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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant ☒
Filed by a party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material under §240.14a-12
OTELCO INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
 
 
 
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 
 
 
(1)
Title of each class of securities to which transaction applies:
 
 
 
 
(2)
Aggregate number of securities to which transaction applies:
 
 
 
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (setting forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
(4)
Proposed maximum aggregate value of transaction:
 
 
 
 
(5)
Total fee paid:
 
 
 
 
 
 
Fee paid previously with preliminary materials.
 
 
 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
 
 
(1)
Amount Previously Paid:
 
 
 
 
(2)
Form, Schedule or Registration Statement No.:
 
 
 
 
(3)
Filing Party:
 
 
 
 
 
 
 
(4)
Date Filed:
 
 
 

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OTELCO INC.
505 Third Avenue East
Oneonta, Alabama 35121
September 9, 2020
Dear Stockholders:
It is my pleasure to invite you to attend a virtual special meeting (including any adjournments or postponements thereof, the “Special Meeting”) of stockholders of Otelco Inc. (“Otelco” or the “Company”) to be held online via live webcast on October 9, 2020 at 10 a.m. Eastern Time. There will not be a physical meeting location. The Special Meeting can be accessed by visiting www.virtualshareholdermeeting.com/OTEL2020, where you will be able to participate in the meeting live and have the opportunity to vote online. Please note that you will not be able to attend the Special Meeting in person. We have chosen to hold a virtual, rather than an in-person, meeting in light of public health concerns associated with the ongoing coronavirus (COVID-19) situation.
At the Special Meeting, you will be asked to consider and vote on (i) a proposal to adopt the Agreement and Plan of Merger, dated as of July 26, 2020 (the “Merger Agreement”), by and among Otelco, Future Fiber FinCo, Inc., a Delaware corporation (“Parent”) and Olympus Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), (ii) a proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the Merger Agreement and the transactions contemplated by the Merger Agreement (the “Compensation Proposal”) and (iii) a proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting (the “Adjournment Proposal”).
Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into Otelco, with Otelco continuing as the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”). If the Merger is completed, you will be entitled to receive style="height: 71px; width: 241px;" 1.75 in cash, without interest thereon and net of any applicable withholding of taxes, for each share of Otelco Class A common stock (“common stock”) that you own (unless you have not voted in favor of the adoption of the Merger Agreement or consented thereto in writing and have properly and validly exercised your statutory rights of appraisal in respect of such shares of common stock under Delaware law), which represents a 43.3% premium to the unaffected share price of the common stock on June 23, 2020, a 53.2% premium to the 20-day volume weighted average price as of the same date, and a 58.1% premium to Otelco’s average daily closing stock price during the second quarter of 2020.
The Board of Directors of Otelco, after considering the factors more fully described in the enclosed proxy statement, has unanimously: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and the stockholders; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby; (iii) recommended that the stockholders adopt the Merger Agreement; and (iv) directed that the Merger Agreement be submitted to the stockholders of the Company for their adoption. The Board of Directors of Otelco recommends that you vote “FOR” the adoption of the Merger Agreement, “FOR” the Compensation Proposal and “FOR” the Adjournment Proposal.
The enclosed proxy statement provides detailed information about the Special Meeting, the Merger Agreement and the Merger. A copy of the Merger Agreement is attached as Annex A to the proxy statement.
The proxy statement also describes the actions and determinations of the Board of Directors in connection with its evaluation of the Merger Agreement and the Merger. You should carefully read and consider the entire enclosed proxy statement and its annexes, including the Merger Agreement, as they contain important information about, among other things, the Merger and how it affects you.
Whether or not you plan to attend the Special Meeting, please sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card). If you vote via the Special Meeting website, your vote will revoke any proxy that you have previously submitted. The failure to vote will have the same effect as a vote against approval of the proposal to adopt the Merger Agreement.
If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting form that you will receive from your bank, broker or other nominee.

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Your bank, broker or other nominee cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions. If you hold your shares through a bank, broker or other nominee and want to vote at the Special Meeting, you must obtain a “legal proxy.” The failure to instruct your bank, broker or other nominee to vote your shares for approval of the proposal to adopt the Merger Agreement will have the same effect as a vote against approval of the proposal to adopt the Merger Agreement.
Your vote is very important, regardless of the number of shares that you own. We cannot complete the Merger unless the proposal to adopt the Merger Agreement is approved by the affirmative vote of the holders of at least a majority of the outstanding shares of common stock.
If you have any questions or need assistance voting your shares, please contact our proxy solicitor:
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, NY 10005
Call Toll-free: (800) 714-3312
Banks and Brokers Call: (212) 269-5550
OTEL@dfking.com
On behalf of the Board, I thank you for your support and appreciate your consideration of this matter.
 
Sincerely,
 
 
 

 
Stephen P. McCall
Chairman of the Board
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The accompanying proxy statement is dated September 9, 2020 and, together with the enclosed form of proxy card, is first being mailed to the stockholders of the Company on or about September 9, 2020.

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OTELCO INC.
505 Third Avenue East
Oneonta, Alabama 35121
September 9, 2020
NOTICE OF VIRTUAL SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 9, 2020
To the holders of Otelco Inc. shares:
Otelco Inc., a Delaware corporation (“Otelco” or the “Company”), will hold a virtual special meeting (the “Special Meeting”) of stockholders online via live webcast on October 9, 2020, at 10 a.m. Eastern Time. There will not be a physical meeting location. The Special Meeting can be accessed by visiting www.virtualshareholdermeeting.com/OTEL2020, where you will be able to participate in the meeting live and have the opportunity to vote online. The Company encourages you to allow ample time for online check-in, which will open at 9:45 a.m. Eastern Time. Please note that you will not be able to attend the Special Meeting in person. The Company is holding the Special Meeting for the purposes indicated below:
1.
To consider and vote on the proposal to adopt the Agreement and Plan of Merger, dated as of July 26, 2020 (the “Merger Agreement”), by and among Otelco, Future Fiber FinCo, Inc., a Delaware corporation (“Parent”) and Olympus Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into Otelco, with Otelco continuing as the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”);
2.
To consider and vote on the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the Merger Agreement and the transactions contemplated by the Merger Agreement (the “Compensation Proposal”); and
3.
To consider and vote on any proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the Special Meeting (the “Adjournment Proposal”).
Only stockholders of record as of the close of business on September 8, 2020, are entitled to notice of the Special Meeting and to vote at the Special Meeting or any adjournment, postponement or other delay thereof.
The Board of Directors of Otelco, after considering the factors more fully described in the enclosed proxy statement, has unanimously: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and the stockholders; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby; (iii) recommended that the stockholders adopt the Merger Agreement; and (iv) directed that the Merger Agreement be submitted to the stockholders of the Company for their adoption.
Accordingly the Board of the Company (the “Board”) unanimously recommends that you vote: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR” the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.

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Whether or not you plan to attend the Special Meeting, please vote right away by using one of the following advance voting methods (see “Voting of Proxies” beginning on page 19 for additional details). Make sure to have the proxy card/voting instruction form in hand, and follow the instructions. You can vote in advance in one of three ways:
VIA THE INTERNET
BY TELEPHONE
BY MAIL



Visit the website
listed on the proxy
card/voting
instruction form to vote
Call the telephone
number on the proxy
card/voting
instruction form to vote
Complete, sign, and
date, and then return
the proxy card/
voting instruction
form in the enclosed
envelope to vote
 
By Order of the Board,
 
 
 

 
Stephen P. McCall
Chairman of the Board
Dated: September 9, 2020

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YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, WE ENCOURAGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE: (1) BY TELEPHONE; (2) THROUGH THE INTERNET; OR (3) BY SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. You may revoke your proxy or change your vote at any time before it is voted at the Special Meeting.
If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting form that you will receive from your bank, broker or other nominee. Your broker or other agent cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions.
If you are a stockholder of record, voting at the Special Meeting via the Special Meeting website will revoke any proxy that you previously submitted. If you hold your shares through a bank, broker or other nominee, you must obtain a “legal proxy” in order to vote via the Special Meeting website at the Special Meeting.
If you fail to (1) return your proxy card, (2) grant your proxy electronically over the internet or by telephone or (3) vote via the Special Meeting website at the Special Meeting, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and, if a quorum is present, will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement, but will have no effect on the Compensation Proposal or the Adjournment Proposal.
You should carefully read and consider the entire accompanying proxy statement and its annexes, including the Merger Agreement, along with all of the documents incorporated by reference into the accompanying proxy statement, as they contain important information about, among other things, the Merger and how it affects you. If you have any questions concerning the Merger Agreement, the Merger, the Special Meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of the Company’s common stock, please contact our proxy solicitor:
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, NY 10005
Call Toll-free: (800) 714-3312
Banks and Brokers Call: (212) 269-5550
OTEL@dfking.com

