Exhibit 12(a)(1)
Offer to Purchase
All Outstanding Shares of Class A Common Stock
of
ELECTRIC LIGHTWAVE, INC.
at
$0.70 net per share
by
ELI ACQUISITION, INC.
a wholly-owned subsidiary of
CITIZENS COMMUNICATIONS COMPANY
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON MONDAY, JUNE 17, 2002, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
The Offer price of $0.70 net per share is equal to a premium of
approximately 106% over the closing price of Electric Lightwave, Inc. ("ELI")
Class A common stock on NASDAQ on the day prior to the initial announcement of
the Offer. After the expiration of the Offer, Citizens may convert to ELI Class
A common stock that number of shares of ELI Class B common stock that it
presently holds that is sufficient so that after the conversion Citizens and its
subsidiaries will hold at least 90% of the outstanding shares of Class A common
stock. As of March 31, 2002, Citizens and its subsidiaries owned an aggregate of
27,571,332 shares of ELI's Class A common stock, or approximately 78% of the
outstanding shares of Class A common stock. In addition, as of March 31, 2002,
Citizens and its subsidiaries owned all of the 15,881,312 outstanding shares of
ELI's Class B common stock, which are convertible by Citizens, at any time, into
shares of Class A common stock on a one-to-one basis. Assuming the conversion of
all the Class B common stock, Citizens and its subsidiaries would own
approximately 85% of the outstanding shares of Class A common stock. The NASDAQ
has notified ELI that the Class A common stock will be delisted from The Nasdaq
National Market at the opening of business on May 24, 2002. The Offer is also
subject to other important terms and conditions contained in this Offer to
Purchase, including the condition that a majority of the shares of Class A
common stock currently owned by stockholders of ELI other than Citizens or its
subsidiaries be validly tendered and not withdrawn. The Offer is not subject to
any financing condition.
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NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFER, PASSED UPON THE
FAIRNESS OR MERITS OF THE OFFER OR DETERMINED WHETHER THIS OFFER TO PURCHASE IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIME.
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The Information Agent for the Offer is:
D.F. King & Co., Inc.
May 20, 2002
TABLE OF CONTENTS
Page
SUMMARY .......................................................................................i
QUESTIONS AND ANSWERS ABOUT THE TENDER OFFER..................................................ii
INTRODUCTION...................................................................................1
SPECIAL FACTORS................................................................................2
Background to the Offer and the Merger......................................................2
Reasons for the Offer and the Merger........................................................4
Position of Citizens as to Fairness of the Offer and the Merger.............................6
Summary of Report of Salomon Smith Barney to the Board of Directors of Citizens.............8
Conflicts of Interest......................................................................13
Other Possible Purchases of Shares.........................................................14
The Merger.................................................................................14
Certain Effects of the Offer and the Merger................................................14
Treatment of Electric Lightwave Options....................................................16
Conduct of Citizens after the Offer and the Merger.........................................16
Conduct of Citizens if the Offer is not Completed..........................................17
THE TENDER OFFER..............................................................................18
Terms of the Offer; Expiration Date........................................................18
Acceptance for Payment and Payment for Shares..............................................19
Procedures for Accepting the Offer and Tendering Shares....................................20
Withdrawal Rights..........................................................................23
Certain Conditions of the Offer............................................................24
Certain Legal Matters; Regulatory Approvals................................................26
State Anti-takeover Statutes...............................................................27
Dividends and Distributions................................................................27
MATERIAL FEDERAL INCOME TAX CONSEQUENCES......................................................28
PRICE RANGE OF THE SHARES; DIVIDENDS..........................................................29
CERTAIN INFORMATION CONCERNING ELI............................................................29
CERTAIN INFORMATION CONCERNING THE PURCHASER AND CITIZENS.....................................31
The Purchaser..............................................................................31
Citizens...................................................................................31
Certain Transactions.......................................................................32
Other Information About Citizens...........................................................35
SOURCE AND AMOUNT OF FUNDS....................................................................36
THE MERGER; APPRAISAL RIGHTS..................................................................36
The Merger.................................................................................36
Appraisal Rights...........................................................................36
FEES AND EXPENSES.............................................................................38
MISCELLANEOUS.................................................................................39
SCHEDULE I....................................................................................40
Members of the Boards of Directors and Executive Officers of the Purchaser and Citizens....40
SCHEDULE II...................................................................................44
Information Concerning Transactions in the Class A Common Stock of ELI.....................44
SCHEDULE III..................................................................................45
Section 262 of the Delaware General Corporation Law........................................45
IMPORTANT
ANY STOCKHOLDER OF ELI DESIRING TO TENDER ALL OR ANY PORTION OF SUCH
STOCKHOLDER'S SHARES (AS DEFINED HEREIN) SHOULD EITHER (1) COMPLETE AND SIGN THE
ACCOMPANYING 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 THE INSTRUCTIONS TO THE LETTER OF TRANSMITTAL,
MAIL OR DELIVER THE LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE) OR,
IN THE CASE OF A BOOK-ENTRY TRANSFER EFFECTED PURSUANT TO THE PROCEDURES SET
FORTH IN "THE TENDER OFFER--PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING
SHARES," AN AGENT'S MESSAGE (AS DEFINED HEREIN), AND ANY OTHER REQUIRED
DOCUMENTS TO THE DEPOSITARY (AS DEFINED HEREIN), AND EITHER DELIVER THE
CERTIFICATES REPRESENTING SUCH SHARES TO THE DEPOSITARY ALONG WITH THE LETTER OF
TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE) OR DELIVER SUCH SHARES PURSUANT TO
THE PROCEDURES FOR BOOK-ENTRY TRANSFER SET FORTH IN "THE TENDER
OFFER--PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES" OR (2) REQUEST
SUCH STOCKHOLDER'S BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER
NOMINEE TO EFFECT THE TRANSACTION FOR SUCH STOCKHOLDER.
ANY STOCKHOLDER HAVING SHARES REGISTERED IN THE NAME OF A BROKER, DEALER,
COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT SUCH BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF SUCH STOCKHOLDER
DESIRES TO TENDER SUCH SHARES.
A STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES
REPRESENTING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY IN
A TIMELY MANNER WITH THE PROCEDURES FOR BOOK-ENTRY TRANSFER, MAY TENDER SUCH
SHARES BY FOLLOWING THE PROCEDURES FOR GUARANTEED DELIVERY SET FORTH IN "THE
TENDER OFFER--PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES."
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THIS
OFFER TO PURCHASE, THE LETTER OF TRANSMITTAL OR OTHER TENDER OFFER MATERIALS MAY
BE DIRECTED TO THE INFORMATION AGENT AT ITS ADDRESS AND TELEPHONE NUMBER SET
FORTH ON THE BACK COVER OF THIS OFFER TO PURCHASE. STOCKHOLDERS MAY ALSO CONTACT
THEIR BROKER, DEALER, COMMERCIAL BANK OR TRUST COMPANY FOR ASSISTANCE CONCERNING
THE OFFER.
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SUMMARY
This summary is intended to be an overview only. Before you make any
decision with respect to the tender offer, you should read the following summary
together with the more detailed information included elsewhere in this Offer to
Purchase. This summary and the remainder of this Offer to Purchase include
information regarding the tender offer, the proposed subsequent short-form
merger, ELI and the position of Citizens regarding the fairness of the terms of
the tender offer and the merger. References in this Offer to Purchase to the
board of directors of Citizens include both the full board of directors and/or a
duly authorized committee of the board of directors.
o ELI Acquisition, Inc., a wholly-owned subsidiary of Citizens, is offering
to purchase in a tender offer all of the outstanding shares of Class A
common stock of ELI that Citizens and its subsidiaries do not currently
own. The tender price is $0.70 per share in cash, without interest. See
"The Tender Offer--Terms of the Offer; Expiration Date."
o ELI has received a notice from Nasdaq that ELI's Class A common stock will
be delisted from The Nasdaq National Market at the opening of business on
May 24, 2002, for failure to comply with listing requirements.
o Certain officers and directors of Citizens are also officers and directors
of ELI. See "Certain Information Concerning ELI" and "Certain Information
Concerning The Purchaser and Citizens."
o As of March 31, 2002, ELI had 35,414,784 shares of ELI's Class A common
stock outstanding. In addition, options to purchase 3,725,204 shares of
ELI's Class A common stock were outstanding at such date. Citizens and its
subsidiaries owned in the aggregate 27,571,332 shares of ELI's Class A
common stock, or approximately 78% of the outstanding shares of ELI's Class
A common stock, on March 31, 2002. As of March 31, 2002, ELI had 15,881,312
shares of Class B common stock outstanding that are 100% owned by Citizens.
ELI's Class B common stock is not publicly traded and it is convertible at
any time, on a one-to-one basis, into shares of Class A common stock.
However, each share of Class B common stock is entitled to ten votes per
share, while each share of Class A common stock is entitled to one vote per
share.
o This is a "going private" transaction. If the tender offer is successful
and we own at least 90% of the outstanding Class A Common Stock of ELI, we
will cause ELI Acquisition, Inc. to merge into ELI (the "Merger") and, as a
result
o Citizens will own all of the equity interests in ELI;
o You will no longer have any interest in ELI's future earnings (if any)
or growth (if any);
o ELI will no longer be a public company; and
o There will be no market for ELI's stock.
See "Special Factors--Certain Effects of the Offer and the Merger."
o The tender offer is subject to a number of conditions, including the
condition that a majority of the shares of Class A common stock currently
owned by stockholders of ELI other than Citizens or its subsidiaries are
tendered and not withdrawn. This condition may be waived by Citizens in its
sole discretion. After the expiration of the offer Citizens may convert to
ELI Class A common stock that number of shares of ELI Class B common stock
that it presently holds that is sufficient so that after the conversion
Citizens and its subsidiaries will hold at least 90% of the outstanding
shares of Class A common stock. See "The Tender Offer--Certain Conditions
Of The Offer."
i
o The board of directors of Citizens has determined that the offer and the
merger are fair to the stockholders of ELI other than Citizens. It has not
negotiated the tender price with ELI. In considering the fairness of the
offer and the merger to ELI's stockholders other than Citizens, the board
of directors of Citizens considered the recent and projected operating
performance of ELI, the state of the CLEC and long-haul telecom markets,
ELI's balance sheet and debt obligations, the substantial current financing
requirements of ELI, ELI's inability to obtain financing from any source
other than Citizens, the dilutive effect on ELI's public stockholders that
would result from the investments that Citizen must make in ELI in order
for ELI to meet its obligations, and the delisting of the Class A common
stock from The Nasdaq National Market that will occur on May 24, 2002. The
board of directors of Citizens also has reviewed and relied in part upon an
analysis of the ranges of potential values of the shares of ELI's common
stock that resulted from the application of several accepted valuation
methodologies. This analysis, including the selection of valuation
methodologies, was prepared by Salomon Smith Barney Inc. Salomon Smith
Barney is the financial advisor to Citizens in connection with the tender
offer and the merger. For a discussion of the factors that the board of
directors of Citizens considered in making its determination as to the
fairness of the offer and the merger and a summary of the financial
analysis prepared by Salomon Smith Barney, see "Special Factors--Position
Of Citizens As To Fairness Of The Offer and the Merger" and "Special
Factors--Summary Of Report Of Salomon Smith Barney To The Board Of
Directors of Citizens."
o The total amount of funds required for Purchaser to purchase all of the
outstanding shares of ELI's common stock pursuant to the tender offer and
merger, assuming no outstanding options are exercised and to pay related
expenses is estimated to be approximately $6.5 million. Purchaser will
obtain the funds to purchase ELI's common stock in the tender offer and the
merger through a capital contribution from Citizens. Citizens has committed
to provide any required financing to Purchaser. Because the tender offer
and the merger are for cash and Citizens has available cash sufficient to
fund the tender offer and the merger, we do not believe that the financial
condition of Citizens or Purchaser is relevant to your decision whether to
tender your shares in the tender offer. See "Source And Amount Of Funds."
o If you tender your shares of ELI common stock in the tender offer, you will
not be entitled to exercise statutory appraisal rights under the Delaware
General Corporation Law. If you do not tender your shares in the tender
offer, upon the subsequent merger of Purchaser and ELI, you will have a
statutory right to dissent and demand payment of the judicially appraised
fair value of ELI's shares plus a fair rate of interest, if any, from the
date of the merger. This value may be more or less than $0.70 per share. We
will pay to those stockholders who do not tender their shares and do not
exercise their appraisal rights the same consideration in the merger as we
pay in the tender offer. See "The Merger; Appraisal Rights."
QUESTIONS AND ANSWERS ABOUT THE TENDER OFFER
WHO IS OFFERING TO BUY MY SECURITIES?
ELI Acquisition, Inc., a wholly-owned subsidiary of Citizens, is offering
to purchase all of your Class A common stock of ELI as described in this
document. See "Certain Information Concerning the Purchaser and Citizens," for
further information about us.
WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER?
We are offering to buy all of the Class A common stock of ELI not currently
owned by us. For information about the conditions to the offer, see "The Tender
Offer--Certain Conditions of the Offer."
ii
HOW MUCH IS CITIZENS OFFERING TO PAY AND WHAT IS THE FORM OF PAYMENT?
We are offering to pay $0.70 in cash for each share of Class A common stock
of ELI. See the "Introduction" and "The Tender Offer--Terms of the Offer;
Expiration Date" for information about the terms of the offer.
WILL I HAVE TO PAY ANY FEES OR COMMISSIONS?
If you are the record owner of your shares and you tender your shares to us
in the offer, you will not have to pay brokerage fees or similar expenses. If
you own your shares through a broker or other nominee, and your broker or
nominee tenders your shares on your behalf, it may charge you a fee for doing
so. You should consult your broker or nominee to determine whether any charges
will apply. See "The Tender Offer--Procedure for Accepting the Offer and
Tendering Shares."
HOW WILL U.S. TAXPAYERS BE TAXED FOR U.S. FEDERAL INCOME TAX PURPOSES?
If you are a U.S. taxpayer, your receipt of cash for shares of ELI's Class
A common stock in the offer will be a taxable transaction for U.S. federal
income tax purposes. You will generally recognize gain or loss in an amount
equal to the difference between (i) the cash you receive in the offer and (ii)
your adjusted tax basis in ELI's Class A common stock shares you sell in the
offer. That gain or loss will be a capital gain or loss if the shares are a
capital asset in your hands, and will be long-term capital gain or loss if the
shares have been held for more than one year at the time the offer is completed.
You are urged to consult your own tax advisor as to the particular tax
consequences of the offer to you. See "Material Federal Income Tax
Consequences."
DOES CITIZENS HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
Yes. Citizens has the financial resources to pay for all the Class A common
stock of ELI not currently owned by Citizens or its subsidiaries with its cash
on hand. THE TENDER OFFER IS NOT CONDITIONED ON CITIZENS OBTAINING ANY
FINANCING. See "The Tender Offer--Source and Amount of Funds."
WHAT IS THE MOST SIGNIFICANT CONDITION TO THE OFFER?
The offer is conditioned on, among other things, satisfaction of the
minimum tender condition. The minimum tender condition requires the tender of at
least a majority of the shares of ELI's Class A common stock not currently owned
by Citizens and its subsidiaries. This condition may be waived by Citizens in
its sole discretion. After the expiration of the offer Citizens may convert to
ELI Class A common stock that number of shares of ELI Class B common stock that
it presently holds that is sufficient so that after the conversion Citizens and
its subsidiaries will hold at least 90% of the outstanding shares of Class A
common stock. Assuming that no outstanding ELI stock options are exercised, this
"majority of the minority" tender condition will be met if at least 3,921,727
shares of ELI's Class A common stock are validly tendered and not withdrawn
prior to the expiration of the tender offer. See the "Introduction" and "The
Tender Offer--Certain Conditions of the Offer," for a complete description of
all of the conditions to which the offer is subject.
WHY IS CITIZENS MAKING THIS OFFER?
The tender offer and merger are intended to provide to ELI's stockholders
other than Citizens a cash value that is in excess of the market value of ELI's
Class A common stock prior to the announcement of the tender offer and the fair
market value of ELI's Class A common stock, at a time when ELI is unable to meet
its obligations without substantial investment by Citizens. See "Special
Factors--Background to the Offer and the Merger."
iii
IS THIS OFFER SUPPORTED BY ELI'S BOARD OF DIRECTORS?
We commenced this offer without obtaining the prior approval of ELI's board
of directors. The completion of the offer is not conditioned on the approval of
ELI's board of directors. The board of directors of ELI has not yet made any
recommendation with respect to the offer. Federal securities laws require ELI's
board of directors to advise ELI's stockholders of its position on this offer
within ten business days of the date of this document. See "Introduction."
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER MY SHARES IN THE INITIAL OFFERING
PERIOD?
You may tender your shares under the offer until 12:00 midnight, New York
City time, on Monday, June 17, 2002, which is the scheduled expiration date of
the offering period, unless we decide to extend the offering period or provide a
subsequent offering period. See "The Tender Offer--Terms of the Offer;
Expiration Date."
CAN THE OFFER BE EXTENDED AND HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
Yes, we may elect to extend the offer. We can do so by issuing a press
release no later than 9:00 a.m., New York City time, on the next business day
following the scheduled expiration date of the offer. The press release would
state the approximate number of shares tendered as of that time and would
announce the extended expiration date. See "The Tender Offer--Terms of the
Offer; Expiration Date," for information about extension of the offer.
HOW DO I TENDER MY SHARES?
If you hold the certificates for your shares, you should complete the
enclosed Letter of Transmittal and enclose all the documents required by it,
including your certificates, and send them to the Depositary at the address
listed on the back cover of this document. If your broker holds your shares for
you in "street name" you must instruct your broker to tender your shares on your
behalf. In any case, the Depositary must receive all required documents before
the expiration date of the offer, which is Monday, June 17, 2002, unless
extended. If you cannot comply with any of these procedures, you still may be
able to tender your shares by using the guaranteed delivery procedures described
in this document. See "The Tender Offer--Procedure for Accepting the Offer and
Tendering Shares," for more information on the procedures for tendering your
shares.
UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES?
You may withdraw shares that you have tendered at any time on or prior to
12:00 midnight, New York City time, on Monday, June 17, 2002, or, if the tender
offer is extended, prior to the expiration of the tender offer. Unless accepted
for payment on or prior to Monday, June 17, 2002, you may also withdraw shares
you have tendered at any time after that date. See "The Tender Offer--Withdrawal
Rights."
HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
In order for a withdrawal to be effective, Illinois Stock Transfer Company,
the Depositary for the tender offer, must receive your notice of withdrawal
prior to the expiration of the tender offer at one of the addresses on the back
cover of this Offer to Purchase. For more information on your withdrawal rights,
see "The Tender Offer--Withdrawal Rights."
iv
IF CITIZENS CONSUMMATES THE TENDER OFFER, WHAT ARE ITS PLANS WITH RESPECT TO ALL
THE SHARES THAT ARE NOT TENDERED IN THE OFFER?
If after the tender offer is completed, Citizens and its subsidiaries,
after giving effect to any conversion of ELI Class B common stock to Class A
common stock, together own at least 90% of each class of ELI's outstanding
shares, Citizens plans to cause Purchaser to merge with and into ELI in a
so-called "short-form" merger. ELI would be the surviving corporation in the
merger and would be wholly-owned by Citizens. Purchaser does not intend to seek
the approval of the board of directors of ELI for such merger. The consideration
to be paid in the merger will be the same $0.70 per share in cash as is payable
in the tender offer. See "Special Factors--The Merger." It is Citizen's current
intention to complete the short-form merger as soon as practicable after the
closing of the tender offer. See "Special Factors--Background to the Offer and
the Merger--Acquisition of ELI."
