SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1997
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number [ ]
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EMERGING COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 66-0547028
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Chase Financial Center 00821
P.O. Box 1730 (Zip Code)
St. Croix, U.S. Virgin Islands
(Address of principal executive offices)
Name of each exchange on which registered: American Stock Exchange
Registrant's telephone number, including area code: (340) 777-7700
Securities registered pursuant to Section 12(b) of the
Act: None Securities registered pursuant to Section
12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 26, 1998, 10,959,131 shares of Common Stock were outstanding. The
aggregate market value of Common Stock held by nonaffiliates as of March 26,
1998 was approximately $37,992,195, based on the closing sale price per share as
reported on such date on the American Stock Exchange.
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PART I
ITEM 1. BUSINESS.
Emerging Communications, Inc., a Delaware corporation ("ECI" or the
"Company"), was formed in 1997 as a wholly owned subsidiary of Atlantic
Tele-Network, Inc. ("ATN"). On December 31, 1997, ATN undertook a series of
transactions (the "Split Off Transaction") whereby the 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.
ECI's principal subsidiary is Virgin Islands Telephone Company ("Vitelco"),
the sole provider of local telephone service in the U.S. Virgin Islands. Vitelco
provides subscribers with local telephone service in the U.S. Virgin Islands,
access to long-distance companies for interstate and international telephone
service, and provides those companies with access to its local network. ECI is
also engaged, through its wholly owned subsidiary Atlantic Tele-Network Co.
("ATN-VI") in selling and leasing telecommunications equipment in the U.S.
Virgin Islands and, through its wholly-owned subsidiary, Vitelcom Cellular, Inc.
("Vitelcellular"), in providing cellular telephone service in the U.S. Virgin
Islands to land-based and marine subscribers.
ECI intends to endeavor to expand its operations through the acquisition of
other businesses. ECI cannot predict whether it will be successful in pursuing
such acquisition opportunities or what the consequences of any such acquisition
would be. The evaluation and negotiation of such business acquisitions may
involve significant expenditures by ECI. There can be no assurance that ECI will
be able to acquire or successfully integrate any such businesses, and
acquisitions that are consummated may involve the incurrence of significant
amounts of debt by ECI and/or the dilution of existing stockholders' interests
in ECI through the issuance of additional shares of ECI capital stock. No
assurances can be given that any acquisitions will be consummated or that, if
completed, they will be successful. Furthermore, there can be no assurance that
ECI's management will be able to manage effectively any resulting business or
that any acquisition will benefit ECI. Depending upon the nature, size and
timing of acquisitions, ECI may be required to raise financing. There can be no
assurance that the Credit Facility (as defined), or any other loan agreements to
which ECI or its subsidiaries may become a party, will permit such additional
financing or that such additional financing will be available to ECI on terms
acceptable to management or at all. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources."
Risks Relating to ECI
Dependence on Virgin Islands Operations. ECI owns all of the outstanding
capital stock of ATN-VI, which in turn owns all of the outstanding capital stock
of Vitelco and Vitelcellular and conducts directly the business previously
conducted by Vitelcom, Inc. ("Vitelcom"). These companies, which currently
conduct all of the Company's operations in the Virgin Islands, are ECI's only
operating subsidiaries.
Regulatory Risks. Vitelco's local telephone operations, including the
services offered and the rates for these services, are subject to the
jurisdiction of the U.S. Virgin Islands Public Service Commission (the "PSC").
Since 1987 when the Company acquired Vitelco, each time the PSC has dealt with
Vitelco's rates for local service, rates have been reduced as a result of
settlement agreements between Vitelco and PSC. The latest agreement provided
that Vitelco's local rates would remain unchanged until January 1, 1995 at the
earliest, and that either Vitelco or the PSC could initiate proceedings to
change local rates after that date. See "--Regulation."
In May 1997, Vitelco received a five year rebate of 90% of its Virgin
Islands income taxes and 100% of its Virgin Islands gross receipts, excise and
property taxes from the Virgin Islands Industrial Development Commission to
assist Vitelco in recovering these Hurricane-related costs without a rate
increase. On Octo-
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ber 9, 1997, the PSC appointed counsel to evaluate the impact such rebate has on
Vitelco's rate of return. It is unknown whether the PSC will initiate a
proceeding to modify Vitelco's rates as a result of this evaluation.
The Telecommunications Act of 1996 has eliminated Vitelco's legally
protected monopoly as the sole provider of wired local telephone service in the
U.S. Virgin Islands. If this develops, there can be no assurance that Vitelco
will successfully compete in a more open market. The 1996 Act also requires
local exchange carriers such as Vitelco to provide various services to
competitive carriers for compensation to be fixed by the local public service
commission. There can be no assurance that Vitelco will receive adequate
compensation for providing these services. See "--Competition."
Wind Storm Risks. Although the U.S. Virgin Islands are in an area where
hurricanes frequently occur, from 1928 until 1989 they escaped any substantial
hurricane damage. Vitelco's outside plant suffered substantial damage in
September 1989 from Hurricane Hugo, and again in September 1995 from Hurricane
Marilyn. Capital expenditures by Vitelco to repair and upgrade its facilities
following these two hurricanes amounted to approximately $60 million following
Hurricane Hugo and approximately $41 million following Hurricane Marilyn. The
Company has insurance coverage for damage caused by windstorm to its outside
plant in the amount of $30 million per storm and $55 million in the aggregate.
Significant Revenue Sources. Revenues from AT&T, derived principally from
interstate network access and billing and collection services of Vitelco,
comprised approximately 13% of Vitelco's total revenues in 1997. No other
revenue source accounted for more than 10% of Vitelco's total revenues in 1997.
Control by a Single Stockholder. Jeffrey J. Prosser owns approximately 52%
of the outstanding ECI Common Stock. As a result, he has the power to
significantly control the affairs of ECI, including to amend ECI's Restated
Certificate of Incorporation, to elect all of its directors, to effect
fundamental corporate transaction, such as a mergers, acquisitions, asset sales
and the sale of ECI and otherwise direct ECI's business and affairs without the
approval of any other stockholder.
Future Acquisitions. ECI intends to endeavor to expand ECI's operations
through the acquisition of other businesses. ECI cannot predict whether it will
be successful in pursuing such acquisition opportunities or what the
consequences of any such acquisition would be. The evaluation and negotiation of
such business acquisitions may involve significant expenditures by ECI. There
can be no assurance that ECI will be able to acquire or successfully integrate
any such businesses, and acquisitions that are consummated may involve the
incurrence of significant amounts of debt by ECI and/or the dilution of existing
stockholders' interests in ECI through the issuance of additional shares of ECI
capital stock. No assurances can be given that any such acquisitions will be
consummated or that, if completed, they will be successful. Furthermore, there
can be no assurance that ECI's management will be able to manage effectively any
resulting business or that any acquisition will benefit ECI. Depending upon the
nature, size and timing of acquisitions, ECI may be required to raise financing.
There can be no assurance that any loan agreements to which ECI may become a
party will permit such additional financing or that such additional financing
will be available to ECI on terms acceptable to its management or at all. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources." In addition, pursuant to the
terms of the Tax Sharing and Indemnification Agreement among ECI, Mr. Prosser,
ATN and Cornelius B. Prior (the "Tax Sharing Agreement"), each of Mr. Prosser
and ECI have agreed to certain restrictions on his or its future actions which
may limit the ability of ECI to pursue certain future acquisitions. See "Item
13. Certain Relationships and Related Transactions -- Split Off Transaction
Agreements -- Tax Sharing Agreement".
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995 The statements contained herein which are not historical facts may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the safe harbors created thereby.
These forward-looking statements
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involve risks and uncertainties, including, but not limited to, those discussed
in this "--Risks Relating to ECI section.
Local Service
In 1996, based upon access line data provided by the United States
Telephone Association (the "USTA"), Vitelco was the 32nd largest local telephone
company of more than 1,000 local telephone companies in the United States.
Approximately 41% of Vitelco's total revenue in 1997 was derived from the
provision of local service.
ECI believes that Vitelco's telephone business is essentially non-cyclical
and (except for its growth in access lines) is not materially reduced in times
of recession. In 1997, Vitelco's growth rate in access lines was 4.5%. ECI
believes that future growth in access lines will occur primarily as a result of
construction of new residential and commercial properties in the U.S. Virgin
Islands. However, growth should also occur from an increase in the number of
households that have telephones, and an increase in lines per subscriber is
anticipated as facsimile machines, computer data communication and other
technological innovations become more widespread. All of these factors affecting
the rate of growth of access lines are likely to be sensitive to changes in
general economic conditions.
As of December 31, 1997, approximately 67% of Vitelco's 62,140 access lines
were residential lines, and the remainder were business lines. Vitelco's current
monthly charge per access line, which includes unlimited calls between points in
St. Croix, St. John and St. Thomas and is regulated by the U.S. Virgin Islands
Public Services Commission (the "PSC"), is $18.55 for residential customers and
$49.85 for business customers. In June 1987, when the Company acquired Vitelco,
Vitelco's residential rate was $21.90, and its business rate was $58.45.
Access for Long-Distance Services
In addition to providing local service, Vitelco provides subscribers with
access to long-distance companies for interstate and international services and
provides those companies with access to its local network and, thereby, to local
subscribers. Vitelco is compensated for providing this access by long-distance
carriers and by its subscribers in accordance with tariffs, which are subject to
review by the Federal Communications Commission (the "FCC"). See "--Regulation."
The principal long-distance carrier in the U.S. Virgin Islands is AT&T of the
Virgin Islands, Inc., a local subsidiary of AT&T ("AT&T-VI"). Approximately
26.9% of Vitelco's total revenues in 1997 was derived from access charges.
Other Services
During 1997, Vitelco received approximately 10.5% of its revenues from
providing billing and collection services for long distance carriers and from
yellow-pages directory advertising. Vitelco's current billing and collection
contract with AT&T-VI expires in May 2000.
Physical Plant
Vitelco operates a modern, fully digital telecommunications network in the
U.S. Virgin Islands. Vitelco initiated a modernization program with the
installation of its first fiber-optic cable in 1981 and its first digital switch
in 1982. Upon the completion of the modernization program in 1987, Vitelco's
network became the first multi-switch, all digital telephone system in the
Caribbean. Modern digital systems, which are more cost effective and permit
higher quality transmissions than analog systems, permit speech, text and
computer data to be transmitted simultaneously and on the same network.
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Vitelco's policy is to upgrade plant and equipment, as necessary or
appropriate, pursuant to an ongoing construction and development program. The
program allows Vitelco to increase revenues and reduce costs, while enhancing
service, by taking advantage of technological developments in the
telecommunications industry, such as digital switching and fiber optics.
On September 17, 1989, a substantial portion of Vitelco's outside plant was
destroyed by Hurricane Hugo, which was the first hurricane to inflict
substantial damage in the U.S. Virgin Islands since 1928. While Hurricane Hugo
did relatively little damage to Vitelco's switching equipment, it resulted in a
decrease in the number of access lines in service from 46,968 to fewer than
12,000. Within seven months following the hurricane, Vitelco substantially
completed the restoration of the damaged and destroyed plant. On St. Croix,
which suffered the most damage, Vitelco replaced a substantial portion of its
aerial cable, including all cables connecting its remote switches on St. Croix,
with approximately 125 miles of underground cables, which have greater capacity
than the lines in place prior to the hurricane. On St. Thomas, where the
hurricane damage was less substantial, Vitelco replaced all damaged outside
plant, and, in addition, upgraded its network by installing an underground
fiber-optic cable to connect its microwave facility with its main switch. In
addition to greater capacity, underground cable provides greater reliability and
reduces the destructive impact of the elements, including the impact of
hurricanes. The total cost to Vitelco for replacement of plant due to Hurricane
Hugo was approximately $60 million. The Company received approximately $23.6
million in respect of insurance coverage for damages resulting from Hurricane
Hugo.
On September 15, 1995, Hurricane Marilyn struck the U.S. Virgin Islands
again causing extensive damage to Vitelco's outside telephone plant. Hurricane
Marilyn put out of service approximately 37,800 lines. The damage was most
extensive in St. Thomas and St. John, where respectively 90% and 50% of the
access lines were damaged as compared with the loss of only 30% in St. Croix.
The total cost to Vitelco for replacement of plant due to Hurricane Marilyn was
approximately $41 million.
ECI currently has insurance coverage for windstorm damage in the amount of
$30 million per storm and $55 million in the aggregate.
Cellular and Other Operations
ECI is engaged in other telecommunications operations, including providing
cellular telephone service in the U.S. Virgin Islands and selling and leasing
telecommunications equipment in the U.S. Virgin Islands.
VitelCellular provides cellular telephone service to land-based and marine
customers in the U.S. Virgin Islands. In September 1989, following Hurricane
Hugo, VitelCellular was granted special temporary authority by the FCC to
construct and operate cellular systems in the two U.S. Virgin Islands Rural
Service Areas (as defined by the FCC) and, as such, was the second cellular
system to become operational in a Rural Service Area in the United States. Since
late 1990, VitelCellular has been providing service in such Rural Service Areas
pursuant to regular authority from the FCC.
On February 13, 1998, Comsat Mobile Investments, Inc., a subsidiary of
Communications Satellite Corporation, sold the 10% of the common stock of
VitelCellular which it owned since October 1990 to ATN-VI.
Vitelcom earns revenues from the sale, lease and servicing of customer
premises equipment, facsimile machines, radio paging devices and private branch
exchanges in the U.S. Virgin Islands. Vitelcom recently participated in the FCC
auction process for Personal Communication Services ("PCS") spectrum in the U.S.
Virgin Islands Basic Trading Area ("BTA") and was awarded and purchased the 10
MHz "E" block of
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spectrum for the U.S. Virgin Islands. The Company is currently evaluating the
build-out of this service and has until April 2002 to build out the system.
Competition
The 1996 Telecommunications Act ("1996 Act") worked a fundamental
restructuring of the telecommunications industry in the United States. Its
primary effect will be to enable a number of companies to enter new
telecommunications market segments where they were formerly precluded from
competing.
Prior to the 1996 Act, local telephone companies had state-protected
monopolies for the provision of local and intrastate toll telephone service.
This precluded other companies from offering the same services over wire. Since
1980, however, cellular telephone companies could provide local
telecommunications service that, to a limited extent, replaced local wired
telephone service. In addition, telephone companies were precluded from
providing cable TV services in their telephone service territories unless they
operated in communities of less than 10,000 persons or received a waiver from
the FCC.
The 1996 Act broke down these industry segment barriers. States are now
precluded from preventing other companies from offering local and intrastate
toll telephone services. It also permits telephone companies to provide cable TV
service within their service territories. The 1996 Act also opens up other
telecommunications segments to competition by a greater number of industry
segments. For example, Bell operating companies can now qualify to enter the
long distance business in their own telephone service territories. The
collective impact of these pro-competition laws will be to increase both the
opportunities and risks for all industry segments and players, including
Vitelco.
Vitelco's previous protection as the sole provider of wired local telephone
service in the U.S. Virgin Islands is no longer in effect. Therefore, Vitelco
may be subject to competition in the provision of its local telephone services
in the future. No company currently is providing competing wired local telephone
services in the U.S. Virgin Islands. Two cellular companies are currently
operating in the U.S. Virgin Islands, one of which is controlled by Vitelco's
parent company, ATN-VI. A third company, operating from the British Virgin
Islands, provides cellular service to boats in U.S. Virgin Islands waters.
Additional wireless providers, using personal communications service
frequencies, have been awarded FCC licenses and may become operational in the
future. One such company executed an interconnection agreement with Vitelco in
June 1997.
AT&T recently completed the installation of an underwater fiber optic cable
connecting St. Croix to St. Thomas, where the connection between the two islands
had heretofore been solely by Vitelco's microwave facilities. The terms and
conditions of the cable license do not prohibit AT&T or other carriers from
routing telephone calls over the cable. Thus, some traffic between these islands
may be provided on facilities other than Vitelco's, and may reduce access
charges that otherwise would be paid to Vitelco.
Vitelco is also required under the 1996 Act to provide potential
competitors with interconnection to Vitelco's telephone network to enable others
to offer telecommunications services, including local telephone service.
Pursuant to Section 251(b) of the 1996 Act, local exchange carriers
("LECs"), including both existing telephone companies and new competitive
carriers, are required to (i) allow others to resell their services at retail
rates, (ii) ensure that customers can keep their telephone numbers when changing
carriers, (iii) ensure that competitors' customers can use the same number of
digits when dialing and to provide nondiscriminatory access to telephone
numbers, operator service, directory assistance and directory listing, (iv)
ensure access to telephone poles, ducts, conduits and rights of way and (v)
compensate competitors for the competitors' costs of completing calls to
competitors' customers. Competitors are required to compensate the local
telephone company for the cost of providing these interconnection services.
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Pursuant to Section 251(f)(2), Vitelco, as a small carrier, is eligible to
request exemption, suspension or modification of any or all of these Section
251(b) requirements from the PSC. Vitelco expects to request such exemption,
suspension or modification from some or all of these requirements in the future.
The PSC may grant such a petition to the extent that it determines that such
suspension or modification is necessary to avoid a significant adverse economic
impact on telecommunications users, to avoid imposing a requirement that is
unduly economically burdensome or to avoid imposing a requirement that is
technically infeasible and that such suspension or modification is consistent
with the public interest. It is not known at this time how the PSC will respond
to such a request. If the PSC denies some or all of that request and if the PSC
does not allow Vitelco adequate compensation for the costs of providing the
interconnection, Vitelco's costs could increase. In addition, with such a
denial, competitors could enjoy benefits that would make their services more
attractive than if they did not receive such interconnection rights.
Pursuant to Section 251(c) of the 1996 Act, incumbent LECs ("ILECs"), which
only include local telephone companies like Vitelco, are required to (i)
interconnect their facilities and equipment with any requesting
telecommunications carrier at any technically feasible point, (ii) unbundle and
provide nondiscriminatory access to network elements (e.g., local loops,
switches and transport facilities) at nondiscriminatory rates and on
nondiscriminatory terms and conditions, (iii) offer their retail services for
resale at wholesale rates, (iv) provide reasonable notice of changes in the
information necessary for transmission and routing of services over the ILEC's
facilities or to information necessary for interoperability and (v) to provide,
at rates, terms and conditions that are just, reasonable and nondiscriminatory,
for the physical co-location of equipment necessary for interconnection or
access to unbundled network elements at the premises of the ILEC. Competitors
are required to compensate the local telephone company for the cost of providing
these interconnection services.
Pursuant to Section 251(f)(l), Vitelco, as a rural carrier, is
automatically exempt from Section 251(c)'s interconnection requirements. This
exemption can be lifted or modified by the PSC if a competing carrier files a
bona fide request for such interconnection. No such request is pending before
the PSC. If such a request is filed, Vitelco would ask the PSC to retain the
exemption. The PSC may grant such a petition to the extent that it determines
such interconnection request is not unduly economically burdensome, is
technically feasible and is consistent with universal service obligations. It is
not known how the PSC would rule on these requests. If the PSC lifts such
exemption in whole or in part and if the PSC does not allow Vitelco adequate
compensation for the costs of providing the interconnection, Vitelco's costs
could significantly increase and it could suffer a significant loss of customers
to competition. Finally, the FCC issued an order in May 1997 that directed that
incumbent local exchange carriers could not impose access charges on long
distance and other carriers that purchased unbundled network elements from the
incumbent. This decision could serve to reduce access revenues for Vitelco and
other incumbents. Several parties have appealed this and other aspects of the
FCC's May 1997 order, but Vitelco is unable to determine the outcome of such
appeals at this time.
The risk to Vitelco from competitive entry for local telephone services
must be weighed against any new opportunities Vitelco could take advantage of in
terms of new service offerings, such as interstate, Internet access, personal
communications or other wireless service, cable TV or international services.
These new service offerings could produce revenues that could offset lost
revenues due to local service competition.
Regulation
ECI's long-distance access services and its radio-based services in the
U.S. Virgin Islands are regulated by the FCC and Vitelco's local telephone
service in the U.S. Virgin Islands is regulated by the PSC. The 1996 Act may
significantly change many aspects of the regulation of Vitelco's business.
Franchise. Vitelco provides basic local telephone service in the U.S.
Virgin Islands pursuant to a franchise granted by the government of the Virgin
Islands on October 9, 1959. The franchise is for an in-
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definite term unless and until terminated by the government of the U.S. Virgin
Islands upon two years' prior written notice. In the event of such a
termination, the franchise provides that the U.S. Virgin Islands government
shall expropriate the entire business, plant and facilities of Vitelco. Vitelco
has no reason to believe that the government of the U.S. Virgin Islands intends
to exercise its right of termination in the foreseeable future. Vitelco derives
local telephone service revenues from fixed monthly local service charges to
subscribers at rates regulated by the PSC.
The FCC. The FCC has jurisdiction over the rates for access services
provided by local exchange carriers to long-distance carriers, as well as other
matters relating to these services and has established a system of access
charges to compensate local exchange carriers for the costs of originating and
terminating long-distance services, including a fair return on investment. The
FCC established the National Exchange Carrier Association, Inc. ("NECA") to
prepare and file access charge tariffs for both traffic sensitive and
non-traffic sensitive rate elements on behalf of all telephone companies that do
not file separate tariffs or concur in a joint access tariff of another
telephone company for all access elements and to administer the Universal
Service Fund ("USF"), a pool funded by long-distance carriers, which is intended
to assist local exchange carriers with higher than average non-traffic sensitive
costs. Vitelco files its own access tariff with the FCC, which specifies
Vitelco's charges to long-distance carriers for traffic sensitive access
elements and references the NECA tariff for non-traffic sensitive access
elements. Vitelco participates in and receives reimbursement from the
non-traffic sensitive access charge revenue pool administered by NECA.
The non-traffic sensitive portion of Vitelco's costs allocated to
long-distance service is recovered through (i) flat-rate per line monthly access
charges to subscribers and (ii) allocations to Vitelco from NECA's non-traffic
sensitive pool of receipts from long-distance carriers. The revenues derived
from the USF are considered to be local revenues for ratemaking purposes, rather
than long-distance revenues, thereby reducing the rates payable by local
subscribers.
In May 1997, the FCC issued a decision modifying its rules and policies
governing interstate exchange access services of incumbent local exchange
carriers. That decision applied, with limited exceptions, solely to incumbent
local exchange carriers who are governed by the FCC's price cap system of
regulation. As regards incumbent local exchange carriers (such as Vitelco) who
are subject to federal rate-of-return regulation, the FCC stated that it plans
to initiate a separate access reform proceeding in 1998. Vitelco is not in a
position to speculate on what reforms the FCC will propose in that proceeding or
what impact such reforms might have on the Company's business. Vitelco also is
not in a position to speculate on the outcome of the pending petitions for
reconsideration or the court appeals filed by various parties regarding the
FCC's May 1997 decision.
In May 1997, the FCC also issued a decision modifying its federal universal
service rules and policies pursuant to Section 254 and other provisions of the
new law. In that decision, the FCC adopted rules defining universal service,
establishing the eligibility criteria for carriers other than incumbent local
exchange carriers to receive universal service support, establishing the
criteria to determine which carriers must contribute to universal service
support and the manner in which such contributions will be determined and
administered, moving long term support from interstate exchange access charges
to universal service support, and establishing new universal service mechanisms
for schools, libraries and health care providers. At the present time, no
carrier other than Vitelco qualifies to receive federal universal service
support in the U.S. Virgin Islands.
With respect to federal high cost support, the FCC held that rural carriers
in high cost areas, such as Vitelco, should continue to receive universal
service support through existing mechanisms, with some modifications, based upon
such carriers' embedded costs. As stated in the FCC's May 1997 and subsequent
decisions, those modifications include, among other things, an indexed cap on
the growth of the high cost fund and limitations on the corporate operations
expenses that qualify for universal service support. Such modifications limit
the federal universal service support available to Vitelco now and in the future
and could adversely impact
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Vitelco's operations in the future. Additionally, until the FCC has ruled on
pending reconsiderations of these decisions, the final outcome remains
uncertain.
The FCC endorsed the policy that universal service support for all high
cost carriers should be determined based upon forward-looking economic costs
rather than embedded costs. However, the FCC deferred adopting such a
requirement for rural carriers such as Vitelco pending further FCC and other
proceedings. The FCC stated that it would commence a proceeding by October 1998
to establish a forward-looking economic cost mechanism for rural carriers. The
FCC stated that any such requirement that it might adopt in the future would not
apply to rural carriers such as Vitelco until at least January 1, 2001. Vitelco
believes that, while the use of forward-looking economic cost mechanisms to
determine universal service support could have an adverse impact upon Vitelco,
it would be premature for Vitelco to predict the potential impact of the FCC's
new and prospective universal service rules and policies.
With respect to rural carriers serving insular areas, the FCC deferred
deciding whether such carriers should be required to shift to universal service
support mechanisms based upon forward-looking economic costs at the same time as
other rural carriers. Various parties have filed petitions for reconsideration
and appeals of the FCC's decision adopting universal service rules and policies.
Vitelco is unable to predict the impact that these future decisions might have
upon its business interests.
Cellular licenses and other public land mobile licenses are issued by the
FCC for a term of ten years. Near the conclusion of the term, licensees must
file applications for renewal to obtain authority to operate for an additional
ten-year term. These applications may be denied for cause and other parties may
file competing applications for the authorization. On March 11, 1993, the FCC
adopted an order regarding the standards to be applied in cellular license
renewal proceedings, which may involve a hearing if qualified competitors for
the authorization file applications.
The PSC. Vitelco's local telephone operations, including the services
offered and the rates for those services, are subject to the jurisdiction of the
PSC, which has jurisdiction over public utilities and transportation in the U.S.
Virgin Islands pursuant to Title 30 of the U.S. Virgin Islands Code. Under Title
30 of the U.S. Virgin Islands Code and the rules and regulations promulgated
thereunder, Vitelco is allowed to charge local service rates that will permit it
to earn a reasonable return on investment and to recover its operating expenses.
The rate of return is the amount of money earned by a utility in excess of
operating costs, stated as a percentage of the utility's rate base, which is the
value of the utility's property devoted to the provision of telephone service
minus accumulated depreciation. The rate of return must be adequate to permit
the utility to maintain its credit and to attract new capital. Vitelco may file
new rates thirty days prior to the time the rates are intended to be effective.
The new rates will become effective unless the PSC suspends them and initiates
an investigation into their reasonableness. If the PSC determines that the
proposed rates are unreasonable, the PSC may order that rates for the future be
reduced. The PSC also may initiate an investigation of existing rates if it
believes that these rates are unreasonable. In May 1997, Vitelco received a five
year rebate of 90% of its Virgin Islands income taxes and 100% of its Virgin
Islands gross receipts, excise and property taxes from the Virgin Islands
Industrial Development Commission. On October 9, 1997, the PSC appointed counsel
to evaluate the impact such rebate has on Vitelco's rate of return. It is
unknown whether the PSC will initiate a proceeding to modify Vitelco's rates as
a result of this evaluation.
Between 1987, when ECI's predecessor acquired Vitelco, and 1992, ECI's
predecessor and certain of its subsidiaries were involved in numerous legal and
administrative proceedings with the PSC and entered into several settlement
agreements with the PSC. These agreements resulted in rate reductions in 1989
(retroactive to 1988) and September 1, 1992. The latest agreement between
Vitelco and the PSC with respect to rates provided that Vitelco's local rates
would remain unchanged until January 1, 1995 at the earliest and that, if
Vitelco earned more than an 11.5% return on its local rate base during the years
1993 to 1994, it would reduce its local rate base (and telephone plant on which
depreciation is computed) in the following years by an amount
<PAGE>
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equal to 50% of such excess earnings. These agreements also (i) require the
prior approval of the PSC for any direct or indirect transfer of 51% or more of
Vitelco's common stock, (ii) contain certain restrictions on intercompany
transactions between Vitelco and its affiliated companies and on advisory fees,
(iii) prohibit loans to or payments on behalf of affiliated companies by
Vitelco, (iv) where allocation of expense between Vitelco and an affiliate is
necessary, require the affiliate to repay Vitelco within 60 days with interest
at 1% above the prime rate, (v) require Vitelco to maintain an equity ratio of
25%, (vi) except for payments to service ATN-VI's debt obligations to the Rural
Telephone Finance Cooperative (the "RTFC"), prevent Vitelco from paying
dividends in excess of 60% of net income so long as its equity ratio is below
40%, (vii) except for payments to service ATN-VI's debt obligations to RTFC,
prohibit from paying any dividends if its equity ratio falls below 25% and
(viii) require that the chief executive officer of Vitelco not be an employee,
executive or member of the board of directors of any affiliate of Vitelco or
have any ownership interest in excess of 5% in any affiliate of Vitelco and that
such chief executive officer be allowed the normal range of discretion for a
chief executive officer of a public utility. Although the latest agreement
between Vitelco and the PSC essentially expired on January 1, 1995, Vitelco has
been operating since that date at the rates established in that agreement.
The PSC does not currently regulate cellular telephone service or rates;
however, in April 1993, the PSC reopened a proceeding, originally initiated in
1990, to consider whether and to what extent to regulate cellular rates and
services and whether to direct Vitelco to tariff interconnection rates. On
August 10, 1993, Congress enacted an amendment to the Communications Act of 1934
that preempts state regulation of cellular rates and entry. Although states may
petition the FCC to continue or initiate rate regulation, the FCC has stated
that a petitioning state will have to clear substantial hurdles to be allowed to
regulate rates for cellular service. The Company knows of no PSC interest in
filing such a petition with the FCC.
Taxation
United States. As a U.S. corporation, ECI is subject to U.S. federal income
tax on its worldwide net income, currently at rates up to 35%. ECI's Virgin
Islands subsidiaries are classified as controlled foreign corporations ("CFCs")
for purposes of the Subpart F provisions of the Internal Revenue Code of 1986,
as amended (the "Code"). Under those provisions, ECI may be required to include
in income certain earnings and profits ("E&P") of a CFC subsidiary at the time
such E&P are earned by the subsidiary, or at certain other times, prior to their
being distributed to ECI. Pursuant to the foreign tax credit provisions of the
Code, and subject to complex limitations contained in those provisions, ECI is
entitled to credit foreign withholding taxes on dividends or interest received,
and foreign corporate income taxes of its subsidiaries paid with respect to
income distributed as dividends or deemed distributed under Subpart F from such
subsidiaries, against ECI's U.S. federal income tax. The 10% Virgin Islands
withholding tax applicable to dividends from the Virgin Islands is likely to
constitute an additional cost of distributing any such dividends, because, after
credit for allocable Virgin Islands corporate tax, ECI may not benefit from the
potential credit for the withholding tax.
A U.S. corporation is classified as a Personal Holding Company ("PHC") if
(a) more than 50% of its capital stock is owned directly or indirectly by or for
five or fewer individuals (or pension plans); and (b) at least 60% of its
adjusted ordinary gross income consists of certain types of income (principally
passive income, including interest and dividends) included in the Code
definition of "PHC Income." For any taxable year that a corporation is a PHC,
the "undistributed personal holding company income" of such corporation for that
year (i.e., net income as reflected on the corporation's U.S. corporate income
tax return, with certain adjustments, minus, in general, federal income tax and
dividends distributed or deemed distributed for this purpose) would be subject
to an additional PHC tax of 39.6%. ECI does not believe that it will satisfy the
income criterion for classification as a PHC.
U.S. Virgin Islands. Although the U.S. Virgin Islands is a taxing
jurisdiction separate from the United States, the Code is the controlling taxing
statute in the U.S. Virgin Islands, with the words "Virgin Islands" substituted
for the words "United States" where appropriate. A corporation organized under
the laws of
<PAGE>
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the U.S. Virgin Islands is generally taxed at a 35% marginal rate on its
worldwide income, subject to reduction by foreign tax credits, if available,
plus a surcharge equal to 10% of the basic tax (i.e., an additional 3.5%). A
corporation that is not organized under the laws of the U.S. Virgin Islands is
generally subject to corporate income tax at a 35% rate, plus an additional 3.5%
surcharge, on income effectively connected with a trade or business in the U.S.
Virgin Islands, and to an 11% branch profits tax on effectively connected
earnings and profits which are not reinvested in its U.S. Virgin Islands trade
or business. Corporations not organized in the U.S. Virgin Islands are generally
subject to a 10% U.S. Virgin Islands withholding tax on interest or dividends
received from sources within the U.S. Virgin Islands (other than any dividends
received from a corporation not organized under the laws of the U.S. Virgin
Islands). Further, Section 1274(b) of the Tax Reform Act of 1986 authorized the
U.S. Virgin Islands to enact non-discriminatory local income taxes. Corporations
and other taxpayers are also generally subject to property, gross receipts,
excise and stamp taxes in the U.S. Virgin Islands. Under the U.S. Virgin Islands
Industrial Development Commission (the "IDC"), the U.S. Virgin Islands may offer
tax benefits to qualifying businesses for the purpose of promoting the growth,
development and diversification of the U.S. Virgin Islands economy.
ATN-VI, Vitelco, VitelCellular and, until its merger into ATN-VI, Vitelcom
(the "ATN-VI Group") file consolidated income tax returns in the U.S. Virgin
Islands. Pursuant to the IDC and subject to the satisfaction of certain
conditions by Vitelco, Vitelco was granted the following tax benefits through
September 30, 1996: (i) a rebate of 11.25% of Vitelco's U.S. Virgin Islands
income tax, income tax surcharge and customs duties and other taxes on raw
materials which are attributable to the operations of Vitelco; and (ii) an
exemption from 12.5% of Vitelco's U.S. Virgin Islands real property, gross
receipts and excise taxes. The amount of these benefits in 1997 was $0. In May
1997, Vitelco was granted a rebate of 90% of Virgin Islands income taxes and
100% of Virgin Islands gross receipts, excise and property taxes for the five
year period beginning October 1, 1998. On October 9, 1997 the PSC instituted a
proceeding to determine whether Vitelco's rates were just and reasonable in
light of this tax rebate. There can be no assurance as to the outcome of this
proceeding.
Dividends from ATN-VI to ECI and interest payments from any member of the
ATN-VI Group of companies to ECI or any affiliates not organized in the U.S.
Virgin Islands may be subject to a 10% U.S. Virgin Islands withholding tax.
Employees
At December 31, 1997, Vitelco employed approximately 397 individuals.
Approximately 268 of Vitelco's employees are represented by the United Steel
Workers of America (the "Steel Workers"). Vitelco's contract with the Steel
Workers expires on September 30, 1999.
ITEM 2. PROPERTIES.
At December 31, 1997, Vitelco, VitelCellular and Vitelcom utilized
approximately 132,000 square feet of building space on approximately 16 acres of
land in various locations throughout the U.S. Virgin Islands. Of this space,
approximately 116,000 square feet of building space on approximately 12 acres
was owned (subject to a first priority security interest securing certain
indebtedness to the RTFC and the Rural Utilities Service, an agency of the U.S.
government (the "RUS")) and 16,000 square feet on approximately 4 acres was
leased. Vitelco carries insurance in an aggregate amount of $50 million against
damage to any of its property and business interruption insurance for damage to
any of its properties other than telephone poles, cables and lines ("outside
plant"). In addition, ATN-VI has insurance with respect to its outside plant in
the amount of $30 million per storm and $55 million in the aggregate.
Vitelco's network system principally utilizes the ITT System 1210 Digital
Switch (the "1210 Switch") interconnected by fiber optic cable (on an
intra-island basis) and digital microwave radio (on an inter-island basis). In
addition, in January 1989, Vitelco purchased a DMS-100 switch (the "DMS-100
Switch") from
<PAGE>
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Northern Telecom (CALA) Corporation and installed the switch in July 1989 in its
main office in St. Thomas. The DMS-100 Switch has increased Vitelco's capacity
to serve access lines.
VitelCellular's system in the U.S. Virgin Islands consists of four full
power cell sites and one high power enhancer on St. Thomas, a full power cell
site and a high power enhancer on St. John, and two full power cell sites and
one high power enhancer on St. Croix, which cover most of the land area of the
islands and the surrounding waters. Despite the small land area of the islands,
the mountainous terrain requires multiple radio sites for adequate coverage. The
mobile telephone switching office that controls all of the radio sites is
located on St. Thomas. All of VitelCellular's switching equipment is
manufactured by Northern Telecom, Inc.
ITEM 3. LEGAL PROCEEDINGS.
ECI is not currently party to any legal proceedings which are expected to
have a material adverse effect on its financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of ECI's security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
ECI's Common Stock began trading on the American Stock Exchange (symbol
"ECM") on December 31, 1997.
The high and low prices of ECI's Common Stock for the period ended March
26, 1998 were $8 3/4 and $6 1/2, respectively.
The Company has not paid cash dividends in the past and does not intend to
pay cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical financial data of the Company and its
subsidiaries as of and for the years ended December 31, 1997, 1996, 1995, 1994
and 1993 have been derived from ECI's audited consolidated financial statements.
The Company's selected historical consolidated financial data should be read in
conjunction with the ECI's audited consolidated financial statements and related
notes thereto, as of December 31, 1997 and for each of the three years in the
period ended December 31, 1997. All dollar amounts are in thousands, except per
share data.
<PAGE>
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<TABLE>
<CAPTION>
SELECTED STATEMENT OF OPERATIONS DATA OF THE COMPANY
Year Ended December 31,
(in thousands, except per share data)
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Telephone operations (1)................... 102,200 134,867 184,632 206,002 182,349
Cellular services.......................... 2,808 3,616 5,910 5,480 3,663
Product sales and rental................... 4,489 4,879 5,128 5,435 4,942
--------------------------------------------------
Total revenues............................. 109,497 143,362 195,670 216,917 190,954
Expenses:
Telephone operations....................... 66,307 89,320 130,575 155,174 134,401
Cellular services, product sales and
rental 5,747 6,553 8,399 8,231 7,957
expenses.................................
General and administrative expenses 12,921 9,341 10,219 9,458 12,168
--------------------------------------------------
Total operating expenses 84,975 105,214 149,193 172,863 154,526
Income from operations........................ 24,522 38,148 46,477 44,054 36,428
Other income and expense:
Loss on split-off of ATN................... -- -- -- -- (45,041)
Interest expense........................... (12,041) (13,044) (12,511) (11,289) (10,548)
Interest income............................ 204 246 971 458 351
Total other income and expense............. (11,837) (12,798) (11,540) (10,831) (55,238)
Income (loss) before income taxes and
minority 12,685 25,350 34,937 33,223 (18,810)
interest...................................
Income taxes (benefit) (2).................... 5,458 10,465 15,250 13,039 (897)
--------------------------------------------------
Minority interest............................. (1,030) (1,743) (2,477) (2,177) (1,340)
Income (loss) from continuing operations...... $ 6,197 $ 13,142 $ 17,210 $18,007 $(19,253)
==================================================
Basic net income (loss) per share from
continuing operations...................... $ 0.50 $ 1.07 $ 1.40 $ 1.47 ($1.57)
Dividends per share........................... $ 0.20 -- -- -- --
Weighted average number of shares............. 12,273 12,273 12,273 12,273 12,269
</TABLE>
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET DATA OF THE COMPANY
At December 31,
---------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Fixed assets, net............................. $ 249,415 $ 242,548 $ 226,660 $ 251,996 154,096
Total assets.................................. 336,564 340,113 371,939 389,324 224,308
Short-term debt (including current
portion of long-term debt).................. 19,362 19,249 24,841 30,095 28,227
Long-term debt, net........................... 152,453 141,214 128,362 116,227 105,138
Stockholders' equity.......................... 101,300 114,861 130,956 149,791 58,770
</TABLE>
(1) In September 1997, the Guyana High Court denied an order which the
Consumer Advisory Bureau had sought to temporarily enjoin GT&T from
putting into effect a surcharge to recover approximately $9.5 million
of lost revenues over a period of 18 months relating to an October 1995
PUC order which temporarily reduced rates for outbound long-distance
calls to certain countries. These reduced rates were in effect for the
period of October 1995 through January 1997. In January 1997, on an
appeal by GT&T, the Guyana High Court voided the PUC's order in regards
to the reduced rates described above and rates were returned to the
rates in existence in October 1995. GT&T put such surcharge into effect
on October 1, 1997 pending an ultimate trial on the merits. The Company
has recognized the approximately $9.5 million of lost revenues in the
year ended December 31, 1997.
(2) In May 1997, Vitelco received approval from the Virgin Islands
Industrial Development Commission for a five year exemption (commencing
October 1, 1998) from 90% of Virgin Islands income taxes and 100% of
Virgin Islands gross receipts, excise and property taxes. In accordance
with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes, the Company has adjusted its deferred tax assets and
liabilities to reflect the change in tax rates applicable to Vitelco
during the benefit period. This change resulted in the Company
recording a non-recurring credit to income tax expense of approximately
$12 million ($.98 per share) in the year ended December 31, 1997.
<PAGE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Split Off Transaction
On December 30, 1997, ATN split off into two separate public companies
pursuant to the Split Off Transaction. One company, ECI contains all the
predecessors telephone operations in the U.S. Virgin Islands. The other, ATN,
continues to own the business and operations in Guyana. Because ECI was the
larger of the two entities, ATN was deemed the split-off entity and ECI was
deemed the successor company. Consequently, the historical financial statements
of ECI prior to the Split Off Transaction reflect those of the consolidated
group and include the operations in Guyana.
The Split Off Transaction was a non pro-rata split off and was accounted
for at fair value as evidenced by the market capitalization of ATN subsequent to
the Split Off Transaction. Accordingly, the loss on fair valuation of the net
assets of ATN has been included in the consolidated statement of operations.
Subsequent to the split-off, ECI will no longer include the operations or
financial results of the Guyana subsidiary GT&T. Pro-forma results of operations
for the year ended December 31, 1997 as if GT&T had been split-off as of
December 31, 1996 are presented below. The pro forma information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results that would have occurred if the Split Off Transaction had
occurred at the beginning of the period indicated, nor is it necessarily
indicative of future operating results. All figures are in thousands, except per
share data.
Revenues $ 73,339
Expenses (1) 55,403
--------
Income from Operations $ 17,936
Other income and expense (8,038)
Income Taxes (8,391)
Pro-Forma Net Income (2) $ 18,289
--------
Income per share $ 1.67
--------
Pro forma average shares
outstanding 10,959
========
(1) Includes an allocation of the total general and administrative cost ECI
shared with ATN. Such costs are not necessarily indicative of the costs
that would have been incurred if the companies had been operated as
unaffiliated entities. It is not practical to estimate these costs on a
stand-alone basis.
(2) Includes approximately $12 million ($1.09 per share) of IDC benefits for
the year ended December 31, 1997. See footnote H to ECI's consolidated
financial statements for additional information.
Introduction
The Company's revenues and income from continuing operations have been
derived principally from the operations of its telephone subsidiaries, Vitelco
and, prior to the Split Off Transaction, GT&T. Vitelco derives most of its
revenues from local telephone and long-distance access services. GT&T derives
almost all of its revenues from international telephone services. Other
operations in the Company's historical Consolidated Statements of Operations
include: Vitelcom Cellular, Inc. d/b/a VitelCellular, which provides cellular
telephone service in the U.S. Virgin Islands; and, until its merger into ATN-VI,
Vitelcom, which supplies customer premises equipment in the U.S. Virgin Islands.
<PAGE>
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The principal components of operating expenses for the Company's telephone
operations are plant specific operations expenses, plant non-specific operations
expenses, customer operations expenses, corporate operations expenses,
long-distance expenses and taxes other than income taxes. These categories are
consistent with FCC accounting practices. Plant specific operations expenses
relate to support and maintenance of telephone plant and equipment and include
vehicle expense, land and building expense, central office switching expense and
cable and wire expense. Plant non-specific operations expenses consist of
depreciation charges for telephone plant and equipment and expenses related to
telephone plant and network administration, engineering, power, materials and
supplies, provisioning and plant network testing. Customer operations expenses
relate to marketing, providing operator services for call completion and
directory assistance, and establishing and servicing customer accounts.
Corporate operations expenses include Vitelco's and GT&T's expenses for
executive management and administration, corporate planning, accounting and
finance, external relations, personnel, labor relations, data processing, legal
services, procurement and general insurance. International long-distance
expenses consist principally of charges from international carriers for outbound
international calls from Guyana and payments to audiotext providers from whom
GT&T derives international audiotext traffic. Taxes other than income taxes
include gross receipts taxes, property taxes, and other miscellaneous taxes.
Cellular services and product sales and rentals expense includes the operating
expense of VitelCellular and Vitelcom. General and administrative expenses
consist principally of parent company overheads and amortizations.
Results of Operations
Years ended December 31, 1997 and 1996
Operating revenues for the year ended December 31, 1997 were $191.0 million
as compared to $216.9 million for the prior year, a decrease of $25.9 million,
or 12%. The decrease was due principally to a $30.6 million decrease in GT&T's
operating revenues and a $1.9 million decrease in VitelCellular's operating
revenues. These decreases were partially offset by a $7.0 million increase in
Vitelco's operating revenues.
