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As filed with the Securities and Exchange Commission on March 5, 1999.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CENTENNIAL CELLULAR CORP.
CENTENNIAL CELLULAR OPERATING CO. LLC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 4841 06-1158179
Delaware 4841 13-4035089
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
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1305 Campus Parkway
Neptune, New Jersey 07753
(732) 919-1000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrants' Principal Executive Offices)
---------------
Michael J. Small
Chief Executive Officer
Centennial Cellular Corp.
1305 Campus Parkway
Neptune, New Jersey 07753
(732) 919-1000
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
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with a copy to:
Karen C. Wiedemann, Esq.
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
(212) 841-5700
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
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If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title Of Each Proposed Maximum Proposed Maximum
Class Of Securities To Amount To Be Offering Aggregate Amount Of
Be Registered Registered Price Per Note(1) Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
10 3/4% Senior
Subordinated Notes due
2008, Series B....... $370,000,000 100% $370,000,000 $102,860
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The registrants hereby amend this registration statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 5, 1999
PROSPECTUS
Centennial Cellular Corp. and
Centennial Cellular Operating Co. LLC,
the Issuers,
Offer to Exchange Their
10 3/4% Senior Subordinated Notes due 2008, Series B,
for Any and All of Their Outstanding
10 3/4% Senior Subordinated Notes due 2008, Series A
---------------
Centennial Cellular Corp. and Centennial Cellular Operating Co. LLC, as
issuers, are offering to exchange $370 million of their 10 3/4% Senior
Subordinated Notes due 2008, Series B ("New Notes"), which will have been
registered under the Securities Act of 1933, for $370 million of their
outstanding 10 3/4% Senior Subordinated Notes due 2008, Series A (the "Old
Notes" and, collectively with the New Notes, the "Notes"). The Company and
Centennial Cellular Operating Co. LLC will not receive any proceeds from this
exchange offer and have agreed to pay all the expenses related to it.
Centennial Cellular Operating Co. LLC is a wholly-owned subsidiary of the
Company.
. The New Notes are identical in all material respects to the Old Notes,
except for certain transfer restrictions, registration rights and
additional interest provisions relating to the Old Notes.
. Interest accrues from the date of issuance at the rate of 10 3/4% per
annum, payable semi-annually in arrears on each June 15 and December
15, commencing June 15, 1999.
. The New Notes are unsecured (except to the extent of the first three
interest payments, which are secured by a portfolio of governmental
securities pledged for the benefit of holders of the Notes) and
subordinated to all existing and future Senior Debt of the issuers.
. They rank equally with all future senior subordinated indebtedness and
rank senior to all future subordinated indebtedness. The New Notes
effectively rank junior to all liabilities of Centennial Cellular
Operating Co. LLC's subsidiaries. As of November 30, 1998, after giving
pro forma effect to the merger of CCW Acquisition into Centennial
Cellular Corp. (which is described in this Prospectus) and certain
transactions to finance this merger, Centennial Cellular Operating Co.
LLC would have had $936.0 million of senior indebtedness and $370.0
million of senior subordinated indebtedness outstanding. The
subsidiaries of Centennial Cellular Operating Co. LLC would not have
had any long term-term indebtedness outstanding (other than their
guarantees of Centennial Cellular Operating Co. LLC's indebtedness
under its credit facility). As of November 30, 1998, after giving pro
forma effect as described, Centennial Cellular Corp. (without its
subsidiaries) would have had no indebtedness outstanding other than its
guarantee of the credit facility, $180 million (face amount) of
subordinated notes issued to WCAS Capital Partners III, L.P. and its
obligations as co-obligor on the Notes.
. The Exchange Offer is being made for all of the Old Notes and expires at
5:00 p.m., New York City time, on [ ], 1999.
. The Exchange Offer is subject to customary terms and conditions.
Consider carefully the "Risk Factors" beginning on page 27 of this
Prospectus.
You should rely only on the information contained in this Prospectus or
that we have referred you to. We have not authorized anyone to provide you with
information that is different. We are not offering to sell or asking you to buy
anything other than the New Notes. We are not offering to sell or asking you to
buy anything in any jurisdiction where doing so would be against the law.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is
a criminal offense.
The date of this Prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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Where You Can Find More Information...................................... 2
Forward-Looking Statements............................................... 3
Certain Terms............................................................ 4
Summary of the Prospectus................................................ 5
Risk Factors............................................................. 27
The Merger............................................................... 41
Use of Proceeds.......................................................... 43
The Exchange Offer....................................................... 45
Capitalization........................................................... 50
Selected Financial and Operating Information............................. 51
Unaudited Pro Forma Financial Statements................................. 54
Management's Discussion and Analysis of Results of Financial Condition
and Results of Operations............................................... 63
Business................................................................. 79
Management............................................................... 104
Principal Stockholders................................................... 110
Certain Relationships and Related Transactions........................... 112
Description of Certain Indebtedness...................................... 115
Description of the New Notes............................................. 119
Certain Federal Income Tax Considerations................................ 160
Plan of Distribution..................................................... 160
Legal Matters............................................................ 161
Experts.................................................................. 161
Index to Financial Statements............................................ F-1
</TABLE>
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (the "Registration
Statement") under the Securities Act with respect to the 10 3/4% Senior
Subordinated Notes due 2008 (the "New Notes"). As allowed by the Commission's
rules, this Prospectus does not contain all of the information included in the
Registration Statement. Our descriptions in this Prospectus concerning the
contents of any contract, agreement or document are not necessarily complete.
For those contracts, agreements or documents that we filed as exhibits to the
Registration Statement, you should read the exhibit for a more complete
understanding of the document or subject matter involved.
Centennial Cellular Corp. ("Centennial" or the "Company") is currently
and will continue to be required to file annual, quarterly and special reports,
proxy and information statements with the Commission. You may read and copy any
document we file with the Commission, including the Registration Statement, at
the Commission's public reference room at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's web site
(http://www.sec.gov). You may also request copies of such documents, upon
payment of a duplicating fee, by writing to the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Centennial's common shares are listed on the
Nasdaq National Market. You may read reports and other information filed by
Centennial with the Nasdaq National Market at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
Centennial Cellular Operating Co. LLC ("Centennial Cellular Operating")
is a wholly-owned subsidiary of Centennial. Because of this relationship and
because the New Notes are co-issued by Centennial
2
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and Centennial Cellular Operating, we expect to receive advice from the staff
of the Commission that Centennial Cellular Operating will not have to comply as
a separate registrant with the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
This Prospectus incorporates important business and financial information
about the Company and Centennial Cellular Operating that is not included in, or
delivered with, the Prospectus. This information is available without charge to
security holders upon written or oral request to the Company at 1305 Campus
Parkway, Neptune, New Jersey 07753, Attention: Chief Financial Officer. In
order to obtain timely delivery of such information, security holders must
request the information no later than five business days prior to the
Expiration Date of the Exchange Offer.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including, among other things:
. Our high degree of leverage and the requirement for significant and
sustained growth in our cash flow to meet our debt service
requirements,
. That we are a holding company and the notes are structurally
subordinated to all indebtedness of our subsidiaries, including
guarantees by our subsidiaries of all indebtedness under our $1.05
billion credit facility (approximately $936 million of which was drawn
at closing of the merger and a portion of which was borrowed directly
by our Puerto Rico subsidiary),
. Our history of net losses and the expectation of future losses,
. That the telecommunications industry is highly competitive,
. That new technologies or new business opportunities will require
additional investments in network capacity or additional capital
spending,
. That the success of any acquisitions will depend on our ability to
integrate acquired businesses,
. That the telecommunications industry is subject to rapid and
significant changes in technology,
. That there is potential for adverse regulatory change and the need for
regulatory approvals in the operation of our business and renewal of
our cellular licenses,
. Fluctuations in market value of our licenses,
. Risks associated with the regional economic conditions in the areas we
operate our business,
. Operating costs due to fraud,
. That a decline in roaming rates may materially adversely affect us,
. That a dispute regarding reverse billing may materially adversely
affect us,
. That the indenture governing the notes will require us to offer to
purchase all of the notes issued and outstanding upon any change of
control and that the credit facility contains similar provisions,
which purchases, in each case, we may not have sufficient funds to
consummate,
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. That the indenture and the credit facility impose significant
operating and financial restrictions on Centennial Cellular Operating,
. That Centennial Cellular Operating has pledged the capital stock of
all its direct and indirect subsidiaries to the lenders under the
credit facility and that all of the assets of such subsidiaries are
pledged to such lenders,
. That Centennial has unconditionally guaranteed the obligations of the
borrowers under the credit facility,
. That Centennial, as co-obligor, has no assets other than the stock of
Centennial Cellular Operating and Centennial is not subject to the
covenants contained in the indenture governing the notes,
. That the right of the trustee under the indenture and a Pledge and
Escrow Agreement to obtain payment on the notes upon the occurrence of
an event of default may be significantly impaired by applicable
bankruptcy law,
. The lack of certainty with respect to how a court might decide a suit
by an unpaid creditor on the basis of fraudulent conveyance,
. The potential effect of Year 2000 computer issues,
. Risks associated with new management and any future changes in
management,
. That certain equity investors control Centennial and its subsidiaries
and have the power to elect directors and take other corporate
actions,
. That we have limited ability to direct the operations of the systems
in which we hold minority cellular investment interests as a limited
partner and that our interests in such systems may be diluted if we do
not meet a capital call,
. The potential effect of equipment failure or natural disaster on our
business,
. Concerns about radio frequency emissions from cellular handsets, and
. The absence of a public market for the New Notes.
We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the forward-
looking events discussed in this Prospectus might not occur.
CERTAIN TERMS
Interests in cellular markets that are licensed by the FCC are commonly
measured on the basis of the population of the market served, with each person
in the market area referred to as a "Pop." The number of Pops or Net Pops owned
is not necessarily indicative of the number of subscribers or potential
subscribers. As used in this Prospectus, unless otherwise indicated, the term
"Pops" means the estimate of the 1996 population of a Metropolitan Statistical
Area ("MSA") or Rural Service Area ("RSA"), as derived from the 1997 Paul Kagan
Associates population estimates. The term "Net Pops" means the estimated
population with respect to a given service area multiplied by the percentage
interest that the Company owns in the entity licensed in such service area.
MSAs and RSAs are also referred to as "markets." The term "wireline" license
refers to the license for any market initially awarded to a company or group
that was affiliated with a local landline telephone carrier in the market. The
term "non-wireline" license refers to the license for any market that was
initially awarded to a company, individual or group not affiliated with any
landline carrier. The term "PCS" means personal communications services.
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SUMMARY OF THE PROSPECTUS
This summary may not contain all the information that may be important to
you. You should read the entire Prospectus, including the financial data and
related notes, before deciding whether to tender your Notes. The terms
"Centennial," the "Company," "our company" and "we" as used in this Prospectus
refer to Centennial Cellular Corp. and its subsidiaries as a combined entity,
except where it is made clear that such term means only the parent company.
Upon the consummation of the Merger (as defined) and related transactions on
January 7, 1999, Centennial Cellular Operating Co. LLC became a wholly-owned
subsidiary of Centennial. The term "Centennial Rural Cellular" as used in this
Prospectus refers to the business operations of our domestic rural cellular
systems and "Centennial de Puerto Rico" as used in this Prospectus refers to
our Puerto Rico business operations. The term "Obligors" as used herein refers
to Centennial Cellular Operating Co. LLC and Centennial Cellular Corp., as the
successor to Centennial Finance Corp. after the Merger. See "Certain Terms" for
definitions of certain industry terms used herein and "Selected Financial and
Operating Information" for certain operating and financial definitions.
Investors should carefully consider the information set forth under the heading
"Risk Factors." In addition, certain statements include forward-looking
statements which involve risks and uncertainties. See "Forward-Looking
Statements."
Centennial Cellular Corp.
Our company is one of the largest independent wireless telecommunications
service providers in the United States and Puerto Rico with approximately 10.8
million Net Pops and 384,600 subscribers as of November 30, 1998. Centennial
Rural Cellular serves 5.8 million Net Pops and its service area covers
approximately 81,645 square miles. Our subsidiary, Centennial de Puerto Rico,
is a fully integrated provider of communications services in Puerto Rico. These
operations utilize a PCS license that covers 3.8 million Pops in Puerto Rico
and the U.S. Virgin Islands and a Competitive Local Exchange Carrier ("CLEC")
license to operate in Puerto Rico. In addition, we own minority shares,
representing approximately 1.2 million Net Pops, in certain other cellular
operations controlled and managed by other cellular operators ("Minority
Cellular Investment Interests").
The table below shows certain data for each of our two principal business
segments.
<TABLE>
<CAPTION>
Centennial de Puerto Rico
Centennial Rural Cellular (PCS wireless and CLEC
(Cellular services) wireline services)
------------------------------ ------------------------------
Year ended Six months ended Year ended Six months ended
May 31, 1998 November 30, 1998 May 31, 1998 November 30, 1998
------------ ----------------- ------------ -----------------
(in millions, except as noted)
<S> <C> <C> <C> <C>
Net Pops................ 5.8 5.8 3.8 3.8
Subscribers (in
thousands)............. 252.7 285.9 69.5 98.7
Penetration............. 4.4% 4.9% 1.8% 2.6%
Revenue................. $182.9 $112.8 $54.6 $51.8
EBITDA.................. $ 86.7 $ 60.3 $12.5 $21.3
Annualized EBITDA....... $ 86.7 $120.6 $12.5 $42.6
</TABLE>
For the year ended May 31, 1998, our company earned revenue of $237.5
million, representing a compound annual growth rate ("CAGR") of 45% over the
previous two fiscal years. EBITDA (as defined) for the year ended May 31, 1998
was $99.2 million, representing a CAGR of 44% over the previous two fiscal
years.
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The success of our company's operating and financial performance has been
driven by the quality and experience of its management and employees. We expect
to continue to benefit from the experienced members of operating management who
are expected to remain at Centennial Rural Cellular following the Merger. This
management team built the Company through internal growth and acquisitions from
approximately 1.7 million Net Pops in 1988 to approximately 10.8 million Net
Pops (including those in Puerto Rico and Minority Cellular Investment
Interests) as of November 30, 1998. The addition of Michael Small, formerly the
Chief Financial Officer of 360(degrees) Communications Company (now a
subsidiary of ALLTEL Corporation), as our Chief Executive Officer following the
Merger complements the existing management team. Rudy J. Graf, who has been the
Chief Operating Officer of the Company since 1991, continues to manage the day-
to-day operations of the Company.
Centennial's Rural Cellular Systems
Centennial's domestic consolidated systems are among the leading
independent providers of rural non-wireline cellular telecommunications
services. We believe our rural and small-city cellular systems provide strong
growth opportunities due to lower penetration rates and higher subscriber
growth rates. We focus on underdeveloped rural and small-city cellular areas
that have a significant number of potential customers for wireless
communications because we believe these areas offer:
. Potential Penetration Growth. We believe these areas are in the
early stages of their growth cycles and offer significant
opportunities for increases in penetration and cellular usage;
. Insulation from Potential Competition. These regions are currently
subject to less competition from other wireless providers (such as
PCS) as compared to larger MSAs, and the population density of
these regions suggests that the build-out of a PCS network may not
be economically attractive to competitors at present; and
. Above-Average Revenue per Subscriber. Our domestic markets, which
are strategically located between larger metropolitan areas, tend
to exhibit long commute times and well-traveled roadways that have
the potential to generate high levels of cellular minutes of use
("MOUs") and roaming revenues.
The Company's domestic cellular interests consist primarily of three
operating clusters:
. Michiana Cluster contains approximately 3.4 million Net Pops in
Michigan, Ohio and Indiana, covering portions of three major
interstate highways that connect Chicago, Detroit and Indianapolis.
. East Texas/Louisiana Cluster contains approximately 2.1 million Net
Pops, covering portions of interstate highway I-10, as well as
sections of Texas, Louisiana and Mississippi adjacent to Houston,
New Orleans, Shreveport and Baton Rouge.
. Southwestern Cluster contains approximately 296,000 Net Pops,
covering the Yuma, Arizona and El Centro, California markets and is
bordered by Los Angeles to the northwest, San Diego to the west,
Phoenix to the east and Mexicali, Mexico to the south.
Our domestic operations have achieved significant increases in revenue,
EBITDA and number of subscribers since 1988. For the year ended May 31, 1998,
the Company's domestic operations earned revenue of $182.9 million,
representing a CAGR of 28% over the previous two fiscal years. EBITDA from
domestic operations for the year ended May 31, 1998 was $86.7 million,
representing a CAGR of 34% over the previous two fiscal years. As of May 31,
1998, the Company's domestic operations had approximately 252,700 subscribers,
representing a CAGR of 37% over the number of subscribers in the previous two
fiscal years.
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Centennial's Puerto Rico Systems
Our Puerto Rico business, which are conducted through Centennial de
Puerto Rico, is a facilities-based integrated communications provider ("ICP")
of a broad range of wireless and wireline services in the Commonwealth of
Puerto Rico (an area covering approximately 3.8 million Pops). It is (i) the
only provider of PCS services in the Puerto Rico market, (ii) a provider of
facilities-based wireless local loop services to both business and residential
customers, and (iii) a provider of local, long distance and enhanced data
services through its subsidiary, Lambda Communications Inc. ("Lambda CLEC"),
which competes with the incumbent Puerto Rico Telephone Company ("PRTC"). We
believe that Puerto Rico represents an attractive market for communications
services due to unmet demand for wireless and local phone service, high
population density in the island's metropolitan areas, a growing economy and a
stable business environment.
Centennial de Puerto Rico offers wireless and wireline services using a
shared Lucent Technologies 5 ESS switch and its sophisticated fiber optic
network, which contains over 292 route miles of fiber throughout the island of
Puerto Rico. The digital PCS network allows for coverage in most areas of
Puerto Rico using its established base of 120 cell sites and code division
multiple access ("CDMA") technology to transmit its calls.
. Wireless Services. Centennial de Puerto Rico offers both PCS and wireless
local loop service to its customers. Our PCS business currently covers
approximately 85% of the total Pops on the island of Puerto Rico and targets
high volume users. We began offering PCS in December 1996 and as of November
30, 1998 had approximately 98,700 subscribers, an increase of 95% over our
approximately 50,700 subscribers at November 30, 1997. Our average monthly
revenue ("ARPU") per PCS customer was approximately $89 during the three
months ended November 30, 1998, compared to approximately $46 for the
average U.S. wireless customer for the six months ended June 30, 1998,
according to data from the Cellular Telecommunications Industry Association
("CTIA"). Centennial de Puerto Rico began offering wireless local loop
service to business and residential customers in August 1997. Our ARPU per
wireless local loop customer was $87 during the three months ended November
30, 1998. This service uses our fully digital CDMA network in Puerto Rico
and had over 14,200 subscribers as of November 30, 1998.
. Wireline Services. Lambda CLEC provides local, long distance and enhanced
data services (including Internet-related services) to business and
government customers over our high bandwidth, fiber optic network. We
believe that our targeted CLEC customers have sophisticated communications
service requirements, including the need for a reliable network providing
data access and private line services and high quality customer service.
Lambda CLEC has grown rapidly since its inception in September 1997,
primarily due to its ability to offer a broad range of products as well as
responsive and reliable service in an underserved market. Lambda CLEC
provided approximately 41.7 million MOUs to its customers in November 1998,
an increase of 87% over the MOUs provided in May 1998.
Since operations commenced in December 1996, Centennial de Puerto Rico
has achieved significant growth in subscribers, revenue and EBITDA, which we
attribute to our premium service capabilities, experienced local management
team and limited competition in the region. Revenue for the fiscal year ended
May 31, 1998 was $54.6 million, compared to $5.9 million for the year ended May
31, 1997. EBITDA for the fiscal year ended May 31, 1998 was $12.5 million,
compared to an EBITDA deficit of $(8.4) million for the prior period. Revenue
for the six months ended November 30, 1998 was $51.8 million. EBITDA for the
six months ended November 30, 1998 was $21.3 million or $42.6 million on an
annualized basis.
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Overview of Centennial Rural Cellular
Competitive Strengths in Rural Cellular Markets
. Significant Potential for Higher Penetration Levels. Centennial Rural
Cellular's predominantly rural and small-city markets have lower penetration
levels than most major metropolitan areas. In its three rural cellular
clusters, Centennial's domestic operations have achieved a penetration rate
of 4.9% as of November 30, 1998. According to industry estimates, the
typical big city U.S. cellular operator's penetration rate is approximately
10.8%. We believe that our domestic clusters are in the early stages of
their growth cycles and afford significant opportunities for improvements in
financial performance as the penetration levels in these regions follow a
growth pattern similar to that observed in the more mature metropolitan
cellular markets. We also believe that our continuing investment in both
coverage and distribution has enhanced our potential to achieve higher
penetration levels.
. Limited Near-Term PCS Competition. We have benefited from the fragmented
nature of current competition in our domestic markets and expect to continue
to benefit from an anticipated lack of near-term PCS competition. We believe
that we may earn substantial PCS roaming revenues and remain relatively
insulated from direct PCS competition because we believe that building new
PCS networks is not currently economically attractive in most of our
domestic markets, given the relatively low population density in these
areas. We expect larger urban PCS operators to continue to use roaming
agreements rather than to incur the significant expenditures associated with
entering our markets. We have been aggressive in pricing our roaming rates
in part to discourage urban wireless providers from expanding their
footprints into Centennial's service areas.
. Significant Roaming Revenue. We have benefited from substantial roaming
traffic within our coverage areas. Our company has successfully built strong
franchises in rural areas that adjoin more densely populated markets and
benefits from significant roaming revenue generated from intercity traffic
between these larger metropolitan areas. Roaming arrangements with
neighboring urban cellular operators are lucrative for our company because
they generate incremental minutes of use on our existing network, require no
additional marketing costs and entail few, if any, uncollectible accounts.
In addition, our aggressive pricing policies for roaming rates are designed
to encourage certain neighboring cellular providers to include portions of
our service areas within their home calling regions, thereby increasing
total minutes of use on our systems. Our roaming revenue from our company's
domestic systems has increased at a compounded annual growth rate of
approximately 24% over the last four fiscal years to $58.9 million for the
year ended May 31, 1998.
. Superior Coverage and Features with Digital-Ready Infrastructure. We believe
that our networks offer superior coverage and features compared to
competitors in our markets. Our company has made capital expenditures of
approximately $78 million (excluding acquisition of licenses) during its
last two completed fiscal years to deploy cell sites, including 151 sites
added in fiscal 1998, to install Nortel time-division multiple access
("TDMA")-capable supernode switches and to develop a state-of-the-art,
digital-ready infrastructure in its domestic markets. These improvements
have yielded low dropped and blocked call rates for the three months ended
May 31, 1998 of 0.077% and 1.6%, respectively, which we believe are lower
than those of a typical cellular carrier and demonstrates the high quality
of our domestic network. Additionally, our sophisticated network permits us
to offer subscribers premium service features, such as call waiting, three-
way calling and voice mail, for additional revenue.
8
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. High Average Revenue Per Unit. Centennial's domestic operations have
consistently recorded higher ARPU than those of typical wireless carriers in
the United States. Our company's domestic operations recorded ARPU of $68
for the year ended May 31, 1998, as compared to the industry average of $46,
according to data from the CTIA. We believe that we will continue to enjoy
high ARPUs as a result of (i) our expanded regional calling areas, (ii) the
increasing popularity of our revenue-enhancing, premium service features
such as call-waiting and voice mail and (iii) the potential continued growth
in roaming revenues from neighboring metropolitan cellular and PCS providers
as wireless penetration continues to grow.
. Direct Distribution System and Customer Care. Our company controls its
distribution channels, including 65 retail outlets and 700 sales
representatives in the United States (excluding Puerto Rico). Our domestic
direct sales channel is larger than that of our local competitors and gives
us greater control over the expectations of our customers, resulting in
lower churn and higher customer satisfaction. We seek to assure consistently
high-quality customer service by establishing local installation and repair
facilities in all of our domestic systems and by enabling customers to
report service problems 24 hours a day. The success of this emphasis on
customer service is evidenced by the Company's domestic average monthly
churn rate of 1.8%, which we believe is lower than that of a typical
cellular carrier and demonstrates customer satisfaction with our services.
Rural Cellular Business Strategy
Our objective is to become the leading provider of cellular
communications services in our domestic market clusters, while maximizing
revenue and cash flow by offering superior service and extensive coverage in
our markets. The principal elements of this strategy are to:
. Continue to Develop Market Clusters. We cluster our cellular
systems geographically, which enables us (i) to offer subscribers a
larger regional calling area, (ii) to achieve certain operating,
marketing and customer service efficiencies and (iii) to increase
efficient utilization of our company's network infrastructure.
Clustering allows us to offer our subscribers more areas of
uninterrupted service as they travel through a region. The Company
thereby captures more of its subscribers' total minutes of airtime,
which increases revenue and decreases the costs associated with
providing airtime on competitors' networks. Our domestic markets,
which are strategically located between larger metropolitan areas,
exhibit a concentration of small businesses, long commute times and
well-traveled roadways that have the potential to generate high
levels of cellular use.
. Continue Build-Out of Advanced, Digital-Ready Network. We intend to
continue to expand and improve coverage, increase capacity and
build out our systems within our current geographic markets. We
have made significant capital expenditures to deploy additional
cell sites and to develop a state-of-the-art, digital-ready
infrastructure. We believe that the investment necessary to switch
to a fully-digital system is approximately $2 million (excluding
the cost of new handsets) and will be incurred over the next two to
three years as competition dictates and as prices of digital
handsets fall. We believe that expanding and improving coverage and
capacity in our systems will attract additional subscribers,
increase usage by existing subscribers, increase roaming activity
and further enhance the efficiency of our networks. Additionally,
we expect to benefit from the increasing popularity of premium
service features that we offer to subscribers, such as call waiting
and voice mail.
9
<PAGE>
. Pursue Selective Acquisition Strategy. Our strategy is to expand
our current domestic clusters through the selective acquisition of
small to mid-sized MSAs and RSAs or potentially larger MSAs located
in contiguous markets that we believe are undervalued or
underdeveloped or that possess characteristics indicative of
potentially high cellular usage and superior financial performance.
Upon acquiring a system, our company aims to make certain
operational and organizational changes in order to increase the
number and quality of subscribers and enhance operating cash flow,
while controlling subscriber acquisition costs and promoting
superior customer service.
10
<PAGE>
Overview of Centennial de Puerto Rico
Puerto Rico Market Opportunity
Our company also has a significant presence in Puerto Rico. We believe
that several factors make Puerto Rico an attractive market for communications
services. These factors include:
. Growing Economy and Stable Business Environment. Puerto Rico became
a territory of the United States in 1898 and has been a
Commonwealth since 1952. Puerto Rico is a major center of Caribbean
commerce and finance and serves as a gateway or regional
headquarters for businesses operating in Latin America and the
Caribbean, including McDonald's Corporation, Johnson & Johnson and
Mitsubishi. The island has a stable currency and regulatory
environment, as Puerto Rico is subject to the U.S. legal system,
including regulation by the Federal Communications Commission
("FCC"). In 1997, Puerto Rico's gross national product was
approximately $32 billion, which represented a real growth rate of
approximately 3.1% over 1996. The island has a population of
approximately 3.8 million people, of which approximately 71% live
in urban areas. The largest metropolitan area in our service area,
the San Juan/Caguas MSA with over two million Pops, is
characterized by a high population density of 1,880 persons per
square mile (the mainland U.S. MSA average is 325).
. Underserved Telecommunications Market. We believe that there is
substantial unmet demand for both wireless and wireline
telecommunications services in Puerto Rico. Current market
penetration for wireless services (including cellular, PCS and
Enhanced Specialized Mobile Radio ("ESMR")) is approximately 11%,
compared to approximately 22% for existing wireless providers in
the U.S., according to estimates from the CTIA. We believe that the
Puerto Rico market should support penetration levels comparable to
those in U.S. markets. In addition, the high population density in
Puerto Rico's metropolitan areas is well suited to the signal
propagation characteristics of PCS, which requires a greater number
of cell sites than cellular service to provide coverage in a given
area. Prior to the introduction of Lambda CLEC's services, wireline
telephone services were available only from the PRTC. Puerto Rico
currently has approximately 38 phone lines per 100 Pops, compared
to approximately 54 phone lines per 100 Pops in the U.S. We believe
that the rapid subscriber growth achieved by Lambda CLEC since
introduction reflects significant market demand by business
customers for a broad range of product and service offerings, high
bandwidth connectivity, prompt installation and responsive customer
service.
. Limited Near-Term PCS Competition. Our company was the first
provider to offer PCS in Puerto Rico. TeleCorp, Inc. ("TeleCorp"),
as part of a joint venture with AT&T Wireless Services, is
currently in the early stages of construction of a PCS network in
Puerto Rico. The Company does not believe that TeleCorp will
achieve significant network coverage within the next 12 months.
While other competitors may be expected to enter the market in the
future, we believe that this will offer additional revenue
opportunities to the extent that such competitors contract with us
for "backhaul" services to connect their cell sites to their
switch, rather than constructing their own networks or contracting
with the PRTC.
11
<PAGE>
Puerto Rico Business Strategy
Our business strategy in Puerto Rico is to become an integrated, full
service provider of superior wireless and wireline communications services
throughout Puerto Rico. The principal elements of this strategy are to:
. Become a Single Source Provider of Communications Services. We
believe that there is a significant demand in Puerto Rico for an
integrated bundle of wireless and wireline communications services
tailored to satisfy the customer's total communications needs. Our
company currently offers PCS service as well as local, domestic and
international long distance, data and broadband services. We
believe that our ability to provide an integrated package of
communications services will enable us to (i) rapidly penetrate
targeted markets, (ii) increase our share of existing customers'
expenditures for communications services, (iii) increase customer
satisfaction and (iv) reduce customer turnover.
. Target High Usage Customers. We will continue to focus on building
a solid base of high usage customers in Puerto Rico. We believe
that our 100% digital CDMA network, which offers subscribers
superior voice quality, reliability, anti-fraud protection and
premium features such as caller ID, call waiting, voice mail and
conference calling, provides us with competitive advantages to
attract and retain these customers. Our company's average PCS
customer used approximately 360 MOUs per month and generated
approximately $89 in monthly revenue during the three months ended
November 30, 1998. The average cellular customer in the U.S. market
uses approximately 130 MOUs per month and the average wireless
customer generates approximately $46 in monthly revenue. The
Company's average wireless local loop customer used approximately
760 MOUs per month and generated approximately $87 in monthly
revenue during the three months ended November 30, 1998. Lambda
CLEC's service is targeted at large businesses with sophisticated
communications needs and high usage patterns and has already
attracted a number of significant local businesses, including MCI,
Banco Santander and El Nuevo Dia, Puerto Rico's largest newspaper.
In addition, we believe that all of the Internet service providers
operating in Puerto Rico currently use Lambda CLEC's services.
Lambda CLEC's average customer generated monthly revenues of
approximately $16,000 during the month ended November 30, 1998.
. Leverage Technologically Advanced, Integrated Network. Our PCS
infrastructure and fiber optic network provide us with a platform
to offer an integrated package of wireless and wireline services.
The system is served by a Lucent Technologies 5 ESS switch for both
wireless and wireline services and the fiber optic network supports
a self-healing SONET architecture. The construction of our planned
network of fiber optics, cell sites and microwave transmitters has
been largely completed. The installation of additional cell sites
to provide service and network capacity throughout Puerto Rico is
expected to be completed within the next twelve months, increasing
estimated network coverage from 85% as of August 31, 1998 to 90% as
of May 31, 1999. Thereafter, we expect to make other improvements
to increase network capacity and enhance coverage in response to
usage patterns. We intend to broaden our service offerings in the
coming months to include dial-around long distance, direct Internet
access and wireless data transmission. We believe that expanding
and improving coverage and capacity in our systems and our range of
services will attract additional subscribers, increase usage by
existing subscribers and further enhance the efficiency of our
networks.
12
<PAGE>
. Build High-End Brand with Reputation for Superior Customer
Service. We intend to continue to build on our reputation as a
provider of high quality communications services and superior
customer service throughout Puerto Rico. Our company designs and
implements specific marketing strategies for its wireless system
using a variety of television, billboard, radio and newspaper
advertising to stimulate net subscriber growth and to focus on
customers who are likely to generate higher monthly revenues,
primarily business users. We seek to capitalize on our brand name
recognition to attract new wireless and CLEC customers and to
further develop our reputation as a provider of reliable and
sophisticated communications services. Furthermore, by retaining
control of our distribution channels, including our 52 retail
outlets and 315 sales representatives in Puerto Rico, we maintain
greater control over the expectations of our customers, resulting
in consistently high levels of customer service and customer
satisfaction.
. Maintain Positive EBITDA Growth. We intend to grow our subscriber
base in Puerto Rico while maintaining its focus on attracting high
volume users that generate higher revenues and EBITDA. Centennial
de Puerto Rico achieved positive EBITDA within nine months of
commencing its wireless and Lambda CLEC services and in fiscal 1999
had annualized EBITDA of $42.6 million, based upon EBITDA for the
six months ended November 30, 1998. Our sophisticated fiber optic
network, which serves as the backbone to both our wireless and
Lambda CLEC services, gives us greater flexibility to compete
effectively in the marketplace, as we are not merely reselling
services and infrastructure provided by other companies. In
addition, unlike typical CLECs, we generally extend our network
into new locations only upon request of our customers who then pay
their own building-entry costs.
Recent Developments
In September 1998, the Commonwealth of Puerto Rico sustained damage as a
result of the effects of Hurricane Georges. The Company has evaluated the
extent of damage to its Puerto Rico network infrastructure and the impact the
hurricane has had on the Company's Puerto Rico service revenue during the three
months ended November 30, 1998. After consideration of expected insurance
recoveries, the Company believes it will not incur significant losses as a
result of the effects of the damage caused by Hurricane Georges. During the
three months ended November 30, 1998, the Company recorded approximately $1.6
million of insurance recoveries related to subscriber refunds within revenue.
The Merger
Merger Agreement. On January 7, 1999, Centennial merged with and into CCW
Acquisition Corp., a new Delaware corporation ("Acquisition") organized by
Welsh, Carson, Anderson & Stowe VIII, L.P., pursuant to a merger agreement
dated as of July 2, 1998 (as amended, the "Merger Agreement"). At the effective
time of the Merger, by virtue of the Merger,
. each issued and outstanding share of Class A Common Stock of Centennial
("Common Shares") was converted into the right to receive, pursuant to each
holder's election and subject to proration, either (a) one common share of
the surviving corporation or (b) $41.50 in cash (the "Cash Merger
Consideration");
. all outstanding shares of Class B Common Stock of Centennial were converted
into the right to receive the Cash Merger Consideration; and
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<PAGE>
. all outstanding shares of Convertible Preferred Stock and Second Series
Convertible Preferred Stock of Centennial were converted into the right to
receive the Cash Merger Consideration on an as-converted basis.
The surviving corporation in the Merger continues to operate under the
name "Centennial Cellular Corp." The Merger was accounted for as a
recapitalization in which the historical basis of our company's assets and
liabilities was not affected and no new goodwill related to the Merger was
created.
Equity Investors. Welsh, Carson, Anderson & Stowe VIII, L.P. ("WCAS
VIII"), certain of its affiliates, including WCAS Capital Partners III, L.P.,
certain affiliates of Blackstone Capital Partners, L.P. (collectively,
"Blackstone") and certain other investors (collectively with WCAS VIII and
Blackstone, the "Equity Investors") provided $580 million in capital
contributions, consisting of $400 million in equity contributions (the "Common
Equity Contribution") from the Equity Investors and the purchase of $180
million (face amount) of subordinated notes and Common Shares (the "Mezzanine
Financing") for an aggregate purchase price of $180 million by WCAS Capital
Partners III, L.P.
WCAS VIII is a private investment partnership with over $3.0 billion in
committed capital that is managed by the investment firm of Welsh, Carson,
Anderson & Stowe ("WCAS"). As of December 31, 1998, WCAS had organized and
managed eleven limited partnerships with total capital of approximately $7.6
billion. Since 1979, WCAS has completed over eighty management buyouts
concentrated in the health care and information services industries, including
investments in Alliance Data Systems Corporation, Amdocs Limited, and Bridge
Information Systems, Inc.
Blackstone is one of the leading firms engaged in institutional private
equity investing. The firm's current primary corporate private equity
investment vehicle is Blackstone Capital Partners III Merchant Banking Fund
L.P., with approximately $3.8 billion in committed capital. Blackstone has
significant experience in the media and telecommunications sector, with
investments in companies such as CommNet Cellular, Intermedia Cable and
TW/Fanch Communications.
The address of principal executive offices of the Company and Centennial
Cellular Operating is 1305 Campus Parkway, Neptune, New Jersey 07753.
Centennial is the sole member of Centennial Cellular Operating and holds all of
its material assets through Centennial Cellular Operating.
14
<PAGE>
Post-Merger Organization of Centennial
The chart below shows our organizational structure following the
consummation of the Merger and related transactions.
[CHART APPEARS HERE]
15
<PAGE>
Sources and Uses of Funds
The following table sets forth the sources and uses of funds in
connection with the financing of the Merger as of the Merger's consummation on
January 7, 1999:
<TABLE>
<CAPTION>
Amount
---------------------
(Dollars in millions)
<S> <C>
Sources of Funds
Credit Facility(1)...................................... $ 936.0
Old Notes (2)........................................... 370.0
Mezzanine Financing of parent (Centennial)(3)........... 180.0
Common Equity Contribution.............................. 400.0
--------
Total Sources of Funds................................ $1,886.0
========
Uses of Funds
Cash Merger Consideration(4)............................ $1,203.5
Repayment of net existing indebtedness and preferred
dividends accrued(5)................................... 507.0
Restricted interest escrow investment(2)................ 57.5
Premiums on debt tender offers for existing notes(6).... 40.0
Fees and expenses(7).................................... 78.0
--------
Total Uses of Funds................................... $1,886.0
========
</TABLE>
- --------
(1) The Credit Facility consists of three term loans in aggregate principal
amount of $900 million, and a revolving credit facility in an aggregate
principal amount of up to $150 million. The borrowers under these
facilities are Centennial Cellular Operating and, for a portion thereof,
Centennial de Puerto Rico. Centennial, together with the direct and
indirect subsidiaries of Centennial Cellular Operating (excluding initially
Centennial de Puerto Rico and its subsidiaries, which subsidiaries will
guarantee the obligations of Centennial de Puerto Rico under the Credit
Facility), have unconditionally guaranteed, jointly and severally, the
obligations of the borrowers under such facilities. See "Description of
Certain Indebtedness."
(2) Upon consummation of the Merger, approximately $57.5 million of the
proceeds from the offering of Old Notes was deposited with the trustee to
purchase securities pledged to pay the first three scheduled interest
payments on the notes. See "Description of the New Notes--Security."
(3) WCAS Capital Partners III, L.P., an investment partnership affiliated with
WCAS VIII, purchased, at the time of the consummation of the Merger,
unsecured subordinated notes due 2009 and common shares of Centennial at an
aggregate price of $180 million in the Mezzanine Financing. The issuance of
$180 million principal amount of Mezzanine Financing has been allocated as
$157.5 million debt and $22.5 million equity.
(4) Includes $1,033.1 million in consideration for the Common Shares, $128.2
million in consideration for the Common Shares issued upon conversion of
Centennial's preferred stock and $42.3 million in consideration for the
settlement of outstanding options to purchase Common Shares.
(5) Represents the amount of debt tender offer payments and funds required to
repay total existing indebtedness of Centennial. In connection with the
Merger, Centennial consummated tender offers (the "Debt Tender Offers") to
acquire all of its outstanding 8 7/8% Senior Notes due 2001 (the "2001
Notes") and 10 1/8% Senior Notes due 2005 (the "2005 Notes" and,
collectively with the 2001 Notes, the "Tendered Notes"). See "The Merger--
Debt Tender Offers and Solicitations." As of the expiration date of the
Debt Tender Offers, valid irrevocable tenders and consents were received
from 99.4% of holders of the 2001 Notes and 99.8% of holders of the 2005
Notes. The amount required to repay existing
16
<PAGE>
indebtedness and preferred dividends accrued of Centennial and the notes
includes accrued interest of $2.3 million and preferred dividends of $16.4
million, less cash on hand, which was approximately $18.7 million.
(6) The amount required to pay the debt tender premiums associated with the
debt tender offers for the outstanding notes. The amount shown above
includes the consent solicitation fees associated with the debt tender
offers.
(7) Assumed for simplicity to be paid by Centennial and includes all fees and
expenses related to the Merger, this offering and the transactions
contemplated thereby.
17
<PAGE>
The Offering of the Old Notes
Old Notes................. The Old Notes were sold (the "Offering") by
Centennial Cellular Operating and Centennial
Finance Corp., which merged with and into
Centennial on January 7, 1999, on December 14, 1998
to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, NationsBanc Montgomery Securities
LLC, Morgan Stanley & Co. Incorporated and Chase
Securities Inc. (collectively, the "Initial
Purchasers") pursuant to a Purchase Agreement dated
December 9, 1998 (the "Note Purchase Agreement").
The Initial Purchasers subsequently resold the Old
Notes to qualified institutional buyers pursuant to
Rule 144A under the Securities Act and pursuant to
offers and sales that occurred outside the United
States within the meaning of Regulation S under the
Securities Act.
Registration Rights Pursuant to the Note Purchase Agreement, the
Agreement................. Company, Centennial Cellular Operating and the
Initial Purchasers entered into a Registration
Rights Agreement dated December 14, 1998 (the
"Registration Rights Agreement"), which grants the
holders of the Old Notes certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such exchange rights, which terminate
upon the consummation of the Exchange Offer.
Summary of the Exchange Offer
New Notes................. The form and terms of the New Notes are identical
in all material respects to the terms of the Old
Notes for which they may be exchanged pursuant to
the Exchange Offer, except for certain transfer
restrictions, registration rights and additional
interest provisions relating to the Old Notes.
The Exchange Offer........ We are offering to exchange up to $370,000,000
aggregate principal amount of their 10 3/4% Senior
Subordinated Notes due 2008, Series B, for a like
amount of their 10 3/4% Senior Subordinated Notes
due 2008, Series A. The issuance of the New Notes
is intended to satisfy obligations of the Company
and Centennial Cellular Operating contained in the
Registration Rights Agreement relating to the Old
Notes.
Expiration Date;
Withdrawal of Tender.....
Unless we extend the Exchange Offer, it will expire
at 5:00 p.m., New York City time, on , 1999.
You may withdraw any Old Notes you tender pursuant
to the Exchange Offer at any time prior to ,
1999. We will return, as promptly as practicable
after the expiration or termination of the Exchange
Offer, any Old Notes not accepted for exchange for
any reason without expense to you.
18
<PAGE>
Accrued Interest on the
New Notes and and the
Old Notes.................
Interest on the New Notes:
. accrues from the date of issuance at the rate of
10 3/4% per annum,
. is payable semi-annually in arrears on each June
15 and December 15, commencing June 15, 1999.
Interest on the Old Notes accepted for exchange
will stop accruing upon the issuance of the New
Notes.
Procedures for If you wish to accept the Exchange Offer, you must
Tendering................. complete, sign and date the Letter of Transmittal
in accordance with the instructions and deliver the
Letter of Transmittal, along with the Old Notes and
any other required documentation, to , as
Exchange Agent. By executing the Letter of
Transmittal, you will represent to us that, among
other things:
. any New Notes you receive will be acquired in
the ordinary course of your business,
. you have no arrangement with any person to
participate in the distribution of the New
Notes, and
. you are not an "affiliate," as defined in Rule
405 of the Securities Act of 1933, as amended,
of the Issuers or, if you are an affiliate, you
will comply with the registration and prospectus
delivery requirements of the Securities Act to
the extent applicable.
If you hold your Old Notes through The Depository
Trust Company ("DTC") and wish to participate in
the Exchange Offer, you may do so through DTC's
Automated Tender Offer Program ("ATOP"). By
participating in the Exchange Offer, you will agree
to be bound by the Letter of Transmittal as though
you had executed such Letter of Transmittal.
Special Procedures for
Beneficial Owners........
If you are a beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
wish to tender such Old Notes in the Exchange
Offer, please contact the registered holder as soon
as possible and instruct them to tender on your
behalf and comply with our instructions set forth
elsewhere in this Prospectus.
Guaranteed Delivery If you wish to tender your Old Notes, you may, in
Procedures................ certain instances, do so according to the
guaranteed delivery procedures set forth elsewhere
in this Prospectus under "The Exchange Offer--
Procedures for Tendering."
19
<PAGE>
Federal Income Tax
Consequences............. With respect to the exchange of the Old Notes for
the New Notes:
. the exchange will not constitute a
taxable exchange for U.S. federal
income tax purposes,
. you will not recognize gain or loss
upon receipt of the New Notes,
. you must include interest in gross
income to the same extent as the Old
Notes, and
. your holding period for the New Notes
will include the holding period for the
Old Notes.
Use of Proceeds........... We will not receive any proceeds from this exchange
of Notes pursuant to the Exchange Offer.
Exchange Agent............ We have appointed as the Exchange Agent for
the Exchange Offer. The telephone number of the
Exchange Agent is ( ) - .
Consequences of
Exchanging Old Notes
Pursuant to the Exchange
Offer....................
Generally, based on interpretations by the staff of
the Commission, the Company believes that holders
of Old Notes (other than any holder that is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who exchange
their Old Notes for New Notes pursuant to the
Exchange Offer may offer such New Notes for resale,
resell such New Notes, and otherwise transfer such
New Notes without compliance with the registration
and prospectus-delivery requirements of the
Securities Act; provided that such New Notes are
acquired in the ordinary course of such holders'
business and such holders have no arrangement with
any person to participate in the distribution of
such New Notes. Each broker-dealer that receives
New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such New Notes. See "Plan of Distribution." To
comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering or
selling such New Notes. The Company and Centennial
Cellular Operating do not currently intend to
register or qualify the sale of the New Notes in
any such jurisdictions.
Untendered Old Notes...... If you are eligible to participate in the Exchange
Offer but do not tender your Old Notes, you will
not have any further exchange rights and your Old
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for your Old Notes could be
adversely affected. In general, such Old Notes may
not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. See "The Exchange Offer--Consequences of
Failure to Exchange."
20
<PAGE>
Terms of the New Notes
The form and terms of the New Notes are identical in all material
respects to the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes. The New Notes will evidence the
same debt as the Old Notes, and both series of Notes will be entitled to the
benefits of the Indenture and treated as a single class of debt securities
thereunder. See "Description of the New Notes."
Securities Offered........ $370,000,000 aggregate principal amount of 10 3/4%
Senior Subordinated Notes due 2008, Series B.
December 15, 2008.
Maturity Date.............
June 15 and December 15 of each year, commencing
June 15, 1999.
Interest Payment Dates....
Ranking................... The notes will be unsecured (except as described
under "--Security"), senior subordinated
obligations and will be subordinated to all of the
Obligors' existing and future senior indebtedness,
including all indebtedness of the Obligors under
the Credit Facility. The notes will rank equally
with all of the Obligors' other existing and future
senior subordinated indebtedness, and will rank
senior to all of the Obligors' subordinated
indebtedness. The notes effectively will rank
junior to all liabilities of the subsidiaries of
Centennial Cellular Operating, including
indebtedness under the Credit Facility. Because the
notes are subordinated, in the event of bankruptcy,
liquidation or dissolution, holders of the notes
will not receive any payment until holders of
senior indebtedness have been paid in full. The
terms "senior indebtedness" and "subordinated
indebtedness" are defined in the "Description of
the New Notes--Subordination" and "Description of
the New Notes--Certain Definitions" sections of
this Prospectus.
As of November 30, 1998, after giving pro forma
effect to the Merger, the Offering of Old Notes and
our use of the net proceeds from the Offering and
other financings related to the Merger, Centennial
Cellular Operating would have had outstanding
$936.0 million of senior indebtedness and $370.0
million of senior subordinated indebtedness. In
addition, on such a pro forma basis, the
subsidiaries of Centennial Cellular Operating would
have had no indebtedness outstanding other than
their guarantees of $936.0 million of Centennial
Cellular Operating's indebtedness under the Credit
Facility (a portion of which was borrowed directly
by Centennial de Puerto Rico); provided that
Centennial de Puerto Rico and its subsidiaries have
not initially guaranteed the obligations of
Centennial Cellular Operating under the Credit
Facility. As of November 30, 1998, after giving pro
forma effect as described, Centennial (without its
subsidiaries) would have had no indebtedness
outstanding other than $180 million (face amount)
of subordinated notes issued to WCAS Capital
Partners III, L.P., its guarantee under the Credit
Facility and its co-obligation under the notes.
Change of Control......... Upon certain change of control events, each holder
of notes may require us to repurchase all or a
portion of its notes at a purchase price equal to
101% of the principal amount thereof, plus accrued
interest. See "Description of the New Notes--
Certain Covenants--
21
<PAGE>
Repurchase of Notes at the Option of the Holder
Upon a Change of Control."
Optional Redemption....... We may redeem the notes, in whole or in part, at
any time on or after December 15, 2003, at the
redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and
unpaid interest to the redemption date, if redeemed
during the twelve-month period beginning on
December 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003......................................... 105.375%
2004......................................... 103.583%
2005......................................... 101.792%
2006 and thereafter.......................... 100.000%
</TABLE>
Public Equity Offering
and Strategic Equity
Offering Optional
Redemption................
Before December 15, 2001, we may redeem up to 35%
of the aggregate principal amount of the notes with
the net proceeds of a public equity offering or
strategic equity offering at 110.750% of the
principal amount thereof, plus accrued interest, if
at least 65% of the aggregate principal amount of
the notes originally issued remains outstanding
immediately after such redemption.
Change of Control
Optional Redemption.......
Upon certain change of control events, we may elect
to redeem all, but not some, of the notes at par,
together with accrued interest, plus an applicable
premium based on a discount rate calculated using
the interest rate of a Treasury security maturing
on the first redemption date plus 50 basis points;
provided, however, that the redemption price shall
be no less than 105.375%.
Security.................. The Company and Centennial Cellular Operating used
a portion of the proceeds from the offering of the
Old Notes to purchase a portfolio of government
securities in an amount sufficient to pay the first
three payments of interest on the notes. The
Company and Centennial Cellular Operating pledged
this portfolio of securities for the benefit of the
holders of the notes and may under certain
circumstances substitute other readily marketable
securities. See "Description of the New Notes--
Security."
Certain Covenants......... The indenture governing the notes contains
covenants that, among other things, limit our
ability and the ability of our restricted
subsidiaries to:
. incur additional indebtedness,
. incur additional senior subordinated
indebtedness,
. pay dividends on, redeem or repurchase our
capital stock,
. make investments,
22
<PAGE>
. restrict dividend or other payments to us,
. engage in transactions with related persons,
. guarantee indebtedness,
. sell assets,
. create certain liens,
. consolidate, merge or transfer all or
substantially all of our assets and the assets
of our subsidiaries on a consolidated basis and
. enter new lines of business.
These covenants are subject to important exceptions
and qualifications, which are described under the
heading "Description of the New Notes--Certain
Covenants" in this Prospectus.
For additional information regarding the New Notes, see "Description of
the New Notes."
23
<PAGE>
Summary Historical Financial Information
The following table sets forth summary historical consolidated financial
information for Centennial as of November 30, 1998 and for the six months ended
November 30, 1998 and 1997. Such data were derived from our unaudited condensed
consolidated financial statements and notes, but, in the opinion of our
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for such periods. Operating results for the six months
ended November 30, 1998 and 1997 do not necessarily show what the results for a
full year may be. The table also sets forth summary historical consolidated
financial information for Centennial for the five years ended May 31, 1998.
Such data were derived from our audited consolidated financial statements and
notes. Since the information in this table is only a summary, you should read
our historical financial statements and the related notes, "--Sources and Uses
of Funds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Unaudited Pro Forma Financial Information" found
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six months ended
November 30, Years ended May 31,
------------------------ -------------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Domestic operating
revenue............... $ 112,836 $ 90,607 $ 182,944 $ 145,120 $ 112,197 $ 85,419 $ 56,373
Puerto Rico operating
revenue............... 51,762 20,157 54,557 5,903 -- -- --
----------- ----------- ----------- ----------- ----------- ---------- ----------
Total operating
revenue................ 164,598 110,764 237,501 151,023 112,197 85,419 56,373
Cost of services and
equipment sold......... 31,586 27,024 54,818 38,228 26,129 22,152 13,424
----------- ----------- ----------- ----------- ----------- ---------- ----------
Gross profit............ 133,012 83,740 182,683 112,795 86,068 63,267 42,949
Selling, general and
administrative......... 51,442 39,685 81,790 55,132 34,188 26,055 17,787
Depreciation and
amortization........... 64,543 52,780 114,194 83,720 70,989 65,642 47,652
----------- ----------- ----------- ----------- ----------- ---------- ----------
Operating income
(loss)................. 17,027 (8,725) (13,301) (26,057) (19,109) (28,430) (22,490)
Interest expense........ 21,940 20,578 45,155 33,379 27,886 23,357 21,040
Gain on sale of assets.. 9,611 12 5 3,819 8,310 -- --
Income from Minority
Cellular
Investment
Interests(1).......... 7,490 7,452 13,069 15,180 10,473 4,670 3,645
----------- ----------- ----------- ----------- ----------- ---------- ----------
Income (loss) before
income tax benefit and
minority interest...... 12,188 (21,839) (45,382) (40,437) (28,212) (47,117) (39,885)
Income tax expense
(benefit).............. 5,836 (5,683) (13,597) (7,295) (11,596) (14,456) (11,780)
Minority interest in
income (loss) of
subsidiaries(2)........ (9) (256) 162 153 15 69 (321)
----------- ----------- ----------- ----------- ----------- ---------- ----------
Net income (loss)....... $ 6,343 $ (16,412) $ (31,947) $ (33,295) $ (16,631) $ (32,730) $ (27,784)
=========== =========== =========== =========== =========== ========== ==========
Other Consolidated Data:
EBITDA(3)............... $ 81,570 $ 43,496 $ 99,208 $ 55,852 $ 47,793 $ 34,444 $ 24,080
EBITDA margin........... 49.6% 39.3% 42.1% 37.4% 44.2% 41.7% 43.6%
Cash flows provided by
(used in):
Operating activities... $ 56,265 $ 26,003 $ 54,771 $ 26,956 $ 24,282 $ 10,390 $ (3,558)
Investing activities... (33,389) (69,411) (126,111) (118,094) (78,765) (79,834) (64,749)
Financing activities... (4,980) 16,531 42,545 67,256 152 182,722 65,702
Capital expenditures.... 48,765 71,963 129,300 88,990 38,082 17,538 8,947
Ratio of earnings to
fixed charges(4)....... 1.52 -- -- -- -- -- --
Net Pops(5)(6).......... 10,792,000 10,846,000 10,846,000 10,846,000 10,661,000 6,491,500 5,020,400
Subscribers(5).......... 384,600 268,600 322,200 203,900 135,000 85,900 49,000
Pro Forma Leverage:
Annualized EBITDA(7).... $ 163,140 -- -- -- -- -- --
Net subsidiary
debt(8)/Annualized
EBITDA................. 7.6x -- -- -- -- -- --
</TABLE>
24
<PAGE>
(Table continued from preceding page)
<TABLE>
<CAPTION>
Six months ended
November 30, Years ended May 31,
-------------------- -----------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(Dollars in thousands, except as noted)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Rural Cellular
Data:
EBITDA(3)............... $ 60,264 $ 42,393 $ 86,669 $ 64,278 $ 48,208 $ 34,511 $ 24,080
EBITDA margin........... 53.4% 46.8% 47.8% 44.9% 44.6% 41.8% 43.6%
Capital expenditures.... $ 18,150 $ 18,287 $ 38,996 $ 38,921 $ 22,604 $ 17,319 $ 8,947
Net Pops (excluding
Minority Cellular
Investment
Interests)(5)(6)....... 5,777,000 5,777,000 5,777,000 5,777,000 5,592,000 5,412,100 3,941,000
Subscribers............. 285,900 217,900 252,700 187,000 135,000 85,900 49,000
Penetration(5)(9)....... 4.9% 3.8% 4.4% 3.2% 2.4% 1.6% 1.2%
Churn rate.............. 1.8% 1.8% 1.8% 2.3% 2.5% 2.5% 3.0%
Average monthly revenue
per unit (actual
dollars)(10)........... $ 68 $ 76 $ 68 $ 73 $ 74 $ 68 $ 69
Acquisition cost per
cellular customer
(actual dollars)(11)... $ 303 $ 309 $ 308 $ 343 $ 351 $ 431 $ --
Cell sites(5)........... 379 295 363 212 185 -- --
Retail and service
centers(5)............. 65 57 59 41 25 -- --
Other Centennial de
Puerto Rico Data:
EBITDA(3)............... $ 21,306 $ 1,103 $ 12,539 $ (8,426) $ (415) $ (67) --
EBITDA margin........... 41.2% 5.5% 23.1% n.a. n.a. n.a. --
Capital expenditures.... $ 30,615 $ 53,676 $ 90,304 $ 50,069 $ 15,478 $ 219 --
Net Pops(5)............. 3,839,000 3,839,000 3,839,000 3,839,000 3,839,000 -- --
Subscribers(5).......... 98,700 50,700 69,500 16,900 -- -- --
Penetration(5)(9)....... 2.6% 1.3% 1.8% 0.4% -- -- --
Churn rate.............. 3.6% 2.9% 4.6% 2.6% -- -- --
Average monthly revenue
per unit (actual
dollars)(10)........... $ 89 $ 102 $ 92 $ 113 -- -- --
Acquisition cost per
cellular customer
(actual dollars)(11)... $ 201 $ 159 $ 164 $ 310 -- -- --
Cell sites(5)........... 120 106 113 74 -- -- --
Retail and service
centers(5)............. 52 33 44 25 -- -- --
</TABLE>
<TABLE>
<CAPTION>
As of November 30, 1998(12)
---------------------------------------
As Adjusted
-------------------------------
Centennial Cellular
Actual Centennial Operating
------- ---------- -------------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and restricted
cash(13)............................. $32,516 $ 71,255 $ 71,255
Working capital....................... 8,909 66,369 66,369
Net fixed assets...................... 272,154 272,154 272,154
Total assets.......................... 849,844 942,561 942,561
Total long-term debt.................. 507,000 1,463,500 1,306,000
Redeemable preferred stock............ 193,539 -- --
Common stockholders' equity
(deficiency)......................... 38,927 (583,375) (425,875)
</TABLE>
- --------
(1) Represents our proportionate share of profits and losses based on our
interest in earnings of limited partnerships controlled and managed by
other cellular operators accounted for on the equity method.
25
<PAGE>
(2) Represents the percentage share of earnings of our consolidated
subsidiaries that is allocable to unaffiliated holders of minority
interests.
(3) EBITDA is defined, for any period, as earnings before income from Minority
Cellular Investment Interests, allocations to minority interests in
consolidated subsidiaries, interest expense, interest income, income
taxes, depreciation and amortization and gain on sale of assets. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. EBITDA should not
be considered an alternative to net income as a measure of our operating
results or to cash flow as a measure of liquidity. In addition, although
the EBITDA measure of performance is not recognized under generally
accepted accounting principles, it is widely used by various companies as
a general measure of a company's performance because it assists in
comparing performance on a relatively consistent basis across companies
without regard to depreciation and amortization, which can vary
significantly depending on accounting methods (particularly where
acquisitions are involved) or non-operating factors such as historical
cost bases. Because EBITDA is not calculated identically by all companies,
the presentation herein may not be strictly comparable to other similarly
titled measures of other companies.
(4) For the purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, minority interest
and extraordinary items, plus fixed charges. Fixed charges include
interest expense on all indebtedness, amortization of deferred debt
issuance costs and one-third of rental expense on operating leases
representing that portion of rental expense deemed to be attributable to
interest. The ratio of earnings to fixed charges is less than one-to-one
for all periods presented and, therefore, earnings are inadequate to cover
fixed charges. The amount by which earnings exceeded (are less than) fixed
charges for the six months ended November 30, 1998 and 1997 are $12,188
and $(21,839), respectively, and for the years ended May 31, 1998, 1997,
1996, 1995 and 1994 are $(45,382), $(43,189), $(33,412), $(47,117) and
$(39,885), respectively.
(5) As of period-end.
(6) For the years ended May 31, 1995 and May 31, 1994, the number of Net Pops
is based on 1990 population figures of an MSA or RSA, as derived from the
1990 U.S. Census data.
(7) Annualized EBITDA equals EBITDA earned during the six months ended
November 30, 1998, which was approximately $81.6 million, multiplied by
two.
(8) Net subsidiary debt equals total long-term debt of Centennial Cellular
Operating and its subsidiaries of approximately $1.31 billion less cash,
cash equivalents and restricted cash of approximately $57.5 million.
(9) The penetration rate equals the percentage of total population in our
service areas who are subscribers to our cellular service as of period-
end.
(10) ARPU equals total monthly revenue per average subscriber.
(11) For the year ended as of the date shown. Determined for each period as
total marketing cost plus cost of equipment sales (net of associated
revenue), divided by the total subscriber activations during the fiscal
year.
(12) The "Actual" column is as of November 30, 1998. The "As Adjusted" column
gives pro forma effect to the Merger and related financings. See "Use of
Proceeds."
(13) Cash, cash equivalents and restricted cash as of November 30, 1998
reflects the interest escrow of $57,501 that will be used to pay the first
three interest payments on the notes.
26
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, you should
consider carefully the following risk factors before tendering your Old Notes
in the Exchange Offer.
Significant Indebtedness and Interest Payment Obligations
The Company is highly leveraged as a result of the offering of Old Notes,
borrowings under the Credit Facility and the issuance of subordinated notes of
Centennial in the Mezzanine Financing. The proceeds of the Offering were used
as a portion of the financing of the Merger to (i) pay for shares of capital
stock of Centennial in the Merger, (ii) repay or repurchase certain
indebtedness of Centennial (including the outstanding notes acquired in the
debt tender offers), (iii) pay the fees and expenses incurred in connection
with the Merger, the financing of the Merger and any other transactions
contemplated by the Merger Agreement and (iv) purchase the pledged securities
that will fund the first three scheduled interest payments on the notes. See
"Use of Proceeds."
As of November 30, 1998, after giving pro forma effect to the Offering
and other financing of the Merger, Centennial Cellular Operating's consolidated
long-term indebtedness would have been approximately $1.31 billion. In
addition, Centennial (without its subsidiaries) would have had $180 million
(face amount) of long-term indebtedness (other than its guarantee under the
Credit Facility and its co-obligation under the notes). Following the
financings related to the Merger, our consolidated long-term indebtedness was
substantially greater than our long-term indebtedness before the Merger. In
addition, the indenture governing the notes and our other debt instruments
allows us to incur additional indebtedness, including secured indebtedness. As
of November 30, 1998, on a pro forma basis, Centennial Cellular Operating would
have had an aggregate of $114.0 million available for borrowing under the
Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." Our
ability to make payments with respect to the notes and to satisfy our other
debt obligations depends on our future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond our control.
Our high level of indebtedness could have important consequences to
noteholders, such as:
. limiting our ability to obtain additional financing for future
acquisitions (if any), working capital, capital expenditures or
other purposes;
. limiting our ability to use operating cash flow in other areas of
our business because we must dedicate a substantial portion of these
funds to make principal payments and fund debt service;
. increasing our vulnerability to adverse economic and industry
conditions;
. increasing our vulnerability to interest rate increases because
borrowings under our Credit Facility are at variable interest rates;
and
. increasing our vulnerability to competitive pressures, as many of
our competitors will be less leveraged than we are.
Upon the issuance of the notes, our consolidated interest expense has
increased compared to prior years. We currently believe that our cash flow,
together with available borrowings under the Credit Facility, will permit us to
pay our operating expenses and service our debts for the foreseeable future.
Our belief is based on significant assumptions, including, among other things,
that we will succeed in implementing our business strategy and that there will
be no material adverse developments in our business, liquidity or capital
requirements. If, in the future, we cannot generate sufficient cash from
operations to make scheduled payments on the notes or to meet our other
obligations, we will need to refinance, obtain additional financing or sell
assets. We cannot assure you that our business will generate cash flow, or that
we will be able to obtain
27
<PAGE>
funding sufficient to satisfy our debt service requirements. On a pro forma
basis, earnings were insufficient to cover fixed charges for Centennial and
Centennial Cellular Operating by $161.8 million and $138.9 million for the year
ended May 31, 1998, and by $44.7 million and $32.9 million for the six months
ended November 30, 1998.
Covenant Restrictions
We and our subsidiaries are subject to significant operating and
financial restrictions contained in the instruments governing the notes and our
Credit Facility. Such restrictions affect, and in many respects significantly
limit or prohibit, among other things, our ability to:
. borrow more funds,
. pay dividends,
. repay indebtedness prior to stated maturities,
. sell assets,
. make investments,
. engage in transactions with stockholders and affiliates,
. create liens, or
. engage in mergers or acquisitions.
In addition, the Credit Facility requires us to maintain certain
financial ratios. These restrictions could also limit our ability to obtain
financing in the future, make needed capital expenditures, withstand a future
downturn in our business or the economy in general or in our specific areas of
coverage, or otherwise conduct necessary corporate activities. If we or our
subsidiaries fail to comply with these restrictions, we may be in default under
the terms of such indebtedness, even if we are otherwise able to meet our debt
service obligations. In the event of a default, the holders of such
indebtedness could elect to declare all such indebtedness, together with
accrued interest, to be due and payable and a significant portion of our other
indebtedness (including the notes) and that of our subsidiaries may become
immediately due and payable. We cannot assure you that we or our subsidiaries
would be able to make such payments or borrow sufficient funds from alternative
sources to make any such payment. Even if we were to obtain additional
financing, such financing may be on terms unfavorable to us.
Subordination of the Notes to Senior Debt; Structural Subordination of the
Notes to Subsidiary Debt
The notes are subordinated to all our senior indebtedness. In addition,
the notes effectively rank junior to all liabilities of our subsidiaries. As of
November 30, 1998, after giving pro forma effect to the offering of Old Notes
and the Company's use of the net proceeds thereof, our borrowings under the
Credit Facility and an issuance of subordinated notes of Centennial, Centennial
Cellular Operating would have had outstanding $936.0 million of senior
indebtedness and $370 million of senior subordinated indebtedness. As of
November 30, 1998, after giving pro forma effect as described, (a) Centennial
(without its subsidiaries) would have had no indebtedness outstanding other
than $180 million (face amount) of subordinated notes issued to WCAS Capital
Partners III, L.P., its guarantee of $936.0 million of Centennial Cellular
Operating's indebtedness under the Credit Facility and its co-obligation on the
notes and (b) our subsidiaries would have had no indebtedness outstanding other
than their guarantees of $936.0 million of funded indebtedness under the Credit
Facility (a portion of which was borrowed directly by Centennial de Puerto
Rico, which indebtedness is effectively senior to the notes). We also may incur
additional senior indebtedness and our subsidiaries may incur additional
indebtedness consistent with the terms of our debt agreements. For example,
upon consummation of the offering of the Old Notes and the Company's use of the
net proceeds thereof, as of November 30, 1998, we would have had $114.0 million
available under our Credit Facility which, if borrowed, would be senior
28
<PAGE>
indebtedness and would be guaranteed by our subsidiaries other than Centennial
de Puerto Rico and its subsidiaries. In the event of our bankruptcy,
liquidation or dissolution, our assets would be available to pay obligations on
the notes only after all payments had been made on our senior indebtedness. We
cannot assure you that sufficient assets will remain to make any payments on
the notes. In addition, certain events of default under our senior indebtedness
would prohibit us from making any payments on the notes. The term "senior
indebtedness" is defined in the "Description of the New Notes--Subordination"
section of this Prospectus.