If, after the tender offer is completed, the aggregate ownership by
Citizens and its subsidiaries of the outstanding shares of ELI's Class A common
stock is below 90% due to the exercise of outstanding options or for any other
reason, Citizens may acquire additional shares of ELI's Class A common stock on
the open market or in privately negotiated transactions or convert shares of
ELI's Class B common stock that it holds to Class A common stock to the extent
required for the ownership of Class A common stock by Citizens and its
subsidiaries to equal or exceed 90%. See "Special Factors--Other Possible
Purchases of Shares."
IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES?
Stockholders of ELI who do not tender their shares of ELI's Class A common
stock in the tender offer will not be entitled to vote their shares with respect
to the merger, but will have a statutory right to demand a judicial appraisal of
the fair value of their shares of ELI's Class A common stock. See "The Merger;
Appraisal Rights."
WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On May 15, 2002, the day prior to the initial announcement of the offer,
the last reported sale price of ELI's Class A common stock on NASDAQ was $0.34
per share. The offer price of $0.70 per share is equal to a premium of
approximately 106% over that price. ELI has received a notice from Nasdaq that
ELI's Class A common stock will be delisted from The Nasdaq National Market at
the opening of business on May 24, 2002, for failure to comply with listing
requirements. For more information regarding the trading range of ELI's Class A
common stock, see "Price Range Of The Shares; Dividends."
WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
If you have questions or you need assistance you should contact the
Information Agent at the following address and telephone number:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Toll Free: (888) 414-5566
Banks and Brokers may call collect: (212) 269-5550
v
TO THE HOLDERS OF CLASS A COMMON STOCK OF ELECTRIC LIGHTWAVE, INC.:
INTRODUCTION
ELI Acquisition, Inc. (the "Purchaser"), a Delaware corporation, hereby
offers to purchase all outstanding shares of Class A common stock, par value
$.01 per share (the "Shares"), of Electric Lightwave, Inc., a Delaware
corporation ("ELI" or the "Company"), at a purchase price of $0.70 per Share
(the "Offer Price"), net to the seller in cash, without interest thereon, upon
the terms and subject to the conditions set forth in this Offer to Purchase and
in the related Letter of Transmittal (which, together with any amendments or
supplements hereto or thereto, collectively constitute the "Offer"). The
Purchaser is a wholly-owned subsidiary of Citizens Communications Company, a
Delaware corporation ("Citizens"). References in this Offer to Purchase to the
board of directors of Citizens include both the full board of directors and/or a
duly authorized committee of the board of directors.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF
SHARES REPRESENTING THE MAJORITY OF SHARES OF CLASS A COMMON STOCK OF ELI OWNED
BY STOCKHOLDERS OTHER THAN CITIZENS AND ITS SUBSIDIARIES, ON THE EXPIRATION DATE
(THE "MINIMUM CONDITION"). THE OFFER IS ALSO SUBJECT TO OTHER IMPORTANT TERMS
AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. SEE "THE TENDER
OFFER--CERTAIN CONDITIONS OF THE OFFER."
As of March 31, 2002, there were 35,414,784 shares of Class A common stock
and 15,881,312 shares of Class B common stock outstanding and 3,725,204 shares
of Class A common stock reserved for issuance pursuant to options (the
"Options") outstanding as of such date under ELI's option plans. As of such
date, Citizens owned 43,452,644 shares of common stock, consisting of 27,571,332
Class A shares and all of the Class B shares, or approximately 85% of the
outstanding Shares.
Based upon the number of outstanding Shares as of March 31, 2002, and
assuming that no Options are exercised, 3,921,727 shares of Class A Common Stock
must be tendered in the Offer in order to satisfy the Minimum Condition.
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in the Letter of Transmittal, stock
transfer taxes with respect to the purchase by the Purchaser of Shares pursuant
to the Offer. The Purchaser will pay all fees and expenses of D.F. King & Co.,
Inc., which is acting as the Information Agent (the "Information Agent"), and
Illinois Stock Transfer Company, which is acting as the Depositary (the
"Depositary") in connection with the Offer. See "Fees And Expenses."
This Offer to Purchase and the documents incorporated by reference in this
Offer to Purchase include certain forward-looking statements. These statements
appear throughout this Offer to Purchase and include statements regarding the
intent, belief or current expectations of Citizens and its board of directors,
including statements concerning the forecasts of results of operations of ELI
and Citizen's strategies following completion of the Offer. Such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual results may differ materially from those described in such
forward-looking statements as a result of various factors.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT YOU SHOULD READ CAREFULLY BEFORE YOU MAKE ANY
DECISION WITH RESPECT TO THE OFFER.
If the Offer is completed, Citizens and the Purchaser, after giving effect
to any conversion of ELI Class B common stock to Class A common stock, will
together own at least 90% of each class of ELI's outstanding shares. Citizens
ultimately intends to cause ELI to merge with and into the Purchaser in a
so-called "short-form" merger between ELI and the Purchaser (the "Merger").
After the Merger, ELI would be wholly-owned by Citizens. Stockholders of ELI who
do not tender their Shares in the Offer would not be entitled to vote on the
Merger. The consideration per Share in the Merger will be the same as the Offer
Price. It is Citizens' current intention that the Merger be completed as soon as
possible after the close of the Offer. If, after the Offer is completed, the
aggregate ownership by Citizens and its subsidiaries of the outstanding Shares
is below 90% due to the exercise of outstanding Options or for any other reason,
Citizens may convert additional shares of ELI Class B common stock or may
acquire additional Shares on the open market or in privately negotiated
transactions to the extent required for such ownership to equal or exceed 90%.
For a discussion of other actions Citizens may take if the Offer is not
completed, see "Special Factors--Conduct Of ELI's Business If The Offer Is Not
Completed."
The Purchaser and Citizens have filed with the Securities and Exchange
Commission (the "Commission") a Tender Offer Statement on Schedule TO (including
the information required by Schedule 13E-3) (the "Schedule TO") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to
the Offer, the Merger and other potential purchases of Shares.
SPECIAL FACTORS
BACKGROUND TO THE OFFER AND THE MERGER
BACKGROUND. Citizens holds an 85% economic interest and a 96% voting
interest in ELI. ELI's relationship with Citizens is primarily governed by an
Administrative Services Agreement, a Tax Sharing Agreement, an Indemnification
Agreement, a Customers and Service Agreement and a Registration Rights Agreement
entered into in connection with ELI's initial public offering in 1997 (IPO). ELI
has entered into a revolving credit facility with Citizens for $450 million with
an interest rate of 15% and a final maturity of October 30, 2005 (Citizens
Credit Facility) under which $332,500,000 had been borrowed at April 30, 2002.
Citizens also has guaranteed ELI's $400 million revolving bank credit facility,
$325 million five-year senior unsecured notes, and $75 million capital lease. On
January 31, 2002, ELI exercised its option to purchase on April 30, 2002,
operating assets in an amount of $110 million, the funding for which was
provided by Citizens under the Citizens Credit Facility. The $400 million
revolving bank credit facility matures in November 2002 and full payment of the
credit facility by ELI is due at that time. Citizens intends to provide the
funds necessary to pay the amounts due under the credit facility.
Citizens provides certain management and administrative services to ELI and
certain officers of Citizens also serve as ELI's officers. Citizens has
committed to continue to finance ELI's operations and cash requirements through
March 31, 2003. There is not currently a market to further finance or refinance
ELI's indebtedness, except from funds provided by Citizens.
For a detailed description of the agreements that govern the relationships
between Citizens and ELI, please see the section of this Offer to Purchase
captioned "Certain Information Concerning the Purchaser and Citizens."
During 2001, the economy and the stock market began to highlight the
overbuilt state of the telecommunications markets, especially for CLEC and
long-haul services. ELI and other competitive local exchange carriers, or CLECs,
have incurred substantial debt to build networks for which demand now appears to
be limited. As these conditions became more evident, competitive and financial
pressures on CLECs increased. As a result of these pressures, a restructuring of
the telecommunications industry is occurring. The nature of the restructuring of
the telecommunications industry that will take place or how such restructuring
will affect ELI is uncertain.
2
ELI has received a notice from Nasdaq indicating that ELI has failed to
regain compliance with Nasdaq's listing requirements and therefore ELI's Class A
common stock will be delisted from The Nasdaq National Market at the opening of
business on May 24, 2002. On April 2, 2001, ELI received a notice from The
Nasdaq Stock Market, Inc. that its stock would be subject to delisting from the
National Market after July 2, 2001 because its Class A Common Stock failed to
maintain a minimum bid price. On June 29, 2001, ELI filed an application for its
listing to be transferred to The Nasdaq Small Cap Market. As part of the
application process, Citizens converted approximately 25.3 million shares of
Class B Common Stock into the same number of shares of Class A Common Stock on
August 27, 2001. Subsequently, ELI was advised by Nasdaq that, even after
conversion, the Class A Common Stock did not meet minimum standards for listing
on The Nasdaq Small Cap Market. On August 31, 2001, ELI received a notice from
Nasdaq indicating that it had failed to comply with the shareholders' equity,
market capitalization, market value/total assets and revenue and minimum bid
price requirements for continued listing, and that its stock was, therefore,
subject to delisting from The Nasdaq National Market. ELI was granted a hearing
before a Nasdaq Listing Qualifications Panel to review the delisting. On
September 27, 2001, Nasdaq implemented a moratorium on the minimum bid price and
market value of public float requirements for continued listing on The Nasdaq
Stock Market until January 2, 2002. ELI received a notice from the Nasdaq on
September 27, 2001, stating that as a result of that action the hearing
scheduled regarding the delisting of its stock had been canceled and its hearing
file closed. On January 2, 2002, compliance with the minimum requirements for
listing on The Nasdaq National and Small Cap Markets started anew. When ELI's
common stock is delisted, Citizens expects that until the completion of this
offer it will trade in the over-the-counter market, which generally provides
more limited trading opportunities than shares traded on either The Nasdaq
National Market or Small Cap Market.
During the fall of 2001, Citizens and ELI coordinated efforts to refinance
ELI's $110 million construction agency and operating lease prior to the April
30, 2002 expiration of such lease. In August 2001, ELI engaged a major bank to
prepare a confidential offering memorandum to market participation in the
refinancing of the lease, which memorandum was distributed to the participant
syndicate of the 1995 lease and other prospective institutional investors.
Between July and December 2001, Citizens and ELI, in coordination with the bank,
met with those prospective investors in support of the refinancing effort.
Despite these efforts and notwithstanding Citizens' guaranty of any refinancing
obligations, the participant syndicate and other potential investors expressed
minimal interest in refinancing the lease. Based upon this response and ELI's
inability to meet its operating costs and capital requirements except through
Citizens' financing, ELI concluded that it would not be feasible to continue
efforts to refinance the lease. On January 31, 2002, ELI exercised its option to
purchase on April 30, 2002, operating assets in an amount of $110 million, the
funding for which was provided by Citizens under the Citizens Credit Facility.
In February 2002, Citizens' management commenced a review of alternatives
available to Citizens with respect to its investment in ELI. On April 24, 2002,
Citizens retained Salomon Smith Barney to act as its financial adviser in
connection with the possible acquisition, directly or indirectly, of all or a
portion of the Class A common stock of ELI that Citizens and its subsidiaries
did not already own.
On April 22, 2002, ELI announced that it was withdrawing its previous
guidance for 2002 based upon preliminary results of operations for the first
quarter of 2002.
On May 14, 2002, ELI announced its 2002 first quarter results of
operations, reflecting revenue of approximately $48.2 million, net loss of $83.4
million and adjusted EBITDA (operating income plus depreciation and
amortization) of $2.5 million, compared with respective figures for the first
quarter of 2001 of approximately $62.6 million in revenue, $37.7 million net
loss and adjusted EBITDA of approximately $3.3 million.
On May 14, 2002, ELI and Citizens each announced that each was recognizing
a charge of $39.8 million relating to the ELI goodwill as a cumulative effect of
a change in accounting principle, net of tax.
3
On May 16, 2002, Citizens announced that its board of directors had
authorized its management to proceed to acquire the public minority interest in
ELI so that the minority shareholders of ELI would receive cash for their shares
at a share price in excess of the current market price for the Class A common
stock, without the risks of ongoing stock ownership in ELI.
As previously announced on April 22, 2002, a review of ELI's business and
operations is being conducted by Citizens and ELI. Although the review is
ongoing, it is currently expected that ELI's support systems, administrative
functions and certain aspects of its network and operations will be rationalized
and, in some areas, more closely integrated with Citizens. These changes are
expected to result in a lower cost structure, a significant reduction in capital
expenditures and, as a result, a substantial reduction in incremental funding
required from Citizens to support ELI's operations. These changes are not
expected to impact ELI's existing customer base, the quality of its network or
its ability to provide the highest level of customer service.
ELI is a CLEC that provides the full range of wireline telecommunications
products and services, including switched local and long distance voice service,
enhanced data communications services and dedicated point-to-point services, in
the western United States. ELI markets in the western United States to retail
business customers, who are primarily communications-intensive organizations.
ELI markets nationally to wholesale customers, who are communications carriers
themselves. Citizens owns approximately 85% of ELI's common stock.
ELI's facilities-based network in the western United States consists of
optical fiber plus voice and data switches. ELI has a national internet and data
network with switches and routers in key cities, linked by leased transport
facilities. At December 31, 2001, ELI had 6,754 local and long-haul route miles
of fiber-optic cable in service. ELI's long-haul fiber optic network, a
Synchronous Optical Network (SONET) architecture, spans more than 4,000 miles,
crosses seven states and is one of the largest OC-192 SONET systems in the
western United States.
REASONS FOR THE OFFER AND THE MERGER
ACTIONS OF CITIZENS' BOARD OF DIRECTORS. At the May 16, 2002 meeting of the
board of directors of Citizens, Citizens' management presented the proposal for
Citizens to acquire all of the Shares that Citizens and its subsidiaries did not
already own. The board of directors of Citizens considered all of the factors
relating to the Offer and the Merger referred to below. The board of directors
of Citizens also discussed the impairment of the good will in ELI as of March
31, 2002, the result of operations of ELI for the first quarter of 2002 and
ELI's expectations for 2002. After consideration of these factors, the board of
directors of Citizens determined to take ELI private through an acquisition for
cash through the Offer for all of the Shares held by ELI's public stockholders
at a purchase price of $0.70 per Share.
BENEFITS AND DETRIMENTS TO ELI OF THE OFFER FOLLOWED BY THE MERGER. In
determining whether to make the Offer and thereafter effect the Merger, the
board of directors of Citizens considered several factors, including the April
30, 2002 purchase for $110 million of operating assets under the synthetic
lease, the maturity in November 2002 of ELI's $400 million credit facility and
the dilutive effect on ELI's public stockholders that would result from the
investments that Citizens must make in ELI in order for ELI to meets its
obligations. Citizens' board of directors also considered the following factors:
o the implied equity and enterprise value of ELI in the report of Salomon
Smith Barney;
o the prospect of achieving greater operating and administrative efficiencies
as a result of ELI's operations being conducted in a more coordinated
manner with Citizens' other businesses;
4
o the decrease in costs, particularly those associated with being a public
company (for example, as a privately-held entity, ELI would no longer be
required to file quarterly, annual or other periodic reports with the
Commission or publish and distribute to its stockholders annual reports and
proxy statements with respect to the common stock);
o the reduction in the amount of public information available to competitors
about ELI's businesses that would result from the termination of ELI's
obligations under the reporting requirements of the Commission;
o the elimination of additional burdens on management associated with public
reporting and other tasks resulting from ELI's public company status,
including, for example, the dedication of time by and resources of ELI's
management and board of directors to stockholder and analyst inquiries and
investor and public relations; and
o the greater flexibility that ELI's management would have to focus on
long-term business goals, as opposed to quarterly earnings, as a
non-reporting company.
The board of directors of Citizens also considered the advantages and
disadvantages of certain alternatives to acquiring the minority stockholder
interest in ELI, including:
o a sale of ELI; and
o leaving ELI as a majority-owned, public subsidiary.
The first alternative, selling ELI, was not an alternative that was pursued
at length, given the generally depressed state of the CLEC industry at the
present time.
In the view of the board of directors of Citizens, the principal advantage
of leaving ELI as a majority-owned, public subsidiary was the ability of
Citizens to invest the cash that would be required to buy the minority
stockholder interest in ELI for other purposes. The disadvantages of leaving ELI
as a majority-owned, public subsidiary which were considered by Citizens' board
of directors included the inability of ELI to obtain financing from any source
other than Citizens and the inability to achieve many of the benefits of taking
ELI private discussed above. The board of directors of Citizens concluded that
the advantages of leaving ELI as a majority-owned, public subsidiary were
significantly outweighed by the disadvantages of doing so, and accordingly that
alternative was rejected.
CONSIDERATION OF LIQUIDITY AND SHARE PRICE; TIMING. The board of directors
of Citizens considered the relatively low volume of trading in the Shares and
the consequences of the impending delisting by Nasdaq and considered that the
Offer and the Merger would result in immediate, enhanced liquidity for the
public stockholders. The board of directors of Citizens also considered recent
trends in the price of the Shares. Citizens has determined to make the Offer and
effect the Merger at this time to provide flexibility in its financing of the
capital and operating needs of ELI and in operating ELI.
ALTERNATIVE STRUCTURES CONSIDERED. The board of directors of Citizens also
considered alternatives to structuring the transaction as a tender offer
followed by a short-form merger. In determining to structure the transaction as
a tender offer followed by a short-form merger, the board of directors
considered the following:
o Unless at least 90% of each class of ELI's outstanding shares are owned by
the Purchaser, it could not effect a short-form merger. Unlike a long-form
merger, the approval of ELI's board of directors is not required to
complete a short-form merger.
5
o A tender offer followed by a short-form merger would permit Citizens to
acquire the minority interest in ELI on an expedited basis and provide the
public stockholders with a prompt opportunity to receive cash in exchange
for their Shares.
o Public stockholders who do not tender their Shares in the Offer could
preserve their appraisal rights in the Merger under Delaware state law.
After discussing the advantages and disadvantages of acquiring the minority
stockholder interest in ELI, including the alternative method of acquiring such
interests through a long-form merger, Citizens' board of directors authorized
taking ELI private through a tender offer for all of the Shares of ELI that
Citizens and its subsidiaries did not already own, to be followed by a
short-form merger.
POSITION OF CITIZENS AS TO FAIRNESS OF THE OFFER AND THE MERGER
Because Citizens currently owns a majority of the Shares, Citizens and the
Purchaser are deemed "affiliates" of ELI under Rule 12b-2 of the Exchange Act.
Accordingly, in compliance with Rule 13e-3 under the Exchange Act, the board of
directors of Citizens has considered the fairness of the Offer and the Merger to
ELI's public stockholders.
