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EMERGING COMMUNICATIONS, INC.
CHASE FINANCIAL CENTER
ORANGE GROVE, CHRISTIANSTED
ST. CROIX, U.S. VIRGIN ISLANDS 00821
(340) 777-7700
September 4, 1998
To Our Shareholders:
I am pleased to inform you that on August 17, 1998, Emerging Communications,
Inc. (the "Company") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Innovative Communication Corporation (the "Purchaser") and
ICC Merger Sub Corporation (the "Merger Sub"), a wholly owned subsidiary of
Purchaser. Upon the terms and subject to the conditions set forth in the Offer
to Purchase dated August 24, 1998 (the "Offer to Purchase") and the related
Letter of Transmittal, copies of which were mailed to you on August 24, 1998,
the Purchaser has commenced a cash tender offer (the "Offer") to purchase all
of the outstanding shares of the Company's Common Stock (the "Shares") not
currently beneficially owned by its parent, Innovative Communication Company,
for $10.25 per Share in cash. Under the terms of the Merger Agreement, the
consummation of the Offer will be followed by a merger of the Merger Sub into
the Company (the "Merger") in which any remaining Shares will be converted
into the right to receive $10.25 per Share in cash (or any higher price in the
Offer), without interest.
YOUR BOARD OF DIRECTORS UNANIMOUSLY, WITH MR. PROSSER, THE CONTROLLING
SHAREHOLDER OF THE PURCHASER ABSTAINING, HAS APPROVED THE MERGER AGREEMENT,
THE OFFER AND THE MERGER, HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS
STOCKHOLDERS, AND UNANIMOUSLY, WITH MR. PROSSER, THE CONTROLLING SHAREHOLDER
OF THE PURCHASER ABSTAINING, RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES OF THE COMPANY'S COMMON STOCK PURSUANT TO
THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that is being filed today with the Securities and Exchange Commission,
including, among other things, the opinion of Houlihan, Lokey, Howard & Zukin
Capital ("Houlihan Lokey"), the financial advisor to the Special Committee of
the Board of Directors, that the $10.25 per Share in cash to be received by
the holders of Shares pursuant to the Merger Agreement is fair to such holders
from a financial point of view. The full text of the written opinion of
Houlihan Lokey is attached as Schedule I to the Offer to Purchase, and
stockholders are urged to read such opinion in its entirety.
Sincerely,
/s/ Richard N. Goodwin
Richard N. Goodwin,
Chairman of the Special Committee of
the Board of Directors
and Member of the
Board of Directors
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
EMERGING COMMUNICATIONS, INC.
(NAME OF SUBJECT COMPANY)
EMERGING COMMUNICATIONS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
29089K108
(CUSIP NUMBER OF CLASS OF SECURITIES)
----------------
EMERGING COMMUNICATIONS, INC.
CHASE FINANCIAL CENTER
ORANGE GROVE, CHRISTIANSTED
ST. CROIX, U.S. VIRGIN ISLANDS 00821
ATTENTION: THOMAS MINNICH
TELEPHONE: (340) 777-7700
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF
THE PERSON(S) FILING STATEMENT)
With a copy to:
WILLIAM F. SCHWITTER, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
399 PARK AVENUE, 31ST FLOOR
NEW YORK, NEW YORK, 10022
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Emerging Communications, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is Chase Financial Center, Orange Grove, Christiansted, St. Croix,
U.S. Virgin Islands 00821. The title of the class of equity securities to
which this Statement relates is the Common Stock, par value $.01 per share, of
the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a tender offer by Innovative Communication
Corporation, a U.S. Virgin Islands corporation ("Innovative Communication" or
"Purchaser"), to purchase all outstanding Shares not currently beneficially
owned directly or indirectly by its parent, Innovative Communication Company,
a Delaware limited liability company (the "Parent"), at a price of $10.25 per
Share (the "Offer Price") net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated August 24, 1998 (the "Offer to Purchase") and the related
Letter of Transmittal (which together constitute the "Offer"), copies of which
are filed as exhibits hereto and are incorporated herein by reference. The
Offer is disclosed in a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") filed with the Securities and Exchange Commission (the
"Commission") on August 24, 1998. The address of the principal executive
offices of Innovative Communication, as reported in the Schedule 14D-1, is
Chase Financial Center, P.O. Box 1730, St. Croix, U.S. Virgin Islands.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 17, 1998, (the "Merger Agreement"), among the Purchaser, ICC
Merger Sub Corporation, a Delaware corporation ("Merger Sub"), and the
Company. The Merger Agreement provides that, among other things, promptly
after the purchase of Shares pursuant to the Offer and the receipt of any
required approval of the Merger Agreement by the Company's stockholders and
the satisfaction or waiver of certain other conditions, Merger Sub will be
merged (the "Merger") into the Company. Following consummation of the Merger,
the Company will continue as the surviving corporation and will become a
wholly owned subsidiary of the Parent. Upon consummation of the Merger (the
"Effective Time"), each then outstanding Share not owned by the Parent, the
Company or any direct or indirect subsidiary of the Parent or the Company
(other than Shares held by stockholders of the Company who have properly
exercised their appraisal rights in accordance with Section 262 of the
Delaware General Corporation Law (the "DGCL")) will be converted into the
right to receive an amount in cash equal to the per Share price paid pursuant
to the Offer (the "Offer Price"). Under the DGCL, the vote of the holders of a
majority of the outstanding Shares will be required to approve the Merger.
Since the Parent currently owns approximately 51% of the Shares outstanding,
the Parent would have sufficient voting power to, and intends to, cause the
approval of the Merger without the affirmative vote of any other stockholders
of the Company. However, it is a condition to the parties' obligation to
complete the Merger that the Purchaser have purchased Shares pursuant to the
Offer. Accordingly, if the Minimum Tender Condition (defined below), the
Financing Condition (defined below) or any other condition to the Offer is not
satisfied and the Purchaser elects not to waive any such condition (other than
the Minimum Tender Condition, which may not be waived by Purchaser without the
prior written consent of the Company), none of the Parent, the Purchaser,
Merger Sub or the Company will be obligated to effect the Merger. The Minimum
Tender Condition requires that there be validly tendered and not withdrawn
prior to the expiration of the Offer a majority of the outstanding shares not
beneficially owned directly or indirectly by Parent or its affiliates as of
the date the shares are accepted for payment pursuant to the Offer. The
Financing Condition requires the receipt by the Purchaser of funds sufficient
to permit it to purchase all shares tendered in the offer and pay the merger
consideration.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
The Company was formed in 1997 as a wholly owned subsidiary of Atlantic
TeleNetwork, Inc. ("ATN"). On December 30, 1997, ATN undertook a series of
transactions (the "Split Off Transaction") whereby the
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business and operations of ATN in the Virgin Islands and certain other assets
and liabilities were transferred to the Company, and the outstanding shares of
Common Stock of the Company were distributed to the public stockholders of ATN
and Jeffrey J. Prosser, the Company's Chairman of the Board, Chief Executive
Officer and Secretary.
(b) Except as described herein, to the knowledge of the Company, as of the
date hereof there are no material contracts, agreements, arrangements or
understandings and no actual or potential conflicts of interest between the
Company or its affiliates and (i) the Company, its executive officers,
directors or affiliates or (ii) Innovative Communication or its respective
executive officers, directors or affiliates.
INTERESTS OF THE SPECIAL COMMITTEE
On May 29, 1998, the Board of Directors of the Company (the "Board" or
"Board of Directors") created a special committee comprised of three directors
who are not officers or directors of, or otherwise affiliated with, Purchaser
or the Parent (the "Special Committee") to consider and make recommendations
with respect to the offer and merger proposal. The members of the Special
Committee are Richard N. Goodwin, Sir Shridath S. Ramphal and John G. Vondras.
Mr. Goodwin serves as Chairman of the Special Committee.
Mr. Goodwin currently serves as a Director of the Company and has been
Director of the Company since 1997. Mr. Goodwin beneficially owns 5,000
Shares.
Mr. Ramphal currently serves as a Director of the Company and has been a
Director of the Company since 1997. Mr. Ramphal beneficially owns no Shares.
Mr. Vondras currently serves as a Director of the Company and has been a
Director of the Company since 1997. Mr. Vondras beneficially owns no Shares.
In consideration of the services rendered on the Special Committee, Mr.
Goodwin received $50,000 and each of Mr. Vondras and Mr. Ramphal received
$15,000.
INTERESTS OF CERTAIN PERSONS
In connection with the Split Off Transaction, the Company entered into a
number of agreements with Mr. Prosser. These agreements are summarized below.
Non-Competition Agreement. Pursuant to a Non-Competition Agreement dated
December 31, 1997 among the Company, ATN and Mr. Prosser (the "Non-Competition
Agreement"), the Company and Mr. Prosser have agreed 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 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 is a period of 10 years after the
effective date of the Split Off Transaction. The telecommunications service
covered by the Non-Competition Agreement includes both carrying and/or
terminating telecommunications traffic. The Non-Competition 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 voice and data traffic. In the Non-Competition
Agreement, the Company and Mr. Prosser have also agreed to hold in strict
confidence all information of a proprietary nature relating to ATN's business
of providing telecommunications services with regard to international
audiotext traffic.