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SUMMARY
This summary highlights selected information from this proxy statement related to the merger of Olympus Merger Sub, Inc. with and into Otelco Inc. (the “Merger”), and may not contain all of the information that is important to you. To understand the Merger more fully and for a more complete description of the legal terms of the Merger, you should carefully read and consider this entire proxy statement and the annexes to this proxy statement, including the Merger Agreement (as defined below), along with all of the documents to which we refer in this proxy statement, as they contain important information about, among other things, the Merger and how it affects you. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the caption, “Where You Can Find More Information.” The Merger Agreement is attached as Annex A to this proxy statement. You should carefully read and consider the entire Merger Agreement, which is the legal document that governs the Merger.
Except as otherwise specifically noted in this proxy statement, “Otelco,” “the Company,” “we,” “our,” “us” and similar words refer to Otelco Inc., including, in certain cases, our subsidiaries. Throughout this proxy statement, we refer to Future Fiber FinCo, Inc. as “Parent” and Olympus Merger Sub, Inc. as “Merger Sub.” In addition, throughout this proxy statement we refer to the Agreement and Plan of Merger, dated as of July 26, 2020, by and among the Company, Parent and Merger Sub, as the “Merger Agreement,” our Class A common stock, par value $0.01 per share as “common stock” and the holders of our common stock as “stockholders.” Unless indicated otherwise, any other capitalized term used herein but not otherwise defined herein has the meaning assigned to such term in the Merger Agreement.
Parties Involved in the Merger (Page 23)
Otelco Inc.
Otelco Inc. provides traditional telephone services to territories in north central Alabama, Maine, western Massachusetts, central Missouri, western Vermont and southern West Virginia. In addition to traditional telephone services, Otelco also provides a variety of unregulated telecommunications services in its territories, including internet data lines and long distance services. Otelco also operates three facilities-based competitive local exchange carriers, which offer services to business and enterprise customers in Maine. The Company’s common stock is listed on the Nasdaq Stock Market LLC (the “Nasdaq”) under the symbol: “OTEL”.
Future Fiber FinCo, Inc.
Parent, a Delaware corporation, was formed on July 21, 2020 solely for the purpose of engaging in the transactions contemplated by the Merger Agreement and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement and arranging of the Equity Financing and any Debt Financing in connection with the Merger. Parent is an affiliate of Oak Hill Capital Partners V (Onshore), L.P. (together with its parallel funds, “Oak Hill Fund V”), which are managed by Oak Hill Capital Management, LLC (“Oak Hill”). Oak Hill is a private equity firm with offices in New York, NY, Menlo Park, CA and Stamford, CT managing funds with approximately $15 billion of initial capital commitments and co-investments since inception. Upon completion of the Merger, Otelco will be a direct wholly-owned subsidiary of Parent.
Olympus Merger Sub, Inc.
Merger Sub, a Delaware corporation and a wholly-owned subsidiary of Parent, was formed on July 21, 2020 solely for the purpose of engaging in the transactions contemplated by the Merger Agreement and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement and arranging of the Equity Financing and any Debt Financing in connection with the Merger. Upon completion of the Merger, Merger Sub will merge with and into Otelco, and Merger Sub will cease to exist.
The Merger (Page 23)
Upon the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), Merger Sub will merge with and into Otelco, with Otelco continuing as the surviving corporation and as a wholly owned subsidiary of Parent (the “Surviving Corporation”). As a result of the Merger, our common stock will no longer be publicly traded and will be delisted from the Nasdaq. In addition, our common stock will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Otelco
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will no longer file periodic or current reports with the U.S. Securities and Exchange Commission (the “SEC”). If the Merger is completed, you will not own any shares of the capital stock of the Surviving Corporation. The Merger will become effective upon the filing of a certificate of merger with, and its acceptance by, the Secretary of State of the State of Delaware (or at such later time as we, Parent and Merger Sub may agree and specify in the certificate of merger).
Merger Consideration (Page 24)
Common Stock
At the Effective Time, and without any action required by the Company, Parent, Merger Sub or any stockholder, each share of common stock (other than shares of common stock (A) held directly by the Company, Parent or Merger Sub, (B) owned by any direct or indirect wholly owned subsidiary of the Company or Parent (other than Merger Sub) (together (A) and (B), the “Owned Company Shares”) or (C) owned by stockholders who have not voted in favor of the adoption of the Merger Agreement or consented thereto in writing and who have properly and validly exercised their statutory rights of appraisal in respect of such shares of common stock under Delaware law (the “Dissenting Common Shares”)) that is issued and outstanding as of immediately prior to the Effective Time will automatically be cancelled, extinguished and converted into the right to receive the merger consideration of $11.75 per share (the “Merger Consideration”), without interest thereon and less any applicable withholding taxes.
Treatment of Stock Options and Other Equity-Based Awards
In connection with the consummation of the Merger, Otelco’s equity awards will be treated as follows:
Vested and Unvested Options
At the Effective Time, each option to acquire shares of common stock (an “Option”) that is outstanding as of immediately prior to the Effective Time, whether vested or unvested, will, by virtue of the Merger and without any action required by the Company, Parent, Merger Sub or any holder thereof, be cancelled and converted into the right to receive an amount in cash, without interest and less any required tax withholding, equal to the product of: (i) the Merger Consideration minus the exercise price per share of such Option and (ii) the total number of shares of common stock issuable upon exercise in full of such Option (the “Option Consideration”). Any Options outstanding at the Effective Time with an exercise price equal to or greater than the Merger Consideration will be cancelled as of the Effective Time for no consideration.
Restricted Stock Units
At the Effective Time, each restricted stock unit (“RSU”) in respect of common stock that is outstanding as of immediately prior to the Effective Time, whether vested or unvested, will, without any action required by the Company, Parent, Merger Sub or any holder thereof, be cancelled and converted into the right to receive an amount in cash, without interest and less any required tax withholding, equal to the product of: (i) the Merger Consideration and (ii) the total number of shares of common stock subject to such RSU (the “RSU Consideration”).
Treatment of Dissenting Common Shares
Dissenting Common Shares will not be converted into, or represent the right to receive, the Merger Consideration. Stockholders of the Company who shall have neither voted in favor of the Merger nor consented thereto in writing who are entitled to exercise and who shall have properly and validly exercised their statutory rights of appraisal in respect of shares of common stock held by such stockholders in accordance, and in compliance with, with Section 262 (“Section 262”) of the General Corporation Law of the State of Delaware (the “DGCL”) will be entitled to receive payment of the appraised value of such Dissenting Common Shares in accordance with the provisions of Section 262 of the DGCL and such Dissenting Company Shares will, without any further action, cease to be outstanding, be cancelled and cease to exist (except that all Dissenting Common Shares held by stockholders of the Company who shall have failed to perfect or who shall have effectively withdrawn or lost their rights to appraisal of such Dissenting Common Shares pursuant to Section 262 of the DGCL will be deemed to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without interest thereon, upon surrender of the certificates or uncertificated shares that formerly evidenced such shares of common stock as more fully described under the section of this proxy statement captioned “The Merger—Appraisal Rights”).
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The Virtual Special Meeting (Page 18)
Date, Time and Place
A special meeting of stockholders to consider and vote on the proposal to adopt the Merger Agreement will be held on October 9, 2020, at 10 a.m. Eastern Time (including any adjournments or postponements thereof, the “Special Meeting”).
The Special Meeting will be held online via live webcast. The Special Meeting can be accessed by visiting www.virtualshareholdermeeting.com/OTEL2020, where you will be able to participate in the meeting live and have the opportunity to vote online. We encourage you to allow ample time for online check-in, which will open at 9:45 a.m. Eastern Time. Please note that because there will not be a physical meeting location, you will not be able to attend the Special Meeting in person.
Record Date; Shares Entitled to Vote
You are entitled to vote at the Special Meeting if you owned shares of common stock at the close of business on September 8, 2020 (the “Record Date”). Each stockholder shall be entitled to one vote for each share of common stock owned at the close of business on the Record Date.
Quorum
As of the Record Date, there were 3,421,794 shares of common stock outstanding and entitled to vote at the Special Meeting. The holders of a majority of the shares of common stock issued and outstanding and entitled to vote, represented by proxy, will constitute a quorum at the Special Meeting. Attendance at the virtual meeting does not count for purposes of determining a quorum.
Litigation Related to the Merger (Page 49)
On September 1, 2020, a purported stockholder of Otelco filed a putative stockholder class action lawsuit, captioned Patrick Plumley v. Otelco Inc. et. al., No. 1:20-cv-01165-UNA, in the United States District Court for the District of Delaware, on behalf of all public stockholders of Otelco against the Company and the members of the Board. The complaint alleges that Otelco’s preliminary proxy statement filed with the SEC on August 20, 2020 in connection with the Merger omits certain material information in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and further that the members of the Board are liable for those omissions under Section 20(a) of the Exchange Act. The relief sought in the lawsuit includes a preliminary and permanent injunction to prevent the completion of the Merger, rescission or rescissory damages if the Merger is completed, costs and attorneys’ fees. Other similar lawsuits may follow. At this stage, it is not possible to predict the outcome of the proceeding or its impact on Otelco or the Merger. Otelco and the Board believe that the claims are without merit and intend to defend vigorously against them.
Material U.S. Federal Income Tax Consequences of the Merger (Page 49)
The receipt of cash in exchange for shares of common stock in the Merger will be a taxable transaction for U.S. federal income tax purposes. Such receipt of cash by each of our stockholders that is a U.S. Holder (as defined in the section of this proxy statement captioned “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) generally will result in the recognition of gain or loss in an amount measured by the difference, if any, between the amount of cash that such U.S. Holder receives in the Merger and such U.S. Holder’s adjusted tax basis in the shares of common stock surrendered in the Merger by such stockholder. A stockholder that is a Non-U.S. Holder (as defined in the section of this proxy statement captioned “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) generally will not be subject to U.S. federal income tax with respect to the exchange of common stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States. Backup withholding may apply to payments made in exchange for shares of common stock pursuant to the Merger, unless certain certification procedures are complied with or a valid exemption is established. Please read the section of this proxy statement captioned “The Merger—Material U.S. Federal Income Tax Consequences of the Merger.” Stockholders are urged to consult their own tax advisors concerning the U.S. federal income tax consequences relating to the Merger in light of their particular circumstances and any consequences arising under U.S. federal estate, gift and other non-income tax laws or the laws of any state, local or non-U.S. jurisdiction.
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Appraisal Rights (Page 44)
If the Merger is consummated and certain conditions are met, stockholders who continuously hold shares of common stock through the Effective Time who neither vote in favor of the Merger or consent thereto in writing and who are entitled to exercise and who properly and validly demand appraisal of their shares and who do not withdraw their demands or otherwise lose their rights to seek appraisal will be entitled to seek appraisal of their shares in connection with the Merger under Section 262 of the DGCL. This means that stockholders may be entitled to have their shares of common stock appraised by the Delaware Court of Chancery, and to receive payment in cash of the “fair value” of their shares of common stock, exclusive of any elements of value arising from the accomplishment or expectation of the Merger, together with interest to be paid on the amount determined to be fair value, if any, as determined by the court, as described further below. Due to the complexity of the appraisal process, stockholders who wish to seek appraisal of their shares are encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights.
Stockholders considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 could be more than, the same as or less than the value of the consideration that they would receive pursuant to the Merger Agreement if they did not seek appraisal of their shares of common stock.
To exercise appraisal rights, stockholders must: (1) submit a written demand for appraisal to Otelco before the vote is taken on the proposal to adopt the Merger Agreement; (2) not submit a proxy, or otherwise vote, in favor of the proposal to adopt the Merger Agreement; (3) continue to hold shares of common stock of record through the Effective Time; and (4) strictly comply with all other procedures for exercising appraisal rights under the DGCL. Failure to follow exactly the procedures specified under the DGCL may result in the loss of appraisal rights. In addition, the Delaware Court of Chancery will dismiss appraisal proceedings in respect of Otelco unless certain stock ownership conditions are satisfied by the stockholders seeking appraisal. The DGCL requirements for exercising appraisal rights are described in further detail in this proxy statement, which is qualified in its entirety by Section 262, the relevant section of the DGCL regarding appraisal rights. A copy of Section 262 is reproduced in Annex C to this proxy statement. If you hold your shares of common stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal on your behalf by your bank, broker or other nominee. For more information, please see the section of this proxy statement captioned “The Merger—Appraisal Rights.”
Regulatory Approvals Required for the Merger (Page 51)
Completion of the Merger is conditioned on (i) receipt of consents from the United States Federal Communications Commission (the “FCC”) (including the Telecom Committee (as defined in the Merger Agreement)), and (ii) receipt of consents from certain state public service or public utility commissions.
Otelco and Parent have agreed to cooperate with each other and use, and cause their respective affiliates to use, their respective reasonable best efforts to obtain all regulatory approvals required to complete the Merger.
Required Stockholder Approval (Page 18)
The affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote on the Merger Agreement is required to adopt the Merger Agreement (the “Requisite Stockholder Approval”). Approval of the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Otelco’s named executive officers that is based on or otherwise relates to the Merger Agreement and the transactions contemplated by the Merger Agreement (the “Compensation Proposal”) requires the affirmative vote of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the Compensation Proposal (provided a quorum is present). The approval of the Compensation Proposal is advisory (non-binding) and is not a condition to the consummation of the Merger. Approval of the proposal to adjourn the Special Meeting, whether or not a quorum is present (the “Adjournment Proposal”), requires the affirmative vote of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the Adjournment Proposal. For more information, please see the section of this proxy statement captioned “Special Meeting—Vote Required; Abstentions and Broker Non-Votes.”
As of the Record Date, our directors and executive officers beneficially owned and were entitled to vote an aggregate of 176,317 shares of common stock, representing approximately 5.15% of the shares of common stock outstanding as of the Record Date (and approximately 5% of the shares of common stock outstanding when taking into account
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Options and RSUs held by our directors and executive officers). Although none of them has entered into any agreement obligating them to do so, we currently expect that all of our directors and executive officers will vote all of their respective shares of common stock: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR” the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
In connection with the Company entering into the Merger Agreement, each of Ira Sochet, Ira Sochet IRA Account, Ira Sochet Trust and Sochet & Company, Inc. (collectively the “Sochet Stockholders”), entered into a voting agreement with Parent dated as of July 26, 2020 (the “Voting Agreement”). Ira Sochet has voting and dispositive control over the shares of common stock held by the Ira Sochet IRA Account, Ira Sochet Trust and Sochet & Company, Inc. Pursuant to the Voting Agreement, the Sochet Stockholders, who held approximately 49.3% of the outstanding common stock at the time of the execution of the Voting Agreement, have agreed to vote their shares of common stock in favor of the proposal to adopt the Merger Agreement unless the Voting Agreement is terminated in accordance with its terms. For more information, please see the section of this proxy statement captioned “The Merger—Voting Agreement.”
Closing Conditions (Page 70)
The obligations of Otelco, Parent and Merger Sub, as applicable, to consummate the Merger are subject to the satisfaction or waiver of customary conditions, including (among other conditions), the following:
the receipt of the Requisite Stockholder Approval;
the receipt of certain consents from the FCC and certain state public service or public utility commissions, as specified in the Merger Agreement;
the absence of any Legal Restraint (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination of the Merger Agreement”);
the accuracy of the representations and warranties of Otelco in the Merger Agreement, other than representations and warranties relating to the absence of any Company Material Adverse Effect (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Representations and Warranties”), subject to certain materiality qualifiers, as of the date of the Merger Agreement (or as of an earlier date, if made as of such earlier date) and as of the date of completion of the Merger as if made at and as of the date of completion of the Merger;
the receipt, by Parent and Merger Sub, of (i) certain pay-off letters and other documentation required in connection with the repayment of Otelco’s credit facility with CoBank, ACB and the release and termination of any and all related liens, and (ii) the written consent of Regions Bank to the transactions contemplated by the Merger Agreement to the extent required under Otelco’s outstanding loan from Regions Bank under the Paycheck Protection Program established under the Coronavirus Aid, Relief, and Economic Security Act;
the accuracy of the representations and warranties of Otelco in the Merger Agreement relating to the absence of any Company Material Adverse Effect as of the date of the Merger Agreement and as of the date of completion of the Merger as if made at and as of the date of completion of the Merger;
the accuracy of the representations and warranties of Parent and Merger Sub in the Merger Agreement, subject to certain materiality qualifiers, as of the date of the Merger Agreement and as of the date of completion of the Merger (or as of an earlier date, if made as of such earlier date) as if made at and as of the date of completion of the Merger;
the absence of any Company Material Adverse Effect having occurred after the date of the Merger Agreement;
the performance and compliance in all material respects by Otelco, Parent and Merger Sub of their respective covenants, obligations and conditions required to be performed and complied with by them under the Merger Agreement at or prior to the Effective Time; and
the delivery of an officer’s certificate by each of Otelco, Parent and Merger Sub certifying that the conditions as described in certain of the preceding bullets have been satisfied.
For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Conditions to the Closing of the Merger.”
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Financing of the Merger (Page 42)
The obligation of Parent and Merger Sub to consummate the Merger is not subject to any financing condition. We anticipate that the total amount of funds necessary to complete the Merger and the related transactions, and to pay the fees and expenses required to be paid at the closing of the Merger by Parent and Merger Sub under the Merger Agreement, will be approximately $40,591,624 in cash. This amount includes funds needed to: (1) pay stockholders the amounts due under the Merger Agreement and (2) make payments in respect of our outstanding equity-based awards payable at the Effective Time pursuant to the Merger Agreement.
In connection with the transactions contemplated by the Merger Agreement, the Guarantors (as defined below) have provided Parent with an equity commitment letter, dated as of July 26, 2020, that provides for an aggregate equity commitment of up to $40,591,624 in cash (the “Equity Commitment Letter” and, such commitment, the “Equity Commitment”). We refer to the financing pursuant to the Equity Commitment Letter as the “Equity Financing.” The Equity Financing is subject to the terms, conditions and limitations set forth in the Merger Agreement and the Equity Commitment Letter, which conditions include the satisfaction or waiver by Parent or Merger Sub of all conditions precedent set forth in the Merger Agreement to Parent’s and Merger Sub’s obligations to effect the closing.
Parent has also obtained a commitment letter from CoBank, ACB (the “Debt Commitment Letter”). Pursuant to the Debt Commitment Letter, CoBank, ACB has committed to provide a senior secured term loan facility in an aggregate principal amount of $70 million (the “Term Loan Facility”) and a senior secured revolving credit facility of $20 million (the “Revolving Facility”, and together with the Term Loan Facility, the “Credit Facilities”). We refer to the borrowings under the Credit Facilities as the “Debt Financing.” The Debt Financing is conditioned on the consummation of the Merger in accordance with the Merger Agreement, as well as other customary conditions, including the simultaneous consummation of the Equity Financing.
The proceeds of the Equity Financing and the Term Loan Facility will be used to (i) fund the aggregate Merger Consideration, (ii) fund the aggregate RSU Consideration and Option Consideration, (iii) pay fees and expenses required to be paid at the closing of the Merger by Parent, Merger Sub and the Company contemplated by, and subject to the terms and conditions of, the Merger Agreement, and (iv) in the case of the Term Loan Facility, repay the Company’s existing indebtedness. Upon the terms and subject to the conditions of the Equity Commitment Letter, the Company has a contractual right to enforce the Equity Commitment Letter against the Guarantors and, under the terms and subject to the conditions of the Merger Agreement, the Company has the right to specifically enforce Parent’s obligation to consummate the Merger upon Parent’s receipt of the proceeds of the Equity Financing. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Specific Performance.”
For more information about the Equity Financing and the Debt Financing, please see the section of this proxy statement captioned “The Merger—Financing of the Merger.”
Guarantee (Page 43)
In connection with the Company entering into the Merger Agreement, certain investment funds affiliated with Parent (the “Guarantors”) delivered a Guarantee in favor of Otelco (the “Guarantee”). Pursuant to the Guarantee, the Guarantors have agreed to guarantee, in the event of and following a valid termination of the Merger Agreement:
the payment by Parent of the $3,450,288 termination fee payable to us in certain circumstances; and
the reimbursement and indemnification obligations of Parent in connection with the costs and expenses incurred by us in connection with the arrangement of the financing of the Merger, and the out-of-pocket costs and expenses (including attorneys’ fees) reasonably incurred by us in connection with our successful attempt to enforce the Guarantee and/or the Equity Commitment Letter (collectively, the “Reimbursement and Collection Obligations”).
For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fees.”
Recommendation of the Otelco Board (Page 28)
After careful consideration, the Board of Directors of the Company (the “Board”), after considering various factors described in the section of this proxy statement captioned “The Merger—Recommendation of the Board and Reasons for the Merger,” has unanimously (i) determined that the Merger Agreement and the transactions contemplated
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thereby, including the Merger, are fair to, and in the best interests of, the Company and the stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, (iii) recommended that the stockholders adopt the Merger Agreement and (iv) directed that the Merger Agreement be submitted to the stockholders for their adoption (collectively, the “Company Board Recommendation”).
Accordingly, the Board recommends that you vote “FOR” the adoption of the Merger Agreement, “FOR,” on an advisory (non-binding) basis, the Compensation Proposal and “FOR” the Adjournment Proposal.
Opinion of Houlihan Lokey Capital, Inc. (Page 34)
On July 26, 2020, Houlihan Lokey Capital, Inc., which we refer to as Houlihan Lokey, verbally rendered its opinion to the Board (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the Board dated July 26, 2020), as to, as of such date, the fairness, from a financial point of view, to the holders of common stock of the Merger Consideration to be received by such holders in the Merger pursuant to the Merger Agreement.
Houlihan Lokey’s opinion was directed to the Board (in its capacity as such) and only addressed the fairness, from a financial point of view, of the Merger Consideration to be received by the holders of common stock in the Merger pursuant to the Merger Agreement and did not address any other aspect or implication of the Merger or any other agreement, arrangement or understanding. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex B to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in connection with the preparation of its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the Board, any security holder of the Company or any other person as to how to act or vote with respect to any matter relating to the Merger. See “The Merger—Opinion of Houlihan Lokey Capital, Inc.”
Interests of the Company’s Directors and Executive Officers in the Merger (Page 40)
When considering the recommendation of the Board that you vote to approve the proposal to adopt the Merger Agreement, you should be aware that certain members of the Board and executive officers of the Company have economic interests in the Merger that may be different from, or are in addition to, the interests of stockholders generally. The Board was aware of and considered these interests to the extent that they existed at the time, among other matters, in approving the Merger Agreement and the Merger and recommending that the Merger Agreement be adopted by stockholders.
Certain of Otelco’s executive officers are subject to employment agreements that have severance benefits if their employment is terminated under certain circumstances following a change in control of the Company, including the Merger. Furthermore, pursuant to the Merger Agreement, equity awards held by the Company’s executive officers and directors will generally be cancelled in exchange for cash payment upon consummation of the Merger.
For more information, please see the section of this proxy statement captioned “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.”
Alternative Acquisition Proposals (Page 60)
The “Go-Shop” Period
Under the Merger Agreement, from the date of the Merger Agreement until 12:01 a.m., New York City time, on August 25, 2020 (the “No-Shop Period Start Date”), the Company and its affiliates and each of their respective directors, officers, employees, investment bankers, attorneys, accountants, consultants, agents and other advisors or representatives (collectively, “Representatives”) had the right to, among other things and subject to certain conditions: (1) solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any inquiry, proposal or offer that constitutes, or that could constitute, an Acquisition Proposal (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The “Go-Shop Period”) and (2) engage in, enter into, continue or otherwise participate in, any discussions or negotiations with any persons with respect to any Acquisition Proposals (or inquiries, proposals or offers or any other effort or attempt that could lead to an Acquisition Proposal) and cooperate with or assist or participate in or facilitate any such inquiries,
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proposals, offers, discussions or negotiations or any effort or attempt to make any Acquisition Proposals or any other proposals that could lead to any Acquisition Proposal, including granting a waiver, amendment or release under any pre-existing standstill or similar provision to the extent necessary to allow for an Acquisition Proposal or amendment to an Acquisition Proposal to be made to the Company or the Board, as further described under the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The “Go-Shop” Period.” With respect to an Excluded Party (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination”), the No-Shop Period Start Date starts on the 15th day after expiration of the Go-Shop Period, or September 9, 2020 (the “Cut-Off Date”).
If the Company terminates the Merger Agreement for the purpose of entering into an acquisition agreement in respect of an Acquisition Proposal (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The “Go-Shop” Period”) made after the date of the Merger Agreement and prior to the No-Shop Period Start Date, subject to certain exceptions, the Company is required to pay a termination fee in an amount equal to $1,826,623. If the Company terminates the Merger Agreement for the purpose of entering into an acquisition agreement in respect of an Acquisition Proposal made after the No-Shop Period Start Date, the Company is required to pay a termination fee of $2,232,539. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fees.”
The “No-Shop” Period
Under the Merger Agreement, from the No-Shop Period Start Date (or with respect to an Excluded Party, from 12:01 a.m. on September 9, 2020) until the earlier to occur of the valid termination of the Merger Agreement and the Effective Time, the Company has agreed not to, and to cause its subsidiaries and its and their respective Representatives not to, and will not publicly announce any intention to, directly or indirectly, (1) solicit, initiate, propose or induce the making, submission or announcement of, or knowingly encourage, facilitate or assist, any proposal or offer that is or would reasonably be expected to lead to, or that constitutes, an Acquisition Proposal; (2) engage in, continue or otherwise participate in any discussions concerning or provide access or otherwise furnish to any person (other than Parent, Merger Sub or any designee of Parent or Merger Sub) any non-public information relating to the Company or any of its subsidiaries or any of their respective properties, books, records or personnel or afford to any person access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the Company or any of its subsidiaries (other than Parent, Merger Sub or any designees of Parent or Merger Sub), in any such case with the intent to induce the making, submission or announcement of, or to knowingly encourage, facilitate or assist, or otherwise relating to or in connection with an Acquisition Proposal or any inquiries or the making of any proposal that would reasonably be expected to lead to an Acquisition Proposal; (3) participate or engage in, discussions or negotiations with any person with respect to an Acquisition Proposal or any proposal or offer that would reasonably be expected to lead to an Acquisition Proposal (subject to certain exceptions); (4) approve, endorse or recommend an Acquisition Proposal; (5) enter into any letter of intent, memorandum of understanding, merger agreement, acquisition agreement or agreement in principle, understanding or arrangement, in each case, relating to an Acquisition Transaction, other than an Acceptable Confidentiality Agreement (as defined under the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The “No-Shop Period”); or (6) resolve or agree to take any of the foregoing actions.
Notwithstanding the foregoing restrictions, under certain specified circumstances, from the date of the Merger Agreement and continuing until the Company’s receipt of the Requisite Stockholder Approval, the Company and the Board may, directly or indirectly through one of more of their Representatives, among other things, participate or engage in discussions or negotiations with, furnish any non-public information relating to the Company or any of its subsidiaries to, or afford access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the Company or any of its subsidiaries pursuant to an Acceptable Confidentiality Agreement to, any person or its Representatives that has made, renewed or delivered to the Company a bona fide written Acquisition Proposal after the date of the Merger Agreement that did not result from a breach of certain provisions of the Merger Agreement, if the Board has determined in good faith (after consultation with its financial advisor and outside legal counsel) that such Acquisition Proposal either constitutes a Superior Proposal or is reasonably likely to lead to a Superior Proposal and that the failure to take actions with respect to the Superior Proposal would be inconsistent with the fiduciary duties of the Board to the stockholders under applicable law. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The “No-Shop Period.”
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Termination of the Merger Agreement (Page 72)
In addition to the circumstances described above, Parent and the Company have certain rights to terminate the Merger Agreement under customary circumstances, including by mutual written agreement, the imposition of laws or non-appealable court orders that make the Merger illegal or otherwise prohibit the Merger, certain uncured breaches of the Merger Agreement by the other party, if the Merger has not been consummated by 11:59 p.m., New York City time, on April 26, 2021 (subject to a one-time extension of 90 days under certain circumstances), and if the stockholders fail to adopt the Merger Agreement at the Special Meeting (or any adjournment or postponement thereof). Under certain specified circumstances, Otelco or Parent may be required to pay the other party a termination fee in connection with the termination of the Merger Agreement. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination of the Merger Agreement.”
Effect on Otelco if the Merger is Not Completed (Page 24)
If the Merger Agreement is not adopted by stockholders, or if the Merger is not completed for any other reason:
(i)
the stockholders will not be entitled to, nor will they receive, any payment for their respective shares of common stock pursuant to the Merger Agreement;
(ii)
(A) Otelco will remain an independent public company, (B) the common stock will continue to be listed and traded on the Nasdaq and registered under the Exchange Act and (C) Otelco will continue to file periodic and current reports with the SEC; and
(iii)
under certain specified circumstances, Otelco or Parent may be required to pay the other party a termination fee in connection with the termination of the Merger Agreement. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fees.”
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QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
The following questions and answers address some commonly asked questions regarding the Merger, the Merger Agreement and the Special Meeting. These questions and answers may not address all questions that are important to you. You should carefully read and consider the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement, including the Merger Agreement, along with all of the documents we refer to in this proxy statement, as they contain important information about, among other things, the Merger and how it affects you. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the caption “Where You Can Find More Information” beginning on page 83.
Why did I receive these materials?
On July 26, 2020, we entered into the Merger Agreement with Parent and Merger Sub providing for the merger of Merger Sub with and into us, with us continuing as the surviving corporation and a wholly owned subsidiary of Parent following the Merger. Parent and Merger Sub are both controlled affiliates of Oak Hill Fund V. You are receiving this proxy statement in connection with the solicitation of proxies by the Board in favor of the proposal to adopt and approve the Merger Agreement and the other matters to be voted on at the Special Meeting described below under “—What proposals will be voted on at the Special Meeting”.
When and where is the Special Meeting?
The Special Meeting will take place on October 9, 2020, at 10 a.m. Eastern Time.
The Special Meeting will be held online via live webcast. There will not be a physical meeting location. The Special Meeting can be accessed by visiting www.virtualshareholdermeeting.com/OTEL2020, where you will be able to participate in the meeting live and have the opportunity to vote online. We encourage you to allow ample time for online check-in, which will open at 9:45 a.m. Eastern Time. Please note that because there will not be a physical meeting location you will not be able to attend the Special Meeting in person.
What proposals will be voted on at the Special Meeting?
The adoption of the Merger Agreement pursuant to which Merger Sub will merge with and into Otelco, and Otelco will become a wholly owned subsidiary of Parent;
The approval of, on an advisory (non-binding) basis, the Compensation Proposal; and
The approval of the Adjournment Proposal.
The Board recommends that you vote: (1) “FOR” adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
Who may attend the Special Meeting? Are there procedures for attending?
Only stockholders of record as of the Record Date, or their legal proxy holders, may attend the Special Meeting or any adjournments or postponements thereof.
What do I need in order to be able to attend the Special Meeting online?
The Special Meeting will be held online via live webcast only. Any shareholder of record on the Record Date can attend the Special Meeting live online at www.virtualshareholdermeeting.com/OTEL2020. The webcast will start at 10 a.m. Eastern Time, on October 9, 2020. In order to be able to enter the Special Meeting, you will need your 16-digit control number, which is included on your proxy card if you are a stockholder of record of shares of common stock as of the Record Date or included with the form and voting instructions you received from your broker if you hold your shares in “street name.” Instructions on how to attend and participate online are also posted online at www.proxyvote.com.
Who can vote at the Special Meeting?
Only stockholders of record as of the Record Date will be entitled to notice of the Special Meeting and to vote at the Special Meeting.
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Stockholder of Record: Shares Registered in Your Name
If at the close of business on the Record Date, your shares were registered directly in your name with our transfer agent, EQ Shareowner Services, then you are a stockholder of record. As a stockholder of record, you may vote at the Special Meeting or you may vote by proxy. Whether or not you plan to attend the Special Meeting, we urge you to vote now, online, by phone or proxy card (further instructions below) to ensure that your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker, Bank or Other Nominee
If on the Record Date, your shares were held in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by such brokerage firm, bank, dealer or other similar organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote the shares in your account. You are also invited to attend the Special Meeting virtually. However, since you are not the stockholder of record, you may not vote your shares via the Special Meeting website unless you request and obtain a valid proxy from your broker, bank or other nominee.
What different methods can I use to vote?
Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record there are four ways to vote:
Vote by Mail: by signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope;
Vote by Internet: by visiting http://www.proxyvote.com, 24 hours a day, seven days a week, until 11:59 p.m. EDT on October 8, 2020 (have your proxy card in hand when you visit the website);
Vote by Phone: by calling toll-free (within the U.S. or Canada) 1-800-690-6903 (have your proxy card in hand when you call); or
Vote at the Special Meeting: by casting your vote at the Special Meeting via the Special Meeting website. There will not be a physical meeting location. Any stockholder of record as of the Record Date can attend the Special Meeting by visiting www.virtualshareholdermeeting.com/OTEL2020, where such stockholders may vote during the Special Meeting. The Special Meeting starts at 10 a.m. Eastern Time. We encourage you to allow ample time for online check-in, which will open at 9:45 a.m. Eastern Time. Please have your 16-digit control number to join the Special Meeting. Instructions on who can attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at www.proxyvote.com.
A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of common stock, and to confirm that your voting instructions have been properly recorded when voting electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card). Please be aware that, although there is no charge for voting your shares, if you vote electronically over the internet or by telephone, you may incur costs such as internet access and telephone charges for which you will be responsible.
If you are a stockholder of record or if you obtain a “legal proxy” to vote shares that you beneficially own, you may still vote your shares of common stock via the Special Meeting website at the Special Meeting even if you have previously voted by proxy. If you are present at the Special Meeting and vote at the Special Meeting via the Special Meeting website, your previous vote by proxy will not be counted.
Beneficial Owner: Shares Registered in the Name of a Broker, Bank or Other Nominee
If you are a beneficial owner of shares registered in the name of your broker, bank or other nominee, you should have received voting instructions with these proxy materials from that organization, rather than from us. Simply complete, sign and date your proxy card and return it in the postage-paid envelope provided to ensure that your vote is counted. Alternatively, you may vote by telephone or over the internet as instructed by your broker, bank or other nominee. To vote in person at the Special Meeting, you must obtain a valid proxy from your broker, bank or other nominee.
Follow the instructions from your broker, bank or other nominee included with these proxy materials, or contact your broker, bank or other nominee to request a proxy card.
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How can I revoke my proxy?
You can revoke your proxy prior to the completion of voting at the Annual Meeting by giving written notice of your revocation to the Secretary of the Company at 505 Third Avenue East, Oneonta, Alabama 35121, Attention: Curtis L. Garner, Jr., Secretary; by delivering a later-dated proxy card via mail, the internet or telephone; or by voting by ballot at the Special Meeting.
If you hold your shares of common stock in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote at the Special Meeting via the Special Meeting website if you obtain a “legal proxy” from your bank, broker or other nominee.
What will I receive if the Merger is completed?
Upon completion of the Merger, you will be entitled to receive the Merger Consideration, without interest thereon and net of any applicable withholding of taxes, for each share of common stock that you own, unless you have properly and validly exercised and not withdrawn your appraisal rights, and followed the procedures in the manner prescribed by Section 262. For example, if you own 100 shares of common stock, you will receive $1,175 in cash in exchange for your shares of common stock, without any interest, and net of any applicable withholding of taxes. You will not own any shares in the surviving corporation.
How many votes are needed to adopt the Merger Agreement?
The affirmative vote of the holders of a majority of the outstanding shares of common stock is required to adopt the Merger Agreement.
If a quorum is present at the Special Meeting, the failure of any stockholder of record to: (1) submit a signed proxy card; (2) grant a proxy over the internet or by telephone (using the instructions provided in the enclosed proxy card); or (3) vote via the Special Meeting website at the Special Meeting will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. If you hold your shares in “street name” and a quorum is present at the Special Meeting, the failure to instruct your bank, broker or other nominee how to vote your shares will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. If a quorum is present at the Special Meeting, abstentions will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement.
What happens if the Merger is not completed?
If the Merger Agreement is not adopted by stockholders or if the Merger is not completed for any other reason, stockholders will not receive any payment for their shares of common stock. Instead, Otelco will remain an independent public company, our common stock will continue to be listed and traded on the Nasdaq and registered under the Exchange Act, and we will continue to file periodic and current reports with the SEC.
Under certain specified circumstances, Otelco or Parent may be required to pay the other party a termination fee in connection with the termination of the Merger Agreement, as described in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fees.”
Why are the stockholders being asked to cast an advisory (non-binding) vote to approve the Compensation Proposal?
The Securities and Exchange Commission has adopted rules that require us to seek an advisory non-binding vote with respect to certain payments that could become payable to our named executive officers in connection with the merger.
How many votes are required to approve the Compensation Proposal?
The affirmative vote of the holders of a majority of the shares of common stock represented by proxy at the Special Meeting and entitled to vote on the subject matter (provided a quorum is present) is required for approval of the Compensation Proposal.
If a quorum is present at the Special Meeting, the failure of any stockholder of record to: (1) submit a signed proxy card; (2) grant a proxy over the internet or by telephone (using the instructions provided in the enclosed proxy card); or (3) vote via the Special Meeting website at the Special Meeting your shares of common stock will not be voted on the Compensation Proposal and will have no effect on the Compensation Proposal because the vote is advisory only and nonbinding on Otelco. If you hold your shares in “street name” and a quorum is present at the Special
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Meeting, the failure to instruct your bank, broker or other nominee how to vote your shares, your shares of common stock will not be voted on the Compensation Proposal and will have no effect on the Compensation Proposal because the vote is advisory only and nonbinding on Otelco. If a quorum is present at the Special Meeting, abstentions will have no effect on the Compensation Proposal because the vote is advisory only and nonbinding on Otelco.
What will happen if the stockholders do not approve the Compensation Proposal at the Special Meeting?
Approval of the Compensation Proposal is not a condition of the completion of the Merger. The vote with respect to the Compensation Proposal is an advisory vote and will not be binding on us. Therefore, regardless of whether the stockholders approve the Compensation Proposal, if the Merger Agreement is adopted and approved by the stockholders and the Merger is completed, the compensation payable under the Compensation Proposal will still be paid to our named executive officers to the extent payable.
How many votes are required to approve the Adjournment Proposal?
Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of the shares of common stock represented and entitled to vote on the matter at the Special Meeting.
How many shares are outstanding?
As of the Record Date, there were 3,421,794 shares outstanding and entitled to vote at the Special Meeting. Each share outstanding as of the close of business on the Record Date is entitled to one vote at the Special Meeting.
Who will count the votes?
Representatives of Broadridge Investor Communications Services (“Broadridge”) will tabulate the votes, and representatives of Broadridge will act as inspectors of election.
What do I need to do now?
You should carefully read and consider this entire proxy statement and the annexes to this proxy statement, including the Merger Agreement, along with all of the documents that we refer to in this proxy statement, as they contain important information about, among other things, the Merger and how it affects you. Then sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope, or grant your proxy electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card), so that your shares can be voted at the Special Meeting, unless you wish to seek appraisal. If you hold your shares in “street name,” please refer to the voting forms provided by your bank, broker or other nominee to vote your shares.
Should I surrender my shares now?
No. After the Merger is completed, a nationally recognized bank or trust company reasonably acceptable to the Company (the “Payment Agent”) will send each stockholder of record a letter of transmittal and written instructions that explain how to exchange shares of common stock represented by such stockholder’s book-entry shares for the Merger Consideration.
What happens if I sell or otherwise transfer my shares of common stock after the Record Date but before the Special Meeting?
The Record Date for the Special Meeting is earlier than the date of the Special Meeting and the date the Merger is expected to be completed. If you sell or transfer your shares of common stock after the Record Date but before the Special Meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or otherwise transfer your shares and each of you notifies Otelco in writing of such special arrangements, you will transfer the right to receive the Merger Consideration, if the Merger is completed, to the person to whom you sell or transfer your shares, but you will retain your right to vote those shares at the Special Meeting. Even if you sell or otherwise transfer your shares of common stock after the Record Date, we encourage you to sign, date and return the enclosed proxy card in the accompanying reply envelope or grant your proxy electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card).
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What happens if I sell my shares of common stock after the Special Meeting but before the Effective Time?
If you transfer your shares of common stock after the Special Meeting but before the Effective Time, you will have transferred your right to receive the Merger Consideration to the person to whom you transfer your shares. To receive the Merger Consideration, you must hold your shares of common stock through consummation of the Merger.
Do any of the Company’s directors or officers have interests in the Merger that may differ from or be in addition to my interests as a stockholder?
Yes. In considering the recommendation of the Board with respect to the proposal to adopt the Merger Agreement, you should be aware that our directors and executive officers have interests in the Merger that may be different from, or in addition to, those of the stockholders generally, as set forth below. The Board were aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Merger, and in recommending that the Merger Agreement be adopted by its stockholders. These interests include: (i) the cancelation and payment of Options and RSUs; (ii) certain severance and other separation benefits that may be payable upon termination of employment following the effective time of the Merger; and (iii) entitlement to continued indemnification and insurance coverage under the Merger Agreement.
What is the quorum requirement?
A quorum is required to hold the Special Meeting. A quorum will be present if at least a majority of the shares entitled to vote, or 1,710,898 shares, are represented by proxy at the Special Meeting or by proxy. Attendance at the virtual meeting does not count for purposes of determining a quorum.
Abstentions will be counted as “shares present” at the Annual Meeting for the purpose of determining whether a quorum exists. However, abstentions will not affect the outcome of any proposal to be voted on at the Special Meeting. Proxies submitted by brokers, banks or other nominees that do not indicate a vote for some or all of the proposals because they do not have discretionary voting authority and have not received instructions as to how to vote on those proposals (so-called “broker non-votes”) are also considered “shares present,” but will not affect the outcome of any proposal to be voted on at the Special Meeting.
What is a proxy?
A proxy is your legal designation of another person to vote your shares of common stock. The written document describing the matters to be considered and voted on at the Special Meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of common stock is called a “proxy card.” Richard A. Clark and Curtis L. Garner, Jr., are the proxy holders for the Special Meeting, with full power of substitution and re-substitution.
If a stockholder gives a proxy, how are the shares voted?
Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares in the way that you indicate. When completing the internet or telephone process or the proxy card, you may specify whether your shares should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the Special Meeting.
If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
What should I do if I receive more than one set of voting materials?
Please sign, date and return (or grant your proxy electronically over the internet or by telephone using the instructions provided in the enclosed proxy card) each proxy card and voting instruction card that you receive.
You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting forms. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting form for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card.
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Where can I find out the results of the voting at the Special Meeting?
Preliminary voting results will be announced at the Special Meeting. Final voting results will be published in a Current Report on Form 8-K within four business days after the Special Meeting and noted on our website at www.Otelco.com.
When do you expect the Merger to be completed?
We are working toward completing the Merger as quickly as possible and currently expect to complete the Merger in the fourth quarter of 2020. However, the exact timing of completion of the Merger cannot be predicted because the Merger is subject to the closing conditions specified in the Merger Agreement, many of which are outside of our control.
Who will solicit and pay the cost of soliciting proxies?
The Company has engaged D.F. King & Co., Inc. (“D.F. King”) to assist in the solicitation of proxies for the Special Meeting. The Company estimates that it will pay D.F. King a fee of approximately $15,000 and will reimburse D.F. King for routine out-of-pocket expenses. The Company will indemnify D.F. King and its employees against certain losses, claims, damages, liabilities or expenses to which they may become subject arising from or in connection with the services to be performed by D.F. King. In addition, proxies may be solicited in person or by telephone, telegraph, or facsimile or other electronic transmission, by officers, directors and regular employees of the Company. They will not be paid any additional amounts for soliciting proxies. The Company will also reimburse banks, brokerages firms or other nominees their reasonable expenses for forwarding the proxy material to beneficial owners and obtaining their instructions.
Who can help answer my questions?
If you have any questions concerning the Merger, the Special Meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of common stock, please contact our proxy solicitor:
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, NY 10005
Call Toll-free: (800) 714-3312
Banks and Brokers Call: (212) 269-5550
OTEL@dfking.com
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FORWARD-LOOKING STATEMENTS
This proxy statement contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, those that contain, or are identified by, words such as “outlook,” “guidance,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “predicts,” “intends,” “project,” “plans,” “estimates,” “anticipates,” “could” or the negative version of these words or other comparable words. Forward-looking statements may include, but are not limited to, statements relating to the proposed transaction with Parent. These statements are subject to various risks and uncertainties, many of which are outside the Company’s control, including, among others, the risks detailed in our filings with the SEC, including in our most recent filings on Forms 10-K and 10-Q, factors and matters described or incorporated by reference in this proxy statement, and the following factors:
the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement, including a termination under circumstances that could require us to pay a termination fee;
Parent’s failure to obtain the necessary equity and debt financing or the failure of that financing to be sufficient to complete the Merger and the other transactions contemplated by the Merger Agreement;
the inability to complete the Merger due to the failure to obtain the adoption and approval of the Merger Agreement by the stockholders or the failure to satisfy other conditions to completion of the Merger, including the receipt of required regulatory approvals, or for any other reason;
the possibility that alternative acquisition proposals will or will not be made;
risks that the proposed Merger disrupts current plans and operations, including diversion of management’s attention, and the potential difficulties in employee retention as a result of the Merger;
the outcome of any legal proceedings, regulatory proceedings or enforcement matters that have been or may be instituted against us or others relating to the Merger Agreement;
the Merger Agreement’s contractual restrictions on the conduct of our business prior to the completion of the Merger;
the possible adverse effect on our business and the price of the common stock if the Merger is not consummated in a timely manner or at all;
the effect of the announcement of the Merger on our business relationships, operating results and business generally, including our ability to retain key employees; and
the amount of the costs, fees, expenses and charges related to the Merger.
Actual results may differ materially from anticipated results or outcomes discussed in any forward-looking statement. Additional factors that could cause actual results to differ materially from forward-looking statements include:
potential adverse effects of the ongoing global COVID-19 pandemic;
the strength of the economy;
continuous competition in the telecommunications industry;
changes in the regulation of the telecommunications industry;
the possibility that we fail to meet our broadband deployment obligations and lose part of our A-CAM support;
our ability to operate subject to the restrictive covenants under our credit facility, which limits our ability to take certain actions;
implementation of our strategy;
our ability to integrate new technologies and provide new services in a cost-efficient manner;
disruptions to our networks and infrastructure;
our ability to retain key personnel;
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risks associated with our operating activities that are subject to misappropriation, misuse, leakage, falsification and accidental release or loss of information maintained in our information technology systems;
changes in tax policy;
the geographic concentration of our business and dependency on regional economic conditions;
failure to receive approved levels of FCC support; and
the regulatory environment and other specific factors discussed herein and in other SEC filings by the Company.
The Company believes that all forward-looking statements are based on reasonable assumptions when made; however, the Company cautions that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes with certainty and that, accordingly, one should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and the Company undertakes no obligation to update these statements in light of subsequent events or developments.
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THE VIRTUAL SPECIAL MEETING
The enclosed proxy is solicited on behalf of the Board for use at the Special Meeting.
Date, Time and Place
We will hold the Special Meeting on October 9, 2020 at 10 a.m. Eastern Time, or at any adjournment thereof. The Special Meeting can be accessed by visiting www.virtualshareholdermeeting.com/OTEL2020, where you will be able to participate in the meeting live and have the opportunity to vote online. We encourage you to allow ample time for online check-in, which will open at 9:45 a.m. Eastern Time. Please note that because there will not be a physical meeting location, you will not be able to attend the Special Meeting in person.
Purpose of the Special Meeting