DETERMINATION OF THE BOARD OF DIRECTORS OF CITIZENS. In authorizing the
Offer and the Merger, the board of directors of Citizens determined that the
Offer and the Merger are fair to ELI's public stockholders. In reaching its
determination, the board of directors of Citizens considered the factors set
forth below in this section, which constitute all of the material factors
considered by the board of directors in making its determination. The board of
directors of Citizens determined that each of the following factors supported
its belief that the Offer and the Merger are fair to ELI's public stockholders:
o REVISED GUIDANCE; WRITE-DOWN OF ELI GOOD WILL. The board of directors of
Citizens considered the impact of the May 14, 2002 announcement regarding
the impairment of the good will of ELI and ELI's May 14 announcement of its
results of operations for the first quarter of 2002. In its April 22, 2002
announcement, ELI indicated that it was withdrawing its previous guidance
for 2002, based upon preliminary results of operations for the first
quarter of 2002. The announcement indicated that ELI was continuing to
experience lower revenue and EBITDA resulting from declining demand for
telecommunications services, primarily from carriers. The board of
directors considered the anticipated reduced revenue at ELI, and the
ongoing review by ELI's of its operations which was expected by ELI to
result in a lower cost structure and a significant reduction in the
requirement for capital. In light of these recent developments and the
unsuccessful efforts to remarket ELI's synthetic lease, the board of
directors of Citizens determined that ELI would be unable to obtain
financing from any source other than Citizens.
o FINANCIAL ANALYSIS. In considering the fairness of the Offer and the Merger
from a financial point of view to ELI's public stockholders, the board of
directors of Citizens reviewed and relied in part upon the financial
analyses undertaken by Salomon Smith Barney including analyses based upon
comparisons of publicly traded CLECs and theoretical implied equity values,
discounted cash flow and distressed company valuations. For a summary of
the financial analysis provided by Salomon Smith Barney, see "--Summary of
Report Of Salomon Smith Barney To The Board Of Directors Of Citizens."
o THE PREMIUM REFLECTED IN THE OFFER PRICE OF $0.70 PER SHARE. The board of
directors of Citizens considered the current and historical trading prices
of the Shares. The Offer Price represents a premium of approximately 106%
over the closing price of $0.34 on May 15, 2002, which was the trading day
prior to the date of Citizens' initial announcement that it would take ELI
private. The purchase by Citizens would eliminate the exposure of ELI's
public stockholders to any future or continued declines in the price of the
Shares. See "--Certain Effects Of The Offer And The Merger."
6
o INFORMATION CONCERNING THE FINANCIAL PERFORMANCE, CONDITION, BUSINESS
OPERATIONS AND PROSPECTS OF ELI. The board of directors of Citizens believe
the Offer Price to be attractive to ELI's public stockholders in light of
ELI's current financial performance, prospects and profitability, the
financing by Citizens of ELI's April 30, 2002 purchase of leased facilities
for $110 million, and ELI's November 2002 obligations under the $400
million revolving bank credit facility. In addition, the Offer and the
Merger would shift the risk of the future financial performance of ELI from
ELI's public stockholders entirely to Citizens.
o TERMS OF THE OFFER. The board of directors of Citizens considered the terms
of the Offer and the Merger, including (1) the amount and form of the
consideration, (2) the limited number of conditions to the obligations of
the Purchaser, including the absence of a financing condition, (3) the
tender offer structure, which would provide an expeditious means for ELI's
public stockholders to receive the Offer Price and (4) the Minimum
Condition.
o THE MARKET PRICE AND RELATIVE LACK OF LIQUIDITY FOR THE SHARES, AND THE
LIQUIDITY THAT WOULD BE REALIZED BY THE PUBLIC STOCKHOLDERS FROM THE
ALL-CASH OFFER. The board of directors of Citizens believes that the
liquidity that would result from the Offer and the Merger would be
beneficial to ELI's public stockholders because Citizens' ownership of
Shares (1) results in a relatively small public float that necessarily
limits the amount of trading in the Shares and (2) decreases the already
unlikely possibility that a proposal to acquire the Shares would be made by
an independent entity without the consent of Citizens. Additionally, ELI
has received a notice from Nasdaq that ELI's Class A common stock will be
delisted from The Nasdaq National Market at the opening of business on May
24, 2002, for failure to comply with listing requirements.
PROCEDURAL FAIRNESS. The board of directors of Citizens also determined
that the Offer and the Merger are procedurally fair to ELI's public
stockholders. In making such determination, the board of directors considered
the following factors:
o Each public stockholder can individually determine whether to tender Shares
in the Offer.
o The Offer provides the opportunity for the public stockholders to sell
their Shares without incurring brokerage and other costs typically
associated with market sales.
o The Offer is subject to satisfaction of the Minimum Condition under which
the Offer will not be consummated unless at least a majority of the shares
of Class A common stock presently outstanding and not held by Citizens or
its subsidiaries, are tendered for purchase (although the Minimum Condition
may be waived by Citizens in its sole discretion).
o The Offer provides the opportunity for the public stockholders to sell all
of their shares without the risk of fluctuation in the sale price that may
otherwise be associated with such a sale.
o Public stockholders who believe that the terms of the Offer and the Merger
are not fair can pursue appraisal rights in the Merger under state law.
CERTAIN NEGATIVE CONSIDERATIONS. The board of directors of Citizens also
considered the following factors, each of which they considered negative, in
their deliberations concerning the fairness of the terms of the Offer and the
Merger:
o TERMINATION OF PARTICIPATION IN FUTURE GROWTH OF ELI. Following the
successful completion of the Offer and the Merger, ELI's public
stockholders would cease to participate in the future earnings or growth,
if any, of ELI or benefit from increases, if any, in the value of their
holdings in ELI.
7
o CONFLICTS OF INTEREST. The financial interests of Citizens are adverse as
to the Offer Price to the financial interests of ELI's public stockholders.
In addition, officers and directors of ELI, who are also officers and
directors of Citizens, have actual or potential conflicts of interest in
connection with the Offer and the Merger. See "--Conflicts Of Interest."
o NO PUBLIC STOCKHOLDER VOTE. The Offer and the Merger do not provide ELI's
public stockholders with an opportunity to vote on the proposed
transaction.
OTHER FACTORS. In connection with the Offer, the board of directors of
Citizens did not consider "shopping" ELI to prospective purchasers. The board of
directors of Citizens does not believe that there is a market for an investment
in ELI or for the sale of all or substantially all of the assets of ELI, given
ELI's recent performance, its current financial position and the CLEC market in
general. In addition, the board of directors of Citizens believes that searching
for a buyer for ELI would not only entail substantial time delays and allocation
of management's time and energy, but would also disrupt and discourage ELI's
employees and create uncertainty among ELI's customers and suppliers.
RECENT PURCHASES OF SHARES BY CITIZENS. See Schedule II to this Offer to
Purchase for information on purchases of Shares by Citizens (as well as by ELI)
during the past two years.
CONCLUSIONS OF THE BOARD OF DIRECTORS. Citizens' board of directors
concluded that, given the failed efforts to refinance ELI's $110 million
obligation under ELI's lease, the recent performance of the Shares prior to the
announcement of Citizens' intention to take ELI private, ELI's inability to
raise capital to meet its operating costs and capital requirements, the
uncertainties surrounding ELI's future prospects, the state of the CLEC
industry, the limited trading market for the Shares and the negative valuation
of ELI's shareholder equity, the Offer and the Merger were fair to ELI's public
stockholders. In determining that the Offer and the Merger were fair to ELI's
public stockholders, the board of directors of Citizens considered the above
factors as a whole and did not assign specific or relative weights to them,
other than that the Offer Price of $0.70 per Share in cash was considered the
most important factor.
SUMMARY OF REPORT OF SALOMON SMITH BARNEY TO THE BOARD OF DIRECTORS OF
CITIZENS
Salomon Smith Barney, in its role as financial advisor to Citizens, has
advised Citizens regarding its strategic alternatives with respect to its
investment in ELI. In that regard, at the request of Citizens management, on May
16, 2002, Salomon Smith Barney presented a valuation report to Citizens' board
of directors.
The report was intended to serve as a guide for discussions with Citizens'
board of directors in connection with Citizens' potential acquisition of the
shares of ELI's Class A common stock. Salomon Smith Barney presented the report
to Citizens' board of directors and answered related questions. Salomon Smith
Barney was not asked to and has not delivered a fairness opinion to Citizens in
connection with the Offer.
The full text of the report of Salomon Smith Barney, dated May 16, 2002, is
attached as Exhibit 16(c) to the Schedule TO filed on May 20, 2002 in connection
with the Offer, and is incorporated herein by reference. The description of the
report in the Offer to Purchase is qualified by reference to Exhibit 16(c),
copies of which may be obtained from the SEC. Holders of shares of Class A
common stock are urged to, and should, read such report in its entirety.
In preparing its report, Salomon Smith Barney relied upon the accuracy and
completeness of all of the financial, accounting and other information reviewed
by it and has assumed such accuracy and completeness for purposes of the report.
Salomon Smith Barney was not asked to make, and did not assume
8
responsibility for making, any independent evaluation or appraisal of ELI or its
assets and liabilities, and did not verify, and has not assumed any
responsibility for making any independent verification of the information
Salomon Smith Barney reviewed.
The report does not constitute a recommendation as to whether any holder of
shares of Class A common stock should tender their shares in the Offer.
Summary of Report Prepared by Salomon Smith Barney
The following is a summary of the material financial analyses used by
Salomon Smith Barney in connection with the report to Citizens' board of
directors. The following summary, however, does not purport to be a complete
description of the analyses performed by Salomon Smith Barney. The order of the
analyses described and the results of the analyses do not represent relative
importance or weight given to these analyses by Salomon Smith Barney. The
following summaries of financial analyses include information presented in
tabular format. You should read these tables together with the text of each
summary.
Comparisons of Publicly Traded Competitive Local Exchange Carriers
("CLECs") and Theoretical Implied Equity Value Analysis
Salomon Smith Barney reviewed and compared certain financial information,
including market capitalization, enterprise value, and certain ratios and public
market multiples relating to ELI and corresponding information for seven other
CLECs:
o Time Warner Telecom;
o Allegiance Telecom;
o Focal Communications;
o Choice One;
o US LEC;
o XO Communications; and
o McLeodUSA.
The following tables present the median data for the seven other CLECs and for
ELI:
o Equity value;
o Enterprise value, which is equity value plus market value of debt,
preferred stock and minority interest minus cash;
o Enterprise value as a multiple of 2001 actual and projected 2002 and 2003
revenues;
o Enterprise value as a multiple of actual access lines as of year end 2001;
o Enterprise value as a multiple of actual net property, plant and equipment
as of March 31, 2002;
o Total number of voice and data switches as of year end 2001;
9
o Gross profit and EBITDA as a percentage of revenues, or margins for fiscal
year 2001;
o Actual revenues for fiscal year 2001 and projected revenues for fiscal year
2002 and 2003;
o Total number of access lines as of year end 2001; and
o Net property, plant and equipment as of March 31, 2002.
The multiples and other financial information calculated by Salomon Smith
Barney were based on the closing prices as of May 15, 2002 for the selected CLEC
companies' common stock and the most recent publicly available information for
the selected companies. The enterprise value revenue multiples for 2002 and 2003
were based on securities analyst projections.
Trading Data
Enterprise Value as a Multiple of:
Price Equity Enterprise -----------------------------------------------
5/15/02 Value Value 2001A Rev. 2002E Rev. 2003E Rev. Acc. Lines Net PP$E
------ ------ ---------- ---------- ---------- ---------- ---------- --------
($ in millions, except per share and per access line data)
Median CLEC $-- $79 $ 221 0.6x 0.5x 0.4x $ 301 0.4x
Electric Lightwave (a) 0.34 17 846 3.7 4.7 4.3 5,688 1.0
Operating Data
Gross EBITDA 2001A 2002E 2003E Access Net
Switches(b) Margin(c) Margin(c) Rev. Rev. Rev. Lines('000)(b) PP&E(d)
----------- -------- --------- ----- ----- ----- -------------- -------
($ in millions)
Median CLEC 30 49.4% 14.7% $500 $347 $473 $567 $1,015
Electric Lightwave 8 47.2 NM 227 179 199 149 815
- ----------
Note: Projections for comparable companies are based on Wall Street research.
ELI projections are based on Electric Lightwave management estimates.
(a) Electric Lightwave's enterprise value is based on fair market value for its
long-term debt of $425.5 million (book value of $666.9 million), plus
current bank credit facility of $400.0 million and current capital lease
obligations of $7.5 million, less cash of $4.0 million.
(b) Switch and access line data is as of December 31, 2001.
(c) Gross margin and EBITDA margin are for the three months ended March 31,
2002. The calculation for gross margin is based on revenue less cost of
services. In the case of Electric Lightwave, cost of services includes
Network access and Operations expenses.
(d) Net PP&E is as of March 31, 2002.
Salmon Smith Barney then calculated the implied enterprise value of ELI,
utilizing enterprise multiples for the seven CLECs in ELI's peer group. Based on
this analysis, Salomon Smith Barney focused on an estimated range of implied
enterprise values for ELI of between $100 million and $250 million, resulting in
an estimated implied equity value of zero for ELI given ELI's approximately $833
million in fair market value of its outstanding debt as of March 31, 2002.
Discounted Cash Flow Analysis Summary
Salomon Smith Barney presented a discounted cash flow analysis for the
purpose of determining the estimated value of ELI. Salomon Smith Barney
calculated the unlevered free cash flows that ELI is expected to generate during
fiscal years 2002 through 2011 based upon financial projections prepared by ELI.
Salomon Smith Barney also calculated a range of terminal asset values of ELI at
the end of the nine-year period ending 2011 by applying a range of terminal
EBITDA multiples of 5.0x to 7.0x to the projected EBITDA of ELI during the final
year of the nine-year period. The unlevered free cash flows and the range of
terminal asset values were then discounted to present values using two different
sets of discount rates: (i) "Hypothetical Cost of Private Capital" applying a
range of discount rates from 25% to 35% and (ii) "Hypothetical Public Market
Capital Structure" applying a range of discount rates from 11% to 15%. The
10
Hypothetical Cost of Private Capital discount rates reflect a 35% to 40% cost of
equity that Salomon Smith Barney estimates is representative of the returns
required by private equity investors in connection with investments in ELI's
industry sector, and assume a 10.5% to 12.5% cost of debt. The Hypothetical
Public Market Capital Structure discount rates reflect an assumed 11.5% to 14.5%
cost of equity and a 10.5% to 12.5% cost of debt. Both sets of discount rates
assume hypothetical capital structures that are materially different from ELI's
existing capital structure, and which ELI could only attain by undergoing a
significant financial restructuring. The dilutive impact of any such
restructuring to ELI's existing equity is not reflected in Salomon Smith
Barney's analysis. The ability of ELI to access capital on arm's length terms at
costs consistent with those assumed in the discount rates used by Salomon Smith
Barney, even if ELI were to achieve such hypothetical capital structures, is
subject to considerable uncertainty. Based on this discounted cash flow
analysis, Salomon Smith Barney calculated an estimated range of enterprise
values and implied equity values for ELI as set forth in the following table:
Enterprise Value Reference Range
--------------------------------
Discounted Cash Flow Analysis Low High Implied Equity Value
------ -------- --------------------
(Dollars in millions)
Hypothetical Cost of Private Capital $ 70 $110 $ 0
Hypothetical Public Market Capital Structure 260 330 0
Distressed Valuation Analysis Summary
Salomon Smith Barney also performed an analysis of the value of ELI's
equity, assuming that ELI was unable to obtain an infusion of capital and
restructure its debt to enable it to continue as a going concern outside of
bankruptcy. Salomon Smith Barney reviewed the following ten telecommunications
companies that filed for bankruptcy protection from May 2000 to February 2002
and analyzed the recovery of value relative to those companies' net property,
plant and equipment:
o GST Telecommunications;
o Northpoint Communications;
o Winstar Communications;
o Viatel;
o Teligent Corporation;
o Rhythms NetConnections;
o Exodus Communications;
o Global Crossing;
o McLeodUSA; and
o Network Plus.
Based on this review, Salomon Smith Barney determined that for those
transactions:
o the overall mean recovery rate per dollar of net property, plant and
equipment was approximately 26 cents; and
11
o the overall median recovery rate per dollar of net property, plant and
equipment was approximately 13 cents.
Based on these precedent transactions, Salomon Smith Barney derived an
approximate range of enterprise values of ELI in a hypothetical bankruptcy or
liquidation scenario, should the recovery of value fall within the range of
recoveries experienced by other telecommunications companies. The derived range
of estimated enterprise values was between $82 million and $245 million,
resulting in an estimated implied equity value for ELI of zero.
No company used in the above analyses as a comparison is directly
comparable to ELI. The analyses were prepared solely for purposes of Salomon
Smith Barney report to Citizens' board of directors. These analyses do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors, none of Citizens, Salomon Smith Barney or any other person assumes
responsibility if future results are materially different from those forecast.
In addition, the preparation of financial analyses, including the derivation of
ranges of implied enterprise and equity values, is a complex process involving
subjective judgments (including Salomon Smith Barney's knowledge of the
transactions and its understanding of the business objectives of Citizens) and
is not necessarily susceptible to partial analysis or summary description.
Salomon Smith Barney believes that its analyses, and the summary set forth
above, must be considered as a whole, and that selecting portions of the
analyses considered by Salomon Smith Barney, without considering all of the
analyses, could create a misleading or incomplete view of the processes
underlying the analyses conducted by Salomon Smith Barney.
In addition to having acted as financial advisor in connection with the
Offer, Salomon Smith Barney and its affiliates (including Citigroup Inc. and its
affiliates) has provided certain investment banking and other financial advisory
services to Citizens from time to time, including having acted as:
o a co-lead arranger/co-bookrunner on Citizens' $705 million credit facility
in October 2001;
o a co-manager on Citizens' $1.75 billion Investment Grade Debt offering in
August 2001;
o a joint-lead manager on Citizens' $304 million common equity offering in
June 2001;
o a joint-lead manager on Citizens' offering of 6 3/4% Equity Units in June
2001;
o a co-arranger on Citizens' $6.15 billion syndicated senior credit facility
in October 2000;
o a dealer on Citizens' $4.0 billion U.S. Commercial Paper program in October
2000;
o a counterparty on Citizens' 9 million share derivatives transaction in
February 2000; and
o a co-manager on Citizens' $325 million offering of 6.05% Senior Notes due
5/04 in April 1999.
Salomon Smith Barney received customary fees in connection with the
previous engagements described above. In addition, Salomon Smith Barney may
provide investment banking and other financial advisory services to Citizens in
the future. Salomon Smith Barney provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of Citizens and ELI for its own account and for the account of
customers. As of December 31, 2001, Salomon Smith Barney and its affiliates
owned less than 1% of ELI's outstanding shares of Class A common stock.
12
Salomon Smith Barney is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Salomon Smith Barney regularly
engages in the valuation of companies and their securities in connection with
mergers and acquisitions, equity investments, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and other purposes. Citizens retained Salomon Smith Barney
based on Salomon Smith Barney's expertise in the valuation of companies as well
as its experience in transactions similar to the Offer.
Pursuant to a letter agreement, executed on April 24, 2002, Citizens
engaged Salomon Smith Barney to act as its financial advisor in connection with
the possible acquisition, directly or indirectly, of all or a portion of the
common stock of ELI. Pursuant to the terms of the letter agreement, Citizens has
agreed to pay Salomon Smith Barney as compensation for its services as financial
advisor in connection with any such transaction, including the Offer, (i) a
transaction fee of $350,000 upon execution of the letter agreement and (ii) a
monthly fee of $150,000 payable on June 24, 2002 and every month thereafter
until the payment date for the Offer has occurred. Citizens also has agreed to
reimburse Salomon Smith Barney for its reasonable out-of-pocket expenses,
including attorneys' fees, and to indemnify Salomon Smith Barney against certain
liabilities, including certain liabilities under the federal securities laws.
CONFLICTS OF INTEREST
CITIZENS. The financial interests of Citizens are adverse as to the Offer
Price to the financial interests of the Public Stockholders.
