<PAGE>
FORM 10-K
_____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1995
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[_] 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: 0-15056
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COMMNET CELLULAR INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-0924904
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5990 Greenwood Plaza Boulevard, Suite 300, Englewood, Colorado 80111
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(Address of principal executive offices)
(Zip Code)
303/694-3234
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (a) 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 _____
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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. [_]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed by reference to the last sale price of such stock as of the
close of trading on December 19, 1995 was $268,201,697.
The number of shares of the registrant's common stock outstanding as of
December 19, 1995 was 13,470,354.
<PAGE>
PART I
Item 1. Business.
(a) General Development of Business.
-------------------------------
CommNet Cellular Inc. was organized under the laws of Colorado in
1983. Cellular, Inc. Financial Corporation ("CIFC") subsequently was organized
to provide financing to affiliates of the Company. Cellular Inc. Network
Corporation ("CINC") also subsequently was organized to acquire interests in
cellular licenses. CIFC and CINC are wholly-owned subsidiaries of CommNet
Cellular Inc. Unless the context indicates otherwise, the "Company" refers to
CommNet Cellular Inc. and its consolidated subsidiaries.
The Company operates, manages and finances cellular telephone systems,
primarily in rural markets in the mountain and plains regions of the United
States. The Company's cellular interests currently represent approximately
3,315,000 net Company pops in 82 markets located in 14 states. These markets
consist of 72 RSA markets having a total of 5,260,000 pops and 10 MSA markets
having a total of 1,302,000 pops, of which the Company's interests represent
2,681,000 net Company pops and 634,000 net Company pops, respectively. Systems
in which the Company holds an interest constitute the largest geographic
collection of contiguous cellular markets in the United States.
As used herein, "pops" means the estimated total 1994 population of a
Metropolitan Statistical Area ("MSA") or Rural Service Area ("RSA") as initially
licensed by the Federal Communications Commission ("FCC"), based upon Strategic
Marketing, Inc. 1994 population estimates. "Net Company pops" means an MSA's or
RSA's pops multiplied by the Company's net ownership interest in the entity
licensed by the FCC to operate a cellular telephone system in that MSA or RSA.
An MSA or RSA is referred to herein as a "market," and a market served by a
cellular telephone system that is managed, directly or indirectly, by the
Company is referred to herein as a "managed market." The radio signal from the
Company's managed systems currently covers approximately 96% of the total pops
within the managed markets and the Company intends to increase signal coverage
to approximately 98% by September 30, 1996 (pops covered by the Company's radio
signal being referred to herein as "covered pops"). The Company does not
thereafter intend to significantly expand radio signal coverage within its
managed markets, and, accordingly, the number of covered pops will be marginally
lower than the number of total pops on a going-forward basis. The number of pops
does not represent the current number of users of cellular services and is not
necessarily indicative of the number of users of cellular services in the
future. Those corporations and partnerships through which the Company holds
ownership interests in cellular licensees and those cellular licensees in which
the Company holds a direct ownership interest are referred to herein as
"affiliates." Any reference herein to an "affiliate" does not necessarily imply
that the Company exercises, or has the power to exercise, control over the
management and policies of such entity.
The Company was formed to acquire cellular interests through
participation in the licensing process conducted by the FCC. In order to
participate in that process, the Company formed affiliates which originally were
owned at least 51% by one or more independent telephone companies ("telcos") and
no more than 49% by the Company. See "-- Federal Regulation." In exchange for
the Company's 49% interest, the Company offered to sell shares of its Common
Stock to the telcos and agreed to provide financing to the affiliates. The
Company subsequently has purchased additional interests in many of such
affiliates, as well as in additional cellular properties. The Company currently
manages 55 of the 82 markets in which it holds an interest and owns a greater
than 50% interest in 44 of its 55 managed markets. The Company currently
finances
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entities holding interests representing approximately 4,292,000 pops, of which
3,315,000 are included in net Company pops and 977,000 are attributable to
parties other than the Company.
Since completion of the licensing process, the Company has
concentrated on creating an integrated network of contiguous cellular systems
comprised of markets which are managed by the Company. The network currently
consists of 55 markets (48 RSA and 7 MSA markets) spanning nine states and
represents approximately 4,206,000 pops and 3,048,000 net Company pops. As of
September 30, 1995, the RSA and MSA managed markets had 109,081 and 42,401
subscribers, respectively. The Company significantly expanded radio signal
coverage with construction of 78 new cell sites in fiscal year 1995.
The Company believes that certain demographic characteristics of the
rural marketplace should further facilitate commercial exploitation of the
network. As compared to urban residents, rural residents travel greater
distances by personal vehicle and have access to fewer public telephones along
drive routes. The Company believes that these factors will sustain demand for
mobile telecommunication service in the rural marketplace. These same factors
produce "roaming" revenues that are higher as a percentage of total revenues
than would likely be the case in more densely populated urban areas. Roaming
revenues tend to produce higher margins because roaming calls on average are
priced at higher rates than local calls and because there are no associated
sales commission costs.
(b) Financial Information About Industry Segments.
---------------------------------------------
The Company has only one principal industry being the management,
financing and operation of cellular telephone systems. Information concerning
revenue, operating profit or loss and identifiable assets of the Company's sole
industry segment are set forth in the consolidated financial statements and
related notes included in Part II of this Report.
(c) Narrative Description of Business.
---------------------------------
The Company's Operations
------------------------
General. Information regarding the Company's net ownership interests
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in each cellular licensee and the market subject to such license as of December
19, 1995 is summarized in the following table. The table does not reflect
transactions that are pending or under negotiation. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations --Acquisitions and
Sales."
<TABLE>
<CAPTION>
Net Company
MSA or Interest in 1994 Net Company
RSA Code (1) State Licensee (2) Population (3)(6) Pops (4)
- -------------- ------------------ ---------------- ------------------- -------------
<S> <C> <C> <C> <C>
MSAs:
141 Minnesota 8.01% LP 243,518 19,498
185 Indiana 16.67% LP 170,313 28,391
241*(5) Colorado 73.99% GP 127,299 94,189
253*(5) Iowa 74.50% GP 118,105 87,988
267*(5) South Dakota 51.00% GP 133,987 68,333
268*(5) Montana 54.10% GP 122,871 66,473
279 Maine 11.11% GP 102,441 11,380
289*(5) South Dakota 100.00% GP 113,831 113,831
297*(5) Montana 100.00% GP 81,938 81,938
298*(5) North Dakota 70.00% GP 87,835 61,485
--------- --------
Total MSA 1,302,138 633,506
</TABLE>
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<TABLE>
<CAPTION>
Net Company
MSA or Interest in 1994 Net Company
RSA Code (1) State Licensee (2) Population (3)(6) Pops (4)
- -------------- ------------------ ---------------- ------------------- -------------
<S> <C> <C> <C> <C>
RSAs:
348* Colorado 10.00% GP 45,211 4,521
349*(5) Colorado 61.75% GP 63,315 39,097
351*(5) Colorado 61.75% GP 65,026 40,154
352*(5) Colorado 66.00% GP 26,890 17,747
353*(5) Colorado 100.00% GP 68,119 68,119
354*(5) Colorado 69.40% GP 45,689 31,708
355* Colorado 49.00% GP 45,026 22,063
356* Colorado 49.00% GP 27,671 13,559
389 Idaho 50.00% LP 66,552 33,276
390 Idaho 33.33% LP 15,911 5,303
392*(5) Idaho (B1) 100.00% LP 136,677 136,677
393*(5) Idaho 91.64% GP 288,252 264,154
415 Iowa 10.11% LP 155,924 15,770
416 Iowa 38.50% LP 108,063 41,603
417*(5) Iowa 100.00% GP 152,917 152,917
419* Iowa 44.92% GP 54,653 24,549
420*(5) Iowa 100.00% GP 63,395 63,395
424 Iowa 17.15% LP 66,706 11,440
425* Iowa 13.28% LP 107,924 14,337
426* Iowa 49.14% GP 85,106 41,820
427* Iowa 49.17% GP 102,917 50,601
428 Kansas 3.07% LP 28,006 860
429 Kansas 3.07% LP 31,188 957
430 Kansas 3.07% LP 52,587 1,614
431 Kansas 3.07% LP 127,201 3,905
432 Kansas 3.07% LP 31,075 954
433 Kansas 3.07% LP 20,183 620
434 Kansas 3.07% LP 81,665 2,507
435 Kansas 3.07% LP 127,567 3,916
436 Kansas 3.07% LP 58,095 1,784
437 Kansas 3.07% LP 105,951 3,253
438 Kansas 3.07% LP 81,692 2,508
439 Kansas 3.07% LP 42,526 1,306
440 Kansas 3.07% LP 28,891 887
441 Kansas 3.07% LP 172,162 5,285
442 Kansas 3.07% LP 155,265 4,767
512 Missouri(B1) 14.70% LP 56,387 8,289
523*(5) Montana (B1) 100.00% GP 68,744 68,744
523*(5) Montana (B2) 98.85% GP 72,353 71,521
524*(5) Montana 79.40% GP 37,972 30,150
526*(5) Montana 100.00% GP 39,999 39,999
527*(5) Montana 100.00% GP 180,555 180,555
528*(5) Montana 80.88% GP 64,321 52,020
529*(5) Montana 74.50% GP 29,807 22,206
530*(5) Montana 80.88% GP 85,945 69,508
531*(5) Montana 100.00% GP 31,508 31,508
532*(5) Montana 100.00% GP 19,628 19,628
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Net Company
MSA or Interest in 1994 Net Company
RSA Code (1) State Licensee (2) Population (3)(6) Pops (4)
- -------------- ------------------ ---------------- ------------------- -------------
<S> <C> <C> <C> <C>
553* New Mexico 16.33% LP 251,919 41,143
555 New Mexico 12.25% LP 78,980 9,675
557 New Mexico 16.33% LP 56,850 9,285
580*(5) North Dakota 52.76% GP 101,590 53,599
581* North Dakota 49.00% GP 59,678 29,242
582 North Dakota 41.45% LP 90,940 37,694
583* North Dakota 49.00% GP 65,368 32,030
584*(5) North Dakota 61.75% GP 48,986 30,249
634*(5) South Dakota 100.00% GP 36,122 36,122
635*(5) South Dakota 56.29% GP 22,501 12,666
636*(5) South Dakota 57.50% GP 53,892 30,988
638*(5) South Dakota (B1) 100.00% GP 16,774 16,774
638*(5) South Dakota (B2) 100.00% GP 8,385 8,385
639*(5) South Dakota (B1) 61.75% GP 33,501 20,687
639*(5) South Dakota (B2) 61.75% GP 5,586 3,449
640*(5) South Dakota 64.49% GP 65,711 42,377
641*(5) South Dakota 61.13% GP 71,915 43,962
642* South Dakota 49.00% GP 92,384 45,268
675*(5) Utah 100.00% GP 53,271 53,271
676*(5) Utah 100.00% GP 91,208 91,208
677*(5) Utah (B3) 100.00% GP 38,644 38,644
678*(5) Utah 80.00% GP 23,676 18,941
718*(5) Wyoming 66.00% GP 47,112 31,094
719*(5) Wyoming 100.00% GP 73,641 73,641
720*(5) Wyoming 100.00% GP 148,567 148,567
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Total RSA 5,260,418 2,681,022
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Total MSA and RSA 6,562,556 3,314,528
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</TABLE>
__________
(1) MSA ranking is based on population as established by the FCC. RSAs have
been numbered by the FCC alphabetically by state
.
(2) Represents the net ownership interest of the Company in the licensee for a
cellular telephone system in the respective market. Net ownership of
greater than 50% does not necessarily represent a controlling interest in
such licensee. GP indicates that at least one affiliate of the Company has
a general partner or controlling interest in the licensee; LP indicates
that the affiliate(s) has a limited partner or minority interest.
(3) Derived from the Strategic Marketing, Inc. 1994 population estimates.
(4) Net Company Pops represents net Company interest in licensee multiplied by
1994 population.
(5) The operations of these markets are currently reflected on a consolidated
basis in the Company's consolidated financial statements. The operations
of the other markets in which the Company holds an interest are reflected
in such financial statements on either an equity or a cost basis.
(6) Represents population within the market area initially licensed by the FCC.
The number of pops which are covered by radio signal in a market is
expected to be marginally lower than the market's total pops on a going-
forward basis.
Markets managed by the Company are denoted by an asterisk (*).
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Subscriber Growth Table
- -----------------------
Information regarding subscribers to the MSA and RSA cellular systems
managed by the Company is summarized by the following table:
<TABLE>
<CAPTION>
Number of Estimated Population
Managed Markets of Managed Markets Number of Subscribers Subscriber
--------------------- ------------------------------------------- ------------------------------
Total MSA RSA Total MSA RSA Total MSA RSA Growth
------- ----- ----- ----------- ------------ -------------- --------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sept. 30, 1987 0 0 0 0 0 0 0 0 0
Sept. 30, 1988 4 4 0 504,529 504,529 (1) 0 424 424 0
Sept. 30, 1989 4 4 0 500,804 500,804 (2) 0 1,362 1,362 0 221.23%
Sept. 30, 1990 18 4 14 1,687,481 500,804 (2) 1,186,677 (2) 6,444 3,513 2,931 373.13%
Sept. 30, 1991 49 5 44 3,509,779 566,722 (3) 2,943,057 (3) 17,952 6,387 11,565 178.58%
Sept. 30, 1992 49 5 44 3,509,779 566,722 (3) 2,943,057 (3) 35,884 11,119 24,765 99.89%
Sept. 30, 1993 51 6 45 3,665,758 644,526 (4) 3,021,232 (4) 60,381 17,898 42,483 68.27%
Sept. 30, 1994 55 7 48 3,906,063 771,660 (5) 3,134,403 (5) 99,002 30,711 68,291 63.96%
Dec. 31, 1994 55 7 48 3,904,636 771,660 (5) 3,132,976 (5) 114,918 34,702 80,216 16.08%
March 31, 1995 55 7 48 3,904,636 771,660 (5) 3,132,976 (5) 124,057 36,680 87,377 7.95%
June 30, 1995 55 7 48 3,904,636 771,660 (5) 3,132,976 (5) 140,237 39,798 100,439 13.04%
Sept. 30, 1995 56 7 49 4,220,975 785,866 (6) 3,435,109 (6) 151,482 42,401 109,081 8.02%
</TABLE>
____________
(1) Derived from 1988 Donnelley Market Service population estimates.
(2) Derived from 1989 Donnelley Market Service population estimates.
(3) Derived from 1990 Census Report.
(4) Derived from 1992 Donnelley Market Service population estimates.
(5) Derived from 1993 Strategic Marketing Inc. population estimates.
(6) Derived from 1994 Strategic Marketing Inc. population estimates.
Network Construction and Operations. Construction of cellular
-----------------------------------
telephone systems requires substantial capital investment in land and
improvements, buildings, towers, mobile telephone switching offices ("MTSOs"),
cell site equipment, microwave equipment, engineering and installation. The
Company believes that it has achieved significant economies of scale in
constructing the network. For example, the network uses cellular switching
systems capable of serving multiple markets. As a result of the contiguous
nature of the network, only 10 MTSOs are currently required to serve all 55 of
the Company's managed markets. By consolidating and deploying high capacity
MTSOs, the Company intends to achieve further economies of scale. Economies of
scale generated by the network also have permitted the Company to use one
network operations center, to centralize services such as network design and
engineering, traffic analysis, interconnection, billing, roamer verification,
maintenance and support and to access volume discount purchasing of cellular
system equipment.
The network also affords the Company certain technical advantages in
the provision of enhanced services, such as call delivery and call forwarding.
Through the use of single switching facilities serving multiple markets, the
Company has implemented continuous coverage on an intrastate basis throughout
the network. The Company has widened the area of coverage within the network by
interconnecting MTSOs located in adjoining markets. The Company has
substantially achieved its objective of providing subscribers with "seamless"
coverage throughout the network, which permits subscribers, as they travel
through the network, to receive calls and otherwise use their cellular telephone
as if they were in their home market. This is a result of the networking of most
of the MTSOs managed by the Company and in adjoining markets within the nine-
state area. The Company has achieved a high degree of network reliability
through the deployment of standardized components, and operating procedures, and
the introduction of redundancy in switching and cell site equipment,
interconnect facilities and power supply. Most of the Company's equipment is
built by Northern Telecom, Inc. ("NTI"), and interconnection between the NTI
MTSOs has been achieved using NTI's internal software and hardware.
The Company implemented the "IS-41" technical interface during fiscal
1995. This technical interface, developed by the cellular industry, allows
carriers that have different types of
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equipment to integrate their systems with the eventual goals of establishing a
national seamless network, substantially reducing the cost of validating calls
and reducing fraud exposure.
The Company also has entered into and is negotiating agreements with
other cellular carriers to enhance the range of markets and quality of service
available to cellular subscribers when traveling outside the network. Pursuant
to existing agreements with other cellular carriers, the Company's subscribers
are able to "roam" throughout most MSA and RSA markets in the United States and
Canada.
Expansion. The Company has essentially completed the process of
---------
"filling in" the "cellular geographic service area" or "CGSA" (as defined by the
FCC) within its managed markets by adding network facilities which increased the
coverage of the radio signal. The Company significantly expanded radio signal
coverage with construction of 78 new cell sites in fiscal year 1995. The Company
expects that by September 30, 1996, radio signal coverage will reach
approximately 98% of the population within the managed markets. Expansion of
signal coverage has increased subscribers, enhanced the use of the systems by
existing subscribers, increased roamer traffic due to the larger geographic area
covered by the radio signal and has improved the overall efficiency of the
network. Under the rules and regulations of the FCC, expansion of signal
coverage has preserved the Company's right to provide cellular service in
valuable areas within the network.
The Company continually evaluates acquisitions of cellular properties
that are geographically and operationally compatible with the network. In
evaluating acquisition targets, the Company considers, among other things,
demographic factors, including population size and density, traffic patterns,
cell site coverage, required capital expenditures and the likely ability of the
Company to integrate the target market into the network. In pursuing such
acquisitions, the Company may exchange interests in nonmanaged markets for
interests in existing or new markets that serve to expand the network. Certain
acquisitions and related dispositions may be subject to rights of first refusal
held by the partners in the respective partnerships in which the Company holds
an interest. Recent and pending acquisitions are described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Acquisitions and Sales." The Company also from time to time may sell nonmanaged
assets to raise capital for network expansion. For example, the Company sold its
interest in ten Nebraska RSA markets not managed by the Company for
approximately $24,300,000 in cash. The transaction resulted in an after-tax gain
to the Company of approximately $19,600,000 in July 1995. The interest purchased
from the Company was acquired at a cost of over $200 per pop after taking into
account debt assumed or refinanced. Proceeds from the transaction are available
to the Company to pursue acquisitions of additional managed interests and to
fund parent company capital expenditures.
In an effort to provide comprehensive availability of mobile
communications services to its subscribers, regardless of location throughout
North America, the Company has entered into a distribution agreement with
American Mobile Satellite Corporation ("AMSC"). AMSC holds an FCC construction
permit to build and operate a mobile satellite service which will complement the
existing terrestrial cellular system by providing mobile voice, fax and data
communications in all areas not covered by cellular service. Subscribers will
access AMSC's satellite through a cellular/satellite mobile phone which will
route calls through the cellular network in those areas covered by cellular
service and will process the call via satellite in the absence of cellular
coverage. ASMC, which launched its satellite in April 1995, anticipates its
service will be available some time during fiscal year 1996. The agreement with
AMSC is essentially a roaming arrangement that may add incremental value to
certain customers in remote areas, but is not expected to have a material impact
on the Company.
Services and Products. Mobile subscribers in the Company's managed
---------------------
markets have available to them substantially all of the services typically
provided by landline telephone systems, including custom-calling features such
as call forwarding, call waiting, three-way conference calling
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and, in most cases, voice mail services. Several price plans are presented to
prospective customers so that they may choose the plan that will best fit their
expected calling needs. The plans provide specific charges for custom-calling
features and voice mail to offer value to the customer while enhancing airtime
use and revenues for the Company. The Company also sells cellular equipment at
discounted prices as a way to encourage use of its mobile services. The Company
provides warranty and repair services after the sale through regional equipment
service centers, which provide state-of-the-art test equipment and certified
repair technicians. An ongoing review of equipment and service pricing is
maintained to ensure the Company's competitiveness. Through a centralized
procurement and equipment distribution strategy, the Company obtains the
benefits of favorable equipment costs through bulk purchases. As appropriate,
revisions to pricing of service plans and equipment pricing are made to meet
local marketplace demands.
The network affords the Company the opportunity to offer service over
expanded geographic territories at favorable rates. Customers that subscribe to
a stand-alone cellular system generally are charged premium roaming rates when
using a cellular system outside of their home service area. The Company's
subscribers are able to roam within the network and are afforded "home rate
follows" pricing, whereby subscribers are charged the rate applicable in their
home service area when traveling within the network. In addition, the Company's
simplified retail roaming rate structure allows the customer to roam on certain
adjacent carriers' systems at a preferred rate and minimizes confusion by
consolidating the remainder of the country into a uniform rate. Finally, the
Company offers toll-free calling across single or multiple states to its
subscribers for a nominal monthly fee, due to favorably negotiated interconnect
agreements.
The Company believes that certain attributes of the Company's
operating infrastructure, including existing towers, established distribution
channels and other administrative resources, can be utilized to offer one-way
paging service throughout the managed markets and adjoining areas on a cost-
efficient basis. The Company intends to commence offering such paging services
in fiscal year 1996 subject to the receipt of sufficient FCC paging licenses to
offer economically feasible paging services.
The Company is committed to providing consistently high quality
customer service. The Company maintains a comprehensive, centralized customer
assistance department which offers the advantages of expanded customer service
hours, specialized roaming and key account representatives and an automated
customer information database that allows for efficiency and accuracy, while
decreasing the time spent on each customer contact. The customer assistance
department also supports the administrative functions required to activate a
customer's phone through a high speed, call-in process and to enter the customer
into the informational databases required for customer service and billing. The
Company believes this centralized approach provides cost efficiencies while also
addressing the critical need for quality control. To ensure that it is
delivering a consistently high level of quality service, the Company monitors
customer satisfaction with its network quality, sales and customer service
support, billing and quality of roaming through regular surveys conducted by an
independent research firm.
In 1992, the Company began investing in TVX, Inc., which holds the
distribution rights for the TVX camera systems in North, Central and South
America. The TVX system provides visual verification of the cause of an alarm at
the time of an incident to distinguish actual emergencies from false alarms. The
TVX camera takes four pictures within five seconds and transmits them to a host
computer via either the cellular or wireline networks. The Company intends to
work closely with TVX, Inc. to market cellular service in conjunction with the
TVX system for use at locations where phone lines are not available or as a
backup when phone lines have been disabled. The Company and Automated Security
Holdings, PLC ("ASH") each hold a 39% equity interest in TVX, Inc.
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Marketing. The Company coordinates the marketing strategy for each of
---------
its managed markets. The Company markets cellular telephone service under the
CommNet Cellular name. The use of a single name over a broad geographic
territory creates strong brand-name recognition and allows the Company to
achieve advertising efficiencies.
The Company believes that a key competitive advantage in marketing its
service is the large geographic area covered by the network. The seamless
coverage being developed in the network is critical to marketing, as customers
are attracted to the higher percentage of delivered calls that such coverage
provides. Furthermore, the Company's "home rate follows" pricing allows
customers to make calls from anywhere in the network without incurring
additional daily fees or surcharges which usually occur when customers roam
outside of their home market. Additionally, the Company uses the "Follow-Me-
Roaming" service provided by GTE Telecommunication Services, Inc. which permits
customers to receive calls in any market that is part of the Follow Me Roaming
system without having to dial complicated access codes. The Company also offers
discounted roaming prices, and expects to be able to offer enhanced services, in
certain markets as a result of arrangements to link with certain adjacent
markets managed by other carriers. See "Business -- The Company's Operations --
Network Construction and Operations." In addition, the Company offers toll-free
calling statewide or across multiple states to its subscribers for a nominal
monthly fee. In a majority of the Company's managed RSA markets, the Company was
the first cellular system operator to provide service in the market, thereby
affording a significant competitive advantage. Being first to market in the
majority of the Company's managed RSA markets has also allowed the Company to
obtain exclusive marketing agreements with the leading telecommunication
retailers in a particular market and to obtain prime locations for its sales
centers.
Historically, the Company has relied to a significant extent on direct
sales representatives and on independent sales agents. The Company is currently
emphasizing a new channel of distribution represented by 21 Company-owned retail
stores located within the network, which will be supplemented by 11 additional
Company-owned retail stores scheduled to open during fiscal 1996. The retail
distribution channel also includes 21 current and 26 planned Wal-Mart(R) kiosks
staffed by Company personnel. The Company believes that development of retail
distribution channels owned or staffed by the Company will increase customer
additions, generate cost efficiencies in the acquisition of such new
subscribers, and enhance customer service. (Over half of the current customer
base lives within commuting distance to a Company-owned retail store.) The
Company also maintains 113 direct sales representatives and 899 agents or
outlets, including 59 Corporate Radio Shack and 14 (C)Sears stores which have
exclusive distribution agreements with the Company. In general, such agents earn
a fixed commission, which can vary depending upon the price plan sold, when a
customer subscribes to the Company's cellular service and remains a subscriber
for a certain period of time.
Subscribers. To date, a substantial majority of the subscribers who
-----------
use cellular service in markets managed by the Company have been business users
of mobile communication services. This trend is consistent with the experience
of the cellular industry generally, although given the Company's geographic
presence in the mountain and plains states, its customers have tended to include
proportionally more persons in agricultural and energy industries. The Company
believes that certain demographic characteristics of the rural marketplace will
enhance the Company's ability to market cellular service to its primary customer
base within its managed RSA markets. On average, rural residents spend a higher
percentage of their annual household income on transportation and travel a
relatively greater distance by personal vehicle than do urban residents. The
relatively large average distance between public telephones in the rural
marketplace is an additional factor that increases the need for mobile
telecommunication services in that market.
Management Agreements. Management agreements applicable to the
---------------------
Company's managed RSA markets generally appoint the Company as exclusive
management agent of the licensee with
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specifically enumerated responsibilities relating to the day-to-day business
operation of the licensee, although the licensee retains ultimate control over
its cellular system. Generally, the RSA management agreements were for an
initial term of five years and are automatically renewed for additional terms
unless terminated by notice from either party prior to expiration of the then
current term. The agreements provide for reimbursement to the Company of
expenses incurred on behalf of the licensee.
The Company has entered into management agreements with three MSA
affiliates pursuant to which the Company has been appointed the exclusive
management agent for each such affiliate. The MSA management agreements appoint
the Company as managing agent of the respective MSA affiliate with specifically
enumerated responsibilities relating to the day-to-day business operation of the
affiliate. In cases in which the affiliate is the general partner in the
licensee, the Company acts as exclusive management agent for the licensee,
although the licensee retains ultimate control over its cellular system. The MSA
management agreements provide for compensation to the Company in an amount equal
to 10% of the distributions to the affiliate derived from the affiliate's
interest in the licensee. Compensation to date under these agreements has not
been material. The agreements also provide for reimbursement for reasonable
administrative and overhead expenses. The agreements generally were for an
initial term of two years, were extended for an additional three years and are
automatically renewed for one-year terms thereafter unless terminated by notice
from either party prior to expiration of the then current term.
The Company has also entered into a management agreement with CINC,
whereby it manages all systems owned by CINC and in which CINC is the general
partner.
History. The Company initially acquired its cellular interests by
-------
participating in the wireline licensing process conducted by the FCC. In order
to participate in that process, the Company formed affiliates which were
originally owned at least 51% by one or more telcos and no more than 49% by the
Company. In exchange for the Company's 49% interest, the Company offered to sell
shares of its Common Stock and agreed to provide financing to the affiliates for
certain capital needs, as well as certain management services. In addition to
obtaining interests in cellular markets through participation in the FCC
licensing process, the Company also has purchased direct interests in additional
markets in order to expand the network.
Financing Arrangements with Affiliates; CIFC. CIFC has entered into
--------------------------------------------
loan agreements with RSA and MSA affiliates to finance or refinance the costs
related to the construction, operation and expansion of cellular telephone
systems in which such affiliates own an interest. The loans are financed with
funds borrowed by CIFC from CoBank and the Company. As of September 30, 1995,
CIFC had entered into loan agreements with 49 RSA affiliates, 5 MSA affiliates
and CINC and had advanced $229,893,000 thereunder, including $149,676,000 to
entities which are consolidated for financial reporting purposes. All loans to
affiliates from CIFC bear interest at 1% over the average cost of CoBank
borrowings and are secured by a lien upon all assets of the entity to which
funds are advanced. Loans from CIFC to affiliates will be repaid from funds
generated by operations of the licensee or distributions to affiliates by
licensees in which such affiliates own an interest. Amounts paid to CIFC will be
applied by CIFC towards payment of its obligations to CoBank and the Company.
The repayments allocated to the Company will be retained by CIFC and used to
offset future loans which would otherwise have been made by the Company. The
Company has made and will continue to make advances to affiliates on an interim
basis. Funds borrowed from CIFC by affiliates are used to repay the Company for
such interim advances. As of September 30, 1995, the Company had outstanding
interim advances of $128,166,000 to affiliates, which advances bear interest at
2% over the prime rate.
As of September 30, 1995, the Company and CIFC had advanced a total of
$358,059,000 to RSA and MSA affiliates. Based on its proportionate ownership
interests in these affiliates, the Company's share of total affiliate loans and
advances was $293,251,000. The assets of the affiliates
I-9
<PAGE>
in which the Company has investments or advances represent 4,292,000 pops, which
include 3,315,000 net Company pops.
The Cellular Telephone Industry. Cellular telephone service is a form
-------------------------------
of wireless telecommunication capable of providing high quality, high capacity
service to and from mobile, portable and fixed radio telephones. Cellular
telephone technology is based upon the division of a given market area into a
number of regions, or "cells," which in most cases are contiguous. Each cell
contains a low-power transmitter-receiver at a "base station" or "cell site"
that communicates by radio signal with cellular telephones located in the cell.
The cells are typically designed on a grid, although terrain factors, including
natural and man-made obstructions, signal coverage patterns and capacity
constraints, may result in irregularly shaped cells and overlaps or gaps in
coverage. Cells generally have radii ranging from two miles to more than 25
miles. Cell boundaries are determined by the strength of the signal emitted by
the cell's transmitter-receiver. Each cell site is connected to a MTSO, which,
in turn, is connected to the local landline telephone network.
When a cellular subscriber in a particular cell dials a number, the
cellular telephone sends the call by radio signal to the cell's transmitter-
receiver, which then sends it to the MTSO. The MTSO completes the call by
connecting it with the landline telephone network or another cellular telephone
unit. Incoming calls are received by the MTSO which instructs the appropriate
cell to complete the communications link by radio signal between the cell's
transmitter-receiver and the cellular telephone. By leaving the cellular
telephone on, a signal is emitted so the MTSO can sense in which cell the
cellular telephone is located. The MTSO also records information on system usage
and subscriber statistics.
The FCC has allocated the cellular telephone systems frequencies in
the 800 MHz band of the radio spectrum. Each of the two licensees in each
cellular market is assigned 416 frequency pairs. Each conversation on a cellular
system occurs on a pair of radio talking paths, thus providing full duplex
(i.e., simultaneous two-way) service. Two distinguishing features of cellular
telephone systems are: (i) frequency reuse, enabling the simultaneous use of the
same frequency in two or more adequately separated cells, and (ii) call hand-
off, occurring when a deteriorating transmission path between a cell site and a
cellular telephone is rerouted to an adjacent cell site on a different channel
to obtain a stronger signal and maintain the call. A cellular telephone system's
frequency reuse and call hand-off features result in far more efficient use of
available frequencies and enable cellular telephone systems to process more
simultaneous calls and service more users over a greater area than pre-cellular
mobile telephone systems.
Call hand-off in a cellular telephone system is automatic and
virtually unnoticeable to either party to the call. The MTSO and base stations
continuously monitor the signal strength of calls in progress. The signal
strength of the transmission between the cellular telephone and the base station
declines as the caller moves away from the base station in that cell. When the
signal strength of a call declines to a predetermined threshold level, the MTSO
automatically determines if the signal strength is greater in another cell and,
if so, hands off the cellular telephone to that cell. The automatic hand-off
process within the system takes a fraction of a second. However, if the cellular
telephone leaves the reliable service areas of the cellular telephone system,
the call is disconnected unless an appropriate technical interface is
established with an adjacent system through intersystem networking arrangements.
Frequency reuse is one of the most significant characteristics of
cellular telephone systems. Each cell in a cellular telephone system is assigned
a specific set of frequencies for use between that cell's base station and
cellular telephones located within the cell, so that the radio signals being
used in one cell do not interfere with those being used in adjacent cells.
Because of the relatively low transmission power of the base stations and
cellular telephones, two cells sufficiently far apart can use the same
frequencies in the same market without interfering with one another.
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<PAGE>
A cellular telephone system's capacity can be increased in various
ways. Within certain limitations, increasing demand may be met by simply adding
available frequency capacity to cells as required or, by using directional
antennas, dividing a cell into discrete multiple sectors or coverage areas,
thereby facilitating frequency reuse in other cells. Furthermore, an area within
a system may be served by more than one cell through procedures which utilize
available channels in adjacent cells. When all possible channels are in use,
further growth can be accomplished through a process called "cell splitting."
Cell splitting entails dividing a single cell into a number of smaller cells
serviced by lower-power transmitters, thereby increasing the reuse factor and
the number of calls that can be handled in a given area. Digital transmission
technologies are expected to provide cellular licensees with additional capacity
to handle calls on cellular frequencies. As a result of present technology and
assigned spectrum, however, there are limits to the number of signals that can
be transmitted simultaneously in a given area. In highly populated MSAs, the
level of demand for mobile and portable service is often large in relation to
the existing capacity. Because the primary objective of the cellular licensing
process is to address mobile and portable uses, operators in highly populated
MSAs may have capacity constraints which limit their ability to provide
alternate cellular service. The Company does not anticipate that the provision
of mobile and portable services within the network will require as large a
proportion of the systems' available spectrum and, therefore, the systems will
have more spectrum with which to pursue data applications, which may enhance
revenues.
FCC rules require that all cellular telephones be functionally
compatible with cellular telephone systems in all markets within the United
States and with all frequencies allocated for cellular use, so that a cellular
telephone may be used wherever a subscriber is located, subject to appropriate
arrangements for service charges. Changes to cellular telephone numbers or other
technical adjustments to cellular telephones by the manufacturer or local
cellular telephone service businesses may be required, however, to enable the
subscriber to change from one cellular service provider to another within a
service area.
Because cellular 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 cellular telephones.
Cellular telephone systems operate under interconnection agreements
with various local exchange carriers and interexchange carriers. The
interconnection agreements establish the manner in which the cellular telephone
system integrates with other telecommunications systems. The cellular operator
and the local landline telephone company must cooperate in the interconnection
between the cellular and landline telephone systems, to permit cellular
subscribers to call landline subscribers and vice versa. The technical and
financial details of such interconnection arrangements are subject to
negotiation and vary from system to system.
While most MTSOs process information digitally, most radio
transmissions of cellular telephone calls are done on an analog basis. Digital
technology offers advantages, including improved voice quality, larger system
capacity, and perhaps lower incremental costs for additional subscribers. The
conversion from analog to digital radio technology is expected to be an
industry-wide process that will take a number of years. However, based on
estimated capacity requirements, the Company does not foresee a need to convert
to digital radio transmission technology in the near or intermediate term.
Competition
- -----------
General. The cellular telephone business is a regulated duopoly. The
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FCC awarded only two licenses in each market, although certain markets have been
subdivided as a result of voluntary settlements. Each licensee has the exclusive
use of a defined frequency band within its market.
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<PAGE>
The primary competition for the Company's mobile cellular service in
any market comes from the other licensee in such market, which may have
significantly greater resources than the Company and its affiliates. Competition
is principally on the basis of coverage, services and enhancements offered,
technical quality of the system, quality and responsiveness of customer service
and price. Such competition may increase to the extent that licenses pass from
weaker stand-alone operators into the hands of better capitalized and more
experienced cellular operators who may be able to offer consumers certain
network advantages similar to those offered by the Company. Within the network,
the Company has three primary direct competitors, in addition to a number of
stand-alone operators.
Competition From Other Technologies. Potential users of cellular
-----------------------------------
systems may find an increasing number of current and developing technologies
able to meet their communication needs. For example, specialized mobile radio
systems ("SMRs") of the type generally used by taxicab and tow truck services
and other communications services have the technical capability to handle mobile
telephone calls (including interconnection to the landline telephone network)
and may provide competition in certain markets.
Although SMR operators are currently subject to limitations that make
usage of SMR frequencies more appropriate for short dispatch messages, the FCC
has granted waivers of its rules to permit the construction and operation of low
powered "cellular-like" services using a collection of SMR frequencies ("ESMR")
in a number of markets in the United States. Recent legislation permits
commercial mobile service providers, including SMR providers, to obtain upon
demand physical interconnection with the landline telephone network. Such
interconnection enhances an SMR provider's ability to compete with cellular
operators, including the Company. The FCC has encouraged ESMR activities and has
amended its rules to establish an Expanded Mobile Service Provider ("EMSP")
licensing approach that would facilitate such operations. The new rules grant a
new type of 800 MHz wide-area license that would permit channels to be
aggregated for operation of systems throughout defined geographic areas. A new
rulemaking is underway to determine what protections will be afforded to
existing SMR licensees that may now be subject to relocation.
One-way paging or beeper services that feature voice message and data-
display as well as tones may be adequate for potential cellular subscribers who
do not need to transmit back to the caller. SMR and paging systems are in
operation in many of the service areas within the network.
The FCC is now licensing commercial personal communications services
("PCS"). PCS is not a specific technology, but a variety of potential
technologies that could compete with cellular telephone systems. The FCC has
identified two categories of PCS: broadband and narrowband. In 1993, congress
enacted legislation requiring the FCC to adopt final rules for licensing
broadband and narrowband PCS by February 1994. This legislation also required
the FCC to commence issuing licenses for narrowband PCS by October 1994 and
broadband PCS by December 1994. Licenses will be awarded by competitive bidding.
Auctions for the first two spectrum blocks have been completed and at least one
system has commenced operations in a major metropolitan location.
The FCC has adopted rules to authorize the operation of new narrowband
PCS systems in the 900 MHz band. The possible new services using this 900 MHz
band spectrum include advanced voice paging, two-way acknowledgment paging, data
messaging, electronic mail and facsimile transmissions. These services most
likely will be provided using a variety of devices, such as laptop and palmtop
computers and computerized "personal organizers" that allow receipt of office
messages, calendar planning and document editing from remote locations in some
circumstances.
The FCC also has adopted rules to authorize the operation of new,
broadband PCS systems in the 2 GHz band. Equipment proposed for broadband PCS
includes small, lightweight and wireless telephone handsets; computers that can
communicate over the airwaves wherever they are
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<PAGE>
located; and portable facsimile machines and other graphic devices. The
regulatory plan adopted for broadband PCS includes an allocation of spectrum, a
flexible regulatory structure, eligibility restrictions and technical and
operational rules. In a related matter in the same proceeding, the FCC revised
its cellular rules to explicitly state that cellular licensees may provide any
PCS-type services (including wireless PBX, data transmission and telepoint
services) on their 800 MHz band cellular channels without prior notification to
the FCC (other than the notification required to report the construction of new
cell sites).
The FCC has allocated 140 MHz of spectrum in the 2 GHz band for the
provision of licensed and unlicensed broadband PCS. Much of the spectrum
allocated for broadband PCS is already occupied by microwave licensees. As a
general proposition, broadband PCS licensees will be required to pay the costs
associated with relocating these existing microwave users to other portions of
the radio spectrum within a specified time frame.
Of the 140 MHz of spectrum allocated to broadband PCS, 120 MHz has
been allocated for licensed PCS. The 120 MHz of spectrum allocated to licensed
PCS has been divided into six channel blocks, as follows: (i) two channel blocks
(Blocks A and B) have been allocated 30 MHz of spectrum each, and has been
licensed on the basis of 51 Major Trading Areas ("MTAs"), (ii) one channel block
(Block C) has been allocated 30 MHz of spectrum and will be licensed on the
basis of 493 Basic Trading Areas ("BTA's"), (iii) three channel blocks (Blocks
D, E and F) have been allocated 10 MHz of spectrum each and will be licensed on
the basis of BTAs. The FCC has proposed to allow a single entity to combine all
three 10 Mhz blocks, but has not yet adopted this rule. In a separate proceeding
dealing with spectrum auctions and consistent with a directive contained in the
1993 spectrum legislation, the FCC granted licensing preferences on the Block C
and F spectrum allocations for small businesses, rural telephone companies and
minority/woman-owned businesses. However, the FCC recently withdrew the
licensing preferences granted to minority/woman-owned businesses in light of a
U.S. Supreme Court decision on affirmative action.
Subject to a five percent cross-ownership benchmark, spectrum
aggregation will be permitted in broadband PCS, but will be limited to 40 MHz of
spectrum per service area to prevent any one person or entity from exercising
undue market power.
As a general rule, subject to the outcome of pending litigation
described below, cellular licensees will be permitted to participate in
broadband PCS on the 30 MHz frequency block outside of their existing cellular
service areas or in any area where the cellular licensee serves less than ten
percent of the 1990 census population of the PCS area. Under this criterion, a
cellular licensee will be ineligible to apply for one of the 30 MHz spectrum
blocks if the composite reliable service area contour of its cellular system
embraces ten percent or more of the 1990 census population of the PCS area.
Generally, with respect to PCS areas in which there is ten percent or more
cumulative 1990 census population overlap between the cellular and PCS areas,
the cellular carrier will be eligible to hold only one 10 MHz BTA license in
addition to its cellular interest with an opportunity to obtain an additional
5mhz after the year 2000. The ownership attribution benchmark for cellular
interests has been set at 20% (40% for rural telcos). Therefore, for eligibility
purposes, cellular licensees are defined as entities which have an attributable
ownership interest of 20% or more in a cellular system (40% for rural telcos).
The validity of these FCC regulations is now in doubt due to a recent decision
by the US Court of Appeals for the Sixth Circuit which held that the FCC had not
developed an adequate record to justify the cellular PCS cross-ownership
restriction. Further rulemakings and litigation are likely before the final
rules are established.
Broadband PCS licensees will be subject to minimum construction
requirements. Broadband PCS licenses will be awarded for a period of ten years,
with provisions for a license renewal expectancy similar to those currently
applied to cellular licensees.
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<PAGE>
Of the 140 MHz of spectrum allocated for broadband PCS, the remaining
20 MHz has been allocated for unlicensed devices. These unlicensed devices will
be used in a variety of contexts, such as office environments, to provide such
services as high and low speed data links between computing devices, cordless
telephones and wireless PBXs. The unlicensed devices will be governed under Part
15 of the FCC's rules, and will not be subject to auctions.
It is uncertain what effect these new personal communications services
may have on the Company. The Company believes that PCS is unlikely to compete
effectively with cellular telephone service in the rural marketplace, but there
can be no assurance that this will be the case. The Company also believes that
technological advances in cellular telephone technology in conjunction with
buildout of the cellular systems existing throughout the nation with cell
splitting and microcell technology would provide essentially the same services
as the proposals described above, but there is no assurance that this will
happen. The FCC is expected to issue operating authority for personal
communications services competitive to the Company's services in the markets
managed by the Company. This could result in one or more additional competitors
in each of the Company's markets.
Technological advances in the communications field continue to occur
and make it difficult to predict the extent of additional future competition for
cellular systems. For example, several mobile satellite systems are planning to
initiate service in the 1995 - 1999 time frame, and AMSC launched its mobile
satellite in April 1995 and anticipates that its service will be available
sometime this year. See "Business -- The Company's Operations -- Expansion."
Although satellite service may offer a customer worldwide coverage, the
substantial investments required to initiate service, as well as significant
technical, political and regulatory hurdles that need to be overcome, may impede
the early growth of this technology. Recent legislation may make available up to
200 MHz of spectrum for new communications systems. See "Federal Regulation--
Recent Legislation." Each of these systems could provide services that compete
with those provided by the Company. The FCC has also authorized Basic Exchange
Telecommunications Radio Service to make basic telephone service more accessible
to rural households and businesses.
Federal Regulation
- ------------------
Overview. The construction, operation and acquisition of cellular
--------
systems in the United States are regulated by the FCC pursuant to the
Communications Act and the rules and regulations promulgated thereunder (the
"FCC rules"). The FCC rules govern applications to construct and operate
cellular systems, licensing and administrative appeals and technical standards
for the provision of cellular telephone service. The FCC also regulates
coordination of proposed frequency usage, height and power of base station
transmitting facilities and types of signals emitted by such stations. In
addition, the FCC regulates (or forbears from regulating) certain aspects of the
business operations of cellular systems. It has declined to regulate the price
and terms of offerings to the public. See "-- Recent Legislation."
Initial Regulation. For licensing purposes, the FCC established 734
------------------
discrete geographically defined market areas comprised of 306 MSAs and 428 RSAs.
In each market area, the FCC awarded only two licenses authorizing the use of
radio frequencies for cellular telephone service. The allocated cellular
frequencies were divided into two equal 25 MHz blocks. One block of frequencies,
and the associated operating license, was initially reserved for exclusive use
by an entity that was majority-owned and controlled by local landline telephone
companies or their affiliates. The second block of frequencies initially was
reserved for use by entities that did not provide landline telephone service in
the market area. Upon the issuance of a construction permit, such construction
permit could be sold to any qualified buyer, regardless of telephone company
affiliation. The FCC generally prohibits a single entity from holding an
interest in both licenses in the same market.
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<PAGE>
RSAs were divided along county lines and consisted of one or more
contiguous counties within a single state. The RSAs were numbered alphabetically
by state, rather than on the basis of population. The FCC applied a licensing
policy for RSA markets similar to that utilized in the MSAs. Applications for
both licenses in each RSA were filed simultaneously. The FCC chose among
mutually exclusive applicants for each license through the use of a lottery.
Upon favorable review of the lottery winner or settlement entity,
designation of the tentative selectee and following a public comment period, the
FCC issued a construction permit for the cellular telephone system on each
frequency block in a specified market. An operating license was then granted for
an initial term of ten years (although a license may be revoked during its term
for cause after formal proceedings by the FCC).
License Renewal. The FCC has established rules and procedures to
---------------
process cellular renewal applications filed by existing carriers and the
competing applications filed by renewal challengers. Subject to one exception
discussed below, the renewal proceeding is a two-step hearing process. The first
step of the hearing process is to determine whether the existing cellular
licensee is entitled to a renewal expectancy, and otherwise remains basically
qualified to hold a cellular license. Two criteria are evaluated to determine
whether the existing licensee will receive a renewal expectancy. The first
criterion is whether the licensee has provided "substantial" service during its
past license term, defined as service which is sound, favorable and
substantially above a level of mediocre service which minimally might justify
renewal. The second criterion requires that the licensee must have substantially
complied with applicable FCC rules and policies. Under this second criterion,
the FCC determines whether the licensee has demonstrated a pattern of
compliance. The second criterion does not require a perfect record of
compliance, but if a licensee has demonstrated a pattern of noncompliance it
will not receive a renewal expectancy. If the FCC grants the licensee a renewal
expectancy during the first step of the hearing process and the licensee is
basically qualified, its license renewal application will be automatically
granted and any competing applications will be denied. If, however, the FCC
denies the licensee's request for renewal expectancy, the licensee's application
will be comparatively evaluated under specifically enumerated criteria with the
applications filed by competing applicants.
The exception to the two-step renewal hearing process allows a
competing applicant proposing to provide service that far exceeds the service
presently being provided by the incumbent licensee to request a waiver of the
two-step process. If the waiver request is granted, the FCC will hold only a
comparative hearing, i.e., it will not make a threshold determination in the
first instance as to whether the incumbent licensee is entitled to a renewal
expectancy.
Cellular Service Area. In all markets, at least one cell site must
---------------------
have been placed into commercial service within 18 months after the award of the
initial construction permit. Under FCC rules, the authorized service area for a
cellular licensee in a market is referred to as the CGSA. The CGSA is defined as
the area served by the cellular licensee (as computed by a mathematical formula
based on the height and power of operating cell sites within which the licensee
is entitled to protection from interference on its frequencies). The CGSA will
be smaller than the market if a licensee has not fully built-out its system, or
it may be larger than the market if the licensee serves areas of adjacent
markets. Cellular licensees do not need to obtain FCC authority prior to
increasing the CGSA within their market during the five-year period after the
construction permit is initially granted for the market. However, FCC
notification of construction is still generally required. After the five-year
exclusive period has expired, any entity may apply to serve the unserved areas
of the market that comprise at least 50 contiguous square miles and are outside
of the licensee's CGSA (an "unserved area application").
Unserved area applications are filed in two phases, Phase I and Phase
II. During the first half of 1993, the FCC accepted Phase I unserved area
applications for frequency blocks in all markets in which: the five-year fill-in
period had already expired or would expire on or before
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<PAGE>
March 15, 1993; no applications for initial authorizations were filed; or
authorizations were surrendered or canceled for failure to meet the 18-month
construction deadline or other reasons. For all other markets, Phase I
applications were due on the 31st day following expiration of the five-year
fill-in period. All Phase I applications for a given market are deemed mutually
exclusive even if their proposed CGSAs do not overlap. Once an authorization has
been granted to a Phase I applicant, the permittee has 90 days within which to
file an application requesting FCC authority to make major modifications to its
Phase I system. During this period, the FCC will not accept any other
applications for unserved areas in a market during this period that are mutually
exclusive with the Phase I carrier's major modification application.
Phase II unserved area applications for any remaining area may be
filed on the 121st day after the Phase I authorization has been granted (or if
no Phase I applications are filed, on the first day after Phase I applications
for that market are permitted). In the event mutually exclusive applications are
filed the authorization will be issued by auction. Phase II applications may
propose CGSAs that cover area in more than one market. Phase II applications
will be placed on public notice by the FCC, and all interested and qualified
parties will have an opportunity to apply for the same market area within 30
days of the public notice.
Phase I applicants for unserved areas not contiguous to licensed
systems must propose to serve a minimum of 50 contiguous square miles and must
demonstrate their financial qualifications to construct the proposed system and
to operate it for one year (assuming no revenues). Existing licensees proposing
to expand their systems through the filing of an unserved area application and
Phase II applicants are not subject to the 50 square mile minimum coverage rule,
nor are they required to make a financial qualifications showing. Under recent
legislation described below, mutually exclusive unserved area applications are
processed by lottery selection procedures (for applications filed prior to July
26, 1993) or by auctions (for applications filed after July 26, 1993), and
existing cellular carriers receive no preference in the lottery selection or
auction process.
Unserved area cellular carriers (both Phase I and Phase II) are
allowed one year within which to complete construction of their systems.
Unserved area cellular carriers are not permitted a five-year fill-in period. If
an unserved area cellular carrier forfeits its authorization for failure to
construct, the area which thereby reverts to "unserved" status may be applied
for under Phase II procedures.
Alien Ownership Restrictions. The Communications Act prohibits the
----------------------------
issuance of a license to, or the holding of a license by, any corporation of
which any officer or director is a non-U.S. citizen or of which more than 20% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country. The
Communications Act also prohibits the issuance of a license to, or the holding
of a license by, any corporation directly or indirectly controlled by any other
corporation of which any officer or more than 25% of the directors are non-U.S.
citizens or of which more than 25% of the capital stock is owned of record or
voted by non-U.S. citizens or their representatives or by a foreign government
or representative thereof, or by any corporation organized under the laws of a
foreign country, although the FCC has the power in appropriate circumstances to
waive these restrictions. The FCC has interpreted these restrictions to apply to
partnerships and other business entities as well as corporations, with certain
modifications. Failure to comply with these requirements may result in denial or
revocation of licenses. The Articles of Incorporation of the Company contain
prohibitions on foreign ownership or control of the Company that are
substantially similar to those contained in the Communications Act.
Recent Legislation. The Omnibus Budget Reconciliation Act of 1993,
------------------
among other things, generally requires the FCC to work with the Department of
Commerce to reallocate at least 200 MHz of spectrum from federal government use
to private commercial use; to issue initial licenses for
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<PAGE>
radio spectrum for which mutually exclusive applications have been filed for the
purpose of offering commercial communications services to subscribers either by
comparative hearing or competitive bidding (i.e., auctions); to treat as common
carriers PCS licensees as well as providers of commercial mobile services
(including SMR services) that previously were regulated as private carriers; to
issue final rules relating to the licensing of PCS; and to impose regulatory
fees upon virtually all FCC licensees, including cellular licensees, to help
recover the FCC's administrative costs in regulating such entities (the
"Spectrum Legislation".)
In devising a methodology for auctions between mutually exclusive
applicants, the Spectrum Legislation directs the FCC, among other things, to
promote the development and rapid deployment of new technologies, products and
services to the public, including those residing in rural areas. Further, the
Spectrum Legislation prohibits the FCC from conducting lotteries to issue
initial licenses for commercial services for which mutually exclusive
applications are filed, unless one or more applications for such license were
accepted for filing prior to July 26, 1993. Thus, all future initial
applications for cellular unserved areas (if deemed to be mutually exclusive)
and all applications for PCS licenses, will be issued by a competitive bidding
process. Competitive bidding will not apply to applications for license renewal
or applications to assign or transfer control of existing licenses.
The Spectrum Legislation also preempts state rate or entry regulation
on commercial mobile services unless a particular state petitions the FCC for
authority to exercise (or continue exercising) such regulatory authority and the
FCC grants the petition. Several states filed such petitions, all of which have
been denied. The Spectrum Legislation also directs the FCC to assess and collect
regulatory fees from virtually all FCC licensees, including cellular carriers.
Under the initial fee schedule, cellular carriers are required to pay an annual
fee of $60.00 per 1,000 subscribers.
Equal Access Proposal. In 1994, the FCC issued a notice proposing to
---------------------
extend "equal access" obligations to all providers of cellular telephone
service. Such a proposal would require cellular operators to provide customers
with the capability of directly accessing the long-distance provider of their
choice. To date, the FCC has rendered no final decision on the proposal. The
Company does not expect that an order to extend "equal access" would have a
material effect on its business, but there can be no assurance that this will be
the case.
State, Local and Other Regulation
- ---------------------------------
State. Following receipt of an FCC construction permit and prior to
-----
the commencement of commercial service (prior to construction in certain
states), a cellular licensee must also obtain any necessary approvals from the
appropriate regulatory bodies in each of the states in which it will offer
cellular service. Certain state authorities regulate certain service practices
of cellular system operators. While such state regulations may affect the manner
in which the Company's affiliates conduct their business and could adversely
affect their profitability, they should not place the Company's affiliates at a
competitive disadvantage with other service providers in the same markets. The
Company has not experienced and does not presently contemplate any regulatory
constraints, difficulties or delays.
FAA, Zoning and Other Land Use. The location and construction of
------------------------------
cellular transmitter towers and antennas are subject to Federal Aviation
Administration ("FAA") regulations and may be subject to federal, state and
local environmental regulation as well as state or local zoning, land use and
other regulation. Before a system can be put into commercial operation, the
grantee of a construction permit must obtain all necessary zoning and building
permit approvals for the cell sites and MTSO locations. The time needed to
obtain zoning approvals and requisite state permits varies from market to market
and state to state. Likewise, variations exist in local zoning
I-17
<PAGE>
processes. There can be no assurance that any state or local regulatory
requirements currently applicable to the systems in which the Company's
affiliates have an interest will not be changed in the future or that regulatory
requirements will not be adopted in those states and localities which currently
have none.
Employees
- ---------
As of December 15, 1995, the Company had 439 full-time employees. The
Company engages the services of independent contractors on an as-needed basis.
Item 2. Properties.
In addition to the direct and attributable interests in cellular
licensees discussed in this Report, the Company leases its principal executive
offices (consisting of approximately 49,900 square feet) located in Englewood,
Colorado. In January 1996, the Company plans to relocate its principal executive
offices within Englewood, Colorado, and occupy approximately 60,000 square feet.
The Company and its affiliates lease and own locations for inventory storage,
microwave, cell site and switching equipment and administrative offices.
Item 3. Legal Proceedings.
There are no material, pending legal proceedings to which the Company
or any of its subsidiaries is a party or of which any of their property is the
subject which, if adversely decided, would have a material adverse effect on the
Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during
the quarter ended September 30, 1995.
I-18
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters.
The common stock of the Company ("Common Stock") is traded on the
Nasdaq National Market under the symbol "CELS." The following table sets forth
the range of high and low closing sale prices of the Common Stock for each
fiscal quarter since October 1, 1993 as reported by Nasdaq.
<TABLE>
<CAPTION>
Fiscal Year 1994: High Low
---- ---
<S> <C> <C>
First Quarter...................... $21 1/2 $ 16 7/8
Second Quarter..................... 21 16 3/4
Third Quarter...................... 18 15 3/8
Fourth Quarter..................... 25 3/4 17 7/8
Fiscal Year 1995: High Low
---- ---
First Quarter...................... $29 1/4 $ 22 1/4
Second Quarter..................... 28 1/2 22 3/4
Third Quarter...................... 28 3/4 24 9/16
Fourth Quarter..................... 30 1/2 27 1/4
</TABLE>
As of December 15, 1995, there were 430 holders of record of the Common
Stock.
The Company has not paid cash dividends on the Common Stock and does
not anticipate that any cash dividends will be paid on the Common Stock in the
foreseeable future. Furthermore, certain financing agreements to which the
Company is a party contain provisions which restrict the payment by the Company
of dividends or distributions on the Common Stock (other than dividends or
distributions payable in shares of Common Stock).
II-1
<PAGE>
Item 6. Selected Financial Data.
Statement of Operations Data (1):
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 89,844,119 $ 61,360,051 $ 33,689,311 $ 14,906,349 $ 4,908,170
Costs and expenses (net
of amounts allocated
to affiliates):
Cellular operations 68,928,742 50,855,637 30,288,634 18,138,532 11,940,438
Corporate 1,327,164 406,638 (1,119,298) 997,157 (592,798)
Total depreciation
and amortization 17,595,148 12,650,855 19,950,508 14,114,817 8,569,325
Write-down of
investment in
cellular system
equipment - 3,116,256 - - -
------------ --------------- --------------- --------------- -------------
Operating income (loss) 1,993,065 (5,669,335) (15,430,533) (18,344,157) (15,008,795)
Equity in net loss of
affiliates (5,028,219) (5,092,484) (6,339,145) (8,851,753) (10,931,161)
Minority interest in net income
of consolidated affiliates (963,956) (543,607) - - -
Gains on sales of affiliates 19,471,476 3,911,943 7,821,424 14,339,063 -
Interest expense (26,043,802) (21,338,505) (16,427,796) (14,800,908) (11,245,394)
Interest income 13,045,660 12,080,836 10,701,511 10,616,024 8,484,298
------------ --------------- --------------- --------------- -------------
Income (loss) before income
taxes and extraordinary charge 2,474,224 (16,651,152) (19,674,539) (17,041,731) (28,701,052)
Income tax expense 400,000 100,000 - - -
------------ --------------- --------------- --------------- -------------
Income (loss) before
extraordinary charge 2,074,224 (16,751,152) (19,674,539) (17,041,731) (28,701,052)
Extraordinary charge (2,012,257) - (2,991,673) - -
------------ --------------- --------------- --------------- -------------
Net income (loss) $ 61,967 $(16,751,152) $(22,666,212) $(17,041,731) $(28,701,052)
------------ --------------- --------------- --------------- -------------
Income (loss) per common
share before extraordinary
charge $ .17 $ (1.45) $ (2.30) $ (2.44) $ (6.00)
Extraordinary charge (.16) - (.35) - -
Net income (loss) per
common share $ .01 $ (1.45) $ (2.65) $ (2.44) $ (6.00)
------------ --------------- --------------- --------------- -------------
Weighted average
shares outstanding 12,153,592 11,577,191 8,551,785 6,984,541 4,780,674
------------ --------------- --------------- --------------- -------------
Balance Sheet Data (1):
<CAPTION>
Years ended September 30,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $ 39,910,831 $ 25,524,500 $ 63,560,591 $ 29,477,995 $ 15,317,636
Investments in and
advances to affiliates 56,918,738 61,908,761 55,892,372 52,019,577 50,745,576
Net property and equipment 105,289,475 79,917,727 53,460,296 44,209,682 33,555,291
Total assets 325,667,956 282,637,586 269,523,889 208,363,573 181,972,276
Long-term debt 246,356,587 243,913,168 259,676,224 189,430,430 183,208,596
Total liabilities 267,012,294 266,731,119 278,945,660 204,123,685 204,059,999
Stockholders' equity
(deficit) (2) 58,655,662 15,906,467 (9,421,771) 4,239,888 (22,087,723)
</TABLE>
II-2
<PAGE>
Item 6. Selected Financial Data (Continued).
(1) Markets in which the Company holds a greater than 50% net interest are
reflected on a consolidated basis in the Company's consolidated
financial statements. Markets in which the Company holds a net interest
which is 50% or less but 20% or greater are accounted for under the
equity method. Markets in which the Company holds a less than 20%
interest are accounted for under the cost method. The following table
sets forth the number of markets and relevant accounting methods at the
end of each of the last five fiscal years.
<TABLE>
<CAPTION>
September 30,
--------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated 45 42 36 28 22
Equity 20 35 38 37 47
Cost 18 18 6 18 18
---- ---- ---- ---- ----
83 95 80 83 87
---- ---- ---- ---- ----
</TABLE>
(2) No cash dividends were declared or paid during any period presented.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
- -------
The Company generated operating income during fiscal 1995 as the focus
shifted from construction and initial operation of cellular systems to
increasing penetration and subscriber usage. In addition, the Company expects
that operating income before depreciation and amortization ("EBITDA"), which was
positive during the fiscal year ended September 30, 1995, will also be positive
in future fiscal years (although there can be no assurance that this will be the
case). Certain financial analysts consider EBITDA a meaningful measure of an
entity's ability to meet long-term financial obligations, and growth in EBITDA a
meaningful barometer of future profitability, especially in a capital-intensive
industry such as cellular telecommunications. However, EBITDA should not be
considered in isolation to, or be construed as having greater significance than,
other indicators of an entity's performance. The results discussed below may not
be indicative of future results.
Consolidated results of operations include the revenues and expenses of
those markets in which the Company holds a greater than 50% interest. The
results of operations of 45 markets, 42 of which were consolidated for the
entire period, are included in the consolidated results for the fiscal year
ended September 30, 1995. The results of operations of 42 markets, 36 of which
were consolidated for the entire period, are included in the consolidated
results for the fiscal year ended September 30, 1994. The increase in the number
of markets included in consolidated results is due to acquisitions consummated
subsequent to September 30, 1994. Consolidated results of operations also
include the operations of Cellular, Inc. Financial Corporation ("CIFC"), the
Company's wholly-owned financing subsidiary, as well as the operations of
Cellular Inc. Network Corporation ("CINC"), a wholly-owned subsidiary through
which the Company holds interests in certain cellular licenses.
Equity in net loss of affiliates includes the Company's share of net
loss in the markets in which the Company's interest is 50% or less but 20% or
greater. For the fiscal year ended September 30, 1995, 20 markets were accounted
for under the equity method, compared to 35 such markets for the fiscal year
ended September 30, 1994. Markets in which the Company's interest is
II-3
<PAGE>
less than 20% are accounted for under the cost method. Eighteen markets were
accounted for under the cost method for both fiscal years ended September 30,
1995 and September 30, 1994.
Interest income reflects interest income derived from the financing
activities of CIFC and the Company with nonconsolidated affiliates, as well as
interest income derived from the Company's short-term investments. CIFC has
entered into loan agreements with the Company's affiliates pursuant to which
CIFC makes loans to such entities for the purpose of financing or refinancing
the affiliates' costs of construction and operation of cellular telephone
systems. Such loans are financed with funds borrowed by CIFC from CoBank and
from the Company and bear interest at a rate 1% above CIFC's average borrowing
rate. From time to time, the Company advances funds on an interim basis to
affiliates. These advances typically are refinanced through CIFC. To the extent
that the cellular markets in which the Company holds an interest generate
positive cash flow, the cash is used to repay borrowings by the affiliates from
CIFC and thereafter will be used to make cash distributions to equity holders,
including the Company.
Results of Operations
- ---------------------
Fiscal Year 1995 Compared With Fiscal Year 1994. Cellular service
-----------------------------------------------
revenues, including in-roaming revenues, increased 56% from $52,586,000 for the
year ended September 30, 1994 to $81,939,000 for the year ended September 30,
1995. The growth was primarily due to the increase in the number of subscribers
in consolidated markets. In addition to increases in market penetration, growth
resulted from an increase in the number of markets consolidated for the entire
year from 36 during the year ended September 30, 1994 to 42 during the year
ended September 30, 1995. Growth in subscribers accounted for 88% of the
increase, and the number of consolidated markets accounted for 12% of the
increase. In-roaming revenues increased by 58%, or $7,710,000, from
$13,375,000 for the year ended September 30, 1994 to $21,085,000 for the year
ended September 30, 1995 due to increased coverage in cellular markets.
In-roaming revenues are expected to increase in the future as a result of
industry-wide growth in subscribers and the Company's expansion of its coverage,
particularly along highway corridors; however, roaming rates may decline,
Average monthly revenue per subscriber, including in-roaming revenues,
decreased from $74 for the year ended September 30, 1994 to $68 for the year
ended September 30, 1995, reflecting the benefit of declining prices to the
consumer that is consistent with an overall industry trend. However, in-roaming
revenues per subscriber were essentially flat reflecting the larger scale
benefit of the Company's cell site expansion program.
Cost of cellular service increased as a percentage of service revenues
from 18% in fiscal year 1994 to 20% in fiscal year 1995, primarily due to an
increase in costs related to interconnect service. The Company expects that cost
of cellular service will not increase as a percentage of service revenues in
fiscal 1996.
Equipment sales decreased 10% from $8,774,000 in fiscal year 1994 to
$7,905,000 in fiscal year 1995, reflecting declining equipment pricing due to
competitive factors. Cost of equipment sales increased 23% from $8,835,000 in
fiscal year 1994 to $10,902,000 in fiscal year 1995. The large loss on
equipment sales was due to equipment promotions during most of 1995 to stimulate
subscriber growth. The Company expects to continue such promotions; however,
reductions in other components of acquisition costs per new subscriber, such as
advertising, may occur.
General and administrative costs of cellular operations increased 21%
from $16,768,000 in fiscal year 1994 to $20,224,000 in fiscal year 1995, due to
the growth in the customer base and the number of consolidated markets. The
majority of these costs were incremental customer billing expense, customer
service support staff and bad debts. General and administrative costs as a
percentage of service revenues decreased from 32% in fiscal year 1994 to 25% in
fiscal year 1995.
II-4
<PAGE>
The decrease was primarily due to revenues increasing at a faster rate than
incremental general and administrative costs.
Marketing and selling costs increased 37% from $15,786,000 in fiscal
year 1994 to $21,642,000 in fiscal year 1995, primarily as a result of the
number of subscribers added in consolidated markets. The majority of these costs
were incremental sales commissions and advertising costs. Marketing costs per
net new subscriber decreased 8% from $568 in fiscal year 1994 to $523 in fiscal
year 1995, as a result of increased net subscriber additions which outpaced
increases in costs incurred. The Company is continuing to expand its retail
presence to capitalize on retail trade while driving down commission costs.
Depreciation and amortization relating to cellular operations increased
47% from $10,541,000 in fiscal year 1994 to $15,454,000 in fiscal year 1995,
primarily related to increased fixed asset balances.
Corporate costs and expenses in fiscal year 1994, exclusive of write-
downs of property and equipment, were $2,516,000, which represented gross
expenses of $9,054,000 less amounts allocated to nonconsolidated affiliates of
$6,538,000. Corporate costs and expenses in fiscal year 1995 were $3,468,000,
which represented gross expenses of $9,533,000 less amounts allocated to
nonconsolidated affiliates of $6,065,000.
Equity in net loss of affiliates decreased 1% from $5,092,000 in fiscal
year 1994 to $5,028,000 in fiscal year 1995. The decrease was principally
attributable to decreasing losses in markets being accounted for under the
equity method at September 30, 1995, compared to September 30, 1994, due to the
shift in focus in these markets from construction and initial operation to
increasing penetration and subscriber usage. This shift has caused a consistent
trend of improved operating results. However, the reduction in the number of
markets accounted for under the equity method is not expected to result in a
prorata reduction to equity in net loss of affiliates in fiscal 1996. The 20
markets that continue to be accounted for under the equity method have
historically generated worse operating results, primarily due to higher debt
service requirements than the three markets that were consolidated and the
markets that were sold in fiscal 1995.
Interest expense increased 22% from $21,339,000 in fiscal year 1994 to
$26,044,000 in fiscal year 1995 due to higher accreted discount note and average
secured bank financing balances. Cash paid for interest increased 25% from
$9,731,000 in fiscal year 1994 to $12,209,000 in fiscal year 1995, due to higher
average secured bank financing balances.
Interest income increased 8% from $12,081,000 in fiscal year 1994 to
$13,046,000 in fiscal year 1995, due to higher yields on cash and cash
equivalents and available-for-sale securities, and due to higher rates charged
on nonconsolidated affiliates' notes.
During fiscal year 1995, the Company recognized gains on sales of
affiliates of $19,471,000 primarily as a result of the sale of its interest in
Nebwest Cellular, Inc., which held an interest in Nebraska Cellular Telephone
Corporation, the licensee for the ten wireline RSA markets in the state of
Nebraska. See "Acquisitions and Sales." During fiscal year 1994, the Company
recognized gains on sales of affiliates of $2,905,000, primarily related to the
sale of its limited partnership interest in MSA 239 (Joplin, MO) during the
second quarter of fiscal 1994 ($1,921,000) and a multimarket transaction with
Contel Cellular, Inc. during the third quarter of fiscal 1994 ($841,000). An
additional $907,000 gain was recognized due to the write-off of contingent
liabilities related to stock price guarantees.
At September 30, 1995, the Company had net operating loss ("NOL")
carryforwards for income tax purposes of $40,503,000, compared to $54,725,000 at
September 30, 1994. This decrease
II-5
<PAGE>
resulted from a change in the tax treatment of sales commissions and the
utilization of NOL carryforwards to offset current year taxable income.
Fiscal Year 1994 Compared With Fiscal Year 1993. Cellular service
-----------------------------------------------
revenues, including in-roaming revenues, increased 82% from $28,861,000 in
fiscal year 1993 to $52,586,000 in fiscal year 1994. The growth was due to the
increase in the number of subscribers in consolidated markets. In addition to
increases in market penetration, growth resulted from an increase in the number
of markets consolidated during the entire fiscal year from 36 during the year
ended September 30, 1993 to 42 during the year ended September 30, 1994. Growth
in subscribers accounted for 75% of the increase and the number of consolidated
markets accounted for 25% of the increase.
Average monthly revenue per subscriber decreased 1% from $75 in fiscal
year 1993 to $74 in fiscal year 1994. The decline reflects the fact that initial
subscribers in a market tend to use more cellular service than those who
subscribe after a system has been in operation for a period of time.
Cost of cellular service decreased as a percentage of service revenues
from 21% in fiscal year 1993 to 18% in fiscal year 1994. This decrease was due
to service revenues derived from the growing subscriber base outpacing the fixed
components of cost of service.
Equipment sales increased 82% from $4,829,000 in fiscal year 1993 to
$8,774,000 in fiscal year 1994. The growth was due to the increase in the
number of subscribers added as compared to the number of subscribers added
during the prior fiscal year, which accounted for $2,923,000, or 74%, of the
increase. In addition, growth resulted from an increase in the number of
consolidated markets operated during the year which represented $1,022,000, or
26%, of the increase. Cost of equipment sales increased 69% from $5,218,000 in
fiscal year 1993 to $8,835,000 in fiscal year 1994. To enhance subscriber
growth, the Company has sold subscriber equipment sometimes below cost. The
equipment sales margin improved in fiscal year 1994, as compared to fiscal year
1993, as the Company focused on minimizing equipment discounting.
General and administrative costs of cellular operations increased 60%
from $10,505,000 in fiscal year 1993 to $16,768,000 in fiscal year 1994, due to
the growth in the customer base and the number of consolidated markets. The
majority of these costs were incremental customer billing expense, roaming
validation services and customer service support staff. General and
administrative costs as a percentage of service revenues decreased from 36% in
fiscal year 1993 to 32% in fiscal year 1994. The decrease was primarily due to
revenues increasing at a faster rate than incremental general and administrative
costs.
Marketing and selling costs increased 86% from $8,465,000 in fiscal
year 1993 to $15,786,000 in fiscal year 1994, primarily as a result of the
number of subscribers added in consolidated markets. The majority of these costs
were incremental sales commissions, advertising costs and incremental sales
staff. Marketing costs per net new subscriber decreased 6% from $606 in fiscal
year 1993 to $568 in fiscal year 1994, as a result of subscriber additions which
outpaced increases in costs incurred.
Depreciation and amortization relating to cellular operations decreased
40% from $17,582,000 in fiscal year 1993 to $10,541,000 in fiscal year 1994,
primarily as a result of the change, effective October 1, 1993, in the Company's
estimate of the useful life of acquired FCC license costs from the remaining
initial ten-year term to 40 years from the date of acquisition. The change was
predicated upon the FCC's establishment of procedures to grant a renewal
expectancy to incumbent cellular licensees virtually assuring that the initial
ten-year term of an FCC license to provide cellular telephone service will be
renewed if a licensee meets broadly defined public service benchmarks. Other
publicly-held cellular telephone companies also treat a cellular license as
II-6
<PAGE>
economically perpetual. Commencing October 1, 1993, the net book value of
acquired license costs at September 30, 1993 was amortized over 40 years less
the number of months from the date of the acquisition which gave rise to such
costs. Management believes this treatment complies with accounting literature
given current facts and circumstances and will reevaluate this estimate as
changes in facts and circumstances occur.
During the year ended September 30, 1994, the Company recognized a
$3,116,000 write-down of equipment associated with a program of upgrades to
switching capacity and features, the relocation of certain cell sites to
increase coverage and other nonrecurring events.
Corporate costs and expenses in fiscal year 1993 were $1,249,000, which
represented gross expenses of $9,491,000 less amounts allocated to
nonconsolidated affiliates of $8,242,000. Corporate costs and expenses in
fiscal year 1994 were $2,516,000, which represented gross expenses of $9,054,000
less amounts allocated to nonconsolidated affiliates of $6,538,000. The
decrease in expenses and amounts allocated to nonconsolidated affiliates
reflects the decrease in the number of nonconsolidated managed markets as
consolidation caused corporate costs and expenses to be reclassified as cellular
costs and expenses.
Equity in net loss of affiliates decreased 20% from $6,339,000 in
fiscal year 1993 to $5,092,000 in fiscal year 1994. The decrease was principally
attributable to decreasing losses in markets being accounted for under the
equity method at September 30, 1994, compared to September 30, 1993, due to the
shift in focus in these markets from construction and initial operation to
increasing penetration and subscriber usage. This shift has caused a consistent
trend of improved operating results.
Interest expense increased 30% from $16,428,000 in fiscal year 1993 to
$21,339,000 in fiscal year 1994. The increase was a result of the issuance in
August 1993 of the Company's 11 3/4% Senior Discount Notes Due 2003. However,
cash paid for interest decreased 37% from $15,455,000 in fiscal year 1993 to
$9,731,000 in fiscal year 1994 as interest accretes during the first five years
of the term of the discount notes.
