereinafter referred to as the
"Company") and BANCO POPULAR DE PUERTO RICO, a commercial banking institution,
whose mailing address is P.O. Box 8580, Charlotte Amalie, U.S. Virgin Islands
00802 (hereinafter referred to as the "Bank").
WHEREAS, the Company and the Bank entered in to a loan agreement dated May
29, 1990 (the "Loan Agreement") and an addendum to loan agreement dated February
25, 1993 ("the Addendum") under the terms of which the Bank loaned to the
Company the original principal sum of THREE MILLION FIVE HUNDRED THOUSAND
DOLLARS ($3,500,000.00) in the form of a revolving line of credit facility and
to provide for the issuance of corporate VISA/Master Cards to authorized
employees of the Company with an aggregate credit limit of FIFTY THOUSAND
DOLLARS ($50,000.00) for all credit cards issued; and
WHEREAS, the Bank and the Company wish to modify the terms of said Loan
Agreement and Addendum to increase the amount available under the line of credit
facility to FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS ($5,500,000.00).
<PAGE>
-2-
NOW THEREFORE, the parties hereby agree as follows:
1. Except where otherwise specifically defined herein, all capitalized
terms used herein shall have the same meanings as originally defined in the Loan
Agreement.
2. Substitute the following language for Section 2.1 of the Loan Agreement:
2.1 AMOUNT. The Bank agrees, on the terms and conditions of this
------
Agreement, to extend to the Company loans in the aggregate maximum
principal sum of FIVE MILLION FIVE HUNDRED FIFTY THOUSAND DOLLARS
($5,550,000.00) (collectively, the "Loan"), which the Company hereby
accepts.
3. Substitute the following language for Section 2.2(a) of the Loan
Agreement as amended by the Addendum:
2.2 TYPE. The Loan shall be comprised of the following facilities:
----
(a) A Five Million Five Hundred Thousand Dollars ($5,500,000.00)
revolving line of credit facility (the "Line of Credit"). The amount under
the Line of Credit available to be advanced to the Company shall be reduced
by the aggregate of any outstanding prior advances and the total of all
outstanding advances shall never exceed in the aggregate the sum of Five
Million Five Hundred Thousand Dollars ($5,500,000.00).
4. Delete the word "hereof" in the first sentence of Section 2.5 of the
Loan Agreement and substitute the words "of the Second Addendum" therefor.
<PAGE>
-3-
5. Delete the word "hereof" in the first sentence of Section 2.6 of the
Loan Agreement and substitute the words "of the Second Addendum" therefor.
6. Substitute the following language for Section 2.7 of the Loan Agreement;
2.7 THE NOTE. The Line of Credit shall be evidenced by the substitute
--------
demand promissory note of the Company in the amount of FIVE MILLION FIVE
HUNDRED THOUSAND DOLLARS ($5,500,000.00) dated the date of the Second
Addendum (the "Note"), due and payable to the order of the Bank as
hereinabove and therein set forth.
7. The following new section 3.2.3 is hereby added to the Loan Agreement:
3.2.3 OPINION OF BORROWER'S COUNSEL. For the Second Addendum, the Bank
-----------------------------
shall have received from counsel for the Company a favorable opinion dated
the date of the Second Addendum addressed to the Bank and satisfactory in
scope and form to the Bank and its counsel, covering the matters referred
to in Section 3.2.1 above.
8. All representations, warranties, affirmative covenants and negative
covenants made by the Company and all conditions of lending agreed to by, and
applicable to, the Company in connection with the Loan Agreement are herein
restated and reaffirmed on the date of this Second Addendum.
9. Except as hereby modified, all other terms and provisions of the Loan
Agreement and the Addendum are hereby
<PAGE>
-4-
ratified and confirmed and incorporated herein by this reference).
10. Except as specifically herein approved or waived by the Bank, no
default(s) of the Company, and no state of facts, which, if allowed to continue,
would constitute a default under the Loan Agreement and the Addendum, is hereby
accepted, approved or waived by the Bank. Notwithstanding the execution of this
Second Addendum, the Bank specifically reserves its right to declare the Company
in default under the Loan Agreement and Addendum should any state of facts exist
at the date hereof, known or unknown to the Bank, which constitutes a default
under the Loan Agreement as modified by the Addendum and this Second Addendum.
ATLANTIC TELE-NETWORK, INC.
By: /s/ Cornelius B. Prior, Jr.
-------------------------------------
Cornelius B. Prior, Jr.
President
[SEAL]
Attest: /s/ Jeffrey I. Prosser
------------------------------------
Jeffrey I. Prosser
Secretary
<PAGE>
-5-
BANCO POPULAR DE PUERTO RICO
By: /s/ Valentino I. McBean,
------------------------------------
Valentino I. McBean
Senior Vice President
<PAGE>
[COPY] Atlantic Tel-Network, Inc.
Page 1 of 4
SUBSTITUTE DEMAND NOTE
----------------------
$3,500,000.00 St. Thomas, U.S.V.I.
February 25, 1993
FOR VALUE RECEIVED, ATLANTIC TELE-NETWORK, INC., a Delaware corporation,
(the "undersigned") promises to pay to BANCO POPULAR DE PUERTO RICO (the
"Bank"), or ORDER, the principal sum of THREE MILLION FIVE HUNDRED THOUSAND
DOLLARS ($3,500,000.00), lawful money of the United States of America, or so
much thereof as may be advanced or upon repayment readvanced by the Bank from
time to time after the date hereof pursuant to the terms of the loan agreement
dated May 29, 1990 as modified by the addendum to loan agreement of even date
herewith between the undersigned and the Bank (collectively, the "Loan
Agreement"), with interest from the date drawn at a rate per annum equal to
three-quarters of one percent (.75%) above the prime rate as it varies (any
change in interest resulting from a change in the prime rate is to be effective
at the beginning of the day on which each such change in the prime rate is
announced), calculated on a three hundred sixty (360) day basis. The term "prime
rate" as used herein means that rate of interest from time to time announced by
The Chase Manhattan Bank, N.A. at its principal offices in New York, New York as
its commercial loan prime rate. Interest accrued on the principal sum from time
to time outstanding at the rate hereinabove
<PAGE>
Atlantic Tel-Network, Inc.
Page 2 of 4
set forth shall be payable monthly commencing on the first day of the month
following the date of the first draw hereunder and continuing until the entire
principal sum and all accrued interest is fully paid. The outstanding principal
shall be payable ON DEMAND at the office of the Bank in St. Thomas, U.S. Virgin
Islands, or at such other place as the holder may, from time to time, designate
in writing.
AND IT IS EXPRESSLY AGREED that the credit evidenced hereby is a revolving
line of credit in the maximum principal sum of THREE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($3,500,000.00), which, along with all interest accrued
thereon, shall expire and shall be due and payable three hundred sixty (360)
days from the date hereof if no prior default or demand shall have occurred;
provided, however, that the maturity date set forth herein may be extended by
the Bank annually, in its sole discretion, in accordance with the terms and
provisions of, and as provided in, the Loan Agreement and provided, further,
that after the initial three hundred sixty (360) day period of this Note, and at
the end of each renewal period thereafter, there shall be a thirty (30) day
period during which there shall be no principal or interest outstanding under
this Note.
<PAGE>
Atlantic Tel-Network, Inc.
Page 3 of 4
THE FOREGOING NOTWITHSTANDING, THIS NOTE IS AND SHALL BE CONSIDERED TO BE A
DEMAND INSTRUMENT SUBJECT TO CALL AT ANYTIME BY THE BANK IN ITS DISCRETION.
This Note may not be changed orally, but only by an agreement in writing
signed by the party against whom enforcement of any change, waiver, modification
or discharge is sought.
In case recourse to the courts by the holder of this Note becomes necessary
in order to collect the whole or any unpaid part thereof together with all
accrued interest thereon, the undersigned agrees to pay any and all court
expenses, disbursements, and attorneys' fees that may be incurred. The
undersigned expressly authorizes and empowers the Bank, at its option, at any
time, to appropriate and to apply to the payment of this Note, and any other
obligation or obligations now existing or hereafter arising of the undersigned
to the Bank, any and all monies now or hereafter in the hands of the Bank on
deposit or otherwise to the credit of or belonging to the undersigned.
Presentment for acceptance or payment, notice of dishonor, protest and
notice of protest are hereby waived.
<PAGE>
Atlantic Tel-Network, Inc.
Page 4 of 4
This Note is being issued pursuant to the Loan Agreement and any default by
the undersigned under the Loan Agreement shall constitute a default under this
Note.
This Note may be prepaid at any time, and from time to time, in whole or in
part, without any premium or penalty therefor; provided, however, that all such
prepayments shall be applied first toward late charges, if any, second to
interest accrued on this Note, and then toward the outstanding principal
balance.
Executed as a sealed instrument as of the date set forth above.
ATLANTIC TELE-NETWORK, INC.
By: /s/ James E. Kean
------------------------------------
James E. Kean
Executive Vice President
[SEAL]
Attest: /s/ Adriane J. Dudley
-----------------------------------
Adriane J. Dudley
Assistant Secretary
<PAGE>
EXHIBIT 10.13
-------------
FRANCHISE
TO THE
VIRGIN ISLANDS TELEPHONE CORPORATION
FOR
TELEPHONE SERVICE
IN THE
VIRGIN ISLANDS
OCTOBER 30, 1959
<PAGE>
VIRGIN ISLANDS TELEPHONE CORPORATION
FRANCHISE
By virtue of the authority in me vested under Paragraph (a), Section
10, Title 30, of the Virgin Islands Code, and Act No. 317 of June 19, 1958, and
pursuant to Act No. 504 of the Third Legislature of the Virgin Islands, First
Special Session of October 1, 1959, the undersigned on behalf of the Government
of the Virginia Islands, hereby grants this Franchise to Virgin Islands
Telephone Corporation, organized and existing under the laws of the Virgin
Islands, hereinafter referred to as the "Company", under the terms and
conditions herein established.
1. FRANCHISE
The Company is authorized and empowered to own, build, rebuild,
replace, construct, equip, operate and maintain a local, toll, inter-island,
interstate and international public telephone system within and throughout the
Virgin Islands, including the leasing of its circuits and other facilities for
public and private telephone and related services of every nature whatsoever,
making such arrangements as it sees fit for interconnection of its circuits and
facilities with those of other communication systems and enterprises operating
within or
<PAGE>
-3-
without the Virgin islands, with a view to providing the said
Territory with a modern and adequate system of domestic and world-wide telephone
and related services.
2. EASEMENTS
The Company is authorized and empowered to occupy and use, on the
basis of a perpetual easement for so long as it shall operate the services
herein referred to, subject to such restrictions as may now or hereafter be
imposed by law, public buildings, bridges and other public property, as well as
streets, sidewalks, alleys, and public roads, making excavations therein and
restoring the same, for the purpose of erecting, attaching, maintaining and
using poles, pole lines, under-ground conduits, manholes, cables, wires and
other facilities necessary to the services herein provided for. As to necessary
easements over private property the Government will assist the Company at its
request by the lawful exercise of the right of eminent domain on its behalf, the
cost of such condemnation to be borne by the Company.
The exercise of the rights and powers under this article shall be
subject to reasonable regulation by the Department of Public Works.
<PAGE>
-4-
3. IMPROVEMENTS
Within two years from the date of acceptance by the Company of this
Franchise, and subject to delays arising from circumstances beyond the Company's
control, which delays shall extend the said period by a term equal to the total
extent of such delays, the Company shall convert the telephone facilities
acquired by it from the Government of the Virgin Islands from common battery and
magneto operation to dial operation, for all local exchange service, all as
specifically described in the recitals of the Purchase and Sale Agreement
between International Telephone and Telegraph Corporation (the Company's
assignor) and the Government; together with the immediate initiation of a
temporary interim relief program involving expenditures of at least $75,000.
Following expiration of the aforesaid two-year period, the Company
shall continue to expand and modernize its services and facilities to meet the
public demand to the extent that this may be economically and technically
feasible.
4. HEARING
In exercising its powers under Title 30 of the Virgin Islands Code, in
any matter materially affecting the interests of the Company or regulating its
operation and procedures, the
<PAGE>
-5-
Public Utilities Commission shall give the Company timely notice and an
opportunity to be heard.
5. TAXES
For an initial period of ten (10) years from the date of acceptance by
the Company of this Franchise, the Company shall be exempt from the payment of
all taxes and fees, as described in Title 33, Section 4053, Virgin Islands Code,
levied by the Government of the Virgin Islands or any municipality or agency
thereof. During this same ten-year period, the Government of the Virgin Islands
shall pay to the Company certain monies quarterly as a non-taxable industrial
incentive, as a means of assisting the Company in its initial years of service,
and in order to reduce the rates so that the benefits may be passed on to the
consumers in the form of reduced charges. The measure of such payments to be
made by the Government to the Company shall be equal to 75% of the income taxes
and 100% of the import duties actually paid into the Treasury of the Virgin
Islands by the Company.
In the event that it should be held under Section 881 of the United
States Internal Revenue Code that the Company is required to withhold taxes,
then the Government of the Virgin Islands shall reimburse the Company for the
full amount thereof.
<PAGE>
-6-
6. RATES
(a) The rates now in effect for telephone service shall continue for
one year from the date of transfer of title to and possession of the telephone
system.
(b) For one year after the expiration of the period of time set forth
in 6(a) above, or until complete conversion to dial telephone operation,
whichever is later, the monthly rates shall be as follows:
<TABLE>
<CAPTION>
Business
- --------
<S> <C>
Individual $11.00
Two-Party 7.50
Trunks (P(A)BX) 14.00
Residential
- -----------
Individual 7.00
Two-party 5.00
Four-party 4.00
Eight-party 3.00
Extensions 1.50
- ----------
</TABLE>
(c) No mileage maintenance charges will be made for business
telephones. No mileage maintenance charges for residential telephones will be
made until complete conversion to dial telephone operation. Thereafter, mileage
main-
<PAGE>
-7-
tenance charges per one-quarter mile or fraction thereof monthly will be as
follows:
<TABLE>
<S> <C>
Individual stations $0.30
Two-party stations 0.20
Four-party stations 0.15
</TABLE>
and the maximum monthly mileage maintenance charge shall be $4.00 per main
station. In computing mileage maintenance charges for the Island of St. Croix,
the base rate area shall include the towns of Frederiksted and Christiansted and
shall include the area within 300 feet of the trunk line between the said towns.
The base rate area for St. Thomas shall include Charlotte Amalie and contiguous
developed areas as shown on maps to be filed with the Public Utilities
Commission. The base rate areas for St. John shall include Cruz Bay and Coral
Bay and contiguous developed areas as shown on maps to be filed with the Public
Utilities Commission.
In other concentrated areas of population such as Bethlehem and Grove
Place the base rate areas shall be defined in accordance with maps to be filed
with the Public Utilities Commission. In due course, the Company will submit to
the Public Utilities Commission for its approval, proposed regulations governing
new construction or extensions beyond the base rate
<PAGE>
-8-
areas. The term "new construction" does not include replacement of existing
lines.
(d) The rates and charges set forth in paragraphs (b) and (c) above
shall continue to apply until such time as new rates shall be determined in
accordance with the provisions of this article.
(e) After the time contemplated by (b) above, the Company may charge
such rates as shall provide a return not in excess of 8% on the fair value of
its property devoted to the public use, based on schedules of rates and charges
submitted by the Company or otherwise determined by the Public Utilities
Commission from time to time under Title 30 of the Virgin Islands Code, and the
Commission shall determine or approve such schedules with such modifications as
it may deem necessary and proper in the public interest, provided that such
modifications shall result in a return adequate to attract new capital for such
continued expansion and improvement of the service as may be appropriate or
required, and will otherwise meet the test of the Organic Act of the Virgin
Islands and the Constitution of the United States.
(f) The Company shall have the right to apply to the Public Utilities
Commission for immediate interim adjustment, by percentage or flat rate
surcharge or otherwise,
<PAGE>
-9-
to the extent indicated by wage increases or other contingency; provided that
this shall not apply until the conversion to dial operation is completed.
(g) In the event the Company is delayed or prevented from completing
the conversion to dial telephone operation by reason of circumstances beyond its
control, or in the event of a change in the stated assumptions upon which the
terms of this Franchise are predicated not attributable to the Company, then the
Company is not foreclosed by any foregoing provision from applying to the Public
Utilities Commission for appropriate relief by way of rate modification.
7. EMINENT DOMAIN
Anything to the contrary herein notwithstanding, the Government of the
Virgin Islands does not relinquish its right of eminent domain which it may
exercise at any time in accordance with the provisions of Chapter 19, Title 28,
Virgin Islands Code, and of the Organic Act and Constitution of the United
States.
The Government further reserves the right to take and operate the
business, plant and facilities other than by condemnation proceedings, in the
event that such action is made
<PAGE>
-10-
necessary by reason of a state of war or state of emergency declared by
appropriate legislative act authorizing such action and which is held by the
Governor of the Virgin Islands to warrant such taking and operation by the
Government as a measure of imperative public necessity, and in such event the
Government of the Virgin Islands shall pay the Company monthly in advance an
amount equal to a fair return on the value determined in accordance with Chapter
19 of Title 28 of the Virgin Islands Code and, within six months following
termination of the said state of war or emergency, it shall return the business,
plant and facilities to the Company, and compensate the Company for any damage
or deterioration occasioned thereto during the term of Government operation,
over and above normal wear and tear.
8. TERM
This Franchise shall be for an indeterminate term. The minimum term
of this Franchise is five years, and it may be terminated by the Government of
the Virgin Islands upon two years' prior written notice. In event of such
termination the Government shall expropriate the entire business, plant and
facilities of the Company. So long as this Franchise shall not be so
terminated, it shall remain in effect and be regarded as though it were
automatically renewable and renewed for successive biennial periods, so as to
fall within the limitations im-
<PAGE>
-11-
posed by paragraph (a), Section 10, Title 30, of the Virgin Islands Code.
9. ACCEPTANCE
This Franchise shall be inoperative unless the Company shall file with
the Governor of the Virgin Islands a written acceptance thereof within 45 days
after passage of the Act of the Legislature, signed by the Governor of the
Virgin Islands, approving this Franchise and the Contract for the purchase of
the Virgin Islands Telephone System. Upon the filing of such written acceptance
this Franchise shall constitute a contract between the Government of the Virgin
Islands and the Virgin Islands Telephone Corporation, its successors and
assigns.
10. LIMITATION ON TRANSFER
This Franchise is not transferable without permission of the Public
Utilities Commission.
IN WITNESS WHEREOF I have hereunto set my hand and Seal of the
Government of the Virgin Islands of the United States at Charlotte Amalie, St.
Thomas, Virgin Islands, this 30th day of October, 1959.
APPROVED AS TO LEGALITY:
<PAGE>
-12-
Russell B. Johnson
Attorney General
GOVERNMENT OF THE VIRGIN ISLANDS
OF THE UNITED STATES OF AMERICA
(SEAL)
By John D. Merwin
Governor
ATTEST:
Roy W. Bornn
Government Secretary
(Accepted as of midnight, October 31, 1959)
VIRGIN ISLANDS TELEPHONE CORPORATION
(SEAL) By Stephen H. Larrabee
President
ATTEST:
Ralph C. Economu
(Assistant) Secretary
<PAGE>
EXHIBIT 10.14
-------------
ATLANTIC TELE-NETWORK, INC.
DEFINED BENEFIT PLAN FOR SALARIED EMPLOYEES
AMENDED AND RESTATED
DEFINED BENEFIT PLAN AGREEMENT
PLAN NUMBER 003
DATED EFFECTIVE FEBRUARY 1, 1993
<PAGE>
ATLANTIC TELE-NETWORK, INC.
AMENDED AND RESTATED
DEFINED BENEFIT PLAN AGREEMENT
THIS AMENDED AND RESTATED DEFINED BENEFIT PLAN AGREEMENT, dated
for reference purposes only the 1st day of February 1, 1993, is hereby adopted
by ATLANTIC TELE-NETWORK, INC., a corporation organized under the laws of
Delaware (hereinafter referred to as "ATN, Inc." and as "Employer"), for the
benefit of its eligible Employees.
W I T N E S S E T H :
-------------------
ATN, Inc. has previously established and does hereby amend and
restate within this Agreement, a Plan for the administration and distribution of
contributions made by the Employer for the purpose of providing retirement
benefits for eligible Employees. The name of this Plan shall be "ATLANTIC
TELE-NETWORK,. INC. DEFINED BENEFIT PLAN FOR SALARIED EMPLOYEES" (hereinafter
referred to as the "Plan"). The provisions of this Plan shall apply solely to an
Employee whose employment with the Employer terminates on or after the Effective
Date of the Employer's Plan. If an Employee's employment with the Employer
terminates prior to the Effective Date, that Employee shall not be entitled to
any benefit under the Plan.
ARTICLE I
DEFINITIONS
1.01 ACCOUNTING DATE. The last day of the Plan Year.
---------------
1.02 ACCRUED BENEFIT. Subject to Article XVIII, a Participant's
---------------
normal retirement pension under Section 5.02. Once an Employee becomes a
Participant in the Plan, pursuant to the provisions of Article II, then Years of
Participation shall include all Years of Service, as defined in Section 2.02,
except that, for purposes of determining a Participant's Accrued Benefit, a
Participant shall not be credited with Years of Participation for any period of
employment prior to the Effective Date of the Plan, as defined in Section 1.12.
Notwithstanding the preceding sentence, ITT/Vitelco Employees, as defined in
Section 1.17, shall be credited with Years of Participation for purposes of
accruing benefits under this Plan for Years of
<PAGE>
Service prior to the Effective Date of the Plan to the extent provided in
Section 1.17 of the Plan.
If the Participant is a leased employee described in Section 1.13
of the Plan, the Advisory Committee shall reduce the Participant's Accrued
Benefit by his accrued benefit under a qualified plan maintained by the leasing
organization, to the extent attributable to services the leased employee
performed for the Employer. If the leasing organization's plan is a defined
benefit plan, the Advisory Committee shall make this reduction first by
converting the benefit under the leasing organization's plan to the same normal
form of benefit described in Section 5.03 of the Plan, if that benefit is
expressed in a different form, payable at the Participant's Normal Retirement
Age under this Plan. If the leasing organization's plan is a defined
contribution plan, the Advisory Committee shall make this reduction first by
converting the leased employee's vested account balance in that defined
contribution plan, determined as of the last day of the applicable Plan Year,
into an annual benefit payable at the Participant's Normal Retirement Age under
this Plan, in the normal form of benefit described in Section 5.03 of the Plan.
The Advisory Committee shall make all calculations under this paragraph by using
the actuarial assumptions specified in Section 1.04 of the Plan.
1.03 ACT. The Employee Retirement Income Security Act of 1974,
---
as amended.
1.04 ACTUARIAL EQUIVALENT. A benefit of equal value computed by
--------------------
using the UP-1984 Mortality Tables set back 1 and 1/2 years for Participants and
Beneficiaries and six percent (6%) interest per annum. When determining the
amount of a Participant's distribution, or when determining the present value of
the Participant's Nonforfeitable Accrued Benefit for purposes of any consent
requirements under the Plan, the Advisory Committee shall not use an interest
rate greater than the applicable PBGC rate in effect at the beginning of the
Plan Year in which the Participant's distribution occurs. The applicable PBGC
rate generally is 100% of the immediate or deferred annuity interest rates,
whichever apply to the Participant. However, if the present value of the
Participant's Nonforfeitable Accrued Benefit exceeds $25,000 by using 100% of
the PBGC interest rates, then the Advisory Committee shall use 120% of the
applicable immediate or deferred annuity interest rates. If the Advisory
Committee determines the interest rate limitation using 120% of the applicable
PBGC rates, that calculation shall not reduce the present value determination
below $25,000. In no event shall this interest rate limitation reduce a
Participant's distribution amount or present value calculation below the amount
determined by using the Plan's interest rate assumption stated in the first
sentence of this Section.
-2-
<PAGE>
1.05 ACTUARY. An enrolled actuary selected by the Advisory
-------
Committee to provide actuarial services for the Plan.
1.06 ADVISORY COMMITTEE. The Advisory Committee as from time
------------------
to time constituted by ATN, Inc.
1.07 AVERAGE ANNUAL COMPENSATION. The Compensation received by an
---------------------------
Employee during the period of five (5) calendar years during the last ten (10)
Years of Service as defined in Article II which produces the highest Average
Annual Compensation. For an Employee who does not receive Compensation during
five (5) calendar years, "Average Annual Compensation" shall mean the total
Compensation received by the Employee multiplied by 12 and divided by the number
of months during which compensation was received. With the exception of
ITT/Vitelco Employees, Average Annual Compensation shall not include
compensation paid or accrued for services performed before the Effective Date of
the Plan.
1.08 BENEFICIARY. A person designated by a Participant who is or
-----------
may become entitled to a benefit under the Plan. A Beneficiary who becomes
entitled to a benefit under the Plan shall remain a Beneficiary under the Plan
until the Trustee has fully distributed his or her benefit to him or her. A
Beneficiary's right to (and the Plan Administrator's, the Advisory Committee's
or a Trustee's duty to provide to the Beneficiary) information or data
concerning the Plan shall not arise until he or she first becomes entitled to
receive a benefit under the Plan.
1.09 CODE. The Internal Revenue Code of 1986, as amended.
----
1.10 COMPENSATION. The total amount of payments made or incurred
------------
by the Employer to an Employee for services rendered to the Employer, including
overtime pay, but specifically excluding bonuses and commissions. In addition to
bonuses and commissions, compensation shall not include Employee expense
reimbursements, foreign service allowances, fringe benefits, (taxable or
nontaxable), director's fees, contributions made by the Employer under the Plan,
payments made by the Employer for group insurance, hospitalization and like
benefits, nor contributions made by the Employer under any other employee
benefit plan it maintains. For Plan Years beginning after December 31, 1988,
notwithstanding anything herein to the contrary, Compensation shall not include
amounts paid by the Employer in excess of the greater of $200,000 or the maximum
amount prescribed pursuant to Code Section 401(a)(17).
1.11 COVERED COMPENSATION. Table 1 defined in the covered
--------------------
compensation tables published by the Internal Revenue
-3-
<PAGE>
Service for the year in which the Employee's termination occurs.
1.12 EFFECTIVE DATE. The effective date of this Plan is
--------------
June 24, 1987.
1.13 EMPLOYEE. An Employee of the Employer, an Employee of any
--------
subsidiary of the Employer incorporated in the United States, Puerto Rico or the
United States Virgin Islands, except whether said subsidiary existed on the
Effective Date or is incorporated subsequent thereto, and a Leased Employee as
defined by Internal Revenue Code Section 414(n)(2).
1.14 EMPLOYMENT COMMENCEMENT DATE. The date on which an
----------------------------
Employee first performs an Hour of Service for the Employer.
1.15 EMPLOYER. ATN, Inc., all of the subsidiaries of ATN, Inc.
--------
incorporated in the United States, Puerto Rico or the United States Virgin
Islands, whether said subsidiaries existed on the Effective Date or are
incorporated subsequent thereto, and any other employer who with the written
consent of ATN adopts this Plan.
1.16 HOUR OF SERVICE. Unless otherwise provided, the term
---------------
"Hour of Service" shall mean:
(a) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is
entitled to payment, for the performance of duties during the
Plan Year. The Advisory Committee shall credit Hours of Service
under this paragraph (a) to the Employee for the Plan Year in
which the Employee performs the duties, irrespective of when
paid;
(b) Each Hour of Service for back pay, irrespective of mitigation of
damages, to which the Employer has agreed or for which the
Employee has received an award. The Advisory Committee shall
credit Hours of Service under this paragraph (b) to the Employee
for the Plan Year(s) to which the award or the agreement pertains
rather than for the Plan Year in which the award, agreement or
payment is made; and
(c) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is
entitled to payment (irrespective of whether the employment
relationship is terminated), for reasons other than for the
performance of duties during a Plan Year, such as leave
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<PAGE>
of absence, vacation, holiday, sick leave, illness, incapacity
(including disability), layoff, jury duty or military duty. The
Advisory Committee shall not credit more than five hundred one (501)
Hours of Service under this paragraph (c) to an Employee on account of
any single continuous period during which the Employee does not perform
any duties (whether or not such period occurs during a single Plan
Year). The Advisory Committee shall credit Hours of Service under this
paragraph (c) in accordance with the rules of paragraphs (b) and (c) of
Labor Reg. Section 2530.200b-2, which the Plan, by this reference,
specifically incorporates in full within this paragraph (c).
The Advisory Committee shall not credit an Hour of Service under
more than one (1) of the above paragraphs. Furthermore, if the Advisory
Committee is to credit Hours of Service to an Employee for the twelve (12) month
period beginning with the Employee's Employment Commencement Date, or with an
anniversary of such date, then the twelve (12) month period shall be substituted
for the term "Plan Year" wherever the latter term appears in this Section. The
Advisory Committee shall resolve any ambiguity with respect to the crediting of
an Hour of Service in favor of the Employee.
The Advisory Committee shall credit every Employee with Hours of
Service on the basis of the "actual" method. For purposes of the Plan, "actual"
method means the determination of Hours of Service from records of hours worked
and hours for which the Employer makes payment or for which payment is due from
the Employer.
Solely for purposes of determining whether the Employee incurs a
Break in Service under any provision of this Plan, the Advisory Committee shall
credit Hours of Service during an Employee's unpaid absence period due to
maternity or paternity leave. The Advisory Committee shall consider an Employee
on maternity or paternity leave if the Employee's absence is due to the
Employee's pregnancy, the birth of the Employee's child, the placement with the
Employee of an adopted child, or the care of the Employee's child immediately
following the child's birth or placement. The Advisory Committee shall credit
Hours of Service under this paragraph on the basis of the number of Hours of
Service the Employee would receive if he or she were paid during the absence
period or, if the Advisory Committee cannot determine the number of Hours of
Service the Employee would receive, on the basis of eight (8) hours per day
during the absence period. The Advisory Committee only shall credit the number
of Hours of Service (up to 501 Hours of Service) necessary to prevent an
Employee's Break in Service.
-5-
<PAGE>
The Advisory Committee shall credit all Hours of Service described in this
paragraph to the computation period in which the absence period begins or, if
the Employee does not need these Hours of Service to prevent a Break in Service
in the computation period in which his or her absence period begins, the
Advisory committee shall credit these Hours of Service to the immediately
following computation period.
1.17 ITT/VITELCO EMPLOYEES. Prior to June 24, 1987, all of the
---------------------
issued and outstanding stock of Vitelco was owned by ITT Communications
Services, Inc. which was indirectly fully owned and controlled by ITT
Corporation or a wholly owned subsidiary of ITT Corporation. The employees of
Vitelco who are eligible to become Participants under the Plan, provided service
requirements are satisfied, generally were Members (as defined therein) in the
Retirement Plan for Salaried Employees of ITT Corporation (hereinafter referred
to as "ITT Plan"). With respect to Members of the ITT Plan employed by Vitelco
as of June 23, 1987 who are employed by Vitelco on June 24, 1987,
notwithstanding anything in the Plan to the contrary, for the purposes of
determining service under the Plan for vesting, for determining benefits and for
determining benefit amounts, the Service of Members of the ITT Plan shall be
credited as Service under this Plan even though rendered before the Effective
Date of the Plan, to the extent (only to such extent) it was recognized by the
ITT Plan. Hereinafter, such employees (governed by the preceding sentence), are
referred to as "ITT/Vitelco Employees".
1.18 NONFORFEITABLE. A Participant's or Beneficiary's
--------------
unconditional claim, legally enforceable against the Plan, to the Participant's
Accrued Benefit.
1.19 NONTRANSFERABLE ANNUITY. An annuity which by its terms
-----------------------
provides that it may not be sold, assigned, discounted, pledged as collateral
for a loan or security for the performance of an obligation or for any purpose
to any person other than the insurance company.
1.20 PARTICIPANT. An Employee who is eligible to be and becomes a
-----------
Participant in accordance with the provisions of Article II. An Employee who
becomes a Participant shall remain a Participant under the Plan until the
Trustee has fully distributed his or her Nonforfeitable Accrued Benefit to him
or her.
1.21 PLAN. The retirement Plan established by the Employer in the
----
form of this Agreement, designated as the ATLANTIC TELE-NETWORK, INC. DEFINED
BENEFIT PLAN FOR SALARIED EMPLOYEES (formerly known as the Atlantic Tele-Network
Co. Defined Benefit Plan).
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<PAGE>
1.22 PLAN ADMINISTRATOR. The Plan Administrator shall be the
------------------
Chairman of the Advisory Committee unless the Employer designates another person
or entity to hold the position of Plan Administrator. In addition to his or her
other duties, the Plan Administrator shall have full responsibility for
compliance with the reporting and disclosure rules under the Act as respects
this Agreement.
1.23 PLAN ENTRY DATE. The Effective Date and every January 1
---------------
and July 1 after the Effective Date.
1.24 PLAN YEAR. The fiscal year of the Plan, a twelve (12)
---------
consecutive month period ending every December 31, except the first Plan Year
shall be the short period of June 24, 1987 through December 31, 1987.
1.25 SERVICE. Any period of time the Employee is in the employ of
-------
the Employer, including any period the Employee is on unpaid leave of absence
authorized by the Employer under a uniform, non-discriminatory policy applicable
to all Employees.
1.26 SERVICE FOR CONTROLLED BUSINESSES. If the Employer is a
---------------------------------
member of a related group, the Plan shall treat all employees of the members of
such related group as if employed by a single employer. A related group is,
except as provided in Article III, a controlled group of corporations (as
defined in Code Section 414(b), trades or businesses (whether or not
incorporated) which are under common control (as defined in Code Section 414(c)
or an affiliated service group (as defined in Code Section 414(m) or Code
Section 414(0)).
1.27 THEORETICAL CONTRIBUTION/THEORETICAL RESERVE. The
--------------------------------------------
Theoretical Contribution for any Plan Year is the contribution which the
Advisory Committee would compute using the individual level premium funding
method from the age at which a Participant commenced participation in the Plan
to Normal Retirement Age to fund the Participant's entire anticipated normal
retirement pension, including any minimum benefit guaranteed under Article
XVIII, without regard to preretirement ancillary benefits. The Theoretical
Reserve is the amount the Advisory Committee would have available in a reserve
fund if for each Year of Participation until the Participant's death the
Employer made the Theoretical Contribution to the reserve fund. The Advisory
Committee shall base its calculations under this Section on the actuarial
assumptions specified in Section 1.04.
1.28 TRUST. The Trust created pursuant to the Trust Agreement
-----
executed concurrent with the execution hereof and incorporated herein as if set
forth in its entirety.
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<PAGE>
1.29 TRUSTEE. The Trustee of the Trust shall be WACHOVIA BANK OF
-------
GEORGIA, N.A. or any successor who in writing accepts the position of Trustee.
The Trustee may resign at any time as Trustee of the Plan by giving sixty (60)
days written notice in advance to the Employer and to the Pension Committee. The
Employer, by giving thirty (30) days written notice in advance to the Trustee,
may remove the Trustee without cause. In the event of the resignation or removal
of the Trustee, the Employer may at any time, subject to the requirements of any
applicable statute or regulation, appoint a successor trustee or trustees, other
than as heretofore provided, and any such successor trustee or trustees may be
either an individual or individuals, or a corporation authorized by law to
administer trusts.
1.30 TRUST FUND. All property of every kind held or acquired by
----------
the Trustee under the Trust, as of any date, including without limitation
annuity contracts.
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee who is not a member of a
-----------
collective bargaining unit shall become a Participant in the Plan on the Plan
Entry Date (if employed on that date) coincident with or immediately following
the later of the date on which he completes one (1) Year of Service or attains
age twenty-one (21).
If a Participant does not terminate employment but is or becomes
a member of a collective bargaining unit, then, unless the applicable collective
bargaining agreement provides otherwise, during any full Plan Year that such a
Participant is a member of a collective bargaining unit, the Participant shall
not accrue any benefit under the Plan nor shall he receive credit for Years of
Participation under Section 5.05.
If an Employee who is not a Participant ceases to be a member of
a collective bargaining unit, he shall participate in the Plan immediately if he
has satisfied the service and age conditions of this Section and would have been
a Participant had he not been a member of a-collective bargaining unit during
his period of service with the Employer. Furthermore, an Employee shall receive
vesting credit under Article VIII for each included Year of Service during his
period of Service with the Employer without regard to whether the Employee is a
member of a collective bargaining unit.
For purposes of this Section, an Employee is a member of a
collective bargaining unit if he is included in a unit of
-8-
<PAGE>
employees covered by an agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one (1) or
more employers if there is evidence that retirement benefits were the subject of
good faith bargaining between such employee representatives and such employer or
employers. The term "employee representatives" does not include an organization
more than one-half (1/2) the members of which are owners, officers or executives
of the Employer.
Each Employee of Vitelco as of June 23, 1987, who was then
satisfying the Eligibility Service requirements (as defined in the ITT Plan) to
become a Member of the ITT Plan, shall receive credit for such service before
June 24, 1987, as long as such service is consecutive, for purposes of
determining when such party shall become a Participant in this Plan.
2.02 YEAR OF SERVICE - PARTICIPATION. For purposes of
-------------------------------
participation under Section 2.01 the Plan shall take into account all of an
Employee's Years of Service with the Employer. Year of Service shall mean a
twelve (12) consecutive month period during which the Employee completes not
less than one thousand (1,000) Hours of Service, or is credited with one
thousand (1,000) Hours of Service pursuant to Article VII, measuring the
beginning of the first twelve (12) month period from the Employment Commencement
Date. If the Employee does not complete one thousand (1,000) Hours of Service
during the twelve (12) month period commencing with the Employment Commencement
Date, the Plan shall measure the twelve (12) month period from the first day of
the Plan Year which includes the first anniversary of the Employment
Commencement Date. The Plan shall measure any subsequent twelve (12) month
period necessary for a determination of Year of Service for participation by
reference to succeeding Plan-Years. "Employment Commencement Date" means the
date on which the Employee first performs an Hour of Service for the Employer.
Except as provided in Section 2.01, an Employee shall not be credited with Years
of Service for any period such Employee was a member of a collective bargaining
unit. For instance, an Employee who was a member of a collective bargaining
unit, shall not be credited with Years of Participation or Years of Service for
purposes of determining the Employee is normal retirement benefit or accrued
benefit for the period of service during which such Employee was a member of
such collective bargaining unit.
2.03 BREAK IN SERVICE - PARTICIPATION. For purposes of
--------------------------------
participation in the Plan, the Plan shall not apply any Break in Service rule.
2.04 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose
--------------------------------
employment terminates shall re-enter the Plan as a
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<PAGE>
Participant on the date of his re-employment. An Employee who has satisfied the
eligibility conditions of Section 2.01 but who terminates employment prior to
becoming a Participant shall become a Participant in the Plan on the date of his
re-employment. Any other Employee whose employment terminates and who is
subsequently re-employed shall become a Participant in accordance with the
provisions of Section 2.01 and Section 2.02.
2.05 ITT/Vitelco EMPLOYEES. ITT/Vitelco Employees shall become
---------------------
Participants in the Plan as of the first Plan Entry Date, June 24, 1987, as
provided in Section 1.17 hereof notwithstanding anything herein to the contrary.
Further, as provided in Section 1.17, years of Benefit Service (as defined in
the ITT Plan) credited pursuant to the ITT Plan shall be credited as Years of
Service pursuant to Section 2.02 and as Years of Participation pursuant to
Section 1.02.
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT. The Employer alone shall make the contributions
------
required to fund the cost of the benefits provided by this Plan. The Employer
intends to make such contributions as are necessary to fund the Plan in
accordance with the minimum funding standards of the Code; provided however, the
Trustee, upon written request from the Employer, shall return to the Employer
the amount of the Employer's contribution made by the Employer by mistake of
fact or the amount of the Employer's contribution disallowed as a deduction
under Code Section 404.
The Trustee shall not return any portion of the Employer's
contribution under the provisions of the first paragraph of this Section more
than one (1) year after:
(a) The Employer made the contribution by mistake of fact; or
(b) The disallowance of the contribution as a deduction, and then,
only to the extent of the disallowance.
Furthermore, the Trustee shall not increase the amount of the
Employer contribution returnable under this Section for any earnings
attributable to the contribution, but the Trustee shall decrease the Employer
contribution returnable for any losses attributable to it. The Trustee may
require the Employer to furnish it whatever evidence the Trustee deems necessary
to enable the Trustee to confirm the amount the Employer has requested be
returned is properly returnable under the Act.
-10-
<PAGE>
Notwithstanding any provision contained herein to the contrary,
the Employer shall be entitled to the return of all contributions made by the
Employer to this Plan should the Internal Revenue Service initially determine
that this Plan is not qualified.
3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its
-----------------------------
records and the reports of the Actuary, shall determine the amount of any
contribution to be made by it to the Trust Fund under the terms of the Plan. In
this regard, the Employer may place full reliance upon all reports, opinions,
tables, valuations, certificates and computations the Actuary furnishes the
Employer.
3.03 TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its
-------------------------------
contribution for each Plan Year in one (1) or more installments. The Employer
must make its contribution to the Trust within the time prescribed (including
extensions) by Code Section 404(a)(6) for filing its tax return for the taxable
year for which it claims a deduction for its contribution.
3.04 NONVESTED ACCRUED BENEFIT. The Trustee shall retain in the
-------------------------
Trust all amounts representing the nonvested Accrued Benefit of Participants who
have terminated employment. The Employer shall not use these amounts to increase
benefits under the Plan but instead shall use the amounts to reduce its
contribution for future Plan Year(s).
3.05 LIMITATION ON ANNUAL BENEFIT. Notwithstanding any other
----------------------------
provision of this Plan, in no event shall a Participant's Annual Benefit payable
at his Social Security retirement age, at any time within a Limitation Year,
exceed the lesser of $90,000 (or, beginning January 1, 1988, such larger dollar
amount as the Commissioner of Internal Revenue may prescribe) or one hundred
percent (100%) of the Participant's average Compensation for his highest three
(3) consecutive Years of Service. A Participant shall satisfy the limitation of
this Section if his Annual Benefit under this Plan is $10,000 or less, and the
Participant has not participated at any time in a defined contribution plan the
Employer has maintained.
If a Participant's Annual Benefit commences prior to his
attaining Social Security Retirement Age, but not earlier than his attaining age
sixty-two (62), the Advisory Committee shall adjust the $90,000 (or the larger
adjusted dollar amount) limitation of this Section by 5/9 of 1% for each of the
first thirty-six (36) months the benefit commencement date precedes the
Participant's Social Security retirement age, and by 5/12 of 1% for each
additional month (not exceeding twenty-four (24) months) the benefit
commencement date precedes the Participant's Social Security retirement age. If
a Participant's An-
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<PAGE>
nual Benefit commences prior to his attaining age sixty-two (62), the Advisory
Committee shall adjust the dollar amount limitation of this Section to the
Actuarial Equivalent of an Annual Benefit equal to the dollar limitation
applicable to an Annual Benefit commencing to that Participant at age sixty-two
(62). To determine the Actuarial Equivalent under this paragraph, the Advisory
Committee shall use an interest rate assumption equal to the greater of five
percent (5%) per annum or the rate specified in Section 1.04.
In the event a Participant's Annual Benefit commences after his
Social Security retirement age, the Advisory Committee shall adjust the $90,000
(or larger adjusted dollar amount) limitation of this Section to the Actuarial
Equivalent of an Annual Benefit equal to such dollar limitation commencing at
Social Security retirement age. To determine the Actuarial Equivalent under this
paragraph, the Advisory Committee shall use an interest rate assumption equal to
the lesser of five percent (5%) per annum or the rate specified in Section 1.04.
The maximum Annual Benefit described in this Section applies to a
Participant who has completed at least ten (10) Years of Service with the
Employer, for purposes of the 100% average Compensation limitation and the
$10,000 special limitation, and has completed at least ten (10) Years of
Participation in the Plan, for purposes of the dollar limitation. If a
Participant has less than ten (10) Years of Service with the Employer at the
time benefits commence, the Advisory Committee shall multiply his 100% average
compensation limitation and the $10,000 special limitation by a fraction, the
numerator of which is the number of Years of Service (including fractional
years) with the Employer and the denominator of which is ten (10). If a
Participant has less than ten (10) Years of Participation in the Plan at the
time his benefits commence, the Advisory Committee shall multiply his dollar
limitation by a fraction, numerator of which is the number of years of
Participation (including fractional years) in the Plan and the denominator of
which is ten (10). In no event will the reductions described in this paragraph
reduce a Participant's maximum Annual Benefit to less than one-tenth (1/10) of
the maximum Annual Benefit determined without regard to the reductions. To the
extent required by Treasury regulations, the Advisory Committee shall apply the
reductions of this paragraph separately to each change in the benefit structure
of the Plan.
If the Trustee pays the Participant's benefit in a form other
than an Annual Benefit, the benefit paid may not exceed the Actuarial Equivalent
of the maximum Annual Benefit payable as a straight life annuity. To determine
the Actuarial Equivalent under this paragraph, the Advisory Committee shall
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<PAGE>
use an interest rate assumption equal to the greater of five percent (5%) per
annum or the rate specified in Section 1.04.
Any adjustment to the dollar limitation of this Section shall not
take effect until the first day of the calendar year for which the Commissioner
of Internal Revenue publishes the adjustment. The new limitation shall apply to
the Limitation Year ending with or within the calendar year for which the
Commissioner of Internal Revenue makes the adjustment.
A Participant's Accrued Benefit shall not exceed the limitations
of this Section or of Section 3.07.
3.06 DEFINITIONS - ARTICLE III. For purposes of Article III, the
-------------------------
following definitions and rules of interpretation shall apply:
(a) "Annual Benefit" -- The Participant's retirement benefit
(including any portion of the Participant's retirement benefit
payable to an alternate payee under a qualified domestic
relations order satisfying the requirements of Code Section
414(p)) attributable to Employer contributions payable in the
form of a straight life annuity or a qualified joint and survivor
annuity, with no ancillary benefits (other than the survivor
annuity).
(b) "Compensation" -- Amounts received for personal services actually
rendered in the course of employment with the Employer
maintaining the plan (including, but not limited to, commissions
paid salesmen, compensation for services on the basis of a
percentage of profits, Commissions on insurance premiums, tips
and bonuses). The term "Compensation" shall not include:
(1) Employer contributions to a plan of deferred compensation
to the extent the contributions are not included in the
gross income of the Employee for the taxable year in which
contributed, on behalf of an Employee to A Simplified
Employee Pension Plan to the extent such contributions are
excludable from the Employee's gross income, and any
distributions from a plan of deferred compensation,
regardless of whether such amounts are includable in the
gross income of the Employee when distributed.
(2) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held
by an Employee either becomes
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<PAGE>
freely transferable or is no longer subject to a
substantial risk of forfeiture.
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option.
(4) Other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the
extent that the premiums are not includable in the gross
income of the Employee), or contributions made by an
Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract
described in Code Section 403 (b) (whether or not the
contributions are excludable from the gross income of the
Employee).
The provisions of this subparagraph (b) shall apply solely to
this Article III. For purposes of applying the limitations of
this Article III, amounts included as Compensation are those
amounts actually paid to a Participant (or accrued for a
Participant if the Employer included Compensation accrued under
Section 1. 10) or includable in his gross income within the
Limitation Year.
(c) "Limitation Year" -- The Plan Year.
(d) "Projected Annual Benefit"-- A Participant's Annual Benefit under
this Plan provided by Employer contributions on the assumptions
that the Participant will continue employment until his Normal
Retirement Age (or current age, if later), that his Compensation
will continue at the same rate as in effect for the Limitation
Year under consideration until his Normal Retirement Age (or
current age, if later) and that all relevant factors used to
determine benefits under the Plan will remain constant as of the
current Limitation Year for all future Limitation Years.
(e) "Annual Addition"-- The sum of the following amounts allocated on
behalf of a Participant for a Limitation Year, of (i) all
Employer contributions; (ii) all forfeitures; and (iii) all
Employee contributions. Annual Additions include excess
contributions described in Code Section 401(k), excess aggregate
contributions described in Code Section 401(m) and excess
deferrals described in Code Section 402(g) , irrespective of
whether the plan distributes or forfeits such excess amounts.
Annual Additions also in-
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<PAGE>
clude amounts allocated after March 31, 1984, to an individual
medical account (as defined in Code Section 415(l)(2)) included
as part of a defined benefit plan maintained by the Employer.
Furthermore, Annual Additions include contributions paid or
accrued after December 31, 1985, for taxable years ending after
December 31, 1985, attributable to post-retirement medical
benefits allocated to the separate account of a key employee (as
defined in Code Section 419A(d)(3) under a welfare benefit fund
(Code Section 419(e)) maintained by the Employer, but only for
purposes of the dollar limitation applicable to the Maximum
Permissible Amount.
(f) "Year of Service" -- A Plan Year during which a Participant
completes at least one thousand (1,000) Hours of Service.
(g) "Year of Participation" -- A Year of Participation, as determined
under Section 1.02 of the Plan. A Year of Participation also
shall mean years of participation credited under any predecessor
or successor plan maintained by the Employer, to the extent
permitted under Treasury regulations.
(h) "Social Security Retirement Age" -- The Advisory Committee shall
determine a Participant's Social Security Retirement Age in
accordance with the following table:
Social Security
Calendar Year of Birth Retirement Age
- ---------------------- --------------
Prior to 1938 65
1938 through 1954 66
After 1954 67
(i) "Employer"-- In the case of a group of employers which
constitutes a controlled group of corporations (as defined in
Code Section 414(b) as modified by Code Section 415(h)), which
constitutes trades or businesses (whether or not incorporated)
which are under common control (as defined in Code Section 414
(c) as modified by Code Section 415(h)) or which constitutes an
affiliated service group within the meaning of Code Section 414
(m) , all such employers shall be considered a single employer
for purposes of applying the limitations of Section 3.05.
(j) "Defined benefit plan" -- A retirement plan which does not
provide for individual accounts for Employer con-
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<PAGE>
tributions. The Advisory Committee shall treat all defined
benefit plans (whether or not terminated) maintained by the
Employer as a single plan.
(k) "Defined contribution plan"-- A retirement plan which provides
for an individual account for each participant and for benefits
based solely on the amount contributed to the participant's
account, and any income, expenses, gains and losses, and any
forfeitures of accounts of other participants which the Advisory
Committee may allocate to such Participant's account. The
Advisory Committee shall treat all defined contribution plans
(whether or not terminated) maintained by the Employer as a
single plan. For purposes of the limitations of this Article III
only (except for the $10,000 special limitation in Section 3.05),
the Advisory Committee shall treat employee contributions made to
a defined benefit plan maintained by the Employer as a separate
defined contribution plan. The Advisory Committee shall treat as
a defined contribution plan an individual medical account (as
defined in Code Section 415(l)(2) included as part of a defined
benefit plan maintained by the Employer and, for taxable years
ending after December 31, 1985, a welfare benefit fund under Code
Section 419(e) maintained by the Employer to the extent there are
post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section
419A(d)(3)).
3.07 OVERALL LIMITATIONS. This Section applies to any Participant
-------------------
who also participates, or ever participated, in a defined contribution plan
maintained by the Employer. The Employer shall reduce its contributions under
the defined contribution plan to the extent necessary to prevent the sum of the
following fractions, computed as of the close of the Limitation Year, from
exceeding 1.0:
Projected Annual Benefit of the Participant
under the defined benefit plan
- --------------------------------------------------------------------------------
The lesser of (i) 125% of the Participant's dollar limitation in
effect under Code Section 415(b)(1)(A) for the Limitation
Year, or (ii) 1.4 times the Participant's average Compensation
limitation under Section 3.05
plus
the sum of the Annual Additions to the Participant's Account under the defined
contribution plan(s) as of the close of the Limitation Year
- --------------------------------------------------------------------------------
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<PAGE>
the sum of the lesser of the following amounts determined for the Limitation
Year and for each prior Year of Service with the Employer: (i) 125% of the
dollar limitation in effect under Code Section 415(c)(1)(A) for the Limitation
Year (determined without regard to the special dollar limitations for employee
stock ownership plans), or (ii) 35% of the Participant's Compensation for the
Limitation Year
The Advisory Committee shall determine the denominator of the
first fraction by taking into account the years of participation and the years
of service the Advisory Committee reasonably can project the Participant will
have at the time his Projected Annual Benefit is payable. The Advisory Committee
may use on a uniform basis any transitional rules prescribed by law to compute
the Participant's fractions. The denominator of the first fraction shall not be
less than 125% of the Participant's Current Accrued Benefit (as determined under
Section 3.05). For purposes of the second fraction, the Advisory Committee shall
not recompute Annual Additions in Limitation Years beginning prior to January 1,
1987, to treat all Employee contributions as Annual Additions. If the plan
satisfied Code Section 415 for Limitation Years beginning prior to January 1,
1987, the Advisory Committee will redetermine the fractions as of the end of the
last Limitation Year beginning before January 1, 1987, in accordance with this
Section. If the sum of the redetermined fractions exceeds 1.0, the Advisory
Committee will subtract permanently from the numerator of the second fraction an
amount equal to the product of (1) the excess of the sum of the fractions over
1.0, times (2) the denominator of the second fraction. In making the adjustment,
the Advisory Committee shall disregard any Accrued Benefit in excess of the
Current Accrued Benefit.
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT VOLUNTARY CONTRIBUTIONS. This Plan does not
-----------------------------------
permit or require Participant voluntary contributions.
4.02 PARTICIPANT ROLLOVER CONTRIBUTIONS. This Plan does not
----------------------------------
permit Participant rollover contributions.
ARTICLE V
NORMAL RETIREMENT BENEFIT
5.01 NORMAL RETIREMENT AGE. A Participant's Normal Retirement Age
---------------------
is the date he attains sixty-five (65) years of age or the date he completes
five (5) years of Participation within the meaning of Section 1.02 herein. A
Participant who
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<PAGE>
retires on or after attaining Normal Retirement Age shall receive a Normal
Retirement Pension as described below.
5.02 AMOUNT OF NORMAL RETIREMENT PENSION. Subject to the Annual
-----------------------------------
Benefit limitations of Article III, and in the case of ITT/Vitelco Employees, as
modified by Section 5.03, a Participant's normal retirement pension shall equal:
(a) For Plan Years beginning before January 1, 1989:
(1) Two percent (2%) of the Participant's Average Annual
Compensation for each Year of Participation (as defined by
Section 1.02 which includes Years of Service prior to the
Effective Date of the Plan for ITT/Vitelco Employees) up
to twenty-five (25) years, plus
(2) One and one-half percent (1.5%) of the Participant's
Average Annual Compensation for each Year of Participation
(as defined by Section 1. 02 which includes Years of
Service prior to the Effective Date of the Plan for
ITT/Vitelco Employees) for the next fifteen (15) years,
offset by
(3) one and one-quarter percent (1.25%) of the Participant's
Primary Insurance Amount for each Year of Participation
(as defined by Section 1.02 which should equal the sum of
years credited under (a) and (b) immediately above) up to
and not to exceed forty (40) years.
(b) For Plan Years beginning after December 31, 1988:
1.4% of the Participant's Average Annual Compensation up to
Covered Compensation, plus 1.8% of the Participant's Average
Annual Compensation in excess of Covered Compensation, for each
Year of Participation (as defined in Section 1.02 herein, which
includes Years of Service prior to the Effective Date of the Plan
for ITT/Vitelco Employees) up to thirty-five (35) years.
Notwithstanding the foregoing to the contrary, in no event shall the benefit
determined under this Section be less than the benefit accrued as of September
1, 1991.
A Participant's Primary Insurance Amount is his old-age insurance
benefit under the Social Security Act as in effect at the time the offset first
applies. If a Participant
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terminates service prior to attaining Normal Retirement Age, the Advisory
Committee shall compute the Participant's Primary Insurance Amount as if the
Participant will receive wages for purposes of the Social Security Act after his
termination of service, assuming the Participant's annual rate of Compensation
(at the time he terminates service) continues until Normal Retirement Age.
In calculating a Participant's Primary Insurance Amount, the
Advisory Committee shall use the Participant's Estimated Compensation for all
years prior to the Participant's termination of service (by retirement or
otherwise). The Advisory Committee shall determine the Participant's Estimated
Compensation by applying a salary scale projected backwards, to the
Participant's Compensation at termination of service. The salary scale shall be
six percent (6%) per annum. The Plan Administrator shall provide each
Participant, at the time the Participant receives a summary plan description and
at the time he terminates service, written notice of (1) his right to provide
the Advisory Committee actual salary history; (2) the financial effect of
failing to supply actual salary history; and (3) the Participant's right to
obtain actual salary history from the Social Security Administration. If the
Participant provides the Advisory Committee actual salary history within six (6)
months (or such longer period of time the Advisory Committee determines is
administratively reasonable) following the later of the date the Participant
terminates service or the date the Advisory Committee notifies him of the amount
of his benefit, the Advisory Committee shall adjust the Participant's benefit to
reflect an offset based on the actual salary history.
5.03 ITT/Vitelco EMPLOYEES. Pursuant to Sections 1.17 and 2.05
---------------------
hereof, ITT/Vitelco Employees obtain credit for Service before the Effective
Date of this Plan. Further, the contract governing the acquisition of Vitelco
provided that ITT Corporation would cause such employees to be fully vested in
the accrued benefit provided in the ITT Plan as of June 23, 1987. With respect
to ITT/Vitelco Employees, such employees calculation of normal retirement
pension as provided in Section 5.02 shall be modified by subtracting from the
normal retirement pension calculated pursuant to subparagraphs (a), (b) and (c)
of Section 5.02 the normal retirement allowance (Accrued Benefit) such
Participant is entitled to pursuant to the ITT Plan as of June 23, 1987 assuming
such Employees were fully vested as provided in the contract.
5.04 OFFSETS. A Participant's normal retirement pension shall be
-------
offset for the Primary Insurance Amount as provided in Section 5.02,
subparagraph (c), and for the normal retirement allowance (Accrued Benefit) from
the ITT Plan as
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provided in Section 5.03 even though the Participant does not receive such
benefits (Social Security benefits or retirement benefits from the ITT Plan)
regardless of the reason therefor, such as, for example only, the failure to
apply for benefits or excess earnings decreasing or eliminating the benefit.
5.05 COMPUTATION OF NORMAL RETIREMENT PENSION. The Advisory
----------------------------------------
Committee shall compute a Participant's normal retirement pension and, in the
case of ITT/Vitelco Employees, the normal retirement allowance under the ITT
Plan in the form of a straight life annuity commencing at Normal Retirement Age.
The Trustee shall pay the Participant's normal retirement pension in accordance
with Article X.
5.06 LATE RETIREMENT. A Participant who continues his employment
---------------
after attaining Normal Retirement Age may retire on a Late Retirement Date. In
such event, the Participant's pension will commence on his Late Retirement Date,
which will be the first day of the month coincident with or next following the
date he ceases to be an active Participant. A Participant who retires on his
Late Retirement Date will receive a pension commencing on such date equal to his
Accrued Benefit as of his Late Retirement Date, taking into account his years of
Participation and Compensation to his Late Retirement Date. In the event that a
Participant elects a form of payment other than the straight life annuity form,
the pension will be the Actuarial Equivalent of the pension otherwise payable at
his Late Retirement Date based on the form of payment selected.
After a Participant attains Normal Retirement Age, the
Participant, until he retires, has a continuing election, subject to the joint
and survivor annuity requirements of Article X, to receive all, or any portion,
of his Accrued Benefit in a single sum payment, or to make a direct transfer of
his Accrued Benefit to another qualified plan in which he is a participant. A
Participant shall make his election on a form prescribed by the Advisory
Committee at any time during the two (2) month period ending on the Accounting
Date of the Plan Year for which his election is to be effective. If a
Participant fails to file a written election with the Plan Administrator, before
the close of business on an Accounting Date, the Participant's right to elect to
receive a distribution of his Accrued Benefit or to direct a transfer of his
Accrued Benefit shall lapse until the next Plan Year. The Trustee shall make a
distribution to a Participant in accordance with his election under this Section
within sixty (60) days after the close of the Plan Year in which the Participant
files his written election with the Plan Administrator.
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<PAGE>
ARTICLE VI
EARLY RETIREMENT PENSION
6.01 ELIGIBILITY FOR EARLY RETIREMENT PENSION. A Participant who
----------------------------------------
has received credit for at least ten (10) Years of Participation and has
attained age fifty-five (55) may retire at any time prior to Normal Retirement
Age. A Participant eligible for an early retirement pension who elects to retire
prior to Normal Retirement Age shall receive an early retirement pension as of
his early retirement date. A Participant's early retirement pension shall equal
his Accrued Benefit, multiplied by the appropriate percentage from the following
table. Such percentage is based upon the number of years by which the
Participant's Early Retirement Date precedes his Normal Retirement Date. If such
is not an exact number of years, a straight-line interpolation shall be made.
Number of Years Percentage
--------------- ----------
\
0 100.00%
1 93.33
2 86.67
3 80.00
4 73.33
5 66.67
6 63.33
7 60.00
8 56.67
9 53.33
10 50.00
In the event that a Participant elects a form of payment other than the straight
life annuity form, the pension will be the Actuarial Equivalent of the early
retirement pension otherwise payable at his Early Retirement Date based on the
form of payment selected.
6.02 PAYMENT OF EARLY RETIREMENT PENSION. The Trustee shall pay
-----------------------------------
the Participant his early retirement pension in accordance with Article X. In
this regard, the Trustee shall commence payment of the early retirement pension
on the first day of the month designated by the Participant as the annuity
starting date. If a Participant fails to designate an annuity starting date,
then the Trustee shall commence payment in accordance with Article X after the
Participant attains Normal Retirement Age.
6.03 ELIGIBILITY FOR SPECIAL EARLY RETIREMENT PENSION. A
------------------------------------------------
Participant whose Years of Participation, as defined in Section 1.02 and further
modified by Section 2.05, when combined with his age equals eighty (80) shall be
eligible
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for a special early retirement pension provided the employee has at least
fifteen (15) Years of Participation. A Participant eligible for a special early
retirement pension who elects to retire before Normal Retirement Age shall
receive a special early retirement pension as of the later of his early
retirement date or age fifty-five (55). Such special early retirement pension
shall equal his Accrued Benefit, multiplied by the appropriate percentage from
the following table. Such percentage is based upon the number of years by which
the Participant's special Early Retirement Date precedes his Normal Retirement
Date. If such is not an exact number of years, a straight-line interpolation
shall be made.
Number of Years Percentage
--------------- ----------
0 100.00%
1 100.00
2 100.00
3 100.00
4 100.00
5 100.00
6 93.33
7 86.67
8 80.00
9 73.33
10 66.67
6.04 PAYMENT OF SPECIAL EARLY RETIREMENT PENSION. The Trustee
-------------------------------------------
shall pay the Participant his special early retirement pension in accordance
with Article X. In this regard, the Trustee shall commence payment of the
special early retirement pension on the first day of the month designated by the
Participant as the annuity starting date provided the Participant is fifty-five
(55) or older on such annuity starting date. If a Participant fails to designate
an annuity starting date, then the Trustee shall commence payment in accordance
with Article X after the Participant attains Normal Retirement Age. Subject to
the limitations of Article III, the Advisory Committee shall not make an
actuarial equivalence reduction to the special early retirement pension to the
extent the annuity starting date is on or after the Participant's sixtieth
(60th) birthday. However, the Advisory Committee shall make an actuarial
equivalence to the portion of the Participant's Accrued Benefit based on the
"thirty-three percent (33%)" component of his normal retirement pension.
ARTICLE VII
DISABILITY
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<PAGE>
7.01 EFFECT OF DISABILITY. Subject to Section 7.02, a Participant
--------------------
who becomes totally disabled while employed by the Employer shall be credited
with One Thousand (1,000) Hours of Service, notwithstanding Section 1.16, and a
Year of Participation, within the meaning of Section 1.02, for each Plan Year
the Participant is considered totally disabled. The Plan shall consider a
Participant "totally disabled" on the date the Advisory Committee determines the
Participant is not able to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which the Advisory
Committee expects to last for a continuous period of not less than twelve (12)
months. Furthermore, the disabling condition must exist for a period of at least
three (3) months before the Advisory Committee makes a determination of total
disability, and the Participant must be eligible for and he must actually
receive disability benefits under the Social Security Act. The Advisory
Committee shall apply the provisions of this Section in a nondiscriminatory,
consistent and uniform manner. If a Participant becomes totally disabled after
attaining Normal Retirement Age while employed by the Employer, the provisions
of Article V shall apply. This Article VII shall not apply if the Participant is
receiving an early retirement pension or a special early retirement pension
under Article VI at the time he becomes totally disabled.
7.02 CONTINUING EVIDENCE OF TOTAL DISABILITY. The Advisory
---------------------------------------
Committee may require a Participant to submit evidence of his continued
eligibility for disability income benefits at any time he is receiving a
disability pension. The Advisory Committee may not require furnishing of such
evidence more frequently than semi-annually. If the Participant engages in
gainful employment (except for employment the Advisory Committee approves for
purposes of rehabilitation), the Participant shall not be eligible for any
further credit for Years of Participation and Hours of Service as provided in
Section 7.01. In the event that a disabled Participant refuses or fails to
submit evidence of his continued disability when requested by the Advisory
Committee, the Trustee, upon written notice from the Advisory Committee, shall
discontinue the benefit accrued, as of that date, pursuant to Section 7.01.
7.03 RECOVERY FROM TOTAL DISABILITY. If a Participant recovers
------------------------------
from total disability and re-enters employment covered under the Plan, the
Participant then shall accrue benefits under the Plan based upon his Years of
Participation before his total disability, the Years of Participation credit
pursuant to Section 7.01 while he is totally disabled, and Years of
Participation after his re-employment. Notwithstanding anything herein to the
contrary, the Participant shall not be credited with more than one Year of
Participation for each
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<PAGE>
Plan Year the employee was either employed or absent due to being totally
disabled.
7.04 PAYMENT OF BENEFITS. Payment of a Participant's benefit
-------------------
shall commence when the Participant is eligible to receive normal retirement
pension, early retirement pension or special early retirement pension pursuant
to the other provisions of this Plan giving credit for Years of Participation
during which the Participant is totally disabled as provided in this Article
VII. For purposes of determining a totally disabled Participant's Average Annual
Compensation the Advisory Committee shall compute the Average Annual
Compensation as if the Participant separated from service on the date the
Participant became totally disabled under the rules provided in the third
paragraph of Section 1.02. The amount of such pension shall be determined
pursuant to Article V or Article VI, whichever is applicable, giving effect to
the provisions of this Article VII.
ARTICLE VIII
DEFERRED VESTED PENSION - DEATH BENEFIT
8.01 DEFERRED VESTED PENSION. A partially or fully vested
-----------------------
Participant who terminates employment for any reason other than death,
disability subject to Article VII, eligibility for an early retirement pension,
eligibility for a special early retirement pension, or after attaining Normal
Retirement Age shall receive a deferred vested pension. A terminated
Participant's deferred vested pension shall become payable upon the
Participant's attaining Normal Retirement Age.
8.02 AMOUNT OF DEFERRED VESTED PENSION. The Participant's
---------------------------------
deferred vested pension shall equal his Nonforfeitable Accrued Benefit as of the
close of the Plan Year in which his termination of employment occurs.
8.03 PAYMENT OF DEFERRED VESTED PENSION. The Trustee shall pay a
----------------------------------
Participant his deferred vested pension in accordance with Article X. However, a
terminated Participant may elect on a form prescribed by and filed with the Plan
Administrator to have the Trustee commence payment of his deferred vested
pension at any time after he attains age fifty-five (55). The Advisory Committee
shall direct the Trustee to pay the Participant his deferred vested pension,
determined as of the date the deferred vested pension commences by using the
factors in Section 6.01.
Notwithstanding the first paragraph of this Section, the Advisory
Committee, shall direct the Trustee to distribute to the Participant, on or
before the Participant's annuity
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<PAGE>
starting date (as defined in Section 10.02 of the Plan), in single sum ("cash
out"), the present value of the Participant's deferred vested pension. If, at
the time the Trustee is to make the cash-out payment, the present value of the
Participant's deferred vested pension is greater than $3,500, the Participant
(and, if the Participant is married, the Participant's spouse) must consent in
writing to the Advisory Committee's direction to the Trustee to distribute. To
determine whether the present value of the Participant's deferred vested pension
is greater than $3,500, the Advisory Committee shall use the interest rate
described in Section 1.04 of the Plan, subject to the interest limitation
described in that Section. If the Advisory Committee directs the Trustee to
distribute a Participant's deferred vested pension under this paragraph, it
shall provide the Participant a true copy of its written notice of direction and
with the appropriate form to enable him to make his (and, if applicable, his
spouse's) consent. The single sum payment shall be the commuted Actuarial
Equivalent of the deferred vested pension.
8.04 VESTING SCHEDULE. A Participant's Accrued Benefit shall be
----------------
one hundred percent (100%) Nonforfeitable upon and after his attaining Normal
Retirement Age (if employed by the Employer on or after that date), or if his
employment terminates as a result of death. If a Participant's employment
terminates prior to Normal Retirement Age for any reason other than death or
disability, the Participant's Accrued Benefit shall be Nonforfeitable after he
has completed five (5) Years of Service.
8.05 YEAR OF SERVICE - VESTING. For purposes of vesting under
-------------------------
Section 8.04, Year of Service shall mean any Plan Year during which an Employee
completes not less than one thousand (1,000) Hours of service with the Employer
and for ITT/ Vitelco Employees, as defined in Section 1.17, Years of Service
shall include Plan Years prior to the Effective Date of the Plan to the same
extent (but only to such extent) such service was recognized by the ITT Plan for
such purposes.
8.06 BREAK IN SERVICE - VESTING. For purposes of this Article
--------------------------
VIII, a Participant shall incur a "Break in Service" if during any Plan Year he
does not complete more than five hundred (500) Hours of Service with the
Employer.
8.07 INCLUDED YEARS OF SERVICE - VESTING. For purposes of
-----------------------------------
determining "Years of Service" under Section 8.05, the Plan shall take into
account all Years of Service an Employee completes with the Employer.