The $30.6 million decrease in GT&T's operations was primarily due to a
$44.0 million decrease in audiotext traffic revenues partially offset by a $14.3
million increase in outbound international revenues. The $44.0 million decrease
in audiotext traffic revenues for the year ended December 31, 1997 was primarily
due to reduced audiotext traffic. GT&T's volume of audiotext traffic fluctuated
between 9 and 10 million minutes per month in 1996, while the monthly volume of
audiotext traffic in 1997 averaged about 20% less. The reduction in traffic
volume accounted for approximately $21.3 million, or 48% of the $44.0 million
decrease in audiotext revenues. Fifteen percent of the decline in audiotext
traffic in 1997 resulted from approximately $6.6 million chargebacks from a
carrier. The remaining decrease in audiotext revenues results from a combination
of the following factors: the mislabeling of the origin of certain traffic,
changes in the traffic mix, certain accounting rate reductions, and the strength
of the U.S. dollar against certain foreign currencies. Mislabeling of the origin
of traffic occurs when a carrier reports traffic as coming from one country when
it actually originated in another. Changes in traffic mix refers to the mix
between countries of origins which have different accounting rates and
accounting rate reductions occur when the Company and a foreign administration
(telephone company) agree to a change in rates.
Outbound international revenues at GT&T for the year ended December 31,
1997 were $26.6 million, an increase of $14.3 million, from $12.3 million for
the prior year. The increase was principally a result of the recognition of $9.5
million in revenues relating to outbound international long distance revenues
for the period from October 1995 to January 1997. In September 1997, the Guyana
High Court denied an order which sought to temporarily enjoin GT&T from putting
into effect a surcharge to recover the approximately $9.5 million over a period
of 18 months. GT&T put such surcharge into effect on October 1, 1997 pending an
ultimate trial on the merits, and the Company recognized the approximately $9.5
million of lost revenues in the third quarter of 1997. The balance of the
increase is attributable to the restoration in January 1997 of the higher rates
<PAGE>
-16-
that were in effect in October 1995, even though traffic volumes were
approximately 19% lower in 1997 compared to the prior year.
Vitelco's telephone operations revenues for the year ended December 31,
1997 were $64.7 million, an increase of $7.0 million, from $57.7 million for the
prior year. This increase is primarily the result of the completion of the
recovery from Hurricane Marilyn in September 1995 and an increase in Universal
Service Fund revenues of $2.9 million as a result of increased investment in net
fixed assets. At December 31, 1997, Vitelco had 62,140 lines in service compared
to 59,470 at December 31, 1996.
Operating expenses for the year ended December 31, 1997 were $154.5
million, a decrease of $18.3 million, or 11%, from consolidated operating
expenses of $172.9 million for the prior year. This decrease was due principally
to decreases in audiotext and outbound traffic expenses at GT&T of $24.4 million
in 1997 due to decreased traffic volumes. Partially offsetting these decreases
were increases in plant non-specific expenses resulting from increased plant in
service. General and administrative expenses increased $2.7 million for 1997.
The increase in general and administrative expense for 1997 is principally due
to a $1.3 million charge related to the suspension of the acquisition of the
Congo national phone system in the second quarter of 1997.
Income from operations decreased $7.6 million in 1997 as a result of those
factors affecting operating revenues and expenses discussed above. Including the
$9.5 million of outbound international long distance revenues related to the
surcharge put into effect October 1, 1997, as discussed above, GT&T's
contribution to income from operations decreased by $8.5 million, or 25%, in
1997. Vitelco's contribution to income from operations increased by $5.2
million, or 31% for the year ended December 31, 1997. Income from Cellular
Services and Product Sales decreased $2.0 million in 1997 principally due to a
decrease in cellular service revenues.
As indicated in the discussion of the Split-Off Transaction above, the loss
recorded in 1997 on the split off of ATN on December 30, 1997 was $45.0 million.
Net interest expense decreased $634,000 for the year due to reduced average
debt. Income before income taxes and minority interest decreased $7.0 million to
$26.2 million in 1997. As discussed in Note H to the Consolidated Financial
Statements, Vitelco received approval from the Virgin Islands Industrial
Development Commission for a five year exemption (commencing October 1, 1998)
from 90% of Virgin Islands income taxes and 100% of Virgin Islands gross
receipts, excise and property taxes. In accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, the Company has
adjusted its deferred tax assets and liabilities to reflect the change in the
tax rates applicable to Vitelco during the benefit period. This change has
resulted in the Company recording a non-recurring credit to income tax expense
of approximately $12 million. The effect of the tax exemption on future current
taxes payable during the benefit period will be reflected in the Company's
financial statements during the benefit period. On October 9, 1997 the Virgin
Islands Public Service Commission ("PSC") instituted a proceeding to determine
whether Vitelco's rates were just and reasonable in light of this tax rebate.
There can be no assurance as to the outcome of this proceeding.
Before giving effect to the change in deferred taxes and the non-deductible
loss on the split-off and fair valuation of ATN, as discussed above, the
Company's effective tax rate for the years ended December 31, 1996 and 1997 were
39.2% and 41.1%.
The minority interest in earnings consists primarily of the Guyana
government's 20% interest in GT&T.
<PAGE>
-17-
Years ended December 31, 1996 and 1995
Operating revenues for the year ended December 31, 1996 were $216.9 million
as compared to $195.7 million for the prior year, an increase of $21.2 million
(11%). The increase was due principally to a $14.9 million increase in audiotext
traffic revenues at GT&T and a $4.3 million increase in local exchange and
access charges at Vitelco for the year ended December 31, 1996. Vitelco's
telephone operations revenues increased $4.3 million for the year ended December
31, 1996, principally as a result of restored lines in service to pre-Hurricane
Marilyn levels. Hurricane Marilyn struck the Virgin Islands putting
approximately 37,800 of Vitelco's approximately 60,000 access lines out of
service on September 15, 1995. At December 31, 1996 Vitelco had 59,470 lines in
service.
Operating expenses increased $23.7 million (16%) for the year ended
December 31, 1996. This increase was due principally to increases in audiotext
and outbound traffic expenses at GT&T of $20.1 million due to increased traffic
volume. As a result of a rate decrease ordered by the Guyana PUC on October 11,
1995, GT&T's outbound international traffic increased by approximately 44%
during the year ended December 31, 1996 resulting in an approximately $6.5
million increase in outbound traffic expenses. An additional factor contributing
to the increase in operating expenses was plant specific expense which increased
as a result of increased plant in service, although certain expenses at Vitelco
were reduced in the first quarter of 1996 as Vitelco's work force was shifted
from maintenance activities to repairing the damage caused by Hurricane Marilyn.
Overall, income from telephone operations decreased $3.2 million (6%) for
the year ended December 31, 1996. The decrease occurred principally because of
negative margins on outbound traffic at GT&T which in turn, was caused
principally by rate decreases ordered by the PUC in October 1995. In January
1997, the Guyana High Court voided the PUC's order and permitted GT&T to restore
its rates for outbound traffic to their pre-October 1995 level. While these
rates are also less than the associated outbound expense, had these rates been
in effect throughout 1996, the Company estimates that GT&T's income from
telephone operations in 1996 would have been approximately $8.5 million greater
than it was, assuming GT&T's volume of traffic remained unchanged. Audiotext
traffic increased 20.7 million minutes and other GT&T inbound paid and
outcollect traffic increased 2.4 million minutes for the year ended December 31,
1996. These revenue increases at GT&T were more than offset by increased
international long distance, plant, and other operating expenses. This resulted
in a decrease in GT&T's contribution to income from telephone operations of $4.6
million (12%) for the year ended December 31, 1996. This was offset by a $1.4
million increase in the contribution to income from telephone operations at
Vitelco caused by the restoration of lines in service after Hurricane Marilyn's
impact discussed above.
GT&T's audiotext traffic increased sharply in the first 8 months of 1995
hitting a peak of 11.7 million minutes for the month of August 1995. From August
1995 through December 1996 audiotext traffic fluctuated between approximately 9
million and 11 million minutes per month. Profit margins from this traffic
decreased approximately 4% in 1996 principally due to a shift in traffic mix to
less profitable countries and reductions some in accounting rates. In addition,
margins are expected to decrease in the future as certain foreign carriers
insist that terminating carriers of audiotext traffic bear a portion of the risk
of non-collection associated with such traffic.
Net interest expense declined $709,000 due to decreased interest rates and
lower outstanding debt. This resulted in income before income taxes and minority
interest decreasing $1.7 million (5%) for the year ended December 31, 1996.
The Company's effective tax rate for the year ended December 31, 1996 was
39.2% as compared to 43.6% for the prior year. The $2.2 million decrease in
income tax expense is principally due to lower taxable income at GT&T which has
a higher effective tax rate than the balance of the Company.
<PAGE>
-18-
The minority interest in earnings consists primarily of the Guyana
government's 20% interest in GT&T.
Liquidity and Capital Resources
ECI depends upon funds received from its subsidiaries to meet its capital
needs, including servicing debt and financing of any future acquisitions. As a
result of the split-up of ATN in two separate public companies, the Company's
capital resources have changed significantly, and the Company has fewer
resources and significantly reduced operations for the near term. However, the
Company believes existing liquidity and capital resources will be adequate to
meet current operating needs.
In connection with the Split Off Transaction, ECI assumed approximately
$5.5 million of bank debt of ATN, of which $5.5 million was outstanding at
December 31, 1997 under a short-term credit facility which matures October 1,
1998. The Company's primary sources of funds are management fees, repayment of
loans, interest from ATN-VI, and dividends from ATN-VI.
In connection with the Split Off Transaction, ATN-VI borrowed approximately
$17.4 million, net, from the RTFC under a 15 year credit facility (the "1997
RTFC Credit Facility"). This facility provides for quarterly amortization of
principal and interest of approximately $500,000. At December 31, 1997, $17.4
million, net, was outstanding under this credit facility, which bears interest
at a variable rate, which was 6.65% at December 31, 1997. In addition to the
1997 RTFC Credit Facility, ATN-VI had other outstanding borrowings from the RTFC
of $15.6 million, net, at December 31, 1997, of which $1.3 million bears
interest at a variable rate, which was 6.65% at December 31, 1997, and $14.3
million bears interest at a fixed rate of 8%.
ATN-VI's loan agreements with the RTFC limit the payment of dividends by
ATN-VI to ECI unless ATN-VI meets certain financial ratios, which were met at
December 31, 1997, and, after payment of the dividend ATN-VI's stockholders'
equity is greater than 30% of total assets. ATN-VI's loan agreements with the
RFTC contain covenants that restrict ATN-VI from, among other things: (i) with
certain exceptions, engaging in consolidations, mergers and sales of assets;
(ii) with certain exceptions, creating, incurring, assuming or suffering to
exist other indebtedness; (iii) with certain exceptions, making investments or
loans in any other person or entity; (iv) acquiring assets or capital stock of
other entities except for certain permitted acquisitions; and (v) redeeming,
retiring or purchasing capital stock of ATN-VI without, in each case, the prior
written approval of RTFC.
ATN-VI's ability to service its debt or to pay dividends will be dependent
on funds from its parent or its subsidiaries, primarily Vitelco. Vitelco's loan
agreement with the RUS (the "RUS Loan Agreement") and applicable RUS regulations
restrict Vitelco's ability to pay dividends based upon certain net worth tests
except for limited dividend payments authorized when specific security
instrument criteria are unable to be met. Settlement agreements made in 1989 and
1991 with the PSC also contain certain restrictions on dividends by Vitelco
which, in general, are more restrictive than those imposed by the RUS. Dividends
by Vitelco are generally limited to 60% of its net income, if the equity ratio,
as defined, is below 40%. although additional amounts are permitted to be paid
for the sole purpose of servicing ATN-VI's debt to the RTFC. Under the above
restrictions, at December 31, 1997, Vitelco's dividend paying capacity was
approximately $4.7 million.
At December 31, 1997, Vitelco had an outstanding balance under the RUS Loan
Agreement of $54.4 million, which bears interest at a fixed rate of 5%. The RUS
Loan Agreement calls for fixed monthly principal and interest payments of $7.04
per $1,000 of loan balance with any remaining balance due May 2012. The RUS Loan
Agreement contains covenants, which, with certain exceptions restrict Vitelco
from: (i) engaging in mergers and consolidations; (ii) selling, leasing or
transferring any capital assets; (iii) entering into any contract for the
management of its business or operations or maintenance of its properties; (iv)
declaring or paying
<PAGE>
-19-
dividends, unless certain criteria are met; (v) guaranteeing or incurring
additional indebtedness; and (vi) making investments except as otherwise
permitted.
At December 31, 1997, Vitelco has outstanding borrowings from the RTFC of
$20.5 million, of which $10.6 million was owing under a term loan which bears
interest at a fixed rate of 9.75% (the "9.75% Term Loan"), $9.9 million was
owing under a term loan which bears interest at a fixed rate of 8% (the "8% Term
Loan"), $5 million was owing under a $5 million revolving line of credit with an
interest rate of 7.25% and $13.5 million was owing under a $15 million revolving
loan of credit with an interest rate of 7.25%. The $5 million line of credit
with the RTFC expires in March 2000, and the $15 million line of credit with the
RTFC expires in October 1998. These borrowings were incurred to finance part of
the costs of repairing damage to Vitelco's telephone plant caused by Hurricane
Marilyn in September 1995. Vitelco has also received approval from the RUS for
$35.7 million of long-term financing, which may be used to repay Vitelco's
outstanding line of credit borrowings from the RTFC. Borrowings under Vitelco's
$5 million line of credit are required to be repaid within 12 months of the date
of the borrowing, but may be repaid from the proceeds of borrowings under the
$15 million line of credit. Borrowings under Vitelco's $15 million line of
credit will mature on October 31, 1998, at which date, if long-term loan funds
from RUS have not yet been made available to Vitelco, Vitelco will have the
option of rolling the outstanding amount borrowed under that line of credit into
a 15-year term loan from RTFC having terms substantially similar to those
contained in Vitelco's existing long-term loan from RTFC.
Vitelco's Loan agreements with the RTFC require, among other things, ATN-VI
and Vitelco to maintain certain financial ratios. Vitelco may incur additional
debt with RUS without prior approval from RTFC if Vitelco maintains certain
financial ratios. Vitelco's loan agreement contains covenants, which, with
certain exceptions, restrict: (i) Vitelco from entering into any business
venture with respect to business in which it is not currently engaged and ATN-VI
from entering into any business venture other than as a holding company for its
subsidiaries; (ii) ATN-VI from selling and permitting any liens upon the capital
stock of Vitelco; (iii) ATN-VI from incurring additional indebtedness; (iv)
ATN-VI from declaring or paying any dividends, unless certain criteria are met;
(v) ATN-VI and Vitelco from engaging in mergers or consolidations; (vi) ATN-VI
from making or committing to make any investment in any person except as
otherwise permitted; (vii) ATN-VI from creating, assuming, incurring or
suffering to exist any lien upon any of its property or assets or the property
or assets of Vitelco; (viii) ATN-VI from forming or acquiring any subsidiaries;
and (ix) ATN-VI from permitting any subsidiary to sell or transfer any asset for
purposes of effecting a lease.
The RUS and RTFC Loan Agreements also require, among other things,
maintenance of minimum debt service and times interest earned coverage and
restrictions on issuance of additional long-term debt. As of December 31, 1997,
the Company was in compliance with all covenants in its long-term debt
agreements.
While the Company believes capital resources are adequate to meet current
operations, the Company is also exploring several opportunities to acquire
cellular licenses, cable television properties or land line telephone companies
in the Caribbean and developing countries. There can be no assurance as to
whether, when or on what terms the Company will be able to acquire any of the
businesses or licenses it is currently seeking or whether it will obtain
financing to do so.
Impact of Inflation
The effect of inflation on the Company's financial results of telephone
operations in the U.S. Virgin Islands has not been significant in recent years.
The effect of inflation on the cost of providing telephone service in U.S.
Virgin Islands has generally been offset (without any increase in local
subscribers' rates) by in-
<PAGE>
-20-
creased revenues resulting from growth in the number of subscribers and from
regulatory cost recovery practices in determining access revenues.
Year 2000 Compliance
The inability of computer hardware, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company is identifying all significant applications in its systems that
will require modification or replacement to ensure Year 2000 Compliance.
Internal and external resources are being used to make the required
modifications and replacements and test Year 2000 Compliance. The modification
process of all significant applications is under way. The Company plans on
completing the testing process of all significant applications by December 31,
1998.
In addition, the Company is planning to communicate with others with whom
it does significant business to determine their Year 2000 Compliance readiness
and the extent to which the Company is vulnerable to any third party Year 2000
issues. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or
results of operations in any given year. These costs and the date on which the
Company plans to complete the Year 2000 modification and testing processes are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors, However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from those plans.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
An index to the Consolidated Financial Statements appears in Item 14(a) of
this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
-21-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive Officers and Directors
<TABLE>
<CAPTION>
Name Age Title
<S> <C> <C>
Jeffrey J. Prosser....................... 40 Chairman of the Board, Chief Executive Officer
and Secretary
Thomas R. Minnich........................ 60 Chief Operating Officer
Edwin Crouch............................. 49 Vice President for Investor Relations
James J. Heying.......................... 43 Executive Vice President for Acquisitions and
Chief Financial Officer
Richard N. Goodwin....................... 67 Director
Salvatore Muoio.......................... 38 Director
Sir Shridath Ramphal..................... 69 Director
John P. Raynor........................... 46 Director
John G. Vondras.......................... 50 Director
Terrence A. Todman 72 Director
</TABLE>
Directors
Jeffrey J. Prosser, 40, was elected Chairman, Chief Executive Officer and
Secretary of the Company in 1997. He was Chairman of the Board, Co-Chief
Executive Officer and Secretary of ATN from June 1987 to December 1997. From
1980 until 1987, Mr. Prosser was a managing shareholder of Prosser & Prosser,
P.C. ("Prosser & Prosser"), an accounting firm.
Richard N. Goodwin, 67, was elected a director in 1997. He is an author,
columnist and a member of the Massachusetts Bar, who has also spent much of his
life in public service. Mr. Goodwin serves as a consultant to the Government of
the U.S. Virgin Islands and to several private corporations and has done so
since 1985. Mr. Goodwin is an occasional columnist for the Los Angeles Times,
and is the author of "Triumph or Tragedy: Reflections on Vietnam," "The Sowers
Seed--a Tribute to Adlai Stevenson," "Promises to Keep--A Call for a New
American Revolution," and "Remembering America," and the to-be-published "The
Hinge of the World." In the 1960s, he served as Special Consultant to House
Subcommittee on Legislative Oversight, where he conducted investigation of
rigged television quiz shows, Assistant Special Counsel to President John F.
Kennedy, Deputy Assistant Secretary of State for Inter-American Affairs, and
Special Assistant to President Lyndon Johnson. Mr. Goodwin also served as a law
clerk to Mr. Justice Felix Frankfurter, U.S. Supreme Court in 1959.
Salvatore Muoio, 38, was elected a director of the Company in 1997. He is a
principal and general partner of S. Muoio and Co. LLC. He was a securities
analyst for Lazard Freres & Co. LLC from 1995 to 1996 in the telecommunications
and media sectors, and for Gabelli & Co., Inc. from 1985 to 1995, serving as a
generalist and in the communications sector. From 1993 to 1995, Mr. Muoio was
portfolio manager for Gabelli Global Telecommunications Fund, Inc. and from 1990
to 1995 also served as Director of Research for GAMCO Investors. He has been a
director of Lynch Corporation since November 1995.
John P. Raynor, 46, was elected a director of the Company in 1997. He was a
director of ATN from June 1987 to December 1997. From March 1, 1982 to March 31,
1987, Mr. Raynor was a partner of
<PAGE>
-22-
Schumacher & Gilroy, a law firm located in Omaha, Nebraska. Since April 1, 1987,
Mr. Raynor has been a partner of Raynor, Rensch & Pfeiffer (or its
predecessors), a law firm located in Omaha, Nebraska.
Sir Shridath S. Ramphal, 69, was elected a director of the Company in 1997.
He was a director of ATN from February 1, 1992 to December 1997. An
international consultant, he has been chancellor of the University of Warwick
(United Kingdom) and chancellor of the University of the West Indies since 1989.
He is also currently co-chairman of the international commission on Global
Governance and chairman of the Leadership for Environmental and Developmental
(LEAD) Programs. He was president of the International Union for the
Conservation of Nature from December 1990 to January 1994, chairman of the West
Indian Commission from July 1990 to February 1993, and chancellor of the
University of Guyana from 1988 to 1992. He was secretary-general of the British
Commonwealth from 1975 to 1990. A native of Guyana, Sir Shridath served as
Guyana's attorney general and minister of Foreign Affairs from 1965 to 1975.
John G. Vondras, 50, was elected a director of the Company in 1997. He is
President Director of PT ARIAWEST International, the joint venture company
operating the West Java KSO partnership with PT TELKOM. Prior to October, 1995,
Mr. Vondras was Executive Director--Finance (Auditing) and Executive
Director--International Network Strategies (May 1992 to November 1993) for U.S.
West Inc. He has over 25 years experience in the telecommunications industry in
both line and staff functions.
Terrence A. Todman, 72, was elected a director of the Company on March 9,
1998. Ambassador Todman is President of Todman & Associates, Inc., an
international consulting firm, and an Associate of Global Business Access Ltd.
Ambassador Todman is also a special advisor to the Governor of the U.S. Virgin
Islands. Ambassador Todman served as Ambassador to Argentina (1989-1993),
Ambassador to Denmark (1983-1983), Ambassador to Spain (1978-1983), Ambassador
to Costa Rica (1975-1977), Ambassador to Guinea (1972-1975), Ambassador to Chad
(1969-1972) and as Assistant Secretary of State for Inter-American Affairs
(1977-1978). Ambassador Todman is a member of the board of directors of
Aerolineas Argentinas and of the Exxel Group.
Officers
For information regarding Mr. Prosser, see "--Directors".
Thomas R. Minnich has been the Chief Operating Officer of the Company since
1997. Previously, he was employed by ATN from August 1995 and he was the General
Manager--Guyana Telephone and Telegraph Company Limited, a subsidiary of ATN,
from March 1996 until 1997. From September 1994 until August 1995, he was Senior
Vice President-- Telecommunications & Government Affairs for ICS Communications.
From 1985 to 1994, Mr. Minnich was President and CEO of Mantanuska Telephone
Association, one of Alaska's primary telephone companies. Previously, Mr.
Minnich worked in various capacities for GTE for over 30 years.
James J. Heying has been the Company's Executive Vice President for
Acquisitions since 1997. In January 1998, he was appointed Chief Financial
Officer of the Company. Mr. Heying was Chief Operating Officer and Vice
President of ATN from April 1993 to December 1997. Previously, from January 1990
until April 1993, Mr. Heying was Chief Financial Officer and Treasurer of both
ATN and the Virgin Islands Telephone Company, a wholly owned subsidiary of the
Company. From 1981 until 1983, Mr. Heying was a staff accountant and a tax
consultant at Touche Ross & Co. (a predecessor of Deloitte & Touche LLP, an
international accounting firm), and, from 1983, until 1989, was employed by
Prosser & Prosser, P.C. as a manager and Certified Public Accountant. Mr. Heying
also served as a financial advisor to ATN and Vitelco from 1987 until 1989. Mr.
Heying obtained a B.B.A. degree in accounting and an M.A. degree in accounting
from the University of Iowa in 1979 and 1981, respectively.
<PAGE>
-23-
Edwin Crouch has been the Company's Vice President for Investor Relations
since 1997. Previously, he was Vice President, Investor Relations of ATN from
1990 to 1997.
Board and Committee Meetings
During 1997, the Board took all corporate action by unanimous written
consent (principally related to the Split Off Transaction) and held no meetings.
The Board has two standing Committees: an Audit Committee and a
Compensation Committee. The members and functions of these committees are as
follows:
The Audit Committee has the authority, among other things, to appoint the
auditors of the Company and to approve their audit fee, to review all financial
statements and report to the Board and to review and assess the Company's
internal audit program and the adequacy of the Company's accounting, financial
and operating policies and controls. The members of the Audit Committee are John
P. Raynor and John G. Vondras. During 1997, the Audit Committee held no
meetings.
The Compensation Committee has the authority, among other things, to review
recommendations from the Chief Executive Officer regarding (i) general
compensation and contractual policies to be applied to the Directors and
Executive Officers and (ii) options and incentive schemes, and to submit
recommendations to the Board on those areas as well as to determine the
compensation and employment conditions for the Chief Executive Officer and
Chairman and to approve the service contracts of Directors. The members of the
Compensation Committee are Salvatore Muoio, Sir Shridath S. Ramphal and John P.
Raynor. During 1997, the Compensation Committee held no meetings.
Compensation Committee Report on Executive Compensation
The executive compensation philosophy, policies, plans and programs of the
Company are under the supervision of the Compensation Committee of the Board.
Since the Company did not begin its operations as an entity separate from ATN
until December 31, 1997, the Compensation Committee did not meet in 1997. The
Compensation Committee is in the process of evaluating the appropriate
compensation philosophy, plans and programs for the Company. The compensation of
the Company's Chief Executive Officer will be determined in part by the terms of
his employment agreement with the Company described below.
ITEM 11. EXECUTIVE COMPENSATION.
The following Summary Compensation Table sets forth the individual
compensation information for the Chairman of the Board and Chief Executive
Officer the other four executive officers of ECI who were paid compensation by
the Company in excess of $100,000 for all services rendered in all capacities to
the Company and its subsidiaries in the prior three years (the "Named Executive
Officers").
<PAGE>
-24-
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation Awards
Number of All Other
Name and Principal Position Fiscal Year Salary(a) Bonus Options Compensation(b)
- -----------------------------
<S> <C> <C> <C> <C> <C>
Jeffrey J. Prosser 1997 $250,000 -------- 273,978 --------
Chairman of the 1996 250,667 -------- --------
Board, Chief Executive 1995 250,667 -------- --------
Officer and Secretary
Thomas R. Minnich 1997 218,349 -------- -------- --------
Chief Operating 1996 195,825 -------- -------- --------
Officer 1995 46,321(c) -------- -------- --------
James J. Heying 1997 188,000 -------- -------- 4,750
Chief Financial 1996 188,673 -------- -------- 4,750
Officer and Executive Vice 1995 237,142 -------- -------- 4,620
President for Acquisition
David L. Sharp 1997 172,395 -------- -------- 4,750
President of 1996 173,067 -------- -------- 4,750
Vitelco 1995 173,066 -------- -------- 4,620
Edwin Crouch 1997 125,000 -------- -------- 2,908
Vice President 1996 166,305 -------- -------- 4,750
for Investor Relations 1995 93,640 -------- -------- 4,620
- --------------------------------
</TABLE>
(a) Includes salary deferrals under the Company's 401(k) profit sharing plan
(the "401(k) Plan").
(b) Consists of Company matching contributions under the 401(k) Plan.
(c) Reflects salary of Mr. Minnich from July 1995, when Mr. Minnich joined ATN,
through December 31, 1995.
Option Grants in 1997
The following table sets forth the number of stock options that were
granted by the Company during 1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
Individual Grants
- ----------------------------------------------------------------------------------------------------------------------
% of Total
Options
Options Granted to Grant
Granted Employees Exercise Date
(No. of in Fiscal Price Expiration Present
Name Shares) (1) Year Purchase (2) Date Value (3)
- ------------------------ ------------- ------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Jeffrey J. Prosser 273,978 100% $8.00 December 31, $1,005,646
2007
- ------------------------
</TABLE>
(1) The options consist of options granted under the Company's 1997 Long-Term
Incentive and Share Award Plan to Mr. Prosser pursuant to the terms of his
employment agreement. Of these options, 68,495 were vested and exercisable
as of December 31, 1997. The remaining 205,483 options vest and become
exercisable ratably and daily (rounded up to the nearest share) from
January 1, 1998 through December 1, 2000.
(2) The exercise price of the options is equal to the closing trading price of
the Common Stock on the date of grant.
<PAGE>
-25-
(3) The Black-Sholes model was used to determine the grant date present value
of the stock options. This method requires the use of certain assumptions
that affect the value of the options. The assumptions used in this model
are the volatility of the Company's stock price, an estimate of the
risk-free interest rate and expected dividend yield. For purposes of this
model, a volatility factor of 43%, 5.56% risk-free interest rate and a 0%
expected dividend yield were used. No adjustments were made for
non-transferability of the stock options. This model assumed all of the
options we exercised by the fifth year. There is no assurance that these
assumptions will prove true. The actual value of the options depends upon
the market price of the Common Stock at the date of exercise, which may
vary from the theoretical value indicated in the table.
Options Exercised in 1997 and 1997 Year End Values
The following table sets forth the number of stock options
held, as of December 31, 1997, by the Named Executive Officers. No options were
exercised during 1997, and, at December 31, 1997, no options were "in the
money."
Total Number of Unexercised Options
Name Held at December 31, 1997 (1)
- ------------------ -----------------------------------
Jeffrey J. Prosser 273,978
- --------------------
(1) Of these options, 68,495 were exercisable as of December 31, 1997.
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 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 ECI or for good reason by Mr. Prosser, Mr.
Prosser will be entitled to receive a lump sum severance payment equal to 500%
of the sum of his base salary for the year including the date of termination and
his highest annual bonus earned during the five years immediately preceding the
date of termination.
The Employment Agreement also provides that, so long as Mr. Prosser
beneficially owns at least 3% of the outstanding shares of Company 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, ECI will indemnify
Mr. Prosser against certain claims or liabilities under the Securities Act, as
amended.
<PAGE>
-26-
1997 Long Term Incentive and Share Award Plan
On December 31, 1997, the Company adopted the 1997 Long Term Incentive And
Share Award Plan (the "Plan"). The purpose of the plan is to provide a means to
attract, retain and motivate employees and directors of the Company upon whose
judgment, initiative and efforts the continued success, growth and development
of the Company depends.
The Plan will be administered by the Compensation Committee of the Board or
such other committee designated by the Board, consisting of two or more
non-employee directors (the "Committee"). Any employee of the Company or its
affiliate who is responsible for or contributes to the management, growth or
profitability of the Company or its affiliate will be eligible to participate in
the Plan. Subject to the terms of the Plan, the Compensation Committee will
select the participants and determine the terms and conditions of the awards,
including the type of award granted, the number of shares granted and the type
of consideration to be paid to the Company upon exercise of the awards. The
total number of shares reserved for awards under the Plan is 1,095,913. In the
event of a stock split, reverse stock split, reorganization, merger or similar
capital adjustment, the Committee may adjust the total number of shares covered
under the Plan, the number of shares covered by each award and the exercise
price, grant price or purchase price to prevent dilution or enlargement of the
rights under the Plan. In the event of a change of control of the Company, all
outstanding awards shall become fully exercisable subject to conditions in the
Plan. For a period of 60 days following a change of control, participants in the
Plan may also elect to surrender any outstanding awards and receive cash
payments based on either the change of control price of any shares or the fair
market value of any property other than shares relating to such award.
The Committee is authorized to grant awards which may consist of incentive
stock options ("ISOs"), nonqualified stock options ("NQSOs") and stock
appreciation rights ("SARs") as well as other types of awards. At the discretion
of the Committee, awards granted under the Plan may be granted alone or in
addition to, in tandem with, or in exchange or substitution for, any other award
granted under the Plan or under any other plan or agreement of the Company. The
Committee shall have the authority to determine the exercise price, the time or
times at which an option may be exercised in whole or in part, the methods by
which such exercise price may be paid and the form of such payment. The
Committee may impose on any award or exercise thereof, additional terms and
conditions not inconsistent with the provisions of the Plan.
The Board generally has the power to amend, alter, suspend, discontinue or
terminate the Plan or the Committee's authority to grant awards under the Plan
without the approval of the Company's stockholders; provided that the Board
shall not amend the Plan to materially and adversely affect rights therefore
granted to a participant without the consent of such participant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The number of shares and percentage of ECI Common Stock beneficially owned
as of December 31, 1997, by (i) each director of ECI, (ii) each executive
officer of ECI and (iii) persons who may be deemed to own beneficially more than
5% of ECI Common Stock is as follows:
Shares
Names and address of 5% Stockholders, Directors Beneficially Percent of
and Executive Officers Owned Common Stock
- ------------------------------------------ ------ ------------
Directors:
Jeffrey J. Prosser................................ 5,783,976(1) 52%
Richard N. Goodwin................................ -- --
Salvatore Muoio................................... 4,600 *
John P. Raynor.................................... -- --
<PAGE>
-27-
Shares
Names and address of 5% Stockholders, Directors Beneficially Percent of
and Executive Officers Owned Common Stock
- ------------------------------------------ ------ ------------
Sir Shridath S. Ramphal........................... -- --
John G. Vondras................................... -- --
Terrence A. Todman................................ -- --
Executive Officers:
Jeffrey J. Prosser ............................... 5,783,976(1) 52%
Chairman, Chief Executive Officer, Secretary
and acting Chief Financial Officer
Thomas R. Minnich................................. -- --
Chief Operating Officer
Edwin Crouch...................................... 8,014(2) *
Vice President
James J. Heying................................... 11,057(3) *
Executive Vice President for Acquisitions
All Directors and Executive
Officers as a Group (8 persons)................... 5,807,647 53%
5% Beneficial Owners:
Fidelity Management & Resources Corp.
82 Devonshire Street
Boston, MA 02109.................................. 1,056,700(4) 9.6%
Chancellor L.G.T. Asset
Management, Inc.
50 California, 27th Floor
San Francisco, CA 94111........................... 633,000(4) 5.8%
- ---------------
* Less than 1% ownership.
(1) Includes 97,358 shares owned by Mr. Prosser's children, as to which Mr.
Prosser disclaims ownership. Also includes options to purchase 68,495
shares of Common Stock exercisable at December 31,1997 and options to
purchase an additional 11,250 shares of Common Stock which will become
exercisable within 60 days of December 1997.
(2) Includes 288 shares owned by Mr. Crouch that were allocated to him as a
participant in ATN's Employee Stock Ownership Plan which was assumed by the
Company in connection with the Split Off Transaction, 1,726 shares owned by
Mr. Crouch pursuant to his IRA, and 6,000 shares owned by the Edwin C.
Crouch Revocable Trust.
(3) Includes 937 shares owned by Mr. Heying that are allocated to him as a
participant in ATN's Employee Stock Ownership Plan, which was assumed by
the Company in connection with the Split Off Transaction.
(4) Based on available public filings and conversations with Fidelity
Management & Resources Corp. and Chancellor L.G.T. Asset Management, Inc.
<PAGE>
-28-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Split Off Transaction Agreements
In connection with the Split Off Transaction, ECI entered into a number of
agreements with ATN, Mr. Prosser and Cornelius B. Prior under which ECI has
continuing obligations. These agreements are summarized below.
Non-Competition Agreement. Pursuant to a Non-Competition Agreement among
ECI, ATN and Mr. Prosser (the "Non-Competition Agreement"), ECI 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 agreement covers the provision of services
directly, or indirectly through service bureaus or other intermediaries, to
persons who generate the traffic, and the traffic covered includes both
telephone and computer traffic. In the Non-Competition Agreement, ECI and Mr.
Prosser have also agreed to hold in strict confidence all information of the
proprietary nature relating to ATN's business of providing telecommunications
services with regard to international audiotext traffic.
Indemnity Agreement. In accordance with the provisions of an Indemnity
Agreement among ECI, 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 ECI 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 ECI 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 ECI, 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 ECI 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 con-
<PAGE>
-29-
cerning the beneficial ownership of ATN Common Stock by Mr. Prior and the
members of his family and his or their affiliates,
(iii) ECI 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 ECI before or
after the Split Off Transaction or any of the liabilities specifically to be
assumed by ECI 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 ECI and its
subsidiaries, the activities of ECI 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 ECI, such
subsidiaries or Mr. Prosser.
(iv) ATN has agreed to indemnify ECI, 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 ATN not
specifically assumed by ECI or (b) any action, suit or proceeding arising out of
or relating to any untrue or alleged untrue statement of a material fact
contained in 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.
Technical Assistance Agreement. In accordance with the terms of a Technical
Assistance Agreement among ATN, ATN-VI, Vitelco and Vitelcellular (the
"Technical Assistance Agreement"), ATN-VI, Vitelco and Vitelcellular have agreed
to provide, at the request of ATN, personnel and facilities to assist and
support ATN in carrying out ATN's continuing obligations to provide technical
and professional service, advice and assistance under an advisory contract it
has entered into with its Guyana Telephone & Telegraph Ltd. subsidiary ("GTT").
ATN-VI, Vitelco and Vitelcellular are to be paid approximately 200% of the
direct compensation cost incurred by them in performing services at the request
of ATN under the Technical Assistance Agreement and 100% of all "out-of-pocket"
expenses incurred by them in performing such services.
Tax Sharing Agreement. In accordance with the terms of the Tax Sharing
Agreement:
(i) ATN, ECI, 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. Under the terms of the Tax Sharing Agreement,
unless approved by the IRS or legal counsel or agreed to by both ATN and ECI,
ATN and ECI 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 ECI will not, prior to December 31, 1999,
unless approved by the IRS or legal counsel or agreed to by both ATN and ECI:
(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
<PAGE>
-30-
the Tax Ruling to satisfy Section 355(b) of the Code; (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.
(ii) ATN has agreed to be liable for, and shall indemnify and hold harmless
ECI and its affiliates from and against, (a) any taxes resulting from any income
or gain recognized as a result of the 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, (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, except for taxes described
in clauses (a), (b) or (c) of the following section (iii).
(iii) ECI has agreed to be liable for, and shall 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 ECI of its representations or covenants under the Tax
Sharing Agreement, or from certain actions by ECI 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 ECI and its affiliates after
the Spin Off Tranaction, (b) one hundred percent (100%) of all taxes of ECI
(computed on a separate company basis) with respect to any period prior to and
including the Effective Date, (c) any withholding of foreign income taxes
imposed with respect to payments from ATN-VI or any of its subsidiaries to ATN
except to the extent taken into account as debits form 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, 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, ECI, 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, ECI, and their respective affiliates from and against any
liability for any taxes resulting from any income or gain recognized as a result
of the 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
<PAGE>
-31-
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.
Employee Benefits Agreement. ATN and ECI entered into an Employee Benefits
Agreement in connection with the Split Off Transaction (the "Employee Benefits
Agreement"). In accordance with the terms of the Employee Benefits Agreement,
ECI has adopted as its own ATN's Defined Benefit Plan for Salaried Employees,
ATN's Management Employees' Savings Plan, and ATN's Employees' Stock Ownership
Plan, each of the trusts (and all assets thereof) forming a part of such plans
have been assumed by ECI, and ECI and ATN have agreed to take all necessary
actions, including amendments to such plans (or the trusts forming a part
thereof) in order for ECI to be the sponsor and "Employer" as defined under such
plans. All employee benefit plans previously maintained by ATN-VI or Vitelco
continue to be sponsored by such entities after the Effective Date. As of the
Effective Date, employees of ATN and its subsidiaries ceased participation in
all the employee benefit plans maintained by ECI or any of its subsidiaries.
Other Transactions
The law firm of Raynor, Rensch & Pfeiffer has from time to time performed
legal services for the Company, for which it has received its customary fees.
John P. Raynor, who is a director of ECI, is a partner in this firm. In 1997,
Raynor, Rensch & Pfeiffer was paid $479,000 for legal services to ECI and its
predecessor.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
(a) (2) Exhibits
2.1 Subscription Agreement, dated as of August 11, 1997, between Atlantic
Tele-Network, Inc. and Emerging Communications, Inc.*
2.2 Repurchase and Recapitalization Agreement, dated as of August 11, 1997,
among Atlantic Tele-Network, Inc., Cornelius B. Prior, Jr., individually
and as trustee of the 1994 Prior Charitable Remainder Trust, and Jeffrey
J. Prosser.*
<PAGE>
-32-
2.3 Agreement and Plan of Merger, dated as of August 11, 1997, between ATN
Merger Co. and Atlantic Tele-Network, Inc.*
3.1 Restated Certificate of Incorporation of Emerging Communications, Inc.
3.2 By-laws of Emerging Communications, Inc.
4.1 Specimen Form of Emerging Communications, Inc.'s Stock Certificate*
4.2 Supplemental Stockholders' Agreement, dated as of December 29, 1987,
among Mr. Prosser, Mr. Prior, E.F. Hutton LBO, Inc., Atlantic
Tele-Network Co. and the Rural Telephone Financial Cooperative, as
amended April 30, 1991.*
10.1 Employment Agreement, between Emerging Communications, Inc. and Mr.
Prosser dated December 31, 1997.
10.2 Loan Agreement, dated as of December 29, 1987, among Atlantic
Tele-Network, Co. and Virgin Islands Telephone Corporation, as
Borrowers, and the Rural Telephone Finance Cooperative, as Lender, as
amended on July 7, 1989, May 10, 1990, April 30, 1991, August 21, 1991,
May 18, 1994 and June 9, 1994 (excluding exhibits).**
10.3 Guarantee and Pledge Agreement, dated as of December 29, 1987, between
Atlantic Tele-Network Co. and the Rural Telephone Finance Cooperative,
as amended on August 31, 1998.*
10.4 Telephone Loan Contract, dated as of May 15, 1990, between Virgin
Islands Telephone Corporation and the United States of America, acting
through the Administrator of the Rural Electronic Administration.***
10.5 Supplemental Mortgage and Security Agreement, dated as of May 29, 1990,
among Virgin Islands Telephone Corporation, as Mortgagor, the United
States of American and the Rural Telephone Finance Cooperative, as
Mortgagee, Vitelcom, Inc. (excluding exhibits).***
10.6 Supplemental Agreement, dated as of May 10, 1990, among Virgin Islands
Telephone Corporation, as Mortgagor, Vitelcom, Inc., and the Rural
Telephone Finance Cooperative, as Mortgagee.*
10.7 Virgin Islands Public Service Commission Order, dated April 19, 1989,
approving Settlement Order, dated April 19, 1989, among Virgin Islands
Telephone Corporation, Atlantic Tele-Network Co., the Rural Telephone
Finance Cooperative, Vitelcom, Inc. and the Virgin Islands Public
Service Commission.***
10.8 Virgin Islands Public Service Commission Order, dated November 4, 1991,
embodying the Settlement Agreement, effective as of July 26, 1991, among
Virgin Islands Telephone Corporation, Atlantic Tele-Network Co. and the
Virgin Islands Public Service Commission.***
<PAGE>
-33-
10.9 Virgin Islands Public Service Commission Order, dated August 12, 1992,
embodying the Settlement Agreement, effective as of August 5, 1992,
between Virgin Islands Telephone Corporation and the Virgin Islands
Public Service Commission, annexed thereto.***
10.10 Settlement Agreement, dated June 22, 1993, between Virgin Islands
Telephone Corporation and the Virgin Islands Public Service
Commission.****
10.11 Memorandum of Understanding, dated as of June 23, 1993, between the
Government of the Virgin Islands, by and through its Police Department,
and Virgin Islands Telephone Corporation.****
10.12 Loan Agreement, dated as of May 29, 1990 between Atlantic Tele-Network,
Inc. and Banco Popular de Puerto Rico, as amended February 25, 1993 and
October 3, 1993.*
10.13 Franchise to Virgin Islands Telephone Corporation for Telephone Service
to the Virgin Islands, dated October 30, 1995.*
10.14 Line of Credit Application and Agreement, dated March 20, 1995, between
Virgin Islands Telephone Corporation, as Borrower, and the Rural
Telephone Finance Cooperative, as Lender.*
10.15 Line of Credit Application and Agreement, dated March 10, 1996, between
Virgin Islands Telephone Corporation, as Borrower, and the Rural
Telephone Finance Cooperative, as Lender.*
10.16 Senior Credit Facility between Atlantic Tele-Network Co., as Borrower,
and Rural Telephone Cooperative, as Lender.
10.17 1997 Long-Term Incentive and Share Award Plan of Emerging
Communications, Inc.
10.18 Non-Competition Agreement among ATN, the Company and Jeffrey J. Prosser
dated December 30, 1997.
10.19 Indemnity Agreement among the Company, ATN, Jeffrey J. Prosser and
Cornelius B. Prior dated December 30, 1997.
10.20 Technical Assistance Agreement among ATN, ATN-VI, Vitelco and
VitelCellular dated December 30, 1997.
10.21 Tax Sharing and Indemnification Agreement among ATN, the Company,
Jeffrey J. Prosser and Cornelius B. Prior dated December 30, 1997.
10.22 Employee Benefits Agreement between ATN and the Company dated December
30, 1997.
21 Subsidiaries.
<PAGE>
-34-
27 Financial Data Schedule.
- ------------------------------------
* Filed as an Exhibit to the Company's Registration Statement on Form S-4
(File No. 333-33401).
** Filed as an Exhibit to Atlantic Tele-Network, Inc.'s Registration
Statement (File No. 33-43012), except for amendments dated May 18, 1994
and June 9, 1994, which were filed as an Exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-33401); both Exhibits
are incorporated by reference herein.
*** Filed as an Exhibit to Atlantic Tele-Network, Inc.'s Registration
Statement (File No. 33-43012) and incorporated by reference herein.
**** Filed as an Exhibit to Atlantic Tele-Network, Inc.'s Quarterly Report on
form 10-Q for the Quarter ended June 30, 1993 and incorporated by
reference herein.
