<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
SCHEDULE 14D-1
Tender Offer Statement Pursuant to
Section 14(d)(1) of the Securities Exchange Act of 1934
and
SCHEDULE 13D/A
(AMENDMENT NO. 1)
Under the Securities Exchange Act of 1934
________________
EMERGING COMMUNICATIONS, INC.
(Name of Subject Company)
________________
INNOVATIVE COMMUNICATION CORPORATION
INNOVATIVE COMMUNICATION COMPANY, LLC
JEFFREY J. PROSSER
(Bidders)
________________
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
________________
29089K108
(CUSIP Number of Class of Securities)
________________
Jeffrey J. Prosser
Innovative Communication Company, LLC
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 00821
(340) 777-7700
<PAGE>
Copy to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Bidders)
________________
Calculation of Filing Fee
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Transaction Valuation* Amount of Filing Fee**
--------------------- --------------------
$54,860,644.50 $10,973
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* For purposes of calculating the filing fee only. The filing fee was
calculated, pursuant to Section 13(e)(3) of the Securities Exchange Act of
1934, as amended, and Rule 0-11 thereunder, on the basis of 5,352,258
shares of Common Stock (the number of shares of Common Stock outstanding on
the date hereof, but excluding 5,606,873 shares of Common Stock owned by
Innovative Communications Company), multiplied by the proposed acquisition
price of U.S. $10.25 per share.
** 1/50 of 1% of Transaction Valuation.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and date of its filing.
Amount Previously Paid: ______________ Filing Party: ______________
Form of Registration No.: ______________ Date Filed: ______________
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<PAGE>
CUSIP No. 29089K108 14D-1 and 13D
- -------------------------------------------------------------------------------
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
INNOVATIVE COMMUNICATION CORPORATION
- -------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- -------------------------------------------------------------------------------
3. SEC USE ONLY
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4. SOURCES OF FUNDS OO
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION U.S. VIRGIN ISLANDS
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7. AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 0 SHARES
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8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7)
EXCLUDES CERTAIN SHARES 0
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9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0%
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10. TYPE OF REPORTING PERSON CO
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<PAGE>
CUSIP No. 29089K108 14D-1 and 13D
- -------------------------------------------------------------------------------
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
INNOVATIVE COMMUNICATION COMPANY, LLC
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
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3. SEC USE ONLY
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4. SOURCES OF FUNDS N.A.
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE
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7. AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 5,606,873 SHARES
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8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7)
EXCLUDES CERTAIN SHARES [ ]
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9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 51%
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10. TYPE OF REPORTING PERSON HC,OO (LIMITED LIABILITY
COMPANY)
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<PAGE>
CUSIP No. 29089K108 14D-1 and 13D
- -------------------------------------------------------------------------------
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
JEFFREY J. PROSSER
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
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3. SEC USE ONLY
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4. SOURCES OF FUNDS N.A.
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- -------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION U.S. VIRGIN ISLANDS
- -------------------------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 5,730,864 SHARES
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8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7)
EXCLUDES CERTAIN SHARES [X]
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9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 52%
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10. TYPE OF REPORTING PERSON IN
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<PAGE>
This Schedule 14D-1 and Schedule 13D/A (Amendment No. 1) (the
"Schedule 14D-1 and 13D") relates to the offer by Innovative Communication
Corporation, a U.S. Virgin Islands corporation (the "Purchaser") and a wholly
owned subsidiary of Innovative Communication Company, LLC, a Delaware limited
liability company (the "Parent"), to purchase all the outstanding shares of
Common Stock, par value $0.01 per share (the "Shares"), of Emerging
Communications, Inc., a Delaware corporation (the "Company"), not currently
directly or indirectly owned by Parent, net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated August 24, 1998 (the "Offer to Purchase") and in the
related Letter of Transmittal (the "Letter of Transmittal", together with the
Offer to Purchase, the "Offer"), both of which are annexed to and filed with
this Schedule 14D-1 and 13D as Exhibits (a)(1) and (a)(2), respectively. This
Schedule 14D-1 and Schedule 13D is being filed on behalf of the Purchaser, the
Parent and Jeffrey J. Prosser. The item numbers and responses thereto below are
in accordance with the requirements of Schedule 14D-1 and Schedule 13D
respectively of the Securities Exchange Act of 1934, as amended.
Item 1. Security and Subject Company.
(a) The name of the subject company is Emerging Communications, Inc.,
a Delaware corporation (the "Company"), and the address of its principal
executive offices is Chase Financial Center, Orange Grove, Christiansted, St.
Croix, U.S. Virgin Islands 00821.
(b) The information set forth in the "INTRODUCTION" of the Offer to
Purchase is incorporated herein by reference.
(c) The information set forth in "THE OFFER - 6. Price Range of
Shares; Dividends" of the Offer to Purchase is incorporated herein by reference.
Item 2. Identity and Background.
(a) - (d); (g) This Statement is being filed by the Purchaser, the
Parent and Mr. Prosser. The information set forth in the "INTRODUCTION" and in
"THE OFFER -- 9. Certain Information Concerning Parent and the Purchaser" of
the Offer to Purchase is incorporated herein by reference.
(e); (f) During the last five years, neither Parent nor the Purchaser
nor, to their knowledge, any of the directors or executive officers of the
Parent or Purchaser nor Mr. Prosser has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or was a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction as a
result of which any such person was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of such laws.
Item 3. Past Contacts, Transactions or Negotiations with the Subject Company.
(a) - (b) The information set forth in the "INTRODUCTION", in "SPECIAL
FACTORS - 5. Background of the Offer and the Merger", in "THE OFFER - 9.
Certain Information Concerning Parent and the Purchaser" and in "THE OFFER - 10.
Contacts with the Company" of the Offer to Purchase is incorporated herein by
reference.
Item 4. Source and Amount of Funds or Other Consideration.
(a) - (b) The information set forth in "THE OFFER - 12. Source and
Amount of Funds" of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
<PAGE>
Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidder.
(a) - (g) The information set forth in the "INTRODUCTION", in "SPECIAL
FACTORS -- 2. Reasons for the Offer and the Merger", in "SPECIAL FACTORS -- 5.
Background of the Offer and the Merger", in "THE OFFER -- 7. Effect of the
Offer on Market for the Shares, Stock Exchange Listing , and Exchange Act
Registration" and in "THE OFFER -- 11. The Merger Agreement; Appraisal Rights "
of the Offer to Purchase, which is incorporated herein by reference.
Item 6. Interest in Securities of the Subject Company.
(a) - (b) The information set forth in the "INTRODUCTION", in "THE
OFFER -- 9. Certain Information Concerning Parent and the Purchaser" and in
"THE OFFER -- 10. Contacts with the Company" of the Offer to Purchase in
incorporated herein by reference.
Item 7. Contracts, Arrangements, Understandings or Relationships with Respect
to the Subject Company's Securities.
The information set forth in the "INTRODUCTION", in "THE OFFER -- 9.
Certain Information Concerning Parent and the Purchaser" 9 in "THE OFFER -- 10.
Contacts with the Company" and in "THE OFFER -- 11. The Merger Agreement;
Appraisal Rights" of the Offer to Purchase, which is incorporated herein by
reference.
Item 8. Persons Retained, Employed or to Be Compensated.
The information set forth in "SPECIAL FACTORS -- 5. Background of the
Offer and the Merger" and in "THE OFFER -- 16. Fees and Expenses" of the Offer
to Purchase is incorporated herein by reference.
Item 9. Financial Statements of Certain Bidders.
Not Applicable.
Item 10. Additional Information.
(a) The information set forth in "SPECIAL FACTORS -- 5. Background of
the Offer and the Merger", in "THE OFFER -- 9. Certain Information Concerning
Parent and the Purchaser" and in "THE OFFER -- 10. Contracts with the Company"
of the Offer to Purchase in incorporated herein by reference.
(b) - (c) The information set forth in "THE OFFER -- 15. Certain
Legal Matters" of the Offer to Purchase is incorporated herein by reference.
(d) The information set forth in "THE OFFER -- 7. Effect of the Offer
on Market for the Shares, Stock Exchange Listing, and Exchange Act Registration"
of the Offer to Purchase is incorporated herein by reference.
(e) The information set forth in "THE OFFER -- 15. Certain Legal
Matters" of the Offer to Purchase is incorporated herein by reference.
(f) The information set forth in the entire Offer to Purchase and the
related Letter of Transmittal, copies of which are attached hereto as Exhibits
(a)(1) and (a)(2), respectively, is incorporated herein by reference in its
entirety.
<PAGE>
Item 11. Material to Be Filed as Exhibits.
(a)(1) - Offer to Purchase.
(a)(2) - Letter of Transmittal (including Guidelines for
Certification Taxpayer Identification Number on Form
W-9).
(a)(3) - Letter to brokers, dealers, commercial banks,
trust companies and nominees.
(a)(4) - Letter to clients.
(a)(5) - Notice of Guaranteed Delivery.
(a)(6) - Press Release issued by the Company and the
Purchaser, dated August 18, 1998
(a)(7) - Form of newspaper advertisement, dated August 24,
1998.
(b)(1) - Commitment Letter of the RTFC.
(c)(1) - Agreement and Plan of Merger (the "Merger among the
Purchaser, ICC Merger Sub Agreement"), dated as
of August 17, 1998,Corporation and the Company.
(c)(2) - Non-Competition Agreement dated December 31, 1997
among the Company, ATN and Mr. Prosser.
(c)(3) - Indemnity Agreement dated December 31, 1997 among
the Company, ATN, Mr. Prosser and Mr. Prior.
(c)(4) - Tax Sharing Agreement dated December 31, 1997 among
the Company, ATN, Mr. Prosser and Mr. Prior.
(c)(5) - Employment Agreement dated December 31, 1997 between
Mr. Prosser and the Company.
(d) - Not applicable.
(e) - Not applicable.
(f) - Not applicable.
(g)(1) - Complaint, Brickell Partners v. Jeffrey J. Prosser,
----------------- ----------
et al., C.A. No. 16415NC.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 24, 1998
INNOVATIVE COMMUNICATION CORPORATION
By: /s/ Jeffrey J. Prosser
---------------------------------------
Name: Jeffrey J. Prosser
Title: President
INNOVATIVE COMMUNICATION COMPANY, LLC
By: /s/ Jeffrey J. Prosser
---------------------------------------
Name: Jeffrey J. Prosser
Title: Sole Member
/s/ Jeffrey J. Prosser
------------------------------------------
Jeffrey J. Prosser
<PAGE>
EXHIBIT INDEX
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<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT NAME PAGE NUMBER
---- ------------ -----------
<S> <C> <C> <C>
(a)(1) -- Offer to Purchase.
(a)(2) -- Letter of Transmittal (including Guidelines for Certification
Taxpayer Identification Number on Form W-9).
(a)(3) -- Letter to brokers, dealers, commercial banks, trust companies
and nominees.
(a)(4) -- Letter to clients.
(a)(5) -- Notice of Guaranteed Delivery.
(a)(6) -- Press Release issued by the Company and the Purchaser,
dated August 18, 1998.
(a)(7) -- Form of newspaper advertisement, dated August 24, 1998.
(b)(1) -- Commitment Letter of the RTFC.
(c)(1) -- Agreement and Plan of Merger (the "Merger Agreement"), dated
as of August 17, 1998, among the Purchaser, ICC Merger Sub
Corporation and the Company.
(c)(2) -- Non-Competition Agreement dated December 31, 1997 among the
Company, ATN and Mr. Prosser.
(c)(3) -- Indemnity Agreement dated December 31, 1997 among the
Company, ATN, Mr. Prosser and Mr. Prior.
(c)(4) -- Tax Sharing Agreement dated December 31, 1997 among the
Company, ATN, Mr. Prosser and Mr. Prior.
(c)(5) -- Employment Agreement dated December 31, 1997 between Mr.
Prosser and the Company.
(d) -- Not applicable.
(e) -- Not applicable.
(f) -- Not applicable.
(g)(1) -- Complaint, Brickell Partners v. Jeffrey J. Prosser, et al.,
----------------- --------------------------
C.A. No. 16415NC.
</TABLE>
<PAGE>
EXHIBIT (A)(1)
OFFER TO PURCHASE
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
EMERGING COMMUNICATIONS, INC.
AT
$10.25 NET PER SHARE
BY
INNOVATIVE COMMUNICATION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
INNOVATIVE COMMUNICATION COMPANY, LLC
THE OFFER (AS DEFINED HEREIN) AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 21, 1998, UNLESS THE OFFER
IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A MAJORITY OF
THE OUTSTANDING SHARES NOT BENEFICIALLY OWNED DIRECTLY OR INDIRECTLY BY THE
PARENT (AS DEFINED HEREIN) OR ITS AFFILIATES AS OF THE DATE THE SHARES ARE
ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER AND (II) THE RECEIPT BY THE
PURCHASER (AS DEFINED HEREIN) OF FUNDS SUFFICIENT TO PERMIT IT TO PURCHASE ALL
SHARES TENDERED IN THE OFFER AND PAY THE MERGER CONSIDERATION (AS DEFINED
HEREIN). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN
THIS OFFER TO PURCHASE. SEE "THE OFFER--1. TERMS OF THE OFFER" AND "THE
OFFER--13. CERTAIN CONDITIONS OF THE OFFER."
THE BOARD OF DIRECTORS OF THE COMPANY AND THE SPECIAL COMMITTEE (AS DEFINED
HEREIN) HAVE UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER (AS DEFINED
HEREIN) ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS, HAVE APPROVED THE OFFER AND THE MERGER AND RECOMMEND THAT THE
COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
shares of Common Stock, par value $0.01 per share (the "Shares"), of the
Company should either (1) complete and sign the Letter of Transmittal
accompanying this Offer to Purchase (the "Letter of Transmittal"), or a
facsimile thereof, in accordance with the instructions in the Letter of
Transmittal, have such stockholder's signature thereon guaranteed if required
by Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of
Transmittal (or such facsimile) or, in the case of a book-entry transfer of
Shares effected pursuant to the procedure set forth in "The Offer--3.
Procedure for Tendering Shares," an Agent's Message (as defined herein) in
lieu of the Letter of Transmittal, and any other required documents to the
Depositary (as defined herein) and either deliver the Letter of Transmittal
(or such facsimile) together with the certificate(s) representing the tendered
Shares or deliver such Shares pursuant to the procedure for book-entry
transfer set forth in "The Offer--3. Procedure for Tendering Shares," or (2)
request such stockholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such stockholder. Stockholders
having Shares registered in the name of a broker, dealer, commercial bank,
trust company or other nominee are urged to contact such broker, dealer,
commercial bank, trust company or other nominee if they desire to tender
Shares so registered.
A stockholder who desires to tender Shares and whose certificates for such
Shares are not immediately available, or who cannot comply with the procedure
for book-entry transfer on a timely basis, or who cannot deliver all required
documents to the Depositary prior to the expiration of the Offer, may tender
such Shares by following the procedures for guaranteed delivery set forth in
"The Offer--3. Procedure for Tendering Shares."
The Purchaser makes no recommendation to any stockholder as to whether to
tender or refrain from tendering Shares. Stockholders must make their own
decisions whether to tender Shares and, if so, how many Shares to tender.
Questions and requests for assistance may be directed to the Information
Agent (as defined herein) or to the Dealer Manager (as defined herein) at
their respective addresses and telephone numbers set forth on the back cover
of this Offer to Purchase. Requests for additional copies of this Offer to
Purchase, the Letter of Transmittal and other tender offer materials may be
directed to the Information Agent, the Dealer Manager or to brokers, dealers,
commercial banks or trust companies, and copies will be furnished promptly at
the Purchaser's expense.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR THE MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY
OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THE DEALER MANAGER FOR THE OFFER IS:
PRUDENTIAL SECURITIES INCORPORATED
THE DATE OF THIS OFFER TO PURCHASE IS AUGUST 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
INTRODUCTION............................................................. 1
SPECIAL FACTORS.......................................................... 3
1. History of the Company and the Parent................................ 3
2. Reasons for the Offer and the Merger................................. 3
3. Fairness of the Offer and the Merger................................. 4
4. Interests of Certain Persons in the Offer; Potential Conflicts of In-
terests................................................................. 4
5. Background of the Offer and the Merger............................... 5
6. Recommendation of the Company's Board of Directors and the Special
Committee............................................................... 9
THE OFFER................................................................ 14
1. Terms of the Offer................................................... 14
2. Acceptance for Payment and Payment for Shares........................ 16
3. Procedure for Tendering Shares....................................... 17
4. Rights of Withdrawal................................................. 20
5. Certain Federal Income Tax Consequences of the Offer and the Merger.. 20
6. Price Range of Shares; Dividends..................................... 21
7. Effect of the Offer on Market for the Shares, Stock Exchange Listing,
and Exchange Act Registration......................................... 21
8. Certain Information Concerning the Company........................... 22
9. Certain Information Concerning the Parent and the Purchaser.......... 28
10. Contacts with the Company............................................ 29
11. The Merger Agreement; Appraisal Rights............................... 34
12. Source And Amount Of Funds........................................... 38
13. Certain Conditions Of The Offer...................................... 39
14. Dividends And Distributions.......................................... 40
15. Certain Legal Matters................................................ 41
16. Fees and Expenses.................................................... 42
17. Miscellaneous........................................................ 43
Schedule I--Opinion of Houlihan Lokey Howard & Zukin Capital............. I-1
Schedule II--Appraisal Rights of Stockholders Under Delaware Law......... II-1
Appendix A--The Company's Annual Report on Form 10-K for the Year Ended
December 31, 1997.............................................. A-1
Appendix B--Quarterly Reports on Form 10-Q for the Quarterly Periods
Ended March 31, 1998 and June 30, 1998......................... B-1
</TABLE>
i
<PAGE>
TO THE HOLDERS OF COMMON STOCK OF EMERGING COMMUNICATIONS, INC.:
INTRODUCTION
Innovative Communication Corporation, a U.S. Virgin Islands corporation (the
"Purchaser") and a wholly owned subsidiary of Innovative Communication
Company, LLC, a Delaware limited liability company (the "Parent"), hereby
offers to purchase all of the outstanding shares of Common Stock, par value
$.01 per share (the "Shares"), of Emerging Communications, Inc., a Delaware
corporation ("ECI" or the "Company"), not currently directly or indirectly
owned by the Parent at a price of $10.25 per Share, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set
forth in this Offer to Purchase and in the Letter of Transmittal (which
together constitute the Offer). Jeffrey J. Prosser, the Chairman, Chief
Executive Officer and Secretary of the Company, owns all of the outstanding
membership interests in the Parent. For a discussion of the Parent's
intentions regarding the business and operations of the Company after the
Merger, see "THE OFFER--8. Certain Information Concerning the Company--Plans
for the Company."
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, subject to Instruction 6 of the Letter of Transmittal,
transfer taxes on the purchase of Shares by the Purchaser. The Purchaser will
pay all charges and expenses of Prudential Securities Incorporated (in such
capacity, the "Dealer Manager"), The Bank of New York, as depositary (the
"Depositary"), and Mackenzie Partners, Inc. (the "Information Agent").
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A MAJORITY OF
THE OUTSTANDING SHARES NOT BENEFICIALLY OWNED DIRECTLY OR INDIRECTLY BY PARENT
OR ITS AFFILIATES AS OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT PURSUANT
TO THE OFFER (THE "MINIMUM TENDER CONDITION") AND (II) THE RECEIPT BY THE
PURCHASER OF FUNDS SUFFICIENT TO PERMIT IT TO PURCHASE ALL SHARES TENDERED IN
THE OFFER AND PAY THE MERGER CONSIDERATION (THE "FINANCING CONDITION"). THE
OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN THIS OFFER TO
PURCHASE. SEE "THE OFFER--1. TERMS OF THE OFFER" AND "THE OFFER--13. CERTAIN
CONDITIONS OF THE OFFER."
THE BOARD OF DIRECTORS OF THE COMPANY AND A COMMITTEE OF THE BOARD OF
DIRECTORS OF THE COMPANY COMPRISED OF INDEPENDENT DIRECTORS (THE "SPECIAL
COMMITTEE") HAVE UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR
TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAVE
APPROVED THE OFFER AND THE MERGER AND RECOMMEND THAT THE COMPANY'S
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
SEE "SPECIAL FACTORS--6. RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
AND THE SPECIAL COMMITTEE."
The Special Committee's financial advisor, Houlihan Lokey Howard & Zukin
Capital ("Houlihan Lokey"), has delivered to the Special Committee its written
opinion, dated as of August 17, 1998, that as of such date the $10.25 per
Share cash consideration to be received by the holders of Shares (other than
the Parent and the Purchaser) pursuant to the Offer and the Merger is fair to
such holders from a financial point of view. A copy of the opinion of Houlihan
Lokey is set forth as Schedule I hereto and is contained in the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-
9"), which will be mailed to stockholders. See "Special Factors--6.
Recommendation of the Company's Board of Directors and the Special Committee."
The Company has advised the Purchaser and the Parent that, as of August 24,
1998, there were 10,959,131 Shares outstanding. The Parent owned 5,606,873
Shares, or approximately 51% of the outstanding Shares, as of such date. The
Company has advised the Purchaser and the Parent that, as of August 17, 1998,
there were approximately 60 registered recordholders of the Shares.
The Company has advised the Purchaser and the Parent that under the
Company's 1997 Long Term Incentive and Share Award Plan (the "Plan") there
were, as of August 24, 1998, options outstanding for a total
1
<PAGE>
of 273,978 Shares, exercisable at a price of $8.00, all of which options are
owned by Mr. Prosser who has informed the Company that he will not exercise
such options prior to expiration of the Offer.
Based on the foregoing, assuming that no additional Shares are issued after
August 24, 1998, the Minimum Tender Condition would be satisfied if at least
2,676,130 Shares are validly tendered prior to the expiration of the Offer and
not withdrawn.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 17, 1998 (the "Merger Agreement"), among the Purchaser, ICC
Merger Sub Corporation, a Delaware corporation ("Merger Sub"), and the
Company. The Merger Agreement provides that, among other things, promptly
after the purchase of Shares pursuant to the Offer and the receipt of any
required approval of the Merger Agreement by the Company's stockholders and
the satisfaction or waiver of certain other conditions, Merger Sub will be
merged (the "Merger") into the Company. Following consummation of the Merger,
the Company will continue as the surviving corporation and will become a
wholly owned subsidiary of the Parent. Upon consummation of the Merger (the
"Effective Time"), each then outstanding Share not owned by the Parent or any
subsidiary of the Parent (other than Shares held by stockholders of the
Company who have properly exercised their appraisal rights in accordance with
Section 262 of Delaware General Corporation Law (the "DGCL")) will be
converted into the right to receive an amount in cash equal to the per Share
price paid pursuant to the Offer (the "Offer Price"). The Merger Agreement is
more fully described in "The Offer--11. The Merger Agreement; Appraisal
Rights." Under the DGCL, the vote of the holders of a majority of the
outstanding Shares will be required to approve the Merger. Since the Parent
currently owns approximately 51% of the Shares outstanding, the Parent would
have sufficient voting power to, and intends to, cause the approval of the
Merger without the affirmative vote of any other stockholders of the Company.
However, it is a condition to the parties' obligation to complete the Merger
that the Purchaser have purchased Shares pursuant to the Offer. Accordingly,
if the Minimum Tender Condition, the Financing Condition or any other
condition to the Offer is not satisfied and the Purchaser elects not to waive
any such condition (other than the Minimum Tender Condition, which may not be
waived without the prior written consent of the Company), none of the Parent,
the Purchaser, Merger Sub or the Company will be obligated to effect the
Merger.
No appraisal rights are available in connection with the Offer. Stockholders
will have appraisal rights in connection with the Merger, subject to
compliance with the requirements of the DGCL. See "The Offer--11. The Merger
Agreement and Appraisal Rights."
By accepting the Offer through the tender of Shares and upon receipt of
payment for Shares, a tendering stockholder will be (under the Purchaser's
view of applicable law) barred from thereafter attacking in any legal
proceeding the fairness of the consideration received by stockholders in the
Offer. For this reason, the Letter of Transmittal to be executed by tendering
stockholders includes a release of any such claims, which will be effective
upon receipt of payment for tendered Shares.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
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SPECIAL FACTORS
1. HISTORY OF THE COMPANY AND THE PARENT.
The Company was formed in 1997 as a wholly owned subsidiary of Atlantic
Tele-Network, Inc. ("ATN"). On December 30, 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. In addition to owning approximately 51% of the outstanding Shares,
the Parent, through the operating subsidiaries of the Purchaser, owns and
operates cable television systems serving St. Croix, St. Thomas, St. John, St.
Maarten and the British Virgin Islands (the "Cable Systems") and owns and
operates the Virgin Islands Daily News, which serves St. Croix, St. Thomas and
St. John.
2. REASONS FOR THE OFFER AND THE MERGER.
The purpose of the Offer is to enable the Purchaser to acquire for cash as
many outstanding Shares as possible as a first step to the Parent acquiring
the entire equity interest in the Company, subject to satisfaction of the
Minimum Tender Condition, the Financing Condition and the other conditions of
the Offer. See "The Offer--13. Certain Conditions of the Offer." If the
Minimum Tender Condition is satisfied, the Parent and the Purchaser will hold
75.6% or more of the outstanding Shares. The Merger Agreement provides that,
promptly after the purchase of Shares pursuant to the Offer and subject to the
satisfaction or waiver of the terms and conditions of the Merger, Merger Sub
will be merged into the Company. In the Merger, each Share not owned by the
Parent or any subsidiary of the Parent (other than Shares held by stockholders
of the Company who have properly exercised their appraisal rights under
Section 262 of the DGCL) at the Effective Time will be converted into the
right to receive an amount in cash equal to the Offer Price (the "Merger
Consideration"). The purpose of the Merger is to enable the Parent to acquire
any remaining Shares not acquired pursuant to the Offer. Following
consummation of the Merger, the Company will continue as the surviving
corporation and will become a wholly owned subsidiary of Parent. THE BOARD OF
DIRECTORS OF THE COMPANY AND THE SPECIAL COMMITTEE HAVE UNANIMOUSLY DETERMINED
THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTEREST OF THE
COMPANY AND ITS STOCKHOLDERS, HAVE APPROVED THE OFFER AND THE MERGER AND
RECOMMEND THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER. In determining to seek the purchase of the
outstanding Shares and effect the Merger at this time, the Parent and the
Purchaser focused on a number of factors set forth below.
The Parent believes that the costs associated with the listing of the Shares
on the American Stock Exchange ("AMEX") and the Company being a reporting
company under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), outweigh any resulting benefits. The Shares have attracted limited
interest from institutional investors and generally have low trading volumes.
This illiquidity and the Company's relatively small market capitalization, in
the Parent's view, had caused the Shares to trade at unattractive multiples as
compared to other telecommunications and media companies. As a result, the
Parent believes that the utilization of Shares for acquisitions or capital-
raising has been and will continue to be an unattractive alternative for the
Company. The present requirement to maintain the listing of the Shares on the
AMEX and registration of the Shares under the Exchange Act imposes on the
Company significant direct and indirect compliance costs. In addition,
compliance with such ongoing requirements imposes an administrative burden on
the Company, resulting in the diversion of management time and resources. The
Parent intends to seek the delisting of the Shares from the AMEX and
termination of registration of the Shares under the Exchange Act as soon as
possible after consummation of the Offer, if the requirements for the
delisting and termination of registration are met.
The Parent believes that the Company's status as a publicly traded entity
unnecessarily creates potential conflicts of interest between the interests of
the Parent and the other stockholders of the Company. Although potential
conflicts of interest that have arisen in the past have been addressed through
the formation of a special committee of the Board of Directors of the Company
(see "--5. Background of the Offer and the Merger"), the
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Parent believes that terminating the Company's status as a separate publicly
traded entity would more effectively reduce the potential for future conflicts
of interest of this type.
3. FAIRNESS OF THE OFFER AND THE MERGER.
The Parent believes that the $10.25 cash consideration proposed to be paid
in the Offer and pursuant to the Merger is fair to the minority stockholders
of the Company. The offer price provides a substantial premium over pre-
announcement market prices to holders of the Shares and enables the Company's
stockholders to receive cash for their stockholdings now at a premium per
share price. The $10.25 offer price represents a premium of 46.4% over the
market price of the Company's Common Stock as of May 28, 1998 (the day prior
to public announcement that the Parent had proposed to acquire the Shares at
$9.125 per Share). Based on the foregoing, Parent believes the consideration
proposed to be paid in the Offer and the Merger is fair to the stockholders of
the Company (other than the Parent and the Purchaser).
Neither the Purchaser nor the Parent nor Prudential Securities Incorporated
("Prudential"), their financial advisor, solicited other offers for the
Company or its assets, and there can be no assurance that the terms of the
Offer are as favorable to the public stockholders of the Company as could be
obtained in a transaction, or one or more transactions, with an unaffiliated
party or parties. Neither Parent nor any of its affiliates has received any
firm offers or inquiries with respect to the business and assets of the
Company or its investment therein from any unaffiliated party.
Prudential was not asked to render, and has not rendered, any opinion as to
the fairness of the Offer or the Merger to either the Company or the public
stockholders of the Company. Neither the Parent nor the Purchaser has obtained
any opinions as to the fairness of the Offer or the Merger to the public
stockholders of the Company or any valuation or appraisal of the Company's
assets from any independent party in connection with the Offer or the Merger.
Representatives of the Parent have had access to the projections which are
summarized elsewhere in this Offer to Purchase. See "The Offer--8. Certain
Information Concerning the Company."
Following the delivery by the Parent of the letter, dated May 29, 1998,
described under "Special Factors--5. Background of the Offer and the Merger"
below, the Company announced that the proposal contained in such letter was
being referred to the Special Committee, which would consider the proposal.
The Special Committee is composed of directors of the Company who are neither
officers or directors of the Purchaser or the Parent nor officers of the
Company. The Special Committee retained Houlihan Lokey as its financial
advisor to analyze the terms of the Offer and the Merger. Houlihan Lokey has
provided the Board of Directors with its written opinion that, as of August
17, 1998, the $10.25 cash consideration to be received by the holders of
Shares (other than the Parent and the Purchaser) pursuant to the Offer and the
Merger is fair to such holders from a financial point of view. The Board of
Directors of the Company and the Special Committee have unanimously determined
that the Offer and the Merger are fair to and in the best interests of the
Company and its stockholders, have approved the Offer and the Merger and
recommend that the Company's stockholders accept the Offer and tender their
Shares pursuant to the Offer. See "Special Factors--6. Recommendation of the
Company's Board of Directors and the Special Committee."
4. INTERESTS OF CERTAIN PERSONS IN THE OFFER; POTENTIAL CONFLICTS OF
INTERESTS.
Stockholders should be aware that certain members of the Board of Directors
of the Company (collectively, the "Board" and each a "Director"), other than
the members of the Special Committee, have certain interests which are
referred to below, and which may present them with actual or potential
conflicts of interest in connection with the Offer. Among other things, the
Parent, which is wholly owned by Mr. Prosser, already owns approximately 51%
of the outstanding Shares and, after the consummation of the Offer, it is
expected that Mr. Prosser will continue to serve as the Chairman of the Board,
Chief Executive Officer and Secretary of the Company. In addition, the Merger
Agreement provides that the directors of the Company will continue as
directors of the Company after consummation of the Merger.
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In addition, the law firm of Cahill Gordon & Reindel ("Cahill") has provided
legal services to the Company. Cahill Gordon & Reindel is acting as legal
counsel to the Parent and the Purchaser in connection with the Offer, the
Merger and the other transactions contemplated herein.
5. BACKGROUND OF THE OFFER AND THE MERGER.
Prior to December 30, 1997, the business and operations of the Company were
owned and conducted by ATN. The two principal stockholders and co-chief
executive officers of ATN prior to December 31, 1997 were Mr. Prosser and
Cornelius B. Prior, Jr. Beginning in early 1993, material disagreements arose
between Mr. Prior and Mr. Prosser pertaining to the management and direction
of ATN and its businesses. These disagreements created a management deadlock
which significantly impaired the ability of ATN to function other than in the
ordinary course of business and effectively precluded Mr. Prosser's aggressive
acquisition strategy. In order to pursue acquisition opportunities as they
arose which were precluded by the Split Off Transaction, Mr. Prosser had
entered into agreements to acquire the Cable Systems and the Virgin Islands
Daily News prior to consummation of the Split Off Transaction, and thereafter
assigned such agreements to the Purchaser.
On August 11, 1997, Mr. Prosser, Mr. Prior and ATN entered into definitive
documentation with respect to the Split Off Transaction. On December 30, 1997,
the stockholders of ATN approved the Split Off Transaction, and on December
30, 1997, the Split Off Transaction was consummated.
During January 1998, Mr. Prosser and certain other members of management of
the Company began exploring the feasibility of combining the businesses of the
Company and Purchaser. On January 20, 1998, the Company engaged Prudential to
render an opinion as to the fairness, from a financial point of view, of a
merger involving the Parent and the Purchaser to the public stockholders of
the Company.
During February 1998, Mr. Prosser and certain other members of management of
the Company, with the assistance of the Company's legal and financial
advisors, developed the proposed terms of such a transaction.
The proposal to merge the businesses of the Company and the Purchaser was
presented to the Board by Jeffrey J. Prosser at a Board meeting held on March
9, 1998. The proposal contemplated a merger of the Purchaser with Atlantic
Tele-Network Co., a wholly owned subsidiary of the Company ("ATNCo."),
pursuant to which the Parent would receive $35.0 million of convertible
preferred stock of ATNCo.
The Board discussed with the Company's advisors the draft agreement and
other materials distributed to the Board members. Following that discussion,
and in light of the relationship of the Chairman of the Board, Jeffrey J.
Prosser and the Parent, the Board requested that directors Richard N. Goodwin,
Sir Shridath Ramphal and John P. Raynor act as a special committee to further
consider and recommend to the Board a course of action concerning the merger
proposal. In addition, the Board ratified the Company's decision to engage
Prudential to act as financial advisor to the Special Committee.
The members of that special committee met with Prudential and that special
committee's legal advisors on April 3, 1998. At that meeting, Prudential
described to such special committee the various valuation analyses they would
undertake in connection with their engagement and also discussed with the
special committee the terms of the draft merger agreement and proposed certain
recommended revisions thereto. The members of the special committee requested
that Prudential prepare a revised term sheet for the transaction consistent
with its recommendations and deliver the proposed revised terms to the Parent.
From April 3, 1998 through May 20, 1998, Prudential engaged in various
discussions with the Parent regarding the proposed terms of such transaction.
During the third week of May 1998, Mr. Prosser began to have significant and
material reservations about the proposed merger with ATNCo., given the
unenthusiastic market interest in the Company's common stock. On May 21, 1998,
Mr. Prosser together with John P. Raynor, a member of the Board, met with
representatives of Prudential and the Parent's counsel to discuss the
feasibility of the Parent acquiring all of the outstanding Shares.
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During May 22-28, Mr. Prosser, Prudential and the Parent's counsel had
various discussions regarding the language of a proposal letter to be
delivered to the Board. On May 29, 1998, the Parent sent the following letter
to the Board (the "May 29 Letter"):
May 29, 1998
Board of Directors
Emerging Communications, Inc.
Chase Financial Center
Orange Grove, Christiansted
St. Croix, USVI 00821
Gentlemen:
Innovative Communication Company, LLC ("ICC"), a Delaware Limited Liability
Company, is pleased to make a proposal to acquire all of the outstanding
shares of common stock of Emerging Communications, Inc. (the "Company") not
currently owned by ICC (the "Remaining Shares"). It is currently contemplated
that the transaction would be structured as a cash tender offer with a backend
merger or reverse stock split in which each holder of Remaining Shares would
receive $9.125 per share, in cash.
We believe that such a transaction would result in substantial benefits to
the Company and the holders of the Remaining Shares and would provide the
holders of the Remaining Shares with the opportunity to realize a fair and
generous cash value for their shares. The offer price of $9.125 per Remaining
Share represents a premium of approximately 30% over the closing sale price of
the Company's common stock on May 28, 1998.
Such a transaction would permit the holders of the Remaining Shares to
obtain at an attractive premium liquidity which is not normally available to
them in light of the thinly traded market for the Company's common stock.
Indeed, the price of $9.125 per share is higher than any closing sale price of
the Company's common stock since it commenced trading on December 31, 1997. We
also believe that the acquisition can be structured to accommodate and promote
the interests of the Company's employees and customers.
This proposal is subject, among other things, to the following:
1. the execution of a definitive Merger Agreement with the Company
containing representations, covenants, conditions, and other terms usual
for transactions of this type;
2. approval of the transaction by a Special Committee of the Board of
Directors of the Company, the Board of Directors of the Company and the
Company's shareholders;
3. the receipt of satisfactory financing for the transaction;
4. the receipt of a fairness opinion from the financial advisor to the
Special Committee stating that the proposed transaction is fair, from a
financial point of view, to the holders of the Remaining Shares; and
5. the receipt of all required third party and governmental consents.
ICC's advisors are in the process of preparing a definitive Acquisition
Agreement relating to the transaction, which we will provide you in the near
future. In addition, we have engaged Prudential Securities Incorporated to
advise us with respect to the transaction. Based on conversations with ICC's
financing sources, ICC believes it will be able to secure the necessary
financing to fund the transaction.
ICC wishes to make it clear that it is not interested under any
circumstances in selling its interest in the Company.
We expect that you will desire to elaborate on this proposal through a
Special Committee of disinterested directors and that such committee will
desire to retain its own advisors to assist in those deliberations. We look
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forward to working with you and the advisors to the Special Committee to
complete this transaction and trust you will give this proposal your prompt
attention. We, of course, reserve the right to amend or withdraw this proposal
at any time in our sole discretion.
Very truly yours,
Innovative Communication Company,
LLC
By: /s/ Jeffrey J. Prosser
A meeting of the Board of Directors was held on May 29, 1998. Mr. Prosser
began the meeting of the Board by discussing certain opportunities that
management had been pursuing for the Company to acquire certain businesses.
Mr. Prosser advised the Board that it is likely that the Company would be
required to issue equity in order to finance any acquisition of significant
size. Mr. Prosser also advised the Board that he believed that the Company's
stock price had not achieved the desired appreciation as a result of, among
other things, the relatively small public float and the fact that the Company
has failed to be followed by Wall Street analysts. Mr. Prosser then read to
the Board the May 29 Letter. Mr. Prosser then excused himself from the
meeting. After discussion, the Board determined, given the inherent conflict
of interest, to form the Special Committee consisting of Messrs. Sir Shridath
S. Ramphal, Richard N. Goodwin and John Vondras to review the terms of the
proposed transaction. In that connection and to help in their evaluation, the
Board of Directors authorized the Special Committee to engage its own counsel
and to engage an independent financial advisor to the Special Committee to
assist the Special Committee in negotiating the proposed transaction on behalf
of the Company's public stockholders and to render an opinion as to the
fairness of the transaction from a financial point of view to the public
stockholders.
On May 29, 1998, the Company issued a press release concerning the May 29
Letter. In addition, on May 29, 1998, Mr. Prosser informed the Board that he
was withdrawing the proposal to combine the businesses of the Purchaser and
the Company pending the final outcome of the proposal set forth in the May 29
Letter.
On June 3, 1998, the Company received notice of a lawsuit instituted by
purported shareholders of the Company alleging a breach of fiduciary duties
and seeking injunctive and other relief in response to the Company's
announcement regarding the Parent's proposal in the May 29 Letter.
On June 5, 1998, the Special Committee hired Paul, Hastings, Janofsky &
Walker LLP ("Paul Hastings") as its outside legal counsel. On June 5, 1998,
the Special Committee and its legal advisors participated in a telephone
conference with Mr. Prosser and his legal advisors. At this meeting, Roger
Meltzer, Esq. of Cahill reported that Mr. Prosser was not prepared to support
or accept any alternative business transaction besides the Purchaser's offer
to acquire the Shares of the Company not owned directly or indirectly by the
Parent.
On July 13, 1998, after interviewing a number of nationally recognized
investment banking firms, the Special Committee engaged Houlihan Lokey to act
as independent financial advisor to the Special Committee and to advise the
Special Committee with respect to the offer by the Purchaser to purchase the
shares of Common Stock of the Company not beneficially owned directly or
indirectly by the Parent at a price of $9.125 per share.
On July 21-22, 1998, representatives of Houlihan Lokey and Paul Hastings
visited the Company's business offices in St. Thomas and interviewed and met
with senior management of the Company to discuss financial results and
projections, tour the Company's facilities and commence other legal and
financial due diligence.
On July 17, 1998, Cahill delivered to Paul Hastings a proposed draft of the
Merger Agreement. During the next week and thereafter, Paul Hastings reviewed
the terms and conditions of the Merger Agreement and negotiated the terms and
conditions with Cahill.
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Following July 22, 1998, Houlihan Lokey continued its financial due
diligence investigation and analysis of the Company, engaged in numerous
telephone calls with senior management of the Company, met with Prudential and
Mr. Prosser to discuss the results of operations and prospects of the Company,
met with Mr. Goodwin to update the Special Committee on the results of
Houlihan Lokey's investigation and met with Houlihan Lokey's internal
committee to review and analyze the results of Houlihan Lokey's investigation.
On August 4, 1998, the Special Committee along with its financial and legal
advisors held a special meeting by telephone to consider the offer by the
Purchaser to purchase the shares of Common Stock of the Company at a price of
$9.125 per share. The Houlihan Lokey representatives discussed with the
Special Committee their assumptions and the various valuation methodologies
used in evaluating the offer and reviewed the results of their financial
investigation. The Houlihan Lokey representatives concluded by stating that
Houlihan Lokey was not in a position to render an opinion that the offer price
of $9.125 per share was fair to the public stockholders from a financial point
of view. In light of such conclusion, the Special Committee then considered
various alternative methods designed to seek a higher price for the Company's
stockholders.
The Special Committee determined that Mr. Goodwin would discuss the
inadequacy of the current offer price with Mr. Prosser and seek a higher price
for the public shareholders. The Special Committee also considered directing
Houlihan Lokey to begin discussions simultaneously with Prudential Securities
Inc. in an attempt to obtain a higher offer price, but it was decided to await
the results of the discussions between Mr. Goodwin and Mr. Prosser.
During the period between August 5, 1998 and August 10, 1998, Mr. Goodwin,
on behalf of the Special Committee, and Mr. Prosser, on behalf of the
Purchaser, engaged in further discussions regarding the price offered by the
Purchaser for the public shares of the Company, and during such period, Mr.
Goodwin kept Houlihan Lokey informed as to the progress of such discussions.
In such discussions with Mr. Goodwin, Mr. Prosser initially raised the offer
price to $9.625 per share which Mr. Goodwin, on behalf of the Special
Committee, rejected as insufficient. On behalf of the Purchaser, Mr. Prosser,
after further discussions, offered $10.00 per share and following additional
discussions with Houlihan Lokey, Mr. Goodwin again informed Mr. Prosser that
the offer was insufficient. After additional discussions, Mr. Prosser raised
the offer price to 10.125 per share and Mr. Goodwin, on behalf of the Special
Committee, again informed Mr. Prosser that $10.125 per share was inadequate.
Following further deliberations, Mr. Prosser raised his offer price to $10.25
per share. In response to a request from Mr. Goodwin for a price of $10.50 per
share, Mr. Prosser refused, indicating that $10.25 per share was the
Purchaser's highest and best offer. Mr. Goodwin then informed Mr. Prosser that
Mr. Goodwin would report an offer price of $10.25 per share to the Special
Committee.
On August 12, 1998, by telephonic conference, Messrs. Goodwin and Vondras
met with the Special Committee's financial and legal advisors for further
consideration of the Purchaser's offer price of $10.25 per share. Houlihan
Lokey updated the Special Committee with respect to Houlihan Lokey's valuation
analysis based on the revised offer price of $10.25 per share. Houlihan Lokey
concluded by indicating that the revised offer price was fair to the public
shareholders from a financial point of view, subject to satisfactory
negotiation of the merger agreement. Messrs. Goodwin and Vondras agreed that,
subject to the approval of Mr. Ramphal, the third member of the Special
Committee, they would recommend the revised offer price of $10.25 per share to
the Board of Directors of the Company.
Immediately following the meeting on August 12, 1998, Mr. Goodwin reviewed
with Mr. Ramphal the deliberations of the telephonic meeting and Houlihan
Lokey's views, including its opinion that the revised offer price of $10.25
per share was fair to the public shareholders from a financial point of view.
Mr. Ramphal approved the revised offer price, leading to a unanimous
recommendation by the Special Committee.
On August 13, 1998, the Board of Directors of the Company (along with its
legal and financial advisors) held a special meeting by telephone to discuss
the Purchaser's offer to purchase the public shares of the Company at an offer
price of $10.25 per share, and to negotiate the terms of the merger agreement.
Houlihan Lokey presented the results of its financial analysis and concluded
by opining that, from a financial point of view, the
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Purchaser's offer of $10.25 per share was fair to the Company's public
shareholders. The Board of Directors, after further discussions with Houlihan
Lokey, agreed to consider the Purchaser's offer subject to the satisfactory
negotiation of a final, complete merger agreement between the Purchaser and
the Company. Paul Hastings, on behalf of the Board of Directors of the
Company, requested, among other items, that the draft of the merger agreement
be revised to provide that the Minimum Tender Condition could not be waived by
the Purchaser without the consent of the Special Committee. Mr. Meltzer, of
Cahill agreed to discuss these points with the Purchaser's representatives as
soon as practicable, and the Board of Directors adjourned the meeting until
the morning of August 17, 1998. Immediately prior to the August 17 meeting,
Mr. Meltzer informed Paul Hastings that Mr. Prosser had agreed to the proposed
revisions to the draft Merger Agreement regarding the Minimum Tender
Condition.
6. RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS AND THE SPECIAL
COMMITTEE.
At the August 17, 1998 meeting of the Board of Directors of the Company, the
Board of Directors of the Company, including those members of the Board of
Directors of the Company constituting the Special Committee, acting upon the
unanimous recommendation of the Special Committee, unanimously approved the
Merger Agreement, the Offer and the Merger, determined that the terms of the
Offer and the Merger are fair to, and in the best interest of, the
stockholders of the Company and recommended that all stockholders of the
Company accept the Offer and tender their Shares pursuant to the Offer.
Reasons for Recommendation
The Special Committee received presentations from, and reviewed the Offer
and the Merger with, senior management of the Company as well as the Special
Committee's financial advisor, Houlihan Lokey. The Special Committee, in
determining whether to recommend the approval of the Merger Agreement and the
transactions contemplated thereby to the full Board of Directors, considered a
number of factors, including, but not limited to, the following:
(i) The belief, based on its familiarity with the Company's business, its
current financial condition and results of operations and its future
prospects, and the current and anticipated developments in the Company's
industry, that the consideration to be received by the Company's
stockholders in the Offer and Merger fairly reflects the Company's
intrinsic value.
(ii) The oral and written presentations made by Houlihan Lokey at
meetings held on August 4, 1998 and August 12, 1998 as to various financial
and other considerations deemed relevant to the evaluation of the Offer and
the Merger, including, but not limited to, a review of (A) the business
prospects and financial condition of the Company, (B) historical business
information and financial results of the Company, (C) non-public financial
and operating results of the Company, (D) financial projections and budgets
prepared by the Company's management, (E) information obtained from
meetings with senior management of the Company, (F) the trading range and
volume history of the Shares, (G) public financial information of
comparable companies and (H) public information of comparable acquisitions.
(iii) The opinion of Houlihan Lokey that the consideration to be received
by the Company's stockholders pursuant to the Offer and the Merger
Agreement is fair to such stockholders (other than the Parent and the
Purchaser) from a financial point of view. In considering Houlihan Lokey's
opinion, the Special Committee was aware that Houlihan Lokey is entitled to
a fee in accordance with the terms of its engagement described below.
(iv) The relationship between the consideration to be received by
stockholders as a result of the Offer and the Merger and the historical
market prices and recent trading activity of the Shares. Specifically, that
$10.25 per Share represents a premium of 46.4% over the market price of the
Shares on May 28, 1998 (the day prior to the public announcement that the
Parent had proposed to acquire the Shares at $9.125 per Share and that the
Shares had never traded in excess of the offer price.
(v) The agreed value of the Company between Mr. Prosser and Mr. Prior in
the Split Off Transaction of $13.2484 per share (before giving effect to
indebtedness incurred to purchase $17.4 million of shares from Mr Prior) as
a component of the $22.7284 per share agreed value of ATN between Mr.
Prosser and Mr. Prior in the Split Off Transaction, and the fact that the
trading price of the ATN common stock prior to the Split Off Transaction
was approximately $11.00 per share.
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(vi) Houlihan Lokey's assumption that the benefit of the tax abatement
which the Company is to receive from the Virgin Islands taxing authority
would be realized by the Company rather than passed on to the Company's
customers. If the Company is not able to retain the benefit of the tax
abatement, Houlihan Lokey believes that its valuation of the Company would
decrease.
(vii) The recognition that, following consummation of the Offer and the
Merger, the current stockholders of the Company will no longer be able to
participate in any increases or decreases in the value of the Company's
business and properties. The Special Committee concluded, however, that
this consideration did not justify foregoing the opportunity for
stockholders to receive an immediate and substantial cash purchase price
for their Shares.
(viii) The fact that the terms of the Offer, and the increase in the
consideration offered to the public stockholders from $9.125 per Share to
$10.25 per Share, were determined through arm's-length negotiations with
the Parent by the Special Committee and its financial and legal advisors,
all of whom are unaffiliated with Parent, and the judgment of the Special
Committee and Houlihan Lokey that, based upon the negotiations that
transpired, a price higher than $10.25 per Share could not likely be
obtained by the Parent and that further negotiations with the Parent could
cause the Parent to abandon the Offer, with the resulting possibility that
the market price for the Shares could fall substantially below $10.25, and
possibly $9.125, per Share, or to commence a tender offer without the
involvement of the Special Committee at a price less than $10.25 per Share.
(ix) The Parent's ownership of approximately 51% of the currently
outstanding Shares and the effects of such ownership on the alternatives
available to the Company and the fact that, as a practical matter, no
strategic alternative could be effected without the support of Parent; and
the consequences of continuing to operate the Company as a majority-owned
subsidiary of Parent.
(x) The fact that Mr. Prosser informed the Special Committee that he
would not support nor accept any alternative business transaction.
(xi) The terms and conditions of the Merger Agreement, the fact that
there are no unusual requirements or conditions to the Offer and the
Merger, and the fact that Parent has a Commitment Letter from the Rural
Telephone Finance Cooperative (the "RTFC") to provide the financing
necessary to consummate the Offer and the Merger expeditiously.
(xii) The fact that the Merger Agreement provides that the Offer cannot
be consummated unless a majority of the shares outstanding and not
beneficially owned directly or indirectly by Parent are tendered.
(xiii) The fact that the consideration to be paid to the Company's public
stockholders in the Offer and the Merger is all cash.
(xiv) The fact that the Offer and the Merger have been structured to
include a first-step cash tender offer for any and all outstanding Shares,
thereby enabling stockholders who tender their Shares to promptly receive
$10.25 per Share in cash, and the fact that any public stockholders who do
not tender their Shares or properly exercise appraisal rights will receive
the same price per Share in the subsequent Merger.
(xv) The possible conflicts of interest of certain directors and members
of management of both the Company and Parent discussed in "Item 3(b)--
Interests of Certain Persons" of the Company's Schedule 14D-9.
(xvi) The fact that, while no appraisal rights are available to
stockholders as a result of the Offer, stockholders who do not tender
pursuant to the Offer will have the right to dissent from the Merger and to
demand appraisal of the fair value of their Shares under the DGCL. See "The
Offer--11. The Merger Agreement; Appraisal Rights."
The Special Committee considered each of the factors listed above during the
course of its deliberations prior to recommending that the Company enter into
the Merger Agreement. In light of its knowledge of the business and operations
of the Company and its business judgment, the Special Committee believed that
each of these factors supported its respective conclusions. In view of the
wide variety of factors considered, the Special Committee did not find it
practicable to, and did not, quantify the specific factors considered in
making its
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<PAGE>
determination, although the Special Committee did place a special emphasis on
the opinion and analysis of Houlihan Lokey.
The Board of Directors of the Company, a majority of the members of which
were members of the Special Committee, approved the Merger Agreement and the
transactions contemplated thereby after receiving a report from the Special
Committee on its deliberations and recommendation. In reaching this decision,
the Board of Directors principally considered the recommendation of the
Special Committee and its familiarity with the Company's business, its current
financial condition and results of operations and future prospects, and
current and anticipated developments in the Company's industry.
Opinion of Financial Advisor
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
following is a brief summary and general description of the valuation
methodologies followed by Houlihan Lokey. The summary does not purport to be a
complete statement of the analyses and procedures applied, the judgments made
or the conclusion reached by Houlihan Lokey or a complete description of its
presentation. Houlihan Lokey believes, and so advised the Special Committee,
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, could create an incomplete view of the process
underlying its analyses and opinions.
The Company and the Special Committee retained Houlihan Lokey to render an
opinion as to the fairness, from a financial point of view, of the
consideration to be received by the holders of Shares (other than the Parent
and Purchaser) pursuant to the Offer and the Merger. At the August 4, 1998
meeting of the Special Committee, Houlihan Lokey presented its analysis as
hereinafter described and updated the Special Committee with respect to the
discussions and current state of the transaction. At the August 13, 1998
meeting of the Board, Houlihan Lokey presented its oral opinion, and on August
17, 1998, delivered its written opinion, that as of such date and based on the
matters described therein, the consideration to be received by the holders of
Shares (other than the Parent and the Purchaser) is fair from a financial
point of view.
THE COMPLETE TEXT OF HOULIHAN LOKEY'S OPINION IS ATTACHED HERETO AS SCHEDULE
I. THE SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH OPINION. STOCKHOLDERS ARE URGED TO READ SUCH OPINION
CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, THE
FACTORS CONSIDERED AND THE ASSUMPTIONS MADE BY HOULIHAN LOKEY.
Houlihan Lokey's opinion addresses only the fairness from a financial point
of view of the consideration to be received by the holders of Shares (other
than the Parent and the Purchaser) pursuant to the Offer and the Merger and
does not constitute a recommendation to the shareholders as to whether such
shareholders should tender their shares in the Offer or how such shareholders
should vote at any shareholders' meeting. Houlihan Lokey's opinion does not
address the Company's underlying business decision to effect the Offer and the
Merger.
In connection with the preparation of its opinion, Houlihan Lokey made such
reviews, analyses and inquiries as it deemed necessary and appropriate under
the circumstances. Among other things, Houlihan Lokey: (i) reviewed the
publicly available financial information of the Company since the split-off of
the Company from ATN, including the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 and the Quarterly Report on 10-Q for
the quarter ended March 31, 1998; (ii) reviewed the Proxy Statement for the
Special Meeting of Stockholders of ATN dated December 9, 1997; (iii) reviewed
a draft copy of Schedule 13E-3 dated June 22, 1998, including the draft Merger
Agreement contained therein; (iv) reviewed unaudited financial results of the
Company through June 30, 1998 as prepared by the Company; (v) met with certain
members of the senior management of the Company to discuss the operations,
financial condition, future prospects and projected operations and performance
of the Company; (vi) visited certain facilities and business offices of the
Company in St. Thomas, U.S. Virgin Islands; (vii) reviewed forecasts dated
March 25, 1998 as prepared by the Company's management for the years ending
December 31, 1998 through 2007; (viii) reviewed the historical market prices
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<PAGE>
and trading volume for the publicly traded securities of the Company; (ix)
reviewed publicly available financial data for certain companies that it
deemed comparable to the Company, and publicly available prices and premiums
paid in other transactions that it considered similar to the Offer and the
Merger; (x) held discussions with Jeffrey J. Prosser, the majority shareholder
of the Company and the sole shareholder of the Parent, and with certain
members of Prudential which is acting as financial adviser to Mr. Prosser; and
(xi) conducted such other studies, analyses and inquiries as it deemed
appropriate.
In assessing the financial fairness of the consideration to be received in
the Offer and the Merger by the holders of Shares (other than the Parent and
the Purchaser), Houlihan Lokey: (i) analyzed the reasonableness of the trading
value of the Company's publicly traded common stock; (ii) valued the common
equity of the Company using widely accepted valuation methodologies; and (iii)
analyzed the reasonableness of the consideration being offered pursuant to the
Offer and the Merger.
VALUATION OF EMERGING COMMUNICATIONS, INC.
Historical Stock Trading Analysis. As part of its analysis, Houlihan Lokey
analyzed the trading value of the Company's common stock. Houlihan Lokey
calculated the implied Price/Net Income, total invested capital (defined as
the value of equity plus debt, net of cash) ("TIC") to revenue
("TIC/Revenue"), TIC to earnings before interest and taxes ("TIC/EBIT") and
TIC to earnings before interest, taxes, depreciation and amortization
("TIC/EBITDA") multiples for the Company based on pro forma results (which
includes the results of St. Martin Cellular) for its fiscal year ended
December 31, 1997, latest 12 month results through June 30, 1998 and its
projected fiscal years ending December 31, 1998 and December 31, 1999 and
compared those ratios to comparable publicly traded companies. Houlihan Lokey
also analyzed daily closing stock prices and volumes for the 90-day period
preceding the offer made on May 29, 1998.
Independent Valuation Analysis of the Company. In addition to analyzing
recent trading activity, Houlihan Lokey applied two widely used valuation
approaches to arrive at an independent valuation of the Company. The first
approach, the market multiple approach, involved the multiplication of various
earnings and cash flow measures by appropriate risk-adjusted multiples.
Multiples were determined through an analysis of certain publicly traded
companies, selected on the basis of operational and economic similarity with
the principal business operations of the Company. Earnings and cash flow
multiples were calculated for the comparative companies based upon daily
trading prices. A comparative risk analysis between the Company and the public
companies formed the basis for the selection of appropriate risk-adjusted
multiples for the Company. The risk analysis incorporates both quantitative
and qualitative risk factors which relate to, among other things, the nature
of the industry in which the Company and other comparative companies are
engaged. For purposes of this analysis, Houlihan Lokey selected the following
publicly-traded telecommunications companies: Aliant communications, Inc., CFW
Communications Co., CT Communications, Inc., Century Telephone Enterprises,
Inc., Conestoga Enterprises, Inc., D&E Communications, Inc., Hickory Tech
Corp., and North Pittsburgh Systems, Inc. Houlihan Lokey's market multiple
approach yielded a valuation of the Company's common stock in the range of
$8.01 to $10.47 per share.
In the second approach, the discounted cash flow approach, projections for
the Company, as prepared by the Company's management, for the fiscal years
1998 through 2002 were utilized. The projected cash flows were analyzed on a
"debt-free" basis (before cash payments to equity and interest-bearing debt
investors) in order to develop a TIC value indication for the Company. A
provision for the TIC value of the Company at the end of the forecast period,
or terminal value, was also made. The present value of the interim cash flows
and the terminal value was determined using a risk-adjusted rate of return or
"discount rate." The discount rate, in turn, was developed through an analysis
of rates of return on alternative investment opportunities in companies with
similar risk characteristics to the Company. Houlihan Lokey's discounted cash
flow approach yielded a valuation of the Company's common stock in the range
of $9.47 to $13.94 per share.
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<PAGE>
FAIRNESS OF CONSIDERATION
Acquisition Premium Analysis. Houlihan Lokey analyzed the acquisition
premiums as implied by the offer relative to the "30-day unaffected trading
price" and the 52-week high and low for the common stock of the Company. The
"30-day unaffected trading price" represents the average stock price for the
thirty days prior to the announcement of the offer set forth in the May 29
Letter. These premiums are shown in the table below.
<TABLE>
<CAPTION>
30-DAY
UNAFFECTED
TRADING PRICE 52-WEEK HIGH 52-WEEK LOW
------------- ------------ -----------
<S> <C> <C> <C>
Premium......... 49.9% 13.9% 64.0%
----- ----- -----
</TABLE>
Houlihan Lokey believed that these premiums were within an acceptable range
of fairness for transactions in which control was not being acquired.
Comparable Transactions Multiples. Houlihan Lokey analyzed the acquisition
multiples paid in publicly announced, majority acquisitions of domestic
telecommunications companies with transaction values in excess of $25 million.
Houlihan Lokey's study analyzed sixteen transactions for public and private
companies that were announced between April 1996 and July 1998.
Houlihan Lokey advised the Special Committee that none of the transactions
reviewed were directly comparable to the Offer and the Merger. As part of this
analysis, Houlihan Lokey calculated the TIC/Revenue, TIC/EBIT and TIC/EBITDA
multiples. Houlihan Lokey's analysis indicated that for the acquisitions of
companies with available financial information: (i) the TIC/Revenue multiples
had a median of 2.66; (ii) the TIC/EBIT multiples had a median of 16.3; and
(iii) the TIC/EBITDA multiples had a median multiple of 12.9. The TIC/Revenue,
TIC/EBIT and TIC/EBITDA multiples for the Company based on the Offer are 3.33,
13.4 and 7.1, respectively, utilizing the financial results of the Company for
the latest 12 month period on a pro forma basis ended June 30, 1998. Although
the Offer implied multiples for TIC/EBIT and TIC/EBITDA were below the medians
for the transactions, the multiples were in excess of the median TIC/Revenue
multiple and were within the range of multiples for TIC/EBIT and TIC/EBITDA.
Houlihan Lokey also noted that the transactions analyzed represented control
transactions which generally exhibit higher multiples than transactions, such
as the Offer and the Merger, in which control is not being acquired.
Fairness Conclusion. Based on the analyses described above, Houlihan Lokey
concluded that the value of the consideration to be received by the holders of
Shares (other than the Parent and the Purchaser) pursuant to the Offer and the
Merger is fair from a financial point of view.
Houlihan Lokey was not requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company. Houlihan
Lokey was not asked to express an opinion as to the relative merits of the
Offer and the Merger compared to any alternative business strategies that
might exist for the Company.
Houlihan Lokey relied upon and assumed, without independent verification,
that the financial forecasts and projections provided to it were reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there was no material
change in the assets, financial condition, business or prospects of the
Company since the date of the most recent financial statements made available
to Houlihan Lokey.
Houlihan Lokey did not independently verify the accuracy and completeness of
the information supplied to it with respect to the Company and does not assume
any responsibility with respect to it. Houlihan Lokey did not make any
independent appraisal of any of the properties or assets of the Company.
Houlihan Lokey's opinion is necessarily based on business, economic, market
and other conditions as they existed and could be evaluated by Houlihan Lokey
at the date of the opinion.
13
<PAGE>
Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuing businesses and securities
and rendering fairness opinions. Houlihan Lokey is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, employee stock ownership plans, corporate and other
purposes.
Fees and Expenses. Pursuant to a retainer agreement (the "Retainer") entered
into on July 13, 1998, Houlihan Lokey was retained by the Company to analyze
the fairness of the consideration to be received in the Offer and the Merger
by the holders of Shares (other than the Parent and the Purchaser) from a
financial point of view. Houlihan Lokey received $100,000 upon signing of the
Retainer and $125,000 when it informed the Special Committee that it was
prepared to render the opinion (the "Opinion Fee"), and Houlihan Lokey will
receive $125,000 upon the closing of the Merger, plus reasonable out-of-pocket
expenses incurred in connection with the rendering of a fairness opinion. The
Company has further agreed to indemnify Houlihan Lokey against certain
liabilities and expenses in connection with the rendering of its services.
THE OFFER
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions set forth in the Offer
(including, if the Offer is extended or amended, the terms and conditions of
such extension or amendment), the Purchaser will accept for payment, and pay
for, all Shares validly tendered on or prior to the Expiration Date (as herein
defined) and not withdrawn as permitted by "The Offer--4. Rights of
Withdrawal." The term "Expiration Date" means 12:00 Midnight, New York City
time, on Monday, September 21, 1998, unless and until the Purchaser shall, in
its sole discretion, have extended the period for which the Offer is open, in
which event the term "Expiration Date" shall mean the latest time and date on
which the Offer, as so extended by the Purchaser, shall expire.
This Offer is subject to various terms and conditions described herein. See
"The Offer--13. Certain Conditions of the Offer."
Subject to the applicable rules and regulations of the Securities and
Exchange Commission (the "Commission") and the terms of the Merger Agreement,
the Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time, and regardless of whether or not any of the events
set forth in "The Offer--13. Certain Conditions of the Offer" shall have
occurred or shall have been determined by the Purchaser to have occurred, to
(i) extend the period of time during which the Offer is open, and thereby
delay acceptance for payment of, regardless of whether such Shares were
theretofore accepted for payment, and the payment for, any Shares, by giving
oral or written notice of such extension to the Depositary and (ii) amend the
Offer in any other respect by giving oral or written notice of such amendment.
The Purchaser shall not have any obligation to pay interest on the purchase
price for tendered Shares, whether or not the Purchaser exercises its right to
extend the Offer. The rights reserved by the Purchaser in this paragraph are
in addition to the Purchaser's right to terminate the Offer pursuant to the
provisions of "The Offer--13. Certain Conditions of the Offer."
If by the Expiration Date, any or all conditions to the Offer have not been
satisfied or waived, the Purchaser reserves the right (but shall not be
obligated), in its sole discretion subject to the applicable rules and
regulations of the Commission and the terms of the Merger Agreement to (i)
terminate the Offer and not accept for payment any Shares and return all
tendered Shares, (ii) waive all the unsatisfied conditions (other than the
Minimum Tender Condition, which may not be waived by the Purchaser without the
prior written consent of the Company) and, subject to the applicable rules and
regulations of the Commission, accept for payment and pay for all Shares
validly tendered prior to the Expiration Date and not theretofore withdrawn,
(iii) extend the Offer and, subject to the right of stockholders to withdraw
Shares until the Expiration Date, retain the Shares that have been tendered
during the period or periods for which the Offer is extended, or (iv) amend
the Offer in any respect by giving oral and written notice of such
termination, waiver, extension, delay or amendment to the Depositary or by
making public announcement thereof.
14
<PAGE>
There can be no assurance that the Purchaser will exercise its right to
extend the Offer. See "The Offer--13. Certain Conditions to the Offer." Any
extension, delay, amendment, waiver or termination will be followed as
promptly as practicable by public announcement. In the case of an extension,
Rule 14e-1(d) under the Exchange Act requires the announcement be made no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date in accordance with the public
announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to
applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act,
which require that any material change in the information published, sent or
given to stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and without limiting the manner in which the Purchaser may choose to
make any public announcements, the Purchaser will not have any obligations to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a press release to the Dow Jones News Service.
If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of the tendered Shares) is delayed in its
acceptance for payment of or payment for the Shares or if the Purchaser is
unable to accept for payment or pay for the Shares pursuant to the Offer for
any reason, then, without prejudice to the Purchaser's rights under the Offer,
the Depositary may retain tendered Shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described in "The Offer--4. Rights of
Withdrawal." However, the ability of the Purchaser to delay the payment for
the Shares that the Purchaser has accepted for payment is limited by Rule 14e-
1(c) under the Exchange Act, which requires that a bidder pay the
consideration offered or return the securities deposited by or on behalf of
holders of securities promptly after the termination or withdrawal of such
bidder's offer.
Consummation of the Offer is conditioned upon satisfaction of the Minimum
Tender Condition, the Financing Condition and the other conditions set forth
in "The Offer--13. Certain Conditions of the Offer." The Purchaser reserves
the right (but shall not be obligated) to waive any or all such conditions
(other than the Minimum Tender Condition, which may only be waived by the
Purchaser upon prior written consent of the Company).
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including a waiver or reduction of the Minimum Tender Condition with the
required consent of the Company), the Purchaser will disseminate additional
tender offer materials and extend the Offer to the extent required by Rules
14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during
which an offer must remain open following material changes in the terms of the
offer or information concerning the offer, other than a change in price or a
change in the percentage of securities sought, or a change in the dealer's
advisory fee, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. In the
Commission's view, an offer should remain open for a minimum of five business
days from the date a material change is first published, sent or given to
security holders, and, if material changes are made with respect to
information that relates to price and share levels, a minimum of ten business
days may be required to allow for adequate dissemination and investor
response. With respect to a change in price or, subject to certain
limitations, a change in the percentage of securities sought or a change in a
dealer's solicitation fee, a minimum period of ten business days from the date
of such change is generally required under the applicable rules and
regulations of the Commission to allow for adequate dissemination to
stockholders and investor response. Accordingly, if prior to the Expiration
Date, the Purchaser should decrease the number of Shares being sought, or
increase or decrease the consideration offered pursuant to the Offer, or
change the dealer's solicitation fee, and if the Offer is scheduled to expire
at any time earlier than the period ending on the tenth business day from and
including the date that notice of such change is first published, sent or
given to holders of Shares, the Offer will be extended at least until the
expiration of such ten-business day period. As used herein, a "business day"
means any day other than a Saturday, Sunday or federal holiday and consists of
the time period from 12:01 a.m. through midnight, New York City time.
The Company has provided to the Purchaser the Company's stockholder list and
security position lists for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase, the Letter of Transmittal
15
<PAGE>
and other relevant materials will be mailed to recordholders of the Shares
whose names appear on the Company's stockholder list and will be mailed to
brokers, dealers, banks, trust companies and similar persons whose names, or
the names of whose nominees, appear on such stockholder list or, if
applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will purchase, by accepting for payment, and will
pay for, Shares validly tendered on or prior to the Expiration Date and not
properly withdrawn in accordance with "The Offer--4. Rights of Withdrawal" as
promptly as practicable after the later to occur of (i) the Expiration Date
and (ii) the satisfaction or waiver of the terms and conditions set forth in
"The Offer--13. Certain Conditions of the Offer." Any determination concerning
the satisfaction or waiver of the terms and conditions will be within the sole
discretion of the Purchaser, and such determination will be final and binding
on all holders of Shares. See "The Offer--1. Terms of the Offer" and "The
Offer--13. Certain Conditions of the Offer." The Purchaser expressly reserves
the right, in its sole discretion, to delay acceptance for payment of or
payment for Shares in order to comply in whole or in part with any applicable
law. Any such delays will be effected in compliance with the Purchaser's
obligation under Rule 14e-1(c) under the Exchange Act to pay for or return
tendered Shares promptly after the termination or withdrawal of the Offer.
If, prior to the Expiration Date, the Purchaser increases the consideration
offered to the holders of shares pursuant to the Offer, the Purchaser will pay
such increased consideration for all Shares purchased pursuant to the Offer,
whether or not such Shares were tendered prior to such increase in the
consideration.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered to the Purchaser and
not withdrawn if and when the Purchaser gives oral or written notice to the
Depositary of the Purchaser's acceptance of such Shares for payment. Upon the
terms and subject to the conditions of the Offer, payment for Shares accepted
for payment pursuant to the Offer will be made by deposit of the purchase
price therefor with the Depositary, which shall act as agent for tendering
stockholders for the purpose of receiving payment from the Purchaser and
transmitting payment to the tendering stockholders whose shares have been
received for payment. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE
PURCHASER ON THE PURCHASE PRICE OF THE SHARES TENDERED PURSUANT TO THE OFFER,
REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN ACCEPTING FOR PAYMENT
OR MAKING SUCH PAYMENT.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates
for such Shares (or timely Book-Entry Confirmation (as defined herein) of the
book-entry transfer of such shares into the Depositary's account at the Book-
Entry Transfer Facility (as defined herein) pursuant to the procedures set
forth in "The Offer--3. Procedure for Tendering Shares"), (ii) the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message (as defined herein) in lieu of the Letter of
Transmittal) and (iii) any other documents required by such Letter of
Transmittal.
If the Purchaser is delayed in its acceptance for payment of, or payment
for, Shares or is unable to accept for payment or pay for Shares pursuant to
the Offer for any reason, then, without prejudice to the Purchaser's rights
under the Offer (but subject to the Purchaser's obligations under Rule 14e-
1(c) under the Exchange Act to pay for or return the Shares promptly after the
termination or withdrawal of the Offer), the Depositary may, nevertheless, on
behalf of the Purchaser, retain tendered Shares, and such Shares may not be
withdrawn except to the extent tendering stockholders are entitled to
exercise, and duly exercise, withdrawal rights as described in "The Offer--4.
Rights of Withdrawal."
If any tendered Shares are not purchased pursuant to the Offer because of an
invalid tender or otherwise, certificates for any such Shares will be
returned, without expense, to the tendering stockholder (or, in the case of
16
<PAGE>
Shares delivered by book-entry transfer of such Shares into the Depositary's
account at the Book-Entry Transfer Facility pursuant to the procedures set
forth in "The Offer--3. Procedure for Tendering Shares," such Shares will be
credited to an account maintained at the Book-Entry Transfer Facility), as
promptly as practicable after the expiration, termination or withdrawal of the
Offer.
The Purchaser reserves the right to transfer or assign in whole or in part
from time to time to one or more direct or indirect subsidiaries of the
Purchaser the right to purchase all or any portion of the Shares tendered
pursuant to the Offer, but any such transfer or assignment will not relieve
the Purchaser of its obligations under the Offer and will in no way prejudice
the rights of tendering stockholders to receive payment for Shares validly
tendered and accepted for payment pursuant to the Offer.
By accepting the benefits of the Offer through the tender of Shares and the
receipt of payment for Shares, a tendering stockholder is (under the
Purchaser's view of applicable law) barred from thereafter attacking in any
legal proceeding the fairness of the consideration received by stockholders in
the Offer. For this reason, the Letter of Transmittal to be executed by
tendering stockholders includes a release of any such claims, which will be
effective upon receipt of payment for tendered shares.
3. PROCEDURE FOR TENDERING SHARES
Valid Tender. To tender Shares pursuant to the Offer, either (a) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) or,
in the case of a book-entry transfer, an Agent's Message in lieu of the Letter
of Transmittal, and any other documents required by the Letter of Transmittal,
must be received by the Depositary at one of its addresses set forth on the
back cover of this Offer to Purchase and either (i) certificates for the
Shares to be tendered must be received by the Depositary at one of such
addresses or (ii) Shares must be delivered pursuant to the procedures for
book-entry transfer described below (and a confirmation of such delivery
received by the Depositary, including an Agent's Message if the tendering
stockholder has not delivered a Letter of Transmittal), in each case by the
Expiration Date, or (b) the guaranteed delivery procedure described below must
be complied with. The term "Agent's Message" means a message, transmitted by a
Book-Entry Transfer Facility to and received by the Depositary and forming a
part of a book-entry confirmation, which states that such Book-Entry Transfer
Facility has received an express acknowledgment from the participant in such
Book-Entry Transfer Facility tendering the Shares which are the subject of
such book-entry confirmation, that such participant has received and agrees to
be bound by the Letter of Transmittal and that the Purchaser may enforce such
agreement against such participant.
Book Entry Delivery. The Depositary will establish an account with respect
to the Shares at The Depositary Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Offer within two business days after the date
of this Offer to Purchase, and any financial institution that is a participant
in the system of the Book-Entry Transfer Facility may make delivery of Shares
by causing the Book-Entry Transfer Facility to transfer such Shares in the
Depositary's account in accordance with the procedures of the Book-Entry
Transfer Facility. However, although delivery of Shares may be effected
through book-entry transfer, either the Letter of Transmittal (or facsimile
thereof) properly completed and duly executed together with any required
signature guarantees (or, in the case of book-entry transfer, an Agent's
Message in lieu of the Letter of Transmittal), and any other required
documents must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase by the
Expiration Date, or the guaranteed delivery procedure described below must be
complied with. The confirmation of a book-entry transfer of Shares into the
Depositary's account at a Book-Entry Transfer Facility as described above is
referred to herein as a "Book-Entry Confirmation." DELIVERY OF THE LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantee. Except as otherwise provided below, all signatures on a
Letter of Transmittal must be guaranteed by a financial institution (including
most banks, savings and loan associations and brokerage
17
<PAGE>
houses) which is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion Program (an "Eligible Institution"). Signatures on a
Letter of Transmittal need not be guaranteed (a) if the Letter of Transmittal
is signed by the registered holder of the Shares tendered therewith and such
holder has not completed the box entitled "Special Payment Instruction" or the
box entitled "Special Delivery Instructions" on the Letter of Transmittal or
(b) if such Shares are tendered for the account of an Eligible Institution.
See Instructions 1 and 5 of the Letter of Transmittal. If the certificates are
registered in the name of a person other than the signer of the Letter of
Transmittal or if payment is to be made or certificates for Shares not
accepted for payment or not tendered are to be returned to a person other than
the registered holder, then the tendered certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appears on the certificates,
with the signatures on the certificates or stock power guaranteed as described
above. See Instructions 1 and 5 to the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and cannot deliver such shares and all other required documents to
the Depositary by the Expiration Date, or such stockholder cannot complete the
procedure for delivery by book-entry transfer on a timely basis, such shares
may nevertheless be tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Purchaser is received by the
Depositary (as provided below) prior to the Expiration Date; and
(iii) the certificates for such tendered Shares (or a Book-Entry
Confirmation with respect to such Shares), together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof)
with any required signature guarantee (or, in the case of book-entry
transfer, an Agent's Message is lieu of the Letter of Transmittal), and any
other documents required by the Letter of Transmittal, are received by the
Depositary within three trading days on the AMEX after the date of
execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING
THROUGH A BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE
TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Other Requirements. Notwithstanding any other provision hereof, in all
cases, payment for Shares tendered and accepted for payment pursuant to the
Offer will be made only after timely receipt by the Depositary of certificates
for such Shares (or a timely Book-Entry Confirmation with respect to such
Shares), properly completed and duly executed Letter(s) of Transmittal (or
facsimile(s) thereof) for such Shares together with any required signature
guarantees (or, in the case of book-entry transfer, an Agent's Message in lieu
of the Letter of Transmittal), and any other required documents. Accordingly,
tendering stockholders may be paid at different times depending upon when
certificates for Shares or Book-Entry Confirmations of such Shares and such
other documents are actually received by the Depositary. Under no
circumstances will interest be paid by the Purchaser on the purchase price of
the Shares to any tendering stockholders, regardless of any extension of the
Offer or any delay in accepting for payment or making such payment.
18
<PAGE>
Tender Constitutes an Agreement. The tender of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering stockholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
Appointment of Proxy After Acceptance for Payment. By executing a Letter of
Transmittal as set forth above, the tendering stockholder irrevocably appoints
the designees of the Purchaser, and each of them, the attorneys-in-fact and
proxies of such stockholder, each with full power of substitution, to the full
extent of such stockholder's rights with respect to the Shares tendered by
such stockholder and accepted for payment by the Purchaser and with respect to
any and all cash dividends, distributions, rights, other Shares and other
securities issued or issuable in respect of such Shares on or after the date
of this Offer to Purchase ("Distributions"). Such appointment is effective
when, and only to the extent that, the Purchaser deposits the payment for such
Shares with the Depositary. All such proxies and powers of attorney shall be
irrevocable and coupled with an interest in the tendered Shares. Upon the
effectiveness of such appointment, without further action, all prior proxies
with respect to the Shares (and any associated Distributions) given by such
stockholder will be revoked, and no subsequent proxies may be given nor
subsequent written consents executed (and, if given or executed, will not be
deemed to be effective) with respect thereto by the Stockholder. The
Purchaser's designees will, with respect to the Shares (and any associated
Distributions) for which the appointment is effective, be empowered to
exercise all voting and other rights of such stockholder as they, in their
sole discretion, may deem proper at any annual, special or adjourned meeting
of the stockholders of the Company, by written consent in lieu of any such
meeting or otherwise. The Purchaser reserves the right to require that, in
order for Shares to be deemed validly tendered, immediately upon the
Purchaser's payment for such Shares, the Purchaser must be able to exercise
full voting rights with respect to such Shares (and any associated
Distributions) (including voting at any meeting then scheduled or actions by
written consent). See "The Offer--6. Price Range of Shares; Dividends."
Release of Claims. By accepting the Offer through the tender of Shares
pursuant to the Offer, the tendering stockholder agrees to release, and
releases, all claims with respect to or in respect of the Shares other than
the right to receive payment for the tendered Shares expressly provided herein
and that, upon payment for the Shares, to waive any right to attack (and
agrees to be barred from thereafter attacking) in any legal proceeding the
fairness of the consideration paid in the Offer.
Determination of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Shares will be determined by the Purchaser, in its sole discretion,
which determination shall be final and binding. The Purchaser reserves the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. The Purchaser also reserves the absolute right to waive
any of the conditions of the Offer or any defect or irregularity in the tender
of any Shares. No tender of shares will be deemed to have been validly made
until all defects and irregularities have been cured or waived. Neither the
Purchaser, the Depositary, the Information Agent or the Dealer Manager nor any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. The Purchaser's interpretation of the terms and conditions
of the Offer (including the Letter of Transmittal and Instructions thereto)
will be final and binding.
Backup Withholding. In order to avoid backup withholding of federal income
tax on payments of cash pursuant to the Offer, a stockholder surrendering
shares in the Offer generally must provide the Depositary with such
stockholder's correct taxpayer identification number ("TIN") on a Substitute
Form W-9 and certify under penalties of perjury that such TIN is correct and
that such stockholder is not subject to backup withholding. Certain
stockholders (including, among others, all corporations and certain foreign
individuals and entities) are not subject to backup withholding. If a
stockholder does not provide its correct TIN or fails to provide the
certifications described above, under federal income tax laws, the Depositary
generally will be required to withhold 31% of the amount of any payment made
to such stockholder pursuant to the Offer. All stockholders tendering Shares
pursuant to the Offer should complete and sign the main signature form and
Substitute Form W-9 included as part of the Letter of Transmittal to provide
the information and certification necessary to avoid
19
<PAGE>
backup withholding (unless an applicable exemption exists and is provided in a
manner satisfactory to the Purchaser and the Depositary). Non-corporate
foreign stockholders should complete and sign the main signature form and a
Form W-8, Certificate of Foreign Status, a copy of which may be obtained from
the Depositary, in order to avoid backup withholding. See Instruction 10 to
the Letter of Transmittal.
4. RIGHTS OF WITHDRAWAL
Except as otherwise provided in this Section 4, tenders of Shares made
pursuant to the Offer are irrevocable except that Shares tendered pursuant to
the Offer may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Purchaser pursuant to the
Offer, may also be withdrawn at any time after October 23, 1998.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person having
tendered the Shares to be withdrawn, the number of Shares to be withdrawn and
the name of the registered holder, if different from that of the person who
tendered such Shares. If certificates for Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then prior to the
physical release of such certificates, the name of the registered holder and
the serial numbers shown on such certificates must also be submitted to the
Depositary and, unless such Shares have been tendered for the account of any
Eligible Institution, the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution. If Shares have been tendered pursuant
to the procedures for book-entry tender as set forth in "The Offer--3.
Procedure for Tendering Shares," any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Shares and otherwise comply with such Book-Entry
Transfer Facility's procedures for such withdrawal, in which case a notice of
withdrawal will be effective if delivered to the Depositary by any method of
delivery described in the first sentence of this paragraph. Withdrawals of
tenders of Shares may not be re-scinded, and any Share properly withdrawn will
thereafter be deemed not validly tendered for the purposes of the Offer.
However, withdrawn Shares may be retendered by again following one of the
procedures described above in "The Offer--3. Procedure for Tendering Shares"
at any time on or prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination shall be final and binding. None of the
Purchaser, Parent, the Dealer Manager, the Depositary, the Information Agent
or any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for
failure to give such notification.
If the Purchaser extends the Offer, is delayed in its acceptance for payment
of Shares, or is unable to accept for payment Shares pursuant to the Offer,
for any reason, then, without prejudice to the Purchaser's rights under this
Offer, the Depositary may, nevertheless, on behalf of the Purchaser, retain
tendered Shares, and such Shares may not be withdrawn except to the extent
that tendering stockholders are entitled to withdrawal rights as set forth in
this Section 4. Under no circumstances will interest be paid by the Purchaser
on the purchase price of the Shares tendered pursuant to the Offer, regardless
of any extension of the Offer or any delay in making payment.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER AND THE MERGER
Sales of Shares pursuant to the Offer will be taxable transactions for
Federal income tax purposes and may also be taxable under applicable state,
local and other tax laws. For federal income tax purposes, a stockholder whose
Shares are purchased pursuant to the Offer, or who receives cash as a result
of the Merger, will realize gain or loss equal to the difference between the
adjusted basis of the Shares sold or exchanged and the amount of cash received
therefor. Such gain or loss will be capital gain or loss if the Shares are
held as capital assets by
20
<PAGE>
the stockholder. Under current Federal income tax law, net capital gain of an
individual or other non-corporate taxpayer may be subject to tax at a
preferential tax rate. In addition, a taxpayer's ability to deduct capital
losses may be limited.
THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE TO STOCKHOLDERS IN SPECIAL
SITUATIONS SUCH AS STOCKHOLDERS WHO RECEIVED THEIR SHARES UPON THE EXERCISE OF
EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION AND STOCKHOLDERS WHO ARE
NOT UNITED STATES PERSONS. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECTS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE OFFER AND THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN OR OTHER
TAX LAWS.
6. PRICE RANGE OF SHARES; DIVIDENDS
The Shares are listed on the AMEX under the symbol "ECM." The Shares began
trading on AMEX on December 31, 1997, on which day the high and low sales
prices were $8.25 and $7.875, respectively. The following table sets forth,
for the 1998 calendar quarters indicated, the high and low sales prices for
the Shares, based upon public sources:
<TABLE>
<CAPTION>
SHARES
----------------
CALENDAR QUARTER HIGH LOW
---------------- -------- -------
<S> <C> <C>
January 1--March 31.................... $ 9.0000 $6.2500
April 1--June 30....................... 8.9375 6.2500
July 1--August 21...................... 10.0000 8.0000
</TABLE>
On May 28, 1998, the last full trading day prior to the public announcement
of Parent's intention to seek to cause the Company to become a wholly owned
subsidiary of Parent in a transaction in which holders of Shares would receive
$9.125 in cash per share, the reported closing price on the AMEX was $7.00 per
Share. On August 17, 1998, the last trading day prior to the public
announcement of the execution of the Merger Agreement and the Purchaser's
agreement to commence the Offer, the reported closing price was $8.3125 per
Share. Stockholders are urged to obtain a current market quotation for the
Shares.
The Company has not paid any dividends on the Common Stock. The declaration
of dividends on the Common Stock is at the discretion of the Board. Subject to
legal and contractual restrictions, its decisions regarding future payment of
dividends will be based on all considerations that in its business judgment
are relevant at the time, including past and projected earnings, cash flows,
economic, business and securities market conditions and anticipated
developments concerning the Company's business and operations.
7. EFFECT OF THE OFFER ON MARKET FOR THE SHARES, STOCK EXCHANGE LISTING, AND
EXCHANGE ACT REGISTRATION
The purchase of Shares by the Purchaser pursuant to the Offer will reduce
the number of Shares that might otherwise trade publicly and would reduce the
numbers of holders of Shares, which could adversely affect the liquidity and
market value of the remaining Shares held by the public.
The Shares are currently listed on the AMEX. According to the AMEX's
published guidelines, the AMEX would consider delisting the Shares if, among
other things, the number of holders of Shares should fall below 300, the
number of publicly held Shares (exclusive of holdings of officers and
directors of the Company and their immediate families and other concentrated
holdings of 10% or more) should fall below 200,000, or the aggregate market
value of the publicly held Shares should fall below $1,000,000.
If such exchange were to delist the Shares, the market therefor could be
adversely affected. It is possible that the Shares would be traded on other
securities exchanges or in the over-the-counter market, and that price
quotations would be reported by such exchanges, or through the National
Association of Securities Dealers
21
<PAGE>
Automated Quotation System, Inc. ("NASDAQ") or other sources. The extent of
the public market for the Shares and the availability of such quotations
would, however, depend upon the number of stockholders and/or the aggregate
market value of the Shares remaining at such time, the interest in maintaining
a market in the Shares on the part of securities firms, the possible
termination of registration of the Shares under the Exchange Act and other
factors. The Purchaser cannot predict whether the reduction in the number of
Shares that might otherwise trade, or the termination of registration of
outstanding Shares under the Exchange Act, would have an adverse effect on the
market price for or the marketability of Shares.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated by the Company upon application to the
Commission if the outstanding Shares are not listed on a national securities
exchange and if there are fewer than 300 holders of record of Shares.
Termination of registration of the Shares under the Exchange Act would reduce
the information required to be furnished by the Company to its stockholders
and to the Commission and would make certain provisions of the Exchange Act,
such as the short-swing profit recovery provisions of Section 16(b), the
requirement of furnishing a proxy statement in connection with stockholders'
meetings pursuant to Section 14(a), the related requirement of furnishing
annual and transition reports to stockholders pursuant to Section 15(d) of the
Exchange Act and the requirements of Rule 13e-3 under the Exchange Act with
respect to "going private" transactions, no longer applicable with respect to
the Shares. Furthermore, the ability of "affiliates" of the Company and
persons holding "restricted securities" of the Company to dispose of such
securities pursuant to Rule 144 under the Securities Act of 1933, as amended,
may be impaired or eliminated. If registration of the Shares under the
Exchange Act were terminated, the Shares would no longer be eligible for AMEX
reporting.
The Parent intends to seek delisting of the shares from the AMEX and
termination of registration of the Shares as soon as possible after
consummation of the Offer or the Merger if, and as soon as, the requirements
for delisting and termination of registration are met.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which has the effect, among other things, of allowing brokers to
extend credit on the collateral of such Shares for the purpose of buying,
carrying or trading in securities ("Purpose Loans"). Depending upon factors
similar to those described above regarding the continued listing, public
trading and market quotations of the Shares, it is possible that, following
the purchase of the shares pursuant to the Offer, the Shares would no longer
constitute "margin securities" for the purposes of the margin regulations of
the Federal Reserve Board and therefore could no longer be used as collateral
for Purpose Loans made by brokers. In addition, if registration of the Shares
under the Exchange Act were terminated, the Shares would no longer be "margin
securities" or be eligible for AMEX reporting.
8. CERTAIN INFORMATION CONCERNING THE COMPANY
Financial Information. The following selected historical financial data of
the Company as of and for the years ended December 31, 1995, 1996 and 1997
have been derived from the Company's audited financial statements. The
following related historical data as of and for the six months ended June 30,
1997 and 1998 have been derived from the Company's unaudited consolidated
condensed interim financial statements which, in the opinion of management,
reflects all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation.
On December 30, 1997, ATN split off into two separate public companies
pursuant to the Split Off Transaction: the Company, which contains all of the
predecessors' telephone operations in the U.S. Virgin Islands; and ATN, which
continues to own the business and operations in Guyana. Since the Company was
the larger of the split-off entities, ATN was deemed for accounting purposes
to be the split-off entity. The Company is the successor company and its
historical financial statements prior to the split-off are the historical
financial statements of ATN. Therefore, the historical financial statements of
the Company include the operations in Guyana prior to the Split Off
Transaction.
22
<PAGE>
The Split Off 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 Company's consolidated statement of
operations.