At the Special Meeting, we will ask stockholders to vote on proposals to: (1) adopt the Merger Agreement; (2) approve, on an advisory (non-binding) basis, the Compensation Proposal; and (3) approve the Adjournment Proposal.
Record Date; Shares Entitled to Vote; Quorum
Only stockholders of record as of the Record Date are entitled to notice of the Special Meeting and to vote at the Special Meeting. A list of stockholders entitled to vote at the Special Meeting will be available at our headquarters, 505 Third Avenue East, Oneonta, Alabama 35121, during regular business hours for a period of no less than 10 days before the Special Meeting and at the place of the Special Meeting during the meeting.
As of the Record Date, there were 3,421,794 shares of common stock outstanding and entitled to vote at the Special Meeting.
The holders of a majority of the shares of common stock issued and outstanding and entitled to vote thereat, represented by proxy, will constitute a quorum at the Special Meeting. In the event that a quorum is not present at the Special Meeting, it is expected that the meeting will be adjourned to solicit additional proxies.
Vote Required; Abstentions and Broker Non-Votes
The affirmative vote of the holders of a majority of the outstanding shares of common stock is required to adopt the Merger Agreement. As of the Record Date, 1,710,898 shares of common stock constitute a majority of the outstanding shares of common stock. Adoption of the Merger Agreement by stockholders is a condition to the completion of the Merger.
The affirmative vote of the holders of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the Compensation Proposal (provided a quorum is present) is required to approve, on an advisory (non-binding) basis, the Compensation Proposal.
Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the matter at the Special Meeting.
If a stockholder abstains from voting, that abstention will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement and “AGAINST” the proposal to approve, on an advisory (non-binding) basis, the Compensation Proposal. For stockholders who are represented by proxy and abstain from voting, the abstention will have the same effect as a vote “AGAINST” the Adjournment Proposal.
Each “broker non-vote” will also count as a vote “AGAINST” the proposal to adopt the Merger Agreement, but will have no effect on the Compensation Proposal or the Adjournment Proposal. A “broker non-vote” generally occurs when a bank, broker or other nominee holding shares on your behalf does not vote on a proposal because the bank, broker or other nominee has not received your voting instructions and lacks discretionary power to vote the shares. “Broker non-votes,” if any, will be counted for the purpose of determining whether a quorum is present.
Shares Held by Otelco Directors and Executive Officers
As of the Record Date, our directors and executive officers beneficially owned and were entitled to vote an aggregate of 176,317 shares of common stock, representing approximately 5.15% of the shares of common stock outstanding as of the Record Date (and approximately 5% of the shares of common stock outstanding when taking into account Options and RSUs held by our directors and executive officers).
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Although none of them has entered into any agreement obligating them to do so, we currently expect that all of our directors and executive officers will vote all of their respective shares of common stock: (1) “FOR” adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
Voting Agreement
In connection with the Company entering into the Merger Agreement, the Sochet Stockholders entered into the Voting Agreement with Parent. At the time of the execution of the Voting Agreement the Sochet Stockholders held approximately 49.3% of the outstanding shares of common stock. The Voting Agreement obligates each of the Sochet Stockholders to vote its common stock (1) “FOR” adoption of the Merger Agreement; and (2) “FOR” the Adjournment Proposal, in each case, unless the Voting Agreement is terminated in accordance with its terms.
Voting of Proxies
If your shares are registered in your name with our transfer agent, EQ Shareowner Services, you may cause your shares to be voted by:
Vote by Mail: by signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope;
Vote by Internet: by visiting http://www.proxyvote.com, 24 hours a day, seven days a week, until 11:59 p.m. EDT on October 8, 2020 (have your proxy card in hand when you visit the website);
Vote by Phone: by calling toll-free (within the U.S. or Canada) 1-800-690-6903 (have your proxy card in hand when you call); or
Vote at the Special Meeting: by casting your vote at the Special Meeting via the Special Meeting website. There will not be a physical meeting location. Any stockholder of record as of the Record Date can attend the Special Meeting by visiting www.virtualshareholdermeeting.com/OTEL2020, where such stockholders may vote during the Special Meeting. The Special Meeting starts at 10 a.m. Eastern Time. We encourage you to allow ample time for online check-in, which will open at 9:45 a.m. Eastern Time. Please have your 16-digit control number to join the Special Meeting. Instructions on who can attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at www.proxyvote.com.
Based on your proxy cards or internet and telephone proxies, the proxy holders will vote your shares according to your directions. Voting instructions are included on your proxy card. All shares represented by properly signed and dated proxies received in time for the Special Meeting will be voted at the Special Meeting in accordance with the instructions of the stockholder. Properly signed and dated proxies that do not contain voting instructions will be voted: (1) “FOR” adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
If your shares are held in “street name” through a bank, broker or other nominee, you may vote through your bank, broker or other nominee by completing and returning the voting form provided by your bank, broker or other nominee or voting via the Special Meeting website with a “legal proxy” from your bank, broker or other nominee. If such a service is provided, you may vote over the internet or telephone through your bank, broker or other nominee by following the instructions on the voting form provided by your bank, broker or other nominee. If you do not return your bank’s, broker’s or other nominee’s voting form, do not vote via the internet or telephone through your bank, broker or other nominee, if possible, or do not attend the Special Meeting and vote via the Special Meeting website with a “legal proxy” from your bank, broker or other nominee, it will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement but will not have any effect on the Compensation Proposal or the Adjournment Proposal.
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Revocability of Proxies
If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is exercised at the Special Meeting by:
written notice of revocation to our Corporate Secretary at Otelco, Inc., 505 Third Avenue East, Oneonta, Alabama 35121;
timely submission of a valid, later-dated proxy via mail, the internet or the telephone; or
attending the Special Meeting and voting at the Special Meeting (your attendance at the Special Meeting will not, by itself, revoke your proxy, so you must vote at the Special Meeting via the Special Meeting website to revoke your proxy).
If you have submitted a proxy, your appearance at the Special Meeting will not have the effect of revoking your prior proxy provided that you do not vote via the Special Meeting website or submit an additional proxy or revocation, which, in each case, will have the effect of revoking your proxy.
If you hold your shares of common stock in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote via the Special Meeting website at the Special Meeting if you obtain a “legal proxy” from your bank, broker or other nominee.
Any adjournment, postponement or other delay of the Special Meeting, including for the purpose of soliciting additional proxies, will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned, postponed or delayed.
Participating in the Virtual Special Meeting
To attend the Special Meeting, visit www.virtualshareholdermeeting.com/OTEL2020 and enter the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials.
If you wish to submit a question during the Special Meeting, log into the virtual meeting platform at www.virtualshareholdermeeting.com/OTEL2020, type your question into the “Ask a Question” field, and click “Submit.” During the Q&A session of the Special Meeting, we will answer questions as they come in, as time permits. The total time allowed for the Q&A session is 20 minutes. If we do not receive any relevant questions, we will conclude the Q&A session earlier.
To ensure the Special Meeting is conducted in a manner that is fair to all stockholders, we may exercise discretion in determining the order in which questions are answered and the amount of time devoted to any one question. We reserve the right to edit or reject questions we deem profane or otherwise inappropriate. The agenda for the Special Meeting and guidelines for submitting written questions during the Special Meeting will be available at www.virtualshareholdermeeting.com/OTEL2020.
If we experience technical difficulties during the Special Meeting (e.g., a temporary or prolonged power outage), we will determine whether the meeting can be promptly reconvened (if the technical difficulty is temporary) or whether the meeting will need to be reconvened on a later day (if the technical difficulty is more prolonged). In any situation, we will promptly notify stockholders of the decision via www.virtualshareholdermeeting.com/OTEL2020. If you encounter technical difficulties accessing our meeting, a support line will be available on the login page of the Special Meeting website.
Board Recommendation
After careful consideration, the Board, after considering various factors described in the section of this proxy statement captioned “The Merger—Recommendation of the Board and Reasons for the Merger,” has: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and the stockholders; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby; (iii) recommended that the stockholders adopt the Merger Agreement; and (iv) directed that the Merger Agreement be submitted to the stockholders for their adoption.
Accordingly, the Board recommends that you vote “FOR” the adoption of the Merger Agreement, “FOR,” on an advisory (non-binding) basis, the Compensation Proposal and “FOR” the Adjournment Proposal.
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Solicitation of Proxies
The Company has engaged D.F. King to assist in the solicitation of proxies for the Special Meeting. The Company estimates that it will pay D.F. King a fee of approximately $15,000 and will reimburse D.F. King for routine out-of-pocket expenses. The Company will indemnify D.F. King and its employees against certain losses, claims, damages, liabilities or expenses to which they may become subject arising from or in connection with the services to be performed by D.F. King. In addition, proxies may be solicited in person or by telephone, telegraph, facsimile, over the internet or other electronic transmission, by officers, directors and regular employees of the Company. They will not be paid any additional amounts for soliciting proxies. The Company will also reimburse banks, brokerages firms or other nominees their reasonable expenses for forwarding the proxy material to beneficial owners and obtaining their instructions.
Anticipated Date of Completion of the Merger
The exact timing of completion of the Merger cannot be predicted because the Merger is subject to the closing conditions specified in the Merger Agreement, many of which are outside of our control.
Assuming timely satisfaction of necessary closing conditions, including the approval by stockholders of the proposal to adopt the Merger Agreement, we anticipate that the Merger will be consummated in the fourth quarter of 2020.
Appraisal Rights
If the Merger is consummated, stockholders who continuously hold shares of common stock through the Effective Time who neither vote in favor of the Merger or consent thereto in writing in favor of the adoption of the Merger Agreement and who properly and validly demand appraisal of their shares and do not withdraw their demands or otherwise lose their rights to seek appraisal will be entitled to appraisal of their shares in connection with the Merger under Section 262. This means that stockholders who perfect their appraisal rights, who do not thereafter withdraw their demand for appraisal, and who follow the procedures in the manner prescribed by Section 262 will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of their shares of common stock, exclusive of any elements of value arising from the accomplishment or expectation of the Merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid on the amount determined to be fair value (or in certain circumstances described in further detail in the section of this proxy statement captioned “The Merger—Appraisal Rights,” on the difference between the amount determined to be the fair value and the amount paid by the Surviving Corporation in the Merger to each stockholder entitled to appraisal prior to the entry of judgment in any appraisal proceeding). Due to the complexity of the appraisal process, stockholders who wish to seek appraisal of their shares are encouraged to review Section 262 carefully and to seek the advice of legal counsel with respect to the exercise of appraisal rights.
Stockholders considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 could be more than, the same as or less than the value of the consideration that they would receive pursuant to the Merger Agreement if they did not seek appraisal of their shares.
To exercise your appraisal rights, you must: (1) submit a written demand for appraisal to Otelco before the vote is taken on the adoption of the Merger Agreement; (2) not submit a proxy, or otherwise vote, in favor of the proposal to adopt the Merger Agreement; (3) continue to hold your shares of common stock of record through the Effective Time; and (4) strictly comply with all other procedures for exercising appraisal rights under Section 262. Your failure to follow exactly the procedures specified under Section 262 may result in the loss of your appraisal rights. In addition, the Delaware Court of Chancery will dismiss appraisal proceedings in respect of the Merger unless certain stock ownership conditions are satisfied by the stockholders seeking appraisal. The DGCL requirements for exercising appraisal rights are described in further detail in the section of this proxy statement captioned “The Merger—Appraisal Rights,” which is qualified in its entirety by Section 262, the relevant section of the DGCL regarding appraisal rights. A copy of Section 262 is reproduced and attached as Annex C to this proxy statement and incorporated herein by reference. If you hold your shares of common stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by your bank, brokerage firm or other nominee.
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Other Matters
At this time, we know of no other matters to be voted on at the Special Meeting. If any other matters properly come before the Special Meeting, your shares of common stock will be voted in accordance with the discretion of the appointed proxy holders.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on October 9, 2020
The proxy statement is available to investors at www.proxyvote.com.
Householding of Special Meeting Materials
We have adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders of record who have the same address and last name will receive only one copy of this proxy statement, unless one or more of these stockholders notifies us that they wish to continue receiving individual copies. This procedure will reduce our printing costs and postage fees. Stockholders who participate in householding will continue to receive separate proxy cards.
If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of this proxy statement, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of our disclosure documents for your household, please make a written request to the Corporate Secretary, Otelco, Inc., 505 Third Avenue East, Oneonta, Alabama 35121 or call (207) 625-3580. If multiple stockholders of record who have the same address received only one copy of this proxy statement and would like to receive additional copies, or if they would like to receive a copy for each stockholder living at that address in the future, send a written request to the address above. Upon such written request, we will promptly deliver separate proxy statements to any stockholders who receive one paper copy at a shared address.
Beneficial owners can request information about householding from their brokers, banks or other stockholders of record.
Questions and Additional Information
If you have any questions concerning the Merger, the Special Meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of common stock, please contact our proxy solicitor:
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, NY 10005
Call Toll-free: (800) 714-3312
Banks and Brokers Call: (212) 269-5550
OTEL@dfking.com
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THE MERGER
This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. You should carefully read and consider the entire Merger Agreement, which is the legal document that governs the Merger, because it contains important information about the Merger and how it affects you.
Parties Involved in the Merger
Otelco Inc.
505 Third Avenue East
Oneonta, Alabama 35121
Otelco Inc. provides traditional telephone services to territories in north central Alabama, Maine, western Massachusetts, central Missouri, western Vermont and southern West Virginia. In addition to traditional telephone services, Otelco also provides a variety of unregulated telecommunications services in its territories, including internet data lines and long distance services. Otelco also operates three facilities-based competitive local exchange carriers, which offer services to business and enterprise customers in Maine.
Future Fiber FinCo, Inc.
Future Fiber FinCo, Inc.
c/o Oak Hill Capital Management, LLC
65 East 55th Street, 32nd Floor
New York, NY 10022
Parent, a Delaware corporation, was formed on July 21, 2020 solely for the purpose of engaging in the transactions contemplated by the Merger Agreement and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement and arranging of the Equity Financing and any Debt Financing in connection with the Merger. Parent is an affiliate of Oak Hill Fund V, which is managed by Oak Hill. Oak Hill is a private equity firm with offices in New York, NY, Menlo Park, CA and Stamford, CT managing funds with approximately $15 billion of initial capital commitments and co-investments since inception. Upon completion of the Merger, Otelco will be a direct wholly-owned subsidiary of Parent.
Olympus Merger Sub, Inc.
Olympus Merger Sub, Inc.
c/o Oak Hill Capital Management, LLC
65 East 55th Street, 32nd Floor
New York, NY 10022
Merger Sub, a Delaware corporation and a wholly-owned subsidiary of Parent, was formed on July 21, 2020 solely for the purpose of engaging in the transactions contemplated by the Merger Agreement and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement and arranging of the Equity Financing and any Debt Financing in connection with the Merger. Upon completion of the Merger, Merger Sub will merge with and into Otelco, and Merger Sub will cease to exist.
Effect of the Merger
Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge with and into Otelco, with Otelco continuing as the Surviving Corporation. As a result of the Merger, Otelco will become a wholly owned subsidiary of Parent, and our common stock will no longer be publicly traded and will be delisted from the Nasdaq. In addition, our common stock will be deregistered under the Exchange Act, and we will no longer file periodic or current reports with the SEC. If the Merger is completed, you will not own any shares of the capital stock of the Surviving Corporation.
The Merger will become effective upon the filing of a certificate of merger with, and its acceptance by, the Secretary of State of the State of Delaware (or at such later time as we, Parent and Merger Sub may agree and specify in the certificate of merger).
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Effect on Otelco if the Merger is Not Completed
If the Merger Agreement is not adopted by stockholders, or if the Merger is not completed for any other reason:
1.
the stockholders will not be entitled to, nor will they receive, any payment for their respective shares of common stock pursuant to the Merger Agreement;
2.
(i) Otelco will remain an independent public company, (ii) the common stock will continue to be listed and traded on the Nasdaq and registered under the Exchange Act and (iii) Otelco will continue to file periodic and current reports with the SEC;
3.
we anticipate that stockholders will be subject to similar types of risks and uncertainties as those to which they are currently subject, including risks and uncertainties with respect to the Company’s business, prospects and results of operations, as such may be affected by, among other things, the highly competitive industry in which Otelco operates and economic conditions;
4.
the price of our common stock may decline significantly, and if that were to occur, it is uncertain when, if ever, the price of our common stock would return to the price at which it trades as of the date of this proxy statement;
5.
the Board will continue to evaluate other strategic alternatives but does not currently believe that such alternatives are as beneficial to Otelco and its stockholders as the proposed transaction with Parent; and
6.
under certain specified circumstances, Otelco or Parent may be required to pay the other party a termination fee in connection with the termination of the Merger Agreement. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fees.”
Merger Consideration
At the Effective Time, each share of common stock (other than Owned Company Shares and Dissenting Common Shares) outstanding as of immediately prior to the Effective Time will be automatically cancelled, extinguished and converted into the right to receive the Merger Consideration, without interest thereon and net of any applicable withholding of taxes.
After the Merger is completed, you will have the right to receive the Merger Consideration in respect of each share of common stock that you own (without interest and net of any applicable withholding of taxes), but you will no longer have any rights as a stockholder (except that stockholders who properly and validly exercise their appraisal rights will have a right to receive payment of the “fair value” of their shares as determined pursuant to an appraisal proceeding, as contemplated by Delaware law). For more information, please see the section of this proxy statement captioned “The Merger—Appraisal Rights.”
Background of the Merger
In the ordinary course of business, the Board and senior management continually review and assess strategic alternatives available to us, including the sale of certain assets, continuation of our current business plan as an independent public company, the sale of the Company and various other strategic alternatives.
In September 2019, the Board began to explore and discuss options to raise capital (the “Proposed Capital Raise”) in order to overbuild Otelco’s existing copper network with fiber optic cable and to build out “fiber to the premises” and commercial fiber networks, as contemplated by previous strategic plans discussed by the Board.
On October 17, 2019, the Board held a meeting with representatives of each of Lazard Middle Market LLC (“Lazard”) and two other investment banking firms to discuss a potential engagement in connection with the Proposed Capital Raise. Following the meeting, the Board decided to engage Lazard and requested that Lazard submit an engagement letter relating to the Proposed Capital Raise. In making its decision to retain Lazard, the Board considered Lazard’s qualifications, its reputation and experience in the Company’s industry, its experience in a multitude of financial and strategic transactions and its reputation in the investment banking community.
On December 2, 2019, the Board held a regularly scheduled telephonic meeting. Representatives of Troutman Sanders LLP (now known as Troutman Pepper Hamilton Sanders LLP), legal counsel to the Company (“Troutman”) were also present. The Board reviewed a proposed engagement agreement with Lazard. Following
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discussions, the Board approved the engagement of Lazard. The Company and Lazard then entered into an engagement letter retaining Lazard as the Company’s financial advisor in connection with the Proposed Capital Raise, including a potential sale of the Company.
From January 2020 to April 2020, at the direction of the Board, Lazard contacted 37 potential investors regarding the Proposed Capital Raise. The Company subsequently entered into confidentiality agreements with 24 of these investors, including a confidentiality agreement with Oak Hill Fund V dated February 3, 2020, and provided them with access to a secure online data room in order for them to conduct due diligence of the Company’s business. From February 10, 2020 to March 9, 2020, 17 of these firms attended in-person or telephonic meetings with Company management. A number of these firms indicated that they were not interested in participating in the Proposed Capital Raise and were only interested in an acquisition of the entire Company.
On April 9, 2020, based on preliminary feedback from potential investors, Lazard, on behalf of the Company, sent a process letter to eight potential investors asking them to submit a non-binding, final offer regarding the Proposed Capital Raise. The process letter contemplated both an equity investment in the Company and a possible sale of the entire Company.
On April 20, 2020, the Company received a written non-binding indication of interest from Oak Hill Fund V for the acquisition of all of the outstanding shares of our common stock for $10.25 per share of common stock, subject to, among other things, an exclusivity period of 45 days from the time of the Company’s acceptance of the indication of interest, during which Oak Hill Fund V intended to complete its remaining confirmatory due diligence review of the Company.
On April 24, 2020, the Board held a special telephonic meeting to discuss the written offer received from Oak Hill Fund V. Representatives of Lazard and Troutman were also present. Although there were no actual conflicts of interest, Mr. Clark did not attend this meeting and recused himself from the decision-making process out of an abundance of caution in order to avoid any potential conflicts of interest due to his position as the Company’s President and Chief Executive Officer and his prior business relationships with affiliates of Oak Hill. Mr. Clark served as Executive Vice President and Chief Financial Officer of FirstLight Fiber from December 2016 until September 2018. FirstLight Fiber was a portfolio company of Oak Hill from September 2016 until it was sold in July 2018. During this meeting, representatives of Lazard reviewed the results of the process run in connection with the Proposed Capital Raise. A representative of a private equity fund (“Party B”) communicated its intent to submit a written offer by April 29, 2020, and a representative of another private equity fund (“Party C”) indicated its intention to submit a verbal offer by April 28, 2020. Lazard then reviewed with the Board the financial and other key terms of Oak Hill Fund V’s written offer. The Board asked a number of questions to representatives of Lazard regarding the specifics of the process that Lazard had run for the Proposed Capital Raise and the financial terms of Oak Hill Fund V’s offer. Additionally, Lazard reported that Oak Hill Fund V had indicated a willingness to consider a rollover of the shares of common stock beneficially owned by Ira Sochet, the Company’s largest stockholder, as part of the proposed transaction.
The Board and representatives of Troutman then discussed whether the possible sale presented conflict of interest issues for any members of the Board that would require or make advisable the formation of a special committee of the Board for the purpose of evaluating proposals relating to a possible sale. The Board concluded that, with Mr. Clark’s recusal, no conflict of interest issues were present that would warrant the formation of a special committee of the Board at this time. A representative of Troutman then reviewed, in detail, the fiduciary duties that directors owe under Delaware law in the context of a review of a potential sale transaction.
On April 29, 2020, the Company received a written non-binding indicative proposal from Party B to acquire all of the outstanding shares of common stock for $10.00 per share on a fully diluted basis, subject to, among other things, the completion of a due diligence review.
Subsequently on April 29, 2020, the Board held a special telephonic meeting to continue its discussion regarding Oak Hill Fund V’s proposal and other strategic alternatives. Representatives of Lazard and Troutman were also present. Mr. Clark recused himself from the meeting. The Board discussed the offers from Oak Hill Fund V and Party B and directed Lazard to provide updated Company performance data to Oak Hill Fund V and Party B and to ask them to submit improved bids within one week.
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On May 5, 2020, the Company received a written non-binding, amended offer from Oak Hill Fund V to acquire all of the outstanding shares of common stock of the Company for $11.75 per share. The Company also received a letter from Party B in which Party B confirmed its original offer to acquire Otelco for $10.00 per outstanding share of common stock.
On May 6, 2020, the Board held a special telephonic meeting to discuss the updated offers from Oak Hill Fund V and Party B and other potential strategic alternatives. Representatives of Lazard and Troutman were also present. Mr. Clark recused himself from the meeting. Representatives of Lazard first reviewed with the Board the letters received from Oak Hill Fund V and Party B on May 5, 2020. Representatives of Lazard also reported that Party C had not submitted a bid. The Board discussed with representatives of Lazard the two offers. The representatives of Lazard were then excused from the meeting. A representative of Troutman again reviewed in detail fiduciary duties that directors owe under Delaware law in the context of a review of a potential sale transaction. The Board then discussed Oak Hill Fund V’s offer and determined that the Company would grant Oak Hill Fund V a negotiation exclusivity period of 15 days.
On May 11, 2020, the Company entered into an exclusivity agreement with Oak Hill Fund V, pursuant to which the Company granted a negotiation exclusivity period of 15 days to Oak Hill Fund V.
Additionally, on May 11, 2020, the Company authorized Oak Hill Fund V to communicate directly with CoBank, ACB to discuss financing arrangements with respect to the proposed acquisition.
Until the execution of the original Merger Agreement, Oak Hill Fund V conducted due diligence, and Company management, with the assistance of the Company’s advisors, engaged in diligence calls and in-person meetings with, and responded to written due diligence requests from, Oak Hill Fund V.
On May 18, 2020, Messrs. Clark and Garner had a telephone conference with Mr. Sochet, during which Messrs. Clark and Garner conveyed Oak Hill Fund V’s revised offer to Mr. Sochet. Mr. Sochet did not give an indication on that call as to whether he would be willing to participate in the proposed acquisition by Oak Hill Fund V.
Additionally, on May 18, 2020, an initial draft of the Merger Agreement, which was prepared by Troutman, was added to the data room. The initial draft of the Merger Agreement contemplated, among other things, (i) a “go-shop” period of 60 days after the execution and delivery of the Merger Agreement, (ii) a break fee payable to Parent that would be equal to 2.5% of the aggregate merger consideration (the “Tier 1 Company Break Fee”), except that the break fee payable in connection with an acquisition proposal that Otelco received from a third party prior to the end of the “go-shop” period would be 1% of the aggregate merger consideration (the “Tier 2 Company Break Fee”), and (iii) a two-tier reverse break fee payable to the Company: the fee would be equal to 7.5% of the aggregate merger consideration if the Merger Agreement was terminated due to Parent’s material breach, and would be equal to 2.5% of the aggregate merger consideration if the Merger Agreement was terminated on or after the outside date due to the parties’ failure to obtain certain specified regulatory approvals.
On May 22, 2020, a representative from each of Troutman and Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”), counsel to Oak Hill Fund V, held a conference call in which the representative of Paul Weiss indicated that Oak Hill Fund V did not want a “go-shop” period and that Oak Hill Fund V wanted a “force the vote” provision in the Merger Agreement that would require the Board to submit the proposed transaction with Parent to the Company’s stockholders for a vote even if the Board no longer recommended that the Company’s stockholders adopt the Merger Agreement.
On May 25, 2020, the Company and Oak Hill Fund V entered into an exclusivity extension agreement pursuant to which the Company extended the negotiation exclusivity period for Oak Hill Fund V until June 8, 2020.
On May 26, 2020, Mr. Sochet indicated to the Company via email that he would support the proposed transaction with Oak Hill Fund V and that he and his affiliates intended to sell all of the shares of common stock beneficially owned by him and his affiliates as part of such transaction.
On May 28, 2020, the Board convened a special telephonic meeting to discuss Oak Hill Fund V’s requests to eliminate the “go-shop” provision, and to include a “force the vote” provision, in the Merger Agreement. Representatives of Troutman were also present. After discussion, the Board affirmed its decision to include a “go-shop” provision in the Merger Agreement, but determined that it would consider a shortened “go-shop” period and a reasonable increase in the break fee payable to Parent in connection with termination of the Merger Agreement
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by the Company based on a superior offer by a third party acquiror. The Board also affirmed its decision not to include a “force the vote” provision in the Merger Agreement. Following this meeting of the Board, representatives of Troutman conveyed the Board’s position on the “go-shop” period and a “force the vote” provision to representatives of Paul Weiss in a telephone conference.
On June 3, 2020, representatives of Paul Weiss provided revised drafts of the Merger Agreement to representatives of Troutman. This revised draft of the Merger Agreement (i) did not provide for a “go-shop” period and (ii) did include a “force the vote” provision. Paul Weiss also provided a draft Equity Commitment Letter and a draft Guarantee.
On June 5, 2020, the Board convened a special telephonic meeting to discuss the “go-shop” and “force the vote” issues in the revised draft of the Merger Agreement received from Paul Weiss. Representatives of Troutman were also present. Also invited to attend the meeting were representatives of Houlihan Lokey, which the Company was in the process of engaging to provide an opinion to the Board regarding the Merger Consideration prior to the Company entering into the Merger Agreement. The Board discussed the “go-shop” and “force the vote” issues. The representatives of Houlihan Lokey were then excused from the meeting. After discussion, the Board reaffirmed its decision to retain the “go-shop” provision in the Merger Agreement, but agreed to consider shortening the “go-shop” period from 60 days to 30 days and increasing the Tier 1 Company Break Fee and Tier 2 Company Break Fee from 2.5% and 1%, respectively, to 5.5% and 4.5% of the aggregate merger consideration, respectively. The Board also reaffirmed its decision not to include a “force the vote” provision in the Merger Agreement. Following this meeting, representatives of Lazard conveyed to Oak Hill Fund V the position of the Board on the “go-shop” and “force the vote” issues. Later in early June 2020, the Company engaged Houlihan Lokey to provide an opinion to the Board.
On June 6, 2020, representatives of Troutman and Paul Weiss had a conference call regarding the “go-shop” and “force the vote” issues in the Merger Agreement. With respect to the “go-shop” provision, representatives of Paul Weiss informed representatives of Troutman that Oak Hill Fund V had agreed to the Company’s proposal of a 30-day “go-shop” period and the Tier 1 Company Break Fee and Tier 2 Company Break Fee of 5.5% and 4.5% of the aggregate merger consideration, respectively.
On June 8, 2020, the Company entered into a second exclusivity extension agreement with Oak Hill Fund V, pursuant to which the Company extended the negotiation exclusivity period for Oak Hill Fund V until June 15, 2020.
On June 10, 2020, representatives of Troutman provided a revised draft of the Merger Agreement to representatives of Paul Weiss, which included a 30-day “go-shop” period and removed the “force the vote” provision.
On June 15, 2020, the Company and Oak Hill Fund V entered into a third exclusivity extension agreement pursuant to which the exclusivity period for Oak Hill Fund V was extended to June 22, 2020. Representatives of Troutman also provided revised drafts of the Equity Commitment Letter and the Guarantee to representatives of Paul Weiss.
Between June 17, 2020 and July 25, 2020, representatives of the Company and Troutman and representatives of Paul Weiss and Oak Hill Fund V continued negotiating and finalizing the Merger Agreement and related documentation, including the Guarantee, the Equity Commitment Letter and the Debt Commitment Letter.
On June 17, 2020, representatives of Paul Weiss sent an initial draft of the Voting Agreement to representatives of Arent Fox LLP (“Arent Fox”), counsel to Mr. Sochet.
On June 22, 2020, the Company and Oak Hill Fund V entered into a fourth exclusivity extension agreement pursuant to which the exclusivity period for Oak Hill Fund V was extended to June 29, 2020.
On June 23, 2020, representatives of Arent Fox sent a revised draft of the Voting Agreement to representatives of Paul Weiss.
On June 29, 2020, the Company and Oak Hill Fund V entered into a fifth exclusivity extension agreement pursuant to which the exclusivity period for Oak Hill Fund V was extended to July 6, 2020.
On July 6, 2020, the Company and Oak Hill Fund V entered into a sixth exclusivity extension agreement pursuant to which the exclusivity period for Oak Hill Fund V was extended to July 13, 2020.
On July 13, 2020, the Company and Oak Hill Fund V entered into a seventh exclusivity extension agreement pursuant to which the exclusivity period for Oak Hill Fund V was extended to July 20, 2020.
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On July 20, 2020, the Company and Oak Hill Fund V entered into an eighth exclusivity extension agreement pursuant to which the exclusivity period for Oak Hill Fund V was extended to July 27, 2020.
On July 26, 2020, the Board convened a special telephonic meeting. Representatives of each of Houlihan Lokey, Lazard and Troutman were also present. At the request of the Board, Houlihan Lokey reviewed and discussed its financial analyses and then responded to the Board’s questions. Thereafter, at the request of the Board, Houlihan Lokey verbally rendered its opinion to the Board (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the Board dated July 26, 2020), as to, as of such date, the fairness, from a financial point of view, to the holders of common stock of the Merger Consideration to be received by such holders in the Merger pursuant to the Merger Agreement. The representatives of Houlihan Lokey were then excused from the meeting.
Representatives of Lazard then reviewed with the Board the “go-shop” process that the Company would undertake with Lazard’s assistance after the execution of the Merger Agreement, including a proposed list of potential bidders to be contacted. The Board asked a number of questions of Lazard. The representatives of Lazard were then excused from the meeting.
Representatives of Troutman then reviewed with the Board the principal terms of the Merger Agreement and related transaction documents. Representatives of Troutman also reviewed with the Board its fiduciary duties under Delaware law and engaged the Board in a discussion regarding the same.
The Board then resolved, by unanimous vote, that the Merger Agreement and the transactions contemplated thereby were advisable, fair to and in the best interests of the Company and the holders of common stock, approved the Merger Agreement and the transactions contemplated thereby, resolved that a special meeting of the holders of common stock be called to adopt and approve the Merger Agreement and recommended that the holders of common stock adopt and approve the Merger Agreement and, on a non-binding advisory basis, approve the merger-related execution compensation that the Company’s named executive officers will or may receive in connection with the Merger at that meeting.
Subsequently on July 26, 2020, the Company, Parent and Merger Sub executed and delivered the Merger Agreement, affiliates of Oak Hill Fund V and the Company executed and delivered the Guarantee, Parent, Mr. Sochet and Mr. Sochet’s affiliates executed and delivered the Voting Agreement, affiliates of Oak Hill Fund V and Parent executed and delivered the Equity Commitment Letter, and Parent and CoBank, ACB executed and delivered the Debt Commitment Letter.
Prior to the opening of trading on the Nasdaq on July 27, 2020, the Company issued a press release announcing the execution of the Merger Agreement.
On the same day, at the direction of the Board, representatives of Lazard began contacting potential counterparties to an alternative transaction with the Company in connection with the “go-shop” period.
During the “go-shop” period, at the direction of the Board, representatives of Lazard contacted 79 parties, including 37 strategic and 42 financial parties. Eleven of these parties entered into confidentiality agreements with the Company and seven were granted access to the electronic data room maintained by the Company. Four parties engaged in virtual management presentations. No additional bids were received during the “go-shop” period.
Recommendation of the Board; Reasons for the Merger
At a meeting held on July 26, 2020, the Board, by a unanimous vote of all of its members, after careful consideration, including detailed discussions with the Company’s management and outside legal counsel and Lazard regarding the Merger and also with Houlihan Lokey regarding its opinion to the Board, determined that the Merger Agreement and the transactions contemplated thereby were advisable, fair to and in the best interests of the Company and the stockholders, approved the Merger Agreement and the transactions contemplated thereby, resolved that a special meeting of the stockholders be called to adopt and approve the Merger Agreement and recommended that the stockholders adopt and approve the Merger Agreement and, on a non-binding advisory basis, approve the merger-related execution compensation that the Company’s named executive officers will or may receive in connection with the Merger at that meeting.
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As described above in the section entitled “—Background of the Merger”, before making its recommendation, the Board consulted with our senior management and outside legal counsel and Lazard and also with Houlihan Lokey regarding its opinion to the Board. In reaching its recommendation, the Board reviewed a significant amount of information and considered a number of factors, including, among others, the following:
the Board’s understanding of the Company’s business, operations, financial condition, earnings, prospects, competitive position and the nature of the industry in which the Company competes;
the belief that the Merger is more favorable to the stockholders than alternatives to the Merger, which belief was formed based upon a review by the Board, with the assistance of our senior management, our outside legal counsel and Lazard, of potential strategic alternatives available to us, including continuing to operate as a public company;
the fact that eight potential investors had been sent a process letter asking them to submit a non-binding, final offer regarding the Proposed Capital Raise and that no parties expressed an interest in making an offer related to the Proposed Capital Raise;
of the parties identified in the immediately preceding bullet point, only one party other than Parent made a proposal to the Company;
the Board’s belief that the Company’s stand-alone plan involved significant risks in light of the industry and competitive pressures the Company was facing and the Board’s concerns with respect to the risks relating to the Company’s ability to execute on this plan, including the possibility that this plan may not produce the intended results on the targeted timing or at all;
the Board’s belief that other alternatives to a sale of the entire company, including the Proposed Capital Raise, which alternatives the Board evaluated with the assistance of Lazard and the Company’s outside legal counsel, did not represent a more attractive alternative to a sale in light of, among other factors, the potential risks, rewards and uncertainties associated with those alternatives;
the fact that the financial, management, and other resources made available to the Company through the Merger will enhance the Company’s services to the benefit of its customers;
during the “go-shop” period, the Company would be permitted to solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that constituted, or that could constitute, an Acquisition Proposal from a person other than Parent, and that the Company could terminate the Merger Agreement to accept a Superior Proposal from such person as long as the Company complied with certain procedures in the Merger Agreement, as more fully described under the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement”;
the belief that we could not reasonably expect to obtain more than the Merger Consideration by conducting a wider sale process prior to execution of the Merger Agreement;
the belief that $11.75 per share merger consideration was the highest price Parent was willing to offer, taking into account the extensive negotiations between the parties;
the fact that the Merger Consideration is to be paid in cash, which provides immediate value and liquidity to stockholders and allows them to monetize their investment in us in the near future, while avoiding long-term stock market and business risk, including the risks and uncertainties relating to the Company’s prospects (including the prospects described in the management’s forecasts summarized in the section below entitled “—Certain Unaudited Prospective Financial Information”), immediately upon the closing of the Merger;
the fact that the Merger Consideration represents a premium of approximately 43.3% to the unaffected share price of the Company’s common stock on June 23, 2020;
the fact that the Merger Consideration represents a premium of approximately 53.2%% to the 20-day volume weighted average price per share of the Company’s common stock as of June 23, 2020, and a premium of approximately 58.1% to our average daily closing stock price during the second quarter of 2020;
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the possibility that the trading price of our common stock would not reach and sustain at least the $11.75 per share to be paid in cash pursuant to the Merger Agreement;
the fact that, as a public company, we face continuing pressures from investors that may conflict with our long-term strategic plan, creating the risk of disruption and distraction that may reduce value for the stockholders;
the financial analysis reviewed by Houlihan Lokey with the Board as well as the opinion of Houlihan Lokey verbally rendered to the Board on July 26, 2020 (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the Board dated July 26, 2020), as to, as of such date, the fairness, from a financial point of view, to the holders of common stock of the Merger Consideration to be received by such holders in the Merger pursuant to the Merger Agreement, as more fully described in the section of this proxy statement captioned “—Opinion of Houlihan Lokey Capital, Inc.”;
Oak Hill’s track record in successfully acquiring other companies, consolidated financial strength, industry expertise and track record of investment in critical data service and infrastructure;
the fact that resolutions approving the Merger Agreement were unanimously approved by the Board, which is comprised of a majority of independent directors who are not affiliated with the Company and are not employees of the Company or any of its subsidiaries;
the fact that the Merger is not conditioned upon any member of the Company’s management or Board entering into any employment, equity contribution or other agreement or arrangement with the Company or Parent, and that no such agreement or arrangement existed as of the date of the Merger Agreement;
the risk that pursuing other potential alternatives, including continuing to operate on a stand-alone basis, could have resulted in the loss of an opportunity to consummate a transaction;
the likelihood that the Merger would be completed, based on, among other things:
Parent and Merger Sub had obtained the Equity Financing and the Debt Financing for the transactions contemplated by the Merger Agreement, the amount of the Equity Financing, the limited number and nature of conditions to the Equity Financing and the Debt Financing;
Parent’s interest in and knowledge of our business;
the fact that the Sochet Stockholders have entered into the Voting Agreement which, unless terminated, obligates them to vote in favor of the Merger Agreement, and at the time of the execution of the Voting Agreement, Sochet had held approximately 49.3% of the outstanding shares of common stock;
the absence of financing or due diligence conditions to the completion of the Merger;
the Company’s right to enforce the Guarantee from the Guarantors, which will guarantee the $3,450,288 termination fee payable to the Company in certain circumstances and the Reimbursement and Collection Obligations;
the fact that Parent would be required to pay the Company the Parent Termination Fee of $3,450,288 if the Merger Agreement is terminated under certain circumstances;
the Company’s right to specific performance to prevent breaches of the Merger Agreement;
the Company’s right to specific performance to cause the Equity Financing contemplated by the Equity Commitment Letter to be funded, subject to certain conditions;
the Company’s right during the “go-shop” period to solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that constituted, or that could constitute, an Acquisition Proposal from a person other than Parent, and that the Company could terminate the Merger Agreement to accept a Superior Proposal from such person or change its recommendation in response to a Superior Proposal as long as the Company complied with certain procedures in the Merger Agreement;
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the right of the Board to change its recommendation in response to an Intervening Event (as defined herein) if the Board determines in good faith (after consultation with its financial advisor and outside legal counsel) that the failure to do so would be inconsistent with its fiduciary duties pursuant to applicable law, subject to certain conditions;
the negotiations with Parent, which, among other things, resulted in certain better contractual terms than those initially proposed by Parent, including a significantly larger termination fee payable by Parent to us under certain circumstances;
the availability of appraisal rights under the DGCL to stockholders who comply with all of the required procedures under the DGCL, which allows stockholders to seek appraisal of the “fair value” of their common stock as determined by the Delaware Court of Chancery; and
the covenants contained in the Merger Agreement obligating each of the parties to use reasonable best efforts to cause the Merger to be consummated.
The Board also considered potentially negative factors in its deliberations concerning the Merger Agreement and the Merger, including, among others, the following:
the risks and costs to the Company if the Merger does not close in a timely manner or at all, including the potential negative impact on the Company’s ability to retain key employees, the diversion of management and employee attention and the potential disruptive effect on the Company’s day-to-day operations and the Company’s relationships with customers, suppliers and other third parties;
the risk that the Merger will not occur if the Debt Financing or the Equity Financing, described under “—Financing of the Merger” is not obtained, even though the Merger is not conditioned on the receipt of that financing;
the restrictions on the conduct of our business prior to the completion of the Merger, which may delay or prevent us from undertaking business opportunities that may arise or any other action we would otherwise take with respect to our operations pending completion of the Merger;
although we currently expect that the Merger will be consummated, there can be no assurance that all conditions to the parties’ obligations to effect the Merger will be satisfied, and, as a result, the Merger may not be consummated;
the Debt Commitment Letter expires on the earlier to occur of (i) the date that is the last business day of the thirteenth month after the date of its acceptance by Parent, and (ii) 11:59 p.m. on the date that is five business days after the Termination Date, and either the Company or Parent may, in certain circumstances, terminate the Merger Agreement if the Merger has not been consummated by the Termination Date;
the significant costs involved in connection with entering into the Merger Agreement and completing the Merger, and the substantial time and effort of management required to complete the Merger;
the fact that, under the terms of the Merger Agreement, the Company is unable to solicit other Acquisition Proposals after the No-Shop Period Start Date;
that the current stockholders would not have the opportunity to participate in any of our possible growth and profits following the Merger;
the Company’s obligation to pay Parent the Company Termination Fee of $1,826,623, if payable in connection with a definitive Alternative Acquisition Agreement entered into with an Excluded Party on or after the date of the Merger Agreement and on or prior to the Cut-Off Date, subject to certain exceptions, or $2,232,539 if payable in all other circumstances;
the fact that as an all-cash transaction the Merger generally would be taxable to stockholders that were U.S. Holders for U.S. federal income tax purposes, although the Board believed that this was mitigated by the fact that the entire consideration payable in the Merger would be cash, providing a cash amount for the payment of any taxes due;
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the fact that the completion of the Merger would require regulatory clearances and approvals and the satisfaction of certain other closing conditions that are not entirely within the Company’s control, including that no Company Material Adverse Effect has occurred and that there is no Legal Restraint preventing the consummation of the Merger; and
the risk of litigation in connection with the Merger, and the fact that litigation in connection with transactions such as the Merger is common and potentially costly and distracting to the Company’s directors, management and employees.
In considering the recommendation of the Board with respect to the proposal to adopt and approve the Merger Agreement, you should be aware that certain of our directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of the stockholders generally. The Board was aware of and considered these interests, to the extent such interests existed at the time, among other matters, in evaluating and negotiating the Merger Agreement, and in recommending that the Merger Agreement be adopted and approved by the stockholders. For more information on these interests see the section of the proxy statement captioned “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.”
The foregoing discussion of the information and factors considered by the Board is not intended to be exhaustive, but includes the material factors considered by the Board. In view of the complexity and wide variety of factors considered, the Board did not find it practicable to and did not attempt to quantify, rank or otherwise assign any relative or specific weights to the various factors. In addition, the Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable, but rather the Board conducted an overall analysis of the factors described above. In considering the factors described above, individual members of the Board may have given different weights to different factors. The explanation of the factors and reasoning set forth above contain forward-looking statements that should be read in conjunction with the section of this proxy statement captioned “Forward-Looking Statements.”
Accordingly, the Board unanimously recommends that you vote “FOR” the adoption of the Merger Agreement, “FOR,” on an advisory (non-binding) basis, the Compensation Proposal and “FOR” the Adjournment Proposal.
Certain Unaudited Prospective Financial Information
The Company does not, as a matter of course, publicly disclose financial projections as to future financial performance, earnings or other results. However, in connection with the Merger, the Company’s management prepared certain non-public financial projections as to the potential future performance of the Company for the years 2020 to 2029 (the “Management Projections”) which were provided to the Board in the first quarter of 2020 in connection with their evaluation of the Merger. At the direction of the Board, the Management Projections were provided to Houlihan Lokey in connection with its opinion and the financial analyses conducted in support of the opinion, including Houlihan Lokey’s financial analyses described in the section of this proxy statement captioned “—Opinion of Houlihan Lokey Capital, Inc.” The Management Projections were also provided to Parent for its use in connection with its evaluation of the Merger. For more information, see the section of this proxy statement captioned “—Background of the Merger.”
The below summary of the Management Projections is included for the purpose of providing stockholders access to certain non-public information that was furnished to certain parties in connection with the Merger, and such information may not be appropriate for other purposes, and is not included to influence the voting decision of any stockholder or whether any stockholder should seek appraisal rights with respect to common stock. The inclusion of the Management Projections should not be regarded as an indication that the Company or anyone who received the Management Projections then considered, or now considers, them necessarily predictive of actual future events, and the Management Projections should not be relied upon as such.
The Management Projections were not prepared with a view toward public disclosure or with a view toward complying with the published guidelines of the SEC regarding projections or accounting principles generally accepted in the United States (“GAAP”), or the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information. Neither the Company’s independent auditor nor any other independent accountant has compiled, examined, or performed any procedures with respect to the Management Projections, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The Management Projections contain projections of Adjusted EBITDA, which is a non-GAAP financial measure within the meaning of the applicable rules and regulations of the SEC that is not calculated in accordance
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with GAAP. This non-GAAP financial measure should not be viewed as a substitute for a GAAP financial measure, and may be different from non-GAAP financial measures used by other companies. Accordingly, this non-GAAP financial measure should be considered together with, and not as an alternative to, financial measures prepared in accordance with GAAP.
Although the Management Projections are presented with numerical specificity, they reflect numerous estimates and assumptions made by the Company’s management with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to the Company’s business, all of which are difficult to predict accurately and many of which are beyond the Company’s control. The Management Projections reflect subjective judgment in many respects and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the Management Projections constitute forward-looking information and are subject to many risks and uncertainties that could cause actual results to differ materially from the results forecasted in the Management Projections, including, but not limited to, the inherent uncertainty of the business and economic conditions affecting the industry in which the Company operates, and the risks and uncertainties described under the caption “Forward-Looking Statements” beginning on page 16 and in other reports filed by or furnished to the SEC by the Company. There can be no assurance that the Management Projections will be realized or that actual results will not be significantly higher or lower than forecast. The Management Projections cover several years and such information by its nature becomes subject to greater uncertainty with each successive year.
The Management Projections were developed by the Company’s management without giving effect to the Merger or the other transactions contemplated by the Merger Agreement or any changes to the Company’s operations or strategy that may be implemented after the consummation of the Merger. In addition, the Management Projections will be affected by the Company’s ability to achieve strategic goals, objectives and targets over the applicable periods. The Management Projections reflect assumptions as to certain business decisions that are subject to change. The Management Projections cannot, therefore, be considered a guarantee of future operating results, and this information should not be relied on as such.
In addition, the Management Projections have not been updated or revised to reflect information, circumstances, events or results after the date they were prepared or as of the date of this proxy statement, and except as required by applicable securities laws, the Company does not intend to update or otherwise revise the Management Projections or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the underlying assumptions are shown to be in error.
The inclusion of the Management Projections herein should not be deemed an admission or representation by the Company that the Company views such Management Projections as material information, particularly in light of the inherent risks and uncertainties associated with such long-range forecasts. No representation is made by the Company or any other person regarding the Management Projections or the Company’s ultimate performance compared to such information. In light of the foregoing factors, and the uncertainties inherent in the Management Projections, stockholders are cautioned not to place undue, if any, reliance on the Management Projections. The Management Projections should be evaluated, if at all, in conjunction with the historical consolidated financial statements and other information contained in the Company’s public filings with the SEC.
The following table summarizes the Management Projections prepared by Otelco’s management as described above:
Summary of Otelco’s Management Projections
 