8.08 SERVICE AFTER BREAK IN SERVICE. If a Participant incurs a
------------------------------
Break in Service, the Advisory Committee shall
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<PAGE>
not take into account Years of Service before the Break in Service until the
Employee completes a Year of Service after the Break in Service. Furthermore, if
a Participant with a zero percent (0%) Nonforfeitable Accrued Benefit incurs a
Break in Service, the Advisory Committee shall disregard the Years of Service
before the Break in Service if the number of the Employee's consecutive Breaks
in Service equals or exceeds the greater of five (5) or the number of the
Employee's aggregate Years of Service (without regard to Years of Service the
Advisory Committee previously disregarded under this sentence). If the Advisory
Committee disregards the Participant's Years of Service described in the
immediately preceding sentence, the Advisory Committee shall forfeit the
Participants pre-Break in Service Accrued Benefit. The Plan does not permit
forfeiture for cause.
8.09 DISREGARD OF ACCRUED BENEFIT. If the Participant receives a
----------------------------
cash-out payment of his deferred vested pension, the Advisory Committee shall
disregard the Participant's Accrued Benefit determined as of the close of the
Plan Year in which his termination of employment occurs. A Participant who is
re-employed after receiving a cash-out payment of his deferred vested pension
shall have the right to repay the Trustee the Employer derived portion of the
cash-out distribution he received, provided the repayment includes interest at
the rate of five percent (5%) per annum from the date of the prior distribution
and his right to make repayment has not expired. A Participant's right to make
repayment shall expire on the earlier of: (a) the date five (5) years after the
Participant's re-employment date following the cash-out distribution; or (b) the
last day of the first Break in Service Period ending after the cash-out
distribution. A Break in Service Period is a period of five (5) consecutive Plan
Years in which the Participant incurs a Break in Service. A re-employed
Participant shall not have a right to repay if he was one hundred percent (100%)
vested at the time he received the cash-out payment of his deferred vested
pension.
If a re-employed Participant makes repayment in accordance with
the terms of the first paragraph of this Section, the Advisory Committee shall
restore the Participant's Accrued Benefit disregarded under this Section.
However, the Advisory Committee shall not restore the Participant's Accrued
Benefit unless the re-employed Participant makes the repayment prior to the
expiration of the repayment period described in the first paragraph of this
Section.
ARTICLE IX
PRERETIREMENT SURVIVOR ANNUITY
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<PAGE>
9.01 PRERETIREMENT SURVIVOR ANNUITY -- ELIGIBILITY. If a married
---------------------------------------------
Participant dies prior to his annuity starting date (as defined in Section
10.02), the Advisory Committee shall direct the Trustee to distribute to the
Participant's surviving spouse a preretirement survivor annuity, unless the
Participant and his spouse were not married throughout the one (1) year period
ending on the date of his death.
For a Participant dying after the earliest retirement age under
the Plan, the preretirement survivor annuity shall equal the survivor annuity
portion of the qualified joint and 50% survivor annuity the Trustee would have
paid under Section 10.02 if the Participant had commenced receiving the
qualified joint and survivor annuity the day before his death. For a Participant
dying on or before the earliest retirement age under the Plan, the preretirement
survivor annuity shall equal the survivor annuity portion of the qualified joint
and 50% survivor annuity the Trustee would have paid under Section 10.02 if the
Participant had separated from service on the date of his death (or, if earlier,
his actual date of separation from service), had commenced receiving the
qualified joint and survivor annuity at the earliest retirement age under the
Plan, and had died the day after attaining the earliest retirement age under the
Plan. The "earliest retirement age under the Plan" is the earliest date on which
the Plan permits the Participant to elect to receive retirement benefits.
Notwithstanding the immediately preceding provisions of this paragraph, the
Advisory Committee shall direct the Trustee to pay the Participant's surviving
spouse the Actuarial Equivalent of the preretirement survivor annuity in a lump
sum, in lieu of providing a preretirement survivor annuity, if the Actuarial
Equivalent of the preretirement survivor annuity is not greater than $3,500.00.
The Advisory Committee shall determine the Actuarial Equivalent of the
preretirement survivor annuity by using the interest rate described in Section
1.04 of the Plan, subject to the interest limitation described in that Section.
If the present value of the preretirement survivor annuity
exceeds $3,500, the Advisory Committee shall not direct the Trustee to commence
payment of the preretirement survivor annuity prior to the date the Participant
would have attained the later of Normal Retirement Age or age 62, without the
written consent of the Participant's surviving spouse. The Participant's
surviving spouse may elect to have the Trustee commence payment of the
preretirement survivor annuity on or after the earliest retirement age under the
Plan. The Advisory Committee may permit the Participant's surviving spouse to
elect any form of payment permitted under Article X in lieu of the preretirement
survivor annuity. For purposes of applying this Article IX, the Advisory
Committee shall treat a former spouse as the Participant's surviving spouse, and
shall not treat the
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<PAGE>
current spouse as the surviving spouse, to the extent provided under a qualified
domestic relations order (as defined in Code Section 414(p)).
9.02 REDUCTION OF PENSION BENEFITS. The Trustee shall not reduce
-----------------------------
a Participant's pension benefits as a result of the preretirement survivor
annuity coverage required under Section 9.01. The Employer alone shall bear the
cost of providing the preretirement survivor annuity or the survivor's annuity.
ARTICLE X
PAYMENT OF ACCRUED BENEFIT -- OPTIONAL FORMS OF PAYMENT
10.01 FORM OF BENEFIT. Subject to the requirements of Section
---------------
10.02, the Advisory Committee shall direct the Trustee to pay a Participant his
Nonforfeitable Accrued Benefit in a form permitted under Section 10.05. Subject
to the limitations of Article III, the Participant shall receive the Actuarial
Equivalent of his Nonforfeitable Accrued Benefit payable at Normal Retirement
Age, determined as of the time the Trustee commences payment. Annuity payments
shall continue until the last scheduled payment coincident with or immediately
preceding the date of the Participant's death or, if applicable, the date of his
survivor's death.
10.02 QUALIFIED JOINT AND SURVIVOR ANNUITY. A Participant,
------------------------------------
whether married or unmarried, shall receive his Nonforfeitable Accrued Benefit
in the form of a qualified joint and survivor annuity unless the Participant
makes a valid waiver election (described in Section 10.04) within the ninety
(90) day period ending on the annuity starting date. For purposes of this Plan,
Nonforfeitable Accrued Benefit is payable as an annuity. If the Participant's
Nonforfeitable Accrued Benefit is payable in a form other than an annuity, his
annuity starting date is the first day on which all events have occurred
entitling the Participant to that form of distribution. The qualified joint and
survivor annuity is an annuity payable for the life of the Participant and, if
the Participant is married on the annuity starting date, a survivor annuity
payable for the remaining . life of the Participant's surviving spouse which is
fifty percent (50%) of the amount of the annuity payable during the life of the
Participant. The qualified joint and survivor annuity shall be the Actuarial
Equivalent of the Participant's Nonforfeitable Accrued Benefit and shall provide
payments no less frequently than annually. The Participant and his spouse may
elect to receive a joint and survivor annuity, which is the Actuarial Equivalent
of the qualified joint and survivor annuity, under which the Participant and his
spouse receive a reduced annuity during their joint lives with a sur-
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<PAGE>
vivor annuity providing more than fifty percent (50%), but no more than one
hundred percent (100%) of the amount of the joint life annuity. For purposes of
the qualified joint and survivor annuity, a Participant's Nonforfeitable Accrued
Benefit includes his Accrued Benefit attributable to his Participant
contributions. The Advisory Committee shall take into account any security
interest (including any offset rights authorized by Section 16.03(e)) held by
the Plan by reason of a Participant loan to determine the value of the
Participant's Nonforfeitable Accrued Benefit distributable in the form of a
qualified joint and survivor annuity, provided any loan satisfied the spousal
consent requirement described in Section 16.03(e) of the Plan.
On or before the annuity starting date, the Advisory Committee,
in its sole discretion, may direct the Trustee to pay the Participant's
Nonforfeitable Accrued Benefit in a lump sum, in lieu of a qualified joint and
survivor annuity, if the Actuarial Equivalent of the Participant's
Nonforfeitable Accrued Benefit is not greater than $3,500. The Advisory
Committee shall determine the Actuarial Equivalent of the Participant's
Nonforfeitable Accrued Benefit by using the interest rate described in Section
1.04 of the Plan, subject to the interest limitation described in that Section.
For purposes of applying this Article X, the Advisory Committee shall treat a
former spouse as the Participant's spouse or surviving spouse, and shall not
treat the current spouse as the spouse or surviving spouse, to be provided under
a qualified domestic relations Order (as defined in Code Section 414(p)).
10.03 COMMENCEMENT OF BENEFITS. Subject to Section 10.06, the
------------------------
Advisory Committee shall direct the Trustee to commence payment of the
Participant's normal retirement pension not later than sixty (60) days after the
close of the Plan Year in which the Participant retires. Subject to Section
10.06, the Advisory Committee shall direct the Trustee to commence payment to
the Participant of his early retirement pension or of his deferred vested
pension not later than sixty (60) days after the close of the Plan Year in which
the Participant attains Normal Retirement Age unless the Participant elects
otherwise. The Trustee may not commence distribution under this Section, without
the consent of the Participant and the consent of the Participant's spouse, if
any, if the present value of the Participant's Nonforfeitable Accrued Benefit
exceeds $3,500 and the distribution will commence prior to the later of the
Participant's Normal Retirement Age or age 62. The Advisory Committee shall
determine the present value of the Participant's Nonforfeitable Accrued Benefit
by using the interest rate described in Section 1.04 of the Plan, subject to the
interest limitation described in that Section.
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<PAGE>
10.04 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY.
------------------------------------------------------
Within a reasonable period of time (consistent with regulations prescribed by
the Secretary of Treasury) before the Participant's annuity starting date, the
Plan Administrator shall provide the Participant a written explanation of the
terms and conditions of the qualified joint and survivor-annuity, the
Participant's right to make, and the effect of, an election to waive the joint
and survivor form of benefit, the rights of the Participant's spouse regarding
the waiver election and the Participant's right to make, and effect of, a
revocation of a waiver election. The Plan does not limit the number of times the
Participant may revoke a waiver of the qualified joint and survivor annuity or
make a new waiver during the election period.
A Participant's waiver election is not valid unless:
(a) the Participant's spouse (to whom the survivor annuity is payable
under the qualified joint and survivor annuity) has consented in
writing to the waiver election, the spouse's consent acknowledges
the effect of the election and a notary public or the Plan
Administrator (or his representative) witnesses the spouse's
consent;
(b) the spouse consents to the alternate form of payment designated
by the Participant or to any change in that designated form of
payment; and
(c) unless the spouse is the Participant's sole primary Beneficiary,
the spouse consents to the Participant's Beneficiary designation
or to any change in the Participant's Beneficiary designation.
The spouse's consent to a waiver of the qualified joint and
survivor annuity shall be irrevocable unless the Participant
revokes the waiver election.
The spouse may execute a blanket consent to any form of payment
designation or to any Beneficiary designation made by the Participant, if the
spouse acknowledges the right to limit that consent to a specific designation
but, in writing, waives that right.
The Plan Administrator may accept as valid a waiver election
which does not satisfy the spousal consent requirements if the Plan
Administrator establishes the Participant does not have a spouse, the Plan
Administrator is not able to locate the Participant's spouse, or other
circumstances exist under which the Secretary of the Treasury will excuse the
consent requirement.
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<PAGE>
10.05 OPTIONAL FORMS OF DISTRIBUTION. The Advisory Committee
------------------------------
shall direct the Trustee to pay the Participant's Nonforfeitable Accrued Benefit
under one of the optional forms of distribution permitted under this Section,
subject to the requirements, of Section 10.02. The optional forms of
distribution are:
(a) Payment in a lump sum, subject to the provisions of Section 8.03.
(b) A straight life annuity, payable no less frequently than
annually, with payment of the Participant's Accrued Benefit
ending on the Participant's death.
(c) A life annuity, payable no less frequently than annually, with a
term of ten (10) years certain guaranteed.
(d) Any other form of payment of the Participant's Nonforfeitable
Accrued Benefit which the Advisory Committee may approve.
However, such form. of payment cannot extend beyond the
Participant's life, the life of the Participant and his
designated Beneficiary, the Participant's life expectancy or the
joint life and last survivor expectancy of the Participant and
his designated Beneficiary.
Any form of payment under this Section must satisfy the mandatory
distribution requirements of Section 10.06. Subject to Section 10.02, the
Participant (or the Beneficiary) may elect, on a form prescribed by the Advisory
Committee and subject to the approval of the Advisory Committee, to receive
payment of his Nonforfeitable Accrued Benefit under one (1) of the options
described in this Section and, subject to Section 10.06, to defer the date at
which the Trustee otherwise would commence payment of the Participant's
Nonforfeitable Accrued Benefit. If the Participant's spouse is not his sole
designated Beneficiary, the Advisory Committee shall not direct (by Participant
election or otherwise) the Trustee to distribute to a Participant a form of
payment which provides more than incidental benefits to the Beneficiary.
Benefits to the Beneficiary are incidental if the Actuarial Equivalent of the
retirement benefits payable solely to the Participant is greater than fifty
percent (50%) of the Actuarial Equivalent of the total benefits payable to the
Participant and his Beneficiaries. The Advisory Committee shall determine the
Actuarial Equivalent as of the date the Trustee is to commence payment to the
Participant of his Accrued Benefit.
10.06 MANDATORY DISTRIBUTIONS. The Advisory Committee shall not
-----------------------
direct the Trustee to commence nor shall the Par-
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<PAGE>
ticipant elect to have distribution commence, later than the Required Beginning
Date. For purposes of this Article X, the Required Beginning Date is the April 1
immediately following the calendar year in which the Participant attains age
seventy and one-half (70 1/2).
The Advisory Committee shall not direct the Trustee to distribute
the Participant's Nonforfeitable Accrued Benefit, nor shall the Participant
elect to have the Trustee distribute his Nonforfeitable Accrued Benefit, under a
method of payment which, as of the Required Beginning Date, does not satisfy the
minimum distribution requirements established by this Section and which is not
consistent with Treasury regulations. The minimum distribution for a calendar
year equals the Participant's Nonforfeitable Accrued Benefit at the beginning of
the year divided by the Participant's life expectancy or, if applicable, the
joint and last survivor expectancy of the Participant and his designated
Beneficiary. In computing a minimum distribution, the Advisory Committee shall
use the unisex life expectancy multiples under Treas. Reg. Section 1.72-9. The
Advisory Committee may compute, upon the Participant's written request, the
minimum distribution for a calendar year subsequent to the first calendar year
for which the Plan requires a minimum distribution by redetermining the
applicable life expectancy. However, the Advisory Committee may not redetermine
the joint life and last survivor expectancy of the Participant and a nonspouse
designated Beneficiary in a manner which takes into account any adjustment of
life expectancy other than the Participant's life expectancy. A distribution to
the Participant in the form of a life annuity, joint and survivor annuity or an
annuity over a fixed period will satisfy the minimum distribution requirements
of this Section if the method of distribution provides substantially
non-increasing payments and otherwise satisfies Treasury regulations.
Upon the death of the Participant, the Advisory Committee shall
direct the Trustee to pay the Participant's Nonforfeitable Accrued Benefit in
accordance with this paragraph. If the Participant's death occurs after the
Trustee has commenced payment of the Participant's Nonforfeitable Accrued
Benefit, the Advisory Committee shall direct the Trustee to complete payment
over a period which does not exceed the payment period which had commenced. If
the Participant's death occurs prior to the time the Trustee commences payment
of the Participant's Nonforfeitable Accrued Benefit, the Advisory Committee
shall direct the Trustee to make payment over a period not exceeding (i) five
(5) years after the date of the Participant's death, or (ii) if the Beneficiary
is a designated Beneficiary, over the designated Beneficiary's life or life
expectancy. The Advisory Committee shall not direct payment of the Participant's
Nonforfeitable Accrued Benefit over a period de-
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<PAGE>
scribed in (ii) unless the Trustee will commence payment to the designated
Beneficiary no later than one (1) year after the date of the Participant's death
or, if later, and the designated Beneficiary is the Participant's surviving
spouse, the date the Participant would have attained age seventy and one-half
(70 1/2). The Advisory Committee shall use the unisex life expectancy multiples
under Treas. Reg. Section 1.72-9 for purposes of applying this paragraph. The
Advisory Committee may recalculate, upon the written request of the Participant
or of the Participant's surviving spouse, the life expectancy of the
Participant's surviving spouse not more frequently than annually, but may not
recalculate the life expectancy of a nonspouse designated Beneficiary after the
Trustee commences payment to the designated Beneficiary. The Advisory Committee
shall apply this paragraph by treating any amount paid to the Participant's
child, which becomes payable to the Participant's surviving spouse upon the
child's attaining the age of majority, as paid to the Participant's surviving
spouse. Upon the Beneficiary's written request, the Advisory Committee, in its
sole discretion, may accelerate the payment of all, or any portion, of the
Participant's unpaid Accrued Benefit.
10.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing
---------------------------------------------
contained in this Plan shall prevent the Trustee, in accordance with the
direction of the Advisory Committee, from complying with the provisions of a
qualified domestic relations order (as defined in Code Section 414(p)).
This Plan specifically permits distribution to an alternate payee
under a qualified domestic relations order at any time, irrespective of whether
the Participant has attained his earliest retirement age (as defined under Code
Section 414(p)) under the Plan. A distribution to an alternate payee prior to
the Participant's attainment of earliest retirement age is available only if:
(1) the order specifies distribution at that time or permits
an agreement between the Plan and the alternate payee to
authorize an earlier distribution; and
(2) if the present value of the alternate payee's benefits
under the Plan exceeds $3,500, the alternate payee
consents to any distribution occurring prior to the
Participant's attainment of earliest retirement age.
The Advisory Committee shall determine the present value of the
alternate payee's benefits under the Plan by using the interest rate described
in Section 1.04 of the Plan, subject to the interest limitation described in
that Section.
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<PAGE>
Nothing in this Section shall permit a Participant a right to receive
distribution at a time otherwise not permitted under the Plan nor shall it
permit the alternate payee to receive a form of payment not permitted under the
Plan.
The Plan Administrator shall establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Plan Administrator promptly shall notify the
Participant and any alternate payee named in the order, in writing, of the
receipt of the order and Plan's procedures for determining the qualified status
of the order. Within a reasonable period of time after receiving the domestic
relations order, the Plan Administrator shall determine the qualified status of
the order and shall notify the Participant and each alternate payee, in writing,
of its determination. The Plan Administrator shall provide notice under this
paragraph by mailing to the individual's address specified in the domestic
relations order, or in a manner consistent with Department of Labor regulations.
The Plan Administrator may treat as qualified any domestic relations order
entered prior to January 1, 1985, irrespective of whether it satisfies all the
requirements described in Code Section 414(p)).
If any portion of the Participant's Nonforfeitable Accrued
Benefit is payable during the period the Plan Administrator is making its
determination of the qualified status of the domestic relations order, the
Advisory Committee shall direct the Trustee to make a separate accounting of the
amounts payable. If the Plan Administrator determines the order is a qualified
domestic relations order within eighteen (18) months of the date amounts first
are payable following receipt of the order, the Advisory Committee shall direct
the Trustee to distribute the payable amounts in accordance with the order. If
the Plan Administrator does not make its determination of the qualified status
of the order within the eighteen (18) month determination period, the Advisory
Committee shall direct the Trustee to distribute the payable amounts in the
manner the Plan would distribute if the order did not exist and shall apply the
order prospectively if the Plan Administrator later determines the order is a
qualified domestic relations order.
The Trustee shall make any payments or distributions required
under this Section by separate benefit checks or other separate distribution to
the alternate payee(s).
ARTICLE XI
MISCELLANEOUS PROVISIONS AFFECTING THE PAYMENT OF BENEFITS
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<PAGE>
11.01 GENERAL. In general, the Trustee shall make payment of any
-------
pension directly to the Participant entitled to the payment. However, the
Advisory Committee, in lieu of instructing the Trustee to pay the pension which
a Participant is to receive directly from the Trust Fund, may instruct the
Trustee to purchase from an insurance company selected by the Advisory Committee
a Nontransferable Annuity contract. The Nontransferable Annuity contract must
provide pension and other benefits in an amount not less than the pension and
other benefits a Participant would receive under this Plan, and must satisfy all
consent and distribution requirements prescribed by the Plan. In the event the
Trustee purchases a Nontransferable Annuity contract for the benefit of a
Participant, the Trustee may either assign the contract to the Participant or
hold the contract for the benefit of the Participant pursuant to the
instructions of the Advisory Committee. The Trustee also may purchase a
Nontransferable Annuity contract, satisfying the requirements of this Section,
for the benefit of a designated Beneficiary, surviving spouse or alternate payee
under a qualified domestic relations order (as defined in Code Section 414(p))
entitled to distribution of all or a portion of the Participant's Nonforfeitable
Accrued Benefit.
11.02 NONDUPLICATION OF BENEFITS. In the event the Trustee
--------------------------
distributes any part or all of a Participant's Accrued Benefit to him and the
Participant later resumes active employment with the Employer, the Advisory
Committee shall compute the Participant's Accrued Benefit by taking into account
all of the Participant's Accrued Benefit so computed by the Participant's
Accrued Benefit attributable to any distribution the Trustee has made to the
Participant (other than a distribution described in the second paragraph of
Section 8.03). If the distribution was a single sum payment of the present value
of the Participant's deferred vested pension, as described in Section 8.03, the
Advisory Committee shall offset the Participant's Accrued Benefit by the Accrued
Benefit disregarded under Section 8.08.
ITT/Vitelco Employees, as defined in Section 1.17, are the only
Participants receiving benefits under the Plan for Years of Service prior to the
Effective Date of the Plan. This exception was made pursuant to a contractual
agreement with ITT Corporation and premised upon ITT Corporation's agreement
that it would fully vest such Employees in their accrued benefit as of June 23,
1987 in the ITT Plan. Regardless of the form or reason for the payment of a
benefit to an ITT/Vitelco Employee or a Beneficiary of an ITT/Vitelco Employee,
such benefit shall be decreased by or take fully into account the accrued
benefit that should have vested under the ITT Plan. Further, no ITT/Vitelco
Employee shall receive an Accrued Benefit for a Year of Service prior to the
Effective Date of the Plan unless
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<PAGE>
such party received an accrual benefit for such Year of Service under the ITT
Plan.
11.03 SUSPENSION OF BENEFITS. The Plan does not apply the
----------------------
suspension of benefits rules of Act Section 203(a)(3)(B).
11.04 NO DISREGARD OF SERVICE. For purposes of computing Years
-----------------------
of-Service under Article XIII, the Plan shall not disregard Service with respect
to which a Participant has received a distribution of his Accrued Benefit.
11.05 MERGER. The Trustee shall not consent to, or be a party to,
------
any merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless immediately after the merger, consolidation
or transfer, the surviving Plan provides each Participant a benefit equal to or
greater than the benefit each Participant would have received had the Plan
terminated immediately before the merger or consolidation or transfer.
ARTICLE XII
OTHER PROVISIONS AFFECTING BENEFITS
12.01 ASSIGNMENT OR ALIENATION. Subject to Code Section 414(p)
------------------------
relating to qualified domestic relations orders, neither a Participant nor a
Beneficiary shall anticipate, assign or alienate (either at law or in equity)
any benefit provided under the Plan, and the Trustee shall not recognize any
such anticipation, assignment or alienation. Furthermore, a benefit under the
Plan is not subject to attachment, garnishment, levy, execution or other legal
or equitable process.
12.02 NO DECREASE IN BENEFITS BY CHANGE IN SOCIAL SECURITY. In
----------------------------------------------------
the case of a Participant or Beneficiary who is receiving benefits under this
Plan or a Participant who has terminated employment with the Employer and has a
vested Accrued Benefit under this Plan, any increase in the taxable wage base or
the benefit level payable under Title II of the Social Security Act shall not
affect in any way the benefits payable under this Plan to such Participant or
Beneficiary. The Plan does not permit the recalculation of any benefits accrued
before the termination of employment of a Participant on the basis of changes in
Social Security benefit levels or the taxable wage base in effect during Years
of Service after re-employment with the Employer.
12.03 SPECIAL RESTRICTION ON BENEFIT. The restrictions,
------------------------------
hereinafter set forth, of this Section apply only if:
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<PAGE>
(i) The Employer terminates the Plan within ten (10) years
of the Effective Date; or
(ii) Such Participant's retirement benefit becomes payable
within ten (10) years of the Effective Date.
If the restrictions of this Section apply to a Participant because of paragraph
(ii) above, the Advisory Committee shall apply the restrictions until ten (10)
years after the Effective Date.
RESTRICTIONS:
(a) In event of early termination of the Plan within the meaning of
Code Section 411(d)(2), and notwithstanding any other provision
of this Plan to the contrary, the Employer contributions which
the Trustee may use to provide benefits for Participants who are
among the twenty-five (25) highest paid Employees (the "original
25 Employees") as of the Effective Date (including any Employees
who are not Participants on the Effective Date but who later may
become Participants) and whose annual retirement benefit will
exceed $1,500.00 shall not exceed the greatest of:
(1) $20,000.00;
(2) An amount equal to twenty percent (20%) of the first
$50,000.00 of a Participant's Average Annual Compensation
salary multiplied by the number of years elapsed between
the Effective Date and the date the Plan terminates, the
date a Participant's retirement benefit becomes payable,
or the date the Employer fails to meet the full current
costs of the Plan, whichever first occurs; or
(3) If the Employee is a substantial owner (as defined in Act
Section 4022(b)(5)), the present value of his guaranteed
benefit under Act Section 4022, or the present value of
the benefit he would be guaranteed under Act Section 4022
if the Plan terminated on the date benefits commence
(determined in accordance with Pension Benefit Guaranty
Corporation regulations). If the Employee is not a
substantial owner, the present value of his maximum
benefit under Act Section 4022(b)(3)(B) on the earlier of
the date the Plan terminated or the date his benefits
commence (determined in accordance with Pension
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<PAGE>
Benefit Guaranty Corporation regulations) regardless of
any other limitations in Act Section 4022.
(b) If the Employer changes the Plan so as to increase substantially
the extent of possible discrimination as to contributions and as
to benefits actually payable in the event of the subsequent
termination of the Plan or the subsequent discontinuance of
contributions under the Plan, then the Employer shall apply the
provisions of this Section to the 25 highest paid Employees (the
"new 25 Employees") as of the date of the change (including any
Employees who are not Participants on the date of the change but
who later may become Participants) and whose annual retirement
benefit will exceed $1,500.00. The Advisory Committee shall
continue the restrictions described in Section 12.03(a) to the
original 25 Employees for the period the restrictions apply to
such Employees. The Advisory Committee shall apply Section 12.03
(a) to the new 25 Employees as if the Effective Date is the date
of the change. Furthermore, the Advisory Committee shall apply
Section 12.03(a) by substituting for paragraph (2) the greater of
the following:
(1) The Employer contributions (or the funds attributable to
Employer contributions) the Trustee would have applied to
provide the Participant's retirement benefit if the
Employer had not changed the Plan; and
(2) The sum of:
(i) the Employer contributions (or the finds
attributable to Employer contributions,) -the
Trustee would have applied to provide the
Participant's retirement benefit if the Employer
had terminated the Plan the day before the date of
the change, and
(ii) the product of the number of years the Employer
satisfies the full current costs of the Plan after
the date of the change multiplied by the smaller of
$10,000 or 20% of the Participant's annual
Compensation.
(c) The conditions of this Section shall not restrict the full
payment of any insurance, death or survivor's benefits on behalf
of a Participant who dies while the Plan is in full effect and
the Employer has met the full current costs.
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<PAGE>
(d) The conditions of this Section 12.03 shall not restrict the
current payment of full retirement benefits called for by the
Plan for any retired Participant while the Plan is in full effect
and the Employer has met full current costs.
(e) If a Participant to whom the limitations of this Section apply
terminates employment while the limitations are in effect, the
Participant may nevertheless receive a lump sum payment of
benefits in excess of such limitations, provided the Participant
enters into an agreement with the Trustee requiring the
Participant to repay to the Trustee all amounts he has received
in excess of such limitations. The Participant's requirement to
repay shall apply in the event the Plan terminates within the
restricted ten (10) year period or if within such period the
Employer has not met the Plan's full current costs. The Trustee
shall not pay any benefit to the Participant under this
subparagraph unless the Participant provides adequate security
for his contingent repayment obligation.
(f) For purposes of this Section, the term "Effective Date" means the
first day of the Plan Year in which the Employer initially
established the Plan.
12.04 DISTRIBUTION UPON TERMINATION OF TRUST. If the Employer
--------------------------------------
terminates the Plan, the Trustee shall liquidate all assets of the Plan and
shall determine the value of the Trust Fund as of the business day next
following the date of such termination. Subject to the provisions of Section
12.03, the Trustee shall allocate assets to the Plan among the Participants and
Beneficiaries according to the following priorities:
(a) The Participant's benefits payable from his employee
contributions, if any.
(b) Benefits payable as an annuity:
(1) In the case of the benefit of a Participant or Beneficiary
which was in pay status as of the beginning of the three
(3) year period ending on the termination date of the
Plan, each such benefit, based on the provisions of the
Plan (as in effect during the five (5) year period ending
on such date) under which such benefit would be the least;
or
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<PAGE>
(2) In the case of a Participant's or Beneficiary's benefit
(other than a benefit described in subparagraph (1)) which
would have been in pay status as of the beginning of such
three (3) year period if the Participant had retired prior
to the beginning of the three (3) year period and if his
benefits had commenced (in the normal form of annuity
under the Plan) as of the beginning of such period, each
such benefit based on the provisions of the Plan (as in
effect during the five (5) year period ending on such
date) under which such benefit would be the least.
For purposes of subparagraph (1), the lowest benefit in pay status
during a three (3) year period is the benefit in pay status for such
period.
(c) All other Plan benefits insured by the Pension Benefit Guaranty
Corporation;
(d) All other Nonforfeitable benefits under the Plan; and
(e) Any other benefits under the Plan.
If assets are insufficient to provide all benefits under the
Plan, the Trustee shall allocate such assets to satisfy obligations within each
category by order of priority. If assets are insufficient to provide all
benefits under a priority category, the Trustee shall allocate assets to
Participants within that category in the ratio which each Participant's total
benefit bears to the total benefits of all Participant's within that category.
The Trustee shall reallocate assets it is not required to allocate under Act
Section 4044(a)(1), (2), (3) and (4)(A) in a manner which will reduce to the
extent possible discrimination as described in Code Section 401(a)(4).
12.05 OVERFUNDING. If the Employer has overfunded the Plan at the
-----------
time it terminates the Plan, the Trustee may return the amount by which the
Employer has overfunded the Plan to the Employer. The Employer shall state by
written request to the Trustee the amount of the overfunding it wishes the
Trustee to return to it upon termination of the Plan.
ARTICLE XIII
EMPLOYER ADMINISTRATIVE PROVISIONS
13.01 INFORMATION TO COMMITTEE. The Employer shall supply current
------------------------
information to the Advisory Committee as to the name, date of birth, date of
employment, annual Compensation, leaves of absence, Years of Service and date of
termination of
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<PAGE>
employment of each Employee who is, or who will be eligible to become, a
Participant under the Plan, together with any other information which the
Advisory Committee considers necessary. The Employer's records as to the current
information the Employer furnishes to the Advisory Committee shall be conclusive
as to all persons.
13.02 NO LIABILITY. The Employer assumes no obligation or
------------
responsibility to any of its Employees, Participants or Beneficiaries for any
act of, or failure to act on the part of, its Advisory Committee, the Trustee or
the Plan Administrator.
13.03 INDEMNITY OF PLAN ADMINISTRATOR OR COMMITTEE. The Employer
--------------------------------------------
indemnifies and saves harmless the Plan Administrator and the members of the
Advisory Committee, and each of them, from and against any and all loss
resulting from liability to which the Plan Administrator and the Advisory
Committee, or the members of the Advisory Committee, may be subjected by reason
of any act or conduct (except willful misconduct or gross negligence) in their
official capacities in the administration of this Plan, the Trust or both,
including all expenses reasonably incurred in their defense, in case the
Employer fails to provide such defense. The indemnification provisions of this
Section shall not relieve the Plan Administrator or any Advisory Committee
member from any liability he or she may have under the Act for breach of a
fiduciary duty. Furthermore, the Plan Administrator and the Advisory Committee
members and the Employer may execute a letter agreement further delineating the
indemnification agreement of this Section, provided the letter agreement must be
consistent with and shall not violate the Act. The indemnification provisions of
this Section shall extend to the Trustee solely to the extent provided by a
letter agreement executed by the Trustee and the Employer.
13.04 EMPLOYER DIRECTION OF INVESTMENT. The Employer shall have
--------------------------------
the right to direct the Trustee with respect to the investment and re-investment
of assets comprising the Trust Fund.
13.05 AMENDMENT TO VESTING SCHEDULE. Though the Employer reserves
-----------------------------
the right to amend the vesting schedule at any time, the Advisory Committee
shall apply the amended vesting schedule to reduce the Nonforfeitable percentage
of any Participant's Accrued Benefit derived from Employer contributions
(determined as of the later of the date the Employer adopts the amendment, or
the date the amendment becomes effective) to a percentage less than the
Nonforfeitable percentage computed under the Plan without regard to the
amendment.
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<PAGE>
If the Employer makes a permissible amendment to the vesting
schedule, each Participant having at least five (5) Years of Service with the
Employer may elect to have the percentage of his or her Nonforfeitable Accrued
Benefit computed under the Plan without regard to the amendment. The Participant
must file his or her election with the Plan Administrator within sixty (60) days
of the latest of (a) the Employer's adoption of the amendment; (b) the effective
date of the amendment; or (c) his or her receipt of a copy of the amendment. The
Plan Administrator, as soon as practicable, shall forward a true copy of any
amendment to the vesting schedule to each affected Participant, together with an
explanation of the effect of the amendment, the appropriate form upon which the
Participant may make an election to remain under the vesting schedule provided
under the Plan prior to the amendment and notice of the time within which the
Participant must make an election to remain under the prior vesting schedule.
For purposes of this Section, an amendment to the vesting schedule includes any
Plan amendment which directly or indirectly affects the computation of the
Nonforfeitable percentage of an Employee's rights to his or her Employer derived
Accrued Benefit.
ARTICLE XIV
PARTICIPANT ADMINISTRATIVE PROVISIONS
14.01 BENEFICIARY DESIGNATION. Subject to Articles IX and X, any
-----------------------
Participant may from time to time designate, in writing, any person or persons,
contingently or successively, to whom the Trustee shall pay his Accrued Benefit
on event of his death. The Advisory Committee shall prescribe the form for the
written designation of Beneficiary and, upon the Participant's filing the form
with the Advisory Committee, it effectively shall revoke all designations filed
prior to that date by the same Participant.
14.02 NO BENEFICIARY DESIGNATION. Subject to Articles IX and X,
--------------------------
if a Participant fails to name a Beneficiary in accordance with Section 14.01,
or if the Beneficiary named by a Participant predeceases him or her or dies
before complete distribution of the Participant's Accrued Benefit, then the
Trustee shall pay the Participant's Accrued Benefit in accordance with Article X
in the following order of priority to:
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including adopted children,
in equal shares;
(c) The Participant's surviving parents, in equal shares; or
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<PAGE>
(d) The legal representative of the estate of the last to die of the
Participant and his or her Beneficiary.
The Advisory Committee shall direct the Trustee as to the method
and to whom the Trustee shall make payment under this Section.
14.03 PERSONAL DATA TO COMMITTEE. Each Participant and each
--------------------------
Beneficiary of a deceased Participant must furnish to the Advisory Committee
such evidence, data or information as the Advisory Committee considers necessary
or desirable for the purpose of administering the Plan. The provisions of this
Plan are effective for the benefit of each Participant upon the condition
precedent that each Participant will furnish promptly full, true and complete
evidence, data and information when requested by the Advisory Committee,
provided the Advisory Committee shall advise each Participant of the effect of
his or her failure to comply with its request.
14.04 ADDRESS FOR NOTIFICATION. Each Participant and each
------------------------
Beneficiary of a deceased Participant shall file with the Advisory Committee
from time to time, in writing, his or her post office address and any change of
post office address. Any communication, statement or notice addressed to a
Participant, or Beneficiary, at his or her last post office address filed with
the Advisory Committee, or as shown on the records of the Employer, shall bind
the Participant, or Beneficiary, for all purposes of this Plan.
14.05 NOTICE OF CHANGE IN TERMS. The Plan Administrator, within
-------------------------
the time prescribed by the Act and the applicable regulations, shall furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by the Act to be furnished without charge.
14.06 LITIGATION AGAINST THE TRUST. If any legal action filed
----------------------------
against the Trustee, the Plan Administrator or the Advisory Committee, or
against any member or members of the Advisory Committee, by or on behalf of any
Participant or Beneficiary, results adversely to the Participant or to the
Beneficiary, the Trustee shall reimburse itself, the Plan Administrator or the
Advisory Committee, or any member or members of the Advisory Committee, for all
costs and fees expended by it or them by surcharging all costs and fees against
the sums payable under the Plan to the Participant or to the Beneficiary, but
only to the extent a court of competent jurisdiction specifically authorizes and
directs any such surcharges and then only to the extent Code Section 401(a)(13)
does not prohibit any such surcharges.
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<PAGE>
14.07 INFORMATION AVAILABLE. Any Participant in the Plan or any
---------------------
Beneficiary may examine copies of the Plan description, latest annual report,
any bargaining agreement, this Plan, the Trust or any other instrument under
which the Plan and/or Trust was established or is operated. The Plan
Administrator will maintain all of the items listed in this Section in his or
her office, or in such other place or places as he or she may designate from
time to time in order to comply with the regulations issued under the Act, for
examination during reasonable business hours. Upon the written request of a
Participant or Beneficiary the Plan Administrator shall furnish him or her with
a copy of any item listed in this Section. The Plan Administrator may make a
reasonable charge to the requesting person for the copy so furnished.
14.08 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Plan
---------------------------------------
Administrator shall provide adequate notice in writing to any Participant or to
any Beneficiary ("Claimant") whose claim for benefits under the Plan the
Advisory Committee has denied. The Plan Administrator's notice to the Claimant
shall set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the
Advisory Committee based its denial;
(c) A description of any additional material and information needed
for the Claimant to perfect his or her claim and an explanation
of why the material or information is needed; and
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Advisory Committee within
seventy-five (75) days after receipt of the Plan Administrator's
notice of denial of benefits. The Plan Administrator's notice
must further advise the Claimant that his or her failure to
appeal the action to the Advisory Committee in writing within the
seventy-five (75) day period will render the Advisory Committee's
determination final, binding and conclusive.
If the Claimant should appeal to the Advisory Committee, he or
she, or his or her duly authorized representative, may submit, in writing,
whatever issues and comments he or she, or his or her duly authorized
representative, feels are pertinent. The Claimant, or his or her duly authorized
representative, may review pertinent Plan documents. The Advisory Committee
shall re-examine all facts related to the appeal and make a final determination
as to whether the denial of benefits
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is justified under the circumstances. The Advisory Committee shall advise the
Claimant of its decision within sixty (60) days of the Claimant's written
request for review, unless special circumstances (such as a hearing) would make
the rendering of a decision within the sixty (60) day limit unfeasible, but in
no event shall the Advisory Committee render a decision respecting a denial for
a claim for benefits later than one hundred twenty (120) days after its receipt
of a request for review.
The Plan Administrator's notice of denial of benefits shall
identify the name of each member of the Advisory Committee and the name and
address of the Advisory Committee member to whom the Claimant may forward his or
her appeal.
ARTICLE XV
ADVISORY COXMITTEE -- DUTIES WITH RESPECT TO
PARTICIPANTS' ACCOUNTS
15.01 MEMBERS' COMPENSATION AND EXPENSES. Employer shall appoint
----------------------------------
an Advisory Committee to administer the Plan, the members of which may or may
not be Participants in the Plan, or which may be the Plan Administrator acting
alone. If the members of the Advisory Committee are in the full-time employment
of the Employer, the members of the Advisory Committee shall serve without
compensation for services as such. Subject to Code Section 4975(d)(10), members
of the Advisory Committee who are not already receiving full-time pay from the
Employer may be paid reasonable compensation for services rendered as a member
of the Advisory Committee or duties performed on behalf of the Advisory
Committee. ATN, Inc. shall pay all expenses of the Advisory Committee, including
the expense for any bond required under the Act.
15.02 TERM. Each member of the Advisory Committee shall serve
----
until his successor is appointed.
15.03 POWERS. In case of a vacancy in the membership of the
------
Advisory Committee, the remaining members of the Advisory Committee may exercise
any and all of the powers, authority, duties and discretion conferred upon the
Advisory Committee pending the filling of the vacancy.
15.04 GENERAL. The Advisory Committee shall have the following
-------
powers and duties:
(a) To select a Secretary, who need not be a member of the Advisory
Committee;
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<PAGE>
(b) To determine the rights of eligibility of an Employee to
participate in the Plan, the value of a Participant's Accrued
Benefit and the Nonforfeitable percentage of each Participant's
Accrued Benefit;
(c) To adopt rules of procedure and regulations necessary for the
proper and efficient administration of the Plan, provided the
rules are not inconsistent with the terms of this Agreement;
(d) To enforce the terms of the Plan and the rules and regulations it
adopts;
(e) To direct the Trustee as respects the crediting and distribution
of the Trust;
(f) To review and render decisions respecting a claim for (or denial
of a claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may
require for tax or other purposes;
(h) To engage the service of agents whom it may deem advisable to
assist it with the performance of its duties;
(i) To engage the services of an Investment Manager or Managers (as
defined in Act Section 3(38)), each of whom shall have full power
and authority to manage, acquire or dispose (or direct the
Trustee with respect to acquisition or disposition) of any Plan
asset under its control; and
(j) To establish and maintain a funding standard account and to make
credits and charges to the account to the extent required by and
in accordance with the provisions of the Code.
15.05 FUNDING POLICY. The Advisory Committee shall review, not
--------------
less often than annually, all pertinent Employee information and Plan data in
order to establish the funding policy of the Plan and to determine the
appropriate methods of carrying out the Plan's objectives. The Advisory
Committee shall communicate periodically, as it deems appropriate, to the
Trustee and to any Plan Investment Manager the Plan's short-term and long-term
financial needs so investment policy can be coordinated with Plan financial
requirements.
15.06 MANNER OF ACTION. The decision of a majority of the
----------------
members appointed and qualified shall control.
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<PAGE>
15.07 AUTHORIZED REPRESENTATIVE. The Advisory Committee may
-------------------------
authorize any one (1) of its members, or its Secretary, to sign on its behalf
any notices, directions, applications, certificates, consents, approvals,
waivers, letters or other documents. The Advisory Committee must evidence this
authority by an instrument signed by all members and filed with the Trustee.
15.08 INTERESTED MEMBER. No member of the Advisory Committee may
-----------------
decide or determine any matter concerning the distribution, nature or method of
settlement of his own benefits under the Plan, unless the Plan Administrator is
acting alone in the capacity of the Advisory Committee.
15.09 PARTICIPANT RECORDS. The Advisory Committee shall keep such
-------------------
records and shall prepare such reports concerning Participants' Accounts as the
Act and Code require. Upon a Participant's written request, the Advisory
Committee shall direct the Plan Administrator to furnish the Participant the
information described in Act Section 105(a).
15.10 UNCLAIMED ACCRUED BENEFIT -- PROCEDURE. The Plan does not
--------------------------------------
require either the Trustee or the Advisory Committee to search for, or ascertain
the whereabouts of, any Participant or Beneficiary. The Advisory Committee, by
certified or registered mail addressed to his last known address of record with
the Advisory Committee or the Employer, shall notify any Participant, or
Beneficiary, that he is entitled to a distribution under this Plan, and the
notice shall quote the provisions of this Section. If the Participant, or
Beneficiary, fails to claim his distributive share or make his whereabouts known
in writing to the Advisory Committee within six (6) months from the date of
mailing of the notice, or before this Plan is terminated or discontinued,
whichever should first occur, the Advisory Committee shall treat the
Participant's or Beneficiary's unclaimed payable Accrued Benefit as forfeited.
The Employer shall use the amounts representing the forfeited Accrued Benefit to
reduce its contribution for future Plan Years.
If a Participant or Beneficiary who has incurred a forfeiture of
his Accrued Benefit under the provisions of the first paragraph of this Section
makes a claim, at any time, for his forfeited Accrued Benefit, the Advisory
Committee shall restore the Participant's or Beneficiary's forfeited Accrued
Benefit. The Advisory Committee shall direct the Trustee to distribute the
Participant's or Beneficiary's restored Accrued Benefit in accordance with
Article X as if the Participant's employment terminated in the Plan Year in
which the Advisory Committee restores the forfeited Accrued Benefit.
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ARTICLE XVI
INVESTMENT IN INSURANCE OR ANNUITY CONTRACTS
16.01 PURCHASE OF LIFE INSURANCE AND ANNUITY CONTRACTS. The
------------------------------------------------
Advisory Committee may direct the Trustee to purchase from an insurance company:
(a) ordinary life insurance contracts to the policy anniversary
nearest the Normal Retirement Age of any Participant with
optional cash settlement or conversion to retirement income at
the end of such period;
(b) Retirement income contracts with payment to commence at Normal
Retirement Age;
(c) Annuity contracts with option conversion riders at Normal
Retirement Age; or
(d) Any contracts similar to those listed in subparagraphs (a), (b)
or (c), including term life insurance contracts.
The insurance company shall issue any contract under this Article
XVI on the life of the Participant with the Trustee as the named beneficiary. A
contract issued under this Article XVI may provide a part or all of a
Participant's Accrued Benefit under this Plan.
16.02 LIMITATIONS ON LIFE INSURANCE AND ANNUITY CONTRACTS FOR
-------------------------------------------------------
PARTICIPANT'S BENEFIT. The following limitations shall apply to all investments
- ---------------------
in life insurance or annuity contracts:
(a) The face amount of all ordinary or term life insurance contracts
purchased on behalf of each Participant shall equal one hundred
(100) times the anticipated monthly retirement benefit payable to
the Participant at his Normal Retirement Age. If on any
anniversary date the Compensation of a Participant shall have
increased in such amount as would produce a change of $20 or more
in such monthly retirement benefit, the Advisory Committee may
instruct the Trustee to take appropriate action to adjust the
amount of life insurance coverage accordingly. If a Participant
is not insurable at standard premium rates as of any date on
which the Trustee otherwise would purchase life insurance
contracts on his behalf, the normal premium payable had such
contract been available at standard rates shall be calculated. If
available, the Trustee may purchase on behalf of the Participant
an ordinary or term life insurance
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<PAGE>
contract in such reduced amount as is available by the
application of the same amount of premium as required at standard
rates. In no event shall the premium paid for any Plan Year for
any Participant exceed sixty-six percent (66%) of the Theoretical
Contribution in the case of ordinary life insurance contracts or
thirty-three percent (33%) of the Theoretical Contribution in the
case of term life insurance contracts. In the case of a
combination of contracts, one-half (1/2) the premium paid for any
Plan Year for ordinary life insurance contracts plus the premium
paid for the Plan Year for term insurance contracts shall not
exceed thirty-three percent (33%) of the Theoretical
Contribution. For purposes of this Article XVI, a term life
insurance contract shall mean a term life insurance contract, a
universal life insurance contract and any other life insurance
contract which is not an ordinary life insurance contract.
(b) The face amount of all annuity contracts purchased on behalf of a
Participant shall not exceed the prospective retirement income
(rounded to the nearest $10) payable to the Participant at his
Normal Retirement Age in the form of a straight life annuity.
(c) The Advisory Committee shall direct the Trustee to convert the
entire value of any life insurance contract when the Participant
terminates service (other than by reason of death) to provide
either cash values or periodic income, or the Advisory Committee
may direct the Trustee to distribute the insurance contract
directly to the Participant at retirement as a portion of his
Accrued Benefit under this Plan. However, the Trustee shall not
transfer any contract under this Section which contains a method
of payment not specifically authorized by Article X or which
fails to comply with the joint and survivor requirements, if
applicable, of Articles IX or X. If a Participant remains
employed with the Employer after his Normal Retirement Age, the
Trustee will surrender any life insurance contract in force on
the Participant's life for its current value for the benefit of
the Participant.
(d) If the Advisory Committee directs the Trustee to invest any
portion of the Trust Fund in an insurance or annuity contract,
the Trustee shall make such investment in a manner that the
operation of the Plan shall be fair and equitable (and
nondiscriminatory) in its application to all Participants.
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<PAGE>
(e) If the Trustee purchases a contract for a Participant, then the
annual net premium of the contract shall be the contract premium
less any dividend declared by the insurance company as of the
premium due date. If the amount received from the Employer
together with any amount available in the Trust Fund is
insufficient to pay the net premium due, the Trustee may borrow
to pay the premium, provided that the Trustee shall make any loan
to pay premiums on a nondiscriminatory pro rata basis. If a
Participant has more than one (1) contract on his life, the
Trustee may use the values of any of the contracts to pay the
premium on any other contract on his life. The Trustee shall have
no responsibility to pay any premiums in excess of funds which
are available for that purpose.
16.03 SELECTION OF LIFE INSURANCE COMPANY, APPLICATION AND TITLE.
----------------------------------------------------------
Each life insurance and annuity contract shall be issued by a legal reserve life
insurance company which is satisfactory to and selected by the Advisory
Committee. Contracts will be consistent with the provisions of this Plan. The
Trustee shall be the applicant for each contract and the title to each contract
shall be wholly in the Trustee. As the applicant, the Plan Administrator shall
execute any and all application papers and other documents required by the
issuing insurance company and satisfactory to the Plan Administrator in
connection with the issuance of any contract. Each Participant shall execute any
and all application papers and other documents required by the issuing insurance
company and satisfactory to the Plan Administrator in connection with the
issuance of any contract. The Plan Administrator shall arrange that all
insurance and annuity contracts shall have common premium due dates.
16.04 DIVIDENDS AND REFUNDS. Each contract shall provide that any
---------------------
dividends or refunds payable on it shall be used and applied in reduction of the
next premium due and payable, except that any such dividends or refunds due and
payable upon the event of the death of a Participant on whose life such contract
is issued or based shall form part of the death proceeds of the contract.
16.05 LIMITATION ON PARTICIPANT'S RIGHTS IN INSURANCE OR ANNUITY
----------------------------------------------------------
CONTRACTS. The fact that any contract is issued or based on the life of a
- ---------
Participant shall not vest any right, title or interest in such contract in the
Participant except at the time and upon the terms and conditions set forth in
this Plan. The Trustee shall be the sole owner of all right, title and interest
in and to each such contract, but the
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<PAGE>
Advisory Committee shall direct the Trustee as to the exercise of all rights,
options and privileges in each such contract.
16.06 INSURANCE COMPANY NOT A PARTY TO AGREEMENT. No insurance
------------------------------------------
company is a party to this Agreement nor shall any insurance company be
responsible for its validity.
16.07 INSURANCE COMPANY NOT RESPONSIBLE FOR TRUSTEE'S ACTIONS. No
-------------------------------------------------------
insurance company is required to examine the terms of this Agreement nor be
responsible for any action taken by the Trustee or the Plan Administrator.
16.08 INSURANCE COMPANY RELIANCE ON PLAN ADMINISTRATOR'S
--------------------------------------------------
SIGNATURE. For the purpose of making application to an insurance company and in
- ---------
the exercise of any right or option contained in any policy, the insurance
company may rely upon the signature of the Plan Administrator and shall be saved
harmless and completely discharged in acting at the direction and authorization
of the Plan Administrator.
16.09 ACQUITTANCE. An insurance company shall be discharged from
-----------
all liability for any amount paid to the Trustee or paid in accordance with the
direction of the Trustee, and it shall not be obliged to see to the distribution
or further application of any moneys it so pays.
16.10 DUTIES OF INSURANCE COMPANY. Each insurance company shall
---------------------------
keep such records, make such identification of contracts, funds and accounts
within funds and supply such information as may be necessary for the proper
administration of the Plan under which it is carrying insurance benefits.
16.11 CONFLICTS. If there is any conflict between the provisions
---------
of this Plan and the terms of an insurance contract purchased by the Trustee,
the provisions of the Plan shall govern.
ARTICLE XVII
TOP HEAVY RULES
17.01 MINIMUM BENEFIT. If this Plan is top heavy in any Plan
---------------
Year, the Plan guarantees a minimum normal retirement pension for each Non-Key
Employee who is a Participant in the Plan. The minimum normal retirement pension
is equal to the applicable percentage of the Non-Key Employee's Average Annual
Compensation. The applicable percentage is two percent (2%) multiplied by the
number of Years of Service (not to exceed 10) earned as a Non-Key Employee
Participant in top heavy Plan Years. The Plan satisfies the minimum benefit for
a Non-Key Employee if the Non-Key Employee's Accrued Benefit at the end
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<PAGE>
of the top heavy Plan Year is at least equal to the minimum normal retirement
pension. Solely for the purpose of applying the immediately preceding sentence,
the Advisory Committee shall consider as part of the Non-Key Employee's Accrued
Benefit the benefit equivalent (determined under the assumptions specified in
Section 1.04) of the Non-Key Employee's vested employer-derived account balance
in any defined contribution plan maintained by the Employer. The Advisory
Committee shall determine the Non-Key Employee's vested account balance in a
defined contribution plan as of the last day of the applicable Plan Year,
without regard to contributions made after the last day of such Plan Year.
Furthermore, the Advisory Committee shall include as part of the Non-Key
Employee's vested account balance, distributions made to the Non-Key Employee
from the vested account balance. For purposes of applying this Article XVII, the
Advisory Committee shall express the Participant's Accrued Benefit and minimum
normal retirement pension as a straight life annuity payable annually at Normal
Retirement Age.
17.02 ADDITIONAL ACCRUALS. If, at the end of any top heavy Plan
-------------------
Year, a Non-Key Employee Participant's Accrued Benefit is not at least equal to
his minimum normal retirement pension, the Non-Key Employee Participant shall
earn the additional accrual necessary to increase his Accrued Benefit to the
minimum normal retirement pension. The Non-Key Employee Participant's Accrued
Benefit shall never be less than his minimum normal retirement pension,
regardless of the Plan's top heavy status in Plan Years subsequent to a Plan
Year in which he earned an additional accrual under this Article XVII.
The Employer shall not impute Social Security benefits to
determine whether it has satisfied its obligation to provide the minimum normal
retirement pension, nor shall the Plan offset a Participant's Social Security
benefit from his Accrued Benefit attributable to his minimum normal retirement
pension.
17.03 COMPENSATION LIMITATIONS. In any Plan Year in which the
------------------------
Plan is top heavy, the Advisory Committee shall take into account only the first
$200,000 (or such larger amount as the Commissioner of Internal Revenue may
prescribe) of a Participant's annual Compensation (as defined in Section 1.10)
in determining benefits under this Plan. However, the Advisory Committee shall
not reduce a Participant's Accrued Benefit at the time this limitation becomes
effective under the Plan. For purposes of determining the minimum normal
retirement pension under Section 17.01, the Advisory Committee shall calculate a
Participant's Average Annual Compensation by taking into account the first
$200,000 (or such larger amount as the Commissioner of Internal Revenue may
prescribe) of Compensation as
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<PAGE>
defined in Section 3.06(b), by disregarding Plan Years in which the Participant
did not earn a Year of Service, and by taking the highest average over five (5)
consecutive Plan Years (or a lesser number of consecutive Plan Years specified
in Section 1.07).
17.04 ADJUSTMENT TO OVERALL SECTION 415 LIMITATIONS. If, during
---------------------------------------------
any Limitation Year, the Plan is top heavy, the Advisory Committee shall apply
the limitations of Article III to the Participant by substituting 100% for 125%
each place it appears in the fractions described in that Article. This Section
shall not apply if:
(a) The Accrued Benefit, determined as of the last day of the
Limitation Year, of any Non-Key Employee who participates only in
the defined benefit plan(s) would satisfy Section 17.01 if three
percent (3%) were substituted for two percent (2%);
(b) A Non-Key Employee who participates in the top heavy defined
contribution plan(s) receives an extra mini-mum contribution or
benefit which satisfies Code Section 416(h)(2); and
(c) The top heavy ratio does not exceed 90%.
17.05 DETERMINATION OF TOP HEAVY STATUS. If this Plan is the only
---------------------------------
qualified Plan maintained by the Employer, the Plan is top heavy for a Plan Year
if the top heavy ratio as of the determination date exceeds 60%. The top heavy
ratio is a fraction, the numerator of which is the sum of the present value of
Accrued Benefits of all Key Employees as of the Determination Date, determined
as if the Participant terminated service as of such Determination Date, and
distributions made within the five (5) Plan Year period ending on the
Determination Date, and the denominator of which is a similar sum determined for
all Employees. The Advisory Committee shall calculate the top heavy ratio by
disregarding the Accrued Benefit of any Non-Key Employee who was formerly a Key
Employee. For Plan Years beginning after December 31, 1984, the Advisory
Committee shall calculate the top heavy ratio by disregarding the Accrued
Benefit (including distributions, if any, of the Accrued Benefit) of an
individual who has not received credit for at least one (1) Hour of Service with
the Employer during the five (5) Plan Year period ending on the Determination
Date. The Advisory Committee shall calculate the top heavy ratio, including the
extent to which it must take into account distributions, rollovers and
transfers, in accordance with Code Section 416 and the regulations under that
Code section. The Advisory Committee shall determine present value of
Employer-derived Accrued Benefits as of the most recent valuation date for
comput-
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<PAGE>
ing minimum funding costs falling within the twelve-month period ending on the
Determination Date, whether or not the Actuary performs a valuation that year,
except as Code Section 416 and the regulations under that Code section require
for the first and second Plan Year of this Plan.
If the Employer maintains other qualified plans (including a
Simplified Employee Pension Plan) this Plan is top heavy only if it is part of
the Required Aggregation Group, and the top heavy ratio for both the Required
Aggregation Group and the Permissive Aggregation Group exceeds 60%. The Advisory
Committee will calculate the top heavy ratio in the same manner as required by
the first paragraph of this Section, taking into account all plans within the
Aggregation Group. To the extent the Advisory Committee must take into account
distributions to a Participant, the Advisory Committee shall include
distributions from a terminated plan which would have been part of the Required
Aggregation Group if it were in existence on the Determination Date. The
Advisory Committee shall calculate the present value of accrued benefits and the
other amounts the Advisory Committee must take into account, under Defined
Contribution Plans or Simplified Employee Pension Plans included within the
Group in accordance with the terms of those Plans, Code Section 416 and the
regulations under that Code section. The Advisory Committee shall value the
accrued benefits in the aggregated plan as of the most recent valuation date
falling within the twelve-month period ending on the Determination Date, except
as Code Section 416 and the regulations under that Code section require for the
first and second plan year of a defined benefit plan. The Advisory Committee
shall calculate the top heavy ratio with reference to the determination dates
that fall within the same calendar year.
To determine present value under this Section, the Advisory
Committee shall use the interest and mortality assumptions stated in Section
1.04. If the Employer maintains a defined benefit plan under which any
participants accrue benefits under an accrual method different from other
participants in that plan or in another defined benefit plan maintained by the
Employer, the Advisory Committee shall determine the Accrued Benefits of any
Non-Key Employees by assuming their benefits accrue under the slowest accrual
rate permitted under the fractional rule accrual method described in Code
Section 411(b)(1)(C).
17.06 DEFINITIONS. For purposes of applying the provisions of
-----------
this Article XVII:
(a) "Key Employee" shall mean as of any Determination Date, any
Employee or former Employee (or Beneficiary of such Employee)
who, at any time during the Plan
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<PAGE>
Year (which includes the Determination Date) or during the
preceding four Plan Years, is an officer (having annual
Compensation in excess of 150% of the Code Section 415(c)(1)(A)
limitation in effect for any such Plan Years) of the Employer,
one of the Employees (having annual Compensation in excess of the
Code Section 415(c)(1)(A) limitation in effect for any such Plan
Years) owning the 10 largest interests in the Employer, a more
than 5% owner of the Employer, or a more than 1% owner of the
Employer who has annual compensation of more than $150,000. The
constructive ownership rules of Code Section 318 (or the
principles of that section, in the case of an unincorporated
Employer) will apply to determine ownership in the Employer. The
Advisory Committee will make the determination of who is a Key
Employee in accordance with Code Section 416(i)(1) and the
regulations under that Code Section.
(b) "Non-Key Employee" is an Employee who does not meet the
definition of Key Employee.
(c) "Determination Date" for any Plan Year is the Accounting Date of
the preceding Plan Year or, in the case of the first Plan Year of
the Plan, the Accounting Date of that Plan Year.
(d) "Required Aggregation Group" means each qualified plan of the
Employer in which at least one Key Employee participates at any
time during the five (5) Plan Year period ending on the
Determination Date and any other qualified Plan of the Employer
which enables a Plan described above to meet the requirements of
Code Section 401(a)(4) or Code Section 410.
(e) "Permissive Aggregation Group" is the Required Aggregation Group
plus any other qualified Plan maintained by the Employer, but
only if such Group would satisfy in the aggregate, the
requirements of Code Section 401(a)(4) and Code Section 410. The
Advisory Committee shall determine which Plan to take into
account in determining the Permissive Aggregation Group.
(f) "Employer" shall mean all the members of a controlled group of
corporations (as defined in Code Section 414(b)) of a commonly
controlled group of trades or businesses (whether or not
incorporated) (as defined in Code Section 414(c)), or of an
affiliated service group (as defined in Code Section 414(m)), of
which the Employer is a part. However, the Advisory Committee
shall not aggregate ownership interests in
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<PAGE>
more than one member of a related group to determine whether an
individual is a Key Employee because of his ownership interest in
the Employer.
(g) "Year of Service" -- A Plan Year during which an Employee
completes at least one thousand (1,000) Hours of Service, without
regard to whether the Employee is employed by the Employer on the
last day of the Plan Year.
(h) "Accrued Benefit" -- Solely for purposes of applying Section
17.05, the Advisory Committee shall take into account, as part of
a Participant's Accrued Benefit, any benefit derived from
Participant contributions, except as provided in Section 17.05.
ARTICLE XVIII
MISCELLANEOUS
18.01 EVIDENCE. Anyone required to give evidence under the terms
--------
of the Plan may do so by certificate, affidavit, document or other information
which the person to act in reliance may consider pertinent, reliable and
genuine, and to have been signed, made or presented by the proper party or
parties. Both the Advisory Committee and the Trustee shall be fully protected in
acting and relying upon any evidence described under this Section.
18.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. The Trustee, the
-------------------------------------
Advisory Committee and the Plan Administrator shall not have any obligation or
responsibility with respect to any action required by the Plan to be taken by
the Employer, any Participant or eligible Employee, nor for the failure of any
of the above persons to act or make any payment or contribution, or to otherwise
provide any benefit contemplated under this Plan, nor shall the Trustee, the
Advisory Committee or the Plan Administrator be required to collect any
contribution required under the Plan, or determine the correctness of the amount
of any Employer contribution. The Trustee, the Advisory Committee and the Plan
Administrator need inquire into or be responsible for any action or failure to
act on the part of the others. Any action required of a corporate Employer shall
be by its Board of Directors or its designates.
18.03 FIDUCIARIES NOT INSURERS. The Trustee, the Advisory
------------------------
Committee, the Plan Administrator and the Employer in no way guarantee the Trust
Fund from loss or depreciation. The Employer does not guarantee the payment of
any money which may be or becomes due to any person from the Trust Fund. The
liability of the Trustee to make any payment from the Trust Fund
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<PAGE>
at any time and all times is limited to the then available assets of the Trust
Fund.
18.04 WAIVER OF NOTICE. Any person entitled to notice under
----------------
the Plan may waive the notice.
18.05 SUCCESSORS. The Plan shall be binding upon all persons
----------
entitled to benefits under the Plan, their respective heirs and legal
representatives, upon the Employer, its successors and assigns, and upon the
Trustee, the Advisory Committee, the Plan Administrator and their successors.
18.06 WORD USAGE. Words used in the masculine shall apply to the
----------
feminine where applicable, and wherever the context of the Plan dictates, the
plural shall be read as the singular and the singular as the plural.
18.07 STATE LAW. The law of the United States Virgin Islands
---------
shall determine all questions arising with respect to the provisions of this
Agreement except to the extent Federal statute supersedes such law.
18.08 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan,
-------------------------
or with respect to the establishment of the Trust, or any modification or
amendment to the Plan or Trust, or in the creation of any Account, or the
payment of any benefit, shall give any Employee, Employee-Participant or any
Beneficiary any right to continue employment, any legal or equitable right
against the Employer, or Employee of the Employer, or against the Trustee, or
its agents or employees, or against the Plan Administrator, except as expressly
provided by the Plan, the Trust, the Act or by a separate agreement.
ARTICLE XIX
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
19.01 EXCLUSIVE BENEFIT. Except as provided under Article III and
-----------------
Article XII, the Employer shall have no beneficial interest in any asset of the
Trust Fund and no part of any asset in the Trust Fund shall ever revert to or be
repaid to the Employer, either directly or indirectly; nor prior to the
satisfaction of all liabilities with respect to the Participants and their
Beneficiaries under the Plan, shall any part of the corpus or income of the
Trust Fund, or any asset of the Trust, be (at any time) used for, or diverted
to, purposes other than the exclusive benefit of the Participants or their
Beneficiaries. Notwithstanding the foregoing provision for impossibility of
diversion of Trust assets to the Employer, if the Commissioner of Internal
Revenue, upon the Employer's request for initial approval of this Plan,
determines that the
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Trust is not a qualified trust exempt from Federal income tax, then the Trustee,
upon written notice from the Employer, shall return the Employer's contributions
and increment attributable to the contributions to the Employer. The Trustee
must make the return of the Employer contribution under this Section within one
(1) year of a final disposition of the Employer's request for initial (or
amended) approval of the Plan; provided, however, the Trustee shall not return
the Employer's contribution conditioned on amended approval unless the Employer
requested a determination letter from the Revenue Service within one year after
the date the Employer adopted the amendment. The Plan and the Trust shall
terminate upon the Trustee's return of the Employer's contributions.
19.02 AMENDMENT BY EMPLOYER. The Employer shall have the right
---------------------
at any time and from time to time:
(a) To amend this Agreement in any manner it deems necessary and
advisable in order to comply with ATN, Inc.'s contractual
agreements with ITT Corporation, provided such amendments are
consistent with applicable Internal Revenue Code provisions;
(b) To amend this Agreement in any manner it deems necessary or
advisable in order to qualify this Plan and the Trust under the
appropriate provisions of the Code; and
(c) To amend this Agreement in any other manner. However, no
amendment shall authorize or permit any of the Trust Fund (other
than the part which is required to pay taxes and administration
expenses) to be used for or diverted to purposes other than for
the exclusive benefit of the Participants or their Beneficiaries
or estates. No amendment shall cause or permit any portion of the
Trust Fund to revert to or become a property of the Employer; and
the Employer shall not make any amendment which affects the
rights, duties or responsibilities of the Trustee, the Plan
Administrator or the Advisory Committee without the written
consent of the affected Trustee, the Plan Administrator or the
affected member of the Advisory Committee. Furthermore, no
amendment (including a change in the actuarial assumptions
provided in Section 1.04) shall decrease a Participant's Accrued
Benefit, except to the extent permitted under Code Section
412(c)(8). An amendment adopted after July 30, 1984 (including
the adoption of this Plan as a restatement of an existing plan)
decreases a Participant's Accrued Benefit determined immediately
prior to the adoption date if the amendment has the
-58-
<PAGE>
effect of either (1) eliminating or reducing an early retirement
benefit or a retirement-type subsidy (as defined in Treasury
regulations), or (2) except as provided by Treasury regulations,
eliminating an optional form of benefit. The Advisory Committee
shall disregard an amendment described in the immediately
preceding sentence to the extent application of the amendment
would decrease the Participant's Accrued Benefit determined
immediately prior to the adoption date of the amendment.
The Employer shall make all amendments in writing. Each amendment
shall state the date to which it is either retroactively or prospectively
effective.
19.03 DISCONTINUANCE. The Employer shall have the right, at any
--------------
time, to suspend or discontinue its contributions under the Plan, and to
terminate, at any time, the Plan and the Trust. The Plan shall terminate upon
the first to occur of the following:
(a) The date terminated by action of the Employer provided the
Employer gives the Trustee thirty (30) days prior notice of
termination;
(b) The date the Employer shall be judicially declared bankrupt or
insolvent; or
(c) The dissolution, merger, consolidation or reorganization of the
Employer or the sale by the Employer of all or substantially all
of its assets, unless the successor or purchaser makes provision
to continue the Plan, in which event the successor or purchaser
shall substitute itself as the Employer under this Plan.
19.04 FULL VESTING ON TERMINATION. Notwithstanding any other
---------------------------
provision of this Plan to the contrary, upon either full or partial termination
of the Plan, an affected Participant's right to his Accrued Benefit shall be one
hundred percent (100%) Nonforfeitable.
19.05 TERMINATION. Upon termination of the Plan, the distribution
-----------
provisions of the Plan shall remain operative, and the Trust shall continue
until the Trustee in accordance with the direction of the Advisory Committee has
distributed all of the benefits under the Plan. The consent requirements under
this Plan expressly apply to a distribution direction upon termination of the
Plan.
-59-
<PAGE>
19.06 EFFECT OF AMENDMENT AND RESTATEMENT. Unless otherwise
-----------------------------------
specifically provided herein, all amendments and modifications contained herein
shall be effective retroactive to the Effective Date of this Plan.
-60-
<PAGE>
IN WITNESS WHEREOF, the Employer has caused this Amended and
Restated Plan to be executed, as duly authorized by its Board of Directors, on
this ____ day of January, 1993.
ATLANTIC TELE-NETWORK, INC., Employer
By: /s/
---------------------------------
Title:
-------------------------------
-61-
<PAGE>
FIRST AMENDMENT TO THE AMENDED AND RESTATED
ATLANTIC TELE-NETWORK, INC.
DEFINED PENSION PLAN FOR SALARIED EMPLOYEES
Pursuant to Article XIX, Section 19.2 of the AMENDED AND RESTATED
ATLANTIC TELE-NETWORK, INC. DEFINED PENSION PLAN FOR SALARIED EMPLOYEES
(hereinafter referred to as the "Plan"), dated for reference purposes only the
1st day of February, 1993, Atlantic Tele-Network, Inc., by action of its Board
of Directors, hereby revises and amends the Plan in the following respects:
1. The Settlor hereby amends and revises Article I by revising
Section 1.10 of said Article in its entirety to read as follows:
1.10 COMPENSATION. The total amount of payments made or incurred
------------
by the Employer to an Employee for services rendered to the Employer,
including overtime pay, but specifically excluding bonuses and
commissions. In addition to bonuses and commissions, compensation shall
not include Employee expense reimbursements, foreign service allowances,
fringe benefits (taxable or nontaxable), director's fees, contributions
made by the Employer under the Plan, payments made by the Employer for
group insurance, hospitalization and like benefits, nor contributions
made by the Employer under any other Employee benefit plan it maintains.