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<PAGE>
Indemnity Agreement. In accordance with the provisions of an Indemnity
Agreement dated December 31, 1997 among the Company, ATN, Mr. Prosser and Mr.
Prior (the "Indemnity Agreement"):
(i) Mr. Prosser has agreed to indemnify ATN, its subsidiaries, their
respective officers, directors and agents and Mr. Prior, 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 ATN or of the Company arising out of or
relating to the repurchase by ATN of shares of ATN Common Stock owned by
Mr. Prior and/or a trust of which he is a trustee (the "Trust") in
connection with the Split Off Transaction or the number of shares of Common
Stock to be received by Mr. Prosser or members of his family in connection
with the Split Off Transaction 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 the proxy statement-prospectus relating to
the Split Off Transaction, 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 the indemnity described in this
clause (b) applies only with respect to the biographical information of Mr.
Prosser contained in such proxy statement-prospectus and the information
contained therein concerning the beneficial ownership of ATN Common Stock
by Mr. Prosser and the members of his family and his or their affiliates.
(ii) Mr. Prior has agreed to indemnify the Company, its subsidiaries,
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 ATN or the
Company arising out of or relating to the number of shares of ATN Common
Stock to be received by Mr. Prior or members of his family in connection
with the Split Off Transaction 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 such proxy statement-prospectus, or the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, but the
indemnity described in this clause (b) applies only with respect to the
biographical information of Mr. Prior contained in such proxy statement-
prospectus and the information contained therein concerning the beneficial
ownership of ATN Common Stock by Mr. Prior and the members of his family
and his or their affiliates.
(iii) The Company has agreed to indemnify ATN, its subsidiaries, 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 the Company before or after the Split Off Transaction or any
of the liabilities specifically to be assumed by the Company in connection
with the Split Off Transaction 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 such proxy statement-prospectus 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 the
indemnity described in this clause (b) applies only with respect to the
information contained in such proxy statement-prospectus concerning the
business, prospects or planned or proposed activities of the Company and
its subsidiaries, the activities of the Company or such subsidiaries after
April 30, 1997, and prospective acquisitions of businesses or other
transactions not in the ordinary course of business then planned or
contemplated by the Company, such subsidiaries or Mr. Prosser.
(iv) ATN has agreed to indemnify the Company, its subsidiaries, 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 ATN before or after the Split Off Transaction or
any of the liabilities of ATN not specifically assumed by the Company 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 such proxy
statement-prospectus 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 the indemnity described in this
clause (b) applies only with respect to the information contained in such
proxy statement-prospectus concerning the business, prospects or planned or
proposed activities of ATN and its subsidiaries after the Split Off
Transaction, the activities of ATN after April 30, 1997 and prospective
acquisitions of businesses or other transactions not in the ordinary course
of business planned or contemplated by ATN or Mr. Prior.
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(v) Each of (A) Mr. Prosser and the Company and (B) Mr. Prior and ATN
have agreed not to be, without the prior written consent of ATN or the
Company, respectively, beneficial owners of greater than 5% of the
outstanding stock of ATN or the Company, respectively, nor to participate
in any solicitation of proxies or election contests with respect or to ATN
or the Company, respectively.
Tax Sharing Agreement. In accordance with the terms of the Tax Sharing and
Indemnification Agreement dated December 31, 1997 (the "Tax Sharing
Agreement"):
(i) ATN, the Company, Mr. Prior and Mr. Prosser have each agreed not to
take certain actions which might jeopardize the Split Off Transaction
qualifying for tax-free treatment under the Code (as hereinafter defined).
Under the terms of the Tax Sharing Agreement, unless approved by the IRS or
legal counsel or agreed to by both ATN and the Company, ATN and the Company
will not at any time take any action which may be inconsistent with the tax
treatment of the Split Off Transaction as contemplated in the IRS ruling
received in connection therewith (the "Tax Ruling"). Without limiting the
generality of the foregoing, ATN and the Company will not, prior to
December 31, 1999, unless approved by the IRS or legal counsel or agreed to
by both ATN and the Company: (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 Split Off Transaction; (c) with certain exceptions, redeem,
purchase or otherwise reacquire its capital stock issued and outstanding
immediately after the Split Off Transaction; (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 business relied upon in the Tax
Ruling to satisfy Section 355(b) of the Code; or (e) discontinue the active
conduct of the trades or businesses relied upon in the Tax Ruling request
to satisfy Section 355(b) of the Code. If required, the Purchaser intends
to cause a legal opinion to be delivered to ATN to comply with the
provisions of the Tax Sharing Agreement as they relate to the Merger.
(ii) ATN has agreed to be liable for, and indemnify and hold harmless the
Company and its affiliates from and against, (a) any taxes resulting from
any income or gain recognized as a result of the Split Off Transaction,
including any taxes resulting from any income or gain recognized as a
result of the Split Off Transaction failing to qualify for tax-free
treatment under the Code, which arise from any breach by ATN of its
representations or covenants under the Tax Sharing Agreement, or from
certain actions by ATN or its affiliates which may be inconsistent with the
tax treatment of the Split Off 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 ATN and its affiliates after
the Split Off Transaction, (b) any taxes taken into account as debits for
purposes of calculating the final closing adjustment under the terms of the
Split Off Transaction, (c) certain taxes arising from ATN's operations
between April 30, 1997 and the effective date of the Split Off Transaction,
(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 ATN or certain subsidiaries with respect to any period prior to
and including the effective date of the Split Off Transaction, except for
taxes described in clause (a), (b) or (c) of the following section (iii).
(iii) The Company has agreed to be liable for, and indemnify and hold
harmless ATN and its affiliates from and against, (a) any taxes resulting
from any income or gain recognized as a result of the Split Off Transaction
including any taxes resulting from any income or gain recognized as a
result of the Split Off Transaction failing to qualify for tax-free
treatment under the Code, which arise from any breach by the Company of its
representations or covenants under the Tax Sharing Agreement, or from
certain actions by the Company or its affiliates which may be inconsistent
with the tax treatment of the Split Off 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 the Company and its affiliates
after the Split Off Transaction, (b) one hundred percent (100%) of all
taxes of the Company (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 Atlantic
Tele-Network Co. or any of its subsidiaries to ATN except to the extent
taken into account as debits
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for purposes of computing the final closing adjustment under the terms of
the Split Off Transaction and (d) fifty percent (50%) of all other taxes of
ATN or certain subsidiaries with respect to any period prior to and
including the effective date of the Split Off Transaction, except for taxes
described in clauses (a), (b), (c) and (d) of the preceding section (ii).
(iv) Mr. Prior has agreed to be liable for, and to indemnify and hold
harmless ATN, the Company, and their respective affiliates from and
against, any taxes resulting from any income or gain recognized as a result
of the Split Off Transaction, including any taxes resulting from any income
or gain recognized as a result of the Split Off 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
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 Split Off
Transaction.
(v) Mr. Prosser has agreed to be liable for, and to indemnify and hold
harmless ATN, the Company, and their respective affiliates from and against
any liability for any taxes resulting from any income or gain recognized as
a result of the Split Off Transaction, including any taxes resulting from
any income or gain recognized as a result of the Split Off Transaction
failing to qualify for tax-free treatment under the Code, which arise from
(a) any breach of Mr. Prosser's representations and covenants under the Tax
Sharing 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 Split Off
Transaction.
Employment Agreement. The Company has entered into an employment agreement
(the "Employment Agreement") with Mr. Prosser dated December 31, 1997 for an
initial five-year term. The Employment Agreement is automatically renewable
for successive five-year terms and provides 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 Board or any duly authorized committee thereof. The
Employment Agreement provides for a grant of options to purchase 273,978
shares of Common Stock pursuant to the Company's 1997 Long Term Incentive and
Share Award Plan, which were granted to Mr. Prosser on December 31, 1997. In
the event Mr. Prosser's employment is terminated for other than cause or
disability by the Company 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. In addition, all options to purchase Common Stock then
owned by Mr. Prosser shall become immediately vested and exercisable, and the
exercisability thereof shall be extended for a period of ten years following
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, the
Company 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), (i) 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 (ii) include in any
registration statement of the Company (other than a registration statement 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 the Company)
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, the Company will indemnify Mr. Prosser against certain claims or
liabilities under the Securities Act, as amended.
Jeffrey J. Prosser has served as Chairman, Chief Executive Officer and
Secretary of the Company since 1997. Mr. Prosser is also the sole director and
executive officer of Purchaser and the sole member of Parent. Mr. Prosser has,
and following the Offer and the Merger will continue to have, the ability to
elect the entire Board of Directors of the Company.
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As of August 24, 1998, all executive officers and directors of the Company
as a group beneficially owned an aggregate of 5,749,628 Shares and held stock
options to purchase 123,991 Shares. Together, such Shares and Shares
purchasable upon exercise of such stock options aggregate approximately 52% of
the 10,959,131 Shares outstanding on August 24, 1998. If the transaction is
consummated, such persons will receive an aggregate of $192,331 in cash for
their Shares.