Our company depends on the cash flow from our subsidiaries to meet our
obligations, including all payments on the notes. Accordingly, our ability to
make payments to holders of the notes depends on the receipt of sufficient
funds from our subsidiaries. Because of the terms of existing and future
indebtedness of our subsidiaries, including the Credit Facility, which is
initially secured by the assets of our domestic subsidiaries, we may be
restricted in receiving funds from our subsidiaries. The indenture for the
notes permits our subsidiaries to enter into agreements which restrict
dividends and distributions to the obligors. See "Description of the New
Notes--Certain Covenants--Limitation on Restrictions on Subsidiary Dividends."
Notes Are Unsecured
In addition to being subordinate to all of our senior indebtedness, the
notes are not secured by any of our assets (other than the funds pledged to pay
the first three interest payments). Our obligations under our Credit Facility
are secured by substantially all of our assets, including assets held by our
subsidiaries. Under the indenture governing the notes, the Obligors and their
subsidiaries are permitted to incur additional secured indebtedness. If we
became insolvent or are liquidated, or if payment under our Credit Facility is
accelerated, the lenders under our Credit Facility would be entitled to
exercise the remedies available to a secured lender under applicable law.
Therefore, our bank lenders will have a claim on such assets before the holders
of these notes. Because the notes are unsecured, there may be no assets
remaining for the holders of notes or any assets may be insufficient to pay off
the notes. See "Description of Certain Indebtedness."
Net Losses; Expectation of Future Net Losses
Since our formation, we have concentrated on the acquisition, exchange,
construction, initial operation and development of cellular telephone systems
in our domestic markets and the provision of facilities-based integrated
communications in Puerto Rico. Our business operations have incurred net losses
for each of the past five fiscal years and, after giving pro forma effect to
the offering of the Old Notes and borrowings under the credit facility,
Centennial Cellular Operating would have incurred a net loss of $120.5 million
for the fiscal year ended May 31, 1998. Following the Merger, we expect to
report net losses for the foreseeable future due to increased interest payments
and non-cash charges such as depreciation and amortization. We cannot assure
you that in future periods our operations will generate sufficient earnings to
pay our obligations, including the notes.
Competition in Rural Cellular Markets
Our principal business, wireless telephone service, is highly
competitive. Competition for wireless telephone service in each of our markets
is based primarily on the quality of service, price, system coverage,
enhancements offered, capacity and customer service. We compete with one
cellular licensee in each geographic area and most of these competitors are
larger, have greater financial resources than we do and may be less leveraged
than we are. We also face competition from paging companies, landline telephone
companies and resellers. The FCC requires cellular and PCS licensees to offer
service to resellers on a nondiscriminatory basis. A reseller buys blocks of
telephone numbers from cellular and PCS providers, usually at a discounted
rate, and resells the service to the public for a profit. Many
telecommunications companies resell wireless telephone service as a complement
to other services, such as long distance or local telephone services.
As a result of recent regulatory and legislative initiatives, we also
face increased competition from entities using or proposing to use other
comparable communications technologies. The FCC currently is
29
<PAGE>
licensing commercial PCS. The FCC identified two categories of PCS: broadband
and narrowband. PCS is not a specific technology, but a variety of potential
technologies that could compete with cellular telephone systems. For example,
the broadband PCS systems licensed to operate in the 2 GHz band may provide
wireless two-way telecommunications services for voice, data, graphic and other
transmissions. Equipment used for broadband PCS includes small, lightweight and
wireless telephone handsets, computers that can communicate over the airwaves
wherever they are located, and portable facsimile machines and other graphic
devices. Many PCS systems have commenced operations in the last few years. When
a PCS system employs microcell technology, as is common, it uses a network of
small, low-powered transceivers placed throughout a neighborhood, business
complex, community or metropolitan area to provide customers with mobile and
portable voice and data communications. Many PCS licensees who will compete
with us have access to substantial capital resources. In addition, many of
these companies, or their affiliates, already operate large cellular telephone
systems and thus bring significant wireless experience to this new marketplace.
To date, we have experienced little impact from PCS competition in our domestic
markets. However, there can be no assurance of the long-term effect these new
PCS licensees may have on us.
ESMR is a two-way wireless communications service that incorporates
characteristics of cellular technology, including multiple low-power
transmitters and interconnection with the landline telephone network. ESMR
service may compete with cellular service by providing digital communication
technology, lower rates, enhanced privacy and additional features such as
electronic mail and built-in paging. Nextel Communications, Inc. is the primary
provider of such services today.
We may also face competition from satellite-based services. The FCC has
issued a number of licenses to provide such services which would enable
subscribers to access mobile communications systems throughout the world.
Additional proposals for the provision of satellite services remain pending
with the FCC and foreign regulatory bodies must approve certain aspects of some
satellite systems. Although we may experience increased competition from such
services in the future, such systems have not affected our operations to date.
The FCC has made available other frequency bands that may be used for the
provision of cellular-like services. The General Wireless Communications
Service ("GWCS") and the Wireless Communications Service ("WCS") are two such
services that are in their infancy. Although the FCC has proposed technical
rules for WCS that will make commercial mobile services like cellular and PCS
infeasible, there can be no assurance that the FCC will not adopt more flexible
WCS technical rules that will enable WCS licensees to provide service
comparable to cellular and PCS services.
We are unable to predict whether such competing technologies or any new
technologies will be successful and, if successful, whether any will provide
significant competition for us. We cannot assure you that one or more of the
technologies that we currently use in our business will not become inferior or
obsolete at some time in the future.
Competition in Puerto Rico Market
Competition from Cellular Systems
The market for wireless services is highly competitive in Puerto Rico.
Our two main competitors for wireless services in the Puerto Rico market are
CoreComm Incorporated ("CoreComm"), a publicly traded U.S. company, and the
Puerto Rico Telephone Company, which is currently owned by the Commonwealth of
Puerto Rico but which has agreed to sell a significant stake to GTE
Corporation, a U.S. telecommunications company which will control the PRTC's
board of directors. The parties' public statements indicate that they expect
the transaction to close during the first quarter of 1999. In July 1998, GTE
agreed to merge with Bell Atlantic. Both CoreComm and PRTC were earlier
entrants into the Puerto Rico wireless market, have greater resources than we
do and currently hold subscriber market shares of approximately 47% and 40%,
respectively. CoreComm and PRTC offer both analog and digital cellular service
(using TDMA technology) to their
30
<PAGE>
subscribers and offer greater roaming capacity to their customers traveling
outside Puerto Rico, as both have roaming agreements with major cellular
providers in the U.S. We currently offer roaming ability in the U.S. pursuant
to an agreement with Sprint.
Competition From Other Broadband PCS Systems
The FCC has issued a 30 MHz broadband PCS license for the Puerto Rico-
U.S. Virgin Islands MTA to TeleCorp. The FCC has also issued four broadband PCS
licenses for the San Juan, Puerto Rico Basic Trading Area ("BTA"), the
Mayaguez-Aguadilla-Ponce, Puerto Rico BTA and the U.S. Virgin Islands BTA to
other entities, including a 10 MHz license to the PRTC. If these licenses
become operational, these broadband PCS systems will present additional
competition to our PCS operations in Puerto Rico. We do not believe that
TeleCorp, which is in the early stages of construction of its PCS system as
part of a franchise relationship with AT&T Wireless Services, will achieve
significant network coverage within the next twelve months.
New PCS competitors will face a number of significant hurdles in building
out their systems in Puerto Rico, including the development of a "backhaul"
network connecting its cell sites with its switch. A competitor may (i) utilize
PRTC's network, (ii) construct its own network, (iii) utilize our fiber optic
network or (iv) choose a combination of these methods. We believe that few
competitors will choose to build their own networks because of the significant
cost and time constraints, nor will they choose to contract with the PRTC
because of its poor reliability and the long wait times required for new T-1
service to be added. Thus, we believe that some of our competitors in Puerto
Rico may seek to contract with us for backhaul services.
Competition From Resellers
The FCC requires all cellular and PCS system operators to provide service
on a nondiscriminatory basis to resellers, who provide service to customers but
do not hold an FCC license or own facilities for the provision of such
services. Instead, a reseller buys blocks of cellular telephone numbers from a
licensed carrier, usually at a discounted rate, and resells service to the
public through its own distribution methods. Thus, a reseller may be both a
customer of a cellular or PCS provider and also a competitor. Ameritel, acting
as a reseller, is currently offering cellular services at Radio Shack stores
throughout Puerto Rico. We do not know of any other significant cellular
resellers currently operating in competition with our PCS system.
Wireline Competition
Our primary competitor for wireline service is the incumbent provider,
the Puerto Rico Telephone Company, which has considerably greater resources
than we do. GTE, which recently entered into a merger agreement with Bell
Atlantic, has agreed to buy a significant stake in the PRTC and will control
PRTC's board of directors. GTE and Bell Atlantic also have significantly
greater resources than we do and may make changes to improve service which in
turn may strengthen the PRTC's competitive position. The growth of the
Company's market presence will depend upon its ability to obtain customers that
are underserved by the PRTC (or its successor) or looking for an alternative.
Because of the Company's ability to provide more timely installation and
service to date, the Company has primarily attracted customers on the basis of
quality and service rather than price. KMS, a U.S. corporation based in New
Jersey, has announced plans to set up a fiber optic network in Puerto Rico to
offer Internet access and data transmission, although it has not yet commenced
construction.
Risks Associated With Acquisitions
Since August 1988, we have acquired 29 cellular systems in the United
States that we own and manage. Following the Merger, we intend to expand our
current clusters through the acquisition of properties and target for purchase
other small to mid-sized MSAs and strategic RSAs that we believe are
undervalued or underdeveloped or that possess traits indicative of potentially
high cellular usage and superior financial
31
<PAGE>
performance. There can be no assurance, however, that we will seek to acquire
or be successful in acquiring any of these systems. Increased competition for
acquisition candidates could result in fewer acquisition opportunities for us
and higher acquisition prices. The magnitude, timing and nature of future
acquisitions will depend upon various factors, including the availability of
suitable acquisition candidates, competition with other telecommunications
companies for suitable acquisitions, the negotiation of acceptable terms, our
financial capabilities, the availability of skilled employees to manage the
acquired companies and general economic and business conditions.
We face risks that the systems we own and those we acquire in the future
will not perform as expected and that such systems will not generate the
returns necessary to repay the indebtedness incurred to acquire, or fund the
capital expenditures needed to develop, the systems. In addition, expansion of
our operations may place a significant strain on our company's management,
financial and other resources. Our ability to manage future growth will depend
upon our ability to monitor operations, control costs, maintain effective
quality controls and significantly expand our internal management, technical
and accounting systems, all of which will result in higher operating expenses.
A failure to expand these areas or to implement and improve such systems,
procedures and controls in an efficient manner and at a pace consistent with
the growth of our business could have a material adverse effect on our
business, prospects, operating results and ability to service our indebtedness,
including the notes.
In addition, we will incur considerable expenses to integrate acquired
systems with existing operations before we earn any anticipated revenue from
these systems, which may cause our operating results to fluctuate
substantially. We will, among other things, have to integrate switching,
transmission, technical, sales, marketing, billing, accounting, quality
control, management, personnel, payroll, regulatory compliance and other
systems and operating hardware and software, some of which may be incompatible
with our existing systems. In addition, telecommunications providers generally
experience higher customer and employee turnover rates during and after an
acquisition. We cannot assure you that we will be able to successfully
integrate the systems we own or may acquire or any other businesses we may
acquire or that any such acquired business will not experience high employee or
customer turnover rates after such acquisition.
We may fail or be unable to discover certain liabilities, including
liabilities arising from non-compliance with certain federal, state or local
environmental laws by prior owners, when we perform due diligence
investigations on each company or business we seek to acquire. We may be
responsible for these liabilities (which may be material) as a successor owner.
We generally seek to minimize our exposure to such liabilities by obtaining
indemnification from each seller of the acquired companies and, in some cases,
by deferring payment of a portion of the purchase price to support these
indemnification obligations. However, we cannot assure you that we could
enforce or collect such indemnifications, even if obtainable, or that the
indemnifications would be sufficient in amount, scope or duration to fully
offset the possible liabilities arising from the acquisitions.
We expect to finance acquisitions with cash on hand, through issuances of
debt or equity securities and through borrowings under credit arrangements,
including pursuant to the credit facility. There is no assurance that we will
be able to obtain additional financing in order to finance our acquisition
strategy. The ability to obtain debt or equity financing is subject to market
conditions and our current debt instruments limit our ability to incur
additional indebtedness. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Rapid Technological Changes
Telecommunications providers face rapid and significant changes in
technology. Certain new technologies may be protected by patents or other
intellectual property laws and therefore may not be available. In particular,
the wireless telecommunications industry is experiencing significant
technological change, such as the increasing pace of digital upgrades in
existing analog wireless systems, evolving industry standards, the
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allocation of new radio frequency spectrum in which to license and operate
wireless services, ongoing improvements in the capacity and quality of digital
technology, shorter development cycles for new products and enhancements, and
changes in end-user requirements and preferences. Like others in the industry,
we are uncertain about the extent of customer demand as well as the extent to
which airtime and monthly access rates may continue to decline. We cannot
predict the effect of technological changes on our business, and it is possible
that technological developments will have a material adverse effect on us.
Potential for Adverse Regulatory Change and Need for Regulatory Approvals
Wireless
The FCC regulates the licensing, construction, operation, acquisition and
sale of commercial wireless communications systems, as well as the number of
wireless licensees permitted in each market. Certain aspects of cellular
operations may also be subject to public utility regulation in the state in
which the service is provided. Changes in the regulation of commercial wireless
services (such as cellular, PCS, or paging), wireless carriers, the licensing
of additional connecting carriers in our service areas, the deregulation of
interconnection arrangements or the loss of any license or licensed area
previously awarded to us could have a material adverse effect on our
operations. See "Business--Regulation."
The FCC continues to license additional spectrum for the provision of
wireless communications. In addition, all cellular and PCS licenses in the
United States are subject to renewal upon the expiration of their initial ten-
year term. Our company's initial cellular licenses have expired and will
continue to expire in the near future. To date, however, we have successfully
renewed each of our cellular licenses. We will continue to apply for renewal of
our licenses in a timely fashion. Although we cannot assure you that these
licenses will be renewed, we believe that each license will be renewed based
upon FCC rules establishing a presumption in favor of licensees that have
complied with their regulatory obligations during the prior license term. Any
failure to renew our licenses would have a material adverse effect on our
business, financial condition and results of operations.
We must obtain a number of other approvals, licenses and permits in the
operation of our business, including determinations of no hazard to navigation
from the Federal Aviation Administration in connection with the construction of
cellular and PCS towers. Additionally, the wireless communications industry is
subject to certain state and local government regulation. Operating costs are
also affected by other governmental actions that are beyond our control. We
cannot assure you that the various federal, state and local agencies
responsible for granting licenses, approvals and permits will do so or that,
once granted, will not revoke or fail to renew them. The absence of such
licenses, approvals and permits would adversely affect our existing operations
and could delay commencement of or prohibit business operations that we
propose.
In addition, the Communications Act of 1934, as amended (the
"Communications Act"), generally prohibits foreign persons or entities from
controlling FCC licenses or holding interests of more than 25% in an FCC
licensee. An FCC licensee may, however, request that the FCC allow a foreign
entity to hold more than a 25% interest. These restrictions could adversely
affect our ability to attract additional equity financing.
The wireless communications industry is subject to continually evolving
regulation. As new regulations are promulgated, we may be required to modify
our business plans or operations in order to comply with any such regulations.
There can be no assurance that we can do so in a cost-effective manner, if at
all.
In Puerto Rico, we are also subject to regulation by the Puerto Rico
Planning Board, the Administration of Regulation and Permits and the Puerto
Rico Telecommunications Regulatory Board. The powers of these authorities
include a number of matters, such as cost-based rate-making that could have a
material adverse effect on our business, financial condition and results of
operations.
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Wireline
Lambda CLEC is subject to the Puerto Rico Telecommunications Act of 1996,
which grants jurisdiction over telecommunications services and providers to the
Puerto Rico Telecommunications Regulatory Board and purports to open the Puerto
Rico telecommunications market to competition.
In addition, Lambda CLEC is subject to the Communications Act. Pursuant
to the Communications Act, the FCC requires all telecommunications carriers,
including Lambda CLEC, to contribute to the federal universal service fund. The
Communications Act also requires state public utilities commissions and/or the
FCC to implement policies that mandate reciprocal compensation between local
exchange carriers. On August 1, 1996, the FCC adopted rules implementing these
policies, but various aspects of the order have been overturned by a federal
court and the decision remains subject to further judicial review.
General
From time to time, federal, state or commonwealth legislators propose
legislation that potentially could materially affect us either beneficially or
adversely. We cannot assure you that federal, state or commonwealth governments
will not enact legislation or that the FCC, state or commonwealth regulatory
authorities will not promulgate regulation or take other actions that might
have a material adverse affect on our business. If the FCC allocates radio
spectrum for services that compete with our business, these changes could
materially and adversely affect our business, prospects, operating results or
ability to service our indebtedness, including the notes.
Fluctuations in Market Value of Our Licenses
A substantial portion of our assets consists of our interests in cellular
licenses held by subsidiaries. While there currently exists a market for the
purchase and sale of cellular licenses, including those in our markets, such a
market may not exist in the future or the values of our licenses in such a
market may fall. The future value of our interests in our cellular licenses
will depend significantly upon the success of our business. The transfer of
interests in such licenses is subject to prior FCC approval, which may have the
effect of reducing the value of the license. As a consequence, if the market
value of our cellular licenses decreases significantly, we may realize a
material loss upon the sale of any of our licenses.
Risks Associated with Regional Economic Conditions
Our success depends upon various factors related to business and economic
conditions and consumer spending in the regions where our principal operations
are located. If existing economic conditions were to deteriorate in any of our
regions, the market for cellular services to business and consumer subscribers
may grow more slowly or may decline, thereby materially and adversely affecting
our business and results of operations. The fact that we have clustered our
operations geographically may increase this risk.
Risks Associated with Conditions in Puerto Rico
Our business in Puerto Rico is dependent on the business and economic
conditions and consumer spending generally in Puerto Rico. If existing economic
conditions in Puerto Rico were to deteriorate, the market for wireless or
wireline services in Puerto Rico may grow more slowly or decline. This would
have an adverse impact on our business in Puerto Rico and, because our Puerto
Rico operations currently generate approximately 25% of our company's EBITDA,
on our financial condition and results of operations generally.
In particular, our business in Puerto Rico may be materially adversely
affected by events such as hurricanes, labor strikes and the like which affect
Puerto Rico generally. Puerto Rico was hit by Hurricane Georges in September
1998. The island suffered significant damage as a result of the storm. Less
than 10% of
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our PCS towers and microwave transmitters were damaged during the hurricane,
which interrupted service to approximately 25% of our customers in Puerto Rico.
After consideration of expected insurance recoveries, the Company believes it
will not incur significant losses as a result of the effects of the damage
caused by Hurricane Georges. During the three months ended November 30, 1998,
the Company recorded approximately $1.6 million of insurance recoveries related
to subscriber refunds within revenue. Other hurricanes or adverse weather
conditions that may hit the island from time to time may have a material
adverse effect on our business in Puerto Rico.
Any change in Puerto Rico's political status with the U.S., or the
ongoing debate on such status, could also affect the economy of Puerto Rico.
The ultimate effect of possible changes in Puerto Rico's governmental and
political status is uncertain and, accordingly, we cannot assure you that such
changes will not materially adversely affect our business and results of
operations.
Operating Costs Due to Fraud
Like most companies in the cellular industry, we incur costs associated
with unauthorized use of our network. Fraud increases interconnection costs,
capacity costs, administrative costs, costs incurred for fraud prevention and
payments to other carriers for unbillable fraudulent roaming. We currently
employ anti-fraud measures in our rural cellular clusters and intend to
continue to develop and invest in measures to prevent cellular fraud. Even so,
we cannot assure you that we will not incur substantial costs due to fraud. In
addition, while we have not experienced significant costs in the past due to
our anti-fraud measures and the costs associated with unauthorized use of our
cellular network, we cannot assure you that these costs will not become
substantial in the future.
We have not yet experienced any fraud problems in connection with our
wireless service in Puerto Rico because of its use of CDMA technology. We
cannot assure you, however, that a fraud problem will not develop or that we
will not incur substantial costs due to fraud in the future.
Risk Related to Strategy to Reduce Roaming Rates
We earn much of our revenue from customers of other cellular providers
who are roaming in our markets. Roaming rates per minute pursuant to reciprocal
roaming arrangements have declined over the last several years and we expect
that such declines will continue for the foreseeable future. We have
implemented a strategy of aggressively pricing roaming rates to encourage other
cellular and PCS providers to include portions of our service areas within
their home calling regions and to discourage wireless providers from expanding
their footprints into our service areas. While we benefit from lower roaming
rates when we remit to other cellular providers roaming charges incurred by our
subscribers in other cellular providers' calling regions, we receive less
revenue per minute of use from customers roaming in our markets. We cannot
assure you that the decline in roaming rates will be offset by the benefits of
increased roaming minutes of use by other cellular and PCS providers or that
such decline will not materially adversely affect our results of operations.
Possible Inability to Purchase Notes upon a Change of Control
Upon certain change of control events, each holder of notes may require
us to repurchase all or a portion of its notes at a purchase price equal to
101% of the principal amount thereof, plus accrued interest. Our ability to
repurchase the notes upon a change of control event will be limited by the
terms of our debt agreements. Upon a change of control event, we may be
required immediately to repay the outstanding principal, any accrued interest
on and any other amounts owed by us under our Credit Facility or the Mezzanine
Financing. There can be no assurance that we would be able to repay amounts
outstanding under our Credit Facility or obtain necessary consents under such
facility to repurchase these notes. Any requirement to offer to purchase any
outstanding notes may result in us having to refinance our outstanding
indebtedness, which we may not be able to do. In addition, even if we were able
to refinance such indebtedness, such
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financing may be on terms unfavorable to us. The term "Change of Control" is
defined in the section "Description of the New Notes--Certain Definitions."
Pledge of Stock by Centennial Cellular Operating
Centennial Cellular Operating has pledged as security the shares of all
its direct and indirect subsidiaries (other than foreign subsidiaries) to the
lenders under the Credit Facility. The pledge of such shares could impair our
ability to obtain future financing on favorable terms, if at all. Further, in
the event Centennial Cellular Operating were to default on its obligations
under the Credit Facility and the lenders were to foreclose upon such pledged
capital stock, Centennial Cellular Operating, as the holding company for such
subsidiary, would likely be unable to service or repay its indebtedness,
including the notes. See "Description of Certain Indebtedness."
Risks Related to Co-Obligor; Guarantee by Centennial Under Credit Facility
Centennial, which is a co-obligor of the Notes, has no assets other than
the stock of Centennial Cellular Operating. Therefore, Centennial would be
unlikely to be able to make payments on the notes if Centennial Cellular
Operating fails to make such payments. In addition, Centennial is not be
subject to the covenants of the indenture governing the notes before or after
the Merger.
Centennial has unconditionally guaranteed all obligations of its
subsidiary, Centennial Cellular Operating, which is the borrower under the
credit facility. In the event that Centennial Cellular Operating were to
default on its obligations under the Credit Facility and the lenders were to
seek to enforce such guarantee, Centennial would likely be unable to service or
repay its indebtedness, including the notes. See "Description of Certain
Indebtedness."
Changes in Tax Law
Section 936 of the Internal Revenue Code of 1986 was amended in 1996.
This section had historically provided tax incentives for U.S. companies to
operate in Puerto Rico and to reinvest the earnings from their Puerto Rico
operations in Puerto Rico. One result of this tax preference was to encourage
the development of business and manufacturing operations in Puerto Rico and to
make available to certain Puerto Rico businesses financing at rates below those
generally offered by commercial banks. As a result of the 1996 amendment to
Section 936, such favorable financing rates are no longer available.
The tax benefits available to corporations, such as pharmaceutical
companies, doing business in Puerto Rico phase out in annual increments through
2005. Consequently, such corporations may reduce or close their Puerto Rico
operations and may reduce their re-investments in Puerto Rico. The changes may
also reduce the incentives for new investments in Puerto Rico. We do not yet
know the full extent to which our business in Puerto Rico will be affected by
such changes in the tax law. However, if the change diminishes the overall
level of business activity in Puerto Rico, it could cause our company's
business customers and other cellular subscribers roaming within our coverage
area to reduce their telecommunications usage. A significant reduction in such
usage would have a material adverse effect on our business and results of
operations.
Bankruptcy Risks Related to Escrow and Pledge Account
If we or any of our subsidiaries commence a bankruptcy or reorganization
case, or one is commenced against us, the bankruptcy law may prevent the
trustee under the indenture governing the notes from foreclosing on and selling
the escrow funds if an event of default on the notes occurs. Under applicable
bankruptcy law, secured creditors such as the holders of the notes are
prohibited from foreclosing upon or disposing of a debtor's property without
prior bankruptcy court approval. See "Description of the New Notes--Security."
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Fraudulent Conveyance
We believe that we incurred the indebtedness represented by the notes for
proper purposes and in good faith. Based on current asset valuations and other
financial information, we also believe that we were solvent after issuing the
notes, consummating the Merger and completing the other financings required for
the Merger. We expect that we will have sufficient capital to carry on our
business and to pay our debts as they mature. See "--Significant Indebtedness
and Interest Payment Obligations." Notwithstanding this belief, however, if an
unpaid creditor or a representative of a creditor (such as a trustee in
bankruptcy or a debtor-in-possession) were to sue us in an appropriate court,
the court might find that, when we issued the notes,
(i) we incurred the indebtedness with intent to hinder, delay or defraud
any present or future creditor or we contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in
part of others; or
(ii) we incurred the indebtedness for less than reasonably equivalent value
and, at the time, we
. were insolvent,
. were rendered insolvent by reason of such incurrence,
. were engaged in a business or transaction for which our remaining
assets constituted unreasonably small capital,
. intended to incur, or believed that we would incur, debts beyond
our ability to pay such debts as they matured or
. were a defendant in an action for money damages or had a judgment
for money damages docketed against us (in either case, if after
final judgment, the judgment remained unsatisfied).
In such event, the court could, among other things, (x) void all or a
portion of our obligations to you, the effect of which would be that you may
not be repaid in full and/or (y) subordinate our obligations to you to our
other existing and future indebtedness to a greater extent than would otherwise
be the case, the effect of which would entitle such other creditors to be paid
in full before any payment could be made on the notes. We cannot assure you
that, after providing for all prior claims, there would be sufficient assets to
satisfy the claims of holders of the notes.
Courts applying the laws of different jurisdictions will use different
standards to determine whether we are insolvent for purposes of the foregoing.
Generally, however, a company would be considered insolvent for purposes of the
foregoing if the sum of the company's debts is greater than all of the
company's property at a fair valuation, or if the present fair saleable value
of the company's assets is less than the amount that will be required to pay
its probable liability on its existing debts as they become absolute and
mature. We cannot predict what standards a court would apply to determine
whether we were solvent at the relevant time.
Potential Failure of Computer Systems to Recognize Year 2000
During fiscal 1998, we began a review of our computer systems and related
software to identify systems and software that might malfunction due to a
misidentification of the Year 2000. Most of our customer-related computer
systems and databases, including our billing systems, are managed by third
parties under contractual arrangements. We have requested those third parties
to advise us as to whether they anticipate difficulties in addressing Year 2000
problems and, if so, the nature of such difficulties. Our management has not
finally determined the cost associated with its Year 2000 readiness efforts and
the related potential impact on our results of operations. Amounts expended to
date have not been material. We cannot assure you that the systems of other
companies on which we rely, including third party billers, will be converted in
time or that any such failure to convert by another company will not have a
material adverse effect on our business, financial condition or results of
operations.
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Risks Associated With Certain Changes in Senior Management
Michael J. Small, who became the Chief Executive Officer of Centennial
upon the consummation of the Merger, has 17 years of experience in the
telecommunications industry but has no experience managing our operations. We
will not have employment contracts with senior management personnel other than
Mr. Small, whose contract expires on September 30, 2002; Rudy J. Graf, who is
the Chief Operating Officer pursuant to a new employment contract that expires
on May 31, 1999; Peter Chehayl, who became Vice President and Chief Financial
Officer following the Merger; and Edward G. Owen, who became Vice President--
Corporate Development following the Merger. To the extent that these key
individuals do not remain with Centennial at the end of their respective
employment terms, such change in management could have a material adverse
effect on our company unless we can obtain a suitable replacement in a timely
manner. Our management will also be required to devote additional time and
resources toward recruitment, hiring and training to fill such positions,
which, if substantial, could result in a material adverse effect on our
business, prospects, operations or results of operations. If the senior
management team is not put into place, or if our executive officers do not
achieve their management objectives in a timely manner, our business,
prospects, operating results and ability to service our indebtedness, including
the notes, may be materially adversely affected.
Control by the Equity Investors
Following the Merger, 92.9% of Centennial's outstanding Common Shares are
held by WCAS VIII, certain of its affiliates and certain other equity
investors. Accordingly, these equity investors will, directly or indirectly,
control our company and have the power to elect all of our directors, appoint
new management and approve or reject any action requiring the approval of
stockholders, including adopting amendments to our charter and approving
mergers and sales of all or substantially all of our assets. In addition, the
existence of a controlling stockholder may have the effect of making it
difficult for a third party to acquire, or of discouraging a third party from
seeking to acquire, a majority of the outstanding Common Shares of Centennial.
See "Principal Stockholders" and "Certain Relationships and Related
Transactions--Equity Investor Agreements."
Investment Interests; Capital Calls
We have a limited ability to direct the operation of any system in which
we now or in the future hold a minority investment as a limited partner. In
addition, these investment partnerships are entitled to make certain demands
for capital contributions, including to complete acquisitions by the limited
partnerships. If we do not meet such a capital call, our ownership interest in
such system may be diluted. Capital calls with respect to such investment
interests for the fiscal years ended May 31, 1998, 1997 and 1996 were
approximately $0.8 million, $2.9 million and $1.5 million, respectively. We
have, to date, paid all capital calls that we have received. Although we
anticipate that such capital calls will decrease over time, we cannot assure
you that such capital calls will, in fact, decrease. We cannot assure you that
we will be able to pay such capital calls when due. In addition, under the
indenture relating to the notes, we will be permitted to dividend to
Centennial, our parent company, all cash received from our non-subsidiary
investment interests.
Equipment Failure; Natural Disaster
A major equipment failure or a natural disaster affecting any one of our
central switching offices or certain of our cell sites or microwave links could
have a material adverse effect on our business, prospects, operating results or
ability to service our indebtedness, including the notes. In particular, our
business in Puerto Rico may be materially adversely affected by events such as
hurricanes, labor strikes and the like which affect Puerto Rico generally.
Puerto Rico was hit by Hurricane Georges in September 1998 and the island
suffered significant damage as a result of the storm. After giving effect to
insurance proceeds that we expect to receive, there will be no material adverse
impact on our Company's operating results. Other hurricanes or adverse weather
conditions that may hit the island from time to time may have a material
adverse effect on our business
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in Puerto Rico. Although we currently carry "business interruption" insurance
and expect to carry similar insurance following the Merger, our insurance
policies may not entirely cover all damages we may suffer.
Radio Frequency Emission Concerns
Media reports have suggested that certain radio frequency ("RF")
emissions from portable cellular telephones may be linked to cancer and
interfere with heart pacemakers and other medical devices. Concerns over RF
emissions and interference may have the effect of discouraging the use of
cellular telephones, which could have an adverse effect upon our business.
During the past two years, the FCC has updated its guidelines and methods for
evaluating the environmental effects of RF emissions. The updated guidelines
generally are more stringent than the previous rules, based on recommendations
of federal health and safety agencies, including the Environmental Protection
Agency and the Food and Drug Administration. However, we do not believe these
guidelines will have a material impact on our operations. Among the guidelines
are limits for specific absorption rate for evaluation of certain hand-held
devices such as cellular telephones, as well as guidelines for the evaluation
of cellular transmitting facilities. We believe that the cellular telephones
currently marketed and generally used, as well as our transmission facilities,
comply with the new standards. Moreover, the FCC preempted state and local
government regulation of cellular and other personal wireless services
facilities based on RF environmental effects to the extent that such facilities
comply with the FCC's rules concerning such RF emissions. Potential
interference to medical devices involves primarily digital transmissions rather
than analog. Industry, government and medical experts have been conducting
tests and developing methods for reducing or eliminating such interference.
Information Provided to WCAS VIII
This Prospectus contains projections that were prepared in June 1998 and
which we included herein solely because they were shown to WCAS VIII prior to
Acquisition's entering into the Merger Agreement and because they were included
in the registration statement on Form S-4 filed in connection with the Merger.
None of WCAS VIII, the Initial Purchasers or their affiliates prepared the
projections or expect them to be achieved. WCAS VIII has informed us that, in
its judgment, it does not expect the projected results to be achieved and,
accordingly, it did not rely on the projections in negotiating the Merger
Agreement. The projections have not been updated since June 1998 and we do not
intend to update the projections publicly. The projections were not prepared
with a view toward complying with the guidelines established by the American
Institute of Certified Public Accountants with respect to prospective financial
information. Accordingly, prospective investors in the notes are cautioned not
to place any reliance on the projections. See "Forward-Looking Statements."
We have also informed WCAS VIII that our internal financial forecasts
(upon which the projected financial performance provided to WCAS VIII was based
in part) are, in general, prepared solely for internal use and capital
budgeting and other management decision-making purposes and are subjective in
many respects and thus susceptible to various interpretations and periodic
revision based on actual experience and business developments. Projected
information of this type is based on estimates and assumptions that are
inherently subject to significant economic and competitive uncertainties and
contingencies, all of which are difficult to predict and many of which are
beyond our control, or the control of WCAS VIII and its financial advisors.
Many of the assumptions upon which the foregoing projected financial
performance was based, none of which were approved by WCAS VIII, Acquisition or
the Initial Purchasers, are dependent upon economic forecasting (both general
and specific to our businesses), which is inherently uncertain and subjective.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORECASTED RESULTS ARE INDICATIVE
OF OUR FUTURE PERFORMANCE OR THAT ACTUAL RESULTS WILL NOT BE MATERIALLY HIGHER
OR LOWER THAN THOSE FORECASTED. INCLUSION OF THE PROSPECTIVE FINANCIAL
INFORMATION IN THIS PROSPECTUS SHOULD NOT BE REGARDED AS A REPRESENTATION BY
ANY PERSON THAT THE FORECASTED RESULTS WILL BE ACHIEVED. None of WCAS VIII,
Acquisition, our company, the Initial Purchasers or their respective financial
advisors assumes any
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responsibility for the ultimate outcome of any of such projections. Inclusion
of the foregoing projections should not be regarded as an indication that WCAS
VIII, Acquisition, our company, the Initial Purchasers or any other person who
received such information considers it an accurate prediction of future events.
Absence of Public Market for the New Notes
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were sold to the Initial Purchasers on December 14, 1998 and then resold
to "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act) and pursuant to offers and sales outside the United States
within the meaning of Regulation S under the Securities Act and are eligible
for trading in the Private Offerings, Resale and Trading through Automated
Linkages (PORTAL) market. The New Notes are securities for which there
currently is no market. If the New Notes are trades, they may trade at a
discount from their face value, depending upon prevailing interest rates, the
market for similar securities and other factors. The Company and Centennial
Cellular Operating do not intend to apply for listing of the New Notes on any
securities exchange or the Nasdaq National Market. Accordingly, there can be no
assurance as to the development or liquidity of any trading market for the New
Notes.
Historically, there has been substantial volatility in the market for
non-investment grade debt, such as the notes, due to market disruptions. This
volatility has increased in recent months and the liquidity of non-investment
grade securities has declined significantly. We cannot assure you that the
market, if any, for the notes will not be subject to similar disruptions. Any
such disruptions may have a material adverse effect on the holders of the
notes.
Consequences of the Exchange Offer to Non-Tendering Holders of the Old Notes
In the event the Exchange Offer is consummated, the Company and
Centennial Cellular Operating will not be required to register the Old Notes
under the Securities Act. In such event, the New Notes would rank pari passu
with the Old Notes, and the holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions from registration requirements
under the securities laws, including the Securities Act. A reduction of the
aggregate principal amount of the Old Notes outstanding as a result of the
consummation of the Exchange Offer may have an adverse effect on the ability of
holders of the Old Notes to transfer such Old Notes.
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THE MERGER
The following is a summary of the structure of the Merger that was
consummated on January 7, 1999. This summary does not purport to be complete
and is qualified in its entirety by reference to the Merger Agreement, a copy
of which has been filed with the Commission.
Structure of the Merger
Pursuant to the Merger Agreement and subject to the terms and conditions
set forth therein, Acquisition merged with and into Centennial and Centennial
was the surviving corporation in the Merger. At the effective time of the
Merger, by virtue of the Merger,
. each issued and outstanding share of Class A Common Stock, par value
$.01 per share, of Centennial was converted into the right to receive,
subject to proration so that the aggregate number of common shares of
the surviving corporation received by the holders of Common Shares is
equal to 7.1% of the common shares of the surviving corporation
outstanding immediately after the effective time of the Merger, either
(a) one common share of the surviving corporation or (b) $41.50 in cash
(the "Cash Merger Consideration");
. all outstanding shares of Class B Common Stock, par value $.01 per
share, were converted into the right to receive the Cash Merger
Consideration; and
. all outstanding shares of Convertible Preferred Stock and Second Series
Convertible Preferred Stock of Centennial were converted into the right
to receive the Cash Merger Consideration on an as-converted basis.
The surviving corporation in the Merger continues to operate under the
name "Centennial Cellular Corp."
Financing of the Merger
A total of approximately $1.87 billion was required to pay the cash
consideration to Centennial stockholders in the Merger, repay the Company's
indebtedness (including the purchase of Tendered Notes in the Debt Tender
Offers), pay the related fees and expenses and purchase the Pledged Securities.
See "Summary--The Merger--Sources and Uses of Funds." The sources of funding
for the Merger and the related transactions were the Credit Facility, the
Mezzanine Financing, the Common Equity Contribution and the Offering of the Old
Notes (collectively, the "Merger Financing").
In connection with the Merger, Centennial Cellular Operating and its
Puerto Rico subsidiary borrowed approximately $936.0 million under the $1,050
million Credit Facility. A group of lenders provided Centennial Cellular
Operating with the Credit Facility, consisting of an $900 million term loan
facility and a $150 million revolving credit facility. See "Description of
Certain Indebtedness."
WCAS Capital Partners III, L.P., an investment partnership affiliated
with WCAS VIII, purchased, at the time of the consummation of the Merger,
unsecured subordinated notes due 2009 of Centennial and common shares of
Centennial at an aggregate price of $180 million. In addition, the other Equity
Investors made a Common Equity Contribution of $400 million to purchase Common
Shares at the time of the consummation of the Merger. In total, the Equity
Investors owned 9,638,554 Common Shares immediately following the consummation
of the Merger (prior to giving effect to a three-for-one stock split effected
on January 8, 1999).
41
<PAGE>
Debt Tender Offers and Solicitations
In connection with the Merger, Centennial consummated the Debt Tender
Offers to acquire approximately 99% of its outstanding Tendered Notes and to
eliminate the interest expense associated with the Old Notes. Pursuant to
consent solicitations which were made in order to enhance the operating and
financial flexibility of the Company, Centennial entered into supplemental
indentures, approved by the required number of holders of the Tendered Notes,
to eliminate most of the restrictive covenants contained in the indentures
governing the Tendered Notes and to amend certain other provisions contained in
such indentures. As of the expiration date of the Debt Tender Offers, valid
irrevocable tenders and consents had been received from 99.4% of holders of the
2001 Notes and 99.8% of holders of the 2005 Notes. From time to time in the
future, Centennial or its affiliates may seek to acquire any Tendered Notes
that remain outstanding following the consummation the Debt Tender Offers,
through open market purchases, privately negotiated transactions, tender
offers, exchange offers or otherwise, upon such terms and at such prices as it
may determine, which may be more or less than the price to be paid pursuant to
the related Debt Tender Offer and could be for cash or other consideration. In
addition, the Company may elect to redeem or defease any Tendered Notes that
remain outstanding in accordance with the terms of the applicable Tendered Note
indenture.
42
<PAGE>
USE OF PROCEEDS
The Company and Centennial Cellular Operating will not receive any
proceeds from the issuance of New Notes pursuant to the Exchange Offer. The
Offering resulted in net proceeds to the Company, as the successor to
Centennial Finance Corp., and Centennial Cellular Operating of approximately
$353.6 million (after payment of underwriting discounts and other issuance
costs aggregating approximately $16.5 million). The net proceeds from the
Offering, the Mezzanine Financing and the Common Equity Contribution, together
with borrowings under the Credit Facility, were used to (i) fund payment of the
cash consideration in the Merger, (ii) repay or repurchase certain indebtedness
of Centennial (including the Tendered Notes purchased in the Debt Tender
Offers), (iii) pay the fees and expenses incurred in connection with the
Merger, the Merger Financings and the other transactions contemplated by the
Merger Agreement, and (iv) purchase the pledged securities.
The following table sets forth the sources and uses of funds in
connection with the financing of the Merger as of the Merger's consummation on
January 7, 1999:
<TABLE>
<CAPTION>
Amount
---------------------
(Dollars in millions)
<S> <C>
Sources of Funds
Credit Facility(1)...................................... $ 936.0
Old Notes(2)............................................ 370.0
Mezzanine Financing of parent (Centennial)(3)........... 180.0
Common Equity Contribution.............................. 400.0
--------
Total Sources of Funds................................ $1,886.0
========
Uses of Funds
Cash Merger Consideration(4)............................ $1,203.5
Repayment of net existing indebtedness and preferred
dividends accrued(5)................................... 507.0
Restricted interest escrow investment(2)................ 57.5
Premiums on Debt Tender Offers for Tendered Notes(6).... 40.0
Fees and expenses(7).................................... 78.0
--------
Total Uses of Funds................................... $1,886.0
========
</TABLE>
- --------
(1) The Credit Facility consists of three term loans in aggregate principal
amount of $900 million and a revolving credit facility in an aggregate
principal amount of up to $150 million. The borrowers under these
facilities are Centennial Cellular Operating and, for a portion thereof,
Centennial de Puerto Rico. Centennial, together with the direct and
indirect subsidiaries of Centennial Cellular Operating (excluding initially
Centennial de Puerto Rico and its subsidiaries, which subsidiaries have
guaranteed the obligations of Centennial de Puerto Rico under the Credit
Facility), have unconditionally guaranteed, jointly and severally, the
obligations of the borrowers under such facilities. See "Description of
Certain Indebtedness."
(2) Upon consummation of the Merger, approximately $57.5 million of the
proceeds from the Old Notes was deposited with the Trustee to purchase
pledged securities to pay the first three scheduled interest payments on
the Notes at the stated interest rate. See "Description of the New Notes--
Security."
(3) WCAS Capital Partners III, L.P., an investment partnership affiliated with
WCAS VIII, purchased, at the time of the consummation of the Merger,
unsecured subordinated notes due 2009 and common shares of Centennial at an
aggregate price of $180 million. The issuance of $180 million principal
amount of Mezzanine Financing has been allocated as $157.5 million debt and
$22.5 million equity.
43
<PAGE>
(4) Includes $1,033.1 million in consideration for the Common Shares, $128.2
million in consideration for the Common Shares issued upon conversion of
Centennial's preferred stock and $42.3 million in consideration for the
settlement of outstanding options to purchase Common Shares.
(5) Represents the amount of debt tender offer payments and funds required to
repay total existing indebtedness of Centennial. In connection with the
Merger, Centennial consummated the Debt Tender Offers to acquire its
outstanding 8 7/8% Senior Notes due 2001 and 10 1/8% Senior Notes due 2005.
At the expiration of the Debt Tender Offers, Centennial paid consent
solicitation fees and tender offer payments to 99.4% of holders of the 2001
Notes and 99.8% of holders of the 2005 Notes. The amount required to repay
existing indebtedness and preferred dividends accrued of Centennial and the
Notes includes accrued interest of $2.3 million and preferred dividends of
$16.4 million, less cash on hand, which was approximately $18.7 million.
(6) The amount required to pay the debt tender premiums associated with the
debt tender offers for the outstanding notes. The amount shown above
includes the consent solicitation fees associated with the debt tender
offers.
(7) Assumed for simplicity to be paid by Centennial and includes all fees and
expenses related to the Merger, this Offering and the transactions
contemplated thereby.
44
<PAGE>
THE EXCHANGE OFFER
Terms of the Exchange Offer
The holders of the Old Notes currently are entitled to certain
registration rights under the Registration Rights Agreement. Pursuant thereto,
the Company and Centennial Cellular Operating became obligated to file with the
Commission a registration statement covering the offer by the Company and
Centennial Cellular Operating to the holders of the Old Notes to exchange all
of the Old Notes for the New Notes. The Exchange Offer being made hereby, if
consummated, will satisfy the Company's and Centennial Cellular Operating's
obligations under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company and Centennial
Cellular Operating will accept all Old Notes properly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The
Company will issue $1,000 principal amount of New Notes in exchange for each
$1,000 principal amount of outstanding Old Notes accepted in the Exchange
Offer. Holders may tender some or all of their Old Notes pursuant to the
Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by the holders thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holders'
business, and such holders have no arrangement with any person to participate
in the distribution of such New Notes. See Morgan Stanley & Co., Inc., SEC No-
Action Letter (available June 5, 1991), Exxon Capital Holdings Corporation, SEC
No-Action Letter (available May 13, 1988), and Shearman & Sterling, SEC No-
Action Letter (available July 2, 1993).
If any person were to be participating in the Exchange Offer for the
purposes of distributing securities in a manner not permitted by the
Commission's interpretation, such person (i) could not rely on the position of
the staff of the Commission enunciated in Exxon Capital Holdings Corporation or
similar interpretive letters and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. See "Plan of Distribution."
As of the date of this Prospectus, there was $370,000,000 aggregate
principal amount of the Old Notes outstanding. This Prospectus, together with
the Letter of Transmittal, is being sent to all such registered holders as of
the date of this Prospectus.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purposes of receiving the New Notes from the Company and
delivering New Notes to such holders.
45
<PAGE>
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
If Old Notes are not tendered, they shall remain outstanding and shall
continue to accrue interest from their date of issue, December 14, 1998, at a
rate of 10 3/4% per annum.
In the event the Exchange Offer is consummated, the Company will not be
required to register the Old Notes. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to registration
requirements under the securities laws, including the Securities Act. See "Risk
Factors--Consequences of the Exchange Offer to Non-Tendering Holders of the Old
Notes."
The term "Expiration Date" shall mean the expiration date set forth on
the cover page of this Prospectus, unless the Company, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by written notice and will mail to the record
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Such announcement may state that the Company is extending the Exchange
Offer for a specified period of time.
In addition, the Company will issue notice of each such extension by
press release or other public announcement as contemplated by the provisions of
Rule 14e-1 promulgated under the Exchange Act.
Interest on the New Notes
The New Notes will bear interest from December 14, 1998, payable
semiannually on June 15 and December 15 of each year, commencing June 15, 1999,
at a rate of 10 3/4% per annum.
Procedures for Tendering
The tender to the Company of Old Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
A holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Old Notes being tendered and any required
signature guarantees, to the Exchange Agent at its address set forth on the
back cover of this Prospectus on or prior to the Expiration Date (or complying
with the procedure for book-entry transfer described below) or (ii) complying
with the guaranteed delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are
to be issued (and any untendered Old Notes are to be reissued) in the name of
the registered holder (which term, for the purposes described herein, shall
include any participant in The Depository Trust Company (also referred to as a
book-entry transfer facility) whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In
any other case, the tendered Old Notes must be endorsed or accompanied by
written instruments of transfer in form satisfactory to the Company and duly
executed by the registered holder, and the signature on the endorsement or
instrument of transfer must be guaranteed by a commercial bank or trust company
located or having an office or correspondent in the United States, or by a
member firm of a national securities exchange or of the
46
<PAGE>
National Association of Securities Dealers, Inc., which firm must also be a
member of or participant in the Securities Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Program or the Stock Exchanges
Medallion Program (any of the foregoing being hereinafter referred to as an
"Eligible Institution"). If the New Notes and/or Old Notes not exchanged are to
be delivered to an address other than that of the registered holder appearing
on the note register for the Notes, the signature in the Letter of Transmittal
must be guaranteed by an Eligible Institution.
The method of delivery of Old Notes and all other documents is at the
election and risk of the holder. If sent by mail, it is recommended that
registered mail, return receipt requested, be used, proper instance be
obtained, and the mailing be made sufficiently far in advance of the Expiration
Date to permit delivery to the Exchange Agent on or before the Expiration Date.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Old Notes at the book-
entry transfer facility for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution, that is a
participant in the book-entry transfer facility's system may make book-entry
delivery of Old Notes by causing such book-entry transfer facility to transfer
such Old Notes into the Exchange Agent's account with respect to the Old Notes
in accordance with the book-entry transfer facility's procedures for such
transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's accounts at the book-entry transfer
facility, an appropriate Letter of Transmittal with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth on the
back cover page of this Prospectus on or prior to the Expiration Date, or, if
the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures.
If a holder desires to accept the Exchange Offer, and time will not
permit a Letter of Transmittal or Old Notes to reach the Exchange Agent before
the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if the Exchange Agent has
received at its office listed on the back cover hereof on or prior to the
Expiration Date a letter, telegram or facsimile transmission from an Eligible
Institution setting forth the name and address of the tendering holder, the
names in which the Old Notes are registered and, if possible, the certificate
numbers of the Old Notes to be tendered, and stating that the tender is being
made thereby and guaranteeing that within five New York Stock Exchange trading
days after the date of execution of such letter, telegram or facsimile
transmission by the Eligible Institution, the Old Notes, in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the book-entry transfer facility), will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Old Notes being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied or preceded
by a properly completed Letter of Transmittal and any other required
documents), the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for
the purposes described in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer
facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Old Notes tendered pursuant to a Notice
of Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents) and the
tendered Old Notes.
47
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Old Notes. None of the Company, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give such
notification.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of such holder's business, (ii) such holder has
no arrangement with any person to participate in the distribution of such New
Notes, (iii) such holder is not an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company, and (iv) if such holder is a broker or a
dealer (as defined in the Exchange Act), that it acquired the Old Notes for its
own account as a result of market-making activities on other trading activities
and that it has not entered into any arrangement or understanding with the
Company or any "affiliate" of the Company to distribute the New Notes received
in the Exchange Offer.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written
transmission notice of withdrawal via telegram, telex, facsimile transmission
or letter must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or numbers and principal amount
of such Old Notes), (iii) be signed by the Depositor in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the depositor
withdrawing the tender, and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
withdrawal notices will be determined by the Company, whose determination shall
be final and binding on all parties. Any Old Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer, and no
New Notes will be issued with respect thereto unless the Old Notes so withdrawn
are validly retendered. Any Old Notes that have been tendered but that are not
accepted for exchange will be returned to thsoon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "Procedures for Tendering" at any time prior to the
Expiration Date.
Conditions
The Exchange Offer is not subject to any conditions other than that the
Exchange Offer does not violate applicable law or any applicable interpretation
of the staff of the Commission.
48
<PAGE>
Exchange Agent
[ ] has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance and requests for additional copies of
this Prospectus or of the Letter of Transmittal and deliveries of completed
Letters of Transmittal with tendered Old Notes should be directed to the
Exchange Agent addressed as follows:
By Hand/Overnight Express:
By Mail:
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company and Centennial Cellular Operating. The principal
solicitation for tenders pursuant to the Exchange Offer is being made by mail.
Additional solicitations may be made by officers and regular employees of the
Company and their affiliates in person, by telegraph or telephone.
The Company and Centennial Cellular Operating will not make any payments
to brokers, dealers, or other persons soliciting acceptances of the Exchange
Offer. The Company and Centennial Cellular Operating will, however, pay the
Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company and Centennial Cellular Operating may also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Old Notes, and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting
and legal fees, but not including transfer taxes, if any, relating to the sale
or disposition of the Old Notes by a holder of the Old Notes, will be paid by
the Company, and are estimated in the aggregate to be $ .
49
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual consolidated capitalization
of Centennial as of November 30, 1998 and (ii) the consolidated capitalization
of Centennial and Centennial Cellular Operating at such date as adjusted to
give effect to the Merger, the Merger Financings and related transactions. This
table should be read in conjunction with "The Merger," the consolidated
financial statements of Centennial, including the notes thereto, included
herein and the unaudited pro forma financial statements included herein. See
"Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
As of November 30, 1998
-----------------------------------------
Actual As Adjusted
---------- ------------------------------
Centennial
Centennial Centennial Cellular Operating
---------- ---------- ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash.................... $ 32,516 $ 13,754 $ 13,754
======== ========= =========
Restricted
investments(1)......... -- $ 57,501 $ 57,501
======== ========= =========
Debt (including current
portion):
Credit Facility(2)...... -- $ 936,000 $ 936,000
Notes issued in the
Offering(1)............ -- 370,000 370,000
Notes issued in
Mezzanine Financing.... -- 157,500(3) --
Existing debt........... $507,000 -- --
-------- --------- ---------
Total debt.............. 507,000 1,463,500 1,306,000
Preferred stock......... 193,539 -- --
Stockholders' equity
(deficit).............. 38,927 (583,375) (425,875)
-------- --------- ---------
Total capitalization.... $739,446 $ 880,125 $ 880,125
======== ========= =========
</TABLE>
- --------
.(1) Upon consummation of the Merger, approximately $57,501 of the proceeds
from the Old Notes was used to purchase securities pledged to pay the
first three scheduled interest payments on the notes. See "Description of
the New Notes--Security."
(2) The Company has the ability to borrow an additional $114,000 for general
corporate purposes pursuant to a revolving credit facility under the Credit
Facility.
(3) Represents the debt portion of $180,000 principal amount of subordinated
notes and Common Shares issued in the Mezzanine Financing.
50
<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth certain selected unaudited historical
consolidated financial information for Centennial Cellular Corp. and its
subsidiaries (i) as of November 30, 1998 and for the six months ended November
30, 1998 and 1997 and (ii) for the five years ended May 31, 1998. The following
table should be read in conjunction with "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Financial Information" and the consolidated financial
statements, including in each case the notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Six months ended
November 30, Years ended May 31,
---------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Domestic operating
revenue................ $ 112,836 $ 90,607 $ 182,944 $ 145,120 $ 112,197 $ 85,419 $ 56,373
Puerto Rico operating
revenue................ 51,762 20,157 54,557 5,903 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating revenue
....................... 164,598 110,764 237,501 151,023 112,197 85,419 56,373
Cost of services and
equipment sold......... 31,586 27,024 54,818 38,228 26,129 22,152 13,424
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............ 133,012 83,740 182,683 112,795 86,068 63,267 42,949
Selling, general and
administrative......... 51,442 39,685 81,790 55,132 34,188 26,055 17,787
Depreciation and
amortization........... 64,543 52,780 114,194 83,720 70,989 65,642 47,652
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. 17,027 (8,725) (13,301) (26,057) (19,109) (28,430) (22,490)
Interest expense........ 21,940 20,578 45,155 33,379 27,886 23,357 21,040
Gain on sale of assets.. 9,611 12 5 3,819 8,310 -- --
Income from Minority
Cellular Investment
Interests(1)........... 7,490 7,452 13,069 15,180 10,473 4,670 3,645
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income tax benefit and
minority interest...... 12,188 (21,839) (45,382) (40,437) (28,212) (47,117) (39,885)
Income tax expense
(benefit).............. 5,836 (5,683) (13,597) (7,295) (11,596) (14,456) (11,780)
Minority interest in
income (loss) of
subsidiaries(2)........ (9) (256) 162 153 15 69 (321)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 6,343 $ (16,412) $ (31,947) $ (33,295) $ (16,631) $ (32,730) $ (27,784)
========== ========== ========== ========== ========== ========== ==========
Dividend requirements on
preferred stock........ $ 8,226 $ 8,226 $ 16,451 $ 15,948 $ 13,590 $ 12,634 $ 11,678
========== ========== ========== ========== ========== ========== ==========
Income (loss) applicable
to common shares....... $ (1,883) $ (24,638) $ (48,398) $ (49,243) $ (30,221) $ (45,364) $ (39,462)
========== ========== ========== ========== ========== ========== ==========
Income (loss) per common
share-basic and
diluted................ $ (0.07) $ (0.93) $ (1.85) $ (1.83) $ (1.13) $ (1.93) $ (3.28)
========== ========== ========== ========== ========== ========== ==========
Weighted average number
of basic common shares
outstanding during the
period................. 25,629,000 26,601,000 26,181,000 26,934,000 26,770,000 23,544,000 12,033,000
========== ========== ========== ========== ========== ========== ==========
Excess (deficiencies) of
earnings to fixed
charges................ $ 12,188 $ (21,839) $ (45,382) $ (43,189) $ (33,412) $ (47,117) $ (39,885)
========== ========== ========== ========== ========== ========== ==========
Other Consolidated Data:
EBITDA(3)............... $ 81,570 $ 43,496 $ 99,208 $ 55,852 $ 47,793 $ 34,444 $ 24,080
EBITDA margin........... 49.6% 39.3% 42.1% 37.4% 44.2% 41.7% 43.6%
Cash flows provided by
(used in):
Operating activities.... $ 56,265 $ 26,003 $ 54,771 $ 26,956 $ 24,282 $ 10,390 $ (3,558)
Investing activities.... (33,389) (69,411) (126,111) (118,094) (78,765) (79,834) (64,749)
Financing activities.... (4,980) 16,531 42,545 67,256 152 182,722 65,702
Capital expenditures.... 48,765 71,963 129,300 88,990 38,082 17,538 8,947
Ratio of earnings to
fixed charges(4)....... 1.52 -- -- -- -- -- --
Net Pops(5)(6).......... 10,792,000 10,846,000 10,846,000 10,846,000 10,661,000 6,491,500 5,020,400
Subscribers(5).......... 384,600 268,600 322,200 203,900 135,000 85,900 49,000
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Six months ended
November 30, Years ended May 31,
-------------------- -----------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(Dollars in thousands, except as noted)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Rural Cellular
Data:
EBITDA(3)............... $ 60,264 $ 42,393 $ 86,669 $ 64,278 $ 48,208 $ 34,511 $ 24,080
EBITDA margin........... 53.4% 46.8% 47.8% 44.9% 44.6% 41.8% 43.6%
Capital expenditures.... $ 18,150 $ 18,287 $ 38,996 $ 38,921 $ 22,604 $ 17,319 $ 8,947
Net Pops (excluding
Minority Cellular
Investment
Interests)(5)(6)....... 5,777,000 5,777,000 5,777,000 5,777,000 5,592,000 5,412,100 3,941,000
Subscribers............. 285,900 217,900 252,700 187,000 135,000 85,900 49,000
Penetration(5)(7)....... 4.9% 3.8% 4.4% 3.2% 2.4% 1.6% 1.2%
Churn rate.............. 1.8% 1.8% 1.8% 2.3% 2.5% 2.5% 3.0%
Average monthly revenue
per unit (actual
dollars)(8)............ $ 68 $ 76 $ 68 $ 73 $ 74 $ 68 $ 69
Acquisition cost per
cellular customer
(actual dollars)(9).... $ 303 $ 309 $ 308 $ 343 $ 351 $ 431 $ --
Cell sites(5)........... 379 295 363 212 185 -- --
Retail and service
centers(5)............. 65 57 59 41 25 -- --
Other Centennial de
Puerto Rico Data:
EBITDA(3)............... $ 21,306 $ 1,103 $ 12,539 $ (8,426) $ (415) $ (67) --
EBITDA margin........... 41.2% 5.5% 23.1% n.a. n.a. n.a. --
Capital expenditures.... $ 30,615 $ 53,676 $ 90,304 $ 50,069 $ 15,478 $ 219 --
Net Pops(5)............. 3,839,000 3,839,000 3,839,000 3,839,000 3,839,000 -- --
Subscribers(5).......... 98,700 50,700 69,500 16,900 -- -- --
Penetration(5)(7)....... 2.6% 1.3% 1.8% 0.4% -- -- --
Churn rate.............. 3.6% 2.9% 4.6% 2.6% -- -- --
Average monthly revenue
per unit (actual
dollars)(8)............ $ 89 $ 102 $ 92 $ 113 -- -- --
Acquisition cost per
cellular customer
(actual dollars)(9).... $ 201 $ 159 $ 164 $ 310 -- -- --
Cell sites(5)........... 120 106 113 74 -- -- --
Retail and service
centers(5)............. 52 33 44 25 -- -- --
</TABLE>
<TABLE>
<CAPTION>
As of November 30, As of May 31,
------------------- --------------------------------------------
1998 1997 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets............ $ 849,844 $ 841,613 $847,417 $844,850 $785,812 $844,384 $502,384
Long-term Debt.......... 507,000 475,500 510,000 429,000 350,000 350,000 250,000
Redeemable preferred
stock.................. 193,539 193,539 193,539 193,539 189,930 176,340 163,706
Common stockholders'
equity................. 38,927 66,653 40,409 112,882 160,006 188,831 24,143
</TABLE>
- --------
(1) Represents our proportionate share of profits and losses based on our
interest in earnings of limited partnerships controlled and managed by
other cellular operators which we account for on the equity method.
(2) Represents the percentage share of earnings of our consolidated
subsidiaries that is allocable to unaffiliated holders of minority
interests.
(3) EBITDA is defined, for any period, as earnings before income from Minority
Cellular Investment Interests, allocations to minority interests in
consolidated subsidiaries, interest expense, interest income, income taxes,
depreciation and amortization and gain on sale of assets. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. EBITDA should not
be considered an alternative to net income as a measure of our operating
results or to cash flow as a measure of liquidity. In addition, although
the EBITDA measure of performance is not recognized under generally
accepted accounting principles, it is widely used by various companies as a
general measure of a company's performance because it assists in comparing
performance on a relatively
52
<PAGE>
consistent basis across companies without regard to depreciation and
amortization, which can vary significantly depending on accounting methods
(particularly where acquisitions are involved) or non-operating factors such
as historical cost bases. Because EBITDA is not calculated identically by
all companies, the presentation herein may not be strictly comparable to
other similarly titled measures of other companies.
(4) For the purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, minority interest and
extraordinary items, plus fixed charges. Fixed charges include interest
expense on all indebtedness, amortization of deferred debt issuance costs
and one-third of rental expense on operating leases representing that
portion of rental expense deemed to be attributable to interest. The ratio
of earnings to fixed charges is less than one-to-one for all periods
presented and, therefore, earnings are inadequate to cover fixed charges.
The amount by which earnings exceeded (are less than) fixed charges for the
six months ended November 30, 1998 and 1997 are $12,188 and $(21,839),
respectively, and for the years ended May 31, 1998, 1997, 1996, 1995 and
1994 are $(45,382), $(43,189), $(33,412), $(47,117) and $(39,885),
respectively.
(5) As of period-end.
(6) For the years ended May 31, 1995 and May 31, 1994, the number of Net Pops
is based on 1990 population figures of an MSA or RSA, as derived from the
1990 U.S. Census data.
(7) The penetration rate equals the percentage of total population in our
service areas who are subscribers to our cellular service as of period-end.
(8) ARPU equals total monthly revenue per average subscriber.
(9) For the year ended as of the date shown. Determined for each period as
total marketing cost plus cost of equipment sales (net of associated
revenue), divided by the total subscriber activations during the fiscal
year.
53
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following pro forma consolidated financial statements have been
derived by the application of pro forma adjustments to the Company's historical
consolidated financial statements included herein. The unaudited pro forma
statement of operations and other unaudited pro forma supplemental financial
information gives effect to (i) the Merger Financings and (ii) the Debt Tender
Offers and the repayment or conversion of all other existing indebtedness of
the Company. The pro forma balance sheet information as of November 30, 1998
has been prepared as if such transactions had occurred on that date, and the
pro forma statement of operations information for the fiscal year ended May 31,
1998 and the six months ended November 30, 1998 has been prepared as if such
transactions had occurred at June 1, 1997. The adjustments are described in the
accompanying notes. The pro forma consolidated financial statements should not
be considered indicative of actual results that would have been achieved had
the Merger and related transactions been consummated on the date or for the
periods indicated and do not purport to indicate balance sheet data or results
of operations as of any future date or for any future period. The pro forma
consolidated financial statements should be read in conjunction with the
Company's historical financial statements and the notes thereto included
herein.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities will not be affected by the transaction.
54
<PAGE>
CENTENNIAL CELLULAR CORP.
CENTENNIAL CELLULAR OPERATING CO. LLC
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
November 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
------------------------
Centennial
Pro Forma Cellular
Historical Adjustments(a) Centennial Operating(b)
---------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 32,516 $ (18,762) $ 13,754 $ 13,754
Restricted Cash........ 57,501 57,501 57,501
Accounts receivable.... 45,115 -- 45,115 45,115
Inventory--Phones and
accessories........... 9,287 -- 9,287 9,287
Prepaid expenses and
other current assets.. 3,148 -- 3,148 3,148
--------- --------- --------- ---------
Total current
assets.............. 90,066 38,739 128,805 128,805
Property, plant and
equipment--net.......... 272,154 -- 272,154 272,154
Equity investments in
wireless systems--net... 78,178 -- 78,178 78,178
Debt issuance costs...... 7,450 53,441 60,891 60,891
Cellular telephone
licenses................ 213,235 -- 213,235 213,235
Personal communications
services license........ 59,650 -- 59,650 59,650
Goodwill................. 121,039 -- 121,039 121,039
Deferred income taxes.... -- 537 537 537
Other assets--net........ 8,072 -- 8,072 8,072
--------- --------- --------- ---------
Total assets......... $ 849,844 $ 92,717 $ 942,561 $ 942,561
========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable....... $ 9,153 -- $ 9,153 $ 9,153
Accrued expenses and
other liabilities..... 72,004 $ (18,721) 53,283 53,283
--------- --------- --------- ---------
Total current
liabilities......... 81,157 (18,721) 62,436 62,436
Long-term liabilities
Long-term debt......... 507,000 (507,000) -- --
Credit Facility........ -- 936,000 936,000 936,000
Notes offered hereby... -- 370,000 370,000 370,000
Notes issued in
Mezzanine Financing... -- 157,500 157,500 --
Deferred income taxes.. 29,221 (29,221) -- --
Preferred stock--
convertible redeemable.. 186,287 (186,287) -- --
Preferred stock--second
series convertible
redeemable.............. 7,252 (7,252) -- --
Stockholders' equity:
Common equity and
additional paid-in
capital............... 350,074 61,384 411,458 350,074
Accumulated deficit.... (277,895) (716,938) (994,833) (775,949)
Common Shares in
treasury.............. (30,614) 30,614 -- --
Deferred compensation.. (2,638) 2,638 -- --
--------- --------- --------- ---------
Total stockholders'
equity
(deficiency)........ 38,927 (622,302) (583,375) (425,875)
--------- --------- --------- ---------
Total liabilities
and stockholders'
equity............ $ 849,844 $ 92,717 $ 942,561 $ 942,561
========= ========= ========= =========
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet.