For plan years beginning after December 31, 1988, notwithstanding
anything herein to the contrary, Compensation shall not include amounts
paid by the Employer in excess of the greater of $200,000 or the maximum
amount prescribed pursuant to Code Section 401(a)(17).
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the
contrary, for plan years beginning on or after January 1, 1994, the
annual compensation of each Employee taken into account under the Plan
shall not exceed the OBRA 1993 annual compensation limit. The OBRA 1993
annual compensation limit is $150,000.00, as adjusted by the
Commissioner for increases in the cost of living in accordance with
Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in
effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period)
begin-
<PAGE>
ning such calendar year. If a determination period consists of
fewer than 12 months, the OBRA 1993 annual compensation limit will be
multiplied by a fraction, the numerator of which is the number of months
in the determination period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Section 401(a)(17) of the
Code shall mean the OBRA 1993 annual compensation limit set forth in
this provision.
If compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current
plan year, the compensation for that prior determination period is
subject to the OBRA 1993 annual compensation limit in effect for that
prior determination period. For this purpose, for determination periods
beginning before the first day of the first plan year beginning on or
after January 1, 1994, the OBRA 1993 annual compensation limit is
$150,000.
Notwithstanding any other provision in the Plan, each Section
401(a)(17) Employee's accrued benefit under this Plan will be the
greater of:
(a) the Employee's accrued benefit as of the last day of the
last plan year beginning before January 1, 1994, frozen in
accordance with Treas. Reg. ss. 1.401(a)(4)-13, or
(b) the Employee's accrued benefit determined with respect to
the benefit formula applicable for the plan year beginning
on or after January 1, 1994, as applied to the Employee's
total years of service taken into account under the Plan
for purposes of benefit accruals.
A Section 401(a)(17) Employee means an Employee whose current
accrued benefit as of a date on or after the first day of the first plan
year beginning on or after January 1, 1994, is based on compensation for
a year beginning prior to the first day of the first plan year beginning
on or after January 1, 1994 that exceeded $150,000.
2. Article XVIII is hereby amended and revised by adding the
following language to the end of said Article:
-2-
<PAGE>
18.09 Rollover Distributions. This Section applies to
----------------------
distributions made on or after January 1, 1993. Notwithstanding any
provision of the Plan to the contrary that would otherwise limit a
distributee's election under this Section, a distributee may elect, at
the time and in the manner prescribed by the Advisory Committee, to have
any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct
rollover. The following definitions shall apply to this Section:
(a) Eligible rollover distribution. An eligible rollover
------------------------------
distribution is any distribution of all or any portion of
the balance to the credit of the distributee, except that
an eligible rollover distribution does not include: any
distribution that is one of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten
years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not
includable in gross income (determined without regard to
the exclusion for net unrealized appreciation with respect
to employer securities)
(b) Eligible retirement plan. An eligible retirement plan is
------------------------
an individual retirement account described in Section
408(a) of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified
trust described in Section 401(a) of the Code, that
accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover. distribution
to the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
(c) Distributee. A distributee includes an Employee or former
-----------
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's
spouse or former
-3-
<PAGE>
spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of
the Code, are distributees with regard to the interest of
the spouse or former spouse.
(d) Direct rollover. A direct rollover is a payment by the
---------------
Plan to the eligible retirement plan specified by the
distributee.
3. Subject to the alterations and amendments herein
contained, the Plan is hereby ratified and affirmed in all other respects.
IN WITNESS WHEREOF, this FIRST AMENDMENT TO THE AMENDED AND
RESTATED ATLANTIC TELE-NETWORK, INC. DEFINED PENSION PLAN FOR SALARIED EMPLOYEES
is executed on this 9th day of December, 1994.
ATLANTIC TELE-NETWORK, INC., a
Delaware corporation
By: /s/ James J. Heying
-------------------------------
JAMES J. HEYING, Chief
Operating Officer
-4-
<PAGE>
SECOND AMENDMENT TO THE AMENDED AND RESTATED
ATLANTIC TELE-NETWORK, INC.
DEFINED BENEFIT PLAN FOR SALARIED EMPLOYEES
Pursuant to Article XIX, Section 19.2 of the AMENDED AND RESTATED
ATLANTIC TELE-NETWORK, INC. DEFINED BENEFIT PLAN FOR SALARIED EMPLOYEES
(hereinafter referred to as the "Plan"), dated for reference purposes only the
1st day of February, 1993, ATLANTIC TELE-NETWORK, INC., by action of its Board
of Directors, hereby revises and amends the Plan in the following respects:
1. Section 13.05 of Article XIII is hereby amended and revised in
its entirety to read as follows:
13.05 AMENDMENT TO VESTING SCHEDULE. Though the Employer reserves
-----------------------------
the right to amend the vesting schedule at any time, the Advisory
Committee shall apply the amended vesting schedule to reduce the
Nonforfeitable percentage of any Participant's Accrued Benefit derived
from Employer contributions (determined as of the later of the date the
Employer adopts the amendment, or the date the amendment becomes
effective) to a percentage less than the Nonforfeitable percentage
computed under the Plan without regard to the amendment.
If the Employer makes a permissible amendment to the vesting
schedule, each Participant having at least three (3) Years of Service
with the Employer may elect to have the percentage of his or her
Nonforfeitable Accrued Benefit computed under the Plan without regard to
the amendment. The Participant must file his or her election with the
Plan Administrator within sixty (60) days of the latest of (a) the
Employer's adoption of the amendment; (b) the effective date of the
amendment; or (c) his or her receipt of a copy of the amendment. The
Plan Administrator, as soon as practicable, shall forward a true copy of
any amendment to the vesting schedule to each affected Participant,
together with an explanation of the effect of the amendment, the
appropriate form upon which the Participant may make an election to
remain under the vesting schedule provided under the Plan prior to the
amendment and notice of the time within which the Participant must make
an election to remain under the prior vesting schedule. For purposes of
this Section, an amendment to the
<PAGE>
vesting schedule includes any Plan amendment which directly or
indirectly affects the computation of the Nonforfeitable percentage of
an Employee's rights to his or her Employer derived Accrued Benefit.
2. Section 17.06(a) of Article XVII is hereby amended and revised
in its entirety to read as follows:
(a) "Key Employee" shall mean as of any Determination Date,
any Employee or former Employee (or Beneficiary of such
Employee) who, at any time during the Plan Year (which
includes the Determination Date) or during the preceding
four Plan Years, is or was (1) an officer (having annual
Compensation in excess of 50% of the dollar limit in
effect under Code Section 415(b)(1)(A) for the calendar
year in which the Plan Year ends) of the Employer, (2) an
owner of (or considered as owning within the meaning of
Code Section 318) both more than a 1/2 percent interest
and one of the 10 largest interests in the Employer and
having annual Compensation in excess of the Code Section
415(c)(1)(A) limitation in effect for the Plan Year, (3) a
5% owner of the Employer, or (4) a 1% owner of the
Employer who has annual compensation of more than
$150,000. The construction ownership rules of Code Section
318 (or the principles of that section, in the case of an
unincorporated Employer), will apply to determine
ownership in the Employer. For purposes of determining
five-percent and one-percent owners, neither the
aggregation rules nor the rules of subsections (b), (c)
and (m) of section 414 apply. The Advisory Committee will
make the determination of who is a Key Employee in
accordance with Code Section 416(i)(1) and the regulations
under that Code Section. Beneficiaries of an Employee
shall acquire the character of the Employee who performed
service for the Employer. Inherited benefits will retain
the character of the benefits of the Employee who
performed services for the Employer.
3. Subject to the alterations and amendments herein contained,
the Plan, as previously amended by the FIRST AMENDMENT TO THE AMENDED AND
RESTATED ATLANTIC TELE-NETWORK, INC. DEFINED BENEFIT PLAN FOR SALARIED
EMPLOYEES, dated Decem-
-2-
<PAGE>
ber 9, 1994, is hereby ratify and affirm said Trust Agreement in all other
respects.
IN WITNESS HEREOF, this SECOND AMENDMENT TO THE AMENDED AND
RESTATED ATLANTIC TELE-NETWORK, INC. DEFINED BENEFIT PLAN FOR SALARIED EMPLOYEES
is executed this 13th day of September, 1995.
ATLANTIC TELE-NETWORK, INC., a
Delaware corporation
By: /s/ Craig Knock
--------------------------------
CRAIG KNOCK, Vice-President
<PAGE>
EXHIBIT 10.15
-------------
WACHOVIA BANK OF GEORGIA, N.A.
PROTOTYPE DEFINED CONTRIBUTION
RETIREMENT PLAN AND TRUST
AMENDED AND RESTATED
--------------------
NON-STANDARDIZED FORM
PROFIT-SHARING PLAN ADOPTION AGREEMENT - 002
THIS AGREEMENT made the 17th day of December, 1992, by and
between ATLANTIC TELE-NETWORK, INC. (the "Employer"), having its principal
office at [insert address] Chase Financial Center, Orange Grove, Christiansted,
St. Croix, U.S.V.I. 00821, and WACHOVIA BANK OF GEORGIA, N.A. (the "Trustee"), a
national banking association with its principal office at Suite 1001, 2
Peachtree Street, N.W., Atlanta, Georgia 30383, or such other location as may be
designated by the Trustee;
W I T N E S S E T H:
-------------------
WHEREAS, the Employer desires to establish a profit-sharing
retirement plan for the benefit of the Employer's eligible employees; and
WHEREAS, Wachovia Bank of Georgia, N.A., as sponsor, has
created the Wachovia Bank of Georgia, N.A. Prototype Profit-Sharing Plan and
Trust (Non-Standardized Form) (the "plan"), which is qualified as to form under
Section 401(a) of the Internal Revenue Code as evidenced by an opinion letter by
the Commissioner of Revenue, dated March 12, 1990 (Serial No. D344777a);
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Terms used in this Adoption Agreement shall have the same
meaning as in the plan, unless some other meaning is expressly herein set forth.
The Employer hereby represents and warrants that the plan has been adopted by
the Employer upon proper authorization and the Employer hereby elects to join
the plan for the benefit of its participants as referred to in the plan. By the
execution of this Adoption Agreement, the Employer hereby agrees to be bound by
the terms of the plan and acknowledges receipt of a copy of the Trustee's fee
schedule for its services hereunder and indicates acceptance thereof.
<PAGE>
-2-
This Adoption Agreement may be used only in connection with
the Wachovia Bank of Georgia, N.A. Prototype Defined Contribution Retirement
Plan and Trust (Plan Document 01).
The Trustee will inform the Employer of any amendments to the
plan as of the discontinuance or abandonment of the plan. For questions
concerning the Plan, the Employer may call the Trustee at (404) 332-4238.
ARTICLE II
The Employer hereby makes the following designations or
elections for the purpose of the plan [Section references below correspond to
Section references in the plan]:
1.3 ADJUSTMENT DATE: The accounts of participants shall be
adjusted on the last day of each plan year and such other times as may be
designated below [check any additional desired adjustment dates]:
X (a) The last day of each month during the plan year.
---
___ (b) The last day of each third month during the plan year.
___ (c) The last day of each sixth month during the plan year.
1.10 COMPENSATION: The "compensation" of a participant (other
than a participant who is a self-employed individual) shall mean each
participant's [check only one]:
___ (i) W-2 earnings
X (ii) Compensation (as that term is defined in Section
--- 22.5.2 of the plan for purposes of Section 415(c)(3)
of the Code)
which is actually paid to the participant during [check only one]:
X A. The plan year.
___ B. The taxable year ending with or within the plan year.
<PAGE>
-3-
___ C. The limitation year ending with or within the plan
year.
Notwithstanding the foregoing, compensation SHALL/SHALL NOT (strike one) include
Employer contributions made pursuant to a salary reduction agreement which are
not includible in the gross income of the employees under Sections 125,
402(a)(8), 402(h) or 403(b) of the Code.
For the purpose of Section 2.2, if a participant enters the plan during a plan
year, his compensation for such plan year shall be the following [check desired
choice]:
X A. His compensation for the full plan year.
---
___ B. His compensation for the plan year following the date
he enters the plan.
The compensation of a participant shall not include the following [check
applicable exclusions] [NOTE: The Employer may not select any of the following
exclusions if option (B) of Section 2.2 is chosen, and these exclusions shall
not apply in any plan year in which the plan is top-heavy]:
___ (a) Overtime
X (b) Bonuses
---
X (c) Commissions
---
___ (d) Compensation in excess of $___
1.13 EFFECTIVE DATE: The effective date of the plan is January
1, 1993. [If this plan amends and supersedes a prior plan, complete the blank
with the effective date of the amendment. See Section 15 for the effective date
of the prior plan.]
1.14 ELIGIBLE EMPLOYEES: All employees shall be eligible
employees except the following [check desired exclusions]:
___ (a) Employees of an affiliated employer that is not a
party to the plan.
___ (b) Leased employees.
X (c) Other: Employees covered by a collective
---
<PAGE>
-4-
bargaining agreement.
1.16 EMPLOYER: As of the effective date, the following
affiliated employers are parties to the plan [list all employer-parties,
including the Employer][:
Name Address EIN
---- ------- ---
All affiliates of Employer _______________
incorporated in the United States or _______________ _______
its territories.
--------------- --------------- -------
---------------
--------------- --------------- -------
---------------
1.19 HOURS OF SERVICE: For purposes of the plan, hours of
service for all employees shall be determined on the basis of the following
method [check only one]:
X A. On the basis of actual hours for which an employee is
--- paid or entitled to payment.
___ B. On the basis of days worked. An employee shall be
credited with 10 hours of service for a day if under
Section 1.19 of the plan he would be credited with at
least one hour of service for the day.
___ C. On the basis of weeks worked. An employee shall be
credited with 45 hours of service for a week if under
Section 1.19 of the plan he would be credited with at
least one hour of service for the week.
___ D. On the basis of semi-monthly payroll periods. An
employee shall be credited with 95 hours of service for
such a payroll period if under Section 1.19 of the plan
he would be credited with at least one hour of service
for such payroll period.
___ E. On the basis of calendar months worked. An employee
shall be credited with 190 hours of service for a month
if under Section 1.19 of the plan he
<PAGE>
-5-
would be credited with at least one hour of service for
the month.
1.21 NET PROFIT: In determining its net profit for the purpose
of determining the amount of the Employer's contribution to the plan, the
Employer elects to [check desired choice, if any]:
___ A. Exclude a return on the net worth of the Employer of
_% of such net worth.
___ B. Exclude $____ from such net profit as computed for
other purposes.
1.22 NORMAL RETIREMENT AGE: For each participant normal
retirement age is [check one]:
___ A. Age _____ (not to exceed 65).
X B. The later of age 65 (not to exceed 65) or the 5th (not
---
to exceed the fifth) anniversary of the participation
commencement date. The participation commencement date is the
first day of the first plan year in which the participant
commenced participation in the plan.
1.24 PAIRED PLANS: This plan is not a paired plan.
1.25 ELIGIBILITY: The following provisions shall apply with
respect to eligibility to participate in the plan (check either A or B,
whichever is selected):
___ A. An employee not otherwise a participant in the plan
shall enter the plan as of the effective date of the plan, if
he is in service on such date and has attained age __. Any
other employee shall enter the plan on the date designated
below which shall be applicable with respect to him [check
desired choice and fill in the blanks]:
___ (i) The first day of the plan year coincident
with or next following the date he shall have both
completed his first hour of service and attained age
___.
___ (ii) The first day of the month coincident with
or next following the date he shall
<PAGE>
-6-
have both completed his first hour of service and
attained age ___.
___ (iii) The date he shall have both completed his
first hour of service and attained age ___.
___ (iv) The first day of the plan year in which he
shall have both completed his first hour of service
and attained age ___. [NOTE: This is a retroactive
entry date.]
NOTE: In completing A above, the oldest age which an employee must attain as a
condition to becoming a participant cannot exceed age 20 1/2. If there is no
minimum age requirement, insert "O."
X B. An employee not otherwise a participant in the plan
---
shall enter the plan as of the date designated below which
shall be applicable with respect to him:
(i) The effective date of the plan, if the employee
is in service on such date and, as of such date, he has
attained age 0 and completed 0 year(s) of service;
(ii) If the employee is not described in (i), check
(a) or (b) and fill in the blanks:
X (a) The first day of the plan year or the
--- first day of the seventh month of the
plan year coincident with or next
following the date the employee has
attained age 21 and completed 1 year(s)
--
of service.
___ (b) The first day of the plan year in which
the employee has attained age and
completed __ year(s) of service. [NOTE:
This is a retroactive entry date.]
NOTE: In completing (i) and (ii), no more than 2 years of service shall be
required, and no more than one year of service shall be required unless the
Employer has elected to provide participants with immediate 100% vesting
pursuant to (iii) of Section 5.2 of this Adoption Agreement; and the oldest age
<PAGE>
-7-
which an employee must attain as a condition to becoming a participant can not
exceed age 21. If there is no minimum age requirement, insert "O."
1.26 PLAN: The name of the plan as applied to the Employer is
the (See Below) [insert name of Employer] and the plan identification number of
---------
this plan as applied to the Employer is 004 [insert 3 digit plan number).
Atlantic Tele-Network, Inc. Management
Employee Savings Plan
1.27 PLAN YEAR: The plan year shall be [check one and complete
the appropriate blanks]:
___ A. The 12 consecutive calendar month period ending on the
last day of the month of __________, 19__, and each
anniversary thereof.
X B. The 12 consecutive calendar month period which coincides
---
with the limitation year.
1.30 SERVICE [check if desired]: X An employee shall be
---
given credit for service with an employer prior to its becoming an affiliated
employer.
1.33 STANDARDIZED FORM PLAN: This plan is not a standardized
form plan.
2.1 EMPLOYER CONTRIBUTIONS: The Employer hereby selects the
contribution provision or formula designated below [check one and fill in the
appropriate blanks]:
___ (i) Such amount out of the current or accumulated net
profit of the Employer for such year as the Employer in its
discretion shall determine.
___ (ii) ___% of the net profit of the Employer for such year
plus such additional amount, if any, out of the current or
accumulated net profit of the Employer as the Employer in its
discretion shall determine.
___ (iii) An amount of the net profit of the Employer for such
year determined as follows: ___% of the first $_______ of such
net profit plus ___% of
<PAGE>
-8-
the next $_______ of such net profit, plus ___% of all such
net profit over $_______.
___ (iv) ___% of the net profit of the Employer for such year.
X (v) Such amount as the Employer in its discretion shall
---
determine without regard to current or accumulated net profit.
No adjustment affecting net profit for any fiscal year of the Employer made
subsequent to the filing of the federal income tax return of the Employer for
such year, whether resulting from audit of the Employer's tax returns or
otherwise, shall change the amount of the Employer's contribution for such year.
2.2 ALLOCATION OF EMPLOYER CONTRIBUTIONS: The contribution
made by the Employer (including forfeitures as provided in Section 5.3) shall be
allocated as of the adjustment date for which such contribution was made among
the participants entitled to share therein (the "eligible participants") in the
manner determined as follows [check one and fill in blank if applicable]:
X A. The Employer contribution and forfeitures shall be
---
allocated in the ratio that each eligible participant's
compensation bears to the compensation for all eligible
participants.
___ B. The Employer contribution and forfeitures shall be
allocated as follows:
(i) If the plan is top-heavy and the minimum
allocation is required in this plan, there
shall be allocated to the account of each
eligible participant (including for this
purpose each employee entitled to the
minimum allocation provided in Section
21.2.1 of the plan) the amount determined
by multiplying the minimum allocation
percentage times his compensation. [If the
plan is not top-heavy or the minimum
allocation is not required in this plan,
go to paragraph (iii) below.]
(ii) If any portion of the Employer
contribution and forfeitures shall remain
to be allocated, the remaining portion,
not ex-
<PAGE>
-9-
ceeding the amount determined by
multiplying the minimum allocation
percentage times the excess compensation
of eligible participants, shall be
allocated in the ratio that each eligible
participant's excess compensation bears to
the excess compensation for all eligible
participants.
(iii) If any portion of the Employer
contribution and forfeitures shall remain
to be allocated, the remaining portion,
not exceeding the amount determined by
multiplying (a) times (b), where (a) is a
percentage equal to the maximum
profit-sharing disparity rate minus the
minimum allocation percentage [if
allocated pursuant to paragraph (i)] and
(b) is the sum of the compensation plus
the excess compensation of eligible
participants, shall be allocated in the
ratio that the sum of each eligible
participant's compensation plus excess
compensation bears to the sum of the
compensation plus excess compensation for
all eligible participants.
(iv) If any portion of the Employer
contributions or forfeitures shall remain
to be allocated, the remaining portion
shall be allocated in the ratio that the
compensation of each eligible participant
bears to the compensation for all eligible
participants.
For this purpose, the following definitions shall apply:
(a) "Compensation" shall mean compensation as
defined in Section 1.10.
(b) "Excess compensation" shall mean
compensation in excess of the integration
level.
(c) "Integration level" shall mean (elect one
and complete the blank):
___ (i) the taxable wage base.
<PAGE>
-10-
___ (ii) $_______ (a dollar amount less
than the taxable wage base).
___ (iii) ___% of the taxable wage base
(not to exceed 100 %).
(d) "Maximum profit-sharing disparity rate"
shall mean the lesser of 5.7%, or the
applicable percentage determined in
accordance with the following table:
(I) If the integration level is:
more than but not more than the applicable
_________ _________________ percentage is
-------------
$ 0 X 5.7%
X of TWB 80% of TWB 4.3%
80% of TWB Y 5.4%
X = the greater of $10,000 or 20% of TWB
Y = any amount more than 80% of TWB but
less than 100% of TWB.
(II) If the integration level is equal to the taxable wage base, the applicable
percentage is 5.7%.
(e) "Minimum allocation percentage" shall mean
the percentage specified in Section 21.2.1
of the Adoption Agreement.
(f) "Taxable wage base" or "TWB" shall mean the
maximum amount of earnings which may be
considered wages for a year under Section
3121(a)(1) of the Code as in effect as of
the first day of the plan year.
To be entitled to share in contributions by the Employer for any plan year, an
employee must be a participant during such plan year, must not have a break in
service during such plan year, and he must (check desired choice or choices, if
any]:
___ (i) Have a year of service within the plan year.
<PAGE>
-11-
___ (ii) Be in service on the last day of such plan
year.
Provided, that neither of conditions (i) or (ii) shall apply with respect to a
participant who shall retire or die while in service during such plan year.
3.1 CASH OR DEFERRED ARRANGEMENT [check if desired]: X The
---
plan shall include a Cash or Deferred Arrangement ("CODA") described in Section
401(k) of the Code.
3.2.1 ELECTIVE DEFERRALS: A participant may elect to have his
compensation reduced by the following percentage or amount per pay period, or
for a specified pay period or periods, as designated in-writing to the
plan-administrator- [check any applicable options and fill in the appropriate
blanks]:
X (i) An amount not in excess of 6% of the
--- participant's compensation.
___ (ii) An amount not in excess of $___________.
The elective deferrals of a participant shall be subject to the following
special provisions [complete the blanks below]:
A. An employee who is not otherwise eligible to
participate in the plan shall be considered a
participant solely for the purpose of making elective
deferrals to the plan as of the first day of the
MONTH/QWWOM (strike one) next following the date the
employee X [check if desired, otherwise no waiting
---
period required] completes one year of service and
attains age 21 [insert age not to exceed 21].
--
B. A participant may elect to commence elective
deferrals as of [insert any desired limitation]
___________________________
_______________________________________. Such
election shall become effective as of the first full
pay period following the receipt by the plan
administrator of the participant's election to
commence elective deferrals, or as soon as
administratively feasible thereafter.
C. A participant's election to make elective deferrals
pursuant to a salary reduction agreement shall remain
in effect until modified or termi-
<PAGE>
-12-
nated. A participant may modify the amount of
elective deferrals as of [insert any desired
limitation) 1st day of each quarter .
---------------------------------------
Such election shall become effective as of the first
full pay period following the receipt by the plan
administrator of the participant's election to modify
elective deferrals, or as soon as administratively
feasible thereafter.
3.2.3 ACTUAL DEFERRAL PERCENTAGE: Qualified matching
contributions and qualified non-elective contributions may be taken into account
as elective deferrals for purposes of calculating the actual deferral
percentages. In determining elective deferrals for purposes of the ADP test, the
Employer shall include [elect as appropriate]:
X (i) Qualified, matching contributions
---
___ (ii) Qualified non-elective contributions
under this plan or any other plan of the Employer, as provided by regulations
under the Code.
The amount of qualified matching contributions taken into account as elective
deferrals for purposes of calculating the actual deferral percentage, subject to
such other requirements as may be prescribed by the Secretary of the Treasury,
shall be [elect as appropriate]:
___ (i) All such qualified matching contributions.
X (ii) Such qualified matching contributions that are
---
needed to meet the actual deferral percentage
test.
The amount of qualified non-elective contributions taken into account as
elective deferrals for purposes of calculating the actual deferral percentage,
subject to such other requirements as may be prescribed by the Secretary of the
Treasury, shall be [elect as appropriate]:
___ (i) All such qualified non-elective contributions.
<PAGE>
-13-
___ (ii) Such qualified non-elective contributions that
are needed to meet the actual deferral percentage
test.
3.2.7 QUALIFIED NON-ELECTIVE CONTRIBUTIONS [check if desired]:
___ The Employer shall make qualified non-elective contributions to the plan. If
the Employer does make such contributions to the plan, then the amount of such
contributions for each plan year shall be [elect one]:
___ (i) ___% (not to exceed 15 %) of the compensation of
all participants eligible to share in the
allocation.
___ (ii) ___% of the net profit of the Employer, but in no
event more than $ for any plan year.
___ (iii) An amount determined each plan year by the
Employer.
Allocation of qualified non-elective contributions shall be made to the accounts
of (elect one]:
___ (i) All participants.
___ (ii) Only non-highly compensated participants.
Allocation of qualified non-elective contributions shall be made [elect one]:
___ (i) In the ratio which each participant's
compensation for the plan year bears to the total
compensation of all participants for such plan
year.
___ (ii) In the ratio which each participant's
compensation not in excess of $.. for the plan
year bears to the total compensation of all
participants not in excess of $____ for such plan
year.
3.3 EMPLOYEE CONTRIBUTIONS [check if desired): X The Employer
---
shall permit participants to make employee contributions as provided in plan.
<PAGE>
-14-
3.4.1 MATCHING CONTRIBUTIONS [check if desired]: X
---
The Employer shall make matching contributions to the plan. If the Employer does
make such contributions to the plan, then the Employer shall make matching
contributions to the plan on behalf of [elect one]:
X (i) All participants
---
___ (ii) All participants who are non-highly
compensated employees who have satisfied the eligibility requirement specified
in [elect one]:
X (i) Section 1.25 of this Adoption Agreement
---
___ (ii) Section 3.2.1(A) of this Agreement
who make [elect one or both]:
X (i) Elective deferrals
---
___ (ii) Employee contributions
to the plan, and who [elect one or both, if desired]:
___ (y) Have a year of service within the plan
year.
X (z) Are in service on the last day of such
--- plan year.
Provided, that neither of conditions (y) or (z) shall apply with respect to a
participant who shall retire or die while in service during such plan year.
The Employer shall contribute and allocate to each participant's matching
contribution account an amount equal to:
X (i) 50 % of the participant's elective
--- deferrals.
___ (ii) ___% of the participant's employee
contributions.
___ (iii) An amount.-. determined each plan year
by the Employer.
<PAGE>
-15-
The Employer shall not match amounts provided above in excess of $___ or in
excess of 6 %, of the participant's compensation.
3.4.2 QUALIFIED MATCHING CONTRIBUTIONS [check if desired]: X
---
The Employer shall make qualified matching contributions to the plan. If the
Employer does make such contributions to the plan, then the Employer shall make
qualified matching contributions to the plan on behalf of [elect one]:
X (i) All participants
---
___ (ii) All participants who are non-highly
compensated employees
who make [elect one or both]:
X (i) Elective deferrals
---
___ (ii) Employee contributions
to the plan, and who [elect one or both, if desired]:
___ (y) Have a year of service within the plan
year.
X (z) Are in service on the last day of such
--- plan year.
Provided, that neither of conditions (y) or (z) shall apply with respect to a
participant who shall retire or die while in service during such plan year.
The Employer shall contribute and allocate to each participant's qualified
matching contribution account an amount equal to:
___ (i) ___% of the participant's elective
deferrals.
___ (ii) ___% of the participant's employee
contributions.
X (iii) An amount determined each plan year by
--- the Employer.
The Employer shall not match amounts provided above in excess of $_______, or in
excess of ___% of the participant's compensation.
<PAGE>
-16-
3.4.4 VESTING OF MATCHING CONTRIBUTIONS: Matching
contributions will be vested in accordance with the following schedule [elect
one]:
___ (i) Nonforfeitable when made.
X (ii) The vesting schedule described in
--- Section 5.2.
3.4.5 FORFEITURE OF MATCHING CONTRIBUTIONS: Matching
contributions which are forfeited as provided in Section 5.3 shall be treated as
follows [elect one]:
___ (i) Such forfeitures shall be reallocated
among all participants in the same
manner as any Employer contribution is
allocated as provided in Section 2.2.
___ (ii) Such forfeitures shall be combined with
any matching contribution made by the
Employer and allocated to all
participants entitled to share in the
matching contribution as provided in
Section 3.4.1.
X (iii) Such forfeitures shall be used to
--- reduce the amount of the matching
contribution which the Employer is
otherwise obligated to make under
Section 3.4.1.
3.5 AVERAGE CONTRIBUTION PERCENTAGE: In computing the average
contribution percentage, the Employer shall take into account and include as
contribution percentage amounts:
X (i) Elective deferrals
---
___ (ii) Qualified non-elective contributions
under this plan or any other plan of the Employer, as provided by regulations.
The amount of qualified non-elective contributions that are taken into account
as contribution percentage amounts for purposes of calculating the average
contribution percentage, subject to such other requirements as may be prescribed
by the Secretary of the Treasury, shall be:
<PAGE>
-17-
___ (i) All such qualified non-elective
contributions.
___ (ii) Such qualified non-elective
contributions that are needed to meet
the average contribution percentage
test.
The amount of elective deferrals taken into account as
contribution percentage amounts for purposes of calculating the average
contribution percentage, subject to such other requirements as may be prescribed
by the Secretary of the Treasury, shall be:
___ (i) All such elective deferrals.
X (ii) Such elective deferrals that are needed
--- to meet the average contribution
percentage test.
Forfeitures of excess aggregate contributions shall be:
X (i) Applied to reduce Employer
--- contributions.
___ (ii) Allocated, after all other forfeitures
under the plan, to each participant's
matching contribution account in the
ratio which each participant's
compensation for the plan year bears to
the total compensation of all
participants for such plan year. Such
forfeitures will not be allocated to the
account of any highly compensated
employee.
3.6 LIMITATIONS ON DISTRIBUTIONS: Elective deferrals,
qualified nonelective contributions and income allocable to such amounts shall
be distributable upon termination of service, death, or disability, as defined
in the plan, and, in addition [elect options, if any]:
X (i) Termination of the plan without the
--- establishment of another defined
contribution plan.
___ (ii) The disposition by the Employer to an
unrelated corporation of substantially
all of the assets (within the meaning of
section 409(d)(2) of the Code) used in a
<PAGE>
-18-
trade or business of the Employer if
such corporation continues to maintain
this plan after the disposition, but
only with respect to employees who
continue employment with the corporation
acquiring such assets.
___ (iii) The disposition by the Employer to an
unrelated entity of the Employer's
interest in a subsidiary (within the
meaning of section 409(d)(3) of the
Code) if such entity continues to
maintain this plan, but only with
respect to employees who continue
employment with such subsidiary.
X (iv) The attainment of age 59 1/2 of the
--- participant.
X (v) The hardship of the participant as
--- described in Section 3.6.2 of the plan.
All distributions that may be made pursuant to one or more of the foregoing
distributable events are subject to the spousal and participant consent
requirements (if applicable) contained in Sections 401(a)(11) and 417 of the
Code.
4.4 EARLY RETIREMENT (check if desired]: X The Employer elects
---
to provide for early retirement. If early retirement is to be permitted, it
shall be subject to the following eligibility requirements [check (i), (ii) or
(iii) as desired and fill in appropriate blanks]:
___ (i) Completion of ___ years of service.
___ (ii) Attainment of age
X (iii) Completion of 5 years of service and
--- ---
attainment of age 55
----
4.5.1 TERMINATION OF SERVICE: A participant who terminates
service before he is eligible to retire may elect to receive a distribution of
his vested accrued benefit as of the adjustment date specified below (the
"termination adjustment date") [check one]:
<PAGE>
-19-
X (i) The adjustment date coincident with or
--- next following the termination of the
participant.
___ (ii) The adjustment date coincident with the
close of the plan year in which the
participant incurs his FIRST/FIFTH
(strike one) consecutive break in
service.
___ (iii) The adjustment date coincident with or
next following the normal retirement
date of the participant.
___ (iv) The adjustment date next preceding the
termination of the participant. This
option may only be elected if included
in a prior plan.]
NOTE: A prior plan cannot be amended to eliminate or reduce an existing optional
form of benefit, including payment schedule, time of commencement, and medium of
distribution.
4.5.3 DEFERRED PAYMENT ACCOUNT [check if desired]: The Trustee
shall segregate for investment purposes the vested accrued benefit of a
terminated participant as provided in Section 4.5.3 of the plan.
4.7 JOINT AND SURVIVOR ANNUITY REQUIREMENTS [check if
desired]: ___ The requirements of Section 4.7 of the plan shall apply
notwithstanding the provisions of Section 4.7.5 of the plan.
4.7.3 QUALIFIED JOINT AND SURVIVOR ANNUITY [check if desired]:
The amount of the survivor annuity shall be 100% of the amount payable during
the joint lives of the participant and his spouse. [If not checked, the
percentage of the survivor annuity shall be 50%.)
4.11 OPTIONAL WITHDRAWALS [check if desired]: ____ The
Employer elects to permit optional withdrawals by a plan participant from his
Employer contribution account while in the employment of the Employer as
provided in Section 4.11 of the plan, and subject to the provisions thereof. [If
option B of Section 2.2 above was chosen, this plan does not permit optional
withdrawals.
4.12 LOANS [check if desired): X The Employer elects to permit
---
loans to participants or beneficiaries (other
<PAGE>
-20-
than owner-employees or shareholder-employees) as provided in Section 4.12 of
the Plan, and subject to the provisions thereof.
4.12.7 DEFAULT [this section shall apply only if loans are
permitted under the plan]: If an event of default shall occur with respect to a
borrowing participant or beneficiary, the entire unpaid principal amount of the
note plus accrued and unpaid interest shall immediately become due and payable,
and such unpaid principal and interest shall bear interest at a rate 2
percentage points greater than the rate set forth in the note. All such interest
shall be treated as income of the trust and shall be allocated among the
accounts of the participants as of such adjustment date in accordance with the
provisions of Section 6. Unless such unpaid principal and interest are paid on
or prior to the adjustment date next following such default, such unpaid
principal and interest shall be charged against his vested accrued benefit as a
payment therefrom to the extent permitted under the plan. If such unpaid
principal and interest shall exceed the amount of the defaulting participant's
or beneficiary's vested accrued benefit, all or any part of any additional
security pledged by the participant or beneficiary to secure the loan may, in
the discretion of the Committee, be sold at private or public sale. The proceeds
of such sale shall be applied first to pay the expenses of conducting the sale,
including reasonable attorneys' fees, and then to pay any sums due from the
borrowing participant or beneficiary to the trust, with such payment to be
applied first to accrued interest and then to principal. The participant or
beneficiary shall remain liable for any deficiency, and any surplus remaining
shall be payable to the borrowing participant or beneficiary. No distribution to
which such participant or beneficiary is entitled under the plan shall be made
to such participant or beneficiary unless and until all unpaid loans, including
interest thereon, have been satisfied. If any portion of the Employer
contribution account of a participant is applied to repay a loan pursuant to
this Section 4.12.7 at a time when he is not fully vested in such account and he
may increase the nonforfeitable percentage in such account, at any subsequent
relevant time the participant's nonforfeitable portion of the Employer
contribution account shall be not less than an amount ("X") determined by the
formula: X = P (AB + D) - D. For purposes of applying the formula: P is the
nonforfeitable percentage at the relevant time; AB is the account balance in the
Employer contribution account at the relevant time; D is the amount of the
participant's Employer contribution account applied to repay the loan; and the
rele-
<PAGE>
-21-
vant time is the time under the plan at which the nonforfeitable percentage
of his account balance cannot increase.
5.2 VESTING: The nonforfeitable percentage of each participant
in his accrued benefit attributable to Employer contributions and forfeitures
shall be as follows [check (i), (ii), (iii) or (iv)]:
___ (i) 100% vesting after ___ (not to exceed 5) years of
service.
___ (ii) Number of Years of Vested
Service Percentage
------- ----------
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
___ (iii) immediate 100% vesting.
X (iv) Number of Years of Vested
--- Service Percentage
------- ----------
Less than 1 0
---
1 20
---
2 40
---
3 60 (at least 20%)
----
4 80 (at least 40%)
----
5 100 (at least 60%)
----
6 (at least 80%)
----
7 or more 100%
-----
5.2.2 YEARS OF SERVICE FOR VESTING: All years of service with
the Employer are counted to determine the vested percentage in the participant's
accrued benefit derived from Employer contributions except [check desired
exclusions, if any]:
X A. Years of service before age _ [not to
--- exceed age 18].
___ B. Years of service during a period for which
the participant made no mandatory
contributions, if required.
<PAGE>
-22-
___ C. Years of service before the Employer
maintained this plan (including a prior plan
within the meaning of Section 15, if
applicable), subject to the provisions of
Section 5.2 and 15.
___ D. Years of service before January 1, 1971,
unless the employee has had at least 3 years
of service after December 31, 1970.
___ E. Years of service before the effective date
of ERISA if such service would have been
disregarded under the break in service rules
of a prior plan in effect from time to time
before such date. For this purpose, break in
service rules are rules which result in the
loss of prior vesting or benefit accruals,
or which deny an employee eligibility to
participate, by reason of separation or
failure to complete a required period of
service within a specified period of time.
5.3 FORFEITURES: In the case of a participant who shall
forfeit a portion of his accrued benefit as of the adjustment date provided in
Section 5.3 of the plan, the portion of his accrued benefit so forfeited shall
be combined with the amounts forfeited by all other such participants as of such
adjustment date, and the aggregate of such forfeitures shall be reallocated
among all participants who are entitled to share in the Employer contribution
for the plan year ending on such adjustment date in the same manner as the
Employer contribution is allocated as provided in Section 2.2. Notwithstanding
the foregoing, forfeitures shall only be allocated for the benefit of employees
of the Employer who adopted this plan.
7. PLAN ADMINISTRATION: The plan administrator shall be
[check desired choice]:
X A. The Chairman of the Committee; or
---
___ B. Other [insert title or other description]:
______________________.
The business telephone number of the plan administrator is (809) 775-8724.
<PAGE>
-23-
In the event there shall be more than one employer-party to the plan, the
Committee shall be appointed by the Board of _________. [Insert name of one
employer-party.]
X The Committee hereby delegates to the Trustee all responsibility for
- ---
accounting for the accrued benefits of participants [check if desired].
15. PRIOR PLAN [check if applicable]: X This plan amends and
---
supersedes a previously existing defined contribution plan as described in
Section 15 of the plan. The effective date of the prior plan was 8/1/88.
------
20. PURCHASE OF INSURANCE POLICIES [check if desired]: ___ The
Employer elects to permit each participant, acting through the Committee, to
direct the Trustee to invest assets of the trust in life insurance as provided
in Section 20 of the plan.
21.1.4 CUMULATIVE ACCRUED BENEFIT: For purposes of
establishing present value to compute the cumulative accrued benefit, any
benefit shall be discounted only for mortality and interest based on the
following [not applicable if the Employer has not maintained a defined benefit
plan for the current or 4 preceding plan years]:
Interest rate _________%
Mortality table _______
21.2.1 MINIMUM ALLOCATION: For purposes of minimum top-heavy
allocations, contributions and forfeitures equal to 0 % of each non-key
---
employee's compensation will be allocated to the employee's account when the
plan is top-heavy. [Employer must insert a percentage that is not less than 3%;
provided that "0" may be inserted if the minimum allocation will be provided to
participants under any other plan or plans of the Employer. If permitted
pursuant to Section 21.2.1 of the plan, such percentage shall in no event exceed
the largest percentage of Employer contributions and forfeitures allocated on
behalf of any key employee. The Employer may attach additional provisions as
necessary to satisfy Section 416 of the Code because of the required aggregation
of multiple plans.]
21.2.2 MINIMUM VESTING SCHEDULE [complete this section only if
a vesting schedule other than option (iii) of Section 5.2 above was selected]:
For any plan year in which the plan is top-heavy, the nonforfeitable percentage
of each par-
<PAGE>
-24-
ticipant in his accrued benefit attributable to Employer contributions shall be
determined on the basis of the following [check one]:
___ (i) 100% vesting after ___ (not to exceed 3)
years of service.
___ (ii) Number of Years of Vesting
Service Percentage
------------------ ----------
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
22. LIMITATIONS ON ALLOCATIONS: In administering the plan, the
following special provisions shall apply [the Employer must complete this
Section 22 if it maintains or ever maintained another qualified plan in which
any participant in this plan is (or was) a participant; or if it maintains a
welfare benefit fund as defined in Section 419(e) of the Code, or an individual
medical account as defined in Section 415(l)(2) of the Code, under which amounts
are treated as annual additions with respect to any participant in this plan]:
22.1.4 If as a result of the allocation of forfeitures, an
error in estimating a participant's compensation, or other limited facts and
circumstances, the maximum permissible amount would be exceeded for any
limitation year, such excess amount with respect to a participant for such
limitation year shall be disposed of in the following order:
(a) Any nondeductible employee contributions (and any gains
attributable thereto) to the extent of such excess shall be returned to
the participant.
(b) If further reductions are necessary, then such
participant's share of the Employer contribution for the limitation
year shall be reduced to the extent of such remaining excess. The
amount of the reduction shall be reallocated among the remaining
participants in the ratio which each of such participant's compensation
during the limitation year in question bears to the aggregate
compensation of all such participants during such limitation year and
before any nondeductible employee contributions or Employer
Contributions for such limitation year are al-
<PAGE>
-25-
located. If all of the amount of such reduction cannot be reallocated
without causing the account of each other participant to exceed the
maximum permissible amount, then such remaining amount shall be
credited to a separate special account, designated as the "suspense
account."
(c) If further reductions are necessary, then such
participant's share of the forfeitures for the limitation year shall be
reduced to the extent of such remaining excess. The amount of such
reduction shall be reallocated among the remaining participants in the
ratio which such participant's compensation during the limitation year
in question bears to the aggregate compensation of all such
participants during such limitation year and before any nondeductible
employee contributions or Employer contributions for such limitation
year are allocated. If all of the amount of such reduction cannot be
reallocated without causing the account of each other participant to
exceed the maximum permissible amount, then such remaining amount shall
be credited to the suspense account established pursuant to (b)
immediately preceding.
(d) The suspense account shall contain the excess amounts of
Employer contributions and forfeitures from all limitation years. Such
excess amounts shall be allocated for each succeeding limitation year
among the accounts of participants in the ratio, which each of such
participant's compensation for the limitation year in question bears to
the aggregate compensation of all such participants during such
limitation year and before any nondeductible employee contributions or
Employer contributions for such year are allocated. The suspense
account shall be adjusted annually for additions thereto and
distributions therefrom and for any net income or net loss attributable
thereto. In the event the plan is terminated, any balance in the
suspense account shall be returned to the Employer.
22.3 If the participant is covered under another qualified
defined contribution plan maintained by the Employer, other than a master or
prototype plan [check one]:
X The provisions of Section 22.2.1 through 22.2.6 will apply as if the
---
other plan were a master or prototype plan.
___ [Provide the method under which the plans will limit total annual
additions to the maximum permissi-
<PAGE>
-26-
ble amount, and will properly reduce any excess amounts, in a manner
that precludes Employer discretion].
22.4 If the participant is or has ever been a participant in a
defined benefit plan maintained by the Employer [Employer must insert provision
which satisfies 1.0 limitation of Section 415(e) of the Code. See Treasury
Regulation Section 1.415-1 for guidance.]: See Exhibit A attached
-------------------------------------
- --------------------------------------------------------------------------------
22.5.9 The limitation year is the following 12 consecutive
month period: calendar year.
-------- ----
23. PARTICIPANT DIRECTING INVESTMENT [check if desired]: X The
Employer elects to permit each participant, acting through the Committee, to
direct the Trustee as to the investment or reinvestment of his account as
provided in [check either or both, if desired]:
X Section 23.1 of the plan.
---
___ Section 23.2 of the plan. [Section 23.2 of the plan
shall not apply to an unincorporated employer.]
If the Employer has elected this Section 23, the participant may direct the
investment of [elect one]:
X A. his entire account.
---
___ B. his elective deferral account described in
Section 3.2.8 only.
___ C. the following separate accounts which are a
part of his entire account [elect one or
more as desired]:
___ (i) the Employer contribution account
described in Section 2.2;
___ (ii) the deductible contribution
account described in Section 2.4;
___ (iii) the mandatory contribution
account described in Section 2.5;
<PAGE>
-27-
___ (iv) the elective deferral account
described in Section 3.2.8;
___ (v) the qualified non-elective
contribution account described in
Section 3.2.8;
___ (vi) the employee contribution account
described in Section 3.3.3;
___ (vii) the matching contribution
account described in Section 3.4.3;
___ (viii) the qualified matching
contribution account described in Section
3.4.3;
___ (ix) the rollover account described
in Section 16; and
___ (x) the direct transfer account
described in Section 17.
NOTE: THIS IS AN IMPORTANT DOCUMENT HAVING COMPLEX TAX AND OTHER LEGAL
IMPLICATIONS. THE SPONSOR HEREBY ADVISES THAT THE EMPLOYER CONSULT WITH ITS OWN
ATTORNEY BEFORE SIGNING.
<PAGE>
-28-
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto on the day and year first above stated.
Atlantic Tele-Network, Inc.
----------------------------------
NAME OF EMPLOYER
/s/ James J. Heying
By:_________________________________________
PRESIDENT, PARTNER, OR SOLE PROPRIETOR
James J. Heying, Chief Financial Officer
Attest/Witness:
/s/ Eling Joseph
- -------------------
[Corporate Seal]
WACHOVIA BANK OF GEORGIA, N.A.
/s/ M. Sopp, Vice President
By:_________________________________________
AUTHORIZED OFFICER
Attest/Witness:
/s/ Barbara W. Chope
- --------------------
ASSISTANT SECRETARY
[Corporate Seal]
NOTE: The Employer may not rely on the opinion letter issued
by the National Office of the Internal Revenue Service as evidence that this
plan is qualified under Section 401 of the Code. If the Employer wishes to
obtain reliance that the plan is qualified, application for a determination
letter should be made to the appropriate Key District Director of Internal
Revenue. Failure to properly complete the Adoption Agreement may result in the
disqualification of the plan.
<PAGE>
EXHIBIT A
COMBINED PLAN LIMITATION
The Employer shall reduce its contributions under the defined
contribution plan to the extent necessary to prevent the sum of the following
fractions, computed as of the close of the Limitation Year, from exceeding 1.0:
Projected Annual Benefit of the Participant
under the defined benefit plan
- --------------------------------------------------------------------------------
The lessor of (i) 125% of the Participant's dollar limitation in effect under
Code Section 415(b)(1)(A) for the Limitation Year, or (ii) 1.4 times the
Participant's average Compensation limitation under Section 3.05
plus
the sum of the Annual Additions to the Participant's Account under the defined
contribution plan(s) as of the close
of the Limitation Year
- --------------------------------------------------------------------------------
the sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of Service
with the Employer: (i) 125% of the dollar limitation in effect
under Code Section 415(c)(1)(A) for the Limitation Year
(determined without regard to the special dollar limitations
for employee stock ownership plans), or (ii) 35% of the
Participant's Compensation for the Limitation Year
The Advisory Committee shall determine the denominator of the first
fraction by taking into account the years of participation and the years of
service the Advisory Committee reasonably can project the Participant will have
at the time his Projected Annual Benefit is payable. The Advisory Committee may
use on a uniform basis any transitional rules prescribed by law to compute the
Participant's fractions. The denominator of the first fraction shall not be less
than 125% of the Participant's Current Accrued Benefit (as determined under
Section 3.05). For purposes of the second fraction, the Advisory Committee shall
not recompute Annual Additions in Limitation Years beginning prior to January 1,
1987, to treat all Employee contributions as Annual Additions. If the plan
satisfied Code Section 415 for Limitation Years beginning prior to January 1,
1987, the Advisory Committee will redetermine the fractions as of the end of the
last Limitation Year beginning before January 1, 1987, in accordance with this
Section 3.07. If the sum of the redetermined fractions exceeds 1.0, the Advisory
Committee will subtract permanently from the numerator of
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the second fraction an amount equal to the product of (1) the excess of the sum
of the fractions over 1.0, times (2) the denominator of the second fraction. In
making the adjustment, the Advisory Committee shall disregard any Accrued
Benefit in excess of the Current Accrued Benefit.
<PAGE>
WACHOVIA BANK OF GEORGIA, N.A.
PROTOTYPE DEFINED CONTRIBUTION
RETIREMENT PLAN AND TRUST
<PAGE>
TABLE OF CONTENTS
WACHOVIA BANK OF GEORGIA, N.A.
PROTOTYPE DEFINED CONTRIBUTION
RETIREMENT PLAN AND TRUST
Page
----
Section 1. Definitions:................................................. 1
Section 2. Contributions to the Trust and Allocation Thereof:........... 15
2.1. Employer contributions.................................. 15
2.2. Allocation of Employer contributions.................... 15
2.3. Voluntary nondeductible employee contributions.......... 16
2.4. Voluntary deductible employee contributions............. 16
2.5. Mandatory employee contributions........................ 16
Section 3. Cash or Deferred Arrangement:................................. 17
3.1. General................................................. 17
3.2. Elective deferrals...................................... 17
3.3. Employee contributions.................................. 23
3.4. Matching contributions.................................. 24
3.5. Limitations on matching contributions and employee
contributions................................. 25
3.6. Special distribution rules.............................. 28
3.7. Top-heavy requirements.................................. 30
3.8. Definitions............................................. 30
Section 4. Retirement; Termination of Service; Death:................... 33
4.1. Normal retirement....................................... 33
4.2. Delayed retirement...................................... 33
4.3. Disability.............................................. 33
4.4. Early retirement........................................ 33
4.5. Termination of service.................................. 34
4.6. Distribution requirements............................... 35
4.7. Joint and survivor annuity requirements................. 45
4.8. Small amount............................................ 52
4.9. Interim payments........................................ 53
4.10. Continued share in profits or losses of trust fund..... 53
4.11. Optional withdrawals................................... 53
4.12. Loans.................................................. 54
Section 5. Vesting:...................................................... 56
Section 6. Accounts of Participants:..................................... 59
Section 7. Administration by Committee:.................................. 60
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<PAGE>
Page
----
Section 8. Management of Funds and Amendment or Termination of Plan:.... 63
Section 9. Allocation of Responsibilities Among Named Fiduciaries:...... 65
Section 10. Benefits Not Assignable; Facility of Payments:............... 67
Section 11. Beneficiary:................................................. 68
Section 12. Termination of Plan and Trust; Removal of Trustee; Merger or
Consolidation of Plan:.................................... 68
12.1. Complete termination.................................. 68
12.2. Partial termination................................... 69
12.3. Removal and resignation of Trustee.................... 69
12.4. Merger or consolidation............................... 69
Section 13. Communication to Participants:............................... 70
Section 14. Claims Procedure:............................................ 70
Section 15. Previously Existing Qualified Plans of the Employer:......... 72
Section 16. Special Provisions Relating to Transfers From Qualified
Plans:.................................................... 72
Section 17. Rollovers:................................................... 73
Section 18. Trust Provisions:............................................ 75
18.1. Trustee's powers...................................... 75
18.2. Accountings........................................... 81
18.3. Compensation of Trustee............................... 82
18.4. Responsibilities and scope of duties of Trustee....... 82
18.5. Failure to direct Trustee............................. 83
Section 19. Qualification of Plan:....................................... 83
Section 20. Purchase of Insurance Policies:.............................. 84
Section 21. Special Top-Heavy Provisions:................................ 86
Section 22. Limitations on Allocations:.................................. 91
Section 23. Participant Directing Investment:............................ 98
Section 24. Miscellaneous Provisions:....................................104
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<PAGE>
WACHOVIA BANK OF GEORGIA, N.A.
PROTOTYPE DEFINED CONTRIBUTION
RETIREMENT PLAN AND TRUST
PLAN DOCUMENT
Section 1. Definitions:
--------- -----------
As used in the plan, including this Section 1, references to one
gender shall include the other and, unless otherwise indicated by the context:
1.1. "Account" shall mean the aggregate of the separate accounts to be
kept with respect to each participant. To the extent applicable, such separate
accounts shall include the following:
(i) the Employer contribution account described in Section 2.2;
(ii) the deductible contribution account described in Section 2.4;
(iii) the mandatory contribution account described in Section 2.5;
(iv) the elective deferral account described in Section 3.2.8;
(v) the qualified non-elective contribution account described in
Section 3.2.8;
(vi) the employee contribution account described in Section 3.3.3;
(vii) the matching contribution account described in Section 3.4.3;
(viii) the qualified matching contribution account described in Section
3.4.3;
(ix) the rollover account described in Section 16; and
(x) the direct transfer account described in Section 17.
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1.2. "Accrued benefit" shall mean with respect to each participant the
balance in his account as of the applicable adjustment date following adjustment
thereof as provided in Section 6.
1.3. "Adjustment date" shall mean the last day of each plan year, and
such other times as shall be designated in the Adoption Agreement.
1.4. "Adoption Agreement" shall mean the written agreement pursuant to
which the Employer adopts the plan, which agreement shall be between the
Employer and the Trustee. The Adoption Agreement is a part of the plan as
applied to the Employer.
1.5. "Affiliated employer" shall mean (i) any corporation which is a
member of a controlled group of corporations (as defined in Section 414(b) of
the Code) which includes the Employer; (ii) any trade or business (whether or
not incorporated) that is under common control (as defined in Section 414(c) of
the Code) with the Employer; (iii) any organization (whether or not
incorporated) which is a member of an affiliated service group (as defined in
Section 414(m) of the Code) which includes the Employer; and (iv) any other
entity required to be aggregated with the Employer pursuant to regulations
prescribed by the Secretary of the Treasury under Section 414(o) of the Code.
1.6. "Board" shall mean the Board of Directors of the Employer if the
Employer is a corporation. If the Employer is an unincorporated employer,
"Board" shall mean the Employer.
1.7. A "break in service," as applied to the service of an employee,
shall mean a designated 12 consecutive calendar month period (a "computation
period") in which the employee shall not have completed more than 500 hours of
service. Such period shall be the plan year unless otherwise specifically
provided herein.
1.8. "Code" shall mean the Internal Revenue Code of 1986 and rules and
regulations issued thereunder.
1.9. "Committee" shall mean the administrative committee provided for
in Section 7.
1.10. "Compensation" shall mean all of each participant's (i) W-2
earnings or (ii) compensation (as that term is defined in Section 415(c)(3) of
the Code) as elected by the Em-
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ployer in the Adoption Agreement. For any self-employed individual covered under
the plan, "compensation" shall mean earned income. Compensation shall include
only that compensation which is actually paid to the participant during the
applicable period. Except as otherwise provided in the plan, the applicable
period shall be the period elected by the Employer in the Adoption Agreement. If
the Employer makes no election, the applicable period shall be the plan year.
Notwithstanding the foregoing, if elected by the Employer in the Adoption
Agreement, compensation shall include any amount which is contributed by the
Employer pursuant to a salary reduction agreement and which is not includible in
the gross income of the employee under Sections 125, 402(a)(8), 402(h) or 403(b)
of the Code. The annual compensation of each participant taken into account
under the plan year for any year beginning on or after January 1, 1989 shall not
exceed $200,000, as adjusted at the same time and in the same manner as under
Section 415(d) of the Code. In determining the compensation of a participant for
purposes of this limitation, the rules of Section 414(q)(6) of the Code shall
apply, except that in applying such rules, the term "family" shall include only
the spouse of the participant and any lineal descendants of the participant who
have not attained age 19 before the close of the year. If, as a result of the
application of such rules the adjusted $200,000 limitation is exceeded, then
(except for purposes of determining the portion of compensation up to the
integration level if this plan provides for permitted disparity), the limitation
shall be prorated among the affected individuals in proportion to each such
individual's compensation as determined under this Section 1.10 prior to the
application of this limitation.
1.11. "Disability" shall mean the inability to engage in any gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which can be expected to last for a
continuous period of not less than 12 months. The determination of the existence
or nonexistence of disability shall be made by the Committee in a
nondiscriminatory manner pursuant to a medical examination by a medical doctor
selected or approved by the Committee.
1.12. "Earned income" shall mean the net earnings from self-employment
in the trade or business with respect to which the plan is established for which
personal services of the individual are a material income-producing factor. Net
earnings will be determined without regard to items not included in gross income
and the deductions allocable to such items. Net earnings are reduced by
contributions by the Em-
<PAGE>
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ployer to a qualified plan to the extent deductible by the Employer under
Section 404 of the Code. Net earnings shall be determined with regard to the
deduction allowed to the Employer by Section 164(f) of the Code for taxable
years beginning after December 31, 1989.
1.13. "Effective date of the plan" shall mean the date that the plan
becomes effective with respect to the Employer, as specified by the Employer in
the Adoption Agreement.
1.14. "Eligible employee" shall mean each employee; provided, that if
the plan is not a standardized form plan, "eligible employee" shall mean each
employee except those excluded pursuant to the Adoption Agreement.
1.15. "Employee" shall mean, except as otherwise provided herein, an
individual in the service of the Employer if the relationship between him and
the Employer is the legal relationship of employer and employee. In determining
who is an employee for the purposes of this plan, the following special
provisions shall apply:
1.15.1. Except as provided in Section 22.5.6, all employees of an
affiliated employer shall be treated as employees of the Employer.
1.15.2. All leased employees deemed to be employees of the Employer or
an affiliated employer as provided in Sections 414(n) or 414(o) of the
Code and the regulations thereunder shall be treated as employees of
the Employer.
1.15.3. All employees included in a unit of employees covered by a
collective bargaining agreement, if retirement benefits were the
subject of good faith bargaining, shall not be treated as employees of
the Employer.
1.15.4. All employees who are nonresident aliens and who receive no
income from the Employer which constitutes income from sources within
the United States shall not be treated as employees of the Employer.
See Sections 1.14 and 1.25 for provisions governing eligibility of an employee
to become a participant in the plan. See Section 1.5 for definition of
affiliated employer.
1.16. "Employer" shall mean each employer entering into an Adoption
Agreement with the Trustee. All references herein to the "Employer" shall be
applied to each such Employer
<PAGE>
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as if the plan were solely the plan of that Employer. The Employer entering into
an Adoption Agreement with the Trustee may be a corporation, or a partnership or
sole proprietorship (herein, an "unincorporated employer"). If the plan is a
standardized form plan, each affiliated employer must become a party to the plan
by entering into the Adoption Agreement with the Trustee. If the plan is not a
standardized form plan, each affiliated employer may become a party to the plan,
if desired, by entering into the Adoption Agreement with the Trustee. With
respect to each affiliated employer which becomes a party to the plan, the
following special provisions shall apply:
1.16.1. As used in the plan, unless otherwise indicated by the
context, the term "Employer" shall mean collectively all employer-
parties to the plan.
1.16.2. The plan shall be applied as a single plan with respect to all
employer-parties as if there were only one employer-party, and service
for purposes of the plan shall be interchangeable among employer-
parties to the plan and shall not be deemed to be interrupted by the
transfer at any time of an employee from the service of one employer-
party to the plan to the service of another employer-party.
1.16.3. Notwithstanding anything to the contrary, there shall be a
single Committee with respect to all employer-parties to the plan,
which shall be the Committee designated pursuant to the provisions of
Section 7 of the Adoption Agreement.
1.17. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended (including amendments of the Internal Revenue Code affected
thereby), and rules and regulations issued thereunder.
1.18. "Highly compensated participant" shall mean any participant who
is a highly compensated employee. A "non-highly compensated participant" shall
mean any participant who is neither a highly compensated participant nor a
family member (within the meaning of Section 1.18.4). Any individual who has
been a highly compensated participant but who has ceased to be a participant for
any reason shall be treated as a highly compensated participant if he is a
former employee within the meaning of Section 1.18.5. A "highly compensated
employee" shall mean any employee who, during the plan year or the preceding
plan year:
<PAGE>
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(i) was at any time a 5% owner (as defined in Section 416(i)(1)(iii)
of the Code);
(ii) received compensation from the Employer and affiliated employers
in excess of $75,000 (adjusted pursuant to Section 415(d) of the Code);
(iii) received compensation from the Employer and affiliated employers
in excess of $50,000 (adjusted pursuant to Section 415(d) of the Code)
and was in the top-paid group of employees for such year; or
(iv) was at any time an officer and received compensation greater than
50% of the dollar limitation in effect under Section 415(b)(1)(A) of
the Code for such year. No more than 50 employees (or, if lesser, the
greater of 3 employees or 10% of the employees) shall be treated as
officers. If for any year no officer of the Employer receives
compensation greater than 50% of the dollar limitation in effect for
such year, the highest paid officer of the Employer for such year shall
be treated as a highly compensated employee.
For purposes of this Section 1. 18, the following special provisions shall
apply:
1.18.1. Notwithstanding the provisions of Section 1.15, the term
employee" shall mean an individual in the service of the Employer if
the relationship between him and the Employer is the legal relationship
of employer and employee.
1.18.2. An employee not described in (ii), (iii), or (iv) above for
the preceding plan year (without regard to this Section 1.18.2) shall
not be treated as described in subparagraph (ii), (iii) or (iv) in the
current plan year unless he is one of the 100 employees paid the
greatest compensation during the current plan year.
1.18.3. An employee who performs service for the Employer any time
during the year is in the top-paid group of employees for any year if
such employee is in the group consisting of the top 20% of the
employees when ranked on the basis of compensation paid during such
year. For purposes of determining the number of employees in the top-
paid group (but not for identifying the particular employ-
<PAGE>
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ees in the top-paid group), the following employees shall be excluded:
(A) employees who have not completed 6 months of service;
(B) employees who normally work less than 17 1/2 hours
per week;
(C) employees who normally work not more than 6 months
during any year;
(D) employees who have not attained age 21;
(E) employees who are included in a unit of employees covered
by a bona fide collective bargaining agreement with the Employer; and
(F) employees who are nonresident aliens and who receive no
earned income (within the meaning of Section 911(d)(2) of the Code)
from the Employer which constitutes income from sources within the
United States (within the meaning of Section 861(a)(3) of the Code).
The Committee may elect to apply subparagraph (A), (B), (C), or (D) of this
Section 1.18.3 by substituting a shorter period of service, smaller number of
hours or months, or lower age for that specified in such subparagraphs.
1.18.4. If any individual is a member of the family of a 5 % owner or
of a highly compensated employee who is one of the 10 most highly
compensated employees during the plan year, then (i) such individual
shall not be considered a separate employee, and (ii) any compensation
paid to such individual (and any contribution or benefit on behalf of
such individual) shall be treated as if it were paid to (or on behalf
of) the 5% owner or highly compensated employee. For purposes of this
Section 1.18.4, the term "family" or "family member" means, with
respect to any employee, such employee's spouse and lineal ascendants
or descendants and the spouses of lineal ascendants or descendants.
1.18.5. A former employee shall be treated as a highly compensated
employee if he was a highly compensated employee when he separated from
service, or at any time after attaining age 55.
<PAGE>
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1.18.6. The determination of who is a highly compensated employee,
including determination of the number and identity of employees in the
top paid group, the 100 employees paid the greatest compensation, the
number of employees treated as officers, and the compensation
considered for purposes of this Section 1.18, shall be made in
accordance with Section 414(q) of the Code and the regulations
thereunder.
1.19. "Hour of service" shall mean (a) each hour for which an employee
is paid or entitled to payment by the Employer for service (to be credited to
the employee for the computation period in which the service is performed); (b)
each hour for which an employee is paid or entitled to payment by the Employer
on account of a period of time during which no service is performed
(irrespective of whether the employment relationship has terminated) [such as
vacation, holiday, illness, incapacity (including disability), lay-off, jury
duty, military duty or leave of absence]; (c) each hour [to the extent not
included in (a) or (b)] for which back pay (irrespective of mitigation of
damages) has been either awarded or agreed to by the Employer (to be credited to
the employee for the computation period or periods to which the award or
agreement pertains rather than the computation period in which the award,
agreement or payment is made); and (d) each hour for which an employee is not
actually in service but is required to be given credit for service under any law
of the United States; provided, that in applying paragraph (b) for periods in
which an employee is not actually in service, the following special provisions
shall apply:
(i) The number of hours to be credited with respect
to any single continuous period shall be the lesser of. (A)
501 hours, or (B) the number of hours for which the employee
is paid with respect to such period; provided, that in
determining whether an employee has incurred a break in
service, the provisions of this subdivision (i) shall not
limit the number of hours to be credited to such employee on
account of a leave of absence;
(ii) No hours shall be credited with respect to
payments made to the employee for the purpose of complying
with applicable worker's compensation, unemployment
compensation or disability insurance laws, or payments solely
to reimburse an employee for medical or medically related
expenses incurred by the employee; and
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(iii) An amount paid to an employee by the Employer
indirectly, such as by a trust, fund or insurer to which the
Employer makes contributions or pays premiums, shall be deemed
to be paid by the Employer.
The provisions of this Section 1.19 shall be applied in accordance with the
provisions of Section 1.30 of the plan, and United States Department of Labor
Regulations Sections 2530.200b-2(b) and (c) (which provisions are incorporated
herein by reference). The method used for determining hours of service shall be
as selected in the Adoption Agreement. Notwithstanding the foregoing provisions
of this Section 1.19, solely for the purpose of determining whether an employee
has incurred a break in service for participation and vesting purposes in a
computation period, the following special provisions shall apply:
(A) In addition to hours for which an employee is entitled to
credit under (a) through (d) above, such employee shall also receive
credit for each hour with respect to the period that he is on a leave
of absence approved by the Employer for which he is not paid or
entitled to payment.
(B) An employee who is absent from work for maternity or
paternity reasons shall receive credit for the hours of service which
would otherwise have been credited to such employee but for such
absence, or in any case in which such hours cannot be determined, 8
hours of service per day of such absence. For purposes of this
paragraph (B), an absence from work for maternity or paternity reasons
means an absence (1) by reason of the pregnancy of the employee, (2) by
reason of a birth of a child of the employee, (3) by reason of the
placement of a child with the employee in connection with the adoption
of such child by such employee, or (4) for purposes of caring for such
child for a period beginning immediately following such birth or
placement. "Me hours of service credited under this paragraph (B) shall
be credited with respect to the computation period used in determining
years of service and breaks in service in which the absence begins, if
the crediting is necessary to prevent a break in service in that
period; in all other cases, such hours of service shall be credited in
the following computation period.
1.20. "Leased employee" shall mean any individual (other than an
employee of the recipient) who, pursuant to an
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agreement between the recipient employer and any other person (the "leasing
organization") has performed services for the recipient employer (or the
recipient employer and related persons determined in accordance with Section
414(n) of the Code) on a substantially full-time basis for a period of at least
one year, and such services are of a type historically performed by employment
in the business field of the recipient employer. Contributions or benefits
provided a leased employee by the leasing organization which are attributable to
services performed for the recipient employer shall be treated as provided by
the recipient employer. A leased employee shall not be considered an employee of
the recipient employer if: (a) such individual is covered by a money purchase
pension plan providing: (i) a nonintegrated employer contribution rate of at
least 10% of compensation, as defined in Section 415(c)(3) of the Code, but
including amounts contributed pursuant to a salary reduction agreement which are
excludable from the employee's gross income under Sections 125,402(a)(8), 402(h)
or 403(b) of the Code, (ii) immediate participation, and (iii) full and
immediate vesting; and (b) leased employees do not constitute more than 20% of
the recipient employer's non-highly compensated workforce.
1.21. "Net profit" shall mean the current or accumulated
earnings of the Employer as determined according to generally accepted
accounting principles and practices by the accountant of the Employer, subject
to the following adjustments: (i) gains or losses arising from the sale or other
disposition of fixed or capital assets of the Employer shall be excluded; (ii)
taxes based upon income shall not be deducted; and (iii) contributions of the
Employer under this plan or any other defined contribution plan maintained by
the Employer shall not be deducted; provided, that by so specifying in the
Adoption Agreement the Employer may exclude from "net profit" a stated base
amount, or a specified return on the net worth of the Employer determined as of
the close of the fiscal year of the Employer next preceding the fiscal year for
which the contribution is being made.
1.22. "Normal retirement age" of a participant shall mean the
age specified in the Adoption Agreement. The "normal retirement date" of a
participant shall mean the date he attains his normal retirement age.
1.23. "Owner-employee" shall mean an individual who is a sole
proprietor, or who is a partner owning more than 10% of either the capital
interest or profits interest in a partnership. If this plan provides
contributions or benefits for
<PAGE>
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one or more owner-employees who control both the business for which this plan is
established and one or more other trades or businesses, this plan and the plan
established for such other trades or businesses must, when looked at as a single
plan, satisfy Sections 401(a) and (d) of the Code for the employees of this and
all other trades or businesses. If the plan provides contributions or benefits
for one or more owner-employees who control one or more other trades or
businesses, the employees of the other trades or businesses must be included in
a plan which satisfies Sections 401(a) and (d) of the Code and which provides
contributions and benefits not less favorable than provided for owner-employees
under this plan. If an individual is covered as an owner-employee under the
plans of 2 or more trades or businesses which are not controlled and the
individual controls a trade or business, then the contributions or benefits of
the employees under the plan of the trades or businesses which are controlled
must be as favorable as those provided for him under the most favorable plan of
the trade or business which is not controlled. For purposes of the preceding
provisions of this Section 1.23, an owner-employee, or 2 or more owner-
employees, will be considered to control a trade or business if the owner-
employee, or 2 or more owner-employees together: (a) own the entire interest in
an unincorporated trade or business, or (b) in the case of a partnership, own
more than 50% of either the capital interest or the profits interest in the
partnership. For purposes of the preceding sentence, an owner-employee, or 2 or
more owner-employees, shall be treated as owning any interest in a partnership
which is owned, directly or indirectly, by a partnership which such owner-
employee, or such 2 or more owner-employees, are considered to control within
the meaning of the preceding sentence.