Interest income increased 13% from $10,702,000 in fiscal year 1993 to
$12,081,000 in fiscal year 1994. The modest increase in interest income was the
result of higher note balances owed to the Company by nonconsolidated
affiliates, offset by lower cash and short-term investment balances, declining
interest rates and the consolidation of six additional markets during fiscal
year 1994. Consolidation caused the interest earned on advances to the related
affiliates to be eliminated as an intercompany transaction.
During fiscal year 1994, the Company recognized a permanent write-down
of certain short-term government bond investments of approximately $744,000 due
to market conditions.
During fiscal year 1994, the Company recognized gains on sales of
affiliates of $2,905,000, primarily related to the sale of its limited
partnership interest in MSA 239 (Joplin, MO) during the second quarter of fiscal
1994 ($1,921,000) and a multimarket transaction with Contel Cellular, Inc.
during the third quarter of fiscal 1994 ($841,000). An additional $907,000 gain
was recognized due to the write-off of contingent liabilities related to stock
price guarantees. During fiscal year 1993, the Company recognized gains on sales
of affiliates of $7,821,000 primarily related to the multimarket exchanges with
US WEST NewVector Group, Inc. ("U S West NewVector") during the second quarter
of fiscal 1993 ($3,812,000) and Pacific Telecom Cellular, Inc. ("PTI") during
the fourth quarter of fiscal 1993 ($4,889,000).
At September 30, 1994, the Company had NOL carryforwards for income tax
purposes of $54,725,000, compared to $46,578,000 at September 30, 1993.
II-7
<PAGE>
Acquisitions and Sales
- ----------------------
In November 1994, the Company purchased an additional 5.97% interest in
Nebwest Cellular, Inc. for $1,600,000 in cash. Pursuant to the terms of a
shareholder's agreement, the Company subsequently sold a portion of that
interest to the other shareholders on a pro rata basis for approximately
$450,000 in cash. In February 1995, the Company purchased an additional 3.37%
interest in this corporation for 34,688 shares of the Company's Common Stock.
In March 1995, the Company purchased an additional 2.57% interest in this
corporation for 28,638 shares of the Company's Common Stock. In July 1995, the
Company sold its entire 61.50% interest in Nebwest Cellular, Inc. which owned
25.52% of Nebraska Cellular Telephone Corporation, the licensee for the ten
wireline RSA markets in the state of Nebraska, for approximately $24,300,000
which resulted in a gain after tax of approximately $19,600,000.
In January 1995, the Company sold a wholly-owned subsidiary for
approximately $86,000 which resulted in a loss of approximately $297,000.
In January 1995, the Company transferred its 25% interest in one
nonmanaged RSA market to a partner in that market pursuant to a judgment. The
judgment is currently being appealed. The Company received approximately
$1,699,000 upon transfer of the interest which resulted in a gain of
approximately $497,000.
In February 1995, the Company purchased additional interests ranging
from 2% to 41% in 11 managed and one nonmanaged markets for approximately
$1,259,000 in cash and the issuance of 49,738 shares of the Company's Common
Stock.
In May and June 1995, the Company acquired additional interests ranging
from 17% to 51% in two managed markets and two nonmanaged markets for an
aggregate of 138,168 shares of the Company's Common Stock.
In August and September 1995, the Company acquired additional interests
ranging from 3% to 26% in two managed markets for 3,592 shares of the Company's
Common Stock and $38,279 in cash.
In November 1995, the Company purchased additional interests ranging
from 18% to 19% in three managed markets for 28,283 shares of the Company's
Common Stock.
Subsequent to fiscal year end, the Company entered into a series of
agreements pursuant to which the Company agreed to acquire interests in one MSA
and RSA market in exchange for its entire interest in one RSA market plus cash,
Common Stock and forgiveness of certain obligations, all of which aggregate
approximately $988,000.
The Company has also entered into agreements to purchase additional
interests ranging from 43% to 44% in two managed RSA markets. The aggregate
--
purchase price of $ 2,209,000 is payable by the issuance of shares of the
-----------
Company's Common Stock.
The Company continues to pursue acquisitions to the extent they enhance
or extend its network or increase shareholder value, although there can be no
assurance any such acquisition will be consummated.
Changes in Financial Condition
- ------------------------------
Fiscal Year 1995. Net cash provided by operating activities was
----------------
$14,068,000 during the year ended September 30, 1995. This was primarily due to
the increase in EBITDA of $9,490,000 and decreases in working capital of
$5,222,000. Working capital decreases are primarily the result of a reduction in
inventory. However, working capital increases will likely require cash in future
periods as growth in the subscriber base continues.
II-8
<PAGE>
Net cash provided by investing activities was $7,028,000 for the year
ended September 30, 1995. This was due primarily to $21,427,000 provided from
the net sale of securities and $23,654,000 provided from the net sales of
affiliates, offset by $31,796,000 of cash required to fund the purchase of
property and equipment related to the Company's expansion efforts, and
$6,017,000 related to nonconsolidated affiliates reflected as additions to
investments in and advances to affiliates.
Net cash provided by financing activities was $17,840,000 for the year
ended September 30, 1995. These proceeds are comprised of $77,400,000 from the
issuance of subordinated notes, offset by $41,852,000 used to redeem the
Company's convertible subordinated debentures and an overall $15,277,000
decrease in incremental secured bank financing.
Fiscal Year 1994. Net cash used by operating activities was $7,170,000
----------------
during the year ended September 30, 1994. The rapid increase in subscribers and
revenues caused an increase of $3,797,000 in accounts receivable and an
increase of $4,363,000 in inventory and other current assets.
Net cash used by investing activities was $49,864,000 for the year
ended September 30, 1994. This was due primarily to $36,821,000 of cash required
to fund the purchase of property and equipment related to the Company's
expansion efforts, including $6,789,000 related to nonconsolidated affiliates
reflected as additions to investments in and advances to affiliates. In
addition, the Company acquired the Rapid City MSA and interests in other managed
markets using $13,992,000, and sold nonmanaged interests providing cash of
$9,037,000.
Net cash provided by financing activities was $13,455,000 for the year
ended September 30, 1994. These proceeds included $11,149,000 of incremental
secured bank financing and $1,479,000 of cash from the issuance of Common Stock
upon exercise of options.
Liquidity and Capital Resources
- -------------------------------
General. CommNet Cellular Inc. (referred to herein as the "parent
-------
company") is effectively a holding company and, accordingly, must rely on
dividends, loan repayments and other intercompany cash flows from its affiliates
and subsidiaries to generate the funds necessary to satisfy the parent company's
capital requirements. On a consolidated basis, the Company's principal source of
liquidity is the Credit Agreement, pursuant to which CoBank, ACB, as agent for a
syndicate of lenders ("CoBank") has agreed to lend up to $165,000,000
($130,000,000 at September 30, 1994) (the "credit facility") to CIFC. Of the
$165,000,000, $140,000,000 may be reloaned by CIFC to the Company's affiliates
for the construction, operation and expansion of cellular telephone systems
including up to $5,000,000 for the construction and operation of a paging
network. The remaining $25,000,000 is reserved for acquisitions by CINC. Of the
$140,000,000, $80,000,000 ($57,100,000 at September 30, 1994) is available to be
borrowed by CIFC to be repaid to the parent company and used for general
corporate purposes, including capital expenditures, debt service and
acquisitions. The Credit Agreement restricts the ability of the Company's
affiliates and subsidiaries, a substantial number of which are consolidated for
financial statement purposes, to make distributions to the parent company until
such affiliates and subsidiaries have repaid all outstanding debt to CIFC. As a
result, a substantial portion of the Company's consolidated cash flows and cash
balances is not available to satisfy the parent company's capital and debt
service requirements.
The Company's budgeted capital requirements consist primarily of (i)
parent company capital expenditures, working capital, debt service and certain
potential acquisitions and (ii) the capital expenditures, working capital, other
operating and debt service requirements of the affiliates. In addition to
budgeted capital requirements, the Company is constantly evaluating the
II-9
<PAGE>
acquisition of additional cellular properties, and to the extent the Company
consummates future acquisitions, additional capital may be required.
As of September 30, 1995, the Company had unused commitments under the
Credit Agreement of $128,737,000, of which approximately $60,225,000 was
available to be repaid to the parent company for general corporate purposes. In
addition to the liquidity provided by the Credit Agreement, at September 30,
1995 the Company, on a consolidated basis, had available $41,018,000 of cash and
cash equivalents. In July 1995, the Company issued $80,000,000 of 11 1/4%
Subordinated Notes due 2005 ("Notes"). Proceeds received by the Company after
fees and commissions were $77,400,000. The Company then called its 6 3/4%
Convertible Subordinated Debentures ("Debentures") for redemption. Of the
$74,747,000 aggregate principal amount of the Debentures outstanding,
$41,852,000 were redeemed using proceeds from the issuance of the Notes, and the
balance of $32,895,000 were converted into 1,190,673 shares of the Company's
Common Stock, providing net cash of $34,297,000. Also in July 1995, the Company
sold its Nebraska RSA interests for approximately $24,300,000 in cash. See
"Acquisitions and Sales." Of these proceeds, $19,100,000 were used to repay
borrowings from CoBank, and are available to fund parent company capital
expenditures, debt service requirements and acquisitions, if any.
On a consolidated basis, the Company's capital expenditures for the
twelve months ended September 30, 1995 were $31,919,000. The Company plans to
make parent company capital expenditures and fund working capital and
acquisition requirements for fiscal year 1996 of $34,889,000, primarily for
switch capacity and computer system upgrades. Capital expenditures, working
capital, and other operating requirements of the Company's affiliates are
expected to be $45,363,000 for fiscal 1996, to fund working capital
requirements, channel expansion and additional cell sites.
The Company's near-term debt service requirements will consist
primarily of interest payments on the indebtedness incurred under the Credit
Agreement and interest payments on the Notes. Interest on the Company's 11 3/4%
Senior Subordinated Discount Notes is payable in cash commencing March 1, 1999.
The Company anticipates its cash interest expense for fiscal year 1996 will be
$14,638,000. Revolving loan indebtedness outstanding under the Credit Agreement
will be converted to term loan indebtedness at December 31, 1996 and will be
amortized over the next four years. See "The Credit Agreement" below.
Conversion of the Company's 6 3/4% Convertible Subordinated Debentures
and a portion of its 8.75% Convertible Senior Subordinated Notes occurred during
fiscal year 1995. Had these conversions occurred at the beginning of that fiscal
year, earnings per share would have increased from $.01 to $.14.
The Company believes operating cash flow, existing cash balances, and
borrowing availability under the Credit Agreement, will be sufficient to meet
all future anticipated capital requirements of the parent company and its
affiliates and debt service requirements of the Company at both the parent
company level and on a consolidated basis.
Although the Company believes that the foregoing sources of liquidity
will be sufficient to meet budgeted capital expenditures and debt service
requirements of the parent company and the affiliates, there can be no assurance
that this will be the case. In such event, the Company believes it will be able
to satisfy its capital expenditure and debt service requirements with
unrestricted operating cash flow; however, the Company may be required to reduce
discretionary capital spending. To the extent the Company's cash flow is not
sufficient to satisfy such requirements, the Company will be required to raise
funds through additional financings or asset sales.
The Company continually evaluates the acquisition of cellular
properties. Acquisitions are likely to require capital in addition to the
budgeted capital requirements described above, and such requirements may in turn
require the issuance of additional debt or equity securities. The
II-10
<PAGE>
Company's ability to finance the acquisition of additional cellular properties
with debt financing may be constrained by certain restrictions contained in its
existing debt instruments. In such event, the Company would be required to seek
amendments to such instruments. There can be no assurance that such amendments
could be obtained on terms acceptable to the Company.
The Credit Agreement. Pursuant to the Credit Agreement, CoBank has
--------------------
agreed to loan up to $165,000,000 to CIFC to be reloaned by CIFC to affiliates
of the Company for the construction, operation and expansion of cellular
telephone systems including $25,000,000 to fund the acquisitions of additional
cellular systems, subject to certain conditions. As of September 30, 1995,
approximately $60,225,000 was available under the Credit Agreement to be
borrowed from CoBank by CIFC and repaid to the parent company for general
corporate purposes. As of September 30, 1995, the outstanding balance under the
Credit Agreement was approximately $36,210,000. The Credit Agreement provides,
at the Company's option, for interest at 1.00% over prime (9.75% at September
30, 1995) or 2.50% over LIBOR (8.53% at September 30, 1995). The Credit
Agreement is a revolving loan which converts to a four-year term loan on
December 31, 1996. The loan is secured by a first lien upon all of the assets of
CIFC and each of the affiliates to which funds are advanced by CIFC. In
addition, the Company has guaranteed the obligations of CIFC to CoBank and has
granted CoBank a first lien on all of the assets of the Company as security for
such guaranty.
In accordance with the Company's desire to minimize interest rate
fluctuations and to improve the predictability of costs incurred throughout its
growth stage, CIFC has fixed interest rates on approximately $35,090,000 of its
long-term debt payable to CoBank at an average rate of 10.9% which matures
during 1996. Additionally, CIFC has entered into a prime-based interest rate
swap with CoBank as a means of controlling interest rates on $2,500,000 of its
variable rate loans. This swap agreement was entered into on July 1, 1993 for a
three-year period ending July 1, 1996. The swap agreement requires CIFC to pay a
fixed rate of 7.01% over the term of the swap, and CoBank to pay a floating rate
of prime (8.75% at September 30, 1995). The weighted average interest rate of
borrowings under the Credit Agreement, after giving effect to the swap, was
10.68% at September 30, 1995.
The Credit Agreement prohibits the payment of cash dividends, limits
the use of borrowings, prohibits any other senior borrowings, restricts
expenditures for certain investments, requires positive working capital and
requires the maintenance of certain liquidity, capitalization, debt, debt
service and cash interest ratios. The requirements of the Credit Agreement were
established in relation to the anticipated capital and financing needs of the
Company's affiliates and their anticipated results of operations. The Company is
currently in compliance with all covenants and anticipates it will continue to
meet the requirements of the Credit Agreement. Approval may be required from the
syndicate for waivers or other amendments to the Credit Agreement requested by
CIFC or the Company.
II-11
<PAGE>
Supplemental Information:
SELECTED COMBINED AND PROPORTIONATE
OPERATING RESULTS OF CELLULAR LICENSEES
The following table presents operating data for all cellular licensees
in which the Company holds an interest. The "Combined," "Financed Proportionate"
and "Company Proportionate" operating results, which are not included in the
Company's consolidated financial statements, are provided to assist in
understanding the results of the licensees in which the Company holds an
interest. Generally accepted accounting principles ("GAAP") prescribe inclusion
of revenues and expenses for consolidated interests (generally interests of more
than 50%), but not for equity interests (generally interests of 20% to 50%) or
cost interests (generally interests of less than 20%). Equity accounting
ordinarily results in the same net income as consolidation; however, the net
operating results are reflected on one line below operating income. Operating
activity related to interests accounted for under the cost method are not
reflected at all in a GAAP operating statement.
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
---------------------------- ---------------------------- --------------------------
Combined (1) Financed Proportionate (2) Company Proportionate (3)
---------------------------- ---------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
MANAGED MARKETS
Revenues:
Cellular service $74,142,761 $51,019,112 $69,140,038 $46,701,818 $53,867,619 $35,851,984
In-roaming 26,362,647 17,333,820 24,761,059 15,826,592 19,038,939 11,795,775
Equipment sales 4,683,217 5,082,082 4,334,289 4,661,880 3,347,504 3,501,916
------------ ----------- ----------- ----------- ----------- -----------
Total revenues 105,188,625 73,435,014 98,235,386 67,190,290 76,254,062 51,149,675
Costs and expenses involving cash:
Cost of sales:
Cellular service (including
in-roaming) 19,871,337 11,871,044 18,813,360 11,077,524 14,192,390 8,015,495
Equipment sales 8,325,392 5,330,514 7,723,603 4,879,149 5,906,530 3,665,013
General and administrative 24,658,751 21,777,015 23,090,196 20,026,263 17,984,622 15,189,078
Marketing and selling 26,386,599 20,160,573 24,642,430 18,447,497 19,096 875 14,078,272
------------ ----------- ----------- ----------- ----------- -----------
Total cash costs and
expenses 79,242,079 59,139,146 74,269,589 54,430,433 57,180,417 40,947,858
------------ ----------- ----------- ----------- ----------- -----------
EBITDA $25,946,546 $14,295,868 $23,965,797 $12,759,857 $19,073,645 $10,201,817
============ =========== =========== =========== =========== ===========
Capital expenditures $35,797,471 $42,575,703 $32,388,249 $41,735,232 $25,567,382 $34,227,936
Subscriber count 151,482 99,002 139,773 90,163 108,255 68,378
Total markets 56 55 56 55 56 55
NONMANAGED MARKETS
Revenues:
Cellular service (including
in-roaming) $86,148,033 $51,913,569 $17,858,383 $15,063,941 $ 9,928,218 $ 7,557,907
Equipment sales 8,432,963 3,129,756 1,378,457 933,368 868,769 493,465
------------ ----------- ----------- ----------- ----------- -----------
Total revenues 94,580,996 55,043,325 19,236,840 15,997,309 10,796,987 8,051,372
Costs and expenses
involving cash:
Cost of sales:
Cellular service 25,060,634 17,184,198 5,583,536 5,121,737 3,033,825 2,509,440
Equipment sales 8,047,571 1,865,154 1,345,072 660,441 818,404 340,680
General and administrative 16,373,889 13,007,116 3,819,171 3,914,072 2,119,443 2,030,094
Marketing and selling 22,972,033 13,203,205 5,119,486 3,814,477 2,867,660 1,875,793
------------ ----------- ----------- ----------- ----------- -----------
Total cash costs
and expenses 72,454,127 45,259,673 15,867,265 13,510,727 8,839,332 6,756,007
------------ ----------- ----------- ----------- ----------- -----------
EBITDA $22,126,869 $ 9,783,652 $ 3,369,575 $ 2,486,582 $ 1,957,655 $ 1,295,365
============ =========== =========== =========== =========== ===========
Capital expenditures $35,174,267 $18,343,851 $ 9,545,666 $ 5,605,325 $ 5,539,806 $ 2,753,255
Subscriber count 174,930 78,984 32,208 22,845 19,126 11,198
Total markets 27 40 27 40 27 40
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------
1995 1994
-----------------------------
<S> <C> <C>
Reconciliation From Company Proportionate EBITDA to
Consolidated Reporting
Total proportionate EBITDA (managed and nonmanaged markets) $ 20,941,990 $ 11,497,182
Proportionate depreciation and amortization (13,285,237) (8,976,825)
Proportionate interest expense (9,230,944) (7,137,597)
Proportionate write-down of cellular system equipment - (2,513,136)
Equity in nonlicensee affiliates (5,079,493) (4,361,848)
Minority interests (578,810) (1,310,177)
Intercompany interest 6,819,980 5,021,225
Amortization of license costs not owned by affiliates (2,276,247) (1,892,465)
Unallocated corporate expenses (3,468,189) (2,516,017)
Gains on sales of affiliates 19,471,476 3,911,943
Interest expense (net) and other (13,252,559) (8,473,437)
------------ ------------
Consolidated net income (loss) $ 61,967 $(16,751,152)
============ ============
</TABLE>
_______________
(1) Includes 100% of the operating activity of all licensees, regardless of the
Company's owner-ship interest. This is essentially equivalent to
consolidating all licensees regardless of ownership percentage.
(2) Includes that percentage of a licensee's operating results which equals the
Company's ownership interest as well as the ownership interest held by
affiliates of the Company that are financed by CIFC.
(3) Includes only that percentage of a licensee's operating results which
corresponds to the Company's ownership interest. This is essentially
equivalent to a pro rata consolidation.
II-13
<PAGE>
The following table presents "Financed Proportionate" operating results
and other cash activity of the cellular licensees in which the Company holds an
interest, as well as incremental cash activity of the Company. Financed
Proportionate activity represents cash flows that are allocable to the Company
which, when received, will be used to pay the Company's obligations to CoBank.
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------
1995 1994
------------------------------
<S> <C> <C>
Revenues:
Cellular service (including in-roaming) $111,759,480 $ 77,592,351
Equipment sales 5,712,746 5,595,248
------------ ------------
Total revenues 117,472,226 83,187,599
Cash costs and expenses:
Cost of sales:
Cellular service (including in-roaming) 24,396,896 16,199,261
Equipment sales 9,068,675 5,539,590
General and administrative 26,909,367 23,940,335
Marketing and selling 29,761,916 22,261,974
------------ ------------
Total operating expenses 90,136,854 67,941,160
------------ ------------
EBITDA 27,335,372 15,246,439
Cash interest expense (net) (12,208,671) (9,731,301 )
Capital expenditures, including corporate (49,344,471) (54,764,909 )
Changes in operating assets and liabilities and other 1,132,971 (4,297,204)
------------ ------------
Cash used by financed cellular licensee affiliates (33,084,799) (53,546,975)
Acquisition activity involving cash 23,653,579 (4,954,672 )
Nonlicensee cash corporate expenses (2,485,779) (1,545,251 )
Changes to long-term debt and equity 29,654,555 16,573,567
------------ ------------
Change in cash and short-term investments $ 17,737,556 $(43,473,331)
============ ============
</TABLE>
II-14
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company are filed under
this item, beginning on page II-17. The consolidated financial statement
schedules required under Regulation S-X are filed pursuant to Item 14 of this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
II-15
<PAGE>
Report of Independent Auditors
------------------------------
The Board of Directors and Shareholders
CommNet Cellular Inc.
We have audited the accompanying consolidated balance sheets of CommNet Cellular
Inc. as of September 30, 1995 and 1994, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for each of the
three years in the period ended September 30, 1995. Our audits also included
the financial statement schedules listed in the Index at Item 14 (a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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
misstatement. 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, the consolidated financial statements listed in the accompanying
index to financial statements (Item 14 (a)) present fairly, in all material
respects, the consolidated financial position of CommNet Cellular Inc. at
September 30, 1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1995, in conformity with generally accepted accounting principles. Also, in our
opinion, the related 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.
ERNST & YOUNG LLP
Denver, Colorado
December 1, 1995, except for Note 14,
as to which the date is December 7, 1995
II-16
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS (Note 5) 1995 1994
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 41,017,845 $ 2,081,591
Available-for-sale securities (Note 3) - 21,198,698
Accounts receivable, net of allowance for doubtful
accounts of $1,957,810 and $2,677,124 in
1995 and 1994, respectively 13,673,168 13,591,217
Inventory and other 2,931,155 7,316,770
------------- -------------
Total current assets 57,622,168 44,188,276
Investment in and advances to affiliates (Notes
2 and 4) 56,918,738 61,908,761
Investment in cellular system equipment 5,426,686 9,732,075
Property and equipment, at cost (Note 7):
Cellular system equipment 107,433,095 79,215,294
Land, buildings and improvements 23,183,361 17,361,917
Furniture and equipment 18,636,304 14,796,494
------------- -------------
149,252,760 111,373,705
Less accumulated depreciation 43,963,285 31,455,978
------------- -------------
Net property and equipment 105,289,475 79,917,727
Other assets, less accumulated amortization
of $28,616,576 and $25,979,913 in 1995 and
1994, respectively:
FCC licenses and filing rights (Note 2) 92,349,639 80,458,461
Deferred loan costs and other 8,061,250 6,432,286
------------- -------------
Total other assets 100,410,889 86,890,747
------------- -------------
$325,667,956 $ 282,637,586
============= =============
</TABLE>
See accompanying notes.
II-17
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED BALANCE SHEETS (continued)
September 30, 1995 and 1994
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,266,607 $ 10,327,933
Accrued liabilities 4,861,608 4,325,914
Accrued interest 3,264,934 2,331,034
Current portion of long-term debt - 1,090,870
Obligation under capital leases due within
one year 318,188 588,025
------------- -------------
Total current liabilities 17,711,337 18,663,776
Long-term debt:
Secured bank financing (Note 5) 36,262,558 50,448,361
Obligation under capital leases due after one year
(Note 7) 449,230 785,082
11 3/4% senior subordinated discount
notes (Note 6) 126,644,799 112,979,725
11 1/4% subordinated notes (Note 6) 80,000,000 -
6 3/4% convertible subordinated debentures (Note 6) - 74,750,000
8.75% convertible subordinated notes (Note 6) 3,000,000 4,950,000
Minority interests 2,944,370 4,154,175
Commitments (Note 8)
Stockholders' equity
(Notes 2, 3, 5, 6, 10, 11 and 12):
Preferred Stock, $.01 par value; 1,000,000 shares
authorized; no shares issued - -
Common Stock, $.001 par value; 40,000,000 shares
authorized; 13,442,967 and 11,739,108 shares
issued at September 30, 1995
and 1994, respectively 13,443 11,739
Capital in excess of par value 159,381,589 117,146,376
Unrealized losses on available-for-sale
securities - (450,311)
Accumulated deficit (100,739,370) (100,801,337)
------------- -------------
Total stockholders' equity 58,655,662 15,906,467
------------- -------------
$ 325,667,956 $ 282,637,586
============= =============
</TABLE>
See accompanying notes.
II-18
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Cellular service $ 60,853,410 $ 39,211,428 $ 21,750,092
In-roaming 21,085,374 13,374,711 7,110,438
Equipment sales 7,905,335 8,773,912 4,828,781
------------- ------------- -------------
89,844,119 61,360,051 33,689,311
Costs and expenses:
Cellular operations:
Cost of cellular service 16,161,808 9,467,025 6,100,229
Cost of equipment sales 10,901,651 8,834,865 5,218,012
General and administrative 20,223,526 16,767,717 10,505,106
Marketing and selling 21,641,757 15,786,030 8,465,287
Depreciation and amortization 15,454,123 10,541,476 17,581,946
Write-down of property and equipment - 2,864,589 -
Corporate:
General and administrative 7,392,125 6,944,193 7,122,454
Depreciation and amortization 2,141,025 2,109,379 2,368,562
Write-down of property and equipment - 251,667 -
Less amounts allocated to nonconsolidated
affiliates (6,064,961) (6,537,555) (8,241,752)
------------- ------------- ------------
87,851,054 67,029,386 49,119,844
------------- ------------- -------------
Operating income (loss) 1,993,065 (5,669,335) (15,430,533)
Equity in net loss of affiliates (Note 4) (5,028,219) (5,092,484) (6,339,145)
Minority interest in net income of
consolidated affiliates (963,956) (543,607) -
Gains on sales of affiliates and other (Note 2) 19,471,476 3,911,943 7,821,424
Interest expense (26,043,802) (21,338,505) (16,427,796)
Interest income (Note 4) 13,045,660 12,080,836 10,701,511
------------- ------------- ------------
Income (loss) before income taxes and
extraordinary charge 2,474,224 (16,651,152) (19,674,539)
Income tax expense 400,000 100,000 -
------------- ------------- ------------
Income (loss) before extraordinary charge 2,074,224 (16,751,152) (19,674,539)
Extraordinary charge related to early
extinguishment of long-term debt
(Notes 5 and 6) (2,012,257) - (2,991,673)
============= ============= ============
Net income (loss) $ 61,967 $ (16,751,152) $(22,666,212)
============= ============= ============
Income (loss) per common share:
Income (loss) before extraordinary charge $ .17 $ (1.45) $ (2.30)
Extraordinary charge (.16) - (.35)
------------- ------------- ------------
Net income (loss) per common share $ .01 $ (1.45) $ (2.65)
============= ============= ============
Weighted average shares outstanding 12,153,592 11,577,191 8,551,785
============= ============= ============
</TABLE>
See accompanying notes.
II-19
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended September 30, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Capital in
Common Stock Excess of Unrealized Accumulated
Shares Amount Par Value Gains (Losses) Deficit
------------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
September 30, 1992 8,311,792 $8,312 $65,615,549 $ - $(61,383,973)
Exercise of options 35,000 35 636,077 - -
Issuance of Common
Stock - acquisitions (Note 2) 405,226 405 5,942,965 - -
Issuance of Common
Stock - ESOP (Note 11) 17,232 17 297,235 - -
Debenture conversion 142,329 142 2,127,677 - -
Net loss - - - - (22,666,212)
------------- ------------- ------------ -------------- -------------
Balance at
September 30, 1993 8,911,579 8,911 74,619,503 - (84,050,185)
Exercise of options 121,250 122 1,478,587 - -
Issuance of Common
Stock - acquisitions (Note 2) 156,132 156 2,761,396 - -
Issuance of Common
Stock - ESOP (Note 11) 20,953 21 477,969 - -
Debenture conversion (Note 6) 2,529,194 2,529 37,808,921 - -
Unrealized losses (Note 3) - - - (450,311) -
Net loss - - - - (16,751,152)
------------- ------------- ------------ -------------- -------------
Balance at
September 30, 1994 11,739,108 11,739 117,146,376 (450,311) (100,801,337)
Exercise of options 101,875 102 815,192 - -
Debenture conversion (Note 6) 1,320,785 1,321 34,088,451 - -
Issuance of Common
Stock - acquisitions (Note 2) 262,178 262 6,779,980 - -
Issuance of Common
Stock - ESOP (Note 11) 19,021 19 551,590 - -
Reversal of unrealized
losses (Note 3) - - - 450,311 -
Net income - - - - 61,967
------------- ------------- ------------ -------------- -------------
Balance at
September 30, 1995 13,442,967 $13,443 $159,381,589 $ - $(100,739,370)
============= ============= ============ ============== =============
</TABLE>
See accompanying notes.
II-20
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 61,967 $(16,751,152) $(22,666,212)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Extraordinary charge related to early
extinguishment of long-term debt 2,012,257 - 2,991,673
Minority interests 963,956 543,607 -
Compensation expense related
to ESOP and option grants 551,609 477,990 554,648
Depreciation and amortization 17,595,148 12,650,855 19,950,508
Equity in net loss of affiliates 5,028,219 5,092,484 6,339,145
Gains on sales of affiliates and other (19,471,476) (3,911,943) (7,821,424)
Interest expense on 11 3/4%
senior discount notes 13,665,074 12,133,155 846,205
CoBank patronage income (534,690) (814,837) (719,005)
Accrued interest on advances to affiliates (11,247,128) (11,380,231) (9,542,484)
Write-down of property and equipment - 3,116,256 -
Write-down of short-term investments - 743,511 -
Loss on sale of short-term investments 221,598 - -
Change in operating assets and liabilities,
net of effects from consolidating acquired
interests (Note 2):
Accounts receivable 927,342 (3,797,083) (3,954,727)
Inventory and other 4,386,710 (4,363,083) (789,336)
Accounts payable and accrued liabilities (1,026,349) (245,557) 2,602,049
Accrued interest 933,900 (663,529) 126,982
---------- ---------- ----------
Net cash provided (used) by operating activities 14,068,137 (7,169,557) (12,081,978)
</TABLE>
See accompanying notes.
II-21
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Investing activities:
Purchases of available-for-sale securities $ (82,109) $(16,788,067) $(28,994,122)
Sales of available-for-sale securities 21,509,520 15,488,406 21,692,323
Additions to investments in and
advances to affiliates (6,016,550) (6,789,273) (9,274,470)
Reductions in (additions to) investment in
cellular system equipment 4,305,389 (5,365,713) 98,370
Additions to property and equipment (36,101,726) (31,455,008) (7,547,311)
Additions to other assets (239,896) - (1,057,834)
Proceeds from sales of interests in
affiliates (Note 2) 26,140,199 9,037,328 7,334,198
Purchase of interests in affiliates, net
of cash acquired and net of assets
and liabilities recorded due to
consolidation (Note 2) (2,486,620) (13,992,000) (12,082,316)
------------- ------------- ------------
Net cash provided (used) by investing
activities 7,028,207 (49,864,327) (29,831,162)
</TABLE>
See accompanying notes.
II-22
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Financing activities:
Proceeds from secured bank financing $ 23,366,240 $ 13,779,086 $ 38,566,144
Payments of secured bank financing (38,642,913) (2,629,888) (74,195,558)
Extraordinary charge related to early
extinguishment of long-term debt (1,130,004) - (2,991,673)
Loan fees and offering costs related
to long-term debt (1,511,018) - -
Additions (reductions) of obligation
under capital leases (605,689) 826,807 (163,989)
Issuance of senior discount notes - - 96,739,604
Issuance of convertible subordinated
notes - - 4,705,000
Issuance of subordinated notes 77,400,000 - -
Redemption of convertible subordinated
debentures (41,852,000) - -
Issuance of Common Stock, net of
offering costs 815,294 1,478,709 378,716
------------- ------------- --------------
Net cash provided by financing activities 17,839,910 13,454,714 63,038,244
------------- ------------- --------------
Net increase (decrease) in cash and
cash equivalents 38,936,254 (43,579,170) 21,125,104
------------- ------------- --------------
Cash and cash equivalents at beginning
of year 2,081,591 45,660,761 24,535,657
------------- ------------- --------------
Cash and cash equivalents at end of year $ 41,017,845 $ 2,081,591 $ 45,660,761
============= ============= ==============
</TABLE>
See accompanying notes.
II-23
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended September 30, 1995, 1994 and 1993
Supplemental schedule of additional cash flow information and noncash
activities:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for interest $12,208,671 $ 9,731,301 $15,454,609
Purchase of cellular system equipment
through accounts payable 4,234,597 4,112,406 1,158,791
Impact on investments and advances to
affiliates from minority interest recorded
due to reorganization of eight Nebraska
affiliates, six of which were accounted for
under the equity method, into one
consolidated Nebraska affiliate - - 1,839,571
Purchases of interests in affiliates by
issuance of Common Stock 6,780,242 2,761,552 6,532,467
Conversion of convertible subordinated
debentures to Common Stock 34,089,772 37,811,450 2,127,819
Additions to deferred loan costs related
to 11 3/4% senior discount notes and
8.75% convertible subordinated
notes - - 3,505,761
Additions to deferred loan costs related
to 11 1/4% subordinated notes 2,600,000 - -
Write-off of offering costs included in
extraordinary loss on early extinguish-
ment of long-term debt 882,253 - -
</TABLE>
See accompanying notes.
II-24
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
------------------------------------------
Organization and basis of presentation
CommNet Cellular Inc. and its majority-owned affiliates (the "Company")
operates, manages and finances cellular telephone systems principally in the
mountain and plains regions of the United States. Cellular telephone systems are
capable of providing a wide variety of telecommunication services including high
quality wireless local and long-distance telephone service within a specified
market area through mobile, portable or fixed telephone equipment.
The Federal Communications Commission ("FCC") initially granted only two
licenses in each cellular market area, one to a telephone company with an
exchange presence in the area ("wireline" license), and one to an entity other
than a telephone company ("nonwireline" license).
The Company initially acquired its cellular interests by participating in
the wireline licensing process conducted by the FCC. In order to participate in
that process, the Company formed affiliates which were originally owned at least
51% by one or more independent telephone companies and no more than 49% by the
Company. In addition to obtaining interests in cellular markets through
participation in the FCC licensing process, the Company also has purchased
direct interests in additional markets in order to expand the network.
All affiliate investments in which the Company has greater than a 50%
interest are consolidated. All affiliate investments in which the Company has a
50% or less but 20% or greater interest are accounted for under the equity
method. All affiliate investments in which the Company has less than a 20%
interest are accounted for under the cost method.
The Company and its affiliates participated in the following markets as of
September 30, 1995:
<TABLE>
<CAPTION>
Net Company
MSA or Interest in
RSA Code (1) State Licensee (2)
------------ ------------------------- ------------
<S> <C> <C>
MSAs: 141 Minnesota 8.01%
185 Indiana 16.67%
241 Colorado 73.99%
253 Iowa 74.50%
267 South Dakota 51.00%
268 Montana 54.10%
279 Maine 11.11%
289 South Dakota 100.00%
297 Montana 100.00%
298 North Dakota 70.00%
</TABLE>
II-25
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
------------------------------------------
Organization and basis of presentation (continued)
<TABLE>
<CAPTION>
Net Company
MSA or Interest in
RSA Code (1) State Licensee (2)
------------ ------------------------- ------------
<S> <C> <C>
RSAs: 348 Colorado 10.00%
349 Colorado 61.75%
351 Colorado 61.75%
352 Colorado 66.00%
353 Colorado 100.00%
354 Colorado 69.40%
355 Colorado 49.00%
356 Colorado 49.00%
389 Idaho 50.00%
390 Idaho 33.33%
392 Idaho (B1) 100.00%
393 Idaho 91.64%
415 Iowa 10.11%
416 Iowa 38.50%
417 Iowa 100.00%
419 Iowa 44.92%
420 Iowa 100.00%
424 Iowa 17.15%
425 Iowa 13.28%
426 Iowa 49.14%
427 Iowa 49.17%
428 Kansas 3.07%
429 Kansas 3.07%
430 Kansas 3.07%
431 Kansas 3.07%
432 Kansas 3.07%
433 Kansas 3.07%
434 Kansas 3.07%
435 Kansas 3.07%
436 Kansas 3.07%
437 Kansas 3.07%
438 Kansas 3.07%
439 Kansas 3.07%
440 Kansas 3.07%
441 Kansas 3.07%
442 Kansas 3.07%
512 Missouri (B1) 14.70%
523 Montana (B1) 100.00%
523 Montana (B2) 98.76%
524 Montana 61.75%
525 Montana 69.40%
526 Montana 100.00%
</TABLE>
II-26
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
------------------------------------------
Organization and basis of presentation (continued)
<TABLE>
<CAPTION>
Net Company
MSA or Interest in
RSA Code (1) State Licensee (2)
------------ ------------------------- ------------
<S> <C> <C>
527 Montana 100.00%
528 Montana 61.75%
529 Montana 74.50%
530 Montana 61.75%
531 Montana 100.00%
532 Montana 100.00%
553 New Mexico 16.33%
555 New Mexico 12.25%
557 New Mexico 16.33%
580 North Dakota 52.76%
581 North Dakota 49.00%
582 North Dakota 41.45%
583 North Dakota 49.00%
584 North Dakota 61.75%
634 South Dakota 100.00%
635 South Dakota 56.29%
636 South Dakota 57.50%
638 South Dakota(B1) 100.00%
638 South Dakota(B2) 100.00%
639 South Dakota(B1) 61.75%
639 South Dakota(B2) 61.75%
640 South Dakota 64.49%
641 South Dakota 61.13%
642 South Dakota 49.00%
675 Utah 100.00%
676 Utah 100.00%
677 Utah (B3) 100.00%
678 Utah 80.00%
718 Wyoming 66.00%
719 Wyoming 100.00%
720 Wyoming 100.00%
</TABLE>
(1) Metropolitan Statistical Area ("MSA") ranking is based on population
as established by the FCC. Rural Service Areas ("RSAs") have been
numbered by the FCC alphabetically by state.
(2) Represents the net ownership interest held by the Company in the
licensee for the respective market.
II-27
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
------------------------------------------
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned affiliates. All significant intercompany transactions
have been eliminated.
Minority interests, occurring only when other stockholders or partners
provide funding to the affiliates, is classified with noncurrent liabilities in
the accompanying balance sheets. For all other majority-owned affiliates, the
Company records all operating losses given that the minority interests have no
funding obligations. At such time as the cumulative net income attributed to
these nonfunding minority interests exceeds the cumulative net losses previously
absorbed, the Company will record a minority interest liability for such
entities.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Short-term investments
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," as of September 30, 1994. In accordance with the Statement, prior
period financial statements have not been restated to reflect the change in
accounting principle. The cumulative effect as of September 30, 1994 of adopting
Statement 115, including the reversal of $450,311 of lower of cost or market
adjustments recorded that year, decreased net loss by $450,311. The ending
balance of shareholders equity also was decreased by $450,311 to reflect the
net unrealized holding loss on securities classified as available-for-sale that
were previously classified as held for investment and held for sale, and carried
at amortized cost and lower of cost or market, respectively. The Company holds
no short-term investments at September 30, 1995.
Accounts receivable
The Company performs credit evaluations of its customers' financial
condition prior to initial activation and generally does not require collateral.
Receivables generally are due within 30 days. Credit losses relating to the
Company's customers consistently have been within management's expectations.
The Company's provision for doubtful accounts receivable was approximately
$5,096,000, $3,372,000 and $1,077,000 for the years ended September 30, 1995,
1994 and 1993, respectively.
Inventory
Inventories are stated at the lower of cost (first-in, first-out) or market
and are comprised of cellular communication equipment and accessories held for
resale to the Company's subscribers.
Investment in cellular system equipment
Investment in cellular system equipment relates to cellular system
equipment under construction or held in inventory at the Company's warehouse
facility.
II-28
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
------------------------------------------
During the year ended September 30, 1994, the Company replaced and upgraded
certain cellular system equipment. As a result, the Company realized a loss of
$3,116,000 representing the excess of net book over realizable value.
Property and equipment
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
----------------------------------------------------------
Long-Lived Assets to be Disposed of, which requires impairment losses to be
- -----------------------------------
recorded on long-lived assets used in operations when indicators of impairment
are present. The Company is required to adopt Statement 121 in the first
quarter of fiscal year 1997 and, based on current circumstances, does not
believe the effect of adoption will be material.
Deferred loan costs
Deferred loan costs relate to the offerings of senior notes and convertible
subordinated debentures and to the CoBank loan agreements (see Notes 5 and 6).
These costs are being amortized over the respective terms of the debentures,
notes and loans.
FCC licenses and filing rights
FCC licenses represent the costs of the FCC licenses acquired by
consolidated affiliates. Filing rights represent costs associated with
acquiring the rights to file for cellular telephone licenses. The excess of the
purchase price of affiliate interests acquired over the fair market value of the
related net assets acquired is included as the cost of FCC licenses and filing
rights.
Effective October 1, 1993, the Company revised its estimate of the useful
life of FCC license acquisition costs from the remaining initial ten-year term
to 40 years from the date of acquisition to conform with industry practices.
This change in estimate was accounted for prospectively and resulted in a
reduction of amortization expense for the years ended September 30, 1995 and
1994 of approximately $10,645,000 and $11,024,000, or $.88 and $.95 per common
share, respectively.
Revenue recognition
Cellular service revenues based upon subscriber usage are recognized at the
time service is provided. Access and special feature cellular service revenues
are recognized when earned. Equipment sales are recognized at the time
equipment is delivered to the subscriber or to an unaffiliated agent.
Depreciation and amortization
Depreciation of property and equipment is provided principally on the
straight-line method over estimated useful lives as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Cellular system equipment 8-15
Building and improvements 6-10
Furniture and equipment 3-5
</TABLE>
II-29
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
------------------------------------------
Cost allocations
The Company allocates shared operating costs to its managed affiliates.
Costs which bear an identifiable causal relationship are allocated directly to
the affiliate. Indirect costs are allocated based on a methodology negotiated
with the affiliates and applied consistently to all managed markets. This
methodology allocates functional cost pools on a pro rata basis taking into
consideration total property, plant and equipment, population, subscribers and
other attributes of the managed markets. In addition, effective October 1,
1993, and for all comparative periods presented, the Company reclassified
allocated cellular operations depreciation from cellular operations cost of
cellular service, general and administrative and marketing and selling to
cellular operations depreciation and amortization. This change does not impact
operating or net loss.
The Company incurs certain overhead costs related to expansion. As a
result, the Company capitalized $2,536,000 and $3,991,000 for the years ended
September 30, 1995 and 1994, respectively, which is included in property and
equipment, and investment in cellular system equipment. In addition, the
Company allocated $816,000 and $713,000 to nonconsolidated affiliates for the
years ended September 30, 1995 and 1994, respectively. Overhead costs
capitalized and allocated to nonconsolidated affiliates were not material for
the year ended September 30, 1993.
Advertising
The Company expenses advertising costs as incurred. Advertising expense
was approximately $2,624,000, $2,370,000 and $1,275,000 for the years ended
September 30, 1995, 1994 and 1993, respectively.
Income taxes
Effective October 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
No. 109, "Accounting for Income Taxes" (see Note 9 - "Income taxes").
Earnings per common share
Net income (loss) per common share is based on the weighted average number
of common shares outstanding during the periods. Common Stock equivalents
consist of employee stock options. The difference between earnings per common
share and primary earnings per share is insignificant. Fully diluted earnings
per share are not presented because conversion of the convertible subordinated
debentures and notes would be anti-dilutive. The convertible subordinated
debentures and notes are not considered to be Common Stock equivalents.
Certain reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform with the 1995 financial statement presentation.
II-30
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business acquisitions and dispositions
--------------------------------------
1993
In December 1992, the Company acquired from U S West NewVector its 70%
general partner interest in the licensee for MSA 298 (Bismarck, North Dakota),
its 51% general partner interest in the licensee for MSA 267 (Sioux Falls, South
Dakota) and its 16.66% general partner interest in the licensee for RSA 642
(South Dakota 9). The aggregate purchase price was approximately $10,800,000
paid in cash by the Company. In May 1993, the remaining partners in the
licensee for RSA 642 exercised an option to purchase such interest and paid the
Company a total of $1,074,000 in cash.
In December 1992, the Company acquired an additional 16.07% interest in the
licensee for RSA 640 (South Dakota 7) and an additional 11.28% interest in the
licensee for RSA 641 (South Dakota 8) for approximately $469,000 which was paid
by the issuance of 31,491 shares of Common Stock of the Company.
In December 1992, the Company acquired the outstanding shares of a
corporation which is a limited partner in two Colorado MSA markets for 40,252
shares of Common Stock valued at approximately $563,000. In December 1992, the
Company also acquired the 51% general partner interest in the affiliate which
was a limited partner in one Utah RSA market for $1,261,000 paid by the issuance
of 43,025 shares of Common Stock and $615,000 in cash. In February 1993, the
Company acquired the outstanding shares of two affiliates which were limited
partners in two Colorado MSA markets for 94,811 shares of Common Stock valued at
approximately $1,268,000. The Company subsequently transferred such affiliates'
interest in certain licensees to U S West NewVector pursuant to the multimarket
exchange discussed below.
In March 1993, the Company completed a multimarket exchange with U S West
NewVector in which the Company transferred to U S West NewVector the Company's
interest in one nonmanaged RSA market and two nonmanaged MSA markets in exchange
for U S West NewVector's interest in seven RSA markets and one MSA market
managed by the Company plus approximately $3,418,000 in cash. The exchange
resulted in a gain to the Company of approximately $3,812,000.
In March 1993, the Company acquired all of the outstanding shares of a
corporation which is the 51% general partner of the affiliate which is the 50%
general partner of the wireline licensee for RSA 353 (Colorado 6) for $228,000
in cash.
In June 1993, RSA 392 (Idaho 5) was partitioned by the FCC into two markets
and the Company exchanged its 78.55% interest in the Sun Valley (B2) portion of
the market for U S West NewVector's 21.45% interest in the Twin Falls (B1)
portion of the market and $12,000 in cash.
In August 1993, the Company transferred its interest in two affiliates
which held interests in one nonmanaged RSA market and one managed MSA market in
exchange for a 98.11% interest in an RSA market which will be managed by the
Company and $3,916,000 in cash pursuant to an exchange agreement with Pacific
Telecom Cellular, Inc. In order to fulfill its obligations under the agreement,
the Company acquired the outstanding shares of four corporations for
approximately $3,499,000 paid by the issuance of 194,474 shares of Common Stock
of the Company and approximately $478,000 in cash. The exchange resulted in a
gain to the Company of approximately $4,889,000. The agreement also provided
for the sale by the Company of its interest in two additional affiliates which
held interests in nonmanaged RSA markets. The sale of one interest was
II-31
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business acquisitions and dispositions (continued)
--------------------------------------
consummated in December 1993. The Company transferred the second interest to a
partner in that market pursuant to a judgment in January 1995.
1994
In December 1993, the Company acquired 100% of the stock of a corporation
which owns and operates the Rapid City, South Dakota MSA market and owns general
partnership interests in two partitioned RSA markets (South Dakota 5 (B2) and
South Dakota 6 (B2)) for approximately $10,420,000 in cash plus property valued
at approximately $400,000.
In December 1993, the Company sold its interests in affiliates which held a
44.44% limited partnership interest in the wireline licensee for RSA 608 (Oregon
3) for approximately $2,076,000 in cash. The sale resulted in a gain of
approximately $630,000.
In December 1993, the Company acquired additional interests in two
affiliated corporations for approximately $139,000.
In February 1994, the Company acquired an additional 51% of the stock of an
affiliate which held a 28.6% limited partnership interest in MSA 239 (Joplin,
MO) for 69,051 shares of the Company's Common Stock, then sold the Company's
entire limited partnership interest for $4,494,000 in cash. The sale resulted
in a gain of approximately $1,921,000.
In March 1994, the Company acquired an additional interest in an affiliated
corporation for 2,732 shares of the Company's Common Stock.
In April 1994, the Company acquired three affiliated corporations which
hold limited partnership interests in Utah RSA managed markets for 80,145 shares
of the Company's Common Stock.
In May 1994, the Company sold its interest in an affiliate which held an
8.125% limited partnership interest in three nonmanaged RSA markets for
approximately $2,468,000 in cash. The sale resulted in a gain of approximately
$841,000. Contemporaneously, the Company acquired additional limited
partnership interests in four managed RSA markets for approximately $373,000.
In July 1994, the Company acquired an additional interest in an affiliated
corporation for approximately $199,000 in cash.
In August 1994, the Company acquired an aggregate of 3.07% of the stock of
a corporation which operates cellular systems throughout Kansas from two
unrelated corporations for approximately $3,000,000 in cash.
During fiscal year 1994, the Company recognized a gain of approximately
$907,000 due to the write-off of contingent liabilities related to stock price
guarantees in acquisition agreements.
1995
In November 1994, the Company purchased an additional 5.97% interest in
Nebwest Cellular, Inc. for $1,600,000 in cash. Pursuant to the terms of a
shareholder's agreement, the Company subsequently sold a portion of that
interest to the other shareholders on a pro rata basis
II-32
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business acquisitions and dispositions (continued)
--------------------------------------
for approximately $450,000 in cash. In February 1995, the Company purchased an
additional 3.37% interest in this corporation for 34,688 shares of the Company's
Common Stock. In March 1995, the Company purchased an additional 2.57% interest
in this corporation for 28,638 shares of the Company's Common Stock. In July
1995, the Company sold its 61.50% interest in Nebwest Cellular, Inc. which owned
25.52% of Nebraska Cellular Telephone Corporation, the licensee for the ten
wireline RSA markets in the state of Nebraska, for approximately $24,300,000
which resulted in a gain after tax of approximately $19,600,000.
In January 1995, the Company sold a wholly-owned subsidiary for
approximately $86,000 which resulted in a loss of approximately $297,000.
In January 1995, the Company transferred its 25% interest in one nonmanaged
RSA market to a partner in that market pursuant to a judgment. The judgment is
currently being appealed. The Company received approximately $1,699,000 upon
transfer of the interest which resulted in a gain of approximately $497,000.
In February 1995, the Company purchased additional interests ranging from
2% to 41% in eleven managed and one nonmanaged markets for approximately
$1,259,000 in cash and the issuance of 49,738 shares of the Company's Common
Stock.
In May and June 1995, the Company acquired additional interests ranging
from 17% to 51% in two managed markets and two nonmanaged markets for an
aggregate of 138,168 shares of the Company's Common Stock.
In August and September 1995, the Company acquired additional interests
ranging from 3% to 26% in two managed markets for 3,592 shares of the Company's
Common Stock and approximately $38,000 in cash.
Each of the above acquisitions was accounted for using the purchase method
of accounting. The applicable results of operations of the acquired interests
have been included in the Company's consolidated statements of operations from
the respective acquisition dates.
The following represents the pro forma results of operations as if the
above noted acquisitions and dispositions had occurred at the beginning of the
respective period in which the acquisition or disposition occurred, as well as
at the beginning of the immediately preceding period:
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues $92,154,465 $67,287,028 $41,241,051
Equity in net loss of affiliates (5,169,526) (3,887,630) (4,854,046)
Income (loss) before extraordinary
charge 887,151 1,096,656 (17,028,171)
Net income (loss) (1,125,106) 1,096,656 (20,019,844)
Net income (loss) per common share (.09) .09 (2.25)
</TABLE>
In November 1995, the Company purchased additional interests ranging from
18% to 19% in three managed markets for 28,283 shares of the Company's Common
Stock.
II-33
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Short-term investments
----------------------
On September 30, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," and classified all short-
term investments as available-for-sale.
The following is a summary of available-for-sale securities at September
30, 1994:
<TABLE>
<CAPTION>
Available-for-Sale Securities
----------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. treasury securities $ 9,182,412 $ - $ 242,151 $ 8,940,261
and obligations of U.S.
government agencies
U.S. government treasuries 11,500,000 - 184,098 11,315,902
and agencies funds
U.S. corporate bonds 966,597 - 24,062 942,535
------------- ------------- ------------- -------------
$21,649,009 $ - $ 450,311 $21,198,698
============= ============= ============= =============
</TABLE>
The gross realized loss on sales of available-for-sale securities totaled
$222,000 and $744,000 for the years ended September 30, 1995 and 1994,
respectively. The net adjustment to unrealized holding losses on available-for-
sale securities included as a separate component of shareholders' equity totaled
$450,000 as of September 30, 1994. The Company had no available-for-sale
securities at September 30, 1995, and accordingly, there was no unrealized
holding gain (loss).
4. Investment in and advances to affiliates
----------------------------------------
Investment in and advances to the Company's nonconsolidated affiliates
consisted of the following:
<TABLE>
<CAPTION>
September 30,
-------------
1995 1994
---- ----
<S> <C> <C>
Investment $13,144,941 $12,605,395
Equity in loss - cumulative (23,399,231) (24,049,632)
Advances and other 67,173,028 73,352,998
----------- -----------
$56,918,738 $61,908,761
=========== ===========
</TABLE>
II-34
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investment in and advances to affiliates (continued)
----------------------------------------
The combined financial position of the nonconsolidated affiliates is as
follows:
<TABLE>
<CAPTION>
September 30,
-------------
1995 1994
---- ----
<S> <C> <C>
Current assets $ 2,928,727 $ 8,597,246
Investment in affiliated limited partnerships 13,188,571 10,446,767
Property and equipment, net of accumulated
depreciation 14,268,552 33,162,750
Other assets 2,599,814 4,079,497
------------ ------------
Total assets $ 32,985,664 $ 56,286,260
============ ============
Due to CommNet Cellular Inc. $ 8,592,946 $ 11,981,737
Due to Cellular, Inc. Financial Corporation 54,410,718 55,428,739
Other liabilities 5,783,090 21,389,471
Minority interests 565,259 859,823
Stockholders' deficit (36,366,349) (33,373,510)
------------ ------------
Total liabilities and stockholders' deficit $ 32,985,664 $ 56,286,260
============ ============
</TABLE>
Combined operations of these nonconsolidated affiliates are summarized as
follows:
<TABLE>
<CAPTION>
Year ended September 30,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues $ 14,260,074 $ 42,160,218 $ 27,121,816
Operating costs (23,345,038) (50,519,584) (36,205,918)
Minority interests (3,572) 7,333 324,259
Equity in income (loss) of
affiliates (4,110) 369,495 (660,397)
------------ ------------ ------------
Net loss $ (9,092,646) $ (7,982,538) $ (9,420,240)
============ ============ ============
</TABLE>
Interest income from affiliates on advances was $11,247,128, $11,380,231
and $9,542,484 for the years ended September 30, 1995, 1994 and 1993,
respectively.
Certain advances to affiliates bear interest at the prime rate of Norwest
Bank (8.75% at September 30, 1995, 7.75% at September 30, 1994 and 6% at
September 30, 1993) plus 2%. These advances to and receivables from affiliates
are temporary. They are generally refinanced under loan agreements with CIFC.
The CIFC loans bear interest at 1% over CIFC's average cost of borrowing from
CoBank and will be repaid from income derived from the operation of the cellular
system or income derived from the affiliates' interest in the partnership
providing cellular service.
II-35
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Secured bank financing
----------------------
Secured bank financing consists of the following:
<TABLE>
<CAPTION>
September 30,
-------------
1995 1994
---- ----
<S> <C> <C>
Secured bank financing due December 31, 2000,
interest only payable quarterly through December 31,
1996, thereafter quarterly principal and interest
payments payable through maturity $36,262,558 $47,516,124
Secured bank financing (MSA switch loans) - 2,476,577
Secured bank financing (RSA switch loans) - 1,546,530
----------- -----------
36,262,558 51,539,231
Less current portion - (1,090,870)
----------- -----------
Totals $36,262,558 $50,448,361
=========== ===========
</TABLE>
The bank credit agreement is between CIFC and CoBank. Under the terms of
this agreement, CoBank has agreed to loan to CIFC a maximum of $165,000,000
($130,000,000 at September 30, 1994) to be reloaned by CIFC to affiliates of the
Company for the construction, operation and expansion of cellular telephone
systems, including $25,000,000 for the acquisition of cellular systems.
Interest is payable at either the prime rate plus 1.00% for variable rate loans
(9.75% and 8.75% at September 30, 1995 and 1994, respectively) or LIBOR (London
InterBank Offered Rate) plus 2.50% for fixed rate loans (8.53% and 6.02% at the
six-month rate at September 30, 1995 and 1994, respectively). CIFC continues to
maintain fixed interest rates on $35,090,000 of loans terminating in 1996 at an
average rate of 10.9%. The loans are secured by a first lien on all assets of
CIFC, as well as all assets of each of the affiliates to which loans are made by
CIFC. CIFC's assets totaled approximately $242,275,000 and $197,100,000 at
September 30, 1995 and 1994, respectively. In addition, the Company has
guaranteed the obligations of CIFC to CoBank and has granted CoBank a first
security interest in all of the assets of the Company as security for such
guaranty. A commitment fee of .5% per annum is payable by CIFC to CoBank on the
average daily unborrowed commitment.
On September 8, 1993, CIFC paid down $57.1 million of its outstanding loans
from CoBank. The loan repayment was funded by an advance from the Company, the
proceeds of which were provided by the issuance of senior subordinated discount
notes (see Note 6). As a result of this repayment, CIFC terminated all but one
$2.5 million interest rate swap agreement previously entered into with CoBank,
which resulted in an extraordinary charge of $2,992,000 in the fiscal year ended
September 30, 1993. The remaining swap agreement was entered into on July 1,
1993
II-36
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Secured bank financing (continued)
----------------------
for a three-year period ending July 1, 1996. The swap agreement requires CIFC
to pay a fixed rate of 7.01% over the term of the swap, and CoBank to pay a
floating rate of prime (8.75% and 7.75% at September 30, 1995 and 1994,
respectively.)
The Credit Agreement prohibits the payment of cash dividends, prohibits any
other senior borrowings, limits the use of borrowings, restricts expenditures
for certain acquisitions and investments, requires positive working capital and
requires the maintenance of certain liquidity, capitalization, debt, debt
service and cash interest ratios. The requirements of the Credit Agreement were
established in relation to the anticipated capital and financing needs of the
Company's affiliates and their anticipated results of operations. The Company is
currently in compliance with all covenants and anticipates it will continue to
meet the requirements of the Credit Agreement. CoBank acts as agent for a
syndicate of lenders whose approval may be required for waivers or other
amendments to the Credit Agreement requested by CIFC or the Company.
Aggregate maturities of the secured bank financing for each of the next
five years ending September 30 are as follows: 1996 - $0; 1997 - $2,715,769;
1998 - $6,336,795; 1999 - $9,052,564; 2000 - $11,768,333; 2001 - $6,389,097.
6. Senior and subordinated debt
----------------------------
In August 1989, the Company completed a public offering of $74,750,000
aggregate principal amount of 6 3/4% Convertible Subordinated Debentures due
2009. The debentures were convertible at any time prior to maturity, unless
previously redeemed or repurchased, into Common Stock of the Company at a
conversion price of $27 5/8 per share, subject to adjustment under certain
conditions. During the first fiscal quarter of 1995, $3,000 of the debentures
were converted into 108 shares of the Company's Common Stock. In July 1995, the
Company called all outstanding 6 3/4% debentures for redemption. As a result,
$32,895,000 of the debentures were converted into 1,190,673 shares of the
Company's Common Stock, and $41,852,000 were redeemed for cash. The Company
redeemed the debentures at a price of 102.7% resulting in a premium of
$1,130,004. In addition, the Company wrote off $882,253 in offering costs
previously capitalized. As a result of the redemption, the Company recognized
an extraordinary charge related to early extinguishment of long-term debt of
$2,012,257. The Company also charged $758,228 of offering costs against capital
in excess of par value as a result of the conversion.
In May 1990, the Company completed an offering of $40,000,000 in aggregate
principal amount of 8% Convertible Subordinated Debentures due 2000. The 8%
debentures were convertible at any time prior to maturity, unless previously
redeemed or repurchased, into Common Stock of the Company at a conversion price
of $14.95 per share, subject to adjustment under certain circumstances. On
September 8, 1993, the Company called all outstanding 8% debentures for
redemption. As of September 30, 1993, $2,127,800 of the debentures had been
converted into 142,329 shares of the Company's Common Stock. In October 1993,
the remaining $37,812,200 of 8% debentures were converted into 2,529,194 shares
of the Company's Common Stock, and the Company paid approximately $60,000 to the
remaining holders of the debentures.
II-37
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Senior and subordinated debt (continued)
----------------------------
In January 1993, the Company completed a private placement of $4,950,000 of
8.75% Convertible Senior Subordinated Notes Due 2001. The notes are general
unsecured obligations of the Company and are subordinate in right of payment to
all Senior Debt of the Company. The note holders may convert the notes into
shares of the Company's Common Stock at the price of $15.00 per share. In
September 1995, $1,950,000 of the debentures were converted into 130,004 shares
of the Company's Common Stock. Had this conversion and the conversion of the 6
3/4% Convertible Subordinated Debentures occurred at the beginning of the year,
earnings per share would have increased from $.01 to $.14.
In September 1993, the Company completed an offering of $176,651,000
aggregate principal amount of 11 3/4% Senior Subordinated Discount Notes Due
2003. The notes were issued at a substantial discount from their principal
amount resulting in gross proceeds to the Company of approximately $100,000,000.
After deducting offering costs, net proceeds were approximately $96,740,000. The
notes are general unsecured obligations of the Company and are subordinate in
right of payment to all Senior Debt of the Company.
Commencing September 1, 1998, interest will accrue until maturity on the
notes at the rate of 11 3/4% per annum. Interest on the discount notes is
payable semi-annually on March 1 and September 1, commencing March 1, 1999. The
discount notes mature on September 1, 2003 and are redeemable commencing
September 1, 1998, in whole at any time or in part from time to time, at the
option of the Company at the redemption prices (together with accrued interest)
of 105.87% if redeemed in 1998 decreasing to 101.46% of the principal amount in
2001. The discount note holders may require the Company to repurchase the
discount notes, in whole or in part, in certain instances constituting a change
of control of the Company.
In July 1995, the Company completed an offering of $80,000,000 in aggregate
principal amount of 11 1/4% Subordinated Notes due 2005. The notes are
subordinated to all existing and future Senior Debt of the Company. Interest on
the notes accrues from the original date of issuance at the rate of 11 1/4% per
annum. Interest is payable in cash semi-annually on each January 1 and July 1,
commencing January 1, 1996. The notes mature on July 1, 2005 and are redeemable
in whole or in part from time to time, at the option of the Company, at any time
on or after July 1, 2000 at the redemption prices of 106% if redeemed in 2000
decreasing to 101.5% of the principal amount in 2003. The note holders may
require the Company to repurchase the notes, in whole or in part, in certain
instances constituting a change of control of the Company at a price equal to
101% of the principal amount,.
The Company has reserved the appropriate number of shares for any
conversions prior to redemption on the convertible debt issue.
II-38
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Capital leases
--------------
The Company leases assets, primarily computer equipment, under capital
leases of $2,466,711 (less accumulated depreciation of $1,435,942) at September
30, 1995.
Future minimum lease payments under capital leases at September 30, 1995
are as follows:
<TABLE>
<S> <C>
1996 $ 346,946
1997 285,979
1998 179,991
----------
812,916
Less amount representing interest
and sales tax 45,498
----------
767,418
Obligation under capital leases due
within one year 318,188
----------
$ 449,230
==========
</TABLE>
8. Commitments
-----------
The Company leases office space and equipment under agreements which
provide for rental payments based on lapse of time. Rent expense was
$2,410,083, $1,366,169 and $1,135,849 for the years ended September 30, 1995,
1994 and 1993, respectively.
The aggregate annual rental commitment as of September 30, 1995 is as
follows:
<TABLE>
<S> <C>
1996 $2,229,396
1997 2,453,988
1998 2,309,567
1999 2,103,014
2000 1,833,207
Future years 5,717,412
-----------
$16,646,584
===========
</TABLE>
On May 15, 1989, the Company adopted a retirement savings plan (pursuant to
Section 401(k) under the Internal Revenue Code) providing for a deferred
compensation and Company matching provision. Under the plan, eligible employees
are permitted to contribute up to 15% of gross compensation into the retirement
plan and the Company will match at the minimum 25% of each employee's
contribution up to 3% of the employee's eligible compensation. The expense
under the retirement savings plan was approximately $101,711, $77,871 and
$55,920 for the years ended September 30, 1995, 1994 and 1993, respectively.
II-39
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income taxes
------------
The adoption of SFAS No. 109 as of October 1, 1993 had no cumulative effect
on net loss, and has no effect on operating income (loss) and net income (loss)
for the years ended September 30, 1995 and 1994. As permitted under SFAS No.
109, financial statements of years prior to adoption have not been restated.
At September 30, 1995, the Company had cumulative net operating loss
("NOL") carryforwards of $40,503,000 for income tax purposes. If not offset
against taxable income, the tax loss carryforwards will expire between 2001 and
2010. Prior NOLs have been restated to reflect the impact of entities
consolidated in 1995 that incurred NOLs prior to becoming part of the
consolidated reporting group. The income tax provisions of $400,000 and
$100,000 for the years ended September 30, 1995 and 1994, respectively, are
attributable to gains on sales of investments and consist solely of a current
federal Alternative Minimum Tax ("AMT") component. The Company has no liability
for regular tax expense due to tax net operating losses.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of September 30, 1995
and 1994, the Company's net deferred tax asset has been fully reserved with a
valuation allowance. Significant components of the Company's deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
September 30,
-------------
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Equity method investments $ 2,793,000 $ 2,953,000
Intangible asset differences 8,808,000 8,621,000
Inventory adjustments 269,000 456,000
Accrued liabilities 232,000 700,000
Interest expense on 11 3/4% senior
subordinated discount notes 10,125,000 4,932,000
Other - net 270,000 537,000
Other capitalized costs - net 2,977,000 -
Net operating loss carryforwards 15,391,000 20,796,000
AMT credit carryforwards 400,000 100,000
----------- -----------
Total deferred tax assets 41,265,000 39,095,000
----------- -----------
Deferred tax liabilities:
Difference in license costs 27,787,000 21,573,000
Fixed asset differences 4,680,000 3,599,000
----------- -----------
Total deferred tax liabilities 32,467,000 25,172,000
----------- -----------
Net deferred tax asset 8,798,000 13,923,000
Valuation allowance (8,798,000) (13,923,000)
----------- -----------
Net deferred taxes $ - $ -
----------- -----------
</TABLE>
II-40
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income taxes (continued)
------------
The following table reconciles the amount which would be provided by
applying the 35% federal statutory rate to income before income tax expense to
the federal income taxes actually provided:
<TABLE>
<CAPTION>
September 30,
---------------------------
1995 1994
---------------------------
<S> <C> <C>
Income tax at federal statutory rate $865,978 $ -
of 35%
Benefit due to utilization of regular tax
NOLs (865,978) -
AMT arising from NOL carryforwards 400,000 100,000
limitation
---------------------------
Total income tax expense $400,000 $ 100,000
===========================
</TABLE>
10. Common Stock options
--------------------
In 1987, the Company adopted a Key Employees' Nonqualified Stock Option
Plan whereby employees may be granted options to purchase up to 500,000 shares
of the Company's Common Stock. All outstanding options were granted at an
exercise price which represented at least 100% of the quoted market value of the
Company's Common Stock at the date of grant and were exercisable for a period of
five years from the date of grant. In November 1992, the Company terminated the
Key Employees' Nonqualified Stock Option Plan as to future grants. All options
outstanding under this plan were exercised during 1995.
The Company adopted an Omnibus Stock and Incentive Plan, effective November
1, 1991, pursuant to which 500,000 shares of the Company's Common Stock are
reserved for issuance pursuant to Options, Stock Appreciation Rights, Stock
Bonuses or Phantom Stock Rights. In February 1993, the Company's shareholders
approved an increase of an additional 500,000 shares of the Company's Common
Stock to be reserved for issuance pursuant to the Omnibus Stock and Incentive
Plan plus 1% of the number of shares outstanding at the end of each fiscal year.
In February 1995, the Company's shareholders approved an increase of an
additional 750,000 shares of the Company's Common Stock to be reserved for
issuance under this plan.
II-41
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Common Stock options (continued)
--------------------
An analysis of options related to the Company's benefit plans is as
follows:
<TABLE>
<CAPTION>
Key Employees' Omnibus Stock
Nonqual. Stock and Exercise
Option Plan Incentive Plan Price Range
-------------- -------------- ------------
<S> <C> <C> <C>
Outstanding options at
September 30, 1993 99,500 324,500 $ 7.00 - $26.00
Granted - 261,000 $19.50 - $19.63
Forfeitures (2,500) (28,875)
Exercised (8,000) (12,000) $ 8.50 - $15.75
--------- ---------
Outstanding options at
September 30, 1994 89,000 544,625 $ 7.00 - $26.00
--------- ---------
Granted - 692,000 $23.00 - $25.63
Forfeitures (10,000) (19,125)
Exercised (79,000) (7,875) $ 7.00 - $19.50
--------- ---------
Outstanding options at
September 30, 1995 - 1,209,625 $11.75 - $25.63
Options available for grant
at September 30, 1995 - 860,863
--------- ---------
Options exercisable at
September 30, 1995 - 229,251
--------- ---------
</TABLE>
Subsequent to September 30, 1995, the Company granted options to purchase
529,000 shares of Common Stock to officers and employees of the Company at an
exercise price of $25.5625 pursuant to the Company's Omnibus Stock and Incentive
Plan.
In July 1993, the Company granted options to purchase 152,500 shares of
Common Stock to two former officers at exercise prices ranging from $7.00 to
$15.75. As a result, the Company recognized compensation expense of
approximately $370,000. The options became exercisable at various intervals
through November 1995 and expire on June 30, 1996. During the fiscal years
ended September 30, 1995, 1994 and 1993, options to purchase 15,000, 101,250 and
25,000 shares were exercised, respectively. As of September 30, 1995, none of
the options were exercisable. Subsequent to year end, all remaining options
were exercised. In September 1995, the Company granted an option to purchase
60,000 shares of Common Stock to one former officer at an exercise price of
$30.375. The options become exercisable over a period of four years from the
date of grant.
II-42
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Employee stock ownership plan
-----------------------------
On October 1, 1988, the Company adopted an Employee Stock Ownership Plan
("ESOP"). The cost of the ESOP is borne by the Company through annual
contributions to a Trustee in amounts determined by the Board of Directors.
Employees are eligible to participate in the ESOP after one year of service.
Shares of Common Stock acquired by the ESOP are to be allocated to each employee
and held until the employee's retirement or death. The employee can also choose
early partial withdrawal under certain circumstances. Each employee's account
vests ratably over a period of five years. Contributions totaling approximately
$552,000 (19,021 shares), $478,000 (20,953 shares) and $297,000 (17,232 shares)
were made to the ESOP for the years ended September 30, 1995, 1994 and 1993,
respectively. Shares are deemed issued for accounting purposes in the year that
ESOP contributions expense is recognized.
12. Stockholders' equity
--------------------
In December 1990, the Board of Directors declared a dividend distribution
of one right (a "Right") attached to each outstanding share of the Company's
Common Stock at any point in time. Each Right, when exercisable, entitles the
registered holder to purchase from the Company one one-hundredth of a share of
Series A Preferred Stock, at a price of $45 per one one-hundredth of a share,
subject to adjustment (the "Purchase Price").
The Rights will detach from the Common Stock and a "Distribution Date" will
occur upon the earliest of (i) ten days following a public announcement that a
person or group has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding shares of the Company's Common Stock
(the "Stock Acquisition Date"), (ii) ten business days following commencement of
a tender offer or exchange offer that would result in a person or group
beneficially owning 30% or more of the Company's Common Stock, or (iii) ten
business days after the Board of Directors have made a determination that
someone has become the beneficial owner of a substantial amount of the Company's
Common Stock and that such ownership is adverse to the Company's interest.
Should these events occur, each holder of a Right will thereafter have the right
to receive, upon exercise, the Company's Common Stock (or, in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the Purchase Price. Similarly, in the event that at any time
following a Stock Acquisition Date, the Company is acquired in a merger or other
business combination transaction in which the Company is not the surviving
corporation or 50% or more of its assets, cash flow or earning power is sold or
transferred, each holder of a Right shall thereafter have the right to receive,
upon exercise, Common Stock of the acquiring entity having a value equal to two
times the Purchase Price. Under certain circumstances, any Rights that are
owned by the acquiring person or the adverse person will be null and void.
In general, the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right, at any time until ten days following the acquisition
by a person or group of 20% or more of the Company's outstanding Common Stock or
the declaration by the Board of Directors that a person is an adverse person.
The Rights will expire on December 24, 2000, unless earlier redeemed.
II-43
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Fair values of financial instruments
------------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments for
which it is practicable to estimate that value, whether or not recognized in the
balance sheet. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Statement 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Advances to affiliates: The carrying amounts of the Company's advances to
----------------------
and receivables from affiliates approximate their fair value.
Long and short-term debt: The carrying amounts of the Company's variable
------------------------
rate borrowings under its credit agreement approximate their fair value. The
fair value of the Company's fixed rate debt is estimated using discounted cash
flow analyses, based on the Company's current incremental borrowing rates.
Other long-term debt is valued based on quoted market prices.
The carrying amounts and fair values of the Company's financial instruments
at September 30, 1995 are as follows:
<TABLE>
<CAPTION>
Carrying Amount Fair Value
--------------- ----------
<S> <C> <C>
Cash and cash equivalents $ 41,017,845 $ 41,017,845
Advances to affiliates and other 67,173,028 67,173,028
Secured bank financing:
Variable rate loans 1,119,976 1,119,976
Fixed rate loans 35,142,582 33,252,673
11 3/4% senior discount notes 126,644,799 141,320,800
11 1/4% subordinated notes 80,000,000 84,000,000
</TABLE>
14. Subsequent Events
-----------------
On December 7, 1995, the Company called for redemption all outstanding
8.75% Convertible Senior Subordinated Notes with a carrying amount of $3,000,000
at the price of 105 15/32%.
II-44
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Quarterly Financial Data (unaudited)
------------------------------------
Quarterly financial data and per share data are presented below:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarterly Financial Data Quarter Quarter Quarter Quarter
------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
1994
Revenues $12,770,278 $13,685,245 $15,305,934 $19,598,594
Operating loss (1,721,297) (3,388,686) (530,441) (28,911)
Net loss (4,713,227) (4,570,536) (2,966,006) (4,501,383)
Net loss per share $ (0.42) $ (0.39) $ (0.25) $ (0.39)
--------------------------------------------------------------------------------------
1995
Revenues $19,275,463 $19,064,299 $24,177,919 $27,326,438
Operating income (loss) (1,821,384) (1,592,474) 1,539,530 3,867,393
Income (loss) before
extraordinary charge (6,437,679) (5,836,693) (3,545,719) 17,894,315
Net income (loss) (6,437,679) (5,836,693) (3,545,719) 15,882,058
Income (loss) per share:
Income (loss) before extra-
ordinary charge $ (0.55) $ (0.49) $ (0.29) $ 1.38
Net income (loss) (0.55) (0.49) (0.29) 1.22
</TABLE>
As described in Note 2, the Company sold its interest in Nebwest Cellular,
Inc. during the fourth fiscal quarter of 1995, resulting in a gain after tax of
approximately $19,600,000. In addition, as discussed in Note 6, during the
fourth fiscal quarter of 1995, the Company experienced an extraordinary charge
related to the early extinguishment of long-term debt of approximately
$2,012,000.