The selected historical consolidated financial data should be read in
conjunction with the Company's audited consolidated financial statements and
related notes thereto, as of December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997 and the Company's unaudited
consolidated condensed financial statements and notes thereto as of and for
the six months ended June 30, 1997 and 1998 which are included elsewhere in
this Offer. All dollar amounts are in thousands, except per share data.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Telephone operations (1)... $184,632 $206,002 $182,349 $ 90,968 $ 32,663
Cellular services.......... 5,910 5,480 3,663 2,146 1,752
Product sales and rent-
als....................... 5,128 5,435 4,942 2,334 2,573
-------- -------- -------- -------- --------
Total revenues........... 195,670 216,917 190,954 95,448 36,988
Expenses:
Telephone operations....... 130,575 155,174 134,401 69,609 21,547
Cellular services, product
sales and rental ex-
penses.................... 8,399 8,231 7,957 3,870 3,806
General and administrative
expenses.................. 10,219 9,458 12,168 4,956 2,654
-------- -------- -------- -------- --------
Total operating ex-
penses.................. 149,193 172,863 154,526 78,435 28,007
-------- -------- -------- -------- --------
Income from operations...... 46,477 44,054 36,428 17,013 8,981
Other income and expense: ..
Loss on split-off of ATN... -- -- (45,041) -- --
Equity in earnings of un-
consolidated subsidiary... -- -- -- -- 315
Interest expense........... (12,511) (11,289) (10,548) (5,317) (4,392)
Interest income............ 971 458 351 158 79
-------- -------- -------- -------- --------
Total other income and
expense................. (11,540) (10,831) (55,238) (5,159) (3,998)
-------- -------- -------- -------- --------
Income (loss) before income
taxes and minority inter-
est........................ 34,937 33,223 (18,810) 11,854 4,983
Income tax (expense) benefit
(2)........................ (15,250) (13,039) 897 6,612 (1,761)
Minority interest........... (2,477) (2,177) (1,340) (308) --
-------- -------- -------- -------- --------
Income (loss) from continu-
ing operations............. $ 17,210 $ 18,007 $(19,253) $ 18,158 $ 3,222
======== ======== ======== ======== ========
Basic net income (loss) per
share from continuing oper-
ations..................... $ 1.40 $ 1.47 $ (1.57) $ 1.48 $ 0.29
Dividends per share......... -- -- -- -- --
Weighted average number of
shares..................... 12,273 12,273 12,269 12,273 10,959
OTHER DATA:
Ratio of earnings to fixed
charges (3)................ 3.79x 3.94x -- 3.22x 2.13x
<CAPTION>
AT DECEMBER 31, AS OF JUNE 30,
---------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Fixed assets, net........... $226,660 $251,996 $154,096 $252,135 $164,074
Total assets................ 371,939 389,324 224,308 376,782 259,211
Short-term debt (including
current portion of long-
term debt)................. 24,841 30,095 28,227 28,658 46,347
Long-term debt, net......... 128,362 116,227 105,138 104,173 126,173
Stockholders' equity........ 130,956 149,791 58,770 167,949 61,992
OTHER DATA:
Book value per share........ $ 10.67 $ 12.21 $ 5.36 $ 13.68 $ 5.66
</TABLE>
- --------
(1)In September 1997, the Guyana High Court denied an order which the Consumer
Advisory Bureau had sought to temporarily enjoin Guyana Telephone &
Telegraph Ltd. ("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
23
<PAGE>
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 regard 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.
(3)There was a deficiency of earnings to fixed charges for the year ended
December 31, 1997 of $29.4 million.
Except as otherwise set forth herein, the information concerning the Company
contained in this Offer to Purchase has been taken from or based upon publicly
available documents and records on file with the Commission and other public
sources and is qualified in its entirety by reference thereto. Although
neither the Purchaser nor Parent has any knowledge that would indicate that
any statements contained herein based on such documents and records are
untrue, neither the Purchaser nor Parent can take responsibility for the
accuracy or completeness of the information contained in such documents and
records, or for any failure by the Company to disclose events which may have
occurred or may affect the significance or accuracy of any such information
but which are unknown to the Purchaser or Parent.
The Company is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is obligated to file reports and
other information with the Commission relating to its business, financial
condition and other matters. Information, as of particular dates, concerning
the Company's directors and officers, their remuneration, stock options
granted to them, the principal holders of the Company's securities, any
material interests of such persons in transactions with the Company and other
matters is required to be disclosed in proxy statements distributed to the
Company's stockholders and filed with the Commission. Such reports, proxy
statements and other information should be available for inspection at the
public reference facilities of the Commission located at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located in the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and in Seven World Trade
Center, Suite 1300, New York, New York. Copies may be obtained, by mail, upon
payment of the Commission's customary charges, by writing to its principal
office at Room 1024, Judiciary Plaza, Washington, D.C. 20549 or through the
Commission's web page on www.sec.gov. The Shares are listed on the AMEX and
such material, reports, proxy statements and other information can also be
available for inspection at the AMEX, 86 Trinity Place, New York, New York
10006.
Plans for the Company. At some time after consummation of the Merger, the
Parent currently intends to combine the businesses conducted by its operating
subsidiaries with those of the Company. While the definitive terms of such
combination and the timing of the consummation thereof have not been
finalized, the Parent currently expects that at some time after consummation
of the Merger, (i) the Purchaser will transfer all of the Shares then owned by
it (which is expected to be approximately 48% of the then outstanding shares)
to a newly formed limited liability company wholly owned by the Parent ("New
LLC") for a note of New LLC (the "New LLC Note"), (ii) the Purchaser will
transfer all of the stock of its subsidiaries which conduct the Parent's cable
television and newspaper operations, together with the New LLC Note and a
$20.0 million note of Mr. Prosser, to the ATNCo. in exchange for equity
securities of ATNCo and ATNCo's assumption of the indebtedness of the
Purchaser owing to the RTFC and (iii) the Purchaser will liquidate and
distribute its assets to the Parent. Following the Merger, the Parent intends
to continue the Company's strategy of expanding its operations through the
acquisition of other businesses. Any such acquisition may significantly
increase the Company's revenues, income or equity value. Except as otherwise
set forth in this Offer to Purchase, it is expected that, following the
Merger, the business and operations of the Company will be continued
substantially as they are currently being conducted.
Certain Projections. The Parent and its representatives from time to time
receive projections of financial results prepared by the management of the
Company in the ordinary course of business as a part of its financial
24
<PAGE>
planning process. Although the Company does not as a matter of course publicly
disclose projections as to future revenues or earnings, because they were
received by the Parent, the Purchaser is making these projections available to
all stockholders. Accordingly, the Company does not intend to update or
otherwise revise the prospective financial information to reflect
circumstances existing since their preparation or to reflect the occurrence of
unanticipated events, even in the event that any or all of the underlying
assumptions are shown to be in error. Furthermore, the Company does not intend
to update or revise the prospective financial information to reflect changes
in general economic or industry conditions.
NONE OF THE PROJECTIONS SET FORTH BELOW IS TO BE REGARDED AS FACT AND SUCH
PROJECTIONS SHOULD NOT BE RELIED UPON AS ACCURATE REPRESENTATIONS OF FUTURE
RESULTS. IN ADDITION, BECAUSE THE ESTIMATES AND ASSUMPTIONS UNDERLYING THE
SUMMARY PROJECTIONS, AS TO FUTURE RESULTS, ARE BASED UPON EVENTS AND
CIRCUMSTANCES THAT HAVE NOT TAKEN PLACE AND ARE INHERENTLY SUBJECT TO
SIGNIFICANT FINANCIAL, MARKET, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND ARE
BEYOND PARENT'S, THE PURCHASER'S AND THE COMPANY'S CONTROL, THEY ARE
INHERENTLY IMPRECISE AND THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS
CAN BE REALIZED. THEREFORE, IT IS EXPECTED THAT THERE WILL BE DIFFERENCES
BETWEEN THE ACTUAL AND PROJECTED RESULTS AND THAT THE ACTUAL RESULTS MAY BE
MATERIALLY HIGHER OR LOWER THAN THOSE PROJECTED.
THE INCLUSION OF THE SUMMARY PROJECTIONS SHOULD NOT BE REGARDED AS A
REPRESENTATION BY PARENT, THE PURCHASER, OR THE COMPANY, OR ANY OF THEIR
RESPECTIVE AFFILIATES OR REPRESENTATIVES, THAT THE PROJECTED RESULTS WILL BE
ACHIEVED. THE SUMMARY PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS PUBLIC
DISCLOSURE OR COMPLYING WITH PUBLISHED GUIDELINES OF THE COMMISSION OR
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS. NONE OF THE PURCHASER, PARENT, THE COMPANY, OR ANY OF THEIR
RESPECTIVE AFFILIATES, REPRESENTATIVES, FINANCIAL ADVISORS, INDEPENDENT
AUDITORS OR DIRECTORS OR OFFICERS, ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY
OF THE SUMMARY PROJECTIONS. THE SUMMARY PROJECTIONS HAVE NOT BEEN EXAMINED,
REVIEWED OR COMPILED BY THE COMPANY'S INDEPENDENT AUDITORS, AND ACCORDINGLY
THEY HAVE NOT EXPRESSED AN OPINION OR ANY OTHER ASSURANCE ON THEM.
The Summary Projections are based on the following significant assumptions:
(i) Revenues from telephone operations are projected to increase approximately
3% annually, principally due to projected annual access line growth of 4%
consistent with historical experience.
(ii) Projected revenues from cellular services include revenues from the
Company's wholly-owned mobile cellular operations in the U.S. Virgin
Islands and revenues from SMB Holdings, Ltd. ("SMB"), a British Virgin
Islands corporation providing mobile cellular communications on the
island of St. Martin. The projected total revenues and expenses of SMB
have been consolidated into these financial projections. Revenues from
cellular services are projected to increase approximately 8% through the
year 2000 and 5% to 6% thereafter.
(iii) Revenues from product sales and rentals are projected to increase 3% to
4% annually based on historical experience and management's expectations
for modest growth in this line of business.
(iv) Telephone operations expenses (excluding depreciation and amortization
and taxes other than income taxes) are projected to increase
approximately 2% annually due to access line growth and cost increases
due to inflation.
(v) Operating expenses (excluding depreciation and amortization) related to
cellular services and product sales and rentals are projected to increase
approximately 2% annually due to cost increases due to inflation and
maintenance of historical margins.
25
<PAGE>
(vi) Management has projected certain cost savings in connection with the
anticipated restructuring and consolidation of certain components of the
Company's operations. These cost savings are projected to be
approximately $1.5 million in 1998 with an additional $1.1 million in
annual cost savings beginning in 1999. These cost savings have been
reflected as a reduction in the projected general and administrative
expenses which otherwise are projected to remain stable.
(vii) Projected depreciation and amortization is based on the depreciation of
existing fixed assets as well as projected capital expenditures
including approximately $21 million in property costs recoverable from
future revenues.
(viii) As discussed in Note C to the Consolidated Condensed Financial
Statements on Form 10-Q for the quarter ended June 30, 1998, 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 (included in telephone operating
expenses). The total exemption from gross receipts taxes, excise taxes
and property taxes is approximately $2.8 million annually over the
five-year period. The financial projections reflect these various tax
exemptions for the five-year period commencing October 1, 1998.
(ix) The minority interest reflects the 33% minority equity interest in the
projected consolidated earnings of SMB.
(x) Capital expenditures are projected to be approximately $9.0 million
annually based on the projected growth in subscribers and expected
requirements for maintaining the current physical plant, subscriber base
and service levels.
None of the assumptions or factors used is susceptible to accurate
prediction and there is no assurance that the Summary Projections will be
realized or that the Company's actual results will not be substantially less
or substantially more than those projected.
26
<PAGE>
THE SUMMARY PROJECTIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Telephone operations... $ 62,824 $ 64,843 $ 66,698 $ 68,616 $ 70,599 $ 72,651 $74,771 $76,964 $79,233 $81,580
Cellular services...... 14,701 15,837 17,079 18,226 19,368 20,448 21,436 22,481 23,593 24,772
Product sales and rent-
als................... 5,095 5,273 5,467 5,662 5,859 6,053 6,243 6,440 6,644 6,854
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
Total revenues......... 82,620 85,953 89,244 92,504 95,826 99,152 102,450 105,885 109,470 113,206
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
Expenses:
Telephone operations... 42,160 42,534 43,551 43,954 44,305 45,328 46,401 47,556 47,072 37,175
Cellular services,
product sales and
rental expenses....... 13,883 14,474 15,020 15,524 16,550 15,795 16,265 16,755 17,264 17,794
General and administra-
tive expenses......... 5,370 4,282 4,440 4,508 4,704 4,905 5,110 5,320 5,534 5,753
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
Total expenses......... 61,413 61,290 63,011 63,986 65,559 66,028 67,776 69,631 69,870 60,722
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
Income from operations.. 21,207 24,663 26,233 28,518 30,267 33,124 34,674 36,254 39,600 52,484
Interest expense, net... 9,998 9,991 9,405 8,825 8,103 7,407 6,956 6,485 5,976 5,463
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
Income before income
taxes and minority in-
terest................. 11,209 14,672 16,828 19,693 22,164 25,717 27,718 29,769 33,624 47,021
Income tax expense...... 4,090 1,669 2,621 3,492 3,760 6,182 11,543 12,330 13,791 18,822
Minority interest....... 1,452 1,038 1,088 1,128 1,168 1,211 1,254 1,298 1,344 1,392
-------- -------- -------- -------- -------- -------- ------- ------- ------- -------
Income from continuing
operations............. $ 5,667 $ 11,965 $ 13,119 $ 15,073 $ 17,236 $ 18,324 $14,921 $16,141 $18,489 $26,807
======== ======== ======== ======== ======== ======== ======= ======= ======= =======
CASH FLOW DATA:
Depreciation and Amorti-
zation................. $ 19,561 $ 21,348 $ 21,913 $ 21,824 $ 22,319 $ 20,881 $18,993 $19,652 $18,659 $ 8,239
Capital Expenditures.... 9,000 8,950 8,850 8,850 8,850 8,850 8,850 8,850 8,850 8,850
BALANCE SHEET DATA:
Fixed assets, net....... $147,658 $140,726 $133,129 $124,997 $115,685 $106,961 $97,578 $87,536 $78,487 $79,858
Total assets............ 251,845 253,751 260,078 264,707 271,470 283,354 291,906 300,115 310,311 329,482
Short-term debt (includ-
ing current portion of
long-term debt)........ 15,070 13,228 17,159 17,011 13,342 13,785 14,356 14,768 14,741 13,328
Long-term debt, net..... 141,502 134,954 124,441 114,009 107,185 99,853 91,879 83,418 74,904 67,718
Stockholder's equity.... 64,376 76,341 89,460 104,533 121,769 140,093 155,014 171,155 189,644 216,451
</TABLE>
27
<PAGE>
Share Ownership Information. The following table sets forth the information
provided to the Purchaser and Parent by the Company regarding the Share
ownership by directors and officers of the Company as of August 24, 1998,
unless otherwise noted. To Parent's and the Purchaser's knowledge, each of the
following listed persons (other than Jeffrey J. Prosser) currently intends to
tender his Shares in the Offer.
<TABLE>
<CAPTION>
SHARES
NAMES AND ADDRESS OF BENEFICIALLY PERCENT OF
DIRECTORS AND EXECUTIVE OFFICERS OWNED COMMON STOCK
- -------------------------------- ------------ ------------
<S> <C> <C>
Directors:
Jeffrey J. Prosser................................ 5,730,864(1) 52%
Richard N. Goodwin................................ -- --
Salvatore Muoio................................... 4,600 *
John P. Raynor.................................... -- --
Sir Shridath S. Ramphal........................... -- --
John G. Vondras................................... -- --
Terrence A. Todman................................ -- --
Executive Officers:
Jeffrey J. Prosser................................ 5,730,864(1) 52%
Chairman, Chief Executive Officer, Secretary and
Acting Chief Financial Officer
Thomas R. Minnich................................. -- --
Chief Operating Officer
Edwin Crouch...................................... 9,164(2) *
Vice President
All Directors and Executive Officers as a Group (8
persons)......................................... 5,744,628 52%
</TABLE>
- --------
* Less than 1% ownership.
(1) Excludes 97,358 shares owned by Mr. Prosser's children as to which Mr.
Prosser disclaims ownership. Includes options to purchase 112,742 shares
of Common Stock exercisable at August 24, 1998 and options to purchase an
additional 11,249 shares of Common Stock which will become exercisable
within 60 days of August 24, 1998.
(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, 2,876 shares
owned by Mr. Crouch pursuant to his IRA accounts, and 6,000 shares owned
by the Edwin C. Crouch Revocable Trust.
9. CERTAIN INFORMATION CONCERNING THE PARENT AND THE PURCHASER
The Parent and the Purchaser. The Purchaser is a U.S. Virgin Islands
corporation and a wholly-owned subsidiary of the Parent. Its principal
executive offices are located at Chase Financial Center, P.O. Box 1730,
St. Croix, U.S. Virgin Islands 00821.
The Parent is a Delaware limited liability company and its principal
executive offices are located at Chase Financial Center, P.O. Box 1730, St.
Croix, U.S. Virgin Islands 00821. Mr. Prosser is the sole director and
executive officer of the Purchaser and the sole member of the Parent. Mr.
Prosser is a citizen of the U.S. Virgin Islands and his business address is
Chase Financial Center, P.O. Box 1730, St. Croix, U.S. Virgin Islands 00821.
Neither the Parent nor the Purchaser is subject to the information
requirements of the Exchange Act and, accordingly, neither files reports or
other information with the Commission under the Exchange Act relating to its
business, financial position, results of operations or other matters.
Share Ownership Information. Mr. Prosser is the beneficial owner of
5,730,864 Shares, of which 5,606,873 Shares are outstanding shares owned by
the Parent and 123,991 Shares represent shares issuable upon the exercise of
currently exercisable options (or exercisable within 60 days of August 24,
1998) at an exercise
28
<PAGE>
price of $8.00 per share. Mr. Prosser has the sole power to direct the voting
and disposition of these Shares. The Parent is the beneficial owner of
5,606,873 Shares. The Purchaser does not currently beneficially own any
Shares.
Mr. Prosser disclaims beneficial ownership of 97,358 Shares owned by his
children (which Shares are not included in the 5,730,864 Shares described in
the preceding paragraph).
Except as elsewhere set forth in this Offer to Purchase: (i) neither the
Parent nor the Purchaser nor Mr. Prosser nor any associate or majority-owned
subsidiary of any of the foregoing beneficially owns or has a right to acquire
any equity securities of the Company; (ii) neither the Parent nor the
Purchaser nor, to the best knowledge of Parent of the Purchaser, any of the
persons or entities referred to above, nor any director, executive officer or
subsidiary of any of the foregoing, has effected any transaction in such
equity securities during the past 60 days; (iii) neither the Parent nor the
Purchaser nor Mr. Prosser has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies, consents or authorizations; (iv) there have been no contacts,
negotiations or transactions between the Parent or the Purchaser or Mr.
Prosser, on the one hand, and the Company or its affiliates, on the other
hand, concerning a merger, consolidation or acquisition, a tender offer or
other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of asset of the Company; and (v) neither the
Parent nor the Purchaser, nor Mr. Prosser, has had any transaction with the
Company or any of its executive officers, directors or affiliates that would
require disclosure under the rules and regulations of the Commission
applicable to the Offer. References herein to the subsidiaries or affiliates
of Parent or the Purchaser do not include the Company and its subsidiaries.
All of the Shares currently owned by the Parent are pledged as collateral to
the RTFC in connection with loans made by the RTFC to the Purchaser. Prior to
entering into the RTFC Loan Agreement (as defined), the RTFC will release its
liens on such Shares.
10. CONTACTS WITH THE COMPANY
Directors of the Company. Mr. Prosser is the sole director and executive
officer of the Purchaser and sole member of the Parent. Mr. Prosser currently
has, and following the Offer and the Merger will continue to have, the ability
to elect the entire Board of Directors of the Company.
The members of the Company's Board of Directors are as follows:
Jeffrey J. Prosser, 41, 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 Sower's Seed--a Tribute to Adlai Stevenson," "Promises to
Keep--A Call for a New American Revolution," and "Remembering America," and
the to-be-published book "The Hinge of the World." In the 1960s, he served as
Special Consultant to the 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 U.S. Supreme Court Justice Felix
Frankfurter 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
29
<PAGE>
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 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 (1983-1989), 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.
Contracts and Agreements. The Company and Mr. Prosser are parties to several
agreements set forth below. Copies of the agreements referred to below
required to be filed as exhibits to the Schedule 13E-3 and the Schedule 14D-1
are so filed and are available in the same manner as that described in
"Special Factors--5. Background of the Offer and the Merger," and the
following summaries are qualified in their entirety by reference to the copies
of such agreements.
In connection with the Split Off Transaction, the Company entered into a
number of agreements with Mr. Prosser. These agreements are summarized below.
Non-Competition Agreement. Pursuant to a Non-Competition Agreement among the
Company, ATN and Mr. Prosser (the "Non-Competition Agreement"), the Company
and Mr. Prosser have agreed not to engage in, or assist others in engaging in,
any business which competes anywhere in the world in any material respect with
the provision by ATN or any of its subsidiaries of telecommunications services
to persons who generate international audiotext telecommunications traffic
(except for the provision of any telecommunications services as a common
carrier which does not involve the installation of special equipment to
facilitate the generation of international audiotext telecommunications
traffic or the payment of any fee, commission or other compensation through
sharing of accounting or settlement rates, rate discounts or otherwise to
persons generating such traffic). The term of the Non-Competition Agreement is
a period of 10 years after the effective date of the Split Off Transaction.
The telecommunications service covered by the Non-Competition Agreement
includes both carrying
30
<PAGE>
and/or terminating telecommunications traffic. The Non-Competition Agreement
covers the provision of services directly, or indirectly through service
bureaus or other intermediaries, to persons who generate the traffic, and the
traffic covered includes both voice and data traffic. In the Non-Competition
Agreement, the Company and Mr. Prosser have also agreed to hold in strict
confidence all information of a proprietary nature relating to ATN's business
of providing telecommunications services with regard to international
audiotext traffic.
Indemnity Agreement. In accordance with the provisions of an Indemnity
Agreement among the Company, ATN, Mr. Prosser and Mr. Prior (the "Indemnity
Agreement"):
(i) Mr. Prosser has agreed to indemnify ATN, its subsidiaries, their
respective officers, directors and agents and Mr. Prior, from and against
any and all losses, liabilities, damages, costs and expenses ("Losses")
relating to or arising out of (a) any action, suit or proceeding brought by
or on behalf of any stockholder of ATN or of the Company arising out of or
relating to the repurchase by ATN of shares of ATN Common Stock owned by
Mr. Prior and/or a trust of which he is a trustee (the "Trust") in
connection with the Split Off Transaction or the number of shares of Common
Stock to be received by Mr. Prosser or members of his family in connection
with the Split Off Transaction or (b) any action, suit or proceeding of any
kind arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in the proxy statement-prospectus relating to
the Split Off Transaction, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, but the indemnity described in this
clause (b) applies only with respect to the biographical information of Mr.
Prosser contained in such proxy statement-prospectus and the information
contained therein concerning the beneficial ownership of ATN Common Stock
by Mr. Prosser and the members of his family and his or their affiliates.
(ii) Mr. Prior has agreed to indemnify the Company, its subsidiaries,
their respective officers, directors and agents and Mr. Prosser from and
against any and all Losses relating to or arising out of (a) any action,
suit or proceeding brought by or on behalf of any stockholder of ATN or the
Company arising out of or relating to the number of shares of ATN Common
Stock to be received by Mr. Prior or members of his family in connection
with the Split Off Transaction or (b) any action, suit or proceeding of any
kind arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in such proxy statement-prospectus, or the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, but the
indemnity described in this clause (b) applies only with respect to the
biographical information of Mr. Prior contained in such proxy statement-
prospectus and the information contained therein concerning the beneficial
ownership of ATN Common Stock by Mr. Prior and the members of his family
and his or their affiliates.
(iii) The Company has agreed to indemnify ATN, its subsidiaries, their
respective officers, directors and agents and Mr. Prior from and against
any and all Losses relating to or arising out of (a) the business or
operations of the Company before or after the Split Off Transaction or any
of the liabilities specifically to be assumed by the Company in connection
with the Split Off Transaction or (b) any action, suit or proceeding
arising out of or relating to any untrue or alleged untrue statement of a
material fact contained in such proxy statement-prospectus or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but the
indemnity described in this clause (b) applies only with respect to the
information contained in such proxy statement-prospectus concerning the
business, prospects or planned or proposed activities of the Company and
its subsidiaries, the activities of the Company or such subsidiaries after
April 30, 1997, and prospective acquisitions of businesses or other
transactions not in the ordinary course of business then planned or
contemplated by the Company, such subsidiaries or Mr. Prosser.
(iv) ATN has agreed to indemnify the Company, its subsidiaries, their
respective officers, directors and agents and Mr. Prosser from and against
any and all Losses relating to or arising out of (a) the business or
operations conducted by ATN before or after the Split Off Transaction or
any of the liabilities of ATN not specifically assumed by the Company or
(b) any action, suit or proceeding arising out of or relating to any
31
<PAGE>
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.
(v) Each of (A) Mr. Prosser and the Company and (B) Mr. Prior and ATN
have agreed not to be, without the prior written consent of ATN or the
Company, respectively, beneficial owners of greater than 5% of the
outstanding stock of ATN or the Company, respectively, nor to participate
in any solicitation of proxies or election contests with respect or to ATN
or the Company, respectively.
Tax Sharing Agreement. In accordance with the terms of the Tax Sharing
and Indemnification Agreement (the "Tax Sharing Agreement"):
(i) ATN, the Company, Mr. Prior and Mr. Prosser have each agreed not to
take certain actions which might jeopardize the Split Off Transaction
qualifying for tax-free treatment under the Code (as hereinafter defined).
Under the terms of the Tax Sharing Agreement, unless approved by the IRS or
legal counsel or agreed to by both ATN and the Company, ATN and the Company
will not at any time take any action which may be inconsistent with the tax
treatment of the Split Off Transaction as contemplated in the IRS ruling
received in connection therewith (the "Tax Ruling"). Without limiting the
generality of the foregoing, ATN and the Company will not, prior to
December 31, 1999, unless approved by the IRS or legal counsel or agreed to
by both ATN and the Company: (a) liquidate or merge with or into any other
corporation; (b) issue any capital stock that in the aggregate exceeds 45%,
by vote or value, of its capital stock issued and outstanding immediately
after the Split Off Transaction; (c) with certain exceptions, redeem,
purchase or otherwise reacquire its capital stock issued and outstanding
immediately after the Split Off Transaction; (d) make a material
disposition or cessation of operations by means of a sale or exchange of
assets or capital stock, a distribution to stockholders, or otherwise, of
the assets constituting the trades or business relied upon in the Tax
Ruling to satisfy Section 355(b) of the Code; or (e) discontinue the active
conduct of the trades or businesses relied upon in the Tax Ruling request
to satisfy Section 355(b) of the Code. If required, the Purchaser intends
to cause a legal opinion to be delivered to ATN to comply with the
provisions of the Tax Sharing Agreement as they relate to the Merger.
(ii) ATN has agreed to be liable for, and indemnify and hold harmless the
Company and its affiliates from and against, (a) any taxes resulting from
any income or gain recognized as a result of the Split Off Transaction,
including any taxes resulting from any income or gain recognized as a
result of the Split Off Transaction failing to qualify for tax-free
treatment under the Code, which arise from any breach by ATN of its
representations or covenants under the Tax Sharing Agreement, or from
certain actions by ATN or its affiliates which may be inconsistent with the
tax treatment of the Split Off Transaction as contemplated in the
application for the Tax Ruling, or the inaccuracy of any factual statements
or representations made in or in connection with the application for the
Tax Ruling with respect to the activities of ATN and its affiliates after
the Split Off Transaction, (b) any taxes taken into account as debits for
purposes of calculating the final closing adjustment under the terms of the
Split Off Transaction, (c) certain taxes arising from ATN's operations
between April 30, 1997 and the effective date of the Split Off Transaction,
(d) any withholding of foreign income taxes imposed with respect to
payments from GT&T to the Company and (e) fifty percent (50%) of all other
taxes of ATN or certain subsidiaries with respect to any period prior to
and including the effective date of the Split Off Transaction, except for
taxes described in clause (a), (b) or (c) of the following section (iii).
(iii) The Company has agreed to be liable for, and indemnify and hold
harmless ATN and its affiliates from and against, (a) any taxes resulting
from any income or gain recognized as a result of the Split Off Transaction
including any taxes resulting from any income or gain recognized as a
result of the Split Off Transaction failing to qualify for tax-free
treatment under the Code, which arise from any breach by the
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Company of its representations or covenants under the Tax Sharing
Agreement, or from certain actions by the Company or its affiliates which
may be inconsistent with the tax treatment of the Split Off Transaction as
contemplated in the application for the Tax Ruling, or the inaccuracy of
any factual statements or representations made in or in connection with the
application for the Tax Ruling with respect to the activities of the
Company and its affiliates after the Split Off Transaction, (b) one hundred
percent (100%) of all taxes of the Company (computed on a separate company
basis) with respect to any period prior to and including the Effective
Date, (c) any withholding of foreign income taxes imposed with respect to
payments from Atlantic Tele-Network Co. or any of its subsidiaries to ATN
except to the extent taken into account as debits for purposes of computing
the final closing adjustment under the terms of the Split Off Transaction
and (d) fifty percent (50%) of all other taxes of ATN or certain
subsidiaries with respect to any period prior to and including the
effective date of the Split Off Transaction, except for taxes described in
clauses (a), (b), (c) and (d) of the preceding section (ii).
(iv) Mr. Prior has agreed to be liable for, and to indemnify and hold
harmless ATN, the Company, and their respective affiliates from and
against, any taxes resulting from any income or gain recognized as a result
of the Split Off Transaction, including any taxes resulting from any income
or gain recognized as a result of the Split Off Transaction failing to
qualify for tax-free treatment under the Code, which arise from (a) any
breach of Mr. Prior's representations and covenants under the Tax Sharing
Agreement or (b) the inaccuracy of any factual statements or
representations relating to Mr. Prior or members of Mr. Prior's family made
in the application for the Tax Ruling or in any certificate provided by Mr.
Prior in connection with the application for the Tax Ruling or in
connection with an opinion of tax counsel with respect to the Split Off
Transaction.
(v) Mr. Prosser has agreed to be liable for, and to indemnify and hold
harmless ATN, the Company, and their respective affiliates from and against
any liability for any taxes resulting from any income or gain recognized as
a result of the Split Off Transaction, including any taxes resulting from
any income or gain recognized as a result of the Split Off Transaction
failing to qualify for tax-free treatment under the Code, which arise from
(a) any breach of Mr. Prosser's representations and covenants under the Tax
Sharing Agreement or (b) the inaccuracy of any factual statements or
representations relating to Mr. Prosser or members of Mr. Prosser's family
made in the application for the Tax Ruling or in any certificate provided
by Mr. Prosser in connection with the application for the Tax Ruling or in
connection with an opinion of tax counsel with respect to the Split Off
Transaction.
Employment Agreement. The Company has entered into an employment agreement
(the "Employment Agreement") with Mr. Prosser dated December 31, 1997 for an
initial five-year term. The Employment Agreement is automatically renewable
for successive five-year terms and provides for a base salary of $600,000 for
the first year, subject to annual review and adjustment in the subsequent
years. In addition to the base salary, an annual bonus may be awarded at the
discretion of the Board or any duly authorized committee thereof. The
Employment Agreement provides for a grant of options to purchase 273,978
shares of Common Stock pursuant to the Company's 1997 Long Term Incentive and
Share Award Plan, which were granted to Mr. Prosser on December 31, 1997. In
the event Mr. Prosser's employment is terminated for other than cause or
disability by the Company or for good reason by Mr. Prosser, Mr. Prosser will
be entitled to receive a lump sum severance payment equal to 500% of the sum
of his base salary for the year including the date of termination and his
highest annual bonus earned during the five years immediately preceding the
date of termination. In addition, all options to purchase Common Stock then
owned by Mr. Prosser shall become immediately vested and exercisable, and the
exercisability thereof shall be extended for a period of ten years following
the date of termination.
The Employment Agreement also provides that, so long as Mr. Prosser
beneficially owns at least 3% of the outstanding shares of Common Stock, the
Company will, at its own expense and subject only to Mr. Prosser's bearing his
own pro rata share of all underwriting commissions and discounts incurred in
connection with any offering of registrable stock (as defined in the
Employment Agreement), (i) prepare and file with the SEC registration
statements and other documents as may be necessary to permit a public offering
and sale of Mr. Prosser's registrable stock and (ii) include in any
registration statement of the Company (other than a
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registration statement on Form S-4 or S-8 or filed in connection with an
exchange offer or an offering of securities solely to the existing
shareholders or employees of the Company) such number of Mr. Prosser's
registrable stock as he may elect to include. In the event that Mr. Prosser's
registrable stock is included in a registration statement, the Company will
indemnify Mr. Prosser against certain claims or liabilities under the
Securities Act, as amended.
11. THE MERGER AGREEMENT; APPRAISAL RIGHTS
The Merger. The Merger Agreement provides that, promptly after the purchase
of Shares pursuant to the Offer and the receipt of any required approval of
the Merger Agreement by the Company's stockholders and the satisfaction or
waiver of certain other conditions, Merger Sub will be merged into the
Company. Because Parent currently owns a majority of the outstanding Shares,
Parent will have the vote necessary under Delaware law to approve the Merger.
Following consummation of the Merger, the Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation") and will
become a wholly owned subsidiary of Parent.
At the Effective Time, each Share outstanding immediately prior to the
Effective Time (other than Shares owned by Parent, the Purchaser, the Company
or any direct or indirect subsidiary of Parent or the Company or Shares
("Dissenting Shares") held by stockholders of the Company who have properly
exercised their appraisal rights in accordance with Section 262 of the DGCL
(collectively, "Excluded Shares")) will be converted into the right to receive
the Merger Consideration.
At the Effective Time the shares of common stock, par value $0.01 per share,
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of Merger
Sub or the holders of such shares, be converted into that number of shares of
Common Stock of the Surviving Corporation equal to the number of outstanding
Shares at the Effective Time less the number of Excluded Shares.
The Merger Agreement provides that the Dissenting Shares will not be
converted into or represent the right to receive the Merger Consideration.
Holders of such Shares will be entitled to receive payment of the "fair value"
of such Shares held by them in accordance with the provisions of Section 262
of the DGCL, except that all Dissenting Shares held by stockholders who fail
to perfect or who effectively withdraw or lose their rights to dissent will
thereupon be deemed to have been converted into, as of the Effective Time, the
right to receive, without any interest thereon, the Merger Consideration, upon
surrender of the certificate or certificates that formerly evidenced such
Shares.
The Merger Agreement provides that Purchaser shall make available or cause
to be made available to the paying agent appointed by Purchaser with the
Company's prior approval (the "Paying Agent") amounts sufficient in the
aggregate to provide all funds necessary for the Paying Agent to make payments
described above to holders of Shares issued and outstanding immediately prior
to the Effective Time. Promptly after the Effective Time, the Paying Agent
shall, pursuant to irrevocable instructions, make the payments provided for in
the preceding sentence out of the funds deposited with the Paying Agent for
such purpose. One hundred eighty days following the Effective Time, the
Surviving Corporation shall be entitled to cause the Paying Agent to deliver
to it any funds (including any interest received with respect thereto) made
available to the Paying Agent which have not been disbursed to holders of
certificates formerly representing Shares outstanding at the Effective Time,
and thereafter such holders shall be entitled to look to the Surviving
Corporation only as general creditors thereof with respect to the cash payable
under due surrender of their certificates. The Surviving Corporation shall pay
all charges and expenses, including those of the Paying Agent, in connection
with the exchange of cash for Shares and Purchaser shall reimburse the
Surviving Corporation for such charges and expenses.
Conditions to Certain Obligations. The obligations of the Company, the
Purchaser and Parent to effect the Merger are subject to the satisfaction of
certain conditions set forth in the Merger Agreement, including (i) the
purchase by the Purchaser (or one or more affiliates of the Purchaser) of
Shares pursuant to the Offer, (ii) to the extent required by applicable law,
the receipt of stockholder approval of the Merger and the Merger
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Agreement and (iii) there being no statute, rule, regulation, judgment,
decree, injunction or other order (whether temporary, preliminary or
permanent) enacted, issued, promulgated, enforced or entered by any
governmental entity, or any court which is in effect and prohibits
consummation of the Merger.
Termination. According to its terms, the Merger Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
whether before or after any approval by the stockholders of the Company, by
the mutual consent of the Purchaser and the Company, by action of their
respective Boards and Directors. In addition, the Merger Agreement may be
terminated by action of the Board of Directors of either the Purchaser or the
Company if (i) the Purchaser shall have terminated the Offer without
purchasing any Shares pursuant thereto; provided that the right to terminate
the Merger Agreement shall not be available to the Purchaser, whose failure to
fulfill any obligation under the Merger Agreement has been the cause of or
resulted in the failure to purchase such Shares and provided, further, that in
the case of termination of the Merger Agreement by the Purchaser, such
termination of the Offer is not in violation of the terms of the Offer or (ii)
without fault of the terminating party, the Merger shall not have been
consummated by December 31, 1999, whether or not such date is before or after
any approval by the stockholders of the Company of the Merger and the Merger
Agreement. The Merger Agreement may be terminated by the Purchaser at any time
prior to the Effective Time, whether before or after any approval by the
stockholders of the Company, by the action of the board of directors of the
Purchaser, if (i) the Company shall have failed to comply in any material
respect with any of the covenants and agreements contained in the Merger
Agreement to be complied with or performed by the Company at or prior to such
date of termination or (ii) the Board of Directors of the Company or those
directors of the Company who are not officers of Parent or the Company or any
affiliate of either of them (the "Independent Directors") shall have withdrawn
or modified in a manner adverse to the Purchaser their approval or
recommendation of the Offer, the Merger Agreement or the Merger or the Board
of Directors of the Company or the Independent Directors, upon request by the
Purchaser, shall fail to reaffirm such approval or recommendation, or shall
have resolved to do any of the foregoing. The Merger Agreement may be
terminated at any time prior to the Effective Time, before or after any
approval by the stockholders of the Company, by action of the Board of
Directors of the Company, if the Purchaser or Merger Sub (i) shall have failed
to comply in any material respect with any of the covenants or agreements
contained in the Merger Agreement to be complied with or performed by the
Purchaser or Merger Sub at or prior to such date of termination or (ii) shall
have failed to commence the Offer within the time required by the Merger
Agreement.
Subject to the applicable provisions of the DGCL, the Merger Agreement may
be amended by action taken by the Company, the Purchaser and Merger Sub at any
time prior to the Effective Time.
Certain Covenants of the Parties. The Purchaser has agreed in the Merger
Agreement that it will not, without the prior written consent of the Company,
decrease the price per Share or change the form of consideration payable in
the Offer, decrease the number of Shares sought, change the conditions to the
Offer or waive the Minimum Tender Condition. Also, the Purchaser shall not
terminate or withdraw the Offer or extend the Expiration Date unless at the
Expiration Date the conditions set forth in "The Offer--13. Certain Conditions
of the Offer" have not been satisfied or waived.
The Merger Agreement provides that for six years after the Effective Time,
the Surviving Corporation shall maintain the Company's existing directors' and
officers' liability insurance or equivalent liability insurance ("D&O
Insurance") so long as the annual premium therefor is not in excess of the
last annual premium paid prior to the date of the Merger Agreement (the
"Current Premium"); provided, however, if the existing D&O Insurance expires,
is terminated or canceled during such six-year period, the Surviving
Corporation will use its best efforts to obtain as much D&O Insurance as can
be obtained for the remainder of such period for a premium not in excess (on
an annualized basis) of 200 percent of the Current Premium. In lieu of the
insurance arrangement described above, the Company may, on or before the
expiration of the Offer, enter into alternative insurance arrangements,
provided that such arrangements are approved by the Independent Directors and
the Purchaser. The Merger Agreement also provides that, from and after the
Effective Time, the Purchaser and the Surviving Corporation will indemnify and
hold harmless each present and former director and/or officer of the Company,
determined as of the Effective Time (the "Indemnified Parties") that is made a
party or threatened to
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be made a party to any threatened, pending or completed, action, suit,
proceeding or claim, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she was a director or officer of the Company
or any subsidiary of the Company prior to the Effective Time and arising out
of actions or omissions of the Indemnified Party in any such capacity
occurring at or prior to the Effective Time (a "Claim") against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, amounts
paid in settlement pursuant to the provisions of the Merger Agreement
described in the next succeeding paragraph, losses, claims, damages or
liabilities (collectively, "Costs") reasonably incurred in connection with any
Claim, whether asserted or claimed prior to, at or after the Effective Time,
to the fullest extent that the Company would have been permitted under
Delaware law. The Merger Agreement further provides that the Surviving
Corporation and Purchaser shall also advance expenses (including attorneys'
fees), as incurred by the Indemnified Party to the fullest extent permitted
under applicable law provided such Indemnified Party provides an undertaking
to repay such advances if it is ultimately determined that such Indemnified
Party is not entitled to indemnification.
Pursuant to the Merger Agreement, upon learning of any Claim described in
the preceding paragraph, such Indemnified Party shall promptly notify the
Surviving Corporation and the Purchaser thereof. In the event of any such
Claim (whether arising before or after the Effective Time), (i) the Purchaser
or the Surviving Corporation shall have the right to assume the defense
thereof and the Purchaser shall not be liable to such Indemnified Parties for
any legal expenses of other counsel or any other expenses subsequently
incurred by such Indemnified Parties in connection with the defense thereof,
except that if the Purchaser or the Surviving Corporation elects not to assume
such defense or counsel for the Indemnified Parties advises that there are
issues which raise conflicts of interest between the Purchaser or the
Surviving Corporation and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and the Purchaser or the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that the Surviving Corporation and the Purchaser shall be obligated
pursuant to the Merger Agreement to pay for only one firm of counsel for all
Indemnified Parties in any jurisdiction unless the use of one counsel for such
Indemnified Parties would present such counsel with a conflict of interest,
(ii) the Indemnified Parties will cooperate in the defense of any such matter
and (iii) the Purchaser shall not be liable for any settlement effected
without its prior written consent; and provided further that the Surviving
Corporation and the Purchaser, respectively, shall not have any obligation
under the Merger Agreement to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination
shall have become final and non-appealable, that the indemnification of such
Indemnified Party in the manner contemplated by the Merger Agreement is
prohibited by applicable law. If such indemnity is not available with respect
to any Indemnified Party, then the Surviving Corporation and the Indemnified
Party shall contribute to the amount payable in such proportion as is
appropriate to reflect relative faults and benefits.
The Merger Agreement further provides that if a claim for indemnification or
advancement under the Merger Agreement is not paid in full by the Surviving
Corporation or the Purchaser within thirty days after a written claim therefor
has been received by the Surviving Corporation or the Purchaser, the
Indemnified Party may any time thereafter bring suit against the Surviving
Corporation or the Purchaser to recover the unpaid amount of the claim and, if
successful in whole or in part, the Indemnified Party shall be entitled to be
paid also the expense of prosecuting such claims. Under the terms of the
Merger Agreement, neither the failure of the Surviving Corporation or the
Purchaser (including their Boards of Directors, independent legal counsel or
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnified Party is proper in the
circumstances because he or she has met the applicable standard of conduct,
nor an actual determination by the Surviving Corporation or the Purchaser
(including their boards of directors, independent legal counsel, or
shareholders) that the Indemnified Party has not met such applicable standard
of conduct, shall be a defense to the suit or create a presumption that the
Indemnified Party has not met the applicable standard of conduct.
The Merger Agreement also provides that no amendment to the Certificate of
Incorporation or By-laws of the Surviving Corporation shall reduce in any way
the elimination of personal liability of the directors of the Company
contained therein or adversely affect any then existing right of any director
or officer (or former director or officer) to be indemnified with respect to
acts, omissions or events occurring prior to the Effective Time.
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In the Merger Agreement, the Company has agreed that its Board of Directors
and a majority of the Independent Directors will recommend acceptance of the
Offer to the Company's stockholders and will file with the Commission, and
mail to its stockholders, a Solicitation/Recommendation Statement on Schedule
14D-9 containing the unanimous recommendation of the Company's Board of
Directors and the Independent Directors that the Company's stockholders accept
the Offer. The Merger Agreement also provides that if the Company's Board of
Directors determines that its fiduciary duties require it to amend or withdraw
its recommendation, such amendment or withdrawal shall not constitute a breach
of the Merger Agreement.
The Merger Agreement also contains certain other restrictions as to the
conduct of business by the Company pending the Merger, as well as
representations and warranties of each of the parties customary in
transactions of this kind.
The foregoing description of the Merger Agreement is qualified in its
entirety by reference to the text of the Merger Agreement, a copy of which has
been filed as an exhibit to the Schedule 14D-1 and to the Schedule 13E-3 and
may be obtained in the manner described in "The Offer--8. Certain Information
Concerning the Company." The foregoing description of the Merger Agreement is
qualified in its entirety by reference to that document.
The Merger will have to be approved by the Company's Board of Directors and
by the Company's stockholders. Under the DGCL, the vote of the holders of a
majority of the outstanding Shares would be required to adopt the Merger
Agreement. Since Parent currently owns more than a majority of the outstanding
Shares, Parent will have sufficient voting power to effect the Merger without
the affirmative vote of any other stockholders of the Company (assuming Shares
are purchased in the Offer), and Parent intends to do so.
Appraisal Rights. Holders of Shares do not have appraisal rights as a result
of the Offer. After the Offer is consummated, the Purchaser anticipates that
the Shares will cease to be listed or traded on the AMEX. In connection with
the Merger, holders of the Shares will have certain rights under the DGCL to
demand appraisal of, and payment in cash for the fair value of, their Shares.