1.24. "Paired plans" shall mean the Wachovia Bank of Georgia,
N.A. Prototype Profit-Sharing Retirement Plan and Trust (Standardized Form)
(Plan Number 001) and the Wachovia Bank of Georgia, N.A. Prototype Money
Purchase Pension Plan and Trust (Standardized Form) (Plan Number 003), if each
of such plans are adopted or maintained by the Employer.
1.25. "Participant" shall mean with respect to any plan year
an eligible employee who has entered the plan and any former employee who has an
accrued benefit which is not wholly forfeitable for the plan year pursuant to
Section 5. An eligible employee or former employee on the effective date of the
plan who was a participant in a prior plan (as specified in Section 15)
immediately preceding such effective date shall automatically be a participant
in this plan as of such effective date. An eligible employee who was not such a
participant
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in a prior plan and has not otherwise entered the plan shall enter the plan and
become a participant in accordance with the provisions elected in the Adoption
Agreement. For purposes of determining eligibility to participate, the following
special provisions shall apply to the extent applicable:
1.25.1. In determining years of service and breaks in service
for purposes of eligibility, the initial 12 calendar month period (the
"eligibility computation period") shall commence on the date the
employee first completes an hour of service. Subsequent 12 calendar
month periods shall be plan years, beginning with the first plan year
which includes the anniversary of the date the employee first completes
an hour of service regardless of whether the employee is entitled to be
credited with 1,000 hours of service during the initial 12 calendar
month period. An employee who is credited with 1,000 hours of service
in both the initial 12 calendar month period and the first plan year
which commences prior to the end of the initial 12 calendar month
period shall be credited with 2 years of service for purposes of
eligibility. For the purpose of determining the date an employee first
completes an hour of service under this Section 1.25.1, the second
sentence of Section 1.25.3 shall apply (treating such employee as if he
were a former participant for this purpose).
1.25.2. If an employee who is not a participant shall have a
break in service, his years of service, if any, prior to such break
shall not be taken into account until he has completed a year of
service following such break in service. Such year of service shall be
measured by the 12 consecutive month period beginning on an employee's
reemployment commencement date and, if necessary, plan years beginning
with the plan year which includes the first anniversary of the
reemployment commencement date. For this purpose, the "reemployment
commencement date" is the first day on which the employee is credited
with an hour of service after the first eligibility computation period
in which the employee incurs a one-year break in service. If an
employee completes a year of service in accordance with this Section
1.25.2, he will reenter the plan as of his reemployment commencement
date if he has then satisfied the eligibility requirements for
participation.
1.25.3. A participant who shall have a break in service shall
reenter the plan immediately upon his return
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to service if such participant has a nonforfeitable right to all or a
portion of his accrued benefit at the time of such break. A former
participant who shall have a break in service and who did not have a
nonforfeitable right to any portion of his accrued benefit at the time
of such break shall be considered a new employee for eligibility
purposes if the number of consecutive one-year breaks in service equals
or exceeds the greater of (i) 5 consecutive one-year breaks in service,
or (ii) the aggregate number of years of service before such break;
otherwise, he shall reenter the plan immediately. Such former
participant's aggregate number of years of service shall not include
any years of service disregarded under the preceding sentence by reason
of prior breaks in service.
1.25.4. In the event a participant shall lose his status as an
eligible employee, but shall not incur a break in service, such
employee shall reenter the plan immediately upon his return to such
eligible class. If such employee incurs a break in service, his
eligibility to reenter the plan shall be determined pursuant to Section
1.25.3. In the event an employee who is not a member of the eligible
class of employees becomes a member of such eligible class, such
employee shall enter the plan immediately if he has satisfied the
minimum age and service requirements and would have previously entered
the plan had he been in the eligible class.
1.26. "Plan" shall mean the Wachovia Bank of Georgia, N.A.
Prototype Defined Contribution Retirement Plan and Trust as herein set out or as
duly amended. The name of the plan as applied to the Employer shall be as set
forth in the Adoption Agreement.
1.27. "Plan year" shall mean the 12 calendar month period
ending with the last day of the month specified by the Employer in the Adoption
Agreement.
1.28. "Retire" or "retirement" shall mean retirement within
the meaning of Section 4.1, 4.2, 4.3 or 4.4.
1.29. "Self-employed individual" shall mean an individual who
has earned income for the taxable year, or an individual who would have had
earned income but for the fact that the trade or business had no net profits for
the taxable year.
1.30. "Service" shall mean employment by the Employer as an
employee. In determining service, all employees
<PAGE>
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of an affiliated employer and individuals deemed to be employees for purposes of
the plan under Sections 414(n) or 414(o) of the Code and the regulations
thereunder shall be deemed to be in service of the Employer. For purposes of
this Section 1.30, the following special provisions shall apply:
1.30.1. Nothing in this Section 1.30 shall be construed as
including as a participant an individual who is in the service of an
affiliated employer which is not a party to the plan. See Section 1.16
for requirement that each affiliated employer must become a party to a
standardized form plan.
1.30.2. Unless otherwise elected by the Employer in the
Adoption Agreement, service with an employer prior to becoming an
affiliated employer shall be disregarded for all purposes of the plan.
1.30.3. In any case in which the Employer maintains the plan
of a predecessor employer, service with such predecessor employer shall
be treated as service with the Employer.
1.31. "Shareholder-employee" shall mean an individual owning
(or considered as owning within the meaning of Section 318(a)(1) of the Code)
more than 5% of the outstanding stock of the Employer if, with respect to any
taxable year of the Employer, the Employer is an S Corporation within the
meaning of Section 1361(a) of the Code.
1.32. "Sponsor" shall mean Wachovia Bank of Georgia, N.A.,
which has caused the plan to be established.
1.33. "Standardized form plan" shall mean a master or
prototype plan which satisfies the requirements of Section 3.08 of Revenue
Procedure 89-9. This plan is a standardized form plan if so designated in the
Adoption Agreement.
1.34. "Taxable wage base" shall mean the maximum amount of
earnings which may be considered wages under Section 3121(a)(1) of the Code.
1.35. "Trust" or "trust fund" shall mean the trust fund held
by the Trustee under the plan.
1.36. "Trustee" shall mean Wachovia Bank of Georgia, N.A., as
Trustee under the plan, or any bank or trust company
<PAGE>
-15-
into which Wachovia Bank of Georgia, N.A. may hereafter be merged or
consolidated.
1.37. A "year of service" shall mean 1,000 or more hours of
service during a period of 12 consecutive calendar months (a "computation
period"). Such period shall be the plan year (and the 12 calendar month period
which is substantially the same as the plan year for periods prior to the
effective date of the plan) unless otherwise specifically provided herein.
Notwithstanding the foregoing provisions of this Section 1.37, with respect to
service prior to the computation date (as defined in the next sentence), a year
of service shall mean uninterrupted service for a full plan year. Service prior
to the computation date shall be taken into account only with respect to
employees in service on such date, and with respect to each such employee only
to the extent of full plan years of uninterrupted service preceding such date
(or his normal retirement age, if earlier). For this purpose, the "computation
date" shall mean the later of (i) the first day of the plan year beginning in
1976, or (ii) the effective date of the plan (or, if the Employer was a party to
a prior plan within the meaning of Section 15, the effective date of the prior
plan).
Section 2. Contributions to the Trust and
--------- ------------------------------
Allocation Thereof:
------------------
2.1. Employer contributions: The Employer shall contribute to
the trust for the taxable year of the Employer that ends with or within the plan
year such amount as provided in the Adoption Agreement. In no event shall the
total contribution for any plan year exceed the maximum amount deductible for
federal income tax purposes by the Employer for the taxable year. Each
contribution to the plan shall be made conditional upon being deductible under
Section 404 of the Code and upon the plan being qualified under Section 401(a)
of the Code for the plan year for which such contribution is made.
2.2. Allocation of Employer contributions: The Committee shall
maintain a separate account, designated as the participant's "Employer
contribution account," with respect to that portion of the participant's accrued
benefit that is attributable to Employer contributions under the plan. Subject
to the provisions of Sections 22 and 23, as of each adjustment date the
contribution of the Employer for the plan year ending on such adjustment date
shall be allocated to the Employer contribution accounts of those participants
specified by the Em-
<PAGE>
-16-
ployer in the Adoption Agreement in the manner specified in the Adoption
Agreement.
2.3. Voluntary nondeductible employee contributions: Effective
as of the first day of the plan year following adoption of the plan by the
Employer, a participant may only make voluntary nondeductible employee
contributions to a profit-sharing plan which contains a Cash or Deferred
Arrangement in accordance with the provisions of Section 3. Voluntary
nondeductible employee contributions made with respect to plan years beginning
on and after January 1, 1987 must comply with the average contribution
percentage test described in Section 401(m) of the Code. Any voluntary
nondeductible employee contribution made by a participant for any plan year, and
all amounts stemming therefrom, shall be allocated to the participant's employee
contribution account as provided in Section 3.3.3. Voluntary nondeductible
employee contributions and earnings thereon will be nonforfeitable at all times.
2.4. Voluntary deductible employee contributions: A
participant may not make voluntary deductible employee contributions to the plan
with respect to his taxable years beginning after December 31, 1986. The
Committee shall maintain a separate account, designated as the participant's
"deductible contribution account," with respect to each participant having made
such voluntary deductible employee contributions under the plan prior to January
1, 1987. The deductible contribution account of each participant shall be fully
vested and shall be adjusted as of each adjustment date in accordance with the
provisions of Section 6. In no event shall any forfeiture under the plan be
allocated to the participant's deductible contribution account. Assets in the
participant's deductible contribution account may be commingled for investment
with other funds of the trust.
2.5. Mandatory employee contributions: A participant shall not
be required to make contributions to the trust for any plan year beginning on or
after the effective date of the plan. The Committee shall maintain a separate
account, designated as the participant's "mandatory contribution account," with
respect to each participant having made mandatory contributions under a prior
plan. The mandatory contribution account of each participant shall be fully
vested and shall be subject to adjustment as of each adjustment date in
accordance with the provisions of Section 6. In no event shall any forfeiture
under the plan be allocated to the participant's mandatory contribution account.
Assets in the participant's mandatory
<PAGE>
-17-
contribution account may be commingled for investment with other funds of the
trust.
Section 3. Cash or Deferred Arrangement:
--------- ----------------------------
3.1. General: If elected by the Employer in the Adoption
Agreement, it is the intention of the Employer to incorporate a Cash or Deferred
Arrangement (a "CODA"), which satisfies the requirements of Section 401(k) of
the Code, as part of its profit-sharing plan. Notwithstanding any other
provisions of the plan, Employer contributions may be made under this Section 3
without regard to the current or accumulated net profit of the Employer.
3.2. Elective deferrals:
3.2.1. Salary reduction agreement: To the extent provided in
the Adoption Agreement, a participant may elect to make elective
deferrals under this plan. Elective deferrals shall include both
single-sum and continuing contributions made pursuant to a salary
reduction agreement. A participant shall be afforded a reasonable
period at least once each calendar year, as specified in the Adoption
Agreement, to elect to commence elective deferrals. Such election shall
not become effective before the time specified in the Adoption
Agreement. A participant's election to commence elective deferrals
shall remain in effect until modified or terminated. A participant
shall be afforded a reasonable period at least once each calendar year,
as specified in the Adoption Agreement, to modify the amount or
frequency of his elective deferrals. A participant may terminate his
election to make elective deferrals at any time.
3.2.2. Maximum amount of elective deferrals: A participant's
elective deferrals are subject to any limitations imposed in the
Adoption Agreement and any further limitations under the plan. No
participant shall be permitted to have elective deferrals made under
this plan during any taxable year of the participant in excess of the
dollar limitation contained in Section 402(g) of the Code in effect at
the beginning of such taxable year.
3.2.3. Distribution of excess elective deferrals:
Notwithstanding any other provisions of the plan, excess elective
deferrals, plus any income and minus any loss allocable thereto, shall
be distributed no later than each
<PAGE>
-18-
April 15 to participants to whose accounts excess elective deferrals
were allocated for the preceding taxable year and who claim excess
elective deferrals for such taxable year. Excess elective deferrals
shall be treated as annual additions under the plan. The participant's
claim under this Section 3.2.3 shall be in writing; shall be submitted
to the plan administrator not later than March 1; shall specify the
amount of the participant's excess elective deferral for the preceding
taxable year; and shall be accompanied by the participant's written
statement that if such amounts are not distributed, such excess
elective deferrals, when added to amounts deferred under other plans or
arrangements described in Sections 401(k), 408(k), or 403(b) of the
Code, will exceed the limit imposed on the participant by Section
402(g) of the Code for the taxable year in which the deferral occurred.
The excess elective deferral shall be adjusted for income or loss up to
the date of distribution. The income or loss allocable to excess
elective deferrals is the sum of (i) income or loss allocable to the
participant's elective deferral account for the taxable year multiplied
by a fraction, the numerator of which is such participant's excess
elective deferrals for the year and the denominator of which is the
participant's accrued benefit attributable to elective deferrals
without regard to any income or loss occurring during such taxable
year; and (ii) 10% of the amount determined under (i) multiplied by the
number of whole calendar months between the end of the participant's
taxable year and the date of distribution, counting the month of
distribution if distribution occurs after the 15th of such month.
3.2.4. Actual deferral percentage: The ADP for highly
compensated participants for each plan year and the ADP for non-highly
compensated participants for the same plan year must satisfy one of the
following tests:
(i) The ADP for highly compensated participants for
the plan year shall not exceed the ADP for non-highly
compensated participants for the plan year multiplied by 1.25;
or
(ii) The ADP for highly compensated participants for
the plan year shall not exceed the ADP for non-highly
compensated participants for the plan year multiplied by 2;
provided, that the ADP for highly compensated participants
does not exceed the ADP for
<PAGE>
-19-
non-highly compensated participants by more than 2
percentage points.
3.2.5. Special rules:
(a) The ADP for any highly compensated participant
for the plan year and who is eligible to have elective
deferrals (and qualified non-elective contributions or
qualified matching contributions, or both, if treated as
elective deferrals for purposes of the ADP test) allocated to
his account under 2 or more arrangements described in Section
401(k) of the Code that are maintained by the Employer shall
be determined as if Such elective deferrals (and if
applicable, qualified matching contributions or qualified
non-elective contributions or both) were made under a single
arrangement. If a highly compensated employee participates in
2 or more cash or deferred arrangements that have different
plan years, all cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single
arrangement.
(b) In the event that this plan satisfies the
requirements of Sections 401(k), 401(a)(4), or 410(b) of the
Code only if aggregated with one or more other plans, or if
one or more other plans satisfy the requirements of such
sections of the Code only if aggregated with this plan, then
the ADP test shall be applied by determining the actual
deferral percentages of employees as if all such plans were a
single plan. For plan years beginning after December 31, 1989,
plans may be aggregated in order to satisfy Section 401(k) of
the Code only if they have the same plan year.
(c) For purposes of determining the actual deferral
percentage of a participant who is a 5% owner or one the 10
most highly compensated employees, the elective deferrals
(qualified non-elective contributions or qualified matching
contributions, or both, if treated as elective deferrals for
purposes of the ADP test) and compensation of such participant
shall include the elective deferrals (qualified non-elective
contributions, or qualified matching contributions, or both)
and compensation for the plan year of family members (as
defined in Section 414(q)(6) of the Code). Family members with
respect to highly
<PAGE>
-20-
compensated employees shall be disregarded as separate
employees in determining the ADP both for non-highly
compensated participants and for highly compensated
participants.
(d) For purposes of determining the ADP test,
elective deferrals, qualified non-elective contributions and
qualified matching contributions must be made before the last
day of the 12 month period immediately following the plan year
to which contributions relate.
(e) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount of
qualified non-elective contributions or qualified matching
contributions, or both, used in such test.
(f) The determination and treatment of the ADP of any
participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
3.2.6. Distribution of excess contributions:
(a) Notwithstanding any other provisions of
the plan, except Section 3.2.7(b) herein, excess
contributions, plus any income and minus any loss
allocable thereto, shall be distributed no later than
the last day of each plan year to participants to
whose accounts such excess contributions were
allocated for the preceding plan year. If such excess
amounts are distributed more than 2 1/2 months after
the last day of the plan year in which such excess
amounts arose, a 10% excise tax will be imposed on
the Employer with respect to such amounts. Such
distributions shall be made to highly compensated
employees on the basis of the respective portions of
the excess contributions attributable to each of such
employees. Excess contributions shall be allocated to
participants who are subject to the family member
aggregation rules of Section 414(q)(6) of the Code in
the manner prescribed by the regulations. Excess
contributions (including the amounts recharacterized)
shall be treated as annual additions under the plan.
<PAGE>
-21-
(b) Determination of income or loss: Excess
contributions shall be adjusted for income or loss up
to the date of distribution. The income or loss
allocable to excess contributions is the sum of: (i)
income or loss allocable to the participant's
elective deferral account (and, if applicable, the
qualified non-elective contribution account or the
qualified matching contributions account or both) for
the plan year multiplied by a fraction, the numerator
of which is such participant's excess contributions
for the year and the denominator of which is the
participant's accrued benefit attributable to
elective deferrals (and qualified non-elective
contributions or qualified matching contributions, or
both, if any of such contributions are included in
the ADP test) without regard to any income or loss
occurring during such plan year; and (ii) 10% of the
amount determined under (i) multiplied by the number
of whole calendar months between the end of the plan
year and the date of distribution, counting the month
of distribution if distribution occurs after the 15th
of such month.
(c) Accounting for excess contributions:
Amounts distributed under this Section 3.2.6 shall
first be treated as distributions from the
participant's elective deferral account and qualified
matching contribution account (if applicable) in
proportion to the participant's elective deferrals
and qualified matching contributions (to the extent
used in the ADP test) for the plan year. Excess
contributions shall be distributed from the
participant's qualified non-elective contribution
account only to the extent that such excess
contributions exceed the balance in the participant's
elective deferral account and qualified matching
contribution account.
(d) Recharacterization: A participant may
treat his excess contributions (without adjustment
for income or loss allocable thereto) as an amount
distributed to the participant and then contributed
by the participant to the plan. Recharacterized
amounts will remain nonforfeitable and subject to the
same distribution require-
<PAGE>
-22-
ments as elective deferrals. Amounts may not be
recharacterized by a highly compensated employee to
the extent that such amounts in combination with
other employee contributions made by that employee
would exceed any stated limit under the plan on
employee contributions. Recharacterization must occur
no later than 2 1/2 months after the last day of the
plan year in which such excess contributions arose
and is deemed to occur no earlier than the date the
last highly compensated employee is informed in
writing of the amount recharacterized and the
consequences thereof. Recharacterized amounts will be
taxable to the participant for the participant's
taxable year in which the participant would have
received them in cash.
3.2.7. Qualified non-elective contributions:
(a) The Employer may elect to make qualified
non-elective contributions under the plan on behalf
of employees as provided in the Adoption Agreement.
(b) In lieu of distributing excess
contributions as provided in Section 3.2.6 above, and
to the extent provided in the Adoption Agreement, the
Employer may make special qualified non-elective
contributions on behalf of non-highly compensated
employees that are sufficient to satisfy either the
ADP test or the ACP test, or both, pursuant to
regulations under the Code. Allocations of qualified
non-elective contributions to each non-highly
compensated employee's account shall be made in
accordance with the Adoption Agreement.
3.2.8. Separate accounts: The Committee shall maintain a
separate account, designated as the participant's "elective deferral
account," with respect to that portion of the participant's accrued
benefit that is attributable to elective deferrals. The Committee shall
maintain a separate account, designated as the participant's "qualified
non-elective contribution account," with respect to that portion of the
participant's accrued benefit that is attributable to qualified
nonelective contributions. Each separate account shall be credited with
the applicable contributions, earnings and losses, distribu-
<PAGE>
-23-
tions, and other applicable adjustments in the manner provided in
Section 6.
3.2.9. Allocation of contributions: The Employer shall
contribute and allocate to each participant's elective deferral account
an amount equal to the amount of the participant's elective deferrals.
Under no circumstances may elective deferrals and qualified
non-elective contributions be contributed and allocated to the trust
under the plan later than 30 days after the close of the plan year for
which the contributions are deemed to be made, or such other time as
provided in applicable regulations under the Code.
3.3. Employee contributions:
3.3.1. If the Employer so specifies in the Adoption Agreement,
each participant may at his option make employee contributions to the
plan.
3.3.2. All employee contributions by a participant shall be
made in the form of cash prior to the close of business of the plan for
the year with respect to which such contributions are made, and shall
be credited to the participant's employee contribution account. The
Employer may, at its election and expense, permit participants to make
employee contributions by payroll deduction, subject to such
limitations and requirements as shall be determined by the Employer.
The Employer shall deliver such contributions to the Trustee as soon as
practicable following each payroll date, along with a designation of
the participants to whose employee contribution accounts the
contributions are to be credited and such other information as the
Trustee shall reasonably require.
3.3.3. The Committee shall cause a separate account,
designated as the participant's "employee contribution account," to be
kept with respect to each participant making such employee
contributions under the plan. The employee contribution account of each
participant shall be fully vested and shall be subject to adjustment as
of each adjustment date in accordance with the provisions of Section 6.
In no event shall any forfeiture under the plan be allocated to the
participant's nondeductible contribution account. Assets in the
participant's employee contribution account may be commingled for
investment with other funds of the trust; provided, that employee
contributions
<PAGE>
-24-
shall not be invested in the securities of the Employer or any
affiliate of the Employer.
3.3.4. A participant may at his option make one or more
withdrawals from his employee contribution account. Application for
withdrawal shall be made by the participant in writing on a form
approved by the Committee and filed with the Committee, and not more
than one application may be filed during any plan year. If the
requirements of Section 4.7 apply with respect to the plan, such
application must constitute a qualified election as defined in Section
4.7.3(d) of the plan.
3.4. Matching contributions:
3.4.1. Matching contributions: If elected by the Employer in
the Adoption Agreement, the Employer shall make matching contributions
to the plan. The amount of such matching contributions shall be
calculated by reference to the participant's elective deferrals as
specified by the Employer in the Adoption Agreement.
3.4.2. Qualified matching contributions: If elected by the
Employer in the Adoption Agreement, the Employer will make qualified
matching contributions to the plan. The amount of such qualified
matching contributions shall be calculated by reference to the
participant's elective deferrals as specified in the Adoption
Agreement.
3.4.3. Separate accounts: The Committee shall maintain a
separate account, designated as the participant's "matching
contribution account," to be kept with respect to that portion of a
participant's accrued benefit that is attributable to matching
contributions. If all matching contributions made by the Employer do
not satisfy the requirements of qualified matching contributions, then
the Committee shall maintain a separate account, designated as the
participant's "qualified matching contribution account," to be kept
with respect to that portion of the participant's accrued benefit that
is attributable to qualified matching contributions. Such separate
accounts shall be credited with the applicable contributions, earnings
and losses, distributions, and other adjustments in the manner provided
in Section 6.
3.4.4. Vesting: Matching contributions will be vested in
accordance with the Employer's election in the Adoption Agreement. In
any event, matching contributions
<PAGE>
-25-
shall be fully vested upon the occurrence of an event described in
Section 5.1.
3.4.5. Forfeitures: Forfeitures of matching contributions
other than excess aggregate contributions shall be made in accordance
with the forfeiture provisions elected by the Employer in the Adoption
Agreement.
3.5. Limitations on matching contributions and employee
contributions:
3.5.1. Average contribution percentage: The ACP for highly
compensated participants for each plan year and the ACP for non-highly
compensated participants for the same plan year must satisfy one of the
following tests:
(i) The ACP for highly compensated participants for
the plan year shall not exceed the ACP for non-highly
compensated participants for the plan year multiplied by 1.25;
or
(ii) The ACP for highly compensated participants for
the plan year shall not exceed the ACP for non-highly
compensated participants for the plan year multiplied by 2;
provided, that the ACP for highly compensated participants
does not exceed the ACP for non-highly compensated
participants by more than 2 percentage points.
3.5.2. Special rules:
(a) If one or more highly compensated employees
participate in both a CODA and a plan subject to the ACP test
maintained by the Employer, and the sum of the ADP and ACP of
those highly compensated employees subject to either or both
tests exceeds the aggregate limit, then the ACP of those
highly compensated employees who also participate in a CODA
will be reduced (beginning with the highly compensated
employee whose ACP is the highest) so that the limit is not
exceeded. The amount by which each highly compensated
employee's contribution percentage amounts is reduced shall be
treated as an excess aggregate contribution. The ADP and ACP
of the highly compensated employees are determined after any
corrections required to meet the ADP and ACP tests. Multiple
use does not occur if both the ADP and ACP of the highly
compensated employees does not exceed 1.25 multiplied
<PAGE>
-26-
by the ADP and ACP of the non-highly compensated employees.
(b) For purposes of this Section 3.5, the
contribution percentage for any participant who is a highly
compensated employee and who is eligible to have contribution
percentage amounts allocated to his account under 2 or more
plans described in Section 401(a) of the Code, or arrangements
described in Section 401(k) of the Code, that are maintained
by the Employer, shall be determined as if the total of such
contribution percentage amounts was made under each plan. If a
highly compensated employee participates in 2 or more cash or
deferred arrangements that have different plan years, all cash
or deferred arrangements ending with or within the same
calendar year shall be treated as the same arrangement.
(c) In the event that this plan satisfies the
requirements of Sections 401(m), 401(a)(4) or 410(b) of the
Code only if aggregated with one or more other plans, or if
one or more other plans satisfy the requirements of such
Sections of the Code only if aggregated with this plan, then
the ACP test shall be applied by determining the contribution
percentages of participants as if all such plans were a single
plan. For plan years beginning after December 31, 1989, plans
may be aggregated in order to satisfy Section 401(m) of the
Code only if they have the same plan year.
(d) For purposes of determining the contribution
percentage of a participant who is a 5% owner or one of the 10
most highly compensated employees, the contribution percentage
amounts and compensation of such participant shall include the
contribution percentage amounts and compensation for the plan
year of family members (as defined in Section 414(q)(6) of the
Code). Family members with respect to highly compensated
employees shall be disregarded as separate employees in
determining the contribution percentage both for non-highly
compensated participants and for highly compensated
participants.
(e) For purposes of the ACP test, employee
contributions are considered to have been made in the plan
year in which contributed to the trust. Matching contributions
and qualified non-elective contri-
<PAGE>
-27-
butions will be considered made for a plan year if made no
later than the end of the 12 month period beginning on the day
after the close of the plan year.
(f) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount of
qualified non-elective contributions or qualified matching
contributions, or both, used in such test.
(g) The determination and treatment of the
contribution percentage of any participant shall satisfy such
other requirements as may be prescribed by the Secretary of
the Treasury.
3.5.3. Distribution of excess aggregate contributions:
(a) General rule: Notwithstanding any other provision
of this plan, excess aggregate contributions, plus any income
and minus any loss allocable thereto, shall be forfeited, if
forfeitable, or if not forfeitable, distributed no later than
the last day of each plan year to participants to whose
accounts such excess aggregate contributions were allocated
for the preceding plan year. Excess aggregate contributions
shall be allocated to participants who are subject to the
family member aggregation rules of Section 414(q)(6) of the
Code in the manner prescribed by the regulations. If such
excess aggregate contributions are distributed more than 2 1/2
months after the last day of the plan year in which such
excess amounts arose, a 10% excise tax will be imposed on the
Employer maintaining the plan with respect to those amounts.
Excess aggregate contributions shall be treated as annual
additions under the plan.
(b) Determination of income or loss: Excess aggregate
contributions shall be adjusted for income or loss up to the
date of distribution. The income or loss allocable to excess
aggregate contributions is the sum of: (i) income or loss
allocable to the participant's employee contribution account,
matching contribution account (if any, and if all amounts
therein are not used in the ADP test) and, if applicable,
qualified non-elective contribution account and elective
deferral account for the plan year multiplied by a fraction,
the numerator of which is such
<PAGE>
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participant's excess aggregate contributions for the year and
the denominator of which is the participant's accrued benefit
attributable to contribution percentage amounts without regard
to any income or loss occurring during such plan year; and
(ii) 10% of the amount determined under (i) multiplied by the
number of whole calendar months between the end of the plan
year and the date of distribution, counting the month of
distribution if distribution occurs after the 15th of such
month.
(c) Treatment of forfeitures: Forfeitures of excess
aggregate contributions may either be used to reduce Employer
contributions or may be reallocated to the accounts of
non-highly compensated participants, as elected by the
Employer in the Adoption Agreement. Amounts forfeited by
highly compensated participants under this Section 3.5 shall
be treated as annual additions under the plan. The allocation
of such forfeitures shall be made pursuant to the Adoption
Agreement. However, no forfeitures arising under this Section
3.5 shall be allocated to the account of any highly
compensated participant.
(d) Accounting for excess aggregate contributions:
Excess aggregate contributions shall be forfeited if
forfeitable, or distributed on a pro-rata basis from the
participant's employee contribution account, matching
contribution account, and qualified matching contribution
account (and, if applicable, the participant's qualified
non-elective contribution account or elective deferral
account, or both).
(e) Order of determination: The determination of the
excess aggregate contributions shall be made after first
determining the excess elective deferrals, and then
determining the excess contributions.
3.6. Special distribution rules:
3.6.1. Limitations on distribution: Except as provided in the
Adoption Agreement, elective deferrals, qualified non-elective
contributions, qualified matching contributions, and income allocable
thereto are not distributable to the participant, or the participant's
beneficiary, earlier than upon separation from service, death, or
disability of the participant.
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3.6.2. Hardship: If elected by the Employer in the Adoption
Agreement, distributions of elective deferrals (and earnings thereon
accrued as of December 31, 1988) may be made to the participant on
account of financial hardship. For purposes of this Section 3.6.2,
hardship is defined as an immediate and heavy financial need of the
participant where the participant lacks other available resources.
Hardship distributions are subject to the spousal consent requirements
of Sections 401(a)(11) and 417 of the Code.
3.6.3. Special rules:
(a) The following are the only financial needs
considered immediate and heavy: deductible medical expenses
(within the meaning of Section 213(d) of the Code) of the
participant, the participant's spouse, children, or
dependents; the purchase (excluding mortgage payments) of a
principal residence for the participant; payment of tuition
for the next quarter or semester of post-secondary education
for the participant, the participant's spouse, children or
dependents; or the need to prevent the eviction of the
participant from, or a foreclosure on the mortgage of, the
participant's principal residence.
(b) A distribution will be considered as necessary to
satisfy an immediate and heavy financial need of the
participant only if:
(i) The participant has obtained all
distributions, other than hardship distributions, and
all nontaxable loans under all plans maintained by
the Employer;
(ii) All plans maintained by the Employer
provide that the participant's elective deferrals
(and employee contributions) will be suspended for 12
months after the receipt of the hardship
distribution;
(iii) The distribution is not in excess of
the amount of an immediate and heavy financial need;
and
(iv) All plans maintained by the Employer
provide that the participant may not make elective
deferrals for the participant's taxable
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year immediately following the taxable year of the
hardship distribution in excess of the applicable
limit under Section 402(g) of the Code for such
taxable year less the amount of such participant's
elective deferrals for the taxable year of the
hardship distribution.
3.7. Top-heavy requirements: Neither elective deferrals nor
matching contributions made by the Employer under this Section 3 shall be taken
into account for purposes of the minimum allocation required under Section
21.2.1 in the event this plan is top-heavy and another plan of the Employer is
not designated to satisfy the top-heavy requirements of Section 416 of the Code.
3.8. Definitions: The following definitions shall apply for
purposes of this Section 3:
3.8.1. "Actual deferral percentage" or "ADP" shall mean, for a
specified group of participants for a plan year, the average of the
ratios (calculated separately for each participant in such group) of
(i) the amount of Employer contributions actually paid over to the
trust on behalf of such participant for the plan year to (ii) the
participant's compensation for such plan year (whether or not the
employee was a participant for the entire plan year). Employer
contributions on behalf of any participant shall include: (a) any
elective deferrals made pursuant to the participant's deferral
election, including excess elective deferrals, but excluding elective
deferrals that are taken into account in the contribution percentage
test (provided the ADP test is satisfied both with and without
exclusion of these elective deferrals); and (b) at the election of the
Employer, qualified non-elective contributions and qualified matching
contributions. For purposes of computing actual deferral percentages,
an employee who would be a participant but for the failure to make
elective deferrals shall be treated as a participant on whose behalf no
elective deferrals are made.
3.8.2. "Aggregate limit" shall mean the sum of (i) 125% of the
greater of the ADP of the non-highly compensated participants for the
plan year or the ACP of the non-highly compensated participants for the
plan year, and (ii) the lesser of 200% or 2 plus the lesser of such ADP
or ACP.
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3.8.3. "Average contribution percentage" or "ACP" shall mean
the average of the contribution percentages of the eligible
participants in a group.
3.8.4. "Contribution percentage" shall mean the ratio
(expressed as a percentage) of the participant's contribution
percentage amounts to the participant's compensation for the plan year
(whether or not the employee was a participant for the entire plan
year).
3.8.5. "Contribution percentage amounts" shall mean the sum of
the employee contributions, matching contributions, and qualified
matching contributions (to the extent not taken into account for
purposes of the ADP test) made under the plan on behalf of the
participant for the plan year. Such contribution percentage amounts
shall include forfeitures of excess aggregate contributions or matching
contributions allocated to the participant's account which shall be
taken into account in the year in which such forfeitures are allocated.
If so elected in the Adoption Agreement, the Employer may include
qualified non-elective contributions in the contribution percentage
amounts. The Employer also may elect to use elective deferrals in the
contribution percentage amounts so long as the ADP test is met before
the elective deferrals are used in the ACP test and continues to be met
following the exclusion of those elective deferrals that are used to
meet the ACP test.
3.8.6. "Elective deferrals" shall mean contributions made to
the plan during the plan year by the Employer, at the election of the
participant, in lieu of cash compensation and shall include
contributions that are made pursuant to a salary reduction agreement or
other deferral mechanism. Such contributions must be nonforfeitable
when made and distributable only as specified in Section 3.6. With
respect to any taxable year, a participant's elective deferral is the
sum of all Employer contributions made on behalf of such participant
pursuant to an election to defer under any qualified CODA as described
in Section 401(k) of the Code, any simplified employee pension cash or
deferred arrangement as described in Section 402(h)(1)(B), any eligible
deferred compensation plan under Section 457, any plan as described
under Section 501(c)(18), and any employer contributions made on the
behalf of a participant for the purchase of an annuity contract under
Section 403(b) pursuant to a salary reduction agreement.
<PAGE>
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3.8.7. "Eligible participant" shall mean any employee who is
eligible to make an employee contribution, or an elective deferral (if
the Employer takes such contributions into account in the calculation
of the contribution percentage), or to receive a matching contribution
(including forfeitures) or a qualified matching contribution. If an
employee contribution is required as a condition of participation in
the plan, any employee who would be a participant in the plan if such
employee made such a contribution shall be treated as an eligible
participant on behalf of whom no employee contributions are made.
3.8.8. "Employee contribution" shall mean any contribution
made to the plan by or on behalf of a participant that is included in
the participant's gross income in the year in which made and that is
maintained under a separate account to which earnings and losses are
allocated.
3.8.9. "Excess aggregate contributions" shall mean, with
respect to any plan year, the excess of: (i) the aggregate contribution
percentage amounts taken into account in computing the numerator of the
contribution percentage actually made on behalf of highly compensated
employees for such plan year, over (ii) the maximum contribution
percentage amounts permitted by the ACP test (determined by reducing
contributions made on behalf of highly compensated employees in order
of their contribution percentages, beginning with the highest of such
percentages).
3.8.10. "Excess contributions" shall mean, with respect to any
plan year, the excess of the aggregate amount of the Employer
contributions actually taken into account in computing the ADP of
highly compensated employees for such plan year, over the maximum
amount of such contributions permitted under the ADP test (determined
by reducing contributions made on behalf of highly compensated
employees in order of the ADPs, beginning with the highest of such
percentages).
3.8.11. "Excess elective deferrals" shall mean those elective
deferrals that are includible in a participant's gross income under
Section 402(g) of the Code to the extent such elective deferrals exceed
the dollar limitation under Section 402(g).
3.8.12. "Matching contribution" shall mean an Employer
contribution made to this or any other defined con-
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tribution plan maintained by the Employer on behalf of a participant on
account of an employee contribution made by such participant, or on
account of a participant's elective deferral.
3.8.13. "Qualified non-elective contributions" shall mean
contributions (other than matching contributions or qualified matching
contributions) made by the Employer and allocated to a participant's
account that the participant may not elect to receive in cash until
distributed from the plan; that are nonforfeitable when made; and that
are distributable only as specified in Section 3.6.1.
3.8.14. "Qualified matching contributions" shall mean any
contributions to the plan made by the Employer for the plan year and
allocated to a participant's account by reason of elective deferrals;
that are nonforfeitable when made; and that are distributable only as
specified in Section 3.6.1.
Section 4. Retirement; Termination of Service; Death:
--------- -----------------------------------------
4.1. Normal retirement: A participant who is in service may
retire from service at his normal retirement date.
4.2. Delayed retirement: If a participant shall remain in
service following his normal retirement date, his retirement date shall be the
date he shall actually retire. During the period that such participant remains
in service pursuant to this Section 4.2, he shall continue to participate for
and including each plan year in which he meets the requirements therefor. If an
employee not otherwise a participant becomes eligible to enter the plan
following his normal retirement date, the provisions of this Section 4.2 shall
apply in determining his retirement date.
4.3. Disability: If a participant suffers disability while in
service, he shall retire as of the date of establishment of his disability and
his benefit shall be payable as provided in Section 4.6 or 4.7.
4.4. Early retirement: If so specified by the Employer in the
Adoption Agreement, and subject to the requirements for early retirement set
forth therein, a participant may elect early retirement effective as of any
adjustment date prior to his normal retirement date by filing written notice
<PAGE>
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with the Committee on or before such adjustment date. Such election shall be
irrevocable when filed.
4.5. Termination of service: The following provisions shall
apply in the event a participant terminates service before he is eligible to
retire under the plan:
4.5.1. Such participant may elect to receive a distribution of
his vested accrued benefit as of the termination adjustment date
specified in the Adoption Agreement, or to defer such distribution
until a later date provided in this Section 4.5. The plan administrator
shall notify the participant of his rights under this Section 4.5.1 as
soon as practicable following receipt by the plan administrator of
notice that the participant has terminated service, but in no event
more than 90 days prior to the termination adjustment date. Such
notification shall include a general description of the material
features and an explanation of the relative values of the optional
forms of benefit available under the plan in a manner that satisfies
the notice requirements of Section 417(a)(3) of the Code. The
participant's election shall be submitted in writing to the Committee
within the 90 day period ending on the termination adjustment date, or,
if later, on or before the 30th day after the participant receives
notice of his rights under this Section 4.5.1. Such election shall be
irrevocable when filed, except that the election shall be disregarded
if the participant is in service when benefit payments are to commence.
If the participant elects to receive a distribution of his vested
accrued benefit as of the termination adjustment date, the manner of
distribution shall be determined under Sections 4.6 and 4.7 as if the
termination adjustment date were the normal retirement date of the
participant. If the requirements of Section 4.7 apply to the plan and
the participant elects for his vested accrued benefit to be paid as of
the termination adjustment date in a manner other than a qualified
joint and survivor annuity, the election of the participant pursuant to
this Section 4.5.1 must satisfy the requirements of a qualified
election as described in Section 4.7.3(d).
4.5.2. If the participant has not received his vested accrued
benefit pursuant to Section 4.5.1, he may elect to receive his vested
accrued benefit as of the adjustment date coincident with or next
following the date on which he satisfies the age requirement for early
retirement (the "early retirement adjustment date"). This
<PAGE>
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Section 4.5.2 shall only apply if the plan permits early retirement and
the participant had satisfied any service requirement but not the age
requirement therefor at the time of his termination from service. The
plan administrator shall notify such participant of his rights under
this Section 4.5.2, and the participant shall make the election
provided in this Section 4.5.2, at the time and in the manner described
in Section 4.5.1, treating for this purpose the early retirement
adjustment date as if it were the termination adjustment date.
4.5.3. If the vested accrued benefit of the participant is not
distributed pursuant to Section 4.5.1 or 4.5.2, it shall be held under
the plan for future payment until the first to occur of: (i) his death,
or (ii) the later of his normal retirement age or age 62, whereupon it
shall be payable to him or his beneficiary, as the case may be, in the
same manner as if he were then in service. If elected by the Employer
in the Adoption Agreement, the amount of the vested accrued benefit
which shall be held for the participant under this Section 4.5.3 shall
be set aside in a special account (the "deferred payment account"). The
Trustee shall segregate the deferred payment account from the general
assets of the trust as of the adjustment date coincident with or next
following the participant's termination from service. The deferred
payment account shall be invested by the Trustee in short-term
interest-bearing securities or certificates which may be readily
converted to cash without penalty, and which provides for maximum
safety of principal. The deferred payment account shall be subject to
adjustment as of each adjustment date in the manner specified in the
applicable provisions of Section 6, treating for this purpose the
assets in which the deferred payment account are invested as if they
composed the entire trust fund.
4.6. Distribution requirements: Subject to the requirements of
Section 4.7, the requirements of this Section 4.6 shall apply to any
distribution of a participant's accrued benefit and shall take precedence over
any inconsistent provisions of the plan, as follows:
4.6.1. Payment of retirement benefits: As of the close of
business of the plan on the adjustment date coincident with or next
following the date an active participant retires, or as of such later
adjustment date as shall be elected by the participant pursuant to
paragraph (b) of this Section 4.6.1, his vested accrued benefit, as
ad-
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justed as of such adjustment date, shall be paid to him or applied
for his benefit under one of the following options, as elected by the
participant:
(i) Life annuity: Application of the vested accrued
benefit to the purchase of an immediate noncashable and
nontransferable annuity from a legal reserve life insurance
company providing approximately equal monthly installments for
as long as he lives; provided, that this paragraph (i) shall
only apply to a plan which is subject to the requirements of
Section 4.7.
(ii) Term certain: Subject to the provisions of
Section 4.10, payment of the vested accrued benefit to him in
approximately equal monthly installments over a whole number
of years not exceeding the life expectancy of the participant
or the joint life expectancy of the participant and his
designated beneficiary.
(iii) Lump sum: Payment of the vested accrued benefit
to him in a lump sum.
Such election shall be made in writing and filed with the Committee on
or before the adjustment date as of which payment is to commence, and
shall be irrevocable on or after such adjustment date (except as
otherwise provided in paragraph (e) of this Section 4.6.1). In applying
the foregoing provisions of this Section 4.6.1, the following special
provisions shall apply:
(a) If a participant shall fail to elect one of the
foregoing options, his vested accrued benefit shall be paid to
him under Section 4.6.1(iii).
(b) Unless a participant shall file an election
pursuant to this paragraph to defer the commencement of
payment of his vested accrued benefit, such payment must
commence within 60 days following the latest of the year-end
adjustment date for the plan year in which: (i) the
participant attains age 65 (or normal retirement age, if
earlier); (ii) occurs the tenth anniversary of the year in
which the participant commenced participation in the plan; or
(iii) the participant retires or otherwise terminates service.
In the event that, within the applicable 60 day period, the
amount of the payment to commence cannot
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be determined or the recipient thereof cannot be located after
a reasonable effort has been made to locate him, payments
retroactive to the close of such 60 day period shall be made
within 60 days after the amount has been determined or the
recipient has been located, whichever shall be applicable.
Subject to the provisions of paragraph (c) of this Section
4.6.1, prior to the adjustment date as of which payment of the
benefit of a participant is to commence, such participant may
elect to defer commencement thereof to a subsequent adjustment
date, including an adjustment date following the latest of
(i), (ii) or (iii) above. Such election shall be filed in
writing with the Committee prior to the adjustment date as of
which his benefit would otherwise commence. Such election may
be revoked or changed as of any adjustment date between the
date filed and the adjustment date to which the benefit is
deferred by filing a written revocation or change with the
Committee prior to the adjustment date as of which the
revocation or change is to be effective. Notwithstanding the
foregoing, the failure of a participant to elect to receive a
distribution under Sections 4.5.1 or 4.5.2 (or, if required,
the failure of his spouse to consent to such election) shall
be deemed to be an election to defer commencement of payment
sufficient to satisfy the requirements of this paragraph (b).
(c) The vested accrued benefit of a participant must
be distributed or begin to be distributed no later than his
required beginning date.
(d) If a participant's vested accrued benefit is to
be distributed pursuant to Section 4.6.1(ii), the distribution
must satisfy the following requirements:
(i) The amount required to be distributed
for each calendar year, beginning with the first
distribution calendar year, must at least equal the
quotient obtained by dividing the participant's
benefit by the applicable life expectancy.
(ii) For calendar years beginning before
January 1, 1989, if the participant's spouse is not
the designated beneficiary, the term certain selected
must assure that at least 50% of the
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present value of the amount available for
distribution is paid within the life expectancy of
the participant.
(iii) For calendar years beginning after
December 31, 1988, the amount to be distributed each
year, beginning with the distribution for the first
distribution calendar year shall not be less than the
quotient obtained by dividing the participant's
benefit by the lesser of the applicable life
expectancy or, if the participant's spouse is not the
designated beneficiary, the applicable divisor
determined from the table set forth in Q&A 4 of
Section 1.401(a)(9)-2 of the Income Tax Regulations.
Distributions after the death of the participant
shall be distributed using the applicable life
expectancy determined for purposes of (i) above as
the relevant divisor without regard to Section
1.401(a)(9)-2.
(iv) The minimum distribution required for
the participant's first distribution calendar year
must be made on or before the participant's required
beginning date. The minimum distributions for other
calendar years, including the minimum distributions
for the distribution calendar year in which the
participant's required beginning date occurs, must be
made on or before December 31 of that distribution
calendar year.
(e) Upon a written direction to the Committee prior
to any adjustment date by a participant who is receiving
benefit payments pursuant to Section 4.6.1(ii),the participant
may direct that an alternative method of payment of the
balance of the participant's vested accrued benefit be made,
commencing with the first payment following such adjustment
date. Such alternative method of payment shall be determined
in accordance with the provisions of paragraphs (i), (ii), or
(iii) of Section 4.6.1 as of the adjustment date (the
"alternative adjustment date") as of which such alternative
method becomes effective. If a participant marries or
remarries following the adjustment date as of which payments
commenced under Section 4.6.1(ii), his "spouse" for purposes
of Section 4.6.1(ii) shall mean the spouse on such alternative
adjustment date.
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(f) Subject to the provisions of Sections 4.6.1(i)
and 4.7, distributions from the plan shall be made in cash
unless the participant (or his beneficiary) shall request that
distributions from his individually directed investment
account (described in Section 23) be made in kind, or partly
in cash and partly in kind. Any annuity contract purchased and
distributed from the plan shall comply with the requirements
of the plan and Section 401(a)(9) of the Code and the
regulations thereunder.
(g) Notwithstanding the foregoing provisions of this
Section 4.6.1, if a participant who is receiving benefit
payments pursuant to Section 4.6.1(ii) shall reenter service
prior to his normal retirement date, such payments shall cease
during the period that he is in service. When he subsequently
retires, dies or otherwise terminates service, his then vested
accrued benefit shall be payable to or with respect to him
pursuant to the applicable provisions of the plan.
4.6.2. Payment of death benefits: Upon the death of the
participant, the following provisions shall apply:
(a) If the participant dies after distribution of his
vested accrued benefit has begun, the remaining portion of
such benefit shall continue to be distributed to his
designated beneficiary at least as rapidly as under the method
of distribution in effect at his death. Should the beneficiary
die before receiving all the payments due him, any remaining
payment shall continue to the recipient determined in
accordance with Section 11.
(b) If the participant dies before distribution of
his vested accrued benefit begins, the participant's vested
accrued benefit must be distributed no later than December 31
of the calendar year containing the fifth anniversary of the
participant's death except to the extent that an election is
made to receive distributions under (i) or (ii), as follows:
(i) If any portion of the participant's
vested accrued benefit is payable to a designated
beneficiary, distributions may be made in
substantially equal installments over the life or
over a term certain not greater than the life
expectancy of the designated beneficiary com-
<PAGE>
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mencing on or before December 31 of the calendar year
immediately following the calendar year in which the
participant died.
(ii) If the designated beneficiary is the
participant's surviving spouse, the date
distributions are required to begin in accordance
with (i) above shall not be before the later of
December 31 of the calendar year immediately
following the calendar year in which the participant
died, or December 31 of the calendar year in which
the participant would have attained age 70 1/2.
If the surviving spouse dies before payments begin, subsequent
distributions shall be made pursuant to this paragraph (b)
(except for subparagraph (ii) hereof) as if the spouse had
been the participant.
(c) The vested accrued benefit of the participant
shall be payable in the manner provided in paragraphs (i),
(ii) or (iii) of Section 4.6.1 (treating the beneficiary for
this purpose as the participant), as elected by the
participant before his death in writing to the Committee or,
if the participant shall not have made such election, as
elected by the beneficiary in writing to the Committee no
later than the first to occur of (i) December 31 of the
calendar year in which distributions are required to commence
under paragraph (b) above, or (ii) December 31 of the calendar
year which contains the fifth anniversary of the participant's
death. If the participant has no designated beneficiary or if
the designated beneficiary fails to elect a method of
distribution, distribution of the participant's vested accrued
benefit must be completed by December 31 of the calendar year
containing the fifth anniversary of the participant's death.
(d) For purposes of this Section 4.6.2, any amount
paid to a child of the participant shall be treated as if it
had been paid to the surviving spouse if the amount becomes
payable to the surviving spouse when the child reaches the age
of majority.
(e) Upon a written direction to the Committee prior
to any adjustment date by a designated beneficiary who is
receiving benefit payments pursuant to
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Section 4.6.1(ii), the designated beneficiary may direct that
an alternative method of payment of the balance of the
participant's vested accrued benefit be made, commencing with
the first payment following such adjustment date; provided,
that distribution of such balance under any alternative method
of payment must be completed at least as rapidly as under the
method of payment in effect prior to such adjustment date.
(f) For purposes of this Section 4.6.2, distribution
of a participant's vested accrued benefit is considered to
begin on the participant's required beginning date (or if the
last sentence of paragraph (b) above is applicable, the date
distribution is required to begin to the surviving spouse
pursuant to paragraph (b) above). If distribution in the form
of a life annuity as described in Section 4.6.1(i) irrevocably
commences to the participant before the required beginning
date, the date distribution is considered to begin is the date
distribution actually commenced.
4.6.3. Transitional rule: Notwithstanding any other
requirements of this Section 4.6, but subject to Section 4.7,
distribution on behalf of any participant, including a 5% owner in a
top-heavy plan, may be made in accordance with the following
requirements (regardless of when such distribution commences):
(a) The distribution by the trust is one which would
not have disqualified such trust under Section 401(a)(9) of
the Code as in effect prior to amendment by the Deficit
Reduction Act of 1984 ("DEFRA").
(b) The distribution is in accordance with a method
of distribution designated by the participant whose interest
in the trust is being distributed or, if the participant is
deceased, by a beneficiary of such participant.
(c) Such designation was in writing, was signed by
the participant or the beneficiary, and was made before
January 1, 1984.
(d) The participant had an accrued benefit under the
plan as of December 31, 1983.
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(e) The method of distribution designated by the
participant or the beneficiary specifies the time at which
distribution will commence, the period over which
distributions will be made, and in the case of any
distribution upon the participant's death, the beneficiaries
of the participant listed in order of priority.
A distribution upon death will not be covered by this Section 4.6.3
unless the information in the designation contains the required
information described above with respect to the distributions to be
made upon the death of the participant. For any distribution which
commences before January 1, 1984, but continues after December 31,
1983, the participant, or the beneficiary, to whom such distribution is
being made, will be presumed to have designated the method of
distribution under which the distribution is being made if the method
of distribution was specified in writing and the distribution satisfies
the requirements in subparagraphs (a) and (e) above. If a designation
made pursuant to this Section 4.6.3 is revoked, any subsequent
distribution must satisfy the requirements of Section 401(a)(9) of the
Code and the regulations thereunder. If a designation is revoked
subsequent to the date distributions are required to begin, the trust
must distribute by the end of the calendar year in which the revocation
occurs the total amount not yet distributed to satisfy Section
401(a)(9) of the Code and the regulations thereunder, but for the
Section 242(b)(2) election. For calendar years beginning after December
31, 1988, such distributions must meet the minimum distribution
incidental benefit requirements in Section 1.401(a)(9)-2 of the Income
Tax Regulations. Any change in the designation will be considered to be
a revocation of the designation. However, the mere substitution or
addition of another beneficiary (one not named in the designation)
under the designation will not be considered to be a revocation of the
designation, so long as such substitution or addition does not directly
or indirectly alter the period over which distributions are to be made
under the designation. In the case in which an amount is transferred or
rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A
J-3 of Sections 1.401(a)(9)-2 of the Income Tax Regulations shall
apply.
4.6.4. Definitions: The following definitions shall apply
for purposes of this Section 4.6:
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(a) "Applicable life expectancy" shall mean the life
expectancy (or joint and last survivor expectancy) calculated
using the attained age of the participant (or designated
beneficiary) as of the participant's (or designated
beneficiary's) birthday in the applicable calendar year
reduced by one for each calendar year which has elapsed since
the date life expectancy was first calculated. If life
expectancy is being recalculated, the applicable life
expectancy shall be the life expectancy as so recalculated.
The applicable calendar year shall be the first distribution
calendar year, and if life expectancy is being recalculated
each succeeding calendar year. If annuity payments commence in
accordance with Section 4.6.1(i) before the required beginning
date, the applicable calendar year is the year such payments
commence. If distribution is in the form of an immediate
annuity purchased after the participant's death with the
participant's remaining interest, the applicable calendar year
is the year of purchase.
(b) "Designated beneficiary" shall mean the
individual who is designated as the beneficiary under the plan
in accordance with Section 401(a)(9) of the Code and the
regulations thereunder.
(c) "Distribution calendar year" shall mean a
calendar year for which a minimum distribution is required.
For distributions beginning before the participant's death,
the first distribution calendar year is the calendar year
immediately preceding the calendar year which contains the
participant's required beginning date. For distributions
beginning after the participant's death, the first
distribution calendar year is the calendar year in which
distributions are required to begin pursuant to Section 4.6.2
above.
(d) "Life expectancy" shall mean life expectancy and
joint and last survivor expectancy as computed by use of the
expected return multiples in Tables V and VI of Section 1.72-9
of the Income Tax Regulations. Unless otherwise elected by the
participant (or spouse, in the case of distributions described
in Section 4.6.2(b)(ii) above) by the time distributions are
required to begin, life expectancies shall be recalculated
annually. Such election shall be irrevocable as to the
participant (or
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spouse) and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
(e) "Participant's benefit" shall mean his accrued
benefit as of the last adjustment date in the calendar year
immediately preceding the distribution calendar year
("valuation calendar year") increased by the amount of any
contributions or forfeitures allocated to the accrued benefit
as of dates in the valuation calendar year after the
adjustment date and decreased by distributions made in the
valuation calendar year after the adjustment date.
Notwithstanding the foregoing, if any portion of the minimum
distribution for the first distribution calendar year is made
in the second distribution calendar year on or before the
required beginning date, the amount of the minimum
distribution made in the second distribution calendar year
shall be treated as if it had been made in the immediately
preceding distribution calendar year.
(f) "Required beginning date" shall generally mean
the first day of April of the calendar year following the
calendar year in which the participant attains age 70 1/2.
Notwithstanding the foregoing, the following special
provisions shall apply:
(i) The required beginning date of a
participant who attains age 70 1/2 before January 1,
1988, shall be determined in accordance with (1) or
(2) below:
(1) The required beginning date of a
participant who is not a 5% owner is the first day of
April of the calendar year following the calendar
year in which the later of retirement or attainment
of age 70 1/2 occurs. The required beginning date of
a participant who is not a 5% owner who attains age
70 1/2 during 1988 and who has not retired as of
January 1, 1989, is April 1, 1990.
(2) The required beginning date of a
participant who is a 5% owner during any year
beginning after December 31, 1979 is the first day of
April following the later of: (A) the calendar year
in which the participant attains age
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70 1/2, or (B) the earlier of the calendar year with
or within which ends the plan year in which the
participant becomes a 5% owner, or the calendar year
in which the participant retires.
(ii) A participant is treated as a 5% owner
for purposes of this paragraph (f) if such
participant is a 5% owner as defined in Section
416(i) of the Code (determined in accordance with
Section 416 but without regard to whether the plan is
top-heavy) at any time during the plan year ending
with or within the calendar year in which such owner
attains age 66 1/2 or any subsequent plan year.
(iii) Once distributions have begun to a 5%
owner under this paragraph (f), they must continue
even if the participant ceases to be a 5% owner in a
subsequent year.
All distributions under this Section 4.6 shall be determined and made in
accordance with Section 401(a)(9) of the Code and the regulations thereunder,
including the minimum distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the Income Tax Regulations.
4.7. Joint and survivor annuity requirements: The provisions
of this Section 4.7 shall apply to any participant who is credited with at least
one hour of service with the Employer on or after August 23, 1984, and such
other participants as provided in Section 4.7.6, as follows:
4.7.1. Qualified retirement annuity: Unless an optional form
of benefit described in Section 4.6.1 is elected pursuant to a
qualified election within the 90 day period ending on the annuity
starting date, a participant's vested accrued benefit shall be applied
to the purchase of a qualified retirement annuity. The participant may
elect to have such annuity distributed upon the attainment of the
earliest retirement age under the plan.
4.7.2. Qualified preretirement survivor annuity: Unless an
optional form of benefit has been selected within the election period
pursuant to a qualified election, if the participant dies before the
annuity starting date, then his vested accrued benefit shall be applied
toward the purchase of a qualified preretirement survivor annuity. The
surviving spouse may elect by written notice
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to the Committee to have such annuity distributed to her within a
reasonable period following the death of the participant. If the
participant leaves no surviving spouse, or elects an optional form of
death benefit, his vested accrued benefit shall be payable as provided
in Section 4.6.2.
4.7.3. Definitions: The following definitions shall apply
for purposes of this Section 4.7:
(a) "Annuity starting date" shall mean the first day
of the first period for which an amount is paid in an annuity
or any other form.
(b) "Election period" shall mean the period which
begins on the first day of the plan year in which the
participant attains age 35 and ends on the date of the
participant's death. If a participant terminates from service
prior to the first day of the plan year in which he attains
age 35, with respect to his accrued benefit as of the date of
separation, the election period shall begin on the date of
termination. A participant who will not yet attain age 35 as
of the end of any current plan year may make a special
qualified election to waive the qualified preretirement
survivor annuity for the period beginning on the date of such
election and ending on the first day of the plan year in which
the participant will attain age 35. Such election shall not be
valid unless the participant receives a written explanation of
the qualified preretirement survivor annuity in such terms as
are comparable to the explanation required under Section
4.7.4. Qualified preretirement survivor annuity coverage will
be automatically reinstated as of the first day of the plan
year in which the participant attains age 35. Any new waiver
on or after such date shall be subject to the full
requirements of this Section 4.7.
(c) "Earliest retirement age" shall mean the earliest
date on which the participant could elect to receive
retirement benefits under the plan.
(d) "Qualified election" shall mean the waiver of a
qualified retirement annuity or a qualified preretirement
survivor annuity. Any such election shall not be effective
unless: (i) the participant's spouse (if any) consents in
writing to the election; (ii)
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the election designates a specific beneficiary, including any
class of beneficiaries or contingent beneficiaries, which may
not be changed without spousal consent (or the spouse
expressly permits designations by the participant without any
further spousal consent); (iii) the spouse's consent
acknowledges the effect of the election; and (iv) the spouse's
consent is witnessed by a plan representative or notary
public. Additionally, a participant's qualified election shall
not be effective unless it designates a form of benefit
payment which may not be changed without spousal consent (or
the spouse expressly permits designations by the participant
without any further spousal consent). If it is established to
the satisfaction of a plan representative that there is no
spouse or that the spouse cannot be located, an election by
the participant will be deemed a qualified election. Any
consent by a spouse obtained under this provision (or
establishment that the consent of a spouse may not be
obtained) shall be effective only with respect to such spouse.
A consent that permits designations by the participant without
any requirement of further consent by such spouse must
acknowledge that the spouse has the rights to limit consent to
a specific beneficiary, and a specific form of benefit (where
applicable), and that the spouse voluntarily elects to
relinquish either or both of such rights. A revocation of a
prior election may be made by a participant without the
consent of the spouse at any time before the commencement of
benefits. The number of revocations shall not be limited. No
consent obtained under this provision shall be valid unless
the participant has received notice as provided in Section
4.7.4.
(e) "Qualified joint and survivor annuity" shall mean
an immediate noncashable and nontransferable annuity purchased
from a legal reserve life insurance company providing
approximately equal monthly installments for the life of the
participant with a survivor annuity for the life of the
participant's spouse which is not less than 50% and not more
than 100% of the amount of the annuity payable during the
joint lives of the participant and the participant's spouse.
The joint and survivor annuity shall be the amount of benefit
which can be purchased with the participant's vested accrued
benefit. The percentage of the survivor annuity under the plan
shall be 50%
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unless otherwise elected by the Employer in the Adoption
Agreement.
(f) "Qualified preretirement survivor annuity" shall
mean an immediate noncashable and nontransferable annuity
purchased from a legal reserve life insurance company
providing approximately equal monthly installments for the
life of the participant's surviving spouse, if any.
(g) "Qualified retirement annuity," with respect to a
participant who is married on the annuity starting date, shall
mean a qualified joint and survivor annuity. A qualified
retirement annuity, with respect to a participant who is not
married on the annuity starting date, shall mean a life
annuity as described in Section 4.6.1(i).
(h) "Spouse" or "surviving spouse" shall mean the
legally married spouse or surviving spouse of the participant,
provided that a former spouse shall be treated as the spouse
or surviving spouse to the extent provided under a qualified
domestic relations order as described in Section 414(p) of the
Code.
4.7.4. Notice requirements: The following notice requirements
shall apply for purposes of this Section 4.7:
(a) In the case of a qualified retirement annuity
payable pursuant to Section 4.7.1, the plan administrator
shall no less than 30 days and no more than 90 days prior to
the annuity starting date provide the participant a written
explanation of: (i) the terms and conditions of a qualified
retirement annuity; (ii) the participant's right to make and
the effect of an election to waive the qualified retirement
annuity form of benefit; (iii) the rights of a participant's
spouse; and (iv) the right to make and the effect of a
revocation of a previous election to waive the qualified
retirement annuity.
(b) In the case of a qualified preretirement survivor
annuity payable pursuant to Section 4.7.2, the plan
administrator shall provide the participant, within the
applicable period for such participant, a written explanation
of the qualified preretirement survivor annuity. Such
explanation shall set forth the information specified in (i)
through (iv) of Sec-
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tion 4.7.4(a), except that references to the qualified
retirement annuity shall instead be to the qualified
preretirement survivor annuity. The applicable period for a
participant is the last to end of the following periods: (i)
the period beginning with the first day of the plan year in
which the participant attains age 32 and ending with the close
of the plan year in which the participant attains age 35; (ii)
a reasonable period ending after the individual becomes a
participant; or (iii) a reasonable period after this Section
4.7 first applies to the participant. For purposes of applying
the preceding sentence, a reasonable period ending after the
events described in (ii) and (iii) is the end of the 2 year
period beginning one year prior to the date the applicable
event occurs and ending one year after that date. In the case
of a participant who separates from service before the plan
year in which age 35 is attained, notice shall be provided
within the 2 year period beginning one year prior to
separation and ending one year after separation. If such
participant thereafter returns to employment with the
Employer, the applicable period for such participant shall be
redetermined.
4.7.5. Safe harbor rules: Except to the extent otherwise
elected by the Employer in the Adoption Agreement or as provided in
Section 4.7.6, the requirements of this Section 4.7 shall not apply to
a participant in a profit-sharing plan, and to any distribution made on
or after the first day of the first plan year beginning after December
31, 1988 from the participant's deductible contribution account under a
money purchase pension plan, if the following conditions are met:
(a) The participant cannot or does not elect payments
in the form of a life annuity.
(b) Upon the death of the participant, the
participant's vested accrued benefit will be paid to the
participant's surviving spouse, or, if the surviving spouse
has already consented in a manner conforming to a qualified
election, then to the participant's designated beneficiary.
The surviving spouse may elect to have distribution of the
vested accrued benefit commence within the 90-day period
following the date of the participant's death. The accrued
benefit shall be adjusted for gains and losses occur-
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ring after the participant's death in accordance with Section
4.10.
(c) The profit-sharing plan with respect to the
participant is not determined to be the direct or indirect
transferee of a defined benefit plan, money purchase pension
plan (including a target benefit plan), stock bonus or
profit-sharing plan which is subject to the survivor annuity
requirements of Sections 401(a) and 417 of the Code.
For purposes of this Section 4.7.5, "vested accrued benefit" shall
refer, in the case of a money purchase plan, only to the balance in the
participant's deductible contribution account.
4.7.6. Transitional rules: Notwithstanding the foregoing
provisions of this Section 4.7, the following provisions shall apply:
(a) Any participant not receiving benefits on August
23, 1984, who would otherwise not receive the benefits
prescribed by the provisions of this Section 4.7, must be
given the opportunity to elect to have the provisions of this
Section 4.7 apply if such participant is credited with at
least one hour of service under this plan or a prior plan in a
plan year beginning on or after January 1, 1976, and such
participant had at least 10 years of service when he separated
from service.
(b) Any participant not receiving benefits on August
23, 1984, who was credited with at least one hour of service
under this plan or a prior plan on or after September 2, 1974,
and who is not otherwise credited with any service in a plan
year beginning on or after January 1, 1976, must be given the
opportunity to have his benefits paid in accordance with
paragraph (d) of this Section 4.7.6.
(c) The respective opportunities to elect (as
described in paragraphs (a) and (b) of this Section 4.7.6)
must be afforded to the appropriate participants during the
period commencing on August 23, 1984, and ending on the date
benefits would otherwise commence to said participants.
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(d) Any participant who has elected pursuant to
paragraph (b) of this Section 4.7.6 and any participant who
does not elect under paragraph (a) of this Section 4.7.6, or
who meets the requirements of paragraph (a) except that such
participant does not have at least 10 years of service when he
separates from service, shall have his benefits distributed in
accordance with all of the following requirements if but for
this paragraph (d) the participant's benefit would have been
payable in the form of a life annuity:
(i) Automatic joint and survivor annuity:
If benefits in the form of a life annuity become
payable to a married participant who: (A) begins to
receive payments under the plan on or after normal
retirement age; or (B) dies on or after normal
retirement age while still working for the Employer;
or (C) begins to receive payments on or after the
qualified early retirement age; or (D) separates from
service on or after attaining normal retirement age
(or the qualified early retirement age) and after
satisfying the eligibility requirements for the
payment of benefits under the plan and thereafter
dies before beginning to receive such benefits; then
such benefits shall be received under this plan in
the form of a qualified joint and survivor annuity,
unless the participant has elected otherwise during
the election period. The election period must begin
at least 6 months before the participant attains
qualified early retirement age and end not more than
90 days before the commencement of benefits. Any
election hereunder will be in writing and may be
changed by the participant at any time.
(ii) Election of early survivor annuity: A
participant who is employed after attaining the
qualified early retirement age will be given the
opportunity to elect, during the election period, to
have a survivor annuity payable on death. If the
participant elects the survivor annuity, payments
under such annuity must not be less than the payments
which would have been made to the spouse under the
qualified joint and survivor annuity if the
participant had retired on the day before his or her
death. Any elec-
<PAGE>
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tion under this provision will be in writing and may
be changed by the participant at any time. The
election period begins on the later of (A) the 90th
day before the participant attains the qualified
early retirement age, or (B) the date on which
participation begins, and ends on the date the
participant terminates employment.
(iii) Definitions: The following definitions
shall apply for purposes of this paragraph (d):
(1) "Qualified early retirement age" shall
mean the latest of:
(A) the earliest date, under the plan, on
which the participant may elect to receive retirement
benefits,
(B) the first day of the 120th month
beginning before the participant reaches normal
retirement age, or
(C) the date the participant begins
participation.
(2) "Qualified joint and survivor annuity"
shall mean an annuity for the life of the participant
with a survivor annuity for the life of the spouse as
described in paragraph (e) of Section 4.7.3.
4.8. Small amount: Notwithstanding any other provision of the
plan, if the vested accrued benefit of a participant does not exceed $3,500 as
of the adjustment date coincident with or next following the date of his
termination of service for any reason, including death, or any previous
adjustment date as of which a distribution was made, then his vested accrued
benefit shall be paid in a lump sum as of such adjustment date to the person
entitled thereto without regard to any election made by the participant or any
consent of the participant or the participant's spouse. For purposes of this
Section 4.8, if the value of a participant's vested accrued benefit is zero, the
participant shall be deemed to have received distribution of such vested accrued
benefit. If a distribution is made to a participant before he attains age 59
1/2, such participant shall be advised by the plan administrator that an
additional income tax may be imposed in an amount
<PAGE>
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equal to 10% of the amount so received which is included in his taxable income
for such taxable year.
4.9. Interim payments: Except as provided in Section 4.7, the
Committee may in a nondiscriminatory manner cause one or more interim payments
to be made to a participant or his beneficiary, as the case may be, between the
date the participant shall retire, or the date of death of the participant, and
the adjustment date as of which retirement or death benefits would ordinarily be
paid or commence to be paid; provided, that in no event shall the aggregate of
such interim payments exceed 50% of the vested accrued benefit of such
participant as of the close of business of the plan on the adjustment date next
preceding the date he shall retire or die.
4.10. Continued share in profits or losses of trust fund: If
all or any part of the accrued benefit of any individual is being paid to him
from the trust in installments, or is being held in the trust for future payment
to him, his account shall continue to be adjusted as provided in Section 6. With
respect to an individual who is receiving installment payments from the trust,
the amount of the installment payments shall be adjusted as of each adjustment
date to reflect the adjusted amount in his account (or deferred payment account
as the case may be) as of such adjustment date.