II-45
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information regarding the
executive officers and directors of the Company:
<TABLE>
Name Age Position
---- --- --------
<S> <C> <C>
Arnold C. Pohs 67 Chairman of the Board, President, Chief Executive
Officer and Director
Daniel P. Dwyer (1) 36 Executive Vice President, Treasurer, Chief Financial
Officer and Director
Andrew J. Gardner 41 Senior Vice President and Controller
Homer Hoe 46 Executive Vice President and Chief Information Officer
Timothy C. Morrisey 42 Senior Vice President - Sales Operations
David S. Lynn 38 Senior Vice President - Network Operations
Amy M. Shapiro 42 Senior Vice President, Secretary and General Counsel
John E. Hayes, Jr. (1) (2) 58 Director
Robert J. Paden (2) 40 Director
David E. Simmons (1) (2) 38 Director
</TABLE>
____________
(1) Member Audit Committee.
(2) Member Compensation Committee.
The Company's Articles of Incorporation provide for a classified Board
of Directors consisting of three classes, each class to be as nearly equal in
number as possible. The members of each class are elected to a three-year term
and one class is elected at each annual meeting. Mr. Simmons is a member of
Class II with a term expiring at the 1995 Annual Meeting; Messrs. Dwyer and
Hayes are members of Class III with terms expiring at the 1996 Annual Meeting of
Stockholders (to be held in February 1997); and Messrs. Pohs and Paden are
members of Class I with terms expiring at the 1997 Annual Meeting (to be held in
February 1998).
Arnold C. Pohs has been Chairman of the Board of the Company since
February 1991, President and Chief Executive Officer since August 1989 and a
director since September 1985. Mr. Pohs served as Executive Vice President of
the Company from January 1986 through August 1989. Mr. Pohs was designated Chief
Operating Officer of the Company in August 1987, prior to which time he was the
Chief Financial Officer of the Company. Mr. Pohs currently serves as 2nd Vice
Chairman and a member of the Executive Committee of the Board of Directors of
the Cellular Telecommunications Industry Association, as Chairman and a director
of the Cellular Foundation
III-1
<PAGE>
for Wireless Telecommunications, a non-profit industry association, and as
Chairman of the Board of TVX, Inc.
Daniel P. Dwyer has been Executive Vice President of the Company since
November 1992, a director of the Company since March 1990 and Chief Financial
Officer since August 1988 and Treasurer since August 1987. He was Vice
President -Finance of the Company from November 1989 until November 1992,
Secretary from August 1987 until March 1990, Assistant Secretary from January
1987 until August 1987, Controller from May 1986 until November 1988 and
accounting manager for the Company from March 1986 until May 1986. From January
1984 until March 1986, Mr. Dwyer was a staff accountant with Ernst & Young LLP.
He is a Certified Public Accountant and a member of the American Institute of
Certified Public Accountants and the Colorado Society of Certified Public
Accountants. Mr. Dwyer currently serves as a director of TVX, Inc.
Andrew J. Gardner was named Senior Vice President of the Company in
July 1994. He was Vice President and Controller from November 1992 to July 1994
and Assistant Vice President - Accounting and Tax from August 1990 to October
1992. From August 1986 until joining the Company in August 1990, Mr. Gardner was
employed by U S WEST, Inc. in various corporate financial management capacities,
most recently Manager, Financial Results. Mr. Gardner is a Certified Public
Accountant.
Homer Hoe was elected Executive Vice President and Chief Information
Officer of the Company in October 1994. From August 1992 until joining the
Company in October 1994, he was a self-employed consultant to the Information
Services industry, and was contracted by the Company as interim CIO from April
to October 1994. From August 1991 to August 1992, Mr. Hoe was Director of
Information Services for Tenneco Minerals, a subsidiary of Tenneco, Inc. From
May 1986 to August 1991, he was employed by Digital Equipment Corporation, most
recently as Senior Consultant, specializing in multi-vendor computer system
integration.
David S. Lynn was named Senior Vice President-Network Operations of
the Company in July 1994. He was Vice President-Network Operations from March
1993 until July 1994, Vice President-Network Development from February 1992
until March 1993, Assistant Vice President-Finance from June 1990 until February
1992, Controller from November 1988 until June 1990 and Manager, Financial
Reporting from August 1988 until November 1988. From August 1982 until joining
the Company in August 1988, Mr. Lynn was employed by American Television and
Communications Corporation in various accounting and financial management
capacities.
Timothy C. Morrisey was named Senior Vice President-Sales Operations
of the Company in February 1995. He was General Sales Manager of the Company's
Midwest Region from July 1993 until February 1995. From February 1990 until
joining the Company in July 1993, Mr. Morrisey was President and General Manager
of the Washington D.C. and Baltimore cellular operations for Southwestern Bell
Mobile Systems.
Amy M. Shapiro was named Senior Vice President of the Company in
November 1995. She was Vice President of the Company from November 1992 to
November 1995 and has been Secretary of the Company since March 1990 and General
Counsel since October 1989. From February 1986 until joining the Company in
October 1989, Ms. Shapiro was an associate with Hall & Evans LLC, a Denver,
Colorado law firm.
John E. Hayes, Jr. was elected a director of the Company in October
1990. Mr. Hayes has served as Chairman of the Board, President and Chief
Executive Officer of Western Resources, Inc. since October 1989. From May 1989
to October 1989, Mr. Hayes was Chairman of the Board of Triad Capital Partners,
a venture capital firm. Mr. Hayes was President and Chief Executive Officer of
Southwestern Bell Telephone Company from September 1986 to January 1989. Mr.
Hayes is a director of the Automobile Club of Missouri, Boatmen's Bancshares,
Inc., American
III-2
<PAGE>
Gas Association, Edison Electric Institute, Security Benefit Group, the Topeka
Community Foundation, Boys Hope, Kansas Wildscape and Boy Scouts of America and
a Trustee of Midwest Research Institute, Menninger Foundation and Rockhurst
College.
Robert J. Paden has been a director of the Company since December
1985. For the past ten years, Mr. Paden has been General Manager/Vice President
of the Stanton Telephone Company, Stanton, Nebraska. He is also a board member
of the Nebraska Telephone Association.
David E. Simmons has been a director of the Company since August 1987.
Mr. Simmons has served as President of Simmons Family Incorporated, a
broadcasting and communications company, since 1989 and as its Executive Vice
President from 1985 to 1989. Mr. Simmons also serves as Chairman and Chief
Executive Officer of Keystone Communications, Inc., a satellite communications
company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange Commission.
Executive officers and directors are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on a
review of the copies of such forms furnished to the Company and written
representations from the Company's executive officers and directors, the Company
notes that one officer, Timothy C. Morrisey, inadvertently failed to file on a
timely basis an initial report indicting beneficial ownership of Common Stock of
the Company.
Item 11. Executive Compensation.
REPORT OF COMPENSATION COMMITTEE
General. The Compensation Committee of the Board of Directors is
-------
responsible for establishing the executive compensation program for the Company.
The Committee monitors and recommends changes in the compensation levels of
executive management and administers the Company's incentive compensation
programs as well as determining the grants under the Company's Employee Stock
Ownership Plan. All of the Committee members are outside, non-employee directors
of the Company. The Company has periodically employed the services of a
nationally recognized executive compensation consulting firm to assist the
Company in compensation matters.
Compensation Philosophy. The Company's compensation program is
-----------------------
designed to attract and retain high quality executive management, to give
management incentives that motivate superior performance on behalf of the
Company and to align the interests of management with those of the Company's
shareholders. The Committee believes that the Company's base salaries should
approximate the average of base salaries paid to executives with similar
responsibilities in similar cellular companies. Executive compensation should
also be correlated to the Company's performance and shareholder return.
The companies used for compensation comparison purposes are not all of
the same companies contained in the Nasdaq telecommunications industry group
comparison of total shareholder return in the Stockholder Performance Return
Graph. The companies used for compensation purposes are those companies which
are similarly sized and are in the cellular industry.
III-3
<PAGE>
Components of Compensation.
--------------------------
Salary: The salary of the Chief Executive Officer and the other
------
executive officers of the Company are based on a subjective evaluation of an
individual officer's responsibility and a comparison of salaries for similar
positions in comparable companies.
During 1995, the salary increases for the executive officers, other
than Arnold C. Pohs, the Chief Executive, ranged between 8% and 11%. Mr. Pohs'
base salary was increased by 20%. The basis for Mr. Pohs' salary increase was
twofold. First, the increase recognizes the performance of the Company in terms
of operating cash flow achievements. Second, Mr. Pohs' salary was adjusted after
an evaluation of comparative industry information to approximate the Company's
compensation objective of paying at the average.
Short-Term Incentive Plan Bonuses: The Company maintains an annual
---------------------------------
bonus plan which is based on meeting certain operational targets. The bonus
opportunities are established based on the average opportunities provided to
executives in similar positions at similar companies.
Actual annual bonuses for the executive officers were determined based
on the Company's performance relative to corporate operating targets and on each
individual's performance relative to officer specific individual goals. The
weightings of corporate and individual performance vary by position and
responsibilities and range from a weighting of 70% corporate/30% individual to
90% corporate/10% individual, which is the weighting applied to Mr. Pohs' award.
The corporate operating targets were based on the following measures
which represent the key business indicators of performance within the cellular
industry: Net managed market subscriber additions (20%), managed market
acquisition cost per net new subscriber (15%), consolidated service revenues
(20%), consolidated EBITDA (30%) and consolidated service revenue as a
percentage of total consolidated property, plant and equipment (15%).
During fiscal 1995, the Company's weighted average performance results
were 100.6% of the operating targets as described above and bonuses were paid
accordingly after a subjective evaluation of individual performance The
corporate performance results represent excellent performance against aggressive
operating plan targets.
Mr. Pohs' award was 40% of base salary and was based 90% on the
weighted performance results of 100.6% of the operating targets and 10% on
individual performance. The Committee determined that the individual portion of
Mr. Pohs' award should be based on a maximum individual performance rating.
Specifically, the Committee considered the following: the Company added 52,480
managed market customers, a 53% increase, bringing the total to 151,482 at
September 30, 1995, and consolidated EBITDA increased to $19.6 million which
represented a 94% increase over the $10.1 million reported in the prior fiscal
year.
Long-Term Incentive Compensation: The Company provides long-term
--------------------------------
incentive compensation to its executives through stock option grants under the
Omnibus Stock and Incentive Plan which are intended to align the interest of
executives with those of shareholders. This plan was approved by the Company's
shareholders by proxy vote during fiscal 1991 and amended during fiscal 1993 and
1995.
Subsequent to the 1995 fiscal year-end, stock options were granted to
the Company's executives as set forth in the "Option Grants Table." All options
are granted at an exercise price equal to the market price of the Company's
Common Stock at the date of grant and vest over a period of four years. The
shares owned by the named executives and their respective option positions were
considered in determining such option grants.
In November 1995, Mr. Pohs received an option to purchase 200,000
shares of Common Stock at an exercise price equal to the fair market value of
the stock on the date of grant. The size
III-4
<PAGE>
of the award was determined based on a subjective evaluation of Mr. Pohs'
performance, as discussed earlier, and on a study by an independent compensation
consulting firm of dilution levels of comparable companies. After the stock
option grant, the Company's stock option dilution levels are within the range of
dilution levels found at comparable companies.
As of the date of this report, Mr. Pohs owns 85,944 shares of the
Company's Common Stock and, with the recent grant, holds options to purchase an
additional 640,000 shares. The committee believes that the equity interests held
by the named executives represent a significant incentive to continue to
increase shareholder value.
Policy with Respect to the $1 Million Limit. Section 162(m) of the
-------------------------------------------
Internal Revenue Code generally limits to $1,000,000 the tax deductible
compensation paid to the Chief Executive Officer and the four highest-paid
executive officers who are employed as executive officers on the last day of the
year. However, the limitation does not apply to performance-based compensation
provided certain conditions are satisfied.
Section 162(m) and proposed regulation thereunder do not affect the
Company's compensation payments for fiscal 1995 or compensation expected to be
paid in fiscal 1996. However, the Committee will continue to monitor the impact
of the new Code requirements and will adopt a policy as appropriate.
David E. Simmons John E. Hayes, Jr. Robert J. Paden
III-5
<PAGE>
STOCKHOLDER PERFORMANCE RETURN GRAPH
The following graph compares the yearly percentage change in the
cumulative total shareholder return on the Company's Common Stock with that of
the cumulative total return of the Nasdaq Stock Market - US Index ("NASDAQ STOCK
MRKT - US") and the Nasdaq Telecommunications Index ("NASDAQ TELECOM") for the
five-year period ended on September 30, 1995. The information below is based on
an investment of $100, on September 30, 1990, in the Company's Common Stock, the
NASDAQ STOCK MRKT - US and the NASDAQ TELECOM, with dividends reinvested.
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG COMMNET CELLULAR INC., THE NASDAQ STOCK MARKET--US INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
<TABLE>
<CAPTION>
COMMNET NASDAQ
Measurement period CELLULAR STOCK NASDAQ
(Fiscal Year Covered) INC. MARKET--US TELECOMMUNICATIONS
<S> <C> <C> <C>
Measurement PT -
9/30/95
FYE 9/30/90 $ 100.00 $ 100.00 $ 100.00
FYE 9/30/91 $ 163.00 $ 157.00 $ 140.00
FYE 9/30/92 $ 152.00 $ 176.00 $ 153.00
FYE 9/30/93 $ 216.00 $ 231.00 $ 270.00
FYE 9/30/94 $ 285.00 $ 233.00 $ 250.00
FYE 9/30/95 $ 363.00 $ 321.00 $ 288.00
</TABLE>
- ------------
* $100 INVESTED ON 09/30/90 IN STOCK OR INDEX--INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING SEPTEMBER 30.
III-6
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation received by the named
Executive Officers for each of the three years ended September 30, 1995.
<TABLE>
<CAPTION>
Long-Term
---------
Annual Compensation CompensationSalary
------------------- ------------------
Name and Principal Position Year Salary ($) Bonus ($) All Others Options (#) All Others
- --------------------------- ---- ---------- --------- ----------------- ----------- ----------
($)(1) ($)(1)
------ ------
<S> <C> <C> <C> <C> <C> <C>
Arnold C. Pohs .............. 1995 300,000 126,455 323,361 200,000 8,625
Chairman of the Board, 1994 250,000 112,601 - 250,000 13,980
President and Chief 1993 210,000 85,352 - 100,000 9,987
Executive Officer
Daniel P. Dwyer.............. 1995 200,000 66,203 511,547 100,000 8,625
Executive Vice President, 1994 180,000 58,974 - 125,000 13,070
Treasurer and Chief 1993 144,000 44,512 - 50,000 7,815
Financial Officer
Homer Hoe.................... 1995 170,000 55,253 2,206 35,000 975
Executive Vice President 1994 - - - - -
and Chief Information 1993 - - - - -
Officer
David S. Lynn................ 1995 120,000 33,095 168,425 20,000 8,625
Senior Vice President - 1994 108,000 28,755 - 20,000 7,637
Network Operations 1993 94,500 22,433 - 15,000 5,070
Amy M. Shapiro............... 1995 108,000 29,914 92,500 20,000 7,783
Vice President, Secretary 1994 100,000 25,184 - 30,000 7,050
and General Counsel 1993 94,500 20,070 - 15,000 5,096
___________
</TABLE>
(1) The amounts shown represent compensation related to the difference at date
of exercise between the market price and the exercise price of options
exercised during the year. Additionally, this amount includes premiums paid
on supplemental health benefits for certain named executives.
(2) The amounts shown represent contributions by the Company to defined
contribution plans.
III-7
<PAGE>
1995 OPTION GRANTS
The following table provides information on option grants for fiscal
1995 to the named Executive Officers.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Rates of
Stock Price Appreciation
Individual Grants for Option Term (2)
------------------------------------------- ------------------------------------
Percent of
Total Options
Granted to Exercise
Granted Employees in Price Expiration
Name (#) (1) Fiscal Year ($/Share) Date 5% 10%
---- ------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Arnold C. Pohs 200,000 37.81% 25.5625 11/08/05 $3,215,224 $8,148,008
Daniel P. Dwyer 100,000 18.90% 25.5625 11/08/05 1,607,612 4,070,004
Homer Hoe 35,000 6.62% 25.5625 11/08/05 562,664 1,425,901
David S. Lynn 20,000 3.78% 25.5625 11/08/05 321,522 814,801
Amy M. Shapiro 20,000 3.78% 25.5625 11/08/05 321,522 814,801
</TABLE>
(1) Indicates number of shares as to which options were granted on November 8,
1995 pursuant to the Company's Omnibus Stock and Incentive Plan. Options
become exercisable in four equal annual installments commencing November 8,
1996.
(2) These are hypothetical values using assumed growth as prescribed by the
SEC. The assumed annual rates of appreciation of 5% and 10% over the ten
year term of the options would result in the price of the Company's stock
increasing to $41.64 and $66.30, respectively.
III-8
<PAGE>
Change in Control Agreements
- ----------------------------
In July 1993, the Board of Directors approved change in control
agreements (the "Agreements") with Messrs. Pohs and Dwyer. In October 1994, the
Board authorized a comparable agreement with Mr. Hoe, the Company's Chief
Information Officer. In November 1995, the Board authorized comparable
agreements with Messrs. Gardner, Lynn and Morrisey, the Company's Senior Vice
President and Controller, Senior Vice President - Network Operations, and Senior
Vice President - Sales Operations, respectively, and Ms. Shapiro, the Company's
Senior Vice President and General Counsel. The purpose of the Agreements is to
reinforce and encourage the officers to maintain objectivity and a high level of
attention to their duties without distraction from the possibility of a change
in control of the Company. These Agreements provide that in the event of a
change in control of the Company, as that term is defined in the Agreements,
each officer is entitled to receive certain severance benefits upon the
subsequent termination or constructive termination of employment, unless
such termination is due to death, disability or voluntary retirement; unless the
termination is by the Company for cause (as defined in the Agreements) or is by
the officer for other than good reason (as defined in the Agreements).
The severance benefits include the payment of the officer's full base
salary through the date of termination. The severance benefits also include a
lump sum payment equal to 2.99 times the sum of (a) the officer's annual base
salary in effect immediately prior to the circumstances giving rise to
termination, and (b) the actual bonus earned by the officer in the year prior to
the year in which termination occurs. In addition, each officer will be provided
with life and health benefits and a continuation of all other employee benefits
for 12 months following the date of termination. In addition, the officers will
be fully vested in all benefit plans to the extent not otherwise entitled to
100% of all contributions made by the Company on their behalf.
In the event any payment or benefit to be received by an officer
pursuant to the Agreements would be subject to the federal excise tax, the
amount of the benefits payable under the Agreement will be increased such that
the net amount retained by the officer after deduction of any excise tax on such
payment and any federal, state and local tax and excise tax upon such additional
payment shall be equal to the full severance benefits contemplated by the
Agreement.
III-9
<PAGE>
1995 AGGREGATED OPTION EXERCISES
AND YEAR-END OPTION VALUES
The following table provides information on the value of unexercised
options at September 30, 1995. Options to purchase 67,500 shares were exercised
by the named Executive Officers during fiscal 1995.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
Fiscal Year End (#)(1) at Fiscal Year End
------------------------------- ----------------------------
Name Vested Unvested Vested Unvested
---- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Arnold C. Pohs 80,000 360,000 $1,088,750 $2,102,500
Daniel P. Dwyer 64,375 183,125 954,219 1,099,531
Homer Hoe - 25,000 - 84,375
David S. Lynn 13,875 39,625 192,047 306,516
Amy M. Shapiro 16,875 50,625 230,156 352,969
</TABLE>
_________
(1) Does not reflect options granted on November 8, 1995 for fiscal 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
At December 19, 1995, there were 13,470,354 shares of Common Stock of
the Company issued and outstanding. As of such date options to purchase
1,710,875 shares were outstanding. Each holder of Common Stock, but not
unexercised options, is entitled to one vote per share on each matter which may
be presented at a meeting of stockholders. Cumulative voting is not allowed. The
Company's Common Stock is traded on the Nasdaq National Market under the symbol
CELS.
The following table sets forth information regarding ownership of the
Company's Common Stock at December 19, 1995 by each person who is known by
management of the Company to own beneficially more than 5% of the Common Stock,
by each director of the Company and by all directors and executive officers of
the Company as a group. Shares issuable on exercise of options are deemed to be
outstanding for the purpose of computing the percentage ownership of persons
beneficially owning such options, but have not been deemed to be outstanding for
the purpose of computing the percentage ownership of any other person. Insofar
as is known to the Company, the persons indicated below have sole voting and
investment power with respect to the shares indicated as owned by them except as
otherwise stated in the notes to the table.
III-10
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Ownership Beneficial Owner Class
-------------------- ---------------- -----
<S> <C> <C>
Arnold C. Pohs 277,739(1) 2.03%
5990 Greenwood Plaza Blvd.
Englewood, Colorado 80111
Daniel P. Dwyer 148,315(2) 1.09%
5990 Greenwood Plaza Blvd.
Englewood, Colorado 80111
John E. Hayes, Jr. 7,500 .06%
818 Kansas Avenue
Topeka, Kansas 66612
Main Street Partners, L.P. 2,075,800(3) 15.41%
3637 Fall Creek Highway
Granbury, Texas 76049
Janus Capital Corporation 1,581,325(4) 11.74%
100 Filmore Street
Denver, Colorado 80206
The Equitable Companies Inc. 1,189,900(5) 8.83%
787 Seventh Avenue
New York, New York 10019
All executive officers and 543,803(6) 3.92%
directors (10 persons)
_____________
</TABLE>
(1) Includes options to purchase 187,500 shares of Common Stock.
(2) Includes options to purchase 120,000 shares of Common Stock.
(3) A Schedule 13D, dated April 4, 1995, was filed on behalf of Main Street
Partners, L.P., MS Advisory Partners, L.P., MS Advisory Partners
(Overseas), L.P., San Francisco Partners II, L.P., SF Advisory Partners,
L.P., SF Advisory Corp., SF Advisory Corp. II, The Phoebe Snow Foundation,
John H. Scully, William E. Oberndorf, William J. Patterson and
Glenn B. Solomon.
(4) A Schedule 13G, dated November 9, 1995, filed on behalf of Janus Capital
Corporation, Janus Venture Fund and Thomas H. Bailey reflects that such
group has shared voting and shared disposition power over such shares.
(5) A Schedule 13G, dated February 28, 1995, filed on behalf of five French
mutual insurance companies, AXA Assurance I.A.R.D. Mutuelle, AXA Assurances
Vie Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie
Mutuelle and Uni Europe Assurance Mutuelle, as a group, AXA, The Equitable
Companies Incorporated and their subsidiaries reflects that such group has
sole voting power over 1,104,900 shares of Common Stock of the Company. No
information is given in respect of voting power over the remaining
shares.
III-11
<PAGE>
(6) Includes options to purchase 395,500 shares of Common Stock held by
directors and executive officers of the Company.
Item 13. Certain Relationships and Related Transactions.
None.
III-12
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements
--------------------
1. Report of Independent Auditors
2. Consolidated Balance Sheets, September 30, 1995 and 1994
3. Consolidated Statements of Operations, Years ended September
30, 1995, 1994 and 1993
4. Consolidated Statements of Stockholders' Equity (Deficit),
Years ended September 30, 1993, 1994 and 1995
5. Consolidated Statements of Cash Flows, Years ended September
30, 1995, 1994 and 1993
6. Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
-----------------------------
Schedule I. Condensed Financial Information of Registrant
Schedule II. Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(a)(3) Exhibits
--------
3.1 Amended and First Restated Articles of Incorporation, as
amended, of the Company. Incorporated herein by reference to
Exhibit 3.1 to the Company's annual report on Form 10-K for the
fiscal year ended September 30, 1994.
3.2 Bylaws, as amended, of the Company.
Incorporated herein by reference to Exhibit 3.2 to the
Company's registration statement on Form S-18, SEC File No. 33-
2700.
4.1 Specimen certificate representing Common Stock.
Incorporated herein by reference to Exhibit 4.1 to the
Company's registration statement on Form S-18, SEC File No. 33-
2700.
4.2 Indenture between the Company and State Street Bank and Trust
Company, as Trustee, relating to the 11 3/4% Senior
Subordinated Discount Notes. Incorporated herein by reference
to Exhibit 4.1 to the Company's registration statement on Form
S-3, SEC File No. 33-66492.
IV-1
<PAGE>
(a)(3) Exhibits (continued)
--------
4.3 Indenture between the Company and America Bank N.A., as
Trustee, relating to the 11 1/4% Subordinated Notes.
Incorporated herein by reference to Exhibit 4.1 to the
Company's registration statement on Form S-3, SEC File No. 33-
60393.
4.4 Rights Agreement between the Company and State Street Bank and
Trust Company, as Rights Agent.
Incorporated herein by reference to Exhibit 2 to the Company's
registration statement on Form 8-A dated December 19, 1990.
*10.1 Lease Agreement dated August 8, 1995 between the Company and
TCD North, Inc.
10.2 Employee Stock Ownership Plan and Trust.
Incorporated herein by reference to Exhibit 10.9 to the
Company's annual report on Form 10-K for the fiscal year ended
September 30, 1989.
10.3 Short-Term Incentive Plan.
Incorporated herein by reference to Exhibit 10.6 to Company's
annual report on Form 10-K for the fiscal year ended September
30, 1990.
10.4 Omnibus Stock and Incentive Plan.
Incorporated herein by reference to Exhibit 10.7 to the
Company's annual report on Form 10-K for the fiscal year ended
September 30, 1991.
*10.5 Consolidated Loan Agreement between CoBank and CIFC.
*10.6 Third Amended and Restated Guaranty of the Company to CoBank.
*10.7 Form of change in control agreement between the Company and its
senior management.
10.8 Letter agreement relating to the purchase of a limited
partnership interest in Joplin Cellular Telephone Company, L.P.
dated December 9, 1993.
Incorporated herein by reference to Exhibit 10.3 to the
Company's quarterly report on Form 10-Q for the quarter ended
December 31, 1993.
10.9 Stock purchase agreement - Contel Cellular of South Dakota,
Inc. dated December 30, 1993.
Incorporated herein by reference to Exhibit 10.4 to the
Company's quarterly report on Form 10-Q for the quarter ended
December 31, 1993.
10.10 Purchase and sale agreement among the Company, Contel Cellular,
Inc. and GTE Mobilnet, Inc. dated December 30, 1993.
Incorporated herein by reference to Exhibit 10.5 to the
Company's quarterly report on Form 10-Q for the quarter ended
December 31, 1993.
IV-2
<PAGE>
(a)(3) Exhibits (continued)
--------
*11.1 Computation of net income (loss) per common share.
*12.1 Computation of ratio of earnings to fixed charges.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Independent Auditors.
_____________
* Filed herewith
(b) Reports on Form 8-K during the quarter ended September 30,
----------------------------------------------------------
1995.
----
None.
IV-3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMMNET CELLULAR INC.
By: /s/ Arnold C. Pohs
----------------------------
Arnold C. Pohs, President
Date: December , 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Arnold C. Pohs President, Chief Executive Officer and December , 1995
- --------------------------
Arnold C. Pohs Director
/s/ Daniel P. Dwyer Executive Vice President, Treasurer, December , 1995
- --------------------------
Daniel P. Dwyer Chief Financial Officer and Director
/s/ Andrew J. Gardner Senior Vice President and Controller December , 1995
- --------------------------
Andrew J. Gardner (Principal Accounting Officer)
/s/ John E. Hayes, Jr. Director December , 1995
- --------------------------
John E. Hayes, Jr.
/s/ Robert J. Paden Director December , 1995
- --------------------------
Robert J. Paden
/s/ David E. Simmons Director December , 1995
- --------------------------
David E. Simmons
</TABLE>
IV-4
<PAGE>
COMMNET CELLULAR INC.
SCHEDULE I
Condensed Financial Information of Registrant
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
- ------------------------
September 30,
----------------------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 40,178,746 $ -
Short-term investments - 21,198,698
Accounts receivable 12,744 68,340
Inventory and other 2,918,410 7,030,045
------------ ------------
Total current assets 43,109,900 28,297,083
Property, plant and equipment 43,004,365 41,698,978
Less allowance for depreciation 16,208,572 14,081,311
------------ ------------
26,795,793 27,617,667
OTHER ASSETS
Investment in and advances to subsidiaries and affiliates 204,519,099 164,599,421
Other 10,842,421 9,246,650
------------ ------------
215,361,520 173,846,071
------------ ------------
$285,267,213 $229,760,821
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 16,517,522 $ 17,432,691
LONG-TERM DEBT
Subordinated debentures and discount notes 209,644,799 192,679,725
Secured bank financing - 2,956,859
Other 449,230 785,079
------------ ------------
210,094,029 196,421,663
STOCKHOLDERS' EQUITY
Common stock 13,443 11,742
Other stockholders' equity 58,642,219 15,894,725
------------ ------------
58,655,662 15,906,467
------------ ------------
$285,267,213 $229,760,821
============ ============
</TABLE>
<PAGE>
COMMNET CELLULAR INC.
SCHEDULE I
Condensed Financial Information of Registrant
(continued)
CONDENSED STATEMENTS OF OPERATIONS
- ----------------------------------
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
COST AND EXPENSES
General and administrative $ 29,304,972 $ 21,762,906 $ 15,596,956
Depreciation and amortization 5,740,057 4,521,127 4,638,950
Write-down of property and equipment - 2,441,148 -
Less amounts allocated to subsidiaries
and affiliates (31,576,840) (25,957,497) (21,485,170)
------------ ------------ ------------
NET INCOME (LOSS) BEFORE EQUITY IN
NET LOSS OF SUBSIDIARIES AND
AFFILIATES AND INTEREST INCOME
AND EXPENSE 3,468,189 2,767,684 (1,249,264)
Equity in net loss of subsidiaries and
affiliates (19,057,550) (20,563,867) (24,438,329)
Gains on sales of affiliates 18,580,077 1,245,100 4,592,916
Interest expense (20,465,381) (18,113,128) (9,898,323)
Interest income 17,536,632 17,913,059 8,326,788
------------ ------------ ------------
NET INCOME (LOSS) $ 61,967 $(16,751,152) $(22,666,212)
============ ============ ============
</TABLE>
<PAGE>
COMMNET CELLULAR INC.
SCHEDULE I
Condensed Financial Information of Registrant
(continued)
CONDENSED STATEMENTS OF CASH FLOWS
- ----------------------------------
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------
1995 1994 1993
---- ----- ----
<S> <C> <C> <C>
CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $ 6,259,646 $ 1,143,918 $ (666,509)
INVESTING ACTIVITIES
Purchase of short-term investments (82,109) (16,788,067) (28,994,122)
Sale of short-term investments 21,509,520 15,488,406 21,692,323
Additions to property and equipment (1,305,387) (13,284,688) (781,510)
Additions to other assets (16,895,426) (26,478,264) (72,183,846)
------------ ------------ ------------
3,226,598 (41,062,613) (80,267,155)
FINANCING ACTIVITIES
Payment on secured bank financing (4,023,106) (1,071,329) (1,071,329)
Extraordinary charge related to
extinguishment of long-term debt (1,130,004) - -
Offerring costs related to the issuance
of subordinted notes (517,682) - -
Issuance of senior discount notes - - 96,739,604
Issuance of subordinated notes 77,400,000 - -
Redemption of convertible
subordinated debentures (41,852,000) - -
Issuance of convertible subordinated
notes - - 4,705,000
Issuance of common stock 815,294 1,478,709 378,716
------------ ------------ ------------
30,692,502 407,380 100,751,991
------------ ------------ ------------
INCREASE (DECREASE) IN CASH $ 40,178,746 $(39,511,315) $ 19,818,327
============ ============ ============
</TABLE>
<PAGE>
COMMNET CELLULAR INC.
SCHEDULE I
Condensed Financial Information of Registrant
(continued)
BASIS OF PRESENTATION
- ---------------------
In the accompanying parent company only, CommNet Cellular Inc. (the
"Company") financial statements, the Company's investment in subsidiaries and
affiliates is stated at cost plus equity in undistributed net loss of
subsidiaries and affiliates since date of acquisition. The Company's share of
net loss of its subsidiaries and affiliates is included in the accompanying
condensed statement of operations using the equity method. Parent company only
financial statements should be read in conjunction with the Company's
consolidated financial statements.
The results of operations of 1994 and 1993 have been reclassified to
conform to the 1995 presentation.
<PAGE>
COMMNET CELLULAR INC.
SCHEDULE II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
---------------------------
Charged to
Beginning Charged to Other Ending
Description Balance Costs & Expenses Accounts Deductions (1) Balance
----------- ------- ---------------- -------- -------------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $2,677,124 $5,096,126 $ - $5,815,440 $1,957,810
</TABLE>
(1) All deductions are the result of actual write-offs to accounts receivable.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Page
No. No.
--- ---
<S> <C>
3.1 Amended and First Restated Articles of Incorporation, as amended, of the
Company. Incorporated herein by reference to Exhibit 3.1 to the
Company's annual report on Form 10-K for the fiscal year ended September
30, 1994.
3.2 Bylaws, as amended, of the Company.
Incorporated herein by reference to Exhibit 3.2 to the Company's
registration statement on Form S-18, SEC File No. 33-2700.
4.1 Specimen certificate representing Common Stock.
Incorporated herein by reference to Exhibit 4.1 to the Company's
registration statement on Form S-18, SEC File No. 33-2700.
4.2 Indenture between the Company and State Street Bank and Trust Company,
as Trustee, relating to the 11 3/4% Senior Subordinated Discount Notes.
Incorporated herein by reference to Exhibit 4.1 to the Company's
registration statement on Form S-3, SEC File No. 33-66492.
4.3 Indenture between the Company and America Bank N.A., as Trustee,
relating to the 11 1/4% Subordinated Notes. Incorporated herein by
reference to Exhibit 4.1 to the Company's registration statement on Form
S-3, SEC File No. 33-60393.
4.4 Rights Agreement between the Company and State Street Bank and Trust
Company, as Rights Agent.
Incorporated herein by reference to Exhibit 2 to the Company's
registration statement on Form 8-A dated December 19, 1990.
*10.1 Lease Agreement dated August 8, 1995 between the Company and TCD North,
Inc.
10.2 Employee Stock Ownership Plan and Trust.
Incorporated herein by reference to Exhibit 10.9 to the Company's annual
report on Form 10-K for the fiscal year ended September 30, 1989.
10.3 Short-Term Incentive Plan.
Incorporated herein by reference to Exhibit 10.6 to Company's annual
report on Form 10-K for the fiscal year ended September 30, 1990.
10.4 Omnibus Stock and Incentive Plan.
Incorporated herein by reference to Exhibit 10.7 to the Company's annual
report on Form 10-K for the fiscal year ended September 30, 1991.
*10.5 Consolidated Loan Agreement between CoBank and CIFC.
*10.6 Third Amended and Restated Guaranty of the Company to CoBank.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Page
No. No.
--- ---
<S> <C>
*10.7 Form of change in control agreement between the Company and
its senior management.
10.8 Letter agreement relating to the purchase of a limited
partnership interest in Joplin Cellular Telephone Company,
L.P. dated December 9, 1993.
Incorporated herein by reference to Exhibit 10.3 to the
Company's quarterly report on Form 10-Q for the quarter ended
December 31, 1993.
10.9 Stock purchase agreement - Contel Cellular of South Dakota,
Inc. dated December 30, 1993.
Incorporated herein by reference to Exhibit 10.4 to the
Company's quarterly report on Form 10-Q for the quarter ended
December 31, 1993.
10.10 Purchase and sale agreement among the Company, Contel
Cellular, Inc. and GTE Mobilnet, Inc. dated December 30, 1993.
Incorporated herein by reference to Exhibit 10.5 to the
Company's quarterly report on Form 10-Q for the quarter ended
December 31, 1993.
*11.1 Computation of net income (loss) per common share.
*12.1 Computation of ratio of earnings to fixed charges.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Independent Auditors.
</TABLE>
__________
* Filed herewith
<PAGE>
EXHIBIT 10.1
OFFICE LEASE
BETWEEN
TCD NORTH, INC.
----------------------------
____________________________
"LANDLORD"
--------
AND
COMMNET CELLULAR INC.
------------------------------
______________________________
"TENANT"
------
FOR SPACE AT
THE BUILDING KNOWN AS
" CRESCENT VIII "
-----------------------------
_____________________________
________________________________
(Building Address)
DATED
August 8 , 1995
--------------------- --
PART I - BASIC LEASE TERMS
PART II - GENERAL PROVISIONS
PART III - EXHIBITS AND ADDENDA
-1-
<PAGE>
<TABLE>
<CAPTION>
INDEX
-----
Page
----
PART I
<S> <C>
BASIC LEASE TERM SHEET..................................................... 1
PART II
GENERAL PROVISIONS......................................................... 2
1. TERMS AND DEFINITIONS.............................................. 2
2. PREPARATION OF THE LEASED PREMISES................................. 3
3. OCCUPANCY; LEASE COMMENCEMENT DATE................................. 3
4. USES............................................................... 3
5. SECURITY DEPOSIT................................................... 3
6. RENT............................................................... 4
7. UTILITIES.......................................................... 6
8. BUILDING SERVICES.................................................. 7
9. ACCESS AND ALTERATIONS............................................. 7
10. TENANT MAINTENANCE................................................. 7
11. TENANT'S PROPERTY.................................................. 8
12. IMPROVEMENTS AND ALTERATIONS BY TENANT............................. 8
13. LIENS.............................................................. 9
14. INSURANCE; INDEMNITY............................................... 9
15. WAIVER OF SUBROGATION.............................................. 10
16. CASUALTY........................................................... 10
17. CONDEMNATION....................................................... 10
18. HAZARDOUS WASTE INDEMNIFICATION.................................... 10
19. AMERICANS WITH DISABILITIES ACT.................................... 13
20. INSOLVENCY; BANKRUPTCY............................................. 13
21. ASSIGNMENT, LETTING AND SUBLETTING................................. 14
22. RULES AND REGULATIONS.............................................. 16
23. PARKING............................................................ 16
24. SIGNS.............................................................. 16
25. LANDLORD'S LIEN.................................................... 16
26. QUIET ENJOYMENT; UNAVOIDABLE DELAY................................. 16
27. SURRENDER.......................................................... 17
28. HOLD OVER TENANCY.................................................. 17
29. TENANT'S DEFAULT................................................... 17
30. PROFESSIONAL FEES AND COSTS........................................ 20
31. ACCORD AND SATISFACTION; REINSTATEMENT OR EXTENSION................ 20
32. LANDLORD'S DEFAULT................................................. 20
33. LIMITATION OF LANDLORD'S LIABILITY................................. 21
34. LANDLORD'S RESERVED RIGHTS......................................... 21
35. SUBORDINATION AND ATTORNMENT....................................... 21
36. ESTOPPEL CERTIFICATE............................................... 21
37. DEMOLITION OF BUILDING............................................. 22
38. AMENDMENT.......................................................... 22
39. WAIVER............................................................. 22
40. NOTICES............................................................ 22
41. BINDING EFFECT; GENDER............................................. 22
42. RIDERS AND ATTACHMENTS............................................. 22
43. SEVERABILITY....................................................... 22
44. TIME; DUTIES OF TENANT REQUIRE STRICT PERFORMANCE.................. 23
45. BROKER'S INDEMNIFICATION........................................... 23
46. RECORDING LEASE.................................................... 23
47. ENTIRE AGREEMENT................................................... 23
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
48. RELOCATION OF TENANT................................................ 23
49. EXECUTION OF LEASE, AUTHORIZATION OF PARTIES........................ 23
50. LENDER APPROVAL...................................................... 24
51. CONSTRUCTION OF LEASE.................................................24
</TABLE>
PART III
EXHIBIT A - Floor Plan of Leased Premises
EXHIBIT B - Legal Description of Building
EXHIBIT C - Work Agreement
EXHIBIT D - Rules and Regulations
EXHIBIT E - Estoppel Letter
EXHIBIT F - Lease Commencement Rider
-3-
<PAGE>
OFFICE LEASE
------------
PART I
BASIC LEASE TERM SHEET
----------------------
BUILDING: Crescent VIII
-------------------------------------------------------
LEASE DATE: August 8, 1995
-------------------------------------------------------
LANDLORD: TCD North, Inc
-------------------------------------------------------
Address: 4601 DTC Boulevard, Suite 1000
-------------------------------------------------------
Greenwood Village, CO 80111
-------------------------------------------------------
TENANT: Name: CommNet Cellular Inc.
-------------------------------------------------------
Address: 5990 Greenwood Plaza Boulevard
-------------------------------------------------------
Greenwood Village, CO 80111
-------------------------------------------------------
ATTENTION: General Counsel
(Address for Notice if The Building after the Lease Commencement Date
different than above) ------------------------------------------------
------------------------------------------------
BROKER OF RECORD:
DTC Management, LLC
------------------------------------------------
TENANT'S BROKER (if any): Office Leasing Advantage, Inc.
------------------------------------------------
LEASED PREMISES:
Suite Number: Floor: Part of 2 and all of 3 and 4
----------------------------------------
Address:
Tenant's Rentable Area: Approximately 60,000, being a part of the second
---------------------------------------------------
floor and all of the third and fourth floors, to be determined in accordance
- -----------------------------------------------------------------------------
with subsection 1G.
- -----------------------------------------------------------------------------
LEASE TERM:
Lease Commencement Date: January 15, 1996
-------------------------------------------------
Lease Expiration Date: April 14, 2003, subject to the renewal options in
Addendum 54
-------------------------------------------------
Lease Period: 7 years, plus 3 months
---------- -----------
BASE RENT: $ 9,150.00 total aggregate Base Rent, payable in monthly
----------
installments as follows based on per square foot of Rentable Area:
Months 1-3 $ .00
- -----------------------------------------------------------------------------
Months 4-63 21.50
- -----------------------------------------------------------------------------
Months 64-75 22.00
- -----------------------------------------------------------------------------
Months 76-87 23.00
- -----------------------------------------------------------------------------
"BUILDING OPERATING COST" REFERENCE (Article 6):
BASE YEAR: Calendar Year 1996 [Paragraph 6B(2)], or
EXPENSE STOP: $ n/a per square foot [Paragraph 6B(3)]
-------
TENANT'S PRO RATA SHARE (of Building for Building Operating Costs): See 1K %
---------
SECURITY DEPOSIT: $108,928
--------
-4-
<PAGE>
PERMITTED USE: General office uses
---------------------------------------------------------------
PARKING:
Number of Parking Spaces: 240, based on 60,000 square feet of Rentable Area
---------------------------------------------------
Location of Parking Spaces: 17 assigned covered spaces below the
------------------------------------
Building, at $80.00 each; 23 assigned spaces in the garage located to the west
- ------------------------------------------------------------------------------
of the Building, at $60.00 each; and the remainder shall be unassigned and
- --------------------------------------------------------------------------
uncovered in the open parking lot for the Building, at no charge.
- --------------------------------------------------------------------
GUARANTOR:
Name: __________________________________________________________________
Address: __________________________________________________________________
__________________________________________________________________
OTHER: ________________________________________________________________________
________________________________________________________________________
THIS BASIC LEASE TERM SHEET, together with the General Provisions
incorporated as Part II and any Exhibits, Riders, Addenda and Guaranty
incorporated as Part III, all constitute the entire Lease between the
above-described Tenant and Landlord for the Leased Premises described
above, made and entered into as of the Lease Date specified above.
-5-
<PAGE>
OFFICE LEASE
------------
PART II
GENERAL PROVISIONS
------------------
This Office Lease ("Lease") is made between Landlord and Tenant, as named
-----
on the Basic Lease Term Sheet attached to and incorporated in this Lease as Part
I, which provides the basic commercial terms for this Lease as referred to in
these General Provisions. The Basic Lease Term Sheet, these General Provisions
and the Exhibits, Addenda and Lease Rider, if any, comprising Part III of this
Lease are all attached and incorporated together to form this Lease, and are all
integrated as essential parts hereof. This Lease is dated as of the date shown
on the Basic Lease Term Sheet.
1. TERMS AND DEFINITIONS.
---------------------
A. "Leased Premises" and "Premises" shall mean the area shown as such on
--------------- --------
Exhibit A attached hereto and made a part hereof. Any dimensions on Exhibit A
are approximate unless labeled "exact."
B. "Building" shall mean the office building in which the Leased Prem ises
--------
are located, as described in the Basic Lease Term Sheet, and the real property
on which it is situated, as described in Exhibit B hereto and made a part
hereof.
C. "Common Areas" shall mean all sidewalks, landscaped areas, parking
------------
areas, plazas and appurtenances to the Building, as may be expanded, reduced or
modified from time to time.
D. "Lease Commencement Date" shall mean the earliest of: (1) the date
-----------------------
specified as the Lease Commencement Date on the Basic Lease Term Sheet, (2) the
date specified in any Lease Commencement Rider to be executed by the parties,
and which may be attached to this Lease as Exhibit F, or (3) the date Tenant
opens for business on or from the Leased Premises. If the Leased Premises are
not Ready for Occupancy on either of the dates described in (1) and (2) above,
then the Lease Commencement Date shall be the earliest date on which any of the
following occurs: (a) Landlord tenders possession of the Leased Premises, which
Leased Premises are, at the time of tendering, substantially Ready for Occupancy
in accordance with the Work Agreement and Section 1N; or (b) Tenant opens for
business on or from the Leased Premises; or (c) if a certificate of occupancy is
required for Tenant's possession because of any finish or renovation required to
be performed, satisfactory final inspection of such work is received from the
governmental agency having the authority to perform such inspection.
E. "Lease Term" or the words "during the term" or "the term" shall mean
---------- --------------- --------
the period beginning at 7:00 a.m. on the Lease Commencement Date and ending at
7:00 a.m. on the Lease Expiration Date, as specified on the Basic Lease Term
Sheet, or as otherwise extended as provided herein.
F. "Base Rent" shall mean the sum specified on the Basic Lease Term Sheet,
---------
which shall be payable in monthly installments for each 12-month period from and
after the Lease Commencement Date (such 12-month periods being hereinafter
referred to as a "Lease Year") through the Lease Expiration Date.
----------
G. "Rentable Area" shall be determined by the Landlord and Tenant's
-------------
architects.
H. "Tenant Improvements" shall mean all of the improvements within the
-------------------
Leased Premises including, by way of example and not in limitation, interior
walls, ceilings, floor coverings, fixtures (but excluding trade fixtures and
equipment not permanently attached to the Leased Premises), and Tenant Upgrades.
I. "Tenant Work" shall mean any of the work for construction of the Tenant
-----------
Improvements to be performed by the Tenant or the Tenant's contractor.
J. "Tenant Upgrades" shall mean the items which are supplied, installed or
---------------
furnished to the Leased Premises by Tenant, at Tenant's expense, or which are
installed by Landlord, at Tenant's expense, which shall include, without
limitation, those Tenant Improvements which exceed the Tenant Allowance provided
for in the Work Agreement.
- E-2 -
<PAGE>
K. "Tenant's Pro Rata Share" shall mean the percentage which is calculated
-----------------------
by dividing Tenant's Rentable Area by the Rentable Area in the Building as
determined by Landlord, in accordance with subsection 1G and as specified on the
Basic Lease Term Sheet.
L. "Additional Rent" shall mean Tenant's Pro Rata Share of Building
---------------
Operating Costs as described in Article 6, and Tenant's obligation for all other
monetary payments under this Lease.
M. "Landlord" shall mean variously the entity named on the Basic Lease
--------
Term Sheet and its representatives and agents, including, but not limited to,
the Landlord's property management agent.
N. "Ready for Occupancy" shall mean that any improvement work to the
-------------------
Leased Premises to be performed by Landlord has been substantially completed, in
accordance with the Work Agreement as determined by Landlord's architect or
contractor, to an extent which will permit Tenant to commence Tenant's Work or,
if Tenant has no obligation to perform any Tenant Work, then to an extent that
Tenant may occupy the Leased Premises for the Permitted Use, subject, in either
case (that is, Tenant's performance of Tenant's Work or Tenant's occupancy for
the Permitted Use), to Landlord's completion or correction of punchlist items,
the work upon which will not materially interfere with either Tenant's Work or
Tenant's occupancy for the Permitted Use.
2. PREPARATION OF THE LEASED PREMISES.
----------------------------------
Landlord shall use reasonable efforts and proceed with reasonable dili
gence to prepare the Leased Premises for Tenant in accordance with the Work
Agreement attached hereto and made a part hereof as Exhibit C (the "Work
----
Agreement"). Tenant may inspect the Leased Premises at reasonable times, as long
- ---------
as such inspections do not interfere with Landlord's construction activi ties.
Tenant shall not exercise any control over the persons performing con struction
activities on the Leased Premises. To the extent this paragraph conflicts with
the Work Agreement, the Work Agreement shall control.
During any such inspections, Tenant and any of its representatives shall
abide by any safety and other rules established by Landlord or its contractor.
No inspections may be made without advance notice to Landlord or at a time when
a representative of the Landlord or contractor is not present. Tenant shall
indemnify and hold Landlord harmless from and against any injury, death or
property damage resulting from an inspection by Tenant.
3. OCCUPANCY; LEASE COMMENCEMENT DATE.
----------------------------------
Landlord shall use reasonable efforts to prepare the Leased Premises for
occupancy on the Lease Commencement Date specified on the Basic Lease Term
Sheet, or on the Lease Commencement Rider, whichever is applicable, subject to
any "punchlist items" which will not materially affect the use of the Leased
Premises for the Permitted Use (as stated in the Basic Lease Term Sheet and
defined in Section 4 hereinafter). If Landlord fails to cause the Leased
Premises or any portion thereof to be Ready for Occupancy as required herein,
neither Landlord nor Landlord's agents, officers, employees or contractors shall
be liable for any damage, loss, liability or expense caused thereby, except as
provided in Addendum
4. USES.
----
- E-2 -
<PAGE>
A. Permitted Use and Compliance. Tenant agrees to continuously use and
----------------------------
occupy the Leased Premises for the purposes specified on the Basic Lease Term
Sheet (the "Permitted Use"), and for no other purpose, unless specifically
-------------
approved by Landlord in writing, which approval may be withheld, in Landlord's
sole and absolute discretion, for any reason or no reason whatsoever. Tenant
also agrees to use the Leased Premises in a careful, safe and proper manner.
Tenant shall comply with the provisions of all recorded covenants, conditions
and restrictions affecting the Building and all building, zoning, fire and other
governmental laws, ordinances, regulations or rules applicable to the Leased
Premises and all requirements of the carriers of insurance covering the
Building. Tenant shall not do or permit anything to be done in or about the
Leased Premises, or bring or keep anything in the Leased Premises that may: (1)
increase or invalidate the fire and extended coverage insurance premium upon the
Building; (2) injure the Building; (3) expose or subject Landlord to any
liability to any person; (4) result in any unreasonable emissions of smoke,
fumes, noise, radioactivity, microwaves, odors or other pollutants; or (5)
constitute waste or be a nuisance, public or private, disturbance or menace to
tenants of adjoining premises or to anyone else. The foregoing notwithstanding,
in the event Tenant's use of the Leased Premises results in an increase in the
cost of insurance for the Building, as more fully set forth in Section 14 below,
Tenant shall pay the incremental increase in such cost, and may continue to
utilize the Leased Premises for such use, only for so long as Tenant's use does
not present, in Landlord's sole opinion, an undue hazard to the Building or any
of its occupants.
B. Fitness for Purpose. Subject to the completion of the work in
-------------------
accordance with the Work Agreement, Tenant agrees that it has determined to
Tenant's satisfaction that the Leased Premises are suitable for Tenant's
particular purpose and use and can be used by Tenant for the Permitted Use,
subject to installation of the Tenant Improvements.
C. Tenant's Inspection and Acceptance. Taking possession of the Leased
----------------------------------
Premises shall be conclusive evidence against Tenant that (1) Tenant has exam
ined the Leased Premises and accepts the same as being in the condition called
for by this Lease, including, but not limited to, the terms of the Work Agree
ment, and (2) Tenant acknowledges that the Leased Premises are free of any
omissions or defects, latent or otherwise, including those resulting from
asbestos-containing materials, subject only to "punchlist items" that may be
mutually agreed to in writing by Landlord and Tenant at the time of Tenant's
acceptance of possession and subsequently corrected by Landlord with Tenant's
cooperation. If a Lease Commencement Rider is to be executed, such Rider shall
describe the "punchlist items," if any.
D. Use of Common Areas. Unless otherwise restricted by Landlord, Tenant
-------------------
shall have a nonexclusive right with other tenants in the Building to use the
Common Areas located on the real estate legally described on Exhibit B. All use
of Common Areas shall be in accordance with Section 23 below and with Landlord's
Rules and Regulations, as defined and described in Section 22 below.
5. SECURITY DEPOSIT.
----------------
Tenant has deposited with Landlord simultaneously with the execution of
this Lease the "Security Deposit" shown on the Basic Lease Term Sheet, as
----------------
security for the Rent payable hereunder, the return of the Leased Premises in
good order and condition, and the performance of each and every one of the
covenants, conditions and agreements herein stipulated. The Security Deposit
shall not be applied by Tenant to the payment of Rent or any other charges for
which it may become liable under this Lease and such Security Deposit shall in
no way relieve Tenant from the faithful and punctual performance of any or all
covenants and conditions hereby imposed upon Tenant. If Landlord applies or uses
any part of the Security Deposit to satisfy any obligation of Tenant, Tenant,
upon demand, shall deposit with Landlord a sufficient amount to fully restore
the Security Deposit so that Landlord shall have the full amount of the Security
Deposit on hand at all times during the term of this Lease. If an Event of
Default (as defined in Section 29) occurs, Landlord may require Tenant to
increase the Security Deposit up to an amount three times the Security Deposit
amount stated in the Basic Lease Term Sheet. Landlord agrees that at the
termination of this Lease, or at the termination of any extension thereof, the
Security Deposit, or so much thereof which has not been used by Landlord for the
purposes for which it was deposited, shall be returned to Tenant within 60 days
after the Leased Premises has been vacated in good order and condition, provided
that Tenant shall have complied in all respects with the terms, covenants and
conditions contained herein. Landlord shall not be required to keep the Security
Deposit separate from, and may commingle the Security Deposit with, its general
funds. Tenant shall not be entitled to interest on such Deposit, but Landlord
may maintain the Security Deposit in
- E-2 -
<PAGE>
interest bearing accounts and shall be entitled to all interest earned thereon.
In the event of a sale, lease, assignment, transfer or foreclosure of the
Building, Landlord shall have the right to transfer the Security Deposit to its
purchaser, assignee, transferee or any other successor in interest
(collectively "Successor") and Landlord shall, upon such transfer to a
---------
Successor, be released by Tenant from all liability for the return of the
Security Deposit. In the event Landlord has transferred the Security Deposit to
a Successor, Tenant agrees to look solely to the Successor for the return of
said Security Deposit and said Successor shall have the same responsibilities as
those of the original Landlord contained in this Section. The provisions hereof
shall apply to every transfer or assignment made of the Security Deposit to a
new Successor.
6. RENT.
----
A. Rent Payment. Tenant covenants and agrees to pay to Landlord, at
------------
Landlord's address stated on the Basic Lease Term Sheet (as such address may be
amended by Landlord from time-to-time), the Base Rent as provided in the Basic
Lease Term Sheet, together with all additional Rent provided for in this Lease,
without demand, deduction or setoff in monthly installments, due in advance on
the first day of each calendar month during the Lease Term beginning on April 1,
1996. The first installment of Base Rent is due and payable on the date hereof.
B. Tenant's Pro Rata Share of Building Operating Costs. In addition to
---------------------------------------------------
Base Rent, Tenant shall pay to Landlord, in monthly installments, at the same
time as Tenant is required to pay Base Rent, an amount (which amount shall be
Additional Rent) that is equal to 1/12th of the Landlord's estimate of Tenant's
Pro Rata Portion of the annualized Building Operating Costs (as hereinafter
defined). Tenant's obligation to pay Tenant's Pro Rata Share of Building
Operating Costs shall be limited to the amount by which such Building Operating
Costs are more than: the Building Operating Costs for the Base Year; as more
expressly set forth below.
(1) "Building Operating Costs" shall mean all expenses, costs and
------------------------
disbursements which Landlord shall pay or become obligated to pay because
of or in connection with the maintenance, repair and operation of the
Building, including, but not limited to: general and special real estate
taxes and assessments, use, sales, franchise, business, corporation, or any
other taxes (except income taxes) based on rents, personal property taxes
on personal property used in the operation of the Building; Land lord's
insurance, as described in Paragraph 14 below; utilities not sepa rately
metered to individual tenants; all energy costs incurred in oper ating the
Building; maintenance, repairs, redecorating; restoration costs to the
extent of commercially reasonable deductible amounts for the Building's
insurance; costs of roof renovation (which shall be amortized over its
expected life); janitorial service; window cleaning; operating supplies;
property management; Building Services (as hereinafter defined); snow and
ice removal; sweeping and debris removal; landscaping; costs of plants,
shrubs, trees, or flowers, and normal maintenance thereof; rubbish removal;
tools and equipment used in the daily operation of the Building; air
conditioning, heating, plumbing, electrical and elevator maintenance,
repair and replacement; supplies and materials; labor for repair and
maintenance; resurfacing, repainting and restriping of parking areas;
repair and replacement of car stops and signage; secu rity; capital
replacements and improvements which are determined by Landlord, in the
reasonable judgment of Landlord, to be necessary to maintain the Building
in a first class condition; legal costs (other than those related to lease
negotiations) and accounting and auditing fees pertaining to the Building.
Building Operating Costs shall not include monies spent for income tax
reporting, interest, depreciation, or expenditures of a capital nature
(other than as expressly provided hereinabove), unless such expenditures
are required due to a change in law applied by applicable governmental
authorities, or otherwise cause a reduction of the Building Operating Costs
without a reduction of services (in such case, capital expenses shall be
included in the Building Operat ing Cost). Building Operating Costs for the
Base Year for this purpose shall be determined on the basis of a full 12
month period for the Building, assuming 100% occupancy. (See Addendum
6B(1)).
(2) Increases Over Base Year Costs. "Base Year" shall mean the
------------------------------ ---------
calendar year specified on the Basic Lease Term Sheet. If a Base Year is
specified on the Basic Lease Term Sheet, then the Base Rent which Tenant
pays for the Leased Premises during the initial calendar year of the term
of this Lease includes Tenant's Pro Rata Share of the Building Operating
Costs for such Base Year. If Tenant's Pro Rata Share of the projected
Building Operating Costs (as determined by Landlord) for any subsequent
calendar year during the Lease Term exceeds Tenant's Pro Rata Share of the
actual Building Operating Costs
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<PAGE>
(as determined by Landlord) for any subsequent calendar year during the
Lease Term exceeds Tenant's Pro Rata Share of the actual Building Operating
Costs (as determined by Landlord) for the Base Year, then Tenant shall pay,
as Additional Rent during each such subsequent calendar year, such excess,
in the manner herein provided. If the Building Operating Costs for any
calendar year during the term of this Lease are less than the Building
Operating Costs for the Base Year, Tenant shall not be entitled to any
refund or credit for the amount by which such Building Operating Costs are
less than the Base Year Building Operating Costs.
(3) [Deleted]
(4) Operating Cost Adjustments. Until Tenant is advised of an
--------------------------
increase in the Additional Rent, Tenant shall continue to pay Additional
Rent at the then current rate (including all prior adjustments). Addi tional
Rent may be collected by Landlord in monthly installments of 1/12th of
Tenant's Pro Rata Share of estimated annual excess Building Operating Costs.
Tenant shall commence payment to Landlord of the monthly installments of
Additional Rent reflecting Tenant's Pro Rata Share of increases in Building
Operating Costs over the Base Year pur suant to paragraph 6(B)(2), on the
basis of the adjustment determined by Landlord, on the first day of the
month after Landlord advises Tenant of such increases in Building Operating
Costs. However, on the date the first payment of Additional Rent, as
increased, is due, Tenant shall also pay to Landlord the total of
differences between monthly installments of Additional Rent, as increased,
and the monthly installments of Additional Rent actually paid for each month
of the then current calendar year. Failure of Landlord to require any
increase in Additional Rent during any calendar year, or failure to require
the full increase to which Landlord is entitled, shall not waive Landlord's
right to any further or addi tional adjustment of the Additional Rent for
that year or any subsequent year. Landlord shall further be entitled to
adjust payments of Addi tional Rent to be paid by Tenant pursuant to this
Article periodically during any calendar year if Landlord reasonably deems
such adjustments necessary and appropriate.
(5) Adjustments to Additional Rent. Annually, Landlord shall
------------------------------
the Tenant a statement (the "Adjustment Statement") setting forth the
--------------------
furnish to Landlord's determination of the actual Building Operating Costs
for the prior calendar year, and the amount of the "Annual Adjustment
Increase," if any, or the "Tenant's Overpayment," if any, as those terms
are defined hereinafter in this paragraph. If the actual Building Oper
ating Costs for the prior calendar year (as reflected in the Adjustment
Statement) exceed the Landlord's estimated Building Operating Costs in any
calendar year during the Lease Term, from which estimate the Additional
Rent payment amounts were based, Tenant's Additional Rent for that year
shall be increased by an amount equal to the quantity obtained by
subtracting the estimated Building Operating Costs (which were used to
determine the Additional Rent installments previously paid by Tenant) from
the actual Building Operating Costs for the same calendar year, and
multiplying the remainder by the Tenant's Pro Rata Share (the "Annual
------
Adjustment Increase"). Tenant shall reimburse Landlord for the Annual
-------------------
Adjustment Increase within fifteen (15) days after receipt of the
Adjustment Statement. If the Adjustment Statement reflects that the actual
Building Operating Costs were less than the Building Operating Costs
estimated for that calendar year (which were used to determine the
Additional Rent installments previously paid by Tenant), Landlord shall
calculate, and include in the annual Adjustment Statement, the amount by
which Tenant's payment of Tenant's Pro Rata Share of Building Operating
Costs exceeded Tenant's Pro Rata Share of the actual B uilding Operating
Costs for the same calendar year (the "Tenant's Overpayment"). The amount
--------------------
of Tenant's Overpayment shall be credited against the next due installments
of Additional Rent owed by Tenant, unless the Lease Term has expired, in
which event the amount of such Tenant's Overpayment shall be refunded to
the Tenant within 60 days; provided, that if Tenant is in default under the
Lease, no such credit or payment shall be due or owing to Tenant until such
default has been cured by the Tenant. All determinations by Landlord
pursuant to this paragraph shall be conclusive. In the event the Rentable
Area of the Building is less than 100% occupied by tenants during any
calendar year, Landlord shall adjust Building Operating Costs which are
affected by occupancy rates to reflect what the Building Operating Costs
would have been had the Rentable Area of the Building been 100% occupied.
(6) Survival of Obligation. Notwithstanding any other provisions
----------------------
of this Lease, Tenant's obligation to pay Additional Rent shall survive the
termination or expiration of this Lease, and shall continue as to all
Building Operating Costs incurred through the calendar date set forth as
the Lease Expiration Date on the Basic Lease Term Sheet, as
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<PAGE>
such date may have been extended by any right to extend set forth herein,
and through any holding over by Tenant thereafter.
C. Use of the Term "Rent". Base Rent and Additional Rent, as may be
----------------------
adjusted, together with other amounts which may be payable by Tenant to Land
lord under this Lease, shall be referred to collectively as "Rent." Rent for
----
any fractional calendar month at the beginning or end of the Lease shall be
prorated on a per diem basis. All Rent payments shall be deemed to have been
paid only upon the receipt of such payments by Landlord and not merely upon
deposit in the mail. Monthly Base Rent for any Lease Year or calendar year
shall not be less than monthly Base Rent for any prior Lease Year or calendar
year, respectively.
D. Late Charges and Interest. Rent not received by Landlord by the 5th day
-------------------------
after it becomes due shall be subject to a late charge of 5% of the amount due.
Additionally, if Rent is not received by Landlord by the 10th day after it
becomes due, the amount due shall be subject to an additional 5% late charge.
(See Addendum 6D) Rent and all other monetary obligations under this Lease not
received by Landlord when due shall bear interest at the rate of 2% per month,
compounded monthly, from the date due until fully received by Landlord. Tenant
acknowledges that late payments will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which would be impossible or
extremely difficult to ascertain. Such costs include, without limitation,
processing and accounting charges, interest and late charges imposed by the
lenders providing financing for the Building, and other general and
administrative expenses. The late charges and interest contemplated by this
paragraph represent a fair and reasonable estimate of the costs which Landlord
will incur as a result of any such late payments by Tenant. Acceptance of late
charges and interest by Landlord shall not constitute a waiver of Tenant's
default with respect to any overdue amount, nor prevent Landlord from exercising
any other rights or remedies under this Lease.
E. Habitual Late Payments. The parties expressly acknowledge that all Rent
----------------------
is due and payable on the first day of each month. If Landlord fails to receive
any payment of Rent on or before the first day of each month on more than two
occasions in any calendar year, then in addition to the late charges provided
for in Paragraph 6.D above, Tenant shall pay a habitual late charge of 5% for
every payment received by Landlord after the first day of each sub sequent
month, until all payments of Rent have been received by Landlord on or before
the first day of every subsequent month for at least 12 consecutive months.
F. Other. Tenant will pay when due, and indemnify Landlord against, any
-----
costs, expenses, losses or liabilities with respect to any of the following:
(1) Utilities. Any utility services supplied to and metered directly
---------
to the Leased Premises, including but not limited to: water, sewer,
electricity, gas, heat and air conditioning.
(2) Increase. Any extraordinary increase in taxes, insurance
--------
premiums and other direct operating expenses for the Property that are
directly attributable to any use, activity, or installation by Tenant within
or with respect to the Leased Premises. Illustrative items include any
property tax increase attributable to any leasehold improvements made by
Tenant, insurance charges for any extra-hazardous use of the Leased Premises
made by Tenant, charges for utilities resulting from abnormal consumption or
use by Tenant, and increased maintenance costs for any of the Common Areas
resulting from Tenant's use.
(3) Tenant Taxes. Any taxes assessed with respect to (a) any of
------------
Tenant's personal property, tangible or intangible, including any of
Tenant's inventory and equipment; (b) Tenant's exercise of any taxable
privilege on, from or with respect to the Leased Premises, and (c) occu
pational license, franchise, or other fees payable with respect to any
activity conducted by Tenant on or from the Premises.
(4) Tenant Work. Any charges for labor, services or materials
-----------
supplied pursuant to a contract with Tenant (express or implied, written or
oral) for maintaining, restoring or improving the Leased Premises, or
installing any item thereon, other than work for which Landlord agrees to
pay under the Work Agreement.
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<PAGE>
(5) Liens. Any lien, or claim of lien, asserted against any interest
-----
in the Leased Premises or the Building by, through, under or against Tenant.
(6) Violations. Any fines or other penalties, and any charges or
----------
other costs, incurred by Landlord because of Tenant's violations of any
legal requirement, including (a) any law, ordinance, rule, court order or
regulation, or any building, safety or other code violation; (b) Tenant's
failure to maintain adequate workers' compensation or similar insurance
required with respect to Tenant's activities conducted on or from the Leased
Premises; or, (c) Tenant's failure to comply with any zoning or other legal
requirement applicable to Tenant's use of the Leased Prem ises. Tenant's
liability under this subparagraph includes both the costs of correcting any
violation of any legal requirement and any costs in curred by Landlord in
defending, compromising or discharging any enforce ment proceeding
instituted against Landlord or the Building, or both, because of any such
violation. ("Tenant" as used in this subparagraph and in subparagraph (7)
------
shall mean and include Tenant's employees, representatives, contractors,
agents, invitees, guests, licensees and visitors).
(7) Damage by Tenant. In the event of any damage to the Leased
----------------
Premises, the Building or the Common Areas caused by Tenant, Tenant shall,
at its expense, promptly restore the damaged item or area to the condition
it was in immediately prior to the occurrence and complete such restoration
within 30 days of the occurrence or if it cannot be so restored within 30
days, then within a reasonably time not to exceed 30 days after the end of
the first 30 day period. All construction work performed by Tenant under
this paragraph shall comply with the provisions of Section 12 of this
Lease. If Tenant fails to commence to perform this obligation within five
days from the date of the damage, or complete it within a reasonable time
period (determined in Landlord's discretion) Landlord shall have the right,
but not the obligation, to make such restoration, and all expenses incurred
by Landlord in this regard, together with an administrative fee of 20%
added thereto to reimburse Landlord for Landlord's overhead and Landlord's
cost of money to pay for such restoration, shall become Additional Rent
payable by Tenant to Landlord, upon demand.
Any indemnification payments due Landlord under this Section 6F shall be
due within 10 days after notice is given to Tenant.
7. UTILITIES.
---------
A. Landlord. Landlord shall provide the following services to the
--------
Building: water, sewer, electricity, heat and air conditioning, the cost of
which shall be treated as part of Building Operating Costs. Separate addi tional
charges may be made to Tenant, if Tenant, in Landlord's reasonable judgment,
makes unusual or excessive utility system demands where such ser vices are not
separately metered. Landlord does not warrant that any of the utility services
will be free from interruption caused by Unavoidable Delay, as defined in
Section 26 herein. Landlord shall in no event be liable for any such
interruptions. Landlord agrees, however, to use reasonable diligence to have
utility services provided to the Building from 7:00 a.m. to 6:00 p.m. on
weekdays and from 8:00 a.m. to 1:00 p.m. on Saturdays. (holidays excluded),
except as provided in Addendum 7B.
B. Tenant. If any of the above-described utility services and any other
------
utility services are supplied to and metered directly to the Leased Premises,
Tenant shall pay the cost thereof directly to the entity supplying such service
and make any required deposits related thereto. If Landlord determines at any
time, in its reasonable discretion, that Tenant is using excess utilities based
on the proportion of Tenant's use to the use of such utility services by other
tenants of the Building, Tenant shall install, subject to plans and
specifications approved by Landlord, and shall pay for, a meter to measure such
utility services provided to the Leased Premises. Alternatively, Landlord may
request that such a meter be installed to measure Tenant's use of such utility
services, such installation to be at Tenant's sole expense. Tenant shall pay
all costs of any such separately metered services directly to the entity
providing the services or, if the utility provider does not separately bill for
the usage measured by such submeter, Tenant shall pay to Landlord the utility
service consumption as measured by such submeter. (see Addendum 7B).
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<PAGE>
C. [Deleted]
8. BUILDING SERVICES.
-----------------
A. Nature of Services. Landlord agrees to maintain all Common Areas,
------------------
maintenance shall include lighting, gardening, cleaning, sweeping, inte rior
janitorial service, painting and window cleaning and to provide for the Building
such other services, including, but not limited to, such air-cooling and heating
as may in the judgment of Landlord, and subject to governmental regulations, be
reasonably required for the comfortable use and occupancy of the Building.
Landlord shall maintain the roof, foundation, demising walls and exterior of the
Building in a structurally sound, watertight and reasonably attractive
condition, and Landlord shall make such repairs and replacements as may be
necessary. The term "walls" for the purposes of this paragraph excludes
windows, glass, plate glass, doors, custom office fronts and entry areas. The
services to be provided by Landlord according to this Section shall be deemed to
be "Building Services" and shall be provided in accordance with standards from
-----------------
time-to-time prevailing for comparable office buildings in the Denver
Technological Center ("DTC"). The cost of Building Services shall be considered
part of the Building Operating Costs. Reasonable advance notice is an absolute
condition precedent to any claim by Tenant that Landlord has failed in
Landlord's duty to maintain, repair or replace any elements connected with the
provision of Building Services. Irrespective of the foregoing, Landlord shall
not be liable to Tenant for any consequential loss or damage due to a failure to
maintain, repair or replace, as required by this paragraph.
B. Interruption or Failure to Supply Building Services. Tenant agrees
---------------------------------------------------
that Landlord shall not be liable for any failure to supply or interruption of,
Building Services caused by Unavoidable Delay, as defined in Section 26 herein.
Landlord agrees, however, to use reasonable diligence to supply Building
Services.
9. ACCESS AND ALTERATIONS.
----------------------
A. Rights of Access. After prior notice (which may be verbal) to Tenant,
----------------
Landlord shall have access at reasonable times to the Leased Premises for any
lawful purpose, including, but not limited to, such inspections, maintenance,
cleaning, Building Services, repairs, alterations, additions and restoration as
Landlord may deem necessary, and to ascertain Tenant's compliance with the
provisions of this Lease. Landlord shall have such rights of access without the
same constituting an eviction or entitling Tenant to an abatement of Rent.
Landlord may also show the Leased Premises to prospective purchasers, mortgagees
or within the last 9 months of the Lease, tenants, provided that Landlord shall
not unreasonably interfere with Tenant's business operations. (see Addendum
9A).
B. Passkeys and Locks. Landlord has retained duplicate passkeys to the
------------------
Leased Premises (except the Computer Room) which Landlord may use to gain
access. Tenant shall not change or add locks to the Leased Premises other than
the Computer Room without obtaining the prior written consent of Landlord. In
such event, Tenant shall provide Landlord with duplicate passkeys for all such
locks, except for the Computer Room.
C. Alterations By Landlord. Landlord shall at all times have the right, at
-----------------------
its election, to make such alterations or changes in the Leased Premises, the
Building and the Common Areas as it may from time-to-time deem necessary or
desirable as long as such alterations and changes do not unreasonably interfere
with Tenant's use and occupancy of the Leased Premises.
D. Tenant's Access. Tenant shall have access to the Building and the
---------------
Leased Premises 24 hours a day, seven days a week; subject to Section 7A and the
Building Rules and Regulations.
10. TENANT MAINTENANCE.
------------------
Except for Building Services provided by Landlord, Tenant shall maintain
the Leased Premises (including but not limited to Tenant Improvements, leasehold
improvements, fixtures, equipment and other installations) in a clean, safe,
orderly and reasonably attractive condition, and in good repair, ordinary wear
and tear excepted. Such maintenance and repair shall be at the sole cost of
Tenant and shall include but not be limited to the maintenance and repair of the
floor covering, ceilings and walls, front and rear doors, any custom office
front,
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<PAGE>
front, all interior glass in the Leased Premises, and all plumbing, electrical,
lighting and mechanical equipment, fixtures and systems exclusively serving the
Leased Premises and which are not standard for the Building. If Tenant fails to
maintain or keep the Leased Premises in good repair and such failure continues
for five days after written notice from Landlord, Landlord may perform any such
required maintenance and repair and the cost thereof, together with an
administrative fee of 20% added thereto to reimburse Landlord for Landlord's
time, efforts and overhead and Landlord's cost of money to pay for such
maintenance and repair, shall be Additional Rent payable by Tenant within ten
days of receipt of an invoice from Landlord.