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2027E
2028E
2029E
($ in millions)
 
 
 
 
 
 
 
 
 
 
Revenue
$60.7
$58.8
$57.7
$57.1
$56.5
$56.0
$55.6
$55.6
$55.6
$55.6
Gross Profit
29.2
27.0
25.6
24.6
23.7
22.9
22.1
21.8
21.4
21.1
Adjusted EBITDA(1)
19.8
17.2
15.7
14.7
13.7
12.8
11.9
11.4
11.0
10.6
Capital Expenditures
8.5
7.0
7.1
8.2
7.8
7.7
7.8
7.3
6.0
3.9
(1)
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for certain non-recurring items, including legal expenses incurred by the Board and miscellaneous other adjustments.
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Opinion of Houlihan Lokey Capital, Inc.
On July 26, 2020, Houlihan Lokey verbally rendered its opinion to the Board (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the Board dated July 26, 2020), as to, as of such date, the fairness, from a financial point of view, to the holders of common stock of the Merger Consideration to be received by such holders in the Merger pursuant to the Merger Agreement.
Houlihan Lokey’s opinion was directed to the Board (in its capacity as such) and only addressed the fairness, from a financial point of view, of the Merger Consideration to be received by the holders of common stock in the Merger pursuant to the Merger Agreement and did not address any other aspect or implication of the Merger or any other agreement, arrangement or understanding. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex B to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in connection with the preparation of its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the Board, any security holder of the Company or any other person as to how to act or vote with respect to any matter relating to the Merger.
In arriving at its opinion, Houlihan Lokey, among other things:
1.
reviewed the execution version of the Merger Agreement dated as of July 26, 2020;
2.
reviewed certain publicly available business and financial information relating to the Company that Houlihan Lokey deemed to be relevant;
3.
reviewed certain information relating to the historical, current and future operations, financial condition and prospects of the Company made available to Houlihan Lokey by the Company, including financial projections prepared by the management of the Company relating to the Company for the years 2020 through 2029 (see the section of this proxy statement captioned “—Certain Unaudited Prospective Financial Information” regarding the Management Projections);
4.
spoken with certain members of the management of the Company and certain representatives and advisors of the Company regarding the business, operations, financial condition and prospects of the Company, the Merger and related matters;
5.
compared the financial and operating performance of the Company with that of other public companies that Houlihan Lokey deemed to be relevant;
6.
considered publicly available financial terms of certain transactions that Houlihan Lokey deemed to be relevant;
7.
reviewed the current and historical market prices and trading volume for the common stock, and the current and historical market prices and trading volume of the publicly traded securities of certain other companies that Houlihan Lokey deemed to be relevant;
8.
considered the results of the third-party solicitation process conducted by the Company; and
9.
conducted such other financial studies, analyses and inquiries and considered such other information and factors as Houlihan Lokey deemed appropriate.
Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available, and does not assume any responsibility with respect to such data, material and other information. In addition, management of the Company advised Houlihan Lokey, and Houlihan Lokey assumed, that the financial projections reviewed by Houlihan Lokey were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to the future financial results and condition of the Company, and Houlihan Lokey expressed no opinion with respect to such projections or the assumptions on which they are based. Houlihan Lokey relied upon and assumed, without independent verification, that there was no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey that would be material to Houlihan Lokey’s analyses
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or its opinion and that there was no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading in any respect that would be material to Houlihan Lokey’s analyses or its opinion. Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the Merger Agreement and all other related documents and instruments that are referred to therein are true and correct in all respects material to Houlihan Lokey’s analyses and its opinion, (b) each party to the Merger Agreement and such other related documents and instruments will fully and timely perform all of the covenants and agreements required to be performed by such party in all respects material to Houlihan Lokey’s analyses and its opinion, (c) all conditions to the consummation of the Merger would be satisfied without waiver of such conditions in any respect that would be material to Houlihan Lokey’s analyses or its opinion, and (d) the Merger would be consummated in a timely manner in accordance with the terms described in the Merger Agreement and such other related documents and instruments, without any amendments or modifications thereto in any respect that would be material to Houlihan Lokey’s analyses or its opinion. Houlihan Lokey relied upon and assumed, without independent verification, that (i) the Merger would be consummated in a manner that complies in all respects with all applicable federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Merger would be obtained and that no delay, limitations, restrictions or conditions would be imposed or amendments, modifications or waivers made that would have an effect on the Merger or the Company that would be material to Houlihan Lokey’s analyses or its opinion. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final form of the Merger Agreement, when executed, would not differ from the execution version of the Merger Agreement identified above in any respect that would be material to Houlihan Lokey’s analyses or its opinion.
Furthermore, in connection with its opinion, Houlihan Lokey was not requested to make, and did not make, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of the Company or any other party, nor was Houlihan Lokey provided with any such appraisal or evaluation. Houlihan Lokey did not estimate, and expressed no opinion regarding, the liquidation value of any entity or business. Houlihan Lokey undertook no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or was or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or was or may be subject.
Houlihan Lokey was not requested to, and did not, (a) initiate or participate in any discussions or negotiations with, or solicit any indications of interest from, third parties with respect to the Merger, the securities, assets, business or operations of the Company or any other party, or any alternatives to the Merger, (b) negotiate the terms of the Merger, or (c) advise the Board, the Company or any other party with respect to alternatives to the Merger. Houlihan Lokey’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Houlihan Lokey as of, the date of Houlihan Lokey’s opinion. Houlihan Lokey did not undertake, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to Houlihan Lokey’s attention after the date of its opinion. The credit, financial and stock markets have experienced unusual volatility and Houlihan Lokey expressed no opinion or view as to any potential effects of such volatility on the Merger or the Company.
Houlihan Lokey’s opinion was furnished for the use of the Board (in its capacity as such) in connection with its evaluation of the Merger and may not be used for any other purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey’s opinion is not intended to be, and does not constitute, a recommendation to the Board, the Company, any security holder or any other party as to how to act or vote with respect to any matter relating to the Merger or otherwise.
Houlihan Lokey was not asked to, and Houlihan Lokey did not, express any opinion with respect to any matter other than the fairness, from a financial point of view, to the holders of common stock of the Merger Consideration to be received in the Merger pursuant to the Merger Agreement by such holders, without regard to any aspect of any voting or other agreements or other individual circumstances of specific stockholders which may distinguish such stockholders. For purposes of Houlihan Lokey’s analyses and its opinion, Houlihan Lokey did not apply any control premium, minority or illiquidity discounts or other premiums or discounts, or otherwise give effect to any rights, restrictions or limitations, that may be attributable to any security of the Company or any other party or blocks of such securities. Houlihan Lokey was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Board, the Company, its security holders or any other party to proceed with or effect the Merger, (ii) the terms of any arrangements, understandings,
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agreements or documents related to, or the form, structure or any other portion or aspect of, the Merger or otherwise (other than the Merger Consideration to the extent expressly specified in the opinion), (iii) the fairness of any portion or aspect of the Merger to the holders of any class of securities, creditors or other constituencies of the Company, or to any other party, except if and only to the extent expressly set forth in the last sentence of the opinion, (iv) the relative merits of the Merger as compared to any alternative business strategies or transactions that might have been available for the Company or any other party, (v) the fairness of any portion or aspect of the Merger to any one class or group of the Company’s or any other party’s security holders or other constituents vis-à-vis any other class or group of the Company’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders or other constituents), (vi) whether or not the Company, Parent, their respective security holders or any other party is receiving or paying reasonably equivalent value in the Merger, (vii) the solvency, creditworthiness or fair value of the Company, Parent or any other participant in the Merger, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (viii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Merger, any class of such persons or any other party, relative to the Merger Consideration or otherwise. Furthermore, no opinion, counsel or interpretation was intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It was assumed that such opinions, counsel or interpretations were or would be obtained from appropriate professional sources. Furthermore, Houlihan Lokey relied, with the consent of the Board, on the assessments by the Company and its advisors as to all legal, regulatory, accounting, insurance, tax and other similar matters with respect to the Company and the Merger or otherwise.
In performing its analyses, Houlihan Lokey considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to the Company or the proposed Merger and an evaluation of the results of those analyses is not entirely mathematical. The estimates contained in the financial forecasts prepared by the management of the Company and the implied reference range values indicated by Houlihan Lokey’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of our company. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.
Houlihan Lokey’s opinion was only one of many factors considered by the Board in evaluating the proposed Merger. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the Merger Consideration or of the views of the Board or the Company’s management with respect to the Merger or the Consideration. Under the terms of its engagement by the Company, neither Houlihan Lokey’s opinion nor any other advice or services rendered by it in connection with the proposed Merger or otherwise, should be construed as creating, and Houlihan Lokey should not be deemed to have, any fiduciary duty to, or agency relationships with, the Board, the Company, Parent, any security holder or creditor of the Company or Parent or any other person, regardless of any prior or ongoing advice or relationships. The type and amount of consideration payable in the Merger were determined through negotiation between the Company and Parent, and the decision of the Company to enter into the Merger Agreement was solely that of the Board.
Financial Analyses
In preparing its opinion to the Board, Houlihan Lokey performed a variety of analyses, including those described below. The summary of Houlihan Lokey’s analyses is not a complete description of the analyses underlying Houlihan Lokey’s opinion. The preparation of such an opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither Houlihan Lokey’s opinion nor its underlying analyses is readily susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology or factor. While the results of each analysis were taken into account in reaching Houlihan Lokey’s overall conclusion with respect to fairness, Houlihan Lokey did not make separate or quantifiable judgments regarding individual
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analyses. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors, without considering all analyses, methodologies and factors, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion.
Houlihan Lokey’s analyses were necessarily based on business, financial, economic, market and other conditions as in effect on, and the information made available to Houlihan Lokey as of, the date of Houlihan Lokey’s opinion. The credit, financial and stock markets have been experiencing unusual volatility and Houlihan Lokey expressed no opinion or view as to the effects of such volatility on the proposed Merger and the Company. Houlihan Lokey’s analyses do not address or purport to address any potential changes or developments in such markets or volatility. Furthermore, there is significant uncertainty as to the potential direct and indirect business, financial, economic and market implications and consequences of the spread of the coronavirus and associated illnesses and the actions and measures that countries, central banks, international financing and funding organizations, stock markets, businesses and individuals may take to address the spread of the coronavirus and associated illnesses including, without limitation, those actions and measures pertaining to fiscal or monetary policies, legal and regulatory matters and the credit, financial and stock markets (collectively, the “Pandemic Effects”), and the Pandemic Effects could have a material impact on Houlihan Lokey’s analyses.
The following is a summary of the material financial analyses performed by Houlihan Lokey in connection with the preparation of its opinion and reviewed with the Board on July 26, 2020. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of Houlihan Lokey’s analyses.
For purposes of its analyses, Houlihan Lokey reviewed a number of financial metrics, including:
Enterprise Value — generally, the value as of a specified date of the relevant company’s outstanding equity securities (taking into account outstanding options and other securities convertible, exercisable or exchangeable into or for equity securities of the company) plus the amount of its net debt (the amount of its outstanding indebtedness, capital lease obligations and non-controlling interests less the amount of cash and cash equivalents on its balance sheet).
Adjusted EBITDA — generally, the amount of the relevant company’s earnings before interest, taxes, depreciation and amortization, adjusted for certain non-recurring items, for a specified time period.
Unless the context indicates otherwise, enterprise values and equity values used in the selected companies analysis described below were calculated using the closing price of the common stock of the selected companies listed below on July 24, 2020, and transaction values for the selected transactions analysis described below were calculated on an enterprise value basis based on the announced transaction equity price and other public information available at the time of the announcement. The estimates of the future financial performance of the Company relied upon for the financial analyses described below were based on the Management Projections. The estimates of the future financial performance of the selected companies listed below were based on certain publicly available research analyst estimates for those companies. Data for the selected companies may not reflect the potential impact of the Pandemic Effects.
Selected Companies Analysis. Houlihan Lokey reviewed certain data for selected companies, with publicly traded equity securities, that Houlihan Lokey deemed relevant. The financial data reviewed included:
Enterprise value as a multiple of estimated Adjusted EBITDA for the most recently completed 12-month period for which financial information has been made public (“LTM”);
Enterprise value as a multiple of estimated Adjusted EBITDA for the next fiscal year for which financial information has not been made public (“NFY”); and
Enterprise value as a multiple of estimated Adjusted EBITDA for the fiscal year following NFY (“NFY+1”).
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The selected companies and resulting data were as follows:
Alaska Communications Systems Group, Inc.
CenturyLink, Inc.
Consolidated Communications Holdings, Inc.
Shenandoah Telecommunications Company
Telephone and Data Systems, Inc.
WideOpenWest, Inc.
 
Enterprise Value/
LTM Adjusted
EBITDA
Enterprise Value/
Estimated NFY
Adjusted EBITDA
Enterprise Value/
Estimated NFY+1
Adjusted EBITDA
Low
3.8x
3.8x
3.8x
High
7.3x
6.6x
6.5x
Median
5.0x
5.1x
5.2x
Mean
5.2x
5.2x
5.2x
Taking into account the results of the selected companies analysis, Houlihan Lokey applied selected multiple ranges of 3.5x to 4.5x LTM Adjusted EBITDA to the Company’s Adjusted EBITDA for the 12-month period ended March 31, 2020, 4.0x to 5.0x estimated NFY Adjusted EBITDA to the Company’s estimated Adjusted EBITDA for the year 2020, and 4.5x to 5.5x estimated NFY+1 to the Company’s estimated Adjusted EBITDA for the year 2021. Houlihan Lokey then added cash and cash equivalents and investments, and subtracted debt, in each case as of March 31, 2020 and as reported in the Company’s public filings. The selected companies analysis indicated implied per share reference ranges of $4.78 to $11.38 per share of common stock based on the selected range of multiples of LTM Adjusted EBITDA, $4.59 to $10.33 per share of common stock based on the selected range of multiples of estimated NFY Adjusted EBITDA, and $4.09 to $9.10 per share of common stock based on the selected range of multiples of estimated NFY+1 Adjusted EBITDA, as compared to the proposed Merger Consideration of $11.75 per share of common stock.
Selected Transactions Analysis. Houlihan Lokey considered certain financial terms of certain transactions involving target companies that Houlihan Lokey deemed relevant. The financial data reviewed included transaction value as a multiple of LTM Adjusted EBITDA.
The selected transactions and resulting data were as follows:
Date Announced
Target
Acquiror
1/24/2020
Cincinnati Bell Inc.
Macquarie Infrastructure and Real Assets; MIP V (FCC) AIV, L.P.
5/29/2019
Western Region Operations of Frontier Communications Corporation
Multiple Financial Sponsors
4/1/2019
Data, Video and Voice Business and Related Assets of Fidelity Communications Co., Inc.
Cable One, Inc.
7/10/2017
Hawaiian Telcom Holdco, Inc.
Cincinnati Bell Inc.
7/10/2017
Metrocast Cablevision of New Hampshire, LLC
Atlantic Broadband Finance, LLC
5/22/2017
WaveDivision Holdings, LLC
RCN Telecom Services, LLC
4/13/2017
Broadview Networks Holdings, Inc.
Windstream Holdings, Inc.
1/18/2017
Rural Broadband Investments, LLC
Cable One, Inc.
12/5/2016
Fairpoint Communications, Inc.
Consolidated Communications Holdings, Inc.
11/7/2016
EarthLink Holdings Corp.
Windstream Holdings, Inc.
11/2/2016
Inteliquent, Inc.
Onvoy, LLC
10/31/2016
Level 3 Communications, Inc.
CenturyLink, Inc.
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Date Announced
Target
Acquiror
8/15/2016
RCN Corporation
TPG Capital, L.P.
2/5/2015
Verizon Florida LLC, GTE Southwest Incorporated, and Verizon California Inc. and Related Assets
Frontier Communications Corporation
11/23/2015
Allstream Inc.
Zayo Group, LLC
 
Transaction Value/
LTM Adjusted EBITDA
Low
4.3x
High
13.1x
Median
6.2x
Mean
7.8x
Taking into account the results of the selected transactions analysis, Houlihan Lokey applied selected multiple ranges of 4.0x to 5.0x LTM Adjusted EBITDA to the Company’s Adjusted EBITDA for the 12-month period ended March 31, 2020. Houlihan Lokey then added cash and cash equivalents and investments, and subtracted debt, as of March 31, 2020 and as reported in the Company’s public filings. This selected transactions analysis indicated an implied per share reference range of $8.10 to $14.64 per share of common stock, as compared to the Merger Consideration of $11.75 per share of common stock.
Discounted Cash Flow Analysis. Houlihan Lokey performed a discounted cash flow analysis of the Company by calculating the estimated net present value of the projected unlevered, after-tax free cash flows of the Company based on the Management Projections. Houlihan Lokey calculated terminal values for the Company by applying a range of perpetuity growth rates of 0.0% to 1.0% to the Company’s estimated adjusted unlevered free cash flows for the year 2029. The net present values of the Company’s projected future cash flows and terminal values were then calculated using discount rates ranging from 6.0% to 7.0%. Houlihan Lokey then added cash and cash equivalents and investments, and subtracted debt, as of March 31, 2020 and as reported in the Company’s public filings. This discounted cash flow analysis indicated an implied per share reference range of $3.05 to $9.38 per share of common stock, as compared to the proposed Merger Consideration of $11.75 per share of common stock.
Miscellaneous
Houlihan Lokey was engaged by the Company to provide an opinion to the Board as to whether the Merger Consideration to be received by the holders of common stock in the Merger pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. The Company engaged Houlihan Lokey based on Houlihan Lokey’s experience and reputation. Houlihan Lokey is regularly engaged to render opinions in connection with mergers, acquisitions, divestitures, leveraged buyouts, and for other purposes. Pursuant to its engagement by the Company, Houlihan Lokey is entitled to an aggregate fee of $250,000 for its services, a portion of which became payable upon the execution of Houlihan Lokey’s engagement letter and the balance of which became payable upon the delivery of Houlihan Lokey’s opinion. No portion of Houlihan Lokey’s fee is contingent upon the successful completion of the Merger. The Company has also agreed to reimburse Houlihan Lokey for certain expenses and to indemnify Houlihan Lokey, its affiliates and certain related parties against certain liabilities and expenses, including certain liabilities under the federal securities laws, arising out of or related to Houlihan Lokey’s engagement.
In the ordinary course of business, certain of Houlihan Lokey’s employees and affiliates, as well as investment funds in which they may have financial interests or with which they may co-invest, may acquire, hold or sell, long or short positions, or trade, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, the Company, one or more affiliates of Oak Hill or any other party that may be involved in the Merger and their respective affiliates or security holders or any currency or commodity that may be involved in the Merger.
Houlihan Lokey and certain of its affiliates have in the past provided investment banking, financial advisory and/or other financial or consulting services to Oak Hill or one or more security holders or affiliates of, and/or portfolio companies of investment funds affiliated or associated with, Oak Hill (collectively, with Oak Hill, the “Oak Hill Group”), for which Houlihan Lokey and its affiliates have received compensation. Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and/or other financial or consulting services to the Company, Parent, other members of the Oak Hill Group, other participants in the Merger or certain of their respective
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affiliates or security holders in the future, for which Houlihan Lokey and its affiliates may receive compensation. On June 25, 2020, Houlihan Lokey, Inc. publicly announced that it has agreed to acquire MVP Capital, and, following such announcement, representatives of the Company advised Houlihan Lokey that MVP Capital has in the past provided investment banking, financial advisory and/or other financial or consulting services to the Company, for which MVP Capital has received compensation. In addition, Houlihan Lokey and certain of its affiliates and certain of Houlihan Lokey and their respective employees may have committed to invest in private equity or other investment funds managed or advised by Oak Hill, other participants in the Merger or certain of their respective affiliates or security holders, and in portfolio companies of such funds, and may have co-invested with members of the Oak Hill Group, other participants in the Merger or certain of their respective affiliates or security holders, and may do so in the future. Furthermore, in connection with bankruptcies, restructurings, distressed situations and similar matters, Houlihan Lokey and certain of its affiliates may have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees, agents and other interested parties (including, without limitation, formal and informal committees or groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, the Company, Parent, other members of the Oak Hill Group, other participants in the Merger or certain of their respective affiliates or security holders, for which advice and services Houlihan Lokey and its affiliates have received and may receive compensation.
Interests of the Company’s Directors and Executive Officers in the Merger
Otelco executive officers and directors have interests in the Merger that may be different from, or in addition to, those of stockholders generally. In considering the recommendations of the Board, including that you vote to approve the proposal to adopt the Merger Agreement, you should be aware of these interests. In reaching their decisions to make such recommendations and to approve the Merger, the Board were aware of these interests and considered them, along with other matters described in the section captioned “The Merger—Recommendation of the Board and Reasons for the Merger.” As described in more detail below, these interests include:
the cancelation of outstanding Options at the Effective Time in exchange for a cash payment equal to the product of (i) the Merger Consideration minus the exercise price per share of such Option and (ii) the total number of shares of common stock issuable upon exercise in full of such Options (and Options with an exercise price equal to or greater than the Merger Consideration cancelled for no consideration);
the cancelation of each outstanding RSU at the Effective Time in exchange for a cash payment equal to the product of (i) the Merger Consideration and (ii) the total number of shares of common stock subject to such RSUs; and
the entitlement to the indemnification and insurance benefits in favor of Otelco directors and executive officers, as described in more detail in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Indemnification and Insurance.”
Payments to Executive Officers in Respect of Equity Awards
At the Effective Time, each Option and RSU will be cancelled and converted into the right to receive the Merger Consideration as described in the section of this proxy statement captioned “—Treatment of Stock Options and Other Equity-Based Awards” above.
The table below sets forth the total amount payable at the closing of the Merger in respect of such Company equity-based awards for each Otelco executive officer based on (i) the number of outstanding Options, (ii) the number of outstanding RSUs, and (iii) the total value of the Options and RSUs, in each case, that was held by such executive officer as of September 8, 2020, the latest practicable date to determine such amounts before the filing of this proxy statement. No Otelco director other than Mr. Clark holds any such equity-based awards. These numbers do not forecast any grants, additional issuances, dividends, additional deferrals or forfeitures of equity-based awards following the date of this proxy statement. Depending on when the Effective Time occurs, certain equity-based awards shown in the table may vest in accordance with their terms. The total value of the Options and RSUs is determined by multiplying the number of Options by the excess, if any, of the Merger Consideration over the exercise price per share of such Option, and by multiplying the number of shares of common stock subject to RSUs by the Merger Consideration, respectively.
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Summary of Outstanding Otelco Equity Awards
Name
Options
(#)
RSUs
(#)
Amount
($)
Named Executive Officers
 
 
 