4.11. Optional withdrawals: If the requirements of Section 4.7
shall not apply with respect to the plan and if permitted by the Adoption
Agreement, a participant in service may at his option make one or more
withdrawals from his Employer contribution account subject to the following
provisions:
4.11.1. No withdrawal hereunder shall exceed 50% of the vested
amount in the Employer contribution account of the participant as of
the adjustment date next preceding the date of the withdrawal;
provided, that in any event the amount remaining in the participant's
Employer contribution account following any such withdrawal shall not
be less than the aggregate of the Employer contributions and
forfeitures under the plan credited to his account for the 2 plan years
preceding such withdrawal.
4.11.2. A participant may not withdraw any portion of the
Employer contribution allocable to him for the plan year in which an
application for withdrawal is filed.
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4.11.3. Application for a withdrawal shall be made by the
participant in writing on a form approved by the Committee and filed
with the Committee, and not more than one application shall be filed
during any plan year.
4.11.4. If any portion of the Employer contribution account of
a participant is distributed to him at a time when he has a
nonforfeitable right to less than 100% of his Employer contribution
account, at any subsequent relevant time the participant's
nonforfeitable portion of the Employer contribution account shall not
be less than an amount ("X") determined by the following formula: X = P
(AB + D) - D. For purposes of applying the formula: P is the
nonforfeitable percentage at the relevant time; AB is the account
balance in the Employer contribution account at the relevant time; D is
the amount of the distribution, and the relevant time is the time under
the plan at which the nonforfeitable percentage of his account balance
cannot increase.
4.12. Loans: If permitted by the Adoption Agreement, upon the
written application of any participant or beneficiary (other than an
owner-employee or shareholder-employee), the Committee in accordance with its
uniform, nondiscriminatory policy may direct the Trustee to permit the
participant to borrow from his account, subject to the following provisions:
4.12.1. The minimum principal amount of any loan made to a
participant shall be $1,000. The maximum principal amount of any loan
made to the participant or beneficiary, when added to the then unpaid
balance on all loans previously made to the participant or beneficiary,
shall not exceed the lesser of
(a) $50,000, reduced by the excess (if any) of the
highest outstanding balance of loans during the one year
period ending on the day before the loan is made, over the
outstanding balance of loans from the plan on the day the loan
is made; or
(b) 50% of the vested accrued benefit of the
participant.
For purposes of this Section 4.12, the participant's vested accrued
benefit shall be determined as of the adjustment date next preceding
the date he files his application for a loan. If a participant shall
have a vested accrued benefit in more than one tax-qualified retirement
<PAGE>
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plan of the Employer, the limitation in (a) or (b) shall be applied
both with respect to this plan only and with respect to all such plans
in the aggregate. In applying the limitations with respect to this
plan, only loans to the participant under this plan and his vested
accrued benefit under this plan shall be taken into account. In
applying the limitations with respect to all such plans in the
aggregate, all loans to the participant under all such plans and the
sum of his vested accrued benefits under all such plans shall be taken
into account.
4.12.2. All loans shall by their terms require that repayment
be amortized in level payments of principal and interest, not less
frequently than quarterly, over a period not exceeding 5 years from the
date made, except that the obligation to repay shall not exceed 10
years with respect to a loan made to a participant for the purpose of
acquiring any dwelling unit which is used or will be used within a
reasonable time (determined at the time the loan is made) as the
primary residence of the participant or beneficiary.
4.12.3. Each participant or beneficiary making an application
for a loan shall receive from the Trustee a statement of the charges
involved in the loan transaction. This statement shall include the
amount financed and the annual interest rate. If the requirements of
Section 4.7 shall apply with respect to the plan, no loan shall be made
to a participant unless the participant has obtained, within the 90 day
period next preceding the loan, the written consent of his spouse, if
any, to such loan. The consent of the spouse must be obtained in a
manner which constitutes a qualified election as defined in Section
4.7.3(d). A new consent must be obtained from the spouse for any
renegotiation, extension, renewal, or other revision of the loan.
4.12.4. Each loan shall be secured by the pledge of 50% of the
borrowing participant's or beneficiary's vested accrued benefit
(determined at the time the loan is made), and by the pledge of such
further security as the Committee, in its discretion, deems necessary
or desirable to assure repayment of the borrowed amount and all
interest payable thereon in accordance with the terms of the loan.
4.12.5. Each loan shall be evidenced by a negotiable
promissory note (the "note") in form acceptable to the Trustee, payable
to the order of the Trustee, bearing in-
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terest at a rate commensurate with the prevailing rate charged by
commercial lenders in the geographic region of the Employer, as
determined by the Trustee, and, except as provided in Section 4.12.2,
payable in full not more than 5 years from the date thereof. The
borrowing participant or beneficiary shall execute any additional
documents as shall be deemed necessary or advisable by the Committee to
consummate the loan and to provide reasonable safeguards. The principal
amount of each loan to a participant or beneficiary shall be an
investment allocated solely to the account of the borrowing participant
or beneficiary, and the rate and all interest paid thereon shall be
allocated solely to the account of the borrowing participant or
beneficiary. If so directed by the Committee, the Employer shall
establish a procedure for withholding at appropriate intervals from a
borrowing participant's regular payroll checks amounts necessary to
satisfy the borrowing participant's repayment obligations under the
note. All amounts so withheld shall be transferred immediately to the
Trustee.
4.12.6. The occurrence of any one or more of the following
events of default shall constitute a default by the borrowing
participant or beneficiary under the terms of the loan, whereupon the
unpaid balance of the note, together with accrued interest, will
immediately become due and payable without presentment, demand,
protest, or notice of any kind. Events of default include: (i) failure
to make any payment when due, whether by acceleration or otherwise;
(ii) bankruptcy or insolvency of the borrowing participant or
beneficiary; or (iii) death of the borrowing participant or
beneficiary.
4.12.7. If an event of default shall occur with respect to a
borrowing participant or beneficiary, the entire unpaid principal
amount of the note, plus accrued and unpaid interest shall immediately
become due and payable in accordance with the terms and provisions set
forth in Section 4.12.7 of the Adoption Agreement; provided, that
foreclosure on the note and attachment of the participant's or
beneficiary's vested accrued benefit shall not occur until a
distributable event occurs under the plan.
Section 5. Vesting:
--------- -------
5.1. Notwithstanding the vesting schedule elected by the
Employer in Section 5 2 of the Adoption Agreement and sub-
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ject to the provisions of Section 5.3, the accrued benefit of each participant
shall be fully vested (that is, not subject to forfeiture) immediately following
the first to occur of:
5.1.1. Completion by the participant of his first hour of
service on or after attainment of his normal retirement age;
5.1.2. Retirement of the participant under Section 4,
including early retirement, if permitted, and disability retirement;
5.1.3. Death of the participant while in service;
5.1.4. Termination or partial termination of the plan by the
Employer;
5.1.5. If the plan is a profit-sharing plan, termination by
the Employer of contributions to the plan, or a suspension or reduction
of such contributions which amounts in effect to a termination of
contributions; and
5.1.6. A final determination of disqualification of the plan
at any time following initial determination by the Internal Revenue
Service that the plan is qualified.
5.2. A participant whose accrued benefit is not fully vested
as provided in Section 5.1 shall be vested in all or a percentage of his
Employer contribution account depending upon the number of his years of service
at the time such vested percentage is being determined, as specified by the
Employer in the Adoption Agreement. For purposes of determining the vested
percentage of a participant, the following special provisions shall apply:
5.2.1. The 12 month period for determining years of service
and breaks in service shall be the plan year.
5.2.2. All years of service shall be taken into account except
as otherwise elected by the Employer in the Adoption Agreement.
5.2.3. With respect to any participant who shall have had a
prior break in service:
(a) No year of service prior to a one-year break in
service shall be taken into account until
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such participant shall have completed at least one year of
service following such break in service.
(b) Notwithstanding paragraph (a) immediately
preceding, if an employee shall have a break in service
following the computation date (as defined in Section 1.37)
and shall not have any vested interest in his Employer
contribution account at the time of such break in service, and
the period of consecutive one-year breaks in service equals or
exceeds the greater of (i) 5, or (ii) the aggregate number of
years of service before such period, all years of such service
prior to such period shall be disregarded. For the purpose of
determining years of service prior to such period, there shall
be excluded any years of service previously disregarded under
this paragraph (b).
(c) No year of service following 5 consecutive
one-year breaks in service shall be taken into account in
determining the vested percentage of his accrued benefit with
respect to his service prior to such break.
5.2.4. In the event the Employer shall amend the provisions of
the plan for determining the vested percentages of participants, or if
the plan is deemed amended by an automatic change to or from a
top-heavy vesting schedule as provided in Section 21.2.2, each
participant with at least 3 years of service with the Employer may
elect, within a reasonable period after the adoption of the amendment,
to have his vested percentage determined without regard to such
amendment. For participants who do not have at least one hour of
service in any plan year beginning after December 31, 1988, the
preceding sentence shall be applied by substituting "5 years of
service" for "3 years of service" where such language appears. The
period during which the election may be made shall commence with the
date the amendment is adopted or deemed to be made and shall end on the
latest of: (i) 60 days after the amendment is adopted; (ii) 60 days
after the amendment becomes effective; or (iii) 60 days after the
participant is issued written notice of the amendment by the Employer
or plan administrator.
5.3. A participant who is not fully vested in his accrued
benefit shall forfeit the portion of his accrued benefit which is not vested as
of the year-end adjustment date for
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the plan year in which first occurs the following: (i) he shall have 5
consecutive one-year breaks in service, (ii) he shall terminate service and die
following such termination and prior to having a break in service, or (iii) he
shall terminate service and receive or be deemed to receive a distribution
pursuant to Section 4.5 or 4.8 (regardless of whether he had incurred a break in
service). The portion of his accrued benefit which is not vested shall be
determined as of the adjustment date described in the immediately preceding
sentence, following the adjustments to his accrued benefit as provided in
Section 6. The portion of his accrued benefit so forfeited shall be treated as
provided in Section 5.3 of the Adoption Agreement. No forfeitures will occur
solely as a result of an employee's withdrawal of employee contributions.
Notwithstanding the foregoing provisions of the Section 5.3, if the participant
receives or is deemed to receive a distribution pursuant to Section 4.5 or 4.8
and subsequently reenters service, the participant's Employer contribution
account shall be restored to the balance that existed in such account as of the
distribution date if the participant repays to the trust the full amount of the
distribution attributable to the Employer contribution account before the
earlier of 5 years after the participant first reenters service or the last day
of the plan year in which the participant incurs his fifth consecutive one-year
break in service following the distribution date.
Section 6. Accounts of Participants:
The Committee shall cause an account to be kept under the plan
with respect to each participant, which account shall include to the extent
applicable the separate accounts described in Section 1.1. The amount in each
separate account with respect to the participant as of each adjustment date,
ascertained under this Section 6 and herein called the "basic credit," shall be
adjusted as of each succeeding adjustment date in the order set forth below:
6.1. There shall be debited the total amount of any payments
made from the account since the last preceding adjustment date to or for the
benefit of the individual entitled thereto.
6.2. There shall be credited or debited that portion of the
net income or net loss of the trust since the last preceding adjustment date
which the basic credit as of the last preceding adjustment date, further
adjusted as provided in Section 6. 1, bears to the total of all the basic
credits as of
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such preceding adjustment date so adjusted. The net income or net loss of the
trust shall be ascertained by the Trustee and shall mean the profits and income
actually realized and received, less the losses and expenses actually incurred
and paid, plus any net increase or minus any net decrease in the fair market
value of the assets of the trust not actually realized and received or incurred
and paid. In ascertaining such value the expense of liquidation shall not be
taken into account. "Basic credit as of the last preceding adjustment date"
shall be such credit after the adjustments under this Section 6 shall have been
made.
6.3. There shall be credited any contribution for the current
plan year allocated to him as provided in the plan.
Section 7. Administration by Committee:
7.1. The Committee shall consist of not more than five
individuals who shall be appointed by the Board to serve at the pleasure of the
Board. Any member of the Committee may resign, and his successor, if any, shall
be appointed by the Board. The Committee shall be responsible for the general
administration and interpretation of the plan and for carrying out its
provisions, except to the extent all or any of such obligations are specifically
imposed on the Trustee or the Board. The Committee shall furnish to the Trustee
such information as the Trustee shall require for the proper administration of
the trust. The plan administrator, who shall be a member of the Committee, shall
be designated in the Adoption Agreement. The plan administrator shall be agent
for service of legal process on the plan.
7.2. The members of the Committee shall elect a Chairman and
may elect an acting Chairman. They shall also elect a Secretary and may elect an
acting Secretary, either of whom may be but need not be a member of the
Committee. The Committee may appoint from its membership such subcommittees with
such powers as the Committee shall determine, and may authorize one or more of
its members or any agent to execute or deliver any instruments or to make any
payment in behalf of the Committee.
7.3. The Committee shall hold such meetings upon such notice,
at such places and at such intervals as it may from time to time determine.
Notice of meetings shall not be required if notice is waived in writing by all
the members of
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the Committee at the time in office, or if all such members are present at the
meeting.
7.4. A majority of the members of the Committee at the time in
office shall constitute a quorum for the transaction of business. All
resolutions or other actions taken by the Committee at any meeting shall be by
vote of a majority of those present at any such meeting and entitled to vote.
Resolutions may be adopted or other action taken without a meeting upon written
consent thereto signed by all of the members of the Committee.
7.5. The Committee shall maintain full and complete records of
its deliberations and decisions. The minutes of its proceedings shall be
conclusive proof of the facts of the operation of the plan. The records of the
Committee shall contain all relevant data pertaining to individual participants
and their rights under the plan and in the trust fund.
7.6. Subject to the limitations of the plan and of ERISA the
Committee may from time to time establish rules or by-laws for the
administration of the plan and the transaction of its business.
7.7. No individual member of the Committee shall have any
right to vote or decide upon any matter relating solely to himself or to any of
his rights or benefits under the plan (except that such member may sign
unanimous written consent to resolutions adopted or other action taken without a
meeting) except to the extent such right shall be generally provided to
participants pursuant to the terms of the plan.
7.8. The Committee may correct errors and, so far as
practicable, may adjust any benefit or credit or payment accordingly. The
Committee may in its discretion waive any notice requirements in the plan;
provided, that a waiver of a requirement to notify the Trustee shall be made
only with the consent of the Trustee. A waiver of notice in one or more cases
shall not be deemed to constitute a waiver of notice in any other case. With
respect to any power or authority which the Committee has discretion to exercise
under the plan, such discretion shall be exercised in a nondiscriminatory
manner.
7.9. Subject to the claims procedure set forth in Section 14,
the Committee and the plan administrator shall have the duty, authority, and
discretion to interpret and construe the provisions of the plan and to decide
any dispute which may arise regarding the rights of participants hereunder,
including
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the authority to construe uncertain provisions of the plan and to make
determinations as to the eligibility of employees for plan participation and of
employees and beneficiaries for benefits under the plan. Determinations by the
Committee and plan administrator shall apply uniformly to all persons similarly
situated and shall be binding and conclusive upon all interested persons.
7.10. The Committee may engage an attorney, accountant or any
other technical advisor on matters regarding the operation of the plan and to
perform such other duties as shall be required in connection therewith, and may
employ such clerical and related personnel as the Committee shall deem requisite
or desirable in carrying out the provisions of the plan. The Committee shall
from time to time, but no less frequently than annually, review the financial
condition of the plan and determine the financial and liquidity needs of the
plan as required by ERISA. The Committee shall communicate such needs to the
Employer and to the Trustee so that the funding policy and investment policy may
be appropriately coordinated to meet such needs.
7.11. No fee or compensation shall be paid to any member of
the Committee for his service as such.
7.12. The Committee shall be entitled to reimbursement out of
the trust fund for its reasonable expenses properly and actually incurred in the
performance of its duties in the administration of the plan; provided, that the
Employer may, in the discretion of the Board, pay such expenses.
7.13. All requests, directions, requisitions and instructions
of the Committee to the Trustee shall be in writing and signed by such person or
persons as shall be designated in writing by the Committee.
7.14. To the maximum extent permitted by ERISA, no member of
the Committee shall be personally liable by reason of any contract or other
instrument executed by him or on his behalf as a member of the Committee nor for
any mistake of judgment made in good faith, and the Employer shall indemnify and
hold harmless, directly from its own assets (including the proceeds of any
insurance policy the premiums for which are paid from the Employer's own
assets), each member of the Committee and each other officer, employee, or
director of the Employer to whom any duty or power relating to the
administration or interpretation of the plan may be delegated or allocated,
against any unreimbursed or uninsured cost or expense (including any
<PAGE>
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sum paid in settlement of a claim with the prior written approval of the Board)
arising out of any act or omission to act in connection with the plan unless
arising out of such person's own fraud, bad faith, willful misconduct or gross
negligence.
Section 8. Management of Funds and Amendment or Termination
--------- ------------------------------------------------
of Plan:
-------
8.1. All assets of the plan shall be held in a trust forming
part of the plan, which shall be administered as a trust fund to provide for the
payment to the participants or their successors in interest, out of the income
and principal of the trust, of benefits as provided in the plan. All fiduciaries
(as defined in ERISA) with respect to the plan shall discharge their duties as
such solely in the interest of the participants and their successors in
interest, and (i) for the exclusive purposes of providing benefits to
participants and their successors in interest and defraying reasonable expenses
of administering the plan, including the trust which is a part of the plan, (ii)
with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of like character and with
like aims, and (iii) in accordance with the plan, except to the extent such
document may be inconsistent with the then applicable federal laws relating to
fiduciary responsibility. The trust fund shall be used for the exclusive benefit
of the participants and beneficiaries and to pay administrative expenses of the
plan and trust to the extent not paid by the Employer, and no portion of the
trust fund shall ever revert to or inure to the benefit of the Employer (except
as otherwise provided in this Section 8.1). Notwithstanding the foregoing
provisions of this Section 8.1, the following special provisions shall apply:
8.1.1. The Sponsor expressly reserves the right to amend or
terminate the plan and liquidate the trust, and the Employer, by
execution of the Adoption Agreement, delegates to the Sponsor the
authority to amend or terminate the plan and to liquidate the trust by
written instrument signed by the duly authorized representative of the
Sponsor, and the Employer shall be deemed to have consented to any such
amendments or termination. No amendment to the plan shall be effective
to the extent that it has the effect of decreasing a participant's
accrued benefit. Notwithstanding the preceding sentence, a
participant's accrued benefit may be reduced to the extent permitted
under Section 412(c)(8) of the Code. For purposes
<PAGE>
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of this Section 8.1.1, a plan amendment which has the effect of
decreasing a participant's accrued benefit or eliminating an optional
form of benefit, with respect to benefits attributable to service
before the amendment, shall be treated as reducing an accrued benefit.
Furthermore, if the vesting schedule of a plan is amended, in the case
of an employee who is a participant as of the later of the date such
amendment is adopted or the date it becomes effective, the
nonforfeitable percentage (determined as of such date) of such
employee's right to his employer-derived accrued benefit will not be
less than his percentage computed under the plan without regard to such
amendment.
8.1.2. An Employer may amend the plan by (i) changing the
choice of options in the Adoption Agreement, (ii) adding overriding
plan language to the Adoption Agreement where such language is
necessary to satisfy Sections 415 or 416 of the Code because of the
required aggregation of multiple plans under these sections, and (iii)
adding certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause
the plan to be treated as individually designed. The Employer shall be
considered to have an individually designed plan if the Employer amends
the plan or nonelective portions of the Adoption Agreement for any
other reason, including a waiver of the minimum funding requirements
under Section 412(d) of the Code. If the plan or any nonelective
provision of the Adoption Agreement is amended by the Employer except
as permitted in this Section 8.1.2, the funds of the plan shall be
segregated from the trust by the Trustee as soon as is practicable. The
Employer may terminate the plan as applicable to it, subject to the
provisions of Sections 12.1 and 12.2.
8.1.3. Notwithstanding any other provisions of the plan, if
the Employer shall (i) make a contribution to the plan by a mistake of
fact, or (ii) shall make a contribution to the plan conditioned upon
its deductibility under Section 404 of the Code and such contribution
shall be determined to be nondeductible, or (iii) shall make a
contribution to the plan conditional upon the initial qualification of
the plan under Section 401(a) of the Code and the qualified status of
the plan with respect to the year for which such contribution is made
shall be denied, then in any such event such contribution shall be
returned to the Employer without interest or other increment as soon
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as practicable, but in no event later than one year after said mistaken
payment or after it shall be finally determined that the contribution
is not deductible or after final determination of denial of qualified
status of the plan, whichever shall be applicable. The amount to be so
returned shall reflect trust net losses, if any, following said
contribution, and shall be limited to the extent necessary to avoid a
reduction of the accrued benefit of any participant below what his
accrued benefit would have been if such contribution (to the extent
made by mistake or determined to be nondeductible or made with respect
to a year for which the plan is disqualified) had not been made.
8.2. The Employer shall, upon proper authorization, adopt the
plan and execute the Adoption Agreement. When such Adoption Agreement has been
accepted and executed by the Trustee and an initial contribution has been
received by the Trustee from the Employer, the plan as applied to the Employer
shall become effective as of the date specified in the Adoption Agreement.
Section 9. Allocation of Responsibilities Among Named
--------- ------------------------------------------
Fiduciaries:
-----------
9.1. The named fiduciaries with respect to the plan and the
fiduciary duties and other responsibilities allocated to each are as follows:
9.1.1. Board:
(a) To amend the plan (subject to Sections 8.1.1
and 8.1.2);
(b) To appoint and remove members of the
Committee, including the plan administrator;
(c) To appoint and remove the Trustee under the
plan;
(d) To determine the amount to be contributed
to the plan each year by the Employer; and
(e) To terminate the plan.
<PAGE>
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9.1.2. Committee:
(a) To interpret the provisions of the plan and to
determine the rights of participants under the plan, except to
the extent otherwise provided in Section 14 relating to claims
procedure;
(b) To administer the plan in accordance with its
terms, except to the extent powers to administer the plan are
specifically delegated to another named fiduciary or other
person or persons as provided in the plan;
(c) To account for the accrued benefits of
participants; and
(d) To direct the Trustee in the distribution of
trust assets.
9.1.3. Plan Administrator:
(a) To file such reports as may be required with the
United States Department of Labor, the Internal Revenue
Service and any other government agencies to which reports may
be required to be submitted from time to time;
(b) To comply with requirements of law for disclosure
of plan provisions and other information relating to the plan
to participants and other interested parties; and
(c) To administer the claims procedure to the extent
provided in Section 14.
9.1.4. Trustee:
(a) To invest and reinvest trust assets;
(b) To make distributions to plan participants
as directed by the Committee;
(c) To render annual accountings to the Employer
as provided in the plan; and
(d) Otherwise to hold, administer and control the
assets of the trust as provided in Section 18 of the plan.
<PAGE>
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9.1.5. Investment Manager: In the event the Board shall
appoint an investment manager to manage (including the power acquire
and dispose of) assets of the trust, as provided in Section 18.1.2 of
the plan, the duties of the investment manager shall be to manage,
acquire and dispose of assets of the trust, or to direct the Trustee in
the management, acquisition and disposition of assets of the trust.
9.2. Except as otherwise provided in ERISA, a named fiduciary
shall not be responsible or liable for any act or omission of another named
fiduciary with respect to fiduciary responsibilities allocated to such other
named fiduciaries, and a named fiduciary of the plan shall be responsible and
liable only for its own acts or omissions with respect to fiduciary duties
specifically allocated to it and designated as its responsibility.
Section 10. Benefits Not Assignable; Facility of Payments:
---------- ---------------------------------------------
10.1. No portion of any benefit held or paid under the plan
with respect to any participant shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any
attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge the same shall be void, nor shall any portion of such accrued benefit be
in any manner payable to any assignee, receiver or trustee, or be liable for his
debts, contracts, liabilities, engagements or torts, or be subject to any legal
process to levy upon or attach; provided, that this Section 10.1 shall not apply
to the creation, assignment, or recognition of a right to any benefit payable
with respect to a participant pursuant to a qualified domestic relations order,
as defined in Section 414(p) of the Code, or any domestic relations order
entered before January 1, 1985.
10.2. If any individual entitled to receive any payments under
the plan shall be physically, mentally or legally incapable of receiving or
acknowledging receipt of such payment, the Committee, upon the receipt of
satisfactory evidence of his incapacity and satisfactory evidence that another
person or institution is maintaining him and that no guardian or committee has
been appointed for him, may cause any payment otherwise payable to him to be
made to such person or institution so maintaining him. Payment to such person or
institution shall
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be in full satisfaction of all claims by or through the participant to the
extent of the amount thereof.
Section 11. Beneficiary:
---------- -----------
Each participant shall name a beneficiary (which may include
more than one person, natural or otherwise, and one or more secondary or
contingent beneficiaries) who shall be entitled to any death benefits payable
from the trust under the plan, which beneficiary shall be subject to change upon
request in writing of such participant to the Committee; provided, that if such
beneficiary dies prior to asserting a written claim for such death benefit, or
if such participant fails to designate a beneficiary, then and in either of such
events, such benefit shall be payable to the surviving spouse of such
participant or, if he shall leave no surviving spouse, then to his estate.
Notwithstanding the foregoing, if the plan is not otherwise subject to the
requirements of Section 4.7 and the participant leaves a surviving spouse, such
spouse shall be his primary beneficiary unless the spouse consents to another
beneficiary in the manner which constitutes a qualified election as defined in
Section 4.7.3(d). If a beneficiary is receiving payments from the trust fund and
dies before receiving all of the payments due him, any remaining payments shall
be made to the contingent beneficiary, if any. If there is no contingent
beneficiary, any remaining payments shall be paid to the estate of the
beneficiary. Any beneficiary may disclaim all or any part of any benefit to
which such beneficiary shall be entitled hereunder by filing a written
disclaimer with the Committee at least 10 days before payment of such benefit is
to be made. Such a disclaimer shall be made in form satisfactory to the
Committee, and shall be irrevocable when filed. Any benefit disclaimed shall be
payable from the plan in the same manner as if the beneficiary who filed the
disclaimer had died on the date of such filing.
Section 12. Termination of Plan and Trust; Removal of
---------- -----------------------------------------
Trustee; Merger or Consolidation of Plan:
----------------------------------------
12.1. Complete termination: In the event of termination of the
plan, all contributions shall cease and no additional participants shall enter
the plan. The assets under the plan shall thereupon vest (that is, become
nonforfeitable) in the participants, beneficiaries or other successors in
interest, as their interests may appear, and such vested benefit of
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each such individual shall be held in the plan for distribution in accordance
with the provisions of Section 4; provided, that the Committee may in its
discretion provide for a liquidation of the trust and distributions to the
participants of their vested accrued benefits in cash, in kind, in the form of
nontransferable annuity contracts, or in any combination thereof. In addition,
if upon termination the plan does not offer an annuity option (purchased from a
commercial provider), the participant's accrued benefit may, without the
participant's consent, be distributed to the participant or transferred to
another defined contribution plan (other than an employee stock ownership plan
defined in Section 4975(e)(7) of the Code) of an affiliated employer. For
purposes of the plan, a termination of Employer contributions or a suspension or
reduction of such contributions which amounts in effect to a termination of
contributions shall be regarded as a termination of the plan.
12.2. Partial termination: In the event of a partial
termination of the plan, the provisions of Section 12.1 regarding a complete
termination shall apply in determining interests and rights of the participants
and their beneficiaries with respect to whom the partial termination shall
occur, and shall apply to the portion of the trust fund allocable to such
participants and beneficiaries.
12.3. Removal and resignation of Trustee: The Employer, at any
time by written notice of at least 90 days to the Trustee, may remove the
Trustee as trustee under the plan. The Trustee may resign at any time upon 90
days notice in writing to the Employer. As of the date of any such removal or
resignation of the Trustee, the Trustee shall transfer the assets of the trust
attributable to the plan as applied to the Employer to the successor trustee or
custodian named in the notice and the Employer shall thereupon be considered to
have an individually designed plan. Prior to such transfer, the accounts of the
Trustee shall be finally settled. Following such transfer, the Trustee and the
Sponsor shall be released and discharged from all further accountability or
liability with respect to the assets of the trust fund and shall not be
responsible in any way for further disposition of such assets or any part
thereof.
12.4. Merger or consolidation: In the event of any merger or
consolidation of the plan with any other plan, or a transfer of assets or
liabilities of the plan to any other plan (which merged, consolidated or
transferee plan shall be referred to in this Section 12.4 as the "successor
plan"), the amount which each participant would receive if the successor
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plan (and this plan, if he has any interest remaining therein) were terminated
immediately after the merger, consolidation or transfer shall be equal to or
greater than the amount he would have received if this plan (and the successor
plan, if he had any interest therein immediately prior to the merger,
consolidation or transfer) had been terminated immediately preceding the merger,
consolidation or transfer.
Section 13. Communication to Participants:
---------- -----------------------------
In accordance with the requirements of ERISA, the Employer
shall communicate the principal terms of the plan to the participants. The
Employer shall make available for inspection by participants and their
beneficiaries during reasonable hours, at the principal office of the Employer
and at such other places as may be required by ERISA, a copy of the plan and of
the trust agreement and of such other documents as may be required by ERISA.
Section 14. Claims Procedure:
---------- ----------------
The following claims procedure shall apply with respect to the
plan:
14.1. Filing of a claim for benefits: If a participant or
beneficiary (the "claimant") believes that he is entitled to benefits under the
plan which are not being paid to him or which are not being accrued for his
benefit, he shall file a written claim therefor with the plan administrator. In
the event the plan administrator shall be the claimant, all actions which are
required to be taken by the plan administrator pursuant to this Section 14 shall
be taken instead by another member of the Committee designated by the Committee.
14.2. Notification to claimant of decision: Within 90 days
after receipt of a claim by the plan administrator (or within 180 days if
special circumstances require an extension of time), the plan administrator
shall notify the claimant of his decision with regard to the claim. In the event
of such special circumstances requiring an extension of time, there shall be
furnished to the claimant prior to expiration of the initial 90 day period
written notice of the extension, which notice shall set forth the special
circumstances and the date by which the decision shall be furnished. If such
claim shall be wholly or partially denied, notice thereof shall be in writing
and worded in a manner calculated to be understood by the
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claimant, and shall set forth: (i) the specific reason or reasons for the
denial; (H) specific reference to pertinent provisions of the plan on which the
denial is based; (iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and (iv) an explanation of the procedure
for review of the denial. If the plan administrator fails to notify the claimant
of the decision in a timely manner, the claim shall be deemed denied as of the
close of the initial 90 day period (or the close of the extension period, if
applicable).
14.3. Procedure for review: Within 60 days following receipt
by the claimant of notice denying his claim, in whole or in part, or, if such
notice shall not be given, within 60 days following the latest date on which
such notice could have been timely given, the claimant shall appeal denial of
the claim by filing a written application for review with the Committee.
Following such request for review, the Committee shall fully and fairly review
the decision denying the claim. Prior to the decision of the Committee, the
claimant shall be given an opportunity to review pertinent documents and to
submit issues and comments in writing.
14.4. Decision on review: The decision on review of a claim
denied in whole or in part by the plan administrator shall be made in the
following manner:
14.4.1. Within 60 days following receipt by the Committee of
the request for review (or within 120 days if special circumstances
require an extension of time), the Committee shall notify the claimant
in writing of its decision with regard to the claim. In the event of
such special circumstances requiring an extension of time, written
notice of the extension shall be furnished to the claimant prior to the
commencement of the extension. If the decision on review is not
furnished in a timely manner, the claim shall be deemed denied as of
the close of the initial 60 day period (or the close of the extension
period, if applicable).
14.4.2. With respect to a claim that is denied in whole or in
part, the decision on review shall set forth specific reasons for the
decision, shall be written in a manner calculated to be understood by
the claimant, and shall cite specific references to the pertinent plan
provisions on which the decision is based.
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14.4.3. The decision of the Committee shall be final and
conclusive.
14.4.4. Action by authorized representative of claimant: All
actions set forth in this Section 14 to be taken by the claimant may
likewise be taken by a representative of the claimant duly authorized
by him to act in his behalf on such matters. The plan administrator and
the Committee may require such evidence as either may reasonably deem
necessary or advisable of the authority to act of any such
representative.
Section 15. Previously Existing Qualified Plans of the
---------- ------------------------------------------
Employer:
--------
By so designating in the Adoption Agreement, adoption of the
instant plan shall amend and supersede in its entirety a previously existing
defined contribution plan of the Employer which is qualified under Section
401(a) of the Code immediately prior to such adoption, as evidenced by a current
favorable determination letter or opinion letter issued by the Commissioner of
Internal Revenue or his delegate (which previously existing plan shall be
referred to herein as the "prior plan"). Adoption of the instant plan shall be
deemed to amend and supersede the prior plan and shall not be deemed to be a
termination thereof. In applying the provisions of Section 5.2 following
adoption of this plan, each participant in this plan on the effective date of
adoption of this plan who was a participant in the prior plan immediately before
such effective date shall have a vested percentage in his accrued benefit which
shall not be less than the percentage of his benefit in the prior plan which
would have been vested in him if the prior plan had continued in effect through
the adjustment date for the plan year in which the vested percentage is being
determined.
Section 16. Special Provisions Relating to Transfers From
---------- ---------------------------------------------
Qualified Plans:
---------------
With the written approval of the Committee in accordance with
procedures approved by the Committee, the Trustee shall receive and hold, as a
part of the trust fund, assets (hereinafter referred to as the "transferred
assets," which shall be deemed to include all increments allocable to such
transferred assets) transferred directly from the trustee or custodian of any
other retirement plan (hereinafter referred to as the "transferor plan") which
is qualified under Section
<PAGE>
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401(a) of the Code. Such transferred assets may include cash or other types of
property. In applying the provisions of this Section 16, the following special
provisions shall apply:
16.1. The transferred assets and all rights to or derived
therefrom shall be at the time of the transfer and at all times thereafter fully
nonforfeitable and vested in the respective participants (and in the
proportions) to whom such transferred assets had been allocated under the
transferor plan.
16.2. The Trustee under this plan shall not be liable or
responsible for any acts or omissions in the administration of any transferor
plan and the trust thereunder of any other person or entity who was trustee,
custodian or other fiduciary under any such transferor plan, and the Trustee
shall be held harmless from such liability or responsibility.
16.3. The Trustee shall keep a separate and identifiable
account with respect to the transferred assets of each participant (which may be
commingled for investment purposes with other assets of the trust), designated
as the "direct transfer account." The direct transfer account of each
participant shall be adjusted in the manner specified in Section 6.
16.4. To the extent not inconsistent with the provision of
this Section 16, the Committee may promulgate rules or bylaws supplementing and
implementing the provisions of this Section 16.
Section 17. Rollovers:
---------- ---------
An employee who receives a distribution of his entire interest
from another retirement plan which is qualified under Section 401(a) of the Code
on the date of such distribution may, with the written consent of the Committee
and in accordance with procedures approved by the Committee, transfer all or a
part of such distribution to the Trustee under this plan. The amount so
transferred may include cash or other types of property. In applying the
provisions of this Section 17, the following special provisions shall apply:
17.1. The transfer to the Trustee must occur on or before the
60th day following the receipt by the employee of such distribution or, if such
distribution has previously been deposited in an individual retirement account
or individual retirement annuity (as defined in Section 408 of the Code), the
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transfer must occur on or before the 60th day following the receipt by the
employee of the balance to his credit under such individual retirement account
or individual retirement annuity.
17.2. The distribution made to the employee must be a
qualified total distribution within the meaning of Section 402(a)(5)(E)(i) of
the Code.
17.3. The amount transferred to the Trustee is limited to the
maximum rollover amount as provided in Section 402(a)(5)(B) of the Code.
17.4. The amount transferred to the Trustee shall be credited
to a separate account with respect to the employee, designated as the "rollover
account." With respect to each rollover account, the following special
provisions shall apply:
(a) Except as provided in paragraph (c) hereof, each rollover
account shall be adjusted in the manner specified in Section 6.
(b) Each employee having a rollover account shall have a
nonforfeitable interest therein.
(c) Except as otherwise provided in this Section 17, the
assets in the rollover account shall be administered by the Trustee in
the same manner as other trust assets. Assets of the rollover account
may be commingled for investment with other assets of the trust fund;
provided, that with respect to a rollover contribution made other than
on an adjustment date, such contribution shall not be commingled until
immediately following the next adjustment date, and for the period
preceding such adjustment date the employee's rollover account shall be
adjusted under Section 6 as if such account constituted the entire
trust fund.
17.5. If an employee who makes such a transfer is eligible to
participate in the plan but has not completed the participation requirements of
Section 1.25, his rollover account shall represent his sole interest in the plan
until he becomes a participant.
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Section 18. Trust Provisions:
---------- ----------------
18.1. Trustee's powers:
18.1.1. The Trustee shall receive, hold, manage, convert,
sell, exchange, invest, reinvest, disburse and otherwise deal with the
assets of the trust, including contributions made by the Employer and
employees to the trust and the income and profits therefrom, in the
manner and for the uses and purposes in the plan and as herein
provided. In the investment, reinvestment and management of the fund
constituting the trust, and subject to the provisions of Sections 8.1,
18.1.2 and 18.1.3, the Trustee is hereby authorized and empowered:
(a) To receive all rents, issues, dividends, income,
profits and properties of every nature due the trust, and to
hold or make distribution thereof in accordance with the terms
of the plan and this trust agreement.
(b) To retain the properties now or hereafter
received by the trust, or to dispose of them as and when
deemed advisable by public or private sale or exchange or
otherwise, for cash or upon credit, or partly upon cash and
partly upon credit, and upon such terms and conditions as
shall be deemed proper.
(c) To participate in any plan of liquidation,
reorganization, consolidation, merger, or other financial
adjustment of any corporation or business in which the trust
is or shall be financially interested, and to exchange any
property held in the trust for property issued under any such
plan.
(d) To invest or reinvest principal and income of the
funds belonging to the trust in (i) common or preferred stocks
or options to buy and sell such stocks, (ii) bonds, notes or
other securities (including commercial paper and other
short-term obligations), (iii) mutual funds, (iv) guaranteed
investment contracts issued by a legal reserve life insurance
company, (v) real or personal properties or interests therein,
(vi) cash equivalent deposits, certificates of deposit or
accounts (including such deposits or accounts issued by the
Trustee), or any combination of (i) through (vi), as shall
from time to time be approved by the Trustee, or to hold any
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part of such principal or income in cash as may from time to
time be determined by the Trustee.
(e) To hold any investment belonging to the trust in
bearer form, or to register and hold the same in the name of
the Trustee or in the name of its duly authorized nominee.
(f) To borrow for the benefit of the trust for such
periods of time and upon such terms and conditions as may be
deemed proper, any sum or sums of money, and to secure such
loans by mortgage or pledge of any property belonging to the
trust, without personal liability therefor.
(g) To execute such deeds, leases, contracts, bills
of sale, notes, proxies and other instruments in writing as
shall be deemed requisite or desirable in the proper
administration of the trust.
(h) To compromise, arbitrate or otherwise adjust or
settle claims in favor of or against the trust, except to the
extent the plan provides otherwise with respect to claims for
benefits under the plan.
(i) To make distributions to participants or
their beneficiaries at the direction of the Committee.
(j) To renew or extend or participate in the renewal
or extension of any mortgage, upon such terms as may be deemed
advisable, and to agree to a reduction in the rate of interest
on any mortgage or to any other modification or change in the
terms of any mortgage or of any guarantee pertaining thereto,
in any manner and to any extent that may be deemed advisable
for the protection of the trust fund or the preservation of
the value of any investment of the trust fund, to waive any
default, whether in the performance of any covenant or
condition of any mortgage or in the performance of any
guarantee, or to enforce any such default in such manner and
to such extent as may be deemed advisable, to exercise and
enforce any and all rights of foreclosure, to bid in property
on foreclosure, to take a deed in lieu of foreclosure with or
without paying a consideration therefor, and in connection
therewith to release the obligation on
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the bond secured by such mortgage, and to exercise and enforce
in any action, suit or proceeding at law or in equity any
rights or remedies in respect to any mortgage or guarantee.
(k) To repair, alter or improve any buildings which
may be on any real estate forming part of the trust fund or to
erect entirely new structures thereon.
(l) To exercise the right to vote any securities held
in the trust, or to grant proxies to vote such securities,
except to the extent that the right to vote any such
securities may specifically be designated to another
hereunder.
(m) To make loans from the trust to participants in
accordance with the provisions of Section 4.12.
(n) To receive and hold, as part of the trust fund,
direct transfers (as described in Section 16) and rollovers,
(as described in Section 17), subject to all limitations and
requirements set forth in the plan.
(o) To acquire life insurance policies in accordance
with Section 20 of the plan.
(p) To permit participants to direct the investments
and reinvestments of the amounts credited to their accounts in
accordance with the provisions of Section 23.
(q) To transfer, at any time and from time to time, a
portion of the assets held by it pursuant to this plan to any
common trust fund within the meaning of Section 584 of the
Code or to any trust which is qualified under Section 401(a)
and exempt under Section 501(a) of the Code, and which common
trust fund is maintained as a medium for the pooling of funds
of pension and profit-sharing trusts for diversifying
investments. The terms and provisions of any such trust shall,
upon such transfer and execution, be incorporated by reference
into this plan to the extent of the assets so transferred.
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(r) To transfer monies of this trust to a separate
fund or funds maintained solely for the assets of the trust
established with respect to the plan maintained by the
Employer, which fund or funds shall not be commingled, pooled
or consolidated for investment with assets of another
qualified trust. Each such fund shall be referred to herein as
an "Investment Fund" and collectively as "Investment Funds."
Assets transferred to an Investment Fund shall be invested and
reinvested by the Trustee in accordance with the provisions of
this Section 18.
(s) To do all acts and to exercise any and all
powers, although not specifically set forth herein, as the
Trustee may deem are for and in the best interest of the plan,
the participants and beneficiaries.
18.1.2. The Board may at any time direct the Trustee to
segregate all or a specified portion of the trust assets into a
separate fund (the "directed fund") and invest it in accordance with
the directions of one or more investment managers appointed by the
Board, subject to the following provisions:
(a) Any investment manager so appointed shall (i) be
registered as an investment advisor under the Investment
Advisers Act of 1940; (ii) be a bank, as defined in the
Investment Advisers Act of 1940; or (iii) be an insurance
company qualified under the laws of more than one state to
manage, acquire and dispose of assets of the trust under the
plan.
(b) The Board shall deliver to the Trustee a copy of
a written acknowledgment by the investment manager that it
meets the requirements of paragraph (a), that it is a
fiduciary with respect to the plan, and that it has accepted
appointment as an investment manager. The Trustee shall be
protected in assuming that the appointment of an investment
manager remains in effect until the Trustee shall be notified
in writing by the Board that such investment manager has been
removed or has resigned.
(c) The Trustee shall invest and reinvest the
directed funds only to the extent and in the manner directed
by the investment manager. If the Trustee has not received
instructions from an investment man-
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ager with respect to the investment of all or a part of the
directed fund, the Trustee shall invest such amounts in
interest bearing obligations having maturities of 90 days or
less, or in a common fund comprised substantially of such
obligations, until directed otherwise by the investment
manager.
(d) Any investment manager may from time to time
issue orders for the purchase or sale of securities directly
to a broker or dealer, and the Trustee, upon direction from
the investment manager, shall execute and deliver appropriate
trading authorization. Written notice of the issuance of each
order and of execution of each order shall be authority to the
Trustee to receive securities purchased against payment
therefor and to deliver securities sold against receipt of the
proceeds therefrom, as the case may be.
(e) Upon removal or resignation of an investment
manager, and pending appointment of a substitute investment
manager, the Trustee shall invest any uninvested cash in the
manner described in paragraph (c), and shall not sell or
liquidate any investments of the directed fund.
(f) No plan fiduciary other than an investment
manager shall be liable for any act or omission of such
investment manager unless such fiduciary participates
knowingly in, or knowingly undertakes to conceal, such act or
omission which such fiduciary knows to be a breach of the
fiduciary responsibility of the investment manager with
respect to the plan. Further, no plan fiduciary other than an
investment manager shall be under any obligation to invest or
otherwise manage the assets of the plan that are subject to
the management of the investment manager and, to the maximum
extent permitted by ERISA, the plan fiduciaries other than the
investment manager shall have no liability or responsibility
for acts or failures to act as directed by the investment
manager, or, subject to paragraph (c), failing to act in the
absence of any such direction.
18.1.3. Notwithstanding any other provision of Section 18, the
following provisions shall apply:
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(a) Subject to the requirements of Section 23, each
participant in the plan may direct the Trustee by acting
through the Committee with respect to the investment or
reinvestment of all or any portion of the amount allocated to
his benefit under the plan; and
(b) Subject to the provisions of Section 8.1 and
paragraph (a) immediately preceding, the Committee may direct
the Trustee with respect to the investment or reinvestment of
assets of the trust, including contributions not yet invested,
in one or more common trust funds described in Section
18.1.1(q).
18.1.4. Notwithstanding any other provisions of Section 18, in
no event shall the Trustee exercise any powers under the plan in a
manner that will constitute a prohibited transaction as defined in
Section 4975 of the Code and in Section 406 of ERISA.
18.1.5. The Trustee shall be fully protected in acting upon
any instrument, certificate, letter or other documents which the
Trustee believes to be genuine. No person dealing with the Trustee
shall be required to inquire into the decisions or authorities of the
Trustee or to see to the application by the Trustee of any properties
involved in any transaction; provided, that this provision shall not
relieve any plan fiduciary dealing with the Trustee from fulfilling his
fiduciary duty. For the purposes of this plan, the "fiduciary duty" of
the plan fiduciaries (including the Trustee) shall include the duties
specified in Sections 8.1 and 9, the obligation not to enter into
prohibited transactions as described in Section 18.1.4, and all other
duties imposed on the respective plan fiduciaries under ERISA.
18.1.6. In the management of the trust fund, the Trustee may
employ agents and delegate to them such ministerial and limited
discretionary duties as the Trustee shall see fit, and the Trustee
shall not be responsible for any loss occasioned by any such agent
unless the Trustee shall commit a breach of its fiduciary duty (as
defined in Section 18.1.5) in the designation of such agent, in
establishing or implementing a procedure for making such designation,
or in continuing such designation in effect. The Trustee may consult
with counsel of its own selection, who may also be of counsel to the
Sponsor. The
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reasonable compensation or fees charged by all such persons for their
services shall be deemed to be expenses of administration of the trust.
18.1.7. All real and personal property taxes, income taxes and
other taxes of any and all kinds whatsoever upon or in respect of the
trust hereby created or any money, income or property forming a part
thereof, and all expenses actually and properly incurred in the
administration of the trust, shall be paid by the Trustee out of
principal or income of the trust, as the Trustee shall determine;
provided, that the Employer may, in the discretion of the Board, pay
any of the expenses incurred in the administration of the trust. The
payment out of the trust of any taxes and expenses authorized in this
Section 18.1.7, and the payment of all other costs, expenses or
compensation authorized by this plan to be paid out of the trust, shall
be deemed to be for the exclusive benefit of the participants under the
plan.
18.2. Accountings: The Trustee shall keep accurate and
detailed accounts of all investments, receipts, disbursements and other
transactions and proceedings of the trust and all such accounts and other
records relating thereto shall be open to inspection and audit at all reasonable
times by any person designated by the Board or the Committee. Within 120 days
after the end of each plan year, and at such other times as the Board may
reasonably require, the Trustee shall prepare and deliver to the Committee a
statement of its accounts and proceedings for such plan year. Each such
statement shall be certified as accurate by the Trustee and, with respect to the
plan year in question, shall contain the following:
(a) A statement of assets and liabilities aggregated by
categories and valued at fair market value as of the close of the plan
year in question.
(b) A statement setting forth changes in the net assets
available for plan benefits, including a statement of receipts and
disbursements during the plan year, aggregated by general source and
application.
(c) A statement setting forth all assets held for investment
purposes aggregated and identified by issuer, borrower, lessor or
similar party to the transaction, maturity date, rate of interest,
collateral, par or maturity value, cost and current fair market value.
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(d) A statement setting forth all loans or fixed income
obligations which were in default as of the close of the plan year or
were classified during the plan year as uncollectible, and such
detailed information with respect thereto as is required by ERISA to be
included in the annual report to be filed with the Internal Revenue
Service.
(e) A statement setting forth all leases which were in default
as of the close of the plan year or were classified during the plan
year as uncollectible, and such detailed information with respect
thereto as is required by ERISA to be included in the annual report to
be filed with the Internal Revenue Service.
(f) If some or all of the assets of the trust are held in a
guaranteed investment contract issued by a legal reserve life insurance
company, such information as is required by the plan administrator to
comply with the requirement to file an annual report with the Internal
Revenue Service.
(g) A statement setting forth each reportable transaction (as
defined in ERISA), including such detailed information with respect
thereto as is required by ERISA to be included in the annual report to
be filed with the Internal Revenue Service.
(h) If some or all of the assets of the trust are held in a
common or collective trust maintained by the Trustee, the most recent
annual statement of assets and liabilities of said common or collective
trust.
(i) Such other information as may reasonably be required by
the plan administrator to comply with the requirements to file an
annual report with the Internal Revenue Service.
18.3. Compensation of Trustee: As compensation for its
services hereunder, the Trustee shall be entitled to retain or receive out of
the trust fund (subject to the provisions of Section 18.1.6) compensation in
accordance with its usual schedule of fees in effect at the time of performance
of such services, but not in excess of reasonable compensation for such
services.
18.4. Responsibilities and scope of duties of Trustee: The
Trustee hereby agrees to hold in trust and administer the fund hereunder,
subject to all of the terms and conditions
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of the plan, and to render an annual accounting as provided in Section 18.2. The
Trustee shall act in accordance with written instructions or directions of the
Committee made in conformity with ERISA and the terms of the plan, and signed by
an authorized representative of the Committee. In carrying out such instructions
or directions, the Trustee shall not be obligated to inquire into the purpose or
purposes for such instructions or directions or whether such instructions or
directions are consistent with the plan or are otherwise proper.
18.5. Failure to direct Trustee: If at any time the Employer
or the Committee shall be incapable for any reason of giving instructions,
directions or authorizations to the Trustee as herein provided, the Trustee may
act without such instructions, directions or authorizations as it, in its
discretion, shall deem appropriate or advisable under the circumstances for
carrying out the provisions of the plan.
Section 19. Qualification of Plan:
---------- ---------------------
19.1. If the plan is not a standardized form plan, the
Employer shall promptly submit the plan (including the Adoption Agreement and
all necessary supporting documents), and all amendments permitted under Section
8.1.2 which are made by the Employer to the plan, to the Internal Revenue
Service with a request for a determination letter that the plan as applied to
the Employer meets the qualification requirements of Section 401(a) of the Code
and that the trust constituting a part of the plan is exempt under Section
501(a) of the Code.
19.2. Should the Internal Revenue Service determine pursuant
to such initial submission that the plan as applied to the Employer does not so
qualify, the following procedures shall be followed:
19.2.1. Notwithstanding any other provisions of the plan, the
plan as applied to the Employer shall be deemed cancelled, the Employer
shall not be a party to the plan, and no employee of the Employer or
person claiming under any such employee shall have any right or claim
to any asset or benefit of the trust fund, except as provided in
Section 19.2.3.
19.2.2. The Trustee shall liquidate the trust of the Employer
and, after paying or making provision for the compensation of the
Trustee and any expenses of admini-
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stration or liquidation of the trust, shall pay the balance of the
proceeds of such liquidation to the Employer.
19.2.3. The Employer shall refund to each employee the amount
of any contribution made by him (or, if less, the amount of such
contribution then in his account).
19.3. The Employer shall promptly advise the Trustee should it
be notified by the Internal Revenue Service that the plan as applied to the
Employer is no longer qualified as specified in Section 19.1. If the plan as
applied to the Employer is disqualified, such plan will no longer participate in
this master plan and will be considered an individually designed plan. In all
such cases all sums then held in the trust for the account of the Employer shall
be segregated or otherwise disposed of for the exclusive benefit of the
employees of the Employer within 30 days after final determination of
disqualification.
Section 20. Purchase of Insurance Policies:
---------- ------------------------------
Notwithstanding any other provisions of the plan, if permitted
by the Adoption Agreement, each participant, acting through the Committee, may
direct the Trustee to invest a portion of his Employer contribution account, and
all or a portion of his employee contribution account or mandatory contribution
account (the "participant's contribution accounts"), if any, in one or more life
insurance policies (including ordinary or individual term life insurance
policies, or any combination thereof) issued on the life of the participant by a
legal reserve life insurance company, subject to the following provisions:
20.1. Premiums paid on each such policy shall be paid from the
trust and charged first against the participant's Employer contribution account,
subject to the limitations of Section 20.2. Any premiums not so charged to his
Employer contribution account shall be charged in the following order to his
mandatory contribution account or employee contribution account, if any. The
dividends and any other policy credits shall be used to reduce the annual
premiums on such policy.
20.2. The aggregate of the premiums paid on all ordinary life
insurance policies at any time charged to the participant's Employer
contribution account shall be less than 50% of the aggregate of the Employer
contributions allocated to such account; the aggregate of the premiums paid on
all indi-
<PAGE>
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vidual term life insurance policies (including universal life insurance) at any
time charged to the participant's employer contribution account shall be less
than 25% of the aggregate of the Employer contributions allocated to such
account; and the sum of the amount charged to the participant's Employer
contribution account for payment of the premiums with respect to individual term
life insurance policies and one-half of the premiums with respect to ordinary
life insurance policies shall not exceed 25% of the aggregate of the Employer
contributions allocated to such account. No part of the participant's deductible
contribution account shall be used to purchase life insurance. For purposes of
this Section 20, "ordinary life insurance policies" are policies with both
nondecreasing death benefits and nonincreasing premiums.
20.3. The Trustee shall apply for and will be the owner of any
insurance contract purchased under the plan. Such insurance contract must
provide that proceeds shall be payable to the Trustee, however, the Trustee
shall be required to pay over all such proceeds to the participant's designated
beneficiary in accordance with the provisions of Section 4.6 of the plan. A
participant's spouse shall be the designated beneficiary of the proceeds in all
circumstances unless a qualified election has been made in accordance with
Section 4.7.3(d). Under no circumstances shall the trust retain any part of the
proceeds. In the event there shall be a conflict between the terms of any policy
and the terms of the plan, the terms of the plan shall control.
20.4. Subject to the requirements of Section 4.7, as of the
adjustment date as of which distribution to a participant shall commence as
provided in Section 4, the Trustee, as directed by the Committee, shall either
convert any ordinary life insurance policy into cash or distribute such policy
to the participant. If such policy is converted into cash, such cash shall be
credited to his Employer contribution account, or participant's contribution
accounts, in the same proportion as aggregate premium payments were charged to
each respective account, and paid or applied in accordance with the provisions
of the plan applicable to the payment of benefits. The issue date of each such
policy shall be an adjustment date.
20.5. Notwithstanding any other provision of the plan, the
insured participant shall have a fully vested interest in each such policy. If
the participant shall die at a time when one or more policies with respect to
him are held by the trust, the proceeds of each such policy shall be added to
any other amounts payable with respect to him under the plan,
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and such sum (subject to adjustment under Section 6) shall constitute part of
his accrued benefit.
20.6. If for any reason a premium on a policy cannot be paid,
the Trustee, as directed by the Committee in a nondiscriminatory manner, shall:
(i) convert the policy into a paid up policy; (ii) surrender the policy; (iii)
sell the policy to the participant for its then net cash surrender value; or
(iv) borrow against the loan value of the policy the amount necessary to pay the
premium due, which loan plus interest shall be a charge against the loan value
(or death proceeds) of such policy. If an insured participant shall elect not to
continue in force a policy issued with respect to his life, the Trustee, as
directed by the Committee, shall either surrender the policy or sell the policy
to the participant for its then net cash surrender value. A paid up policy shall
be held in the trust for future distribution to the insured participant or his
beneficiary in accordance with the applicable provisions of the plan. The
proceeds of any policy which is surrendered or sold to the participant shall be
credited to the participant's account. Any policy loan may be repaid or may be
continued by the Trustee, as directed by the Committee in a nondiscriminatory
manner, subject to the provisions of Section 20.2.
20.7. In lieu of acquiring a new policy with respect to a
participant, the Trustee may purchase from such participant any life insurance
policy then outstanding on his life; provided, such purchase shall satisfy the
fiduciary standards described in Section 8.1 and the consideration paid for such
purchase shall not exceed the lesser of (i) the cash surrender value of such
policy or (h) the then accrued benefit of such participant. In no event shall
the Trustee assume any loan, mortgage or similar lien to which such policy shall
be subject.
20.8. To the extent not inconsistent with the foregoing
provisions of this Section 20, the Committee may direct the Trustee with respect
to any other matters involving any such policy under the plan.
Section 21. Special Top-Heavy Provisions:
---------- ----------------------------
The following special provisions shall apply and supersede any
conflicting provisions in the plan or Adoption Agreement with respect to any
plan year beginning after December 31, 1983 in which the plan is determined to
be top-heavy:
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21.1. Definitions: 'Me following definitions shall apply for
purposes of this Section 21:
21.1.1. "Determination date" shall mean for any plan year
subsequent to the first plan year, the last day of the preceding plan
year. For the first plan year of the plan, the last day of that year
shall be the determination date.
21.1.2. "Key employee" shall mean any employee or former
employee (and the beneficiaries of such employee) who at any time
during the determination period was an officer of the Employer if such
individual's annual compensation exceeds 150% of the dollar limitation
under Section 415(b)(1)(A) of the Code, an owner (or considered an
owner under Section 318 of the Code) of one of the 10 largest interests
in the Employer if such individual's compensation exceeds 100% of the
dollar limitation under Section 415(c)(1)(A) of the Code, a 5 % owner
of the Employer, or a 1% owner of the Employer who has an annual
compensation of more than $150,000. Annual compensation means
compensation as defined in Section 415(c)(3) of the Code, but including
amounts contributed by the Employer pursuant to a salary reduction
agreement which are excludible from the employee's gross income under
Sections 125, 402(a)(8), 402(h) or 403(b) of the Code. The
determination period is the plan year containing the determination date
and the preceding 4 plan years. The determination of who is a key
employee will be made in accordance with Section 416(i)(1) of the Code
and the regulations thereunder.
21.1.3. "Permissive aggregation group" shall mean the required
aggregation group of plans plus any other plan or plans of the Employer
which, when considered as a group with the required aggregation group,
would continue to satisfy the requirements of Sections 401(a)(4) and
410 of the Code.
21.1.4. "Present value" shall mean the present value
determined by reference to the interest and mortality rates specified
in Adoption Agreement.
21.1.5. "Required aggregation group" shall mean (a) each
qualified plan of the Employer in which at least one key employee
participates or participated at any time during the determination
period (regardless of whether the plan has terminated), and (b) any
other qualified plan of
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the Employer which enables a plan described in (a) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
21.1.6. "Top-heavy plan" shall mean, for any plan year
beginning after December 31, 1983, this plan if any of the following
conditions exists:
(a) The top-heavy ratio for this plan exceeds 60% and
this plan is not part of any required aggregation group or
permissive aggregation group of plans.
(b) This plan is a part of a required aggregation
group of plans but not part of a permissive aggregation group
and the top-heavy ratio for the group of plans exceeds 60%.
(c) This plan is a part of a required aggregation
group and part of a permissive aggregation group of plans and
the top-heavy ratio for the permissive aggregation group
exceeds 60%.
21.1.7. "Top-heavy ratio" shall mean the following:
(a) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension
plan) and the Employer has not maintained any defined benefit
plan which during the 5 year period ending on the
determination date(s) has or has had accrued benefits, the
top-heavy ratio for this plan alone or for the required or
permissive aggregation group as appropriate is a fraction, the
numerator of which is the sum of the accrued benefits of all
key employees as of the determination date(s) [including any
part of any accrued benefit distributed in the 5 year period
ending on the determination date(s)], and the denominator of
which is the sum of all accrued benefits [including any part
of any accrued benefit distributed in the 5 year period ending
on the determination date(s)], both computed in accordance
with Section 416 of the Code and the regulations thereunder.
Both the numerator and denominator of the top-heavy ratio are
increased to reflect any contribution not actually made as of
the determination date, but which is required to be taken into
account on that date under Section 416 of the Code and the
regulations thereunder.
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(b) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension
plan) and the Employer maintains or has maintained one or more
defined benefit plans which during the 5 year period ending on
the determination date(s) has or has had any accrued benefits,
the top-heavy ratio for any required or permissive aggregation
group as appropriate is a fraction, the numerator of which is
the sum of accrued benefits under the aggregated defined
contribution plan or plans for all key employees, determined
in accordance with paragraph (a) above, and the present value
of accrued benefits under the aggregated deferred benefit plan
or plans for all key employees as of the determination
date(s), and the denominator of which is the sum of the
accrued benefits under the aggregated defined contribution
plan or plans for all participants, determined in accordance
with paragraph (a) above, and the present value of accrued
benefits under the defined benefit plan or plans for all
participants as of the determination date(s), all determined
in accordance with Section 416 of the Code and the regulations
thereunder. The accrued benefits under a defined benefit plan
in both the numerator and denominator of the top-heavy ratio
are increased for any distribution of an accrued benefit made
in the 5-year period ending on the determination date.
(c) For purposes of paragraphs (a) and (b) above, the
value of account balances and the present value of accrued
benefits will be determined as of the most recent valuation
date that falls within or ends with the 12 month period ending
on the determination date, except as provided in Section 416
of the Code and the regulations thereunder for the first and
second plan years of a defined benefit plan. The account
balances and accrued benefits of a participant (1) who is not
a key employee but who was a key employee in a prior year, or
(2) who has not been credited with at least one hour of
service with any employer maintaining the plan at any time
during the 5 year period ending on the determination date will
be disregarded. The calculation of the top-heavy ratio, and
the extent to which distributions, rollovers, and transfers
are taken into account will be made in accordance with Section
416 of the Code and the regulations thereunder. Deductible
employee contributions will not be taken into account for
purposes of com-
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puting the top-heavy ratio. When aggregating plans, the value
of account balances and accrued benefits will be calculated
with reference to the determination dates that fall within the
same calendar year. The accrued benefit of a participant other
than a key employee shall be determined under (a) the method,
if any, that uniformly applies for accrual purposes under all
defined benefit plans maintained by the Employer, or (b) if
there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the
fractional rule of Section 411(b)(1)(C) of the Code.
21.1.8. "Valuation date" shall mean the adjustment date
defined in Section 1.3.
21.2. Top-heavy requirements: Notwithstanding any other
provisions of the plan, the plan must satisfy the following requirements for any
plan year in which the plan is a top-heavy plan:
21.2.1. Minimum allocation requirements: Except as otherwise
provided in (a) and (b) below, the Employer contributions and
forfeitures allocated on behalf of any participant who is not a key
employee shall not be less than the lesser of 3% of such participant's
compensation or, in the case where the Employer has no defined benefit
plan which designates this plan to satisfy Section 401 of the Code, the
largest percentage of Employer contributions and forfeitures (as a
percentage of the first $200,000 of the key employee's compensation)
allocated on behalf of any key employee for that year. The minimum
allocation is determined without regard to any Social Security
contribution. This minimum allocation shall be made even though, under
other plan provisions, the participant would not otherwise be entitled
to receive an allocation, or would have received a lesser allocation
for the year, because of (i) the participant's failure to complete
1,000 hours of service (or any equivalent provided in the plan), (ii)
the participant's failure to make mandatory employee contributions to
the plan, or (iii) compensation less than a stated amount. For purposes
of computing the minimum allocation, compensation shall mean
compensation as defined in Section 1.10 of the plan. The provisions of
this Section 21.2.1 shall not apply: (a) to any participant who was not
employed by the Employer on the last day of the plan year, or (b) to
any participant to the extent the participant is covered under any
other plan or plans of
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the Employer and the Employer has provided in Section 21.2.1 of the
Adoption Agreement that the minimum allocation or benefit requirement
applicable to top-heavy plans will be met in the other plan or plans.
The minimum allocation required (to the extent required to be
nonforfeitable under Section 416(b) of the Code) may not be forfeited
under Section 411(a)(3)(B) or 411(a)(3)(D) of the Code. Notwithstanding
the foregoing, if this plan and any other defined contribution plan of
the Employer are paired plans, the Employer shall provide a minimum
allocation under one such plan equal to 3% of compensation for each
non-key employee who is entitled to a minimum allocation under each of
the paired plans.
21.2.2. Minimum vesting requirements: For any plan year in
which this plan is top-heavy, one of the minimum vesting schedules as
elected by the Employer in the Adoption Agreement shall automatically
apply to the plan. The minimum vesting schedule applies to all benefits
within the meaning of Section 411(a)(7) of the Code except those
attributable to employee contributions, including benefits accrued
before the effective date of Section 416 and benefits accrued before
the plan became top-heavy. Further, no reduction in vested benefits may
occur in the event the plan's status as top-heavy changes for any plan
year. However, this Section 21.2.2 does not apply to the accrued
benefits of any employee who does not have an hour of service after the
plan has initially become top-heavy and such employee's accrued benefit
attributable to Employer contributions and forfeitures will be
determined without regard to this section.
Section 22. Limitations on Allocations:
---------- --------------------------
Limitations on allocations: In administering the plan, the
following special provisions shall apply:
22.1. The following provisions shall apply if the participant
does not participate in, and has never participated in, another qualified plan,
welfare benefit fund defined in Section 419(e) of the Code, or an individual
medical account defined in Section 415(l)(2) of the Code, maintained by the
Employer, which provides an annual addition defined in Section 22.5.1:
22.1.1. The amount of annual additions which may be credited
to the participant's account for any limitation
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year shall not exceed the lesser of the maximum permissible amount or
any other limitation contained in this plan. If the Employer
contribution that would otherwise be contributed or allocated to the
participant's account would cause the annual additions for the
limitation year to exceed the maximum permissible amount, the amount
contributed or allocated shall be reduced so that the annual additions
for the limitation year will equal the maximum permissible amount.
22.1.2. Prior to determining the participant's actual
compensation for the limitation year, the Employer may determine the
maximum permissible amount for a participant on the basis of a
reasonable estimation of the participant's compensation for the
limitation year, uniformly determined for all participants similarly
situated.
22.1.3. As soon as administratively feasible after the end of
the limitation year, the maximum permissible amount for the limitation
year shall be determined on the basis of the participant's actual
compensation for the limitation year.
22.1.4. If pursuant to Section 22.1.3 or as a result of an
allocation of forfeitures there is an excess amount, the excess will be
disposed of as provided in the Adoption Agreement.
22.2. The following provisions shall apply if, in addition to
this plan, the participant is covered under another qualified master or
prototype defined contribution plan, a welfare benefit fund defined in Section
419(e) of the Code, or an individual medical account defined in Section
415(l)(2) of the Code, maintained by the Employer, which provides an annual
addition as defined in Section 22.5.1 during any limitation year:
22.2.1. The annual additions which may be credited to a
participant's account under this plan for any such limitation year
shall not exceed the maximum permissible amount reduced by the annual
additions credited to a participant's account under the other plans and
welfare benefit funds for the same limitation year. If the annual
additions with respect to the participant under other defined
contribution plans and welfare benefit funds maintained by the Employer
are less than the maximum permissible amount and the Employer
contribution that would otherwise be contributed or allocated to the
participant's account under this plan would cause the annual additions
for
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the limitation year to exceed this limitation, the amount contributed
or allocated shall be reduced so that the annual additions under all
such plans and funds for the limitation year will equal the maximum
permissible amount. If the annual additions with respect to the
participant under such other defined contribution plans and welfare
benefit funds in the aggregate are equal to or greater than the maximum
permissible amount, no amount shall be contributed or allocated to the
participant's account under this plan for the limitation year.
22.2.2. Prior to determining the participant's actual
compensation for the limitation year, the Employer may determine the
maximum permissible amount for a participant in the manner described in
Section 22.1.2.
22.2.3. As soon as administratively feasible after the end of
the limitation year, the maximum permissible amount for the limitation
year shall be determined on the basis of the participant's actual
compensation for the limitation year.
22.2.4. If, pursuant to Section 22.2.3 or as a result of the
allocation of forfeitures, a participant's annual additions under this
plan and such other plans would result in an excess amount for a
limitation year, the excess amount shall be deemed to consist of the
annual additions last allocated, except that annual additions
attributable to a welfare benefit fund or individual medical account
will be deemed to have been allocated first regardless of the actual
allocation date.
22.2.5. If an excess amount was allocated to a participant on
an adjustment date of this plan which coincides with an adjustment date
of another plan, the excess amount attributed to this plan will be the
product of (A) multiplied by (B), where (A) is the total excess amount
allocated as of such date, and (B) is the ratio of (i) the annual
additions allocated to the participant for the limitation year as of
such date under this plan to (ii) the total annual additions allocated
to the participant for the limitation year as of such date under this
and all other qualified master or prototype defined contribution plans.
22.2.6. Any excess amount attributed to this plan will be
disposed in the manner described in Section 22.1.4.
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22.3. If the participant is covered under another qualified
defined contribution plan maintained by the Employer which is not a master or
prototype plan, annual additions which may be credited to the participant's
account under this plan for any limitation year shall be limited in accordance
with Sections 22.2.1 through 22.2.6 as though the other plan were a master or
prototype plan unless the Employer provides other limitations in Section 22 of
the Adoption Agreement.
22.4. If the Employer maintains, or at any time maintained, a
qualified defined benefit plan covering any participant in this plan, the sum of
the participant's defined benefit plan fraction and defined contribution plan
fraction shall not exceed 1.0 in any limitation year. The annual additions which
may be credited to the participant's account under this plan for any limitation
year shall be limited in accordance with Section 22 of the Adoption Agreement.
22.5. Definitions: For purposes of this Section 22, the
following definitions shall apply:
22.5.1. "Annual additions" shall mean the sum of the following
amounts credited to a participant's account for the limitation year:
(a) Employer contributions;
(b) forfeitures; and
(c) nondeductible employee contributions.