55
<PAGE>
CENTENNIAL CELLULAR CORP.
CENTENNIAL CELLULAR OPERATING CO. LLC
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements as of the
date noted. The Merger will be accounted for as a recapitalization which will
have no impact on the historical basis of the Company's assets and liabilities.
The pro forma financial data assumes that there are no dissenting stockholders
to the Merger.
(a) Pro forma adjustments to the Pro Forma Consolidated Balance Sheet are
summarized in the following table and are described in the notes that follow.
<TABLE>
<CAPTION>
Repayment of
Existing Debt
Retire Purchase and Preferred Transaction
Treasury Price of Compensation Dividends Fees and Total Net
Financing(1) Stock(2) Equity(3) Expenses(4) Accrued(5) Expenses(6) Adjustment
------------ -------- ----------- ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $1,828,499 -- $(1,161,208) $(42,332) $(565,721) $(78,000) $ (18,762)
Restricted cash......... 57,501 -- -- -- -- -- 57,501
Debt issuance costs..... -- -- -- -- (7,450) 60,891 53,441
Deferred income taxes... -- -- -- -- 537 -- 537
Accrued expenses and
other liabilities...... -- -- -- -- (18,721) -- (18,721)
Long term debt.......... -- -- -- -- (507,000) -- (507,000)
Credit Facility......... 936,000 -- -- -- -- -- 936,000
Notes issued in the
Offering............... 370,000 -- -- -- -- -- 370,000
Notes issued in
Mezzanine Financing.... 157,500 -- -- -- -- -- 157,500
Deferred tax liability.. -- -- -- (11,727) (17,494) -- (29,221)
Preferred stock--
convertible
redeemable............. -- -- (186,287) -- -- -- (186,287)
Preferred stock--second
series convertible
redeemable............. -- -- (7,252) -- -- -- (7,252)
Common equity and
additional paid-in
capital................ 422,500 -- (344,007) -- -- (17,109) 61,384
Accumulated Deficit--
Increase (decrease) in
retained earnings...... -- $(30,614) (623,662) (33,243) (29,419) -- (716,938)
Common Shares in
treasury............... -- 30,614 -- -- -- -- 30,614
Deferred compensation... -- -- -- 2,638 -- -- 2,638
</TABLE>
- -------
(1) Sources and uses of cash for the Merger Financing are as follows:
<TABLE>
<CAPTION>
Sources
-------
<S> <C>
Credit Facility............................... $ 936,000
Notes issued in the Offering.................. 370,000
Notes and equity issued in Mezzanine
Financing(i)................................. 180,000
Common Equity Contribution.................... 400,000
----------
Total........................................ $1,886,000
==========
Uses
----
Redemption of Common Shares................... $1,033,054
Redemption of Preferred Shares................ 128,154
Settlement of Options......................... 42,332
Repurchase of Tendered Notes.................. 357,000
Repayment of Existing Credit Facilities....... 150,000
Debt Retirement Premium....................... 40,000
Payment of Accrued Interest................... 2,271
Preferred Dividends Accrued................... 16,450
Interest Escrow for Notes offered hereby...... 57,501
Transaction Expenses.......................... 78,000
Decrease in Balance Sheet Cash................ (18,762)
----------
Total........................................ $1,886,000
==========
</TABLE>
(i) The issuance of $180,000 principal amount of subordinated notes and
Common Shares for $180,000 in cash in the Mezzanine Financing will be
allocated as $157,500 debt and $22,500 equity.
56
<PAGE>
- --------
(2) Represents the retirement of treasury shares.
(3) The adjustments represent the repurchase of Common Shares and preferred
stock from existing stockholders.
(4) The adjustments represent the following:
--Compensation expense of $42,332 ($31,608 after related tax effect)
related to the repurchase of all outstanding stock options at the
difference between $41.50 per share and the exercise price of the options,
assuming the respective option holders agree to such repurchase.
--Compensation expense of $2,638 ($1,635 after related tax effect) related
to the immediate vesting, at a change of control, of restricted stock
issued under the Company's 1993 Equity Incentive Plan.
(5) The adjustments represent the repayment of existing indebtedness and
related accrued interest and preferred dividends accrued by the Company,
including an estimated debt retirement premium of $42,000 ($26,040 after
related tax effect), and assumes all note holders tender their Tendered
Notes in the Debt Tender Offers. Such premium and unamortized deferred loan
costs of $7,450 ($4,619 after related tax effect) related to existing
indebtedness will be written off as an extraordinary charge upon repayment
of the existing indebtedness.
(6) The adjustment represents the estimated transaction fees and expenses of
$78,000. The portion of estimated transaction fees and expenses
attributable to the Credit Facility and the Notes offered hereby totals
$60,891 and will be recorded as debt issuance costs and will be amortized
over the expected life of the debt to be issued. Such estimated debt
issuance costs include estimated fees and expenses payable to banks and
related advisors. The remaining estimated transaction fees and expenses of
$17,109 represent costs associated with the equity transactions.
(b) The pro forma consolidated balance sheet of Centennial Cellular
Operating excludes $180,000 of gross proceeds from the Mezzanine Financing.
Centennial Cellular Operating's pro forma additional paid-in capital and
accumulated deficit were therefore not affected by a distribution of this
amount. Accumulated deficit is calculated as follows:
<TABLE>
<CAPTION>
Accumulated deficit
-------------------
<S> <C>
Historical................................................ $(277,895)
Retire treasury shares.................................... (30,614)
Distribution to Centennial................................ (404,778)
Settlement of options (net of tax)........................ (31,608)
Vesting of restricted stock (net of tax).................. (1,635)
Debt retirement premium (net of tax)...................... (24,800)
Write-off of deferred loan costs (net of tax)................ (4,619)
---------
$(775,949)
=========
</TABLE>
57
<PAGE>
CENTENNIAL CELLULAR CORP.
CENTENNIAL CELLULAR OPERATING CO. LLC
Unaudited Pro Forma Statement of Operations
For the Year Ended May 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
------------------------
Centennial
Pro Forma Cellular
Historical Adjustments Centennial Operating(a)
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues:
Service revenue......... $ 231,097 $ -- $ 231,097 $ 231,097
Equipment sales......... 4,719 -- 4,719 4,719
Interest income......... 1,685 (1,685)(b) -- --
--------- --------- --------- ---------
237,501 (1,685) 235,816 235,816
--------- --------- --------- ---------
Cost and expenses:
Cost of cellular
service................ 38,389 -- 38,389 38,389
Cost of equipment sold.. 16,429 -- 16,429 16,429
Selling, general and
administrative......... 81,790 750 (c) 82,540 82,540
Depreciation and
amortization........... 114,194 -- 114,194 114,194
--------- --------- --------- ---------
250,802 750 251,552 251,552
--------- --------- --------- ---------
Operating loss............ (13,301) (2,435) (15,736) (15,736)
Interest expense.......... 45,155 109,029 (d) 154,184 131,273
Gain on sale of assets.... 5 -- 5 5
Income from equity
investments.............. 13,069 -- 13,069 13,069
--------- --------- --------- ---------
Loss before income tax
benefit and minority
interests................ (45,382) (111,464) (156,846) (133,935)
Income tax expense
(benefit)................ (13,597) -- (e) (13,597) (13,597)
--------- --------- --------- ---------
Loss before minority
interest................. (31,785) (111,464) (143,249) (120,338)
Minority income in income
of subsidiaries.......... (162) -- (162) (162)
--------- --------- --------- ---------
Net loss.................. $ (31,947) $(111,464) $(143,411) $(120,500)
========= ========= ========= =========
Dividend on preferred
stock.................... $ 16,451 $ (16,451)(f) -- --
========= ========= ========= =========
Net loss applicable to
common stock............. $ (48,398) $ (95,013) $(143,411) $(120,500)
========= ========= ========= =========
Other Data:
EBITDA(g)............... $ 99,208 $ (750) $ 98,458 $ 98,458
Depreciation and
amortization........... 114,194 -- 114,194 114,194
Interest expense paid or
payable in cash........ 42,663 90,719 133,382 124,183
Cash flows provided by
(used in):
Operating activities.... 54,771 (91,469) (36,698) (27,499)
Investing activities.... (126,111) -- (126,111) (126,111)
Financing activities.... 42,545 -- 42,545 42,545
Pro forma ratio of earn-
ings to fixed
charges(h)............... -- -- -- --
</TABLE>
See Notes to Pro Forma Statements of Operations.
58
<PAGE>
CENTENNIAL CELLULAR CORP.
CENTENNIAL CELLULAR OPERATING CO. LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended November 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
-----------------------
Centennial
Pro Forma Cellular
Historical Adjustments Centennial Operating(a)
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues:
Service revenue........... $161,672 $ -- $161,672 $161,672
Equipment sales........... 2,926 -- 2,926 2,926
-------- -------- -------- --------
164,598 -- 164,598 164,598
-------- -------- -------- --------
Cost and expenses:
Cost of cellular service.. 22,124 -- 22,124 22,124
Cost of equipment sold.... 9,462 -- 9,462 9,462
Selling, general and
administrative........... 51,442 375 (c) 51,817 51,817
Depreciation and
amortization............. 64,543 -- 64,543 64,543
-------- -------- -------- --------
147,571 375 147,946 147,946
-------- -------- -------- --------
Operating income (loss)..... 17,027 (375) 16,652 16,652
Interest expense, net....... 21,940 55,464 (d) 77,404 65,637
Gain on sale of assets...... 9,611 -- 9,611 9,611
Income from equity
investments................ 7,490 -- 7,490 7,490
-------- -------- -------- --------
Income (loss) before income
tax benefit and minority
interests.................. 12,188 (55,839) (43,651) (31,884)
Income tax expense
(benefit).................. 5,836 -- (e) 5,836 5,836
-------- -------- -------- --------
Income (loss) before
minority interest.......... 6,352 (55,839) (49,487) (37,720)
Minority interest in income
of subsidiaries............ (9) -- (9) (9)
-------- -------- -------- --------
Net income (loss)........... $ 6,343 $(55,839) $(49,496) $(37,729)
======== ======== ======== ========
Dividend on preferred
stock...................... $ 8,226 $ (8,226)(f) -- --
======== ======== ======== ========
Net income (loss) applicable
to common stock............ $ (1,883) $(47,613) $(49,496) $(37,729)
======== ======== ======== ========
Other Data:
EBITDA(g)................. $ 81,570 $ (375) $ 81,195 $ 81,195
Depreciation and
amortization............. 64,543 -- 64,543 64,543
Interest expense paid or
payable in cash.......... 20,839 47,294 68,133 62,092
Cash flows provided by (used
in):
Operating activities...... 56,265 (47,669) 8,596 14,637
Investing activities...... (33,389) -- (33,389) (33,389)
Financing activities...... (4,980) -- (4,980) (4,980)
Ratio of earnings to fixed
charges(h)................. 1.52x -- -- --
</TABLE>
See Notes to Pro Forma Statements of Operations.
59
<PAGE>
CENTENNIAL CELLULAR CORP.
CENTENNIAL CELLULAR OPERATING CO. LLC
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(Dollars in thousands)
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
periods noted. The Merger will be accounted for as a recapitalization which
will have no impact on the historical basis of the Company's assets and
liabilities. The pro forma financial data assumes that there are no dissenting
stockholders to the Merger.
The pro forma adjustments to the Statement of Operations exclude (a) the
write-offs of $7,450 ($4,619 after related tax effect) of deferred loan costs
associated with the existing indebtedness, (b) the estimated $42,000 ($26,040
after related tax effect) of fees payable for the early retirement of existing
indebtedness, (c) $42,332 ($31,608 after related tax effect) of employee
compensation expenses relating to the exercise of the options, and (d) $2,638
($1,635 after related tax effect) deferred compensation expenses. Such amounts
represent non-recurring expenses which the Company anticipates will be
recorded in the Consolidated Statement of Operations for the period including
the Merger.
(a) The pro forma statement of operations of Centennial Cellular
Operating include all of the same adjustments made for Centennial noted below
except interest expense related to the Subordinated Notes described in the
table under note (d).
(b) To eliminate interest income on overnight deposits.
(c) Represents estimated monitoring fee to be paid to affiliates of WCAS
VIII and Blackstone.
(d) The pro forma adjustments to interest expense reflect the following:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
May 31, 1998 November 30, 1998
--------------------------------- ---------------------------------
Consolidated Centennial Consolidated Centennial
(including Parent) Rural Cellular (including Parent) Rural Cellular
------------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Credit Facility
Revolving Credit
Facility(1).......... $ 3,128 $ 3,128 $ 1,564 $ 1,564
Tranche A term
loans(2)............. 43,450 43,450 21,725 21,725
Tranche B term
loans(3)............. 18,380 18,380 9,190 9,190
Tranche C term
loans(4)............. 18,880 18,880 9,440 9,440
Notes issued in the
Offering(5)............ 39,775 39,775 19,888 19,888
Notes issued in
Mezzanine
Financing(6)........... 9,199 -- 6,041 --
Commitment fee(7)....... 570 570 285 285
-------- ------- ------- -------
Cash Interest Expense... 133,382 124,183 68,133 62,092
Notes issued in
Mezzanine
Financing(8)........... 11,441 -- 4,591 --
Amortization of discount
on subordinated
notes(9)............... 2,271 -- 1,135 --
Amortization of debt
issuance costs(10)..... 7,090 7,090 3,545 3,545
-------- ------- ------- -------
Pro forma interest
expense................ 154,184 131,273 77,404 65,637
Less: historical
interest expense on
debt repaid(11)........ (42,663) (42,663) (20,839) (20,839)
Less: historical
amortization of debt
issuance costs(12)..... (2,492) (2,492) (1,101) (1,101)
-------- ------- ------- -------
Total adjustment.... $109,029 $86,118 $55,464 $43,697
======== ======= ======= =======
</TABLE>
60
<PAGE>
- --------
(1) Represents interest on the Revolving Credit Facility using an assumed
interest rate of 8.69%, assuming $36.0 million drawdown at the Closing.
(2) Represents interest on an assumed $500 million of the Tranche A term loans
using an assumed interest rate of 8.69%.
(3) Represents interest on an assumed $200 million of the Tranche B term loans
using an assumed interest rate of 9.19%.
(4) Represents interest on an assumed $200 million of the Tranche C term loans
using an assumed interest rate of 9.44%.
(5) Represents interest on $370 million of the Notes using an interest rate of
10.75%.
(6) Represents cash interest portion of the $180 million (face amount) of the
subordinated notes issued in the Mezzanine Financing.
(7) Represents a 0.5% commitment fee on the unused portion of the Revolving
Credit Facility.
(8) Represents Paid in Kind portion of the $180 million of subordinated notes
issued in the Mezzanine Financing.
(9) Represents the amortization of the discount ($22.5 million) on the shares
issued to the holder of notes issued in the Mezzanine Financing.
(10) Represents amortization of deferred financing costs of $60.9 million over
the term of the related debt.
(11) Represents the elimination of historical interest expense paid or payable
in cash.
(12) Represents the elimination of historical amortization of deferred
financing fees.
A 0.125% increase or decrease in the assumed weighted average interest
rate applicable to the Credit Facility and the Notes issued in the Offering
would change the pro forma interest expense and income before taxes as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
May 31, 1998 November 30, 1998
------------ -----------------
<S> <C> <C>
Credit Facility
Revolving Credit Facility................. $ 45 $ 23
Tranche A term loans...................... 625 313
Tranche B term loans...................... 250 125
Tranche C term loans...................... 250 125
------ ----
Total................................... $1,170 $586
====== ====
</TABLE>
(e) No net tax benefit is provided for the pro forma adjustments to
earnings before taxes on the assumption that an offsetting increase to the
valuation allowance would be recorded with respect to the resultant tax loss
carryforward asset.
(f) To eliminate dividends on preferred stock redeemed as part of the
Merger.
(g) EBITDA is defined, for any period, as earnings before income from
Minority Cellular Investment Interests, allocations to minority interests in
consolidated subsidiaries, interest expense, interest income, income taxes,
depreciation and amortization, gain on sale of assets and income. EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness. EBITDA should not be considered
an alternative to net income as a measure of the Company's operating results or
to cash flow as a measure of liquidity. In addition, although the EBITDA
measure of performance is not recognized under generally accepted accounting
principles, it is widely used by various companies as a general measure of a
company's performance because it assists in comparing performance on a
relatively consistent
61
<PAGE>
basis across companies without regard to depreciation and amortization, which
can vary significantly depending on accounting methods (particularly where
acquisitions are involved) or non-operating factors such as historical cost
bases. Because EBITDA is not calculated identically by all companies, the
presentation herein may not be strictly comparable to other similarly titled
measures of other companies.
Pro forma EBITDA is calculated as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
May 31, 1998 November 30, 1998
--------------------------------- ---------------------------------
Consolidated Centennial Consolidated Centennial
(including Parent) Rural Cellular (including Parent) Rural Cellular
------------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Pro forma income (loss)
before minority
interest............... $(143,249) $(120,338) $(49,487) $(37,720)
Adjustments:
Interest expense...... 154,184 131,273 77,404 65,637
Income tax (benefit)
expense.............. (13,597) (13,597) 5,836 5,836
Depreciation and
amortization......... 114,194 114,194 64,543 64,543
Gain on sale of fixed
assets............... (5) (5) (9,611) (9,611)
Income from equity
investments.......... (13,069) (13,069) (7,490) (7,490)
--------- --------- -------- --------
Pro forma EBITDA........ $ 98,458 $ 98,458 $ 81,195 $ 81,195
========= ========= ======== ========
</TABLE>
(h) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as earnings before income taxes, minority
interest and extraordinary items, plus fixed charges. Fixed charges include
interest expense on all indebtedness, amortization of deferred debt issuance
costs, and one-third of rental expense on operating leases representing that
portion of rental expense deemed to be attributable to interest. Earnings were
insufficient to cover fixed charges on a pro forma basis for Centennial and
Centennial Cellular Operating, respectively, by $161.8 million and $138.9
million for the year ended May 31, 1998, and by $44.7 million and $32.9 million
for the six months ended November 30, 1998.
62
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is in a highly competitive business, competing with other
providers of cellular service and PCS and providers of telephone services using
different and competing technologies. Since August 1988, the Company has
acquired twenty-nine cellular telephone markets in the United States that it
owns and manages (the "Domestic Wireless Telephone Systems"). In addition, the
Company provides a broad range of wireless and wireline services throughout
Puerto Rico (the "Puerto Rico Systems"). The Company was the first entrant into
the Puerto Rico PCS market and also provides wireless local loop services to
both business and residential customers. The Company's wholly-owned subsidiary,
Lambda Communications Inc., a competitive local exchange carrier, is the only
authorized and operating provider of local telephone service in Puerto Rico
competing with the government-owned Puerto Rico Telephone Company.
The Company must continue to adapt its business to technological,
competitive and economic changes. It is dependent on its ability to increase
its number of subscribers, net of cancellations, and to achieve acceptable
revenue per subscriber levels in increasingly competitive markets. The Company
expects net losses to continue until such time as the Domestic Wireless
Telephone Systems, the Puerto Rico Systems and related investments associated
with the acquisition, construction and development of its Domestic Wireless
Telephone Systems and Puerto Rico telecommunications network plant generate
sufficient earnings to offset the costs of such activities. There can be no
assurance that profitability will be achieved in the foreseeable future.
The Company has been highly leveraged, and its leverage increased
substantially as a result of the Merger. The Company has required substantial
capital to operate, construct, expand and acquire wireless telephone systems,
to build-out its recently acquired Puerto Rico telecommunications network, and
to pay debt service and preferred stock dividends. Historically, the Company
has been dependent upon borrowings, the issuance of its equity securities and
operating cash flow to provide funds for such purposes. The Company currently
expects to rely on internally generated funds and borrowings under the Credit
Facility for its capital needs. There can be no assurance that it will continue
to have access to such sources of funds.
The Company earns a substantial portion of its revenue from customers of
other cellular providers who are roaming in the Company's markets. Roaming
rates per minute pursuant to reciprocal roaming arrangements have declined over
the last several years and the Company expects that such declines will continue
for the foreseeable future. While the Company benefits from lower roaming rates
when it remits to other cellular providers roaming charges incurred by the
Company's subscribers in other cellular providers' calling regions, the Company
receives less revenue per minute of use from customers roaming in its markets.
The Company believes, however, that a decline in roaming rates may be
beneficial to the Company on balance and consistent with a strategy of
increasing cellular traffic between the Company's cellular markets and
contiguous cellular markets served by other cellular operators. The Company has
implemented a strategy of aggressively pricing roaming rates to encourage other
cellular and PCS providers to include portions of the Company's service areas
within their home calling regions and to discourage wireless providers from
expanding their footprints into Centennial's service areas.
Six Months Ended November 30, 1998 Compared to Six Months Ended November 30,
1997
Revenue for the six months ended November 30, 1998 was $164.6 million, an
increase of $53.8 million or 49% over revenue of $110.8 million for the six
months ended November 30, 1997, reflecting growth in subscriptions to wireless
telephone service, of $54.2 million partially offset by reductions in rates
charged to subscribers of $5.5 million. Secondarily, the increase reflects
increased roamer usage of $11.2 million, partially offset by lower reciprocal
roaming rates with other wireless carriers of $6.1 million. The Puerto Rico
Wireless
63
<PAGE>
Telephone System accounted for $31.6 million or 59% of the total increase in
revenue. This increase reflects subscriber growth of $35.4 million, partially
offset by subscriber rate reductions of $3.8 million.
Revenue from the sale of wireless telephones and accessories to
subscribers for the six months ended November 30, 1998 increased by $0.5
million to $2.9 million or 20% as compared to the six months ended November 30,
1997. The increase in revenue was due to a larger number of telephone units
sold during the current six-month period. The Puerto Rico Wireless Telephone
System accounted for $1.0 million and $0.5 million of the equipment sales for
the six months ended November 30, 1998 and 1997, respectively.
Continued growth in revenue is dependent upon increased levels of
wireless subscriptions and maintenance of the current subscriber base and the
average revenue per subscriber. Wireless telephone subscribers at November 30,
1998 were approximately 384,600, an increase of 43% from the 268,600
subscribers at November 30, 1997. Increases from new activations of 207,000
were offset by subscriber cancellations of 91,000. The cancellations
experienced by the Company are primarily the result of competitive factors. The
Puerto Rico Wireless Telephone System had approximately 98,700 and 50,700
subscribers at November 30, 1998, and 1997, respectively, and, as a result,
accounted for 41% of the net increase in subscriptions.
Consolidated revenue per subscriber per month, based upon an average
number of subscribers for the six months ended November 30, 1998, was $74 as
compared to $78 for the six months ended November 30, 1997. The average monthly
revenue per subscriber was approximately $69 in the domestic markets, as
compared to approximately $89 in the Company's Puerto Rico Wireless Telephone
System. The Company expects that per subscriber revenue will continue to be
impacted by competition, the expansion of its local service calling areas and
lower reciprocal per minute roaming rates with other wireless carriers.
Cost of services during the six months ended November 30, 1998 was $22.1
million, an increase of $3.7 million or 20% from the six months ended November
30, 1997. The increase was primarily due to the continued growth of PCS
telephone service in Puerto Rico. Cost of services for the Puerto Rico Wireless
Telephone System was $9.6 million and $6.3 million for the six months ended
November 30, 1998 and 1997, respectively. Secondarily, the variable costs
associated with a larger revenue and subscription base and increased coverage
areas resulting from the continued expansion of the Company's network accounted
for approximately $0.4 million of the increase.
Cost of equipment sold during the six months ended November 30, 1998 was
$9.5 million, an increase of $0.8 million or 10% as compared to the six months
ended November 30, 1997. Domestic costs have declined as a result of a general
decline in the wholesale prices of telephones of approximately 27%. Cost of
equipment sold (primarily accessory equipment) for the Puerto Rico Wireless
Telephone System was $1.3 million and $0.3 million for the six months ended
November 30, 1998 and 1997, respectively.
Selling, general and administrative expenses rose to $51.4 million for
the six months ended November 30, 1998, an increase of $11.8 million or 30%
above the expenses of $39.7 million for the six months ended November 30, 1997.
The Company's managerial, customer service and sales staff increased
approximately 21% to accommodate the larger subscription and revenue base,
anticipated growth of its wireless telephone business and the continued growth
of telephone services in Puerto Rico. Selling, general and administrative
expenses for the Puerto Rico Wireless Telephone System were $19.6 million and
$12.5 million for the six months ended November 30, 1998 and 1997,
respectively.
The Company anticipates continued increases in the cost of services and
selling, general and administrative expenses as the growth of its existing
wireless telephone business continues. In addition, the Company expects that
the continued development of its markets as well as its participation in the
Puerto Rico telecommunications business will contribute to a continued increase
in the level of expenses.
64
<PAGE>
Depreciation and amortization for the six months ended November 30, 1998
was $64.5 million, an increase of $11.8 million or 22% over the six months
ended November 30, 1997. The increase resulted from capital expenditures made
during the six months ended November 30, 1998 and during the fiscal year ended
May 31, 1998 in connection with the development and network expansion of the
Company's wireless telephone systems and the purchase of PCS phones in Puerto
Rico. Depreciation and amortization related to the Puerto Rico Wireless
Telephone System accounted for $10.5 million or 89% of the increase.
As a result of the factors noted above, the operating income for the six
months ended November 30, 1998 was $17.0 million, an increase of $25.8 million
from the operating loss of $8.7 million for the six months ended November 30,
1997. The operating loss for the Puerto Rico Wireless Telephone System was $1.7
million and $11.4 million for the six months ended November 30, 1998 and 1997,
respectively.
Net interest expense was $21.9 million for the six months ended November
30, 1998, an increase of $1.4 million or 7% from the six months ended November
30, 1997. The increase in interest expense reflects additional borrowings of
$31.5 million for working capital, debt service and capital expenditures
related to the buildout of the Puerto Rico Wireless Telephone System's PCS
network infrastructure and the purchase of PCS telephones. The average debt
outstanding during the six months ended November 30, 1998 was $503.4 million,
an increase of $51.9 million as compared to the average debt level of $451.6
million during the six months ended November 30, 1997. The increase in average
debt outstanding is principally related to borrowings for the Puerto Rico
Wireless Telephone System. The Company's weighted average interest rate
decreased to 9.1% for the six months ended November 30, 1998 from 9.7% for the
six months ended November 30, 1997.
After income attributable to minority interests in subsidiaries for the
six months ended November 30, 1998, pretax income was $12.2 million as compared
to a pretax loss of $22.1 million for the six months ended November 30, 1997.
The income tax expense of $5.8 million for the six months ended November 30,
1998 resulted primarily from the pre-tax gain of $9.6 million the Company
recognized on the sale of its Investment Interest in the Coconino, Arizona RSA
during the six months ended November 30, 1998.
The net income of $6.3 million for the six months ended November 30, 1998
represents an increase of $22.8 million from the net loss of $16.4 million for
the six months ended November 30, 1997.
Year Ended May 31, 1998 Compared to Year Ended May 31, 1997
Revenue for the year ended May 31, 1998 was $237.5 million, an increase
of $86.5 million or 57% over revenue of $151.0 million for the year ended May
31, 1997, reflecting growth in subscriptions to, and increased usage of,
wireless telephone service, partially offset by lower reciprocal per minute
roaming rates with other cellular carriers. The Puerto Rico Systems accounted
for $48.7 million or 56% of the total increase in revenue.
Revenue from the sale of wireless telephones and accessories to
subscribers for the year ended May 31, 1998 increased by $1.9 million to $4.7
million or 65% as compared to the year ended May 31, 1997. The increase in
revenue was due to a larger number of telephone units sold during the year
ended May 31, 1998. The Puerto Rico Systems accounted for $1.2 million and $0.2
million of the equipment sales for the years ended May 31, 1998 and 1997,
respectively.
Continued growth in revenue is dependent upon increased levels of
wireless subscriptions and maintenance of the current subscriber base and the
average revenue per subscriber. Wireless subscribers at May 31, 1998 were
approximately 322,200, an increase of 58% from the 203,900 subscribers at May
31, 1997. Increases from new activations of 191,400 were offset by subscriber
cancellations of 73,100. The cancellations experienced by the Company are
primarily the result of competitive factors. The Puerto Rico Systems had
approximately 69,500 and 16,900 subscribers at May 31, 1998 and 1997,
respectively, and, as a result, the Puerto Rico Systems accounted for 44% of
the net increase in subscriptions.
65
<PAGE>
Consolidated revenue per subscriber per month, based upon an average
number of subscribers for the year ended May 31, 1998, was $72 as compared to
$74 for the year ended May 31, 1997. The average monthly revenue per subscriber
was approximately $68 in the domestic markets, as compared to approximately $92
in the Company's Puerto Rico Systems. The Company expects that per subscriber
revenue will be impacted by competition, the expansion of its local service
calling areas and lower reciprocal per minute roaming rates with other wireless
carriers.
Cost of services during the year ended May 31, 1998 was $38.4 million an
increase of $16.2 million or 73% from the year ended May 31, 1997. The increase
was primarily due to the continued growth of PCS telephone service in Puerto
Rico. Cost of services for the Puerto Rico Systems was $14.2 million and $3.2
million for the years ended May 31, 1998 and 1997, respectively. Secondarily,
the increase was due to the variable costs associated with a larger revenue and
subscription base and increased wireless coverage areas resulting from the
continued expansion of the Company's network.
Cost of equipment sold during the year ended May 31, 1998 was $16.4
million, an increase of $0.4 million or 3% as compared to the year ended May
31, 1997. The primary reason was an increase in the number of telephone units
sold and higher phone costs in the Puerto Rico Systems. These increases were
partially offset by a general decline in the wholesale prices of telephones.
Cost of equipment sold for the Puerto Rico Systems was $0.8 million and $0.6
million for the years ended May 31, 1998 and 1997, respectively.
Selling, general and administrative expenses rose to $81.8 million for
the year ended May 31, 1998, an increase of $26.7 million or 48% above the
expenses of $55.1 million for the year ended May 31, 1997. The Company's
managerial, customer service and sales staff increased to accommodate the
larger subscription and revenue base, anticipated growth of its wireless
telephone business and the continued growth of telephone services in Puerto
Rico. Selling, general and administrative expenses for the Puerto Rico Systems
were $26.8 million and $10.6 million for the years ended May 31, 1998 and 1997,
respectively.
The Company anticipates continued increases in the cost of services and
selling, general and administrative expenses as the growth of its existing
wireless telephone business continues. In addition, the Company expects that
the continued development of its markets as well as its participation in the
Puerto Rico telecommunications business will contribute to a continued increase
in the level of expenses.
Depreciation and amortization for the year ended May 31, 1998 was $114.2
million, an increase of $30.5 million or 36% over the year ended May 31, 1997.
The increase resulted from capital expenditures made during fiscal 1998 and
1997 in connection with the development and network expansion of the Company's
wireless telephone systems. Depreciation and amortization related to the Puerto
Rico Systems accounted for $26.5 million or 87% of the increase.
The operating loss for the year ended May 31, 1998 was $13.3 million, a
decrease of $12.8 million or 49% from the loss of $26.1 million for the year
ended May 31, 1997. The operating loss for the Puerto Rico Systems was $20.0
million and $14.7 million for the years ended May 31, 1998 and 1997,
respectively.
Interest expense was $45.2 million for the year ended May 31, 1998, an
increase of $11.8 million or 35% from the year ended May 31, 1997. Interest
expense for the year ended May 31, 1997 was reduced by $2.8 million of
capitalized interest charges related to the acquisition cost of the Company's
Puerto Rico PCS license during the pre-operational stage of the business. Gross
interest costs for the years ended May 31, 1998 and 1997 were $45.2 million and
$36.1 million, respectively. The increase in gross interest costs reflects
additional borrowings for working capital, debt service and capital
expenditures related to the build-out of the Puerto Rico Systems' PCS network
infrastructure and the purchase of PCS telephones. The average debt outstanding
during the year ended May 31, 1998 was $470.4 million, an increase of $95.5
million as compared to the average debt level of $374.9 million during the year
ended May 31, 1997. The increase in average debt outstanding is principally
related to the $76.0 million in additional borrowings for the Puerto Rico
Systems.
66
<PAGE>
The Company's weighted average interest rate decreased to 9.60% for the year
ended May 31, 1998 from 9.64% for the year ended May 31, 1997.
After income attributable to minority interests in subsidiaries for the
year ended May 31, 1998, a pretax loss of $45.5 million was incurred, as
compared to a pretax loss of $40.6 million for the year ended May 31, 1997. The
income tax benefit of $13.6 million for the year ended May 31, 1998 represents
a reduction of the deferred tax liability by the tax effect of the current
period losses of the Company, offset by current state and local taxes for the
period. The tax benefits are non-cash in nature.
The net loss of $31.9 million for the year ended May 31, 1998 represents
a decrease of $1.3 million or 4% from the net loss of $33.3 million for the
year ended May 31, 1997. The Puerto Rico PCS business accounted for 96% of the
consolidated net loss for the year ended May 31, 1998 as compared to 52% for
1997.
For the year ended May 31, 1998, earnings were less than fixed charges by
$45.4 million. Fixed charges consist of interest expense, including
amortization of debt issue costs and the portion of rents deemed representative
of the interest portion of leases. The amount by which earnings were less than
fixed charges includes non-cash charges of $114.2 million relating to
depreciation and amortization.
Year Ended May 31, 1997 Compared to Year Ended May 31, 1996
Revenue for the year ended May 31, 1997 was $151.0 million, an increase
of $38.8 million or 35% over revenue of $112.2 million for the year ended May
31, 1996, reflecting growth in subscriptions to and increased usage of wireless
telephone service. The acquisition of one domestic wireless telephone system
accounted for approximately $4.6 million or 12% of the increase in revenue. The
Puerto Rico Systems business contributed $5.9 million or 15% of the increase in
revenue.
Revenue from the sale of equipment to subscribers for the year ended May
31, 1997 increased by $0.2 million or 8% to $2.9 million as compared to the
year ended May 31, 1996. The increase in such revenue was due to a larger
number of telephone units sold during the current year offset, in part, by a
reduction in the retail prices of wireless telephones.
Continued growth in revenue is dependent upon increased levels of
wireless subscriptions, maintenance of the current subscriber base, and the
average revenue per subscriber. Wireless subscribers at May 31, 1997 were
approximately 203,900, an increase of 51% from the 135,000 subscribers at May
31, 1996. Increases from new activations of 104,800 and 7,500 subscribers from
acquisitions were offset by subscriber cancellations of 43,400. The
cancellations experienced by the Company are primarily the result of
competitive factors. The Puerto Rico Systems had approximately 16,900
subscribers at May 31, 1997 and, as a result, the Puerto Rico Systems accounted
for approximately 25% off the net increase in subscriptions.
Consolidated revenue per subscriber per month, based upon an average
number of subscribers, was $74 for the year ended May 31, 1997, as compared to
$75 for the year ended May 31, 1996. The average monthly revenue per subscriber
for the year ended May 31, 1997 was approximately $73 in the Domestic Wireless
Telephone Systems, as compared to approximately $113 in the Company's Puerto
Rico Systems.
Cost of services during the year ended May 31, 1997 was $22.2 million, an
increase of $6.9 million or 45% from the year ended May 31, 1996. The increase
was due to the variable costs associated with a larger revenue and subscription
base and increased wireless coverage areas resulting from (i) the continued
expansion of the Company's network and acquisitions completed during the fiscal
years ended May 31, 1997 and 1996 and (ii) the commencement of wireless
telephone service in Puerto Rico. Included in cost of services during the year
ended May 31, 1997 were $1.9 million of costs associated with the start-up of
the Company's Puerto Rico Systems.
67
<PAGE>
Cost of equipment sold during the year ended May 31, 1997 was $16.0
million, an increase of $5.2 million or 48% as compared to the year ended May
31, 1996. The primary reason for the increase was an increase in the number of
telephone units sold, offset by a decrease in the average unit cost of
telephones sold.
Selling, general and administrative expenses rose to $55.1 million for
the year ended May 31, 1997, an increase of $20.9 million or 61% above the
expenses of $34.2 million for the year ended May 31, 1996. The Company
increased its managerial, customer service and sales staff to accommodate a
larger subscription and revenue base, anticipated growth of its domestic
wireless telephone systems as well as the commencement of wireless telephone
services in Puerto Rico. Included in selling, general and administrative
expenses during the year ended May 31, 1997 were $5.1 million of costs
associated with the start-up of the Company's Puerto Rico Systems.
Depreciation and amortization for the year ended May 31, 1997 was $83.7
million, an increase of $12.7 million or 18% over the year ended May 31, 1996.
The increase results from acquisitions and capital expenditures made during
fiscal 1997 and 1996 in connection with the development and network expansion
of the Company's Domestic Wireless Telephone Systems and Puerto Rico Systems.
Depreciation and amortization related to the Puerto Rico Systems was $6.3
million or 50% of the increase.
The operating loss for the year ended May 31, 1997 was $26.1 million, an
increase of $6.9 million or 36% from the loss of $19.1 million for the year
ended May 31, 1996.
During the year ended May 31, 1997, the Company sold certain equipment
resulting in a gain of $3.8 million. During the year ended May 31, 1996, the
Company sold its 72.2% interest in the wireless telephone system serving the
Charlottesville, VA MSA for a cash purchase price of approximately $9.9
million. The Company recognized a gain of $4.2 million as a result of the sale
(see "--Acquisitions, Exchanges, and Dispositions"). In addition, the Company
recognized a gain of $4.1 million upon the sale of marketable securities
acquired and sold during fiscal 1996.
Interest expense was $33.4 million for the year ended May 31, 1997, an
increase of $5.5 million or 20% from the year ended May 31, 1996. The increase
in interest expense is the result of interest charged on additional borrowings
for the Benton Harbor, Michigan acquisition, working capital needs and the
construction and, with respect to the operation of the Puerto Rico
telecommunications network as well as a decrease in capitalized interest
charges related to the pre-operational stage of the Company's Puerto Rico PCS
business. Capitalized interest for the year ended May 31, 1997 was $2.8
million, a decrease from the capitalized interest of $5.2 million for the year
ended May 31, 1996. Gross interest costs for the year ended May 31, 1997 and
May 31, 1996 were $36.1 million and $33.1 million, respectively. The average
debt outstanding during the year ended May 31, 1997 was $374.9 million, an
increase of $24.9 million as compared to the average debt level of $350.0
million during the year ended May 31, 1996. The Company's weighted average
interest rate increased to 9.64% for the year ended May 31, 1997 from 9.54% for
the year ended May 31, 1996.
After income attributable to minority interests in subsidiaries for the
year ended May 31, 1997, a pretax loss of $40.6 million was incurred, as
compared to a pretax loss of $28.2 million for the year ended May 31, 1996. The
income tax benefit of $7.3 million for the year ended May 31, 1997 represents a
reduction of the deferred tax liability by the tax effect of the current period
losses of the Company, offset by current state and local taxes for the period.
The tax benefits are non-cash in nature.
The net loss of $33.3 million for the year ended May 31, 1997 represents
an increase of $16.7 million or 100% from the net loss of $16.6 million for the
year ended May 31, 1996. The Puerto Rico PCS business accounted for 52% of the
consolidated net loss for the year ended May 31, 1997 as compared to 6% for
1996.
68
<PAGE>
Selected Quarterly Financial Results
The following table sets forth certain quarterly operating and other data
for Centennial Cellular Operating for fiscal 1997, fiscal 1998 and the first
six months of fiscal 1999:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------------------------
November 30, August 31, May 31, February 28, November 30, August 31, May 31, February 28, November 30,
1998 1998 1998 1998 1997 1997 1997 1997 1996
------------ ---------- ------- ------------ ------------ ---------- ------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating
revenues:
Rural Cellular
Systems........ $58,932 $53,902 $47,704 $43,515 $46,091 $44,516 $39,715 $37,680 $35,359
Puerto Rico
Systems........ 28,220 23,544 18,631 15,664 12,484 7,673 4,410 1,494 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
revenues....... 87,152 77,446 66,335 59,179 58,575 52,189 44,125 39,174 35,359
------- ------- ------- ------- ------- ------- ------- ------- -------
Costs and
expenses:
Cost of
equipment
sold........... 4,929 4,533 3,399 4,393 4,564 4,073 4,609 4,734 3,966
Cost of
services....... 11,742 10,382 9,171 10,831 10,505 7,882 6,610 5,913 4,927
Selling, general
and
administrative.. 27,546 23,896 19,648 22,457 21,721 17,964 18,052 15,398 11,868
Depreciation and
amortization... 32,739 31,804 31,557 29,857 27,718 25,062 24,754 21,175 19,310
------- ------- ------- ------- ------- ------- ------- ------- -------
76,956 70,615 63,775 67,538 64,508 54,981 54,025 47,220 40,071
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss).......... $10,196 $ 6,831 $ 2,560 $(8,359) $(5,933) $(2,792) $(9,900) $(8,046) $(4,712)
======= ======= ======= ======= ======= ======= ======= ======= =======
EBITDA(1):
Rural Cellular
Systems........ $31,152 $29,112 $26,422 $17,352 $19,699 $22,694 $17,212 $15,584 $16,187
Puerto Rico
Systems........ 11,783 9,523 7,471 3,908 1,527 (424) (2,737) (2,667) (2,067)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total EBITDA.... $42,935 $38,635 $33,893 $21,260 $21,226 $22,270 $14,475 $12,917 $14,120
======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
August 31,
1996
----------
<S> <C>
Operating
revenues:
Rural Cellular
Systems........ $32,365
Puerto Rico
Systems........ --
----------
Total operating
revenues....... 32,365
----------
Costs and
expenses:
Cost of
equipment
sold........... 2,703
Cost of
services....... 4,766
Selling, general
and
administrative.. 9,814
Depreciation and
amortization... 18,481
----------
35,764
----------
Operating income
(loss).......... $(3,399)
==========
EBITDA(1):
Rural Cellular
Systems........ $15,293
Puerto Rico
Systems........ (953)
----------
Total EBITDA.... $14,340
==========
</TABLE>
- -------
(1) EBITDA is defined, for any period, as earnings before income from Minority
Cellular Investment Interests, allocations to minority interests in
consolidated subsidiaries, interest expense, interest income, income taxes,
depreciation and amortization, and gain on sale of assets. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. EBITDA should not
be considered an alternative to net income as a measure of the Company's
operating results or to cash flow as a measure of liquidity. In addition,
although the EBITDA measure of performance is not recognized under
generally accepted accounting principles, it is widely used by various
companies as a general measure of a company's performance because it
assists in comparing performance on a relatively consistent basis across
companies without regard to depreciation and amortization, which can vary
significantly depending on accounting methods (particularly where
acquisitions are involved) or non-operating factors such as historical cost
bases. Because EBITDA is not calculated identically by all companies, the
presentation herein may not be strictly comparable to other similarly
titled measures of other companies.
Liquidity and Capital Resources
Historical
The Company has historically relied primarily on bank debt, the issuance
of debt securities, the issuance of Common Shares and the incurrence of debt by
its subsidiaries in order to fund its working capital requirements,
acquisitions, capital expenditures and debt service. For the six months ended
November 30, 1998, earnings exceeded fixed charges by $12.2 million. For the
year ended May 31, 1998, earnings were less than fixed charges by $45.4
million. Fixed charges consist of interest expense, including amortization of
debt issue costs and the portion of rents deemed representative of the interest
portion of leases. The amount by which earnings exceeded fixed charges reflects
non-cash charges of $64.5 million and $114.2 million relating to depreciation
and amortization during the six months ended November 30, 1998 and year ended
May 31, 1998, respectively.
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During the six months ended November 30, 1998, the Company made capital
expenditures of $48.8 million, primarily to continue the construction of its
Puerto Rico Systems and its Domestic Wireless Telephone Systems to expand the
coverage areas of existing properties and to upgrade its cell sites and call
switching equipment. Capital expenditures for the Company's Puerto Rico Systems
were $30.6 million for the six months ended November 30, 1998, representing 63%
of the Company's total capital expenditures. The Puerto Rico Systems capital
expenditures included $14.7 million to continue the build-out of the Company's
PCS network infrastructure and $16.0 million to purchase telephone units which
remain the property of the Company while in use by subscribers. The Company's
future commitments for property and equipment include the addition of cell
sites to expand coverage and enhancements to the existing infrastructure of its
wireless telephone systems. During fiscal 1999, the Company anticipates capital
expenditures in the Domestic Wireless Telephone Systems of approximately $40.0
million. The Company currently estimates that the cost to continue the build-
out of its Puerto Rico network infrastructure through fiscal 1999 will be
approximately $50.0 million. This increase is an acceleration of expenditures
that would otherwise take place in future years and is related to the growth
the Company has experienced in its Puerto Rico Systems. It is anticipated that
the Company will seek various sources of external financing including, but not
limited to, bank financing, joint ventures, partnerships and placement of debt
or equity securities of the Company.
Centennial Puerto Rico Wireless Corporation, a wholly owned subsidiary of
the Company ("CPRW"), has a four-year, $180.0 million revolving credit facility
(as amended, the "Old Puerto Rico Credit Facility"). As of November 30, 1998,
the Old Puerto Rico Credit Facility had $157.0 million outstanding. The
interest rate payable by CPRW on borrowings under the Old Puerto Rico Credit
Facility is based, at the election of CPRW, on (a) the Base Rate, as defined,
plus a margin of 1.50% or (b) the Eurodollar Base Rate, as defined, plus a
margin of 2.50%, adjusted for the maintenance of certain specified ratios, as
applicable. All indebtedness under the Old Puerto Rico Credit Facility was
repaid at the time of the Merger.
As of November 30, 1998, no amounts were outstanding under the Company's
$75 million domestic revolving credit facility (the "Old Domestic Credit
Facility"). The interest rate payable on the Old Domestic Credit Facility is
based, at the election of the Company, on (a) the Base Rate, as defined, plus a
margin of 2% or (b) the Eurodollar Base Rate, as defined, plus a margin of 3%.
All indebtedness under the Old Rural Cellular Credit Facility was repaid at the
time of the Merger.
The Company also had two outstanding public issuances of debt securities,
its $250 million 8 7/8% Senior Notes due 2001 (the "2001 Notes") and its $100
million 10 1/8% Senior Notes due 2005 (the "2005 Notes"). In connection with
the Merger, Centennial consummated the Debt Tender Offers to acquire
substantially all of its outstanding 2001 Notes and 2005 Notes. As of the
expiration date of the Debt Tender Offers, approximately 99% of the Company's
public debt was tendered to the Company. The Company completed the Debt Tender
Offers concurrently with the effective time of the Merger.
As of November 30, 1998, the Company had $272.2 million of property,
plant and equipment (net) placed in service. During the six months ended
November 30, 1998 and the year ended May 31, 1998, the Company made capital
expenditures of $48.8 million and $129.3 million, respectively, primarily to
continue the construction of its Puerto Rico Systems and its Domestic Wireless
Telephone Systems, to expand the coverage areas of existing properties and to
upgrade its cell sites and call switching equipment. Capital expenditures for
the Company's Puerto Rico Systems were $90.3 million for the year ended May 31,
1998, representing 70% of the Company's total capital expenditures. The Puerto
Rico Systems capital expenditures included $57.1 million to continue the build-
out of the Company's PCS network infrastructure and $33.2 million to purchase
telephone units which remain the property of the Company while in use by
subscribers. The Company's future commitments for property and equipment
include the addition of cell sites to expand coverage and enhancements to the
existing infrastructure of its wireless telephone systems. During fiscal 1999,
the Company anticipates capital expenditures in the Domestic Wireless Telephone
Systems of approximately $40 million.
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<PAGE>
In order to meet its obligations with respect to its operating needs,
capital expenditures, debt service and preferred stock obligations, it is
important that the Company continue to improve operating cash flow. In order to
do so, the Company's revenue must increase at a faster rate than operating
expenses. Increases in revenue will be dependent upon continuing growth in the
number of subscribers and maximizing revenue per subscriber. The Company has
continued the development of its managerial, administrative and marketing
functions, and is continuing the construction of wireless systems in its
existing and recently acquired markets in order to achieve these objectives.
There is no assurance that growth in subscribers or revenue will occur.
In addition, the Company's participation in the Puerto Rico
telecommunications business has been, and is expected to continue to be,
capital intensive. Further, due to the start-up nature of the Puerto Rico
telecommunications operations, the Company expects that it will require
additional cash investment to fund its operations over the next several years.
The Puerto Rico telecommunications operations has been, and is expected to
continue to be, highly competitive with the two existing wireless telephone
providers, as well as the other Puerto Rico telecommunications license holders.
There is no assurance that the Puerto Rico telecommunications operations will
generate cash flow or reach profitability. Even if the Company's operating cash
flow increases, it is anticipated that cash generated from the Company's
wireless telephone systems will not be sufficient in the next several years to
cover interest, the preferred stock dividends that may be declared and made
payable and required capital expenditures.
The Company anticipates that shortfalls in cash flow may be made up
either through debt and equity issuances or additional financing arrangements
that may be entered into by the Company. It is anticipated that the Company's
future funding needs will be met by the refinancing arrangements that are
expected to be made in connection with the Merger, although there is no
assurance that this refinancing will be obtained. Based upon current market
conditions and its current capital structure, the Company believes that cash
flows from operations and funds from available credit facilities will be
sufficient to enable the Company to meet required cash commitments for the
foreseeable future.
The Company has filed a shelf registration statement with the Commission
for up to 8,000,000 shares of its Class A Common Stock that may be offered from
time to time in connection with acquisitions. The registration statement was
declared effective by the Commission on July 14, 1994. As of September 23,
1998, 4,239,231 shares remain available for issuance under this shelf
registration.
The Company has filed a shelf registration statement with the Commission
for the issuance of $500 million of the Company's debt securities which was
declared effective by the Commission on April 6, 1995. The debt securities may
be issued from time to time in series on terms to be specified in one or more
prospectus supplements at the time of the offering. If so specified with
respect to any particular series, the debt securities may be convertible into
shares of the Company's Class A Common Stock. As of September 23, 1998, $400
million remained available for issuance under this shelf registration.
After the Merger
Following the consummation of the Merger, Centennial Cellular Operating
has, on a consolidated basis, long-term indebtedness aggregating approximately
$1.31 billion. In addition, Centennial (without its subsidiaries) has $180
million (face amount) of long-term indebtedness. Substantially all of the
proceeds of such indebtedness were used to pay the consideration to
Centennial's stockholders in the Merger, repay Centennial's indebtedness
(including the purchase of Tendered Notes in the Debt Tender Offers), pay the
related fees and expenses and purchase the Pledged Securities. See "Use of
Proceeds."
As a result of the Merger, the Obligors have significant cash
requirements for debt service. To meet their liquidity needs, the Obligors
currently expect to rely on internally generated funds, borrowings under the
revolving portion of the Credit Facility and, for the first three scheduled
interest payments of the Notes, the
71
<PAGE>
Pledged Securities. On a pro forma basis, at November 30, 1998, Centennial
Cellular Operating and its subsidiaries would have had $114.0 million available
under the revolving portion of the Credit Facility.
At the effective time of the Merger, Centennial Cellular Operating
entered into the Credit Facility. A portion of the Credit Facility was also
borrowed by Centennial de Puerto Rico. The Credit Facility provides term loans
in an aggregate principal amount of $900 million and revolving loans in an
aggregate principal amount of up to $150 million. The term loans consist of
four tranches and will amortize over eight years for each of tranche A term
loans and tranche A Puerto Rico term loans, eight and one-half years for
tranche B term loans and nine years for tranche C term loans. The revolving
loans will be reduced quarterly beginning in the fourth year and will mature
after eight years. Borrowings are subject to mandatory prepayment and reduction
in an amount equal to the net proceeds of asset dispositions, 75% of excess
cash flow reduced to 50% with respect to any fiscal year if the Total Leverage
Ratio (defined as the ratio of total debt to operating cash flow) is less than
6.0 to 1.0, the net proceeds of the issuance of debt or any sale and leaseback
and 50% of the net proceeds of any issuance of equity securities. Centennial
and each of Centennial Cellular Operating's direct and indirect existing and
future subsidiaries (other than foreign subsidiaries) have guaranteed
Centennial Cellular Operating's obligations under the Credit Facility.
Centennial Cellular Operating and Centennial de Puerto Rico's direct and
indirect existing and future subsidiaries have guaranteed Centennial de Puerto
Rico's obligations under the Credit Facility. The obligations of Centennial
Cellular Operating under the Credit Facility are secured by substantially all
of the assets of Centennial and each of its subsidiaries (other than foreign
subsidiaries), including the capital stock of such subsidiaries. The
obligations of Centennial de Puerto Rico under the Credit Facility are secured
by substantially all of the assets of Centennial de Puerto Rico and each of its
subsidiaries, including the capital stock of such subsidiaries. See
"Description of Certain Indebtedness."
WCAS Capital Partners III, L.P. provided, at the effective time of the
Merger, Mezzanine Financing to Centennial in the original principal amount of
$180 million. The note will bear cash interest at a rate of 10% or pay-in-kind
interest at a rate of 13%. Centennial Cellular Operating is restricted from
making cash payments to Centennial to service the debt under certain
circumstances under the Notes and the Credit Facility. The note is prepayable
at Centennial's option and must be prepaid in the event of a Change of Control,
in each case subject to compliance with the Company's other debt instruments.
See "Description of Certain Indebtedness--Subordinated Debt."
The Obligors issued $370 million of the Notes (including $57.5 million to
fund the first three interest payments). See "Description of the New Notes."
Centennial plans to continue to expand its marketing efforts which will
include, but are not limited to, an increase in funds for advertising, cellular
telephone inventory purchases and other expenditures relating to subscriber
growth. For the years ending May 31, 1999 and 2000, Centennial anticipates that
it will spend approximately $40 million and $35 million, respectively, in
capital expenditures for its domestic operations. The Company currently
estimates that the capital expenditures to continue the build-out of its Puerto
Rico network infrastructure and expansion of its business operations through
fiscal 1999 will be approximately $50 million. However, actual capital
requirements may change. The ability of the Obligors to meet their debt service
obligations and reduce their total debt will be dependent on the future
performance of the Obligors, which in turn, will be subject to general economic
conditions and to financial, business and other factors, including the factors
described under "Risk Factors" and other factors beyond the Obligors' control.
The Obligors believe that based on the current level of operations and
anticipated internal growth, cash flow from operations, together with other
available sources of funds, including borrowings under the revolving portion of
the Credit Facility, will be adequate to make required payments of principal
and interest on the Obligors' indebtedness and to fund anticipated capital
expenditures and working capital requirements for the foreseeable future. A
portion of the Obligors' debt bears interest at floating rates; therefore,
their financial condition is and will continue to be affected by changes in
prevailing interest rates.
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<PAGE>
Acquisitions, Exchanges and Dispositions
The Company's primary acquisition strategy is to acquire controlling
ownership interests in wireless systems serving markets contiguous or proximate
to its current markets. This clustering strategy enables it to achieve
operating and cost efficiencies as well as joint advertising and marketing
benefits. Clustering also allows the Company to offer its subscribers more
areas of uninterrupted service as they travel through an area or state. In
addition to expanding its existing clusters, the Company may also seek to
acquire interests in wireless systems in other geographic areas. The Company
may also pursue other communications businesses related to its wireless
telephone and other mobile service operations, as well as other communications
businesses it determines to be desirable. The consideration for such
acquisitions may consist of shares of stock, cash, assumption of liabilities or
a combination thereof.
On November 1, 1998, the Company exercised its right to acquire the
minority interests held by Century in the Cass and Jackson, Michigan systems
for the prices paid by Century for such minority interests in the acquisition
of such systems ($2.0 million and $1.0 million, respectively).
On June 8, 1998, the Company disposed of its investment interest in
Arizona RSA #2, representing approximately 43,500 Net Pops, for $13.5 million
in cash. During the first quarter of fiscal 1999, the Company recorded a pre-
tax gain of approximately $9.5 million in relation to the sale of this
Investment Interest.
On September 12, 1996, the Company acquired 100% of the ownership
interests in the partnership owning the wireless telephone system serving the
Benton Harbor, Michigan MSA for approximately $35.0 million in cash. The Benton
Harbor market represents approximately 161,400 Net Pops.
On October 31, 1995, the Company acquired (i) a 94.3% interest in the
wireless telephone system serving the Lafayette, Louisiana MSA, representing
approximately 205,700 Net Pops, in exchange for the Company's wireless
telephone system serving the Jonesboro, Arkansas RSA (comprising approximately
205,000 Net Pops), the license rights and assets located in and covering the
Desoto and Red River Parishes of Louisiana RSA #3 (comprising approximately
34,700 Net Pops), the license rights and assets located in and covering a
section of Morehouse Parish of Louisiana RSA #2 (comprising approximately
24,100 Net Pops) and a cash payment by the Company of approximately $5.6
million, subject to adjustment, and (ii) an additional 14.3% minority interest
in the Elkhart, Indiana MSA, a market in which the Company now has a 91.4%
interest and an additional 12.7% equity investment interest in the Lake
Charles, Louisiana MSA, a market in which the Company now has a 25.1% interest,
for a cash payment of approximately $3.0 million.
On June 30, 1995, the Company acquired the wireless telephone systems
serving (a) Newtown, LaPorte, Starke, Pulaski, Jasper and White, Indiana, (b)
Kosciusko, Noble, Steuben and Lagrange, Indiana, (c) Williams, Defiance, Henry
and Paulding, Ohio and (d) Copiah, Simpson, Lawrence, Jefferson Davis, Walthall
and Marion, Mississippi, representing an aggregate of approximately 608,100 Net
Pops. The above-described systems were acquired by the Company in exchange for
the Company's wireless telephone systems serving the Roanoke, Virginia MSA, the
Lynchburg, Virginia MSA, North Carolina RSA #3 and Iowa RSA #5, representing an
aggregate of approximately 644,000 Net Pops. Simultaneously with the
consummation of the transaction described above, the Company sold its 72.2%
interest in the wireless telephone system serving the Charlottesville, Virginia
MSA, representing an aggregate of approximately 94,700 Net Pops, for a cash
purchase price of approximately $9.9 million, subject to adjustment. The
Company recognized a gain of approximately $4.2 million as a result of the
sale.
During the year ended May 31, 1998, the Company directly purchased
1,270,200 Common Shares in the open market for an aggregate purchase price of
$23.5 million pursuant to previous authorizations by the Company's Board of
Directors. These shares have been accounted for as treasury shares. Subsequent
to May 31, 1998, the Company has not directly purchased any additional Common
Shares in the open market. As of July 28, 1998, the Company is authorized to
directly purchase 2,729,800 additional shares of its Class A
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<PAGE>
Common Stock in the open market after giving effect to the shares purchased to
date. Additionally, through a recently terminated agreement, the Company
purchased 273,200 shares of its Class A Common Stock for approximately $5.4
million.
During the six months ended November 30, 1997, the Company directly
purchased 1,181,200 shares of its Class A Common Stock in the open market for
an aggregate purchase price of $21.7 million pursuant to previous
authorizations by the Company's Board of Directors. These shares were accounted
for as treasury shares. During the six months ended November 30, 1998, the
Company did not directly purchase any additional shares of its Class A Common
Stock in the open market.
The Company leases certain space for equipment in Puerto Rico from
Century-ML Cable Corp. ("Century-ML"), a cable television operator which is 50%
owned by Century, pursuant to a 25-year lease entered into in 1997 when Century
was an affiliate of the Company. Further, the Company leases and shares
capacity on the fiber optic cable television facility and network of Century-ML
for the purpose of operating as a competitive access provider. The Company
shares in the cost of construction, operation and maintenance of the Century-ML
fiber network on a pro rata basis based on the percentage of the number of
fibers of the network used by or reserved for the Company. During fiscal 1997,
the Company recorded a deferred asset and a related payable to an affiliate in
its consolidated balance sheet in the amount of $6.0 million to reflect certain
costs incurred by the Company to secure the use of the fiber optic network as
required by the Facilities Agreement with Century-ML dated January 2, 1995.
This amount, which was paid by the Company during fiscal 1998, represents the
Company's share of the costs of constructing Century-ML's fiber optic network.
Recent Developments
In September 1998, the Commonwealth of Puerto Rico sustained damage as a
result of the effects of Hurricane Georges. The Company has evaluated the
extent of damage to its Puerto Rico network infrastructure and the impact the
hurricane has had on the Company's Puerto Rico service revenue during the three
months ended November 30, 1998. After consideration of expected insurance
recoveries, the Company believes it will not incur significant losses as a
result of the effects of the damage caused by Hurricane Georges. During the
three months ended November 30, 1998, the Company recorded approximately $1.6
million of insurance recoveries related to subscriber refunds within revenue.
Year 2000
During fiscal 1998, the Company began a review of its computer systems
and related software to identify systems and software that might malfunction
due to a misidentification of the Year 2000. A committee consisting of members
of senior management from various disciplines within the Company has been
formed and is meeting regularly to discuss the steps that must be taken to deal
with any potential Year 2000 issues. The Company is utilizing both internal and
external resources to identify, correct or reprogram and test systems for Year
2000 readiness.
Most of the Company's customer-related computer systems and data bases,
including its billing systems, are managed by third parties under contractual
arrangements. The Company has requested those third parties to advise the
Company as to whether they anticipate difficulties in addressing Year 2000
problems and, if so, the nature of such difficulties. The Company is also
working with others in the industry using the same or similar systems to
determine the appropriate steps necessary to address the anticipated
difficulties.
The Company is currently undertaking an inventory of all local equipment
used in the transmission and reception of all signals to identify items that
need to be upgraded or replaced. The Company is also monitoring industry-wide
efforts with respect to signal delivery to its distribution plant and is
working with others in the industry to address potential solutions.
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<PAGE>
Management of the Company has not finally determined the cost associated
with its Year 2000 readiness efforts and the related potential impact on the
Company's results of operations. Amounts expended to date have not been
material. There can be no assurance that the systems of other companies on
which the Company relies will be converted in time or that any such failure to
convert by another company will not have a material adverse effect on the
Company's business, financial condition or results of operations.
After evaluating its internal compliance efforts as well as the
compliance of third parties as described above by the end of calendar year
1998, the Company will develop during 1999 appropriate contingency plans to
address situations in which various systems of the Company, or of third parties
with which the Company does business, are not Year 2000-compliant.
Certain Information Provided to WCAS VIII
Prior to the execution of the Merger Agreement, in connection with WCAS
VIII's review of the Company, the Company provided representatives of WCAS VIII
information concerning projected revenue and expenses of the Company which was
prepared in June 1998. WCAS VIII has informed the Company that, in its
judgment, it does not expect the projected results to be achieved and,
accordingly, did not rely on such projections in negotiating the Merger
Agreement or the amount of the Cash Merger Consideration.
CENTENNIAL CELLULAR CORP.
PROJECTED FINANCIAL INFORMATION
FURNISHED TO WCAS VIII IN JUNE 1998
Consolidated Five Year Projections
<TABLE>
<CAPTION>
Years Ended May 31,
----------------------------------------------------------
1999E 2000E 2001E 2002E 2003E 2004E
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Revenue........... $336,761 $456,927 $564,635 $668,938 $773,090 $880,038
Revenue Growth Rate..... 30% 36% 24% 18% 16% 14%
EBITDA.................. $156,273 $219,437 $282,455 $340,829 $400,032 $459,253
Margin.................. 46% 48% 50% 51% 52% 52%
EBITDA Growth Rate...... 55% 40% 29% 21% 17% 15%
EBIT.................... $ 29,585 $104,484 $171,790 $235,979 $294,184 $352,431
Margin.................. 9% 23% 30% 35% 38% 40%
Capital Expenditures.... $ 90,000 $ 85,000 $ 80,000 $ 74,000 $ 68,500 $ 65,500
</TABLE>
- --------
The foregoing Company projections were based on the following
assumptions:
(1) Subscribers are assumed to grow at a compound annual growth rate of
14% through 2004 for domestic operations and wireless subscribers are assumed
to grow at a compounded annual growth rate of 28% through 2004 for Puerto Rico
operations.
(2) Service revenues per subscriber are assumed to decrease 5% in year
2000, 2.5% in 2001 and 1.5% in 2002, and remain flat thereafter for domestic
operations and service revenues per subscriber are assumed to decrease over the
next five years for Puerto Rico operations.
(3) Operating expenses are assumed to be 23% of revenues in 1999,
increasing to 24% of revenues in 2004 for domestic operations and are assumed
to be 25% of revenues in 1999, decreasing to 22% of revenues in 2004 for Puerto
Rico operations.
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<PAGE>
(4) Administrative expenses are assumed to be 14% of revenues in 1999,
decreasing to 12% of revenues in 2004 for domestic operations and are assumed
to be 16% of revenues in 1999, decreasing to 12% of revenues in 2004 for Puerto
Rico operations.
The Company does not as a matter of course make public any projections as
to future performance or earnings, and the projections set forth above are
included in this Prospectus only because the information was made available to
representatives of WCAS VIII by the Company and were required to be included in
the Company's registration statement on Form S-4 filed with the Commission
relating to Centennial's stockholder information statement relating to the
Merger. The management of the Company has prepared the forecasted financial
information set forth above to present the five-year projections for the
Company. These forecasts were prepared in June 1998 and have not been updated.
The prospective financial information was not prepared with a view toward
public disclosure or with a view towards complying with the guidelines
established by the American Institute of Certified Public Accountants with
respect to prospective financial information, but, in the view of the Company's
management, were prepared on a reasonable basis, reflect the Company's
estimates and judgments at the time of preparation and presented, to the best
of management's knowledge and belief at the time of preparation, the expected
course of action and the expected future financial performance of the Company.
However, this information is not fact and should not be relied upon as
necessarily indicative of future results, and potential purchasers of the Notes
are cautioned not to place any reliance on the forecasted financial
information. Neither the Company's independent auditors, nor any other
independent accountants or financial advisors, nor the Initial Purchasers have
compiled, examined, or performed any procedures with respect to the prospective
financial information contained herein, nor have they expressed any opinion or
any form of assurance on such information or its achievability, and assume no
responsibility for, and disclaim any association with, the prospective
financial information.