Such rights, if the statutory procedures are complied with, could lead to a
judicial determination of the fair value (excluding any element of value
arising from accomplishment or expectation of the Merger) required to be paid
in cash, plus a payment in cash of a fair rate of interest from the date of
consummation of the Merger, to such dissenting holders for their Shares. Any
such judicial determination of the fair value of Shares would take into
account all relevant factors and could, accordingly, be based upon
considerations other than or in addition to the price paid in the Offer and
the Merger and the market value of the Shares, asset values, earning capacity
and the investment value of the Shares. The value so determined could be more
or less than the purchase price per Share pursuant to the Offer or the
consideration per Share to be paid in the Merger. The costs of appraisal
litigation (including fees of counsel and experts retained by the parties)
will be taxed upon the parties, or either of them, in such manner as appears
equitable to the court. See "SCHEDULE II--Appraisal Rights of Stockholders
under Delaware Law" attached hereto for a summary of appraisal rights under
the DGCL.
The Purchaser does not intend to object, assuming the proper procedures are
followed, to the exercise by any other stockholder of such stockholder's
appraisal rights in connection with the Merger and who demands appraisal of,
and payment in cash for the fair value of, such stockholder's Shares, even if
the Shares are not delisted prior to the consummation of the Merger. However,
Parent intends to cause the Company, as the surviving corporation in the
Merger, to argue in any appraisal proceeding that, for the purposes of such a
proceeding, the fair value of the Shares is less than the price paid in the
Offer and the Merger.
THE FOREGOING SUMMARY OF THE APPRAISAL RIGHTS OF STOCKHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE
PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS ARE CONDITIONED ON STRICT
ADHERENCE TO THE APPLICABLE PROVISIONS OF DELAWARE LAW.
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12. SOURCE AND AMOUNT OF FUNDS
The Purchaser estimates that the total amount of funds required to purchase
100% of the outstanding Shares pursuant to the Offer and the Merger and to pay
related fees and expenses will be approximately $58.0 million. See "THE
OFFER--16. Fees and Expenses" for additional information as to the fees and
expenses payable by the Purchaser. The Purchaser will obtain these funds
pursuant to a loan agreement with the RTFC described below.
The Purchaser has received a written financing commitment (the "Commitment
Letter") from RTFC to provide a senior credit facility in the aggregate amount
of up to $60.0 million (the "Credit Facility"). The purpose of the Credit
Facility is to finance the Offer and the Merger, and to pay related fees and
expenses.
The terms of the definitive agreement providing for the Credit Facility (the
"RTFC Loan Agreement") have not been finalized. The following is a summary of
the anticipated principal terms of the Credit Facility based upon the
Commitment Letter. This summary is subject to finalizing the RTFC Loan
Agreement and is qualified in its entirety by reference to the Commitment
Letter, which is filed as an exhibit to the Schedule 14D-1 and the Schedule
13E-3.
The Credit Facility is anticipated to mature in fifteen years and will be
repayable in consecutive quarterly installments, commencing on March 31, 2001.
The Credit Facility will be secured by substantially all of the assets of the
Purchaser and its subsidiaries (other than Shares, except to the extent
permitted by the margin rules of the Board of Governors of the Federal
Reserve) and will be guaranteed by the Parent and such subsidiaries.
Borrowings under the Credit Facility will bear interest at the RTFC's
variable and/or fixed interest rate(s) for long term loans with 5%
Subordinated Capital Certificates, plus 2.5%.
The RTFC Loan Agreement will contain conditions precedent, representations
and warranties, covenants (including financial covenants), events of default
and other provisions customary for such financings.
The RTFC's commitment to provide the Credit Facility is conditioned on,
among other things:
(i) RTFC shall receive, in form and content satisfactory to RTFC, the
following: (a) an opinion from the Purchaser's counsel that the Merger will
not, in any way, conflict with the IRS tax free reorganization ruling, and
the tax allocation agreement between ATN and the Company issued pursuant to
the Split Off Transaction, (b) copies of all materials related to the Offer
to be proffered by the Purchaser for the Share; and (c) evidence that the
Purchaser has received tenders from minority shareholders for the sale of
Shares to the Purchaser which, together with Shares owned by the Parent,
equal to at least 75% of the total Shares outstanding upon consummation of
the Offer. The Purchaser shall not increase the price to be paid in the
Offer or the Merger above $10.25 without the consent of the RTFC. Within 90
days after consummation of the Offer, the Purchaser shall take all actions
necessary to acquire any remaining Shares still held by minority
shareholders;
(ii) the Purchaser covenants and agrees that it shall purchase and
maintain storm damage insurance policies on all of its and, if applicable,
its subsidiaries' properties, in form and substance satisfactory to RTFC,
for a minimum of three years, and shall renew such policies with occurrence
coverage substantially similar to that of the Purchaser's current General
Star Indemnity policy. RTFC shall be named as loss-payee on all such
policies and RTFC shall be promptly notified of any changes in coverage on
such policies;
(iii) closing on the loan shall be subject to the Purchaser's execution
and delivery of definitive credit and guarantee documentation, in form and
content satisfactory to the RTFC, including the required Loan Agreements,
Mortgage and Security Agreement, Promissory Note, Pledge and Security
Agreements, Stock Powers, Personal Guaranty, Subsidiary Guarantees,
Guarantors' Mortgage and Security Agreements, and Opinion(s) of Counsel;
and
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(iv) no material adverse change or representation shall have occurred or
have been made by or on behalf of the Purchaser and/or its subsidiaries,
with regard to their respective business, operations, financial position or
the financing transaction contemplated therein.
It is anticipated that the indebtedness incurred through borrowing under the
Credit Facility will be repaid from funds generated internally by the
Purchaser and its subsidiaries (or, if the Purchaser's operations are combined
with the Company, by the combined companies) and from other sources that may
include the proceeds of the private or public sale of debt or equity
securities. No final decisions have been made concerning the method the
Purchaser will employ to repay such indebtedness. Such decisions when made
will be based upon the Purchaser's review from time to time of the
advisability of particular actions, as well as on prevailing interest rates
and financial and other economic conditions.
13. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the Purchaser shall not be
obligated to accept for payment any Shares or, subject to any applicable rules
and regulations of the Commission, including Rule 14e-1(c) (relating to the
Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or payment for, any tendered Shares if the Minimum Tender
Condition or the Financing Condition shall not have been satisfied or, subject
to the terms of the Merger Agreement, waived or, if on or after August 24,
1998, and at or before the time of payment for any of such Shares (whether or
not any Shares have theretofore been accepted for payment or paid for pursuant
to the Offer), any of the following events shall occur:
(a) there shall be any statute, rule, regulation, judgment, injunction or
other order, enacted, promulgated, entered, enforced or deemed applicable
to the Offer or the Merger or any other action shall have been taken by any
Governmental Entity, (i) challenging the legality of the acquisition by the
Purchaser of the Shares; (ii) restraining, delaying or prohibiting the
making or consummation of the Offer or the Merger or obtaining from the
Company, Parent, Merger Sub or the Purchaser any damages in connection
therewith; (iii) imposing limitations on the ability of Parent, Merger Sub
or the Purchaser (or any affiliate of Parent, Merger Sub or the Purchaser)
to acquire or hold or to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote the Shares purchased by
them on all matters properly presented to the stockholders of the Company;
or (iv) having a substantial likelihood of any of the foregoing;
(b) there shall have occurred (i) any general suspension of, or
limitation on times or prices for, trading in securities on any national
securities exchange or in the over-the-counter market in the United States
or (ii) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States (whether or not mandatory);
(c) the Company shall have breached or failed to perform in any material
respect any of its covenants, obligations or agreements under the Merger
Agreement or any representation or warranty of the Company set forth in the
Merger Agreement shall have been inaccurate or incomplete in any material
respect when made or thereafter shall become inaccurate or incomplete in
any material respect;
(d) any change, including, without limitation, any change arising out of
or related to any natural disaster (including hurricanes and earthquakes),
shall have occurred or been threatened or become known (or any condition,
event or development shall have occurred or been threatened or become known
involving a prospective change) in the business, properties, assets,
liabilities, condition (financial or otherwise), or results of operations
of the Company or any of its subsidiaries that could reasonably be expected
to be materially adverse to the Company and its subsidiaries taken as a
whole;
(e) all consents, registrations, approvals, permits, authorizations,
notices, reports or other filings required to be made or obtained by the
Company, Parent, Merger Sub, the Purchaser or any stockholder of Parent
with or from any governmental entity in connection with the Offer and the
Merger shall not have been made or obtained except where the failure to
make or to obtain, as the case may be, such consents,
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registrations, approvals, permits, authorizations, notices, reports or
other filings could not reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), properties, assets,
liabilities, business or results of operations of the Company and its
subsidiaries taken as a whole;
(f) the Special Committee shall have adversely amended or modified or
shall have withdrawn its recommendation of the Offer or the Merger, or
shall have failed to publicly reconfirm such recommendation upon request by
Parent or the Purchaser, or shall have resolved to do any of the foregoing;
or
(g) the Merger Agreement shall have been terminated in accordance with
its terms or the Purchaser shall have reached an agreement or understanding
with the Special Committee providing for termination of the Offer which, in
the reasonable judgment of the Purchaser with respect to each and every
matter referred to above, and regardless of the circumstances (including
any action or inaction by the Purchaser, Merger Sub, Parent or any
affiliate of Parent) giving rise to any such condition, makes it
inadvisable to proceed with the Offer or with such acceptance for payment
or payment.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances (including any
action or inaction by the Purchaser, Merger Sub, Parent or any affiliate of
Parent) giving rise to any such conditions or, subject to the terms of the
Merger Agreement, may be waived by the Purchaser in whole or in part at any
time from time to time in its sole discretion (other than the Minimum Tender
Condition, which may not be waived by the Purchaser without the consent of the
Company). The failure by the Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time. Any determination by the Purchaser concerning the events
described above will be final and binding on all holders of the Shares.
14. DIVIDENDS AND DISTRIBUTIONS
If, on or after the date hereof, the Company should (a) split, combine or
otherwise change the Shares or its capitalization, (b) acquire Shares or
otherwise cause a reduction in the number of outstanding Shares, (c) issue or
sell additional Shares (other than the issuance of Shares reserved for
issuance as of the date of this Offer to Purchase under employee stock option
and restricted stock option plans in accordance with their terms, in effect
and publicly disclosed as of the date of this Offer to Purchase), shares of
any other class of capital stock, other voting securities or any securities
convertible into or exchangeable for, or rights, warrants or options,
conditional or otherwise, to acquire, any of the foregoing or (d) disclose
that it has taken any such action, then without prejudice to the Purchaser's
rights under the provisions of "THE OFFER--13. Certain Conditions of the
Offer," the Purchaser, in its sole discretion, may make such adjustments as it
deems appropriate in the Offer and Merger consideration and other terms of the
Offer and Merger, including, without limitation, the number or type of
securities offered to be purchased.
If, on or after the date hereof, the Company should declare or pay any cash
dividend on the Shares or make any other distribution on the Shares (other
than regular quarterly cash dividends on the Shares), or issue with respect to
the Shares any additional Shares, shares of any other class of capital stock,
other voting securities or any securities convertible into, or rights,
warrants or options, conditional or otherwise, to acquire, any of the
foregoing, payable or distributable to stockholders of record on a date prior
to the transfer of the Shares purchased pursuant to the Offer to the name of
the Purchaser or its nominees or transferees on the Company's stock transfer
records, then, subject to the provisions of "THE OFFER--13. Certain Conditions
of the Offer" below, (a) the price payable by the Purchaser pursuant to the
Offer and Merger may, in the sole discretion of the Purchaser, be reduced by
the amount of any such cash dividend or distribution and (b) the whole of any
such non-cash dividend, distribution or issuance to be received by the
tendering stockholders will (i) be received and held by the tendering
stockholders for the account of the Purchaser and will be required to be
promptly remitted and transferred by each tendering stockholder to the
Depositary for the account of the Purchaser, accompanied by appropriate
documentation of transfer, or (ii) at the direction of the Purchaser, be
exercised for the benefit of the Purchaser, in which case the proceeds of such
exercise will promptly be remitted to the Purchaser. Pending such remittance
and subject to applicable law, the Purchaser will be entitled to all rights
and privileges as owner
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of any such non-cash dividend, distribution, issuance proceeds or rights and
may withhold the entire purchase price or deduct from the purchaser price the
amount or value thereof, as determined by the Purchaser in its sole
discretion.
15. CERTAIN LEGAL MATTERS
General. Except as otherwise disclosed herein, based upon an examination of
publicly available filings with respect to the Company, neither the Purchaser
nor Parent is aware of any licenses or other regulatory permits which appear
to be material to the business of the Company and which might be adversely
affected by the acquisition of Shares by the Purchaser pursuant to the Offer
or by the Merger or of any approval or other action by any governmental,
administrative or regulatory agency or authority which would be required for
the acquisition or ownership of Shares by the Purchaser pursuant to the Offer
or by the Merger. Should any such approval or other action be required, it is
currently contemplated that such approval or action would be sought or taken.
There can be no assurance that any such approval or action, if needed, would
be obtained or, if obtained, that it will be obtained without substantial
conditions or that adverse consequences might not result to the Company's,
Parent's or Purchaser's business or that certain parts of the Company's,
Parent's or Purchaser's business might not have to be disposed of in the event
that such approvals were not obtained or such other actions were not taken,
any of which could cause the Purchaser to elect to terminate the Offer without
the purchase of the Shares thereunder. The Purchaser's obligation under the
Offer to accept for payment and pay for Shares is subject to certain
conditions. See "THE OFFER--13. Certain Conditions of the Offer."
State Takeover Laws. A number of states have adopted laws and regulations
applicable to offers to acquire securities of corporations which are
incorporated in such states and/or which have substantial assets,
stockholders, principal executive offices or principal places of business
therein. In Edgar v. MITE Corporation, the Supreme Court of the United States
held that the Illinois Business Takeover Statute, which made the takeover of
certain corporations more difficult, imposed a substantial burden on
interstate commerce and was therefore unconstitutional. In CTS Corporation v.
Dynamics Corporation of America, the Supreme Court held that as a matter of
corporate law, and in particular, those laws concerning corporate governance,
a state may constitutionally disqualify an acquiror of "Control Shares" (ones
representing ownership in excess of certain voting power thresholds, e.g. 20%,
33 1/3% or 50%) of a corporation incorporated in its state and meeting certain
other jurisdictional requirements from exercising voting power with respect to
those shares without the approval of a majority of the disinterested
stockholders.
The Purchaser has not currently complied with any state takeover laws. The
Purchaser reserves the right to challenge the applicability or validity of any
state law purportedly applicable to the Offer or the Merger and nothing in
this Offer to Purchase or any action taken in connection with the Offer or the
Merger is intended as a waiver of such right. If it is asserted that one or
more state takeover laws applies to the Offer or the Merger and it is not
determined by an appropriate court that such act or acts do not apply or are
invalid as applied to the Offer or the Merger, the Purchaser might be required
to file certain information with, or receive approvals from, the relevant
state authorities. In addition, if enjoined, the Purchaser might be unable to
accept for payment any Shares tendered pursuant to the Offer, or be delayed in
consummating the Offer or the Merger. In such case, the Purchaser may not be
obligated to accept for payment any Shares tendered.
Federal Reserve Board Regulations. Regulations T, U and X (the "Margin
Regulations") promulgated by the Federal Reserve Board place restrictions on
the amount of credit that may be extended for the purpose of purchasing margin
stock (including the Shares) if such credit is secured directly or indirectly
by margin stock. The Purchaser and the Merger Sub will attempt to ensure that
the financing of the acquisition of the Shares will be in compliance with the
Margin Regulations.
Certain Litigation. The Company has been served notice of a stockholder
lawsuit filed on or about June 3, 1988 in the Delaware Court of Chancery, New
Castle Division, with respect to the May 29, 1998 proposal by Parent to
acquire all of the Shares of the Company. The lawsuit, entitled Brickell
Partners v. Jeffrey J. Prosser, et al. (C.A. No. 16425-NC) (the "Shareholder
Litigation"), asks for class action status and names the Company
41
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and individual members of the Company's Board of Directors as defendants,
including Mr. Prosser. The suit, inter alia, alleges breaches of fiduciary
duty by Mr. Prosser as controlling shareholder of the Company. The complaint
alleges that the proposed acquisition of the Company "serves no legitimate
business purpose" and that it is "an attempt by defendant Prosser to benefit
himself unfairly at the expense" of Company shareholders. The complaint seeks,
among other things, a preliminary and permanent injunction against the Offer,
rescission of the Offer if it is consummated, and unspecified monetary
damages. Defendants have not filed any responsive pleadings and their time to
respond has been extended into September of 1998.
While neither the Company nor the Purchaser presently anticipates that the
Shareholder Litigation will result in the termination of the Offer or in the
Merger Agreement not continuing to be in full force and effect in accordance
with its terms, there can be no assurance as to the outcome of any such
lawsuit. The litigation could result in substantial expense to the Company and
significant diversion of efforts of the Company's management team.
The above summary does not purport to be complete and is qualified in its
entirety by the full text of the complaint and other relevant documents, which
are filed as exhibits to the Schedule 14D-1 and Schedule 13E-3, which are
incorporated herein by reference.
16. FEES AND EXPENSES
Prudential is acting as Dealer Manager in connection with the Offer and
Prudential has provided certain financial advisory services to Parent in
connection with the Offer and the Merger. Neither Parent nor the Purchaser is
paying the Dealer Manager a solicitation fee for acting as Dealer Manager.
Pursuant to a letter agreement dated May 29, 1998 (the "Engagement Letter"),
Parent engaged Prudential to act as its financial advisor in connection with
the possible acquisition of the outstanding Shares not currently beneficially
owned directly or indirectly by Parent. Pursuant to the terms of the
Engagement Letter, Parent has agreed to pay Prudential a fee of $1.0 million.
Parent has agreed to reimburse Prudential for its reasonable out-of-pocket
expenses, including attorney's fees and disbursements, and to indemnify
Prudential against certain liabilities, including certain liabilities under
the federal securities laws.
The Purchaser and Parent have agreed to reimburse the Prudential for their
reasonable out-of-pocket expenses, including the fees and expenses of its
counsel, for acting as Dealer Manager, and have agreed to indemnify the Dealer
Manager against certain liabilities and expenses in connection with acting as
Dealer Manager, including liabilities under the federal securities laws.
Prudential, as part of its investment banking businesses, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. In selecting
Prudential as its financial advisor, Parent considered primarily the
reputation of Prudential as an internationally recognized investment banking
firm that has substantial experience in transactions similar to the Merger.
In addition to acting as financial advisors to Parent in connection with the
Offer and the Merger, Prudential has provided certain investment banking
services to the Company and Parent from time to time, including having
rendered a fairness opinion in connection with the Split Off Transaction,
Company in connection with acting as and having acted as financial advisor to
the special committee of the Board in connection with the proposed merger of
the Purchaser and ATNCo (prior to that merger proposal being revoked by Mr.
Prosser).
Prudential provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of the Company for its own account and for the account of
customers.
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The Purchaser has also retained Mackenzie Partners, Inc. to act as the
Information Agent in connection with the Offer and the Merger. The Information
Agent may contact holders of Shares by mail, telephone, telex, telegraph and
personal interviews and may request brokers, dealers and other nominee
stockholders to forward materials relating to the Offer and the Merger to
beneficial owners of Shares. The Information Agent will receive $7,000 for
such services plus reimbursement of out-of-pocket expenses and the Purchaser
will indemnify the Information Agent against certain liabilities and expenses
in connection with the Offer and the Merger, including liabilities under the
federal securities laws.
The Purchaser will pay the Depositary $10,000 for its services in connection
with the Offer and the Merger, plus reimbursement for out-of-pocket expenses,
and will indemnify the Depositary against certain liabilities and expenses in
connection therewith, including liabilities under the federal securities laws.
Brokers, dealers, commercial banks and trust companies will be reimbursed by
the Purchaser for customary mailing and handling expenses incurred by them in
forwarding material to their customers.
In addition to the fees set forth above, the Purchaser has paid, or will be
responsible for paying, the following fees and expenses: filing fees of
$11,000; legal fees and expenses of $1.0 million; RTFC commitment fees of
$126,316; and printing and miscellaneous expenses of $700,000.
17. MISCELLANEOUS
The Offer is made solely by the Offer to Purchase and the Letter of
Transmittal and any amendments or supplements thereto. The Purchaser is not
aware of any state where the making of the Offer is prohibited by the
administrative or judicial action pursuant to any valid state statute. If the
Purchaser becomes aware of any valid state statute prohibiting the making of
the Offer or the acceptance of the Shares pursuant thereto, the Purchaser will
make a good faith effort to comply with such statute. If, after such good
faith effort, the Purchaser cannot comply with such statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the holders
of Shares in such state.
To the extent the Purchaser becomes aware of any law that would limit the
class of offerees in the Offer, the Purchaser will amend the Offer and,
depending on the timing of such amendment, if any, will extend the Offer to
provide adequate dissemination of such information to holders of Shares prior
to the expiration of the Offer.
In those jurisdictions where the securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Purchaser by the Dealer Manager or one or more
registered brokers or dealer licensed under the laws of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Purchaser not contained in this Offer to
Purchase or in the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been
authorized.
The Purchaser has filed with the Commission a Schedule 14D-1, together with
exhibits, pursuant to Rule 14d-3 under the Exchange Act and a Schedule 13E-3,
together with exhibits, pursuant to Rule 13e-3 under the Exchange Act,
furnishing certain additional information with respect to the Offer. Such
Schedules and any amendments thereto, including exhibits, may be inspected and
copies may be obtained form the Commission in the manner set forth in "THE
OFFER--8. Certain Information Concerning the Company" (except that they will
not be available at the regional offices of the Commission).
Innovative Communication Corporation
August 24, 1998
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SCHEDULE I
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL
<PAGE>
HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL
- -------------------------------------------------------------------------------
INVESTMENT BANKERS
AUGUST 17, 1998
The Special Committee of the Board of Directors of Emerging Communications,
Inc.
c/o Mr. Richard Goodwin
Chairman of the Special Committee of the Board of Directors
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 08821
Dear Gentlemen:
We understand that Innovative Communication Corporation (the "Purchaser" or
"ICC"), a company wholly owned by Jeffrey J. Prosser, has proposed to purchase
the common equity of Emerging Communications, Inc. (the "Company"), pursuant
to the terms of an agreement and plan of merger (the "Agreement") dated as of
August 17, 1998, among the Company, the Purchaser and a wholly owned
subsidiary of the Purchaser. As more specifically set forth in the Agreement,
holders of each share of issued and outstanding common stock of the Company
will be entitled to receive a cash price of $10.25 per share, pursuant to a
tender offer. Promptly after the purchase of shares in the tender offer, and
the satisfaction or waiver of certain conditions set forth in the Agreement, a
subsidiary of ICC will be merged with and into the Company and each holder of
shares will be entitled to receive a cash price of $10.25 per share. Such
transactions and all related transactions are referred to collectively herein
as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion addresses only the fairness from a financial point of view
of the consideration to be received by the Company's common shareholders
(other than the Purchaser or Jeffrey J. Prosser) in the Transactions and does
not constitute a recommendation to the shareholders as to whether such
shareholders should tender their shares in the Transaction. The Opinion does
not address the Company's underlying business decision to effect the
Transaction. We have not been requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company.
NEW YORK
31 West 52nd Street, 11th Floor
New York, New York 10019-6118
Tel 212.582.5000 Fax 212.582.7405
Broker/dealer services through
Houlihan Lokey Howard & Zukin Capital.
LOS ANGELES
CHICAGO SAN FRANCISCO
MINNEAPOLIS WASHINGTON, D.C.
DALLAS ATLANTA TORONTO
<PAGE>
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the publicly available financial information of the Company
since the split-off of the Company from Atlantic Tele-Network, Inc.
("ATN"), including the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 and the Quarterly Report on 10-Q for the
quarter ended March 31, 1998;
2. reviewed the Proxy Statement for the Special Meeting of Stockholders
of Atlantic Tele-Network, Inc. dated December 9, 1997;
3. reviewed a draft copy of Schedule 13E-3 dated June 22, 1998, including
the draft agreement and plan of merger contained therein;
4. reviewed unaudited financial results of the Company through June 30,
1998 as prepared by the Company;
5. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects and projected
operations and performance of the Company;
6. visited certain facilities and business offices of the Company in St.
Thomas, U.S. Virgin Islands;
7. reviewed forecasts dated March 25, 1998 as prepared by the Company's
management for the years ending December 31, 1998 through 2007;
8. reviewed the historical market prices and trading volume for the
publicly traded securities of the Company;
9. reviewed publicly available financial data for certain companies that
we deem comparable to the Company, and publicly available prices and
premiums paid in other transactions that we considered similar to the
Transaction;
10. held discussions with Jeffrey J. Prosser, the majority shareholder of
the Company and the sole shareholder of ICC, and with certain members of
Prudential Securities who are acting as financial advisor to Mr. Prosser;
11. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there has been no
material change in the assets, financial condition, business or prospects of
the Company since the date of the most recent financial statements made
available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this
letter.
This Opinion is furnished for your benefit and may not be relied upon by any
other person without our express, prior written consent. Without limiting the
foregoing, we hereby consent to your reference to the Opinion in, and the
inclusion of the Opinion as an exhibit to, materials to be filed with the
Securities and Exchange Commission in connection with the Transaction. This
Opinion is delivered to each recipient subject to the conditions, scope of
engagement, limitations and understandings set forth in this Opinion and our
engagement letter, and subject to the understanding that the obligations of
Houlihan Lokey in the Transaction are solely corporate obligations, and no
officer, director, employee, agent, shareholder or controlling person of
Houlihan Lokey shall be subjected to any personal liability whatsoever to any
person, nor will any such claim be asserted by or on behalf of you or your
affiliates.
I-2
<PAGE>
Based upon and subject to the foregoing, and in reliance thereon, it is our
opinion that the consideration to be received by the Company's common
shareholders (other than the Purchaser or Jeffrey J. Prosser) in the
Transaction is fair from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL
/s/ Houlihan Lokey Howard & Zukin Capital
I-3
<PAGE>
SCHEDULE II
APPRAISAL RIGHTS OF STOCKHOLDERS
UNDER DELAWARE LAW
Holders of Shares issued and outstanding immediately prior to the effective
date of the Merger are entitled to appraisal rights in connection with the
Merger under Section 262 of the General Corporation Law of the State of
Delaware (the "DGCL"). In order to perfect such appraisal rights, a
stockholder is required to follow the procedures set forth in Section 262 of
the DGCL, as summarized below. The following discussion of the provisions of
Section 262 is not intended to be a complete statement of its provisions and
is qualified in its entirety by reference to the full text of that section.
All references in Section 262 of the DGCL and in this summary to a
"stockholder" are to a record holder of the Shares immediately prior to the
effective time of the Merger as to which appraisal rights are asserted. A
person having a beneficial interest in Shares held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect appraisal rights. THE PROCEDURES SET FORTH IN SECTION 262
SHOULD BE STRICTLY COMPLIED WITH. FAILURE TO FOLLOW ANY SUCH PROCEDURES MAY
RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION 262.
Under the DGCL, persons who hold Shares immediately prior to the effective
date of the Merger and who follow the procedures set forth in Section 262 will
be entitled to have their Shares appraised by the Delaware Court of Chancery
and to receive payment of the "fair value" of such shares, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, as determined by such court. If the
Merger Agreement is submitted to the Company's stockholders for approval at a
meeting thereof, a stockholder who votes in favor of the Merger, whether in
person or by proxy, will not be entitled to assert appraisal rights. However,
a stockholder is not required to vote against the Merger in order to qualify
to exercise appraisal rights in connection with the Merger.
If the Merger Agreement is submitted to the Company's stockholders for
approval at a meeting thereof, the Company, not less than 20 days prior to the
meeting of stockholders, shall notify each of its stockholders who was such on
the record date for such meeting that appraisal rights are available and must
include in such notice a copy of Section 262 of the DGCL. Any stockholder
electing to exercise the appraisal rights must deliver to the Company, before
the taking of the vote on the proposed Merger, a written demand for appraisal
of such stockholder's Shares. Such demand must reasonably inform the Company
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's Shares.Within ten (10) days after
the effective date of such Merger, the surviving or resulting corporation must
notify each stockholder of each constituent corporation who has complied with
Section 262(d)(1) and has not voted in favor of or consented to the Merger of
the date that the Merger has become effective.
A Stockholder Who Fails To Make Such Written Demand Will Not Be Entitled To
Assert Appraisal Rights.
If the Merger is to be consummated pursuant to Sections 228 or 253 of the
DGCL, the surviving or resulting corporation, either before the effective date
of such merger or within ten (10) days thereafter, shall notify each of the
stockholders entitled to appraisal rights that appraisal rights are available
for the Shares and must include in such notice a copy of Section 262 of the
DGCL. If such notice is given after the effective date of the Merger, such
notice must also notify such stockholders of the effective date of the Merger.
A holder of Shares wishing to exercise such holder's appraisal rights must be
the record holder of the Shares on the date the written demand for appraisal
is made and must continue to hold the Shares of record through the effective
date of the Merger. Accordingly, a holder of Shares who is the record holder
of Shares on the date the written demand for appraisal is made, but who
thereafter transfers such Shares prior to the consummation of the Merger, will
lose any right to appraisal in respect of such Shares. A holder of Shares who
votes against adoption of the Merger Agreement will not be deemed to have
satisfied the notice requirement of such holder with respect to appraisal
rights merely by so voting. The written demand for appraisal must be in
addition to and separate from any proxy or vote
II-1
<PAGE>
abstaining from or against adoption of the Merger Agreement. The notice shall
be sent by certified or registered mail, return receipt requested, addressed
to the stockholder, at such stockholder's address as it appears on the records
of the Company. Any stockholder entitled to appraisal rights may, within
twenty (20) days after the date of mailing of the notice, demand in writing
from the surviving or resulting corporation the appraisal of such
stockholder's Shares. Such demand must reasonably inform the Company of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of such stockholder's Shares.
A Stockholder Who Fails To Make Such Written Demand Will Not Be Entitled To
Assert Appraisal Rights.
The written demand for appraisal must be made by or for the holder of record
of Shares registered in such holder's name. Accordingly, such demand should be
executed by or for such stockholder of record, fully and correctly, as such
stockholder's name appears on such stockholder's stock certificates. If the
stock is owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in such capacity
and if the stock is owned of record by more than one person as in a joint
tenancy or tenancy in common, such demand should be made in such capacity and
if the stock is owned of record by more than one person as in a joint tenancy
or tenancy in common, such demand should be executed by or for all joint
owners. An authorized agent, including one or two or more joint owners, may
execute the demand for appraisal for a stockholder of record. However, the
agent must identify the record owner or owners and expressly disclose the fact
that in executing the demand he is acting as agent for the record owner.
Within 120 days after the day of the effective date of the Merger, but not
thereafter, the Company or any stockholder who has satisfied the foregoing
conditions and who is otherwise entitled to appraisal rights under Section
262, may file a petition in the Delaware court of Chancery demanding a
determination of the value of the Shares held by all stockholders entitled to
appraisal rights. If no such petition is filed, appraisal rights will be lost
for all stockholders who had previously demanded appraisal of their Shares.
Stockholders seeking to exercise appraisal rights should not assume that the
surviving or resulting corporation will file a petition with respect to the
appraisal of the value of their Shares or that the surviving or resulting
corporation will initiate any negotiations with respect to the "fair value" of
such Shares. ACCORDINGLY, STOCKHOLDERS WHO WISH TO EXERCISE THEIR APPRAISAL
RIGHTS SHOULD REGARD IT AS THEIR OBLIGATION TO TAKE ALL STEPS NECESSARY TO
PERFECT THEIR APPRAISAL RIGHTS IN THE MANNER PRESCRIBED IN SECTION 262.
Within 120 days after the day of the effective date of the Merger, any
stockholder who has complied with the provisions of Section 262 is entitled,
upon written request, to receive from the surviving or resulting corporation a
statement setting forth the aggregate number of Shares not voted in favor of
the Merger and with respect to which demands for appraisal have been received
by the surviving or resulting corporation and the aggregate number of holders
of such Shares. Such statement must be mailed to the stockholder within 10
days after the written request therefor is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under Section 262, whichever is later.
If a stockholder files the petition for appraisal in a timely manner, the
surviving or resulting corporation must file, within 20 days of service of the
stockholders' petition, a verified list of the names and addresses of all
stockholders who have demanded appraisal for their shares and with whom the
surviving or resulting corporation has not reached an agreement regarding
value. If the surviving or resulting corporation files a petition, it must be
accompanied by a similar list.
After notice to such former stockholders as required by the Court, the
Delaware Court of Chancery is empowered to conduct a hearing on such petition
to determine those former stockholders who have complied with Section 262 and
who have become entitled to appraisal rights thereunder. The Delaware Court of
Chancery may require the former holders of Shares who demanded payment for
their shares to submit their stock certificates to the Register in Chancery
for notation thereon of the pendency of the appraisal proceeding; and if any
former stockholder fails to comply with such direction, the Court of Chancery
may dismiss the proceedings as to such former stockholder.
II-2
<PAGE>
After determining the former holders of Shares entitled to appraisal, the
Delaware Court of Chancery will appraise the "fair value" of their Shares,
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Former holders of
Shares considering seeking appraisal should be aware that the fair value of
their Shares as determined by Section 262 could be more than, the same as or
less than the consideration they would receive pursuant to the Merger if they
did not seek appraisal of the Shares and that investment banking opinions as
to fairness from a financial point of view are not necessarily opinions as to
fair value under Section 262. The Delaware Supreme Court has stated that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court"
should be considered in the appraisal proceedings. In addition, Delaware
courts have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court
will also determine the amount of interest, if any, to be paid upon the
amounts to be received by persons whose Shares have been appraised. The costs
of the action may be determined by the Court and taxed upon the parties as the
Court deems equitable. The Court may also order that all or a portion of the
expenses incurred by any former stockholder in connection with an appraisal,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the Shares entitled to be appraised.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective date of the Merger, be entitled to
vote such stockholder's Shares for any purpose nor be entitled to the payment
of any dividends or other distributions on such stockholder's Shares (other
than those payable to stockholders of record as of a date prior to the
effective date of the Merger).
If no petition for an appraisal is filed within the time provided, or if a
stockholder delivers to the surviving or resulting corporation a written
withdrawal of such stockholder's demand for an appraisal and an acceptance of
the Merger, either within 60 days or after the effective date of the Merger
or, with the written approval of the surviving or resulting corporation,
thereafter, then the right of such stockholder to an appraisal will cease and
such stockholder shall be entitled to receive in cash, without interest, the
amount to which he would have been entitled had he not demanded appraisal of
such stockholder's Shares. However, no appraisal proceeding in the Court of
Chancery will be dismissed as to any stockholder without the approval of the
Court, which approval may be conditioned on such terms as the Court deems
just.
Any notice, objection, demand or other written communication required to be
given to the Company by a dissenting stockholder should be delivered to the
Secretary of such respective corporation at the address set forth in the
Schedule 13e-3 or should be delivered as otherwise permitted by law. Although
not specifically required, it is recommended that such written communications
be sent by registered or certified mail, return receipt requested.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY
STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD CONSULT SUCH
STOCKHOLDER'S LEGAL ADVISOR.
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APPENDIX A
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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 001-13385
----------------
EMERGING COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 66-0547028
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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)
----------------
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 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.
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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 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 involve risks and uncertainties,
including, but not limited to, those discussed in this "--Risks Relating to
ECI" section.
A-3
<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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.
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
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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 indefinite term unless and
until terminated by the government of the U.S. Virgin Islands upon two years'
prior written notice. In the event of such a termination, the franchise
provides that the U.S. Virgin Islands government shall expropriate the entire
business, plant and facilities of Vitelco. Vitelco has no reason to believe
that the government of the U.S. Virgin Islands intends to exercise its right
of termination in the foreseeable future. Vitelco derives local telephone
service revenues from fixed monthly local service charges to subscribers at
rates regulated by the PSC.
The FCC. The FCC has jurisdiction over the rates for access services
provided by local exchange carriers to long-distance carriers, as well as
other matters relating to these services and has established a system of
access charges to compensate local exchange carriers for the costs of
originating and terminating long-distance services, including a fair return on
investment. The FCC established the National Exchange Carrier Association,
Inc. ("NECA") to prepare and file access charge tariffs for both traffic
sensitive and non-traffic sensitive rate elements on behalf of all telephone
companies that do not file separate tariffs or concur in a joint access tariff
of another telephone company for all access elements and to administer the
Universal Service Fund ("USF"), a pool funded by long-distance carriers, which
is intended to assist local exchange carriers with higher than average 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
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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 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.
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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 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
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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 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
A-10
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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 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.
A-11
<PAGE>
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.
A-12
<PAGE>
SELECTED STATEMENT OF OPERATIONS DATA OF THE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
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 expenses.. 5,747 6,553 8,399 8,231 7,957
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
interest.................... 12,685 25,350 34,937 33,223 (18,810)
Income taxes (expense)
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
SELECTED BALANCE SHEET DATA OF THE COMPANY
<CAPTION>
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.
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<PAGE>
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.
<TABLE>
<S> <C>
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
=======
</TABLE>
- --------
(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.
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
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<PAGE>
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 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.
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<PAGE>
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.
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
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<PAGE>
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.
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
A-17
<PAGE>
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 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
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<PAGE>
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 increased 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
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<PAGE>
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.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<C> <C> <S>
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 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
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<PAGE>
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.
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:
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<PAGE>
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.
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<PAGE>
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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-
ANNUAL COMPENSATION 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 Board,
Chief Executive 1996 250,667 -- --
Officer and Secretary 1995 250,667 -- --
Thomas R. Minnich....... 1997 218,349 -- -- --
Chief Operating Officer 1996 195,825 -- -- --
1995 46,321(c) -- -- --
James J. Heying......... 1997 188,000 -- -- 4,750
Chief Financial Officer
and Executive 1996 188,673 -- -- 4,750
Vice President for
Acquisition 1995 237,142 -- -- 4,620
David L. Sharp.......... 1997 172,395 -- -- 4,750
President of Vitelco 1996 173,067 -- -- 4,750
1995 173,066 -- -- 4,620
Edwin Crouch............ 1997 125,000 -- -- 2,908
Vice President for
Investor Relations 1996 166,305 -- -- 4,750
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
GRANTED TO GRANT
OPTIONS EMPLOYEES EXERCISE DATE
GRANTED IN FISCAL PRICE EXPIRATION PRESENT
NAME (NO. OF SHARES)(1) YEAR PURCHASE(2) DATE VALUE(3)
- ---- ------------------ ---------- ----------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Jeffrey J. Prosser...... 273,978 100% $8.00 December 31, 2007 $1,005,646
</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.
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<PAGE>
(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 were 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."
<TABLE>
<CAPTION>
TOTAL NUMBER OF UNEXERCISED OPTIONS
NAME HELD AT DECEMBER 31, 1997 (1)
---- -----------------------------------
<S> <C>
Jeffrey J. Prosser.................... 273,978
</TABLE>
--------
(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.
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.
A-25
<PAGE>
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:
<TABLE>
<CAPTION>
SHARES
NAMES AND ADDRESS OF 5% STOCKHOLDERS, BENEFICIALLY PERCENT OF
DIRECTORS AND EXECUTIVE OFFICERS OWNED COMMON STOCK
------------------------------------- ------------ ------------
<S> <C> <C>
DIRECTORS:
Jeffrey J. Prosser................................ 5,783,976(1) 52%
Richard N. Goodwin................................ -- --
Salvatore Muoio................................... 4,600 *
John P. Raynor.................................... -- --
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
</TABLE>
A-26
<PAGE>
<TABLE>
<CAPTION>
SHARES
NAMES AND ADDRESS OF 5% STOCKHOLDERS, DIRECTORS BENEFICIALLY PERCENT OF
AND EXECUTIVE OFFICERS OWNED COMMON STOCK
----------------------------------------------- ------------ ------------
<S> <C> <C>
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............. 1,056,700(4) 9.6%
82 Devonshire Street
Boston, MA 02109
Chancellor L.G.T. Asset Management, Inc.......... 633,000(4) 5.8%
50 California, 27th Floor
San Francisco, CA 94111
</TABLE>
- --------
* 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.
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.
A-27
<PAGE>
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 concerning 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.
A-28
<PAGE>
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 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
A-29
<PAGE>
(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 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 is 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.
A-30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)(1) FINANCIAL STATEMENTS
<TABLE>
<S> <C>
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
</TABLE>
(A)(2) EXHIBITS
<TABLE>
<C> <S>
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.*
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.***
</TABLE>
A-31
<PAGE>
<TABLE>
<C> <S>
10.8 Virgin Islands Public Service Commission Order, dated November 4,
1991, embodying the Settlement Agreement, effective as of July 26,
1991, among Virgin Islands Telephone Corporation, Atlantic Tele-
Network Co. and the Virgin Islands Public Service Commission.***
10.9 Virgin Islands Public Service Commission Order, dated August 12,
1992, embodying the Settlement Agreement, effective as of August
5, 1992, between Virgin Islands Telephone Corporation and the
Virgin Islands Public Service Commission, annexed thereto.***
10.10 Settlement Agreement, dated June 22, 1993, between Virgin Islands
Telephone Corporation and the Virgin Islands Public Service
Commission.****
10.11 Memorandum of Understanding, dated as of June 23, 1993, between the
Government of the Virgin Islands, by and through its Police
Department, and Virgin Islands Telephone Corporation.****
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, ATNVI, 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.
27 Financial Data Schedule.
</TABLE>
- --------
*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.
A-32
<PAGE>
(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.
A-33
<PAGE>
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.
/s/ Jeffrey J. Prosser
By: _________________________________
Name: Jeffrey J. Prosser
Title: Chairman of the Board,
Chief Executive Officer and
Secretary
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
/s/ Richard N. Goodwin March 30, 1998
By: _________________________________
Name: Richard N. Goodwin
Title:Director
/s/ Salvatore Muoio March 30, 1998
By: _________________________________
Name: Salvatore Muoio
Title:Director
/s/ Sir Shridath Ramphal March 30, 1998
By: _________________________________
Name: Sir Shridath Ramphal
Title:Director
/s/ John P. Raynor March 30, 1998
By: _________________________________
Name: John P. Raynor
Title:Director
/s/ John G. Vondras March 30, 1998
By: _________________________________
Name: John G. Vondras
Title:Director
/s/ Terrence A. Todman March 30, 1998
By: _________________________________
Name: Terrence A. Todman
Title:Director
A-34
<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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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-20
II--Valuation and Qualifying Accounts................................... F-24
</TABLE>
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>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
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>
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)
<TABLE>
<CAPTION>
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>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
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, net of income
tax benefit of $74,000... -- -- -- (124) (124)
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>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
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 Communications, 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
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.
Materials and Supplies--Materials and supplies are carried in inventory
principally at weighted average cost.
F-7
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
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.
Basic Income Per Share--Income per share is computed on the basis of the
weighted average number of shares outstanding.
F-8
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
F-9
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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 Virgin
Islands Industrial Development Commission (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>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
E. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Rural Telephone Finance Cooperative subordinated capital
certificates.............................................. $ 6,490 $ 6,554
Rural Telephone Finance Cooperative 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 Cooperative (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>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
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.
F-12
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
Settlement agreements made in 1989 and 1991 with the U.S. Virgin Islands
Public Service Commission (PSC) also contain restrictions on dividends by
Vitelco which, in general, are more restrictive than those imposed by the RUS.
Dividends by Vitelco are generally limited to 60% of its net income 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:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, TOTAL
------------------------- --------
<S> <C>
1998.......................................................... $ 8,947
1999.......................................................... 9,533
2000.......................................................... 10,064
2001.......................................................... 10,740
2002.......................................................... 10,563
Thereafter.................................................... 64,238
--------
$114,085
========
</TABLE>
H. INCOME TAXES
The following is a reconciliation from the tax computed at statutory income
tax rates to the Company's income tax expense (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>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------- ------
<S> <C> <C>
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
======= ======
</TABLE>
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>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
F-15
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
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.
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:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
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
====== ======
</TABLE>
F-16
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
The following table sets forth the funded status and the amounts recognized
in the balance sheet of the Company:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
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)
======= =======
</TABLE>
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 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.
F-17
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
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.
L. GEOGRAPHIC AND CREDIT CONCENTRATIONS
Geographic data:
<TABLE>
<CAPTION>
UNITED STATES GUYANA CONSOLIDATED
------------- -------- ------------
<S> <C> <C> <C>
1997 operations:
Total revenues........................ $73,339 $117,615 $190,954
Income from operations................ 17,748 18,680 36,428
Identifiable assets................... 224,308 -- 224,308
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
</TABLE>
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-18
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
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
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1997
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
======= ======= ======= ========
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1996
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-19
<PAGE>
SCHEDULE I
EMERGING COMMUNICATIONS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1996 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
ASSETS
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
======== =======
</TABLE>
See note to condensed financial statements.
F-20
<PAGE>
SCHEDULE I
(CONTINUED)
EMERGING COMMUNICATIONS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
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-21
<PAGE>
SCHEDULE I
(CONTINUED)
EMERGING COMMUNICATIONS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
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 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 note to condensed financial statements.
F-22
<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 Communications, 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-23
<PAGE>
SCHEDULE II
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO NET BALANCE
BEGINNING COSTS AND CHARGE TRANSFERRED AT END
OF PERIOD EXPENSES OFFS TO 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 $1,191
====== ====== ====== ==== ======
</TABLE>
F-24
<PAGE>
APPENDIX B
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-13385
----------------
EMERGING COMMUNICATIONS, INC.
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 66-0547028
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
CHASE FINANCIAL CENTER
P.O. BOX 1730
ST. CROIX, U.S. VIRGIN ISLANDS 00821
(809) 777-8000
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
As of March 31, 1998, the registrant had outstanding 10,959,131 shares of
its common stock ($.01 par value).