For this purpose, any excess amount applied under Sections 22.1.4 or
22.2.6 in the limitation year to reduce Employer contributions will be
considered annual additions for such limitation year. Amounts
allocated, after March 31, 1984, to an individual medical account, as
defined in Section 415(l)(1) of the Code, which is part of a pension or
annuity benefit plan maintained by the Employer, shall be treated as
annual additions to a defined contribution plan. Also, amounts derived
from contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement
medical benefits allocated to the separate account of a key employee,
as defined in Section 419A(d)(3) of the Code, under a welfare benefit
fund, as defined in Section 419(e) of the Code, maintained by the
Employer, are treated as annual additions to a defined contribution
plan.
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22.5.2. "Compensation" shall mean a participant's earned
income, wages, salaries, and fees for professional services and other
amounts received for personal services actually rendered in the course
of employment with the Employer maintaining the plan (including, but
not limited to, commissions paid salesmen, compensation for services on
the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses), and excluding the following:
(a) Employer contributions to a plan of deferred
compensation which are not includible in the employee's gross
income for the taxable year in which contributed, Employer
contributions under a simplified employee pension plan to the
extent such contributions are deductible by the employee, or
any distributions from a plan of deferred compensation;
(b) Amounts realized from the exercise of a
nonqualified stock option, or when restricted stock (or
property) held by the employee either becomes freely
transferable or is no longer subject to a substantial risk of
forfeiture;
(c) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option;
and
(d) Other amounts which receive special tax benefits,
contributions made by the Employer (whether or not under a
salary reduction agreement) toward the purchase of an annuity
described in Section 403(b) of the Code (whether or not the
amounts are actually excludable from the gross income of the
employee).
For purposes of applying the limitations of this Section 22,
compensation for a limitation year is the compensation actually paid or
includible in gross income during such year. Notwithstanding the
preceding sentence, compensation for a participant in a defined
contribution plan who is permanently and totally disabled (as defined
in Section 22(e)(3) of the Code) is the compensation such participant
would have received for the limitation year if the participant had been
paid at the rate of compensation paid immediately before becoming
permanently and totally disabled; such imputed compensation for the
disabled participant may be taken into account only if the participant
is not a highly compensated employee (as defined in Section
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414(q) of the Code) and contributions made on behalf of such
participant are nonforfeitable when made.
22.5.3. "Defined benefit fraction" shall mean a fraction, the
numerator of which is the sum of the participant's projected annual
benefits under all the defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator of which is
the lesser of 125% of the dollar limitation determined for the
limitation year under Sections 415(b) and (d) of the Code or 140% of
the highest average compensation, including any adjustments under
Section 415(b) of the Code. Notwithstanding the above, if the
participant was a participant as of the first day of the first
limitation year beginning after December 31, 1986, in one or more
defined benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction shall not be
less than 125% of the sum of the annual benefits under such plans which
the participant had accrued as of the close of the last limitation year
beginning before January 1, 1987, disregarding any changes in the terms
and conditions of the plan after May 5, 1986. The preceding sentence
applies only if the defined benefit plans individually and in the
aggregate satisfied the requirements of Section 415 of the Code for all
limitation years beginning before January 1, 1987.
22.5.4. "Defined contribution dollar limitation" shall mean
$30,000 or, if greater, 25 % of the defined benefit dollar limitation
set forth in Section 415(b)(1) of the Code as in effect for the
limitation year.
22.5.5. "Defined contribution fraction" shall mean a fraction,
the numerator of which is the sum of the annual additions to the
participant's account under all the defined contribution plans (whether
or not terminated) maintained by the Employer for the current and all
prior limitation years (including the annual additions attributable to
the participant's nondeductible employee contributions to all defined
benefit plans, whether or not terminated, maintained by the Employer,
and the annual additions attributable to all welfare benefit funds
defined in Section 419(e) of the Code, and individual medical accounts
defined in Section 415(l)(2) of the Code, maintained by the Employer),
and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior limitation years of service with
the Employer (regardless of whether a defined contribution plan was
maintained by
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the Employer). The maximum aggregate amount in any limitation year is
the lesser of 125% of the dollar limitation in effect under Section
415(c)(1)(A) of the Code or 35% of the participant's compensation for
such year. If the employee was a participant as of the end of the first
day of the first limitation year beginning after December 31, 1986, in
one or more defined contribution plans maintained by the Employer which
were in existence on May 6, 1986, the numerator of this fraction shall
be adjusted if the sum of this fraction and the defined benefit
fraction would otherwise exceed 1.0 under the terms of this plan. Under
the adjustment, an amount equal to the product of (A) multiplied by
(B), where (A) is the excess of the sum of the fractions over 1.0, and
(B) is the denominator of this fraction, will be permanently subtracted
from the numerator of this fraction. The adjustment is calculated using
the fractions as they would be computed as of the end of the last
limitation year beginning before January 1, 1987, and disregarding any
changes in the terms and conditions of the plan made after May 5, 1986,
but using the Section 415 limitation applicable to the first limitation
year beginning on or after January 1, 1987. The annual addition for any
limitation year beginning before January 1, 1987, shall not be
recomputed to treat all employee contributions as annual additions.
22.5.6. "Employer" shall mean (for purposes of this Section
22) the Employer that adopts this plan, and all affiliated employers.
22.5.7. "Excess amount" shall mean the excess of the
participant's annual additions for the limitation year over the maximum
permissible amount.
22.5.8. "Highest average compensation" shall mean the average
compensation for the 3 consecutive years of service with the Employer
that produces the highest average. A year of service with the Employer
is the 12 consecutive month period defined in Section 1.37.
22.5.9. "Limitation year" shall mean a calendar year or the 12
consecutive month period elected by the Employer in the Adoption
Agreement. All qualified plans maintained by the Employer must use the
same limitation year. If the limitation year is amended to a different
12 consecutive month period, the new limitation year must begin on a
date within the limitation year in which the amendment is made.
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22.5.10. "Master or prototype plan" shall mean a plan which is
the subject of a favorable opinion letter from the Internal Revenue
Service.
22.5.11. "Maximum permissible amount" shall mean the maximum
annual addition that may be contributed or allocated to a participant's
account under the plan for any limitation year, which shall not exceed
the lesser of (a) the defined contribution dollar limitation, or (b)
25% of the participant's compensation for the limitation year. The
compensation limitation referred to in clause (b) of the preceding
sentence shall not apply to any contribution for medical benefits
(within the meaning of Sections 401(h) or 419A(f)(2) of the Code) which
is otherwise treated as an annual addition under Section 415(l)(1) or
419A(d)(2) of the Code. If a short limitation year is created because
of an amendment changing the limitation year to a different 12
consecutive month period, the maximum permissible amount shall not
exceed the defined contribution dollar limitation multiplied by the
following fraction:
Number of months
in the short limitation year
----------------------------
12
22.5.12. "Projected annual benefit" shall mean the annual
retirement benefit (adjusted to an actuarially equivalent straight life
annuity if such benefit is expressed in a form other than a straight
life annuity or qualified joint and survivor annuity) to which the
participant would be entitled under the terms of the plan assuming:
(a) the participant will continue employment
until normal retirement age under the plan (or current age,
if later), and
(b) the participant's compensation for the current
limitation year and all other relevant factors used to
determine benefits under the plan will remain constant for all
future limitation years.
Section 23. Participant Directing Investment:
---------- --------------------------------
Notwithstanding any other provisions of the plan, to the
extent permitted by the Adoption Agreement, each partici-
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pant having an amount to his credit under the plan may, acting through the
Committee, direct the Trustee as to the investment or reinvestment of his
account subject to the following provisions:
23.1. If elected by the Employer in the Adoption Agreement and
subject to the provisions of Section 23.1.7, the following provisions shall
apply:
23.1.1. As provided in this Section 23. 1, a participant shall
be entitled to direct the Trustee as to the investment and reinvestment
of the amount credited to his account among the separate funds within
the Diversified Funds [subject to the limitations in Section
18.1.1(q)], the Self-Employed Funds [subject to the limitations in
Section 18.1.1(r)], or any Investment Fund [subject to the limitations
in Section 18.1.1(s)]. Each such fund of the Diversified Funds,
Self-Employed Funds or Investment Fund shall be referred to herein as a
"Directed Investment Fund."
23.1.2. With respect to each participant so directing the
Trustee, the Committee shall keep with respect to the amount to his
credit in each Directed Investment Fund accounts subsidiary to each of
his separate accounts described in Section 1.1. Each of such subsidiary
accounts shall be referred to as a "fund account."
23.1.3. Except as otherwise specifically provided herein, each
fund account shall be adjusted as of each adjustment date in the manner
provided in the applicable provisions of Section 6, as if it were the
entire account of the participant to which it is subsidiary, with
respect to distributions and forfeitures allocated to it and with
respect to its share of the net income or net loss of the Directed
Investment Fund of which it is a part. Distributions from the accounts
of the participant, any forfeitures allocated thereto, and any amounts
forfeited by such participant under Section 5.3 due to a termination of
service, shall be allocated by the Trustee among the appropriate fund
accounts in the same manner as any Employer contribution would be
allocable among such fund accounts.
23.1.4. By written notice to the Committee on a form approved
by the Trustee at least 15 days prior to any adjustment date, a
participant shall be entitled to designate one or more of the Directed
Investment Funds with respect to which there shall be credited to his
appropriate
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fund account all or a specified percentage of any contribution
allocable to him as of such adjustment date; provided that such
specified percentage shall be a whole number percent from 1-100%. Such
designation shall remain in effect for each succeeding adjustment date
unless the participant shall file a timely application providing for a
different designation with respect to any such succeeding adjustment
date. If for any reason a participant shall not have made an effective
designation with respect to the entire contribution allocable to him as
of any adjustment date, such contribution for which no designation was
made shall be invested by the Trustee subject to the direction of the
Committee.
23.1.5. By written notice to the Committee on a form approved
by the Trustee at least 15 days prior to any adjustment date, a
participant shall be entitled to direct that all or specified
percentage (which shall be a whole number percent from 1-100%) of the
amount credited to any of his accounts or fund accounts be transferred
to any other appropriate fund account as of such adjustment date.
23.1.6. The Committee shall notify the Trustee of all
directions made in accordance with Section 23.1.4 and 23.1.5 as soon as
practicable following their receipt.
23.1.7. The Trustee shall have and may exercise all powers
necessary or advisable in order to implement the provisions of this
Section 23. 1. To the extent approved by the Trustee, the Committee may
promulgate rules or bylaws supplementing and implementing the
provisions of this Section 23.1. If it is not practicable for the
Trustee to effect the transfer of funds on any date provided in this
Section 23.1, the Trustee shall effect such transfer on the first
practicable date thereafter.
23.2. If elected by the Employer (which is not an
unincorporated employer) in the Adoption Agreement and subject to the provisions
of Section 23.2.10, the following provisions shall apply:
23.2.1. As provided in this Section 23.2, a participant who is
fully vested in his accrued benefit shall be entitled to direct the
Trustee as to the investment and reinvestment of his account to the
extent not so directed under Section 23.1.
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23.2.2. Each participant desiring to direct the investment of
his account must file written notice of his election with the Committee
on a form approved by the Trustee at least 15 days prior to the
adjustment date with respect to which such election is to be effective.
The Committee shall provide the Trustee with a copy of the election
form as soon as practicable following its receipt. On or after the date
such election becomes effective, the participant shall direct the
Trustee in writing as to how his account shall be invested from time to
time. Except as otherwise provided pursuant to this Section 23, an
election by a participant shall remain in effect until revoked. To
revoke an election, a participant must file written notice of such
revocation with the Committee on a form approved by the Trustee on or
before the adjustment date as of which such revocation is to be
effective. The Committee shall provide the Trustee with a copy of the
revocation as soon as practicable following its receipt.
Notwithstanding the foregoing, the election of a participant to direct
the investment of his account shall become ineffective as of the
adjustment date as of which payment of his vested accrued benefit shall
commence.
23.2.3. The account of a participant shall be invested and
reinvested by the Trustee as specified by the participant in his
written direction to the Trustee. Such direction shall be made in the
manner specified by the Trustee. The investment categories shall be
limited to those specified in Section 23.2.4, provided that the Trustee
shall not invest any portion of a directed investment account in
collectibles (as defined in Section 408(m) of the Code). The Trustee
shall comply with the participant's direction as soon as practicable.
The direction of the participant shall remain in effect until new
direction is received by the Trustee. If the participant shall direct
the Trustee to purchase or sell common or preferred stocks or options
to buy or sell such stocks, he may specify the brokerage firm from
which or to which such stock or options shall be purchased or sold. If
the participant fails to direct (or improperly directs) the Trustee as
to the investment and reinvestment of any portion of his account, such
portion shall be invested by the Trustee in interest-bearing
obligations with maturities of 90 days or less (hereinafter "money
market investments"), or in a common fund comprised substantially of
money market investments, which common fund may be a separate fund
within the Diversified Funds [subject to the limitations in Section
18.1.1(q)] or the Self-Employed Funds [subject to the
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limitations in Section 18.1.1(r)]. Direction by a participant to the
Trustee shall be deemed ineffective and need not be followed by the
Trustee if such direction is, in the judgment of the Trustee,
incomplete, unclear or clearly contrary to the provisions of the plan.
The participant shall be notified by the Trustee as soon as practicable
that his direction is ineffective, and the account of the participant
shall continue to be invested by the Trustee in accordance with any
prior effective direction. If there is no prior effective direction,
such account shall be invested by the Trustee in money market
investments until such time as the Trustee receives an effective
direction from such participant.
23.2.4. A participant may direct the Trustee to invest and
reinvest his account in (i) common or preferred stocks or options to
buy and sell such stocks, (H) bonds, notes or other securities
(including commercial paper or other long-term obligations), (iii)
mutual funds, (iv) guaranteed investment contracts issued by a legal
reserve life insurance company, (v) cash equivalent deposits or
accounts (including such deposits or accounts issued by the Trustee),
or any combination of (i) through (v).
23.2.5. The Committee shall cause the Trustee to segregate the
account of the participant from the general assets of the trust as of
the adjustment date with respect to which the election of the
participant becomes effective. Such segregated account shall be subject
to adjustment as of each adjustment date in the manner specified in the
applicable provisions of Section 6 as if it composed the entire trust
fund.
23.2.6. Except as provided in Section 23.2.7, upon the death
of the participant his beneficiary shall be entitled to direct the
Trustee in the manner specified in Section 23.2.3 as to the investment
and reinvestment of the segregated account of the participant until the
adjustment date as of which payment of account shall commence under
Section 4.6.2. In default of such direction, or in the event there are
multiple beneficiaries who cannot agree as to such direction, the
segregated accounts of the participant shall continue to be invested by
the Trustee in accordance with the most recent effective direction of
the participant. Amounts in the participant's segregated account shall
be distributed in the manner provided in Section 4.6, except that the
participant (or beneficiary, if applicable) shall be entitled to direct
the Trus-
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tee to distribute such amounts in cash or in kind, or partly in cash
and partly in kind. In default of such direction, or in the event there
are multiple beneficiaries who cannot agree as to such direction, the
participant's segregated account shall be distributed in cash or in
kind, or partly in cash and partly in kind, as directed by the
Committee.
23.2.7. Notwithstanding the provisions of Section 23.6, in the
event the requirements of Section 4.7 shall apply and the participant
shall not make a qualified election as defined in Section 4.7.3(d), the
election of a participant under this Section 23 shall be ineffective as
of the adjustment date coincident with or next following his retirement
or death. As soon as practicable following such adjustment date, the
Trustee shall convert the assets in which the account of the
participant are then invested to cash (except for any assets then
consisting of money market investments) and such cash shall be invested
in money market investments, except that the Trustee shall set aside a
sufficient amount of cash to pay or make provision for payment of
retirement benefits or expenses attributable to the account of such
directing participants.
23.2.8. The exercise of investment direction by a participant
shall not cause such participant to be a fiduciary solely by reason of
such exercise. Neither the Trustee nor any other fiduciary with respect
to the plan shall be liable for any loss or expense which arises from a
participant directing the investment of his account or by reason of an
ineffective direction or failure of the participant to make such
direction. Neither the Committee, the Trustee nor any other fiduciary
with respect to the plan shall have any duty to inquire into the
investment decisions made by a participant (or beneficiary, if
applicable).
23.2.9. To the extent practicable and reasonable, the fees of
the Trustee and expenses of the trust fund, including by way of
illustration and not limitation, brokerage fees, incurred as a result
of investment direction by the participant shall be charged against the
accounts of the participants in accordance with their proportionate
shares of such fees and expenses, unless paid by the Employer on a
nondiscriminatory basis.
23.2.10. The Trustee shall have and may exercise all powers
necessary or advisable in order to implement the
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provisions of this Section 23.2. To the extent approved by the Trustee,
the Committee may promulgate rules or bylaws supplementing and
implementing the provisions of this Section 23.2. If it is not
practicable for the Trustee to effect the transfer of funds on any date
provided in this Section 23.2, the Trustee shall effect such transfer
on the first practicable date thereafter.
Section 24. Miscellaneous Provisions:
---------- ------------------------
24.1. Notices: Each participant who is not in service and each
beneficiary shall be responsible for furnishing the plan administrator with his
current address for the mailing of notices, reports, and benefit payments. Any
notice required or permitted to be given to such participant or beneficiary
shall be deemed given if directed to such address and mailed by regular United
States mail, first class, postage prepaid. If any check mailed to such address
is returned as undeliverable to the addressee, mailing of checks will be
suspended until the participant or beneficiary furnishes the proper address.
This provision shall not be construed as requiring the mailing of any notice or
notification otherwise permitted to be given by posting or by other publication.
24.2. Lost distributees: A benefit shall be deemed forfeited
if the plan administrator is unable after a reasonable period of time, as
determined by the Committee, to locate the participant or beneficiary to whom
payment is due; provided, however, that such benefit shall be restored from
current forfeitures if a valid claim is later made by or on behalf of the
participant or beneficiary for the forfeited benefit.
24.3. Reliance on data: The Employer, Trustee, and plan
administrator shall have the right to rely on any data provided by the
participant or any beneficiary, including representations as to age, health, and
marital status. Such representations shall be binding upon any party seeking to
claim a benefit through a participant, and the Employer, Trustee, and plan
administrator shall have no obligation to inquire into the accuracy of any
representation made at any time by a participant or beneficiary.
24.4. Bonding: Each fiduciary shall be bonded for each plan
year to the extent required by ERISA. The bond shall provide protection to the
plan against any loss by reason of acts of fraud or dishonesty by the fiduciary
alone or in connivance with others. The cost of the bond shall be an expense
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of the trust and shall be paid from the trust fund unless the Board shall elect
for such cost to be paid by the Employer.
24.5. Receipt and release for payments: Any payment made from
the plan to or with respect to any participant or beneficiary, or pursuant to a
disclaimer by a beneficiary, shall, to the extent thereof, be in full
satisfaction of all claims hereunder against the plan, the Employer and all
fiduciaries with respect to the plan. The recipient of any payment from the plan
may be required by the Committee, as a condition precedent to such payment, to
execute a receipt and release with respect thereto in such form as shall be
acceptable to the Committee.
24.6. Headings: The headings and subheadings of the plan have
been inserted for convenience of reference and are to be ignored in any
construction of the provisions hereof.
24.7. Continuation of employment: The establishment of the
plan shall not be construed as conferring any legal or other rights upon any
employee or any persons for continuation of employment, nor shall it interfere
with the right of the Employer to discharge any employee or to deal with him
without regard to the effect thereof under the plan.
24.8. Construction: The provisions of the plan shall be
construed and enforced according to the laws of the State of Georgia, except to
the extent such laws shall be superseded by the provisions of ERISA.
<PAGE>
EXHIBIT 10.16
-------------
ATLANTIC TELE-NETWORK, INC.
EMPLOYEES' STOCK OWNERSHIP PLAN
-------------------------------
Effective January 1, 1991
<PAGE>
TABLE OF CONTENTS
-----------------
Topic Page
- ----- ----
BACKGROUND INFORMATION..................................................1
ABOUT THE PLAN..........................................................2
SERVICE.................................................................2
ELIGIBILITY TO PARTICIPATE..............................................3
CONTRIBUTIONS AND ALLOCATIONS...........................................3
INVESTMENT IN ATN STOCK.................................................3
"VESTING" and DISTRIBUTION OF BENEFITS.................................3
BENEFITS UPON DEATH.....................................................4
CLAIMS PROCEDURE........................................................4
LOSS OF BENEFITS........................................................4
DIVERSIFICATION ELECTION................................................5
AMENDMENT AND TERMINATION OF THE PLAN...................................5
STATEMENTS REQUIRED BY GOVERNMENT REGULATION............................5
<PAGE>
TABLE OF CONTENTS
-----------------
Article Description Page
- ------- ----------- ----
PREFACE
ARTICLE I DEFINITIONS 2
ARTICLE II PARTICIPATION 10
ARTICLE III COMPANY CONTRIBUTIONS 11
ARTICLE IV ALLOCATION TO PARTICIPANT'S ACCOUNTS 12
ARTICLE V SPECIAL RULES RELATING TO SHARES OF STOCK 17
ARTICLE VI DISTRIBUTION UPON TERMINATION OF EMPLOYMENT 24
ARTICLE VII IN-SERVICE DISTRIBUTIONS 30
ARTICLE VII TRUST AND TRUSTEE 34
ARTICLE IX ADMINISTRATION 34
ARTICLE X AMENDMENT AND TERMINATION 38
ARTICLE XI SPECIAL LIMITATIONS AND ADJUSTMENTS 40
ARTICLE XII MISCELLANEOUS PROVISIONS 49
******************************
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<PAGE>
PREFACE
-------
The Board of Directors of ATLANTIC TELE-NETWORK, INC. ("ATN")
authorized the establishment, effective January 1, 1991, of an employee stock
ownership plan of the stock bonus type in order to provide an additional
incentive to eligible employees of ATN and it's participating affiliates by
enabling them to share in the growth and prosperity of ATN through a program for
the acquisition, ownership and distribution of shares of common stock of ATN.
The Plan is intended to constitute an "employee stock ownership plan"
as described in Code Sections 409 (1) and 4975(e)(7) and Treasury Regulation (S)
54.4975-11, and the Plan shall be interpreted, operated and administered in
accordance therewith.
ARTICLE I
DEFINITIONS
-----------
The words and phrases used herein shall have the following meanings
unless a different meaning is plainly required by the context within which such
words are used.
1.1. "Account(s)" shall mean the aggregate of the General Account,
the Stock Account and the Diversified Account (expressed in terms of dollars
and/or shares of Stock, whichever is appropriate) standing to the credit of a
Participant hereunder
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<PAGE>
at any time. The "General Account" shall be comprised of cash or cash-
equivalents and all other non-Stock investments held pending investment in
shares of Stock. The "Stock Account" shall be comprised solely of shares of
Stock of ATN. The "Diversified Account" shall be comprised of the separate non-
Stock investment funds established by the Committee pursuant to Section 5.1(c)
hereof.
1.2. "Administrative Committee" or "Committee" shall mean that group
of individuals designated to administer the Plan as described in Article IX
herein.
1.3. "Affiliate" shall mean any corporation which is deemed to be a
member of a controlled group of corporations of which ATN is a member,
determined in accordance with the provisions of Code 414(b), or any trade or
business deemed to be under common control with ATN, determined in accordance
with the provisions of code 414(c), as modified by Section 415(h) of the Code,
and any other entity required to be aggregated with the Company under Sections
414(m) or 414(e).
1.4. "Allocation Date" shall mean the last day of a Plan Year.
1.5. "ATN" shall mean the Atlantic Tele-Network, Inc. and any
successor thereto through acquisition or merger.
1.6. "Beneficiary" shall mean that person or persons, estate, trust
or other entity, designated by a Participant or
-3-
<PAGE>
otherwise eligible to receive any benefits which became payable upon death of a
Participant as further described in Article VI.
1.7. "Board" shall mean the present or succeeding Board of Directors
of ATN.
1.8. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.9. "Compensation" shall mean the total amount of W-2 earnings paid
to an Employee by ATN or an Affiliate in a Plan Year for services rendered by
the Employee, except that no amount, in excess of $200,000 (or such other amount
permitted by Treasury Department regulations under Code (S) 415(d) to reflect
cost of living adjustments) shall be considered for purposes of this Plan. In
determining a Participant's Compensation, the "family aggregation" rules of Code
Section 414(q)(6) shall apply if applicable, in which case the maximum
considered Compensation of a Participant shall be prorated among the affected
family member Employees in proportion to each such Employee's compensation
determined without regard to a dollar limitation.
1.10. "Continuous Service" shall mean, except as otherwise provided
herein, the period in years (and factions thereof) of an Employee's unbroken
service with ATN or an Affiliate calculated from the date of initial employment
(or reemployment if applicable) to the date a Break in Service occurs.
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<PAGE>
(a) A "Break in Service" occurs on the earlier of the date an
Employee quits, is discharged, dies, retires or, except for an Approved
Absence or a Maternity/Paternity Absence, the date 12 months after the date
an Employee is first absent from active employment (with or without pay).
(b) If an Employee is absent from active service for less than
12 months, or is on an Approved Absence or a Maternity/Paternity Absence,
and subsequently quits, is discharged, dies or retires, then,
notwithstanding the absence, a Break in Service shall occur immediately
upon such quit, discharge, death or retirement. Upon reemployment of the
Employee within the twelve (12) month period following the date an Employee
is first absent from active employment, no Break in Service shall be deemed
to have occurred.
(c) No Break in Service shall occur while an Employee is on a
leave of absence approved by the Company or an Affiliate (an "Approved
Absence"), provided the Employee returns to the active employment of the
Company or an Affiliate at the end of the period comprising such leave.
Failure of the Employee to return to active employment shall constitute a
Break in Service on the last day of the approved leave period or the end of
the twelfth month following the date an Employee was first absent from
active employment, whichever occurs first.
-5-
<PAGE>
(d) No Break in Service shall occur during the twenty-four (24)
month period during which an Employee is on a "Maternity/Paternity
Absence". A "Maternity/Paternity Absence" is an absence from active
employment by an Employee by reason of the Employee's pregnancy, the birth
of a child to the Employee, the placement of a child with the Employee in
connection with the adoption of such child by the Employee, or caring for
the child of the Employee immediately following the birth or placement of
the child to or with the Employee. Notwithstanding the foregoing, the
period beginning with the first day of the thirteenth month following the
date an Employee was first absent from active employment and ending with
the last day of the twenty-fourth month shall not constitute "Continuous
Service" hereunder.
(e) Upon reemployment following a Break in Service, any Employee
who was entitled to a nonforfeitable (vested) benefit at the date of his
original Break in Service, shall have his Continuous Service before and
after the Break in Service aggregated with his Continuous Service earned
after the Break in Service.
(f) Any Employee who was not eligible for a nonforfeitable
(vested) benefit hereunder at the date of his original Break in Service,
shall have his Continuous Service before the Break in Service aggregated
with his Continuous Service after the Break in Service only if the period
of severance from active service does not exceed the greater of
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<PAGE>
his Continuous Service earned prior to the Break in Service or 5 years.
(g) The Continuous Service of an Employee who became an Employee
as the result of a merger with or into ATN or an Affiliate, or the
acquisition by ATN or an Affiliate of all of the stock of, or substantially
all of the assets of another company, shall include such Employee's last
uninterrupted period of Continuous Service with such other Company.
1.11. "Employee" shall mean any person employed by ATN or an
Affiliate as a common law employee. An "Eligible Employee" shall mean a "non-
craft" salaried or hourly Employee of the Company or a Participating Affiliate.
Persons who are members of a group of Employees covered by a collective
bargaining agreement between employee representatives of ATN or an Affiliated
Company shall not be Eligible Employees unless such collective bargaining
agreement specifically provides for the inclusion of such members in this Plan.
1.12. "Fund" shall mean all cash, shares of Stock or other property
held in Trust by the Trustee.
1.13. "Independent Appraiser" shall mean an appraiser meeting
requirements similar to the requirements set forth in Section 170(a)(1) of the
Code and the regulations promulgated thereunder.
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<PAGE>
1.14. "Participant" shall mean any Eligible Employee who has met the
participation requirements set forth in Article II.
1.15. "Participating Affiliate" means an Affiliate of ATN whose
participation has been authorized by the Board. A "Schedule of Participating
Affiliates" shall be attached hereto to reflect the participation of such other
entities and the effective date thereof.
1.16. "Plan" shall mean the ATLANTIC TELE-NETWORK, INC. EMPLOYEES'
STOCK OWNERSHIP PLAN embodied herein. The Plan is an employee stock ownership
plan of the stock bonus type and is designed to invest primarily, if not
exclusively, in the common stock of ATN.
1.17. "Plan Year" shall mean the calendar year.
1.18. "Stock Acquisition Loan" shall mean a loan made to the Trustee
for the purpose of acquiring shares of Stock, which loan may be made or
guaranteed by a disqualified person (within the meaning of Section 4975(e)(2) of
the Code), including, but not limited to, a direct loan of money, a purchase-
money transaction, an assumption of an obligation of the Trustee, a secured or
unsecured guarantee or the use of assets of a disqualified person as collateral
for a loan.
1.19. "Stock" shall mean the equity securities of ATN which meet the
requirements of Section 409(l) of the Code. This
-8-
<PAGE>
includes Stock which is readily tradeable on an established securities market,
or if there is no common stock which is readily tradeable on an established
securities market, common stock issued by ATN, or by a corporation which is a
member of a controlled group of corporations of which ATN is a member, having a
combination of voting power and dividend rights equal to or in excess of that
class of common stock of ATN having the greatest voting power, and that class of
common stock of ATN having the greatest dividend rights. Noncallable preferred
stock shall be treated as Stock hereunder if such stock is convertible at any
time into stock which meets the requirements described above, provided such
conversation is at a price which (as of the date of the acquisition by the Plan)
is reasonable. For purposes of this section any reference to ATN shall include a
corporation which is a member of a controlled group of corporations of which ATN
is a member. For purposes of account for shares of Stock hereunder there shall
be counted whole shares and fractions of a whole share (calculated to three (3)
decimal places where appropriate).
1.20. "Suspense Account" shall mean that identified Trust account to
which encumbered shares of Stock (shares of Stock which have been acquired with
the proceeds of a Stock Acquisition Loan and which are pledged as collateral for
such loan) are held until released from such encumbrance.
1.21. "Trust Agreement" shall mean the agreement between ATN and the
Trustee under which the assets of the Plan
-9-
<PAGE>
are held and which agreement forms a part of the Plan with like effect as if
inserted herein.
1.22. "Trustee" shall mean any individual or individuals, firm,
association or corporation which becomes a party to the Trust Agreement or any
other trust agreement under which the assets of the Plan may be held.
1.23. "Valuation Date" shall mean the last day of each Plan Year plus
such other date or dates as the Committee shall determine are necessary or
desirable on which the value of the shares of Stock and/or other Plan assets are
to be determined.
1.24. "Value" shall mean the fair market value of Plan assets as
determined by normal valuation methods except that where the value of shares of
Stock is to be determined at a time when the shares are not readily tradeable on
an established securities market, their value shall be determined by an
Independent Appraiser.
ARTICLE II
PARTICIPATION
-------------
2.1. Participation.
-------------
(a) Initial Plan Participants. Each Eligible Employee who has
-------------------------
attained age 21 and completed one year of Continuous Service as of the
Effective Date of the Plan shall become a Participant as of the Effective
Date.
-10-
<PAGE>
(b) Subsequently Eligible Employees. Each Eligible Employee who
-------------------------------
does not become a Participant in the Plan on the Effective Date shall
become a Participant herein upon the later of the date on which such person
attains age 21 and completes one year of Continuous Service.
2.2. Suspension of Participation. If a Participant incurs a Break in
---------------------------
Service, his participation shall cease effective as of the date of the Break in
Service. If a Participant ceases to be an Eligible Employee, his participation
shall cease effective as of the last day of the month in which he ceased to be
an Eligible Employee.
2.3. Reinstatement After Break in Service. A Participant who has
------------------------------------
incurred a Break in Service or ceased to be an Eligible Employee shall again
become a Participant immediately upon resumption of employment with ATN as an
Eligible Employee or return to the status of an Eligible Employee.
ARTICLE III
COMPANY CONTRIBUTIONS
---------------------
3.1. General Rule. Subject to the requirements of Section 3.2, ATN
------------
shall pay to the Trustee (in cash, Stock or a combination of cash and Stock)
such amount as shall be determined by the ATN Board of Directors.
The Trustee shall have no duty or right to require any contribution to
be made hereunder, and ATN shall be the sole
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<PAGE>
judge as to the amount to be contributed and the date on which such contribution
is to be made.
3.2. Minimum Contribution. In the event that the Trustee has
--------------------
obtained a Stock Acquisition Loan and while such loan remains outstanding, ATN
shall be required to make a contribution for the Plan Year in an amount not less
than the aggregate of the amount of principal and interest payments due under
the terms of the loan agreement between the Trustee and the lender. In the
event that any such contributions are due the Trustee under the provisions of
this Section but not paid by ATN as of the date any such payment is due to the
lender, the Trustee may enforce such contribution requirement by a suit in law
or equity for the amount of any such contribution, including costs and expenses
incurred in the collection thereof.
ARTICLE IV
ALLOCATION TO PARTICIPANT'S ACCOUNTS
------------------------------------
4.1. Allocation - Generally. Except for any limitations imposed by
----------------------
the application of Section 11.3, as of the Allocation Date within any Plan Year
with respect to which a Company contribution is made, there shall be allocated
to the Account of each Participant who is employed on the last day of the Plan
Year (or who died or retired during the Plan Year) that portion of the Company
contribution which is in the same proportion that each Participant's
Compensation bears to the
-12-
<PAGE>
total Compensation of all Participants in the Plan as of the Allocation Date.
For purposes of determining the allocation to the Accounts of newly
eligible Participants, such Participants shall be credited with the aggregate
Compensation earned by them within the Plan Year regardless of the failure of
the Eligible Employee to attain "Participant" status until later in the Plan
Year.
4.2. Allocation of Shares Released from the Suspense Account. In the
-------------------------------------------------------
event that shares of Stock have been acquired by the Trustee with the proceeds
of a Stock Acquisition Loan and any or all shares of Stock so acquired have been
pledged as collateral for such loan, the shares of Stock so acquired shall be
held by the Trustee in an unallocated Suspense Account until released therefrom.
For each Plan Year that payments are made by ,the Trustee to the lender, the
number of shares of Stock to be released from encumbrance and allocated to the
Stock Accounts of Participants in accordance with Sections 4.1 and 4.2 shall be
determined under either of the following formulas determined by the Committee
except that once a method is selected it shall continue to apply with respect to
the shares of Stock acquired with the proceeds of that Stock Acquisition Loan:
(a) Principal Only Method. The number of shares of Stock to be
---------------------
released from encumbrance and allocated to the Accounts of Participants
under this method shall be equal to the number of encumbered shares of
Stock at the be-
-13-
<PAGE>
ginning of the Plan Year multiplied by a fraction the numerator of which is
the amount of principal paid by the Trustee to the lender in each Plan Year
and the denominator of which is the sum of the numerator plus the total
principal to be paid to the lender in all future years. Only that portion
of a payment determined to be interest under standard loan amortization
tables may be disregarded as principal in the above calculation. Scheduled
payments of principal and interest under the loan shall not be less rapid
at any time than level annual payments of such amounts for 10 years.
However, should the loan be renewed, extended or refinanced, this Principal
Only Method shall not apply as of the time that the sum of the expired
duration of the loan and the renewal period, extension period, or the
duration of the new loan exceeds 10 years.
(b) Principal and Interest Method. The number of shares of
-----------------------------
Stock to be released from encumbrance and allocated to the Accounts of
Participants under this method shall be equal to the number of encumbered
shares of Stock at the beginning of the Plan Year multiplied by a fraction
the numerator of which is the amount of principal and interest paid by the
Trustee to the lender in each Plan Year and the denominator of which is the
sum of the numerator plus the total principal and interest to be paid to
the lender in all future years. In calculating the interest to be paid in
all future years, the amount of such interest payments shall
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<PAGE>
be calculated using the interest rate in effect as of the end of the Plan
Year.
4.3. Participants' Accounts. With respect to each new
----------------------
Participant to whom there is to be allocated a part of the Company's
contribution for a Plan Year, the Administrative Committee shall establish
General Account and a Stock Account in the name of such Participant. The
General Account and the Stock Account shall be debited or credited as
follows:
(a) General Account. The General Account shall be credited with
---------------
the Participant's allocable share of Company contributions (other than
Stock contributions) as described in Section 4.1 and income and earnings on
investments as described in Section 4.4, and debited to reflect the use of
General Account assets used to purchase shares of Stock for the
Participant's Stock Account as well as any losses on investments or
distributions (whether vested or non-vested). The value of the General
Account shall be expressed in terms of dollars.
(b) Stock Account. The Participant's Stock Account shall be
-------------
credited with shares of Stock contributed by ATN, purchased with assets
from the General Account or acquired with the proceeds of a Stock
Acquisition Loan and shall be debited for shares of Stock sold or
distributed.
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<PAGE>
The value of the Stock Account shall be expressed in terms of shares of
Stock (and fractions thereof).
4.4. Adjustment of General Account for Income, Gains and Losses. As
----------------------------------------------------------
of each Valuation Date the non-Stock assets of the Trust, including all income
and realized and unrealized gains and losses, but excluding any Company
contributions for that Plan Year, shall be valued by the Trustee at their fair
market value as of the Valuation Date, and the General Account of each
Participant shall be adjusted upward or downward pro rata in the proportion
which each Participant's pre-adjusted General Account (beginning balance less
any disbursements) bears to the total pre-adjusted Accounts of all Participants.
4.5. Adjustment of Stock Account. As of each Valuation Date the
---------------------------
Participant's Stock Account shall be credited with shares of Stock contributed
by the Company or purchased by the Trustee as well as with any stock dividends
declared and paid on Stock held in allocated Stock Accounts but not the
unallocated Suspense Account.
4.6. Correction of Errors. Should the Administrative Committee
--------------------
determine that a clerical error has been made in allocating to or adjusting
Participants' Accounts, it shall promptly correct such error.
4.7. Restoration of Account on Re-Employment. In the event that a
---------------------------------------
Participant who had incurred a Break in Service is reemployed prior to the fifth
anniversary of his Break in
-16-
<PAGE>
Service, the amount previously forfeited by such Participant shall be re-
credited to his Account by first utilizing any forfeitures arising in the
current Plan Year, and if such forfeitures are not sufficient to restore the
Account, by allocating a portion of ATN's current contribution directly to such
Participant's Account prior to the regular allocation described above.
ARTICLE V
SPECIAL RULES RELATING TO SHARES OF STOCK
-----------------------------------------
5.1. Qualified Participant's Diversification Election. In the event
------------------------------------------------
that a Participant has participated in this Plan for ten (10) Plan Years and has
attained age fifty-five (55), he shall be referred to as a "Qualified
Participant" and shall be eligible to direct the diversification of part or all
of his Stock Account by means of a timely filed "Diversification Election" as
further described hereafter.
(a) Notice of Diversification Right. The Committee shall
-------------------------------
notify a Qualified Participant of his right to diversify his Stock Account
not less than 60 days prior to the end of the first Plan Year in which he
becomes a Qualified Participant. Following such notification, the
Qualified Participant shall have a period of 90 days (hereafter the
"Diversification Election Period") beginning with the first day of each of
the next five (5) Plan Years (hereafter referred to as "Option Years" 1
through 5, respectively) in
-17-
<PAGE>
which to file his Diversification Election with the Committee.
(b) Portion of Stock Account to which the Diversification Right
-----------------------------------------------------------
Shall Apply. In each of the Option Years 1 through 5, a Qualified
-----------
Participant shall be eligible to diversify that number of shares of Stock
in his Stock Account as of the prior Valuation Date which is equal to one-
quarter (1/4) of the sum of the number of shares of Stock in the Qualified
Participant's Stock Account as of the immediately preceding Valuation Date
plus any portion of the Stock Account previously elected to be diversified,
then reduced by the number of shares of Stock with respect to which the
Qualified Participant has previously made a Diversification Election. In
the case of Option Year 5, one-quarter (1/4) shall be changed to one-half
(1/2).
(c) Election and Diversification. A Qualified Participant shall
----------------------------
effect his election to diversify his Stock Account by timely filing his
written Diversification Election with the Committee not later than the last
day of the Diversification Election Period for that Plan Year. The
Committee shall, not later than the 90th day after the end of the
Diversification Election Period for that Plan Year, either distribute the
amount so elected to the Qualified Participant or effect the transfer of
that portion of the Participant's Stock Account to which the
Diversification Election applies into one or more of three "Alternate
In-
-18-
<PAGE>
vestment Funds" selected by the Qualified Participant which shall be
established by the Committee pursuant to Treasury Regulations promulgated
under Code Section 401(a)(28)(B). In no event shall any of the Alternate
Investment Funds include Stock.
(d) Accounting for Diversified Amounts. In the event that a
----------------------------------
Qualified Participant has elected to diversify his Stock Account, the
Committee shall establish a Diversified Account to hold and account for the
Qualified Participant's interest in one or more of the Alternate Investment
Funds so elected by the Participant. Such Diversified Account shall be
separate from the Participant's other Accounts under the Plan and not less
often than on each Valuation Date shall be separately credited (or debited)
with a pro rata share of the income (or loss) attributable to each of the
Alternate Investment Funds the Qualified Participant has elected. The
Diversified Account shall be distributed at the same time and in the same
manner as the Participant's other Accounts as further described in Article
VI.
5.2. Voting of Shares of Stock. All Company Stock shall be voted by
-------------------------
the Trustee pursuant to the following rules:
(a) Registration Class of Securities. In the event that the
Stock is of a class required to be registered under Section 12 of the
Securities and Exchange Act of 1934 or which would be required to be
registered except for an
-19-
<PAGE>
exemption provided in Subsection (g)(2)(H) of such Section 12, each
Participant (and each other person who is the beneficial owner of a Stock
Account) shall be entitled to instruct the Committee as to the manner in
which the shares of Stock allocated to his Stock Account will be voted with
respect to any matter submitted to the shareholders of the Company. Upon
receipt of such instructions, the Trustee shall vote the aggregate of such
whole and fractional shares (to the extent possible) as so instructed. The
Trustee shall vote the shares of Stock allocated to Participant's accounts
for which it does not receive instructions in the same proportion as it
votes shares of Stock with respect to which voting instructions have been
received.
(b) No Registration Class of Securities. In the event that the
-----------------------------------
shares of Stock to be voted are of a class not required to be registered
(or are exempt from registration) as described above, the Committee shall
vote all shares as it, in its sole discretion, Deems appropriate.
Notwithstanding the foregoing, in the event that a vote of shareholders is
necessary in conjunction with any corporate merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or any similar
transactions which are described in Treasury Regulations promulgated
pursuant to Sections 401(a)(22) and/or 409(e)(3) of the Code, then each
Participant (and other person with a beneficial inter-
-20-
<PAGE>
est in a Stock Account) shall be entitled to instruct the Trustee as to the
manner in which the shares of Stock then allocated to his or her Stock
Account will be voted.
(c) Unallocated Shares. In the event that shares of Stock are
------------------
not allocated to the Accounts of Participants, the Trustee shall vote all
such shares of Stock in the same proportion as it votes allocated shares.
5.3. Distributee's Put Option. In the event that shares of Stock are
------------------------
distributed to a Participant, Beneficiary or a person entitled to or receiving
such shares as the successor to the Participant or Beneficiary (such
Participant, Beneficiary or successor to either hereafter referred to as a
"Distributee"), and where such shares of Stock were acquired with the proceeds
of a Stock Acquisition Loan and at the time of distribution to the Distributee
such shares are not "publicly traded" within the meaning of Treasury Regulation
(S) 54.4975-7(b)(1)(iv) or, if publicly traded, are subject to a trading
restriction under any federal or state securities law, any regain thereunder, or
an agreement affecting the security which would make the security not as freely
tradable as one not subject to such restriction, then such shares shall be
subject to a mandatory right to sell such shares (the "Put") in favor of the
Distributee.
The Put shall be exercisable by the Distributee and shall provide that
for a period of sixty (60) consecutive days immediately following the date the
shares are distributed to the
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<PAGE>
holder of the Put, and for a second sixty (60) consecutive day period beginning
with the first day of the Plan Year following the Plan Year in which the shares
were distributed, the holder of the Put shall have the right to cause the
Company, by notifying it in writing, to purchase such shares of Stock at their
then current (or last determined) fair market value.
The Trustee may, in its discretion and with the consent of the
Company, assume the rights and obligations of the Company to purchase such
shares of Stock from the Distributee at the time the Put is exercised. The
period during which the Put is exercisable shall not include any period during
which the Distributee is unable to exercise the Put because the Company is
prohibited from honoring it by federal or state law. The terms of payment for
the purchase of such shares of Stock shall be as set forth in the "Put" and may
be either in a lump sum or in installments over a period not to exceed five
years, as determined by the Purchaser. If the shares of Stock distributed are
part of an installment distribution, the amount payable upon exercise of the Put
shall be paid to the distributee within thirty (30) days of exercise of the Put.
Any installment payment of a Put shall be adequately secured, bear a reasonable
rate of interest, require equal annual payments and have a payment period
commencing not later than 30 days after the exercise of such option and ending
not later than 5 years thereafter.
5.4. Right of First Refusal. Shares of Stock which are not publicly
----------------------
traded (within the meaning of Treasury
-22-
<PAGE>
Regulation Section 54.4975-7(b)(1)(iv)) at the time of distribution hereunder
shall be subject to a "right of first refusal" in favor first of the Trust and
then in favor of the Company. Such a "right" shall provide that prior to any
subsequent transfer, the shares shall first be offered in writing to the Trust
and if refused by the Trust, to the Company at a price equal to the fair market
value of such shares of Stock as of the date of the sale or transfer. The
Trustee or the Company, as the case may be, may accept the offer as to part or
all of the Stock at any time during a period ending fourteen (14) days after
receipt of such offer by the Trust. Any installment purchase shall be made
pursuant to a note secured by the shares purchased and shall bear a reasonable
rate of interest, as determined by the Committee, provided that if the offer is
not accepted by the Trustee, the Company, or both, then the proposed transfer
may be completed within a reasonable period following the end of the fourteen
(14) day period, but only upon terms and conditions no less favorable to the
shareholder than the terms and conditions of the third party buyer's prior
offer.
5.5. Exchange Offer. In the event that a tender or exchange offer is
--------------
made for shares of Stock, each Participant shall be entitled to instruct the
Trustee as to whether the shares of Stock then credited to his Stock Account
(regardless of whether or not such shares are of a "registration class") will be
tendered or exchanged with respect to such offer. Upon receipt of such
instructions, the Trustee shall tender or exchange the
-23-
<PAGE>
shares as instructed (including aggregated fractional shares to the extent
possible). The Trustee shall tender or exchange the shares of Company Stock
allocated to the Accounts of Participants for which it does not receive
instructions and shall tender or exchange all shares not then allocated to the
Stock Accounts of Participants in the same proportion as it tenders or exchanges
shares of Company Stock in respect of which voting instructions had been
received.
ARTICLE VI
----------
DISTRIBUTION UPON TERMINATION OF EMPLOYMENT
-------------------------------------------
6.1. Distribution Generallv. In the event of the termination of
----------------------
employment of a Participant with ATN or an Affiliate the vested portion of the
Participant's Account shall become distributable as further described herein.
6.2. Attainment of a Vested Interest. A Participant shall become
-------------------------------
100% vested in his Account(s) upon the attainment of age sixty-five (65), death
or the completion of three (3) years of continuous Service.
In the event a Break in Service occurs for any reason other than the
attainment of age sixty-five (65), death or prior to the attainment of three or
more years of continuous service, the Participant's Accounts shall be forfeited.
Forfeited accounts which are not used to re-establish a rehired Participant's
-24-
<PAGE>
Account as described in Section 4.7 shall be considered a Company contribution
and allocated as described in section 4.1.
6.3. Mode of Distribution. Distribution of a Participant's vested
---------------
Account shall be made to the Participant or his Beneficiary (hereafter the
"Distributee") as follows:
(a) if the number of shares of Stock included in the
Participant's Stock Account at the time of distribution are less than one
hundred (100), distribution of the Participant's entire Account balance,
absent an affirmative election to receive whole shares of Stock in kind
(received by the Committee within fifteen (15) days after mailing of
written notice of the Distributee's right to demand distribution in the
form of shares), shall be made to the Distributee by a cash payment in an
amount equal to the value of the Participant's Accounts as of the Valuation
Date immediately preceding the date of distribution.
(b) if the number of shares of Stock included in the
Participant's Stock Account exceeds one hundred (100), distribution of the
Participant's Stock Account shall be made to the Distributee by delivery of
a stock certificate or certificates representing the number of whole shares
of Stock in the Participant's Stock Account plus cash equal to the value of
the fractional shares of Stock in the Participant's Stock Account and the
fair market value of the assets comprising the Participant's General
Account and/or Diversi-
-25-
<PAGE>
fication Account as of the Valuation Date immediately
preceding the date of distribution. The cash equivalent of the fractional
shares of Stock shall be determined by multiplying the fractional shares by
the value of one share as of the immediately preceding Valuation Date.
Unless the Distributee elects otherwise, or unless the provisions of
Section 6.3(b) are applicable, distributions shall be made within sixty
(60) days of the end of the Plan Year within which the Participant's Break
in Service occurs.
6.4. Tine of Distribution. Upon the occurrence of a Break in
--------------------
Service, the Account of the Participant shall be distributed within sixty (60)
days following the end of the Plan Year within which such Break in Service
occurred, except that where the Participant's Stock Account contains shares of
Stock acquired by means of a Stock Acquisition Loan, the reference to the Plan
Year in which a Break in Service occurred shall be changed to the Plan Year in
which the Stock Acquisition Loan is repaid in full.
6.5. Distribution on Account of Death; Beneficiary Designation. If a
---------------------------------------------------------
Participant's employment is terminated because of death, payment of a married
Participant's Account(s) shall be made to his surviving spouse unless the
Participant has made a valid non-spouse beneficiary designation. A non-spouse
beneficiary designation shall not be valid unless the Participant's spouse has
consented in writing to the non-spouse Beneficiary, such consent acknowledges
the effect of such non-
-26-
<PAGE>
spouse beneficiary designation, and such consent is witnessed by a notary
public. Payment of a non-married Participant's Account shall be made to any
surviving Beneficiary designated by the Participant or, if none, to his then
living issue per stirpes, or, if none, to his personal representatives.
Distribution of any death benefit shall be made in accordance with the
applicable provisions of this Article.
A Participant may revoke a beneficiary designation and redesignate
another Beneficiary at any time and from time to time, subject to the spousal
consent rules described above. In the event that a non-married Participant
marries, or a previously married Participant remarries, a prior non-spouse
beneficiary designation shall not be effective unless the Participant's then -
current spouse consents as provided above.
6.6. Restrictions on Shares of Stock Distributed. All shares of
-------------------------------------------
Stock distributed to a Participant or Beneficiary may be subject to such
restrictions against sale or transfer as shall be reasonable or necessary, in
the opinion of counsel, to maintain compliance with applicable state or federal
securities laws, and any shares of Stock so restricted shall bear a conspicuous
legend reflecting any such restrictions.
6.7. Additional Distribution Requirements. All benefit distributions
------------------------------------
shall be subject to the following additional requirements:
-27-
<PAGE>
(a) Commencement of Benefit Payments. The distribution of
--------------------------------
benefits to each Participant who is entitled to a benefit under the Plan
shall commence not later than April 1 of the calendar year following the
calendar year in which such Participant attains age 70 1/2 regardless of
whether he has then terminated his employment with ATN.
(b) Duration of Benefit Payments. The distribution of benefit
----------------------------
payments to each Participant shall be made in accordance with regulations
prescribed by the Secretary of the Treasury, over the life of the
Participant, or over the joint lives of the Participant and his surviving
spouse, or in accordance with such regulations over a period not extending
beyond the life expectancy of the Participant or the life expectancy of the
Participant and his surviving spouse, except that in no event shall the
period of distribution exceed that otherwise permitted under the Plan.
(c) Death of Participant Before Benefits Commence. In the event
---------------------------------------------
that a Participant dies before the commencement of benefits hereunder, the
entire interest of the Participant under the Plan (if any) shall be
distributed not later than the last day of the calendar year in which
occurs the fifth anniversary of the death of the Participant or, where any
portion of the Participant's benefit is to be paid to (or for the benefit
of) the Participant's surviving spouse or other designated beneficiary,
such benefit must commence not later than the last day of the calendar year
-28-
<PAGE>
following the calendar yearin which the Participant's death occurred and be
paid over a period not exceeding the life (or life expectancy) of the
surviving spouse or designated beneficiary, except that where the
beneficiary is the Participant's surviving spouse, payments to the
surviving spouse need not begin before the date on which the Participant
would have attained age 70 1/2. However, in no event shall the commencement
or period of distribution exceed that otherwise permitted under the Plan.
(d) Death after Commencement of Benefits. If the distribution
------------------------------------
of benefits hereunder has commenced and a Participant dies before his
entire interest has been distributed to him the remaining part of such
interest will be distributed to the surviving payee no less rapidly than
under the method of distribution which was in effect on the date of the
Participant's death.
(e) "Incidental" Benefits and Effect of Requirements. In the
------------------------------------------------
event that any payments hereunder are to be made to someone other than the
Participant or jointly to the Participant and his spouse or other payee,
such payments must conform to the "incidental benefit" rules of Code
401(a)(9)(G) and Treasury Regulation 1.401(a)(9)-2. In addition, all
distributions from the Plan must conform to the rules of this Section, Code
Section 401(a)(9) and the regulations promulgated thereunder to the extent
not in conflict with any other provision of the Code.
-29-
<PAGE>
(f) Lump Sum Payment. Notwithstanding the one hundred share
----------------
rule of Section 6-3(b), in the event that the present value of any
nonforfeitable benefit payable hereunder does not exceed $3,500, the
Committee may direct the Trustee to pay such benefit to the payee in a
single sum. If the value of the Participant's nonforfeitable interest is
more than $3,500 and the Participant (or Beneficiary, if applicable) does
not consent to a distribution, the Participant's Stock and General Accounts
shall be held by the Trustee until the earlier of the date on which the
Participant (or Beneficiary) requests distribution or until April 1 of the
calendar year next following the calendar year in which the Participant
attains (or would have attained) age 70 1/2.
ARTICLE VII
IN-SERVICE DISTRIBUTIONS
------------------------
7.1. Loans to Participants. A Participant may request a loan from
---------------------
the Plan at any time by submitting a written request therefor to the Company,
but if the Participant requesting the loan is married, the Participant's spouse
must consent to the loan in writing. Requests for loans shall be considered by
the company on a uniform and nondiscriminatory basis among all Participants.
Upon the approval of the loan by the Company, the Trustee shall process the loan
subject to the following requirements:
-30-
<PAGE>
(a) Amount. The amount of the loan, when added to the balance
------
of all other loans outstanding at any time during the one year period
ending on the date of the loan request, shall not exceed an amount equal to
50% of the value of the vested portion of the Participant's Account (100%
if the value of the vested portion of the Account is less than $10,000),
but not more than $50,000.
(b) Promissory Note. Any loan made hereunder shall be evidenced
---------------
by a promissory note executed by the Participant (and his spouse, if
applicable) which shall contain the following provisions:
(1) Term. The term of the note shall be determined by
the Trustee, but in no event shall such period exceed five years
except where, in accordance with Section 72(p)(2)(B) of the Code
and Regulations thereunder, such loan is used to acquire a
dwelling unit which is, or within a reasonable time is to be used
(determined at the time the loan is made), as a principal
residence of the Participant;
(2) Interest. The loan shall bear interest at a rate
approximating the rate of interest then prevailing in the local
community for similar loans;
-31-
<PAGE>
(3) Payments. A Participant's repayment of the loan
shall be accomplished by means of substantially equal monthly
installments on a direct salary reduction basis, or on a direct
payment basis, in which case payments must be made not less
frequently than quarterly;
(4) Security. Notwithstanding any nonalienation
provision herein, the loan shall be collateralized by the
complete assignment of the Participant's right, title and
interest in and to his Account.
7.2. Other Provisions of Loans. Any loan made hereunder shall be
-------------------
treated as a "directed investment" of the Participant and shall be accounted for
separately by the Trustee. The amount of the loan shall be charged first
against the Participant's General Account, and then against the Participant's
Stock Account and all payments of principal and interest shall be credited
solely to the Participant's General Account. No distribution otherwise required
hereunder shall be made to the Participant (or any Beneficiary) unless and until
any outstanding loans, including accrued interest thereon, shall have been
repaid in full. However, the Trustee, in its sole discretion and with not less
than 30 days advance written notice, may offset the amount of any then
outstanding loan (and any interest then due but not paid) from any amount due
the Participant (or other payee) and distribute the balance.
-32-
<PAGE>
7.3. Hardship Distributions. Subject to the rules described below,
----------------------
a Participant may request a distribution of part or all of his vested Account
where such distribution is necessary to alleviate a hardship of the Participant.
The Administrator may require a Participant to submit such information as it
deems necessary in order to determine whether or not a hardship exists and the
amount necessary to meet the hardship.
For purposes of this section, a "hardship" shall mean an immediate and
heavy financial burden or need for which funds are not reasonably available from
other sources or resources of the Participant, including but not limited to: the
purchase of a residence; significant capital improvements to an existing
residence; payment of expenses of higher education of the Participant or his
dependents or medical expenses of the Participant or his dependents which are
not covered by insurance.
A hardship distribution may not be less than $2,000 in amount and
shall not exceed the lesser of the Participant's vested interest in his Account
or the amount necessary to meet the immediate financial need created by the
hardship. No more than one hardship distribution shall be made in any twelve
month period.
The Participant's Account against which the hardship distribution
shall be charged shall be determined as of the Valuation Date which precedes the
date the Participant's request for a hardship withdrawal is received by the
Administrator and
-33-
<PAGE>
any approved hardship distribution shall be paid to the Participant as soon
as administratively possible following approval of the withdrawal request.
ARTICLE VIII
TRUST AND TRUSTEE
-----------------
8.1. All contributions by ATN, shares of Stock, other Plan assets and
the earnings thereon (known as the "Fund") shall be held in trust by a Trustee
by ATN appointed by the Board of Directors of ATN. ATN, by action of its Board
of Directors, shall enter into a Trust Agreement with the Trustee so appointed,
and may amend the Trust Agreement from time to time, as the Board deems
necessary or desirable. The Board may remove the Trustee at any time and
appoint a successor. The Trust Agreement shall be deemed to be a part of this
Plan as though contained herein in its entirety.
ARTICLE IX
ADMINISTRATION
--------------
9.1. Administrative Committee. ATN shall appoint a Committee, having
------------------------
at least three members, to administer the Plan. In the absence of a Committee,
the Plan shall be administered by ATN. Any member may resign from the Committee
by delivering his written resignation to the Employer. Vacancies on the
Committee arising by resignation, death, removal or otherwise shall be filled by
ATN.
-34-
<PAGE>
9.2. Powers and Duties. The Committee shall administer the Plan in
-----------------
accordance with its terns and shall have all powers necessary to carry out the
provisions of the Plan. The Committee shall determine the eligibility of each
Employee for participation in the Plan and determine all questions arising in
the interpretation, administration and application of the Plan. Any such
determination by the Committee made in good faith shall be conclusive and
binding on all persons to the extent permitted by law. The Committee shall have
the power to delegate any duty or responsibility to any person, firm, advisor or
counsel and any such person, firm, advisor or counsel may service in more than
one fiduciary capacity. The-Committee shall be entitled to rely conclusively
upon, and shall be fully protected in, any actions taken by it in good faith in
relying upon any opinions or reports which shall be furnished to it by an
accountant, appraiser, counsel or other specialist.
9.3. Organization and Operation. The Committee shall act either by a
--------------------------
vote at a meeting or in writing without a meeting. The Committee may authorize
any one or more of its members to execute any document or documents on behalf of
the Committee and shall notify the Trustee in writing of such action and the
name or names of its member or members so designated. Thereafter, the Trustee
shall be fully protected in relying upon any document executed by such member or
members as representing action by the Committee until the Committee shall file
with the Trustee a written revocation of such designation. The Committee
-35-
<PAGE>
may adopt such by-laws and regulations as it deems desirable for the conduct of
its affairs.
9.4. Records and Reports. The Committee shall keep a record of all
-------------------
its proceedings and acts and shall keep (or cause to be kept) all books of
account, records and other data as may be necessary for proper administration of
the Plan. The Committee shall notify the Trustee and ATN of any action taken by
it and when necessary shall notify any other interested person or persons.
9.5. Claims and Appeals Procedure. The Committee shall be
----------------------------
responsible for the determination of the right to and amount of benefits due a
Participant or beneficiary under the terms of the Plan. In the event that a
benefit hereunder is denied to any Participant, beneficiary or person claiming
through a Participant or beneficiary (hereinafter "Claimant"), the following
procedures shall be applicable:
(a) The Committee or its delegate shall give written notice of
the denial of benefit to the Claimant, setting forth the specific reason
for the denial in a manner that is calculated to be understood by the
Claimant.
(b) Any Claimant shall have the right to request a review of the
determination of the Committee. Such request for review must be made in
writing and must be filed with the Committee within sixty (60) days of
notice of the Committee's denial.
-36-
<PAGE>
(c) Upon the Claimant's filing of a request for review of the
Committee's denial, the Committee shall make its review and notify the
Claimant of its decision within forty-five (45) days from the receipt of
the request for review.
(d) All notices sent to a Claimant by the Committee shall be
sent by certified mail to the last known address of the Claimant as is
shown on the records of the Committee or ATN.
(e) No member of the Committee shall participate in the
consideration of any matter or question which specifically relates to him
or any other person who may be entitled to benefits by reason of the
Committee member's participation under the Plan.
9.6. Payment of Expenses. Members of the Committee shall serve
-------------------
without compensation for services as such, but all expenses of the Committee
shall be paid by ATN. Such expenses shall include any and all expenses incident
to the proper functioning of the Committee.
9.7. Liability. ATN shall indemnify and/or maintain and keep in
---------
force insurance in such form and in such amounts may be necessary to protect the
Administrative Committee, its members, delegates and appointees (other than
persons who are independent of ATN and are rendering services to the Plan for a
fee), from any and all liability which may arise by reason of
-37-
<PAGE>
their action or failure to act concerning this Plan, excepting any willful
misconduct or gross negligence.
ARTICLE X
AMENDMENT AND TERMINATION
-------------------------
10.1. Right to Amend. ATN, by action of its Board of Directors,
--------------
shall have the right to amend the Plan at any time, and from tine to time, in
whole or in part; provided, however, no such amendment shall authorize or permit
any part of the Fund (other than such part as is required to pay taxes or
administrative expenses) to be used for or diverted to purposes other than for
the exclusive benefit of Participants or other persons entitled to benefits
under the Plan, and provided further, that except as otherwise provided herein,
no such amendment shall cause a reduction of then accrued benefits or permit any
portion of the Fund to revert to or become the property of ATN.
10.2. Amendments Required to Obtain or Maintain Qualification.
-------------------------------------------------------
Notwithstanding anything in this Article to the contrary, ATN, by action of its
Board or by action of an officer subsequently ratified by the Board, may make
any and all modifications or amendments to the Plan and Trust which may be
required to obtain or maintain the qualification of the Plan and Trust under
Sections 401 and 501 of the Internal Revenue Code of 1986, as amended, and
regulations thereunder. Such modifications
-38-
<PAGE>
or amendments may and shall be retroactive to such date as may be necessary
therefor.
10.3. Termination. The Board of Directors of ATN shall have the sole
-----------
right at any time to terminate this Plan in whole or in part or to discontinue
Company contributions as to all Participants or as to any class or unit of
Participants. To the extent that the Board so acts to terminate the Plan or to
totally cease contributions, or to the extent that a final judicial
determination is rendered that a total or partial termination, or a
discontinuance of contributions constituting a total or partial termination, has
occurred, the rights of Participants with respect to whom such total or partial
termination has occurred shall become nonforfeitable, subject only to divestment
by reason of death or operation of law, to the extent that benefits are then
funded by assets of the Trust.
10.4. Return of Company Contributions on Failure to Qualify. In the
-----------------------------------------------------
event of the failure of the Plan to initially qualify under IRC Section 401(a),
ATN, by action of its Board of Directors, may terminate the Plan _________ and
recover all contributions made thereto after recognizing any income, gains or
losses of the Fund, and less any disbursements previously made. Any such return
shall be made within one (1) year of the date of a final determination that the
Plan fails to satisfy such requirements.
-39-
<PAGE>
10.5. Return of Company Contributions Resulting from Mistake or Non-
-------------------------------------------------------------
Deductibility. If a Company contribution or any portion thereof is determined
- -------------
to be non-deductible for federal income tax purposes under Code Section 404 or
any statute of similar import, or if a Company contribution or any part thereof
is made by reason of a mistake of fact, notwithstanding any other provisions
hereof, all or any part of such contributions made by ATN, less authorized
disbursements, shall be returned to ATN by the Trustees upon demand therefore in
accordance with applicable law provided that such return is made within one (1)
year (or such other period of time as may be permitted by applicable law) from
the date of the final notice of disallowance of deduction or the date of notice
of the erroneous contribution.
ARTICLE XI
SPECIAL LIMITATIONS AND ADJUSTMENTS
-----------------------------------
11.1. In General. It is ATN's intent to operate this Plan in
----------
accordance with the requirements of Sections 401, 415 and 416 which are
universally applicable to all "qualified" retirement plans. Accordingly, the
following provisions of this Article describe the special tests, definitions and
limitations applicable to the Plan.
11.2. Definitions. For purposes of this Article, the following
-----------
special definitions shall apply:
-40-
<PAGE>
(a) "Aggregation Group" shall mean a group of plans (including
this Plan) maintained by the Company or a Participating Affiliate which are
part of a "required" or "permissive" aggregation group defined,
respectively, as follows:
(1) a "Required Aggregation Group" includes each plan of
the Company or a Participating Affiliate in which a Key Employee
is a participant, or which is combined with this Plan in order to
meet the coverage and non-discrimination requirements of Code
Sections 410 and 401(a)(4).
(2) A "Permissive Aggregation Group" shall include plans
comprising the Required Aggregation Group plus any other plans of
the Company or a Participating Affiliate selected to be included
in the Permissive Aggregation Group, provided, that all such
plans when aggregated continue to satisfy the requirements of
Code Sections 410 and 401(a)(4).
(b) "Compensation" shall mean (for purposes of this Article
only) the total compensation paid to an Employee during the Plan Year, and
shall include the employee's wages, salaries, fees for professional
services and other amounts received for personal services actually rendered
in the course of employment with the employer main-
-41-
<PAGE>
taining the Plan (including, but not limited to, commissions paid to
salesmen, compensation for services on the basis of a percentage of
profits, tips and bonuses). Compensation shall not include: Company
contributions to a qualified retirement plan, a nonqualified deferred
compensation plan or a simplified employee pension plan; income received
from or realized upon the disposition of stock pursuant to the exercise of
a qualified or nonqualified stock option or upon the lapse of substantial
forfeiture or nontransferability provisions on previously restricted
property (as defined under Code Section 83) or other amounts which receive
special tax benefits.
(c) "Determination Date" shall mean the last day of the
immediately preceding Plan Year or, in the case of the first plan year of
any plan, the last day of such Plan Year.
(d) "Employee" shall mean not only an Employee as defined in
Article I, but shall also include any beneficiary of such Employee.
(e) "Highly Compensated Employee" shall mean each Employee who
is a "highly compensated employee" within the meaning of Section 414(q) of
the Code and the regulations promulgated thereunder (which includes,
generally, any employee who, during either the current or immediately prior
Plan Year - (1) was a "5% Owner", (2) received compensation
-42-
<PAGE>
from the Company or an Affiliate in excess of $75,000, (3) received
compensation from the Company or an Affiliate in excess of $50,000 and was
one of the highest paid one-fifth of all employees for such year or (4) was
an officer of the Company or an Affiliate and received compensation or more
than 50% of the dollar limitation described in Code Section 415(b)(1)(A),
as adjusted from time to time pursuant to Code 415(d).
(f) "Key Employee" shall mean each Employee or former Employee
(and the beneficiary of any such Employee) who is, at any time during the
Plan Year ending on the "Determination Date", or was, during any one of the
four Plan Years preceding the Plan Year ending on the Determination Date,
any one or more of the following:
(1) An officer of the Company whose annual compensation
for the Plan Year exceeds 50% of the dollar amount specified in
Code Section 415(b)(1)(A) for such Plan Year;
(2) One of the 10 persons whose annual compensation for
the Plan Year exceeds the amount specified in Code Section
415(c)(1)(A) and who owns (or is considered to own within the
meaning of Code Section 318) both more than a one-half percent
(1/2%) interest and the largest interests in the Company
-43-
<PAGE>
(3) Any person owning (or considered as owning within the
meaning of Code Section 318) more than five percent of the
outstanding stock of the Company (or stock having more than five
percent of the total combined voting power of all stock of the
Company) (a "5 Percent Owner"); or (4) Any person who has annual
Compensation of more than $150,000 and would be described in
subsection (3) above, if "one percent" was substituted for "five
percent".
For purposes of determining whether a person is an officer in paragraph (1)
above, in no event will more than 50 Employees or, if the Company has less
than 500 Employees, the greater of three or 10% of all Employees, be
considered Key Employees solely by reason of officer status. In addition,
persons who are merely nominal officers will not be treated as Key
Employees solely by reason of their titles as officers. A "Non-Key
Employee" shall mean any Employee who is not a Key Employee.
(g) "Non-Highly Compensated Employee" shall mean each Employee
who is not a Highly Compensated Employee.
(h) "Top Heavy Plan" shall mean a qualified retirement plan,
including this Plan if applicable, under which the aggregate
-44-
<PAGE>
value of the
Accounts for Participants who are "Key Employees" exceeds sixty percent
(60%) of the value of the Accounts for all Participants under such plan.
In computing the aggregate value of a Participant's accrued benefit in a
defined benefit plan, such accrued benefit shall be determined by using the
mortality table for plan valuation purposes and an interest rate of 5%.
11.3. Allocation Limitations.
----------------------
(a) Basis Limits. Except as may be hereinafter specifically
------------
provided and notwithstanding any other provision in the Plan to the
contrary, the maximum annual addition credited in any Plan Year to the
Account of any Participant shall not exceed the lesser of $30,000 or, if
greater, one-fourth of the defined benefit dollar limitation described in
Code 415(b)(1) for the Limitation Year (the "Dollar Limitation"), or 25% of
the Participant's Compensation for the Limitation Year (the "Percent
Limitation"), except in the event that such limitations shall be increased
as permitted by Code (S) 415(d)(6).