The following table sets forth, as of August 24, 1998, the number of Shares
owned by, and the aggregate amounts to be received by, each executive officer
and director of the Company and Purchaser who owns any Shares and all
executive officers and directors as a group pursuant to the transaction. Other
than the individuals named below, no executive officer or director of the
Company owns any Shares. The Purchaser does not own any shares of the Company.
<TABLE>
<CAPTION>
SHARES TOTAL CASH
BENEFICIALLY AMOUNT TO BE
NAME OWNED RECEIVED
---- ------------ ------------
<S> <C> <C>
Jeffrey J. Prosser............................... 5,730,864(1) N/A
Salvatore Muoio.................................. 4,600 $47,150
Edwin Crouch..................................... 9,164 $93,931
Richard N. Goodwin............................... 5,000 $51,250
</TABLE>
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(1) Represents 5,606,873 Shares which are owned by the Parent and 123,991
Shares issuable upon the exercise of currently exercisable options (or
exercisable within 60 days of August 24, 1998) at an exercise price of
$8.00 per share. Mr. Prosser has agreed not to exercise the options prior
to the Merger.
INDEMNIFICATION
The Restated Certificate of Incorporation ("the Certificate") of the Company
contains a provision which states that no director shall be personally liable
to the Company or its stockholders for monetary damages with respect to claims
by the Company or the stockholders for breaches of fiduciary duty as a
director. The provision does not limit director liability for monetary damages
(a) for any breach of the director's duty of loyalty to the Company or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Section 174 of
Title 8 of the DGCL (i.e., unlawful dividends or other unlawful payments) or
(d) for any transaction from which the director derived an improper personal
benefit.
The By-Laws and the Certificate of the Company 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 office 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 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 benefits 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. Such indemnification is in addition to any other rights to
which directors or officers may be entitled.
The Company, its directors and its officers are covered under a Directors
and Officers Liability Insurance Policy (the "D&O Insurance") effective for
the period from December 30, 1997 to December 30, 1998. Pursuant to the D&O
Insurance, the insurer agreed (1) to pay on behalf of the Company's directors
and officers any and
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all sums which they shall become legally obligated to pay for which the
Company has not provided reimbursement provided such sums arise from a claim
first made against the directors or officers during the policy period and (2)
to pay on behalf of the Company any and all sums it has incurred to indemnify
directors or officers, provided such sums it has incurred arise from a claim
first made against the directors or officers during the policy period.
Each and every member of the Board has entered into an Indemnification
Agreement with the Company. The rights, duties and obligations of the Company
and the Director under each Indemnification Agreement do not limit, diminish
or supersede the rights, duties and obligations of the Company and the
Director with respect to the indemnification afforded to the Director under
any liability insurance, the DGCL, or under the By-laws or the Certificate of
the Company. In addition, the Director's rights under this Indemnification
Agreement will not be limited or diminished in any respect by any amendment to
the By-laws or the Certificate of the Company.
Each of the Indemnification Agreements provides that the Company shall
indemnify and hold harmless the Director in respect of all liabilities and
expenses that may be incurred or suffered by the Director as a result of or
arising out of or in connection with prosecuting, defending, settling or
investigating any threatened, pending or completed claim, demand, inquiry,
investigation, action, suit or proceeding, in which the Director may be or may
have been involved as a party or otherwise, arising out of the fact that the
Director is or was a Director of the Company or any of its affiliates, or
served as a Director of any corporation at the request of the Company
(including without limitation service as a trustee or in any fiduciary or
similar capacity for or in connection with any employee benefit plan
maintained by the Company or for the benefit of any of the employees of the
Company or any of its affiliates, or service on any trade association, civic,
religious, educational or charitable boards or committees). In addition, each
of the Indemnification Agreements also provides that the Company shall
indemnify and hold harmless the Director against any and all liabilities and
expenses that may be incurred or suffered by the Director as a result of or
arising out of or in connection with any attempt (regardless of its success)
by any person to charge or cause the Director to be charged with wrongdoing or
with financial responsibility for damages arising out of or incurred in
connection with the matters indemnified against in the Indemnification
Agreement.
CONTRACTS AND TRANSACTIONS BETWEEN THE COMPANY AND THE PURCHASER OR THE PARENT
Ownership of the Company. Parent, which is wholly owned by Mr. Prosser,
currently owns approximately 51% of the outstanding Shares and therefore has
the ability to control the Company through the election of a majority of the
Board and voting at meeting of stockholders. After the consummation of the
Offer, it is expected that Mr. Prosser will continue to serve as the Chairman
of the Board, Chief Executive Officer and Secretary of the Company. The
Purchaser is a wholly owned subsidiary of the Parent. Mr. Prosser is the sole
member of the Parent and the sole director of the Purchaser.
The following is a description of the Merger Agreement. Such description
does not purport to be complete and is qualified in its entirety by reference
to the Merger Agreement, a copy of which is filed as an exhibit hereto and
incorporated herein by reference.
The Merger. The Merger Agreement provides that, promptly after the purchase
of Shares pursuant to the Offer and the receipt of any required approval of
the Merger Agreement by the Company's stockholders and the satisfaction or
waiver of certain other conditions, Merger Sub will be merged into the
Company. Because Parent currently owns a majority of the outstanding Shares,
Parent will have the vote necessary under Delaware law to approve the Merger.
Following consummation of the Merger, the Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation") and will
become a wholly owned subsidiary of Parent.
At the Effective Time, each Share outstanding immediately prior to the
Effective Time (other than Shares owned by Parent, the Purchaser, the Company
or any direct or indirect subsidiary of Parent or the Company or Shares
("Dissenting Shares") held by stockholders of the Company who have properly
exercised their appraisal rights in accordance with Section 262 of the DGCL
(collectively, "Excluded Shares")) will be converted into the right to receive
the Merger Consideration.
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At the Effective Time, the shares of common stock, par value $0.01 per
share, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of
Merger Sub or the holders of such shares, be converted into that number of
shares of Common Stock of the Surviving Corporation equal to the number of
outstanding Shares at the Effective Time less the number of Excluded Shares.
The Merger Agreement provides that the Dissenting Shares will not be
converted into or represent the right to receive the Merger Consideration.
Holders of such Shares will be entitled to receive payment of the "fair value"
of such Shares held by them in accordance with the provisions of Section 262
of the DGCL, except that all Dissenting Shares held by stockholders who fail
to perfect or who effectively withdraw or lose their rights to dissent will
thereupon be deemed to have been converted into, as of the Effective Time, the
right to receive, without any interest thereon, the Merger Consideration, upon
surrender of the certificate or certificates that formerly evidenced such
Shares.
The Merger Agreement provides that Purchaser shall make available or cause
to be made available to the paying agent appointed by Purchaser with the
Company's prior approval (the "Paying Agent") amounts sufficient in the
aggregate to provide all funds necessary for the Paying Agent to make payments
described above to holders of Shares issued and outstanding immediately prior
to the Effective Time. Promptly after the Effective Time, the Paying Agent
shall, pursuant to irrevocable instructions, make the payments provided for in
the preceding sentence out of the funds deposited with the Paying Agent for
such purpose. One hundred eighty days following the Effective Time, the
Surviving Corporation shall be entitled to cause the Paying Agent to deliver
to it any funds (including any interest received with respect thereto) made
available to the Paying Agent which have not been disbursed to holders of
certificates formerly representing Shares outstanding at the Effective Time,
and thereafter such holders shall be entitled to look to the Surviving
Corporation only as general creditors thereof with respect to the cash payable
under due surrender of their certificates. The Surviving Corporation shall pay
all charges and expenses, including those of the Paying Agent, in connection
with the exchange of cash for Shares and Purchaser shall reimburse the
Surviving Corporation for such charges and expenses.
Conditions to Certain Obligations. The obligations of the Company, the
Purchaser and Parent to effect the Merger are subject to the satisfaction of
certain conditions set forth in the Merger Agreement, including (i) the
purchase by the Purchaser (or one or more affiliates of the Purchaser) of
Shares pursuant to the Offer, (ii) to the extent required by applicable law,
the receipt of stockholder approval of the Merger and the Merger Agreement and
(iii) there being no statute, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) enacted, issued,
promulgated, enforced or entered by any governmental entity, or any court
which is in effect and prohibits consummation of the Merger.