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
B-1
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 4,013 $ 5,342
Accounts receivable, net............................ 14,548 13,254
Materials and supplies.............................. 6,241 6,031
Prepayments and other current assets................ 4,396 2,627
--------- ---------
Total current assets.............................. 29,198 27,254
Fixed assets:
Property, plant and equipment....................... 237,825 240,139
Less accumulated depreciation....................... (111,296) (114,982)
Franchise rights and cost in excess of underlying
book value, less accumulated amortization of
$10,112,000 and $10,346,000........................ 27,567 27,333
--------- ---------
Net fixed assets.................................. 154,096 152,490
Property costs recoverable from future revenues, less
accumulated amortization of $2,715,000 and
$3,038,000........................................... 21,596 21,273
Other assets.......................................... 19,418 20,958
--------- ---------
$ 224,308 $ 221,975
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................... 19,280 24,300
Accounts payable.................................... 14,169 7,926
Accrued taxes....................................... 1,087 1,040
Advance payments and deposits....................... 2,072 2,192
Other current liabilities........................... 5,863 5,157
Current portion of long-term debt................... 8,947 9,152
--------- ---------
Total current liabilities......................... 51,418 49,767
Deferred income taxes and tax credits................. 2,774 2,833
Long-term debt, excluding current portion............. 105,138 102,616
Pension and other long-term liabilities............... 6,208 6,050
Contingencies and commitments (Note D)
Stockholders' equity:
Preferred stock, par value $.01 per share;
10,000,000 shares authorized; none issued and out-
standing........................................... 110 110
Common stock, par value $.01 per share; 20,000,000
shares authorized; 10,959,131 shares issued and
outstanding........................................
Paid-in capital..................................... 59,633 59,633
Pension liability................................... (973) (973)
Retained earnings................................... -- 1,939
--------- ---------
Total stockholders' equity........................ 58,770 60,709
--------- ---------
$ 224,308 $ 221,975
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
B-2
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues:
Telephone operations................................... $ 47,945 $ 15,884
Cellular services...................................... 1,149 883
Product sales and rentals.............................. 1,030 1,389
--------- ---------
Total revenues....................................... 50,124 18,156
Expenses:
Telephone operations................................... 36,015 10,488
Cellular services and product sales and rental
expenses.............................................. 1,860 1,822
General and administrative expenses.................... 1,668 1,103
--------- ---------
Total operating expenses............................. 39,543 13,413
--------- ---------
Income from operations............................... 10,581 4,743
Other income and expense:
Interest expense....................................... (2,572) (1,679)
Interest income........................................ 89 34
--------- ---------
Total other income and expense....................... (2,483) (1,645)
--------- ---------
Income before income taxes and minority interest......... 8,098 3,098
Income taxes............................................. 2,909 1,159
--------- ---------
Income before minority interest.......................... 5,189 1,939
Minority Interest........................................ (307) --
--------- ---------
Net income............................................... $ 4,882 $ 1,939
========= =========
Net income per share..................................... $ 0.40 $ 0.18
========= =========
Weighted average shares outstanding...................... 12,273 10,959
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
B-3
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net cash flows provided by operating activities.......... $ 8,570 $ 1,114
Cash flows from investing activities:
Capital expenditures................................... (5,081) (2,488)
--------- ---------
Net cash used in investing activities................ (5,081) (2,488)
Cash flows from financing activities:
Repayment of long-term debt............................ (2,221) (2,317)
Net borrowings (repayments) on notes................... (343) 5,020
--------- ---------
Net cash flows (used) provided by financing
activities.......................................... (2,564) 2,703
Net increase in cash..................................... 925 1,329
Cash, Beginning of Period................................ 11,540 4,013
--------- ---------
Cash, End of Period...................................... $ 12,465 $ 5,342
========= =========
Supplemental cash flow information:
Interest paid.......................................... $ 2,606 $ 2,738
========= =========
Income taxes paid...................................... $ 2,219 $ --
========= =========
Depreciation and amortization expense.................... $ 6,003 $ 5,029
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
B-4
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
A. GENERAL
Significant Accounting Policies
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
Communications, Inc. was the larger of the two entities, ATN was the split-off
and EmCom was deemed the successor company. Consequently, the historical
financial statements of EmCom prior to the split-off reflect those of the
consolidated group (ATN's historical financial statements) and include the
operations in Guyana prior to the split-off.
The consolidated condensed balance sheet of Emerging Communications, Inc.
and subsidiaries at December 31, 1997 has been taken from audited financial
statements at that date. All other consolidated condensed financial statements
contained herein have been prepared by the Company and are unaudited. The
consolidated condensed financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10K for the year ended December 31, 1997.
The unaudited interim consolidated condensed financial statements furnished
herein reflect all adjustments, (consisting only of normal recurring accruals)
which are, in the opinion of management, necessary to fairly present the
financial results for the interim periods presented. The results for the three
months ended March 31, 1997 and 1998 are not necessarily indicative of the
operating results for the full year not yet completed.
Reclassification--Certain reclassifications have been made to the 1997
amounts to conform to the 1998 presentation.
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. This statement is effective for fiscal years beginning
after December 31, 1997, or January 1, 1998 for the Company. However, the
provisions of this statement are not required for the interim reporting
periods in the first year of implementation. The provisions of this statement,
which are of a disclosure nature, will not have a material impact on the
financial statements.
B. PROPERTY COSTS RECOVERABLE FROM FUTURE REVENUES
On September 15, 1995, Hurricane Marilyn struck the Virgin Islands causing
extensive damage to the outside telephone plant of Vitelco. None of the damage
was covered by insurance. The historical cost of the facilities damaged or
destroyed by Hurricane Marilyn was approximately $26.3 million with associated
accumulated depreciation of approximately $9.1 million. These costs have been
removed from the property accounts and along with certain excess maintenance
costs and costs of removal of $7.1 million have been classified as property
costs recoverable from future revenues because the Company anticipates that
future revenue in an amount at least equal to the capitalized cost will result
from inclusion of these costs in allowable costs for rate making purposes.
Vitelco has received approval from the Federal Communications Commission "FCC"
to include the interstate portion of these costs in its rate base and amortize
them over a five year period. In May 1997, Vitelco received approval from the
Virgin Islands Industrial Development Commission ("IDC") for a five
B-5
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
year exemption (commencing October 1, 1998) from 90% of Virgin Islands income
taxes and 100% of Virgin Islands gross receipts, excise and property taxes to
assist in recovering the intrastate portion of the hurricane related costs.
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.
C. ACCOUNTING FOR INCOME TAXES
As discussed in Note B above, Vitelco received approval from the Virgin
Islands Industrial Development Commission in May 1997 for a five year
exemption (commencing October 1, 1998) from 90% of Virgin Islands income taxes
and 100% of Virgin Islands gross receipts, excise and property taxes. In
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", the Company has adjusted its deferred tax
assets and liabilities to reflect the change in the tax rates applicable to
Vitelco during the benefit period.
D. 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.
E. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
No. 130). Statement of Financial Accounting Standards No. 130 establishes
standards for the display of comprehensive income and its components in a full
set of financial statements. There was no material difference between net
income and comprehensive income for the three months ended March 31, 1997 and
1998.
B-6
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
SPLIT-OFF TRANSACTION
On December 30, 1997, Atlantic Tele-Network, Inc. ("ATN") split off into two
separate public companies pursuant to the split-off Transaction. One company,
EmCom 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 EmCom was the larger of the two entities, ATN was deemed the
split-off entity and EmCom was deemed the successor company. Consequently, the
historical financial statements of EmCom 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 was included in the consolidated statement of operations for the
year ended December 31, 1997.
As a result of the split-off, EmCom no longer includes the operations or
financial results of the Guyana subsidiary GT&T in its current year financial
statements.
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. The holding
company for EmCom's United States Virgin Islands operations is Atlantic Tele-
Network, Co. ("ATN-VI"). Other operations in the Company's Consolidated
Condensed Statements of Operations include: Vitelcom Cellular, Inc. d/b/a.
VitelCellular, which provides cellular telephone service in the U.S. Virgin
Islands; and, until it merged into ATN-VI, Vitelcom, which supplies customer
premises equipment in the U.S. Virgin Islands.
RESULTS OF OPERATIONS
Three Months ended March 31, 1997 and 1998
Operating revenues for the three months ended March 31, 1998 were $18.1
million as compared to $50.1 million for the corresponding period of the prior
year, a decrease of $32.0 million. The decrease was due principally to the
split-off Transaction since revenues for the three months ended March 31, 1997
included approximately $31.8 million in revenues related to GT&T's telephone
operations. After giving effect to the split-off Transaction, the revenues of
the operations retained by the Company decreased approximately $226,000 or 1%
from revenues for the same period last year.
Revenues from telephone operations decreased approximately $319,000, or 2%,
compared to revenues for the same period last year. This decrease is
principally due to a decline in Universal Service Fund revenues offset by
increases in revenues from local exchange service, access charges, and billing
and collection services attributable to increased subscriber access lines.
Revenues from cellular services declined approximately $266,000, or 23% as
compared to revenues for the same period last year due to decreases in
subscribers and average revenues per subscriber. Revenues from product sales
and rentals increased $359,000, or 35% compared to revenues for the same
period last year as a result of completing several projects in the first
quarter of 1998.
Operating expenses for the three months ended March 31, 1998 were $13.4
million as compared to $39.5 million for the corresponding period of the prior
year, a decrease of $26.1 million, or 66%. This decrease was due principally
to the inclusion of approximately $26.4 million of operating expenses related
to GT&T and ATN,
B-7
<PAGE>
Inc. for the period ended March 31, 1997. As a result of the split-off
Transaction, GT&T and ATN, Inc. are no longer part of the Company's
operations.
After giving effect to the split-off Transaction, operating expenses were
$13.4 million for the three months ended March 31, 1998, a $400,000 or 3%
increase as compared to $13.0 million for the corresponding period of the
prior year. This increase is principal due to a $182,000 increase in expenses
of telephone operations and a $243,000 increase in general and administrative
expenses.
As a percentage of revenues from telephone operations, after giving effect
to the split-off Transaction, operating expenses were approximately 74% and
71% for the three months ended March 31, 1998 and 1997, respectively.
Income from operations for the three months ended March 31, 1998 was $4.7
million, a $5.8 million decrease compared to income from operations for the
same period last year. However, after giving effect to the split-off
Transaction, income from operations decreased $613,000 or 11% for the three
months ended March 31, 1998 as compared to the same period last year. This
decrease is attributable to the $226,000 or 1% decrease in revenues combined
with the approximate $400,000 or 3% increase in operating expenses as
discussed herein.
Net interest expense for the three months ended March 31, 1998 was $1.6
million as compared to $2.5 million for the corresponding period of the prior
year, a decrease of $838,000. After giving effect to the split-off
Transaction, net interest expense increased approximately $100,000 as a result
of an increase in outstanding debt. Income before taxes and minority interest
decreased $5.0 million to $3.1 million for the first three months of 1998.
As discussed in Note C to the Consolidated Condensed Financial Statements,
Vitelco received approval from the Virgin Islands Industrial Development
Commission for a five year exemption (commencing October 1, 1998) from 90% of
Virgin Islands income taxes and 100% of Virgin Island 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. The effect of the tax
exemption on future current taxes payable during the benefit period will be
reflected in the Company financial statements during the benefit period. On
October 9, 1997 the Virgin Islands Public Service Commission ("PSC")
instituted a proceeding to determine whether Vitelco's rates were just and
reasonable in light of this tax rebate. There can be no assurance as to the
outcome of this proceeding.
Before giving effect to the change in deferred taxes discussed above, the
Company's effective tax rate for the three months ended March 31, 1998 was
37.40% as compared to 35.90% for the corresponding period of the prior year.
The minority interest in earnings for the three months ended March 31, 1997
consists of the Guyana government's 20% interest in GT&T and Comsat Mobile
Investments, Inc.'s (a subsidiary of Communications Satellite Corporation) 10%
interest in VitelCelluar. As a result of the split-off Transaction, the
minority interest held in GT&T is no longer included in the operations of the
Company. Additionally, on February 13, 1998, ATN-VI purchased the 10% minority
interest held in VitelCellular. The minority interest in earnings up to the
date of ATN-VI's acquisition of 10% minority interest is immaterial.
LIQUIDITY AND CAPITAL RESOURCES
The Company depends upon funds received from subsidiaries to meet its
capital needs, including servicing debt and financing any future acquisitions.
As a result of the split-up of ATN into 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.
B-8
<PAGE>
In connection with the split-off Transaction, EmCom assumed approximately
$5.5 million of bank debt of ATN, of which $5.5 million was outstanding at
March 31, 1998 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 Rural Telephone Finance Cooperative ("RTFC")
under a 15 year credit facility (the "1997 RTFC Credit Facility"). This
facility provides for quarterly payments of principal and interest of
approximately $500,000. At March 31, 1998, $17.2 million, net, was outstanding
under this credit facility, which bears interest at a variable rate, which was
6.65% at March 31, 1998. In addition to the 1997 RTFC Credit Facility, ATN-VI
had other outstanding borrowings from the RTFC of $15.6 million, net, at March
31, 1998, of which $1.3 million bears interest at a variable rate, which was
6.65% at March 31, 1998, 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 EmCom unless ATN-VI meets certain financial ratios, which were met
at March 31, 1998, 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
RTFC 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 primarily
dependent on funds from its parent or its subsidiaries, primarily Vitelco.
Vitelco's loan agreement (the "RUS Loan Agreement") with the Rural Utilities
Service ("RUS") 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 March
31, 1998, Vitelco's dividend paying capacity was approximately $.7 million.
At March 31, 1998, Vitelco had an outstanding balance under the RUS Loan
Agreement of $53.7 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 dividends, unless certain criteria are
met; (v) guaranteeing or incurring additional indebtedness; and (vi) making
investments except as otherwise permitted.
At March 31, 1998, Vitelco has outstanding borrowings from the RTFC of $37.6
million, of which $9.9 million was owing under a term loan which bears
interest at a fixed rate of 9.75% (the "9.75% Term Loan"), $9.5 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 $13.2 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
B-9
<PAGE>
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 RTFC Loan and RUS Loan agreements also require, among other things,
maintenance of minimum debt service and times interest earned coverage and
restrictions on issuance of additional long-term debt. As of March 31, 1998,
the Company was in compliance with all covenants contained 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
the U.S. Virgin Islands has generally been offset (without any increase in
local subscribers' rates) by increased revenues resulting from growth in the
number of subscribers and from regulatory cost recovery practices in
determining access revenues.
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
B-10
<PAGE>
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.
B-11
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
B-12
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
SIGNATURES
PURSUANT TO THE SECURITIES ACT OF 1934, THE REGISTRANT HAS CAUSED THIS
REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY
AUTHORIZED.
Date: May 14, 1998 Emerging Communications, Inc.
/s/ James J. Heying
_____________________________________
James J. Heying
Chief Financial Officer and Vice-
President
signing both in his capacity as Vice
President on behalf of the
Registrant and as Chief Financial
Officer of the Registrant
B-13
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-13385
EMERGING COMMUNICATIONS, INC.
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 66-0547028
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
CHASE FINANCIAL CENTER
P.O. BOX 1730
ST. CROIX, U.S. VIRGIN ISLANDS 00821
(809) 777-8000
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
As of June 30, 1998, the registrant had outstanding 10,959,131 shares of its
common stock ($.01 par value).
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B-14
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 4,013 $ 4,340
Accounts receivable, net.............................. 14,548 14,093
Materials and supplies................................ 6,241 6,105
Prepayments and other current assets.................. 4,396 2,423
-------- --------
Total current assets................................ 29,198 26,961
Fixed assets:
Property, plant and equipment......................... 237,825 254,859
Less accumulated depreciation......................... (111,296) (117,884)
Franchise rights and cost in excess of underlying book
value, less accumulated amortization of $10,112,000
and $10,580,000...................................... 27,567 27,099
-------- --------
Net fixed assets.................................... 154,096 164,074
Property costs recoverable from future revenues, less
accumulated amortization of $2,715,000 and $3,355,000.. 21,596 20,956
Investment in unconsolidated subsidiary............... -- 21,113
Other assets.......................................... 19,418 26,107
-------- --------
$224,308 $259,211
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable......................................... $ 19,280 $ 37,688
Accounts payable...................................... 14,169 7,277
Accrued taxes......................................... 1,087 1,501
Advance payments and deposits......................... 2,072 2,000
Other current liabilities............................. 5,863 5,136
Current portion of long-term debt..................... 8,947 8,659
-------- --------
Total current liabilities........................... 51,418 62,261
Deferred income taxes and tax credits................... 2,774 2,892
Long-term debt, excluding current portion............... 105,138 126,173
Pension and other long-term liabilities................. 6,208 5,893
Contingencies and commitments (Note D)
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; 10,959,131 shares issued and out-
standing............................................. 110 110
Paid-in capital....................................... 59,633 59,633
Pension liability..................................... (973) (973)
Retained earnings..................................... -- 3,222
-------- --------
Total stockholders' equity.......................... 58,770 61,992
-------- --------
$224,308 $259,211
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
B-15
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1997 1998 1997 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Telephone operations............... $ 43,023 $ 16,779 $ 90,968 $ 32,663
Cellular services.................. 997 869 2,146 1,752
Product sales and rentals.......... 1,304 1,184 2,334 2,573
--------- --------- -------- --------
Total revenues................... 45,324 18,832 95,448 36,988
Expenses:
Telephone operations............... 33,594 11,059 69,609 21,547
Cellular services and product sales
and rental expenses............... 2,010 1,984 3,870 3,806
General and administrative ex-
penses............................ 3,288 1,551 4,956 2,654
--------- --------- -------- --------
Total operating expenses......... 38,892 14,594 78,435 28,007
Income from operations........... 6,432 4,238 17,013 8,981
Other income and expense:
Equity in undistributed earnings of
unconsolidated subsidiary......... -- 315 -- 315
Interest expense................... (2,745) (2,713) (5,317) (4,392)
Interest income.................... 69 45 158 79
--------- --------- -------- --------
Total other income and expense... (2,676) (2,353) (5,159) (3,998)
--------- --------- -------- --------
Income before income taxes and minor-
ity interest........................ 3,756 1,885 11,854 4,983
Income taxes......................... (9,521) 602 (6,612) 1,761
--------- --------- -------- --------
Income before minority interest...... 13,277 1,283 18,466 3,222
Minority interest.................... (1) -- (308) --
--------- --------- -------- --------
Net income........................... $ 13,276 $ 1,283 $ 18,158 $ 3,222
========= ========= ======== ========
Net income per share................. $ 1.08 $ 0.12 $ 1.48 $ 0.29
========= ========= ======== ========
Weighted average shares outstanding.. 12,273 10,959 12,273 10,959
========= ========= ======== ========
</TABLE>
See notes to consolidated condensed financial statements.
B-16
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Net cash flows from operating activities................... $ 17,221 $ (681)
Cash flows from investing activities:
Capital expenditures..................................... (10,319) (17,349)
Investment in SMB Holdings, Ltd. ........................ -- (20,798)
-------- --------
Net cash from investing activities..................... (10,319) (38,147)
Cash flows from financing activities:
Repayment of long-term debt.............................. (5,570) (7,140)
Issuance of long-term debt............................... -- 27,887
Net borrowings (repayments) on notes..................... (1,431) 18,408
-------- --------
Net cash flows from financing activities............... (7,001) 39,155
-------- --------
Net change in cash......................................... (99) 327
Cash, Beginning of Period.................................. 11,540 4,013
-------- --------
Cash, End of Period........................................ $ 11,441 $ 4,340
======== ========
Supplemental cash flow information:
Interest paid............................................ $ 5,233 $ 5,675
======== ========
Income taxes paid........................................ $ 3,683 $ 580
======== ========
Depreciation and amortization expense.................... $ 10,920 $ 10,467
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
B-17
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998
A. GENERAL
Significant Accounting Policies
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
Communications, Inc. was the larger of the two entities, ATN was the split-off
entity and EmCom was deemed the successor Company. Consequently, the
historical financial statements of EmCom prior to the split-off reflect those
of the consolidated group (ATN's historical financial statements) and include
the operations in Guyana prior to the split-off.
The consolidated condensed balance sheet of the Company at December 31, 1997
has been taken from audited financial statements at that date. All other
consolidated condensed financial statements contained herein have been
prepared by the Company and are unaudited. The consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
The unaudited interim consolidated condensed financial statements furnished
herein reflect all adjustments, (consisting only of normal recurring accruals)
which are, in the opinion of management, necessary to fairly present the
financial results for the interim periods presented. The results for the three
and six months ended June 30, 1997 and 1998 are not necessarily indicative of
the operating results for the full year not yet completed.
Certain reclassifications have been made to the 1997 amounts to conform to
the 1998 presentation.
B. PROPERTY COSTS RECOVERABLE FROM FUTURE REVENUES
On September 15, 1995, Hurricane Marilyn struck the Virgin Islands causing
extensive damage to the outside telephone plant of Vitelco. None of the damage
was covered by insurance. The historical cost of the facilities damaged or
destroyed by Hurricane Marilyn was approximately $26.3 million with associated
accumulated depreciation of approximately $9.l million. These costs have been
removed from the property accounts and along with certain excess maintenance
costs and costs of removal of $7.l 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 (FCC)
to include the interstate portion of these costs in its rate base and amortize
them over a five year period. In May 1997, Vitelco received approval from the
Virgin Islands Industrial Development Commission (IDC) for a five year
exemption (commencing October 1, 1998) from 90% of Virgin Islands income taxes
and 100% of Virgin Islands gross receipts, excise and property taxes to assist
in recovering the intrastate portion of the hurricane related costs. 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. On May
1, 1998, a consultant appointed by the PSC provided a report stating the
opinion that since a decrease in rates would be appropriate, a full rate
investigation appeared to be warranted. The consultant requested Vitelco's
comments and working papers be provided prior to a PSC meeting on the issue.
On July 13, 1998, Vitelco provided the PSC with a response to the report. The
PSC has not yet responded, nor has a meeting date been set. There can be no
assurance as to the outcome of this proceeding.
B-18
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998
C. ACCOUNTING FOR INCOME TAXES
As discussed in Note B above, Vitelco received approval from the IDC in May
1997 for a five year exemption (commencing October 1, 1998) from 90% of Virgin
Islands income taxes and 100% of Virgin Islands gross receipts, excise and
property taxes. In accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," the Company has adjusted its deferred
tax assets and liabilities to reflect the change in the tax rates applicable
to Vitelco during the benefit period.
D. 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
E. ACQUISITION OF SMB HOLDINGS, LTD.
On April 16, 1998, the Company acquired a 67% equity interest (50% voting
interest) in SMB Holdings, Ltd. (SMB), a British Virgin Islands corporation,
for $20 million in cash. SMB is principally engaged in cellular mobile
telecommunications on the island of St. Martin. The acquisition was funded
with loan proceeds from the Rural Telephone Finance Corporation. The
acquisition was accounted for under the equity method of accounting with
resulting subscriber intangibles and goodwill from the transaction to be
amortized straight line over 15 and 40 years, respectively. The acquisition of
SMB was not material to the total assets, liabilities and operations of the
Company.
F. GOING-PRIVATE BUYOUT OFFER
On May 29, 1998, the Company announced that its Board of Directors had
received a proposal from Innovative Communication Company, a Delaware limited
liability company wholly owned by Jeffrey J. Prosser, the Chairman, Chief
Executive Officer and controlling stockholder of the Company, for the
acquisition of the Company pursuant to which the public shareholders of the
Company would receive $9.125 per share in cash. The Company also announced
that its Board of Directors had established a special committee to evaluate
and consider the offer and has authorized the special committee to engage
financial and legal advisors. The proposal is subject, among other things, to
the execution of a definitive acquisition agreement, approval of the
transaction by the special committee, receipt of satisfactory financing,
receipt of a fairness opinion and receipt of all required third party and
governmental consents. A class suit has been filed in Delaware, Civil action
No. 16415-MC, by Brickell Partners seeking an injunction against such a
buyout, alleging that the $9.125 per share amount is insufficient.
G. CURRENT ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130). SFAS No. 130 establishes standards for the display of comprehensive
income and its components in a full set of financial statements. There was no
material difference between net income and comprehensive income for the three
and six months ended June 30, 1997 and 1998.
B-19
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998
In June 1997, the Financial Accounting Standards Board 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. This statement is effective for fiscal
years beginning after December 31, 1997, or January 1, 1998 for the Company.
However, the provisions of this statement are not required for the interim
reporting periods in the first year of implementation. The provisions of this
statement, which are of a disclosure nature, will not have a material impact
on the financial statements.
B-20
<PAGE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
SPLIT-OFF TRANSACTION
On December 30, 1997, ATN split off into two separate public companies
pursuant to the split-off Transaction. One company, EmCom 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 EmCom was the
larger of the two entities, ATN was deemed the split-off entity and EmCom was
deemed the successor company. Consequently, the historical financial
statements of EmCom 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 was included in the consolidated statement of operations for the
year ended December 31, 1997.
As a result of the split-off, EmCom no longer includes the operations or
financial results of the Guyana subsidiary GT&T in its current year financial
statements.
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. The holding
company for EmCom's United States Virgin Islands operations is Atlantic Tele-
Network, Co. (ATN-VI). ATN-VI supplies customer premises equipment in the U.S.
Virgin Islands. Other operations in the Company's Consolidated Condensed
Statements of Operations other than Vitelco include Vitelcom Cellular, Inc.
d/b/a VitelCellular, which provides cellular telephone service in the U.S.
Virgin Islands.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998
Operating revenues for the three and six months ended June 30, 1998 were
$18.8 million and $37.0 million as compared to $45.3 million and $95.4 million
for the corresponding periods of the prior year. This resulted in decreases of
$26.5 million and $58.5 million, respectively. The decrease was due
principally to the split-off Transaction since revenues for the three and six
months ended June 30, 1997 included $27.2 million and $58.9 million in
revenues related to GT&T's telephone operations. After giving effect to the
split-off Transaction, total revenues of the operations retained by the
Company increased approximately $668,000, or 4% and $442,000, or 1% from
revenues for the same periods last year.
After giving effect to the split-off Transaction, revenues from telephone
operations increased approximately $916,000, or 6% and $597,000, or 2%
compared to revenues for the same periods of the prior year. This increase is
principally due to an increase in local exchange service and access charges,
which were partially offset by decreases in Universal Service Fund revenues.
For the three and six months ended June 30, 1998, revenues from cellular
services declined approximately $128,000, or 13% and $394,000, or 18% as
compared to revenues for the same periods last year due to decreases in
subscribers and average revenues per subscriber. Revenues from product sales
and rentals decreased $120,000, or 9% and increased $239,000, or 10% for the
three and six months ended June 30, 1998, respectively, compared to revenues
for the same periods last year as a result of completing several projects in
the first quarter of 1998.
B-21
<PAGE>
Operating expenses for the three and six months ended June 30, 1998 were
$14.6 million and $28.0 million as compared to $38.9 million and $78.4 million
for the corresponding periods of the prior year, resulting in decreases of
$24.3 million, or 62% and $50.4 million, or 64%. These decreases were due
principally to the inclusion of approximately $26.1 and $52.7 million of
operating expenses related to GT&T and ATN for the three and six months ended
June 30, 1997. As a result of the split-off Transaction, GT&T and ATN are no
longer part of the Company's operations.
After giving effect to the split-off Transaction, operating expenses were
$14.6 million and $28.0 million for the three and six months ended June 30,
1998, a $1.8 million, or 14% and $2.2 million or 9% increase as compared to
$12.7 million and $25.8 million for the corresponding periods of the prior
year. These increases are principally due to increases of $1.4 million in
expenses of telephone operations for the three and six months ended June 30,
1998 as well as increases of $487,000 and $882,000 over the corresponding
periods of the prior year in general and administrative expenses.
As a percentage of revenues from operations, after giving effect to the
split-off Transaction, operating expenses were approximately 77% and 76% for
the three and six months ended June 30, 1998 as compared to 70% and 71% for
the same periods in 1997, respectively.
Income from operations for the three and six months ended June 30, 1998 were
$4.2 million and $9.0 million, compared to $6.4 million and $17.0 million for
the same periods last year resulting in decreases of $2.2 million, 34% and
$8.0 million, 47% respectively. However, after giving effect to the split-off
Transaction, income from operations decreased $1.2 million, or 22% and $1.8
million, or 17% for the three and six months ended June 30, 1998 as compared
to the same periods of the prior year. These decreases are attributable to the
$1.8 million and $2.2 million increases in operating expenses which were
partially offset by increases in revenues of $668,000 and $442,000 for the
three and six months ended June 30, 1998 as described above.
Net interest expense for the three and six months ended June 30, 1998 was
$2.7 million and $4.3 million as compared to $2.7 million and $5.2 million for
the corresponding periods of the prior year, decreases of $8,000 and $846,000
for the three and six month periods, respectively. After giving effect to the
split-off Transaction, net interest expense increased $404,000 and $25,000 for
the three and six months ended June 30, 1998 over the prior periods as a
result of increased outstanding debt.
Income before taxes and minority interest decreased to $1.9 million and $5.0
million for the three and six months ended June 30, 1998, resulting in
decreases of $1.9 million and $6.9 million, respectively, over the prior year.
After giving effect to the split-off Transaction, income before taxes and
minority interest decreased to $1.9 million and $5.0 million for the three and
six months ended June 30, 1998, resulting in decreases of $1.3 million and
$1.5 million, respectively.
As discussed in Note C to the Consolidated Condensed Financial Statements,
Vitelco received approval from the Virgin Islands Industrial Development
Commission for a five year exemption (commencing October 1, 1998) from 90% of
Virgin Islands income taxes and 100% of Virgin Islands gross receipts, excise
and property taxes. In accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", the Company has adjusted its
deferred tax assets and liabilities to reflect the change in the tax rates
applicable to Vitelco during the benefit period. 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. On May 1, 1998, a consultant appointed by the PSC
provided a report stating the opinion that since a decrease in rates would be
appropriate, a full rate investigation appeared to be warranted. The
consultant requested Vitelco's comments and working papers be provided prior
to a PSC meeting on the issue. On July 13, 1998, Vitelco provided the PSC with
a response to the report. The PSC has not yet responded, nor has a meeting
date been set. There can be no assurance as to the outcome of this proceeding.
B-22
<PAGE>
Before giving effect to the change in deferred taxes discussed above, the
Company's effective tax rate for the three and six months ended June 30, 1998
was 31.9% and 35.3% as compared to 36.7% and 36.2% for the corresponding
periods of the prior year. After giving effect to the split-off Transaction,
but before giving effect to the change in deferred taxes discussed above, the
Company's effective tax rate for the three and six months ended June 30, 1997
was 33.1% and 29.5%, respectively.
The minority interest in earnings for the three and six months ended June
30, 1997 consists of the Guyana government's 20% interest in GT&T and Comsat
Mobile Investments, Inc.'s (a subsidiary of Communications Satellite
Corporation) 10% interest in VitelCellular. As a result of the split-off
Transaction, the minority interest held in GT&T is no longer included in the
operations of the Company. Additionally, on February 13, 1998, ATN-VI
purchased the 10% minority interest held in VitelCellular. The minority
interest in earnings up to the date of ATN-VI's acquisition of the 10%
minority interest is immaterial.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal assets are its investments in ATN-VI and its newly
acquired 67% equity interest in SMB Holdings, Ltd. The Company does not
generate any significant revenues independent of ATN-VI and its subsidiaries.
The Company's liquidity depends upon funds received from subsidiaries as well
as short and long term borrowings to meet its capital needs.and to finance any
future acquisitions. As a result of the split-off Transaction, 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 and to service existing debt.
As reflected in the Consolidated Condensed Statement of Cash Flows, net cash
flows used by operating activities totaled $678,000 for the six months ended
June 30, 1998 and net cash flows provided by operating activities totaled
$17.2 million for the six months ended June 30, 1997. The decrease was due
principally to cash used for accounts payable paid, investment in other
assets, and lower net income. Additionally, amounts fluctuate from period to
period as a result of the split-off Transaction as cash flows from operations
for GT&T are not included in the 1998 amounts.
Net cash flows used in investing activities totaled $38.1 million and $10.3
million for the six months ended June 30, 1998 and 1997, respectively. Amounts
fluctuate from period to period primarily as a result of the purchase of a 67%
equity interest in SMB Holdings, Ltd. for $20.0 million in cash plus
transaction costs on April 16, 1998, and the purchase of commercial real
estate in the United States Virgin Islands and equipment for $13.7 million.
These increase were partially offset by a decrease in investment in telephone
plant and equipment as a result of the split-off Transaction as cash flows
from investing activities for GT&T are not included in the 1998 amounts.
Net cash flows provided by financing activities during the six months ended
June 30, 1998 was $39.2 million compared to net cash used by financing
activities of $7.0 million for the six months ended June 30, 1997. Amounts
fluctuated primarily due to (i.) an increase in repayments on debt of $1.6
million primarily as a result of increased debt balances and (ii.) the
acquisition of SMB Holdings, Ltd., commercial real estate and equipment
through short and long-term credit facilities from the Rural Telephone Finance
Cooperative (RTFC). The newly issued debt consisted of:
(i.) A $500,000 line of credit bearing interest at a variable rate, which
was 7.25% at June 30, 1998. The amount drawn on this facility was $272,000
at June 30, 1998.
(ii.) A $15.0 million line of credit bearing interest at a variable rate
which was 8.25% at June 30, 1998. The amount drawn on this facility was
$13.4 million at June 30, 1998.
(iii.) A $21.1 million, 15 year term note bearing interest at a variable
rate which was 7.65% at June 30, 1998.
(iv.) A $6.8 million, 20 year term note bearing interest at a variable
rate which was 7.65% at June 30, 1998.
B-23
<PAGE>
In connection with the split-off Transaction, the Company assumed a $5.5
million line of credit of ATN and ATN-VI borrowed approximately $18.3 million
from the RTFC under a 15-year credit facility (the 1997 RTFC Credit Facility).
Under the line of credit, which matures October 1, 1998, $5.5 million was
outstanding at June 30, 1998. The 1997 RTFC Credit Facility provides for
quarterly payments of principal and interest of approximately $500,000. At
June 30, 1998, $18.0 million was outstanding under the 1997.RTFC Credit
Facility with a variable interest rate of 6.65%.
In addition to the 1997 RTFC Credit Facility, ATN-VI had other outstanding
borrowings from the RTFC of $17.3 million at June 30, 1998, of which $1.3
million bears interest at a variable rate, which was 6.65% at June 30, 1998,
and $16.0 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 the Company unless ATN-VI meets certain financial ratios, which were
met at June 30, 1998, and, after payment of the dividend, ATN-VI's
stockholder's equity is greater than 30% of total assets. ATN-VI's loan
agreements with the RTFC 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 version or entity; (iv)
acquiring assets or capital stock of other entitles 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 primarily
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 June 30, 1998, Vitelco's dividend
paying capacity was approximately $1.7 million.
At June 30, 1998, Vitelco had an outstanding balance under the RUS Loan
Agreement of $53.0 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 dividends, unless certain criteria are
met; (v) guaranteeing or incurring additional indebtedness; and (vi) making
investments except as otherwise permitted.
At June 30, 1998, Vitelco has outstanding borrowings from the RTFC of $37.6
million, of which $9.5 million was owing under a term loan which bears
interest at a fixed rate of 9.75% (the 9.75% Term Loan), $9.0 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 $13.2 million was owing under a $15 million
revolving line 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
B-24
<PAGE>
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 RTFC Loan and RUS Loan agreements also require, among other things,
maintenance of minimum debt service and times interest earned coverage and
restrictions on issuance of additional long-term debt. As of June 30, 1998,
the Company was in compliance with all covenants contained 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 United States, 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
the U.S. Virgin Islands has generally been offset (without any increase in
local subscribers' rates) by increased revenues resulting from growth in the
number of subscribers and from regulatory cost recovery practices in
determining access revenues.
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.
B-25
<PAGE>
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.
B-26
<PAGE>
PART II OTHER INFORMATION
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
B-27
<PAGE>
SIGNATURES
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
Pursuant to the Securities Act of 1934, the registrant has caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 14, 1998
Emerging Communications, Inc.
/s/ Jeffrey J. Prosser
-------------------------------------
Jeffrey J. Prosser
Chairman of the Board, and Acting
Chief Financial Officer signing both
in his capacity as Chairman of the
Board on behalf of the Registrant
and as acting Chief Financial
Officer of the Registrant
B-28
<PAGE>
Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal, certificates for the Shares and any other required documents
should be sent by each stockholder of the Company or such stockholder's
broker-dealer, commercial bank, trust company or other nominee to the
Depositary as follows:
THE DEPOSITARY FOR THE OFFER IS:
THE BANK OF NEW YORK
By Mail: By Facsimile Transmission
(for Eligible Institutions only):
Tender & Exchange Department
P.O. Box 11248 (212) 815-6213
Church Street Station
New York, New York 10286-1248 Confirm by telephone:
(800) 507-9357
By Hand or Overnight Delivery:
Tender & Exchange Department
101 Barclay Street
Receive and Deliver Window
New York, New York 10286
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective telephone numbers and
locations listed below. Requests for additional copies of the Offer to
Purchase, the Letter of Transmittal and the other tender offer materials may
be directed to the Information Agent, the Dealer Manager or to brokers,
dealers, commercial banks or trust companies or other nominees, and copies
will be furnished promptly at the Purchaser's Expense.
THE INFORMATION AGENT FOR THE OFFER IS:
MACKENZIE
PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
(212) 929-5500 (CALL COLLECT)
OR
CALL TOLL FREE: (800) 322-2885
THE DEALER MANAGER FOR THE OFFER IS:
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza
18th Floor
New York, NY 10292
(212) 778-1800
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
EMERGING COMMUNICATIONS, INC.
PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 24, 1998
BY INNOVATIVE COMMUNICATION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
INNOVATIVE COMMUNICATION COMPANY, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, SEPTEMBER 21, 1998, UNLESS THE OFFER IS EXTENDED.
THE DEPOSITARY FOR THE OFFER IS:
THE BANK OF NEW YORK
By Mail: By Facsimile Transmission:
By Hand or Overnight Courier:
Tender & Exchange (for Eligible Institutions only):
Department Tender & Exchange Department
(212) 815-6213 101 Barclay Street
P.O. Box 11248 Receive and Deliver Window
Church Street Station Confirm by telephone: New York, New York 10286
New York, New York (800) 507-9357
10286-1248
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND
ADDRESS(ES) OF
REGISTERED
STOCKHOLDER(S)
(PLEASE FILL IN
BLANK EXACTLY
AS NAME(S)
APPEAR(S) ON
THE SHARES TENDERED
CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY)
- -------------------------------------------------------------------
TOTAL NUMBER OF NUMBER
CERTIFICATE SHARES REPRESENTED OF SHARES
NUMBER(S)* BY CERTIFICATE(S)* TENDERED**
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
<S> <C> <C> <C>
TOTAL SHARES
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by Book-Entry Stockholders.
** Unless a Certificate Stockholder otherwise indicates, it will be assumed
that all Shares evidenced by any certificate(s) delivered to the
Depositary are being tendered. See Instruction 4.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE>
This Letter of Transmittal is to be completed by stockholders
("Stockholders") if certificates for Shares (as defined below) are to be
forwarded herewith or if tenders of Shares are to be made by book-entry
transfer to the account maintained by the Depositary at The Depositary Trust
Company (the "Book-Entry Transfer Facility"), pursuant to the procedures set
forth in the section of the Offer to Purchase entitled "THE OFFER--3.
Procedure for Tendering Shares". Stockholders who tender Shares by book-entry
transfer are referred to herein as "Book-Entry Stockholders" and other
Stockholders are referred to herein as "Certificate Stockholders."
Stockholders whose certificates are not immediately available, or who cannot
comply with the book-entry transfer procedures on a timely basis or who cannot
deliver their certificates and all other documents required hereby to the
Depositary on or prior to the Expiration Date (as defined in the Offer to
Purchase), may nevertheless tender their Shares according to the guaranteed
delivery procedure set forth in the section of the Offer to Purchase entitled
"THE OFFER--3. Procedure for Tendering Shares". See Instruction 2. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY FOR THIS OFFER (AS DEFINED HEREIN).
Stockholders who wish to tender their Shares must, at a minimum, complete
columns (1) through (3) (other than Book-Entry Stockholders, who are not
required to complete columns (2) and (3) in the "Description of Shares
Tendered" table below). If only those columns are completed, a Stockholder
will be deemed to have tendered all of its Shares listed in the table. If a
Certificate Stockholder wishes to tender with respect to less than all of its
Shares, column (4) must also be completed, and such Certificate Stockholder
should refer to Instruction 4.
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY AT THE BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _________________________________________________
Account Number ________________________________________________________________
Transaction Code Number _______________________________________________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Stockholder(s) __________________________________________
Window Ticket Number (if any) _________________________________________________
Date of Execution of Notice of Guaranteed Delivery ____________________________
Name of Institution which Guaranteed Delivery _________________________________
If Delivery by Book-Entry Transfer:
Name of Tendering Institution _________________________________________________
Account Number ________________________________________________________________
Transaction Code Number _______________________________________________________
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Innovative Communication Corporation, a
U.S. Virgin Islands corporation (the "Purchaser") and a wholly owned
subsidiary of Innovative Communication Company, LLC, a Delaware limited
liability company ("Parent"), the above-described shares of Common Stock, par
value $0.01 per share (the "Shares"), of Emerging Communications, Inc., a
Delaware corporation (the "Company"), pursuant to the Purchaser's Offer to
Purchase all of the outstanding Shares not currently beneficially owned
directly or indirectly by Parent at a price of $10.25 per Share, net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated August 24, 1998 (the
"Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (together with the Offer to Purchase, the "Offer"). The
undersigned understands that the Purchaser reserves the right to transfer or
assign, from time to time, in whole or in part, to one or more of its
affiliates, the right to purchase the Shares tendered herewith.
Upon the terms and subject to the conditions of the Offer, and effective
upon acceptance for payment of the Shares tendered herewith in accordance with
the terms of the Offer, including if the Offer is extended or amended, the
terms or conditions of any such extension or amendment, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Purchaser, all
right, title and interest in and to all of the Shares that are being tendered
hereby, and any and all cash dividends, distributions, rights, other Shares
and other securities issued or issuable in respect thereof on or after the
date of the Offer to Purchase (collectively, "Distributions"), and irrevocably
appoints the Depositary the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Shares (and all such Distributions), with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) deliver certificates for
such Shares (and all such other shares or securities) or transfer ownership of
such Shares (and all such Distributions) on the account books maintained by
the Book-Entry Transfer Facility, together in any such case with all
accompanying evidences of transfer and authenticity, to or upon the order of
the Purchaser, (b) present such Shares (and all such Distributions) for
transfer on the books of the Company and (c) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares (and all
such Distributions), all in accordance with the terms and the conditions of
the Offer.
The undersigned hereby irrevocably appoints the designees of the Purchaser,
and each of them, the attorneys-in-fact and proxies of the undersigned, each
with full power of substitution, to vote in such manner as each such attorney
and proxy or any substitute thereof shall deem proper in the sole discretion
of such attorney-in-fact and proxy or such substitute, and otherwise act
(including pursuant to written consent) with respect to all of the Shares
tendered hereby (and any associated Distributions) which have been accepted
for payment by the Purchaser, without further action, prior to the time of
such vote or action, which the undersigned is entitled to vote at any meeting
of stockholders of the Company (whether annual or special and whether or not
an adjourned meeting), by written consent or otherwise. Such appointment shall
be effective when, and only to the extent that, the Purchaser deposits the
payment for such Shares (and any associated Distributions) with the
Depositary. This proxy and power of attorney shall be irrevocable and coupled
with an interest in the Shares. Upon the effectiveness of such appointment,
without further action, all prior proxies with respect to the Shares (and any
associated Distributions) at any time given by the undersigned will be
revoked, and no subsequent proxies will be given nor subsequent written
consents executed (or, if given or executed, will not be deemed effective)
with respect thereto by the undersigned. The undersigned understands that in
order for Shares to be deemed validly tendered, immediately upon the
Purchaser's acceptance of such Shares for payment, the Purchaser or its
designees must be able to exercise full voting rights with respect to such
Shares (and any associated Distributions).
By accepting the Offer through the tender of Shares pursuant to the Offer,
the undersigned hereby agrees to release, and hereby releases, all claims with
respect to and in respect of the Shares other than the right to receive
payment for such tendered shares and that, upon payment for the Shares, the
undersigned waives any right to attack, and will be barred from thereafter
attacking, in any legal proceeding the fairness of the consideration paid in
the Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares (and any
associated Distributions) tendered hereby and that when the same are accepted
for payment
3
<PAGE>
by the Purchaser, the Purchaser will acquire good, marketable and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances, and the same will not be subject to any adverse claim. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Depositary or the Purchaser to be necessary or desirable to
complete the sale, assignment, and transfer of the shares (and any associated
Distributions) tendered hereby. In addition, the undersigned shall promptly
remit and transfer to the Depositary for the account of the Purchaser any and
all Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer; and, pending such remittance or
appropriate assurance thereof, the Purchaser shall be entitled to all rights
and privileges as owner of any such Distributions and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof,
as determined by the Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred shall not be
affected by and shall survive the death or incapacity of the undersigned and
any obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Subject to
the withdrawal rights set forth in the section of the Offer to Purchase
entitled "THE OFFER--4. Rights of Withdrawal", the tender of Shares hereby made
is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of the
procedures described in the section of the Offer to Purchase entitled "THE
OFFER--3. Procedure for Tendering Shares" and in the Instructions hereto will
constitute a binding agreement between the undersigned and the Purchaser upon
the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein under "Special Payment Instructions",
please issue the check for the purchase price and/or return any certificates
for Shares not tendered or not accepted for payment in the name(s) of the
registered holder(s) appearing under "Description of Shares Tendered".