(b) Effect of Limitation. Annual Additions which would have
--------------------
been allocated to a Participant but for the limitations of this Section
shall not be so allocated to such Participant, but shall be held
unallocated in a suspense account and carried over to subsequent Plan Years
at which time such amount shall be applied to reduce future employer
contributions in the next Limitation Year.
-45-
<PAGE>
(c) Multiple Plan Participation. Notwithstanding the foregoing,
---------------------------
the otherwise permissible annual benefits for any Participant under this
Plan shall be further reduced to the extent necessary to prevent
disqualification of the Plan under Section 415 of the Code, which imposes
the following additional limitations on the benefits payable to a
Participant who may also be participating in another qualified plan of the
Company or an Affiliate: If an individual is a participant at any time of
both a defined benefit plan and a defined contribution plan maintained by
the Company or an Affiliate, the sum of the "defined benefit plan fraction"
and the "defined contribution plan fraction" for any Plan Year may not
exceed 1.0.
(1) Defined Benefit Plan Fraction. The defined benefit
-----------------------------
plan fraction for any Plan Year is a fraction, the numerator of
which is the participant's projected aggregate annual benefit
under all defined benefit plan(s) (whether or not terminated)
maintained by the employer and the denominator of which is the
lesser of (a) 1.25 multiplied by the defined benefit dollar
limitation of Code Section 415(b)(1)(A), as applicable from time
to time, or (b) 1.4 multiplied by the defined benefit percentage
limitation of Code Section 415(b)(1)(B).
-46-
<PAGE>
(2) Defined Contribution Plan Fraction. The defined
----------------------------------
contribution plan fraction for any Plan Year is a fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's accounts under all defined contribution plans of
the Company or an Affiliate in such Plan Year and for all prior
Plan Years, and the denominator of which is the sum of the
applicable maximum amount of Annual Additions which could have
been made under Section 415(c) of the Code for such Plan Year and
for all prior years of such Participant's employment (assuming
for this purpose, that Section 415(c) had been in effect during
such prior year). The applicable maximum amount for any Plan
Year shall be equal to the lesser of 1.25 multiplied by the
dollar limitation in effect for each such Plan Year under
subsection 415(c)(1)(A) of the Code, or 1.5 multiplied by 25% of
the Participant's total annual compensation as defined in Section
415(c)(3) of the Code for each such year.
(3) Aggregation of Plans. For purposes of the above
--------------------
limitation, all defined benefit plans of the Company, whether or
not terminated, are to be treated as one defined benefit plan and
all defined contribution plans of the Company, whether
-47-
<PAGE>
or not terminated, are to be treated as one defined contribution
plan.
(4) Adjustment to Avoid Violations. Where the
------------------------------
contributions and benefits provided under aggregated plans would
otherwise exceed the limitations described above, this Plan and
any other defined contribution plan or plans shall be treated as
being "primary", and the accrued benefit under the defined
benefit plan(s) shall be reduced to the extent necessary to avoid
violating the foregoing limitations.
11.4. Application of "Top Heavy" Provisions. In the event that this
-------------------------------------
Plan, when considering the value of Account balances (or accrued benefits) in
other plans which are part of the same Aggregation Group, is or becomes a Top
Heavy Plan as of a given Determination Date, the following special provisions
shall become applicable to this Plan and shall supersede the comparable
provisions contained elsewhere in this Plan:
(a) Minimum Contribution. The Company shall provide a minimum
--------------------
contribution to the Account of each Participant who is both an Employee of
the company or a Participating Affiliate and a Non-Key Employee equal to
the lesser of:
(1) three percent (3%) of such Participant's
Compensation: or
-48-
<PAGE>
(2) the highest percentage of contribution made for the
Plan Year for a Participant who is a Key Employee for such Plan
Year.
(b) Maximum Compensation. The maximum amount of annual
--------------------
Compensation of each Participant taken into account under the Plan shall
not exceed $200,000; provided that such dollar amount shall be
automatically adjusted in the same manner as adjustments described in Code
415(d) to reflect cost of living adjustments.
(c) Vesting. A Participant's right to his Company contribution
-------
Account shall be determined pursuant to the following schedule:
Years of Continuous Service Vested Interest
- --------------------------- ---------------
Less than two 0%
Two but less than three 20%
Three Years or more 100%
(d) Adjustment of Limitation on Annual Benefit. If for any Plan
------------------------------------------
Year the Plan becomes a Top Heavy Plan, Section 10.3(a)(1) and (2) shall be
modified by substituting the number "1.0" for "1.25" in such section.
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
12.1. Benefits Not Alienable. No benefit payable under this Plan
----------------------
shall be subject in any manner to anticipation, alienation, sale, transfer
assignment, pledge, encumbrance or charge, and any action by way or
anticipating,
-49-
<PAGE>
alienating, selling, transferring, assignment, pledging, encumbering or charging
the same shall be void and of no effect; nor shall any such benefit be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the persons entitled to such benefit, except as specifically
provided in the Plan. The foregoing shall not apply to any "qualified domestic
relations order" as the same is defined in code Section 414(p)(1). ATN may
establish such administrative guidelines and procedures as it deems necessary to
administer benefits payable under the Plan which are or become subject to any
qualified domestic relations order.
12.2. Attempted Alienation. If any person entitled to benefits under
--------------------
the Plan shall become bankrupt or attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any benefit, except as specifically
provided in the Plan, the Committee may hold or apply such benefit or any part
thereof to or for such person, his spouse, children or other dependents, or any
of them in such manner and in such proportions as the Committee shall in its
sole discretion determine.
12.3. No Employment Rights. The establishment of the Plan shall not
--------------------
be construed as conferring any rights upon any Employee or any person for a
continuation of employment and shall not be construed as limiting in any way the
right of ATN to discharge any Employee or to treat him without regard to the
-50-
<PAGE>
effect which such treatment might have upon him as a Participant under the Plan.
12.4. Incapable Recipient. If, in the judgment of the Committee, any
-------------------
person entitled to payment of benefits is incapable of receiving and receipting
for such payment, the Committee may instruct the Trustee to make distribution to
such other person, persons or institutions as, in the judgment of the Committee,
are then maintaining or have custody of such distributee in a manner consistent
with the purpose of this Plan.
12.5. Determination of Payee. The determination of the Committee as
----------------------
to the identity of the proper payee of any benefit under the Plan and the amount
of benefit payable shall be conclusive and payment in accordance with such
determination shall constitute a complete discharge of all obligations on
account of such benefit.
12.6. Unclaimed Payments. If any payment which is otherwise due and
------------------
payable under this Plan cannot be paid due to the inability of the Committee to
ascertain the whereabouts of the person to whom such payment is payable and if
any such payment remains unpaid for more than two (2) years, the Committee shall
send notice of such payment to such person at his last known address as shown on
the Committee's records. If the person to whom such payment is due and payable
does not make written claim therefor within three (3) months after such mailing,
the Committee shall direct that such payment and all remaining
-51-
<PAGE>
payments otherwise due to such person be segregated and held indefinitely by the
Trustee. Any amounts remaining in such account at the termination of the Plan
shall, after first having been converted to cash, escheat to the United States
Virgin Islands.
12.7. Merger of Plan. In case of any merger or consolidation with,
--------------
or transfer of assets or liabilities to or from, any other plan, the benefit
which any Participant would be entitled to receive immediately after such
merger, consolidation or transfer (if the Plan then terminated) shall not be
less than the benefit to which the Participant would have been entitled if the
Plan had terminated immediately before such merger, consolidation or transfer.
12.8. Transfer or Succession. In the event that all or part of this
----------------------
Plan (and the assets held hereunder) is transferred to or assumed by a
transferee or successor to ATN, unless otherwise provided, this Plan shall
remain in full force and effect and continue to operate until terminated by the
transferee or successor.
12.9. Masculine and Feminine. In construing and interpreting the
----------------------
terms and provisions of this Plan, the masculine shall include the feminine and
the singular the plural wherever used unless the context requires otherwise.
12.10. Governing Law. The terms and provisions of this Plan shall be
-------------
subject to and interpreted in accordance with
-52-
<PAGE>
the laws of the United States Virgin Islands, and any federal laws which may,
from time to time, be applicable.
IN WITNESS WHEREOF, Atlantic Tele-Network, Inc. has caused this
Employees' Stock Ownership Plan to be executed by its duly authorized officers
this day of __________, 199_.
ATTEST: ATLANTIC TELE-NETWORK, INC.
By
- --------------------------------- ------------------------------------
Secretary
-53-
<PAGE>
SCHEDULE OF PARTICIPATING AFFILIATES
Name of Affiliate of Participation
- ------------------------------------- -------------------
Virgin Islands Telephone Corporation January 1, 1991
Guyana Telephone and Telegraph January 1, 1991
Company Limited
Vitelcom, Inc. January 1, 1991
Vitelcom Cellular, Inc. January 1, 1991
Maritime Cellular Tele-Network, Inc. January 1, 1991
<PAGE>
FIRST AMENDMENT TO THE
----------------------
ATLANTIC TELE-NETWORK, INC.
EMPLOYEES' STOCK OWNERSHIP PLAN
Pursuant to Article X, Section 10.1 of the ATLANTIC TELE-NETWORK, INC.
EMPLOYEES' STOCK OWNERSHIP PLAN (hereinafter referred to as the "Plan"),
effective January 1, 1991, Atlantic Tele-Network, Inc., by action of its Board
of Directors, hereby revises and amends the Plan in the following respects:
1. The Settlor hereby amends and revises Article I by
revising Section 1.9 of said Article in its entirety to read as follows:
1.9 "Compensation" shall mean the total amount of W-2 earnings
paid to an Employee by ATN or an Affiliate in a Plan Year for services
rendered by the Employee, except that no amount in excess of $200,000 (or
such other amount permitted by Treasury Department regulation under Code
(S) 415(d) to reflect cost of living adjustments) shall be considered for
purposes of this Plan. In determining a Participant's Compensation, the
"family aggregation" rules of Code Section 414(q)(6) shall apply if
applicable, in which case the maximum considered compensation of a
Participant shall be prorated among the affected family member Employees in
proportion to each such Employee's compensation determined without regard
to a dollar limitation.
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the contrary,
for plan years beginning on or after January 1, 1994, the annual
compensation of each Employee taken into account under the Plan shall not
exceed the OBRA 1991 annual compensation limit. The OBRA 1993 annual
compensation limit is $150,000.00, as adjusted by the Commissioner for
increases in the cost of living in accordance with Section 401(a)(17)(B) of
the Code. The cost-of-living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over which compensation is
determined (determination period) beginning in such calendar year. If a
determination period, consists of fewer than 12 months, the OBRA 1993
annual compensation limit will be multiplied by a fraction, the numerator
of which is the number of months in the determination period, and the
denominator of which is 12.
For plan years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under
<PAGE>
Section 401(a)(17) of the Code shall mean the OBRA 1993 annual compensation
limit set forth in this provision.
If compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current plan
year, the compensation for that prior determination period is subject to
the OBRA 1993 annual compensation limit in effect for that prior
determination period. For this purpose, for determination periods
beginning before the first day of the first plan year beginning on or after
January 1, 1994, the OBRA 1993 annual compensation limit is $150,000.
2. Article XII is hereby amended and revised by
adding the following language to the end of said Article:
12.11 Rollover Distributions. This Section applies to
----------------------
distributions made on or after January 1, 1993. Notwithstanding any
provision of the Plan to the contrary that would otherwise limit a
distributee's election under this Section, a distributee may elect, at the
time and in the manner prescribed by the Plan Committee, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover. The
following definition shall apply to this Section:
(a) Eligible rollover distribution. An eligible rollover
------------------------------
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any
distribution that is not includable in gross income (determined
without regard to the exclusion for net unrealized appreciation
with respect to employer securities).
(b) Eligible retirement plan. An eligible retirement plan is an
------------------------
individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section
408(b) of the Code, an annuity Plan described in Section 403(a)
of the Code, or a qualified trust described in Section 401(a) of
the Code, that accepts the
-2-
<PAGE>
distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving
spouse, an eligible retirement Plan is an individual retirement
account or individual retirement annuity.
(c) Distributee. A distributee includes an Employee or former
-----------
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's spouse
or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of the spouse
or former spouse.
(d) Direct rollover. A direct rollover is a payment by the plan to
---------------
the eligible retirement plan specified by the distributee.
3. Subject to the alterations and amendments herein contained, the
Plan is hereby ratified and affirmed in all other respects.
IN WITNESS WHEREOF, this first Amendment to the Atlantic Tele-Network,
Inc. Employees' Stock Ownership Plan is executed on this 5th day of December,
1994.
ATLANTIC TELE-NETWORK, INC., a
a Delaware corporation
By: /s/James J. Heying
----------------------------
JAMES J. HEYING, Chief
Operation Officer
Attest:
/s/Cornelius B. Prior, Jr.
- --------------------------
CORNELIUS B. PRIOR, JR.,
Secretary
-3-
<PAGE>
SECOND AMENDMENT TO THE
-----------------------
ATLANTIC TELE-NETWORK, INC.
EMPLOYEES' STOCK OWNERSHIP PLAN
Pursuant to Article X, Section 10.1 of the ATLANTIC TELE-NETWORK, INC.
EMPLOYEES' STOCK OWNERSHIP PLAN (hereinafter referred to as the "Plan"),
effective January 1, 1991, Atlantic Tele-Network, Inc., by action of its Board
of Directors, hereby revises and amends the Plan in the following respects:
1. Section 1.9 of Article I is hereby revised in its entirety to read
as follows:
1.9 "Compensation" shall mean the total amount of W-2 earnings
paid to an Employee by ATN or an Affiliate in a Plan Year for services
rendered by the Employee, except that no amount in excess of $200,000 (or
such other amount permitted by Treasury Department regulations under Code
(S) 415(d) to reflect cost of living adjustments) shall be considered for
purposes of this Plan. In determining a Participant's Compensation, the
"family aggregation" rules of Code Section 414(q)(6) shall apply, except
that in applying such rules, the term "family" shall only include the
spouse of the Participant and any lineal descendants of the Participant who
have not attained age nineteen (19) before the close of the Plan Year. If
the aggregate Compensation for the family group exceeds $200,000 (as
indexed), then the Compensation of each family member shall be
proportionately reduced so that the total equals $200,000 (as indexed).
For Plan Years beginning on or after January 1, 1994, the annual
Compensation of each Employee taken into account for purposes of Code
Section 414(q)(6) shall not exceed the OBRA '93 annual compensation limit.
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the contrary,
for plan years beginning on or after January 1, 1994, the annual
compensation of each Employee taken into account under the Plan shall not
exceed the OBRA 1993 annual compensation limit. The OBRA 1993 annual
compensation limit is $150,000.00, as adjusted by the commissioner for
increases in the cost of living in accordance with Section 401(a)(17)(B) of
the Code. The cost-of-living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over which compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA 1993 annual
compensation limit will be multiplied by a fraction, the numerator of which
is the
<PAGE>
number of months in the determination period, and the denominator of
which is 12.
For plan years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Section 401(a)(17) of the
Code shall mean the OBRA 1993 annual compensation limit set forth in this
provision.
If compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current plan
year, the compensation for that prior determination period is subject to
the OBRA 1993 annual compensation limit in effect for that prior
determination period. For this purpose, for determination periods
beginning before the first day of the first plan year beginning on or after
January 1, 1994, the OBRA 1993 annual compensation limit is $150,000.
2. Article V is hereby amended and revised by adding the following
language to the end of said Article:
5.6 Loans to the Trust. The Plan may borrow money for any
------------------
lawful purpose, provided the proceeds of a Stock Acquisition Loan are used
within a reasonable time after receipt only for any or all of the following
purposes: to acquire Stock, to repay such loan and to repay a prior Exempt
Loan. All loans to the Trust which are made or guaranteed by a
disqualified person must satisfy all requirements applicable to Stock
Acquisition Loans including but not limited to the following:
(a) The loan must be at a reasonable rate of interest;
(b) Any collateral pledged to the creditor by the Plan shall consist
only of the Stock purchased with the borrowed funds;
(c) Under the terms of the loan, any pledge of Stock shall provide
for the release of shares so pledged on a pro-rata basis pursuant
to Section 4.2;
(d) Under the terms of the loan, the creditor shall have no recourse
against the Plan except with respect to such collateral, earnings
attributable to such collateral, Employer contributions (other
than contributions of Stock) that are made to meet Current
Obligations, and earnings attributable to such contributions;
(e) The loan must be for a specific term and may not be payable at
the demand of any person, except in the case of default;
-2-
<PAGE>
(f) In the event of default upon a Stock Acquisition Loan, the value
of the Trust transferred in satisfaction of the Stock Acquisition
Loan shall not exceed the amount of default. If the lender is a
disqualified person, a Stock Acquisition Loan shall provide for a
transfer of Trust Funds upon default only upon and to the extent
of the failure of the Plan to meet the payment schedule of the
Stock Acquisition Loan;
(g) Stock Acquisition Loan payments during a Plan Year must not
exceed an amount equal to: (1) the sum, over all Plan Years, of
all contributions and cash dividends paid by the Employer to the
Plan with respect to such Stock Acquisition Loan and earnings on
such Employer contributions and cash dividends, less (2) the sum
of the Stock Acquisition Loan payments in all preceding Plan
Years. A separate accounting shall be maintained for such
Employer contributions, cash dividends and earnings until the
Stock Acquisition Loan is repaid;
(h) For purposes of this Section, the term "disqualified person"
means a person who is a Fiduciary, a person providing services to
the Plan, an Employer any of whose Employees are covered by the
Plan, an employee organization any of whose members are covered
by the Plan, an owner, direct or indirect, of 50% or more of the
total combined voting power of all classes of voting stock or of
the total value of all classes of the stock or an officer,
director, 10% or more shareholder, or a highly compensated
Employee.
Valuations must be made in good faith and based on all relevant factors for
determining the fair market value of securities. In the case of a
transaction between a Plan and a disqualified person, value must be
determined as of the date of the transaction. For all other Plan purposes,
value must be determined as of the most recent "valuation date" under the
Plan. An independent appraisal will not in itself be a good faith
determination of value in the case of a transaction between the Plan and a
disqualified person. However, in other cases, a determination of fair
market value based on at least an annual appraisal independently arrived at
by a person who customarily makes such appraisals and who is independent of
any party to the transaction will be deemed to be a good faith
determination of value. Stock not readily tradeable on an established
securities market shall be valued by an independent appraiser meeting
requirements similar to the requirements of the Regulations prescribed
under Code Section 170(a)(1); provided, that no discount for
-3-
<PAGE>
lack of marketability shall apply since a market for the Stock exists due
to the put option contained in Section 5.3. In addition, notwithstanding
the number of shares of Stock allocated to a Participant's Account, the
purchase price to be paid for each share of Stock shall be the good faith
determination of the aggregate fair market value of one hundred percent
(100%) of the Employer's equity divided by the total number of outstanding
shares of the Employer on the "valuation date".
5.7 Nonterminable Protections and Rights. In the event the Plan
------------------------------------
holds or has distributed securities acquired with the proceeds of a Stock
Acquisition Loan and the loan is repaid or the Plan ceases to be an
employee stock ownership plan under the Internal Revenue Code, the
protections and rights granted to Participants under this Plan shall be
nonterminable.
3. Section 11.2(h) of Article XI is hereby revised in its entirety to
read as follows:
(h) "Top Heavy Plan" shall mean a qualified retirement plan,
including this Plan if applicable, under which, as of the Determination
Date, the aggregate value of the Accounts for Participants who are "Key
Employees" exceed sixty percent (60%) of the value of the Accounts for all
Participants under such plan." In computing the aggregate value of a
Participant's accrued benefit in a defined benefit plan, such accrued
benefit shall be determined by using the mortality table for plan valuation
purposes and an interest rate of 5%.
4. Section 11.3 of Article XI is hereby amended and revised by adding
the following language to the end of said Section:
(d) Annual Addition Defined. For the purposes of applying the
-----------------------
limitations of Code Section 415, "annual additions" means the sum credited
to a Participant's Account for any "limitation year" of (1) Employer
contributions, (2) Employee contributions, (3) forfeitures, (4) amounts
allocated, after March 31, 1984, to an individual medical account, as
defined in Code Section 415(l)(2) which is part of a pension or annuity
plan maintained by the Employer and (5) amounts derived from contributions
paid or accrued after December 31, 1985, in taxable years ending after such
date, which are attributable to post-retirement medical benefits allocated
to the separate account of a key employee (as defined in Code Section
419A(d)(3)) under a welfare benefit plan (as defined in Code Section
419(e)) maintained by the Employer. Except, however, the Percentage
Limitation referred to in paragraph (a) above shall not apply to: (1) any
contribution for medical benefits (within the meaning of
-4-
<PAGE>
Code Section 419A(f)(2) after separation from service which is otherwise
treated as an "annual addition", or (2) any amount otherwise treated as an
"annual addition" under Code section 415 (1) (1).
For the purposes of applying the limitations of Code Section 415, the
following are not "annual additions": (1) the transfer of funds from one
qualified plan to another and (2) provided no more than one-third of the
Employer contributions for the year are allocated to Highly Compensated
Participants, Forfeitures of Company Stock purchased with the proceeds of a
Stock Acquisition Loan and Employer contributions applied to the payment of
interest on a Stock Acquisition Loan. In addition, the following are not
Employee contributions for purposes of the preceding paragraph: (1)
rollover contributions (as defined in Code Section 402(a)(5), 403(a)(4),
403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant
from the Plan; (3) repayments of distributions received by an Employee
pursuant to Code Section 411(a)(7)(B)(cash-outs)); (4) repayments of
distributions received by an Employee pursuant to Code Section 411(a)(3)(D)
(mandatory contributions); and (5) Employee contributions to a simplified
employee pension excludable from gross income under Code Section 408(k)(6).
5. Subject to the alterations and amendments herein contained, the
Plan, as previously amended, is hereby ratified and affirmed in all other
respects.
IN WITNESS WHEREOF, this Second Amendment to the Atlantic Tele-
Network, Inc. Employees' Stock Ownership Plan is executed on this 8th day of
December, 1995.
ATLANTIC TELE-NETWORK, INC., a
Delaware corporation
By: /s/James J. Heying
-----------------------------
JAMES J. HEYING, Chief
Operating Officer
-5-
<PAGE>
Exhibit 10.17
-------------
REVOLVING LINE OF CREDIT APPLICATION AND AGREEMENT
("AGREEMENT")
Name of Applicant: VIRGIN ISLANDS TELEPHONE CORPORATION,
a Virgin Islands corporation ("Applicant")
Address: P.O. Box 6100
St. Thomas, U.S. Virgin Islands 00801
Applicant hereby applies to Rural Telephone Finance Cooperative ("RTFC"), a
South Dakota cooperative association, for a revolving line of credit loan in an
amount not to exceed five million dollars ($5,000,000). Applicant hereby agrees
that in the event RTFC approves this Agreement, the terms and conditions herein
and any additional terms and conditions as approved by RTFC, and as agreed to in
writing by Applicant, shall constitute a valid and binding agreement between
Applicant and RTFC. In consideration of their mutual promises hereunder and
other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, RTFC and Applicant agree to the following terms and conditions:
1. REVOLVING CREDIT AND TERM. Upon approval of this Agreement, RTFC agrees to
make advances to the Applicant pursuant to the terms of this Agreement
("Advances") in the maximum amount specified above or such lesser amount as
may be approved by RTFC in accordance with the terms and conditions hereof.
Within such limits, the Applicant may borrow, repay and reborrow at any time
or from time to time for a period up to sixty (60) months from the Effective
Date (as defined herein) (the "Maturity Date").
2. REQUISITIONS. The Applicant shall give RTFC such prior notice of requests
for Advances as RTFC may reasonably require from time to time.
3. INTEREST RATE AND PAYMENT. The Applicant unconditionally promises and agrees
to pay, as and when due, interest on all amounts advanced hereunder from the
date of each Advance and to repay all amounts advanced hereunder with
interest on the Maturity Date. Interest shall be due and payable quarterly
on the first day of each January, April, July and October, commencing on the
first such date after such initial Advance; except that if RTFC gives notice
thereof to the Applicant before the first day of any month, interest shall
thereafter be due and payable on the
<PAGE>
-2-
15th day of such month and each month thereafter. RTFC shall invoice the
Applicant at least five days prior to the due date of any such interest
payment. All amounts shall be payable at RTFC's main office at Woodland
Park, 2201 Cooperative Way, Herndon, Virginia 22071-3025, or at such other
location as designated by RTFC from time to time.
The interest rate on all Advances will be equal to the Prevailing Bank
Prime Rate (as defined herein), plus one and one-half percent per annum or
such lesser total rate per annum as may be fixed by RTFC from time to time.
Interest will be computed on the basis of a year of 365 days. The interest
rate will be adjusted as determined from time to time by RTFC, provided
that no such adjustment may be effective on a date other than the first or
sixteenth day of any month, and will remain in effect until a subsequent
change in rate occurs.
The "Prevailing Bank Prime Rate" is that bank prime rate published in the
"Money Rates" column of any edition of The Wall Street Journal which RTFC
determines in its discretion to be the representative bank prime rate on
the day preceding the day on which an adjustment in the interest rate
hereof shall become effective. If such preceding day is not a publication
day for The Wall Street Journal, then the Prevailing Bank Prime Rate shall
be established by reference to such "Money Rates" column as of the last
publication day next preceding the day on which such adjustment shall
become effective; provided, if The Wall Street Journal shall cease to be
published, then the Prevailing Bank Prime Rate shall be determined by RTFC
by reference to another publication reporting bank prime rates in a similar
manner.
4. RTFC ACCOUNTS. RTFC shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Applicant resulting
from each Advance made from time to time and the amounts of principal and
interest payable and paid from time to time hereunder. In any legal action
or proceeding in respect of this Agreement, the entries made in such
account or accounts (whether stored on computer memory, microfilm, invoices
or otherwise) shall be presumptive evidence (absent manifest error) of the
existence and amounts of the Applicant's transactions therein recorded.
<PAGE>
-3-
5. CORPORATE AND REGULATORY APPROVALS. Applicant represents that it has
obtained any and all necessary corporate and regulatory approvals for
Applicant to execute and perform pursuant to this Agreement.
6. REPORTS. Applicant agrees to deliver to RTFC, promptly upon their becoming
available, a copy of (i) all financial and statistical reports which
Applicant may file with Rural Utilities Service ("RUS") and/or the Rural
Telephone Bank ("RTB"); (ii) any annual audit report prepared subsequent to
the submission of this Agreement; (iii) its monthly operating report within
twenty (20) days for any month in which there are outstanding pursuant to
this Agreement; and (iv) any other reports which RTFC reasonably requests
during the term of this Agreement.
7. FEES. If any amount outstanding and due hereunder shall not be paid when
due, Applicant agrees to pay on demand RTFC's reasonable costs of
collection or enforcement of this Agreement, or preparation therefor,
including reasonable fees of counsel. If payment of any principal and/or
interest due under the terms of this Agreement is not received at RTFC's
office in Herndon, Virginia, or such other location designated by RTFC,
within five (5) business days after the due date thereof (such unpaid
amount of principal and/or interest being herein called the "delinquent
amount," and the period beginning after such due date being herein called
the "late payment period"), Applicant will pay to RTFC, on demand, in
addition to all other amounts due under the terms of this Agreement, any
late payment charge as may then be in effect pursuant to RTFC's policy on
the delinquent amount for the late payment period.
8. LIMITATION ON ADVANCES. The amount of outstanding Advances hereunder in any
single calendar year may not at any one time exceed the amount approved by
RTFC.
9. REDUCE BALANCE TO ZERO. In the event this Agreement is for a term of more
than 12 months, then within 360 days of the first Advance, Applicant will
reduce to zero for a period of at least five consecutive business days (the
last day of such five-day period being herein called the "Zero Balance
Date") amounts outstanding hereunder, and will reduce to zero for a period
of at least five consecutive business days (the last day of such five
business-day period being called the "Subsequent Zero Balance Date")
amounts outstanding hereunder within 360 days from the
<PAGE>
-4-
Zero Balance Date or Subsequent Zero Balance Date, as appropriate.
10. CREDIT SUPPORT. This Agreement may not be used as credit support for any
other financings without RTFC's prior written approval.
11. NOTICES, ACCELERATION OF DEBT AND WAIVERS. While any amount hereunder is
outstanding, Applicant agrees to notify RTFC of any delinquency or default
on any of its financial obligations, any material adverse change in its
financial or business condition and if any representation or warranty made
in this Agreement has become untrue in any respect having a material
adverse effect on the financial condition or business of the Applicant. If
any delinquency, default or any other event as a result of which any holder
of indebtedness may declare the same due and payable shall occur and
continue for more than any applicable grace period, or any representation
or warranty herein shall become untrue, or Applicant shall fail to comply
with any term of this Agreement, or if the financial condition of Applicant
shall have changed to the extent that such change, in the reasonable
judgment of RTFC, materially increases RTFC's risk hereunder, then RTFC may
declare at any time all outstanding amounts hereunder immediately due and
payable in full with accrued interest, without presentment or demand, and
may withhold advances of funds. The Applicant waives the defense of usury
and all rights to setoff, counterclaim, deduction or recoupment.
12. PURPOSE, REPAYMENTS AND DEPOSIT. Applicant agrees that any and all Advances
hereunder will be used only for proper corporate purposes and consistently
with the requirements of outstanding security documents of Applicant
relating to its operations. Applicant agrees that this loan shall be
repayable out of Applicant's general funds and that loan proceeds will not
be deposited in Applicant's Trustee-Special Construction Fund Account or
any other account dedicated for secured financing advances.
13. ADDITIONAL INDEBTEDNESS. While any amount hereunder is outstanding and
unless otherwise disclosed in writing to RTFC, Applicant agrees that it
will not, without prior written consent of RTFC, create, incur, assume,
guarantee or otherwise become obligated for any additional indebtedness,
other than to RTFC, RUS or RTB except that the Ap-
<PAGE>
-5-
plicant may borrow against another loan previously approved by RTFC.
14. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND PAYMENT OBLIGATIONS. Applicant
agrees that the representations and warranties made in this Agreement shall
survive the making of Advances hereunder. Any unsatisfied payment
obligation hereunder shall survive the maturity and cancellation of this
Agreement.
15. REPRESENTATIONS AND WARRANTIES. Except as set forth and attached hereto,
Applicant represents and warrants as of the date of its application and on
the date of each and every Advance hereunder that:
(a) The Applicant has and will meet all obligations and be in compliance
with all instruments under which it is bound and that all information
submitted in support of its application is true, complete and correct;
(b) There has been no material adverse change in the Applicant's business or
financial condition from that set forth in its audited financial
statements;
(c) The Applicant has no outstanding loans from sources other than RUS, RTB
and RTFC;
(d) The Applicant is not in default in any material respect of any of its
obligations and no litigation is threatened or pending which would have
a material adverse impact on the Applicant's ability to perform under
this Agreement; and
(e) The Applicant has no lines of credit with any other lenders.
16. SUBMISSIONS. Applicant submits the following documents in support of this
Agreement (if not previously received by RTFC):
(a) The most recently prepared RUS Form 479 or income statement and balance
sheet for non-RUS borrowers and all attachments thereto; and
(b) RUS Form 479 or income statement and balance sheet for non-RUS borrowers
for the three preceding calendar years; and
<PAGE>
-6-
(c) Applicant's most recent annual audit report prepared by an independent
certified public accountant.
17. CONSENT TO PATRONAGE CAPITAL DISTRIBUTIONS. Applicant hereby consents that
the amount of any distributions with respect to Applicant's patronage which
are made in written notices of allocation (as defined in Section 1388 of
the Internal Revenue Code of 1986, as amended ("Code") including any other
comparable successor provision) and which are received from RTFC will be
taken into account by Applicant at their stated dollar amounts in the
manner provided in Section 1385(a) of the Code in the taxable year in which
such written notices of allocation are received.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
19. SEVERABILITY. If any term, provision or condition, or any part thereof, of
this Agreement shall for any reason be found or held invalid or
unenforceable by any court or governmental agency of competent
jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term,
provision or condition, and this Agreement shall survive and be construed
as if such invalid or unenforceable term, provision or condition had not
been contained therein.
20. SETOFF. RTFC is hereby authorized at any time and from time to time without
prior notice to the Applicant to exercise rights of setoff or recoupment
and apply any and all amounts held, or hereafter held, by RTFC or owed to
the Applicant or for the credit or account of the Applicant against any and
all of the obligations of the Applicant now or hereafter existing
hereunder. RTFC agrees to notify the Applicant promptly after any such
setoff or recoupment and the application thereof, provided that the failure
to give such notice shall not affect the validity of such setoff,
recoupment or application. The rights of RTFC under this section are in
addition to any other rights and remedies (including other rights of setoff
or recoupment) which RTFC may have.
21. ADDITIONAL TERMS AND CONDITIONS. Additional terms and conditions set forth
herein or attached hereto are an integral part of this Agreement.
<PAGE>
-7-
22. TERMINATION AND CANCELLATION OF EXISTING AGREEMENT. Applicant agrees to the
termination and cancellation of its existing revolving line of credit with
RTFC (#__________), if any, on the Effective Date, in consideration of
RTFC's approval of this Agreement; provided, however, Applicant agrees that
any unsatisfied payment obligation owed pursuant to such agreement shall
survive its termination and cancellation.
23. INTEGRATION. This Agreement and the matters incorporated by reference
contain the entire agreement of the parties hereto with respect to the
matters covered and the transactions contemplated hereby, and no other
agreement, statement or promise made by any party hereto, or by any
employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid and binding. No amendment or waiver to
this Agreement shall be valid and binding except if in writing.
24. HEADINGS. The headings and subheadings contained in this Agreement are
intended to be used for convenience only and do not constitute part of this
Agreement.
<PAGE>
-8-
===============================================================
(For RTFC Use Only)
ADDITIONAL TERMS AND CONDITIONS
<PAGE>
-9-
===============================================================
NAME OF APPLICANT: VIRGIN ISLANDS TELEPHONE CORPORATION
-------------------------------------------
SIGNED BY: /s/ Cornelius B. Prior, Jr.
----------------------------------------------------
CORNELIUS B. PRIOR, JR.
TITLE: CHAIRMAN/SECRETARY
-------------------------------------------------------
DATE OF APPLICATION: 2/17/95
-----------------------------------------
===============================================================
APPROVAL OF AGREEMENT
This Agreement is approved, subject to any Additional Terms and Conditions noted
above, on the date set forth below and is effective as of March 21, 1995 (the
"Effective Date").
RURAL TELEPHONE FINANCE COOPERATIVE
Signed By: /s/ Richard B. Bulman, Chief Executive Officer
----------------------------------------------------
Loan #: 02-70-501-S-06 Date of Approval: 3/21/95
--------------------- ------------
<PAGE>
EXHIBIT 10.18
-------------
REVOLVING LINE OF CREDIT APPLICATION AND AGREEMENT
("Agreement")
Name of Applicant: VIRGIN ISLANDS TELEPHONE CORPORATION,
a U.S. Virgin Islands corporation ("Applicant")
Address: P.O. Box 6100
St. Thomas, U.S. Virgin Islands 00801
Applicant hereby applies to Rural Telephone Finance Cooperative ("RTFC"), a
South Dakota cooperative association, for a revolving line of credit loan in an
amount not to exceed fifteen million dollars ($15,000,000). Applicant hereby
agrees that in the event RTFC approves this Agreement, the terms and conditions
herein and any additional terms and conditions as approved by RTFC, and as
agreed to in writing by Applicant, shall constitute a valid and binding
agreement between Applicant and RTFC. In consideration of their mutual promises
hereunder and other valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, RTFC and Applicant agree to the following terms and
conditions:
1. Revolving Credit and Term. Upon approval of this Agreement, RTFC agrees to
make advances to the Applicant pursuant to the terms of this Agreement
("Advances") in the maximum amount specified above or such lesser amount as
may be approved by RTFC in accordance with the terms and conditions hereof.
Within such limits, the Applicant may borrow, repay and reborrow at any time
or from time to time for a period up to twelve (12) months from the
Effective Date (as defined herein) (the "Maturity Date").
2. Requisitions. The Applicant shall give RTFC such prior notice of requests
for Advances as RTFC may reasonably require from time to time.
3. Interest Rate and Payment. The Applicant unconditionally promises and
agrees to pay, as and when due, interest on all amounts advanced hereunder
from the date of each Advance and to repay all amounts advanced hereunder
with interest on the Maturity Date. Interest shall be due and payable
quarterly on the first day of each January, April, July and October,
commencing on the first such date after such initial Advance; except that if
RTFC gives notice thereof to the Applicant before the first day of any
<PAGE>
-2-
month, interest shall thereafter be due and payable on the 15th day of such
month and each month thereafter. RTFC shall invoice the Applicant at least
five days prior to the due date of any such interest payment. All amounts
shall be payable at RTFC's main office at Woodland Park, 2201 Cooperative
Way, Herndon, Virginia 22071-3025, or at such other location as designated by
RTFC from time to time.
The interest rate on all Advances will be equal to the Prevailing Bank Prime
Rate (as defined herein), plus one and one-half percent per annum or such
lesser total rate per annum as may be fixed by RTFC from time to time.
Interest will be computed on the basis of a year of 365 days. The interest
rate will be adjusted as determined from time to time by RTFC, provided that
no such adjustment may be effective on a date other than the first or
sixteenth day of any month, and will remain in effect until a subsequent
change in rate occurs.
The "Prevailing Bank Prime Rate" is that bank prime rate published in the
"Money Rates" column of any edition of The Wall Street Journal which RTFC
determines in its discretion to be the representative bank prime rate on the
day preceding the day on which an adjustment in the interest rate hereof
shall become effective. If such preceding day is not a publication day for
The Wall Street Journal, then the Prevailing Bank Prime Rate shall be
established by reference to such "Money Rates" column as of the last
publication day next preceding the day on which such adjustment shall become
effective; provided if The Wall Street Journal shall cease to be published,
then the Prevailing Bank Prime Rate shall be determined by RTFC by reference
to another publication reporting bank prime rates in a similar manner.
4. RTFC Accounts. RTFC shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Applicant resulting
from each Advance made from time to time and the amounts of principal and
interest payable and paid from time to time hereunder. In any legal action or
proceeding in respect of this Agreement, the entries made in such account or
accounts (whether stored on computer memory, microfilm, invoices or
otherwise) shall be presumptive evidence (absent manifest error) of the
existence and amounts of the Applicant's transactions therein recorded.
<PAGE>
-3-
5. Corporate and Regulatory Approvals. Applicant represents that it has obtained
any and all necessary corporate and regulatory approvals for Applicant to
execute and perform pursuant to this Agreement.
6. Reports. Applicant agrees to deliver to RTFC, promptly upon their becoming
available, a copy of (i) any annual audit report prepared subsequent to the
submission of this Agreement; (ii) its monthly operating report within twenty
(20) days for any month in which there are advances outstanding pursuant to
this Agreement; and (iii) any other reports which RTFC reasonably requests
during the term of this Agreement.
7. Fees. If any amount outstanding and due hereunder shall not be paid when due,
Applicant agrees to pay on demand RTFC's reasonable costs of collection or
enforcement of this Agreement, or preparation therefor, including reasonable
fees of counsel. If payment of any principal and/or interest due under the
terms of this Agreement is not received at RTFC's office in Herndon,
Virginia, or such other location designated by RTFC, within five (5) business
days after the due date thereof (such unpaid amount of principal and/or
interest being herein called the "delinquent amount," and the period
beginning after such due date being herein called the "late payment period"),
Applicant will pay to RTFC, on demand, in addition to all other amounts due
under the terms of this Agreement, any late payment charge as may then be in
effect pursuant to RTFC's policy on the delinquent amount for the late
payment period.
8. Limitation on Advances. The amount of outstanding Advances hereunder in any
single calendar year may not at any one time exceed the amount approved by
RTFC.
9. Reduce Balance to Zero. In the event this Agreement is for a term of more
than 12 months, then within 360 days of the first Advance, Applicant will
reduce to zero for a period of at least five consecutive business days (the
last day of such five-day period being herein called the "Zero Balance Date")
amounts outstanding hereunder, and will reduce to zero for a period of at
least five consecutive business days (the last day of such five business
dayperiod being called the "Subsequent Zero Balance Date") amounts
outstanding hereunder within 360 days from the Zero Balance Date or
Subsequent Zero Balance Date, as appropriate.
<PAGE>
-4-
10. Credit Support. This Agreement may not be used as credit support for any
other financings without RTFC's prior written approval.
11. Notices, Acceleration of Debt and Waivers. While any amount hereunder is
outstanding, Applicant agrees to notify RTFC of any delinquency or default
on any of its financial obligations, any material adverse change in its
financial or business condition and if any representation or warranty made
in this Agreement has become untrue in any respect having a material adverse
effect on the financial condition or business of the Applicant. If any
delinquency, default or any other event as a result of which any holder of
indebtedness may declare the same due and payable shall occur and continue
for more than any applicable grace period, or any representation or warranty
herein shall become untrue, or Applicant shall fail to comply with any term
of this Agreement, or if the financial condition of Applicant shall have
changed to the extent that such change, in the reasonable judgment of RTFC,
materially increases RTFC's risk hereunder, then RTFC may declare at any
time all outstanding amounts hereunder immediately due and payable in full
with accrued interest, without presentment or demand, and may withhold
advances of funds. The Applicant waives the defense of usury and all rights
to setoff, counterclaim, deduction or recoupment.
12. Purpose, Repyaments and Deposit. Applicant agrees that any and all Advances
hereunder will be used only for proper corporate purposes and consistently
with the requirements of outstanding security documents of Applicant
relating to its operations. Applicant agrees that this loan shall be
repayable out of Applicant's general funds and that loan proceeds will not
be deposited in Applicant's Trustee-Special Construction Fund Account or any
other account dedicated for secured financing advances.
13. Additional Indebtedness. While any amount hereunder is outstanding and
unless otherwise disclosed in writing to RTFC, Applicant agrees that it will
not, without prior written consent of RTFC, (i) make distributions of cash
to its shareholders or partners, if applicable, or (ii) create, incur,
assume, guarantee or otherwise become obligated for any additional
indebtedness, other than to RTFC, except that the Applicant may borrow
against another loan previously approved by RTFC.
<PAGE>
-5-
14. Survival of Representations, Warranties and Payment Obligations. Applicant
agrees that the representations and warranties made in this Agreement shall
survive the making of Advances hereunder. Any unsatisfied payment obligation
hereunder shall survive the maturity and cancellation of this Agreement.
15. Representations and Warranties. Except as set forth and attached hereto,
Applicant represents and warrants as of the date of its application and on
the date of each and every Advance hereunder that:
(a) The Applicant has and will meet all obligations and be in compliance
with all instruments under which it is bound and that all information
submitted in support of its application is true, complete and correct;
(b) There has been no material adverse change in the Applicant's business or
financial condition from that set forth in its audited financial
statements;
(c) The Applicant has no outstanding loans from sources other than RTFC;
(d) The Applicant is not in default in any material respect of any of its
obligations and no litigation is threatened or pending which would have
a material adverse impact on the Applicant's ability to perform under
this Agreement; and
(e) The Applicant has no lines of credit with any other lenders.
16. Submissions. Applicant submits the following documents in support of this
Agreement (if not previously received by RTFC):
(a) The most recently prepared income statement and balance sheet and all
attachments thereto; and
(b) The income statement and balance sheet for each of the three preceding
calendar years; and
(c) Applicant's most recent annual audit report prepared by an independent
certified public accountant.
<PAGE>
-6-
17. Consent to Patronage Capital Distributions. Applicant hereby consents that
the amount of any distributions with respect to Applicant's patronage which
are made in written notices of allocation (as defined in Section 1388 of the
Internal Revenue Code of 1986, as amended ("Code") including any other
comparable successor provision) and which are received from RTFC will be
taken into account by Applicant at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
19. Severability. If any term, provision or condition, or any part thereof, of
this Agreement shall for any reason be found or held invalid or
unenforceable by any court or governmental agency of competent jurisdiction,
such invalidity or unenforceability shall not affect the remainder of such
term, provision or condition nor any other term, provision or condition, and
this Agreement shall survive and be construed as if such invalid or
unenforceable term, provision or condition had not been contained therein.
20. Setoff. RTFC is hereby authorized at any time and from time to time without
prior notice to the Applicant to exercise rights of setoff or recoupment and
apply any and all amounts held, or hereafter held, by RTFC or owed to the
Applicant or for the credit or account of the Applicant against any and all
of the obligations of the Applicant now or hereafter existing hereunder.
RTFC agrees to notify the Applicant promptly after any such setoff or
recoupment and the application thereof, provided that the failure to give
such notice shall not affect the validity of such setoff, recoupment or
application. The rights of RTFC under this section are in addition to any
other rights and remedies (including other rights of setoff or recoupment)
which RTFC may have.
21. Additional Terms and Conditions. Additional terms and conditions set forth
herein or attached hereto are an integral part of this Agreement.
22. [Paragraph 22 was manually crossed out and initialed.]
23. Integration. This Agreement and the matters incorporated by reference
contain the entire agreement of the parties
<PAGE>
-7-
hereto with respect to the matters covered and the transactions contemplated
hereby, and no other agreement, statement or promise made by any party
hereto, or by any employee, officer, agent or attorney of any party hereto,
which is not contained herein, shall be valid and binding. No amendment or
waiver to this Agreement shall be valid and binding except if in writing.
24. HEADINGS. The headings and subheadings contained in this Agreement are
intended to be used for convenience only and do not constitute part of this
Agreement.
<PAGE>
-8-
===============================================================
(For RTFC Use Only)
Additional Terms and Conditions
<PAGE>
-9-
================================================================================
Name of Applicant: VIRGIN ISLANDS TELEPHONE CORPORATION
------------------------------------------------------------
Signed By: /s/ David L. Sharp
---------------------------------------------------------------------
DAVID L. SHARP
Title: PRESIDENT & CEO
------------------------------------------------------------------------
Date of Application: MARCH 10, 1996
----------------------------------------------------------
================================================================================
-ATTACHMENT-
APPROVAL OF AGREEMENT
This Agreement is approved, subject to any Additional Terms and Conditions noted
above, on the date set forth below and is effective as of _____________, 199____
(the "Effective Date").
RURAL TELEPHONE FINANCE COOPERATIVE
Signed By: __________________________, Chief Executive Officer
Loan #: ___________________ Date of Approval: ______________
<PAGE>
VIRGIN ISLANDS TELEPHONE CORPORATION
Rural Telephone Finance Cooperative
Herndon, Virginia
Re: Attachment to Revolving Line of Credit
Application and Agreement
--------------------------------------
Dear Sirs:
As is contemplated by paragraph 15 of our line of credit application
and agreement for a $15 million line of credit, we hereby advise you that we,
the Applicant, have outstanding and may on the date of future advances under the
line of credit have outstanding (i) loans from RUS, (ii) loans under and secured
by certain property and casualty insurance which we carry and (iii) capitalized
leases and other purchase money obligations for capital equipment [not in excess
of $3 million at any one time outstanding].
Very truly yours,
VIRGIN ISLANDS TELEPHONE CORPORATION
By: /s/ David L. Sharp
-------------------------------
David L. Sharp, President
<PAGE>
CERTIFIED COPY OF MINUTES AUTHORIZING
REVOLVING LINE OF CREDIT APPLICATION AND AGREEMENT
I, CORNELIUS B. PRIOR, JR., do hereby certify that I am the Secretary
of THE VIRGIN ISLANDS TELEPHONE CORPORATION (the "Applicant").
The following is a true and correct copy of excerpts from the minutes
of a meeting of the Board of Directors f the Applicant held March 28, 1996, as
they appear in the Minutes Book of the Applicant; said resolutions were duly
adopted thereat; the meeting was duly and properly called; the Revolving Line of
Credit Application and Agreement (the "Agreement") submitted herewith or to be
submitted to Rural Telephone Finance Cooperative ("RTFC") is substantially
similar to the form as presented to said meeting, the execution of which was
authorized by the Board of Directors* Trustees*; and said resolutions have not
been modified or rescinded:
"The Board of Directors of
THE VIRGIN ISLANDS TELEPHONE CORPORATION
- ----------------------------------------
(Name of Applicant)
having been advised by its counsel that the Applicant is legally constituted, is
in compliance with all applicable statutory, regulatory and other legal
requirements and is in good standing, and that an application to be made to RTFC
for a line of credit and its approval by RTFC, together with the execution of an
agreement as authorized by the Board, in the form of the Agreement presented at
this meeting, will constitute a valid and binding obligation of the Applicant,
enforceable by and against the Applicant, in accordance with the terms of these
documents:
"RESOLVED, that the Applicant establish a line of credit and authorize
borrowing from the Rural Telephone Finance Cooperative ("RTFC") in amounts
which shall not at one time exceed $15,000,000* for a term of up to
twelve (12) months, and at such interest rate or rates as shall be
prescribed in the Agreement executed by and on behalf of the Applicant and
delivered to RTFC, the proceeds of such loan or loans to
- -----------------
* (in addition to the applicant's existing $5,000,000 line of credit)
<PAGE>
-2-
be used for proper corporate purposes and consistently with the
requirements of existing agreements and security documents of the
Applicant; and
"RESOLVED, that the PRESIDENT or any VICE-PRESIDENT
--------------------------------------
(Insert Title of Appropriate Official)
of the Applicant be and is hereby authorized to execute, on behalf of the
Applicant, an agreement for a line of credit substantially in the form of
the Agreement presented to this meeting, a copy of which is attached
hereto; to execute, in the name of the Applicant, to revise and modify said
Agreement within the amount so authorized; and to execute such further
documents as may be needed to comply with RTFC's requirements; and
"RESOLVED, that the PRESIDENT or any VICE-PRESIDENT
---------------------------------------
(Insert Title of Appropriate Official)
is authorized on behalf of the Applicant to request and receive funds
pursuant to the Agreement and is directed to deposit such funds in a bank
account used for the general funds of the Applicant; and
"RESOLVED, that the appropriate officers are authorized to take all actions
they deem advisable to carry out the purpose of these resolutions."
IN WITNESS WHEREOF, I have hereunder set my hand and affixed the seal
of the Applicant this 16th day of April, 1996.
(Corporate Seal) /s/ Cornelius B. Prior, Jr.
---------------------------------
CORNELIUS B. PRIOR, JR.
Secretary
<PAGE>
EXHIBIT 10.19
-------------
LOAN AGREEMENT
LOAN AGREEMENT ("Agreement") made as of __________, 199_, between
ATLANTIC TELE-NETWORK CO., a United States Virgin Islands corporation
("Borrower"), and RURAL TELEPHONE FINANCE COOPERATIVE, a South Dakota
cooperative association ("Lender').
RECITALS
WHEREAS, Borrower has requested Lender to make the Loan(s) to Borrower
described in Schedule 1 hereto; and
WHEREAS, Lender is willing to make the Loan(s) upon the terms and
conditions set forth in this Agreement,
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, Borrower and Lender do hereby agree as follows:
1. CONSTRUCTION AND DEFINITION OF TERMS
All accounting terms not specifically defined herein shall have the
meanings assigned to them as determined by generally accepted accounting
principles. In addition to the terms defined elsewhere in this Agreement,
unless the context otherwise requires, when used herein, the following terms
shall have the following meanings:
"Adjustment Date" shall mean a date or dates, determined by the Lender
based on the term (or rate period) of the applicable Fixed Rate, after the date
of the initial Advance to the Maturity Date.
"Advance" shall mean an Advance as defined in Section 2.02.
"Business Day" shall mean any day that Lender is open for business.
"Cash Margins" for any year shall mean net income plus depreciation,
amortization and any other non-cash charges, less any non-cash credits and
principal on long-term debt payable in such year, as calculated on a
consolidated basis for Borrower and all its Subsidiaries.
"Certified" shall mean that the information, statement, schedule,
report or other document required to be "Certified" shall contain a
representation of a duly authorized
<PAGE>
-2-
officer of Borrower that such information, statement, schedule, report or other
document is true and correct and complete.
"Closing" shall mean the first date on which funds are advanced to
Borrower hereunder.
"Collateral" shall mean the Mortgaged Property, as such term is
defined in the Mortgage, and all proceeds, cash and non-cash, including
insurance proceeds, of the foregoing, whether in the possession of Borrower or
any other person, and certain stock and related proceeds and dividends described
in, and pledged to Lender pursuant to, a Pledge and Security Agreement dated as
of even date herewith (the "Pledge Agreement').
"Commitment" shall have the meaning set forth in Schedule 1 hereto.
"Debt Service Coverage Ratio" or "DSC" for any year shall mean (a)
total net income or margins plus depreciation and amortization expense, and
interest on long-term debt for such year, divided by (b) principal and interest
on long-term debt payable in such year, as measured on a consolidated basis for
the Borrower and all its Subsidiaries.
"Event of Default" shall mean any of the events described in Section 8
hereof.
"Fixed Rate" shall mean the interest rate per annum provided for in
Section 2.03 of this Agreement.
"Leases" shall mean any lease of property by which Borrower or any
Subsidiary shall be obligated for rental or other payments which in the
aggregate are in excess of $100,000 other than such equipment leases which are
in form and substance substantially in conformity with lease agreements in
general use in Borrower's industry by companies of size and character similar to
Borrower.
"Lien" shall mean any statutory or common law consensual or non-
consensual mortgage, pledge, security interest, encumbrance, lien, right of set-
off, claim or charge of any kind, including, without limitation, any conditional
sale or other title retention transaction, any lease transaction in the nature
thereof and any secured transaction under the Uniform Commercial Code of any
jurisdiction.
<PAGE>
-3-
"Loan" shall mean the loan or loans by the Lender to Borrower,
pursuant to this Agreement and the Note, in an aggregate principal amount not to
exceed the Commitment.
"Make-Whole Premium" shall mean the excess, if any, of (i) the present
value of the amount of interest that would have accrued during the applicable
Fixed Rate period on that portion of the Loan to be prepaid or converted over
(ii) the present value of the amount of interest Lender would earn if that
portion of the Loan to be prepaid or converted was reinvested for the remainder
of the applicable Fixed Rate period in U.S. Treasury obligations with a maturity
comparable to the remaining term of the applicable Fixed Rate period. For
purposes of calculating the present value in (i) and (ii) above, the discount
rate will be the rate of interest accruing on the U.S. Treasury obligations in
(ii) above.
"Maturity Date" shall mean the maturity date defined in the Note.
"Minimum Net Worth Test" shall be calculated on a consolidated basis
for the Borrower and all its Subsidiaries, and shall mean an equity to total
asset ratio of at least forty percent (40%). Equity shall be determined by
subtracting total liabilities from total assets.
"Mortgage" shall mean the mortgage and security agreement described in
Schedule 1.
"Net Worth" shall be calculated on a consolidated basis for the
Borrower and all its Subsidiaries taken as a whole and arrived at by subtracting
total liabilities from total assets.
"Note" shall mean the Note or Notes executed and delivered by Borrower
at or prior to Closing pursuant to Subsection 5.02(a) hereof, and all renewals,
replacements and extensions thereof.
"Obligations" shall include the full and punctual performance of all
present and future duties, covenants and responsibilities due to the Lender by
Borrower under this Agreement, the Note, the Other Agreements, all present and
future obligations of Borrower to the Lender for the payment of money under this
Agreement, the Note, the Other Agreements, extending to all principal amounts,
interest, late charges and all other charges and sums, as well as all costs and
expenses payable by Borrower under this Agreement, the Note, the Other
Agreements,
<PAGE>
-4-
and any and all other present and future monetary liabilities of Borrower to the
Lender, whether direct or indirect, contingent or noncontingent, matured or
unmatured, accrued or not accrued, related or unrelated to this Agreement,
whether or not of the same character or class as Borrower's obligations under
this Agreement and the Note, whether or not secured under any other document,
instrument or statutory or common law provision, as well as all renewals,
refinancings, consolidations, recastings and extensions of any of the foregoing.
"Other Agreements" shall mean any and all promissory notes, security
agreements, assignments, subordination agreements, pledge or hypothecation
agreements, mortgages, deeds of trust, leases, contracts, guaranties,
instruments and documents now and hereafter existing between the Lender and
Borrower, executed and/or delivered pursuant to this Agreement or guaranteeing,
securing or in any other manner relating to any of the Obligations, including,
the instruments and documents referred to in Subsection 5.02 hereof.
"Payment Date" shall mean the last day of each of the months referred
to in Schedule 1 hereto.
"Payment Notice" shall mean the notice furnished to the Borrower at
least quarterly indicating the precise amount of principal and/or interest due
on the next ensuing Payment Date, such notice to be sent to the Borrower at
least ten (10) days before such Payment Date.
"Person" shall include natural persons, corporations, associations,
partnerships, joint ventures, trusts, governments and agencies and departments
thereof, and every other entity of every kind.
"Pledge Agreement" shall mean the Pledge and Security Agreement
executed by and between Borrower and Lender as of even date herewith.
"Subordinated Capital Certificate" or "SCC" shall mean a subordinated
certificate representing an investment in the Lender purchased by the Borrower
in connection with the Loan.
"Subsidiary" at any time means any entity which is at the time
beneficially owned or controlled directly or indirectly by the Borrower, by one
or more such entities or by the Borrower and one or more such entities.
<PAGE>
-5-
"Termination Date" shall mean that date which is two (2) years from
the date hereof.
"Times Interest Earned Ratio" or "TIER' for any year shall mean (a)
total net income or margins plus income taxes plus interest payable on long-term
debt for such year, divided by (b) interest on long-term debt payable in such
year, as measured on a consolidated basis for the Borrower and all its
Subsidiaries.
"Total Plant" shall be calculated on a consolidated basis for the
Borrower and all its Subsidiaries and shall mean the total of all assets
included in property, plant and equipment pursuant to generally accepted
accounting principles and shall exclude any goodwill or plant acquisition
adjustments.
"Variable Rate" shall mean the variable rate established by the Lender
from time to time for loans similarly classified pursuant to Lender's policies
and procedures then in effect.
2. LOAN
2.01. Loan. The Lender agrees to make the Loan to Borrower subject
----
to all the terms and conditions of this Agreement and the Other Agreements.
2.02. Advances. The Lender agrees to make, and the Borrower agrees
--------
to request, on the terms and conditions of this Agreement, Advances from time to
time at the office of the Lender in Hemdon, Virginia, or at such other place as
the Lender may designate, not to exceed the Commitment. The Borrower shall give
the Lender at least one Business Day prior written notice of the date on which
each Advance is to be made. On the Termination Date the Lender may stop
advancing funds and reduce the Commitment to the aggregate amount theretofore
advanced. The obligation of the Borrower to repay the Advances shall be
evidenced by the Note.
2.03. Payment, Amortization and Interest Rate.
---------------------------------------
(a) Payment. The Borrower shall pay on each Payment Date quarterly
-------
installments, in an amount as determined by the Lender, of
principal and/or interest as shown in the Payment Notice, except
that, if not sooner paid, any balance of the principal amount and
interest accrued thereon and all other amounts due hereunder
shall be due
<PAGE>
-6-
and, payable on the Maturity Date. Payment of principal hereunder
shall commence after the first full quarter following the initial
Advance of funds as set forth in Schedule 1 and on each
subsequent Payment Date until the Maturity Date or such earlier
date as all amounts due hereunder and on account of the Note
shall have been paid in full. Payment of interest hereunder is
due on each Payment Date in which a principal balance is
outstanding. Principal will be amortized in accordance with the
method stated in Schedule 1 hereto.
The Lender will use, for purposes of calculating the amortization of
principal, one of the following interest rates, as applicable:
(i) If the Borrower elects the Fixed Rate, the Fixed Rate in effect
on the Adjustment Date; or
(ii) If the Borrower elects the Variable Rate, the Variable Rate in
effect when amortization begins; or
(iii) If the Borrower elects to convert from one interest rate
program to another, pursuant to the provisions hereunder, the
interest rate then in effect for the elected program.
At the Lenders option, all payments shall be applied to late payment
charges due, as hereinafter provided, then to interest accrued to the date of
such payment, and then to the reduction of principal balance outstanding.
No provision of this Agreement or the Note shall require the payment,
or permit the collection, of interest in excess of the highest rate permitted by
applicable law.
(b) Interest Rate Each Advance shall be initially made at the
-------------
Variable Rate. Interest shall be computed from the actual number
of days elapsed on the basis of a year of 365 days until the
first Payment Date following the Initial Advance. Thereafter,
interest shall continue to be computed for the actual number of
days elapsed on the basis of a year of 365 days unless a Fixed
Rate is applicable to the Loan, in
<PAGE>
-7-
which case interest shall be computed on the basis of a 30-day
month and 360-day year.
(i) Variable Rate. If Advances are made at the Variable Rate, it
--------
shall apply until the Maturity Date, except as provided
hereinbelow.
(ii) Fixed Rate. If the Borrower elects a Fixed Rate, such Fixed
----------
Rate as is available and in effect for loans similarly classified
pursuant to Lender's policies and procedures then in effect at
the time of the election shall apply to such Advance until the
Adjustment Date. Upon notice given by the Borrower five Business
Days prior to such Adjustment Date, Borrower may elect to reset
the interest rate to such Fixed Rate as is available and in
effect at the time of such Adjustment Date. Such reset Fixed
Rate shall apply to that portion of the outstanding principal
balance of the Loan elected to have a Fixed Rate from the
Adjustment Date until a new Adjustment Date or the Maturity Date.
If Borrower does not elect to reset the Fixed Rate, the Variable
Rate shall apply to the outstanding principal balance of the Loan
that had been bearing interest at the Fixed Rate prior to such
Adjustment Date, from such Adjustment Date to the Maturity Date.
(iii) Conversion to Different Interest Program.
----------------------------------------
(A) Variable Rate to Fixed Rate. Subject to the conditions set forth
---------------------------
herein, the Borrower may convert from the Variable Rate to the
Fixed Rate for any portion or all of the principal amount of the
Commitment then outstanding at any time provided the Lender
offers a Fixed Rate at such time.
(B) Fixed Rate to Variable Rate. The Borrower may convert from a
---------------------------
Fixed Rate to the Variable Rate: (1) on an Adjustment Date or (2)
at any other time, provided that Borrower shall pay Lender any
applicable Make-Whole Premium.
2.04. Prepayment. In the event the Borrower prepays all or part of
----------
the Loan, the Borrower shall pay any payment fee as the Lender may prescribe
pursuant to the terms of this Section 2.04. All prepayments shall be
accompanied by payment
<PAGE>
-8-
of accrued and unpaid interest on the amount of and to the date of the
prepayment. All prepayments shall be applied first to fees, second to the
payment of accrued and unpaid interest, and then to the unpaid balance of the
principal amount of the Loan. If the Loan bears interest at the Variable Rate
the Borrower may prepay the Loan or any portion thereof, as the case may be, at
any time subject to the terms hereof and said prepayment fee shall be in an
amount equal to fifty (50) basis points times the amount being prepaid. If the
Loan bears interest at the Fixed Rate, the Borrower may prepay the Loan only on
an Adjustment Date or any such other date provided that the Borrower shall pay a
prepayment fee in an amount equal to fifty (50) basis points times the amount
being prepaid plus any applicable Make-Whole Premium.
2.05. 5% Subordinated Capital Certificates. The Borrower shall
------------------------------------
purchase SCCs which in the aggregate shall not exceed the amount specified in
Schedule 1 hereto. Unless otherwise requested in writing by the Borrower prior
to the initial Advance and approved by the Lender, the Borrower agrees to
purchase SCCs either (1) with each Advance in the amount of five percent of each
such Advance, and each such SCC shall be paid for with proceeds of such Advance,
or (2) by making payments with Borrowers own funds in twenty equal quarterly
installments, commencing with the first full quarter following the initial
Advance. If the Borrower elects to pay for SCCs other than from Loan funds, the
amount of the Commitment will be correspondingly reduced by said amount when the
SCCs are fully paid. If the Borrower obtains Advances hereunder other than for
the purpose of purchasing SCCs and fails to pay for the SCCs, then the Lender
may make Advances for the account of the Borrower to purchase the SCCs. The
Lender agrees to deliver the SSCs on or about the date on which the SCCs have
been paid for in full. The SCCs shall bear no interest and shall mature in
accordance with the terms thereof.
3. SECURITY
As security for the payment and performance of all of the Obligations,
Borrower has (i) entered into the Mortgage pledging and granting to the Lender a
prior and continuing security interest in the Collateral that may be secured by
the Mortgage that shall continually exist until all Obligations have been paid
in full and (ii) executed the Pledge Agreement with Lender pursuant to which
Borrower has pledged certain equity interests as described therein. If
reasonably required by the Lender at any time, Borrower shall make notations,
satisfactory to the Lender, on its books and records disclosing the
<PAGE>
-9-
existence of the Lender's security interest in the Collateral. Borrower agrees
that, with respect to the Collateral which is subject to Article 9 of the
Uniform Commercial Code, the Lender shall have, but not be limited to, all the
rights and remedies of a secured party under the Uniform Commercial Code. The
Lender shall have no liability or duty, either before or after the occurrence of
an Event of Default hereunder, on account of loss of or damage to, or to collect
or enforce any of its rights against, the Collateral, or to preserve any rights
against account debtors or other parties with prior interests in the Collateral.
4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, Borrower represents
and warrants to the Lender as of the date of this Agreement that:
4.01. Good Standing. Borrower is a corporation duly incorporated,
-------------
validly existing and in good standing under the laws of the territory of its
organization; has the power to own its property and to carry on its business; is
duly qualified to do business; and is in good standing in each jurisdiction in
which the transaction of its business makes such qualification necessary.
4.02. Authority. Borrower has full power and authority to enter into
---------
this Agreement, the Note, the Mortgage and the Pledge Agreement; to make the
borrowing hereunder, to execute and deliver all documents and instruments
required hereunder and to incur and perform the obligations provided for herein,
in the Mortgage, in the Pledge Agreement and in the Note, all of which have been
duly authorized by all necessary and proper corporate and other action; and no
consent or approval of any person, including, without limitation, stockholders
and members of Borrower and any public authority or regulatory body, which has
not been obtained is required as a condition to the validity or enforceability
hereof or thereof.
4.03. Binding Agreement. This Agreement has been duly and property
-----------------
executed by Borrower, constitutes the valid and legally binding obligation of
Borrower and is fully enforceable against Borrower in accordance with its terms,
subject only to laws affecting the rights of creditors generally, the exercise
of judicial discretion in accordance with general principles of equity or
because waivers of statutory or common law rights or remedies may be limited.
<PAGE>
-10-
4.04. No Conflicting Agreements. The execution, delivery of and
-------------------------
performance by Borrower of this Agreement, the Mortgage, the Pledge Agreement
and the Note, and the transactions contemplated hereby or thereby, will not: (a)
violate any provision of law, any order, rule or regulation of any court or
other agency of government, any award of any arbitrator, the articles of
incorporation or by-laws of Borrower, or any indenture, contract, agreement,
mortgage, deed of trust or other instrument to which Borrower is a party or by
which it or any of its property is bound; or (b) be in conflict with, result in
a breach of or constitute (with due notice and/or lapse of time) a default
under, any such award, indenture, contract agreement, mortgage, deed of trust or
other instrument, or result in the creation or imposition of any Lien (other
than contemplated hereby) upon any of the property or assets of Borrower.
4.05. Litigation. There are no judgments, claims, actions, suits or
----------
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or its properties, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, which may result in any material adverse
change in the business, operations, prospects, properties or assets or in the
condition, financial or otherwise, of Borrower, and Borrower is not, to its
knowledge, in default with respect to any judgment, order, writ, injunction,
decree, rule or regulation of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which would have a material adverse effect on Borrower.
4.06. Financial Condition. The financial statements of Borrower as
-------------------
at the date set forth in Schedule 1 hereto, heretofore delivered to the Lender,
are complete and correct, fairly present the financial condition of Borrower and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis. There are no liabilities of Borrower, direct or
indirect, fixed or contingent, as of the date of such statements which are not
reflected therein. There has been no material adverse change in the financial
condition or operations of the Borrower from that set forth in said financial
statements except changes previously disclosed in writing to the Lender prior to
the date hereof.
<PAGE>
-11-
4.07. Taxes. Borrower has paid or caused to be paid all federal,
-----
state and local taxes to the extent that such taxes have become due, unless the
Borrower is contesting in good faith any such tax. Borrower has filed or caused
to be filed all federal, state and local tax returns which are required to be
filed by Borrower.
4.08. Title to Properties. Borrower has good and marketable title to
-------------------
all of its real properties and owns all of its other properties and assets free
and clear of any liens, except (i) the lien of this Mortgage and taxes or
assessments not yet due; (ii) deposits or pledges to secure payment of workmen's
compensation, unemployment insurance, old age pensions or other social security;
and (iii) deposits or pledges to secure performance of bids, tenders, contracts
(other than contracts for the payment of borrowed money), leases, public or
statutory obligations, surety or appeal bonds, or other deposits or pledges for
purposes of like general nature in the ordinary course of business.
4.09. Licenses and Permits. Borrower has duly obtained and now holds
--------------------
all licenses, permits, certifications, approvals and the like necessary to own
and operate its property and business that are required by federal, state and
local laws of the jurisdictions in which Borrower conducts its business and each
remains valid and in full force and effect.
4.10. Subsidiaries. Borrower has no Subsidiaries other than
------------
Subsidiaries heretofore disclosed to the Lender, or hereafter formed or acquired
with the prior written consent of the Lender.
4.11. Certain Indebtedness. There is no indebtedness of Borrower
--------------------
owing to any employee, officer, stockholder or director of the board of
Borrower, other than accrued salaries, commissions and the like and any
indebtedness subordinated to the Obligations pursuant hereto.
4.12. Location of Office. The chief place of business of the
------------------
Borrower and the office where its records concerning accounts and contract
rights are kept is identified in Schedule 1 hereto.
4.13. Required Approvals. No license, consent, permit or approval of
------------------
any governmental agency or authority is required to enable the Borrower to enter
into this Agreement or to perform any of its obligations provided for herein
except as disclosed on Schedule 1 hereto and except with respect to
<PAGE>
-12-
regulatory approvals which may be required in connection with the Lender's
enforcement of certain remedies hereunder.
4.14. ERISA. Each pension plan of Borrower and its Subsidiaries
-----
providing benefits for employees of Borrower or such Subsidiary covered by Title
IV of the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereto ("ERISA"), is in compliance with ERISA in all material
respects, and no material liability to the Pension Benefit Guaranty Corporation
("PBGC') or to a multiemployer plan has been, or is expected by Borrower or its
Subsidiaries to be, incurred by Borrower or such Subsidiaries.