Termination. According to its terms, the Merger Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
whether before or after any approval by the stockholders of the Company, by
the mutual consent of the Purchaser and the Company, by action of their
respective Boards and Directors. In addition, the Merger Agreement may be
terminated by action of the Board of Directors of either the Purchaser or the
Company if (i) the Purchaser shall have terminated the Offer without
purchasing any Shares pursuant thereto; provided that the right to terminate
the Merger Agreement shall not be available to the Purchaser, whose failure to
fulfill any obligation under the Merger Agreement has been the cause of or
resulted in the failure to purchase such Shares and provided, further, that in
the case of termination of the Merger Agreement by the Purchaser, such
termination of the Offer is not in violation of the terms of the Offer or (ii)
without fault of the terminating party, the Merger shall not have been
consummated by December 31, 1999, whether or not such date is before or after
any approval by the stockholders of the Company of the Merger and the Merger
Agreement. The Merger Agreement may be terminated by the Purchaser at any time
prior to the Effective Time, whether before or after any approval by the
stockholders of the Company, by the action of the board of directors of the
Purchaser, if (i) the Company shall have failed to comply in any material
respect with any of the covenants and agreements contained in the Merger
Agreement to be complied with or performed by the Company at or prior to such
date of termination or (ii) the Board of Directors of the Company or those
directors of the Company who are not officers of Parent or the Company or any
affiliate of either of them (the
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"Independent Directors") shall have withdrawn or modified in a manner adverse
to the Purchaser their approval or recommendation of the Offer, the Merger
Agreement or the Merger or the Board of Directors of the Company or the
Independent Directors, upon request by the Purchaser, shall fail to reaffirm
such approval or recommendation, or shall have resolved to do any of the
foregoing. The Merger Agreement may be terminated at any time prior to the
Effective Time, before or after any approval by the stockholders of the
Company, by action of the Board of Directors of the Company, if the Purchaser
or Merger Sub (i) shall have failed to comply in any material respect with any
of the covenants or agreements contained in the Merger Agreement to be
complied with or performed by the Purchaser or Merger Sub at or prior to such
date of termination or (ii) shall have failed to commence the Offer within the
time required by the Merger Agreement.
Subject to the applicable provisions of the DGCL, the Merger Agreement may
be amended by action taken by the Company, the Purchaser and Merger Sub at any
time prior to the Effective Time.
Certain Covenants of the Parties. The Purchaser has agreed in the Merger
Agreement that it will not, without the prior written consent of the Company,
decrease the price per Share or change the form of consideration payable in
the Offer, decrease the number of Shares sought, change the conditions to the
Offer or waive the Minimum Tender Condition. Also, the Purchaser shall not
terminate or withdraw the Offer or extend the Expiration Date unless at the
Expiration Date the conditions set forth in Exhibit A-1, "The Offer-13.
Certain Conditions of the Offer" have not been satisfied or waived.
The Merger Agreement provides that for six years after the Effective Time,
the Surviving Corporation shall maintain the Company's existing directors' and
officers' liability insurance or equivalent liability insurance ("D&O
Insurance") so long as the annual premium therefor is not in excess of the
last annual premium paid prior to the date of the Merger Agreement (the
"Current Premium"); provided, however, if the existing D&O Insurance expires,
is terminated or canceled during such six-year period, the Surviving
Corporation will use its best efforts to obtain as much D&O Insurance as can
be obtained for the remainder of such period for a premium not in excess (on
an annualized basis) of 200 percent of the Current Premium. In lieu of the
insurance arrangement described above, the Company may, on or before the
expiration of the Offer, enter into alternative insurance arrangements,
provided that such arrangements are approved by the Independent Directors and
the Purchaser. The Merger Agreement also provides that, from and after the
Effective Time, the Purchaser and the Surviving Corporation will indemnify and
hold harmless each present and former director and/or officer of the Company,
determined as of the Effective Time (the "Indemnified Parties") that is made a
party or threatened to be made a party to any threatened, pending or
completed, action, suit, proceeding or claim, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she was a
director or officer of the Company or any subsidiary of the Company prior to
the Effective Time and arising out of actions or omissions of the Indemnified
Party in any such capacity occurring at or prior to the Effective Time (a
"Claim") against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, amounts paid in settlement pursuant to the provisions of the
Merger Agreement described in the next succeeding paragraph, losses, claims,
damages or liabilities (collectively, "Costs") reasonably incurred in
connection with any Claim, whether asserted or claimed prior to, at or after
the Effective Time, to the fullest extent that the Company would have been
permitted under Delaware law. The Merger Agreement further provides that the
Surviving Corporation and Purchaser shall also advance expenses (including
attorneys' fees), as incurred by the Indemnified Party to the fullest extent
permitted under applicable law provided such Indemnified Party provides an
undertaking to repay such advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification.
Pursuant to the Merger Agreement, upon learning of any Claim described in
the preceding paragraph, such Indemnified Party shall promptly notify the
Surviving Corporation and the Purchaser thereof. In the event of any such
Claim (whether arising before or after the Effective Time), (i) the Purchaser
or the Surviving Corporation shall have the right to assume the defense
thereof and the Purchaser shall not be liable to such Indemnified Parties for
any legal expenses of other counsel or any other expenses subsequently
incurred by such Indemnified Parties in connection with the defense thereof,
except that if the Purchaser or the Surviving Corporation elects not to assume
such defense or counsel for the Indemnified Parties advises that there are
issues which raise conflicts of interest between the Purchaser or the
Surviving Corporation and the Indemnified Parties, the Indemnified Parties
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may retain counsel satisfactory to them, and the Purchaser or the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that the Surviving Corporation and the Purchaser shall be obligated
pursuant to the Merger Agreement to pay for only one firm of counsel for all
Indemnified Parties in any jurisdiction unless the use of one counsel for such
Indemnified Parties would present such counsel with a conflict of interest,
(ii) the Indemnified Parties will cooperate in the defense of any such matter
and (iii) the Purchaser shall not be liable for any settlement effected
without its prior written consent; and provided further that the Surviving
Corporation and the Purchaser, respectively, shall not have any obligation
under the Merger Agreement to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination
shall have become final and non-appealable, that the indemnification of such
Indemnified Party in the manner contemplated by the Merger Agreement is
prohibited by applicable law. If such indemnity is not available with respect
to any Indemnified Party, then the Surviving Corporation and the Indemnified
Party shall contribute to the amount payable in such proportion as is
appropriate to reflect relative faults and benefits.
The Merger Agreement further provides that if a claim for indemnification or
advancement under the Merger Agreement is not paid in full by the Surviving
Corporation or the Purchaser within thirty days after a written claim therefor
has been received by the Surviving Corporation or the Purchaser, the
Indemnified Party may any time thereafter bring suit against the Surviving
Corporation or the Purchaser to recover the unpaid amount of the claim and, if
successful in whole or in part, the Indemnified Party shall be entitled to be
paid also the expense of prosecuting such claims. Under the terms of the
Merger Agreement, neither the failure of the Surviving Corporation or the
Purchaser (including their Boards of Directors, independent legal counsel or
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnified Party is proper in the
circumstances because he or she has met the applicable standard of conduct,
nor an actual determination by the Surviving Corporation or the Purchaser
(including their boards of directors, independent legal counsel, or
shareholders) that the Indemnified Party has not met such applicable standard
of conduct, shall be a defense to the suit or create a presumption that the
Indemnified Party has not met the applicable standard of conduct.
The Merger Agreement also provides that no amendment to the Certificate of
Incorporation or By-laws of the Surviving Corporation shall reduce in any way
the elimination of personal liability of the directors of the Company
contained therein or adversely affect any then existing right of any director
or officer (or former director or officer) to be indemnified with respect to
acts, omissions or events occurring prior to the Effective Time.
In the Merger Agreement, the Company has agreed that its Board of Directors
and a majority of the Independent Directors will recommend acceptance of the
Offer to the Company's stockholders and will file with the Commission, and
mail to its stockholders, a Solicitation/Recommendation Statement on Schedule
14D-9 containing the unanimous recommendation of the Company's Board of
Directors and the Independent Directors that the Company's stockholders accept
the Offer. The Merger Agreement also provides that if the Company's Board of
Directors determines that its fiduciary duties require it to amend or withdraw
its recommendation, such amendment or withdrawal shall not constitute a breach
of the Merger Agreement.
The Merger Agreement also contains certain other restrictions as to the
conduct of business by the Company pending the Merger, as well as
representations and warranties of each of the parties customary in
transactions of this kind.
The Merger will have to be approved by the Company's Board of Directors and
by the Company's stockholders. Under the DGCL, the vote of the holders of a
majority of the outstanding Shares would be required to adopt the Merger
Agreement. Since Parent currently owns more than a majority of the outstanding
Shares, Parent will have sufficient voting power to effect the Merger without
the affirmative vote of any other stockholders of the Company (assuming Shares
are purchased in the Offer), and Parent intends to do so.
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BACKGROUND OF THE OFFER AND MERGER
Prior to December 30, 1997, the business and operations of the Company were
owned and conducted by ATN. The two principal stockholders and co-chief
executive officers of ATN prior to December 31, 1997, were Mr. Prosser and
Cornelius B. Prior, Jr. Beginning in early 1993, material disagreements arose
between Mr. Prior and Mr. Prosser pertaining to the management and direction
of ATN and its businesses. These disagreements created a management deadlock
which significantly impaired the ability of ATN to function other than in the
ordinary course of business and effectively precluded Mr. Prosser's aggressive
acquisition strategy. In order to pursue acquisition opportunities as they
arose which were precluded by the Split Off Transaction, Mr. Prosser had
entered into agreements to acquire the Cable Systems and the Virgin Islands
Daily News prior to consummation of the Split Off Transaction, and thereafter
assigned such agreements to the Purchaser.