Similarly, unless otherwise indicated under "Special Delivery Instructions",
please mail the check for the purchase price and/or return any certificates for
Shares not tendered or not accepted for payment (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing under
"Description of Shares Tendered". In the event that both the Special Delivery
Instructions and the Special Payment Instructions are completed, please issue
the check for the purchase price and/or issue any certificates for Shares not
so tendered or accepted for payment in the name of, and deliver said check
and/or return such certificates to, the person or persons so indicated. The
undersigned recognizes that Purchaser has no obligation, pursuant to the
Special Payment Instructions, to transfer any Shares from the name of the
registered holder thereof if the Purchaser does not accept for payment any of
the Shares so tendered.
SPECIAL PAYMENT INSTRUCTIONS (SEE SPECIAL DELIVERY INSTRUCTIONS
INSTRUCTIONS 1, 5, 6, AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certifi- To be completed ONLY if certifi-
cate(s) for Shares not tendered cate(s) for Shares not tendered
or not accepted for payment or not accepted for payment
and/or the check for the purchase and/or the check for the purchase
price of Shares accepted for pay- price of Shares accepted for pay-
ment are to be issued in the name ment are to be sent to someone
of someone other than the under- other than the undersigned, or to
signed. the undersigned at an address
other than that shown above.
Issue check and/or certificate(s)
to:
Mail check and/or certificate(s)
to:
Name _____________________________ Name______________________________
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
Address __________________________ Address __________________________
__________________________________ __________________________________
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
__________________________________ __________________________________
(TAX IDENTIFICATION OR SOCIAL (TAX IDENTIFICATION OR SOCIAL
SECURITY NO.) SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 ON (SEE SUBSTITUTE FORM W-9 ON
REVERSE SIDE) REVERSE SIDE)
4
<PAGE>
IMPORTANT
SIGN HERE
ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW
....................................................
....................................................
(SIGNATURE(S) OF STOCKHOLDER(S))
Dated: ........................................ 1998
(Must be signed by registered Stockholder(s)
exactly as name(s) appear(s) on the certificate(s)
for the Shares or on a security position listing or
by person(s) authorized to become registered
holder(s) by certificate(s) and documents
transmitted herewith. If signature is by trustees,
executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in
a fiduciary or representative capacity, please
provide the following information and see
Instruction 5.)
Name(s).............................................
.............................................
(PLEASE PRINT)
Capacity (full title)...............................
Address.............................................
.............................................
(INCLUDING ZIP CODE)
Area Code and Telephone Number......................
Tax Identification or
Social Security No..................................
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5)
Authorized Signature................................
Name and Title......................................
(PLEASE TYPE OR PRINT)
Name of Firm........................................
Address.............................................
.............................................
.............................................
(INCLUDE ZIP CODE)
Dated: ........................................ 1998
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a financial
institution (including most banks, savings and loan associations and brokerage
houses) which is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchange Medallion Program (an "Eligible Institution"). Signatures on this
Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal
is signed by the registered holder(s) of the Shares (which term, for purposes
of this document, shall include any participant in the Book-Entry Transfer
Facility whose name appears on a security position listing as the owner of
Shares) tendered herewith and such holder(s) have not completed the box
labeled "Special Payment Instructions" or the box labeled "Special Delivery
Instructions" on this Letter of Transmittal or (b) if such Shares are tendered
for the account of an Eligible Institution. See Instruction 5 of this Letter
of Transmittal.
2. Delivery of Letter of Transmittal and Certificates or Book-Entry
Confirmations; Lost Certificates. This Letter of Transmittal is to be used
either (i) if certificates are to be forwarded herewith or (ii) unless an
Agent's Message (as defined in the Offer to Purchase) is used in lieu of this
Letter of Transmittal, if delivery of Shares is to be made pursuant to the
procedures for book-entry transfer set forth in the section of the Offer to
Purchase entitled "THE OFFER--3. Procedure for Tendering Shares". Certificates
for all physically delivered Shares, or confirmation of any book entry
transfer into the Depositary's account at the Book-Entry Transfer Facility of
Shares tendered by book-entry transfer, as well as a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees (or, in the case of book-entry transfer, an Agent's
Message in lieu of this Letter of Transmittal), and any other documents
required by this Letter of Transmittal, must be received by the Depositary at
one of its addresses set forth herein on or prior to the Expiration Date (as
defined in the Offer to Purchase).
Stockholders whose certificates are not immediately available, or who cannot
complete the procedures for book-entry transfer on a timely basis or who
cannot deliver their certificates and all other required documents to the
Depositary on or prior to the Expiration Date, may nevertheless tender their
Shares by properly completing and duly executing the Notice of Guaranteed
Delivery pursuant to the guaranteed delivery procedure set forth in the
section of the Offer to Purchase entitled "THE OFFER--3. Procedure for
Tendering Shares". Pursuant to such procedure: (i) such tender must be made by
or through an Eligible Institution; (ii) a properly completed and duly
executed Notice of Guaranteed Delivery substantially in the form provided by
the Purchaser must be received by the Depositary on or prior to the Expiration
Date; and (iii) certificates for physically delivered Shares (or a Book-Entry
Confirmation (as defined in the Offer to Purchase) with respect to such
Shares), together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantees (or,
in the case of book-entry transfer, an Agent's Message in lieu of this Letter
of Transmittal) and any other documents required by this Letter of
Transmittal, must be received by the Depositary within three American Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery.
If any certificate(s) for the Shares tendered hereby have been lost or
destroyed, that fact should be indicated on the face of this Letter of
Transmittal. In such event, the Depositary will forward additional information
and documentation necessary to be completed in order to effectively deliver
such lost or destroyed certificate(s).
IF SHARE CERTIFICATES ARE DELIVERED SEPARATELY TO THE DEPOSITARY, A PROPERLY
COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL MUST ACCOMPANY EACH SUCH
DELIVERY.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND DOCUMENTS BE SENT BY
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
6
<PAGE>
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of
Transmittal (or facsimile thereof), a Stockholder waives any right to receive
any notice of the acceptance of the Shares for payment.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. Partial Tenders (applicable to Certificate Stockholders Only). If fewer
than all the Shares evidenced by any certificate submitted are to be tendered
by a Certificate Stockholder, fill in the number of Shares which are to be
tendered in the box entitled "Number of Shares Tendered". In such cases, new
certificate(s) for the remainder of the Shares that were evidenced by your old
certificate(s) will be sent to you, unless otherwise provided in the
appropriate box on this Letter of Transmittal, as soon as practicable after
the Expiration Date. All Shares represented by certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holders of the Shares
tendered hereby, the signature must correspond with the names as written on
the face of the certificate(s) without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any certificates or stock powers are signed
by trustees, executors, administrators, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and proper evidence satisfactory to
the Purchaser of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment is to be made to, or
certificates for Shares not tendered or purchased are to be issued in the name
of, a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder of the certificate(s) listed, the certificate(s) must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered holder or holders appear on the
certificate(s). Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution.
6. Stock Transfer Taxes. The Purchaser will pay or cause to be paid any
stock transfer taxes with respect to the transfer and sale of Shares to it or
its order pursuant to the Offer. If, however, payment of the purchase price is
to be made to, or (in the circumstances permitted hereby) if certificates for
Shares not tendered or accepted for payment are to be registered in the name
of, any person other than the registered holder, or if tendered certificates
are registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder or such person) payable on account of the transfer to
such person will be deducted from the purchase price if satisfactory evidence
of the payment of such taxes, or exemption therefrom, is not submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.
7
<PAGE>
7. Special Payment and Delivery Instructions. If a check is to be issued in
the name of, and/or certificates for Shares not tendered or not accepted for
payment are to be issued or returned to, a person other than the signer of
this Letter of Transmittal or if a check and/or such certificates are to be
mailed to someone other than the signer of this Letter of Transmittal or to an
address other than that show above, the appropriate boxes on this Letter of
Transmittal should be completed.
8. Requests for Assistance or Additional Copies. Questions or requests for
assistance may be directed to, or additional copies of the Offer to Purchase,
this Letter of Transmittal, the Notice of Guaranteed Delivery and other tender
offer materials may be obtained from, the Information Agent (as defined in the
Offer to Purchase) or the Dealer Manager (as defined in the Offer to Purchase)
at their respective addresses set forth below or from your broker, dealer,
commercial bank or trust company.
9. Substitute Form W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN"),
generally the stockholder's social security of federal employer identification
number, on Substitute Form W-9 below. Failure to provide the information on
the form may subject the tendering stockholder to 31% federal income tax
withholding on the payment of the purchase price. The box in Part 3 of the
form may be checked if the tendering stockholder has not been issued a TIN and
has applied for a number or intends to apply for a number in the near future.
If the box in Part 3 is checked and the Depositary is not provided with a TIN
within 60 days, the Depositary will withhold 31% of all payments of the
purchase price thereafter until a TIN is provided to the Depositary.
10. Waiver of Conditions. Subject to the terms of the Offer, the Purchaser
reserves the right to waive any of the specified conditions to the Offer, in
whole or in part, in the case of any Shares tendered.
IMPORTANT: EITHER THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF),
PROPERLY COMPLETED AND DULY EXECUTED, OR, IN THE CASE OF BOOK-ENTRY TRANSFER,
AN AGENT'S MESSAGE IN LIEU OF THIS LETTER OF TRANSMITTAL (TOGETHER WITH
CERTIFICATES FOR PHYSICALLY DELIVERED SHARES OR CONFIRMATION OF BOOK-ENTRY
TRANSFER) AND ALL OTHER REQUIRED DOCUMENTS, OR THE NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION
DATE.
IMPORTANT TAX INFORMATION
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for purchase is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is his or her social security number. If
a stockholder fails to provide a TIN to the Depositary, such stockholder may
be subject to a $50 penalty imposed by the Internal Revenue Service. In
addition, payments that are made to such stockholder with respect to Shares
purchased pursuant to the Offer may be subject to backup withholding of 31%.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder or payee. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
8
<PAGE>
The box in Part 3 of the Substitute Form W-9 may be checked if the tendering
stockholder has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part 3 is checked, the
stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% of all payments made prior to the time a properly certified TIN
is provided to the Depositary.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares or
of the last transferee appearing on the transfers attached to, or endorsed on,
the Shares. If the Shares are in more than one name or are not in the name of
the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance
on which number to report.
9
<PAGE>
TO BE COMPLETED BY ALL STOCKHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: THE BANK OF NEW YORK
PART 1--PLEASE PROVIDE YOUR Social security number
TIN IN THE BOX AT RIGHT AND or Employer
CERTIFY BY SIGNING AND identification number
DATING BELOW. ----------------------
SUBSTITUTE
FORM W-9
DEPARTMENT OF
THE TREASURY --------------------------------------------------------
INTERNAL PART 2--CERTIFICATES--Under penalties of perjury, I
REVENUE SERVICE certify that:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me); and
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN)
(2) I am not subject to backup withholding because
(i) I am exempt from backup withholding, (ii) I
have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report
all interest or dividends, or (iii) the IRS has
notified me that I am no longer subject to backup
withholding. Certification Instructions--You must
cross out item (2) in Part 2 above if you have
been notified by the IRS that you are subject to
backup withholding because of under-reporting
interest or dividends on your tax return.
However, if after being notified by the IRS that
you were subject to backup withholding you
received another notification from the IRS
stating that you are no longer subject to backup
withholding, do not cross out item (2).
--------------------------------------------------------
PART 3--
SIGNATURE ______________
Awaiting
DATE _______ TIN [_]
NAME (PLEASE PRINT) __________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATIONS OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (i) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(ii) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
60 days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number.
Signature: ______________________________ Date: ____________________________
_________________________________________
NAME (PLEASE PRINT)
10
<PAGE>
THE INFORMATION AGENT FOR THE OFFER IS:
MACKENZIE
PARTNRES, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
(212) 929-5500 (CALL COLLECT)
OR
CALL TOLL FREE: (800) 322-2885
THE DEALER MANAGER FOR THE OFFER IS:
PRUDENTIAL SECURITIES INCORPORATED
ONE NEW YORK PLAZA
18TH FLOOR
NEW YORK, NY 10292
(800) 881-9234
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.-- Social Security numbers have nine digits separated by two hyphens;
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- ----------------------------------- -----------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, the first
individual on
the account(1)
3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, the first
individual on
the account(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor(1)
6. Account in the name of The ward, minor,
guardian or committee incompetent
for a designated ward, person(3)
minor, or incompetent
person
7.a The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
8. Sole proprietorship The owner(4)
account
- --------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
---
<S> <C>
9. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the
Department of
Agriculture in the name
of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number
(for businesses and all other entities), at the local office of the Social
Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under Section 403(b)(7).
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the investment Company Act of
1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file a Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are not subject to backup
withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A, and 6050N, and the regulations under those sections.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of tax returns. Payers
must be given the numbers whether or not recipients are required to file a tax
return. Payers must be given the numbers whether or not recipients are
required to file a tax return. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish
a taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
Unless otherwise noted herein, all references to section numbers or
regulations are references to the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
<PAGE>
EXHIBIT (A)(3)
PRUDENTIAL SECURITIES INCORPORATED
ONE NEW YORK PLAZA
18TH FLOOR
NEW YORK, NY 10292
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
EMERGING COMMUNICATIONS, INC.
AT
$10.25 NET PER SHARE
BY
INNOVATIVE COMMUNICATION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
INNOVATIVE COMMUNICATION COMPANY, LLC
THE OFFER AS DEFINED BELOW AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY,
SEPTEMBER 21, 1998 UNLESS THE OFFER IS EXTENDED.
August 24, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Innovative Communication Corporation, a U.S.
Virgin Islands corporation (the "Purchaser"), and a wholly owned subsidiary of
Innovative Communication Company, LLC, a Delaware limited liability company
("Parent"), to act as dealer manager (the "Dealer Manager") in connection with
the Purchaser's offer to purchase all of the outstanding shares of Common
Stock, par value $0.01 per share (the "Shares"), of Emerging Communications,
Inc., a Delaware corporation (the "Company"), not currently beneficially owned
directly or indirectly by Parent, at a price of $10.25 per Share, net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Purchaser's Offer to Purchase dated August 24,
1998 (the "Offer to Purchase") and the related Letter of Transmittal (the
"Letter of Transmittal", and together with the Offer to Purchase, the
"Offer"), copies of which are enclosed herewith.
Please furnish copies of the enclosed materials to those of your clients for
whose accounts you hold Shares registered in your name or in the name of your
nominee.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A MAJORITY OF
THE OUTSTANDING SHARES NOT BENEFICIALLY OWNED DIRECTLY OR INDIRECTLY BY PARENT
OR ITS AFFILIATES AS OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT PURSUANT
TO THE OFFER AND (II) THE RECEIPT BY THE PURCHASER OF FUNDS SUFFICIENT TO
PERMIT IT TO PURCHASE ALL SHARES TENDERED IN THE OFFER AND PAY THE MERGER
CONSIDERATION (AS DEFINED IN THE OFFER TO PURCHASE). THE OFFER IS ALSO SUBJECT
TO OTHER TERMS AND CONDITIONS CONTAINED IN THE OFFER TO PURCHASE.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Offer to Purchase;
1
<PAGE>
2. Letter of Transmittal (together with Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 providing information
relating to backup federal income tax withholding);
3. A printed form of letter which may be sent to your clients for whose
account you hold Shares in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Offer; and
4. Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for Shares are not immediately available, if time will not
permit all required documents to reach The Bank of New York, as depositary
(the "Depositary"), prior to the Expiration Date (as defined in the offer
to Purchase) or if the procedure for book-entry transfer cannot be
completed on a timely basis.
The Board of Directors of the Company and the Special Committee (as defined
in the Offer to Purchase) have unanimously determined that the Offer and the
Merger (as defined in the Offer to Purchase) are fair to and in the best
interests of the Company and its stockholders, have approved and declared
advisable the Offer and the Merger and recommend that the Company's
stockholders accept the Offer and tender their Shares pursuant to the Offer.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 21, 1998,
UNLESS THE OFFER IS EXTENDED.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and pay for all
outstanding Shares validly tendered prior to the Expiration Date and not
theretofore properly withdrawn. In all cases, payment for Shares accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Depositary of certificates evidencing such Shares (or a confirmation of a
book-entry transfer of such Shares into the Depositary's account at The
Depositary Trust Company, a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message (as defined in
the Offer to Purchase) in lieu of the Letter of Transmittal) and any other
required documents. See the section of the Offer to Purchase entitled "THE
OFFER--3. Procedure for Tendering Shares".
If holders of Shares wish to tender, but it is impracticable for them to
forward their certificates or other required documents prior to the expiration
of the Offer, a tender may be effected by following the guaranteed delivery
procedure described in the section of the Offer to Purchase entitled "THE
OFFER--3. Procedure for Tendering Shares".
The Purchaser will not pay any fees or commissions to any broker or dealer
or any other persons (other than the fees of the Dealer Manager and
Information Agent (as defined in the Offer to Purchase)) in connection with
the solicitation of tenders of Shares pursuant to the Offer. You will be
reimbursed for customary mailing and handling expenses incurred by you in
forwarding any of the enclosed materials to your clients. The Purchaser will
pay or cause to be paid any stock transfer taxes payable on the transfer of
Shares to it, except as otherwise provided in Instruction 6 of the Letter of
Transmittal.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
PLEASE NOTE THAT THE OFFER EXPIRES AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
MONDAY, SEPTEMBER 21, 1998, UNLESS THE OFFER IS EXTENDED.
2
<PAGE>
Any inquiries you may have with respect to the Offer should be addressed to,
and additional copies of the enclosed materials may be obtained by contacting,
the Information Agent or the Dealer Manager, at their addresses and telephone
number set forth on the back cover of the Offer to Purchase.
Very truly yours,
PRUDENTIAL SECURITIES INCORPORATED
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL APPOINT YOU OR
ANY OTHER PERSON THE AGENT OF THE PURCHASER, PARENT, THE DEALER MANAGER, THE
DEPOSITARY OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR USE ANY DOCUMENT
OR MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER
OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
EXHIBIT (A)(4)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
EMERGING COMMUNICATIONS, INC.
AT
$10.25 NET PER SHARE
BY
INNOVATIVE COMMUNICATION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
INNOVATIVE COMMUNICATION COMPANY, LLC
THE OFFER (AS DEFINED BELOW) AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY,
SEPTEMBER 21, 1998, UNLESS THE OFFER IS EXTENDED.
August 24, 1998
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated August 24,
1998 (the "Offer to Purchase") and the related Letter of Transmittal (the
"Letter of Transmittal", and, together with the Offer to Purchase, the
"Offer") pertaining to the offer by Innovative Communication Corporation (the
"Purchaser"), a U.S. Virgin Islands corporation and a wholly owned subsidiary
of Innovative Communication Company, LLC, a Delaware limited liability company
("Parent"), to purchase all outstanding shares of Common Stock, par value
$0.01 per share (the "Shares"), of Emerging Communications, Inc., a Delaware
corporation (the "Company"), not currently beneficially owned directly or
indirectly by Parent at a price of $10.25 per Share, net, to the seller in
cash, without interest thereon, upon the terms and subject to the conditions
set forth in the Offer. This material is being forwarded to you as the
beneficial owner of Shares carried by us in your account but not registered in
your name.
WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER
OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR
YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish to tender any or
all of the Shares held by us for your account, upon the terms and subject to
the conditions set forth in the Offer.
1. Please note the following:
2. The tender offer price is $10.25 per Share, net to you in cash, without
interest thereon.
3. The Offer is being made for all of the outstanding Shares not currently
owned directly or indirectly by Parent.
4. The Offer and withdrawal rights will expire at 12:00 midnight, New York
City time, on Monday, September 21, 1998, unless the Offer is extended.
5. The Offer is conditioned upon, among other things, (I) there being
validly tendered and not withdrawn prior to the expiration of the Offer
a majority of the outstanding Shares not beneficially owned directly or
indirectly by Parent or its affiliates outstanding as of the date the
Shares are accepted for payment
1
<PAGE>
pursuant to the Offer and (II) the receipt by the Purchaser of funds
sufficient to permit it to purchase all Shares tendered in the Offer and
pay the Merger Consideration (as defined in the Offer to Purchase). The
Offer is also subject to other terms and conditions contained in the
Offer to Purchase.
6. Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the transfer of Shares pursuant to
the Offer.
7. The Board of Directors of the Company and the Special Committee (as
defined in the Offer to Purchase) have unanimously determined that the
Offer and the Merger (as defined in the Offer to Purchase) are fair to
and in the best interests of the Company and its stockholders, have
approved and declared advisable the Offer and the Merger and recommend
that the Company's stockholders accept the Offer and tender their Shares
pursuant to the Offer.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing, detaching and returning to us the instruction
form contained in this letter. An envelope in which to return your
instructions to us is enclosed. If you authorize tender of your Shares, all
such Shares will be tendered unless otherwise indicated in such instruction
form. Please forward your instructions to us as soon as possible to allow us
ample time to tender Shares on your behalf prior to the expiration of the
Offer.
The Offer is made solely by the Offer to Purchase and the Letter of
Transmittal and any amendments or supplements thereto. The Purchaser is not
aware of any state where the making of the Offer is prohibited by the
administrative or judicial action pursuant to any valid state statute. If the
Purchaser becomes aware of any valid state statute prohibiting the making of
the Offer or the acceptance of the Shares pursuant thereto, the Purchaser will
make a good faith effort to comply with such statute. If, after such good
faith effort, the Purchaser cannot comply with such statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the holders
of Shares in such state. In those jurisdictions where the securities, blue sky
or other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of the Purchaser by Prudential
Securities Incorporated or one or more registered brokers or dealers licensed
under the laws of such jurisdiction.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
EMERGING COMMUNICATIONS, INC.
AT
$10.25 NET PER SHARE
BY
INNOVATIVE COMMUNICATION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
INNOVATIVE COMMUNICATION COMPANY, LLC
The undersigned acknowledge(s) receipt of your letter enclosing the Offer to
Purchase dated August 24, 1998 (the "Offer to Purchase") and the related
Letter of Transmittal (the "Letter of Transmittal", and, together with the
Offer to Purchase, the "Offer") relating to the above-referenced Offer.
You are instructed to tender the number of Shares indicated below (or, if no
number is indicated below, all Shares) that are held by you for the account of
the undersigned, upon the terms and subject to the conditions set forth in the
Offer.
_______________________________________________________________________________
Number of Shares to be Tendered*
/ / Shares: shares
/ / All Shares
_______________________________________________________________________________
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered
_______________________________________________________________________________
SIGN HERE
Signature(s)___________________________________________________________________
Name(s)________________________________________________________________________
(please print or type)
Address(es)____________________________________________________________________
_______________________________________________________________________________
Area Code(s) and Telephone No(s).( )_________________________________________
Tax Identification or Social Security No(s).___________________________________
Dated:_________________________________________________________________________
3
<PAGE>
EXHIBIT (A)(5)
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
EMERGING COMMUNICATIONS, INC.
This form or one substantially equivalent hereto must be used to accept the
Offer (as defined below) if certificates for shares of Common Stock, par value
$0.01 per share ("Shares"), of Emerging Communications, Inc., a Delaware
corporation (the "Company"), are not immediately available, or if the
procedure for book-entry transfer cannot be completed on a timely basis or if
the certificates and all other required documents cannot be delivered to the
Depositary prior to the Expiration Date (as defined in the Offer to Purchase).
Such form may be delivered by hand or transmitted by telegram, facsimile
transmission or mailed to the Depositary, and must include a guarantee by an
Eligible Institution (as defined in the Offer to Purchase). See the section of
the Offer to Purchase entitled "THE OFFER--3. Procedure for Tendering Shares".
The Depositary:
THE BANK OF NEW YORK
By Mail By Facsimile Transmission By Hand or Overnight
Courier
Tenders & Exchange (for eligible Institutions only): Tenders & Exchange
Department (212) 815-6213 Department
P.O. Box 11248 Confirm by Telephone: 101 Barclay Street
Church Street Station (800) 507-9357 Receive and Deliver
New York, New York Window
10286-1248 New York, New York 10286
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A
LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION
UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE
APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Innovative Communication Corporation, a
U.S. Virgin Islands corporation, and a wholly owned subsidiary of Innovative
Communication Company, LLC, a Delaware limited liability company, upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
August 24, 1998 (the "Offer to Purchase") and the related Letter of Transmittal
(the "Letter of Transmittal", and, together with the Offer to Purchase, the
"Offer"), receipt of which is hereby acknowledged, the number of Shares shown
below pursuant to the guaranteed delivery procedures set forth in the section
of the Offer to Purchase entitled "THE OFFER--3. Procedure for Tendering
Shares".
Number of Shares: _________ Name(s) of Record Holder(s):
Account Number: ________________ ______________________________
Date: __________________________ ______________________________
(Please Type or Print)
Address(es)
______________________________
______________________________
(Zip Code)
Area Code and Tel. No(s).
______________________________
Signature(s):
______________________________
______________________________
<PAGE>
THE GUARANTEE BELOW MUST BE COMPLETED.
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution which is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchange Medallion Program,
guarantees (a) that the above named person(s) has (have) a "net long position"
in the Shares tendered hereby within the meaning of Rule 14c-4 under the
Securities Exchange Act of 1934, as amended, and (b) to deliver to the
Depositary, at one of its addresses set forth above, certificates representing
the Shares tendered hereby, in proper form for transfer, or confirmation of
book-entry transfer of such Shares into the Depositary's account at The
Depositary Trust Company, with delivery of a properly completed and duly
executed Letter of Transmittal (or facsimile copy thereof) with any required
signature guarantee (or, in the case of a book-entry transfer, an Agent's
Message (as defined in the Offer to Purchase) in lieu of the Letter of
Transmittal), and any other documents required by the Letter of Transmittal,
within three American Stock Exchange trading days of the date hereof.
Name of Firm: _______________________ Title: ______________________________
Address: ____________________________ Name: _______________________________
_____________________________________ _____________________________________
(Please type or print)
Area Code and Telephone Number: _____
Date: _______________________________
_____________________________________
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES
SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
Exhibit (a)(6)
LOGO
NEWS RELEASE
FOR IMMEDIATE RELEASE
EMERGING COMMUNICATIONS, INC. TO BE PURCHASED BY INNOVATIVE COMMUNICATION
CORPORATION AT $10.25 PER SHARE
St. Croix, U.S. Virgin Islands, August 18, 1998 -- Emerging
Communications, Inc. (AMEX: ECM) and Innovative Communication Corporation
announced today that they have entered into a definitive agreement (the "Merger
Agreement") providing for the merger (the "Merger") of ICC Merger Sub
Corporation ("Merger Sub"), a newly organized Delaware corporation and a wholly
owned subsidiary of Innovative Communication Corporation, into Emerging
Communications, Inc. upon the terms and subject to the conditions contained in
the Merger Agreement. Pursuant to the Merger Agreement, Innovative
Communication Corporation, a U.S. Virgin Islands corporation and a wholly owned
subsidiary of Innovation Communications Company, has agreed to commence a tender
offer (the "Offer") for all of the outstanding shares of common stock, par value
$0.01 per share, of Emerging Communications, Inc. at a price of $10.25 per
share, net to the seller in cash, without interest thereon, subject to terms and
conditions set forth in the Merger Agreement and to be set forth in the tender
offer documents. On May 29, 1998, Innovative Communications Company had proposed
to acquire Emerging Communications, Inc. at $9.125 per share.
The Board of Directors, and Special Committee of the Board of
Directors, of Emerging Communications, Inc. have unanimously approved the Merger
Agreement, the Offer and the Merger and determined that the terms of the Offer
and the Merger are fair to, and in the best interest of, the stockholders of
Emerging Communications, Inc.. The Board of Directors has recommended that all
stockholders of Emerging Communications, Inc. accept the Offer and tender their
shares. Houlihan, Lokey, Howard & Zukin Capital has acted as financial advisor
to the Special Committee of the Board of Directors of Emerging Communications,
Inc. and has advised the Special Committee that the consideration to be received
by the stockholders of Emerging Communications, Inc. is fair to the stockholders
(other than Innovative Communications Company) from a financial point of view as
of the date hereof.
Innovative Communications Company, which is wholly owned by Jeffrey J.
Prosser, the Chairman of the Board, Chief Executive Officer and Secretary of
Emerging Communications, Inc., currently owns approximately 52% of the
outstanding shares of common stock of Emerging Communications, Inc.
Approximately 5,352,258 shares of Emerging Communications, Inc. common stock are
owned by the public.
Prudential Securities Incorporated is acting as dealer manager for the
Offer and has acted as financial advisor to Innovative Communications Company.
<PAGE>
Exhibit (a)(7)
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell the Shares (as defined below). The Offer (as defined below) is made
solely by the Offer to Purchase dated August 24, 1998 (the "Offer to Purchase")
and the related Letter of Transmittal and is being made to all holders of
Shares. The Offer is not being made to (nor will tenders be accepted from or on
behalf of) the holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser by Prudential Securities
Incorporated or one or more registered brokers or dealers licensed under the
laws of such jurisdiction.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Emerging Communications, Inc.
at
$10.25 Net Per Share
by
Innovative Communication Corporation
A Wholly Owned Subsidiary of
Innovative Communication Company, LLC
Innovative Communication Corporation, a U.S. Virgin Islands corporation (the
"Purchaser") and a wholly owned subsidiary of Innovative Communication
Company, LLC, a Delaware limited liability company ("Parent"), hereby offers to
purchase all of the outstanding shares of common stock, par value $0.01 per
share (the "Shares"), of Emerging Communications, Inc., a Delaware corporation
(the "Company"), not currently beneficially owned directly or indirectly by
Parent at a price of $10.25 per Share, net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in the
Offer to Purchase and in the related Letter of Transmittal (together with the
Offer to Purchase, the "Offer"). Parent currently beneficially owns
approximately 51% of the outstanding Shares. Following the Offer, Parent intends
to cause the Purchaser to effect the Merger (as defined below).
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, SEPTEMBER 21, 1998, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A MAJORITY OF
THE OUTSTANDING SHARES NOT BENEFICIALLY OWNED DIRECTLY OR INDIRECTLY BY PARENT
OR ITS AFFILIATES, AS OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT PURSUANT
TO THE OFFER (THE "MINIMUM TENDER CONDITION") AND (II) THE RECEIPT BY THE
PURCHASER OF FUNDS SUFFICIENT TO PERMIT IT TO PURCHASE ALL SHARES TENDERED IN
THE OFFER AND PAY THE MERGER CONSIDERATION (AS DEFINED BELOW). THE OFFER IS ALSO
SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN THE OFFER TO PURCHASE. SEE
INTRODUCTION AND SECTION 13 OF THE OFFER TO PURCHASE.
<PAGE>
-2-
THE BOARD OF DIRECTORS OF THE COMPANY AND THE SPECIAL COMMITTEE (AS DEFINED IN
THE OFFER TO PURCHASE) HAVE UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER
ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAVE
APPROVED THE OFFER AND THE MERGER AND RECOMMEND THAT THE COMPANY'S STOCKHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of
August 17, 1998 (the "Merger Agreement"), among the Purchaser, ICC Merger Sub
Corporation, a newly formed Delaware corporation and wholly owned subsidiary of
the Purchaser ("Merger Sub"), and the Company. The Merger Agreement provides
that, among other things, promptly after the purchase of Shares pursuant to the
Offer and the receipt of required approval of the Merger Agreement by the
Company's stockholders and the satisfaction or waiver of certain other
conditions, Merger Sub will be merged (the "Merger") into the Company. Following
consummation of the Merger, the Company will continue as the surviving
corporation. Upon consummation of the Merger (the "Effective Time"), each then
outstanding Share not owned by Parent or any subsidiary of Parent (other than
Shares held by stockholders of the Company who have properly exercised their
appraisal rights in accordance with Section 262 of the Delaware General
Corporation Law) will be converted into the right to receive an amount in cash
equal to the per Share price paid pursuant to the Offer (the "Merger
Consideration").
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered and not withdrawn if and
when the Purchaser gives oral or written notice to The Bank of New York, as
depositary (the "Depositary"), of the Purchaser's acceptance of such Shares for
payment. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which shall act as agent for
tendering stockholders for the purpose of receiving payment from the Purchaser
and transmitting payment to the tendering stockholders whose Shares have been
accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE
PRICE BE PAID, REGARDLESS OF ANY EXTENSIONS OF THE OFFER OR ANY DELAY IN
ACCEPTING FOR PAYMENT OR MAKING SUCH PAYMENT. In all cases, payment for Shares
accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of (i) certificates for such Shares or timely
confirmation of a book-entry transfer of such Shares into the Depositary's
account at the Book-Entry Transfer Facility (as defined in the Offer to
Purchase) pursuant to the procedures set forth in the Offer to Purchase, (ii) a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof), with any required signature guarantees (or, it the case of a book-
entry transfer, an Agent's Message (as defined in the Offer to Purchase) in lieu
of the Letter of Transmittal) and (iii) any other documents required by the
Letter of Transmittal.
The Purchaser expressly reserves the right, in its sole discretion, at any time
and from time to time to extend for any reason (including the occurrence of any
condition specified in the Offer to Purchase) the period of time during which
the Offer is open by giving oral or written notice of such extension to the
Depositary. Any such extension will also be publicly announced by a press
release issued no later than 9:00 a.m. New York City time, on the next business
day after the previously scheduled expiration date of the Offer. During any
such extension, all Shares previously tendered and not withdrawn will remain
subject to the Offer, subject to the rights of tendering stockholders to
withdraw their Shares.
Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares
tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date (as defined in the Offer to Purchase) and, unless theretofore
accepted for payment, may also be withdrawn at any time after October 23, 1998.
For a withdrawal to be effective,
<PAGE>
-3-
a written, telegraphic, telex or facsimile transmission notice of withdrawal
must be timely received by the Depositary at one of its addresses set forth on
the back cover of the offer to Purchase. Any such notice of withdrawal must
specify the name of the person who tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and the name of the registered holder if
different from the name of the person who tendered such Shares. If certificates
for Shares to be withdrawn have been delivered or otherwise identified to the
Depositary, then prior to the physical release of such certificates, the name of
the registered holder and the serial numbers shown on such certificates must be
submitted to the Depositary and, unless such Shares have been tendered for the
account of any Eligible Institution (as defined in the Offer to Purchase), the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution. If Shares have been tendered pursuant to the procedure for book-
entry transfer as set forth in the Offer to Purchase, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility (as defined in the Offer to Purchase) to be credited with the withdrawn
Shares and otherwise comply with such Book-Entry Transfer Facility's procedures
for such withdrawal, in which case a notice of withdrawal will be effective if
delivered to the Depositary by any method described in the second sentence of
this paragraph. Withdrawals of tenders may not be rescinded, and any Share
properly withdrawn will thereafter be deemed not validly tendered for the
purpose of the Offer. However, withdrawn Shares may be retendered by again
following one of the procedures described in the Offer to Purchase at any time
on or prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of a
notice of withdrawal will be determined by the Purchaser, in its sole
discretion, and its determination shall be final and binding on all parties.
None of the Purchaser, Parent, the Dealer Manager, the Depositary, the
Information Agent, or any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for a failure to give such notification.
The information required to be disclosed by Paragraph (e)(1)(vii) of Rule 14d-6
of the General Rules and Regulations under the Securities Exchange Act, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided to the Purchaser its stockholder list and security
position lists for the purpose of disseminating the Offer to holders of Shares.
The Offer to Purchase, the related Letter of Transmittal and other related
materials are being mailed to record holders of Shares whose names appear on the
Company's stockholder list and will be mailed to brokers, dealers, commercial
brokers, dealers, commercial banks, trust companies and similar person whose
names, or the names of whose nominees, appear on the Company's stockholder lists
or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE
OFFER.
Questions and requests for assistance may be directed to the Information Agent
or the Dealer Manager as set forth below. Requests for additional copies of the
Offer to Purchase, the Letter of Transmittal and the other tender offer
materials may be directed to the Information Agent, the Dealer Manager or to
brokers, dealers, commercial banks or trust companies, and copies will be
furnished promptly at the Purchaser's expense. No fees or commissions will be
payable to brokers, dealers or other persons (other than the Information Agent
and the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer.
<PAGE>
-4-
The Information Agent for the Offer is:
Mackenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
Call Toll Free: (800) 322-2885
The Dealer Manager for the Offer is:
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza
18th Floor
New York, NY 10292
(800) 881-9234
August 24, 1998
<PAGE>
Exhibit (b)(1)
LOGO
RTFC
RURAL TELEPHONE FINANCE COOPERATIVE
2201 Cooperative Way, Hendon, Virginia 20171-3025
703-709-6700
Via Facsimile (340-777-7701) & U.S. Mail
- ----------------------------------------
August 21, 1998
Mr. Jeffrey J. Prosser
Chief Executive Officer
Innovative Communication Corporation
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 00821-1730
Dear Jeff:
Attached is Summary Term Sheets for Innovative Communication Corporation as the
loan was approved by the RTFC Board of Directors on July 31, 1998.
Please indicate your acceptance of the attached term sheet by returning a
countersigned copy of this letter with an original signature and remitting the
commitment fee. The fee and wire transfer instructions are noted below:
$126,316.00 to First National Bank of Chicago, Chicago, IL (ABA #071000013) for
credit to RTFC account #52-73587 in immediately available funds by order of
Innovative Communication Corp.
If you have any questions, please feel free to call me at 800/346-7095 or
703/709-6792.
Sincerely,
/s/ Robin C. Reed
Robin C. Reed
Associate Vice President
and Account Manager
ATTACHMENTS REVIEWED and ACCEPTED:
By:
------------------------------
Its:
------------------------------
Date:
------------------------------
Attachments: (3) Summary Term Sheets dated August 21, 1998
<PAGE>
LOGO
RTFC
SUMMARY TERM SHEET
Secured Credit Facility
Innovative Communication Corporation
August 21, 1998
Borrower: Innovative Communication Corporation ("ICC" or "the Borrower")
Lender: Rural Telephone Finance Cooperative ("RTFC" or "Lender")
Commitments: A secured term loan totaling $63,157,895 of which, up to
$60,000,000 will fund the purchase of the minority ownership
interest in Emerging Communications, Inc. ("EmCom") and
$3,157,895 will fund the purchase of RTFC Subordinated Capital
Certificates ("SCCs") equal to 5% of the total amount borrowed.
Availability: Upon the execution and satisfaction of requisite terms and
conditions of the Loan Agreement but no later than the second
anniversary of the date of the Loan Agreement ("Termination
Date").
Collateral: RTFC shall receive as collateral (i) a first mortgage lien on
the assets and revenues of ICC, (ii) a pledge of 100% of the
proceeds from any sale of an ownership interest in EmCom and, to
the extent permitted by the margin rules of the Board of
Governors of the Federal Reserve, a pledge of any additional
shares of EmCom acquired by either ICC or its affiliate entity,
Innovative Communication Company, LLC, (iii) pledges of the
stock of each of ICCs operating subsidiaries; (iv) secured
guarantees from each of ICCs operating subsidiaries for the full
amount of the Loan plus interest and fees ("Subsidiary
Guarantees"), and (v) an unsecured guaranty of repayment
provided by Jeffrey J. Prosser for the full amount of the Loan
plus interest and fees ("Personal Guaranty"). The Subsidiary
Guarantees will be collateralized by first mortgage liens on the
assets and revenues of each of the Guarantors.
Amortization: A quarterly level debt service repayment schedule with principal
amortization commencing on March 31, 2001.
Interest Rate: The Loan shall accrue interest at RTFC's variable and/or fixed
interest rate(s) for long-term loans with 5% SCCs plus 250 basis
points.
<PAGE>
SUMMARY TERM SHEET
Innovative Communication Corporation
August 21, 1998
Page 2
The Borrower may elect to convert all or a portion of
outstanding loan funds to a fixed interest rate or
rate(s) at any time without a fee. Loans or portions
thereof in the fixed rate mode may be converted to
variable only at the end of a fixed rate period. Fixed
rate conversions at any other time will be subject to
certain notice provisions of Lender and make whole
premiums to cover any unwinding costs that may be
associated with the conversion ("Make-Whole Premium").
Equity Certificate: Purchase of non-interest bearing, amortizing equity
certificates (SCCs) equal to 5% of the total amount
borrowed. The SCCs are amortized annually to maintain a
5% SCC-to-outstanding loan ratio. Amounts amortized are
paid in cash to the Borrower. Amortization begins
approximately one-year after full purchase of the SCCs.
The Borrower may elect to purchase the equity
certificates using one of the following two options: (1)
the SCC is included in the loan amount and is purchased
with each advance of loan funds (Borrowing Option), or
(2) the Borrower uses its own cash to purchase the SCCs
over a 5-year period in 20 equal quarterly installments
commencing with the first full billing cycle following
the initial advance of loan funds (Installment Option).
Patronage Capital: Borrower will receive a share of Lender's net margin in
the form of patronage capital refunds. Patronage capital
is allocated annually based on the percentage that
Borrower's interest payments contributed to Lender's
gross margins. Patronage capital is currently paid in
cash (retired) in two different classes: Class One - 70%
of the allocation is retired during the year in which it
is allocated, and Class Two - The balance of the
allocation is retired on RTFC's Board approved rotation
cycle, currently 15 years.
Commitment Fees: A refundable commitment fee equal to $126,316.00 (20
basis points times the total commitment amount) is due
upon receipt of this Summary Term Sheet and prior to
RTFC's preparation of the credit documentation. The
commitment fee will be refunded (i) in its entirety upon
full advance of that loan for the purpose specified.
There will be no retention of a portion of the
commitment fee if the loan funds are not fully advanced
due to the actual price paid for the stock of EmCom. The
commitment fee will also be refunded if a transaction
does not close for reasons that, in Lender's reasonable
belief, are beyond the Borrower's control. Under all
other circumstances, the commitment fee(s) will be
retained by RTFC.
Prepayments: Prepayment of all or a portion of outstanding loan funds
in the variable rate mode will be subject to a
Prepayment Fee of 50 basis points times the amount of
principal being prepaid. Prepayment of all or a portion
of outstanding loan funds in the fixed rate mode will be
subject to the 50 basis point Prepayment Fee on the
amount of principal being prepaid plus any applicable
Make-Whole Premium associated with the prepayment.
Financial Covenants: The credit documentation will include, without
limitation, the following Financial Ratio Requirements:
(a) An average TIER of 1.50 for the two highest of the
last three years. TIER, for any year, shall be
calculated on a consolidated basis and arrived at
as follows: net income plus income taxes plus
interest payable on long-term debt for such year
divided by interest on long-term debt payable for
such year.
(b) An average DSC ratio of 1.25 for the two highest
of the last three years. DSC for any year, shall
be calculated on a consolidated basis and arrived
at as follows: net income plus depreciation and
amortization plus interest payable on long-term
debt for such year divided by principal and
interest payable on long-term debt in such year.
<PAGE>
SUMMARY TERM SHEET
Innovative Communication Corporation
August 21, 1998
Page 3
Negative Covenants: The credit documentation will include, without
limitation, the following negative covenants.
Dividends: Borrower may distribute dividends without
---------
Lender's prior written approval provided that (i) after
giving effect to such dividend payment, it achieves an
equity-to-total assets ratio ("Post Transaction Net
Worth") of 40% or greater, or (ii) the dividend payment
does not exceed 25% of Borrower's prior fiscal year's
Cash Margins and its Post Transaction Net Worth is 25%
or greater. Cash Margins shall mean, in any given year,
the Borrower's income before non-cash charges and after
non-cash credits and principal on long-term debt payable
for the year.
Additional Indebtedness: Borrower may incur additional
-----------------------
secured or unsecured indebtedness without Lender's prior
written approval provided that its Post Transaction Net
Worth is 40% or greater, except that Borrower may incur
additional unsecured trade debt provided that, in the
aggregate, the total does not exceed 5% of Borrower's
total assets.
Conditions of Closing: Including, but not limited to, the following:
a) RTFC shall receive, in form and content satisfactory
to RTFC, the following: (i) an opinion from
Borrower's counsel that the planned merger of a
subsidiary of the Borrower into EmCom will not, in
any way, conflict with the IRS tax free
reorganization ruling, and the tax allocation
agreement between ATN and ATN, Inc. issued pursuant
to the split-off of ATN and ATN, Inc. (ii) Copies of
all materials related to the tender offer to be
proffered by Borrower for the remaining shares of
EmCom; and (iii) evidence that Borrower has
commitments from minority shareholders for the sale
of EmCom stock to Borrower such that Innovative
Communications Company and the Borrower would
collectively own at least 75% of the total EmCom
stock outstanding, upon consummation of the tender
offer. Borrower will not increase the price for the
tender above $10.25 per EmCom share without the
consent of the RTFC. Within 90 days after
consummation of the tender offer, Borrower shall
take all actions necessary to acquire any remaining
shares of EmCom stock still held by minority
shareholders.
b) Borrower covenants and agrees that it shall purchase
and maintain storm damage insurance policies on all
of its and, if applicable, its subsidiaries'
properties, in form and substance satisfactory to
RTFC, for a minimum of three years, and shall renew
such policies with occurrence coverage substantially
similar to that of Borrower's current General Star
Indemnity policy. RTFC shall be named as loss-payee
on all such policies and RTFC shall be promptly
notified of any changes in coverage on such
policies.
c) Closing on the Loan shall be subject to Borrower's
execution and delivery of definitive credit and
guarantee documentation, in form and content
satisfactory to Lender, including the required Loan
Agreements, Mortgage and Security Agreement,
Promissory Note, Pledge and Security Agreements,
Stock Powers, Personal Guaranty, Subsidiary
Guarantees, Guarantors' Mortgage and Security
Agreements, and Opinion(s) of Counsel; and
d) No material adverse change or representation shall
have occurred or have been made by or on behalf of
Borrower and/or its subsidiaries, with regard to
their respective businesses, operations, financial
position on the financing transaction contemplated
herein.
