June 12, 2006 – Jeffrey Prosser, owner of Virgin Islands Telephone Corp., and his companies had a mixed week in the courts last week. There were three significant events.
— The Wall Streeters who invested $85 million in Vitelco preferred stock two years ago sued to get their money back in New York‛s federal courts.
— The involuntary bankruptcy suit filed in Delaware against Prosser and Innovative Communication Company by two other sets of investors was settled out of court with the terms kept secret.
— A federal appeals court in Atlanta revived his suit against Belize after it had been set aside because of his lawyers‛ clerical errors.
U.S. District Court, Southern District, New York.
Six investment firms, including Fir Tree Value Master Fund and York Distressed Opportunities Fund, representing, they say, about 84 percent of the $85 million in Vitelco preferred stock issued in February 2004, sued to get their money back from Vitelco.
The grounds for the suit relate, the pleadings indicate, to the sales agreement for the stock that required Vitelco "not to permit liens on its assets and not to make any loans to its affiliates without the prior consent of the preferred stockholders" or, more precisely, of those holding two-thirds of the stock.
The plaintiffs argued that prior consent had not been secured by Vitelco for either the liens or the loans. The investors understood the $85 million was to be used solely for capital improvements to Vitelco, the local Virgin Islands phone company. They argued that since the loan agreement had not been honored it should set in motion a more rapid than otherwise repayment of the loan.
There are two issues in the case: first, there are liens on Vitelco of $3.2 million imposed by the federal Pension Benefit Guaranty Corporation; PBGC had on Feb.17 of this year filed the liens, contending that Vitelco had made inadequate contributions to two of its pension funds.
Secondly, there is the matter of the $28.5 million loan from Vitelco to a wholly owned ICC subsidiary, Belize Telecom Ltd. (BTL), which sought to purchase the phone system in the Central American nation, Belize, an arrangement which subsequently collapsed.
The pleadings described it this way: "Upon information and belief, because of disputes with the Belizean government, BTL no longer owns the shares of Belize Telecom (the monopoly phone company there), which is being sold to a third party purchaser."
The plaintiffs add in a footnote: "In addition to the Vitelco Loan…Vitelco may have improperly transferred… in excess of $30 million… to ICC and other affiliates of ICC in violation of the (sales) agreement." This is apparently a reference to other Belize-related transactions.
Vitelco had not filed a reply to the complaint at press time.
U.S. Bankruptcy Court, Delaware.
Earlier this year two of ICC‛s adversaries joined forces in a complex suit designed to force ICC and Prosser into involuntary bankruptcy. The two were the Rural Telephone Finance Corporation, which had lent Vitelco more than $500 million over the years, and the Greenlight companies, representing discontented former minority stockholders in Emerging Communications Inc., ICC‛s predecessor company that Prosser had taken private in 1998. Greenlight, arguing the stockholders had been underpaid for their shares in Emerging Communications, had previously won a judgment from a Delaware State Court in excess of $134 million against ICC, while RTFC was suing ICC in the U.S. District Court in the Virgin Islands. (See "Prosser Pushed toward Bankruptcy").
Despite a flurry of motions and counter-motions in the bankruptcy court, the matter never came to trial, and last week ICC asked the court, with the apparent consent of the other parties, to accept a settlement among them and to seal the results; in other words to keep the terms and conditions of the settlement a secret.
Lawyers for the various parties are not talking, and RTFC told the Source that it had no comment on the proceedings.
This leads observers to wonder how much money changed hands, if any; what payment schedules were established, if any; and what happened to the bankruptcy petitions. Further, it left up in the air, at least the moment, who owns Vitelco, and what debts does it still carry, if any.
The V.I. Public Service Commission may seek answers to these questions, and it might then share them with the telephone-using public, but history indicates that the PSC, despite repeated requested from the Source, has routinely decided against any disclosure of ICC or Vitelco finances.
Names Make News.
Although the Bankruptcy Court agreement is still secret, some information became available as a result of the Wall Street investors‛ suit. Previously the names of the purchasers of the preferred stock had been kept secret.
Now, listed on the public record for the first time, are the owners of the preferred stock in Vitelco who sued. They are:
Two Cayman Islands-based organizations, Fir Tree Recovery Master Fund and Fir Tree Value Partners LDC; an organization located in New Jersey, with another forestry name, Redwood Domestic Fund; and three organizations with offices in New York, D.E. Shaw Laminar Lending Inc., (the lead plaintiff), York Capital Management and York Distressed Opportunities Fund.
Of these, the two Fir Tree funds had the largest investment, a total of $45 million.
In addition the court documents show the names of five investment firms that own preferred stock but did not sue; they are: Triage Offshore Fund of Pennsylvania; Steelbright Investments PTE of Singapore; AB Investments of Bermuda; Links Capital Partners of New York, and American Money Management of Ohio.
The agreements to purchase the stock were all signed, mostly on February 26, 2004, by Joe C. Minor, treasurer of Vitelco.
In addition, the "Issuer‛s Amended and Restated Articles of Incorporation of Virgin Islands Telephone Corporation" dated February 25, 2004, was signed by David L. Sharp, president, and Samuel E. Ebbesen, secretary, two names often associated with Vitelco.
Also shown in that document were the names and residences of the firm‛s Incorporators, names not routinely seen in connection with Vitelco: George Jackson Eder, 110 Bayview Road, Plandome Manor, NY; Stephen H. Larrabee, 43 Tunstall Road, Scarsdale, NY; and John Thomas Naylor, 35 East 85th St., New York 21, NY.
U.S. Court of Appeals, Eleventh Circuit (Atlanta).
In an effort to retrieve some of the money apparently lost in the Belize venture, ICC sued the Government of Belize (GOB) in U.S. District Court in Miami last year; that venue had earlier been agreed to by both ICC and Belize in connection with a loan secured from a Miami bank by GOB to facilitate the sale of the phone company.
ICC argued that GOB had violated the terms of the phone company purchase agreement and sought $200 million in damages. It also, briefly, secured a $50,000 a day fine on GOB for failing to move swiftly enough in response to an order by the judge. This was an unusual, if not unique, decision in which a sovereign nation was to be punished for disobeying an order by a federal district court judge.
The State Department objected to the fine, on the grounds that it would be an unattractive precedent that might be used against America in overseas courts. The fine disappeared and the trial judge largely ruled against ICC last year. Then ICC sought a rehearing on the matter before the same judge, secured it, and then lost again in the rehearing.
ICC then appealed to the 11th Circuit Court of Appeals and had that appeal tossed out on technical grounds (essentially a copying problem); last week the circuit reversed the earlier technical decision and the appeal is now pending.
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