(b) Financial Statement Schedules.
Financial statement schedules for the Company and its subsidiaries are
filed as a separate section of this annual report. See index to financial
statements and schedules which appear on page F-1 hereof.
(c) Reports on Form 8-K.
ECI did not file any Reports on Form 8-K during 1997.
<PAGE>
-35-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 1998 EMERGING COMMUNICATIONS, INC.
By: /s/Jeffrey J. Prosser
-------------------------------------
Name: Jeffrey J. Prosser
Title: Chairman of the Board, Chief
Executive Officer and Secretary
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature and Title Date
By: /s/Richard N. Goodwin March 30, 1998
--------------------------------
Name: Richard N. Goodwin
Title: Director
By: /s/Salvatore Muoio March 30, 1998
--------------------------------
Name: Salvatore Muoio
Title: Director
By: /s/Sir Shridath Ramphal March 30, 1998
--------------------------------
Name: Sir Shridath Ramphal
Title: Director
By: /s/John P. Raynor March 30, 1998
--------------------------------
Name: John P. Raynor
Title: Director
By: /s/John G. Vondras March 30, 1998
--------------------------------
Name: John G. Vondras
Title: Director
By: /s/Terrence A. Todman March 30, 1998
--------------------------------
Name: Terrence A. Todman
Title: Director
<PAGE>
EMERGING COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Financial Statements for the
Years Ended December 31, 1995, 1996 and 1997
and Independent Auditors' Report
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES COMPRISING ITEM 14 OF
ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 1997
INDEX
- -----------------------------------------------------------------------
PAGE
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedules Furnished Pursuant to
the Requirements of Form 10-K:
I -- Condensed Financial Statements of Emerging
Communications, Inc. (Parent Company Only) F-21
II -- Valuation and Qualifying Accounts F-25
All other schedules are omitted because they are not applicable or because the
required information is shown elsewhere herein.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Emerging Communications, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheets of Emerging
Communications, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedules listed in the Index on
Item 14. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Emerging Communications, Inc.
and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Deloitte & Touche LLP
Omaha, Nebraska
March 20, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(Columnar Amounts in Thousands)
- -----------------------------------------------------------------------------------------------------------------------
ASSETS 1996 1997
<S> <C> <C>
Current assets:
Cash $ 11,540 $ 4,013
Accounts receivable, net 63,660 14,548
Materials and supplies 9,658 6,241
Prepayments and other current assets 4,110 4,396
-------- -------
Total current assets 88,968 29,198
Fixed assets:
Property, plant and equipment 328,895 237,825
Less accumulated depreciation (117,031) (111,296)
Franchise rights and cost in excess of underlying book value, less accumulated amortization
of $11,170,000 and $10,112,000 40,132 27,567
-------- --------
Net fixed assets 251,996 154,096
Property costs recoverable from future revenues, less accumulated amortization of
$1,406,000 and $2,715,000 22,905 21,596
Uncollected authorized rate increases 3,119 -
Other assets 22,336 19,418
--------- ---------
$ 389,324 $ 224,308
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 17,153 $ 19,280
Accounts payable 25,021 14,169
Accrued taxes 2,457 1,087
Advance payments and deposits 2,701 2,072
Other current liabilities 8,231 5,863
Current portion of long-term debt 12,942 8,947
--------- --------
Total current liabilities 68,505 51,418
Deferred income taxes and tax credits 33,066 2,774
Long-term debt, excluding current portion 116,227 105,138
Pension and other long-term liabilities 6,702 6,208
Minority interest 15,033 -
Contingencies and commitments (Note J)
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; none issued
and outstanding - -
Common stock, par value $.01 per share; 20,000,000 shares authorized; 12,272,500 and
10,959,131 shares issued and outstanding 123 110
Paid-in capital 81,852 59,633
Pension liability (849) (973)
Retained earnings 68,665 -
--------- ---------
Total stockholders' equity 149,791 58,770
--------- ---------
$ 389,324 $ 224,308
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(Columnar Amounts in Thousands, Except Per Share Data)
- -----------------------------------------------------------------------------------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
Revenues:
Telephone operations $ 184,632 $ 206,002 $ 182,349
Cellular services 5,910 5,480 3,663
Product sales and rentals 5,128 5,435 4,942
--------- --------- ---------
Total revenues 195,670 216,917 190,954
Expenses:
Telephone operations 130,575 155,174 134,401
Cellular services and product sales and rental expenses 8,399 8,231 7,957
General and administrative expenses 10,219 9,458 12,168
--------- --------- ---------
Total operating expenses 149,193 172,863 154,526
--------- --------- ---------
Income from operations 46,477 44,054 36,428
Other income and expense:
Loss on split-off of ATN - - (45,041)
Interest expense (12,511) (11,289) (10,548)
Interest income 971 458 351
--------- --------- ---------
Total other income and expense (11,540) (10,831) (55,238)
--------- --------- ---------
Income (loss) before income taxes and minority interest 34,937 33,223 (18,810)
Income taxes (benefit) (15,250) (13,039) 897
Minority interest (2,477) (2,177) (1,340)
--------- --------- ---------
Net income (loss) $ 17,210 $ 18,007 $ (19,253)
========= ========= =========
Basic net income (loss) per share $ 1.40 $ 1.47 $ (1.57)
========= ========= =========
Weighted average shares outstanding 12,273 12,273 12,269
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Columnar Amounts in Thousands)
- -----------------------------------------------------------------------------------------------------------------------
Total
Common Paid-in Retained Pension Stockholders'
Stock Capital Earnings Liability Equity
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 123 $ 81,852 $ 33,448 $ (562) $ 114,861
Minimum pension liability adjustment,
net of income tax benefit of $666,000 - - - (1,115) (1,115)
Net income - - 17,210 - 17,210
----- -------- -------- ------ ---------
Balance, December 31, 1995 123 81,852 50,658 (1,677) 130,956
Minimum pension liability adjustment,
net of income taxes of $494,000 - - - 828 828
Net income - - 18,007 - 18,007
----- -------- -------- ------ ---------
Balance, December 31, 1996 123 81,852 68,665 (849) 149,791
Minimum pension liability adjustment, - - - (124) (124)
net of income tax benefit of $74,000
Net loss - - (19,253) - (19,253)
Purchase and cancellation of 765,562
shares of Company stock (8) - (17,392) - (17,400)
Split-off of ATN (5) (22,219) (32,020) - (54,244)
----- -------- -------- ------ ---------
Balance, December 31, 1997 $ 110 $ 59,633 $ - $ (973) $ 58,770
===== ======== ======== ====== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(Columnar Amounts in Thousands)
- -----------------------------------------------------------------------------------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 17,210 $ 18,007 $ (19,253)
Adjustments to reconcile net income (loss) to net cash flows from operating
activities:
Loss on split-off of ATN - - 45,041
Depreciation and amortization 18,584 19,272 20,880
Deferred income taxes 4,651 5,528 (9,356)
Minority interest 2,477 2,177 1,340
Changes in operating assets and liabilities, net of effect of split-off
Transaction:
Accounts receivable (29,733) (307) 11,035
Materials, supplies and other current assets 743 (512) (268)
Uncollected surcharges 2,946 1,220 (2,822)
Accounts payable 7,248 5,453 (350)
Accrued taxes 4,659 (3,720) 2,092
Other 2,321 (1,892) (2,102)
-------- ------- --------
Net cash flows from operating activities 31,106 45,226 46,237
Cash flows from investing activities:
Capital expenditures (22,539) (47,202) (20,929)
Cash transferred to ATN - - (15,803)
Split-off transaction costs - - (4,509)
-------- ------- --------
Net cash flows from investing activities (22,539) (47,202) (41,241)
Cash flows from financing activities:
Repayment of long-term debt (12,436) (16,826) (15,566)
Issuance of long-term debt 5,291 1,336 18,316
Net borrowings (repayments) on notes (115) 10,184 2,127
Purchase of Company stock - - (17,400)
-------- ------- --------
Net cash flows from financing activities (7,260) (5,306) (12,523)
Net change in cash 1,307 (7,282) (7,527)
Cash, beginning of Year 17,515 18,822 11,540
-------- ------- --------
Cash, end of Year $ 18,822 $ 11,540 $ 4,013
======== ======== ========
Supplemental cash flow information:
Interest paid $ 12,090 $ 10,920 $ 9,706
======== ======== ========
Income taxes paid $ 4,113 $ 11,186 $ 5,588
======== ======== ========
Non-cash activities:
Change in minimum pension liability $ 1,842 $ (1,071) $ 3
======== ======== ========
Change in pension intangibles $ 61 $ 251 $ (195)
======== ======== ========
Split-off of ATN $ - $ - $ 99,285
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(Columnar Amounts in Thousands)
- -----------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
Split-Off Transaction - On December 30, 1997, Atlantic Tele-Network,
Inc. (ATN) split-off into two separate public companies (the Transaction).
One, a new company, Emerging Communications, Inc. and subsidiaries (EmCOM
or the Company) contains all of the predecessors telephone operations in
the U.S. Virgin Islands. The other, ATN, continues to own the business and
operations in Guyana. Since Emerging Comunications, Inc. was the larger of
the split-off entities, ATN was the split-off entity. The Company is the
successor company and its historical financial statements prior to the
split-off are those of the historical financial statements of ATN.
Therefore, the historical financial statements of the Company include the
operations in Guyana prior to the split-off.
The Transaction was a non-pro rata split-off and accordingly, the
split-off of ATN has been accounted for at fair value as evidenced by the
market capitalization of ATN. Consequently, the loss on fair valuation of
the net assets of ATN has been included in the consolidated statement of
operations.
Basis of Presentation - The consolidated financial statements include
the accounts of EmCOM, and all of its wholly-owned subsidiaries, including
Atlantic Tele-Network Co. (ATN-VI) and its subsidiary, the Virgin Island
Telephone Corporation (Vitelco), and majority-owned subsidiaries, including
Guyana Telephone and Telegraph Company Limited (GT&T) prior to the
split-off. All material intercompany transactions and balances have been
eliminated in consolidation. Certain reclassifications have been made to
the 1995 and 1996 financial statements to conform with the 1997
presentation.
General - The Company is engaged principally in providing
telecommunications services, including local telephone service, access to
long-distance service, and cellular service, in the U.S. Virgin Islands
and, prior to the split-off Transaction, the Cooperative Republic of
Guyana.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Regulatory Accounting - The Company's telephone subsidiaries account
for costs in accordance with the accounting principles for regulated
enterprises enterprises prescribed by Statement of Financial Accounting
Standards No. 71, Accounting for the Affects of Certain Types of Regulation
(SFAS 71). This accounting recognizes the economic effects of rate
regulation by recording cost and a return on investment as such amounts are
recovered through rates authorized by regulatory authorities. Accordingly
under SFAS 71, plant and equipment is depreciated over lives approved by
regulators and certain costs and obligations are deferred based upon
approvals received from regulators to permit recovery of such amounts in
future years. GT&T's audiotext revenues are not subject to regulation but
are never-the-less taken into account by the regulator in setting regulated
rates which permit the recovery of GT&T's costs and a return on investment.
These unregulated revenues and any costs which pertain solely to these
unregulated revenues are not accounted for under SFAS 71 principles.
Cash - For purposes of the statement of cash flows, the Company
considers all investments with a maturity at acquisition of three months or
less to be cash equivalents.
F-7
<PAGE>
Materials and Supplies - Materials and supplies are carried in
inventory principally at weighted average cost.
Fixed Assets - The original cost of fixed assets in service and under
construction includes an allocation of indirect costs applicable to
construction. Fixed assets also include the acquisition cost of Vitelco in
excess of underlying book value and, prior to the split-off, the
acquisition of GT&T franchises, all of which are being amortized over forty
years on the straight-line method.
Depreciation - The Company provides for depreciation using the
straight-line and equal life group methods. This has resulted in a
composite annualized rate of 6.9%, 6.3% and 5.2% for Vitelco and 4.8%, 4.5%
and 4.5% for GT&T for the years ended December 31, 1995, 1996 and 1997,
respectively. With respect to regulated subsidiaries, the original cost of
depreciable property retired, together with removal cost less any salvage
realized, is charged to accumulated depreciation. No gain or loss is
recognized in connection with ordinary retirements of depreciable property.
Repairs and replacements of minor items of property are charged to
maintenance expense.
Impairment of Long-Lived Assets - In 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
(SFAS 121). The Statement establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets. Under provisions of the Statement,
impairment losses are recognized when expected future cash flows are less
than the assets' carrying value. Accordingly, when indicators of impairment
are present, the Company evaluates the carrying value of property, plant
and equipment and intangibles in relation to the operating performance and
future undiscounted cash flows of the underlying business. The Company
adjusts the net book value of the underlying assets if the sum of expected
future cash flows is less than book value. The adoption of SFAS 121 did not
have a material effect on the Company financial statements.
Debt Issuance Costs - Costs relating to the issuance of debt are being
amortized over the term of the debt.
Revenue - Local exchange service, exchange access charges and
international long-distance revenues are recognized when earned, regardless
of the period in which they are billed. In determining revenue, the Company
estimates usage by foreign exchanges of the Company's local exchange
network to determine the appropriate rate to apply to long distance minutes
carried by the Company. Additionally, the Company establishes reserves for
possible unreported or uncollectible minutes from foreign exchange carriers
and doubtful accounts from customers. The amounts the company will
ultimately realize upon settlement could differ significantly in the near
term from the amounts assumed in estimating these revenues and the related
accounts receivable.
Income Taxes - The Company uses an asset and liability approach for
reporting of income taxes and measures deferred tax assets and liabilities
based on temporary differences existing at each balance sheet date using
enacted tax rates. The Company and its U.S. subsidiary file a consolidated
U.S. tax return. ATN-VI files a consolidated U.S. Virgin Islands income tax
return with its Virgin Islands subsidiaries and GT&T files in Guyana.
Foreign Currency Transactions - With regard to GT&T operations, for
which the U.S. dollar is the functional currency, foreign currency
transaction gains and losses are included in determining net income for the
period in which the transaction is settled. At each balance sheet date,
balances denominated in Guyana and other foreign currency are adjusted to
reflect the current exchange rate. Currency transaction gains and (losses),
which relate primarily to settlement with foreign carriers, approximated
$1,808,000, $51,000 and $(1,507,000) for the years ended December 31, 1995,
1996 and 1997, respectively.
F-8
<PAGE>
Basic Income Per Share - Income per share is computed on the basis of
the weighted average number of shares outstanding.
Current Accounting Pronouncements - In June 1997, the FASB issued
Statement of Financial Accounting Standards No. 130 entitled Reporting
Comprehensive Income (SFAS No. 130). This statement establishes standards
for reporting and display of comprehensive income and its components in a
full set of financial statements. Comprehensive income is the total of
reported net income and all other revenues, expenses, gains and losses that
under generally accepted accounting principles are not included in reported
net income.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 entitled Disclosures About Segments of an Enterprise and
Related Information (SFAS No. 131). This statement utilizes the "management
approach" for segment reporting which is based on the way that the chief
operating decision maker organizes segments within a company for making
operating decisions and assessing performance. SFAS No. 131 requires
disclosures for each segment that are similar to those required under
current standards with the addition of quarterly disclosure requirements
and more specific and detailed geographic disclosures especially by
countries as opposed to broad geographic regions.
These statements are effective for fiscal years beginning after
December 15, 1997, or January 1, 1998, for the Company, with earlier
application permitted. The provisions of these statements, which are of a
disclosure nature, will not have a material impact on the financial
statements.
B. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
Connecting companies December 31,
----------------------
1996 1997
Subscribers and installment sales, net of allowance
for doubtful accounts of $2,145,000 and $1,191,000 $ 12,577 $ 10,593
Connecting companies 49,636 3,317
Other 1,447 638
-------- --------
$ 63,660 $ 14,548
======== ========
F-9
<PAGE>
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31,
--------------------------------
1996 1997
Used in telephone operations:
Outside plant $ 158,860 $ 125,991
Central office equipment 80,936 46,120
Land and building 21,124 14,536
Station equipment 9,739 5,990
Furniture and office equipment 5,493 3,573
Construction in process 15,603 5,696
Other 11,593 10,277
--------- ---------
Total used in telephone operations 303,348 212,183
Used in other operations 25,547 25,642
--------- ---------
$ 328,895 $ 237,825
========= =========
D. PROPERTY COSTS RECOVERABLE FROM FUTURE REVENUES
On September 15, 1995, Hurricane Marilyn struck the Virgin Islands
causing extensive damage to the outside telephone plant of Vitelco. None of
the damage was covered by insurance. The historical cost of the facilities
damaged or destroyed by Hurricane Marilyn was approximately $26.3 million
with associated accumulated depreciation of approximately $9.1 million.
These costs have been removed from the property accounts and along with
certain excess maintenance costs and costs of removal of $7.1 million have
been classified as property costs recoverable from future revenues because
the Company anticipates that future revenue in an amount at least equal to
the capitalized cost will result from inclusion of these costs in allowable
costs for rate making purposes. Vitelco has received approval from the
Federal Communications Commission to include the interstate portion of
these costs in its rate base and amortize them over a five year period. The
Company believes that it is probable that future revenue in an amount at
least equal to the intrastate portion of these costs will result from
inclusion of these costs in allowable costs for rate making purposes. The
Company has deferred the intrastate portion of these costs and anticipates
amortizing them over the same period as the IDC tax benefit. On October 9,
1997, the Virgin Islands Public Service Commission instituted a proceeding
to determine whether Vitelco's rates were just and reasonable in light of
this tax rebate. There can be no assurance as to the outcome of this
proceeding.
F-10
<PAGE>
E. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1997
<S> <C> <C>
Rural Telephone Finance Corporation subordinated capital certificates $ 6,490 $ 6,554
Rural Telephone Finance Corporation patronage capital certificates
and patronage dividends receivable 5,781 5,531
Windstorm prepaid insurance premium, long-term portion - 2,978
Debt service reserve fund and escrow account 3,900 -
Pension and retirement plan intangibles 1,877 1,682
Debt issuance costs 1,626 1,184
Deferred costs and intangibles, net 872 -
Other 1,790 1,489
-------- --------
$ 22,336 $ 19,418
======== ========
</TABLE>
F. NOTES PAYABLE
The Company has in place a $5.5 million line of credit bearing
interest at 0.75% and 0.25% over prime rate which was 9.0% and 8.75% at
December 31, 1996 and 1997, respectively. As of December 31, 1996 and 1997,
$5.5 million was outstanding under this arrangement.
At December 31, 1996 and 1997, Vitelco had short-term notes payable to
an insurance company of $432,000 and $280,000, respectively, with interest
rates of 5.7% and 5.8%, respectively.
Vitelco has a $5 million revolving line of credit with a variable rate
of interest with the Rural Telephone Finance Corporation (RTFC) which
expires in March 2000 and a $15 million revolving line of credit with a
variable rate of interest also with the RTFC expiring October 1998. At
December 31, 1997 and 1996, Vitelco has borrowings of $5 million for the
line of credit expiring in March 2000 and $8.5 million and $6.0 million for
the line of credit expiring October 1998, respectively, both with interest
rates of 7.25% and 6.9%, respectively.
At December 31, 1996, the Company had demand notes payable to a
stockholder of $222,000, with an interest rate of 9.58%. The note was paid
in 1997.
F-11
<PAGE>
G. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1997
<S> <C> <C>
Notes payable to RTFC, with principal and interest payments due quarterly
through December 30, 2002:
ATN-VI $ 19,098 $ 36,252
Vitelco 24,142 20,519
-------- --------
43,240 56,771
Notes payable to Rural Utilities Service (RUS) with principal
and interest payments due monthly through 2012. 56,901 54,367
Notes payable to Northern Telecom International Finance B.V.
(NTIF) by GT&T under an $11,500,000 supply loan (the GT&T Supply Loan) and $34
million equipment financing agreement
(the GT&T Equipment Loan). 25,447 -
Other note payable with semi-annual payments and a balloon
payment of $1,925,000 on December 31, 1999. 3,300 2,750
Other 281 197
--------- --------
129,169 114,085
Less current portion 12,942 8,947
--------- --------
$ 116,227 $105,138
========= ========
</TABLE>
All of the common stock of the Company's significant subsidiaries as
well as a first mortgage on the assets and revenue of ATN-VI have been
pledged on the debt, and therefore, substantially all assets and revenue of
the Company are pledged as security.
The Vitelco note payable to the RTFC consists of balances of
$10,622,000 and $9,897,000 with fixed interest rates of 9.75% and 8.0%,
respectively. On the ATN-VI note payable, $1.3 million and $19.7 million
with a variable interest rate of 6.3% and 6.65% was outstanding at December
31, 1996 and 1997, respectively, with the balance bearing a fixed rate of
8%.
The RUS note arrangement calls for fixed monthly principal and
interest payments of $7.04 per $1,000 of loan balance with any remaining
balance due May 2012. The interest rate on these notes is fixed at 5%.
The RUS and RTFC debt agreements contain provisions which may require
prepayments of RTFC debt in the event of future advances from the RUS.
Vitelco has received approval from the RUS for an additional $35.7 million
of long-term financing under terms similar to its existing RUS debt.
The RTFC and RUS agreements require, among other things, maintenance
of minimum debt service coverage, as defined, and times interest earned
coverages, as defined, and restrictions on issuance of additional long-term
debt. The RTFC agreements also limits the payment of dividends by ATN-VI to
40% of ATN-VI's consolidated net income, contingent upon ATN-VI's ability
to meet certain financial ratios. At December 31, 1997, the ability of
ATN-VI to service its debt was dependent on funds from its subsidiaries.
The RUS loan and applicable RUS regulations restrict Vitelco's ability to
pay dividends based upon certain net worth tests. Settlement agreements
made in 1989 and 1991 with
F-12
<PAGE>
the U.S. Virgin Islands Public Service Commission (PSC) also contain
restrictions on dividends by Vitelco which, in general, are more
restrictive than those imposed by the RUS. Dividends by Vitelco are
generally limited to 60% of its net income if the equity ratio as defined
is below 40%, although additional amounts are permitted to be paid for the
sole purpose of servicing ATN-VI's debt to the RTFC. Under the above
restrictions, at December 31, 1997, Vitelco had approximately $4,668,000 of
retained earnings available for dividends.
As a condition of being granted the RTFC loan, the Company was
required to invest in subordinated capital certificates (included in other
assets) with the RTFC. The Company received cash repayments of $1,575,000
and $916,000 for the years ended December 31, 1996 and 1997, respectively,
related to the subordinated capital certificates. Subordinated capital
certificates are non-interest bearing. As a member of the RTFC, the Company
shares proportionately in the net earnings of the RTFC. RTFC distributions
of net earnings are made primarily through cash distributions and issuances
of patronage capital certificates (included in other assets) which are
redeemed at the option of the RTFC. The Company's share of RTFC net
earnings, included as an offset to interest expense, was $528,000, $551,000
and $473,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
The other note payable is collateralized by property with a book value
of $7,234,000 as of December 31, 1997. The variable interest rate was 7.3%
and 7.55% at December 31, 1996 and 1997.
The annual requirements for principal payments are as follows:
Years Ending December 31, Total
1998 $ 8,947
1999 9,533
2000 10,064
2001 10,740
2002 10,563
Thereafter 64,238
---------
$ 114,085
=========
H. INCOME TAXES
The following is a reconciliation from the tax computed at statutory
income tax rates to the Company's income tax expense (benefit):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
Tax computed at statutory U.S. federal income tax rates $ 12,228 $ 11,628 $ (6,583)
Guyana income taxes in excess of statutory U.S. rate 2,906 2,038 1,314
IDC tax benefits - - (11,968)
Nondeductible loss on split-off Transaction - - 15,764
Other, net 116 (627) 576
-------- -------- --------
Income tax expense (benefit) $ 15,250 $ 13,039 $ (897)
======== ======== ========
</TABLE>
F-13
<PAGE>
The components of income tax expense (benefit) are comprised of the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
Current:
United States and U.S. Virgin Islands $ 1,210 $ 3,096 $ 5,458
Foreign 10,370 4,948 3,312
Deferred 4,651 5,528 (9,356)
Amortization of regulatory liability and investment
tax credits (981) (533) (311)
-------- -------- -------
$ 15,250 $ 13,039 $ (897)
======== ======== =======
</TABLE>
The significant components of deferred tax liabilities and assets are
as follows:
December 31,
1996 1997
Deferred tax liabilities:
Differences between book and tax basis of property $ 24,887 $ 1,445
Property costs recoverable from future revenues 8,566 1,138
Pension paid in excess of book expense - 1,041
Revenues not recognized for tax purposes 1,680 -
Other 73 -
-------- -------
35,206 3,624
Deferred tax assets:
Non-deductible expense 1,067 596
Pension costs not currently deductible 507 582
Regulatory liability 1,297 269
-------- -------
2,871 1,447
-------- -------
Net deferred tax liabilities $ 32,335 $ 2,177
======== =======
Vitelco received approval from the Virgin Islands Industrial
Development Commission in May 1997 for a five year exemption (commencing
October 1, 1998) from 90% of Virgin Islands Income taxes and 100% of Virgin
Islands gross receipts, excise and property taxes (IDC tax benefits). In
accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109), the Company has adjusted its
deferred tax assets and liabilities to reflect the change in the tax rates
applicable to Vitelco during the benefit period. This charge has resulted
in the Company recording non-recurring credit to income tax expense of
approximately $11,968,000 for the year ended December 31, 1997. On October
9, 1997, the Virgin Islands Public Service Commission instituted a
proceeding to determine whether Vitelco's rates were just and reasonable in
light of this tax rebate. There can be no assurance as to the outcome of
this proceeding.
Upon the adoption of SFAS 109, the Company recorded regulatory assets
and liabilities for the cumulative effect of the adoption on the Company's
regulated subsidiaries since it was anticipated that these amounts would be
recovered from or returned to customers through future rates. At December
31, 1996 and 1997, the Company has a regulatory liability of approximately
$3.5 million and $3.0 million which is included in other long-term
liabilities.
F-14
<PAGE>
At December 31, 1997, unremitted earnings of foreign subsidiaries
(ATN-VI and subsidiaries) were approximately $56,522,000. Since it is the
Company's intention to indefinitely reinvest these earnings, no U.S. taxes
have been provided. The determination of the amount of U.S. tax which would
be payable if such unremitted foreign earnings were repatriated through
dividend remittances is not practicable in that any U.S. taxes payable on
such dividends would be significantly offset by foreign tax credits.
Additionally, distributions from ATN-VI and its subsidiaries could be
subject to 10% withholding taxes imposed by the U.S. Virgin Islands.
I. EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT
BENEFITS
Pension Plans - The Company has noncontributory defined benefit
pension plans (the Plan) for salaried employees who are not members of a
collective bargaining unit and eligible hourly union employees who meet
certain age and employment criteria. The funding policy is to contribute to
the Plan such amounts that are necessary to fund the Plan in accordance
with funding requirements of ERISA. Contributions are intended to provide
not only for benefits attributed for service to date, but also for those
expected to be earned in the future. The benefits are based on the
participants' average salary for the "salaried plan" and credited service
years for the "hourly plan."
Net periodic pension cost was:
Years Ended December 31,
--------------------------------------
1995 1996 1997
Service cost $ 600 $ 811 $ 720
Interest on projected benefit obligation 890 1,061 1,131
Actual return on assets (1,292) (1,331) (1,959)
Net amortization and deferral 1,052 1,085 1,429
------- ------- -------
Net periodic pension cost $ 1,250 $ 1,626 $ 1,321
======= ======= =======
F-15
<PAGE>
The following table sets forth the funded status, the amounts
recognized in the balance sheet of the Company at December 31, 1996 and
1997, and the principal assumptions of the Company's plans:
December 31,
1996 1997
Actuarial present value of benefit obligations:
Vested benefits $ 13,681 $ 15,649
Nonvested benefits 39 437
--------- ---------
Accumulated plan benefits $ 13,720 $ 16,086
========= =========
Projected benefit obligation $ (16,027) $ (17,425)
Fair value of plan assets 12,389 15,483
--------- ---------
Plan projected benefit obligation in excess of assets (3,638) (1,942)
Unrecognized net loss 2,699 2,894
Unrecognized prior service costs 1,257 900
Unrecognized net obligation at January 1, 1987 939 782
--------- ---------
Prepaid pension included in the balance sheet $ 1,257 $ 2,634
========= =========
The discount rate was 7.4% and 7.0% at December 31, 1996 and 1997 and
the expected rate return on invested assets was 8.0% for both years.
In accordance with Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions, the Company has recorded an additional
minimum pension liability equal to the unfunded pension benefit obligation
of $3,234,000 and $3,237,000 and an intangible asset (to the extent of the
additional liability) equal to the aggregate of the prior service cost and
transition obligation of $1,877,000 and $1,682,000 at December 31, 1996 and
1997, respectively. The excess of the additional minimum pension liability
over the intangible of $849,000 and $973,000 at December 31, 1996 and 1997,
respectively, has been recorded as a separate component (a reduction in) of
equity, net of taxes of $507,000 and $581,000. The change in the excess of
the minimum pension liability over the intangible asset for the years ended
December 31, 1996 and 1997 of $828,000 and $(124,000), respectively, has
been recorded as a credit to (reduction in) equity, net of tax expense
(benefit) of $494,000 and $(74,000).
Long-Term Incentive and Share Plan - On December 31, 1997, the Company
adopted the 1997 Long-Term Incentive and Share Award Plan (the Incentive
Plan). Any employee of the Company or its affiliate who is responsible for
or contributes to the management, growth, or profitability of the Company
or its affiliates is eligible to participate in the Incentive Plan.
The total number of shares reserved for awards under the Incentive
Plan is 1,095,913. Awards under the Incentive Plan may consist of incentive
stock options (ISOs), nonqualified stock options (NQSOs) and stock
appreciation rights (SARs) as well as other types of awards. On December
31, 1997, stock options of 273,978 shares at $8.00 were granted under the
Incentive Plan. Of these options, 68,495 were vested and exercisable as of
December 31, 1997. The remaining 205,483 options vest and become
exercisable ratably and daily from January 1, 1998 through January 1, 2000.
The exercise price of the options is equal to market value on the date of
grant.
F-16
<PAGE>
The Company applies Accounting Principles Board Opinion No. 25
entitled Accounting for Stock Issued to Employees in accounting for its
stock option plan. Accordingly, no compensation expense has been recognized
for stock options granted. The pro forma compensation expense and related
earnings per share impact for the stock options granted under Statement of
Financial Accounting Standards No. 123 entitled Accounting for Stock-Based
Compensation was not material for the fiscal year ended December 31, 1997.
Postretirement Benefits - The Company provides unfunded
noncontributory defined medical, dental, vision and life benefits for both
retired, hourly and salaried employees who meet certain age and employment
criteria. The cost of these postretirement benefits is accrued during the
employee's active service period.
Net postretirement benefit cost was:
Years Ended
December 31,
-----------------------
1996 1997
Service cost $ 73 $ 57
Interest cost 116 116
Transition obligation 38 38
Net other amortization and deferral 68 50
----- -----
Net postretirement benefit cost $ 295 $ 261
===== =====
The following table sets forth the funded status and the amounts
recognized in the balance sheet of the Company:
December 31,
1996 1997
Accumulated postretirement benefit obligation:
Retirees $ 281 $ 322
Eligible actives 412 436
Non-eligible actives 1,053 1,026
------ --------
1,746 1,784
Fair value of plan assets - -
------ --------
Accumulated benefit obligation in excess of assets (1,746) (1,784)
Unrecognized net loss (gain) (263) (368)
Unrecognized prior service costs 543 513
Unrecognized net obligation 605 567
------ --------
Pension liability included in the balance sheet $ (861) $ (1,072)
====== ========
In determining the accumulated postretirement benefit obligations, the
discount rate was assumed to be 7.4% in 1996 and 7.0% in 1997. For 1997,
the assumed health care cost trend rate was 9.6% and 8.6% for pre-age 65
and post-age 65 participants, respectively, declining gradually to 5.5% and
5.75% over the next 15 years. A 1% increase in assumed health care cost
trend rate would increase
F-17
<PAGE>
the service and interest cost expense by $15,000 for 1997 and increase the
accumulated postretirement benefits obligations by $144,000.
Retirement Savings Plan - The Company and its subsidiaries have an
investment and savings plan for all salaried employees which covers all
employees of the Company and its subsidiaries who are not members of a
collective bargaining unit and who meet certain age and employment
criteria. With respect to such plan, the Company expensed $178,000,
$181,000 and $182,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. The Company also has a 401(k) plan for hourly union employees
who meet certain age and employment requirements. Employee contributions
are elective and no contributions are required by the Company.
Employee Stock Ownership Plan - In 1991, the Company established an
Employees' Stock Ownership Plan (ESOP) to provide a means for employees to
participate in the ownership of the Company. All non-craft salaried and
hourly employees of the Company and its participating affiliates who are
not members of a collective bargaining unit and who have attained age 21
and completed one year of service are eligible to participate in the ESOP.
The Company may make discretionary contributions to the ESOP in the
form of Company stock (or cash which is used to acquire stock of EmCOM,
either on the open market or directly from the Company). The ESOP is
permitted to borrow money to purchase Company stock. No Company
contributions were made in 1995, 1996 or 1997.
J. CONTINGENCIES AND COMMITMENTS
In connection with the split-off Transaction, the Company believes it
has certain claims against ATN, and ATN may, in turn, have claims against
the Company. Due to the preliminary nature of the situation, management and
legal counsel are unable to predict the ultimate resolution of these
matters.
The Company has various litigation cases and claims in the normal
course of business the resolution of which, in the opinion of management,
is not expected to have a material effect on the financial statements.
K. FAIR VALUE DISCLOSURE
Management has determined the carrying amounts of cash, accounts
receivable, accounts payable and notes payable are a reasonable estimate of
fair value. The fair value of long-term debt is estimated using a
discounted cash flow analysis. At December 31, 1996 and 1997, the carrying
value of long-term debt was $129,169,000 and $114,085,000 and the estimated
fair value was $127,783,000 and $113,150,000, respectively.
F-18
<PAGE>
L. GEOGRAPHIC AND CREDIT CONCENTRATIONS
Geographic data:
United
States Guyana Consolidated
1997 operations:
Total revenues $ 73,339 $ 117,615 $ 190,954
Income from operations 18,026 - 18,026
Identifiable assets 67,032 - 67,032
1996 operations:
Total revenues $ 68,664 $ 148,253 $ 216,917
Income from operations 10,063 33,991 44,054
Identifiable assets 230,714 158,610 389,324
Revenues from AT&T comprised approximately 27%, 29% and 24% of
consolidated total revenues in 1995, 1996 and 1997, respectively. Revenues
from MCI comprised approximately 15% and 7% in 1996 and 1997, respectively.
These revenues consist principally of international and long distance
service, interstate network access, and billing and collection service
revenues. No other revenue source accounted for more than 10% of total
revenues for the years presented.
A significant portion of the international long-distance revenue
discussed above is generated by GT&T's audiotext providers, which operate
as service bureaus or intermediaries for a number of audiotext information
providers. One such audiotext provider accounted for $78 million, $83
million and $39 million of these revenues for the years ended December 31,
1995, 1996 and 1997, respectively.
F-19
<PAGE>
M. QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of the Company's quarterly results of operations for
the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
March 31 June 30 September 30 December 31
1997
<S> <C> <C> <C> <C>
Revenues $ 50,124 $ 45,324 $ 54,277 $ 41,229
Expenses 39,543 38,892 38,248 37,843
-------- -------- -------- --------
Income from operations 10,581 6,432 16,029 3,386
Other income and expense 2,483 2,676 2,584 47,495
-------- -------- -------- --------
Income (loss) before income taxes and
minority interest 8,098 3,756 13,445 (44,109)
Income taxes 2,909 (9,521) 5,873 (158)
-------- -------- -------- --------
Income before minority interest 5,189 13,277 7,572 (43,951)
Minority interest 307 1 1,050 (18)
-------- -------- -------- --------
Net income (loss) $ 4,882 $ 13,276 $ 6,522 $(43,933)
======== ======== ======== ========
Net income (loss) per share $ 0.40 $ 1.08 $ 0.53 $ (3.58)
======== ======== ======== ========
Weighted average shares outstanding 12,273 12,273 12,273 12,259
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------
March 31 June 30 September 30 December 31
1996
<S> <C> <C> <C> <C>
Revenues $ 52,320 $ 55,882 $ 57,035 $ 51,680
Expenses 42,892 43,468 45,145 41,358
-------- -------- -------- --------
Income from operations 9,428 12,414 11,890 10,322
Other income and expense 2,726 2,777 2,782 2,546
-------- -------- -------- --------
Income before income taxes and
minority interest 6,702 9,637 9,108 7,776
Income taxes 2,924 3,952 3,608 2,555
-------- -------- -------- --------
Income before minority interest 3,778 5,685 5,500 5,221
Minority interest 592 680 588 317
-------- -------- -------- --------
Net income $ 3,186 $ 5,005 $ 4,912 $ 4,904
======== ======== ======== =======
Net income per share $ 0.26 $ 0.41 $ 0.40 $ 0.40
======== ======== ======== =======
Weighted average shares outstanding 12,273 12,273 12,273 12,273
======== ======== ======== =======
</TABLE>
F-20
<PAGE>
EMERGING COMMUNICATIONS, INC. Schedule I
(Parent Company Only)
CONDENSED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1996 AND 1997
(Amounts in Thousands)
- -------------------------------------------------------------------------------
ASSETS 1996 1997
Current assets:
Cash $ 578 $ -
Other current assets 192 15
----------- -----------
770 15
Property and equipment 3,149 2,543
Less accumulated depreciation (2,094) (2,091)
------------ -----------
1,055 452
Investment in and advances to subsidiaries 155,038 63,846
Other assets 2,044 153
----------- -----------
$ 158,907 $ 64,466
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 5,722 $ 5,500
Accounts payable 952 -
Accrued taxes 1,214 -
Other current liabilities 952 -
Current portion of long-term debt 88 98
----------- -----------
Total current liabilities 8,928 5,598
Long-term debt, excluding current portion 188 98
Contingencies and commitments
Stockholders' equity:
Common stock 123 110
Paid-in capital 81,852 59,633
Pension liability (849) (973)
Retained earnings 68,665 -
----------- -----------
Total stockholders' equity 149,791 58,770
----------- -----------
$ 158,907 $ 64,466
=========== ===========
See note to condensed financial statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
EMERGING COMMUNICATIONS, INC. Schedule I
(Parent Company Only) (Continued)
CONDENSED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(Amounts in Thousands, Except Per Share Amounts)
- ------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
Advisory fees $ 7,870 $ 8,895 $ 7,057
Interest income 4,555 4,490 4,681
-------- -------- ---------
12,425 13,385 11,738
Expenses:
Interest 893 548 533
Loss on split-off of ATN - - 45,041
General and administrative 7,215 7,117 7,227
-------- -------- ---------
8,108 7,665 52,801
-------- -------- ---------
Income (loss) before income taxes and equity in undistributed
earnings of subsidiaries 4,317 5,720 (41,063)
Income taxes (1,049) (1,651) (1,445)
--------- --------- ---------
Income (loss) before equity in undistributed earnings of subsidiaries 3,268 4,069 (42,508)
Equity in undistributed earnings of subsidiaries 13,942 13,938 23,255
-------- -------- ---------
Net income (loss) $ 17,210 $ 18,007 $ (19,253)
======== ======== =========
Basic net income (loss) per share $ 1.40 $ 1.47 $ (1.57)
======== ======== =========
</TABLE>
See note to condensed financial statements.
F-22
<PAGE>
<TABLE>
<CAPTION>
EMERGING COMMUNICATIONS, INC. Schedule I
(Parent Company Only) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(Amounts in Thousands)
- -------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 17,210 $ 18,007 $(19,253)
Adjustments to reconcile net income to net cash flows from
from operating activities:
Loss on split-off of ATN - - 45,041
Equity in undistributed earnings of subsidiaries (13,942) (13,938) (23,255)
Depreciation and amortization 662 694 427
Change in operating assets and liabilities, net of effect of split-off
Transaction:
Other assets 1,138 (1,120) (2,782)
Other liabilities 1,267 (7) 894
Other 395 138 366
-------- -------- --------
Net cash flows from operating activities 6,505 3,426 1,438
Cash flows from investing activities:
Change in advance to subsidiaries (4,844) 669 21,205
Cash transferred to ATN - - (5,482)
Capital expenditures (377) - (36)
-------- -------- --------
Net cash flows from investing activities (5,221) 669 15,687
Cash flows from financing activities:
Net repayments on notes - (790) (222)
Issuance of long-term debt 356 - -
Repayment of long-term debt (204) (4,342) (81)
Purchase of Company stock - - (17,400)
-------- -------- --------
Net cash flows from financing activities 152 (5,132) (17,703)
-------- --------- --------
Net change in cash 1,436 (1,037) (578)
Cash, beginning of year 179 1,615 578
-------- -------- --------
Cash, end of year $ 1,615 $ 578 $ -
======== ======== ======
Supplemental cash flow information:
Interest paid $ 1,037 $ 542 $ 515
======== ======== ========
Income taxes paid $ 260 $ 620 $ 2,310
======== ======== ========
Non-cash activities:
Split-off of ATN $ - $ - $ 99,285
======== ======== ========
</TABLE>
See notes to condensed financial statements.
F-23
<PAGE>
Schedule I
(Continued)
EMERGING COMMUNICATIONS, INC.
(Parent Company Only)
NOTE TO CONDENSED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
- -----------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
Investment in Subsidiaries - Emerging Communications, Inc.'s
investment in subsidiary is accounted for using the equity method.
Split-Off Transaction - On December 30, 1997, Atlantic Tele-Network,
Inc. (ATN) split-off into two separate public companies (the Transaction).
One, a new company, Emerging Communications, Inc. and subsidiaries (EmCOM
or the Company) contains all of the predecessors telephone operations in
the U.S. Virgin Islands. The other public company, ATN, continues to own
the business and operations in Guyana. Since Emerging Comunications, Inc.
was the larger of the split-off entities, ATN was the split-off entity. The
Company is the successor company and its historical financial statements
prior to the split-off are those of the consolidated group, and therefore
include the operations in Guyana prior to the split-off.
The Transaction was a non-pro rata split-off and accordingly has been
accounted for at fair value as evidenced by the market capitalization of
ATN. Consequently, the loss on fair valuation of the net assets of ATN has
been included in the consolidated statement of operations.
F-24
<PAGE>
<TABLE>
<CAPTION>
Schedule II
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in Thousands)
- -------------------------------------------------------------------------------------------------------------------------
Balance at Charged to Net Balance
Beginning Costs and Charge Transferred to at End
of Period Expenses Offs ATN of Period
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Description:
Allowance for doubtful accounts $ 1,908 $ 1,723 $ 627 $ - $ 3,004
======= ======= ====== ========= =======
YEAR ENDED DECEMBER 31, 1996:
Description:
Allowance for doubtful accounts $ 3,004 $ 389 $1,248 $ - $ 2,145
======= ======= ====== ========= =======
YEAR ENDED DECEMBER 31, 1997
Description:
Allowance for doubtful accounts $ 2,145 $ 427 $ 882 $ 502 $ 1,191
======= ======= ====== ========= =======
</TABLE>
F-25
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
EMERGING COMMUNICATIONS, INC.
* * * * *
The present name of the corporation is Emerging Communications, Inc. (the
"Corporation"). The corporation was incorporated under that name by the filing
of its original Certificate of Incorporation with the Secretary of State of the
State of Delaware on March 17, 1997. This Restated Certificate of Incorporation
of the Corporation, which both restates and further amends the provisions of the
Corporation's Certificate of Incorporation, was duly adopted in accordance with
the provisions of Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware. The Corporation's board of directors (the "Board of
Directors") adopted a resolution approving the following amendments to and
restatement of the Certificate of Incorporation of the Corporation. The
Certificate of Incorporation of the Corporation is hereby amended and restated
to read in its entirety as follows:
FIRST: The name of the Corporation is Emerging Communications, Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware. The Corporation is to have perpetual existence.
FOURTH: A. The total number of shares of all classes of stock that the
Corporation shall be authorized to issue is 50,000,000 shares, divided into
40,000,000 shares of Common Stock, par value $.01 per share (herein called
"Common Stock"), and 10,000,000 shares of Preferred Stock, par value $.01 per
share (herein called "Preferred Stock").
B. The Board of Directors is hereby expressly authorized, by resolution or
resolutions thereof, to provide, out of the unissued shares of Preferred Stock,
for series of Preferred Stock and, with respect to each such series, to fix the
number of shares constituting such series and the designation of such series,
the voting powers (if any) of the shares of such series, and the preferences and
relative, participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series. The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding.
C. Except as may otherwise be provided in this Restated Certificate of
Incorporation (including any certificate filed with the Secretary of State of
the State of Delaware establishing the terms of a series of Preferred Stock in
accordance with Section B of this Article FOURTH) or by applicable law, each
holder of Common Stock, as such, shall be entitled to one vote for each share of
Common Stock held of record by such holder on all
<PAGE>
-2-
matters on which stockholders generally are entitled to vote, and no holder of
any series of Preferred Stock, as such, shall be entitled to any voting powers
in respect thereof. The number of authorized shares of Common Stock and
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority in voting power of the stock of the Corporation entitled to vote
thereon irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of the State of Delaware (or any successor provision thereto),
and no vote of the holders of either the Common Stock or the Preferred Stock
voting separately as a class shall be required therefor.