DIRECTORS OF CITIZENS. Mr. Leonard Tow, the Chairman of the board of
directors of Citizens and its Chief Executive Officer, is also the Chairman of
the board of directors of ELI. Dr. Tow holds equity interests in ELI. These
positions and equity interests present this director with actual or potential
conflicts of interest in determining the fairness of the Offer and the Merger to
ELI's public stockholders. See Schedule I to this Offer to Purchase for a
listing of the positions that the members of the board of directors of Citizens
hold with Citizens and ELI and ownership of the common stock of ELI.
Mr. Rudy J. Graf, a Vice Chairman of the board of directors of Citizens and
its Chief Operating Officer and President, is also a member of the board of
directors of ELI. Mr. Graf holds equity interests in ELI. These positions and
equity interests present this director with actual or potential conflicts of
interest in determining the fairness of the Offer and the Merger to ELI's public
stockholders. See Schedule I to this Offer to Purchase for a listing of the
positions that the members of the board of directors of Citizens hold with
Citizens and ELI and ownership of the common stock of ELI.
Mr. Scott N. Schneider, a Vice Chairman of the board of directors of
Citizens and the Executive Vice President, is also a member of the board of
directors of ELI. Mr. Schneider holds equity interests in ELI. These positions
and equity interests present this director with actual or potential conflicts of
interest in determining the fairness of the Offer and the Merger to ELI's public
stockholders. See Schedule I to this Offer to Purchase for a listing of the
positions that the members of the board of directors of Citizens hold with
Citizens and ELI and ownership of the common stock of ELI.
Mr. Stanley Harfenist, a member of the board of directors of Citizens, is
also a member of the of the board of directors of ELI. Mr. Harfenist holds
equity interests in ELI. These positions and equity interests present this
director with actual or potential conflicts of interest in determining the
fairness of the Offer and the Merger to ELI's public stockholders. See Schedule
I to this Offer to Purchase for a listing of the positions that the members of
the board of directors of Citizens hold with Citizens and ELI and ownership of
the common stock of ELI.
13
Mr. Robert Stanger, a member of the board of directors of Citizens, is also
a member of the board of directors of ELI. Mr. Stanger holds equity interests in
ELI. These positions and equity interests present this director with actual or
potential conflicts of interest in determining the fairness of the Offer and the
Merger to ELI's public stockholders. See Schedule I to this Offer to Purchase
for a listing of the positions that the members of the board of directors of
Citizens hold with Citizens and ELI and ownership of the common stock of ELI.
EXECUTIVE OFFICERS AND DIRECTORS OF ELI. In considering any position that
the board of directors of ELI may take with respect to the Offer, ELI's public
stockholders should be aware that the executive officers and certain directors
of ELI have interests in connection with the Offer and the Merger that present
them with actual or potential conflicts of interest, which will be described in
ELI's Solicitation/Recommendation Statement on Schedule 14D-9.
Following consummation of the Offer and the Merger, Citizens anticipates
that the board of directors of ELI, as the corporation surviving the Merger (the
"Surviving Corporation"), will be comprised solely of officers and/or directors
of Citizens. Officers and directors of ELI who own Shares will receive the Offer
Price in the Offer or the Merger on the same terms as ELI's public stockholders.
OTHER POSSIBLE PURCHASES OF SHARES
If the Offer is successfully completed, Citizens and its subsidiaries,
after giving effect to any conversion of ELI Class B common stock to Class A
common stock, will collectively own at least 90% of the outstanding Shares. If,
after the Offer is completed but prior to the effective date of the Merger (the
"Effective Date of the Merger"), as a result of the exercise of Options or for
any other reason, Citizens and its subsidiaries collectively own less than 90%
of the outstanding Shares, Citizens may acquire additional Shares through
additional conversion of shares of its ELI Class B common stock or in the open
market or in privately negotiated transactions to the extent required for
Citizens and its subsidiaries' collective ownership of Shares to equal or exceed
90%. If the Offer is not completed, Citizens may make such conversions of Class
B stock or make open market or privately negotiated purchases of Shares to the
extent necessary in order for Citizens and its subsidiaries collectively to own
at least 90% of the outstanding Shares.
THE MERGER
If the Offer is successfully completed, Citizens plans to cause the
Purchaser to merge into ELI in a short-form merger. After the short-form merger,
ELI would be wholly owned by Citizens. Under the Delaware General Corporation
Law (the "DGCL"), if the Purchaser owns at least 90% of each class of ELI's
outstanding shares, the Purchaser would have the power to approve, adopt and
consummate the Merger without a vote of ELI's board of directors or
stockholders.
On the Effective Date of the Merger, each outstanding Share (other than
Shares held by stockholders, if any, who are entitled to and perfect their
appraisal rights under Section 262 of the DGCL) would be cancelled and converted
into the right to receive the Offer Price in cash, without interest. After the
Merger, Citizens will, directly or indirectly, own 100% of the equity interest
in the Surviving Corporation.
CERTAIN EFFECTS OF THE OFFER AND THE MERGER
GENERAL. Upon completion of the Offer and the Merger, Citizens would have
complete control over the conduct of ELI's business and would have a 100%
interest in the net book value and net earnings of ELI. In addition, Citizens
would receive the benefit of complete control over any future increases in the
value of ELI and would bear the complete risk of any losses incurred in the
operation of ELI and any decrease in the value of ELI. Citizens' and its
subsidiaries' aggregate ownership of ELI prior to the
14
transactions contemplated by the Offer and the Merger was approximately 85%.
ELI's net book value was negative $324,911,000 at March 31, 2002 and it had a
net loss of $83,383,000 for the quarter ended March 31, 2002.
BENEFITS AND DETRIMENTS TO ELI'S PUBLIC STOCKHOLDERS. Upon completion of
the Offer and the Merger, ELI's public stockholders would no longer have any
interest in, and would not be stockholders of, ELI and therefore would not
participate in ELI's future earnings (if any) and potential growth (if any) and
would no longer bear the risk of any decreases in the value of ELI. In addition,
ELI's public stockholders would not share in any distribution of proceeds after
any sales of businesses of ELI. See "--Conduct Of Citizens After The Offer And
The Merger." All of the other incidents of stock ownership of ELI's public
stockholders, such as the rights to vote on certain corporate decisions, to
elect directors, to receive distributions upon the liquidation of ELI and to
receive appraisal rights upon certain mergers or consolidations of ELI (unless
such appraisal rights are perfected in connection with the Merger), as well as
the benefit of potential increases in the value of their holdings in ELI would
be extinguished upon acceptance of Shares tendered in the Offer or, if not
tendered, upon completion of the Merger.
Upon completion of the Offer and the Merger, ELI's public stockholders
would also not bear the risks of potential decreases in the value of their
holdings in ELI. Instead, they would have immediate liquidity in the form of the
Offer Price in place of an ongoing equity interest in ELI in the form of the
Shares. In summary, if the Offer and the Merger are completed, they would have
no ongoing rights as stockholders of ELI (other than statutory appraisal rights
in the case of those public stockholders who are entitled to and perfect such
rights under Delaware law).
POSSIBLE EFFECT OF THE OFFER AND OPEN MARKET PURCHASES ON THE MARKET FOR
SHARES. Following the completion of the Offer and prior to the Effective Date of
the Merger, the purchase of Shares by the Purchaser pursuant to the Offer or any
subsequent open market or privately negotiated purchases would reduce the number
of Shares that might otherwise trade publicly and may reduce the number of
holders of Shares. This could adversely affect the liquidity and market value of
the remaining Shares held by the public.
NASDAQ. ELI's Class A common stock does not meet the minimum requirements
for trading on The Nasdaq National Market and will be delisted at the opening of
business on May 24, 2002. After the Class A common stock is delisted from The
Nasdaq National Market, it is possible that the Shares would continue to trade
in the over-the-counter market prior to the Effective Date of the Merger and
that price or other quotations might still be available from other sources. The
extent of the public market for the Shares and the availability of such
quotations would, however, depend upon such factors as the number of holders
and/or the aggregate market value of such Shares remaining at such time, the
interest in maintaining a market in such Shares on the part of securities firms,
the possible termination of registration of such Shares under the Exchange Act,
as described below, and other factors. The Purchaser cannot predict whether a
reduction in the number of Shares that might otherwise trade publicly would have
an adverse or beneficial effect on the market price for or marketability of the
Shares or whether it would cause future market prices to be greater or less than
the price paid in the Offer and the Merger.
EXCHANGE ACT REGISTRATION. The Shares are currently registered under the
Exchange Act. If the Offer and the Merger are completed, ELI's reporting
obligations under the Exchange Act would terminate.
Prior to the Effective Date of the Merger, the purchase of Shares pursuant
to the Offer or open market or privately negotiated purchases following
consummation of the Offer may result in the Shares becoming eligible for
deregistration under the Exchange Act. Registration of the Shares may be
terminated upon application by ELI to the Commission if the Shares are not
listed on a national securities exchange and
15
there are fewer than 300 record holders of the Shares. Citizens presently
intends to seek to cause ELI to terminate the registration of the Shares under
the Exchange Act as soon after the consummation of the Offer or the Merger as
the requirements for termination of registration are met.
The termination of the registration of the Shares under the Exchange Act
would substantially reduce the information required to be furnished by ELI to
holders of the Shares 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) and the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions, no longer applicable
to the Shares. Furthermore, "affiliates" of ELI and persons holding "restricted
securities" of ELI may be deprived of the ability to dispose of the securities
pursuant to Rule 144 under the Securities Act. If registration of the Shares
under the Exchange Act were terminated, the Shares would no longer be "margin
securities" or eligible for listing on The Nasdaq National Market.
MARGIN REGULATIONS. The Shares are currently "margin securities" under the
rules of the Board of Governors of the Federal Reserve System. However, upon
delisting from The Nasdaq National Market on May 24, 2002, the Shares will no
longer be "margin securities."
TREATMENT OF ELECTRIC LIGHTWAVE OPTIONS
Because the exercise prices of most of the 3,725,204 options to purchase
shares of ELI's Class A common stock outstanding as of March 31, 2002 are
substantially above the Offer Price, with exercise prices ranging from $0.315 to
$22.813 (37,500 of the 3,725,204 outstanding options have an exercise price that
is less than the Offer Price), the holders of options will receive no
consideration for their options. Nevertheless, all outstanding options to
purchase shares of Class A common stock shall become immediately exercisable
upon commencement of the Offer.
ACCOUNTING TREATMENT. The Offer and the Merger would be accounted for as
the acquisition of a minority interest by Citizens.
TAX CONSEQUENCES. For federal income tax purposes, the receipt of the cash
consideration by holders of the Shares pursuant to the Offer or the Merger will
be a taxable sale of the holder's Shares. See "Certain Federal Income Tax
Consequences."
CONDUCT OF CITIZENS AFTER THE OFFER AND THE MERGER
If the Offer and the Merger are completed, Citizens intends to continue
operation of ELI while allowing for further evaluation with respect to the role
of ELI in Citizens' business. In addition, if the Offer and the Merger are
completed, Citizens intends to cause ELI's board of directors to consist solely
of Citizens employees. A review of ELI's business and operations is being
conducted by Citizens and ELI. Although the review is ongoing, it is currently
expected that after the Offer and Merger are completed ELI's support systems,
administrative functions and certain aspects of its network and operations will
be rationalized and, in some areas, more closely integrated with Citizens. These
changes are expected to result in a lower cost structure, a significant
reduction in capital expenditures and, as a result, a substantial reduction in
incremental funding required from Citizens to support ELI's operations. These
changes are not expected to impact ELI's existing customer base, the quality of
its network or its ability to provide the highest level of customer service.
Except as otherwise described in this Offer to Purchase, the Purchaser and
Citizens do not have, as of the date of this Offer to Purchase, any plans or
proposals for:
16
o any extraordinary corporate transaction, such as a merger, reorganization
or liquidation, involving ELI after the completion of the Offer and the
Merger;
o any purchase, sale or transfer of a material amount of assets of ELI after
the completion of the Offer and the Merger;
o any change in the present management of ELI, including, but not limited to,
any plans or proposals to change any material term of the employment
contract of any executive officer, but will limit the number of directors
on ELI's board of directors and will cause the Board to consist only of
Citizens' employees;
o any material change in ELI's present dividend rate or policy, indebtedness
or capitalization;
o any other material change in ELI's corporate structure or business;
o the acquisition by any person of additional securities of ELI, or the
disposition of securities of ELI; or
o any changes in ELI's charter, bylaws or other governing instruments or
other actions that could impede the acquisition of control of ELI.
CONDUCT OF CITIZENS IF THE OFFER IS NOT COMPLETED
If the Offer is not completed because the Minimum Condition or another
condition is not satisfied or waived, Citizens expects to evaluate whether it
would continue to pursue the acquisition of the remaining equity interest in ELI
that Citizens does not currently own. In particular, Citizens may consider:
o engaging in open market or privately negotiated purchases of Shares to
increase Citizens' and its subsidiaries' aggregate ownership of Shares to
at least 90% of each class of ELI's outstanding shares and then effecting a
short-form merger (subject to Citizens' compliance with Section 203 of the
Delaware General Corporation Law);
o proposing that the Purchaser and ELI enter into a long-form merger
agreement, which would require the approval of ELI's board of directors and
ELI's stockholders;
o keeping outstanding the public minority interest in ELI, in which case
ELI's public stockholders would receive no cash for their Shares, would be
significantly diluted as a result of Citizens funding of the purchase of
leased assets for $110 million in April 2002 and payment of ELI's $400
million bank credit agreement in November 2002, and would bear the risk
that the trading price per Share could decline to a price that is less than
the Offer Price; or
o selling its interests in ELI or pursuing a sale of all or part of ELI to a
third party.
If Citizens were to pursue any of these alternatives, it may take
considerably longer for ELI's public stockholders to receive any consideration
for their Shares (other than through sales in the open market) than if they had
tendered their Shares in the Offer. Any such transaction may result in proceeds
per Share to ELI's public stockholders that are more or less than the Offer
Price.
17
THE TENDER OFFER
TERMS OF THE OFFER; EXPIRATION DATE
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 Shares
validly tendered prior to the Expiration Date (as defined below) and not
properly withdrawn as provided in "--Withdrawal Rights." The term "Expiration
Date" means 12:00 midnight, New York City time, on Monday, June 17, 2002, unless
and until the Purchaser, in its sole discretion, shall have extended the period
during which the Offer is open, in which event the term "Expiration Date" shall
mean the latest time and date at which the Offer, as so extended by the
Purchaser, shall expire.
Subject to the applicable rules and regulations of the Commission, the
Purchaser expressly reserves the right, in its sole discretion, at any time and
from time to time, to extend the period during which the Offer is open for any
reason, including the failure to satisfy any of the conditions specified in
"--Certain Conditions Of The Offer," and thereby delay acceptance for payment
of, and payment for, any Shares, by giving oral or written notice of such
extension to the Depositary. There can be no assurance that the Purchaser will
exercise its right to extend the Offer. During any such extension, all Shares
previously tendered and not properly withdrawn will remain subject to the Offer,
subject to the rights of a tendering stockholder to withdraw such stockholder's
Shares. See "--Withdrawal Rights."
Subject to the applicable rules and regulations of the Commission, the
Purchaser also expressly reserves the right, in its sole discretion, at any time
and from time to time, to (1) terminate the Offer and not accept for payment (or
pay for) any Shares if any of the conditions referred to in "--Certain
Conditions Of The Offer" has not been satisfied or upon the occurrence and
during the continuance of any of the events specified in "--Certain Conditions
Of The Offer," and (2) waive any condition or amend the Offer in any respect, in
each case by giving oral or written notice of termination, waiver or amendment
to the Depositary and by making a public announcement thereof. The Purchaser
acknowledges (a) that Rule 14e-1(c) under the Exchange Act requires the
Purchaser to pay the consideration offered or return the Shares tendered
promptly after the termination or withdrawal of the Offer and (b) that the
Purchaser may not delay acceptance for payment of, or payment for, any Shares
upon the occurrence of any of the conditions specified in "--Certain Conditions
Of The Offer" without extending the period during which the Offer is open.
If the Minimum Condition or any other condition specified in "--Certain
Conditions Of The Offer" is not fulfilled by the Expiration Date, the Purchaser
reserves the right (but shall not be obligated) to (1) decline to purchase any
of the Shares tendered, return all tendered Shares to tendering stockholders and
terminate the Offer, (2) extend the Offer and retain all tendered Shares until
the expiration of the Offer, as extended, subject to the terms and conditions of
the Offer (including any rights of stockholders to withdraw their Shares), or
(3) waive or reduce the condition and, subject to complying with applicable
rules and regulations of the Commission, accept for payment and purchase all
Shares validly tendered.
Any extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof, such announcement, in the case of
an extension, to be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Purchaser may choose to make any public
announcement, except as provided by applicable law (including Rules 14d-4(d),
14d-6(d) and 14e-1 under the Exchange Act, which require that material changes
be promptly disseminated to holders of Shares), the Purchaser will have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to the Dow Jones News Service.
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,
the Purchaser will disseminate additional tender offer materials (including by
public announcement as set forth above) and extend the Offer to the extent
required
18
by Rules 14d-4(d), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period
during which the Offer must remain open following material changes in the terms
of the Offer or information concerning the Offer, other than a change in price,
a change in percentage of securities sought or a change in any dealer's
soliciting fee, will depend upon the facts and circumstances, including the
relative materiality of the changes. With respect to a change in price or,
subject to certain limitations, a change in the percentage of securities sought
or a change in any dealer's soliciting fee, a minimum ten business day period
from the date of such change is generally required to allow for adequate
dissemination of such change to stockholders. Accordingly, if, prior to the
Expiration Date, the Purchaser decreases the number of Shares being sought,
changes the consideration offered pursuant to the Offer or adds a dealer's
soliciting fee, and if the Offer is scheduled to expire at any time earlier than
the period ending on the tenth business day from the date that notice of such
increase, decrease or addition is first published, sent or given to
stockholders, the Offer will be extended at least until the expiration of such
ten business day period. For purposes of the Offer, a "business day" means any
day other than a Saturday, Sunday or a federal holiday and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time.
This Offer to Purchase and the related Letter of Transmittal and, if
required, other relevant material will be mailed to record holders of Shares and
will be furnished to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on ELI's
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.
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, all Shares validly tendered prior to the Expiration Date and not properly
withdrawn (including Shares validly tendered and not withdrawn during any
extension of the Offer, if the Offer is extended, subject to the terms and
conditions of such extension), promptly after the Expiration Date. In addition,
subject to complying with Rule 14e-1 under the Exchange Act, the Purchaser
expressly reserves the right, in its sole discretion, to delay the acceptance
for payment of, or payment for, Shares in order to comply, in whole or in part,
with any applicable law.
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:
o certificates evidencing Shares ("Share Certificates") or timely
confirmation of a book-entry transfer of such Shares ("Book-Entry
Confirmation") into the Depositary's account at The Depository Trust
Company (the "Book-Entry Transfer Facility") pursuant to the procedures set
forth in "--Procedures For Accepting The Offer And Tendering Shares";
o the Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees, or an Agent's
Message (as defined below) in connection with a book-entry transfer; and
o any other documents required by the Letter of Transmittal.