Richard A. Clark
100,000
N/A
126,500.00
Curtis L. Garner, Jr.
3,500
5,607
74,737.25
Employment Arrangements Following the Merger
As of the date of this proxy statement, none of Otelco’s executive officers have reached an understanding on potential employment or other retention terms with the Surviving Corporation or have entered into any definitive agreements or arrangements regarding employment or other retention with the Surviving Corporation following the consummation of the Merger. However, prior to the Effective Time, Parent may initiate discussions regarding employment or other retention terms and may enter into definitive agreements regarding employment or retention for certain of Otelco employees, to be effective as of the Effective Time.
Golden Parachute Compensation
The table below, captioned “Potential Change-in-Control Payments to Named Executive Officers,” along with its footnotes, sets forth the information required by Item 402(t) of Regulation S-K regarding compensation payable to named executive officers whose compensation is subject to an advisory vote to the stockholders as described below in the section of the proxy statement captioned “Information About the Special Meeting—Proposal No. 2—Advisory (Non-Binding) Vote on Compensation.” The named executive officers of Otelco are the chief executive officer, former chief executive officer and chief financial officer, as determined for purposes of its most recent annual proxy statement (each of whom we refer to as a “named executive officer”). The table assumes the consummation of the Merger occurred on September 8, 2020, the latest practicable date to determine such amounts prior to the filing of this proxy statement and does not reflect any grants of equity-based awards that may be made following the date of this proxy statement.
Potential Change in Control Payments to Named Executive Officers
Name(1)
Cash
($)
Equity
($)(3)
Perquisites/
Benefits
($)
Total
($)
Robert J. Souza(2)
$0
$0
$0
$0
Richard A. Clark
$0
$126,500.00
$0
$126,500.00
Curtis L. Garner, Jr.
$0
$74,737.25
$0
$74,737.25
(1)
Except for any cash consideration payable to the named executive officers, with respect to outstanding Options and RSUs, as reflected in the table, no additional amounts or benefits are payable to the named executive officers based on or related to the Merger, whether as single trigger benefits or double trigger benefits. Any severance payments payable to Messrs. Clark and Garner pursuant to the terms of their employment agreements are solely conditioned on a qualifying termination of employment without the requirement that there also have occurred a change in control. For a summary of such severance payments payable to Messrs. Clark and Garner, please refer to the section of our most recent annual proxy statement captioned “Executive Compensation—Management Employment and Severance Agreements”.
(2)
Mr. Souza retired as Chief Executive Officer and resigned as a director effective December 31, 2019. No amounts are payable to Mr. Souza based on or related to the Merger.
(3)
This column sets forth the total cash consideration payable to Messrs. Clark and Garner in respect of cancellation of their outstanding Options and outstanding RSUs, which for Mr. Clark are 100,000 Options and no RSUs and for Mr. Garner are 3,500 Options and 5,607 RSUs. The amounts in this column are single trigger benefits and are payable to the named executive officers upon consummation of the Merger, whether or not their employment is terminated, and shall be paid as described below under the caption, “Proposal 1: Adoption of the Merger Agreement—Exchange and Payment Procedures”). The total cash consideration in this column payable to Mr. Clark is determined after cancelling 50,000 of his outstanding Options for which the per share exercise price is greater than the Merger Consideration, and multiplying the remaining 50,000 outstanding Options by the excess of the Merger Consideration over the per share exercise price. The total cash consideration in this column payable to Mr. Garner is determined by (i) multiplying his outstanding Options by the excess of the Merger Consideration over the per share exercise price, and (ii) multiplying the total number of his outstanding RSUs by the Merger Consideration.
As discussed below, pursuant to the terms of the Merger Agreement, at the Effective Time, (i) all Options, whether vested or unvested, that are outstanding as of immediately prior to the Effective Time will be cancelled and converted to the right to receive the excess of the Merger Consideration over the exercise price per share of such Option (and outstanding Options for which the per share exercise price is equal to or greater than the Merger Consideration will be cancelled without the payment of any consideration) and (ii) all RSUs, whether vested or unvested, that are outstanding as of immediately prior to the Effective Time will be cancelled and converted to the right to receive the Merger Consideration.
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Financing of the Merger
The obligation of Parent and Merger Sub to consummate the Merger is not subject to any financing condition.
We anticipate that the total amount of funds necessary to complete the Merger and the related transactions, and to pay the fees and expenses required to be paid at the completion of the Merger by Parent and Merger Sub under the Merger Agreement, will be approximately $40,591,624 in cash. This amount includes funds needed to: (1) pay stockholders the amounts due under the Merger Agreement and (2) make payments in respect of our outstanding equity-based awards payable at the Effective Time pursuant to the Merger Agreement.
Equity Financing
In connection with the transactions contemplated by the Merger Agreement, Parent and the Guarantors have entered into the Equity Commitment Letter. Pursuant to the Equity Commitment Letter, subject to the conditions of the Equity Commitment Letter, the Guarantors have provided Parent with an aggregate equity commitment of up to $40,591,624 in cash.
The Equity Commitment Letter provides, among other things, that the Company is an express third-party beneficiary thereof in connection with the Company’s exercise of its rights related to specific performance of Parent’s obligations to cause the Equity Financing to be funded and to consummate the closing pursuant to and subject to the terms and conditions under the Merger Agreement.
The Equity Financing is subject to the terms, conditions and limitations set forth in Merger Agreement and the Equity Commitment Letter, which conditions include the satisfaction or waiver by Parent or Merger Sub of all conditions precedent set forth in the Merger Agreement to Parent’s and Merger Sub’s obligations to effect the closing.
The proceeds of the Equity Financing will be available to (i) fund the aggregate Merger Consideration, (ii) fund the aggregate RSU Consideration and Option Consideration, and (iii) pay fees and expenses required to be paid at the closing of the Merger by Parent, Merger Sub and the Company contemplated by, and subject to the terms and conditions of, the Merger Agreement.
Debt Financing
Parent has also obtained the Debt Commitment Letter from CoBank, ACB. Pursuant to the Debt Commitment Letter, CoBank, ACB has committed to provide the Term Loan Facility in an aggregate principal amount of $70 million and the Revolving Facility in an aggregate principal amount of $20 million.
The Debt Financing is conditioned on the consummation of the Merger in accordance with the Merger Agreement, as well as other customary conditions, including the simultaneous consummation of the Equity Financing.
The proceeds of the Term Loan Facility will be available to (i) fund a portion of the aggregate Merger Consideration, (ii) fund the aggregate RSU Consideration and Option consideration, (iii) pay fees and expenses required to be paid at the closing of the Merger by Parent, Merger Sub and the Company contemplated by, and subject to the terms and conditions of, the Merger Agreement, and (iv) repay the Company’s existing indebtedness.
The proceeds of the Revolving Facility will be available, on or after the closing of the Merger and until the fifth anniversary of the closing of the Merger, to provide working capital and letters of credit from time to time for the Company, to fund capital expenditures and for other general corporate purposes, and to pay certain fees related to the Debt Financing at the closing of the Merger.
If any portion of the Debt Financing becomes unavailable on the terms and conditions contemplated in the Debt Commitment Letters, Parent must use its reasonable best efforts to arrange, as promptly as practicable following the occurrence of such unavailability (and in any event no later than the date on which the marketing period expires), to obtain alternative financing from alternative sources on terms not materially worse and conditions not materially less favorable in the aggregate to Parent than those contained in the Debt Commitment Letters and the related fee letter and in an amount sufficient to assure the availability at the Effective Time of the amount necessary to (i) make payments in connection with the Merger and related fees and (ii) repay, prepay or discharge Otelco’s existing indebtedness.
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Guarantee
In connection with the Company entering into the Merger Agreement, the Guarantors delivered the Guarantee in favor of Otelco. Pursuant to the Guarantee, the Guarantors have agreed to guarantee, in the event of and following a valid termination of the Merger Agreement:
the payment by Parent of the $3,450,288 termination fee payable to us in certain circumstances; and
the “Reimbursement and Collection Obligations”.
Voting Agreement
Concurrently with the execution of the Merger Agreement, the Sochet Stockholders entered into the Voting Agreement with Parent. The following summary describes the material provisions of the Voting Agreement. The description of the Voting Agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the Voting Agreement, a copy of which is attached to this proxy statement as Annex D and incorporated into this proxy statement by reference. We encourage you to read the Voting Agreement carefully and in its entirety because this summary may not contain all the information about the Voting Agreement that is important to you. The rights and obligations of the signatories to the Voting Agreement are governed by the express terms of the Voting Agreement and not by this summary or any other information contained in this proxy statement.
At the time of the execution of the Voting Agreement, the Sochet Stockholders had held approximately 49.3% of the outstanding shares of common stock.
Voting Provisions
Under the Voting Agreement, each Sochet Stockholder has, among other things, agreed to vote and cause to be voted all of its shares of common stock owned as of the date of the Voting Agreement (the “Covered Shares”) (i) in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated by the Merger Agreement, including the Merger, to the extent that such matters are submitted for a vote at the Special Meeting or any other meeting of the Company’s stockholders (or, in each case, any adjournment or postponement thereof) and (ii) against (1) any Acquisition Proposal (and the transactions contemplated thereby), (2) any action, transaction or agreement to be taken, consummated or entered into by the Company that, if so taken, consummated or entered into by the Company would, or would reasonably be expected to, result in (x) a breach by the Company of any covenant, representation, warranty or other obligations of the Company set forth in the Merger Agreement or (y) the failure of any of the conditions to the obligations of Parent or Merger Sub to consummate the Merger and the other transactions contemplated by the Merger, and (3) any agreement (including, without limitation, any amendment, waiver, release from, or non-enforcement of any agreement), any amendment, supplement, modification or restatement of the Company’s certificate of incorporation or Bylaws, or any other action (or failure to act), to the extent such agreement, amendment, supplement, modification or restatement or other action or failure to act is intended or would reasonably be expected to prevent, interfere with, impair or delay the consummation of the Merger or any other transactions contemplated by the Merger Agreement.
Restrictions on Granting of Proxies
Pursuant to the Voting Agreement, each Sochet Stockholder has agreed that during the term of the Voting Agreement, it will not, among other things, (i) deposit any of such Sochet Stockholder’s Covered Shares into a voting trust, grant any proxies or enter into any tender, voting agreement, power of attorney, voting trust or other agreement with respect to any of such Sochet Stockholder’s Covered Shares to, directly or indirectly, grant a proxy or power of attorney or give instructions with respect to the voting of such Sochet Stockholder’s Covered Shares in any manner inconsistent with the voting provisions of the Voting Agreement or (ii) otherwise take any other action with respect to such Sochet Stockholder’s Covered Shares that would in any way restrict, limit or interfere with the performance of its obligations under the Voting Agreement or the Merger.
Waiver of Appraisal Rights
Under the Voting Agreement, each Sochet Stockholder irrevocably waived and agreed not to exercise any rights of appraisal or rights to dissent from the Merger and the other transactions contemplated by the Merger Agreement that such Stockholder may have under Section 262 with respect to all of the Covered Shares.
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Termination
The obligations and rights under the Voting Agreement will terminate upon the earliest of (i) the termination of the Voting Agreement by mutual written consent of Parent and each of the Sochet Stockholders, (ii) the termination of the Merger Agreement in accordance with its terms; (iii) the consummation of the Merger; and (iv) the delivery of written notice of termination by the Sochet Stockholders to Parent following the date of any modification, waiver, change or amendment of the Merger Agreement executed after the date of the Voting Agreement that results in (x) a decrease in the Merger Consideration or (y) a change in the form of the Merger Consideration, in each case effected without the prior written consent of the Sochet Stockholders.
Closing and Effective Time
The closing of the Merger (the “Closing”) will take place no later than (i) the third business day following the satisfaction or waiver in accordance with the Merger Agreement of all of the conditions to closing of the Merger (provided that, unless Parent otherwise consents in writing in its sole discretion, the closing shall not occur prior to October 30, 2020) (as described under the caption, “Proposal 1: Adoption of the Merger Agreement—Conditions to the Closing of the Merger”), other than conditions that by their terms are to be satisfied at the closing of the Merger, but subject to the satisfaction or waiver of such conditions, or (ii) such other time as Parent, Merger Sub and the Company mutually agree in writing.
Appraisal Rights
If the Merger is consummated, stockholders who continuously hold shares of common stock through the Effective Time who do not vote in favor of the adoption of the Merger Agreement and who properly and validly demand appraisal of their shares and who do not withdraw their demands or otherwise lose their rights of appraisal will be entitled to appraisal of their shares in connection with the Merger under Section 262. The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262, which is attached to this proxy statement as Annex C and incorporated herein by reference. The following summary does not constitute any legal or other advice and does not constitute a recommendation that stockholders exercise their appraisal rights under Section 262. All references in Section 262 and in this summary to a “stockholder” are to the stockholder of record of shares of common stock unless otherwise expressly noted herein. Only a stockholder of record of shares of common stock is entitled to demand appraisal of the shares registered in that holder’s name. A person having a beneficial interest in shares of common stock held of record in the name of another person, such as a bank, broker, trust or other nominee, must act promptly to cause the stockholder of record to follow the steps summarized below properly and validly and in a timely manner to perfect appraisal rights. If you hold your shares of common stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or the other nominee.
Under Section 262, if the Merger is completed, stockholders who: (1) submit a written demand for appraisal of their shares; (2) do not vote in favor of the adoption of the Merger Agreement; (3) continuously are the stockholders of record of such shares through the Effective Time; and (4) otherwise exactly follow the procedures set forth in Section 262 will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of the shares of common stock, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid on the amount determined to be fair value as determined by the court. However, after an appraisal petition has been filed, the Delaware Court of Chancery will dismiss appraisal proceedings as to all stockholders who have asserted appraisal rights unless (i) the total number of shares for which appraisal rights have been pursued and perfected exceeds 1% of the outstanding shares of common stock as measured in accordance with subsection (g) of Section 262; or (ii) the value of the aggregate Merger Consideration in respect of the shares of common stock for which appraisal rights have been pursued and perfected exceeds $1 million (conditions (i) and (ii) referred to as the “ownership thresholds”). Unless the Delaware Court of Chancery, in its discretion, determines otherwise for good cause shown, interest on an appraisal award will accrue and compound quarterly from the Effective Time through the date the judgment is paid at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during such period. However, at any time before the Delaware Court of Chancery enters judgment in the appraisal proceedings, the Surviving Corporation may voluntarily pay to each stockholder entitled to appraisal an amount in cash pursuant to subsection (h) of Section 262, in which case such interest will accrue after the time of such payment only on an
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amount that equals the difference, if any, between the amount so paid and the “fair value” of the shares as determined by the Delaware Court of Chancery, in addition to any interest accrued prior to the time of such voluntary cash payment, unless paid at such time. The Surviving Corporation is under no obligation to make such voluntary cash payment prior to such entry of judgment.
Under Section 262, where a merger agreement is to be submitted for adoption at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders who was such on the record date for notice of such meeting with respect to shares for which appraisal rights are available that appraisal rights are available and include in the notice a copy of Section 262. This proxy statement constitutes Otelco’s notice to stockholders that appraisal rights are available in connection with the Merger, and the full text of Section 262 is attached to this proxy statement as Annex C. In connection with the Merger, any stockholder who wishes to exercise appraisal rights, or who wishes to preserve such stockholder’s right to do so, should review Annex C carefully. Failure to strictly comply with the requirements of Section 262 in a timely and proper manner may result in the loss of appraisal rights under the DGCL. A stockholder who loses his, her or its appraisal rights will be entitled to receive the Merger Consideration described in the Merger Agreement. Moreover, because of the complexity of the procedures for exercising the right to seek appraisal of shares of common stock, Otelco believes that if a stockholder considers exercising such rights, that stockholder should seek the advice of legal counsel.
Stockholders wishing to exercise the right to seek an appraisal of their shares of common stock must do ALL of the following:
the stockholder must not vote in favor of the proposal to adopt the Merger Agreement;
the stockholder must deliver to Otelco a written demand for appraisal before the vote on the Merger Agreement at the Special Meeting;
the stockholder must continuously hold the shares from the date of making the demand through the Effective Time (a stockholder will lose appraisal rights if the stockholder transfers the shares before the Effective Time); and
the stockholder (or any person who is the beneficial owner of shares of common stock held either in a voting trust or by a nominee on behalf of such person) or the Surviving Corporation must file a petition in the Delaware Court of Chancery requesting a determination of the fair value of the shares within 120 days after the Effective Time. The Surviving Corporation is under no obligation to file any petition and has no present intention of doing so.
In addition, one of the ownership thresholds must be met.
Because a proxy that does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the Merger Agreement, a stockholder who submits a proxy and who wishes to exercise appraisal rights must instruct the proxy to vote against the adoption of the Merger Agreement or abstain from voting its shares.
Filing Written Demand
Any stockholder wishing to exercise appraisal rights must deliver to Otelco, before the vote on the adoption of the Merger Agreement at the Special Meeting at which the proposal to adopt the Merger Agreement will be submitted to stockholders, a written demand for the appraisal of the stockholder’s shares, and that stockholder must not vote or submit a proxy in favor of the adoption of the Merger Agreement. A stockholder exercising appraisal rights must hold of record the shares on the date the written demand for appraisal is made and must continue to hold the shares of record through the Effective Time. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the Merger Agreement, and it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must submit a proxy containing instructions to vote against the adoption of the Merger Agreement or abstain from voting on the adoption of the Merger Agreement. Voting against the adoption of the Merger Agreement or abstaining from voting or failing to vote on the proposal to adopt the Merger Agreement will not, in and of itself, constitute a written demand for appraisal satisfying the requirements of Section 262. The written demand for appraisal is in addition to and separate from any proxy or vote on the adoption of the Merger Agreement. A proxy or vote against the adoption of the Merger Agreement will not constitute a demand for appraisal. A stockholder’s failure to make the written demand for appraisal prior to the taking of the vote on the adoption of the Merger Agreement at the Special Meeting will constitute a waiver of appraisal rights.
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Only a stockholder of record of shares of common stock is entitled to demand appraisal rights for the shares registered in that holder’s name. A demand for appraisal in respect of shares of common stock must be executed by or on behalf of the stockholder of record, and must reasonably inform Otelco of the identity of the holder and state that the person intends thereby to demand appraisal of the stockholder’s shares in connection with the Merger. If the shares are owned of record in a fiduciary or representative capacity, such as by a trustee, guardian or custodian, such demand must be executed by or on behalf of the record owner, and if the shares are owned of record by more than one person, as in a joint tenancy and tenancy in common, the demand must be executed by or on behalf of all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute a demand for appraisal on behalf of a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose that, in executing the demand, the agent is acting as agent for the record owner or owners.
STOCKHOLDERS WHO HOLD THEIR SHARES IN BROKERAGE OR BANK ACCOUNTS OR OTHER NOMINEE FORMS AND WHO WISH TO EXERCISE APPRAISAL RIGHTS SHOULD CONSULT WITH THEIR BANK, BROKER OR OTHER NOMINEE, AS APPLICABLE, TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE BANK, BROKER OR OTHER NOMINEE TO MAKE A DEMAND FOR APPRAISAL OF THOSE SHARES. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BANK, BROKER OR OTHER NOMINEE, MUST ACT PROMPTLY TO CAUSE THE STOCKHOLDER OF RECORD TO FOLLOW PROPERLY AND IN A TIMELY MANNER THE STEPS NECESSARY TO PERFECT APPRAISAL RIGHTS.
All written demands for appraisal pursuant to Section 262 should be mailed or delivered to:
Otelco, Inc.
Attention: Corporate Secretary
505 Third Avenue East
Oneonta, Alabama 35121
Any stockholder who has delivered a written demand to Otelco and who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the consideration offered pursuant to the Merger Agreement by delivering to Otelco a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the Effective Time will require written approval of the Surviving Corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just; provided, however, that this shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the Merger Consideration within 60 days after the Effective Time. If an appraisal proceeding is commenced and Otelco, as the Surviving Corporation, does not approve a request to withdraw a demand for appraisal when that approval is required, or, except with respect to any stockholder who withdraws such stockholder’s demand in accordance with the proviso in the immediately preceding sentence, if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding with respect to a stockholder, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be less than, equal to or more than the Merger Consideration being offered pursuant to the Merger Agreement.
Notice by the Surviving Corporation
If the Merger is completed, within 10 days after the Effective Time, the Surviving Corporation will notify each stockholder who has properly and validly made a written demand for appraisal pursuant to Section 262, and who has not voted in favor of the adoption of the Merger Agreement, that the Merger has become effective and the effective date thereof.
Filing a Petition for Appraisal
Within 120 days after the Effective Time, but not thereafter, the Surviving Corporation or any stockholder who has complied with Section 262 and is entitled to appraisal under Section 262 (including for this purpose any beneficial owner of the relevant shares) may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery, with a copy served on the Surviving Corporation in the case of a petition filed by a stockholder (or beneficial owner), demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. The Surviving Corporation is under no obligation, and has no present intention, to file a petition, and
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stockholders should not assume that the Surviving Corporation will file a petition or initiate any negotiations with respect to the fair value of the shares of common stock. Accordingly, any stockholders who desire to have their shares appraised should initiate all necessary action to perfect their appraisal rights in respect of their shares of common stock within the time and in the manner prescribed in Section 262. The failure of a stockholder to file such a petition within the period specified in Section 262 could nullify the stockholder’s previous written demand for appraisal.
Within 120 days after the Effective Time, any stockholder who has complied with the requirements of Section 262 and who is entitled to appraisal rights thereunder will be entitled, upon written request, to receive from the Surviving Corporation a statement setting forth the aggregate number of shares not voted in favor of the adoption of the Merger Agreement and with respect to which Otelco has received demands for appraisal, and the aggregate number of stockholders of such shares. The Surviving Corporation must give this statement to the requesting stockholder within 10 days after receipt by the Surviving Corporation of the request for such a statement or within 10 days after the expiration of the period for delivery of demands for appraisal, whichever is later. A beneficial owner of shares of common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition seeking appraisal or request from the Surviving Corporation the foregoing statements. As noted above, however, the demand for appraisal can only be made by a stockholder of record.
If a petition for an appraisal is duly filed by a stockholder and a copy thereof is served upon the Surviving Corporation, the Surviving Corporation will then be obligated within 20 days after such service to file with the Delaware Register in Chancery 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. Upon the filing of any such petition, the Delaware Court of Chancery may order that notice of the time and place fixed for the hearing on the petition be mailed to the Surviving Corporation and all of the stockholders shown on the written statement described above at the addresses stated therein. Such notice will also be published at least one week before the day of the hearing in a newspaper of general circulation published in the City of Wilmington, Delaware, or in another publication determined by the court. The costs of these notices are borne by the Surviving Corporation. After notice to stockholders as required by the court, the Delaware Court of Chancery is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the stockholders who demanded payment for their shares to submit their stock certificates (if any) to the Delaware Register in Chancery for notation thereon of the pendency of the appraisal proceedings and, if any stockholder fails to comply with the direction, the Delaware Court of Chancery may dismiss that stockholder from the proceedings. The Delaware Court of Chancery will dismiss appraisal proceedings as to all stockholders who have asserted appraisal rights if neither of the ownership thresholds is met.
Determination of Fair Value
After determining the stockholders entitled to appraisal and that at least one of the ownership thresholds described above has been satisfied as to stockholders seeking appraisal rights, the appraisal proceeding will be conducted in accordance with the rules of the Delaware Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding, the Delaware Court of Chancery will determine the “fair value” of the shares of common stock, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining fair value, the Delaware Court of Chancery will take into account all relevant factors. Unless the court in its discretion determines otherwise for good cause shown, interest from the Effective Time through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the Effective Time and the date of payment of the judgment. However, at any time before the Delaware Court of Chancery enters judgment in the appraisal proceedings, the Surviving Corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case such interest will accrue after the time of such payment only on an amount that equals the difference, if any, between the amount so paid and the “fair value” of the shares as determined by the Delaware Court of Chancery, in addition to any interest accrued prior to the time of such voluntary payment, unless paid at such time.
In Weinberger v. UOP, Inc., the Supreme Court of Delaware discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that, in making this determination of fair value, the court must
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consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the Merger that throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the Merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Supreme Court of Delaware also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the Merger and not the product of speculation, may be considered.” In addition, the Delaware courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenting stockholder’s exclusive remedy.
Stockholders considering seeking appraisal should be aware that the fair value of their shares as so determined by the Delaware Court of Chancery could be more than, the same as or less than the consideration they would receive pursuant to the Merger if they did not seek appraisal of their shares and that an opinion of an investment banking firm as to the fairness from a financial point of view of the consideration payable in a transaction such as the Merger is not an opinion as to, and does not in any manner address, fair value under Section 262. No representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the Merger Consideration. Neither Otelco nor Parent anticipates offering more than the Merger Consideration to any stockholder exercising appraisal rights, and each of Otelco and Parent reserves the rights to make a voluntary cash payment pursuant to subsection (h) of Section 262 and to assert, in any appraisal proceeding, that for purposes of Section 262, the “fair value” of a share of common stock is less than the Merger Consideration. If a petition for appraisal is not timely filed, or if neither of the ownership thresholds described above has been satisfied as to stockholders seeking appraisal rights, then the right to an appraisal will cease. The costs of the appraisal proceedings (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and charged upon the parties as the Delaware Court of Chancery deems equitable under the circumstances. Upon application of a stockholder, the Delaware Court of Chancery may also order that all or a portion of the expenses incurred by a stockholder in connection with an appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, be charged pro rata against the value of all the shares entitled to be appraised. In the absence of such determination or assessment, each party bears its own expenses.
If any stockholder who demands appraisal of his, her or its shares of common stock under Section 262 fails to perfect, or effectively loses or withdraws, such holder’s right to appraisal, the stockholder’s shares of common stock will be deemed to have been converted at the Effective Time into the right to receive the Merger Consideration, without interest. A stockholder will fail to perfect, or effectively lose or withdraw, the stockholder’s right to appraisal if no petition for appraisal is filed within 120 days after the Effective Time, if neither of the ownership thresholds described above has been satisfied as to stockholders seeking appraisal rights or if the stockholder delivers to the Surviving Corporation a written withdrawal of the stockholder’s demand for appraisal and an acceptance of the Merger Consideration in accordance with Section 262.
From and after the Effective Time, no stockholder who has demanded appraisal rights will be entitled to vote such shares of common stock for any purpose or to receive payment of dividends or other distributions on the stock, except dividends or other distributions on the stockholder’s shares of common stock, if any, payable to stockholders as of a time prior to the Effective Time. If no petition for an appraisal is filed, if neither of the ownership thresholds described above has been satisfied as to the stockholders seeking appraisal rights, or if the stockholder delivers to the Surviving Corporation a written withdrawal of the demand for an appraisal and an acceptance of the Merger and the Merger Consideration, either within 60 days after the Effective Time or thereafter with the written approval of the Surviving Corporation, then the right of such stockholder to an appraisal will cease. Once a petition for appraisal is filed with the Delaware Court of Chancery, however, the appraisal proceeding may not 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; provided, however, that the foregoing shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the Merger within 60 days after the Effective Time.
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Failure to comply strictly with all of the procedures set forth in Section 262 may result in the loss of a stockholder’s statutory appraisal rights. Consequently, any stockholder wishing to exercise appraisal rights is encouraged to consult legal counsel before attempting to exercise those rights.
Litigation Related to the Merger
On September 1, 2020, a purported stockholder of Otelco filed a putative stockholder class action lawsuit, captioned Patrick Plumley v. Otelco Inc. et. al., No. 1:20-cv-01165-UNA, in the United States District Court for the District of Delaware, on behalf of all public stockholders of Otelco against the Company and the members of the Board. The complaint alleges that Otelco’s preliminary proxy statement filed with the SEC on August 20, 2020 in connection with the Merger omits certain material information in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and further that the members of the Board are liable for those omissions under Section 20(a) of the Exchange Act. The relief sought in the lawsuit includes a preliminary and permanent injunction to prevent the completion of the Merger, rescission or rescissory damages if the Merger is completed, costs and attorneys’ fees. Other similar lawsuits may follow. At this stage, it is not possible to predict the outcome of the proceeding or its impact on Otelco or the Merger. Otelco and the Board believe that the claims are without merit and intend to defend vigorously against them.
Accounting Treatment
The Merger will be accounted for as a “purchase transaction” for financial accounting purposes.
Material U.S. Federal Income Tax Consequences of the Merger
The following is a discussion of material U.S. federal income tax consequences of the Merger that may be relevant to U.S. Holders and Non-U.S. Holders (each as defined below) of shares of common stock whose shares are converted into the right to receive cash pursuant to the Merger. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated under the Code, court decisions, published positions of the Internal Revenue Service (the “IRS”), and other applicable authorities, all as in effect on the date of this proxy statement and all of which are subject to change or differing interpretations at any time, possibly with retroactive effect. This discussion is limited to stockholders who hold their shares of common stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment purposes).
This discussion is general in nature and does not address all of the tax consequences that may be relevant to stockholders in light of their particular circumstances. For example, this discussion does not address tax consequences that may be applicable to:
stockholders who may be subject to special treatment under U.S. federal income tax laws, such as banks or other financial institutions; tax-exempt organizations; retirement or other tax deferred accounts; S corporations, partnerships or any other entities or arrangements treated as partnerships or pass-through entities for U.S. federal income tax purposes (or an investor in a partnership, S corporation or other pass-through entity); insurance companies; mutual funds; dealers in stocks and securities; traders in securities that elect to use the mark-to-market method of accounting for their securities; regulated investment companies; real estate investment trusts; entities subject to the U.S. anti-inversion rules; controlled foreign corporations; passive foreign investment companies; holders that own or have owned (directly, indirectly or constructively) five percent or more of Otelco’s common stock (by vote or value); or former citizens or residents of the United States;
stockholders holding the shares as part of a hedging, constructive sale or conversion, straddle or other risk reduction transaction;
stockholders that received their shares of common stock in a compensatory transaction, through a tax qualified retirement plan or pursuant to the exercise of options or warrants;
U.S. Holders whose functional currency is not the U.S. dollar;
stockholders who hold their common stock through a bank, financial institution or other entity, or a branch thereof, located, organized or resident outside the United States;
stockholders subject to special tax accounting rules as a result of any item of gross income with respect to the shares of common stock being taken into account in an “applicable financial statement” (as defined in the Code); or
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tax consequences to stockholders that do not vote in favor of the Merger and properly and validly demand appraisal of their shares under the DGCL.
This discussion does not describe any tax consequences arising under the laws of any state, local or non-U.S. jurisdiction and does not consider any aspects of U.S. federal tax law other than income taxation, such as the U.S. federal estate, or gift tax or the alternative minimum tax. In addition, this discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010 or under the Foreign Account Tax Compliance Act of 2010 (including the Treasury Regulations and administrative guidance promulgated thereunder and any intergovernmental agreements entered into in connection therewith).
If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of shares of common stock, then the tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partner and the partnership. Partnerships holding shares of common stock and partners therein are urged to consult their tax advisors regarding the consequences of the Merger.
We have not sought, and do not intend to seek, any ruling from the IRS with respect to the statements made and the conclusions reached in the following summary, and no assurance can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any challenge by the IRS in the event of litigation.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR TAX ADVICE. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO YOU IN CONNECTION WITH THE MERGER IN LIGHT OF YOUR OWN PARTICULAR CIRCUMSTANCES, INCLUDING U.S. FEDERAL INCOME, ESTATE, GIFT AND OTHER NON-INCOME TAX CONSEQUENCES, AND TAX CONSEQUENCES UNDER STATE, LOCAL OR NON-U.S. TAX LAWS OR TAX TREATIES.
U.S. Holders
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of shares of common stock that is for U.S. federal income tax purposes:
an individual who is a citizen or resident of the United States;
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust (1) that is subject to the primary supervision of a court within the United States and the control of one or more United States persons as defined in Section 7701(a)(30) of the Code; or (2) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
The receipt of cash by a U.S. Holder in exchange for shares of common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, such U.S. Holder’s gain or loss will be equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in the shares surrendered pursuant to the Merger. Gain or loss must be determined separately for each block of shares (that is, shares acquired at the same cost in a single transaction). A U.S. Holder’s adjusted tax basis generally will equal the amount that such U.S. Holder paid for the shares. Such gain or loss generally will be long-term capital gain or loss if such U.S. Holder’s holding period in such shares is more than one year at the time of the Merger. A reduced tax rate on capital gain generally will apply to long-term capital gain of a non-corporate U.S. Holder (including individuals). The deductibility of capital losses is subject to limitations.
Non-U.S. Holders
For purposes of this discussion, a “Non-U.S. Holder” is a beneficial owner of common stock that is not a U.S. Holder or an entity classified as a partnership for U.S. federal income tax purposes. Any gain realized by a Non-U.S. Holder pursuant to the Merger generally will not be subject to U.S. federal income tax unless:
the gain is effectively connected with a trade or business of such Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base
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maintained by such Non-U.S. Holder in the United States), in which case such gain generally will be subject to U.S. federal income tax at rates generally applicable to U.S. persons, and, if the Non-U.S. Holder is a corporation, such gain may also be subject to the branch profits tax at a rate of 30% (or a lower rate under an applicable income tax treaty); or
such Non-U.S. Holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of that disposition and certain other conditions are met, in which case such gain will be subject to U.S. federal income tax at a rate of 30% (or a lower rate under an applicable income tax treaty), which gain may be offset by certain U.S. source capital losses of such Non-U.S. Holder.
Information Reporting and Backup Withholding
Information reporting and backup withholding may in certain circumstances apply to payments made in exchange for shares of common stock pursuant to the Merger. Backup withholding generally will not apply to (i) a U.S. Holder that furnishes a correct taxpayer identification number and certifies that such stockholder is not subject to backup withholding on a properly completed and executed IRS Form W-9 (or a substitute or successor form) or (ii) a Non-U.S. Holder that certifies its foreign status on a properly completed and executed applicable IRS Form W-8 (or a substitute or successor form) or that otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be claimed as a refund or a credit against the stockholder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.
Regulatory Approvals Required for the Merger
General
Otelco and Parent have agreed to use their reasonable best efforts to take all action necessary to comply with all regulatory notification requirements, and, subject to certain limitations, to obtain all regulatory approvals required to consummate the Merger and the other transactions contemplated by the Merger Agreement.
FCC and PSC Approvals
The Company is regulated by the United States Federal Communications Commission (the “FCC”) and certain state public services and public utility commissions, including the Alabama Public Service Commission (the “APSC”), the Maine Public Utilities Commission (the “MPUC”), the Massachusetts Department of Telecommunications and Cable (the “MDTC”), the Missouri Public Service Commission (the “MPSC”), the New Hampshire Public Utilities Commission (the “NHPUC”), the Vermont Public Utility Commission (the “VPUC”) and the West Virginia Public Service Commission (the “WVPSC” and, together with APSC, MPUC, MDTC, MPSC, NHPUC and VPUC, the “State PSCs”). Completion of the Merger is conditioned upon the receipt of approvals from the FCC (including the Telecom Committee), the MPUC, the VPUC and the WVPSC. Pursuant to the Merger Agreement, Parent and the Company have agreed to use their respective reasonable best efforts to obtain any consents required by the FCC (including the Telecom Committee) or any State PSC or other local regulatory body and to file all applications required to be filed with the FCC (including the Telecom Committee) and any State PSC and any other locality to obtain such consents.
In addition, Parent has agreed that its “reasonable best efforts” include taking any and all actions necessary to obtain the consents of any governmental authority, including (i) contesting and resisting any legal proceeding instituted (or threatened to be instituted) challenging the transactions contemplated by the Merger Agreement as in violation of any law; (ii) attempting to have repealed, rescinded or made inapplicable any applicable law, and to have vacated, lifted, reversed or overturned any judgment or temporary, preliminary or permanent injunction or other restraint or prohibition, that is enacted, entered, promulgated or enforced by a governmental authority that would make the transactions contemplated by the Merger Agreement illegal or would otherwise prohibit or impair or delay the consummation of the transactions contemplated by the Merger Agreement; (iii) conducting the Company’s and the Company subsidiaries’ businesses in a specified manner, or proposing and agreeing or permitting to conduct any of such businesses in a specified manner, including by agreeing to (w) limitations and restrictions with respect to access by foreign persons to customer, operational or technical data transmitted and/or stored by the Company or any of its subsidiaries and related facilities access, including, in particular, limitations and restrictions on access by foreign persons to information and facilities relating to the goods and services the Company or its subsidiaries provides directly or indirectly to the governments of the United States, (x) FCC-imposed conditions addressing national
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security, law enforcement, or public safety concerns of the Telecom Committee that are generally consistent with FCC-imposed conditions addressing such concerns for a current or prior Oak Hill Related Entity (as defined in the Merger Agreement) and do not substantially interfere with the ability of Parent or Oak Hill Fund V to appoint or select a majority of the Company’s board members, (y) obligations to regularly report to governmental authorities and to grant governmental authorities access to the operations of the Company and its subsidiaries or (z) limitations and restrictions on the sourcing of new equipment from manufacturers in particular countries; and (iv) otherwise taking or committing to take actions that after the Effective Time would limit Parent or any of its affiliates’ ability to retain one or more of the businesses, product lines, assets or operations of Parent or any of its affiliates or the Company or any subsidiary of the Company, in each case, to the extent necessary to obtain any such clearance, resolve any such objections or avoid or eliminate any such impediments. Parent is not, however, required to take or refrain from taking, or agree to take or refrain from taking, any of the foregoing actions that, individually or in the aggregate, would be reasonably likely to have a material adverse effect on the financial condition, business or results of operation of Parent and its affiliates (taken as a whole) or a Company Material Adverse Effect.
One or more governmental agencies may impose a condition, restriction, qualification, requirement or limitation when it grants the necessary approvals and consents. Third parties may also seek to intervene in the regulatory process or litigate to enjoin or overturn regulatory approvals, any of which actions could significantly impede or even preclude obtaining required regulatory approvals. There is currently no way to predict how long it will take to obtain all of the required regulatory approvals or whether such approvals will ultimately be obtained and there may be a substantial period of time between the approval by stockholders and the completion of the Merger.
Although we expect that all required regulatory clearances and approvals will be obtained, we cannot assure you that these regulatory clearances and approvals will be timely obtained, obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the Merger, including the requirement to divest assets, or require changes to the terms of the Merger Agreement. These conditions or changes could result in the conditions to the Merger not being satisfied.
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PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT
The following summary describes the material provisions of the Merger Agreement. The descriptions of the Merger Agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. You should carefully read and consider the entire Merger Agreement, which is the legal document that governs the Merger, because this summary may not contain all the information about the Merger Agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this proxy statement.
The representations, warranties, covenants and agreements described below and included in the Merger Agreement (1) were made only for purposes of the Merger Agreement and as of specific dates, (2) were made for the benefit of the parties to the Merger Agreement, and (3) may be subject to important qualifications, limitations and supplemental information agreed to by the Company, Parent and Merger Sub in connection with negotiating the terms of the Merger Agreement. In addition, the representations and warranties may have been included in the Merger Agreement for the purpose of allocating contractual risk between the Company, Parent and Merger Sub rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Stockholders are not third-party beneficiaries under the Merger Agreement and should not place undue reliance on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Parent or Merger Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosure. In addition, you should not place undue reliance on the covenants in the Merger Agreement as actual limitations on the respective businesses of the Company, Parent and Merger Sub, because the parties may take certain actions that are either expressly permitted in the confidential disclosure letter to the Merger Agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public. The Merger Agreement is described below, and included as Annex A, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding the Company, Parent, Merger Sub or their respective businesses. Accordingly, the representations, warranties, covenants and other agreements in the Merger Agreement should not be read alone, and you should read the information provided elsewhere in this proxy statement and in the Company’s filings with the SEC regarding the Company and its business.
Effects of the Merger; Directors and Officers; Certificate of Incorporation; Bylaws
The Merger Agreement provides that, upon the terms and subject to the conditions of the Merger Agreement and in accordance with the applicable provisions of the DGCL, at the Effective Time: (1) Merger Sub will be merged with and into the Company, (2) the separate corporate existence of Merger Sub will thereupon cease, and (3) the Company will continue as the Surviving Corporation and a wholly owned subsidiary of Parent. The Merger will become effective at the Effective Time. At and after the Effective Time, by virtue of the Merger and without any further action on the part of the Company or Merger Sub, all of the property, rights, privileges, powers and franchises of the Company and Merger Sub will vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub will become the debts, liabilities and duties of the Surviving Corporation.
At the Effective Time, the board of directors of Merger Sub as of immediately prior to the Effective Time will become the board of directors of the Surviving Corporation, each to hold office until their respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal, in each case as provided in the organizational documents of the Surviving Corporation and by applicable law. At the Effective Time, the officers of the Company as of immediately prior to the Effective Time will become the officers of the Surviving Corporation, each to hold office until their respective successors are duly appointed or their earlier death, resignation or removal, in each case as provided in the organizational documents of the Surviving Corporation and by applicable law. At the Effective Time, by virtue of the Merger and without any further action on the part of the Company or Merger Sub, the Amended and Restated Certificate of Incorporation of the Company will be amended and restated in its entirety to read substantially identically to the certificate of incorporation of Merger Sub as in effect immediately prior to the Effective Time, and such amended and restated certificate of incorporation will become the certificate of incorporation of the Surviving Corporation until thereafter amended in accordance with the applicable provisions of the DGCL; provided, however, that, at the Effective Time, such certificate of incorporation will be amended so that
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the name of the Surviving Corporation will be “Otelco Inc.” At the Effective Time, by virtue of the Merger and without any further action on the part of the Company or Merger Sub, the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, will become the bylaws of the Surviving Corporation, except that all references to Merger Sub shall be automatically amended and shall become references to the Surviving Corporation, until thereafter amended in accordance with the applicable provisions of the DGCL, the certificate of incorporation of the Surviving Corporation and such bylaws.
Closing and Effective Time