On August 11, 1997, Mr. Prosser, Mr. Prior and ATN entered into definitive
documentation with respect to the Split Off Transaction. On December 30, 1997,
the stockholders of ATN approved the Split Off Transaction, and on December
30, 1997, the Split Off Transaction was consummated.
During January 1998, Mr. Prosser and certain other members of management of
the Company began exploring the feasibility of combining the businesses of the
Company and Purchaser. On January 20, 1998, the Company engaged Prudential
Securities Incorporated ("Prudential") to render an opinion as to the
fairness, from a financial point of view, of a merger involving the Parent and
the Purchaser to the public stockholders of the Company.
During February 1998, Mr. Prosser and certain other members of management of
the Company, with the assistance of the Company's legal and financial
advisors, developed the proposed terms of such a transaction.
The proposal to merge the businesses of the Company and the Purchaser was
presented to the Board by Jeffrey J. Prosser at a Board meeting held on March
9, 1998. The proposal contemplated a merger of the Purchaser with Atlantic
Tele- Network Co., a wholly-owned subsidiary of the Company ("ATNCo."),
pursuant to which the Parent would receive $35.0 million of convertible
preferred stock of ATNCo.
The Board discussed with the Company's advisors the draft agreement and
other materials distributed to the Board members. Following that discussion,
and in light of the relationship of the Chairman of the Board, Jeffrey J.
Prosser and the Parent, the Board requested that directors Richard N. Goodwin,
Sir Shridath Ramphal and John P. Raynor act as a Special Committee to further
consider and recommend to the Board a course of action concerning the merger
proposal. In addition, the Board ratified the Company's decision to engage
Prudential to act as financial advisor to the Special Committee.
The members of that Special Committee met with Prudential and that Special
Committee's legal advisors on April 3, 1998. At that meeting, Prudential
described to such Special Committee the various valuation analyses they would
undertake in connection with their engagement and also discussed with the
Special Committee the terms of the draft merger agreement and proposed certain
recommended revisions thereto. The members of the Special Committee requested
that Prudential prepare a revised term sheet for the transaction consistent
with its recommendations and deliver the proposed revised terms to the Parent.
From April 3, 1998 through May 20, 1998, Prudential engaged in various
discussions with the Parent regarding the proposed terms of such transaction.
During the third week of May 1998, Mr. Prosser began to have significant and
material reservations about the proposed merger with ATNCo., given the
unenthusiastic market interest in the Company's common stock. On May 21, 1998,
Mr. Prosser together with John P. Raynor, a member of the Board, met with
representatives of Prudential and the Parent's counsel to discuss the
feasibility of the Parent acquiring all of the outstanding Shares.
During May 22-28, 1998 Mr. Prosser, Prudential and the Parent's counsel had
various discussions regarding the language of a proposal letter to be
delivered to the Board. On May 29, 1998, the Parent sent the following letter
to the Board (the "May 29 Letter"):
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May 29, 1998
Board of Directors
Emerging Communications, Inc.
Chase Financial Center
Orange Grove, Christiansted
St. Croix, USVI 00821
Gentlemen:
Innovative Communication Company, LLC ("ICC"), a Delaware Limited Liability
Company, is pleased to make a proposal to acquire all of the outstanding
shares of common stock of Emerging Communications, Inc. (the "Company") not
currently owned by ICC (the "Remaining Shares"). It is currently contemplated
that the transaction would be structured as a cash tender offer with a backend
merger or reverse stock split in which each holder of Remaining Shares would
receive $9.125 per share, in cash.
We believe that such a transaction would result in substantial benefits to
the Company and the holders of the Remaining Shares and would provide the
holders of the Remaining Shares with the opportunity to realize a fair and
generous cash value for their shares. The offer price of $9.125 per Remaining
Share represents a premium of approximately 30% over the closing sale price of
the Company's common stock on May 28, 1998.
Such a transaction would permit the holders of the Remaining Shares to
obtain at an attractive premium liquidity which is not normally available to
them in light of the thinly traded market for the Company's common stock.
Indeed, the price of $9.125 per share is higher than any closing sale price of
the Company's common stock since it commenced trading on December 31, 1997. We
also believe that the acquisition can be structured to accommodate and promote
the interests of the Company's employees and customers.
This proposal is subject, among other things, to the following:
1. the execution of a definitive Merger Agreement with the Company
containing representations, covenants, conditions, and other terms usual
for transactions of this type;
2. approval of the transaction by a Special Committee of the Board of
Directors of the Company, the Board of Directors of the Company and the
Company's shareholders;
3. the receipt of satisfactory financing for the transaction;
4. the receipt of a fairness opinion from the financial advisor to the
Special Committee stating that the proposed transaction is fair, from a
financial point of view, to the holders of the Remaining Shares; and
5. the receipt of all required third party and governmental consents.
ICC's advisors are in the process of preparing a definitive Acquisition
Agreement relating to the transaction, which we will provide you in the near
future. In addition, we have engaged Prudential Securities Incorporated to
advise us with respect to the transaction. Based on conversations with ICC's
financing sources, ICC believes it will be able to secure the necessary
financing to fund the transaction.
ICC wishes to make it clear that it is not interested under any
circumstances in selling its interest in the Company.
We expect that you will desire to elaborate on this proposal through a
Special Committee of disinterested directors and that such committee will
desire to retain its own advisors to assist in those deliberations. We look
forward to working with you and the advisors to the Special Committee to
complete this transaction and trust you will give this proposal your prompt
attention. We, of course, reserve the right to amend or withdraw this proposal
at any time in our sole discretion.
Very truly yours,
Innovative Communication Company,
LLC
/s/ Jeffrey J. Prosser
By: _________________________________
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A meeting of the Board of Directors was held on May 29, 1998. Mr. Prosser
began the meeting of the Board by discussing certain opportunities that
management had been pursuing for the Company to acquire certain businesses.
Mr. Prosser advised the Board that it is likely that the Company would be
required to issue equity in order to finance any acquisition of significant
size. Mr. Prosser also advised the Board that he believed that the Company's
stock price had not achieved the desired appreciation as a result of, among
other things, the relatively small public float and the fact that the Company
has failed to be followed by Wall Street analysts. Mr. Prosser then read to
the Board the May 29 Letter. Mr. Prosser then excused himself from the
meeting. After discussion, the Board determined, given the inherent conflict
of interest, to form the Special Committee consisting of Messrs. Sir Shridath
S. Ramphal, Richard N. Goodwin and John G. Vondras to review the terms of the
proposed transaction. In that connection and to help in their evaluation, the
Board of Directors authorized the Special Committee to engage its own counsel
and to engage an independent financial advisor to the Special Committee to
assist the Special Committee in negotiating the proposed transaction on behalf
of the Company's public stockholders and to render an opinion as to the
fairness of the transaction from a financial point of view to the public
stockholders.
On May 29, 1998, the Company issued a press release concerning the May 29
Letter. In addition, on May 29, 1998, Mr. Prosser informed the Board that he
was withdrawing the proposal to combine the businesses of the Purchaser and
the Company pending the final outcome of the proposal set forth in the May 29
Letter.
On June 3, 1998, the Company received notice of a lawsuit instituted by
purported shareholders of the Company alleging a breach of fiduciary duties
and seeking injunctive and other relief in response to the Company's
announcement regarding the Parent's proposal in the May 29 Letter.
On June 5, 1998, the Special Committee hired Paul, Hastings, Janofsky &
Walker LLP ("Paul Hastings") as its outside legal counsel. On June 5, 1998,
the Special Committee and its legal advisors participated in a telephone
conference with Mr. Prosser and his legal advisors. At this meeting, Roger
Meltzer, Esq. of Cahill reported that Mr. Prosser was not prepared to support
or accept any alternative business transaction besides the Purchaser's offer
to acquire the Shares of the Company not owned directly or indirectly by the
Parent.
On July 13, 1998, after interviewing a number of nationally recognized
investment banking firms, the Special Committee engaged Houlihan, Lokey,
Howard & Zukin Capital ("Houlihan Lokey") to act as independent financial
advisor to the Special Committee and to advise the Special Committee with
respect to the offer by the Purchaser to purchase the shares of Common Stock
of the Company not beneficially owned directly or indirectly by the Parent at
a price of $9.125 per share.
On July 21-22, 1998, representatives of Houlihan Lokey and Paul Hastings
visited the Company's business offices in St. Thomas and interviewed and met
with senior management of the Company to discuss financial results and
projections, tour the Company's facilities and commence other legal and
financial due diligence.
On July 17, 1998, Cahill delivered to Paul Hastings a proposed draft of the
Merger Agreement. During the next week and thereafter, Paul Hastings reviewed
the terms and conditions of the Merger Agreement and negotiated the terms and
conditions with Cahill.
Following July 22, 1998, Houlihan Lokey continued its financial due
diligence investigation and analysis of the Company, engaged in numerous
telephone calls with senior management of the Company, met with Prudential and
Mr. Prosser to discuss the results of operations and prospects of the Company,
met with Mr. Goodwin to update the Special Committee on the results of
Houlihan Lokey's investigation.