D. Subject to applicable law and the rights, if any, of the holders of any
outstanding series of Preferred Stock, dividends may be declared and paid on the
Common Stock at such times and in such amounts as the Board of Directors in its
discretion shall determine.
E. Upon the dissolution, liquidation or winding up of the Corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock, the holders of the Common Stock shall be entitled to receive
the assets of the Corporation available for distribution to its stockholders
ratably in proportion to the number of shares held by them.
F. The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
FIFTH: A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors, consisting of not less than
three nor more than fifteen directors, with the exact number of directors
constituting the entire Board of Directors to be determined from time to time by
resolution adopted by the affirmative vote of a majority of the entire Board of
Directors. For purposes of this Restated Certificate of Incorporation, "the
entire Board of Directors" shall mean the number of directors that would be in
office if there were no vacancies nor any unfilled newly created directorships.
The Board of Directors shall be divided into three classes--Class I, Class
II and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the number of directors constituting the entire Board of Directors.
Class I directors shall be initially elected for a term expiring at the first
succeeding annual meeting of stockholders following the effectiveness of this
Restated Certificate of Incorporation, Class II directors shall be initially
elected for a term expiring at the second succeeding annual meeting of
stockholders following the effectiveness of this Restated Certificate of
Incorporation, and Class III directors shall be initially elected for a term
expiring at the third succeeding annual meeting of stockholders following the
effectiveness of this Restated Certificate of Incorporation. At each annual
meeting of the stockholders following the effectiveness of this Restated
Certificate of Incorporation, successors to the class of directors whose term
expires at that annual meeting shall be elected for a term expiring at the third
succeeding annual meeting of stockholders. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a newly created
directorship resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
shall a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of directors may only be filled and
any other vacancy occurring in the Board of Directors may only be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remain-
<PAGE>
-3-
ing director. Directors chosen to fill any such vacancy shall hold office for a
term expiring at the annual meeting of stockholders at which the term of office
of the class to which they have been elected expires and until such directors'
successors shall have been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class or
series, to elect directors, the election, removal, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation (including any certificate
filed with the Secretary of State of the State of Delaware establishing the
terms of a series of Preferred Stock in accordance with Section B of Article
FOURTH hereof) applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Article FIFTH unless expressly provided by
such terms.
B. The Board of Directors shall be authorized to adopt, make, amend, alter,
change, add to or repeal the By-Laws of the corporation, subject to the power of
the stockholders to amend, alter, change, add to or repeal the By-Laws made by
the Board of Directors.
C. Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of the members of the Board of Directors need not
be by written ballot.
SIXTH: The Corporation does hereby elect not to be governed by the
provisions of Section 203 of the General Corporation Law of the State of
Delaware.
SEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.
EIGHTH: A. Each person who was or is a party or is threatened to be made a
party to, or is involved, in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or, while a
director or officer of the Corporation, is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent permitted by the laws of the State of Delaware, as the same exists or may
hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, amounts paid in settlement, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) actually and
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators. Notwithstanding the preceding sentence, the
Corporation shall be required to indemnify an indemnitee in connection with a
proceeding (or part thereof) commenced by such indemnitee only if the
commencement of such proceeding (or part thereof) by the indemnitee was
authorized by the Board of Directors of the Corporation.
<PAGE>
-4-
B. The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any expense, liability or loss
incurred by such person in any such capacity, or arising out of his or her
status as such, whether or not the Corporation would have the power to indemnify
him or her against such liability.
C. Neither the amendment nor repeal of this Article EIGHTH, nor the
adoption of any provision of this Restated Certificate of Incorporation or the
By-Laws of the Corporation, nor, to the fullest extent permitted by the laws of
the State of Delaware, any modification of law, shall eliminate or reduce the
effect of this Article EIGHTH in respect of any acts or omissions occurring
prior to such amendment, repeal, adoption or modification.
NINTH: A. Meetings of stockholders may be held within or without the State
of Delaware as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the General Corporation Law of the State
of Delaware) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the By-Laws of the
Corporation.
B. Except as may otherwise be provided in this Restated Certificate of
Incorporation (including any certificate filed with the Secretary of the State
of Delaware establishing the terms of a series of Preferred Stock in accordance
with Section B of Article FOURTH), no action that is required or permitted to be
taken by the stockholders of the Corporation at any annual or special meeting of
stockholders may be effected by written consent of stockholders in lieu of a
meeting of stockholders. Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of at least
80 percent in voting power of the then outstanding voting stock of the
Corporation, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with Section B of this Article NINTH.
TENTH: Subject to the provisions of this Restated Certificate of
Incorporation and applicable law, the Corporation reserves the right at any time
and from time to time to amend, alter, change or repeal any provision contained
in this Restated Certificate of Incorporation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed herein or by
applicable law, and all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other persons whomsoever by and
pursuant to this Restated Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the right reserved in this Article
TENTH.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate
of Incorporation this 24th day of December, 1997.
EMERGING COMMUNICATIONS, INC.
By: /s/ Jeffrey J. Prosser
--------------------------------------
Name: Jeffrey J. Prosser
Office: Chief Executive Officer and
Secretary
EXHIBIT 3.2
BY-LAWS
OF
EMERGING COMMUNICATIONS, INC.
ARTICLE I
PLACE OF STOCKHOLDER MEETINGS;
NO STOCKHOLDER WRITTEN CONSENT
Section 1. All meetings of the stockholders shall be held at such place or
places, within or without the State of Delaware, as may from time to time be
fixed by the Board of Directors of the corporation (the "Board"), or as shall be
specified or fixed in the respective notices or waivers of notice thereof. A
stockholder vote may only be taken at a duly convened Annual Meeting or Special
Meeting of Stockholders in accordance with those By-Laws and not by written
consent in lieu of such a meeting.
NOTICE OF MEETING
Section 2. Written or printed notice, stating the place, day and hour of
the meeting and the purpose or purposes for which the meeting is called, shall
be prepared and delivered by the corporation not less than ten days nor more
than sixty days before the date of the meeting, either personally, or by mail,
to each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
with postage thereon prepaid, addressed to the stockholder at his address as it
appears on the stock transfer books of the corporation. Such further notice
shall be given as may be required by law. Meetings may be held without notice if
all stockholders entitled to vote are present (except as otherwise provided by
law), or if notice is waived by those not present. Any previously scheduled
meeting of the stockholders may be postponed and (unless the Restated
Certificate of Incorporation otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board upon public notice
given prior to the time previously scheduled for such meeting of stockholders.
NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS
Section 3. (A) Annual Meetings of Stockholders. (1) Nominations of persons
for election to the Board of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders
(a) pursuant to the corporation's notice of meeting delivered pursuant to
Section 2.4 of these By-Laws, (b) by or at the direction of the Chairman of the
Board or the Board or (c) by any stockholder of the corporation who is entitled
to vote at the meeting, who complied with the notice procedures set forth in
clauses (2) and (3) of this paragraph (A) of this By-Law and who was a
stockholder of record at the time such notice is delivered to the Secretary of
the corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-Law, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
corporation not less than seventy days nor more than ninety days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
twenty days, or delayed by more than seventy days, from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to
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such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule l4a-11 thereunder, including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner and (iii) whether the proponent intends or is part of a group
which intends to solicit proxies from other stockholders in support of such
nomination or proposal. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this By-Law to the contrary, in the event that the number of directors to be
elected to the Board of the corporation is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board made by the corporation at least eighty days prior to the
first anniversary of the preceding year's annual meeting, a stockholder's notice
required by this By-Law shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the corporation
not later than the close of business on the tenth day following the day on which
such public announcement is first made by the corporation.
(B) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the corporation's notice of meeting pursuant to Section 2.4
of these By-Laws. Nominations of persons for election to the Board may be made
at a special meeting of stockholders at which directors are to be elected
pursuant to the corporation's notice of meeting (a) by or at the direction of
the Board or (b) by any stockholder of the corporation who is entitled to vote
at the meeting, who complies with the notice procedures set forth in this By-Law
and who is a stockholder of record at the time such notice is delivered to the
Secretary of the corporation. In the event the corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board, any such stockholder may nominate a person or persons (as the case may
be), for election to such position(s) as are specified in the corporations
Notice of Meeting, if the stockholder's notice as required by paragraph (A)(2)
of this By-Law shall be delivered to the Secretary at the principal executive
offices of the corporation not earlier than the ninetieth day prior to such
special meeting and not later than the close of business on the later of the
seventieth day prior to such special meeting or the tenth day following the day
on which public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(C) General. (1) Only persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
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brought before the meeting was made in accordance with the procedures set forth
in this By-Law and, if any proposed nomination or business is not in compliance
with this By-Law, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-Law. Nothing in this By-Law shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
QUORUM
Section 4. Unless otherwise provided by statute, the holders of shares of
stock entitled to cast a majority of votes at a meeting, present either in
person or by proxy, shall constitute a quorum at such meeting. The Secretary of
the corporation or in his absence an Assistant Secretary or an appointee of the
presiding officer of the meeting, shall act as the Secretary of the meeting.
VOTING
Section 5. Except as otherwise provided by law or the Certificate of
Incorporation, each stockholder entitled to vote at any meeting shall be
entitled to one vote, in person or by written proxy, for each share held of
record on the record date fixed as provided in Section 4 of Article V of these
By-Laws for determining the stockholders entitled to vote at such meeting. At
all meetings of stockholders for the election of directors a plurality of the
votes cast shall be sufficient to elect. All other elections and questions
shall, unless otherwise provided by the certificate of incorporation, these
By-Laws, the rules or regulations of any stock exchange applicable to the
corporation, as otherwise provided by law or pursuant to any regulation
applicable to the corporation, be decided by the affirmative vote of the holders
of a majority in voting power of the shares of stock of the corporation which
are present in person or by proxy and entitled to vote thereon.
Elections of directors need not be by written ballot; provided, however,
that by resolution duly adopted, a vote by written ballot may be required.
PROXIES
Section 6. Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for him by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A proxy shall be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument revoking the proxy or by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary of the
corporation. In order to be exercised at a meeting of stockholders, proxies
shall be delivered to the Secretary of the corporation or his representative at
or before the time of such meeting.
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INSPECTORS
Section 7. At each meeting of the stockholders, the polls shall be opened
and closed; the proxies and ballots shall be received and be taken in charge,
and all questions touching the qualification of voters and the validity of
proxies and the acceptance or rejection of votes shall to the extent required by
applicable law, be decided by one or more Inspectors, a majority of whom shall
have power to make a decision. Such Inspectors , if any, shall be appointed by
the Board before the meeting, or in default thereof by the presiding officer at
the meeting, and shall be sworn to the faithful performance of their duties. If
any of the Inspectors previously appointed shall fail to attend or refuse or be
unable to serve, substitutes shall be appointed by the presiding officer.
CONDUCT OF MEETINGS
Section 8. The date and time of the opening and the closing of the polls
for each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting by the chairman of the meeting. The Board may adopt by
resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board, the chairman of any
meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the meeting. Such
rules, regulations or procedures, whether adopted by the Board or prescribed by
the chairman of the meeting, may include, without limitation, the following: (i)
the establishment of an agenda or order of business for the meeting; (ii) rules
and procedures for maintaining order at the meeting and the safety of those
present, (iii) limitations on attendance at or participation in the meeting to
stockholders of record of the corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with the rules of parliamentary procedure.
ARTICLE II
BOARD OF DIRECTORS
NUMBER; METHOD OF ELECTION;
TERMS OF OFFICE AND QUALIFICATION
Section 1. The business and affairs of the corporation shall be managed
under the direction of the Board. The number of directors which shall constitute
the entire Board shall not be less than three nor more than fifteen and shall be
determined from time to time by resolution adopted by a majority of the entire
Board.
Any director may resign his office at any time by delivering his
resignation in writing to the corporation, and the acceptance of such
resignation unless required by the terms thereof shall not be necessary to make
such resignation effective.
MEETINGS
Section 2. The Board may hold its meetings and have an office in such place
or places within or without the State of Delaware as the Board by resolution
from time to time may determine.
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The Board may in its discretion may provide for regular or stated meetings
of the Board. Notice of regular or stated meetings need not be given. Special
meetings of the Board shall be held whenever called by direction of the Chief
Executive Officer, the President or any two of the directors.
Notice of any special meeting shall be given by the Secretary to each
director either by mail or by telegram, facsimile, telephone or other electronic
communication or transmission. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least three days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph corporation at least twenty-four hours before such meeting. If by
facsimile, telephone or other electronic communication or transmission, such
notice shall be transmitted at least twenty-four hours before such meeting.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Except as otherwise provided by applicable law, at any meeting at which
every director shall be present, even though without notice, any business may be
transacted. No notice of any adjourned meeting need be given.
The Board shall meet immediately after election, following the Annual
Meeting of Stockholders, for the purpose of organizing, for the election of
corporate officers as hereinafter specified, and for the transaction of any
other business which may come before it. No notice of such meeting shall be
necessary.
QUORUM
Section 3. Except as otherwise expressly required by these By-Laws or by
statute, a majority of the directors then in office (but not less than one-third
of the total number of directors constituting the entire Board) shall be present
at any meeting of the Board in order to constitute a quorum for the transaction
of business at such meeting, and the vote of a majority of the directors present
at any such meeting at which quorum is present shall be necessary for the
passage of any resolution or for an act to be the act of the Board. In the
absence of a quorum, a majority of the directors present may adjourn such
meeting from time to time until a quorum shall be present. Notice of any
adjourned meeting need not be given.
COMPENSATION OF BOARD OF DIRECTORS
Section 4. Each director (other than a director who is a salaried officer
of the corporation or of any subsidiary of the corporation), in consideration of
his serving as such, shall be entitled to receive from the corporation such
amount per annum and such fees for attendance at meetings of the Board or of any
committee of the Board (a "Committee"), or both, as the Board shall from time to
time determine. The Board may likewise provide that the corporation shall
reimburse each director or member of a Committee for any expenses incurred by
him on account of his attendance at any such meeting. Nothing contained in this
Section shall be construed to preclude any director from serving the corporation
in any other capacity and receiving compensation therefor.
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ARTICLE III
COMMITTEES OF THE BOARD
COMMITTEES
Section 1. The Board shall elect from the directors a Compensation
Committee and an Audit Committee and any other Committee which the Board may by
resolution prescribe. Any such other Committee shall be comprised of such
persons and shall possess such authority as shall be set forth in such
resolution.
PROCEDURE
Section 2. (1) Each Committee shall fix its own rules of procedure and
shall meet where and as provided by such rules. Unless otherwise stated in these
By-Laws, a majority of a Committee shall constitute a quorum.
(2) In the absence or disqualification of a member of any Committee, the
members of such Committee present at any meeting, and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Fees in connection with such appointments shall be
established by the Board.
REPORTS TO THE BOARD
Section 3. All completed actions by the Audit and Compensation Committees
shall be reported to the Board at the next succeeding Board meeting and shall be
subject to revision or alteration by the Board, provided, that no acts or rights
of third parties shall be affected by any such revision or alteration.
COMPENSATION COMMITTEE
Section 4. The Board shall elect a Compensation Committee consisting of at
least two members of the Board, none of whom shall be officers or employees of
the corporation or of any subsidiary corporation. The Board shall appoint a
chairman of such Committee who shall be one of its members. The Compensation
shall have such authority and duties as the Board by resolution shall prescribe.
AUDIT COMMITTEE
Section 5. The Board shall elect from among its members an Audit Committee
consisting of at least two members. The Board shall appoint a chairman of said
Committee who shall be one of its members. The Audit Committee shall have such
authority and duties as the Board by resolution shall prescribe.
ARTICLE IV
OFFICERS GENERAL PROVISIONS
Section 1. The corporate officers of the corporation shall consist of the
following: a Chairman, a Chief Executive Officer, a Secretary, a Treasurer, a
Controller, and such other officers as the Board may from time to time
designate. Insofar as permitted by statute, the same person may hold two or more
offices. All officers chosen by the Board shall each have such powers and duties
as generally pertain to their respective offices, subject to the specific
provisions of this Article IV.
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The Chairman, Chief Executive Officer, Secretary, Treasurer and Controller
shall be elected by the Board. Each such officer shall hold office until his
successor is elected or appointed and qualified or until his earlier death,
resignation or removal.
Any officer may be removed, with or without cause, at any time by the
Board.
A vacancy in any office may be filled for the unexpired portion of the term
in the same manner as provided in these By-Laws for election or appointment to
such office.
POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER
Section 2. The Chief Executive Officer shall have general charge and
management of the affairs, property and business of the corporation, subject to
the Board, and the provisions of these By-Laws. The Chief Executive Officer, or
in his absence such other individual as the Board may select, shall preside at
all meetings of the stockholders. He shall also preside at meetings of the
Board, and in his absence the Board shall appoint one of their number to
preside.
The Chief Executive Officer shall perform all duties assigned to him in
these By-Laws and such other duties as may from time to time be assigned to him
by the Board. He shall have the power to appoint and remove, with or without
cause, such officers, other than those elected by the Board as provided for in
these By-Laws, as in his judgment may be necessary or proper for the transaction
of the business of the corporation, and shall determine their duties, all
subject to ratification by the Board.
POWERS AND DUTIES OF OTHER OFFICERS
Section 3. The Chairman shall perform such duties as may from time to time
be assigned to him by the Board or the Chief Executive Officer.
Section 4. The Secretary shall record the proceedings of all meetings of
the Board and the stockholders, in books kept for that purpose. The Secretary
shall be the custodian of the corporate seal, and he shall affix the same to and
countersign papers requiring such acts; and he shall perform such other duties
as may be required by the Board or the Chief Executive Officer.
Section 5. The Treasurer shall have care and custody of all funds of the
corporation and disburse and administer the same under the direction of the
Board or the Chief Executive Officer and shall perform such other duties as the
Board or the Chief Executive Officer shall assign to him.
Section 6. The Controller shall maintain adequate records of all assets,
liabilities and transactions of the corporation and see that audits thereof are
currently and regularly made; and he shall perform such other duties as may be
required by the Board or the Chief Executive Officer.
SALARIES AND APPOINTMENTS
Section 7. The salaries of corporate officers shall be fixed by the
Compensation Committee provided for in Section 5 of Article III hereof, except
that the fixing of salaries below certain levels, determinable from time to time
by the Compensation Committee, may in the discretion of the Compensation
Committee be delegated to the Chief Executive Officer, subject to the approval
of the Board.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8. (1) The corporation shall indemnify and hold harmless, to
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person (an "Indemnitee") who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceedings, whether civil, criminal, administrative or investigative, including
appeals (a "proceeding"), by reason of the fact that he, or a person for whom he
is the legal representative, is or was a director or officer of the corporation
or, while a director or officer of the corporation, is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Indemnitee. Notwithstanding the preceding sentence, except as
otherwise provided in paragraph (3) of this Section 8, the corporation shall be
required to indemnify an Indemnitee in connection with a proceeding (or part
hereof) commenced by such Indemnitee only if the commencement of such proceeding
(or part thereof) by the Indemnitee was authorized by the Board.
(2) The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its final
disposition, provided, however, that, to the extent required by law, such
payment of expenses in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Indemnitee to repay all
amounts advanced if it should be ultimately determined that the Indemnitee is
not entitled to be indemnified under this Section 8 or otherwise.
(3) If a claim for indemnification or payment of expenses under this
Section 8 is not paid in full within thirty days after a written claim therefor
by the Indemnitee has been received by the corporation, the Indemnitee may file
suit to recover the unpaid amount of such claim and, if successful in whole or
in part, shall be entitled to be paid the expense of prosecuting such claim. In
any such action the corporation shall have the burden of proving that the
Indemnitee is not entitled to the requested indemnification or payment of
expenses under applicable law.
(4) The rights conferred on any Indemnitee by this Section 8 shall not be
exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation, these
By-Laws, agreement, vote of stockholders or disinterested directors or
otherwise.
(5) The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such
Indemnitee may collect as indemnification or advancement of expenses from such
other corporation, partnership, joint venture, trust, enterprise or nonprofit
enterprise.
(6) Any repeal or modification of the foregoing provisions of this Section
8 shall not adversely affect any right or protection hereunder of any Indemnitee
in respect of any act or omission occurring prior to the time of such repeal or
modification.
(7) This Section 8 shall not limit the right of the corporation, to the
extent and in the manner permitted by law, to indemnify and to advance expenses
to persons other than Indemnitees when and as authorized by appropriate
corporate action.
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ARTICLE V
CAPITAL STOCK
CERTIFICATES OF STOCK
Section 1. Certificates of stock certifying the number of shares owned
shall be issued to each stockholder in such form not inconsistent with the
Certificate of Incorporation as shall be approved by the Board. Such
certificates of stock shall be numbered and registered in the order in which
they are issued and shall be signed by the Chairman or the Chief Executive
Officer and by the Treasurer or the Secretary. Any and all the signatures on the
certificates may be a facsimile.
TRANSFER OF SHARES
Section 2. Transfers of shares shall be made only upon the books of the
corporation by the holder, in person, or by power of attorney duly executed and
filed with the Secretary of the corporation, and on the surrender of the
certificate or certificates of such shares, properly assigned. The corporation
may, if and whenever the Board shall so determine, maintain one or more offices
or agencies, each in charge of an agent designated by the Board, where the
shares of the capital stock of the corporation shall be transferred and/or
registered. The Board may also make such additional rules and regulations as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 3. The corporation may issue a new certificate of capital stock of
the corporation in place of any certificate theretofore issued by the
corporation, alleged to have been lost, stolen or destroyed, and the corporation
may, but shall not be obligated to, require the owner of the alleged lost,
stolen or destroyed certificate, or his legal representatives, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate, as the officers of the
corporation may, in their discretion require.
FIXING OF RECORD DATE
Section 4. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board, and (3) in
the case of any other action, shall not be more than sixty days prior to such
other action. If no record date is fixed by the Board: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held, and (2) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting
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of stockholders shall apply to any adjournment of the meeting, provided,
however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VI
MISCELLANEOUS
DIVIDENDS AND RESERVES
Section 1. Dividends upon the capital stock of the corporation may be
declared as permitted by law by the Board at any regular or special meeting.
Before payment of any dividend or making any distribution of profits, there may
be set aside out of the surplus or net profits of the corporation such sum or
sums as the Board, from time to time, in their absolute discretion, think proper
as a reserve fund to meet contingencies, or for such other purposes as the Board
shall think conducive to the interests of the corporation, and any reserve so
established may be abolished and restored to the surplus account by like action
of the Board.
SEAL
Section 2. The seal of the corporation shall bear the corporate name of the
corporation, the year of its incorporation and the words "Corporate Seal,
Delaware".
WAIVER
Section 3. Whenever any notice whatever is required to be given by statute
or under the provisions of the Certificate of Incorporation or these By-Laws, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Neither the business to be transacted at, nor the purpose
of, any annual or special meeting of the stockholders or the Board, as the case
may be, need be specified in any waiver of notice of such meeting.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall begin with January
first and end with December thirty-first.
CONTRACTS
Section 5. Except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, any contracts or other instruments may be
executed and delivered in the name and on the behalf of the corporation by such
officer or officers of the corporation as the Board may from time to time
direct. Such authority may be general or confined to specific instances as the
Board may determine. The Chairman of the Board, the Chief Executive Officer, the
Treasurer and the Secretary may execute bonds, contracts, deeds, leases and
other instruments to be made or executed for or on behalf of the corporation
subject to any restrictions imposed by the Board, the Chairman of the Board, the
Chief Executive Officer, the Treasurer and the Secretary of the corporation may
delegate contractual powers to others under this jurisdiction, it being
understood, however, that any such delegation of power shall not relieve such
officer of responsibility with respect to the exercise of such delegated power.
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PROXIES
Section 6. Unless otherwise provided by resolution adopted by the Board,
the Chairman of the Board, the Chief Executive Officer, the Treasurer and the
Secretary may from time to time appoint an attorney or attorneys or agent or
agents of the corporation, in the name and on behalf of the corporation, to cast
the votes which the corporation may be entitled to cast as the holder of stock
or other securities in any other corporation or other entity, any of whose stock
or other securities may be held by the corporation, at meetings of the holders
of the stock or other securities may other corporation or other entity, or to
consent in writing, in the name of the corporation as such holder, to any action
by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
AMENDMENTS
Section 7. The Board from time to time shall have the power to make, alter,
amend or repeal any and all of these By-Laws, but any By-Laws so made, altered
or repealed by the Board may be amended, altered or repealed by the
stockholders.
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CERTIFICATION
The undersigned hereby certifies that he is the duly elected and acting
Secretary of Emerging Communications, Inc., a Delaware corporation, and the
keeper of its corporate records and minutes. The undersigned further hereby
certifies that the above and foregoing is a true and correct copy of the By-Laws
of said corporation, as in force at the date hereof.
WITNESS the hand of the undersigned and the seal of said corporation, this
30th day of December, 1997.
By: /s/ Jeffrey J. Prosser
-------------------------------
Name: Jeffrey J. Prosser
Title: Secretary
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 31st
day of December, 1997 by and between Emerging Communications, Inc., a Delaware
Corporation (the "Company"), and Jeffrey J. Prosser ("Employee").
WHEREAS, the Company desires to employ the Employee and to enter into this
Agreement to embody the terms of such employment; and
WHEREAS, the Employee desires such employment and to enter into this
Agreement.
NOW, THEREFORE, for and in consideration of the premise and mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. As used in this Agreement, the following terms
have the meanings ascribed to them below:
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Change of Control" shall be deemed to have occurred upon the happening of
any of the following:
(a) The acquisition by any person, entity or "group", within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act of 1934, as amended (the
"Exchange Act"), (excluding the Employee) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of
either the then outstanding shares of the Company's common stock or the combined
voting power of the Company's then outstanding voting securities entitled to
vote generally in the election of directors; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person who first
becomes director subsequent to the date hereof whose recommendation, election or
nomination for election by the Company's stockholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of the individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of the Company, as described in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the Incumbent
Board; or
(c) Approval by the stockholders of the Company of a reorganization, share
exchange, merger or consolidation with respect to which, in any such case, the
persons who were the stockholders of the Company immediately prior to such
reorganization, share exchange, merger or consolidation do not, immediately
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thereafter, own more than 60% of the combined voting power entitled to vote in
the election of directors of the reorganized, merged or consolidated company; or
(d) Liquidation or dissolution of the Company or a sales of all or
substantially all the assets of the Company.
"Salary Adjustment Amount" means an amount equal to the percentage increase
(if any) in the "Consumer Price Index for all Urban Consumers" (the "Index")
published by the Bureau of Labor Statistics of the United States Department of
Labor for the twelve month period ending with the December immediately preceding
such determination of the Salary Adjustment Amount. Appropriate adjustment shall
be promptly made in case there is a published amendment of the Index figures
upon which the computation is based. In the event the Index is discontinued, the
parties hereto shall accept comparable statistics on the cost of living
published by an agency of the United States or a responsible financial
periodical of recognized authority.
ARTICLE II
TERMS OF EMPLOYMENT
SECTION 2.01. Employment Term. The Employee shall be employed by the
Company for a period commencing on the date of this Agreement and ending five
years from such date (such date, and each five year anniversary of such date, is
hereinafter refereed to as the "Renewal Date"); provided that, unless the
Company, as authorized by its Board of Directors, shall have delivered to the
Employee written notice of its intent not to renew the employment of the
Employee under this Agreement at least six months prior to the Renewal Date, the
term of the employment of Employee under this Agreement shall extend for a
period of five years from the applicable Renewal Date. The period of the
Employee's employment hereunder, including any renewal thereof pursuant to the
previous sentence, is referred to herein as the "Employment Term."
SECTION 2.02. Position and Duties. The Employee shall serve as Chief
Executive Officer of the Company. During the Employment Term, excluding any
periods of vacation and sick leave to which the Employee is entitled, the
Employee agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Employee hereunder, to use the
Employee's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Term, it shall not be a violation of
this Agreement for the Employee to serve on corporate, civic or charitable
boards or committees, deliver lectures, fulfill speaking engagements or teach at
educational institutions, manage personal investments or engage in other
activities which do not materially and adversely interfere with the performance
of the Employee's responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Employee prior to the date
hereof, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereof) subsequent to the date hereof shall not be
deemed to interfere with the performance of the Employee's responsibilities to
the Company hereunder.
SECTION 2.03. Compensation.
(a) Base Salary. The Company shall pay to the Employee a base salary of
$600,000 during the first year of the Employment Term. For each subsequent year
during the Employment Term, the Company shall pay to the Employee a base salary
in an amount at least equal to the base salary for the previous year, plus an
amount equal to the Salary Adjustment Amount multiplied by the Employee's Base
Salary for the imme-
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diately preceding year. The base salary payable during any year during the
Employment Term, including the applicable adjustment pursuant to the Salary
Adjustment Amount and as otherwise increased is referred to herein as the "Base
Salary" for such year. During the Employment Term, the Base Salary shall be
reviewed at least annually and shall be increased at least to the extent of any
percentage increase awarded to another executive officer of the Company for such
year. An increase is Base Salary shall not serve to limit or reduce any other
obligation to the Employee under this Agreement. Base Salary shall not be
reduced during the Employment Term.
(b) Annual Bonus. In addition to Base Salary, the employee shall be
entitled to receive such annual bonus, if any, as the Board of Directors of the
Company, or any duly authorized committee thereof, shall in its discretion
determine; provided that after the occurrence of a Change of Control during the
Employment Term, the Employee shall be granted an annual bonus payable in cash
on each anniversary of the date of this Agreement following such Change of
Control during the Employment Term in an amount at least equal to the highest
annual bonus paid to the Employee by the Company during the preceding five
years.
(c) Incentive, Savings and Retirement Plans. In addition to Base Salary and
annual bonus payable as hereinabove provided, the Employee shall be entitled to
participate during the Employment Term in all incentive, saving and retirement
plans, practices, policies and programs which are applicable to other key
employees of the Company. After the occurrence of a Change in Control during the
Employment Term, the compensation, benefits and reward opportunities provided to
the Employee pursuant to such plans, practices, policies and programs, in the
aggregate, shall during the Employment Term, be at least as favorable as the
most favorable of such compensation, benefits and reward opportunities in such
plans, practices, policies and programs as in effect at any time during the
90-day period immediately preceding such Change of Control or, if more favorable
to the Employee, as provided at any time thereafter with respect to other key
employees of the Company.
(d) Welfare Benefit Plans. During the Employment Term, the Employee and/or
the Employee's family, as the case may be, shall be eligible for participation
in and shall receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs).
After the occurrence of a Change of Control during the Employment Term, the
benefits provided to the Employee and/or Employee's family pursuant to such
plans, practices, policies and programs shall during the Employment Term at all
times be at least as favorable as the most favorable of such plans, practices,
policies and programs in effect at any time during the 90-day period immediately
preceding such Change of Control or, if more favorable to the Employee and/or
the Employee's family, as in effect at any time thereafter with respect to other
key employees of the Company.
(e) Options. The Employee shall be eligible to participate in the Company's
stock incentive and option plans (including, without limitation the Company's
1997 Long Term Incentive and Share Award Plan). On the date hereof, the Company
shall grant to the Employee options (the "Options") to purchase 273,978 shares
of the Company's common stock, par value $0.01 per share (the "Common Stock"),
at an exercise price of $8.00 per share pursuant to the Company's the Company's
1997 Long Term Incentive and Share Award Plan (the "Plan"), of which Options
(subject to Section 3.05 hereof) 25% shall vest immediately upon the granting
thereof and the remainder shall vest and become exercisable ratably and daily
(rounded up to the nearest share) over three years from the date of grant.
Subject to Section 3.05 hereof, the Options will be exercisable for the period
of ten years.
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SECTION 2.04. Additional Rights of the Employee and Obligations of the
Company.
(a) Expenses. During the Employment Term, the Employee shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Employee in accordance with the policies, practices and procedures of the
Company in effect from time to time.
(b) Fringe Benefits. During the Employment Term, in addition to the other
benefits provided herein, the Employee shall be entitled to fringe benefits made
generally available to key employees of the Company in accordance with the
plans, practices, policies and programs of the Company.
(c) Insurance. During the Employment Term and for a period a period of ten
years thereafter, the Company shall maintain term life insurance payable to
beneficiaries designated in writing by the Employee providing coverage of not
less than $10.0 million. The Company shall maintain directors and officers
liability insurance and general liability insurance with full defense coverage
in an amount reasonably acceptable to the Employee, covering the Employee with
regard to all actions taken by the Employee in his capacity as an officer,
director and employee of the Company or any of its subsidiaries or otherwise at
the direction of the Board of Directors of the Company during the Employment
Term.
(d) Travel. During the Employment Term, the Employee shall be entitled to
use an automobile of his choice leased by the Company. The Company shall pay all
amounts in respect of premiums for liability and comprehensive insurance
coverage (in amounts reasonably determined by the Employee) and will reimburse
the Employee for all operating, maintenance and repair expense. During the
Employment Term, in order to ensure the person safety of the Employee the
Employee shall, whenever practicable, utilize the corporate aircraft owned or
leased by the Company or any of its subsidiaries (at the expense of the Company
or such subsidiary, as the case may be) in connection with all travel requiring
air transportation (whether or not related to the performance of his duties
hereunder). For a period of five years after the termination of the Employment
Term, the Employee shall be provided reasonable use of such aircraft; provided
that the reasonable operating costs associated with such use shall be reimbursed
by the Employee.
(e) Estate Planning. The Company shall pay up to $20,000 during each year
of the Employment Term and for five years thereafter for legal, accounting and
other professionals of the Employee's choice who provide estate, nuptial
arrangements, tax planning and related services to the Employee.
(f) Office and Support Staff. During the Employment Term, the Employee
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to secretarial and other assistance, commensurate with
that typical for a chief executive officer of a public corporation.
(g) Vacation. During the Employment Term, the Employee shall be entitled to
four weeks paid vacation.
(h) Indemnification. The Employee shall be entitled during the Employment
Term, and thereafter with respect to occurrences during the Employment Term, to
the benefit of the indemnification provisions contained in the Articles of
Incorporation or By-Laws of the Company and in any contract entered into
pursuant thereto as in effect on the date hereof or, if more favorable to the
Employee, as in effect at any time thereafter, to the extent permitted by
applicable law at the time of the assertion of any liability against the
Employee.
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ARTICLE III
TERMINATION
SECTION 3.01. Death or Disability. The Employee's employment under this
Agreement shall terminate automatically upon the Employee's death. If the
Company determines in good faith that the Employee has become Disabled (as
defined below), it may give to the Employee written notice of its intention to
terminate the Employee's employment. In such event, the Employee's employment
with the Company shall terminate effective on the 90th day after receipt of such
notice by the Employee (the "Disability Effective Date"), provided that, within
the 90 days after such receipt, the Employee shall not have returned to
full-time performance of the Employee's duties. For purposes of this Agreement,
the Employee shall be regarded "Disabled" if either (a) a majority of the Board
of Directors by resolution determines that the Employee is physically or
mentally incapacitated in a manner that renders him incapable of performing his
duties hereunder for a period of six month or (b) the Employee applies for and
is determined to be eligible to receive disability benefits under a Company
long-term disability plan.
SECTION 3.02. Cause. During the Employment Term, the Company may only
terminate the Employee's employment under Section 3.01 or for Cause (as
defined). For purposes of this Agreement, "Cause" means (i) an act or acts of
personal dishonesty engaged in by the Employee and intended to result in
substantial personal enrichment of the Employee at the expense of the Company,
(ii) repeated violations by the Employee of the Employee's obligations under
Section 2.02 of this Agreement which are demonstrably willful and deliberate on
the Employee's part and which are not remedied in a reasonable period of time
after receipt of written notice from the Company pursuant to a resolution of its
Board of Directors or (iii) the non-appealable conviction of the Employee of a
felony.
SECTION 3.03. Good Reason. Notwithstanding anything to the contrary
contained herein, during the Employment Term, the Employee's employment may be
terminated by the Employee for Good Reason (as defined) and such termination
shall be deemed a constructive discharge of the Employee by the Company. For
purposes of this Agreement, "Good Reason" means:
(a) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (included status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 2.02 of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities;
(b) any failure by the Company to comply with any of the provisions of this
Agreement;
(c) the Company's requiring the Employee to be based at any office or
location other than the Company's corporate headquarters as of the date hereof
in St. Croix, U.S. Virgin Islands, except for travel reasonably required in the
performance of the Employee's responsibilities; or
(d) any purported termination by the Company of the Employee's employment
otherwise than as expressly permitted by this Agreement.
For purposes of this Section 3.03, any good faith determination of "Good
Reason" made by the Employee shall be conclusive. Anything in this Agreement to
the contrary notwithstanding, a termination by the Employee for any reason
during the eighteen month period immediately following a Change of Control shall
be deemed to be a termination for Good Reason for all purposes of this
Agreement.
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SECTION 3.04. Notice of Termination. Any termination of the Employee's
employment by the Company for Cause or by the Employee for Good Reason shall be
communicated by Notice of Termination (as defined) to the other party hereto
given in accordance with Section 5.03 of this Agreement. As used in this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the termination date. The failure
by the Employee to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not waive any
right of the Employee hereunder or preclude the Employee from asserting such
fact or circumstance in enforcing his rights hereunder. As used in this
Agreement, "Date of Termination" means the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be; provided,
however, that (i) if the Employee's employment is terminated by the Company
other than for Cause or Disability or by reason of death, the Date of
Termination shall be the date on which the Company notifies the Employee of such
termination and (ii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
SECTION 3.05. Obligations of the Company upon Termination.
(a) Termination Because of Death. If the Employee's employment is
terminated by reason of the Employee's death, such employment shall terminate
without further obligations under this Agreement (except as expressly provided
herein) to the Employee's representatives, other than those obligations accrued
or earned and vested (if applicable) by the Employee as of the Date of
Termination, including, for this purpose (i) the Employee's full Base Salary
accrued but unpaid through the Date of Termination at the rate in effect on the
Date of Termination, (ii) the product of the annual bonus paid to the Employee
for the last year of the Employment Term and a fraction, the numerator of which
is the number of days in the current year of the Employment Term through the
Date of Termination, and the denominator of which is 360, (iii) any compensation
previously deferred by the Employee (together with any accrued earnings thereon)
and not yet paid by the Company and any accrued vacation pay not yet paid by the
Company and (iv) all amounts payable to the estate or designated beneficiaries
of the Employee under any pension, savings, life insurance or other plans,
practices, policies and programs of the Company, and/or all other amounts
payable pursuant to Sections 2.03(c) and 2.04(c) hereof (such amounts specified
in clauses (i), (ii), (iii) and (iv) are hereinafter referred to as "Accrued
Obligations"). The Accrued Obligations specified in clauses (i), (ii) and (iii)
hereof shall be paid to the Employee's estate or beneficiary, as applicable, in
a lump sum in cash within 30 days of the Date of Termination, and the other
Accrued Obligations shall be paid in accordance with the Employee's specific
elections pursuant to, and otherwise in accordance with the terms of, any such
plan, practice, policy or program. Anything in this Agreement to the contrary
notwithstanding, the Employee's family shall be entitled to receive benefits at
least equal to the most favorable benefits provided by the Company or any of its
subsidiaries to surviving families of key employees the Company or any such
subsidiary under such plans, practices, policies or programs relating to family
death benefits on the Date of Termination. If the Employee's employment is
terminated by reason of death, all options to purchase Common Stock then owned
by the Employee shall become immediately vested and exercisable and the
exercisability thereof shall be extended for a period of ten years following the
Date of Termination.
(b) Termination Because of Disability. If the Employee's employment is
terminated by reason of the Employee's Disability, such employment shall
terminate without further obligations to the Employee, other than those
obligations accrued or earned and vested (if applicable) by the Employee as of
the Date of Termination, including for this purpose, all Accrued Obligations.
The Accrued Obligations specified in clauses (i), (ii) and (iii) of Section
3.05(a) hereof shall be paid to the Employee in a lump sum in cash within 30
days of the Date of Termination, and the other Accrued Obligations shall be paid
in accordance with the Em-
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ployee's specific elections pursuant to, and otherwise in accordance with the
terms of, any plan, practice, policy or program providing benefits forming a
part of the Accrued Obligations. Anything in this Agreement to the contrary
notwithstanding, the Employee shall be entitled after the Disability Effective
Date to receive disability and other benefits at least equal to the most
favorable of those provided by the Company and any of its subsidiaries to
disabled employees and/or their families in accordance with such plans,
practices, policies and programs relating to disability of the Company and its
subsidiaries in effect on the Disability Effective Date. If the Employee's
employment is terminated by reason of Disability, all options to purchase Common
Stock then owned by the Employee shall become immediately vested and exercisable
and the exercisability thereof shall be extended for a period ten years
following the Disability Effective Date.
(c) Termination For Cause by the Company or For Other Than Good Reason by
the Employee. If the Employee's employment shall be terminated for Cause, or if
the Employee terminates his employment other than for Good Reason, the
Employee's employment under this Agreement shall terminate without further
obligations to the Employee, other than those obligations accrued or earned and
vested (if applicable) by the Employee through the Date of Termination,
including for this purpose, all Accrued Obligations. The Accrued Obligations
specified in clauses (i), (ii) and (iii) of, Section 3.05(a) hereof shall be
paid to the Employee in a lump sum in cash within 30 days of the Date of
Termination, and the other Accrued Obligations shall be paid in accordance with
the Employee's specific elections pursuant to, and otherwise in accordance with
the terms of, any plan, practice, policy or program providing benefits forming a
part of the Accrued Obligations. If the Employee's employment is terminated for
Cause by the Company or for other than Good Reason by the Employee, all unvested
options to purchase Common Stock then owned by the Employee shall terminate.
(d) Termination For Good Reason by the Employee or For Other Than Cause or
Disability by the Company or Other Than As a Result of Death. If, during the
Employment Term, the Employee's employment shall be terminated by the Company
other than for Cause or Disability or other than as a result of the Employee's
death or if the Employee shall terminate his employment for Good Reason, the
Company shall pay to the Employee in a lump sum in cash within 30 days after the
Date of Termination (or in accordance with the Employee's specific elections
pursuant to, and otherwise in accordance with the terms of, any plan, practice,
policy or program providing benefits forming a part of the Accrued Obligations
specified in clause (iv) of Section 3.05(a) hereof) the aggregate of the
following amounts and shall provide the following benefits:
(i) The Employee's full Base Salary and vacation pay (for vacation not
taken) accrued but unpaid through the Date of Termination at the rate in
effect at the time of the Notice of Termination plus an amount equal to the
product of the highest annual bonus paid to the Employee for the last five
years of the Employment Term and a fraction, the numerator of which is the
number of days in the current year through the Date of Termination and the
denominator of which is 360, plus all other amounts to which the Employee
is entitled under any compensation plan, practice, policy or program of the
Company in effect at the time such payments are due;
(ii) In the event any compensation has been previously deferred by the
Employee, all amounts previously deferred (together with any accrued
earnings thereon) and not yet paid by the Company;
(iii) A lump sum severance payment in an amount equal to 500% of the
sum of (x) the Employee's Base Salary (on an annualized basis) for the year
which includes the Date of Termination and (y) the highest annual bonus
earned (whether or not deferred) by the Employee during the five years
immediately preceding the year which includes the Date of Termination;
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(iv) Following the Employee's termination of employment, the Company
shall continue to cover the Employee and his family under, or provide the
Employee and his family with insurance coverage no less favorable than, the
Company's life, disability, health, dental or other employee welfare
benefit plans or programs (as in effect on the Date of Termination) for a
period of five years following the Date of Termination;
(v) Following the Employee's termination of employment, the Company
shall treat the Employee as if he had continued participation and benefit
accruals under any the Company's Retirement Plan in which he participates
for five years following the Date of Termination, or the Company shall
provide an equivalent benefit outside such plan with the result that an
additional five years of age and service shall be granted to the Employee;
and
(vi) All options to purchase Common Stock then owned by the Employee
shall become immediately vested and exercisable and the exercisability
thereof shall be extended for a period of ten years following the Date of
Termination.
ARTICLE IV
ADDITIONAL AGREEMENTS
SECTION 4.01. Successor in Interest. The Employee may designate a successor
(or successors) in interest to receive any and all amounts due the Employee in
accordance with this Agreement should the Employee be deceased at any time of
payment. Such designation of successor(s) in interest shall be made in writing
signed by the Employee, and delivered to the Company pursuant to Section 5.03
hereof. Any such designation may be made to any legal person, persons, trust or
the Employee's estate as he shall determine in his sole discretion. In the event
any designation shall be incomplete, or in the event the Employee shall fail to
designate a successor in interest, his estate shall be deemed to be his
successor in interest to receive such portion of all of the payments due
hereunder. The Employee may amend, change or revoke any such designation at any
time and from time to time, in the same manner. This Section 4.01 shall not
supersede any designation of beneficiary or successor in interest made by the
Employee, or separately covered, under any other plan, practice, policy or
program of the Company.