The Closing will take place (1) on a date to be agreed upon by the Company, Parent and Merger Sub that is no later than the third business day after the satisfaction or waiver (to the extent permitted in the Merger Agreement) of all conditions to the closing of the Merger (described below under the section of this proxy statement captioned “—Conditions to the Closing of the Merger”) (other than those conditions to be satisfied at the closing of the Merger) (provided that, unless Parent otherwise consents in writing in its sole discretion, the closing shall not occur prior to October 30, 2020) or (2) such other time, location and date agreed to in writing by the Company, Parent and Merger Sub. On the Closing Date (as defined in the Merger Agreement), the Company, Parent and Merger Sub shall cause the Merger to be consummated pursuant to the DGCL by filing a certificate of merger with the Secretary of State of the State of Delaware in accordance with the applicable provisions of the DGCL. The time at which the Merger will become effective shall be the time that such certificate of merger is filed with and accepted for record by the Secretary of State of the State of Delaware (or such later time as may be agreed in writing by the Company, Parent and Merger Sub and specified in the certificate of merger).
Merger Consideration
Common Stock
At the Effective Time, by virtue of the Merger and without any action required by the Company, Parent, Merger Sub or any stockholder, each share of common stock that is issued and outstanding as of immediately prior to the Effective Time (other than Owned Company Shares and Dissenting Common Shares) will automatically be cancelled, extinguished and converted into the right to receive the Merger Consideration, without interest thereon and less any applicable withholding taxes.
Outstanding Options and RSUs
At the Effective Time, each RSU outstanding as of immediately prior to the Effective Time (whether vested or unvested) will, by virtue of the Merger and without any action on the part of the Company, Parent, Merger Sub or the holder thereof, be cancelled and converted into the right to receive an amount in cash, without interest and subject to any applicable withholding taxes, equal to: (1) the amount of the Merger Consideration, multiplied by (2) the total number of shares of common stock underlying such RSU. At the Effective Time, each Option outstanding immediately prior to the Effective Time (whether vested or unvested) will, without any action on the part of the Company, Parent, Merger Sub or the holder thereof, be cancelled and converted into the right to receive an amount in cash, without interest and subject to any applicable withholding taxes, equal to: (1) the amount of the Merger Consideration (less the exercise price per share attributable to such Option), multiplied by (2) the total number of shares of common stock underlying such Option. Options with a per share exercise price equal to or greater than the Merger Consideration will be cancelled without payment.
Treatment of Dissenting Common Shares
Dissenting Common Shares will not be converted into, or represent the right to receive, the Merger Consideration. Stockholders of the Company who shall have neither voted in favor of the Merger nor consented thereto in writing and who is entitled to exercise and shall have properly and validly exercised their statutory rights of appraisal in respect of shares of common stock held by such stockholders in accordance with, and in compliance with, Section 262 of the DGCL will be entitled to receive payment of the appraised value of such Dissenting Common Shares in accordance with the provisions of Section 262 of the DGCL and such Dissenting Company Shares will, without any further action, cease to be outstanding, be cancelled and cease to exist (except that all Dissenting Common Shares held by stockholders of the Company who shall have failed to perfect or who shall have effectively withdrawn or lost their rights to appraisal of such Dissenting Common Shares pursuant to Section 262 of the DGCL will be deemed
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to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without interest thereon, upon surrender of the certificates or uncertificated shares that formerly evidenced such shares of common stock as more fully described under the section of this proxy statement captioned “The Merger—Appraisal Rights”).
Exchange and Payment Procedures
Not less than ten business days prior to the closing of the Merger, Parent and the Company will jointly select a Payment Agent to make payments of the Merger Consideration to stockholders. At or prior to the closing of the Merger, Parent shall irrevocably deposit or cause to be deposited with the Payment Agent, by wire transfer of immediately available funds, for payment to the stockholders pursuant to the Merger Agreement, an amount in cash equal to the aggregate consideration to which the stockholders become entitled pursuant to the Merger Agreement.
Promptly following the Effective Time (and in any event within three business days), Parent and the Surviving Corporation shall cause the Payment Agent to mail to each holder of record as of immediately prior to the Effective Time (other than holders of Owned Company Shares) of  (1) a certificate or certificates that immediately prior to the Effective Time represented outstanding shares of common stock (other than Owned Company Shares) (the “Certificates,” if any), and (2) uncertificated shares of common stock that represented outstanding shares of common stock (other than Owned Company Shares) (the “Uncertificated Shares”) (A) in the case of Certificates, a letter of transmittal in customary form (which will specify that delivery will be effected, and risk of loss and title to the Certificates will pass, only upon delivery of the Certificates to the Paying Agent); and (B) in the case of Certificates and Uncertificated Shares, instructions for effecting the surrender of the Certificates and Uncertificated Shares in exchange for the Merger Consideration payable in respect thereof. Upon receipt of an “agent’s message” by the Payment Agent (or such other evidence, if any, of transfer as the Payment Agent may reasonably request) in the case of a book-entry transfer of Uncertificated Shares, the stockholders of such Uncertificated Shares will be entitled to receive in exchange therefor an amount in cash equal to the product obtained by multiplying (1) the aggregate number of shares of common stock represented by such holder’s transferred Uncertificated Shares; by (2) the Merger Consideration, subject to applicable tax withholding requirements.
If any cash deposited with the Payment Agent is not claimed within one year after the Effective Time, such cash will be returned to Parent (or the Surviving Corporation as directed by Parent) upon demand, and any stockholders that were issued and outstanding immediately prior to the Merger who have not complied with the exchange procedures in the Merger Agreement will thereafter look only to Parent, as general creditors thereof, for any claim to the Merger Consideration. Any cash deposited with the Payment Agent that remains unclaimed by holders of Certificates or Uncertificated Shares immediately prior to the time at which such amounts would otherwise escheat to, or become the property of, any governmental authority, will, to the extent permitted by applicable law, become the property of the Surviving Corporation free and clear of any claims or interest of any person previously entitled thereto.
Representations and Warranties
The Merger Agreement contains representations and warranties of the Company, Parent and Merger Sub.
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Some of the representations and warranties in the Merger Agreement and made by the Company are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes of the Merger Agreement, “Company Material Adverse Effect” means, with respect to the Company, any change, circumstance, condition, state of facts, event or effect (each, an “Effect”) that, individually or taken together with all other Effects that have occurred prior to the date of determination of the occurrence of the Company Material Adverse Effect, (a) has had or would reasonably be expected to have a materially adverse effect on the business, assets, properties, liabilities, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, except that none of the following, and no Effects arising out of or resulting from the following (in each case, by itself or when aggregated), will be deemed to be or constitute a Company Material Adverse Effect or will be taken into account when determining whether a Company Material Adverse Effect has occurred or may, would or could occur (except, in each case of the first five bullets and the tenth bullet below, to the extent that such Effect has had a disproportionate adverse effect on the Company relative to other companies operating in the industries in which the Company and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether a Company Material Adverse Effect has occurred; or (b) would reasonably be expected to materially delay or has a material adverse effect on the ability of the Company and its subsidiaries to timely consummate the transactions contemplated by the Merger Agreement (including the Merger)):
changes in general economic conditions, or changes in conditions in the global, international or regional economy generally;
changes in conditions in the financial markets, credit markets or capital markets in the United States or any other country or region of the world, including (1) changes in interest rates or credit ratings, (2) changes in exchange rates for the currencies of any country, or (3) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or over-the-counter market;
general changes in conditions in the industries in which the Company and its subsidiaries conduct business;
any geopolitical conditions, outbreak of hostilities, acts of war (whether or not declared), sabotage, cyberterrorism (including by means of cyber-attack by or sponsored by a Governmental Authority), terrorism or military actions (including any escalation or general worsening of any such hostilities, acts of war, sabotage, cyberterrorism, terrorism or military actions);
earthquakes, volcanic activity, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, force majeure events, weather conditions, epidemics, plagues, pandemics (including COVID-19) or other outbreaks of illness or public health events and other similar events in the United States, or any other country or region of the world;
changes in regulatory, legislative or political conditions in the United States or any other country or region of the world;
the announcement of the Merger Agreement or the pendency of the Merger (provided, however, that this clause will not apply to the Company’s representation and warranty with respect to the absence of conflicts with the Company’s organizational documents and the Company’s contracts);
any action taken or refrained from being taken by the Company or its subsidiaries that is expressly required by the Merger Agreement;
any action taken or refrained from being taken, in each case to which Parent has expressly approved, consented to or requested in writing following the date of the Merger Agreement;
changes or proposed changes in GAAP or other accounting standards or in any applicable laws (or the enforcement or interpretation of any of the foregoing) after the date of the Merger Agreement;
changes in the price or trading volume of shares of common stock, in and of itself  (it being understood that any cause of such change may be deemed to constitute, in and of itself, a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred); and
any failure, in and of itself, by the Company and its subsidiaries to meet (1) any public estimates or expectations of the Company’s revenue, earnings or other financial performance or results of operations for
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any period; or (2) any budgets, plans, projections or forecasts of its revenues, earnings or other financial performance or results of operations (it being understood that in the case of the prior clauses (1) and (2) any cause of any such failure may be deemed to constitute, in and of itself, a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred).
In the Merger Agreement, the Company has made customary representations and warranties to Parent and Merger Sub that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:
due organization, valid existence, good standing and authority and qualification to conduct business with respect to the Company and its subsidiaries;
the Company’s power and authority to enter into and perform the Merger Agreement and to consummate the Merger;
the organizational documents of the Company and its subsidiaries;
the necessary approval of the Company’s Board;
the delivery of Houlihan Lokey’s opinion to the Board prior to the execution of the Merger Agreement;
the inapplicability of anti-takeover statutes to the Merger;
the necessary vote of stockholders of the Company in connection with the Merger Agreement;
the absence of any conflict or violation of organizational documents of the Company, or existing material contracts of, or laws applicable to, the Company or its subsidiaries, or the resulting creation of any lien upon the Company’s properties or assets (or any properties or assets of any of the Company’s subsidiaries) due to the Merger Agreement and the performance thereof;
required consent, approval, order or authorization of, filing or registration with, or notification to any governmental authority in connection with the Merger Agreement and performance thereof, including the Nasdaq, the FCC, the State PSCs and the Local Consents;
the capital structure and outstanding equity awards of the Company;
the absence of any undisclosed security, option, warrant or other right exchangeable for or convertible into shares of common stock;
the absence of any contract relating to the voting of, requiring registration of, or granting any preemptive rights, anti-dilutive rights or rights of first refusal or other similar rights with respect to any of the Company’s securities;
the accuracy, compliance with law and required filings of certain of the Company’s SEC filings and financial statements;
the Company’s disclosure controls and procedures;
the Company’s internal accounting controls and procedures;
the absence of certain undisclosed liabilities;
the conduct of the business of the Company and its subsidiaries in the ordinary course of business since December 31, 2019 and the absence of a Company Material Adverse Effect since December 31, 2019;
the existence and validity of specified categories of the Company’s and certain of its subsidiaries’ material contracts, and absence of breach or default pursuant to any such material contracts;
relationships with suppliers and customers;
real property leased or subleased by the Company and its subsidiaries;
environmental matters;
trademarks, patents, copyrights and other intellectual property matters;
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tax matters;
employee benefit plans;
labor matters;
the Company’s and its subsidiaries’ compliance with laws and possession of necessary licenses;
litigation matters;
insurance matters;
absence of certain contracts, transactions, arrangements or understandings between the Company or any of its subsidiaries and any Affiliate (as defined in the Merger Agreement) or related person;
payment of fees to brokers in connection with the Merger Agreement;
anti-corruption matters and compliance with various applicable laws including the Foreign Corrupt Practices Act of 1977;
certain regulatory matters related to the telecommunications business of the Company and compliance with certain telecommunications laws, including the Communications Act of 1934 and state statutes governing intrastate telecommunications services;
the quality of the Company’s network facilities and its title to certain network cables;
accuracy of information supplied by the Company for inclusion in this proxy statement or other required Company filings and the compliance as to form of this proxy statement with the Exchange Act; and
the exclusivity and terms of the representations and warranties made by the Company.
In the Merger Agreement, Parent and Merger Sub have made customary representations and warranties to the Company that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:
due organization, good standing and authority and power to conduct business with respect to Parent and Merger Sub, and availability of the organizational documents of Parent and Merger Sub;
Parent and Merger Sub’s power and authority to enter into and perform the Merger Agreement and the enforceability of the Merger Agreement;
the absence of any conflict or violation of any organizational documents, existing contracts, applicable laws or the resulting creation of any lien upon Parent’s or Merger Sub’s properties or assets due to the Merger Agreement and the performance thereof;
required governmental consents and regulatory filings in connection with the Merger Agreement;
the absence of certain litigation, orders and investigations;
ownership of common stock;
payment of fees to brokers in connection with the Merger;
operations of Parent and Merger Sub;
the absence of any required consent of holders of any capital stock of, or other equity or voting interests in, Parent and the approval of Parent as the only approval of the membership interests of Merger Sub necessary to approve the adoption of the Merger Agreement;
matters with respect to the Guarantee and the delivery and validity thereof;
matters with respect to Parent and Merger Sub’s financing and sufficiency of funds;
the absence of any contract, arrangement or understanding prohibiting any potential provider of debt or equity financing from providing debt or equity financing or financial advisory services in connection with a transaction relating to the Company or any of its subsidiaries;
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the absence of any arrangements with any stockholder, director, officer, employee or other Affiliate of the Company related to the Merger;
the solvency of the Surviving Corporation and its subsidiaries following the consummation of the Merger and the transactions contemplated by the Merger Agreement;
the exclusivity and terms of the representations and warranties made by Parent, Merger Sub and the Company; and
accuracy of information supplied by Parent or Merger Sub for inclusion in this proxy statement or other required Company filings.
The representations and warranties contained in the Merger Agreement will terminate at the Effective Time of the Merger.
Conduct of Business Pending the Merger
The Merger Agreement provides that, except as: (1) expressly required by the Merger Agreement, (2) expressly set forth in certain sections of the Company’s confidential disclosure letter, (3) approved by Parent in writing (which approval shall not be unreasonably withheld, conditioned or delayed) or (4) required by applicable law, at all times during the period of time commencing with the execution and delivery of the Merger Agreement and continuing until the earlier to occur of the valid termination of the Merger Agreement and the Effective Time, the Company shall use its reasonable best efforts to, and shall cause each of its subsidiaries to use its reasonable best efforts to:
subject to the restrictions and exceptions in the Merger Agreement, conduct its business and operations in all material respects in the ordinary course of business consistent with past practice;
comply in all material respects with applicable law;
preserve intact, in all material respects, its business organization, and existing relationships with customers, suppliers, governmental authorities, and others having material business relationships or regulator relationships with the Company or its subsidiaries.
In addition, the Company has also agreed that, except as (1) expressly required by the Merger Agreement, (2) approved by Parent in writing (which approval shall not be unreasonably withheld, conditioned or delayed), (3) set forth in certain sections of the Company’s confidential disclosure letter or (4) required by applicable law, at all times during the period of time commencing with the execution and delivery of the Merger Agreement and continuing until the earlier to occur of the valid termination of the Merger Agreement and the Effective Time, the Company shall use its reasonable best efforts not to, and shall cause its subsidiaries to use its respective reasonable best efforts not to, among other things, subject to certain specified exceptions set forth in the Merger Agreement:
amend, waive, or otherwise modify any organizational document of the Company or any of its subsidiaries;
liquidate, dissolve, merge, consolidate, restructure, recapitalize or otherwise reorganize;
issue, sell, deliver, pledge, encumber, dispose of or agree or commit to issue, sell, deliver, pledge, encumber, or dispose of any Company Securities (as defined in the Merger Agreement);
directly or indirectly acquire, repurchase or redeem any securities of the Company;
adjust, split, combine or reclassify any shares of capital stock, or issue or authorize or propose the issuance of any other Company Securities in respect of, in lieu of or in substitution for, shares of its capital stock or other equity or voting interest;
declare, set aside or pay any dividend or other distribution;
pledge or encumber any shares of capital stock or other equity or voting interest, or modify the terms of any shares of capital stock or other equity or voting interest;
incur, assume or suffer certain indebtedness or issue any debt securities;
assume, guarantee, endorse or otherwise become liable or responsible for the obligations of any other person, except with respect to obligations of direct or indirect wholly owned subsidiaries of the Company;
make any material loans, advances or capital contributions to, or investments in, any other person;
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mortgage or pledge any assets, tangible or intangible, or create or suffer to exist any lien thereupon;
enter into, adopt, amend, modify, or terminate any Employee Plan or plan, agreement or arrangement that would constitute an Employee Plan if in effect as of the date of the Merger Agreement;
increase the compensation or benefits of any director, officer or employee whose total annual base salary exceeds or would exceed $150,000, or hire as an employee, director or independent contractor or terminate (other than for cause) any current officer, director, independent contractor or employee of the Company whose total base salary exceeds or would exceed $150,000;
waive or materially amend any restrictive covenant entered into by any current or former officer, director, independent contractor or employee of the Company or any of its subsidiaries;
adopt, enter into, amend, modify or terminate any collective bargaining agreement;
settle any pending or threatened material legal proceeding;
make, change or revoke any material tax election, change any tax accounting period, change any tax accounting method, settle or compromise any material tax claim, audit, examination or proceeding or assessment, surrender any right to claim a refund of a material amount of taxes, consent to any extension or waiver of the limitation period applicable to any material tax claim audit, examination, proceeding or assessment, or initiate any voluntary tax disclosure with any governmental authority;
incur or commit to incur any capital expenditures;
enter into, modify in any material respect, amend in any material respect, waive any rights or obligations under or terminate any material contract (other than the termination of any material contract that has expired in accordance with its terms) or any contract that, if entered into prior to the date of the Merger Agreement would have been a material contract;
engage in any transaction with, or enter into any agreement, arrangement or understanding with, any affiliate of the Company or other person covered by Item 404 of Regulation S-K promulgated by the SEC that would be required to be disclosed pursuant to Item 404;
acquire, transfer, dispose, abandon, cancel, waive, lease or license any rights in a material asset (including intellectual property) or business (including by merger, consolidation or acquisition of stock or assets);
make any material change in financial accounting policies, practices, principles, methods or procedures, other than as required by GAAP or Regulation S-X promulgated under the Exchange Act or other applicable rules and regulations of the SEC or applicable law;
adopt or implement any stockholder rights agreement, “poison pill” or similar antitakeover agreement or plan;
enter into any new line of business (other than any line of business that is reasonably related to and a reasonably foreseeable extension of any line of business existing as of the date of the Merger Agreement) or terminate any material line of business existing as of the date of the Merger Agreement;
enter into any contract that includes a change of control or similar provision that would require a material payment to or would give rise to any material rights (including termination rights) of the other party or parties thereto in connection with the consummation of the Merger or the other transactions contemplated by the Merger Agreement or any future change of control;
cancel, terminate or allow to lapse without a commercially reasonable substitute policy therefor, or amend in any material respect or enter into, any insurance policy, other than the renewal of an existing insurance policy or a commercially reasonable substitute therefor;
agree, resolve, authorize or commit in writing or otherwise to do any of the foregoing.
The “Go-Shop” Period
Under the Merger Agreement, from the date of the Merger Agreement until August 25, 2020, the Company and its affiliates and their respective Representatives have the right to, among other things: (1) solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any inquiry, proposal or offer
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that constitutes, or that could constitute, an Acquisition Proposal, including by providing information (including non-public information and data) relating to the Company or any of its subsidiaries and affording access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the Company or any of its subsidiaries (other than Parent, Merger Sub or any designees of Parent or Merger Sub) to any person (and its Representatives, including potential financing sources of such person) pursuant to an Acceptable Confidentiality Agreement; and (2) engage in, enter into, continue or otherwise participate in, any discussions or negotiations with any person (and their respective Representatives, including potential financing sources of such person) with respect to any Acquisition Proposals (or inquiries, proposals or offers or any other effort or attempt that could lead to an Acquisition Proposal) and cooperate with or assist or participate in or facilitate any such inquiries, proposals, offers, discussions or negotiations or any effort or attempt to make any Acquisition Proposals or other proposals that could lead to any Acquisition Proposal, including granting a waiver, amendment or release under any pre-existing standstill or similar provision to the extent necessary to allow for an Acquisition Proposal or amendment to an Acquisition Proposal to be made to the Company or the Board.
For purposes of this proxy statement and the Merger Agreement:
“Acceptable Confidentiality Agreement” means an agreement with the Company that is either (i) in effect as of the execution and delivery of the Merger Agreement; or (ii) executed, delivered and effective after the execution and delivery of the Merger Agreement, in either case containing provisions that require any counterparty thereto (and any of its Affiliates and Representatives named therein) that receive material non-public information of, or with respect to, the Company to keep such information confidential; provided, however, that, in each case, (i) the confidentiality and use provisions contained therein are no less restrictive in the aggregate to such counterparty (and any of its Affiliates and Representatives as provided therein) than the terms of the letter agreement, dated February 3, 2020, by and between OHCP V and the Company (the “Confidentiality Agreement”) (it being understood that such agreement need not contain any “standstill” or similar provisions or otherwise prohibit the making of any Acquisition Proposal), and (ii) such agreement shall not prevent the Company or any of its subsidiaries from complying with any of the provisions of the Merger Agreement or restrict in any manner the Company’s ability to consummate the transactions contemplated by the Merger Agreement.
“Acquisition Proposal” means any offer or proposal (other than an offer or proposal by Parent or Merger Sub) to engage in an Acquisition Transaction.
“Acquisition Transaction” means any transaction or series of related transactions (other than the Merger) involving:
(i)
any direct or indirect purchase or other acquisition by any person or Group (as defined in the Merger Agreement), whether from the Company or any other person(s), of shares of common stock representing more than 20% of the Company’s Securities (as defined in the Merger Agreement) outstanding after giving effect to the consummation of such purchase or other acquisition, including pursuant to a tender offer or exchange offer by any person or Group that, if consummated in accordance with its terms, would result in such person or Group beneficially owning more than 20% of the Company’s Securities outstanding after giving effect to the consummation of such tender or exchange offer;
(ii)
any direct or indirect purchase or other acquisition or license of the assets or business of the Company and its subsidiaries by any person or Group constituting more than 20% of the consolidated net revenues, consolidated net income or consolidated assets of the Company and its subsidiaries taken as a whole (measured by the fair market value thereof as of the date of such purchase or acquisition);
(iii)
any direct or indirect merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution, spin-off, spit-off or other transaction involving the Company or any of its subsidiaries pursuant to which any person or Group would, directly or indirectly, hold shares of common stock representing more than 20% of the common stock outstanding after giving effect to the consummation of such transaction; or
(iv)
any other transaction having a similar effect to those described in the foregoing clauses (i) through (iii).
“Excluded Party” means any person or group of persons that includes any person or group of persons from whom the Company or any of its Representatives has received a written Acquisition Proposal on or after the date of the Merger Agreement and prior to August 25, 2020 (other than any person or group of persons with whom the Company or any of its Representatives solicited or entered into discussions or negotiations with respect to, or entered into a confidentiality agreement in connection with, an Acquisition Proposal or potential Acquisition Proposal since
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January 1, 2020) that the Board determines in good faith (after consultation with its financial advisor and outside legal counsel) constitutes or would be reasonably likely to lead to a Superior Proposal. For the avoidance of doubt, any person that is determined to be an Excluded Party pursuant to the foregoing shall cease to be an Excluded Party at such time as the Board determines in good faith that such person’s Acquisition Proposal no longer constitutes or would no longer be reasonably likely to lead to a Superior Proposal in light of the facts and circumstances available to, or known by, the Board.
“Superior Proposal” means any bona fide written Acquisition Proposal for an Acquisition that did not result, directly or indirectly, from a violation of the no solicitation provisions of the Merger Agreement on terms that the Board has determined in good faith (after consultation with its financial advisor and outside legal counsel) is reasonably likely to be consummated on its terms and would, if consummated on its terms, be more favorable, from a financial point of view, to the stockholders of the Company (in their capacity as such) than the Merger (taking into account any legal, regulatory, financial, timing, financing and other aspects of such proposal and any revisions to the Merger Agreement made or proposed in writing by Parent prior to the time of such determination). For purposes of the reference to an “Acquisition Proposal” in this definition, all references to “20%” in the definition of “Acquisition Transaction” will be deemed to be references to “50%.”
The “No-Shop” Period
Except as it may relate to Parent and subject to the procedures and terms associated with the receipt of a Superior Proposal set forth in the Merger Agreement, from the No-Shop Period Start Date, which is August 25, 2020 (or with respect to an Excluded Party (but only for so long as such Person is an Excluded Party), from 12:01 a.m. on September 9, 2020) until the earlier to occur of the valid termination of the Merger Agreement and the Effective Time, the Company has agreed not to, and to cause its subsidiaries and its and their respective Representatives not to, and will not publicly announce any intention to, directly or indirectly:
solicit, initiate, propose or induce the making, submission or announcement of, or knowingly encourage, facilitate or assist, any proposal or offer that would reasonably be expected to lead to, or that constitutes, an Acquisition Proposal;
engage in, continue or otherwise participate in any discussions concerning, or provide access or otherwise furnish to any person (other than Parent, Merger Sub or any of their respective designees) any non-public information relating to the Company or any of its subsidiaries or any of their respective properties, books, records or personnel or afford to any person access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the Company or any of its subsidiaries (other than to Parent, Merger Sub or any designees of Parent or Merger Sub), in any such case with the intent to induce the making, submission or announcement of, or to knowingly encourage, facilitate or assist, or otherwise relating to or in connection with, an Acquisition Proposal or any inquiries or the making of any proposal that would reasonably be expected to lead to an Acquisition Proposal;
participate or engage in discussions or negotiations with any person with respect to an Acquisition Proposal or any proposal or offer that would reasonably be expected to lead to an Acquisition Proposal (subject to certain exceptions);
approve, endorse or recommend an Acquisition Proposal;
enter into any letter of intent, memorandum of understanding, merger agreement, acquisition agreement or other contract or agreement in principle, understanding or arrangement, in each case, relating to an Acquisition Proposal, other than an Acceptable Confidentiality Agreement or any contract requiring the Company to abandon, terminate or fail to consummate the Merger or the other transactions contemplated by the Merger Agreement; or
resolve or agree to take any of the foregoing actions.
In addition, from the start of the No-Shop Period Start Date until the earlier to occur of the valid termination of the Merger Agreement and the Effective Time, the Company has agreed to not terminate, amend, modify or waive, and shall enforce to the fullest extent permitted under applicable law, the provisions of any standstill or confidentiality agreement including any such provision that prohibits or purports to prohibit a proposal being made to the Board; provided that the Company shall be permitted on a confidential basis to release or waive any standstill obligation solely to the extent necessary to permit the person otherwise covered by such standstill obligation to submit an
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Acquisition Proposal to the Board on a confidential basis and solely to the extent that the failure to grant such release or waiver would reasonably be expected to be inconsistent with the fiduciary duties of the Board to the Company’s stockholders under applicable law. Notwithstanding the occurrence of the No-Shop Period Start Date, the Company and its subsidiaries and their respective Representatives may continue to engage in activities restricted by the no-shop provisions with respect to any Excluded Party, including with respect to any amended or modified Acquisition Proposal submitted by any Excluded Party, during such period following the No-Shop Period Start Date until the Cut-Off Date.
Notwithstanding these restrictions, under certain circumstances, from the date of the Merger Agreement and continuing until the Company’s receipt of the Requisite Stockholder Approval, the Company and the Board may, directly or indirectly through one or more of their Representatives, participate or engage in discussions or negotiations with, furnish any non-public information relating to the Company or any of its subsidiaries to, or afford access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the Company or any of its subsidiaries pursuant to an Acceptable Confidentiality Agreement to, any person or its Representatives that has made, renewed or delivered to the Company a bona fide written Acquisition Proposal after the date of the Merger Agreement that did not result from a breach of the “No-Shop” restrictions set forth in the Merger Agreement, if the Board has determined in good faith (after consultation with its financial advisor and outside legal counsel) that (A) such Acquisition Proposal either constitutes a Superior Proposal or is reasonably likely to lead to a Superior Proposal and (B) the failure to take action with respect to such Acquisition Proposal would be inconsistent with the fiduciary duties of the Board to the Company’s stockholders under applicable law. The Company must promptly (and in any event within 48 hours) make available to Parent any material non-public information concerning the Company and its subsidiaries that is provided to any such person or its Representatives that was not previously made available to Parent.
The Board’s Recommendation; Company Board Recommendation Changes
As described above, and subject to the provisions described below, the Board has made the recommendation that the stockholders of the Company vote “FOR” the adoption of the Merger Agreement.
Except as specifically provided in the Merger Agreement, at no time after the date of the Merger Agreement may the Board take any of the following actions (any such action, a “Company Board Recommendation Change”):
withhold, withdraw, amend, qualify or modify, or publicly propose to withhold, withdraw, amend, qualify or modify, the Company Board Recommendation in a manner adverse to Parent in any material respect;
publicly adopt, approve or recommend to the stockholders an Acquisition Proposal;
take or fail to take any formal action or make or fail to make any recommendation or public statement in connection with a tender or exchange offer, other than a recommendation against such offer or a “stop, look and listen” communication by the Board to the stockholders pursuant to Rule 14d-9(f) promulgated under the Exchange Act (or any substantially similar communication) (it being understood that the Board may refrain from taking a position with respect to an Acquisition Proposal until the close of business on the fifth business day after the commencement of a tender or exchange offer in connection with such Acquisition Proposal without such action being considered a violation of the Merger Agreement);
fail to publicly reaffirm the Company Board Recommendation within five business days after its receipt of a written request by Parent to provide such affirmation (provided, that such reaffirmation may include such additional disclosures as would reasonably be necessary to satisfy the fiduciary duties of the Board and comply with applicable law so long as such disclosure does not have the substantive effect of withdrawing or modifying in a manner adverse to Parent the Company Board Recommendation);
fail to include the Company Board Recommendation in this proxy statement;
authorize, resolve to allow, cause or permit, or publicly announce an intention to approve or recommend that, the Company or any of its Subsidiaries to enter into an Alternative Acquisition Agreement (as defined the Merger Agreement).
Notwithstanding the restrictions described above, and subject to the procedures described in the subsequent paragraph, prior to the receipt of the Requisite Stockholder Approval, the Board may effect a Company Board Recommendation Change if  (1) the Company has received a bona fide written Acquisition Proposal not resulting from a breach of the no-shop provision of the Merger Agreement and that the Board has determined in good faith
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(after consultation with its financial advisor and outside legal counsel) constitutes a Superior Proposal; or (2) in response to an Intervening Event (as defined below), as further described below.
The Board may effect a Company Board Recommendation Change with respect to an Acquisition Proposal or authorize the Company to terminate the Merger Agreement to enter into an Alternative Acquisition Agreement with respect to an Acquisition Proposal, in each case, if:
the Board determines in good faith (after consultation with its financial advisor and outside legal counsel) that the failure to do so would be inconsistent with its fiduciary duties pursuant to applicable law;
the Company has complied in all material respects with its obligations pursuant to the Merger Agreement with respect to such Acquisition Proposal;
(i) the Company has provided prior written notice to Parent at least four business days in advance (the “Notice Period”) to the effect that the Board has (A) received a Superior Proposal and (B) intends to effect a Company Board Recommendation Change with respect to such Acquisition Proposal and authorize the Company to terminate the Merger Agreement to enter into such Alternative Acquisition Agreement, which notice will specify the basis for such actions, including the identity of the person or group making such Acquisition Proposal, the terms (other than immaterial terms) thereof and copies of all relevant documents (other than immaterial documents) relating to such Acquisition Proposal including any proposed definitive transaction agreements with the person making such Superior Proposal and; and (ii) prior to effecting a Company Board Recommendation Change with respect to such Acquisition Proposal and authorizing the Company to terminate the Merger Agreement to enter into such Alternative Acquisition Agreement, the Company and its Representatives, during the Notice Period, must have negotiated with Parent and its Representatives in good faith (to the extent that Parent desires to so negotiate) to make such adjustments to the terms and conditions of the Merger Agreement so that the Board would no longer determine that the failure to make a Company Board Recommendation Change in response to such Acquisition Proposal would be inconsistent with its fiduciary duties pursuant to applicable law (and would cause such Superior Proposal to no longer constitute a Superior Proposal), and must have kept Parent reasonably informed in all material respects of any material developments with respect to any such Acquisition Proposal (and any subsequent amendments or modifications thereto) and delivered copies of revised or newly received documents to Parent, in each case, as soon as is reasonably practicable and in any event within 24 hours of receipt, provision or occurrence thereof; provided, however, that in the event of any material revisions to such Acquisition Proposal, the Company shall be required to deliver a new written notice to Parent and to comply with the requirements of the Merger Agreement with respect to such new written notice (it being understood that the “Notice Period” in respect of such new written notice will be three business days); and
in the event of any termination of the Merger Agreement in order to cause or permit the Company or any of its subsidiaries to enter into an Alternative Acquisition Agreement with respect to such Acquisition Proposal, the Company shall have validly terminated the Merger Agreement in accordance with its terms, including paying (or causing to be paid) the applicable Company Termination Fee.
The Board may effect a Company Board Recommendation Change in response to an Intervening Event if:
the Board determines in good faith (after consultation with its financial advisor and outside legal counsel) that the failure to do so would be inconsistent with its fiduciary duties pursuant to applicable law;
the Company has provided prior written notice to Parent at least four business days in advance to the effect that the Board has (1) so determined and (2) resolved to effect a Company Board Recommendation Change pursuant to the applicable terms of the Merger Agreement, which notice will specify the applicable Intervening Event in reasonable detail; and
prior to effecting such Company Board Recommendation Change, the Company and its Representatives, during such three business day period, must have negotiated with Parent and its Representatives in good faith (to the extent that Parent desires to so negotiate) to make such adjustments to the terms and conditions of the Merger Agreement so that the Board would no longer determine that the failure to make a Company Board Recommendation Change in response to such Intervening Event would be inconsistent with its fiduciary duties pursuant to applicable law, and must have kept Parent reasonably informed in all material
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respects of any material developments with respect to any such Intervening Event and delivered copies of revised or newly received documents relating to such Intervening Event to Parent, in each case, as soon as is reasonably practicable and in any event within 24 hours of receipt, provision or occurrence thereof.
An “Intervening Event” means a material event, change, effect, development, condition, circumstance or occurrence that (i) improves or would be reasonably likely to improve the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (ii) is not known by the Board as of the date of the Merger Agreement or that was not reasonably foreseeable as of the date of the Merger Agreement by the Board or any member thereof or member of Company management and (iii) does not relate to any Acquisition Proposal; provided, that, for the avoidance of doubt, neither of the following shall be considered or taken into account in determining whether an Intervening Event has occurred: (A) changes in the trading price or trading volume of common stock (it being understood that the underlying cause of such change may be taken into account to the extent not otherwise excluded by this definition), or (B) the fact alone that the Company meets or exceeds any internal or published forecasts or projections for any period (it being understood that the underlying cause of such overperformance by the Company may be taken into account to the extent not otherwise excluded by this definition).
Employee Benefits
The Merger Agreement provides that, for a period of one year following the Effective Time, each individual who is an employee of the Company or any of its subsidiaries immediately prior to the Effective Time and continues to be an employee of Parent or one of its subsidiaries (including the Surviving Corporation) immediately following the Effective Time (a “Continuing Employee”) shall be provided with (i) compensation, benefits and severance that, taken as a whole, are no less favorable in the aggregate than the compensation (including the total target cash incentive compensation opportunity, but excluding any equity-based incentive compensation), benefits and severance provided to such Continuing Employee immediately prior to the Effective Time (“Comparable Plans”), or (ii) some combination of Company Plans (as defined in the Merger Agreement), Comparable Plans and New Plans (as defined below) such that each Continuing Employee receives compensation (including the total cash target incentive compensation opportunity, but excluding any equity-based incentive compensation), benefits and severance that, taken as a whole, are no less favorable in the aggregate than the compensation, benefits and severance provided to such Continuing Employee immediately prior to the Effective Time. In each case, and without limiting the foregoing, base salary or base wage rate, and target cash incentive compensation opportunity will not be decreased below levels in effect immediately prior to the Effective Time during the one-year period following the Effective Time for any Continuing Employee employed during that period. During the one-year period following the Effective Time, the Surviving Corporation and its subsidiaries shall (and Parent shall cause the Surviving Corporation and its subsidiaries to) provide severance benefits and compensation to eligible employees in accordance with the Company’s severance plans, guidelines and practices as in effect on the date of the Merger Agreement.
To the extent that a Comparable Plan or New Plan is made available to any Continuing Employee at or after the Effective Time, the Surviving Corporation and its subsidiaries shall (and Parent shall cause the Surviving Corporation and its subsidiaries to) cause to be granted to such Continuing Employee credit for all service with the Company and its subsidiaries prior to the Effective Time for purposes of eligibility to participate, vesting and entitlement to benefits where length of service is relevant (including for purposes of vacation accrual and severance entitlement, but not for purposes of any defined benefit pension plan or retiree medical benefits) to the same extent such service was recognized immediately prior to the Effective Time under the applicable Company Plan, except that such service need not be credited to the extent that it would result in duplication of coverage or benefits for the same period of service. In addition, and without limiting the generality of the foregoing, (i) each Continuing Employee will be immediately eligible to participate, without any waiting period, in any and all employee benefit plans sponsored by the Surviving Corporation and its subsidiaries (other than the Company Plans) (such plans, the “New Plans”) or any Comparable Plans to the extent that coverage pursuant to any such New Plan or Comparable Plan replaces coverage pursuant to a corresponding Company Plan in which such Continuing Employee participates immediately before the Effective Time (such plans, the “Old Plans”); (ii) for purposes of each New Plan and each Comparable Plan providing life insurance, medical, dental, pharmaceutical, vision or disability benefits to any Continuing Employee, the Surviving Corporation and its subsidiaries shall (and Parent shall cause the Surviving Corporation and its Subsidiaries to) cause, or shall use commercially reasonable efforts to cause third party insurance carriers and third party administrators, as applicable, to waive, all waiting periods, pre-existing condition exclusions, evidence of insurability requirements and actively-at-work or similar requirements of such New Plan or Comparable Plan for such Continuing Employee and his or her covered dependents, and the Surviving Corporation and its Subsidiaries shall (and Parent shall cause the
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Surviving Corporation and its subsidiaries to) cause any eligible expenses incurred by such Continuing Employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the date that such Continuing Employee’s participation in the corresponding New Plan or Comparable Plan, as applicable, begins to be given full credit pursuant to such New Plan or Comparable Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such Continuing Employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Plan or Comparable Plan; and (iii) the Surviving Corporation and its subsidiaries shall (and Parent shall cause the Surviving Corporation and its subsidiaries to) credit the flexible spending accounts of such Continuing Employees under any New Plan or Comparable Plan that is a flexible spending account plan with any unused balance in the flexible spending account of such Continuing Employee under the Old Plan. Any vacation or paid time off accrued but unused by a Continuing Employee as of immediately prior to the Effective Time will be credited to such Continuing Employee following the Effective Time and will not be subject to accrual limits or other forfeitures, and will not limit future accruals, to the same extent such accrued, but unused, vacation and paid-time off would not otherwise be subject to accrual limits or forfeitures or limit future accruals pursuant to the vacation and paid-time off plans, guidelines and practices as in effect immediately prior to the Effective Time.
Efforts to Close the Merger
Each of the parties has agreed to use its reasonable best efforts to take, or cause to be taken, all actions, to do, or cause to be done, all things and to assist and cooperate with the other parties in doing (or causing to be done) all things, in each case as are necessary, proper or advisable pursuant to applicable law or otherwise to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by the Merger Agreement, including by (1) causing the closing conditions to the Merger to be satisfied, (2) obtaining all consents, waivers, approvals, orders and authorizations from governmental authorities and making all registrations, declarations and filings with governmental authorities, in each case that are necessary or advisable to consummate the transactions contemplated by the Merger Agreement, (3) obtaining all consents, waivers and approvals and delivering all notifications pursuant to any material contracts and leases as may be necessary or appropriate in connection with the Merger Agreement and the consummation of the transactions contemplated by the Merger Agreement or required by the terms of such material contract (it being understood that, in the event that any such third party consent, waiver or approval is not obtained, the Company and Parent shall determine reasonably and jointly whether to take any further actions with respect to such material contract);, and (4) executing and delivering any contracts and other instruments that are reasonably necessary to consummate the transactions contemplated by the Merger Agreement.
The parties have also agreed to make certain regulatory filings in connection with the Merger. In furtherance and not in limitation of the provisions in the foregoing paragraph, Parent and the Company agree, and shall cause each of their respective Affiliates, to use their respective reasonable best efforts to cooperate and use their respective reasonable best efforts to (i) obtain any FCC Consents (as defined in the Merger Agreement), PSC Consents (as defined in the Merger Agreement) and Local Consents (as defined in the Merger Agreement) and to make any registrations, declarations, notices or filings, if any, in connection therewith necessary for the consummation of the transactions contemplated by the Merger Agreement; (ii) in consultation and cooperation with the other, as promptly as practicable file all applications required to be filed with the FCC (including any submissions required by the Telecom Committee in connection with the FCC Consents) (the “FCC Submissions”), any State PSCs (the “PSC Submissions”) and any localities to obtain the FCC Consents, PSC Consents and Local Consents, respectively; and (iii) respond as promptly as practicable to any requests of the FCC (including requests from the Telecom Committee), any State PSC, or any locality for information relating to any FCC Submission, PSC Submission and/or filing with a locality, as applicable.
The Company, Parent and Merger Sub also agreed that, subject to any restrictions under applicable laws, (i) Parent and the Company shall (and shall cause their respective Affiliates to) in good faith cooperate, consult and consider the other’s views in order to jointly develop, (x) the strategy for obtaining any consents from any governmental authority (including the FCC Consents, PSC Consents and Local Consents) in connection with the transactions contemplated by the Merger Agreement and (y) the positions to be taken and the regulatory actions to be requested in any filing or submission with a governmental authority in connection with the transactions contemplated by the Merger Agreement and in connection with any investigation or other inquiry or legal proceeding by or before, or any negotiations with, a governmental authority relating to the transactions contemplated by the Merger Agreement and of all other regulatory matters incidental thereto; (ii) promptly notify the other parties of, and, if in writing, furnish the others with copies of (or, in the case of oral communications, advise the others of the contents of) any substantive communication received by such person from a governmental authority or a private party in connection with the