The Company has also informed WCAS VIII that its internal financial
forecasts (upon which the projected financial performance provided to WCAS VIII
was based in part) are, in general, prepared solely for internal use and
capital budgeting and other management decision-making purposes and are
subjective in many respects and thus susceptible to various interpretations and
periodic revision based on actual experience and business developments.
Projected information of this type is based on estimates and assumptions that
are inherently subject to significant economic and competitive uncertainties
and contingencies, all of which are difficult to predict and many of which are
beyond the control of the Company, WCAS VIII or Acquisition or their respective
financial advisors, including the Initial Purchasers. Many of the assumptions
upon which the foregoing projected financial performance was based, none of
which was approved by WCAS VIII, Acquisition or the Initial Purchasers, are
dependent upon economic forecasting (both general and specific to the Company's
businesses), which is inherently uncertain and subjective. ACCORDINGLY, THERE
CAN BE NO ASSURANCE THAT FORECASTED RESULTS ARE INDICATIVE OF THE FUTURE
PERFORMANCE OF THE COMPANY OR THAT ACTUAL RESULTS WILL NOT BE MATERIALLY HIGHER
OR LOWER THAN THOSE FORECASTED. INCLUSION OF THE PROSPECTIVE FINANCIAL
INFORMATION IN THIS PROSPECTUS SHOULD NOT BE REGARDED AS A REPRESENTATION BY
ANY PERSON THAT THE FORECASTED RESULTS WILL BE ACHIEVED. None of WCAS VIII,
Acquisition, the Company or their respective financial advisors, including the
Initial Purchasers, assumes any responsibility for the ultimate outcome of any
of such projections. Inclusion of the foregoing projections should not be
regarded as an indication that WCAS VIII, Acquisition, the Company or any other
person who received such information considers it an accurate prediction of
future events.
The Company does not generally publish its business plans and strategies
or make external forecasts of its anticipated financial position or results of
operations. Accordingly, none of WCAS VIII, Acquisition or the Company, or
their respective financial advisors (including the Initial Purchasers), or any
other party, intends to publicly update or otherwise publicly revise the
projections set forth above to reflect circumstances existing since their
preparation or to reflect the occurrence of unanticipated events, even in the
event that any or all of the underlying assumptions are shown to be in error.
Furthermore, the Company does not intend to update or revise the prospective
financial information to reflect changes in general economic or industry
conditions.
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<PAGE>
Uncertainties Associated with Forward-Looking Statements
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including, among other things:
. Our high degree of leverage and the requirement for significant
and sustained growth in our cash flow to meet our debt service
requirements,
. That we are a holding company and the notes are structurally
subordinated to all indebtedness of our subsidiaries, including
guarantees by our subsidiaries of all indebtedness under our $1.05
billion credit facility (approximately $930 million of which was
drawn at closing of the merger and a portion of which was borrowed
directly by our Puerto Rico subsidiary),
. Our history of net losses and the expectation of future losses,
. That the telecommunications industry is highly competitive,
. That new technologies or new business opportunities will require
additional investments in network capacity or additional capital
spending,
. That the success of any acquisitions will depend on our ability to
integrate acquired businesses,
. That the telecommunications industry is subject to rapid and
significant changes in technology,
. That there is potential for adverse regulatory change and the need
for regulatory approvals in the operation of our business and
renewal of our cellular licenses,
. Fluctuations in market value of our licenses,
. Risks associated with the regional economic conditions in the
areas we operate our business,
. Operating costs due to fraud,
. That a decline in roaming rates may materially adversely affect
us,
. That a dispute regarding reverse billing may materially adversely
affect us,
. That the indenture governing the notes will require us to offer to
purchase all of the notes issued and outstanding upon any change
of control and that the credit facility contains similar
provisions, which purchases, in each case, we may not have
sufficient funds to consummate,
. That the indenture and the credit facility impose significant
operating and financial restrictions on Centennial Cellular
Operating,
. That Centennial Cellular Operating has pledged the capital stock
of all its direct and indirect subsidiaries to the lenders under
the credit facility and that all of the assets of such
subsidiaries are pledged to such lenders,
. That Centennial has unconditionally guaranteed the obligations of
the borrowers under the credit facility,
. That Centennial, as co-obligor, has no assets other than the stock
of Centennial Cellular Operating and Centennial is not subject to
the covenants contained in the indenture governing the notes,
. That the right of the trustee under the indenture and a Pledge and
Escrow Agreement to obtain payment on the notes upon the
occurrence of an event of default may be significantly impaired by
applicable bankruptcy law,
77
<PAGE>
. The lack of certainty with respect to how a court might decide a
suit by an unpaid creditor on the basis of fraudulent conveyance,
. The potential effect of Year 2000 computer issues,
. Risks associated with new management and any future changes in
management,
. That certain equity investors control Centennial and its
subsidiaries and have the power to elect directors and take other
corporate actions,
. That we have limited ability to direct the operations of the
systems in which we hold minority cellular investment interests as
a limited partner and that our interests in such systems may be
diluted if we do not meet a capital call,
. The potential effect of equipment failure or natural disaster on
our business,
. Concerns about radio frequency emissions from cellular handsets,
and
. The absence of a public market for the New Notes.
We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the forward-
looking events discussed in this Prospectus might not occur.
78
<PAGE>
BUSINESS
Centennial Cellular Corp.
Our company is one of the largest independent wireless telecommunications
service providers in the United States and Puerto Rico with approximately 10.8
million Net Pops and 384,600 subscribers as of November 30, 1998. Centennial
Rural Cellular serves 5.8 million Net Pops and its service area covers
approximately 81,645 square miles. Our subsidiary, Centennial de Puerto Rico,
is a fully integrated provider of communications services in Puerto Rico. These
operations utilize a PCS license that covers 3.8 million Pops in Puerto Rico
and the U.S. Virgin Islands and a CLEC license to operate in Puerto Rico. In
addition, we own minority shares, representing approximately 1.2 million Net
Pops, in certain Minority Cellular Investment Interests.
The table below shows certain data for each of our two principal business
segments.
<TABLE>
<CAPTION>
Centennial de Puerto Rico
Centennial Rural Cellular (PCS wireless and CLEC
(Cellular services) wireline services)
------------------------------ ------------------------------
Year ended Six months ended Year ended Six months ended
May 31, 1998 November 30, 1998 May 31, 1998 November 30, 1998
------------ ----------------- ------------ -----------------
(in millions, except as noted)
<S> <C> <C> <C> <C>
Net Pops................ 5.8 5.8 3.8 3.8
Subscribers (in
thousands)............. 252.7 285.9 69.5 98.7
Penetration............. 4.4% 4.9% 1.8% 2.6%
Revenue................. $182.9 $112.8 $54.6 $51.8
EBITDA.................. $ 86.7 $ 60.3 $12.5 $21.3
Annualized EBITDA....... $ 86.7 $120.6 $12.5 $42.6
</TABLE>
For the year ended May 31, 1998, our company earned revenue of $237.5
million, representing a CAGR of 45% over the previous two fiscal years. EBITDA
for the year ended May 31, 1998 was $99.2 million, representing a CAGR of 44%
over the previous two fiscal years.
The success of our company's operating and financial performance has been
driven by the quality and experience of its management and employees. We expect
to continue to benefit from the experienced members of operating management who
are expected to remain at Centennial Rural Cellular following the Merger. This
management team built the Company through internal growth and acquisitions from
approximately 1.7 million Net Pops in 1988 to approximately 10.8 million Net
Pops (including those in Puerto Rico and Minority Cellular Investment
Interests) as of November 30, 1998. The addition of Michael Small, formerly the
Chief Financial Officer of 360(degrees) Communications Company (now a
subsidiary of ALLTEL Corporation), as our Chief Executive Officer following the
Merger complements the existing management team. Rudy J. Graf, who has been the
Chief Operating Officer of the Company since 1991, will continue to manage the
day-to-day operations of the Company
Centennial's Rural Cellular Systems
Centennial's domestic consolidated systems are among the leading
independent providers of rural non-wireline cellular telecommunications
services. We believe our rural and small-city cellular systems provide strong
growth opportunities due to lower penetration rates and higher subscriber
growth rates. We focus on underdeveloped rural and small-city cellular areas
that have a significant number of potential customers for wireless
communications because we believe these areas offer:
. Potential Penetration Growth. We believe these areas are in the
early stages of their growth cycles and offer significant
opportunities for increases in penetration and cellular usage;
79
<PAGE>
. Insulation from Potential Competition. These regions are currently
subject to less competition from other wireless providers (such as
PCS) as compared to larger MSAs, and the population density of
these regions suggests that the build-out of a PCS network may not
be economically attractive to competitors at present; and
. Above-Average Revenue per Subscriber. Our domestic markets, which
are strategically located between larger metropolitan areas, tend
to exhibit long commute times and well-traveled roadways that have
the potential to generate high levels of cellular MOUs and roaming
revenues.
The Company's domestic cellular interests consist primarily of three
operating clusters:
. Michiana Cluster contains approximately 3.4 million Net Pops in
Michigan, Ohio and Indiana, covering portions of three major
interstate highways that connect Chicago, Detroit and
Indianapolis.
. East Texas/Louisiana Cluster contains approximately 2.1 million
Net Pops, covering portions of interstate highway I-10, as well as
sections of Texas, Louisiana and Mississippi adjacent to Houston,
New Orleans, Shreveport and Baton Rouge.
. Southwestern Cluster contains approximately 296,000 Net Pops,
covering the Yuma, Arizona and El Centro, California markets and
is bordered by Los Angeles to the northwest, San Diego to the
west, Phoenix to the east and Mexicali, Mexico to the south.
Our domestic operations have achieved significant increases in revenue,
EBITDA and number of subscribers since 1988. For the year ended May 31, 1998,
the Company's domestic operations earned revenue of $182.9 million,
representing a CAGR of 28% over the previous two fiscal years. EBITDA from
domestic operations for the year ended May 31, 1998 was $86.7 million,
representing a CAGR of 34% over the previous two fiscal years. As of May 31,
1998, the Company's domestic operations had approximately 252,700 subscribers,
representing a CAGR of 37% over the number of subscribers in the previous two
fiscal years.
Centennial's Puerto Rico Systems
Our Puerto Rico business, which is conducted through Centennial de
Puerto Rico, is a facilities-based ICP of a broad range of wireless and
wireline services in the Commonwealth of Puerto Rico (an area covering
approximately 3.8 million Pops). It is (i) the only provider of PCS services
in the Puerto Rico market, (ii) a provider of facilities-based wireless local
loop services to both business and residential customers, and (iii) a provider
of local, long distance and enhanced data services through its subsidiary,
Lambda CLEC, which competes with the incumbent PRTC. We believe that Puerto
Rico represents an attractive market for communications services due to unmet
demand for wireless and local phone service, high population density in the
island's metropolitan areas, a growing economy and a stable business
environment.
Centennial de Puerto Rico offers wireless and wireline services using a
shared Lucent Technologies 5 ESS switch and its sophisticated fiber optic
network, which contains over 292 route miles of fiber throughout the island of
Puerto Rico. The digital PCS network allows for coverage in most areas of
Puerto Rico using its established base of 120 cell sites and CDMA technology
to transmit its calls.
. Wireless Services. Centennial de Puerto Rico offers both PCS and
wireless local loop service to its customers. Our PCS business
currently covers approximately 85% of the total Pops on the island
of Puerto Rico and targets high volume users. We began offering
PCS in December 1996 and as of November 30, 1998 had approximately
98,700 subscribers, an increase of 95% over our approximately
50,700 subscribers at November 30, 1997. Our ARPU per PCS customer
was approximately $89 during the three months ended November 30,
1998, compared to approximately $46 for the average U.S. wireless
customer for the six months ended June 30,
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<PAGE>
1998, according to data from the CTIA. Centennial de Puerto Rico
began offering wireless local loop service to business and
residential customers in August 1997. Our ARPU per wireless local
loop customer was $87 during the three months ended November 30,
1998. This service uses our fully digital CDMA network in Puerto
Rico and had over 14,200 subscribers as of November 30, 1998.
. Wireline Services. Lambda CLEC provides local, long distance and
enhanced data services (including Internet-related services) to
business and government customers over our high bandwidth, fiber
optic network. We believe that our targeted CLEC customers have
sophisticated communications service requirements, including the
need for a reliable network providing data access and private line
services and high quality customer service. Lambda CLEC has grown
rapidly since its inception in September 1997, primarily due to
its ability to offer a broad range of products as well as
responsive and reliable service in an underserved market. Lambda
CLEC provided approximately 41.7 million MOUs to its customers in
November 1998, an increase of 87% over the MOUs provided in May
1998.
Since operations commenced in December 1996, Centennial de Puerto Rico
has achieved significant growth in subscribers, revenue and EBITDA, which we
attribute to our premium service capabilities, experienced local management
team and limited competition in the region. Revenue for the fiscal year ended
May 31, 1998 was $54.6 million, compared to $5.9 million for the year ended
May 31, 1997. EBITDA for the fiscal year ended May 31, 1998 was $12.5 million,
compared to an EBITDA deficit of $(8.4) million for the prior period. Revenue
for the six months ended November 30, 1998 was $51.8 million. EBITDA for the
six months ended November 30, 1998 was $21.3 million or $42.6 million on an
annualized basis.
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<PAGE>
Centennial Rural Cellular
Rural Cellular Markets and Systems
The Company has focused on acquiring controlling ownership interests in
wireless telephone systems serving markets contiguous or proximate to its
current markets. The Company's strategy of clustering its wireless telephone
operations enables it to achieve operating and cost efficiencies, as well as
joint advertising and marketing benefits. Clustering also allows the Company to
offer its subscribers more areas of uninterrupted service as they travel
through an area or state. In addition to expanding its existing clusters, the
Company may seek to acquire interests in wireless telephone systems in other
geographic areas.
The table below sets forth certain information about Centennial's
domestic systems as of February 28, 1999.
<TABLE>
<CAPTION>
Markets Total Pops Ownership Net Pops
------- ---------- --------- ---------
<S> <C> <C> <C>
Michiana Cluster
Kalamazoo, Michigan*............................ 306,000 100.0% 306,000
Cass, Michigan.................................. 294,000 100.0% 294,000
Newaygo, Michigan............................... 241,000 100.0% 241,000
Battle Creek, Michigan*......................... 195,000 100.0% 195,000
Benton Harbor, Michigan*........................ 161,000 100.0% 161,000
Jackson, Michigan*.............................. 155,000 100.0% 155,000
Roscommon, Michigan............................. 136,000 100.0% 136,000
--------- ---------
Subtotal....................................... 1,488,000 1,488,000
--------- ---------
South Bend, Indiana*............................ 306,000 100.0% 306,000
Richmond, Indiana............................... 222,000 100.0% 222,000
Newton, Indiana................................. 213,000 100.0% 213,000
Elkhart-Goshen, Indiana*........................ 169,000 91.7% 155,000
Williams, Ohio.................................. 127,000 100.0% 127,000
--------- ---------
Subtotal....................................... 1,037,000 1,023,000
--------- ---------
Fort Wayne, Indiana*............................ 438,000 100.0% 438,000
Miami, Indiana.................................. 178,000 100.0% 178,000
Kosciusko, Indiana.............................. 174,000 100.0% 174,000
Huntington, Indiana............................. 145,000 100.0% 145,000
--------- ---------
Subtotal....................................... 935,000 935,000
--------- ---------
Cluster Total.................................. 3,460,000 3,446,000
--------- ---------
East Texas/Louisiana Cluster
Beauregard, Louisiana........................... 385,000 100.0% 385,000
Beaumont-Port Arthur, Texas*.................... 377,000 100.0% 377,000
Lafayette, Louisiana*........................... 230,000 94.5% 217,000
West Feliciana, Louisiana....................... 182,000 100.0% 182,000
Claiborne, Mississippi.......................... 155,000 100.0% 155,000
Alexandria, Louisiana*.......................... 142,000 93.2% 132,000
Iberville, Louisiana............................ 181,000 100.0% 181,000
DeSoto, Louisiana............................... 149,000 100.0% 149,000
Copiah, Mississippi............................. 122,000 100.0% 122,000
Bastrop, Louisiana.............................. 115,000 100.0% 115,000
Caldwell, Louisiana............................. 74,000 100.0% 74,000
--------- ---------
Cluster Total.................................. 2,112,000 2,089,000
--------- ---------
Southwestern Cluster
Yuma, Arizona................................... 153,000 100.0% 153,000
El Centro, California........................... 143,000 100.0% 143,000
--------- ---------
Cluster Total.................................. 296,000 296,000
--------- ---------
Centennial's Domestic Systems................... 5,868,000 5,831,000
========= =========
</TABLE>
- --------
* Indicates systems that are in MSAs; all other systems are in RSAs.
82
<PAGE>
As of May 31, 1998, the Company's domestic systems had 252,700
subscribers in the markets listed above, and as of year-end of fiscal 1997,
1996 and 1995, the Company had 187,000, 135,000, and 85,900 subscribers,
respectively, in such markets.
All of the Company's systems are currently operational. A system is
deemed operational when it has begun providing service to subscribers.
Michiana Cluster
The Michiana cluster consists of approximately 3.4 million Net Pops in
Michigan, Ohio and Indiana and includes portions of three major interstate
highways that connect Chicago, Detroit and Indianapolis. Some of the largest
companies in the United States are based in this area, including General Motors
Corp., Ford Motor Co., Chrysler Corp., Procter & Gamble Co., Kroger Co. and Dow
Chemical Co.
The following table sets forth certain operating statistics for the
Michiana cluster:
<TABLE>
<CAPTION>
Years ended May 31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Subscriber growth rate............................... 36% 40% 46%
ARPU................................................. $ 71 $ 73 $ 75
Churn rate........................................... 1.8% 2.1% 1.9%
Sales and service centers............................ 34 22 15
Cell sites........................................... 175 104 93
</TABLE>
East Texas/Louisiana Cluster
The East Texas/Louisiana cluster consists of approximately 2.1 million
Net Pops and covers 38,735 square miles spanning from Beaumont, Texas to
Lafayette, Louisiana and including a significant portion of interstate highway
I-10 as well as sections of Texas, Louisiana and Mississippi adjacent to the
cities of Houston, New Orleans, Shreveport and Baton Rouge. Industries such as
forestry, oil and gas and construction necessitate a mobile workforce that is
ideally suited to the Company's services.
The following table sets forth certain operating statistics for the East
Texas/Louisiana cluster:
<TABLE>
<CAPTION>
Years ended May 31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Subscriber growth rate............................... 35% 37% 63%
ARPU................................................. $ 62 $ 68 $ 68
Churn rate........................................... 1.8% 2.4% 3.2%
Sales and service centers............................ 23 17 8
Cell sites........................................... 168 90 75
</TABLE>
Southwestern Cluster
The Southwestern cluster consists of approximately 296,000 Net Pops and
covers the Yuma, Arizona and El Centro, California markets located between Los
Angeles to the northwest, San Diego to the west, Phoenix to the east and
Mexicali, Mexico to the south. The cluster is located in a largely agricultural
region and benefits from seasonal visits from approximately 50,000 tourists
each winter. In addition, the cluster benefits from its proximity to the
Mexican cities of Ensenada, Nogales, San Felipe and Tijuana with aggregate Pops
of 1.7 million. As a result, outcollect roaming traffic accounts for
approximately 24% of revenue in this cluster.
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<PAGE>
The following table sets forth certain operating statistics for the
Southwestern cluster:
<TABLE>
<CAPTION>
Years ended May 31,
----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Subscriber growth rate.................................. 32% 36% 39%
ARPU.................................................... $ 89 $ 111 $ 127
Churn rate.............................................. 2.0% 2.8% 3.2%
Sales and service centers............................... 2 2 2
Cell sites.............................................. 20 18 17
</TABLE>
The chart below sets forth certain demographic characteristics and other
additional information about each of the Company's domestic markets as of
February 28, 1999.
<TABLE>
<CAPTION>
Interstate and Other
Cluster Total Pops Net Pops Pops/Square Mile Highway Miles
------- ---------- --------- ---------------- --------------------
<S> <C> <C> <C> <C>
Michiana Cluster........ 3,460,000 3,446,000 121 1,439
East Texas/Louisiana
Cluster................ 2,112,000 2,089,000 54 1,059
Southwestern Cluster.... 296,000 296,000 21 266
--------- --------- -----
Total................. 5,868,000 5,831,000 n.a. 2,764
</TABLE>
- --------
n.a. = not applicable
Centennial's Minority Cellular Investment Interests
The Company holds Minority Cellular Investment Interests in six
independent cellular partnerships which own and operate cellular telephone
systems in the United States. The partnerships operate primarily in RSAs or
MSAs that include or are contiguous to major cities or that contain expressway
corridors linking metropolitan areas. Centennial acquired the Minority Cellular
Investment Interests in August 1991 in connection with a merger with Citizens
Cellular Company, which was a wholly owned subsidiary of Citizens Utilities
Company ("Citizens"). Citizens had acquired these interests as a result of
agreements among various companies providing local exchange telephone service
in markets in which Citizens also provided such service. The Company is
considering various alternatives with respect to the Minority Cellular
Investment Interests, including either selling such interests to its partners
in each respective partnership or, in some case, acquiring interests from its
partners in order to control the operations itself.
The following table sets forth certain information about the Company's
Minority Cellular Investment Interests as of February 28, 1999.
<TABLE>
<CAPTION>
Markets Total Pops Ownership Net Pops
------- ---------- --------- ---------
<S> <C> <C> <C>
Sacramento Valley Cluster (7 MSAs; 3 RSAs)....... 3,598,000 23.5% 844,000
San Franscisco Bay Area Cluster (6 MSAs)......... 7,041,000 2.9% 202,000
Lawrence, Pennsylvania........................... 382,000 14.3% 55,000
Del Norte, California............................ 213,000 6.9% 15,000
Modoc, California................................ 63,000 25.0% 16,000
Lake Charles, Louisiana*......................... 176,000 25.1% 44,000
---------- ---------
Total Minority Cellular Investment Interests... 11,473,000 1,176,000
</TABLE>
- --------
* Indicates systems that are in MSAs; all other systems are in RSAs.
84
<PAGE>
At May 31, 1998, the Company's pro rata shares of subscribers relating to
the Minority Cellular Investment Interests was approximately 122,000.
Products and Services
The Company's principal source of revenue in its domestic markets is
providing service to wireless telephone subscribers. The services available to
wireless telephone subscribers are similar to those provided by conventional
landline telephone systems, including custom calling features such as voice
mail, call forwarding, call waiting and conference calling.
The Company is responsible for the quality, pricing and packaging of its
wireless service for its cellular systems. The Company offers several pricing
plans and customers are able to choose the plan that best fits their calling
needs. The plans combine different charges for monthly access, usage, custom
calling features and, in some cases, varying amounts of pre-paid minutes of
usage.
The Company also generates revenue from subscribers of other wireless
telephone systems when such subscribers ("roamers") place or receive calls over
its systems. Reciprocal agreements between the Company and other wireless
telephone system operators allow their respective subscribers to place calls in
most service areas throughout the country. Roamers are charged usage rates that
are generally higher than the regular service rate.
The Company offers for sale or lease to its customers a wide variety of
wireless telephones, including mobile, transportable and fully portable
wireless telephones. The Company generally has offered significant discounts on
wireless telephones in an effort to attract domestic customers.
Distribution
The Company uses both its own internal sales force and independent
agents, dealers and resellers to obtain customers for wireless telephone
service in the domestic systems. The Company controls its distribution
channels, including 65 retail outlets and 700 sales representatives in the
United States.
The Company's internal sales force is paid on a salary plus commission
basis. Sales commissions are structured to take into account the length of the
subscriber's contract, the rate plan selected and the type of wireless
telephone sold. The Company also maintains an ongoing training program to
improve the effectiveness of its internal sales force. The Company's dealers
are independent contractors paid solely on a commission basis, and include
entities whose principal business is selling wireless telephones as well as
other entities whose customers may become wireless telephone users, such as
office supply stores, car stereo companies, auto parts stores, appliance stores
and department stores.
Marketing
Centennial Rural Cellular markets its services and products under the
name "Centennial Wireless." Centennial Rural Cellular designs and implements
specific marketing strategies for each of its cellular systems using a variety
of billboard, radio and newspaper advertising to stimulate interest in cellular
telephone service, increase its customer base, increase cellular usage and
reduce subscriber cancellations. The Company's current marketing strategy in
its domestic markets is designed to generate continued net subscriber growth
and to focus on customers who are likely to generate higher monthly revenues,
primarily business users. More recently, as a result of broader acceptance of
wireless communications in general and the continued decline in the cost of
cellular handsets, Centennial Rural Cellular has added subscribers from an
increasingly wider range of occupations and demographics.
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<PAGE>
In marketing its wireless telephone service, the Company stresses the
quality of its wireless telephone service, easy and rapid access to telephone
services, competitive prices, state-of-the-art features, and the local presence
of its customer service representatives and technical staff. In areas where the
domestic systems are in markets adjacent or proximate to one another, the
Company emphasizes that its own subscribers may make calls from anywhere in
these markets without incurring fees or charges in addition to the standard
usage and service fees which often are incurred when a customer "roams" from
one market to an adjacent market owned by a third party.
The Company has introduced numerous innovative and effective marketing
programs tailored to its various subscriber bases within its domestic markets.
Such programs that Centennial has implemented include: "Option 7" (allowing
customers to make 7c per minute calls in an extended home service area during
off-peak hours for an additional $4.95 per month); "Forever Warranty"
(guaranteeing repair or replacement of a damaged phone within one hour at no
charge); "Express" (offering prepaid minutes of cellular usage to primarily
low-credit customers); "Companion Program" (allowing customers to add new
phones to an existing account for half the applicable basic service rate and to
share the included minutes); "Multistate Home Coverage Rates" (eliminating long
distance surcharges for calls made within the primary service area to anywhere
within an extended service perimeter); and "TotalFONE" (providing a package of
call waiting, call forwarding and conference calling features for $4.95 per
month).
Customer Service
The Company believes that its ability to provide superior customer
service is a key factor in acquiring new customers and reducing churn among
existing customers. The Company maintains a customer service staff of
approximately 112 persons in its domestic systems. The Company has established
repair facilities and customers are able to report telephone service problems
24 hours a day in the Company's domestic markets. The Company believes that by
having convenient offices and repair facilities and a high ratio of customer
service personnel to customers it is better able to service customers and
monitor the technical quality of its wireless telephone system.
The success of this emphasis on customer service is evidenced by the
Company's domestic average monthly churn rate of 1.8% (during fiscal 1998)
which the Company believes is lower than that of a typical cellular carrier and
demonstrates customer satisfaction with the Company's network.
Fraud Control
Centennial has invested heavily in sophisticated anti-fraud technology
from Corsair that allows cell sites to identify the unique electronic
fingerprint of each customer's phone. This technology effectively eliminates
the threat of "cloning," as these fingerprints cannot be read by unauthorized
third parties. For an added level of protection, the Company uses Coral Systems
customer profiling software that recognizes customer calling patterns and
identifies serious deviations. Finally, Centennial Cellular Operating, together
with telephone companies in adjacent geographic areas, shares its data in a
cooperative effort to eliminate fraudulent use. As a result of these efforts
over the twelve-month period ended May 31, 1998, losses due to fraudulent
activity have declined to approximately 0.4% of service revenues, compared to
losses due to fraudulent activity of 2.6% of revenue for the year ended May 31,
1997.
Real-Time Billing System
The Company employs a fully integrated billing system for its wireless
services that incorporates point-of-sale, credit checking, inventory, cash
handling, switch provisioning and customer service subsystems. This system also
interfaces with flexible invoice generation, a collections system and a fraud
detection system in order to enhance customer bill accuracy and presentation.
The domestic billing system confidentially processes the appropriate
information on mainframe computers located in Pennsylvania that each of the
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<PAGE>
Company's clusters is able to access and upload data using personal computers
communicating through a Wide Area Network. As a result of this system, the
Company minimizes its cost of processing.
Suppliers and Equipment Partners
The Company does not manufacture any customer or network equipment. The
high degree of compatibility among different manufacturers' models of handsets,
PCS phones and network facilities equipment allows the Company to design,
supply and operate its systems without being dependent on a single source of
such equipment. The Company currently purchases handsets primarily from
Motorola, Inc., Ericsson, Inc. and Nokia Telecommunications, Inc. The Company
currently purchases network equipment from Northern Telecom, Lucent
Technologies Inc., Harris, Inc. and Nokia Telecommunications, Inc.
Digital Wireless Technology
Over the next decade, it is expected that wireless telephones will
gradually convert from analog to digital technology. This conversion is due in
part to capacity constraints in many of the largest cellular markets, such as
Los Angeles, New York and Chicago. As carriers reach limited capacity levels,
certain calls may be unable to be completed, especially during peak hours.
Digital technology increases system capacity and simultaneously provides a
network architecture that supports delivery of revenue-enhancing features and
services, including extended battery life on hand-held phones, improved overall
average signal quality, improved call security, intelligent system selection
and zone billing, alphanumeric paging, Internet-based electronic mail receipt,
caller identification, voice mail messaging display and the ability to provide
data/facsimile transmission services. The conversion from analog to digital
technology is expected to be an industry wide process that will take a number
of years.
The Company is in the process of upgrading its domestic cellular
telephone systems from analog to digital technology. In its domestic markets,
the Company expects to deploy the TDMA standard, which has been adopted and
certified by the CTIA. TDMA is the digital standard being deployed nationally
by AT&T, and is supported by all of the major infrastructure providers, such as
Nortel, Lucent and Ericsson. TDMA encodes three voice calls on a single 30 KHz
channel, effectively yielding a spectral-efficient, three-fold increase in
system capacity. In Puerto Rico, the Company utilizes the CDMA standard, which
is a spread-spectrum technology.
The implementation of digital technology will be fundamentally directed
by subscriber demand for secure and confidential communications, the
introduction of new cellular telephone services such as message waiting and
calling line identification, and the delivery of data communications. Where
cell sites are not yet at their maximum capacity of radio channels, the Company
is adding digital channels to the network incrementally based on the relative
demand for digital and analog channels. Where cell sites are at full capacity,
analog channels are being removed and redeveloped to expand capacity elsewhere
within the network and replaced in such cell sites by digital channels. The
implementation of digital cellular technology over a period of several years
will involve modest incremental expenditures for switch software and possible
significant cost reductions as a result of reduced purchases of radio channels
and a reduced requirement to split existing cells. However, as indicated above,
the extent of any implementation of digital radio channels and the amount of
any cost savings ultimately to be derived therefrom will depend primarily on
subscriber demand. In the ordinary course of business, equipment upgrades at
the cell sites have involved purchasing dual mode radios capable of using both
analog and digital technology.
The benefits of digital radio channels can only be achieved if
subscribers purchase cellular telephones that are capable of transmitting and
receiving digital signals. Currently, such telephones are more costly than
analog telephones. The widespread use of digital cellular telephones is likely
to occur only over a substantial period of time and there can be no assurance
that this technology will replace analog cellular telephones. In
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<PAGE>
addition, the FCC currently requires cellular licenses to provide analog
service to subscribers desiring such service and most of the Company's existing
subscribers have cellular telephones that exclusively utilize analog
technology. Thus, it will be necessary to continue to support, and if necessary
increase, the number of analog radio channels within the network for many
years.
The widespread availability of dual-mode or tri-mode phones capable of
transmitting and receiving calls using different wireless technologies may also
increase the usage of the Company's system. Traditionally, a cellular handset
is only capable of carrying calls from an analog and possibly one type of
digital network. Thus, a subscriber to a TDMA network can only place calls over
other TDMA networks. With multi-mode phones, a subscriber can place a call on
any network recognized by the phone. Thus, if a phone recognizes TDMA, CDMA,
and analog, a subscriber can place a call on any of these networks. One direct
impact of the availability of these phones is roaming revenue. A subscriber on
a CDMA network, for example, will be able to roam on the Company's analog or
TDMA networks, thus increasing the Company's roaming revenues.
Construction, Operation and Development
The Company operates its Domestic Wireless Telephone Systems pursuant to
29 cellular licenses which it owns. Wireless telephone technology is based upon
the radio coverage of a given geographic area by a number of overlapping
"cells." Each cell contains a transmitter-receiver at a "base station" or "cell
site" that communicates by radio signal with wireless telephones located in the
cell and is connected to a mobile telephone switching office (the "MTSO"),
which, in turn are connected to the local landline telephone network. Since
wireless telephone systems are fully interconnected with the landline telephone
network and long distance networks, subscribers can receive and originate both
local and long distance calls from their wireless telephones.
In accordance with its strategy of developing market clusters, the
Company has selected wireless switching systems that are capable of serving
multiple markets with a single MTSO and has already implemented this strategy
in most of its markets. The Domestic Wireless Telephone System is designed to
facilitate the installation of equipment which will permit microwave
interconnection between the MTSO and each cell site. In addition, microwave
facilities can be used to connect separate wireless telephone systems to the
same switch, which may reduce the total cost of the equipment necessary to
operate both systems. Where the Company has deemed it appropriate, the Company
has implemented microwave services in the Domestic Wireless Telephone Systems.
The other systems rely upon landline telephone connections to link cell sites
with the MTSO. Although the installation of microwave network equipment
requires a greater initial capital investment, a microwave link enables a
wireless telephone system operator to avoid the current and future charges
associated with leasing telephone lines from the landline telephone company and
generally improves system reliability. Subject to the availability of
appropriate microwave sites, the Company may replace the leased lines in the
Domestic Wireless Telephone Systems with microwave links as the volume of calls
in each system makes the use of such microwave links more cost efficient.
The Company hires consulting engineers and telecommunications general
contractors to aid in the design and management of the construction and
expansion of its wireless telephone system. By doing so, the Company believes
it improves the overall system engineering and construction quality and reduces
the expense and time required to make and keep the systems operating at the
high level of technical quality.
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Centennial de Puerto Rico
Puerto Rico Wireless Services
Generally
Centennial de Puerto Rico holds one of two MTA licenses to provide
broadband PCS in the Commonwealth of Puerto Rico and the U.S. Virgin Islands.
Centennial de Puerto Rico acquired the 30 MHz Block B broadband PCS license for
the Puerto Rico-Virgin Islands MTA from the FCC for a purchase price of
approximately $55 million in fiscal 1996. These markets contain approximately
3.8 million Pops. As of November 30, 1998, Centennial de Puerto Rico had
approximately 98,700 PCS subscribers and approximately 14,200 subscribers for
its wireless local loop services. The Company believes that it has an estimated
13% market share in Puerto Rico based upon the number of wireless subscribers
and an estimated 25% market share based upon revenues. The Company intends to
review the possibility of building a wireless network in the U.S. Virgin
Islands.
The PCS and wireless local loop services utilize Centennial de Puerto
Rico's CDMA, digital PCS network. This network provides all of the increased
functionality that is typically associated with PCS service in the U.S. The
Company's CDMA technology operates on the 2 GHz radio frequency band and allows
the Company to offer a higher quality of voice transmission than the systems
currently used by the Company's competitors. The Company believes that CDMA
offers approximately eight times the capacity of a typical analog system and
three times the capacity of a TDMA system. CDMA also provides greater fraud and
privacy protection than other wireless technologies.
PCS Products and Services
Centennial de Puerto Rico's fully digital CDMA network enables it to
provide a broader range of services and features than its two incumbent
cellular competitors. The Company tailors its service offerings to the demands
of the high usage subscriber in the Puerto Rico market and includes the
following:
. Integrated voicemail and paging
. Caller ID
. Use of mobile phone included free of charge
. "Forever Warranty" (which guarantees phone repair or replacement)
. Detailed billing (which itemizes all local and long distance
charges)
The Company also offers "Companion Program" (allowing customers to add
new phones to an existing account for $16.95 per month per phone and to share
the included minutes) and "Alcance" (offering prepaid minutes of wireless usage
to primarily no or low-credit customers). Centennial de Puerto Rico's "Alcance"
customers purchase a used and fully depreciated phone from the Company, pay an
activation fee and prepay for a certain number of minutes of wireless usage.
When a customer's balance of available minutes runs low, the customer receives
two notifications over the phone and may choose to be connected to a service
representative of the Company to prepay for additional minutes of service.
The Company is responsible for the quality, pricing and packaging of its
wireless service. The Company offers several pricing plans and customers are
able to choose the plan that best fits their calling needs. The plans combine
different charges for monthly access, usage, custom calling features and
varying amounts of included minutes of usage. A customer may also purchase
additional calling features individually. The Company's premium calling
features, which the Company can provide at little or no incremental cost, have
achieved significant market penetration. As of November 30, 1998, 91% of
Centennial de Puerto Rico's customers had purchased loss protection for their
PCS phones, 59% of its customers had elected detailed
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billing, and 59% had chosen the Super Feature, which includes call transfer,
call waiting, conference calling and caller ID. Thirty percent of Centennial de
Puerto Rico's customers subscribed for the voicemail feature. Centennial de
Puerto Rico's customers sign agreements acknowledging that they will be billed
for a minimum of six months on their accounts.
Centennial de Puerto Rico has a roaming agreement with Sprint, which
commenced in September 1998. This agreement allows the Company's customers in
Puerto Rico to use their phones in Sprint's PCS coverage areas in the U.S. and
allows Sprint's customers to use their phones in Puerto Rico. The Company is
currently negotiating similar PCS roaming agreements with Primeco and Codetel.
Roaming is not expected to generate significant revenues in the current fiscal
year.
The Company is in the process of beta testing a system that would allow
the Company to offer its wireless customers the ability to transmit data at
speeds of 14.4 Mbps over its system. This service would, for instance, allow
PCS and wireless local loop customers to receive and send email, and allow
businesses to send and receive sales information and access banks to complete
ATM transactions from remote locations. The Company does not believe that any
other wireless provider currently offers data transmission over a CDMA system.
The Company intends to evaluate the capacity required to complete such
transmissions to determine whether to offer this service to its customers.
Wireless Local Loop Services
The Company introduced a wireless local loop system in Puerto Rico in
August 1997. A wireless local loop customer leases or purchases a wireless
phone from the Company, which is then plugged into an electric outlet. The
phone works the same as any other PCS phone, although it is intended to be used
in just one location. The service initially targeted private residences that
did not have access to wireline service from the PRTC or that wanted an
additional telephone line. However, in response to demand from business
customers, the Company began to offer service to businesses. The Company
believes its wireless local loop service provides an attractive alternative to
the PRTC for local business telephone service, particularly to those customers
who make most of their calls outside their PRTC local calling area. The Company
is able to leverage its existing PCS infrastructure to provide digital local
loop service at a low incremental cost wherever its PCS coverage already
exists.
As of November 30, 1998, the Company had approximately 14,200 subscribers
to its wireless local loop service, which is marketed to residential customers
under the brand name "HomePhone" and to businesses under the name
"BusinessPhone." The wireless local loop service generated approximately $3.8
million in revenues for the fiscal year ended May 31, 1998, and an additional
$6.3 million in revenues in the six months ended November 30, 1998. The average
customer generates approximately $87 in monthly revenues during three months
ended November 30, 1998. The Company requires its new wireless local loop
customers to sign a one-year contract.
Marketing
The Company markets its wireless services and products in Puerto Rico
under the name "Centennial de Puerto Rico." The Company designs and implements
specific marketing strategies for its wireless systems using a variety of
television, billboard, radio and newspaper advertising to stimulate net
subscriber growth and to focus on customers who are likely to generate higher
monthly revenues, primarily business users. The Company's marketing
expenditures for the six months ended November 30, 1998 totaled approximately
$10.2 million, and the average acquisition cost per subscriber during the same
period was approximately $185. Acquisition costs are determined for a period by
dividing selling and marketing expenses and cost of equipment sales (net of
associated revenue) by the gross wireless customers added during such period.
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In marketing wireless telephone service, the Company stresses the quality
and clarity of its wireless telephone service, easy and rapid access to
telephone services, competitive prices, state-of-the-art features and anti-
fraud protection. Subscribers in Puerto Rico are offered packages that include
integrated voice mail and pager service, caller ID, free usage of a PCS phone
and services in which the first minute of incoming calls are free. Customers
may also purchase additional calling features individually.
The Company maintains 52 retail outlets throughout Puerto Rico, of which
six are stores located in the major metropolitan areas of the island. The
remainder are kiosks, which the Company has constructed in malls, supermarkets
and other large retail centers at a capital cost of approximately $4,000-8,000
each. Each outlet offers the full range of the Company's wireless services and
serve the needs of the Company's residential and small business customers. The
Company uses its internal sales force to market its services to larger
businesses throughout Puerto Rico.
The Company's 315 sales representatives are paid on a salary plus
commission basis. Charge backs are taken from sales commissions in the event
that customers terminate service prior to the expiration of the minimum six-
month billing period. Sales commissions are structured to take into account the
rate plan and premium services selected. The Company maintains an ongoing
training program to improve the effectiveness of its sales force.
The Company provides its subscribers with a basic PCS phone, which must
be returned when the service is disconnected. Customers are also able to choose
more expensive phone models in return for an additional fee. They can also
purchase used phones from the Company. The Company believes that providing free
phone usage is necessary due to the relative expense of PCS phones
(approximately $300) in comparison to the cost of typical cellular phones which
are given away as part of service plans by the Company's competitors
(approximately $100). The cost of the phones, which are owned by the Company,
are depreciated over an 18-month period. The Company refurbishes a PCS phone
that is returned before it has been fully depreciated and then resells it to a
new customer.
Lambda CLEC
Generally
Lambda CLEC, a wholly owned subsidiary of the Company, is the only local
exchange carrier competing with the PRTC in offering local, long distance and
enhanced data services to business customers. The PRTC's inability to provide
broadband connectivity to businesses in a timely manner has enabled Lambda CLEC
to attract many large businesses, most of which have entered into multi-year
contracts with the Company for fiber optic connections. Its customers include
MCI, Banco Santander and El Nuevo Dia, Puerto Rico's largest newspaper. As of
November 30, 1998, Lambda CLEC provided services over 292 route miles of fiber.
For the six months ended November 30, 1998, Lambda CLEC had annualized EBITDA
of $9.8 million after only 21 months of operations.
Lambda CLEC offers services in many locations as the Company's fiber
optic network runs through the major business and population centers of Puerto
Rico. The cost of leading the fiber optic cable from the street into an office
building is typically paid by the customer requesting the service. The
Company's customers are often willing to pay this price in return for the
faster installation times and service provided by the Company. Once a cable has
been installed in a building, the Company then markets its CLEC service to
other smaller businesses in the building. The Company is usually able to
install the necessary fiber optic cable and connect service within 60 days,
whereas the Company believes that some customers of the PRTC may have to wait
significantly longer to have additional lines of service installed. The Company
believes it offers timely and reliable service to its business customers as
well as competitive pricing.
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Lambda CLEC generated approximately $4.7 million in revenues for the
fiscal year ended May 31, 1998 and $8.8 million in revenues during the six
months ended November 30, 1998. The service provided approximately 41.7 million
MOUs to its customers in November 1998, an increase of 87% over the MOUs
provided in May 1998. Lambda CLEC's average customer generated approximately
$16,000 in monthly revenues during the month ended November 30, 1998. The churn
rate for these customers is close to zero, which the Company believes is due to
the cost and time involved in the design and installation process and the fact
that most of the Company's CLEC customers have long-term contracts.
Products and Services
The Company's products and services are designed to appeal to the
integrated communications needs of its target customers.
. Local Services. The Company provides local dial-tone service to
customers, which allows them to complete calls in the local
calling area and to access a long distance calling area. The
Company's network is designed to allow a customer to easily
increase or decrease capacity and alter enhanced services as the
communications requirements of the business change. In addition to
its core local services, the Company also provides access to
third-party directory assistance and operator services.
. Long Distance Services. The Company provides domestic and
international long distance services for completing intra-island
and international calls. Long distance service is offered as an
additional service to the Company's local exchange customers. Long
distance calls which do not terminate on the Company's network are
passed to long distance carriers which route the remaining portion
of the call. The Company has an agreement with Telefonica de
Espana, a Spanish long distance company, pursuant to which the
Company can offer its customers competitive international rates.
The Company's customers can receive volume discounts based upon
their total usage of both local and long distance calling. The
Company's ability to integrate local and long distance services
allows it to aggregate customers' monthly recurring, local usage
and long distance charges on a single, consolidated invoice.
. Enhanced Services. In addition to providing typical enhanced
services such as voice mail, call transfer and conference calling,
the Company offers additional value-added enhanced services to
complement its core local and long distance services. These
enhanced service offerings include:
. Access to Internet Services: The Company maintains a server
that enables its customers direct access to the Internet. The
Company allows customers to access the Internet through other
ISPs in Puerto Rico.
. Data Networking Services: The Company can provide high-speed,
broadband services to use for data and Internet access such as
Integrated Services Digital Network (ISDN) and Primary Rate
Interface (PRI). The Company can provide for the transmission
of voice and data over dedicated circuits ("private lines")
and can install T-1, DS-1, DS-3 and OC-3 lines and provide E-1
to T-1 conversion services.
. Specialized Application Services: The Company can create
products and services that are tailored for target industries
with special telecommunications needs such as the hospitality
industry. These services typically include non-measured rate
local calling, expanded local calling area, discounted long
distance rates and tailored trunking configurations.
In February 1999, Lambda CLEC began offering long distance services to
both residential and business customers. In March 1999, Lambda CLEC will also
begin offering direct Internet access to its customers.
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Marketing
The Company has capitalized on the current lack of competitive services
and pricing structures in Puerto Rico by positioning its CLEC service as a
high-quality provider of integrated communications services, particularly for
business customers with high usage patterns and sophisticated communications
needs. Prior to the introduction of Lambda CLEC service, wireline telephone
services were only available in Puerto Rico from the PRTC. The Company believes
it offers prompt installation and timely and reliable service to its business
customers over its all digital network as well as competitive pricing.
The CLEC service is marketed through a direct sales force of highly
trained account representatives. Currently, eight representatives primarily
target businesses that are heavy users of communications services and demand
prompt service. To further increase market awareness of its products and
services, the Company also conducts seminars targeting specific industry groups
that the Company believes would benefit from its services.
Real-Time Billing
The preparation of bills for Puerto Rico customers is outsourced pursuant
to an agreement with ALLTEL Telecom Information Services, Inc. The preparation
of bills for Lambda CLEC's services are outsourced pursuant to an agreement
with Saville. Centennial de Puerto Rico is currently examining alternative
billing arrangements and vendors which would allow it to provide a consolidated
bill to customers utilizing both wireless and wireline services from Centennial
de Puerto Rico.
Suppliers and Equipment Partners
Centennial de Puerto Rico currently purchases PCS phones primarily from
QualComm Incorporated and Sony Corporation and currently purchases network
equipment from Lucent Technologies Inc., Fujitsu and Alcatel.
Construction, Operation and Development
Construction of wireless telephone systems is capital intensive,
requiring a substantial investment for land and improvements, buildings,
towers, MTSOs, cell site equipment, microwave equipment, engineering and
installation. Until technological limitations on total capacity are approached,
additional wireless telephone system capacity can normally be added in
increments that closely match demand and at less than the proportionate cost of
the initial capacity. However, once capacity on a switch has been reached, a
new switch must be added at significant cost. The Company anticipates that the
volume of calls carried on its system will require a second switch to be added
in the spring of 1999. The switch will be configured to handle both wireless
and wireline calls and will cost approximately $10 million. The FCC has
established construction benchmarks which require that 30 MHz broadband PCS
systems, including Centennial de Puerto Rico's PCS system, serve at least one-
third of the population in their licensed area within five years of being
licensed and two-thirds of the population in their licensed area within ten
years of being licensed. The Company, having substantially completed
installation of its initial system, believes it is in compliance with these
requirements. In addition, broadband PCS spectrum is currently used by
incumbent co-channel point-to-point microwave users. As a general proposition,
broadband PCS licensees are required to pay the costs associated with the
relocation of these existing microwave users to other portions of the radio
spectrum or other media.
Both the wireless and CLEC services utilize the Company's switch and its
state-of-the-art fiber optic network, which contains over 292 route miles of
fiber throughout the island of Puerto Rico. The digital PCS network uses CDMA
technology to transmit its calls. The system is served by a Lucent Technologies
5 ESS switch for both wireless and wireline services. This single platform is
connected to the Company's digital CDMA network as well as its self-healing
(redundant) fiber optic SONET network, which operates at
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2.5 billion bits per second and is capable of supporting 30,000 simultaneous
conversations. The SONET architecture minimizes the risk of downtime in the
event of a fiber cut and provides customers with high security and reliability.
The cost of leading the fiber optic cable from the street into an office
building is typically paid by the customer requesting the service.
The Company's wireless telephone system is designed to facilitate the
installation of equipment which permits microwave interconnection between the
MTSO and each cell site. In the San Juan/Caguas area, the Company's cell sites
are connected directly to the Company's fiber optic network. Outside the area,
calls from cell sites are transmitted to the MTSO by microwave transmitters.
Using a microwave network enables the Company to avoid laying fiber optic cable
in areas where the Company believes its installation would not be cost
effective.
The total cost to Centennial de Puerto Rico of the acquisition and build-
out of the infrastructure of the PCS and CLEC system (including the purchase of
equipment and installation services, a license fee that the Company has paid of
approximately $55 million and the upgrade of cell sites and call switching
equipment) has been approximately $184.6 million in the aggregate through
fiscal 1998. It is anticipated that approximately $50.0 million will be
expended in connection with the build-out through fiscal 1999.
Recent improvements to the system have boosted the quality of the average
subscriber's experience, yielded a low dropped rate of approximately 2% and an
approximately 97% call completion rate, based on calls made during the three
months ended August 31, 1998. As of August 31, 1998, the Company had completed
120 of 138 planned cell sites and plans to complete 18 additional cell sites
and install 17 repeaters before the end of the fiscal year ending May 31, 1999.
Repeaters are used to amplify signals between cell sites and reduce the need
for additional sites.
The Company hires consulting engineers and telecommunications general
contractors to aid in the design and management of the construction and
expansion of its wireless and wireline telephone systems. By doing so, the
Company believes it improves the overall system engineering and construction
quality and reduces the expense and time required to make and keep the systems
operating at a high level of technical quality.
Puerto Rico Interconnection Agreements
The Company has entered into an interconnection agreement with the PRTC
that covers service throughout Puerto Rico. This agreement expires in March
1999. The Company is currently negotiating a new interconnection agreement with
the PRTC. Where an interconnection agreement cannot be reached on terms and
conditions satisfactory to the Company, the Company may pursue binding
arbitration of any disputes before the Puerto Rico utility commissions. There
can be no assurance, however, that the Company will be able to negotiate
interconnection agreements on terms and conditions satisfactory to the Company
or to renew existing interconnection agreements as they expire. A decision by
the United States Court of Appeals for the Eighth Circuit vacating several of
the FCC's rules creates uncertainty about the rules governing pricing, terms
and conditions of interconnection agreements. As a result of this decision,
which has been appealed to the Supreme Court, and a pending review of this
issue by the FCC, negotiations and enforcement of such agreements could become
more difficult and protracted, and renegotiation of existing agreements could
be required.
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Competition
Overview
The Company currently competes with one cellular licensee in each
geographic area where it operates. Many of these licensees are larger and have
greater financial resources than the Company. In addition, the Company competes
in many of its markets with providers of other wireless communications services
such as PCS, ESMR and paging. The Company also competes with local landline
telephone companies for telephone usage by customers. Competition for
subscribers among wireless providers is based principally upon the services and
enhancements offered, the technical quality of the system, sound quality,
reliability of connections, customer service, system coverage, capacity and
price.
The following chart lists the Company's principal cellular and PCS
competitors in each of its clusters and the major adjoining operators.
<TABLE>
<CAPTION>
Company Cluster Principal Competitors Adjoining Systems
--------------- ----------------------- --------------------
<S> <C> <C>
Michiana Cluster AT&T PCS Century Telephone
Sprint PCS Ameritech
PrimeCo ALLTEL Corporation
Century Telephone GTE
ALLTEL Corporation US Cellular
GTE Ogden Telephone
Ameritech
US Cellular
East Texas/Louisiana
Cluster BellSouth ALLTEL Corporation
Century Telephone Century Telephone
Sprint PCS GTE Mobilnet
PrimeCo Mercury Cellular
Wireless 2000 Potosi Co
Pocket Communications Mobiletel
Southwestern Cluster AirTouch Communications Simpson Utilities
Southern Cellular Gila River Telephone
AT&T PCS
Cox Communications
Sprint PCS
</TABLE>
The Company's two main competitors for wireless services in the Puerto
Rico market are CoreComm, a publicly traded U.S. company, and the PRTC, which
is currently owned by the Commonwealth of Puerto Rico but which has agreed to
sell a significant stake to GTE Corporation, a U.S. telecommunications company
which will control the PRTC's board of directors. The parties' public
statements indicate that they expect the transaction to close during the first
quarter of 1999. In July 1998, GTE agreed to merge with Bell Atlantic. Both
CoreComm and PRTC were earlier entrants into the Puerto Rico wireless market
and currently hold subscriber market shares of approximately 47% and 40%,
respectively. CoreComm and PRTC offer both analog and digital cellular service
(using TDMA technology) to their subscribers and offer greater roaming capacity
to their customers traveling outside Puerto Rico, as both have roaming
agreements with major cellular providers in the U.S. The Company currently
offers roaming ability in the U.S. pursuant to an agreement with Sprint.
PRTC is the primary wireline telephone service provider in Puerto Rico
and its wireline services are also a source of competition for the Company's
services. In addition, both CoreComm and the PRTC are substantially larger and
have greater resources than the Company, and there can be no assurance that the
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Company will be able to compete effectively with them or other future entrants
into the Puerto Rico telecommunications market. Both GTE and Bell Atlantic also
have substantially greater resources than the Company and may make changes to
improve service which, in turn, may strengthen the PRTC's competitive position.
Competition From Resellers
The FCC requires all cellular and PCS licensees to provide service to
resellers, who sell service to customers but do not hold an FCC license or
cellular facilities for the provision of these services. Instead, a reseller
buys blocks of telephone numbers from a licensed carrier and resells service to
the public through its own distribution methods. Thus, a reseller may be both a
customer of a cellular or PCS provider and also a competitor. The Company does
not know of any significant resellers currently operating in competition with
the Company's domestic systems. However, the Company may begin experiencing
resale competition given that many long-distance companies have announced plans
to integrate resold wireless services into their long-distance offerings.
Ameritel, acting as a reseller, is currently offering cellular services
at Radio Shack stores throughout Puerto Rico. The Company does not know of any
other significant cellular resellers currently operating in competition with
the Company's PCS system.
Competition From Broadband PCS Systems
Among other possible uses, broadband PCS is capable of providing a two-
way mobile voice and data telephone service that is similar to cellular
service. A broadband PCS system is a wireless communications system that
utilizes digital technology that allows it to compete effectively with cellular
systems, particularly in densely populated areas. Digital technology provides
certain advantages over the analog technology currently used by the Company in
most of its cellular markets, including increased system capacity, improved
overall signal quality and increased call security. Broadband PCS licenses are
awarded by competitive bidding. Although a number of broadband PCS systems are
currently in operation, service from these systems is generally limited to
relatively urban areas around the country. To date, the Company has experienced
only minor competition from PCS licensees, likely in part due to the rural
character of the Company's markets.
It is uncertain what effect broadband PCS will have on the Company's
wireless telephone systems which it operates pursuant to cellular licenses. The
FCC revised its rules to authorize cellular licensees to provide any PCS-type
services on their channels without prior notification to the FCC. Management of
the Company believes that technological advances in present cellular telephone
technology, including the use of digital technology, in conjunction with build-
out of the present cellular systems throughout the nation with cell splitting
and microcell technology, will allow cellular licensees to provide essentially
the same services as the services that PCS providers are expected to offer, but
there can be no assurance that this will happen.
The FCC has issued a 30 MHz broadband PCS license for the Puerto Rico-
U.S. Virgin Islands MTA to TeleCorp. The FCC has also issued as many as four
broadband PCS licenses for the San Juan, Puerto Rico BTA, the Mayaguez-
Aguadilla-Ponce, Puerto Rico BTA and the U.S. Virgin Islands BTA to other
entities, including a 10 MHz license to the PRTC. If these licenses become
operational, these broadband PCS systems will present additional competition to
the Company's PCS operations in Puerto Rico. The Company does not believe that
TeleCorp, which is in the early stages of construction of its PCS system as
part of a franchise relationship with AT&T Wireless Services, will achieve
significant network coverage within the next twelve months.
New PCS competitors will face a number of significant hurdles in building
out their systems in Puerto Rico, including the development of a "backhaul"
network connecting their cell sites with their switch. A competitor may (i)
utilize PRTC's network, (ii) construct its own network, (iii) utilize the
Company's fiber
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optic network or (iv) choose a combination of these methods. The Company
believes that few competitors will choose to build their own networks because
of the significant cost and time constraints, nor will they choose to contract
with the PRTC because of its poor reliability and the long wait times required
for new T-1 service to be added. Thus, the Company believes that some of its
competitors may seek to contract with the Company for backhaul services.
Wireline Competition
Centennial de Puerto Rico's primary competitor for wireline service is
the incumbent provider, the Puerto Rico Telephone Company. GTE, which recently
entered into a merger agreement with Bell Atlantic, has agreed to buy a
significant stake in the PRTC and will control PRTC's board of directors. The
growth of the Company's market presence will depend upon its ability to obtain
customers that are underserved by the PRTC or looking for an alternative.
Because of the Company's ability to provide more timely installation and
service, the Company has primarily attracted customers on the basis of quality
and service rather than price. KMS, a U.S. corporation based in New Jersey, has
announced plans to set up a fiber optic network in Puerto Rico to offer
Internet access and data transmission, although it has not yet commenced
construction.
Competition From Other Technologies
Potential users of cellular systems may choose instead to obtain
communications services provided over other current or developing technologies.
PCS operators providing digital communications technology may compete with
cellular service with respect to rates, enhanced privacy and additional
features such as electronic mail and built-in paging capabilities. One-way
paging or beeper services that feature voice messages and data display as well
as tones may be adequate for potential subscribers who do not need to speak to
the caller. In the future, cellular service may also compete more directly with
traditional landline telephone service providers.
ESMR and other land mobile radio systems, such as those historically used
by taxicabs and tow truck services, and other communications services that have
the technical capability to handle mobile telephone calls (including
interconnection to the landline telephone network), may provide competition to
cellular and PCS services in certain markets. Beginning in February 1991, the
FCC has permitted several large operators of ESMR systems to construct and
operate ESMR systems. This digital technology incorporates characteristics of
cellular technology, including multiple low power transmitters and
interconnection with the landline telephone network, to provide wide-area
mobile communications services that substantially increase the system's
customer capacity. ESMR service may compete with cellular service by providing
digital communication technology, lower rates, enhanced privacy and additional
features such as electronic mail and built-in paging. The FCC has auctioned,
and will auction in the future, licenses in the 800 and 900 MHz frequency bands
that are intended to promote wide-area ESMR systems that would be more
competitive with other wireless services, including cellular. Nextel is the
primary provider of such services.
The FCC has also made available other frequency bands that may be used
for the provision of cellular-like services. GWCS and WCS are two such services
that are in their infancy. Although the FCC has proposed technical rules for
WCS that will make commercial mobile services like cellular and PCS infeasible,
there can be no assurance that the FCC will not adopt more flexible WCS
technical rules that will enable WCS licensees to provide service comparable to
cellular and PCS services.
As a result of the above, the Company's cellular operations may face
increased competition from providers of other communication technologies and
services. The Company cannot predict the success of such competing technologies
or their operational abilities. While some of these technologies are currently
operational, others are operational on only a limited basis or are not yet
operational. There can be no assurance that the Company will be able to provide
or that it will choose to pursue, depending on the economics thereof, services
and features in addition to those already provided. While the Company believes
that competition from other technologies will increase over both the short and
long terms, it also believes that the development of
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economically-proven, traditional cellular technology and the expansion of its
cellular clusters is its best strategy. Nonetheless, there can be no assurance
that one or more of the technologies currently used by the Company will not
become technologically or economically obsolete in the future.
Regulation
Overview
The wireless telecommunications industry is subject to extensive
governmental regulation on the federal level and to varying degrees on the
state level. Many aspects of such regulation have been affected by enactment of
the Telecommunications Act of 1996 (the "Telecom Act") and are currently
subject to administrative rulemakings that are significant to the Company.
Neither the outcome of these rulemakings nor their impact on the wireless
telecommunications industry can be predicted at this time. The following is a
summary of the federal laws and regulations that materially affect the wireless
telecommunications industry, as well as a description of certain state and
local laws and regulations. Puerto Rico is subject to U.S. laws and
regulations, including regulation by the FCC as well as local
telecommunications laws. This section does not purport to be a summary of all
present and proposed federal, state, and local regulations and legislation
relating to the wireless telecommunications industry.
Federal Regulation
The FCC has granted two 25 MHz licenses to operate cellular telephone
systems in each of the 306 MSAs and the 428 RSAs. The FCC has also granted two
30 MHz licenses to operate broadband PCS systems in each of 51 defined MTAs and
one 30 MHz and three 10 MHz licenses in each of 493 BTAs, which are component
parts of MTAs.
The licensing, ownership, construction, operation, and sale of
controlling interests in wireless telephone systems is governed by the
Communications Act and FCC rules and regulations. The FCC has promulgated rules
and regulations governing, among other things, applications to construct and
operate cellular and PCS systems, applications to transfer control of or assign
cellular and PCS licenses, and technical and operational standards for the
operation of wireless telecommunications systems.
Pursuant to FCC rules, no entity may own, directly or indirectly, more
than a 5% interest in competing cellular systems in a market, unless such
ownership poses no competitive threat. The FCC also prohibits an entity from
having an attributable interest (as defined in FCC rules) in more than 45 MHz
of PCS, cellular, and ESMR spectrum if the service areas associated with such
spectrum overlap significantly. As a result, the Company must closely monitor
its investments, as well as the interests held by shareholders holding 5% or
more of Company stock, to ensure that the Company does not run afoul of either
rule.
The FCC licenses cellular systems in accordance with geographically
defined market areas. In each market, the frequencies allocated for cellular
use are divided into two equal 25 MHz blocks. The FCC issued one license for
each frequency block in every cellular market. The initial cellular licensees
in each cellular market received the exclusive right to serve the market over
its allotted frequencies for five years after the grant of the licensee's
initial construction permit. At the end of this five-year period, any entity
meeting the FCC's eligibility criteria, including the initial licensees, may
request FCC authority to serve areas unserved by either of the initial
licensees. These five-year periods have expired in most markets and the FCC has
authorized parties other than the initial licensees to serve many areas
unserved by the initial licensees.
The Communications Act requires FCC approval for transfers of controlling
interests in any license or construction permit. The Communications Act also
generally prohibits foreign persons or entities from controlling FCC licenses
or holding interests of more than 25% in an FCC licensee. The FCC will
generally
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permit additional indirect ownership in excess of the statutory 25% benchmark
where that interest is to be held by an entity or entities from member
countries of the World Trade Organization. For investors who are not from such
countries, however, the FCC will determine whether the home country of the
foreign investor extends reciprocal treatment to U.S. entities called
"equivalent competitive opportunities" to U.S. entities. If such opportunities
do not exist, it is unlikely that the FCC will permit investment beyond the 25%
benchmark. Although there is no guarantee that requests for FCC approval of
transfers (especially those involving foreign ownership) will be granted or
acted on promptly, the Company has no reason to believe that any future
transfer applications it may file would not be approved. The FCC issued an
order granting the transfer of control of all necessary cellular licenses on
October 9, 1998. This order became final on November 18, 1998.
Congress amended the Communications Act in 1996 and required state public
utilities commissions and/or the FCC to implement policies that mandate
reciprocal compensation between local exchange carriers and wireless telephone
service providers. On August 1, 1996, the FCC adopted rules implementing these
policies, but various aspects of the Order have been overturned by a federal
court and the decision remains subject to further judicial review. The FCC's
Order remains in effect, however, with regard to interconnection between local
exchange companies and certain wireless telecommunications carriers, including
cellular and PCS licensees. While it is too soon to predict the actual effect
of the FCC's Order, the Company believes that the new rules are likely to
reduce the interconnection expenses incurred by the Company. These
interconnection expenses currently are a major component of the Company's cost
structure.
The cellular and PCS licenses held by the Company were granted for ten
year terms and are renewable for additional ten year terms. Near the conclusion
of the license term, licensees must file FCC applications requesting renewal of
their licenses. The original license terms for many of the Company's cellular
licenses have already expired, but to date the FCC has renewed each license for
a new ten-year term. If another entity files an application seeking a license
the Company is renewing, the FCC will determine whether the Company is entitled
to a renewal expectancy. A renewal expectancy will be granted if the Company
demonstrates that it has provided substantial service (i.e., better than
mediocre) and that it has substantially complied with FCC rules and
regulations. If a renewal expectancy is granted, the competing application will
not be entertained and the Company's license will be renewed.
Similar renewal rules govern the Company's PCS license. In addition, the
Company must construct facilities that offer coverage to one-third of the
population within its PCS service area within five years, and two-thirds of the
population before the expiration of the license term. If the Company is unable
to satisfy these requirements, its PCS license will be subject to revocation.
Applications for FCC licenses, including renewal applications, may be
denied or licenses revoked if the FCC determines that an entity lacks the
"character" qualifications needed to be a licensee. In making this
determination, the Commission considers whether the entity has been the subject
of adverse judicial or administrative findings relating to: felonies; the
possession or sale of unlawful drugs; fraud; misrepresentation; antitrust
violations; unfair competition; employment discrimination; or violations of the
Communications Act or FCC rules.
The FCC requires wireless telephone service providers to satisfy a number
of technical and reporting requirements. For example, providers must coordinate
frequency usage to ensure that harmful technical interference is not created
between systems. Wireless telephone service providers also must file annual
reports governing equal employment opportunities. Additional requirements are
set forth below:
. The FCC regulates cellular resale practices and recently extended
the resale requirement to broadband PCS and ESMR licensees.
Cellular, PCS and ESMR providers may not restrict any customers'
resale of their services or unreasonably discriminate against
resellers of their services. Under present FCC policy, all resale
obligations for cellular, broadband PCS and ESMR operators will
terminate on November 24, 2002.
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. The FCC has adopted requirements for cellular and other providers
of two-way voice services to implement basic and enhanced 911
services ("E-911"), providing emergency service providers with the
ability to better locate callers that have used wireless phones to
access 911 features. Implementation of the FCC's E-911
requirements began in December 1997 and will continue in stages
until October 2001. These requirements may create additional
capital obligations for the Company if it is necessary to make
system changes in order to comply.
. The Communications Assistance for Law Enforcement Act ("CALEA")
requires all telecommunications carriers, including cellular,
paging, and broadband PCS carriers, to modify and design their
equipment, facilities and services to ensure that authorized law
enforcement electronic surveillance ("wiretaps") can be performed.