11. TENANT'S PROPERTY.
-----------------
Tenant may install, at its expense, within the interior of the Leased
Premises such fixtures, equipment and other personal property as are neces sary,
convenient or desirable for conducting Tenant's normal business opera tions;
provided, however, Tenant shall provide Landlord, in advance of such
installation, a written list identifying any installation that will be attached
to the Leased Premises. The attachment of any installation shall be subject to
Landlord's approval and after such approval such list shall be made a part of
this Lease. On expiration or termination of this Lease, if there then exists no
Event of Default in the payment of Rent or the performance of other obligations
of Tenant under this Lease, as defined in Section 29, Tenant may remove any such
installation which Landlord has approved for removal and Tenant shall remove any
and all installation and other Tenant property which Landlord directs Tenant to
remove by the later of 30 days after notice from Landlord or the date of the
termination or expiration of this Lease. All cost and expense of such removal
shall be borne solely by Tenant. If Tenant removes such installation and/or
property, Tenant shall repair any damage resulting from such removal and shall
restore the Leased Premises to its condition prior to Tenant's occupancy, at
Tenant's expense. If Tenant shall fail to remove such installation and/or
property from the Leased Premises upon the expiration or termination of this
Lease or upon abandonment of the Leased Premises, then at Landlord's election,
all (or portions thereof selected by Landlord, in Landlord's sole discretion) of
such installation and/or property remaining on the Leased Premises shall be
deemed abandoned and shall become Landlord's property, or Landlord may remove
such installation and/or property, store the same without liability to Tenant
for loss or damage thereof, and Tenant agrees to pay Landlord on demand any and
all expenses incurred in such removal, including court costs and attorneys' fees
and storage charges on such property for any length of time it shall be in
Landlord's possession, together with an administrative fee equal to 20% of all
such expenses to reimburse Landlord for Landlord's time, effort and overhead and
Landlord's cost of money utilized to pay for such removal.
12. IMPROVEMENTS AND ALTERATIONS BY TENANT.
--------------------------------------
A. Requirements for Approval. Upon Tenant's occupancy of the Leased
-------------------------
Premises, Tenant may make such additional improvements or alterations to the
Leased Premises which it may deem necessary or desirable, but, unless con
templated by the Work Agreement or otherwise permitted in this Lease or by
Landlord in writing, only with Landlord's prior written approval, which shall
not, except as herein provided, be unreasonably withheld, but which shall
otherwise be subject to compliance with this Lease. Improvements or alterations
(i) of a structural nature, (ii) which adversely affects any mechanical,
electrical, sanitary or other building system or the security in the Building,
or (iii) which requires the Tenant to do work outside the Leased Premises or to
the roof of the Building, are prohibited. Any improvements or alterations by
Tenant after the commencement of occupancy shall be done, at Tenant's expense,
by a licensed contractor approved by Landlord in conformity with plans and
specifications approved by Landlord. If requested by Landlord, Tenant will post
a bond or other security reasonably satisfactory to Landlord to protect Landlord
against liens arising from work performed for Tenant. All work performed shall
be completed: (1) in a good, diligent and workmanlike manner, consistent with
accepted industry standards, and with materials (where not specifically
described in the specifications) of the quality and appearance comparable to
those in the Building; (2) in compliance with the rules and regulations of the
Landlord pertaining to alterations or improvements made by Tenants, as
reasonably adopted from time to time by the Landlord; and (3) in compliance with
all laws, rules, orders, ordinances, regulations and requirements of all
governmental authorities. These addi tional improvements or alterations shall
become Tenant Improvements, subject to all rights and conditions applicable to
other Tenant Improvements. Prior to the commencement of any work or delivery of
any materials to the Leased Premises, Tenant shall furnish Landlord, for
Landlord's approval, copies of the following: plans and specifications, names
and addresses of contractors, copies
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<PAGE>
of contracts, necessary permits, the written agreement of Tenant and of Tenant's
contractor(s) to comply with Landlord's rules and regulations pertaining to
alterations or improvements, and such other items as may be reasonably requested
by Landlord to protect Landlord in connection with the work. In addition, prior
to commencement of any work, Tenant shall post, and keep posted in conspicuous
places on the Leased Premises, such notice as re quired by state law to protect
Landlord against liens arising from work per formed for Tenant. After completion
of such work, Tenant shall provide Landlord "as-built" drawings of such work.
B. No Exterior Alterations. Exterior or structural alterations and
-----------------------
alterations to a demising wall are prohibited. No improvement or alteration
shall be permitted which adversely affects the structural integrity of the
Leased Premises, the Common Areas, or the Building, the security in the
Building, the usefulness of any utility, demising wall, mechanical, electrical,
sanitary or other system, or the external appearance of the Building, or of the
Common Areas.
C. No Alteration of Windows. Tenant shall take no actions or conduct to
------------------------
affect any change or alteration in any windows or window coverings in the
Building or Leased Premises. Tenant shall comply with all requests and re
quirements of Landlord in connection with all windows in the Building, all
window coverings and the external appearance of the Building. Tenant shall
cooperate with Landlord and undertake all reasonable efforts to preserve the
aesthetically pleasing appearance of the Building and Leased Premises.
D. Violation. Landlord may summarily remove any installation begun or
---------
made in violation of this Section 12, without liability to Tenant, and
without waiving, limiting or otherwise impairing any other right or
remedy.
E. Tenant Improvement Ownership and Removal Upon Request. With the
-----------------------------------------------------
exception of Tenant's trade fixtures, Tenant Improvements and any and all
additional improvements or alterations to the Leased Premises (including,
without limitation, Tenant Upgrades) other than leasehold rights for their
enjoyment during the term of this Lease and any extension thereof. No Tenant
Improvements nor any additional improvement or alteration made to the Leased
Premises shall be removed by Tenant during or at the end of the Lease Term,
unless Landlord expressly requests removal of some, or all, such Tenant
Improvements, Tenant Upgrades, additional improvements or alterations. If
requested by Landlord as provided in Section 11 above, upon the expiration or
termination of this Lease, Tenant shall remove any Tenant Improvement, Tenant
Upgrades and/or any additional improvement or alteration other than the Tenant
Improvement made under the Work Agreement (except those within the Computer Room
which shall be removed by Tenant unless Landlord and Tenant otherwise agree),
and restore the Leased Premises to its condition prior to the existence of such
Tenant Improvements, Tenant Upgrades, additional improvements or alterations, at
Tenant's sole expense. If Tenant fails to remove any such Tenant Improvements,
Tenant Upgrades, alterations or additional improvements after being requested to
do so by Landlord, Landlord may remove same, and the cost and expense of such
removal shall become owing to Landlord, plus 20% of the cost added thereto, to
compensate Landlord for Landlord's time, efforts, overhead and cost of money,
upon demand, and shall bear interest at the Default Rate.
F. Damage During Construction. Tenant shall protect the Leased Premises,
--------------------------
the Building and all components thereof from damage by water, vandalism or other
casualty resulting from any construction or alteration of or upon the Leased
Premises by or at the direction of Tenant, and shall be solely responsible for
any such damage.
13. LIENS.
-----
Tenant shall keep the Leased Premises and the Building free from any liens
arising out of any work performed, materials furnished, or obligations incurred
by Tenant. Tenant shall, at Tenant's expense, immediately remove any lien,
encumbrance or adverse claim to or against the Leased Premises, the Building,
Landlord, or the Rent that arises, or is asserted to arise, by, through, under,
or against Tenant. Without limitation of the foregoing, Ten ant shall transfer
any such lien, encumbrance or claim to substitute security in the manner
permitted by applicable law upon demand by Landlord. If Tenant fails to make
any such transfer, Landlord, without waiving, limiting or other wise impairing
any other right or remedy, may make such transfer at Tenant's expense. Tenant
has no power to authorize or contract on Landlord's
15
<PAGE>
behalf for any labor, services or materials or to otherwise subject Landlord or
Land lord's interest in the Building to any claim relating to any labor,
services or materials.
14. INSURANCE; INDEMNITY.
--------------------
A. Landlord's Insurance. Landlord shall secure and maintain throughout
--------------------
the term of this Lease such insurance as is reasonable (the cost of which shall
be a Building Operating Cost) in amounts and forms within Landlord's discretion,
which may include, without limitation, the following insurance coverage:
(1) Casualty. Fire insurance with extended coverage, vandalism and
--------
malicious mischief.
(2) Liability. Comprehensive public liability insurance
---------
(including bodily injury and property damage insurance) for the Building.
(3) Rent Loss. Rental abatement insurance against abatement or loss
---------
of rent in case of fire or other casualty.
Landlord may, but is not obligated to, purchase such other insurance
customarily purchased, from time-to-time, by office building owners and manag
ers and treat the cost thereof as a Building Operating Cost. Landlord may
charge Tenant with any increase in the premium charged for such insurance
arising out of the particular use of the Leased Premises by Tenant.
B. Tenant's Insurance. Tenant shall, at its own expense, procure and
------------------
maintain throughout the term of this Lease:
(1) Casualty. Fire insurance with extended coverage, vandalism and
--------
malicious mischief with "all risk" endorsements attached in the amount of
all alterations and additions made to the Leased Premises and in the amount
of all of Tenant's fixtures, furniture and equipment, for the full
replacement value thereof.
(2) Liability. Comprehensive public liability insurance insuring
---------
Tenant's activities with respect to the Leased Premises against loss, damage
or liability for personal injury or death and property damage occurring on
or about the Leased Premises, in amounts no less than $1,000,000 combined
single limit coverage. Landlord may require such limits to be increased if
Landlord, in its sole discretion, determines such coverage is or may be
inadequate.
(3) Worker's Compensation. Worker's compensation insurance in at
---------------------
least the statutory amounts with respect to any work or other operation.
(4) Builder's Risk. During any time that construction by Tenant
--------------
may be in progress on the Leased Premises, Tenant shall procure builder's
all-risk insurance, completed value, non-reporting coverage.
C. Tenant's Policy Requirements. All insurors of Tenant must be
----------------------------
authorized to do business in Colorado and well-rated by any recognized national
rating organization. Landlord, Landlord's property management agent, and
Landlord's mortgagee, if any, shall be named as additional insureds under such
insurance. The insurance policies shall: (a) contain endorsements requiring 30
days' notice to Landlord prior to any suspension, cancellation, termination,
modification, non-renewal, lapse or material change of coverage; (b) not contain
any provision relieving the insurer of liability for any loss because of the
existence of other policies of insurance, regardless of collectibility; and (c)
contain a clause waiving rights of subrogation against Landlord. Tenant shall
deliver to Landlord, as a condition precedent to its taking occupancy of the
Leased Premises (but not to its obligation to pay Rent), a certificate or
certificates evidencing such insurance and Tenant shall continue to promptly
supply Landlord with copies of certificates of insurance in effect throughout
the Lease Term.
D. Landlord's Liability. Landlord shall not be liable for any damage,
--------------------
injury or death of or to any person or damage to property in, on or about the
Leased Premises, unless caused by Landlord's deliberate actions or gross neg
ligence. All property of Tenant kept or stored on the Leased Premises shall be
at the sole risk of Tenant.
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<PAGE>
E. Indemnification of Landlord. Tenant shall indemnify and hold Land
---------------------------
lords, and Landlord's property management agent harmless from and against all
claim demands, suits, fines, liabilities, losses, damages, costs and expenses
(including legal expenses) arising out of or in connection with:
(1) Premises. Tenant's possession, use, maintenance, restoration,
--------
alteration or improvement of the Leased Premises, or any activity con ducted
or condition created upon or from the Leased Premises by Tenant during the
Lease Term;
(2) Negligence. Any negligence, malfeasance, deliberate action or
----------
misconduct of Tenant;
(3) Breach. Any violation or breach, or alleged violation or breach
------
by Tenant of any term or condition of this Lease, any law, order, rule or
regulation, or any insurance requirement; and
(4) Suits. Any claim, suit, action, proceeding, or contest by
-----
Tenant inconnection with any insurance proceeds or settlement, or any award
for a condemnation or eminent domain taking.
15. WAIVER OF SUBROGATION.
---------------------
Tenant and Landlord each respectively releases and relieves the other and
waives its entire right of recovery against the other for loss or damage aris
ing out of or incident to any perils or casualties covered by insurance required
under this Lease, which occur in, on or about the Leased Premises or the
Building, whether due to the negligence of either party, their agents
(including, without limitation, the Landlord's property management agent),
employees, invitees or otherwise, all to the extent that such loss or damage is
covered by collectible insurance.
16. CASUALTY.
--------
A. (see Addendum 16A)
B. Fault or Neglect of Tenant. Anything to the contrary notwithstanding,
--------------------------
in the event the Leased Premises are rendered untenantable due to the fault or
neglect of Tenant, there shall be no abatement of Rent as provided above, except
to the extent such loss of Rent shall be payable from the pro ceeds of the
rental abatement insurance maintained by Landlord in accordance with Section 14
above.
17. CONDEMNATION.
------------
If the whole or any part of the Leased Premises shall be taken under power
of eminent domain or like power, or sold under imminent threat thereof to any
public authority or private entity having such power, this Lease shall terminate
as to the part of the Leased Premises so taken or sold, effective as of the date
possession is required to be delivered to such authority or entity. Rent for the
remaining term shall be reduced in the proportion that the net Rentable Area of
the Leased Premises is reduced by the taking. If a partial taking or sale of the
Building or the Leased Premises (A) substan tially reduces the net Rentable Area
of the Leased Premises resulting in a substantial inability of Tenant to use the
Leased Premises for Tenant's busi ness purposes, or (B) renders the Building
commercially inviable to Landlord, Tenant, in the case of (A), and Landlord, in
the case of (B), may terminate this Lease by notice to the other party within 30
days after the terminating party receives a written notice of the portion to be
taken or sold, to be effective 180 days thereafter or when the portion is taken
or sold, whichever is sooner. All condemnation awards and similar payments shall
be paid and belong exclusively to Landlord, except any amounts awarded or paid
specifically for Tenant's trade fixtures and relocation costs, provided such
awards do not reduce Landlord's award. Nothing contained herein shall diminish
Tenant's right to deal on its own behalf with the condemning authority.
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<PAGE>
18. HAZARDOUS WASTE INDEMNIFICATION.
-------------------------------
A. Definitions.
-----------
(1) Hazardous Substances. As used herein, "Hazardous Substances"
-------------------- --------------------
means any pollutants, flammable or ignitable explosives, radioactive
materials, or hazardous, toxic, corrosive or dangerous wastes, substances or
related materials, exposure to which is prohibited, limited or regulated by
any federal, state, county, regional or local authority or which, even if
not so regulated, may or could pose a hazard to the health and safety of the
occupants of the Leased Premises or the Building, including, but not limited
to, asbestos, lead-based paints, radon, polychlorobiphenyls ("PCBs"),
----
petroleum products and byproducts, including, but not limited to,
underground storage tanks and other petroleum-related matters. Hazardous
Substances shall include substances defined or listed as "hazardous
substances," "hazardous materials," "hazardous wastes," "pollutants,"
"toxic substances," "asbestos-containing materials" or similarly identified
in the Comprehensive Environmental Response, Compensation, and Liability
Act, as now or hereafter amended; in the Hazardous Materials Transportation
Act, as now or hereafter amended; in the Colorado Asbestos Control Act, (S)
25-7-501, et seq., C.R.S., as now or
-- ---
hereafter amended; and in any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to
or imposing liability or standards of conduct concerning any hazardous,
toxic or dangerous waste, substance or material; and shall include any
substances or mixture regulated under the Toxic Substance Control Act of
1976, as now or hereafter amended; and any "toxic pollutant" or "pollutant"
under the Clean Water Act, as now or hereafter amended, or under the
Colorado Water Quality Control Act; or any hazardous air pollutant under the
Clean Air Act, as now or hereafter amended, and any "hazardous waste" as
defined in (S) 25-15-101 of the Colorado Revised Statutes.
(2) Release. As used herein, "RELEASE" means any spilling, leaking,
------- -------
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
migrating, leaching, dumping or disposing into the environment (including
the abandonment or discarding of barrels, containers and other closed
receptacles containing any Hazardous Substance or pollutant or contaminant)
on, from, under, within or affecting the Leased Premises or the Building or
surrounding area, or transported to or from the Leased Premises or the
Building, including continuing migration of Hazardous Substances into or
through the soil, surface water or groundwater.
(3) As used herein, "HAZARDOUS SUBSTANCES LAWS" means all federal,
-------------------------
state and local environmental, health or safety laws, ordinances,
regulations, rules of common law or policies regulating Hazardous
Substances, including, without limitation, those governing the generation,
use, refinement, handling, treatment, removal, storage, production,
manufacture, transportation or disposal of Hazardous Substances.
B. Prohibitive Usage of Hazardous Substances. Tenant shall not cause or
-----------------------------------------
permit any Hazardous Substance to be used, stored, generated, released or
disposed of on or in the Leased Premises, the Common Areas, or the Building by
Tenant, Tenant's agents, employees, contractors or invitees, without first
obtaining Landlord's prior, written consent, which may be withheld, in
Landlord's sole and absolute discretion, for any reason or no reason whatsoever.
In the event such written consent is obtained by Tenant, any and all Hazardous
Substances permitted on the Leased Premises or in the Building, and any and all
containers therefor, shall be used, kept, stored and disposed of in a manner
that complies with all federal, state and local laws or regulations applicable
to any such Hazardous Substances. Notwithstanding anything set forth to the
contrary herein, Tenant shall not Release any material into the atmosphere,
ground, sewer system or any body of water, if such material (as reasonably
determined by Landlord or any governmental authority) does or may pollute or
contaminate the same, or may adversely affect: (1) the health, welfare or
safety of persons, whether located on the Leased Premises or elsewhere; or, (2)
the condition, use or enjoyment of the Building or any other real or personal
property surrounding the Building.
C. Tenant's Duty to Disclose. Tenant shall disclose to Landlord, prior to
-------------------------
Tenant's using, storing or disposing of any Hazardous Substances, the name and
approximate amount of all Hazardous Substances which Tenant intends to store,
use or dispose of on the Leased Premises or the Building (with Landlord's
consent). In addition, Tenant shall, subsequent to
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<PAGE>
such usage, storage or disposal, disclose to Landlord the names and amounts of
all Hazardous Substances which were actually used, stored or disposed of on the
Leased Premises or the Building.
D. Indemnification by Tenant. Tenant hereby agrees that Tenant shall be
-------------------------
fully liable for all costs and expenses related in any way to the use, storage
and Release or disposal of Hazardous Substances kept on the Leased Premises or
the Building by the Tenant, and the Tenant shall give immediate notice to the
Landlord of any violation or potential violation of the provisions of subsection
(2) herein. Tenant shall defend, indemnify and hold harmless Landlord, its
officers, directors, shareholders, agents, employees, participants, successors
and assigns, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, losses (including, without limitation, a
decrease in value of the premises or damages due to loss or restriction of
rentable or useable space), costs or expenses (including, without limitation,
attorneys' fees and expenses, including, without limitation, fees and expenses
of both outside and in-house counsel), charges, injury to persons, property or
natural resources, administrative and judicial proceedings and orders,
injunctive relief, remedial action requirements and enforcement actions of any
kind or nature, whether known or unknown, contingent or otherwise, arising out
of or in any way related to:
(1) The use, presence, disposal, Release or threatened Release, by
Tenant, of any such Hazardous Substances on, from or affecting the soil,
water, vegetation, Building, Leased Premises, personal property, persons,
animals or otherwise;
(2) Any personal injury (including wrongful death) or property damage
(real or personal) arising out of or related to Release by Tenant of such
Hazardous Substances;
(3) Any lawsuit brought or threatened, settlement reached or
government or Court order relating to Release by Tenant of such Hazardous
Substances;
(4) Any violation by Tenant of any Hazardous Substances Laws
applicable thereto.
Tenant shall remain liable to Landlord as set forth above, regardless of
when any of the foregoing is discovered, caused by or in the control of Tenant.
Without limitation of any of the foregoing, this Indemnification includes any
and all costs incurred due to any investigation of the Leased Premises or any
clean-up, removal or remediation mandated by a federal, state or local agency or
political subdivision. Such clean-up, removal or remediation may include
determining whether the Property is, after occupancy by Tenant has commenced, in
compliance with all Hazardous Substance Laws after occupancy by Tenant has
commenced, taking any necessary precautions to protect against any Release or
threatened Release by Tenant and taking any and all necessary actions to return
the Leased Premises to the condition existing prior to the presence of any such
Hazardous Substances on the Leased Premises, after occupancy by Tenant has
commenced. Tenant shall first obtain Landlord's written approval, prior to
taking any such remedial action and shall be liable to Landlord for the cost and
expense of any repair of any damage to the Leased Premises, the Building, or any
other property caused by any such precautionary actions, removal, remediation or
disposal.
Tenant, as used in Section 18, has the meaning as defined in Section 41 of
this Lease.
E. Remedial Work. In the event that any investigation, site monitoring
-------------
containment, clean-up, removal, restoration, precautionary actions or other
remedial work of any kind or nature (the "Remedial Work") is required under any
-------------
applicable Hazardous Substances Laws, as a result of, or in connection with, any
Release, suspected Release, or threatened Release by Tenant, Tenant shall,
within 30 days after receipt of information that such Remedial Work is or may be
required (or such shorter period of time as may be required under applicable
law, regulation, order or agreement), commence the performance of, or cause to
be commenced, and thereafter diligently prosecute to completion, the performance
of all such Remedial Work. All Remedial Work shall be performed by one or more
contractors, approved in advance, in writing, by Landlord, and under the
supervision of a consulting engineer approved in advance, in writing, by
Landlord, which consent shall not be unreasonably withheld. All costs and
expenses of such Remedial Work shall be paid by Tenant, including, without
limitation, the charges of such contractors and/or the consulting engineer, and
Landlord's reasonable attorneys' fees and costs, including, without limitation,
fees and costs of both outside and in-house counsel incurred in connection with
monitoring or review of such Remedial Work. In
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<PAGE>
the event Tenant shall fail to timely commence, or cause to be commenced, or
fail to diligently prosecute to completion, the performance of such Remedial
Work, Landlord may, but shall not be required to, cause such Remedial Work to be
performed, and all costs and expenses thereof, or incurred in connection
therewith, shall be deemed Additional Rent due from Tenant under the Lease.
F. Representations and Covenants of Tenant.
---------------------------------------
(1) Tenant represents and warrants that:
(a) Tenant has obtained, or will obtain, prior to occupancy, all
certificates, permits, licenses, approvals and authorizations required
by any federal, state, county, regional or local authority whose
jurisdiction includes, in whole or in part, environmental protection or
regulation of Hazardous Substances, for the lawful use or operation of
the Leased Premises;
(b) Tenant shall submit to Landlord copies of all reports or
notices, if any, required to be filed with any governmental authorities
or agencies pursuant to any Hazardous Substances Laws;
(c) Tenant has received no notice of any proceedings or
inquiries before or by a governmental authority with respect to Tenant's
use, in the general operation of its business, of Hazardous Substances;
and,
(d) No claims, litigation, administrative enforcement actions or
proceedings have been made or threatened by any third-party against
Tenant, or any other person, nor have any settlements been reached by or
with any party or parties, public or private, alleging the normal
operation of Tenant's business, due to the use of Hazardous Substances,
creates an undue risk of contamination of the environment, or is likely
to result in the contamination of the property upon which Tenant
operates its business; and,
(e) Tenant does not presently, nor does Tenant have any
expectation in the future of using, storing, disposing or Releasing
Hazardous Materials, whether or not on the Leased Premises, Building or
Common Areas, other than as has been expressly disclosed to Landlord,
in writing, prior hereto.
(2) Tenant shall keep and maintain the Leased Premises in compliance
with any Hazardous Substances Laws, and shall not cause or permit a Release
in violation of any such Hazardous Substances Laws.
(3) Tenant shall not, nor shall Tenant permit any assignees,
subtenants or other occupants of the Leased Premises to, at any time in the
future, cause or permit a Release.
(4) Tenant shall give prompt written notice to Landlord of any pending
claims, or of any proceedings set forth in subsection (F)(1)(d) of this
Section 18.
(5) Tenant shall give prompt written notice to Landlord of Tenant's
discovery of any occurrence or condition on the Leased Premises, or on any
real property adjoining or in the vicinity of the Leased Premises that
could cause the Leased Premises or any part thereof to be subject to any
violations of, or potential remediation action, under any Hazardous
Substances Laws or which would create restrictions relating, in any way, to
the ownership, occupancy, transferability or use of the Leased Premises.
(6) Landlord shall have the right to join and participate in, as a
party if it so elects, any legal proceedings or actions initiated by any
third-party against Tenant and/or against the Leased Premises or the
Building, in connection with any Hazardous Substances Laws, and Tenant
shall pay Landlord's reasonable attorneys' fees and expenses in connection
therewith, including, without limitation, fees and expenses of both outside
and in-house counsel.
G. Landlord's Right to Inspect the Leased Premises. Subject to Section
-----------------------------------------------
9, Landlord and its respective agents and representatives shall have the right,
at any reasonable time, to enter the Leased Premises to make such inspections,
tests and inquiries as Landlord shall deem appropriate, including inspections
for violation of any of the terms of this Indemnity, and for determining the
existence, nature and magnitude of any Release or threatened Release.
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<PAGE>
Landlord has no duty, however, to visit or observe the Leased Premises, or to
conduct tests, and no visit, observation or testing by Landlord shall be
construed as a representation that Hazardous Substances are or are not present
in, on or under the Leased Premises, or that there has been or shall be
compliance with any Hazardous Substances Laws, or any other applicable
governmental law. Neither Tenant nor any other party is entitled to rely on any
visit, observation or testing by Landlord. The Landlord owes no duty of care to
protect Tenant or any other party against, or to inform Tenant or any other
party of any Hazardous Substances or any other adverse conditions affecting the
Leased Premises; provided that if landlord has actual knowledge of a violation
of the Hazardous Substances Laws not covered by this Section 18D which may
affect Tenant or its use of the Premises, Landlord agrees to give notice to
Tenant of the violation within a reasonable time thereafter. Landlord shall
give Tenant reasonable notice as provided in Section 9, before entering the
Leased Premises, and shall make reasonable efforts to avoid interfering with
Tenant's use of the Leased Premises in exercising any rights provided herein.
H. Miscellaneous.
-------------
(1) Knowledge of Landlord. Tenant's obligations hereunder shall not
---------------------
be diminished or affected in any respect as a result of any notice or
disclosure, if any, to, or other knowledge, if any, by Landlord of any
Release or threatened Release, or as a result of any other matter related
to Tenant's obligations hereunder, nor shall Landlord be deemed liable, in
any way, for any Release or any other matter related to Tenant's other
obligations hereunder, solely because Landlord had notice, disclosure or
knowledge thereof, whether at the time this Indemnity is delivered or at
any time thereafter.
(2) Event of Default. For as long as this Lease Agreement shall be
----------------
and remain in effect, this Indemnity shall constitute a covenant of, and
agreement by, the Tenant under such Lease Agreement, and any breach by
Tenant hereunder shall constitute an event of default under the Lease
Agreement. After the expiration or earlier termination of the Lease, the
provisions of this Indemnity shall continue to be obligations of Tenant.
(3) Survival of Tenant Obligations. The obligations of Tenant
------------------------------
hereunder shall survive the following events, to the maximum extent
permitted by law:
(a) Expiration of the term of the Lease or the earlier
termination of the Lease, notwithstanding that all or any portion of
any other obligations of Tenant shall have been discharged thereby;
and,
(b) Any termination, cancellation or modification of the Lease,
or any other agreement relating to the Lease. Upon the occurrence of
any of the foregoing, the obligations of Tenant hereunder shall
survive and shall be enforceable against Tenant to the fullest extent
permitted by applicable law.
(4) Rights and Remedies of Landlord. The rights and remedies of
-------------------------------
Landlord under this Indemnity:
(a) Shall be in addition to any other rights and remedies of
Landlord under this Lease Agreement or at law or in equity; and,
(b) May be enforced by Landlord, to the maximum extent permitted
by law, without regard to or affecting any rights and remedies that
Landlord may have under the Lease Agreement, or at law or in equity.
(5) (see Addendum 18H(5))
19. AMERICANS WITH DISABILITIES ACT.
-------------------------------
(1) Provided the Leased Premises is completed in accordance with the
Work Agreement, Tenant shall, at Tenant's sole cost and expense, be
responsible for any alterations, modifications or improvements to the
Premises and the acquisition of any auxiliary aids required under the
Americans With Disabilities Act ("ADA"), including all alterations,
---
modifications or improvements required: (1) as a result of Tenant (or any
subtenant, assignee or concessionaire) being a Public Accommodation (as
such term is defined in the ADA); (2) as a result of the Premises being a
Commercial Facility (as said term is defined in the ADA); (3) as a result
of any leasehold improvements, alterations or
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<PAGE>
additions made to the Premises by or on behalf of Tenant or any subtenant,
assignee or concessionaire (whether or not Landlord's consent to such
leasehold improvements or alterations was obtained); or, (4) as a result of
the employment by Tenant (or any subtenant, assignees or concessionaire) of
any individual with a disability.
(2) With respect to the use restrictions set forth in Section 4 of
the Lease, and the restrictions on assignments and subletting set forth at
Section 21 of the Lease, it is hereby specifically understood and agreed
that Landlord shall have no obligation to consent to or permit the use of
the Premises or an assignment of the lease or a sublease of the Premises
(collectively herein a "Use Change") if such Use Change would require the
----------
making of any alterations, modifications or improvements to the Premises,
the Common Areas or other portions of the Building, or the acquisition of
any auxiliary aids under the ADA, unless Tenant performs all such acts and
satisfies Landlord's requirements for financial responsibility for the
costs of such compliance, which requirements may include, by way of
example, posting of a completion bond or establishment of an escrow
account.
(3) Landlord represents that as of the Lease Commencement Date,
subject to this Section 19(1), the Common Areas of the Building will be in
compliance with the ADA as it provides and is interpreted on the Lease
Commencement Date, and that Building Operating Costs charged to Tenant
shall not include any costs required to bring the Building into compliance
with this representation.
20. INSOLVENCY; BANKRUPTCY.
----------------------
A. Insolvency or Threat of Insolvency. If Tenant becomes insolvent, or
----------------------------------
threatens to file bankruptcy or to have a receiver appointed, or if a receiver
is appointed over a substantial portion of Tenant's assets or over the operation
of the Leased Premises, Landlord may elect, at its option, to immediately
terminate this Lease and Tenant shall immediately vacate and surrender
possession of the Leased Premises or, at the Landlord's option, Landlord may
declare a default under this Lease.
B. Bankruptcy.
----------
(1) Assumption or Rejection. If Tenant files, or Tenant's creditors
-----------------------
file, a petition in the United States Bankruptcy Court for a liquidation,
reorganization, arrangement or for other similar relief for Tenant, then
Tenant or the Trustee in Bankruptcy (the "Trustee") must accept and assume
-------
this Lease within 60 days after filing or this Lease shall be deemed
rejected and Tenant shall thereupon immediately vacate and surrender the
Leased Premises to Landlord.
(2) Conditions to Assumption. No election by Tenant or the Trustee
------------------------
in Bankruptcy to assume this Lease shall be effective unless each of the
following conditions, which Landlord and Tenant acknowledge are commer
cially reasonable in the context of a bankruptcy proceeding, have been
satisfied and Landlord has acknowledged such satisfaction, in writing:
(a) The Trustee or Tenant has cured any and all events of
default, or has provided Landlord Adequate Assurance (as defined
below) that:
(i) Within ten days from the date of such assumption,
Tenant or the Trustee will cure all monetary defaults under this
Lease; and
(ii) Within 30 days from the date of such assumption, Tenant
or the Trustee will cure all non-monetary defaults under this
Lease;
(b) The Trustee or Tenant has compensated Landlord (or has
provided to Landlord Adequate Assurance that within ten days from the
date of assumption Landlord will be compensated) for any pecuniary
loss incurred by Landlord arising from any and all defaults of Tenant
or the Trustee, or both;
(c) The Trustee or Tenant has provided Landlord with Adequate
Assurance of the future performance of each of Tenant's or Trustee's
obligations under the Lease; provided, however, that:
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<PAGE>
(i) The Trustee or Tenant shall also deposit with Land
lord, as security for the timely payment of all Rent, an amount
equal to six months' Rent; and
(ii) The obligations imposed upon the Trustee or Tenant
shall continue with respect to Tenant or any assignee of the
Lease after the completion of the bankruptcy proceedings.
(d) The assumption of the Lease will not:
(i) Breach any provision in any other lease, mortgage,
financing agreement or other agreement by which Landlord is bound
relating to the Building; or
(ii) Disrupt, in Landlord's judgment, the tenant mix of the
Building or any other attempt by Landlord to provide a specific
variety of offices and retail stores in the Building which, in
Landlord's judgment, would be most beneficial to all of the
tenants and would enhance the image, reputation and profitability
of the Building operation.
(3) Adequate Assurance. For purposes of this Section 18, Landlord
------------------
and Tenant acknowledge that, in the context of a bankruptcy proceeding of
Tenant, at a minimum "Adequate Assurance" shall mean:
------------------
(a) The Trustee or Tenant has and will continue to have
sufficient unencumbered assets after the payment of all secured
obligations and administrative expenses to assure Landlord that the
Trustee or Tenant will have sufficient funds to fulfill the
obligations of Tenant under this Lease as they come due, and to keep
the Leased Premises properly staffed with sufficient employees to
conduct a fully-operational, actively-promoted business on the Leased
Premises; and
(b) The Bankruptcy Court shall have entered an Order segregating
sufficient cash payable to Landlord and the Trustee or Tenant shall
have granted a valid and perfected first lien and secu rity interest
or mortgage in property of Tenant or Trustee, accept able as to value
and kind to Landlord, to secure to Landlord the obligation of the
Trustee or Tenant to cure monetary or non-monetary defaults under this
Lease within the time periods set forth above.
The foregoing shall not limit Landlord's other rights and remedies under
the United States Bankruptcy Code including but not limited to the right to file
a claim against Tenant and obtain the maximum amount allowed in connec tion with
such bankruptcy proceeding.
21. ASSIGNMENT, LETTING AND SUBLETTING.
----------------------------------
A. Landlord's Consent Required. Except as provided in 21A of the
---------------------------
attached Addendum, Tenant, its legal representatives and successors in interest,
shall not, whether by operation of law or otherwise, assign, sublet, or
otherwise transfer or encumber this Lease, the Leased Premises or any part
thereof, respectively, without first obtaining the written consent of Landlord,
which Landlord will not unreasonably withhold. If Tenant is a corporation, any
transfer of this Lease from Tenant by merger, consolidation or liquidation or
any change in the ownership, or power to vote the majority of the outstanding
stock of Tenant, shall constitute an assignment for purposes of this Lease.
Subject to 21A of the Addendum, if Tenant is a partnership, limited liability
company, or similar entity, a change in the entity structure which results in
more than 49% of the equitable interest in such entity being owned by persons
different than at the time of the Lease Date, or which results in more than 49%
of the voting rights or decision making rights being exercisable by persons
other than those persons entitled to exercise the voting/decision making rights
on the Lease Date, shall constitute an assignment of this Lease. Any assignment
made without Landlord's approval or without strict compliance with the
requirements of this Section, in addition to constituting an Event of Default by
the Tenant, shall be voidable by Landlord.
B. Review and Approval. As a condition to any request to assign,
-------------------
transfer or sublet the Leased Premises or any part thereof, Tenant shall submit
to Landlord for Landlord's review and approval a copy of the proposed assignment
or sublease, a description of the proposed use of the Leased Prem ises by the
potential assignee or sublessee, and current (and a reasonable
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<PAGE>
amount of historical) financial information regarding the potential assignee or
sublessee. Tenant shall pay all costs and expenses incurred by Landlord in
connection with Landlord's review of any requested assignment or sublease,
including reasonable attorneys' fees, and shall pay to Landlord a fee of $500 as
a proposed assignment consideration fee. Landlord shall have thirty days after
receipt of such information and fee to review and to approve or reject the
requested assignment, transfer or sublease. If an assignment or sublease is
requested, Landlord may direct Tenant to require the assignee or sublessee to
pay 90% of the current fair market rental rate for comparable space in the
Building or, if no office space in the Building is then for rent or has been
leased within the prior six months, then for comparable space in comparable
buildings in the Denver Technological Center, as determined in good faith by
Landlord, if the rental rate of this Lease is less than 90% of the prevailing
market rental rate for such space. In such event, any assignment or sublease to
be approved by Landlord shall incorporate 90% of the current prevailing market
rental rate. Any rent payable to Tenant by any such sublessee or assignee in
excess of the rent provided under this Lease shall be paid to Landlord.
C. Tenant Remains Liable. Notwithstanding any permitted assignment,
---------------------
subletting or other transfer or encumbrance, Tenant shall at all times remain
directly, primarily and fully responsible and liable for the payment of the Rent
herein specified and for compliance with all of Tenant's other obligations under
the terms, provisions and covenants of this Lease. Upon the occurrence of an
"Event of Default" as hereinafter defined, if the Leased Premises or any part
thereof are then assigned, sublet, or otherwise transferred or encumbered,
Landlord, in addition to any other remedies provided herein, or by law, may at
its option collect rent owing by such assignee, sublessee or transferee,
directly from such assignee, sublessee or transferee and apply such rent against
any sums due to Landlord from Tenant hereunder, and no such collection shall be
construed to constitute a novation or a release of Tenant from the further
performance of Tenant's obligations hereunder.
D. Requirements.
------------
(1) Conditions Precedent. Landlord may withhold its consent to any
--------------------
such assignment, letting or subletting, if such assignment, letting or
subletting would result in the assignment, leasing or subleasing of:
(a) The Leased Premises to any party, business or lessee who
proposes to conduct a business therein which is not in conformance
with the Permitted Use; or
(b) The Leased Premises to any party, business or lessee who is
then a lessee of the Building if Landlord has or will have during the
ensuing six months suitable space for rent in the Building; or
(c) The Leased Premises at a rental rate less than 90% the then
current prevailing market rate for comparable premises in the Building
or other comparable buildings in the DTC.; or
(d) The Leased Premises to a party whose business is of a
character which does not, in Landlord's reasonable opinion, comport
with the character of a first class office building in the Denver
Technological Center, taking into consideration the percentage of
space it would occupy in the Building; or
(e) Less than 10,000 square feet of the Rentable Area of the
Leased Premises to a sole subtenant; or
(f) [Deleted]
(g) The Leased Premises to a party whose financial condition and
credit rating is not equal to or better than that of, a tenant who
would be acceptable to Landlord for similar office space.
(h) The Leased Premises to any party, business or lessee whose
use of the Leased Premises, Building or appurtenances to the Leased
Premises will result, in Landlord's reasonable opinion, in an increase
in Building Operating Costs or wear and tear on the Leased Premises or
Building beyond that expected by Tenant's use; or,
-E-2-
<PAGE>
(i) The Leased Premises to any party, business or lessee whose
tenancy will, in the opinion of the Landlord, potentially downgrade
the real estate market's classification of the Building.
(2) Subject to Landlord's Rights. Any sublease or assignment is
----------------------------
expressly subject to the provisions of this Lease. No sublease shall permit
the subtenant to pay rent in advance for a period of more than one month
and no such sublease or assignment shall alter, diminish, or impair any of
Tenant's obligations or liability under this Lease, or any rights or
remedies of Landlord.
(3) Required Documentation. Simultaneously with any permitted
----------------------
assignment or sublease: (a) the assignee or sublessee must assume all of
Tenant's obligations under this Lease in a form which is satisfactory to
Landlord; (b) assignee or subtenant must acknowledge in a form which is
satisfactory to Landlord, that such party is, in all respects, subject to
the terms and provisions of this Lease; (c) Landlord must be provided with
a complete executed copy of the assignment or sublease; and, (d) any
Guarantor or other person obligated under or liable for the Lease
performance shall have executed and delivered to Landlord a ratification of
the Lease and consent to the assignment/sublease agreeing that such
assignment/sublease will in no way affect such Guarantors' (or other
persons') obligations or liabilities.
E. Election to Terminate. With respect to any proposed, sublease,
---------------------
requested by Tenant, Landlord may elect, by notifying Tenant in writing within
twenty days of receipt of Tenant's request for Landlord's consent, to cancel and
terminate this Lease as to the portion to be included in the sublease, and as to
any proposed assignment unless Tenant's request is withdrawn in writing by
notice to Landlord given within 15 days after Landlord advises Tenant that it
will not approve the assignment.
22. RULES AND REGULATIONS.
---------------------
Tenant covenants that Tenant and its agents, representatives, employees,
invitees, visitors or those claiming under Tenant will at all times observe,
perform and abide by all the general rules and regulations promulgated by
Landlord from time-to-time. Landlord's rules and regulations in effect on the
date hereof are attached hereto and made a part hereof as Exhibit D. Such rules
and regulations may be changed, from time-to-time, upon written notice to
Tenant; and the new rules and regulations shall go into effect ten days after
the mailing of such notice.
23. PARKING.
-------
Except as provided on the Base Lease Term Sheet (Part 1), Tenant and its
employees and invitees shall have the non-exclusive privilege to use the number
of non-reserved parking spaces as stated in the Basic Lease Term Sheet in the
areas designated therein pursuant to any rules and regulations relating to
parking adopted by Landlord from time-to-time. Tenant shall not use any parking
spaces not specifically allocated to Tenant. Neither Tenant nor its employees,
servants or any persons commonly occupying the Building shall use, enjoy, or
occupy any space designated as visitor parking. Any breach or violation of this
covenant or any rules and regulations pertaining to parking space usage by
Tenant shall constitute a material Event of Default under this Lease. Tenant
agrees to cooperate with Landlord and other tenants in the use of parking
facilities. If Landlord determines parking facilities are becoming crowded,
Landlord may take any other steps necessary to correct such condition. The
charge for the parking spaces as stated in Part 1 shall be paid monthly along
with Base Rent, except that there shall be no charge for the first three months
of the Lease Term that those spaces are available for use (it being understood
that some of the covered parking may not be available on the Lease Commencement
Date).
-E-2-
<PAGE>
24. SIGNS.
-----
Except as provided in 24 of the Addendum, Tenant shall not install, paint,
display, inscribe, place or affix any sign, picture, advertisement, symbol,
notice, lettering or direction (hereinafter collectively referred to as "Signs")
-----
on any part of the Leased Premises or the Building without the prior written
approval of Landlord. Landlord may prescribe a uniform pattern of Signs for all
tenants. Any Signs which have been installed without Landlord's prior written
approval may be removed by Landlord and the cost of removal, repair and
restoration charged to Tenant as Additional Rent hereunder. Upon expiration of
this Lease, all Signs installed by Tenant shall be removed by Tenant and any
damage resulting therefrom shall be promptly repaired by Tenant, or such removal
and any repair and restoration may be done by Landlord and the cost therefor,
plus 20% to cover Landlord's overhead and administration, charged to Tenant as
Additional Rent hereunder.
25. [Deleted]
26. QUIET ENJOYMENT; UNAVOIDABLE DELAY.
----------------------------------
A. Quiet Enjoyment. If, and so long as, Tenant pays Rent and keeps and
---------------
performs each and every other term, covenant and condition herein contained on
the part and on behalf of Tenant to be kept and performed, Tenant shall be
entitled to quietly enjoy the Leased Premises without hindrance or molestation
by Landlord, subject to the terms, covenants and conditions of this Lease.
B. Contest of Taxes. Landlord shall pay all taxes and assessments on the
----------------
Building so as not to jeopardize Tenant's use of the Leased Premises. The
foregoing notwithstanding, Landlord shall be entitled to contest any tax or
assessment which it deems to be improperly levied against the Building so long
as such contest does not unreasonably interfere with Tenant's use of the Leased
Premises. Landlord is under no obligation to undertake such contest. The cost
of any such contest (including legal expenses) shall be a Building Operating
Cost.
C. Independent Covenants. Except as provided in this Lease, this Lease
---------------------
and the obligations of Tenant to pay Rent and perform all of the terms, coven
ants and conditions on the part of Tenant to be performed shall in no way be
affected, impaired or excused because Landlord, due to Unavoidable Delay, is (a)
unable to fulfill any of its obligations under this Lease, or (b) unable to
supply or is delayed in supplying any service expressly or impliedly to be
supplied, or (c) unable to make or is delayed in making any repairs,
replacements, additions, alterations or decorations, or (d) unable to obtain or
supply or is delayed in obtaining or supplying any equipment or fixtures.
Landlord shall in each instance exercise reasonable diligence to effect
performance of its obligations when and as soon as possible. However, Landlord
shall be under no obligation to pay overtime labor rates or to provide
uninterrupted services. Tenant's obligation to pay Rent and perform the other
covenants set forth in this Lease shall be construed as independent covenants,
in no way dependent upon any covenants of Landlord under this Lease. Tenant
waives and releases any right or claim of setoff or deduction against any Rent
accruing under this Lease.
-E-2-
<PAGE>
D. Unavoidable Delay. "Unavoidable Delay" shall mean as applicable any
-----------------
and all delays beyond Landlord's or Tenant's reasonable control, including
without limitation, delay: caused by Tenant or Landlord; caused by governmental
restrictions, or by governmental regulations or controls; caused by governmental
authorities; due to order of civil, military or naval authority; arising out of
governmental preemption; due to strikes, labor disputes, lockouts, shortage of
labor or materials, inability to obtain materials or reasonable substitutes
therefor, default of any building or construction contractor or subcontractor;
due to acts of God; caused by fire, earthquake, floods, explosions, actions of
the elements, extreme weather conditions; due to enemy action, civil commotion,
riot or insurrection, fire or other unavoidable casualty; due to delays in
obtaining governmental permits or approvals; or arising from any other cause
beyond Landlord's or Tenant's control. (see Addendum 26D)
27. SURRENDER.
---------
Upon the expiration or earlier termination of this Lease or Tenant's
possession, Tenant shall surrender the Leased Premises, including but not
limited to all Tenant Improvements made by Landlord and all additional
improvements and alterations made by Tenant (unless otherwise directed by
Landlord to remove), peaceably to Landlord in a sound, safe, sanitary,
serviceable, reasonably attractive, and "broom clean" condition, and otherwise
in substantially the same condition as received, subject only to (A) the effects
of any casualty that Tenant is not required to restore by this Lease and (B)
deterioration from normal use. Except as expressly provided otherwise in this
document for any termination of this Lease because of any casualty, Tenant's
failure to surrender the Premises as required by this paragraph is an immediate
Event of Default. Tenant shall remove all of its furniture, equipment and other
personal property. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of this Lease.
28. HOLD OVER TENANCY.
-----------------
If (without execution of a new lease or written extension) Tenant shall
hold over after the expiration or termination of this Lease or Tenant's
possession, Tenant may, at Landlord's option, be deemed to be occupying the
Leased Premises as a tenant from month to month, which tenancy may be terminated
as provided by law. During such tenancy, Tenant shall pay to Landlord 150% of
the then current Base Rent plus all other Rent, as and when provided for herein,
and Tenant shall be bound by all of the terms, covenants and conditions of this
Lease. If Tenant holds over after the expiration or termination of this Lease or
Tenant's possession without Landlord's permission, then such continued
possession shall be deemed a tenancy at suf ferance, and Tenant shall pay to
Landlord 200% of the then current Base Rent plus all other Rent, as and when
provided for herein, prorated on a daily basis until Tenant surrenders
possession as required by this Lease.
29. TENANT'S DEFAULT.
----------------
A. Events of Default. It shall be an "Event of Default" if:
----------------
(1) Non-Payment. Tenant shall fail to pay any monthly installment of
-----------
Rent or any other charge or payment required of Tenant hereunder (although
no legal or formal demand has been made therefor) and such failure shall
continue for a period of ten days after the date such pay ment was due;
and, with respect to only two failures to pay in any calendar year, within
10 days after notice to Tenant of the failure.
(2) Non-Performance. Tenant shall violate or fail to perform any of
---------------
the other conditions, covenants or agreements made by Tenant in this Lease,
and such violation or failure shall continue for a period of 20 days after
written notice thereof to Tenant by Landlord; provided that if the default
cannot be cured within 20 days, then Tenant shall not be in default if it
begins to cure the default within 20 days and diligently pursues it to
completion within not more than 45 days.
(3) Insolvency. Tenant admits in writing its inability to pay debts
----------
generally as they become due;
(4) General Assignment. Tenant shall make a general assignment for
------------------
the benefit of its creditors or shall file or threaten to file a petition
for bankruptcy or other reorganization, liquidation, dissolution or
similar relief;
-E-2-
<PAGE>
(5) Proceedings. A proceeding is filed against Tenant seeking any
-----------
relief mentioned in (4) above which is not dismissed within 60 days after filing
(Tenant shall give prompt notice to Landlord of the filing of any such
proceedings and within such 60-day period shall provide Landlord with adequate
assurances that any such proceeding is not meritorious and in the event such
assurances are not given, or in Landlord's opinion, deemed to be inadequate, an
Event of Default shall be deemed to have occurred immediately on the filing of
such proceeding; if such adequate assurances are timely given, the proceeding
shall be dismissed by Tenant with due diligence, which dismissal may occur more
than 30 days after the filing of the proceeding);
(6) Appointment of Trustee. A trustee, receiver or liquidator shall
----------------------
be appointed for Tenant or a substantial part of its property;
(7) Abandonment. Tenant shall abandon any substantial portion of the
-----------
Leased Premises or vacate the Premises for more than 20 days;
(8) Mortgage. Tenant shall mortgage, assign (except as otherwise
--------
provided in this Lease) or otherwise encumber its leasehold interest; other than
to CoBank, ACB pursuant to the Leasehold Assignment and Consent pertaining to
this Lease dated August 8, 1995.
(9) Recordation. Tenant shall record this Lease or any memorandum or
-----------
notice of it (as more specifically prohibited in Section 46); other than the
memorandum referred to in Section 46.
(10) Cessation of Business. Tenant shall cease or suspend normal
---------------------
business operations within the Leased Premises for a period of more than 20
consecutive days (except for any period required for restoration after any
casualty);
(11) Unrelated Proceedings. Execution or other process, judicial or
---------------------
administrative, issues by, through, under, or against Tenant with respect to
Tenant's interest in this Lease or the Leased Premises, or both, and, within 30
days thereafter, is not stayed, released, satisfied, or dis charged, or
provision made for its discharge according to its terms; or any such stay
thereafter is vacated, released, or discharged for any reason, including
affirmance on appeal, and such process then is not within 30 days thereafter
released, satisfied, or discharged, or provi sion made for its discharge
according to its terms;
(12) Lien on Premises. Any federal, state, or local tax lien, or any
----------------
claim of lien for labor, services, or materials, or any other lien, encumbrance,
or a adverse claim of any nature whatsoever, including, without limitation, a
lis pendens or other notice of pendency, is recorded, filed, or asserted against
- --- -------
or with respect to the Leased Premises or the Building or the Rent by, through,
under, or against Tenant, or otherwise relates to an obligation that Tenant is
required to perform under this Lease, and is not within 10 days thereafter
discharged by payment or bonded over upon demand; or
(13) Transfer. Any assignment, sublease or transfer of Tenant's
--------
interest in this Lease, or the Leased Premises, except in compliance with the
requirements of this Lease, including any transfer by operation of law.
(14) Non-Occupancy. Failure to take occupancy or execute the Lease
-------------
Commencement Rider as required by the Lease.
B. Remedies.
--------
(1) Cumulative Rights. If an Event of Default occurs, then Land lord
-----------------
may:
(a) give Tenant written notice of Landlord's intention to
terminate this Lease on the date of such given notice or any later
date specified therein, and on such specified date Tenant's right to
possession of the Leased Premises shall cease and this Lease shall
thereupon be terminated;
(b) without further notice, reenter and take possession of the
Leased Premises, or any part thereof, without authorization of any
court, and repossess the same as of Landlord's former estate, and
expel Tenant and those claiming through or under Tenant, and remove
the effects of either or both (forcibly, if necessary)
-E-2-
<PAGE>
without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of Rent or for Tenant's
preceding breaches of covenants, and without liability to Tenant for
any loss of profits. Should Landlord elect to reenter as provided
herein, or should Landlord take possession pursuant to legal
proceedings or any notice provided for by law, Landlord may, from
time-to-time, without terminating this Lease, relet the Leased
Premises or any part thereof, on behalf of Tenant for such term or
terms and at such rent or rents, and upon such other terms and
conditions as Landlord may deem advisable in Landlord's sole
discretion (including concessions, free rent, and payment of
commissions) with the right to make alterations and repairs to the
Leased Premises. No such re entry or taking of possession of the
Leased Premises by Landlord shall be construed as an election on
Landlord's part to terminate this Lease, unless a written notice of
termination is given to Ten ant by Landlord. Tenant shall continue to
pay to Landlord all Rent owing under this Lease on the dates when same
become due, except that Tenant shall be entitled to a credit against
such Rent for any amounts collected by Landlord, if any, from
reletting of the Leased Premises on behalf of Tenant;
(c) advance such monies, and take such other action, for Ten
ant's account as reasonably may be required to cure or mitigate any
default or Event of Default. Tenant agrees to reimburse Landlord for
such advances, as Additional Rent, upon demand from Landlord. Any such
advance, and any cost or expense so incurred, shall bear interest at
the rate of 2% per month, accrued daily and compounded monthly, until
paid by Tenant;
(d) enter upon the Leased Premises, by force if necessary,
without being liable for prosecution or any claim for damages there
for, and do whatever Tenant is obligated to do under the terms of this
Lease; and Tenant agrees to reimburse Landlord upon demand, as
Additional Rent, for any reasonable expenses which Landlord may incur
in thus effecting compliance with Tenant's obligation under this
Lease, plus 10% of the amount of such expenses to reimburse Landlord
for its administrative expense and overhead. Any such expense so
incurred by Landlord (together with the 10% added thereto) shall bear
interest from the date of notice to Tenant at the rate of 2% per
month, compounded monthly, until paid by Tenant. Tenant further agrees
that Landlord shall not be liable for any damages to Tenant resulting
from such action, whether caused by the negligence of Landlord or
otherwise;
(e) if the Landlord elects to terminate the Lease, collect as
"Liquidated Damages" an amount equivalent to (i) the total unpaid Rent
-------------------
which would have accrued for the period between the date of Landlord's
termination of this Lease and the then applicable lease expiration
date (such period shall be called the "Unexpired Term of the Lease"),
---------------------------
plus "Landlord's Expenses and Losses" (as further described
----
hereinafter), less the "Fair Rental Value of the Leased Premises" for
----
the Unexpired Term of the Lease. Landlord's Expenses and Losses shall
include all expenditures incurred by Landlord, or which Landlord
reasonably anticipates Landlord will incur, in making the Leased
Premises suitable for re-rental to a new tenant, all other expenses
incurred, or which Landlord reasonably anticipates Landlord will
incur, in re-rental of the Leased Premises including, by way of
example, the following: the cost of repair, alteration, cleaning and
restoration of the Leased Premises to a condition commensurate with a
first class office building leasehold premises; any brokerage
commissions which Landlord incurs, or reasonably anticipates Landlord
will incur, in connection with the re-rental; any attorneys' fees
which Landlord incurs, or reasonably anticipates will be incurred, in
preparing and negotiating a new lease agreement for the re-rental; the
value of any rental concessions, which Landlord must provide to re-
rent the Leased Premises. Landlord's Expenses and Losses shall also
include, by way of example, an amount equal to the Fair Rental Value
of the Leased Premises during the period of time determined to be
necessary to locate and obtain a new tenant to occupy the Leased
Premises (in other words, the liquidated damages shall include the
amount of rent not being received during the estimated marketing
time); and shall include the Fair Rental Value of the Leased Premises
for any period of time during which it is reasonably determined by
Landlord to be necessary to give "free rent" to a new tenant (that is,
occupancy without any obligation to pay rent) as an inducement to
relet the Leased Premises to a new tenant (or, if as an inducement it
is reasonably determined by Landlord that it will be necessary to give
to a new tenant a reduced
-E-2-
<PAGE>
rent, then an amount equal to the Fair Rental Value for the reduced
rent period, the length of which period shall be reasonably determined
by Landlord, minus the amount of the reduced rent expected to be
received, which amount shall be reasonably determined by Landlord).
For the purposes of this paragraph, the Fair Rental Value of the
Leased Premises, the amount of any rental concessions, and the length
of marketing time shall all be determined by a commercial real estate
broker selected by Landlord, in Landlord's sole discretion, who is not
an employee of Landlord, who specializes in leasing commercial office
space in the market area in which the Building is located (which
market shall be determined by such broker in the broker's sole
discretion but without any reduction for real estate commissions and
without regard to the condition of and the tenant improvements in the
Leased Premises) and who has leased commercial office space in such
market area for at least the eight (8) years preceding such
determinations. Such determinations by the broker shall be final and
binding on the parties hereto, not subject to review. The Tenant
expressly waives and releases the Landlord of and from any obligation
inferred herein or imposed by law to mitigate damages, adopting, in
lieu thereof, the foregoing liquidated damages provision;
(f) recover as "Actual Damages" any reasonable costs and
--------------
expenses properly incurred by Landlord for terminating this Lease, or
Tenant's right to possession, as the case may be, including any
leasing commissions remaining payable in connection with this Lease,
the unamortized balance of any prepaid leasing commissions with
respect to this Lease, the unpaid Rent (including all Base Rent and
Additional Rent) for the portion of the Lease Term, up to the date of
termination of the Lease (if ever), any losses or damages owing to any
new tenant of the Leased Premises occasioned by landlord's inability
to deliver possession of the Leased Premises to such new tenant due to
Tenant's failure or refusal to vacate the Leased Premises at the time
of such termination; and other professional compensation, costs, and
expenses, as provided in this Lease, less any rent received during
----
such time period from the Leasehold Premises;
(g) apply the Security Deposit to Landlord's losses in such
order as Landlord elects. Landlord must account for such application
only as and when the full extent of Landlord's damage is known, or the
Security Deposit is exhausted, whichever occurs first;
(h) [Deleted]
(i) See Addendum 29B(i)
(2) Survival of Obligations. If Landlord elects to take possession of the
-----------------------
Leased Premises without terminating this Lease, any such repossession shall
not relieve Tenant of its obligations and liability under this Lease, all
of which shall survive such repossession. In the event of such
repossession, Tenant shall pay to Landlord all Rent which would be payable
hereunder if such repossession had not occurred, less the net proceeds, if
any, of any reletting or the value of Landlord's use, if any, of the Leased
Premises after deducting all of Landlord's expenses in connection with such
reletting, including, but without limitation, all repossession costs,
brokerage commissions, legal expenses, expenses of employees, costs of
alterations, expenses of preparation for reletting, rental concessions and
free rent. Tenant shall pay such Rent to Landlord on the days on which the
Rent would have been payable hereunder if pos session had not been retaken.
After repossession of the Leased Premises, Landlord may procure the
appointment of a receiver to take possession and collect rents and profits
of the business of Tenant. The receiver may carry on the business of Tenant
and take possession of the personal prop erty used in the business of
Tenant, including inventory, trade fixtures, and furnishings, and use them
in the business without compensation to Tenant. Proceedings for appointment
of a receiver by Landlord, or the appointment of a receiver in the conduct
of the business of Tenant by the receiver, shall not terminate nor forfeit
this Lease unless Landlord has given written notice of termination to
Tenant.
-E-2-
<PAGE>
(3) Eviction Proceedings. In the event Landlord commences
--------------------
proceedings (called herein "FED Proceedings") in the nature of a forcible
---------------
entry and detainer or unlawful retention for nonpayment of Rent, for
Tenant's failure to perform its other obligations hereunder, or for
Tenant's failure to deliver possession of the Leased Premises to Landlord
upon the expiration or earlier termination of the Lease, Tenant waives any
right to a trial by jury in such FED Proceedings, Tenant agrees not to file
a counterclaim against Landlord in the FED Proceedings, and Tenant agrees
not to consolidate claims or actions against Landlord in said FED
Proceedings; however, Tenant does not waive its right hereunder to bring
any separate action against Landlord. The commencement of such FED
Proceedings (including but not limited to the delivery of notice and
process therefor regardless of whether such proceedings are actually
commenced), shall not, in and of itself, be deemed to terminate this Lease,
nor to constitute an election of remedies.
(4) Non-Election of Remedies. Pursuit of any of the foregoing
------------------------
remedies shall not preclude pursuit of any of the other remedies herein
provided or any other remedies provided by law or in equity, nor shall
pursuit of any remedy herein provided constitute an election of remedies or
a forfeiture or waiver of any Rent due to Landlord hereunder or of any
damages accruing to Landlord by reason of the violation of any of the
terms, provisions and covenants herein contained. No act or thing done by
Landlord or its agents during the term hereby granted shall be deemed a
termination of this Lease or an acceptance of the surrender of the Leased
Premises, and no agreement to terminate this Lease or accept a surrender of
the Leased Premises shall be valid unless in writing signed by Landlord.
(5) Equitable Relief. Landlord is also entitled, if otherwise
----------------
appropriate, to (a) injunctive or other equitable or declaratory relief in
case of any violation, or any attempted or threatened violation, of any
provision of this Lease; (b) an order compelling the observance or
performance of any such provision; and (c) one or more accountings of
Tenant's obligations under this Lease.
30. PROFESSIONAL FEES AND COSTS.
---------------------------
If Landlord or Tenant employs any attorneys, appraisers, architects,
brokers, engineers, or other professionals (collectively, "Professionals") with
-------------
respect to any Event of Default by Tenant or a default by Landlord, the
defaulting party upon demand will pay, or reimburse the other for, as the case
may be, all reasonable compensation for all such Professionals so employed,
regardless of whether suit or other proceeding is instituted (including, without
limitation, FED Proceedings) and, if instituted, will pay all cost and expense
(including reasonable legal fees) for any such arbitration, administrative,
trial, appellate and other proceedings. Tenant will also pay other costs of
collection incurred and any costs, expenses, and reasonable professional fees
that otherwise may be sustained or incurred by Landlord involving the
collection, enforcement, validity, or interpretation of this Lease or involving
any use, activity or installation by Tenant.
31. ACCORD AND SATISFACTION; REINSTATEMENT OR EXTENSION.
---------------------------------------------------
A. No Accord and Satisfaction. No receipt and retention by Landlord of
--------------------------
any payment tendered by Tenant in connection with this Lease will give rise to
or support or constitute an accord and satisfaction, notwithstanding any
accompanying statement, instruction or other assertion to the contrary (whether
by notation on a check or in a transmittal letter or otherwise) unless Land lord
expressly agrees to an accord and satisfaction in a separate writing duly
executed by the appropriate persons. Landlord may receive and retain, abso
lutely and for itself, any and all payments so tendered, notwithstanding any
accompanying instructions by Tenant to the contrary, and may account for such
payments as partial payments on account, notwithstanding any accompanying
instructions, statements or assertions by Tenant to the contrary. Landlord shall
be entitled to treat and apply any such payments as being received on account of
any item or items of Rent, Additional Rent, interest, expense or damage due in
connection herewith in such amounts and in such order as Landlord may determine
in its sole option.
B. No Reinstatement or Retention. No payments of Rent or other sums due
-----------------------------
by Tenant to Landlord after termination of this Lease or after the giving of any
notice (other than a demand for payment) by Landlord to Tenant shall reinstate,
continue or extend the term of this Lease or affect any notice given to Tenant
prior to the payment of such money unless expressly agreed to by Landlord in
writing.
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<PAGE>
32. LANDLORD'S DEFAULT.
------------------
Landlord shall not be in default under this Lease unless Landlord fails to
perform any required obligation for at least 30 days after written demand
specifying the exact nature of the obligation that Landlord allegedly has failed
to perform. If the nature of Landlord's obligation is such that more than 30
days is reasonably required for performance, then Landlord will not be in
default if Landlord promptly begins performance within such 30-day period and
pursues it diligently and continuously to completion.
33. LIMITATION OF LANDLORD'S LIABILITY.
----------------------------------
The obligations of Landlord under this Lease do not constitute personal
obligations of Landlord or of Landlord's property management agent, nor of the
individual partners, directors, officers, shareholders or employees of Landlord,
or Landlord's property management agent, and Tenant shall look solely to the
real estate that is the subject of this Lease and to no other assets of Landlord
or Landlord's property management agent for satisfaction of any liability in
respect, directly or indirectly, of this Lease and Tenant will not seek recourse
against Landlord or Landlord's property management agent, or the individual
partners, directors, officers, shareholders or employees of Landlord or
Landlord's property management agent, or any of the personal assets of any of
them, other than the real estate which is the subject of this Lease, for such
satisfaction or for any deficiency judgement should Tenant be unable to satisfy
any liability owed to it.
34. LANDLORD'S RESERVED RIGHTS.
--------------------------
Without notice and without liability to Tenant, Landlord shall have the
right to:
A. Building Change. Change the name of the Building, the street address
---------------
of the Building, add additional property to that underlying the Build ing,
construct other buildings or improvements on such property, to change the size,
Rentable Area or Common Area of the Building or to undertake any similar
changes;
B. Building Signs. Install and maintain reasonable Signs on the exte
--------------
rior of the Building;
C. Rules and Regulations. Make rules and regulations as, in the judgment
---------------------
of Landlord, may from time-to-time be needed for the safety of the tenants, the
care and cleanliness of the Building and the preservation of good order therein.
Tenant shall be notified in writing when each such rule and regulation is
promulgated;
D. Grants of Property Rights. Grant utility easements or other
-------------------------
easements to such parties, or replat, subdivide or make such other changes in
the legal status of the land underlying and surrounding the Building as Landlord
shall deem necessary, provided such grant or changes do not substantially or
materially interfere with Tenant's use of the Leased Premises as intended under
this Lease; and
E. Sale of Building. Subject to Tenant's Right of First Refusal, sell
----------------
the Building and assign this Lease to the purchaser (and upon such assignment be
released from all obligations under this Lease). Tenant agrees to attorn to such
purchaser, or any other successor or assignee of Landlord through foreclosure or
deed in lieu of foreclosure or otherwise and to recognize such person as
Landlord under this Lease, as provided in the Section below pertaining to
Subordination and Attornment.
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<PAGE>
35. SUBORDINATION AND ATTORNMENT.
----------------------------
A. Subordination. At Landlord's election, this Lease shall be subject and
-------------
subordinate to all mortgages and deeds of trust which may now or hereafter
encumber the real property of which the Leased Premises are a part, and to all
renewals, modifications, consolidations, replacements and extensions of any such
mortgages and deeds of trust. This clause shall be self-operative and no
further instrument of subordination shall be required in order for the same to
be effective. However, Tenant hereby agrees to execute and deliver to Land
lord, if so requested, any and all instruments in writing which may be required
by Landlord or any lender to subordinate Tenant's rights acquired by this Lease
as aforesaid. Landlord is irrevocably appointed Tenant's attorney-in-fact to
act in Tenant's name, place and stead if Tenant fails or refuses to deliver any
such executed documents.
B. Attornment. Tenant agrees to attorn to any purchaser of the Building,
----------
or any other successor owner or assignee of Landlord through foreclosure or deed
in lieu of foreclosure.
36. ESTOPPEL CERTIFICATE.
--------------------
A. Contents. Within 10 business days after request therefor by Landlord,
--------
its agents, successors or assigns, Tenant shall deliver, in recordable form, a
certificate to any proposed investor, mortgagee or purchaser, or to Landlord,
together with a true and correct copy of this Lease, certifying, if true (or if
not true, stating why it is not) (1) that this Lease is in full force and
effect, without modification, (2) the amount, if any, of prepaid Rent and the
Security Deposit paid by Tenant to Landlord, (3) that Landlord, as of the date
of the certificate, has performed all of its obligations due to be performed
under this Lease and that there are no de fenses, counterclaims, deductions or
offsets outstanding, or other excuses for Tenant's performance under this Lease,
or stating those claimed by Tenant, (4) that Tenant knows of no proceedings,
judicial or administrative, that are pending or threatened against Tenant, the
Leased Premises or the Building, and (5) any other fact, statement or matter
reasonably requested by Landlord or such proposed mortgagee or purchaser, which
does not modify or conflict with Tenant's rights or obligations under this
Lease. Some of the additional statements or matters which may be included in
the certificate or agreement Tenant signs under Section 34 or this Section 35
are included in Exhibit E to this Lease.
---------
B. Failure to Deliver. Tenant acknowledges that this Lease is a material
------------------
inducement for Landlord to build the Building and for a lender to finance or
refinance the construction of the Building. Tenant's failure to deliver such
certificate in the time provided and within 10 days after notice to Tenant of
its failure to do so (a) shall be conclusive upon Tenant: (1) that this Lease
is in full force and effect, without modification except as may be represented
by Landlord; (2) that there are no uncured defaults in Landlord's performance
and Tenant has no right to offset, counterclaim, defenses or deduction against
Rent or Landlord hereunder; (3) that no more than one month's Rent has been paid
in advance; and, (4) that Tenant may be declared in default of this Lease by
Landlord and (b) shall entitle Landlord to collect from Tenant upon demand an
amount equal to 24 months Base Rent as liquidated damages for its default,
provided notice has been delivered to Tenant's president, general counsel, Vice
President-Legal Affairs or to the registered agent in Colorado for Tenant.
Additionally, upon Tenant's failure to deliver, Landlord may deliver any such
certificate as Tenant's attorney in fact, Tenant hereby irrevocably appointing
Landlord as its true and lawful attorney in fact for such purpose and all other
purposes contemplated by this Lease, acknowledging Landlord's right of
appointment which irrevocable appointment is coupled with an interest.
37. [Deleted]
38. AMENDMENT.
---------
This Lease constitutes the entire agreement between the parties and shall
not be amended or modified in any manner except in writing signed by both
parties.
39. WAIVER.
------
No covenant or term of this Lease shall be waived except with the express
written consent of the waiving party. Mere forbearance or indulgence in any
regard, or failure to exercise any right in one or more instances, shall not be
construed as a waiver of the right to strict performance of this Lease. No
waiver by Landlord of any violation or breach of any of the
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<PAGE>
terms, provisions and covenants herein contained shall be deemed or construed to
constitute a waiver of any other violation or breach of any of the terms,
provisions and covenants herein contained. Landlord's acceptance of the payment
of Rent or other payments hereunder after the occurrence of an Event of Default
shall not be construed as a waiver of such default, unless Landlord so notifies
Tenant in writing. No attempted surrender of the Leased Premises, by Tenant's
delivery to Landlord of the keys or otherwise, shall waive, limit or otherwise
impair any right or remedy of Landlord unless Landlord agrees in writing.
Forbearance by Landlord to enforce one or more of the remedies herein provided
upon an Event of Default shall not be deemed or construed to constitute a waiver
of such default or of Landlord's right to enforce any such remedies with respect
to such default or any subsequent default.
40. NOTICES.
-------
All notices required by this Lease shall be in writing, sealed in an
envelope and delivered in person or mailed by U.S. Registered or Certified Mail,
return receipt requested, postage prepaid to the addresses specified on the
Basic Lease Term Sheet, or to such other addresses as either party desig nates
by notice, as provided in this paragraph, to the other party, from time-to-time,
or by courier. Notice shall be effective as of the date delivered in person; or,
in the case of mailing by Registered or Certified Mail, shall be deemed
effective three (3) calendar days after the date postmarked whichever is sooner.
41. BINDING EFFECT; GENDER.
----------------------
Subject to the limitations, restrictions, conditions and provisions in
Section 21, this Lease shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. As used herein, the
singular shall be deemed to include the plural form, and the use of any gender
shall be deemed to include all genders. The terms "Landlord" and "Tenant" shall
include the officers, directors, partners, employees, agents, repre sentatives,
invitees, contractors, subcontractors, investors, licensees and guests of the
Landlord or Tenant, whichever is applicable whenever the context so permits.
Verbs and pronouns in the singular number are uniformly used throughout this
Lease regardless of gender, number or fact of incorporation of the parties
hereto. All references to "days" shall mean calendar days unless business days
are expressly specified.
42. RIDERS AND ATTACHMENTS.
----------------------
The written riders, exhibits, addendums or supplemental provisions, if any,
attached or added hereto are incorporated herein and are made a part of this
Lease by reference. The absence or omission of any exhibit, addendum or rider
shall not affect the validity or enforceability of this Lease.
43. SEVERABILITY.
------------
The parties intend this Lease to be legally valid and enforceable in
accordance with all of its terms to the fullest extent permitted by law. If any
term hereof shall be finally held to be invalid or unenforceable, the parties
agree that such term shall be stricken from this Lease, the same as if it never
had been contained herein, and in lieu thereof, there shall be added as a part
of this Lease a clause or provision as similar in terms to such invalid or
unenforceable term as may be possible and still be valid and en forceable. Such
invalidity or unenforceability shall not extend to or oth erwise affect any
other term of this Lease, and the unaffected terms hereof shall remain in full
force and effect to the fullest extent permitted by law, the same as if such
stricken term never had been contained herein.
44. TIME; DUTIES OF TENANT REQUIRE STRICT PERFORMANCE.
-------------------------------------------------
Time is of the essence hereof. The obligations and duties of Tenant
required hereunder require the strict performance by Tenant and substantial
performance shall not be deemed adequate.
45. BROKER'S INDEMNIFICATION.
------------------------
As part of the consideration for the granting of this Lease, Tenant
represents and warrants to Landlord that no broker or agent negotiated or was
instrumental in the negotiation or consummation of this Lease, except the Broker
of Record and any Tenant's Broker specified in the Basic Lease Term Sheet.
Tenant agrees to indemnify Landlord against any loss, expense,
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<PAGE>
cost or liability incurred by Landlord as a result of a claim by any other
broker or finder claiming through Tenant.
46. RECORDING LEASE.
---------------
Landlord and Tenant agree not to record this Lease or any memorandum other
than the one signed by both parties on the same date as this Lease, or notice of
it. In the event Tenant records this Lease or any other memorandum or notice of
it, the same shall constitute an Event of Default by Tenant.
47. ENTIRE AGREEMENT.
----------------
This Lease and the Riders, Addendums and Exhibits attached, if any, form a
part of this Lease together with the rules and regulations adopted and
promulgated by Landlord in the manner provided herein and set forth all the
covenants, promises, assurances, agreements, representations, conditions,
warranties, statements, and understandings (the "Representations") between
---------------
Landlord and Tenant concerning the Leased Premises and the Building, and there
are no Representations, either oral or written, between Landlord and Tenant,
other than those in this Lease. This Lease supersedes and revokes all previous
negotiations, arrangements, letters of intent, offers to lease, lease proposals,
brochures, other representations and information conveyed, whether oral or in
writing, between the parties or their respective representatives or any other
person purporting to represent Landlord or Tenant. Tenant acknowledges that it
has not been induced to enter into this Lease by any representations not set
forth in this Lease, it has not relied on any representation not set forth in
this Lease, no representations, other than those set forth in this Lease
Agreement, shall be used in the interpretation or construction of this Lease,
and Landlord shall have no liability for any consequences arising as a result of
any representations not set forth in this Lease.
48. [Deleted]
49. EXECUTION OF LEASE, AUTHORIZATION OF PARTIES.
--------------------------------------------
Execution of this Lease by Tenant and submittal to Landlord for Land lord's
execution shall be deemed an offer by Tenant to lease the Leased Prem ises
subject to the terms and provisions of this Lease, which may be accepted by
Landlord at Landlord's election. Subject to the provisions of the Section below
entitled "LENDER APPROVAL," this Lease shall not be binding upon Landlord until
---------------
fully executed by Landlord, and a fully executed copy of this Lease is delivered
to Tenant. Execution of this Lease by Tenant and Landlord shall constitute a
personal representation and warranty of each such executing person that he is
fully authorized to execute this Lease on behalf of his principal, and that this
Lease is valid and binding upon Landlord or Tenant, respectively. Tenant agrees
to deliver to Landlord such resolutions, authorizations and consents as may be
requested by Landlord evidencing such authorization and the binding effect of
this Lease upon Tenant.