Accordingly, payment may be made to tendering stockholders at different
times if delivery of the Shares and other required documents occurs at different
times.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
19
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
terms of the Letter of Transmittal and that the Purchaser may enforce such
agreement against such participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered and not properly
withdrawn if, as and when the Purchaser gives oral or written notice to the
Depositary of the Purchaser's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares so accepted for payment pursuant to the Offer will be made by deposit
of the aggregate purchase price therefor with the Depositary, which will act as
agent for tendering stockholders for the purpose of receiving payment from the
Purchaser and transmitting such payment to stockholders whose Shares have been
accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE
FOR SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR DELAY IN MAKING
SUCH PAYMENT. Upon the deposit of funds with the Depositary for the purpose of
making payment to validly tendering stockholders, the Purchaser's obligation to
make such payment shall be satisfied and such tendering stockholders must
thereafter look solely to the Depositary for payment of the amounts owed to them
by reason of the acceptance for payment of Shares pursuant to the Offer.
If any tendered Shares are not accepted for payment pursuant to the terms
and conditions of the Offer for any reason, or if Share Certificates are
submitted for more Shares than are tendered, Share Certificates representing
Shares not purchased or not tendered will be returned, without expense, to the
tendering stockholder (or, in the case of Shares tendered by book-entry transfer
of such Shares into the Depositary's account at the Book-Entry Transfer Facility
pursuant to the procedures for book-entry transfer set forth in "--Procedures
For Accepting The Offer And Tendering Shares," such Shares will be credited to
an account maintained at the Book-Entry Transfer Facility), as soon as
practicable following expiration or termination of the Offer.
If, prior to the Expiration Date, the Purchaser changes the consideration
to be paid per Share, the Purchaser will pay such changed consideration for all
Shares purchased pursuant to the Offer, whether or not such Shares have been
tendered or purchased prior to such increase in consideration.
The Purchaser reserves the right to transfer or assign, in whole or in part
from time to time, to one or more of its affiliates, the right to purchase the
Shares tendered pursuant to the Offer, but any such transfer or assignment will
not relieve the Purchaser of its obligations under the Offer, nor will any such
transfer or assignment in any way prejudice the rights of tendering stockholders
to receive payment for Shares validly tendered and accepted for payment pursuant
to the Offer.
PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES
GENERAL. Except as set forth below, in order for Shares to be validly
tendered pursuant to the Offer, the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, together with any required
signature guarantees, or an Agent's Message in connection with a book-entry
delivery of Shares, 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 prior to the Expiration Date,
and either (l) Share Certificates evidencing tendered Shares must be received by
the Depositary at such address or such Shares must be tendered pursuant to the
procedures for book-entry transfer set forth below (and a Book-Entry
Confirmation must be received by the Depositary), in each case prior to the
Expiration Date, or (2) the guaranteed delivery procedures set forth below must
be complied with.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution of
the Letter of Transmittal (or a facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
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THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE SOLE OPTION AND RISK OF EACH TENDERING STOCKHOLDER AND,
EXCEPT AS OTHERWISE PROVIDED UNDER THIS HEADING "--PROCEDURES FOR ACCEPTING THE
OFFER AND TENDERING SHARES," THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE DEPOSITARY. IF DELIVERY IS MADE BY MAIL, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER. The Depositary will make a request to establish
accounts with respect to the Shares at the Book-Entry Transfer Facility for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in the system of the
Book-Entry Transfer Facility may make book-entry delivery of Shares by causing
the Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of Shares
may be effected through book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, together with any required
signature guarantees, or an Agent's Message, and any other documents required by
the Letter of Transmittal, 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 prior
to the Expiration Date in order for such Shares to be validly tendered pursuant
to the Offer, or the tendering stockholder must comply with the guaranteed
delivery procedures described below.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE DEPOSITARY.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the Securities
Transfer Agents Medallion Program, the Stock Exchanges' Medallion Program or the
New York Stock Exchange, Inc. Medallion Signature Program (an "Eligible
Institution"), unless Shares tendered thereby are tendered (1) by a registered
holder of Shares who has not completed either the box entitled "Special Delivery
Instructions" or the box entitled "Special Payment Instructions" on the Letter
of Transmittal or (2) for the account of an Eligible Institution.
If the Share 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 Share
Certificates for unpurchased Shares are to be returned, to a person other than
the registered holder(s), then the tendered Share Certificates must be endorsed
or accompanied by appropriate stock powers signed exactly as the name(s) of the
registered holder(s) appear(s) on the Share Certificates with the signature(s)
on such Share Certificates or stock powers guaranteed by an Eligible Institution
as provided above and in the Letter of Transmittal.
GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available or time will not permit all of the required documents to reach the
Depositary prior to the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, such Shares may nevertheless be
tendered, provided that all of the following conditions are satisfied:
o such tender is made by or through an Eligible Institution;
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o a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Purchaser with the Letter of
Transmittal, is received by the Depositary, in accordance with the
procedure set forth as provided below, prior to the Expiration Date; and
o the Share Certificates (or a Book-Entry Confirmation) for all tendered
Shares, in proper form for transfer, in each case together with 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, and any other documents required
by the Letter of Transmittal, are received by the Depositary within three
Nasdaq trading days after the date of execution of such Notice of
Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision of this Offer, payment for Shares
accepted for payment pursuant to the Offer will in all cases be made only after
timely receipt by the Depositary of Share Certificates therefor (or Book-Entry
Confirmation of the transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility), a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof), together with any required signature
guarantees or, in the case of a book-entry transfer, an Agent's Message, and any
other documents required by the Letter of Transmittal. Accordingly, payment may
not be made to all tendering stockholders at the same time and will depend upon
when Share Certificates or Book-Entry Confirmations of such Shares are received
by the Depositary.
BACKUP FEDERAL INCOME TAX WITHHOLDING. Under the U.S. federal income tax
laws, the Depositary may, under certain circumstances, be required to withhold
30% of the amount of any payments made to certain stockholders pursuant to the
Offer. To prevent such backup federal income tax withholding with respect to
payments made to certain stockholders of the purchase price of Shares purchased
pursuant to the Offer, each such stockholder must provide the Depositary with
such stockholder's correct taxpayer identification number and certify that such
stockholder is not subject to backup federal income tax withholding by
completing the Substitute Form W-9 included in the Letter of Transmittal.
APPOINTMENT AS PROXY. By executing the Letter of Transmittal, a tendering
stockholder irrevocably appoints designees of the Purchaser as such
stockholder's attorneys-in-fact and proxies in the manner set forth in the
Letter of Transmittal, each with full power of substitution with respect to any
Shares tendered thereby (and with respect to any and all other Shares or other
securities issued or issuable in respect of such Shares on or after May 20,
2002). All such powers of attorney and proxies shall be considered irrevocable
and coupled with an interest in the tendered Shares. Such appointment will be
effective when, and only to the extent that, the Purchaser accepts the tendered
Shares for payment and deposits the purchase price therefor with the Depositary.
Upon such deposit, all prior powers of attorney and proxies given by such
stockholder at any time with respect to such Shares (and other Shares and
securities issued or issuable in respect of the tendered Shares on or after May
20, 2002) will, without further action, be revoked, and no subsequent powers of
attorney or proxies may be given nor any subsequent written consents be executed
by such stockholder (and, if given or executed, will not be deemed effective).
Upon such deposit by the Purchaser, the designees of the Purchaser will, with
respect to such Shares and other securities, be empowered to exercise all voting
and other rights of such stockholder as they in their sole discretion may deem
proper at any annual or special meeting of ELI's stockholders, or any
adjournment or postponement thereof, or 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 and
other rights of a record and beneficial holder, including, without limitation,
voting at any meeting of stockholders or by written consent in lieu of any such
meeting.
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DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including the time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by the Purchaser, in its sole discretion, which determination will be
final and binding on all parties. The Purchaser reserves the absolute right to
reject any and all tenders of any particular Shares determined by it not to be
in appropriate form or for which the acceptance of or payment 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
irregularities in the tender of any particular Shares, whether or not similar
defects or irregularities are waived in the case of any other Shares. The
Purchaser's interpretations of the terms and conditions of the Offer (including
the Letter of Transmittal and Instructions thereto) will be final and binding.
No tender of Shares will be deemed to have been validly made until all defects
and irregularities have been cured or waived. None of the Purchaser, any of its
affiliates or assigns, the Information Agent, the Depositary or any other person
will be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification.
THE PURCHASER'S ACCEPTANCE FOR PAYMENT OF SHARES TENDERED PURSUANT TO THE
OFFER WILL CONSTITUTE A BINDING AGREEMENT BETWEEN THE TENDERING STOCKHOLDER AND
THE PURCHASER UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE OFFER.
WITHDRAWAL RIGHTS
Except as otherwise provided in this Section, tenders of Shares made
pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may
be withdrawn at any time prior to the Expiration Date and, unless previously
accepted for payment as provided herein, may also be withdrawn at any time after
July 19, 2002.
If the Purchaser extends the Offer, is delayed in, or delays, its
acceptance for payment or payment for Shares or is unable to accept for payment
or pay for Shares for any reason, then, without prejudice to the Purchaser's
other rights under the Offer, tendered Shares may nevertheless be retained by
the Depositary, on behalf of the Purchaser, and may not be withdrawn except to
the extent tendering stockholders are entitled to and duly exercise withdrawal
rights as described in this Section. Any such extension or delay will be
accompanied by an extension of the Offer to the extent required by law.
In order for a withdrawal to be effective, a written, telegraphic 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 who
tendered the Shares to be withdrawn, the number of Shares to be withdrawn and
the name of the registered holder of the Shares to be withdrawn, if different
from that of the person who tendered such Shares. If Share Certificates to be
withdrawn have been delivered or otherwise identified to the Depositary, then,
prior to the physical release of such Share Certificates, the tendering
stockholder must also submit the serial numbers shown on such Share Certificates
to the Depositary, and the signatures on the notice of withdrawal must be
guaranteed by an Eligible Institution, unless such Shares have been tendered for
the account of an Eligible Institution. If Shares have been tendered pursuant to
the procedures for book-entry transfer, as set forth in "--Procedures For
Accepting The Offer And 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 must otherwise comply with the procedures
of the Book-Entry Transfer Facility.
Withdrawals may not be revoked and any Shares properly withdrawn will
thereafter be deemed not to have been validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered at any time prior to the
Expiration Date by following the procedures described in "--Procedures For
Accepting The Offer And Tendering Shares."
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All questions as to the form and validity (including the time of receipt)
of any notice of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination will be final and binding on all parties. None
of the Purchaser, its affiliates or assigns, the Information Agent, the
Depositary 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 any such notification.
CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the Offer, and in addition to (and
not in limitation of) the Purchaser's rights to extend and amend the Offer at
any time in its sole discretion, the Purchaser shall not be required to accept
for payment or, subject to any applicable rules and regulations of the
Commission, including Rule 14e-1 under the Exchange Act (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, subject to the restriction referred to above, the payment
for, any tendered Shares, and may amend or terminate the Offer if (1) the
Minimum Condition has not been satisfied or (2) at any time on or after June 17,
2002 and before the time of acceptance of the Shares for payment pursuant to the
Offer, any of the following events shall occur:
(a) any change shall have occurred in the business, properties,
assets, liabilities, capitalization, stockholders' equity,
financial condition, cash flows, operations, licenses, franchises
or results of operations of ELI or its subsidiaries which has a
material adverse effect on ELI and its subsidiaries taken as a
whole; or
(b) any government or governmental authority or agency, whether
domestic, foreign or supranational (a "Governmental Entity"),
shall have instituted or threatened any action, proceeding,
application, claim or counterclaim, sought or obtained any
judgment, order or injunction, or taken any other action, which
(i) challenges the acquisition by Citizens or the Purchaser (or
any other affiliate of Citizens) of any Shares pursuant to the
Offer or the Merger, restrains, prohibits or materially delays
the making or consummation of the Offer or the Merger, prohibits
the performance of any of the contracts or other arrangements
entered into by Citizens or the Purchaser (or any other affiliate
of Citizens) in connection with the acquisition of the Shares or
ELI, seeks to obtain any material amount of damages, or otherwise
directly or indirectly adversely affects the Offer or the Merger,
(ii) seeks to prohibit or limit materially the ownership or
operation by ELI, Citizens or the Purchaser (or any other
affiliate of Citizens) of all or any material portion of the
business or assets of ELI or of Citizens and its affiliates, or
to compel ELI, Citizens or the Purchaser (or any other affiliate
of Citizens) to dispose of or to hold separate all or any
material portion of the business or assets of Citizens or any of
its affiliates or of ELI or any of its subsidiaries as a result
of the transactions contemplated by the Offer or the Merger,
(iii) seeks to impose any material limitation on the ability of
ELI, Citizens or the Purchaser (or any other affiliate of
Citizens) to conduct ELI's or any subsidiary's business or own
such assets, (iv) seeks to impose or confirm any material
limitation on the ability of Citizens or the Purchaser (or any
other affiliate of Citizens) to acquire or hold, or to exercise
full rights of ownership of, any Shares, including the right to
vote such Shares on all matters properly presented to the
stockholders of ELI, (v) seeks to require divestiture by Citizens
or the Purchaser or any of their affiliates of all or any of the
Shares or (vi) otherwise has resulted in or has a reasonable
likelihood of resulting in, a material adverse effect on the
business, financial condition, results of operation or prospects
of ELI or Citizens (a "Material Adverse Effect"); or
(c) there shall have been entered or issued any preliminary or
permanent judgment, order, decree, ruling or injunction or any
other action taken by any Governmental Entity or court, whether
on its own initiative or the initiative of any other person,
which (i) restrains, prohibits or
24
materially delays the making or consummation of the Offer or the
Merger, prohibits the performance of any of the contracts or
other arrangements entered into by Citizens or the Purchaser (or
any other affiliate of Citizens) in connection with the
acquisition of the Shares or ELI or otherwise directly or
indirectly materially adversely affects the Offer or the Merger,
(ii) prohibits or limits materially the ownership or operation by
ELI, Citizens or the Purchaser (or any other affiliate of
Citizens) of all or any material portion of the business or
assets of ELI and its subsidiaries taken as a whole or of
Citizens or the Purchaser (or any other affiliate of Citizens),
or compels ELI, Citizens or the Purchaser (or any other affiliate
of Citizens) to dispose of or to hold separate all or any
material portion of the business or assets of Citizens or any of
its affiliates or of ELI or any of its subsidiaries as a result
of the transactions contemplated by the Offer or the Merger,
(iii) imposes any material limitation on the ability of ELI,
Citizens or the Purchaser (or any other affiliate of Citizens) to
conduct ELI's or any subsidiary's business or own such assets,
(iv) imposes or confirms any material limitation on the ability
of Citizens or the Purchaser (or any other affiliate of Citizens)
to acquire or hold, or to exercise full rights of ownership of,
any Shares, including the right to vote such Shares on all
matters properly presented to the stockholders of ELI, (v)
requires divestiture by Citizens or the Purchaser or any of their
affiliates of all or any of the Shares or (vi) otherwise has
resulted in, or has a reasonable likelihood of resulting in, a
Material Adverse Effect; or
(d) there shall have been instituted or be pending before any
Governmental Entity or court any action, proceeding, application,
claim or counterclaim or any judgment, order or injunction sought
or any other action taken by any person or entity (other than a
Governmental Entity) which (i) challenges the acquisition by
Citizens or the Purchaser (or any other affiliate of Citizens) of
any Shares pursuant to the Offer or the Merger, restrains,
prohibits or materially delays the making or consummation of the
Offer or the Merger, prohibits the performance of any of the
contracts or other arrangements entered into by Citizens or the
Purchaser (or any other affiliate of Citizens) in connection with
the acquisition of the Shares or ELI, seeks to obtain any
material amount of damages, or otherwise directly or indirectly
adversely affects the Offer or the Merger, (ii) seeks to prohibit
or limit materially the ownership or operation by ELI, Citizens
or the Purchaser (or any other affiliate of Citizens) of all or
any material portion of the business or assets of ELI or of
Citizens and its affiliates, or to compel ELI, Citizens or the
Purchaser (or any other affiliate of Citizens) to dispose of or
to hold separate all or any material portion of the business or
assets of Citizens or any of its affiliates or of ELI or any of
its subsidiaries as a result of the transactions contemplated by
the Offer or the Merger, (iii) seeks to impose any material
limitation on the ability of ELI, Citizens or the Purchaser (or
any other affiliate of Citizens) to conduct ELI's or any
subsidiary's business or own such assets, (iv) seeks to impose or
confirm any material limitation on the ability of Citizens or the
Purchaser (or any other affiliate of Citizens) to acquire or
hold, or to exercise full rights of ownership of, any Shares,
including the right to vote such Shares on all matters properly
presented to the stockholders of ELI, (v) seeks to require
divestiture by Citizens or the Purchaser (or any other affiliate
of Citizens) of all or any of the Shares or (vi) otherwise has
resulted in or, in the Purchaser's reasonable discretion, has a
reasonable likelihood of resulting in a Material Adverse Effect;
and which in the case of clause (i), (ii), (iii), (iv) or (v) is
successful or the Purchaser determines, in its reasonable
discretion, has a reasonable likelihood of being successful; or
(e) there shall be any statute, rule or regulation 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 or court that results in, directly or
indirectly, any of the consequences referred to in clauses (i)
through (vi) of paragraph (b) above; or
25
(f) there shall have occurred any general suspension of trading in,
or limitation on prices for, securities on NASDAQ or in the
over-the-counter market (other than any temporary suspension
pursuant to a circuit breaker procedure then in effect and
lasting for not more than three trading hours), any declaration
of a banking moratorium by federal or New York authorities or
general suspension of payments in respect of lenders that
regularly participate in the United States market in loans, any
material limitation by any federal, state or local government or
any court, administrative or regulatory agency or commission or
other governmental authority or agency in the United States that
materially affects the extension of credit generally by lenders
that regularly participate in the United States market in loans,
any commencement of a war involving the United States or any
commencement of armed hostilities or other national or
international circumstance involving the United States that has a
material adverse effect on bank syndication or financial markets
in the United States or, in the case of any of the foregoing
occurrences existing on or at the time of the commencement of the
Offer, a material acceleration or worsening thereof; which in the
reasonable judgment of the Purchaser, in any such case, and
regardless of the circumstances giving rise to such condition,
makes it inadvisable to proceed with the Offer, the Merger and/or
with such acceptance for payment or payments.
The foregoing conditions are for the sole benefit of the Purchaser and its
affiliates and may be asserted by the Purchaser regardless of any circumstances
giving rise to any condition and may be waived by the Purchaser, in whole or in
part, at any time and from time to time in the reasonable discretion of the
Purchaser. The failure by the Purchaser (or any affiliate of the Purchaser) at
any time to exercise any of the foregoing rights will not be deemed a waiver of
any right, and each right will be deemed an ongoing right which may be asserted
at any time and from time to time.
CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
GENERAL. Except as described below, neither Citizens nor the Purchaser is
aware of any license or regulatory permit that appears to be material to the
business of ELI and its subsidiaries that might be adversely affected by the
Purchaser's acquisition of Shares as contemplated herein.
Except as described in this section, neither Citizens nor the Purchaser is
aware of any other material filing, approval or other action by any federal or
state governmental or administrative authority that would be required for the
acquisition of Shares by the Purchaser as contemplated herein. Should any such
other approval or action be required, it is currently contemplated that such
approval or other action would be sought. There is, however, no present
intention to delay the purchase of Shares tendered pursuant to the Offer or the
Merger pending the outcome of any such other approval or action. There can be no
assurance that any such other approval or action, if needed, would be obtained
without substantial conditions or that adverse consequences might not result to
the Purchaser's, Citizens' or ELI's business in the event that such other
approvals were not obtained or such other actions were not taken. The
Purchaser's obligation under the Offer to accept for payment and pay for Shares
is subject to certain conditions, including conditions relating to the legal
matters discussed in this section. See "--Certain Conditions Of The Offer."