Specifically, carriers must (1) provide wiretap capabilities in
the quantities which the FBI specifies in particular geographic
areas; and (2) ensure that their equipment and services conform
with CALEA-compliant technical standards and provide law
enforcement with particular wiretap capabilities. Cellular and PCS
carriers are required to provide law enforcement agencies with
technical capabilities for wiretaps by June 30, 2000 and with
capacity by March 12, 2001.
. The FCC has adopted telephone number portability rules for local
exchange carriers ("LECs"), as well as cellular, broadband PCS and
ESMR licensees, that could facilitate the development of local
exchange competition, including wireless local loop service. The
new number portability rules generally require cellular, broadband
PCS and ESMR licensees to have the capability to deliver calls
from their systems to ported numbers by December 31, 1998, to
provide financial support for number portability costs that it
shares with other carriers and to offer service provider number
portability and roaming to ported numbers by March 31, 2000.
. Under current FCC rules, LECs are required to compensate cellular
and PCS providers for the reasonable costs incurred by such
providers in terminating traffic that originates on LEC
facilities, and vice versa. Consistent with this ruling, the FCC
has determined that LECs may not charge a cellular and PCS
provider or other carrier for terminating LEC-originated traffic.
Nor may LECs charge cellular and PCS providers for number
activation and use fees. These interconnection issues are still in
dispute, and it is unclear whether the FCC will maintain its
current position.
. The FCC attempts to recover the costs of its enforcement, policy
and rulemaking, international and user information activities by
collecting "regulatory fees" from every FCC licensee on an annual
basis. Each year, the FCC estimates what its costs might be and
publishes a proposed Fee Schedule, setting forth the specific
amounts it plans to collect from each type of FCC licensee.
Generally, CMRS regulatory fees are based on units in service as
of December 31st of the prior calendar year. Every year since it
began collecting regulatory fees, the FCC has increased the amount
per unit collected from CMRS licensees.
. The FCC has adopted new rules regarding payments by
telecommunications companies into a revamped fund that will
provide for the widespread availability of telecommunications
services, including to low-income consumers ("Universal Service").
Prior to the implementation of the Telecom Act, Universal Service
obligations largely were met by local telephone companies,
supplemented by long-distance telephone companies. Under the new
rules, all telecommunications carriers, including cellular and PCS
companies, are required to contribute to Universal Service Fund
(the "Universal Service Fund"). In addition, certain state
regulatory authorities have enacted, or have indicated that they
intent to enact, similar contribution requirements based on state
revenues. Payments into the Universal Service Fund will likely
increase the cost of doing business. The FCC is currently
considering whether to establish rules which clarify cellular and
PCS carriers' federal and state universal service contribution
requirements.
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. The FCC has adopted rules to implement the Telecom Act provisions
for customer proprietary network information (CPNI), including
electronic computerized safeguards that may impose additional
costs on the Company. These rules apply to all telecommunications
carriers, including cellular, PCS and CLECs.
The Company cannot accurately estimate the economic impact of each of
these requirements, which may necessitate system changes, which in turn may
require additional capital expenditures by the Company.
As a wireless telephone service provider, the Company also must
contribute to the Telecommunications Relay Services ("TRS") Fund, which
compensates TRS providers for making service available to the hearing
impaired. The Company also must contribute to support numbering administration
and number portability administration.
State and Local Regulation
The Communications Act preempts state or local regulation of the entry
of, or rates charged by, wireless telephone service providers. As a result,
the Company may set rates and offer new products and services without state
regulatory intervention. Nonetheless, state regulatory authority covers such
matters as the terms and conditions of interconnection between local exchange
carriers and wireless carriers with respect to intrastate services, and state
universal service programs. In addition, some states and localities still
exert jurisdiction over (i) zoning and building permits associated with the
construction of antenna towers; (ii) approval of acquisitions and transfers of
wireless systems; and (iii) resolving consumer complaints.
The Company's wireless telephone systems rely on the availability of
antenna towers. The location and construction of such towers are subject to
regulation at the federal, state, and local level. In addition to FCC
regulation, towers are subject to environmental, zoning and land use, and
Federal Aviation Administration regulation. The Communications Act prohibits,
however, states and localities from unreasonably restricting the construction
of antenna towers associated with wireless telephone systems. For example,
localities cannot deny zoning approval for a proposed antenna tower based on
concerns related to radiofrequency ("RF") emissions, if the tower complies
with the Commission's RF rules. Disputes over zoning regulation are generally
subject to state and federal court jurisdiction, and carriers have met with
varying degrees of success in court.
In Puerto Rico, we are also subject to regulation by the Puerto Rico
Planning Board, the Administration of Regulation and Permits and the Puerto
Rico Telecommunications Regulatory Board. These entities' powers include a
number of matters, such as cost-based rate-making that could have a material
adverse effect on our business, financial condition and results of operations.
Wireline CLEC Regulation
Lambda CLEC is subject to the Puerto Rico Telecommunications Act of 1996
(the "Puerto Rico Act") which grants jurisdiction over telecommunications
services and providers to the Puerto Rico Telecommunications Regulatory Board
and purports to open the Puerto Rico telecommunications market to competition.
In addition, Lambda CLEC is subject to the Communications Act. Pursuant
to the Communications Act, the FCC requires all telecommunications carriers,
including Lambda CLEC, to contribute to the federal universal service fund.
The Communications Act also requires state public utilities commissions and/or
the FCC to implement policies that mandate reciprocal compensation between
local exchange carriers. On August 1, 1996, the FCC adopted rules implementing
these policies, but various aspects of the Order have been overturned by a
federal court and the decision remains subject to further judicial review.
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Relocation of Fixed Microwave Licenses
In an effort to balance the competing interests of incumbent 2 GHz
microwave licensees and new emerging technology licensees (such as PCS
licensees) operating in the 2 GHz band, the FCC adopted a transition plan to
provide for the relocation of incumbent 2 GHz microwave licensees to different
frequencies. For a period of up to five years after the grant of a PCS license,
a PCS licensee may be required to accommodate existing licensees that operate
certain fixed microwave systems within its license area. During this period,
licensees engage in negotiations to set forth the parameters and costs of
relocation. If a PCS licensee provides sufficient incentives for an incumbent
microwave licensee, the incumbent may locate before the expiration of the five-
year period. If no relocation agreement is reached, an incumbent microwave
licensee can be forced to involuntarily relocate.
Relocation generally involves a PCS operator compensating a microwave
incumbent for the costs associated with the aforementioned relocation, and may
include potential "premium" payments provided to the incumbent for relocating
early. Some of these costs are shared among all PCS licensees that benefit from
the relocation pursuant to an FCC mandated cost-sharing formula. Accordingly,
microwave relocation may increase the cost of completing and maintaining
Centennial de Puerto Rico's PCS network. The Company cannot accurately estimate
the degree to which it may be required to relocate 2 GHz microwave links or
anticipate the costs of such relocation.
Future Regulation
From time to time, legislation that potentially could affect the Company,
either beneficially or adversely, is proposed by federal or state legislators.
There can be no assurance that such legislation will not be enacted, or that
regulations will not be adopted or actions taken by the FCC or state regulatory
authorities that might adversely affect the business of the Company. For
example, the allocation by the FCC of additional radio spectrum for the
provision of cellular or PCS-like services could adversely affect the Company's
operating results, and the imposition of additional or higher fees on the
provision of the Company's services could adversely impact the Company's
profitability.
The Company has filed a Petition for Declaratory Ruling and Preemption
with the FCC in which it seeks a ruling that the regulatory approach as well as
certain provisions of the Puerto Rico Act are preempted pursuant to Sections
253(a) and 332(c) of the Communications Act because they are inconsistent with
the pro-competition language and/or objectives of the Telecom Act, constitute
impermissible barriers to the entry of local telecommunications competition
and/or constitute impermissible regulation of CMRS entry or rates. This matter
is currently pending.
Employees
The Company had 1,735 employees, including 594 employees in Puerto Rico,
as of November 30, 1998. None of the Company's employees is represented by a
labor organization. The Company considers its relationship with its employees
to be good.
Properties
The Company leases office space at 1305 and 1325 Campus Parkway, Neptune,
New Jersey where it has its principal executive offices.
The properties for MTSO and cell sites in the Domestic Wireless Telephone
Systems and the Puerto Rico Systems are either owned (approximately 9%) or
leased (approximately 91%), typically under short-term
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leases, by the Company or one of its subsidiaries or the partnership, joint
venture or corporation which holds the construction permit or license (in the
case of the Domestic Wireless Telephone Systems in which the Company has a
minority interest).
The Company leases certain space for equipment in Puerto Rico from
Century-ML Cable Corp. ("Century-ML"), a cable television operator that is 50%
owned by Century, pursuant to a 25-year lease entered into in 1997 when Century
was an affiliate of the Company. Further, the Company leases and shares
capacity on the fiber optic cable television facility and network of Century-ML
for the purpose of operating as a CLEC. The Company shares in the cost of
construction, operation and maintenance of the Century-ML fiber network on a
pro rata basis based on the percentage of the number of fibers of the network
used by or reserved for the Company. This contract will remain in effect
following the Merger. The Company believes that the above transactions and
contemplated transactions between it and Century and Century-ML were entered
into on terms no less favorable to the Company than would have been obtainable
at that time in comparable transactions with unaffiliated parties.
The Company considers the properties owned and leased by it to be
suitable and adequate for its business operations.
Legal Proceedings
On December 26, 1996, the Company, on behalf of its PCS subsidiary, filed
a petition with the Board seeking arbitration of the many unresolved issues in
the negotiation with PRTC for interconnection of the Company's PCS network with
PRTC's landline telephone network. On January 21, 1997, the Company filed a
petition with the Board seeking arbitration of the many unresolved issues in
the negotiation with PRTC for interconnection of the Company's fiber optic
network with PRTC's landline telephone network. The two petitions were
substantially consolidated by the arbitrator and after several sessions with
the arbitrator and PRTC, the Company and its PCS subsidiary successfully
negotiated interconnection agreements with PRTC covering most of the unresolved
issues. Those agreements, which reflect considerably lower interconnection
rates than those PRTC had been charging, have been approved by the Board and
are currently in effect.
On January 9, 1998, Centennial filed a complaint challenging the decision
of Ameritech Corporation Michigan Bell Telephone Co., d/b/a Ameritech Michigan
("Ameritech") to withdraw reverse billing. Reverse billing is an arrangement
that permits a landline telephone customer to place a call to a cellular or
pager customer without paying local or toll charges. Instead, the provider pays
Ameritech an access-like charge. The Michigan Public Service Commission found
that Centennial was not entitled to an order requiring Ameritech to continue to
offer reverse billing because federal and Michigan telecommunications laws
require parties to first negotiate among themselves and then submit to
arbitration, if necessary. If Centennial is unsuccessful in negotiating with
Ameritech or loses an arbitration, Centennial would need to reprogram its
customers' cellular phones to try to align their numbers with the areas where
the customer's land-to-mobile calls mainly originate. None of Centennial's
other interconnection partners has indicated that they are planning to withdraw
reverse billing, but there can be no assurance that reverse billing will
continue or that such reprogramming would not impose significant costs on
Centennial.
There are no other material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company or any of its
subsidiaries is a party to or which any of their property is subject.
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MANAGEMENT
Directors and Executive Officers
Centennial Cellular Operating
Centennial Cellular Operating is a member-managed limited liability
company organized under Delaware law. The sole member of Centennial Cellular
Operating is Centennial. The executive officers of Centennial Cellular
Operating are identical to and hold identical positions as the persons
identified below as directors and executive officers of Centennial.
Centennial
Executive officers of Centennial are elected annually by the Board of
Directors and serve until their successors are duly elected and qualified. On
January 7, 1998, upon the consummation of the Merger, the directors identified
below were designated by WCAS VIII and Blackstone and elected to the Board.
There are no arrangements or understandings between any officer and any other
person pursuant to which the officer was selected, and there are no family
relationships between any executive officers or any directors of the Company.
The names, ages and positions of the executive officers and directors of
Centennial are listed below along with their business experience during at
least the past five years.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael J. Small........ 41 Chief Executive Officer and Director
Rudy J. Graf............ 49 Director, President and Chief Operating Officer
Peter W. Chehayl........ 51 Vice President, Treasurer and Chief Financial Officer
Phillip H. Mayberry..... 46 President--Domestic Operations
Kari L. Jordan.......... 45 President--Caribbean Operations
Thomas R. Cogar, Jr. ... 42 Vice President--Engineering
Michael Marrero......... 37 Vice President--Engineering (Puerto Rico)
Thomas E. Bucks......... 42 Vice President--Controller
John H. Casey, III...... 42 Vice President--Administration
Edward G. Owen.......... 41 Vice President--Corporate Development-Designate
Thomas E. McInerney..... 57 Director
Anthony J. de Nicola.... 34 Director
Rudolph E. Rupert....... 33 Director
Mark T. Gallogly........ 42 Director
Lawrence H. Guffey...... 30 Director
</TABLE>
In addition to the persons named above, the stockholders of Centennial
will elect two outside directors, who have not yet been designated.
Michael J. Small became Chief Executive Officer of Centennial upon the
consummation of the Merger. Prior to joining Centennial, Mr. Small served as
Executive Vice President and Chief Financial Officer of 360(degrees)
Communications Company (now a subsidiary of ALLTEL Corporation) since 1995.
Prior to 1995, he served as President of Lynch Corporation, a diversified
acquisition-oriented company with operations in telecommunications,
manufacturing and transportation services.
Rudy J. Graf has been President, Chief Operating Officer and a director
of Centennial since August 1991, and was Vice President, Operations of
Centennial from November 1990 to August 1991. Prior to joining Centennial, Mr.
Graf served in various executive capacities, including Regional Vice President
from December 1987 to July 1990 and as Vice President and General Manager from
December 1985 to November 1987 of Metromedia Company, a cellular telephone
company.
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Peter W. Chehayl became Vice President, Treasurer and Chief Financial
Officer of Centennial upon the consummation of the Merger. Prior to joining
Centennial, Mr. Chehayl was the Vice President and Treasurer of 360(degrees)
Communications Company (now a subsidiary of ALLTEL Corporation) since 1996.
From 1991 to 1996, he served as Vice President--Capital Markets at Sprint
Corporation.
Phillip H. Mayberry has been President--Domestic Operations of Centennial
since January 1999 and was Senior Vice President--Operations since December
1994. He served as Vice President, Operations of Centennial from April 1990 to
December 1994. From March 1989 to April 1990, Mr. Mayberry was a Vice President
and General Manager of Metro Mobile CTS, Inc., a cellular telephone company.
Kari L. Jordan has been President--Caribbean Operations of Centennial
since January 1999. She joined Centennial in January 1998 as Senior Vice
President of International Operations from PrimeCo where she was responsible
for the operations of the North Texas MTA. From 1990 to January 1997, Ms.
Jordan worked at US Cellular as Vice President of Business Development. During
her tenure at US Cellular, Ms. Jordan also served as Vice President of National
Operations and Regional General Manager.
Thomas R. Cogar, Jr. joined Centennial in September 1990 as Director of
Engineering and has been Vice President, Engineering of Centennial since August
1991. From May 1987 to September 1990, Mr. Cogar was employed by Metro Mobile
CTS, Inc. in various technical capacities, most recently as Northeast Manager
of Technical Operations.
Michael Marrero has been Vice President--Engineering (Puerto Rico) of
Centennial since April 1997, and was Director of Technical Operations from
April 1995 to April 1997. Prior to joining Centennial, Mr. Marrero served as
the Manager of Strategic Planning for the PRTC from May 1988 to April 1995.
Prior to 1987, Mr. Marrero served in various capacities at Bell Corp.
Thomas E. Bucks has been Vice President--Controller of Centennial since
March 1995. Prior to joining Centennial, Mr. Bucks was employed by Southwestern
Bell Corporation in various financial capacities, most recently as District
Manager--Financial Analysis and Planning.
John H. Casey, III has been Vice President--Administration of Centennial
since July 1997 and served as Vice President--Operations from January 1995 to
June 1997. He was a regional manager of Centennial from January 1991 until
December 1994. From August 1989 to December 1990, Mr. Casey was employed by
McCaw Cellular One as a district general manager.
Edward G. Owen became Vice President--Corporate Development upon the
consummation of the Merger. Since 1996, Mr. Owen has been Vice President--
Planning and Corporate Development at ALLTEL Corporation (formerly 360(degrees)
Communications). Prior to 1996, he was the director of marketing at
360(degrees) Communications.
Thomas E. McInerney is a director and President of Centennial Cellular
Operating and will become a director of Centennial upon consummation of the
Merger. He has served as a managing member or general partner of the respective
sole general partners of WCAS VIII and other associated investment partnerships
since 1986. He is a director of The Cerplex Group, Inc., The BISYS Group, Inc.,
MedE America Corporation and several private companies.
Anthony J. de Nicola is a director and Vice President of Centennial
Cellular Operating and will become a director of Centennial upon consummation
of the Merger. He has served as a managing member or general partner of the
respective sole general partners of WCAS VIII and other associated investment
partnerships since 1994. Previously he worked for William Blair & Co. for four
years financing middle market buyouts. He is a director of SEER Technologies,
Inc., MedE America Corporation and several private companies.
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Rudolph E. Rupert is a director and Secretary of Centennial Cellular
Operating and will become a director of Centennial upon consummation of the
Merger. He is a Vice President of the investment adviser to WCAS VIII and other
associated investment partnerships. Prior to 1997, he worked for three years at
General Atlantic Partners where he was involved in the information technology
industry. From 1987 to 1992, he worked for Lazard Freres and Company
("Lazard"), initially in the Mergers and Acquisitions Department and then with
Lazard's European leveraged buyout fund. Mr. Rupert is a director of several
private companies.
Mark T. Gallogly is a member of the limited liability company that acts
as the general partner of Blackstone Capital Partners, L.P. and its affiliates.
He is a Senior Managing Director of The Blackstone Group L.P. and has been with
Blackstone since 1989. Mr. Gallogly is a member of the boards of directors of
InterMedia Partners VI, L.P., CommNet Cellular Inc. and TWFanch-One Co.
Lawrence H. Guffey is a Vice President of The Blackstone Group, L.P.,
with which he has been associated since 1991. He is a member of the board of
directors of CommNet Cellular Inc. and TWFanch-One Co.
Committees of the Board
The Compensation Committee of Centennial, whose current members are
Thomas E. McInerney, Anthony J. de Nicola and Mark T. Gallogly, makes
recommendations to the Board of Directors concerning the salary and cash bonus
compensation for the Company's Chief Executive Officer and determines the
salary and cash bonus compensation for the Company's other executive officers
and senior management. The Compensation Committee also administers the
Company's 1991 Employee Stock Purchase Plan, Incentive Award Plan and 1991
Stock Equivalent Plan. The 1993 Management Equity Investment Plan is
administered by a separate committee whose membership is the same as the Stock
Option Committee, which makes recommendations to the Board of Directors, which
determines the recipients of awards under this plan, including the number of
shares awarded and, subject to the terms of the plan, the duration of
restrictions. The Compensation Committee determines the participants and
selects the recipients of awards or units under the 1991 Employee Stock
Purchase Plan and the 1991 Stock Equivalent Plan and the amount and terms of
compensation granted under each plan. The Compensation Committee met once
during the fiscal year ended May 31, 1998.
The Board of Directors determines the recipients of options under the
Company's 1991 Employee Stock Option Plan (the "Employee Stock Option Plan")
and the provisions of options granted under such plan, including the option
price, term and number of shares subject to option. The Employee Stock Option
Committee, whose members are noted above, administers the Employee Stock Option
Plan subject to the authority and responsibility of the Board of Directors as
set forth in such plan. The Employee Stock Option Committee met twice during
the fiscal year ended May 31, 1998.
The Executive Committee, whose current members have not been elected
following the Merger, is empowered, except as limited by the laws of the State
of Delaware, to function with the full power of the Board of Directors when the
Board is not meeting. The Executive Committee did not meet during the fiscal
year ended May 31, 1998.
The Audit Committee, whose members are Anthony J. de Nicola, Rudolph E.
Rupert and Lawrence H. Guffey, recommends to the Board of Directors the
independent auditors to be selected for the Company and reviews the following
matters with the independent auditors: scope and results of the independent
audits; corporate accounting; internal accounting control procedures; adequacy
and appropriateness of financial reporting to shareholders; and such other
related matters as the Audit Committee considers to be appropriate. The Audit
Committee met once during the fiscal year ended May 31, 1998.
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Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
During the fiscal year ended May 31, 1998, the members of the
Compensation Committee were William M. Kraus and David Z. Rosensweig. Mr.
Rosensweig also served as Secretary of the Company and Century Communications.
Mr. Rosensweig is a member of Leavy Rosensweig & Hyman, which provides legal
services to the Company. During fiscal 1998, the Company paid a total of
approximately $426,000 for legal services and disbursements to Leavy Rosensweig
& Hyman.
Employment Agreements
Following the consummation of the Merger, Michael Small has been employed
by Centennial as its Chief Executive Officer pursuant to an Employment
Agreement. Mr. Small's base salary is $250,000 per annum, plus an annual bonus
of up to $225,000 subject to achievement of certain performance targets for
fiscal 1999. The initial term of the Employment Agreement expires on September
30, 2002, but will automatically renew for subsequent one-year terms unless
either party gives notice of non-renewal at least 90 days prior to the
expiration of the renewal term. If the Company terminates Mr. Small's
employment for other than "cause" (as defined in the Employment Agreement), or
if Mr. Small terminates his employment with the Company for "Good Reason" (as
defined), he is entitled to continue to receive his base salary and any bonus
payable with respect to the one-year period following such termination, as well
as certain other benefits. Mr. Small also received incentive stock options and
non-qualified stock options to purchase an aggregate 128,500 Common Shares
(prior to adjustment to account for a three-for-one stock split), vesting over
four years beginning with the fiscal year ended May 31, 1999 if the Company
attains certain EBITDA targets; if such targets are not met, the stock options
will vest over four years commencing with the seventh anniversary of the
consummation of the Merger. These stock options are subject to accelerated
vesting if Mr. Small's employment is terminated other than for cause or for
Good Reason following a change of control of the Company. During the employment
term and for a period of one year following the termination of his employment
(except termination by Mr. Small for Good Reason), Mr. Small is subject to
certain non-competition and non-solicitation provisions.
Following the consummation of the Merger, Rudy J. Graf has been employed
by Centennial as its Chief Operating Officer pursuant to an Employment
Agreement. Mr. Graf's base salary is $226,800 per annum, plus an annual bonus
of up to $200,000 subject to achievement of certain performance targets for
fiscal 1999. The term of the Employment Agreement expires on May 31, 1999. If
the Company terminates Mr. Graf's employment for other than "cause" (as defined
in the Employment Agreement), he is entitled to receive his base salary for the
remainder of the employment term, any bonus payable for the 1999 fiscal year
and certain other payments. At the effective time of the Merger, Mr. Graf
received 17,242 Common Shares (prior to adjustment to account for a three-for-
one stock split) subject to the terms of a Restricted Stock Purchase Agreement.
Mr. Graf also received incentive stock options and non-qualified stock options
to purchase an aggregate 120,000 Common Shares (prior to adjustment to account
for a three-for-one stock split), vesting over four years beginning with the
fiscal year ended May 31, 1999 if the Company attains certain EBITDA targets;
if such targets are not met, the stock options will vest over four years
commencing with the seventh anniversary of the consummation of the Merger.
During the employment term and for a period of two years following the
termination of his employment, Mr. Graf is subject to certain non-competition
and non-solicitation provisions.
Following consummation of the Merger, Peter Chehayl has been employed by
Centennial as its Vice President and Chief Financial Officer. Mr. Chehayl's
base salary will be $165,000 per annum, plus an annual bonus of up to $90,000.
He is also eligible for options to purchase 25,000 Common Shares.
Following consummation of the Merger, Edward Owen has been employed by
Centennial as its Vice President--Corporate Development. His base salary is
$140,000 per annum, plus an annual bonus of up to $60,000. He is also eligible
for options to purchase 20,000 Common Shares.
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Executive Compensation
The following table sets forth certain information with respect to
compensation awarded to, earned by or paid to Centennial's former Chief
Executive Officer and each of the other four most highly compensated executive
officers (the "Named Executives") of Centennial (based on amounts reported as
salary and bonus for fiscal 1998) for each of Centennial's last three fiscal
years. Certain of Centennial's executive officers, including the Chairman of
the Board and Chief Executive Officer, did not receive any cash compensation
directly from Centennial during the fiscal years ended May 31, 1996, 1997 and
1998 but, in accordance with the Services Agreement (as defined), were
compensated by Century. Pursuant to the Stockholders' Agreement executed in
connection with the Merger, the Services Agreement was terminated upon
consummation of the Merger. See "Certain Relationships and Related
Transactions."
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
------------------- -------------------------------
Fiscal Restricted Shares Underlying All Other
Name and Principal Position Year Salary Bonus Stock Awards Options/SARs Compensation
- --------------------------- ------ ------------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bernard P. Gallagher....
Chairman of the Board 1998 -0- -0- $387,500(1) 25,000 -0-
and Chief Executive 1997 -0- -0- -0- 75,000 -0-
Officer 1996 -0- -0- -0- -0- -0-
Rudy J. Graf............ 1998 $ 222,750 $ 190,000 387,500(1) 35,000 $4,750(3)
President and Chief 1997 198,365 125,000 -0- 50,000 4,750(3)
Operating Officer 1996 189,575 120,000 322,500(2) -0- 4,834(3)
Phillip Mayberry........ 1998 172,083 145,328 242,188(1) 20,000 4,750(3)
Senior Vice President, 1997 147,668 80,000 -0- 30,000 4,750(3)
Operations 1996 146,824 60,000 161,250(2) -0- 2,962(3)
Thomas Cogar............ 1998 141,750 75,000 145,312(1) 10,000 4,750(3)
Vice President, 1997 131,173 40,000 -0- 15,000 4,750(3)
Engineering 1996 128,385 50,000 118,125(2) -0- 3,221(3)
Robert Braden........... 1998 163,333 125,000 242,188(1) 20,000 4,750(3)
Vice President, Network 1997 137,156 75,000 -0- 20,000 4,750(3)
Services 1996 136,719 50,000 129,000(2) -0- 5,002(3)
</TABLE>
- --------
(1) The value indicated is based on the closing price of Common Shares of
Centennial on February 23, 1998, the date of grant. The aggregate number
and value (based on the closing price of Common Shares at May 29, 1998, the
last trading day of fiscal 1998) of the restricted shares held by the Named
Executives at May 29, 1998 was: Mr. Graf--20,000, $700,000; Mr. Mayberry--
12,500, $437,500; Mr. Cogar--7,500, $262,500; and Mr. Braden--12,500,
$437,500. The restrictions on transferability lapse on the fifth
anniversary of the date of grant and earlier in the event the award
recipient retires after reaching 65 years of age, dies or becomes disabled
or if the Compensation Committee elects to terminate the restrictions on
transfer that are otherwise applicable. The award recipient has the right
to receive dividends and other distributions paid on the shares of
restricted stock.
(2) The value indicated is based on the closing price of Common Shares of the
Company on August 21, 1995, the date of grant. The aggregate number and
value (based on the closing price of Common Shares at May 29, 1998, the
last trading day of fiscal 1998) of the restricted shares held by the Named
Executives at May 29, 1998 was: Mr. Graf--20,000, $700,000; Mr. Mayberry--
10,000, $350,000; Mr. Cogar--7,500, $262,500; and Mr. Braden--8,000,
$280,000. The restrictions on transferability lapse on the fifth
anniversary of the date of grant and earlier in the event the award
recipient retires after reaching 65 years of age, dies or becomes disabled
or if the Compensation Committee elects to terminate the restrictions on
transfer that are otherwise applicable. The award recipient has the right
to receive dividends and other distributions paid on the shares of
restricted stock.
(3) Consists of matching contributions made by the Company on behalf of the
Named Executives in fiscal 1998, 1997 and 1996, respectively, under the
Company's Retirement Investment Plan.
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Director Compensation
Centennial Cellular Operating. None of the directors of Centennial
Cellular Operating will receive any remuneration from Centennial Cellular
Operating for their attendance at Board and committee meetings during 1999.
Centennial. During the fiscal year ended May 31, 1998, each director who
was not also an employee of the Company received quarterly retainers of $3,000
plus a uniform fee of $750 for each Board and committee meeting attended. In
addition, options for 1,000 shares of Common Shares were automatically granted
under the 1993 Non-Employee/Officer Directors' Stock Option Plan to each person
who was a non-employee/officer director on the date of each annual meeting of
shareholders of the Company. During such period, directors who were also
employees of the Company received no remuneration for attendance at Board and
committee meetings.
Following the consummation of the Merger, each director who is not also
an employee of the Company will receive compensation in accordance with the
Equity Investors' customary practices. The Company expects that such
compensation will be consistent with compensation paid to directors in
comparable public companies.
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PRINCIPAL STOCKHOLDERS
Following the consummation of the Merger and related transactions, all of
the issued and outstanding capital stock of Centennial Cellular Operating is
owned by Centennial. The following table sets forth certain information
regarding the beneficial ownership of Centennial's common stock immediately
following the consummation of the Merger and related transactions by (i) each
stockholder who owns beneficially five percent or more of the Class A Common
Stock, (ii) each director of the Centennial, (iii) each executive officer and
(iv) all directors and officers as a group.
The number of shares beneficially owned by each stockholder, director or
officer is determined according to the rules of the Commission, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual or entity has sole or shared voting power or investment power.
As a consequence, several persons may be deemed to be the "beneficial owners"
of the same shares. Unless otherwise noted in the footnotes to this table, each
of the stockholders named in this table has sole voting and investment power
with respect to the Class A Common Stock shown as beneficially owned. The
percentage ownership of each stockholder is calculated based on 31,125,579
shares of Class A Common Stock outstanding (after giving effect to a three-for-
one stock split effected on January 8, 1999).
<TABLE>
<CAPTION>
Beneficial Ownership
Immediately After Merger
------------------------------
Name and Address Amount Percentage
---------------- --------------- --------------
<S> <C> <C>
Welsh, Carson, Anderson & Stowe VIII,
L.P.(1)..................................... 17,249,026 55.4%
WCAS Capital Partners III, L.P.(1)........... 1,626,507 5.2
Blackstone Investors(2)...................... 9,390,681 30.2
Thomas E. McInerney(1)....................... -- *
Anthony J. de Nicola(1)...................... -- *
Rudolph E. Rupert(1)......................... -- *
Michael J. Small............................. 0 --
Rudy J. Graf................................. 16,842 *
Peter Chehayl................................ 0 --
Phillip Mayberry............................. 8,718 *
Thomas Cogar................................. 5,676 *
Thomas E. Bucks.............................. 1,860 *
John Casey................................... 0 --
Mark T. Gallogly(2).......................... -- *
Lawrence H. Guffey(2)........................ 0 --
All directors and executive officers as a
group (12 individuals)...................... 33,096 *
</TABLE>
- --------
* Less than one percent.
(1) The address for Welsh, Carson, Anderson & Stowe VIII, L.P. and WCAS Capital
Partners III, L.P. is 320 Park Avenue, Suite 2500, New York, New York
10022. Certain of the shares reflected as owned by Welsh, Carson, Anderson
& Stowe VIII, L.P. are owned beneficially and of record by limited
partnerships affiliated with Welsh, Carson, Anderson & Stowe VIII, L.P. Up
to an aggregate 862,452 shares included as beneficially owned by Welsh,
Carson, Anderson & Stowe VIII, L.P. are owned beneficially and of record by
individuals who are members of the limited liability company that serves as
its sole general partner, including Messrs. McInerney and de Nicola, and
individuals employed by its investment advisor, including Mr. Rupert.
Messrs. McInerney, de Nicola and Rupert may be deemed to share beneficial
ownership of the shares owned by Welsh, Carson, Anderson & Stowe VIII,
L.P., and disclaim beneficial ownership of such shares except to the extent
owned of record by them.
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(2) The total number of shares beneficially owned by Blackstone Investors are
owned by Blackstone CCC Capital Partners L.P. (7,471,074), Blackstone CCC
Offshore Capital Partners L.P. (1,356,165) and Blackstone Family Investment
Partnership III L.P. (563,442). Blackstone Management Association III
L.L.C. ("BMA") is the general partner of each of these partnerships, and
Messrs. Peter G. Peterson and Stephen A. Schwarzman, as the founding
members of BMA, may be deemed to share, together with BMA, beneficial
ownership of such shares. The address of the Blackstone Investors, BMA and
Messrs. Peterson and Schwarzman is c/o The Blackstone Group, 345 Park
Avenue, New York, New York 10154. Mr. Gallogly, who is a member of BMA, and
Mr. Guffey, who is an employee of certain affiliates of BMA, disclaim
beneficial ownership of such shares.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Equity Investor Agreements
In connection with their initial investment in Acquisition and the Common
Equity Contribution and simultaneously with the consummation of the Merger, the
Equity Investors and Acquisition entered into a Securities Purchase Agreement,
a Registration Rights Agreement and a Stockholders Agreement.
Pursuant to the Securities Purchase Agreement, the Equity Investors
purchased an aggregate of 9,638,554 shares of Common Stock of Acquisition at
the time of the Merger. The Securities Purchase Agreement contains customary
conditions, representations and warranties, and will terminate upon the
termination of the Merger Agreement.
At the same time, the Equity Investors and the Company entered into a
Stockholders' Agreement pursuant to which they agreed to establish a board of
directors of the Company consisting of nine members. WCAS and certain of its
affiliates (the "WCAS Investors") will designate three of such directors, who
initially are Thomas E. McInerney, Anthony J. de Nicola and Rudolph E. Rupert,
so long as the WCAS Investors own in the aggregate at least 25% of the shares
of the surviving corporation owned by them as of the date of the Merger.
Blackstone and its affiliates (the "Blackstone Investors") will designate two
directors, who initially are Mark T. Gallogly and Lawrence H. Guffey, so long
as the Blackstone Investors own in the aggregate at least 25% of the shares of
the surviving corporation owned by them as of the date of the Merger. The Chief
Executive Officer and the Chief Operating Officer of the Company, who initially
are Michael J. Small and Rudy Graf, respectively, will also be directors. The
remaining two directors will be outside directors nominated by the board of
directors and elected by stockholders of the Company, including the Equity
Investors. Pursuant to the Stockholders Agreement, the Equity Investors (other
than the WCAS Investors) also have "tag-along" rights to participate in certain
proposed dispositions of the Company's shares by the WCAS Investors. In
addition, in the event that the WCAS Investors or the Company receives a third
party offer to purchase at least 80% of the outstanding capital stock of the
Company, a majority of the WCAS Investors may require the other Equity
Investors to accept such offer and to sell their shares of the Company to such
third party. The Company has also granted the Equity Investors pre-emptive
rights with respect to participating, on a pro rata basis according to their
stock ownership, in certain eligible offerings (excluding registered public
offerings of Common Shares and offerings of Common Shares or options to
purchase Common Shares in connection with certain stock option plans or stock
purchase plans). While the Stockholders Agreement is in effect, the Company may
not amend, alter or repeal its organizational documents without obtaining the
consent of a majority in interest of the WCAS Investors and the Blackstone
Investors, as well as a majority of the other Equity Investors adversely
affected by such amendment or alteration. Further, the Stockholders Agreement
contains certain restrictions on transactions with related persons. Upon the
consummation of the Merger and related transactions, an affiliate of each of
WCAS and Blackstone received a deal consummation fee of $10.6 million and $3.4
million, respectively. An Equity Investor unaffiliated with Blackstone and WCAS
received a fee of $4.0 million upon the consummation of the Merger. During the
term of the Stockholders' Agreement, an affiliate of each of WCAS and
Blackstone shall receive an annual monitoring fee of $450,000 and $300,000,
respectively.
Pursuant to the Registration Rights Agreement entered into among the
Company and the Equity Investors, the WCAS Investors and the Blackstone
Investors have certain rights to require the Company to register their shares
of the Company under the Securities Act and to include, upon request, their
shares in any registration of shares effected by the Company.
Former Indebtedness of Certain Executive Officers
During fiscal 1998, Thomas R. Cogar, Vice President of Engineering of
Centennial received a relocation loan from the Company of approximately $65,000
and John H. Casey, Vice President--
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Administration of Centennial received a relocation and temporary house loan of
approximately $200,000. There are no amounts outstanding under these loans.
Arrangements with Former Controlling Stockholder
Pursuant to the Stockholder Agreement, on the effective date of the
Merger, Century executed and delivered a non-compete agreement with Centennial,
pursuant to which Century agreed that, for a period of three years from the
effective date, it will not engage in, or acquire a controlling interest in,
any business that competes with any of the businesses of the Company's current
operations in Puerto Rico; provided, however, that such non-compete shall not
extend to or restrict in any manner the activities of Century's existing joint
venture in Puerto Rico, Century M-L.
The Company and Century, which owned a controlling interest in Centennial
prior to the Merger, previously maintained combined workers compensation and
general insurance policies. The premiums were allocated between the Company and
Century based upon the actual cost of each respective company's coverage. The
Company believes that the amounts payable by the Company under such arrangement
were more favorable than the premiums the Company would have paid if it had
obtained coverage under a separate policy. The Company's cost of such insurance
was approximately $0.6 million, $0.7 million and $1.7 million for the fiscal
years ended May 31, 1998, 1997 and 1996, respectively, all of which was paid in
full during the current fiscal year. In fiscal 1996, the Company and Century
also maintained combined group health, life and casualty coverage. Pursuant to
the Merger Agreement, the Company has covenanted to maintain for a period of at
least two years employee benefits and incentive compensation that are no less
favorable to the employees.
The Company and Century entered into a Services Agreement, effective
August 30, 1996 (the "Services Agreement"), pursuant to which Century, through
its personnel, provides design, construction, management, operational,
technical and maintenance for the wireless telephone, paging and related
systems owned and operated by the Company. Such services also include providing
all the services necessary for the monitoring, to the extent possible, of the
activities of the partnerships in which the Company has minority equity
interests, in such manner as to protect the interests of the Company. Such
services have historically been provided to the Company by Century. As
consideration for the services rendered under the Services Agreement, the
Company paid Century the annual sum of $1.0 million and reimbursed Century for
all costs incurred by Century or its affiliates (excluding the Company and its
subsidiaries) that were directly attributable to the design, construction,
management, operation and maintenance of the wireless telephone, paging and
related systems of the Company or to the performance by Century of its other
duties under the Services Agreement. For the years ended May 31, 1998 and 1997,
the Company recorded expenses of $1.0 million and $0.8 million, respectively,
under the Services Agreement. At May 31, 1998 and 1997, $0.3 million and $0.8
million, respectively, of such amounts were recorded within Payable to
Affiliate on the Company's consolidated balance sheet. As of the effective time
of the Merger, Century and Centennial terminated the Services Agreement.
The Company leases space for the MTSO serving the southwestern cluster
and space on an antenna tower in the southwestern cluster from Century for an
aggregate current annual rent of approximately $1,000 pursuant to an oral
month-to-month lease agreement. Further, the Company leases certain warehouse
space in Puerto Rico to Century-ML for a current annual rent of approximately
$23,000 pursuant to a written lease agreement. The Company leases and shares
capacity on the fiber optic cable television facility and network of Century-ML
fiber network for the purposes of operating as a competitive access provider.
The Company shares the cost of construction, operation and maintenance of the
Century-ML fiber network on a pro rata basis based on the percentage of the
number of fibers of the network used by or reserved for the Company.
During fiscal 1997, the Company recorded a deferred asset and related
payable to an affiliate in its consolidated balance sheet in the amount of $6.0
million to reflect certain costs incurred by the Company to secure the use of
the fiber optic network as required by the Facilities Agreement. This amount,
which was paid
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by the Company during fiscal 1998, represents the Company's share of the costs
of constructing Century-ML's fiber optic network.
Leavy Rosensweig & Hyman, of which David Z. Rosensweig, a director and
Secretary of the Company prior to the Merger, is a member, provides legal
services to the Company.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The Credit Facility
In connection with the Merger, Centennial and certain of its subsidiaries
entered into the Credit Facility with Merrill Lynch Capital Corporation
("Merrill Lynch Capital"), NationsBank, N.A. ("NationsBank"), The Chase
Manhattan Bank ("Chase"), The Bank of Nova Scotia ("Scotia") and Morgan Stanley
Senior Funding, Inc. ("Morgan Stanley" and collectively with Merrill Lynch
Capital, NationsBank, Chase and Scotia, the "Agents") and certain other
financial institutions (collectively, with the Agents, the "Lenders"), pursuant
to which the Lenders provided credit facilities to certain of Centennial's
subsidiaries. The following is a summary of the proposed terms and conditions
of each Credit Facility.
The Borrowers. The borrowers under the Credit Facility are Centennial
Cellular Operating Co. LLC ("Centennial Cellular Operating"), a wholly-owned
direct subsidiary of Centennial, and Centennial de Puerto Rico, a wholly-owned
direct subsidiary of Centennial Cellular Operating (the "PR Borrower").
The Facility. The Credit Facility provides for a senior secured revolving
credit facility (the "Revolving Credit Facility"), which provides revolving
loans (the "Revolving Credit Loans") in an aggregate principal amount of up to
the Lenders' revolving credit commitment (the "Revolving Credit Commitment"),
which will initially be $150 million (of which a sublimit thereof will be
available to be borrowed by PR Borrower), and senior secured term loan
facilities in four tranches (the "Term Loan Facilities"), which provide term
loans (the "Term Loans") in an aggregate principal amount of up to $900 million
(of which one tranche thereof is available to be drawn by PR Borrower).
Use of Credit Facility Proceeds. The proceeds of the Credit Facility were
used, together with other proceeds of the Merger Financings, to fund payment of
cash consideration in the Merger, repay Centennial's indebtedness (including
the purchase of the Tendered Notes in the Debt Tender Offers), pay the related
fees and expenses and purchase the Pledged Securities. In addition, the
Revolving Credit Facility is available after the closing thereof subject to the
conditions set forth in the Credit Facility documentation to finance future
working capital needs, capital expenditures, permitted acquisitions, and for
general corporate purposes.
Under certain circumstances, the Credit Facility may be increased by up
to $150 million in aggregate principal amount, upon terms and conditions no
more onerous than those contained in the Credit Facility.
Availability of Loans. The Term Loans was available on the date of
closing of the Merger (the "Effective Date"). The Revolving Credit Loans were
available on the Effective Date in a principal amount not to exceed $65 million
and thereafter on a revolving basis until 30 days prior to the maturity
thereof. Up to $25 million of the Revolving Credit Facility is available for
the issuance of letters of credit and up to $30 million of the Revolving Credit
Facility will be available for swing loans.
Maturity of Loans. The Revolving Credit Commitments will be reduced
quarterly beginning in the fourth year after the closing of the Credit Facility
(the "Closing Date") and the Revolving Credit Facility will mature eight years
after the Closing Date. The Term Loans will consist of four tranches and will
amortize over eight years for tranche A Term Loans ("Tranche A Loans"), eight
years for tranche A-PR Term Loans ("Tranche A-PR Loans"), eight and one-half
years for tranche B Term Loans (the "Tranche B Loans") and nine years for
tranche C Term Loans (the "Tranche C Loans").
Prepayments. Borrowings and commitments under the Credit Facility are
subject to mandatory prepayment and reduction in an amount equal to (a) 100% of
the net proceeds of asset dispositions (including insurance proceeds resulting
from casualty to assets), subject to the borrower's ability to reinvest such
proceeds under certain circumstances, (b) 75% of excess cash flow (reduced to
50% with respect to any fiscal year if the Total Leverage Ratio (defined as the
ratio of total debt to operating cash flow) is less than 6.0:1.0), (c) 100% of
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the net proceeds of the issuance or incurrence of debt or of any sale and
lease-back, and (d) 50% of the net proceeds of any issuance of equity
securities. Voluntary prepayment of the loans will be permitted in whole or in
part with prior notice. The Revolving Credit Loans and the Tranche A and
Tranche A-PR Loans are subject to prepayment without premium or penalty (other
than funding losses), subject to limitations as to minimum amounts. The Tranche
B and Tranche C Loans are subject to prepayment (x) on or prior to the first
anniversary of the Closing Date, with a premium of 2% of the aggregate
principal amount of loans prepaid, (y) after the first anniversary of the
Closing Date and on or prior to the second anniversary of the Closing Date,
with a premium of 1% of the aggregate principal amount of loans prepaid and (z)
thereafter, without premium or penalty (other than funding losses), subject to
limitations as to minimum amounts.
Interest Rates. Borrowings under the Credit Facility bear interest at a
rate per annum of, at the borrowers' option, either (a) a base rate (defined as
the higher of (i) the announced prime rate of NationsBank, and (ii) the federal
funds rate, plus 0.50%) plus the Applicable Margin (as defined) or (b) a LIBOR
rate plus the Applicable Margin. The maximum Applicable Margin for the Tranche
A Loans, Tranche A-PR Loans and the Revolving Credit Loans is 2.00% for base
rate loans and 3.00% for LIBOR loans, for the Tranche B Loans will be 2.50% for
base rate loans and 3.50% for LIBOR loans, and for the Tranche C Loans will be
2.75% for base rate loans and 3.75% for LIBOR loans. Based upon Centennial
Cellular Operating's leverage ratio after the delivery of certain financial
statements after the Closing Date, the Applicable Margin for Tranche A Loans,
Tranche A-PR Loans and Revolving Credit Loans may be reduced by up to 1.250%
for base rate loans and LIBOR loans. The default rate under the Credit Facility
is 2.00% above the otherwise applicable rate.
Fees and Expenses. The Credit Facility requires the borrower to pay (a)
commitment fees to the Lenders in an amount equal to 0.50% or 0.375% per annum
on the unused commitment under the Revolving Credit Facility, depending on
Centennial Cellular Operating's leverage ratio, and (b) an annual
administrative agent's fee. Additionally, the borrowers paid various fees and
costs in connection with the Credit Facility, including commitment fees and
underwriting fees to Merrill Lynch Capital, NationsBank, Chase, Scotia, and
Morgan Stanley.
Guarantees. Centennial and each of Centennial Cellular Operating's direct
and indirect existing and future subsidiaries (other than foreign subsidiaries)
will be required to guarantee Centennial Cellular Operating's obligations under
the Credit Facility, and Centennial Cellular Operating and PR Borrower's direct
and indirect existing and future subsidiaries were required to guarantee PR
Borrower's obligations under the Credit Facility.
Security. The obligations of Centennial Cellular Operating under the
Credit Facility are secured by substantially all of the assets of Centennial
and each of its direct and indirect existing and future subsidiaries (other
than foreign subsidiaries), including the capital stock of such subsidiaries,
and the obligations of PR Borrower under the Credit Facility are secured by
substantially all of the assets of PR Borrower and each of its direct and
indirect existing and future subsidiaries, including the capital stock of such
subsidiaries.
In addition, Centennial guaranteed the Credit Facility and pledged as
security for Centennial Cellular Operating's obligations the capital stock of
Centennial Cellular Operating to the Lenders under the Credit Facility. The
pledge of such capital stock of Centennial Cellular Operating could impair
Centennial Cellular Operating's ability to obtain future financing on favorable
terms, if at all. Further, in the event Centennial Cellular Operating were to
default on its obligations under the Credit Facility and the Lenders were to
foreclose upon such pledged capital stock of Centennial Cellular Operating,
Centennial, as the holding company of Centennial Cellular Operating, would
likely be unable to service or repay its indebtedness, including the Notes.
Conditions. Various conditions precedent to borrowings under the Credit
Facility on the Effective Date were satisfied.
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Representations and Warranties. The Credit Facility will contain
representations and warranties customarily found in loan agreements for similar
financings.
Affirmative Covenants. The Credit Facility contains affirmative covenants
customarily found in loan agreements for similar financings. Centennial
Cellular Operating is required to enter into interest rate hedging agreements
with respect to 50% of the indebtedness under the Credit Facility for a period
of time satisfactory to the Lenders.
Negative Covenants. The Credit Facility contains customary restrictive
covenants, including covenants that limit (subject to certain exceptions) the
ability of the Centennial Cellular Operating and its subsidiaries to: (a) incur
indebtedness or contingent obligations, issue guarantees or enter into
operating leases; (b) grant liens or negative pledges; (c) make investments or
enter into joint ventures; (d) make certain restricted payments; (e) make
fundamental changes in their business, corporate structure or capital
structure; (f) sell assets or receivables; (g) make capital expenditures; (h)
enter into transactions with affiliates; (i) amend documents relating to other
existing indebtedness and other material documents; or (j) prepay other
indebtedness.
Financial Covenants. The Credit Facility contains financial covenants
relating to: (a) minimum interest coverage ratio; (b) minimum fixed charge
coverage ratio; (c) maximum ratio of total debt to operating cash flow; (d)
maximum ratio of senior debt to operating cash flow; (e) minimum pro forma debt
service coverage ratio; and (f) limitation on capital expenditures.
Events of Default. The Credit Facility includes standard events of
default, including, subject to certain exceptions, those related to (i) default
in the payment of principal and interest, (ii) cross-default in payment of
other indebtedness of more than $10.0 million, (iii) materially incorrect
representations and warranties, (iv) default in the observance or performance
of any of the affirmative or negative covenants included in the Credit Facility
documentation or in the related security and pledge documents, (v) the failure
to or admission in writing of an inability to pay debts when such debts become
due, (vi) certain events of bankruptcy, (vii) certain judgments or decrees
involving more than $10.0 million, (viii) certain ERISA events, (ix) a Change
of Control (as defined in the Credit Facility), (x) the failure of the
applicable Credit Facility documents or any material provision thereof, the
guarantees, security documents or any related documents to be in full force and
effect, (xi) certain non-monetary judgments or decrees which might have a
material effect, (xii) the termination, revocation or nonrenewal of one or more
cellular licenses if such termination, revocation or nonrenewal will have a
material effect, and (xiii) the failure of the Merger to be consummated
substantially concurrent with the extension of credit under the Credit
Facilities.
Subordinated Debt
As part of the Mezzanine Financing, WCAS Capital Partners III, L.P., an
investment partnership affiliated with WCAS, purchased at the time of the
consummation of the Merger, a Senior Subordinated Note of Centennial due 2009
(the "Senior Subordinated Note") in the original principal amount of $180
million, as well as an agreed upon number of shares of Common Stock of
Centennial, for an aggregate cash purchase price of $180 million. The Senior
Subordinated Note bears cash interest at a rate of 10% or pay-in-kind interest
at a rate of 13% per annum. Centennial Cellular Operating is restricted from
making cash payments to Centennial to service the debt under certain
circumstances under the Notes and the Credit Facility. See "Description of the
New Notes--Certain Covenants--Limitation on Restricted Payments."
The Senior Subordinated Note is prepayable at Centennial's option and
must (subject to the terms of the Indenture and the Credit Facility) be prepaid
in the event of a "Change in Control," defined as (i) the acquisition by a
person or group acting together (other than the Equity Investors and their
affiliates) of either at least 50% of the voting stock of Centennial or
sufficient voting power to elect a majority of the Board of Directors, (ii) a
merger or consolidation of Centennial as a result of which the stockholders of
Centennial do
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not continue to hold a majority of the voting capital stock of the resulting
entity or (iii) the sale by Centennial of substantially all of its assets.
The Senior Subordinated Note contains certain affirmative and negative
covenants typically found in subordinated notes. The Senior Subordinated Note
may not be transferred without the consent of the Lenders under the Credit
Facility or, during the period ending 180 days after the closing of the
Offering of the Notes, without the consent of Merrill Lynch on behalf of the
Initial Purchasers.
The Senior Subordinated Note is subordinate in right of payment to the
Notes to the extent set forth in the Senior Subordinated Note. Under the Senior
Subordinated Note, Centennial may not make any payments thereon if there is a
default under any "Senior Indebtedness" which is defined to include the Notes.
If an "Event of Default" occurs under the Senior Subordinated Note (except in
connection with certain bankruptcy events), the holder of the Senior
Subordinated Note may not accelerate such debt unless the indebtedness under
the Notes and the Credit Facility have been accelerated for at least 90 days.
The Senior Subordinated Note is also subordinate to the Credit Facility to the
same extent.
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DESCRIPTION OF THE NEW NOTES
General
The New Notes will be issued under the Indenture, dated as of December
14, 1998 (as amended, the "Indenture"), among Centennial Cellular Operating Co.
LLC, as the Issuer, Centennial Cellular Corp., as successor to Centennial
Finance Corp., as a co-obligor, and The Chase Manhattan Bank, as trustee (the
"Trustee"), a copy of which will be made available to holders of Old Notes upon
request. For purposes of this section, the term "Issuer" means Centennial
Cellular Operating Co. LLC without its subsidiaries and the term "Centennial"
means Centennial Cellular Corp. without its subsidiaries. For purposes of this
section, the term "Co-Obligors" means the Issuer and Centennial, in each case
without their respective subsidiaries.
The terms of the New Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act"). The New Notes are subject to all such terms,
and prospective holders of New Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture and the Pledge and Escrow Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Indenture and the Pledge and Escrow Agreement, including the definitions
therein of certain terms used below. Copies of the Indenture and Pledge and
Escrow Agreement are available from the Issuer upon request. The definitions of
certain terms used in the following summary are set forth below under the
caption "--Certain Definitions."
The New Notes will be senior subordinated obligations of the Co-Obligors
limited to $370 million aggregate principal amount. The New Notes will be
issued at par. The New Notes will mature on December 15, 2008. The New Notes
will bear interest at the rate per annum stated on the cover page hereof from
December 14, 1998 or from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semi-annually in arrears on
June 15 and December 15 of each year (each, an "Interest Payment Date"),
commencing June 15, 1999 to the Persons in whose names such New Notes are
registered at the close of business on June 1 or December 1 preceding such
Interest Payment Date. Interest on the New Notes will accrue from the most
recent Interest Payment Date to which interest has been paid or duly provided
for on the Old Note surrendered in exchange for such New Note, or, if no
interest has been paid or duly provided for on such Old Note, from December 14,
1998. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. The New Notes will be issued only in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof.
The Indenture does not contain provisions which would afford Holders of
the New Notes protection in the event of a decline in the Co-Obligors' credit
quality resulting from highly leveraged or other similar transactions involving
the Co-Obligors.
Principal of, premium, if any, and interest on the New Notes will be
payable, and, subject to the following provisions, the New Notes may be
presented for registration of transfer or exchange, at the office or agency of
the Co-Obligors maintained for such purpose, which office or agency shall be
maintained in the Borough of Manhattan of The City of New York. At the option
of the Co-Obligors, payment of interest may be made by check mailed to the
Holders of the New Notes at the addresses set forth upon the registry books of
the Co-Obligors. No service charge will be made for any registration of
transfer or exchange of New Notes, but the Co-Obligors may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith. Until otherwise designated by the Co-Obligors, the Co-
Obligors' office or agency will be the corporate trust office of the Trustee
presently located in New York, New York.
Settlement for the New Notes will be made in same day funds. All payments
of principal and interest will be made by the Co-Obligors in same day funds.
The New Notes will trade in the Same-Day Funds Settlement System of The
Depository Trust Company (the "Depositary" or "DTC") until maturity, and
secondary market trading activity for the New Notes will therefore settle in
same day funds.
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When issued, the New Notes will be a new issue of securities with no
established trading market. No assurance can be given as to the liquidity of
the trading market for the Notes. See "Risk Factors--Absence of Public Trading
Market for the New Notes."
Ranking
The payment of the principal of, premium, if any, and interest on, the
New Notes will be subordinated, as set forth in the Indenture, in right of
payment, to the prior payment in full of all Senior Indebtedness. The New Notes
will be senior subordinated indebtedness of the Issuer ranking pari passu with
all other existing and future senior subordinated indebtedness of the Issuer
and senior to all existing and future Subordinated Indebtedness of the Issuer.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in connection therewith, relating to the Issuer or to its assets, or any
liquidation, dissolution or other winding-up of the Issuer, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or any
assignment for the benefit of creditors or their marshalling of assets or
liabilities of the Issuer (except in connection with the consolidation or
merger of the Issuer or its liquidation or dissolution following the
conveyance, transfer or lease of its properties and assets substantially as an
entirety upon the terms and conditions described under "Certain Covenants--
Limitation on Merger, Sale or Consolidation" below), the holders of Senior
Indebtedness will be entitled to receive payment in full in cash or cash
equivalents of all Senior Indebtedness, or provision shall be made for such
payment in full, before the holders of New Notes will be entitled to receive
any payment or distribution of any kind or character (other than any payment or
distribution in the form of equity securities or subordinated securities of the
Issuer or any successor obligor that, in the case of any such subordinated
securities, are subordinated in right of payment to all Senior Indebtedness
that may at the time be outstanding to at least the same extent as the New
Notes are so subordinated (such equity securities or subordinated securities
hereinafter being "Permitted Junior Securities") and any payment made pursuant
to the provisions described under "--Legal Defeasance and Covenant Defeasance"
from monies or U.S. Government Obligations (as defined in the Indenture)
previously deposited with the Trustee on account of principal of, or premium,
if any, or interest on the New Notes); and any payment or distribution of
assets of the Issuer of any kind or character, whether in cash, property or
securities (other than a payment or distribution in the form of Permitted
Junior Securities and payments made pursuant to the provision described under
"--Legal Defeasance and Covenant Defeasance" from monies or U.S. Government
Obligations previously deposited with the Trustee), by set-off or otherwise, to
which the holders of the New Notes or the Trustee would be entitled but for the
provisions of the Indenture shall be paid by the liquidating trustee or agent
or other person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
holders of Senior Indebtedness or their representative or representatives
ratably according to the aggregate amounts remaining unpaid on account of the
Senior Indebtedness to the extent necessary to make payment in full of all
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness.
No payment or distribution of any assets of the Issuer of any kind or
character, whether in cash, property or securities (other than Permitted Junior
Securities and payments made pursuant to the provisions described under "--
Legal Defeasance and Covenant Defeasance" from monies or U.S. Government
Obligations previously deposited with the Trustee), may be made by or on behalf
of the Issuer on account of principal of, premium, if any, or interest on the
Notes or on account of the purchase, redemption or other acquisition of New
Notes upon the occurrence of any default in payment (whether at stated
maturity, upon scheduled installment, by acceleration or otherwise) of
principal of, premium, if any, or interest on Designated Senior Indebtedness
(as defined below) (a "Payment Default") until such Payment Default shall have
been cured or waived in writing or shall have ceased to exist or such
Designated Senior Indebtedness shall have been discharged or paid in full in
cash or cash equivalents.
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No payment or distribution of any assets of the Issuer of any kind or
character, whether in cash, property or securities (other than Permitted Junior
Securities and payments made pursuant to the provisions described under "--
Legal Defeasance and Covenant Defeasance" from monies or U.S. Government
Obligations previously deposited with the Trustee), may be made by or on behalf
of the Issuer on account of principal of, premium, if any, or interest on the
New Notes or on account of the purchase, redemption or other acquisition of New
Notes for the period specified below (a "Payment Blockage Period") upon the
occurrence of any default or event of default with respect to any Designated
Senior Indebtedness other than any Payment Default pursuant to which the
maturity thereof may be accelerated (a "Non-Payment Default") and receipt by
the Trustee of written notice thereof from the agent bank under the Credit
Facility (the "Agent Bank") or other representative of holders of Designated
Senior Indebtedness.
The Payment Blockage Period will commence upon the date of receipt by the
Trustee of written notice from the Agent Bank or such other representative of
the holders of the Designated Senior Indebtedness in respect of which the Non-
Payment Default exists and shall end on the earliest of (i) 179 days thereafter
(provided that any Designated Senior Indebtedness as to which notice was given
shall not theretofore have been accelerated), (ii) the date on which such Non-
Payment Default is cured, waived or ceases to exist or such Designated Senior
Indebtedness is discharged or paid in full in cash or cash equivalents or (iii)
the date on which such Payment Blockage Period shall have been terminated by
written notice to the Trustee or the Issuer from the Agent Bank or such other
representative initiating such Payment Blockage Period, after which the Issuer
will resume making any and all required payments in respect of the Notes,
including any missed payments. In any event, not more than one Payment Blockage
Period may be commenced during any period of 365 consecutive days, and there
must be at least 186 consecutive days in every 365 day period during which
there is no Payment Blockage Period. No event of default that existed or was
continuing on the date of the commencement of any Payment Blockage Period will
be, or can be made, the basis for the commencement of a subsequent Payment
Blockage Period, unless such default has been cured or waived for a period of
not less than 90 consecutive days subsequent to the commencement of such
initial Payment Blockage Period.
In the event that, notwithstanding the provisions of the preceding four
paragraphs, any payment shall be made to the Trustee which is prohibited by
such provisions, then and in such event such payment shall be paid over and
delivered by such Trustee to the Agent Bank and any other representative of
holders of Designated Senior Indebtedness, as their interests may appear, for
application to Designated Senior Indebtedness. After all Senior Indebtedness is
paid in full and until the New Notes are paid in full, holders of the New Notes
shall be subrogated (equally and ratably with all other Indebtedness pari passu
with the New Notes, including the Old Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the holders of the New Notes
have been applied to the payment of Senior Indebtedness.
Failure by the Issuer to make any required payment in respect of the New
Notes when due and within any applicable grace period, whether or not occurring
during a Payment Blockage Period, will result in an Event of Default under the
Indenture and, therefore, holders of the New Notes will have the right to
accelerate the maturity thereof. See "--Events of Default."
By reason of such subordination, in the event of liquidation,
receivership, reorganization or insolvency of the Issuer, creditors of the
Issuer who are holders of Senior Indebtedness may recover more, ratably, than
the holders of the New Notes, and assets which would otherwise be available to
pay obligations in respect of the New Notes will be available only after all
Senior Indebtedness has been paid in full in cash or cash equivalents, and
there may not be sufficient assets remaining to pay amounts due on any or all
of the New Notes.
"Senior Indebtedness" means the principal of, premium, if any, and
interest (including interest, to the extent allowable, accruing after the
filing of a petition initiating any proceeding under any state, federal or
foreign bankruptcy law) on any Indebtedness of the Issuer (other than as
otherwise provided in this definition), whether outstanding on the date of the
Indenture or thereafter created, incurred or assumed, and whether at any
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time owing, actually or contingent, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the New Notes. Notwithstanding the
foregoing, "Senior Indebtedness" shall not include (i) Indebtedness evidenced
by the Notes, (ii) Indebtedness that is subordinate or junior in right of
payment to any Indebtedness of the Issuer, (iii) Indebtedness which when
incurred and without respect to any election under Section 1111(b) of Title 11
United States Code, is without recourse to the Issuer, (iv) Indebtedness which
is represented by Disqualified Capital Stock, (v) any liability for foreign,
federal, state, local or other taxes owed or owing by the Issuer to the extent
such liability constitutes Indebtedness, (vi) Indebtedness of the Issuer to a
Subsidiary or any other Affiliate of the Issuer or any of such Affiliate's
Subsidiaries, (vii) to the extent it might constitute Indebtedness, amounts
owing for goods, materials or services purchased in the ordinary course of
business or consisting of trade accounts payable owed or owing by the Issuer,
and amounts owed by the Issuer for compensation to employees or services
rendered to the Issuer, (viii) that portion of any Indebtedness which at the
time of issuance is issued in violation of the Indenture and (ix) Indebtedness
evidenced by any guarantee of any Subordinated Indebtedness or Pari Passu
Indebtedness.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the Credit Facility and (ii) any other Senior Indebtedness which at the time of
determination has an aggregate principal amount outstanding of at least $25
million and which is specifically designated in the instrument evidencing such
Senior Indebtedness or the agreement under which such Senior Indebtedness
arises as "Designated Senior Indebtedness" by the Issuer.
The Indenture will limit, but not prohibit, the incurrence by the Issuer
and its Subsidiaries of additional Indebtedness, and the Indenture will
prohibit the incurrence by the Issuer of Indebtedness that is subordinated in
right of payment to any Senior Indebtedness of the Issuer and senior in right
of payment to the New Notes.
The New Notes will rank junior to all Senior Indebtedness of the Issuer,
equal in right of payment to all future senior subordinated indebtedness of the
Issuer and senior to all Subordinated Indebtedness of the Issuer. As of
November 30, 1998, on a pro forma basis, the Issuer would have had $936.0
million in aggregate principal amount of Senior Indebtedness outstanding and
$370 million in aggregate principal amount of senior Subordinated Indebtedness
representing the Notes. See "Unaudited Pro Forma Financial Information."
The Issuer conducts its operations through its Subsidiaries. Accordingly,
the Issuer's ability to meet its cash obligations is dependent upon the ability
of its Subsidiaries to make cash distributions to the Issuer. Dividends from
the Issuer's Subsidiaries are expected to be the only source for payment of
interest on the New Notes after the first three interest payments (which will
be satisfied from the Pledged Securities). Furthermore, any right of the Issuer
to receive the assets of any of its Subsidiaries upon any such Subsidiary's
liquidation (and the consequent right of the Holders of the New Notes to
participate in the distribution of the proceeds of those assets) effectively
will be subordinated by operation of law to the claims of such Subsidiary's
creditors (including trade creditors) and holders of its preferred stock, if
any, except to the extent that the Issuer is itself recognized as a creditor or
preferred stockholder of such Subsidiary, in which case the claims of the
Issuer would still be subordinate to any Indebtedness or preferred stock of
such Subsidiary senior in right of payment to that held by the Issuer. In the
event of the liquidation, bankruptcy, reorganization, insolvency, receivership
or similar proceeding or any assignment for the benefit of the creditors of the
Issuer or a marshaling of assets or liabilities of the Issuer, Holders of the
New Notes may receive ratably less than other such creditors or interest
holders. As of November 30, 1998, on a pro forma basis, the Issuer's
Subsidiaries would have had no long-term Indebtedness outstanding other than
their guarantees of the Indebtedness of the Issuer under the Credit Facility
(which was not initially guaranteed by Centennial de Puerto Rico and its
subsidiaries) and the portion of the Indebtedness borrowed by Centennial de
Puerto Rico under the Credit Facility (which was guaranteed by Centennial
Cellular Operating and Centennial de Puerto Rico's subsidiaries), all of which
effectively would have ranked senior to the New Notes.
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Upon consummation of the Merger, Centennial Finance Corp., which was
initially an obligor on the Old Notes, merged with and into Centennial and
Centennial became a joint and several obligor on the Notes under the Indenture
pursuant to an Assumption Agreement and Supplemental Indenture to the
Indenture. The Indenture provides that the New Notes are senior subordinated
obligations of any co-obligor to the same extent as the obligations are senior
subordinated obligations of the Issuer. As of November 30, 1998, on a pro forma
basis, Centennial (without its subsidiaries) would have had $936.0 million in
aggregate principal amount of Senior Indebtedness outstanding (representing its
guarantee under the Credit Facility).