On August 4, 1998, the Special Committee along with its financial and legal
advisors held a special meeting by telephone to consider the offer by the
Purchaser to purchase the shares of Common Stock of the Company at a price of
$9.125 per share. The Houlihan Lokey representatives discussed with the
Special Committee their assumptions and the various valuation methodologies
used in evaluating the offer and reviewed the results of
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their financial investigation. The Houlihan Lokey representatives concluded by
stating that Houlihan Lokey was not in a position to render an opinion that
the offer price of $9.125 per share was fair to the public stockholders from a
financial point of view. In light of such conclusion, the Special Committee
then considered various alternative methods designed to seek a higher price
for the Company's stockholders.
The Special Committee determined that Mr. Goodwin would discuss the
inadequacy of the current offer price with Mr. Prosser and seek a higher price
for the public shareholders. The Special Committee also considered directing
Houlihan Lokey to begin discussions simultaneously with Prudential in an
attempt to obtain a higher offer price, but it was decided to await the
results of the discussions between Mr. Goodwin and Mr. Prosser.
During the period between August 5, 1998 and August 10, 1998, Mr. Goodwin,
on behalf of the Special Committee, and Mr. Prosser, on behalf of the
Purchaser, engaged in further discussions regarding the price offered by the
Purchaser for the public shares of the Company, and during such period, Mr.
Goodwin kept Houlihan Lokey informed as to the progress of such discussions.
In such discussions with Mr. Goodwin, Mr. Prosser initially raised the offer
price to $9.625 per share which Mr. Goodwin, on behalf of the Special
Committee, rejected as insufficient. On behalf of the Purchaser, Mr. Prosser,
after further discussions, offered $10.00 per share. Following additional
discussions with Houlihan Lokey, Mr. Goodwin again informed Mr. Prosser that
the offer was insufficient. After additional discussions, Mr. Prosser raised
the offer price to $10.125 per share, and Mr. Goodwin, on behalf of the
Special Committee, again informed Mr. Prosser that $10.125 per share was
inadequate. Following further deliberations, Mr. Prosser raised his offer
price to $10.25 per share. In response to a request from Mr. Goodwin for a
price of $10.50 per share, Mr. Prosser refused, indicating that $10.25 per
share was the Purchaser's highest and best offer. Mr. Goodwin then informed
Mr. Prosser that Mr. Goodwin would report an offer price of $10.25 per share
to the Special Committee.
On August 12, 1998, by telephonic conference, Messrs. Goodwin and Vondras
met with the Special Committee's financial and legal advisors for further
consideration of the Purchaser's offer price of $10.25 per share, Houlihan
Lokey updated the Special Committee with respect to Houlihan Lokey's valuation
analysis based on the revised offer price of $10.25 per share. Houlihan Lokey
concluded by indicating that the revised offer price was fair to the public
shareholders from a financial point of view, subject to satisfactory
negotiation of the Merger agreement. Messrs. Goodwin and Vondras agreed that,
subject to the approval of Mr. Ramphal, the third member of the Special
Committee, they would recommend the revised offer price of $10.25 per share to
the Board of Directors of the Company.
Immediately following the meeting on August 12, 1998, Mr. Goodwin reviewed
with Mr. Ramphal the deliberations of the telephonic meeting and Houlihan
Lokey's views, including its opinion that the revised offer price of $10.25
per share was fair to the public shareholders from a financial point of view.
Mr. Ramphal approved the revised offer price, leading to a unanimous
recommendation by the Special Committee.
On August 13, 1998, the Board of Directors of the Company (along with its
legal and financial advisors) held a special meeting by telephone to discuss
the Purchaser's offer to purchase the public shares of the Company at an offer
price of $10.25 per share, and to negotiate the terms of the merger agreement.
Houlihan Lokey presented the results of its financial analysis and concluded
by opining that, from a financial point of view, the Purchaser's offer of
$10.25 per share was fair to the Company's public shareholders. The Board of
Directors, after further discussions with Houlihan Lokey, agreed to consider
the Purchaser's offer subject to the satisfactory negotiation of a final,
complete Merger Agreement between the Purchaser and the Company. Paul
Hastings, on behalf of the Board of Directors of the Company, requested, among
other items, that the draft of the Merger Agreement be revised to provide that
the Minimum Tender Condition could not be waived by the Purchaser without the
consent of the Special Committee. Mr. Meltzer of Cahill agreed to discuss
these points with the Purchaser's representatives as soon as practicable, and
the Board of Directors adjourned the meeting until the morning of August 17,
1998. Immediately prior to the August 17 meeting, Mr. Meltzer informed Paul
Hastings that Mr. Prosser had agreed to the proposed revisions to the draft
Merger Agreement regarding the Minimum Tender Condition.
14
<PAGE>
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) On August 13, 1998, the Special Committee determined that each of the
Offer and the Merger is fair to, and in the best interest of, the stockholders
of the Company (other than the Parent) and determined to recommend that the
Board approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, and to recommend to the Company's
stockholders that they accept the Offer and tender of their Shares pursuant to
the Offer. At a meeting held on August 17, 1998, the Board of Directors of the
Company, including those members of the Board of Directors of the Company
constituting the Special Committee, acting upon the unanimous recommendation
of the Special Committee, unanimously, with Mr. Prosser, the controlling
shareholder of the Purchaser, abstaining, approved the Merger Agreement, the
Offer and the Merger, determined that the terms of the Offer and the Merger
are fair to, and in the best interest of, the stockholders of the Company and
recommended that all stockholders of the Company accept the Offer and tender
their Shares pursuant to the Offer.
(b) Reasons for the Board's Recommendation; Opinion of Financial Advisor.
See "Item 3(b)--Background of the Offer and the Merger" for a description of
certain events preceding the Board of Director's consideration of the Offer
and the Merger.
REASONS FOR RECOMMENDATION
The Special Committee received presentations from, and reviewed the Offer
and the Merger with, senior management of the Company as well as the Special
Committee's financial advisor, Houlihan Lokey. The Special Committee, in
determining whether to recommend the approval of the Merger Agreement and the
transactions contemplated thereby to the full Board of Directors, considered a
number of factors, including, but not limited to, the following:
(i) The belief, based on its familiarly with the Company's business, its
current financial condition and results of operations and its future
prospects, and the current and anticipated developments in the Company's
industry, that the consideration to be received by the Company's
stockholders in the Offer and Merger fairly reflects the Company's
intrinsic value.
(ii) The oral and written presentations made by Houlihan Lokey at
meetings held on August 4, 1998 and August 12, 1998, as to various
financial and other considerations deemed relevant to the evaluation of the
Offer and the Merger, including, but not limited to, a review of (A) the
business prospects and financial condition of the Company, (B) historical
business information and financial results of the Company, (C) non-public
financial and operating results of the Company, (D) financial projections
and budgets prepared by the Company's management, (E) information obtained
from meetings with senior management of the Company, (F) the trading range
and volume history of the Shares, (G) public financial information of
comparable companies and (H) public information of comparable acquisitions.
(iii) The opinion of Houlihan Lokey that the consideration to be received
by the Company's stockholders pursuant to the Offer and the Merger
Agreement is fair to such stockholders (other than the Parent and the
Purchaser) from a financial point of view. In considering Houlihan Lokey's
opinion, the Special Committee was aware that Houlihan Lokey is entitled to
a fee in accordance with the terms of its engagement described below.
(iv) The relationship between the consideration to be received by
stockholders as a result of the Offer and the Merger and the historical
market prices and recent trading activity of the Shares. Specifically, that
$10.25 per Share represents a premium of 46.4% over the market price of the
Shares on May 28, 1998, (the day prior to the public announcement that the
Parent had proposed to acquire the Shares at $9.125 per Share) and that the
Shares had never traded in excess of the offer price.
(v) The agreed value of the Company between Mr. Prosser and Mr. Prior in
the Split Off Transaction of $13.2484 per share (before giving effect to
indebtedness incurred to purchase $17.4 million of shares from Mr. Prior)
as a component of the $22.7284 per share agreed value of ATN between Mr.
Prosser and Mr. Prior in the Split Off Transaction, and the fact that the
trading price of the ATN common stock on December 29, 1997, prior to the
Split Off Transaction, was approximately $10.625 per share.
15
<PAGE>
(vi) Houlihan Lokey's assumption that the benefit of tax abatement which
the Company is to receive from the Virgin Islands taxing authority would be
realized by the Company rather than passed on to the Company's customers.
If the Company is not able to retain the benefit of the tax abatement,
Houlihan Lokey believes that its valuation of the Company would decrease.
(vii) The recognition that, following consummation of the Offer and the
Merger, the current stockholders of the Company will no longer be able to
participate in any increases or decreases in the value of the Company's
business and properties. The Special Committee concluded, however, that
this consideration did not justify foregoing the opportunity for
stockholders to receive an immediate and substantial cash purchase price
for their Shares.