ANTITRUST. The Purchaser believes that the Offer and the Merger are exempt
from the reporting requirements contained in the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. Nevertheless, there can be no assurance that a
challenge to the Offer and the Merger on antitrust grounds will not be made, or,
if such challenge is made, what the result will be.
26
STATE ANTI-TAKEOVER STATUTES
ELI, directly or through subsidiaries, conducts business in a number of
states throughout the United States, some of which have enacted takeover laws.
Neither Citizens nor the Purchaser knows whether any of these laws will, by
their terms, apply to the Offer or the Merger, and the Purchaser has not
necessarily complied with any such laws. Should any person seek to apply any
state takeover law, the Purchaser will take such action as then appears
desirable, which may include challenging the validity or applicability of any
such statute in appropriate court proceedings. In the event it is asserted that
one or more state takeover laws is applicable to the Offer or the Merger, and an
appropriate court does not determine that it is inapplicable or 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
continuing or consummating the Offer. In such case, the Purchaser may not be
obligated to accept for payment any Shares tendered. See "--Certain Conditions
Of The Offer."
DIVIDENDS AND DISTRIBUTIONS
If, on or after May 20, 2002, ELI should declare or pay any dividend or
other distribution (including, without limitation, the issuance of additional
Shares pursuant to a stock dividend or stock split or the issuance of rights for
the purchase of any securities) with respect to the Shares that is payable or
distributable to stockholders of record on a date occurring prior to the
transfer to the name of the Purchaser or its nominees or transferees on ELI's
stock transfer records of the Shares purchased pursuant to the Offer, then,
without prejudice to the Purchaser's rights described in "--Certain Conditions
Of The Offer," (1) the purchase price per Share payable by the Purchaser
pursuant to the Offer will be reduced in the amount of any such cash dividend or
distribution, and (2) the whole of any non-cash dividend or distribution
(including, without limitation, additional Shares or rights as aforesaid) will
be required to be remitted promptly and transferred by each tendering
stockholder to the Depositary for the account of the Purchaser accompanied by
appropriate documentation of transfer. Pending such remittance or appropriate
assurance thereof, the Purchaser will be entitled to all rights and privileges
as owner of any such non-cash dividend, distribution or right, and may withhold
the entire purchase price or deduct from the purchase price the amount of value
of such non-cash dividend, distribution or right, as determined by the Purchaser
in its sole discretion. To the best knowledge of Citizens, ELI does not
currently plan to declare or pay any dividend or other distribution (including,
without limitation, the issuance of additional Shares pursuant to a stock
dividend or stock split or the issuance of rights for the purchase of any
securities) with respect to the Shares.
If, on or after May 20, 2002, ELI should split the Shares or combine or
otherwise change the Shares or its capitalization, then, without prejudice to
the Purchaser's rights described under the heading "--Certain Conditions Of The
Offer," appropriate adjustments to reflect such split, combination or change may
be made by the Purchaser in the purchase price and other terms of the Offer,
including, without limitation, the number or type of securities offered to be
purchased.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material U.S. federal income tax
consequences of the Offer and the Merger to the beneficial owners of Shares.
This summary is based upon the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), applicable treasury regulations thereunder, judicial
decisions and current administrative rulings as in effect on the date of this
Offer to Purchase. The discussion does not address all aspects of U.S. federal
income taxation that may be relevant to particular taxpayers in light of their
personal circumstances or to taxpayers subject to special treatment under the
Code (for example, life insurance companies, foreign corporations, foreign
partnerships, foreign estates or trusts, or individuals who are not citizens or
residents of the United States and beneficial owners whose Shares were acquired
pursuant to the exercise of warrants, employee stock options or otherwise as
compensation) and does not address any aspect of state, local, foreign or other
taxation.
The receipt of cash for Shares pursuant to the Offer or the Merger will be
a taxable transaction for federal income tax purposes under the Code, and may
also be a taxable transaction under applicable state, local or foreign income or
other tax laws. Generally, for federal income tax purposes, a beneficial owner
of Shares that tenders Shares pursuant to the Offer or surrenders Shares
pursuant to the Merger will recognize gain or loss equal to the difference
between the amount of cash received by the beneficial owner and the aggregate
tax basis in the Shares sold pursuant to the Offer or canceled and converted to
cash pursuant to the Merger. Gain or loss will be calculated separately for each
block of Shares purchased pursuant to the Offer or canceled and converted to
cash pursuant to the Merger.
Gain or loss on the disposition of Shares will be capital gain or loss,
assuming that the Shares are held as capital assets. Capital gains of
individuals, estates and trusts generally are subject to a maximum federal
income tax rate of (i) 20% if, at the time the tendered Shares are accepted for
payment (in the case of the Offer) or the Effective Time of the Merger (in the
case of the Merger), the beneficial owner held the Shares for more than one year
or (ii) 38.6% if, at the time the tendered Shares are accepted for payment (in
the case of the Offer) or the Effective Time of the Merger (in the case of the
Merger), the beneficial owner held the Shares for not more than one year.
Capital gains of corporations generally are taxed at the federal income tax
rates applicable to corporate ordinary income. In addition, the ability of both
corporate and non-corporate beneficial owners to use capital losses to offset
ordinary income is limited.
In general, cash received by stockholders who exercise statutory appraisal
rights ("Dissenting Stockholders") in respect of such appraisal rights will
result in the recognition of gain or loss to the Dissenting Stockholders. Any
such Dissenting Stockholder should consult with its tax advisor for a full
understanding of the tax consequences of the receipt of cash in respect of
appraisal rights pursuant to the Merger.
A beneficial owner may be subject to backup federal income tax withholding
at a rate of 30% with respect to the amount of cash received pursuant to the
Offer or the Merger unless the owner provides its tax identification number
("TIN") and certifies that such number is correct or properly certifies that it
is awaiting a TIN, or unless an exemption applies. See "The Tender
Offer--Procedures For Accepting The Offer And Tendering Shares--Backup Federal
Income Tax Withholding."
If backup withholding applies to a beneficial owner, the Depositary is
required to withhold 30% from payments to such owner. Backup withholding is not
an additional tax. Rather, the amount of the backup withholding can be credited
against the federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to the Internal
Revenue Service. If backup withholding results in an overpayment of tax, a
refund can be obtained by the beneficial owner upon filing an income tax return.
EACH BENEFICIAL OWNER OF SHARES IS URGED TO CONSULT SUCH BENEFICIAL OWNER'S
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH BENEFICIAL OWNER OF THE
OFFER AND THE MERGER, INCLUDING THE APPLICATION OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
28
PRICE RANGE OF THE SHARES; DIVIDENDS
PRICE RANGE OF SHARES. The Shares are listed on The Nasdaq National Market
under the symbol "ELIX". The following table sets forth the high and low sales
prices per Share on The Nasdaq National Market, as reported in publicly
available sources for each of the periods indicated.
2002 2001 2000
-------------------- ---------------------- -------------------------
High Low Average High Low Average High Low Average
---- ---- ------- ----- ----- ------- ---- ------ -------
First Quarter ... $.71 $.30 $.51 $6.75 $2.00 $4.38 $27.00 $16.63 $21.82
Second Quarter(1) .83 .30 .45 3.07 1.20 2.14 25.00 15.88 20.44
Third Quarter ... -- -- -- 1.65 .40 1.03 19.75 7.00 13.38
Fourth Quarter .. -- -- -- .84 .23 .54 8.88 2.88 5.88
- ----------
(1) Second Quarter information for 2002 consists of sale prices through May 15,
2002.
As of May 17, 2002, the approximate number of record security holders of
ELI's Class A Common Stock was 116.
ELI's Class B common stock is not publicly traded and is 100% owned by
Citizens.
On May 15, 2002, the last full trading day prior to the public announcement
of the Purchaser's intention to commence the Offer at a price of $0.70 per
Share, the closing sale price per Share, as reported on The Nasdaq National
Market, was $0.34. ELI has received a notice from Nasdaq that ELI's Class A
common stock will be delisted from The Nasdaq National Market at the opening of
business on May 24, 2002, for failure to comply with listing requirements.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
THE SHARES.
DIVIDENDS. ELI has never declared or paid any cash dividends in respect of
the Shares.
CERTAIN INFORMATION CONCERNING ELI
Stockholders are urged to review the publicly available information
concerning ELI before acting on the Offer.
GENERAL
ELI's Class A common stock currently trades on The Nasdaq National Market
under the symbol "ELIX." ELI is organized under the laws of the State of
Delaware. ELI's principal executive offices are located at 3 High Ridge Park,
Stamford, CT 06905 and its telephone number is (203) 614-5600.
ELI is subject to the disclosure requirements of the Exchange Act and in
accordance therewith is required to file reports, proxy statements and other
information with the Commission relating to its business, financial condition
and other matters. In addition, ELI is required to file within 10 business days
of the commencement of this Offer, and to distribute to ELI's Stockholders, a
statement on Schedule 14D-9 regarding its recommendation to ELI's stockholders
with respect to the Offer. Such reports, proxy statements, Schedule 14D-9 and
other information are or will be available for inspection at the Commission's
public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549
and should also be available for inspection at the regional offices of the
Commission located at The Woolworth Building, 233 Broadway, New York, NY 10279.
Copies may be obtained at prescribed rates from the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission at http://www.sec.gov. In addition, certain material filed by ELI may
also be available for inspection at the offices of the NASDAQ Stock Market,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
29
Neither Citizens nor the Purchaser intends to grant unaffiliated
stockholders special access to ELI's records in connection with the Offer.
Neither Citizens nor the Purchaser intends to obtain counsel to or appraisal
services for unaffiliated stockholders of ELI.
FINANCIAL INFORMATION. Set forth below is certain selected consolidated
financial information with respect to ELI and its subsidiaries excerpted or
derived from the audited consolidated financial statements contained in ELI's
Consolidated Financial Statements included in ELI's Annual Reports on Form 10-K
for its fiscal years ended December 31, 2001 and December 31, 2000
(collectively, the "ELI Reports"). More comprehensive financial information is
included in ELI Reports and in other documents filed by ELI with the Commission
(which may be inspected or obtained in the manner set forth above), and the
following financial information is qualified in its entirety by reference to ELI
Reports and other documents and all of the financial information (including any
related notes) contained therein or incorporated therein by reference.
SELECTED FINANCIAL AND OPERATING DATA
Year Ended December 31, Three Months
------------------------------ Ended March 31,
2000 2001 2002
----------- ------------- ----------------
($ in thousands, except per share and non-dollar
denominated operating data)
Statements of Operations Data
Revenues ............................... $ 243,977 $ 226,640 $ 48,150
Loss from operations ................... (59,876) (73,193) (17,180)
Net loss ............................... (136,462) (171,692) (83,383)
Net loss per share ..................... (2.71) (3.37) (1.63)
Operating Data
Adjusted EBITDA(1) ..................... 1,787 5,829 2,472
Cash flows used for operating activities (55,095) (79,747) (14,570)
Cash flows used for investing activities (108,909) (53,523) (4,162)
Cash flows from financing activities ... 152,944 128,237 17,494
Balance Sheet Data (as of end of period)
Total assets ........................... 949,774 902,348 846,430
Short-term/Current liabilities ......... 132,672 474,329 484,659
Long-term debt and capital leases ...... 866,404 649,478 666,923
Shareholders' equity (deficiency) ...... (70,502) (241,609) (324,911)
Gross property, plant & equipment
--owned or under capital lease ......... 978,327 1,037,349 1,038,946
--under operating lease(2) ............. 108,541 108,541 108,541
----------- ----------- -----------
Total property, plant & equipment ........ $ 1,086,868 $ 1,145,890 $ 1,147,487
=========== =========== ===========
Route miles(3) ........................... 5,924 6,754 7,219
Fiber miles(3) ........................... 297,284 354,083 362,624
- ----------
(1) Adjusted EBITDA is operating loss plus depreciation and amortization.
Adjusted EBITDA is a measure commonly used in the communications industry
to analyze companies on the basis of operating performance. It is not a
measure of financial performance under generally accepted accounting
principles, and may not be comparable to similarly titled measures of other
companies.
(2) Facilities under the operating lease agreement under which ELI has
exercised the option to purchase the facilities at the end of the lease
term.
(3) Route and fiber miles also include those to which ELI has exclusive use
pursuant to license and lease arrangements.
Information presented above should be read in conjunction with ELI's
Financial Statements and accompanying Notes in the ELI Reports.
30
CERTAIN INFORMATION CONCERNING THE PURCHASER AND CITIZENS
THE PURCHASER
The Purchaser is a wholly-owned subsidiary of Citizens that does not
currently conduct any active business. The Purchaser is organized under the laws
of the State of Delaware. The Purchaser's principal executive offices are
located at 3 High Ridge Park, Stamford, CT 06905, and its telephone number is
(203) 614-5600.
The name, business address, principal occupation, employment history and
citizenship of each of the executive officers and directors of the Purchaser are
set forth on Schedule I hereto.
During the past five years, the Purchaser has not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
been a party to any judicial or administrative proceeding (except for any
matters that were dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the Purchaser from future violations
of, or prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
CITIZENS
Citizens, a Delaware corporation, is a telecommunications-focused company
providing wireline communications services to rural areas and small and
medium-sized towns and cities, including the Rochester, New York metropolitan
area, as an incumbent local exchange carrier, or ILEC. In addition, Citizens
provides competitive local exchange carrier, or CLEC, services to business
customers and to other communications carriers in certain metropolitan areas in
the western United States through ELI, Citizens' 85%-owned subsidiary. Citizens
also provides public utility services including natural gas transmission and
distribution and electric transmission and distribution services to primarily
rural and suburban customers in Vermont, Hawaii and Arizona.
With approximately 2.5 million telephone access lines in 24 states Citizens
was the seventh largest local access wireline telephone provider in the United
States as of December 31, 2001. Revenue from Citizens' ILEC and CLEC services
segments was $1,594.1 million and $226.6 million, respectively in 2001. In 1999
Citizens announced plans to divest its public utilities services segments.
Consistent with this effort, during 2001 Citizens sold two of its natural gas
transmission businesses and in January 2002 Citizens sold its water distribution
and wastewater treatment business. Citizens is presently engaged in the sale of,
or is seeking buyers for, its remaining gas and electric utility services
segments. Pending these divestitures, Citizens continues to provide gas and
electric utility services. Citizens revenues from the provision of gas and
electric utility services were $411.5 million and $228.0 million, respectively,
in 2001. Citizens' water and wastewater treatment operations were reported as
"discontinued operations."
Citizens and its subsidiaries own all of the Class B Common Stock and
27,571,332 Shares of Class A Common Stock of ELI. This ownership interest
represents 85% of the economic interest and a 96% voting interest. ELI's Class B
common stock votes on a 10 to 1 basis with the Class A common stock, which is
publicly traded. Citizens also guarantees all of ELI's long-term debt, one of
its capital leases and guaranteed one of its operating leases, and has committed
to continue to support its cash requirements through March 31, 2003. The
material terms of Citizens' agreements with ELI are described below.
Absent Citizens' commitment, Citizens does not believe there is currently a
market to further finance or refinance ELI's indebtedness. Consequently, without
the financial support of Citizens, ELI could not fund its future capital
requirements or service its debt and most likely would not remain a going
concern. The net loss of ELI was $171.7 million in 2001 and the net loss for the
three months ended March 31, 2002 was $83.4 million.
31
CERTAIN TRANSACTIONS
AGREEMENTS BETWEEN CITIZENS AND ELI. Citizens' relationship with ELI is
governed by agreements entered into with ELI in connection with ELI's initial
public offering and certain other agreements, the material terms of which are
described below.
Administrative Services Agreement
The Administrative Services Agreement provides for Citizens to render
certain financial management services, information services, legal and contract
services, human resources services, and corporate planning services to ELI.
Under the terms of the Administrative Services Agreement, all of the services
rendered by Citizens are subject to ELI's oversight, supervision and approval,
acting through ELI's board of directors.
The administrative costs payable by ELI to Citizens pursuant to the
Administrative Services Agreement are not expected to exceed the fees that would
be paid if such services were to be provided by an independent third party.
The Administrative Services Agreement will terminate on December 31, 2005,
unless earlier terminated by Citizens or by ELI. The Administrative Services
Agreement will be renewed automatically for additional terms of two years unless
either party gives at least six months' written notice prior to a scheduled
termination date. The Administrative Services Agreement can be terminated upon a
material breach and will be terminated upon a change of ELI's control. Under the
Administrative Services Agreement, $7,985,000 in fees were payable to Citizens
for 2001, excluding reimbursement for costs.
Tax Sharing Agreement
As ELI is included in Citizens' federal consolidated income tax group,
ELI's federal income tax liability is included in the consolidated federal
income tax liability of Citizens and its subsidiaries. ELI is also included with
certain Citizens subsidiaries in combined, consolidated, or unitary income tax
groups for state and local tax purposes. ELI and Citizens are parties to a
federal, state, and local Tax Sharing Agreement. Pursuant to the Tax Sharing
Agreement, ELI and Citizens make payments between themselves such that, with
respect to any period, the amount of taxes to be paid by ELI, subject to certain
adjustments, will generally be determined as though ELI were to file separate
federal, state, and local income or franchise tax returns (including, except as
provided below, any amounts determined to be due as a result of a
redetermination of the tax liability of Citizens arising from an audit or
otherwise). ELI is responsible for any tax liability due any foreign
jurisdiction arising from ELI's business activities. The Tax Sharing Agreement
will remain in effect so long as any taxing jurisdiction requires the filing of
a combined tax return by both Citizens and by ELI.
Citizens has sole and exclusive responsibility for (i) preparing any of
ELI's tax returns (including amended returns or claims for refund); (ii)
representing ELI with respect to any tax audit or tax contest; (iii) engaging
outside counsel and accountants with respect to tax matters regarding ELI; and
(iv) performing such other acts and duties with respect to ELI's tax returns as
Citizens determines is appropriate. The amounts that ELI will pay Citizens under
the Administrative Services Agreement will encompass reimbursement to Citizens
for all direct and indirect costs and expenses incurred with respect to ELI's
share of the overall costs and expenses incurred by Citizens with respect to
tax-related services.
Each member of a consolidated group is jointly and severally liable for the
federal income tax liability of each other member of the consolidated group.
Accordingly, although the Tax Sharing Agreement allocates tax liabilities
between ELI and Citizens, during the period in which ELI is included in
Citizens' consolidated group ELI could be liable in the event that any federal
tax liability is incurred, but not discharged, by any other member of Citizens'
consolidated group.
32
Indemnification Agreement
ELI and Citizens are parties to an Indemnification Agreement. The
Indemnification Agreement provides that ELI will indemnify Citizens for any
liabilities incurred by Citizens under any guarantees of ELI's obligations or
liabilities and that ELI will pay Citizens for its direct costs, if any, of
maintaining such guarantees.
Registration Rights Agreement
ELI and Citizens are parties to a Registration Rights Agreement. The
Registration Rights Agreement provides that upon the request of Citizens, at
ELI's expense, ELI will use its best efforts to effect the registration under
the applicable federal and state securities laws of any of the shares of ELI's
common stock (and any other securities issued in respect of or in exchange
therefor) held by Citizens for sale in accordance with Citizens' intended method
of disposition thereof, and will take such other actions necessary to permit the
sale of these shares in other jurisdictions, subject to certain specified
limitations. Citizens will also have the right, at its expense, to include the
shares of common stock held by it in certain other registrations of ELI's common
equity securities that are initiated by ELI on its own behalf or on behalf of
ELI's other shareholders.