50. LENDER APPROVAL.
---------------
If Landlord must obtain lender approval of this Lease, then the Lease shall
not be effective unless and until such approval is received from such Lender by
Landlord in writing. If such approval has not been obtained within one month
after Tenant's execution hereof, this Lease shall, at the option of Landlord, be
void and both parties shall be released from all obligations hereunder.
51. CONSTRUCTION OF LEASE.
---------------------
This Lease shall be construed according to the laws of the state in which
the Leased Premises are located. All terms and provisions contained in this
Lease have been freely negotiated by the parties in good faith after mutual
discussion, and shall be interpreted and construed as having been drafted by and
for the benefit of all parties. LANDLORD HAS ADVISED TENANT TO CONSULT WITH
LEGAL COUNSEL REGARDING THE LEGAL EFFECT OF THIS LEASE. IF TENANT FAILS TO DO
SO, TENANT ASSUMES ALL RISKS OF ANY LEGAL CONSEQUENCES ARISING PURSUANT TO THE
TERMS OF THIS LEASE. EACH TERM AND EACH PROVISION HEREIN HAS BEEN SEPARATELY
NEGOTIATED AND AGREED UPON BY BOTH PARTIES. Paragraph headings have been
inserted for convenient reference only, and shall not limit, expand, or
otherwise alter the provisions of this Lease.
52. Addendum.
--------
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<PAGE>
The Addendum attached to this Lease is a part of this Lease.
THIS LEASE is executed as of the date first above written.
"LANDLORD"
__________________________________
a ________________________________
By: __________________________________
Its: _____________________________
"TENANT"
__________________________________
a ________________________________
ATTEST:
_____________________ By: __________________________________
Its:______________________________
TENANT NOTARIAL ACKNOWLEDGEMENT
-------------------------------
STATE OF COLORADO )
) (S)
COUNTY OF _____________________________ )
The foregoing instrument was acknowledged before me this ____ day of
_________________, 199____, by _________________________________ as
________________________________________ of
_________________________________________________, a
________________________________________, on behalf of the
________________________________________________, as "Tenant."
WITNESS my hand and official seal.
My Commission expires: ___________________________________.
________________________________________________
Notary Public
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<PAGE>
EXHIBIT A
---------
Floor Plan of Leased Premises
-----------------------------
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<PAGE>
EXHIBIT B
---------
Legal Description of Building
-----------------------------
Approximately 4.8 acres of land located near the southwest corner of DTC
Boulevard and Belleview Ave. in Greenwood Village, Colorado in a part of the
following described land:
A parcel of land in the Northeast quarter of Section 16, Township 5 South, Range
67 West of the 6th Principal Meridian, Greenwood Village, Arapahoe County,
Colorado, more particularly described as follows:
Commencing at the Northwest corner of said Northeast quarter of Section 16;
thence S 00 degrees 29 minutes 50 seconds W along the westerly line of said
Northeast quarter a distance of 521.88 feet; thence S 89 degrees 30 minutes 10
seconds E perpendicular to said westerly line a distance of 45.00 feet to the
point of beginning;
Thence continuing S 89 degrees 30 minutes 10 seconds E tangent with the
following described curve, a distance of 291.30 feet; thence along the arc of a
curve to the left having a central angle of 90 degrees 36 minutes 51 seconds, a
radius of 224.00 feet, a chord bearing N 45 degrees 11 minutes 25 seconds E a
distance of 318.48 feet and an arc distance of 354.26 feet; thence N 00 degrees
07 minutes 01 seconds W along a line perpendicular to the northerly line of said
Northeast quarter of Section 16 and tangent with the last described curve a
distance of 251.46 feet;
Thence N 89 degrees 52 minutes 59 seconds E along the southerly deed line of
East Belleview Avenue parallel with and 50.00 feet southerly of said northerly
line of the Northeast quarter of Section 16 tangent with the following described
curve, a distance of 675.83 feet;
Thence along the arc of a curve to the right having a central angle of 59
degrees 43 minutes 47 seconds, a radius of 70.00 feet, a chord bearing S 60
degrees 15 minutes 08 seconds E a distance of 69.71 feet and an arc distance of
72.97 feet; thence S 00 degrees 36 minutes 55 seconds W along the westerly deed
line of former South Wabash Street also known as South Tamarac Parkway and DTC
Boulevard and the east line of Block 3, a Subdivision of Section 16 non-tangent
with the last described curve, a distance of 915.94 a feet;
Thence S 89 degrees 53 minutes 15 seconds W along the northerly line of a
Resubdivision of Block 6, Denver Technological Center, Filing No. 2, recorded in
Book 25 Page 94 of the Arapahoe County records, a distance of 1247.39 feet;
Thence N 00 degrees 29 minutes 50 seconds E along the easterly deed line of
South Ulster Street parallel with and 45.00 feet easterly of said westerly line
of the Northeast quarter of Section 16 a distance of 478.18 feet to the point of
beginning.
The exact location of the land on which the Building is located will be
determined by a metes and bounds description to be substituted for this Exhibit
B upon availability.
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<PAGE>
EXHIBIT C
---------
Work Agreement
--------------
[LANDLORD VERSION]
LANDLORD: TCD NORTH, INC. Tenant: COMMNET CELLULR,INC.
----------------------- --------------------------
Landlord to induce Tenant, and Tenant to induce Landlord to enter into the
Lease (which is hereby incorporated by reference to the extent that the
provisions of this Work Agreement may apply thereto) and in consideration of the
mutual covenants hereinafter contained, Landlord and Tenant mutually agree as
follows:
1. Definitions. The terms defined in this paragraph, for purposes of this
-----------
Work Agreement, shall have the meanings herein specified, and, in addition to
the terms defined herein, terms defined in the Lease shall, for purposes of this
Work Agreement, have the meanings therein specified.
1A. "Tenant Improvement Allowance" means $20.00 for each square foot of
----------------------------
Rentable Area of the Premises, subject to 4.1(d) below.
1. "Building Standard" means the quality of materials, finishing and
- -----------------
workmanship specified in writing by Landlord for the Building.
2. "Landlord's Architect" means such person or firm as is reasonably
- --------------------
designated by Landlord.
3. "Landlord's Contractor" means such person or firm as is reasonably
- ---------------------
designated by Landlord.
4. "Tenant Improvements" shall have the same meaning as specified in the
- -------------------
Lease, and shall be as shown on the plan prepared by Kenny Architects dated June
22, 1995, as revised no later than August 15, 1995 by mutual agreement.
2. Completion of Leased Premises.
-----------------------------
1. (a) Tenant shall meet with Landlord's representative on or before
-
August 18, 1995 to finalize layout drawings for the Leased Premises sufficiently
complete to permit Landlord to prepare and complete structural, mechanical and
electrical drawings for the portion of the Tenant Improvements to be constructed
by Landlord. Such final layout drawings shall include: (i) partition layout and
door location; (ii) electrical outlet locations; (iii) Tenant's telephone
systems location of outlets; and (iv) light switches. Based upon such Tenant
approved drawings with Tenant's requirements indicated thereon, Landlord shall
direct its engineers to prepare mechanical, electrical and structural drawings
incorporating such data.
(b) On or before September 21, 1995, Landlord's designer shall complete
and finalize the architectural drawings which are to be coordinated with the
structural, mechanical and electrical drawings prepared by Landlord's engi neers
pursuant to the previous paragraph. The architectural drawings shall include:
(i) a work schedule; and (ii) special blocking requirements for those walls
and/or partitions which will be required to support special weight loads as a
result of Tenant's contemplated design, furniture location and similar matters.
All costs for the initial development of the architectural, mechanical,
electrical, and structural drawings shall be included as part of the cost of the
Tenant Improvements. Upon completion of the drawings by Landlord's engineers and
Landlord's designer, the drawings shall be promptly reviewed by Tenant. In the
event Tenant desires to make any changes in these drawings, Landlord must
approve the changes and Tenant must pay all costs associated with the changes.
Landlord shall have no obligation to commence any work in the Leased Premises
until Tenant shall have approved the drawings by affixing its signature to each
sheet of the drawings. Such signed drawings shall be referred to herein as the
"Working Drawings."
----------------
(c) Landlord's contractor shall perform all work in, on, and about the
Leased Premises in accordance with Building Standard, unless otherwise agreed to
in writing by Landlord and Tenant. The cost of Tenant Improvements to be made by
Landlard which exceed the Tenant Improvement Allowance (including non-standard
architectural, structural, mechanical, fire protection, telephone system and
electrical work), shall be at Tenant's expense. Tenant
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shall, unless waived by Landlord, deposit 50% of the estimated cost of all such
Tenant Improvements to be constructed by Landlord which exceed the Tenant
Improvement Allowance (as it may be increased under (d) below and of all other
Tenant Improvements which Tenant is to pay the cost of, with Landlord prior to
commencement of such work, and Tenant shall pay the actual cost thereof within
ten days after receipt of billing from Landlord. Such billing may be made
periodically as the work is completed. Unless otherwise agreed to in writing by
Landlord and Tenant, all work involved in the completion of Tenant Improve ments
shall be carried out by Landlord's Contractor under the sole direction of
Landlord. Tenant and Landlord shall cooperate with each other and with
Landlord's Contractor to promote the efficient and expeditious completion of
such work.
(d) If Tenant requires an increase in the Tenant Improvement Allowance, it
shall give notice to Landlord by October 6, 1995. In that event, Landlord
agrees to increase it by the amount requested by Tenant, up to a maximum of
$5.00 for each square foot of Rentable Area of the Premises. This increased
amount shall be repaid to Landlord by Tenant in monthly amortized installments
at the rate of 11% per annum over the first five years of the Lease Term, by
adding that amount to the monthly Base Rent. For example, if the Tenant
Improvement Allowance were increased by $5.00 for 60,000 square feet of Rentable
Area, the monthly Base Rent for five years would be increased by $1.30 for each
square foot of Rentable Area.
2. Changes to the approved Working Drawings may be made only by written
-
direction to Landlord on a form approved by Landlord, which direction must be
signed by an authorized representative of Tenant. Landlord may require, as a
condition to any change, that Tenant deposit with Landlord, as a condition to
Landlord's consent to such change, all costs which Landlord estimates Landlord
will incur by virtue of such change, including, but not limited to, the costs of
design, labor, materials, supplies, architectural services, engineering,
estimating, printing, and incidental expenses, and any additional costs incurred
by Landlord as a result of such change, shall be paid for in full by Tenant upon
billing by Landlord.
3. Only with Landlord's express written permission shall Tenant ever
-
alter or modify or in any manner disturb:
(a) Any system or installation of the Building, including, but not limited to,
Central (as defined below) plumbing system, Central electrical system, Central
heating, ventilating and air conditioning systems, Central fire protection and
fire alert systems, Central building maintenance systems, Central structural
systems, elevators, and anything located within the Central core of the
Building; or
(b) Any Branch (as defined below) of any system or installation of the
Building which is located within the Leased Premises, including, but not limited
to, Branch electrical system, Branch heating, ventilating and air conditioning
system, and Branch fire protection and alert system.
For the purposes of this Section 2.3, "Central" shall be defined as that portion
-------
of any Building system or component which is within the core and/or common to
and/or serves or exists for the benefit of other tenants in the Building, and
"Branch" shall be defined as that portion of any Building system or component
------
which serves to connect or extend Central systems into the Leased Premises.
4. Commencement of Rent. Tenant's obligation for the payment of Rent due
--------------------
under the Lease shall commence on the Lease Commencement Date. No abatement of
Rent shall occur pursuant to paragraph 3 of the Lease if the delay in issuance
of a certificate of occupancy for the Leased Premises is due to:
(a) Tenant's failure to furnish promptly information concerning Tenant's
requirements for finishing the Leased Premises or constructing Tenant
Improvements;
(b) Tenant's failure to promptly meet with Landlord's representative as
required by Section 2.1(a), or to promptly approve the Working Drawings, as
required by paragraph (b) of Section 2.01 of this Work Agreement;
(c) Tenant's changes in any of the Working Drawings as finally approved;
(d) Tenant's request for Tenant Upgrades and related work; or
(e) any unauthorized act or omission by Tenant or its agents.
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<PAGE>
1.Miscellaneous Provisions.
------------------------
1. For purposes of this Work Agreement, whenever Landlord's consent or
-
approval is required, such consent or approval shall not be unreasonably
withheld.
2. Anything in the Lease to the contrary notwithstanding, notices and
-
other items to be delivered pursuant to this Work Agreement shall be effective
upon receipt of same by the party to whom such notice or item is directed.
3. Should any provision of the Lease be in conflict with this Work
-
Agreement, the terms of this Work Agreement shall control.
If the foregoing correctly sets forth our understanding, kindly
acknowledge your approval in the space provided below for that purpose.
"LANDLORD"
___________________________________
a _________________________________
By: ___________________________________
Its: ______________________________
"TENANT"
___________________________________
a _________________________________
ATTEST:
____________________ By: ___________________________________
Its: ______________________________
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<PAGE>
EXHIBIT D
---------
Rules and Regulations
---------------------
1. The sidewalks, entrances, halls, corridors, elevators and stairways of
the Building shall be kept clear of debris and shall not be obstructed or used
for smoking, storage, or as a waiting or lounging place by Tenant, or its
agents, servants, employees, invitees, licenses and visitors.
2. Landlord reserves the right to refuse admittance to the Building at
any time other than between the hours of 7:00 a.m. and 6:00 p.m. Monday through
Friday, and 7:00 a.m. to 12:00 noon on Saturday, to any person not producing
both a key to the Leased Premises and/or a pass issued by Landlord. In case of
invasion, riot, public excitement or other commotion, Landlord also reserves the
right to prevent access to the Building during the continuance of same. Landlord
shall in no case be liable for damages for the admission or exclusion of any
person to or from the Building.
3. Landlord will furnish each Tenant with two keys to each door lock in
the Leased Premises, and Landlord may make a reasonable charge for any
additional keys requested by Tenant. Tenant shall not alter any lock, or install
new or additional locks or bolts, or any door without the prior written consent
of Landlord. If a lock alteration or installation is made, the new lock must
accept the master key for the Building or Tenant must provide Landlord with
duplicate pass keys for all such locks and bolts. Each Tenant, upon the
expiration or termination of its tenancy, shall deliver to Landlord all keys in
any such Tenant's possession for all locks and bolts in the Building.
4. In order that the Building may be kept in a state of cleanliness, each
Tenant shall during the term of each respective Lease, permit Landlord's
employees (or Landlord's agent's employees) to take care of and clean the Leased
Premises. No Tenant shall cause any unnecessary labor by reason of such
Tenant's carelessness or indifference in the preservation of good order and
cleanliness of the Leased Premises. Tenant will see that (a) the windows are
closed, (b) the doors securely locked, and (c) all water faucets and other
utilities are shut off (so as to prevent waste or damage), each day before
leaving the Leased Premises. In the event Tenant must dispose of crates, boxes,
or similar large items of refuse which will not fit into office waste paper
baskets, it will be the responsibility of Tenant to dispose of same. In no
event shall Tenant set such items in the public hallways or other areas of the
Building or garage facility, excepting Tenant's own Leased Premises, for
disposal.
5. Landlord reserves the right to prescribe the date, time, method and
conditions that any personal property, equipment, trade fixtures, merchandise
and other similar items shall be delivered to or removed from the Building. No
iron safe or other heavy or bulky object shall be delivered to or removed from
the Building, except upon prior, written approval of Landlord, and by
experienced safe men, movers or riggers approved in writing by Landlord. Tenant
shall pay all cost and expense incurred necessary to determine and/or review if
the structural integrity and load capacity limitations of the Leased Premises
are sufficient to accommodate such heavy, bulky objects. All damage done to the
Building by the delivery or removal of such items, or by reason of their
presence in the Building, shall be paid to Landlord, immediately upon demand, by
Tenant by, through or under whom such damage was done. There shall not be used
in any space, or in the public halls of the Building, either by Tenant or by
jobbers or others, in the delivery or receipt of merchandise, any hand-trucks,
except those equipped with rubber tires.
6. The walls, partitions, skylights, windows, doors and transoms that
reflect or admit light into passageways or into any other part of the Building
shall not be covered or obstructed by any Tenant in any manner whatsoever, and
shall all be subject to the sole discretionary desires of Landlord.
7. The toilet-rooms, toilets, urinals, wash bowls and water apparatus
shall not be used for any purpose other than for those for which they were
constructed or installed, and no sweeping, rubbish, chemicals, or other
unsuitable substances shall be thrown or placed therein. The expense of any
breakage, stoppage or damage resulting from violations of this rule by Tenant or
by Tenant's agent, servants, employees, invitees, licensees or visitors, shall
be borne by Tenant.
-E-2-
<PAGE>
8. No sign, name, placard, advertisement, or notice visible from the
exterior of any Leased Premises, shall be inscribed, painted or affixed by any
Tenant on any part of the Building or Project without the prior written approval
of Landlord. A directory containing the names of all Tenants of the Building
shall be provided by Landlord at an appropriate place on the first floor of the
Building.
9. No signaling, telegraphic, or telephonic instruments or devices, or
other wires, instruments or devices, shall be installed in connection with any
Leased Premises without the prior written approval of Landlord. Such
installations, and the boring or cutting for wires, shall be made at the sole
cost and expense of Tenant and under the control and direction of Landlord,
other than phone outlets normally provided by Landlord as part of the Lease.
Landlord retains in all cases the right to require (a) the installation and use
of such electrical protecting devices that prevent the transmission of excessive
currents and electricity into or through the Building, (b) the changing of wires
and of their installation and arrangement underground or otherwise as Landlord
may direct, and (c) compliance on the part of all using or seeking access to
such wires with such rules as Landlord may establish relating thereto. All such
wires used by Tenant must be clearly tagged at the distribution boards and
junction boxes and elsewhere in the Building, with the number of the Leases
Premises to which said wires lead, the purpose for which said wires are used,
and the name of the company operating same.
10. Tenant, its agents, servants, employees, shall not (a) go upon the
roof of the Building, (b) use any additional method of heating or air
conditioning the Leased Premises, (c) sweep or throw any dirt or other substance
from the Leased Premises into any of the halls, corridors, elevators, or
stairways of the Building, (d) bring in or keep in or about the Leased Premises
any vehicles or animals of any kind, (e) install any radio or television
antennae or any other devise or item on the roof, exterior walls, windows or
window sills of the Building, (f) place objects against glass partitions, doors
or windows which would be unsightly from the interior or exterior of the
Building, (g) place any object, fixture or personal property on the Leased
Premises which would exceed the load capacity of the floor of the Leased
Premises (including, without limitation, the placement of any bookshelving more
than 5 foot in height), or (h) use any portion of the Leased Premises: (i) for
the storage of merchandise for sale to the general public, (ii) for lodging or
sleeping, (iii) for cooking (except that the use by any Tenant of Underwriter's
Laboratory listed equipment for brewing coffee, tea and similar beverages or the
use of by Tenant of a similarly approved microwave oven shall be permitted,
provided that such use is in compliance with law), or (iv) for the selling or
display of any goods, items or merchandise, either at wholesale or retail.
Tenant shall not use any electrical circuit servicing the Leased Premises beyond
the rated capacity of such circuit and, if Landlord determines that any circuit
is being overloaded, Tenant shall reconnect its electrical devices in a manner
determined and/or approved by Landlord as necessary or convenient to rectify all
overloading situations. Tenant, its agents, servants and employees, invitees,
licensees, or visitors shall not permit the operation of any musical or sound
producing instruments or device which may be heard outside the Leased Premises,
Building or garage facility, or which may emit electrical waves which will
impair radio or television broadcast or reception from or into the Building.
11. Tenant shall not store or use in any Leased Premises any (a) ether,
naphtha, phosphorous, benzol, gasoline, benzine, petroleum, crude or refined
earth or coal oils, flashlight power, kerosene or camphene, (b) any other
flammable, combustible, explosive or illuminating fluid, gas or material of any
kind, or (c) any other fluid, gas or material of any kind having an offensive
odor.
12. No canvassing, soliciting, distribution of hand bills or other written
material, or peddling shall be permitted in the Building, and tenant shall
cooperate with Landlord in prevention and elimination of same.
13. Tenant shall give Landlord prompt notice of all accidents to, or defects
in, air conditioning equipment, plumbing, electrical facilities, or any part or
appurtenances of the Leased Premises.
14. If the Leased Premises demised to Tenant becomes infested with vermin,
Tenant, at its sole cost and expense, shall cause the Leased Premises to be
exterminated from time-to-time to the satisfaction of Landlord and shall employ
such exterminators as shall be approved by Landlord.
15. The landscaped grounds adjacent to the Building shall be used for the
enjoyment of Tenant, its agents, servants and employees, without restriction so
long as such parties conduct
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<PAGE>
themselves in a manner so as not to disturb, destroy, or litter said grounds.
All parties using the grounds shall comply with laws, ordinances, and rules and
regulations of federal, state and local authorities.
16. Landlord reserves the right to allocate specific parking spaces among
Tenant and other tenants, police the parking areas, and have vehicles towed at
the owner's expense. If Ten ant, its employees, contractors or invitees are
deemed by Landlord to be contributing to overcrowding of the parking areas,
Landlord shall be entitled to charge that portion of the cost thereof to Tenant
which Landlord reasonably determines to be caused by the failure of Tenant, its
employees, contractors, agents and invitees to use the parking in compliance
with the Lease and these Rules and Regulations. Landlord may, at its own
discretion, change the location and nature of the reserved and non-reserved
parking spaces available to Tenant, if any, its employees and invitees, provided
that after such change, there shall be available to Tenant and its employees and
invitees approximately the same number of spaces as available before the change,
which spaces shall be approximately located to the Building.
17. Landlord reserves the right to make reasonable amendments, modifications,
and additions to the rules and regulations heretofore set forth, and to make
additional reasonable rules and regulations, as in Landlord's sole judgment may
from time-to-time be needed for the safety, care, cleanliness and preservation
of good order of the Building.
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<PAGE>
EXHIBIT E
---------
ESTOPPEL LETTER
---------------
___________________________
(Date)
_____________________________ ______________________________
_____________________________ ______________________________
_____________________________ ______________________________
(Landlord) (Lender or Other Party)
Re: Lease dated ________________
between ______________________________________________________
(Landlord) and ________________________(Tenant)
Premises:_______________________________________________________________________
Consisting of approximately _________rentable square feet
and the right to use __________ parking spaces
Commencement Date: ____________ Expiration Date:_______________________________
Renewal Options: ___________ options of ______ years each
Current Monthly Base Rent (excluding expense reimbursements
and other additional rent): $_________________
Security Deposit: $______________________________________________
Date Rental PaymentsCommenced:_________________________________________________
Monthly Base Rent Paid Through:________________________________________________
Guarantor:_____________________________________________________________________
Gentlemen:
We are the Tenant under the lease described above (the "Lease"). The
terms referred to above are incorporated into this letter. We understand that
the property of which the Premises is a part is being mortgaged and that the
Lease is being collaterally assigned to the Lender by the Landlord, as part of
the security for the financing of certain property which includes the Premises.
We give you this certificate so that you rely on it as conclusive evidence of
the matters stated below.
Part A. Tenant warrants and represents as follows:
- -------
1. We are the Tenant of the Premises, and are in sole possession of
and are occupying the Premises. Tenant has not subleased all or any part of the
Premises or assigned the Lease or any of its rights under the Lease, or
otherwise transferred its interest in all or any part of the Lease or the
Premises, nor has Tenant received any notice of a prior assignment, transfer,
hypothecation or pledge of the Lease or of any rent under the Lease.
2. The attached Lease is a correct and complete copy of the Lease,
is currently in effect and constitutes the entire agreement between Landlord and
Tenant. There are no other agreements, written or oral, between Landlord (or its
predecessor) and Tenant with respect to the Lease, the Premises or the building
in which it is located. The Lease has not been assigned, amended, supplemented,
or changed in any respect, either in writing or orally, except_________________
________________________________________________________.
3. The Commencement Date and Expiration Date of the term of the
Lease are correctly stated above. Tenant has no options or rights, and has not
exercised any options or rights, to cancel, terminate, renew, extend, amend,
modify, or change the term of the Lease, except________________________________.
__________________________________________________.
4. The current Monthly Base Rent is correctly stated above. Monthly
Base Rent, all additional rent and other amounts now due under the Lease have
been paid through the date stated above. The total monthly rent (Monthly Base
Rent and additional rent) Tenant is now paying under the Lease is $_______. The
base year for determining Tenant's share of operating expenses and real estate
taxes payable under the Lease is ___________. No rent or other obligations have
been prepaid. Tenant has not been given or promised and is not entitled to
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<PAGE>
any free rent, partial rent, rebates, rental abatements, concessions,
allowances, improvements, or other benefits of any kind, except as expressly
provided in the attached Lease.
5. Tenant has deposited the Security Deposit stated above with
Landlord and none of the Security Deposit has been aplied by Landlord to the
payment of rent or any other amounts due under the lease, and Tenant has
received no notice (and is aware of no right) of Landlord's intent or right to
do so.
6. Any construction, build-out, improvements, alterations, or
additions to the Premises required under the Lease have been fully completed in
accordance with the Lease or otherwise, the existing parking facilities meet the
Lease requirements, and Tenant has accepted the Premises as being in complete
conformity with the Lease.
7. Tenant is not now in default under the Lease and no event or
circumstance has occurred or exists under which Tenant may be in default upon
service of notice or passage of time. Landlord has fully performed all of its
obligations under the Lease and is not in default under any term of the Lease.
In addition, no event or circumstance has occurred or exists under which
Landlord may be deemed in default upon service of notice or passage of time. No
event or condition has occurred, which with the passage of time (after notice,
if any, required by the Lease), would give rise to any right or option of Tenant
to terminate the Lease, move from the Premises or discontinue the operation of
its business from the Premises.
8. Tenant has no claims, defenses, set-offs, or counterclaims
against Landlord or with respect to the payment of any rent or other sums or to
the performance of any of its obligations under the Lease, and Tenant has no
claims or defenses to the enforcement of the Lease by the Landlord.
9. Tenant has not been granted and has not exercised any options or
rights of expansion, purchase, or first refusal concerning the Lease or the
Premises or any other space in the building of which the Premises is a part,
except _____________________________________.
10. Landlord has not given any consent to Tenant (for example,
consent to sublease or alter the Premises) that is required under the Lease
before the taking of any action by Tenant, except_______________________________
___________________________________.
11. Tenant has no knowledge of past or present use or occupancy of
the Premises involving the handling, manufacturing, treatment, use,
transportation, spillage, leakage, dumping, discharge or disposal of hazardous
substances, materials or any waste regulated under local state or federal law.
12. Tenant has not filed, does not contemplate filing and is not the
subject of any filing for bankruptcy or reorganization under any federal
bankruptcy laws or state insolvency laws.
Part B. (Where Letter is Addressed to a Lender) In consideration for the
- -------
covenants and agreements stated below and for other valuable consideration:
1. Tenant's interest in the Lease and all of Tenant's rights under
it are and shall be subject and subordinate to the mortgage. The term
"Mortgage", as used herein, includes the mortgage and security interests
referred to above and any and all amendments, supplements, modifications,
renewals, extensions or replacements of or to the Mortgage.
2. Lender agrees that the rights of Tenant under the Lease shall
remain in full force and effect and its possession of the Premises under the
Lease shall not be disturbed by Lender during the term of the Lease and during
any renewal or extension of it made in accordance with its terms, provided and
as long as Tenant performs and continues to perform all of the covenants,
conditions, agreements and obligations that are to be performed by Tenant under
the Lease.
3. After receipt by Tenant of notice from Lender of completion of a
foreclosure under the Mortgage or that Lender has received a conveyance of the
Premises in lieu of foreclosure, Tenant shall attorn to and recognize Lender,
its successors and assigns, or any
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<PAGE>
purchaser at the foreclosure sale, as its substitute Landlord under the Lease.
Upon request by either Landlord, Tenant or Lender, the other(s) shall execute
and deliver appropriate agreements of attornment and recognition; however, this
letter shall be self-operative and no such separate agreement shall be required
to effectuate this attornment and recognition. Any such attornment and
recognition of a substitute Landlord shall be upon all of the terms, covenants,
conditions and agreements as set forth in the Lease, except as amended hereby.
4. Tenant agrees that the granting of the security interest referred
to above to Lender does not impair or diminish any of the Landlord's or Tenant's
obligations under the Lease nor impose any of the Landlord's obligations on the
Lender. Tenant agrees to give Lender written notice of any default or alleged
default by Landlord, at the address stated above for the Lender, Tenant further
agrees not to invoke any of its remedies under the Lease during the period that
the Lender is proceeding to cure a default, with due diligence, or is taking
steps with due dilligence to obtain the legal right to foreclose or enter the
Premises.
5. Should the Lender or any other person, party or entity become the
owner of the premises ("New Owner") as a result of a foreclosure sale under the
Mortgage or a conveyance in lieu of foreclosure, Tenant shall have no claim
against the New Owner resulting from, and the New Owner shall not be liable for,
any act, omission and/or breach of a Lease by any prior or subsequent Landlord
under the Lease, including but not limited to the Landlord named above; the
rights of the New Owner in and to the Premises and in, to and under the Lease
shall not be subject to any claim or right of set-off or defense which Tenant
may have against any prior Landlord under the Lease, including but not limited
to the Landlord named above. Upon any sale or other transfer by a New Owner of
its interest in the Premises after acquiring title to it, the New Owner shall
thereupon automatically be released and discharged from all liability thereafter
occurring under the Lease.
6. Tenant shall not prepay any of the rent or income due from it
under the Lease for more than one month in advance, except with the written
consent of Lender.
7. The Lease may be amended or altered only with the written consent
of Lender.
8. Tenant shall not consent to the Lease becoming subordinate to the
lien of any mortgage or security instrument, other than the Mortgage.
9. Tenant acknowledges that Lender will rely upon this letter in
making the loan referred to in this letter.
Part C.
- -------
1. Tenant shall not dispose of, generate, store, treat or release,
or permit the disposal, generation, storage, treatment or release of, any
hazardous or toxic waste, material or substance, as defined in any federal,
state or other environmental, health or safety law or regulation or on, in,
above or under the land on which the Premises is located.
2. Landlord (insert other addresses) shall be entitled to specific
performance of the convenants, agreements and rights contained in this letter.
All remedies at law or in equity, including the right to specific performance,
shall be cumulative.
3. Tenant has no right, title or interest in the Premises or in the
building in or land on which it is located (except as Tenant under the Lease)
evidenced by option, contract, agreement or deed, or otherwise for the purchase
of, or affecting, all or any part of the Premises or in or to such building or
land, whether by verbal understanding or by recorded or unrecorded instrument.
4. Tenant represents and warrants that the person signing this
letter on behalf of Tenant is a duly authorized agent of the Tenant and that the
representatives, warranties and statements made in this letter are binding on
Tenant. This letter is binding upon and insures to the benefit of Landlord,
Tenant and Lender (if applicable) (add other addresses) and their respective
heirs, executors, administrators, personal representatives, successors and
assigns.
5. This letter is governed by and is to be construed and interpreted
in accordance with the laws of the State of Colorado. This letter cannot be
amended or modified in any
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<PAGE>
manner other than by agreement in writing signed by Landlord, Tenant and Lender
(if applicable).
6. The address for notices to Tenant under the Lease is correctly
set forth in the Lease.
[NOTE: Appropriate changes will be made to this form of letter where the
----
addressee is someone other than a lender.]
Signed this: ________________________, 19__
__________________________________________
__________________________________________
Tenant
By:_______________________________________
Title:______________________________
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<PAGE>
EXHIBIT F
---------
Lease Commencement Rider
------------------------
LANDLORD: ______________________________________________________
______________________________________________________
______________________________________________________
TENANT: ______________________________________________________
______________________________________________________
______________________________________________________
This Lease Commencement Rider is made by Landlord and Tenant pursuant to
that certain Office Lease (the "Lease") entered into as of ________, 199____,
-----
for the Leased Premises known as Suite ____, in the Building known as
________ (the "Premises"). This Rider constitutes a supplementary addendum to
--------
the Lease as contemplated by Article 3 of the Lease.
1. Lease Commencement Date. Landlord and Tenant acknowledge and agree
-----------------------
that the Lease Commencement Date, as contemplated by Article 3 of the Lease, is
____________________________, 199____. Rent as contemplated by the Lease begins
accruing to Landlord's benefit as of such Lease Commencement Date. All covenants
in the Lease contemplated to begin on the Lease Commencement Date shall commence
as of that date pursuant to the Lease.
2. Acceptance of Premises. Tenant has inspected and examined the Leased
----------------------
Premises, and Tenant finds the Premises acceptable and satisfactory in all
respects in their current, "as is" condition, except only the "Punchlist Items"
---------------
listed below. Any work to be completed by Landlord, as contemplated by the
Lease and the Work Agreement attached as Exhibit C to the Lease, has been fully
completed and fulfilled. The following Punchlist Items constitute all matters
which Tenant does not find fully and completely acceptable, and as to which
Tenant desires Landlord to perform corrective work:
Punchlist Items:
---------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
-F-1-
<PAGE>
3. Incorporation in Lease. This Rider is incorporated into the Lease, and
----------------------
forms a supplementary and integral part thereof. This Rider shall be construed
and interpreted in accordance with all other terms and provisions of the Lease
for all purposes.
TENANT: LANDLORD:
____________________ _____________________________________
By:__________________________ By:__________________________________
Its: Agent
-F-1-
<PAGE>
Addendum to Office Lease (Crescent VIII)
Between TCD North, Inc. as Landlord,
and CommNet Cellular Inc., as Tenant
3. Unless and to the extent caused by Tenant, if the Premises is not Ready for
Occupancy on January 15, 1996, Landlord agrees to pay (or reimburse Tenant for)
the holdover rent owed by Tenant at 5990 Greenwood Plaza Boulevard until the
Premises are Ready for Occupancy. Tenant agrees to make a reasonable effort to
obtain a reduced holdover rent, but there shall be no penalty or default if it
fails to do so. Any days of rent so paid by Landlord shall be credited to and
shall reduce the days of free Rent provided to Tenant under Part I of this
Lease.
6B(1). Building Operating Costs shall not include any cost to the extent
reimbursed to Landlord by insurance.
6D. Notwithstanding the foregoing, Landlord agrees to give Tenant one notice
during each calendar year of nonreceipt of Rent before the late charge(s) shall
be imposed, and in that one event the late charges shall be imposed if the Rent
is not received by Landlord within 5 days and 10 days after that notice is
given. Notice given under Section 29A(1) shall constitute notice under this
paragraph.
7B. Tenant will locate its customer service department on the second floor of
the Building and will require and Landlord shall provide 24 hour, 7 days a week
HVAC and electrical service to that space and to its computer room ("Computer
Room") on the third floor. It is anticipated that these areas will have a
separate meter. Tenant shall pay each month without any markup by Landlord
either to Landlord or directly to the utility company (at Landlord's election)
the cost of these services which are provided outside the Building hours
referred to in Section 7A.
9A. Provided, however, that except in the event of an emergency (in which event
Landlord agrees, when possible, to call the internal security telephone number
provided by Tenant), landlord shall not enter the Computer Room without prior
notice to Tenant and allowing Tenant to have an employee or representative
present during the time Landlord is in the Computer Room.
16A. Restoration; Termination of Lease. If the Leased Premises or the Building
---------------------------------
are destroyed or damaged (collectively called "Damage") by fire, earthquake or
other casualty then subject to the next sentence landlord shall elect and give
notice to Tenant within 45 days after such occurrence, to rebuild and restore
the Leased Premises or such portion as may be destroyed or damaged, or not to
rebuild and restore the Building and Leased Premises.
If the Damage renders 40% or more of the Rentable Area of the Premises
untenantable and if the Premises can be rebuilt and restored within 90 days from
the date that the rebuilding and restoration begins, then, unless landlord
elects to terminate as provided herein, this Lease shall remain in effect with
an abatement of Rent as provided herein; otherwise Tenant shall have the option
to terminate this Lease as to that portion of the Premises which cannot be so
rebuilt and restored by giving notice to Landlord within 30 days after the
occurrence of the Damage. If Landlord elects to rebuild and restore any portion
of the Building or Leased Premises which may be destroyed or damaged, it shall
complete the repairs and restoration within 120 days after (a) if less than 40%
of the Rentable Area of the Premises is untenantable, the date the notice is
given, and (b) if 40% or more of the Rentable Area of the Premises is
untenantable, the date the work begins, which shall be within a reasonable time
after the occurrence of the Damage. If Landlord elects to rebuild and restore as
provided herein (subject to Tenant's right to terminate as provided above), then
during the period of rebuilding and restoration this Lease shall remain in full
force and effect, but Rent shall be abated in proportion to which the Leased
Premises are untenantable. Subject to Tenant's right to terminate above, if
Landlord elects not to rebuild and restore, Landlord shall notify Tenant within
45 days after the occurrence of such Damage and in that event, this Lease shall
be deemed to have been terminated on the date of occurrence of such Damage.
18H(5). Other Tenants in the Building. Landlord agrees to include provisions
-----------------------------
similar to or more restrictive on the tenants than this Section 18 in other
leases in the Building which are entered into prior to or during the Lease Term.
21A. Assignment by Tenant. Provided Tenant is not then in default under this
--------------------
Lease, Tenant shall have the right with Landlord's prior written consent, not to
be unreasonably withheld,
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<PAGE>
to assign this Lease (1) to an entity which is and continues either to control
Tenant, to be controlled by Tenant, or to be under the control of another entity
which controls both Tenant and the assignee (control and controlled meaning the
ownership of at lease 50% of the voting stock or voting interest in Tenant, in
that entity or in both Tenant and that entity, whichever is applicable), and (2)
provided the controlling entity's most current financial statements are equal to
or better than the most current financial statements of Tenant, copies of which
shall be provided to Landlord. In the event of such an assignment. Tenant shall
deliver a true and correct copy of the assignment to Landlord within five days
after it is signed, and under which the assignee agrees to assume all of
Tenant's obligations and agreements under this Lease and agrees to be bound by
all of the terms and provisions of this Lease.
24. Sign. Tenant shall have the right to one monument sign to be located at
----
the Building's entrance in accordance with the Denver Technological Center
Architectural Control Committee regulations. The location, size, design, and
type of signage is subject to Landlord's sole approval. Tenant shall be
responsible for all costs associated with the sign, including design,
fabrication, installation, permitting, maintenance and removal as appropriate.
In the event Tenant subleases and/or vacates 50% or more of the Rentable area of
the Premises or is in default under this Lease, all signage rights may be
terminated by Landlord without affecting Tenant's obligation under this Lease.
26D. Unavoidable Delay by Tenant shall not include or apply to the payment of
Rent or other monetary obligations of Tenant, but with respect to other
Unavoidable Delay by Tenant, its obligations under this Lease shall be subject
to and extended by Unavoidable Delay as long as Tenant exercises reasonable
diligence to effect performance of its obligations when and as soon possible.
29B(i) Mitigation. Notwithstanding anything to the contrary contained
----------
elsewhere in this Section 29B, Landlord shall use reasonable efforts to relet
the Premises so as to mitigate its damages pursuant to this Section 29B(1) (b),
provided, however, that so long as Landlord uses such reasonable efforts
Landlord shall in no way be responsible or liable for any failure to relet the
Premises, or any part thereof, or for any failure to collect any Rent due upon
such reletting; and Landlord shall not be required to spend its own funds, to
give priority (or even equal opportunity) to the Premises over other facilities
owned by Landlord or its affiliates or other space available for rent in the
Building or to compromise in any way the terms, uses or credit worthiness of a
tenant upon or to which it would customarily lease space such as the Premises;
and Landlord shall be entitled, in its sole discretion, to seek a single tenant
for the entire Premises, even though it may take a substantially longer period
to obtain such a tenant and its efforts may be unsuccessful; and this
requirement shall not affect in any way Tenant's obligation to obtain Landlord's
consent under Section 21.
52. Option to Expand
----------------
A. The DTC Space. Tenant shall have the option to lease the Denver
-------------
Technological Center's space in the Building, consisting of approximately 13,000
square feet located on the first floor (the "DTC Space"), for a term to begin at
any time after the second year of the Lease Term and ending at the end of the
Lease Term (subject to Section 54), provided (1) Tenant gives Landlord at least
12 months prior notice of its election to exercise this option, (2) at least
four years remain (and will remain on the effective date of the amendment to
this Lease to include the DTC Space), and (3) Tenant is not in default under
this Lease on the date it exercises this option or on the date its lease of the
DTC Space is to take effect. Time is of the essence. The lease of the DTC
Space shall be "as is" (except that DTC shall have the right to remove its
furniture, furnishings, equipment and build-in shelving, kitchen, desks and
other improvements) and without any allowance for tenant improvements, and shall
be at the Fair Rental Value Base Rent (with a Base year or Expense Stop for the
most current year) as determined in this Addendum 54 (Renewal Option).
B. Other Space in the Building. If at any time when there are (and will be
---------------------------
from the effective date of the amendment to include the Other Space) at least
four years remaining on the Lease Term, any other office space in the Building
becomes available for lease (the "Other Expansion Space"), Landlord shall notify
Tenant of the size and location of the space and the rental rate for that space
(which shall be the then market rate for the remainder of this Lease Term for
similar space in the Building or in comparable buildings in the Denver
Technological Center and its vicinity as determined in good faith by Landlord)
and other terms
-F-1-
<PAGE>
on which Landlord wants to lease the Other Expansion Space (the "Other Expansion
Space Terms"). Tenant shall have the option to lease the Other Expansion Space
on the Other Expansion Space Terms by delivering to Landlord notice of its
election to exercise this option within five days after the date Landlord's
notice is given. Time is of the essence.
C. Lease Amendment. If Tenant so exercises either or both of these
---------------
options, then within 10 days thereafter, Landlord and Tenant shall enter into an
amendment to this Lease to add the DTC Space or Other Expansion Space, as
applicable as a part of the Leased Premises and Tenent's Pro Rates Portion of
the Building. Operating Costs shall be increased accordingly. If Tenant does not
so exercise the applicable option, then Landlord shall have the right to lease
all or part of the DTC Space or Other Expansion Space, whichever is applicable,
to one or more other persons or entities.
53. Right of First Refusal to Purchase. If during the Lease Term Landlord
----------------------------------
decides to accept a written offer to sell all of its interest in the Building to
an unrelated person or entity, Landlord shall notify Tenant of its intent to
sell the Building and of the price (which will be the price Landlord is willing
to accept, less any real estate commissions) and terms on which it is willing to
sell the Building (the "First Refusal"). If the Building is one of a number of
buildings offered for sale, the price of the Building shall be separately stated
and the First Refusal shall apply only to the Building. Tenant shall have five
days after Landlord gives notice of the First Refusal to Tenant in which to
deliver to Landlord notice of its election to exercise this right on the terms
stated in the First Refusal. Time is of the essence. If Tenant so exercises
this right, then the sale of the Building shall be closed in accordance with the
terms stated in the First Refusal; otherwise, landlord shall have the right to
sell the Building within one year after the end of Tenant's option to any one or
more other persons or entities at a price not less than 95% of the price stated
in, and on substantially the same as the other terms stated in, the First
Refusal. If Landlord does not so sell the Building within this one year period,
then this Section 53 shall thereafter apply to any other offer which falls under
this Section 53. If the Building is sold in accordance with this Section 53, the
First Refusal shall terminate and shall not apply to any further sale.
54. Renewal Option. Providing Tenant is not in default under this Lease,
--------------
Tenant shall have the option to renewal this Lease for two consecutive five (5)
year periods. The Base Rent for the option period will be the Fair Rental Value
Base Rent (as determined below) in the competitive rental market in which the
Building is located at the time of the renewal. In the event Tenant fails to
give notice to Landlord of Tenant's exercise of the first renewal option at
least 180 days prior to the expiration or termination of the initial Lease Term,
both of these options shall expire and Tenant's option to renew this Lease shall
terminate. If Tenant timely exercises the first option and is not in default
under this Lease, Tenant may exercise the second option by giving notice to
Landlord at least 180 days prior to the expiration or termination of the first
renewal term, and the second option shall expire and Tenant's option to renew
this Lease shall terminate if it fails to timely exercise the option. Time is of
the essence.
If either or both of these options are properly exercised, then the term of
that renewal period shall be included in the definition of Lease Term and,
except for the adjustment of Rent and Base Year as provided below, all of the
provisions of this Lease shall apply to the renewal term(s).
If Tenant properly exercises one or both of the renewal options, then
within 20 days thereafter, Landlord shall deliver to Tenant its computation of
the fair rental value Base Rent for the Leased Premises for that renewal five-
year period and the Base Year or Expense Stop that applies to it, which shall be
determined without any allowance or reduction for brokerage commissions or
leasing fees, tenant improvements, free rent or other rental concessions and
without regard to the condition of or tenant improvements in the Leased Premises
("Fair Rental Value Base Rent"). Tenant shall notify Landlord within 15 days
after it receives Landlord's computation of Fair Rental Value Base Rent if it
disagrees with Landlord's proposal for the Fair Rental Value Base Rent for the
applicable five-year period. If Tenant gives such a notice and Landlord and
Tenant cannot agree upon the Fair Rental Value Base Rent within 15 days
thereafter, then Landlord and Tenant shall select a commercial real estate
broker who specializes in leasing commercial office space in the market area of
the Building and who has leased commercial office space in the Denver
metropolitan area for at least the preceding 10 years ("Commercial Broker") to
determine the Fair Rental Value Base Rent (as defined above), and if they cannot
agree upon a single Commercial Broker within 10
-F-1-
<PAGE>
days, then Landlord and Tenant shall each designate a Commercial Broker. If
Landlord and Tenant each select a different Commercial Broker, those brokers
shall make their determination of the Fair Rental Value Base Rent (as defined
above) independently and shall deliver their determination in writing to both
Landlord and Tenant within 15 days of their selection. If the two Commercial
Brokers' Fair Rental Value Base Rent is within a 4% variation, then the average
of their two number shall be the Fair Rental Value Base Rent. If their numbers
vary by more than 4%, then the two Commercial Brokers shall select a third
Commercial Broker who shall make his determination of Fair Rental Value Base
Rent (as defined above) and the average of the two closest numbers of the three
shall be the Fair Rental Value Base Rent. The Fair Rental Value Base Rent so
determined shall be binding on Landlord and Tenant for the applicable five year
period, unless the Fair Rental Value Base Rent is less than the Base Rent for
the current Base Rent, in which case the current Base Rent shall continue as the
Base Rent for the next five-year period. The consulting fee, if any, charged by
the Commercial Broker shall be paid as follows: (a) if the parties agree on one
Commercial Broker or if the two Commercial Brokers select a third, each party
will pay one-half of the fee, if any, they mutually agree to pay that broker;
and (b) if they each select a Commercial Broker, the party who selects the
broker shall be responsible for paying that broker's fee, if any.
55. Confidentiality. Tenant shall maintain in confidence the terms of this
---------------
Lease and any offer or other information provided to Tenant under Sections 53 or
54, except with respect to any attorneys, accountants and governmental
authorities who have a need to know that information and who, except for
governmental authorities, agreed to maintain that information in confidence.
56. Tenant's Equipment. Landlord acknowledges and agrees that all personal
------------------
property, equipment, apparatus, fittings, building fixtures and trade fixtures
installed or stored on the Premises by the Tenant constitute personal property,
not real property, and shall continue to be the personal and exclusive property
of Tenant, including, without limitation, all telecommunication equipment,
towers, switches, cables, wiring and associated equipment or personal property
(collectively, the "Equipment"). The Equipment shall remain at all times the
personal property of Tenant, and neither Landlord nor any person claiming by,
through or under Landlord shall have any right, title or interest (including
without limitation a security interest) in the Equipment. Tenant, and Tenant's
successors in interest, shall have the right to remove the Equipment at any time
during the Term of this Lease or its earlier termination. With respect to the
holder of any mortgage, deed of trust or other lien affecting Landlord's
interest in the Premises, whether existing as of the date hereof or arising
hereafter, Landlord and Tenant hereby agree, acknowledge and declare that the
Equipment is now and shall at all times hereafter remain the personal and
exclusive property of Tenant. The parties further acknowledge and agree that
Landlord shall have no right or authority to grant a lien upon or security
interest in any of the Equipment.
57. Roof Antenna. Notwithstanding anything to the contrary contained in this
------------
Lease, Landlord agrees that Tenant shall have the right to install the following
antennas on the roof of the Building, and to install connecting cables thereto
subject to prior approval by Landlord of the location on the roof and the color
of such antennas and subject to prior approval by the Denver Technological
Center Architectural Control Committee ("ACC"):
1 - 9" satellite antenna
1 - 18" satellite antenna
1 - 4 foot microwave antenna
The installation of such antennas shall be subject to paragraph 12.A and
structurally designed by a licensed structural engineer with complete plans and
specifications which shall be subject to the approval of Landlord which will not
be unreasonably withheld.
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<PAGE>
EXHIBIT 10.5
CONSOLIDATED LOAN AGREEMENT
by and between
COBANK, ACB
and
CELLULAR, INC. FINANCIAL CORPORATION
dated as of September 6, 1995
<PAGE>
<TABLE>
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TABLE OF CONTENTS
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EXHIBITS AND SCHEDULES............................................................................ vi
RECITALS.......................................................................................... 1
AGREEMENT......................................................................................... 2
ARTICLE 1 DEFINED TERMS...................................................................... 2
ARTICLE 2 LOAN AMOUNTS........................................................................... 17
2.1 Commitment Amounts...................................................................... 17
2.1.1 System Loans..................................................................... 17
2.1.2 Guarantor Repayment Loans........................................................ 17
2.1.3 Paging Loan...................................................................... 18
2.1.4 Acquisition Loans................................................................ 18
2.2 No Funding Obligation in Excess of Pro Rata Share....................................... 18
2.3 Reduction of Commitments by CoBank...................................................... 18
2.4 Reduction of Commitments by Borrower.................................................... 18
2.5 Activation of Acquisition Loan Commitment............................................... 19
2.6 Determination of Contiguous System Committed Loan Amount................................ 20
2.7 Activation of Paging System Loan Commitment............................................. 20
2.8 Rate of Advance of Funds................................................................ 20
2.9 Adjustment to Advanced Subordinated Funds, Guarantor Funds and Bank Funds............... 21
ARTICLE 3 PURPOSES............................................................................... 21
3.1 System Loans............................................................................ 21
3.2 Guarantor Repayment Loans............................................................... 21
3.3 Paging Loan............................................................................. 21
3.4 Acquisition Loans....................................................................... 22
ARTICLE 4 AVAILABILITY........................................................................... 22
4.1 General................................................................................. 22
4.2 Revolving Loans......................................................................... 22
4.3 Acquisition Loans....................................................................... 22
4.4 Paging Loan............................................................................. 22
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4.5 Indirect Default........................................................................ 22
4.6 Default by Underlying Borrower.......................................................... 23
4.7 Increase in the System Committed Loan Amount and Bank Loan Percentage................... 24
ARTICLE 5 INTEREST AND FEES...................................................................... 24
5.1 Interest Calculation.................................................................... 24
5.1.1 Variable Rate Option............................................................. 24
5.1.2 Fixed Rate Option................................................................ 24
5.1.3 Interest Rate Margin............................................................. 24
5.1.4 Default Interest Rate............................................................ 25
5.2 Loan Fee................................................................................ 25
5.3 Annual Administration Fee............................................................... 25
5.4 Amendment Fee........................................................................... 25
5.5 Agent Fee............................................................................... 25
5.6 Facility Fee............................................................................ 26
ARTICLE 6 PAYMENTS............................................................................... 26
6.1 Principal Payments...................................................................... 26
6.2 Interest Payments....................................................................... 26
6.3 Application of Amortized Payments....................................................... 26
6.4 Manner of Payment....................................................................... 26
ARTICLE 7 PREPAYMENTS............................................................................ 27
7.1 Voluntary Prepayments................................................................... 27
7.1.1 Voluntary Prepayment of Variable Rate Loan....................................... 27
7.1.2 Voluntary Prepayment of Fixed Rate Loans......................................... 27
7.1.3 Funding Losses................................................................... 27
7.2 Mandatory Prepayments................................................................... 28
7.2.1 Underlying Borrower Prepayments.................................................. 28
7.2.2 Prepayment on Account of Financial Covenants..................................... 28
7.2.3 Prepayment on Account of Commitment Amounts...................................... 29
7.2.4 Prepayment Upon Termination of Obligation to Advance Bank Funds.................. 29
7.3 Payment of Accrued Interest and Funding Losses on any Mandatory Prepayments............. 29
7.4 Minimum Prepayment Amount............................................................... 29
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7.5 Application of Prepayments.............................................................. 30
ARTICLE 8 COBANK EQUITY.......................................................................... 30
ARTICLE 9 SECURITY............................................................................... 30
9.1 Borrower's Assets....................................................................... 30
9.2 Guaranty................................................................................ 31
ARTICLE 10 REPRESENTATIONS AND WARRANTIES........................................................ 31
10.1 Organization, Eligibility, Etc......................................................... 31
10.2 Corporate Authority, Due Authorization; Consents....................................... 31
10.3 Title to Collateral.................................................................... 31
10.4 Litigation............................................................................. 31
10.5 No Violations.......................................................................... 32
10.6 Binding Agreement...................................................................... 32
10.7 Compliance with Laws................................................................... 32
10.8 Principal Place of Business............................................................ 32
10.9 Material Agreements.................................................................... 32
10.10 Financial Statements; No Material Adverse Change...................................... 32
10.11 Payment of Taxes...................................................................... 33
10.12 Licenses and Approvals................................................................ 33
10.13 Employee Benefit Plans................................................................ 33
10.14 Equity Investments.................................................................... 33
10.15 Real Property......................................................................... 33
10.16 Systems............................................................................... 33
10.17 Paging Systems........................................................................ 34
10.18 Contiguous Systems.................................................................... 34
10.19 Underlying Loans...................................................................... 34
10.20 Distributions; Capital................................................................ 35
10.21 Transfer Restrictions................................................................. 36
10.22 Disclosure............................................................................ 36
10.23 Holding Company and Investment Company Acts........................................... 36
10.24 Regulations U and X................................................................... 36
10.25 Fiscal Year........................................................................... 37
10.26 Solvency.............................................................................. 37
ARTICLE 11 CONDITIONS TO ADVANCES................................................................ 37
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11.1 Conditions to First Advance for Each System Loan or the Paging
Loan and to an Advance under an Acquisition Loan...................................... 37
11.1.1 Permits/Licenses................................................................ 37
11.1.2 Management Agreements........................................................... 37
11.1.3 Underlying Loan Documents....................................................... 38
11.1.4 Supporting Underlying Loan Documents............................................ 38
11.1.5 No Change in Acquisition Cost or Underlying Borrower Maximum Financing Need..... 38
11.1.6 Additional Conditions........................................................... 38
11.2 Conditions to all Advances............................................................. 38
11.2.1 Eligibility..................................................................... 38
11.2.2 Procedure for Advances.......................................................... 38
11.2.3 Committed Loan Amounts.......................................................... 39
11.2.4 Default......................................................................... 39
11.2.5 Subordinated and Guarantor Funds................................................ 39
11.2.6 Transfer Restrictions and Consents Relating to Guaranty......................... 40
11.2.7 Further Assurances.............................................................. 40
11.2.8 No Adverse Change............................................................... 40
11.2.9 List of Authorized Officers..................................................... 40
11.2.10 Representations and Warranties................................................. 40
11.3 Conditions to Performance Under This Agreement......................................... 40
11.3.1 Borrower's Opinion.............................................................. 40
11.3.2 Loan Documents.................................................................. 40
11.3.3 Syndication Agreement........................................................... 40
11.3.5 CINC Loan Agreement............................................................. 41
11.3.6 Approvals....................................................................... 41
11.3.7 Organizational Documents........................................................ 41
11.3.8 Evidence of Corporate Action.................................................... 41
11.3.9 Event of Default................................................................ 41
11.3.10 Searches; UCC Filings.......................................................... 41
11.3.11 No Material Change............................................................. 42
11.3.12 Eligibility.................................................................... 42
11.3.13 Evidence of Insurance.......................................................... 42
11.3.14 Other Documents................................................................ 42
11.3.15 Fees and Expenses.............................................................. 42
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ARTICLE 12 AFFIRMATIVE COVENANTS................................................................. 42
12.1 Books and Records...................................................................... 42
12.2 Reports and Notices.................................................................... 42
12.2.1 Annual Financial Statements..................................................... 43
12.2.2 Quarterly Financial Statements.................................................. 43
12.2.3 Additional Information.......................................................... 43
12.2.4 Notice of Default............................................................... 43
12.2.5 Notice of Underlying Loan Default............................................... 43
12.2.6 Notice of Change in Underlying Borrower Maximum Financing Need.................. 44
12.2.7 Notice of Certain Changes............................................................ 44
12.2.8 Notice of Filings............................................................... 45
12.2.9 Notice of Change in Directors or Officers....................................... 45
12.2.10 Notice of Litigation........................................................... 45
12.2.11 Notice of Material Change...................................................... 45
12.2.12 Notice of Adverse Action Regarding Licenses.................................... 45
12.2.13 Notice of Indirect Default..................................................... 46
12.2.14 Copy of Notices................................................................ 46
12.3 Eligibility............................................................................ 46
12.4 Maintenance of Existence............................................................... 46
12.5 Compliance with Legal Requirements; ERISA.............................................. 46
12.6 Taxes.................................................................................. 46
12.7 Insurance.............................................................................. 46
12.8 Title to Assets and Maintenance........................................................ 47
12.9 Payment of Liabilities................................................................. 47
12.10 Real Property Security Interests...................................................... 47
12.11 Inspection............................................................................. 47
12.12 Underlying Loan Documents; Guarantor Loan Agreement................................... 47
12.13 Financial Covenants................................................................... 48
12.13.1 Equity to Capitalization....................................................... 48
12.13.2 Consolidated Funded Debt Coverage.............................................. 48
12.13.3 Debt Service Coverage.......................................................... 48
12.13.4 Cash Interest Coverage......................................................... 49
12.13.5 Working Capital................................................................ 49
12.14 Managed Markets....................................................................... 49
12.15 Contents of Organization Documents.................................................... 49
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Qualified Leases........................................................................ 49
ARTICLE 13 NEGATIVE COVENANTS.................................................................... 50
13.1 Borrowing.............................................................................. 50
13.2 No Other Businesses.................................................................... 50
13.3 Liens.................................................................................. 50
13.4 Sale of Assets......................................................................... 52
13.5 Liabilities of Others.................................................................. 52
13.6 Dividends, Repurchases and Distributions; Subordinated Debt............................ 52
13.7 Merger................................................................................. 53
13.8 Loans, Advances and Investments........................................................ 53
13.9 Property and Services from Guarantor................................................... 54
ARTICLE 14 INDEMNIFICATION....................................................................... 54
14.1 General................................................................................ 54
14.2 Indemnification Relating to Hazardous Substances....................................... 54
ARTICLE 15 EVENTS OF DEFAULT..................................................................... 56
15.1 Events of Default...................................................................... 56
15.2 No Advances............................................................................ 58
15.3 Acceleration of Interest............................................................... 58
ARTICLE 16 RIGHTS AND REMEDIES................................................................... 59
ARTICLE 17 SYNDICATION/COLLATERAL AGENCY......................................................... 59
17.1 Creation of Syndication Interests...................................................... 59
17.2 CoBank as Agent Bank................................................................... 59
17.3 Representations, Warranties, and Covenants for Benefit of Syndication Parties.......... 60
17.4 Rights of Successor Agent Bank......................................................... 60
ARTICLE 18 MISCELLANEOUS......................................................................... 60
18.1 Costs and Expenses..................................................................... 60
18.2 Service of Process and Consent to Jurisdiction......................................... 61
18.3 Jury Waiver............................................................................ 61
18.4 Notices................................................................................ 61
18.5 Successors and Assigns................................................................. 61
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18.6 Severability........................................................................... 62
18.7 Entire Agreement/No Novation........................................................... 62
18.8 Applicable Law......................................................................... 62
18.9 Captions............................................................................... 62
18.10 Amendments............................................................................ 62
18.11 Additional Costs...................................................................... 62
18.12 Capital Requirements.................................................................. 63
18.13 Mutual Release........................................................................ 64
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<PAGE>
EXHIBITS AND SCHEDULES
----------------------
Exhibit 1.8 Advance Request
Exhibit 1.33 Compliance Certificate
Exhibit 1.135 Underlying Loan Assignment
Exhibit 2.3 Consideration Criteria
Exhibit 2.5 Acquisition Loan Activation Certificate
Exhibit 2.7 Paging Loan Activation Certificate
Exhibit 4.5 Covenants
Exhibit 10.9 Material Agreements
Schedule 1 Table
viii
<PAGE>
CONSOLIDATED LOAN AGREEMENT
Cellular, Inc.
Financial Corporation
Englewood, Colorado Loan No. T-5689
THIS CONSOLIDATED LOAN AGREEMENT (the "Agreement") is entered into as of
the 6th day of September, 1995, by and between COBANK, ACB, formerly known as
the National Bank for Cooperatives ("CoBank"), for its own benefit and, as Agent
Bank, for the benefit of the present and future Syndication Parties, whose
mailing address is 5500 South Quebec Street, Greenwood Village, Colorado 80111
and CELLULAR, INC. FINANCIAL CORPORATION, a Colorado corporation, whose mailing
address is 5990 Greenwood Plaza Boulevard, Suite 300, Englewood, Colorado 80111
("Borrower").
RECITALS
--------
A. CoBank and Borrower entered into that certain Loan Agreement for RSAs
dated as of March 15, 1989, which loan agreement was amended by that certain
Amended and Restated Loan Agreement for RSAs dated as of November 29, 1989, that
certain Amendment No. 1 to Amended and Restated Loan Agreement for RSAs dated as
of September 30, 1990, that certain Amendment No. 2 to Amended and Restated Loan
Agreement for RSAs dated as of September 30, 1992, that certain Amendment No. 3
to Amended and Restated Loan Agreement for RSAs dated as of December 31, 1992,
that certain Amended and Second Restated Loan Agreement for RSAs dated as of
March 31, 1993, that certain Amendment No. 1 to Amended and Second Restated Loan
Agreement for RSAs dated as of August 2, 1993 and that certain Amendment No. 2
to Amended and
1
<PAGE>
Second Restated Loan Agreement for RSAs dated as of February 22, 1994 (the "Loan
Agreement for RSAs").
B. CoBank and Borrower entered into that certain Loan Agreement for MSAs
dated as of March 15, 1989, which loan agreement was amended by that certain
Waiver/Amendment No. 1 to Loan Agreement for MSAs dated as of May 5, 1989, that
certain Amendment No. 2 to Loan Agreement for MSAs dated as of September 14,
1989, that certain Amendment No. 3 to Loan Agreement for MSAs dated as of
September 30, 1990, that certain Amendment No. 4 to Loan Agreement for MSAs
dated as of December 20, 1990, that certain Amendment No. 5 to Loan Agreement
for MSAs dated as of September 30, 1992, that certain Amended and Restated Loan
Agreement for MSAs dated as of March 31, 1993, that certain Amendment No. 1 to
Amended and Restated Loan Agreement for MSAs dated as of August 2, 1993, and
that certain Amendment No. 2 to Amended and Restated Loan Agreement for MSAs
dated as of February 22, 1994 ("Loan Agreement for MSAs").
C. CoBank and Borrower desire to make certain modifications to the credit
facilities provided under the Loan Agreement for RSAs and the Loan Agreement for
MSAs and to amend, restate, and consolidate such loan agreements.
AGREEMENT
---------
NOW THEREFORE, for good and sufficient consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby amend,
restate, and consolidate the Loan Agreement for RSAs and the Loan Agreement for
MSAs to read as follows:
II. DEFINED TERMS
2
<PAGE>
As used in this Agreement, the following terms shall have the meanings set
forth below (and such meaning shall be equally applicable to both the singular
and plural form of the terms defined, as the context may require):
A. ACQUISITION COST: the cost to CINC to acquire (a) a Contiguous
System, where CINC will be the Licensee for the Contiguous System, or (b) a
Licensee Equity Interest in the Licensee for the Contiguous System, where CINC
will not be the Licensee for the Contiguous System.
B. ACQUISITION LOAN: shall have the meaning set forth in Section 2.1.4.
C. ACQUISITION LOAN ACTIVATION CERTIFICATE: shall have the meaning set
forth in Section 2.5.
D. ACQUISITION LOAN ACTIVATION NOTICE: shall have the meaning set forth
in Section 2.6.
E. ADDITIONAL COSTS: shall have the meaning set forth in Section 18.11.
F. ADVANCE: an advance of funds by any Syndication Party to or for the
account of Borrower pursuant to the Aggregate Commitment.
G. ADVANCE DATE: a day (which shall be a Business Day) on which an
Advance is made.
H. ADVANCE REQUEST: a written request for an Advance to be signed by an
officer of Borrower and Guarantor in the form attached hereto as Exhibit 1.8.
-----------
I. AFFILIATES: (a) a corporation or partnership, in which Guarantor, or
its wholly-owned subsidiary, holds an ownership interest, which holds a
Licensee Equity Interest and (b) a
3
<PAGE>
Licensee in which Guarantor, or its wholly-owned subsidiary, holds an ownership
interest.
J. AGENT BANK: CoBank, in its capacity as agent bank under the
Syndication Agreement, for the benefit of all present and future Syndication
Parties, together with its successors and assigns in such capacity.
K. AGENT BANK RIGHTS: shall have the meaning set forth in Section 17.2.
L. AGGREGATE ACQUISITION LOAN COMMITMENT: $25,000,000.00
M. AGGREGATE COMMITMENT: $165,000,000.00
N. AGGREGATE SYSTEM LOAN COMMITMENT: $140,000,000.00
O. AMORTIZED PAYMENTS: shall have the meaning set forth in Section 6.1.
P. ASSIGNMENT OF PARTNERSHIP INTEREST ASSIGNMENTS: the Assignment of
Partnership Interest Assignments dated as of the date hereof whereby CoBank
assigns its rights to CoBank, as Agent Bank for the benefit of the present and
future Syndication Parties, under the Partnership Interest Assignment dated as
of November 29, 1989 by Guarantor in favor of CoBank and the Partnership
Interest Assignment dated as of March 31, 1992 by Guarantor in favor of
CoBank.
Q. BANK DEBT: all Advances, fees, Certificate purchase obligations of
Borrower, Funding Losses and all interest, expenses, charges and other amounts
payable by Borrower pursuant to the Loan Documents.
R. BANK FUNDS: funds made available to Borrower by the Syndication
Parties pursuant to Advances.
4
<PAGE>
S. BANK GROUP: the Syndication Parties considered collectively.
T. BANK GROUP ADVANCE PORTION: shall have the meaning set forth in
Section 2.8.
U. BANK SYSTEM LOAN PERCENTAGE: the percentage of the Underlying
Borrower Maximum Financing Need which the Syndication Parties will lend to
Borrower under a System Loan, as set forth on the Table under the heading "Bank
System Loan Percentage."
V. BASE RATE: the Weighted Average Interest Rate plus 100 basis points.
W. BORROWER COMMITTED LOAN AMOUNT: shall be equal to the Underlying
Borrower Maximum Financing Need.
X. BORROWER DISCOUNTED CASH FLOW: shall mean the Licensee Discounted
Cash Flow, where the Underlying Borrower is a Licensee, and the Equity Holder
Discounted Cash Flow, where the Underlying Borrower is the holder of a Licensee
Equity Interest.
Y. BUSINESS DAY: any day (a) other than a Saturday or Sunday and other
than a day which is a Federal legal holiday or a legal holiday for banks in
the State of Colorado or New York, New York, and (b) if such day relates to a
borrowing of, a payment or prepayment of principal of or interest on, a
continuation of or conversion into, or an Interest Period for, a Fixed Rate
Loan or a notice by Borrower with respect to any such borrowing, payment,
prepayment, continuation, conversion, or Interest Period, on which dealings in
U.S. Dollar deposits are carried out in the London interbank market.
Z. CASH INTEREST COVERAGE: shall mean the Financed Proportionate
Operating Cash Flow divided by Cash Interest Expense.
5
<PAGE>
AA. CASH INTEREST EXPENSE: shall mean the interest expense (as stated in
Guarantor's consolidated financial statements determined in accordance with
GAAP) of Guarantor and its consolidated entities for the immediately preceding
four Quarters, excluding any interest accreting before September 1, 1998 on
account of the 11.75% Senior Subordinated Discount Notes issued by Guarantor
in September, 1993.
BB. CERTIFICATES: shall have the meaning set forth in Article 8.
CC. CCI ADVANCE PORTION: shall have the meaning set forth in Section 2.8.
DD. CINC: Cellular Inc. Network Corporation, a Colorado corporation.
EE. CLOSING: that date on which CoBank, the Syndication Parties, Borrower
and Guarantor have executed all Loan Documents and on which the conditions set
forth in Section 11.3 of this Agreement have been met.
FF. COLLATERAL: shall have the meaning set forth in Section 9.1.
GG. COMPLIANCE CERTIFICATE: a certificate of the chief financial officer
of each of Borrower and Guarantor acceptable to CoBank and in the form
attached hereto as Exhibit 1.33, setting forth in reasonable detail the data
------------
and calculations showing compliance with the financial covenants set forth in
Section 12.13 hereof.
HH. COMPUTER PACKAGE: shall have the meaning set forth in Section 13.1.
II. CONSOLIDATED ADJUSTED DEBT SERVICE: shall mean, Cash Interest Expense
plus principal payments due during the
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immediately succeeding four Quarters on all Consolidated Funded Debt.
JJ. CONSOLIDATED CAPITALIZATION: shall mean Consolidated Funded Debt plus
Consolidated Equity.
KK. CONSOLIDATED EQUITY: shall mean the consolidated stockholders' equity
of Guarantor and Guarantor's consolidated entities, to be determined in
accordance with GAAP (after eliminating any intercompany items).
LL. CONSOLIDATED FUNDED DEBT: shall mean: (a) an amount equal to the
aggregate of all liabilities of Guarantor and Guarantor's consolidated
entities for amounts borrowed in loan transactions from other Persons (and
including as such a borrowing the amount of interest accreting before
September 1, 1998 on account of the 11.75% Senior Subordinated Discount Notes
issued by Guarantor in September, 1993), but not including amounts borrowed
from vendors (or from any company which owns 25% or more of the voting
interests of any such vendor, or with respect to which 25% or more of the
voting interests therein is owned by such vendor or by a company which owns
25% or more of the voting interests of such vendor) in connection with the
purchase of goods or services; plus (b) Minority Interests.
MM. CONTIGUOUS SYSTEM: a cellular telephone system which, upon funding of
the Acquisition Loan, will be managed by Guarantor pursuant to the Management
Agreement dated as of January 16, 1990 by and between Guarantor and CINC, and
which satisfies either of the following conditions: (a) some portion of the
boundary of such system is adjacent to and connects with some portion of the
boundary of a System, or (b) such system (i) will utilize existing switching
facilities of a System or of Guarantor and (ii) has some portion of its
boundary located within 100 miles of some portion of the boundary of such
System or of such mobile telephone switching office of Guarantor.
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NN. CONTIGUOUS SYSTEM COMMITTED LOAN AMOUNT: where CINC will be the
Licensee for a Contiguous System, the Licensee Discounted Cash Flow, or, where
CINC will hold a Licensee Equity Interest in the Licensee for a Contiguous
System, the Equity Holder Discounted Cash Flow.
OO. CONTIGUOUS SYSTEM INFORMATION: (a) for the Licensee of each
Contiguous System, its Ten Year Plan, (b) where CINC will not be the Licensee
for the Contiguous System, a copy of the Organization Documents of the Licensee
in which CINC will acquire a Licensee Equity Interest, (c) where the Contiguous
System has commenced operations, audited financial statements, if available, and
otherwise unaudited financial statements, since the date of commencement of
operations, but in no event more than the immediately preceding 5 years, of the
Licensee for the Contiguous System, and (d) the Acquisition Cost.
PP. DEFAULT INTEREST RATE: a rate of interest equal to 200 basis points
plus the greater of (a) the Variable Rate, or (b) the highest Fixed Rate being
charged on any Fixed Rate Loan.
QQ. DISCOUNTED CASH FLOW AS A PERCENTAGE OF LOAN AMOUNT: shall be equal
to the Borrower Discounted Cash Flow divided by the Borrower Committed Loan
Amount.
RR. ENVIRONMENTAL REGULATIONS: as defined in the defini tion of Hazardous
Substances.
SS. EQUITY HOLDER: the owner of a Licensee Equity Interest.
TT. EQUITY HOLDER DISCOUNTED CASH FLOW: (a) with respect to a System
Loan, the net present value (discounted at the Base Rate) of the projected Free
Cash Flow of the Underlying Borrower, calculated over the period commencing on
the date on which CoBank receives the notice required pursuant to Subsection
12.2.6 or 12.2.7 (or, the date on which Borrower in the exercise of reasonable
care and judgment should have sent a notice to CoBank pursuant to Subsection
12.2.6 or 12.2.7) through and including
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the Maturity Date; (b) with respect to an Acquisition Loan, the net present
value (discounted at the Base Rate) of the projected Free Cash Flow of CINC
derived from its Licensee Equity Interest in the Licensee for the Contiguous
System, calculated over the period commencing on the date of submission to
CoBank of the Acquisition Loan Activation Certificate through and including
the Maturity Date.
UU. ERISA: shall have the meaning set forth in Section 10.13.
VV. EVENT OF DEFAULT: shall have the meaning set forth in Article 15.
WW. EXCESS AMOUNT: shall have the meaning set forth in Section 2.9.
XX. FACILITY FEE: shall have the meaning set forth in Section 5.6.
YY. FCC: Federal Communications Commission.
ZZ. FCC LICENSE: operating authority awarded by the FCC to a Licensee for
the operation of a System or a Contiguous System, as applicable.
AAA. FCC LICENSE ASSIGNMENT: an assignment of the FCC License or Paging
License, as applicable, to be executed by each Underlying Borrower which is a
Licensee in favor of Borrower and CoBank, in its role as Agent Bank, in form
and substance satisfactory to CoBank.
BBB. FINANCED PROPORTIONATE OPERATING CASH FLOW: shall mean:
(a) the amount which is the product of:
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(i) the percentage interest in each Licensee owned, directly
or indirectly, by an Underlying Borrower and
(ii) the Operating Cash Flow of each such Licensee, plus
(b) to the extent not included in (a) above, the amount which is the
product of:
(i) the percentage interest in each Licensee owned, directly
or indirectly, by Guarantor and
(ii) the Operating Cash Flow of each such Licensee; plus
(c) Guarantor's non-cash expenses (defined as depreciation expense
and interest expense to the extent included in operating, marketing,
and general administrative expenses as allocated to Licensee)
allocated to Affiliates; less
(d) cash operating expenses excluding interest expense of Underlying
Borrowers that are not Licensees; less
(e) Guarantor's cash expenses not allocated to Affiliates;
provided, however, that the amount of Financed Proportionate
Operating Cash Flow, arising on account of all Licensees (x) for
which there is no Management Agreement or (y) with respect to which
Guarantor is not the managing general partner, which can be included
in the determination of the Financed Proportionate Operating Cash
Flow shall not exceed thirty (30%) percent of the amount of the
Financed Proportionate Operating Cash Flow from all Licensees for
which there
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is a Management Agreement or as to which Guarantor is the managing
general partner.