SECTION 4.02. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Employee's continuing or future participation in any
benefit, bonus, incentive or other plans, practices, policies or programs
provided by the Company or any of its subsidiaries and for which the Employee
may qualify, nor shall anything herein limit or otherwise affect such rights as
the Employee may have under any stock option or other agreements with the
Company or any of its subsidiaries. Amounts which are vested benefits or which
the Employee is otherwise entitled to receive under any plan, practice, policy
or program of the Company or any of its subsidiaries at or subsequent to the
Date of Termination shall be payable in accordance with such plan, practice,
policy or program.
SECTION 4.03. Full Settlement; Legal Expenses. The Company's obligation to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Employee or others. In no event shall the Employee be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Employee under any of the provisions of this Agreement.
The Company agrees to pay, upon written demand therefor by the Employee, all
legal fees and ex-
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penses which the Employee may incur as a result of any dispute or contest
(regardless of the outcome thereof) by or with the Company or others regarding
the validity or enforceability of, or liability under, any provision of this
Agreement (including as a result of any contest by the Employee about the amount
of any payment pursuant to this Agreement), plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code. In any
such action brought by the Employee for damages or to enforce any provisions of
this Agreement, he shall be entitled to seek both legal and equitable relief and
remedies, including, without limitation, specific performance of the Company's
obligations hereunder, in his sole discretion. If the parties hereto so agree in
writing, any disputes under this Agreement may be settled by arbitration.
SECTION 4.04. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution made, or benefit
provided (including, without limitation, the acceleration of any payment,
distribution or benefit), by the Company to or for the benefit of the Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 4.04) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code (or any similar excise tax) or
any interest or penalties are incurred by the Employee with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Employee
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Employee of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment and any interest or penalties
imposed with respect to such taxes, the Employee retains from the Gross-Up
Payment an amount equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 4.04(c), all determinations
required to be made under this Section 4.04, including determination of whether
a Gross-Up Payment is required and of the amount of any such Gross-Up Payment,
shall be made by Deloitte & Touche (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Employee within 15
business days of the Date of Termination, if applicable, or such earlier time as
is requested by the Company, provided that any determination that an Excise Tax
is payable by the Employee shall be made on the basis of substantial authority.
The initial Gross-Up Payment, if any, as determined pursuant to this Section
4.04(b), shall be paid to the Employee within five business days of the receipt
of the Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by the Employee, it shall furnish the Employee with a
written opinion that has substantial authority not to report any Excise Tax on
his Federal income tax return. Any determination by the Accounting Firm meeting
the requirements of this Section 4.04(b) sha11 be binding upon the Company and
the Employee; subject only to payments pursuant to the following sentence based
on a determination that additional Gross-Up Payments should have been made,
consistent with the calculations required to be made hereunder (the amount of
such additional payments are referred to herein as the "Gross-Up Underpayment").
In the event that the Company exhausts its remedies pursuant to Section 4.04(c)
and the Employee thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Gross-Up Underpayment that has
occurred and any such Gross-Up Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee. The fees and disbursements of the
Accounting Firm shall be paid by the Company.
(c) The Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable after the Employee receives written notice of such claim and shall
apprise the Company of the nature of such claim and the date on which such claim
is requested to be paid. The Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with re-
<PAGE>
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spect to such claim is due). If the Company notifies the Employee in writing
prior to the expiration of such period that it desires to contest such claim and
that it will bear the costs and provide the indemnification as required by this
sentence, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney selected by the Company and satisfactory to the
Employee;
(iii) reasonably cooperate with the Company in order effectively to
contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 4.04(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax,
including interest or penalties with respect thereto, imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to the payment of taxes for the taxable year of the Employee with respect to
which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 4.04(c), the Employee becomes entitled to receive
any refund with respect to such claim, the Employee shall (subject to the
Company's complying with the requirements of Section 4.04(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 4.04(c), a
determination is made that the Employee shall not be entitled to any refund with
respect to such claim and the Company does not notify the Employee in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then any obligation of the Employee to repay such
advance shall be forgiven and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 4.05. Registration Rights.
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(a) So long as the Employee beneficially owns at least 3% of the
outstanding shares of Common Stock, the Company, upon the Employee's written
request, shall prepare and file with the Securities and Exchange Commission from
time to time registration statements and such other documents, if then required,
as may be necessary to permit a public offering and sale of shares of the Common
Stock by the Employee (the "Registrable Stock") in compliance with the
provisions of the Securities Act of 1933, as amended (the "Securities Act").
(b) The Company shall not have the right to include in any registration
statement filed pursuant to Section 4.05(a) any other securities of the Company
or any other person.
(c) If the Company proposes to register shares of Common Stock or
securities convertible into or exercisable for Common Stock under the Securities
Act (other than pursuant to a registration statement on Form S-4 or S-8 or any
successor form, or filed in connection with an exchange offer or an offering of
securities solely to the existing shareholders or employees of the Company),
then the Company shall give written notice of such proposed filing to the
Employee at least thirty days before the anticipated filing date, and such
notice shall offer the Employee the opportunity to register such number of
shares of Registrable Stock as the Employee may request. The Employee shall
notify the Company in writing specifying whether or not he elects to include any
Registrable Stock in such registration statement within twenty days after
delivery of the Company's notice to the Employee. The Company shall cause the
managing underwriter or underwriters of a proposed underwritten offering to
permit the Employee to include such securities in such offering on the same
terms and conditions as any similar securities of the Company included therein.
Notwithstanding the foregoing, if, at any time after giving written notice of
its intention to register Common Stock or other securities convertible into or
exercisable for Common Stock and prior to the effectiveness of the registration
statement filed in connection with such registration, the Company determines for
any reason either not to effect such registration or to delay such registration,
the Company, at its election, by delivery or written notice to the Employee, (i)
in the case of a determination not to effect registration, may relieve itself of
its obligations to register any Registrable Stock in connection with such
registration, or (ii) in the case of determination to delay the registration,
may delay the registration of such Registrable Stock for the same period as the
delay in the registration of such other shares of Common Stock or other
securities convertible into or exercisable for Common Stock.
(d) The Employee shall furnish to the Company such reasonable information
regarding the Employee, the Registrable Stock, and the intended method of
disposition of such securities as are required to effect the registration of
Registrable Stock as to which the Employee has requested registration.
(e) All expenses incident to the Company's performance of or compliance
with this Section 4.05 including, without limitation, all registration and
filing fees, fees and expenses of complying with state securities or blue sky
laws, printing expenses and fees and disbursements of counsel for the Company
and the Employee and of independent public accountants (including the expense of
any special audit), but excluding underwriting commissions and discounts for the
Employee, shall be borne by the Company. The Employee shall bear his own pro
rata share (calculated according to the number of his shares as a fraction of
the total number of shares covered by such registration statement) of all
underwriting commissions and discounts incurred in connection with any offering
of Registrable Stock with respect to a registration pursuant to this Section
4.05.
(f) In the event any shares of Registrable Stock are included in a
registration statement under this Section 4.05:
(i) The Company shall indemnify, defend and hold harmless the Employee
against any losses, claims, damages, or liabilities (joint or several) to
which he may become subject under the Securities Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or
actions
<PAGE>
-12-
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading.
(ii) Promptly after receipt by the Employee under this Section 4.05(f)
of notice of the commencement of any action (including any governmental
action), the Employee shall deliver to the Company a written notice of the
commencement thereof and the Company shall have the right to participate
in, and, to the extent the Company so desires, to assume the defense
thereof with counsel mutually satisfactory to the parties. The Employee
shall have the right to retain its own counsel, however, but the fees and
expenses of such counsel shall be at the expense of the Employee, unless
(x) the employment of such counsel has been specifically authorized in
writing by the Company, (y) the Company has failed timely to assume the
defense and employ counsel or (z) the named parties to any such action
(including any impleaded parties) include both the Employee and the
Company, and the Employee shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different
from or additional to those available to the Company (in which case the
Company shall not have the right to assume the defense of such action on
behalf of the Employee, it being understood, however, that the Company
shall not, in connection with any one such action or separate substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses
of more than one separate firm of attorneys). The failure to deliver
written notice to the Company within a reasonable time of the commencement
of any such action, if materially prejudicial to its ability to defend such
action, shall relieve the Company of any liability to the Employee under
this Section 4.05(f), but the omission so to deliver written notice to the
Company shall not relieve it of any liability that it may have to the
Employee otherwise than under this Section 4.05(f).
(iii) If the indemnification provided for in subsection (i) of this
Section 4.05(f) is unavailable or insufficient to hold harmless the
Employee under such subsection in respect of any losses, claims, damages or
liabilities or action in respect thereof or referred to therein, then the
Company, in lieu of indemnifying the Employee, shall contribute to the
amount paid or payable by the Employee as a result of such losses, claims,
damages, liabilities or actions in such proportion as is appropriate to
reflect the relative fault of the Company, on the one hand, and the
Employee on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or actions as well as
any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact relates to information supplied
by the Company, on the one hand, or the Employee, on the other hand, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company
and the Employee agree that it would not be just and equitable if
contribution pursuant to this Section 4.05(f)(iii) were determined by pro
rata allocation or by any other method of allocation which did not take
account of the equitable considerations referred to above in this
subsection. No person guilty of fraudulent misrepresentations (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
<PAGE>
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ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.01. Successors.
(a) This Agreement is personal to the Employee and without the prior
written consent of the Company shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Employee's legal representatives or
successor(s) in interest.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.
SECTION 5.02. Governing Law; Headings; Amendments. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without reference to principles of conflict of laws. The headings of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
SECTION 5.03. Notices. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Employee:
Jeffrey J. Prosser
5 and 10A Estate Shoys
St. Croix, U.S. Virgin Islands 00820
If to the Company:
Emerging Communications, Inc.
Chase Financial Center
Orange Grove, Christiansted
St. Croix, U.S. Virgin Islands 00821
Attention: Chairman of Board of Directors
<PAGE>
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or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
SECTION 5.04. Invalidity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
SECTION 5.05. No Waiver. The Employee's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision hereof.
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SECTION 5.06. Entire Agreement. This Agreement contains the entire
understanding of the Company and the Employee with respect to the subject matter
hereof but does not supersede or override the provisions of any stock option,
employee benefit or other plan, program, policy or practice in which Employee is
a participant or under which Employee is a beneficiary.
<PAGE>
IN WITNESS WHEREOF, the Employee has hereunto set his hand and, pursuant to
the authorization from its Board of Directors, the Company has caused these
presents to be executed as of the day and year first above written.
EMERGING COMMUNICATIONS, INC.
By: /s/ Thomas R. Minnich
------------------------------------
Name: Thomas R. Minnich
Title: Chief Operating Officer
/s/ Jeffrey J. Prosser
------------------------------------
Jeffrey J. Prosser
LOAN AGREEMENT
LOAN AGREEMENT ("Agreement") made as of December 30, 1997, between ATLANTIC
TELE-NETWORK CO., a United States Virgin Islands corporation ("Borrower"), and
RURAL TELEPHONE FINANCE COOPERATIVE, a South Dakota cooperative association
("Lender").
RECITALS
WHEREAS, Borrower has requested Lender to make the Loan(s) to Borrower
described in Schedule 1 hereto; and
WHEREAS, Lender is willing to make the Loan(s) upon the terms and
conditions set forth in this Agreement,
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, Borrower and Lender do hereby agree as follows:
1. CONSTRUCTION AND DEFINITION OF TERMS
All accounting terms not specifically defined herein shall have the
meanings assigned to them as determined by generally accepted accounting
principles. In addition to the terms defined elsewhere in this Agreement, unless
the context otherwise requires, when used herein, the following terms shall have
the following meanings:
"Adjustment Date" shall mean a date or dates, determined by the Lender
based on the term (or rate period) of the applicable Fixed Rate, after the date
of the initial Advance to the Maturity Date.
"Advance" shall mean an Advance as defined in Section 2.02.
"Business Day" shall mean any day that Lender is open for business.
"Cash Margins" for any year shall mean net income plus depreciation,
amortization and any other non-cash charges, less any non-cash credits and
principal on long-term debt payable in such year, as calculated on a
consolidated basis for Borrower and all its Subsidiaries.
"Certified" shall mean that the information, statement, schedule, report or
other document required to be "Certified" shall contain a representation of a
duly authorized officer of Borrower that such information, statement, schedule,
report or other document is true and correct and complete.
"Closing" shall mean the first date on which funds are advanced to Borrower
hereunder.
"Collateral" shall mean the Mortgaged Property, as such term is defined in
the Mortgage, and all proceeds, cash and non-cash, including insurance proceeds,
of the foregoing, whether in the possession of Borrower or any other person, and
certain stock and related proceeds and dividends described in, and pledged to
Lender pursuant to, a Pledge and Security Agreement dated as of even date
herewith (the "Pledge Agreement').
"Commitment" shall have the meaning set forth in Schedule 1 hereto.
<PAGE>
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"Debt Service Coverage Ratio" or "DSC" for any year shall mean (a) total
net income or margins plus depreciation and amortization expense, and interest
on long-term debt for such year, divided by (b) principal and interest on
long-term debt payable in such year, as measured on a consolidated basis for the
Borrower and all its Subsidiaries.
"Event of Default" shall mean any of the events described in Section 8
hereof.
"Fixed Rate" shall mean the interest rate per annum provided for in Section
2.03 of this Agreement.
"Leases" shall mean any lease of property by which Borrower or any
Subsidiary shall be obligated for rental or other payments which in the
aggregate are in excess of $100,000 other than such equipment leases which are
in form and substance substantially in conformity with lease agreements in
general use in Borrower's industry by companies of size and character similar to
Borrower.
"Lien" shall mean any statutory or common law consensual or non-consensual
mortgage, pledge, security interest, encumbrance, lien, right of set-off, claim
or charge of any kind, including, without limitation, any conditional sale or
other title retention transaction, any lease transaction in the nature thereof
and any secured transaction under the Uniform Commercial Code of any
jurisdiction.
"Loan" shall mean the loan or loans by the Lender to Borrower, pursuant to
this Agreement and the Note, in an aggregate principal amount not to exceed the
Commitment.
"Make-Whole Premium" shall mean the excess, if any, of (i) the present
value of the amount of interest that would have accrued during the applicable
Fixed Rate period on that portion of the Loan to be prepaid or converted over
(ii) the present value of the amount of interest Lender would earn if that
portion of the Loan to be prepaid or converted was reinvested for the remainder
of the applicable Fixed Rate period in U.S. Treasury obligations with a maturity
comparable to the remaining term of the applicable Fixed Rate period. For
purposes of calculating the present value in (i) and (ii) above, the discount
rate will be the rate of interest accruing on the U.S. Treasury obligations in
(ii) above.
"Maturity Date" shall mean the maturity date defined in the Note.
"Minimum Net Worth Test" shall be calculated on a consolidated basis for
the Borrower and all its Subsidiaries, and shall mean an equity to total asset
ratio of at least forty percent (40%). Equity shall be determined by subtracting
total liabilities from total assets.
"Mortgage" shall mean the mortgage and security agreement described in
Schedule 1.
"Net Worth" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries taken as a whole and arrived at by subtracting total
liabilities from total assets.
"Note" shall mean the Note or Notes executed and delivered by Borrower at
or prior to Closing pursuant to Subsection 5.02(a) hereof, and all renewals,
replacements and extensions thereof.
"Obligations" shall include the full and punctual performance of all
present and future duties, covenants and responsibilities due to the Lender by
Borrower under this Agreement, the Note, the Other Agreements, all present and
future obligations of Borrower to the Lender for the payment of money under this
Agree-
<PAGE>
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ment, the Note, the Other Agreements, extending to all principal amounts,
interest, late charges and all other charges and sums, as well as all costs and
expenses payable by Borrower under this Agreement, the Note, the Other
Agreements, and any and all other present and future monetary liabilities of
Borrower to the Lender, whether direct or indirect, contingent or noncontingent,
matured or unmatured, accrued or not accrued, related or unrelated to this
Agreement, whether or not of the same character or class as Borrower's
obligations under this Agreement and the Note, whether or not secured under any
other document, instrument or statutory or common law provision, as well as all
renewals, refinancings, consolidations, recastings and extensions of any of the
foregoing.
"Other Agreements" shall mean any and all promissory notes, security
agreements, assignments, subordination agreements, pledge or hypothecation
agreements, mortgages, deeds of trust, leases, contracts, guaranties,
instruments and documents now and hereafter existing between the Lender and
Borrower, executed and/or delivered pursuant to this Agreement or guaranteeing,
securing or in any other manner relating to any of the Obligations, including
the instruments and documents referred to in Subsection 5.02 hereof.
"Payment Date" shall mean the last day of each of the months referred to in
Schedule 1 hereto.
"Payment Notice" shall mean the notice furnished to the Borrower at least
quarterly indicating the precise amount of principal and/or interest due on the
next ensuing Payment Date, such notice to be sent to the Borrower at least ten
(10) days before such Payment Date.
"Person" shall include natural persons, corporations, associations,
partnerships, joint ventures, trusts, governments and agencies and departments
thereof, and every other entity of every kind.
"Pledge Agreement" shall mean the Pledge and Security Agreement executed by
and between Borrower and Lender as of even date herewith.
"Subordinated Capital Certificate" or "SCC" shall mean a subordinated
certificate representing an investment in the Lender purchased by the Borrower
in connection with the Loan.
"Subsidiary" at any time means any entity which is at the time beneficially
owned or controlled directly or indirectly by the Borrower, by one or more such
entities or by the Borrower and one or more such entities.
"Termination Date" shall mean that date which is two (2) years from the
date hereof.
"Times Interest Earned Ratio" or "TIER" for any year shall mean (a) total
net income or margins plus income taxes plus interest payable on long-term debt
for such year, divided by (b) interest on long-term debt payable in such year,
as measured on a consolidated basis for the Borrower and all its Subsidiaries.
"Total Plant" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries and shall mean the total of all assets included in
property, plant and equipment pursuant to generally accepted accounting
principles and shall exclude any goodwill or plant acquisition adjustments.
"Variable Rate" shall mean the variable rate established by the Lender from
time to time for loans similarly classified pursuant to Lender's policies and
procedures then in effect.
<PAGE>
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2. LOAN
2.01. Loan. The Lender agrees to make the Loan to Borrower subject to all
of the terms and conditions of this Agreement and the Other Agreements.
2.02. Advances. The Lender agrees to make, and the Borrower agrees to
request, on the terms and conditions of this Agreement, Advances from time to
time at the office of the Lender in Herndon, Virginia, or at such other place as
the Lender may designate, not to exceed the Commitment. The Borrower shall give
the Lender at least one Business Day prior written notice of the date on which
each Advance is to be made. On the Termination Date the Lender may stop
advancing funds and reduce the Commitment to the aggregate amount theretofore
advanced. The obligation of the Borrower to repay the Advances shall be
evidenced by the Note.
2.03. Payment, Amortization and Interest Rate.
(a) Payment. The Borrower shall pay on each Payment Date quarterly
installments, in an amount as determined by the Lender, of principal
and/or interest as shown in the Payment Notice, except that, if not
sooner paid, any balance of the principal amount and interest accrued
thereon and all other amounts due hereunder shall be due and, payable
on the Maturity Date. Payment of principal hereunder shall commence
after the first full quarter following the initial Advance of funds as
set forth in Schedule 1 and on each subsequent Payment Date until the
Maturity Date or such earlier date as all amounts due hereunder and on
account of the Note shall have been paid in full. Payment of interest
hereunder is due on each Payment Date in which a principal balance is
outstanding. Principal will be amortized in accordance with the method
stated in Schedule 1 hereto.
The Lender will use, for purposes of calculating the amortization of
principal, one of the following interest rates, as applicable:
(i) If the Borrower elects the Fixed Rate, the Fixed Rate in effect on the
Adjustment Date; or
(ii) If the Borrower elects the Variable Rate, the Variable Rate in effect
when amortization begins; or
(iii)If the Borrower elects to convert from one interest rate program to
another, pursuant to the provisions hereunder, the interest rate then
in effect for the elected program.
At the Lender's option, all payments shall be applied to late payment
charges due, as hereinafter provided, then to interest accrued to the date of
such payment, and then to the reduction of principal balance outstanding.
No provision of this Agreement or the Note shall require the
payment, or permit the collection, of interest in excess of the highest rate
permitted by applicable law.
(b) Interest Rate. Each Advance shall be initially made at the Variable
Rate. Interest shall be computed from the actual number of days
elapsed on the basis of a year of 365 days until the first Payment
Date following the initial Advance. Thereafter, interest shall
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continue to be computed for the actual number of days elapsed on the
basis of a year of 365 days unless a Fixed Rate is applicable to the
Loan, in which case interest shall be computed on the basis of a
30-day month and 360-day year.
(i) Variable Rate. If Advances are made at the Variable Rate, it shall
apply until the Maturity Date, except as provided hereinbelow.
(ii) Fixed Rate. If the Borrower elects a Fixed Rate, such Fixed Rate as is
available and in effect for loans similarly classified pursuant to
Lender's policies and procedures then in effect at the time of the
election shall apply to such Advance until the Adjustment Date. Upon
notice given by the Borrower five Business Days prior to such
Adjustment Date, Borrower may elect to reset the interest rate to such
Fixed Rate as is available and in effect at the time of such
Adjustment Date. Such reset Fixed Rate shall apply to that portion of
the outstanding principal balance of the Loan elected to have a Fixed
Rate from the Adjustment Date until a new Adjustment Date or the
Maturity Date. If Borrower does not elect to reset the Fixed Rate, the
Variable Rate shall apply to the outstanding principal balance of the
Loan that had been bearing interest at the Fixed Rate prior to such
Adjustment Date, from such Adjustment Date to the Maturity Date.
(iii) Conversion to Different Interest Program.
(A) Variable Rate to Fixed Rate. Subject to the conditions set forth
herein, the Borrower may convert from the Variable Rate to the
Fixed Rate for any portion or all of the principal amount of the
Commitment then outstanding at any time provided the Lender
offers a Fixed Rate at such time.
(B) Fixed Rate to Variable Rate. The Borrower may convert from a
Fixed Rate to the Variable Rate: (1) on an Adjustment Date or (2)
at any other time, provided that Borrower shall pay Lender any
applicable Make-Whole Premium.
2.04. Prepayment. In the event the Borrower prepays all or part of the
Loan, the Borrower shall pay any payment fee as the Lender may prescribe
pursuant to the terms of this Section 2.04. All prepayments shall be accompanied
by payment of accrued and unpaid interest on the amount of and to the date of
the prepayment. All prepayments shall be applied first to fees, second to the
payment of accrued and unpaid interest, and then to the unpaid balance of the
principal amount of the Loan. If the Loan bears interest at the Variable Rate
the Borrower may prepay the Loan or any portion thereof, as the case may be, at
any time subject to the terms hereof and said prepayment fee shall be in an
amount equal to fifty (50) basis points times the amount being prepaid. If the
Loan bears interest at the Fixed Rate, the Borrower may prepay the Loan only on
an Adjustment Date or any such other date provided that the Borrower shall pay a
prepayment fee in an amount equal to fifty (50) basis points times the amount
being prepaid plus any applicable Make-Whole Premium.
2.05. 5% Subordinated Capital Certificates. The Borrower shall purchase
SCCs which in the aggregate shall not exceed the amount specified in Schedule 1
hereto. Unless otherwise requested in writing by the Borrower prior to the
initial Advance and approved by the Lender, the Borrower agrees to purchase SCCs
either (1) with each Advance in the amount of five percent of each such Advance,
and each such SCC shall be paid for with proceeds of such Advance, or (2) by
making payments with Borrower's own funds in twenty equal quarterly
installments, commencing with the first full quarter following the initial
Advance. If the Borrower
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elects to pay for SCCs other than from Loan funds, the amount of the Commitment
will be correspondingly reduced by said amount when the SCCs are fully paid. If
the Borrower obtains Advances hereunder other than for the purpose of purchasing
SCCs and fails to pay for the SCCs, then the Lender may make Advances for the
account of the Borrower to purchase the SCCs. The Lender agrees to deliver the
SSCs on or about the date on which the SCCs have been paid for in full. The SCCs
shall bear no interest and shall mature in accordance with the terms thereof.
3. SECURITY
As security for the payment and performance of all of the Obligations,
Borrower has (i) entered into the Mortgage pledging and granting to the Lender a
prior and continuing security interest in the Collateral that may be secured by
the Mortgage that shall continually exist until all Obligations have been paid
in full and (ii) executed the Pledge Agreement with Lender pursuant to which
Borrower has pledged certain equity interests as described therein. If
reasonably required by the Lender at any time, Borrower shall make notations,
satisfactory to the Lender, on its books and records disclosing the existence of
the Lender's security interest in the Collateral. Borrower agrees that, with
respect to the Collateral which is subject to Article 9 of the Uniform
Commercial Code, the Lender shall have, but not be limited to, all the rights
and remedies of a secured party under the Uniform Commercial Code. The Lender
shall have no liability or duty, either before or after the occurrence of an
Event of Default hereunder, on account of loss of or damage to, or to collect or
enforce any of its rights against, the Collateral, or to preserve any rights
against account debtors or other parties with prior interests in the Collateral.
4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, Borrower represents and
warrants to the Lender as of the date of this Agreement that:
4.01. Good Standing. Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of the territory of its
organization; has the power to own its property and to carry on its business; is
duly qualified to do business; and is in good standing in each jurisdiction in
which the transaction of its business makes such qualification necessary.
4.02. Authority. Borrower has full power and authority to enter into this
Agreement, the Note, the Mortgage and the Pledge Agreement; to make the
borrowing hereunder; to execute and deliver all documents and instruments
required hereunder and to incur and perform the obligations provided for herein,
in the Mortgage, in the Pledge Agreement and in the Note, all of which have been
duly authorized by all necessary and proper corporate and other action; and no
consent or approval of any person, including, without limitation, stockholders
and members of Borrower and any public authority or regulatory body, which has
not been obtained is required as a condition to the validity or enforceability
hereof or thereof.
4.03. Binding Agreement. This Agreement has been duly and property executed
by Borrower, constitutes the valid and legally binding obligation of Borrower
and is fully enforceable against Borrower in accordance with its terms, subject
only to laws affecting the rights of creditors generally, the exercise of
judicial discretion in accordance with general principles of equity or because
waivers of statutory or common law rights or remedies may be limited.
4.04. No Conflicting Agreements. The execution, delivery of and performance
by Borrower of this Agreement, the Mortgage, the Pledge Agreement and the Note,
and the transactions contemplated hereby
<PAGE>
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or thereby, will not: (a) violate any provision of law, any order, rule or
regulation of any court or other agency of government, any award of any
arbitrator, the articles of incorporation or by-laws of Borrower, or any
indenture, contract, agreement, mortgage, deed of trust or other instrument to
which Borrower is a party or by which it or any of its property is bound; or (b)
be in conflict with, result in a breach of or constitute (with due notice and/or
lapse of time) a default under, any such award, indenture, contract agreement,
mortgage, deed of trust or other instrument, or result in the creation or
imposition of any Lien (other than contemplated hereby) upon any of the property
or assets of Borrower.
4.05. Litigation. There are no judgments, claims, actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or its properties, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, which may result in any material adverse
change in the business, operations, prospects, properties or assets or in the
condition, financial or otherwise, of Borrower, and Borrower is not, to its
knowledge, in default with respect to any judgment, order, writ, injunction,
decree, rule or regulation of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which would have a material adverse effect on Borrower.
4.06. Financial Condition. The financial statements of Borrower as at the
date set forth in Schedule 1 hereto, heretofore delivered to the Lender, are
complete and correct, fairly present the financial condition of Borrower and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis. There are no liabilities of Borrower, direct or
indirect, fixed or contingent, as of the date of such statements which are not
reflected therein. There has been no material adverse change in the financial
condition or operations of the Borrower from that set forth in said financial
statements except changes previously disclosed in writing to the Lender prior to
the date hereof.
4.07. Taxes. Borrower has paid or caused to be paid all federal, state and
local taxes to the extent that such taxes have become due, unless the Borrower
is contesting in good faith any such tax. Borrower has filed or caused to be
filed all federal, state and local tax returns which are required to be filed by
Borrower.
4.08. Title to Properties. Borrower has good and marketable title to all of
its real properties and owns all of its other properties and assets free and
clear of any liens, except (i) the lien of this Mortgage and taxes or
assessments not yet due; (ii) deposits or pledges to secure payment of workmen's
compensation, unemployment insurance, old age pensions or other social security;
and (iii) deposits or pledges to secure performance of bids, tenders, contracts
(other than contracts for the payment of borrowed money), leases, public or
statutory obligations, surety or appeal bonds, or other deposits or pledges for
purposes of like general nature in the ordinary course of business.
4.09. Licenses and Permits. Borrower has duly obtained and now holds all
licenses, permits, certifications, approvals and the like necessary to own and
operate its property and business that are required by federal, state and local
laws of the jurisdictions in which Borrower conducts its business and each
remains valid and in full force and effect.
4.10. Subsidiaries. Borrower has no Subsidiaries other than Subsidiaries
heretofore disclosed to the Lender, or hereafter formed or acquired with the
prior written consent of the Lender.
4.11. Certain Indebtedness. There is no indebtedness of Borrower owing to
any employee, officer, stockholder or director of the board of Borrower, other
than accrued salaries, commissions and the like and any indebtedness
subordinated to the Obligations pursuant hereto.
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4.12. Location of Office. The chief place of business of the Borrower and
the office where its records concerning accounts and contract rights are kept is
identified in Schedule 1 hereto.
4.13. Required Approvals. No license, consent, permit or approval of any
governmental agency or authority is required to enable the Borrower to enter
into this Agreement or to perform any of its obligations provided for herein
except as disclosed on Schedule 1 hereto and except with respect to regulatory
approvals which may be required in connection with the Lender's enforcement of
certain remedies hereunder.
4.14. ERISA. Each pension plan of Borrower and its Subsidiaries providing
benefits for employees of Borrower or such Subsidiary covered by Title IV of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereto ("ERISA"), is in compliance with ERISA in all material respects, and no
material liability to the Pension Benefit Guaranty Corporation ("PBGC") or to a
multiemployer plan has been, or is expected by Borrower or its Subsidiaries to
be, incurred by Borrower or such Subsidiaries.
5. CONDITIONS OF LENDING
The Lender shall have no obligation to make the initial Advance to Borrower
hereunder unless, as of the date of Closing, each of the following conditions
precedent shall be satisfied as provided below:
5.01. Legal Matters. All legal matters incident to the consummation of the
transactions hereby contemplated shall be satisfactory to counsel for the Lender
and to such local counsel as counsel for the Lender may retain.
5.02. Documents. There shall have been delivered to the Lender, fully
completed and duly executed (when applicable), the following, satisfactory to
the Lender and its counsel:
(a) This Agreement and the Note.
(b) Certified copies, satisfactory to the Lender, of all such
corporate documents and proceedings of the Borrower authorizing
the transactions herein contemplated.
(c) A written opinion from Borrower's counsel addressing such legal
matters as the Lender or its counsel shall reasonably require.
(d) The Borrower shall have (i) executed the Mortgage; (ii) if any
real property is owned by Borrower, recorded a valid and binding
Mortgage granting Lender a first lien in all real property owned
by Borrower; (iii) filed financing statements in all
jurisdictions necessary to provide Lender a first priority,
perfected security interest in all Collateral which may be
perfected by the filing of financing statements; and (iv)
delivered such other documents as are necessary to create or
continue a perfected security interest in favor of the Lender in
the Collateral.
(e) The Pledge Agreement dated as of even date herewith and related
stock powers.
5.03. Government Approvals. The Borrower shall have furnished to the Lender
true and correct copies of all certificates, authorizations and consents,
including without limitation the consents referred to in Section 4.13 hereof,
necessary for the execution, delivery or performance by the Borrower of this
Agreement, the Note, the Pledge and the Mortgage.
<PAGE>
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5.04. Representations, Warranties and Material Change. At Closing and at
the date of every subsequent Advance hereunder, all covenants, representations
and warranties set forth in this Agreement shall be true and correct on and as
of such time with the same effect as though such covenants, representations and
warranties had been made on and as of such date; no Event of Default specified
in Section 8 and no event which, with the lapse of time or the notice and lapse
of time specified in Section 8 would become such an Event of Default, shall have
occurred and be continuing or will have occurred after giving effect to the
Advance on the books of the Borrower, there shall have occurred no material
adverse change in the business or condition, financial or otherwise, of the
Borrower, and nothing shall have occurred which in the opinion of the Lender
materially and adversely affects the Borrower's ability to meet its obligations
hereunder.
5.05. Special Conditions. At Closing and at the time of every subsequent
Advance hereunder, the Lender and its counsel shall be fully satisfied that the
Borrower has complied and will continue to comply with any special conditions
identified in Schedule 1 hereto.
5.06. Requisitions. The Borrower will request Advances in form and
substance satisfactory to the Lender. Pursuant to the terms and conditions
hereof, the Lender will wire the proceeds of the requested Advance to an account
as directed by the Borrower.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees with the Lender that, until all of the
Obligations have been paid in full, Borrower will:
6.01. Membership. Remain, or an affiliate thereof will remain, a member in
good standing of the Lender.
6.02. Financial Statements and Other Information. Furnish to the Lender:
(a) financial statements as required by the Mortgage; (b) such other
information, reports or statements concerning the operations, business affairs
and/or financial condition of Borrower as the Lender may reasonably request from
time to time; and (c) promptly upon their becoming available information, in
form and substance satisfactory to Lender, evidence of any and all changes or
modification of licenses, permits, certifications, approvals and the like
necessary for Borrower to own or operate its business or a substantial part of
its business.
6.03. Financial Ratios. Subject to applicable laws and rules and orders of
regulatory bodies, and to events which in the judgment of the Lender are beyond
the control of the Borrower, so operate and manage its business as to achieve a
DSC of not less than 1.25 and a TIER of not less than 1.50, said ratios being
determined by averaging each of the two highest annual ratios during the three
most recent fiscal years.
6.04. Annual Certificate. Within one hundred twenty (120) days after the
close of each calendar year, commencing with the year in which the initial
Advance hereunder shall have been made, deliver to the Lender a written
statement signed by the general manager or such other similar presiding officer
stating that to the best of said person's knowledge, the Borrower has fulfilled
all of its Obligations under this Agreement, the Note, the Pledge and the
Mortgage throughout such year or, if there has been a default in the fulfillment
of any such Obligations, specifying each such default known to said person and
the nature and status thereof.
<PAGE>
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6.05. Use of Proceeds. Use Advances made hereunder and under the Note only
for the purpose identified in Schedule 1 hereto and for the payment of the
costs, expenses and fees incident to this Agreement and for no other purpose
whatsoever without the prior written consent of the Lender.
6.06. Special Affirmative Covenants. During the term hereof, Lender and its
counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special affirmative covenants identified in Schedule
1 hereto.
6.07. Mortgage Filing. Within 10 days of acquiring any real property, the
Borrower shall cause the Mortgage to be duly recorded as a first mortgage on all
real property and the Mortgage or other appropriate documentation shall have
been duly filed, recorded or indexed as a security interest in personal property
wherever the Lender shall have reasonably requested, all in accordance with
applicable law, and the Borrower shall have caused satisfactory evidence thereof
to be furnished to the Lender.
7. NEGATIVE COVENANTS
7.01. Notice. Borrower covenants and agrees with the Lender that Borrower
will not, directly or indirectly, without giving written notice to the Lender
thirty days prior to the effective date of any change:
(a) Change Location of Chief Place of Business. Change the location
of the Borrower's chief place of business.
(b) Change of Name. Change the name of Borrower.
7.02. Consent. Borrower covenants and agrees with the Lender that Borrower
will not, directly or indirectly, without the prior written consent of the
Lender:
(a) Control. Alter or permit alteration of control of the Borrower.
Control shall be as defined by regulations for telephone
companies issued by the Federal Communications Commission
("FCC").
(b) Subsidiaries. Form or acquire any Subsidiaries.
(c) Additional Indebtedness. Borrow money on a secured or unsecured
basis from any other lender or incur any additional secured or
unsecured indebtedness; or enter into or allow any of its
Subsidiaries to enter into any Leases, unless at that time
Borrower meets the Minimum Net Worth Test; provided, however,
Borrower and its Subsidiaries may grant purchase money secured
indebtedness or incur unsecured trade debt or pay other current
operating liabilities that arise in the ordinary course of
business so long as the aggregate total of such debt does not
exceed five percent (5%) of Borrower's consolidated total assets.
If Borrower meets the Minimum Net Worth Test, then Borrower and
its Subsidiaries may incur additional indebtedness or enter into
Leases without prior written approval of Lender provided the
Borrower meets the Minimum Net Worth Test after incurring such
additional indebtedness or entering into such Leases; provided,
further, however, Borrower must give at least thirty (30) days
written notice to Lender prior to incurring any additional
indebtedness or entering into such Leases.
<PAGE>
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7.03. Dividends and Other Cash Distributions. The Borrower will not, in any
one calendar year, without the prior approval in writing of the Lender (i)
declare or pay any dividends or make any other distribution to its stockholders
with respect to its capital stock; (ii) purchase or redeem or retire any of its
capital stock; or (iii) pay any management fees or if already paying a
management fee, pay an increase in management fees, unless with respect to any
of the foregoing (after giving effect to such transaction): (a) Borrower shall
have a minimum equity (determined by subtracting total liabilities from total
assets) to total assets ratio of twenty percent (20%); (b) Borrower shall be in
compliance with the financial ratios in Section 6.03 herein; and (c) the payment
of such dividend, the making of such distribution, or the purchase, redemption
or retirement of such stock, individually or in the aggregate, does not exceed
fifty percent (50%) of the prior fiscal year-end's net income. In no event may
the Borrower make such a distribution or payment when there is unpaid any due
installment of principal and/or interest on the Note or if the Borrower is
otherwise in material default of any provision of this Agreement or would be in
material default hereunder as a result of such distribution or payment.
7.04. Special Negative Covenants. During the term hereof, Lender and its
counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special negative covenants identified in Schedule 1
hereto.
7.05. Limitations on Loans, Investments and Other Obligations.
(a) The Borrower shall not, without first obtaining the written
approval of Lender, (i) purchase or make any commitment to
purchase any stock, bonds, notes, debentures or other securities
or obligations of or beneficial interest in, (ii) make any other
investment in, (iii) make any loan to, or (iv) guarantee, assume,
or otherwise become liable for any obligation of, any
corporation, association, partnership, joint venture, trust,
government or any agency or department thereof, or any other
entity of any kind if the aggregate amount of all such purchases,
investments, loans and guarantees exceeds the greater of ten
percent (10%) of Total Plant or thirty percent (30%) of Net
Worth.
(b) The following shall not be included in the limitation on
purchases investments, loans and guarantees in (a) above: (i)
bonds, notes, debentures, stock, or other securities or
obligations issued by or guaranteed by the United States
government or any agency or instrumentality thereof; (ii) bonds,
notes, debentures, stock, commercial paper, subordinated capital
certificates, or other security or obligation of institutions
whose senior unsecured debt obligations are rated by at least two
nationally recognized rating organizations in either or its two
highest categories; (iii) investments incidental to loans made by
RTFC; (iv) bonds, notes, debentures, commercial paper or any
other security of the National Rural Utilities Cooperative
Finance Corporation; and (v) any deposit that is fully insured by
the Federal Government.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
(a) Representations and Warranties. Any representation or warranty
made herein, in any of the Other Agreements or in any statement,
report, certificate, opinion, financial
<PAGE>
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statement or other document furnished or to be furnished in
connection with this Agreement or the Other Agreements shall be
false or misleading in any material respect.
(b) Payment. Failure of Borrower to make any of the payment
Obligations, including, without limitation, any sum due the
Lender under this Agreement or any of the Other Agreements, when
and as the same shall become due, whether at the due date
thereof, by demand, by acceleration or otherwise.
(c) Other Covenants. Failure of Borrower to observe or perform any
warranty, covenant or condition to be observed or performed by
Borrower under this Agreement or any of the Other Agreements.
(d) Existence. The Borrower shall forfeit or otherwise be deprived of
its charter, franchises, permits, easements, consents or licenses
required to carry on any material portion of its business.
(e) Other Obligations. Default by the Borrower in the payment when
due of any money owed by the Borrower, whether principal,
interest, premium or otherwise, under any other agreement for
borrowing money in an amount in excess of five percent (5%) of
total assets, whether or not such borrowing is secured.
(f) Bankruptcy. A court shall enter a decree or order for relief with
respect to the Borrower or any Subsidiary or guarantor (if any)
in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official, or ordering the winding up or
liquidation of its affairs, and such decree or order shall remain
unstayed and in effect for a period of sixty (60) consecutive
days or the Borrower or any Subsidiary or guarantor (if any)
shall commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
under any such law, or consent to the appointment or taking of
possession by a receiver, liquidator, assignee, custodian or
trustee, of a substantial part of its property, or make any
general assignment for the benefit of creditors.
(g) Dissolution or Liquidation. Other than as provided in subsection
(e) above, the dissolution or liquidation of the Borrower or any
Subsidiary or guarantor (if any), or failure by the Borrower or
any Subsidiary promptly to forestall or remove any execution,
garnishment or attachment of such consequence as will impair its
ability to continue its business or fulfill its obligations and
such execution, garnishment or attachment shall not be vacated
within sixty (60) days.
(h) Final Judgment. A final non-appealable judgment in excess of
$100,000 shall be entered against the Borrower and shall remain
unsatisfied or without a stay for a period of sixty (60) days.
<PAGE>
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9. RIGHTS AND REMEDIES
9.01. Rights and Remedies of the Lender. Upon the occurrence of an Event of
Default, the Lender may, subject to:
(i) thirty (30) days prior written notice during which time
Borrower shall have the opportunity to cure said Event of
Default except with respect to Obligations pursuant to 8(b),
8(f) and 8(g) above which shall require no notice or demand
and shall have no period to cure; and
(ii) compliance, if required, with the rules and regulations of
the FCC and any state public service or utilities commission
having jurisdiction;
exercise in any jurisdiction in which enforcement hereof is sought, the
following rights and remedies, in addition to all rights and remedies available
to the Lender under applicable law, all such rights and remedies being
cumulative and enforceable alternatively, successively or concurrently:
(a) Declare all unpaid principal outstanding on the Note, all
accrued and unpaid interest thereon, and all other
Obligations to be immediately due and payable and the same
shall thereupon become immediately due and payable without
presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived.
(b) Institute any proceeding or proceedings to enforce the
Obligations owed to, or any Liens in favor of the Lender.
(c) Pursue all rights and remedies available to the Lender that
are contemplated by the Mortgage in the manner, upon the
conditions, and with the effect provided in the Mortgage,
including but not limited to a suit for specific
performance, injunctive relief or damages.
(d) Pursue any other rights and remedies available to the Lender
at law or in equity.
9.02. Cumulative Nature of Remedies. Nothing herein shall limit the right
of the Lender, subject to notice and right to cure provisions contained herein,
to pursue all rights and remedies available to a creditor following the
occurrence of an Event of Default subject to compliance, if required, with the
rules and regulations of the FCC and any state public service or utilities
commission having jurisdiction. Each right, power and remedy of the Lender in
this Agreement and/or the Other Agreements shall be cumulative and concurrent,
and recourse to one or more rights or remedies shall not constitute a waiver or
any other right, power or remedy.
9.03. Costs and Expenses. Borrower agrees to pay and to be liable for any
and all reasonable expenses, including attorneys' fees and court costs, incurred
by the Lender in exercising or enforcing any of its rights hereunder or under
the Other Agreements, together with interest thereon at the rate and determined
in the manner provided in the Mortgage. Subject to the Mortgage and applicable
law, the Lender may apply all Collateral and proceeds of all Collateral to the
Obligations in any manner which the Lender, in its sole discretion, deems
appropriate, and Borrower will continue to be liable for any deficiency.
<PAGE>
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9.04. Late Payment Charges. If payment of any principal and/or interest due
under the terms of the Note is not received at the office of the Lender in
Herndon, Virginia, or as the Lender may otherwise designate to the Borrower,
within such time period as the Lender may prescribe from time to time in its
policies in connection with any late payment charges (such unpaid amount of
principal and/or interest being herein called the "delinquent amount" and the
period beginning after such due date until payment of the delinquent amount
being herein called the "late-payment period"), the Borrower will pay to the
Lender, in addition to all other amounts due under the terms of the Note, the
Mortgage, the Pledge and this Agreement, any late-payment charge as may be fixed
by the Lender from time to time, on the delinquent amount for the late-payment
period.
9.05. Lender's Setoff. The Lender shall have the right, in addition to all
other rights and remedies available to it, to set off and to recover against any
or all of the Obligations due to Lender, any monies now and hereafter owing to
Borrower by the Lender. Borrower waives all rights of setoff, deduction,
recoupment or counterclaim.