Governing Law: The Loan and all other credit documentation shall be
governed by the laws of the commonwealth of Virginia,
except to the extent that the location of the collateral
may require the application of other law.
<PAGE>
EXHIBIT (C)(1)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated as
of August 17, 1998, among Emerging Communications, Inc., a Delaware
corporation (the "Company"), Innovative Communication Corporation, a U.S.
Virgin Islands corporation ("Purchaser"), and ICC Merger Sub Corporation, a
Delaware corporation and a wholly-owned subsidiary of Purchaser ("Merger
Sub"), the Company and Merger Sub sometimes being hereinafter collectively
referred to as the "Constituent Corporations."
RECITALS
WHEREAS, the Boards of Directors of Purchaser and the Company each have
determined that it is in the best interests of their respective shareholders
for Purchaser to acquire the shares of Common Stock, par value $0.01 per share
of the Company, not currently owned by Innovative Communications Company, a
Delaware limited liability company (the "Parent"), which owns all of the
outstanding capital stock of the Purchaser upon the terms and subject to the
conditions set forth herein; and
WHEREAS, the Company, Purchaser and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein the
parties hereto hereby agree as follows:
ARTICLE I
THE TENDER OFFER
1.1. Tender Offer. (a) Provided that this Agreement shall not have been
terminated in accordance with Article IX hereof and none of the events set
forth in Annex A hereto shall have occurred or be existing, within five
business days of the date hereof, the Purchaser will commence a tender offer
(the "Offer") for all of the outstanding Shares that the Parent does not own
at a price of $10.25 per Share in cash, net to the seller, subject to the
conditions set forth in Annex A hereto. Subject to the terms and conditions of
the Offer, the Purchaser will promptly pay for all Shares duly tendered that
it is obligated to purchase thereunder. The Company's Board of Directors and a
majority of the Company's Independent Directors (as defined below) shall
recommend acceptance of the Offer to its stockholders in a
Solicitation/Recommendation Statement on Schedule 14D-9 (as such statement may
be amended or supplemented from time to time, the "Schedule 14D-9") to be
filed with the Securities and Exchange Commission (the "SEC") upon
commencement of the Offer; provided, however, that if the Company's Board of
Directors determines that its fiduciary duties require it to amend or withdraw
its recommendation, such amendment or withdrawal shall not constitute a breach
of this Agreement. The Purchaser will not without the prior written consent of
the Company decrease the price per Share or change the form of consideration
payable in the Offer, decrease the number of Shares sought, change the
conditions to the Offer or waive the Minimum Tender Condition (as defined on
Annex A hereto). The Purchaser shall not terminate or withdraw the Offer or
extend the expiration date of the Offer unless at the expiration date of the
Offer the conditions to the Offer set forth on Annex A hereto shall not have
been satisfied or waived.
(b) Purchaser agrees, as to the Offer to Purchase and related Letter of
Transmittal (which together, as either of them may be amended or supplemented
from time to time, constitute the "Offer Documents"), and the Company agrees,
as to the Schedule 14D-9, that such documents shall, in all material respects,
comply with the requirements of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder and
other applicable laws. The Company and its counsel, as to the Offer Documents,
and
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Purchaser and its counsel, as to the Schedule 14D-9, shall be given an
opportunity to review such documents prior to their being filed with the SEC.
(c) In connection with the Offer, the Company will cause its transfer agent
to furnish promptly to the Purchaser a list, as of a recent date, of the
record holders of Shares and their addresses, as well as mailing labels
containing the names and addresses of all record holders of Shares and lists
of security positions of Shares held in stock depositories. The Company will
furnish the Purchaser with such additional information (including, but not
limited to, updated lists of holders of Shares and their addresses, mailing
labels and lists of security positions) and such other assistance as Purchaser
or its agents may reasonably request in communicating the Offer to the record
and beneficial holders of Shares.
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
2.2. The Merger. Subject to the terms and conditions of this Agreement and
the Delaware Certificate of Merger (as defined below), at the Effective Time
(as defined in Section 2.4) Merger Sub shall be merged with and into the
Company and the separate corporate existence of the Merger Sub shall thereupon
cease (the "Merger"). The Company shall be the surviving corporation in the
Merger (sometimes hereinafter referred to as the "Surviving Corporation") and
shall continue to be governed by the laws of the State of Delaware, and the
separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger,
except as set forth in Section 3.1. The Merger shall have the effects
specified in the Delaware General Corporation Law (the "DGCL").
2.3. Closing. The closing of the Merger (the "Closing") shall take place (i)
at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York
10005 at 10:00 A.M. on the first business day on which the last to be
fulfilled or waived of the conditions set forth in Article VIII (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions) shall be fulfilled
or waived in accordance with this Agreement or (ii) at such other place and
time and/or on such other date as the Company and Purchaser may agree.
2.4. Effective Time. As soon as practicable following the Closing, and
provided that this Agreement has not been terminated or abandoned pursuant to
Article IX hereof, the Company and Purchaser will cause a Certificate of
Merger (the "Delaware Certificate of Merger") to be executed and filed with
the Secretary of State of Delaware as provided in Section 251 of the DGCL. The
Merger shall become effective on the date on which the Delaware Certificate of
Merger has been duly filed with the Secretary of State of Delaware, and such
time is hereinafter referred to as the "Effective Time." At the Effective
Time, all of the assets, properties, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, obligations and duties of the Company and Merger Sub shall
become the debts, liabilities, obligations and duties of the Surviving
Corporation.
2.5. Merger Without Meeting of Stockholders. Notwithstanding Section 2.4
hereof, in the event that Purchaser, Merger Sub or any other subsidiary of
Purchaser shall acquire at least 90% of the outstanding Shares pursuant to the
Offer or otherwise, the parties hereto agree, at the request of Purchaser or
Merger Sub, to take all necessary and appropriate action to cause the Merger
to become effective as soon as practicable after the acceptance for payment
and purchase of Shares by the Purchaser pursuant to the Offer without a
meeting of stockholders of the Company in accordance with Section 253 of the
DGCL.
ARTICLE III
CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
3.1. The Certificate of Incorporation. The Restated Certificate of
Incorporation of the Company (the "Certificate") in effect at the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation,
until duly amended in accordance with the terms thereof and the DGCL.
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3.2. The By-Laws. The By-Laws of the Company in effect at the Effective Time
shall be the By-Laws of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the DGCL.
ARTICLE IV
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
4.1. Officers and Directors. The directors and officers of the Company at
the Effective Time shall, from and after the Effective Time, be the directors
and officers, respectively, of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-Laws.
4.2. Actions by Directors. For purposes of Section 1.1(a), Article IX and
Sections 10.3 and 10.4, no action taken by the Board of Directors of the
Company prior to the Merger shall be effective unless such action is approved
by the affirmative vote of at least a majority of the directors of the Company
who are not officers of Purchaser or the Company or any affiliate of either of
them (the "Independent Directors").
ARTICLE V
CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
5.1. Conversion or Cancellation of Shares. The manner of converting or
canceling shares of the Company and Merger Sub in the Merger shall be as
follows:
(a) At the Effective Time, each share of the Common Stock, par value
$0.01 per share (the "Shares"), of the Company issued and outstanding
immediately prior to the Effective Time (other than Shares owned by the
Parent, the Purchaser, Merger Sub or any other direct or indirect
subsidiary of the Parent (collectively, the "Purchaser Companies") or
Shares that are owned by the Company or any direct or indirect subsidiary
of the Company or Shares ("Dissenting Shares") which are held by
stockholders ("Dissenting Stockholders") properly exercising appraisal
rights pursuant to Section 262 of the DGCL (collectively, "Excluded
Shares")) shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive, without
interest, an amount in cash (the "Merger Consideration") equal to $10.25 or
such greater amount which may be paid pursuant to the Offer. At the
Effective Time, all Shares (other than Excluded Shares), by virtue of the
Merger and without any action on the part of the holders thereof, shall no
longer be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares (other
than Excluded Shares) shall thereafter cease to have any rights with
respect to such Shares, except the right to receive the Merger
Consideration for such Shares upon the surrender of such certificate in
accordance with Section 5.2 or the right, if any, to receive payment from
the Surviving Corporation of the "fair value" of such Shares as determined
in accordance with Section 262 of the DGCL.
(b) At the Effective Time, each Share issued and outstanding at the
Effective Time and owned by any of Purchaser Companies or held in the
Company's treasury or owned by the Company or any direct or indirect
subsidiary of the Company shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into one share of
common stock of the Surviving Corporation. From and after the Effective
Time, each outstanding certificate theretofore representing Shares of the
Company owned by any of the Purchaser Companies shall be deemed for all
purposes to evidence ownership of, and to represent the number of shares
of, the Surviving Corporation into which such Shares of the Company shall
have been converted.
(c) At the Effective Time, the shares of common stock, par value $0.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of Merger Sub or the holders of such shares, be converted into that
number of shares of common stock of the Surviving Corporation equal to the
number of issued and outstanding Shares at the
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Effective Time less the number of Excluded Shares. From and after the
Effective Time, each outstanding certificate theretofore representing
shares of Merger Sub shall be deemed for all purposes to evidence ownership
of, and to represent the number of shares of, the Surviving Corporation
into which such shares of Merger Sub shall have been converted.
5.2. Payment for Shares. At or prior to the Effective Time, purchaser shall
make available or cause to be made available to the paying agent appointed by
Purchaser with the Company's prior approval (the "Paying Agent") amounts
sufficient in the aggregate to provide all funds necessary for the Paying
Agent to make payments pursuant to Section 5.1(a) hereof to holders of Shares
issued and outstanding immediately prior to the Effective Time. Promptly after
the Effective Time, the Surviving Corporation shall cause to be mailed to each
person who was, at the Effective Time, a holder of record (other than holders
of Excluded Shares) of issued and outstanding Shares a form (mutually agreed
to by Purchaser and the Company) of letter of transmittal and instructions for
use in effecting the surrender of the certificates which, immediately prior to
the Effective Time, represented any of such Shares in exchange for payment
therefor. Upon surrender to the Paying Agent of such certificates, together
with such letter of transmittal, duly executed and completed in accordance
with the instructions thereto, the Surviving Corporation shall promptly cause
to be paid to the persons entitled thereto a check in the amount to which such
persons are entitled, after giving effect to any required tax withholdings. No
interest will be paid or will accrue on the amount payable upon the surrender
of any such certificate. If payment is to be made to a person other than the
registered holder of the certificate surrendered, it shall be a condition of
such payment that the certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the certificate
surrendered or establish to the satisfaction of the Surviving Corporation or
the Paying Agent that such tax has been paid or is not applicable. One hundred
and eighty (180) days following the Effective Time, the Surviving Corporation
shall be entitled to cause the Paying Agent to deliver to it any funds
(including any interest received with respect thereto) made available to the
Paying Agent which have not been disbursed to holders of certificates formerly
representing Shares outstanding on the Effective Time, and thereafter such
holders shall be entitled to look to the Surviving Corporation only as general
creditors thereof with respect to the cash payable upon due surrender of their
certificates. Notwithstanding the foregoing, neither the Paying Agent nor any
party hereto shall be liable to any holder of certificates formerly
representing Shares for any amount paid to a public official pursuant to any
applicable abandoned property, escheat or similar law. The Surviving
Corporation shall pay all charges and expenses, including those of the Paying
Agent, in connection with the exchange of cash for Shares and Purchaser shall
reimburse the Surviving Corporation for such charges and expenses.
5.3 Dissenters' Rights. If any Dissenting Stockholder shall be entitled to
be paid the "fair value" of such Dissenting Stockholder's Shares, as provided
in Section 262 of the DGCL, the Company shall give Purchaser notice thereof
and Purchaser shall have the right to participate in all negotiations and
proceedings with respect to any such demands. Neither the Company nor the
Surviving Corporation shall, except with the prior written consent of
Purchaser, voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for payment. If any person who otherwise would have
been a Dissenting Stockholder shall have failed to perfect or shall have
effectively withdrawn or lost the right to dissent, the Shares held by such
person shall thereupon be treated as though such Shares had been converted
into the Merger Consideration pursuant to Section 5.1.
5.4 Transfer of Shares After the Effective Time. No transfers of Shares
shall be made on the stock transfer books of the Surviving Corporation at or
after the Effective Time.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser and Merger Sub that:
(a) Corporate Authority. Subject only to approval of this Agreement by
the holders of a majority of the outstanding Shares, the Company has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. This Agreement is a valid and binding
agreement of the Company enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(b) Fairness Opinion. The Board of Directors of the Company has received
an opinion of Houlihan, Lokey, Howard and Zukin, dated the date hereof, to
the effect that the offer and the Merger are fair, from a financial point
of view, to the holders of Shares (other than Purchaser).
(c) Schedule 14D-9; Offer Documents. The Schedule 14D-9 distributed to
the Company's stockholders in connection with the Merger will not, at the
date of filing with the SEC, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied
by the Parent, Purchaser or Merger Sub for inclusion in the Schedule 14D-9.
None of the information supplied by the Company for inclusion in the Offer
Documents or the Rule 13e-3 Transaction Statement on Schedule 13E-3
(together with any supplements or amendments thereto, the "Schedule 13E-
3"), at the respective times such Offer Documents or the Schedule 13B-3 or
any amendments or supplements thereto are filed with the SEC, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The Company agrees to correct promptly any information in the
Schedule 14D-9 or any information provided by it for use in the Offer
Documents or the Schedule 13E-3 if and to the extent that it shall have
become false or misleading in any material respect and the Company further
agrees to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and disseminated to the holders of
Shares, in each case as and to the extent required by applicable federal
securities laws.
6.2. Representations and Warranties of Purchaser and Merger Sub. Purchaser
and Merger Sub represent and warrant to the Company that:
(a) Corporate Organization and Qualification. Each of Purchaser and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation and
is in good standing as a foreign corporation in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by it
require such qualification except for such failure to so qualify or to be
in such good standing, which, when taken together with all other such
failures, could not reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), properties, assets,
liabilities, business or results of operations of Purchaser and its
subsidiaries, taken as a whole. Purchaser owns record and beneficially all
of the issued and outstanding shares of common stock of Merger Sub.
(b) Corporate Authority. Each of Purchaser and Merger Sub has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. This Agreement is a valid and binding
agreement of Purchaser and Merger Sub enforceable against Purchaser and
Merger Sub in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors, rights and to general
equity principles.
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(c) Governmental Filings; No Violations. (i) Other than filings by
Purchaser of the certificate of merger under the DGCL and filings required
under the Exchange Act (the "Purchaser Regulatory Filings"), no notices,
reports or other filings are required to be made by Purchaser and Merger
Sub with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Purchaser and Merger Sub from,
any governmental entity or third party in connection with the execution and
delivery of this Agreement by Purchaser and Merger Sub and the consummation
of the transactions contemplated hereby by Purchaser and Merger Sub, the
failure to make or obtain any or all of which could prevent or materially
delay the transactions contemplated by this Agreement.
(ii) The execution and delivery of this Agreement by Purchaser and Merger
Sub do not, and the consummation of the transactions contemplated hereby by
Purchaser and Merger Sub will not, constitute or result in a breach or
violation of, or a default under, the Certificate of Incorporation or By-
Laws (or similar organizational documents) or any contract or agreement of
Purchaser or Merger Sub.
(d) Funds. Purchaser has received a commitment from the Rural Telephone
Financial Corporation to provide the funds necessary to consummate the
Offer and the Merger.
(e) Offer Documents; Schedule 14D-9. The Offer Documents will not, at the
date of filing with the SEC, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied by Purchaser or Merger Sub for inclusion in the
Schedule 14D-9 or related materials or the Schedule 13E-3 at the respective
times such Schedules or any amendments or supplements thereto are filed
with the SEC, will contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Purchaser and Merger Sub agree to correct promptly any
information in the Offer Documents or any information provided by them for
use in the Schedule 14D-9 or related materials or the Schedule 13E-3 if and
to the extent that it shall have become false or misleading in any material
respect and Purchaser and Merger Sub further agree to take all steps
necessary to cause the Offer Documents as so corrected to be filed with the
SEC and to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws.
ARTICLE VII
COVENANTS
7.1. Interim Operations of the Company. The Company covenants and agrees
that, prior to the Effective Time (unless Purchaser shall otherwise agree in
writing and except as otherwise expressly contemplated by this Agreement), the
business of the Company and its subsidiaries shall be conducted only in the
ordinary and usual course consistent with past practice and, to the extent
consistent therewith, each of the Company and its subsidiaries shall use its
best efforts to preserve its business organization intact (including
maintaining all of its Permits) and maintain its existing relations with
customers, suppliers, employees and business associates and it will take no
action that would adversely affect the ability of the parties to promptly
consummate the transactions contemplated by this Agreement.
7.2. Meetings of the Company's Stockholders. If required following
termination of the Offer, the Company will take all action necessary to
convene a meeting of holders of Shares as promptly as practicable to consider
and vote upon the approval of this Agreement and the Merger. Subject to
fiduciary requirements of applicable law, the Board of Directors of the
Company shall recommend such approval and the Company shall take all lawful
action to solicit such approval provided, however, that nothing contained in
this Section 7.2 shall prohibit the Company or its Board of Directors, or the
representatives of either of them, from recommending to the stockholders of
the Company against, or withdrawing, modifying or changing its recommendation
to the stockholders with respect to, the Merger, if the Board of Directors
determines, after consultation with counsel, that failure to do so would
violate its fiduciary duty to the stockholders of the Company under applicable
law. At any such meeting of the Company all of the Shares then owned by
Purchaser Companies (including all Shares currently owned by the Purchaser
Companies) will be voted in favor of this Agreement.
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7.3. Filings; Other Action. Subject to the terms and conditions herein
provided, (a) the Purchaser shall promptly make the Purchaser Regulatory
Filings and thereafter make any other required submissions with respect to the
Offer and the Merger and (b) the Company and the Purchaser shall use their
respective best efforts to take promptly, or cause to be taken promptly, all
other action and do, or cause to be done, all other things necessary, proper
or appropriate under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement as soon as
practicable.
7.4. Publicity. The initial press release issued in connection with the
execution of this Agreement shall be a joint press release and thereafter the
Company and Purchaser shall consult with each other prior to issuing any press
releases or otherwise making public statements with respect to the
transactions contemplated hereby and prior to making any filings with any
governmental entity or with any national securities exchange with respect
thereto.
7.5. Indemnification; Directors' and Officers' Insurance. (a) From and after
the Effective Time, the Surviving Corporation and Purchaser each agrees that
it will indemnify and hold harmless each present and former director and/or
officer of the Company, determined as of the Effective Time (the "Indemnified
Parties"), that is made a party or threatened to be made a party to any
threatened, pending or completed action, suit, proceeding or claim, whether
civil, criminal, administrative or investigative, by reason of the fact that
he or she was a director or officer of the Company or any subsidiary of the
Company prior to the Effective Time and arising out of actions or omissions of
the Indemnified Party in any such capacity occurring at or prior to the
Effective Time (a "Claim") against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, amounts paid in settlement pursuant to
Section 7.5(b), losses, claims, damages or liabilities (collectively, "Costs")
reasonably incurred in connection with any Claim, whether asserted or claimed
prior to, at or after the Effective Time, to the fullest extent that the
Company would have been permitted under Delaware law. The Surviving
Corporation and Purchaser shall also advance expenses (including attorneys'
fees), as incurred by the indemnified Party to the fullest extent permitted
under applicable law provided such indemnified Party provides an undertaking
to repay such advances if it is ultimately determined that such Indemnified
Party is not entitled to indemnification.
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 7.5, upon learning of any such Claim, shall promptly
notify the Surviving Corporation and Purchaser thereof, but the failure to so
notify shall not relieve the Surviving Corporation or Purchaser of any
liability it may have to such Indemnified Party if such failure does not
materially prejudice the indemnifying party. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) Purchaser or the Surviving Corporation shall have the
right to assume the defense thereof and Purchaser shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if Purchaser or the Surviving Corporation
elects not to assume such defense or counsel for the Indemnified Parties
advises that there are issues which raise conflicts of interest between
Purchaser or the Surviving Corporation and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Purchaser or
the Surviving Corporation shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; provided, however, that the Surviving Corporation and Purchaser
shall be obligated pursuant to this paragraph (b) to pay for only one firm of
counsel for all Indemnified Parties in any jurisdiction unless the use of one
counsel for such Indemnified Parties would present such counsel with a
conflict of interest, (ii) the Indemnified Parties will cooperate in the
defense of any such matter and (iii) Purchaser shall not be liable for any
settlement effected without its prior written consent; and provided further
that the Surviving Corporation and Purchaser, respectively, shall not have any
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and non-appealable, that the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law. If
such indemnity is not available with respect to any Indemnified Party, then
the Surviving Corporation and the Indemnified Party shall contribute to the
amount payable in such proportion as is appropriate to reflect relative faults
and benefits.
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(c) If a claim for indemnification or advancement under this Section 7.5 is
not paid in full by the Surviving Corporation or Purchaser within thirty days
after a written claim therefor has been received by the Surviving Corporation
or Purchaser, the Indemnified Party may any time thereafter bring suit against
the Surviving Corporation or Purchaser to recover the unpaid amount of the
claim and, if successful in whole or in part, the Indemnified Party shall be
entitled to be paid also the expense of prosecuting such claims.
Neither the failure of the Surviving Corporation or Purchaser (including
their Boards of Directors, independent legal counsel or shareholders) to have
made a determination prior to the commencement of such suit that
indemnification of the Indemnified Party is proper in the circumstances
because he or she has met the applicable standard of conduct, nor an actual
determination by the Surviving Corporation or Purchaser (including their
Boards of Directors, independent legal counsel, or shareholders) that the
Indemnified Party has not met such applicable standard of conduct, shall be a
defense to the suit or create a presumption that the Indemnified Party has not
met the applicable standard of conduct.
(d) The Surviving Corporation shall maintain the Company's existing
officers' and directors' liability insurance or equivalent liability insurance
("D&O Insurance") for a period of six years after the Effective Time so long
as the annual premium therefor is not in excess of the last annual premium
paid prior to the date hereof (the "Current Premium"); provided, however, if
the existing D&O Insurance expires, is terminated or canceled during such six-
year period, the Surviving Corporation will use its best efforts to obtain as
much D&O Insurance as can be obtained for the remainder of such period for a
premium not in excess (on an annualized basis) of 200 percent of the Current
Premium.
(e) In lieu of the insurance arrangement referred to in clause (d) of
this Section 7.5, the Surviving Corporation may, on or before the
expiration of the Offer, enter into alternative insurance arrangements
provided that such arrangements are approved by the Independent Directors
and Purchaser.
7.6. Other Agreements.
(a) Takeover Statute. If any "fair price," "control share acquisition" or
similar anti-takeover statute or regulation shall become applicable to the
Merger, the Offer or the other transactions contemplated hereby, the
Company and the members of the Board of Directors of the Company shall
grant such approvals and take such actions as are necessary so that the
transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate
or minimize the effects of such statute or regulation on the transactions
contemplated hereby.
(b) Best Efforts and Cooperation. The Company and Purchaser each shall
use (and shall cause its subsidiaries to use) its best efforts to cause the
conditions set forth in Article VIII to be satisfied and to consummate the
Merger and the other transactions contemplated by this Agreement.
(c) Purchaser Vote. Purchaser shall vote (or consent with respect to) or
cause to be voted (or a consent to be given with respect to) any Shares
(including all Shares currently owned) and any shares of common stock of
Merger Sub beneficially owned by it, the Parent or any of their respective
subsidiaries or with respect to which it, the Parent or any of their
respective subsidiaries has the power (by agreement, proxy or otherwise) to
cause to be voted (or to provide a consent), in favor of the adoption and
approval of this Agreement at any meeting of stockholders of the Company or
Merger Sub, respectively, at which this Agreement shall be submitted for
adoption and approval and at all adjournments or postponements thereof (or,
if applicable, by any action of stockholders of either the Company or
Merger Sub by consent in lieu of a meeting).
(d) Consents. Each Purchaser Company shall, and shall cause each of its
respective subsidiaries to, use its and their reasonable best efforts to
obtain prior to the Effective Time all consents, registrations, approvals,
permits, authorizations, notices, reports or other filings required to be
made or obtained by any Purchaser Company with or from any third Person
including any Governmental Entity in connection with the Offer and the
Merger and which are necessary for the consummation of the Offer and the
Merger and the other transactions contemplated thereby.
8
<PAGE>
7.7. Certain Amendments to the Certificate of Incorporation and By-laws of
the Surviving Corporation. No amendment to the Certificate of Incorporation or
By-laws of the Surviving Corporation shall reduce in any way the elimination
of personal liability of the directors of the Company contained therein or
adversely affect any then existing right of any director or officer (or former
director or officer) to be indemnified with respect to acts, omissions or
events occurring prior to the Effective Time.
ARTICLE VIII
CONDITIONS
8.1. Conditions to Obligations of Parties. The respective obligations of the
parties to consummate the Merger are subject to the fulfillment of each of the
following conditions:
(a) Stockholder Approval. In the event of a Company stockholder meeting
pursuant to Section 7.2, this Agreement shall have been duly approved by
the holders of a majority of the Shares, in accordance with applicable law
and the Certificate and By-Laws of the Company;
(b) Purchase of Shares. The Purchaser (or one of Purchaser Companies)
shall have purchased Shares pursuant to the Offer; and
(c) Litigation. No court or other governmental entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and
prohibits consummation of the Merger.
ARTICLE IX
TERMINATION
9.1. Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by holders of Shares, by the mutual consent of Purchaser
and the Company, by action of their respective Boards of Directors.
9.2. Termination by Either Purchaser or the Company. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Purchaser or the Company if: (i) the Purchaser, or any Purchaser
Company, shall have terminated the Offer without purchasing any Shares
pursuant thereto; provided that the right to terminate this Agreement under
this Section 9.2 (i) shall not be available to the Purchaser or any Purchaser
Company whose failure to fulfill any obligation under this Agreement has been
the cause or results in the failure to purchase such Shares; and provided,
further, that in the case of termination of this Agreement by Purchaser, such
termination of the Offer is not in violation of the terms of the Offer; or
(ii) without fault of the terminating party, the Merger shall not have been
consummated by December 31, 1999, whether or not such date is before or after
the approval by holders of Shares.
9.3. Termination by Purchaser. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by holders of Shares, by action of the Board of Directors
of Purchaser, if: (i) the Company shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement to
be complied with or performed by the Company at or prior to such date of
termination; or (ii) the Board of Directors of the Company or the Independent
Directors shall have withdrawn or modified in a manner adverse to Purchaser or
Merger Sub its approval or recommendation of the Offer, this Agreement or the
Merger or the Board of Directors of the Company or the Independent Directors,
upon request by Purchaser, shall fail to reaffirm such approval or
recommendation, or shall have resolved to do any of the foregoing.
9.4. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by holders of Shares by action of the Board
9
<PAGE>
of Directors of the Company, if Purchaser or Merger Sub (i) shall have failed
to comply in any material respect with any of the covenants or agreements
contained in this Agreement to be complied with or performed by Purchaser or
Merger Sub at or prior to such date of termination or (ii) shall have failed
to commence the Offer within the time required in Section 1.1.
9.5. Effect of Termination and Abandonment. In the event of termination of
this Agreement and abandonment of the Merger pursuant to this Article IX, no
party hereto (or any of its directors or officers) shall have any liability or
further obligation to any other party to this Agreement, except as provided in
Section 10.2 below and except that nothing herein will relieve any party from
any liability or damages for any breach of this Agreement.
ARTICLE X
MISCELLANEOUS AND GENERAL
10.1 Payment of Expenses. Whether or not the Merger shall be consummated,
each party hereto shall pay its own expenses incident to preparing for,
entering into and carrying out this Agreement and the consummation of the
Merger.
10.2. Survival. The agreements of the Company, Purchaser and Merger Sub
contained in Sections 5.2 (but only to the extent that such Section expressly
relates to actions to be taken after the Effective Time), 5.3, 5.4, 7.5, 7.7,
and 10.1 shall survive the consummation of the Merger. The agreements of the
Company, Purchaser and Merger Sub contained in Section 9.5 and this Article X
shall survive the termination of this Agreement. All other representations,
warranties, agreements and covenants in this Agreement shall not survive the
consummation of the Merger or the termination of this Agreement.
10.3. Modification or Amendment. Subject to the applicable provisions of the
DGCL, at any time prior to the Effective Time, the parties hereto may modify
or amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
10.4. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party
and may be waived by such party in whole or in part to the extent permitted by
applicable law.
10.5. Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
10.6. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF
DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of the State of
Delaware and the Federal courts of the United States of America located in the
State of Delaware solely in respect of the interpretation and enforcement of
the provisions of this Agreement and of the documents referred to in this
Agreement, and in respect of the transactions contemplated hereby, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such document, that it
is not subject thereto or that such action, suit or proceeding may not be
brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any such document may not be
enforced in or by such courts, and the parties hereto irrevocably agree that
all claims with respect to such action or proceeding shall be heard and
determined in such a Delaware State or Federal court. The parties hereby
consent to and grant any such court jurisdiction over such parties and over
the subject matter of such dispute and agree that mailing of process or other
papers in connection with any such action or proceeding in the manner provided
in Section 10.7, or in such other manner as may be permitted by law, shall be
valid and sufficient service thereof.
10
<PAGE>
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES,
AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii)
EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.6.
10.7. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid:
if to Purchaser or Merger Sub
Innovative Communications Corporation
5 and 10A Estate Shoys
St. Croix, U.S. Virgin Islands 00820
Attention: Jeffrey J. Prosser
with a copy to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
if to the Company
Emerging Communications, Inc.
Chase Financial Center
Orange Grove Christiansted
St. Croix, U.S. Virgin Islands 00821
Attention: Thomas Minnich
with a copy to:
William P. Schwitter, Esq.
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, N.Y. 10022
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
10.8. Entire Agreement. This Agreement (including any annexes exhibits or
Schedules hereto) constitutes the entire agreement, and supersedes all other
prior agreements, understandings, representations and warranties both written
and oral, among the parties, with respect to the subject matter hereof.
10.9. No Third Party Beneficiaries. Except as provided in Sections 7.5
(Indemnification; Directors' and Officers' Insurance) and 7.7 (Certain
Amendments to the Certificate of Incorporation and By-laws of the Surviving
Corporation), this Agreement is not intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder.
11
<PAGE>
10.10. Obligations of Purchaser and of the Company. Whenever this Agreement
requires Merger Sub or, after the Effective Time, the Surviving Corporation,
to take any action, such requirement shall be deemed to include an undertaking
on the part of Purchaser to cause Merger Sub or the Surviving Corporation,
respectively, to take such action, including providing the requisite funds to
purchase Shares or make any other payment obligation. Whenever this Agreement
requires a subsidiary of the Company to take any action, such requirement
shall be deemed to include an undertaking on the part of the Company to cause
such subsidiary to take such action and, after the Effective Time, on the part
of the Surviving Corporation to cause such subsidiary to take such action.
10.11. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may
be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or
the application thereof, in any other jurisdiction.
10.12. Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Schedule, such
reference shall be to a Section of or Annex or Schedule to this Agreement
unless otherwise indicated. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
10.13. Assignment. This Agreement shall not be assignable by operation of
law or otherwise; provided, however, that Purchaser may designate, by written
notice to the Company, another wholly-owned direct or indirect subsidiary to
be a Constituent Corporation in lieu of Merger Sub, in the event of which, all
references herein to Merger Sub shall be deemed references to such other
subsidiary except that all representations and warranties made herein with
respect to Merger Sub as of the date of this Agreement shall be deemed
representations and warranties made with respect to such other subsidiary as
of the date of such designation.
10.14. Definition of "Subsidiary" and "Person". When a reference is made in
this Agreement to a subsidiary of a party, the word "subsidiary" means any
corporation or other organization whether incorporated or unincorporated of
which at least a majority of the securities or interests having by the terms
thereof ordinary voting power to elect at least a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its subsidiaries, or by such
party and one or more of its subsidiaries. When a reference is made in this
Agreement to a person, the word "person" means and includes any natural
person, corporation, partnership, firm, joint venture, association, joint-
stock company, trust, unincorporated organization, governmental or political
subdivision, regulatory body or other entity.
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first
hereinabove written.
Emerging Communications, Inc.
/s/ Thomas R. Minnich
By:__________________________________
Name: Thomas R. Minnich
Title:Chief Operating Officer
Innovative Communication Corporation
/s/ Jeffrey J. Prosser
By:__________________________________
Name:Jeffrey J. Prosser
Title:President
ICC Merger Sub Corporation
/s/ Jeffrey J. Prosser
By:__________________________________
Name:Jeffrey J. Prosser
Title:President
13
<PAGE>
ANNEX A
Certain Conditions of the Offer. Notwithstanding any other provision of the
Offer, the Purchaser shall not be obligated to accept for payment any Shares
or, subject to any applicable rules and regulations of the SEC, including Rule
14e-l(c) (relating to Purchaser's obligation to pay for or return tendered
Shares promptly after termination or withdrawal of the Offer) or pay for, and
may delay the acceptance for payment of or payment for, any tendered Shares
unless (I) there have been validly tendered and not withdrawn prior to the
expiration date of the Offer a majority of the outstanding Shares not
beneficially owned directly or indirectly by the Parent or its affiliates as
of the date the Shares are accepted for payment pursuant to the Offer (the
"Minimum Tender Condition"), or (II) the Purchaser shall have received funds
sufficient to purchase all Shares tendered in the Offer and to pay the Merger
Consideration or (III) if on or after August 24, 1998, and at or before the
time of payment for any of such Shares (whether or not any Shares have
theretofore been accepted for payment or paid for pursuant to the Offer), any
of the following events shall occur:
(a) there shall be any statute, rule, regulation, judgment, injunction or
other order, enacted, promulgated, entered, enforced or deemed applicable
to the Offer or the Merger or any other action shall have been taken by any
government, legislative body, court or governmental, regulatory or
administrative agency, authority, tribunal or commission, domestic,
supranational or foreign (each, a "Governmental Entity"), (i) challenging
the legality of the acquisition by the Purchaser of the Shares; (ii)
restraining, delaying or prohibiting the making or consummation of the
Offer or the Merger or obtaining from the Parent, Company, Purchaser or the
Merger Sub any damages in connection therewith; (iii) imposing limitations
on the ability of Parent, Purchaser or Merger Sub (or any affiliate of
Parent, Purchaser or the Merger Sub) to acquire or hold or to exercise full
rights of ownership of the Shares, including, without limitation, the right
to vote the Shares purchased by them on all matters properly presented to
the stockholders of the Company or (iv) having a substantial likelihood of
any of the foregoing.
(b) there shall have occurred (i) any general suspension of, or
limitation on times or prices for, trading in securities on any national
securities exchange or in the over-the-counter market in the United States
or (ii) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States (whether or not mandatory);
(c) the Company shall have breached or failed to perform in any material
respect any of its covenants, obligations or agreements under the Agreement
or any representation or warranty of the Company set forth in the Agreement
shall have been inaccurate or incomplete in any material respect when made
or thereafter shall become inaccurate or incomplete in any material
respect;
(d) any change, including, without limitation, any change arising out of
or related to any natural disaster (including hurricanes and earthquakes),
shall have occurred or been threatened or become known (or any condition,
event or development shall have occurred or been threatened or become known
involving a prospective change) in the business, properties, assets,
liabilities, condition (financial or otherwise), or results of operations
of the Company or any of its subsidiaries that could reasonably be expected
to be materially adverse to the Company and its subsidiaries taken as a
whole (a "Material Adverse Effect");
(e) all consents, registrations, approvals, permits, authorizations,
notices, reports or other filings required to be made or obtained by the
Parent, Company, Purchaser, the Merger Sub or any stockholder of Purchaser
with or from any Governmental Entity in connection with the Offer and the
Merger shall not have been made or obtained except where the failure to
make or to obtain, as the case may be, such consents, registrations,
approvals, permits, authorizations, notices, reports or other filings could
not reasonably be expected to have a Material Adverse Effect;
<PAGE>
(f) the Special Committee of the Board of Directors shall have adversely
amended or modified or shall have withdrawn its recommendation of the Offer
or the Merger, or shall have failed to publicly reconfirm such
recommendation upon request by Parent, Purchaser or Merger Sub, or shall
have resolved to do any of the foregoing; or
(g) the Agreement shall have been terminated in accordance with its terms
or the Merger Sub shall have reached an agreement or understanding with the
Special Committee providing for termination of the Offer which, in the
reasonable judgment of the Purchaser with respect to each and every matter
referred to above, and regardless of the circumstances (including any
action or inaction by the Parent, Merger Sub, Purchaser or any affiliate of
Parent) giving rise to any such condition, makes it inadvisable to proceed
with the Offer or with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances (including any
action or inaction by the Purchaser, Merger Sub or any affiliate of Parent)
giving rise to any such conditions or, subject to the terms of the Merger
Agreement, may be waived by the Purchaser in whole or in part at any time and
from time to time in its sole discretion. The failure by the Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time. Any determination by the
Purchaser concerning the events described above will be final and binding on
all holders of the Shares.
2
<PAGE>
Exhibit (c)(2)
================================================================================
_________________________________________
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....................................... 3
ARTICLE II
AGREEMENT NOT TO COMPETE;
DISCLOSURE OF INFORMATION
SECTION 2.01. Agreement Not To Compete.......................... 4
SECTION 2.02. Disclosure of Information......................... 6
SECTION 2.03. Acknowledgment.................................... 6
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.01. Remedies.......................................... 7
SECTION 3.02. Benefits.......................................... 7
SECTION 3.03. Severability, Blue Penciling...................... 8
SECTION 3.04. Notices........................................... 9
SECTION 3.05. Complete Agreement; Amendments; Prior Agreements.. 11
SECTION 3.06. Governing Law..................................... 11
SECTION 3.07. Counterparts...................................... 11
SECTION 3.08. Jurisdiction...................................... 12
SECTION 3.09. Expenses of Enforcement........................... 13
-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:
<PAGE>
-2-
ARTICLE I
Definitions
SECTION 1.01. Definitions. Capitalized terms used in this Non-
Competition Agreement without definition shall have the respective meanings
ascribed to such terms in the Subscription Agreement. As used in this Agreement,
the following terms have the meanings assigned to them below:
"Competitive Business" means any business which competes anywhere in
--------------------
the world in any material respect with the conduct of the Subject Business
by the Company or any of its Subsidiaries.
"Confidential Information" means all information of a proprietary
------------------------
nature and documents or other tangible items that record information of a
proprietary nature relating to the Subject Business, including without
limitation, books, records, customer lists, vendor lists, supplier lists,
pricing information, cost information, plans, strategies, forecasts,
financial statistics, budgets and projections, other than any such
information which is generally within the public domain at the time of
receipt thereof by ECI or Prosser or at the time of use or disclosure of
such information by ECI or Prosser (other than as a result of the breach by
ECI or Prosser of its or his agreement hereunder).
"Subject Business" means the business of providing telecommunications
----------------
services (including carrying and/or terminating telecommunications
traffic), directly or indirectly through service bureaus or other
intermediaries, to persons who generate international audiotext
telecommunications traffic (whether voice or data); provided, however, that
-------- -------
the Subject Business shall not include the provision of any
telecommunications services as a common carrier which does not involve the
installation of special 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);
<PAGE>
-3-
(ii) assist others in engaging in any Competitive Business in
the manner described in the foregoing clause (i);
(iii) solicit, entice or induce any director, employee,
consultant or other agent of the Company or any current or future
Subsidiary of the Company materially involved in the Subject Business to
terminate his or her employment or other relationship with the Company or
such current or future Subsidiary or to engage in any Competitive Business;
(iv) solicit, entice or induce any vendor or distributor of the
Company or any current or future Subsidiary materially involved in the
Subject Business to terminate or materially diminish its relationship with
the Company or such current or future Subsidiary; or
(v) solicit, entice or induce any subscriber or customer of
the Company or any current or future Subsidiary of the Company with respect
to the Subject Business to purchase the products or services of any
Competitive Business, or to cease purchasing the services of the Subject
Business from the Company or any current or future Subsidiary of the
Company.
(b) Anything contained in this Non-Competition Agreement to the
contrary notwithstanding, no provision of this Agreement shall prohibit (i) ECI
or Prosser from owning, as a passive investment, in the aggregate less than 5%
of a class of publicly-traded securities issued by any person or entity engaged
in a Competitive 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,
<PAGE>
-4-
merger or consolidation or otherwise and any assignee of all or substantially
all of its business and properties.
SECTION 3.03. Severability, Blue Penciling. It is the desire and
----------------------------
intent of the parties hereto that the provisions of this Non-Competition
Agreement shall be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Non-Competition Agreement shall
be adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, if any one or more of the provisions contained in this Non-Competition
Agreement shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, it shall be construed by limiting and
reducing it so as to be enforceable to the extent compatible with the applicable
law as it shall then appear.
SECTION 3.04. Notices. All notices or other communications required
-------
or permitted hereunder shall be in writing and sufficient if (a) delivered
personally, (b) sent by nationally-recognized overnight courier or (c) sent by
certified mail, postage prepaid, return receipt requested, addressed as follows:
if to the Company, to:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
<PAGE>
-5-
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.
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
<PAGE>
-6-
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>
-7-
IN WITNESS WHEREOF, this Non-Competition Agreement has been executed
and delivered by the parties hereto as of the date first above written.
ATLANTIC TELE-NETWORK, INC.
By:
----------------------------------
Name: Cornelius B. Prior, Jr.
Title: Chief Executive Officer
EMERGING COMMUNICATIONS, INC.
By:
----------------------------------
Name: Jeffrey J. Prosser
Title: Chief Executive Officer
----------------------------------
Jeffrey J. Prosser
<PAGE>
Exhibit (c)(3)
=============================================================================
--------------------------
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................... 3
SECTION 2.02. Indemnification by Prior..................... 5
SECTION 2.03. Indemnification by ECI....................... 6
SECTION 2.04. Indemnification by the Company............... 7
SECTION 2.05. No Third Party Rights........................ 8
SECTION 2.06. Indemnification Procedures................... 9
ARTICLE III
FORBEARANCE; STANDSTILL
SECTION 3.01. Forbearance.................................. 14
SECTION 3.02. Standstill................................... 14
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.01. Effectiveness................................ 17
SECTION 4.02. Entire Agreement............................. 17
SECTION 4.03. Governing Law................................ 17
SECTION 4.04. Headings..................................... 18
SECTION 4.05. Counterparts................................. 18
SECTION 4.06. Benefits..................................... 18
SECTION 4.07. Assignment................................... 19
SECTION 4.08. Amendment and Waiver......................... 19
SECTION 4.09. Notices...................................... 19
SECTION 4.10. Jurisdiction................................. 21
SECTION 4.11. Expenses of Enforcement...................... 22
-i-
<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 delivered to holders of Company Common Stock
(the "Proxy Statement") or the omission or alleged omission to
---------------
<PAGE>
-2-
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.
<PAGE>
-3-
SECTION 2.06. Indemnification Procedures. (a) If any party or
--------------------------
person which may seek indemnification hereunder (an "Indemnified Party")
-----------------
determines that it is or may be entitled to indemnification by any party hereto
(an "Indemnifying Party") under this Agreement (other than in connection with
------------------
any Third Party Claim (as defined below) subject to clause (b) of this Section
2.06), the Indemnified Party shall deliver to the Indemnifying Party a written
notice specifying, to the extent reasonably practicable, the basis for its claim
for indemnification and the amount for which the Indemnified Party reasonably
believes it is entitled to be indemnified. After the Indemnifying Party shall
have been notified of the amount for which the Indemnified Party seeks
indemnification, the Indemnifying Party shall, within 30 days after receipt of
such notice, pay the Indemnified Party such amount in cash or other immediately
available funds (or reach agreement with the Indemnified Party as to a mutually
agreeable alternative payment schedule) unless the Indemnifying Party objects to
the claim for indemnification or the amount thereof. If the Indemnifying Party
does not give the Indemnified Party written notice objecting to such claim and
setting forth the grounds therefor within the same 30 day period, the
Indemnifying Party shall be deemed to have acknowledged its liability for such
claim and the Indemnified Party may exercise any and all of its rights under
applicable law to collect such amount.
(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
<PAGE>
-4-
Claim for which it has acknowledged liability for indemnification as described
herein, the Indemnified Party may require the Indemnifying Party to reimburse it
on a current basis for its reasonable expenses of investigation, reasonable
attorney's fees and reasonable out-of-pocket expenses incurred in defending
against such Third-Party Claim and the Indemnifying Party shall be bound by the
result obtained with respect thereto by the Indemnified Party; provided that the
--------
Indemnifying Party shall not be liable for any settlement effected without its
consent, which consent shall not be unreasonably withheld. The Indemnifying
Party shall pay to the Indemnified Party in cash the amount for which the
Indemnified Party is entitled to be indemnified (if any) within 15 days after
the final resolution of such Third-Party Claim (whether by the final
nonappealable judgment of a court of competent jurisdiction or otherwise) or, in
the case of any Third-Party Claim as to which the Indemnifying Party has not
acknowledged liability, within 15 days after such Indemnifying Party's objection
has been resolved by settlement, compromise or the final nonappealable judgment
of a court of competent jurisdiction.
