-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mov4YJWuNcC9iBsucvb4VFR9knTLb5eAFyvlyIrHntOysnsYLnx7xaiz65rtyOej DcM8olBO8Uwb9E4l0InrKA== 0000950117-97-001369.txt : 19970820 0000950117-97-001369.hdr.sgml : 19970820 ACCESSION NUMBER: 0000950117-97-001369 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970819 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTENNIAL CELLULAR CORP CENTRAL INDEX KEY: 0000879573 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 061242753 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-19603 FILM NUMBER: 97666106 BUSINESS ADDRESS: STREET 1: 50 LOCUST AVE CITY: NEW CANAAN STATE: CT ZIP: 06840 BUSINESS PHONE: 2039722000 MAIL ADDRESS: STREET 2: 50 LOCUST AVE CITY: NEW CANAAN STATE: CT ZIP: 06840 FORMER COMPANY: FORMER CONFORMED NAME: CENTURY CELLULAR CORP /DE DATE OF NAME CHANGE: 19600201 10-K405 1 CENTENNIAL CELLULAR 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_________to________ Commission file number 0-19603 CENTENNIAL CELLULAR CORP. (Exact name of registrant as specified in its charter) Delaware 06-1242753 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 50 Locust Avenue New Canaan, Connecticut 06840 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 972-2000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act:Class A Common Stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] As of August 8, 1997, there were 16,180,468 shares of Class A Common Stock outstanding and 10,544,113 shares of Class B Common Stock outstanding. The aggregate market value of the Class A Common Stock held by non-affiliates of the Company, based upon the last reported sale price of the Class A Common Stock on The Nasdaq Stock Market on August 8, 1997 of $15 7/8 per share, was $249,853,831. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Company's Proxy Statement to be filed with the Commission pursuant to Rule 14a-6 under the Securities Exchange Act of 1934 in connection with the Company's 1997 Annual Meeting of Shareholders are incorporated by reference in Part III, Items 10-13 of this Annual Report on Form 10-K. TABLE OF CONTENTS
Page ---- PART I Item 1. Business......................................................................... 1 Item 2. Properties....................................................................... 14 Item 3. Legal Proceedings................................................................ 14 Item 4. Submission of Matters to a Vote of Security Holders.............................. 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............ 17 Item 6. Selected Consolidated Financial Data............................................. 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................... 20 Item 8. Financial Statements and Supplementary Data.......................................35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................ 35 PART III Item 10. Directors and Executive Officers of the Registrant............................... 35 Item 11. Executive Compensation........................................................... 36 Item 12. Security Ownership of Certain Beneficial Owners and Management................... 36 Item 13. Certain Relationships and Related Transactions....................................36 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................37 SIGNATURES.............................................................................. II-1 EXHIBIT INDEX........................................................................... II-2
PART I ITEM 1. BUSINESS GENERAL Centennial Cellular Corp., a Delaware corporation ("Centennial", and together with its direct and indirect subsidiaries, the "Company"), is primarily engaged in the ownership and operation of wireless telephone systems. The Company's current wireless telephone interests represent approximately 10.1 million Net Pops (as defined below). Approximately 6.5 million of these Net Pops are represented by the Company's wireless telephone systems located in the continental United States (the "Domestic Wireless Telephone Systems"). The balance of approximately 3.6 million Net Pops represents the Company's wireless telephone system in the Commonwealth of Puerto Rico (the "Puerto Rico Wireless Telephone System"). The Company's wireless telephone systems, which include systems utilizing both cellular and personal communications service ("PCS") licenses, provide communications services to vehicle-installed ("mobile"), ready-to-carry ("transportable") and hand-held ("portable") wireless telephones. Wireless telephone systems are designed to allow for significant mobility of the subscriber. In addition to mobility, wireless telephone systems provide access through system interconnections to local and long distance telecommunications networks and offer other ancillary services such as voice-mail, call-waiting, call-forwarding and conference calling. These communications services can be integrated with a variety of competing networks. Centennial was organized in 1988. The Company's principal executive offices are located at 50 Locust Avenue, New Canaan, Connecticut 06840. The Company's principal corporate office is located at 1305 Campus Parkway, Neptune, New Jersey 07753. Its telephone number is (203) 972-2000. THE WIRELESS TELEPHONE INDUSTRY The Company operates its Domestic Wireless Telephone Systems pursuant to 29 cellular licenses which it owns, and operates its Puerto Rico Wireless Telephone System pursuant to a PCS license which it owns. The Company's PCS license also covers the U.S. Virgin Islands. Wireless telephone technology is based upon the radio coverage of a given geographic area by a number of overlapping "cells." Each cell contains a transmitter-receiver at a "base station" or "cell site" that communicates by radio signal with wireless telephones located in the cell and is connected to a mobile telephone switching office (the "MTSO"), which, in turn, may be connected to the local landline telephone network. Since wireless telephone systems are fully interconnected with the landline telephone network and long distance networks, subscribers can receive and originate both local and long distance calls from their wireless telephones. If a wireless telephone user leaves the service area of the wireless telephone system during a call, the call is generally continued and carried through a technical interface established with an adjacent system through intersystem networking arrangements. Such an arrangement is referred to as roaming. Wireless telephone systems operate under interconnection agreements with various local exchange carriers and interexchange carriers, which agreements establish the manner in which the wireless telephone system integrates with existing telecommunication systems in a given geographic area. 1 THE COMPANY'S OPERATIONS The Company operates and invests in wireless telephone systems in the United States and in Puerto Rico. The Company's current wireless telephone interests represent approximately 10.1 million Net Pops. Approximately 5.4 million of these Net Pops are represented by interests in those Domestic Systems that the Company owns and operates in three geographic clusters: the Michiana cluster in Michigan, Ohio and Indiana; the East Texas/Louisiana cluster in Texas, Louisiana and Mississippi; and the Southwestern cluster in California and Arizona. Approximately 3.6 million of these Net Pops represent the Company's Puerto Rico Wireless Telephone System. The balance of approximately 1.1 million of these Net Pops represents minority interests in limited partnerships, controlled by other parties ("Investment Interests"). The Michiana cluster has approximately 3.3 million Net Pops, constituting approximately 60% of the Net Pops in markets served by the Domestic Wireless Telephone Systems and 32% of the Company's total Net Pops. The Michiana cluster covers portions of three major interstate highways that connect Chicago, Detroit and Indianapolis. The East Texas/Louisiana cluster has approximately 1.9 million Net Pops, constituting 36% of the Net Pops in markets served by the Domestic Systems and 19% of the Company's total Net Pops. The East Texas/Louisiana cluster covers a significant portion of interstate highway I-10 as well as sections of Texas, Louisiana and Mississippi adjacent to the cities of Houston, New Orleans, Shreveport and Baton Rouge. The Southwestern cluster has approximately 230,000 Net Pops, constituting 4% of the Net Pops in markets served by the Domestic Wireless Telephone Systems and 2.3% of the Company's total Net Pops. This cluster encompasses the Yuma, Arizona and El Centro, California markets located between Los Angeles to the northwest and San Diego to the west, Phoenix to the east, and Mexicali, Mexico to the south. The Puerto Rico Wireless Telephone System covers areas in the Island of Puerto Rico. These markets contain approximately 3.6 million Net Pops or 36% of the Company's total Net Pops. As used in this Annual Report on Form 10-K, "Pops" means the population of a market derived from the 1990 Census Report of the Bureau of the Census, United States Department of Commerce, and "Net Pops" means a market's Pops multiplied by the percentage interest that the Company owns in an entity licensed (a "licensee") by the Federal Communications Commission (the "FCC") to construct or operate a wireless telephone system in that market. WIRELESS TELEPHONE MARKETS AND INTERESTS The Company has focused and expects to continue to focus on acquiring controlling ownership interests in wireless telephone systems serving markets contiguous or proximate to its current markets. The Company's strategy of clustering its wireless telephone operations enables it to achieve operating and cost efficiencies, as well as joint advertising and marketing benefits. Clustering also allows the Company to offer its subscribers more areas of uninterrupted service as they travel through an area or state. In addition to expanding its existing clusters, the Company may also seek to acquire interests in wireless telephone systems in other geographic areas. The Company may also pursue other communications businesses related to its wireless telephone and other mobile service operations as well as other communications businesses it determines to be desirable. The consideration for such acquisitions may consist of shares of Centennial's Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), cash, assumption of liabilities or a combination thereof. 2 The chart below sets forth certain information about the Domestic Wireless Telephone Systems, the Puerto Rico Wireless Telephone System and the Investment Interests as of July 31, 1997. Those Domestic Wireless Telephone Systems and the Investment Interests which are in Metropolitan Statistical Areas ("MSAs") are asterisked; the remainder are in Rural Service Areas ("RSAs").
MARKETS OWNERSHIP POPS NET POPS DOMESTIC WIRELESS TELEPHONE SYSTEMS MICHIANA CLUSTER Kalamazoo, MI* 100.0% 293,500 293,500 Cass, MI 85.7% 288,000 246,900 Newaygo, MI 100.0% 220,200 220,200 Battle Creek, MI* 100.0% 186,000 186,000 Benton Harbor, MI* 100.0% 161,400 161,400 Jackson, MI* 92.0% 149,800 137,800 Roscommon, MI 100.0% 130,400 130,400 --------- --------- System Subtotal 1,429,300 1,376,200 --------- --------- Southbend, IN * 100.0% 289,200 289,200 Richmond, IN 100.0% 217,900 217,900 Newton, IN 100.0% 204,200 204,200 Elkhart-Goshen, IN* 91.4% 156,200 142,800 Williams, OH 100.0% 125,900 125,900 --------- --------- System Subtotal 993,400 980,000 --------- --------- Fort Wayne, IN* 100.0% 420,900 420,900 Miami, IN 100.0% 179,000 179,000 Kosciusko, IN 100.0% 160,000 160,000 Huntington, IN 100.0% 145,200 145,200 --------- --------- System Subtotal 905,100 905,100 --------- --------- Cluster Subtotal 3,327,800 3,261,300 --------- --------- EAST TEXAS/LOUISIANA CLUSTER Beauregard, LA 100.0% 372,500 372,500 Beaumont-Port Arthur, TX* 100.0% 361,200 361,200 LaFayette, LA* 94.3% 209,000 197,100 West Feliciana, LA 100.0% 170,900 170,900 Claiborne, MS 100.0% 153,900 153,900 Alexandria, LA* 92.8% 149,000 138,300 Iberville, LA 100.0% 131,000 131,000 DeSoto, LA 100.0% 121,300 121,300 Copiah, MS 100.0% 118,000 118,000 Bastrop, LA 100.0% 92,200 92,200 Caldwell, LA 100.0% 71,600 71,600 --------- --------- Cluster Subtotal 1,950,600 1,928,000 --------- --------- SOUTHWESTERN CLUSTER Yuma, AZ 100.0% 120,700 120,700 El Centro, CA 100.0% 109,300 109,300 ------- --------- Cluster Subtotal 230,000 230,000 --------- --------- Total Domestic Wireless Telephone Systems 5,508,400 5,419,300 ========= ========= PUERTO RICO WIRELESS TELEPHONE SYSTEM 100.0% 3,600,000 3,600,000 ========= =========
3
MARKETS OWNERSHIP POPS NET POPS INVESTMENT INTERESTS SACRAMENTO VALLEY CLUSTER 23.5% Sacramento, CA* 1,355,100 318,100 Stockton, CA** 480,600 112,800 Modesto, CA* 370,600 87,000 Reno, NV* 254,700 59,800 Chico, CA* 182,100 42,800 Redding, CA* 147,000 34,500 Yuba City, CA* 122,600 28,800 Tehama, CA 90,700 21,300 Storey, NV 90,600 21,300 Sierra, CA 81,800 19,200 ---------- --------- Cluster Subtotal 3,175,800 745,600 ---------- --------- SAN FRANCISCO BAY AREA CLUSTER 2.9% San Francisco, CA* 3,686,600 105,800 San Jose, CA* 1,497,600 43,000 Vallejo, CA* 451,200 13,000 Santa Rosa-Petaluma, CA* 388,200 11,100 Salinas, CA* 355,700 10,200 Santa Cruz, CA* 229,700 6,600 ---------- --------- Cluster Subtotal 6,609,000 189,700 ---------- --------- Lawrence, PA 14.3% 363,400 51,900 Coconino, AZ 21.3% 204,300 43,500 Del Norte, CA 6.9% 199,200 13,700 Modoc, CA 25.0% 57,000 14,200 Lake Charles, LA* 25.1% 168,100 42,200 ---------- --------- Total Investments Interests 10,776,800 1,100,800 ========== ========= Total Domestic Wireless Telephone Systems, Puerto Rico Wireless Telephone System and Investment Interests 19,885,200 10,120,100 ========== ==========
As of May 31, 1997, the Company's Domestic and Puerto Rico Wireless Telephone Systems had 203,900 subscribers in the markets listed above, and for each of fiscal 1996, 1995, 1994 and 1993 the Company had 135,000, 85,920, 49,040 and 33,600 subscribers, respectively, in such markets. The ratio of subscribers to Net Pops remained constant from fiscal 1996 to fiscal 1997. At May 31, 1997, the Company's pro rata share of subscribers relating to the Investment Interests was approximately 105,000. All the Company's systems are currently operational. A system is deemed operational when it has met the FCC's requirements for an operating license and has received an FCC license to commence operations. PUERTO RICO OPERATIONS The Company has commenced the design, construction and operation of its Puerto Rico Wireless Telephone System. The Company has substantially completed installation of the initial system. The Company was the successful bidder for one of two MTA licenses to provide broadband PCS services in the Commonwealth of Puerto Rico and the U.S. Virgin Islands and the FCC granted the 30 MHz Block B broadband PCS license for the Puerto Rico-Virgin Islands 4 MTA to the Company in fiscal 1996. The licensed area represents approximately 3.6 million Net Pops. The Company has executed an agreement with Lucent Technologies, Inc., pursuant to which the Company has agreed, subject to certain conditions, to purchase equipment and installation services necessary for its initial PCS system, which is based on Code Division Multiple Access technology. The total cost to the Company of the acquisition and buildout of the infrastructure of the PCS system will be approximately $150 million in the aggregate (which includes a license fee that the Company has paid of approximately $55 million). Of this budgeted amount, the Company has incurred costs of approximately $69 million related to equipment and installation through fiscal year 1997 and it is anticipated that approximately $26 million will be expended to complete the buildout through fiscal 1999. The Company leases certain space for equipment in Puerto Rico from Century-ML Cable Corp. ("Century-ML"), a cable television operator which is 50% owned by Century Communications Corp. ("Century"). Further, the Company leases and shares capacity on the fiber optic cable television facility and network of Century-ML for the purpose of operating as a competitive access provider. The Company shares in the cost of construction, operation and maintenance of the Century-ML fiber network on a pro rata basis based on the percentage of the number of fibers of the network used by or reserved for the Company (See Item 13. "Certain Relationships and Related Transactions" and Note 1 to the consolidated financial statements). The Company believes that the above transactions and contemplated transactions between it and Century and Century-ML are or will be, as the case may be, on terms no less favorable to the Company than would be obtainable at that time in comparable transactions with unaffiliated parties. The Company also plans to participate in the intra-island and interstate telecommunications market in Puerto Rico as a service provider pursuant to FCC requirements for interstate service and pursuant to an authorization for intra-island service issued to the Company in December 1994, as amended in July 1996, by the Public Service Commission of the Commonwealth of Puerto Rico. PRODUCTS AND SERVICES The Company's principal source of revenue is providing service to wireless telephone subscribers. The services available to wireless telephone subscribers are similar to those provided by conventional landline telephone systems, including custom calling features such as voice mail, call forwarding, call waiting and conference calling. The Company is responsible for the quality, pricing and packaging of its wireless service for each of the Domestic Wireless Telephone Systems and the Puerto Rico Wireless Telephone System. The Company offers several pricing plans and customers are able to choose the plan that best fits their calling needs. The plans combine different charges for monthly access, usage, custom calling features and, in some cases, varying amounts of pre-paid minutes of usage. The Company also generates revenue from subscribers of other wireless telephone systems when such subscribers ("roamers") place or receive calls over its systems. Reciprocal agreements between the Company and other wireless telephone system operators allow their 5 respective subscribers to place calls in most service areas throughout the country. Roamers are charged usage charges that are generally at their regular service rate. The Company offers for sale or lease to its customers a wide variety of wireless telephones, including mobile, transportable and fully portable wireless telephones. The Company generally has offered significant discounts on wireless telephones in an effort to attract customers. MARKETING The Company designs and implements the marketing strategy for each of the Domestic Wireless Telephone Systems and the Puerto Rico Wireless Telephone System. The Company uses a variety of billboard, radio and newspaper advertising to stimulate interest in wireless telephone service. The Company's objective is to increase its customer base, increase wireless usage and reduce subscriber cancellations. The Company's current marketing strategy is to generate continued net subscriber growth and to focus on customers who are likely to generate higher monthly revenues, primarily business users. However, as a result of broader acceptance of wireless telephone and the continued decline in the cost of wireless equipment, subscribers may be drawn from an increasingly wider range of occupations and demographics. In marketing wireless telephone service in the Domestic Wireless Telephone Systems and the Puerto Rico Wireless Telephone System, the Company stresses the quality of its wireless telephone service, easy and rapid access to telephone services, competitive prices, state of the art features, and the local presence of its customer service representatives and technical staff. See Business--Customer Service." In areas where the Domestic Wireless Telephone Systems are in markets adjacent or proximate to one another, the Company emphasizes that its own subscribers may make calls from anywhere in these markets without incurring fees or charges in addition to the standard usage and service fees which often are incurred when a customer "roams" from one market to an adjacent market owned by a third party. The Company uses both its own internal sales force and independent agents, dealers and resellers to obtain customers for wireless telephone service in the Domestic Wireless Telephone Systems and the Puerto Rico Wireless Telephone System. The Company's internal sales force is paid on a salary plus commission basis. Sales commissions are structured to take into account the length of the subscriber's contract, the rate plan selected and the type of wireless telephone sold. The Company also maintains an ongoing training program to improve the effectiveness of its internal sales force. The Company's dealers are independent contractors paid solely on a commission basis, and include entities whose principal business is selling wireless telephones as well as other entities whose customers may become wireless telephone users, such as car stereo companies, auto parts stores, appliance stores and department stores. CUSTOMER SERVICE The Company is committed to assuring consistently high quality customer service. Each of the Domestic Wireless Telephone Systems and the Puerto Rico Wireless Telephone System has a local staff, including a manager, customer service representatives, technical engineering staff and sales representatives. The Company has established local installation and repair facilities in all the Domestic Wireless Telephone Systems and the Puerto Rico Wireless Telephone System, and customers are able to report wireless telephone service problems to a local office 24 hours a 6 day. The Company believes that by having local offices and installation and repair facilities it is better able to service customers, schedule installations and repairs and monitor the technical quality of the Domestic Wireless Telephone Systems and the Puerto Rico Wireless Telephone System. SYSTEM CONSTRUCTION, OPERATION AND DEVELOPMENT Construction of wireless telephone systems is capital intensive, requiring a substantial investment for land and improvements, buildings, towers, MTSOs, cell site equipment, microwave equipment, engineering and installation. Until technological limitations on total capacity are approached, additional wireless telephone system capacity can normally be added in increments that closely match demand and at less than the proportionate cost of the initial capacity. The Company has also invested in MTSO equipment that provides the Company with the ability to gradually increase capacity of wireless telephone systems, as needed, through the provision of digital transmission. The Company hires consulting engineers and telecommunications general contractors to aid in the design and management of the construction and expansion of each of the Domestic Wireless Telephone Systems and Puerto Rico Wireless Telephone System. By doing so, the Company believes it improves the overall system engineering and construction quality and reduces the expense and time required to make and keep the systems operating at a high level of technical quality. In accordance with its strategy of developing market clusters, the Company has selected wireless switching systems that are capable of serving multiple markets with a single MTSO and has already implemented this strategy in most of its markets. The Domestic Wireless Telephone Systems and Puerto Rico Wireless Telephone System are designed to facilitate the installation of equipment which will permit microwave interconnection between the MTSO and each cell site. In addition, microwave facilities can be used to connect separate wireless telephone systems to the same switch, which may reduce the total cost of the equipment necessary to operate both systems. Where the Company has deemed it appropriate, the Company has implemented microwave interconnection services in the Domestic Wireless Telephone Systems and Puerto Rico Wireless Telephone System. The other systems rely upon landline telephone connections to link cell sites with the MTSO. Although the installation of microwave network interconnection equipment requires a greater initial capital investment, a microwave network enables a wireless telephone system operator to avoid the current and future charges associated with leasing telephone lines from the landline telephone company and generally improves system reliability. Subject to the availability of appropriate microwave sites, the Company may replace the leased lines in the Domestic Wireless Telephone Systems and Puerto Rico Wireless Telephone System with microwave interconnections as the volume of calls in each system makes the use of such microwave interconnections more cost efficient. The Company expects the construction of its Puerto Rico Wireless Telephone System to be capital intensive, in part because the licensed area is large and numerous low power PCS base station transmitters are required to provide coverage to the licensed area. The FCC has established construction benchmarks which require that 30 MHz broadband PCS systems, such as the Puerto Rico Wireless Telephone System, serve at least one-third of the population in its licensed area within five years of being licensed and two-thirds of the population in their licensed 7 area within ten years of being licensed. The Company believes it is in compliance with this requirement. In addition, broadband PCS spectrum is currently used by incumbent co-channel point-to-point microwave users. As a general proposition, broadband PCS licensees are required to pay the costs associated with the relocation of these existing microwave users to other portions of the radio spectrum or other media. FISCAL 1997 ACQUISITION On September 12, 1996, the Company acquired 100% of the ownership interests in the partnership owning the wireless telephone system serving the Benton Harbor, Michigan MSA for approximately $35 million in cash. The Benton Harbor market represents approximately 161,400 Net Pops. PENDING DISPOSITIONS The Company has determined to pursue a strategy to sell or otherwise dispose of Investment Interests representing approximately 1.1 million Net Pops. The Company has not made a final determination as to the estimated sale proceeds or the timing of such disposition and believes that the fair market value exceeds the net book value of the recorded assets. COMPETITION Competition From Other Wireless Systems. The FCC grants two 25 MHz licenses to operate cellular telephone systems in each of 306 MSAs and of 428 RSAs. The FCC also grants two 30 MHz licenses to operate broadband PCS systems in each of 51 defined Major Trading Areas ("MTAs") and one 30 MHz and three 10 MHz licenses in each of 493 Basic Trading Areas ("BTAs"), which are component parts of MTAs. The Company's systems compete directly with the other wireless licensees in each market on the basis of quality, price, area served, services offered and responsiveness of customer service. The Company also may be placed at a competitive disadvantage with the other licensees in a market if such licensees provide wireless telephone service in adjacent markets. The Company's Puerto Rico Wireless Telephone System faces primary competition from the incumbent wireless telephone licensees in Puerto Rico, which include the Puerto Rico Telephone Company ("PRTC"), an entity owned by the Commonwealth of Puerto Rico, and Corecom Inc., a publicly held company. Many of the Company's competitors are larger and may have access to more substantial financial resources than the Company. These competitors include Regional Bell Operating Companies, large independent telephone companies and AT&T Wireless, among others. Competition From Broadband PCS Systems. Among other possible uses, broadband PCS is capable of providing a two-way mobile voice and data telephone service that is similar to cellular service. A broadband PCS system is a wireless communications system that utilizes digital technology that could allow it to compete effectively with cellular systems, particularly in densely populated areas. Digital technology provides certain advantages over analog technology, including increased system capacity, improved overall signal quality and increased call security. 8 Broadband PCS licenses are awarded by competitive bidding. A number of broadband PCS systems are currently in operation. It is uncertain what effect broadband PCS will have on the Company's wireless telephone systems which it operates pursuant to cellular licenses. The FCC revised its rules to state explicitly that cellular licensees may provide any PCS-type services on their channels without prior notification to the FCC. Management of the Company believes that technological advances in present cellular telephone technology, including the use of digital technology, in conjunction with buildout of the present cellular systems throughout the nation with cell splitting and microcell technology, will provide essentially the same services as the services that PCS providers are expected to provide, but there can be no assurance that this will happen. The FCC has also issued a 30 MHz broadband PCS license for the Puerto Rico-U.S. Virgin Islands MTA to AT&T Wireless and the other four broadband PCS licenses for the San Juan, Puerto Rico BTA, the Mayaguez-Aguadilla-Ponce, Puerto Rico BTA and the U.S. Virgin Islands BTA to other entities, including a 10 MHz license to PRTC. Once operational, these broadband PCS systems are expected to present additional competition to the Company's PCS operations in Puerto Rico. Other Competition. In addition to competition from cellular and broadband PCS licensees, the Company faces competition from other current technologies, including enhanced SMR systems, narrowband PCS systems, satellite-based mobile telephony and even conventional landline telephone service. Regional and nationwide one-way paging service also may be a competitive alternative adequate for those who do not need a two-way service or may be a service that reduces wireless telephone usage among subscribers to both cellular and paging services. Technological advances in the communications field continue to occur which make it difficult to predict the extent of additional future competition for wireless systems, but it is certain that in the future there will be more potential substitutes for the Company's current wireless technology. There can be no assurance that the Company will not face significant future competition or that the Company's current wireless technology will not eventually become obsolete. Potential Conflicts of Interest and Competition. Century, a New Jersey corporation, owns 81.2% of the issued and outstanding shares of Class B Common Stock, par value $.01 per share (the "Class B Common Stock"), of Centennial and 100% of the issued and outstanding shares of the Second Series Convertible Redeemable Preferred Stock, par value $.01 per share (the "Second Series Convertible Redeemable Preferred Stock"), of Centennial. Citizens Utilities Company, a Delaware corporation ("Citizens"), owns 18.8% of the issued and outstanding shares of Class B Common Stock and 100% of the issued and outstanding shares of the Convertible Redeemable Preferred Stock, par value $.01 per share (the "Convertible Redeemable Preferred Stock"), of Centennial. Century's principal business is the ownership and operation of 70 cable television systems in 25 states and Puerto Rico serving approximately 1.273 million primary basic subscribers as of May 31, 1997. Citizens is a diversified utility company providing telephone, electric, gas, water and wastewater services. Century and Citizens own approximately 74% and 17%, respectively, of the combined voting power of both classes of Common Stock of Centennial as of August 8, 1997, and if 9 Century and Citizens each were to convert the preferred stock owned by it, Century would own approximately 59% and Citizens would own approximately 34% of such voting power as of such date. The remaining shares are publicly held. As a result of such ownership and in accordance with an agreement with Citizens, Century has the ability to nominate at least a majority and elect all of the directors of Centennial. Century has agreed to vote for one director to be nominated by Citizens. Century is the owner of 1.8% of the issued and outstanding Common Stock of Citizens as of August 8, 1997. Leonard Tow is Chairman of the Board and Chief Executive Officer of Century and Chairman of the Board, Chief Executive Officer and Chief Financial Officer of Citizens. Two other directors of Century, Robert D. Siff and Claire L. Tow, are also directors of Citizens. Citizens owns 1,807,095 shares of Class A Common Stock of Century representing approximately 6% of the issued and outstanding Class A Common Stock of Century as of August 8, 1997. Substantially all of Century's current wireless operations and investments are conducted or held by the Company. The Company leases and shares capacity on a fiber optic cable network for its Puerto Rico Wireless Telephone System from Century-ML. See "Business Puerto Rico Operations." Although exceptions are permitted by the Conflicts/Non-Compete Agreement described below, Century has indicated to the Company that it intends to conduct all its wireless telephone operations through the Company, subject to FCC restrictions. Citizens has agreed with Century and the Company that Citizens will conduct all its wireless telephone operations through the Company, except in areas where Citizens operates or acquires landline telephone systems and areas contiguous thereto. There can be no assurance that the Company will not lose any material expansion opportunities as a result of such exception or any conflicts that may exist between the interests of Citizens and the Company. The Company, Century and Citizens have entered into a Conflicts/Non-Compete Agreement. Pursuant to such agreement, except as described below, neither Century nor Citizens may compete with the Company in the acquisition of wireless telephone businesses or ownership interests therein, and the Company will have the first opportunity to purchase any wireless telephone business or ownership interests therein that may be presented to Citizens or Century. Citizens has no obligation to present any such business opportunity to the Company if the business under consideration is located in or is contiguous to an area in which Citizens (or a subsidiary or affiliate at least 50% owned by Citizens) owns or operates a landline telephone operation. REGULATION Federal Regulation. Pursuant to the Communications Act of 1934, as amended, (the "Communications Act"), the cellular, PCS, paging, conventional mobile telephone systems and SMR systems operated by the Company are licensed and regulated by the FCC as Commercial Mobile Radio Service ("CMRS") facilities. The FCC limits entities to a total of 45 MHz of licensed CMRS spectrum in any given market area. Cellular and PCS licenses are granted for a term of up to ten years, after which they must be renewed. Licenses may be revoked and license renewal applications denied for cause. It is possible that there may be competition for a license upon the expiration of its initial license term. While there can be no assurance that any license will be renewed, the FCC's rules provide for a significant renewal preference to a cellular and PCS licensee that has used its spectrum for its 10 intended purpose, and complied with FCC regulations and the federal communications statutes. If a cellular and PCS licensee is awarded a renewal expectancy, its renewal will be granted without further consideration of any competing applications. The FCC's rules prohibit wireless PCS licensees from imposing restrictions on the resale of wireless service by parties who purchase blocks of telephone numbers from an operational system and then resell them to the public. This prohibition expires for wireless licensees five years after the date that the last group of initial PCS licenses are granted. The FCC also regulates a number of other aspects of the operation and ownership of CMRS systems. There can be no assurance that any FCC requirements currently applicable to the Company's CMRS systems will not be changed in the future. State and Local Regulation. Following the grant of an FCC construction permit to an applicant, and prior to the commencement of commercial service (and prior to construction in certain states), the holder of the permit may have to obtain certain approvals from the appropriate regulatory bodies in the states in which it will offer CMRS service. At present, none of the states in which the Company's CMRS operations are located may regulate the entry of CMRS providers or the rates charged for CMRS service. However, they can regulate other terms and conditions of service. The siting and construction of the CMRS facilities, including transmitter towers, antennas and equipment shelters may be subject to state or local zoning, land use and other local regulations. Before a system can be put into commercial operation, the holder of a construction permit must obtain all necessary zoning and building permit approvals for the transmitter sites and MTSO locations. Recent Federal and State Legislation. The Telecommunications Act of 1996 (the "1996 Act"), enacted in February 1996, contains significant provisions aimed, in part, at opening local telecommunications markets to competition. These provisions govern, among other telecommunications matters, the removal of market-entry barriers and impose on incumbent local exchange carriers ("LECs") duties to negotiate, in good faith, interconnection agreements and provide under reasonable and nondiscriminatory terms interconnection for exchange services and access to unbundled network elements at any technically feasible point within the carrier's network, even to the extent that necessary equipment is located on a LEC's premises. The 1996 Act also provides for the development of competitive markets through provisions governing resale, number portability, dialing parity, access to right-of-ways and numbering administration. The overall impact of the 1996 Act on the business of the Company is unclear and will likely remain so for the foreseeable future. The Company may benefit from reduced costs in acquiring required communications services, such as LEC interconnection. However, other provisions of the 1996 Act relating to interconnection, telephone number portability, equal access and resale could subject the Company to increased competition. Comprehensive telecommunications reform legislation was enacted in 1996 by the Commonwealth of Puerto Rico. This legislation, titled the Puerto Rico Telecommunications Act of 1996 (the "Puerto Rico Act"), purports to open the Puerto Rico telecommunications market to competition and, among other things, it establishes the Puerto Rico Telecommunications 11 Regulatory Board (the "Board") which has been given primary regulatory jurisdiction in Puerto Rico over all telecommunications services, all service providers, and all persons with a direct or indirect interest in said services or providers. On December 12, 1996, the Board assumed jurisdiction over all intra-island telecommunications matters. FCC and State Proceedings. The 1996 Act imposes interconnection obligations on all telecommunications carriers in order to facilitate the entry of new telecommunications providers. This requirement has the potential of creating benefits for the Company's wireless, PCS and other telecommunications businesses. In August 1996, the FCC issued comprehensive rules regarding the introduction of competition into the local telephone market. These rules address most aspects of the provision of competitive local telephony services from both facilities-based and non-facilities-based competitors, including cellular and paging operators. The rules address the process by which potential competitors negotiate with incumbent telephone companies for interconnection, the facilities that must be available for interconnection, the use of components of the incumbents' networks, the resale of services of others, and the pricing of interconnection and other services and facilities used for offering competitive local telephone services. The rules also provide that incumbent LECs must begin paying the Company and other wireless providers immediately for terminating landline-originated traffic on the wireless facilities. On appeal, the U.S. Court of Appeals for the Eighth Circuit overturned several of the FCC's rules, the most important of which were the pricing rules. The FCC is expected to seek review of this decision from the Supreme Court. Decisions relating to universal service and access charge reform have also been released by the FCC. These decisions have been appealed. The Company has filed a Petition for Declaratory Ruling and Preemption with the FCC in which it seeks a ruling that the regulatory approach as well as certain provisions of the Puerto Rico Act are preempted pursuant to Sections 253(a) and 332(c) of the Communications Act because they are inconsistent with the pro-competition language and/or objectives of the 1996 Act, constitute impermissible barriers to the entry of local telecommunications competition and/or constitute impermissible regulation of CMRS entry or rates. Several other entities subsequently filed similar petitions with the FCC. This matter is currently pending. On December 26, 1996, the Company, on behalf of its PCS subsidiary, filed a petition with the Board seeking arbitration of the many unresolved issues in the negotiation with PRTC for interconnection of the Company's PCS network with PRTC's landline telephone network. On January 21, 1997, the Company, filed a petition with the Board seeking arbitration of the many unresolved issues in the negotiation with PRTC for interconnection of the Company's fiber optic network with PRTC's landline telephone network. The two petitions were substantially consolidated by the arbitrator and after several sessions with the arbitrator and PRTC, the Company and its PCS subsidiary successfully negotiated interconnection agreements with PRTC covering most of the unresolved issues. Those agreements, which reflect considerably lower interconnection rates than those PRTC had been charging, have been approved by the Board and are currently in effect. 12 DIGITAL WIRELESS TECHNOLOGY Over the next decade, it is expected that cellular telephones will gradually convert from analog to digital technology. This conversion is due in part to capacity constraints in many of the largest cellular markets, such as Los Angeles, New York and Chicago. As carriers reach limited capacity levels, certain calls may be unable to be completed, especially during peak hours. Digital technology increases system capacity and offers other advantages over analog technology, including improved overall average signal quality, improved call security, potentially lower incremental costs for additional subscribers and the ability to provide data transmission services. The conversion from analog to digital technology is expected to be an industry wide process that will take a number of years. The Company anticipates that such conversion will take place in the normal course. Overall costs of such conversion are not yet known. The Company is in the process of upgrading its cellular telephone systems from analog to digital technology and provides digital cellular telephone service in most of its cellular telephone markets to roamers. The implementation of digital technology will be fundamentally directed by subscriber demand for secure and confidential communications, the introduction of new cellular telephone services such as message waiting and calling line identification, and the delivery of data communications. Where cell sites are not yet at their maximum capacity of radio channels, the Company is adding digital channels to the network incrementally based on the relative demand for digital and analog channels. Where cell sites are at full capacity, analog channels are being removed and redeployed to expand capacity elsewhere within the network and replaced in such cell sites by digital channels. The implementation of digital cellular technology over a period of several years will involve modest incremental expenditures for switch software and possible significant cost reductions as a result of reduced purchases of radio channels and a reduced requirement to split existing cells. However, as indicated above, the extent of any implementation of digital radio channels and the amount of any cost savings ultimately to be derived therefrom will depend primarily on subscriber demand. In the ordinary course of business, equipment upgrades at the cell sites have involved purchasing dual mode radios capable of using both analog and digital technology. The benefits of digital radio channels can only be achieved if subscribers purchase cellular telephones that are capable of transmitting and receiving digital signals. Currently, such telephones are more costly than analog telephones. The widespread use of digital cellular telephones is likely to occur only over a substantial period of time and there can be no assurance that this technology will replace analog cellular telephones. In addition, since most of the Company's existing subscribers currently have cellular telephones that exclusively utilize analog technology, it will be necessary to continue to support, and if necessary increase, the number of analog radio channels within the network for many years. EMPLOYEES The Company had approximately 1,100 employees as of May 31, 1997. None of the Company's employees is represented by a labor organization. The Company considers its relationship with its employees to be good. 13 ITEM 2. PROPERTIES The Company leases office space at 50 Locust Avenue, New Canaan, Connecticut where it has its principal executive offices. The Company also leases office space at 1305 and 1325 Campus Parkway, Neptune, New Jersey where it has its principal corporate office. The properties for MTSO and cell sites in the Domestic Wireless Telephone Systems and the Puerto Rico Wireless Telephone System are either owned (approximately 28%) or leased (approximately 72%), typically under short-term leases, by the Company or one of its subsidiaries or the partnership, joint venture or corporation which holds the construction permit or license (in the case of the Domestic Wireless Telephone Systems in which the Company has a minority interest). The Company considers the properties owned and leased by it to be suitable and adequate for its business operations. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings, other than routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party to or which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of Centennial's shareholders during the fiscal quarter ended May 31, 1997. * * *EXECUTIVE OFFICERS OF CENTENNIAL The names, ages and positions of the executive officers of Centennial are listed below along with their business experience during at least the past five years. Executive officers of Centennial are elected annually by the Board of Directors and serve until their successors are duly elected and qualified. Each of the executive officers, other than Messrs. Graf, Mayberry, Cogar, Braden, Bucks and Casey, also is an executive officer of Century and devotes such of his business time to the Company as is necessary. There are no arrangements or understandings between any officer and any other person pursuant to which the officer was selected, and there are no family relationships between any executive officers or any directors of the Company. BERNARD P. GALLAGHER, 50, has been Chairman of the Board and Chief Executive Officer of Centennial since August 1991 and has been a director of Centennial since March 1991. From February 1990 to August 1991, Mr. Gallagher was President and Chief Operating Officer of Centennial. He has been a director of Century since October 1990 and President and Chief Operating Officer of Century since October 1989. From 1979 to October 1989, Mr. Gallagher served in various financial and executive capacities at Comcast Corporation, a cable television and cellular telephone company, including Vice President and Treasurer from November 1984 to October 1989. 14 RUDY J. GRAF, 48, has been President, Chief Operating Officer and a director of Centennial since August 1991, and was Vice President, Operations of Centennial from November 1990 to August 1991. Prior to joining Centennial, Mr. Graf served in various executive capacities, including Regional Vice President from December 1987 to July 1990 and as Vice President and General Manager from December 1985 to November 1987 of Metromedia Company, a cellular telephone company. SCOTT N. SCHNEIDER, 39, has been a director and Senior Vice President, Chief Financial Officer and Treasurer of Centennial since August 1991. He was a Vice President and Controller of Centennial from the date of its incorporation in 1988 to August 1991. Mr. Schneider has been a director of Century since October 1994. Mr. Schneider has been Chief Financial Officer of Century since December 1996 and Senior Vice President and Treasurer of Century since June 1991, and has been an Assistant Secretary of Century since October 1986. He was a Vice President of Century from October 1986 to June 1991, and was Controller of Century from 1982 to June 1991. MICHAEL G. HARRIS, 51, has been Senior Vice President, Engineering of Centennial since August 1991, and was Vice President, Engineering of Centennial from the date of its incorporation in 1988 to August 1991. Mr. Harris has been Senior Vice President, Engineering of Century since June 1991, and was Vice President, Engineering of Century from 1982 to June 1991. Mr. Harris has also been Senior Vice President-Engineering of Century since June 1991. PHILLIP MAYBERRY, 44, has been Senior Vice President - Operations of Centennial since December 1994, and was Vice President, Operations of Centennial from April 1990 to December 1994. From March 1989 to April 1990, Mr. Mayberry was a Vice President and General Manager of Metro Mobile CTS, Inc., a cellular telephone company. THOMAS COGAR, 40, joined Centennial in September 1990 as Director of Engineering and has been Vice President, Engineering of Centennial since August 1991. From May 1987 to September 1990, Mr. Cogar was employed by Metro Mobile CTS, Inc. in various technical capacities, most recently as Northeast Manager of Technical Operations. ROBERT J. LARSON, 38, has been Vice President - Accounting and Administration of Centennial since March 1995. He was Vice President - Controller of Centennial from October 1994 to March 1995 and was Controller of Centennial from 1990 to October 1994, and was Assistant Controller of Centennial from 1989 to 1990. Mr. Larson has been Vice President - Controller of Century since October 1994, was Controller of Century from 1991 to 1994 and was Assistant Controller from 1989 to 1991. Prior to joining Centennial and Century, Mr. Larson was a manager with Touche Ross & Co., a predecessor firm of Deloitte & Touche LLP. ROBERT BRADEN, 51, has been Senior Vice President - Operations of Centennial since November 1993. Prior to joining Centennial, Mr. Braden held operating and executive positions in several telecommunications companies including Metromedia, Omni Communications and VMX, Inc. 15 THOMAS E. BUCKS, 41, has been Vice President - Controller of Centennial since March 1995. Prior to joining Centennial, Mr. Bucks was employed by Southwestern Bell Corporation in various financial capacities, most recently as District Manager - Financial Analysis and Planning. DAVID Z. ROSENSWEIG, 71, has been a director and Secretary of Centennial since the date of its incorporation in 1988 and of Century since 1985. Mr. Rosensweig has been a member of the New York law firm of Leavy Rosensweig & Hyman, which acts as general counsel to Centennial and Century, since May 1987. He has been a director and Secretary of Century since December 1985. CLIFFORD A. BAIL, 42, has been Vice President - Legal Affairs and Corporate Counsel of the Company since January 1997. Mr. Bail has also been Vice President - Legal Affairs and Corporate Counsel of Century since January 1997. From 1992 to 1996, Mr. Bail was a partner in the New York law firm of Leavy Rosensweig & Hyman, which acts as general counsel to the Company and Century. JOHN CASEY, 41, has been Vice President, Operations of Centennial since January 1995, and was a Regional Manager of Centennial from January 1991 to December 1994. From August 1989 to December 1990, Mr. Casey was employed by McCaw Cellular One as District General Manager. 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION AND HOLDERS Centennial's Class A Common Stock has been traded in The Nasdaq Stock Market ("Nasdaq") under the symbol CYCL since December 3, 1991. There is no established market for the Class B Common Stock. The following table lists the high and low sale prices of the Class A Common Stock reported on Nasdaq for the calendar quarters indicated.
High Low ---- --- 1995 - ---- Third Quarter $ 20 1/8 $ 14 1/2 Fourth Quarter 19 5/8 15 7/8 1996 - ---- First Quarter 18 1/2 14 7/8 Second Quarter 17 5/8 15 Third Quarter 18 1/4 12 3/4 Fourth Quarter 15 1/4 10 3/8 1997 - ---- First Quarter 14 5/8 9 7/8 Second Quarter 16 1/2 8 5/8 Third Quarter (through August 8) 18 1/8 14 7/8
As of August 8, 1997, there were approximately 237 record holders of Centennial's Class A Common Stock. Such number does not include persons whose shares are held of record by a bank, brokerage house or clearing agency, but does include such banks, brokerage houses and clearing agencies. As of August 8, 1997, there were two record holders of the Class B Common Stock. DIVIDEND POLICY Centennial has not paid any cash dividends on its Common Stock and currently intends for the foreseeable future to retain all earnings for use in the Company's business. Centennial is effectively prohibited from paying cash dividends on its common stock by the provisions of the indentures with respect to $100 million aggregate principal amount of its publicly held 10 7/8% Senior Notes and $250 million aggregate principal amount of its publicly held 8 7/8% Senior Notes. The Restated Certificate of Incorporation of Centennial provides that no cash dividends 17 may be paid in respect of any class of Common Stock unless there shall have been paid or set apart for payment full cumulative dividends for all past and current dividend periods and all past and then current sinking, purchase or retirement fund installments, if any, on any class of preferred stock, including the Convertible Redeemable Preferred Stock and the Second Series Convertible Redeemable Preferred Stock, and then dividends on the Common Stock may be paid in any fiscal quarter only to the extent of 50% of the net income of the Company allocable to the Common Stock from continuing operations for the preceding fiscal quarter after deduction for payment of dividends on preferred stock. 18 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The selected consolidated financial data set forth below for each of the five years in the period ended May 31, 1997 was derived from the Company's audited Consolidated Financial Statements. The following information should be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Condition and the Consolidated Financial Statements and notes thereto included elsewhere herein.