10. MISCELLANEOUS
10.01. Performance for Borrower. Borrower agrees and hereby authorizes that
the Lender may, in its sole discretion, but the Lender shall not be obligated
to, advance funds on behalf of Borrower without prior notice to Borrower, in
order to insure Borrower's compliance with any material covenant, warranty,
representation or agreement of Borrower made in or pursuant to this Agreement or
any of the Other Agreements, to preserve or protect any right or interest of the
Lender in the Collateral or under or pursuant to this Agreement or any of the
Other Agreements, including without limitation, the payment of any insurance
premiums or taxes and the satisfaction or discharge of any judgment or any Lien
upon the Collateral or other property or assets of Borrower, provided, however,
that the making of any such advance by the Lender shall not constitute a waiver
by the Lender of any Event of Default with respect to which such advance is made
nor relieve Borrower of any such Event or Default. Borrower shall pay to the
Lender upon demand all such advances made by the Lender with interest thereon at
the rate and determined in the manner provided in the Note. All such advances
shall be deemed to be included in the Obligations and secured by the security
interest granted the Lender hereunder to the extent permitted by law.
10.02. Expenses and Filing Fees. Whether or not any of the transactions
contemplated hereby shall be consummated, Borrower agrees to pay to the Lender
at Closing or thirty (30) days after the execution and delivery hereof,
whichever is earlier, all expenses of the Lender in connection with the filing
or recordation of all financing statements and instruments as may be required by
the Lender at the time of, or subsequent to, the execution of this Agreement,
including, without limitation, all documentary stamps, recordation and transfer
taxes and other costs and taxes incident to recordation of any document or
instrument in connection herewith. Borrower agrees to save harmless and
indemnify the Lender from and against any liability resulting from the failure
to pay any required documentary stamps, recordation and transfer taxes,
recording costs, or any other expenses incurred by the Lender in connection with
this Agreement. The provisions of this Subsection 10.02 shall survive the
execution and delivery of this Agreement and the payment of all other
Obligations.
10.03. Waivers by Borrower. Borrower hereby waives, to the extent the same
may be waived under applicable law: (a) in the event the Lender seeks to
repossess any or all of the Collateral by judicial proceedings, any bond(s) or
demand(s) for possession which otherwise may be necessary or required; (b)
presentment, demand for payment, protest and notice of non-payment and all
exemptions; and (c) substitution, impairment, exchange or release of any
collateral security for any of the Obligations. Borrower agrees that the Lender
may exercise any or all of its rights and/or remedies hereunder and under the
Other Agreements without resorting to and without regard to security or sources
of liability with respect to any of the Obligations.
<PAGE>
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10.04. Waivers by the Lender. Neither any failure nor any delay on the part
of the Lender in exercising any right, power or remedy hereunder or under any of
the Other Agreements shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
10.05. Lender's Records. Every statement of account or reconciliation
rendered by the Lender to Borrower with respect to any of the Obligations shall
be presumed conclusively to be correct and shall constitute an account stated
between the Lender and Borrower unless, within ten (10) Business Days after such
statement or reconciliation shall have been mailed, postage prepaid, to
Borrower, the Lender shall receive written notice of specific objection thereto.
10.06. Modifications. No modification or waiver of any provision of this
Agreement, the Note or any of the Other Agreements, and no consent to any
departure by Borrower therefrom shall in any event be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand upon Borrower in any case shall entitle Borrower to any other or further
notice or demand in the same, similar or other circumstances.
10.07. Notices. All notices, requests and other communications provided for
herein including, without limitation, any modifications of, or waivers, requests
or consents under, this Agreement shall be given or made in writing (including,
without limitation, by telecopy) and delivered to the intended recipient at the
"Address for Notices" specified below, or, as to any party, at such other
address as shall be designated by such party in a notice to each other party.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when personally delivered or, in the case of a
telecopied or mailed notice, upon receipt, in each case given or addressed as
provided for herein. The Address for Notices of the respective parties are as
follows:
Rural Telephone Finance Cooperative
Woodland Park
2201 Cooperative Way
Herndon, Virginia 20171-3025
Attention: Chief Executive Officer
Fax: 703-709-6776
The Borrower:
The address set forth in
Schedule 1 hereto
10.08. Governing Law; Submission To Jurisdiction; Waiver of Jury Trial.
(a) THE PERFORMANCE AND CONSTRUCTION OF THIS AGREEMENT AND THE NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH
OF VIRGINIA.
(b) BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES COURTS LOCATED IN VIRGINIA AND OF ANY STATE COURT SO LOCATED FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. BORROWER
<PAGE>
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IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE ESTABLISHING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
10.09. Holiday Payments. If any payment to be made by the Borrower
hereunder shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and such extension of time
shall be included in computing any interest in respect of such payment.
10.10. Consent to Patronage Capital Distributions. The Borrower hereby
consents that the amount of any distributions with respect to Borrower's
patronage which are made in written notices of allocation (as defined in Section
1388 of the Internal Revenue Code of 1986, as amended ("Code") including any
other comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
10.11. Right to Inspect. The Borrower shall permit representatives of the
Lender at any time during normal business hours to inspect and make abstracts
from the books and records pertaining to the Collateral, and permit
representatives of the Lender to be present at Borrower's place of business to
receive copies of all communications and remittances relating to the Collateral,
all in such manner as the Lender may reasonably require.
10.12. Survival; Successors and Assigns. All covenants, agreements,
representations and warranties made herein and in the Other Agreements shall
survive Closing and the execution and delivery to the Lender of the Note, and
shall continue in full force and effect until all of the Obligations have been
paid in full. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party. All covenants, agreements, representations and warranties by or on behalf
of Borrower which are contained in this Agreement and the Other Agreements shall
inure to the benefit of the successors and assigns of the Lender.
10.13. Assignment. The Lender may assign its rights and obligations under
this Agreement and the Other Agreements without the consent of the Borrower;
provided, however, that no such assignment shall result in terms or conditions
less favorable to Borrower. The Borrower may not assign any of its rights of
obligations under this Agreement or the Other Agreements without the prior
written consent of the Lender.
10.14. Severability. If any term, provision or condition, or any part
thereof, of this Agreement or any of the Other Agreements shall for any reason
be found or held invalid or unenforceable by any court or governmental agency of
competent jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term, provision or
condition, and this Agreement, the Note, and the Other Agreements shall survive
and be construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
<PAGE>
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10.15. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counter-parts shall together constitute one and the same instrument.
10.16. Headings/Use of Terms. The headings and sub-headings contained in
this Agreement are intended to be used for convenience only and do not
constitute part of this Agreement. The use of any gender or the neuter herein
shall also refer to the other gender or the neuter and the use of the plural
shall also refer to the singular, and vice versa.
10.17. Further Assurances. The Borrower will, upon demand of the Lender,
make, execute, acknowledge and deliver all such further and supplemental
indentures of mortgage, deeds of trust, mortgages, financing statements,
continuation statements, security agreements and/or any other instruments and
conveyances as may be reasonably requested by the Lender to effectuate the
intention of this Agreement and to provide for the securing and payment of the
principal of and interest on the Note according to the terms thereof. 10.18.
Lender's Approval. Wherever prior written approval of Lender is required under
the terms and conditions of this Agreement, Lender hereby agrees to not
unreasonably withhold said approval.
10.19. Merger and Integration. This Agreement and the attached exhibits and
matters incorporated by reference contain the entire agreement of the parties
hereto with respect to the matters covered and the transactions contemplated
hereby, and no other agreement, statement or promise made by any party hereto,
or by any employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid or binding.
10.20. Schedule 1. Schedule 1 attached hereto is an integral part of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
ATLANTIC TELE-NETWORK CO.
By: /s/ Jeffrey J. Prosser
------------------------------------
Name: Jeffrey J. Prosser
Title: Chief Executive Officer
(SEAL)
Attest: /s/ James Heying
--------------------------
Assistant Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By:/s/ Lawrence Zawalick
--------------------------------------
Title: Assistant Secretary-Treasurer
(SEAL)
Attest: /s/ Ken Fried
----------------------------------
Assistant Secretary-Treasurer
<PAGE>
SCHEDULE 1
1. The "Commitment" shall mean $18,315,789.
2. The Mortgage defined in Section 1 is the Mortgage and Security Agreement by
and between Borrower and Lender dated as of even date herewith.
3. The months relating to the Payment Date are September, December, March and
June.
4. The method of amortization referred to in Section 2.03 shall be based upon
the method indicated below.
____level principal
__X_level debt service (no principal deferral)
5. The amount referred to in Section 2.05 is $915,789 (A-02 loan).
6. The date of Borrower's financial statement referred to in Section 4.06 is
December 31, 1996.
7. The chief place of business referred to in Section 4.12 and address of
Borrower referred to in Section 10.07 is Chase Financial Center, P.O. Box
1730, St. Croix, U.S. Virgin Islands 00821-1730.
8. The government authorities referred to in Section 4.13 are the Virgin
Islands Public Service Commission ("VI PSC") and the Securities and
Exchange Commission ("SEC").
9. The special conditions referred to in Section 5.05 are as follows:
Prior to the initial Advance of funds from this loan, Lender shall receive,
in form and content satisfactory to Lender, copies of the following:
a) Borrower's Articles of Incorporation and Bylaws;
b) All definitive agreements relative to the reorganization of Borrower's
parent corporation, Atlantic Tele-Network, Inc. ("ATN-Inc"), into two
separate public companies ("the Split-Off");
c) The SEC's and all other necessary regulatory, government, lender and
shareholder approvals of the Split-Off;
d) An Internal Revenue Service ("IRS") opinion letter confirming the
tax-free treatment of the Split-Off;
e) A fairness opinion letter issued by an investment banking firm,
reasonably satisfactory to Lender, related to the Split-Off; and
f) Evidence of final approval by the United States Virgin Island's
Industrial Development Commission of Borrower's wholly-owned
Subsidiary, Virgin Islands Telephone Corporation, application for tax
relief.
<PAGE>
-2-
10. The purpose referred to in Section 6.05 is to: (i) fund the valuation
adjustment payments for the Split-Off and reorganization of Borrower and
ATN, Inc.; and (ii) purchase SCCs.
11. The special affirmative covenants referred to in Section 6.06 are as
follows: None
12. The special negative covenants referred to in Section 7.04 are as follows:
None
EMERGING COMMUNICATIONS, INC.
1997 LONG TERM INCENTIVE AND SHARE AWARD PLAN
1. Purposes.
The purposes of the 1999 Long Term Incentive and Share Award Plan are to
advance the interests of Emerging Communications, Inc., a Delaware corporation,
and its shareholders by providing a means to attract, retain and motivate
employees and directors of the Company upon whose judgment, initiative and
efforts the continued success, growth and development of the Company is
dependent.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a participating
employer under the Plan; provided that the Company owns, directly or indirectly,
at least 20% of the combined voting power of all classes of stock of such entity
or at least 20% of the ownership interests in such entity.
(b) "Award" means any Option, SAR, Restricted Share, Restricted Share Unit,
Performance Share, Performance Unit, Dividend Equivalent or Other Share-Based
Award granted to an Eligible Person under the Plan.
(c) "Award Agreement" means any written agreement, contract or other
instrument or document evidencing an Award.
(d) "Beneficiary" means the person, persons, trust or trusts which have
been designated by an Eligible Person in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under this Plan upon the death of such Eligible Person, or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to any provision of the Code shall be deemed to include
successor provisions thereto and regulations thereunder.
(g) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that the Committee shall consist of two or more directors of
the Company, each of whom is a "non-employee director" within the meaning of
Rule 16b-3 under the Exchange Act, to the extent applicable.
(h) "Company" means Emerging Communications, Inc., a corporation organized
under the laws of Delaware, or any successor corporation.
(i) "Director" means a member of the Board who is not an employee of the
Company, a Subsidiary or an Affiliate.
(j) "Dividend Equivalent" means a right, granted under Section 5(g), to
receive cash, Shares or other property equal in value to dividends paid with
respect to a specified number of Shares.
<PAGE>
-2-
Dividend Equivalents may be awarded on a free-standing basis or in connection
with another Award, and may be paid currently or on a deferred basis.
(k) "Eligible Person" means (i) an employee of the Company, a Subsidiary or
an Affiliate, including any director who is an employee, who is responsible for
or contributes to the management, growth and/or profitability of the business of
the Company, its Subsidiaries or Affiliates or (ii) a Director.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include successor provisions thereto and regulations thereunder.
(m) "Fair Market Value" means, with respect to Shares or other property,
the fair market value of such Shares or other property determined by such
methods or procedures as shall be established from time to time by the
Committee. If the Shares are listed on any established stock exchange or a
national market system, unless otherwise determined by the Committee in good
faith, the Fair Market Value of Shares shall mean the mean between the high and
low selling prices per Share on the immediately preceding date (or, if the
Shares were not traded on that day, the next preceding day that the Shares were
traded) on the principal exchange on which the Shares are traded, as such prices
are officially quoted on such exchange.
(n) "ISO" means any option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(o) "NQSO" means any Option that is not an ISO.
(p) "Option" means a right, granted under Section 5(b), to purchase one or
more Shares.
(q) "Other Share-Based Award" means a right, granted under Section 5(h),
that relates to or is valued by reference to Shares.
(r) "Participant" means an Eligible Person who has been granted an Award
under the Plan.
(s) "Performance Share" means a performance share granted under Section
5(f).
(t) "Performance Unit" means a performance unit granted under Section 5(f).
(u) "Plan" means this 1997 Long Term Incentive and Share Award Plan.
(v) "Restricted Shares" means an Award of Shares under Section 5(d) that
may be subject to certain restrictions and to a risk of forfeiture.
(w) "Restricted Share Unit" means a right, granted under Section 5(e), to
receive Shares or cash at the end of a specified deferral period.
(x) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(y) "SAR" or "Share Appreciation Right" means the right, granted under
Section 5(c), to be paid an amount measured by the difference between the
exercise price of the right and the Fair
<PAGE>
-3-
Market Value of Shares on the date of exercise of the right, with payment to be
made in cash, Shares or property as specified in the Award or determined by the
Committee.
(z) "Shares" means common stock, $.01 par value per share, of the Company.
(aa) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns shares
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
3. Administration.
(a) Authority of the Committee. Except as provided in Section 7, the Plan
shall be administered by the Committee, and the Committee shall have full and
final authority to take the following actions, in each case subject to and
consistent with the provisions of the Plan:
(i) to select Eligible Persons to whom Awards may be granted;
(ii) to designate Affiliates;
(iii) to determine the type or types of Awards to be granted to each
Eligible Person;
(iv) to determine the type and number of Awards to be granted, the
number of Shares to which an Award may relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price or purchase price, and any bases for adjusting
such exercise, grant or purchase price, any restriction or condition, any
schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability or settlement of an Award,
and waiver or accelerations thereof, and waivers of performance conditions
relating to an Award, based in each case on such considerations as the
Committee shall determine) and all other matters to be determined in
connection with an Award;
(v) to determine whether, to what extent, and under what circumstances
an Award may be settled, or the exercise price of an Award may be paid, in
cash, Shares, other Awards or other property, or an Award may be canceled,
forfeited, exchanged or surrendered;
(vi) to determine whether, to what extent, and under what
circumstances cash, Shares, other Awards or other property payable with
respect to an Award will be deferred either automatically, at the election
of the Committee, or at the election of the Eligible Person;
(vii) to prescribe the form of each Award Agreement, which need not be
identical for each Eligible Person;
(viii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(ix) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement or other instrument
hereunder;
(x) to accelerate the exercisability or vesting of all or any portion
of any Award or to extend the period during which an Award is exercisable;
and
<PAGE>
-4-
(xi) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. The Committee shall have
sole discretion in exercising its authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, Subsidiaries, Affiliates, Eligible Persons, any
person claiming any rights under the Plan from or through any Eligible Person
and shareholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. The Committee may delegate to officers
or managers of the Company or any Subsidiary or Affiliate the authority, subject
to such terms as the Committee shall determine, to perform administrative
functions and, with respect to Awards granted to persons not subject to Section
16 of the Exchange Act, to perform such other functions as the Committee may
determine, to the extent permitted under Rule 16b-3 (if applicable) and
applicable law.
(c) Limitation of Liability. Each member of the Committee shall be entitled
to, in good faith, rely or act upon any report or other information furnished to
him or her by any officer or other employee of the Company or any Subsidiary or
Affiliate, the Company's independent certified public accountants, or other
professional retained by the Company to assist in the administration of the
Plan. All members of the Committee and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination or interpretation.
(d) Limitation on Committee's Discretion. Anything in this Plan to the
contrary notwithstanding, in the case of any Award which is intended to qualify
as "performance-based compensation" within the meaning of Section 162(m)(4)(C)
of the Code, if the Award Agreement so provides, the Committee shall have no
discretion to increase the amount of compensation payable under the Award to the
extent such an increase would cause the Award to lose its qualification as such
performance-based compensation.
4. Shares Subject to the Plan.
(a) Subject to adjustment as provided in Section 4(b) hereof, the total
number of Shares reserved for issuance in connection with Awards under the Plan
shall be [ ].1 No Award may be granted if the number of Shares to which such
Award relates, when added to the number of Shares previously issued under the
Plan or otherwise previously reserved under the Plan, exceeds the number of
Shares reserved under the preceding sentence. If any Awards are forfeited,
canceled, terminated, exchanged or surrendered or such Award is settled in cash
or otherwise terminates without a distribution of Shares to the Participant, any
Shares counted against the number of Shares reserved and available under the
Plan with respect to such Award shall, to the extent of any such forfeiture,
settlement, termination, cancellation, exchange or surrender, again be available
for Awards under the Plan.
(b) In the event that the Committee shall determine that any dividend in
Shares, recapitalization, Share split, reverse split, reclassification,
reorganization, merger, consolidation, spin-off, combination, repurchase or
share exchange, or other similar corporate transaction or event, affects the
Shares such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Eligible Persons under the Plan, then the Committee
shall make such equitable changes or adjustments as it deems appropriate and, in
such manner as it may deem equitable, adjust any or all of (i) the number and
kind of shares which may thereafter be issued under the Plan, (ii) the number
and kind of shares, other securities or other consideration issued or issuable
in respect of outstanding Awards and (iii) the exercise
- ----------
1 Represents 10% of the outstanding shares of Common Stock on a fully diluted
basis.
<PAGE>
-5-
price, grant price or purchase price relating to any Award; provided, however,
in each case, that, with respect to ISOs, such adjustment shall be made in
accordance with Section 424(a) of the Code, unless the Committee determines
otherwise. In addition, the Committee is authorized to make adjustments in the
terms and conditions of, and the criteria and performance objectives included
in, Awards in recognition of unusual or non-recurring events (including, without
limitation, events described in the preceding sentence) affecting the Company or
any Subsidiary or Affiliate or the financial statements of the Company or any
Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations or accounting principles; provided, however, that, if an Award
Agreement specifically so provides, the Committee shall not have discretion to
increase the amount of compensation payable under the Award to the extent such
an increase would cause the Award to lose its qualification as performance-based
compensation for purposes of Section 162(m)(4)(C) of the Code and the
regulations thereunder.
(c) Any Shares distributed pursuant to an Award may consist, in whole or in
part, of authorized and unissued Shares or treasury Shares, including Shares
acquired by purchase in the open market or in private transactions.
5. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth in
this Section 5. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 8(d)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms regarding forfeiture
of Awards or continued exercisability of Awards in the event of termination of
employment by the Eligible Person.
(b) Options. The Committee is authorized to grant Options, which may be
NQSOs or ISOs, to Eligible Persons on the following terms and conditions:
(i) Exercise Price. The exercise price per Share purchasable under an
Option shall be determined by the Committee, and the Committee may, without
limitation, set an exercise price that is based upon achievement of
performance criteria if deemed appropriate by the Committee.
(ii) Time and Method of Exercise. The Committee shall determine at the
date of grant or thereafter the time or times at which an Option may be
exercised in whole or in part (including, without limitation, upon
achievement of performance criteria if deemed appropriate by the
Committee), the methods by which such exercise price may be paid or deemed
to be paid (including, without limitation, broker-assisted exercise
arrangements), the form of such payment (including, without limitation,
cash, Shares, notes or other property) and the methods by which Shares will
be delivered or deemed to be delivered to Eligible Persons.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including
but not limited to the requirement that the ISO shall be granted within ten
years from the earlier of the date of adoption or shareholder approval of
the Plan. ISOs may only be granted to employees of the Company or a
Subsidiary.
(c) SARs. The Committee is authorized to grant SARs to Eligible Persons on
the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Eligible Person to
whom it is granted a right to receive with respect to each Share subject
thereto, upon exercise thereof, the excess of (1) the Fair Market Value of
one Share on the date of exercise (or, if the Committee shall so determine
in the case of any such right, the Fair Market Value of one Share at any
time during a specified period before or after the date of exercise) over
(2) the exercise price of the SAR as
<PAGE>
-6-
determined by the Committee as of the date of grant of the SAR (which, in
the case of an SAR granted in tandem with an Option, shall be equal to the
exercise price of the underlying Option).
(ii) Other Terms. The Committee shall determine, at the time of grant
or thereafter, the time or times at which an SAR may be exercised in whole
or in part, the method of exercise, method of settlement, form of
consideration payable in settlement, method by which Shares will be
delivered or deemed to be delivered to Eligible Persons, whether or not an
SAR shall be in tandem with any other Award and any other terms and
conditions of any SAR. Unless the Committee determines otherwise, an SAR
(1) granted in tandem with an NQSO may be granted at the time of grant of
the related NQSO or at any time thereafter and (2) granted in tandem with
an ISO may only be granted at the time of grant of the related ISO.
(d) Restricted Shares. The Committee is authorized to grant Restricted
Shares to Eligible Persons on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Shares shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose at the date of grant or thereafter, which restrictions
may lapse separately or in combination at such times, under such
circumstances (including, without limitation, upon achievement of
performance criteria if deemed appropriate by the Committee), in such
installments or otherwise, as the Committee may determine. Except to the
extent restricted under the Award Agreement relating to the Restricted
Shares, an Eligible Person granted Restricted Shares shall have all of the
rights of a shareholder including, without limitation, the right to vote
Restricted Shares and the right to receive dividends thereon. The Committee
must certify in writing prior to the lapse of restrictions conditioned on
achievement of performance criteria that such performance criteria were in
fact satisfied.
(ii) Forfeiture. Except as otherwise determined by the Committee, at
the date of grant or thereafter, upon termination of employment during the
applicable restriction period, Restricted Shares and any accrued but unpaid
dividends or Dividend Equivalents that are at that time subject to
restrictions shall be forfeited; provided, however, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine
in any individual case, that restrictions or forfeiture conditions relating
to Restricted Shares will be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Restricted Shares.
(iii) Certificates for Shares. Restricted Shares granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Shares are registered in the name of
the Eligible Person, such certificates shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such
Restricted Shares, and the Company shall retain physical possession of the
certificate.
(iv) Dividends. Dividends paid on Restricted Shares shall be either
paid at the dividend payment date, or deferred for payment to such date as
determined by the Committee, in cash or in unrestricted Shares having a
Fair Market Value equal to the amount of such dividends. Shares distributed
in connection with a Share split or dividend in Shares, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Shares with respect to
which such Shares or other property has been distributed.
(e) Restricted Share Units. The Committee is authorized to grant Restricted
Share Units to Eligible Persons, subject to the following terms and conditions:
(i) Award and Restrictions. Delivery of Shares or cash, as the case
may be, will occur upon expiration of the deferral period specified for
Restricted Share Units by the Committee (or, if
<PAGE>
-7-
permitted by the Committee, as elected by the Eligible Person). In
addition, Restricted Share Units shall be subject to such restrictions as
the Committee may impose, if any (including, without limitation, the
achievement of performance criteria if deemed appropriate by the
Committee), at the date of grant or thereafter, which restrictions may
lapse at the expiration of the deferral period or at earlier or later
specified times, separately or in combination, in installments or
otherwise, as the Committee may determine. The Committee must certify in
writing prior to the lapse of restrictions conditioned on the achievement
of performance criteria that such performance criteria were in fact
satisfied.
(ii) Forfeiture. Except as otherwise determined by the Committee at
the date of grant or thereafter, upon termination of employment (as
determined under criteria established by the Committee) during the
applicable deferral period or portion thereof to which forfeiture
conditions apply (as provided in the Award Agreement evidencing the
Restricted Share Units), or upon failure to satisfy any other conditions
precedent to the delivery of Shares or cash to which such Restricted Share
Units relate, all Restricted Share Units that are at that time subject to
deferral or restriction shall be forfeited; provided, however, that the
Committee may provide, by rule or regulation or in any Award Agreement, or
may determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Share Units will be waived in whole or in
part in the event of termination resulting from specified causes, and the
Committee may in other cases waive in whole or in part the forfeiture of
Restricted Share Units.
(f) Performance Shares and Performance Units. The Committee is authorized
to grant Performance Shares or Performance Units or both to Eligible Persons on
the following terms and conditions:
(i) Performance Period. The Committee shall determine a performance
period (the "Performance Period") of one or more years and shall determine
the performance objectives for grants of Performance Shares and Performance
Units. Performance objectives may vary from Eligible Person to Eligible
Person and shall be based upon such performance criteria as the Committee
may deem appropriate. Performance Periods may overlap and Eligible Persons
may participate simultaneously with respect to Performance Shares and
Performance Units for which different Performance Periods are prescribed.
(ii) Award Value. At the beginning of a Performance Period, the
Committee shall determine for each Eligible Person or group of Eligible
Persons with respect to that Performance Period the range of number of
Shares, if any, in the case of Performance Shares, and the range of dollar
values, if any, in the case of Performance Units, which may be fixed or may
vary in accordance with such performance or other criteria specified by the
Committee, which shall be paid to an Eligible Person as an Award if the
relevant measure of Company performance for the Performance Period is met.
(iii) Significant Events. If during the course of a Performance Period
there shall occur significant events as determined by the Committee which
the Committee expects to have a substantial effect on a performance
objective during such period, the Committee may revise such objective;
provided, however, that, if an Award Agreement so provides, the Committee
shall not have any discretion to increase the amount of compensation
payable under the Award to the extent such an increase would cause the
Award to lose its qualification as performance-based compensation for
purposes of Section 162(m)(4)(C) of the Code and the regulations
thereunder.
(iv) Forfeiture. Except as otherwise determined by the Committee, at
the date of grant or thereafter, upon termination of employment during the
applicable Performance Period, Performance Shares and Performance Units for
which the Performance Period was prescribed shall be forfeited; provided,
however, that the Committee may provide, by rule or regulation or in any
<PAGE>
-8-
Award Agreement, or may determine in an individual case, that restrictions
or forfeiture conditions relating to Performance Shares and Performance
Units will be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other cases waive
in whole or in part the forfeiture of Performance Shares and Performance
Units.
(v) Payment. Each Performance Share or Performance Unit may be paid in
whole Shares, or cash or a combination of Shares and cash either as a lump
sum payment or in installments, all as the Committee shall determine, at
the time of grant of the Performance Share or Performance Unit or
otherwise, commencing as soon as practicable after the end of the relevant
Performance Period. The Committee must certify in writing prior to the
payment of any Performance Share or Performance Unit that the performance
objectives and any other material terms were in fact satisfied.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to Eligible Persons. The Committee may provide, at the date of grant
or thereafter, that Dividend Equivalents shall be paid or distributed when
accrued or shall be deemed to have been reinvested in additional Shares, or
other investment vehicles as the Committee may specify, provided that Dividend
Equivalents (other than freestanding Dividend Equivalents) shall be subject to
all conditions and restrictions of the underlying Awards to which they relate.
(h) Other Share-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Eligible Persons such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Shares, as deemed by the Committee to
be consistent with the purposes of the Plan, including, without limitation,
unrestricted shares awarded purely as a "bonus" and not subject to any
restrictions or conditions, other rights convertible or exchangeable into
Shares, purchase rights for Shares, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the performance of specified
Subsidiaries or Affiliates. The Committee shall determine the terms and
conditions of such Awards at date of grant or thereafter. Shares delivered
pursuant to an Award in the nature of a purchase right granted under this
Section 5(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Shares,
notes or other property, as the Committee shall determine. Cash awards, as an
element of or supplement to any other Award under the Plan, shall also be
authorized pursuant to this Section 5(h).
6. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted to Eligible
Persons either alone or in addition to, in tandem with, or in exchange or
substitution for, any other Award granted under the Plan or any award granted
under any other plan or agreement of the Company, any Subsidiary or Affiliate,
or any business entity to be acquired by the Company or a Subsidiary or
Affiliate, or any other right of an Eligible Person to receive payment from the
Company or any Subsidiary or Affiliate. The per Share exercise price of any
Option, grant price of any SAR, or purchase price of any other Award conferring
a right to purchase Shares which is granted, in connection with the substitution
of awards granted under any other plan or agreement of the Company or any
Subsidiary or Affiliate or any business entity to be acquired by the Company or
any Subsidiary or Affiliate, shall be determined by the Committee, in its
discretion.
(b) Terms of Awards. The term of each Award granted to an Eligible Person
shall be for such period as may be determined by the Committee; provided,
however, that in no event shall the term of any ISO or an SAR granted in tandem
therewith exceed a period of ten years from the date of its grant (or such
shorter period as may be applicable under Section 422 of the Code).
<PAGE>
-9-
(c) Form of Payment Under Awards. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a Subsidiary
or Affiliate upon the grant, maturation, or exercise of an Award may be made in
such forms as the Committee shall determine at the date of grant or thereafter,
including, without limitation, cash, Shares, or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
Committee may make rules relating to installment or deferred payments with
respect to Awards, including the rate of interest to be credited with respect to
such payments.
(d) Nontransferability. Unless otherwise set forth by the Committee in an
Award Agreement, Awards (except for vested shares) shall not be transferable by
an Eligible Person except by will or the laws of descent and distribution
(except pursuant to a Beneficiary designation) and shall be exercisable during
the lifetime of an Eligible Person only by such Eligible Person or his guardian
or legal representative. An Eligible Person's rights under the Plan may not be
pledged, mortgaged, hypothecated, or otherwise encumbered, and shall not be
subject to claims of the Eligible Person's creditors.
7. Change of Control Provisions.
(a) Acceleration of Exercisability and Lapse of Restrictions; Cash-Out of
Awards. In the event of a Change of Control, the following acceleration and
cash-out provisions shall apply unless otherwise provided by the Committee at
the time of the Award grant.
(i) All outstanding Awards pursuant to which the Participant may have
rights the exercise of which is restricted or limited, shall become fully
exercisable at the time of the Change of Control. Unless the right to lapse
of restrictions or limitations is waived or deferred by a Participant prior
to such lapse, all restrictions or limitations (including risks of
forfeiture and deferrals) on outstanding Awards subject to restrictions or
limitations under the Plan shall lapse, and all performance criteria and
other conditions to payment of Awards under which payments of cash, Shares
or other property are subject to conditions shall be deemed to be achieved
or fulfilled and shall be waived by the Company at the time of the Change
of Control.
(ii) For a period of up to 60 days following a Change of Control, the
Participant may elect to surrender any outstanding Award and to receive, in
full satisfaction therefor, a cash payment equal to the value of such Award
calculated on the basis of the Change of Control Price of any Shares or the
Fair Market Value of any property other than Shares relating to such Award;
provided, however, that in the case of an ISO, or a Stock Appreciation
Right granted in tandem therewith, the cash payment shall be based upon the
Fair Market Value of Shares on the date of exercise; provided further,
however, that in the case of a Change of Control described in Section
7(b)(i)(c) or (d) below, the payment described in this sentence may, in the
discretion of the Committee, be made in the form of Shares having a Fair
Market Value equal to the amount of cash that would otherwise be paid. In
the event that an Award is granted in tandem with another Award such that
the Participant's right to payment for such Award is an alternative to
payment of another Award, the Participant electing to surrender any such
tandem Award shall surrender all alternative Awards related thereto and
receive payment for the Award which produces the highest payment to the
Participant.
(b) Definitions of Certain Terms. For purposes of this Section 7, the
following definitions, in addition to those set forth in Section 2, shall apply:
(i) "Change of Control" means and shall be deemed to have occurred if:
(a) any person (within the meaning of the Exchange Act), other
than the Company or a Related Party, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under
<PAGE>
-10-
the Exchange Act), directly or indirectly, of Voting Securities
representing 30 percent or more of the total voting power of all the
then-outstanding Voting Securities; or
(b) the individuals who, as of the effective date of the Plan,
constitute the Board, together with those who first become directors
subsequent to such date and whose recommendation, election or
nomination for election to the Board was approved by a vote of at
least a majority of the directors then still in office who either were
directors as of the effective date of the Plan or whose
recommendation, election or nomination for election was previously so
approved (the "Continuing Directors"), cease for any reason to
constitute a majority of the members of the Board; or
(c) (x) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company or a
Subsidiary, reverse split of any class of Voting Securities, or an
acquisition of securities or assets by the Company or a Subsidiary, or
(y) consummation of any such transaction if stockholder approval is
not obtained, other than, with respect to both (x) and (y) (I) any
such transaction in which the holders of outstanding Voting Securities
immediately prior to the transaction receive (or, in the case of a
transaction involving a Subsidiary and not the Company, retain), with
respect to such Voting Securities, voting securities of the surviving
or transferee entity representing more than 60 percent of the total
voting power outstanding immediately after such transaction, with the
voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction, or
(II) any such transaction which would result in a Related Party
beneficially owning more than 50 percent of the voting securities of
the surviving entity outstanding immediately after such transaction;
or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets
other than any such transaction which would result in a Related Party
owning or acquiring more than 50 percent of the assets owned by the
Company immediately prior to the transaction.
(ii) "Change of Control Price" means, with respect to a Share, the
higher of (a) the highest reported sales price of Shares during the 30
calendar days preceding a Change of Control on the principal stock exchange
or market quotation system on which the Shares are traded or (b) the
highest price paid or offered in a transaction which either (I) results in
a Change of Control or (II) would be consummated but for another
transaction which results in a Change of Control and, if it were
consummated, would result in a Change of Control. With respect to clause
(b) in the preceding sentence, the "price paid or offered" will be equal to
the sum of (I) the face amount of any portion of the consideration
consisting of cash or cash equivalents and (II) the fair market value of
any portion of the consideration consisting of real or personal property
other than cash or cash equivalents, as established by an independent
appraiser selected by the Committee.
(iii) "Related Party" means (a) a majority-owned subsidiary of the
Company; (b) an employee or group of employees of the Company or any
majority-owned subsidiary of the Company; (c) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
majority-owned subsidiary of the Company; (d) a corporation owned directly
or indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of Voting Securities; or (e) any person who
on the Effective Date (as defined in Section 8(k)) hereof owns a majority
of the Voting Securities of the Company.
<PAGE>
-11-
(iv) "Voting Securities or Security" means any securities of the
Company which carry the right to vote generally in the election of
directors.
8. General Provisions.
(a) Compliance with Legal and Trading Requirements. The Plan, the granting
and exercising of Awards thereunder, and the other obligations of the Company
under the Plan and any Award Agreement, shall be subject to all applicable
federal and state laws, rules and regulations, and to such approvals by any
regulatory or governmental agency as may be required. The Company, in its
discretion, may postpone the issuance or delivery of Shares under any Award
until completion of such stock exchange or market system listing or registration
or qualification of such Shares or other required action under any state or
federal law, rule or regulation as the Company may consider appropriate, and may
require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Shares in compliance with applicable laws, rules and regulations. No
provisions of the Plan shall be interpreted or construed to obligate the Company
to register any Shares under federal or state law.
(b) No Right to Continued Employment or Service. Neither the Plan nor any
action taken thereunder shall be construed as giving any employee or director
the right to be retained in the employ or service of the Company or any of its
Subsidiaries or Affiliates, nor shall it interfere in any way with the right of
the Company or any of its Subsidiaries or Affiliates to terminate any employee's
or director's employment or service at any time.
(c) Taxes. The Company or any Subsidiary or Affiliate is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Shares, or any payroll or other payment
to an Eligible Person, amounts of withholding and other taxes due in connection
with any transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company and Eligible Persons to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include authority to
withhold or receive Shares or other property and to make cash payments in
respect thereof in satisfaction of an Eligible Person's tax obligations.
(d) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of shareholders of the Company or
Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's shareholders to the extent such shareholder approval is required under
Section 422 of the Code; provided, however, that, without the consent of an
affected Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may materially and adversely affect the rights of such
Participant under any Award theretofore granted to him or her. The Committee may
waive any conditions or rights under, amend any terms of, or amend, alter,
suspend, discontinue or terminate, any Award theretofore granted, prospectively
or retrospectively; provided, however, that, without the consent of a
Participant, no amendment, alteration, suspension, discontinuation or
termination of any Award may materially and adversely affect the rights of such
Participant under any Award theretofore granted to him or her.
(e) No Rights to Awards; No Shareholder Rights. No Eligible Person or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Eligible Persons and employees.
No Award shall confer on any Eligible Person any of the rights of a shareholder
of the Company unless and until Shares are duly issued or transferred to the
Eligible Person in accordance with the terms of the Award.
(f) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments not yet
made to a Participant pursuant to an
<PAGE>
-12-
Award, nothing contained in the Plan or any Award shall give any such
Participant any rights that are greater than those of a general creditor of the
Company; provided, however, that the Committee may authorize the creation of
trusts or make other arrangements to meet the Company's obligations under the
Plan to deliver cash, Shares, other Awards, or other property pursuant to any
Award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant.
(g) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of options and other awards otherwise than under the
Plan, and such arrangements may be either applicable generally or only in
specific cases.
(h) Not Compensation for Benefit Plans. No Award payable under this Plan
shall be deemed salary or compensation for the purpose of computing benefits
under any benefit plan or other arrangement of the Company for the benefit of
its employees or directors unless the Company shall determine otherwise.
(i) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether cash,
other Awards, or other property shall be issued or paid in lieu of such
fractional Shares or whether such fractional Shares or any rights thereto shall
be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction, and effect of the Plan, any
rules and regulations relating to the Plan, and any Award Agreement shall be
determined in accordance with the laws of New York without giving effect to
principles of conflict of laws.
(k) Effective Date; Plan Termination. The Plan shall become effective as of
[ ], 1997 (the "Effective Date"). The Plan shall terminate as to future awards
on the date which is ten (10) years after the Effective Date.
(l) Titles and Headings. The titles and headings of the sections in the
Plan are for convenience of reference only. In the event of any conflict, the
text of the Plan, rather than such titles or headings, shall control.
EXHIBIT 10.18
===============================================================================
-----------------------------------------
NON-COMPETITION AGREEMENT
-----------------------------------------
Among
EMERGING COMMUNICATIONS, INC.,
ATLANTIC TELE-NETWORK, INC.
and
Jeffrey J. Prosser
Dated December 30, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions..................................................2
ARTICLE II
AGREEMENT NOT TO COMPETE;
DISCLOSURE OF INFORMATION
SECTION 2.01. Agreement Not To Compete......................................3
SECTION 2.02. Disclosure of Information.....................................4
SECTION 2.03. Acknowledgment................................................4
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.01. Remedies......................................................4
SECTION 3.02. Benefits......................................................4
SECTION 3.03. Severability, Blue Penciling..................................4
SECTION 3.04. Notices.......................................................5
SECTION 3.05. Complete Agreement; Amendments; Prior
Agreements....................................................5
SECTION 3.06. Governing Law.................................................5
SECTION 3.07. Counterparts..................................................6
SECTION 3.08. Jurisdiction..................................................6
SECTION 3.09. Expenses of Enforcement.......................................6
-i-
<PAGE>
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Non-Competition Agreement") is
entered into as of the 30th day of December, 1997 by and among Emerging
Communications, Inc., a Delaware corporation ("ECI"), Atlantic Tele-Network,
Inc., a Delaware corporation (the "Company"), and Jeffrey J. Prosser,
("Prosser").
WHEREAS, to eliminate corporate disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company and its
co-chief executive officers and principal stockholders, Cornelius B. Prior, Jr.
("Prior") and Prosser, entered into a Principal Terms Agreement dated January
29, 1997 which contemplated the separation of the businesses and assets of the
Company; and
WHEREAS, in order to accomplish such separation, the Company and ECI
entered into a Subscription Agreement (the "Subscription Agreement"), the
Company, Prior and Prosser entered into a Recapitalization Agreement (the
"Recapitalization Agreement") and the Company and ATN MergerCo. entered into an
Agreement and Plan of Merger (the "Merger Agreement"), all dated as of August
11, 1997;
WHEREAS, Prior and the other stockholders of the Company are relying on the
covenants of ECI and Prosser in this Non-Competition Agreement in making and/or
retaining their investments in the Common Stock of the Company; and
WHEREAS, the execution and delivery of this Non-Competition Agreement by
the parties hereto is contemplated by the Subscription Agreement and is a
condition to the Closing (as defined in the Subscription Agreement); and
WHEREAS, each of the parties hereto desires to consummate, and will secure
substantial benefits from the consummation of, the Closing.
NOW, THEREFORE, for and in consideration of the covenants herein contained
and subject to the conditions hereinafter set forth, the parties hereto agrees
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used in this Non-Competition
Agreement without definition shall have the respective meanings ascribed to such
terms in the Subscription Agreement. As used in this Agreement, the following
terms have the meanings assigned to them below:
"Competitive Business" means any business which competes anywhere in
the world in any material respect with the conduct of the Subject Business
by the Company or any of its Subsidiaries.
"Confidential Information" means all information of a proprietary
nature and documents or other tangible items that record information of a
proprietary nature relating to the Subject Business, including without
limitation, books, records, customer lists, vendor lists, supplier lists,
pricing informa-
<PAGE>
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tion, cost information, plans, strategies, forecasts, financial statistics,
budgets and projections, other than any such information which is generally
within the public domain at the time of receipt thereof by ECI or Prosser
or at the time of use or disclosure of such information by ECI or Prosser
(other than as a result of the breach by ECI or Prosser of its or his
agreement hereunder).
"Subject Business" means the business of providing telecommunications
services (including carrying and/or terminating telecommunications
traffic), directly or indirectly through service bureaus or other
intermediaries, to persons who generate international audiotext
telecommunications traffic (whether voice or data); provided, however, that
the Subject Business shall not include the provision of any
telecommunications services as a common carrier which does not involve the
installation of special equipment to facilitate the generation of
international audiotext telecommunications traffic or, directly or
indirectly, the payment of any fee, commission or other compensation,
through sharing of accounting or settlement rates, rate discounts or
otherwise to persons generating such traffic.
ARTICLE II
AGREEMENT NOT TO COMPETE;
DISCLOSURE OF INFORMATION
SECTION 2.01. Agreement Not To Compete. (a) Each of ECI and Prosser
recognizes the highly competitive nature of the Subject Business and agrees that
the value and goodwill of the Company and its Subsidiaries would be
substantially impaired if it or he, as the case may be, failed to comply with
its or his obligations hereunder. Accordingly, each of ECI and Prosser hereby
agrees from the consummation of the Merger that during a period of ten years
thereafter, each of ECI and Prosser shall not, directly or indirectly, on its or
his own behalf, as the case may be, or on behalf of any other person or entity:
(i) engage in any Competitive Business, whether such engagement shall
be as an employer, officer, director, owner, employee, partner, advisor,
consultant, stockholder, investor, agent or other participant in any
Competitive Business (or in any similar capacity in which it or he, as the
case may be, derives an economic benefit from a Competitive Business);
(ii) assist others in engaging in any Competitive Business in the
manner described in the foregoing clause (i);
(iii) solicit, entice or induce any director, employee, consultant or
other agent of the Company or any current or future Subsidiary of the
Company materially involved in the Subject Business to terminate his or her
employment or other relationship with the Company or such current or future
Subsidiary or to engage in any Competitive Business;
(iv) solicit, entice or induce any vendor or distributor of the
Company or any current or future Subsidiary materially involved in the
Subject Business to terminate or materially diminish its relationship with
the Company or such current or future Subsidiary; or
(v) solicit, entice or induce any subscriber or customer of the
Company or any current or future Subsidiary of the Company with respect to
the Subject Business to purchase the products or
<PAGE>
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services of any Competitive Business, or to cease purchasing the services
of the Subject Business from the Company or any current or future
Subsidiary of the Company.
(b) Anything contained in this Non-Competition Agreement to the contrary
notwithstanding, no provision of this Agreement shall prohibit (i) ECI or
Prosser from owning, as a passive investment, in the aggregate less than 5% of a
class of publicly-traded securities issued by any person or entity engaged in a
Competitive Business or (ii) the provision of services by ATNCO, VITELCo or VCI
pursuant to terms of the Technical Assistance Agreement.
SECTION 2.02. Disclosure of Information. From and after the date hereof,
each of ECI and Prosser shall hold in strict confidence and shall not use or
disclose to any person, firm, corporation or other business entity, except as
required by law or judicial process, any Confidential Information for any reason
or purpose whatsoever, nor shall ECI or Prosser make use of any of the
Confidential Information for ECI's or Prosser's purposes or for the benefit of
any person or entity except the Company or any affiliate thereof.