(c) This Section 2.06 shall have no applicability to any claim for
indemnification with respect to any income, gross income, gross receipts,
profits, capital stock, franchise, withholding, payroll, social security,
workers compensation, unemployment, disability, property, ad valorem, stamp,
excise, severance, occupation, service, sales, use, license, lease, transfer,
import, export, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment, or other charge in the nature of or in lieu of
any tax) imposed by any governmental entity or political subdivision thereof,
and any interest, penalties, additions to tax, or additional amounts in respect
of the foregoing (collectively "Taxes"), it being understood that the procedures
-----
for 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>
-5-
(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
<PAGE>
-6-
the transactions contemplated hereby and thereby, set forth the full and
complete understanding of the parties hereto with respect to the transactions
contemplated hereby.
SECTION 4.03. Governing Law. This Indemnity Agreement shall be
-------------
governed by and construed in accordance with the laws of the State of New York
without reference to the conflict of laws rules thereof.
SECTION 4.04. Headings. The headings in this Indemnity Agreement are
--------
intended solely for convenience of reference and shall be given no effect in the
interpretation of this Indemnity Agreement.
SECTION 4.05. Counterparts. This Indemnity Agreement may be executed
------------
in any number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument.
SECTION 4.06. Benefits. This Indemnity Agreement will inure to the
--------
benefit of and be binding upon the parties hereto and their respective
successors and assigns, and no other person (other than an Indemnified Party)
will have any right or obligation hereunder.
SECTION 4.07. Assignment. Neither this Indemnity Agreement nor any
----------
right hereunder may be assigned by the parties hereto without the prior written
consent of the other parties. Subject to the foregoing, this Indemnity
Agreement shall be binding upon and inure to the benefit of the successors,
heirs, representatives and assigns of each party hereto.
SECTION 4.08. Amendment and Waiver. This Indemnity Agreement may be
--------------------
amended only by an instrument in writing signed on behalf of each of the parties
hereto. Any term, condition or provision of this Indemnity Agreement may be
waived (if in writing) at any time by the party or each of the parties entitled
to the benefits thereof.
SECTION 4.09. Notices. All notices, requests, demands, and other
-------
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with 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
<PAGE>
-7-
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b) If to ECI or Prosser:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-8000
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
SECTION 4.10. Jurisdiction. Any action or proceeding brought by any
------------
party to this Indemnity Agreement against any other party hereto with respect to
the enforcement or breach of this Indemnity Agreement may be brought in the
courts of the State of New York or of the United States for the Southern
District of New York. Each of the parties hereto irrevocably submits to the
jurisdiction of each such court in respect of any such action or proceeding,
irrevocably waives any objection that it may now or hereafter have to the laying
of venue of any such action or proceeding in any such court and any claim that
any such action or proceeding brought in any such court has been brought in an
inconvenient forum, and irrevocably consents that service of process or other
legal summons for purposes of any such action or proceeding may be served on it
by personal service within or without the State of New York or by mailing a copy
thereof by registered mail, or a form of mail substantially equivalent to
registered mail, addressed to such party at its address as provided for notices
hereunder.
SECTION 4.11. Expenses of Enforcement. In the event of any breach of
-----------------------
this Indemnity Agreement by any party hereto, any other party hereto which is
aggrieved by such breach (an "Aggrieved Party") shall be entitled to recover
---------------
from the party in breach, any and all costs and expenses, including without
limitation reasonable attorneys fees, incurred by the Aggrieved Party as a
result of such breach or in connection with enforcing the provisions of this
Indemnity Agreement with respect to such breach.
<PAGE>
-8-
IN WITNESS WHEREOF, each of the parties hereto has caused this
Indemnity Agreement to be duly executed, all as of the date first written above.
ATLANTIC TELE-NETWORK, INC.
By:
------------------------------------
Name: Cornelius B. Prior
Title: Co-Chief Executive Officer
By:
------------------------------------
Name: Jeffrey J. Prosser
Title: Co-Chief Executive Officer
EMERGING COMMUNICATIONS, INC.
By:
------------------------------------
Name: Jeffrey J. Prosser
Title: Chief Executive
Officer
------------------------------------
Cornelius B. Prior, Jr.
------------------------------------
Jeffrey J. Prosser
<PAGE>
Exhibit (c)(4)
================================================================================
____________________________________________
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.
<PAGE>
-2-
"Closing" means the Closing as that term is defined in the
-------
Subscription Agreement.
"Closing Date" means the Closing Date as that term is defined in the
------------
Subscription Agreement.
"Code" means the U.S. Internal Revenue Code of 1986, as amended, or
----
any successor law.
"Companies" means ATN and ECI and "Company" means either ATN or ECI.
---------
"Debits" shall have the meaning ascribed to it in the Subscription
------
Agreement.
"Distribution" means the distribution to certain ATN shareholders on
------------
the Closing Date of all of the outstanding stock of ECI owned by ATN.
"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
<PAGE>
-3-
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.
"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
<PAGE>
-4-
attachments, exhibits, and other materials submitted with such ruling request
letter) and any amendment or supplement to such ruling request letter.
"Specified Action" shall have the meaning provided in Section 10.
----------------
"Straddle Period" means any Tax Period that begins on or before and
---------------
ends after the Closing Date.
"State Income Tax" means any Tax imposed by any State of the United
----------------
States or by any political subdivision of any such State which is imposed on or
measured by net income, including state and local franchise or similar Taxes
measured by net income.
"Tainting Act" shall have the meaning provided in Section 10.
------------
"Tax" or "Taxes" means any Income Tax, any Tax on gross income, gross
--- -----
receipts, profits, or capital stock, or any franchise, withholding, payroll,
social security, workers compensation, unemployment, disability, property, ad
valorem, stamp, excise, severance, occupation, service, sales, use, license,
lease, transfer, import, export, value added, alternative minimum, estimated or
other similar tax (including any fee, assessment, or other charge in the nature
of or in lieu of any tax) imposed by any governmental entity or political
subdivision thereof, and any interest, penalties, additions to tax, or
additional amounts in respect of the foregoing.
"Tax Authority" means, with respect to any Tax, the governmental
-------------
entity or political subdivision thereof that imposes such Tax, and the agency
(if any) charged with the collection of such Tax for such entity or subdivision.
"Tax Contest" means an audit, review, examination, or any other
-----------
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes or any claim for refund or credit of Taxes of any of ATN,
ECI or the Aircraft Corp. (including any administrative or judicial review
thereof) for any Tax Period ending on or before the Closing Date or any Straddle
Period.
"Tax Item" means, with respect to any Income Tax, any item of income,
--------
gain, loss, deduction, or credit.
"Tax Law" means the law of any governmental entity or political
-------
subdivision thereof relating to any Tax.
"Tax Period" means, with respect to any Tax, the period for which the
----------
Tax is reported as provided under the Code or other applicable Tax Law.
"Tax Records" means Tax Returns, Tax Return workpapers, documentation
-----------
relating to any Tax Contests, and any other books of account or records required
to be maintained under the Code or other applicable Tax Laws or under any record
retention agreement with any Tax Authority.
"Tax Return" means any report of Taxes due, any claim for refund or
----------
credit of Taxes paid, any information return with respect to Taxes, or any other
similar report, statement, declaration, or document required or permitted to be
filed under the Code or other Tax Law, including any attachments, exhibits, or
other materials submitted with any of the foregoing, and including any
amendments or supplements to any of the foregoing.
<PAGE>
-5-
"Transactions" shall have the meaning ascribed to that term in the
------------
Subscription Agreement.
"Transfer" shall have the meaning set forth in Section 11(a).
--------
"Treasury Regulations" means the regulations promulgated from time to
--------------------
time under the Code as in effect for the relevant Tax Period.
SECTION 2. Allocation of Tax Liabilities. The provisions of this
-----------------------------
Section 2 are intended to determine each of ATN's, ECI's, Prior's and Prosser's
liability for Taxes with respect to Pre-Distribution Periods. Once the liability
has been determined under this Section 2, Section 5 determines the time when
payment of the liability is to be made, and whether the payment is to be made to
the Tax Authority directly or to ATN or ECI, as the case may be.
2.01. Taxes of GT&T and the Virgin Islands Subsidiaries. This
-------------------------------------------------
Agreement does not allocate liability for Taxes imposed on GT&T, Atlantic Tele-
Network Co., a Virgin Islands corporation, or any of the subsidiaries of
Atlantic Tele-Network Co. (except for any withholding of Foreign Income Taxes
imposed with respect to payments made by any of such companies to ATN) and, as
between the parties to this Agreement, such Taxes and Tax Returns relating to
such Taxes shall be solely the responsibility of the legal entity on which such
Taxes are imposed.
2.02. ATN and ECI Liability.
---------------------
(a) ATN Liability. Notwithstanding the provisions of Section 2.03,
-------------
as between ATN and ECI, ATN shall be liable for, and shall indemnify and hold
harmless the ECI Group from and against:
(i) any Restructuring Taxes which arise from any breach by ATN of
its representations or covenants under Section 10 or from any Tainting Act by
ATN or its Affiliates or the inaccuracy of any factual statements or
representations made in or in connection with the Ruling Request with respect to
the activities of ATN and its Affiliates after the Closing;
(ii) all Taxes to the extent taken into account in clauses (b) or (r)
of the definition of "Debits" for purposes of calculating the Final Closing
Adjustment;
(iii) an amount of Income Tax equal to the provision for income tax
expense of ATN which would be accrued on a hypothetical statement of operations
of ATN for the period after April 30, 1997 to and including the Closing Date
which statement of operations includes as revenues or gross income only
dividends paid by GT&T to ATN during such period, interest accrued during such
period on indebtedness of GT&T to ATN and advisory fees payable by GT&T to ATN
during such period (computed on an accrual basis) and includes as expense all
expenses of ATN during such period (to the extent such expenses are deductible
for Income Tax purposes) except for expenses charged to ECI under clauses (c),
(j), (k), (m), (n), (o), and (s) of the definition of "Debits" in the
Subscription Agreement;
(iv) any withholding of Foreign Income Taxes imposed with respect to
payments from GT&T to ATN; and
(v) 50% of all other Taxes (including Restructuring Taxes) of ATN or
Aircraft Corp. (in each case, whether computed on a separate company or
consolidated basis) with respect to all Pre-Distribution Periods, except for
Taxes described in clauses (i), (ii) or (iii) of Section 2.02(b).
<PAGE>
-6-
(b) ECI Liability. Notwithstanding the provisions of Section 2.03, as
-------------
between ATN and ECI, ECI shall be liable for, and shall indemnify and hold
harmless the ATN Group from and against:
(i) Any Restructuring Taxes which arise from any breach by ECI of
its representations or covenants under Section 10 or from any Tainting Act by
ECI or its Affiliates or the inaccuracy of any factual statements or
representations made in or in connection with the Ruling Request with respect to
the activities of ECI and its Affiliates after the Closing;
(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
<PAGE>
-7-
with the principles of Treasury Regulation Section 1.1502-76(b). No election
shall be made under Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to
ratable allocation of a year's items). If the Closing Date is not an Accounting
Cutoff Date, the provisions of Treasury Regulation Section 1.1502-76(b)(2)(iii)
will be applied to ratably allocate the items (other than extraordinary items)
for the month which includes the Closing Date.
3.02. Transaction Treated as Extraordinary Item. In determining the
-----------------------------------------
apportionment of Tax Items between Pre-Distribution Periods and Post-
Distribution Periods, any Tax Item relating to the Transactions shall be treated
as an extraordinary item described in Treasury Regulation Section 1.1502-
76(b)(2)(ii)(C) and shall be allocated to Pre-Distribution Periods, and any
Taxes related to any such Tax Item (including Restructuring Taxes) shall be
treated under Treasury Regulation Section 1.1502-76(b)(2)(iv) as relating to
such extraordinary item and shall be allocated to Pre-Distribution Periods.
3.03. Proration of Other Taxes. For purposes of Section 2, in the
------------------------
case of any Straddle Period, Taxes that are not susceptible to apportionment in
the manner described in Section 3.01 (e.g., real and personal property taxes)
shall be apportioned between Pre-Distribution Periods and Post-Distribution
Periods on a pro rata basis based on the number of days in the relevant Tax
Period.
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.
<PAGE>
-8-
(b) Except as otherwise agreed in writing by ATN and ECI, and in the
absence of a controlling change in law or circumstances, all Tax Returns filed
or caused to be filed by ATN or ECI after the Closing Date shall be prepared
consistent with past practices, elections, accounting methods, conventions, and
principles of taxation used for the most recent taxable periods for which Tax
Returns involving similar items have been filed prior to the Closing Date,
except that, with respect to any Tax Item not relating to the Transactions, one
party may take an inconsistent position without the agreement of the other party
only to the extent such position does not create a Tax detriment to the other
party or any member of such other party's Group.
SECTION 5. Tax Payments and Intercompany Billings.
--------------------------------------
5.01. Payment of Taxes With Respect to Pre-Distribution or Straddle
-------------------------------------------------------------
Period Returns Filed After the Distribution Date. In the case of any Tax Return
- ------------------------------------------------
required to be filed by ATN under Section 4.01 with respect to a Pre-
Distribution Period or Straddle Period the due date for which Tax Return
(including extensions) is after the Closing Date, at least 10 business days
prior to any Payment Date, ATN (i) shall compute the amount of Tax required to
be paid to the relevant Tax Authority (taking into account the requirements of
Section 4.02(b) relating to consistent accounting practices) with respect to
such Tax Return on such Payment Date and (ii) shall send to ECI a written notice
and demand for payment by ECI of its share (if any) of such Tax payment
determined by ATN in accordance with Section 2.02(b) and accompanied by a
statement detailing the Taxes to be paid and describing in reasonable detail the
particulars relating thereto. ECI shall deliver to ATN on or before the business
day immediately preceding such Payment Date a cashier's check made to the order
of the applicable Tax Authority for the amount of ECI's share of such Tax
Payment, and ATN shall remit such check and make the remainder of such Tax
payment to the relevant Tax Authority on or before such Payment Date.
5.02. Payment of Tax Related to Adjustments. ATN shall pay to the
-------------------------------------
relevant Tax Authority when due any additional Taxes required to be paid as a
result of any adjustment to Taxes with respect to any Pre-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
<PAGE>
-9-
by evidence of payment and a statement detailing the Taxes paid and describing
in reasonable detail the particulars relating thereto. The reimbursement shall
include interest on the Tax payment computed at the Prime Rate based on the
number of days from the date of the payment to the Tax Authority to the date of
reimbursement under this Section 5.03.
SECTION 6. Assistance and Cooperation.
--------------------------
6.01. General. After the Closing Date, each of ATN and ECI shall
-------
cooperate (and cause their respective Affiliates to cooperate) with each other
and with each other's agents, including accounting firms and legal counsel, in
connection with Tax matters relating to ATN and ECI and their respective
Affiliates including, without limitation, (i) preparation and filing of Tax
Returns, (ii) determining the liability for and amount of any Taxes due
(including estimated Taxes) or the right to and amount of any refund of Taxes,
(iii) examinations of Tax Returns, and (iv) any administrative or judicial
proceeding in respect of Taxes assessed or proposed to be assessed. Such
cooperation shall include making all information and documents in their
possession relating to the other Company and its Affiliates reasonably available
to such other Company as provided in Section 7. Each of the Companies shall also
make available to each other, as reasonably requested and available, personnel
(including officers, directors, employees and agents of the Companies or their
respective Affiliates) responsible for preparing, maintaining, and interpreting
information and documents relevant to Taxes, and personnel reasonably required
as witnesses or for purposes of providing information or documents in connection
with any administrative or judicial proceedings relating to Taxes. Any
information or documents provided under this Section 6 shall be kept
confidential by the Company receiving the information or documents, except as
may otherwise be necessary in connection with the filing of Tax Returns or in
connection with any administrative or judicial proceedings relating to Taxes.
6.02. Income Tax Return Information. Each Company will provide to
-----------------------------
the other Company information and documents relating to its Group required by
the other Company to prepare Tax Returns. The Responsible Company shall
determine a reasonable compliance schedule for such purpose in accordance with
ATN's past practices. Any additional information or documents the Responsible
Company requires to prepare such Tax Returns will be provided in accordance with
past practices, if any, or as the Responsible Company reasonably requests and in
sufficient time for the Responsible Company to file such Tax Returns timely.
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.
<PAGE>
-10-
7.02. State and Foreign Income Tax Returns. Tax Returns with respect
------------------------------------
to State Income Taxes and Foreign Income Taxes and workpapers prepared in
connection with preparing such Tax Returns shall be preserved and kept, in
accordance with the guidelines of Section 7.01, by the person responsible for
preparing and filing the applicable Tax Return.
7.03. Access to Tax Records. The Companies and their respective
---------------------
Affiliates shall make available to each other for inspection and copying during
normal business hours upon reasonable notice all Tax Records in their possession
to the extent reasonably required by the other Company in connection with the
preparation of Tax Returns, audits, litigation, or the resolution of items under
this Agreement.
SECTION 8. Tax Contests.
------------
8.01. Notice. Each of ATN and ECI shall provide prompt notice to the
------
other and to Prior and Prosser of any pending or threatened Tax audit,
assessment or proceeding or other Tax Contest of which it becomes aware related
to Taxes for Tax Periods for which it is indemnified by the other or Prior or
Prosser, as the case may be, hereunder. Such notice shall contain factual
information (to the extent known) describing any asserted Tax liability in
reasonable detail and shall be accompanied by copies of any notice and other
documents received from any Tax Authority in respect of any such matters. If an
indemnified party has knowledge of an asserted Tax liability for which it is to
be indemnified hereunder and such party fails to give the indemnifying party
prompt notice of such asserted Tax liability, such failure to give notice will
not relieve the indemnifying party of its obligations hereunder, except to the
extent that the indemnifying party is materially prejudiced by such failure.
8.02. Control of Tax Contests. Each of ATN and ECI shall have full
-----------------------
responsibility and discretion in handling, settling or contesting any Tax
Contest involving a Tax Return for which it has filing responsibility pursuant
to Section 4 of this Agreement; provided, however, ECI, Prior or Prosser, at it
or his sole cost and expense, may participate in any Tax Contest with respect to
any Restructuring Taxes for which it or he has liability or an indemnification
obligation with respect to such Taxes under this Agreement; provided, further,
that ECI, at its sole cost and expense and employing Cahill Gordon & Reindel or
other counsel reasonably acceptable to ATN, shall be permitted to jointly share
with ATN, employing Fried, Frank, Harris, Shriver & Jacobson or other counsel
reasonably acceptable to ECI, the responsibility and discretion in handling,
settling or contesting any Tax Contest with respect to any Taxes for which ECI
has liability or an indemnification obligation to ATN with respect to such
Taxes, unless ECI fails to provide to ATN a written acknowledgment of ECI's
potential liability for such Taxes or indemnification obligation to ATN with
respect to such Taxes within 10 business days of ECI's receipt of a written
request by ATN therefor. Except as otherwise provided in Section 2.04 hereof,
any costs incurred in handling, settling or contesting any Tax Contest shall be
borne by the party having full responsibility and discretion thereof.
SECTION 9. Effective Date; Termination of Prior Intercompany Tax
-----------------------------------------------------
Allocation Agreements. This Agreement shall be effective on the Closing Date.
- ---------------------
Immediately prior to the close of business on the Closing Date, all Intercompany
Tax Allocation Agreements shall be terminated.
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
<PAGE>
-11-
Tainting Act (the "Requesting Party") either (A) obtains a ruling with respect
to the Tainting Act from the Internal Revenue Service or other applicable Tax
Authority that is reasonably satisfactory to the other Company (the "Requested
Party") (except that the Requesting Party shall not submit any such ruling
request if a Requested Party determines in good faith that filing such request
might have a materially adverse effect upon such Requested Party), or (B)
obtains an unqualified opinion, reasonably satisfactory in form and substance to
Requested Party, of Fried, Frank, Harris, Shriver & Jacobson or Cahill Gordon &
Reindel or other independent nationally recognized tax counsel acceptable to the
Requested Party, on a basis of assumed facts and representations consistent with
the facts at the time of such action, that such Tainting Act will not affect the
Tax treatment of the Transactions as contemplated in the Ruling Request, or (ii)
the Requested Party consents in writing to such Tainting Act, which consent
shall be granted or withheld in the sole and absolute discretion of the
Requested Party. Without limiting the foregoing:
(i) Specified Actions. During the two-year period beginning on (and
-----------------
including) the Closing Date, unless clause (i) or (ii) of the preceding
paragraph is satisfied with respect to the applicable action, and except as
disclosed in the Letter Request, ATN and ECI will not (and neither will cause or
permit any of its Affiliates to) (A) liquidate or merge with or into any other
corporation; (B) issue any capital stock that in the aggregate exceeds 45%, by
vote or value, of its capital stock issued and outstanding immediately after the
Distribution; (C) redeem, purchase or otherwise reacquire its capital stock
issued and outstanding immediately after the Distribution (other than through
stock purchases meeting the requirements of section 4.05(1)(b) of Rev. Proc. 96-
30); (D) make a material disposition (including transfers from one member of a
Group to another member of that Group) or cessation of operations by means of a
sale or exchange of assets or capital stock, a distribution to stockholders, or
otherwise, of the assets constituting the trades or businesses relied upon in
the Ruling Request to satisfy Section 355(b) of the Code; or (E) discontinue or
cause to be discontinued the active conduct of the trades or businesses relied
upon in the Ruling Request to satisfy Section 355(b) of the Code (each of the
foregoing, a "Specified Action").
(ii) No Inconsistent Plan or Intent. Each of ATN and ECI represents
------------------------------
and warrants that it shall, and shall cause each of its Affiliates to, comply
with each factual statement and representation in the Ruling Request, and that
neither it nor any of its Affiliates has any plan or intent to take any
Specified Action or any action which is inconsistent with any factual statements
or representations in the Ruling Request. Regardless of any change in
circumstances, each of ATN and ECI covenants and agrees that it will not take,
and it will cause its Affiliates to refrain from taking, any such Specified
Action or inconsistent action on or before the last day of the calendar year
ending after the second anniversary of the Closing Date other than as permitted
in this Section 10.
(iii) Amended or Supplemental Rulings. Each of ATN and ECI covenants
-------------------------------
and agrees that it will not file, and it will cause its Affiliates to refrain
from filing, any amendment or supplement to the Ruling Request subsequent to the
Closing Date without the consent of the other, which consent shall not be
unreasonably withheld.
(b) Notwithstanding anything to the contrary in this Agreement, each
Company shall be solely liable for, and shall indemnify and hold harmless the
other Company from any Restructuring Tax resulting from a Tainting Act by such
first Company or its Affiliates, regardless of whether clause (i) or (ii) of
Section 10(a) was satisfied with respect to such Tainting Act.
SECTION 11. Certain Representations and Covenants of Prior and
--------------------------------------------------
Prosser.
- --------
(a) Representations and Covenants of Prior.
--------------------------------------
<PAGE>
-12-
(i) Transfer Restrictions. Prior represents and warrants that he has
---------------------
no plan or intention to sell, exchange, transfer by gift, pledge or otherwise
dispose of or encumber, whether actually or constructively by means of a short
sale, equity swap, forward or futures contract, option or otherwise
(collectively, a "Transfer") any stock or securities of ATN, or any beneficial
or financial interest therein, after the Transactions except for Permitted
Pledges. Prior covenants and agrees that during the two-year period beginning on
(and including) the Closing Date, without the prior written consent of ECI
(which consent ECI may grant or withhold in its sole discretion), he will not
Transfer any stock or securities of ATN, or any beneficial or financial interest
therein, except for Permitted Pledges, unless he first obtains either (A) a
ruling with respect to the Transfer from the Internal Revenue Service or other
applicable Tax Authority that is reasonably satisfactory to ECI (acting on
advice of counsel, such counsel to be reasonably satisfactory to ATN) or (B) an
unqualified opinion, reasonably satisfactory in form and substance to ECI
(acting on advice of counsel, such counsel to be reasonably satisfactory to
ATN), of Fried, Frank, Harris, Shriver & Jacobson or other independent
nationally recognized tax counsel acceptable to ECI, on a basis of assumed facts
and representations consistent with the facts at the time of such Transfer, that
such Transfer will not affect the Tax treatment of the Transactions as
contemplated in the Ruling Request. In order to ensure compliance with the
requirements of this Section 11(a)(i), during the two-year period beginning on
(and including) the Closing Date, Prior shall maintain at least a majority of
the outstanding common stock of ATN (or all stock or securities in ATN owned by
him if he shall then own less than a majority of the outstanding common stock of
ATN) in accounts with one or more banks or brokerage firms (collectively,
"Financial Institutions"), which accounts may be margin accounts, provided that
each such Financial Institution shall deliver a written undertaking to ECI
stating that such Financial Institution will not permit any Transfer of Mr.
Prior's stock or securities in ATN from such account without the prior written
approval of ECI except for (i) sales of such stock or securities made by such
Financial Institution for the purpose of obtaining repayment of any loans or
advances made to Prior by such Financial Institution following a default by
Prior in respect of such loans or advances, and (ii) any Transfer of such stock
or securities from an account of Prior with such Financial Institution to an
account of Prior with another Financial Institution which shall have given ECI a
written undertaking described in this Section 11(a)(i). Notwithstanding anything
to the contrary in this Agreement, Prior shall be liable for, and shall
indemnify and hold harmless the ATN Group and the ECI Group from and against any
liability for, any Restructuring Taxes which arises out of any Transfer of any
of his stock or securities in ATN or any beneficial or financial interest
therein (including, without limitation, any sale of stock subject to a Permitted
Pledge on foreclosure of such pledge) regardless of whether the provisions of
this Section 11(a)(i) were satisfied with respect to such Transfer.
(ii) No Inconsistent Plan or Intent. Prior represents and warrants
------------------------------
that he has no plan or intent to cause ATN or any of its Affiliates to take any
Tainting Act (including any Specified Action) or any action inconsistent with
any factual statement or representation in the Letter Request. Prior covenants
and agrees that, so long as he owns a majority of the voting power of the
outstanding capital stock of ATN, he will cause ATN and its Affiliates to
refrain from taking any Tainting Act (including any Specified Action) or any
action inconsistent with any factual statement or representation in the Letter
Request on or before the last day of the calendar year ending after the second
anniversary of the Closing Date other than as permitted in Section 10.
(b) Representations and Covenants of Prosser.
----------------------------------------
(i) Transfer Restrictions. Prosser represents and warrants that
---------------------
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)
<PAGE>
-13-
the Closing Date, without the prior written consent of ATN (which consent 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 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
<PAGE>
-14-
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.
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.
<PAGE>
-15-
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
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.
<PAGE>
-16-
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.
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>
-17-
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by the respective officers as of the date set forth above.
ATLANTIC TELE-NETWORK, INC.
By: _________________________
-------------------------
Its: _________________________
-------------------------
EMERGING COMMUNICATIONS, INC.
By: __________________________
--------------------------
Its: __________________________
--------------------------
____________________________
Cornelius B. Prior, Jr.
____________________________
Jeffrey J. Prosser
<PAGE>
Exhibit (c)(5)
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
<PAGE>
-2-
directors of the Company, as described in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board; or
(c) Approval by the stockholders of the Company of a reorganization,
share exchange, merger or consolidation with respect to which, in any such case,
the persons who were the stockholders of the Company immediately prior to such
reorganization, share exchange, merger or consolidation do not, immediately
thereafter, own more than 60% of the combined voting power entitled to vote in
the election of directors of the reorganized, merged or consolidated company; or
(d) Liquidation or dissolution of the Company or a sales of all or
substantially all the assets of the Company.
"Salary Adjustment Amount" means an amount equal to the percentage
------------------------
increase (if any) in the "Consumer Price Index for all Urban Consumers" (the
"Index") published by the Bureau of Labor Statistics of the United States
- ------
Department of Labor for the twelve month period ending with the December
immediately preceding such determination of the Salary Adjustment Amount.
Appropriate adjustment shall be promptly made in case there is a published
amendment of the Index figures upon which the computation is based. In the
event the Index is discontinued, the parties hereto shall accept comparable
statistics on the cost of living published by an agency of the United States or
a responsible financial periodical of recognized authority.
ARTICLE II
TERMS OF EMPLOYMENT
-------------------
SECTION 2.01. Employment Term. The Employee shall be
---------------
employed by the Company for a period commencing on the date of this Agreement
and ending five years from such date (such date, and each five year anniversary
of such date, is hereinafter refereed to as the "Renewal Date"); provided that,
------------ --------
unless the Company, as authorized by its Board of Directors, shall have
delivered to the Employee written notice of its intent not to renew the
employment of the Employee under this Agreement at least six months prior to the
Renewal Date, the term of the employment of Employee under this Agreement shall
extend for a period of five years from the applicable Renewal Date. The period
of the Employee's employment hereunder, including any renewal thereof pursuant
to the previous sentence, is referred to herein as the "Employment Term."
---------------
SECTION 2.02. Position and Duties. The Employee shall serve as
-------------------
Chief Executive Officer of the Company. During the Employment Term, excluding
any periods of vacation and sick leave to which the Employee is entitled, the
Employee agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Employee hereunder, to use the
Employee's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Term, it shall not be a violation of
this Agreement for the Employee to serve on corporate, civic or charitable
boards or committees, deliver lectures, fulfill speaking engagements or teach at
educational institutions, manage personal investments or engage in other
activities which do not materially and adversely interfere with the performance
of the Employee's responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Employee prior to the date
hereof, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereof) subsequent to the date hereof shall not be
deemed to interfere with the performance of the Employee's responsibilities to
the Company hereunder.
<PAGE>
-3-
SECTION 2.03. Compensation.
------------
(a) Base Salary. The Company shall pay to the Employee a base salary
-----------
of $600,000 during the first year of the Employment Term. For each subsequent
year during the Employment Term, the Company shall pay to the Employee a base
salary in an amount at least equal to the base salary for the previous year,
plus an amount equal to the Salary Adjustment Amount multiplied by the
Employee's Base Salary for the immediately preceding year. The base salary
payable during any year during the Employment Term, including the applicable
adjustment pursuant to the Salary Adjustment Amount and as otherwise increased
is referred to herein as the "Base Salary" for such year. During the Employment
-----------
Term, the Base Salary shall be reviewed at least annually and shall be increased
at least to the extent of any percentage increase awarded to another executive
officer of the Company for such year. An increase is Base Salary shall not
serve to limit or reduce any other obligation to the Employee under this
Agreement. Base Salary shall not be reduced during the Employment Term.
(b) Annual Bonus. In addition to Base Salary, the employee shall be
------------
entitled to receive such annual bonus, if any, as the Board of Directors of the
Company, or any duly authorized committee thereof, shall in its discretion
determine; provided that after the occurrence of a Change of Control during the
--------
Employment Term, the Employee shall be granted an annual bonus payable in cash
on each anniversary of the date of this Agreement following such Change of
Control during the Employment Term in an amount at least equal to the highest
annual bonus paid to the Employee by the Company during the preceding five
years.
(c) Incentive, Savings and Retirement Plans. In addition to Base
---------------------------------------
Salary and annual bonus payable as hereinabove provided, the Employee shall be
entitled to participate during the Employment Term in all incentive, saving and
retirement plans, practices, policies and programs which are applicable to other
key employees of the Company. After the occurrence of a Change in Control
during the Employment Term, the compensation, benefits and reward opportunities
provided to the Employee pursuant to such plans, practices, policies and
programs, in the aggregate, shall during the Employment Term, be at least as
favorable as the most favorable of such compensation, benefits and reward
opportunities in such plans, practices, policies and programs as in effect at
any time during the 90-day period immediately preceding such Change of Control
or, if more 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
<PAGE>
-4-
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.
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
<PAGE>
-5-
pursuant thereto as in effect on the date hereof or, if more favorable to the
Employee, as in effect at any time thereafter, to the extent permitted by
applicable law at the time of the assertion of any liability against the
Employee.
ARTICLE III
TERMINATION
-----------
SECTION 3.01. Death or Disability. The Employee's employment under
-------------------
this Agreement shall terminate automatically upon the Employee's death. If the
Company determines in good faith that the Employee has become Disabled (as
defined below), it may give to the Employee written notice of its intention to
terminate the Employee's employment. In such event, the Employee's employment
with the Company shall terminate effective on the 90th day after receipt of such
notice by the Employee (the "Disability Effective Date"), provided that, within
-------------------------
the 90 days after such receipt, the Employee shall not have returned to full-
time performance of the Employee's duties. For purposes of this Agreement, the
Employee shall be regarded "Disabled" if either (a) a majority of the Board of
--------
Directors by resolution determines that the Employee is physically or mentally
incapacitated in a manner that renders him incapable of performing his duties
hereunder for a period of six month or (b) the Employee applies for and is
determined to be eligible to receive disability benefits under a Company long-
term disability plan.
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.
<PAGE>
-6-
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.
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.
<PAGE>
-7-
(b) Termination Because of Disability. If the Employee's employment
---------------------------------
is terminated by reason of the Employee's Disability, such employment shall
terminate without further obligations to the Employee, other than those
obligations accrued or earned and vested (if applicable) by the Employee as of
the Date of Termination, including for this purpose, all Accrued Obligations.
The Accrued Obligations specified in clauses (i), (ii) and (iii) of Section
3.05(a) hereof shall be paid to the Employee in a lump sum in cash within 30
days of the Date of Termination, and the other Accrued Obligations shall be paid
in accordance with the Employee's specific elections pursuant to, and otherwise
in accordance with the terms of, any plan, practice, policy or program providing
benefits forming a part of the Accrued Obligations. Anything in this Agreement
to the contrary notwithstanding, the Employee shall be entitled after the
Disability Effective Date to receive disability and other benefits at least
equal to the most favorable of those provided by the Company and any of its
subsidiaries to disabled employees and/or their families in accordance with such
plans, practices, 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;
<PAGE>
-8-
(iii) A lump sum severance payment in an amount equal to 500% of
the sum of (x) the Employee's Base Salary (on an annualized basis) for the
year which includes the Date of Termination and (y) the highest annual
bonus earned (whether or not deferred) by the Employee during the five
years immediately preceding the year which includes the Date of
Termination;
(iv) Following the Employee's termination of employment, the
Company shall continue to cover the Employee and his family under, or
provide the Employee and his family with insurance coverage no less
favorable than, the Company's life, disability, health, dental or other
employee welfare benefit plans or programs (as in effect on the Date of
Termination) for a period of five years following the Date of Termination;
(v) Following the Employee's termination of employment, the
Company shall treat the Employee as if he had continued participation and
benefit accruals under any the Company's Retirement Plan in which he
participates for five years following the Date of Termination, or the
Company shall provide an equivalent benefit outside such plan with the
result that an additional five years of age and service shall be granted to
the Employee; and
(vi) All options to purchase Common Stock then owned by the
Employee shall become immediately vested and exercisable and the
exercisability thereof shall be extended for a period of ten years
following the Date of Termination.
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.
<PAGE>
-9-
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 expenses which the Employee may incur as a result
of any dispute or contest (regardless of the outcome thereof) by or with the
Company or others regarding the validity or enforceability of, or liability
under, any provision of this Agreement (including as a result of any contest by
the Employee about the amount of any payment pursuant to this Agreement), plus
in each case interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Code. In any such action brought by the Employee for damages
or to enforce any provisions of this Agreement, he shall be entitled to seek
both legal and equitable relief and remedies, including, without limitation,
specific performance of the Company's obligations hereunder, in his sole
discretion. If the parties hereto so agree in writing, any disputes under this
Agreement may be settled by arbitration.
SECTION 4.04. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution made, or benefit
provided (including, without limitation, the acceleration of any payment,
distribution or benefit), by the Company to or for the benefit of the Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 4.04) (a "Payment") would be subject to the
-------
excise tax imposed by Section 4999 of the Code (or any similar excise tax) or
any interest or penalties are incurred by the Employee with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Employee
----------
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
----------------
amount such that after payment by the Employee of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment and any interest or penalties
imposed with respect to such taxes, the Employee retains from the Gross-Up
Payment an amount equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 4.04(c), all determinations
required to be made under this Section 4.04, including determination of whether
a Gross-Up Payment is required and of the amount of any such Gross-Up Payment,
shall be made by Deloitte & Touche (the "Accounting Firm") which shall provide
---------------
detailed supporting calculations both to the Company 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
<PAGE>
-10-
to or for the benefit of the Employee. The fees and disbursements of the
Accounting Firm shall be paid by the Company.
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable after the Employee receives written notice of such claim and shall
apprise the Company of the nature of such claim and the date on which such claim
is requested to be paid. The Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the Employee
in writing prior to the expiration of such period that it desires to contest
such claim and that it will bear the costs and provide the indemnification as
required by this sentence, the Employee shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in 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.
<PAGE>
-11-
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 4.04(c), the Employee becomes entitled to receive
any refund with respect to such claim, the Employee shall (subject to the
Company's complying with the requirements of Section 4.04(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 4.04(c), a
determination is made that the Employee shall not be entitled to any refund with
respect to such claim and the Company does not notify the Employee in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then any obligation of the Employee to repay such
advance shall be forgiven and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 4.05. Registration Rights.
-------------------
(a) So long as the Employee beneficially owns at least 3% of the
outstanding shares of Common Stock, the Company, upon the Employee's written
request, shall prepare and file with the Securities and Exchange Commission from
time to time registration statements and such other documents, if then required,
as may be necessary to permit a public offering and sale of shares of the Common
Stock by the Employee (the "Registrable Stock") in compliance with the
-----------------
provisions of the Securities Act of 1933, as amended (the "Securities Act").
--------------
(b) The Company shall not have the right to include in any
registration statement filed pursuant to Section 4.05(a) any other securities of
the Company or any other person.
(c) If the Company proposes to register shares of Common Stock or
securities convertible into or exercisable for Common Stock under the Securities
Act (other than pursuant to a registration statement on Form S-4 or S-8 or any
successor form, or filed in connection with an exchange offer or an offering of
securities solely to the existing shareholders or employees of the Company),
then the Company shall give written notice of such proposed filing to the
Employee at least thirty days before the anticipated filing date, and such
notice shall offer the Employee the opportunity to register such number of
shares of Registrable Stock as the Employee may request. The Employee shall
notify the Company in writing specifying whether or not he elects to include any
Registrable Stock in such registration statement within twenty days after
delivery of the 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.
<PAGE>
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(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 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
<PAGE>
-13-
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or actions as well as any other relevant
equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact relates to information supplied by the
Company, on the one hand, or the Employee, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the
Employee agree that it would not be just and equitable if contribution
pursuant to this Section 4.05(f)(iii) were determined by pro rata
allocation or by any other method of allocation which did not take account
of the equitable considerations referred to above in this subsection. No
person guilty of fraudulent misrepresentations (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS PROVISIONS
------------------------
SECTION 5.01. Successors.
----------
(a) This Agreement is personal to the Employee and without the prior
written consent of the Company shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Employee's legal
representatives or successor(s) in interest.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(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:
------------------
<PAGE>
-14-
Jeffrey J. Prosser
5 and 10A Estate Shoys
St. Croix, U.S. Virgin Islands 00820
If to the Company:
-----------------
Emerging Communications, Inc.
Chase Financial Center
Orange Grove, Christiansted
St. Croix, U.S. Virgin Islands 00821
Attention: Chairman of Board of Directors
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
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.
<PAGE>
-15-
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>
-16-
IN WITNESS WHEREOF, the Employee has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed as of the day and year first above written.
EMERGING COMMUNICATIONS, INC.
By:
---------------------------
Name:
Title:
-------------------------------
Jeffrey J. Prosser
<PAGE>
Exhibit (g)(1)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
<TABLE>
<S> <C> <C>
- ----------------------------------- x
:
BRICKELL PARTNERS, on behalf of itself and all others :
similarly situated, :
:
Plaintiff, :
:
- against - :
:
JEFFREY J. PROSSER, RICHARD N. GOODWIN, SALVATORE HUOIO, : Civil Action No. 16415NC
SIR SHRIDATH RAMPHAL, JOHN P. RAYNOR, JOHN G. VONDRAS, :
TERRENCE A. TODMAN and EMERGING COMMUNICATIONS, INC., :
:
Defendants. :
:
:
:
:
:
- ----------------------------------- x
</TABLE>
SHAREHOLDER'S CLASS ACTION COMPLAINT
------------------------------------
Plaintiff, by its attorneys, alleges upon personal knowledge with
respect to paragraph 3, and upon information and belief as to all other
allegations herein, as follows:
NATURE OF THE ACTION
--------------------
1. This is a class action on behalf of the public stockholders of
Emerging Communications, Inc. ("EMC" or the "Company") for injunctive and other
appropriate relief in connection with the proposed acquisition of the publicly
owned shares of EMC common stock by its majority shareholder, defendant Jeffrey
J. Prosser ("Prosser"), through his wholly owned company Innovative
Communication Co. LLC ("Innovative").
<PAGE>
-2-
THE PARTIES
-----------
2. Plaintiff has been the owner of the common stock of the Company
since prior to the transaction herein complained of and continuously to date.
3. EMC is a corporation duly organized and existing under the laws of
the State of Delaware. EMC is based in St. Croix, United States Virgin Islands.
4. Defendant Prosser is Chairman of the Board and Chief Executive
Officer of the Company. Defendant Prosser owns approximately 52% of EMC's
outstanding common stock.
5. Defendants Richard N. Goodwin, Salvatore Huoio, Sir Shridath
Ramphal, John P. Raynor, John G. Vondras, and Terrence A. Todman are the other
directors of EMC, all of whom have been selected by defendant Prosser and are
beholden to him for their offices and the perquisites therefrom. These
defendants are in a fiduciary relationship with plaintiff and the other public
stockholders of EMC and owe them the highest obligations of good faith and fair
dealing.
6. Defendant Prosser, through his 52% ownership of EMC's common
stock, controls EMC. As a director, officer and controlling shareholder,
defendant Prosser is in a fiduciary relationship with plaintiff and the other
public stockholders of EMC and owes them the highest obligations of good faith
and fair dealing.
CLASS ACTION ALLEGATIONS
------------------------
7. Plaintiff brings this action on its own behalf and as a class
action pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of
all EMC stockholders (except defendants herein and any person, firm, trust,
corporation or other entity related to or affiliated with any of the defendants)
and their successors
<PAGE>
-3-
in interest, who are or will be threatened with injury arising from defendants'
actions as more fully described herein.
8. This action is properly maintainable as a class action because:
a. The class is so numerous that joinder of all Class members is
impracticable. There are approximately 10,900,000 shares of EMC common stock
outstanding owned by hundreds, if not thousands, of record and beneficial
owners.
b. There are questions of law and fact which are common to the class
including, inter alia, the following: (i) whether the individual defendants
----- ----
have breached their fiduciary and other common law duties owed to them by
plaintiff and the members of the class; (ii) whether the proposed transaction,
hereinafter described, is lacking in entire fairness; and (iii) whether the
class is entitled to injunctive relief or damages as a result of the wrongful
conduct committed by defendants.
c. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of other members of the class and plaintiff
has the same interests as the other members of the class. Accordingly,
plaintiff will fairly and adequately represent the class.
d. The prosecution of separate actions by individual members of the
class would create a risk of inconsistent or varying adjudications with respect
to individual members of the class and establish incompatible standards of
conduct for the party opposing the class.
e. Defendants have acted and are about to act on grounds generally
applicable to the class, thereby making appropriate final injunctive relief with
respect to the class as a whole.
<PAGE>
-4-
SUBSTANTIVE ALLEGATIONS
-----------------------
9. On May 29, 1998, it was announced that defendant Prosser, through
his wholly-owned company Innovative, proposed to acquire all EMC shares he does
not already own for $9.125 per share.
10. The price of $9.125 per share to be paid to the class members is
unfair and inadequate because, among other things: (a) the intrinsic value of
the stock of EMC is materially in excess of $9.125 per share, giving due
consideration to the prospects for growth and profitability of EMC in light of
its business, earnings and earnings power, present and future; (b) the $9.125
per share price offers an inadequate premium to the public stockholders of EMC;
and (c) the $9.125 per share price is not the result of arm's length
negotiations but was fixed arbitrarily by defendant Prosser to "cap" the market
price of EMC stock, as part of the plan of defendant Prosser to obtain complete
ownership of EMC, its assets and businesses at the lowest possible price.
11. The proposed transaction serves no legitimate business purpose of
EMC but rather is an attempt by defendant Prosser to benefit himself unfairly at
the expense of EMC's public stockholders. The proposed transaction will, for
inadequate consideration, deny plaintiff and the other members of the class
their right to share proportionately in the future success of EMC and its
valuable assets, while permitting defendant Prosser to reap huge benefits.
12. By reason of the foregoing acts, practices and course of conduct,
defendant Prosser has breached and will breach his duty as controlling
stockholder of EMC by engaging in improper overreaching in attempting to carry
out the proposed transaction.
13. The other defendants are not independent of defendant Prosser and
cannot fulfill their duty of loyalty to EMC and its public stockholders.
<PAGE>
-5-
14. Plaintiff and the class will suffer irreparable damage unless
defendants are enjoined from breaching their fiduciary duties and from carrying
out the aforesaid plan to enrich defendant Prosser at the expense of class
members.
15. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. enjoining, preliminarily and permanently, the proposed
transaction;
C. to the extent, if any, that the transaction complained of is
consummated prior to the entry of this Court's final judgment, rescinding the
same or awarding rescissory damages to the class;
D. directing that defendants account to plaintiff and the class for
all damages caused to them and account for all profits and any special benefits
obtained by defendants as a result of their unlawful conduct;
E. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for the fees and expenses of plaintiff's
attorneys and experts; and
F. granting such other and further relief as the Court deems
appropriate.
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By:
----------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, Delaware 19801
(302) 656-4433
Attorneys for Plaintiff
<PAGE>
-6-
OF COUNSEL:
FARUQI & FARUQI, LLP
415 Madison Avenue
New York, New York 10017
(212) 986-1074
<PAGE>
-7-
WECHSLER HARWOOD HALEBIAN
& FEFFER
488 Madison Avenue, 8th Floor
New York, New York 10022
(212) 935-7400