CCC. FIXED RATE: the rate for deposits in U.S. Dollars, with maturities
comparable to the selected Fixed Rate Period that appears on the display
designated as page "3750" of the Telerate Service (or such other page as may
replace the 3750 page of that service or, if the Telerate Service shall cease
displaying such rates, as published by such other service or services as may
be nominated by the British Bankers' Association for the purpose of displaying
London Interbank Offered Rates for U.S. Dollar deposits), determined as of
1:00 p.m. (Eastern Standard Time) two (2) Business Days prior to the
commencement of such Fixed Rate Period, reserve adjusted basis for Regulation
D, plus the applicable Fixed Margin determined pursuant to Subsection 5.1.3.
DDD. FIXED RATE LOAN: shall have the meaning set forth in Subsection
5.1.2.
EEE. FIXED RATE PERIOD: A period of time which shall be one, three or six
months, to be designated by Borrower in accordance with Section 5.1.2.
FFF. FIXED RATE REQUEST: shall have the meaning set forth in Section
5.1.2.
GGG. FIXED RATE REQUIREMENT: shall have the meaning set forth in Section
5.1.2.
HHH. FREE CASH FLOW: with respect to a Licensee, earnings before
interest, depreciation, amortization of intangibles and any extraordinary items,
less capital expenditures, plus or minus the change in working capital; with
respect an Equity Holder, the Free Cash Flow of the Licensee in which the Equity
Holder owns a Licensee Equity Interest multiplied by the percentage ownership
interest of such Equity Holder in such Licensee, less cash expenses and any
extraordinary items.
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III. FUNDING LOSSES: shall have the meaning set forth in Section 7.1.3.
JJJ. GAAP: generally accepted accounting principles in the United States
of America, applied consistently, as in effect from time to time.
KKK. GUARANTOR: CommNet Cellular Inc., a Colorado corporation, and its
permitted successors and assigns under the Guaranty.
LLL. GUARANTOR FUNDS: funds advanced by Guarantor to Borrower pursuant to
the Guarantor Loan Agreement for the purpose of making Underlying Loans.
MMM. GUARANTOR LOAN AGREEMENT: the Guarantor Loan Agreement dated as of
March 15, 1989 between Guarantor and Borrower, as amended.
NNN. GUARANTOR REPAYMENT LOAN: shall have the meaning set forth in
Section 2.1.2.
OOO. GUARANTOR SECURITY AGREEMENT: the Second Amended and Restated
Guarantor Security Agreement, in form and substance satisfactory to CoBank, to
be executed by Guarantor in favor of CoBank, in its role as Agent Bank, as in
effect on the date hereof and as hereafter amended.
PPP. GUARANTY: the Third Amended and Restated Guaranty, in form and
substance satisfactory to CoBank, to be executed by Guarantor in favor of
CoBank, in its role as Agent Bank, as in effect on the date hereof and as
hereafter amended.
QQQ. HAZARDOUS SUBSTANCES: dangerous, toxic or hazardous pollutants,
contaminants, chemicals, wastes, materials or substances, as defined in or
governed by the provisions of any federal, state or local law, statute, code,
ordinance, regulation, requirement or rule relating thereto ("Environmental
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Regulations"), and also including urea formaldehyde, polychlorinated
biphenyls, asbestos, asbestos-containing materials, nuclear fuel or waste, and
petroleum products, or any other waste, material, substances, pollutant or
contaminant which would subject an owner of property to any damages, penalties
or liabilities under any applicable Environmental Regulations.
RRR. INDEMNIFIED PARTIES: shall have the meaning set forth in Section
14.1.
SSS. INDENTURE: that certain Indenture dated as of July 6, 1995 by and
between Guarantor, as Issuer, and American Bank National Association, as
Trustee with respect to the $100 million of 11 1/4% Subordinated Notes due
2005.
TTT. INDIRECT DEFAULT: shall have the meaning set forth in Section 4.5.
UUU. LEASEHOLD ASSIGNMENT & CONSENT: the Leasehold Assignment and
Consent, in form and substance satisfactory to CoBank, to be executed by
Borrower and an Underlying Borrower which is a Licensee.
VVV. LICENSEE: with respect to a System, Contiguous System, or Paging
System, a partnership or corporation that (a) has been established for the
purpose of constructing, or acquiring, and operating a System, Contiguous
System, or Paging System, as applicable, and (b) with respect to (i) a System
or a Contiguous System, holds an FCC License, (ii) the Paging System, holds
the Paging License.
WWW. LICENSEE EQUITY INTEREST: A limited partnership or general
partnership interest in, or ownership of capital stock of, a Licensee for a
System or a Contiguous System, as applicable.
XXX. LICENSEE EQUITY INTEREST ASSIGNMENT: an assignment of the Licensee
Equity Interest owned by an Underlying Borrower to
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be executed by each Underlying Borrower which holds a Licensee Equity Interest,
in form and substance satisfactory to CoBank.
YYY. LICENSEE DISCOUNTED CASH FLOW: (a) with respect to a System Loan,
the net present value (discounted at the Base Rate) of the projected Free Cash
Flow of the Licensee for the System, calculated over the period commencing on
the date on which CoBank receives the notice required pursuant to Subsection
12.2.6 or 12.2.7 (or, the date on which Borrower in the exercise of reasonable
care and judgment should have sent a notice to CoBank pursuant to Subsection
12.2.6 or 12.2.7) through and including the Maturity Date; (b) with respect to
an Acquisition Loan, the net present value (discounted at the Base Rate) of the
projected Free Cash Flow of the Licensee for the Contiguous System, calculated
over the period commencing on the date of submission to CoBank of the
Acquisition Loan Activation Certificate through and including the Maturity Date.
ZZZ. LOAN DOCUMENTS: this Agreement, the Promissory Notes, the Security
Agreement, the Guaranty, the Guarantor Security Agreement, the Assignment of
Partnership Interest Assignments and all financing statements and other
documents required to grant to CoBank, as Agent Bank, a perfected security
interest in the Collateral and in the assets of Guarantor securing the Guaranty.
AAAA. LOAN FEE: shall have the meaning set forth in Section 5.2.
BBBB. MANAGEMENT AGREEMENT: a management agreement to be executed by
Guarantor and an Underlying Borrower, which will be managed directly or
indirectly by Guarantor, in form and substance satisfactory to CoBank.
CCCC. MATERIAL AGREEMENTS: shall have the meaning set forth in Section
10.9.
DDDD. MATURITY DATE: shall have the meaning set forth in Section 6.1.
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EEEE. MINIMUM PAYMENT AMOUNT: shall have the meaning set forth in Section
7.4.
FFFF. MINORITY INTERESTS: shall mean the ownership interest of a Person,
other than Guarantor and its consolidated entities, in Guarantor's
consolidated entities, as determined in accordance with GAAP.
GGGG. MSA: a metropolitan statistical area as defined by the FCC.
HHHH. NET COMPANY POP: the product of (a) Guarantor's direct or indirect
percentage ownership interest in each Licensee and (b) the estimated total
population for the System or Contiguous System operated by such Licensee based
upon the most recently available Strategic Marketing, Inc. population estimates
for such System or Contiguous System, as applicable, or if Strategic Marketing,
Inc. no longer publishes such information, other similar market services of
general acceptance in the cellular telephone industry.
IIII. NOTES: the 11 1/4% Subordinated Notes due 2005 issued by Guarantor
pursuant to the Indenture.
JJJJ. NTFC: NTFC Capital Corporation, a Delaware corporation, formerly
known as Northern Telecom Finance Corporation.
KKKK. OPERATING CASH FLOW: shall mean earnings before equity in net
earnings or net losses of Affiliates, net interest expense, income tax expense,
and depreciation and amortization expense, excluding any extraordinary gains or
losses, for the immediately preceding four Quarters, all determined in
accordance with GAAP.
LLLL. ORGANIZATION DOCUMENTS: in the case of a corporation, its articles
or certificate of incorporation and
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bylaws; in the case of a partnership, its partnership agreement and certificate
of limited partnership, if applicable; in the case of a limited liability
company, its articles of organization and its operating agreement.
MMMM. OVERFUNDING CONDITION: shall have the meaning set forth in Section
2.9.
NNNN. OVERFUNDING PARTY: shall have the meaning set forth in Section 2.9.
OOOO. PAGING: CCI Wireless Co., a Colorado corporation, which is a
wholly-owned subsidiary of Guarantor whose sole business consists of the
acquisition, or construction, and the operation of the Paging System and which
is or will be the holder of the Paging License.
PPPP. PAGING LICENSE: all operating authorities awarded by the FCC to
Paging which are required in order to operate the Paging System.
QQQQ. PAGING LOAN: shall have the meaning set forth in Section 2.1.3.
RRRR. PAGING LOAN ACTIVATION CERTIFICATE: shall have the meaning set
forth in Section 2.7.
SSSS. PAGING SYSTEM: a system for one-way communication service for which
the Paging License has been obtained and which is or, upon acquisition by
Paging, will be, managed by Guarantor pursuant to the Management Agreement
between Guarantor and Paging to be executed on or before the first Advance
under the Paging Loan.
TTTT. PAGING SYSTEM COST: the cost to Paging to acquire, or construct,
and to operate the Paging System.
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UUUU. PAGING SYSTEM INFORMATION: (a) Paging's Ten Year Plan, (b) where
the Paging System has commenced operations, audited financial statements, if
available, and otherwise unaudited financial statements, since the date of
commencement of operations, but in no event more than the immediately preceding
5 years, of the Licensee(s) for the Paging System prior to the consummation of
Paging's acquisition of the Paging System, and (c) the Paging System Cost.
VVVV. PAGING SYSTEM LOAN COMMITMENT: $5,000,000.00
WWWW. PERSON: any individual, corporation, association, partnership,
trust, organization, government, governmental agency, or other entity.
XXXX. POTENTIAL DEFAULT: any event which with the giving of notice or
lapse of time, or both, would become an Event of Default.
YYYY. PRINCIPAL REDUCTION COMMITMENT: $80,000,000.00
ZZZZ. PRINCIPAL REDUCTION LOAN: the loan made, or to be made, by
Guarantor to Borrower in the maximum principal sum of $80,000,000.00, the
proceeds of which (a) were used by Borrower to reduce the amount of indebtedness
outstanding under the Loan Agreement for RSAs and the Loan Agreement for MSAs,
and (b) will be used by Borrower to reduce the amount of Bank Debt outstanding.
AAAAA. PROMISSORY NOTES: each promissory note made as of the date hereof
by Borrower payable to the order of a Syndication Party to evidence Borrower's
obligations under this Agreement to such Syndication Party, and all amendments,
renewals, substitutions and extensions thereof, which, in aggregate, shall not
exceed the Aggregate Commitment.
BBBBB. PRO RATA SHARE: for each Syndication Party other than CoBank, the
dollar amount of the Aggregate Commitment
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allocated by CoBank to such Syndication Party, as set forth in the Syndication
Agreement, divided by the Aggregate Commitment; for CoBank, the Aggregate
Commitment minus the dollar amount of the Aggregate Commitment allocated to all
Syndication Parties other than CoBank, as set forth in the Syndication
Agreement, divided by the Aggregate Commitment; provided, however that the Pro
Rata Share of any Syndication Party shall not exceed the Maximum Syndication
Amount (as such term is defined in the Syndication Agreement) for such
Syndication Party.
CCCCC. QUALIFIED LEASE: a lease, easement, license or other interest in
real property in form and substance satisfactory to CoBank which an Underlying
Borrower which is a Licensee and has outstanding advances from Borrower shall
enter into with respect to each site leased by such Underlying Borrower on which
equipment is being used in the operation of a System, Contiguous System or
Paging System.
DDDDD. QUARTER: the quarters of the calendar year commencing as of
January 1, April 1, July 1 and October 1.
EEEEE. REGULATORY CHANGE: shall have the meaning set forth in Section
18.11.
FFFFF. REQUISITE SYNDICATION PARTIES: shall mean Syndication Parties
holding, in the aggregate, Syndication Shares (as defined in the Syndication
Agreement) equal to at least Seventy-five percent (75%).
GGGGG. RSA: A rural service area as defined by the FCC.
HHHHH. SECURITY AGREEMENT: the Second Amended Restated Security
Agreement, in form and content satisfactory to CoBank, to be executed by
Borrower in favor of CoBank and, in its role as Agent Bank, in favor of the
Syndication Parties, as in effect on the date hereof and as hereafter amended.
IIIII. ST. PAUL: St. Paul Bank for Cooperatives.
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JJJJJ. SUBORDINATED DEBT: Any (a) indebtedness of Guarantor or
Guarantor's consolidated entities subordinate to the Bank Debt and the terms of
which indebtedness include a subordination provision satisfactory to CoBank, or,
as to Subordinated Debt incurred after the date hereof, satisfactory to the
Requisite Syndication Parties, and (b) indebtedness of Borrower to Subordinated
Lending Parties pursuant to Subordinated Loan Agreements.
KKKKK. SUBORDINATED FUNDS: funds advanced by Subordinated Lending Parties
to Borrower pursuant to Subordinated Loan Agreements for the purpose of making
Underlying Loans.
LLLLL. SUBORDINATED LENDING PARTY: one or more parties, other than
Borrower and Guarantor, to any Subordinated Loan Agreement.
MMMMM. SUBORDINATED LOAN AGREEMENT: Each loan agreement entered into by
Borrower with Subordinated Lending Parties which (a) obligates, subject to the
terms and conditions thereof, Subordinated Lending Parties to advance
Subordinated Funds to Borrower, and (b) subordinates to the Bank Debt, through
the inclusion of a provision in form and substance satisfactory to CoBank, or,
as to a Subordinated Loan Agreement entered into after the date hereof,
satisfactory to the Requisite Syndication Parties, the debt of Borrower to the
Subordinated Lending Parties for the Subordinated Funds.
NNNNN. SUCCESSOR AGENT BANK: shall have the meaning set forth in Section
17.4.
OOOOO. SYNDICATION AGREEMENT: the Syndication and Agent Bank Agreement
dated as of September 6, 1995 by and between CoBank, on its own behalf and as
Agent Bank, Shawmut Bank Connecticut, N.A., Bank One, Colorado, N.A., and NTFC,
as it may be amended from time to time.
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PPPPP. SYNDICATION PARTIES: the parties, at any time, to the Syndication
Agreement and their permitted successors and assigns under the Syndication
Agreement.
QQQQQ. This Subsection intentionally omitted.
RRRRR. SYSTEM: a cellular telephone system servicing a RSA or a MSA and
described on the Table.
SSSSS. SYSTEM COMMITTED LOAN AMOUNT: the maximum amount of Bank Funds to
be made available by the Syndication Parties to Borrower to fund loans to an
Underlying Borrower for a System as set forth on the Table.
TTTTT. SYSTEM LOAN: Bank Funds advanced to Borrower for the purpose of
funding a loan described on the Table, as it may be amended from time to time.
UUUUU. TABLE: Schedule 1 to this Agreement.
VVVVV. TEN YEAR PLAN: the 10-year operating plan for the Licensee which
is the Underlying Borrower or in which the Underlying Borrower has or will
acquire a Licensee Equity Interest, as applicable, which shall contain certain
financial information, including without limitation financial projections
(including but not limited to income statements, balance sheets and cash flow
statements for the Licensee and, where the Underlying Borrower is an Equity
Holder, projections of distributions or dividends to the Underlying Borrower for
the period commencing on the date of submission of the Ten Year Plan through and
including the Maturity Date.
WWWWW. TERMINATION DATE: December 31, 1996.
XXXXX. UNDERLYING BORROWER: with respect to a System Loan, those entities
which have received loans from Borrower for the purpose of constructing and
operating Systems and which are described on the Table under the heading
"Underlying Borrowers";
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with respect to an Acquisition Loan, CINC, or such entity as may be approved in
writing by CoBank in its sole discretion; with respect to the Paging Loan,
Paging.
YYYYY. UNDERLYING BORROWER ADVANCE REQUEST: any advance request
submitted by an Underlying Borrower to Borrower in accordance with the terms of
the Underlying Loan Agreement executed by such Underlying Borrower and Borrower.
ZZZZZ. UNDERLYING BORROWER INTEREST: If the Underlying Borrower is a
partnership, any and all partner, equity or voting interests in such Underlying
Borrower, and any certificates or other evidence thereof; if the Underlying
Borrower is a corporation, any and all shares of stock or other equity or voting
securities of such Underlying Borrower, and any certificates or other evidence
thereof.
AAAAAA. UNDERLYING BORROWER MAXIMUM FINANCING NEED: The estimate of the
maximum financing need of an Underlying Borrower prior to the Termination Date
which is indicated in the Ten Year Plan as the highest ending balance of debt in
any one year prior to the Termination Date.
BBBBBB. UNDERLYING BORROWER OPINION: an opinion letter or letters to be
issued by counsel for each Underlying Borrower (who shall be acceptable to
CoBank) in connection with the Underlying Loan Agreement between CoBank and such
Underlying Borrower, in form and content reasonably acceptable to CoBank.
CCCCCC. UNDERLYING LOAN: a loan of Bank Funds and Subordinated Funds
and/or Guarantor Funds by Borrower to an Underlying Borrower pursuant to an
Underlying Loan Agreement for a purpose permitted under Sections 3.1, 3.3 or 3.4
of this Agreement.
DDDDDD. UNDERLYING LOAN AGREEMENT: the loan agreement, in form and
substance satisfactory to CoBank, by and between an Underlying Borrower and
Borrower.
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EEEEEE. UNDERLYING LOAN ASSIGNMENT: an assignment, in the form attached
hereto as Exhibit 1.135, of all right, title and interest of Borrower in the
-------------
Underlying Loan Documents, to be executed by Borrower in favor of CoBank, in
its role as Agent Bank, in connection with each Underlying Loan.
FFFFFF. UNDERLYING LOAN DEFAULT: an event of default, or any event which,
with the giving of notice or lapse of time, or both, would become a breach,
default, or event of default, under an Underlying Loan Agreement.
GGGGGG. UNDERLYING LOAN DOCUMENTS: for each Underlying Loan, the
Underlying Loan Agreement, Underlying Note, Underlying Borrower Opinion,
Underlying Loan Assignment, Underlying Security Agreements.
HHHHHH. UNDERLYING NOTE: the promissory note, in form and substance
satisfactory to CoBank, which is executed by each Underlying Borrower in favor
of Borrower and which evidences the obligations of the Underlying Borrower under
the Underlying Loan Agreement.
IIIIII. UNDERLYING SECURITY AGREEMENTS: the security agreements,
mortgages, deeds of trust, financing statements, assignments and/or other
security documents to be executed by each Underlying Borrower in favor of
Borrower and which secure the Underlying Note with a first lien on all assets of
the Underlying Borrower, including without limitation the FCC License Assignment
and a Leasehold Assignment & Consent, where the Underlying Loan is to a
Licensee, and the Licensee Equity Interest Assignment, where the Underlying
Borrower owns a Licensee Equity Interest, all to be in form and substance
acceptable to CoBank.
JJJJJJ. VARIABLE RATE: a rate of interest per annum equal to the "prime
rate" as published from time to time in the Eastern Edition of the Wall Street
-----------
Journal as the average prime lending
- -------
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rate for seventy-five percent (75%) of the United States'thirty (30) largest
commercial banks, or if the Wall Street Journal shall cease publication or cease
-------------------
publishing the "prime rate" on a regular basis, such other regularly published
average prime rate applicable to such commercial banks as is acceptable to
CoBank in its sole discretion, plus the applicable Variable Margin determined
pursuant to Subsection 5.1.3.
KKKKKK. VARIABLE RATE LOANS: shall have the meaning set forth in Section
5.1.1.
LLLLLL. WEIGHTED AVERAGE INTEREST RATE: the actual interest accrued on
the Bank Debt during the immediately preceding Quarter divided by the average
daily principal balance of Bank Debt outstanding during such Quarter multiplied
by four.
MMMMMM. WORKING CAPITAL: shall mean, on a consolidated basis, the current
assets of Guarantor less the current liabilities of Guarantor, both determined
in accordance with GAAP.
III. LOAN AMOUNTS
A. COMMITMENT AMOUNTS. Subject to the terms and conditions of this
Agreement, funds will be advanced under the Aggregate Commitment pursuant to the
following commitments:
1. SYSTEM LOANS. The Syndication Parties, subject to the limitation
set forth in Section 2.2 of this Agreement, shall lend to Borrower a principal
sum not to exceed, for each System Loan, the System Committed Loan Amount;
provided, however, that the aggregate amount of all System Loans, Guarantor
Repayment Loans and the Paging Loan outstanding at any time shall not exceed the
Aggregate System Loan Commitment.
2. GUARANTOR REPAYMENT LOANS. The Syndication Parties, subject to
the limitation set forth in Section 2.2 of this Agreement, shall lend to
Borrower an aggregate principal
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amount not to exceed the Principal Reduction Commitment ("Guarantor Repayment
Loan"); provided, however, that the aggregate amount of all System Loans,
Guarantor Repayment Loans and the Paging Loan outstanding at any time shall not
exceed the Aggregate System Loan Commitment.
3. PAGING LOAN. The Syndication Parties, subject to the limitation
set forth in Section 2.2 of this Agreement, shall lend to Borrower an aggregate
principal amount for the Paging System not to exceed the Paging System Loan
Commitment ("Paging Loan"); provided, however, that the aggregate amount of all
System Loans, Guarantor Repayment Loans and the Paging Loan outstanding at any
time shall not exceed the Aggregate System Loan Commitment and provided further
that CoBank may, in its sole discretion, limit the amount which may be advanced
under the Paging Loan prior to the issuance, or assignment, as applicable, of
the Paging License for the Paging System.
4. ACQUISITION LOANS. The Syndication Parties shall, subject to the
limitation set forth in Section 2.2 of this Agreement, lend to Borrower a
principal sum not to exceed, for each Contiguous System, the lesser of (a) the
Contiguous System Committed Loan Amount, and (b) the Acquisition Cost
("Acquisition Loan"); provided, however, that the aggregate amount of all
Acquisition Loans outstanding at any time shall not exceed the Aggregate
Acquisition Loan Commitment.
B. NO FUNDING OBLIGATION IN EXCESS OF PRO RATA SHARE. Each
Syndication Party shall be responsible for its Pro Rata Share of the Aggregate
Commitment and each Advance. Borrower acknowledges and agrees that neither
CoBank nor any other Syndication Party shall be obligated to fund to Borrower
any amount in excess of its respective Pro Rata Share of each Advance.
C. REDUCTION OF COMMITMENTS BY COBANK. CoBank shall have the right to, from
time to time, reduce, pursuant to the criteria set forth on Exhibit 2.3, the
-----------
System Committed Loan Amount and the Bank System Loan Percentage upon receipt of
Borrower's
24
<PAGE>
notification pursuant to Subsection 12.2.6 or 12.2.7 that (a) the projected or
actual Underlying Borrower Maximum Financing Need has decreased 20% or more from
the estimate previously submitted by Borrower to CoBank, or (b) the Underlying
Borrower's percen tage ownership of a Licensee will decrease. In the event of
any reduction of a System Committed Loan Amount or a Bank System Loan Percentage
under this Section 2.3, CoBank shall promptly revise the Table to reflect such
reduction.
D. REDUCTION OF COMMITMENTS BY BORROWER. Borrower shall have the right, from
time to time, to reduce the Aggregate System Loan Commitment or the Aggregate
Acquisition Loan Commitment upon two (2) Business Days prior written notice to
CoBank provided that the requested reduction in such loan commitment shall not
cause (a) the Aggregate System Loan Commitment to be less than the aggregate
amount of outstanding Advances made for System Loans, Guarantor Repayment Loans
and the Paging Loan, or (b) the Aggregate Acquisition Loan Commitment to be less
than the aggregate amount of outstanding Advances made for Acquisition Loans.
Any reduction of the Aggregate System Loan Commitment or the Aggregate
Acquisition Loan Commitment pursuant to this Section 2.4 shall be irrevocable.
E. ACTIVATION OF ACQUISITION LOAN COMMITMENT. No later than 45 calendar
days prior to the submission of an Advance Request for an Acquisition Loan,
Borrower shall submit to CoBank a certificate signed by an officer of Borrower
and an officer of Guarantor in substantially the form attached hereto as Exhibit
-------
2.5 ("Acquisition Loan Activation Certificate"). The Acquisition Loan
- ---
Activation Certificate shall (a) identify the Contiguous System which CINC
proposes to acquire and the proposed method of acquisition of such Contiguous
System; namely, acquisition of the equity or assets of the Licensee for the
Contiguous System, (b) set forth the facts which qualify such system as a
Contiguous System, including without limitation the location of the boundaries
of such system, and the documentation supporting such facts, (c) set forth the
Contiguous System Information, (d) certify that all budgets, projections and
other documentation
25
<PAGE>
submitted by Borrower to CoBank in connection with the Acquisition Loan
Activation Certificate are based upon assumptions that are reasonable and
realistic, and that no fact has come to light and no event or transaction has
occurred which would cause any assumption made therein not to be reasonable or
realistic, (e) calculate (i) the dollar amount of all Advances outstanding under
the Aggregate Commitment per Net Company Pop after giving effect to the proposed
Acquisition Loan, (ii) the ratio of Consolidated Funded Debt to Financed
Proportionate Operating Cash Flow for the immediately preceding four Quarters,
and (iii) the ratio of Consolidated Funded Debt to Financed Proportionate
Operating Cash Flow for the immediately preceding four Quarters after giving
effect to the proposed Acquisition Loan, and (f) certify that, after giving
effect to the proposed Acquisition Loan, (i) the aggregate amount of all
Advances outstanding under the Aggregate Commitment will not exceed $55.00 per
Net Company Pop, and (ii) the ratio of Consolidated Funded Debt to Financed
Proportionate Operating Cash Flow will not increase from such ratio calculated
for the immediately preceding four Quarters. The information contained in the
Acquisition Loan Activation Certificate is subject to review by CoBank. If
CoBank determines, in its sole discretion, that (a) any such information
(including without limitation, assumptions, projections, forecasts or costs
included in the Contiguous System Information) lacks a reasonable basis, or (b)
that the Acquisition Cost is too high, then CoBank may reject such information,
in which case CoBank shall not make the requested Acquisition Loan, or CoBank
may make adjustments to such information before determining the Contiguous
System Committed Loan Amount. CoBank shall notify Borrower of any proposed
adjustments or its rejection of any such information and the reasons therefor
prior to giving Borrower the Acquisition Loan Activation Notice pursuant to
Section 2.6.
F. DETERMINATION OF CONTIGUOUS SYSTEM COMMITTED LOAN AMOUNT. CoBank shall
determine the Contiguous System Committed Loan Amount for each Contiguous System
for which an Acquisition Loan Activation Certificate is submitted and shall
notify Borrower in writing of the Contiguous System Committed Loan
26
<PAGE>
Amount (an "Acquisition Loan Activation Notice") no later than 45 calendar days
after CoBank's receipt of the Acquisition Loan Activation Certificate for a
Contiguous System unless any information contained in the Acquisition Loan
Activation Certificate is rejected pursuant to Section 2.5.
G. ACTIVATION OF PAGING SYSTEM LOAN COMMITMENT. No later than 45 calendar
days prior to the submission of the first Advance Request under the Paging Loan,
Borrower shall submit to CoBank a certificate signed by an officer of Borrower
and an officer of Guarantor in substantially the form attached hereto as Exhibit
-------
2.7 ("Paging Loan Activation Certificate"). The Paging Loan Activation
- ---
Certificate shall (a) identify the Paging System which Paging proposes to
acquire, or construct, and operate, (b) set forth the Paging System Information,
and (c) certify that all budgets, projections and other documentation submitted
by Borrower to CoBank in connection with the Paging Loan Activation Certificate
are based upon assumptions that are reasonable and realistic, and that no fact
has come to light and no event or transaction has occurred which would cause any
assumption made therein not to be reasonable or realistic. The information
contained in the Paging System Activation Certificate is subject to review by
CoBank. If CoBank determines, in its sole discretion, that any information
(including without limitation, projections, forecasts or costs included in the
Paging System Information) lacks a reasonable basis, then CoBank may reject such
information, in which case CoBank shall not make the requested Advance under the
Paging Loan, or CoBank may make adjustments to such information. CoBank shall
notify Borrower of any proposed adjustments or its rejection of any such
information and the reasons therefor.
H. RATE OF ADVANCE OF FUNDS. Until the amount of Subordinated Funds and
Guarantor Funds advanced to Borrower for a System are equal to the Underlying
Borrower Maximum Financing Need minus the System Committed Loan Amount, the
portion of the Underlying Borrower Advance Request which Borrower, in turn, may
request in an Advance Request for such System and which the Bank
27
<PAGE>
Group shall be obligated hereunder to advance Bank Funds ("Bank Group Advance
Portion") shall be equal to the lesser of (x) fifty percent (50%) of the amount
of such Underlying Borrower Advance Request, and (y) the unadvanced portion of
the System Committed Loan Amount. The difference between the amount of any
Underlying Borrower Advance Request and the Bank Group Advance Portion shall be
advanced to Borrower from Subordinated Funds and Guarantor Funds ("CCI Advance
Portion").
I. ADJUSTMENT TO ADVANCED SUBORDINATED FUNDS, GUARANTOR FUNDS AND BANK
FUNDS. In the event that (a) the Table is revised after the date hereof so as
to change the System Committed Loan Amount and the Bank System Loan Percentage
for a System, or (b) to the extent that the System Committed Loan Amount and the
Bank System Loan Percentage for a System as set forth on the Table constitutes a
change from the System Committed Loan Amount (or "Committed Loan Amount") and
the Bank System Loan Percentage as previously in effect for a System, and (c) as
a result, (i) the amount of Bank Funds advanced to Borrower for such System
exceeds the System Committed Loan Amount, or (ii) the amount of Guarantor Funds
and/or Subordinated Funds advanced to Borrower exceed that amount which is equal
to the Borrower Committed Loan Amount less the System Committed Loan Amount (the
amount of such excess funding under (i) or (ii) shall be referred to herein as
the "Excess Amount"), then the Person who has advanced funds in excess of their
respective maximum amount shall be paid the Excess Amount, upon five (5)
Business Days' prior written notice, by the Person or Persons whose maximum
amount has not been exceeded. If, as a result of (a) or (b) above, neither the
Bank Group nor Guarantor nor any Subordinated Lending Party has exceeded their
respective maximum amount of funds to be advanced to Borrower for such System,
but the aggregate amount of the advances made by any such party ("Overfunding
Party") has exceeded their respective Advance Portion as set forth in Section
2.8 hereof ("Overfunding Condition"), then, notwithstanding the provisions of
Section 2.8 hereof, the portion of each future Underlying Borrower Advance
Request which such Overfunding Party
28
<PAGE>
is required to fund shall be adjusted as appropriate so as to cure such
Overfunding Condition as promptly as possible.
IV. PURPOSES
A. SYSTEM LOANS. The proceeds of any System Loan may be used only to fund
a loan to (a) an Underlying Borrower which is a Licensee for the purpose of
constructing and operating a System, or (b) an Underlying Borrower which is not
a Licensee for the purpose of acquiring or maintaining a Licensee Equity
Interest in a Licensee for a System.
B. GUARANTOR REPAYMENT LOANS. The proceeds of any Guarantor Repayment
Loan may be used only to fund the repayment to Guarantor of the Principal
Reduction Loan.
C. PAGING LOAN. The proceeds of any Advance under the Paging Loan may be
used only to fund loans to Paging for the purpose of acquiring, or constructing,
and operating the Paging System.
D. ACQUISITION LOANS. The proceeds of any Acquisition Loan may be used
only to fund loans to CINC, or such other Underlying Borrower as may be approved
in writing by CoBank in its sole discretion, for the purpose of acquiring (a) a
Contiguous System or (b) a Licensee Equity Interest in a Licensee for a
Contiguous System.
V. AVAILABILITY
A. GENERAL. Subject to the terms and conditions of this Agreement, funds
under the Aggregate Commitment will be made available to Borrower on any
Business Day by wire transfer of immediately available funds in accordance with
written wire transfer instructions to be furnished by Borrower to CoBank.
B. REVOLVING LOANS. Subject to the terms and conditions of this
Agreement, Bank Funds made available to Borrower under the
29
<PAGE>
Aggregate Commitment may be borrowed, repaid and reborrowed by Borrower until
the Termination Date, subject to the limitations set forth in Section 2.1. From
and after the Termination Date, Borrower may not reborrow any principal payments
made by Borrower under the Promissory Notes.
C. ACQUISITION LOANS. In addition to other terms and conditions
applicable to Acquisition Loans contained in this Agreement, Advances are
available to fund an Acquisition Loan only if, (a) after giving effect to the
proposed acquisition and such Acquisition Loan, the aggregate amount of all
Advances outstanding under the Aggregate Commitment does not exceed $55.00 per
Net Company Pop, and (b) the ratio of Consolidated Funded Debt to Financed
Proportionate Operating Cash Flow for the immediately preceding four Quarters
after giving effect to the proposed acquisition and such Acquisition Loan does
not increase from such ratio calculated for the immediately preceding four
Quarters without including the effect of the proposed acquisition and such
Acquisition Loan.
D. PAGING LOAN. In addition to other terms and conditions applicable to
the Paging Loan contained in this Agreement, the availability of Advances under
the Paging System Loan Commitment is subject to CoBank's review of the Paging
System Information and CoBank's determination, in its sole discretion, that such
information indicates a reasonable likelihood that Paging will be able to meet
its obligation to repay the Paging Loan in accordance with the terms of the loan
agreement between Borrower and Paging.
E. INDIRECT DEFAULT. In the event that a Licensee for a System in which
an Underlying Borrower owns a Licensee Equity Interest engages in any business
other than the acquisition, or construction, and operation of the System or
Contiguous System for which it is the Licensee or has determined to take or has
taken action which would, if such action were taken by the Underlying Borrower,
result in a violation of the covenant or covenants substantially in the form
attached hereto as Exhibit
-------
30
<PAGE>
4.5 ("Indirect Default"), then (a) the Syndication Parties shall not be
- ---
obligated to make any further Advances under the System Loan which was used to
fund the Underlying Loan with respect to which the Indirect Default occurred;
(b) Borrower shall use its best efforts to cause the Underlying Borrower to cure
the Indirect Default within 90 days of the date on which Borrower learned of the
Indirect Default; (c) if the Underlying Borrower does not cause the cure of such
Indirect Default within the period set forth in (b), Borrower shall accelerate
the Underlying Loan to such Underlying Borrower, or, where the Underlying Loan
Agreement contemplates advances for more than one System or Contiguous System
and the Indirect Default relates to only one System or Contiguous System,
Borrower shall accelerate the portion of the Underlying Loan relating to the
System or Contiguous System with respect to which such Indirect Default
occurred, and (d) Borrower shall make the mandatory prepayment required pursuant
to Section 7.2.1; provided, however, that notwithstanding the foregoing,
Borrower must prepay all outstanding Advances made to Borrower for the purpose
of funding the Underlying Loan, or portion thereof, with respect to which the
Indirect Default occurred no later than 180 days after the expiration of the
period set forth in (b).
F. DEFAULT BY UNDERLYING BORROWER. If, because of an Underlying Loan
Default, or otherwise, Borrower has no obligation to make advances to an
Underlying Borrower, then (a) the Syndication Parties shall have no obligation
to make Advances to Borrower to fund the Underlying Loan to such Underlying
Borrower; (b) Borrower shall use its best efforts to cause the Underlying
Borrower to cure the Underlying Loan Default within 90 days of the date on which
Borrower learned of the Underlying Loan Default; (c) if the Underlying Borrower
does not cure such Underlying Loan Default within the period set forth in (b),
Borrower shall accelerate the Underlying Loan to such Underlying Borrower, or,
where the Underlying Loan Agreement contemplates advances for more than one
System or Contiguous System and the Underlying Loan Default relates to only one
System or Contiguous System, Borrower shall accelerate the portion of the
Underlying
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<PAGE>
Loan relating to the System or Contiguous System with respect to which such
Underlying Loan Default occurred, and (d) Borrower shall make the mandatory
prepayment required pursuant to Section 7.2.1; provided, however, that
notwithstanding the foregoing, Borrower must prepay all outstanding Advances
made to Borrower for the purpose of funding the Underlying Loan, or portion
thereof, with respect to which the Underlying Loan Default occurred no later
than 180 days after the expiration of the period set forth in (b).
G. INCREASE IN THE SYSTEM COMMITTED LOAN AMOUNT AND BANK LOAN PERCENTAGE.
Borrower may, upon written application to CoBank, request an increase in the
System Committed Loan Amount and Bank Loan Percentage with respect to a System,
which written application shall set forth the reason for such requested increase
in the System Committed Loan Amount and Bank Loan Percentage with respect to a
System and shall be accompanied by a revised Ten Year Plan for the System. Upon
receipt of such written application, CoBank shall determine, in its sole
discretion, whether to increase the System Committed Loan Amount and the Bank
Loan Percentage utilizing generally the criteria followed by CoBank in
determining such amounts originally.
VI. INTEREST AND FEES
A. INTEREST CALCULATION. Interest shall be calculated on the actual
number of days each Advance is outstanding on the basis of a year consisting of
360 days. In calculating interest, the Advance Date shall be included and the
date each Advance is repaid shall be excluded.
1. VARIABLE RATE OPTION. Unless Borrower requests and receives a
Fixed Rate Loan pursuant to Subsection 5.1.2, the outstanding principal balance
under the Promissory Notes shall bear interest at the Variable Rate ("Variable
Rate Loans").
2. FIXED RATE OPTION. From time to time, and so long as no Event of
Default has occurred and is continuing, at the
32
<PAGE>
request of Borrower ("Fixed Rate Request"), all or any part of the outstanding
principal balance under the Promissory Notes may bear interest at the Fixed Rate
("Fixed Rate Loans"), provided however that at least fifty percent (50%) of the
outstanding principal balance under the Promissory Notes must bear interest at
the Fixed Rate through and including September 30, 1996 ("Fixed Rate
Requirement"). The Fixed Rate Request may be made to CoBank orally or in writing
on any Business Day (provided that if such request is made orally, Borrower must
furnish written confirmation of such request within one (1) Business Day) and is
effective as of the third Business Day after the Fixed Rate Request is received
if received by CoBank no later than 12 noon Mountain Time or as of the fourth
Business Day if received later than 12 noon Mountain Time. The Fixed Rate
Request must specify the principal amount that is to bear interest at the Fixed
Rate and the Fixed Rate Period selected by Borrower. Following the expiration of
the Fixed Rate Period for any Fixed Rate Loan, interest shall automatically
accrue at the Variable Rate unless Borrower requests and receives another Fixed
Rate Loan as provided in this Subsection 5.1.2.
3. INTEREST RATE MARGIN. The applicable Variable Margin and Fixed
Margin shall be determined for each succeeding Quarter based on the ratio of
Consolidated Funded Debt to Financed Proportionate Operating Cash Flow
("CFD/FPOCF") for the most recently completed four Quarters as follows:
<TABLE>
<CAPTION>
CTD/FPOCF VARIABLE MARGIN FIXED MARGIN
<S> <C> <C>
above 8.0X 100 250
8.0 and below, but
above 6.5X 75 225
6.5 and below, but
above 5.0X 50 200
5.0 and below, but
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
above 3.5X 25 175
3.5X or below 0 150
</TABLE>
4. DEFAULT INTEREST RATE. All past due payments of any Bank Debt
(whether as a result of nonpayment by Borrower when due, at maturity, or upon
acceleration) shall bear interest at the Default Interest Rate from and after
the due date for the payment, or on the date of maturity or acceleration, as the
case may be. If there shall occur an Event of Default or Potential Default, at
the option of CoBank, interest shall be payable upon demand by CoBank, and in no
event less frequently than monthly.
B. LOAN FEE. Borrower shall pay CoBank a loan fee of 50 basis points per
annum (based on a 360 day year) on the unborrowed amount of the Aggregate
Commitment ("Loan Fee") until the Termination Date. The Loan Fee will be
computed by CoBank daily and shall be payable quarterly in arrears no later than
fifteen days after the end of each Quarter.
C. ANNUAL ADMINISTRATION FEE. Borrower shall pay CoBank an annual
administration fee of $75,000.00 at Closing and on each anniversary thereof.
D. AMENDMENT FEE. Borrower shall pay CoBank an amendment fee at Closing
of 25 basis points on (a) $20,000,000, plus (b) the lesser of (i) the Pro Rata
Share of CoBank multiplied by the Aggregate Commitment or (ii) $110,000,000.
E. AGENT FEE. Borrower shall pay an agent fee of $100,000.00, payable in
two equal installments, with the first installment of $50,000.00 having been
received by CoBank on April 17, 1995, and the second installment of $50,000.00
due and payable at Closing.
F. FACILITY FEE. Borrower shall pay CoBank at Closing a facility fee
("Facility Fee") of $425,000.00.
34
<PAGE>
VII. PAYMENTS
A. PRINCIPAL PAYMENTS. Principal shall be repaid in quarterly payments
due fifteen days after the end of each Quarter ("Amortized Payments") beginning
on April 15, 1997 based on the following principal reductions for Quarters
ending in the year indicated (calculated on the basis of the principal owing on
the Termination Date), with payment in full due no later than January 15, 2001
("Maturity Date"):
<TABLE>
<CAPTION>
Year Payment per Quarter
---- -------------------
<S> <C>
1997 3.75% per Quarter
1998 5.00% per Quarter
1999 7.50% per Quarter
2000 8.75% per Quarter
</TABLE>
B. INTEREST PAYMENTS. Interest on Variable Rate Loans shall be payable
quarterly in arrears on the fifteenth day following the end of each Quarter.
Interest on Fixed Rate Loans shall be payable in arrears upon the maturity of
the applicable Fixed Rate Period, but no less frequently than the fifteenth day
following the end of each Quarter.
C. APPLICATION OF AMORTIZED PAYMENTS. Provided no Event of Default or
Potential Default has occurred, Borrower shall have the right to designate
whether an Amortized Payment is to be applied to a Variable Rate Loan or Fixed
Rate Loan and, if to a Fixed Rate Loan, to designate which Fixed Rate Loan or
Loans. Upon the occurrence of an Event of Default or Potential Default, all
amounts paid to CoBank, as Agent Bank, including Amortized Payments, shall be
applied, as CoBank in its sole discretion shall determine, to fees, the purchase
of Certificates, interest or principal indebtedness under the Promissory Notes
(in such order of maturity as CoBank shall select), or to any other Bank Debt.
All Advances and other Bank Debt, and all payments by or on behalf of Borrower,
of such amounts, shall be entered on the books of CoBank and such entries shall
be presumptive evidence of
35
<PAGE>
the unpaid amounts outstanding from time to time under the Promissory Notes and
other Loan Documents.
D. MANNER OF PAYMENT. All payments, including prepayments, that Borrower
is required to make under the terms of this Agreement shall be made to CoBank,
as Agent Bank, (a) in immediately available federal funds, to be received no
later than 12:00 noon Mountain Time of the Business Day on which such payment is
due; and (b) without setoff or counterclaim and free and clear of and without
deduction for any taxes, levies, impost, duties, charges, fees, deductions,
withholding, compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by any jurisdiction or any political subdivision
thereof or taxing or other authority therein unless Borrower is compelled by law
to make such deduction or withholding. Borrower will deliver promptly to the
Syndication Parties certificates or other valid vouchers for all taxes or other
charges deducted from or paid with respect to payments made by Borrower
hereunder.
VIII. PREPAYMENTS
A. VOLUNTARY PREPAYMENTS. Borrower shall have the option to make the
following prepayments:
1. VOLUNTARY PREPAYMENT OF VARIABLE RATE LOAN. Borrower shall have
the right to prepay all or any part of the outstanding principal balance under
the Variable Rate Loans upon three (3) Business Days' prior written notice to
CoBank. Any written notice by Borrower of its election to prepay under this
Subsection 7.1.1 shall be irrevocable.
2. VOLUNTARY PREPAYMENT OF FIXED RATE LOANS. Borrower shall have the
right to prepay all or any part of the outstanding principal balance of any
Fixed Rate Loan, provided that (a) Bor rower shall, at least ten (10) Business
Days prior to making any such prepayment, deliver to CoBank a written notice
which sets forth the amount of the prepayment, the date on which the prepayment
will be made, and the Fixed Rate Loan (or portion
36
<PAGE>
thereof) being prepaid, (b) Borrower shall pay all accrued and unpaid interest
relating to the amount prepaid through the date of prepayment, and (c) on the
prepayment date, Borrower shall pay the Funding Losses, if any, resulting from
the prepayment. Any written notice by Borrower of its election to prepay under
this Subsection 7.1.2 shall be irrevocable.
3. FUNDING LOSSES. In determining the "Funding Losses" for the
purposes of this Agreement, CoBank shall select, in its sole discretion, a
security or securities of a type which CoBank is permitted by law to purchase at
the date of the prepayment calculation. The selected security or securities
shall have payment dates which approximate the scheduled principal and interest
payments for the Fixed Rate Loan (or portion thereof) being prepaid. If the
Fixed Rate Loan being prepaid is to be repaid in two or more payments, a
different security may be selected for each payment date. CoBank will then
compare the net present value of the interest which could be expected to be paid
on the Fixed Rate Loan (or portion thereof) being prepaid and of the yield which
could be expected on the selected security for a comparable period. If the net
present value of the yield on the Fixed Rate Loan (or portion thereof) being
prepaid exceeds the net present value of the yield on the selected security, the
excess is the "Funding Loss." Net present value shall be determined as follows:
(a) with respect to the interest on the Fixed Rate Loan (or portion thereof)
being prepaid, the scheduled interest payments shall be discounted from the
expiration of the applicable Fixed Rate Period back to the date of prepayment
using as a discount rate the applicable Fixed Rate, and (b) with respect to the
selected security, the scheduled payments of the current yields on such selected
security shall be discounted back for a period comparable to the period for
which scheduled interest payments are discounted in the preceding sentence,
using as a discount rate the current yield on the selected security. The
calculation of "yield" on the selected security shall include interest payments,
any premium or discount associated with the
37
<PAGE>
purchase of the selected security, any fees or administrative costs associated
with the purchase, holding and sale of the selected security, CoBank's tax rate
and any reserves which CoBank may be required by law to maintain with respect to
the selected security (provided that such fees, administrative costs, tax rate
and reserves shall not in the aggregate exceed one percent (1%) of the principal
amount being prepaid). In the event of acceleration of the Promissory Notes as
provided in Section 15.1, the date of acceleration shall be treated as the date
of prepayment for the purpose of determining the Funding Loss under this
Subsection. Funding Losses shall be calculated as provided above without
consideration of the amount of such losses actually incurred by CoBank or any
other Syndication Party.
B. MANDATORY PREPAYMENTS. Borrower shall be required to make the
following prepayments:
1. UNDERLYING BORROWER PREPAYMENTS. Borrower shall be obligated to
prepay the outstanding principal balance under the Promissory Notes in an amount
equal to the amount of any prepayment received by Borrower under any Underlying
Loan (including without limitation any payment made on account of acceleration
of any Underlying Loan) within five (5) Business Days of Borrower's receipt of
any such prepayment from an Underlying Borrower. Notwithstanding the foregoing,
with respect to a System Loan only Borrower shall have the right to retain that
percentage of any prepayment received by Borrower under an Underlying Loan
relating to a System equal to 100 minus the Bank System Loan Percentage for that
System. Borrower shall have the right to use funds so retained to make
principal payments to Guarantor or Subordinated Lending Parties on indebtedness
for Subordinated Funds, provided that Borrower shall satisfy the test for such
principal payment pursuant to Section 13.6(b).
2. PREPAYMENT ON ACCOUNT OF FINANCIAL COVENANTS. When a breach of
the financial covenants set forth in Section 12.13 of this Agreement exists,
CoBank shall have the right, but not the obligation, to require Borrower to
prepay the outstanding principal balance under the Promissory Notes in such
amount as is
38
<PAGE>
necessary in order to remedy such breach of the financial covenants set forth in
Section 12.13 of this Agreement. Any such prepayment shall be made by Borrower
immediately upon receipt of written demand by CoBank. The failure of CoBank to
require such prepayment does constitute a waiver of an Event of Default based
upon such breach of the financial covenants.
3. PREPAYMENT ON ACCOUNT OF COMMITMENT AMOUNTS. When a breach of
Section 2.1 of this Agreement exists, CoBank shall have the right to require
Borrower to prepay the outstanding principal balance under the Promissory Notes
in such amount as is necessary in order to remedy such breach of Section 2.1 of
this Agreement. Any such prepayment shall be made by Borrower immediately upon
receipt of written demand by CoBank.
4. PREPAYMENT UPON TERMINATION OF OBLIGATION TO ADVANCE BANK FUNDS.
Upon an Underlying Loan Default, CoBank may require Borrower to make certain
prepayments at such time and in such manner as is set forth in Sections 4.5,
4.6, 12.14 and 12.15 of this Agreement.
C. PAYMENT OF ACCRUED INTEREST AND FUNDING LOSSES ON ANY MANDATORY
PREPAYMENTS. Any prepayment of all or part of a Fixed Rate Loan resulting from
a prepayment under Section 7.2 shall be accompanied by payment by Borrower of
(a) all unpaid and accrued interest relating to the amount of the Fixed Rate
Loan prepaid through the date of prepayment, and (b) any Funding Losses
resulting from prepayment of the Fixed Rate Loan, which payment shall be due no
later than five (5) Business Days after Borrower's receipt of an invoice from
CoBank.
D. MINIMUM PREPAYMENT AMOUNT. Voluntary prepayments and mandatory
prepayments, as permitted or required under this Agreement, must be in amounts
no less than $1,000,000 ("Minimum Payment Amount"), provided that (a) such
Minimum Payment Amount shall not apply to mandatory prepayments required under
Subsections 7.2.2 and 7.2.3 of this Agreement, and (b) mandatory prepayments
must be made no less frequently than the fifteenth
39
<PAGE>
day following the end of each Quarter, even if they are less than the Minimum
Payment Amount. Any mandatory prepayment received by CoBank will be applied to
the principal portion of the Amortized Payments required with respect to such
Quarter. Mandatory prepayments received in one Quarter may not be applied to
Amortized Payments required during any other Quarter. Voluntary prepayments, as
well as mandatory prepayments not applied to Amortized Payments (as provided
above), shall be applied to discharge principal amounts in the inverse order in
which the principal would otherwise become due.
E. APPLICATION OF PREPAYMENTS. Provided no Event of Default or Potential
Default has occurred, Borrower shall have the right to designate whether a
prepayment of principal is to be applied to a Variable Rate Loan or Fixed Rate
Loan. Upon the occurrence of an Event of Default or Potential Default, Borrower
hereby agrees that all amounts paid to CoBank, including prepayments as
described in Sections 7.1 and 7.2 of this Agreement shall be applied, as CoBank
in its sole discretion shall determine, to fees, the purchase of Certificates,
interest or principal indebtedness under the Promissory Notes (in such order of
maturity as CoBank shall select), or to any other Bank Debt.
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IX. COBANK EQUITY
Borrower agrees to purchase such non-voting equity interests in CoBank
represented by participation certificates of CoBank ("Certificates") as CoBank
may from time to time require in accordance with its bylaws and capital plan;
provided, however, that the outstanding principal balance on which such
Certificate purchase obligation shall be based is the outstanding principal
balance under the Promissory Note executed by Borrower payable to the order of
CoBank and shall not include the outstanding principal balance under any
Promissory Note executed by Borrower payable to the order of any Syndication
Party other than CoBank. In connection with the foregoing, Borrower hereby
acknowledges receipt, prior to the execution of this Agreement, of CoBank's
bylaws, a written description of the terms and conditions under which the
Certificates are issued, CoBank's Loan-Based Capital Plan, CoBank's most recent
annual report, and if more recent than CoBank's latest annual report, its latest
quarterly report.
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X. SECURITY
A. BORROWER'S ASSETS. As security for the payment and performance of all
obligations of Borrower to CoBank and the other Syndication Parties under the
Loan Documents, including but not limited to principal, interest, Certificate
purchases, fees, Funding Losses, reimbursements, and all other Bank Debt or
obligations under any of the Loan Documents, Borrower shall grant to, and
maintain for, CoBank, for its own benefit and, in its role as Agent Bank, for
the benefit of the present and future Syndication Parties, a first lien and
security interest in all of its assets, both real and personal, tangible and
intangible, whether now owned or hereafter acquired, including without
limitation the Underlying Loan Documents (the "Collateral"). Borrower shall
execute and deliver to CoBank the Security Agreement to evidence the security
interest of CoBank, for its own benefit and, in its role as Agent Bank, for the
benefit of the present and future Syndication Parties, in the Collateral,
together with such financing statements or other documents as CoBank shall
request. Borrower shall also execute such further security agreements,
mortgages, deeds of trust, financing statements, assignments or other documents
as CoBank shall reasonably request, in form and substance as CoBank shall
specify, to establish, confirm, perfect or provide notice of CoBank's (for its
own benefit and, in its role as Agent Bank, for the benefit of the present and
future Syndication Parties) security interest in the Collateral. If requested
by CoBank, Borrower and CoBank shall place a legend on chattel paper showing
CoBank's security interest therein.
B. GUARANTY. In addition to the first lien and security interest in all
of Borrower's assets, Borrower's obligations under this Agreement and all other
Loan Documents shall be guaranteed by Guarantor pursuant to the Guaranty and the
Guaranty shall be secured pursuant to the Guarantor Security Agreement.
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XI. REPRESENTATIONS AND WARRANTIES
Borrower represents, covenants and warrants to the Syndication Parties
that:
A. ORGANIZATION, ELIGIBILITY, ETC. Borrower is eligible to borrow from
CoBank and is duly organized, validly existing and in good standing under the
laws of the State of Colorado. Borrower has the power to own its property and
to carry on its business as presently conducted. Borrower is duly qualified to
do business and is in good standing in each jurisdiction in which the
transaction of its business makes such qualification necessary.
B. CORPORATE AUTHORITY, DUE AUTHORIZATION; CONSENTS. Borrower has full
power and authority to execute, deliver and perform the Loan Documents and all
other documents and agreements as contemplated by this Agreement, all of which
have been duly authorized. All consents or approvals of any Person which are
necessary for, or are required as a condition of, the execution, delivery and
performance of the Loan Documents have been obtained.
C. TITLE TO COLLATERAL. Borrower has good and marketable title to all of
the Collateral, free and clear of all liens, pledges, restrictions and
encumbrances except as permitted by Section 13.3.
D. LITIGATION. There are no pending legal or governmental actions,
proceedings or investigations to which Borrower is a party or to which any
property of Borrower is subject which might result in any material adverse
change in the business or financial condition of Borrower and, to the best of
Borrower's knowledge, no such actions or proceedings are threatened or
contemplated by governmental authorities or any other Person.
E. NO VIOLATIONS. The execution, delivery and performance of the Loan
Documents will not (a) violate any provision of Borrower's articles of
incorporation or bylaws, or any law, rule,
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regulation, judgment, order or ruling of any court or governmental agency, or
(b) violate, conflict with, result in a breach of, constitute a default under,
or with the giving of notice or the expiration of time or both, constitute a
default under, any existing real estate mortgage, indenture, lease, security
agreement, contract, note, instrument or any other agreements or documents
binding on Borrower or affecting its property.
F. BINDING AGREEMENT. Each of the Loan Documents to which Borrower is a
party is, or when executed and delivered, will be, the legal, valid and binding
obligation of Borrower, enforceable in accordance with its terms, subject only
to limitations on enforceability imposed by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally and by general principles of equity.
G. COMPLIANCE WITH LAWS. Borrower is in compliance in all material
respects with all federal, state, and local laws, rules, regulations,
ordinances, codes and orders, including without limitation all laws relating to
environmental matters.
H. PRINCIPAL PLACE OF BUSINESS. Borrower's place of business, or chief
executive office if it has more than one place of business, is located in
Englewood, Colorado.
I. MATERIAL AGREEMENTS. All agreements, excluding the Loan Documents and
the Underlying Loan Documents, of Borrower, the termination or breach of which
would have a material adverse effect on Borrower's financial condition, results
of operations, business or prospects of Borrower ("Material Agreements") are
listed on Exhibit 10.9 hereto and neither Borrower nor, to Borrower's knowledge,
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any other party to any Material Agreement is in default thereunder, and no facts
exist which with the giving of notice or the passage of time, or both, would
constitute such a default. A true, correct and complete copy of each Material
Agreement and all amendments thereto has been provided to CoBank by Borrower.
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J. FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. All consolidated
financial statements, schedules, and other written documents relating to the
financial condition and results of operations of Borrower and Guarantor which
have been submitted by Borrower to CoBank prior to the execution of this
Agreement, including without limitation those as of December 31, 1994, present
fairly the financial condition and results of operations of Borrower and
Guarantor for the period indicated, and are prepared in accordance with GAAP.
Since December 31, 1994, there has been no material adverse change in the
financial condition, results of operations, business or prospects of Borrower or
Guarantor.
K. PAYMENT OF TAXES. Borrower has filed all required federal, state and
local tax returns and has paid all taxes as shown on such returns as they have
become due. Borrower has paid when due all other taxes, assessments or
impositions levied or assessed against Borrower or its business or properties.
L. LICENSES AND APPROVALS. Borrower has duly and lawfully obtained and is
duly and lawfully maintaining and shall continue to maintain in effect any and
all licenses, certificates, permits, qualifications, authorizations, approvals,
franchises, patents, copyrights, trademarks, trade names, and the like which are
or may be required or necessary to the operation of its business, in every
aspect thereof, under the appropriate governmental regulatory agency or
agencies, whether federal, state, or local, and shall faithfully comply with any
reporting requirement of any such agency.
M. EMPLOYEE BENEFIT PLANS. Borrower (a) does not maintain, and has never
maintained, any "employee benefit plan" subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and (b) does not contribute
to, and has never contributed to, any "multiemployer plan" as such term is
defined in ERISA.
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N. EQUITY INVESTMENTS. Borrower does not now own, and has never owned,
any stock or other voting or equity interest, directly or indirectly, in any
Person other than CoBank.
O. REAL PROPERTY. Borrower does not now own, and has never owned, any
title or any other interest in real property, including without limitation any
fee interest, leasehold interest or fixture, other than as holder of a security
interest in any collateral securing the Underlying Loans.
P. SYSTEMS. To the best knowledge and belief of Borrower, the Ten Year
Plan submitted by Borrower to CoBank for each System is accurate and complete
and based on reasonable assumptions. Without limiting the generality of the
foregoing, the Ten Year Plan for each System accurately sets forth the financial
prospects of the Licensee for the System and the Underlying Borrower Maximum
Financing Need. Each System is operational, complies with all requirements of
the FCC, and can be or was constructed for the cost estimates provided to CoBank
in the Ten Year Plan, most recently submitted to CoBank on or before December 1,
1994, for such System.
Q. PAGING SYSTEMS. To the best knowledge and belief of Borrower, the Ten
Year Plan submitted by Borrower to CoBank for the Paging System will, when
submitted, be accurate and complete and based on reasonable assumptions.
Without limiting the generality of the foregoing, the Ten Year Plan for the
Paging System will, when submitted, accurately set forth the financial prospects
of Paging and the Underlying Borrower Maximum Financing Need for the Paging
System. The Paging System is, or upon completion of construction, will be,
operational, complies with all requirements of the FCC, and, if not yet
operational, construction can be completed for the cost estimates provided to
CoBank in the Ten Year Plan for the Paging System.
R. CONTIGUOUS SYSTEMS. To the best knowledge and belief of Borrower, the
Ten Year Plan submitted by Borrower to CoBank for each Contiguous System will,
when submitted, be accurate and
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complete and based on reasonable assumptions. Without limiting the generality of
the foregoing, the Ten Year Plan for each Contiguous System will, when
submitted, accurately set forth the financial prospects of the Licensee for the
Contiguous System and the Underlying Borrower Maximum Financing Need for the
Contiguous System. Each Contiguous System will, upon the direct or indirect
acquisition by CINC, be completed, and operational and will comply with all
requirements of the FCC.
S. UNDERLYING LOANS. With respect to each Underlying Loan:
(a) no Underlying Loan Default has occurred and is continuing;
(b) the proceeds of such Underlying Loan heretofore advanced have been
used by the Underlying Borrower for the purposes set forth in the Underlying
Loan Agreement, and no such proceeds shall be used for the purchasing or
carrying of any "margin security" or "margin stock" as such terms are used in
Regulations U and X of the Board of Governors of the Federal Reserve System, 12
C.F.R. Parts 221 and 224;
(c) the Underlying Loan Documents have been duly executed by the
Underlying Borrower and constitute the legal, valid and binding obligation of
the Underlying Borrower, enforceable in accordance with their terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the rights of
creditors generally and general equitable principles (regardless of whether such
enforceability is considered in a proceeding at law or in equity), and are free
from any right of set-off, counterclaim or other claim or defense;
(d) the Underlying Loan is secured by a first lien and security
interest in all assets of the Underlying Borrower, free and clear of all other
liens, security interests, restrictions,
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adverse claims or defenses, except for liens and encumbrances permitted by the
Underlying Loan Agreement;
(e) there is no misstatement of a material fact, nor an omission to
state a material fact, in any of the financial statements, cost projections,
budgets or other information furnished by or on behalf of the Underlying
Borrower, nor, has anything occurred subsequent to the furnishing of such
information which would have a material negative impact thereon;
(f) each Underlying Loan Agreement contains covenants substantially in
the form of those covenants set forth on Exhibit 4.5 to this Agreement;
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(g) all closing requirements in the Underlying Loan Agreement have
been satisfied in full or were waived by Cobank; and
(h) the Underlying Borrower and the Licensee in which the Underlying
Borrower holds a Licensee Equity Interest, as applicable, has duly and lawfully
obtained and is duly and lawfully maintaining and shall continue to maintain in
effect any and all licenses, certificates, permits, qualifications,
authorizations, approvals and the like which are or may be required or necessary
to the operation of its business, in every aspect thereof, under the appropriate
governmental regulatory agency or agencies, whether federal, state, or local,
and shall faithfully comply with any reporting requirement of any such agency.
The representations contained in this Section 10.19, except those contained in
Subparagraphs (f) and (g), are made to the best knowledge and belief of
Borrower.
T. DISTRIBUTIONS; CAPITAL. Where the Underlying Borrower holds a Licensee
Equity Interest, the Organization Documents of the Licensee in which the
Underlying Borrower holds such interest contain provisions which (a) if a
partnership, (i) give a partner
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of such Licensee the right to withdraw and receive payment of its capital
account, either in cash or in installments over a period not exceeding three
years, and (ii) obligate such Licensee to make distributions to its partners
after adequate reserves for operating expenses have been established, (b) if a
corporation, obligate such Licensee to pay dividends to its shareholders after
adequate reserves for operating expenses have been established, and (c) provide
that additional capital calls on partners of such Licensee (where the Licensee
is a partnership) or the call to purchase additional capital stock of such
Licensee (where the Licensee is a corporation) shall not be obligatory and that
the only remedy for failure to pay a capital call or to purchase additional
capital stock shall be the dilution of the partner's or shareholder's interest
in the Licensee.
U. TRANSFER RESTRICTIONS. (a) A true, correct, and complete copy of any
document containing restrictions on (i) the pledge and grant of a security
interest in an Underlying Borrower's Licensee Equity Interest or (ii) the
transfer by Borrower of such Licensee Equity Interest after foreclosure (or
transfer in lieu of foreclosure) of its security interest therein, has been
furnished to CoBank by Borrower or, if not presently in existence, shall be
furnished by Borrower to CoBank at or prior to the first Advance by CoBank for
the purpose of funding the Underlying Loan by Borrower to such Underlying
Borrower, except as otherwise waived in writing by CoBank; (b) no Licensee
Equity Interest included in the Collateral is subject to any transfer
restrictions other than those as to which CoBank has been furnished with copies;
and (c) no such transfer restrictions will apply (either because of the language
thereof or because all necessary waivers have been obtained) to the transfer or
granting of a security interest therein to Borrower; provided, however, that
rights of first refusal (a copy of which has previously been furnished to
CoBank) may be applicable to the foreclosure on, or transfer in lieu of
foreclosure, by Borrower or CoBank and the subsequent transfer by Borrower or
CoBank to a third party of, such Licensee Equity Interests and except as
otherwise consented to by CoBank in writing.
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V. DISCLOSURE. Neither the representations and warranties contained in
this Article 10 nor any information, exhibit or report furnished by Borrower to
CoBank in connection with the negotiation and preparation of this Agreement or
the other Loan Documents contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
or therein not misleading.
W. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Borrower is not a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company", as such terms are defined in the Public
Utility Holding Company Act of 1935; nor is it an "investment company", or an
"affiliated company" or a "principal underwriter" of an "investment company", as
such terms are defined in the Investment Company Act of 1940.
X. REGULATIONS U AND X. No portion of any Advance is to be used for the
purpose of purchasing or carrying any "margin security" or "margin stock" as
such terms are used in Regulations U and X of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Parts 221 and 224.
Y. FISCAL YEAR. Each fiscal year of Borrower begins on October 1 of each
calendar year and ends of September 30 of each calendar year.
XII. CONDITIONS TO ADVANCES
A. CONDITIONS TO FIRST ADVANCE FOR EACH SYSTEM LOAN OR THE PAGING LOAN AND
TO AN ADVANCE UNDER AN ACQUISITION LOAN. The obligation of the Syndication
Parties to make the first Advance relating to a System Loan not funded prior to
the date hereof or the Paging Loan or to make an Advance under an Acquisition
Loan shall be subject to the prior or simultaneous fulfillment of the following
conditions to CoBank's satisfaction:
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2. PERMITS/LICENSES. Borrower shall have provided CoBank with a copy of the
FCC License for the System or Contiguous System, or the Paging License for the
Paging System, as applicable, for which the Advance has been requested.
3. MANAGEMENT AGREEMENTS. With respect to a System Loan, Borrower
shall have furnished to CoBank copies of each executed Management Agreement
for each Underlying Borrower; with respect to an Acquisition Loan, Borrower
shall have furnished to CoBank a copy of the Management Agreement dated as of
January 16, 1990 by and between Guarantor and CINC; with respect to the Paging
Loan, Borrower shall have furnished to CoBank a copy of the Management
Agreement by and between Guarantor and Paging.
4. UNDERLYING LOAN DOCUMENTS. Borrower shall have delivered to
CoBank the following for each Underlying Loan: (a) duly executed originals of
the Underlying Loan Documents, (b) copies of all licenses, permits, approvals
and authorizations necessary to acquire, or construct, and operate the System,
Paging System or Contiguous System which have been obtained by the Underlying
Borrower or the Licensee in which the Underlying Borrower is acquiring a
Licensee Equity Interest with the proceeds of the Underlying Loan; and (c)
where the Underlying Borrower is not a Licensee, evidence of ownership of the
Licensee Equity Interest.
5. SUPPORTING UNDERLYING LOAN DOCUMENTS. Borrower shall deliver to
CoBank copies of all documents required under each Underlying Loan Agreement
to be provided to Borrower, which documents delivered to CoBank shall be
original execution copies to the extent original execution copies are required
by the Underlying Loan Agreement. Where the Underlying Loan Documents are
required to be addressed to Borrower, Borrower shall also cause such documents
to be addressed to CoBank, for its own benefit and, in its role as Agent Bank,
for the benefit of the present and future Syndication Parties, and
Subordinated Lending Parties, if any.
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6. NO CHANGE IN ACQUISITION COST OR UNDERLYING BORROWER MAXIMUM
FINANCING NEED. With respect to an Acquisition Loan, Borrower's estimate of
the Acquisition Cost for the Contiguous System shall not differ by more than
ten percent (10%) from the estimates previously submitted by Borrower. With
respect to the Paging Loan, Borrower's estimate of the Underlying Borrower
Maximum Financing Need for the Paging System shall not differ by more than ten
percent (10%) from the estimate previously submitted by Borrower in the Ten
Year Plan of the Licensee for the Paging System.
7. ADDITIONAL CONDITIONS. Borrower shall have satisfied all of the
conditions set forth in Section 11.2.
B. CONDITIONS TO ALL ADVANCES. The obligation of the Syndication Parties
to make any Advance under any Committed Loan Amount shall be subject to the
prior or simultaneous fulfillment of the following conditions:
1. ELIGIBILITY. Borrower shall be eligible to borrow from CoBank and
shall have submitted proof, in form and content satisfactory to CoBank, that
it is eligible to borrow from CoBank.
2. PROCEDURE FOR ADVANCES. With respect to each Advance, Borrower
must deliver to CoBank (including by facsimile transmission), not later than
five Business Days preceding the requested Advance Date, an Advance Request
which has been signed by an officer of Borrower and Guarantor. The Advance
Request shall be effective on the Business Day received if actually received
by CoBank before 3:00 p.m., Mountain Time, and as of the next Business Day if
received by CoBank after such time. If the Advance Request is submitted by
facsimile transmission, Borrower shall deliver to CoBank, no later than the
Advance Date, the originally executed Advance Request. All Advance Requests
submitted by Borrower shall be irrevocable. The Advance Request must:
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(a)(i) identify the Underlying Borrower(s) and the System(s), Paging System
or Contiguous System(s) with respect to which Borrower will be lending the
proceeds of the System Loan(s), Paging Loan(s) or Acquisition Loan(s), as
applicable, or (ii) state that the requested funds are for a Guarantor
Repayment Loan the proceeds of which will be paid to Guarantor;
(b) certify that the funds requested in the Advance Request will be used
for purposes permitted under Article 3 of this Agreement and state such
purposes;
(c) include as an attachment (i) (except where the Advance Request pertains
to a Guarantor Repayment Loan), the Underlying Borrower Advance Request and
all attachments thereto or accompanying materials, or (ii) where the
Advance Request pertains to a Guarantor Repayment Loan, the request for
repayment of the Principal Reduction Loan submitted by Guarantor to
Borrower; and
(d) be in the minimum amount of the lesser of (i) $1,000,000 or (ii) the
maximum amount which, if advanced pursuant to the Advance Request, will not
result in a violation of Section 2.1 of this Agreement.
3. COMMITTED LOAN AMOUNTS. The funds requested in an Advance Request
shall not cause a violation of any provision of Section 2.1 of this Agreement.
4. DEFAULT. As of the Advance Date for the requested Advance, there
shall exist no Event of Default or Potential Default, and the making of the
Advance shall not result in an Event of Default or Potential Default.
5. SUBORDINATED AND GUARANTOR FUNDS. Borrower shall have provided
CoBank with evidence satisfactory to CoBank that (a) the CCI Advance Portion of
any Advance Request has been funded on or before the Advance Date and, (b) with
respect to an
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Acquisition Loan, Guarantor or a Subordinated Lending Party has funded, on or
before the Advance Date, any difference between the Contiguous System Committed
Loan Amount and the Acquisition Cost.
6. TRANSFER RESTRICTIONS AND CONSENTS RELATING TO GUARANTY. CoBank
shall have received all consents and all documents required by Section 5(b) of
the Guaranty.
7. FURTHER ASSURANCES. Borrower and Guarantor shall have executed
and delivered to CoBank such further assignments, documents or financing
statements, in form and substance satisfactory to CoBank, that Borrower and
Guarantor are to execute and deliver pursuant to the terms of the Loan
Documents.
8. NO ADVERSE CHANGE. No material adverse change shall have
occurred in the condition, operations, or prospects of Borrower, Guarantor or
the Underlying Borrower, if any, which will receive the proceeds of the
requested Advance.
9. LIST OF AUTHORIZED OFFICERS. Borrower shall have furnished
CoBank with a current list of all officers of Borrower and all officers of
Guarantor authorized to sign Advance Requests.
10. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Borrower and of Guarantor contained in each of the Loan Documents
to which it is a party, shall be true and correct in all material respects on
and as of the date of the Advance as though made on and as of such date.
C. CONDITIONS TO PERFORMANCE UNDER THIS AGREEMENT. The obligations of
the Syndication Parties and Borrower to perform their obligations under this
Agreement shall be subject to the prior or simultaneous fulfillment of the
following conditions:
1. BORROWER'S OPINION. CoBank shall have received opinions of
counsel for Borrower and for Guarantor (who shall be acceptable to CoBank), in
form and content reasonably acceptable
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to CoBank and addressed to CoBank and all other present and future Syndication
Parties .
2. LOAN DOCUMENTS; OTHER DOCUMENTS. CoBank shall have received (a)
duly executed originals of the Loan Documents, and (b) such other instruments
and documents in which CoBank, individually and in its role as Agent Bank, has
been granted a security interest and of which CoBank is to have possession under
the terms of the Loan Documents.
3. SYNDICATION AGREEMENT. The Syndication Parties shall have
executed and delivered the Syndication Agreement, in form and content acceptable
to CoBank, whereby the Syndication Parties other than CoBank agree, through
syndication, to purchase and to fund, at least $35,000,000.00 (in addition to
the $20,000,000.00 share of NTFC and the participation of St. Paul) of the
Aggregate Commitment.
4. APPOINTMENT OF CT CORPORATION SYSTEMS. CoBank shall have
received evidence satisfactory to CoBank that Borrower, Guarantor and all other
Syndication Parties have appointed The Corporation Company, 1675 Broadway,
Denver, Colorado 80202 as their agent for service of process in accordance with
the Syndication Agreement or this Agreement, as applicable.
5. CINC LOAN AGREEMENT. CoBank shall have received an original
executed copy of the Underlying Loan Agreement, as amended and restated, between
Borrower and CINC, in form and substance satisfactory to CoBank.
6. APPROVALS. CoBank shall have received evidence, in form and
substance satisfactory to CoBank that all consents and approvals of governmental
authorities and third parties which are necessary for the transactions
contemplated by the Loan Documents, including but not limited to Guarantor,
Subordinated Lending Parties, NTFC and St. Paul, have been obtained and are in
full force and effect.
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7. ORGANIZATIONAL DOCUMENTS. CoBank shall have received (a) good
standing certificates, dated no more than 30 days prior to the date of Closing,
for Borrower and Guarantor for their respective states of incorporation and for
each state where their operations require qualification or authorization to
transact business, (b) a copy of the articles of incorporation of Borrower and
Guarantor certified by the Colorado Secretary of State, (c) a copy of the bylaws
of Borrower and Guarantor, certified as true and complete by the Secretary of
the corporation.
8. EVIDENCE OF CORPORATE ACTION. CoBank shall have received in form
and substance satisfactory to CoBank, documents evidencing all corporate action
taken by each of Borrower and Guarantor to authorize execution, delivery and
performance of the Loan Documents to which it is a party, certified to be true
and correct by the Secretary or Assistant Secretary of Borrower and Guarantor,
respectively.
9. EVENT OF DEFAULT. No Event of Default or Potential Default shall
exist.
10. SEARCHES; UCC FILINGS. CoBank shall have received searches of
appropriate filing offices showing that (a) no state or federal tax liens have
been filed which remain in effect against Borrower, and (b) no financing
statements have been filed by any Person other than CoBank, individually or in
its role as Agent Bank, and the holders of liens permitted under Section 13.3 of
this Agreement, which remain in effect against Borrower or any of its assets;
and (c) CoBank, individually and in its role as Agent Bank, has filed or
recorded all financing statements necessary to perfect the security interest
granted to CoBank under the Loan Documents, for its own benefit and, in its role
as Agent Bank, for the benefit of the present and future Syndication Parties, to
the extent such security interests are capable of being perfected by such
filing.
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11. NO MATERIAL CHANGE. No material adverse change shall have
occurred in the condition, operations, or prospects of Borrower or Guarantor
since December 31, 1994.
12. ELIGIBILITY. Borrower shall have submitted proof, in form and
content satisfactory to CoBank, that it is eligible to borrow from CoBank.
13. EVIDENCE OF INSURANCE. Guarantor and Borrower shall have
provided CoBank with evidence, in form and substance satisfactory to CoBank, of
all insurance required to be maintained by either of them under the Loan
Documents.