Optional Redemption by the Co-Obligors
General. The New Notes will be subject to redemption at any time on or
after December 15, 2003, at the option of the Co-Obligors, in whole or in part,
on not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or
an integral multiple thereof at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning December 15 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2003................................... 105.375%
2004................................... 103.583
2005................................... 101.792
</TABLE>
and thereafter at 100% of the principal amount, in each case, together
with accrued and unpaid interest, if any, to the redemption date (subject to
the rights of holders of record on relevant record dates to receive interest
due on an interest payment date).
Upon Certain Equity Offerings. In addition, at any time after
consummation of the Merger and prior to December 15, 2001, the Co-Obligors, at
their option, may use the net cash proceeds of one or more Public Equity
Offerings or Strategic Equity Offerings in a single transaction or a series of
related transactions to redeem up to an aggregate of 35% of the aggregate
principal amount of Notes originally issued under the Indenture at a redemption
price equal to 110.750% of the aggregate principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due on
an interest payment date); provided that at least 65% of the initial aggregate
principal amount of Notes remains outstanding immediately after the occurrence
of such redemption; provided, further, that any such redemption with respect to
a Strategic Equity Offering may not occur in connection with or after the
occurrence of a Change of Control; provided, further, that any such net
proceeds received by Centennial or any other direct or indirect parent of the
Issuer are first contributed to the Issuer as a capital contribution prior to
any such redemption. In order to effect the foregoing redemption, the Co-
Obligors must mail a notice of redemption no later than 30 days after the
closing of the related Public Equity Offering or Strategic Equity Offering and
must consummate such redemption within 60 days of the closing of the Public
Equity Offering or Strategic Equity Offering.
Upon a Change of Control. In addition, the Notes may be redeemed upon a
Change of Control at any time prior to December 15, 2003, at the option of the
Co-Obligors, in whole and not in part, within 60 days of such Change of Control
at a redemption price equal to (i) 100% of the principal amount of the Notes,
plus (ii) accrued interest to the redemption date (subject to the rights of
holders of record on relevant record dates to receive interest due on an
interest payment date) plus (iii) the Applicable Premium, if any. In no event
will the redemption price of the Notes be less than 105.375% (the redemption
price for the Notes on December 15, 2003) of the principal amount of the Notes,
plus accrued interest to the applicable redemption date.
Procedures. Subject to the following, notice of any redemption will be
sent, by first-class mail, at least 30 days and not more than 60 days prior to
the date fixed for redemption to the Holder of each Note to be
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redeemed to such Holder's last address as then shown upon the books of the
Registrar. Any notice which relates to a Note to be redeemed in part only must
state the portion of the principal amount to be redeemed and must state that on
and after the date fixed for redemption, upon surrender of such Note, a new
Note or Notes in a principal amount equal to the unredeemed portion thereof
will be issued. On and after the date fixed for redemption, interest will cease
to accrue on the portions of the Notes called for redemption.
In the case of a partial redemption, the Trustee shall select the Notes
or portions thereof for redemption in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed,
or if the Notes are not so listed, on a pro rata basis, by lot or by any other
manner as it deems appropriate and fair; provided, that any such redemption
pursuant to the provisions relating to a Public Equity Offering or a Strategic
Equity Offering shall be made on a pro rata basis or on as nearly a pro rata
basis as practicable (subject to the procedures of DTC or any other
depositary). The Notes may be redeemed in part in multiples of $1,000 only.
Sinking Fund
The New Notes will not have the benefit of a sinking fund.
Security
Pursuant to the Pledge and Escrow Agreement, upon the closing of the
Merger, the Trustee purchased and holds in pledge for the benefit of the
Holders of the Notes the Pledged Securities in such amount and with such
maturity as will be sufficient upon receipt of scheduled interest and principal
payments of such securities, based on the report of an internationally
recognized firm of independent public accountants or a nationally recognized
investment banking firm, in either case selected by the Co-Obligors, to provide
for payment in full of the first three scheduled interest payments (excluding
Additional Interest) due on the Notes (unless already paid). The Pledged
Securities will consist of three groups of Government Securities, one for each
of the first three scheduled interest payments. Each such group will consist of
Government Securities maturing on, or as nearly as possible prior to, the date
of the corresponding scheduled interest payment in an aggregate amount
sufficient upon receipt of scheduled interest and principal payments of such
securities (determined as described in the preceding sentence) to provide for
payment in full of such scheduled interest payment. The Co-Obligors used
approximately $60 million of the net proceeds of the Offering retained in the
Initial Escrow and Pledge Account to acquire the Pledged Securities at the time
of the closing of the Merger. The Pledged Securities were pledged by the Co-
Obligors to the Trustee for the benefit of the Holders of Notes pursuant to the
Pledge and Escrow Agreement and are held by the Trustee in the Subsequent
Collateral Investments Account (or other accounts). Pursuant to the Pledge and
Escrow Agreement, immediately prior to an Interest Payment Date on the Notes,
the Co-Obligors may either deposit with the Trustee, from funds otherwise
available to the Co-Obligors, cash sufficient to pay the interest scheduled to
be paid on such date, or the Co-Obligors may direct the Trustee to release from
the Subsequent Collateral Investments Account (or other accounts) proceeds
sufficient to pay interest then due. In the event that the Co-Obligors exercise
the former option, the Co-Obligors may thereafter direct the Trustee to release
to the Co-Obligors proceeds or Pledged Securities from the Subsequent
Collateral Investments Account (or other accounts) in like amount. A failure by
the Co-Obligors to pay interest on the Notes in a timely manner on or prior to
the first three scheduled interest payments will constitute an immediate Event
of Default under the Indenture, with no grace or cure period.
Interest earned on the Pledged Securities will be held in a cash
collateral account by the Trustee. In the event that collectively the funds
held in the cash collateral account and the Pledged Securities held in the
Subsequent Collateral Investments Account exceed the amount sufficient, based
on the report of an internationally recognized firm of independent public
accountants or a nationally recognized investment banking firm, in either case
selected by the Co-Obligors, to provide for payment in full of the first three
scheduled interest payments (excluding Additional Interest unless then due and
payable) due on the Notes (or, in the event an interest payment or payments
have been made, an amount sufficient to provide for payment in
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full or any interest payments remaining, up to and including the third
scheduled interest payment) the Trustee will be permitted to release to the Co-
Obligors at the Co-Obligors' request any such excess amount. The Notes will be
secured by a first priority security interest in the Pledged Securities in the
Subsequent Collateral Investments Account and the cash collateral account and,
accordingly, the Pledged Securities in the Subsequent Collateral Investments
Account and the cash collateral account will also secure repayment of the
principal amount of the Notes to the extent of such security. The Pledge and
Escrow Agreement allows the Co-Obligors to substitute Marketable U.S.
Securities for the Government Securities originally pledged as collateral;
provided, however, that the Marketable U.S. Securities so substituted must have
a value (measured at the date of substitution), in the opinion of a nationally
recognized firm of independent public accountants selected by the Co-Obligors,
at least equal to 125.0% of the amount of all of the first three scheduled
interest payments on the Notes that are unpaid (or the pro rata portion of such
interest payments equal to the percentage of such interest payments to be
secured by such Marketable U.S. Securities) as of the date such Marketable U.S.
Securities are proposed to be substituted as security for the Co-Obligors's
obligations under the Pledge and Escrow Agreement.
Under the Pledge and Escrow Agreement, assuming that the Co-Obligors make
the first three scheduled interest payments on the Notes in a timely manner,
all of the Pledged Securities will have been released from the Subsequent
Collateral Investments Account and thereafter the Notes will be unsecured.
Certain Covenants
Repurchase of Notes at the Option of the Holder Upon a Change of
Control. The Indenture provides that, in the event that a Change of Control has
occurred, each Holder will have the right, at such Holder's option, pursuant to
an irrevocable and unconditional offer by the Co-Obligors (the "Change of
Control Offer"), to require the Co-Obligors to repurchase all or any part
(equal to $1,000 principal amount or an integral multiple thereof) of such
Holder's Notes, on a date (the "Change of Control Purchase Date") that is no
later than 45 Business Days after the occurrence of such Change of Control at a
cash price (the "Change of Control Purchase Price") equal to 101% of the
aggregate principal amount thereof, together with any accrued and unpaid
interest to the Change of Control Purchase Date. The Change of Control Offer
shall be made within 30 Business Days following a Change of Control and shall
remain open for 20 Business Days following its commencement (the "Change of
Control Offer Period"). Upon expiration of the Change of Control Offer Period,
the Co-Obligors shall purchase all Notes properly tendered in response to the
Change of Control Offer.
On or before the Change of Control Purchase Date, the Co-Obligors will
(i) accept for payment Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient
to pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all Notes so tendered and (iii) deliver to the Trustee Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Co-Obligors. The Paying Agent promptly will
deliver to the Holders of Notes so accepted payment in an amount equal to the
Change of Control Purchase Price (together with any accrued and unpaid
interest), and the Trustee will promptly authenticate and mail or deliver to
such Holders a new Note equal in principal amount to any unpurchased portion of
the Note surrendered. Any Notes not so accepted will be promptly mailed or
delivered by the Co-Obligors to the Holder thereof. The Co-Obligors will
announce publicly the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
The Change of Control purchase feature of the Notes may make more
difficult or discourage a takeover of the Co-Obligors, and, thus, the removal
of incumbent management. The Change of Control purchase feature resulted from
negotiations between the Co-Obligors and the Initial Purchasers and is not the
result of any intention on the part of the Co-Obligors or their management to
discourage the acquisition of the Co-Obligors.
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The Credit Facility provides that certain change of control events with
respect to the Co-Obligors would constitute a default thereunder. Any future
credit agreements or other agreements to which any of the Co-Obligors or any of
their Subsidiaries becomes a party may contain similar restrictions and
provisions. In the event a Change of Control were to occur at a time when the
Co-Obligors are prohibited from purchasing Notes, the Co-Obligors could seek
the consent of their lenders to such purchase of Notes, or any of such
companies could attempt to refinance the borrowings that contain such
prohibition. If the Co-Obligors did not obtain such consents or repay such
borrowings, the Co-Obligors would not be able to purchase the Notes under a
Change of Control Offer. In such case, the Co-Obligors' failure to purchase
tendered Notes would constitute an Event of Default under the Indenture.
If a Change of Control Offer is made, there can be no assurance that the
Co-Obligors will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. See "--Ranking."
Centennial is a holding company with no material assets other than the stock of
the Issuer. The failure of the Co-Obligors to make or consummate the Change of
Control Offer or pay the Change of Control Purchase Price when due will give
the Trustee and the holders of the Notes the rights described under "Events of
Default."
The term "all or substantially all" as used in the definition of "Change
of Control" has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the holders of the Notes elected to exercise their
rights under the Indenture and the Co-Obligors elected to contest such
election, there could be no assurance as to how a court interpreting New York
law would interpret the phrase.
The provisions of the Indenture do not afford holders of the Notes the
right to require the Co-Obligors to repurchase the Notes in the event of a
highly leveraged transaction or certain transactions with the Co-Obligors'
management or Affiliates, including a reorganization, restructuring, merger or
similar transaction (including, in certain circumstances, an acquisition of the
Co-Obligors by management or its affiliates) involving the Co-Obligors that may
adversely affect holders of the Notes, if such transaction is not a transaction
defined as a Change of Control. A transaction involving the Co-Obligors'
management or Affiliates, or a transaction involving a recapitalization of the
Co-Obligors, will result in a Change of Control if it is the type of
transaction specified by such definition.
Any Change of Control Offer will be made in compliance with all
applicable laws, rules and regulations, including, if applicable, Regulation
14E under the Exchange Act and the rules thereunder and all other applicable
Federal and state securities laws and the Co-Obligors may modify a Change of
Control Offer to the extent necessary to effect such compliance.
Limitation on Incurrence of Additional Indebtedness. The Issuer will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, issue, create, incur, assume, guarantee or otherwise directly or
indirectly become liable for, or otherwise become responsible for, contingently
or otherwise (individually or collectively, to "Incur" or, as appropriate, an
"Incurrence"), any Indebtedness (including any Acquired Indebtedness). Neither
the accrual of interest (including the issuance of "pay in kind" securities or
similar instruments in respect of such accrued interest) pursuant to the terms
of Indebtedness Incurred in compliance with this covenant, nor the accretion of
original issue discount, nor the mere extension of the maturity of any
Indebtedness shall be deemed to be an Incurrence of Indebtedness.
Notwithstanding the foregoing, the Issuer and any Guarantor may Incur
Indebtedness (including Acquired Indebtedness) and any Restricted Subsidiary
may Incur Acquired Indebtedness if the Issuer's Annual Operating Cash Flow
Ratio, after giving effect to the Incurrence of such Indebtedness and the
application of the proceeds therefrom, would have been less than 8.25 to 1.0 at
any time prior to December 31, 2000 and 7.5 to 1.0 thereafter.
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In addition, the foregoing limitations will not apply to the Incurrence
of the following:
(i) Indebtedness of the Issuer, any Guarantor or Centennial de Puerto
Rico under the Credit Facility in an aggregate principal amount at any one
time outstanding not to exceed $1.05 billion, reduced by permanent
reductions in commitments in satisfaction of the Net Cash Proceeds
application requirement set forth in "--Limitation on Asset Sales and Sales
of Subsidiary Stock," provided, that the aggregate principal amount of
Indebtedness of Centennial de Puerto Rico pursuant to this clause (i) shall
not exceed 25% of the principal amount which may be borrowed pursuant to
this clause (i);
(ii) Indebtedness of the Issuer (a) pursuant to the Notes or (b)
existing on the Issue Date (other than under the Credit Facility);
(iii) Indebtedness between the Issuer and any Restricted Subsidiary of
the Issuer or between Restricted Subsidiaries of the Issuer, provided that,
in the case of Indebtedness of the Issuer, such obligations shall be
unsecured and subordinated in all respects to the Holders' rights pursuant
to the Notes; provided, further, that with respect to any Indebtedness in
excess of $250,000, any such Indebtedness is made pursuant to an
intercompany note in the form attached to the Indenture; provided, further,
that (a) any disposition, pledge or transfer of any such Indebtedness to a
Person (other than a disposition, pledge or transfer to the Issuer or a
Restricted Subsidiary) shall be deemed to be an Incurrence of such
Indebtedness by the obligor not permitted by this clause (iii), and (b) any
transaction pursuant to which any Restricted Subsidiary, which has
Indebtedness owing to the Issuer or any other Restricted Subsidiary, ceases
to be a Restricted Subsidiary shall be deemed to be the Incurrence of
Indebtedness by such Restricted Subsidiary that is not permitted by this
clause (iii);
(iv) Capitalized Lease Obligations and Purchase Money Indebtedness of
the Issuer and any Restricted Subsidiary in an aggregate amount or
aggregate principal amount, as the case may be, outstanding at any time not
to exceed in the aggregate the greater of (x) $25 million and (y) 5% of the
Issuer's Total Assets; provided that in the case of Purchase Money
Indebtedness, such Indebtedness shall not constitute more than 100% of the
cost (determined in accordance with GAAP) to the Issuer or such Restricted
Subsidiary of the property purchased or leased with the proceeds thereof;
(v) Indebtedness of the Issuer or any Restricted Subsidiary arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of the Issuer or its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Issuer to the extent none of the foregoing results in the
obligation to repay an obligation for money borrowed by any Person;
(vi) any guarantee by any Restricted Subsidiary of the Credit Facility
or any other Indebtedness made in accordance with the provisions of "--
Limitation on Issuances of Guarantees;"
(vii) Indebtedness incurred by the Issuer or any of its Restricted
Subsidiaries in connection with the acquisition of a new Restricted
Subsidiary, the majority of whose revenues for the most recent twelve
months for which audited or unaudited financial statements are available
are from a Related Business, or of property, businesses or assets which, or
Capital Stock of a Person all or substantially all of whose assets, are of
a type generally used in a Related Business; provided, that the principal
amount (or accreted value, as applicable) of such Indebtedness, together
with any other outstanding Indebtedness incurred pursuant to this clause
(vii), does not exceed $40 million in the aggregate at any one time
outstanding; and provided, further, that the principal amount of
Indebtedness that may be incurred pursuant to this clause (vii) and clause
(xi) by any individual Restricted Subsidiary that is not a Guarantor shall
not exceed $25 million in the aggregate at any one time outstanding.
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(viii) Indebtedness of the Issuer or any Restricted Subsidiary under
standby letters of credit or reimbursement obligations with respect thereto
issued in the ordinary course of business and consistent with industry
practices; provided that upon the drawing of such letters of credit or the
incurrence of such Indebtedness, such obligations are reimbursed within 30
days following such drawing or incurrence;
(ix) Interest Rate Protection Obligations relating to (A) Indebtedness
of the Issuer or any Restricted Subsidiary (which Indebtedness is otherwise
permitted to be incurred under this covenant) or (B) Indebtedness for which
a lender has provided a commitment in an amount reasonably anticipated to
be incurred by the Issuer or any Restricted Subsidiary in the 12 months
after such Interest Rate Protection Obligations has been incurred;
provided, however, that the notional principal amount of such Interest Rate
Protection Obligations does not exceed the principal amount of the
Indebtedness (including Indebtedness subject to commitments) to which such
Interest Rate Protection Obligations relate;
(x) Currency Hedging Agreements relating to (A) Indebtedness of the
Issuer or any Restricted Subsidiary and/or (B) obligations to purchase or
sell assets or properties, in each case, incurred in the ordinary course of
business of the Issuer or any Restricted Subsidiary; provided, however,
that such Currency Hedging Agreements do not increase the Indebtedness or
other obligations of the Issuer or any Restricted Subsidiary outstanding
other than as a result of the fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable
thereunder;
(xi) Indebtedness of the Issuer or any Guarantor (other than as
otherwise permitted pursuant to this covenant) not to exceed $100 million
in the aggregate at any one time outstanding; provided, that the Issuer's
Restricted Subsidiaries that are not Guarantors may incur up to $50 million
in the aggregate at any one time outstanding of the $100 million of
Indebtedness which may be incurred pursuant to this clause (xi); and
provided, further, that the principal amount of Indebtedness that may be
incurred pursuant to this clause (xi) and clause (vii) by any individual
Restricted Subsidiary that is not a Guarantor shall not exceed $25 million
in the aggregate at any one time outstanding;
(xii) Refinancing Indebtedness incurred to extend, renew, replace or
refund Indebtedness permitted under the second paragraph of this covenant
or clause (ii) of this paragraph (plus the lesser of (a) the stated amount
of any premium or other payment required to be paid in connection with such
a refinancing pursuant to the terms of the Indebtedness being refinanced or
(b) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of
the Issuer reasonably incurred in connection with such refinancing); and
(xiii) other Indebtedness of the Issuer or a Guarantor in an amount not
greater than the aggregate amount of cash contributions made to the capital
of the Issuer (other than in exchange for Disqualified Capital Stock);
provided that the amount of such cash contributions ("Excluded Cash
Contributions") are designated in an officer's certificate as Excluded Cash
Contributions and shall not be included in the computation of the amount of
Restricted Payments which the Issuer can make pursuant to "--Limitation on
Restricted Payments."
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of permitted Indebtedness described in clauses (i) through (xiii)
above or is entitled to be incurred pursuant to the second paragraph of this
covenant, the Issuer may, in its sole discretion, classify such item of
Indebtedness on the date of incurrence in any manner that complies with this
covenant and such item of Indebtedness will be treated as having been incurred
pursuant to only one of such clauses or pursuant to the second paragraph
hereof.
Limitation on Restricted Payments. The Indenture provides that the Issuer
will not, and will not permit any of its Restricted Subsidiaries to, directly
or indirectly, make any Restricted Payment, if, immediately prior or after
giving effect thereto (a) a Default or an Event of Default would exist, (b) the
Issuer would not be
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permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Annual Operating Cash Flow Ratio provision set forth in the second paragraph of
"--Limitation on Incurrence of Additional Indebtedness," or (c) the aggregate
amount of all Restricted Payments made by the Issuer and its Restricted
Subsidiaries, including such proposed Restricted Payment (if not made in cash,
then the fair market value of any property used therefor) from and after the
Issue Date and on or prior to the date of such Restricted Payment, shall exceed
the sum of (i) the amount determined by subtracting (x) 1.75 times the
aggregate Consolidated Interest Expense of the Issuer for the period (taken as
one accounting period) from the first day of the first quarter commencing after
the Issue Date to the last day of the last full fiscal quarter prior to the
date of the proposed Restricted Payment (the "Computation Period") from (y)
Operating Cash Flow of the Issuer for the Computation Period, plus (ii) the
aggregate Net Proceeds received by the Issuer from the sale (other than to a
Subsidiary of the Issuer) of its Qualified Capital Stock after the Issue Date
and on or prior to the date of such Restricted Payment (other than any such Net
Proceeds received by the Issuer in connection with the financing of the Merger)
and in any case other than Excluded Contributions, Excluded Cash Contributions
and Investment Equity), plus (iii) 100% of the aggregate amount of non-recourse
contributions to the capital of the Issuer since the Issue Date (in any case
other than Excluded Contributions, Excluded Cash Contributions and Investment
Equity), plus (iv) to the extent not otherwise included in clauses (i)-(ii),
above, an amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from payments of dividends, repayment of loans or
advances, or other transfers of assets, in each case to the Issuer or any
Restricted Subsidiary of the Issuer from Unrestricted Subsidiaries, or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments").
Notwithstanding the foregoing, the provisions set forth in clauses (b) or
(c) of the immediately preceding paragraph will not prohibit (and the provision
set forth in clause (a) of the immediately preceding paragraph will not
prohibit the payment described in clause (i)) (i) the payment of any dividend
within 60 days after the date of its declaration if such dividend could have
been made on the date of its declaration in compliance with the foregoing
provisions, (ii) the redemption, defeasance, repurchase or other acquisition or
retirement of any Indebtedness or Capital Stock of the Issuer or its Restricted
Subsidiaries either in exchange for or out of the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Issuer) of
Qualified Capital Stock (in the case of any redemption, defeasance, repurchase
or other acquisition or retirement of any Subordinated Indebtedness or Capital
Stock of the Issuer or its Restricted Subsidiaries) or Subordinated
Indebtedness (in the case of any redemption, defeasance, repurchase or other
acquisition or retirement of any Indebtedness of the Issuer or its Restricted
Subsidiaries) of the Issuer, (iii) loans, advances, dividends or distributions
by the Issuer to Centennial in order to fund the payment of the management or
other similar fees to equity investors (or their Affiliates) in Centennial
permitted by the covenant "--Limitation on Transactions with Related Persons,"
(iv) the purchase, redemption or other acquisition or retirement for value of
Capital Stock of Centennial (or loans, advances, dividends, or distributions by
the Issuer to Centennial to fund the foregoing) from employees, former
employees, directors, former directors, consultants and former consultants of
Centennial or any of its Subsidiaries pursuant to the terms of the agreements
pursuant to which such Capital Stock was acquired in an amount not to exceed
$2.5 million in the aggregate in any calendar year (with unused amounts in any
calendar year being carreeding calendar years; provided, further, that such
amount in any calendar year may be increased by an amount not to exceed (a) the
cash proceeds from the sale of Capital Stock to members of management,
directors or consultants that occurs after the Issue Date plus (b) the cash
proceeds of key man life insurance policies received by the Issuer and its
Restricted Subsidiaries after the Issue Date; (v) repurchases of Capital Stock
of the Issuer deemed to occur upon exercise of stock options if such Capital
Stock represents a portion of the exercise price of such options, (vi) loans,
advances, dividends or distributions by the Issuer to Centennial to fund the
acquisition, repurchase or other repayment in respect of Centennial's Common
Shares, Class B Shares, Convertible Preferred Stock, par value $.01 per share,
Second Series Convertible Preferred Stock, par value $.01 per share, or options
or warrants to purchase any of the foregoing, in each case pursuant to the
Merger Agreement; (vii) loans, advances, dividends or distributions by the
Issuer to Centennial not to exceed an amount necessary to permit Centennial to
pay (a) its costs (including all professional fees and expenses) incurred to
comply with its reporting obligations under federal or state laws or under the
Indenture, (b) its other operational expenses (other than taxes) incurred in
the ordinary course of
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business and not exceeding $1 million in any fiscal year (with unused amounts
in any fiscal year being carried over to the next two succeeding fiscal years)
and (c) its then currently due taxes attributable solely on account of the
Issuer and its subsidiaries (as a consolidated, combined or unitary filing
group) or on account of the income of Centennial related to its investment in
the Issuer and its subsidiaries payable pursuant to a tax sharing agreement
between Centennial and the Issuer and its subsidiaries and the reasonable
expenses of preparing returns reflecting such taxes (not to exceed in any event
the amount of tax that the Issuer and the Restricted Subsidiaries would
otherwise pay if not part of such filing group), provided that Centennial
agrees to be obligated to contribute to the Issuer any refund Centennial
receives relating to any such taxes; (viii) the repurchase, redemption,
defeasance, retirement, refinancing, acquisition for value or payment of
principal of any Subordinated Indebtedness (other than Disqualified Capital
Stock) (a "refinancing") through the substantially concurrent issuance of new
Subordinated Indebtedness of the Issuer, provided that any such new
Subordinated Indebtedness (1) shall be in a principal amount that does not
exceed the principal amount so refinanced (or, if such Subordinated
Indebtedness provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration thereof, then such lesser
amount as of the date of determination), plus the lesser of (I) the stated
amount of any premium or other payment required to be paid in connection with
such a refinancing pursuant to the terms of the Indebtedness being refinanced
or (II) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of the
Issuer incurred in connection with such refinancing; (2) has a final maturity
date later than the final maturity date of, and has a Weighted Average Life
equal to or greater than the Weighted Average Life of, the Indebtedness to be
refinanced; and (3) is expressly subordinated in right of payment to the Notes
at least to the same extent as the Subordinated Indebtedness to be refinanced;
(ix) loans, advances, dividends or distributions by the Issuer to Centennial in
an amount no greater than the current quarterly interest payments then due on
the Mezzanine Financing as in effect on the Issue Date; provided that in no
event shall such amount exceed the aggregate amount of Cash from Minority
Cellular Investment Interests received by the Issuer net of all taxes (on a
consolidated basns required to be paid in respect thereof; and provided further
that with respect to any loans, advances, dividends or distributions after the
first anniversary of the Issue Date and after giving effect thereto, the Issuer
would be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Annual Operating Cash Flow Ratio test contained in the second paragraph
of "--Limitation on Incurrence of Additional Indebtedness;" (x) the declaration
and payment of dividends or distributions to holders of any class or series of
Disqualified Capital Stock of the Issuer or any Preferred Stock of its
Restricted Subsidiaries issued or incurred in accordance with the covenant "--
Limitation on Incurrence of Additional Indebtedness;" (xi) the payment of
dividends on the Issuer's common stock following the first initial public
offering of Centennial's or the Issuer's common stock after the Issue Date, of
up to 6% per annum of the net cash proceeds received by the Issuer in such
public offering or contributed by Centennial to the Issuer from the net cash
proceeds of an equity offering by Centennial; (xii) loans, advances, dividends
or distribution by the Issuer to Centennial to fund the repurchase, retirement
or other acquisition for value of Capital Stock of Centennial in existence on
the Issue Date after the Merger (which shall not exceed 7.1% of the outstanding
Capital Stock of Centennial prior to the Merger) and which are not held by
Welsh Carson, Blackstone or their respective Affiliates or any members of
management of Centennial or the Issuer or any of their Subsidiaries (including
any Capital Stock issued in respect of such Capital Stock as a result of a
stock split, recapitalization, merger, combination, consolidation or otherwise)
provided that (A) the amount per share paid under this clause (xii) shall not
exceed $41.50 per share (as such amount shall be adjusted as determined in good
faith by the Board of Directors of the Issuer for stock splits, stock
dividends, recapitalizations, stock recombinations, mergers, reverse stock
splits, consolidations or similar transactions) and (B) after giving effect
thereto, the Issuer would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Annual Operating Cash Flow Ratio test contained in
the second paragraph of "--Limitation on Incurrence of Additional
Indebtedness"; (xiii) Investments made with Excluded Contributions; and (xiv)
other Restricted Payments in an aggregate amount not to exceed $2 million.
In determining the aggregate amount expended for Restricted Payments in
accordance with clause (c) of the first paragraph of this description of the
"--Limitation on Restricted Payments" covenant, 100% of the amounts expended
under clauses (i), (ii) (to the extent the Net Proceeds from the concurrent
sale of Qualified Capital Stock has been added to the aggregate Net Proceeds
calculation pursuant to clause (ii) of the first
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paragraph of this covenant), (iv), (v), (x), (xi) and (xii) of the immediately
preceding paragraph shall be deducted.
Notwithstanding anything contained in this Section, prior to the Merger,
the Issuer, Finance Corp. and their Subsidiaries shall not make any Restricted
Payments (other than pursuant to clause (vi) of the second preceding
paragraph).
Limitation on Restricting Subsidiary Dividends. The Issuer will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, assume or suffer to exist any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary of the Issuer to pay dividends or make
other distributions on the Capital Stock of any Restricted Subsidiary of the
Issuer or pay or satisfy any obligation to the Issuer or any of its Restricted
Subsidiaries or otherwise transfer assets or make or pay loans or advances to
the Issuer or any of its Restricted Subsidiaries, except encumbrances and
restrictions existing under (i) any applicable law or any governmental or
administrative regulation or order; (ii) Refinancing Indebtedness permitted
under the Indenture, provided that the restrictions contained in the
instruments governing such Refinancing Indebtedness are no more restrictive in
the aggregate than those contained in the instruments governing the
Indebtedness being refinanced immediately prior to such refinancing; (iii)
restrictions with respect solely to a Restricted Subsidiary of the Issuer
imposed pursuant to a binding agreement which has been entered into for the
sale or disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary, provided that such restrictions apply solely to
the Capital Stock or assets being sold of such Restricted Subsidiary; (iv)
restrictions contained in any agreement relating to a Person or real or
tangible personal property acquired after the Issue Date which are not
applicable to any Person or property, other than the Person or property so
acquired and which were not put in place in connection with, or in
contemplation of, such acquisition; (v) any agreement (other than those
referred to in clause (iv)) of a Person acquired by the Issuer or a Restricted
Subsidiary of the Issuer, which restrictions existed at the time of
acquisition; (vi) contractual encumbrances or restrictions in effect on the
Issue Date and customary encumbrances and restrictions contained in the
security agreements related to the Credit Facility and encumbrances and
restrictions which will be contained in the Credit Facility on the Merger Date
as such encumbrances or restrictions may be amended, provided that such
encumbrances or restrictions as amended are no more restrictive in the
aggregate than those contained in the security agreements and the Credit
Facility in effect on the Merger Date; (vii) the Indenture and the Notes;
(viii) Purchase Money Indebtedness for property acquired in the ordinary course
of business to the extent such encumbrance or restriction relates to the
property underlying the Purchase Money Indebtedness; (ix) Indebtedness of
Restricted Subsidiaries otherwise permitted to be incurred pursuant to the
covenants "--Limitation on Incurrence of Additional Indebtedness" and "--
Limitation on Liens," which encumbrances or restrictions in the aggregate with
all such previous encumbrances or restrictions do not restrict greater than 10%
of the Issuer's Annual Operating Cash Flow on the date of incurrence of the
Indebtedness; (x) restrictions on cash or other deposits or net worth imposed
by customers under contracts entered into in the ordinary course of business;
(xi) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business to the extent such
encumbrance and restriction relates to the activities and assets of such joint
venture or similar entity and provided that the Annual Operating Cash Flow
determined as of the date of execution of any such joint venture or similar
agreement in all such joint ventures or similar entities which are subject to
such encumbrances or restrictions do not exceed 10% of the Issuer's Annual
Operating Cash Flow on the date of execution of such joint venture or similar
agreement; or (xii) customary provisions restricting subletting or assignment
of any lease entered into the ordinary course of business.
Limitation on Transactions with Related Persons. The Issuer will not, and
will not permit any of its Restricted Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction") involving in one or a series of related transactions
an aggregate consideration in excess of $5.0 million, unless (a) such Affiliate
Transaction is on terms that are not materially
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less favorable to the Issuer or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Issuer or such
Restricted Subsidiary with an unrelated Person and the Issuer delivers an
officer's certificate to the Trustee certifying that such Affiliate Transaction
complies with this clause (a) and (b) with respect to any Affiliate Transaction
or series of related Affiliate Transactions involving aggregate consideration
in excess of $10.0 million, the Issuer delivers to the Trustee a resolution
adopted by the majority of the Disinterested Directors approving such Affiliate
Transaction and set forth in an officer's certificate certifying that such
Affiliate Transaction complies with clause (a) above.
The foregoing provisions will not apply to the following: (i)
transactions between or among the Issuer and/or any of its Restricted
Subsidiaries; (ii) Restricted Payments permitted by the provisions of the
Indenture described above under the covenant "--Limitation on Restricted
Payments;" (iii) the payment of annual management, consulting, monitoring and
advisory fees and related expenses to Welsh Carson, Blackstone and their
respective Affiliates in an amount in any calendar year not to exceed the
greater of (a) $1 million or (b) 1% of Annual Operating Cash Flow; (iv) the
payment of reasonable and customary fees paid to, and indemnity provided on
behalf of, officers, directors, employees or consultants of the Issuer or any
Restricted Subsidiary; (v) payments by the Issuer or any of its Restricted
Subsidiaries to Welsh Carson, Blackstone and their respective Affiliates made
for any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which payments are approved by
a majority of the Board of Directors of the Issuer in good faith; (vi)
transactions with respect to which the Issuer or any of its Restricted
Subsidiaries, as the case may be, delivers to the Trustee a letter from an
investment banking firm of national standing stating that such transaction is
fair to the Issuer or such Restricted Subsidiary from a financial point of
view; (vii) payments or loans to employees or consultants which are approved by
a majority of the Board of Directors of the Issuer in good faith; (viii) any
agreement as in effect on the Issue Date or any amendment thereto (so long as
any such amendment is not disadvantageous to the holders of the Notes in any
material respect) or any transaction contemplated thereby; (ix) the existence
of, or the performance by the Issuer or any of its Restricted Subsidiaries of
its obligations under the terms of, the Recapitalizatioers agreement (including
any registration rights agreement or purchase agreement related thereto) to
which it is a party on the Issue Date and any similar agreements which it may
enter into thereafter; provided, however, that the existence of, or the
performance by the Issuer or any of its Restricted Subsidiaries of obligations
under any future amendment to any such existing agreement or under any similar
agreement entered into after the Issue Date shall only be permitted by this
clause; (x) to the extent that the terms of any such amendment or new agreement
are not otherwise disadvantageous to the Holders of the Notes in any material
respect; (xi) the payment of all fees, expenses, bonuses and awards related to
the Recapitalization including fees to Welsh Carson and Blackstone; and (xii)
any payment pursuant to a tax sharing agreement between the Issuer and any
other Person with which the Issuer is required or permitted to file a
consolidated tax return or with which the Issuer is or could be part of a
consolidated, combined or unitary group for tax purposes, which payments are
not in excess of the tax liabilities attributable solely to the Issuer and its
Restricted Subsidiaries (as a consolidated, combined or unitary group).
Limitation on Issuances of Guarantees. (a) The Issuer will not cause or
permit any Restricted Subsidiary (which is not a Guarantor), directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Issuer or any Restricted Subsidiary (other
than under the Credit Facility, except for any Indebtedness under the Credit
Facility constituting Pari Passu Indebtedness or Subordinated Indebtedness)
unless such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee of the Notes
on the same terms as the guarantee of such Indebtedness except that (A) such
guarantee need not be secured unless required pursuant to "--Limitation on
Liens," (B) if such Indebtedness is by its terms Senior Indebtedness, any such
assumption, guarantee or other liability of such Restricted Subsidiary with
respect to such Indebtedness shall be senior to such Restricted Subsidiary's
Guarantee of the Notes to the same extent as such Senior Indebtedness is senior
to the Notes and (C) if such Indebtedness is by its terms expressly
subordinated to the Notes, any such assumption, guarantee or other liability of
such Restricted Subsidiary with respect to such Indebtedness shall be
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subordinated to such Restricted Subsidiary's Guarantee of the Notes at least to
the same extent as such Indebtedness is subordinated to the Notes.
(b) Notwithstanding the foregoing, any Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it (and all Liens
securing the same) shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Issuer, of all of the Issuer's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which transaction
is in compliance with the terms of the Indenture and such Restricted Subsidiary
is released from all guarantees, if any, by it of other Indebtedness of the
Issuer or any Restricted Subsidiaries or (ii) the release by the holders of the
Indebtedness of the Issuer described in clause (a) above or their guarantee by
such Restricted Subsidiary (including any deemed release upon payment in full
of all obligations under such Indebtedness), which resulted in the Notes being
guaranteed by such Restricted Subsidiary, at such time as (A) no other
Indebtedness of the Issuer has been guaranteed by such Restricted Subsidiary or
(B) the holders of all such other Indebtedness which is guaranteed by such
Restricted Subsidiary also release their guarantee by such Restricted
Subsidiary (including any deemed release upon payment in full of all
obligations under such Indebtedness).
Limitation on Asset Sales and Sales of Subsidiary Stock. The Indenture
provides that the Issuer will not, and will not permit any of its Restricted
Subsidiaries to, in one or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of its
property, businesses or assets, including by merger or consolidation or sale
and leaseback transaction, and including any sale or other transfer or issuance
of any Capital Stock of any Restricted Subsidiary of the Issuer, whether by the
Issuer or a Restricted Subsidiary (an "Asset Sale"), unless (1)(a) within one
year after the date of such Asset Sale, an amount equal to the Net Cash
Proceeds therefrom (the "Asset Sale Offer Amount") are applied to the optional
redemption of the Notes in accordance with the terms of the Indenture and other
Indebtedness of the Issuer ranking on a parity with the Notes from time to time
outstanding with similar provisions requiring the Issuer to make an offer to
purchase or to redeem such Indebtedness with the proceeds from asset sales, pro
rata in proportion to the respective principal amounts (or accreted values in
the case of Indebtedness issued with an original issue discount) of the Notes
and such other Indebtedness then outstanding or to the repurchase of the Notes
and such other Indebtedness pursuant to an irrevocable, unconditional offer
(the "Asset Sale Offer") to repurchase such Indebtedness at a purchase price
(the "Asset Sale Offer Price") of 100% of the principal amount thereof in the
case of the Notes or 100% of the principal amount (or accreted value in the
case of Indebtedness issued with an original issue discount) of such
Indebtedness, plus, in each case, accrued interest to the date of payment, made
within one year of such Asset Sale, or (b) within one year of such Asset Sale,
the Asset Sale Offer Amount is (i) invested (or committed, pursuant to a
binding commitment subject only to reasonable, customary closing conditions, to
be invested, and in fact is so invested, within an additional 90 days) in
tangible assets and property (other than notes, obligations or securities),
which in the good faith reasonable judgment of the Issuer are of a type used in
a Related Business, or Capital Stock of a Person (which, if such Person becomes
a Subsidiary of the Issuer by virtue of such Asset Sale, shall initially be
designated a Restricted Subsidiary) all or substantially all of whose assets
and property (in the good faith reasonable judgment of the Issuer) are of a
type used in a Related Business (provided that, with respect to such Capital
Stock, all of the requirements of the last proviso of clause (v) of the
following paragraph shall have been satisfied) or (ii) used to permanently
retire Senior Indebtedness of the Issuer or any Guarantor or Indebtedness of
any Restricted Subsidiary (which is not a Guarantor), (2) with respect to any
transaction or related series of transactions of securities, property or assets
with an aggregate fair market value in excess of $2,500,000, at least 75% of
the value of consideration for the assets disposed of in such Asset Sale
(excluding (a) Senior Indebtedness under a bank credit facility (and any
Refinancing Indebtedness issued to refinance any such Indebtedness) or any
Indebtedness of a Restricted Subsidiary in each case that is assumed by a
transferee which assumption permanently reduces the amount of Indebtedness
outstanding on the Issue Date and permitted to have been Incurred pursuant to
the covenant "--Limitation on Incurrence of Additional Indebtedness" (including
that in the case of a revolver or similar arrangement that makes credit
available, such commitment is permanently reduced by such amount), (b) Purchase
Money Indebtedness secured exclusively by the assets subject to such Asset Sale
which is assumed by a transferee and (c) marketable securities that are
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promptly converted into cash or Cash Equivalents) consists of cash or Cash
Equivalents, provided that any cash or Cash Equivalents received within 12
months following any such Asset Sale upon conversion of any property or assets
(other than in the form of cash or Cash Equivalents) received in consideration
of such Asset Sale shall be applied promptly in the manner required of Net
Cash Proceeds of any such Asset Sale as set forth above (provided further that
the Issuer and its Restricted Subsidiaries shall not be required to receive
any cash in connection with the transfer or contribution of assets to a joint
venture), and (3) the Board of Directors of the Issuer determines in good
faith that the Issuer or such Restricted Subsidiary, as applicable, would
receive fair market value in consideration of such Asset Sale. The Indenture
provides that an Asset Sale Offer may be deferred until the accumulated Net
Cash Proceeds from Asset Sales not applied to the uses set forth in (1)(b)
above exceeds $15,000,000 and that each Asset Sale Offer shall remain open for
20 Business Days following its commencement and no longer, except as otherwise
required by applicable law (the "Asset Sale Offer Period"). Upon expiration of
the Asset Sale Offer Period, the Issuer shall apply the Asset Sale Offer
Amount, plus an amount equal to accrued interest to the purchase of all
Indebtedness properly tendered (on a pro rata basis as described above if the
Asset Sale Offer Amount is insufficient to purchase all Indebtedness so
tendered) at the Asset Sale Offer Price (together with accrued interest).
Notwithstanding the foregoing provisions of the prior paragraph:
(i) the Issuer and its Restricted Subsidiaries may, in the ordinary
course of business, convey, sell, lease, transfer, assign or otherwise
dispose of assets acquired and held for resale in the ordinary course of
business;
(ii) the Issuer and its Restricted Subsidiaries may convey, sell, lease,
transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the "--Limitation on Mergers, Sales or Consolidations"
covenant;
(iii) the Issuer and its Restricted Subsidiaries may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of the Issuer or such Restricted Subsidiary, as
applicable;
(iv) the Issuer and its Restricted Subsidiaries may convey, sell, lease,
transfer, assign or otherwise dispose of assets to the Issuer or any of its
Restricted Subsidiaries in accordance with the terms of the Indenture; and
(v) the Issuer and its Restricted Subsidiaries may, in the ordinary
course of business (or, if otherwise than in the ordinary course of
business, in the case of exchanges in excess of $15 million upon receipt of
a favorable written opinion by an independent financial advisor of national
reputation as to the fairness from a financial point of view to the Issuer
or such Restricted Subsidiary of the proposed transaction), exchange all or
a portion of its property, businesses or assets for property, businesses or
assets which, or Capital Stock of a Person all or substantially all of
whose assets, are of a type used in the business of the Issuer on the date
of the Indenture or a Related Business (provided that such Person shall
initially be designated a Restricted Subsidiary if such Person becomes a
Subsidiary of the Issuer by virtue of such Asset Sale), or a combination of
any such property, businesses or assets, or Capital Stock of such a Person
and cash or Cash Equivalents; provided that (i) a majority of the
Disinterested Directors of the Board of Directors of the Issuer shall have
approved a resolution of the Board of Directors that such exchange is fair
to the Issuer or such Restricted Subsidiary, as the case may be, and (ii)
any cash or Cash Equivalents received pursuant to any such exchange shall
be applied in the manner applicable to Net Cash Proceeds from an Asset Sale
as set forth pursuant to the provisions of the immediately preceding
paragraph of this covenant; and provided, further, that any Capital Stock
of a Person received in an Asset Sale pursuant to this clause (v) shall be
owned directly by the Issuer or a Restricted Subsidiary and, when combined
with the Capital Stock of such Person already owned by the Issuer and its
Restricted Subsidiaries, shall constitute a majority of the voting power
and Capital Stock of such Person.
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Restricted Payments that are made in compliance with "--Limitation on
Restricted Payments" shall not be deemed to be Asset Sales.
Any Asset Sale Offer shall be made in compliance with all applicable
laws, rules, and regulations, including, if applicable, Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws.
Limitation on Liens. The Issuer will not, and will not cause or permit
any Restricted Subsidiary to, directly or indirectly, create, incur or affirm
any Lien of any kind securing any Pari Passu Indebtedness or Subordinated
Indebtedness (including any assumption, guarantee or other liability with
respect thereto by any Restricted Subsidiary) upon any property or assets
(including any intercompany notes) of the Issuer or any Restricted Subsidiary
owned on the date of the Indenture or acquired after the date of the Indenture,
or any income or profits therefrom, unless the Notes are directly secured
equally and ratably with (or, in the case of Subordinated Indebtedness, prior
or senior thereto, with the same relative priority as the Notes shall have with
respect to such Subordinated Indebtedness) the obligation or liability secured
by such Lien except for Liens (A) securing any Indebtedness which became
Indebtedness pursuant to a transaction permitted under "--Limitation on Merger,
Sale or Consolidation" or securing Acquired Indebtedness which was created
prior to (and not created in connection with, or in contemplation of) the
incurrence of such Pari Passu Indebtedness or Subordinated Indebtedness
(including any assumption, guarantee or other liability with respect thereto by
any Restricted Subsidiary) and which Indebtedness is permitted under the
provisions of "--Limitation on Incurrence of Additional Indebtedness" or (B)
securing any Indebtedness incurred in connection with any refinancing, renewal,
substitutions or replacements of any such Indebtedness described in clause (A),
so long as the aggregate principal amount of Indebtedness represented thereby
(or if such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
maturity thereof, the original issue price of such Indebtedness plus any
accreted value attributable thereto since the original issuance of such
Indebtedness) is not increased by such refinancing by an amount greater than
the lesser of (i) the stated amount of any premium or other payment required to
be paid in connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced or (ii) the amount of premium or other payment
actually paid at such time to refinance the Indebtedness, plus, in either case,
the amount of expenses of the Issuer incurred in connection with such
refinancing, provided, however, that in the case of clauses (A) and (B), any
such Lien only extends to the assets that were subject to such Lien securing
such Indebtedness prior to the related acquisition by the Issuer or its
Restricted Subsidiaries. Notwithstanding the foregoing, any Lien securing the
Notes granted pursuant to this covenant shall be automatically and
unconditionally released and discharged upon the release by the holders of the
Pari Passu Indebtedness or Subordinated Indebtedness described above of their
Lien on the property or assets of the Issuer or any Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under
such Indebtedness), at such time as the holders of all such Pari Passu
Indebtedness or Subordinated Indebtedness also release their Lien on the
property or assets of the Issuer or such Restricted Subsidiary, or upon any
sale, exchange or transfer to any Person not an Affiliate of the Issuer of the
property or assets secured by such Lien, or of all of the Capital Stock held by
the Issuer or any Restricted Subsidiary in, or all or substantially all the
assets of, any Restricted Subsidiary creating such Lien.
Limitation on Merger, Sale or Consolidation. The Issuer will not
consolidate with or merge with or into another Person, or sell, lease, convey,
transfer or otherwise dispose of all or substantially all of its properties and
assets (computed on a consolidated basis), whether in a single transaction or a
series of related transactions, to another Person or group of affiliated
Persons, and the Issuer will not permit any Restricted Subsidiary to enter into
any such transaction or series of transactions which would result in a sale,
lease, conveyance, transfer or other disposition of all or substantially all of
the properties and assets of the Issuer on a consolidated basis, unless (i)
either (a) the Issuer is the continuing entity or (b) the resulting, surviving
or transferee entity is an entity organized under the laws of the United
States, any state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Issuer in connection with
the Notes, the Indenture and the Registration Rights Agreement, as the case may
be, and the Notes, the Indenture and the Registration Rights Agreement will
remain in full force and effect as so supplemented (and
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any Guarantee shall be confirmed as applied to the surviving entity's
obligations); (ii) no Default or Event of Default shall exist or shall occur
immediately after giving effect on a pro forma basis (and treating any
Indebtedness not previously an obligation of the Issuer or any of its
Restricted Subsidiaries which becomes the obligation of the Issuer or any of
its Restricted Subsidiaries as a result of such transaction as having been
incurred at the time of such transaction) to such transaction; (iii)
immediately before and immediately after giving effect to such transaction on a
pro forma basis (on the assumption that the transaction occurred on the first
day of the four-quarter period for which financial statements are available
ending immediately prior to the consummation of such transaction with the
appropriate adjustments with respect to the transaction being included in such
pro forma calculation), either the Issuer or resulting surviving or transferee
entity would immediately thereafter be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Annual Operating Cash Flow Ratio
provision set forth in the second paragraph of the "--Limitation on Incurrence
of Additional Indebtedness" covenant or such Annual Operating Cash Flow Ratio
would be lower than such ratio immediately prior to such transaction; (iv) at
the time of the transaction any co-obligor, unless it is the other party to the
transaction described above, will have by supplemental indenture confirmed that
it remains a co-obligor under the Indenture and the Notes; (v) at the time of
the transaction each Guarantor, if any, unless it is the other party to the
transaction described above, will have by supplemental indenture confirmed that
its Guarantee shall apply to such Person's obligations under the Indenture and
the Notes; and (vi) at the time of the transaction the Issuer or the resulting
surviving or transferee entity will have delivered, or caused to be delivered,
to the Trustee, in form and substance reasonably satisfactory to the Trustee,
an officers' certificate and an opinion of counsel, each to the effect that
such consolidation, merger, transfer, sale, assignment, conveyance, transfer,
lease or other transaction and the supplemental indenture in respect thereof
comply with the Indenture and that all conditions precedent therein provided
for relating to such transaction have been complied with.
Notwithstanding the foregoing, any Restricted Subsidiary may merge with
and into any other Restricted Subsidiary or the Issuer.
Immediately upon consummation of the Merger, Finance Corp. shall merge
with and into Centennial and Centennial shall assume all of Finance Corp.'s
obligations under the Indenture and the Notes pursuant to an assumption
agreement in the form attached to the Indenture.
Centennial will not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person
(other than (i) the Issuer or any Guarantor, (ii) CCW Acquisition Corp. in
connection with the Merger or (iii) Finance Corp. upon consummation of the
Merger) or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
Persons (other than the Issuer or any Guarantor) unless at the time and after
giving effect thereto (i) either (a) Centennial will be the continuing
corporation or (b) the Person (if other than Centennial) formed by such
consolidation or into which Centennial is merged or the Person which acquires
by sale, assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of Centennial on a Consolidated
basis will be a corporation duly organized and validly existing under the laws
of the United States of America, any state thereof or the District of Columbia
and such Person expressly assumes, by a supplemental indenture, in a form
reasonably satisfactory to the Trustee, all the obligations of Centennial under
the Notes and the Indenture and the Registration Rights Agreement and such
Note, Indenture and Registration Rights Agreement will remain in full force and
effect; (ii) immediately before and immediately after giving effect to such
transaction on a pro forma basis, no Default or Event of Default will have
occurred and be continuing; and (iii) at the time of the transaction Centennial
or the surviving entity will have delivered, or caused to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
officers' certificate and an opinion of counsel, each to the effect that such
consolidation, merger, transfer, sale, assignment, conveyance, lease or other
transaction and the supplemental indenture in respect thereof comply with the
Indenture and that all conditions precedent therein provided for relating to
such transaction have been complied with. In the event that Centennial shall
merge or consolidate with or into the Issuer, the provisions of the first
paragraph of this Section are also required to be satisfied.
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Upon any consolidation or merger or any transfer (other than a lease) of
all or substantially all of the assets of the Issuer or Centennial, as the case
may be in accordance with the foregoing, the successor corporation formed by
such consolidation or into which the Issuer or Centennial, as the case may be,
is merged or to which such transfer is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer or
Centennial, as the case may be, under the Indenture with the same effect as if
such successor entity had been named therein as the Issuer or Centennial, as
the case may be, and the Issuer or Centennial, as the case may be (except in
connection with a transfer that results in the transfer of assets constituting
or accounting for less than 95% of the consolidated assets (as of the last
balance sheet available), revenues, or Annual Operating Cash Flow of the Issuer
or Centennial, as the case may be (as of the last twelve month period for which
financial statements are available), shall be released from the obligations
under the Notes and the Indenture.
Limitation on Lines of Business. Neither the Issuer nor any of its
Restricted Subsidiaries shall directly or indirectly engage in any line or
lines of business activity other than that which, in the reasonable, good faith
judgment of the Board of Directors of the Issuer, is a Related Business.
Limitation on Activities Prior to the Merger. Prior to consummation of
the Merger, the Co-Obligors may not, and must cause their Subsidiaries not to,
incur any Indebtedness or engage in any activities other than in connection
with the Merger and the Credit Facility.
Transfer of Stock to the Issuer. Immediately following consummation of
the Merger, Centennial shall cause the Capital Stock of all of its existing
Subsidiaries and Minority Cellular Investment Interests to be contributed to
the Issuer and Centennial shall immediately thereafter have no material assets
other than its Investment in the Capital Stock of the Issuer.
Limitation on Senior Subordinated Indebtedness. Each Issuer will not, and
will not permit or cause any Guarantor to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise in any manner become directly or
indirectly liable for or with respect to or otherwise permit to exist any
Indebtedness that is subordinate in right of payment to any Indebtedness of
such Co-Obligors or such Guarantor, as the case may be, unless such
Indebtedness is also pari passu with the Notes or the Guarantee of such
Guarantor or subordinated in right of payment to the Notes or such Guarantee at
least to the same extent as the Notes or such Guarantee are subordinated in
right of payment to Senior Indebtedness or Senior Indebtedness of such
Guarantor, as the case may be, as set forth in the Indenture.
Limitation on Unrestricted Subsidiaries. The Indenture provides that the
Issuer may designate any Subsidiary (other than a Guarantor) as an
"Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) the Issuer would be permitted to make an Investment at the time of
Designation (assuming the effectiveness of such Designation) pursuant to
"--Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the greater of (1) the net book value of the Issuer's
interest in such Subsidiary calculated in accordance with GAAP or (2) the
fair market value of the Issuer's interest in such Subsidiary as determined
in good faith by the Issuer's board of directors;
(c) such Unrestricted Subsidiary does not own any Capital Stock in any
Restricted Subsidiary of the Issuer which is not simultaneously being
designated an Unrestricted Subsidiary;
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(d) such Unrestricted Subsidiary is not liable, directly or indirectly,
with respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness, provided that an Unrestricted Subsidiary may provide a
Guarantee for the Notes; and
(e) such Unrestricted Subsidiary is not a party to any agreement,
contract, arrangement or understanding at such time with the Issuer or any
Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Issuer or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Issuer or, in the event such
condition is not satisfied, the value of such agreement, contract,
arrangement or understanding to such Unrestricted Subsidiary shall be
deemed a Restricted Payment.
In the event of any such Designation, the Issuer shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"--Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount.
The Indenture will also provide that the Issuer shall not and shall not
cause or permit any Restricted Subsidiary to at any time (x) provide credit
support for (provided that operational contracts in the ordinary course of
business shall not be deemed credit support), or subject any of its property
or assets (other than the Capital Stock of any Unrestricted Subsidiary) to the
satisfaction of, any Indebtedness of any Unrestricted Subsidiary (including
any undertaking, agreement or instrument constituting such Indebtedness)
(other than Permitted Investments in Unrestricted Subsidiaries) or (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary. For purposes of the foregoing, the Designation of a Subsidiary of
the Issuer as an Unrestricted Subsidiary shall be deemed to be the Designation
of all of the Subsidiaries of such Subsidiary as Unrestricted Subsidiaries.
The Issuer may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation;
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture; and
(c) unless such redesignated Subsidiary shall not have any Indebtedness
outstanding (other than Indebtedness that would be Permitted Indebtedness),
immediately after giving effect to such proposed Revocation, and after
giving pro forma effect to the incurrence of any such Indebtedness of such
redesignated Subsidiary as if such Indebtedness was incurred on the date of
the Revocation, the Issuer could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described
under "--Limitation on Incurrence of Additional Indebtedness."
All Designations and Revocations must be evidenced by a resolution of
the board of directors of the Issuer delivered to the Trustee certifying
compliance with the foregoing provisions.
Provision of Financial Statements. Whether or not the Issuer is subject
to Section 13(a) or 15(d) of the Exchange Act, so long as any Notes are
outstanding, the Issuer will, to the extent permitted under the Exchange Act,
file with the Commission the annual reports, quarterly reports and other
documents which the Issuer would have been required to file with the
Commission pursuant to Section 13(a) or 15(d) if it were so subject, such
documents to be filed with the Commission on or prior to the date (the
"Required Filing Date") by which the Issuer would have been required so to
file such documents if it were so subject. The Issuer will also in any event
(x) within 15 days of each Required Filing Date (whether or not prior to the
120th calendar
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day following the Merger Date) (i) transmit by mail to all holders, as their
names and addresses appear in the security register, without cost to such
holders and (ii) file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Issuer would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
the Issuer were subject to either of such Sections and (y) if filing such
documents by the Issuer with the Commission is not permitted under the Exchange
Act, promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
purchaser of Notes at the Issuer's cost. The Indenture also provides that, so
long as any of the Notes remain outstanding, the Issuer will make available to
any prospective purchaser of Notes or beneficial owner of Notes in connection
with any sale thereof the information required by Rule 144A(d)(4) under the
Securities Act, until such time as the Issuer has either exchanged the Notes
for securities identical in all material respects which have been registered
under the Securities Act or until such time as the holders thereof have
disposed of such Notes pursuant to an effective registration statement under
the Securities Act. The Issuer will be deemed to have satisfied the
requirements set forth above if (a) Centennial prepares, files, mails and
supplies reports and other documents prepared on a consolidated basis of the
types required above, in each case within the applicable time periods, (b) the
Issuer is not required to file such reports and other documents separately
under the applicable rules and regulations of the Commission (after giving
effect to any exemptive relief) because of the filings made by Centennial, (c)
Centennial does not own assets in excess of $10 million other than the Capital
Stock of the Issuer, and (d) Centennial does not have outstanding Indebtedness
in excess of $10 million (other than indebtedness under the Mezzanine Financing
and Indebtedness as to which the Issuer is also liable).
Amendments to Mezzanine Financing. The Indenture provides that the
Mezzanine Financing shall be in substantially the form attached to the
Indenture and Centennial shall not amend the terms of the Mezzanine Financing
in a manner adverse to the Holders.
Additional Covenants. The Indenture also contains covenants with respect
to the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
existence; (v) payment of taxes and other claims; (vi) maintenance of
properties; and (vii) maintenance of insurance.
Events of Default and Remedies
The Indenture defines an Event of Default as (i) the failure by Finance
Corp. or the Issuer to pay any installment of interest on the Notes as and when
the same becomes due and payable and, with respect to any installment of
interest after the first three Interest Payment Dates, the continuance of such
failure for 30 days (whether or not prohibited by the subordination provisions
of the Indenture), (ii) the failure by Finance Corp. or the Issuer to pay all
or any part of the principal, or premium, if any, on the Notes when and as the
same becomes due and payable at maturity, redemption, by acceleration or
otherwise, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price (whether or not prohibited by the
subordination provisions of the Indenture), (iii) the failure by Finance Corp.
or the Issuer to observe or perform any other covenant or agreement contained
in the Notes or the Indenture and, subject to certain exceptions, the
continuance of such failure for a period of 30 days after written notice is
given to the Issuer by the Trustee or to the Issuer and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Notes outstanding,
(iv) there shall have been the entry by a court of competent jurisdiction of
(a) a decree or order for relief in respect of Centennial, the Issuer or any
Significant Restricted Subsidiary in an involuntary case or proceeding under
any applicable Bankruptcy Law or (b) a decree or order adjudging Centennial,
the Issuer, or any Significant Restricted Subsidiary bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of or in respect
of Centennial, the Issuer, or any Significant Restricted Subsidiary under any
applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
Centennial, the Issuer or any Significant Restricted Subsidiary or of any
substantial part of their respective properties, or ordering the winding up or
liquidation of their affairs, and any such decree or order for relief shall
continue to be in effect, or any such other decree or order shall be unstayed
and in effect, for a period of 60 consecutive days; (v) (a) Centennial, the
Issuer, or any Significant
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Restricted Subsidiary commences a voluntary case or proceeding under any
applicable Bankruptcy Law or any other case or proceeding to be adjudicated
bankrupt or insolvent, (b) Centennial, the Issuer or any Significant Restricted
Subsidiary consents to the entry of a decree or order for relief in respect of
Centennial, the Issuer or such Significant Restricted Subsidiary in an
involuntary case or proceeding under any applicable Bankruptcy Law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, (c)
Centennial, the Issuer or any Significant Restricted Subsidiary files a
petition or answer or consent seeking reorganization or relief under any
applicable federal or state law, (d) Centennial, the Issuer or any Significant
Restricted Subsidiary (I) consents to the filing of such petition or the
appointment of, or taking possession by, a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of Centennial, the Issuer
or such Significant Restricted Subsidiary or of any substantial part of their
respective properties, (II) makes an assignment for the benefit of creditors or
(III) admits in writing its inability to pay its debts generally as they become
due or (e) Centennial, the Issuer or any Significant Restricted Subsidiary
takes any corporate action in furtherance of any such actions in this paragraph
(v), (vi) any Guarantee of a Significant Restricted Subsidiary shall for any
reason cease to be, or shall for any reason be asserted in writing by any
Guarantor or the Issuer not to be, in full force and effect and enforceable in
accordance with its terms, except to the extent contemplated by the Indenture
and any such Guarantee, or Finance Corp. shall for any reason cease to be, or
shall for any reason be asserted in writing not to be, a co-obligor pursuant to
the Notes, except to the extent contemplated by the Indenture and the Notes;
(vii) one or more defaults in any Indebtedness for money borrowed by Finance
Corp., the Issuer or any of their Restricted Subsidiaries (or the payment of
which is guaranteed by Finance Corp., the Issuer or any of their Restricted
Subsidiaries), whether such Indebtedness or guarantee now exists or is created
after the Issue Date, which default results from the failure to pay
Indebtedness at its final maturity date or results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness which was not paid at its final maturity date or the
maturity of which has been so accelerated, aggregates $20,000,000 or more, and
(viii) final unsatisfied judgments, orders or decrees (not subject to appeal)
of any court or regulatory or administrative agency aggregating in excess of
$20,000,000 (exclusive of any portion of any such payment covered by insurance,
if and to the extent the insurer has acknowledged in writing its liability
therefor), at any one time rendered against Finance Corp., the Issuer or any of
its Restricted Subsidiaries and not stayed, bonded or discharged within 60
days. The Indenture provides that, if a Default occurs and is continuing, the
Trustee must, within 90 days after the occurrence of such Default, give to the
Holders notice of such Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clauses (iv) and (v) above relating to Centennial, the
Issuer or any Significant Restricted Subsidiary), then in every such case,
unless the principal of all of the Notes shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding, by notice in writing to the
Issuer (and to the Trustee if given by Holders) (an "Acceleration Notice"), may
declare all principal of the Notes (or the Change in Control Purchase Price if
the Event of Default includes failure to pay the Change in Control Purchase
Price) (or the Special Redemption Price in connection with any Special
Mandatory Redemption if the Event of Default relates to failure to make payment
in connection with the Special Mandatory Redemption), determined as set forth
below, including in each case accrued interest thereon to be due and payable
immediately; provided that so long as the Credit Facility shall be in full
force and effect, if an Event of Default shall have occurred and be continuing
(other than as specified in clauses (iv) or (v) with respect to Centennial, the
Issuer or any Significant Restricted Subsidiary), any such acceleration shall
not be effective until the earlier to occur of (x) five business days following
delivery of a written notice of such acceleration of the Notes to the agent
under the Credit Facility and (y) the acceleration of any Indebtedness under
the Credit Facility. If an Event of Default specified in clauses (iv) and (v)
above relating to Centennial, the Issuer or any Restricted Subsidiary occurs,
all principal and accrued interest thereon will be immediately due and payable
on all outstanding Notes without any declaration or other act on the part of
Trustee or the Holders. The Holders of a majority in aggregate principal amount
of Notes generally are authorized to rescind such acceleration if all existing
Events of Default, other than the non-payment of the principal of, premium, if
any, and interest on the Notes which have become due solely by such
acceleration, have been cured or waived.
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The Holders of a majority in aggregate principal amount of the Notes at
the time outstanding may waive on behalf of all the Holders any Default, except
a Default in the payment of principal of or interest on any Note not yet cured,
or a Default with respect to any covenant or provision which cannot be modified
or amended without the consent of the Holder of each outstanding Note affected.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Trustee will be under no obligation to exercise any of its rights
or powers under the Indenture at the request, order or direction of any of the
Holders, unless such Holders have offered to the Trustee reasonable security or
indemnity. Subject to all provisions of the Indenture and applicable law, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee.
No holder of any of the Notes has any right to institute any proceedings
with respect to the Indenture or any remedy thereunder, unless the holders of
at least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 15 days after receipt of such notice
and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not, however,
apply to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
The Co-Obligors are required to notify the Trustee within five business
days of the occurrence of any Default. The Co-Obligors are required to deliver
to the Trustee, not more than 120 days after the end of each fiscal year, a
written statement as to compliance with the Indenture, including whether or not
any Default has occurred.
The Trust Indenture Act contains limitations on the rights of the
Trustee, should it become a creditor of Centennial, the Issuer or any
Guarantor, if any, to obtain payment of claims in certain cases or to realize
on certain property received by it in respect of any such claims, as security
or otherwise. The Trustee is permitted to engage in other transactions,
provided that if it acquires any conflicting interest it must eliminate such
conflict upon the occurrence of an Event of Default or else resign.