---------------------------------------------------------- YEAR ENDED MAY 31, ---------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ----------- ----------- ---------- ----------- STATEMENT OF OPERATIONS DATA Revenues................................ $ 151,023 $ 112,197 $ 85,419 $ 56,373 $ 43,186 ------- ------- ------ ------ ------ Cost of services and equipment sold..... 38,228 26,129 22,152 13,424 11,022 Selling, general and administrative..... 55,132 34,188 26,055 17,787 15,242 Depreciation and amortization........... 83,720 70,989 65,642 47,652 42,845 ------- ------- ------- ------- ------ 177,080 131,306 113,849 78,863 69,109 ------- ------- ------- ------ ------ Operating loss.......................... (26,057) (19,109) (28,430) (22,490) (25,923) Interest expense........................ 33,379 27,886 23,357 21,040 16,483 Gain on sale of assets.................. 3,819 8,310 --- --- --- Income from equity investments.......... 15,180 10,473 4,670 3,645 1,926 ------- ------- ------- ------- ------- Loss before income tax benefit and minority interest.................... (40,437) (28,212) (47,117) (39,885) (40,480) Income Tax Benefit...................... (7,295) (11,596) (14,456) (11,780) (12,796) ------- ------- ------- ------- ------- Loss before minority interest........... (33,142) (16,616) (32,661) (28,105) (27,684) Minority interest in (income) loss of subsidiaries.......................... (153) (15) (69) 321 1,776 ----- ---- ---- --- ----- Net loss................................ $ (33,295) $ (16,631) $ (32,730) $ (27,784) $ (25,908) ========= ========== ========== ========= ========== Dividend requirements on Preferred Stock $ 15,948 $ 13,590 $ 12,634 $ 11,678 $ 10,935 ========= ========== ========== ========= ========== Loss applicable to common shares........ $ (49,243) $ (30,221) $ (45,364) $ (39,462) $ (36,843) ========= ========== ========== ========= ========== Loss per common share................... $ (1.83) $ (1.13) $ (1.93) $ (3.28) $ (3.28) ========= ========== ========== ========= ========== Average number of common shares outstanding during the period........ 26,934,000 26,770,000 23,544,000 12,033,000 11,249,000 ========== ========== ========== =========== ========== BALANCE SHEET DATA Total assets............................ $ 844,850 $ 785,812 $ 844,384 $ 502,384 $ 470,295 Long-term debt.......................... 429,000 350,000 350,000 250,000 173,900 Common stockholders' equity............. 112,882 160,006 188,831 24,143 33,903
See Notes 3 and 4 of the consolidated financial statements regarding recent acquisitions and the effect of such acquisitions on the comparability of the historical financial statements of the Company. 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER, POP AND SHARE DATA) The Company is in a highly competitive business, competing with other providers of wireless telephone service and providers of telephone services using different and competing technologies. Since August 1988, the Company has acquired twenty-nine wireless telephone markets in the United States that it owns and manages (the "Domestic Wireless Telephone Systems"). In addition, on June 23, 1995, the Company acquired one of two Metropolitan Trading Areas ("MTA") licenses to provide broadband personal communications services ("PCS") in the Commonwealth of Puerto Rico and the U.S. Virgin Islands (the "Puerto Rico Wireless Telephone System"). Certain of the Company's operations are in a developmental stage, and the Company's Puerto Rico Wireless Telephone System is in the start-up and construction stage. On December 12, 1996 the Company began providing wireless telephone services in Puerto Rico. There is on-going construction to complete the buildout of the system. The Puerto Rico Wireless Telephone System's operations accounted for $5,903 in revenue and had 16,900 subscribers as of May 31, 1997. The Company must continue to adapt its business to technological, competitive and economic changes. It is dependent on its ability to increase its number of subscribers, net of cancellations, and to achieve acceptable revenue per subscriber levels in increasingly competitive markets. The Company expects net losses to continue until such time as the Domestic Wireless Telephone Systems, the Puerto Rico Wireless Telephone System and related investments associated with the acquisition, construction and development of its Domestic Wireless Telephone Systems and Puerto Rico telecommunications network plant generate sufficient earnings to offset the costs of such activities. There can be no assurance that profitability will be achieved in the foreseeable future. The Company is highly leveraged. The Company requires substantial capital to operate, construct, expand and acquire wireless telephone systems, to build-out its recently acquired Puerto Rico telecommunications network, and to pay debt service and preferred stock dividends. Historically, the Company has been dependent upon borrowings, the issuance of its equity securities and operating cash flow to provide funds for such purposes. There can be no assurance that it will continue to have access to such sources of funds. YEAR ENDED MAY 31, 1997 AND MAY 31, 1996 Revenue for the year ended May 31, 1997 was $151,023, an increase of $38,826 or 35% over revenue of $112,197 for the year ended May 31, 1996, reflecting growth in subscriptions to and increased usage of wireless telephone service. The acquisition of one domestic wireless telephone system accounted for approximately $4,572 or 12% of the increase in revenue. The Puerto Rico Wireless Telephone System business contributed $5,903 or 15% of the increase in revenue. Revenue from the sale of equipment to subscribers for the year ended May 31, 1997 increased by $209 to $2,858 or 8% as compared to the year ended May 31, 1996. The increase in such revenue was due to a larger number of telephone units sold during the current year offset, in 20 part, by a reduction in the retail prices of wireless telephones. Continued growth in revenue is dependent upon increased levels of wireless subscriptions, maintenance of the current subscriber base, and the average revenue per subscriber. Wireless subscribers at May 31, 1997 were approximately 203,900, an increase of 51% from the 135,000 subscribers at May 31, 1996. Increases from new activations of 104,800 and 7,500 subscribers from acquisitions were offset by subscriber cancellations of 43,400. The cancellations experienced by the Company are primarily the result of competitive factors. The Puerto Rico Wireless Telephone System had approximately 16,900 subscribers at May 31, 1997 and, as a result, accounted for approximately 25% of the net increase in subscriptions. Consolidated revenue per subscriber per month, based upon an average number of subscribers, was $72 for the year ended May 31, 1997, as compared to $74 for the year ended May 31, 1996. The average monthly revenue per subscriber for the year ended May 31, 1997 was approximately $71 in the Domestic Wireless Telephone Systems, as compared to approximately $121 in the Company's Puerto Rico Wireless Telephone System. The Company's business is increasingly competitive and, as a result, there is no assurance that average revenue per subscriber will be maintained at historic levels. In addition, the expansion of local service calling areas, and therefore the reduction of roaming revenue, is expected to reduce average revenue per subscriber. Cost of services during the year ended May 31, 1997 was $22,216, an increase of $6,925 or 45% from the year ended May 31, 1996. The increase was due to the variable costs associated with a larger revenue and subscription base, and increased wireless coverage areas resulting from (i) the continued expansion of the Company's network and acquisitions completed during the fiscal years ended May 31, 1997 and 1996 and (ii) the commencement of wireless telephone service in Puerto Rico. Included in cost of services during the year ended May 31, 1997 were $1,927 of costs associated with the start-up of the Company's Puerto Rico Wireless Telephone System. Cost of equipment sold during the year ended May 31, 1997 was $16,012, an increase of $5,174 or 48% as compared to the year ended May 31, 1996. The primary reason for the increase was an increase in the number of telephone units sold, offset by a decrease in the average unit cost of telephones sold. Selling, general and administrative expenses rose to $55,132 for the year ended May 31, 1997, an increase of $20,944 or 61% above the expenses of $34,188 for the year ended May 31, 1996. The Company increased its managerial, customer service and sales staff to accommodate a larger subscription and revenue base, anticipated growth of its domestic wireless telephone systems as well as the commencement of wireless telephone services in Puerto Rico. Included in selling, general and administrative expenses during the year ended May 31, 1997 were $5,086 of costs associated with the start-up of the Company's Puerto Rico Wireless Telephone System. The Company anticipates continued increases in the cost of services and selling, general and administrative expenses as the growth of its existing wireless telephone business continues. In addition, the Company expects that the development of its recently acquired markets as well as its participation in the Puerto Rico telecommunications network will contribute to a continued increase in the level of expenses. 21 Depreciation and amortization for the year ended May 31, 1997 was $83,720, an increase of $12,731 or 18% over the year ended May 31, 1996. The increase results from acquisitions and capital expenditures made during fiscal 1997 and 1996 in connection with the development and network expansion of the Company's Domestic Wireless Telephone Systems and Puerto Rico Wireless Telephone System. Depreciation and amortization related to the Puerto Rico Wireless Telephone System was $6,328 or 50% of the increase. The operating loss for the year ended May 31, 1997 was $26,057, an increase of $6,948 or 36% from the loss of $19,109 for the year ended May 31, 1996. During the year ended May 31, 1997, the Company sold certain equipment resulting in a gain of $3,819. During the year ended May 31, 1996, the Company sold its 72.2% interest in the wireless telephone system serving the Charlottesville, VA MSA for a cash purchase price of approximately $9,914. The Company recognized a gain of $4,176 as a result of the sale (see "Acquisitions, Exchanges, and Dispositions"). In addition, the Company recognized a gain of $4,092 upon the sale of marketable securities acquired and sold during fiscal 1996. Interest expense was $33,379 for the year ended May 31, 1997, an increase of $5,493 or 20% from the year ended May 31, 1996. The increase in interest expense is the result of interest charged on additional borrowings for the Benton Harbor, MI acquisition, working capital needs and the construction and operation of the Puerto Rico telecommunications network as well as a decrease in capitalized interest charges related to the pre-operational stage of the Company's Puerto Rico PCS business. Capitalized interest for the year ended May 31, 1997 was $2,752, a decrease from the capitalized interest of $5,200 for the year ended May 31, 1996. Gross interest costs for the year ended May 31, 1997 and May 31, 1996 were $36,131 and $33,086, respectively. The average debt outstanding during the year ended May 31, 1997 was $374,893, an increase of $24,893 as compared to the average debt level of $350,000 during the year ended May 31, 1996. The Company's weighted average interest rate decreased to 9.3% for the year ended May 31, 1997 from 9.5% for the year ended May 31, 1996. After income attributable to minority interests in subsidiaries for the year ended May 31, 1997, a pretax loss of $40,590 was incurred, as compared to a pretax loss of $28,227 for the year ended May 31, 1996. The income tax benefit of $7,295 for the year ended May 31, 1997 represents a reduction of the deferred tax liability by the tax effect of the current period losses of the Company, offset by current state and local taxes for the period. The tax benefits are non-cash in nature. The net loss of $33,295 for the year ended May 31, 1997 represents an increase of $16,664 or 100% from the net loss of $16,631 for the year ended May 31, 1996. The Puerto Rico PCS business accounted for 52% of the consolidated net loss for the year ended May 31, 1997 as compared to 6% for 1996. YEAR ENDED MAY 31, 1996 AND MAY 31, 1995 Revenue for the year ended May 31, 1996 was $112,197, an increase of $26,778 or 31% over revenue of $85,419 for the year ended May 31, 1995. The increase in revenue was primarily the result of growth in subscriptions to and the resulting increased usage of domestic wireless telephone service. Acquisitions accounted for increased revenue of $21,279 for fiscal 1996, 22 which increase more than offset a decline in revenue from domestic wireless systems which were sold or exchanged of $12,756. Revenue from the sale of wireless telephones to subscribers for the year ended May 31, 1996 decreased by $1,486 to $2,649 or 36% as compared to the $4,135 recorded in the fiscal year ended May 31, 1995. The decrease in such revenue was due to a reduction in the retail prices of wireless telephones offset, in part, by a larger number of telephone units sold during the current fiscal year. Continued growth in revenue is dependent upon increased levels of wireless subscriptions as well as maintenance of the current subscriber base. Domestic wireless subscribers at May 31, 1996 were approximately 135,000. During the twelve month period ended May 31, 1996, the Company's domestic wireless subscriber base was affected by (i) acquisitions of wireless telephone markets, (ii) the exchange and disposition of wireless telephone markets and (iii) internal growth of subscribers in systems which the Company owned and operated at May 31, 1995. On a proforma basis, after giving effect to dispositions and exchanges of wireless telephone systems at May 31, 1995, the Company's wireless subscribers were 85,900 as compared to 135,000 at May 31, 1996, an increase of 49,100 subscribers or 57%. The increase in subscribers, after giving effect to the exchanged and disposed markets, was the result of 64,600 new activations and 17,400 subscribers from acquisitions made during the fiscal year ended May 31, 1996. The increases were partially offset by subscriber cancellations of 32,900. Subscriber activity during the twelve months ended May 31, 1996 is summarized in the table below:
Proforma effect of Actual Exchanged/disposed Markets ------ -------------------------- Beginning subscribers, May 31, 1995 112,500 85,900 Activation's 65,600 64,600 Cancellations (33,700) (32,900) Acquired 17,400 17,400 Disposed/Exchanged (26,800) - ------- ------- Ending Subscribers, May 31, 1996 135,000 135,000 ======= =======
Revenue per subscriber per month, based upon an average number of subscribers for the year ended May 31, 1996, was $74 as compared to $68 for the year ended May 31, 1995. The increase in monthly revenue per subscriber was primarily due to the recent acquisitions of wireless markets which currently have, on average, higher levels of roaming revenue per subscriber. Further, the adjacency of these markets to existing wireless systems permit the Company to expand its local calling areas, thereby capturing additional revenue from its resident subscriber base. Secondarily, markets which were exchanged and disposed of during the year ended May 31, 1996 had, on average, lower monthly revenue per subscriber than the Company's currently owned and managed markets. The average monthly revenue per subscriber in recently acquired markets during the year ended May 31, 1996 was approximately $80 as compared to approximately $73 in average monthly revenue per subscriber in the Company's other owned and managed markets. Average 23 monthly revenue per subscriber in markets which were exchanged or disposed of was approximately $54 at June 30, 1995. Cost of services during the year ended May 31, 1996 was $15,291, an increase of $2,483 or 19% from the year ended May 31, 1995. The reason for the increase was the variable costs associated with a larger revenue and subscription base, as well as increased wireless coverage areas resulting from the continued expansion of the Company's network. Included in cost of services during the fiscal year ended May 31, 1996 were $195 of pre-operating costs associated with the start-up of the Company's Puerto Rico Wireless Telephone System. Cost of equipment sold during the year ended May 31, 1996 was $10,838, an increase of $1,494 or 16 % as compared to the year ended May 31, 1995. The primary reason for the increase was an increase in the number of telephone units sold offset by a decrease in the average unit cost of telephones sold. Selling, general and administrative expenses rose to $34,188, an increase of $8,133 or 31% above the $26,055 for the year ended May 31, 1995. The increase was the result of an increase in the Company's managerial, customer service and sales staff to accommodate the larger subscription and revenue base, and anticipated growth of its wireless telephone business. Included in selling, general and administrative expenses during the fiscal year ended May 31, 1996 were $218 of pre-operating costs associated with the start-up of the Company's Puerto Rico Wireless Telephone System. The Company's Puerto Rico Wireless Telephone System was in the construction stage and not yet operational during fiscal 1996. During the year ended May 31, 1996, the Company capitalized approximately $5,200 of interest costs associated with the acquisition of the PCS license. Depreciation and amortization for the year ended May 31, 1996 was $70,989, an increase of $5,347 or 8% over the year ended May 31, 1995. The increase results from acquisitions completed during fiscal 1996 and 1995, as well as capital expenditures made during fiscal 1996 and 1995 in connection with the development and network expansion of the Company's Domestic Wireless Telephone Systems. As a result of the factors discussed above, the operating loss for the year ended May 31, 1996 was $19,109, a decrease of $9,321 or 33% from the loss of $28,430 for the year ended May 31, 1995. Interest expense was $27,886 for the year ended May 31, 1996, an increase of $4,529 or 19% from the year ended May 31, 1995. The increase was the result of interest charged on additional borrowings for capital expenditures, working capital, investment in the Puerto Rico telecommunications network (including the license of $54,672) and debt service, offset by the capitalization of $5,200 of interest costs related to the Company's PCS license. On May 11, 1995, the Company issued $100,000 of ten year senior notes at an interest rate of 10 1/8% (see Liquidity and Capital Resources). As a result, the average debt outstanding during the year ended May 31, 1996 was $350,000, an increase of $94,247 as compared to an average debt level of $255,753 during the year ended May 31, 1995. The Company's weighted average interest rate increased to 9.5% for the year ended May 31, 1996 from 9.2% for the year ended May 31, 1995. 24 During the year ended May 31, 1996, the Company sold its 72.2% interest in the wireless telephone system serving the Charlottesville, VA. MSA for a cash purchase price of approximately $9,914, subject to adjustment. The Company recognized a gain of $4,176 as a result of the sale (see Acquisitions, Exchanges and Dispositions). In addition, the Company recognized a gain of $4,092 upon the sale of marketable securities acquired and sold during the 1996 fiscal year. After income attributable to minority interests in subsidiaries for the year ended May 31, 1996, a pretax loss of $28,227 was incurred as compared to a pretax loss of $47,186 in the year ended May 31, 1995. The income tax benefit of $11,596 for the year ended May 31, 1996 represents an adjustment to the deferred tax liability of the Company, offset by current state and local taxes for the period. The tax benefits are non-cash in nature and are attributable to the Company's acquisitions and results of operations. The net loss of $16,631 for the year ended May 31, 1996 represents a decline of $16,099 or 49% from the net loss for the year ended May 31, 1995. The Company expects net losses to continue until such time as the Domestic Wireless Telephone Systems, the Puerto Rico Wireless Telephone System and related investments associated with the acquisition, construction and development of its Domestic Wireless Telephone Systems and Puerto Rico telecommunications network plant generate sufficient earnings to offset the costs described above. LIQUIDITY AND CAPITAL RESOURCES For the year ended May 31, 1997, earnings were less than fixed charges by $43,189. Fixed charges consist of interest expense, including amortization of debt issue costs and capitalized interest, and the portion of rents deemed representative of the interest portion of leases. The amount by which earnings were less than fixed charges includes non-cash charges of $83,720 relating to depreciation and amortization. As of May 31, 1997, the Company had $177,292 of property, plant and equipment (net) placed in service. During the year ended May 31, 1997, the Company made capital expenditures of $88,990, primarily to continue the expansion of the coverage areas of existing properties, the upgrade of its cell site and call switching equipment and its Puerto Rico telecommunications network. During the year ended May 31, 1997, the buildout of the Company's Puerto Rico telecommunications network required capital expenditures of $50,069 or 56% of the Company's total capital expenditures. The Company's future commitments for such property and equipment include the addition of cell sites to expand coverage, as well as enhancements to the existing infrastructure of its wireless systems. During the twelve months ended May 31, 1998 the Company anticipates domestic wireless capital expenditure requirements of approximately $30,000. The Company currently estimates that the remaining cost to build out the infrastructure of its PCS network will be approximately $26,300 to be expended through fiscal 1999. In order to meet the continued level of capital investment, the Company is exploring various sources of external financing including, but not limited to, bank financing, joint ventures, partnerships and placement of debt or equity securities of the Company. In this regard, the Company entered into a $50,000 credit facility with Citibank, N.A. on September 12, 1996, which was amended April 22, 1997 (as so amended, the "Amended Credit Facility"). The commitment of the lenders under such Amended Credit Facility may be increased 25 to $90,000 at the election of the lenders. As of July 30, 1997 the commitment was increased to $75,000. The Amended Credit Facility terminates on January 31, 2001. Approximately $35,000 of the Amended Credit Facility was used to fund the Benton Harbor, Michigan wireless telephone system acquisition (see "Acquisitions, Exchanges and Dispositions"), and has since been repaid. The Amended Credit Facility may be used for working capital and general corporate purposes. The interest rate payable on borrowings under the Amended Credit Facility is based, at the election of the Company, on (a) the Base Rate, as defined, plus a margin of 2%, or (b) the Eurodollar Base Rate, as defined, plus a margin of 3%. The Amended Credit Facility is secured by the pledge of the stock of certain of the Company's subsidiaries not otherwise subject to restrictions under its Senior Note Indentures, including the subsidiary which operates the Benton Harbor system. The Amended Credit Facility is further guaranteed by certain subsidiaries holding Investment Interests. The Amended Credit Facility restricts the incurrence of certain additional debt by the Company and limits the Company's ability to pay dividends. As of May 31, 1997, $5,000 was outstanding under the Amended Credit Facility. The Company was in compliance with the covenants of the Amended Credit Facility at May 31, 1997. Additionally, on April 25, 1997, Centennial Puerto Rico Wireless Corporation , a wholly owned subsidiary of the Company ("CPRW"), entered into a four-year $130,000 revolving credit facility with Citibank, N.A. which converts into a four-year term loan on April 25, 2001 (the "Puerto Rico Credit Facility"). The proceeds from the Puerto Rico Credit Facility will be used by CPRW and its direct and indirect subsidiaries primarily to finance the construction and operation of PCS, competitive access and telecommunications networks in Puerto Rico and the United States Virgin Islands. The proceeds will also be used by CPRW for working capital and general corporate purposes and was used to pay certain cash dividends to the Company as permitted by the Puerto Rico Credit Facility. The interest rate payable on borrowings under the Puerto Rico Credit Facility is based on, at the election of CPRW, (a) the "Base Rate", as defined, plus a margin of 1.50% or (b) the "Eurodollar Rate", as defined, plus a margin of 2.50%, adjusted for the maintenance of certain specified leverage ratios, as applicable. The Puerto Rico Credit Facility, which is non-recourse to the Company, is secured by substantially all of the assets of CPRW and its direct and indirect subsidiaries and requires CPRW to meet and maintain certain financial and operating covenants, including the maintenance of certain minimum annualized cash flows, as defined, the maintenance of certain ratios of operating cash flow to debt service and total outstanding debt to operating cash flow and performance requirements including minimum subscriber levels. The Puerto Rico Credit Facility restricts the use of borrowing, limit the incurrence of certain additional indebtedness by CPRW and limits CPRW's ability to declare and pay dividends to the Company and management fees to affiliates. Breach of such covenants would constitute a default under the facility in which event Citibank, N.A. could accelerate all amounts outstanding thereunder, and exercise certain other rights and remedies as a secured creditor. At May 31, 1997, $74,000 was outstanding under the Puerto Rico Credit Facility. The Company has outstanding two classes of preferred stock which are held by Citizens Utilities Co.. ("Citizens") and Century Communications Corp. ("Century"). The preferred stock issues carried no cash dividend requirements through August 31, 1996 but accreted liquidation preference and redemption value at the rate of 7.5% per annum, compounded quarterly, until then. The fully accreted liquidation preference and redemption value of the shares held by Citizens and Century at August 31, 1996 was $186,287 and $7,252, respectively. Beginning September 1, 1996, the holders of the preferred stock were entitled to receive cash dividends at 26 the rate of 8.5% per annum. Assuming no change in the number of shares of such classes outstanding, the annual dividend payments, commencing in fiscal 1997, to be made with respect to the preferred stock, if and when declared by the Company's Board of Directors, will be $15,834 and $616, respectively. Both classes of preferred stock are subject to mandatory redemption in fiscal 2007. Any unpaid dividends continue to accumulate without additional cost to the Company. On December 19, 1996 and May 8, 1997, the Company paid quarterly cash dividends to Citizens and Century of $3,959 and $154, respectively. The Company will determine, from time to time, the timing, amount, or distribution (if any) of additional preferred stock dividends. In order to meet its obligations with respect to its operating needs, capital expenditures, debt service and preferred stock obligations, it is important that the Company continue to improve operating cash flow. In order to do so, the Company's revenue must increase at a faster rate than operating expenses. Increases in revenue will be dependent upon continuing growth in the number of subscribers and maximizing revenue per subscriber. The Company has continued the development of its managerial, administrative and marketing functions, and is continuing the construction of wireless systems in its existing and recently acquired markets in order to achieve these objectives. There is no assurance that growth in subscribers or revenue will occur. In addition, the Company's participation in the Puerto Rico telecommunications business is expected to be capital intensive, requiring additional network buildout costs of approximately $26,300 through fiscal 1999. Further, due to the start-up nature of the Puerto Rico telecommunications network, the Company expects that it will require additional cash investment to fund its operations over the next several years. The Puerto Rico telecommunications network is expected to be highly competitive with the two existing wireless telephone providers, as well as the other Puerto Rico telecommunications license holders. There is no assurance that the Puerto Rico telecommunications network will generate cash flow or reach profitability. Even if the Company's operating cash flow increases, it is anticipated that cash generated from the Company's Domestic Wireless Telephone Systems and Puerto Rico telecommunications network will not be sufficient in the next several years to cover interest, the preferred stock dividend requirements that commenced in fiscal 1997 and required capital expenditures. The Company anticipates that shortfalls may be made up either through debt and equity issuances or additional financing arrangements that may be entered into by the Company. Although to date the Company has been able to obtain such financing on satisfactory terms, there can be no assurance that this will continue to be the case in the future. The Company has filed a shelf registration statement with the Securities and Exchange Commission (the "SEC") for up to 8,000,000 shares of its Class A Common Stock that may be offered from time to time in connection with acquisitions. The registration statement was declared effective by the SEC on July 7, 1994. As of August 8, 1997, 4,239,231 shares remain available for future acquisitions. The Company has filed a shelf registration statement with the SEC for the issuance of $500,000 of the Company's debt securities which was declared effective by the SEC on April 6, 1995. The debt securities may be issued from time to time in series on terms to be specified in one or more prospectus supplements at the time of the offering. If so specified with respect to 27 any particular series, the debt securities may be convertible into shares of the Company's Class A Common Stock. As of August 8, 1997, $400,000 of debt securities remained available for issuance. Although the net cash provided by operating activities for the year ended May 31, 1997 was not sufficient to fund the Company's expenditures for property, plant and equipment of $88,990, funds required were available from cash on hand. The principal source of such cash was financing activities completed in prior fiscal years. The Company will continue to rely on various financing activities to fund these requirements. Based upon current market conditions, the Company expects that cash flows from operations and funds from currently available credit facilities will be sufficient to enable the Company to meet required cash commitments through the next twelve month period. ACQUISITIONS, EXCHANGES AND DISPOSITIONS The Company's primary acquisition strategy is to acquire controlling ownership interests in wireless systems serving markets contiguous or proximate to its current markets. The Company's strategy of clustering its wireless operations in contiguous and proximate geographic areas enables it to achieve operating and cost efficiencies as well as joint advertising and marketing benefits. Clustering also allows the Company to offer its subscribers more areas of uninterrupted service as they travel through an area or state. In addition to expanding its existing clusters, the Company may also seek to acquire interests in wireless systems in other geographic areas. The Company may also pursue other communications businesses related to its wireless telephone and other mobile service operations, as well as other communications businesses it determines to be desirable. The consideration for such acquisitions may consist of shares of Centennial's Class A Common Stock, par value $.01 per share, cash, assumption of liabilities, or a combination thereof. On September 12, 1996, the Company acquired for approximately $35,000 in cash, 100% of the ownership interests in the partnership owning the wireless telephone system serving the Benton Harbor, Michigan MSA. The Benton Harbor market represents approximately 161,400 Net Pops. "Net Pops" means a market's Pops multiplied by the percentage interest that Centennial owns in an entity licensed by the FCC to construct or operate a cellular telephone system (or to provide personal communications services) in that market and "Pops" means the population of a market based upon the final 1990 Census Report of the Bureau of the Census, United States Department of Commerce. On October 31, 1995, the Company acquired (i) a 94.3% interest in the wireless telephone system serving the Lafayette, Louisiana MSA, representing approximately 205,700 Net Pops, in exchange for the Company's wireless telephone system serving the Jonesboro, Arkansas RSA (comprising approximately 205,000 Net Pops), the license rights and assets located in and covering the Desoto and Red River Parishes of Louisiana 3 RSA (comprising approximately 34,700 Net Pops), the license rights and assets located in and covering a section of Morehouse Parish of Louisiana 2 RSA (comprising approximately 24,100 Net Pops) and a cash payment by the Company of approximately $5,580, subject to adjustment, and (ii) an additional 14.3% minority interest in the Elkhart, Indiana RSA, a market in which the Company now has a 91.4% interest and an additional 12.7% equity investment interest in the Lake Charles, Louisiana MSA, a market in which the Company now has a 25.1% interest, for a cash payment of approximately $2,951. 28 On June 30, 1995, the Company acquired the wireless telephone systems serving (a) Newtown, LaPorte, Starke, Pulaski, Jasper and White, Indiana, (b) Kosciusko, Noble, Steuben and Lagrange, Indiana, (c) Williams, Defiance, Henry and Paulding, Ohio and (d) Copiah, Simpson, Lawrence, Jefferson Davis, Walthall and Marion, Mississippi, representing an aggregate of approximately 608,100 Net Pops. The above-described systems were acquired by the Company in exchange for the Company's wireless telephone systems serving the Roanoke, Virginia MSA, the Lynchburg, Virginia MSA, North Carolina RSA #3 and Iowa RSA #5, representing an aggregate of approximately 644,000 Net Pops. Simultaneously with the consummation of the transaction described above, the Company sold its 72.2% interest in the wireless telephone system serving the Charlottesville, Virginia MSA, representing an aggregate of approximately 94,700 Net Pops, for a cash purchase price of approximately $9,914, subject to adjustment. The Company recognized a gain of approximately $4,176 as a result of the sale. The Company was the successful bidder for one of two Metropolitan Trading Area ("MTA") licenses (granted June 23, 1995) to provide broadband PCS in the Commonwealth of Puerto Rico and the U.S. Virgin Islands. The licensed area represents approximately 3,623,000 Net Pops. The amount of the final bid submitted and paid by the Company was $54,672. The Company has determined to pursue a strategy to sell or otherwise dispose of substantially all of its minority equity investments in wireless telephone systems representing approximately 1,100,000 Net Pops and has retained an investment banker to assist it in such disposition. The Company has not yet made a final determination as to the estimated sale proceeds or the timing of such disposition. COMMITMENTS AND CONTINGENCIES On December 21, 1994, the Company announced that its Board of Directors authorized the repurchase in the open market and in privately negotiated transactions, from time to time, of up to 1,000,000 shares of Class A Common Stock, depending on prevailing market conditions. Subsequent to May 31, 1997, the Company purchased 244,000 shares of its own Class A Common Stock in the open market for a purchase price of $3,902. These shares have been accounted for as Treasury Shares in fiscal 1998. The Company also plans to exercise its right to acquire the minority interests held by Century in the Cass and Jackson, Michigan systems for the prices paid by Century for such minority interests in the acquisition of such systems ($2,000 and $1,000, respectively). Upon completion of these transactions, the Company will own 100% of these systems. The Company is controlled by Century through its ownership of the Company's Class B Common Stock representing approximately 74% of the voting power and approximately 32% of the equity of the Company as of August 8, 1997. The Company and Century entered into a Services Agreement, effective August 30, 1996 (the "Services Agreement"), pursuant to which Century through its personnel provides such design, construction, management, operational, technical and maintenance services to the Company as may be necessary, or as Century determines may be appropriate, for the wireless telephone, paging and related systems owned and operated by the Company. Such services have historically been provided to the Company by Century. As consideration for the services rendered and to be rendered under the Services Agreement, the Company will pay Century the annual sum of $1,000 plus direct out of pocket 29 expenses. The Services Agreement has a term of five years but Centennial may, in its discretion, terminate the agreement at the end of each year during the five year term. The Company has recorded expenses of $750 under the Services Agreement for the year ended May 31, 1997. Such amount is recorded within Accrued Expenses on the Company's consolidated balance sheet at May 31, 1997. The Company leases certain space for equipment in Puerto Rico from Century-ML Cable Corp. "Century-ML", a cable television operator which is 50% owned by Century. Further, the Company leases and shares capacity on the fiber optic cable television facility and network of Century- ML for the purpose of operating as a competitive access provider. The Company shares in the cost of construction, operation and maintenance of the Century-ML fiber network on a pro-rata basis based on the percentage of the number of fibers of the network used by or reserved for the Company. During fiscal 1997, the Company recorded a deferred asset and a related payable to an affiliate in its consolidated balance sheet in the amount of $6,000 to reflect certain costs incurred by the Company to reimburse Century-ML for the Company's share of the costs of constructing the fiber optic network. These costs were incurred by the Company in order to secure the use of the fiber optic network as required by the Facilities Agreement. (See Note 1 to the consolidated financial statements) 30 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER, POP AND SHARE DATA) This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, the Company or its management expresses and expectation or belief as to future results, there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. The words "believe", "expect", "estimate", "anticipate", "project" and similar expressions may identify forward-looking statements. Taking into account the foregoing, the following are identified as important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company: NET LOSSES; STOCKHOLDERS' EQUITY The Company has reported net losses of $(33,295), $(16,631) and $(32,730) for the fiscal years ended May 31, 1997, 1996 and 1995 respectively. Operating loss was $(26,057), $(19,109) and $(28,430) for the respective periods. Interest expense was $33,379, $27,886 and $23,357 for the respective periods. The Company expects net losses to continue until such time as the Domestic Wireless Telephone Systems, the Puerto Rico Wireless Telephone System and related investments associated with the acquisition, construction and development of its Domestic Wireless Telephone Systems and Puerto Rico Wireless Telephone System generate sufficient earnings to offset the cost of such activities. There can be no assurance that profitability will be achieved in the foreseeable future. Reflecting net losses in prior periods, the common stockholders' equity as stated on the Company's consolidated balance sheet at May 31, 1997 was $112,882. The Company's assets, including its cellular telephone and PCS licenses, are recorded on its balance sheet at historical cost. The Company believes that the current fair value of such assets is significantly in excess of their historical cost. LEVERAGE; CAPITAL REQUIREMENTS The wireless telephone business is capital intensive. The Company requires substantial capital to operate, construct, expand and acquire cellular telephone systems; to build out and operate its Puerto Rico Wireless Telephone System; and to service its debt. Historically, the Company has been dependent upon borrowings, operating cash flow and the issuance of its equity securities to provide funds for such purposes. The Company will be dependent on external financing measures to meet its operating, debt service, dividend and capital expenditure requirements. Some of the measures which the Company may from time to time consider include 31 but are not limited to: bank financing, joint ventures, partnerships and public and private placement of its debt or equity securities. In recent years, the Company has incurred substantial indebtedness in connection with the acquisition, construction and start-up expenses of wireless telephone systems. At May 31, 1997, the Company had an aggregate of $429,000 outstanding principal amount of debt securities. The Indentures (as defined below) for the Company's outstanding issues of publicly-held debt, as well as certain credit facilities, impose certain restrictions including the incurrence of additional indebtedness. See "Restrictive Covenants; Consequences of Default" below. For the year ended May 31, 1997, earnings were less than fixed charges by $43,189. Such amounts reflect non-cash charges of $83,720, relating to depreciation and amortization. HIGHLY COMPETITIVE INDUSTRY The Company's ability to maintain or increase its offering of wireless telephone and other communications services can be subject to the changes in consumer demand, price competition, and the cost and supply of hardware, software and other technology required to provide such services. Future profitability also may be affected by the Company's ability to compete with other communications service enterprises. Competition for customers in each of the Company's markets is principally on the basis of the technical quality of service, price, size of area covered, services and enhancements offered, and responsiveness of customer service. Many of the Company's competing entities have financial resources which are substantially greater than those of the Company and its partners in such markets. In addition to competition from cellular and broadband PCS licensees, there is also competition from a variety of other technologies. See Item 1. "Business/Competition/Competing Technologies." Continuing technological advances in the communications field make it impossible to predict the extent of additional future competition for wireless systems, but it is certain that in the future there will be more potential substitutes for wireless service. There can be no assurance that the Company will not face significant future competition or that the Company's current wireless technology will not eventually become obsolete. HIGHLY REGULATED INDUSTRY The licensing, ownership, construction, operation and sale of controlling interests in wireless telephone systems are regulated by the FCC. Certain aspects of wireless telephone system ownership, sale, construction, and operation (including, but not limited to, rates and the resale of wireless service) may be subject to public utility or other state and municipal regulation in the areas in which the Company provides service. Changes in the regulation of wireless telephone system operators or their activities (such as increased price regulation by state authorities or a decision by the FCC to permit more than two licensees in each service area) could adversely affect the business and operating results of the Company. In addition, FCC licenses are required to provide wireless telephone service and are subject to renewal and compliance requirements. Non-compliance may result in fines, termination of the license or a denial by the FCC of an application to renew the license. There may be competition for FCC licenses upon the expiration of their initial ten-year terms, and there can be no assurance that 32 any FCC license will be renewed. The transfer of a license or any controlling interest in a license is subject to prior approval by the FCC. NEW INDUSTRY; DEVELOPING AND CHANGING TECHNOLOGIES; SUBSCRIBER CANCELLATIONS Although over 600 wireless telephone systems are operational in the United States and other countries, the industry has only a limited operating history. As a result, there is uncertainty concerning the future of the industry and the potential demand for wireless telephone service by the public. In addition, the success of the Company's operations may be adversely affected by matters beyond its control, such as changes in technology, decisions by the federal government as to spectrum allocation and competition, and the future cost of wireless telephones. The Company and the industry have also been affected by high rates of subscriber cancellations that require continuing replacement of the customer base in order to maintain subscription levels and revenues. RESTRICTIVE COVENANTS; CONSEQUENCES OF DEFAULT The Company's financing arrangements place certain limitations on the Company. The Amended Credit Facility is secured by the pledge of the stock of certain of the Company's subsidiaries not otherwise subject to restrictions under its Senior Note Indentures, including the subsidiary which operates the Benton Harbor system. The Amended Credit Facility is further guaranteed by certain subsidiaries holding Investment Interests. The Amended Credit Facility restricts the incurrence of certain additional debt by the Company and limits the Company's ability to pay dividends. The Puerto Rico Credit Facility, which is non-recourse to the Company, is secured by substantially all of the assets of CPRW and its direct and indirect subsidiaries and requires CPRW to meet and maintain certain financial and operating covenants, including the maintenance of certain minimum annualized cash flows, as defined, the maintenance of certain ratios of operating cash flow to debt service and total outstanding debt to operating cash flow and performance requirements including minimum subscriber levels. The facility restricts the use of borrowing, limit the incurrence of certain additional indebtedness by CPRW and limits CPRW's ability to declare and pay dividends to the Company and management fees to affiliates. Failure to satisfy such covenants would constitute a default under the facility in which event Citibank, N.A. could accelerate all amounts outstanding thereunder, and exercise certain other rights and remedies as a secured creditor. On November 15, 1993, the Company repaid in full $182,700 of long-term debt outstanding under the Company's credit facility with a consortium of banks (the "Consortium Credit Facility") using the proceeds of the sale of $250,000 aggregate principal amount of 8 7/8% Senior Notes due 2001 (the "8 7/8% Notes") and the commitment under the Consortium Credit Facility was extinguished. The Company is required to make semi-annual payments of interest on the 8 7/8% Notes at the rate of 8 7/8% per annum. On May 11, 1995, the Company issued $100,000 aggregate principal amount of 10 1/8% Senior Notes due 2005 (the "10 1/8% Notes"). The Company is required to make semi-annual payments of interest on the 10 1/8% Notes at the rate of 10 1/8% per annum. The terms of the indentures with respect to the 8 7/8% Notes and the 10 1/8% Notes (the "Indentures") require the Company to meet and maintain certain financial and operating covenants and achieve performance requirements. The indentures also restrict the Company from directly or indirectly declaring or paying any dividends on its presently or subsequently issued common stock; limits the ability of the Company to incur additional indebtedness and limits any distributions of assets to its stockholders. 33 The Company was in compliance with all of the above covenants as of May 31, 1997. The Company presently expects to remain in compliance with such covenants, but there can be no assurance to such effect. CONTROL BY CERTAIN STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS Century has a controlling interest in the Company. See Item 1 "Business/General." The Company, Century and Citizens have entered into a Stock Transfer Agreement (the "Stock Transfer Agreement") which restricts the voting and sale by either Century or Citizens of any of their shares of Convertible Preferred Stock, Second Series Convertible Preferred Stock and Class B Common Stock, as well as the shares of Class A Common Stock into which such Class B Common Stock, Convertible Preferred Stock or Second Series Convertible Preferred Stock may be converted. In addition, the Stock Transfer Agreement gives the Company a right of first refusal to purchase such shares under certain circumstances. There can be no assurance that the Company would be able to fund any such purchases if the opportunity arose. As a result of its share ownership and in accordance with the terms of the Stock Transfer Agreement, Century is able to nominate at least a majority and elect all of the directors of the Company. All directors of the Company are affiliated with either Century or Citizens. No plans currently exist to nominate or elect any additional directors who are not affiliated with either Century or Citizens. The control of the Company by Century, the provisions of the Company's Restated Certificate of Incorporation regarding the voting rights of holders of the Company's Common Stock and preferred stock and the restrictions imposed by the Stock Transfer Agreement as to voting and sales (as discussed above) may, individually and collectively, render more difficult non-negotiated tender offers or other efforts to obtain control of the Company and therefore deprive stockholders of opportunities to sell shares at prices higher than those prevailing in the market. ACQUISITIONS AND INVESTMENTS Opportunities for growth through acquisitions and investments in the Company's wireless telephone and other communications businesses, and future operating results and the success of acquisitions and investments within and outside the United States may be subject to the effects of, and changes in, U.S. and foreign trade and monetary policies, laws and regulations, political and economic developments, inflation rates, and the effects of taxes and operating conditions. OPERATING HAZARDS AND UNINSURED RISKS While the Company maintains insurance against certain of the risks associated with its wireless telephone and other communications businesses, the occurrence of a significant event for which the Company is not fully insured could have a material adverse affect on the Company. REFINANCING AND INTEREST RATE EXPOSURE RISKS The business and operating results of the Company can be adversely affected by factors such as the availability or cost of capital, changes in interest rates, changes in tax rates due to new tax laws, market perceptions of the cellular telephone or other communications businesses of the Company, or security ratings. 34 POTENTIAL FOR CHANGES IN ACCOUNTING STANDARDS Authoritative generally accepted accounting principle or policy changes from such standard setting bodies as the Financial Accounting Standards Board, the FCC or the SEC may affect the Company's results of operations or financial position. INVESTMENT INTERESTS; CAPITAL CALLS With respect to any system in which the Company now or in the future holds an Investment Interest, the Company has limited ability to direct the operation of such system and if it does not meet a capital call, the Company's ownership interest in such system may be diluted. Capital calls with respect to the Investment Interests for the fiscal years ended May 31, 1997, 1996 and 1995 were approximately, $2,878, $1,463, and $3,783, respectively. The Company has, to date, paid all capital calls that it has received. Although the Company anticipates that such capital calls will decrease over time, there can be no assurance that such capital calls will, in fact, decrease. Capital calls may also be issued in connection with acquisitions by the respective limited partnerships. The Company intends to fund its pending and future capital calls from internally generated funds, bank borrowings or the issuance of additional debt or equity securities. There can be no assurance that the Company will be able to pay such capital calls when due. * * * * * ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial information that are required to be included pursuant to this Item 8 are listed in Item 14 under the caption "(a)1. Index of Financial Statements" in this Annual Report on Form 10-K, together with the respective pages in this Annual Report on Form 10-K where such information is located. The financial statements and supplementary financial information specifically referenced in such list are incorporated in this Item 8 by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During the fiscal year ended May 31, 1997, the Company was not involved in any disagreement with its independent certified public accountants on accounting principles or practices or on financial statement disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information with respect to the directors of the Company required to be included pursuant to this Item 10 will be included under the caption "Election of Directors" in the Company's Proxy Statement relating to the 1997 Annual Meeting of Shareholders (the "Proxy Statement"), to be filed with the Securities and Exchange Commission pursuant to Rule 14a-6 under the Securities Exchange Act of 1934, as amended, and is incorporated in this Item 10 by reference. The information with respect to the executive officers of the Company required to be 35 included pursuant to this Item 10 is included under the caption "Executive Officers of Centennial" in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information with respect to executive compensation required to be included pursuant to this Item 11 will be included under the captions "Executive Compensation" and "Certain Relationships and Related Transactions" in the Proxy Statement and is incorporated in this Item 11 by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information with respect to the security ownership of (1) beneficial owners of more than 5% of the Class A Common Stock and Class B Common Stock, (2) the directors or nominees for director of the Company, (3) each of the top five executive officers and (4) all directors and officers of the Company as a group required to be included pursuant to this Item 12 will be included under the captions "Principal Shareholders of the Company", "Election of Directors" and "Executive Compensation and Other Information--Beneficial Ownership by Management" in the Proxy Statement and is incorporated in this Item 12 by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company leases space for the MTSO serving the southwestern cluster and space on an antenna tower in the southwestern cluster from Century for an aggregate current annual rent of approximately $1,000 pursuant to an oral month to month lease agreement. Further, the Company leases certain warehouse space in Puerto Rico to Century-ML for a current annual rent of approximately $23,000 pursuant to a written lease agreement. The Company leases and shares capacity on the fiber optic cable television facility and network of Century-ML for the purpose of operating as a competitive access provider. The Company shares in the cost of construction, operation and maintenance of the Century-ML fiber network on a pro rata basis based on the percentage of the number of fibers of the network used by or reserved for the Company. During fiscal 1997, the Company recorded a deferred asset and a related payable to an affiliate in its consolidated balance sheet in the amount of $6 million to reflect certain costs incurred by the Company to reimburse Century-ML for the Company's share of the costs of constructing the fiber optic network. These costs were incurred by the Company in order to secure the use of the fiber optic network as required by the Facilities Agreement. (See Note 1 to the consolidated financial statements.) The Company is controlled by Century through its ownership of the Company's Class B common Stock representing approximately 74% of the voting power and approximately 32% of the equity of the Company as of August 8, 1997. The Company and Century entered into a Services Agreement, effective August 30, 1996 (the "Services Agreement"), pursuant to which Century through its personnel provides design, construction, management, operational, technical and maintenance for the wireless telephone, paging and related systems owned and operated by the Company. Such services also include providing all the services necessary for the monitoring, to the extent possible, of the activities of the limited partnerships in which the Company has the Investment Interests in such manner as to protect the interests of the Company. Such services have historically been provided to the Company by Century. As consideration for the services 36 rendered and to be rendered under the Services Agreement, the Company will pay Century the annual sum of $1 million and will reimburse Century for all costs incurred by Century or its affiliates (excluding the Company and its subsidiaries) that are directly attributable to the design, construction, management, operation and maintenance of the Wireless Telephone Systems or to the performance by Century of its other duties under the Services Agreement. Additional information with respect to any reportable transaction, business relationship or indebtedness between the Company and the beneficial owners of more than 5% of the Class A Common Stock and Class B Common Stock, the directors or nominees for director of the Company, the executive officers of the Company or the members of the immediate families of such individuals required to be included pursuant to this Item 13 will be included under the caption "Executive Compensation and Other Information--Certain Relationships and Related Transactions" in the Proxy Statement and is incorporated in this Item 13 by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. INDEX OF FINANCIAL STATEMENTS The following financial statements are included at the indicated page in this Annual Report on Form 10-K and incorporated in this Item 14(a)1 by reference:
Page ---- Independent Auditors' Report ............................. F-1 Consolidated Balance Sheets............................... F-2 Consolidated Statements of Operations..................... F-4 Consolidated Statements of Common Stockholders' Equity.................................................. F-5 Consolidated Statements of Cash Flows..................... F-6 Notes to Consolidated Financial Statements................ F-8
2. FINANCIAL STATEMENT SCHEDULES Schedule I. Condensed Financial Information of Registrant 3. EXHIBITS See Item 14(c) below. (b) REPORTS ON FORM 8-K The Company did not file a Report on Form 8-K during the fiscal quarter ended May 31, 1997. (c)EXHIBITS 37 The following documents are filed as part of this Annual Report on Form 10-K: 3.1 Restated Certificate of Incorporation of the Registrant (filed as Exhibit 6(a)(i) to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1993 and incorporated herein by reference). 3.2 By-laws of the Registrant as revised through February 11, 1992, (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended May 31, 1992 and incorporated herein by reference). 4.1 Registration Rights Agreement, dated August 30, 1991, among the Registrant, Century Holding and Citizens Utilities Company (filed as Exhibit 4.2 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). 4.2 Stock Transfer Agreement, dated August 30, 1991, among the Registrant, Century Holding and Citizens Utilities Company (filed as Exhibit 4.3 to Amendment No. 1 to the 1991 Form S-1 and incorporated herein by reference, said Amendment No. 1 having been filed with the Commission on October 7, 1991). 4.3 Senior Indenture, dated as of November 15, 1993, between the Registrant and Bank of Montreal Trust Company, as Trustee, (filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated November 15, 1993, and incorporated herein by reference, said Current Report on Form 8-K having been filed with the Commission on November 15, 1993). 4.4 First Supplemental Indenture, dated as of November 15, 1993, between the Registrant and Bank of Montreal Trust Company, as Trustee, (filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated November 15, 1993, and incorporated herein by reference, said Current Report on Form 8-K having been filed with the Commission on November 15, 1993). 4.5 Second Supplemental Indenture, dated as of May 11, 1995, between the Registrant and Bank of Montreal Trust Company, as Trustee, (filed as Exhibit 4.3(c) to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1995 and incorporated herein by reference). 4.6 $130,000,000 Credit Agreement, dated as of April 25, 1997, among Centennial Puerto Rico Wireless Corporation, as Borrower, Citibank, N.A., as Administrative Agent and CIBC Inc., Credit Lyonnais, New York Branch and Societe Generale, New York Branch, as Co-Agents. 4.7 Amendement No. 1, dated as of April 22, 1997, between the Registrant and Citibank, N.A., individually and as Administrative Agent. 10.1 Conflicts/Non-Compete Agreement among the Registrant, Century Holding, Century and Citizens Utilities Company, dated as of August 30, 1991, (filed as Exhibit 10.1 to 38 Amendment No. 1 to the 1991 Form S-1 and incorporated herein by reference, said Amendment No. 1 having been filed with the Commission on October 7, 1991). 10.2 Extension and Renewal Agreement, dated March 21, 1997, effective as of August 30, 1996, between Century Cellular Holding Corp. and the Registrant (filed as an exhibit to the Registrant's quarterly report on Form 10-Q for the quarterly period ended February 28, 1997 and incorporated herein by reference). 10.3 Conditional Buy-Sell Agreement for Cellular Markets 151-305 and Joint Agreement, as amended, (filed as Exhibit 10.7 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). *10.4 1991 Stock Option Plan, as amended, (filed as Exhibit 10.10 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). *10.5 Incentive Award Plan, as amended, (filed on Exhibit 10.11 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). *10.6 1991 Employee Stock Purchase Plan, as amended, (filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.7 1993 Management Equity Incentive Plan, (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.8 1993 Non-Employee/Officer Directors' Stock Option Plan, (filed as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.9 1991 Stock Equivalent Plan (filed as Exhibit 10.13 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). 10.10 Agreement establishing Sacramento Valley Limited Partnership, as amended, among PacTel Mobile Access, Roseville Telephone Co., Citizens Utilities Company of California and Contel Mobilcom, Inc., (filed as Exhibit 10.14 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). 10.11 Agreement establishing GTE Mobilnet of San Francisco Limited Partnership, as amended, (filed as Exhibit 10.15 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). 39 *10.12 Employment Agreement dated as of January 1, 1994 between the Registrant and Rudy J. Graf, (filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.13 Employment Agreement dated as of January 1, 1994 between the Registrant and Phillip Mayberry, (filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.14 Employment Agreement dated as of January 1, 1994 between the Registrant and Thomas Cogar, (filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.15 Employment Agreement, dated as of September 1, 1995, between the Registrant and Robert Braden (filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1996 and incorporated herein by reference). 'D'10.16 Facilities Agreement dated as of January 2, 1995 between Century ML Cable Venture and Century-ML Cable Corporation. 'D'10.17 $50,000,000 Credit Agreement, dated as of September 12 ,1996, between the Registrant and Citibank, N.A. (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1996 and incorporated herein by reference). 'D'11 Computation of loss per common share. 'D'12 Computation of ratios. 'D'21 Subsidiaries of the Registrant. 'D'23.1 Consent of Deloitte & Touche LLP. 'D'27 Financial Data Schedule. - ---------------------------- * Constitutes a management contract or compensatory plan or arrangement. 'D' Filed herewith. 40 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Centennial Cellular Corp. New Canaan, Connecticut We have audited the accompanying consolidated balance sheets of Centennial Cellular Corp. and Subsidiaries as of May 31, 1997 and 1996, and the related consolidated statements of operations, common stockholders' equity and cash flows for each of the three years in the period ended May 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Centennial Cellular Corp. and Subsidiaries as of May 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 1997 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Stamford, Connecticut July 25, 1997 F-1 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
May 31, ----------------------- 1997 1996 ---------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 43,415 $ 67,297 Accounts receivable, less allowance for doubtful accounts of $2,130 and $1,471, respectively 29,991 20,210 Prepaid expenses and other current assets 4,836 2,158 -------- -------- TOTAL CURRENT ASSETS 78,242 89,665 PROPERTY, PLANT AND EQUIPMENT - net 177,292 91,417 EQUITY INVESTMENT IN WIRELESS SYSTEMS - net 94,153 100,204 DEBT ISSUANCE COSTS, less accumulated amortization of $3,606 and $2,081, respectively 9,863 7,738 CELLULAR TELEPHONE LICENSES, less accumulated amortization of $213,739 and $164,786, respectively 285,202 300,206 PERSONAL COMMUNICATIONS SERVICE LICENSE, less accumulated amortization of $755 and 0, respectively 62,004 60,007 GOODWILL, less accumulated amortization of $23,185 and $19,343, respectively 130,065 133,907 OTHER ASSETS - net 8,029 2,668 -------- -------- TOTAL $844,850 $785,812 ======== ========
See notes to consolidated financial statements F-2 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (Amounts in thousands, except share data)
May 31, --------------------------- 1997 1996 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,754 $ -- Accrued expenses and other current liabilities 61,056 26,132 Payable to affiliate 442 956 --------- --------- TOTAL CURRENT LIABILITIES 63,252 27,088 LONG-TERM DEBT 429,000 350,000 DEFERRED LIABILITY 2,200 2,200 DEFERRED INCOME TAXES 43,977 56,588 COMMITMENTS AND CONTINGENCIES (Note 10) PREFERRED STOCK: Convertible redeemable preferred stock (at aggregate liquidation value which approximates the fair market value), par value of $.01 per share, 102,187 shares authorized, issued and outstanding shares (redemption value of $1,823.00 per share) 186,287 182,813 Second series convertible redeemable preferred stock (at aggregate liquidation value which approximates the fair market value), par value $.01 per share, 3,978 shares authorized, issued and outstanding shares (redemption value of $1,823.00 per share) 7,252 7,117 Senior preferred stock, par value $.01 per share, dividend rate 14%, 250,000 shares authorized, none issued -- -- Additional preferred stock, par value $.01 per share, 10,000,000 shares authorized, 3,978 shares issued as second series convertible redeemable preferred stock -- -- COMMON STOCKHOLDERS' EQUITY: Common stock par value $.01 per share: Class A, 1 vote per share, 100,000,000 shares authorized, issued and outstanding 16,492,884 and 16,461,858 shares, respectively 165 165 Class B, 15 votes per share, 50,000,000 shares authorized, issued and outstanding 10,544,113 shares 105 105 Additional paid-in capital 369,704 383,533 Accumulated deficit (252,291) (218,996) --------- --------- 117,683 164,807 Less: Cost of 88,809 Class A common shares in treasury (1,801) (1,801) Shareholder note receivable (3,000) (3,000) --------- --------- TOTAL COMMON STOCKHOLDERS' EQUITY 112,882 160,006 --------- --------- TOTAL $ 844,850 $ 785,812 ========= =========
See notes to consolidated financial statements F-3 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except share data)
Year Ended May 31, --------------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ REVENUES: Service revenue $ 146,354 $ 105,461 $ 78,516 Equipment sales 2,858 2,649 4,135 Interest income 1,811 4,087 2,768 ------------ ------------ ------------ 151,023 112,197 85,419 ------------ ------------ ------------ COSTS AND EXPENSES: Cost of services 22,216 15,291 12,808 Cost of equipment sold 16,012 10,838 9,344 Selling, general and administrative 55,132 34,188 26,055 Depreciation and amortization 83,720 70,989 65,642 ------------ ------------ ------------ 177,080 131,306 113,849 ------------ ------------ ------------ OPERATING LOSS (26,057) (19,109) (28,430) INTEREST EXPENSE 33,379 27,886 23,357 GAIN ON SALE OF ASSETS 3,819 8,310 -- INCOME FROM EQUITY INVESTMENTS 15,180 10,473 4,670 ------------ ------------ ------------ LOSS BEFORE INCOME TAX BENEFIT AND MINORITY INTEREST (40,437) (28,212) (47,117) INCOME TAX BENEFIT (7,295) (11,596) (14,456) ------------ ------------ ------------ LOSS BEFORE MINORITY INTEREST (33,142) (16,616) (32,661) MINORITY INTEREST IN INCOME OF SUBSIDIARIES (153) (15) (69) ------------ ------------ ------------ NET LOSS $ (33,295) $ (16,631) $ (32,730) ============ ============ ============ DIVIDEND ON PREFERRED STOCK $ 15,948 $ 13,590 $ 12,634 ============ ============ ============ LOSS APPLICABLE TO COMMON SHARES $ (49,243) $ (30,221) $ (45,364) ============ ============ ============ LOSS PER COMMON SHARE $ (1.83) $ (1.13) $ (1.93) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING DURING THE PERIOD 26,934,000 26,770,000 23,544,000 ============ ============ ============
See notes to consolidated financial statements F-4 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (Amounts In thousands, except share data)
Common Stock ------------------------------ Class A Class B Additional ----------------------------- ---------------------------- Paid-In Shares Dollars Shares Dollars Capital ------------ -------------- ------------ ----------- ------------ Balance at June 1, 1994 $5,540,381 $ 55 7,271,802 $ 73 $ 198,526 Common Stock issued in conjunction with acquisitions 7,023,383 70 -- -- 122,029 Common Stock issued in conjunction with incentive plans 79,609 1 -- -- 159 Common Stock issued in conjunction with rights offering 3,098,379 31 3,272,311 32 86,715 Vesting of stock options -- -- -- -- 940 Net Loss -- -- -- -- -- Accretion in liquidation value of preferred stock -- -- -- -- (12,634) ---------- ----------- ---------- ---------- ------- Balance at May 31, 1995 15,741,752 157 10,544,113 105 395,735 Common Stock issued in conjunction with incentive plans 493,441 5 -- -- 448 Common Stock issued in conjunction with acquisitions 226,665 3 -- -- -- Vesting of stock options -- -- -- -- 940 Net loss -- -- -- -- -- Accretion in liquidation value of preferred stock -- -- -- -- (13,590) ---------- ----------- ---------- ----------- ----------- Balance at May 31, 1996 16,461,858 $ 165 10,544,113 $ 105 $ 383,533 Common Stock issued in conjunction with incentive plans 31,026 -- -- -- 132 Preferred stock dividends -- -- -- -- (15,948) Income tax benefit-stock options exercised -- -- -- -- 1,987 Net loss ---------- ----------- ---------- ----------- ----------- Balance at May 31, 1997 16,492,884 $ 165 10,544,113 $ 105 $ 369,704 ========== =========== ========== =========== =========== Shareholder Treasury Note Accumulated Stock Receivable Deficit Total ---------- ------------ -------------- --------- Balance at June 1, 1994 $ (1,801) $ (3,075) $(169,635) $ 24,143 Common Stock issued in conjunction with acquisitions -- 75 -- 122,174 Common Stock issued in conjunction with incentive plans -- -- -- 160 Common Stock issued in conjunction with rights offering -- -- -- 86,778 Vesting of stock options -- -- -- 940 Net Loss -- -- (32,730) (32,730) Accretion in liquidation value of preferred stock -- -- -- (12,634) --------- --------- --------- --------- Balance at May 31, 1995 (1,801) (3,000) (202,365) 188,831 Common Stock issued in conjunction with incentive plans -- -- -- 453 Common Stock issued in conjunction with acquisitions -- -- -- 3 Vesting of stock options -- -- -- 940 Net loss -- -- (16,631) (16,631) Accretion in liquidation value of preferred stock -- -- -- (13,590) --------- --------- --------- --------- Balance at May 31, 1996 $ (1,801) $ (3,000) (218,996) $ 160,006 Common Stock issued in conjunction with incentive plans -- -- -- 132 Preferred stock dividends -- -- -- (15,948) Income tax benefit-stock options exercised -- -- -- 1,987 Net loss (33,295) (33,295) --------- --------- --------- --------- Balance at May 31, 1997 $ (1,801) $ (3,000) $(252,291) $ 112,882 ========= ========= ========= =========
See notes to consolidated financial statements F-5 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
Year Ended May 31, --------------------------------------------- 1997 1996 1995 ------------ ------------ ----------- OPERATING ACTIVITIES: Cash received from subscribers and others $ 173,781 $ 130,196 $ 94,569 Cash paid to suppliers, employees and governmental agencies (116,016) (73,694) (61,675) Interest paid (30,809) (32,220) (22,504) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 26,956 24,282 10,390 --------- --------- --------- INVESTING ACTIVITIES: Proceeds from sale of property, plant and equipment 5,200 -- -- Capital expenditures (88,990) (38,082) (17,538) Acquisition of other assets (629) (1,673) (1,167) Acquisition/disposition and exchange of wireless telephone systems (34,908) 396 (49,173) Acquisition of personal communications service license (2,752) (44,813) (11,069) Distribution received from equity investments 6,863 6,870 2,896 Capital contributed to equity investments (2,878) (1,463) (3,783) --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES (118,094) (78,765) (79,834) --------- --------- --------- FINANCING ACTIVITIES: Proceeds from long-term debt 119,000 -- 100,000 Repayment of long-term debt (40,000) -- -- Debt issuance costs paid (3,650) (304) (4,414) Dividends paid (8,226) -- -- Proceeds from issuance of Class A and B Common Stock and treasury stock purchases 132 456 87,136 --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 67,256 152 182,722 --------- --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (23,882) (54,331) 113,278 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 67,297 121,628 8,350 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 43,415 $ 67,297 $ 121,628 ========= ========= ========= See notes to consolidated financial statements F-6 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Amounts in thousands)
Year Ended May 31, ------------------------------------------ 1997 1996 1995 ------------ ---------- --------- Reconciliation of net loss to net cash provided by operating activities: Net loss $(33,295) $(16,631) $(32,730) -------- -------- -------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 83,720 70,989 65,642 Minority interest in income (loss) of subsidiaries 153 15 69 Deferred income tax - decrease (10,623) (13,000) (15,995) Equity in undistributed earnings of investee companies (15,180) (10,473) (4,670) Gain on sale on assets (3,819) (4,176) -- Other 1,925 (4,131) 570 Change in assets and liabilities net of effects of acquired/exchanged wireless telephone systems: Accounts receivable - (increase) (3,393) (4,689) (5,318) Prepaid expenses and other current assets - (increase)/decrease (2,614) (511) 70 Accounts payable and accrued expenses - increase 7,337 4,902 1,448 Customer deposits and prepayments - increase 2,745 1,987 1,304 -------- -------- -------- Total adjustments 60,251 40,913 43,120 -------- -------- -------- Net cash provided by operating activities $ 26,956 $ 24,282 $ 10,390 ======== ======== ========
See notes to consolidated financial statements F-7 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) 1. SIGNIFICANT ACCOUNTING POLICIES Description of business - Centennial Cellular Corp. ("Centennial" and together with its subsidiaries and partnership interests, the "Company") operates wireless telephone systems which produce high quality, high capacity communications to and from vehicle-installed, ready-to-carry and hand-held wireless telephones ("wireless telephones"). Wireless telephone systems are designed to allow for mobility of the subscriber. In addition to mobility, wireless telephone systems provide access through system interconnections to local and long distance telecommunications networks and offer other ancillary services such as voice mail, call waiting, call forwarding and conference calling. These communications services can be integrated with a variety of competing networks. Wireless telephone service is provided to subscribers through a variety of price plans, the most common being a monthly fixed charge plus additional variable charges per minute of airtime used. The Company operates and invests in wireless telephone systems in the United States (the "Domestic Wireless Telephone Systems" or "Domestic Wireless") and on December 12, 1996 the Company began providing wireless telephone service in Puerto Rico (the "Puerto Rico Wireless Telephone System" or "Puerto Rico Wireless"). The Company operates its Domestic Wireless Telephone Systems pursuant to 29 cellular licenses which it owns. The Company operates its Puerto Rico Wireless Telephone System pursuant to a Major Trading Area ("MTA") Personal Communications Service ("PCS") license to provide broadband PCS in the Commonwealth of Puerto Rico and the U.S. Virgin Islands. The Company also plans to participate in the alternative access business in Puerto Rico. Principles of consolidation - The consolidated financial statements include the accounts of the Company and all of its subsidiaries and partnership interests from their respective incorporation or acquisition dates. All material intercompany transactions and balances have been eliminated. Property, plant and equipment - Property, plant and equipment is stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets: Wireless telephone transmission and distribution systems and related equipment 10 years Miscellaneous equipment and furniture and fixtures. 5-15 years Cellular telephone and PCS Licenses - Licenses consist of amounts allocated under purchase accounting from the purchase price of acquired assets. Cellular telephone licenses are amortized over a ten-year life using the straight-line method. The PCS license is being amortized over a forty-year life using the straight line method commencing with the date of operations, December 12, 1996 (See Valuation of long lived assets). During the fiscal years ended May 31, 1997 and 1996, the Company capitalized interest costs of $2,752 and $5,200, respectively, related to the acquisition of the PCS license. Equity investments in cellular systems - The Company records such investments at purchased cost at the date of acquisition and adjusts for the Company's share of net income or loss from the acquisition date. The difference between the cost of such investment and the underlying book value of $123,024 is amortized over ten years (See Note 6). Goodwill - The excess of purchase price over the estimated fair value of tangible and intangible net assets acquired is being amortized using the straight-line method over 40 years (See Valuation of long lived assets). Other Assets - Included in other assets at May 31, 1997 is a $6,000 deferred charge, net of accumulated amortization of $110, which represent certain costs incurred by the Company in relation to the Facilities Agreement with Century-ML dated January 2, 1995 (the "Facilities Agreement") (See Note 8 "Transactions with Affiliated Companies"). F-8 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) These costs are being amortized over the life of the Facilities Agreement (25 years). Income taxes - The Company accounts for income taxes in accordance with Financial Accounting Standards No. 109, "Accounting for Income Taxes" which provides that the deferred tax provision is determined by the liability method. Deferred tax assets and liabilities are recognized based on the differences between the book and tax basis of assets and liabilities using presently enacted tax rates. Loss per common share - Loss per common share is calculated on a fully diluted basis and includes 0, 0, and 507,141 shares of common stock equivalents for the years ended May 31, 1997, 1996 and 1995, respectively. Revenue recognition - Wireless telephone service income includes earned subscriber service revenues and charges for installations and connections, net of land line charges of $ $28,049, $20,000, and $15,030 in 1997, 1996 and 1995, respectively. Subscriber services paid in advance are recognized as income when earned. Valuation of long lived assets - The Company, on a quarterly basis, undertakes a review and valuation of the net carrying value, recoverability and write-off period of all categories of its long lived assets. The Company in its valuation considers current market values of wireless properties, competition, prevailing economic conditions, government policy including taxation and the Company's and the industry's historical and current growth patterns. The Company also considers its financial structure including the underlying cost of the securities which support the Company's internal growth and acquisitions, as well as the recoverability of the cost of its long lived assets based on a comparison of estimated undiscounted operating cash flows for the systems which generated long lived assets with the carrying value of the long lived assets. The Company's long lived assets are stated at the lower of cost or market and are amortized over their respective expected lives. Management estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Disclosure of fair value of financial instruments - The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of the immediate short-term maturity of these financial instruments. The carrying amounts of the Company's credit facilities approximate their fair values because of their variable interest rates. Statement of cash flows - Short-term investments classified as cash equivalents in the consolidated financial statements consist principally of overnight deposits and commerical paper with acquired maturities of three months or less. Reclassifications - Certain prior year balances have been reclassified to conform with the current year presentation. New Accounting pronouncements - In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which is effective for financial statements ending after December 15, 1997. This statement supersedes Accounting Principles Board Opinion No. 15 and replaces the presentation of primary Earnings Per Share ("EPS") on the face of the statement of operations for all entities with complex capital structures, and provides guidance on other computational changes. Had the provisions of the statement been effective for the current year, the following proforma EPS amounts would have been disclosed: 1997 1996 1995 ---- ---- ---- Basic Loss Per Share $ (1.83) $ (1.13) $ (1.97) ======== ======== ======== F-9 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) No disclosures of Diluted EPS would be required due to the anti-dilutive effect of the Company's equity instruments. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," and Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information in June 1997." The Company believes these statements will not have a material impact on the Consolidated Financial Statements of the Company when adopted in fiscal 1998. Other The Company adopted the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" effective June 1, 1994. Under SFAS 115, the Company must classify its debt and marketable securities in one of three categories: trading, available-for-sale, or held-to-maturity. The Company has classified equity securities as "Available for Sale". Securities available for sale are stated at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. 2. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES In connection with the completion of the acquisitions made during the years ended May 31, 1996 and 1995, the Company recorded approximately $9,120, and $30,920, respectively, in goodwill and in deferred income taxes, resulting from differences between the book and tax basis of certain assets acquired (See Note 3). During the year ended May 31, 1996, the Company reclassified $2,774 of property, plant and equipment, $2,801 of goodwill, $160 of other assets, $476 of accounts receivable and $672 of accounts payable to cellular telephone license as a result of the exchange of cellular markets described at Note 3. 3. ACQUISITIONS/EXCHANGES/SALE During the three years ended May 31, 1997, the Company acquired/exchanged/sold the net assets and interests in wireless telephone and PCS licenses as follows:
Amounts allocated to ------------------------------------- Number of Cellular Year Ended systems (net) Total net telephone and PCS Property, plant May 31 acquired/exchanged/sold purchase price licenses and equipment - ---------------------------------------------------------------------------------------------------------- 1997 1 $ 34,908 $ 33,429 $ 1,234 1996 (1) $ (1,296) $ 8,517 $ (5,048) 1995 11 $ 228,532 $ 214,088 $ 11,658
These transactions have been included in the accompanying consolidated financial statements from the respective dates of acquisition. The Company has recorded the purchase price of the cellular telephone systems at the fair value of acquired assets on the date of acquisition with the excess purchase price being recorded as cellular telephone licenses and goodwill. The Company was the successful bidder for one of two MTA licenses (granted June 23, 1995) to provide broadband PCS services in the Commonwealth of Puerto Rico and the U.S. Virgin Islands. The licensed area represents approximately 3,600,000 Net Pops. The amount of the final bid submitted and paid by the Company was $54,672. The Company used a F-10 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) portion of the net proceeds from the sale of the 10 1/8% Senior Notes due 2005 to pay a portion of the purchase price for the license (See Note 7). The Company also plans to participate in the alternative access business in Puerto Rico pursuant to FCC requirements for interstate service and pursuant to an authorization issued to the Company in December, 1994 by the Public Service Commission of the Commonwealth of Puerto Rico for intrastate service. On September 12, 1996, the Company acquired, for approximately $34,908 in cash, 100% of the ownership interests in the partnership owning the wireless telephone system serving the Benton Harbor, Michigan MSA. The Benton Harbor market represents approximately 161,400 Net Pops. Approximately $33,429 of the purchase price was allocated to cellular telephone license. On October 31, 1995, the Company acquired (i) a 94.3% interest in the wirelessnon-wireline cellular telephone system serving the Lafayette, Louisiana MSA, representing approximately 205,700 Net Pops, in exchange for the Company's wirelessnon-wireline cellular telephone system serving the Jonesboro, Arkansas RSA (comprising approximately 205,000 Net Pops), the license rights and assets located in and covering Desoto and Red River Parishes of Louisiana 3 RSA (comprising approximately 34,700 Net Pops), the license rights and assets located in and covering a section of Morehouse Parish of Louisiana 2 RSA (comprising approximately 24,100 Net Pops) and a cash payment by the Company of approximately $5,580, subject to adjustment, and (ii) an additional 14.3% minority interest in the Elkhart, Indiana RSA and an additional 12.7% minority interest in the Lake Charles, Louisiana MSA for a cash payment of approximately $2,951. On June 30, 1995, the Company acquired the wireless telephone systems serving (a) Newtown, LaPorte, Starke, Pulaski, Jasper and White, Indiana, (b) Kosciusko, Noble, Steuben and Lagrange, Indiana (c) Williams, Defiance, Henry and Paulding, Ohio and (d) Copiah, Simpson, Lawrence, Jefferson Davis, Walthall and Marion, Mississippi, representing an aggregate of approximately 608,100 Net Pops. The above-described systems were acquired by the Company in exchange for the Company's wirelessnon-wireline cellular telephone systems serving the Roanoke, Virginia MSA, the Lynchburg, Virginia MSA, North Carolina RSA #3 and Iowa RSA #5, representing an aggregate of approximately 644,000 Net Pops. Simultaneously with the consummation of the transaction described above, the Company sold its 72.2% interest in the wireless telephone system serving the Charlottesville, Virginia MSA, representing an aggregate of approximately 94,700 Net Pops, for a cash purchase price of approximately $9,914, subject to adjustment. The Company recognized a gain of approximately $4,176 as a result of the sale. During the year ended May 31, 1995, the Company completed ten wireless telephone system acquisitions for a total purchase price of $173,860 consisting of $51,761 in cash (including the assumption of acquired current liabilities) and 7,023,383 shares of Class A Common Stock valued at $122,099. The Company purchased one PCS license for $54,672. An additional 226,665 shares of Class A Common Stock were issued during fiscal 1996 to satisfy a post closing adjustment to the purchase price of one of the acquisitions completed during the year ended May 31, 1995. F-11 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) 4. PRO FORMA INFORMATION The summary pro forma information includes the operations of the Company and completed acquisitions in each case as if such acquisitions/exchanges/sales had been consummated as of June 1, 1994.
Year Ended May 31, ------------------------------------ (Unaudited) 1997 1996 1995 --------- -------- --------- Revenues $ 152,293 $ 116,081 $ 92,629 Net Loss $ (32,255) $ (18,891) $ (31,498) Loss per common share $ (1.79) $ (1.21) $ (1.87)
Pro forma loss per common share for the years ended May 31, 1997, 1996 and 1995 is calculated on a fully diluted basis using the pro forma average number of common shares outstanding during the period, including common stock equivalents. 5. ACCOUNT ANALYSIS Property, plant and equipment consists of the following:
May 31, ----------------------- 1997 1996 ---------- --------- Land $ 1,752 $ 1,606 Wireless telephone transmission and distribution systems and related equipment 198,324 107,675 Miscellaneous equipment and furniture and fixture 15,627 7,606 --------- --------- 215,703 116,887 Less accumulated depreciation (38,411) (25,470) --------- --------- $ 177,292 $ 91,417 ========= =========
Depreciation expense was approximately $17,684, $8,851, and $6,889 for the years ended May 31, 1997, 1996 and 1995, respectively. Approximately $4,743 of accumulated depreciation was written off as a result of the sale of equipment during the year ended May 31, 1997. Accrued expenses and other current liabilities consists of the following:
May 31, ------------------- 1997 1996 ------- ------- Accrued interest payable $ 3,482 $ 2,299 Customer deposits & prepayments 7,727 4,961 Accrued roamer service 4,247 3,746 Accrued dividend on preferred Stock 4,113 -- Accrued fiber buildout 6,000 -- Accrued unpaid invoices 9,620 -- Accrued miscellaneous 25,867 15,126 ------- ------- Total $61,056 $26,132 ======= =======
F-12 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) 6. EQUITY INVESTMENT IN WIRELESS SYSTEMS In conjunction with the Jonesboro/Lafayette systems exchange, the Company acquired an additional 12.7% minority interest in the Lake Charles, Louisiana MSA for a cash payment of approximately $1,106. The following summarizes the assets, liabilities and partners' capital, and results of operations of the seven wireless partnerships in which the Company's investments are accounted for by the equity method. All amounts have been derived from the individual wireless partnerships' financial statements through December 31, 1996 and adjusted for interim financial activity from the wireless partnerships' calendar year end to the Company's fiscal year end.
May 31, ---------------------- 1997 1996 --------- -------- (unaudited) ASSETS Current $117,062 $ 93,533 Noncurrent 481,308 414,182 -------- -------- $598,370 $507,715 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Current liabilities $ 58,659 $ 65,944 Noncurrent liabilities 2,936 3,320 Partners' capital 536,775 438,451 -------- -------- $598,370 $507,715 ======== ========
Year Ended May 31, ------------------ 1997 1996 1995 --------- -------- --------- (unaudited) RESULTS OF OPERATIONS Revenues $ 520,873 $ 455,392 $ 347,731 Costs and expenses 386,397 331,822 275,903 Other (income) expense (120) (604) (1,217) Net income $ 134,596 $ 124,174 $ 73,045 ========= ========= ========= Centennial Cellular Corp. share of partnership net income $ 15,180 $ 10,473 $ 4,670 ========= ========= =========
The following presents the Company's ownership percentage of the Wireless Partnerships in which the Company's investments are accounted for by the equity method as of May 31, 1997: Wireless Partnership % ownership --------------------- ----------- Lake Charles CellTel Co. 25.1% Sacramento-Valley Limited Partnership 23.5% Modoc RSA Limited Partnership 25.0% Coconino, Arizona RSA Limited Partnership 21.3% Cal-One Cellular Limited Partnership 6.9% Pennsylvania RSA-6 (I) and (II) Limited Partnership 14.3% GTE Mobilnet of California Limited Partnership 2.9% F-13 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) The Company uses the equity method of accounting to record the investments in partnerships. Under the equity method, the partnership investments were initially recorded at cost and are adjusted for distributions received from the partnerships, additional capital contributions, and the Company's share of the partnership's results of operations. An analysis of the Company's consolidated investments is as follows: Investment in Partnerships at June 1, 1994 $112,876 Add: Additional capital contributions paid 3,783 Company's share of Partnerships' net income 4,670 Additional investments in Partnerships 37 Less: Amortization of Investment - cost in excess of underlying book value (12,190) Partnerships' distributions to the Company (2,896) ------- Investment in Partnerships at May 31, 1995 106,280 Add: Additional capital contributions paid 1,463 Company's share of Partnerships' net income 10,473 Additional investment in Partnerships 1,105 Less: Amortization of Investment - cost in excess of underlying book value (12,247) Partnerships' distribution to the Company (6,870) ------- Investment in Partnerships at May 31, 1996 100,204 Add: Additional capital contributions paid 2,878 Company's share of Partnerships' net income 15,180 Less: Amortization of Investment - cost in excess of underlying book value (12,290) Partnerships' distributions to the Company, including receivable of $4,956 (11,819) ------- Investment in Partnerships at May 31, 1997 $94,153 =======
7. LONG-TERM DEBT
May 31, --------------------- 1997 1996 -------- -------- 8 7/8% Senior Notes due 2001 $250,000 $250,000 10 1/8% Senior Notes due 2005 100,000 100,000 Amended Credit Facility, Domestic 5,000 -- Puerto Rico Credit Facility 74,000 -- Current maturities -- -- -------- -------- $429,000 $350,000 ======== ========
On November 15, 1993, the Company issued $250,000 of eight-year unsecured Senior Notes (the "8 7/8% Notes"). The interest on the 8 7/8% Notes is payable semi-annually at an interest rate of 8 7/8%. The interest will be computed on the basis of a 360-day year (twelve 30 day months). The maturity date of the 8 7/8% Notes is November 1, 2001 unless redeemed earlier at the option of the Company, however not prior to May 1, 1999. If early redemption is sought during the twelve-month period beginning May 1 of each of the following years, the redemption price is calculated using: Year Percentage ---- ---------- 1999 105.25% 2000 103.50% 2001 101.75% F-14 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) The proceeds of the 8 7/8% Notes were used to retire all outstanding bank debt. At November 15, 1993, the amount was $182,700. Costs associated with the bond offering of $4,898 were capitalized and are being amortized on a straight-line basis over the life of the issue. At May 31, 1997 and 1996, the 8 7/8% Notes were trading at 99.47% and 93.74% of par or $248,675 and $234,350, respectively. On May 11, 1995, the Company issued $100,000 of ten-year unsecured Senior Notes (the "10 1/8% Notes"). The interest on the 10 1/8% Notes is payable semi-annually on the basis of a 360-day year (twelve 30 day months). The 10 1/8% Notes rank "pari passu" with the Company's 8 7/8% Notes and may not be redeemed prior to maturity on May 15, 2005. Costs associated with the May 11, 1995 bond offering of approximately $4,614 were capitalized and will be amortized on a straight line basis over the life of the issue. At May 31, 1997 and 1996, the notes were trading at 104.25% and 98.72% of par or $104,250 and $98,720, respectively. Both the 8 7/8% and 10 1/8% Notes restrict the Company from directly or indirectly declaring or paying any dividends on its presently or subsequently issued common stock, limit the ability of the Company to incur additional indebtedness and limit any distributions of assets to its stockholders. At May 31, 1997, the Company was in compliance with all covenants of the Notes. The Company entered into a $50,000 credit facility with Citibank, N.A. on September 12, 1996, which was amended April 22, 1997 (the "Amended Credit Facility"). The commitment of the lenders under such Amended Credit Facility may be increased to $90,000 at the election of the lenders. As of July 30, 1997 the commitment was increased to $75,000. The Amended Credit Facility terminates on January 31, 2001. Approximately $35,000 of the Amended Credit Facility was used to fund the Benton Harbor, Michigan wireless telephone system acquisition (see "Acquisitions, Exchanges and Dispositions"), and has since been repaid. The facility may be used for working capital and general corporate purposes. Costs associated with the establishment of the Amended Credit Facility of approximately $648 were capitalized and are being amortized on a straight-line basis over one and a half years. The interest rate payable on borrowings under the Amended Credit Facility is based, at the election of the Company, on (a) the Base Rate, as defined, plus a margin of 2% or (b) the Eurodollar Base Rate, as defined, plus a margin of 3%. The Amended Credit Facility is secured by the pledge of the stock of certain of the Company's subsidiaries not otherwise subject to restrictions under its Senior Note Indentures, including the subsidiary which operates the Benton Harbor system. The Amended Credit Facility is further guaranteed by certain subsidiaries holding Investment Interests. The Amended Credit Facility restricts the incurrence of certain additional debt by the Company and limits the Company's ability to pay dividends. As of May 31, 1997, $5,000 was outstanding under the Amended Credit Facility. The Company was in compliance with the covenants of the Amended Credit Facility at May 31, 1997. On April 25, 1997, Centennial Puerto Rico Wireless Corporation , a wholly owned subsidiary of the Company ("CPRW"), entered into a four-year $130,000 revolving Credit Facility with Citibank, N.A. which converts into a four-year term loan on April 25, 2001 (the "Puerto Rico Credit Facility"). The proceeds from the Puerto Rico Credit Facility will be used by CPRW and its direct and indirect subsidiaries primarily to finance the construction and operation of PCS, competitive access and telecommunications networks in Puerto Rico and the United States Virgin Islands. The proceeds will also be used by CPRW for working capital and general corporate purposes and was used to pay certain cash dividends to the Company as permitted by the Puerto Rico Credit Facility. Costs associated with the establishment of the Puerto Rico Credit Facility of approximately $3,002 were capitalized and are being amortized on a straight-line basis over four years. The interest rate payable on borrowings under the Puerto Rico Credit Facility is based on, at the election of CPRW, (a) the "Base Rate", as defined, plus a margin of 1.50% or (b) the "Eurodollar Rate", as defined, plus a margin of 2.50%, adjusted for the maintenance of certain specified leverage ratios, as applicable. The Puerto Rico Credit Facility, which is non-recourse to the Company, is secured by substantially all of the assets of CPRW and its direct and indirect subsidiaries and requires CPRW to F-15 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) meet and maintain certain financial and operating covenants, including the maintenance of certain minimum annualized cash flows (as defined), the maintenance of certain ratios of operating cash flow to debt service and total outstanding debt to operating cash flow and performance requirements including minimum subscriber levels. The Puerto Rico Credit Facility restricts the use of borrowing, limits the incurrence of certain additional indebtedness by CPRW and limits CPRW's ability to declare and pay dividends to the Company and management fees to affiliates. Failure to satisfy such covenants would constitute a default under the Puerto Rico Credit Facility in which event Citibank, N.A. could accelerate all amounts outstanding thereunder, and exercise certain other rights and remedies as a secured creditor. At May 31, 1997, $74,000 was outstanding under the Puerto Rico Credit Facility. 8. TRANSACTIONS WITH AFFILIATED COMPANIES The Company and Century Communications Corp. ("Century"), owner of approximately 32% of Centennial's common stock, currently maintain combined workers compensation and general group health, life, property, casualty and other insurance policies. The premiums are allocated between the Company and Century based upon the actual cost of each respective company's coverage. The Company believes that the amounts payable by the Company under such arrangement are more favorable than the premiums the Company would pay if it were to obtain coverage under a separate policy. The Company's cost of such insurance was approximately $727, $1,688, and $1,160 for the fiscal years ended May 31, 1997, 1996 and 1995 respectively, all of which was paid in full during the current fiscal year. In fiscal years 1996 and 1995 the Company and Century also maintained combined group health, life and casualty coverage. The Company is controlled by Century through its ownership of the Company's Class B Common Stock representing approximately 74% of the voting power and approximately 32% of the equity of the Company. The Company and Century entered into a Services Agreement, effective August 30, 1996 (the "Services Agreement"), pursuant to which Century, through its personnel, provides design, construction, management, operational, technical and maintenance for the wireless telephone, paging and related systems owned and operated by the Company. Such services also include providing all the services necessary for the monitoring, to the extent possible, of the activities of the limited partnerships in which the Company has Investment Interests in such manner as to protect the interests of the Company. Such services have historically been provided to the Company by Century. As consideration for the services rendered and to be rendered under the Services Agreement, the Company will pay Century the annual sum of $1,000 and will reimburse Century for all costs incurred by Century or its affiliates (excluding the Company and its subsidiaries) that are directly attributable to the design, construction, management, operation and maintenance of the wireless telephone systems or to the performance by Century of its other duties under the Services Agreement. For the year ended May 31, 1997, the Company has recorded expenses of $750 under the Services Agreement. Such amount is recorded within Accrued Expenses on the Company's consolidated balance sheet at May 31, 1997. The Company leases space for the mobile telephone switching office ("MTSO") serving the southwestern cluster and space on an antenna tower in the southwestern cluster from Century for an aggregate current annual rent of approximately $1 pursuant to an oral month to month lease agreement. Further, the Company leases certain warehouse space in Puerto Rico to Century-ML for a current annual rent of approximately $23 pursuant to a written lease agreement. The Company leases and shares capacity on the fiber optic cable television facility and network of Century-ML for the purpose of operating as a competitive access provider. The Company shares in the cost of construction, operation and maintenance of the Century-ML fiber network on a pro rata basis based on the percentage of the number of fibers of the network used by or reserved for the Company. During fiscal 1997, the Company recorded a deferred asset and related payable to an affiliate in its consolidated balance sheet in the amount of $6,000 for the Company's share of the costs of constructing the fiber optic network of F-16 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) Century ML. These costs were incurred by the Company in order to secure the use of the fiber optic network as required by the Facilities Agreement (See Note 1). Leavy Rosensweig & Hyman, of which David Z. Rosensweig, a director and Secretary of the Company, is a member, serves as general counsel to the Company and Century. The Company paid approximately $656, $518, and $757 for legal services to Leavy, Rosensweig & Hyman for the fiscal years ended May 31, 1997, 1996, and 1995, respectively. 9. INCOME TAXES The provision (benefit) for income taxes are summarized as follows:
Year Ended May 31, --------------------------------- 1997 1996 1995 -------- --------- ------- Current (State) $ 3,328 $ 1,404 $ 1,539 Deferred (Federal and State) (10,623) (13,000) (15,995) -------- -------- -------- $ (7,295) $(11,596) $(14,456) ======== ======== ========
Deferred income taxes result primarily from non-deductible depreciation and amortization resulting from book and tax basis differences of acquired subsidiaries. The effective income tax rate of the Company differs from the statutory rate as a result of the following items:
Year Ended May 31, ---------------------------------- 1997 1996 1995 -------- -------- --------- Computed tax benefit at federal statutory rate on the loss before income taxes and minority interest $(14,153) $ (9,874) $(16,491) Non-deductible amortization resulting from acquired subsidiaries 1,346 1,253 1,481 Minority interest in subsidiary (income) (54) (5) (24) State and local income tax provision (benefit), net of federal income tax benefit (569) (199) 578 Non recognized benefit of loss of Puerto Rico subsidiary 926 -- -- Other, including the utilization of accumulated net operating losses and establishment of valuation allowance for certain net operating losses 5,209 (2,771) -- ----- ------ $ (7,295) $(11,596) $(14,456) ======== ======== ========
Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities are as follows:
Year Ended May 31, ---------------------- 1997 1996 --------- --------- Deferred Tax Assets: --------------------- Tax loss carryforward $ 44,839 $ 38,186 Other 461 -- Valuation allowance (11,758) (6,873) -------- -------- $ 33,542 $ 31,313 ======== ======== Deferred Tax Liabilities: ------------------------- Amortization of intangible assets $ 58,442 $ 77,879 Depreciation of fixed assets 19,077 10,022 -------- -------- $ 77,519 $ 87,901 ======== ======== Net deferred tax liabilities $ 43,977 $ 56,588 ======== ========