Customers and Service Agreement
ELI and Citizens are parties to a Customers and Service Agreement. The
Customers and Service Agreement contains provisions prohibiting ELI from
competing with Citizens for customers in Citizens' existing service areas and in
certain new lower density territories that Citizens was or will be first to
enter after ELI's initial public offering. Citizens has agreed that it will not
compete with ELI in the service territories where ELI provided services prior to
its initial public offering and in certain new higher density territories where
ELI was or will be first to provide services after its initial public offering.
Neither ELI nor Citizens may solicit an existing wholesale customer of the other
company for services that such customer is currently receiving under contract
from the other company. The relevant provisions were intended to permit ELI to
continue all activities that it engaged in prior to its initial public offering,
and to expand into related markets. The Customers and Service Agreement will
remain in effect until Citizens ceases to own a majority of the voting interest
of ELI's capital stock or its designees cease to constitute a majority of ELI's
directors.
Citizens Guarantees ELI's Obligations
Lease. In June 1995, ELI entered into agreements to lease certain equipment
to be constructed for ELI. The lessor has agreed to commit up to a maximum of
$110,000,000 of the cost of purchasing and installing the equipment. On January
31, 2002, ELI exercised its option to purchase on April 30, 2002, operating
assets in an amount of $110 million, the funding for which was provided by
Citizens under the Citizens Credit Facility. Citizens guaranteed all of ELI's
obligations under the lease and ELI paid Citizens a guarantee fee of 3.25% per
year of the amount of the lessor's investment in the leased assets.
Credit Facility. On November 2, 1997, ELI entered into a five-year, $400
million revolving credit facility with Citibank as agent for a group of lending
banks. Citizens has agreed to guarantee all debt obligations under this credit
facility. The credit facility requires that Citizens maintain a minimum net
worth of at least $1 billion and continue to own at least 51% of ELI's
outstanding common stock. ELI has agreed to pay Citizens a guarantee fee at a
rate of 3.25% per annum based on the average balance outstanding. At December
31, 2001, ELI had outstanding loans payable to Citibank in the amount of $400
million. The $400 million revolving bank credit facility matures in November
2002 and full payment of the credit facility by ELI is due at that time.
Citizens intends to provide the funds necessary to pay the amounts due under the
credit facility.
33
Senior Unsecured Notes. In April 1999, ELI completed an offering of $325
million of five-year senior unsecured notes. The notes have an annual interest
rate of 6.05% and will mature on May 15, 2004. Citizens has guaranteed the
payment of principal, any premium, and interest on the notes when due. ELI has
agreed to pay Citizens a guarantee fee at a rate of 4.0% per year based on the
average outstanding balance. At December 31, 2001, ELI had $325 million of these
notes outstanding.
For 2001, ELI accrued Citizens' guarantee fees of $29.6 million under the
lease, the credit facility, and the senior unsecured notes.
Refinancing of Obligations. ELI and Citizens have agreed that if Citizens
intends to reduce its economic interest in ELI to less than 51%, Citizens will
be entitled to request that ELI refinance its obligations under the lease and
the credit facility and ELI will be obligated to use its best efforts to do so.
This refinancing would occur when Citizens reduces its economic interest in ELI
to less than 51%.
License Agreement Guaranty. ELI has entered into a license agreement with
the Bonneville Power Administration whereby ELI will obtain a license to use
fiber optic cable on Bonneville's transmission system. On May 15, 2000, Citizens
entered into a guaranty agreement with Bonneville under which Citizens
guarantees the payment of the license fee, annual maintenance fee and any
liquidated damages provided for in the license agreement.
Telecommunications Services
Citizens has transactions in the normal course of business with ELI.
Citizens is an Incumbent Local Exchange Carrier ("ILEC") in certain markets in
which ELI provides services. In order to provide services in those markets, ELI
purchases access from Citizens. ELI is charged the full-tariffed rate for those
services, which was $1,193,000 in 2001, representing usage-based charges for the
services provided. Citizens purchases certain services from ELI at prevailing
market rates. In 2001, ELI recognized revenue in the amount of $2,924,000 for
these related party transactions.
Network Capacity Lease
In 1996, ELI entered into an agreement to lease rights to fiber optic lines
on its network to Citizens over 10 years for a monthly fee of $30,000.
In 1999, ELI entered into an agreement to lease certain capacity on its
network to Citizens over 20 years. Performance under this agreement began when
services were activated during 2000. Citizens paid ELI $6.5 million under this
agreement in 1999.
Intercompany Agreement
ELI, along with Citizens, desire to provide compensation incentives for
certain employees of ELI for high levels of performance and productivity.
Therefore, ELI and Citizens entered into an Intercompany Agreement, dated as of
September 11, 2000, whereby Citizens granted to certain of ELI's employees an
aggregate of 205,000 shares of Citizens common stock in the form of restricted
stock awards pursuant to the Citizens Communications Company Equity Incentive
Plan. In consideration for those restricted stock awards, ELI agreed to grant
Citizens 263,425 restricted shares of its Class B Common Stock. The 263,425
shares of ELI restricted Class B Common Stock had, on September 11, 2000, a fair
market value equivalent to the fair market value of Citizens' restricted stock
awards. The restrictions on a proportionate number of shares of ELI Class B
Common Stock will lapse with the lapse of restrictions on Citizens stock. ELI's
Compensation Committee and the Compensation Committee of Citizens have approved
the Intercompany Agreement.
34
PRIOR BUSINESS RELATIONSHIPS. Except as set forth in this Offer to
Purchase, neither the Purchaser nor Citizens or, to the best knowledge of the
Purchaser or Citizens Communications, any of the persons listed on Schedule I
hereto has, since December 31, 2001, had any business relationships or
transactions with ELI or any of its executive officers, directors or affiliates
that would require disclosure herein under the rules and regulations of the
Commission applicable to the Offer or the Merger.
CITIZENS CREDIT SUPPORT. Citizens guarantees all of ELI's long-term debt,
one of its capital leases and guaranteed one of its operating leases, and has
committed to continue to support ELI's cash requirements through March 31, 2003.
ELI is included in Citizens' consolidated federal income tax return. In order to
maintain that consolidation, Citizens must maintain an ownership and voting
interest in excess of 80%. ELI entered into a revolving credit facility with
Citizens on October 30, 2000. The Citizens Credit Facility provides up to $450
million for working capital purposes through March 31, 2003, with an interest
rate of 15% and a final maturity of the indebtedness of October 30, 2005. As of
April 30, 2002 there was $332,500,000 outstanding under the Citizens Credit
Facility.
FINANCIAL INFORMATION. Because the Offer Price will be paid in cash, the
Purchaser and Citizens do not believe that financial information with respect to
the Purchaser, Citizens and their subsidiaries would be material to a
stockholder's evaluation of the Offer and the Merger. Financial information
concerning Citizens and its subsidiaries is filed by Citizens with the
Commission (which may be inspected and copies thereof obtained at the offices of
the Commission as set forth in "Certain Information Concerning ELI").
OTHER INFORMATION ABOUT CITIZENS
Citizens' common stock is listed on the New York Stock Exchange under the
symbol "CZN". The principal executive offices of Citizens are located at 3 High
Ridge Park, Stamford, Connecticut 06905, and its telephone number is (203)
614-5600.
Citizens is subject to the disclosure requirements of the Exchange Act and
in accordance therewith is required to file reports, proxy statements and other
information with the Commission relating to its business, financial condition
and other matters. Such reports, proxy statements and other information are
available for inspection and copying at prescribed rates at the offices of the
Commission as set forth under "Certain Information Concerning ELI." In addition,
certain material filed by Citizens may also be available for inspection at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The name, business address, principal occupation, five-year employment
history and citizenship of each of the directors and executive officers of
Citizens are set forth in Schedule I hereto.
During the past five years, Citizens has not been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or been a
party to any judicial or administrative proceeding (except for any matters that
were dismissed without sanction or settlement) that resulted in a judgment,
decree or final order enjoining Citizens from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
Except as otherwise set forth in this Offer to Purchase, neither the
Purchaser nor Citizens or, to the best knowledge of the Purchaser and Citizens,
any of the persons listed on Schedule I hereto, has any contract, arrangement,
understanding or relationship with any other person with respect to any Shares
or other securities of ELI, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
any such Shares or other securities, joint ventures, loan or option
arrangements, puts or calls, guaranties of loans, guaranties against loss or the
giving or withholding of proxies.
35
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Purchaser to purchase all of the
outstanding Shares pursuant to the Offer and the Merger, and to pay related fees
and expenses, is estimated to be approximately $6.5 million. The Purchaser will
obtain the funds to purchase the Shares in the Offer and the Merger from
Citizens as capital contribution. Citizens has committed to provide any required
financing to the Purchaser from current assets.
THE MERGER; APPRAISAL RIGHTS
THE MERGER
Following the consummation of the Offer, subject to the conditions
described in this Offer to Purchase and in accordance with the Delaware General
Corporation Law ("DGCL"), Citizens plans to cause the Purchaser to merge with
and into ELI. Upon the Effective Date of the Merger:
o each Share issued and outstanding immediately prior to the Effective Date
of the Merger (other than Shares held by Public Stockholders, if any, who
are entitled to and who properly exercise their dissenters' rights (see
"--Appraisal Rights" below) under the DGCL) will be cancelled and
extinguished and be converted into and become a right to receive the Offer
Price per Share; and
o each outstanding share of the Purchaser's capital stock issued and
outstanding immediately prior to the Effective Date of the Merger will be
converted into one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation. As a result of the Merger,
Citizens will own all of the outstanding equity interests in ELI.
APPRAISAL RIGHTS
Stockholders who tender their Shares in the Offer are not entitled to
appraisal rights under the DGCL. If the Purchaser effects the Merger, then ELI
stockholders who do not tender their Shares to the Purchaser pursuant to the
Offer would have the right to demand an appraisal of the fair value of their
Shares in accordance with the provisions of Section 262 of the DGCL ("Section
262"), which sets forth the rights and obligations of Company stockholders
demanding an appraisal and the procedures to be followed.
Under the DGCL, record holders of the Shares who follow the procedures set
forth in Section 262 will be entitled to have their Shares appraised by the
Court of Chancery of the State of Delaware and to receive payment of the fair
value of such shares together with a fair rate of interest, if any, as
determined by such court. The fair value as determined by the Delaware court is
exclusive of any element of value arising from the accomplishment or expectation
of the Merger. The following is a summary of certain of the provisions of
Section 262 of the DGCL and is qualified in its entirety by reference to the
full text of Section 262, a copy of which is attached to this Offer to Purchase
as Schedule III.
The Surviving Corporation would notify ELI's public stockholders of record
as of the Effective Date of the Merger, and of the approval and consummation of
the Merger and the availability of appraisal rights under Section 262 within ten
days after the Effective Date of the Merger (the "Merger Notice"). Any public
stockholder of ELI entitled to appraisal rights would have the right, within 20
days after the date of mailing of the Merger Notice, to demand in writing from
the Surviving Corporation an appraisal of his Shares. Such demand will be
sufficient if it reasonably informs the Surviving Corporation of the identity of
the stockholder and that the stockholder intends to demand an appraisal of the
fair value of his Shares. Failure to make such a timely demand would foreclose a
public stockholder's right to appraisal.
Only a holder of record of Shares as of the Effective Date of the Merger is
entitled to assert appraisal rights for the Shares registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record fully and correctly, as the holder's name appears on the holder's Share
36
Certificates. Holders of Shares who hold their shares in brokerage accounts or
other nominee forms and wish to exercise appraisal rights should consult with
their brokers to determine the appropriate procedures for the making of a demand
for appraisal by such nominee. All written demands for appraisal of the Shares
should be sent or delivered to the Corporate Secretary, Citizens Communications
Company, 3 High Ridge Park, Stamford, Connecticut 06905, so as to be received
within the 20 days after the mailing of the Merger Notice.
If the Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the Shares are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that in executing the demand, the agent is agent for such
owner or owners.
A record holder such as a broker holding Shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the Shares held
for one or more beneficial owners while not exercising such rights with respect
to the Shares held for other beneficial owners; in such case, the written demand
should set forth the number of shares as to which appraisal is sought and where
no number of shares is expressly mentioned the demand will be presumed to cover
all Shares held in the name of the record holder.
Within 10 calendar days after the Effective Date of the Merger, the
Surviving Corporation must send a notice as to the effectiveness of the Merger.
Within 120 calendar days after the Effective Date of the Merger, the Surviving
Corporation, or any stockholder entitled to appraisal rights under Section 262
who has complied with the foregoing procedures, may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
Shares of all such stockholders. The Surviving Corporation is not under any
obligation, and has no present intention, to file a petition with respect to the
appraisal of the fair value of the Shares. Accordingly, it is the obligation of
the stockholders to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262.
Within 120 calendar days after the Effective Date of the Merger, any
stockholder of record who has complied with the requirements for exercise of
appraisal rights will be entitled, upon written request, to receive from the
Surviving Corporation a statement setting forth the aggregate number of Shares
with respect to which demands for appraisal have been received and the aggregate
number of holders of such Shares. Such statement must be mailed within 10
calendar days after a written request therefor has been received by the
Surviving Corporation or within 10 calendar days after the expiration of the
period for the delivery of demands for appraisal, whichever is later.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise the fair value of the 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. Holders considering seeking
appraisal should be aware that the fair value of their Shares as determined
under Section 262 could be more than, the same as or less than the amount per
Share that they would otherwise receive if they did not seek appraisal of their
Shares. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods that 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 holder of
Shares in connection with an appraisal, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts used in the
appraisal proceeding, be charged pro rata against the value of all the Shares
entitled to appraisal.
37
The Court may require stockholders who have demanded an appraisal and who
hold Shares represented by certificates to submit their certificates for Shares
to the Court for notation thereon of the pendency of the appraisal proceedings.
If any stockholder fails to comply with such direction, the Court may dismiss
the proceedings as to such stockholder.
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 the Shares subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those Shares (except dividends or
other distributions payable to holders of record of Shares as of a date prior to
the Effective Date of the Merger).
If any stockholder who demands appraisal of shares under Section 262 fails
to perfect, or effectively withdraws or loses, the right to appraisal, as
provided in the DGCL, the Shares of such holder will be converted into the right
to receive the Offer Price, without interest. A stockholder will fail to
perfect, or effectively lose, the right to appraisal if no petition is filed
within 120 calendar days after the Effective Date of the Merger. A stockholder
may withdraw a demand for appraisal by delivering to the Surviving Corporation a
written withdrawal of the demand for appraisal and acceptance of the Merger,
except that any such attempt to withdraw made more than 60 calendar days after
the Effective Date of the Merger will require the written approval of the
Surviving Corporation. Once a petition for appraisal has been filed, such
appraisal proceeding may not be dismissed as to any stockholder without the
approval of the Court.
For U.S. federal income tax purposes, stockholders who receive cash for
their Shares upon exercise of their appraisal rights will realize taxable gain
or loss. See "Material Federal Income Tax Consequences."
THE FOREGOING SUMMARY DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE
PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE THEIR APPRAISAL
RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY EXPRESS REFERENCE TO THE DELAWARE
APPRAISAL STATUTE, THE FULL TEXT OF WHICH IS ATTACHED HERETO AS SCHEDULE III.
STOCKHOLDERS ARE URGED TO READ SCHEDULE III IN ITS ENTIRETY SINCE FAILURE TO
COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF
APPRAISAL RIGHTS.
FEES AND EXPENSES
Citizens engaged Salomon Smith Barney, Inc. to act as its financial advisor in
connection with the Offer and the Merger, pursuant to a letter agreement,
executed on April 24, 2002. Pursuant to the terms of the letter agreement,
Citizens has agreed to pay Salomon Smith Barney as compensation for its services
as financial advisor in connection with any such transaction, including the
Offer, (i) a transaction fee of $350,000 upon execution of the letter agreement
and (ii) a monthly fee of $150,000 payable on June 24, 2002 and every month
thereafter until the payment date for the Offer has occurred. Citizens also has
agreed to reimburse Salomon Smith Barney for its reasonable out-of-pocket
expenses, including attorneys' fees, and to indemnify Salomon Smith Barney
against certain liabilities, including certain liabilities under the federal
securities laws.
The Purchaser has retained D.F. King & Co., Inc. to act as the Information
Agent and Illinois Stock Transfer Company to act as the Depositary in connection
with the Offer. The Information Agent may contact holders of Shares by mail,
telephone, telex, telecopy, telegraph and personal interview and may request
brokers, dealers, commercial banks, trust companies and other nominees to
forward the Offer material to beneficial owners. Each of the Information Agent
and the Depositary will receive reasonable and customary compensation for its
services and will be reimbursed for certain reasonable out-of-pocket expenses
and will be indemnified against certain liabilities and expenses in connection
with the Offer, including certain liabilities under U.S. federal securities
laws.
38
The Purchaser will not pay any fees or commissions to any broker or dealer
or any other person for soliciting tenders of Shares pursuant to the Offer
(other than to the Information Agent). Brokers, dealers, commercial banks and
trust companies will, upon request, be reimbursed by the Purchaser for customary
mailing and handling expenses incurred by them in forwarding materials to their
customers.
The following is an estimate of fees and expenses to be incurred by the
Purchaser in connection with the Offer:
Financial Advisor ................... $400,000
Legal ............................... $100,000
Printing ............................ $ 20,000
Filing .............................. $ 745
Depositary/Paying Agent ............. $ 2,000
Information Agent (including mailing) $ 7,500
Miscellaneous ....................... $ 19,755
--------
$550,000
========
ELI will not pay any of the fees and expenses to be incurred by the
Purchaser in connection with the Offer.
MISCELLANEOUS
The Offer is being made solely by this 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) 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. The
Purchaser may, however, in its sole discretion, take such action as it may deem
necessary to make the Offer in any such jurisdiction and extend the Offer to
holders of Shares in such jurisdictions. Neither the Purchase nor Citizens is
aware of any jurisdiction in which the making of the Offer or the acceptance of
Shares in connection therewith would not be in compliance with the laws of such
jurisdiction.
Citizens and the Purchaser have filed with the Commission a Schedule TO
together with exhibits, pursuant to Rule 14d-3 and Rule 13e-3 promulgated by the
Commission under the Exchange Act, furnishing certain additional information
with respect to the Offer. Such statement and any amendments thereto, including
exhibits, may be examined and copies may be obtained at the same places and in
the same manner as set forth with respect to information about ELI in "Certain
Information Concerning ELI" (except that such statement and amendments may not
be available in the regional offices of the Commission).
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER
OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED ON AS HAVING BEEN AUTHORIZED.
May 20, 2002
39
SCHEDULE I
MEMBERS OF THE BOARDS OF DIRECTORS AND
EXECUTIVE OFFICERS OF THE PURCHASER AND CITIZENS
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
The name, business address, position with the Purchaser, present principal
occupation or employment and five-year employment history of each of the
directors and executive officers of the Purchaser, together with the names,
principal businesses and addresses of any corporations or other organizations in
which such principal occupations are conducted, are set forth below. Unless
otherwise indicated, each occupation set forth refers to the Purchaser, each
individual is a United States citizen and each individual's business address is
3 High Ridge Park, Stamford, Connecticut 06905. Unless otherwise indicated, to
the knowledge of the Purchaser and Citizens, no director or executive officer of
the Purchaser beneficially owns any Shares (or rights to acquire Shares). Unless
otherwise indicated, to the knowledge of the Purchaser and Citizens, no director
or executive officer of the Purchaser has been convicted in a criminal
proceeding during the last five years (excluding traffic violations or similar
misdemeanors) and no director or executive officer of the Purchaser was a party
to any judicial or administrative proceeding during the last five years (except
for any matters that were dismissed without sanction or settlement) that
resulted in a judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or state securities
laws, or a finding of any violation of federal or state securities laws.