Legal Defeasance and Covenant Defeasance
The Indenture provides that the Issuer may, at its option and at any
time, elect to have the obligations of Centennial, the Issuer, any Guarantor
and any other obligor upon the Notes discharged with respect to the outstanding
Notes ("Legal Defeasance"). Such Legal Defeasance means that Centennial, the
Issuer, any such Guarantor and any other obligor under the Indenture shall be
deemed to have paid and discharged the entire indebtedness represented, and the
Indenture shall cease to be of further effect as to all outstanding Notes,
except as to (i) rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due from the trust funds; (ii) the Co-Obligors' obligations with respect to
such Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes, and the maintenance of an office or
agency for payment and money for security payments held in trust; (iii) the
rights, powers, trust, duties, and immunities of the Trustee, and the Issuer's
obligations in connection therewith; and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Issuer may, at its option and at any time,
elect to have the obligations of Centennial, the Issuer and any Guarantor
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including events described in clauses (i), (ii), (iv) (with respect to the Co-
Obligors) and (v) (with respect to the Co-Obligors) described under "--Events
of Default") will no longer constitute an Event of Default with respect to the
Notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders, U.S. Legal Tender, non-callable government securities or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date
for payment thereof or on any redemption date of such principal or installment
of principal of, premium, if any, or interest on such Notes, and the holders of
Notes must have a valid, perfected, exclusive security interest in such trust;
(ii) in the case of Legal Defeasance, the Issuer shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) the Issuer has received from, or there has been
published by the Internal Revenue Service, a ruling or (B) since the date of
the Indenture, there has been a change in the applicable Federal income tax
law, in each case to the effect that, and based thereon such opinion of counsel
shall confirm that, the holders of such Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such Legal Defeasance,
and will be subject to Federal income tax in the same amount, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Issuer shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that the holders of
such Notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date
of such deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91state of
deposit (other than a Default which results from the borrowing of amounts to
finance the defeasance and which borrowing does not result in a breach or
violation of, or constitute a default under, any other material agreement or
instrument to which Centennial, the Issuer or any Restricted Subsidiary is a
party or to which it is bound) (it being understood that such condition will
not be satisfied until the expiration of such 91-day period); (v) the Issuer
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee to the effect that (assuming that no
holder of any Notes would be considered an insider of the Issuer under any
applicable bankruptcy or insolvency law) after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors
rights generally; (vi) such defeasance or covenant defeasance shall not cause
the Trustee for the Notes to have a conflicting interest for purposes of the
Trust Indenture Act with respect to any securities of the Issuer or any
Guarantor; (vii) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which Centennial, the Issuer or any
of their Subsidiaries is a party or by which Centennial, the Issuer or any of
their Subsidiaries is bound; (viii) the Issuer shall have delivered to the
Trustee an officers' certificate stating that the deposit was not made by the
Issuer with the intent of preferring the Holders of such Notes over any other
creditors of the Issuer or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Issuer or others; and (ix) the Issuer
shall have delivered to the Trustee an officers' certificate and opinion of
counsel each stating that all conditions precedent provided for or relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
References in this section to "Centennial" refer to Finance Corp. before the
Merger and to Centennial Cellular Corp. after the Merger.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes as expressly provided for in the Indenture) as to all outstanding Notes
under the Indenture when (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid or Notes whose payment has been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the Issuer
or discharged from such trust as provided for in the Indenture) have been
delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation (x) have become due and payable, (y)
will become due and payable at their Stated Maturity within one year, or (z)
are to be called for redemption within
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one year under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense, of the
Issuer; and Centennial, the Issuer or any Guarantor has irrevocably deposited
or caused to be deposited with the Trustee as trust funds in trust an amount in
United States dollars sufficient to pay and discharge the entire indebtedness
on the Notes not theretofore delivered to the Trustee for cancellation,
including principal of, premium, if any, and accrued interest at Maturity,
Stated Maturity or redemption date; (b) Centennial, the Issuer or any Guarantor
has paid or caused to be paid all other sums payable under the Indenture by
Centennial, the Issuer and any Guarantor; and (c) the Issuer and Centennial
have delivered to the Trustee an officers' certificate and an opinion of
independent counsel each stating that (i) all conditions precedent under the
Indenture relating to the satisfaction and discharge of such Indenture have
been complied with and (ii) such satisfaction and discharge will not result in
a breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which Centennial, the Issuer, any
Guarantor or any Subsidiary is a party or by which Centennial, the Issuer, any
Guarantor or any Subsidiary is bound. References in this section to
"Centennial" refer to Finance Corp. before the Merger and to Centennial
Cellular Corp. after the Merger.
Amendments and Supplements
The Indenture contains provisions permitting the Issuer, Centennial and
the Trustee to enter into a supplemental indenture for certain limited purposes
without the consent of the Holders. With the consent of the Holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding, Centennial, the Issuer, each Guarantor, if any, and the Trustee
are permitted to amend or supplement the Indenture or any supplemental
indenture or modify the rights of the Holders; provided that no such
modification may, without the consent of each Holder affected thereby: (i)
change the Stated Maturity of, or the Change of Control Purchase Date or the
Asset Sale Offer Period on, or change to an earlier date any redemption date
of, any Note, or reduce the principal amount thereof or the rate (or extend the
time for payment) of interest thereon or any premium payable upon the
redemption thereof, or change the place of payment where, or the coin or
currency in which, any Note or any premium or the interest thereon is payable,
or impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption, on or
after the redemption date), or reduce the Change of Control Purchase Price or
the Asset Sale Offer Price or alter the redemption provisions or the provisions
of the "--Repurchase of Notes at the Option of the Holder Upon a Change of
Control" covenant, including, in each case, amending, changing or modifying any
definitions related thereto, but only to the extent such definitions relate
thereto, in a manner adverse to the Holders, (ii) reduce the percentage in
principal amount of the outstanding Notes, the consent of whose Holders is
required for any such amendment, supplemental indenture or waiver provided for
in the Indenture, (iii) modify any of the waiver provisions, except to increase
any required percentage or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the Holder of
each outstanding Note affected thereby, (iv) except as otherwise permitted
under "--Certain Covenants--Limitation on Merger, Sale or Consolidation"
consent to the assignment or transfer by Centennial, the Issuer or any
Guarantor of any of its rights and obligations under the Indenture, or (v)
amend or modify any of the provisions of the Indenture relating to the
subordination of the Notes or any Guarantee in any manner adverse to the
holders of the Notes or any Guarantee.
Notwithstanding the foregoing, without the consent of any holders of the
Notes, Centennial, the Issuer, any Guarantor, any other obligor under the Notes
and the Trustee may modify or amend the Indenture: (a) to evidence the
succession of another Person to Centennial, the Issuer or a Guarantor, and the
assumption by any such successor of the covenants of Centennial, the Issuer or
such Guarantor in the Indenture and in the Notes and in any Guarantee in
accordance with "--Certain Covenants--Limitation on Merger, Sale or
Consolidation" (including to execute a supplemental indenture upon consummation
of the Merger in which Centennial Cellular Corp. assumes the obligations under
the Indenture of Finance Corp.); (b) to add to the covenants of Centennial, the
Issuer, any Guarantor or any other obligor upon the Notes for the benefit of
the holders of the Notes or to surrender any right or power conferred upon
Centennial, the Issuer or any Guarantor or any other obligor upon the Notes, as
applicable, in the Indenture, in the Notes or in any Guarantee; (c) to
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cure any ambiguity, or to correct or supplement any provision in the Indenture,
the Notes or any Guarantee which may be defective or inconsistent with any
other provision in the Indenture, the Notes or any Guarantee or make any other
provisions with respect to matters or questions arising under the Indenture,
the Notes or any Guarantee; provided that, in each case, such provisions shall
not adversely affect the interest of the holders of the Notes; (d) to comply
with the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act; (e) to add a
Guarantor under the Indenture; (f) to evidence and provide the acceptance of
the appointment of a successor Trustee under the Indenture; or (g) to mortgage,
pledge, hypothecate or grant a security interest in favor of the Trustee for
the benefit of the holders of the Notes as additional security for the payment
and performance of Centennial's, the Issuer's and any Guarantor's obligations
under the Indenture, in any property, or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to the Indenture or
otherwise.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. References in this section to "Centennial" refer
to Finance Corp. before the Merger and to Centennial Cellular Corp. after the
Merger, unless otherwise indicated.
No Personal Liability of Partners, Stockholders, Officers, Directors
The Indenture provides that no direct or indirect stockholder (or
partner, limited liability company member or employee of a stockholder),
employee, officer or director, as such, past, present or future of the Co-
Obligors or any successor entity or any Affiliate thereof shall have any
personal liability in respect of the obligations of the Co-Obligors under the
Indenture or the Notes by reason of his or its status as such stockholder,
employee, officer or director.
Governing Law
The Indenture, the Notes and any Guarantee will be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to the conflicts of law principles thereof.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of Centennial or the Issuer, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue as Trustee with such conflict or resign as Trustee.
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (which has not been cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Notes unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
Certain Definitions
Set forth below is a summary of certain defined terms contained in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
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"Acquired Indebtedness" means Indebtedness of a Person (i) existing at
the time such Person becomes a Restricted Subsidiary or (ii) assumed in
connection with the acquisition of assets from such Person, in each case, other
than Indebtedness incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or such acquisition, as the case may
be. Acquired Indebtedness shall be deemed to be Incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Restricted Subsidiary, as the case may be.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person or (ii) any officer,
director, or controlling stockholder of such other Person. For purposes of this
definition, the term "control" means (a) the power to direct the management and
policies of a Person, directly or through one or more intermediaries, whether
through the ownership of voting securities, by contract, or otherwise, or (b)
without limiting the foregoing, the beneficial ownership of 10% or more of the
voting power of the voting common equity of such Person (on a fully diluted
basis) or of warrants or other rights to acquire such equity (whether or not
presently exercisable).
"Annual Operating Cash Flow" on any date means, with respect to any
Person, the Operating Cash Flow for the Reference Period.
"Annual Operating Cash Flow Ratio" on any date (the "Transaction Date")
means, with respect to any Person and its Restricted Subsidiaries, the ratio of
(i) consolidated Indebtedness of such Person and its Restricted Subsidiaries on
the Transaction Date (after giving pro forma effect to the Incurrence of such
Indebtedness) (and without duplication of any Indebtedness that may be the
obligation of such Person and/or one or more of its Subsidiaries) divided by
(ii) the aggregate amount of Annual Operating Cash Flow of such Person
(determined on a pro forma basis after giving effect to all Investments in and
acquisitions or dispositions of any company or any business or any assets out
of the ordinary course of business, whether by merger, stock purchase or sale
or asset purchase or sale, made by such Person and its Subsidiaries from the
beginning of the Reference Period through the Transaction Date as if such
Investment, acquisition or disposition had occurred at the beginning of such
Reference Period); provided that, for purposes of such computation, in
calculating Annual Operating Cash Flow and consolidated Indebtedness, (a) the
transaction giving rise to the need to calculate the Annual Operating Cash Flow
Ratio will be assumed to have occurred (on a pro forma basis) on the first day
of the Reference Period; (b) the incurrence of any Indebtedness during the
Reference Period or subsequent thereto and on or prior to the Transaction Date
(and the application of the proceeds therefrom to the extent used to retire
Indebtedness or to acquire businesses) will be assumed to have occurred (on a
pro forma basis) on the first day of such Reference Period; (c) Consolidated
Interest Expense attributable to any Indebtedness (whether existing or being
incurred) bearing a floating interest rate shall be computed as if the rate in
effect on the Transaction Date had been the applicable rate for the entire
period; and (d) all members of the consolidated group of such Person on the
Transaction Date terence Period shall be deemed to be members of the
consolidated group of such Person for the entire Reference Period. When the
foregoing definition is used in connection with the Issuer and its Restricted
Subsidiaries, references to a Person and its Subsidiaries in the foregoing
definition shall be deemed to refer to the Issuer and its Restricted
Subsidiaries. Any such pro forma calculation may include adjustments for the
pro forma effect of (a) any cost savings accounted for on an annualized basis
as a result of an acquisition by the Issuer or a Restricted Subsidiary which,
in the good faith judgment of the Issuer (as determined by a resolution of the
board of directors of the Issuer), will be eliminated or realized within one
year after the date of such transaction (provided that any such cost savings
are calculated in accordance with Regulation S-X under the Securities Act (or
any successor regulation)) or (b) any direct quantifiable savings from the
conversion of roaming expense which the Issuer will obtain within one year of
the transaction in the good faith judgment of the Board of Directors of the
Issuer from the acquisition of a third party which prior to such acquisition
had a contract with the Issuer or any Restricted Subsidiary for roaming
services.
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"Applicable Premium" means, with respect to a Note at any redemption
date, the excess of (A) the present value at such time of (1) the redemption
price of such Note at December 15, 2003 (such redemption price being described
under "--Optional Redemption by the Co-Obligors"), plus (2) all required
interest payments (excluding accrued but unpaid interest) due on such Note
through December 15, 2003, computed using a discount rate equal to the Treasury
Rate plus 50 basis points, over (B) the then outstanding principal amount of
such Note.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978,
as amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Blackstone" means Blackstone Capital Partners III Merchant Banking Fund
L.P. and affiliates of the foregoing that are directly or indirectly
controlling or controlled by Blackstone or under direct or indirect common
control with Blackstone.
"Board of Directors" means (i) with respect to a limited liability
company, the board of managers of such limited liability company or other body
fulfilling the function of a board of directors of a corporation, and (ii) with
respect to a corporation, the board of directors or any duly authorized
committee of such board of directors.
"Capitalized Lease Obligations" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations, as determined in accordance with
GAAP.
"Capital Stock" means, with respect to any Person, any capital stock of
such Person and shares, interests, participations or other ownership interests
(however designated) of any Person and any rights (other than debt securities
convertible into capital stock), warrants and options to purchase any of the
foregoing, including (without limitation) each class of common stock and
preferred stock of such Person if such Person is a corporation, each general
and limited partnership interest of such Person if such Person is a partnership
and all membership or other interests if such Person is a limited-liability
company, and any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distribution of
assets of, the issuing Person.
"Cash from Minority Cellular Investment Interests" means any dividends,
distributions, interest paymens or other periodic payments of cash
(collectively a "cash distribution") received directly or indirectly by the
Issuer from its Minority Cellular Investment Interests; provided, however, that
"Cash from Minority Cellular Investment Interests" shall not include any
proceeds received directly by the Issuer from the liquidation, sale, merger,
consolidation, transfer or other disposition (collectively, a "sale") of any
Minority Cellular Investment Interest, except that Cash from Minority Cellular
Investment Interests shall include in every fiscal year ending after the sale
of any Minority Cellular Investment Interest an amount equal to the cash
distributions received directly or indirectly by the Issuer from such Minority
Cellular Investment Interest during the twelve months prior to such sale if
either (a) the proceeds of such sale are used to permanently reduce the amount
of Indebtedness which may be borrowed under the Credit Facility in accordance
with clause (i) of the third paragraph of "--Limitation on Incurrence of
Additional Indebtedness" or (b) at the time of any Restricted Payment being
made pursuant to clause (ix) of the second paragraph of "--Limitation on
Restricted Payments," the Issuer would be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Annual Operating Cash Flow Ratio
provision set forth in the second paragraph of "--Limitation on Incurrence of
Additional Indebtedness" assuming that the Issuer was the obligor of additional
Indebtedness in a principal amount equal to the net after-tax proceeds received
from such sale.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
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United States of America is pledged in support thereof) in each case maturing
within one year after the date of acquisition, (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation
of any domestic commercial bank of recognized standing having capital and
surplus in excess of $500 million and commercial paper issued by others rated
at least A-2 or the equivalent thereof by Standard & Poor's Ratings Group or at
least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in
each case maturing within one year after the date of acquisition and (iii)
investments in money market funds substantially all of whose assets comprise
securities of the types described in clauses (i) and (ii) above.
"Centennial" means Centennial Cellular Corp., a corporation organized
under the laws of Delaware, until a successor Person shall have become such
pursuant to the applicable provisions of the Indenture, and thereafter
"Centennial" shall mean such successor Person.
"Centennial de Puerto Rico" means a direct or indirect Restricted
Subsidiary of the Issuer which controls the Issuer's Puerto Rico operations.
"Change of Control" means the occurrence of any of the following events:
(i) Centennial or the Issuer consolidates with or merges with or into any
Person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person
consolidates with or merges into or with Centennial or the Issuer, in any such
event pursuant to a transaction in which the outstanding Voting Stock of
Centennial or the Issuer is converted into or exchanged for cash, securities or
other property, other than any such transaction where (A) the outstanding
Voting Stock of Centennial or the Issuer is changed into or exchanged for (x)
Voting Stock of the surviving corporation which is not Disqualified Capital
Stock or (y) cash, securities and other property (other than Capital Stock of
the surviving corporation) in an amount which could be paid by Centennial or
the Issuer as a Restricted Payment as described under "--Certain Covenants--
Limitation on Restricted Payments" (and such amount shall be treated as a
Restricted Payment subject to the provisions in the Indenture described under
"--Certain Covenants--Limitation on Restricted Payments") and (B) immediately
after such transaction, no "person" or "group," other than Permitted Holders,
is the beneficial owner (as such term is used in Rule 13d-3 and 13d-5
promulgated pursuant to the Exchange Act), directly or indirectly, more than
50% of the total outstanding Voting Stock of the surviving corporation, (ii)
any "person" or "group" (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable), other than Permitted
Holders, is or becomes the "beneficial owner" (as such term is used in Rule
13d-3 and 13d-5 promulgated pursuant to the Exchange Act), directly or
indirectly, of Voting Stock representing more than 50% of the voting power of
the Voting Stock of Centennial or the Issuer then outstanding normally entitled
to vote in elections of directors or (iii) during any period of 12 consecutive
months, individuals who at the beginning of any such 12-month period
constituted the Board of Directors of Centennial or the Issuer (together with
any new directors whose election to such board or whose nomination for election
by the shareholders of Centennial or the Issuer was designated by the Permitted
Holders or approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute at least a majority of the Board of Directors of
Centennial or the Issuer then in office. Each of (i) through (iii) of this
definition shall also be deemed to apply to any Restricted Subsidiary of
Centennial which directly or indirectly controls the Issuer. The consummation
of the transactions contemplated by the Merger, and the merger of Finance Corp.
with and into Centennial, shall not be deemed a Change of Control.
"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market or, if such shares are not listed or admitted to trading
on any national securities exchange or quoted on Nasdaq National Market but
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the Issuer is a Foreign Company (as defined in Rule 3b-4(b) under the Exchange
Act) and the principal securities exchange on which such shares are listed or
admitted to trading is a Designated Offshore Securities Market (as defined in
Rule 902(a) under the Securities Act), the average of the reported closing bid
and asked prices regular way on such principal exchange, or, if such shares are
not listed or admitted to trading on any national securities exchange or quoted
on the Nasdaq National Market and the Issuer and principal securities exchange
do not meet such requirements, the average of the closing bid and asked prices
in the over-the-counter market as furnished by any New York Stock Exchange
member firm is selected from time to time by the Issuer for that purpose and is
reasonably acceptable to the Trustee.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker, having a maturity comparable to
the first redemption date of the Notes, that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of a comparable maturity to the first
redemption date of such Notes. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after consultation with the
Issuer.
"Comparable Treasury Price" means, with respect to any Redemption Date,
(A) the average of the Reference Treasury Dealer Quotations for such Redemption
Date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any Redemption Date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 3:30 p.m., New York time, on the third
business day preceding such Redemption Date.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to the Capitalized Lease Obligations) of such Person and
its consolidated Restricted Subsidiaries during such period, including (i)
original issue discount and non-cash interest payments or accruals on any
Indebtedness, (ii) the interest portion of all deferred payment obligations,
(iii) all commissions, discounts and other fees and charges owed with respect
to bankers' acceptances and letters of credit financings and currency and
Interest Rate Protection Obligations and Currency Hedging Agreements and
excluding the amortization of deferred financing fees, in each case to the
extent attributable to such period and (b) the amount of cash dividends accrued
or payable by such Person or any of its consolidated Restricted Subsidiaries in
respect of preferred stock (other than by Restricted Subsidiaries of such
Person to such Person or such Person's Restricted Subsidiaries). For purposes
of this definition, (x) interest on a Capitalized Lease Obligation shall be
deemed to accrue at an interest rate reasonably determined by the Issuer to be
the rate of interest implicit in such Capitalized Lease Obligation in
accordance with GAAP and (y) interest expense attributable to any Indebtedness
represented by the guaranty by such Person or a Subsidiary of such Person of an
obligation of another Person shall be deemed to be the interest expense
attributable to the Indebtedness guaranteed to the extent not otherwise
included and whether or not paid by such Person or Subsidiary. When the
foregoing definition is used in connection with the Issuer and its Restricted
Subsidiaries, references to a Person and its Subsidiaries in the foregoing
definition shall be deemed to refer to the Issuer and its Restricted
Subsidiaries.
"Consolidated Net Income" of any Person, for any period, means the net
income (or loss) of such Person and its consolidated Restricted Subsidiaries
for such period, determined (on a consolidated basis) in accordance with GAAP,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication) (i) all extraordinary gains or losses and
all gains and losses from the sales or other dispositions of assets out of the
ordinary course of business (net of taxes, fees and expenses relating to the
transaction giving rise thereto) for such period, (ii) the net income, if
positive, of any Person, that is not a Subsidiary, in which such Person or any
of its Subsidiaries has an interest (other than a Minority Cellular
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Investment Interest), except to the extent of the amount of dividends or
distributions actually paid to such Person or a Subsidiary of such Person,
(iii) except as provided in the definition of "Annual Operating Cash Flow
Ratio," the net income (or loss) of any Subsidiary acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
(iv) for purposes of the "--Limitation on Restricted Payments" covenant, the
net income, if positive, of any Restricted Subsidiary of such Person that is
not a Guarantor to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the terms of
its charter or any agreement or instrument applicable to such Subsidiary except
to the extent of the amount of dividends or distributions actually paid to such
Person or a Subsidiary of such Person, (v) any gain or loss, net of taxes,
realized upon the termination of any employee benefit plan, (vi) any
restoration to net income of any contingency reserve, except to the extent
provision for such reserve was made out of income accrued at any time following
the date of the Indenture, (vii) any net gain or loss arising from the
acquisition of any securities ouch Person, (viii) the cumulative effect of a
change in accounting principles (ix) the amount of any nonrecurring charges or
income of the Issuer or any Restricted Subsidiary (including any one-time costs
incurred in connection with acquisitions after the Issue Date) certified as
non-recurring in an officer's certificate and deducted or included in such
period in computing Consolidated Net Income and (x) any net income, if
positive, resulting from the Issuer's Minority Cellular Investment Interests.
When the foregoing definition is used in connection with the Issuer and its
Restricted Subsidiaries, references to a Person and its Subsidiaries in the
foregoing definition shall be deemed to refer to the Issuer and its Restricted
Subsidiaries.
"Credit Facility" means that certain Credit Facility to be entered into
among the Issuer, Centennial de Puerto Rico, the guarantors, Merrill Lynch
Capital Corporation and the other financial institutions party thereto, as such
agreement, may be, in one or more agreements with one or more lending groups,
amended, renewed, extended, substituted, refinanced, restructured, replaced,
supplemented or otherwise modified, in whole or in part, from time to time
(including, without limitation, any successive renewals, extensions,
substitutions, refinancings, restructurings, replacements, supplementations or
other modifications of the foregoing, including those that increase the amount
available thereunder in accordance with the terms of the Indenture).
"Currency Hedging Agreements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values.
"Default" means any event or condition that is, or after notice or
passage of time or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the board of directors of the Issuer who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
"Disqualified Capital Stock" means, with respect to any Person, Capital
Stock of such Person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of any event or the passage of time would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such Person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated
Maturity of the Notes; provided that (a) Capital Stock will not be deemed to be
Disqualified Capital Stock if it may only be so redeemed or repurchased solely
in consideration of Qualified Capital Stock of the Issuer and (b) any Capital
Stock that would not constitute Disqualified Capital Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase
or redeem such Capital Stock upon the occurrence of an "asset sale" or "change
of control" occurring prior to the Stated Maturity of the Notes shall not
constitute Disqualified Capital Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "--
Limitation on Asset Sales and Sales of Subsidiary Stock" and "--Repurchase of
Notes at the Option of the Holder upon a Change of Control" covenants and such
Capital Stock specifically provides that such Person will not repurchase or
redeem any such Capital Stock pursuant to such provision prior to the Issuer's
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repurchase of such Notes as are required to be repurchased pursuant to "--
Limitation on Asset Sales and Sales of Subsidiary Stock" and "--Repurchase of
Notes at the Option of the Holder Upon a Change of Control."
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A" or higher (or the equivalent rating
or higher), according to Moody's Investors Service, Inc., Standard & Poor's
Ratings Group or Duff & Phelps Credit Rating Co. (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)) respectively, at the time as
of which any investment or rollover therein is made.
"Equity Contribution" means the equity contribution by Welsh, Carson,
Anderson & Stowe VIII, L.P., Blackstone Capital Partners, L.P., WCAS Capital
Partners III, L.P and certain other investors to Centennial in connection with
the financing of the Merger.
"Excluded Cash Contributions" has the meaning given to such item in the
covenant "--Limitation on Incurrence of Additional Indebtedness."
"Excluded Contributions" means the net cash proceeds received by the
Issuer after the Issue Date from (a) contributions to its common equity capital
and (b) the sale (other than to a Subsidiary or to any Issuer or Subsidiary
management equity plan or stock option plan or any other management or employee
benefit plan or agreement) of Capital Stock (other than Disqualified Capital
Stock) of the Issuer, in each case designated as Excluded Contributions
pursuant to an officer's certificate executed by an officer of the Issuer, the
cash proceeds of which are excluded from the calculation set forth in the first
paragraph of the "--Limitation on Restricted Payments" covenant and which may
not also be designated Excluded Cash Contributions.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board ("FASB") or, if FASB ceases to exist,
any successor thereto; provided, however, that for purposes of determining
compliance with covenants in the Indenture other than those relating to
financial statement delivery, "GAAP" means such generally accepted accounting
principles as in effect as of the Issue Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which
obligations or guarantee the full faith and credit of the United States is
pledged and which have a remaining weighted average life to maturity of not
more than one year from the date of Investment therein.
"Guarantee" means the guarantee by a Guarantor of Finance Corp.'s and the
Issuer's Indenture Obligations.
"Guarantor" means any Restricted Subsidiary of the Issuer which becomes a
guarantor of the Issuer's Indenture Obligations.
"Holder" means a Person in whose name a Note is registered. The Holder of
a Note will be treated as the owner of such Note for all purposes.
"Indebtedness" of any Person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such Person, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (ii)
evidenced by bonds, notes, debentures or similar instruments, (iii)
representing the balance deferred and unpaid of the purchase price of any
property or services except (other than accounts payable or other obligations
to trade creditors which have remained unpaid for greater than 90 days past
their original due date or to financial institutions, which obligations are not
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being contested in good faith and for which appropriate reserves have been
established) those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors, (iv) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (v)
for the payment of money relating to a Capitalized Lease Obligation, or (vi)
evidenced by a letter of credit or a reimbursement obligation of such Person
with respect to any letter of credit; (b) all obligations of such Person under
Interest Rate Protection Obligations or Currency Hedging Agreements; (c) all
liabilities of others of the kind described in the preceding clauses (a) or (b)
that such Person has guaranteed or that is otherwise its legal liability or
which are secured by any assets or property of such Person and all obligations
to purchase, redeem or acquire any Capital Stock; (d) all Disqualified Capital
Stock of such Person and all Preferred Stock of such Person's Restricted
Subsidiaries valued at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends; and (e) any and all
deferrals, renewals, extensions, refinancing and refundings (whether direct or
indirect) of, or amendments, modifications or supplements to, any liability of
the kind described in any of the preceding clauses (a), (b), (c), (d) or this
clause (e), whether or not between or among the same parties; provided that the
outstanding principal amount at any date of any Indebtedness issued with
original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such date. For purposes hereof, the "maximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value to be
determined in good faith by the board of directors of the issuer of such
Disqualified Capital Stock.
"Initial Escrow and Pledge Account" means an account established with the
Trustee pursuant to the terms of the Pledge and Escrow Agreement for the
deposit of the net proceeds realized from the sale of the Notes, together with
the Additional Escrow Amount; and after the Merger such account will hold the
Pledged Securities purchased by the Issuer with a portion of the net proceeds
from the Offering.
"Interest Rate Protection Obligations" means, with respect to any Person,
the Obligations of such Person under (a) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (b) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates. For purposes of the Indenture, the amount of such
obligations shall be the amount determined in respect thereof as of the end of
the then most recently ended fiscal quarter of such Person, based on the
assumption that such obligation had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
obligation provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligations shall be the net amount so determined, plus any premium due upon
default by such Person.
"Investment" by any Person in any other Person means (without
duplication) (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such Person (whether for cash, property, services, securities or
otherwise) of capital stock, bonds, notes, debentures, partnership or other
ownership interests or other securities of such other Person or any agreement
to make any such acquisition; (b) the making by such Person of any deposit
with, or advance, loan or other extension of credit to, such other Person
(including the purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such property to
such other Person) or any commitment to make any such advance, loan or
extension; (c) the entering into by such Person of any guarantee of, or other
contingent obligation with respect to, Indebtedness or other liability of such
other Person; (d) the making of any capital contribution by such Person to such
other Person; and (e) the designation by the Board of Directors of the Issuer
of any Person to be an Unrestricted Subsidiary. For purposes of the "--
Limitation on Restricted Payments" covenant, (i) "Investment" shall include and
be valued at the fair market value of the net assets of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is
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designated a Restricted Subsidiary and (ii) the amount of any Investment shall
be equal to the fair market value of such Investment plus the fair market value
of all additional Investments by the Issuer or any of its Restricted
Subsidiaries at the time any such Investment is made; provided that, for
purposes of this sentence, the fair market value of net assets shall be as
determined in the reasonable judgment of the board of directors of the Issuer.
"Investment Equity" has the meaning given to such term in the definition
of "Permitted Investment."
"Issue Date" means the time and date of the first issuance of the Notes
under the Indenture.
"Issuer" means Centennial Cellular Operating Co. LLC, a limited liability
company organized under the laws of Delaware, until a successor Person shall
have become such pursuant to the applicable provisions of the Indenture, and
thereafter "Issuer" shall mean such successor Person.
"Lien" means any mortgage or deed of trust, lien, pledge, charge,
privilege, security interest, assignment, deposit, arrangement, easement,
hypothecation, claim, preference, priority or other encumbrance of any kind,
whether or not filed, recorded or otherwise perfected under applicable law with
respect to property of any kind (including any conditional sale, capital lease
or other title retention agreement and any lease deemed to constitute a
security interest and any option or other agreement to give any security
interest), real or personal, movable or immovable, now owned or hereafter
acquired.
"Marketable U.S. Securities" means: (i) Government Securities; (ii) any
time deposit account, money market deposit and certificate of deposit maturing
not more than 270 days after the date of acquisition issued by, or time deposit
of, an Eligible Institution; (iii) commercial paper maturing not more than 270
days after the date of acquisition issued by a corporation (other than an
Affiliate of the Issuer) with a rating, at the time as of which any investment
therein is made, of "P-1" or higher according to Moody's Investors Service,
Inc., "A-1" or higher according to Standard & Poor's Ratings Group or "A-1" or
higher according to Duff & Phelps Credit Rating Co. (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)); (iv) any banker's
acceptances or money market deposit accounts issued or offered by an Eligible
Institution; (v) repurchase obligations with a term of not more than 7 days for
Government Securities entered into with an Eligible Institution; and (vi) any
fund investing exclusively in investments of the types described in clauses (i)
through (v) above.
"Maturity Date" means, when used with respect to any Note, the date
specified on such Note as the fixed date on which the final installment of
principal of such Note is due and payable (in the absence of any acceleration
thereof pursuant to the provisions of the Indenture regarding acceleration of
Indebtedness or any Change of Control Offer or Asset Sale Offer).
"Merger" means the merger of Centennial and CCW Acquisition Corp. pursuant
to the Merger Agreement.
"Merger Date" means the date the Merger is consummated.
"Merger Agreement" means the Merger Agreement, dated as of July 2, 1998,
between Centennial and CCW Acquisition Corp., as amended.
"Mezzanine Financing" means the $180 million in aggregate principal amount
of Senior Subordinated Notes due 2009 issued by Centennial to WCAS Capital
Partners III, L.P., dated the date of the closing of the Merger and in
substantially the form attached to the Indenture.
"Minority Cellular Investment Interests" means limited partnership or
other equity interests held directly or indirectly by the Issuer in cellular
telephony providers which are not Subsidiaries of or otherwise controlled
(directly or indirectly) by the Issuer in existence on the Merger Date.
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"Net Cash Proceeds" means the aggregate amount of cash and Cash
Equivalents received by the Issuer and its Restricted Subsidiaries in respect
of an Asset Sale (including upon the conversion to cash and Cash Equivalents of
(A) any note or installment receivable at any time, or (B) any other property
as and when any cash and Cash Equivalents are received in respect of any
property received in an Asset Sale but only to the extent such cash and Cash
Equivalents are received within one year after such Asset Sale), less the sum
of (i) all out-of-pocket fees, commissions and other expenses incurred in
connection with such Asset Sale, including the amount (estimated in good faith
by the Board of Directors of the Issuer) of income, franchise, sales and other
applicable taxes required to be paid by the Issuer or any Restricted Subsidiary
of the Issuer in connection with such Asset Sale and (ii) the aggregate amount
of cash so received which is used to retire any existing Senior Indebtedness of
the Issuer or Indebtedness of its Restricted Subsidiaries, as the case may be,
which is required to be repaid in connection with such Asset Sale or is secured
by a Lien on the property or assets of the Issuer or any of its Restricted
Subsidiaries, as the case may be.
"Net Proceeds" means the aggregate net proceeds (including the fair
market value of non-cash proceeds constituting equipment or other assets of a
type generally used in a Related Business an amount reasonably determined by
the Board of Directors of the Issuer for amounts under $10,000,000 and by a
financial advisor or appraiser of national reputation for equal or greater
amounts) received by a Person from the sale of Qualified Capital Stock (other
than to a Subsidiary of such Person) after payment of out-of-pocket expenses,
commissions and discounts incurred and net of taxes paid or payable in
connection therewith.
"Obligation" means any principal, premium, interest (including interest
accruing subsequent to a bankruptcy or other similar proceeding whether or not
such interest is an allowed claim enforceable against the Issuer in a
bankruptcy case under federal bankruptcy law), penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable
pursuant to the terms of the documentation governing any Indebtedness.
"Operating Cash Flow" of any Person means (a), with respect to any
period, the Consolidated Net Income of such Person for such period, plus (b)
the sum, without duplication (and only to the extent such amounts are deducted
from net revenues in determining such Consolidated Net Income), of (i) the
provisions for income taxes for such period for such Person and its
consolidated Restricted Subsidiaries, (ii) depreciation, amortization and other
non-cash charges of such Person and its consolidated Restricted Subsidiaries
and (iii) Consolidated Interest Expense of such Person for such period,
determined, in each case, on a consolidated basis for such Person and its
consolidated Restricted Subsidiaries in accordance with GAAP, plus (c) any
fees, expenses or charges related to any equity offering, Permitted Investment,
acquisition or recapitalization or Indebtedness permitted to be incurred by the
Indenture (in each case, whether or not successful) and fees, expenses or
charges related to the Recapitalization and the financings thereof (including
fees to Welsh Carson and Blackstone), less (d) the amount of all cash payments
made during such period by such Person and its Restricted Subsidiaries to the
extent such payments relate to non-cash charges that were added back in
determining Operating Cash Flow for such period or for any prior period.
"Pari Passu Indebtedness" means (a) with respect to the Issuer, any
Indebtedness of the Issuer that is pari passu in right of payment to the Notes
(b) with respect to Finance Corp., any Indebtedness of Finance Corp. that is
pari passu in right of payment to the Notes and (c) with respect to any
Guarantee, Indebtedness which ranks pari passu in right of payment to such
Guarantee.
"Permitted Holders" means Welsh Carson and Blackstone.
"Permitted Investment" means (i) Investments in Cash Equivalents; (ii)
Investments in the Issuer or a Restricted Subsidiary; (iii) Investments in a
Person substantially all of whose assets are of a type generally used in a
Related Business (an "Acquired Person") if, as a result of such Investments,
(A) the Acquired Person immediately thereupon becomes a Restricted Subsidiary
or (B) the Acquired Person immediately thereupon either (1) is merged or
consolidated with or into the Issuer or any of its Restricted Subsidiaries and
the surviving Person is the Issuer or a Restricted Subsidiary or (2) transfers
or conveys all or substantially all of its
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assets to, or is liquidated into, the Issuer or any of its Restricted
Subsidiaries; (iv) Investments in accounts and notes receivable acquired in the
ordinary course of business; (v) any securities received in connection with an
Asset Sale and any Investment with the Net Cash Proceeds from any Asset Sale in
Capital Stock of a Person, all or substantially all of whose assets are of a
type used in a Related Business, that complies with the "--Limitation on Asset
Sales and Sales of Subsidiary Stock" covenant; (vi) any guarantee issued by a
Restricted Subsidiary incurred in compliance with the Indenture; (vii) advances
and prepayments for asset purchases in the ordinary course of business in a
Related Business of the Issuer or a Restricted Subsidiary; (viii) customary
loans or advances made in the ordinary course of business to officers,
directors or employees of the Issuer or any of its Restricted Subsidiaries for
travel, entertainment, and moving and other relocation expenses, (ix) advances
to employees not in excess of $1 million outstanding at any one time, in the
aggregate; (x) any Investment acquired by the Issuer or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or accounts receivable
held by the Issuer or any such Restricted Subsidiary in connection with or as a
result of a bankruptcy, workout, reorger of such other Investment or accounts
receivable or (b) as a result of a foreclosure by the Issuer or any of its
Restricted Subsidiaries with respect to any secured Investment or other
transfer of title with respect to any secured Investment in default; (xi)
Interest Rate Protection Obligations or Currency Hedging Agreements permitted
under clauses (ix) or (x) of the "Limitation on Incurrence of Additional
Indebtedness" covenant; (xii) Investments the payment for which consists of
Qualified Capital Stock of the Issuer ("Investment Equity"); provided, however,
that the issuance of such Qualified Capital Stock equity interests will not
increase the amount available for Restricted Payments under the "Limitation on
Restricted Payments" covenant; (xiii) Investments in Permitted Joint Ventures
which in the aggregate at any one time outstanding do not exceed $10 million;
and (xiv) any Investment in a Related Business (including in an Unrestricted
Subsidiary) having an aggregate fair market value, taken together with all
other Investments made pursuant to this clause (xiv) that are at that time
outstanding, which does not exceed the greater of (x) $20 million or (y) 4% of
Total Assets at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value).
"Permitted Joint Venture" means, as applied to any Person, any other
Person engaged in a Related Business (a) over which such Person is responsible
(either directly or through a services agreement) for day-to-day operations or
otherwise has operational and managerial control of such other Person or (b) of
which more than forty percent (40%) of the outstanding Voting Stock (other than
directors' qualifying shares) of such other Person in the case of a
corporation, or more than forty percent (40%) of the outstanding ownership
interests of such other Person, in the case of an entity other than a
corporation, is at the time owned directly or indirectly by such Person.
"Person" means any corporation, individual, joint stock company, joint
venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality or
other entity.
"Pledge and Escrow Agreement" means the Pledge and Escrow Agreement,
dated as of the date of the Indenture, among the Issuer, Finance Corp., the
Trustee and the collateral agents named therein.
"Pledged Securities" means the securities purchased by the Issuer with a
portion of the net proceeds from the Offering to be deposited in the Escrow and
Pledge Account.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Public Equity Offering" means an underwritten offer and sale of common
stock (which is Qualified Capital Stock) of the Issuer or Centennial with
aggregate proceeds of at least $50 million pursuant to a registration statement
that has been declared effective by the Commission pursuant to the Securities
Act (other
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than a registration statement on Form S-8 (or any successor form covering
substantially the same transactions), S-4 (or any successor form covering
substantially the same transactions), or otherwise relating to equity
securities issuable under any employee benefit plan of such corporate entity).
"Purchase Money Indebtedness" means any Indebtedness of the Issuer or its
Restricted Subsidiaries which is secured by a Lien on assets related to the
business of the Issuer or its Restricted Subsidiaries and any additions and
accessions thereto, which are purchased by the Issuer or its Restricted
Subsidiaries at any time after the Notes are issued; provided that (i) the
security agreement or conditional sales or other title retention contract
pursuant to which the Lien on such assets is created (collectively a "Purchase
Money Security Agreement") shall be entered into within 90 days after the
purchase or substantial completion of the construction of such assets and
shall at all times be confined solely to the assets so purchased without
further recourse to either the Issuer or any of its Restricted Subsidiaries or
acquired, any additions and accessions thereto and any proceeds therefrom,
(ii) at no time shall the aggregate principal amount of the outstanding
Indebtedness secured thereby be increased, except in connection with the
purchase of additions and accessions thereto and except in respect of fees and
other obligations in respect of such Indebtedness and (iii) (A) the aggregate
outstanding principal amount of Indebtedness secured thereby (determined on a
per asset basis in the case of any additions and accessions) shall not at the
time such Purchase Money Security Agreement is entered into exceed 100% of the
purchase price to the Issuer or its Restricted Subsidiaries of the assets
subject thereto or (B) the Indebtedness secured thereby shall be with recourse
solely to the assets so purchased or acquired, any additions and accessions
thereto and any proceeds therefrom.
"Qualified Capital Stock" means any Capital Stock of a Person that is not
Disqualified Capital Stock.
"Recapitalization" means the Merger and the transactions to be
consummated pursuant to the Recapitalization Documents.
"Recapitalization Documents" means the Merger Agreement, the Credit
Facility, the Indenture, the documentation governing the Mezzanine Financing,
and the ancillary documents related thereto.
"Reference Period" with regard to any Person means the last four full
fiscal quarters of such Person for which financial information (which the
Issuer shall use its best efforts to compile in a timely manner) in respect
thereof is available ended on or immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Notes or the
Indenture.
"Reference Treasury Dealer" means each of Merrill Lynch, Pierce, Fenner &
Smith Incorporated and three other primary U.S. Government securities dealers
in The City of New York to be selected by the Issuer, and their respective
successors.
"Refinancing Indebtedness" means any Indebtedness of the Issuer or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Issuer or such Restricted Subsidiary (other than
intercompany Indebtedness); provided that: (i) the principal amount (or
accreted value, if applicable) of such Refinancing Indebtedness does not
exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of premium and reasonable
expenses incurred in connection therewith); (ii) such Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life equal to or greater than the Weighted Average Life of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Notes, such Refinancing Indebtedness is subordinated in right of payment to,
the Notes on terms at least as favorable to the holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness
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is incurred either by the Issuer or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Related Business" means any business related to, or complementary to,
the ownership, development, operation or acquisition of communications systems
as determined by the Board of Directors of the Issuer.
"Related Person" means, with respect to any Person, (i) any Affiliate of
such Person or any spouse, immediate family member, or other relative who has
the same principal residence of any Affiliate of such Person and (ii) any trust
in which any Person described in clause (i) above, has a beneficial interest.
"Restricted Payment" means, with respect to any Person, (i) any dividend
or other distribution on shares of Capital Stock of such Person or any
Restricted Subsidiary of such Person, (ii) any payment on account of the
purchase, redemption or other acquisition or retirement for value in whole or
in part, of any shares of Capital Stock of such Person, any entity which
controls such Person or any Restricted Subsidiary of such Person, which Capital
Stock is held by Persons other than such Person or any of its Restricted
Subsidiaries, or options, warrants or other rights to acquire such Capital
Stock, (iii) any defeasance, redemption, repurchase or other acquisition or
retirement for value, in whole or in part, of any Indebtedness of such Person
(other than the scheduled repayment thereof at maturity and any mandatory
redemption or mandatory repurchase thereof pursuant to the terms thereof) by
such Person or a Subsidiary of such Person that is subordinate in right of
payment to the Notes (other than in exchange for Refinancing Indebtedness
permitted to be Incurred under the Indenture and except for any such
defeasance, redemption, repurchase, other acquisition or payment in respect of
Indebtedness held by any Restricted Subsidiary) and (iv) any Investment (other
than a Permitted Investment); provided, however, that the term "Restricted
Payment" does not include (i) any dividend, distribution or other payment on
shares of Capital Stock of the Issuer or any Restricted Subsidiary solely in
shares of Qualified Capital Stock or in options, warrants or other rights to
acquire such Qualified Capital Stock), (ii) any dividend, distribution or other
payment to the Issuer, or any dividend to any of its Restricted Subsidiaries,
by any of its Subsidiaries, (iii) any dividend, distribution or other payment
by any Restricted Subsidiary on shares of its Capital Stock that is paid pro
rata to all holders of such Capital Stock and (iv) the purchase, redemption or
other acquisition or retirement for value of shares of Capital Stock of any
Restricted Subsidiary held by Persons other than the Issuer or any of its
Restricted Subsidiaries.
"Restricted Subsidiary" means any Subsidiary of the Issuer that has not
been designated by the board of directors of the Issuer by board resolution
delivered to the Trustee as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "Certain Covenants--Limitation on
Unrestricted Subsidiaries."
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated by the Commission
thereunder.
"Significant Restricted Subsidiary" means one or more Restricted
Subsidiaries having an aggregate net book value of assets in excess of 5% of
the net book value of the assets of the Issuer and its Restricted Subsidiaries
on a consolidated basis.
"Stated Maturity" means the date fixed for the payment of any principal
or premium pursuant to the Indenture and the Notes, including the Maturity
Date, upon redemption, acceleration, Asset Sale Offer, Change of Control Offer
or otherwise.
"Strategic Equity Investor" means any Person which is (or a controlled
Affiliate of any Person which is) engaged in the ownership, development,
operation or acquisition of communications systems and which, as of the last
available annual or quarterly financial statements, has Total Common Equity of
at least $1.0 billion.
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"Strategic Equity Offering" means an offer or sale of Common Stock or
Preferred Stock (other than Disqualified Capital Stock) of the Issuer, with
aggregate proceeds of at least $50.0 million to a Strategic Equity Investor
other than in connection with or after the occurrence of a Change of Control.
The consummation of the transactions contemplated by the Merger shall not be
deemed a Strategic Equity Offering.
"Subordinated Indebtedness" means Indebtedness of the Issuer or a
Guarantor subordinated in right of payment to the Notes or a Guarantee, as the
case may be.
"Subsequent Collateral Investments Account" means an account established
in the United States with the Trustee pursuant to the terms of the Pledge and
Escrow Agreement for the deposit of the Pledged Securities purchased by the
Issuer with a portion of the net proceeds from the Offering.
"Subsidiary" with respect to any Person, means (i) a corporation at least
50% of whose Capital Stock with voting power, under ordinary circumstances, to
elect directors is at the time, directly or indirectly, owned by such Person,
by such Person and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person, or (ii) a partnership in which such Person or a
Subsidiary of such Person is, at the time, a general partner of such
partnership, or (iii) any Person in which such Person, one or more Subsidiaries
of such Person, or such Person and one or more Subsidiaries of such Person,
directly or indirectly, at the date of determination thereof has (x) at least a
fifty percent ownership interest or (y) the power to elect or direct the
election of the directors or other governing body of such Person.
"Total Assets" means the total assets of the Issuer and its Restricted
Subsidiaries shown on the Consolidated balance sheet of the Issuer and its
Restricted Subsidiaries prepared in accordance with GAAP as of the last day of
the immediately preceding fiscal quarter for which financial statements are
available.
"Total Common Equity" of any Person means, as of any date of
determination, the product of (i) the aggregate number of outstanding primary
shares of Common Stock of such Person on such day (which shall not include any
options or warrants on, or securities convertible or exchangeable into, shares
of Common Stock of such Person) and (ii) the average Closing Price of such
Common Stock over the 20 consecutive Trading Days immediately preceding such
day. If no such Closing Price exists with respect to shares of any such class,
the value of such shares for purposes of clause (ii) of the preceding sentence
shall be determined by the Board of Directors of Centennial or the Issuer in
good faith and evidenced by a resolution of the Board of Directors filed with
the Trustee.
"Trading Day," with respect to a securities exchange or automated
quotation system, means a day on which such exchange or system is open for a
full day of trading.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price
for such redemption date.
"Unrestricted Subsidiary" means any Subsidiary of the Issuer (other than
a Guarantor) designated as such pursuant to and in compliance with the covenant
described under "--Certain Covenants--Limitation on Unrestricted Subsidiaries."
"Voting Stock" means, with respect to a Person, Capital Stock of such
Person having generally the right to vote in the election of a majority of the
directors of such Person or having generally the right to vote with respect to
the organizational matters of such Person.
"Weighted Average Life" means, when applied to any Indebtedness at any
date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining
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installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Welsh Carson" means Welsh, Carson, Anderson & Stowe VIII, L.P. and
affiliates of the foregoing that are directly or indirectly controlling or
controlled by Welsh, Carson, Anderson & Stowe VIII, L.P. or under direct or
indirect common control with Welsh, Carson, Anderson & Stowe VIII, L.P.
Book-Entry Delivery And Form
The Global Note. The certificates representing the Old Notes were issued,
and the certificates representing the New Notes will be issued, in fully
registered form, without coupons. The Old Notes are represented by one or more
permanent global certificates in definitive, fully registered form without
interest coupons in an aggregate amount of $370 million (the "Initial Global
Note"). Except as described in the next paragraph, the New Notes initially will
be represented by one or more permanent global certificates in definitive,
fully registered form (the "Global Notes") and will be deposited with, or on
behalf of, the DTC (the "Depositary"), and registered in the name of Cede &
Co., as the DTC's nominee or will remain in the custody of the Trustee pursuant
to a FAST Balance Certificate Agreement between the DTC and the Trustee. If any
holder of Old Notes whose interest in such Old Notes is represented by the
Initial Global Note fails to tender in the Exchange Offer, the Company may
issue and deliver to such holder a separate certificate representing such
holder's Old Notes in registered form without interest coupons.
Certain Book-Entry Procedures for Global Notes. The descriptions of the
operations and procedures of DTC that follow are provided solely as a matter of
convenience. These operations and procedures are solely within the control of
the respective settlement systems and are subject to change by them from time
to time. The Issuer takes no responsibility for these operations and procedures
and urges investors to contact DTC or its participants directly to discuss
these matters.
DTC has advised the Issuer as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants ("participants") and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Pursuant to procedures established by DTC, (i) upon the issuance of the
Initial Global Certificate, DTC credited, on its internal system, the
respective principal amount of the individual beneficial interests represented
by such Global Notes to the accounts with DTC of the participants through which
such interests are held and (ii) ownership of beneficial interest in the Global
Notes are shown on, and the transfer of that ownership is effected only
through, records maintained by DTC or its nominees (with respect to interest of
participants) and the records of participants and indirect participants (with
respect to interests of persons other than participants).
As long as DTC, or its nominee, is the registered Holder of a Global
Note, DTC or such nominee, as the case may be, will be considered the sole
owner and Holder of the Notes represented by such Global Note for all purposes
under the Indenture and the Notes. Except in the limited circumstances
described below, owners of beneficial interests in a Global Note will not be
entitled to have any portions of such Global Note registered in their names,
and will not receive or be entitled to receive physical delivery of Notes in
definitive
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form and will not be considered the owners or Holders of the Global Note (or
any Notes represented thereby) under the Indenture or the Notes.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to such persons may
be limited to that extent. Because DTC can act only on behalf of its
participants, which in turn act on behalf of indirect participants and certain
banks, the ability of a person having beneficial interests in a Global Note to
pledge such interest to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Payments of the principal of, premium, if any, and interest on Global
Notes will be made to DTC or its nominee as the registered owner thereof.
Neither the Issuer, the Trustee nor any of their respective agents will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interest in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment
of principal of, premium, if any, or interest in respect of a Global Note
representing any Notes held by it or its nominee, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note for such Notes as shown
on the records of DTC or its nominee. The Issuer also expects that payments by
participants to owners of beneficial interests in such Global Note held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in "street name." Such payments will be the responsibility
of such participants. None of the Issuer or the Trustee will be liable for any
delay by DTC or any of its participants in identifying the beneficial owners of
the Notes, and the Issuer and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the Notes for all purposes.
Interests in the Global Notes will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Issuer that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more participants to
whose accounts with DTC interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the
right to exchange the Global Notes for Notes in certificated form, and to
distribute such Notes to its participants.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfer of beneficial ownership interests in the Global Notes among
participants of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
None of the Issuer, the Trustee nor any of their respective agents will have
any responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing its operations, including maintaining, supervising or reviewing the
records relating to or payments made on account of, beneficial ownership
interests in Global Notes.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
consequences of the exchange of Old Notes for New Notes as of the date hereof.
The discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in federal income tax
consequences different from those discussed below. Persons considering the
exchange of Old Notes for New Notes should consult their own tax advisors
concerning the federal income tax consequences in light of their particular
situations as well as any consequences arising under the laws of any other
taxing jurisdiction.
Exchange of Notes
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an "exchange" for federal income tax purposes, because
the New Notes should not be considered to differ materially in kind or extent
from the Old Notes. Rather, the New Notes received by a holder of Old Notes
should be treated as a continuation of the Old Notes in the hands of such
holder. As a result, there should be no federal income tax consequences to a
holder exchanging Old Notes for New Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 90 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. In
addition, for a period of 90 days after the Expiration Date, all dealers
effecting transactions in the New Notes may be required to deliver a
Prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any such resale of New Notes
and any commissions or concessions received by any such person may be deemed to
be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The Company has no
arrangement or understanding with any broker or dealer to distribute the New
Notes received in the Exchange Offer.
For a period of 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal.
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LEGAL MATTERS
The validity of the New Notes will be passed upon for the Obligors by
Reboul, MacMurray, Hewitt, Maynard & Kristol, New York, New York.
EXPERTS
The financial statements as of May 31, 1998 and 1997 and for each of the
three years in the period ended May 31, 1998 included in this prospectus and
the related financial statement schedules included elsewhere in the
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
registration statement, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
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CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Six Months Ended November 30, 1998 and 1997 (Unaudited)
Consolidated Balance Sheets, November 30, 1998 (Unaudited) and May 31,
1998...................................................................... F-2
Consolidated Statements of Operations for the Three Months Ended November
30, 1998 and 1997 and for the Six Months Ended November 30, 1998 and 1997
(Unaudited)............................................................... F-3
Consolidated Statements of Common Stockholders' Equity for the periods
ended November 30, 1998 (Unaudited) and May 31, 1998...................... F-4
Consolidated Statements of Cash Flows for the Six Months Ended November 30,
1998 and 1997 (Unaudited) ................................................ F-5
Notes to Consolidated Financial Statements for the Six Months Ended
November 30, 1998 and 1997 (Unaudited).................................... F-6
Fiscal Years Ended May 31, 1998, 1997 and 1996
Independent Auditors' Report............................................... F-15
Consolidated Balance Sheets, May 31, 1998 and 1997......................... F-16
Consolidated Statements of Operations for the Years Ended May 31, 1998,
1997 and 1996............................................................. F-17
Consolidated Statements of Common Stockholders' Equity for the Years Ended
May 31, 1998, 1997 and 1996............................................... F-18
Consolidated Statements of Cash Flows for the Years Ended May 31, 1998,
1997 and 1996............................................................. F-19
Notes to Consolidated Financial Statements for the Years Ended May 31,
1998, 1997 and 1996....................................................... F-20
Financial Statement Schedule:
Independent Auditors' Report............................................... S-1
Schedule I--Condensed Financial Information of Registrant as of May 31,
1998 and 1997 and for the Years Ended May 31, 1998, 1997 and 1996....... S-2
</TABLE>
F-1
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
------------ ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 32,516 $ 14,620
Accounts receivable, less allowance for doubtful ac-
counts of $2,945 and $2,693, respectively............ 45,115 37,178
Inventory--phones and accessories..................... 9,287 7,304
Prepaid expenses and other current assets............. 3,148 548
--------- ---------
TOTAL CURRENT ASSETS............................... 90,066 59,650
PROPERTY, PLANT AND EQUIPMENT--net..................... 272,154 263,661
EQUITY INVESTMENTS IN WIRELESS SYSTEMS--net............ 78,178 87,634
DEBT ISSUANCE COSTS, less accumulated amortization of
$7,198 and $6,097, respectively....................... 7,450 8,538
CELLULAR TELEPHONE LICENSES, less accumulated
amortization of $288,089 and $263,633, respectively... 213,235 235,508
PERSONAL COMMUNICATIONS SERVICES LICENSE, less
accumulated amortization of $3,109 and $2,324,
respectively.......................................... 59,650 60,435
GOODWILL, less accumulated amortization of $28,563 and
$27,016, respectively................................. 121,039 124,533
OTHER ASSETS--net...................................... 8,072 7,458
--------- ---------
TOTAL.............................................. $ 849,844 $ 847,417
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................... $ 9,153 $ 9,805
Accrued expenses and other current liabilities........ 71,486 64,445
Payable to affiliate.................................. 518 435
--------- ---------
TOTAL CURRENT LIABILITIES.......................... 81,157 74,685
LONG-TERM DEBT......................................... 507,000 510,000
DEFERRED LIABILITY..................................... -- 2,200
DEFERRED INCOME TAXES.................................. 29,221 26,584
PREFERRED STOCK:
Convertible redeemable preferred stock (at aggregate
liquidation value) par value $.01 per share, 102,187
shares authorized; issued and outstanding 102,187
shares (redemption value of $1,823.00 per share)..... 186,287 186,287
Second series convertible redeemable preferred stock
(at aggregate liquidation value) par value $.01 per
share, 3,978 shares authorized; issued and
outstanding 3,978 shares (redemption value of
$1,823.00 per share)................................. 7,252 7,252
Senior preferred stock, par value $.01 per share, div-
idend rate 14%, 250,000 shares authorized, none is-
sued................................................. -- --
Additional preferred stock, par value $.01 per share,
authorized 10,000,000 shares, 3,978 shares issued as
second series convertible redeemable preferred
stock................................................ -- --
COMMON STOCKHOLDERS' EQUITY:
Common stock par value $.01 per share:
Class A, 1 vote per share, 100,000,000 shares
authorized; issued, 16,717,607 and 16,716,683
shares, respectively; and outstanding 15,085,398 and
15,084,474 shares, respectively...................... 167 167
Class B, 15 votes per share, 50,000,000 shares autho-
rized, issued and outstanding 10,544,113 shares...... 105 105
Additional paid-in capital............................ 349,802 358,018
Accumulated deficit................................... (277,895) (284,238)
--------- ---------
72,179 74,052
Less: Cost of 1,632,209, Class A common shares in
treasury............................................. (30,614) (30,614)
Deferred compensation.............................. (2,638) (3,029)
--------- ---------
TOTAL COMMON STOCKHOLDERS' EQUITY...................... 38,927 40,409
--------- ---------
TOTAL.............................................. $ 849,844 $ 847,417
========= =========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Service revenue--
Domestic................ $ 57,947 $ 44,993 $ 110,911 $ 88,700
Service revenue--Puerto
Rico.................... 27,534 12,256 50,761 19,629
Equipment sales.......... 1,671 1,326 2,926 2,435
---------- ---------- ---------- ----------
87,152 58,575 164,598 110,764
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of equipment sold--
Domestic................ 4,322 4,462 8,203 8,375
Cost of equipment sold--
Puerto Rico............. 607 102 1,259 262
Cost of services--
Domestic................ 6,386 6,406 12,490 12,133
Cost of services--Puerto
Rico.................... 5,356 4,099 9,634 6,254
Selling, general and
administrative--
Domestic................ 17,072 15,020 31,877 27,200
Selling, general and
administrative--Puerto
Rico.................... 10,474 6,701 19,565 12,485
Depreciation and
amortization--Domestic.. 20,744 20,249 41,499 40,223
Depreciation and
amortization--Puerto
Rico.................... 11,995 7,469 23,044 12,557
---------- ---------- ---------- ----------
76,956 64,508 147,571 119,489
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS).... 10,196 (5,933) 17,027 (8,725)
---------- ---------- ---------- ----------
INCOME FROM EQUITY
INVESTMENTS............... 3,841 3,246 7,490 7,452
GAIN ON SALE OF ASSETS..... 55 7 9,611 12
INTEREST EXPENSE--NET--
DOMESTIC.................. 7,951 8,077 16,228 15,999
INTEREST EXPENSE--NET--
PUERTO RICO............... 2,858 2,460 5,712 4,579
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAX EXPENSE (BENEFIT) AND
MINORITY INTEREST......... 3,283 (13,217) 12,188 (21,839)
INCOME TAX EXPENSE
(BENEFIT)................. 2,828 (3,712) 5,836 (5,683)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
MINORITY INTEREST........ 455 (9,505) 6,352 (16,156)
MINORITY INTEREST IN LOSS
(INCOME) OF SUBSIDIARIES.. 233 (121) (9) (256)
---------- ---------- ---------- ----------
NET INCOME (LOSS)....... $ 688 $ (9,626) $ 6,343 $ (16,412)
========== ========== ========== ==========
DIVIDEND ON PREFERRED
STOCK..................... $ 4,113 $ 4,113 $ 8,226 $ 8,226
========== ========== ========== ==========
LOSS APPLICABLE TO COMMON
SHARES.................... $ (3,425) $ (13,739) $ (1,883) $ (24,638)
========== ========== ========== ==========
LOSS PER COMMON SHARE--
BASIC AND DILUTED......... $ (.13) $ (.52) $ (.07) $ (.93)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD......... 25,630,000 26,340,000 25,629,000 26,601,000
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------
Class A Class B Additional Shareholder
------------------ ------------------ Paid-In Treasury Note Deferred Accumulated
Shares Dollars Shares Dollars Capital Stock Receivable Compensation Deficit Total
---------- ------- ---------- ------- ---------- -------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June
1, 1997........ 16,492,884 $165 10,544,113 $105 $369,704 $ (1,801) $(3,000) $ -- $(252,291) $112,882
Common stock
issued in
conjunction
with incentive
plans.......... 223,799 2 -- -- 4,765 -- -- (3,029) -- 1,738
Preferred stock
dividends...... -- -- -- -- (16,451) -- -- -- -- (16,451)
Treasury stock
purchases...... -- -- -- -- -- (28,813) -- -- -- (28,813)
Repayment of
shareholder
note
receivable..... -- -- -- -- -- -- 3,000 -- -- 3,000
Net loss........ -- -- -- -- -- -- -- -- (31,947) (31,947)
---------- ---- ---------- ---- -------- -------- ------- ------- --------- --------
Balance at May
31, 1998....... 16,716,683 167 10,544,113 105 358,018 (30,614) -- (3,029) (284,238) 40,409
Common stock
issued in
connection with
incentive
plans.......... 924 10 10
Preferred stock
dividends...... (8,226) (8,226)
Amortization of
deferred
compensation... 391 391
Net income...... 6,343 6,343
---------- ---- ---------- ---- -------- -------- ------- ------- --------- --------
Balance at
November 30,
1998--
(unaudited).... 16,717,607 $167 10,544,113 $105 $349,802 $(30,614) $ -- $(2,638) $(277,895) $ 38,927
========== ==== ========== ==== ======== ======== ======= ======= ========= ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
November 30, November 30,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others........... $ 179,736 $120,982
Cash paid to suppliers, employees and governmental
agencies........................................... (101,783) (74,698)
Interest paid....................................... (21,688) (20,281)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 56,265 26,003
--------- --------
INVESTING ACTIVITIES:
Proceeds from sale of equipment..................... 438 --
Capital expenditures................................ (48,765) (71,963)
Acquisition of other assets......................... (2,200) (6,076)
Acquisition, disposition and exchange of wireless
telephone systems.................................. 10,500 --
Distributions received from equity investments...... 6,638 8,693
Capital contributed to equity investments........... -- (65)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES.............. (33,389) (69,411)
--------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt........................ 7,000 51,500
Repayment of long-term debt......................... (10,000) (5,000)
Debt issuance costs paid............................ -- (152)
Prepaid transaction costs........................... (1,990) --
Proceeds from issuance of Class A Common Stock...... 10 126
Dividends paid...................................... -- (8,226)
Treasury stock purchases............................ -- (21,717)
--------- --------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES........................................ (4,980) 16,531
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... 17,896 (26,877)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 14,620 43,415
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 32,516 $ 16,538
========= ========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income (loss)................................... $ 6,343 $(16,412)
--------- --------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization....................... 64,543 52,780
Minority interest in income of subsidiaries......... 9 256
Deferred income taxes--increase (decrease).......... 5,836 (7,456)
Equity in undistributed earnings of investee compa-
nies............................................... (7,490) (7,452)
Gain on sale of assets.............................. (9,611) --
Other............................................... 1,491 1,223
Change in assets and liabilities net of effects of
acquired wireless telephone systems:
Accounts receivable--(increase)..................... (7,796) (7,183)
Prepaid expenses and other current assets--(in-
crease)............................................ (2,604) (2,970)
Accounts payable and accrued expenses--increase..... 4,427 11,770
Customer deposits and prepayments--increase......... 1,117 1,447
--------- --------
Total adjustments.................................. 49,922 42,415
--------- --------
Net cash provided by operating activities............ $ 56,265 $ 26,003
========= ========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands except share data)
Note 1. Interim Financial Statements
In the opinion of management, the accompanying interim unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated
financial position of Centennial Cellular Corp. and Subsidiaries (the
"Company") as of November 30, 1998 and the results of its consolidated
operations and cash flows for the periods ended November 30, 1998 and 1997.
These financial statements do not include all disclosures required by
generally accepted accounting principles. The statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's May 31, 1998 Annual Report on Form 10-K, which
includes a summary of significant accounting policies and other disclosures.
The consolidated balance sheet at May 31, 1998 is audited.
Reclassifications
Certain prior period balances have been reclassified to conform with the
current period presentation.
Note 2. Agreement and Plan of Merger
On November 29, 1998, the Company and CCW Acquisition Corp.
("Acquisition"), a Delaware corporation organized at the direction of Welsh,
Carson, Anderson & Stowe VIII, L.P. ("WCAS VIII"), executed an Amendment to
the Agreement and Plan of Merger, dated as of July 2, 1998 (as amended, the
"Merger Agreement"), providing for the merger of Acquisition with and into
Centennial (the "Merger"). The Company expects to close the Merger in January
1999. Centennial will continue as the surviving corporation (the "Surviving
Corporation") in the Merger.
Subject to the effects of proration, in the Merger, outstanding shares
of Class A Common Stock ("Class A Common Stock") will be converted into the
right to receive $41.50 per share in cash or to receive common shares of the
Surviving Corporation (the "Surviving Corporation Shares") representing up to
7.1% of the Surviving Corporation Shares outstanding immediately after the
Merger. Outstanding shares of Class B Common Stock ("Class B Common Stock")
will be converted into the right to receive $41.50 per share in cash;
provided, that if the aggregate number of Surviving Corporation Shares elected
to be received by holders of Class A Common Stock is less than 7.1% of the
common shares of the Surviving Corporation outstanding immediately after the
Merger, then a number of shares of Class B Common Stock equal to a portion of
such shortfall will be converted into Surviving Corporation Shares on a pro
rata basis with shares of Class A Common Stock with respect to which an
election to receive Surviving Corporation Shares has not been made. All
outstanding shares of Convertible Redeemable Preferred Stock (the "Convertible
Redeemable Preferred Stock") and Second Series Convertible Redeemable
Preferred Stock (the "Second Series Convertible Redeemable Preferred Stock"
and, together with the Convertible Redeemable Preferred Stock, the "Preferred
Stock") will be converted into the right to receive $41.50 per share in cash
on an as-converted basis.
Because existing holders of common stock of the Company must receive in
the Merger an amount of Surviving Corporation Shares equal to 7.1% of the
common shares of the Surviving Corporation outstanding immediately after the
effective time of the Merger (the "Effective Time"), holders of Class A Common
Stock who do not elect to receive any shares and holders of Class B Common
Stock may, due to proration, be required to receive some Surviving Corporation
Shares. In addition, holders of Class A Common Stock who elect to receive
shares may, due to proration, receive Surviving Corporation Shares and receive
cash in amounts which vary from the amounts such holders elected.