(viii) The fact that the terms of the Offer, and the increase in the
consideration offered to the public stockholders from $9.125 per Share to
$10.25 per Share, were determined through arm's-length negotiations with
the Parent by the Special Committee and its financial and legal advisors,
all of whom are unaffiliated with Parent, and the judgment of the Special
Committee and Houlihan Lokey that, based upon the negotiations that
transpired, a price higher than $10.25 per Share could not likely be
obtained by the Parent and that further negotiations with the Parent could
cause the Parent to abandon the Offer, with the resulting possibility that
the market price for the Shares could fall substantially below $10.25, and
possibly $9.125, per Share, or to commence a tender offer without the
involvement of the Special Committee at a price less than $10.25 per Share.
(ix) The Parent's ownership of approximately 51% of the currently
outstanding Shares and the effects of such ownership on the alternatives
available to the Company and the fact that, as a practical matter, no
strategic alternative could be effected without the support of Parent; and
the consequences of continuing to operate the Company as a majority-owned
subsidiary of Parent.
(x) The fact that Mr. Prosser informed the Special Committee that he
would not support nor accept any alternative business transaction.
(xi) The terms and conditions of the Merger Agreement, the fact that
there are no unusual requirements or conditions to the Offer and the
Merger, and the fact that Parent has a Commitment Letter from the Rural
Telephone Finance Cooperative (the "RTFC") to provide the financing
necessary to consummate the Offer and the Merger expeditiously.
(xii) The fact that the Merger Agreement provides that the Offer cannot
be consummated unless a majority of the shares outstanding beneficially
owned directly or indirectly by Parent are tendered.
(xiii) The fact that the consideration to be paid to the Company's public
stockholders in the Offer and the Merger is all cash.
(xiv) The fact that the Offer and the Merger have been structured to
include a first-step cash tender offer for any and all outstanding Shares,
thereby enabling stockholders who tender their Shares to promptly receive
$10.25 per Share in cash, and the fact that any public stockholders who do
not tender their Shares or properly exercise appraisal rights will receive
the same price per Share in the subsequent Merger.
(xv) The possible conflicts of interest of certain directors and members
of management of both the Company and Parent discussed in "Item 3(b)--
Interests of Certain Persons" herein.
(xvi) The fact that, while no appraisal rights are available to
stockholders as a result of the Offer, stockholders who do not tender
pursuant to the Offer will have the right to dissent from the Merger and to
demand appraisal of the fair value of their Shares under the DGCL. See
Exhibit A-1, "The Offer-11. The Merger Agreement; Appraisal Rights".
The Special Committee considered each of the factors listed above during the
course of its deliberations prior to recommending that the Company enter into
the Merger Agreement. In light of its knowledge of the business and operations
of the Company and its business judgment, the Special Committee believed that
each of these factors supported its respective conclusions. In view of the
wide variety of factors considered, the Special Committee did not find it
practicable to, and did not, quantify the specific factors considered in
making its
16
<PAGE>
determination, although the Special Committee did place a special emphasis on
the opinion and analysis of Houlihan Lokey.
The Board of Directors of the Company, a majority of the members of which
were members of the Special Committee, approved the Merger Agreement and the
transactions contemplated thereby after receiving a report from the Special
Committee on its deliberations and recommendation. In reaching this decision,
the Board of Directors principally considered the recommendation of the
Special Committee and its familiarity with the Company's business, its current
financial condition and results of operations and future prospects, and
current and anticipated developments in the Company's industry.
OPINION OF FINANCIAL ADVISOR
The complete text of Houlihan Lokey's opinion is attached hereto as Exhibit
E-1. The summary of the opinion set forth below is qualified in its entirety
by reference to such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
following is a brief summary and general description of the valuation
methodologies followed by Houlihan Lokey. The summary does not purport to be a
complete statement of the analyses and procedures applied, the judgments made
or the conclusion reached by Houlihan Lokey or a complete description of its
presentation. Houlihan Lokey believes, and so advised the Special Committee,
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, could create an incomplete view of the process
underlying its analyses and opinions.
The Company and the Special Committee retained Houlihan Lokey to render an
opinion as to the fairness, from a financial point of view, of the
consideration to be received by the holders of Shares (other than the Parent
and Purchaser) pursuant to the Offer and the Merger. At the August 4, 1998,
meeting of the Special Committee, Houlihan Lokey presented its analysis as
hereinafter described and updated the Special Committee with respect to the
discussions and current state of the transaction. At the August 13, 1998,
meeting of the Board, Houlihan Lokey presented its oral opinion, and on August
17, 1998, delivered its written opinion, that as of such date and based on the
matters described therein, the consideration to be received by the holders of
Shares (other than the Parent and the Purchaser) is fair from a financial
point of view.
Houlihan Lokey's opinion addresses only the fairness from a financial point
of view of the consideration to be received by the holders of Shares (other
than the Parent and the Purchaser) pursuant to the Offer and the Merger and
does not constitute a recommendation to the shareholders as to whether such
shareholders should, tender their shares in the Offer or how such shareholders
should vote at any shareholders' meeting. Houlihan Lokey's opinion does not
address the Company's underlying business decision to effect the Offer and the
Merger.
In connection with the preparation of its opinion, Houlihan Lokey made such
reviews, analyses and inquiries as it deemed necessary and appropriate under
the circumstances. Among other things, Houlihan Lokey: (i) reviewed the
publicly available financial information of the Company since the split-off of
the Company from ATN, including the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 and the Quarterly Report on 10-Q for
the quarter ended March 31, 1998; (ii) reviewed the Proxy Statement for the
Special Meeting of Stockholders of ATN dated December 9, 1997; (iii) reviewed
a draft copy of Schedule 13E-3 dated June 22, 1998, including the draft Merger
Agreement contained therein; (iv) reviewed unaudited financial results of the
Company through June 30, 1998, as prepared by the Company; (v) met with
certain members of the senior management of the Company to discuss the
operations, financial condition, future prospects and projected operations and
performance of the Company; (vi) visited certain facilities and business
offices of the Company in St. Thomas, U.S. Virgin Islands; (vii) reviewed
forecasts dated March 25, 1998, as prepared by the Company's management for
the years ending December 31, 1998, through 2007; (viii) reviewed the
historical market prices and trading volume for the publicly traded securities
of the Company; (ix) reviewed publicly available financial data for certain
companies that it deemed comparable to the Company, and publicly traded
17
<PAGE>
prices and premiums paid in other transactions that it considered similar to
the Offer and the Merger; (x) held discussions with Jeffrey J. Prosser, the
majority shareholder of the Company and the sole shareholder of the Parent,
and with certain members of Prudential which is acting as financial adviser to
Mr. Prosser; and (xi) conducted such other studies, analyses and inquiries as
it deemed appropriate.
In assessing the financial fairness of the consideration to be received in
the Offer and the Merger by the holders of Shares (other than the Parent and
the Purchaser), Houlihan Lokey: (i) analyzed the reasonableness of the trading
value of the Company's publicly traded common stock; (ii) valued the common
equity of the Company using widely accepted valuation methodologies; and (iii)
analyzed the reasonableness of the consideration being offered pursuant to the
Offer and the Merger.
VALUATION OF EMERGING COMMUNICATIONS, INC.
Historical Stock Trading Analysis. As part of its analysis, Houlihan Lokey
analyzed the trading value of the Company's common stock. Houlihan Lokey
calculated the implied Price/Net Income, total invested capital (defined as
the value of equity plus debt, net of cash) ("TIC") to revenue
("TIC/Revenue"), TIC to earnings before interest and taxes ("TIC/EBIT") and
TIC to earnings before interest, taxes, depreciation and amortization
("TIC/EBITDA") multiples for the Company based on pro forma results (which
includes the results of St. Martin Cellular) for its fiscal year ended
December 31, 1997, latest 12 month results through June 30, 1998 and its
projected fiscal years ending December 31, 1998 and December 31, 1999 and
compared those ratios to comparable publicly traded companies. Houlihan Lokey
also analyzed daily closing stock prices and volumes for the 90-day period
preceding the offer made on May 29, 1998.
Independent Valuation Analysis of the Company. In addition to analyzing
recent trading activity, Houlihan Lokey applied two widely used valuation
approaches to arrive at an independent valuation of the Company. The first
approach, the market multiple approach, involved the multiplication of various
earnings and cash flow measures by appropriate risk-adjusted multiples.
Multiples were determined through an analysis of certain publicly traded
companies, selected on the basis of operational and economic similarity with
the principal business operations of the Company. Earnings and cash flow
multiples were calculated for the comparative companies based upon daily
trading prices. A comparative risk analysis between the Company and the public
companies formed the basis for the selection of appropriate risk-adjusted
multiples for the Company. The risk analysis incorporates both quantitative
and qualitative risk factors which relate to, among other things, the nature
of the industry in which the Company and other comparative companies are
engaged. For purposes of this analysis, Houlihan Lokey selected the following
publicly-traded telecommunications companies: Aliant Communications, Inc., CFW
Communications Co., CT Communications, Inc., Century Telephone Enterprises,
Inc., Conestoga Enterprises, Inc., D&E Communications, Inc., Hickory Tech
Corp., and North Pittsburgh Systems, Inc. Houlihan Lokey's market multiple
approach yielded a valuation of the Company's common stock in the range of
$8.01 to $10.47 per share.