SECTION 2.03. Acknowledgment. Prosser acknowledges that the provisions of
this Agreement are not designed to prevent Prosser from earning a living or
fostering his own career. The provisions of this Agreement are designed to
prevent any Competitive Business from gaining unfair advantage from Prosser's
and ECI's knowledge of confidential and proprietary information relating to the
Subject Business.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.01. Remedies. Each of ECI and Prosser acknowledges that a remedy
at law for any breach or threatened breach of the provisions of this
Non-Competition Agreement would be inadequate and therefore agrees that the
Company shall be entitled to injunctive relief; provided, however, that nothing
contained herein shall be construed as prohibiting the Company from pursuing any
other remedies available for any such breach or threatened breach.
SECTION 3.02. Benefits. This Non-Competition Agreement and the rights and
obligations of the parties hereto shall bind and inure to the benefit of any
successor or successors of the Company by reorganization, merger or
consolidation or otherwise and any assignee of all or substantially all of its
business and properties.
SECTION 3.03. Severability, Blue Penciling. It is the desire and intent of
the parties hereto that the provisions of this Non-Competition Agreement shall
be enforced to the fullest extent permissible under the laws and public policies
applied in each jurisdiction in which enforcement is sought. Accordingly, if any
particular provision of this Non-Competition Agreement shall be adjudicated to
be invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of such provision in the
particular jurisdiction in which such adjudication is made. In addition, if any
one or more of the provisions contained in this Non-Competition Agreement shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, it shall be construed by limiting and reducing it so
as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
<PAGE>
-4-
SECTION 3.04. Notices. All notices or other communications required or
permitted hereunder shall be in writing and sufficient if (a) delivered
personally, (b) sent by nationally-recognized overnight courier or (c) sent by
certified mail, postage prepaid, return receipt requested, addressed as follows:
if to the Company, to:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
if to ECI or Prosser, to:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
or, in each case, to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Any such communication shall be deemed to have been given (i) when delivered, if
personally delivered, (ii) on the business day after dispatch, if sent by
nationally-recognized overnight courier and (iii) on the third business day
after dispatch, if sent by mail.
SECTION 3.05. Complete Agreement; Amendments; Prior Agreements. The
foregoing is the entire agreement of the parties with respect to the subject
matter hereof and may not be amended, supplemented, canceled or discharged
except by a written instrument executed by the parties hereto. This
Non-Competition Agreement supersedes any and all prior agreements among the
parties hereto with respect to the matters covered hereby.
SECTION 3.06. Governing Law. This Non-Competition Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and performed wholly therein.
<PAGE>
-5-
SECTION 3.07. Counterparts. This Non-Competition Agreement may be executed
in any number of counterparts, and each such counterpart shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
SECTION 3.08. Jurisdiction. Any action or proceeding brought by any party
to this Non-Competition Agreement against any other party hereto with respect to
the enforcement or breach of this Non-Competition Agreement may be brought in
the courts of the State of New York or of the United States for the Southern
District of New York. Each of the parties hereto irrevocably submits to the
jurisdiction of each such court in respect of any such action or proceeding,
irrevocably waives any objection that it may now or hereafter have to the laying
of venue of any such action or proceeding in any such court and any claim that
any such action or proceeding brought in any such court has been brought in an
inconvenient forum, and irrevocably consents that service of process or other
legal summons for purposes of any such action or proceeding may be served on it
by personal service within or without the State of New York or by mailing a copy
thereof by registered mail, or a form of mail substantially equivalent to
registered mail, addressed to such party at its address as provided for notices
hereunder.
SECTION 3.09. Expenses of Enforcement. In the event of any breach of this
Non-Competition Agreement by any party hereto, any other party hereto which is
aggrieved by such breach (an "Aggrieved Breach") shall be entitled to recover
from the party in breach, any and all costs and expenses, including without
limitation reasonable attorneys' fees, incurred by the Aggrieved Party as a
result of such breach or in connection with enforcing the provisions of this
Non-Competition Agreement with respect to such breach.
<PAGE>
IN WITNESS WHEREOF, this Non-Competition Agreement has been executed and
delivered by the parties hereto as of the date first above written.
ATLANTIC TELE-NETWORK, INC.
By: /s/ Cornelius B. Prior, Jr.
---------------------------------------
Name: Cornelius B. Prior, Jr.
Title: Chief Executive Officer
EMERGING COMMUNICATIONS, INC.
By: /s/ Jeffrey J. Prosser
---------------------------------------
Name: Jeffrey J. Prosser
Title: Chief Executive Officer
/s/ Jeffrey J. Prosser
---------------------------------------
Jeffrey J. Prosser
EXHIBIT 10.19
================================================================================
INDEMNITY AGREEMENT
among
ATLANTIC TELE-NETWORK, INC.,
EMERGING COMMUNICATIONS, INC.,
Cornelius B. Prior, Jr.
and
Jeffrey J. Prosser
Dated December 30, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions................................................1
ARTICLE II
INDEMNIFICATION
SECTION 2.01. Indemnification by Prosser.................................1
SECTION 2.02. Indemnification by Prior...................................2
SECTION 2.03. Indemnification by ECI.....................................2
SECTION 2.04. Indemnification by the Company.............................2
SECTION 2.05. No Third Party Rights......................................2
SECTION 2.06. Indemnification Procedures.................................3
ARTICLE III
FORBEARANCE; STANDSTILL
SECTION 3.01. Forbearance................................................4
SECTION 3.02. Standstill.................................................4
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.01. Effectiveness..............................................6
SECTION 4.02. Entire Agreement...........................................6
SECTION 4.03. Governing Law..............................................6
SECTION 4.04. Headings...................................................6
SECTION 4.05. Counterparts...............................................6
SECTION 4.06. Benefits...................................................6
SECTION 4.07. Assignment.................................................6
SECTION 4.08. Amendment and Waiver.......................................6
SECTION 4.09. Notices....................................................6
SECTION 4.10. Jurisdiction...............................................7
SECTION 4.11. Expenses of Enforcement....................................8
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<PAGE>
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (this ("Indemnity Agreement") is entered into as
of the 30th day of December, 1997 by and among Atlantic Tele-Network, Inc., a
Delaware corporation (the "Company"), Emerging Communications, Inc., a Delaware
corporation ("ECI"), Cornelius B. Prior, Jr. ("Prior") and Jeffrey J. Prosser
("Prosser").
WHEREAS, the execution and delivery of this Indemnity Agreement by the
parties hereto is contemplated by the Subscription Agreement dated as of August
11, 1997 (the "Subscription Agreement") between the Company and ECI and is a
condition to the Closing (as defined in the Subscription Agreement); and
WHEREAS, each of the parties hereto desires to consummate, and will receive
substantial benefits from the consummation of, the Closing.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and subject to the conditions hereinafter set forth,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used in this Indemnity
Agreement without definition shall have the respective meanings ascribed to such
terms in the Subscription Agreement.
"Affiliate" of any person shall mean any other person which controls, is
controlled by, or is under common control with such person, and "person" for
purposes hereof means and includes any individual, partnership, limited
liability company, firm, corporation or other entity.
ARTICLE II
INDEMNIFICATION
SECTION 2.01. Indemnification by Prosser. Subject to the terms and
conditions contained herein, Prosser hereby agrees to indemnify and hold
harmless the Company, its Subsidiaries after the Closing, their respective
officers, directors and agents and Prior, individually and as Trustee of the
1994 Prior Charitable Remainder Trust, from and against any and all losses,
liabilities, damages, costs, and expenses (including, without limitation,
reasonable attorney's fees and any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending any action, suit or
proceeding, commenced or threatened) of any kind and nature (collectively,
"Losses") (A) which relate to or arise out of any action, suit or proceeding
brought by or on behalf of any stockholder of the Company or ECI arising out of
or relating to (i) the repurchase by the Company of shares of Company Common
Stock owned by Prior and/or the Trust pursuant to the Recapitalization Agreement
or (ii) the number of shares of ECI Common Stock to be received by Prosser
pursuant to the Merger Agreement, or (B) which relate to or arise out of any
action, suit or proceeding arising out of relating to an untrue statement of a
material fact or alleged untrue statement of a material fact contained in the
proxy statement/prospectus to be
<PAGE>
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delivered to holders of Company Common Stock (the "Proxy Statement") or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only with respect to the beneficial ownership of stock of the Company by Prosser
and/or members of his family and his or their Affiliates and biographical
information with respect to Mr. Prosser.
SECTION 2.02. Indemnification by Prior. Subject to the terms and conditions
contained herein, Prior hereby agrees to indemnify and hold harmless ECI, the
entities which will become its Subsidiaries after the Closing, their respective
officers, directors and agents and Prosser from and against any and all Losses
(A) which relate to or arise out of any action, suit or proceeding brought by or
on behalf of any stockholder of the Company or ECI arising out of or relating to
the number of shares of Surviving Corporation Common Stock (as defined in the
Merger Agreement) to be received by Prior pursuant to the Merger Agreement or
(B) an untrue statement of a material fact or alleged untrue statement of a
material fact contained in the Proxy Statement or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with respect
to the beneficial ownership of stock of the Company by Prior and/or members of
his family and his or their Affiliates and biographical information with respect
to Mr. Prior.
SECTION 2.03. Indemnification by ECI. Subject to the terms and conditions
contained herein, ECI hereby agrees to indemnify and hold harmless the Company,
its Subsidiaries after the Closing, their respective officers, directors and
agents and Prior from and against any and all Losses which relate to or arise
out of, (i) the business or operations conducted by ECI and the Transferred
Subsidiaries before or after the Closing, or any other Subsidiaries of ECI after
the Closing, (ii) the Assumed Liabilities or (iii) any action, suit or
proceeding arising out of or relating to an untrue statement of a material fact
or alleged untrue statement of a material fact contained in the Proxy Statement
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with respect to (a) the business, prospects or planned or proposed
activities of ECI and its Subsidiaries after the Closing Date, (b) activities of
ECI or the Transferred Subsidiaries after April 30, 1997 and (c) prospective
acquisitions of businesses or other transactions not in the ordinary course of
business planned or contemplated by ECI, the Transferred Subsidiaries or
Prosser.
SECTION 2.04. Indemnification by the Company. Subject to the terms and
conditions contained herein, the Company hereby agrees to indemnify and hold
harmless ECI, the entities which will become its Subsidiaries after the Closing,
their respective officers, directors and agents and Prosser from and against any
and all Losses which relate to or arise out of (i) the business and operations
conducted by GTT before or after the Closing or the business and operations
after the Closing of the Company or any other entity which will be a Subsidiary
of the Company after the Closing, (ii) the Excluded Liabilities or (iii) any
action, suit or proceeding arising out of or relating to an untrue statement of
a material fact or alleged untrue statement of a material fact contained in the
Proxy Statement or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only with respect to (a) the business, prospects or planned
or proposed activities of the Company and its Subsidiaries after the Closing
Date, (b) activities of GTT and the Company with respect to GTT after April 30,
1997 and (c) prospective acquisitions of businesses or other transactions not in
the ordinary course of business planned or contemplated by GTT or Prior.
SECTION 2.05. No Third Party Rights. Nothing in this Indemnity Agreement,
express or implied, is intended or shall be construed to give to any person,
firm or corporation, other than an Indemnified Party (as defined below), any
rights, remedy, claim or cause of action under or by reason of this Indemnity
Agreement, or any terms, covenants or conditions hereof.
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SECTION 2.05. No Third Party Rights. (a) If any party or person which may
seek indemnification hereunder (an "Indemnified Party") determines that it is or
may be entitled to indemnification by any party hereto (an "Indemnifying Party")
under this Agreement (other than in connection with any Third Party Claim (as
defined below) subject to clause (b) of this Section 2.06), the Indemnified
Party shall deliver to the Indemnifying Party a written notice specifying, to
the extent reasonably practicable, the basis for its claim for indemnification
and the amount for which the Indemnified Party reasonably believes it is
entitled to be indemnified. After the Indemnifying Party shall have been
notified of the amount for which the Indemnified Party seeks indemnification,
the Indemnifying Party shall, within 30 days after receipt of such notice, pay
the Indemnified Party such amount in cash or other immediately available funds
(or reach agreement with the Indemnified Party as to a mutually agreeable
alternative payment schedule) unless the Indemnifying Party objects to the claim
for indemnification or the amount thereof. If the Indemnifying Party does not
give the Indemnified Party written notice objecting to such claim and setting
forth the grounds therefor within the same 30 day period, the Indemnifying Party
shall be deemed to have acknowledged its liability for such claim and the
Indemnified Party may exercise any and all of its rights under applicable law to
collect such amount.
(b) Promptly following the earlier of (i) receipt of notice of the
commencement by a third party of any action, suit or proceeding against or
otherwise involving any Indemnified Party or (ii) receipt of information from a
third party alleging the existence of a claim against an Indemnified Party, in
either case, with respect to which indemnification may be sought pursuant to
this Indemnity Agreement (a "Third-Party Claim"), the Indemnified Party shall
give the Indemnifying Party prompt written notice thereof. The failure of the
Indemnified Party to give notice as provided in this clause (b) shall not
relieve the Indemnifying Party of its obligations under this Indemnity
Agreement, except to the extent that the Indemnifying Party is materially
prejudiced by such failure to give notice. Within 30 days after receipt of such
notice, the Indemnifying Party may (i) by giving written notice thereof to the
Indemnified Party, acknowledge liability for and at its option elect to assume
the defense of such Third-Party Claim at its sole cost and expense or (ii)
object to the claim of indemnification set forth in the notice delivered by the
Indemnified Party pursuant to the first sentence of this clause (b); provided
that if the Indemnifying Party does not within the same 30 day period give the
Indemnified Party written notice objecting to such claim and setting forth the
grounds therefor or electing to assume the defense, the Indemnifying Party shall
be deemed to have acknowledged its liability for such Third-Party Claim. Any
contest of a Third-Party Claim as to which the Indemnifying Party has elected to
assume the defense shall be conducted by attorneys employed by the Indemnifying
Party and reasonably satisfactory to the Indemnified Party, and the Indemnifying
Party shall not be liable to the Indemnified Party for any legal or other
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation, except as provided
in the following sentence. The Indemnified Party shall have the right to
participate in the defense against the Third Party Claim and to be represented
by attorneys of its own choosing, but the fees and expenses of such attorneys
shall be at the expense of the Indemnified Party unless (i) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such attorneys by the Indemnified Party or (ii) representation of both parties
by the same counsel in respect of such Third Party Claim would be inappropriate
due to actual or potential differing interests between them (in which case the
Indemnifying Party shall not be entitled to assume or direct the defense of such
proceeding on behalf of the Indemnified Party); provided that in no event shall
the Indemnifying Party be required to pay the fees and expenses of more than one
separate counsel (in addition to local counsel) in any one proceeding
representing the Indemnified Parties who are parties thereto. If the
Indemnifying Party assumes the defense of a Third-Party Claim, the Indemnifying
Party may settle or compromise the claim without the prior written consent of
the Indemnified Party; provided that without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld, the
Indemnifying Party may not agree to any such settlement or compromise unless
such settlement or compromise includes an unconditional release of the
Indemnified Party from all liability on claims that are or could be the subject
matter of such proceeding. If the Indemnifying Party does not assume the defense
of a Third-Party Claim for which it has acknowledged liability for
indemnification as described herein, the Indemnified Party may require the In-
<PAGE>
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demnifying Party to reimburse it on a current basis for its reasonable expenses
of investigation, reasonable attorney's fees and reasonable out-of-pocket
expenses incurred in defending against such Third-Party Claim and the
Indemnifying Party shall be bound by the result obtained with respect thereto by
the Indemnified Party; provided that the Indemnifying Party shall not be liable
for any settlement effected without its consent, which consent shall not be
unreasonably withheld. The Indemnifying Party shall pay to the Indemnified Party
in cash the amount for which the Indemnified Party is entitled to be indemnified
(if any) within 15 days after the final resolution of such Third-Party Claim
(whether by the final nonappealable judgment of a court of competent
jurisdiction or otherwise) or, in the case of any Third-Party Claim as to which
the Indemnifying Party has not acknowledged liability, within 15 days after such
Indemnifying Party's objection has been resolved by settlement, compromise or
the final nonappealable judgment of a court of competent jurisdiction.
(c) This Section 2.06 shall have no applicability to any claim for
indemnification with respect to any income, gross income, gross receipts,
profits, capital stock, franchise, withholding, payroll, social security,
workers compensation, unemployment, disability, property, ad valorem, stamp,
excise, severance, occupation, service, sales, use, license, lease, transfer,
import, export, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment, or other charge in the nature of or in lieu of
any tax) imposed by any governmental entity or political subdivision thereof,
and any interest, penalties, additions to tax, or additional amounts in respect
of the foregoing (collectively "Taxes"), it being understood that the procedures
for indemnification with respect to Taxes are covered in that separate Tax
Sharing and Indemnification Agreement dated the date hereof among the parties
hereto.
ARTICLE III
FORBEARANCE; STANDSTILL
SECTION 3.01. Forbearance. Except with respect to enforcing specific
provisions of an agreement entered into in connection with the Transactions,
including, without limitation, this Indemnity Agreement, (a) Prosser and ECI
hereby agree not to bring any action, suit or proceeding against Prior or the
Company with respect to any of the matters constituting the Transactions, or
arising out or relating to the business, operations or management of the Company
or any of its Subsidiaries prior to and including the Closing and (b) Prior and
the Company hereby agree not to bring any action, suit or proceeding against
Prosser or ECI with respect to any of the matters constituting the Transactions
or arising out of or relating to the business, operations or management of the
Company or any of its Subsidiaries prior to and including the Closing.
SECTION 3.02. Standstill.
(a) Each of Prosser and ECI agrees that for a period of ten years after the
Closing Date, he or it, as the case may be, shall not, and shall not permit his
or its, as the case may be, Controlled Affiliates (as defined below) to, without
the prior written consent of the Company, duly authorized by its Board of
Directors:
(i) be the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of greater than 5% of the outstanding Voting Securities (as
defined below) of the Company; or offer or agree to purchase any Voting
Securities of the Company if, after giving effect to such purchase, he or
it, as the case may be, would be the beneficial owner of greater than 5% of
the outstanding Voting Securities of the Company; or
<PAGE>
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(ii) make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are defined in Rule 14a-1 under the Exchange Act)
with respect to Voting Securities of the Company; become a participant in
any "election contest" (within the meaning of Rule 14a-11 of the Exchange
Act) with respect to the Company; seek to advise or influence any person
with respect to the voting of any Voting Securities of the Company; execute
any written consent in lieu of a meeting of holders of any class or series
of Voting Securities of the Company; or initiate, propose or otherwise
solicit holders of Voting Securities of the Company for the approval or
rejection of a proposal for a vote of holders of Voting Securities of the
Company.
(b) Each of Prior and the Company agrees that for a period of ten years
after the Closing Date, he or it, as the case may be, shall not, and shall not
permit his or its, as the case may be, Controlled Affiliates (as defined below)
to, without the prior written consent of ECI, duly authorized by its Board of
Directors:
(i) be the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of greater than 5% of the outstanding Voting Securities (as
defined below) of ECI; or offer or agree to purchase any Voting Securities
of ECI if, after giving effect to such purchase, he or it, as the case may
be, would be the beneficial owner of greater than 5% of the outstanding
Voting Securities of ECI; or
(ii) make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are defined in Rule 14a-1 under the Exchange Act)
with respect to Voting Securities of ECI; become a participant in any
"election contest" (within the meaning of Rule 14a-11 of the Exchange Act)
with respect to ECI; seek to advise or influence any person with respect to
the voting of any Voting Securities of ECI; execute any written consent in
lieu of a meeting of holders of any class or series of Voting Securities of
ECI; or initiate, propose or otherwise solicit holders of Voting Securities
of ECI for the approval or rejection of a proposal for a vote of holders of
Voting Securities of ECI.
(c) As used in this Section 3.02, the following terms have the meanings
assigned to them below:
"Controlled Affiliate" of any person means any other person under the
control of such person. As used in this definition, "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through ownership of Voting
Securities, by contract or otherwise.
"Voting Securities" of any person means securities, the holders of which
are, at the applicable time in question, entitled to vote for the election of
directors of such person.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.01. Effectiveness. This Indemnity Agreement shall become
operative upon consummation of the Merger.
SECTION 4.02. Entire Agreement. This Indemnity Agreement, together with all
other written agreements which may be entered into between the parties in
connection herewith and the transactions contemplated hereby and all other
documents and instruments delivered in connection herewith and therewith and the
<PAGE>
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transactions contemplated hereby and thereby, set forth the full and complete
understanding of the parties hereto with respect to the transactions
contemplated hereby.
SECTION 4.03. Governing Law. This Indemnity Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
reference to the conflict of laws rules thereof.
SECTION 4.04. Headings. The headings in this Indemnity Agreement are
intended solely for convenience of reference and shall be given no effect in the
interpretation of this Indemnity Agreement.
SECTION 4.05. Counterparts. This Indemnity Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
SECTION 4.06. Benefits. This Indemnity Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns, and no other person (other than an Indemnified Party) will have any
right or obligation hereunder.
SECTION 4.07. Assignment. Neither this Indemnity Agreement nor any right
hereunder may be assigned by the parties hereto without the prior written
consent of the other parties. Subject to the foregoing, this Indemnity Agreement
shall be binding upon and inure to the benefit of the successors, heirs,
representatives and assigns of each party hereto.
SECTION 4.08. Amendment and Waiver. This Indemnity Agreement may be amended
only by an instrument in writing signed on behalf of each of the parties hereto.
Any term, condition or provision of this Indemnity Agreement may be waived (if
in writing) at any time by the party or each of the parties entitled to the
benefits thereof.
SECTION 4.09. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with receipt
confirmed) or by registered mail, return receipt requested, addressed as follows
(or to such other address as a party may designate by notice to the other):
(a) If to the Company or Prior:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver
& Jacobson
One New York Plaza
<PAGE>
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New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b) If to ECI or Prosser:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-8000
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
SECTION 4.10. Jurisdiction. Any action or proceeding brought by any party
to this Indemnity Agreement against any other party hereto with respect to the
enforcement or breach of this Indemnity Agreement may be brought in the courts
of the State of New York or of the United States for the Southern District of
New York. Each of the parties hereto irrevocably submits to the jurisdiction of
each such court in respect of any such action or proceeding, irrevocably waives
any objection that it may now or hereafter have to the laying of venue of any
such action or proceeding in any such court and any claim that any such action
or proceeding brought in any such court has been brought in an inconvenient
forum, and irrevocably consents that service of process or other legal summons
for purposes of any such action or proceeding may be served on it by personal
service within or without the State of New York or by mailing a copy thereof by
registered mail, or a form of mail substantially equivalent to registered mail,
addressed to such party at its address as provided for notices hereunder.
SECTION 4.11. Expenses of Enforcement. In the event of any breach of this
Indemnity Agreement by any party hereto, any other party hereto which is
aggrieved by such breach (an "Aggrieved Party") shall be entitled to recover
from the party in breach, any and all costs and expenses, including without
limitation reasonable attorneys fees, incurred by the Aggrieved Party as a
result of such breach or in connection with enforcing the provisions of this
Indemnity Agreement with respect to such breach.
<PAGE>
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IN WITNESS WHEREOF, each of the parties hereto has caused this Indemnity
Agreement to be duly executed, all as of the date first written above.
ATLANTIC TELE-NETWORK, INC.
By: /s/ Cornelius B. Prior
---------------------------------------
Name: Cornelius B. Prior
Title: Co-Chief Executive Officer
By: /s/ Jeffrey J. Prosser
---------------------------------------
Name: Jeffrey J. Prosser
Title: Co-Chief Executive Officer
EMERGING COMMUNICATIONS, INC.
By: /s/ Jeffrey J. Prosser
---------------------------------------
Name: Jeffrey J. Prosser
Title: Chief Executive
Officer
/s/ Cornelius B. Prior, Jr.
---------------------------------------
Cornelius B. Prior, Jr.
/s/ Jeffrey J. Prosser
---------------------------------------
Jeffrey J. Prosser
EXHIBIT 10.20
===============================================================================
------------------------------------------------
TECHNICAL ASSISTANCE AGREEMENT
------------------------------------------------
Among
ATLANTIC TELE-NETWORK, INC.,
ATLANTIC TELE-NETWORK CO.,
VIRGIN ISLANDS TELEPHONE CORPORATION
and
VITELCOM CELLULAR INC.
Dated December 30, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
SERVICES
SECTION 1.01. Services to be Provided.......................................1
SECTION 1.02. Payment for Services..........................................2
SECTION 1.03. Requests for Services.........................................2
ARTICLE II
CERTAIN AGREEMENTS
SECTION 2.01. Advisory Contract.............................................2
SECTION 2.02. Indemnity.....................................................2
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.01. Termination...................................................3
SECTION 3.02. Entire Agreement..............................................3
SECTION 3.03. Governing Law.................................................3
SECTION 3.04. Headings......................................................3
SECTION 3.05. Counterparts..................................................4
SECTION 3.06. Benefits......................................................4
SECTION 3.07. Assignment....................................................4
SECTION 3.08. Amendment and Waiver..........................................4
SECTION 3.09. Notices.......................................................4
EXHIBIT A Advisory Contract
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<PAGE>
TECHNICAL ASSISTANCE AGREEMENT
THIS TECHNICAL ASSISTANCE AGREEMENT (this "Technical Assistance Agreement")
is entered into as of the 30th day of December, 1997 by and among ATLANTIC
TELE-NETWORK, INC., a Delaware corporation (the "Company"), ATLANTIC
TELE-NETWORK CO., a U.S. Virgin Islands corporation ("ATNCo."), VIRGIN ISLANDS
TELEPHONE CORPORATION, a U.S. Virgin Islands corporation ("VITELCO"), and
VITELCOM CELLULAR INC., a U.S. Virgin Islands corporation ("VCI").
WHEREAS, pursuant to an agreement between the Company and Guyana Telephone
and Telegraph Company Limited ("GTT"), dated as of January 28, 1991 (the
"Advisory Contract"), a copy of which is attached as Exhibit A hereto, the
Company has the continuing obligation to provide technical and professional
service, advice and assistance to GTT in the operation by GTT of its telephone
business, which services and assistance will be conducive to the economical and
efficient development and operation of GTT's telephone system and will enhance
its ability to provide dependable, state-of-art telephone service to its
subscribers;
WHEREAS, ATNCo., VITELCO and VCI have personnel at their disposal who are
trained and experienced in the telecommunications field and who are familiar
with the economical and efficient organization, development and operation of
telecommunications systems and services and have extensive experience in
finance, law, accounting, regulatory matters and the development of
communications apparatus, equipment and services and the rapidly changing
technological and regulatory environment affecting the telecommunications
industry, and the Company has from time to time in the past called upon ATNCo,
VITELCO and/or VCI to assist the Company in providing services and advice to GTT
pursuant to the Advisory Contract; and
WHEREAS, this Technical Assistance Agreement is being entered into in
connection with and in consideration of the transfer by the Company to Emerging
Communications, Inc., pursuant to the Subscription Agreement dated August 11,
1997 between them, of all of the outstanding capital stock of ATNCo., which
transfer will provide significant benefits to ATNCo., VITELCO and VCI by
resolving certain management problems which have heretofore affected such
corporations.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
ARTICLE I
SERVICES
SECTION 1.01. Services to be Provided. Subject to the terms and conditions
of this Technical Services Agreement, each of ATNCo., VITELCO and VCI agrees to
make available its employees to the Company at its request from time to time
during the term of this Agreement to assist and support the Company in carrying
out its obligations under the Advisory Contract. Such support and assistance
shall include performing services at the premises of ATNCo., VITELCO, VCI, the
Company or GTT or their respective affiliates. ATNCo, VITELCO or VCI, as the
case may be, shall determine (in consultation with the Company) which of its
employees will perform any services requested hereunder. Notwithstanding
anything contained in this Technical Services Agreement to the contrary, (a)
none of ATNCo., VITELCO or VCI shall be required to make available to the
Company pursuant to this Technical Assistance Agreement at any one time more
than the greater of 3% of its employees or three employees in the aggregate for
all of them, (b) no employee of ATNCo., VITELCO or
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VCI shall be required to be made available to the Company pursuant to this
Technical Assistance Agreement for a period of greater than 20 hours during any
calendar month and (c) none of ATNCo., VITELCO or VCI shall be required to make
available to the Company any employee to the extent that doing so would
interfere in any material respect with the performance of such employee's duties
to ATNCo., VITELCO or VCI, as the case may be, or otherwise cause a burden to
ATNCo., VITELCO or VCI, as the case may be.
SECTION 1.02. Payment for Services. The Company agrees to reimburse ATNCo.,
VITELCO and VCI, on a monthly basis, (a) for the services of each employee of
ATNCo., VITELCO or VCI, as the case may be, who provides services to the Company
hereunder during such month, an amount equal to the product of (i) two times the
cost to ATNCo., VITELCO or VCI, as the case may be, of the salary, wages and
benefits of such employee for such month and (ii) a fraction, the numerator of
which is the number of hours such employee provided services to the Company
hereunder and the denominator of which is the product of (x) eight and (y) the
number of days during such month when ATNCo., VITELCO or VCI, as the case may
be, was open for business and (b) for 100% of all "out-of-pocket expenses,"
including travel and lodging of any employee, incurred by ATNCo., VITELCO or
VCI, as the case may be, in performing its obligations hereunder. Payments by
the Company pursuant to this Section 1.02 shall be made within ten days of
receipt of an invoice from ATNCo., VITELCO or VCI, as the case may be, showing
in reasonable detail the amounts due hereunder with respect to any month.
SECTION 1.03. Requests for Services. ATNCo., VITELCO and VCI shall have no
obligation to perform any services hereunder except such as may be requested of
them by the Company on reasonable notice to them, and they shall not be entitled
to any payments under Section 1.02 from the Company except for services
requested of them by the Company.
ARTICLE II
CERTAIN AGREEMENTS
SECTION 2.01. Advisory Contract. The Company shall not, without the prior
written consent of each of ATNCo., VITELCO and VCI (which consents shall not be
unreasonably withheld or delayed), enter into any amendment, modification,
waiver, renewal or replacement of the Advisory Contract.
SECTION 2.02. Indemnity. The Company shall indemnify and hold harmless each
of ATNCo., VITELCO and VCI, each of their respective affiliates and each of
their respective officers, directors, employees, agents and controlling persons
(each an "Indemnified Person") from and against any and all losses, claims,
damages, liabilities and expenses, joint or several, to which any such
Indemnified Person may become subject arising out of or in connection with this
Technical Services Agreement and the services provided hereunder, or any claim,
litigation, investigation or proceedings relating to the foregoing regardless of
whether any of such Indemnified Persons is a party thereto, and to reimburse
such Indemnified Persons for any legal or other out-of-pocket expenses as they
are incurred in connection with investigating or defending any of the foregoing.
The indemnity obligations of the Company under this Section 2.02 shall be in
addition to any liability which the Company may otherwise have to an Indemnified
Party.
<PAGE>
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ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.01. Termination. This Technical Services Agreement (other than
the provisions of Sections 1.02, 2.02 and 2.03 which shall survive any
termination) (a) may be terminated (i) by the Company at any time upon written
notice to each of the other parties hereto or (ii) by ATNCo., VITELCO or VCI
upon written notice to the Company if the Company shall have breached or
violated any of the terms or provisions of this Technical Services Agreement and
(b) shall automatically terminate upon (i) the termination of the Advisory
Contract or (ii) a Change of Control (as defined below) of the Company.
As used herein, "Change of Control" means the occurrence of one or more of
the following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company or GTT to any person or group of related persons for
purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (a "Group"); (ii) the approval by the holders of capital
stock of the Company or GTT, as the case may be, of any plan or proposal for the
liquidation or dissolution of the Company or GTT, as the case may be; or (iii)
the acquisition in one or more transactions of "beneficial ownership" (within
the meaning of Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time) by any person, entity or Group
(other than a Permitted Holder (as defined below) or a Group controlled by any
Permitted Holder) of any capital stock of the Company or GTT such that, as a
result of such acquisition, such person, entity or Group either (A) beneficially
owns (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, more than 50% of then outstanding voting securities of
the Company or GTT entitled to vote on a regular basis in an election for a
majority of the board of directors of the Company or GTT or (B) otherwise has
the ability to elect, directly or indirectly, a majority of the members of the
board of directors of the Company or GTT.
As used herein, "Permitted Holders" means Cornelius B. Prior, Jr. and his
estate, heirs and legatees, and the legal representatives of any of the
foregoing, including, without limitation, the trustee of any trust of which one
or more of the foregoing are the sole beneficiaries.
SECTION 3.02. Entire Agreement. This Technical Assistance Agreement,
together with all other written agreements which may be entered into between the
parties in connection herewith and the transactions contemplated hereby and all
other documents and instruments delivered in connection herewith and therewith
and the transactions contemplated hereby and thereby, set forth the full and
complete understanding of the parties hereto with respect to the transactions
contemplated hereby.
SECTION 3.03. Governing Law. This Technical Assistance Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without reference to the conflicts of laws rules thereof.
SECTION 3.04. Headings. The headings in this Technical Assistance Agreement
are intended solely for convenience of reference and shall be given no effect in
the interpretation of this Technical Assistance Agreement.
<PAGE>
-4-
SECTION 3.05. Counterparts. This Technical Assistance Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
SECTION 3.06. Benefits. This Technical Assistance Agreement will inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns, and no other person will have any right or obligation
hereunder.
SECTION 3.07. Assignment. Neither this Technical Assistance Agreement nor
any right hereunder may be assigned by the parties hereto without the prior
written consent of the other parties. Subject to the foregoing, this Technical
Assistance Agreement shall be binding upon and inure to the benefit of the
successors, heirs, representatives and assigns of each party hereto.
SECTION 3.08. Amendment and Waiver. This Technical Assistance Agreement may
be amended only by an instrument in writing signed on behalf of each of the
parties hereto. Any term, condition or provision of this Technical Assistance
Agreement may be waived (if in writing) at any time by the party or each of the
parties entitled to the benefits thereof.
SECTION 3.09. Notices. All notices, requests, demands, and, other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with receipt
confirmed) or by registered mail, return receipt requested, addressed as follows
(or to such other address as a party may designate by notice to the other):
(a) If to the Company:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 6100
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver
& Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b) If to ATNCo., VITELCO or VCI:
c/o Emerging Communications, Inc.
<PAGE>
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Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
<PAGE>
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IN WITNESS WHEREOF, each of the parties hereto have caused this Technical
Assistance Agreement to be duly executed, all as of the date first written
above.
ATLANTIC TELE-NETWORK, INC.
By: /s/ Cornelius B. Prior
-------------------------------------
Name: Cornelius B. Prior
Title: Co-Chief Executive
Officer
By: /s/ Jeffrey J. Prosser
-------------------------------------
Name: Jeffrey J. Prosser
Title: Co-Chief Executive
Officer
ATLANTIC TELE-NETWORK CO.
By: /s/ Jeffrey J. Prosser
-------------------------------------
Name: Jeffrey J. Prosser
Title: Chief Executive Officer
VIRGIN ISLANDS TELEPHONE CORPORATION
By: /s/ Jeffrey J. Prosser
-------------------------------------
Name: Jeffrey J. Prosser
Title: Chief Executive Officer
VITELCOM CELLULAR INC.
By: /s/ Jeffrey J. Prosser
-------------------------------------
Name: Jeffrey J. Prosser
Title: Chief Executive Officer
EXHIBIT 10.21
===============================================================================
--------------------------------------------
TAX SHARING AND INDEMNIFICATION AGREEMENT
---------------------------------------------
Among
ATLANTIC TELE-NETWORK, INC.
EMERGING COMMUNICATIONS, INC.,
Cornelius B. Prior, Jr.
and
Jeffrey J. Prosser
Dated December 30, 1997
===============================================================================
<PAGE>
TAX SHARING AND INDEMNIFICATION AGREEMENT
This Tax Sharing and Indemnification Agreement is entered into as of
December 30, 1997 by and among Atlantic Tele-Network, Inc., a Delaware
corporation ("ATN"), Emerging Communications, Inc., a Delaware corporation
("ECI"), Cornelius B. Prior, Jr. ("Prior") and Jeffrey J. Prosser ("Prosser").
Capitalized terms used in this Agreement are defined in Section 1 below. Unless
otherwise indicated, all "Section" references in this Agreement are to sections
of this Agreement.
RECITALS
WHEREAS, as of the date hereof ATN is the common parent of an affiliated
group of corporations, including ECI and Atlantic Aircraft, Inc., a Delaware
corporation ("Aircraft Corp."), which has elected to file consolidated Federal
and combined Delaware income tax returns; and
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is contemplated by the Subscription Agreement dated as of August 11, 1997 (the
"Subscription Agreement") between ATN and ECI and is a condition to the Closing
(as defined in the Subscription Agreement); and
WHEREAS, as a result of the Transactions, ECI and Aircraft Corp. will cease
to be members of the affiliated group of which ATN is the common parent as of
the end of the day which is the Closing Date; and
WHEREAS, ATN, ECI, Prior and Prosser desire to provide for and agree upon
the allocation among them of liabilities for Taxes arising prior to and as a
result of the Transactions, and to provide for and agree upon other matters
relating to Taxes;
NOW THEREFORE, in consideration of the mutual agreements contained herein,
ATN, ECI, Prior and Prosser hereby agree as follows:
SECTION 1. Definition of Terms. For purposes of this Agreement (including
the recitals hereof), the following terms have the following meanings:
"Accounting Cutoff Date" means, with respect to each of ATN and ECI, any
date as of the end of which there is a closing of the financial accounting
records for such entity.
"Accounting Firm" shall have the meaning provided in Section 15.
"Affiliate" means any entity that directly or indirectly "controls" or is
"controlled" by the person or entity in question. "Control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether through ownership
of voting securities, by contract or otherwise.
"Agreement" means this Tax Sharing and Indemnification Agreement.
"ATN Group" means ATN and its Affiliates as determined immediately after
the Transactions.
"Closing" means the Closing as that term is defined in the Subscription
Agreement.
<PAGE>
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"Closing Date" means the Closing Date as that term is defined in the
Subscription Agreement.
"Code" means the U.S. Internal Revenue Code of 1986, as amended, or any
successor law.
"Companies" means ATN and ECI and "Company" means either ATN or ECI.
"Debits" shall have the meaning ascribed to it in the Subscription
Agreement.
"Distribution" means the distribution to certain ATN shareholders on the
Closing Date of all of the outstanding stock of ECI owned by ATN.
"ECI Group" means ECI and its Affiliates as determined immediately after
the Transactions.
"Federal Income Tax" means any Tax imposed by Subtitle A of the Code, or to
the extent related to such Tax, any Tax imposed by Subtitle F of the Code.
"Final Closing Adjustment" shall have the meaning ascribed to it in the
Subscription Agreement.
"Final Determination" means the final resolution of any Tax liability for a
Tax Period, including any related interest or penalties, by (i) a decision of
the Tax Court or judgment, decree, or other order by a court of competent
jurisdiction, which has become final and unappealable; (ii) IRS Form 870-AD (or
any successor forms thereto), on the date of acceptance by or on behalf of the
Internal Revenue Service, or by a comparable agreement form under other
applicable Tax Laws; except that a Form 870-AD or comparable form that by its
terms reserves the right of the taxpayer to file a claim for refund and/or the
right of the Tax Authority to assert a further deficiency shall not constitute a
final determination; (iii) a closing agreement under Section 7121 of the Code or
under corresponding provisions of any subsequently enacted federal Tax Laws, or
comparable agreements under other applicable Tax Laws; and (iv) any other final
disposition by reason of the expiration of the applicable statute of
limitations.
"Foreign Income Tax" means any Tax imposed by any foreign country or any
territory or possession of the United States, or by any political subdivision of
any foreign country or United States territory or possession, which is an income
tax as defined in Treasury Regulation Section 1.901-2.
"Group" means the ATN Group or the ECI Group, as the context requires.
"GT&T" means Guyana Telephone & Telegraph Company Limited, a Guyana
corporation.
"Income Tax" means any Federal Income Tax, State Income Tax, or Foreign
Income Tax.
"Intercompany Tax Allocation Agreements" means any written or oral
agreement or any other arrangements relating to allocation of Taxes existing
between ATN and Aircraft Corp. or any other member of the ECI Group in effect as
of the Closing Date (other than this Agreement).
"Letter Request" means the letter filed by ATN with the Internal Revenue
Service requesting a ruling from the Internal Revenue Service regarding certain
tax consequences of the Transactions, including the job descriptions of certain
officers and employees of ATN attached as Exhibit 9 to such letter and the
Revenue Procedure 96-30 Checklist attached as Exhibit 1 to such letter and any
amendment or supplement to such letter or such exhibits.
<PAGE>
-3-
"LLC" means a limited liability company organized under the laws of
Delaware of which Prosser is the sole beneficial owner, member and manager and
which, for United States federal tax purposes and United States Virgin Islands
tax purposes, is disregarded as an entity separate from Prosser under Treasury
Regulations Section 301.7701-3.
"Payment Date" means (i) with respect to any Tax Return relating to Federal
Income Taxes, the due date for any required installment of estimated taxes
determined under Code Section 6655, the due date (determined without regard to
extensions) for filing the Tax Return determined under Code Section 6072, and
the date the Tax Return is filed, and (ii) with respect to any Tax Return
relating to other Taxes, the corresponding dates determined under the applicable
Tax Law.
"Permitted Pledge" means a bona fide pledge of stock or securities of ATN
or ECI by Prior or Prosser or the LLC to a bank (including, without limitation,
the RTFC) or brokerage firm as collateral for a full recourse loan to Prior or
Prosser or a loan to the LLC with full recourse to Prosser.
"Post-Distribution Period" means any Tax Period beginning after the Closing
Date, and, in the case of any Straddle Period, the portion of such Straddle
Period beginning the day after the Closing Date.
"Pre-Distribution Period" means any Tax Period ending on or before the
Closing Date, and, in the case of any Straddle Period, the portion of such
Straddle Period ending on the Closing Date.
"Prime Rate" means the base rate on corporate loans charged by Citibank,
N.A., New York, New York from time to time, compounded daily on the basis of a
year of 365 or 366 (as applicable) days and actual days elapsed.
"Repurchase and Recapitalization Agreement" means that certain repurchase
and recapitalization agreement dated as of August 11, 1997 by and among ATN,
Prior, individually and as Trustee of the 1994 Prior Charitable Remainder Trust,
and Prosser.
"Responsible Company" means, with respect to any Tax Return, the Company
having responsibility for preparing and filing such Tax Return under this
Agreement.
"Restructuring Tax" means any Taxes resulting from any income or gain
recognized as a result of the Transactions including, without limitation, any
Taxes resulting from any income or gain recognized as a result of the
Transactions failing to qualify for tax-free treatment under Code Sections 355
or 361 or other provisions of the Code (as contemplated by the Ruling Request)
and any Taxes resulting from any income or gain recognized under Treasury
Regulations Section 1.1502-13 or 1.1502-19 (or any corresponding provisions of
other applicable Tax Laws) as a result of the Transactions.
"RTFC" means the Rural Telephone Finance Cooperative.
"Ruling Request" means the letter filed by ATN with the Internal Revenue
Service requesting a ruling from the Internal Revenue Service regarding certain
tax consequences of the Transactions (including all attachments, exhibits, and
other materials submitted with such ruling request letter) and any amendment or
supplement to such ruling request letter.
"Specified Action" shall have the meaning provided in Section 10.
<PAGE>
-4-
"Straddle Period" means any Tax Period that begins on or before and ends
after the Closing Date.
"State Income Tax" means any Tax imposed by any State of the United States
or by any political subdivision of any such State which is imposed on or
measured by net income, including state and local franchise or similar Taxes
measured by net income.
"Tainting Act" shall have the meaning provided in Section 10.
"Tax" or "Taxes" means any Income Tax, any Tax on gross income, gross
receipts, profits, or capital stock, or any franchise, withholding, payroll,
social security, workers compensation, unemployment, disability, property, ad
valorem, stamp, excise, severance, occupation, service, sales, use, license,
lease, transfer, import, export, value added, alternative minimum, estimated or
other similar tax (including any fee, assessment, or other charge in the nature
of or in lieu of any tax) imposed by any governmental entity or political
subdivision thereof, and any interest, penalties, additions to tax, or
additional amounts in respect of the foregoing.
"Tax Authority" means, with respect to any Tax, the governmental entity or
political subdivision thereof that imposes such Tax, and the agency (if any)
charged with the collection of such Tax for such entity or subdivision.
"Tax Contest" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes or any claim for refund or credit of Taxes of any of ATN,
ECI or the Aircraft Corp. (including any administrative or judicial review
thereof) for any Tax Period ending on or before the Closing Date or any Straddle
Period.
"Tax Item" means, with respect to any Income Tax, any item of income, gain,
loss, deduction, or credit.
"Tax Law" means the law of any governmental entity or political subdivision
thereof relating to any Tax.
"Tax Period" means, with respect to any Tax, the period for which the Tax
is reported as provided under the Code or other applicable Tax Law.
"Tax Records" means Tax Returns, Tax Return workpapers, documentation
relating to any Tax Contests, and any other books of account or records required
to be maintained under the Code or other applicable Tax Laws or under any record
retention agreement with any Tax Authority.