14. OTHER DOCUMENTS. Borrower shall have provided or caused to be
provided to CoBank such other documents, instruments and agreements as CoBank
may reasonably request.
15. FEES AND EXPENSES. Borrower shall have paid CoBank, by wire
transfer of immediately available federal funds: (a) all fees set forth in
Article 5 of this Agreement which are due at Closing, and (b) all out-of-pocket
costs and expenses incurred by CoBank (including, without limitation, the
reasonable fees and expenses of counsel retained by CoBank) in connection with
the preparation, negotiation, and execution of the Loan Documents and the
transactions contemplated thereby, up to and including the date of Closing.
XIII. AFFIRMATIVE COVENANTS
From and after the date of this Agreement and until the Bank Debt is
indefeasibly paid in full and the Syndication Parties have no obligation to make
any Advances hereunder, Borrower agrees that it will observe and comply with the
following covenants for the benefit of the Syndication Parties:
A. BOOKS AND RECORDS. Borrower shall at all times keep proper books of
record and account, in which correct and complete
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entries shall be made of all its dealings, in accordance with GAAP.
B. REPORTS AND NOTICES. Borrower shall provide to CoBank, as Agent Bank,
the following reports, information and notices:
1. ANNUAL FINANCIAL STATEMENTS. As soon as available, but in no
event later than one hundred and twenty (120) days after the end of any fiscal
year of each of Borrower and Guarantor occurring during the term hereof, (a)
annual financial statements of (i) Borrower and (ii) on a consolidated basis, of
Guarantor, prepared in accordance with GAAP consistently applied which shall:
(1) be audited by independent certified public accountants selected by Borrower
or Guarantor which are reasonably acceptable to CoBank; (2) be accompanied by a
report of such accountants containing an opinion reasonably acceptable to
CoBank; (3) be accompanied by a Compliance Certificate; (4) be prepared in
reasonable detail and in comparative form; and (5) include a balance sheet, an
income statement, a statement of cash flows, a statement of stockholders'
equity, and all notes and schedules relating thereto; and (b) a "Combined,"
"Financed Proportionate," and "Company Proportionate" income statement of
Guarantor.
2. QUARTERLY FINANCIAL STATEMENTS. As soon as available but in no
event more than sixty (60) days after the end of each of the first three
quarters in Guarantor's fiscal year, (a) the following financial statements of
Borrower and, on a consolidated basis, of Guarantor prepared in accordance with
GAAP consistently applied: a balance sheet, an income statement, a statement of
cash flows, a statement of stockholders' equity, for such Quarter and for the
year to date, and such other quarterly statements as CoBank may specifically
request, which quarterly statements shall include any and all notes and
schedules thereto, and (b) a "Combined," "Financed Proportionate," and "Company
Proportionate" income statement of Guarantor. Such quarterly financial
statements of Borrower and Guarantor required pursuant
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to (a) of this Subsection 12.2.2 shall be accompanied by a Compliance
Certificate.
3. ADDITIONAL INFORMATION. With reasonable promptness, such
additional financial information or documentation as CoBank may reasonably
request.
4. NOTICE OF DEFAULT. As soon as the existence of any Event of
Default or Potential Default becomes known to any officer of Borrower, Borrower
shall promptly give CoBank written notice of such Event of Default or Potential
Default, the nature and status thereof, and the action being taken or proposed
to be taken with respect thereto.
5. NOTICE OF UNDERLYING LOAN DEFAULT. Promptly after becoming aware
thereof, Borrower shall give CoBank notice of (a) any Underlying Loan Default
and (b) any condition or event which constitutes a default under the Paging
License or any FCC License held by an Underlying Borrower or a Licensee in which
an Underlying Borrower holds a Licensee Equity Interest.
6. NOTICE OF CHANGE IN UNDERLYING BORROWER MAXIMUM FINANCING NEED.
If at any time the projected or actual Underlying Borrower Maximum Financing
Need decreases by 20% or more from the estimate previously submitted by Borrower
in the Ten Year Plan of the Licensee for a System, Borrower shall immediately
provide CoBank with written notice of such change in, and, within fifteen (15)
Business Days, a revised Ten Year Plan which shall contain the new amount of,
the Underlying Borrower Maximum Financing Need. Upon receipt of the notification
and the revised Ten Year Plan required by this Subsection 12.2.6, CoBank shall
have the right to reduce the System Committed Loan Amount and the Bank System
Loan Percentage pursuant to Section 2.3 of this Agreement.
7. NOTICE OF CERTAIN CHANGES. Borrower shall notify CoBank at least
ten (10) Business Days prior to the occurrence of any of the following events:
(a) a decrease in an Underlying
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Borrower's percentage ownership of a Licensee; (b) a change in the name or
business form of an Underlying Borrower, or a Licensee, where the Underlying
Borrower holds a Licensee Equity Interest in the Licensee; and (c) a change in
the managing general partner or the manager of an Underlying Borrower or a
Licensee in which an Underlying Borrower holds a Licensee Equity Interest. Upon
receipt of the notification required pursuant to subparagraph (a) above, CoBank
shall have the right to reduce the System Committed Loan Amount and the Bank
System Loan Percentage pursuant to Section 2.3 of this Agreement. Upon receipt
of the notification required pursuant to subparagraph (b) above, Borrower shall
take the following actions as appropriate: (i) if the entity which is the
subject of such change is an Underlying Borrower which is also a Licensee and
the change in name or business form for such entity is of a nature such that
Borrower's financing statements for the Underlying Borrower may no longer be
effective to perfect its security interest in the assets of the Underlying
Borrower in accordance with the Underlying Loan Agreement, then Borrower shall
take all actions necessary or reasonably requested by CoBank to obtain financing
statements from the Underlying Borrower in a form which will enable Borrower to
maintain the perfected status of the first lien and security interest in all of
the assets of the Underlying Borrower; (ii) if the entity which is the subject
of such change is a Licensee in which an Underlying Borrower holds a Licensee
Equity Interest, Borrower shall take all actions necessary or reasonably
requested by CoBank in order to maintain the perfected status of the first lien
and security interest in the Licensee Equity Interest of the Underlying
Borrower; and (iii) whenever the entity which is the subject of such change is
an Underlying Borrower, Borrower shall require that such Underlying Borrower
execute amendments to all Underlying Loan Documents reflecting such change of
name or business form.
8. NOTICE OF FILINGS. Borrower shall send to CoBank, no later than
the fifteenth day of each month, the items listed below with respect to filings
made during the previous month, provided, however, that if not otherwise
required to be provided
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Borrower shall promptly provide complete copies of any such item if requested by
CoBank: (a) a complete listing of all reports filed with any state or federal
agency, including, but not limited to a complete listing of all filings with any
state public utilities commission or similar organization, (b) a complete
listing of all filings with or notices received from the Internal Revenue
Service, other than income tax returns except that Borrower shall provide
complete copies of notices relating to fines, penalties or interest payments,
(c) complete copies of every filing or report filed with the Securities and
Exchange Commission, and (d) complete copies of any of the foregoing items
provided by Underlying Borrowers to Borrower pursuant to the Underlying Loan
Documents.
9. NOTICE OF CHANGE IN DIRECTORS OR OFFICERS. Borrower shall
promptly notify CoBank in writing of any change in its or in Guarantor's
directors or executive officers.
10. NOTICE OF LITIGATION. Borrower shall promptly notify CoBank in
writing of all litigation in which Borrower, Guarantor, or any Underlying
Borrower is a party, and of all litigation of which Borrower is aware that
affects a Licensee in which an Underlying Borrower holds a Licensee Equity
Interest and which either involves an amount of $500,000 or more, singly or in
the aggregate at any time, or is material to the financial condition, results of
operation, business or prospects of Borrower, Guarantor or any Underlying
Borrower.
11. NOTICE OF MATERIAL CHANGE. Borrower shall give prompt notice to
CoBank of any material adverse change in the financial condition, business,
results of operation or prospects of Borrower, Guarantor or any Underlying
Borrower.
12. NOTICE OF ADVERSE ACTION REGARDING LICENSES. In the event
Borrower learns that any petition, action, investigation, notice of violation or
apparent liability, notice of forfeiture, order to show cause, complaint or
proceeding is pending, or, to the best of Borrower's knowledge, threatened, to
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seek to revoke, cancel, suspend, modify, or limit any FCC License or Paging
License of any Underlying Borrower or any Licensee in which an Underlying
Borrower holds a Licensee Equity Interest, Borrower shall provide CoBank with
prompt written notice thereof and shall take, or cause the Underlying Borrower
to take, all reasonable measures to contest such action in good faith.
13. NOTICE OF INDIRECT DEFAULT. Borrower shall notify CoBank in
writing of an Indirect Default immediately upon learning of such Indirect
Default.
14. COPY OF NOTICES. Borrower shall provide CoBank with copies of
all notices given to any agency of the federal or any state government or to any
of Borrower's owners, partners, joint venturers or other contracting parties.
C. ELIGIBILITY. Borrower and Guarantor shall not cause by action, or by
an omission which is within the reasonable control of either of them, Borrower
to lose its status as an entity eligible to borrow from CoBank.
D. MAINTENANCE OF EXISTENCE. Borrower shall maintain its corporate
existence in good standing under the laws of Colorado.
E. COMPLIANCE WITH LEGAL REQUIREMENTS; ERISA. Borrower shall comply with
all laws, rules, regulations and orders applicable to Borrower or its business;
provided, however, that the failure of Borrower to comply with this sentence in
any instance shall not be a default hereunder unless such failure would have a
material adverse impact on the financial condition, results of operation,
business or prospects of Borrower. Borrower shall have no plan which is subject
to ERISA, and which has been established or maintained by Borrower for its
employees or former employees.
F. TAXES. Borrower shall cause to be paid when due all taxes,
assessments, and other governmental charges upon it, its income, its sales, its
properties, and federal and state taxes
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withheld from its employees' earnings, unless such taxes, assess ments, or other
governmental charges shall be contested in good faith by appropriate actions or
legal proceedings and Borrower shall establish adequate reserves therefor in
accordance with GAAP.
G. INSURANCE. Borrower shall keep all insurable property, real and
personal, now owned or hereafter acquired, insured at all times against loss or
damage by fire and extended coverage risks and other hazards of the kinds
customarily insured against and in amounts customarily carried by corporations
engaged in comparable businesses and comparably situated, with CoBank, in its
capacity as Agent Bank, shown as loss payee on said policies; maintain fidelity
bond coverage on such officers and employees and in such amounts as customarily
carried by corporations engaged in comparable businesses and comparably
situated; effect all such insurance and bonds under valid and enforceable
policies issued by insurers of recognized responsibility; and upon request of
CoBank, deliver to CoBank a summary schedule indicating all insurance then in
effect. All policies of insurance maintained by Borrower in accordance with
this Section shall name CoBank, in its capacity as Agent Bank, as an additional
insured and shall provide that the policies cannot be canceled or terminated
without at least ten days' prior written notice to CoBank.
H. TITLE TO ASSETS AND MAINTENANCE. Borrower shall defend and maintain
title to all its material properties and assets. Borrower shall keep its
assets, both real and personal, in good order and condition consistent with
industry practice and shall make all necessary repairs, replacements and
improvements so that its business may be properly and advantageously conducted.
I. PAYMENT OF LIABILITIES. Borrower shall pay all liabilities as they
become due unless (with the exception of the Bank Debt and indebtedness to any
Subordinated Lending Parties under the Subordinated Loan Agreement) they are
contested in good faith by appropriate actions or legal proceedings and Borrower
establishes adequate reserves therefor in accordance with GAAP.
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J. REAL PROPERTY SECURITY INTERESTS. Borrower shall, as may be required
from time to time by CoBank, provide such documents as may be necessary or
desirable in the judgment of CoBank to confirm the security interest in the
Collateral granted to CoBank as Agent Bank. Promptly after the purchase or
other acquisition of any real estate, or interest in real estate, Borrower shall
grant to CoBank, as Agent Bank, a first deed of trust or mortgage on such real
estate, such deed of trust or mortgage to be in form and substance as specified
by CoBank. In connection with the delivery of any mortgage or deed of trust,
Borrower shall deliver to CoBank a mortgagee's title policy in such amount as
CoBank shall specify, to be obtained at Borrower's sole cost. In connection
with entering into any lease, Borrower shall deliver to CoBank a Leasehold
Assignment & Consent (naming CoBank as assignee in its capacity as Agent Bank
for the benefit of all the Syndication Parties), together with such consents or
estoppels of lessor as CoBank shall specify.
K. INSPECTION. Permit CoBank or its agents, during normal business hours
or at such other times as the parties may agree, to examine Borrower's
properties, books, and records, and to discuss Borrower's affairs, finances,
operations, and accounts with its respective officers, directors, employees, and
independent certified public accountants.
L. UNDERLYING LOAN DOCUMENTS; GUARANTOR LOAN AGREEMENT. In making
Underlying Loans, Borrower shall use the Underlying Loan Documents as approved
in advance by CoBank. Borrower shall take all such actions as are necessary to
maintain the Underlying Loan Documents in full force and effect. Borrower shall
observe and perform all obligations and covenants under the Guarantor Loan
Agreement. Without the consent of CoBank, Borrower shall not amend, supplement,
grant consents, otherwise modify or waive compliance with any provision of any
Underlying Loan Document or the Guarantor Loan Agreement. All Underlying Loans
shall be secured by a first lien on all the assets of the Underlying Borrower.
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M. FINANCIAL COVENANTS. Borrower and Guarantor shall maintain or cause to
be maintained the following financial covenants:
1. EQUITY TO CAPITALIZATION. Consolidated Equity plus the aggregate
principal amount of all Subordinated Debt due and payable more than five years
from the date of determination hereunder divided by Consolidated Capitalization
as of the end of each quarter of Guarantor's fiscal year for the indicated
period as follows:
<TABLE>
<CAPTION>
Period Beginning Period Ending >
---------------- ------------- -
<S> <C> <C>
10/1/94 9/30/97 .50
10/1/97 9/30/98 .20
10/1/98 9/30/99 .30
10/1/99 9/30/00 .15
10/1/00 thereafter .25
</TABLE>
2. CONSOLIDATED FUNDED DEBT COVERAGE. Consolidated Funded Debt
divided by Financed Proportionate Operating Cash Flow as of the end of each
quarter of Guarantor's fiscal year for the indicated period as follows:
<TABLE>
<CAPTION>
Period Beginning Period Ending >
---------------- ------------- -
<S> <C> <C>
10/1/94 3/31/95 20.00:1
4/1/95 6/30/95 17.50:1
7/1/95 9/30/95 15.00:1
10/1/95 3/31/96 12.00:1
4/1/96 6/30/96 9.50:1
7/1/96 9/30/96 8.50:1
10/1/96 9/30/97 5.50:1
10/1/97 9/30/98 4.30:1
10/1/98 thereafter 3.50:1
</TABLE>
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3. DEBT SERVICE COVERAGE. Financed Proportionate Operating Cash Flow
divided by Consolidated Adjusted Debt Service as of the end of each quarter of
Guarantor's fiscal year for the indicated period as follows:
<TABLE>
<CAPTION>
Period Beginning Period Ending >
---------------- ------------- -
<S> <C> <C>
10/1/94 9/30/96 1.00
10/1/96 9/30/98 1.25
10/1/98 9/30/99 1.10
10/1/99 thereafter 1.25
</TABLE>
4. CASH INTEREST COVERAGE. Cash Interest Coverage as of the end of
each of the quarters of Guarantor's fiscal year for the indicated period as
follows:
<TABLE>
<CAPTION>
Period Beginning Period Ending >
------------------ ------------- -
<S> <C> <C>
10/1/94 9/30/95 1.20
10/1/95 3/31/96 1.50
4/1/96 9/30/96 1.75
10/1/96 thereafter 2.00
</TABLE>
5. WORKING CAPITAL. Maintain positive Working Capital.
N. MANAGED MARKETS. In the event that an Underlying Borrower for which a
Management Agreement was previously executed terminates, or does not renew, such
Management Agreement, Borrower shall (a) use its best efforts to cause the
Underlying Borrower to enter into a new Management Agreement within thirty days
of such termination or non-renewal; (b) if the Underlying Borrower does not
enter into a new Management Agreement within the period set forth in (a),
accelerate the Underlying Loan to such Underlying Borrower, and (c) make the
mandatory prepayment required pursuant to Section 7.2.1; provided, however, that
notwithstanding the foregoing, Borrower must prepay all
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outstanding Advances made to Borrower for the purpose of funding the Underlying
Loan with respect to which such Underlying Loan Default occurred no later than
180 days after the expiration of the period set forth in (a).
O. CONTENTS OF ORGANIZATION DOCUMENTS. In the event that any of the
representations and warranties set forth in Section 10.20 or 10.21 become untrue
after the date hereof, (a) Borrower shall attempt to cause the cure of such
violation within 90 days' after Borrower becomes aware of such violation; (b) if
such violation is not cured within the period set forth in (a), Borrower shall
prepay, upon demand by CoBank, all Advances made to Borrower for the purpose of
funding the Underlying Loan for System, Contiguous System or the Paging System,
or the portion of such Underlying Loan, with respect to which such violation of
Section 10.20 or 10.21 occurred.
P. QUALIFIED LEASES. Paging and each of the Underlying Borrowers which
are Licensees for a System or Contiguous System shall enter into, and shall
provide Borrower and CoBank with copies of Qualified Leases for all sites leased
by Paging or such Underlying Borrowers on which equipment being used in the
operation of the System, Paging System or Contiguous System is to be located.
12.17 OBLIGATIONS UNDER SUBORDINATED LOAN AGREEMENTS: The principal
amount outstanding at any time owing by Borrower to the Subordinated Lending
Parties under all Subordinated Loan Agreements shall not exceed at any time
$20,000,000 without CoBank's approval, which approval will not be unreasonably
withheld.
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XIV. NEGATIVE COVENANTS
From and after the date of this Agreement until the Bank Debt is
indefeasibly paid in full and the Syndication Parties have no obligation to make
any Advances hereunder, Borrower agrees that it will observe and comply with the
following covenants for the benefit of the Syndication Parties:
A. BORROWING. Borrower shall not create, incur, assume or permit to exist
(a) any indebtedness for borrowed money or for the deferred purchase price of
property or services, (b) any contingent liabilities, such as guarantees, or (c)
any obligations under leases which have or should have been charac terized as
capital leases, as determined in accordance with GAAP, except for indebtedness
owing under the Loan Documents and any other indebtedness owing to CoBank and
described in Section 13.3(i) hereof and in Article 8 hereof, to Guarantor for
Guarantor Funds or for the Principal Reduction Loan or to Subordinated Lending
Parties for Subordinated Funds and except for leases of, and purchase money
financing of, office furnishings and office equipment required in the ordinary
course of Borrower's business and the indebtedness owed to St. Paul in
connection with the lease by Borrower of a mainframe computer with a software
and maintenance package ("Computer Package") from Farm Credit Leasing which
indebtedness shall not exceed $114,000.00.
B. NO OTHER BUSINESSES. Borrower shall not transact or engage in any
business other than making Underlying Loans, except for the lease of the
Computer Package by Borrower to Guarantor.
C. LIENS. Borrower will not create, incur, assume or suffer to exist any
mortgage, pledge, lien, charge or other encumbrance on, or any security interest
in, any of the Collateral, except:
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(1) the security interests, mortgages, pledges, liens, or other
charges or encumbrances resulting from the Loan Documents;
(2) the security interests, mortgages, pledges and liens, resulting
from the Guarantor Loan Agreement;
(3) liens for taxes or other governmental charges which are not due
or remain payable without penalty, or are being contested in good faith by
appropriate actions or proceedings; provided that such reserves or other
appropriate provisions, if any, as shall be required by GAAP, shall have been
made for such taxes or other governmental charges;
(4) deposits or pledges to secure workmen's compensation,
unemployment insurance, old age benefits or other social security obligations or
in connection with or to secure the performance of bids, tenders, trade
contracts or leases or to secure statutory obligations or surety or appeal bonds
or other pledges or deposits of like nature and all in the ordinary course of
business;
(5) mechanics', carriers', workmen's, repairmen's or other like liens
arising in the ordinary course of business in respect of obligations not yet due
or which are being contested in good faith and by appropriate proceedings;
(6) easements, rights-of-way, restrictions and other similar matters
incidental to the ownership of property which do not in the aggregate
materially detract from the value of such property or assets or materially
impair their use in the operation of the business of Borrower;
(7) purchase money security interests in office furnishings and
office equipment required in the ordinary course of Borrower's business,
provided that such security interests shall attach only to the furnishings and
equipment so purchased;
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(8) the interest of St. Paul in Borrower's rights in the Computer
Package; or
(9) the liens granted to CoBank pursuant to (1) the Letter of Credit
Reimbursement Agreement dated October 26, 1990, executed by Borrower in
connection with the Letter of Credit dated December 19, 1990 issued by CoBank in
favor of St. Paul, (2) the Standby Letter of Credit Reimbursement Agreement
executed by Borrower in connection with the Irrevocable Standby Letter of Credit
No. 00609880 issued by CoBank on July 5, 1994 for the account of Borrower for
the benefit of Amplicon, Inc. in the maximum amount of $700,000.00, and (3) the
Standby Letter of Credit Reimbursement Agreement executed by Borrower in
connection with the Irrevocable Standby Letter of Credit No. 00610103 issued by
CoBank on September 6, 1994 for the account of Borrower for the benefit of
Amplicon, Inc. in the maximum amount of $273,100.00.
D. SALE OF ASSETS. Borrower will not sell, convey, assign, lease or
otherwise transfer or dispose of, voluntarily, by operation of law or otherwise,
any of the Collateral to any Person, except that:
(1) Borrower may make a sale or other disposition of office
furnishings or office equipment in the ordinary course of Borrower's business;
(2) provided that no Event of Default shall exist, Borrower may make
and shall control any sale or other disposition of collateral securing an
Underlying Loan as part of a foreclosure action concerning the Underlying
Loan; and
(3) provided that no Event of Default shall exist, Borrower may make
and shall control any sale or other disposition of assets which were
collateral for an Underlying Loan but were acquired by Borrower in a
foreclosure action or by transfer in lieu of a foreclosure action concerning
the Underlying Loan.
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In making any sale or other disposition described in clauses (b) and (c) above
in this Section 13.4, Borrower shall comply with applicable laws and shall act
in a commercially reasonable manner.
E. LIABILITIES OF OTHERS. Borrower will not assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligation of any other Person.
F. DIVIDENDS, REPURCHASES AND DISTRIBUTIONS; SUBORDINATED DEBT.
(1) Borrower will not declare or pay or set aside for payment any
dividends upon any shares of its capital stock (except dividends payable in
shares of such stock) or purchase, redeem or retire, or make any other
distribution on any shares of capital stock of Borrower, unless and until the
entire Bank Debt has been indefeasibly paid in full.
(2) Borrower shall not make any principal payment to Guarantor (other
than repayments of the Principal Reduction Loan) or to any Subordinated Lending
Party on indebtedness for Subordinated Funds prior to the Termination Date, and
after the Termination Date, shall not make any such payment unless (i) (1) the
Bank Debt under this Agreement is equal to or less than the sum of the
indebtedness owed in the aggregate by Borrower to Guarantor and the aggregate
outstanding amount of Subordinated Funds, and (2) either (A) the principal
payment is made to Guarantor and Guarantor is restricted to using such payment:
(I) to fund capital calls made by an Underlying Borrower, (II) to meet
Guarantor's debt service requirements for CCI Subordinated Debt (as defined in
the Guaranty), or (III) for the general corporate purposes of Guarantor, or (B)
Borrower shall pay to CoBank, as a prepayment of principal on the Bank Debt, an
amount equal to twice the principal payment to be made in the aggregate to
Subordinated Lending Parties prior to making such payment to Subordinated
Lending Parties, or (ii) funds used for such principal payment were provided to
Borrower for such purpose by
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<PAGE>
Guarantor, either by way of an equity contribution or loan by Guarantor to
Borrower; provided, however, that no payment may be made under (i) or (ii) above
if an Event of Default or Potential Default shall exist.
G. MERGER. Borrower will not liquidate, merge, consolidate or reorganize
with or into any Person, except that, with the prior written consent of the
Requisite Syndication Parties, Borrower may merge with another Person, provided
that Borrower is the surviving corporation and provided further that immediately
after such merger, and after giving effect thereto, no Event of Default and no
Potential Default shall exist.
H. LOANS, ADVANCES AND INVESTMENTS. Except for Underlying Loans,
Guarantor Repayment Loans, the purchase of Certificates, the purchase of
Certificates and items acquired by Borrower in the foreclosure of or in lieu of
foreclosure of collateral for Underlying Loans, Borrower will not make or permit
to remain outstanding any loan or advance to, or own, purchase or acquire any
stock, obligations or securities of, or any other interest in, or make any
capital contribution to, any Person, except that Borrower may own, purchase or
acquire:
(1) commercial paper maturing not in excess of one year from the date
of acquisition and rated P1 by Moody's Investors Service, Inc. or A1 by Standard
& Poor's Corporation on the date of acquisition;
(2) certificates of deposit in North American commercial banks rated
C or better by Keefe, Bruyette & Woods, Inc. or 3 or better by Cates Consulting
Analysts, maturing not in excess of one year from the date of acquisition;
(3) obligations of the United States government or any agency
thereof, the obligations of which are guaranteed by the United States
government, maturing, in each case, not in excess of one year from the date of
acquisition;
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<PAGE>
(4) repurchase agreements of any bank or trust company incorporated
under the laws of the United States of America or any state thereof and fully
secured by a pledge of obligations issued or fully and unconditionally
guaranteed by the United States government; and
(5) investments in accordance with the Investment Policy of Guarantor
dated as of October 26, 1994, and adopted by Guarantor's Board of Directors, a
correct and complete copy of which has been provided by Guarantor to CoBank;
provided, however, that any amendments thereto are satisfactory to CoBank in its
sole discretion.
I. PROPERTY AND SERVICES FROM GUARANTOR. Borrower shall not purchase or
acquire any equipment, other personal property, real property or services from
Guarantor, except in the ordinary course of Borrower's business and upon fair
and reasonable terms no less favorable to Borrower than would be obtained in a
comparable arm's-length transaction with an unrelated Person. CoBank
acknowledges and agrees that the fees charged by Guarantor for the services
provided under the Management Agreements do not violate this Section.
XV. INDEMNIFICATION
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A. GENERAL. Borrower agrees to indemnify and hold CoBank and its
directors, officers, employees, agents, professional advisers and
representatives and all other Syndication Parties and their respective
directors, officers, employees, agents, professional advisors and
representatives ("Indemnified Parties") harmless from and against any and all
claims, damages, losses, liabilities, costs or expenses whatsoever which CoBank
or any Indemnified Party may incur (or which may be claimed against any such
Indemnified Party by any Person), including attorneys' fees incurred by any
Indemnified Party, arising out of or resulting from (a) the inaccuracy of any
representation or warranty of Borrower or Guarantor in this Agreement or the
Guaranty, (b) the failure of Borrower or Guarantor to perform or comply with any
covenant or obligation of Borrower or Guarantor under this Agreement or the
Guaranty, or (c) the exercise by CoBank, for its own benefit and, in its role as
Agent Bank, for the benefit of the present and future Syndication Parties, of
any right or remedy set forth in this Agreement or the Guaranty, provided that
Borrower shall have no obligation to indemnify any Indemnified Party against
claims, damages, losses, liabilities, costs or expenses to the extent that a
court of competent jurisdiction renders a final non-appealable determination
that the foregoing are solely the result of the willful misconduct or gross
negligence of such Indemnified Party. The obligation to indemnify set forth in
this Section 14.1 shall survive the termination of this Agreement and other
covenants.
B. INDEMNIFICATION RELATING TO HAZARDOUS SUBSTANCES. Borrower shall not
locate, produce, treat, transport, incorporate, discharge, emit, release,
deposit or dispose of any Hazardous Substance in, upon, under, over or from any
property owned or held by Borrower, except in accordance with all Environmental
Regulations; Borrower shall not permit any Hazardous Substance to be located,
produced, treated, transported, incorporated, discharged, emitted, released,
deposited, disposed of or to escape in, upon, under, over or from any property
owned or held by Borrower or any Underlying Borrower, except in accordance with
Environmental Regulations;
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and Borrower shall comply with, and shall cause all Underlying Borrowers to
comply with, all Environmental Regulations which are applicable to such
property. If CoBank reasonably believes that an Environmental Regulation has
been violated by Borrower's activities upon property owned or held by Borrower
or any Underlying Borrower, and if CoBank so requests, Borrower shall have
prepared an environmental review, audit, assessment and/or report relating to
the subject property, at Borrower's sole cost and expense, by an engineer or
scientist acceptable to CoBank. If, however, the environmental review, audit,
assessment and/or report reveals that no Environmental Regulation has been
violated, CoBank shall reimburse Borrower for the costs and expenses of such
engineer or scientist in completing such audit or report. Borrower shall
indemnify the Indemnified Parties against, and shall reimburse the Indemnified
Parties for, any and all claims, demands, judgments, penalties, liabilities,
costs, damages and expenses, including court costs and attorneys' fees incurred
by the Indemnified Parties (prior to trial, at trial and on appeal) in any
action against or involving the Indemnified Parties, resulting from any breach
of the foregoing covenants, or from the discovery of any Hazardous Substance in,
upon, under or over, or emanating from, such property, it being the intent of
Borrower and the Indemnified Parties that the Indemnified Parties shall have no
liability or responsibility for damage or injury to human health, the
environmental or natural resources caused by, for abatement and/or clean-up of,
or otherwise with respect to, Hazardous Substances by virtue of the interest of
CoBank or any other Syndication Party in the property created by any documents
securing Bank Debt (including without limitation the Loan Documents) or as the
result of CoBank, for its own benefit and, in its role as Agent Bank, for the
benefit of the present and future Syndication Parties, exercising any of its
rights or remedies with respect thereto, including but not limited to becoming
the owner thereof by foreclosure or conveyance in lieu of foreclosure. The
foregoing covenants of this Section 14.2 shall be deemed continuing covenants
for the benefit of the Indemnified Parties, and any successors and assigns of
the Indemnified Parties, including but not limited to the holder of
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any certificate of purchase, any transferee of the title of CoBank, for its own
benefit and, in its role as Agent Bank, for the benefit of the present and
future Syndication Parties, or any subsequent owner of the property, and shall
survive the satisfaction or release of any lien, any foreclosure of any lien
and/or any acquisition of title to the property or any part thereof by CoBank,
including in its role as Agent Bank, or Borrower, or anyone claiming by, through
or under CoBank or Borrower by deed in lieu of foreclosure or otherwise. Any
amounts covered by the foregoing indemnification shall bear interest from the
date incurred at the Default Interest Rate, shall be payable on demand, and
shall be secured by the Security Agreement. The indemnification and covenants of
this Section 14.2 shall survive the termination of this Agreement and other
covenants.
XVI. EVENTS OF DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following events (each
an "Event of Default") shall terminate any obligation on the part of CoBank or
the other Syndication Parties to make Advances and, at the option of CoBank, as
Agent Bank, shall make the entire Bank Debt immediately due and payable
(provided, that in the case of an Event of Default under Section 15.1(i) all
Advances and any other amount owing under the Loan Documents shall automatically
and immediately become due and payable without any action by or on behalf of
CoBank), and CoBank, as Agent Bank, may exercise all rights and remedies for the
collection of any amounts outstanding hereunder and take whatever action it
deems necessary to secure itself, all without notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor, or other
notices or demands of any kind or character:
(1) Failure of Borrower to pay when due, whether by acceleration or
otherwise, any of Bank Debt in accordance with this Agreement or the other Loan
Documents and such failure shall continue for a period of five calendar days
thereafter.
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(2) Any representation or warranty set forth in any Loan Document,
any Acquisition Loan Activation Certificate, any Paging Loan Activation
Certificate, any Advance Request, or in the Guaranty or Guarantor Security
Agreement, or in connection with any transaction contemplated by any such
document, shall prove in any material respect to have been false or misleading
when made by Borrower or Guarantor.
(3) Any default by Borrower or Guarantor in the performance or
compliance with the covenants, promises, conditions or provisions of Sections
12.10, 12.12, 13.1, 13.3 or 13.4 through 13.8 of this Agreement, or Sections
7(h), 7(i), 7(j), 7(n), 7(o), 7(p), 8(a), 8(c) or 8(d)-8(l) of the Guaranty.
(4) Any failure by Borrower to comply with Section 12.7 of this
Agreement, and such failure continues for fifteen days after notice to Borrower
or Guarantor from CoBank, as Agent Bank.
(5) Any breach of the covenants set forth in Section 12.13 and or of
the Fixed Rate Requirement, and such failure continues for five (5) days after
Borrower learns of such failure to comply, whether by Borrower's own discovery
or through notice from CoBank, as Agent Bank.
(6) Any default by Borrower or Guarantor in the performance or
compliance with the covenants, promises, conditions or provisions of the
Guarantor Loan Agreement or any Management Agreement, beyond any applicable
grace period provided therein.
(7) Any default by Borrower in the performance or compliance with the
covenants, promises, conditions or provisions of any of the Underlying Loan
Documents.
(8) The failure to pay when due, or failure to perform or observe any
other obligation or condition with respect to any
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of the following obligations to any Person, beyond any period of grace under the
instrument creating such obligation: (i) any indebtedness for borrowed money or
for the deferred purchase price of property or services, including without
limitation indebtedness under any Subordinated Loan Agreement, (ii) any
obligations under leases which have or should have been characterized as
capitalized leases, as determined in accordance with GAAP, or (iii) any
contingent liabilities, such as guaranties, for the obligations of others
relating to indebtedness for borrowed money or for the deferred purchase price
of property or services or relating to obligations under leases which have or
should have been characterized as capitalized leases, as determined in
accordance with GAAP.
(9) Borrower or Guarantor applies for or consents to the appointment
of a trustee or receiver for any part of their respective properties; any
bankruptcy, reorganization, debt arrangement, dissolution or liquidation
proceeding is commenced or consented to by Borrower or Guarantor; or any
application for appointment of a receiver or a trustee, or any proceeding for
bankruptcy, reorganization, debt management or liquidation is filed for or
commenced against Borrower or Guarantor, and is not withdrawn or dismissed
within sixty days thereafter, provided, however, that within said sixty day
period CoBank and the other Syndication Parties shall have no obligation to make
Advances.
(10) Failure of Borrower or Guarantor to comply with any other
provision of this Agreement or the other Loan Documents not constituting an
Event of Default under any of the preceding provisions of this section, and such
failure continues for thirty days after notice to Borrower or Guarantor from
CoBank.
(11) Any "person" (as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended), other than Guarantor with
respect to Borrower, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of Borrower or
Guarantor representing 49% or more of the voting power of
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Borrower's or Guarantor's outstanding securities or representing 49% or more of
the equity of any class of securities of Borrower or Guarantor.
(12) The exercise by Guarantor of its redemption rights as provided
in Article 11 of the Indenture, if such redemption would constitute a breach of
Guarantor's covenants contained in Section 8(f) of the Guaranty.
(13) Any of the Notes become or are declared due and payable prior to
the date on which they otherwise would have become due and payable because of a
default under the Indenture.
(14) Guarantor institutes a Defeasance or a Covenant Defeasance (as
those terms are defined in the Indenture) under Article 15 of the Indenture.
(15) Guarantor sends a redemption notice under Section 1105 of the
Indenture and neither the Trustee (as defined in the Indenture) nor Guarantor
sends a copy to CoBank.
(16) Guarantor issues more than a maximum of $80,000,000.00 principal
amount of the Notes under the Indenture without the prior written consent of
CoBank which may be granted or withheld by CoBank at its sole discretion,
notwithstanding the fact that the Indenture governs the issuance of a total of
$100,000,000.00 worth of the Notes.
(q) Borrower makes any payment on any Subordinated Debt which payment
would be prohibited by the Subordinated Loan Agreement with respect to such
Subordinated Debt, or Guarantor makes any payment on any CCI Subordinated Debt
(as defined in the Guaranty) which payment would be prohibited by the operative
documents evidencing such CCI Subordinated Debt.
B. NO ADVANCES. CoBank and the other Syndication Parties shall have no
obligation to make any Advance if an Event of
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Default shall occur or a Potential Default shall occur and be continuing.
C. ACCELERATION OF INTEREST. If an Event of Default shall occur or a
Potential Default shall occur and be continuing, at the option of CoBank, as
Agent Bank, all interest payable under the Promissory Notes shall be payable on
demand, and in no event less frequently than monthly.
XVII. RIGHTS AND REMEDIES
Each and every right or remedy granted to CoBank, for its own benefit and
in its role as Agent Bank, for the benefit of the present and future Syndication
Parties, pursuant to this Agreement and the other Loan Documents, including but
not limited to the Security Agreement, or allowed CoBank, for its own benefit
and in its role as Agent Bank, for the benefit of the present and future
Syndication Parties, by law or equity, shall be cumulative. Failure or delay on
the part of CoBank, for its own benefit and in its role as Agent Bank, for the
benefit of the present and future Syndication Parties, to exercise any such
right or remedy shall not operate as a waiver thereof. Any single or partial
exercise by CoBank, for its own benefit and in its role as Agent Bank, for the
benefit of the present and future Syndication Parties, of any such right or
remedy shall not preclude any future exercise thereof or the exercise of any
other right or remedy.
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XVIII. SYNDICATION/COLLATERAL AGENCY
A. CREATION OF SYNDICATION INTERESTS. Borrower has received, reviewed,
and consented to the Syndication Agreement. Borrower acknowledges, agrees, and
consents to CoBank's transfer, assignment and syndication and assignment of a
portion of the Bank Debt to the Syndication Parties (and any further such
transfers in the future) under the terms and conditions set forth in the
Syndication Agreement, and Borrower has executed promissory notes payable to the
individual Syndication Parties. Borrower agrees to execute additional
replacement promissory notes payable to individual Syndication Parties in the
future (a) in the event CoBank makes Syndication Interests, as defined in the
Syndication Agreement, available to other entities who become Syndication
Parties, or (b) as replacement notes in the event a Syndication Party transfers
its Syndication Interest in accordance with the provisions of Section 5.2 of the
Syndication Agreement.
B. COBANK AS AGENT BANK. Borrower acknowledges, agrees, and consents that,
pursuant to the terms of the Syndication Agreement, CoBank is acting hereunder
not only for its own benefit, but also, in its role as Agent Bank, for the
benefit of the present and future Syndication Parties and the holders from time
to time of any Syndication Party Notes (as such term is defined in the
Syndication Agreement); and that, except where the context clearly requires a
different construction, the rights, powers and duties granted to CoBank in
Articles 9, 14, 15, 16, and 18 of this Agreement are granted to it in its role
as Agent Bank ("Agent Bank Rights").
C. REPRESENTATIONS, WARRANTIES, AND COVENANTS FOR BENEFIT OF SYNDICATION
PARTIES. Borrower acknowledges, agrees, and consents that the Syndication
Parties, including any future Syndication Parties, are third party beneficiaries
of the provision hereof and of the other Loan Documents, and will, and they are
expressly entitled to, rely on all Borrower's
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representations, warranties, and covenants contained herein and in any of the
Loan Documents in determining whether to become Syndication Parties and
evaluating Borrower's compliance with this Agreement from time to time, as
though, and with the same effect as if, such representations, warranties, and
covenants were made directly to each such Syndication Party, and that each such
Syndication Party is entitled to rely on the accuracy and completeness of the
information contained in any report, financial statement, notice, request, or
other submission made hereunder by Borrower to CoBank, including, without
limitation, any Advance Request, Acquisition Loan Activation Certificate, Paging
Loan Activation Certificate, Contiguous System Information, Paging System
Information, Ten Year Plan, statement of Acquisition Cost, and notice of change
of Underlying Borrower Maximum Financing Need.
D. RIGHTS OF SUCCESSOR AGENT BANK. Borrower acknowledges, agrees, and
consents that in the event that, pursuant to the provisions of the Syndication
Agreement, a successor is appointed for CoBank in its capacity as Agent Bank
("Successor Agent Bank") and written notification thereof is provided to
Borrower by CoBank, the Syndication Parties, or such Successor Agent Bank, such
Successor Agent Bank shall be entitled to exercise all the Agent Bank Rights
hereunder, and that Borrower will perform all its obligations hereunder with
respect to the Agent Bank Rights as it may be directed by such Successor Agent
Bank and will send all reports and notices, and remit all payments, required
hereunder to such Successor Agent Bank.
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XIX. MISCELLANEOUS
A. COSTS AND EXPENSES. To the extent permitted by law, Borrower agrees to
pay to CoBank, on demand, all out-of-pocket costs and expenses incurred by
CoBank, for its own benefit and, in its role as Agent Bank, for the benefit of
the present and future Syndication Parties, (including, without limitation, the
reasonable fees and expenses of counsel retained by CoBank) in connection with
the preparation, negotiation, and execution of the Loan Documents and the
transactions contemplated thereby and the enforcement or protection of Agent
Bank's rights and the Syndication Parties' rights under the Loan Documents,
including without limitation collection of any of the Bank Debt and the
enforcement of any security interest in the Collateral (regardless of whether
such enforcement or collection is by court action or otherwise), as applicable.
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B. SERVICE OF PROCESS AND CONSENT TO JURISDICTION. Borrower hereby agrees
that any litigation with respect to this Agreement or to enforce any judgment
obtained against Borrower for breach of this Agreement may be brought in the
courts of the State of Colorado and in the United States District Court for the
District of Colorado (if applicable subject matter jurisdictional requirements
are present), as CoBank may elect; and, by execution and delivery of this
Agreement, Borrower irrevocably submits to such jurisdiction. With respect to
litigation concerning this Agreement within the jurisdiction of the courts of
the State of Colorado or the United States District Court for the District of
Colorado, Borrower hereby irrevocably appoints, until January 15, 2001, The
Corporation Company, 1675 Broadway, Denver, Colorado 80202, as the agent of
Borrower to receive for and on behalf of Borrower, service of process, which
service may be made by mailing a copy of any summons or other legal process to
Borrower in care of such agent. Borrower agrees that Borrower shall maintain a
duly appointed agent for service of summons and other legal process as long as
Borrower remains obligated under this Agreement and shall keep CoBank advised in
writing of the identity and location of such agent. The receipt by such agent
and/or by Borrower of such summons or other legal process in any such litigation
shall be deemed personal service and acceptance by Borrower for all purposes of
such litigation.
C. JURY WAIVER. IT IS MUTUALLY AGREED BY AND BETWEEN COBANK AND BORROWER
THAT THEY EACH WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER OF THEM AGAINST THE OTHER PARTY ON ANY MATTER WHATSOEVER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE PROMISSORY
NOTES, OR THE OTHER LOAN DOCUMENTS.
D. NOTICES. All notices, requests and demands required or permitted under
the terms of this Agreement shall be in writing, shall be addressed as set forth
in the first paragraph of page 1 of this Agreement or at such other address as
either party shall designate in writing, shall be delivered personally, by
facsimile, by overnight courier, or by United States Mail
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(postage prepaid), and shall be effective on the date of actual delivery. All
notices to CoBank, for itself and as Agent Bank, shall be directed to the
attention of Credit Manager, Rural Utility Banking Group.
E. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of Borrower and CoBank, for itself and as Agent Bank, for the
benefit of the present and future Syndication Parties, and their respective
successors and assigns, except that Borrower may not assign or transfer its
rights or obligations hereunder without the prior written consent of all of the
Syndication Parties.
F. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement or the other Loan Documents shall not affect the remaining
portions of such documents or instruments; in case of such invalidity or
unenforceability, such documents or instruments shall be construed as if such
invalid or unenforceable provisions had not been included therein.
G. ENTIRE AGREEMENT/NO NOVATION. This Agreement (together with all
exhibits hereto, which are incorporated herein by this reference) and the other
Loan Documents represent the entire understanding of CoBank and Borrower with
respect to the subject matter hereof and shall replace and supersede any
previous agreements of the parties. This Agreement amends and restates the Loan
Agreement for RSAs and the Loan Agreement for MSAs and is not intended as, and
shall not be deemed to create, a novation or discharge of the underlying
indebtedness evidenced thereby.
H. APPLICABLE LAW. To the extent not governed by federal law, this
Agreement and the other Loan Documents, and the rights and obligations of the
parties hereto and thereto shall be governed by and interpreted in accordance
with the internal laws of the State of Colorado, without giving effect to any
otherwise applicable rules concerning conflicts of law.
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I. CAPTIONS. The captions or headings in this Agreement and any table of
contents hereof are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
J. AMENDMENTS. This Agreement may not be modified or amended unless such
modification or amendment is in writing and is signed by both Borrower and
CoBank, for itself and as Agent Bank. Borrower agrees that it shall reimburse
CoBank for all fees and expenses incurred by CoBank in retaining outside legal
counsel in connection with any amendment or modification to this Agreement
requested by Borrower.
K. ADDITIONAL COSTS. Borrower shall pay to Agent Bank from time to time
such amounts as Agent Bank may determine to be necessary to compensate any
Syndication Party for any costs incurred by it which Agent Bank determines,
based on information presented to it by such Syndication Party, are attributable
to such Syndication Party's making or maintaining any Advances hereunder or its
obligation to make any such Advances, or any reduction in any amount receivable
by such Syndication Party under this Agreement or the Promissory Note payable to
it in respect to any such Advances or such obligation (such increases in costs
and reductions in amounts receivable being herein called "Additional Costs"),
resulting from any change after the date of this Agreement in United States
federal, state, municipal, or foreign laws or regulations (including Regulation
D), or the adoption or making after such date of any interpretations,
directives, or requirements applying to a class of banks including such
Syndication Party of or under any United States federal, state, municipal, or
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof ("Regulatory Change"), which: (a) changes the basis of
taxation of any amounts payable to such Syndication Party under this Agreement
or the Promissory Note payable to such Syndication Party in respect of any of
such Advances (other than taxes imposed on the overall net income of
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such Syndication Party); or (b) imposes or modifies any reserve, special
deposit, or similar requirements relating to any extensions of credit or other
assets of, or any deposits with or other liabilities of, such Syndication Party;
or (c) imposes any other condition affecting this Agreement or the Promissory
Note payable to such Syndication Party (or any of such extensions of credit or
liabilities). Agent Bank will notify Borrower of any event occurring after the
date of this Agreement which will entitle such Syndication Party to compensation
pursuant to this Section 18.11 as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation. Determinations by
Agent Bank for purposes of this Section 18.11 of the effect of any Regulatory
Change on the costs of such Syndication Party of making or maintaining Advances
or on amounts receivable by such Syndication Party in respect of Advances, and
of the additional amounts required to compensate such Syndication Party in
respect of any Additional Costs, shall be conclusive, provided that such
determinations are made on a reasonable basis. Notwithstanding any of the
foregoing provisions of this Section 18.11 if, within ninety (90) days after
being given such notice, Borrower pays off all amounts owing to the Syndication
Party(s) with respect to which Agent Bank has sent Borrower notice that Borrower
is liable for Additional Costs, Borrower shall have no obligation to make any
payment of such Additional Costs as to such Syndication Party(s); provided,
however, Borrower shall be liable for any Funding Losses on account of such
prepayment.
L. CAPITAL REQUIREMENTS. In the event that the introduction of or any
change in (a) any law or regulation, or (b) the judicial, administrative, or
other governmental interpretation of any law or regulation, or (c) compliance by
any Syndication Party or any corporation controlling any such Syndication Party
with any guideline or request from any governmental authority (whether or not
having the force of law) has the effect of requiring an increase in the amount
of capital required or expected to be maintained by such Syndication Party or
any corporation controlling such Syndication Party, and Agent Bank determines
that such increase is based in any part upon such
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Syndication Party's obligations hereunder, and other similar obligations,
Borrower shall pay to such Syndication Party such additional amount as shall be
certified by such Syndication Party to Agent Bank and to Borrower to be the net
present value (discounted at the Base Rate) of (a) the amount by which such
increase in capital reduces the rate of return on capital which such Syndication
Party could have achieved over the period remaining until the Maturity Date but
for such introduction or change, (b) multiplied by such Syndication Party's Pro
Rata Share of the Aggregate Commitment; provided that if Borrower pays off all
amounts owing to such Syndication Party within ninety (90) days after being
given notice to pay, Borrower shall have no obligation to make any payment under
this Section 18.12 provided further that Borrower shall be liable for any
Funding Losses on account of such prepayment. Agent Bank will notify Borrower of
any event occurring after the date of this Agreement that will entitle any such
Syndication Party to compensation pursuant to this Section 18.12 as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation. Determinations by Agent Bank and any Syndication Party for
purposes of this Section 18.12 of the effect of any increase in the amount of
capital required to be maintained by any such Syndication Party and of the
amount of compensation owed to any such Syndication Party under this Section
18.12 shall be conclusive, provided that such determinations are made on a
reasonable basis.
M. MUTUAL RELEASE. Upon full indefeasible payment and satisfaction of the
Bank Debt and Promissory Notes and the other obligations contained in this
Agreement, the parties, including Borrower, Agent Bank, and all Syndication
Parties, shall, except as provided in Article 14 hereof, thereupon automatically
each be fully, finally, and forever released and discharged from any further
claim, liability, or obligation in connection with the Bank Debt.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
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BORROWER:
CELLULAR, INC. FINANCIAL CORPORATION, a
Colorado corporation
By: ______________________
Name: Daniel P. Dwyer
Its: Executive Vice President
COBANK:
COBANK, ACB, for itself and as Agent Bank
for the benefit of the present and future
Syndication Parties
By: _______________________
Name: Kevin Brunkow
Its: Assistant Vice President
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EXHIBIT 10.6
THIRD AMENDED AND RESTATED
GUARANTY OF COMMNET CELLULAR INC.
to
COBANK, ACB
(for itself and as Agent Bank)
dated as of September 6, 1995
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
I. RECITALS............................................................... 1
1. Guaranty......................................................... 1
2. Guaranty of Payment; Waiver of Defenses, Etc..................... 2
(a) General................................................. 2
(b) Waivers................................................. 3
(c) Subrogation............................................. 4
3. Recovery of Payment.............................................. 4
4. Information Regarding Borrower................................... 4
5. Security......................................................... 4
(a) General................................................. 4
(b) Transfer Restrictions................................... 5
6. Representations and Warranties................................... 6
(a) Good Standing........................................... 6
(b) Corporate Authority..................................... 6
(c) Title to Collateral..................................... 6
(d) Litigation.............................................. 6
(e) Conflicting Documents or Agreements..................... 7
(f) Financial Statements; No Material Adverse .............. 7
(g) Payment of Taxes........................................ 7
(h) Licenses................................................ 8
(i) Employee Benefit Plans.................................. 8
(j) Equity Investments...................................... 9
(k) Real Property........................................... 10
(l) Systems, Contiguous Systems and Paging.................. 10
(m) No Contingent Liabilities............................... 11
(n) 6 3/4 Notes............................................. 11
(o) Disclosure.............................................. 11
7. Affirmative Covenants of Guarantor............................... 11
(a) Financial and Other Reports............................. 12
(b) Maintenance of Existence................................ 13
(c) Compliance with Legal Requirements; ERISA............... 14
(d) Taxes................................................... 15
(e) Insurance............................................... 15
(f) Title to Assets and Maintenance......................... 16
(g) Payment of Liabilities.................................. 16
(h) Real Property Security Interests........................ 16
(i) Basic Documents......................................... 16
(j) Licenses................................................ 16
(k) Completion of Systems and Paging Systems................ 17
</TABLE>
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<TABLE>
<S> <C>
(l) Financial Covenants..................................... 17
(i) Equity to Capitalization......................... 17
(ii) Consolidated Funded Debt Coverage................ 18
(iii) Debt Service Coverage............................ 18
(iv) Cash Interest Coverage........................... 18
(v) Working Capital.................................. 18
(m) Changes to Underlying Borrower Maximum.................. 18
(n) Funding of the Underlying Borrower Maximum.............. 19
(o) Redemption Notice....................................... 19
(p) Notice of Default Under Indenture....................... 19
8. Negative Covenants of Borrower................................... 19
(a) Borrowing............................................... 19
(b) No Other Business....................................... 20
(c) Liens................................................... 20
(d) Sale of Assets.......................................... 21
(e) Liabilities of Others................................... 21
(f) Dividends, Repurchases and Distributions;............... 22
(g) Merger; Sale of All Assets; Stock Sales................. 22
(h) Loans, Advances and Investments......................... 24
(i) Property and Services from Guarantor.................... 25
(j) Redemption Rights Under the Indenture................... 25
(k) Acceleration of Notes................................... 25
(l) Defeasance or Covenant Defeasance....................... 25
9. Indemnification.................................................. 25
(a) General................................................. 25
(b) Indemnification Relating to Hazardous................... 26
10. Defined Terms.................................................... 27
11. Subordination of Junior Debt..................................... 30
(a) Subordination........................................... 30
(b) Distributions........................................... 30
(c) Enforcement of Rights of Guarantor...................... 30
(d) Further Assurances...................................... 30
(e) Payments Received by Guarantor.......................... 31
(f) Instrument Legend and Notation.......................... 31
12. Miscellaneous.................................................... 31
(a) Syndication............................................. 31
(b) Loan Agreement.......................................... 32
(c) No Waiver by Bank....................................... 32
(d) Assignment.............................................. 32
(e) Severability............................................ 32
(f) Amendments.............................................. 32
(g) Service of Process and Consent to....................... 32
</TABLE>
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<TABLE>
<S> <C>
(h) Notices................................................. 33
</TABLE>
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EXHIBITS
--------
EXHIBIT A Schedule of Litigation
EXHIBIT B Employee Benefit Arrangements
EXHIBIT C Schedule of Equity Investments
EXHIBIT D Schedule of Real Property
EXHIBIT E Compliance Certificate
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THIRD AMENDED AND RESTATED
GUARANTY OF COMMNET CELLULAR INC.
This THIRD AMENDED AND RESTATED GUARANTY ("Guaranty") is made and given as
of September 6, 1995, by CommNet Cellular Inc., a Colorado corporation, formerly
known as Cellular, Inc. ("Guarantor"), to CoBank, ACB, formerly known as
National Bank for Cooperatives, for itself and as Agent Bank for the benefit of
all present and future Syndication Parties ("Bank"). This Third Amended and
Restated Guaranty amends and restates the Amended and Second Restated Guaranty
dated as of March 31, 1993 between Guarantor and Bank and does not constitute a
novation or discharge of the obligations of Guarantor thereunder.
RECITALS:
---------
A. Guarantor desires to finance the development and operation of cellular
telephone systems through Cellular, Inc. Financial Corporation, a Colorado
corporation ("Borrower"), a wholly-owned subsidiary of Guarantor. Guarantor and
Borrower have furnished Bank with project budgets and other financial
information regarding the capital requirements for the cellular telephone
systems.
B. Guarantor wishes Bank and the Syndication Parties (as defined below)
to extend credit to Borrower under the Consolidated Loan Agreement, dated as of
September 6, 1995, between Borrower and Bank (as amended from time to time, the
"Loan Agreement"), which Loan Agreement replaces and supersedes the Loan
Agreement for RSAs and the Loan Agreement for MSAs, each dated as of March 15,
1989, between Borrower and Bank, which have been amended and restated as of
March 31, 1993 and as subsequently amended. Bank and the Syndication Parties are
willing to extend such credit to Borrower pursuant to the provisions of the Loan
Agreement upon the condition, among others, that this Guaranty be executed by
Guarantor and delivered to Bank.
C. At the date hereof, Guarantor owns and holds 100% of all outstanding
shares of capital stock of Borrower. Guarantor will benefit from the extension
of such credit.
NOW THEREFORE, for value received, and intending to be legally bound
herein, and to induce Bank and the Syndication
<PAGE>
Parties to extend credit and make advances to Borrower pursuant to the terms of
the Loan Agreement, Guarantor covenants and agrees with Bank and the Syndication
Parties as follows:
1. Guaranty. Guarantor hereby guarantees absolutely and unconditionally
--------
to Bank, and its successors and assigns, and any person or entity acquiring an
interest in the Bank Debt pursuant to the Syndication Agreement or otherwise
("Syndication Party"), and to Bank in its role as Agent Bank for the Syndication
Parties under the Syndication Agreement (and any Successor Agent Bank under the
Syndication Agreement), and becomes surety for: (i) the due and punctual payment
of all the Bank Debt under the Loan Agreement and the Syndication Party Notes
(and including amounts reflected therein which were originally advanced under
the Loan Agreement for RSAs and/or the Loan Agreement for MSAs), including
indebtedness, principal, interest, Loan Fees, Certificate purchase obligations
and Funding Losses, all as defined in the Loan Agreement, and all expenses,
charges and other amounts payable by Borrower pursuant to the Loan Agreement and
the Syndication Party Notes and all related security agreements, related notes
and other related documents, and any renewal, amendment, extension or
replacement thereof, whether now existing or hereafter contracted or incurred,
as and when any of the foregoing shall become due and payable in accordance with
the terms thereof at stated maturity, by acceleration or otherwise; (ii) the
full and timely performance of any and all obligations or liabilities of
Borrower to Bank and to each Syndication Party, whether now existing or
hereafter contracted or incurred, arising directly or indirectly out of or with
respect to the Loan Agreement or any related security agreement, related note
(including the Syndication Party Notes) or other related document (including
without limitation liability for breach of any covenant); and (iii) the full and
timely performance of any and all other obligations, indebtedness or liabilities
contracted or incurred pursuant to any waiver or change of any provision of the
Loan Agreement or any related security agreement, related note or other related
document. Guarantor shall also pay all attorneys' fees and other expenses
incurred by Bank, in its role as Agent Bank or otherwise, in enforcing any of
the above-described indebtedness, obligations or liabilities of Borrower and in
enforcing or collecting the obligations of this Guaranty, or protecting the
Syndication Parties' or Bank's rights with respect
2
<PAGE>
thereto. The term "Guaranteed Obligations" as used in this Guaranty shall mean
such indebtedness, obligations or liabilities of Borrower and of Guarantor
described above in this Section 1. Unless the context would clearly prohibit
such construction, (a) any reference herein to "Bank" shall include Bank in its
role as Agent Bank for the Syndication Parties and any successor to Bank
appointed in accordance with the provisions of the Syndication Agreement
("Successor Agent Bank") and (b) any reference herein to the rights or powers
of, or waiving any obligation to take certain action by, "Bank" shall be deemed
to provide such rights and powers to, and waive any obligation to take such
action by, any such Successor Agent Bank.
2. Guaranty of Payment; Waiver of Defenses, Etc.
---------------------------------------------
(a) General. This Guaranty is a guarantee of payment and not of
-------
collection, and Guarantor waives any right to require that any action be brought
against Borrower or to require that resort be had at any time to any direct or
indirect security. Guarantor's obligations hereunder are continuing obligations
and are absolute and unconditional irrespective of the genuineness, validity or
enforceability of any instrument or instruments now or hereafter evidencing any
Guaranteed Obligation or any part thereof (including but not limited to the Loan
Agreement) or of any other agreement now or hereafter entered into by Bank and
Borrower pursuant to which any Guaranteed Obligation or any part thereof is
issued, or of any other circumstance which might otherwise constitute a legal or
equitable discharge of a guarantor or surety. Guarantor's obligations hereunder
shall continue in full force and effect as long as any Guaranteed Obligation or
any part thereof remains outstanding and unpaid or Bank or any Syndication Party
has any obligation to make advances pursuant to the Loan Agreement.
(b) Waivers. With respect to its obligations under this Guaranty,
-------
Guarantor waives any and all defenses and discharges available to a guarantor,
surety, endorser or accommodation party, dependent upon its character as such.
Guarantor hereby waives presentment for payment, notice of nonpayment, demand
and protest. Guarantor agrees that its obligations hereunder shall not be
affected or impaired in any way by any of the following acts or things (which
Bank or a
3
<PAGE>
Syndication Party may do from time to time without notice to Guarantor): (i) Any
amendment, modification or extension of the Loan Agreement, or of any related
security agreements, notes (including the Syndication Party Notes) and other
documents, or any waiver of compliance by Borrower with the terms thereof, (ii)
any sale, pledge, surrender, compromise, settlement, release, renewal,
extension, indulgence, alteration, substitution, exchange, modification or other
disposition of any Guaranteed Obligation or any collateral therefor, (iii) any
acceptance or release of collateral for or guarantors of any Guaranteed
Obligation, (iv) any inability, failure, neglect or omission to realize upon or
protect any Guaranteed Obligation, or to obtain, perfect, enforce or realize
upon any collateral therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property to the liquidation of any
Guaranteed Obligation, or to pursue or obtain any deficiency judgment against
Borrower following any foreclosure of any mortgage or deed of trust granted by
Borrower to Bank on its own behalf or as Agent Bank, or (v) any application of
payments or credits upon the Guaranteed Obligations or any other indebtedness of
Borrower under the Loan Agreement. Bank shall not be required, before exercising
its rights under this Guaranty, to first resort for the payment of any
Guaranteed Obligation to Borrower, or other persons or entities or any
collateral, property, liens or other remedies or rights whatsoever. With respect
to its obligations under this Guaranty, Guarantor agrees not to exercise any
right of contribution, recourse, subrogation or reimbursement available to
Guarantor against Borrower or any other person or entity or property unless and
until all the Guaranteed Obligations have been indefeasibly paid in full and
there is no obligation of Bank or any Syndication Party to make advances under
the Loan Agreement. Guarantor hereby waives any rights it may have at equity or
in law to require Bank to apply any rights of marshalling or other equitable
doctrines in the circumstances.
(c) Subrogation. After all Guaranteed Obligations have been
-----------
indefeasibly paid in full and there is no obligation of Bank or any Syndication
Party to make advances under the Loan Agreement, Guarantor shall have and may
exercise rights of subrogation against Borrower.
4
<PAGE>
3. Recovery of Payment. If any payment received by Bank or any
-------------------
Syndication Party and applied to the Guaranteed Obligations is subsequently set
aside, recovered, rescinded or required to be returned for any reason against
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower), the Guaranteed Obligations to which such payment was applied shall
for the purposes of this Guaranty be deemed to have continued in existence,
notwithstanding such applications, and this Guaranty shall be enforceable as to
such Guaranteed Obligations as fully as if such applications had never been
made.
4. Information Regarding Borrower. Guarantor assumes full responsibility
------------------------------
for keeping fully informed of the financial condition of Borrower and all other
circumstances affecting Borrower's ability to pay and perform the Guaranteed
Obligations and agrees that neither Bank nor any Syndication Party shall have
any duty to report to Guarantor any information which Bank or any Syndication
Party shall receive about the financial condition of Borrower or any
circumstances bearing on its ability to perform, and Guarantor hereby expressly
and unconditionally waives any defense based on the failure of Bank or any
Syndication Party to report such information.
5. Security.
--------
(a) General. As security for the payment and performance of the
-------
Guaranteed Obligations, Guarantor shall grant to Bank, for itself and as Agent
Bank for the benefit of the present and future Syndication Parties, and maintain
for Bank, a first lien and security interest in all of its assets and
properties, both real and personal, tangible or intangible, whether now owned or
held or hereafter acquired (the "CCI Collateral"), except to the extent such
lien and security interest granted to Bank may be junior to any Lien permitted
by Section 8(c). Guarantor has executed and delivered to Bank the Guarantor
Security Agreement as required under this Guaranty to evidence the security
interest of Bank in the CCI Collateral, together with such financing statements
or other documents as Bank shall request. The terms, provisions and conditions
of the Guarantor Security Agreement and such financing statements or other
documents are hereby incorporated in this Guaranty and made a part hereof.
Guarantor shall also execute such further
5
<PAGE>
security agreements, mortgages, deeds of trust, financing statements,
assignments or other documents as Bank shall request, in form and substance as
Bank shall specify, to establish, confirm, perfect or provide notice of Bank's
security interest in the CCI Collateral; provided, however, Guarantor shall not
be required to provide to Bank collateral assignments for the following
contracts: interconnect agreements; agent agreements for sales of cellular
services; GTE Telecommunication Services or other clearinghouse agreements;
roaming agreements; leases of office space at annual rentals of less than
$10,000.00; and office operations agreements. However the parties confirm that
the security interests and liens granted under the Guarantor Security Agreement
as to these and all other contracts and contract rights shall not be adversely
affected by Bank's not obtaining a collateral assignment for any contract.
(b) Transfer Restrictions. The CCI Collateral includes Guarantor's
---------------------
equity interests in various entities. Except as otherwise consented to by Bank
in writing, Guarantor shall obtain the consent, in form and content satisfactory
to Bank in its sole discretion, of any and all persons or entities necessary to
pledge and grant a security interest in each such equity interest and to allow
Bank to transfer, subject to any applicable rights of first refusal (a copy of
which has previously been furnished to Bank), such equity interest after
foreclosing upon its security interest therein (or obtaining such interest by
transfer in lieu of foreclosure), notwithstanding any applicable transfer
restrictions ("Partner Consents"). If any such transfer restrictions apply to
equity interests held by Guarantor and included within the CCI Collateral:
(i) Guarantor represents and warrants that (A) a true, correct,
and complete copy of any document containing such transfer restrictions has been
furnished to Bank by Guarantor, or, if not presently in existence, shall be
furnished by Guarantor to Bank at or prior to the latter of the first Advance by
Bank under the Loan Agreement or the time of Guarantor's acquisition of the
interest for which the consent is required, except as otherwise waived in
writing by Bank; (B) no equity interest included in the CCI Collateral is
subject to any transfer restrictions other than those as to which Bank has been
furnished with copies; and (C) no such transfer restrictions will
6
<PAGE>
apply (either because of the language thereof or because all necessary waivers
have been obtained) to the transfer or granting of a security interest therein
to Bank, including Bank in its role of Agent Bank for the other Syndication
Parties, provided, however, that rights of first refusal (a copy of which has
previously been furnished to Bank) may be applicable to the foreclosure on, or
transfer in lieu of foreclosure, by Borrower or Bank and the subsequent transfer
by Borrower or Bank to a third party of, such Licensee Equity Interests and
except as otherwise consented to by Bank in writing.
(iii) Guarantor agrees not to amend, or vote in favor of or consent to any
amendment or addition to, any transfer restrictions affecting any equity
interest held by Guarantor and included within the CCI Collateral which would
materially affect such equity interest, or Bank's security interest therein,
without the prior written consent of Bank, which consent may be withheld for any
reason.
Notwithstanding the foregoing, as used in this paragraph 5(b), transfer
restrictions do not refer to or include (a) any requirement for approval of the
FCC or any state or local regulatory agency to the extent, if any, required for
the transfer of control concerning a FCC License, Paging License or a state or
local license or authorization for a System, Contiguous System or Paging System
and (b) any restrictions imposed by securities laws because equity interests
have not been registered under any securities law.
6. Representations and Warranties. Guarantor represents, covenants and
------------------------------
warrants to Bank, for its own benefit and, in its role as Agent Bank, for the
benefit of the present and future Syndication Parties that:
(a) Good Standing. Guarantor and all CCI Entities are duly
-------------
organized, existing and in good standing under the laws of their respective
states or other jurisdiction of incorporation or formation. Guarantor and all
CCI Entities have the power to own their properties and to carry on their
businesses as now being conducted. Guarantor and all CCI Entities are duly
qualified to do business and are in good standing in each jurisdiction in
7
<PAGE>
which the transaction of their businesses makes such qualification necessary and
in which failure to qualify would have a material adverse effect on such entity.
(b) Corporate Authority. Guarantor has full power and authority to
-------------------
execute, deliver and perform this Guaranty and all other documents and
agreements as contemplated by the Loan Agreement, all of which have been duly
authorized. All consents or approvals of any Person which are necessary for, or
are required as a condition of, the execution, delivery and performance of this
Guaranty have been obtained.
(c) Title to Collateral. Guarantor has good and marketable title to
-------------------
all of the CCI Collateral, free and clear of all liens, pledges, restrictions
and encumbrances except the security interest of Bank (for itself and as Agent
Bank), those permitted by Section 8(c) and the restrictions satisfying the
requirements of Section 5(b) hereof.
(d) Litigation. Except as set forth in Exhibit A attached hereto,
---------- ---------
there are no pending legal or governmental actions, proceedings or
investigations to which Guarantor or any of the CCI Entities is a party, or
which affects any properties of Guarantor or any of the CCI Entities, which
might result in any material adverse change in the business or financial
condition of Guarantor or any of the CCI Entities and, to the best of
Guarantor's knowledge, no such actions or proceedings are threatened or
contemplated by governmental authorities or any other Person. If the CCI Entity
is a corporation or a limited liability company and Guarantor does not own a
controlling interest in or manage such corporation or limited liability company
or if the CCI Entity is a partnership and the Guarantor is only a limited
partner and does not manage the partnership, this warranty is only to the best
of Guarantor's knowledge in regard to matters concerning such CCI Entity.
(e) Conflicting Documents or Agreements. There is no provision of
-----------------------------------
Guarantor's articles of incorporation or bylaws, or of any CCI Entity's articles
of incorporation, bylaws or partnership agreement (as the case may be), and no
provision of any existing real estate mortgage, indenture, lease, security
agreement, contract, note, instrument or any other agreements or
8
<PAGE>
documents binding on Guarantor or any of the CCI Entities, or affecting their
respective properties, which would conflict with or in any way prevent the
execution, delivery or performance of this Guaranty by Guarantor. If the CCI
Entity is a corporation or a limited liability company and Guarantor does not
own a controlling interest in or manage such corporation or limited liability
company or if the CCI Entity is a partnership and Guarantor is only a limited
partner and does not manage the partnership, this warranty is only to the best
of Guarantor's knowledge in regard to matters concerning such CCI Entity.
(f) Financial Statements; No Material Adverse Change. All
------------------------------------------------
consolidated financial statements, schedules, and other written documents
relating to the financial condition and results of operations of Guarantor as of
September 30, 1994, and the consolidated financial statements of Guarantor as
contained in its Annual Report on Form 10-K for the year ended September 30,
1994 and as contained in its Quarterly Report on Form 10-Q for the period ended
December 31, 1994, which have been submitted by Guarantor to Bank prior to the
execution of this Guaranty, present fairly the financial condition and results
of operations of Guarantor and those CCI Entities which are consolidated with
the Guarantor for financial reporting purposes, and are prepared in accordance
with GAAP. Since September 30, 1994, there has been no material adverse change
in the financial condition, results of operations, business or prospects of
Guarantor or any of the CCI Entities. If the CCI Entity is a corporation or a
limited liability company and the Guarantor does not own a controlling interest
in or manage such corporation or limited liability company or if the CCI Entity
is a partnership and the Guarantor is only a limited partner and does not manage
the partnership, this warranty is only to the best of Guarantor's knowledge in
regard to matters concerning such CCI Entity.
(g) Payment of Taxes. Guarantor and all CCI Entities have filed all
----------------
required federal, state and local tax returns and have paid all taxes as shown
on such returns as they have become due. Guarantor and all CCI Entities have
paid when due all other taxes, assessments or impositions levied or assessed
against Guarantor or the CCI Entities, or their respective businesses or
properties. If the CCI Entity is a corporation or a limited liability company
and the Guarantor does not own a controlling
9
<PAGE>
interest in or manage such corporation or limited liability company or if the
CCI Entity is a partnership and Guarantor is only a limited partner and does not
manage the partnership, this warranty is only to the best of Guarantor's
knowledge in regard to matters concerning such CCI Entity.
(h) Licenses. Guarantor and each of the CCI Entities have duly and
--------
lawfully obtained, and are duly and lawfully maintaining, any and all licenses,
certificates, permits, qualifications, authorizations, approvals and the like
which are or may be required or necessary to the operation of their respective
businesses, in every aspect thereof, under the appropriate governmental
regulatory agency or agencies, whether federal, state, or local. If the CCI
Entity is a corporation or a limited liability company and the Guarantor does
not own a controlling interest in or manage such corporation or limited
liability company or if the CCI Entity is a partnership and the Guarantor is
only a limited partner and does not manage the partnership, this warranty is
only to the best of Guarantor's knowledge in regard to matters concerning such
CCI Entity.
(i) Employee Benefit Plans. Exhibit B contains a list of all written
---------------------- ---------
or oral "employee benefit plans," including without limitation any
"multiemployer plan," which are currently in effect, are subject to Employee
Retirement Income Security Act of 1974, as amended, and cover employees, former
employees or independent contractors of Guarantor (each such being a "Benefit
Arrangement"). Guarantor has provided to Bank true and complete copies of the
Benefit Arrangements (including without limitation all amendments thereto and
any related trust instruments and insurance contracts) or, in the case of each
Benefit Arrangement not existing in a written form, a complete and accurate
description of such Benefit Arrangement. Where applicable, each Benefit
Arrangement (A) has been administered in material compliance with the terms of
such Benefit Arrangement and the requirements of the Employee Retirement Income
Security Act of 1974, as amended from time to time ("ERISA"), the Internal
Revenue Code of 1986, as amended from time to time (the "Code") and the Age
Discrimination in Employment Act and all regulations issued under each of those
laws; (B) is in material compliance with the reporting and disclosure
requirements of ERISA and the Code; and (C) has not had a "reportable event"
that has not been
10
<PAGE>
properly reported. There are no facts that (i) have resulted in a "prohibited
transaction" or have resulted or could result in the imposition of an excise tax
pursuant to Section 4975 of the Code, (ii) have resulted in a material breach of
fiduciary duty or violation of Part 4 of Title I of ERISA, or (iii) have
resulted in a material liability (whether or not asserted as of the date hereof)
of the Guarantor pursuant to Title IV of ERISA arising under or related to any
event, act or omission occurring prior to the date hereof. Each Benefit
Arrangement that is intended to qualify under Section 401(a) or to be exempt
under Section 501(c)(9) of the Code is so qualified or exempt as of the date
hereof, or, if such qualification or exemption has not been confirmed by the
Internal Revenue Service, the Guarantor shall file an Application for
Determination expeditiously (and in any event within the remedial amendment time
period relating to the initial adoption of such Benefit Arrangement) and shall
take such steps as are reasonably required to confirm such qualification or
exemption. No Benefit Arrangement has an "accumulated funding deficiency" as of
the date hereof, whether or not waived, and no waiver has been applied for.
There are no pending or, to the best knowledge of Guarantor, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of or
against the Guarantor or any trusts or fiduciaries related to the Benefit
Arrangements. The Guarantor does not have any commitment or obligation to
establish or adopt any new or additional Benefit Arrangements or to materially
increase the benefits under any existing Benefit Arrangement. None of the
Benefit Arrangements provide for the continuation of medical or health benefits
except for continuation coverage required pursuant to the Code and ERISA. As
used in this Section 6(i), all technical terms enclosed in quotation marks shall
have the meanings set forth in ERISA.
(j) Equity Investments. Guarantor does not currently have any
------------------
Subsidiaries (except Borrower, Cellular Network of South Dakota, Inc., Schaller
Cellular, Inc., Cellular Inc. Network Corporation, Cellular Inc. LP Holding Co.,
Cellular Investments, Inc., ASN Corporation, Terre Haute Cellular, Inc., Castle
Rock Cellular, Inc., San Miguel Cellular, Inc., Southwest Utah Cellular, Inc.,
Custer Cellular, Inc., Teton Cellular, Inc. and the Underlying Borrowers); and
except as set forth on Exhibit C, Guarantor does not own stock or other voting
---------
or equity interest,
11
<PAGE>
directly or indirectly, in any Person. Exhibit C sets forth as of the date of
---------
this Guaranty for Guarantor and each CCI Entity the name of the entity, its form
of organization, the authorized stock, the authorized voting or equity
interests, the number of shares of such stock or such interests which are issued
and outstanding or held in treasury, and the identity of each record and
beneficial owner of more than five percent (5%) of such outstanding stock or
interests of any class. Such stock and interests shown as outstanding of each
CCI Entity are duly authorized, validly issued and outstanding, fully-paid and
non assessable, and were not issued in violation of the preemptive or similar
rights of any Person. Guarantor or a CCI Entity owns all shares of such stock
and all such interests set forth in Exhibit C as being so owned, in each case
---------
free and clear of any Lien or restriction on transfer (other than restrictions
generally applicable under securities laws and those restrictions satisfying the
requirements of Section 5(b) hereof).