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transactions contemplated by the Merger Agreement and permit the other parties to review and discuss in advance (and to consider in good faith any comments made by the other parties in relation to) any proposed draft notifications, formal notifications, filing, submission or other written communication (and any analyses, memoranda, white papers, presentations, correspondence or other documents submitted therewith) made in connection with the transactions contemplated by the Merger Agreement to a governmental authority; (iii) keep the other parties informed with respect to the status of any such submissions and filings to any governmental authority in connection with the transactions contemplated by the Merger Agreement and any developments, meetings or discussions with any governmental respect thereof, including with respect to (A) the receipt of any non-action, action, clearance, consent, approval or waiver, (B) the expiration of any waiting period, (C) the commencement or proposed or threatened commencement of any investigation, litigation or administrative or judicial action or proceeding under applicable laws, including any proceeding initiated by a private party, and (D) the nature and status of any objections raised or proposed or threatened to be raised by any governmental authority with respect to the transactions contemplated by the Merger Agreement; and (iv) not independently participate in any meeting, hearing, proceeding or discussions (whether in person, by telephone or otherwise) with or before any governmental authority in respect of the transactions contemplated by the Merger Agreement without giving the other Parties reasonable prior notice of such meeting or discussions and, unless prohibited by such governmental authority, the opportunity to attend or participate. However, each of the Company, Parent and Merger Sub may designate any non-public information provided to any governmental authority as restricted to “outside counsel” only and any such information shall not be shared with employees, officers or directors or their equivalents of the other Party without approval of the Party providing the non-public information; provided, however, that each of the Company, Parent and Merger Sub may redact any valuation and related information before sharing any information provided to any governmental authority with another Party on an “outside counsel” only basis, and that the Company, Parent and Merger Sub shall not in any event be required to share information that benefits from legal privilege with the other Parties, even on an “outside counsel” only basis, where this would cause such information to cease to benefit from legal privilege.
Each of Parent and Merger Sub also agreed that, between the date of the Merger Agreement and the Closing, it shall not, and shall not permit any of its subsidiaries or Affiliates to take any actions that would reasonably be expected to result in any delay in obtaining, or to result in the failure to obtain, any FCC Consents, PSC Consents, or Local Consents required in connection with the transactions contemplated by the Merger Agreement, or which would otherwise reasonably be expected to prevent or delay the transactions contemplated by the Merger Agreement in any material respect, including entering into or consummating any contracts or arrangements for an acquisition (by stock purchase, merger, consolidation, purchase of assets, license or otherwise) of any ownership interest, assets or rights of any Person; provided that the foregoing shall not prohibit or restrict any actions taken by or on behalf of any portfolio company of any investment fund affiliated with or managed by Oak Hill that are not undertaken at the direction of Parent or Oak Hill.
For the purposes of determining compliance with the required actions and further agreements covenants of the Merger Agreement, “reasonable best efforts” of Parent and Merger Sub shall include taking any and all actions necessary to obtain the consents of any governmental authority (including the FCC Consents, PSC Consents and Local Consents), including (i) contesting and resisting any legal proceeding instituted (or threatened to be instituted) challenging the transactions contemplated by the Merger Agreement as in violation of any law; (ii) attempting to have repealed, rescinded or made inapplicable any applicable law, and to have vacated, lifted, reversed or overturned any judgment or temporary, preliminary or permanent injunction or other restraint or prohibition, that is enacted, entered, promulgated or enforced by a governmental authority that would make the transactions contemplated by the Merger Agreement illegal or would otherwise prohibit or impair or delay the consummation of the transactions contemplated by the Merger Agreement; (iii) conducting the Company’s and the Company Subsidiaries’ businesses in a specified manner, or proposing and agreeing or permitting to conduct any of such businesses in a specified manner, including by agreeing to (w) limitations and restrictions with respect to access by foreign persons to customer, operational or technical data transmitted and/or stored by the Company or any of its subsidiaries and related facilities access, including, in particular, limitations and restrictions on access by foreign persons to information and facilities relating to the goods and services the Company or its Subsidiaries provides directly or indirectly to the governments of the United States, (x) FCC-imposed conditions addressing national security, law enforcement, or public safety concerns of the Telecom Committee that are generally consistent with FCC-imposed conditions addressing such concerns for a current or prior Oak Hill Related Entity and do not substantially interfere with the ability of Parent or Oak Hill Fund V to appoint or select a majority of the Company’s board members, (y) obligations to regularly report to governmental authorities and to grant governmental authorities access to the operations of the Company and its
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Subsidiaries or (z) limitations and restrictions on the sourcing of new equipment from manufacturers in particular countries; and (iv) otherwise taking or committing to take actions that after the Effective Time would limit Parent or any of its Affiliates’ ability to retain one or more of the businesses, product lines, assets or operations of Parent or any of its Affiliates or the Company or any Company Subsidiary, in each case, to the extent necessary to obtain any such clearance, resolve any such objections or avoid or eliminate any such impediments (the actions described in clauses (i), (ii), (iii) and (iv), the “Remedy Actions”); provided, however, that the effectiveness of any such Remedy Action shall be conditioned upon the Closing; provided, further, that nothing in the Merger Agreement shall permit the Company or the Company Subsidiaries (without the prior written consent of Parent) or require Parent or its Affiliates to take or refrain from taking, or agree to take or refrain from taking, any Remedy Action or Remedy Actions that, individually or in the aggregate, would be reasonably likely to have a material adverse effect on the financial condition, business or results of operation of Parent and its Affiliates (taken as a whole) or a Company Material Adverse Effect. Nothing shall require Parent to cause any Oak Hill Related Entity to take, or refrain from taking, any Remedy Action other than preparing and filing documentation as may be required for (and responding to any inquiries or information requests from any governmental authority in connection with) receipt of the FCC Consents, PSC Consents or Local Consents required in connection with the transactions contemplated by the Merger Agreement.
Delisting and Deregistration of Common Shares of the Company
Prior to the Effective Time, the Company shall cooperate with Parent and use its reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things reasonably necessary, proper or advisable on its part pursuant to applicable law and the rules and regulations of the Nasdaq to cause the delisting of the common stock from the Nasdaq as promptly as practicable after the Effective Time and the deregistration of the common stock pursuant to the Exchange Act as promptly as practicable after such delisting.
Financing
Cooperation with Debt Financing
Although the obligation of Parent and Merger Sub to consummate the Merger is not subject to any financing condition (including, without limitation, consummation of any debt financing), the Company has agreed that, prior to the Effective Time, it will use its reasonable best efforts, and will cause each of its subsidiaries to use its respective reasonable best efforts, to provide Parent with all customary cooperation reasonably requested by Parent to assist it in causing the conditions to the Debt Commitment Letters to be satisfied or as is otherwise customary and reasonably requested by Parent in connection with the Debt Financing, including using commercially reasonable efforts in connection with certain actions specified in the Merger Agreement.
Notwithstanding the foregoing, neither Company nor any of its subsidiaries are required to (1) waive or amend any terms of the Merger Agreement or agree to pay any fees or reimburse any expenses prior to the Effective Time for which it has not received prior reimbursement or is not otherwise indemnified by or on behalf of Parent, (2) cause any closing condition with respect to the Merger to fail to be satisfied, (3) enter into any definitive agreement the effectiveness of which is not conditioned upon the Closing, (4) give any indemnities that are effective prior to the Effective Time, or (5) take any action that, in the good faith determination of the Company, would unreasonably interfere with the conduct of the business of the Company and its subsidiaries or breach any confidentiality obligations or create a risk of damage or destruction to any property or assets of the Company or any of its subsidiaries. In addition, no action, liability or obligation of the Company, any of its subsidiaries or any of their respective Representatives pursuant to any certificate, agreement, arrangement, document or instrument relating to the Debt Financing will be effective until the Effective Time, and neither the Company nor any of its subsidiaries will be required to take any action pursuant to any certificate, agreement, arrangement, document or instrument that is not contingent on the consummation of the Merger or that must be effective prior to the Effective Time. Nothing in the Merger Agreement with respect to the Debt Financing will require (A) any Representative of the Company or any of its subsidiaries to deliver any certificate or opinion or take any other action with respect to the Debt Financing specified in the Merger Agreement that could reasonably be expected to result in personal liability to such Representative; (B) the Board to approve any financing or contracts related thereto prior to the Effective Time or (C) the Company, its subsidiaries or their respective directors, officers or employees to execute, deliver or enter into, or perform any agreement, document or instrument, including any definitive financing document, with respect any debt financing or adopt resolutions approving any agreement, document or instrument pursuant to which any debt financing is obtained or pledge any collateral with respect to any debt financing prior to the Effective Time.
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In addition, Parent will (1) reimburse the Company for any reasonable and documented out-of-pocket costs and expenses (including reasonable and documented attorneys’ fees) incurred by the Company, its subsidiaries or any of their respective Representatives in connection with the cooperation or obligations of the Company, its subsidiaries and their respective Representatives relating to the Debt Financing pursuant to the Merger Agreement, promptly upon request by the Company and (2) indemnify and hold harmless the Company, its subsidiaries and their respective Representatives from and against any and all liabilities, losses, damages, claims, costs, expenses (including attorneys’ fees), interest, awards, judgments, penalties and amounts paid in settlement suffered or incurred by them in connection with their cooperation in arranging the Debt Financing pursuant to the Merger Agreement or the provision of information (other than information provided by the Company or its subsidiaries) utilized in connection therewith, in each case other than to the extent any of the foregoing was suffered or incurred as a result of the bad faith, fraud, gross negligence or willful misconduct of the Company or any of its subsidiaries or their respective representatives.
Indemnification and Insurance
The Merger Agreement provides that the Surviving Corporation and its subsidiaries will (and Parent will cause the Surviving Corporation and its subsidiaries to) honor and fulfill, in all respects, the obligations of the Company and its subsidiaries pursuant to any indemnification agreements between the Company and any of its subsidiaries or Affiliates, on the one hand, and any of their respective current or former directors, officers, employees or agents (and any person who becomes a director, officer, employee or agent of the Company or any of its subsidiaries prior to the Effective Time), on the other hand (each, together with such person’s heirs, executors and administrators, an “Indemnified Person”) in effect on the date of the Merger Agreement and made available to Parent. In addition, during the period commencing at the Effective Time and for six years thereafter, the Surviving Corporation and its subsidiaries will (and Parent will cause the Surviving Corporation and its subsidiaries to) cause the organizational documents of the Surviving Corporation and its subsidiaries to contain provisions with respect to indemnification, exculpation and advancement of expenses that are at least as favorable as the indemnification, exculpation and advancement of expenses provisions set forth in the organizational documents of the subsidiaries of the Company as of the date of the Merger Agreement. During such six-year period, such provisions may not be repealed, amended or otherwise modified in any manner except as required by applicable law.
In addition, the Merger Agreement provides that, during the six-year period commencing at the Effective Time, the Surviving Corporation will (and Parent will cause the Surviving Corporation to) indemnify and hold harmless, to the same extent such persons are indemnified as of the date of the Merger Agreement pursuant to the organizational documents of the Company or the applicable subsidiary and any existing indemnification agreements, each Indemnified Person from and against any costs, fees and expenses (including attorneys’ fees and investigation expenses), judgments, fines, penalties, losses, claims, damages, liabilities and amounts paid in settlement or compromise in connection with any legal proceeding, whether civil, criminal, administrative or investigative, whether asserted, to the extent that such legal proceeding arises, directly or indirectly, out of, or pertains, directly or indirectly, to (1) the fact that an Indemnified Person is or was a director, officer, employee or agent of the Company or such subsidiary or Affiliate, (2) any action or omission, or alleged action or omission, in such Indemnified Person’s capacity as a director, officer, employee or agent of the Company or any of its subsidiaries or other Affiliates, or taken at the request of the Company or such subsidiary or Affiliate (including in connection with serving at the request of the Company or such subsidiary or Affiliate as a director, officer, employee, agent, trustee or fiduciary of another person (including any employee benefit plan)), regardless of whether such action or omission, or alleged action or omission, occurred prior to, at or after the Effective Time; and (3) the transactions contemplated by the Merger Agreement, as well as any actions taken by the Company, Parent or Merger Sub with respect thereto (including any disposition of assets of the Surviving Corporation or any of its subsidiaries that is alleged to have rendered the Surviving Corporation or any of its subsidiaries insolvent), except that if, at any time prior to the sixth anniversary of the Effective Time, any Indemnified Person delivers to Parent a written notice asserting a claim for indemnification pursuant to certain applicable provisions of the Merger Agreement, then the claim asserted in such notice will survive the sixth anniversary of the Effective Time until such claim is fully and finally resolved. The Merger Agreement also provides that, in the event of any such legal proceeding, the Surviving Corporation will advance reasonable fees and expenses (including fees and expenses of any counsel) as incurred by an Indemnified Person in the defense of such legal proceeding; provided, that the applicable Indemnified Person provides an undertaking to repay such advance if it is ultimately determined by a final non-appealable order of a court of competent jurisdiction that an Indemnified Person is not entitled to indemnification under the Merger Agreement or otherwise. Notwithstanding anything to the contrary in the Merger Agreement, none of Parent, the Surviving Corporation nor any of their respective Affiliates from and after the Effective Time will settle or otherwise compromise or consent to the entry of any judgment with
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respect to any claim against the Company or Surviving Corporation in a legal proceeding to which an Indemnified Person is a party (and for which indemnification is sought by such Indemnified Person pursuant to the Merger Agreement) unless such settlement, compromise, consent or termination either (x) is a settlement in which the settlement consideration is limited to additional disclosures, or monetary damages (including attorneys’ fees) for which Indemnified Persons are not responsible, (y) includes a release of such Indemnified Person from all liability arising out of such legal proceeding or (z) is consented to by the Indemnified Persons that are parties to the legal proceeding. Any determination required to be made with respect to whether the conduct of any Indemnified Person complies or complied with any applicable standard will be made by independent legal counsel selected by the Surviving Corporation (which counsel will be reasonably acceptable to such Indemnified Person), the fees and expenses of which will be paid by the Surviving Corporation.
In addition, without limiting the foregoing, unless the Company has purchased a “tail” policy from an insurance carrier with the same or better credit rating as the Company’s current directors’ and officers’ liability insurance carrier, prior to the Effective Time (which the Company may purchase, provided that the premium for such insurance does not exceed 300% of the annual premiums currently paid), the Merger Agreement requires, for a period of at least six years commencing at the Effective Time, the Surviving Corporation to (and Parent to cause the Surviving Corporation to) maintain for the benefit of the directors and officers of the Company and its subsidiaries, at any time prior to the Effective Time, directors’ and officers’ liability insurance policies in respect of acts or omissions occurring at or prior to the Effective Time on terms that are no less favorable than those of the Company’s directors’ and officers’ liability insurance. The Surviving Corporation will not be required to pay premiums for such policy to the extent such premiums exceed, on an annual basis, 300% of the amount paid by the Company for coverage for its last full fiscal year, and if the premium for such insurance coverage would exceed such amount then the Surviving Corporation shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount from an insurance carrier with the same or better credit rating as the Company’s current directors’ and officers’ liability insurance carrier.
For more information, please refer to the section of this proxy statement captioned “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.”
Other Covenants
Stockholder Meeting
The Company has agreed to take all actions necessary or reasonably required in accordance with the DGCL, the organizational documents of the Company and the rules and regulations of the SEC and the Nasdaq to establish (and provide written notice to Parent of) a record date for, duly call and give notice of a meeting of its stockholders, and shall use its reasonable best efforts to convene and hold the Special Meeting for the purpose of obtaining the Requisite Stockholder Approval within thirty (30) days of the mailing of this proxy statement to Company’s stockholders, subject to certain exceptions set forth in the Merger Agreement. Subject to the Merger Agreement and unless there has been a Company Board Recommendation Change, the Company shall use its reasonable best efforts to solicit proxies to obtain the Requisite Stockholder Approval.
Litigation Relating to the Merger
Prior to the Effective Time, each party to the Merger Agreement will: (1) provide the other parties with prompt notice (within two business days in any event) of all stockholder litigation relating to the Merger; (2) keep the other parties reasonably informed with respect to the status thereof; (3) give the other parties the opportunity to “participate” (as such term is used in the Merger Agreement) in the defense, settlement or prosecution of any such litigation; and (4) consult with the other parties with respect to the defense, settlement and prosecution of any such litigation. Prior to the Effective Time, no party to the Merger Agreement may compromise, settle or come to an arrangement regarding, or agree to compromise, settle or come to an arrangement regarding, any such litigation without the other parties’ written consent (such consent not to be unreasonably withheld, conditioned or delayed).
Conditions to the Closing of the Merger
The respective obligations of Parent and Merger Sub, on the one hand, and the Company, on the other hand, to consummate the Merger are subject to the satisfaction or waiver (where permitted by applicable law) of each of the following conditions:
the receipt of the Requisite Stockholder Approval;
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receipt of the applicable consents from the FCC, State PSCs and local jurisdictions set forth in the confidential disclosure letter; and
the absence of any Legal Restraint (as defined below).
In addition, the obligations of Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver (where permitted by applicable law) of each of the following additional conditions, any of which may be waived exclusively by Parent:
the representations and warranties of the Company relating to organization, good standing, corporate power, enforceability, Board approval, requisite stockholder approval, certain aspects of the Company’s capitalization, brokers, and related person transactions to the extent qualified by materiality or Company Material Adverse Effect will be true and correct in all respects as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date and to the extent not qualified by materiality or Company Material Adverse Effect will be true and correct in all material respects as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date (except, in each case, to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be so true and correct as of such earlier date);
the representations and warranties of the Company relating to the absence of any Company Material Adverse Effect being true and correct in all respects as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date;
the representations and warranties of the Company related to the capital stock and the stock reservation of the Company will be true and correct in all material respects (except for any de minimis inaccuracy) as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date, except for such inaccuracies that are not material in the aggregate to the Company and its subsidiaries taken as a whole;
the other representations and warranties of the Company set forth elsewhere in the Merger Agreement being true and correct (in each case, disregarding all materiality and Company Material Adverse Effect qualifications) as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date, except for such failures to be true and correct that would not have a Company Material Adverse Effect (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be so true and correct as of such earlier date);
the Company having performed and complied in all material respects with all covenants, obligations and conditions of the Merger Agreement required to be performed and complied with by it at or prior to the closing of the Merger;
the receipt by Parent and Merger Sub of a certificate of the Company, validly executed for and on behalf of the Company and in its name by a duly authorized executive officer thereof, certifying that the conditions as described in the preceding five bullets have been satisfied;
the absence of any Company Material Adverse Effect having occurred after the date of Merger Agreement; and
the receipt by Parent and Merger Sub of (i) a pay-off letter and any other documentation required in connection with the repayment of the Company’s credit agreement with CoBank, ACB and the release and termination of any and all related liens and (ii) the written consent of Regions Bank to the consummation of the transactions contemplated by the Merger Agreement, to the extent required under the PPP Loan (as defined in the Merger Agreement), each of which will be in form and substance reasonably acceptable to Parent and Merger Sub.
In addition, the obligation of the Company to consummate the Merger is subject to the satisfaction or waiver (where permitted by applicable law) of each of the following additional conditions, any of which may be waived exclusively by the Company:
the representations and warranties of Parent and Merger Sub relating to organization and good standing, power and enforceability and brokers to the extent qualified by materiality being true and correct in all
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respects as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date and to the extent not qualified by materiality being true and correct in all material respects as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date;
the representations and warranties of Parent and Merger Sub not relating to the preceding bullet point being true and correct as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date, except for failures to be so true and correct that would not, individually or in the aggregate, reasonably be expected to prevent or materially delay the consummation of the transactions contemplated by the Merger Agreement or have a material adverse effect on the ability of Parent and Merger Sub to fully perform their respective covenants and obligations pursuant to this Agreement (in each case, except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be so true and correct as of such earlier date);
Parent and Merger Sub having performed and complied in all material respects with all covenants, obligations and conditions of the Merger Agreement required to be performed and complied with by Parent and Merger Sub at or prior to the closing of the Merger; and
the receipt by the Company of a certificate of Parent and Merger Sub, validly executed for and on behalf of Parent and Merger Sub and in their respective names by a duly authorized officer thereof, certifying that the conditions described in the preceding three bullets have been satisfied.
Termination of the Merger Agreement
The Merger Agreement may be validly terminated at any time prior to the Effective Time, whether before or after receipt of the Requisite Stockholder Approval (except as otherwise specified), only as follows:
by mutual written agreement of the Company and Parent;
by either the Company or Parent if:
a law or injunction (whether temporary, preliminary or permanent) enacted or issued by any governmental authority of competent jurisdiction prohibiting or otherwise making illegal the consummation of the Merger has been enacted, entered, promulgated or enforced and be continuing in effect (any such law or injunction, a “Legal Restraint”) and has become final and nonappealable, except that the right to terminate the Merger Agreement pursuant to this bullet point will not be available to any party (i) that has failed to use its reasonable best efforts to resist, appeal, obtain consent pursuant to, resolve or lift, as applicable, such Legal Restraint or (ii) if such Legal Restraint was primarily caused by, or primarily resulted from, such party’s breach of, or failure to perform or comply with, any of its covenants or agreements under the Merger Agreement;
the Merger has not been consummated by 11:59 p.m., New York City time, on April 26, 2021 (as such date may be extended pursuant to the terms of the Merger Agreement, the “Termination Date”), except that (x) if, on such date, any of the conditions to Closing set forth in Section 7.1(b) or Section 7.1(c) of the Merger Agreement shall not have been satisfied or waived and all other conditions to Closing shall have been satisfied or waived (or in the case of conditions that by their nature are to be satisfied at the Closing, shall be capable of being satisfied on such date), the Termination Date may be extended on one occasion by the Company or Parent by 90 days upon written notice to Parent or the Company, respectively (and in such case, such date, as so extended, shall be the Termination Date) and (y) the right to terminate the Merger Agreement pursuant to this bullet point will not be available to any party whose action or failure to act (which action or failure to act constitutes a breach by such party of the Merger Agreement) has been the primary cause of, or primarily resulted in, either the failure to satisfy the conditions to the obligations of the terminating party to consummate the Merger prior to the Termination Date or the failure of the Effective Time to have occurred prior to the Termination Date; or
the Company fails to obtain the Requisite Stockholder Approval at the Special Meeting (unless the Special Meeting has been postponed or adjourned pursuant to and subject to the limitations of the Merger Agreement, in which case at the final postponement or adjournment hereof) at which a vote is taken on the Merger, except that the right to terminate the Merger Agreement pursuant to this bullet
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point will not be available to any party whose action or failure to act (which action or failure to act constitutes a breach by such party of the Merger Agreement) has been the cause of, or resulted in, the failure to obtain the Requisite Stockholder Approval at the Special Meeting (or any adjournment or postponement thereof);
by the Company if:
Parent or Merger Sub has breached or failed to perform in any material respect any of its respective representations, warranties, covenants or other agreements set forth in the Merger Agreement such that certain conditions set forth in the Merger Agreement are not satisfied, except that if such breach is capable of being cured by the Termination Date, the Company will not be entitled to terminate the Merger Agreement prior to the delivery by the Company to Parent of written notice of such breach, delivered at least 30 days prior to such termination, stating the Company’s intention to terminate the Merger Agreement pursuant to the terms thereunder and the basis for such termination, it being understood that the Company will not be entitled to terminate the Merger Agreement if such breach has been cured prior to termination, except that the Company will not have the right to terminate the Merger Agreement pursuant to this bullet point if the Company is then in material breach of the Merger Agreement so as to cause any of the conditions set forth in the Merger Agreement relating to the breach or failure to perform the Company’s representations, warranties, covenants or other agreements set forth in the Merger Agreement not to be capable of being satisfied;
prior to receipt of the Requisite Stockholder Approval, (1) the Company has received a Superior Proposal; and (2) the Board has authorized the Company to enter into an Alternative Acquisition Agreement with respect to such Superior Proposal;
(1) all of the conditions to Parent’s obligation to consummate the Merger have been satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at the closing of the Merger) or waived, (2) the Company has irrevocably notified Parent in writing that (A) the Company is ready, willing and able to consummate the Merger, and (B) all conditions to the Company’s obligation to consummate the Merger have been satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at the closing of the Merger) or that the Company is willing to waive, (3) the Company has given Parent written notice at least one business day prior to such termination stating the Company’s intention to terminate the Merger Agreement pursuant to its terms if Parent and Merger Sub fail to consummate the Merger on the date required pursuant to the Merger Agreement, and (4) Parent and Merger Sub fail to consummate the closing of the Merger on or prior to the date that is two business days after the date that Parent and Merger Sub are required to consummate the closing of the Merger pursuant to the Merger Agreement;
by Parent if:
the Company has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements set forth in the Merger Agreement such that certain conditions set forth in the Merger Agreement are not satisfied, except that if such breach is capable of being cured by the Termination Date, Parent will not be entitled to terminate the Merger Agreement prior to the delivery by Parent to the Company of written notice of such breach, delivered at least 30 days prior to such termination, stating Parent’s intention to terminate the Merger Agreement pursuant to the terms thereunder and the basis for such termination, it being understood that Parent will not be entitled to terminate the Merger Agreement if such breach has been cured prior to termination; provided, however, that Parent is not then in material breach of the Merger Agreement so as to cause any of the conditions set forth in the Merger Agreement relating to the breach or failure to perform Parent’s representations, warranties, covenants or other agreements set forth in the Merger Agreement not to be capable of being satisfied; or
the Board has effected a Company Board Recommendation Change.
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In the event that the Merger Agreement is validly terminated pursuant to the termination rights above, the Merger Agreement will be of no further force or effect without liability of any party to the other parties, as applicable, except that certain sections of the Merger Agreement will survive the termination of the Merger Agreement and remain in full force and effect, including, among others, terms relating to confidentiality, reimbursement of expenses, indemnification and public statements and disclosure.
Notwithstanding the foregoing, nothing in the Merger Agreement will relieve the Company of any liability for any willful and material breach of the Merger Agreement prior to the valid termination of the Merger Agreement. In addition, no termination of the Merger Agreement will affect the rights or obligations of any party pursuant to the Confidentiality Agreement, the Guarantee or the Financing Letters, which rights, obligations and agreements will survive the termination of the Merger Agreement in accordance with their respective terms.
Termination Fees
Parent will be entitled to receive the Company Termination Fee from the Company if the Merger Agreement is validly terminated:
by either Parent or the Company (as applicable) because the Effective Time has not occurred by the Termination Date, or by Parent because the Company has breached or failed to perform in any material respect any of its representations, warranties, covenants or agreements contained in the Merger Agreement, which breach or failure to perform would result in a failure of a condition to Parent’s obligation to consummate the Merger, subject to other terms and conditions discussed above, if (1) prior to such termination, an Acquisition Proposal for an Acquisition Transaction has been publicly announced and not publicly withdrawn or otherwise abandoned; and (2) within nine months following such termination of the Merger Agreement, either an Acquisition Transaction is consummated or the Company enters into a definitive agreement providing for the consummation of an Acquisition Transaction and such Acquisition Transaction is subsequently consummated, in which case the Company shall promptly (and in any event within three business days after such consummation) pay, or cause to be paid, to Parent the Company Termination Fee by wire transfer of immediately available funds to an account or accounts designated in writing by Parent (provided, that, for purposes of the termination fee discussed in this bullet point, all references to “20%” in the definition of “Acquisition Transaction” will be deemed to be references to “50%”);
by Parent because the Board has effected a Company Board Recommendation Change, in which case the Company will promptly (and in any event within three business days after such termination) pay, or cause to be paid, to Parent the Company Termination Fee; or
by the Company because prior to receipt of the Requisite Stockholder Approval, (1) the Company has received a Superior Proposal and (2) the Board has authorized the Company to enter into an Alternative Acquisition Agreement with respect to such Superior Proposal, in which case the Company will (and as a condition to the effectiveness of such termination) concurrently with such termination pay, or cause to be paid, to Parent the Company Termination Fee.
“Company Termination Fee” means (i) if payable in connection with a definitive Alternative Acquisition Agreement entered into with an Excluded Party on or prior to September 9, 2020, an amount equal to $1,826,623, and (ii) if payable in all other circumstances, an amount equal to $2,232,539.
“Excluded Party” means any person or group of persons that includes any person or group of persons from whom the Company or any of its Representatives has received a written Acquisition Proposal on or after the date of the Merger Agreement and prior to the No-Shop Period Start Date (other than any person or group of persons with whom the Company or any of its Representatives solicited or entered into discussions or negotiations with respect to, or entered into a confidentiality agreement in connection with, an Acquisition Proposal or potential Acquisition Proposal since January 1, 2020) that the Board determines in good faith (after consultation with its financial advisor and outside legal counsel) constitutes or would be reasonably likely to lead to a Superior Proposal. For the avoidance of doubt, any Person that is determined to be an Excluded Party pursuant to the foregoing shall cease to be an Excluded Party at such time as the Board determines in good faith that such person’s Acquisition Proposal no longer constitutes or would no longer be reasonably likely to lead to a Superior Proposal in light of the facts and circumstances available to, or known by, the Board.
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The Company will be entitled to receive an amount equal to $3,450,288 (the “Parent Termination Fee”) from Parent if the Merger Agreement is validly terminated:
by the Company, if Parent or Merger Sub has breached or failed to perform any of its respective representations, warranties, covenants or other agreements contained in the Merger Agreement, which breach or failure to perform would result in a failure of a condition to the Company’s obligation to consummate the Merger, subject to other terms and conditions discussed above;
by the Company, at any time prior to the Effective Time (whether prior to or after the receipt of the Requisite Stockholder Approval), if (1) all of the conditions to Parent’s obligation to consummate the Merger have been and continue to be satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at the closing of the Merger) or waived; (2) the Company has irrevocably notified Parent in writing five business days prior to such termination that (A) the Company is ready, willing and able to consummate the Merger, and (B) all conditions to the Company’s obligation to consummate the Merger have been satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at the closing of the Merger) or waived; (3) the Company has given Parent written notice at least one Business Day prior to such termination stating the Company’s intention to terminate the Agreement pursuant to the terms thereof if Parent and Merger Sub fail to consummate the Merger on the date required pursuant to the Merger Agreement; and (4) Parent and Merger Sub fail to consummate the Merger on or prior to the date that is two business days after the date that Parent and Merger Sub are required to consummate the Merger pursuant to the Merger Agreement; or
by either Parent or the Company (as applicable) because the Effective Time has not occurred by the Termination Date and at the time of such termination the Company could have terminated the Merger Agreement pursuant to the first or third bullet point under the third bullet point of the section of this proxy statement captioned “Termination of the Merger Agreement.”
Sole and Exclusive Remedy; Limitations of Liability
The Company’s receipt of the Parent Termination Fee (including the Company’s right to enforce the Guarantee with respect thereto and receive the Parent Termination Fee, together with interest on such amount), subject in all respects to the Company’s right to enforce its rights under the Confidentiality Agreement and the Company’s right to specific performance pursuant to Section 9.8(b) of the Merger Agreement will be the sole and exclusive remedy of the Company against (i) Parent, Merger Sub or Guarantors; and (ii) the former, current and future holders of any equity, controlling persons, agents, Affiliates (other than Parent, Merger Sub or Guarantors), Representatives, members, managers, current or future general or limited partners, stockholders and assignees of each of Parent, Merger Sub and Guarantors (collectively, the “Parent Related Parties”) in respect of the Merger Agreement, the transactions contemplated by the Merger Agreement, any agreement executed in connection with the Merger Agreement (including the Financing Letters and the Guarantee) or the transactions contemplated thereby. Upon payment of such amounts, none of the Parent Related Parties will have any further liability or obligation to the Company relating to or arising out of the Merger Agreement, the transactions contemplated by the Merger Agreement, any agreement executed in connection with the Merger Agreement (including the Financing Letters and the Guarantee) or the transactions contemplated thereby (except that the parties (or their Affiliates) will remain obligated with respect to, and the Company and its subsidiaries may be entitled to remedies with respect to, the Confidentiality Agreement, the Reimbursement Obligations and Section 8.2, Section 8.3(a) and Section 8.3(e) of the Merger Agreement, as applicable) and Guarantors will remain obligated with respect to, and the Company and its subsidiaries may be entitled to remedies with respect to, the Guarantee solely to the extent that any of the immediately foregoing obligations are guaranteed thereunder.
Parent’s receipt of the Company Termination Fee, Parent’s right to specific performance pursuant to Section 9.8 of the Merger Agreement and Parent’s right to seek damages for a willful and material breach will be the sole and exclusive remedies of Parent and Merger Sub and each of their respective Affiliates against (i) the Company, its subsidiaries and each of their respective Affiliates; and (ii) the Company Related Parties (as defined in the Merger Agreement) in respect of the Merger Agreement, the transactions contemplated by the Merger Agreement, any agreement executed in connection with the Merger Agreement and the transactions contemplated thereby. Upon payment of such amount, none of the Company Related Parties will have any further liability or obligation to Parent or Merger Sub relating to or arising out of the Merger Agreement, the transactions contemplated by the Merger
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Agreement, any agreement executed in connection with the Merger Agreement or the transactions contemplated thereby (except that the parties (or their Affiliates) will remain obligated with respect to, and the Company and its subsidiaries may be entitled to remedies with respect to, the Confidentiality Agreement and Section 8.2, Section 8.3(a) and Section 8.3(e) of the Merger Agreement, as applicable).
Specific Performance
The parties have agreed in the Merger Agreement that irreparable damage for which monetary damages, even if available, would not be an adequate remedy would occur in the event that the parties do not perform the provisions of the Merger Agreement in accordance with its specified terms or otherwise breach such provisions. The parties have agreed that, subject to certain specified limitations in the Merger Agreement, they will be entitled, in addition to any other remedy to which they are entitled at law or in equity, to an injunction, specific performance and other equitable relief to prevent breaches (or threatened breaches) of the Merger Agreement and to enforce specifically the terms and provisions of the Merger Agreement, including for the avoidance of doubt, the right of the Company to cause the transactions contemplated by the Merger Agreement to be consummated on the terms and subject to the conditions set forth in the Merger Agreement without proof of damages or otherwise. The parties have also agreed that (i) by seeking the remedies provided for in Section 9.8 of the Merger Agreement, a party shall not in any respect waive its right to seek any other form of relief that may be available to such party under the Merger Agreement; and (ii) nothing set forth in Section 9.8 of the Merger Agreement shall require any party to institute any proceeding for (or limit any party’s right to institute any proceeding for) specific performance under Section 9.8 of the Merger Agreement prior or as a condition to exercising any termination right under Article VIII of the Merger Agreement (and pursuing damages after such termination), nor shall the commencement of any legal proceeding pursuant to Section 9.8 of the Merger Agreement or anything set forth in Section 9.8 of the Merger Agreement restrict or limit any party’s right to terminate the Merger Agreement in accordance with the terms of Article VIII of the Merger Agreement or pursue any other remedies under the Merger Agreement that may be available. Notwithstanding the foregoing, for the avoidance of doubt, (x) prior to the earlier to occur of the Effective Time and the valid termination of the Merger Agreement in accordance with its terms, the sole remedy available to any Party under the Merger Agreement shall be specific performance pursuant to Section 9.8 of the Merger Agreement to the extent available pursuant to the terms hereof, and (y) in no event shall the Company be entitled to receive both a grant of specific performance to cause the Equity Financing to be funded (whether under the Merger Agreement or the Equity Commitment Letter) or other equitable relief, on the one hand, and the payment of all or any portion of the Parent Termination Fee or any payments owed by Parent pursuant to Section 8.3 of the Merger Agreement, on the other hand.
Notwithstanding the foregoing, the Company’s right to a remedy of specific performance in connection with enforcing Parent’s obligation to cause the Equity Financing to be funded and to consummate the Merger will be subject to the requirements that:
all of the conditions set forth in Section 7.1 and Section 7.2 of the Merger Agreement have been satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at the closing of the Merger);
Parent and Merger Sub have failed to complete the closing of the Merger by the date that the Merger is required to have occurred pursuant to the Merger Agreement; and
the Company has irrevocably confirmed in a written notice to Parent that if specific performance is granted and the Equity Financing is funded, then the Company would take such actions that are required by of it by the Merger Agreement to cause the closing of the Merger to occur.
Fees and Expenses
Except in specified circumstances, whether or not the Merger is consummated, all fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring such fees and expenses, except that all governmental filing fees shall be paid by Parent.
No Third Party Beneficiaries
Except as set forth in the Merger Agreement, the respective representations, warranties and covenants of the parties in the Merger Agreement are solely for the benefit of the other parties in accordance with and subject to the terms of the Merger Agreement, and the Merger Agreement is not intended to, and shall not, confer upon any other person any rights or remedies thereunder.
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Amendment
Except as set forth in the Merger Agreement and subject to applicable law and to the other provisions of the Merger Agreement, the Merger Agreement may be amended by the parties at any time by execution of an instrument in writing signed on behalf of each of Parent, Merger Sub and the Company (pursuant to authorized action by the Board), provided that in the event that the Company has received the Requisite Stockholder Approval, no amendment may be made to the Merger Agreement that requires the approval of the stockholders pursuant to the DGCL without such approval. Certain provisions related to the Financing Sources (as defined in the Merger Agreement) in the Merger Agreement may not be amended, modified or altered without the prior written consent of the Financing Sources.
Governing Law
The Merger Agreement is governed by Delaware law.
The Board recommends that you vote “FOR” the adoption of the Merger Agreement.
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PROPOSAL 2: THE COMPANY’S COMPENSATION PROPOSAL
Under Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, the Company is required to submit a proposal to our stockholders to approve, on an advisory (non-binding) basis, the Compensation Proposal. The compensation that will or may be payable to the Company’s named executive officers is summarized in the section captioned “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.” The Board encourages you to review carefully the named executive officer Merger-related compensation information disclosed in this proxy statement. Accordingly, the Company is asking you to approve the following resolution:
“RESOLVED, that the stockholders of the Company approve, on an advisory (non-binding) basis, the compensation that will or may become payable to the Company’s named executive officers that is based on or otherwise relates to the Merger as disclosed pursuant to Item 402(t) of Regulation S-K in the section entitled “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.””
The vote on the Compensation Proposal is a vote separate and apart from the vote on the proposal to adopt the Merger Agreement. Accordingly, you may vote to approve the proposal to adopt the Merger Agreement and vote not to approve the Compensation Proposal or vice versa. Because the vote on the Compensation Proposal is advisory only, it will not be binding on the Company. Accordingly, if the Merger Agreement is adopted and the Merger is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the vote on the Compensation Proposal.
Vote Required and Board Recommendation
Approval, on an advisory (non-binding) basis, of the Compensation Proposal requires the affirmative vote of the holders of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the Compensation Proposal (provided a quorum is present). Assuming a quorum is present, (i) a failure to vote via the Special Meeting website or by proxy at the Special Meeting will have no effect on the outcome of the Compensation Proposal, (ii) abstentions will be treated as votes cast and, therefore, will have the same effect as a vote against the Compensation Proposal and (iii) broker “non-votes” (if any) will have no effect on the outcome of the Compensation Proposal. Shares of common stock represented by properly executed, timely received and unrevoked proxies will be voted in accordance with the instructions indicated thereon. If a stockholder returns a signed proxy card without indicating voting preferences on such proxy card, the shares of common stock represented by that proxy will be counted as present for purposes of determining the presence of a quorum for the Special Meeting and all of such shares will be voted as recommended by the Board.
The Board recommends that you vote “FOR” this proposal.
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PROPOSAL 3: ADJOURNMENT OF THE SPECIAL MEETING
We are asking you to approve a proposal to adjourn the Special Meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting. If stockholders approve the Adjournment Proposal, we could adjourn the Special Meeting and any adjourned session of the Special Meeting and use the additional time to solicit additional proxies, including solicitation proxies from stockholders that have previously returned properly executed proxies voting against adoption of the Merger Agreement. Among other things, approval of the Adjournment Proposal could mean that, even if we had received proxies representing a sufficient number of votes against adoption of the Merger Agreement such that the proposal to adopt the Merger Agreement would be defeated, we could adjourn the Special Meeting without a vote on the adoption of the Merger Agreement and seek to convince the holders of those shares to change their votes to votes in favor of adoption of the Merger Agreement. Additionally, we may seek to adjourn the Special Meeting if a quorum is not present or otherwise at the discretion of the chairman of the Special Meeting.
Vote Required and Board Recommendation
Approval of the Adjournment Proposal requires the affirmative vote of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the proposal to adjourn the Special Meeting.
The Board recommends that you vote “FOR” this proposal.
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MARKET PRICES AND DIVIDEND DATA
Our common stock is listed on the Nasdaq Stock Market under the symbol “OTEL.” As of September 8, 2020, there were 3,421,794 shares of common stock outstanding held by approximately two stockholders of record. The actual number of stockholders is greater than this number of stockholders of record and includes stockholders who are beneficial owners, but whose shares are held in “street name” by brokers and other nominees. We have never declared or paid any cash dividends on our common stock.
On September 8, 2020, the latest practicable trading day before the filing of this proxy statement, the closing price for our common stock on the Nasdaq Stock Market was $11.54 per share. You are encouraged to obtain current market quotations for our common stock.
Following the Merger, there will be no further market for our common stock and it will be delisted from the Nasdaq Stock Market and deregistered under the Exchange Act. As a result, following the Merger we will no longer file periodic or current reports with the SEC.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our common stock as of September 8, 2020 by:
each person or group of affiliated persons, who we know to beneficially own more than 5% of our common stock;
each member of our Board;
our Chief Executive Officer;
each of our two other most highly compensated executive officers for the year ended December 31, 2019; and
all of our current named executive officers and directors as a group.
The percentage ownership information shown in the table is based on 3,431,794 shares of our common stock outstanding as of September 8, 2020.
We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. Under the rules of the SEC, a person is deemed to be a beneficial owner of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities that he, she or it has a right to acquire within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which that person has no economic interest.
Unless otherwise noted below, the address of each of the individuals and entities named in the table below is c/o Otelco, Inc., 505 Third Avenue East, Oneonta, Alabama 35121. The information provided in the table is based on our records, information filed with the SEC and information provided to us, except where otherwise noted.
Name of Beneficial Owner
Shares of Common
Stock Beneficially
Owned**
Percent of
Common Stock
Outstanding
Greater than 5% Stockholders:
 