The valuation allowance recorded at May 31, 1997 and 1996 represents the portion of recorded tax loss F-17 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) carryforwards for which it is more likely than not that the benefit of such carryforwards will not be realized. The net deferred tax liabilities at May 31, 1997 and 1996 of $43,977 and $56,588, respectively, have been classified as deferred income taxes on the consolidated balance sheet. At May 31, 1997, the Company and its subsidiaries had approximately $105,372 of net operating loss carryforwards for federal income tax purposes, expiring through May 31, 2012 some of which are subject to limitation on their future utilization under Section 382 of the Internal Revenue Code of 1986. 10. COMMITMENTS AND CONTINGENCIES Legal Proceedings There are no material legal proceedings, other than routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party to or which any of their property is subject. Registration Statements The Company filed a shelf registration statement with the SEC for up to 8,000,000 shares of its Class A Common Stock that may be offered from time to time in connection with acquisitions. The registration statement became effective July 14, 1994. As of August 8, 1997, 4,239,231 shares remain available for future acquisitions. On April 5, 1995, the Company filed a shelf registration statement with the SEC for the issuance of $500,000 of the Company's debt securities. The debt securities may be issued from time to time in series on terms to be specified in one or more prospectus supplements at the time of the offering. If so specified with respect to any particular series, the debt securities may be convertible into shares of the Company's Class A Common Stock. As of August 8, 1997, $400,000 of debt securities remains available for issuance. Pending Acquisitions The Company plans to exercise its right to acquire the minority interests held by Century Federal Inc., an affiliate of Century ("Century Federal"), in the Cass and Jackson, Michigan systems for the prices paid by Century Federal for such minority interests in the acquisitions of such systems ($2,000 and $1,000, respectively). Upon completion of these transactions, the Company will own 100% of these systems. On December 21, 1994, the Company announced that its Board of Directors authorized the repurchase in the open market and in privately negotiated transactions, from time to time, of up to 1,000,000, shares of Class A Common Stock, depending on prevailing market conditions. Subsequent to May 31, 1997 the Company purchased 244,000 shares of its own class A Common Stock in the open market for a purchase price of $3,902. These shares have been accounted for as Treasury Shares in fiscal 1998. Subsequent to May 31, 1997, the Company announced that its Board of Directors authorized the repurchase in the open market and in privately negotiated transactions of up to an additional 3,000,000 shares of its Class A Common Stock, depending on prevailing market conditions. F-18 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) Equity Investments in Wireless Telephone Systems The Company has determined to pursue a strategy to sell or otherwise dispose of its minority equity investments in wireless telephone systems representing approximately 1,100,000 Net Pops. The Company has not yet made a final determination as to the estimated sale proceeds or the timing of such disposition and believes that the fair market value exceeds the net book value of the recorded assets at May 31, 1997. Lease Commitments The Company's annual lease obligations and expenses under operating leases were approximately $4,230, $2,023, and $1,642 for each of the years ended May 31, 1997, 1996 and 1995, respectively. The majority of these operating leases are short-term in nature and may be canceled by either party if appropriate notice is given. 11. PREFERRED STOCK AND COMMON STOCK Common Stock The voting rights with respect to the two classes of the Company's common stock are as follows: Class A shares entitle the holder to one vote per share, Class B shares entitle the holder to fifteen votes per share. Shares of Class B common stock are convertible into shares of Class A common stock on a one-for-one basis. The Company is restricted from paying dividends on its common stock by its debt covenants (see Note 7). Preferred Stock On August 30, 1991, the Company completed a merger (the "Merger") with Citizens Cellular Company, a wholly-owned subsidiary of Citizens ("Citizens Cellular"). In connection with the Merger, the Company issued the Convertible Redeemable Preferred Stock valued at $128,450 and 1,367,099 shares of Class B Common Stock representing 18.8% of the then common equity. The Convertible Redeemable Preferred Stock is convertible on or after the third anniversary from the date of issuance into 2,972,335 shares of Class A or B Common Stock. Although the Convertible Redeemable Preferred Stock carrieds no cash dividend requirement during the first five years through August 31, 1996, the shares accreted liquidation preference and redemption value at the rate of 7.5% per annum, compounded quarterly, until then. The fully accreted liquidation preference and redemption value of such preferred stock at August 31,1996 was $186,287. The accretion for the years ended May 31, 1997, 1996, and 1995 and 1994 totaled approximately $3,475, $13,080, and $12,161, respectively. Beginning September 1, 1996, the holders of the Convertible Redeemable Preferred Stock were entitled to receive cash dividends at the rate of 8.5% per annum. In connection with an amendment to the New Services Agreement, which was entered into in connection with the Merger, the Company issued to Century the Second Series Convertible Redeemable Preferred Stock valued at $5,000. The Second Series Convertible Redeemable Preferred Stock has terms identical to those of the Convertible Redeemable Preferred stock discussed above. The fully accreted liquidation preference and redemption value of such preferred stock at August 31, 1996 was $7,252. The accretion for the years ended May 31, 1997, 1996, and 1995 totaled approximately $135, $510 and, $473, respectively. F-19 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) Assuming no change in the number of shares of such classes outstanding, the annual dividend payments, commencing in fiscal 1997, to be made with respect to the preferred stock, if and when declared by the Company's Board of Directors, will be $15,834 and $616, respectively. Both classes of preferred stock are subject to mandatory redemption in fiscal 2007. Any unpaid dividends continue to accumulate without additional cost to the Company. On December 19, 1996 and May 8, 1997 the Company paid quarterly cash dividends to Citizens and Century of $3,959 and $154, respectively. The Company will determine, from time to time, the timing, amount, or distribution (if any) of additional preferred stock dividends. Grant of Stock Options In connection with the Merger, 38 stock options issued by Citizens Cellular were converted into options to purchase 276,328 shares of Class A Common Stock at an option price of $.01 per share. Such options, all non-qualified, were issued at $.01 per share, and vest in equal amounts, on a cumulative basis, over a period of five years. The difference between the estimated fair market value of the stock at the date of grant of $17 over the option price was recorded as a purchase price adjustment. On May 24, 1991 and August 30, 1991, the Company awarded options to purchase 396,313 and 1,817 shares, respectively, of Class A Common Stock to directors, officers and employees. A total of twenty-six people were included in the grant. Such options, all non-qualified, were issued at $.01 per share, and vest in equal amounts, on a cumulative basis, over a period of five years. As of May 31, 1997 and 1996 none of these options were outstanding. Rights Offering On July 22, 1994, the Company successfully completed a rights offering involving the distribution to holders of record of its Class A Common Stock outstanding on July 7, 1994 (the "Record Date") transferable subscription rights (the "Rights") to subscribe for and purchase an aggregate of 3,098,379 additional shares of Class A Common Stock based on 6,887,287 shares of Class A Common Stock outstanding on the Record Date for a subscription price of $14.00 per share. Record date stockholders received 0.45 right for each share of Class A Common Stock owned by them and were entitled to purchase one share of Class A Common Stock for each full right held. Holders of Rights purchased an aggregate of 2,988,478 of the 3,098,379 shares of Class A Common Stock available for purchase pursuant to the basic subscription privilege. The balance of 109,901 shares of Class A Common Stock were sold pursuant to the oversubscription privilege and were distributed pro rata among the holders of Rights who requested an aggregate of 235,746 additional shares pursuant to the oversubscription privilege. Lehman Brothers Inc. acted as dealer manager for the rights offering. The Company also distributed to Century and Citizens Cellular, the holders of record of all of the shares of Class B Common Stock outstanding as of the Record Date, nontransferable subscription rights (the "Class B Rights") to subscribe for and purchase an aggregate of approximately 3,272,311 additional shares of Class B Common Stock. Century and Citizens Cellular each exercised all of the Class B Rights distributed to them. Each share of Class B Common Stock is convertible into one share of Class A Common Stock at any time at the option of the holder. The net proceeds of approximately $86,500 from the rights offering (after deducting soliciting fees and expenses of approximately $2,700) are available to be used by the Company for general corporate purposes, including the financing of capital expenditures and acquisitions. F-20 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) 12. COMPENSATION PLANS AND ARRANGEMENTS 1991 Employee Stock Option Plan The Company's 1991 Employee Stock Option Plan (the "Employee Stock Option Plan") as amended, provides for the grant of options to purchase up to 2,025,000 shares of Class A Common Stock reserved thereunder to directors, officers and other key employees of the Company. The Employee Stock Option Plan permits the issuance of "incentive stock options," as defined in Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), as well as non-qualified stock options and stock appreciation rights. The Employee Stock Option Plan is administered by the Employee Stock Option Committee of the Board of Directors which determines the recipients and provisions of options granted under the Employee Stock Option Plan, including the option price, term and number of shares subject to option. The Board of Directors may amend the Employee Stock Option Plan, but the approval of the stockholders is necessary to increase the total number of shares that may be issued or transferred under the Employee Stock Option Plan, to change the minimum purchase price for shares subject to options, to change the maximum period during which options or stock appreciation rights may be exercised or to extend the period during which options or stock appreciation rights may be granted under the Employee Stock Option Plan. Generally, the option price of incentive and non-statutory stock options granted may be as determined by the Employee Stock Option Committee, but must be at least equal to the fair market value of the shares on the date of grant. The maximum term of each option is ten years. For any participant who owns shares possessing more than 10% of the voting rights of the outstanding Common Stock, the exercise price of any incentive stock option must be at least 110% of the fair market value of the shares subject to such option on the date of grant and the term of the option may not be longer than five years. Options become exercisable at such time or times as the Employee Stock Option Committee may determine when it grants options. The Employee Stock Option Plan permits the exercise of options by the payment of cash or delivery of shares of Class A Common Stock equal in fair market value on the date of exercise to the exercise price. Options granted under the Employee Stock Option Plan are not transferable by the holder. Since December 27, 1991, the Company has awarded options to purchase approximately 1,722,782 shares of Class A Common Stock under the Employee Stock Option Plan to approximately 59 employees of the Company, including executive officers and directors. During the fiscal years ended May 31, 1997, 1996 and 1995 the number of such options awarded were approximately 925,782, 0, and 452,000, respectively. All option shares issued under the plan were adjusted subsequent to May 31, 1994 to account for the dilutive effect of the Company's stock rights offering (see Note 11). At May 31, 1997, 364,274 options were exercisable. Director Option Plan The Company's Non-Employee/ Officer Director Option Plan (the "Director Option Plan") was adopted on October 27, 1993. The Director Option Plan provides for the grant of non-qualified options to purchase up to 50,000 shares of Class A Common Stock to non-employee/officer directors, who are not employees of the Company or its subsidiaries. Options for 1,000 shares of Class A Common Stock shall be automatically granted under the Director Option Plan on the date of the annual meeting of shareholders of the Company in each of the years 1993 through 2002. The Board of Directors may amend the Director Option Plan, except that the approval of the stockholders is necessary to increase the total number of shares which may be issued or transferred under the Director Option Plan, to change the minimum purchase price for shares subject to options, to change the maximum period during which options may be exercised or to extend the period during which options may be granted under the Director Option Plan. Generally, the option price of non-qualified stock options granted may be as determined by the Director Option Committee, but must be at least equal to 100% of the fair market value F-21 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) of the shares on the date of the grant. Options become exercisable at the rate of 20% per year beginning with the first anniversary of the date of the grant. The Director Option Plan permits the exercise of options by payments of cash or Class A Common Stock equal in value to the option price. Options granted under the Director Option Plan are not transferable by the holder other than by will or the laws of descent and distribution. As of May 31, 1997, 14,200 options were awarded. No options had been exercised as of May 31, 1997. A summary of the status of the Company's stock options as of May 31, 1995, 1996 and 1997 and changes during the years then ended is presented below:
Weighted Average Exercise Number Price ------ --------- 1995 Outstanding at June 1, 1994 933,947 $ 4.76 Granted December 9, 1994 455,000 $ 15.76 Exercised (79,609) $ 2.02 Cancelled (12,386) $ 12.78 --------- Outstanding at May 31, 1995 1,296,952 $ 8.71 1996 Granted 4,000 $ 18.25 Exercised (423,665) $ 1.00 Cancelled (155,715) $ 5.35 --------- Outstanding at May 31, 1996 721,572 $ 13.98 1997 Granted 1,362,282 $ 11.57 Exercised (1,704) $ 9.75 Cancelled (929,296) $ 14.40 --------- Options outstanding as of May 31, 1997 1,152,854 $ 10.80 ========= ========= Options exercisable at May 31, 1997 485,473 $10.47 ========= =========
The following table summarizes information about options outstanding at May 31, 1997:
Range of Number Weighted Average Number Exercise Outstanding Remaining Weighted Average Exercisable Weighted Average Prices at 5/31/97 Contractual Life Exercise Price at 5/31/97 Exercise Price ---------- ---------- ---------------- --------------- ------------- ---------------- $9.75-$13.5 1,142,656 8.23 years $10.73 481,556 $10.40 $17-$20 10,198 2.50 years 18.43 3,917 18.72 --------- ---------- ------ ------- ------ 1,152,854 8.17 years $10.80 485,473 $10.47 ========= ========== ====== ======= ======
1991 Employee Stock Purchase Plan The Company has reserved 200,000 shares of Class A Common Stock for issuance under the 1991 Employee Stock Purchase Plan (the "Purchase Plan"). Under the Purchase Plan, eligible employees (which generally includes all full-time F-22 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) employees of the Company) are able to subscribe for shares of Class A Common Stock at a purchase price of 85% of the average market price (as defined) of the Class A Common Stock on the first day or last day of the payroll deduction period relating to an offering under the Purchase Plan. Payment of the purchase price of the shares is to be made in installments through payroll deductions, with no right of prepayment. The Purchase Plan is administered by the Compensation Committee of the Board of Directors. Rights to purchase shares of Class A Common Stock under the Purchase Plan may not be transferred by the recipient and may be forfeited in the event of the recipient's termination of employment. As of May 31, 1997, approximately 1,100 employees and officers of the Company were eligible to participate in the Purchase Plan. As of May 31, 1997, approximately 31,120 shares were subscribed for under the Purchase Plan. Equity Incentive Plan The Company's 1993 Equity Incentive Plan (the "Equity Plan") was adopted by the Board of Directors and approved by the stockholders on October 27, 1993. The plan permits the issuance of up to 100,000 shares of the Company's Class A Common Stock for high levels of performance and productivity by officers and other management employees of the Company. The Equity Plan is administered by the Compensation Committee of the Company's Board of Directors. The plan authorizes the Committee to grant stock based awards that include but are not limited to, restricted stock, performance shares and deferred stock. The Committee determines the recipients and provisions of the grants under the Equity Plan, including the grant price, term and number of shares subject to grant. Generally, any employee will realize compensation taxable as ordinary income, and the Company will be entitled to a corresponding tax deduction in an amount equal to the sum of any cash received by the employee plus the fair market value of any shares of Class A Common Stock received by the employee. As of May 31, 1997, 85,500 shares were issued for awards under the Equity Plan. The estimated fair value of options granted during 1997 and 1996 were $3.49 per share and $5.81 per share, respectively. The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized with respect to its stock option, and stock purchase plans. Had compensation cost for the Company's stock option plans and stock purchase plan been determined based on the fair value of the awards on the grant dates in accordance with the accounting provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net loss and net loss per common share for the years ended May 31, 1997 and 1996 would have been increased to the pro forma amounts indicated below:
1997 1996 -------- --------- Loss applicable to Common shares: As reported $(49,243) $(30,221) Pro forma $(49,921) $(30,237) Loss per common share: As reported $(1.83) $(1.13) Pro forma $(1.85) $(1.13)
The fair value of options granted under the Company's stock option plans during fiscal 1997 and 1996 was estimated on the dates of grant using the Black-Scholes options-pricing model with the following weighted average assumption used: expected volatility of 36.78%, risk free interest rate of 6%, and expected lives of option grants of 3 years. Pro-forma compensation cost related to shares purchased under the 1991 Employee Stock Purchase Plan is measured based on the discount from market value. No pro-forma compensation cost was included in the pro-forma amounts above related to F-23 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) 82,500 shares of restricted stock granted and purchased under the Equity Incentive Plan for the year ended May 31, 1996. Those restricted shares vest 5 years after the date of grant. Incentive Award Plan The Incentive Award Plan (the "Incentive Plan") permits the grant of awards to key employees of the Company, which may include employee-directors and officers, payable in cash or shares of Class A Common Stock. The Company has reserved 200,000 shares of Class A Common Stock for issuance under the Incentive Plan. The awards are payable in five to ten equal annual installments on January 1 of the succeeding years after the grant of the award, provided that the recipient is an employee on the installment payment date. The Incentive Plan is administered by the Compensation Committee of the Board of Directors, which selects the recipients of awards as well as the amount of such awards and any restriction on such awards. The Board of Directors may amend the Incentive Plan. Awards granted under the Incentive Plan may not be transferred by the recipient and may be forfeited in the event of the recipient's termination of employment. As of May 31, 1997, approximately 1,100 employees, officers and directors of the Company were eligible to participate in the Incentive Plan. No awards have been made under the Incentive Plan. 1991 Stock Equivalent Plan The Company's 1991 Stock Equivalent Plan (the "Equivalent Plan") permits the grant of units of Class A Common Stock Equivalents ("units") to key employees of the Company, including officers and directors. The Equivalent Plan is administered by the Compensation Committee of the Board of Directors, which selects the employees to be granted units, determines the number of units covered by each grant, determines when units will be granted and the conditions subject to which any amount may become payable with respect to the units, and prescribes the form of instruments evidencing units granted under the Equivalent Plan. Payments for units may be made by the Company in cash or in shares of Class A Common Stock at the fair market value of the Class A Common Stock on the date of payment. The Company has reserved 200,000 shares of Class A Common Stock for issuance under the Equivalent Plan. As of May 31, 1997, approximately 1,100 employees, officers and directors of the Company were eligible to participate in the Equivalent Plan. Under the terms of the Equivalent Plan, the total number of units included in all grants to any participant may not exceed 10% of the total number of units for which grants may be made under the Equivalent Plan. Units granted under the Equivalent Plan are not transferable. As of May 31, 1997, no units had been granted under the Equivalent Plan. Retirement Plan Effective January 1, 1994, the Company adopted a 401K defined contribution retirement plan covering employees of its wholly owned subsidiaries. If a participant decides to contribute, a portion of the contribution is matched by the Company. Total expense under the plan was approximately $221, $134, and $115 for the years ended May 31, 1997, 1996 and 1995, respectively. Note 13. Segment Information The Company's consolidated financial statements include two distinct business segments. The Domestic Wireless segment owns, operates and invests in wireless telephone systems. The Company's Puerto Rico Wireless segment began providing wireless telephone service in Puerto Rico on December 12, 1996. The Company also plans to participate in the alternative access business in Puerto Rico. F-24 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) Information about the Company's operations in its two business segments for the year ended May 31, 1997 and May 31, 1996 is as follows:
Year Ended May 31, 1997 1996 - ----------------- ---------- --------- Gross revenues: Domestic Wireless $ 145,120 $ 112,197 Puerto Rico Wireless 5,903 -- --------- --------- $ 151,023 $ 112,197 ========= ========= Operating (loss): Domestic Wireless $ (11,311) $ (18,615) Puerto Rico Wireless (14,746) (494) --------- --------- $ (26,057) $ (19,109) ========= ========= Net loss: Domestic Wireless $ (16,081) $ (15,585) Puerto Rico Wireless (17,214) (1,046) --------- --------- $ (33,295) $ (16,631) ========= ========= Assets, at end of period: Domestic Wireless $ 694,207 $ 710,222 Puerto Rico Wireless 150,643 75,590 --------- --------- $ 844,850 $ 785,812 ========= ========= Depreciation and amortization: Domestic Wireless $ 77,392 $ 70,910 Puerto Rico Wireless 6,328 79 --------- --------- $ 83,720 $ 70,989 ========= ========= Capital expenditures: Domestic Wireless $ 38,921 $ 22,604 Puerto Rico Wireless 50,069 15,478 --------- --------- $ 88,990 $ 38,082 ========= =========
F-25 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended May 31, 1997, 1996 and 1995 (Amounts in thousands, except subscriber and share data) 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Three Months Ended ---------------------------------------------------------------------- August 31, November 30, February 28, May 31, 1994 1994 1995 1995 ---------------------------------------------------------------------- Revenues $ 17,542 $ 21,455 $ 21,967 $ 24,455 Operating loss (6,245) (6,836) (8,372) (6,977) Net loss (6,942) (8,466) (11,394) (5,928) Net loss per common share (.58) (.47) (.57) (.35) Three Months Ended ---------------------------------------------------------------------- August 31, November 30, February 29, May 31, 1995 1995 1996 1996 ---------------------------------------------------------------------- Revenues $ 26,922 $ 27,713 $ 27,938 $ 29,624 Operating loss (4,704) (4,822) (6,571) (3,012) Net (loss) income (3,418) (7,349) (8,807) 2,943 Net loss per common share (.25) (.40) (.45) (.03) Three Months Ended ---------------------------------------------------------------------- August 31, November 30, February 28, May 31, 1996 1996 1997 1997 ---------------------------------------------------------------------- Revenues $ 32,365 $ 35,359 $ 39,174 $ 44,125 Operating loss (3,399) (4,712) (8,046) (9,900) Net loss (6,107) (6,121) (9,486) (11,581) Net loss per common share (.36) (.38) (.50) (.58)
F-26 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Centennial Cellular Corp. New Canaan, Connecticut We have audited the consolidated financial statements of Centennial Cellular Corp. and subsidiaries (the "Company") as of May 31, 1997 and 1996 for each of the three years in the period ended May 31, 1997, and have issued our report thereon dated July 25, 1997; such report is included elsewhere in this Form 10-K. Our audits also included the financial statement schedules listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. Deloitte & Touche LLP Stamford, Connecticut July 25, 1997 F-27 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (Amounts in thousands)
Year Ended May 31, -------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ REVENUES: Service revenue $ 140,674 $ 105,461 $ 78,516 Equipment sales 2,643 2,649 4,135 Interest income 1,803 4,087 2,768 ------------ ------------ ------------ 145,120 112,197 85,419 ------------ ------------ ------------ COSTS AND EXPENSES: Cost of services 19,061 15,291 12,808 Cost of equipment sold 15,441 10,838 9,344 Selling, general and administrative 44,537 33,757 26,004 Depreciation and amortization 77,392 70,910 65,632 ------------ ------------ ------------ 156,431 130,796 113,788 ------------ ------------ ------------ OPERATING LOSS (11,311) (18,599) (28,369) INTEREST EXPENSE 30,911 27,334 23,355 GAIN ON SALE OF ASSETS 3,819 8,310 -- INCOME (LOSS) FROM EQUITY INVESTMENTS (2,034) 9,411 4,607 ------------ ------------ ------------ LOSS BEFORE INCOME TAX BENEFIT AND MINORITY INTEREST (40,437) (28,212) (47,117) INCOME TAX BENEFIT (7,295) (11,596) (14,456) ------------ ------------ ------------ LOSS BEFORE MINORITY INTEREST (33,142) (16,616) (32,661) MINORITY INTEREST IN INCOME OF SUBSIDIARIES (153) (15) (69) ------------ ------------ ------------ NET LOSS $ (33,295) $ (16,631) $ (32,730) ------------ ------------ ------------ ACCUMULATED DEFICIT, BEGINNING OF YEAR $ (218,996) $ (202,365) $ 169,635 ------------ ------------ ------------ ACCUMULATED DEFICIT, END OF YEAR $ (252,291) $ (218,996) $ (202,365) ============ ============ ============
See notes to condensed financial statements F-28 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (Amounts in thousands)
Year Ended May 31, ------------------------------------------------ 1997 1996 1995 ----------- ---------- --------- OPERATING ACTIVITIES: Cash received from Subscribers and others $ 169,242 $ 130,196 $ 94,569 Cash paid to suppliers, employees and governmental agencies (103,255) (73,460) (61,637) Interest Paid (29,068) (31,668) (22,502) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 36,919 25,068 10,430 --------- --------- --------- INVESTING ACTIVITIES: Proceeds from Sale of equipment 5,200 -- -- Capital expenditures (38,921) (23,594) (17,321) Acquisition of other assets (489) (1,643) (1,160) Acquisition/exchange of wireless telephone systems (34,908) 396 (49,173) Acquisition of personal communications service license 60,006 (44,813) (11,069) Cash advances to subsidiary (54,507) (15,327) (264) Capital returned from equity investments 6,863 6,870 2,896 Capital contributed to equity investments (2,877) (1,463) (3,783) --------- --------- --------- NET CASH (USED IN) INVESTING ACTIVITIES (59,633) (79,574) (79,874) --------- --------- --------- FINANCING ACTIVITIES: Proceeds from long-term debt 45,000 100,000 Principal payments on long-term debt (40,000) -- Debt issuance costs paid (648) (304) (4,414) Proceeds from issuance of Class A and B Common Stock 132 456 87,136 Dividends paid on preferred stock (8,226) --------- --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,742) (152) 182,194 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (26,456) (54,354) 113,278 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 67,274 121,628 8,350 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 40,818 $ 67,274 $ 121,628 ========= ========= =========
See notes to condensed financial statements F-29 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (Amounts in thousands)
YEAR ENDED MAY 31, ----------------------------------- 1997 1996 1995 ---------- --------- ---------- Reconciliation of net loss to net cash provided by operating activities: Net loss $(33,295) $(16,631) $ (32,730) -------- -------- -------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 77,392 70,910 65,632 Minority interest in income of subsidiaries 153 15 69 Deferred income tax-decrease (10,623) (13,000) (15,995) Equity in undistributed earnings of investee companies 2,034 (9,411) (4,607) Gain on sale of assets (3,819) (4,176) Other 1,800 (4,131) 570 Change in assets and liabilities net of effects of acquired/exchanged wireless telephone systems: Accounts receivable - (increase) (2,158) (4,689) (5,318) Prepaid expense and other current assets - (increase)/decrease (2,103) (411) 72 Accounts payable and accrued expenses - increase 4,855 4,605 1,433 Customer deposits and prepayments - increase 2,683 1,987 1,304 -------- -------- -------- Total adjustments 70,214 41,699 43,160 -------- -------- -------- Net Cash Provided by Operating Activities $ 36,919 $ 25,068 $ 10,430 ======== ======== ========
See notes to condensed financial information F-30 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS (Amounts in thousands)
MAY 31, MAY 31, 1997 1996 --------- --------- ASSETS Cash and cash equivalents $ 40,819 $ 67,274 Accounts receivable 28,753 20,210 Prepaid expenses and other current assets 4,226 2,056 --------- --------- TOTAL CURRENT ASSETS 73,798 89,540 PROPERTY PLANT AND EQUIPMENT - net 102,230 75,808 EQUITY INVESTMENT IN WIRELESS SYSTEMS - net 75,814 99,079 DEBT ISSUANCE COSTS 6,986 7,738 CELLULAR TELEPHONE LICENSES 285,202 30O,206 PERSONAL COMMUNICATIONS SERVICE LICENSE -- 60,007 GOODWILL 130,065 133,907 OTHER ASSETS 1,961 2,631 DUE FROM SUBSIDIARY 7,321 15,594 --------- --------- TOTAL ASSETS $ 683,377 $ 784,510 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,692 $ -- Accrued Interest Payable 2,880 2,299 Other Accrued expenses 25,922 17,758 Customers' deposits and prepayments 7,665 4,961 Payable to affiliate 399 768 --------- --------- TOTAL CURRENT LIABILITIES 38,558 25,786 LONG-TERM DEBT 355,000 350,000 DEFERRED LIABILITY 2,200 2,200 DEFERRED INCOME TAXES 43,977 56,588 PREFERRED STOCK: Convertible redeemable preferred stock 186,287 182,813 Second series convertible redeemable preferred stock 7,252 7,117 COMMON STOCKHOLDERS' EQUITY: Common stock 270 270 Additional paid-in capital 306,925 383,533 Accumulated deficit (252,291) (218,996) --------- --------- 54,904 164,807 Less: Cost of Common shares in treasury (1,801) (1,801) Shareholder note receivable (3,000) (3,000) --------- --------- TOTAL COMMON STOCKHOLDERS' EQUITY 50,103 160,006 --------- --------- TOTAL $ 683,377 $ 784,510 ========= =========
See notes to condensed financial information F-31 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANICAL INFORMATION (Amounts in thousands) 1. BASIS OF PRESENTATION The attached condensed financial information of Registrant represents the financial statements of Centennial Cellular Corp. and subsidiaries exclusive of Puerto Rico Wireless. Within this condensed financial information, the Registrant's investment in Puerto Rico Wireless has been accounted for using the equity method. Within the Company's consolidated financial statements, however, the financial statements of Puerto Rico Wireless have been consolidated for financial reporting purposes. The inclusion of the attached condensed financial information of Registrant is required due to certain restrictions placed on the net assets of Puerto Rico Wireless under the Puerto Rico Wireless Credit Facility (See note 7 to Consolidated Financial Statements). 2. PERSONAL COMMUNICATIONS SERVICE LICENSE ("PCS") On October 29, 1996 the Federal Communications Commission granted consent to the assignment of the PCS license acquired in March 1995 from the Registrant to Puerto Rico Wireless. On December 13, 1996, the Registrant contributed to Puerto Rico Wireless the PCS license and certain PCS property and equipment as follows: Property, plant and equipment $ 3 PCS license 62,605 -------- Total assets contributed $ 62,608 ======== 3. LONG-TERM DEBT See Note 7 to the consolidated financial statements for details of long-term debt. F-32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company has duly caused this Annual Report on Form 10-K for the fiscal year ended May 31, 1997 to be signed on its behalf by the undersigned, thereunto duly authorized, on the 15th day of August, 1997. CENTENNIAL CELLULAR CORP. By: /s/ Bernard P. Gallagher ----------------------------------- Bernard P. Gallagher Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K for the fiscal year ended May 31, 1997 has been signed below by the following persons in the capacities indicated on the 15th day of August, 1997.
Title ------ /s/ Bernard P. Gallagher Chairman, Chief Executive Officer and Director - ------------------------------------- (Principal Executive Officer) Bernard P. Gallagher /s/Scott N. Schneider Senior Vice President, Treasurer, Chief Financial - ------------------------------------- Officer, Chief Accounting Officer and Director Scott N. Schneider (Principal Financial and Accounting Officer) /s/Daryl A. Ferguson - ------------------------------------- Director Daryl A. Ferguson /s/Rudy J. Graf - ------------------------------------- Director Rudy J. Graf /s/William M. Kraus - ------------------------------------- Director William M. Kraus /s/David Z. Rosensweig - ------------------------------------- Director David Z. Rosensweig - ------------------------------------- Director Peter J. Solomon /s/Frank Tow - ------------------------------------- Director Frank Tow II-1
EXHIBIT INDEX Exhibit Number Exhibit ------ -------- 3.1 Restated Certificate of Incorporation of the Registrant (filed as Exhibit 6(a)(i) to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1993 and incorporated herein by reference). 3.2 By-laws of the Registrant as revised through February 11, 1992, (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended May 31, 1992 and incorporated herein by reference). 4.1 Registration Rights Agreement, dated August 30, 1991, among the Registrant, Century Holding and Citizens Utilities Company (filed as Exhibit 4.2 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). 4.2 Stock Transfer Agreement, dated August 30, 1991, by and among the Registrant, Century Holding and Citizens Utilities Company (filed as Exhibit 4.3 to Amendment No. 1 to the 1991 Form S-1 and incorporated herein by reference, said Amendment No. 1 having been filed with the Commission on October 7, 1991). 4.3 Senior Indenture, dated as of November 15, 1993, between the Registrant and Bank of Montreal Trust Company, as Trustee, (filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated November 15, 1993, and incorporated herein by reference, said Current Report on Form 8-K having been filed with the Commission on November 15, 1993). 4.4 First Supplemental Indenture, dated as of November 15, 1993, between the Registrant and Bank of Montreal Trust Company, as Trustee, (filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated November 15, 1993, and incorporated herein by reference, said Current Report on Form 8-K having been filed with the Commission on November 15, 1993). 4.5 Second Supplemental Indenture, dated as of May 11, 1995, between the Registrant and Bank of Montreal Trust Company, as Trustee, (filed as Exhibit 4.3(c) to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1995 and incorporated herein by reference). II-2 Exhibit Number Exhibit ------ -------- 4.6 $130,000,000 Credit Agreement, dated as of April 25, 1997, among Centennial Puerto Rico Wireless Corporation, as Borrower, Citibank, N.A., as Administrative Agent and CIBC Inc., Credit Lyonnais, New York Branch and Societe Generale, New York Branch, as Co-Agents. 4.7 Amendment No. 1, dated as of April 22, 1997, between the Registrant and Citibank, N.A., individually and as Administrative Agent. 10.1 Conflicts/Non-Compete Agreement by and among the Registrant, Century Holding, Century and Citizens Utilities Company, dated as of August 30, 1991, (filed as Exhibit 10.1 to Amendment No. 1 to the 1991 Form S-1 and incorporated herein by reference, said Amendment No. 1 having been filed with the Commission on October 7, 1991). 10.2 Extension and Renewal Agreement, dated March 21, 1997, effective as of August 30, 1996, between Century Cellular Holding Corp. and the Registrant (filed as an exhibit to the Registrant's quarterly report on Form 10-Q for the quarterly period ended February 28, 1997 and incorporated herein by reference). 10.3 Conditional Buy-Sell Agreement for Cellular Markets 151-305 and Joint Agreement, as amended, (filed as Exhibit 10.7 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). *10.4 1991 Stock Option Plan, as amended, (filed as Exhibit 10.10 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). *10.5 Incentive Award Plan, as amended, (filed as Exhibit 10.11 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). *10.6 1991 Employee Stock Purchase Plan, as amended, (filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.7 1993 Management Equity Incentive Plan, (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and II-3 Exhibit Number Exhibit ------ -------- incorporated herein by reference). *10.8 1993 Non-Employee/Officer Directors' Stock Option Plan, (filed as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.9 1991 Stock Equivalent Plan (filed as Exhibit 10.13 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). 10.10 Agreement establishing Sacramento Valley Limited Partnership, as amended, among PacTel Mobile Access, Roseville Telephone Co., Citizens Utilities Company of California and Contel Mobilcom, Inc., (filed as Exhibit 10.14 to the 1991 Form S-1 and incorporated herein by reference, said 1991 Form S-1 having been filed with the Commission on September 27, 1991). 10.11 Agreement establishing GTE Mobilnet of San Francisco Limited Partnership, as amended, (filed as Exhibit 10.15 to the 1991 Form S-1 and incorporated herein by reference), said 1991 Form S-1 having been filed with the Commission on September 27, 1991). *10.12 Employment Agreement dated as of January 1, 1994 between the Registrant and Rudy J. Graf, (filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.13 Employment Agreement dated as of January 1, 1994 between the Registrant and Phillip Mayberry, (filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.14 Employment Agreement dated as of January 1, 1994 between the Registrant and Thomas Cogar, (filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 and incorporated herein by reference). *10.15 Employment Agreement, dated as of September 1, 1995, between the Registrant and Robert Braden (filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1996 and incorporated herein by reference). II-4 Exhibit Number Exhibit ------ -------- 'D'10.16 Facilities Agreement dated as of January 2, 1995 between Century ML Cable Venture and Century-ML Cable Corporation. 'D'10.17 $50,000,000 Credit Agreement, dated as of September 12 ,1996, between the Registrant and Citibank, N.A. (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1996 and incorporated herein by reference). 'D'11 Computation of loss per common share. 'D'12 Computation of ratios. 'D'21 Subsidiaries of the Registrant. 'D'23.1 Consent of Deloitte & Touche LLP. 'D'27 Financial Data Schedule. - ---------------------- * Constitutes a management contract or compensatory plan or arrangement. 'D' Filed herewith. II-5 STATEMENT OF DIFFERENCES ------------------------ The dagger symbol shall be expressed as ... 'D' EX-4 2 EXHIBIT 4.6 EXECUTION COUNTERPART ***************************************************************** U.S. $130,000,000 CREDIT AGREEMENT Dated as of April 25, 1997 Among CENTENNIAL PUERTO RICO WIRELESS CORPORATION as Borrower and THE BANKS NAMED HEREIN as Banks and CITIBANK, N.A. as Administrative Agent and CIBC INC. CREDIT LYONNAIS, NEW YORK BRANCH and SOCIETE GENERALE, NEW YORK BRANCH as Co-Agents ***************************************************************** TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.................................... 1 SECTION 1.01. Certain Defined Terms............................................... 1 SECTION 1.02. Computation of Time Periods......................................... 27 SECTION 1.03. Accounting Terms.................................................... 27 ARTICLE II AMOUNTS AND TERMS OF THE CREDITS................................... 28 SECTION 2.01A. The Advances........................................................ 28 SECTION 2.01B. Letters of Credit................................................... 28 SECTION 2.02. Making the Advances................................................. 33 SECTION 2.03. Fees................................................................ 35 SECTION 2.04. Reduction of the Commitments........................................ 36 SECTION 2.05. Repayment of Advances............................................... 36 SECTION 2.06. Interest on the Advances............................................ 36 SECTION 2.07. Interest Rate Determination and Protection....................................................... 39 SECTION 2.08. Voluntary Conversion of Advances.................................... 41 SECTION 2.09. Prepayments of Advances............................................. 41 SECTION 2.10. Increased Costs, Etc................................................ 44 SECTION 2.11. Illegality.......................................................... 45 SECTION 2.12. Payments and Computations........................................... 46 SECTION 2.13. Taxes............................................................... 47 SECTION 2.14. Sharing of Payments, Etc............................................ 50 SECTION 2.15. Additional Interest on Eurodollar Rate Advances......................................................... 50 SECTION 2.16. Use of Proceeds..................................................... 51 ARTICLE III CONDITIONS OF LENDING............................................... 51 SECTION 3.01. Conditions Precedent to Initial Advances......................................................... 51 SECTION 3.02. Conditions Precedent to Each Borrowing.............................. 55 SECTION 3.03. Determinations Under Section 3.01................................... 56 ARTICLE IV REPRESENTATIONS AND WARRANTIES...................................... 56 SECTION 4.01. Representations and Warranties of the Borrower......................................................... 56
Page ---- ARTICLE V COVENANTS OF THE BORROWER........................................... 65 SECTION 5.01. Affirmative Covenants............................................... 65 SECTION 5.02. Negative Covenants.................................................. 72 SECTION 5.03. Reporting Requirements.............................................. 78 ARTICLE VI EVENTS OF DEFAULT................................................... 81 SECTION 6.01. Events of Default................................................... 81 SECTION 6.02. Collateral Account.................................................. 87 ARTICLE VII THE ADMINISTRATIVE AGENT............................................ 88 SECTION 7.01. Authorization and Action............................................ 88 SECTION 7.02. Administrative Agents' Reliance, Etc................................ 88 SECTION 7.03. The Administrative Agent and its Affiliates....................................................... 89 SECTION 7.04. Lender Credit Decision.............................................. 90 SECTION 7.05. Indemnification by Lenders.......................................... 90 SECTION 7.06. Successor Administrative Agent...................................... 91 SECTION 7.07. Amendments to Loan Documents........................................ 91 SECTION 7.08. Co-Agents........................................................... 92 ARTICLE VIII MISCELLANEOUS....................................................... 92 SECTION 8.01. Amendments, Etc..................................................... 92 SECTION 8.02. Notices, Etc........................................................ 93 SECTION 8.03. No Waiver; Remedies................................................. 93 SECTION 8.04. Costs and Expenses.................................................. 93 SECTION 8.05. Right of Set-off.................................................... 94 SECTION 8.06. Binding Effect...................................................... 95 SECTION 8.07. Assignments and Participations...................................... 95 SECTION 8.08. Indemnification by the Borrower..................................... 99 SECTION 8.09. Confidentiality.....................................................100 SECTION 8.10. Governing Law.......................................................101 SECTION 8.11. Execution in Counterparts...........................................101 SECTION 8.12. WAIVER OF JURY TRIAL................................................101 SECTION 8.13. Submission to Jurisdiction; Waivers.................................101 SECTION 8.14. Acknowledgments.....................................................102
Schedule I - List of Applicable Lending Offices Schedule 4.01(k) - List of Subsidiaries Schedule 4.01(w) - List of Telecommunications Approvals Schedule 4.01(z) - List of Collateral Schedule 4.01(bb) - List of Capital Stock Schedule 4.01(cc) - Intellectual Property Matters Exhibit A - Form of Note Exhibit B - Form of Notice of Borrowing Exhibit C - Form of Assignment and Acceptance Exhibit D-1 - Form of Subsidiary Guaranty Exhibit D-2 - Form of Obligor Pledge Agreement Exhibit D-3 - Form of Holdings Pledge Agreement Exhibit E - Form of Borrowing Base Certificate Exhibit F - Form of Leverage Ratio Certificate Exhibit G - Form of Solvency Certificate Exhibit H - Form of No Default Certificate Exhibit I - Form of Compliance Certificate Exhibit J - Form of Century-ML Consent and Agreement Exhibit K - Form of Process Agent Acceptance
CREDIT AGREEMENT Dated as of April 25, 1997 CENTENNIAL PUERTO RICO WIRELESS CORPORATION, a Delaware corporation (the "Borrower"), the banks (the "Banks") listed on the signature pages hereof, and CITIBANK, N.A. ("Citibank"), as administrative agent (the "Administrative Agent") for the Banks hereunder, agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Additional Contributed Equity" means the Contributed Equity made after the date hereof. "Additional Puerto Rico Security Documents" has the meaning assigned to such term in Section 5.01(o) hereof. "Advance" means an advance by a Lender to the Borrower as part of a Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of Advance. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such first Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aggregate Financing Amount" means, at any time, the sum of (i) the aggregate principal amount of the Advances outstanding at such time plus (ii) the aggregate principal amount of any Tax-Advantaged Debt outstanding at such time plus (iii) the aggregate amount of Letter of Credit Liabilities at such time (excluding the aggregate undrawn amount of Letters of Credit to the extent such amount is in support of principal of any Tax-Advantaged Debt outstanding at such time). "Annualized EBITDA" means, for any Fiscal Period, EBITDA for such Fiscal Period multiplied by two; provided, Credit Agreement - 2 - that solely for purposes of the calculation of the Leverage Ratio as used in Section 5.01(j) on any date falling during the period commencing on June 1, 1998 and ending on November 30, 1998, Annualized EBITDA shall mean the product of (a) EBITDA for the Fiscal Quarter ending on or most recently ended prior to such date plus sales, marketing, advertising and equipment subsidy expenses for such Fiscal Quarter multiplied by (b) four. "Applicable Eurodollar Margin" has the meaning specified in Section 2.06(a)(ii). "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "Approved Telecommunications Property" means (a) a personal communications services system, as defined in 47 C.F.R. ss.24.5, authorized by the FCC to operate as Broadband PCS, as defined in 47 C.F.R. ss.24.5, in the frequency blocks Block A, Block B or Block C, as defined in 47 C.F.R. ss.24.229, or (b) a Cellular System, as defined in 47 C.F.R. ss.22.99, authorized by the FCC in the Cellular Radiotelephone Service, as defined in 47 C.F.R. ss.22.99, to operate pursuant to 47 C.F.R. Subpart H on Channel Block A or Channel Block B in an MSA or RSA, as defined in 47 C.F.R. ss.ss.22.909 and 22.905. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by each Issuing Bank and the Administrative Agent, in substantially the form of Exhibit C hereto. "Bank" has the meaning specified in the recital of parties to this Agreement. "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or state law (including any such law of Puerto Rico) for the relief of debtors. "Base Rate" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the higher of: Credit Agreement - 3 - (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate; (b) the sum (adjusted to the nearest 1/16 of one percent or, if there is no nearest 1/16 of one percent, to the next higher 1/16 of one percent) of (i) 1/2 of one percent per annum, plus (ii) the rate per annum obtained by dividing (A) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average (adjusted to the basis of a year of 365 or 366 days, as the case may be) being determined weekly on each Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, by (B) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities consisting of or including (among other liabilities) three-month U.S. dollar nonpersonal time deposits in the United States, plus (iii) the average during such three-week period of the annual assessment rates estimated by Citibank for determining the then current annual assessment payable by Citibank to the Federal Deposit Insurance Corporation (or any successor) for insuring U.S. dollar deposits of Citibank in the United States; and (c) 1/2 of one percent per annum above the Federal Funds Rate. "Base Rate Advance" means an Advance which bears interest as provided in Section 2.06(a)(i). Credit Agreement - 4 - "Borrowing" means a borrowing consisting of simultaneous Advances of the same Type made by each of the Lenders pursuant to Section 2.01A. "Borrowing Base" means, as at any date, the sum of (i) $100,000,000 plus (ii) (A) the amount of Additional Contributed Equity received by the Borrower on or after the date hereof minus the amount of any dividends (excluding the Initial Distributions) and other payments referred to in Section 5.02(g) hereof paid by the Borrower on or after the date hereof multiplied by (B) 1.75 minus (iii) the sum of (A) any optional or mandatory Commitment reductions plus (B) the outstanding principal amount of any Permitted Vendor Financing. "Borrowing Base Certificate" means a certificate of a Financial Officer of the Borrower, substantially in the form of Exhibit E hereto and appropriately completed. "Borrowing Base Release Date" shall mean the date on which the Administrative Agent receives the second of two Periodic Certificates as at the end of two consecutive Fiscal Quarters demonstrating that the Leverage Ratio on each date covered by such Periodic Certificates was less than 10.0:1. "Business Day" means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Capital Stock" of any Person means any and all share, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in the common or preferred equity (however designated) of such Person, including, without limitation, partnership interests. "Capitalized Lease Obligation" means, with respect to any Person for any period, an obligation of such Person to pay rent or other amounts under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP; and the amount of such obligation shall be the capitalized amount shown on the balance sheet of such Person as determined in accordance with GAAP. Credit Agreement - 5 - "CAP System" means a system that provides long-distance carriers or end-users with an alternative to the traditional local phone company for local transmission of private line and transport and special access telecommunications services in Puerto Rico and the Virgin Islands. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States in each case maturing within one year from the date of acquisition thereof, (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Ratings Services or Moody's Investors Service, (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Ratings Services or at least P-1 from Moody's Investors Service, (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. Branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000, (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above, (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above, and (vii) corporate debt obligations maturing within one year from the date of acquisition thereof and, at the time of acquisition, having an investment grade rating from Standard & Poor's Ratings Services and Moody's Investors Service. "Centennial Cellular" means Centennial Cellular Corp., a Delaware corporation. "Century-ML" means Century-ML Cable Corporation, a Delaware corporation. Credit Agreement - 6 - "Century-ML Consent and Agreement" means a consent and agreement entered into by the parties to the Facilities Agreement and the Administrative Agent, substantially in the form of Exhibit J hereto. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time. "Citibank" means Citibank, N.A., a national banking association. "Collateral" means the following items, whether now or hereafter acquired: (i) all Network Assets; (ii) all Capital Stock issued by the Obligors; (iii) all rights under interconnection agreements and operating agreements (including, without limitation, the Interconnection Agreements, the Facilities Agreement and the Marketing Agreements) to which the Borrower or any of the Subsidiaries is a party on the date hereof, as modified and supplemented and from time to time in effect; (iv) all rights under interconnection agreements and operating agreements (including, without limitation, the Interconnection Agreements, the Facilities Agreement and the Marketing Agreements) to which the Borrower or any of the Subsidiaries becomes a party after the date hereof, as modified and supplemented and from time to time in effect, subject to the ability of the Borrower or such Subsidiary, as the case may be, to grant a security interest in such agreements after having used its best efforts to obtain any necessary consents; and (v) substantially all other tangible and intangible property and rights of the Borrower and its Subsidiaries to the extent that each of the same has an individual book value in excess of $100,000. "Collateral Account" has the meaning specified in Section 6.02. Credit Agreement - 7 - "Commitment" has the meaning specified in Section 2.01A. "Commitment Percentage" shall mean, with respect to any Lender, the ratio of (a) the amount of the Commitment of such Lender to (b) the aggregate amount of the Commitments of all of the Lenders. "Compliance Certificate" means a certificate of a Financial Officer of the Borrower, substantially in the form of Exhibit I hereto and appropriately completed. "Consent and Agreement" means the Century-ML Consent and Agreement or the PRTC Consent and Agreement. "Consolidated" refers to the consolidation of accounts of the Borrower with the accounts of its Subsidiaries, all in accordance with GAAP, including principles of consolidation, consistent with those applied in the preparation of the Consolidated financial statements referred to in Section 4.01(e). "Contributed Equity" means, as of any date, the amount of common equity theretofore contributed by an Eligible Equity Contributor to the Borrower in cash. "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.07, 2.08, 2.10 or 2.11. "Copyright Collateral" shall mean all Copyrights, whether now owned or hereafter acquired by any Obligor, including each Copyright identified in Schedule 4.01(cc) hereto. "Copyrights" shall mean all copyrights, copyright registrations and applications for copyright registrations, including, without limitation, all renewals and extensions thereof, the right to recover for all past, present and future infringements thereof, and all other rights of any kind whatsoever accruing thereunder or pertaining thereto. "Credit Extension" means a Borrowing or the issuance of a Letter of Credit. "Credit Parties" means, collectively, the Obligors and Holdings. Credit Agreement - 8 - "CSI" means Citicorp Securities, Inc., a Delaware corporation. "Debt" of any Person means (i) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which such Person otherwise assures a creditor against loss (including Permitted Vendor Financing), (ii) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, including, but not limited to, commercial paper, (iii) obligations, contingent or otherwise, under acceptance, letter of credit or similar facilities, (iv) Capitalized Lease Obligations of such Person, and (v) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above; provided that Debt shall not include trade accounts payable unless payment thereof has been deferred by agreement beyond the customary period in the industry. "Debt Issuance" means any incurrence, issuance or sale of Debt by the Borrower or any of its Subsidiaries, other than Debt permitted by any of paragraphs (i) through (v), (vii) and (viii) of Section 5.02(b). "Default" means an Event of Default or an event which, with the giving of notice or lapse of time or both, would constitute an Event of Default. "Disposition" has the meaning assigned to such term in Section 2.09(b)(ii). "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "EBITDA" means, for any period, the sum of the Consolidated net income or loss for such period, excluding Credit Agreement - 9 - gains and losses from extraordinary items, of the Borrower and its Subsidiaries plus the sum of Interest Expense, depreciation, amortization expense and provision for income taxes to the extent deducted in computing such net income or loss. "Eligible Assignee" means a Person (a) (i) that is (A) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $500,000,000; (B) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development ("OECD"), or a political subdivision of any such country, and having total assets in excess of $500,000,000, provided that such bank is acting through a branch or agency located in the United States or another country which is also a member of OECD; or (C) a Lender or an affiliate of any Lender immediately prior to an assignment and (ii) whose long-term public senior debt securities are rated at least "BBB-" by Standard & Poor's Ratings Services or at least "Baa" by Moody's Investors Service, Inc.; or (b) that is approved by the Borrower (whose approval shall not be unreasonably withheld), the Administrative Agent and the Lenders. "Eligible Equity Contributor" means Holdings or any Affiliate of Holdings, other than the Borrower or any Subsidiary of the Borrower. "Environmental Action" means any administrative, regulatory or judicial action, suit, demand, demand letter, claim, notice of non-compliance or violation, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law or any Environmental Permit, including without limitation (a) any claim by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any Environmental Law and (b) any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Law" means any federal, state or local law, rule, regulation, order, writ, judgment, injunction, decree, determination or award relating to the environment, Credit Agreement - 10 - health, safety or Hazardous Materials, including, without limitation, CERCLA, the Resource Conservation and Recovery Act, the Hazardous Materials Transportation Act, the Clean Water Act, the Toxic Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Occupational Safety and Health Act. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "Equity Issuance" means (a) any issuance or sale by the Borrower after the date hereof of (i) any of its capital stock (other than any such capital stock issued to directors, officers or employees of the Borrower or any of its Subsidiaries), (ii) any warrants or options exercisable in respect of its capital stock (other than any warrants or options issued to directors, officers or employees of the Borrower or any of its Subsidiaries) or (iii) any other security or instrument representing an equity interest (or the right to obtain any equity interest) in the Borrower, or (b) the receipt by the Borrower after the date hereof of any capital contribution (whether or not evidenced by any equity security issued by the recipient of such contribution). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person who for purposes of Title IV of ERISA is a member of the Borrower's controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Event" with respect to any Person means (a) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan of such Person or any of its ERISA Affiliates unless the 30-day notice requirement with respect to such event has been waived by the PBGC; (b) the provision by the administrator of any Plan of such Person or any of its ERISA Affiliates of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) Credit Agreement - 11 - of ERISA); (c) the cessation of operations at a facility of such Person or any of its ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (d) the withdrawal by such Person or any of its ERISA Affiliates from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (e) the failure by such Person or any of its ERISA Affiliates to make a payment to a Plan required under Section 302(f)(1) of ERISA; (f) the adoption of an amendment to a Plan of such Person or any of its ERISA Affiliates requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (g) the institution by the PBGC of proceedings to terminate a Plan of such Person or any of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that could constitute grounds for the termination of, or the appointment of a trustee to administer, such Plan. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum at which deposits in U.S. dollars are offered by the principal office of Citibank in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to Citibank's Eurodollar Rate Advance comprising part of such Borrowing and for a period equal to such Interest Period. The Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing shall be determined by the Administrative Agent on the basis of applicable rates furnished to and received by the Administrative Agent from Citibank two Business Days Credit Agreement - 12 - before the first day of such Interest Period, subject, however, to the provisions of Section 2.07. "Eurodollar Rate Advance" means an Advance which bears interest as provided in Section 2.06(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Excess Cash Flow" means, for any Fiscal Quarter, the amount by which (i) EBITDA for such Fiscal Quarter exceeds (ii) the sum of (A) the Consolidated amount of all Interest Expense paid to third parties by the Borrower and its Subsidiaries during such Fiscal Quarter on account of Debt, (B) the Consolidated amount of all income taxes paid by the Borrower and its Subsidiaries during such Fiscal Quarter, (C) the Consolidated amount of all principal amounts required to be paid during such Fiscal Quarter with respect to Debt of the Borrower and its Subsidiaries, and (D) the amount equal to the capital Credit Agreement - 13 - expenditures made by the Borrower and its Subsidiaries for such Fiscal Quarter. "Face Amount" means, with respect to any Letter of Credit, the undrawn face amount thereof or, if such Letter of Credit is a revolving letter of credit, the maximum face amount to which such Letter of Credit may at any time be reinstated. "Facilities Agreement" means the Facilities Agreement dated as of January 2, 1995 between the Borrower, Century ML Cable Venture and Century-ML, as the same shall be modified and supplemented and in effect from time to time. "FCC" means the Federal Communications Commission or any successor thereto. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means, as to any Person, the chief executive officer, the chief financial officer, the treasurer or the principal accounting officer of that Person. "Fiscal Period" means the period of two consecutive Fiscal Quarters ended on the last day of May, August, November or February, as the case may be. "Fiscal Quarter" means the period of three calendar months ending on the last day of May, August, November or February, as the case may be. "Fiscal Year" means the period from and including June 1 of any calendar year to and including May 31 of the next succeeding calendar year (made up of four Fiscal Quarters), and when followed by the designation of a year Credit Agreement - 14 - shall mean such period ending on May 31 of such year. "GAAP" means, as of any date, generally accepted accounting principles in the United States as of the date hereof and not including any interpretations or regulations that have been proposed but that have not become effective. "Guarantors" means each Person (other than the Administrative Agent) that is or becomes a party to the Subsidiary Guaranty. "Hazardous Materials" means (a) petroleum or petroleum products, natural or synthetic gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and radon gas, (b) any substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants, contaminants" or "pollutants," or words of similar import, under any Environmental Law and (c) any other substance exposure to which is regulated under any Environmental Law. "Holdings" means Centennial Cellular Wireless Holding Corp., a New Jersey corporation. "Holdings Pledge Agreement" means a Pledge Agreement, substantially in the form of Exhibit D-3 hereto, between Holdings and the Administrative Agent, as the same shall be modified and supplemented and in effect from time to time. "Initial Distributions" means cash dividends by the Borrower during the period commencing on the date of the initial Credit Extension and ending on August 31, 1997 in an aggregate amount not exceeding the amount of Contributed Equity on the date of the initial Credit Extension minus $55,000,000. "Insufficiency" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. "Intellectual Property" shall mean, collectively, all Copyright Collateral, all Patent Collateral and all Trademark Collateral, together with (a) all inventions, processes, production methods, proprietary information, know-how and trade secrets; (b) all licenses or user or Credit Agreement - 15 - other agreements granted to any Obligor with respect to any of the foregoing, in each case whether now or hereafter owned or used including, without limitation, the licenses or other agreements with respect to the Copyright Collateral, the Patent Collateral or the Trademark Collateral, listed in Schedule 4.01(cc) hereto; (c) all information, customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, engineering reports, test reports, manuals, materials standards, processing standards, performance standards, catalogs, computer and automatic machinery software and programs; (d) all field repair data, sales data and other information relating to sales or service of products now or hereafter manufactured; (e) all accounting information and all media in which or on which any information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data; and (f) all licenses, consents, permits, variances, certifications and approvals of governmental agencies now or hereafter held by any Obligor. "Interconnection Agreements" means (a) the Interconnection Agreement dated March 18, 1997 between Centennial Wireless PCS Operations Corp. and PRTC and (b) the Interconnection Agreement dated March 18, 1997 between Lambda Communications, Incorporado, and PRTC, each of which has been duly approved by the PRTRB and a copy of each of which has been furnished to the Lenders prior to the date hereof, as the same shall be modified and supplemented and in effect from time to time. "Interest Coverage Ratio" means, for any Fiscal Period, the ratio of (a) Annualized EBITDA for such Fiscal Period to (b) Interest Expense for the period of four consecutive Fiscal Quarters ending on the last day of such Fiscal Period. "Interest Expense" means the sum of all amounts payable by the Borrower and its Subsidiaries on account of interest, amortization of debt discount and expense, and commitment, letter of credit, agency and other fees with respect to Total Debt. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Advance or the date of the Credit Agreement - 16 - Conversion of any Advance into such an Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months, in each case as the Borrower may, upon notice received by the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (i) the Borrower may not select any Interest Period which ends after any principal repayment installment date unless, after giving effect to such selection, the aggregate unpaid principal amount of Base Rate Advances and Advances having Interest Periods which end on or prior to such principal repayment installment date shall be at least equal to the principal amount of Advances due and payable on and prior to such date; (ii) Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration; and (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. "Investments" of any Person means all investments by such Person in other Persons (including Affiliates) in the forms of loans (including guarantees), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Debt, Capital Stock or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. Credit Agreement - 17 - "Issuing Bank" means, at any time of determination, a Lender that is the issuer of a Letter of Credit outstanding at such time under Section 2.01B hereof or that is owed a Reimbursement Obligation at such time arising from a drawing under a Letter of Credit issued by it, together with its successors and assigns in such capacity. "LEC System" means a system providing local telephone services within a local exchange in Puerto Rico and the Virgin Islands. "Lenders" means the Banks listed on the signature pages hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 8.07. "Letter of Credit" has the meaning specified in Section 2.01B hereof. "Letter of Credit Documents" shall mean, with respect to any Letter of Credit, collectively, any application therefor and any other agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations, each as the same may be modified and supplemented and in effect from time to time. "Letter of Credit Liability" shall mean, at any time and in respect of any Letter of Credit, the sum of (a) the Face Amount of such Letter of Credit (excluding, if such Letter of Credit is a revolving letter of credit, any portion thereof subject to reinstatement upon the payment of Reimbursement Obligations of the Borrower at such time due and payable) plus (b) the aggregate unpaid principal amount of all Reimbursement Obligations of the Borrower at such time due and payable in respect of all drawings made under such Letter of Credit. For purposes of this Agreement, a Lender (other than the issuer of such Letter of Credit) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest in the related Letter of Credit under Section 2.01B(b), and such issuer shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in the related Letter of Credit after giving effect to the acquisition by the Lenders other than such issuer of their participation Credit Agreement - 18 - interests under said Section 2.01B(b). "Leverage Ratio" means, as of any date, the ratio of (a) Total Debt as of such date to (b) Annualized EBITDA for the most recent Fiscal Period which ends on or before such date. "License Subsidiaries" means Centennial Wireless PCS License Corp., a Delaware corporation, and Lambda Communications, Incorporado, a Puerto Rico corporation. "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor, any lien or security interest created in connection with a sale/leaseback transaction and any easement, right of way or other encumbrance on title to real property. "Loan Documents" means this Agreement, the Notes, the Letter of Credit Documents, the Consent and Agreements and the Support Documents. "Majority Lenders" means at any time Lenders holding at least 51% of the then aggregate unpaid principal amount of the Notes and Letter of Credit Liabilities held by the Lenders, or, if no such principal amount is then outstanding, Lenders having at least 51% of the Commitments. "Margin Stock" has the meaning specified in Regulation U. "Marketing Agreement" means a material operating or material marketing agreement between any Obligor and any other party (including, without limitation, any such agreement with Century-ML). "Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, performance or properties of the Borrower and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance or properties of the Credit Agreement - 19 - Borrower and its Subsidiaries taken as a whole, (b) the rights and remedies of the Administrative Agent or any Lender under any Loan Document or (c) the ability of any Credit Party to perform its obligations under any Loan Document to which it is or is to be a party. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a) (3) of ERISA, to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a) (15) of ERISA, which (i) is maintained for employees of the Borrower or an ERISA Affiliate and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Net Cash Proceeds" means: (a) with respect to any Debt Issuance or Equity Issuance, the aggregate amount of cash received from time to time by or on behalf of such Person in connection with such transaction after deducting therefrom only reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees, rating agency fees and other similar fees and commissions; and (b) with respect to any Disposition, the aggregate amount of cash received from time to time by or on behalf of the respective seller in connection with such Disposition after deducting therefrom only (x) reasonable and customary brokerage commissions, legal fees, finder's fees, rating agency fees and other similar fees and commissions, (y) the amount of taxes payable in connection with or as a result of such Disposition and Credit Agreement - 20 - (z) the amount of any Debt secured by a Lien on the assets that are the subject of such Disposition and that, by the terms of such Disposition, is required to be repaid upon such Disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, no later than the Relevant Time (as defined in the following sentence), actually paid to a Person that is not an Affiliate of the Person making such payment (other than payments made to a director of any Person in his capacity as a member or partner of a law firm or partnership rendering legal services to such Person; provided that the terms of such compensation are fair and reasonable and no less favorable to such Person than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate) and are properly attributable to such transaction or to the asset that is the subject thereof. For purpose of the preceding sentence, "Relevant Time" means (i) in the case of the foregoing clauses (a) and (b)(x) the date falling 30 days after the receipt of cash from the relevant Debt Issuance, Equity Issuance or Disposition, (ii) in the case of the foregoing clause (b)(y), the date that the respective taxes are legally due and (iii) in the case of the foregoing clause (b)(z), the date of receipt of cash for the relevant Disposition. "Network Assets" means all base stations, switching stations, towers, antennas, and other cell-site equipment, all rights under the Facilities Agreement, all leasehold rights and all Telecommunications Approvals, and all other Property, in each case that are integral to the operation of the Telecommunications Networks. "Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Advances made by such Lender. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Obligor Pledge Agreement" means a Pledge Agreement, substantially in the form of Exhibit D-2 hereto, between the Credit Agreement - 21 - Borrower, Lambda Communications, Incorporado, and the Administrative Agent, as the same shall be modified and supplemented and in effect from time to time. "Obligors" means, collectively, the Borrower and the Guarantors. "Patent Collateral" shall mean all Patents, whether now owned or hereafter acquired by any Obligor, including each Patent identified in Schedule 4.01(cc) hereto. "Patents" shall mean all patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, all income, royalties, damages and payments now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, the right to sue for past, present and future infringements thereof, and all rights corresponding thereto throughout the world. "PBGC" means the Pension Benefit Guaranty Corporation. "PCS System" means a wireless telecommunications system licensed by the FCC under 47 C.F.R. Part 24 for operation in the "B" frequency block (1.865/1.880 GHz and 1.945/1.960 GHz) to provide any or all of a family of digital, wireless mobile or portable and fixed radio communications services to individuals and businesses in Puerto Rico and the Virgin Islands. "Periodic Certificate" has the meaning specified in Section 2.06(c). "Permitted Investments" means (a) any Investment in the Borrower or in a Person that, on the date hereof, is a Subsidiary; and (b) any Investment in Cash Equivalents. "Permitted Vendor Financing" means Debt incurred for the deferred purchase price of property or services related to the installation, operation and replacement of telecommunications equipment; provided that (a) at the time of incurrence thereof (and after giving effect thereto) (x) no Default shall have occurred and be continuing and (y) on a pro forma basis, the Borrower would be in Credit Agreement - 22 - compliance with Section 5.01(j) if such Debt was outstanding on the last day of the Fiscal Period ending on or most recently ended prior to the date of such incurrence and Section 5.01(i) and 5.01(k) if such Debt was outstanding throughout the period of four Fiscal Quarters ending on such date; (b) none of the principal of such Debt shall be required to be repaid prior to February 28, 2006; (c) the interest rate borne by such indebtedness does not exceed 12% per annum, (e) any Liens granted to secure repayment of such Debt shall cover only the equipment being financed and (f) the other material terms of such Debt and of any agreement entered into and or any instrument issued in connection therewith are no less favorable in any material respect to the Borrower or the Lenders than the terms and conditions of this Agreement. "Person" means an individual, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Pro-Forma Debt Service Coverage Ratio" means, as of any date of determination, the ratio of (i) Annualized EBITDA of the Borrower and its Subsidiaries for the Fiscal Period ending on or most recently ended prior to such date to (ii) the sum of (A) projected Interest Expense for the period of four Fiscal Quarters commencing on or most recently commenced prior to such date (or, if such date is the last day of a Fiscal Quarter, commencing on the next day) (calculated using the weighted average of interest rates at the time of calculation and at the principal outstanding at the time of calculation after giving effect to any scheduled payments of principal during such four Fiscal Quarters) plus (B) the aggregate principal amounts of all Debt required to be paid during such period of four Fiscal Quarters by the Borrower and its Subsidiaries. "Property" means any right or interest in or to property of any kind whatsoever, whether real, personal (including, without limitation, cash) or mixed and whether tangible or intangible. "PRPSC" means the Puerto Rico Public Service Credit Agreement - 23 - Commission. "PRTC" means the Puerto Rico Telephone Company, a Delaware corporation, which owns and operates a telephone system in and about Puerto Rico, all the outstanding shares of the common stock of which are owned by the Puerto Rico Telephone Authority, a body corporate and politic constituting a public corporation and governmental instrumentality of Puerto Rico. "PRTC Consent and Agreement" means a consent and agreement entered into by the parties to the Interconnection Agreements and the Administrative Agent, satisfactory to the Administrative Agent in form and substance in the reasonable exercise of discretion. "PRTRB" means the Telecommunications Regulatory Board of Puerto Rico created by Act No. 213 of the Legislature of Puerto Rico approved September 12, 1996, or any successor thereto. "Puerto Rico" means the Commonwealth of Puerto Rico. "Puerto Rico Security Documents" means each power of attorney, mortgage, assignment, security agreement and other document executed or to be executed and delivered by any Credit Party to grant and perfect the security interests required by Section 5.01(n) and enforce the rights of the Administrative Agent thereunder for the benefit of the Lenders, in each case in form and substance satisfactory to the Administrative Agent in the reasonable exercise of its discretion and as such documents may be amended or otherwise modified from time to time. "Register" has the meaning specified in Section 8.07(c). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Reimbursement Obligations" means, at any time, the obligations of the Borrower then outstanding, or that may thereafter arise in respect of all Letters of Credit then outstanding, to reimburse amounts paid by the Issuing Banks in respect of any drawings under Letters of Credit. Credit Agreement - 24 - "Required Reduction" has the meaning specified in Section 2.09(c). "Security Documents" means the Additional Puerto Rico Security Documents, the Puerto Rico Security Documents, the Obligor Pledge Agreement and the Holdings Pledge Agreement, in each case as the same shall be modified and supplemented and in effect from time to time. "Senior Notes Indenture" means the Indenture dated as of November 15, 1993 between Centennial Cellular, as issuer, and Bank of Montreal Trust Company, as trustee, as amended pursuant to a First Supplemental Indenture dated as of November 15, 1993 and by a Second Supplemental Indenture dated as of May 11, 1995 and as said Indenture shall, subject to Section 5.02(i), be further modified and supplemented and in effect from time to time. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a) (15) of ERISA, which (i) is maintained for employees of the Borrower or an ERISA Affiliate and no Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Solvent" means, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is not less than the total amount of its liabilities (including, without limitation, liabilities on all claims, whether or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured) of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its existing debts as they become absolute and matured, (c) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's Credit Agreement - 25 - property would constitute unreasonably small capital after giving due consideration to the prevailing practice in each respective industry in which such Person is engaged; it being understood that in applying the foregoing criteria in respect of any Person: (i) the value of the property and assets of such Person includes the value of its interest in its Subsidiaries and any rights to contribution (whether by equity or loan) from any of its Affiliates, and (ii) its ability to pay its debts and liabilities may be measured by reference to, among other things, amounts received or to be received in respect of any such property or assets. "Subordinated Debt" means Debt (i) for which the Borrower is directly and primarily liable, (ii) in respect of which none of its Subsidiaries is contingently or otherwise obligated, (iii) none of the principal of which shall be required to be repaid prior to February 28, 2006, (iv) that bears interest at a rate per annum not in excess of 12% and (v) that is subordinated to the obligations of the Borrower to pay principal of and interest on the Loans, Reimbursement Obligations and Notes hereunder on terms, and pursuant to documentation containing other terms (including interest, covenants and events of default), in form and substance satisfactory to the Majority Lenders. "Subscriber" means a Person purchasing wireless, long distance access or wireline services from the Borrower or a Subsidiary using the Telecommunications Networks of the Borrower and its Subsidiaries and whose account is not more than 90 days past due, provided, however, that if any Person purchases wireless services that include more than one telephone number, the number of Subscribers will be determined by the number of active telephone numbers for such Person. "Subsidiary" means, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any Credit Agreement - 26 - other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. Unless the context otherwise requires, each reference herein to a Subsidiary shall mean a Subsidiary of the Borrower. "Subsidiary Guaranty" means a Subsidiary Guaranty, substantially in the form of Exhibit D-1 hereto, between the Subsidiaries of the Borrower from time to time party thereto and the Administrative Agent, as the same shall be modified and supplemented and in effect from time to time. "Support Documents" means, collectively, the Subsidiary Guaranty, the Security Documents and all Uniform Commercial Code financing statements and other registration instruments required by this Agreement, the Subsidiary Guaranty or the Security Documents to be filed with respect to the security interests created pursuant to the Security Documents. "Tax-Advantaged Debt" means Debt of the Borrower (i) owing to the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA) in connection with (and not exceeding the aggregate principal amount of) Debt issued by said Authority the proceeds of which are used for the direct benefit of the Borrower and its Subsidiaries; or (ii) evidenced by securities issued by the Borrower pursuant to a commercial paper program of other debt instruments that qualify as an Eligible Investment under section 2(j) of the Puerto Rico Industrial Incentives Acts, Regulation 5105 issued by the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico, as amended from time to time, and any successor regulation with respect to the subject matter thereof issued by any governmental authority having jurisdiction in the matter; provided that in each of the cases referred to in the foregoing clauses (i) and (ii) such Debt of the Borrower or (in the case of the foregoing clause (ii)) of said Authority is supported by one or more Letters of Credit issued hereunder. "Telecommunications Approval" means any mobile telephone, specialized mobile radio, messaging, personal communications service, microwave or other license, permit, authorization, certificate, franchise, consent, approval or Credit Agreement - 27 - waiver granted or issued by the FCC, the PRPSC or the PRTB, including, without limitation, any of the foregoing authorizing or permitting the acquisition, construction or operation of a cellular telephone system, mobile telephone system, personal communications service system, microwave network, messaging system or a local exchange network or competitive access or transport network. "Telecommunications Networks" means, collectively, the PCS Systems, the CAP Systems and the LEC Systems of the Borrower and its Subsidiaries. "Termination Date" means the fourth anniversary of the date hereof, or the earlier date of termination in whole of the Commitments pursuant to Section 2.04 or 6.01. "Total Debt" means, as of any date, the Consolidated Debt of the Borrower and its Subsidiaries, including, without limitation, Capitalized Lease Obligations, guaranties, obligations with respect to letters of credit and trade accounts payable for which payment has been deferred by agreement beyond the customary period in the industry. "Trademark Collateral" shall mean all Trademarks, whether now owned or hereafter acquired by any Obligor, including each Trademark identified in Schedule 4.01(cc) hereto. Notwithstanding the foregoing, the Trademark Collateral does not and shall not include any Trademark that would be rendered invalid, abandoned, void or unenforceable by reason of its being included as part of the Trademark Collateral. "Trademarks" shall mean all trade names, trademarks and service marks, logos, trademark and service mark registrations, and applications for trademark and service mark registrations, including, without limitation, all renewals of trademark and service mark registrations, all rights corresponding thereto throughout the world, the right to recover for all past, present and future infringements thereof, all other rights of any kind whatsoever accruing thereunder or pertaining thereto, together, in each case, with the product lines and goodwill of the business connected with the use of, and symbolized by, each such trade name, trademark and service mark. "Type" has the meaning specified in the definition of Credit Agreement - 28 - "Advance" in this Section 1.01. "Virgin Islands" means the United States Virgin Islands. "Voting Power" means, with respect to any Voting Stock issued by any Person, the number of votes that the holders of such Voting Stock are ordinarily, in the absence of contingencies, entitled to cast for the election of a majority of the directors (or Persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or Persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "Wholly Owned Subsidiary" means, with respect to any Person, any corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are directly or indirectly owned or controlled by such Person or one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. "Withdrawal Liability" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e), as modified from time to time by changes in accounting principles which are required by generally accepted accounting principles in effect from time to time. Credit Agreement - 29 - ARTICLE II AMOUNTS AND TERMS OF THE CREDITS SECTION 2.01A. The Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender's name on the signature pages hereof or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.04 (such Lender's "Commitment"), provided that in no event shall (a) the Aggregate Financing Amount exceed the aggregate amount of the Commitments as in effect from time to time or (b) the Aggregate Financing Amount exceed the aggregate amount of the Borrowing Base as in effect from time to time prior to the Borrowing Base Release Date. Each Borrowing shall be in an aggregate amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, the Borrower may borrow, prepay pursuant to Section 2.09(a) and reborrow under this Section 2.01A. SECTION 2.01B. Letters of Credit. Subject to the terms and conditions of this Agreement, the Commitments may be utilized, upon the request of the Borrower, in addition to the Advances provided for by Section 2.01A hereof, by the issuance by a Lender or Lenders designated by the Borrower of letters of credit (collectively, "Letters of Credit") for account of the Borrower or any of its Subsidiaries (as specified by the Borrower), provided that in no event shall (i) the Aggregate Financing Amount exceed the aggregate amount of the Commitments as in effect from time to time, (ii) the Aggregate Financing Amount exceed the Borrowing Base as in effect from time to time prior to the Borrowing Base Release Date, (iii) the outstanding aggregate amount of all Letter of Credit Liabilities exceed $125,000,000, (iv) the expiration date of any Letter of Credit extend beyond the Termination Date or (v) any Lender be required to issue any Letter of Credit without its consent (which it may grant or withhold in its sole discretion). The following additional provisions shall apply to Letters of Credit: Credit Agreement - 30 - (a) The Borrower shall give the Administrative Agent at least ten Business Days' irrevocable prior notice (effective upon receipt) specifying the Business Day (which shall be no later than 30 days preceding the Termination Date) each Letter of Credit is to be issued, the account party or parties therefor and the Lender that will issue such Letter of Credit and describing in reasonable detail the proposed terms of such Letter of Credit (including the beneficiary thereof) and the nature of the transactions or obligations proposed to be supported thereby (including whether such Letter of Credit is to be a commercial letter of credit or a standby letter of credit). Upon receipt of any such notice, the Administrative Agent shall advise the prospective Issuing Bank of the contents thereof. (b) On each day during the period commencing with the issuance of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, the Commitment of each Lender shall be deemed to be utilized for all purposes of this Agreement in an amount equal to such Lender's Commitment Percentage of the Face Amount of such Letter of Credit. Upon the issuance of any Letter of Credit hereunder, each Lender (other than the issuer thereof) shall automatically acquire a participation in the respective Issuing Bank's liability under such Letter of Credit in an amount equal to such Lender's Commitment Percentage of such liability, and each Lender (other than the issuer thereof) thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to such Issuing Bank to pay and discharge when due, its Commitment Percentage of such Issuing Bank's liability under such Letter of Credit. (c) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment under such Letter of Credit, the respective Issuing Bank shall promptly notify the Borrower (through the Administrative Agent) of the amount to be paid by such Issuing Bank as a result of such demand and the date on which payment is to be made by such Issuing Bank to such beneficiary in respect of such demand. Notwithstanding the identity of the account party of any Letter of Credit, the Borrower hereby unconditionally agrees to pay and reimburse the Administrative Agent for account of such Issuing Bank for the amount of each demand for payment under such Letter of Credit that is in substantial compliance with the provisions of such Letter of Credit at or prior to the date on which payment is to be made by such Credit Agreement - 31 - Issuing Bank to the beneficiary thereunder, without presentment, demand, protest or other formalities of any kind and irrespective of any claim, set-off, defense or other right which the Borrower or any of its Subsidiaries or Affiliates may have at any time against such Issuing Bank or any other Person, under all circumstances. (d) Forthwith upon its receipt of a notice referred to in paragraph (c) of this Section 2.01B, the Borrower shall advise the Administrative Agent whether or not the Borrower intends to borrow hereunder to finance its obligation to reimburse the respective Issuing Bank for the amount of the related demand for payment and, if it does, submit a notice of such borrowing as provided in Section 2.02(a) hereof. (e) Each Lender (other than the issuer of such Letter of Credit) shall pay to the Administrative Agent for account of the issuer of a Letter of Credit at its address referred to in Section 8.02 in U.S. dollars and in same day funds, the amount of such Lender's Commitment Percentage of any payment under such Letter of Credit upon notice by such issuer (through the Administrative Agent) to such Lender requesting such payment and specifying such amount. Each such Lender's obligation to make such payment to the Administrative Agent for account of any Issuing Bank under this paragraph (e), and each Issuing Bank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, the failure of any other Lender to make its payment under this paragraph (e), the financial condition of the Borrower (or any other account party), the existence of any Default or the termination of the Commitments. Each such payment to an Issuing Bank shall be made without any offset, abatement, withholding or reduction whatsoever. If any Lender shall default in its obligation to make any such payment to the Administrative Agent for account of an Issuing Bank, for so long as such default shall continue the Administrative Agent may at the request of such Issuing Bank withhold from any payments received by the Administrative Agent under this Agreement or any Note for account of such Lender the amount so in default and, to the extent so withheld, pay the same to such Issuing Bank in satisfaction of such defaulted obligation. (f) Upon the making of each payment by a Lender to an Issuing Bank pursuant to paragraph (e) above in respect of any Letter of Credit, such Lender shall, automatically and Credit Agreement - 32 - without any further action on the part of the Administrative Agent, such Issuing Bank or such Lender, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to such Issuing Bank by the Borrower hereunder and under the Letter of Credit Documents relating to such Letter of Credit and (ii) a participation in a percentage equal to such Lender's Commitment Percentage in any interest or other amounts payable by the Borrower hereunder and under such Letter of Credit Documents in respect of such Reimbursement Obligation (other than the commissions, charges, costs and expenses payable to such Issuing Bank pursuant to paragraph (g) of this Section 2.01B). Upon receipt by an Issuing Bank from or for account of the Borrower of any payment in respect of any Reimbursement Obligation or any such interest or other amount (including by way of setoff or application of proceeds of any collateral security) such Issuing Bank shall promptly pay to the Administrative Agent for account of each Lender entitled thereto, such Lender's Commitment Percentage of such payment, each such payment by such Issuing Bank to be made in the same money and funds in which received by such Issuing Bank. In the event any payment received by any Issuing Bank and so paid to the Lenders hereunder is rescinded or must otherwise be returned by such Issuing Bank, each Lender shall, upon the request of such Issuing Bank (through the Administrative Agent), repay to such Issuing Bank (through the Administrative Agent) the amount of such payment paid to such Lender, with interest at the rate specified in paragraph (j) of this Section 2.01B. (g) The Borrower shall pay to the Administrative Agent for account of each Lender (ratably in accordance with their respective Commitment Percentages) a letter of credit fee in respect of each Letter of Credit in an amount equal to the Applicable Eurodollar Margin in effect from time to time multiplied by the daily average Face Amount of such Letter of Credit for the period from and including the date of issuance of such Letter of Credit (i) in the case of a Letter of Credit that expires in accordance with its terms, to and including such expiration date and (ii) in the case of a Letter of Credit that is drawn in full or is otherwise terminated other than on the stated expiration date of such Letter of Credit, to but excluding the date such Letter of Credit is drawn in full or is terminated (such fee to be non-refundable, to be paid in arrears on the last day of each May, August, November and February and on the Termination Date and to be calculated for any day after Credit Agreement - 33 - giving effect to any payments made under such Letter of Credit on such day). In addition, the Borrower shall pay to each Issuing Bank (x) a fronting fee in respect of each Letter of Credit in such amount as shall be separately agreed upon between the Borrower and such Issuing Bank and (y) all commissions, charges, costs and expenses in the amounts customarily charged by such Issuing Bank from time to time in like circumstances with respect to the issuance of each Letter of Credit and drawings and other transactions relating thereto. (h) Promptly following the end of each calendar month, each Issuing Bank shall deliver (through the Administrative Agent) to each Lender and the Borrower a notice describing the aggregate amount of all Letters of Credit outstanding at the end of such month. Upon the request of any Lender from time to time, each Issuing Bank shall deliver any other information reasonably requested by such Lender with respect to each Letter of Credit issued by such Issuing Bank then outstanding. (i) The issuance by each Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Article III hereof, be subject to the conditions precedent that (i) such Letter of Credit shall be in such form, contain such terms and support such transactions as shall be satisfactory to such Issuing Bank consistent with its then current practices and procedures with respect to letters of credit of the same type and (ii) the Borrower shall have executed and delivered such applications, agreements and other instruments relating to such Letter of Credit as such Issuing Bank shall have reasonably requested consistent with its then current practices and procedures with respect to letters of credit of the same type, provided that in the event of any conflict between any such application, agreement or other instrument and the provisions of this Agreement or any Security Document, the provisions of this Agreement and the Security Documents shall control. (j) To the extent that any Lender shall fail to pay any amount required to be paid pursuant to paragraph (e) or (f) of this Section 2.01B on the due date therefor, such Lender shall pay interest to the respective Issuing Bank (through the Administrative Agent) on such amount from and including such due date to but excluding the date such payment is made at a rate per annum equal to the Federal Credit Agreement - 34 - Funds Rate, provided that if such Lender shall fail to make such payment to such Issuing Bank within three Business Days of such due date, then, retroactively to the due date, such Lender shall be obligated to pay interest on such amount at the rate provided for in Section 2.06(b). (k) The issuance by any Issuing Bank of any modification or supplement to any Letter of Credit hereunder shall be subject to the same conditions applicable under this Section 2.01B to the issuance of new Letters of Credit, and no such modification or supplement shall be issued hereunder unless either (i) the respective Letter of Credit affected thereby would have complied with such conditions had it originally been issued hereunder in such modified or supplemented form or (ii) each Lender shall have consented thereto. The Borrower hereby indemnifies and holds harmless each Lender and the Administrative Agent from and against any and all claims and damages, losses, liabilities, costs or expenses that such Lender or the Administrative Agent may incur (or that may be claimed against such Lender or the Administrative Agent by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or refusal to pay by any Issuing Bank under any Letter of Credit; provided that the Borrower shall not be required to indemnify any Lender or the Administrative Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (x) the willful misconduct or gross negligence of such Issuing Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) in the case of such Issuing Bank, such Issuing Bank's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit unless such payment was enjoined by court order. Nothing in this Section 2.01B is intended to limit the other obligations of the Borrower, any Lender or the Administrative Agent under this Agreement. SECTION 2.02. Making the Advances. (a) Each Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third (or, in the case of a Base Rate Advance, the first) Business Day prior to the date of the proposed Borrowing, by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier, telex or cable. Each such notice Credit Agreement - 35 - of an Borrowing (a "Notice of Borrowing") shall be by telecopier, telex or cable, confirmed immediately by mail or delivery in writing, in substantially the form of Exhibit B hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing comprised of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Lender shall, before 11:00 A.M. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02, in same day funds, such Lender's ratable portion of such Borrowing. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower at the Administrative Agent's aforesaid address. (b) Anything contained herein to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for any Borrowing if the aggregate amount of such Borrowing is less than $5,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.07 and (ii) no more than ten Borrowings may be outstanding at anytime. (c) Each Notice of Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 Credit Agreement - 36 - and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement. (e) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. Fees. (a) Commitment Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee on the average daily unused portion of such Lender's Commitment from the date hereof in the case of each Bank and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date at the rate of (i) 0.500% per annum during each period in which the applicable Leverage Ratio is greater than 8.0:1, (ii) 0.375% per annum during each period in which the applicable Leverage Ratio is less than or equal to 8.0:1 and greater than 6.0:1, and (iii) 0.250% per annum during each period in which the applicable Leverage Ratio is less than or equal to 6.0:1, payable on the last day of each November, February, May and August during the term of such Lender's Commitment, commencing on the date hereof and on the Termination Date. Each retroactive change in the Leverage Ratio pursuant to Section 2.06(d) shall be given retroactive effect in determining the applicable commitment fee rate pursuant to this Section 2.03(a) for a period of time identical to that given such retroactive change in the Leverage Ratio. If any such Credit Agreement - 37 - retroactive change occurs in the commitment fee rate payable for a period for which the Borrower has already paid commitment fees, then any overpayment of commitment fees by the Borrower resulting therefrom shall be credited to future commitment fee or other payment obligations of the Borrower and any underpayment of commitment fees by the Borrower resulting therefrom shall be paid by the Borrower to the Administrative Agent for the account of the Lenders upon demand by the Administrative Agent. (b) Agency Fee. The Borrower shall pay to the Administrative Agent, for its own account, such fees in respect of its services hereunder as shall from time to time be separately agreed upon between the Borrower and the Administrative Agent. SECTION 2.04. Reduction of the Commitments. (a) Mandatory. The Commitments of the Lenders shall be automatically and permanently reduced as provided by Section 2.09(c). (b) Optional. The Borrower shall have the right, upon at least 5 Business Days' notice to the Administrative Agent, to terminate in whole or permanently reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that each partial reduction shall be in the aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. SECTION 2.05. Repayment of Advances. The Borrower shall repay the principal amount of each Advance outstanding at the close of business on the Termination Date made to it owing to each Lender on each of the principal installment dates listed below commencing May 31, 2001 and ending February 28, 2005 and the amount to be paid on each such principal repayment installment date shall equal the product obtained by multiplying (x) the unpaid principal amount of such Advance outstanding at the close of business on the Termination Date by (y) the percentage set forth below for that principal repayment installment date: Credit Agreement - 38 -
Last Business Last Business Last Business Last Business Day of Day of Day of Day of Year February May August November ---- -------- --- ------ ----------- 2001 XXX 3.00% 4.00% 5.00% 2002 6.00% 6.50% 6.50% 7.00% 2003 7.00% 7.00% 7.00% 7.00% 2004 7.00% 7.00% 7.00% 7.00% 2005 6.00% XXX XXX XXX
provided, however, that the last such installment shall be in the amount necessary to repay in full the unpaid principal amount of such Advance. SECTION 2.06. Interest on the Advances. (a) Ordinary Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender in accordance with the Note to the order of such Lender at the following rates per annum: (i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times equal to the sum of the Base Rate in effect from time to time plus 1.50%, provided that if the applicable Leverage Ratio shall be greater than zero and fall within any of the ranges set forth below then the Borrower shall pay a rate per annum equal at all times to the sum of the Base Rate in effect from time to time plus the applicable margin set forth below: (A) 1.25% per annum during each period in which the applicable Leverage Ratio is greater than 10.0:1, (B) 1.00% per annum during each period in which the applicable Leverage Ratio is less than or equal to 10.0:1 and greater than 9.0:1, (C) 0.875% per annum during each period in which the applicable Leverage Ratio is less than or equal to 9.0:1 and greater than 8.0:1, (D) 0.750% per annum during each period in which the applicable Leverage Ratio is less than or equal to Credit Agreement - 39 - 8.0:1 and greater than 7.0:1, (D) 0.625% per annum during each period in which the applicable Leverage Ratio is less than or equal to 7.0:1 and greater than 6.0:1, (E) 0.375% per annum during each period in which the applicable Leverage Ratio is less than or equal to 6.0:1 and greater than 5.0:1, (F) 0.125% per annum during each period in which the applicable Leverage Ratio is less than or equal to 5.0:1 and greater than 4.0:1, and (G) 0% per annum during each period in which the applicable Leverage Ratio is less than or equal to 4.0:1, payable in arrears on the last day of each May, August, November and February during such periods and on the date such Base Rate Advance shall be Converted or paid in full. (ii) Eurodollar Rate Advance. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance equal to the sum of the Eurodollar Rate for such Interest Period for such Advance plus 2.50%, provided that if the applicable Leverage Ratio shall be greater than zero and fall within any of the ranges set forth below then the Borrower shall pay a rate per annum equal at all times to the sum of the Eurodollar Rate for such Interest Period for such Advance plus the applicable margin set forth below (the "Applicable Eurodollar Margin"): (A) 2.25% per annum during each period in which the applicable Leverage Ratio is greater than 10.0:1, (B) 2.00% per annum during each period in which the applicable Leverage Ratio is less than or equal to 10.0:1 and greater than 9.0:1, (C) 1.875% per annum during each period in which the applicable Leverage Ratio is less than or equal to 9.0:1 and greater than 8.0:1, (D) 1.750% per annum during each period in which the applicable Leverage Ratio is less than or equal to Credit Agreement - 40 - 8.0:1 and greater than 7.0:1, (D) 1.625% per annum during each period in which the applicable Leverage Ratio is less than or equal to 7.0:1 and greater than 6.0:1, (E) 1.375% per annum during each period in which the applicable Leverage Ratio is less than or equal to 6.0:1 and greater than 5.0:1, (F) 1.125% per annum during each period in which the applicable Leverage Ratio is less than or equal to 5.0:1 and greater than 4.0:1, and (G) 0.875% per annum during each period in which the applicable Leverage Ratio is less than or equal to 4.0:1, payable in arrears on the last day of such Interest Period and, if such Interest Period is greater than three months, on the last day of each three-month period during such Interest Period. (b) Default Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance that is not paid when due and on the unpaid amount of all interest, fees and other amounts payable hereunder that is not paid when due, payable on demand, at a rate per annum equal at all times to (i) in the case of any amount of principal, the greater of (x) 2% per annum above the rate per annum required to be paid on such Advance immediately prior to the date on which such amount became due and (y) 2% per annum above the rate per annum on a hypothetical Borrowing consisting of a Eurodollar Rate Advance in a principal amount equal to the principal amount of such defaulted Advance and having consecutive Interest Periods of three months' duration, the first day of the initial Interest Period for such hypothetical Eurodollar Rate Advance being deemed to occur on the first day on which such defaulted Advance shall not have been paid when due and (ii) in the case of all other amounts, 2% per annum above the Base Rate in effect from time to time. (c) Leverage Ratio Certificates. The Borrower shall deliver a certificate, in substantially the form of Exhibit F, to the Administrative Agent on each date on which financial statements are delivered pursuant to Sections 5.03(c) and 5.03(d) (each such certificate being a "Periodic Certificate"). Each Periodic Certificate shall certify the Leverage Ratio in effect Credit Agreement - 41 - on the last day of the most recent Fiscal Period which ends on or before the date on which such certificate is delivered. (d) Effective Dates for Leverage Ratios. Each Leverage Ratio certified in any Periodic Certificate shall (absent manifest error) become effective on the date such certificate is delivered in compliance with this Agreement. The Leverage Ratio certified for the date on which such certificate is delivered shall apply to each date thereafter until the delivery in compliance with this Agreement of the next Periodic Certificate called for by Section 2.06(c). If the Borrower fails to deliver financial statements and the related Periodic Certificate when required by Section 5.03(c), then the applicable Leverage Ratio shall be the Leverage Ratio in effect on the last day of the Fiscal Period in respect of which such Periodic Certificate should have been delivered and shall continue in effect until a Periodic Certificate in compliance with this Section 2.06 is delivered. SECTION 2.07. Interest Rate Determination and Protection. (a) Citibank agrees to furnish to the Administrative Agent timely information for the purpose of determining each Eurodollar Rate. (b) The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.06(a)(i) or (ii), and the applicable rate, if any, furnished by Citibank for the purpose of determining the applicable interest rate under Section 2.06(a)(ii). (c) If Citibank does not furnish timely information to the Administrative Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances, (i) the Administrative Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances, (ii) each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and (iii) the obligation of the Lenders to make, or to Credit Agreement - 42 - Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (d) If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (e) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Lenders and the Borrower will be deemed to have selected, for the Interest Period immediately succeeding the then existing Interest Period therefor, an Interest Period for such Advance of three months' duration. (f) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $5,000,000, such Eurodollar Rate Advances shall automatically Convert into Base Rate Advances, and on and after such date the right of the Borrower to Convert such Base Rate Advances into Eurodollar Rate Advances shall terminate; provided, however, that, if and so long as each such Eurodollar Rate Advance shall have the same Interest Period as Eurodollar Rate Advances comprising another Borrowing or other Borrowings, and the aggregate unpaid principal amount of all such Eurodollar Rate Advances shall equal or exceed $5,000,000, the Borrower shall have the right to continue all such Advances as, or to Convert all such Advances into, Eurodollar Rate Advances having Credit Agreement - 43 - such Interest Period. SECTION 2.08. Voluntary Conversion of Advances. The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.07, 2.10 and 2.11, Convert all Advances of one Type comprising the same Borrowing into Advances of the other Type; provided, however, that any Conversion of any Eurodollar Rate Advances into Base Rate Advances shall be made on, and only on, the last day of an Interest Period for such Eurodollar Rate Advances. Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the Interest Period for each such Advance. SECTION 2.09. Prepayments of Advances. (a) Optional. The Borrower may, upon at least five Business Days' notice to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amount of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount not less than $5,000,000 or a larger multiple of $1,000,000 and, if made after the Termination Date, shall be applied ratably to the respective principal repayment installments of the Advances and (y) in the event of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(b). (b) Mandatory. (i) Borrowing Base. Until the Borrowing Base Release Date, the Borrower shall from time to time prepay the Advances (and/or provide cover for Letter of Credit Liabilities as specified in paragraph (d) below) in such amounts as shall be necessary so that at all times the Aggregate Financing Amount shall not exceed the Borrowing Base, such amount to be applied, first, to Advances outstanding and, second, as cover for Letter of Credit Credit Agreement - 44 - Liabilities outstanding. (ii) Sales of Assets. Without limiting the obligation of the Borrower to obtain the consent of the Majority Lenders pursuant to Section 5.02(e) to any sale, lease, transfer or other disposition (each, a "Disposition") of any asset of the Borrower or any Subsidiary (other than sales of assets in the ordinary course of business) not otherwise permitted hereunder, in the event that the Borrower or any Subsidiary shall receive Net Cash Proceeds of any Disposition, the Borrower will prepay the Advances (and/or provide cover for Letter of Credit Liabilities as specified in Section 2.09(d)), and the Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of such Net Cash Proceeds, such prepayment and reduction to be effected in each case in the manner and to the extent specified in Section 2.09(c). (iii) Excess Cash Flow. Not later than the date 60 days after the end of each Fiscal Quarter of the Borrower ending on or after May 31, 2001, the Borrower shall prepay the Advances (and/or provide cover for Letter of Credit Liabilities as specified in Section 2.09(d)), and the Commitments shall be subject to automatic reduction, in an aggregate amount equal to the excess of 50% of Excess Cash Flow for such Fiscal Quarter, such prepayment and reduction to be effected in each case in the manner and to the extent specified in Section 2.09(c). (iv) Debt Issuance. Upon any Debt Issuance, the Borrower shall prepay the Advances (and/or provide cover for Letter of Credit Liabilities as specified in Section 2.09(d)), and the Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Cash Proceeds thereof, such prepayment and reduction to be effected in each case in the manner and to the extent specified in Section 2.09(c). (v) Notice. The Borrower shall give the Administrative Agent at least five Business Days' prior written notice of each prepayment of Advances (and/or provision of cover for Letter of Credit Liabilities) and reduction of Commitments required by this Section 2.09(b) stating the aggregate amount (or in the case of Section 2.09(b)(i), stating the approximate aggregate amount) thereof and the date on which the same shall be made; provided that failure by the Borrower to give such Credit Agreement - 45 - notice shall not relieve the Borrower of its obligation to make such prepayment of Advances (and/or provision of cover for Letter of Credit Liabilities) and reduction of Commitments. (c) Application of Prepayment Proceeds. Prepayments of Advances (and/or provision of cover for Letter of Credit Liabilities) and reductions of Commitments (each, a "Required Reduction") described in the above paragraphs of this Section 2.09 (other than in paragraph (b)(i) above) shall be effected as follows: (i) if the date of such Required Reduction falls on or before the Termination Date, the Commitments shall be automatically reduced in an amount equal to the amount of the Required Reduction (and to the extent that, after giving effect thereto, the Aggregate Financing Amount would exceed the Commitments, the Borrower shall, first, prepay Advances and, second, provide cover for Letter of Credit Liabilities as specified in Section 2.09(d), in an aggregate amount equal to such excess); and (ii) if the date of the Required Reduction falls after the Termination Date, the amount of the Required Reduction shall be applied to the installments of the Advances then outstanding pro rata in accordance with the amounts of such installments. (d) Cover for Letter of Credit Liabilities. In the event that the Borrower shall be required pursuant to this Section 2.09, or pursuant to Section 6.01, to provide cover for Letter of Credit Liabilities, the Borrower shall effect the same by paying to the Administrative Agent immediately available funds in an amount equal to the required amount, which funds shall be retained by the Administrative Agent in the Collateral Account (as provided therein as collateral security in the first instance for the Letter of Credit Liabilities) until such time as the Letters of Credit shall have been terminated and all of the Letter of Credit Liabilities paid in full. SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost Credit Agreement - 46 - to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then, if such costs are or will be charged to customers of such Lender generally, the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased costs setting forth in reasonable detail the calculations used in determining such increased costs, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. Notwithstanding anything to the contrary contained in this subsection (a), a Lender shall only be entitled to receive reimbursement for such increased costs to the extent incurred within 90 days prior to, and at any time after, the date on which such Lender gives to the Borrower a notice that an event has occurred as a result of which such increased costs will arise or a notice that the Borrower is obligated to pay increased costs, whichever first occurs. (b) If, due to either (i) the introduction of any change in or in the interpretation of any law or regulation occurring on or after the date hereof or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) issued on or after the 90th day prior to the date hereof, any Lender determines that there shall be any increase in the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender as a result of or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder. A certificate as to such amounts setting forth in reasonable detail the calculations used in determining such amounts, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. Notwithstanding anything to the contrary contained in this subsection (b), a Lender shall only be entitled to receive reimbursement for such additional amounts pursuant to this subsection (b) to the extent incurred within 90 days prior to, Credit Agreement - 47 - and at any time after, the date on which such Lender gives to the Borrower a notice that an event has occurred as a result of which such additional amounts will arise or a notice that the Borrower is obligated to pay such additional amounts, whichever first occurs. (c) Upon the occurrence and during the continuance of any Event of Default, (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. (d) Any Lender claiming any additional amounts payable pursuant to Section 2.10(a) and 2.10(b) shall, upon request from the Borrower delivered to such Lender and the Administrative Agent specifying an Eligible Assignee willing and able to assume and accept all such Lender's right and obligations under this Agreement and the other Loan Documents, assign, in accordance with the provisions of Section 8.07, all of its rights and obligations under this Agreement and the other Loan Documents to another Lender or an Eligible Assignee in consideration for (i) the payment by such assignee to the Lender of the principal of, and interest on, the Note or Notes of such Lender accrued to the date of such assignment, together with any and all other amounts owing to such Lender under any provision of this Agreement or the other Loan Documents accrued to the date of such assignment and (ii) the release of such Lender from any further liability hereunder. The processing and recordation fee required under Section 8.07(a) shall be paid by the Borrower under this Section 2.10(d). SECTION 2.11. Illegality. Notwithstanding any other provisions of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrower through the Administrative Agent, accompanied by an opinion of counsel to such Lender (which counsel may be in-house counsel) with respect to such illegality, (i) each Eurodollar Rate Advance will automatically, upon such demand, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until Credit Agreement - 48 - the Administrative Agent shall notify the Borrower that such Lender has determined that the circumstances causing such suspension no longer exist. SECTION 2.12. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at its address referred to in Section 8.02 in same day funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal, interest, commitment fees or letter of credit fees ratably (other than amounts payable pursuant to Sections 2.10, 2.13 or 2.15) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement; provided, however, so long as an Event of Default shall have occurred and be continuing under Section 6.01(a) or the Advances shall have been declared or shall become due and payable in accordance with the last paragraph of Section 6.01, then the Administrative Agent will cause to be distributed all funds relating to the payment of principal or interest in respect of Advances received by the Administrative Agent from the Borrower ratably to the Lenders based on the Advances then outstanding. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(c), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under any Note held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due. (c) All computations of interest based on the Base Rate or the Federal Funds Rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Credit Agreement - 49 - Eurodollar Rate, of the commitment fees of the letter of credit fees and of the letter of credit Fronting fees shall be made by the Administrative Agent, and all computations of interest pursuant to Section 2.15 shall be made by a Lender on the basis of a year of 360 days, in each case for the actual number of days (including the first day but (except to the extent provided in Section 2.01B(g)) excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent (or, in the case of Section 2.15 by a Lender) of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be; provided, however, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.13. Taxes. (a) Any and all payments by the Borrower hereunder or under the Notes shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto imposed by, or by any taxing authority of or in, Puerto Rico, the United States of America, any subdivision of either thereof, excluding, in the case of each Lender and the Credit Agreement - 50 - Administrative Agent, taxes imposed on its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its net income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or the Administrative Agent, (i) the sum payable shall be increased so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.13) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes and/or the Support Documents (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.13) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. If no Taxes are payable in respect of any payment hereunder or under Credit Agreement - 51 - the Notes, the Borrower will furnish to the Administrative Agent, at such address, a certificate from each appropriate taxing authority, or an opinion of counsel acceptable to the Administrative Agent, in either case stating that such payment is exempt from or not subject to Taxes. (e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each initial Lender and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Administrative Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Administrative Agent with Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 2.13(a). (f) For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form described in Section 2.13(e) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided, or if such form otherwise is not required under the first sentence of subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.13(a) or 2.13(c) with respect to Taxes imposed by the United States; provided, however, should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes. (g) Notwithstanding any contrary provisions of this Agreement, in the event that a Lender that originally provided such form as may be required under Section 2.13(e) thereafter ceases to qualify for complete exemption from United States withholding tax, such Lender may assign its interest under this Credit Agreement - 52 - Agreement to any assignee and such assignee shall be entitled to the same benefits under this Section 2.13 as the assignor provided that the rate of United States withholding tax applicable to such assignee shall not exceed the rate then applicable to the assignor. (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.13 shall survive the payment in full of principal and interest hereunder and under the Notes. SECTION 2.14. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances made by it (other than pursuant to Section 2.10, 2.13 or 2.15) in excess of its ratable share of payments on account of the Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. SECTION 2.15. Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to each Lender, so long as such Lender shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the Credit Agreement - 53 - remainder obtained by subtracting (i) the Eurodollar Rate for such Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Advance. Such additional interest shall be determined by such Lender and notified to the Borrower through the Administrative Agent. SECTION 2.16. Use of Proceeds. The proceeds of each Advance shall be used by the Borrower (i) to finance payment of the Initial Distributions; (ii) to finance working capital requirements of the Borrower and its Subsidiaries; (iii) to finance the construction and operation of personal communications, competitive access and telecommunications networks in Puerto Rico and the United States Virgin Islands by the Borrower and its Subsidiaries and (iv) for general corporate purposes. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Initial Advances. The obligation of each Lender to make its initial Advance, and the obligation of each Issuing Bank to issue its initial Letter of Credit, on the occasion of the initial Credit Extension hereunder is subject to the following conditions precedent: (a) The Administrative Agent shall have received the Notes payable to the order of each of the Lenders, respectively, duly executed by the Borrower. (b) The Lenders shall be reasonably satisfied with the organizational and legal structure and capitalization of the Borrower and each Subsidiary, including the terms and conditions of (i) the charter, bylaws, partnership agreement and other organizational documents, and each class of capital stock or other equity interest, of the Borrower and each Subsidiary, (ii) of each agreement or instrument relating to such structure (including, without limitation, intercompany tax sharing, cost sharing and management agreements) or capitalization and (iii) existing Debt (including, without limitation, equipment vendor financing) of the Borrower and each Subsidiary. Credit Agreement - 54 - (c) The Borrower shall have paid all accrued fees and expenses of the Administrative Agent and CSI (including the accrued fees and disbursements of special New York counsel and special Puerto Rico counsel to the Administrative Agent and CSI). (d) The Administrative Agent shall have received the following, each dated the date of the initial Borrowing hereunder (unless otherwise specified) in form and substance satisfactory to the Administrative Agent and in sufficient copies for each Lender: (i) With respect to each Credit Party that is a corporation, (A) a copy of the certificate or articles of incorporation, as amended, of such Credit Party, certified by the Secretary of State or other appropriate official of the jurisdiction of its organization as of a date reasonably near the initial Borrowing; (B) a certificate of the Secretary of the Borrower certifying (I) that attached thereto is a true and complete copy of the bylaws of each Credit Party as in effect on the date of such certificate and as in effect at all times since a date prior to the date of the resolutions described in item (II) below, (II) that attached thereto is a true and complete copy of the resolutions adopted by the Board of Directors of each Credit Party authorizing the execution, delivery and performance of such of the Loan Documents to which such Credit Party is a party, and each other document or instrument which is to be delivered by it in connection with this Agreement after the date hereof and (in the case of the Borrower) authorizing the Borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (III) that the certificate or articles of incorporation of the Credit Parties have not been amended since the date of the last amendment thereto shown on the certificate furnished pursuant to clause (A) above and (IV) as to the incumbency and specimen signature of each of the officers of each Credit Party executing the Loan Documents to which such Credit Party is to be a party, or any other document or instrument delivered in connection therewith; (C) a copy of a certificate of the Secretary of State of the jurisdiction of incorporation and the jurisdiction doing business of each Credit Party as of a date reasonably near the initial Borrowing certifying that Credit Agreement - 55 - (I) such Credit Party has paid all franchise taxes to the date of such certificate and (II) such Credit Party is duly incorporated, in good standing and authorized to engage in business, as the case may be, under the laws of the applicable jurisdiction; and (D) all documents evidencing other necessary corporate action and governmental and third party consents and approvals, if any, reasonably requested by any Lender through the Administrative Agent. (ii) With respect to each Credit Party that is a partnership or other entity (other than a corporation), copies of the partnership agreement and other organizational document, together with such proof of authority, as shall be equivalent to those delivered pursuant to the foregoing clause (i) and as shall have been reasonably requested by the Administrative Agent or any Lender through the Administrative Agent. (iii) The Subsidiary Guaranty duly executed and delivered by each Subsidiary of the Borrower. (iv) The Holdings Pledge Agreement duly executed and delivered by Holdings. (v) The Obligor Pledge Agreement duly executed and delivered by the Borrower and Lambda Communications, Incorporado. (vi) The Puerto Rico Security Documents required by Section 5.01(n) to be executed and delivered on the date of the initial Credit Extension duly executed and delivered by each Obligor stated to be a party thereto in proper form for filing, when such filing is required by applicable law, and the payment of all required documentary stamps, recording fees, taxes and all other costs and expenses relating to the filing and recordation of such Puerto Rico Security Documents. (vii) A certificate of a Financial Officer of the Borrower, in substantially the form of Exhibit G, attesting that each of the Borrower and each of its Subsidiaries is Solvent after giving effect to the transactions contemplated hereby. (viii) A Borrowing Base Certificate as at the date of the initial Borrowing hereunder. Credit Agreement - 56 - (ix) A certificate of a Financial Officer of the Borrower as to the matters set forth in clauses (i) and (ii) of Section 3.02(a) substantially in the form of Exhibit H hereto. (x) A favorable opinion of Leavy Rosensweig & Hyman, special New York counsel for the Credit Parties, in form and substance satisfactory to the Administrative Agent (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Administrative Agent). (xi) A favorable opinion of Lausell, Carlo & Goble, special Puerto Rico counsel for the Credit Parties, in form and substance satisfactory to the Administrative Agent (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Administrative Agent). (xii) A favorable opinion of Fleischman & Walsh, special communications counsel for the Credit Parties, in form and substance satisfactory to the Administrative Agent (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Administrative Agent). (xiii) A favorable opinion of Milbank, Tweed, Hadley & McCloy, counsel for the Administrative Agent, in form and substance satisfactory to the Administrative Agent (and the Administrative Agent hereby instructs such counsel to deliver such opinion to the Lenders and the Administrative Agent). (xiv) A favorable opinion of Fiddler, Gonzalez & Rodriguez, special Puerto Rico counsel for the Administrative Agent, in form and substance satisfactory to the Administrative Agent (and the Administrative Agent hereby instructs such counsel to deliver such opinion to the Lenders and the Administrative Agent). (xv) An acceptance of its appointment as agent for the service of process, in substantially the form of Exhibit K, duly executed and delivered by Centennial Cellular. (e) The Lenders shall have received evidence Credit Agreement - 57 - satisfactory to them that all approvals of governmental authorities and regulatory bodies and third party consents (including, without limitation, all Telecommunications Approvals and any consents or approvals from the PRTC) that are necessary or desirable for the execution, delivery and performance by each Credit Party of each Loan Document to which it is a party, the consummation of the transactions contemplated thereby and the completion of the build-out, activation and operational capacity of the PCS System contemplated by Section 3.01(f) have been obtained by the Borrower and its Subsidiaries, are in full force and effect and have become final. (f) The Lenders shall have received evidence satisfactory to them that the build-out and activation of the PCS System has been completed and that the operational capacity of the PCS System is sufficient to provide service to at least 80% of the population of Puerto Rico. (g) The Lenders shall have received and be satisfied with the terms and conditions of the Interconnection Agreements, the Facilities Agreement and of each Marketing Agreement. (h) The Borrower will have Contributed Equity on the date of the initial Borrowing (after giving effect to any Initial Distribution to be made on such date) of not less than $55,000,000. (i) The Administrative Agent shall have received evidence that, by virtue of the Security Documents, and the filing or registration of all required documents and the taking of all other required action, it shall have for the benefit of the Lenders a perfected security interest in all of the Collateral to the extent then required by Section 5.01(n) subject to no equal or prior Lien. (j) The Administrative Agent shall have received the Century-ML Consent and Agreement entered into by the parties thereto. SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation of each Lender to make an Advance on the occasion of each Borrowing (including the initial Borrowing), and the obligation of each Issuing Bank to issue any Letter of Credit (including the initial Letter of Credit) shall be subject to the further conditions precedent that on the date of such Credit Credit Agreement - 58 - Extension (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, the required for such Letter of Credit, the acceptance by the Borrower of the proceeds of such Borrowing and the issuance of such Letter of Credit pursuant to such request, as the case may be, shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true): (i) The representations and warranties contained in Section 4.01 and in each other Loan Document are correct on and as of the date of such Credit Extension, before and after giving effect to such Credit Extension, and to the application of the proceeds therefrom, as though made on and as of such date, (ii) No Default has occurred and is continuing, or would result from such Credit Extension or from the application of the proceeds therefrom, (iii) If such Credit Extension falls before the Borrowing Base Release Date, the Aggregate Financing Amount does not exceed the Borrowing Base (and the Borrower shall deliver to the Administrative Agent together with the relevant Notice of Borrowing or request for a Letter of Credit a Borrowing Base Certificate demonstrating that fact), and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Lender through the Administrative Agent may reasonably request. SECTION 3.03. Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the initial Credit Extension specifying its objection thereto and, if such initial Credit Extension is a Borrowing, such Lender shall not have made available to the Administrative Agent such Lender's ratable portion of such Borrowing. Credit Agreement - 59 - ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of Delaware, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not have a Material Adverse Effect and (iii) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. All of the outstanding capital stock of the Borrower has been validly issued and is fully paid and non-assessable. (b) The execution, delivery and performance by each Obligor of each of the Loan Documents to which it is or is to be a party, and the consummation of the transactions contemplated thereby, are within the corporate or other powers of such Obligor, have been duly authorized by all necessary corporate or other action, and do not (i) contravene the charter, bylaws, partnership agreement or other organizational document of the Borrower or any of its Subsidiaries, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting the Borrower or any of its Subsidiaries or any of its properties, or (iv) except as otherwise required by the Security Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Borrower or any of its Subsidiaries. None of the Borrower nor any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which is Credit Agreement - 60 - reasonably likely to have a Material Adverse Effect. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body (including, without limitation, the FCC and the PRTRB) is required for the due execution, delivery and performance by the Obligors of any of the Loan Documents, or any Borrowing or request for a Letter of Credit hereunder or for the ownership or control by the Borrower of all Subsidiaries or for the ownership or control by any Subsidiary of any other Subsidiary, except for filings and recordings in respect of the Liens created pursuant to the Security Documents, each of which has been duly issued or obtained and is in full force and effect. (d) This Agreement is and the Notes and each other Loan Document to which any Obligor is a party when delivered hereunder will be, legal, valid and binding obligations of such Obligor enforceable against such Obligor in accordance with their respective terms, subject, in the case of enforceability, (i) to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and (ii) to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). (e) The Consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at May 31, 1996 and as at the date of the latest interim financial statements issued by the Borrower prior to the date hereof and the related Consolidated and consolidating statements of income and cash flows of the Borrower and its Subsidiaries for the fiscal year and interim period, respectively, then ended, copies of each of which have been furnished to each Lender, fairly present the Consolidated and consolidating financial condition of the Borrower and its Subsidiaries as at such respective dates and the Consolidated and consolidating results of operations of the Borrower and its Subsidiaries for the fiscal year and interim period ended on such respective dates, all in accordance with generally accepted accounting principles consistently applied, and since the later of the date of such interim financial statements or the date of the most recent financial statements of the Borrower delivered under Section 5.03(d), there has been no Material Adverse Change. Credit Agreement - 61 - (f) The Consolidated and consolidating forecasted statements of income and cash flows of the Borrower and its Subsidiaries for each Fiscal Years ending May 31, 1997 through May 31, 2005, copies of which have been furnished to each Lender, were prepared in good faith on the basis of the assumptions stated therein, which assumptions were reasonable in light of conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower's best estimate of its future financial performance. (g) No information, exhibit, report, document, certificate or written statement, including this Agreement, furnished in writing to any Lender by or on behalf of the Borrower or any Subsidiary to the Administrative Agent or any Lender in connection with the negotiation of the Loan Documents or pursuant to the terms of the Loan Documents contained as of the date so furnished any untrue statement of a material fact or omitted as of the date so furnished to state a material fact necessary to make the statements contained therein, in light of the circumstances under which such information, exhibit, report or other written information is or is to be used, not misleading, nor did such information, exhibits, reports, documents, certificates and statements, taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. There is no fact known to the Borrower or officers of the Borrower which the Borrower has not disclosed to the Lenders in writing which in the reasonable judgment of the Borrower and such officers would have a Material Adverse Effect. (h) There is no pending or threatened action or proceeding against the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, that, if adversely determined, is reasonably likely to have a Material Adverse Effect or that purports to affect any Loan Document or any of the transactions contemplated thereby. (i) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no Credit Extension will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Credit Agreement - 62 - (j) Following application of the proceeds of each Advance, not more than 25 percent of the value of the assets (either of the Borrower only or of the Borrower and its Subsidiaries on a Consolidated basis) subject to the provisions of Section 5.02(f), 5.02(g) or 5.02(h) or subject to any restriction contained in any agreement or instrument between the Borrower and any Lender or any affiliate of any Lender relating to Debt will be Margin Stock. (k) Set forth on Schedule 4.01(k) hereto is a complete and accurate list of all Subsidiaries of the Borrower, showing as of the date hereof or thereof (as to each such Subsidiary) the jurisdiction of its organization, whether such Subsidiary is a corporation, partnership or other entity, the number, and class or type, of ownership interest issued by such Subsidiary (and, in the case of a corporation, the shares of each class of capital stock authorized and the number of such shares outstanding), on the date hereof, and the percentage of the outstanding ownership interest of each such class or type owned (directly or indirectly) by the Borrower and the number of shares or other ownership interest covered by all outstanding options, warrants, rights of conversion or purchase and similar rights at the date hereof. Each such Subsidiary (i) is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified and in good standing in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not have a Material Adverse Effect and (iii) has all requisite power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. The outstanding capital stock of each Wholly Owned Subsidiary that is a corporation has been validly issued, is fully paid and non-assessable, and the ownership interests in all Subsidiaries held by the Borrower and its Subsidiaries is free and clear of all Liens, except those permitted by Sections 5.02(e) and (f). (l) The operations and properties of the Borrower and each of its Subsidiaries comply in all material respects with all Environmental Laws, all necessary Environmental Permits have been obtained and are in effect for the Credit Agreement - 63 - operations and properties of the Borrower and its Subsidiaries, the Borrower and its Subsidiaries are in compliance in all material respects with all such Environmental Permits, and, to the knowledge of the Borrower, no circumstances exist that could (i) form the basis of an Environmental Action against the Borrower, any of its Subsidiaries or any of their properties that could have a Material Adverse Effect or (ii) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. (m) None of the properties of the Borrower or any of its Subsidiaries is listed or proposed for listing on the National Priorities List under CERCLA or on the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the Environmental Protection Agency or any analogous state list of sites requiring investigation or cleanup or is adjacent to any such property, and no underground storage tanks, as such term is defined in 42 U.S.C. ss. 6991, are located on any property of the Borrower or any of its Subsidiaries or, to the best of its knowledge, on any adjoining property. (n) Neither the Borrower nor any of its Subsidiaries is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances, nor the application of the proceeds or repayment thereof by the Borrower, nor the consummation of the other transactions contemplated hereby, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (o) The Borrower and its Subsidiaries are, and each of them is, Solvent. (p) As of the date hereof and as of the date of the initial Credit Extension, there exist no credit agreements, indentures, purchase agreements, obligations in respect of letters of credit, guarantees or other instruments presently in effect (including, but not limited to, Capitalized Lease Obligations and Debt owed by the Borrower to Affiliates) providing for, evidencing, securing or otherwise relating to any Debt of the Borrower or any of its Subsidiaries other than Debt under the Loan Documents. Credit Agreement - 64 - (q) There are no Liens of any nature whatsoever on any properties of the Borrower nor any Subsidiary other than (i) those permitted by Section 5.02(e) or 5.02(f) and (ii) nonconsensual Liens which could not, individually or in the aggregate, have a Material Adverse Effect. (r) None of the Borrower or any Subsidiary is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter, corporate restriction, or restriction set forth in its respective partnership agreement or other organizational document, which is reasonably likely to have a Material Adverse Effect. (s) (i) The Borrower and each Subsidiary have filed all tax returns (Federal, State and local) required to be filed, and paid all taxes shown thereon to be due, including interest and penalties, or provided adequate reserves for payment thereof, and (ii) the Borrower and each Subsidiary have timely filed all reports and applications required by the FCC or the PRTRB, in each case except such filings the failure of which to file is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. (t) The Borrower and each Subsidiary is in compliance with the requirements of all applicable laws, rules, regulations, orders and licensing requirements of all governmental authorities (including, without limitation, all Telecommunications Approvals) except to the extent that any such non-compliance could not have a Material Adverse Effect; and none of the Borrower or any Subsidiary is the subject of any outstanding citation, order or investigation by the FCC, the PRTRB or the PRPSC which could have a Material Adverse Effect, and no such citation, order or investigation, to the knowledge of the Borrower or any Subsidiary, is contemplated by the FCC or the PRTRB. (u) Neither the Borrower nor any ERISA Affiliate has either a Multiemployer Plan or a Plan, other than a Multiemployer Plan or a Plan to which the Majority Lenders have given their consent after the date hereof. (v) All of the material properties, equipment and systems owned, leased or managed by the Borrower and its Subsidiaries are, and (to the best knowledge of the Borrower) all such property, equipment and systems to be Credit Agreement - 65 - acquired or added in connection with any contemplated system expansion or construction will be, in all material respects, in good repair, working order and condition and are and will be in compliance with all terms and conditions of all Telecommunications Approvals and all standards or rules imposed by the FCC or the PRTRB, or as imposed under any agreements with telephone companies and customers, except for any such non-compliance that could not result in a Material Adverse Effect. (w) Each of the Borrower and its Subsidiaries has obtained all material Telecommunications Approvals necessary or desirable for the conduct of its business and operations as currently or as proposed to be conducted. Schedule 4.01(w) attached hereto accurately and completely lists all Telecommunications Approvals granted or assigned to the Borrower or any Subsidiary, or under which the Borrower and its Subsidiaries have the right to operate Telecommunications Networks on the date hereof. The Telecommunications Approvals listed on said Schedule 4.01(w) include all material authorizations, licenses and permits issued by the FCC that are required or necessary for the operation of the Telecommunications Networks of the Borrower and its Subsidiaries, and the conduct of the business of the Borrower and its Subsidiaries with respect to such Telecommunications Networks, as now conducted or proposed to be conducted. The Telecommunications Approvals listed in said Schedule 4.01(w) are issued in the name of a License Subsidiary are on the date hereof validly issued and in full force and effect without conditions except for such conditions as are generally applicable to holders of such Telecommunications Approvals, and the Borrower and its Subsidiaries will have fulfilled and performed in all material respects all of their obligations with respect thereto and have full power and authority to operate thereunder. No event has occurred and is continuing which could (i) result in the imposition of a material forfeiture or the revocation, termination or adverse modification of any Telecommunications Approvals or (ii) materially and adversely affect any rights of the Borrower or any of its Subsidiaries thereunder; the Borrower has no reason to believe and has no knowledge that the Telecommunications Approvals presently held by the Borrower or any of its Subsidiaries will not be renewed in the ordinary course; and Credit Agreement - 66 - each of the Borrower and its Subsidiaries has sufficient time, materials, equipment, contract rights and other required resources to complete, in a timely fashion and in full, the construction and activation of their Telecommunications Networks in Puerto Rico in compliance with all applicable technical standards and construction requirements and deadlines. The current ownership and operation by each of the Borrower and its Subsidiaries of such Telecommunications Networks complies with the Communications Act of 1934, as amended, and all rules, regulations and policies of the FCC, the PRTRB or any other governmental authority, except for such non-compliance that could not result in a Material Adverse Effect. (x) The Borrower and each Subsidiary is in compliance in all material respects with the requirements of the Interconnection Agreements, the Facilities Agreement and the Marketing Agreements. The Borrower and each Subsidiary is in compliance in all material respects with the requirements of (and no default has occurred under) all other contracts, agreements, indentures, mortgages, leases and other instruments binding on it or its property, assets or operations the violation of which could have a Material Adverse Effect. (y) The Borrower and its Subsidiaries own and have on the date hereof good and marketable title (subject only to Liens permitted by Section 5.02(a)) to the properties and assets shown to be owned in the financial statements referred to in Section 4.01(e) (other than properties and assets disposed of in the ordinary course of business or otherwise permitted to be disposed of pursuant to Section 5.02(e)). The Borrower and its Subsidiaries own and have on the date hereof good and marketable title to, and enjoy on the date hereof peaceful and undisturbed possession of, all properties and assets (subject only to Liens permitted by Section 5.02(a)) that are necessary for the operation and conduct of its business and presently and as proposed to be conducted. (z) Set forth on Schedule 4.01(z) attached hereto is a list, as of the date hereof, of all Collateral (excluding (i) all items of equipment each of which has a value of less than $100,000 and (ii) all accounts receivable), indicating in each case whether the respective property is owned or leased, the identity of the owner or lessee and the location of the respective property. Credit Agreement - 67 - (aa) Each Obligor is the sole beneficial owner of the Collateral in which it will purport to grant a security interest under the Security Documents to which it is or will be a party. The pledge and security interests to be created by the Security Documents will, at the time of the initial Borrowing and at all times thereafter, constitute a first priority perfected pledge and security interest in and to all of such Collateral, all to the extent required by Section 5.01(n). (bb) The Capital Stock of each Obligor represented by the certificates listed on Schedule 4.01(bb) attached hereto is duly authorized, validly existing, fully paid and non-assessable and none of such Capital Stock is or will be subject to any contractual restriction, or any restriction under the charter or by-laws of the respective issuer of such Capital Stock, upon the transfer of such Capital Stock (except for any such restriction contained in a Loan Document). Such Capital Stock constitutes all of the issued and outstanding shares of capital stock of any class of the issuer thereof. Said Schedule 4.01(bb) correctly identifies, as at the date hereof, the respective issuers of such Capital Stock, the respective class and par value of the shares comprising such Capital Stock and the respective number of shares (and registered owners thereof) represented by each such certificate. (cc) Schedules 4.01(cc) -1, -2 and -3 hereto, respectively, set forth under the name of each Obligor a complete and correct list of all Copyrights, Patents and Trademarks owned by such Obligor on the date hereof; except pursuant to licenses and other user agreements entered into by such Obligor in the ordinary course of business, that are listed in Schedule 4.01(cc)-4 hereto, such Obligor owns and possesses the right to use, and has done nothing to authorize or enable any other Person to use, any Copyright, Patent or Trademark listed in said Schedules 4.01(cc) -1, -2 and -3, and all registrations listed in said Schedules 4.01(cc) -1, -2 and -3 are valid and in full force and effect; except as may be set forth in said Schedule 4.01(cc)-4, such Obligor owns and possesses the right to use all Copyrights, Patents and Trademarks. Said Schedule 4.01(cc)-4 sets forth a complete and correct list of all licenses and other user agreements included in the Intellectual Property on the date hereof. To such Obligor's knowledge, (i) except as set forth in said Schedules 4.01(cc)-4, there is no violation by others of any right of Credit Agreement - 68 - such Obligor with respect to any Copyright, Patent or Trademark listed in said Schedules 4.01(cc) -1, -2 and -3, respectively, under the name of such Obligor and (ii) such Obligor is not infringing in any respect upon any Copyright, Patent or Trademark of any other Person; and no proceedings have been instituted or are pending against such Obligor or, to such Obligor's knowledge, threatened, and no claim against such Obligor has been received by such Obligor, alleging any such violation, except as may be set forth in said Schedule 4.01(cc)-4. Such Obligor does not own any Trademarks to which the last sentence of the definition of Trademark Collateral applies. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any Advance or any other amount hereunder shall remain unpaid or any Lender shall have any Commitment hereunder or any Letter of Credit shall be outstanding, the Borrower will, unless the Majority Lenders shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable laws, rules, regulations, orders and licensing requirements, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent contested in good faith and by appropriate proceedings and with respect to which adequate reserves for payment have been established. (b) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates. (c) Corporate Existence and Approvals. Obtain, preserve and maintain, and cause each Subsidiary to obtain, preserve and maintain (i) its corporate existence, rights, franchises (including Telecommunications Approvals) and privileges in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each Subsidiary to Credit Agreement - 69 - qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership of its properties; provided, however, nothing herein contained shall prevent any merger or consolidation permitted by Section 5.02(d) and (ii) all approvals, authorizations, licenses, franchises (including Telecommunications Approvals) and other permissions of all governmental, judicial, regulatory and other agencies and authorities necessary to enable the Borrower and each Subsidiary to operate and maintain its property, business and operations as the same is currently being carried on or as it may hereafter be carried on in accordance with the Loan Documents. (d) Visitation Rights. At any reasonable time and from time to time upon reasonable notice, permit the Administrative Agent or any of the Lenders or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants. (e) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e), reflecting all financial transactions of the Borrower and each such Subsidiary. (f) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, to the extent that the management of the Borrower in its reasonable business judgment deems such maintenance and preservation necessary or reasonably useful in the proper conduct of the business of the Borrower and such Subsidiary, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted; and at all times do or cause to be done, and cause each Subsidiary to do or cause to be done, all things necessary to obtain, preserve, Credit Agreement - 70 - renew and keep in full force and effect all franchises (including Telecommunications Approvals), licenses, patents, copyrights, trademarks, service marks or trade names material to the conduct of its businesses. (g) Maintenance of Corporate Separateness. Conduct its business and operations and the business and operations of each Subsidiary separately from that of all other Persons (including, without limitation, Affiliates of the Borrower), including, without limitation, (i) not commingling funds or other assets of the Borrower or any Subsidiary with the funds or other assets of any such other Person; (ii) maintaining separate corporate and financial records and observing all corporate formalities for the Borrower and each Subsidiary; (iii) causing each Subsidiary to pay its liabilities from its assets or from the assets of the Borrower or another Subsidiary; and (iv) causing each Subsidiary to conduct its dealings with third parties in its own name and as a separate and independent entity. (h) Certain Obligations Respecting Subsidiaries. (i) Subsidiary Guarantors. In the event that the Borrower or any of its Subsidiaries shall form or acquire any new Subsidiary after the date hereof, the Borrower will cause such new Subsidiary: (x) to execute and deliver to the Administrative Agent an instrument in the form of Annex 1 to the Subsidiary Guaranty (and, thereby, to become a party to the Subsidiary Guaranty as a "Guarantor" thereunder); (y) to take such action (including, without limitation, delivering such shares of stock and executing and delivering such Uniform Commercial Code financing statements) as shall be necessary to create and perfect valid and enforceable first priority Liens, consistent with Section 5.01(n) and the provisions of the Security Documents, on substantially all of the Property of such new Subsidiary as collateral security for the obligations of such new Subsidiary under the Subsidiary Guaranty, and to execute and deliver such supplemental Security Documents as the Administrative Agent shall request; and (z) to deliver such proof of corporate action, incumbency of officers, opinions of counsel and other Credit Agreement - 71 - documents as is consistent with those delivered by the Borrower pursuant to Section 3.01 hereof or as the Administrative Agent shall have reasonably requested. (ii) Ownership of Subsidiaries. The Borrower will, and will cause each of its Subsidiaries to, take such action from time to time as shall be necessary to ensure that each of its Subsidiaries is a Wholly Owned Subsidiary. In the event that any additional shares of stock shall be issued by any Subsidiary, or the Borrower or any of its Subsidiaries shall otherwise acquire the shares of any Subsidiary, the Borrower agrees forthwith to deliver (or cause to be delivered) to the Administrative Agent pursuant to the Obligor Pledge Agreement the certificates evidencing such shares of stock, accompanied by undated stock powers executed in blank and to take such other action as the Administrative Agent shall request to perfect the security interest created therein pursuant to the Obligor Pledge Agreement. (iii) Certain Restrictions. The Borrower will not permit any of its Subsidiaries to enter into, after the date hereof, any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of Indebtedness, the granting of Liens, the declaration or payment of dividends, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition of Property, other than any such prohibition or restraint (x) arising pursuant to an indenture, agreement, instrument or other arrangement providing for Liens permitted by Section 5.02(a), so long as such prohibition or restraint shall only cover the Property that is subject to such Lien and no other Property, (y) set forth in any agreement providing for the disposition of Property (so long as such prohibition or restraint relates only to such Property to be disposed of) or (z) set forth in any of the Loan Documents. (i) Pro-Forma Debt Service Coverage Ratio. Maintain a Pro-Forma Debt Service Coverage Ratio of not less than 1.05:1 at all times on and after May 31, 2000. (j) Leverage Ratio. Maintain, as of the last day of Credit Agreement - 72 - each Fiscal Quarter whose last day occurs during any period set out below, a Leverage Ratio less than the ratio set out below next to such period:
Period Ratio ------- ----- from June 1, 1998 through November 30, 1998 13.00:1 from December 1, 1998 through May 31, 1999 10.00:1 from June 1, 1999 through November 30, 1999 8.00:1 from December 1, 1999 through February 28, 2000 7.00:1 from March 1, 2000 through May 31, 2000 6.00:1 from June 1, 2000 through November 30, 2000 5.00:1 from December 1, 2000 and thereafter 4.00:1
(k) Interest Coverage Ratio. Maintain, as of the last day of each Fiscal Quarter whose last day occurs during any period set out below, an Interest Coverage Ratio not less than the ratio set out below next to such period:
Period Ratio ------ ------ from December 1, 1998 through May 31, 1999 1.05:1 from June 1, 1999 through November 30, 1999 1.50:1 from December 1, 1999 through February 28, 2000 1.75:1 from March 1, 2000 through May 31, 2000 2.00:1 from June 1, 2000 through November 30, 2000 2.25:1 from December 1, 2000 and thereafter 2.50:1