In the second approach, the discounted cash flow approach, projections for
the Company, as prepared by the Company's management, for the fiscal years
1998 through 2002 were utilized. The projected cash flows were analyzed on a
"debt-free" basis (before cash payments to equity and interest-bearing debt
investors) in order to develop a TIC value indication for the Company. A
provision for the TIC value of the Company at the end of the forecast period,
or terminal value, was also made. The present value of the interim cash flows
and the terminal value was determined using a risk-adjusted rate of return or
"discount rate." The discount rate, in turn, was developed through an analysis
of rates of return on alternative investment opportunities in companies with
similar risk characteristics to the Company. Houlihan Lokey's discounted cash
flow approach yielded a valuation of the Company's common stock in the range
of $9.47 to $13.94 per share.
FAIRNESS OF CONSIDERATION
Acquisition of Premium Analysis. Houlihan Lokey analyzed the acquisition
premiums as implied by the offer relative to the "30-day unaffected trading
price" and the 52-week high and low for the common stock of
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<PAGE>
the Company. The "30-day unaffected trading price" represents the average
stock price for the thirty days prior to the announcement of the offer set
forth in the letter dated May 29, 1998 from the Parent to the Board. These
premiums are shown in the table below.
<TABLE>
<CAPTION>
30-DAY
UNAFFECTED
TRADING 52-WEEK 52-WEEK
PRICE HIGH LOW
---------- ------- -------
<S> <C> <C> <C>
Premium........................................... 49.9% 13.9% 64.0%
</TABLE>
Houlihan Lokey believed that these premiums were within an acceptable range
of fairness for transactions in which control was not being acquired.
Comparable Transactions Multiples. Houlihan Lokey analyzed the acquisition
multiples paid in publicly announced, majority acquisitions of domestic
telecommunications companies with transaction values in excess of $25 million.
Houlihan Lokey's study analyzed sixteen transactions for public and private
companies that were announced between April 1996 and July 1998.
Houlihan Lokey advised the Special Committee that none of the transactions
reviewed were directly comparable to the Offer and the Merger. As part of this
analysis, Houlihan Lokey calculated the TIC/Revenue, TIC/EBIT, and TIC/EBITDA
multiples. Houlihan Lokey's analysis indicated that for the acquisitions of
companies with available financial information: (i) the TIC/Revenue multiples
had a median of 2.66; (ii) the TIC/EBIT multiples had a median of 16.3; and
(iii) the TIC/EBITDA multiples had a median multiple of 12.9. The TIC/Revenue,
TIC/EBIT and TIC/EBITDA multiples for the Company based on the Offer are 3.33,
13.4, and 7.1, respectively, utilizing the financial results of the Company
for the latest 12 month period on a pro forma basis ended June 30, 1998.
Although the Offer implied multiples for TIC/EBIT and TIC/EBITDA were below
the medians for the transactions, the multiples were in excess of the median
TIC/Revenue multiple and were within the range of multiples for TIC/EBIT and
TIC/EBITDA. Houlihan Lokey also noted that the transactions analyzed
represented control transactions which generally exhibit higher multiples than
transactions, such as the Offer and the Merger, in which control is not being
acquired.
Fairness Conclusion. Based on the analyses described above, Houlihan Lokey
concluded that the value of the consideration to be received by the holders of
Shares (other than the Parent and the Purchaser) pursuant to the Offer and the
Merger is fair from a financial point of view.
Houlihan Lokey was not requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company. Houlihan
Lokey was not asked to express an opinion as to the relative merits of the
Offer and the Merger compared to any alternative business strategies that
might exist for the Company.
Houlihan Lokey relied upon and assumed, without independent verification,
that the financial forecasts and projections provided to it were reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there was no material
change in the assets, financial condition, business or prospects of the
Company since the date of the most recent financial statements made available
to Houlihan Lokey.
Houlihan Lokey did not independently verify the accuracy and completeness of
the information supplied to it with respect to the Company and does not assume
any responsibility with respect to it. Houlihan Lokey did not make any
independent appraisal of any of the properties or assets of the Company.
Houlihan Lokey's opinion is necessarily based on business, economic, market
and other conditions as they existed and could be evaluated by Houlihan Lokey
at the date of the opinion.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company has retained Houlihan Lokey as the Special Committee's financial
advisor in connection with the Merger, the Offer and other matters arising in
connection therewith pursuant to a retainer agreement entered
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<PAGE>
into July 13, 1998 between the Company and Houlihan Lokey. Houlihan Lokey was
retained by the Company to analyze the fairness of the consideration to be
received in the Offer and the Merger by the holders of Shares (other than the
Parent and the Purchaser) from a financial point of view. Houlihan Lokey
received $100,000 upon the signing of the Retainer and $125,000 when it
informed the Special Committee that it was prepared to render the opinion, and
Houlihan Lokey will receive $125,000 upon the closing of the Merger, plus
reasonable out-of-pocket expenses incurred in connection with the rendering of
a fairness opinion. The Company has further agreed to indemnify Houlihan Lokey
against certain liabilities and expenses in connection with the rendering of
its services.
Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuating businesses and securities
and rendering fairness opinions. Houlihan Lokey is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, employee stock ownership plans, corporate and other
purposes.
Neither the Company nor any person acting on its behalf intends currently to
employ, retain or compensate any other person to make solicitations or
recommendations to stockholders in connection with the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) No transactions in the Shares have been effected during the past 60 days
by the Company or, to the best of the Company's knowledge, by any executive
officer, director or affiliate.
(b) To the best of the Company's knowledge, each executive officer, director
and affiliate of the Company (other than Mr. Prosser and the Parent) currently
intends to sell all Shares over which he or she has sole dispositive power for
a cash payment of $10.25 per Share pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY
(a) Except as described in Item 3(b), no negotiation is being undertaken or
is underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary of the Company, (ii) a
purchase, sale or transfer of a material amount of assets by the Company or
any subsidiary of the Company, (iii) a tender offer for or other acquisition
of securities by or of the Company or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described in Item 3 and Item 4, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate to or would result in one or more of the matters
referred to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
(a) Certain Legal Proceedings. The Company has been served notice of a
stockholder lawsuit filed on or about June 3, 1998, in the Delaware Court of
Chancery, New Castle Division, with respect to the May 29, 1998, proposal by
Parent to acquire all of the Shares of the Company. The lawsuit, entitled
Brickell Partners v. Jeffrey J. Prosser, et al. (C.A. No. 16425-NC) (the
"Shareholder Litigation"), asks for class action status and names the Company
and individual members of the Company's Board of Directors as defendants,
including Mr. Prosser. The suit, inter alia, alleges breaches of fiduciary
duty by Mr. Prosser as controlling shareholder of the Company. The complaint
alleges that the proposed acquisition of the Company "serves no legitimate
business purpose" and that it is "an attempt by defendant Prosser to benefit
himself unfairly at the expense" of Company shareholders. The complaint seeks,
among other things, a preliminary and permanent injunction against the Offer,
rescission of the Offer if it is consummated, and unspecified monetary
damages. Defendants have not filed any responsive pleadings and their time to
respond has been extended to September 15, 1998.
While neither the Company nor the Purchaser presently anticipates that the
Shareholder Litigation will result in the termination of the Offer or in the
Merger Agreement not continuing to be in full force and effect in
20
<PAGE>
accordance with its terms, there can be no assurance as to the outcome of any
such lawsuit. The Shareholder Litigation could result in substantial expense
to the Company and significant diversion of efforts of the Company's
management team.
The above summary does not purport to be complete and is qualified in its
entirety by the full text of the complaint filed as Exhibit D-1 hereto and
incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<C> <S>
A-1 Offer to Purchase filed by Purchaser on August 24, 1998*
A-2 Letter of Transmittal (including guidelines)*
A-6 Press Release**
B-1 Commitment Letter of the RTFC**
C-1 Agreement and Plan of Merger dated as of August 17, 1998 among Purchaser,
ICC Merger Sub and the Company**
C-2 Non-Competition Agreement dated December 31, 1997 among the Company, ATN
and Mr. Prosser**
C-3 Indemnity Agreement dated December 31, 1997 among the Company, ATN,
Mr. Prosser and Mr. Prior**
C-4 Tax Sharing and Indemnification Agreement dated December 31, 1997 among
the Company, ATN, Mr. Prosser and Mr. Prior**
C-5 Employment Agreement dated December 31, 1997 between the Company and
Mr. Prosser**
D-1 Complaint, Brickell Partners v. Jeffrey J. Prosser**
E-1 Opinion Letter of Houlihan, Lokey, Howard & Zukin Capital dated August 17,
1998*
</TABLE>
- --------
* Included in documents previously mailed to stockholders.
** Filed as an exhibit to the Schedule 14D-1 filed by the Purchaser August 24,
1998.
21
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Emerging Communications, Inc.
/s/ Thomas Minnich
By: _________________________________
Thomas Minnich
Chief Operating Officer
Dated: September 4, 1998
22