Neither Guarantor nor any CCI Entity has outstanding or has any commitment
to issue any right, option, warrant, convertible security or other instrument or
security representing a right to acquire any shares of stock or any equity or
voting interest of Guarantor or any CCI Entity except as disclosed in Exhibit C
---------
hereof. Exhibit C shall be revised from time to time by Guarantor so that such
---------
Exhibit remains accurate and complete. If the CCI Entity is a corporation or a
limited liability company and Guarantor does not own a controlling interest in
or manage such corporation or limited liability company or if the CCI Entity is
a partnership and the Guarantor is only a limited partner and does not manage
the partnership, this warranty is only to the best of Guarantor's knowledge in
regard to matters concerning such CCI Entity.
(k) Real Property. Except as shown on Exhibit D, Guarantor does not
------------- ---------
now own any title or any other interest in real property, including without
limitation any fee interest, leasehold interest or fixture. Guarantor and each
CCI Entity has good and marketable title to all property and leasehold interests
which it purports to own or hold. Exhibit D shall be revised from time to time
---------
by Guarantor so that such Exhibit remains accurate and complete. If the CCI
Entity is a corporation or a limited liability company and the Guarantor does
not own a
12
<PAGE>
controlling interest in or manage such corporation or limited liability company
or if the CCI Entity is a partnership and Guarantor is only a limited partner
and does not manage the partnership, this warranty is only to the best of
Guarantor's knowledge in regard to matters concerning such CCI Entity.
(l) Systems, Contiguous Systems and Paging Systems. To the best
----------------------------------------------
knowledge and belief of Guarantor, the contents of each of the following as
previously provided from time to time to Bank by Guarantor and/or Borrower for
each System, Contiguous System or Paging System, as applicable, are accurate and
complete: Acquisition Cost, Contiguous System Information, Paging System
Information, Paging System Cost and each Ten Year Plan. Without limiting the
generality of the foregoing, each of the Contiguous System Information, Paging
System Information, and each Ten Year Plan submitted to Bank accurately sets
forth (or when submitted to Bank will accurately set forth) the financial
prospects and the complete capital requirements for the acquisition, or
construction, and operation of each Contiguous System, Paging System and System
described therein. Each Contiguous System, Paging System and System will be or
is operational, will be or is in compliance with all requirements of the FCC,
and can be or has been acquired or constructed, as applicable, for the cost
estimates or statements provided to Bank as part of the information described
above.
(m) No Contingent Liabilities. Except for obligations among
-------------------------
Borrower, Guarantor, Underlying Borrowers, and except liabilities arising by
reason of the fact that a CCI Entity is a general partner of a partnership, each
of Guarantor and the CCI Entities (i) does not have any direct or contingent
liability for any obligation of any Person other than itself, except Lewiston-
Auburn Cellular, Inc. may have direct or contingent liabilities for the
obligations under the Revolving Credit and Term Loan Agreement, dated as of
March 24, 1988, and as heretofore amended, among Portland Cellular Partnership,
Bank of New England, N.A. and Maine National Bank (with any amendments), except
that Guarantor may have contingent liability under Letter of Credit
Reimbursement Agreement dated October 26, 1990 and Letter of Credit dated
December 19, 1990 issued by Bank in favor of St. Paul Bank for Cooperatives, and
except that Guarantor may have direct or contingent liabilities for obligations
of other
13
<PAGE>
Persons which obligations do not exceed at any time the aggregate amount of
$100,000, and (ii) has no obligation to make a loan or advance to any Person or
to own, purchase or acquire any stock, obligations or securities of, or any
other interests in, or to make any capital contribution to, any Person, except
loans or advances by Guarantor to the extent permitted by Section 8(h)(v)
hereof. If the CCI Entity is a corporation or a limited liability company and
the Guarantor does not own a controlling interest in or manage such corporation
or limited liability company or if the CCI Entity is a partnership and Guarantor
is only a limited partner and does not manage the partnership, this warranty is
only to the best of Guarantor's knowledge in regard to matters concerning such
CCI Entity.
(n) 6 3/4% Notes. Guarantor has called for redemption the 6 3/4%
------------
Notes (as defined below) and the proceeds of the Notes (as defined below) were
used, to the extent necessary, to fund the redemption of the 6 3/4% Notes and to
satisfy the 6 3/4% Notes in full.
(o) Solvency. As of the date of the Closing and after giving effect
--------
to the transactions contemplated by the Loan Documents, (i) the property of
Guarantor, at a fair valuation, will exceed its debt; (ii) the capital of
Guarantor will not be unreasonably small to conduct its business; (iii)
Guarantor will not have incurred debts, or have intended to incur debts, beyond
its ability to pay such debts as they mature; and (iv) the present fair, salable
value of the assets of Guarantor will be materially greater than the amount that
will be required to pay its probable liabilities (including debts) as they
become absolute and matured. For purposes of this Section 6(o), "debt" means any
liability on a claim, and "claim" means (x) the right to payment, whether or not
such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, undisputed, legal, equitable, secured or unsecured, or (y)
the right to an equitable remedy for breach of performance if such breach gives
rise to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, undisputed, secured
or unsecured.
(p) Disclosure. Neither the representations and warranties of this
----------
Section 6 nor any information, exhibit or report furnished by Guarantor to Bank
in connection with the
14
<PAGE>
negotiation and preparation of the Loan Agreement and this Guaranty, contains,
nor did any representations and warranties contained in Section 6 of any
predecessor to this Guaranty, nor any information, exhibit or report furnished
by Guarantor to Bank in connection with the negotiation and preparation of any
predecessors to the Loan Agreement or this Guaranty contain, any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
7. Affirmative Covenants of Guarantor. From and after the date of this
----------------------------------
Guaranty and until the Guaranteed Obligations are indefeasibly paid in full and
neither Bank nor any Syndication Party has any obligation to make any advances
under the Loan Agreement, Guarantor agrees that it will observe and comply with
the following covenants, and if Guarantor is the managing general partner,
manager or controlling stockholder of the CCI Entity, Guarantor shall also cause
each such CCI Entity to observe and comply with the following covenants set off
in brackets:
(a) Financial and Other Reports.
---------------------------
(i) Guarantor [and CCI Entities] shall at all times keep proper
books of record and account, in which correct and complete entries shall be made
of all its dealings, in accordance with GAAP. Bank shall from time to time and
upon reasonable notice be entitled to visit and inspect any of the properties
and financial records of Guarantor [and CCI Entities] during normal business
hours and to discuss Guarantor's [and any CCI Entity's] business and finances
with Guarantor's [or the CCI Entity's] officers.
(ii) As soon as available, but in no event later than one
hundred and twenty (120) days after the end of any fiscal year of Guarantor
occurring during the term hereof, Guarantor shall deliver to Bank (A) annual
financial statements of Guarantor on a consolidated basis, prepared in
accordance with GAAP consistently applied which shall: (1) be audited by
independent certified public accountants selected by Guarantor which are
reasonably acceptable to Bank; (2) be accompanied by a report of such
accountants containing an opinion reasonably acceptable to Bank; (3) be
accompanied by a compliance
15
<PAGE>
Certificate; (4) be prepared in reasonable detail and in comparative form; and
(5) include a balance sheet, an income statement, a statement of cash flows, a
statement of stockholders' equity, and all notes and schedules relating thereto;
and (B) a "Combined," "Financed Proportionate," and "Company Proportionate"
income statement of Guarantor.
(iii) As soon as available but in no event more than sixty (60)
days after the end of each of the first three quarters in Guarantor's fiscal
year, Guarantor shall deliver to Bank (A) the following financial statements of
Guarantor on a consolidated basis prepared in accordance with GAAP consistently
applied: a balance sheet, an income statement, a statement of cash flows, a
statement of stockholders' equity, for such Quarter and for the year to date,
and such other quarterly statements as Bank may specifically request, which
quarterly statements shall include any and all notes and schedules thereto; and
(B) a "Combined," "Financed Proportionate," and "Company Proportionate" income
statement of Guarantor. Such quarterly financial statements of Guarantor
required pursuant to (A) above shall be accompanied by a Compliance Certificate.
(iv) As soon as the existence of any default in the observance
or performance of the covenants in this Section 7 and in Section 8 hereof
becomes known to any officer of Guarantor, Guarantor shall promptly give Bank
notice of such default, the nature and status thereof, and the action being
taken or proposed to be taken with respect thereto.
(v) Guarantor shall also deliver to Bank, with reasonable
promptness, such additional financial information or documentation as Bank may
reasonably request.
(vi) Guarantor [and CCI Entity] shall send to Bank, no later
than the fifteenth day of each month, the items listed below with respect to
filings made during the previous month, provided however, that if not otherwise
required to be provided Guarantor and [CCI Entity] shall promptly provide copies
of such items if requested by Bank: (A) a complete listing of all reports filed
by Guarantor [or any CCI Entity] with any state or federal agency, including,
but not limited to, a complete listing of all filings with any state public
utilities commission
16
<PAGE>
or similar organization, (B) a complete listing of all filings with or notices
received from the Internal Revenue Service, other than income tax returns,
except that Guarantor and [CCI Entity] shall provide complete copies of notices
relating to fines, penalties or interest payments, and (C) complete copies of
every filing or report filed with the Securities and Exchange Commission.
(vii) Guarantor shall promptly notify Bank in writing of any
change in its [or any CCI Entity's] directors or executive officers.
(viii) Guarantor shall promptly notify Bank in writing of all
litigation in which Guarantor, Borrower [or any CCI Entity] is a party and which
either involves an amount of $500,000 or more singly or in the aggregate at any
time or is material to the financial condition, results of operation, business
or prospects of Guarantor, Borrower [or any CCI Entity].
(ix) Guarantor shall give prompt notice to Bank of any material
adverse change in the financial condition, business, results of operation or
prospects of Guarantor, Borrower [or any CCI Entity].
(b) Maintenance of Existence. Guarantor shall maintain its corporate
------------------------
existence in good standing under the laws of Colorado. [Guarantor will cause
each of the CCI Entities to maintain its corporate or partnership existence in
good standing under the laws of the state or jurisdiction of its formation to
the extent such existence is necessary or desirable in view of Guarantor's
business, operations and properties.] Guarantor will qualify and remain
qualified [, and will cause each of the CCI Entities to qualify and remain
qualified,] as a foreign corporation or partnership in each jurisdiction in
which such qualification is necessary or desirable in view of its business,
operations and properties.
(c) Compliance with Legal Requirements; ERISA. Guarantor [and each of
-----------------------------------------
the CCI Entities] shall comply with all laws, rules, regulations and orders
applicable to Guarantor [or the CCI Entity] or their respective businesses;
provided, however, that the failure of Guarantor [or the CCI Entity] to
17
<PAGE>
comply with this sentence in any instance shall not be a default hereunder
unless such failure would have a material adverse impact on the financial
condition, results of operation, business or prospects of Guarantor [or the CCI
Entity]. Guarantor shall meet one of the following at all times, and at the
written request of Bank which, after the first request, will only be made when
Bank in good faith has concerns about the status of Guarantor under the
Investment Company Act of 1940, as amended, and not more frequently than once a
year, Guarantor shall furnish to Bank an opinion of a law firm acceptable to
Bank to the effect of one of the following: Guarantor is not an investment
company as defined in the Investment Company Act of 1940, as amended (the
"Act"); or Guarantor is exempt from all provisions of the Act applicable to
investment companies as such; or the Guarantor is registered as an investment
company under the Act; or Guarantor has pending an application for exemption
pursuant to Section 3(b)(2) of the Act pursuant to which Guarantor is exempt
from all provisions of the Act applicable to investment companies as such for a
period of 60 days from the date of filing of such application or such longer
period as the Commission may determine. Guarantor and each ERISA Affiliate shall
(i) comply in all material respects with ERISA; (ii) cause any "employee pension
benefit plan" adopted, established or maintained by Guarantor or an ERISA
Affiliate to continue to qualify under ERISA and the Code; (iii) prepare and
deliver each material report, statement or other document required by ERISA and
the Code within the period specified therein and conforming in form and
substance to the provisions thereof; and (iv) administer each "employee benefit
plan" adopted, established, or maintained by Guarantor or an ERISA Affiliate in
all material respects in accordance with the terms of such plan and with ERISA
and the Code. Guarantor and each ERISA Affiliate shall not (a) engage in or
permit any transaction which could result in a "prohibited transaction" or in
the imposition of an excise tax pursuant to Section 4975 of the Code; (b) fail
to make full payment when due of all amounts which, under the provisions of any
"employee benefit plan," Guarantor or an ERISA Affiliate is required to pay as
contributions thereto; (c) permit to exist any "accumulated funding deficiency,"
whether or not waived, with respect to any "pension plan" adopted, established
or maintained by Guarantor or an ERISA Affiliate; or (d) fail to make any
payments to any "multiemployer plan" that Guarantor or ERISA Affiliate may be
18
<PAGE>
required to make under any agreement relating to such "multiemployer plan" or
any law pertaining thereto. Guarantor and each ERISA Affiliate shall not permit
the "present value" of vested and nonvested "accrued benefits" under any
"pension plan" to exceed the "current value" of the assets of such "pension
plan" allocable to such "accrued benefits" by an amount in excess of $50,000.
All actuarial assumptions and methods used to make each determination required
by the preceding sentence shall be reasonable and shall comply with all
requirements of law. Guarantor and each ERISA Affiliate shall not terminate any
"pension plan" so as to result in any liability to the Pension Benefit Guaranty
Corporation. Guarantor and each ERISA Affiliate shall furnish to Bank, within
ten days after filing, copies of each annual report filed pursuant to Section
104 or Section 4065 of ERISA with respect to each "pension plan" adopted,
established or maintained by Guarantor or an ERISA Affiliate (including, to the
extent required to be filed by Section 103 of ERISA, the related financial and
actuarial statements and opinions and other supporting statements,
certifications, schedules and information referred to in Section 103). As used
in this Section 7(c), the term "ERISA Affiliate" shall mean any trade or
business, whether or not incorporated, which together with Guarantor would be
deemed a single employer within the meaning of Section 4001 of ERISA. As used in
this Section 7(c), all technical terms enclosed in quotation marks shall have
the meanings set forth in ERISA.
(d) Taxes. [Each of] Guarantor [and the CCI Entities] shall cause to
-----
be paid when due all taxes, assessments, and other governmental charges upon it,
its income, its sales, its properties, and federal and state taxes withheld from
its employees' earnings, unless such taxes, assessments, or other governmental
charges shall be contested in good faith by appropriate actions or legal
proceedings and Guarantor [and the CCI Entity] shall establish adequate reserves
therefor in accordance with GAAP.
(e) Insurance. [Each of] Guarantor [and the CCI Entities] shall keep
---------
all insurable property, real and personal, now owned or hereafter acquired,
insured at all times against loss or damage by fire and extended coverage risks
and other hazards of the kinds customarily insured against and in amounts
19
<PAGE>
customarily carried by parties engaged in comparable businesses and comparably
situated; maintain fidelity bond coverage on such officers and employees and in
such amounts as customarily carried by parties engaged in comparable businesses
and comparably situated; effect all such insurance and bonds under valid and
enforceable policies issued by insurers of recognized responsibility; and upon
request of Bank, deliver to Bank a summary schedule indicating all insurance
then in effect. All policies of insurance maintained by Guarantor in accordance
with this Section shall name Bank, for its own benefit and, in its role as Agent
Bank, for the benefit of the present and future Syndication Parties, as an
additional insured and shall provide that the policies cannot be cancelled or
terminated without at least ten days prior written notice to Bank.
(f) Title to Assets and Maintenance. [Each of] Guarantor [and the
-------------------------------
CCI Entities] shall defend and maintain title to all its material properties and
assets. [Each of] Guarantor [and the CCI Entities] shall keep its assets, both
real and personal, in good order and condition consistent with industry practice
and shall make all necessary repairs, replacements and improvements so that its
business may be properly and advantageously conducted.
(g) Payment of Liabilities. [Each of] Guarantor [and the CCI
----------------------
Entities] shall pay all liabilities as they become due unless (with the
exception of the Guaranteed Obligations) they are contested in good faith by
appropriate actions or legal proceedings and Guarantor [or the CCI Entity]
establishes adequate reserves therefor in accordance with GAAP. In any event,
each of Guarantor [and the CCI Entities] shall pay as they become due all
indebtedness for borrowed money or for the deferred purchase price of property
or services and all obligations under leases which have or should have been
characterized as capital leases as determined in accordance with GAAP.
(h) Real Property Security Interests. [Each of] Guarantor [and the
--------------------------------
CCI Entities] shall, as may be required from time to time by Bank, provide such
documents as may be necessary or desirable in the judgment of Bank to confirm
Bank's security interest in the CCI Collateral. Promptly after the purchase or
20
<PAGE>
other acquisition of any real estate, or interest in real estate, Guarantor
shall grant to Bank a first deed of trust or mortgage on such real estate, such
deed of trust or mortgage to be in form and substance as specified by Bank. In
connection with the delivery of any mortgage or deed of trust, Guarantor shall
deliver to Bank a mortgagee's title policy, in such amount as Bank shall
specify, to be obtained at Guarantor's sole cost. In connection with entering
into any lease, Guarantor shall deliver to Bank a Leasehold Assignment and
Consent together with such additional consents or estoppels of lessor as Bank
shall specify.
(i) Basic Documents. Guarantor shall take all such actions as are
---------------
necessary to maintain and renew each Management Agreement relating to a CCI
Entity, Underlying Borrower, or Licensee so that such Management Agreement
remains in full force and effect. Guarantor shall observe and perform all
obligations and covenants under the Guarantor Loan Agreement. Without the
consent of Bank, Guarantor shall not amend, supplement, grant consents under,
otherwise modify or waive compliance with any provision of the Guarantor Loan
Agreement or any Management Agreement.
(j) Licenses. [Each of] Guarantor [and the CCI Entities] shall
--------
acquire and maintain in effect any and all licenses, certificates, permits,
qualifications, authorizations, approvals and the like which are or may be
required or necessary to the operation of its business, and every aspect
thereof, under the appropriate governmental regulatory agency or agencies,
whether federal, state, or local, and shall faithfully comply with any reporting
requirement of any such agency (including, without limitation, the FCC Licenses
and Paging Licenses and any other licenses or authorizations required by the FCC
and any state public utilities commission with respect to the Systems,
Contiguous Systems and Paging Systems). [Each of] Guarantor [and the CCI
Entities] shall not dispose of any interest in any such license, certificate,
permit, qualification, authorization, approval or the like, except in a
transaction permitted by Section 8(g) hereof.
(k) Completion of Systems and Paging Systems. With respect to the
----------------------------------------
Paging System and any System managed by Guarantor, Guarantor shall (i)
expeditiously cause the completion of
21
<PAGE>
construction of such System or the Paging System in accordance with the Ten Year
Plan for such System or the Paging System, as applicable; (ii) cause the
construction of each such System and the Paging System to be in a good and
workman-like manner; (iii) cause each System and the Paging System to be in
compliance in all material respects with all applicable laws, regulations,
codes, permits and licenses, as well as any covenants, conditions, restrictions
and reservations applicable thereto; (iv) upon completion and commencement of
operation of each System and the Paging System, continuously cause each such
System and the Paging System to be operated in a manner consistent with industry
practice.
(l) Financial Covenants. Guarantor shall maintain or cause to be
-------------------
maintained the following financial covenants:
(i) Equity to Capitalization. Consolidated Equity plus the
------------------------
aggregate principal amount of all Subordinated Debt due and payable more than
five years from the date of determination hereunder divided by Consolidated
Capitalization as of the end of each quarter of the Guarantor's fiscal year for
the indicated period as follows:
<TABLE>
<CAPTION>
Period Beginning Period Ending greater than
---------------- ------------- ------------
<S> <C> <C>
10/1/94 9/30/97 .50
10/1/97 9/30/98 .20
10/1/98 9/30/99 .30
10/1/99 9/30/00 .15
10/1/00 thereafter .25
</TABLE>
(ii) Consolidated Funded Debt Coverage. Consolidated Funded
---------------------------------
Debt divided by Financed Proportionate Operating Cash Flow as of the end of each
quarter of the Guarantor's fiscal year for the indicated period as follows:
<TABLE>
<CAPTION>
Period Beginning Period Ending less than
---------------- ------------- ---------
<S> <C> <C>
10/1/94 3/31/95 20.00:1
4/1/95 6/30/95 17.50:1
7/1/95 9/30/95 15.00:1
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C>
10/1/95 3/31/96 12.00:1
4/1/96 6/30/96 9.50:1
7/1/96 9/30/96 8.50:1
10/1/96 9/30/97 5.50:1
10/1/97 9/30/98 4.30:1
10/1/98 thereafter 3.50:1
</TABLE>
(iii) Debt Service Coverage. Financed Proportionate Operating
---------------------
Cash Flow divided by Consolidated Adjusted Debt Service as of the end of each
quarter of the Guarantor's fiscal year for the indicated period as follows:
<TABLE>
<CAPTION>
Period Beginning Period Ending Greater than
---------------- ------------- ------------
<S> <C> <C>
10/1/94 9/30/96 1.00
10/1/96 9/30/98 1.25
10/1/98 9/30/99 1.10
10/1/99 thereafter 1.25
</TABLE>
(iv) Cash Interest Coverage. Cash Interest Coverage as of the
----------------------
end of each of the quarters of the Guarantor's fiscal year for the indicated
period as follows:
<TABLE>
<CAPTION>
Period Beginning Period Ending Greater than
---------------- ------------- ------------
<S> <C> <C>
10/1/94 9/30/95 1.20
10/1/95 3/31/96 1.50
4/1/96 9/30/96 1.75
10/1/96 thereafter 2.00
</TABLE>
(v) Working Capital. Maintain positive Working Capital.
---------------
(m) Changes to Underlying Borrower Maximum Financing Need. If at any
-----------------------------------------------------
time the Guarantor's estimate of the Underlying Borrower Maximum Financing Need
with respect to a System, a Contiguous System, or a Paging System shall change
from the amount previously represented to Bank, in a Ten Year Plan or otherwise,
Guarantor shall immediately provide Bank with written notice of such change and
the reasons therefor.
23
<PAGE>
(n) Funding of the Underlying Borrower Maximum Financing Need for the
-----------------------------------------------------------------
Paging System. With respect to the Paging Loan, Guarantor will promptly fund to
- -------------
Borrower the difference between the Underlying Borrower Maximum Financing Need
for the Paging System and the Paging System Loan Commitment ("Guarantor Paging
Funds"), or any portion thereof, as Paging's need for the Guarantor Paging
Funds, or any portion thereof, arises.
(o) Redemption Notice. In the event that Guarantor sends a
-----------------
redemption notice under Section 1105 of the Indenture (as defined below),
Guarantor shall cause a copy of such notice to be promptly sent to Bank.
(p) Notice of Default Under Indenture. Guarantor shall give prompt
---------------------------------
notice to Bank of any event of default or default which with the passage of time
or giving of notice, or both, would become an event of default under the
Indenture.
8. Negative Covenants of Guarantor. From and after the date of this
-------------------------------
Guaranty until the Guaranteed Obligations are indefeasibly paid in full and
neither Bank nor any Syndication Party has any obligation to make any advances
under the Loan Agreement, Guarantor agrees that it will observe and comply with,
and will cause its Subsidiaries to observe and comply with, the following
covenants for the benefit of Bank, for itself and as Agent Bank for the benefit
of the present and future Syndication Parties:
(a) Borrowing. Each of Guarantor and its Subsidiaries shall not
incur, assume or suffer to exist any Consolidated Liabilities, except for the
following Consolidated Liabilities, when in compliance with financial and other
covenants of this Guaranty, (i) Consolidated Liabilities which are incurred or
exist in the ordinary course of business, are not indebtedness for borrowed
money or for the deferred purchase price of property and are not obligations
under leases which have or should have been characterized as capital leases as
determined in accordance with GAAP, (ii) CCI Subordinated Debt, (iii)
Consolidated Liabilities to Borrower or Bank, (iv) leases of, and purchase money
financing of, office furnishings and office equipment required in the ordinary
course of Guarantor's business and leases (with options to purchase) existing at
the date hereof
24
<PAGE>
for computers, (v) the indebtedness owed to St. Paul Bank for Cooperatives in
connection with the lease by Borrower of a mainframe computer with a software
and maintenance package ("Computer Package") from Farm Credit Leasing which
indebtedness shall not exceed $114,000.00, and (vi) the indebtedness owed to
Amplicon, Inc. ("Amplicon") in connection with the lease by Guarantor of certain
computer hardware and software ("Computer Equipment") pursuant to that certain
Lease Agreement No. OL-7953 dated June 23, 1994 by and between Guarantor and
Amplicon ("Amplicon Lease").
(b) No Other Business. Except for the lease of the Computer Package
-----------------
by Borrower to Guarantor, each of Guarantor and its Subsidiaries shall not
transact or engage in any business other than the design, construction,
development and operation of or ownership of interests in cellular and other
telecommunication systems. Guarantor and each of its Subsidiaries shall not
acquire assets which are unrelated to such business, other than equity interests
in B-Side L.L.C., B-Side Carriers, L.P. and TVX, Inc.
(c) Liens. Each of Guarantor and its Subsidiaries shall not create,
incur, assume or suffer to exist any mortgage, pledge, lien, charge or other
encumbrance on, or any security interest in (collectively sometimes called
"Liens") any of its property or assets, tangible or intangible, now owned or
held or hereafter acquired, except:
(i) the Liens resulting from this Guaranty;
(ii) liens to Guarantor, Borrower or Bank;
(iii) purchase money liens or security interests (including
without limitation conditional sales agreements) upon or in cellular equipment
acquired by Guarantor after March 15, 1989; provided, however, that any such
lien or security interest extends to and covers only the cellular equipment then
being acquired, and provided, further, that any such lien or security interest
is terminated for an item of equipment on or prior to acceptance of such
equipment by Guarantor or by any Underlying Borrower or Licensee or final
payment of the purchase price of
25
<PAGE>
such equipment by Guarantor or by any Underlying Borrower or Licensee (whichever
is earliest).
(iv) liens for taxes or other governmental charges which are not
due or remain payable without penalty, or are being contested in good faith by
appropriate actions or proceedings; provided that such reserves or other
appropriate provisions, if any, as shall be required by GAAP, shall have been
made for such taxes or other governmental charges;
(v) deposits or pledges to secure workmen's compensation,
unemployment insurance, old age benefits or other social security obligations or
in connection with or to secure the performance of bids, tenders, trade
contracts or leases or to secure statutory obligations or surety or appeal bonds
or other pledges or deposits of like nature and all in the ordinary course of
business;
(vi) mechanics', carriers', workmen's, repairmen's or other like
liens arising in the ordinary course of business in respect of obligations not
yet due or which are being contested in good faith and by appropriate
proceedings;
(vii) easements, rights-of-way, restrictions and other similar
matters incidental to the ownership of property which do not in the aggregate
materially detract from the value of such property or assets or materially
impair their use in the operation of the business of Guarantor or a Subsidiary;
(viii) purchase money security interests in, or leases (with
options to purchase) for, office furnishings and office equipment (including
without limitation the telephone equipment used solely at Guarantor's principal
executive office and computers for office use) required in the ordinary course
of Guarantor's business; provided that such security interests shall attach only
to, and such leases shall only concern, the office furnishings and office
equipment so purchased or leased;
(ix) the interest of St. Paul Bank for Cooperatives in a
computer pursuant to the Letter of Credit Reimbursement Agreement dated October
26, 1990 and Letter of
26
<PAGE>
Credit dated December 19, 1990 issued by Bank in favor of St. Paul Bank for
Cooperatives; or
(x) the interest of Amplicon in certain computer hardware and
software pursuant to the Amplicon Lease and any financing statements which
describe the Computer Equipment as collateral filed by Amplicon for the purpose
of securing Guarantor's obligations under the Amplicon Lease.
(d) Sale of Assets. Each of Guarantor and its Subsidiaries shall not
--------------
dispose of any Substantial Part of its assets to any Person except (i) to
Guarantor, (ii) in a transaction permitted by Section 8 (g) hereof, or (iii) the
sale or other disposition of office furnishings or office equipment in the
ordinary course of Guarantor's business. If any transaction occurs which
requires prepayment of an Underlying Loan, then Guarantor shall cause to be made
the prepayment of such Underlying Loan. Guarantor shall further cause to be made
the mandatory prepayment required by the Loan Agreement upon the prepayment of
such Underlying Loan.
(e) Liabilities of Others. Each of Guarantor and its Subsidiaries
---------------------
shall not assume, guaranty, endorse or otherwise become directly or contingently
liable in connection with any obligation of any Person other than Guarantor or a
Wholly-Owned Subsidiary, except for (i) obligations among Guarantor, Borrower,
and Underlying Borrowers; (ii) liabilities arising by reason of the fact that
Guarantor or a Subsidiary is a general partner of a partnership; and (iii) in
addition to the previous exceptions, direct or contingent liabilities of
Guarantor for obligations of other Persons which obligations do not exceed at
any time the aggregate amount of $100,000.
(f) Dividends, Repurchases and Distributions; Subordinated Debt.
-----------------------------------------------------------
Each of Guarantor and its Subsidiaries will not declare or pay or set aside for
payment any dividends upon any shares of their respective capital stock (except
dividends payable in shares of such stock) or purchase, redeem or retire, or
make any other distribution on any shares of their respective capital stock or
other equity interests; and shall not make any prepayment on, redeem, or
purchase any CCI Subordinated Debt of Guarantor or any Subsidiary (except any
prepayment, redemption or
27
<PAGE>
purchase payable in shares of Guarantor's capital stock); provided, however,
that (i) a Licensee which is not an Underlying Borrower may make distributions
to its equity holders, and (ii) Guarantor may declare dividends or make payments
of CCI Subordinated Debt in an aggregate amount not to exceed one-half of net
cash distributions received by Guarantor, less an amount equal to funds which
have been provided by Guarantor to Borrower, whether by way of equity
contribution or loan, for the purpose of any principal payment on indebtedness
for Subordinated Funds, so long as no Event of Default or Potential Default
exists before or after such distribution or payment is made by Guarantor. As
used in this provision, "net cash distributions" mean the aggregate of all cash
received by Guarantor from all Underlying Borrowers from and after March 31,
1989 as distributions on equity interests in such Underlying Borrowers from the
net income thereof (minus any losses) since the inception of such Underlying
Borrowers (for this purpose, all cash distributions by an Underlying Borrower
shall be deemed to come first from any net income, and net income shall be
determined in accordance with GAAP).
(g) Merger; Sale of All Assets; Stock Sales
---------------------------------------
(i) Each of Guarantor and its Subsidiaries shall not (A)
liquidate, merge, consolidate or reorganize with or into any Person, or (B)
dispose of all or any Substantial Part of its assets, except that:
(A) Guarantor may merge, consolidate or reorganize with or
into any Person or dispose of all or substantially all of its assets if (x) the
successor which results from such merger, consolidation or reorganization or to
which such disposition shall have been made (the "surviving party") shall
expressly assume in writing the due and punctual payment and performance and
observance of all the covenants of this Guaranty to be performed or observed by
Guarantor, and the surviving party shall furnish to Bank, and the other
Syndication Parties, an opinion of counsel satisfactory to Bank to the effect
that the instrument of assumption has been duly authorized, executed and
delivered and constitutes the legal, valid and binding agreement of the
surviving party enforceable in accordance with its terms; and (y) immediately
after the consummation of the transaction and after giving effect thereto,
28
<PAGE>
no default in respect of any of the covenants in this Guaranty shall exist;
(B) Any Subsidiary may merge, consolidate, or reorganize
with Guarantor or a Wholly-Owned Subsidiary so long as in any such merger,
consolidation or reorganization involving Guarantor, Guarantor shall be the
surviving or continuing corporation and so long as in any merger, consolidation
or reorganization involving any other Subsidiary the surviving or continuing
party shall continue to be a Subsidiary;
(C) Any Subsidiary may dispose of all or a substantial part
of its assets to Guarantor or any Wholly Owned Subsidiary.
(D) Any Subsidiary may dispose of all or a substantial part
of its assets if: simultaneously all Consolidated Liabilities of such Subsidiary
at the time owned by Guarantor and every other Subsidiary shall be disposed of
as an entirety; the Board of Directors of Guarantor shall have determined, as
evidenced by a resolution, that the retention of such assets is no longer in the
best interest of Guarantor; such assets are disposed of to a Person for a
consideration and on terms reasonably deemed by the Board of Directors of
Guarantor to be adequate and satisfactory; such Subsidiary shall have as part of
its assets no continuing investment in Guarantor or any other Subsidiary not
being simultaneously disposed of; and such disposition does not involve a
Substantial Part of the assets of Guarantor.
(ii) Guarantor shall not dispose of any shares of stock of any
class or any equity or voting interest in any Subsidiary (except to a Wholly-
Owned Subsidiary or for the purpose of qualifying directors) or any Consolidated
Liabilities of such Subsidiary owned by Guarantor, and shall not permit any
Subsidiary to dispose of (except to Guarantor or any Wholly Owned Subsidiary)
any shares of stock of any class or Consolidated Liabilities of any other
Subsidiary, unless: (A) simultaneously all shares of stock, any equity or voting
interests and Consolidated Liabilities of such Subsidiary at the time owned by
Guarantor and every other Subsidiary shall be disposed of as an entirety; (B)
the Board of Directors of Guarantor shall have
29
<PAGE>
determined, as evidenced by a resolution, that the retention of such stock,
interests and Consolidated Liabilities is no longer in the best interest of
Guarantor; (C) such stock, interests and Consolidated Liabilities are disposed
of to a Person, for a consideration and on terms reasonably deemed by the Board
of Directors of Guarantor to be adequate and satisfactory; (D) such Subsidiary
being disposed of shall not have any continuing investment in Guarantor or any
other Subsidiary not being simultaneously disposed of; and (E) such disposition
does not involve a Substantial Part of the assets of Guarantor.
(h) Loans, Advances and Investments. Each of Guarantor and its
-------------------------------
Subsidiaries will not make or permit to remain outstanding any loan or advance
to, or own, purchase or acquire any stock, obligations or securities of, or any
other interest in, or make any capital contribution to, any Person other than
Bank and Borrower, except that Borrower may make the Underlying Loans, Guarantor
may make short-term loans and capital investments which aggregate no more than
$8.5 million in entities related to the telecommunications industry, entities
operating primarily in the geographical markets currently managed by Guarantor,
or in entities which will create synergies with Guarantor's current operations,
and, in addition, Guarantor or any Subsidiary may make, own, purchase or
acquire:
(i) commercial paper maturing not in excess of one year from the
date of acquisition and rated P1 by Moody's Investors Service, Inc. or A1 by
Standard & Poor's Corporation on the date of acquisition;
(ii) certificates of deposit in North American commercial banks
rated C or better by Keefe, Bruyette & Woods, Inc. or 3 or better by Cates
Consulting Analysts, maturing not in excess of one year from the date of
acquisition;
(iii) obligations of the United States government or any agency
thereof, the obligations of which are guaranteed by the United States
government, maturing, in each case, not in excess of one year from the date of
acquisition;
(iv) repurchase agreements of any bank or trust company
incorporated under the laws of the United States of
30
<PAGE>
America or any state thereof and fully secured by a pledge of obligations issued
or fully and unconditionally guaranteed by the United States government;
(v) Loans or advances by Guarantor to Lewiston-Auburn Cellular,
Inc., provided that such loans or advances to Lewiston-Auburn Cellular, Inc. do
not exceed $3,000,000; loans or advances to Steamboat Springs Cellular General
Partnership, provided that such loans or advances to Steamboat Springs Cellular
General Partnership do not exceed $2,500,000; advances by Guarantor to a CCI
Entity pursuant to the terms of the Management Agreement between Guarantor and
such CCI Entity; and investments by Guarantor in the Subsidiaries set forth in
Section 6(j), B-Side L.L.C., TVX, Inc., Liberty Cellular, Inc., B-Side Carriers,
L.P., Underlying Borrowers, and corporations whose sole business is to own
interests in Underlying Borrowers or Licensees in which an Underlying Borrower
owns a Licensee Equity Interest; or capital contributions by Guarantor with
respect to partnership interests in Underlying Borrowers or partnerships whose
sole business is to invest in Underlying Borrowers or Licensees in which an
Underlying Borrower owns a Licensee Equity Interest; and
(vi) investments in accordance with the Investment Policy of
Guarantor dated as of October 26, 1994, and adopted by Guarantor's Board of
Directors, a correct and complete copy of which has been provided by Guarantor
to Bank; provided, however that any amendments thereto shall be satisfactory to
Bank in its sole discretion.
(i) Property and Services from Guarantor. Each of Guarantor and its
------------------------------------
Subsidiaries shall not sell to any CCI Entity, or Underlying Borrower any
equipment, other personal property, real property or services except in the
ordinary course of their respective businesses and upon fair and reasonable
terms no less favorable to the CCI Entity or Underlying Borrower than would be
obtained by the CCI Entity or Underlying Borrower in a comparable arm's-length
transaction with an unrelated Person. Bank acknowledges and agrees that the fees
charged by Guarantor for the services provided under the Management Agreements
do not violate this Section.
31
<PAGE>
(j) Redemption Rights Under the Indenture. Guarantor shall not
-------------------------------------
exercise its redemption rights pursuant to Article 11 of the Indenture if such
redemption would constitute a breach of Guarantor's covenants contained in
Section 8(f) of this Guaranty.
(k) Acceleration of Notes. Guarantor shall not cause or permit the
---------------------
Notes to become or to be declared due and payable prior to the date on which
they otherwise would have become due and payable because of a default under the
Indenture.
(l) Defeasance or Covenant Defeasance. Guarantor shall not institute
---------------------------------
a Defeasance or a Covenant Defeasance (as those terms are defined in the
Indenture) under Article 15 of the Indenture.
9. Indemnification.
---------------
(a) General. Guarantor agrees to indemnify and hold Bank and each
-------
Syndication Party and their respective directors, officers, employees, agents,
professional advisers and representatives ("Indemnified Parties" or each an
"Indemnified Party") harmless from and against any and all claims, damages,
losses, liabilities, costs or expenses whatsoever which any such Indemnified
Party may incur (or which may be claimed against any such Indemnified Party by
any Person), including attorney's fees incurred by any such Indemnified Party,
arising out of or resulting from (i) the inaccuracy of any representation or
warranty of Borrower or Guarantor in the Loan Agreement or this Guaranty, (ii)
the failure of Borrower or Guarantor to perform or comply with any covenant or
obligation of Borrower or Guarantor under the Loan Agreement or this Guaranty,
or (iii) the exercise by any such Indemnified Party of any right or remedy set
forth in the Loan Agreement or this Guaranty, provided that Guarantor shall have
no obligation to indemnify any Indemnified Party against claims, damages,
losses, liabilities, costs or expenses to the extent caused by the willful
misconduct or gross negligence of such Indemnified Party. The obligation to
indemnify set forth in this Section 9(a) shall survive the termination of this
Guaranty and other covenants of this Guaranty.
32
<PAGE>
(b) Indemnification Relating to Hazardous Substances.
------------------------------------------------
(i) Each of Guarantor and the CCI Entities shall not locate,
produce, treat, transport, incorporate, discharge, emit, release, deposit or
dispose of any Hazardous Substance in, upon, under, over or from any property
owned or held by Guarantor or the CCI Entity, except in accordance with all
Environmental Regulations; each of Guarantor and the CCI Entities shall not
permit any Hazardous Substance to be located, produced, treated, transported,
incorporated, discharged, emitted, released, deposited, disposed of or to escape
in, upon, under, over or from any property owned or held by Guarantor or the CCI
Entity, except in accordance with Environmental Regulations; and each of
Guarantor and the CCI Entities shall comply with all Environmental Regulations
which are applicable to such property. If Bank, acting for its own benefit or in
its role as Agent Bank for the benefit of the present and future Syndication
Parties, reasonably believes that an Environmental Regulation has been violated
by Guarantor or CCI Entity upon property owned or held by Guarantor or any CCI
Entity, if Bank so requests, Guarantor shall have prepared an environmental
review, audit, assessment and/or report relating to the subject property, at
Guarantor's sole cost and expense, by an engineer or scientist acceptable to
Bank. If, however, the environmental review, audit, assessment and/or report
reveals that no Environmental Regulation has been violated, Bank shall reimburse
Guarantor for the costs and expenses of such engineer or scientist in completing
such audit or report. This clause (i) shall apply only to a CCI Entity which
Guarantor manages, or in which Guarantor has a general partner interest or a
controlling interest, or which receives any loan from Borrower.
(iii) Guarantor shall indemnify each Indemnified Party against, and shall
reimburse each Indemnified Party for, any and all claims, demands, judgments,
penalties, liabilities, costs, damages and expenses, including court costs and
attorneys' fees incurred by such Indemnified Party (prior to trial, at trial and
on appeal) in any action against or involving such Indemnified Party, resulting
from any breach of the foregoing covenants, or from the discovery of any
Hazardous Substance in, upon, under or over, or emanating from, property owned
or held by Guarantor or
33
<PAGE>
any CCI Entity, it being the intent of Guarantor and Bank that none of the
Indemnified Parties shall have any liability or responsibility for damage or
injury to human health, the environmental or natural resources caused by, for
abatement and/or clean-up of, or otherwise with respect to, Hazardous Substances
by virtue of the interest of any Indemnified Party in the property created by
any documents securing the Guaranteed Obligations (including without limitation
the Guarantor Security Agreement) or as the result of any such Indemnified Party
exercising any of its rights or remedies with respect thereto, including but not
limited to becoming the owner thereof by foreclosure or conveyance in lieu of
foreclosure.
(v) The foregoing covenants of this paragraph (b) shall be deemed continuing
covenants for the benefit of each of the Indemnified Parties, and any successors
and assigns thereof, including but not limited to the holder of any certificate
of purchase, any transferee of the title of Bank or any subsequent owner of the
property, and shall survive the satisfaction or release of any lien, any
foreclosure of any lien and/or any acquisition of title to the property or any
part thereof by Bank, or any Syndication Party, Guarantor or any CCI Entity, or
anyone claiming by, through or under Bank, any Syndication Party, Guarantor or
any CCI Entity by deed in lieu of foreclosure or otherwise. Any amounts covered
by the foregoing indemnification shall bear interest from the date incurred at
the Default Interest Rate, shall be payable on demand, and shall be secured by
the Guarantor Security Agreement. The indemnification and covenants of this
Section 9(b) shall survive termination of this Guaranty and any other covenants
of this Guaranty.
(10) Defined Terms. As used in this Guaranty, the following terms shall
-------------
have the meanings set forth below (and such meaning shall be equally applicable
to both the singular and plural form of the terms defined, as the context may
require):
"Agent Bank Rights": As defined in Section 12(a).
-----------------
"Benefit Arrangement": As defined in Section 6(i).
-------------------
34
<PAGE>
"CCI Entity": Any corporation or partnership in which Guarantor
----------
owns, directly or indirectly, an equity or ownership interest. The
CCI Entities shall include any Subsidiary or Wholly-Owned
Subsidiary, but shall exclude Bank.
"CCI Collateral": As defined in Section 5(a).
--------------
"CCI Subordinated Debt": Guarantor's 8.75% Convertible Senior
---------------------
Subordinated Notes due January 15, 2001, issued pursuant to the Note
Purchase Agreement dated January 15, 1993; Guarantor's 11 3/4% Senior
Subordinated Discount Notes due 2003 ("Senior Discount Notes");
Guarantor's 11 1/4% Subordinated Notes due 2005 ("Notes") issued
under the Indenture dated as of July 6, 1995 ("Indenture"), in an
aggregate principal amount not to exceed $80,000,000 notwithstanding
the fact that the Indenture governs the issuance of Notes in a total
principal amount of $100,000,000.
"Compliance Certificate": A certificate of the chief financial
----------------------
officer of Guarantor acceptable to Bank and in the form attached
hereto as Exhibit E, setting forth in reasonable detail the data and
---------
calculations showing compliance with the financial covenants set
forth in Section 7(l) hereof.
"Consolidated Liabilities": An amount equal to the aggregate amount
------------------------
of all liabilities of Guarantor and Guarantor's consolidated
entities.
"Consolidated Net Income": The aggregate net income for Borrower,
-----------------------
Guarantor and Guarantor's consolidated entities (decreased by any
losses), determined in accordance with GAAP for the most recently
completed four Quarters.
"Consolidated Net Worth": The consolidated stockholders' equity of
----------------------
Borrower, Guarantor and Guarantor's consolidated entities, to be
determined both as to classification of items and amounts in
accordance with GAAP.
35
<PAGE>
"Guaranteed Obligations": As defined in Section 1.
----------------------
"Guarantor": CommNet Cellular Inc., a Colorado corporation, and its
---------
permitted successors and assigns under this Guaranty.
"Guarantor Loan": the loan made by Guarantor to Borrower pursuant to
--------------
the Guarantor Loan Agreement.
"Indemnified Party": As defined in Section 9(a).
-----------------
"Junior Debt": As defined in Section 11(a).
-----------
"Loan Agreement": As defined in the Recitals.
--------------
"Lien": As defined in Section 8(c).
----
"Partner Consent": As defined in Section 5(b).
---------------
"Senior Debt": As defined in Section 11(a).
-----------
"Subsidiary": A corporation or partnership of which Guarantor owns,
----------
directly or indirectly, more than 50% of the voting securities. For
this purpose, voting securities means securities or interests of any
class or classes of a corporation or partnership, the holders of
which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors or Persons performing
similar functions.
"Substantial Part": In reference to a disposition of assets, assets
----------------
which are not being sold in the ordinary course of business and the
book value of which when added to the book value of all other assets
disposed of by Guarantor and its Subsidiaries (other than in the
ordinary course of business) during the same fiscal year, exceeds ten
percent (10%) of the Consolidated Net Worth determined as of the end
of the immediately preceding fiscal year or contributed more than ten
36
<PAGE>
percent (10%) of the Consolidated Net Income of Guarantor for such
fiscal year.
"Successor Agent": As defined in Section 1.
---------------
"Syndication Agreement": That certain Syndication and Agent Bank
----------------------
Agreement dated as of September 6, 1995 by and between Bank, as a
Syndication Party and as Agent Bank, and those entities who acquire
interests in the Advances made pursuant to the Loan Agreement as such
entities are designated in, and become parties to, such Syndication
and Agent Bank Agreement.
"Syndication Party Notes": Those promissory notes payable by
-----------------------
Borrower to each individual Syndication Party, as they may be
amended, restated, extended, or replaced from time to time.
"Wholly-Owned Subsidiary": Any Subsidiary of which all equity,
-----------------------
securities or interests and all voting securities (except directors,
qualifying shares), with voting securities having the meaning
specified in the definition of "Subsidiary", are owned directly by
Guarantor and/or Guarantor's other Wholly-Owned Subsidiaries.
"6 3/4% Notes": Guarantor's 6 3/4% Convertible Subordinated
------------
Debentures due 2009 issued under that certain Indenture dated as of
July 15, 1989.
Capitalized terms used, but not defined, herein shall have the meaning
given to such terms in the Loan Agreement.
37
<PAGE>
(11) Subordination of Junior Debt.
----------------------------
(a) Subordination. Guarantor hereby subordinates its right to
-------------
payment and satisfaction of all indebtedness of Borrower to Guarantor arising
out of the Guarantor Loan and the Principal Reduction Loan (together, the
"Junior Debt") and the payment thereof, directly or indirectly, by any means
whatsoever, to the indefeasible payment and satisfaction in full of all Bank
Debt (owed to Bank or to any Syndication Party) and all other indebtedness of
Borrower to Bank (collectively, "Senior Debt"); provided, however, that Borrower
may make payments to Guarantor in respect of the Junior Debt as permitted under
Section 13.6(b) of the Loan Agreement.
(b) Distributions. In the event of any distribution, division, or
-------------
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of Borrower or the proceeds
thereof to the creditors of Borrower, whether by reason of liquidation,
bankruptcy, arrangement, receivership, assignment for the benefit of creditors,
marshalling of assets of Borrower or any other action or proceeding involving
the readjustment of all or any part of indebtedness of Borrower or the
application of the assets of Borrower to the payment or liquidation thereof, or
upon the dissolution or other winding up of Borrower's business, or upon the
sale of all or substantially all of Borrower's assets, then, and in any such
event, (i) Bank and all Syndication Parties (as their interests may appear)
shall first receive indefeasible payment in full in cash of the Senior Debt
prior to the payment of all or any part of the Junior Debt, and (ii) prior to
the indefeasible payment in full of the Senior Debt, Bank and all Syndication
Parties (as their interests may appear) shall be entitled to receive, for
application to the Senior Debt, any payment or distribution of any kind or
character, whether in cash, securities or other property, which may be payable
or deliverable in respect of any or all of the Junior Debt.
(c) Enforcement of Rights of Guarantor. In order to enable Bank to
----------------------------------
enforce its rights under Section 11 (a) and (b) above, Bank, as Agent Bank, is
hereby irrevocably authorized and empowered (in its own name or in the name of
Guarantor or otherwise), but shall have no obligation, to enforce claims
38
<PAGE>
comprising any of the Junior Debt by proof of debt, proof of claim, suit or
otherwise and take generally any action which Guarantor might otherwise be
entitled to take, as Bank may deem necessary or advisable for the enforcement of
its rights or interests hereunder.
(d) Further Assurances. To the extent necessary for Bank and the
------------------
Syndication Parties to realize the benefits of the subordination of the Junior
Debt provided for herein (including the right to receive any and all payments
and distributions which might otherwise be payable or deliverable with respect
to Guarantor in any proceeding described in Section 11(b) above, Guarantor shall
execute and deliver to Bank, for the benefit of Bank and the Syndication
Parties, such instruments or documents (together with such assignments or
endorsements as Bank shall deem necessary), as may be requested by Bank.
(e) Payments Received by Guarantor. Except for payments received by
------------------------------
Guarantor as provided in Section 11(a) above, should any payment or distribution
or security or instrument or proceeds thereof be received by Guarantor in
respect of the Junior Debt, Guarantor shall receive and hold the same in trust,
as trustee, for the benefit of Bank and the Syndication Parties, segregated from
other funds and property of Guarantor and shall forthwith deliver the same to
Bank (together with any endorsement or assignment of Guarantor where necessary),
for application to any of the Senior Debt. In the event of the failure of
Guarantor to make any such endorsement or assignment to Bank, Bank, as Agent
Bank, or any of its officers or employees, are hereby irrevocably authorized on
behalf of Guarantor to make the same.
(f) Instrument Legend and Notation. Any instrument at any time
------------------------------
evidencing the Junior Debt, or any portion thereof, shall be permanently marked
on its face with a legend conspicuously indicating that payment thereof is
subordinate in right of payment to the Senior Debt and subject to the terms and
conditions of this Section 11. In the event any legend or endorsement is
omitted, Bank, as Agent Bank, or any of its officers or employees, are hereby
irrevocably authorized on behalf of Guarantor to make the same. No specific
legend, further assignment or endorsement or delivery of notes,
39
<PAGE>
guarantees or instruments shall be necessary to subject any Junior Debt to the
subordination provisions of this Section 11.
(12) Miscellaneous.
-------------
(a) Syndication. Guarantor has received and reviewed the
-----------
Syndication Agreement. Guarantor acknowledges, agrees, and consents to (i)
Bank's transfer, assignment, and syndication of a portion of the Bank Debt to
the Syndication Parties (and any further such transfers or acquisitions in the
future) under the terms and conditions set forth in the Syndication Agreement,
and (ii) Borrower's execution of the Syndication Party Notes (now and in the
future in the event portions of the Bank Debt are acquired by other entities who
become Syndication Parties). Guarantor further agrees and acknowledges (iii)
that Bank is acting hereunder in its own benefit and, in its role as Agent Bank,
for the benefit of the present and future Syndication Parties; (iv) that, except
where the context clearly requires a different construction, the rights, powers
and duties granted to Bank in Articles 9, 14, 15, 16, and 18 of the Loan
Agreement are granted to it in its role as Agent Bank ("Agent Bank Rights"); and
(v) that in the event that, pursuant to the provisions of the Syndication
Agreement, a successor is appointed for Bank in its capacity as Agent Bank
("Successor Agent Bank"), such Successor Agent Bank shall be entitled to
exercise all the Agent Bank Rights hereunder. If a Successor Agent Bank is
appointed, Bank shall provide Guarantor with a written notice identifying such
Successor Agent Bank. The Syndication Parties may have an agreement among
themselves as to notices, amendments, waivers, consents, actions, decisions and
other matters under this Guaranty; however, in no event shall Guarantor be
required to provide notice to other than the Agent Bank (or Successor Agent
Bank) or to deal with other than the Agent Bank (or Successor Agent Bank) with
respect to any amendments, waivers, consents, actions, decisions or other
matters under this Guaranty.
(b) Loan Agreement. Guarantor has received and reviewed the Loan
--------------
Agreement and acknowledges, agrees, and consents to the terms and conditions set
forth therein.
40
<PAGE>
(c) No Waiver by Bank. No delay or failure by Bank to exercise any
-----------------
right or remedy against Borrower or Guarantor will be construed as a waiver of
that right or remedy. All remedies of Bank against Borrower and Guarantor are
cumulative.
(d) Assignment. Guarantor may not assign this Guaranty without the
----------
written consent of Bank. Subject to the foregoing and Section 8(g) above, the
provisions of this Guaranty shall be binding upon Guarantor, its successors and
assigns.
(e) Severability. The invalidity or unenforceability of any one or
------------
more provisions of this Guaranty will not affect any other provision.
(f) Amendments. This Guaranty may not be amended without the
----------
written consent of Bank, for itself and as Agent Bank. Guarantor agrees that it
shall reimburse Bank for all fees and expenses incurred by Bank in retaining
outside legal counsel in connection with any amendment or modification to this
Guaranty requested by the Guarantor.
(g) Service of Process and Consent to Jurisdiction. Guarantor hereby
----------------------------------------------
agrees that any litigation with respect to this Guaranty or to enforce any
judgment obtained against Guarantor for breach of this Guaranty may be brought
in the courts of the State of Colorado and in the United States District Court
for the District of Colorado (if applicable subject matter jurisdictional
requirements are present), as Bank may elect; and, by execution and delivery of
this Guaranty, Guarantor irrevocably submits to such jurisdiction. With respect
to litigation concerning this Guaranty within the jurisdiction of the courts of
the State of Colorado or the United States District Court for the District of
Colorado, Guarantor hereby irrevocably appoints The Corporation Company, 1675
Broadway, Denver, Colorado 80202, as the agent of Guarantor to receive for and
on behalf of Guarantor, service of process, which service may be made by mailing
a copy of any summons or other legal process to Guarantor in care of such agent.
Guarantor agrees that Guarantor shall maintain a duly appointed agent for
service of summons and other legal process as long as Guarantor remains
obligated under this Guaranty and shall keep Bank advised in writing of the
identity and location of such agent. The receipt by such agent and/or by
Guarantor of such
41
<PAGE>
summons or other legal process in any such litigation shall be deemed personal
service and acceptance by Guarantor for all purposes of such litigation.
(h) Notices. Any notice or other communication in connection with
-------
this Guaranty (including any modifications of, or waivers or consents under,
this Guaranty) shall be deemed to be delivered if in writing (or in the form of
a telex or facsimile transmission) addressed as provided below (or to the
addressee at such other address as the addressee shall have specified by notice
actually received by the addressor), either (i) on the Business Day actually
delivered in fully legible form to such address (as confirmed electronically in
the case of a facsimile transmission or evidenced by receipt of the correct
answer back in the case of a telex) if received during the normal business hours
of the recipient or on the next Business Day if received after normal business
hours of the recipient, or (ii) in the case of a letter, five (5) days after the
same was deposited in the United States mails, with first-class postage prepaid
and registered or certified:
If to Bank (for itself and in its role as Agent Bank):
CoBank, ACB
5500 South Quebec Street
Greenwood Village, CO 80111
Attention: Credit Manager, Rural Utilities Banking Group
Facsimile #: (303) 740-4002
If to Guarantor:
CommNet Cellular Inc.
5990 Greenwood Plaza Boulevard, Suite 300
Englewood, CO 80111
Attention: Chief Financial Officer
Facsimile #: (303) 694-3293
42
<PAGE>
Guarantor and Bank have executed this Third Amended and Restated Guaranty,
all as of the day and year first above written.
GUARANTOR:
COMMNET CELLULAR INC., a Colorado
corporation
By:_______________________________
Name: Daniel P. Dwyer
Title: Executive Vice President
BANK:
COBANK, ACB (for itself and as Agent Bank)
By:_______________________________
Name: Kevin Brunkow
Title: Assistant Vice President
43
<PAGE>
EXHIBIT 10.7
CHANGE-IN-CONTROL AGREEMENT
Dear _________________:
CommNet Cellular Inc. (the "Corporation") recognizes that your involvement in
the operation and management of the Corporation will be instrumental to the
growth and success of the Corporation, and your continued employment with the
Corporation is very important. As is the case with many publicly held
corporations, the possibility of a change in control of the Corporation might
exist. If such an event were threatened or were to actually occur, management
might be faced with conflicting issues and concerns, some of which might result
in harm to the Corporation and its shareholders through the departure or
distraction of management personnel.
The Board of Directors of the Corporation (the "Board") has determined that
appropriate steps should be taken to enable the members of the Corporation's
management, including yourself, to evaluate objectively the issues associated
with a change in control and to assure the Corporation of the continued
employment of management.
In order to induce you to remain in the employ of the Corporation, the
Corporation agrees that you will receive the severance benefits set forth in
this letter agreement ("Agreement") in the event your employment with the
Corporation is terminated subsequent to a "Change in Control of the Corporation"
(as defined in Section 2 hereof) under the circumstances described below:
1. Term of Agreement. This Agreement will commence on the date hereof and
-----------------
will continue in effect until December 31, 1995; provided, however, that
commencing on January 1, 1996 and each January 1 thereafter, the term of
this Agreement will automatically be extended for one additional year
unless, prior to October 1 of the preceding year, the Corporation gives
notice to the Employee that the Agreement will not be
<PAGE>
extended. In addition, if a Change in Control of the Corporation occurs
during the original or extended term of this Agreement, this Agreement will
continue in effect for a period of twenty-four (24) months beyond the month
in which such Change in Control of the Corporation occurs.
2. Change in Control of the Corporation. No benefits are payable hereunder
------------------------------------
unless a Change in Control of the Corporation, as set forth below, occurs.
For purposes of this Agreement, a "Change in Control of the Corporation"
will be deemed to have occurred if:
(i) any "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the Exchange Act)) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Corporation representing thirty percent (30%) or more of the combined
voting power of the Corporation's then outstanding securities;
(ii) the shareholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other
than a merger or consolidation which results in the voting securities
of the Corporation outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least seventy percent
(70%) of the combined voting power of the voting securities of the
Corporation or such surviving entity outstanding immediately after
such merger or consolidation, or the shareholders of the Corporation
approve a plan of complete liquidation of the Corporation or an
agreement for the sale or disposition by the Corporation of all or
substantially all the Corporation's assets; or
(iii) during any period of two (2) consecutive years (not including
any period prior to the execution of this Agreement) there ceases
<PAGE>
to be a majority of the Board comprised as follows: individuals who at
the beginning of such period constitute the Board and any new
director(s) whose election by the Board or nomination for election by
the Corporation's stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved.
3. Termination Following a Change in Control of the Corporation. If any of
------------------------------------------------------------
the events described in Section 2 hereof constituting a Change in Control
of the Corporation occurs, you will be entitled to the benefits provided in
Subsection 4(d) hereof upon the termination of your employment during the
term of this Agreement unless such termination is (i) because of your
death, Disability, or Retirement, (ii) by the Corporation for Cause or
(iii) by you other than for Good Reason.
(a) Disability; Retirement. Disability means a permanent and total
----------------------
disability, within the meaning of the Internal Revenue Code (the
Code) Section 22(e)(3), as determined by the Board in good faith,
upon the receipt of sufficient competent medical advice from one or
more individuals, selected by the Board, who are qualified to give
professional medical advice. Termination by the Corporation or you
of your employment by reason of "Retirement" means termination on or
after attainment of age 65.
(b) Cause. Termination by the Corporation of your employment for
-----
"Cause" means termination upon (i) the willful and continued failure
by you to substantially perform your duties with the Corporation
(other than any such failure resulting from termination by you for
Good Reason), after a demand for substantial performance is delivered
to you that specifically identifies the manner in which the
Corporation believes that you have not substantially performed your
duties, and you have failed to resume
<PAGE>
substantial performance of your duties on a continuous basis within
fourteen (14) days of receiving such demand, (ii) the willful
engaging by you in conduct which is demonstrably and materially
injurious to the Corporation, monetarily or otherwise or (iii) your
conviction of a felony which impairs your ability substantially to
perform your duties with the Corporation. For purposes of this
Subsection, no act, or failure to act, on your part will be deemed
"willful" unless done, or omitted to be done, by you not in good
faith and without reasonable belief that your action or omission was
in the best interest of the Corporation.
(c) Good Reason. You will be entitled to terminate your employment
-----------
for Good Reason. For purposes of this Agreement, "Good Reason"
means, without your express written consent, the occurrence within 24
months following a Change in Control of the Corporation of any one or
more of the following:
(i) the assignment to you of any duties inconsistent in any
respect with your position (including status, offices, titles, and
reporting requirements), authorities, duties, or other
responsibilities or any other action of the Company which results
in a substantial change in such position, or its authority,
duties, or responsibilities, other than an insubstantial and
inadvertent action which is remedied by the Company promptly after
receipt of notice thereof given by you;
(ii) a significant reduction (15% or more) by the Corporation in
your base salary level as of the effective date of the Change in
Control, or as increased subsequent to such date;
(iii) the Corporation's requirement that you be based at a
location in excess of fifty (50) miles from the location of your
principal office at that time;
<PAGE>
(iv) the failure by the Corporation to continue in effect, to the
extent to which they exist immediately prior to the Change in
Control, the Corporation's annual bonus plan, long-term incentive
plan, investment plan for employees, or any other of the
Corporation's employee benefit plans, policies, practices or
arrangements in which you participate or the failure by the
Corporation to continue your participation therein on
substantially the same basis, both in terms of the amount of
benefits provided and the level of your participation relative to
other participants, as existed as of the date hereof;
(v) the failure of the Corporation to obtain a satisfactory
agreement from any successor to the Corporation to assume and
agree to perform this Agreement, as contemplated in Section 5
hereof; and
(vi) any purported termination by the Corporation of your
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Subsection (d) below,
and for purposes of this Agreement, no such purported termination
will be effective.
Your right to terminate your employment pursuant to this Subsection
will not be affected by your incapacity due to physical or mental
illness. Your continued employment will not constitute consent to, or
a waiver of rights with respect to, any circumstance constituting Good
Reason hereunder.
(d) Notice of Termination. Any termination by the Corporation for
---------------------
Cause or by you for Good Reason must be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" means a written notice indicating the
specific termination provision in this Agreement relied
<PAGE>
upon and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.
(e) Date of Termination. "Date of Termination" means the date
-------------------
specified in the Notice of Termination where required or in any other
case upon ceasing to perform services to the Corporation; provided that
if within thirty (30) days after any Notice of Termination one party
notifies the other party that a dispute exists concerning the
termination, the Date of Termination will be the date finally
determined to be the Date of Termination, either by mutual written
agreement of the parties or by a binding and final arbitration award.
4. Compensation Upon Termination or During Disability. Following a Change in
--------------------------------------------------
Control of the Corporation, as defined in Section 2 hereof, upon
termination of your employment during the term of this Agreement or during
a period of disability during the term of this Agreement you will be
entitled to the following benefits:
(a) During any period that you fail to perform your full-time duties
with the Corporation as a result of incapacity due to physical or
mental illness, you will continue to receive your base salary at the
rate in effect at the commencement of any such period, until your
employment is terminated pursuant to Subsection 3(a) hereof.
Thereafter, your benefits will be determined in accordance with the
Corporation's retirement, insurance, and other applicable programs and
plans then in effect.
(b) If your employment is terminated by the Corporation for Cause, or
by you other than for Good Reason, the Corporation will pay you your
full base salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given or on the Date of
Termination if no Notice of Termination is required
<PAGE>
hereunder, plus all other amounts to which you are entitled under any
compensation plan of the Corporation at the time such payments are
due, and the Corporation will have no further obligations to you under
this Agreement.
(c) If your employment terminates by reason of your Retirement, or by
reason of your death, your benefits will be determined in accordance
with the Corporation's insurance and other applicable programs and
plans then in effect.
(d) If your employment by the Corporation is terminated (i) by the
Corporation other than for Cause, Retirement, or Disability, or (ii)
by you for Good Reason, you will be entitled to the benefits (the
"Severance Payments") provided below:
(A) the Corporation will pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice
of Termination is given, or the Date of Termination where no
Notice of Termination is required hereunder;
(B) the Corporation will pay as severance benefits to you, no
later than the fifteenth day following the Date of Termination
(unless as specified in (f) below), a lump sum severance payment
equal to 2.99 times the sum of (i) your annual base salary in
effect immediately prior to the occurrence of the circumstances
giving rise to such termination, and (ii) your actual bonus
earned in the year prior to the year in which the termination
occurs;
(C) for a twelve (12) month period after such termination, the
Corporation will arrange to provide you at the Corporation's
expense with benefits under the Corporation's health and life
insurance plans, or benefits substantially
<PAGE>
similar to the benefits you were receiving immediately prior to
the Notice of Termination or date of termination when no notice
of termination is required under the named plans; but benefits
otherwise receivable by you pursuant to this Subsection (C) will
be reduced to the extent comparable benefits are actually
received by you during the twelve (12) month period following
your termination, and any such benefits actually received by you
must be reported to the Corporation;
(D) in addition to the benefits to which you are entitled under
the Investment Plan for Employees of CommNet Cellular, Inc. or
any successor plans thereto, the Corporation will credit you with
a number of additional years of credited service sufficient to
entitle you to 100 percent of all contributions made by the
Corporation on your behalf and any income earned on such
contributions;
(E) for a twelve (12) month period after such termination, a
continuation at the same benefit level of all other Employee
Benefits.
(e) In the event that you become entitled to the Severance Payments,
if any of the Severance Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax
that may hereafter be imposed), the Corporation shall pay to you in
cash an additional amount (the "Gross-Up Payment") such that the net
amount retained by you after deduction of any Excise Tax on the
Severance Payment and any Federal, state and local income tax and
Excise Tax upon the Gross-Up Payment provided for by this Section
4(e), shall be equal to the Severance Payment.
(f) The payments provided for in Subsections (d) and (e) above will
be made no later than the fifteenth day following the Date of
<PAGE>
Termination; provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Corporation
will pay to you on such day an estimate as determined in good faith by
the Corporation of the minimum amount of such payments and will pay
the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth day
after the Date of Termination.
In the event that the amount of the estimated payment exceeds the
amount subsequently determined to have been due, such excess will
constitute a loan by the Corporation to you payable on the fifteenth
day after demand by the Corporation (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
(g) The Corporation will also pay to you all legal fees and expenses
incurred by you as a result of such termination of employment
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit
provided hereunder).
(h) You will not be required to mitigate the amount of any payment
provided for in this Section 4, except as provided in Section 4(d)(C),
by seeking other employment or otherwise, nor will the amount of any
payment provided for in this Section 4 be reduced by any compensation
earned by you as the result of employment by another employer after
the Date of Termination.
(i) In the event the Company enters into bankruptcy proceedings or
the Company's independent auditors issue a going concern
<PAGE>
opinion with respect to the Company's most recent audited financial
statements, the Company will have the authority to restrict or
terminate any benefits or payments due you upon such terms as the
Board, in its sole discretion, deems appropriate.
5. Successors; Binding Agreements.
------------------------------
(a) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Corporation to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required
to perform it if no such succession had taken place. Failure of the
Corporation to obtain such assumption and agreement prior to the
effectiveness of any such succession will be a breach of this
Agreement and will entitle you to compensation from the Corporation in
the same amount and on the same terms as you would be entitled
hereunder if you terminated your employment for Good Reason, except
that for purposes of implementing the foregoing, the date on which any
such succession becomes effective will be deemed the Date of
Termination.
(b) This Agreement will inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If you
should die while any amount would still be payable to you hereunder if
you had continued to live, all such amounts, unless otherwise provided
herein, will be paid in accordance with the terms of this Agreement,
to your devisee, legatee or other designee or, if there is no such
designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
------
communications provided for in the Agreement must be in writing and will be
deemed to have been duly given when delivered or mailed by
<PAGE>
United States registered mail, return receipt requested, postage prepaid,
addressed to the respective addressees set forth on the first page of this
Agreement.
7. Miscellaneous. No provision of this Agreement may be modified, waived or
-------------
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically
designated by the Board. The validity, interpretation, construction, and
performance of this Agreement will be governed by the laws of the State of
Colorado.
8. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts, each
------------
of which will be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement will be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that you will be entitled to seek
specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
11. Effective Date. This Agreement will become effective as of the date set
--------------
forth above. If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Corporation the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
<PAGE>
CommNet Cellular, Inc.
By______________________
Arnold C. Pohs
President
Agreed to this ___ day
of _________________
________________________
<PAGE>
COMMNET CELLULAR INC.
EXHIBIT 11.1
Computation of Net Income Per Common Share
Year ended September 30, 1995
<TABLE>
<CAPTION>
<S> <C>
PRIMARY:
Net income, as adjusted $ 61,967
Applicable common shares:
Weighted average shares outstanding during the year 12,153,592
Conversion of convertible subordinated notes -
Net effect of common stock equivalents -- based on the
treasury stock method using average fair market value:
Shares assumed issued for stock options 1,220,875
Less: treasury stock assumed (980,428)
-------------
Total 12,394,039
-------------
Net income per common share $ 0.005
=============
FULLY DILUTED:
Net income, as adjusted $ 2,153,343
Applicable common shares:
Weighted average shares outstanding during the year 13,247,756
Conversion of convertible subordinated notes 200,000
Net effect of common stock equivalents -- based on the
treasury stock method using fair market value
Shares assumed issued for stock options 1,220,875
Less: treasury stock assumed purchased (903,720)
-------------
Total 13,764,911
-------------
Net income per common share $ 0.156
=============
</TABLE>
Comparative years are not presented as the calculations are anti-dilutive.
<PAGE>
COMMNET CELLULAR INC.
EXHIBIT 12.1
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------------------------------------
1991 1992 1993 1994 1995
------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Income (loss) before income
taxes $(28,701,052) $(17,041,731) $(22,666,212) $(16,751,152) $ 61,967
Add:
Interest on indebtedness 11,245,394 14,800,908 16,427,796 21,338,505 26,043,802
Portion of rents
representative of the 375,253 390,705 378,616 455,390 803,361
interest factor ------------ ------------ ------------ ------------ -----------
Income (loss) as adjusted $(17,080,405) $ (1,850,118) $ (5,859,800) $ (5,042,743) $26,909,130
============ ============ ============ ============ ===========
Fixed charges:
Interest on indebtedness 11,245,394 14,800,908 16,427,796 21,338,505 26,043,802
Portion of rents
representative of the 375,253 390,705 378,616 455,390 803,361
interest factor ------------ ------------ ------------ ------------ -----------
$ 11,620,647 $ 15,191,613 $ 16,806,412 $ 21,793,895 $26,847,163
============ ============ ============ ============ ===========
Excess (deficiency) of
earnings to fixed charges $(28,701,052) $(17,041,731) $(22,666,212) $(16,751,152) $ 61,967
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of
Organization
------------
<S> <C>
Cellular, Inc. Financial Corporation CO
Cellular Inc. Network Corporation (1) CO
CommNet Paging Inc. CO
Cellular Network of South Dakota, Inc. (1) SD
Pueblo MSA Limited Partnership (1) CO
Platte River Cellular of Colorado Limited Partnership (1) CO
Colorado 4 - Park Limited Partnership (1) CO
Smoky Hill Cellular of Colorado Limited Partnership (1) CO
Colorado 6 - San Miguel Limited Partnership (1) CO
San Miguel Cellular of Colorado Limited Partnership CO
San Miguel Cellular, Inc. CO
Colorado 7 - Saguache Limited Partnership (1) CO
Sioux City MSA Limited Partnership (1) IA
Schaller Cellular, Inc. CO
Idaho 6 - Clark Limited Partnership (1) ID
Teton Cellular of Idaho Limited Partnership CO
Teton Cellular, Inc. ID
North Central Idaho Cellular of Idaho Limited Partnership CO
Sawtooth Cellular of Idaho Limited Partnership CO
Terre Haute Cellular, Inc. CO
Billings MSA Limited Partnership (1) CO
Mission Cellular of Montana Limited Partnership (1) CO
Montana RSA No. 1 (B2) Limited Partnership (1) MT
Montana 2-Toole Limited Partnership (1) CO
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
-------------------------------
We consent to the incorporation by reference in the following
registration statements of CommNet Cellular Inc. and in the related prospectuses
of our report dated December 1, 1995, except for Note 14, as to which the date
is December 7, 1995, with respect to the consolidated financial statements and
schedules of CommNet Cellular Inc. included in this Annual Report (Form 10-K)
for the year ended September 30, 1995:
1. Registration Statement on Form S-8 (No. 33-40500) pertaining to the
Employee Stock Ownership Plan.
2. Registration Statement on Form S-8 (No. 33-47755) pertaining to the
CommNet Cellular Inc. Omnibus Stock and Incentive Plan.
3. Registration Statement on Form S-4 (No. 33-54590).
4. Registration Statement on Form S-8 (No. 33-62236) pertaining to the
CommNet Cellular Inc. Omnibus Stock and Incentive Plan.
5. Registration Statement on Form S-8 (No. 33-64737) pertaining to the
CommNet Cellular Inc. Omnibus Stock and Incentive Plan.
6. Registration Statement on Form S-8 (No. 33-64735) pertaining to a
Stock Option Agreement.
7. Registration Statement on Form S-4 (No. 33-64725).
ERNST & YOUNG LLP
Denver, Colorado
December 21, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 41,017,845
<SECURITIES> 0
<RECEIVABLES> 15,630,978
<ALLOWANCES> 1,957,810
<INVENTORY> 2,931,155
<CURRENT-ASSETS> 57,622,168
<PP&E> 149,252,760
<DEPRECIATION> 43,963,285
<TOTAL-ASSETS> 325,667,956
<CURRENT-LIABILITIES> 17,711,337
<BONDS> 246,356,587
<COMMON> 159,395,032
0
0
<OTHER-SE> 100,739,370
<TOTAL-LIABILITY-AND-EQUITY> 325,667,956
<SALES> 89,844,119
<TOTAL-REVENUES> 89,844,119
<CGS> 27,063,459
<TOTAL-COSTS> 87,851,054
<OTHER-EXPENSES> (26,524,961)
<LOSS-PROVISION> 5,096,126
<INTEREST-EXPENSE> 26,043,802
<INCOME-PRETAX> 2,474,224
<INCOME-TAX> 400,000
<INCOME-CONTINUING> 2,074,224
<DISCONTINUED> 0
<EXTRAORDINARY> 2,012,257
<CHANGES> 0
<NET-INCOME> 61,967
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