(l) Subscriber Levels. Maintain, as of each date specified below, a number of Subscribers not less than the number set out below next to such date: Period Level August 31, 1997 10,000 November 30, 1997 25,000 February 28, 1998 35,000 May 31, 1998 45,000 August 31, 1998 and at all times thereafter 55,000 Credit Agreement - 73 - (m) Compliance with Environmental Laws. Comply, and cause each of its Subsidiaries and all lessees and other Persons occupying its property to comply, in all material respects, with all Environmental Laws and Environmental Permits applicable to its operations and properties; obtain and renew all Environmental Permits necessary for its operations and properties; and conduct, and cause each of its Subsidiaries to conduct, any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; provided, however, that neither the of Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances. (n) Collateral; Consents. As and to the extent set forth below in this paragraph (n), each Obligor will grant to the Administrative Agent, for the benefit of the Lenders, a Lien on the items of Property referred to below. Such Liens shall constitute valid and enforceable perfected liens superior to and prior to the rights of all other persons and subject to no other Liens other than Liens permitted by Section 5.02(a). The Puerto Rico Security Documents or other instruments related thereto shall be duly recorded or filed at the times set forth below in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Administrative Agent, for the benefit of the Lenders, and all taxes, fees and other charges payable in connection therewith shall be paid in full at such times: (i) At the time of the initial Credit Extension: (A) all switches and related equipment of the Obligors connecting the Telecommunications Networks to the facilities of PRTC; (B) the Facilities Agreement, the Interconnection Agreements, all office leases to which any Obligor is a party, and all other material agreements to which any Obligor is a party; Credit Agreement - 74 - (C) all outstanding capital stock issued by any Obligor; (D) all items listed on Schedules 4.01(cc) -1, -2 and -3; and (E) all leases for cell sites to which any Obligor is a party; and (ii) At the earlier of the date that the Uniform Commercial Code of Puerto Rico (the "PRUCC") becomes effective or July 31, 1997: all Collateral comprised of equipment, inventory and accounts receivable, and all other Collateral in which a security interest may be created and perfected under the PRUCC without undue cost or burden. Further, the Borrower agrees to use commercially reasonable efforts to obtain the PRTC Consent and Agreement and such other consents, estoppels and other agreements from landlords and other counterparties under leases and other agreements as are contemplated by the Puerto Rico Security Documents as promptly as practicable after the initial Credit Extension hereunder. (o) Additional Puerto Rico Security Documents. As and to the extent requested from time to time by the Administrative Agent or the Majority Lenders, the Borrower shall cause each Obligor operating in Puerto Rico to grant to the Administrative Agent, for the benefit of the Lenders, a Lien in respect of any Collateral held by such Obligor not otherwise covered by the Puerto Rico Security Documents (collectively, the "Additional Puerto Rico Security Documents"). Such Lien shall be granted pursuant to documentation reasonably satisfactory in form and substance to the Administrative Agent and shall constitute valid and enforceable perfected liens superior to and prior to the rights of all other persons and subject to no other Liens except for Liens permitted by Section 5.02(a). The Additional Puerto Rico Security Documents or other instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Administrative Agent, for the benefit of the Lenders, required to be granted pursuant to the Additional Puerto Rico Security Documents and all taxes, fees and other charges payable in connection therewith shall be paid in Credit Agreement - 75 - full. (p) Facilities Agreement. The Borrower agrees (i) to request under Section 1 of the Facilities Agreement to lease such additional capacity, cable and fibers on the Fiber Network (as defined therein) as may be necessary, in the reasonable commercial judgment of the Borrower, for the operation of the Telecommunications Networks, (ii) to notify the Administrative Agent of any failure of either other party thereto to comply with its obligations thereunder in any material respect and (iii) to take such action, if any, as may be reasonably requested by the Majority Lenders in their reasonable commercial judgment to enforce its rights and remedies against such other party in respect of any such failure to comply with such obligations in any material respect provided that any such action shall not be prohibited by law or by the Facilities Agreement. SECTION 5.02. Negative Covenants. So long as any Advance or any other amount hereunder shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will not, without the written consent of the Majority Lenders: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties, whether personal or real, and whether tangible or intangible, now owned or hereafter acquired, or sign or file, or permit any Subsidiary to sign or file, under the Uniform Commercial Code of any jurisdiction, a financing statement that names the Borrower or any Subsidiary as debtor, or sign, or permit any Subsidiary to sign, any security agreement authorizing any secured party thereunder to file such financing statement, or assign, or permit any Subsidiary to assign, any right to receive income, excluding, however, from the operation of the foregoing restrictions, Liens: (i) for taxes, assessments or governmental charges or levies on property of the Borrower or any Subsidiary if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves have been established; (ii) imposed by law, such as carrier's, Credit Agreement - 76 - warehouseman's and mechanic's liens and other similar liens arising in the ordinary course of business; (iii) arising out of pledges or deposits under worker's compensation laws or similar legislation, arising in the ordinary course of business; (iv) constituting easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes; (v) arising in connection with Permitted Vendor Financing and encumbering only the assets, thereby acquired by the Borrower or any Subsidiary; (vi) securing Capitalized Lease Obligations permitted by Section 5.02(c) and encumbering only the assets leased; or (vii) constituting purchase money Liens on or in property acquired or held by the Borrower or any Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition of such property, or Liens existing on such property at the time of its acquisition; provided that the Debt secured thereby does not exceed the purchase price thereof; provided, however, the aggregate principal amount of the Debt secured by the Liens referred to in clauses (vi) and (vii) shall not exceed $5,000,000 at any one time outstanding. (b) Debt. Create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Debt, except (i) Debt under the Loan Documents; (ii) Debt owing by a Subsidiary to the Borrower or to another Subsidiary; (iii) Debt secured by any Lien permitted by Section 5.02(a)(vi) or (vii); Credit Agreement - 77 - (iv) Permitted Vendor Financing; (v) Debt consisting of (A) guarantees by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business and (B) guarantees by the Borrower of the obligations of any Subsidiary; (vi) Subordinated Debt in an aggregate principal amount not exceeding $50,000,000 at any time outstanding; provided that at the time of incurrence thereof (and after giving effect thereto) (x) no Default shall have occurred and be continuing and (y) on a pro forma basis, the Borrower would be in compliance with Section 5.01(j) if such Subordinated Debt was outstanding on the last day of the Fiscal Period ending on or most recently ended prior to the date of such incurrence and Sections 5.01(i), 5.01(j) and 5.01(k) if such Subordinated Debt was outstanding throughout the period of four Fiscal Quarters ending on such date; (vii) Tax-Advantaged Debt; or (viii) other Debt in an aggregate principal amount not exceeding $5,000,000 at any time outstanding. (c) Lease Obligations. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any obligations as lessee for the rental or hire of other real or personal property of any kind under operating leases having a term of one year or more which would cause the aggregate direct and contingent liabilities of the Borrower and its Subsidiaries, on a Consolidated basis, in respect of all such obligations payable in any period of 12 consecutive calendar months to exceed $5,000,000. (d) Mergers, Etc. Merge or consolidate with or into, or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person, or permit or cause any of its Subsidiaries to do so, except that (i) any of its Wholly-Owned Subsidiaries (other than a License Subsidiary) may merge or consolidate with or into, or dispose of assets to, or acquire assets of, any of its other Wholly-Owned Credit Agreement - 78 - Subsidiaries and (ii) any of its Subsidiaries (other than a License Subsidiary) may merge into, or dispose of assets to, the Borrower, provided in each case that, immediately prior to and after giving effect to such transaction, no event shall have occurred or be continuing which constitutes an Event of Default or which, with the giving of notice or lapse of time or both, would constitute an Event of Default and in the case of any such merger to which such Borrower is a party, such Borrower is the surviving corporation. (e) Sales, Etc. of Assets. Sell, assign, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, assign, lease, transfer or otherwise dispose of, any of its assets, including (without limitation) substantially all assets constituting the business of a division, branch or other unit operation, except: (i) for sales of assets for cash in the ordinary course of its business, (ii) for disposition of obsolete equipment no longer needed in the conduct of the Borrower's or such Subsidiary's business, (iii) in a transaction permitted by subsection (d) of this Section 5.02. (f) Investments in Other Persons. On or after the date hereof make, or permit any Subsidiary to make, any Investment in any Person (including, but not limited to, its officers and employees) other than Permitted Investments. (g) Dividends, Etc. Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its capital stock or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholders as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such, or permit any of its Subsidiaries to do any of the foregoing, except that, in compliance with all applicable requirements of law, (i) any Subsidiary may declare and make payment of cash and stock dividends, return capital and make distributions of assets to the Borrower or to other Subsidiaries, (ii) the Borrower may declare and deliver distributions payable only in common stock of the Credit Agreement - 79 - Borrower and (iii) the Borrower may declare and pay cash dividends to Holdings as follows: (x) the Borrower may pay the Initial Distributions, (y) if (both immediately before and immediately after giving effect thereto) no Default shall have occurred and be continuing, the Leverage Ratio is less than 5.0:1 and the Borrower would be in compliance with the requirements of Sections 5.01(i), 5.01(j) and 5.01(k) hereof (determined on a pro forma basis under the assumption that Debt in an amount equal to the amount of such dividend had been incurred at the beginning of, and had remained outstanding during, the relevant Fiscal Period for which such requirements are calculated), the Borrower may pay dividends in any Fiscal Quarter in an aggregate amount not exceeding 50% of Excess Cash Flow for the immediately preceding Fiscal Quarter, and (z) if (both immediately before and immediately after giving effect thereto) no Default shall have occurred and be continuing, the Borrower may pay dividends in an aggregate amount not exceeding the Net Cash Proceeds of an Equity Issuance received by the Borrower on or before the date falling 30 days prior to the payment of such dividends. (h) Change in Fiscal Year or Charter Amendment. Change, or permit any Subsidiary to change, its fiscal year from the Fiscal Year or amend, or permit any Subsidiary to amend, its certificate of incorporation or bylaws. (i) Nature of Business. Engage, or permit any Subsidiary to engage, in any business other than owning and operating Telecommunications Networks; or permit any License Subsidiary to engage in any line or lines of business activity other than holding Telecommunications Approvals; or permit the Telecommunications Approvals to be held in the name of any Person other than a License Subsidiary. (j) Transactions with Affiliates. Engage, or permit any Subsidiary to engage, in any transaction with an Affiliate (other than a Subsidiary) of the Borrower on terms less favorable to the Borrower or such Subsidiary than would be obtainable at the time in comparable transactions of the Credit Agreement - 80 - Borrower or such Subsidiary with Persons not Affiliates; or, without limiting the generality of the foregoing, engage, or permit any Subsidiary to engage, in any transaction with Century-ML or any Affiliate of Century-ML (other than the Borrower or any Subsidiary of the Borrower) on terms less favorable to the Borrower or such Subsidiary than would be obtainable at the time in comparable transactions of the Borrower or such Subsidiary with Persons not Affiliates. (k) Restriction on Negative Pledges. Enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien of any nature upon any of its property or assets in favor of the Administrative Agent and the Lenders other than in connection with any Debt permitted by Section 5.02(b)(iii) or 5.02(b)(iv) to the extent such agreement is applicable only to the property on which a Lien is permitted under Section 5.02(a)(v), (vi) or (vii). (l) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as required by generally accepted accounting principles. (m) Prepayments, Etc. of Debt. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Debt, other than (i) the prepayment of the Advances in accordance with the terms of this Agreement and (ii) regularly scheduled or required repayments or redemptions of Debt, provided that any such required prepayment or redemption does not require the Borrower to pay any "make-whole" or other premium in connection with such prepayment or redemption. (n) Amendments to Certain Documents. Amend, modify or change, or agree to any amendment, modification or change, of any term or condition of, or give any consent, waiver or approval under, (i) any agreement, instrument or other document governing or evidencing any Permitted Vendor Financing or Subordinated Debt, (ii) the Interconnection Agreements, (iii) any Marketing Agreement, (iv) the Consent and Agreements or (v) the Facilities Agreement. (o) Issuance of Stock. The Borrower will not suffer Credit Agreement - 81 - or permit any Subsidiary, directly or indirectly, to issue any stock of such Subsidiary, except (a) to the Borrower, (b) to a Wholly Owned Subsidiary of the Borrower or (c) to qualified directors if and to the minimum extent required by applicable law. (p) Management Fees. The Borrower will not, and will not permit any of its Subsidiaries to, pay management or consulting fees to Holdings, Century-ML or their respective Affiliates other than (i) reimbursement to Holdings of actual out-of-pocket expenses to the extent incurred for the direct and exclusive benefit of the Borrower and its Subsidiaries that in any case do not exceed (x) $500,000 per Fiscal Year from the period from the date hereof through May 31, 2000 and (y) $1,000,000 per Fiscal Year thereafter and (ii) under the Facilities Agreement and any Marketing Agreement. SECTION 5.03. Reporting Requirements. So long as any amount hereunder shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will, unless the Majority Lenders shall otherwise consent in writing, furnish to the Administrative Agent for distribution to the Lenders: (a) as soon as possible and in any event within five Business Days after the occurrence of each Default continuing on the date of such statement, a statement of a Financial Officer of the Borrower setting forth details of such Default and the action which the Borrower has taken or proposes to take with respect thereto; (b) as soon as available and in any event within 20 days after the end of each calendar month, a Consolidated and consolidating statement of revenues for the Borrower and its Subsidiaries for such month, and of the Subscribers of the Borrower and its Subsidiaries as at the last day of such month; (c) as soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, Consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such quarter and the related Consolidated and consolidating statements of operations, statements of retained earnings and statements of cash flows of such Persons for such quarter and for the period commencing at the end of the previous Fiscal Year and ending Credit Agreement - 82 - with the end of such quarter, all in reasonable detail and duly certified (subject to normal year-end audit adjustments) by a Financial Officer of the Borrower as having been prepared in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e); (d) as soon as available and in any event within 90 days after the end of each Fiscal Year of the Borrower, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, including therein Consolidated and consolidating balance sheets of such Persons in each case as at the end of such Fiscal Year and the related Consolidated and consolidating statements of operations, statements of retained earnings and statements of cash flows of such Persons for such Fiscal Year, which Consolidated financial statements of the Borrower and its Subsidiaries shall have been duly certified by Deloitte & Touche or other independent certified public accountants of recognized standing reasonably acceptable to the Majority Lenders which certificate shall be accompanied by a statement of such accounting firm to the Administrative Agent stating that in the course of the regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, nothing came to their attention that caused them to believe the Borrower was not in compliance with Section 5.01, insofar as such Section relates to accounting matters, and which other financial statements shall have been duly certified by a Financial Officer of the Borrower as having been prepared in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e); (e) concurrently with any delivery of financial statements under clause (c) or (d) above, a Compliance Certificate as at the end of (and for) the respective Fiscal Periods covered by such financial statements; (f) promptly after the commencement thereof, notice of all actions, suits and proceedings of the type described in Section 4.01(h) before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and notice of an adverse development in any such action, suit or proceeding (including any such Credit Agreement - 83 - action, suit or proceeding in existence on the date hereof); (g) promptly after the sending thereof, copies of all proxy statements, financial statements and reports which the Borrower or any Subsidiary sends to its stockholders; (h) promptly after the filing thereof, copies of all regular, periodic and special reports, and all registration statements, which the Borrower or any Subsidiary files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, with any national securities exchange or with the FCC or the PRTRB; (i) promptly after the filing or receiving thereof, copies of all reports and notices which the Borrower or any Subsidiary files under ERISA with the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Borrower or any Subsidiary receives from such Corporation or Department; (j) as soon as available and in any event within 45 days after the end of each Fiscal Quarter, a report identifying any Telecommunications Approval that has been lost, surrendered or canceled during such period, and within 10 Business Days of the receipt of the Borrower or any of its Subsidiaries of notice that any Telecommunications Approval has been lost or canceled, copies of any such notice accompanied by a report describing the measures undertaken by the Borrower or any of its Subsidiaries to prevent such loss or cancellation (and the anticipated impact, if any, that such loss or cancellation will have upon the business of the Borrower and its Subsidiaries); (k) within 15 days after any change occurs with respect to any information regarding any Subsidiary contained in the most recent schedule furnished under this Section 5.03(j) or, if no such schedule has been furnished, in Schedule 4.01(k), a schedule, in substantially the form of Schedule 4.01(k), setting forth as of the date such schedule is furnished the information described in the first sentence of Section 4.01(k); (l) as soon as available and in any event within 60 days after the end of each Fiscal Quarter of each Fiscal Year of the Borrower, a Borrowing Base Certificate as at the last day of such Fiscal Quarter. Credit Agreement - 84 - (m) the receipt of any notice from the FCC or the PRTRB of the imposition of any forfeiture against the Borrower or any of its Subsidiaries or the designation of a hearing or the initiation of any proceeding which could result in the expiration without renewal, termination, revocation, suspension, modification or impairment of any Telecommunications Approval now or hereafter held by the Borrower or any of its Subsidiaries; (n) to the extent the Borrower has knowledge thereof, notice of the enactment or promulgation, or the impending enactment or promulgation, after the date hereof of any Federal, state or local statute, regulation or ordinance, or judicial or administrative decision or order, relating to the cellular telephone, mobile radio telephone, personal communication, local exchange or competitive access service industries generally or affecting the Borrower or any of its Subsidiaries specifically that could reasonably be expected to have a Material Adverse Effect; and (o) such other information respecting the business or properties or the condition or operations, financial or otherwise, of the Borrower or any Subsidiary, as the Administrative Agent or any Lender may from time to time reasonably request. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) The Borrower shall (i) fail to pay or prepay any principal of any Advance or Reimbursement Obligation when the same becomes due and payable or (ii) fail to pay any other amount hereunder when the same becomes due and payable and, in the case of this clause (ii), such failure shall continue unremedied for three or more Business Days; or (b) Any representation or warranty made or deemed made by any Credit Party in or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) (i) The Borrower shall fail to perform or observe Credit Agreement - 85 - any term, covenant or agreement contained in Section 5.02 (other than Section 5.02(h) or (l)) or 5.03(a); or (ii) The Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed, other than those listed in subsections (a) or (c)(i) above, if such failure shall remain unremedied for 30 days after the earlier of (A) written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender and (B) the Borrower's knowledge of such failure; provided that a breach by the Borrower of any or all of its financial covenants set forth in Sections 5.01(i), (j) or (k) may be cured (and thus shall be deemed not to have occurred) if, within five Business Days after the occurrence of such breach, the Borrower shall have received from an Eligible Equity Contributor capital contributions in the form of cash or Approved Telecommunications Properties (whether or not in connection with the issuance by the Borrower to such Eligible Equity Contributor of additional shares of its capital stock) which, if such capital contributions had been received by the Borrower prior to the last day of the Fiscal Period with respect to which the Borrower has breached any such financial covenants, would have resulted in the Borrower's compliance with all such covenants whether or not so breached (deeming, for the purpose of this determination, any such cash capital contributions received from such Eligible Equity Contributor to be an addition to the net income component of EBITDA of the Borrower and its Subsidiaries for such Fiscal Period); provided further, however, that the cure mechanism described in this subclause (c) shall not be available to the Borrower (x) more than four times during the term of this Agreement or (y) to cure the breach of any financial covenant occurring as of the last day of any Fiscal Period if such provision was availed of to cure any such breach of financial covenant occurring as of the last day of the immediately preceding Fiscal Period; or (d) Any Credit Party fails to observe, perform or comply with any of its other agreements or covenants in, or provision of, any Loan Document to which it is a party, and such default or breach continues for a period of 30 days after there has been given to the Borrower by the Administrative Agent, or to the Borrower and the Administrative Agent by any Lender, a written notice specifying such default or breach and requiring it to be Credit Agreement - 86 - remedied and stating that such notice is a "Notice of Default" hereunder; or (e) The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt (but excluding Debt evidenced by the Notes) of the Borrower or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt, and the aggregate amount of all such Debt with respect to which any such failure shall have occurred and be continuing shall equal or exceed $5,000,000 (such Debt in such aggregate amount being referred to herein as "Material Debt"); or any other event shall occur or condition shall exist under any agreement or instrument relating to any Material Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Material Debt; or any such Material Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Material Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) Any judgment or order for the payment of money in excess of $5,000,000 shall be rendered against the Borrower or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (g) (i) Century-ML shall suffer the cancellation, non-renewal or adverse modification of any one or more approvals, authorizations, licenses, franchises or other permissions of any governmental, judicial, regulatory or other agencies if such cancellation, non-renewal or adverse modification renders the continued performance by it of its obligations under the Facilities Agreement unlawful, or the Facilities Agreement shall be terminated, shall expire or shall be materially adversely modified, unless the Borrower Credit Agreement - 87 - shall have secured alternative arrangements satisfactory to the Majority Lenders to substitute for benefits provided by the Facilities Agreement for the operation by the Borrower of the Telecommunications Networks or (ii) either Interconnection Agreement shall be revoked or terminated, shall expire or shall be materially adversely modified, unless the Borrower shall have secured alternative arrangements satisfactory to the Majority Lenders to substitute for the benefits of such Interconnection Agreement for the operation by the Borrower of the Telecommunications Networks; or (h) Any Obligor shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Credit Party seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any Bankruptcy Law, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted or consented to by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any Credit Party shall take any corporate action to authorize any of the actions set forth above in this paragraph (h); or (i) Any material provision of any Loan Document shall for any reason cease to be binding on or enforceable against the respective Credit Party party thereto; or (j) There shall occur any Material Adverse Change; or (k) Any ERISA Event shall have occurred with respect to a Plan and the sum of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which an ERISA Event shall have occurred and then exist (or, in the case of a Plan with respect to which an ERISA Event described in clause (iii) through (vi) of the definition of Credit Agreement - 88 - ERISA Event shall have occurred and then exist, the liability related thereto) is equal to or greater than $5,000,000; or (l) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower and its ERISA Affiliates as Withdrawal Liability, exceeds $5,000,000 or requires payments exceeding $5,000,000 per annum; or (m) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Borrower and its ERISA Affiliates to all Multiemployer Plans which are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan year of each such Multiemployer Plan immediately preceding the plan year in which the reorganization or termination occurs by an amount exceeding $5,000,000; or (n) The Borrower or any Subsidiary shall suffer the cancellation, non-renewal or adverse modification of any one or more Telecommunications Approvals, provided, however, that such a cancellation, non-renewal or adverse modification shall not constitute an Event of Default if (i) the cancellation, non-renewal or adverse modification is not reasonably likely to have a Material Adverse Effect, or (ii) in the instance of a cancellation, non-renewal or expiration, an application for reinstatement, renewal or extension has been duly made by the Borrower or the Subsidiary concerned and is being diligently pursued by the Borrower or such Subsidiary and the Borrower or such Subsidiary is not prohibited by a final order of a court of competent jurisdiction from continuing to provide service under such Telecommunications Approval during the pendency of such application and such Telecommunications Approval has not been granted to another Person, or (iii) in the instance of a cancellation, the Borrower or the Subsidiary concerned is not prohibited by final order of a court of competent jurisdiction from continuing to provide service under such Credit Agreement - 89 - Telecommunications Approval, and such Telecommunications Approval has not been granted to another Person; or (o) The Lien created by any Security Document shall at any time not constitute a valid and perfected Lien on the collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Administrative Agent, free and clear of all other Liens (other than Liens permitted under Section 5.02(a) hereof or under the respective Security Documents), or, except for expiration in accordance with its terms, any of the Support Documents shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Credit Party; or (p) Any Change of Control (under and as defined in the Senior Notes Indenture as in effect on the date hereof) shall occur and be continuing, or Century Communications Corp. and Citizens Utilities Company (or Subsidiaries of either of the foregoing) shall cease to hold in the aggregate Voting Stock of Centennial Cellular carrying at least 51% of the Voting Power of all Voting Stock of Centennial Cellular, or Centennial Cellular (or its Subsidiaries) shall cease to hold in the aggregate at least Voting Stock of Holdings carrying at least 51% of the Voting Power of all Voting Stock of Holdings, or Holdings (or its Subsidiaries) shall cease to hold in the aggregate Voting Stock of the Borrower carrying at least 51% of the Voting Power of all Voting Stock of the Borrower; or (q) The Borrower and its Subsidiaries fail to maintain operational capacity of the PCS System sufficient to provide service to at least 80% of the population of Puerto Rico for a period of 45 or more consecutive days; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the Commitment of each Lender to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the Advances, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any Credit Agreement - 90 - kind, all of which are hereby expressly waived by the Borrower; provided, however, in the event of an Event of Default referred to in paragraph (h) of this Section 6.01, (A) the Commitment of each Lender to make Advances shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. In addition, upon the occurrence and during the continuance of any Event of Default (if the Administrative Agent has declared the principal amount then outstanding of, and accrued interest on, the Advances and all other amounts payable by the Borrower hereunder and under the Notes to be due and payable), the Borrower agrees that it shall, if requested by the Administrative Agent or the Majority Lenders through the Administrative Agent (and, in the case of any Event of Default referred to in paragraph (g) or (h) of this Section 6.01 with respect to the Borrower, forthwith, without any demand or the taking of any other action by the Administrative Agent or such Lenders) provide cover for the Letter of Credit Liabilities by paying to the Administrative Agent immediately available funds in an amount equal to the then aggregate Face Amount of all Letters of Credit, which funds shall be held by the Administrative Agent in the Collateral Account as collateral security in the first instance for the Letter of Credit Liabilities and be subject to withdrawal only as provided in Section 6.02 hereof. SECTION 6.02. Collateral Account. (a) The Borrower hereby establishes with the Administrative Agent a separate cash collateral account (the "Collateral Account") in the name and under the control of the Administrative Agent into which there shall be deposited from time to time such amounts as required to be paid to the Administrative Agent under Section 2.09(d) hereof and the last paragraph of Section 6.01 hereof. (b) As collateral security for the prompt payment in full when due (whether at stated maturity, upon mandatory or optional prepayment, pursuant to requirements for cash collateral or otherwise) of the Reimbursement Obligations, interest thereon, and all obligations of the Borrower under the Letter of Credit Documents relating to Letters of Credit and under Section 6.02(f) hereof (whether or not then outstanding or due and payable) (such obligations being herein collectively called the "Secured Obligations"), the Borrower hereby pledges and grants to the Credit Agreement - 91 - Administrative Agent, for the benefit of the Issuing Banks, the Lenders and the Administrative Agent as provided herein, a security interest in all of its right, title and interest in and to the Collateral Account and the balances from time to time in the Collateral Account (including the investments and reinvestments therein provided for below). The balances from time to time in the Collateral Account shall not constitute payment of any Secured Obligations until applied by the Administrative Agent as provided herein. Anything in this Agreement to the contrary notwithstanding, funds held in the Collateral Account shall be subject to withdrawal only as provided in this Section 6.02. (c) Amounts on deposit in the Collateral Account shall be invested and reinvested by the Administrative Agent in such Cash Equivalents as the Borrower shall determine in its sole discretion, provided that (i) failing receipt by the Administrative Agent of instructions from the Borrower, the Administrative Agent may invest and reinvest such amounts as the Administrative Agent shall determine in its sole discretion and (ii) the approval of the Administrative Agent shall be required for the investments and reinvestments to be made during any period while a Default has occurred and is continuing. All such investments and reinvestments shall be held in the name and be under the control of the Administrative Agent. (d) If an Event of Default shall have occurred and be continuing, the Administrative Agent may (and, if instructed by the Majority Lenders, shall) in its (or their) discretion at any time and from time to time elect to liquidate any such investments and reinvestments and credit the proceeds thereof to the Collateral Account and apply or cause to be applied such proceeds and any other balances in the Collateral Account to the payment of any of the Secured Obligations due and payable. (e) If (i) no Default has occurred and is continuing and (ii) all of the Secured Obligations have been paid in full but Letters of Credit remain outstanding, the Administrative Agent shall, from time to time, at the request of the Borrower, deliver to the Borrower, against receipt but without any recourse, warranty or representation whatsoever, such of the balances in the Collateral Account as exceed the Face Amount of all outstanding Letters of Credit. When all of the Secured Obligations shall have been paid in full and all Letters of Credit have expired or been terminated, the Administrative Agent shall promptly deliver to the Borrower, against receipt but without any recourse, warranty or representation whatsoever, the Credit Agreement - 92 - balances remaining in the Collateral Account. ARTICLE VII THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Loan Document (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to any Loan Document or applicable law. The Administrative Agent agrees to give each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. SECTION 7.02. Administrative Agents' Reliance, Etc. None of the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender which is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with any Loan Document or for any financial projection Credit Agreement - 93 - or other information furnished by the Borrower before or after the execution of this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of the Borrower or any other Person or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with any Loan Document or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. The Administrative Agent and its Affiliates. With respect to its Commitment and the Advances made by it and the Notes issued to it, the Administrative Agent, in its capacity as a Lender hereunder, shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include the Administrative Agent in its individual capacity. The Administrative Agents and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if the Administrative Agent was not the Administrative Agent and without any duty to account therefor to the Lenders. SECTION 7.04. Lender Credit Decision. (a) Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit Credit Agreement - 94 - decisions in taking or not taking action under this Agreement. (b) Without limiting the foregoing, each Lender acknowledges that the Administrative Agent is not responsible for the forecasts and projections received from time to time by such Lender whether or not such forecasts or projections were prepared by the Borrower, any other Obligor, the Administrative Agent or any other party or based on information provided by any such party. The Administrative Agent makes no representation or warranty whatsoever as to the truth, accuracy or content of the information contained therein. SECTION 7.05. Indemnification by Lenders. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Notes then owing to each of them (or if no Notes are at the time outstanding or if any Notes are held by persons which are not Lenders ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from gross negligence or willful misconduct on the part of the Administrative Agent. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Loan Document, or in connection with any refinancing or restructuring of the credit arrangements provided pursuant to the Loan Documents, including, without limitation, in the nature of a workout or of any insolvency or bankruptcy proceedings to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower. SECTION 7.06. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed Credit Agreement - 95 - at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent so long as all of the long-term public senior debt securities of such successor Administrative Agent are rated at least "BBB-" by Standard & Poor's Corporation or "Baa3" by Moody's Investors Service, Inc. at the time of its acceptance of appointment as successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof, having a combined capital and surplus of at least $50,000,000 and all of whose long-term public senior debt securities are rated at least "BBB-" by Standard & Poor's Corporation or at least "Baa3" by Moody's Investors Service, Inc. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. SECTION 7.07. Amendments to Loan Documents. Except as otherwise provided in Section 8.01 with respect to this Agreement, the Administrative Agent may, with the prior consent of the Majority Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Loan Documents, provided that, without the prior consent of each Lender, the Administrative Agent shall not (except as provided herein or in the Support Documents) (i) release any collateral or otherwise terminate any Lien under any Security Document providing for collateral security, (ii) agree to additional obligations being secured by such collateral security (unless the Lien for such additional obligations shall be junior to the Lien in favor of the other obligations secured by such Security Document, in which event the Administrative Agent may consent to such junior Lien provided that it obtains the consent of the Credit Agreement - 96 - Majority Banks thereto), (iii) alter the relative priorities of the obligations entitled to the benefits of the Liens created under the Security Documents or (iv) release any Guarantor under the Subsidiary Guaranty from its guarantee obligations thereunder, except that no such consent shall be required to, and the Administrative Agent shall, release any collateral or otherwise terminate any Lien covering Property (and to release any such Guarantor) that is the subject of either a disposition of Property permitted hereunder or a disposition to which the Majority Lenders have consented. SECTION 7.08. Co-Agents. Without limiting any of their obligations hereunder as Lenders, none of the Persons identified as a "Co-Agent" on the cover page hereof shall have any rights or obligations in their capacity as a "Co-Agent". ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive any of the conditions specified in Article III, (b) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder or (f) amend this Section 8.01; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any Note and no amendment, waiver or consent shall, unless in writing and signed by an Issuing Bank in addition to the Lenders required above to take such action, affect the rights or duties of such Issuing Bank under this Credit Agreement - 97 - Agreement. SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at its address at c/o Century Communications Corp., 50 Locust Avenue, New Canaan, Connecticut 06840, telecopy no. 203-972-2013, Attention: Chief Financial Officer, with a copy to David Z. Rosensweig, Esq., Leavy Rosensweig & Hyman, 11 East 44th Street, New York, New York 10017, telecopy no. 212-983-2537; if to any Bank, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; and if to the Administrative Agent, at its address at 399 Park Avenue, New York, New York 10043, Attention: Global Media and Communications; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall be effective when received by the addressee thereof. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery, administration (other than routine administrative expenses), modification and amendment of this Agreement, the Notes and the other documents to be delivered hereunder, including, without limitation, (A) all due diligence, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement and/or the other Loan Documents, or the perfection, protection or preservation of rights or interests under the Loan Documents, with respect to Credit Agreement - 98 - negotiations with any Credit Party or with other creditors of any Credit Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto. The Borrower further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses) of the Administrative Agent and each of the Lenders, in connection with the enforcement (whether through negotiations, legal proceedings or otherwise and whether or not resulting in a settlement of any claim, proceeding or case) of, or legal advice in respect of rights and responsibilities under, this Agreement, the Notes and the other documents to be delivered hereunder or in connection with the refinancing or restructuring of the credit arrangements provided pursuant to the Loan Documents, including, without limitation, in the nature of a workout or insolvency or bankruptcy proceedings, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8.04(a). (b) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.07(f) or 2.11, prepayment pursuant to Section 2.08, acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. A certificate as to such amounts, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and Credit Agreement - 99 - from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and any Note held by such Lender, whether or not such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 8.05 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. SECTION 8.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have been notified by each Lender that such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 8.07. Assignments and Participations. (a) Each Lender may and, if demanded by the Borrower (following a demand by the Lender pursuant to Section 2.10(a) and 2.10(b)) upon at least 5 Business Days' notice to such Lender and the Administrative Agent, shall assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Note or Notes held by it and its Letter of Credit Liabilities); provided, however, (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement, (ii) except in the case of assignments to affiliates or other Lenders, the amount of the Commitment or (if the Commitments have terminated) the outstanding Advances and Letter of Credit Liabilities of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 and shall be an integral multiple of $1,000,000, Credit Agreement - 100 - unless and to the extent that the Administrative Agent agrees otherwise, (iii) each such assignment shall be to an Eligible Assignee acceptable to the Issuing Banks, (iv) each such assignment made as a result of a demand by the Borrower shall be arranged by the Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower unless and until such Lender shall have received one or more payments from either the Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances and participations in outstanding Reimbursement Obligations owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, (vi) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,000 and (vii) the assigning Lender shall give the Borrower not less than five Business Days' prior notice of such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 5 days after the execution and delivery thereof to the Administrative Agent, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Credit Agreement - 101 - Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant to any Loan Document; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under any Loan Document; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under any Loan Document as are delegated to them by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of any Loan Document are required to be performed by it as a Lender. (c) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that Credit Agreement - 102 - it is an Eligible Assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment hereunder, a new Note to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A hereto. (e) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder and the Advances owing to it and the Note or Notes held by it) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (iv) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Obligor therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Advances or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or Credit Agreement - 103 - proposed assignee or participant, any information relating to any Credit Party furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Lender. (g) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 8.08. Indemnification by the Borrower. The Borrower agrees to indemnify and hold harmless the Administrative Agent, each Lender and CSI and each of their respective affiliates, and each of their respective officers, directors, employees, agents, advisors, representatives, and controlling persons (each, an "Indemnified Party") from and against any and all claims, damages, liabilities, obligations, losses, penalties, actions, judgments, suits, costs, expenses and disbursements (including, without limitation, fees and disbursements of counsel and reasonable allocated costs of in-house counsel) of any kind or nature whatsoever which may be imposed on, incurred by or asserted against any Indemnified Party in connection with or arising out of, or in connection with the preparation of a defense of, (a) any investigation, litigation, or proceeding related to any acquisition or proposed acquisition by the Borrower, or by any Subsidiary or Affiliate of the Borrower, of all or any portion of the stock or substantially all the assets of any Person, (b) any other investigation, litigation or proceeding involving the Holdings, Century-ML or any of their respective Affiliates or (c) any failure by Century-ML or Century ML Cable Venture to perform any of its obligations under the Facilities Agreement or any representation by either of them under the Facilities Agreement proving to have been untrue when made, in each case whether or not such investigation, litigation or proceeding is brought by the Borrower or any of its Affiliates or any of their directors, shareholders or creditors or an Indemnified Party is otherwise a party thereto, except to the extent that such claim, damage, liability, obligation, loss, penalty, action, judgment, suit, cost, expense or disbursement is found in a final judgment by a court of competent jurisdiction to have resulted from (i) the gross negligence or willful misconduct Credit Agreement - 104 - of such Indemnified Party or such Indemnified Party's affiliates, or (ii) if such Indemnified Party is the Administrative Agent, a Lender, CSI or any of their respective affiliates, the gross negligence or willful misconduct of such Indemnified Party's officers, directors, employees, agents, advisors, representatives and controlling persons or (iii) if such Indemnified Party is an officer, director, employee, agent, advisor, representative or controlling person of another Indemnified Party, the gross negligence or willful misconduct of such other Indemnified Party. SECTION 8.09. Confidentiality. In connection with the negotiation and administration of this Agreement and the other Loan Documents, the Borrower has furnished and will from time to time furnish to the Administrative Agent and the Lenders (each, a "Recipient") written information which is identified to the Recipient in writing when delivered as confidential (such information, other than any such information which (i) was publicly available, or otherwise known to the Recipient, at the time of disclosure, (ii) subsequently becomes publicly available other than through any act or omission by the Recipient or (iii) otherwise subsequently becomes known to the Recipient other than through a Person whom the Recipient knows to be acting in violation of his or its obligations to the Borrower, being hereinafter referred to as "Confidential Information"). The Recipient will treat confidentially any Confidential Information in accordance with such procedures as the Recipient applies generally to information of that nature. It is understood, however, that the foregoing will not restrict the Recipient's ability to freely exchange such Confidential Information with (i) directors, employees, auditors, accountants or counsel of such Recipient or its affiliates and (ii) current or prospective assignees of and participants in the Recipient's position herein, but in the case of prospective assignees of and participants in the Recipient's position herein, the Recipient's ability to so exchange Confidential Information shall be conditioned upon any such prospective assignee's or participant's entering into an understanding as to confidentiality similar to this provision. It is further understood that the foregoing will not prohibit the disclosure of any or all Confidential Information if and to the extent that such disclosure may be required (i) by a regulatory agency or otherwise in connection with an examination of the Recipient's records by appropriate authorities, (ii) pursuant to court order, subpoena or other legal process or in connection with any pending or threatened litigation, (iii) pursuant to any order, regulation or ruling applicable to such Recipient or at the express direction of any other authorized governmental agency, (iv) as may be required or appropriate in any report, Credit Agreement - 105 - statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Recipient or to the Federal Reserve Board or the FDIC or similar organizations (whether in the United States or elsewhere) or their successors, (v) otherwise as required by law, or (vi) in order to protect its interests or its rights or remedies hereunder or under the other Loan Documents; in the event of any required disclosure under clause (ii), (iii), (iv) or (v) above, the Recipient agrees to use reasonable efforts to inform the Borrower as promptly as practicable. SECTION 8.10. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 8.11. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 8.12. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. SECTION 8.13. Submission to Jurisdiction; Waivers. The Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) The Borrower hereby agrees that service of all writs, process and summonses in any such suit, action or proceeding brought in the State of New York may be made upon Centennial Cellular Corp., presently located at 50 Locust Avenue, New Canaan, CT 06840, (the "Process Agent"), and the Borrower hereby confirms and agrees that the Process Agent has been duly and irrevocably appointed as its agent and true and lawful attorney-in-fact in its name, place and Credit Agreement - 106 - stead to accept such service of any and all such writs, process and summonses, and agrees that the failure of the Process Agent to give any notice of any such service of process to the Borrower shall not impair or affect the validity of such service or of any judgment based thereon. (c) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (d) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail return receipt requested (or any substantially similar form of mail), postage prepaid, to the Borrower at its address set forth in Section 8.02 or at such other address of which the Administrative Agent shall have been notified pursuant thereto with a copy to Leavy Rosensweig & Hyman, 11 East 44th Street, New York, New York 10017, Attention: David Z. Rosensweig, Esq.; and (e) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. SECTION 8.14. Acknowledgments. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the Notes and the other Loan Documents; (b) none of the Administrative Agents or Lenders has any fiduciary relationship to the Borrower, and the relationship between the Administrative Agent and Lenders, on one hand, and Borrower, on the other hand, is solely that of debtor and creditor; and (c) no joint venture exists among the Borrower and the Lenders. Credit Agreement - 107 - IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER CENTENNIAL PUERTO RICO WIRELESS CORPORATION By: ----------------------------------- Title: Credit Agreement - 108 - ADMINISTRATIVE AGENT CITIBANK, N.A., as Administrative Agent By: ------------------------------- Title: Attorney-In-Fact BANKS Commitment - ---------- $60,000,000 CITIBANK, N.A. By: ------------------------------- Title: Attorney-In-Fact $20,000,000 CIBC INC. By: ------------------------------- Title: $20,000,000 CREDIT LYONNAIS, NEW YORK BRANCH By: ------------------------------- Title: $20,000,000 SOCIETE GENERALE, NEW YORK BRANCH By: ------------------------------- Title: $10,000,000 LTCB TRUST COMPANY By: ------------------------------- Title: Credit Agreement Schedule I Lender Domestic Lending Office - ------ ----------------------- Citibank, N.A. Citibank, N.A. 399 Park Avenue New York, New York 10043 CIBC Inc. CIBC Inc. Two Paces West 2727 Paces Ferry Road Suite 1200 Atlanta, Georgia 30339 Credit Lyonnais, Credit Lyonnais, New York Branch New York Branch 1301 Avenue of the Americas New York, New York 10019 Societe Generale, Societe Generale, New York Branch New York Branch 1221 Avenue of the Americas New York, New York 10020 LTCB Trust Company LTCB Trust Company 165 Broadway, 49th Floor New York, New York 10006 Schedule I EX-4 3 EXHIBIT 4.7 EXECUTION COUNTERPART AMENDMENT NO. 1 AMENDMENT NO. 1 dated as of April 22, 1997, between CENTENNIAL CELLULAR CORP., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Borrower"); each of the lenders that is a signatory hereto (individually, a "Lender" and, collectively, the "Lenders"); and CITIBANK, N.A., a national banking association ("Citibank"), as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"). The Borrower, Citibank and the Administrative Agent are parties to a Credit Agreement dated as of September 12, 1996 (the "Credit Agreement"), providing, subject to the terms and conditions thereof, for loans to be made by the Lenders to the Borrower in an aggregate principal amount not exceeding $50,000,000. The Borrower, the Lenders and the Administrative Agent wish to amend the Credit Agreement in certain respects and accordingly hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 1, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Loan Documents shall be amended as follows: 2.01. References in the Credit Agreement (including references to the Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. 2.02. Section 1.01 of the Credit Agreement shall be amended by amending in their entirety the following definitions to read as follows: "'Support Documents' means, collectively, the Subsidiary Guaranty, the Pledge Agreements, such mortgages and/or other security agreements as may be required by Section 5.01(f)(iv) hereof and all Uniform Commercial Code financing statements (and similar registration instruments in other jurisdictions) Amendment No. 1 --------------- -2- required by this Agreement, the Subsidiary Guaranty, the Pledge Agreements and such mortgages and/or other security agreements to be filed with respect to the security interests created pursuant thereto." "'Termination Date' means January 31, 2001 or the earlier date of termination in whole of the Commitments pursuant to Section 2.04 or 6.01." 2.03. The first sentence of Section 2.01 of the Credit Agreement shall be amended to read as follows: "Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender's name on the signature pages hereof or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.04 (such Lender's 'Commitment'); provided that the Borrower shall not be entitled to receive any Advances hereunder if, after giving effect thereto and to any concurrent payment or prepayment of other Debt, the aggregate outstanding principal amount of Advances, and other Debt resulting from all Debt Issuances after the date hereof, would exceed $90,000,000." 