"Tax Return" means any report of Taxes due, any claim for refund or credit
of Taxes paid, any information return with respect to Taxes, or any other
similar report, statement, declaration, or document required or permitted to be
filed under the Code or other Tax Law, including any attachments, exhibits, or
other materials submitted with any of the foregoing, and including any
amendments or supplements to any of the foregoing.
"Transactions" shall have the meaning ascribed to that term in the
Subscription Agreement.
"Transfer" shall have the meaning set forth in Section 11(a).
"Treasury Regulations" means the regulations promulgated from time to time
under the Code as in effect for the relevant Tax Period.
<PAGE>
-5-
SECTION 2. Allocation of Tax Liabilities. The provisions of this Section 2
are intended to determine each of ATN's, ECI's, Prior's and Prosser's liability
for Taxes with respect to Pre-Distribution Periods. Once the liability has been
determined under this Section 2, Section 5 determines the time when payment of
the liability is to be made, and whether the payment is to be made to the Tax
Authority directly or to ATN or ECI, as the case may be.
2.01. Taxes of GT&T and the Virgin Islands Subsidiaries. This Agreement
does not allocate liability for Taxes imposed on GT&T, Atlantic Tele-Network
Co., a Virgin Islands corporation, or any of the subsidiaries of Atlantic
Tele-Network Co. (except for any withholding of Foreign Income Taxes imposed
with respect to payments made by any of such companies to ATN) and, as between
the parties to this Agreement, such Taxes and Tax Returns relating to such Taxes
shall be solely the responsibility of the legal entity on which such Taxes are
imposed.
2.02. ATN and ECI Liability.
(a) ATN Liability. Notwithstanding the provisions of Section 2.03, as
between ATN and ECI, ATN shall be liable for, and shall indemnify and hold
harmless the ECI Group from and against:
(i) any Restructuring Taxes which arise from any breach by ATN of its
representations or covenants under Section 10 or from any Tainting Act by ATN or
its Affiliates or the inaccuracy of any factual statements or representations
made in or in connection with the Ruling Request with respect to the activities
of ATN and its Affiliates after the Closing;
(ii) all Taxes to the extent taken into account in clauses (b) or (r) of
the definition of "Debits" for purposes of calculating the Final Closing
Adjustment;
(iii) an amount of Income Tax equal to the provision for income tax expense
of ATN which would be accrued on a hypothetical statement of operations of ATN
for the period after April 30, 1997 to and including the Closing Date which
statement of operations includes as revenues or gross income only dividends paid
by GT&T to ATN during such period, interest accrued during such period on
indebtedness of GT&T to ATN and advisory fees payable by GT&T to ATN during such
period (computed on an accrual basis) and includes as expense all expenses of
ATN during such period (to the extent such expenses are deductible for Income
Tax purposes) except for expenses charged to ECI under clauses (c), (j), (k),
(m), (n), (o), and (s) of the definition of "Debits" in the Subscription
Agreement;
(iv) any withholding of Foreign Income Taxes imposed with respect to
payments from GT&T to ATN; and
(v) 50% of all other Taxes (including Restructuring Taxes) of ATN or
Aircraft Corp. (in each case, whether computed on a separate company or
consolidated basis) with respect to all Pre-Distribution Periods, except for
Taxes described in clauses (i), (ii) or (iii) of Section 2.02(b).
(b) ECI Liability. Notwithstanding the provisions of Section 2.03, as
between ATN and ECI, ECI shall be liable for, and shall indemnify and hold
harmless the ATN Group from and against:
(i) Any Restructuring Taxes which arise from any breach by ECI of its
representations or covenants under Section 10 or from any Tainting Act by
ECI or its Affiliates or the inaccuracy of any fac-
<PAGE>
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tual statements or representations made in or in connection with the Ruling
Request with respect to the activities of ECI and its Affiliates after the
Closing;
(ii) 100% of all Taxes of ECI (computed on a separate company basis)
for all Pre-Distribution Periods;
(iii) any withholding of Foreign Income Taxes imposed with respect to
payments from Atlantic Tele-Network Co. or any of its subsidiaries to ATN
except to the extent taken into account in clauses (b) or (r) of the
definition of "Debits" for purposes of calculating the Final Closing
Adjustment; and
(iv) 50% of all other Taxes (including Restructuring Taxes) of ATN or
Aircraft Corp. (in each case, whether computed on a separate company or
consolidated basis) for all Pre-Distribution Periods, except for Taxes
described in clauses (i), (ii), (iii) or (iv) of Section 2.02(a).
2.03. Liability of Prior and Prosser.
(a) Prior Liability. Prior shall be liable for, and shall indemnify and
hold harmless the ATN Group and the ECI Group from and against any liability
for, any Restructuring Taxes which arise from (x) any breach of Prior's
representations and covenants under Section 11(a) or (y) the inaccuracy of any
factual statements or representations relating to Prior or members of Prior's
family made in the Letter Request or in any certificate provided by Prior in
connection with the Ruling Request or in connection with an opinion of tax
counsel with respect to the Transactions.
(b) Prosser Liability. Prosser shall be liable for, and shall indemnify and
hold harmless the ATN Group and the ECI Group from and against any liability for
any Restructuring Taxes which arise from (x) any breach of Prosser's
representations and covenants under Section 11(b) or (y) the inaccuracy of any
factual statements or representations relating to Prosser or members of
Prosser's family made in the Letter Request or in any certificate provided by
Prosser in connection with the Ruling Request or in connection with an opinion
of tax counsel with respect to the Transactions.
2.04. Expenses. Each of ATN, ECI, Prior and Prosser shall be liable for all
fees, costs and expenses, including without limitation reasonable attorneys'
fees, arising out of, or incident to, any proceeding before any Tax Authority,
or any judicial authority, with respect to any Taxes for which it or he (as the
case may be) is liable under Section 2.02(a) (in the case of ATN), 2.02(b) (in
the case of ECI), 2.03(a) (in the case of Prior) or 2.03(b) (in the case of
Prosser). In addition, an indemnified party under Section 2.02 or 2.03 shall be
entitled to recover from the indemnifying party thereunder all fees, costs and
expenses, including without limitation reasonable attorneys' fees, incurred by
the indemnified party in connection with enforcement of its rights to
indemnification against the indemnifying party.
SECTION 3. Proration of Taxes for Straddle Periods.
3.01. General Method of Proration. For purposes of Section 2, in the case
of any Straddle Period, Tax Items shall be apportioned between Pre-Distribution
Periods and Post-Distribution Periods in accordance with the principles of
Treasury Regulation Section 1.1502-76(b). No election shall be made under
Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to ratable allocation
of a year's items). If the Closing Date is not an Accounting Cutoff Date, the
provisions of Treasury Regulation Section 1.1502-76(b)(2)(iii) will be applied
to ratably allocate the items (other than extraordinary items) for the month
which includes the Closing Date.
<PAGE>
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3.02. Transaction Treated as Extraordinary Item. In determining the
apportionment of Tax Items between Pre-Distribution Periods and
Post-Distribution Periods, any Tax Item relating to the Transactions shall be
treated as an extraordinary item described in Treasury Regulation Section
1.1502-76(b)(2)(ii)(C) and shall be allocated to Pre-Distribution Periods, and
any Taxes related to any such Tax Item (including Restructuring Taxes) shall be
treated under Treasury Regulation Section 1.1502-76(b)(2)(iv) as relating to
such extraordinary item and shall be allocated to Pre-Distribution Periods.
3.03. Proration of Other Taxes. For purposes of Section 2, in the case of
any Straddle Period, Taxes that are not susceptible to apportionment in the
manner described in Section 3.01 (e.g., real and personal property taxes) shall
be apportioned between Pre-Distribution Periods and Post-Distribution Periods on
a pro rata basis based on the number of days in the relevant Tax Period.
SECTION 4. Preparation and Filing of Tax Returns.
4.01. General.
(a) All Tax Returns shall be prepared and filed when due (including
extensions) by the person obligated to file such Tax Returns under the Code or
applicable Tax Law. ATN and ECI shall provide, and shall cause their respective
Affiliates to provide, assistance and cooperate with one another in accordance
with Section 6 with respect to the preparation and filing of all Tax Returns,
including, without limitation, providing information required to be provided in
Section 6.
(b) ECI shall, for each Tax Period or portion thereof for which ECI or
Aircraft Corp. is included in a Tax Return required to be filed by ATN, provide
ATN with (i) a true and correct schedule in the form of a separate Federal
Income Tax Return for each of ECI and Aircraft Corp., and (ii) a reconciliation
of book income to federal taxable income for ECI and Aircraft Corp. ECI hereby
agrees to use its best efforts to provide ATN with such schedules and
computations no later than the first day of the sixth month following the end of
the period to which such schedules and computations relate.
4.02. Manner of Filing.
(a) All Tax Returns filed or caused to be filed by ATN or ECI after the
Closing Date shall be prepared on a basis that is consistent with (i) any IRS
ruling obtained by ATN in connection with the Transactions, (ii) the treatment
of ATN's purchase pursuant to Article I of the Repurchase and Recapitalization
Agreement of 416,998 shares of common stock at ATN owned by Prior and 384,564
shares of common stock of ATN owned by the 1994 Prior Charitable Remainder Trust
as distributions of property to which Section 301 of the Code applies, and (iii)
the treatment of the transactions contemplated by Article II of the Repurchase
and Recapitalization Agreement as tax-free to ATN, Prior and Prosser for Federal
Income Tax purposes by reason of such transactions qualifying as reorganizations
within the meaning of Section 368(a) of the Code or otherwise (in each case, in
the absence of a controlling change in law or circumstances), and shall be filed
on a timely basis by the Responsible Company.
(b) Except as otherwise agreed in writing by ATN and ECI, and in the
absence of a controlling change in law or circumstances, all Tax Returns filed
or caused to be filed by ATN or ECI after the Closing Date shall be prepared
consistent with past practices, elections, accounting methods, conventions, and
principles of taxation used for the most recent taxable periods for which Tax
Returns involving similar items have been filed prior to the Closing Date,
except that, with respect to any Tax Item not relating to the Transactions, one
party may take
<PAGE>
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an inconsistent position without the agreement of the other party only to the
extent such position does not create a Tax detriment to the other party or any
member of such other party's Group.
SECTION 5. Tax Payments and Intercompany Billings.
5.01. Payment of Taxes With Respect to Pre-Distribution or Straddle Period
Returns Filed After the Distribution Date. In the case of any Tax Return
required to be filed by ATN under Section 4.01 with respect to a
Pre-Distribution Period or Straddle Period the due date for which Tax Return
(including extensions) is after the Closing Date, at least 10 business days
prior to any Payment Date, ATN (i) shall compute the amount of Tax required to
be paid to the relevant Tax Authority (taking into account the requirements of
Section 4.02(b) relating to consistent accounting practices) with respect to
such Tax Return on such Payment Date and (ii) shall send to ECI a written notice
and demand for payment by ECI of its share (if any) of such Tax payment
determined by ATN in accordance with Section 2.02(b) and accompanied by a
statement detailing the Taxes to be paid and describing in reasonable detail the
particulars relating thereto. ECI shall deliver to ATN on or before the business
day immediately preceding such Payment Date a cashier's check made to the order
of the applicable Tax Authority for the amount of ECI's share of such Tax
Payment, and ATN shall remit such check and make the remainder of such Tax
payment to the relevant Tax Authority on or before such Payment Date.
5.02. Payment of Tax Related to Adjustments. ATN shall pay to the relevant
Tax Authority when due any additional Taxes required to be paid as a result of
any adjustment to Taxes with respect to any Pre-Distribution Period. At least 10
business days before such additional Tax payment is due to be paid by ATN, ATN
shall send to ECI, Prior or Prosser, as the case may be, a written notice and
demand from ATN for payment by it or him, as the case may be, of its or his
share (if any) of any such additional Tax payment determined by ATN in
accordance with Section 2 accompanied by a statement detailing the Taxes to be
paid and describing in reasonable detail the particulars relating thereto;
provided, however, that ATN will not make a demand for an indemnification
payment attributable to any Restructuring Taxes under Section 2.02(b)(i) or 2.03
until the liability for such Restructuring Taxes either (i) is established by a
Final Determination or (ii) subject to Section 8.02, is otherwise agreed to in
writing by ATN with the applicable Tax Authority. ECI, Prior or Prosser, as the
case may be, shall pay to ATN, in immediately available funds, ECI's or his
share (if any) of any such additional Tax Payment on or before the business day
immediately preceding the date such additional Tax is due to be paid by ATN;
provided, however, that if any portion of such additional Tax payment is
indemnified by Prior or Prosser under Section 2.03, (x) ECI may reduce the
amount of its payment to ATN under this Section 5.02 in respect of such
additional Tax payment by 50% of the amount of any indemnification payment in
respect of such additional Tax payment actually received by ATN from Prior or
Prosser, as the case may be, on or prior to the date that ECI is required to
make such payment to ATN, and (y) ATN shall immediately remit to ECI 50% of the
amount of any indemnification payment in respect of such additional Tax payment
actually received by ATN from Prior or Prosser, as the case may be, after ECI
actually made a payment to ATN under this Section 5.02 in respect of such
additional Tax payment.
5.03. Indemnification Payments. Without overriding the procedures set forth
in Sections 5.01 and 5.02, if a Company (the "payor") pays to a Tax Authority a
Tax for which the other Company (the "responsible party") is liable under this
Agreement, the responsible party shall reimburse the payor within 10 business
days of delivery by the payor to the responsible party of an invoice for the
amount due, accompanied by evidence of payment and a statement detailing the
Taxes paid and describing in reasonable detail the particulars relating thereto.
The reimbursement shall include interest on the Tax payment computed at the
Prime Rate based on the number of days from the date of the payment to the Tax
Authority to the date of reimbursement under this Section 5.03.
<PAGE>
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SECTION 6. Assistance and Cooperation.
6.01. General. After the Closing Date, each of ATN and ECI shall cooperate
(and cause their respective Affiliates to cooperate) with each other and with
each other's agents, including accounting firms and legal counsel, in connection
with Tax matters relating to ATN and ECI and their respective Affiliates
including, without limitation, (i) preparation and filing of Tax Returns, (ii)
determining the liability for and amount of any Taxes due (including estimated
Taxes) or the right to and amount of any refund of Taxes, (iii) examinations of
Tax Returns, and (iv) any administrative or judicial proceeding in respect of
Taxes assessed or proposed to be assessed. Such cooperation shall include making
all information and documents in their possession relating to the other Company
and its Affiliates reasonably available to such other Company as provided in
Section 7. Each of the Companies shall also make available to each other, as
reasonably requested and available, personnel (including officers, directors,
employees and agents of the Companies or their respective Affiliates)
responsible for preparing, maintaining, and interpreting information and
documents relevant to Taxes, and personnel reasonably required as witnesses or
for purposes of providing information or documents in connection with any
administrative or judicial proceedings relating to Taxes. Any information or
documents provided under this Section 6 shall be kept confidential by the
Company receiving the information or documents, except as may otherwise be
necessary in connection with the filing of Tax Returns or in connection with any
administrative or judicial proceedings relating to Taxes.
6.02. Income Tax Return Information. Each Company will provide to the other
Company information and documents relating to its Group required by the other
Company to prepare Tax Returns. The Responsible Company shall determine a
reasonable compliance schedule for such purpose in accordance with ATN's past
practices. Any additional information or documents the Responsible Company
requires to prepare such Tax Returns will be provided in accordance with past
practices, if any, or as the Responsible Company reasonably requests and in
sufficient time for the Responsible Company to file such Tax Returns timely.
SECTION 7. Tax Records.
7.01. Retention of Tax Records. Except as provided in Section 7.02, each of
ATN and ECI shall preserve and keep all Tax Records exclusively relating to the
assets and activities of its Group for Pre-Distribution Tax Periods and all
other Tax Records relating to Taxes of the Groups for Pre-Distribution Tax
Periods, for so long as the contents thereof may become material in the
administration of any matter under the Code or other applicable Tax Law, but in
any event until the later of (i) the expiration of any applicable statutes of
limitation, and (ii) seven years after the Closing Date. If, prior to the
expiration of the applicable statute of limitation and such seven-year period, a
Company reasonably determines that any Tax Records which it is required to
preserve and keep under this Section 7 are no longer material in the
administration of any matter under the Code or other applicable Tax Law, such
Company may dispose of such records upon 90 days prior notice to the other
Company. Such notice shall include a list of the records to be disposed of
describing in reasonable detail each file, book, or other record accumulation to
be disposed of. The notified Company shall have the opportunity, at its cost and
expense, to copy or remove, within such 90-day period, all or any part of such
Tax Records.
7.02. State and Foreign Income Tax Returns. Tax Returns with respect to
State Income Taxes and Foreign Income Taxes and workpapers prepared in
connection with preparing such Tax Returns shall be preserved and kept, in
accordance with the guidelines of Section 7.01, by the person responsible for
preparing and filing the applicable Tax Return.
7.03. Access to Tax Records. The Companies and their respective Affiliates
shall make available to each other for inspection and copying during normal
business hours upon reasonable notice all Tax Records in
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their possession to the extent reasonably required by the other Company in
connection with the preparation of Tax Returns, audits, litigation, or the
resolution of items under this Agreement.
SECTION 8. Tax Contests.
8.01. Notice. Each of ATN and ECI shall provide prompt notice to the other
and to Prior and Prosser of any pending or threatened Tax audit, assessment or
proceeding or other Tax Contest of which it becomes aware related to Taxes for
Tax Periods for which it is indemnified by the other or Prior or Prosser, as the
case may be, hereunder. Such notice shall contain factual information (to the
extent known) describing any asserted Tax liability in reasonable detail and
shall be accompanied by copies of any notice and other documents received from
any Tax Authority in respect of any such matters. If an indemnified party has
knowledge of an asserted Tax liability for which it is to be indemnified
hereunder and such party fails to give the indemnifying party prompt notice of
such asserted Tax liability, such failure to give notice will not relieve the
indemnifying party of its obligations hereunder, except to the extent that the
indemnifying party is materially prejudiced by such failure.
8.02. Control of Tax Contests. Each of ATN and ECI shall have full
responsibility and discretion in handling, settling or contesting any Tax
Contest involving a Tax Return for which it has filing responsibility pursuant
to Section 4 of this Agreement; provided, however, ECI, Prior or Prosser, at it
or his sole cost and expense, may participate in any Tax Contest with respect to
any Restructuring Taxes for which it or he has liability or an indemnification
obligation with respect to such Taxes under this Agreement; provided, further,
that ECI, at its sole cost and expense and employing Cahill Gordon & Reindel or
other counsel reasonably acceptable to ATN, shall be permitted to jointly share
with ATN, employing Fried, Frank, Harris, Shriver & Jacobson or other counsel
reasonably acceptable to ECI, the responsibility and discretion in handling,
settling or contesting any Tax Contest with respect to any Taxes for which ECI
has liability or an indemnification obligation to ATN with respect to such
Taxes, unless ECI fails to provide to ATN a written acknowledgment of ECI's
potential liability for such Taxes or indemnification obligation to ATN with
respect to such Taxes within 10 business days of ECI's receipt of a written
request by ATN therefor. Except as otherwise provided in Section 2.04 hereof,
any costs incurred in handling, settling or contesting any Tax Contest shall be
borne by the party having full responsibility and discretion thereof.
SECTION 9. Effective Date; Termination of Prior Intercompany Tax Allocation
Agreements. This Agreement shall be effective on the Closing Date. Immediately
prior to the close of business on the Closing Date, all Intercompany Tax
Allocation Agreements shall be terminated.
SECTION 10. No Inconsistent Actions.
(a) Each of the Companies covenants and agrees that, except as disclosed in
the Letter Request, it will not take any action, and it will cause its
Affiliates to refrain from taking any action, which may be inconsistent with the
Tax treatment of the Transactions as contemplated in the Ruling Request (any
such action is referred to in this Section 10 as a "Tainting Act"), unless (i)
the Company or Affiliate thereof proposing such Tainting Act (the "Requesting
Party") either (A) obtains a ruling with respect to the Tainting Act from the
Internal Revenue Service or other applicable Tax Authority that is reasonably
satisfactory to the other Company (the "Requested Party") (except that the
Requesting Party shall not submit any such ruling request if a Requested Party
determines in good faith that filing such request might have a materially
adverse effect upon such Requested Party), or (B) obtains an unqualified
opinion, reasonably satisfactory in form and substance to Requested Party, of
Fried, Frank, Harris, Shriver & Jacobson or Cahill Gordon & Reindel or other
independent nationally recognized tax counsel acceptable to the Requested Party,
on a basis of assumed facts and representations consistent with
<PAGE>
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the facts at the time of such action, that such Tainting Act will not affect the
Tax treatment of the Transactions as contemplated in the Ruling Request, or (ii)
the Requested Party consents in writing to such Tainting Act, which consent
shall be granted or withheld in the sole and absolute discretion of the
Requested Party. Without limiting the foregoing:
(i) Specified Actions. During the two-year period beginning on (and
including) the Closing Date, unless clause (i) or (ii) of the preceding
paragraph is satisfied with respect to the applicable action, and except as
disclosed in the Letter Request, ATN and ECI will not (and neither will
cause or permit any of its Affiliates to) (A) liquidate or merge with or
into any other corporation; (B) issue any capital stock that in the
aggregate exceeds 45%, by vote or value, of its capital stock issued and
outstanding immediately after the Distribution; (C) redeem, purchase or
otherwise reacquire its capital stock issued and outstanding immediately
after the Distribution (other than through stock purchases meeting the
requirements of section 4.05(1)(b) of Rev. Proc. 96-30); (D) make a
material disposition (including transfers from one member of a Group to
another member of that Group) or cessation of operations by means of a sale
or exchange of assets or capital stock, a distribution to stockholders, or
otherwise, of the assets constituting the trades or businesses relied upon
in the Ruling Request to satisfy Section 355(b) of the Code; or (E)
discontinue or cause to be discontinued the active conduct of the trades or
businesses relied upon in the Ruling Request to satisfy Section 355(b) of
the Code (each of the foregoing, a "Specified Action").
(ii) No Inconsistent Plan or Intent. Each of ATN and ECI represents
and warrants that it shall, and shall cause each of its Affiliates to,
comply with each factual statement and representation in the Ruling
Request, and that neither it nor any of its Affiliates has any plan or
intent to take any Specified Action or any action which is inconsistent
with any factual statements or representations in the Ruling Request.
Regardless of any change in circumstances, each of ATN and ECI covenants
and agrees that it will not take, and it will cause its Affiliates to
refrain from taking, any such Specified Action or inconsistent action on or
before the last day of the calendar year ending after the second
anniversary of the Closing Date other than as permitted in this Section 10.
(iii) Amended or Supplemental Rulings. Each of ATN and ECI covenants
and agrees that it will not file, and it will cause its Affiliates to
refrain from filing, any amendment or supplement to the Ruling Request
subsequent to the Closing Date without the consent of the other, which
consent shall not be unreasonably withheld.
(b) Notwithstanding anything to the contrary in this Agreement, each
Company shall be solely liable for, and shall indemnify and hold harmless the
other Company from any Restructuring Tax resulting from a Tainting Act by such
first Company or its Affiliates, regardless of whether clause (i) or (ii) of
Section 10(a) was satisfied with respect to such Tainting Act.
SECTION 11. Certain Representations and Covenants of Prior and Prosser.
(a) Representations and Covenants of Prior.
(i) Transfer Restrictions. Prior represents and warrants that he has no
plan or intention to sell, exchange, transfer by gift, pledge or otherwise
dispose of or encumber, whether actually or constructively by means of a
short sale, equity swap, forward or futures contract, option or otherwise
(collectively, a "Transfer") any stock or securities of ATN, or any
beneficial or financial interest therein, after the Transactions except for
Permitted Pledges. Prior covenants and agrees that during the two-year
period
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beginning on (and including) the Closing Date, without the prior written
consent of ECI (which consent ECI may grant or withhold in its sole
discretion), he will not Transfer any stock or securities of ATN, or any
beneficial or financial interest therein, except for Permitted Pledges,
unless he first obtains either (A) a ruling with respect to the Transfer
from the Internal Revenue Service or other applicable Tax Authority that is
reasonably satisfactory to ECI (acting on advice of counsel, such counsel
to be reasonably satisfactory to ATN) or (B) an unqualified opinion,
reasonably satisfactory in form and substance to ECI (acting on advice of
counsel, such counsel to be reasonably satisfactory to ATN), of Fried,
Frank, Harris, Shriver & Jacobson or other independent nationally
recognized tax counsel acceptable to ECI, on a basis of assumed facts and
representations consistent with the facts at the time of such Transfer,
that such Transfer will not affect the Tax treatment of the Transactions as
contemplated in the Ruling Request. In order to ensure compliance with the
requirements of this Section 11(a)(i), during the two-year period beginning
on (and including) the Closing Date, Prior shall maintain at least a
majority of the outstanding common stock of ATN (or all stock or securities
in ATN owned by him if he shall then own less than a majority of the
outstanding common stock of ATN) in accounts with one or more banks or
brokerage firms (collectively, "Financial Institutions"), which accounts
may be margin accounts, provided that each such Financial Institution shall
deliver a written undertaking to ECI stating that such Financial
Institution will not permit any Transfer of Mr. Prior's stock or securities
in ATN from such account without the prior written approval of ECI except
for (i) sales of such stock or securities made by such Financial
Institution for the purpose of obtaining repayment of any loans or advances
made to Prior by such Financial Institution following a default by Prior in
respect of such loans or advances, and (ii) any Transfer of such stock or
securities from an account of Prior with such Financial Institution to an
account of Prior with another Financial Institution which shall have given
ECI a written undertaking described in this Section 11(a)(i).
Notwithstanding anything to the contrary in this Agreement, Prior shall be
liable for, and shall indemnify and hold harmless the ATN Group and the ECI
Group from and against any liability for, any Restructuring Taxes which
arises out of any Transfer of any of his stock or securities in ATN or any
beneficial or financial interest therein (including, without limitation,
any sale of stock subject to a Permitted Pledge on foreclosure of such
pledge) regardless of whether the provisions of this Section 11(a)(i) were
satisfied with respect to such Transfer.
(ii) No Inconsistent Plan or Intent. Prior represents and warrants that he
has no plan or intent to cause ATN or any of its Affiliates to take any
Tainting Act (including any Specified Action) or any action inconsistent
with any factual statement or representation in the Letter Request. Prior
covenants and agrees that, so long as he owns a majority of the voting
power of the outstanding capital stock of ATN, he will cause ATN and its
Affiliates to refrain from taking any Tainting Act (including any Specified
Action) or any action inconsistent with any factual statement or
representation in the Letter Request on or before the last day of the
calendar year ending after the second anniversary of the Closing Date other
than as permitted in Section 10.
(b) Representations and Covenants of Prosser.
(i) Transfer Restrictions. Prosser represents and warrants that other than
a Transfer of ECI stock to the LLC, neither he nor the LLC has any plan or
intention to sell, exchange, transfer by gift, pledge or otherwise dispose
of or encumber, whether actually or constructively by means of a short
sale, equity swap, forward or futures contract, option or otherwise
(collectively, a "Transfer") any ownership interest, stock or securities of
ECI or the LLC, or any beneficial or financial interest therein, after the
Transactions except for Permitted Pledges. Prosser covenants and agrees
that during the two-year period beginning on (and including) the Closing
Date, without the prior written consent of ATN (which consent
<PAGE>
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ATN may grant or withhold in its sole discretion), (x) neither he nor the
LLC will Transfer any ownership interest, stock or securities of ECI or the
LLC, or any beneficial or financial interest therein, except for Permitted
Pledges, (y) Prosser will remain the only beneficial owner, member and
manager of the LLC and (z) Prosser will not take and will not permit the
LLC to take any action which would result in the LLC not being disregarded
as an entity separate from Prosser for United States federal tax purposes
and United States Virgin Islands federal tax purposes under Treasury
Regulations section 301.7701-3, unless he first obtains either (A) a ruling
with respect to the Transfer, Prosser ceasing to be the only beneficial
owner, member and manager of the LLC or any such action referred to in the
preceding clause (z), as the case may be, from the Internal Revenue Service
or other applicable Tax Authority that is reasonably satisfactory to ATN
(acting on advice of counsel, such counsel to be reasonably satisfactory to
ECI) or (B) an unqualified opinion, reasonably satisfactory in form and
substance to ATN (acting on advice of counsel, such counsel to be
reasonably satisfactory to ECI), of Cahill Gordon & Reindel or other
independent nationally recognized tax counsel acceptable to ATN, on a basis
of assumed facts and representations consistent with the facts at the time
of such Transfer, or at the time that Prosser ceases to be the sole
beneficial owner, member and manager of the LLC or takes any action or
permits the LLC to take any action referred to in the preceding clause (z),
as the case may be, that such Transfer, Prosser ceasing to be the sole
beneficial owner, member and manager of the LLC or the taking of any action
referred to in the preceding clause (z), as the case may be, will not
affect the Tax treatment of the Transactions as contemplated in the Ruling
Request. In order to ensure compliance with the requirements of this
Section 11(b)(i), during the two-year period beginning on (and including)
the Closing Date, Prosser, together with the LLC, shall maintain at least a
majority of the outstanding common stock of ECI (or all stock or securities
in ECI owned by him and the LLC if he, together with the LLC, shall then
own less than a majority of the outstanding common stock of ECI) in
accounts with one or more banks (including, without limitation, the RTFC)
or brokerage firms (collectively, "Financial Institutions"), which accounts
may be margin accounts, provided that each such Financial Institution shall
deliver a written undertaking to ATN stating that such Financial
Institution will not permit any Transfer of Mr. Prosser's or the LLC's
stock or securities in ECI from such account without the prior written
approval of ATN except for (i) sales of such stock or securities made by
such Financial Institution for the purpose of obtaining repayment of any
loans or advances made to Prosser or the LLC by such Financial Institution
following a default by Prosser or the LLC in respect of such loans or
advances, and (ii) any Transfer of such stock or securities from an account
of Prosser or the LLC with such Financial Institution to an account of
Prosser or the LLC with another Financial Institution which shall have
given ATN a written undertaking described in this Section 11(b)(i).
Notwithstanding anything to the contrary in this Agreement, Prosser shall
be liable for, and shall indemnify and hold harmless the ATN Group and the
ECI Group from and against any liability for, any Restructuring Taxes which
arises out of (w) any Transfer of any of his ownership interest, stock or
securities in ECI or the LLC or any beneficial or financial interest
therein (including, without limitation, any sale of stock subject to a
Permitted Pledge on foreclosure of such pledge) (x) any Transfer of any of
the LLC's stock or securities in ECI or any beneficial or financial
interest therein including, without limitation, any sale of Stock subject
to a Permitted Pledge on foreclosure of such pledge, (y) Prosser ceasing to
be the sole beneficial owner, member and manager of the LLC or (z) Prosser
taking any action or permitting the LLC to take any action which would
result in the LLC ceasing to be disregarded as an entity separate from
Prosser for United States federal tax purposes and United States Virgin
Islands federal tax purposes under Treasury Regulations section 301.7701-3,
as the case may be, regardless of whether the provisions of this Section
11(b)(i) were satisfied with respect to such Transfer.
(ii) No Inconsistent Plan or Intent. Prosser represents and warrants that
he has no plan or intent to cause ECI or any of its Affiliates to take any
Tainting Act (including any Specified Action) or any
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action inconsistent with any factual statement or representation in the
Letter Request. Prosser covenants and agrees that, so long as he owns a
majority of the voting power of the outstanding capital stock of ECI, he
will cause ECI and its Affiliates to refrain from taking any Tainting Act
(including any Specified Action) or any action inconsistent with any
factual statement or representation in the Letter Request on or before the
last day of the calendar year ending after the second anniversary of the
Closing Date other than as permitted in Section 10.
(c) Upon compliance by Prior or Prosser with the requirements for a
Transfer specified in Sections 11(a)(i) or 11(b)(i), ECI or ATN, as the case may
be, shall promptly give written permission for such Transfer to the Financial
Institution holding the stock or securities proposed to be Transferred.
SECTION 12. Survival of Obligations. The representations, warranties,
covenants and agreements set forth in this Agreement shall be unconditional and
absolute and shall remain in effect without limitation as to time.
SECTION 13. Treatment of Payments; Tax Gross Up.
13.01. Treatment of Tax Indemnity Payments. In the absence of any change in
tax treatment under the Code or other applicable Tax Law, any Tax indemnity
payments made by a Company under Section 5 shall be reported for Tax purposes by
the payor and the recipient as distributions or capital contributions, as
appropriate, occurring immediately before the Distribution on the Closing Date,
but only to the extent the payment does not relate to a Tax allocated to the
payor in accordance with Treasury Regulation Section 1.1502-33(d) (or under
corresponding principles of other applicable Tax Laws).
13.02. Tax Gross Up. If notwithstanding the manner in which Tax indemnity
payments were reported, there is an adjustment to the Tax liability of a Company
as a result of its receipt of a Tax indemnity payment in respect of
Restructuring Taxes resulting from a breach of a representation or covenant made
hereunder by the indemnifying party, such payment shall be appropriately
adjusted so that the amount of such payment, reduced by the amount of all Income
Taxes payable with respect to the receipt thereof, shall equal the amount of the
payment which the Company receiving such payment would otherwise be entitled to
receive pursuant to this Agreement.
SECTION 14. Disagreements. If after good faith negotiations the parties
cannot agree on the application of this Agreement to any matter, then the matter
will be referred to a nationally recognized accounting firm acceptable to each
of the parties (the "Accounting Firm"). The Accounting Firm shall furnish
written notice to the parties of its resolution of any such disagreement as soon
as practical, but in any event no later than 45 days after its acceptance of the
matter for resolution. Any such resolution by the Accounting Firm will be
conclusive and binding on all parties to this Agreement. In accordance with
Section 17, each party shall pay its own fees and expenses (including the fees
and expenses of its representatives) incurred in connection with the referral of
the matter to the Accounting Firm. All fees and expenses of the Accounting Firm
in connection with such referral shall be shared equally by the parties affected
by the matter.
SECTION 15. Late Payments. Any amount owed by one party to another party
under this Agreement which is not paid when due shall bear interest at the Prime
Rate plus two percent, compounded semiannually, from the due date of the payment
to the date paid. To the extent interest required to be paid under this Section
15 duplicates interest required to be paid under any other provision of this
Agreement, interest shall be computed at the higher of the interest rate
provided under this Section 15 or the interest rate provided under such other
provision.
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SECTION 16. Expenses. Except as provided in Section 14 and Section 2.04,
each party and its Affiliates shall bear their own expenses incurred in
connection with preparation of Tax Returns, Tax Contests, and other matters
related to Taxes under the provisions of this Agreement.
SECTION 17. General Provisions.
17.01. Addresses and Notices. Any notice, demand, request or report
required or permitted to be given or made to any party under this Agreement
shall be in writing and shall be deemed given or made when delivered in party or
when sent by first class mail or by other commercially reasonable means of
written communication (including delivery by an internationally recognized
courier service or by facsimile transmission) to the party at the party's
address as follows:
If to ATN or Prior:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
With a copy to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
If to ECI or Prosser:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-8000
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
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With a copy to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
A party may change the address for receiving notices under this Agreement
by providing written notice of the change of address to the other parties.
17.02. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns.
17.03. Waiver. No failure by any party to insist upon the strict
performance of any obligation under this Agreement or to exercise any right or
remedy under this Agreement shall constitute waiver of any such obligation,
right, or remedy or any other obligation, rights, or remedies under this
Agreement.
17.04. Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein shall
not be affected thereby.
17.05. Further Action. The parties shall execute and deliver all documents,
provide all information, and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement, including
the execution and delivery to the other parties and their Affiliates and
representatives of such powers of attorney or other authorizing documentation as
is reasonably necessary or appropriate in connection with Tax Contests (or
portions thereof) under the control of such other parties in accordance with
Section 8.
17.06. Integration. This Agreement constitutes the entire agreement among
the parties pertaining to the subject matter of this Agreement and supersedes
all prior agreements and understandings pertaining thereto. In the event of any
inconsistency between this Agreement and any other agreements relating to the
Transactions, the provisions of this Agreement shall control.
17.07. Construction. The language in all parts of this Agreement shall in
all cases be construed according to its fair meaning and shall not be strictly
construed for or against any party.
17.08. No Double Recovery; Subrogation. No provision of this Agreement
shall be construed to provide an indemnity or other recovery for any costs,
damages, or other amounts for which the damaged party has been fully compensated
under any other provision of this Agreement or under any other agreement or
action at law or equity. Unless expressly required in this Agreement, a party
shall not be required to exhaust all remedies available under other agreements
or at law or equity before recovering under the remedies provided in this
Agreement. Subject to any limitations provided in this Agreement, the
indemnifying party shall be subrogated to all rights of the indemnified party
for recovery from any third party.
17.09. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
<PAGE>
-17-
17.10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
executed in and to be performed in that State.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by the respective officers as of the date set forth above.
ATLANTIC TELE-NETWORK, INC.
By: /s/ Cornelius B. Prior, Jr
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
EMERGING COMMUNICATIONS, INC.
By: /s/ Jeffrey J. Prosser
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
/s/ Cornelius B. Prior, Jr.
-----------------------------------------
Cornelius B. Prior, Jr.
/s/ Jeffrey J. Prosser
-----------------------------------------
Jeffrey J. Prosser
Exhibit 10.22
===============================================================================
-------------------------
EMPLOYEE BENEFITS AGREEMENT
-------------------------
BETWEEN
EMERGING COMMUNICATIONS, INC.,
AND
ATLANTIC TELE-NETWORK, INC.
Dated December 30, 1997
===============================================================================
<PAGE>
EMPLOYEE BENEFITS AGREEMENT
THIS EMPLOYEE BENEFITS AGREEMENT (this "Employee Benefits Agreement") is
entered into as of the 30th day of December 1997 by and between Emerging
Communications, Inc., a Delaware Corporation (the "ECI"), and Atlantic
Tele-Network, Inc., a Delaware corporation (the "Company" or "ATNI").
WHEREAS, to eliminate corporation disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company, and
its co-chief executive officers and principal stockholders, Cornelius B. Prior,
Jr. ("Prior") and Jeffrey J. Prosser ("Prosser"), entered into a Principal Terms
Agreement dated January 29, 1997 which contemplated the separation of the
businesses and assets of the Company; and
WHEREAS, in order to accomplish such separation, the Company and New ATN
entered into a Subscription Agreement (the "Subscription Agreement"), the
Company, Prior and Prosser entered into a Recapitalization Agreement (the
"Recapitalization Agreement") and the Company and ATN MergerCo. entered into an
Agreement and Plan of Merger (the "Merger Agreement"), all dated as of August
11, 1997;
WHEREAS, the execution and delivery of this Employee Benefits Agreement by
the parties hereto is contemplated by the Subscription Agreement and is a
condition to the Closing (as defined in the Subscription Agreement); and
WHEREAS, each of the parties hereto desires to consummate, and will secure
substantial benefits from the consummation of, the Closing.
NOW, THEREFORE, for and in consideration of the covenants herein contained
and subject to the conditions hereinafter set forth, the parties hereto agree as
follows:
1. Effective as of the Closing, (i) ECI shall adopt as its own the Atlantic
Tele-Network, Inc. Defined Benefit Plan for Salaried Employees, the Atlantic
Tele-Network, Inc. Management Employees' Savings Plan, and the Atlantic
Tele-Network, Inc. Employees' Stock Ownership Plan (collectively, the "ATNI
Plans"), (ii) each of the trusts (and all assets thereof) forming a part of the
ATNI Plans shall be assumed by ECI, and (iii) ECI and the Company shall take
such action, including amendments to the ATNI Plans (or the trusts forming a
part thereof), as is necessary in order for ECI to be the sponsor and "Employer"
under such ATNI Plans. As of the Closing, employees of the Company and its
subsidiaries shall cease participation in the ATNI Plans maintained by ECI or
any of its subsidiaries.
2. All other employee benefit plans maintained by ATN Co., a U.S. Virgin
Islands corporation ("ATNC"), by Virgin Islands Telephone Corp., a U.S. Virgin
Islands corporation ("Vitelco") or by any of their subsidiaries (the
"ATNC/Vitelco Plans"), including but not limited to the Virgin Islands Telephone
Corporation Pension Plan for Hourly Employees, the United Steelworkers of
America 401(k) Plan for Bargaining Unit Employees of Vitelco, the Welfare Plan
for Salaried Employees and the Welfare Plan for Bargaining Employees, shall
continue to be sponsored by such entities after the Closing. As of the Closing,
employees of the Company and its subsidiaries shall cease participation in the
ATNC/Vitelco Plans maintained by ECI, ATNC, Vitelco or any of their
subsidiaries.
<PAGE>
-2-
3. Effective as of the Closing, ECI and its subsidiaries shall assume all
employment-related liabilities and obligations of ATNI toward those employees
who prior to the Closing were employed by ATNI and who after the Closing will be
employed by ECI or its subsidiaries. Such employment-related liabilities and
obligations shall include, but are not limited to, liabilities and obligations
with respect to wages, withholding taxes, benefits, accrued vacation, employee
benefit plan contributions and administrative expenses, whether incurred or
accrued before, on or after the Closing and whether or not reported as of the
Closing.
4. All notices or other communications required or permitted hereunder
shall be in writing and sufficient if (a) delivered personally, (b) sent by
nationally-recognized overnight courier or (c) sent by certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company, to:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 6100
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
if to ECI, to:
Emerging Communications, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
or, in each case, to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Any such communication shall be deemed to have been given (i) when delivered, if
personally delivered, (ii) on the business day after dispatch, if sent by
nationally-recognized overnight courier and (iii) on the third business day
after dispatch, if sent by mail.
5. The foregoing is the entire agreement of the parties with respect to the
subject matter hereof and may not be amended, supplemented, canceled or
discharged except by a written instrument executed by the parties hereto. This
<PAGE>
-3-
Employee Benefits Agreement supersedes any and all prior agreements among the
parties hereto with respect to the matters covered hereby.
6. This Employee Benefits Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed wholly therein.
7. This Employee Benefits Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8. Any action or proceeding brought by any party to this Employee Benefits
Agreement against any other party hereto with respect to the enforcement or
breach of this Employee Benefits may be brought in the courts of the State of
New York or of the United States for the Southern District of New York. Each of
the parties hereto irrevocably submits to the jurisdiction of each such court in
respect of any such action or proceeding, irrevocably waives any objection that
it may now or hereafter have to the laying of venue of any such action or
proceeding in any such court and any claim that any such action or proceeding
brought in any such court has been brought in an inconvenient forum, and
irrevocably consents that service of process or other legal summons for purposes
of any such action or proceeding may be served on it by personal service within
or without the State of New York or by mailing a copy thereof by registered
mail, or a form of mail substantially equivalent to registered mail, addressed
to such party at its address as provided for notices hereunder.
9. In the event of any breach of this Employee Benefits Agreement by any
party hereto, any other party hereto which is aggrieved by such breach (an
"Aggrieved Breach") shall be entitled to recover from the party in breach, any
and all costs and expenses, including without limitation reasonable attorneys'
fees, incurred by the Aggrieved Party as a result of such breach or in
connection with enforcing the provisions of this Non-Competition Agreement with
respect to such breach.
<PAGE>
IN WITNESS WHEREOF, this Employee Benefits Agreement has been executed and
delivered by the parties hereto as of the date first above written.
ATLANTIC TELE-NETWORK, INC.
By: /s/ Cornelius B. Prior, Jr.
----------------------------------
Name: Cornelius B. Prior, Jr.
Title: Chief Executive Officer
EMERGING COMMUNICATIONS, INC.
By: /s/ Jeffrey J. Prosser
----------------------------------
Name: Jeffrey J. Prosser
Title: Chief Executive Officer
Exhibit 21
SUBSIDIARIES OF EMERGING COMMUNICATIONS, INC.
Subsidiaries of the Company Jurisdictions of Incorporation
- --------------------------- ------------------------------
Atlantic Aircraft, Inc. Delaware
Atlantic Tele-Network Co. U.S. Virgin Islands
Virgin Islands Telephone Corporation U.S. Virgin Islands
Vitelcom, Inc. (merged into U.S. Virgin Islands
Atlantic Tele-Network Co.
on December 23, 1997)
Vitelcom Cellular, Inc. (dba U.S. Virgin Islands
Vitelcellular)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
****(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)****
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,013
<SECURITIES> 0
<RECEIVABLES> 14,548
<ALLOWANCES> 0
<INVENTORY> 6,241
<CURRENT-ASSETS> 29,198
<PP&E> 237,825
<DEPRECIATION> 111,296
<TOTAL-ASSETS> 224,308
<CURRENT-LIABILITIES> 51,418
<BONDS> 105,138
0
0
<COMMON> 110
<OTHER-SE> 58,660
<TOTAL-LIABILITY-AND-EQUITY> 224,308
<SALES> 190,954
<TOTAL-REVENUES> 190,954
<CGS> 154,526
<TOTAL-COSTS> 154,526
<OTHER-EXPENSES> 45,041
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,548
<INCOME-PRETAX> (18,810)
<INCOME-TAX> (897)
<INCOME-CONTINUING> (19,253)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,253)
<EPS-PRIMARY> (1.57)
<EPS-DILUTED> (1.57)
</TABLE>