5. CONDITIONS OF LENDING
The Lender shall have no obligation to make the initial Advance to
Borrower hereunder unless, as of the date of Closing, each of the following
conditions precedent shall be satisfied as provided below:
5.01. Legal Matters. All legal matters incident to the consummation
-------------
of the transactions hereby contemplated shall be satisfactory to counsel for the
Lender and to such local counsel as counsel for the Lender may retain.
5.02. Documents. There shall have been delivered to the Lender,
---------
fully completed and duly executed (when applicable), the following, satisfactory
to the Lender and its counsel:
(a) This Agreement and the Note.
(b) Certified copies, satisfactory to the Lender, of all such
corporate documents and proceedings of the Borrower authorizing
the transactions herein contemplated.
(c) A written opinion from Borrower's counsel addressing such legal
matters as the Lender or its counsel shall reasonably require.
(d) The Borrower shall have (i) executed the Mortgage; (ii) if any
real property is owned by Borrower, recorded a valid and binding
Mortgage granting Lender a first lien in all real property owned
by Borrower, (iii) filed financing statements in all
jurisdictions necessary to provide Lender a first priority,
perfected secu-
<PAGE>
-13-
rity interest in all Collateral which may be perfected by the
filing of financing statements; and (iv) delivered such other
documents as are necessary to create or continue a perfected
security interest in favor of the Lender in the Collateral.
(e) The Pledge Agreement dated as of even date herewith and related
stock powers.
5.03. Government Approvals. The Borrower shall have furnished to the
--------------------
Lender true and correct copies of all certificates, authorizations and consents,
including without limitation the consents referred to in Section 4.13 hereof,
necessary for the execution, delivery or performance by the Borrower of this
Agreement, the Note, the Pledge and the Mortgage.
5.04. Representations, Warranties and Material Change. At Closing
-----------------------------------------------
and at the date of every subsequent Advance hereunder, all covenants,
representations and warranties set forth in this Agreement shall be true and
correct on and as of such time with the same effect as though such covenants,
representations and warranties had been made on and as of such date; no Event of
Default specified in Section 8 and no event which, with the lapse of time or the
notice and lapse of time specified in Section 8 would become such an Event of
Default, shall have occurred and be continuing or will have occurred after
giving effect to the Advance on the books of the Borrower, there shall have
occurred no material adverse change in the business or condition, financial or
otherwise, of the Borrower, and nothing shall have occurred which in the opinion
of the Lender materially and adversely affects the Borrower's ability to meet
its obligations hereunder.
5.05. Special Conditions. At Closing and at the time of every
------------------
subsequent Advance hereunder, the Lender and its counsel shall be fully
satisfied that the Borrower has complied and will continue to comply with any
special conditions identified in Schedule 1 hereto.
5.06. Requisitions. The Borrower will request Advances in form and
------------
substance satisfactory to the Lender. Pursuant to the terms and conditions
hereof, the Lender will wire the proceeds of the requested Advance to an account
as directed by the Borrower.
<PAGE>
-14-
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees with the Lender that, until all of the
Obligations have been paid in full, Borrower will:
6.01. Membership. Remain, or an affiliate thereof will remain, a
----------
member in good standing of the Lender.
6.02. Financial Statements and Other Information. Furnish to the
------------------------------------------
Lender: (a) financial statements as required by the Mortgage; (b) such other
information, reports or statements concerning the operations, business affairs
and/or financial condition of Borrower as the Lender may reasonably request from
time to time; and (c) promptly upon their becoming available information, in
form and substance satisfactory to Lender, evidence of any and all changes or
modification of licenses, permits, certifications, approvals and the like
necessary for Borrower to own or operate its business or a substantial part of
its business.
6.03. Financial Ratios. Subject to applicable laws and rules and
----------------
orders of regulatory bodies, and to events which in the judgment of the Lender
are beyond the control of the Borrower, so operate and manage its business as to
achieve a DSC of not less than 1.25 and a TIER of not less than 1.50, said
ratios being determined by averaging each of the two highest annual ratios
during the three most recent fiscal years.
6.04. Annual Certificate. Within one hundred twenty (120) days after
------------------
the close of each calendar year, commencing with the year in which the initial
Advance hereunder shall have been made, deliver to the Lender a written
statement signed by the general manager or such other similar presiding officer
stating that to the best of said person's knowledge, the Borrower has fulfilled
all of its Obligations under this Agreement, the Note, the Pledge and the
Mortgage throughout such year or, if there has been a default in the fulfillment
of any such Obligations, specifying each such default known to said person and
the nature and status thereof.
6.05. Use of Proceeds. Use Advances made hereunder and under the
---------------
Note only for the purpose identified in Schedule 1 hereto and for the payment of
the costs, expenses and fees incident to this Agreement and for no other purpose
whatsoever without the prior written consent of the Lender.
<PAGE>
-15-
6.06. Special Affirmative Covenants. During the term hereof, Lender
-----------------------------
and its counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special affirmative covenants identified in Schedule
1 hereto.
6.07. Mortgage Filing. Within 10 days of acquiring any real
---------------
property, the Borrower shall cause the Mortgage to be duly recorded as a first
mortgage on all real property and the Mortgage or other appropriate
documentation shall have been duly filed, recorded or indexed as a security
interest in personal property wherever the Lender shall have reasonably
requested, all in accordance with applicable law, and the Borrower shall have
caused satisfactory evidence thereof to be furnished to the Lender.
7. NEGATIVE COVENANTS.
7.01. Notice. Borrower covenants and agrees with the Lender that
------
Borrower will not, directly or indirectly, without giving written notice to the
Lender thirty days prior to the effective date of any change:
(a) Change Location of Chief Place of Business. Change the location
------------------------------------------
of the Borrower's chief place of business.
(b) Change of Name. Change the name of Borrower.
------
7.02. Consent. Borrower covenants and agrees with the Lender that
-------
Borrower will not, directly or indirectly, without the prior written consent of
the Lender:
(a) Control. Alter or permit alteration of control of the Borrower.
-------
Control shall be as defined by regulations for telephone
companies issued by the Federal Communications Commission
("FCC").
(b) Subsidiaries. Form or acquire any Subsidiaries.
------------
(c) Additional Indebtedness. Borrow money on a secured or unsecured
-----------------------
basis from any other lender or incur any additional secured or
unsecured indebtedness; or enter into or allow any of its
Subsidiaries to enter into any Leases, unless at that time
Borrower meets the Minimum Net Worth Test; provided, however,
-------- -------
Borrower and its Subsidiaries, may grant purchase money secured
in-
<PAGE>
-16-
debtedness or incur unsecured trade debt or pay other current
operating liabilities that arise in the ordinary course of
business so long as the aggregate total of such debt does not
exceed five percent (5%) of Borrower's consolidated total assets.
If Borrower meets the Minimum Net Worth Test, then Borrower and
its Subsidiaries may incur additional indebtedness or enter into
Leases without prior written approval of Lender provided the
--------
Borrower meets the Minimum Net Worth Test after incurring such
additional indebtedness or entering into such Leases; provided,
--------
further, however, Borrower must give at least thirty (30) days
------- -------
written notice to Lender prior to incurring any additional
indebtedness or entering into such Leases.
7.03. Dividends and Other Cash Distributions. The Borrower will not,
--------------------------------------
in any one calendar year, without the prior approval in writing of the Lender
(i) declare or pay any dividends or make any other distribution to its
stockholders with respect to its capital stock; (ii) purchase or redeem or
retire any of its capital stock; or (iii) pay any management fees or if already
paying a management fee, pay an increase in management fees, unless with respect
to any of the foregoing (after giving effect to such transaction): (a) Borrower
shall have a minimum equity (determined by subtracting total liabilities from
total assets) to total assets ratio of twenty percent (20%); (b) Borrower shall
be in compliance with the financial ratios in Section 6.03 herein; and (c) the
payment of such dividend, the making of such distribution, or the purchase,
redemption or retirement of such stock, individually or in the aggregate, does
not exceed fifty percent (50%) of the prior fiscal year-end's net income. In no
event may the Borrower make such a distribution or payment when there is unpaid
any due installment of principal and/or interest on the Note or if the Borrower
is otherwise in material default of any provision of this Agreement or would be
in material default hereunder as a result of such distribution or payment.
7.04. Special Negative Covenants. During the term hereof, Lender and
--------------------------
its counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special negative covenants identified in Schedule 1
hereto.
<PAGE>
-17-
7.05. Limitations on Loans, Investments and Other Obligations:
-------------------------------------------------------
(a) The Borrower shall not, without first obtaining the written
approval of Lender, (i) purchase or make any commitment to
purchase any stock, bonds, notes, debentures or other securities
or obligations of or beneficial interest in, (ii) make any other
investment in, (iii) make any loan to, or (iv) guarantee, assume,
or otherwise become liable for any obligation of, any
corporation, association, partnership, joint venture, trust,
government or any agency or department thereof, or any other
entity of any kind if the aggregate amount of all such purchases,
investments, loans and guarantees exceeds the greater of ten
percent (10%) of Total Plant or thirty percent (30%) of Net
Worth.
(b) The following shall not be included in the limitation on
purchases investments, loans and guarantees in (a) above: (i)
bonds, notes, debentures, stock, or other securities or
obligations issued by or guaranteed by the United States
government or any agency or instrumentality thereof; (ii) bonds,
notes, debentures, stock, commercial paper, subordinated capital
certificates, or other security or obligation of institutions
whose senior unsecured debt obligations are rated by at least two
nationally recognized rating organizations in either or its two
highest categories; (iii) investments incidental to loans made by
RTFC; (iv) bonds, notes, debentures, commercial paper or any
other security of the National Rural Utilities Cooperative
Finance Corporation; and (v) any deposit that is fully insured by
the Federal Government.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
(a) Representations and Warranties. Any representation or warranty
------------------------------
made herein, in any of the Other Agreements or in any statement,
report, certificate, opinion, financial statement or other
document furnished or to be furnished in
<PAGE>
-18-
connection with this Agreement or the Other Agreements shall be
false or misleading in any material respect.
(b) Payment. Failure of Borrower to make any of the payment
-------
Obligations, including, without limitation, any sum due the
Lender under this Agreement or any of the Other Agreements, when
and as the same shall become due, whether at the due date
thereof, by demand, by acceleration or otherwise.
(c) Other Covenants. Failure of Borrower to observe or perform any
---------------
warranty, covenant or condition to be observed or performed by
Borrower under this Agreement or any of the Other Agreements.
(d) Existence. The Borrower shall forfeit or otherwise be deprived
---------
of its charter, franchises, permits, easements, consents or
licenses required to carry on any material portion of its
business.
(e) Other Obligations. Default by the Borrower in the payment when
-----------------
due of any money owed by the Borrower, whether principal,
interest, premium or otherwise, under any other agreement for
borrowing money in an amount in excess of five percent (5%) of
total assets, whether or not such borrowing is secured.
(f) Bankruptcy. A court shall enter a decree or order for relief
----------
with respect to the Borrower or any Subsidiary or guarantor (if
any) in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official, or ordering the winding up or
liquidation of its affairs, and such decree or order shall remain
unstayed and in effect for a period of sixty (60) consecutive
days or the Borrower or any Subsidiary or guarantor (if any)
shall commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
under any such law, or consent to the appointment or taking of
possession by a receiver, liquidator, as-
<PAGE>
-19-
signee, custodian or trustee, of a substantial part of its
property, or make any general assignment for the benefit of
creditors.
(g) Dissolution or Liquidation. Other than as provided in Subsection
--------------------------
(e) above, the dissolution or liquidation of the Borrower or any
Subsidiary or guarantor (if any), or failure by the Borrower or
any Subsidiary promptly to forestall or remove any execution,
garnishment or attachment of such consequence as will impair its
ability to continue its business or fulfill its obligations and
such execution, garnishment or attachment shall not be vacated
within sixty (60) days.
(h) Final Judgment. A final non-appealable judgment in excess of
--------------
$100,000 shall be entered against the Borrower and shall remain
unsatisfied or without a stay for a period of sixty (60) days.
9. RIGHTS AND REMEDIES
9.01. Rights and Remedies of the Lender. Upon the occurrence of an
---------------------------------
Event of Default, the Lender may, subject to:
(i) thirty (30) days prior written notice during which time
Borrower shall have the opportunity to cure said Event of Default
except with respect to Obligations pursuant to 8(b), 8(f) and
8(g) above which shall require no notice or demand and shall have
no period to cure; and
(ii) compliance, if required, with the rules and regulations of the
FCC and any state public service or utilities commission having
jurisdiction;
exercise in any jurisdiction in which enforcement hereof is sought, the
following rights and remedies, in addition to all rights and remedies available
to the Lender under applicable law, all such rights and remedies being
cumulative and enforceable alternatively, successively or concurrently:
(A) Declare all unpaid principal outstanding on the Note, all accrued
and unpaid interest thereon, and all other Obligations to be
immediately due and payable and the same shall thereupon become
<PAGE>
-20-
immediately due and payable without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived.
(B) Institute any proceeding or proceedings to enforce the
Obligations owed to, or any Liens in favor of the Lender.
(C) Pursue all rights and remedies available to the Lender that are
contemplated by the Mortgage in the manner, upon the conditions,
and with the effect provided in the Mortgage, including but not
limited to a suit for specific performance, injunctive relief or
damages.
(D) Pursue any other rights and remedies available to the Lender at
law or in equity.
9.02. Cumulative Nature of Remedies. Nothing herein shall limit the
-----------------------------
right of the Lender, subject to notice and right to cure provisions contained
herein, to pursue all rights and remedies available to a creditor following the
occurrence of an Event of Default subject to compliance, if required, with the
rules and regulations of the FCC and any state public service or utilities
commission having jurisdiction. Each right, power and remedy of the Lender in
this Agreement and/or the Other Agreements shall be cumulative and concurrent,
and recourse to one or more rights or remedies shall not constitute a waiver or
any other right, power or remedy.
9.03. Costs and Expenses. Borrower agrees to pay and to be liable
------------------
for any and all reasonable expenses, including attorneys' fees and court costs,
incurred by the Lender in exercising or enforcing any of its rights hereunder or
under the Other Agreements, together with interest thereon at the rate and
determined in the manner provided in the Mortgage. Subject to the Mortgage and
applicable law, the Lender may apply all Collateral and proceeds of all
Collateral to the Obligations in any manner which the Lender, in its sole
discretion, deems appropriate, and Borrower will continue to be liable for any
deficiency.
9.04. Late Payment Charges. If payment of any principal and/or
--------------------
interest due under the terms of the Note is not received at the office of the
Lender in Hemdon, Virginia, or as the Lender may otherwise designate to the
Borrower, within such time period as the Lender may prescribe from time to time
in its policies in connection with any late payment
<PAGE>
-21-
charges (such unpaid amount of principal and/or interest being herein called the
"delinquent amount" and the period beginning after such due date until payment
of the delinquent amount being herein called the "late-payment period"), the
Borrower will pay to the Lender, in addition to all other amounts due under the
terms of the Note, the Mortgage, the Pledge and this Agreement, any late-payment
charge as may be fixed by the Lender from time to time, on the delinquent amount
for the late-payment period.
9.05. Lender's Setoff. The Lender shall have the right, in addition
---------------
to all other rights and remedies available to it, to setoff and to recover
against any or all of the Obligations due to Lender, any monies now and
hereafter owing to Borrower by the Lender. Borrower waives all rights of
setoff, deduction, recoupment or counterclaim.
10. MISCELLANEOUS
10.01. Performance for Borrower. Borrower agrees and hereby
------------------------
authorizes that the Lender may, in its sole discretion, but the Lender shall not
be obligated to, advance funds on behalf of Borrower without prior notice to
Borrower, in order to insure Borrower's compliance with any material covenant,
warranty, representation or agreement of Borrower made in or pursuant to this
Agreement or any of the Other Agreements, to preserve or protect any right or
interest of the Lender in the Collateral or under or pursuant to this Agreement
or any of the Other Agreements, including without limitation, the payment of any
insurance premiums or taxes and the satisfaction or discharge of any judgment or
any Lien upon the Collateral or other property or assets of Borrower, provided,
however, that the making of any such advance by the Lender shall not constitute
a waiver by the Lender of any Event of Default with respect to which such
advance is made nor relieve Borrower of any such Event or Default. Borrower
shall pay to the Lender upon demand all such advances made by the Lender with
interest thereon at the rate and determined in the manner provided in the Note.
All such advances shall be deemed to be included in the Obligations and secured
by the security interest granted the Lender hereunder to the extent permitted by
law.
10.02. Expenses and Filing Fees. Whether or not any of the
------------------------
transactions contemplated hereby shall be consummated, Borrower agrees to pay to
the Lender at Closing or thirty (30) days after the execution and delivery
hereof, whichever is earlier, all expenses of the Lender in connection with the
<PAGE>
-22-
filing or recordation of all financing statements and instruments as may be
required by the Lender at the time of, or subsequent to, the execution of this
Agreement, including, without limitation, all documentary stamps, recordation
and transfer taxes and other costs and taxes incident to recordation of any
document or instrument in connection herewith. Borrower agrees to save harmless
and indemnify the Lender from and against any liability resulting from the
failure to pay any required documentary stamps, recordation and transfer taxes,
recording costs, or any other expenses incurred by the Lender in connection with
this Agreement. The provisions of this Subsection 10.02 shall survive the
execution and delivery of this Agreement and the payment of all other
Obligations.
10.03. Waivers by Borrower. Borrower hereby waives, to the extent
-------------------
the same may be waived under applicable law: (a) in the event the Lender seeks
to repossess any or all of the Collateral by judicial proceedings, any bond(s)
or demand(s) for possession which otherwise may be necessary or required; (b)
presentment, demand for payment, protest and notice of non-payment and all
exemptions; and (c) substitution, impairment, exchange or release of any
collateral security for any of the Obligations. Borrower agrees that the Lender
may exercise any or all of its rights and/or remedies hereunder and under the
Other Agreements without resorting to and without regard to security or sources
of liability with respect to any of the Obligations.
10.04. Waivers by the Lender. Neither any failure nor any delay on
---------------------
the part of the Lender in exercising any right, power or remedy hereunder or
under any of the Other Agreements shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
10.05. Lender's Records. Every statement of account or
----------------
reconciliation rendered by the Lender to Borrower with respect to any of the
Obligations shall be presumed conclusively to be correct and shall constitute an
account stated between the Lender and Borrower unless, within ten (10) Business
Days after such statement or reconciliation shall have been mailed, postage
prepaid, to Borrower, the Lender shall receive written notice of specific
objection thereto.
10.06. Modifications. No modification or waiver of any provision of
-------------
this Agreement, the Note or any of the Other
<PAGE>
-23-
Agreements, and no consent to any departure by Borrower therefrom shall in any
event be effective unless the same shall be in writing, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand upon Borrower in any case shall entitle
Borrower to any other or further notice or demand in the same, similar or other
circumstances.
10.07. Notices. All notices, requests and other communications
-------
provided for herein including, without limitation, any modifications of, or
waivers, requests or consents under, this Agreement shall be given or made in
writing (including, without limitation, by telecopy) and delivered to the
intended recipient at the "Address for Notices" specified below, or, as to any
party, at such other address as shall be designated by such party in a notice to
each other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when personally delivered
or, in the case of a telecopied or mailed notice, upon receipt, in each case
given or addressed as provided for herein. The Address for Notices of the
respective parties are as follows:
Rural Telephone Finance Cooperative
Woodland Park
2201 Cooperative Way
Hemdon, Virginia 20171-3025
Attention: Chief Executive Officer
Fax: 703-709-6776
The Borrower.
The address set forth in
Schedule 1 hereto
10.08. Governing Law; Submission To Jurisdiction; Waiver of Jury
---------------------------------------------------------
Trial.
- -----
(a) THE PERFORMANCE AND CONSTRUCTION OF THIS AGREEMENT AND THE NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF VIRGINIA.
(b) BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE
UNITED STATES COURTS LOCATED IN VIRGINIA AND OF ANY STATE COURT SO LOCATED FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY. BORROWER IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
<PAGE>
-24-
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE ESTABLISHING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
10.09. Holiday Payments. If any payment to be made by the Borrower
----------------
hereunder shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and such extension of time
shall be included in computing any interest in respect of such payment.
10.10. Consent to Patronage Capital Distributions. The Borrower
------------------------------------------
hereby consents that the amount of any distributions with respect to Borrower's
patronage which are made in written notices of allocation (as defined in Section
1388 of the Internal Revenue Code of 1986, as amended ("Code") including any
other comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
10.11. Right to Inspect. The Borrower shall permit representatives
----------------
of the Lender at any time during normal business hours to inspect and make
abstracts from the books and records pertaining to the Collateral, and permit
representatives of the Lender to be present at Borrower's place of business to
receive copies of all communications and remittances relating to the Collateral,
all in such manner as the Lender may reasonably require.
10.12. Survival; Successors and Assigns. All covenants, agreements,
--------------------------------
representations and warranties made herein and in the Other Agreements shall
survive Closing and the execution and delivery to the Lender of the Note, and
shall continue in full force and effect until all of the Obligations have been
paid in full. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party. All covenants, agreements, representations and warranties by or on
behalf of Borrower which are contained in this Agreement and
<PAGE>
-25-
the Other Agreements shall inure to the benefit of the successors and assigns of
the Lender.
10.13. Assignment. The Lender may assign its rights and obligations
----------
under this Agreement and the Other Agreements without the consent of the
Borrower; provided, however, that no such assignment shall result in terms or
conditions less favorable to Borrower. The Borrower may not assign any of its
rights of obligations under this Agreement or the Other Agreements without the
prior written consent of the Lender.
10.14. Severability. If any term, provision or condition, or any
------------
part thereof, of this Agreement or any of the Other Agreements shall for any
reason be found or held invalid or unenforceable by any court or governmental
agency of competent jurisdiction, such invalidity or unenforceability shall not
affect the remainder of such term, provision or condition nor any other term,
provision or condition, and this Agreement, the Note, and the Other Agreements
shall survive and be construed as if such invalid or unenforceable term,
provision or condition had not been contained therein.
10.15. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counter-parts shall together constitute one and the same instrument.
10.16. Headings/Use of Terms. The headings and sub-headings
---------------------
contained in this Agreement are intended to be used for convenience only and do
not constitute part of this Agreement. The use of any gender or the neuter
herein shall also refer to the other gender or the neuter and the use of the
plural shall also refer to the singular, and vice versa.
10.17. Further Assurances. The Borrower will, upon demand of the
------------------
Lender, make, execute, acknowledge and deliver all such further and supplemental
indentures of mortgage, deeds of trust, mortgages, financing statements,
continuation statements, security agreements and/or any other instruments and
conveyances as may be reasonably requested by the Lender to effectuate the
intention of this Agreement and to provide for the securing and payment of the
principal of and interest on the Note according to the terms thereof.
10.18. Lender's Approval. Wherever prior written approval of Lender
-----------------
is required under the terms and conditions
<PAGE>
-26-
of this Agreement, Lender hereby agrees to not unreasonably withhold said
approval.
10.19. Merger and Integration. This Agreement and the attached
----------------------
exhibits and matters incorporated by reference contain the entire agreement of
the parties hereto with respect to the matters covered and the transactions
contemplated hereby, and no other agreement, statement or promise made by any
party hereto, or by any employee, officer, agent or attorney of any party
hereto, which is not contained herein, shall be valid or binding.
10.20. Schedule 1. Schedule 1 attached hereto is an integral part of
----------
this Agreement.
<PAGE>
-27-
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
ATLANTIC TELE-NETWORK CO.
By:
---------------------------------------
Name:
Title:
(SEAL)
Attest:
-------------------------------
Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By:
---------------------------------------
Name:
Title:
(SEAL)
Attest:
------------------------------------
Secretary
<PAGE>
SCHEDULE 1
1. The "Commitment" shall mean $18,315,789.
2. The Mortgage defined in Section 1 is the Mortgage and Security Agreement by
and between Borrower and Lender dated as of even date herewith.
3. The months relating to the Payment Date are September, December, March and
June.
4. The method of amortization referred to in Section 2.03 shall be based upon
the method indicated below.
____level principal
X level debt service (no principal deferral)
----
5. The amount referred to in Section 2.05 is $915,789 (A-02 loan).
6. The date of Borrower's financial statement referred to in Section 4.06 is
December 31, 1996.
7. The chief place of business referred to in Section 4.12 and address of
Borrower referred to in Section 10.07 is Chase Financial Center, P.O. Box
1730, St. Croix, U.S. Virgin Islands 00821-1730.
8. The government authorities referred to in Section 4.13 are the Virgin
Islands Public Service Commission ("VI PSC") and the Securities and
Exchange Commission ("SEC").
9. The special conditions referred to in Section 5.05 are as follows:
Prior to the initial Advance of funds from this loan, Lender shall receive,
in form and content satisfactory to Lender, copies of the following:
a) Borrower's Articles of Incorporation and Bylaws;
b) All definitive agreements relative to the reorganization of Borrower's
parent corporation, Atlantic Tele-Network, Inc. ("ATN-Inc"), into two
separate public companies ("the Split-Off");
<PAGE>
-29-
c) The SEC's and all other necessary regulatory, government, lender and
shareholder approvals of the Split-Off;
d) An Internal Revenue Service ("IRS") opinion letter confirming the tax-
free treatment of the Split-Off;
e) A fairness opinion letter issued by an investment banking firm,
reasonably satisfactory to Lender, related to the Split-Off; and
f) Evidence of final approval by the United States Virgin Island's
Industrial Development Commission of Borrower's wholly-owned
Subsidiary, Virgin Islands Telephone Corporation, application for tax
relief.
10. The purpose referred to in Section 6.05 is to: (i) fund the valuation
adjustment payments for the Split-Off and reorganization of Borrower and
ATN, Inc.; and (ii) purchase SCCs.
11. The special affirmative covenants referred to in Section 6.06 are as
follows: None
12. The special negative covenants referred to in Section 7.04 are as follows:
None
<PAGE>
EXHIBIT 10.20
-------------
EMERGING COMMUNICATIONS, INC.
1997 LONG TERM INCENTIVE AND SHARE AWARD PLAN
1. Purposes.
The purposes of the 1999 Long Term Incentive and Share Award Plan are
to advance the interests of Emerging Communications, Inc., a Delaware
corporation, and its shareholders by providing a means to attract, retain and
motivate employees and directors of the Company upon whose judgment, initiative
and efforts the continued success, growth and development of the Company is
dependent.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a participating
employer under the Plan; provided that the Company owns, directly or indirectly,
at least 20% of the combined voting power of all classes of stock of such entity
or at least 20% of the ownership interests in such entity.
(b) "Award" means any Option, SAR, Restricted Share, Restricted Share
Unit, Performance Share, Performance Unit, Dividend Equivalent or Other Share-
Based Award granted to an Eligible Person under the Plan.
(c) "Award Agreement" means any written agreement, contract or other
instrument or document evidencing an Award.
(d) "Beneficiary" means the person, persons, trust or trusts which
have been designated by an Eligible Person in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under this Plan upon the death of such Eligible Person, or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to include
successor provisions thereto and regulations thereunder.
<PAGE>
-2-
(g) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that the Committee shall consist of two or more directors of
the Company, each of whom is a "non-employee director" within the meaning of
Rule 16b-3 under the Exchange Act, to the extent applicable.
(h) "Company" means Emerging Communications, Inc., a corporation
organized under the laws of Delaware, or any successor corporation.
(i) "Director" means a member of the Board who is not an employee of
the Company, a Subsidiary or an Affiliate.
(j) "Dividend Equivalent" means a right, granted under Section 5(g),
to receive cash, Shares or other property equal in value to dividends paid with
respect to a specified number of Shares. Dividend Equivalents may be awarded on
a free-standing basis or in connection with another Award, and may be paid
currently or on a deferred basis.
(k) "Eligible Person" means (i) an employee of the Company, a
Subsidiary or an Affiliate, including any director who is an employee, who is
responsible for or contributes to the management, growth and/or profitability of
the business of the Company, its Subsidiaries or Affiliates or (ii) a Director.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act shall
be deemed to include successor provisions thereto and regulations thereunder.
(m) "Fair Market Value" means, with respect to Shares or other
property, the fair market value of such Shares or other property determined by
such methods or procedures as shall be established from time to time by the
Committee. If the Shares are listed on any established stock exchange or a
national market system, unless otherwise determined by the Committee in good
faith, the Fair Market Value of Shares shall mean the mean between the high and
low selling prices per Share on the immediately preceding date (or, if the
Shares were not traded on that day, the next preceding day that the Shares were
traded) on the principal exchange on which the Shares are traded, as such prices
are officially quoted on such exchange.
(n) "ISO" means any option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(o) "NQSO" means any Option that is not an ISO.
(p) "Option" means a right, granted under Section 5(b), to purchase
one or more Shares.
<PAGE>
-3-
(q) "Other Share-Based Award" means a right, granted under Section
5(h), that relates to or is valued by reference to Shares.
(r) "Participant" means an Eligible Person who has been granted an
Award under the Plan.
(s) "Performance Share" means a performance share granted under
Section 5(f).
(t) "Performance Unit" means a performance unit granted under Section
5(f).
(u) "Plan" means this 1997 Long Term Incentive and Share Award Plan.
(v) "Restricted Shares" means an Award of Shares under Section 5(d)
that may be subject to certain restrictions and to a risk of forfeiture.
(w) "Restricted Share Unit" means a right, granted under Section 5(e),
to receive Shares or cash at the end of a specified deferral period.
(x) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(y) "SAR" or "Share Appreciation Right" means the right, granted under
Section 5(c), to be paid an amount measured by the difference between the
exercise price of the right and the Fair Market Value of Shares on the date of
exercise of the right, with payment to be made in cash, Shares or property as
specified in the Award or determined by the Committee.
(z) "Shares" means common stock, $.01 par value per share, of the
Company.
(aa) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns shares
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
3. Administration.
(a) Authority of the Committee. Except as provided in Section 7, the
Plan shall be administered by the Committee, and the Committee shall have full
and final authority to take the following actions, in each case subject to and
consistent with the provisions of the Plan:
<PAGE>
-4-
(i) to select Eligible Persons to whom Awards may be granted;
(ii) to designate Affiliates;
(iii) to determine the type or types of Awards to be granted to each
Eligible Person;
(iv) to determine the type and number of Awards to be granted, the
number of Shares to which an Award may relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price or purchase price, and any bases for adjusting
such exercise, grant or purchase price, any restriction or condition, any
schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability or settlement of an Award,
and waiver or accelerations thereof, and waivers of performance conditions
relating to an Award, based in each case on such considerations as the
Committee shall determine) and all other matters to be determined in
connection with an Award;
(v) to determine whether, to what extent, and under what circumstances
an Award may be settled, or the exercise price of an Award may be paid, in
cash, Shares, other Awards or other property, or an Award may be canceled,
forfeited, exchanged or surrendered;
(vi) to determine whether, to what extent, and under what
circumstances cash, Shares, other Awards or other property payable with
respect to an Award will be deferred either automatically, at the election
of the Committee, or at the election of the Eligible Person;
(vii) to prescribe the form of each Award Agreement, which need not be
identical for each Eligible Person;
(viii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(ix) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement or other instrument
hereunder;
(x) to accelerate the exercisability or vesting of all or any portion
of any Award or to extend the period during which an Award is exercisable;
and
(xi) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
<PAGE>
-5-
(b) Manner of Exercise of Committee Authority. The Committee shall
have sole discretion in exercising its authority under the Plan. Any action of
the Committee with respect to the Plan shall be final, conclusive and binding on
all persons, including the Company, Subsidiaries, Affiliates, Eligible Persons,
any person claiming any rights under the Plan from or through any Eligible
Person and shareholders. The express grant of any specific power to the
Committee, and the taking of any action by the Committee, shall not be construed
as limiting any power or authority of the Committee. The Committee may delegate
to officers or managers of the Company or any Subsidiary or Affiliate the
authority, subject to such terms as the Committee shall determine, to perform
administrative functions and, with respect to Awards granted to persons not
subject to Section 16 of the Exchange Act, to perform such other functions as
the Committee may determine, to the extent permitted under Rule 16b-3 (if
applicable) and applicable law.
(c) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him or her by any officer or other employee of the Company or any
Subsidiary or Affiliate, the Company's independent certified public accountants,
or other professional retained by the Company to assist in the administration of
the Plan. All members of the Committee and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination or interpretation.
(d) Limitation on Committee's Discretion. Anything in this Plan to the
contrary notwithstanding, in the case of any Award which is intended to qualify
as "performance-based compensation" within the meaning of Section 162(m)(4)(C)
of the Code, if the Award Agreement so provides, the Committee shall have no
discretion to increase the amount of compensation payable under the Award to the
extent such an increase would cause the Award to lose its qualification as such
performance-based compensation.
4. Shares Subject to the Plan.
(a) Subject to adjustment as provided in Section 4(b) hereof, the
total number of Shares reserved for issuance in connection with Awards under the
Plan shall be [ ]./1/ No Award may be granted if the number of Shares to
which such Award relates, when added to the number of Shares previously issued
under the Plan or otherwise previously reserved under the Plan, exceeds the
number of Shares reserved under the preceding sentence. If any Awards are
forfeited, canceled, terminated, exchanged or surrendered or such Award is
settled in cash or otherwise terminates without a distribution of Shares to the
Participant, any Shares counted against the number of Shares reserved and
available under the Plan with respect to such Award shall, to the extent of any
such forfeiture, settlement, termination, cancellation, exchange or surrender,
again be available for Awards under the Plan.
- -------------------
/1/ Represents 10% of the outstanding shares of Common Stock on a fully diluted
basis.
<PAGE>
-6-
(b) In the event that the Committee shall determine that any dividend
in Shares, recapitalization, Share split, reverse split, reclassification,
reorganization, merger, consolidation, spin-off, combination, repurchase or
share exchange, or other similar corporate transaction or event, affects the
Shares such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Eligible Persons under the Plan, then the Committee
shall make such equitable changes or adjustments as it deems appropriate and, in
such manner as it may deem equitable, adjust any or all of (i) the number and
kind of shares which may thereafter be issued under the Plan, (ii) the number
and kind of shares, other securities or other consideration issued or issuable
in respect of outstanding Awards and (iii) the exercise price, grant price or
purchase price relating to any Award; provided, however, in each case, that,
with respect to ISOs, such adjustment shall be made in accordance with Section
424(a) of the Code, unless the Committee determines otherwise. In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria and performance objectives included in, Awards in recognition of
unusual or non-recurring events (including, without limitation, events described
in the preceding sentence) affecting the Company or any Subsidiary or Affiliate
or the financial statements of the Company or any Subsidiary or Affiliate, or in
response to changes in applicable laws, regulations or accounting principles;
provided, however, that, if an Award Agreement specifically so provides, the
Committee shall not have discretion to increase the amount of compensation
payable under the Award to the extent such an increase would cause the Award to
lose its qualification as performance-based compensation for purposes of Section
162(m)(4)(C) of the Code and the regulations thereunder.
(c) Any Shares distributed pursuant to an Award may consist, in whole
or in part, of authorized and unissued Shares or treasury Shares, including
Shares acquired by purchase in the open market or in private transactions.
5. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 5. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
8(d)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
regarding forfeiture of Awards or continued exercisability of Awards in the
event of termination of employment by the Eligible Person.
(b) Options. The Committee is authorized to grant Options, which may
be NQSOs or ISOs, to Eligible Persons on the following terms and conditions:
<PAGE>
-7-
(i) Exercise Price. The exercise price per Share purchasable under an
Option shall be determined by the Committee, and the Committee may, without
limitation, set an exercise price that is based upon achievement of
performance criteria if deemed appropriate by the Committee.
(ii) Time and Method of Exercise. The Committee shall determine at the
date of grant or thereafter the time or times at which an Option may be
exercised in whole or in part (including, without limitation, upon
achievement of performance criteria if deemed appropriate by the
Committee), the methods by which such exercise price may be paid or deemed
to be paid (including, without limitation, broker-assisted exercise
arrangements), the form of such payment (including, without limitation,
cash, Shares, notes or other property) and the methods by which Shares will
be delivered or deemed to be delivered to Eligible Persons.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including
but not limited to the requirement that the ISO shall be granted within ten
years from the earlier of the date of adoption or shareholder approval of
the Plan. ISOs may only be granted to employees of the Company or a
Subsidiary.
(c) SARs. The Committee is authorized to grant SARs to Eligible
Persons on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Eligible Person to
whom it is granted a right to receive with respect to each Share subject
thereto, upon exercise thereof, the excess of (1) the Fair Market Value of
one Share on the date of exercise (or, if the Committee shall so determine
in the case of any such right, the Fair Market Value of one Share at any
time during a specified period before or after the date of exercise) over
(2) the exercise price of the SAR as determined by the Committee as of the
date of grant of the SAR (which, in the case of an SAR granted in tandem
with an Option, shall be equal to the exercise price of the underlying
Option).
(ii) Other Terms. The Committee shall determine, at the time of grant
or thereafter, the time or times at which an SAR may be exercised in whole
or in part, the method of exercise, method of settlement, form of
consideration payable in settlement, method by which Shares will be
delivered or deemed to be delivered to Eligible Persons, whether or not an
SAR shall be in tandem with any other Award and any other terms and
conditions of any SAR. Unless the Committee determines otherwise, an SAR
(1) granted in tandem with an NQSO may be granted at the time of grant of
the related NQSO or at any time thereafter and (2) granted in tandem with
an ISO may only be granted at the time of grant of the related ISO.
<PAGE>
-8-
(d) Restricted Shares. The Committee is authorized to grant Restricted
Shares to Eligible Persons on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Shares shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose at the date of grant or thereafter, which restrictions
may lapse separately or in combination at such times, under such
circumstances (including, without limitation, upon achievement of
performance criteria if deemed appropriate by the Committee), in such
installments or otherwise, as the Committee may determine. Except to the
extent restricted under the Award Agreement relating to the Restricted
Shares, an Eligible Person granted Restricted Shares shall have all of the
rights of a shareholder including, without limitation, the right to vote
Restricted Shares and the right to receive dividends thereon. The Committee
must certify in writing prior to the lapse of restrictions conditioned on
achievement of performance criteria that such performance criteria were in
fact satisfied.
(ii) Forfeiture. Except as otherwise determined by the Committee, at
the date of grant or thereafter, upon termination of employment during the
applicable restriction period, Restricted Shares and any accrued but unpaid
dividends or Dividend Equivalents that are at that time subject to
restrictions shall be forfeited; provided, however, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine
in any individual case, that restrictions or forfeiture conditions relating
to Restricted Shares will be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Restricted Shares.
(iii) Certificates for Shares. Restricted Shares granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Shares are registered in the name of
the Eligible Person, such certificates shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such
Restricted Shares, and the Company shall retain physical possession of the
certificate.
(iv) Dividends. Dividends paid on Restricted Shares shall be either
paid at the dividend payment date, or deferred for payment to such date as
determined by the Committee, in cash or in unrestricted Shares having a
Fair Market Value equal to the amount of such dividends. Shares distributed
in connection with a Share split or dividend in Shares, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Shares with respect to
which such Shares or other property has been distributed.
(e) Restricted Share Units. The Committee is authorized to grant
Restricted Share Units to Eligible Persons, subject to the following terms and
conditions:
<PAGE>
-9-
(i) Award and Restrictions. Delivery of Shares or cash, as the case
may be, will occur upon expiration of the deferral period specified for
Restricted Share Units by the Committee (or, if permitted by the Committee,
as elected by the Eligible Person). In addition, Restricted Share Units
shall be subject to such restrictions as the Committee may impose, if any
(including, without limitation, the achievement of performance criteria if
deemed appropriate by the Committee), at the date of grant or thereafter,
which restrictions may lapse at the expiration of the deferral period or at
earlier or later specified times, separately or in combination, in
installments or otherwise, as the Committee may determine. The Committee
must certify in writing prior to the lapse of restrictions conditioned on
the achievement of performance criteria that such performance criteria were
in fact satisfied.
(ii) Forfeiture. Except as otherwise determined by the Committee at
the date of grant or thereafter, upon termination of employment (as
determined under criteria established by the Committee) during the
applicable deferral period or portion thereof to which forfeiture
conditions apply (as provided in the Award Agreement evidencing the
Restricted Share Units), or upon failure to satisfy any other conditions
precedent to the delivery of Shares or cash to which such Restricted Share
Units relate, all Restricted Share Units that are at that time subject to
deferral or restriction shall be forfeited; provided, however, that the
Committee may provide, by rule or regulation or in any Award Agreement, or
may determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Share Units will be waived in whole or in
part in the event of termination resulting from specified causes, and the
Committee may in other cases waive in whole or in part the forfeiture of
Restricted Share Units.
(f) Performance Shares and Performance Units. The Committee is
authorized to grant Performance Shares or Performance Units or both to Eligible
Persons on the following terms and conditions:
(i) Performance Period. The Committee shall determine a performance
period (the "Performance Period") of one or more years and shall determine
the performance objectives for grants of Performance Shares and Performance
Units. Performance objectives may vary from Eligible Person to Eligible
Person and shall be based upon such performance criteria as the Committee
may deem appropriate. Performance Periods may overlap and Eligible Persons
may participate simultaneously with respect to Performance Shares and
Performance Units for which different Performance Periods are prescribed.
(ii) Award Value. At the beginning of a Performance Period, the
Committee shall determine for each Eligible Person or group of Eligible
Persons with respect to that Performance Period the range of number of
Shares, if any, in the case of Performance Shares, and the range of dollar
values, if any, in the case
<PAGE>
-10-
of Performance Units, which may be fixed or may vary in accordance with
such performance or other criteria specified by the Committee, which shall
be paid to an Eligible Person as an Award if the relevant measure of
Company performance for the Performance Period is met.
(iii) Significant Events. If during the course of a Performance Period
there shall occur significant events as determined by the Committee which
the Committee expects to have a substantial effect on a performance
objective during such period, the Committee may revise such objective;
provided, however, that, if an Award Agreement so provides, the Committee
shall not have any discretion to increase the amount of compensation
payable under the Award to the extent such an increase would cause the
Award to lose its qualification as performance-based compensation for
purposes of Section 162(m)(4)(C) of the Code and the regulations
thereunder.
(iv) Forfeiture. Except as otherwise determined by the Committee, at
the date of grant or thereafter, upon termination of employment during the
applicable Performance Period, Performance Shares and Performance Units for
which the Performance Period was prescribed shall be forfeited; provided,
however, that the Committee may provide, by rule or regulation or in any
Award Agreement, or may determine in an individual case, that restrictions
or forfeiture conditions relating to Performance Shares and Performance
Units will be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other cases waive
in whole or in part the forfeiture of Performance Shares and Performance
Units.
(v) Payment. Each Performance Share or Performance Unit may be paid in
whole Shares, or cash or a combination of Shares and cash either as a lump
sum payment or in installments, all as the Committee shall determine, at
the time of grant of the Performance Share or Performance Unit or
otherwise, commencing as soon as practicable after the end of the relevant
Performance Period. The Committee must certify in writing prior to the
payment of any Performance Share or Performance Unit that the performance
objectives and any other material terms were in fact satisfied.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to Eligible Persons. The Committee may provide, at the date
of grant or thereafter, that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Shares, or
other investment vehicles as the Committee may specify, provided that Dividend
Equivalents (other than freestanding Dividend Equivalents) shall be subject to
all conditions and restrictions of the underlying Awards to which they relate.
<PAGE>
-11-
(h) Other Share-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Eligible Persons such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Shares, as deemed by the Committee to
be consistent with the purposes of the Plan, including, without limitation,
unrestricted shares awarded purely as a "bonus" and not subject to any
restrictions or conditions, other rights convertible or exchangeable into
Shares, purchase rights for Shares, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the performance of specified
Subsidiaries or Affiliates. The Committee shall determine the terms and
conditions of such Awards at date of grant or thereafter. Shares delivered
pursuant to an Award in the nature of a purchase right granted under this
Section 5(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Shares,
notes or other property, as the Committee shall determine. Cash awards, as an
element of or supplement to any other Award under the Plan, shall also be
authorized pursuant to this Section 5(h).
6. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted to
Eligible Persons either alone or in addition to, in tandem with, or in exchange
or substitution for, any other Award granted under the Plan or any award granted
under any other plan or agreement of the Company, any Subsidiary or Affiliate,
or any business entity to be acquired by the Company or a Subsidiary or
Affiliate, or any other right of an Eligible Person to receive payment from the
Company or any Subsidiary or Affiliate. The per Share exercise price of any
Option, grant price of any SAR, or purchase price of any other Award conferring
a right to purchase Shares which is granted, in connection with the substitution
of awards granted under any other plan or agreement of the Company or any
Subsidiary or Affiliate or any business entity to be acquired by the Company or
any Subsidiary or Affiliate, shall be determined by the Committee, in its
discretion.
(b) Terms of Awards. The term of each Award granted to an Eligible
Person shall be for such period as may be determined by the Committee; provided,
however, that in no event shall the term of any ISO or an SAR granted in tandem
therewith exceed a period of ten years from the date of its grant (or such
shorter period as may be applicable under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award may
be made in such forms as the Committee shall determine at the date of grant or
thereafter, including, without limitation, cash, Shares, or other property, and
may be made in a single payment or transfer, in installments, or on a deferred
basis. The Committee may make rules
<PAGE>
-12-
relating to installment or deferred payments with respect to Awards, including
the rate of interest to be credited with respect to such payments.
(d) Nontransferability. Unless otherwise set forth by the Committee in
an Award Agreement, Awards (except for vested shares) shall not be transferable
by an Eligible Person except by will or the laws of descent and distribution
(except pursuant to a Beneficiary designation) and shall be exercisable during
the lifetime of an Eligible Person only by such Eligible Person or his guardian
or legal representative. An Eligible Person's rights under the Plan may not be
pledged, mortgaged, hypothecated, or otherwise encumbered, and shall not be
subject to claims of the Eligible Person's creditors.
7. Change of Control Provisions.
(a) Acceleration of Exercisability and Lapse of Restrictions; Cash-Out
of Awards. In the event of a Change of Control, the following acceleration and
cash-out provisions shall apply unless otherwise provided by the Committee at
the time of the Award grant.
(i) All outstanding Awards pursuant to which the Participant may have
rights the exercise of which is restricted or limited, shall become fully
exercisable at the time of the Change of Control. Unless the right to lapse
of restrictions or limitations is waived or deferred by a Participant prior
to such lapse, all restrictions or limitations (including risks of
forfeiture and deferrals) on outstanding Awards subject to restrictions or
limitations under the Plan shall lapse, and all performance criteria and
other conditions to payment of Awards under which payments of cash, Shares
or other property are subject to conditions shall be deemed to be achieved
or fulfilled and shall be waived by the Company at the time of the Change
of Control.
(ii) For a period of up to 60 days following a Change of Control, the
Participant may elect to surrender any outstanding Award and to receive, in
full satisfaction therefor, a cash payment equal to the value of such Award
calculated on the basis of the Change of Control Price of any Shares or the
Fair Market Value of any property other than Shares relating to such Award;
provided, however, that in the case of an ISO, or a Stock Appreciation
Right granted in tandem therewith, the cash payment shall be based upon the
Fair Market Value of Shares on the date of exercise; provided further,
however, that in the case of a Change of Control described in Section
7(b)(i)(c) or (d) below, the payment described in this sentence may, in the
discretion of the Committee, be made in the form of Shares having a Fair
Market Value equal to the amount of cash that would otherwise be paid. In
the event that an Award is granted in tandem with another Award such that
the Participant's right to payment for such Award is an alternative to
payment of another Award, the Participant electing to surrender any
<PAGE>
-13-
such tandem Award shall surrender all alternative Awards related thereto
and receive payment for the Award which produces the highest payment to the
Participant.
(b) Definitions of Certain Terms. For purposes of this Section 7, the
following definitions, in addition to those set forth in Section 2, shall apply:
(i) "Change of Control" means and shall be deemed to have occurred if:
(a) any person (within the meaning of the Exchange Act), other
than the Company or a Related Party, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of Voting Securities representing 30 percent or more of
the total voting power of all the then-outstanding Voting Securities;
or
(b) the individuals who, as of the effective date of the Plan,
constitute the Board, together with those who first become directors
subsequent to such date and whose recommendation, election or
nomination for election to the Board was approved by a vote of at
least a majority of the directors then still in office who either were
directors as of the effective date of the Plan or whose
recommendation, election or nomination for election was previously so
approved (the "Continuing Directors"), cease for any reason to
constitute a majority of the members of the Board; or
(c) (x) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company or a
Subsidiary, reverse split of any class of Voting Securities, or an
acquisition of securities or assets by the Company or a Subsidiary, or
(y) consummation of any such transaction if stockholder approval is
not obtained, other than, with respect to both (x) and (y) (I) any
such transaction in which the holders of outstanding Voting Securities
immediately prior to the transaction receive (or, in the case of a
transaction involving a Subsidiary and not the Company, retain), with
respect to such Voting Securities, voting securities of the surviving
or transferee entity representing more than 60 percent of the total
voting power outstanding immediately after such transaction, with the
voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction, or
(II) any such transaction which would result in a Related Party
beneficially owning more than 50 percent of the voting securities of
the surviving entity outstanding immediately after such transaction;
or
<PAGE>
-14-
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets
other than any such transaction which would result in a Related Party
owning or acquiring more than 50 percent of the assets owned by the
Company immediately prior to the transaction.
(ii) "Change of Control Price" means, with respect to a Share, the
higher of (a) the highest reported sales price of Shares during the 30
calendar days preceding a Change of Control on the principal stock exchange
or market quotation system on which the Shares are traded or (b) the
highest price paid or offered in a transaction which either (I) results in
a Change of Control or (II) would be consummated but for another
transaction which results in a Change of Control and, if it were
consummated, would result in a Change of Control. With respect to clause
(b) in the preceding sentence, the "price paid or offered" will be equal to
the sum of (I) the face amount of any portion of the consideration
consisting of cash or cash equivalents and (II) the fair market value of
any portion of the consideration consisting of real or personal property
other than cash or cash equivalents, as established by an independent
appraiser selected by the Committee.
(iii) "Related Party" means (a) a majority-owned subsidiary of the
Company; (b) an employee or group of employees of the Company or any
majority-owned subsidiary of the Company; (c) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
majority-owned subsidiary of the Company; (d) a corporation owned directly
or indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of Voting Securities; or (e) any person who
on the Effective Date (as defined in Section 8(k)) hereof owns a majority
of the Voting Securities of the Company.
(iv) "Voting Securities or Security" means any securities of the
Company which carry the right to vote generally in the election of
directors.
8. General Provisions.
(a) Compliance with Legal and Trading Requirements. The Plan, the
granting and exercising of Awards thereunder, and the other obligations of the
Company under the Plan and any Award Agreement, shall be subject to all
applicable federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required. The Company, in its
discretion, may postpone the issuance or delivery of Shares under any Award
until completion of such stock exchange or market system listing or registration
or qualification of such Shares or other required action under any state or
federal law, rule or regulation as the Company may
<PAGE>
-15-
consider appropriate, and may require any Participant to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of Shares in compliance with applicable
laws, rules and regulations. No provisions of the Plan shall be interpreted or
construed to obligate the Company to register any Shares under federal or state
law.
(b) No Right to Continued Employment or Service. Neither the Plan nor
any action taken thereunder shall be construed as giving any employee or
director the right to be retained in the employ or service of the Company or any
of its Subsidiaries or Affiliates, nor shall it interfere in any way with the
right of the Company or any of its Subsidiaries or Affiliates to terminate any
employee's or director's employment or service at any time.
(c) Taxes. The Company or any Subsidiary or Affiliate is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Shares, or any payroll or other payment
to an Eligible Person, amounts of withholding and other taxes due in connection
with any transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company and Eligible Persons to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include authority to
withhold or receive Shares or other property and to make cash payments in
respect thereof in satisfaction of an Eligible Person's tax obligations.
(d) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of shareholders of the Company
or Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's shareholders to the extent such shareholder approval is required under
Section 422 of the Code; provided, however, that, without the consent of an
affected Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may materially and adversely affect the rights of such
Participant under any Award theretofore granted to him or her. The Committee may
waive any conditions or rights under, amend any terms of, or amend, alter,
suspend, discontinue or terminate, any Award theretofore granted, prospectively
or retrospectively; provided, however, that, without the consent of a
Participant, no amendment, alteration, suspension, discontinuation or
termination of any Award may materially and adversely affect the rights of such
Participant under any Award theretofore granted to him or her.
(e) No Rights to Awards; No Shareholder Rights. No Eligible Person or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Eligible Persons and employees.
No Award shall confer on any Eligible Person any of the rights of a shareholder
of the Company
<PAGE>
-16-
unless and until Shares are duly issued or transferred to the Eligible Person in
accordance with the terms of the Award.
(f) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments not yet
made to a Participant pursuant to an Award, nothing contained in the Plan or any
Award shall give any such Participant any rights that are greater than those of
a general creditor of the Company; provided, however, that the Committee may
authorize the creation of trusts or make other arrangements to meet the
Company's obligations under the Plan to deliver cash, Shares, other Awards, or
other property pursuant to any Award, which trusts or other arrangements shall
be consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
(g) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the shareholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of options and other awards otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
(h) Not Compensation for Benefit Plans. No Award payable under this
Plan shall be deemed salary or compensation for the purpose of computing
benefits under any benefit plan or other arrangement of the Company for the
benefit of its employees or directors unless the Company shall determine
otherwise.
(i) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional Shares or whether such fractional Shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan, and any Award Agreement shall be
determined in accordance with the laws of New York without giving effect to
principles of conflict of laws.
(k) Effective Date; Plan Termination. The Plan shall become effective
as of [ ], 1997 (the "Effective Date"). The Plan shall terminate as to
future awards on the date which is ten (10) years after the Effective Date.
(l) Titles and Headings. The titles and headings of the sections in
the Plan are for convenience of reference only. In the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-33401 of Emerging Communications, Inc. of our reports on Atlantic Tele-
Network, Inc. and Atlantic Tele-Network Co. both dated March 25, 1997
appearing in the Prospectus, which is part of this Registration Statement, and
of our reports dated March 25, 1997 related to the financial statement
schedules of Atlantic Tele-Network, Inc. and the financial statement schedules
of Atlantic Tele-Network Co. appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Omaha, Nebraska
October 17, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF PRUDENTIAL SECURITIES INCORPORATED
We hereby consent to the references of our firm under the captions
"SUMMARY--Investment Banker's Opinion", "THE TRANSACTION--Background and
Reasons for the Transaction", "THE TRANSACTION--Recommendation of the Company
Board" and "THE TRANSACTION--Opinion of the Investment Banker" in the
Registration Statement on Form S-4 of Emerging Communications, Inc. (Regis.
No. 333-33401) and to the inclusion of our opinion letter as Annex B to the
Proxy Statement/Prospectus contained in such Registration Statement. In giving
this consent, we do not admit and we hereby disclaim that we come within the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of "experts" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Prudential Securities Incorporated
Dated October 17, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF NOMINEE FOR DIRECTOR
I hereby consent to be named as a nominee for director of Atlantic Tele-
Network, Inc. in its Proxy Statement--Prospectus, and to become a director on
the Effective Date of the Transaction.
/s/ James B. Ellis
-------------------------------------
October 2, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF NOMINEE FOR DIRECTOR
I hereby consent to be named as a nominee for director of Atlantic Tele-
Network, Inc. in its Proxy Statement--Prospectus, and to become a director on
the Effective Date of the Transaction.
/s/ Henry Wheatley
_________________________________
October 4, 1997
<PAGE>
EXHIBIT 24.1
------------
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity
as a Director of Emerging Communications, Inc. whose signature appears
immediately below constitutes and appoints Jeffrey J. Prosser and John P. Raynor
and each of them, severally, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to execute a Registration Statement
on Form S-4 for the registration of common stock of Emerging Communications,
Inc. and any and all amendments (including post-effective amendments) thereto
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission. Each of said attorneys
shall have the power to act hereunder with or without the other of said
attorneys and shall have full power and authority to do and perform, in the name
and on behalf of the undersigned, each and every act and thing requisite and
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming al that said attorneys-in-
fact and agents or either of them, or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
15th day of August, 1997.
/s/ SALVATORE MUOIO
-------------------------------
Salvatore Muoio
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity
as a Director of Emerging Communications, Inc. whose signature appears
immediately below constitutes and appoints Jeffrey J. Prosser and John P. Raynor
and each of them, severally, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to execute a Registration Statement
on Form S-4 for the registration of common stock of Emerging Communications,
Inc. and any and all amendments (including post-effective amendments) thereto
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission. Each of said attorneys
shall have the power to act hereunder with or without the other of said
attorneys and shall have full power and authority to do and perform, in the name
and on behalf of the undersigned, each and every act and thing requisite and
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming al that said attorneys-in-
fact and agents or either of them, or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
15th day of August, 1997.
/s/ SIR SHRIDATH S. RAMPHAL
-------------------------------
Sir Shridath S. Ramphal
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity
as a Director of Emerging Communications, Inc. whose signature appears
immediately below constitutes and appoints Jeffrey J. Prosser and John P. Raynor
and each of them, severally, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to execute a Registration Statement
on Form S-4 for the registration of common stock of Emerging Communications,
Inc. and any and all amendments (including post-effective amendments) thereto
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission. Each of said attorneys
shall have the power to act hereunder with or without the other of said
attorneys and shall have full power and authority to do and perform, in the name
and on behalf of the undersigned, each and every act and thing requisite and
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming al that said attorneys-in-
fact and agents or either of them, or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
15th day of August, 1997.
/s/ JOHN G. VONDRAS
--------------------------
John G. Vondras
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, in his capacity
as a Director of Emerging Communications, Inc. whose signature appears
immediately below constitutes and appoints Jeffrey J. Prosser and John P. Raynor
and each of them, severally, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to execute a Registration Statement
on Form S-4 for the registration of common stock of Emerging Communications,
Inc. and any and all amendments (including post-effective amendments) thereto
and to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission. Each of said attorneys
shall have the power to act hereunder with or without the other of said
attorneys and shall have full power and authority to do and perform, in the name
and on behalf of the undersigned, each and every act and thing requisite and
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming al that said attorneys-in-
fact and agents or either of them, or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
15th day of August, 1997.
/s/ RICHARD GOODWIN
---------------------------
Richard Goodwin
<PAGE>
EXHIBIT 99.1
ATLANTIC TELE-NETWORK, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ATLANTIC TELE-NETWORK, INC. FOR SPECIAL MEETING, [ __,] 1997
The undersigned hereby appoints Jeffrey J. Prosser, Cornelius B. Prior, Jr., and
Craig Knock, and any of them as Proxies, with full power of substitution, and
hereby authorizes them to represent and to vote, as directed below, all shares
of Common Stock of Atlantic Tele-Network, Inc. ("ATN") held of record by the the
undersigned on [record date], at the Special Meeting of Stockholders to be held
on [ __,] 1997 or any adjournments thereof, and to vote on all matters
coming before said meeting, hereby revoking any proxy heretofore given.
Item 1. The approval and adoption of the proposed reorganization of ATN (the
"Transaction") including the following as they may be amended,
supplemented or modified from time to time: (i) the Subscription
Agreement dated as of August 11, 1997, between ATN and Emerging
Communications, Inc. ("ECI"), (ii) the Repurchase and Recapitalization
Agreement dated as of August 11, 1997, among ATN, Cornelius B. Prior
Jr., individually and as trustee of the 1994 Prior Charitable
Remainder Trust, and Jeffrey J. Prosser, (iii) the Agreement and Plan
of Merger, between ATN Merger Co., and ATN, (iv) an amendment to the
Certificate of Incorporation of ATN, which will create and authorize a
new class of Class A Common Stock and a new class of Class B Common
Stock of ATN, and (v) the Non-Competition Agreement, the Indemnity
Agreement, the Technical Assistance Agreement, the Tax Sharing and
Indemnification Agreement, and the Employee Benefits Agreement,
attached as exhibits to the Subscription Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued on reverse side)
<PAGE>
Item 2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any
adjournment or postponement thereof.
This Proxy, when properly executed will be voted in the manner directed
herein by the undersigned stockholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ITEM 1.
Please date this proxy and sign exactly as name appears below. If the
stock is held jointly, signatures should include both names. When signing as
attorney, executor, administrator, trustee or guardian, please give title as
such.
DATED: ___________________________________________, 199__
SIGNATURE(S)_____________________________________________
2
<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Atlantic Tele-Network, Inc. and subsidiaries
We have audited the financial statements of Atlantic Tele-Network, Inc. and
subsidiaries as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, and have issued our report thereon
dated March 25, 1997 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedules listed in Item 21 of
this Registration Statement. These financial statement schedules are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Omaha, Nebraska
March 25, 1997
<PAGE>
EXHIBIT 99.3
ATLANTIC TELE-NETWORK, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,615 $ 578
Other current assets...................................... 281 192
-------- --------
1,896 770
Property and equipment...................................... 3,242 3,149
Less accumulated depreciation............................. (1,622) (2,094)
-------- --------
1,620 1,055
Investment in and advances to subsidiaries.................. 141,122 155,038
Other assets................................................ 576 2,044
-------- --------
$145,214 $158,907
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 6,512 $ 5,722
Accounts payable.......................................... 1,651 952
Accrued taxes............................................. 508 1,214
Other current liabilities................................. 969 952
Current portion of long-term debt......................... 4,328 88
-------- --------
Total current liabilities............................... 13,968 8,928
Long-term debt, excluding current portion................... 290 188
Contingencies and commitments...............................
Stockholders' equity:
Common stock.............................................. 123 123
Preferred stock........................................... -- --
Paid-in capital........................................... 81,852 81,852
Retained earnings......................................... 48,981 67,816
-------- --------
Total stockholders' equity.............................. 130,956 149,791
-------- --------
$145,214 $158,907
======== ========
</TABLE>
See note to condensed financial statements.
<PAGE>
EXHIBIT 99.3
(CONTINUED)
ATLANTIC TELE-NETWORK, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-------------------------
1994 1995 1996
<S> <C> <C> <C>
Advisory fees....................................... $ 4,701 $ 7,870 $ 8,895
Interest income..................................... 4,056 4,555 4,464
------- ------- -------
8,757 12,425 13,359
Expenses:
Interest.......................................... 743 893 522
General and administrative........................ 5,960 7,215 7,117
------- ------- -------
6,703 8,108 7,639
------- ------- -------
Income before income taxes and equity in
undistributed earnings of subsidiaries............. 2,054 4,317 5,720
Income taxes........................................ (759) (1,049) (1,651)
------- ------- -------
Income before equity in undistributed earnings of
subsidiaries....................................... 1,295 3,268 4,069
Equity in undistributed earnings of subsidiaries.... 11,847 13,942 13,938
------- ------- -------
Net income.......................................... $13,142 $17,210 $18,007
======= ======= =======
Net income per share................................ $ 1.07 $ 1.40 $ 1.47
======= ======= =======
Average number of shares outstanding................ 12,273 12,273 12,273
======= ======= =======
</TABLE>
See note to condensed financial statements.
<PAGE>
EXHIBIT 99.3
(CONTINUED)
ATLANTIC TELE-NETWORK, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income..................................... $ 13,142 $ 17,210 $ 18,007
Adjustments to reconcile net income to net cash
flows from operating activities:
Equity in undistributed earnings of subsidi-
aries....................................... (11,847) (13,942) (13,938)
Deferred income taxes........................ 820 (225) (348)
Depreciation and amortization................ 759 662 694
Change in operating assets and liabilities:
Other assets............................... 2,233 1,138 (1,120)
Other liabilities.......................... (1,927) 1,267 (7)
Other...................................... (212) 395 138
-------- -------- --------
Net cash flows from operating activities. 2,968 6,505 3,426
Cash flows from investing activities:
Investment in and advances to subsidiaries..... (2,899) (4,844) 669
Capital expenditures........................... (19) (377) --
-------- -------- --------
Net cash flows from investing activities. (2,918) (5,221) 669
Cash flows from financing activities:
Net borrowings (repayments) on notes........... -- -- (790)
Issuance of long-term debt..................... -- 356 --
Repayment of long-term debt.................... (192) (204) (4,342)
-------- -------- --------
Net cash flows from financing activities. (192) 152 (5,132)
-------- -------- --------
Net change in cash............................... (142) 1,436 (1,037)
Cash, Beginning of year.......................... 321 179 1,615
-------- -------- --------
Cash, End of year................................ $ 179 $ 1,615 $ 578
======== ======== ========
Supplemental cash flow information:
Interest paid.................................. $ 692 $ 1,037 $ 542
======== ======== ========
Income taxes paid.............................. $ 80 $ 260 $ 620
======== ======== ========
</TABLE>
See note to condensed financial statements.
3
<PAGE>
EXHIBIT 99.3
(CONTINUED)
ATLANTIC TELE-NETWORK, INC.
(PARENT COMPANY ONLY)
NOTE TO CONDENSED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
A. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN SUBSIDIARIES--Atlantic Tele-Network, Inc.'s investment in
subsidiaries is accounted for using the equity method.
<PAGE>
EXHIBIT 99.4
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO NET BALANCE
BEGINNING COSTS AND CHARGE AT END
OF PERIOD EXPENSES OFFS OF PERIOD
---------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994:
Description:
Allowance for doubtful accounts...... $1,889 $1,484 $1,465 $1,908
====== ====== ====== ======
Year Ended December 31, 1995:
Description:
Allowance for doubtful accounts...... $1,908 $1,723 $ 627 $3,004
====== ====== ====== ======
Year Ended December 31, 1996:
Description:
Allowance for doubtful accounts...... $3,004 $ 389 $1,248 $2,145
====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 99.5
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Atlantic Tele-Network Co. and subsidiaries
We have audited the financial statements of Atlantic Tele-Network Co. and
subsidiaries as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, and have issued our report thereon
dated March 25, 1997 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedules listed in Item 21 of
this Registration Statement. These financial statement schedules are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Omaha, Nebraska
March 25, 1997
<PAGE>
EXHIBIT 99.6
ATLANTIC TELE-NETWORK CO.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------
ASSETS 1995 1996
Current assets:
Cash $ 498 $ 1,367
Other current assets 32 43
------- -------
530 1,410
Investment in subsidiaries 75,356 78,975
Other assets 5,649 5,661
------- -------
$81,535 $86,046
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 841 $ 1,845
Current portion of long-term debt 1,909 1,161
------- -------
Total current liabilities 2,750 3,006
Deferred income taxes 7 1
Long-term debt, excluding current 19,294 17,937
portion
Advances from affiliates 23,984 23,219
Contingencies and commitments
Stockholder's equity:
Common stock, par value $10 per
share; 50,000 shares
authorized and 2,000 shares issued 20 20
and outstanding
Paid-in capital 2,980 2,980
Retained earnings 32,500 38,883
------- -------
Total stockholder's equity 35,500 41,883
------- -------
$81,535 $86,046
======= =======
See note to condensed financial statements.
<PAGE>
EXHIBIT 99.6
(CONTINUED)
ATLANTIC TELE-NETWORK CO.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------
1994 1995 1996
Revenues:
Dividends received from subsidiaries $4,099 $3,597 $3,507
Advisory fees from subsidiaries 3,900 3,861 4,112
------ ------ ------
7,999 7,458 7,619
Expenses:
General and administrative 3,117 2,175 1,626
Amortization of excess of purchase
price over underlying
book value 1,032 1,032 1,032
Interest expense, net 3,631 3,970 3,600
------ ------ ------
7,780 7,177 6,258
------ ------ ------
Income from operations before income
taxes and equity
in undistributed earnings of 219 281 1,361
subsidiaries
Income tax benefit 945 803 370
------ ------ ------
Income before equity in undistributed
earnings
of subsidiaries 1,164 1,084 1,731
Equity in undistributed earnings of 3,899 3,298 3,824
subsidiaries ------ ------ ------
Net income $5,063 $4,382 $5,555
====== ====== ======
See note to condensed financial statements.
-2-
<PAGE>
EXHIBIT 99.6
(CONTINUED)
ATLANTIC TELE-NETWORK CO.
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,063 $ 4,382 $ 5,555
Adjustments to reconcile net income
to net cash from
operating activities:
Equity in undistributed earnings of subsidiaries (3,899) (3,298) (3,824)
Amortization of excess of purchase price over
underlying book value 1,032 1,032 1,032
Amortization of organizational and
debt issuance costs 123 123 123
Deferred income taxes 3 - (6)
Changes in operating assets and
liabilities:
Other current assets 77 (7) (11)
Other assets 798 (122) (134)
Accounts payable and accrued expenses 609 (222) 1,004
------- ------- -------
Net cash flows from operating activities 3,806 1,888 3,739
Cash flows from financing activities:
Repayment of long-term debt (3,176) (1,988) (2,105)
Change in advances from affiliates (527) 247 (765)
------- ------- -------
Net cash flows from financing activities (3,703) (1,741) (2,870)
------- ------- -------
Net change in cash 103 147 869
Cash, beginning of year 248 351 498
------- ------- -------
Cash, end of year $ 351 $ 498 $ 1,367
======= ======= =======
Supplemental cash flow information:
Interest paid $ 3,537 $ 3,807 $ 3,474
======= ======= =======
Income taxes paid $ - $ - $ -
======= ======= =======
</TABLE>
See note to condensed financial statements.
-3-
<PAGE>
EXHIBIT 99.6
(CONTINUED)
ATLANTIC TELE-NETWORK CO.
(PARENT COMPANY ONLY)
NOTE TO CONDENSED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
- -------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN SUBSIDIARIES - Atlantic Tele-Network Co.'s investment in
subsidiaries is accounted for using the equity method.
-4-
<PAGE>
EXHIBIT 99.7
ATLANTIC TELE-NETWORK CO.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
BALANCE AT CHARGED TO NET BALANCE
BEGINNING COSTS AND CHARGE AT END
OF PERIOD EXPENSES OFFS OF PERIOD
<S> <C> <C> <C> <C>
Year Ended December 31, 1994:
Description:
Allowance for doubtful accounts $ 834 $546 $358 $1,022
========== ========== ====== =========
Year Ended December 31, 1995:
Description:
Allowance for doubtful accounts $1,022 $909 $305 $1,626
========== ========== ====== =========
Year Ended December 31, 1996:
Description:
Allowance for doubtful accounts $1,626 $554 $592 $1,588
========== ========== ====== =========
</TABLE>