 
Ira Sochet(1)
1,687,376
49.3%
Named Executive Officers and Directors:
 
 
Richard A. Clark(2)
10,000
*
Barbara M. Dondiego Stewart
851
*
Curtis L. Garner Jr.(3)
37,151
1.1%
Howard J. Haug(4)
8,140
*
Dayton R. Judd(5)
90,361
2.6%
Stephen P. McCall
9,893
*
Brian A. Ross
11,559
*
Robert J. Souza(6)
64,820
1.9%
All directors and executive officers as a group (10 persons)(7)
251,137
7.3%
*
Represents less than 1%.
**
For purposes of this table, “beneficial ownership” is determined in accordance with Rule 13d-3 under the Exchange Act, pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock with respect to which such person has (or has the right to acquire within 60 days) sole or shared voting power or investment power.
(1)
Based on representations made by the Sochet Stockholders in the Voting Agreement. As represented in the Voting Agreement, these shares include shares held in an IRA account and shares held by Ira Sochet Trust, over which Mr. Sochet has voting and dispositive control, and shares held by Sochet & Company, Inc., an entity owned and controlled by Mr. Sochet. Mr. Sochet’s address is 121 14 Street, Belleair Beach, Florida 33786.
(2)
Includes 10,000 shares issuable upon the exercise of options, which vested on October 15, 2019, but does not include the remainder of the option to purchase up to 50,000 shares, which options vest in five equal annual installments beginning on October 15, 2019. Does not include an option to purchase up to 50,000 shares, which option vests in five equal annual installments beginning on January 2, 2021.
(3)
Includes 328 shares held by Uniform Gifts to Minors Act accounts for the benefit of Mr. Garner’s grandchildren. Mr. Garner is the custodian of such accounts. Mr. Garner disclaims beneficial ownership of these shares. In addition, also includes 2,719 shares which Mr. Garner owns jointly with his spouse.
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(4)
Includes 10 shares held by Mr. Haug’s wife.
(5)
Includes 87,501 shares held by Sudbury Capital Management, of which Mr. Judd is a managing partner and founder.
(6)
Based on information provided to us by Mr. Souza on August 6, 2020. Mr. Souza retired as Chief Executive Officer and resigned as a director effective December 31, 2019.
(7)
The percentage of class ownership was determined by dividing the number of shares shown in the table by 3,431,794, which is the number of outstanding shares on September 8, 2020, plus any shares that our directors, executive officers and 10% holders have a right to acquire within 60 days. As of September 8, 2020, (a) there was a total of 3,421,794 shares outstanding, (b) Mr. Sochet beneficially owned 49.3% of those outstanding shares, (c) Mr. Judd beneficially owned 2.6% of those outstanding shares, (d) Mr. Souza beneficially owned 1.9% of those outstanding shares, (e) Mr. Garner beneficially owned 1.1% of those outstanding shares, (f) each of the other members of our Board beneficially owned less than 1.0% of those outstanding shares and (g) all members of our Board and our executive officers, as a group, beneficially owned 7.3% of those outstanding shares.
FUTURE STOCKHOLDER PROPOSALS
If the Merger is completed, we will have no public stockholders and there will be no public participation in any future meetings of stockholders of Otelco. However, if the Merger is not completed, stockholders will continue to be entitled to attend and participate in stockholder meetings.
We will hold the regular annual meeting of our stockholders in 2021 only if the Merger is not completed.
Proposals of stockholders that are intended to be considered for inclusion in our proxy statement relating to our annual stockholders meeting in 2021 (if held), must be submitted in writing to the Secretary of the Company, Curtis L. Garner, Jr., at Otelco Inc., 505 Third Avenue East, Oneonta, Alabama 35121 and be received by no later than December 7, 2020. Similarly, in order for a stockholder proposal to be raised from the floor during next year’s annual meeting of stockholders, written notice must be received by us no later than February 13, 2021, and no earlier than January 14, 2021, and shall contain the information required by our by-laws. You may contact Curtis L. Garner, Jr. at the above described address for a copy of the relevant provisions of our by-laws regarding the requirements for making stockholder proposals and nominating director candidates. Please note that if we hold our regular annual stockholders meeting in 2021, and we do so more than 30 days before or after May 14, 2021 (the one-year anniversary date of the 2020 Annual Meeting of Stockholders), we will disclose the new deadline by which stockholder proposals must be received under Item 5 of Part II of our earliest possible Quarterly Report on Form 10-Q or, if impracticable, by any means reasonably determined to inform stockholders
Under our bylaws, in order for a matter to be deemed properly presented by a stockholder, timely notice must be received by our Corporate Secretary at our principal executive offices not less than 90 days nor more than 120 days prior to the anniversary of the date of the preceding year’s annual meeting of stockholders. Please note, however, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 70 days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made by Otelco. In the case of a special meeting, timely notice must be delivered and received not later than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting.
A stockholder who intends to bring other proper business for presentation at our 2021 annual meeting (if held) must give proper notice no earlier than January 14, 2021 and no later than February 13, 2021 to the Secretary of the Company, in writing, at our principal executive offices at Otelco, Inc., 505 Third Avenue East, Oneonta, Alabama 35121. The notice must include information specified in our bylaws, including information concerning the proposal and the proponent’s ownership of common stock. Proposals not meeting these requirements will not be entertained at the annual meeting. In addition, if a stockholder submits a proposal that does not comply with the advance notice requirements above, the proxies may exercise authority to vote in accordance with their best judgment on any such proposal.
In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice under our bylaws. A copy of our amended and restated bylaws may be obtained by accessing our filings on the SEC’s website at www.sec.gov. You may also contact our Corporate Secretary at our principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates.
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WHERE YOU CAN FIND MORE INFORMATION
Otelco files annual, quarterly and special reports, proxy statements and other information with the SEC. Any reports, statements or other information that we file with the SEC are available to the public at www.sec.gov. You also may obtain free copies of the documents we file with the SEC, including this proxy statement, by going to the Investor Relations page of our corporate website at www.otelco.com. The information provided on our website, other than copies of the documents listed below that have been filed with the SEC, is not part of this proxy statement, and therefore is not incorporated herein by reference.
Statements contained in this proxy statement, or in any document incorporated by reference in this proxy statement regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC will update and supersede that information. We incorporate by reference the documents listed below and any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and before the date of the Special Meeting.
Otelco’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed on March 9, 2020, and the amendment to the Annual Report on Form 10-K/A, filed on March 10, 2020;
Otelco’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020, filed on May 4, 2020, and its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020, filed on August 4, 2020; and
Otelco’s Current Reports on Form 8-K, filed on March 3, 2020, April 7, 2020, May 15, 2020 and July 27, 2020.
Notwithstanding the foregoing, information furnished under Items 2.02 and 7.01 of any Current Report on Form 8-K, including the related exhibits, is not incorporated by reference into this proxy statement.
Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of this proxy statement and any of the documents incorporated by reference into this proxy statement from our proxy solicitor at the contact information below. Documents incorporated by reference are available without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference into those documents. If you would like to request documents from us, please do so at least five business days before the date of the Special Meeting in order to receive timely delivery of those documents prior to the Special Meeting.
If you have any questions about this proxy statement, the Special Meeting or the Merger after reading this proxy statement, please contact our proxy solicitor at:
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, NY 10005
Call Toll-free: (800) 714-3312
Banks and Brokers Call: (212) 269-5550
OTEL@dfking.com
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MISCELLANEOUS
Otelco has supplied all information relating to Otelco, and Parent has supplied, and Otelco has not independently verified, all of the information relating to Parent and Merger Sub contained in this proxy statement.
You should rely only on the information contained in this proxy statement, the annexes to this proxy statement and the documents that we incorporate by reference in this proxy statement in voting on the Merger. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated September 9, 2020. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date (or as of an earlier date if so indicated in this proxy statement), and the mailing of this proxy statement to stockholders does not create any implication to the contrary. This proxy statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make a proxy solicitation.
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Annex A

Execution Version
AGREEMENT AND PLAN OF MERGER

by and among

FUTURE FIBER FINCO, INC.

OLYMPUS MERGER SUB, INC.

and

OTELCO INC.

Dated as of July 26, 2020

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