Jan. 16, 2005 – Innovative Communication Corporation has agreed to make payments totaling $85,874,999 to settle three civil suits filed on behalf of minority shareholders of Emerging Communications Inc., ICC's corporate predecessor.
The proposed settlement was filed in Delaware's Chancery Court following a decision reached by the judge last year that Emerging Communications and ICC had substantially under-valued stock in EmCom when Jeffrey Prosser converted the company into a privately-held one in the 1990s. (See "Prosser Ordered to Pay Millions to Ex-shareholders").
The judge had delayed converting his decision into a judgment in the hopes a settlement could be reached, thus averting further litigation, according to one of the lawyers in the case. As yet the judge, Jack Jacobs, a member of the State's Supreme Court sitting on the Chancery Court by designation, has not acted on the proposed settlement, which was submitted to him on Nov. 16. The judge's approval is required before the settlement can go into effect.
The proposed $85 million settlement is a fraction of other numbers heard in connection with the case. The New York-based business publication, The Deal, in a Nov. 19 article, had written (apparently unaware of the Nov. 16 filing) that "the judge suggested that the minority investors were due $220 million."
Later, in the same article, The Deal had stated, "…at a Virgin Islands Public Services Commission hearing lawyers said it [the settlement] would fall beneath $100 million."
One of ICC's then-board members, John Patrick Raynor, when filing for personal bankruptcy in the U.S. Bankruptcy Court in Nebraska last year, had estimated his liability, in this matter, at $186 million. The minority stockholders had sued not only ICC, as a corporate entity, but ICC's board members as well. (See "ICC Lawyer Files for Personal Bankruptcy"). Since then two sets of board members in other cases, those of WorldCom and Enron, have agreed to pay millions out of their own pockets in connection with suits against those two troubled corporations; in the past the pattern was that corporations, and their insurance companies, absorbed the costs of such suits, and individual board members paid nothing. The Delaware settlement, however, does not specify any payments to be made by the company's directors.
The 15-page settlement proposal is a complex document. It relates to three suits filed against ICC, two by Greenlight Capital, L.P., an investment firm, and one by Brickell Partners on behalf of a class of Emerging Communications shareholders. The Chancery Court, regarded by lawyers as one of the nation's most competent courts in corporate law, had combined the three cases. Many of the nation's largest businesses are incorporated in that state.
The proposed settlement included six different payment structures, in which the defendants proposed to pay $24,403,962 and $5,596,037 in cash within three days of the settlement's approval, and to meet the other obligations in four separate 24- and 25-monthly payment programs.
Two of the installment-payment programs are described as "Lease-Secured Note[s]" in the settlement document and relate to ICC's investment in the Belize telephone company. The proposal says: "As security for said payments ICC LLC will assign the rights it has under a certain lease agreement with Belize Telecommunications Ltd., pursuant to which assignment BTL will pay to the holder(s) of the Secured Appraisal Note $500,000.00 per month for 24 months…." The minority stockholders will hold the Secured Appraisal Note; the scheduled payments total $12 million.
The scheduled payments under the other "Lease-Secured Note" program would bring the minority stockholders an additional $12.75 million.
The settlement agreement speaks of the "Defendants" as making the multi-million dollar payments but then states that "Innovative will tender… as full payment," seemingly indicating that the company will pay the bills.
Elsewhere the proposed settlement defines the "Defendants" as follows:
"1 (h) 'Defendants' means ECM [Emerging Communications], Innovative, ICC LLC, Jeffrey J. Prosser, John P. Raynor, John G. Vondras, Salvatore Muoio, Terrance A. Todman, Sir Shridath Ramphal, and Richard Goodwin."
The men named are current or former ICC board members, each of whom was represented by attorneys, with Prosser and Raynor having separate counsel, and the other five using a third lawyer.
There are two provisions in the document regarding Prosser's financial obligations:
The first, in section 4, (b), (iv) states: "Additional terms: The Fiduciary Notes will be guaranteed by Mr. Jeffrey Prosser and ICC LLC."
The second, in section 5, (d), (ii) states: "the maximum liability of Mr. Jeffrey Prosser, following the Class Release described in subparagraph (a) above, shall in no event be greater than the amount of Greenlight's claims in the Greenlight Fiduciary Duty Action… with such total liability being reduced by the amount of each payment actually made with respect to the settlement of such claims pursuant to Paragraphs 4.b.(i), (ii) and (iii) of this Stipulation…"
The combined obligations for the Greenlight Fiduciary Action and the Brickell Class Action come to $37,471,037. Phone calls to lawyers familiar with the proposed settlemen, seeking to obtain further information, were not returned.
The settlement makes it clear that even though $85 million is a lot of money, it will not, ICC says, send the firm into insolvency. Or, in the words of the proposed settlement:
"ICC LLC, Innovative and Jeffrey M. Prosser each warrant, as to the payments to be made pursuant to paragraph 4 above, that (i) at the time of such payments the Defendant making such payment was not insolvent, and (ii) such payments will not render ICC LLC and/or Innovative insolvent within the meaning of and/or for the purposes of the United States Bankruptcy Code, including sections 101 and 547 thereof."
The Rural Telephone Finance Cooperative, which has its own $500 million plus lawsuit against ICC, did not reply to the Source's questions as to whether or not the proposed settlement would complicate that lawsuit, now pending in U.S. District Court in the Virgin Islands.
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