2.04. A new Section 2.01A shall be added to the Credit reading as follows: "SECTION 2.01A Increase in Commitments . "(a) In the event that the Borrower wishes to increase the aggregate amount of the Commitments, it may offer one or more Eligible Assignees (each, an 'Additional Lender') the opportunity to participate in all or a portion of such increase; provided that (i) aggregate amount of the Commitments of all Additional Lenders shall be in an amount not greater than $40,000,000 and (ii) the Borrower shall be entitled to request an increase of the Commitments pursuant to this Section 2.01A not more than once. Amendment No. 1 --------------- -3- "(b) Any Additional Lender which the Borrower selects to offer participation in the increased Commitments and which elects to become a party to this Agreement and obtain a Commitment in an amount so offered and accepted by it pursuant to Section 2.01A shall become a Lender for all purposes and to the same extent as if originally a party hereto and shall be bound by and entitled to the benefits of this Agreement, and the signature pages hereof shall be deemed to be amended to add the name and Commitment of such Additional Lender, provided that amount of the Commitment of each Additional Lender shall be in an integral multiple of $5,000,000 that is greater than or equal to $10,000,000. "(c) If any Additional Lender becomes a Lender pursuant to Section 2.01A(b) hereof, on the effective date thereof (the 'Re-Allocation Date'), each Person that is a Lender before giving effect thereto (an 'Existing Lender') shall assign to such Additional Lender, by means of the execution and delivery by such Existing Lender and such Additional Lender of an Assignment and Acceptance, of an interest in the principal of and accrued interest on each of such Existing Lender's Advances in an amount such that, after giving effect thereto, the aggregate principal of and accrued interest on all of the Advances of all of the Lenders shall be held pro rata according the respective amounts of their Commitments. Concurrent with such assignment (and as a condition precedent thereto), each Existing Lender shall receive in consideration for such assignment cash in an amount equal to the aggregate amount of the principal of and accrued interest on the Advances so assigned by it. "(d) Notwithstanding the foregoing, no increase in the aggregate Commitments hereunder pursuant to this Section 2.01A shall be effective unless: "(i) each Additional Lender prior to becoming a Lender hereunder shall have entered into an agreement in form and substance satisfactory to the Borrower and the Administrative Agent pursuant to which such Additional Lender undertakes a Commitment, and from and after the Re-Allocation Date, such Additional Lender shall be a "Lender" for all purposes of this Agreement; "(ii) the Borrower shall have given the Administrative Agent notice of such increase at least Amendment No. 1 --------------- -4- five Business Days prior to the Re-Allocation Date; "(iii) The Borrower shall have delivered to the Administrative Agent for each Additional Lender a new promissory note of the Borrower in substantially the form of Exhibit A to the Credit Agreement, dated the date of the Notes delivered pursuant to Section 3.01(a), payable to the order of the Additional Lender in a principal amount equal to its Commitment and otherwise duly completed, and each of such promissory notes (the 'New Notes') delivered to the Additional Lenders shall constitute a 'Note' hereunder. "(iv) The Administrative Agent shall have received the following documents, each of which shall be satisfactory to the Administrative Agent in form and substance: "(A) Certified copies of the charter and by-laws (or equivalent documents) of the Borrower (or, in the alternative, a certification to the effect that none of such documents has been modified since delivery thereof on the Closing Date) and of all corporate authority for the Borrower (including, without limitation, board of director resolutions and evidence of the incumbency of officers for the Borrower) with respect to such increase and the execution, delivery and performance of the New Notes (and the Administrative Agent and each Lender may conclusively rely on such certificate until it receives notice in writing from the Borrower to the contrary). "(B) An opinion of Leavy Rosensweig & Hyman, counsel to the Borrower, reasonably satisfactory to the Additional Lender and the Administrative Agent (and the Borrower hereby instructs such counsel to deliver such opinion to the Lenders and the Administrative Agent). "(C) Such other documents as the Administrative Agent or the Additional Lender or special New York counsel to the Administrative Agent may reasonably request." Amendment No. 1 --------------- -5- 2.05. Section 2.09(b)(i) of the Credit Agreement shall be amended to read as follows: "(i) Debt and Equity Issuance. The Borrower shall, on each date on which the Borrower or any Subsidiary (other than a Guarantor) receives any Net Cash Proceeds from any Debt Issuance (other than any Excluded Debt Issuance (as defined below)) or Equity Issuance, prepay the Advances in an aggregate principal amount equal to such Net Cash Proceeds (or, if less, the aggregate unpaid principal amount of all Advances), together with accrued interest to the date of such prepayment on the principal amount prepaid and all amounts then owing under Section 8.04(b) in respect of such prepayment. For purposes of the preceding sentence, 'Excluded Debt Issuance' means a Debt Issuance (other than a Borrowing) the terms of which are not materially more restrictive or burdensome to the Borrower and its Subsidiaries than the terms and conditions hereof if (and to the extent that), after giving effect thereto, the aggregate principal amount of all outstanding Debt resulting from Debt Issuances after the date hereof plus an amount (not less than zero) equal to (A) the aggregate principal amount of all Advances minus (B) $50,000,000 is less than $40,000,000." 2.06. Section 5.01(f) of the Credit Agreement shall be amended to read as follows: "(f) Additional Post-Closing Covenants. (i) In the event that the Borrower or any Subsidiary uses the proceeds of any Advances to purchase any business or any equity interest in any business, then not later than 5 Business Days after the date of such acquisition the Borrower will (A) (unless the Borrower or such Subsidiary purchases a minority equity interest in such business (a 'Minority Equity Interest')) cause all FCC Licenses, if any, so purchased to be held in the name of a special purpose, direct, Wholly Owned Subsidiary of the New Holding Company (as defined below) satisfying the conditions of this paragraph (f) (each such Subsidiary, a 'License Subsidiary'), (B) (unless the Borrower or such Subsidiary purchases a Minority Equity Interest) cause all assets and contract rights, other than FCC Licenses, so purchased to be held in the name of a special purpose, direct, Wholly Owned Subsidiary of the New Holding Company (each such Subsidiary, an 'Operating Subsidiary'), (C) cause each such Amendment No. 1 --------------- -6- License Subsidiary and the related Operating Subsidiary to execute and deliver a license management agreement in form and substance satisfactory to the Majority Lenders pursuant to which such Operating Subsidiary will agree to manage, on behalf of such License Subsidiary, the FCC Licenses held by such License Subsidiary, (D) cause all of the capital stock of each License Subsidiary and each Operating Subsidiary and all of the Minority Equity Interests, if any, to be owned by a special purpose, direct Wholly Owned Subsidiary of the Borrower (the 'New Holding Company' and, together with the License Subsidiaries and the Operating Subsidiaries, the 'New Companies'), (E) cause each New Company to become a Guarantor by causing such New Company to execute and deliver an instrument substantially in the form of Annex 1 to the Subsidiary Guaranty and (F) cause the New Holding Company to grant to the Administrative Agent for the benefit of the Lenders to secure the payment of such the New Holding Company's obligations under the Subsidiary Guaranty a perfected pledge, subject to no other Lien, of the capital stock of or other equity interests in such License Subsidiary and such Operating Company, and of all of the Minority Equity Interests, if any, under a Pledge Agreement. (ii) The Borrower will not permit any License Subsidiary to become directly or indirectly obligated in respect of any Debt (other than Debt under the Support Documents, or to engage in any line or lines of business activity or to hold any property other than (i) FCC Licenses and (ii) other property not having an aggregate fair market value in excess of $10,000 at any one time. (iii) The Borrower will not permit any Operating Subsidiary to become directly or indirectly obligated in respect of any Debt other than (x) Debt under the Support Documents, (y) Debt owing to the New Holding Company and (z) other Debt not exceeding $500,000 in aggregate principal amount at any one time outstanding. (iv) Not later than 30 days after following any request by the Administrative Agent, the Borrower shall furnish to the Administrative Agent a list in reasonable detail of all equipment, fixed assets, real property, leases, contracts and other property and rights owned or held by each Operating Subsidiary and, promptly (and in no event more than 10 Business Days) after the Administrative Agent shall request Amendment No. 1 --------------- -7- the same, any Operating Subsidiary to execute and deliver, and to cause each of its Subsidiaries to execute and deliver, to the Administrative Agent such mortgages, assignments, security agreements and other instruments from time to time in such form as shall be requested by the Administrative Agent in order to create Liens on such of the property and rights of such Operating Subsidiary as the Administrative Agent may specify. (v) In connection with any of the actions required by the foregoing provisions of this Section 5.01(f), the Borrower shall cause to be delivered to the Administrative Agent such corporate documents, legal opinions, governmental and third party consents and other supporting documentation as the Administrative Agent may reasonably request. (vi) The Borrower will cause all New Companies to be 'Unrestricted Subsidiaries' under and as defined in the Senior Notes Indenture at all times." 2.07. The references in the Subsidiary Guaranty (including Annex 1 thereto) and in Exhibit D-1 to the Credit Agreement (including Annex 1 thereto) to "$50,000,000" shall be amended to read "$90,000,000". Section 3. Representations and Warranties. The Borrower represents and warrants to the Lenders that the representations and warranties set forth in Section 4 of the Credit Agreement are true and complete on the date hereof as if made on and as of the date hereof and as if each reference in said Section 4 to "this Agreement" included reference to this Amendment No. 1. Section 4. Conditions Precedent. As provided in Section 2 above and Section 5 below, the amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of the date hereof, and the Administrative Agent shall take the actions required by Section 5 hereof, upon the satisfaction of the following conditions precedent: 4.01. Execution by All Parties. This Amendment No. 1 shall have been executed and delivered by each of the parties hereto, and consented to by each of the Guarantors. 4.02. Payment of Fees. The Borrower shall have paid to Citibank such fees as it shall have agreed to pay to Citibank in Amendment No. 1 --------------- -8- connection with the amendments to the Credit Agreement contemplated hereby and shall have paid all commitment fees under the Credit Agreement that have accrued and remain unpaid. Section 5. Release of Certain Guaranties and Collateral of the Puerto Rico Companies. Subject to the satisfaction of the conditions precedent specified in Section 4 above, the Administrative Agent shall release the Puerto Rico Companies from their obligations under the Subsidiary Guaranty and shall release any and all capital stock issued by the Puerto Rico Companies pledged to it to secure the obligations of the Borrower hereunder or to secure the obligations of any Puerto Rico Company under the Subsidiary Guaranty. In connection with the foregoing, the Administrative Agent hereby agrees, subject to such conditions precedent, to (i) cause to be assigned, transferred or delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining share certificates evidencing such capital stock held by the Administrative Agent to or on the order of the respective registered owners thereof and (ii) execute and deliver to the Borrower such UCC-3 termination statements and other documents as shall be reasonably requested by the Borrower, not resulting in any direct or contingent liability to the Administrative Agent, necessary to terminate of record such pledges, provided that, the Administrative Agent receives assurances satisfactory to it of its reimbursement by the Borrwer of its costs and expenses incurred in connection therewith. Section 6. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 1 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 1 by signing any such counterpart. This Amendment No. 1 shall be governed by, and construed in accordance with, the law of the State of New York. Amendment No. 1 --------------- -9- IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered as of the day and year first above written. CENTENNIAL CELLULAR CORP. By /s/ SCOTT N. SCHNEIDER ------------------------- Title: CFO CENTENNIAL BENTON HARBOR CELLULAR CORP. CENTENNIAL BENTON HARBOR HOLDING CORP. CENTENNIAL CELLULAR TELEPHONE COMPANY OF COCONINO CENTENNIAL CELLULAR TELEPHONE COMPANY OF DEL NORTE CENTENNIAL CELLULAR TELEPHONE COMPANY OF LAWRENCE CENTENNIAL CELLULAR TELEPHONE COMPANY OF MODOC CENTENNIAL CELLULAR TELEPHONE COMPANY OF SACRAMENTO VALLEY CENTENNIAL CELLULAR TELEPHONE COMPANY OF SAN FRANCISCO CENTENNIAL CLAIRBORNE CELLULAR CORP. CENTENNIAL LAKE CHARLES CELLULAR CORP. CENTENNIAL PUERTO RICO WIRELESS CORPORATION CENTENNIAL WIRELESS PCS OPERATIONS CORP. CENTENNIAL WIRELESS PCS LICENSE CORP. LAMBDA COMMUNICATIONS, INCORPORATED (INCORPORADO) LAMBDA OPERATIONS CORP. LAMBDA PCS CORP. By /s/ SCOTT N. SCHNEIDER ------------------------- Title: CFO Amendment No. 1 --------------- -10- CITIBANK, N.A., individually and as Administrative Agent By /s/ MARY S. THOMAS ------------------------- Title: Attorney-in-Fact Amendment No. 1 --------------- EX-10 4 EXHIBIT 10.18 EXHIBIT 10.18 EXECUTION COPY FACILITIES AGREEMENT THIS FACILITIES AGREEMENT is made as of this 2nd day of January, 1995, by and between Century ML Cable Venture, a New York joint venture (the "Venture"), and Century-ML Cable Corporation, a Delaware corporation ("Century ML Cable" and, collectively with the Venture, "Owners"), both having a place of business at 50 Locust Avenue, New Canaan, CT 06840, and Centennial Puerto Rico Wireless Corp., a Delaware corporation having a place of business at 1305 Campus Parkway, Neptune, NJ 07753 ("Wireless"). RECITALS WHEREAS: A. Century Communications Corp., a Texas corporation ("Century"), and ML Media Partners, L.P., a Delaware limited partnership ("ML" and, collectively with Century, the "Joint Venturers"), each owns a fifty percent (50%) interest in the Venture and the Venture is the record and beneficial owner and holder of one hundred percent (100%) of the issued and outstanding shares of Century ML Cable; B. Century ML Cable owns and operates the cable television system serving the San Juan, Puerto Rico community and the Venture owns and operates the cable television system serving the Levittown, Puerto Rico community (the systems being referred to as the "Cable Systems" and individually as a "Cable System"), each pursuant to governmental authority, including, without limitation, a cable television franchise; C. Owners are in the process of constructing a fiber optic cable television facility and network (the "Fiber Network") within the geographic area described in Annex A hereto (the "Service Area") to enhance the capacity and improve the signal quality of the Cable Systems; D. Wireless through direct and indirect subsidiaries contemplates developing a telecommunications and personal communications service ("PCS") business and a competitive access provider business, and entering into the business of providing local telephone exchange service (all such businesses being referred to as the "Telecom Businesses" and individually a "Telecom Business") and other "telecommunications services" as described in Annex C, in the Service Area; E. In connection with the operation of such Telecom Businesses and each of them, Wireless desires to lease from and share capacity over the Fiber Network of Owner, and in connection therewith (i) share in the costs of constructing the Fiber Network based on the percentage of the number of fibers of such Network used by or reserved for Wireless (which shall be deemed to include fibers used by direct and indirect subsidiaries of Wireless) compared to the percentage of fibers of such Network utilized by Owner and all third parties; (ii) and pay the costs of operating the Telecom Businesses (including but not limited to a proportional share of -2- certain of the Cable Systems' expenses) all under the terms and conditions set forth in this Agreement, and Owner is willing to lease and share such facilities to and with Wireless under such terms and conditions; and F. Owners and Wireless believe that it is in their mutual best interests to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and covenants contained in this Agreement, the parties agree as follows: 1. Arrangements. Owner agrees to make space available to Wireless in Owner's Fiber Network in the Service Area, in Owner's trenches, conduits and other facilities, both aerial and underground, for the installation by Owner of fibers, cable and associated equipment to be used by Wireless in connection with one or more of the Telecom Businesses, and to permit Wireless to connect same to, and to co-locate same at Owner's headend and/or other appropriate location of Owner, and upon such installation to lease to Wireless such fibers, cable and associated equipment for the Term, as hereafter defined. The number of fibers and cable used by or provided for or to Wireless, compared to all cable and fibers installed in Owners' aerial and underground trenches, conduits and facilities in co-located areas shall be known as the "Use Percentage". From time-to-time during the Term, Wireless may request that Owners' lease to and grant Wireless -3- the use of and the right to install additional capacity, cable and fibers on Owners' Fiber Network, and Owner shall not unreasonably withhold its consent to such lease and use, it being agreed that if, in the exercise of their discretion, Owners conclude that such additional capacity is necessary or desirable in the operation of the Cable Systems it shall not be required to grant such additional capacity requested by Wireless. As additional capacity and fibers are leased and made available to Wireless the "Use Percentage" shall be adjusted from time-to-time to reflect the number of fibers and cables used by or provided for or to Wireless compared to the aggregate number of fibers and cable installed in the Fiber Network, and the applicable "Use Percentage" shall be such percentage, as so adjusted. The fibers and cables used by and provided to Wireless are referred to as the "Wireless Fibers." 2. Construction and Maintenance Payments: (a) Wireless shall make the following payments to Owners: (i) The Use Percentage multiplied by the Costs of Construction of the Fiber Network, as such term is defined in Annex B, to be paid, as the construction proceeds on the twentieth day of each calendar month (the "Payment Month") during the course of construction with each payment relating to and covering the costs of construction incurred during the immediately preceding calendar month, provided that on or before the fifth day of the particular Payment Month Owners have provided Wireless with written documentation of such costs, including without limitation appropriate invoices from vendors and contractors. In the event Owner and Wireless disagree as to the amount of any of the Costs of Construction and the appropriate elements to be included in its determination -4- and/or the charges presented by Owner, such disagreement(s) shall be resolved by arbitration as provided for in Section 21(j); (ii) Any additional franchise fees imposed upon or collected from Owners by any franchising authority as a direct or indirect result of Wireless' rights under this Agreement, without duplication of the payments required pursuant to other portions of this subsection (a); and (iii) The Use Percentage of pole attachment fees and rentals, conduit fees and other out-of-pocket rights-of-way expenses (including but not limited to franchise fees) incurred by Owners in connection with the Fiber Network and in addition all surcharges or increases in pole attachment fees and rentals, conduit fees and other out-of-pocket rights-of-way expenses attributable or charged as a result of the installation of the Wireless Fibers. Payment shall be made within ten days following submission of Owners' invoice for the aforesaid charges, fees and expenses together with documentation of same. Any disputes with reference to same shall be resolved by arbitration as provided in Section 21(j). (b) In addition to the payments set forth in subsection (a) above, Wireless shall pay all direct and indirect costs of operating the Telecom Businesses. -5- 3. Term. (a) This Agreement shall commence on the date hereof and terminate on the earliest to occur of (i) the date this Agreement terminates pursuant to Section 15, (ii) the date which is 25 years from the date of completion of construction of the Fiber Network which, for the purposes of this Section, shall be no later than January 31, 1997, and the availability of the Wireless Fibers for use in any of the Telecom Businesses, and (iii) the date that the franchise for either of the Cable Systems is terminated prior to its respective Expiration Date or on the Expiration Date of such franchise, provided that if such franchise is renewed or extended or replaced from time-to-time, the Expiration Date of such renewed or extended period or replacement franchise shall be the applicable date for this sub-section (iii). (b) The sale or transfer from time to time, of one or both of the Cable Systems, or the transfer of control thereof, or the transfer of the accompanying cable franchise relating to one or both of the Cable Systems or the replacement of such franchise with one in the name of the transferee of the ownership or control of one or both of the Cable Systems, shall not work a termination of this Agreement. 4. Use of Facilities. (a) Wireless shall not use the Wireless Fibers in violation of any law, rule, regulation or order of any governmental authority having jurisdiction, or of any franchise, license, agreement or certificate relating to the Cable Systems of which Wireless has been notified in writing, unless the validity thereof is being contested in good faith and by appropriate proceedings (but only so long as such proceedings and -6- Wireless' use of the Wireless Fibers do not, in Owners' reasonable judgment, involve any risk of forfeiture of the Cable Systems, or either of them, or of Owners' cable television franchises or any of them, or invalidate or conflict with any insurance policies maintained by Owners covering the Fiber Network, the material terms of which franchises and insurance policies, Owners have notified Wireless in writing. Wireless shall not use or authorize another to use the Wireless Fibers or any of Wireless' facilities to deliver, use, carry or transmit video signals in competition with the Cable Systems or either of them. Wireless may use the Wireless Fibers only for the Telecom Business and the transmission and delivery of voice and data signals and telecommunications services, as the term is defined in Annex C, and for no other purpose. Wireless shall have exclusive control over its permitted voice and data and telecommunications services, including, without limitation, customer premises, sales and marketing, and billing and collection, and shall have reasonable ingress and egress to and from the Cable Systems and Owners' facilities and Fiber Network for the purposes of conducting its business operations and transmission of voice and data and telecommunication services and maintaining the Wireless Fibers. 5. Non-Exclusivity,. Nothing in this Agreement shall be construed (i) to require Owners to be Wireless' exclusive provider of, or contractor with respect to fiber optic facilities in the Service Area or to limit in any way Wireless' right in its own name to apply for and obtain municipal franchises, authorizations and permits, to construct, maintain and own fiber optic facilities, and to apply for and obtain pole attachment agreements, conduit licenses or other rights-of-way agreements from other rights-of- -7- way providers or (ii) to prohibit or limit Owners from granting to others the right to use any of Owners' facilities in connection with the transmission of voice and data and business as similar or dissimilar to the Telecom Businesses, subject of course to Wireless' rights as expressly set forth in this Agreement. 6. Use of Wireless' Fibers and Capacity. (a) In the event Owners desire to utilize Wireless Fibers in connection with the transmissions by Owners, Owners and Wireless shall negotiate in good faith the terms of such use, it being understood that there shall be no obligation to reach agreement by either Wireless or Owners. (b) If Wireless obtains operating authority, rights-of-way, building entrance facilities, pole attachment agreements or conduit rights in areas within the Service Area in which it currently does not have same, or constructs and owns fiber optic facilities in the Service Area and determines, in its sole discretion, that it has available capacity in such facilities, it will, upon request of Owners, negotiate in good faith with Owners for the lease or use of capacity to Owners for the provision of its services and the terms and conditions of such lease or use, it being understood that neither party has an obligation to conclude or enter into any such lease or agreement for such use. Provided however, that provisions of such lease or use shall be as favorable to Owners with respect to costs and other provisions, as any lease or other agreement theretofore or thereafter entered into by Wireless with others with respect to such facilities and any lease or use agreement with Owners shall be modified from time-to-time to reflect any such favorable provisions. -8- 7. Title. All right, title and interest in all the Fiber Network constructed by Owners including without limitation, the Wireless Fibers, shall at all times remain exclusively with Owners. Except as expressly provided in Sections 4 and 17 and elsewhere in this Agreement, Owners shall retain full operating control and shall continue to hold and be solely responsible for all operating authority with regard to the Cable Systems and, subject to the rights of Wireless hereunder, the Fiber Network. Subject to the foregoing, Wireless shall hold and be responsible for all operating authority for its facilities and for the provision of voice and data and telecommunications services by it, including, without limitation, its use of the Wireless Fibers. 8. Liens and Encumbrances. Neither party, directly or indirectly, shall create or impose any lien on the property of the other, or on the rights or title relating thereto, or any interest therein, or in this Agreement. Each party will promptly, at its own expense, take such action as may be necessary to duly discharge any lien created by it on the property of the other. 9. Representations and Covenants Regarding Authorizations. (a) Owners and Wireless each represent(s), warrant(s) and covenant(s) to the other that it (they) has (have) full authority and power to enter into and carry out the provisions of this Agreement as same relate to it (or them) and that there is no litigation or proceeding pending, or to its (or their) knowledge, threatened, to which it -9- is (or they are) or will be named a party or to which any of its (or their) property will be subject which could have a material adverse effect on its (or their) ability to perform its obligations under this Agreement. (b) Each party shall perform its or their respective rights and obligations hereunder in accordance with the governmental authorizations obtained by it or them and all applicable laws, rules and regulations imposed by any governmental authority. 10. Relocation of the Facilities. Owners may elect or be required to relocate the Fiber Network and the Wireless Fibers. Wireless shall pay its share, based on the Use Percentage, of the direct, out-of-pocket costs of such relocation to the extent such costs cannot be recovered from third parties. Owners will use commercially reasonable efforts to effect any relocation in a manner that will not cause any material interruption to Wireless' use of the Wireless Fibers. Owners shall use commercially reasonable efforts to give Wireless prior notice of any relocation or of any governmental proceedings which might result in a relocation, subject to notice that Owners receives from such governmental authority. 11. Condemnation and Casualty. (a) Condemnation. If all or any material portion of the Wireless Fibers are taken for any public or quasi-public purpose by any lawful power or authority by the exercise of the right of condemnation or eminent domain as part of condemnation of the Cable Systems, or either of them, and/or the Fiber Network, either Owners or Wireless shall be entitled to terminate this Agreement with respect to such Wireless -10- Fibers. In such event, Owners shall be entitled to 100% of all awards and compensation, except that Wireless shall be entitled to the portion of the award allocable to the Wireless Fibers which are taken. Any dispute with reference to such allocable amount shall be resolved by arbitration as provided for in Section 21(j). (b) Casualty. If all or any material portion of the Wireless Fibers are made inoperable and beyond feasible repair due to a casualty or other force majeure event (as that term is defined in Section 16), Wireless shall be entitled to terminate this Agreement with respect to the Wireless Fibers affected by such casualty or other force majeure event and the Use Percentage for prospective purposes shall be adjusted appropriately. 12. Indemnification. (a) Indemnification by Wireless. Wireless will indemnify and hold harmless Owners, their respective affiliates (other than Wireless), and all officers, directors, employees, stockholders, partners and agents of Owners and their respective affiliates (other than Wireless) from and against any and all claims, demands, costs, damages, losses, liabilities, joint and/or several, expenses of any nature (including reasonable attorneys', accountants' and experts' fees and disbursements), judgments, fines, settlements and other amounts (collectively, "Damages") arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative (collectively "Claims") relating to or arising out of: -11- (i) The installation, maintenance or operation of Wireless' connections Wireless Fibers or the conduct or management of any of the Telecom Businesses except to the extent such Damages are caused by negligence of Owner or its agents; (ii) Any breach by Wireless of any obligation under this Agreement; (iii) Any failure of any representation or warranty made by Wireless herein to be true in any material respect as of the date made or deemed made; (iv) Any claim by any customer of Wireless relating to the provision by Wireless of Telecom Business and other telecommunications services to such customer over the Wireless Fibers; and (v) Any claim of any third party resulting from the negligence or wilful misconduct (in each instance, of omission or commission) of Wireless. (b) Owners will similarly indemnify and hold harmless Wireless, its affiliates (other than Owners), and all officers, directors, employees, stockholders, partners and agents of Wireless and its affiliates (other than Owners) from and against any and all Damages arising from any and all Claims relating to or arising out of: (i) The installation, maintenance or operation by Owners of the Cable Systems and the Fiber Network and the conduct or management Owners' business with regard to the Cable Systems and the Fiber Network, except to the extent such Damages are caused by negligence of Wireless or its agents; (ii) Any breach by Owners of any obligation or covenant under this Agreement; (iii) Any failure of any representation or warranty made by Owners herein to be true in any material respect as of the date made or deemed made; -12- (iv) Any Claim by any customer of Owners relating to Owners' provision of services (other than services provided by Wireless) over the Cable Systems and the Fiber Network; and (v) Any Claim of any third party resulting from the negligence or wilful misconduct (in each instance, of omission or commission) of Owners. (c) Procedure. No claims for indemnification shall be made by either party against the other unless the aggregate amount of such Claims, together with any other indemnifiable claims of such party, exceeds the amount of $100,000, with the understanding that once said level of Claims is reached, indemnification shall be available from the first dollar of Claims. Any reasonable expenses incurred by any indemnified person pursuant to this Section 12 in defending any civil or criminal action, suit or proceeding (or the threat thereof), other than a claim, action, suit or proceeding brought by the indemnifying party, shall be borne and paid by the indemnifying party in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the indemnified person to repay to the indemnifying party the amount of such expenses if it shall ultimately be determined that such person is not entitled to the indemnification provided for under this Section 12. Any person asserting a right to indemnification under this Section 12 shall so notify the indemnifying party in writing. If the facts giving rise to such indemnification involve any actual or threatened claim or demand by or against a third party, the indemnifying party shall be entitled to control the defense or prosecution of such claim or demand in the name of the indemnified person, if the indemnifying party notifies the indemnified person in writing of its intention to do so -13- within 20 days of the receipt of such notice by the indemnified person. The indemnified person shall have the right, however, to participate in such proceeding through counsel of its own choosing, which participation shall be at its sole expense. Whether or not the indemnifying party chooses to defend or prosecute such claim, each indemnified person, to the extent requested by the indemnifying party, at the indemnifying party's expense, shall cooperate in the prosecution or defense of such claim and shall furnish such records, information and testimony and attend such conferences, discovery proceedings, hearings, trials and appeals as may reasonably be requested in connection therewith. (d) Survival. The provisions of this Section 12 and of Section 9 shall survive the termination of this Agreement. 13. Interruption of Service. In the event of any interruption of use by Wireless of any portion of the Wireless Fibers through no fault of Wireless, unless such interruption is caused by Owners' wilful misconduct or gross negligence, Owners' sole obligation shall be to restore the Cable Systems and the Fiber Network so that all of the Wireless Fibers are available for use by Wireless. The remedy provided in this Section shall be Wireless' sole and exclusive remedy for outages or interruptions of service, other than those caused by Owners' wilful misconduct or gross negligence, subject to the termination provisions in Sections 11 and 15. For purposes of this Agreement interruption of use shall be defined as any interruption for more than one consecutive hour. -14- 14. Events of Default. Each of the following events shall constitute an event of default (whether any such event shall be voluntary or involuntary or occur by operation of law or pursuant to any judgment, decree, order, rule or regulation of any court or administrative or governmental body): (a) the failure of Wireless to make any payment pursuant to Section 2 hereof or any other payment due hereunder, in each case within ten days after Wireless' receipt of notice from Owners of Wireless' failure to make such payment when due, provided that in the event the right of Owners to all or a portion of such payment is being contested in good faith by Wireless, Wireless' failure to make payment within said ten-day period shall only obtain with reference to the portion of such payment which is not being so contested and there shall not be an event of default with respect to the portion of such payment that is being contested until same remains unpaid more than ten days following a final court order holding that such payment was proper; (b) the failure of either party to perform or observe any material agreement to be performed or observed by it hereunder, and such failure shall continue unremedied for a period of 30 days after written notice is given to the defaulting party provided such failure can be remedied within said 30-day period, and if not so capable of being so remedied, that within said 30-day period the applicable party commences to remedy such failure and thereafter diligently pursues same; (c) a court or governmental authority of competent jurisdiction shall enter an order appointing, without consent by either party, a custodian, receiver, trustee, -15- intervenor, or other officer with similar powers with respect to it or with respect to any substantial part of its property, or shall enter any order constituting an order for relief or approving a petition in bankruptcy or insolvency under the law of any jurisdiction, or ordering the dissolution, winding up, or liquidation of either party, or if any such petition shall be filed against either party and shall not be dismissed within 60 days thereafter, or an order shall have been issued granting either party any suspension of payments under applicable law and any such order is not dismissed within 60 days thereafter; or (d) either party (or its permitted assignee) shall cease to have any of the material franchises, licenses, agreements, certificates, concessions, permits, rights or privileges required for the conduct of its business and operations which loss is not remedied by the obtaining of a replacement franchise, license, agreement, certificate, concession, permit, right or privilege within 90 days of the loss thereof, if such loss would have a material adverse effect upon the ability of the party suffering such loss to perform its obligations hereunder. 15. Remedies. Upon the occurrence and during the continuance of any event of default, the non-defaulting party, at its option, may declare this Agreement to be in default, and in addition to any other remedies provided herein or otherwise, may terminate this Agreement. -16- 16. Force Majeure Events. Neither party shall be liable to the other for any failure of performance under this Agreement due to causes beyond its control, including but not limited to: acts of God, fire, flood or other catastrophes; any law, order, regulation, direction, action or request of the United States Government, or of any other government, including state and local and Commonwealth governments having or claiming jurisdiction over such party, or of any department, agency, commission, bureau, corporation or other instrumentality of any one or more of these federal, state or local or commonwealth governments, or of any civil or military authority; national emergencies; unavailability of materials or rights-of-way; insurrections; riots; wars; or strikes, lock-outs, work stoppages or other labor difficulties (collectively, "force majeure events"). 17. Orderly Termination. Upon termination of this Agreement in whole or with respect to the use by Wireless of the Fiber Network or with respect to the Wireless Fibers, Owner and Wireless each agrees to cooperate in good faith to effect an orderly transition of any voice, data, or telecommunications services provided over the Fiber Network by Wireless. Without limitation, Owner hereby agrees that, notwithstanding such termination, to the extent permitted by applicable law and regulation, it will continue to make available to Wireless any portions of the Fiber Network which Wireless reasonably requires to fulfill its obligations under existing customer agreements for a period up to three months after such termination in the case of a termination by reason of Wireless' default, or 12 months after such termination in all other cases; provided, -17- however, if such termination is occasioned by the termination of the cable television franchise applicable to either of the Cable Systems, Owner shall be under no obligation to make any portion of the Fiber Network available to Wireless beyond the time frame permitted by such terminated franchise. Notwithstanding the foregoing, the agreement shall be terminable immediately if Wireless is in default of payment under Section 2, subject to the provisions of Section 14(a). 18. Obligations of Wireless. In addition to the obligations of Wireless set forth elsewhere in this Agreement and subject to limitations expressly set forth in this Agreement, Wireless shall: (a) have full and complete responsibility and liability for the signals distributed over the Wireless Fibers; (b) have full and complete responsibility and liability for the purchase, installation, construction and maintenance of the terminals and peripheral equipment connected to the fiber optic components of the Cable System leased or used by Wireless; (c) employ its own employees, agents and/or independent contractors in the handling, storage, retrieval, processing, transmitting, and/or receiving of any electronic signals distributed over the Wireless Fibers; (d) provide all commercial or other power supplies for the operation of the Wireless Fibers, terminals and peripheral equipment or facilities used with or connected to the Cable Systems and located on Wireless' or its customer's, premises; -18- (e) have full and complete control, responsibility and liability for maintaining any operating authority from any federal, state or local governmental body or agency that relates to the activities of Wireless under this Agreement, including Wireless' lease or use of capacity on the Fiber Network; and (f) maintain all books and records relating to the Wireless Fibers. 19. Interest. All payments due from either party to the other under the terms of this Agreement which are not paid when due shall bear interest from the due date until paid at an interest rate equal to the lesser of 1 1/2% per month or the maximum lawful rate permitted by law. 20. Assignment. Neither party shall assign, transfer, delegate or in any other manner dispose of, any of its rights, privileges or obligations under this Agreement except (i) in the case of Owners, in connection with a transfer of one or both of the Cable Systems or the control thereof, to Century or to a subsidiary or Affiliate of Century, or to another Affiliate of Owners; or (ii) in connection with transactions pursuant to which either the Venture or Century ML Cable sells all or substantially all of its business or assets or control of either of such entities is sold or transferred and in which the acquiror in any of said transactions agrees in writing to be bound by the terms of this Agreement; and (iii) in the case of Wireless, in connection with an assignment of any of its rights, privileges or obligations or delegation of its obligations in connection with a sale of all or substantially all of its business or assets -19- to an Affiliate and/or in connection with transactions pursuant to which Wireless sells all or substantially all of its business or assets or control of Wireless is sold or transferred and in which the acquiror in any of said transactions agrees to be bound by the terms of this Agreement. "Affiliate" of a person or entity shall mean any other person or entity directly or indirectly controlling or controlled by or under direct or indirect common control with such person or entity. For the purpose of the definition of Affiliate, "control" when used with respect to any person or entity, means the possession of the power to direct or cause the direction of the management or policies of such person or entity, directly or indirectly, whether through the ownership of voting securities, by agreement or otherwise; and the terms "controlled by" and "under common control with" have meanings correlative to the foregoing. The Assignor shall remain liable hereunder despite its assignment. 21. Miscellaneous. (a) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one complete set of such counterparts. (b) Captions; Gender. Article and section headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. Whenever used herein the singular number shall include the plural, the plural shall include the singular, and the use of any gender shall include all genders. -20- (c) Governing Law and Binding Effect. This Agreement shall be governed by and construed and enforced in accordance with the law and decisions of the State of New York applicable to contracts made and to be performed entirely therein, and without any reference to any rules of conflicts of laws. This Agreement shall bind and inure to the benefit of each of the parties and their successors and permitted assigns. (d) Waivers and Amendments. This Agreement may not be amended nor shall any waiver, change, modification, consent or discharge be effected, except by an instrument in writing adopted, in the case of an amendment, by each party and, in the case of a waiver, consent or discharge, by the party against whom enforcement of such instrument is sought. Any consent by either party to, or waiver of, a breach by the other party shall not constitute a waiver or consent to any subsequent or different breach. If either party shall fail to enforce a breach of this Agreement by the other party, such failure to enforce shall not be considered a consent to or a waiver of said breach or any subsequent breach for any purpose whatsoever. (e) Relationship Not a Partnership or an Agency. The relationship between Wireless and Owner shall not be that of partners or agents for one another and nothing contained in this Agreement shall be deemed to constitute a partnership, joint venture or agency agreement between them. (f) Notices. All notices, requests, demands, statements, reports and other communications under this Agreement shall be in writing and deemed to be duly delivered, if delivered in person, by overnight courier or by certified or registered mail -21- or by means of facsimile (telecopier) communications to the telecopier numbers specified below: (i) If to Wireless, to: c/o Centennial Cellular Corp. 1305 Campus Parkway Neptune, NJ 07753 Attention: President Telecopier No.: 918-919-1022 with a copy to: Centennial Cellular Corp. 50 Locust Ave New Canaan, CT 06840 Attention: Legal Department Telecopier No.: 203-972-2091 (ii) If to Owners or either of them to: Cable TV of Greater San Juan 1 Calle Manuel Camunas San Juan, PR 00918 Attention: General Manager Telecopier No.: and to Century ML Cable Venture and Century-ML Cable Corporation c/o Century Communications Corp. 50 Locust Avenue New Canaan, CT 08640 Attention: President Telecopier No.: 203-972-2091 and to ML Media Partners L.P. 350 Park Avenue New York, NY 10022 Att: Managing Partner Telecopier No. 212-980-8374 -22- with a copy to: Century Communications Corp. 50 Locust Avenue New Canaan, CT 08640 Attention: Legal Department Telecopier No.: 203-972-2091 and to: Leavy Rosensweig & Hyman 11 East 44th Street New York, NY 10017 Attention: David Z. Rosensweig, Esq. Telecopier No.: 212-983-2537 Either party hereto may change its mailing address by giving notice to the other pursuant to the provisions of this Section. (g) Network Architecture and Diversity. Owner and Wireless shall consult and cooperate with each other with regard to all technical matters relating to network architecture, diversity and related matters. (h) Entire Agreement. This Agreement, including the annexes hereto, which are hereby incorporated by reference and made a part of this Agreement as if they were set forth herein in their entirety, constitutes the entire agreement between Owners and Wireless with respect to the subject matter hereof and supersedes all prior agreements and understandings between them as to such subject matter, and there are no restrictions, agreements, arrangements or undertakings, oral or written, between Owners and Wireless relating to the transactions contemplated hereby which are not fully expressed or referred to herein. -23- (i) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner that is not invalid, illegal or against public policy, to the end that transactions contemplated hereby are fulfilled to the greatest extent possible. (j) Arbitration. In those instances where the Agreement provides for resolution of differences or disputes by arbitration such resolution and arbitration shall take place in New York, N.Y. before the American Arbitration Association, in accordance with its rules then obtaining, and judgment may be rendered upon the award of the arbitrators. (k) Further Assurances. Each party agrees to execute all such further instruments and documents and to take all such further actions as the other party may reasonably request in order to effectuate the terms and purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. OWNER: -24- CENTURY ML CABLE VENTURE BY: CENTURY COMMUNICATIONS CORP., (A TEXAS CORPORATION) A VENTURER AND MANAGER BY:______________ ________________________ DAVID Z. ROSENSWEIG, SECRETARY CENTURY-ML CABLE CORPORATION BY CENTURY COMMUNICATIONS CORP. (A TEXAS CORPORATION), MANAGER BY: ____________________________ DAVID Z. ROSENSWEIG, SECRETARY WIRELESS: CENTENNIAL PUERTO RICO WIRELESS CORP. BY: __________________________________________ SCOTT N. SCHNEIDER, SENIOR VICE-PRESIDENT -25- ANNEX A GEOGRAPHIC AREA SERVED BY SYSTEM Century-ML Cable Television Service Area in certain portions of San Juan, Catano, Bayamon, Carolina, Toa Baja, Guaynabo, Trujillo Alto and Toa Alta, Puerto Rico. -26- ANNEX B COST OF CONSTRUCTION Cost of Construction shall include all costs of completing the construction of the Fiber Network, including but not limited to cost of materials and equipment, direct and indirect labor, charges of persons furnishing or providing services or labor, expediting fees, fees and charges for licenses, permits and authorizations, transportation, insurance and a charge for corporate overhead equal to 175% of the aggregate of all the foregoing. -27- ANNEX C DEFINITION OF TELECOMMUNICATIONS SERVICES The term "telecommunications service" means the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used. The term "telecommunications" means the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received. In no event shall the term "telecommunications services" include the use, carriage, transmittal or delivery of video signals in competition with the Cable Systems or either of them. -28- EX-11 5 EXHIBIT 11 EXHIBIT 11 CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES EXHIBIT TO FORM 10-K COMPUTATION OF LOSS PER COMMON SHARE (Amounts in thousands, except share and per share data)
Year Ended May 31, ----------------------------------------------------------------- 1997 1996 1995 ---------------- ------------ -------------- Primary fully diluted: Loss $ (33,295) $ (16,631) $ (32,730) Preferred stock dividends (15,948) (13,590) (12,634) ------------ ------------ ------------ Loss applicable to common shares $ (49,243) $ (30,221) $ (45,364) ============ ============ ============ Average number of common shares and common share equivalents outstanding Average number of common shares outstanding during the period 26,934,000 26,770,000 23,037,000 Add common share equivalents - Options to purchase common shares - net 200,000 115,000 631,000 ------------ ------------ ------------ Average number of common shares and common share equivalents outstanding 27,134,000 (A) 26,885,000 (A) 23,668,000 (A) ============ ============ ============ Loss per common share $ (1.81)(A) $ (1.12)(A) $ (1.92)(A) ============ ============ ============
(A) In accordance with Accounting Principles Board Opinion No. 15, the inclusion of common share equivalents in the computation of earnings per share need not be considered if the reduction of earnings per share is less than 3% or the effect is antidilutive. Therefore, loss per common share and common share equivalents as shown on the Consolidated Statements of Operations for the periods presented do not include certain common share equivalents as their effect is antidilutive. However, the consolidated financial statements do include the effect, on a retroactive basis, of approximately 0, 0, and 507,000 option shares, respectively, issued prior to the Company's initial public offering for the years ended May 31, 1997, 1996 and 1995. EX-12 6 EXHIBIT 12 EXHIBIT 12 Computation of Ratio of Earnings to Fixed Charges (amounts in thousands)
------------------------------------------------------------- Year Ended May 31, 1993 1994 1995 1996 1997 ------------------------------------------------------------- Loss before income tax benefit & minority interest $(40,480) $(39,885) $(47,117) $(28,212) $(40,437) ======== ======== ======== ======== ======== Fixed Charges: Interest, including amortization of debt issuance costs 16,483 21,397 23,996 27,886 33,379 Interest capitalized -- -- -- 5,200 2,752 Interest portion of rent expense 241 283 547 674 1,410 -------- -------- -------- -------- -------- Total fixed charges 16,724 21,680 24,543 33,760 37,541 ======== ======== ======== ======== ======== Adjustments: Capitalized interest -- -- -- (5,200) (2,752) ======== ======== ======== ======== ======== Total adjustments 0 0 0 (5,200) (2,752) ======== ======== ======== ======== ======== Earnings, as defined $(23,756) $(18,205) $(22,574) $ 348 $ (5,648) ======== ======== ======== ======== ======== Ratio of earnings to fixed charges(1) -- -- -- -- -- ======== ======== ======== ======== ======== Amount by which earnings are less than fixed charges $(40,480) $(39,885) $(47,117) $(33,412) $(43,189) ======== ======== ======== ======== ========
(1) The ratio of earnings to fixed charges is less than one-to-one and, therefore, earnings are inadequate to cover fixed charges. EX-21 7 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF CENTENNIAL CELLULAR CORP., A DELAWARE CORPORATION NAME STATE OF ORGANIZATION Alexandria Cellular Corp. Delaware Alexandria Cellular License Corp. Delaware Bauce Communications, Inc. Oregon Bauce Communications of Beaumont, Inc. Oregon Centennial Asia Pacific Cellular Holding Corp. Nevada Centennial Ashe Cellular Corp. Delaware Centennial Beauregard Cellular LLC Delaware Centennial Beauregard Holding Corp. Delaware Centennial Benton Harbor Cellular Corp. Delaware Centennial Benton Harbor Holding Corp. Delaware Centennial Caldwell Cellular Corp Delaware Centennial Cellular Telephone Company of Coconino Delaware Centennial Cellular Telephone Company of Del Norte Delaware Centennial Cellular Telephone Company of Lawrence Delaware Centennial Cellular Telephone Company of Modoc Delaware Centennial Cellular Telephone Company of Sacramento Valley Delaware Centennial Cellular Telephone Company of San Francisco Delaware Centennial Cellular Wireless Holding Corp. New Jersey Centennial Claiborne Cellular Corp. Delaware Centennial Clinton Cellular Corp. Delaware Centennial DeSoto Cellular Corp. Delaware Centennial Hammond Cellular LLC Delaware Centennial Iberia Holding Corp. Delaware Centennial Jackson Cellular Corp. Delaware Centennial Lafayette Cellular Corp. Louisiana Centennial Lake Charles Cellular Corp. Delaware Centennial Louisiana Holding Corp. Delaware Centennial Michigan RSA 6 Cellular Corp. Delaware Centennial Michigan RSA 7 Cellular Corp. Delaware Centennial Microwave Corp. Delaware Centennial Morehouse Cellular LLC Delaware Centennial Puerto Rico Realty Corporation Puerto Rico Centennial Puerto Rico Wireless Corporation Delaware Centennial Randolph Cellular Corp. Delaware Centennial Wireless PCS License Corp. Delaware NAME STATE OF ORGANIZATION Centennial Wireless PCS Operations Corp. Delaware Century Beaumont Cellular Corp. Delaware Century Cellular Realty Corp. Delaware Century Charlottesville Cellular Corp. Virginia Century Charlottesville Cellular Corp. Delaware Century El Centro Cellular Corp. California Century Elkhart Cellular Corp. Delaware Century Indiana Cellular Corp. Century Lynchburg Cellular Corp. Delaware Century Lynchburg Cellular Corp. Virginia Century Michiana Cellular Corp. Delaware Century Michigan Cellular Corp. Delaware Century Montgomery Cellular Corp. Delaware Century Roanoke Cellular Corp. Virginia Century Roanoke Cellular Corp. Delaware Century Rural Cellular Corp. Delaware Century South Bend Cellular Corp. Delaware Century Yuma Paging Corp. Delaware Century Yuma Cellular Corp. Delaware El Centro Cellular Corporation Delaware Elkhart Metronet, Inc. Indiana Hendrix Electronics, Inc. California Hendrix Radio Communications, Inc. California Iberia Cellular Telephone Company LLC Delaware Lafayette Communications, Inc. Delaware Lambda Communications, Incorporated (Incorporado) Puerto Rico Lambda Operations Corp. Delaware Lambda PCS Corp. Nevada Lambda Realty Corp. Delaware Mega Comm, Inc. Delaware Michiana Metronet, Inc. Indiana South Bend Metronet, Inc. Indiana Centennial Tri-State Operating Partnership Delaware EX-23 8 EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT TO INCORPORATION BY REFERENCE IN REGISTRATION STATEMENTS ON FORM S-3 AND FORM S-4 We consent to the incorporation by reference in Centennial Cellular Coporation's Registration Statement No. 33-90954 on Form S-3 and Registration Statement No. 33-80716 on Form S-4 of our reports dated July 25, 1997, appearing in the Annual Report on Form 10-K for the year ended May 31, 1997, and to the reference to us under the heading "Experts" in the Prospectus, which is part of the Registration Statements. Deloitte & Touche LLP Stamford, Connecticut July 25, 1997 EX-27 9 EXHIBIT 27
5 1,000 12-MOS MAY-31-1997 MAY-31-1997 43,415 0 29,991 2,130 0 78,242 177,292 38,411 844,850 63,252 350,000 270 0 193,539 112,612 844,850 149,212 151,023 38,228 177,080 0 0 33,379 (40,437) (7,295) (33,142) 0 0 0 (33,295) (1.83) 0
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