SCOTT N. SCHNEIDER has been the President and a director of the Purchaser
since its organization. Mr. Schneider is also an officer and director of
Citizens.
JERRY ELLIOTT has been the Vice President and Treasurer and a director of
the Purchaser since its organization. Mr. Elliott is also an officer of
Citizens.
DONALD ARMOUR has been the Vice President and Secretary of the Purchaser
since its organization. Mr. Armour is also an officer of Citizens.
DIRECTORS AND EXECUTIVE OFFICERS OF CITIZENS
The name, business address, position with Citizens, present principal
occupation or employment and five-year employment history of each of the
directors and executive officers of Citizens, together with the names, principal
businesses and addresses of any corporations or other organizations in which
such principal occupations are conducted, are set forth below. Unless otherwise
indicated, each occupation set forth refers to Citizens, each individual is a
United States citizen and each individual's business address is 3 High Ridge
Park, Stamford, Connecticut 06905. Unless otherwise indicated, to the knowledge
of the Purchaser and Citizens, no director or executive officer of Citizens
beneficially owns any Shares (or rights to acquire Shares). Unless otherwise
indicated, to the knowledge of the Purchaser and Citizens, no director or
executive officer of Citizens has been convicted in a criminal proceeding during
the last five years (excluding traffic violations or similar misdemeanors) and
no director or executive officer of Citizens was a party to any judicial or
administrative proceeding during the last five years (except for any matters
that were dismissed without sanction or settlement) that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
LEONARD TOW has been associated with Citizens since April 1989 as Director.
In June 1990, he was elected Chairman of the Board and Chief Executive Officer.
He was also Chief Financial Officer from October 1991 through November 1997. He
is Director of Hungarian Telephone and Cable Corp., Chairman of the Board of
Electric Lightwave, Inc. and is a Director of the United States Telephone
Association.
40
RUDY J. GRAF has been associated with Citizens since September 1999. In
February 2001, he was elected Vice Chairman of the Board. In July 2000, he was
elected Director of Citizens. He is currently Vice Chairman of the Board,
President and Chief Operating Officer of Citizens. He is also a Director of
Electric Lightwave, Inc. Prior to joining Citizens, he was Director, President
and Chief Operating Officer of Centennial Cellular Corp. and Chief Executive
Officer of Centennial DE Puerto Rico from November 1990 to August 1999.
SCOTT N. SCHNEIDER has been associated with Citizens since October 1999. In
February 2001, he was elected Vice Chairman of the Board. In July 2000, he was
elected Director of Citizens. He is currently Vice Chairman of the Board,
Executive Vice President of Citizens and Chairman of Citizens Capital Ventures,
a wholly owned subsidiary of Citizens. He is currently Director and Executive
Vice President of Electric Lightwave, Inc. Prior to joining Citizens, he was
Director (from October 1994 to October 1999), Chief Financial Officer (from
December 1996 to October 1999), Senior Vice President and Treasurer (from June
1991 to October 1999) of Century Communications Corp. He also served as
Director, Chief Financial Officer, Senior Vice President and Treasurer of
Centennial Cellular from August 1991 to October 1999.
DONALD ARMOUR has been associated with Citizens since October 2000. He is
currently Vice President, Finance and Treasurer. He also currently serves as
Vice President and Treasurer of Electric Lightwave, Inc. Prior to joining
Citizens, he was the Treasurer of the cable television division of Time Warner
Inc. from January 1994 to September 2000.
ROBERT BRADEN has been associated with Citizens since November 1999 and has
been Vice President, Business Development since February 2000. In January 2001,
he also became President, Chief Operating Officer and Director of Electric
Lightwave, Inc. and in December 2001, he became Chief Executive Officer and
Director of Electric Lightwave, Inc. In January 2002, he became Executive Vice
President, ILEC Sector. Prior to joining Citizens, he was Vice President,
Business Development at Century Communications Corp. from January 1999 to
October 1999. He was Senior Vice President, Business Development at Centennial
Cellular Corp. from June 1996 to January 1999 and held other officer positions
with Centennial since November 1993.
JOHN H. CASEY, III has been associated with Citizens since November 1999.
He is currently Vice President of Citizens and President and Chief Operating
Officer of Citizens' ILEC Sector. He is also a director of Electric Lightwave,
Inc. Prior to joining Citizens, he was Vice President, Operations from January
1995 to January 1997 and then Senior Vice President, Administration of
Centennial Cellular until November 1999.
KENNETH L. COHEN has been associated with Citizens since 1996 and was
elected President and Chief Operating Officer, Public Services Sector in January
2002. He was Vice President and Controller of our Public Services Sector from
1996 to January 2002. Prior to joining Citizens, he was a senior manager at
KPMG, LLP from March 1986 to August 1996.
JEAN M. DISTURCO has been associated with Citizens since 1987 and was
elected Vice President, Human Resources in October 2001. She was Vice President,
Compensation and Benefits since March 2001 and Director of Compensation from
1996 to March 2001.
JERRY ELLIOTT has been associated with Citizens since March 2002. He is
currently Vice President and Chief Financial Officer. He is also Vice President
and Chief Financial Officer of Electric Lightwave, Inc. Prior to joining
Citizens, he was Managing Director of Morgan Stanley's Communications Investment
Banking Group from July 1998. Prior to joining Morgan Stanley, he was a partner
with the law firm of Shearman & Sterling.
MICHAEL G. HARRIS has been associated with Citizens since December 1999. He
is currently Vice President, Engineering and New Technology. Prior to joining
Citizens, he was Senior Vice President, Engineering of Centennial Cellular from
August 1991 to December 1999. He was also Senior Vice President, Engineering of
Century Communications Corp. from June 1991 to October 1999.
41
EDWARD O. KIPPERMAN has been associated with Citizens since February 1985.
He is currently Vice President, Tax. He was Assistant Treasurer from June 1989
to September 1991.
ROBERT J. IARSON has been associated with Citizens since July 2000. He is
currently Vice President and Chief Accounting Officer of Citizens and of
Electric Lightwave, Inc. Prior to joining Citizens, he was Vice President and
Controller of Century Communications Corp. from October 1994 to October 1999. He
was also Vice President, Accounting and Administration of Centennial Cellular
from March 1995 to October 1999.
DANIEL MCCARTHY has been associated with Citizens since 1990 and was
elected President and Chief Operating Officer, Electric Lightwave Sector in
January 2002. Previously, he was President and Chief Operating Officer, Public
Services Sector from March 2001 to January 2002, Vice President, Citizens
Arizona Energy from April 1998 to March 2001 and Vice President, Citizens
Arizona Gas from February 1997 to April 1998.
L. RUSSELL MITTEN has been associated with Citizens since June 1990. He is
currently Vice President, General Counsel and Secretary. He was Vice President,
General Counsel and Assistant Secretary from June 1991 to September 2000. He was
General Counsel until June 1991.
LIVINGSTON E. ROSS has been associated with Citizens since August 1977. He
is currently Vice President, Reporting and Audit. He was Vice President and
Chief Accounting Officer from December 1999 to July 2000 and Vice President and
Controller from December 1991 to December 1999.
STEVEN D. WARD has been associated with Citizens since January 2000 and was
elected Vice President, Information Technology in February 2000. Prior to
joining Citizens, he was Vice President, Information Systems for Century
Communications Corp. from June 1996 to December 1999 and Director, Information
Services from March 1991 to June 1996.
MICHAEL ZARRELLA has been associated with Citizens since December 1999. He
was elected Vice President, Strategic Planning and Development in October 2000.
Prior to joining Citizens, he was Group Vice President of Finance for Century
Communications Corp. from June 1996 to December 1999 and Director, Financial
Analysis from October 1990 to June 1996.
NORMAN I. BOTWINIK has served as a Director of Citizens since 1968. Mr.
Botwinik is a Director Emeritus, Board of Governors, University of New Haven. He
also served as President of Botwinik Brothers, Inc., from 1957 to1983 and as a
Director of Executive Re, Inc. from 1990 to 1993.
AARON I. FLEISCHMAN has served as a Director of Citizens since 1989. Mr.
Fleischman is a Senior Partner of Fleischman and Walsh, L.L.P. He also serves as
a Director of Southern Union Company.
STANLEY HARFENIST has served as a Director of Citizens since 1992. Mr.
Harfenist was the President and Chief Executive Officer of Adesso, Inc. from
1993 through 1999. He also served as President, Chief Operating Officer and
Director of Players International, Inc. from 1985 to 1993; as an Officer of Sega
Enterprises from 1982 to 1984; and as an Officer of Knickerbocker Toy Company,
Inc., from 1978 to 1982. He also serves as a Director of Electric Lightwave,
Inc.
ANDREW N. HEINE has served as a Director of Citizens since 1975. Mr. Heine
is a private investor. He has served as of Counsel to Gordon Altman Butowsky
Weitzen Shalov & Wein from September 1995 to December 1999. Mr. Heine has been a
practicing attorney and an investor from 1989 to the present. He served as Of
Counsel to Curtis Mallet-Prevost, Colt & Mosle from October 1987 to 1989. He is
also a Director of the FPA Group.
JOHN L. SCHROEDER has served as a Director of Citizens since 1994. Mr.
Schroeder has served as a Director of Morgan Stanley Dean Witter Funds from 1994
to the present. He served as the Executive Vice President and Chief Investment
Officer of The Home Insurance Company from 1991 to 1995; the Chairman of the
Board and Chief Investment Officer of Axe-Houghton Management, Inc., and
Axe-Houghton Funds from 1983 to 1990 and as a Chartered Financial Analyst.
42
ROBERT A. STANGER has served as a Director of Citizens since 1992. Mr.
Stanger has served as Chairman of the Robert A. Stanger & Company from 1978 to
the present. He has served as the Publisher of The Stanger Report and as a
Director of Callon Petroleum Company, Inc. He is also a Director of Electric
Lightwave, Inc.
EDWIN TORNBERG has served as a Director of Citizens since 1992. Mr.
Tornberg has served as the President and Director of Edwin Tornberg & Company
from 1957 to the present. He has served as the President and Director of Radio
780, Inc. from 1977 to the present. He has also served as the Vice President and
Director of Radio One Five Hundred, Inc. from 1959 to the present; the Chairman
and Director of New World Radio Inc. from 1992 to the present; the Chairman,
Treasurer and Director of Global Radio, LLC. from 1997 to the present; and the
Chairman and Director of Nations Radio LLC since 1999.
CLAIRE L. TOW has served as a Director of Citizens since 1993. Ms. Tow has
served as the President of The Tow Foundation. She has served as the Senior Vice
President since 1992 and Vice President and Director since 1988 of Century
Communications Corp.
The following table reflects shares of common stock of ELI beneficially
owned (or deemed to be beneficially owned pursuant to the rules of the
Securities and Exchange Commission) as of February 28, 2002, by Citizens'
wholly-owned subsidiary, and by members of the board of directors and the
executive officers of Citizens. Except as otherwise described below, each of the
persons named in the table has sole voting and investment power with respect to
the securities beneficially owned.
Class of Percentage of
common stock common
Name owned(1) Acquirable stock owned(3)
- ---- -------------------------- within ---------------------
Class A Class B 60 Days(2) Class A Class B
---------- ---------- ----------- ------- ---------
Donald Armour ...................... 3,000 0 -- * *
Robert Braden(4).................... 44,091(5) 0 0 * *
Rudy Graf(4)........................ 27,571,332 15,881,312 0 78 100
Stanley Harfenist(4)................ 27,717,279(6) 15,881,312 140,000 78 100
Scott N. Schneider(4)............... 27,571,332 15,881,312 0 78 100
Robert A. Stanger(4)................ 27,621,332 15,881,312 50,000 78 100
Leonard Tow(4)...................... 27,798,235(7) 15,881,312 100,000 78 100
CU Capital Corp..................... 27,571,332(8) 15,881,312 -- 78 100
- ----------
* Represents less than 1% of ELI's common stock.
(1) Pursuant to the rules of the Securities and Exchange Commission, includes
shares acquirable as further described in footnote (2). Shares owned as of
February 28, 2002 may be determined by subtracting the number under
"Acquirable Within 60 Days" from that under "Class of Common Stock
Owned--Class A."
(2) Reflects the number of Class A shares that could be purchased by exercise
of options as of February 28, 2002, or within 60 days thereafter, under
ELI's Equity Incentive Plan (the "EIP"). Under the EIP, awards of Class A
common stock may be granted to eligible directors, officers, management
employees, non-management employees and consultants in the form of
incentive stock options, non-qualified stock options, stock appreciation
rights, restricted stock or other stock-based awards. The Compensation
Committee of the board of directors of ELI administers the EIP. Under the
terms of the EIP, the exercise price for awards shall not be less than 85%
or more than 110% of the average of the high and low stock prices on the
date of grant and the exercise period is generally 10 years from the date
of grant.
(3) Based on the number of shares outstanding at, or acquirable within, 60 days
of February 28, 2002.
(4) Mr. Braden, Mr. Graf, Mr. Schneider, and Dr. Tow are executive officers of
Citizens. In addition, Mr. Graf, Mr. Harfenist, Mr. Schneider, Mr. Stanger,
and Dr. Tow are members of the board of directors of Citizens. For Messrs.
Graf, Harfenist, Stanger, and Dr. Tow shares owned consist of, or include,
27,571,332 shares of Class A common stock and 15,881,312 shares of Class B
common stock that are held, indirectly, by Citizens. Such shares of ELI's
common stock are included in the above table for Messrs. Graf, Harfenist,
Schneider, Stanger, and Dr. Tow as required by the definition of beneficial
ownership of the Securities and Exchange Commission. Except to the extent
of such indirect interest, each of the above-named individuals disclaims
beneficial ownership of such Class A and Class B shares.
(5) Includes 33,334 restricted shares over which Mr. Braden has sole voting
power but no dispositive power.
(6) Includes 5,947 shares held by the Harfenist Family Trust of which Stanley
Harfenist and Jean Lippka Harfenist are trustees.
(7) Includes 8,333 restricted shares over which Dr. Tow has sole voting power
but no dispositive power.
(8) CU Capital Corp may be deemed to the beneficial owner of an additional
15,881,312 shares of Class A common stock through the right to convert
shares of Class B common stock into shares of Class A common stock. On an
as-converted basis, Citizens and CU Capital Corp. would be deemed to be the
beneficial owners of, and to have shared voting power with respect to
43,452,644 shares of Class A common stock, if all the shares of Class B
common stock were converted into shares of Class A common stock. Citizens
and CU Capital Corp. disclaim beneficial ownership of such 15,881,312
shares of Class A common stock.
43
SCHEDULE II
INFORMATION CONCERNING TRANSACTIONS
IN THE CLASS A COMMON STOCK OF ELI
The following table sets forth information with respect to purchases of
ELI's Class A common stock by the Purchaser and Citizens since January 1, 2000
(the commencement of ELI's second full fiscal year preceding the date of this
Offer to Purchase).
Number of Shares Price paid per
Date Purchaser purchased share
- ---- --------- ---------------- ----------------
May 2000 ............................. Citizens 593,144 $18.58 - $23.479
June 2000 ............................. Citizens 377,500 $17.75 - $19.965
July 2000 ............................. Citizens 250,000 $17.00 - $ 19.75
August 2000 ............................. Citizens 67,000 $14.75 - $ 16.25
This Schedule does not include 25,283,688 shares of ELI's Class A common
stock acquired by Citizens in August 2001 through the conversion of the same
number of shares of Class B common stock into shares of Class A common stock.
See "Special Factors--Background to the Offer and the Merger--Acquisition of
ELI."
44
SCHEDULE III
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262. APPRAISAL RIGHTS:
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds
such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who
has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to Section 228 of this title
shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this
section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or
fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Section 251 (other than a
merger effected pursuant to Section 251 (g) of this title), Section
252, Section 254, Section 257, Section 258, Section 263 or Section 264
of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at
the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to
act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger
if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of
any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of
merger or consolidation pursuant to Sections 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository
receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security
on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by
more than 2,000 holders;
45
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b.
of this paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this
title is not owned by the parent corporation immediately prior to
the merger, appraisal rights shall be available for the shares of
the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares
of any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20
days prior to the meeting, shall notify each of its stockholders
who was such on the record date for such meeting with respect to
shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written
demand for appraisal of such stockholder's shares. Such demand
will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholder's shares. A
proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such
action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger
or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation,
either before the effective date of the merger or consolidation
or within ten days thereafter, shall notify each of the holders
of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy
of this section; provided that, if the notice is given on or
after the effective date of the merger or consolidation, such
notice shall be given by the surviving or resulting corporation
to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights.
Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also
46
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand
the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall
send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within
10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who
has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective
date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof and
who is otherwise entitled to appraisal rights, may file a petition in
the Court of Chancery demanding a determination of the value of the
stock of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and (d) hereof, upon written
request, shall be entitled to receive from the corporation surviving
the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger
or consolidation and with respect to which demands for appraisal have
been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days
after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the
office of the Register in Chancery in which the petition was filed a
duly verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be
filed, by the surviving or resulting corporation, the petition shall
be accompanied by such a duly verified list. The Register in Chancery,
if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail
to the surviving or resulting
47
corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders
who have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to
the Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with
such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of
the merger or consolidation, together with a fair rate of interest, if
any, to be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account all
relevant factors. In determining the fair rate of interest, the Court
may consider all relevant factors, including the rate of interest
which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application
by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court may, in
its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose
name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in
Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be
simple or compound, as the Court may direct. Payment shall be so made
to each such stockholder, in the case of holders of uncertificated
stock forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the certificates
representing such stock. The Court's decree may be enforced as other
decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or
of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a
portion of the expenses incurred by any stockholder in connection with
the appraisal proceeding, including, without limitation, reasonable
attorney's fees and the fees and expenses of experts, to be charged
pro rata against the value of all the shares entitled to an appraisal.
48
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock
for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions
payable to stockholders of record at a date which is prior to the
effective date of the merger or consolidation); provided, however,
that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written
withdrawal of such stockholder's demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after
the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval
of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in
the Court of Chancery shall be dismissed as to any stockholder without
the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(1) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting
corporation. (Last amended by Ch. 339, L. '98, eff. 7-1-98.)
49
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal and certificates evidencing Shares and any
other required documents should be sent or delivered by each stockholder or his
broker, dealer, commercial bank, trust company or other nominee to the
Depositary at one of its addresses set forth below:
THE DEPOSITARY FOR THE OFFER IS:
ILLINOIS STOCK TRANSFER COMPANY
BY FIRST CLASS MAIL:
ILLINOIS STOCK TRANSFER COMPANY
209 WEST JACKSON BLVD.
SUITE 903
CHICAGO, IL 60606
BY OVERNIGHT DELIVERY:
ILLINOIS STOCK TRANSFER COMPANY
209 WEST JACKSON BLVD.
SUITE 903
CHICAGO, IL 60606
BY HAND DELIVERY:
ILLINOIS STOCK TRANSFER COMPANY
209 WEST JACKSON BLVD.
SUITE 903
CHICAGO, IL 60606
TELEPHONE ASSISTANCE:
TOLL FREE: (800) 757-5755
BANKS AND BROKERS MAY CALL: (312) 427-2953
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal or other tender offer materials may
be directed to the Information Agent at their respective addresses and telephone
numbers set forth below. Stockholders may also contact their broker, dealer,
bank or trust company for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. King & Co., Inc.
Toll Free: (888) 414-5566
Banks and Brokers may call collect: (212) 269-5550