F-6
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Dollar amounts in thousands except share data)
Pursuant to the Merger Agreement, it is anticipated that each option to
purchase shares of Class A Common Stock (an "Option") granted under the
Company's 1991 Employee Stock Option Plan and Non-Employee/Officer Director
Option Plan, as amended (collectively, the "Option Plans") will be exercised or
canceled pursuant to its terms or canceled in exchange for a cash amount equal
to the difference between $41.50 and the exercise price of the Option prior to
the Effective Time. Each Option that is not exercised or canceled will remain
outstanding immediately following the Effective Time and such Options will be
subject to adjustment pursuant to the terms of the Option Plans.
In connection with the execution of the Merger Agreement, Century
Communications Corp. ("Century"), the Company's principal stockholder, entered
into a Stockholder Agreement, dated as of July 2, 1998, with Acquisition (the
"Stockholder Agreement"). Pursuant to the Stockholder Agreement, Century, which
has an approximate 33% Common Stock interest and, through its beneficial
ownership of approximately 81.2% of the Company's outstanding Class B Common
Stock, which has disproportionate votes per share (15 votes per share), an
approximate 74% voting interest in the Company as of November 30, 1998, agreed
to vote its shares in favor of the Merger so long as the Merger Agreement
remains in effect. Because Century agreed to approve the Merger by written
consent in lieu of meeting, and controls, on a fully diluted basis, more than a
majority of the outstanding votes of the Company required to approve the
Merger, no further vote was necessary to approve the Merger. On December 4,
1998, Century executed a written stockholder's consent in lieu of meeting to
approve the Merger.
Pursuant to the Merger Agreement, from the date of the Merger Agreement
to the Effective Time, the Company shall conduct its business in the ordinary
course consistent with past practice and shall use reasonable efforts to
preserve intact its business organizations and relationships with third parties
and to keep available the services of its present officers and key employees.
All statements contained in this Quarterly Report, including discussions of the
Company's plans and strategies, are subject to the Company's covenants
regarding the conduct of its business pending the Merger.
On December 8, 1998, the Company's Registration Statement on Form S-4
with respect to the issuance of common stock of the Company, as the Surviving
Corporation in the Merger, was declared effective by the Securities and
Exchange Commission (the "SEC"). Upon consummation of the Merger, such common
stock of the Surviving Corporation will be received by (i) current holders of
Class A Common Stock who make an effective election to receive such shares,
(ii) by current holders of Class A Common Stock with respect to which an
election to receive Surviving Corporation Shares has not been made who are
required to receive such shares due to proration or (iii) by current holders of
Class B Common Stock who are required to receive such shares due to proration.
A holder of Class A Common Stock electing to receive Surviving Corporation
Shares must make an election by 5:00 p.m., New York City time, on January 6,
1999.
The consummation of the Merger is subject to certain conditions,
including, without limitation, the funding of committed financing, which
financing is no longer subject to any material adverse change in relevant
capital markets.
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger, the Merger Agreement and the transactions
contemplated by the Merger Agreement shall be paid by the party incurring such
expenses. However, in the event the Company or Acquisition shall have
terminated the Merger Agreement as a result of either the Company entering into
a definitive written agreement with respect to any merger, consolidation or
other business combination, tender or exchange offer, recapitalization
F-7
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Dollar amounts in thousands except share data)
transaction, asset or stock purchase or other similar transaction with a third
party (an "Acquisition Transaction") or the Board of Directors of the Company
having withdrawn, modified or amended in any manner adverse to Acquisition or
the stockholders of Acquisition its approval or recommendation of the Merger
Agreement or approved, recommended or endorsed any proposal for an Acquisition
Transaction, then the Company shall simultaneously reimburse Acquisition for
documented fees and expenses (subject to a maximum of $25,000) and pay
Acquisition a termination fee of $40,000.
In connection with the Merger, Acquisition has received a commitment from
third parties for financing for Acquisition and certain existing and future
subsidiaries of the Company in the aggregate amount of approximately $1,050,000
in the form of a senior secured credit facility. Additionally, an affiliate of
WCAS VIII has agreed to purchase approximately $180,000 aggregate amount of
unsecured subordinated notes of the Surviving Corporation. Finally, WCAS VIII
and other equity investors have agreed to purchase approximately $400,000 of
common stock of the Surviving Corporation. It is anticipated that this funding
will be used to pay the merger consideration described above, repay or
repurchase certain indebtedness of the Company and pay related fees and
expenses. Additionally, pursuant to the Merger Agreement, the Company has
agreed that, upon the request of Acquisition, it will commence offers to
repurchase its two outstanding issuances of public debt (the "Debt Offers").
Pursuant to the Merger Agreement and at the request of Acquisition, the Company
commenced the Debt Offers and consent solicitations with respect to these two
public debt issuances on September 8, 1998. The Company has extended the
expiration date for the Debt Offers to January 6, 1999. Through December 16,
1998, over 99% of the Company's public debt was tendered and consents were
delivered to the Company. As a condition to the closing of the Merger, the
Company must complete the Debt Offers for its two public debt issuances of
$350,000 in the aggregate, prior to the closing date of the Merger. The final
cost to the Company of the redemption, including accrued interest, is
approximately $398,000. The Company's obligation to accept for purchase, and to
pay for, the public debt validly tendered is subject to certain conditions,
including the consummation of the Merger, which, in turn, is subject to certain
other conditions.
Acquisition notified the Company that on December 14, 1998, as part of
the financing necessary to effect the Merger, a corporation formed in
connection with the Merger, which will be a subsidiary of the Surviving
Corporation following the Merger, issued $370,000 of senior subordinated debt
securities to qualified institutional buyers under a private placement offering
pursuant to Rule 144A and Regulation S of the Securities Act of 1933, as
amended. There can be no assurance that Acquisition will receive the other
funding referred to above and, in the event that Acquisition must seek
alternative financing to consummate the Merger, there can be no assurance that
it will be able to secure alternative financing on terms no less favorable than
the terms of the above commitments. Additionally, there can be no assurance
that the Debt Offers will be consummated.
The accompanying consolidated financial statements have been prepared on
a historical basis and do not include any adjustments relating to the Merger
Agreement.
F-8
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Dollar amounts in thousands except share data)
Note 3. Long-Term Debt
The Company and its subsidiaries had the following debt outstanding at
November 30, 1998 and May 31, 1998:
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
------------ --------
<S> <C> <C>
Centennial 8 7/8% Senior Notes due 2001............... $250,000 $250,000
Centennial 10 1/8% Senior Notes due 2005.............. 100,000 100,000
Centennial Domestic Credit Facility................... -- 10,000
Puerto Rico Credit Facility........................... 157,000 150,000
-------- --------
$507,000 $510,000
======== ========
</TABLE>
Centennial Puerto Rico Wireless Corporation, a wholly owned subsidiary of
the Company ("CPRW"), has a four year, $180,000 revolving credit facility, as
amended (the "Puerto Rico Credit Facility"). As of November 30, 1998, the
Puerto Rico Credit Facility had $157,000 outstanding. The Commitment available
under the Puerto Rico Credit Facility terminates on February 28, 2001.
Quarterly repayment of amounts outstanding at the termination date are to be
made over a five-year period beginning May 31, 2001, as specified in the Puerto
Rico Credit Facility, as amended. The interest rate payable by CPRW on
borrowings under the Puerto Rico Credit Facility is based, at the election of
CPRW, on (a) the Base Rate, as defined, plus a margin of 1.50% or (b) the
Eurodollar Base Rate, as defined, plus a margin of 2.50%, adjusted for the
maintenance of certain specified ratios, as applicable.
As of November 30, 1998, no amounts were outstanding under the Company's
$75,000 domestic revolving credit facility (the "Domestic Credit Facility").
The commitment available under the Domestic Credit Facility terminates on
January 31, 2001 at which point all amounts outstanding are due and payable.
The interest rate payable on the Domestic Credit Facility is based, at the
election of the Company, on (a) the Base Rate, as defined, plus a margin of 2%
or (b) the Eurodollar Base Rate, as defined, plus a margin of 3%.
The aggregate annual principal payments for the next five years and
thereafter under the Company's and CPRW's debt at November 30, 1998 are
summarized as follows:
<TABLE>
<S> <C>
November 30, 1999.............................................. $ --
November 30, 2000.............................................. --
November 30, 2001.............................................. 268,840
November 30, 2002.............................................. 40,820
November 30, 2003.............................................. 43,960
November 30, 2004 and thereafter............................... 153,380
--------
$507,000
========
</TABLE>
The Company and CPRW were in compliance with all covenants of their debt
agreements at November 30, 1998.
F-9
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Dollar amounts in thousands except share data)
Note 4. Dispositions
On June 8, 1998, the Company disposed of its investment interest in the
Coconino, Arizona RSA, representing approximately 43,500 Net Pops, for $13,500
in cash. The Company recorded a pre-tax gain of $9,556 in relation to the sale
of this investment interest during the three months ended August 31, 1998.
Note 5. Revenue Recognition
Wireless telephone service income includes earned subscriber service
revenue and charges for installation and connections, net of associated roaming
costs of $23,556 and $18,026 for the six months ended November 30, 1998 and
1997, respectively.
Note 6. Income (Loss) per Common Share
The Company applies the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). Under SFAS 128, Basic
earnings per share ("EPS") is calculated by dividing income (loss) applicable
to common shares by weighted average common shares outstanding. Diluted EPS
reflects the potential dilution that could occur if potential common stock
instruments of the Company were exercised, converted or issued.
Note 7. Commitments and Contingencies
The Company is controlled by Century. Century has an approximately 33%
common stock interest and, through ownership of the Company's Class B Common
Stock which has disproportionate votes per share (15 votes per share), an
approximate 74% voting interest in the Company as of November 30, 1998. The
Company and Century entered into a Services Agreement, effective August 30,
1996 (the "Services Agreement"), pursuant to which Century, through its
personnel, provides design, construction, management, operational, technical
and maintenance services for the wireless telephone, paging and related systems
owned and operated by the Company. Such services also include providing all the
services necessary for the monitoring, to the extent possible, of the
activities of the partnerships in which the Company has minority equity
interests in such manner as to protect the interests of the Company. Such
services have historically been provided to the Company by Century. As
consideration for the services rendered and to be rendered under the Services
Agreement, the Company pays Century the annual sum of $1,000 and reimburses
Century for all costs incurred by Century or its affiliates (excluding the
Company and its subsidiaries) that are directly attributable to the design,
construction, management, operation and maintenance of the wireless telephone,
paging and related systems of the Company or to the performance by Century of
its other duties under the Services Agreement. For the six months ended
November 30, 1998, the Company has recorded expenses of $500 under the Services
Agreement of which $250 is recorded within payable to affiliate on the
Company's consolidated balance sheet at November 30, 1998. Century has entered
into an agreement with Acquisition pursuant to which it has agreed to terminate
the Services Agreement as of the effective date of the Merger.
During the six months ended November 30, 1997, the Company purchased
1,181,200 shares of its Class A Common Stock in the open market for an
aggregate purchase price of $21,717 pursuant to previous authorizations by the
Company's Board of Directors. These shares were accounted for as treasury
shares. During the six months ended November 30, 1998, the Company has not
purchased any additional shares of its Class A Common Stock in the open market.
F-10
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Dollar amounts in thousands except share data)
In September 1998, the Commonwealth of Puerto Rico sustained damage as a
result of the effects of Hurricane Georges. The Company has evaluated the
extent of damage to its Puerto Rico network infrastructure and the impact the
Hurricane has had on the Company's Puerto Rico service revenue during the
second quarter ended November 30, 1998. After consideration of expected
insurance recoveries, the Company believes it will not incur significant losses
as a result of the effects of the damage caused by Hurricane Georges. During
the three months ended November 30, 1998, the Company recorded approximately
$1,600 of insurance recoveries related to subscriber refunds within revenue.
Note 8. New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and other
Postretirement Benefits" and Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" in 1998.
Additionally, during 1998, the AICPA's Accounting Standards Executive Committee
issued Statement of Position (SOP) 98-5 "Reporting on the Cost of Start-up
Activities". The Company believes these Statements will not have a material
impact on the consolidated financial statements of the Company when adopted.
F-11
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Dollar amounts in thousands except share data)
Note 9. SEGMENT INFORMATION
The Company's consolidated financial statements include two distinct
business segments. The Domestic Wireless telephone segment ("Domestic") owns,
operates and invests in wireless telephone systems in the domestic United
States. The Company's Puerto Rico telephone segment includes the accounts of
Centennial Puerto Rico Wireless Corporation ("Wireless" or the "Puerto Rico
Wireless Telephone System"). Wireless is wholly owned by the Company. Wireless
began providing wireless telephone service in Puerto Rico on December 12, 1996
and participates in the alternative access business in Puerto Rico pursuant to
the FCC's requirements for interstate service and pursuant to an authorization
issued to Wireless in December 1994 by the Public Service Commission of the
Commonwealth of Puerto Rico for intrastate service. Wireless began providing
competitive access service in September 1997.
Information about the Company's operations in its two business segments
for the six months ended November 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Six Months
Ended November 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Gross revenue:
Domestic............................................... $ 112,836 $ 90,607
Puerto Rico............................................ 51,762 20,157
--------- ---------
$ 164,598 $ 110,764
========= =========
Operating income (loss):
Domestic............................................... $ 18,767 $ 2,675
Puerto Rico............................................ (1,740) (11,400)
--------- ---------
$ 17,027 $ (8,725)
========= =========
Net income (loss):
Domestic............................................... $ 13,740 $ (433)
Puerto Rico............................................ (7,397) (15,979)
--------- ---------
$ 6,343 $ (16,412)
========= =========
Assets, at end of period:
Domestic............................................... $ 722,409 $ 731,743
Puerto Rico............................................ 221,735 191,850
Elimination............................................ (94,300) (81,980)
--------- ---------
$ 849,844 $ 841,613
========= =========
Depreciation and amortization:
Domestic............................................... $ 41,499 $ 40,223
Puerto Rico............................................ 23,044 12,557
--------- ---------
$ 64,543 $ 52,780
========= =========
Capital expenditures:
Domestic............................................... $ 18,150 $ 18,287
Puerto Rico............................................ 30,615 53,676
--------- ---------
$ 48,765 $ 71,963
========= =========
</TABLE>
F-12
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Dollar amounts in thousands except share data)
Note 9--Continued
The information provided below is that of Centennial Cellular Corp.
(before the consolidation of Puerto Rico), Puerto Rico, and the Company's
consolidated information.
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
November 30, 1998
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Centennial
Cellular
Corp. before
Consolidation
of Puerto Rico Puerto Rico Eliminations Consolidated
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 29,626 $ 2,890 $ -- $ 32,516
Accounts receivable--
net.................... 31,483 13,632 -- 45,115
Inventory--phones and
accessories............ 8,453 834 -- 9,287
Prepaid expenses and
other current assets... 2,400 748 -- 3,148
--------- -------- -------- ---------
Total current assets... 71,962 18,104 -- 90,066
Property, plant &
equipment--net.......... 136,350 135,804 -- 272,154
Investment in Puerto
Rico, at cost........... 90,100 -- (90,100) --
Equity investments in
wireless telephone
systems--net............ 78,178 -- -- 78,178
Debt issuance costs--
net..................... 4,949 2,501 -- 7,450
Cellular telephone
licenses--net........... 213,235 -- -- 213,235
Personal communications
services licenses--net.. -- 59,650 -- 59,650
Goodwill--net............ 121,039 -- -- 121,039
Other assets--net........ 6,596 5,676 (4,200) 8,072
--------- -------- -------- ---------
$ 722,409 $221,735 $(94,300) $ 849,844
========= ======== ======== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........ $ 2,598 $ 6,555 $ -- $ 9,153
Accrued expenses and
other current
liabilities............ 51,379 20,107 -- 71,486
Payable to affiliate.... 250 268 -- 518
--------- -------- -------- ---------
Total current
liabilities........... 54,227 26,930 -- 81,157
Long-term debt........... 350,000 157,000 -- 507,000
Deferred liability....... -- 4,200 (4,200) --
Deferred income taxes.... 29,221 -- -- 29,221
Convertible redeemable
preferred stock......... 186,287 -- -- 186,287
Second series convertible
redeemable preferred
stock................... 7,252 -- -- 7,252
Common stockholders'
equity:
Common stock, par value
$.01 per share:
Class A................. 167 -- -- 167
Class B................. 105 -- -- 105
Additional paid-in
capital................ 349,802 90,100 (90,100) 349,802
Other................... (33,252) -- -- (33,252)
Accumulated deficit..... (221,400) (56,495) -- (277,895)
--------- -------- -------- ---------
Total common
stockholders' equity.. 95,422 33,605 (90,100) 38,927
--------- -------- -------- ---------
$ 722,409 $221,735 $(94,300) $ 849,844
========= ======== ======== =========
</TABLE>
F-13
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Dollar amounts in thousands except share data)
Note 9--Continued
<TABLE>
<CAPTION>
Centennial
Cellular
Corp. before
consolidation
of Puerto Rico Puerto Rico Eliminations Consolidated
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue.................. $112,836 $51,762 $-- $164,598
-------- ------- ---- --------
Costs and expenses:
Cost of equipment
sold.................. 8,203 1,259 -- 9,462
Cost of services....... 12,490 9,634 -- 22,124
Selling, general &
administrative........ 31,877 19,565 -- 51,442
Depreciation and
amortization.......... 41,499 23,044 -- 64,543
-------- ------- ---- --------
94,069 53,502 -- 147,571
-------- ------- ---- --------
Operating income (loss).. 18,767 (1,740) -- 17,027
-------- ------- ---- --------
Income from equity
investments............. 7,490 -- -- 7,490
Gain on sale of assets... 9,556 55 -- 9,611
Interest expense......... 16,228 5,712 -- 21,940
-------- ------- ---- --------
Income (loss) before
income tax expense and
minority interest....... 19,585 (7,397) -- 12,188
Income tax expense....... 5,836 -- -- 5,836
-------- ------- ---- --------
Income (loss) before
minority interest....... 13,749 (7,397) -- 6,352
Minority interest in
income of subsidiaries.. (9) -- -- (9)
-------- ------- ---- --------
Net income (loss)........ $ 13,740 $(7,397) $-- $ 6,343
======== ======= ==== ========
</TABLE>
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Centennial Cellular Corp.
New Canaan, Connecticut
We have audited the accompanying consolidated balance sheets of
Centennial Cellular Corp. and Subsidiaries as of May 31, 1998 and 1997, and the
related consolidated statements of operations, common stockholders' equity and
cash flows for each of the three years in the period ended May 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Centennial Cellular Corp. and
Subsidiaries as of May 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1998 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Stamford, Connecticut
July 17, 1998
F-15
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
May 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 14,620 $ 43,415
Accounts receivable, less allowance for doubtful accounts
of $2,693 and $2,130, respectively...................... 37,178 29,991
Inventory--phones and accessories........................ 7,304 4,080
Prepaid expenses and other current assets................ 548 756
-------- --------
TOTAL CURRENT ASSETS.................................. 59,650 78,242
PROPERTY, PLANT AND EQUIPMENT--net........................ 263,661 177,292
EQUITY INVESTMENT IN WIRELESS SYSTEMS--net................ 87,634 94,153
DEBT ISSUANCE COSTS, less accumulated amortization of
$6,097 and $3,606, respectively.......................... 8,538 9,863
CELLULAR TELEPHONE LICENSES, less accumulated amortization
of $263,633 and $213,739, respectively................... 235,508 285,202
PERSONAL COMMUNICATIONS SERVICE LICENSE, less accumulated
amortization of $2,324 and $755, respectively............ 60,435 62,004
GOODWILL, less accumulated amortization of $27,016 and
$23,185, respectively.................................... 124,533 130,065
OTHER ASSETS--net......................................... 7,458 8,029
-------- --------
TOTAL................................................. $847,417 $844,850
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 9,805 $ 1,754
Accrued expenses and other current liabilities........... 64,445 60,306
Payable to affiliate..................................... 435 1,192
-------- --------
TOTAL CURRENT LIABILITIES............................. 74,685 63,252
LONG-TERM DEBT............................................ 510,000 429,000
DEFERRED LIABILITY........................................ 2,200 2,200
DEFERRED INCOME TAXES..................................... 26,584 43,977
COMMITMENTS AND CONTINGENCIES (Note 11)
PREFERRED STOCK:
Convertible redeemable preferred stock (at aggregate
liquidation value), par value of $.01 per share, 102,187
shares authorized, issued and outstanding shares
(redemption value of $1,823.00 per share)............... 186,287 186,287
Second series convertible redeemable preferred stock (at
aggregate liquidation value), par value $.01 per share,
3,978 shares authorized, issued and outstanding shares
(redemption value of $1,823.00 per share)............... 7,252 7,252
Senior preferred stock, par value $.01 per share,
dividend rate 14%, 250,000 shares authorized, none
issued.................................................. -- --
Additional preferred stock, par value $.01 per share,
10,000,000 shares authorized, 3,978 shares issued as
second series convertible redeemable preferred stock.... -- --
COMMON STOCKHOLDERS' EQUITY:
Common stock par value $.01 per share:
Class A, 1 vote per share, 100,000,000 shares
authorized; issued, 16,716,683 and 16,492,884 shares,
respectively; and outstanding 15,084,474 and 16,404,075
shares, respectively.................................... 167 165
Class B, 15 votes per share, 50,000,000 shares
authorized, issued and outstanding 10,544,113 shares.... 105 105
Additional paid-in capital............................... 358,018 369,704
Accumulated deficit...................................... (284,238) (252,291)
-------- --------
74,052 117,683
Less: Cost of 1,632,209 and 88,809 Class A common shares
in treasury, respectively............................... (30,614) (1,801)
Shareholder note receivable............................ -- (3,000)
Deferred compensation.................................. (3,029) --
-------- --------
TOTAL COMMON STOCKHOLDERS' EQUITY........................ 40,409 112,882
-------- --------
TOTAL................................................. $847,417 $844,850
======== ========
</TABLE>
See notes to consolidated financial statements
F-16
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Service revenue--Domestic............. $ 177,999 $ 140,674 $ 105,461
Service revenue--Puerto Rico.......... 53,098 5,680 --
Equipment sales....................... 4,719 2,858 2,649
Interest income....................... 1,685 1,811 4,087
----------- ----------- -----------
237,501 151,023 112,197
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of equipment sold--Domestic...... 15,623 15,441 10,838
Cost of equipment sold--Puerto Rico... 806 571 --
Cost of services--Domestic............ 24,226 19,061 15,097
Cost of services--Puerto Rico......... 14,163 3,155 194
Selling, general and administrative--
Domestic............................. 54,983 44,538 33,968
Selling, general and administrative--
Puerto Rico.......................... 26,807 10,594 220
Depreciation and amortization--
Domestic............................. 81,402 77,392 70,910
Depreciation and amortization--Puerto
Rico................................. 32,792 6,328 79
----------- ----------- -----------
250,802 177,080 131,306
----------- ----------- -----------
OPERATING LOSS ......................... (13,301) (26,057) (19,109)
----------- ----------- -----------
INCOME FROM EQUITY INVESTMENTS.......... 13,069 15,180 10,473
GAIN ON SALE OF ASSETS.................. 5 3,819 8,310
INTEREST EXPENSE--DOMESTIC.............. 34,407 30,910 27,334
INTEREST EXPENSE--PUERTO RICO........... 10,748 2,469 552
----------- ----------- -----------
LOSS BEFORE INCOME TAX BENEFIT AND
MINORITY INTEREST.................... (45,382) (40,437) (28,212)
INCOME TAX BENEFIT...................... (13,597) (7,295) (11,596)
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST......... (31,785) (33,142) (16,616)
MINORITY INTEREST IN INCOME OF
SUBSIDIARIES........................... (162) (153) (15)
----------- ----------- -----------
NET LOSS.............................. $ (31,947) $ (33,295) $ (16,631)
=========== =========== ===========
DIVIDENDS ON PREFERRED STOCK............ $ 16,451 $ 15,948 $ 13,590
=========== =========== ===========
LOSS APPLICABLE TO COMMON SHARES........ $ (48,398) $ (49,243) $ (30,221)
=========== =========== ===========
LOSS PER COMMON SHARE--BASIC AND
DILUTED................................ $ (1.85) $ (1.83) $ (1.13)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS
OUTSTANDING DURING THE PERIOD.......... 26,181,000 26,934,000 26,770,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-17
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------
Class A Class B Additional Shareholder
------------------ ------------------ Paid-In Treasury Note Deferred Accumulated
Shares Dollars Shares Dollars Capital Stock Receivable Compensation Deficit Total
---------- ------- ---------- ------- ---------- -------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June
1, 1995........ 15,741,752 $157 10,544,113 $105 $395,735 $ (1,801) $(3,000) $ -- $(202,365) $188,831
Common Stock
issued in
conjunction
with incentive
plans.......... 493,441 5 -- -- 448 -- -- -- -- 453
Common Stock
issued in
conjunction
with
acquistions.... 226,665 3 -- -- -- -- -- -- -- 3
Vesting of stock
options........ -- -- -- -- 940 -- -- -- -- 940
Net loss........ -- -- -- -- -- -- -- -- (16,631) (16,631)
Accretion in
liquidation
value of
preferred
stock.......... -- -- -- -- (13,590) -- -- -- -- (13,590)
---------- ---- ---------- ---- -------- -------- ------- ------- --------- --------
Balance at May
31, 1996....... 16,461,858 165 10,544,113 105 383,533 (1,801) (3,000) -- (218,996) 160,006
Common Stock
issued in
conjunction
with incentive
plans.......... 31,026 -- -- -- 132 -- -- -- -- 132
Preferred stock
dividends...... -- -- -- -- (15,948) -- -- -- -- (15,948)
Income tax
benefit-stock
options
exercised...... -- -- -- -- 1,987 -- -- -- -- 1,987
Net loss........ -- -- -- -- -- -- -- -- (33,295) (33,295)
---------- ---- ---------- ---- -------- -------- ------- ------- --------- --------
Balance at May
31, 1997....... 16,492,884 165 10,544,113 105 369,704 (1,801) (3,000) -- (252,291) 112,882
Common Stock
issued in
conjunction
with incentive
plans.......... 223,799 2 -- -- 4,765 -- -- (3,029) -- 1,738
Preferred stock
dividends...... -- -- -- -- (16,451) -- -- -- -- (16,451)
Treasury stock
purchases...... -- -- -- -- -- (28,813) -- -- -- (28,813)
Repayment of
shareholder
note
receivable..... -- -- -- -- -- -- 3,000 -- -- 3,000
Net loss........ -- -- -- -- -- -- -- -- (31,947) (31,947)
---------- ---- ---------- ---- -------- -------- ------- ------- --------- --------
Balance at May
31, 1998....... 16,716,683 $167 10,544,113 $105 $358,018 $(30,614) $ 0 $(3,029) $(284,238) $ 40,409
========== ==== ========== ==== ======== ======== ======= ======= ========= ========
</TABLE>
See notes to consolidated financial statements
F-18
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Year Ended May 31,
------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others..... $ 260,147 $ 173,781 $130,196
Cash paid to suppliers, employees and
governmental agencies........................ (162,638) (116,016) (73,694)
Interest paid................................. (42,738) (30,809) (32,220)
--------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.... 54,771 26,956 24,282
--------- --------- --------
INVESTING ACTIVITIES:
Proceeds from sale of property, plant and
equipment.................................... 45 5,200 --
Capital expenditures.......................... (129,300) (88,990) (38,082)
Acquisition of other assets................... (6,178) (629) (1,673)
Acquisition/disposition and exchange of
wireless telephone systems................... -- (34,908) 396
Acquisition of personal communications service
license...................................... -- (2,752) (44,813)
Distributions received from equity
investments.................................. 10,109 6,863 6,870
Capital contributed to equity investments..... (787) (2,878) (1,463)
--------- --------- --------
NET CASH USED IN INVESTING ACTIVITIES........ (126,111) (118,094) (78,765)
--------- --------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt.................. 216,000 119,000 --
Repayment of long-term debt................... (135,000) (40,000) --
Debt issuance costs paid...................... (1,167) (3,650) (304)
Dividends paid................................ (12,338) (8,226) --
Proceeds from issuance of Class A Common
Stock........................................ 863 132 456
Proceeds from shareholder note receivable..... 3,000 -- --
Treasury stock purchases...................... (28,813) -- --
--------- --------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES.... 42,545 67,256 152
--------- --------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS.... (28,795) (23,882) (54,331)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR... 43,415 67,297 121,628
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR......... $ 14,620 $ 43,415 $ 67,297
========= ========= ========
Reconciliation of net loss to net cash provided
by operating activities:
Net loss....................................... $ (31,947) $ (33,295) $(16,631)
--------- --------- --------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................. 114,194 83,720 70,989
Minority interest in income of subsidiaries... 162 153 15
Deferred income tax--decrease................. (17,393) (10,623) (13,000)
Equity in undistributed earnings of investee
companies.................................... (13,069) (15,180) (10,473)
Gain on sale on assets........................ (5) (3,819) (4,176)
Other......................................... 3,469 1,925 (4,131)
Change in assets and liabilities net of
effects of acquired/exchanged wireless
telephone systems:
Accounts receivable--(increase)............... (9,225) (3,393) (4,689)
Prepaid expenses and other current assets--
(increase)................................... (3,014) (2,614) (511)
Accounts payable and accrued expenses--
increase..................................... 8,981 7,337 4,902
Customer deposits and prepayments-- increase.. 2,618 2,745 1,987
--------- --------- --------
Total adjustments............................ 86,718 60,251 40,913
--------- --------- --------
Net cash provided by operating activities...... $ 54,771 $ 26,956 $ 24,282
========= ========= ========
</TABLE>
See notes to consolidated financial statements
F-19
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Description of business--Centennial Cellular Corp. ("Centennial" and
together with its subsidiaries and partnership interests, the "Company")
operates wireless telephone systems which produce high quality, high capacity
communications to and from vehicle-installed, ready-to-carry and hand-held
wireless telephones ("wireless telephones"). Wireless telephone systems are
designed to allow for mobility of the subscriber. In addition to mobility,
wireless telephone systems provide access through system interconnections to
local and long distance telecommunications networks and offer other ancillary
services such as voice mail, call waiting, call forwarding and conference
calling. These communications services can be integrated with a variety of
competing networks. Wireless telephone service is provided to subscribers
through a variety of price plans, the most common being a monthly fixed charge
plus additional variable charges per minute of airtime used.
The Company operates and invests in wireless telephone systems in the
United States (the "Domestic Wireless Telephone Systems" or "Domestic
Wireless") and on December 12, 1996 the Company began providing wireless
telephone service in Puerto Rico (the "Puerto Rico Wireless Telephone System"
or "Puerto Rico Wireless"). The Company operates its Domestic Wireless
Telephone Systems pursuant to 29 cellular licenses which it owns. The Company
operates its Puerto Rico Wireless Telephone System pursuant to a Major Trading
Area ("MTA") Personal Communications Service ("PCS") license to provide
broadband PCS in the Commonwealth of Puerto Rico and the U.S. Virgin Islands.
The Company also participates in the alternative access business in Puerto Rico
pursuant to the Federal Communications Commission's requirements for interstate
service and pursuant to an authorization issued to Puerto Rico Wireless in
December 1994 by the Public Service Commission of the Commonwealth of Puerto
Rico for intrastate service. Puerto Rico Wireless began providing competitive
alternative access service in September 1997.
Principles of consolidation--The consolidated financial statements
include the accounts of the Company and all of its subsidiaries and partnership
interests from their respective incorporation or acquisition dates. All
material intercompany transactions and balances have been eliminated.
Property, plant and equipment--Property, plant and equipment is stated at
cost. Depreciation is computed by the straight-line method over the estimated
useful lives of the assets:
<TABLE>
<S> <C>
Wireless telephone transmission and distribution systems
and related equipment..................................... 10 years
Miscellaneous equipment and furniture and fixtures......... 5-15 years
PCS phones................................................. 18 months
</TABLE>
Cellular telephone and personal communications service licenses--Licenses
consist of amounts allocated under purchase accounting from the purchase price
of acquired assets. Cellular telephone licenses are amortized over a ten-year
life using the straight-line method. The PCS license is being amortized over a
forty-year life using the straight line method commencing with the date of
operations, December 12, 1996 (See Valuation of long lived assets). During the
fiscal years ended May 31, 1997 and 1996, the Company capitalized interest
costs of $2,752 and $5,200, respectively, related to the acquisition of the PCS
license. During 1998, no interest was capitalized.
Equity investments in wireless systems--The Company records such
investments at purchased cost at the date of acquisition and adjusts for the
Company's share of net income or loss from the acquisition date. The difference
between the cost of such investment and the underlying book value of $123,024
is amortized over ten years (See Note 7).
F-20
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
Goodwill--The excess of purchase price over the estimated fair value of
tangible and intangible net assets acquired is being amortized using the
straight-line method over 40 years (See Valuation of long lived assets).
Other Assets--Included in other assets at May 31, 1998 is a $6,000
deferred charge, net of accumulated amortization of $350, which represent
certain costs incurred by the Company in relation to the Facilities Agreement
with Century-ML dated January 2, 1995 (the "Facilities Agreement") (See Note 9
"Transactions with Affiliated Companies"). These costs are being amortized over
the life of the Facilities Agreement (25 years).
Income taxes--The Company accounts for income taxes in accordance with
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
provides that the deferred tax provision is determined by the liability method.
Deferred tax assets and liabilities are recognized based on the differences
between the book and tax basis of assets and liabilities using presently
enacted tax rates.
Loss per common share--Effective with the quarter ended February 28,
1998, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"), which is effective for
financial statements ending after December 15, 1997. This statement supersedes
Accounting Principles Board Opinion No. 15 ("APB15") and replaces the
presentation of primary earnings per share ("EPS") and fully diluted EPS on the
face of the statement of operations with basic and diluted EPS. Basic EPS is
calculated by dividing loss applicable to common shares by weighted average
common shares outstanding. Diluted EPS reflects the potential dilution that
could occur if potential common stock instruments of the Company were
exercised, converted or issued. Adoption of SFAS 128 did not result in a change
of EPS previously reported by the Company using APB 15.
Revenue recognition--Wireless telephone service income includes earned
subscriber service revenues and charges for installations and connections, net
of associated roaming costs of $36,769, $28,049, and $20,000, in 1998, 1997 and
1996, respectively. Subscriber services paid in advance are recognized as
income when earned.
Valuation of long lived assets--The Company, on a quarterly basis,
undertakes a review and valuation of the net carrying value, recoverability and
write-off period of all categories of its long lived assets. The Company in its
valuation considers current market values of wireless properties, competition,
prevailing economic conditions, government policy including taxation and the
Company's and the industry's historical and current growth patterns. The
Company also considers its financial structure including the underlying cost of
the securities which support the Company's internal growth and acquisitions, as
well as the recoverability of the cost of its long lived assets based on a
comparison of estimated undiscounted operating cash flows for the systems which
generated long lived assets with the carrying value of the long lived assets.
Management estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting periods. Actual results could differ from those estimates.
Disclosure of fair value of financial instruments--The carrying amounts
reported in the balance sheets for cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximates fair value
because of the immediate short-term maturity of these financial instruments.
The carrying amounts of the Company's credit facilities approximate their fair
values because of their variable interest rates.
F-21
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
Statement of cash flows--Short-term investments classified as cash
equivalents in the consolidated financial statements consist principally of
overnight deposits and commerical paper with acquired maturities of three
months or less.
Reclassifications--Certain prior year balances have been reclassified to
conform with the current year presentation.
New Accounting pronouncements--The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure", Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" in 1997, and Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" and Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" in 1998. Additionally,
during 1998, the AICPA's Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5 "Reporting on the Cost of Start-Up
Activities". The Company believes these statements will not have a material
impact on the Consolidated Financial Statements of the Company when adopted.
2. AGREEMENT AND PLAN OF MERGER
On July 2, 1998, the Company and CCW Acquisition Corp. ("Acquisition"), a
Delaware corporation organized at the direction of Welsh, Carson, Anderson &
Stowe VIII, L.P. ("WCAS VIII"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") providing for the merger of Acquisition with and into
Centennial (the "Merger"). Centennial will continue as the surviving
corporation (the "Surviving Corporation") in the Merger.
Subject to proration, pursuant to the Merger Agreement, outstanding Class
A Common Stock ("Class A Common Stock") will be converted into the right to
receive $43.50 per share in cash or to retain up to 7.1% of the common stock of
the Surviving Corporation outstanding after the Merger. Class B Common Stock
("Class B Common Stock") will be converted into the right to receive $43.50 per
share in cash; provided, that if the aggregate number of shares of Class A
Common Stock elected to be retained by Centennial's existing stockholders is
less than 7.1% of the shares outstanding after the Merger, then a number of
shares of Class B Common Stock equal to the pro rata portion of such shortfall
will be converted into shares of Class A Common Stock and retained. All
outstanding Convertible Redeemable Preferred Stock (the "Convertible Redeemable
Preferred Stock") and Second Series Convertible Redeemable Preferred Stock (the
"Second Series Convertible Redeemable Preferred Stock" and, together with the
Convertible Redeemable Preferred Stock, the "Redeemable Preferred Stock") will
be converted into the right to receive $43.50 per share in cash on an as
converted basis. (See Note 12 to the Company's Consolidated Financial
Statements).
Because 7.1% of the shares outstanding immediately after the effective
time of the Merger (the "Effective Time") must be retained by such existing
stockholders of the Company in the Merger, stockholders who do not elect to
retain any shares may, due to proration, be required to retain some Common
Stock. In addition, stockholders who elect to retain shares may, due to
proration, retain Common Stock and receive cash in amounts which vary from the
amounts such holders elected.
Pursuant to the Merger Agreement, it is anticipated that each option to
purchase Class A Shares (an "Option") granted under the Company's 1991 Employee
Stock Option Plan and Non-Employee/Officer
F-22
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
Director Option Plan, as amended (collectively, the "Option Plans") will be
exercised or canceled pursuant to its terms or in exchange for a cash amount
equal to the difference between $43.50 and the exercise price of the Option
prior to the Effective Time. Each Option that is not exercised or canceled will
remain outstanding immediately following the Effective Time and such Options
will be subject to adjustment pursuant to the terms of the Option Plans.
In connection with the execution of the Merger Agreement, Century
Communications Corp. ("Century"), the Company's principal stockholder, entered
into a Stockholder Agreement, dated July 2, 1998, with Acquisition (the
"Stockholder Agreement"). Pursuant to the Stockholder Agreement, Century, which
has an approximate 34% Common Stock interest and, through ownership of the
Company's Class B Common Stock which has disproportionate votes per share (15
votes per share), an approximate 74% voting interest in the Company at May 31,
1998, agreed to vote its shares in favor of the approval and adoption of the
Merger Agreement. Because Century agreed to approve the Merger by written
consent, consummation of the Merger does not require approval by a majority of
the Company's stockholders who are not affiliated with the Company or
Acquisition.
Pursuant to the Merger Agreement, from the date of the Merger Agreement
to the Effective Time, the Company shall conduct its business in the ordinary
course consistent with past practice and shall use reasonable efforts to
preserve intact its business organizations and relationships with third parties
and to keep available the services of its present officers and key employees.
All statements contained in this Annual Report, including discussions of the
Company's plans and strategies, are subject to the Company's covenants
regarding the conduct of its business pending the Merger.
The consummation of the Merger is subject to certain conditions,
including, without limitation, the Company obtaining a final order from the
Federal Communications Commission (the "FCC") approving the transfer of control
of the Company to WCAS VIII and its affiliates, the expiration of antitrust
regulatory waiting periods and Acquisition obtaining financing substantially on
the terms contemplated by the commitment letters it received in connection with
the Merger Agreement.
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger, the Merger Agreement and the transactions
contemplated by the Merger Agreement shall be paid by the party incurring such
expenses. However, in the event the Company or Acquisition shall have
terminated the Merger Agreement as a result of either the Company entering into
a definitive written agreement with respect to any merger, consolidation or
other business combination, tender or exchange offer, recapitalization
transaction, asset or stock purchase or other similar transaction with a third
party (an "Acquisition Transaction") or the Board of Directors of the Company
having withdrawn, modified or amended in any manner adverse to Acquisition its
approval or recommendation of the Merger Agreement or approved, recommended or
endorsed any proposal for an Acquisition Transaction, then the Company shall
reimburse Acquisition for documented fees and expenses (subject to a maximum of
$25.0 million) and pay Acquisition a termination fee of $40 million.
In connection with the Merger, Acquisition has received a commitment from
a third party for financing for Acquisition and certain existing and future
subsidiaries of the Company in the aggregate amount of approximately $1.6
billion in the form of senior secured credit facilities and an unsecured bridge
loan. Additionally, an affiliate of WCAS VIII has agreed to purchase
approximately $150 million aggregate amount of subordinated notes of the
Surviving Corporation. Finally, WCAS VIII and other equity investors have
agreed
F-23
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
to purchase approximately $350 million of common stock of the Surviving
Corporation. It is anticipated that this funding will be used to pay the merger
consideration described above and related fees and expenses. Additionally,
pursuant to the Merger Agreement, the Company has agreed that, upon the request
of Acquisition, it will commence offers to repurchase its two outstanding
issuances of public debt (the "Debt Offers"). As a condition to the closing of
the Merger, the Company must consummate the Debt Offers prior to the closing
date of the Merger. There can be no assurance that Acquisition will receive the
funding referred to above or, if it does receive such funding, there can be no
assurance as to the timing or terms thereof. Additionally, there can be no
assurance that the Debt Offers will be consummated. Finally, in the event that
Acquisition must seek alternative financing to consummate the Merger there can
be no assurance that it will be able to secure alternative financing on terms
no less favorable than the terms of the above commitments.
The accompanying consolidated financial statements have been prepared on
a historical basis and do not include any adjustments relating to the Agreement
and Plan of Merger.
3. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In connection with the completion of the acquisitions made during the
year ended May 31, 1996, the Company recorded approximately $9,120 in goodwill
and in deferred income taxes, resulting from differences between the book and
tax basis of certain assets acquired (See Note 4).
During the year ended May 31, 1996, the Company reclassified $2,774 of
property, plant and equipment, $2,801 of goodwill, $160 of other assets, $476
of accounts receivable and $672 of accounts payable to cellular telephone
license as a result of the exchange of cellular markets described in Note 4.
4. ACQUISITIONS/EXCHANGES/DISPOSITIONS
On June 8, 1998, the Company disposed of its investment interest in the
Coconino, Arizona RSA, representing approximately 43,500 Net Pops, for $13,500
in cash. During the first quarter of fiscal 1999, the Company recorded a pre-
tax gain of approximately $9,500 in relation to the sale of this investment
interest.
During the three years ended May 31, 1998, the Company
acquired/exchanged/sold the net assets and interests in wireless telephone and
PCS licenses as follows:
<TABLE>
<CAPTION>
Amounts allocated to
-----------------------
Property,
Number of Wireless plant
Year Ended systems (net) Total net telephone and and
May 31, acquired/exchanged/sold purchase price PCS licenses equipment
- ---------- ----------------------- -------------- ------------- ---------
<S> <C> <C> <C> <C>
1997............ 1 $ 35,000 $33,429 $ 1,234
1996............ (1) $ (1,296) $ 8,517 $(5,048)
</TABLE>
These transactions have been included in the accompanying consolidated
financial statements from the respective dates of acquisition. The Company has
recorded the purchase price of the wireless telephone systems at the fair value
of acquired assets on the date of acquisition with the excess purchase price
being recorded as cellular telephone licenses and goodwill.
The Company was the successful bidder for one of two MTA licenses
(granted June 23, 1995) to provide broadband PCS services in the Commonwealth
of Puerto Rico and the U.S. Virgin Islands. The licensed area represents
approximately 3,600,000 Net Pops. The amount of the final bid submitted and
paid by the Company was $54,672. The Company used a portion of the net proceeds
from the sale of the 10 1/8% Senior Notes due 2005 to pay a portion of the
purchase price for the license (See Note 8).
F-24
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
The Company also participates in the alternative access business in
Puerto Rico pursuant to FCC requirements for interstate service and pursuant to
an authorization issued to the Company in December, 1994 by the Public Service
Commission of the Commonwealth of Puerto Rico for intrastate service.
On September 12, 1996, the Company acquired, for approximately $35,000 in
cash, 100% of the ownership interests in the partnership owning the wireless
telephone system serving the Benton Harbor, Michigan MSA. The Benton Harbor
market represents approximately 161,400 Net Pops. Approximately $33,429 of the
purchase price was allocated to cellular telephone license.
On October 31, 1995, the Company acquired (i) a 94.3% interest in the
wireless telephone system serving the Lafayette, Louisiana MSA, representing
approximately 205,700 Net Pops, in exchange for the Company's wireless
telephone system serving the Jonesboro, Arkansas RSA (comprising approximately
205,000 Net Pops), the license rights and assets located in and covering Desoto
and Red River Parishes of Louisiana 3 RSA (comprising approximately 34,700 Net
Pops), the license rights and assets located in and covering a section of
Morehouse Parish of Louisiana 2 RSA (comprising approximately 24,100 Net Pops)
and a cash payment by the Company of approximately $5,580, subject to
adjustment, and (ii) an additional 14.3% minority interest in the Elkhart,
Indiana RSA and an additional 12.7% minority interest in the Lake Charles,
Louisiana MSA for a cash payment of approximately $2,951.
On June 30, 1995, the Company acquired the wireless telephone systems
serving (a) Newtown, LaPorte, Starke, Pulaski, Jasper and White, Indiana, (b)
Kosciusko, Noble, Steuben and Lagrange, Indiana (c) Williams, Defiance, Henry
and Paulding, Ohio and (d) Copiah, Simpson, Lawrence, Jefferson Davis, Walthall
and Marion, Mississippi, representing an aggregate of approximately 608,100 Net
Pops. The above-described systems were acquired by the Company in exchange for
the Company's wireless telephone systems serving the Roanoke, Virginia MSA, the
Lynchburg, Virginia MSA, North Carolina RSA #3 and Iowa RSA #5, representing an
aggregate of approximately 644,000 Net Pops. Simultaneously with the
consummation of the transaction described above, the Company sold its 72.2%
interest in the wireless telephone system serving the Charlottesville, Virginia
MSA, representing an aggregate of approximately 94,700 Net Pops, for a cash
purchase price of approximately $9,914, subject to adjustment. The Company
recognized a gain of approximately $4,176 as a result of the sale.
5. PRO FORMA INFORMATION
The summary pro forma information includes the operations of the Company
and completed acquisitions in each case as if such acquisitions/exchanges/sales
had been consummated as of June 1, 1995.
<TABLE>
<CAPTION>
Year Ended May 31,
--------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Revenues.......................................... $ 152,293 $ 116,081
Net loss.......................................... $ (32,255) $ (18,891)
Basic loss per common share....................... $ (1.79) $ (1.21)
</TABLE>
Pro forma loss per common share for the years ended May 31, 1997 and 1996
is calculated using the weighted average number of common shares outstanding
during the period.
F-25
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
6. ACCOUNT ANALYSIS
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
May 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Land................................................... $ 1,946 $ 1,752
Wireless telephone transmission and distribution
systems and related equipment......................... 274,376 183,417
Miscellaneous equipment and furniture and fixture...... 22,523 15,753
PCS phones............................................. 44,497 14,781
-------- --------
343,342 215,703
Less accumulated depreciation.......................... (79,681) (38,411)
-------- --------
$263,661 $177,292
======== ========
Depreciation expense was approximately $46,211, $17,684 and $8,851 for
the years ended May 31, 1998, 1997 and 1996, respectively.
Accrued expenses and other current liabilities consists of the following:
<CAPTION>
May 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Accrued interest payable............................... $ 3,570 $ 3,482
Customer deposits & prepayments........................ 10,345 7,727
Accrued roamer service................................. 3,731 4,247
Accrued dividend on preferred stock.................... 8,225 4,113
Accrued network buildout............................... 8,181 6,000
Accrued unpaid invoices................................ 13,801 9,620
Accrued miscellaneous.................................. 16,592 25,117
-------- --------
$ 64,445 $ 60,306
======== ========
</TABLE>
F-26
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
7. EQUITY INVESTMENT IN WIRELESS SYSTEMS
In conjunction with the Jonesboro/Lafayette systems exchange in fiscal
1996, the Company acquired an additional 12.7% minority interest in the Lake
Charles, Louisiana MSA for a cash payment of approximately $1,106.
The following summarizes the assets, liabilities and partners' capital,
and results of operations of the seven wireless partnerships in which the
Company's investments are accounted for by the equity method. All amounts have
been derived from the individual wireless partnerships' financial statements
through December 31, 1997 and adjusted for interim financial activity from the
wireless partnerships' calendar year end to the Company's fiscal year end.
<TABLE>
<CAPTION>
May 31,
-----------------
1998 1997
-------- --------
(unaudited)
<S> <C> <C>
Assets
Current................................................. $141,772 $117,062
Noncurrent.............................................. 493,011 481,308
-------- --------
$634,783 $598,370
======== ========
Liabilities and Partners' Capital
Current liabilities..................................... $ 84,087 $ 58,659
Noncurrent liabilities.................................. 2,032 2,936
Partners' capital....................................... 548,664 536,775
-------- --------
$634,783 $598,370
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Results of Operations
Revenues................................ $ 569,756 $ 520,873 $ 455,392
Costs and expenses...................... 456,881 386,397 331,822
Other (income) expense.................. (764) (120) (604)
--------- --------- ---------
Net income.............................. $ 113,639 $ 134,596 $ 124,174
========= ========= =========
Centennial Cellular Corp. share of part-
nership net income....................... $ 13,069 $ 15,180 $ 10,473
========= ========= =========
</TABLE>
The following presents the Company's ownership percentage of the Wireless
Partnerships in which the Company's investments are accounted for by the equity
method as of May 31, 1998:
<TABLE>
<CAPTION>
Wireless Partnership % ownership
-------------------- -----------
<S> <C>
Lake Charles CellTel Co......................................... 25.1%
Sacramento-Valley Limited Partnership........................... 23.5%
Modoc RSA Limited Partnership................................... 25.0%
Coconino, Arizona RSA Limited Partnership (sold June 8, 1998)... 21.3%
Cal-One Cellular Limited Partnership............................ 6.9%
Pennsylvania RSA-6 (I) and (II) Limited Partnership............. 14.3%
GTE Mobilnet of California Limited Partnership.................. 2.9%
</TABLE>
F-27
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
The Company uses the equity method of accounting to record the
investments in partnerships. Under the equity method, the partnership
investments were initially recorded at cost and are adjusted for distributions
received from the partnerships, additional capital contributions, and the
Company's share of the partnership's results of operations.
An analysis of the Company's consolidated investments is as follows:
<TABLE>
<S> <C>
Investment in Partnerships at June 1, 1995....................... $106,280
Add: Additional capital contributions paid..................... 1,463
Company's share of Partnerships' net income................. 10,473
Additional investment in Partnerships....................... 1,105
Less: Amortization of Investment--cost in excess of underlying
book value.................................................... (12,247)
Partnership's distribution to the Company................... (6,870)
--------
Investment in Partnerships at May 31, 1996....................... 100,204
Add: Additional capital contributions paid..................... 2,878
Company's share of Partnerships' net income................. 15,180
Less: Amortization of Investment--cost in excess of underlying
book value.................................................... (12,290)
Partnerships' distributions to the Company, including
receivable of $4,956....................................... (11,819)
--------
Investment in Partnerships at May 31, 1997....................... $ 94,153
Add: Additional capital contributions paid..................... 787
Company's share of Partnerships' net income................. 13,069
Less: Amortization of Investment--cost in excess of underlying
book value.................................................... (12,302)
Partnerships' distributions to the Company, including
receivable of $2,920....................................... (8,073)
--------
Investment in Partnerships at May 31, 1998....................... $ 87,634
========
</TABLE>
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
May 31,
-----------------
1998 1997
-------- --------
<S> <C> <C>
8 7/8% Senior Notes due 2001 ............................. $250,000 $250,000
10 1/8% Senior Notes due 2005 ............................ 100,000 100,000
Domestic Credit Facility.................................. 10,000 5,000
Puerto Rico Credit Facility............................... 150,000 74,000
Current maturities........................................ -- --
-------- --------
$510,000 $429,000
======== ========
</TABLE>
On November 15, 1993, the Company issued $250,000 of eight-year unsecured
Senior Notes (the "8 7/8% Notes"). The interest on the 8 7/8% Notes is payable
semi-annually at an interest rate of 8 7/8%. The interest is computed on the
basis of a 360-day year (twelve 30 day months). The maturity date of the 8 7/8%
Notes is November 1, 2001 unless redeemed earlier at the option of the Company,
however not prior to May 1, 1999. If early redemption is sought during the
twelve-month period beginning May 1 of each of the following years, the
redemption price is calculated using:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1999.......................................................... 105.25%
2000.......................................................... 103.50%
2001.......................................................... 101.75%
</TABLE>
F-28
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
Costs associated with the bond offering of $4,898 were capitalized and
are being amortized on a straight-line basis over the life of the issue. At May
31, 1998 and 1997, the 8 7/8% Notes were trading at 104.01% and 99.47% of par
or $260,025 and $248,675, respectively.
On May 11, 1995, the Company issued $100,000 of ten-year unsecured Senior
Notes (the "10 1/8% Notes"). The interest on the 10 1/8% Notes is payable semi-
annually on the basis of a 360-day year (twelve 30 day months). The 10 1/8%
Notes rank "pari passu" with the Company's 8 7/8% Notes and may not be redeemed
prior to maturity on May 15, 2005. Costs associated with the May 11, 1995 bond
offering of approximately $4,614 were capitalized and are being amortized on a
straight-line basis over the life of the issue. At May 31, 1998 and 1997, the
notes were trading at 110.87% and 104.25% of par or $110,870 and $104,250,
respectively.
Centennial Puerto Rico Wireless Corporation, a wholly owned subsidiary of
the Company ("CPRW"), has a four-year $180,000 revolving credit facility, as
amended, (the "Puerto Rico Credit Facility"). As of May 31, 1998, the Puerto
Rico Credit Facility had $150,000 outstanding. The interest rate payable by
CPRW on borrowings under the Puerto Rico Credit Facility is based, at the
election of CPRW, on (a) the Base Rate, as defined, plus a margin of 1.50% or
(b) the Eurodollar Base Rate, as defined, plus a margin of 2.50%, adjusted for
the maintenance of certain specified ratios, as applicable. The Puerto Rico
Credit Facility, which is nonrecourse to the Company, is secured by
substantially all of the assets of CPRW and its direct and indirect
subsidiaries.
As of May 31, 1998, the Company had $10,000 outstanding under its $75,000
domestic revolving credit facility (the "Domestic Credit Facility"). The
interest rate payable on the Domestic Credit Facility is based, at the election
of the Company, on (a) the Base Rate,as defined, plus a margin of 2% or (b) the
Eurodollar Base Rate, as defined, plus a margin of 3%. The Domestic Credit
Facility is secured by the pledge of the stock of certain of the Company's
subsidiaries, and is further guaranteed by certain subsidiaries holding
investment interests.
The Domestic Credit Facility, the Puerto Rico Credit Facility and the
Company's public debt instruments require the maintenance of certain financial
and operating covenants, restrict the use of borrowing, limit the incurrence of
additional indebtedness and limit the ability to pay dividends and management
fees. The Company and CPRW were in compliance with all covenants of their debt
instruments at May 31, 1998.
9. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company and Century Communications Corp. ("Century"), owner of
approximately 34% of Centennial's common stock, currently maintain combined
workers compensation and general insurance policies. The premiums are allocated
between the Company and Century based upon the actual cost of each respective
company's coverage. The Company believes that the amounts payable by the
Company under such arrangement are more favorable than the premiums the Company
would pay if it were to obtain coverage under a separate policy. The Company's
cost of such insurance was approximately $624, $727 and $1,688 for the fiscal
years ended May 31, 1998, 1997 and 1996 respectively, all of which was paid in
full during the current fiscal year. In fiscal 1996 the Company and Century
also maintained combined group health, life and casualty coverage.
The Company is controlled by Century. Century has an approximate 34%
common stock interest and, through ownership of the Company's Class B Common
Stock which has disproportionate votes per share (15 votes per share), an
approximate 74% voting interest in the Company at May 31, 1998. The Company and
F-29
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
Century entered into a Services Agreement, effective August 30, 1996 (the
"Services Agreement"), pursuant to which Century, through its personnel,
provides design, construction, management, operational, technical and
maintenance for the wireless telephone, paging and related systems owned and
operated by the Company. Such services also include providing all the services
necessary for the monitoring, to the extent possible, of the activities of the
partnerships in which the Company has minority equity interests, in such manner
as to protect the interests of the Company. Such services have historically
been provided to the Company by Century. As consideration for the services
rendered and to be rendered under the Services Agreement, the Company pays
Century the annual sum of $1,000 and reimburses Century for all costs incurred
by Century or its affiliates (excluding the Company and its subsidiaries) that
are directly attributable to the design, construction, management, operation
and maintenance of the wireless telephone, paging and related systems of the
Company or to the performance by Century of its other duties under the Services
Agreement. For the year ended May 31, 1998 and 1997, the Company recorded
expenses of $1,000 and $750, respectively, under the Services Agreement. At May
31, 1998 and 1997, $250 and $750, respectively, of such amounts were recorded
within Payable to Affiliate on the Company's consolidated balance sheet.
Century has entered into an agreement with CCW Acquisition Corp. pursuant to
which it has agreed to terminate the Services Agreement as of the effective
time of the Merger.
The Company leases space for the mobile telephone switching office
("MTSO") serving the southwestern cluster and space on an antenna tower in the
southwestern cluster from Century for an aggregate current annual rent of
approximately $1 pursuant to an oral month to month lease agreement. Further,
the Company leases certain warehouse space in Puerto Rico to Century-ML for a
current annual rent of approximately $23 pursuant to a written lease agreement.
The Company leases and shares capacity on the fiber optic cable television
facility and network of Century-ML for the purpose of operating as a
competitive access provider. The Company shares in the cost of construction,
operation and maintenance of the Century-ML fiber network on a pro rata basis
based on the percentage of the number of fibers of the network used by or
reserved for the Company.
During fiscal 1997, the Company recorded a deferred asset and related
payable to an affiliate in its consolidated balance sheet in the amount of
$6,000 to reflect certain costs incurred by the Company to secure the use of
the fiber optic network as required by the Facilities Agreement. This amount,
which was paid by the Company during fiscal 1998, represents the Company's
share of the costs of constructing Century-ML's fiber optic network. (See Note
1).
Leavy Rosensweig & Hyman, of which David Z. Rosensweig, a director and
Secretary of the Company, is a member, serves as general counsel to the Company
and Century. The Company paid approximately $426, $656 and $518, for legal
services to Leavy, Rosensweig & Hyman for the fiscal years ended May 31, 1998,
1997, and 1996, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes are summarized as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current (Federal and State)................... $ 3,796 $ 3,328 $ 1,404
Deferred (Federal and State).................. (17,393) (10,623) (13,000)
-------- -------- --------
$(13,597) $ (7,295) $(11,596)
======== ======== ========
</TABLE>
F-30
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
Deferred income taxes result primarily from non-deductible depreciation
and amortization resulting from book and tax basis differences of acquired
subsidiaries.
The effective income tax rate of the Company differs from the statutory
rate as a result of the following items:
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Computed tax benefit at federal statutory rate on
the loss before income taxes and minority
interest........................................ $(15,883) $(14,153) $ (9,874)
Non-deductible amortization resulting from
acquired subsidiaries........................... 1,341 1,346 1,253
Minority interest in subsidiary (income)......... (57) (54) (5)
State and local income tax provision (benefit),
net of federal income tax benefit............... (533) (569) (199)
Non recognized benefit of loss of Puerto Rico
subsidiary...................................... -- 926 --
Other, including the utilization of accumulated
net operating losses and establishment of
valuation allowance for certain net operating
losses.......................................... 1,535 5,209 (2,771)
-------- -------- --------
$(13,597) $ (7,295) $(11,596)
======== ======== ========
</TABLE>
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred Tax Assets:
Tax loss carryforward.................................. $ 50,895 $ 44,839
Other.................................................. 576 461
Valuation allowance.................................... (13,189) (11,758)
--------- ---------
$ 38,282 $ 33,542
========= =========
Deferred Tax Liabilities:
Amortization of intangible assets...................... $ 43,958 $ 58,442
Depreciation of fixed assets........................... 20,908 19,077
--------- ---------
$ 64,866 $ 77,519
========= =========
Net deferred tax liabilities........................... $ 26,584 $ 43,977
========= =========
</TABLE>
The valuation allowance recorded at May 31, 1998 and 1997 represents the
portion of recorded tax loss carryforwards for which it is more likely than not
that the benefit of such carryforwards will not be realized.
The net deferred tax liabilities at May 31, 1998 and 1997 of $26,584 and
$43,977 respectively, have been classified as non-current deferred income taxes
on the consolidated balance sheet.
At May 31, 1998, the Company and its subsidiaries had approximately
$119,740 of net operating loss carryforwards for federal income tax purposes,
expiring through May 31, 2013, some of which are subject to limitation on their
future utilization under Section 382 of the Internal Revenue Code of 1986.
F-31
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
11. COMMITMENTS AND CONTINGENCIES
Equipment and Installation Services
In July 1998, the Company entered into an agreement pursuant to which the
Company has agreed, subject to certain conditions, to purchase equipment and
installation services for its Domestic Wireless Telephone Systems over the next
3 years at a cost of approximately $50,000.
Legal Proceedings
There are no material legal proceedings, other than routine litigation
incidental to the business, to which the Company or any of its subsidiaries is
a party to or which any of their property is subject.
Pending Acquisitions
The Company plans to exercise, prior to the effective time of the Merger,
its right to acquire the minority interests held by Century Federal Inc., an
affiliate of Century ("Century Federal"), in the Cass and Jackson, Michigan
systems for the prices paid by Century Federal for such minority interests in
the acquisitions of such systems ($2,000 and $1,000, respectively). Upon
completion of these transactions, the Company will own 100% of these systems.
Stock Purchases
During the year ended May 31, 1998, the Company directly purchased
1,270,200 shares of its Class A Common Stock in the open market for an
aggregate purchase price of $23,524 pursuant to previous authorizations by the
Company's Board of Directors. These shares have been accounted for as treasury
shares. Subsequent to May 31, 1998, the Company has not directly purchased any
additional shares of its Class A Common Stock in the open market. As of July
17, 1998, the Company is authorized to directly purchase 2,729,800 additional
shares of its Class A Common Stock in the open market after giving effect to
the shares purchased to date. Additionally, through a recently terminated
agreement, the Company purchased 273,200 shares of its Class A Common Stock for
approximately $5,400.
Lease Commitments
The Company's annual lease obligations and expenses under operating
leases were approximately $6,891, $4,230 and $2,023 for each of the years ended
May 31, 1998, 1997 and 1996, respectively. The majority of these operating
leases are short-term in nature and may be canceled by either party if
appropriate notice is given.
12. PREFERRED STOCK AND COMMON STOCK
Common Stock
The voting rights with respect to the two classes of the Company's common
stock are as follows: Class A shares entitle the holder to one vote per share,
Class B shares entitle the holder to fifteen votes per share.
F-32
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
Shares of Class B common stock are convertible into shares of Class A
common stock on a one-for-one basis.
The Company is restricted from paying dividends on its common stock by
its debt covenants (see Note 8).
Preferred Stock
On August 30, 1991, the Company completed a merger (the "1991 Merger")
with Citizens Cellular Company, a wholly-owned subsidiary of Citizens
("Citizens Cellular"). In connection with the 1991 Merger, the Company issued
the Convertible Redeemable Preferred Stock valued at $128,450 and 1,367,099
shares of Class B Common Stock representing 18.8% of the then common equity.
The Convertible Redeemable Preferred Stock is convertible on or after the third
anniversary from the date of issuance into 2,972,335 shares of Class A or B
Common Stock. Although the Convertible Redeemable Preferred Stock carried no
cash dividend requirement through August 30, 1996, the shares accreted
liquidation preference and redemption value at the rate of 7.5% per annum,
compounded quarterly, until then. The fully accreted liquidation preference and
redemption value of such preferred stock at August 30, 1996 was $186,287. The
accretion for the years ended May 31, 1997 and 1996, totaled approximately
$3,475 and $13,080, respectively. Beginning September 1, 1996, the holders of
the Convertible Redeemable Preferred Stock were eligible to receive cash
dividends at the rate of 8.5% per annum, when and as declared by the Board of
Directors of the Company, in its discretion.
In connection with an amendment to the New Services Agreement, which was
entered into in connection with the 1991 Merger, the Company issued to Century
the Second Series Convertible Redeemable Preferred Stock valued at $5,000. The
Second Series Convertible Redeemable Preferred Stock has terms identical to
those of the Convertible Redeemable Preferred stock discussed above. The Second
Series Convertible Redeemable Preferred Stock is convertible on or after the
third anniversary from the date of issuance into 115,710 shares of Class A or B
Common Stock. The fully accreted liquidation preference and redemption value of
such preferred stock at August 30, 1996 was $7,252. The accretion for the years
ended May 31, 1997 and 1996, totaled approximately $135 and $510, respectively.
Assuming no change in the number of shares of such classes outstanding,
the annual dividend that may be declared and made payable, with respect to the
preferred stock is $15,834 and $616, respectively. Both classes of preferred
stock are subject to mandatory redemption in fiscal 2007. Any unpaid dividends
continue to accumulate without additional cost to the Company. During the years
ended May 31, 1998 and 1997, the Company paid quarterly cash dividends with
respect to both classes of preferred stock totaling $12,338 and $8,226,
respectively. The Company will determine, from time to time, the timing,
amount, or distribution (if any) of additional preferred stock dividends.
13. COMPENSATION PLANS AND ARRANGEMENTS
1991 Employee Stock Option Plan
The Company's 1991 Employee Stock Option Plan (the "Employee Stock Option
Plan") as amended, provides for the grant of options to purchase up to
2,025,000 shares of Class A Common Stock reserved thereunder to directors,
officers and other key employees of the Company. The Employee Stock Option Plan
permits the issuance of "incentive stock options," as defined in Section 422A
of the Internal Revenue Code of
F-33
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
1986, as amended (the "Code"), as well as non-qualified stock options and stock
appreciation rights. The Employee Stock Option Plan is administered by the
Employee Stock Option Committee of the Board of Directors which determines the
recipients and provisions of options granted under the Employee Stock Option
Plan, including the option price, term and number of shares subject to option.
The Board of Directors may amend the Employee Stock Option Plan, but the
approval of the stockholders is necessary to increase the total number of
shares that may be issued or transferred under the Employee Stock Option Plan,
to change the minimum purchase price for shares subject to options, to change
the maximum period during which options or stock appreciation rights may be
exercised or to extend the period during which options or stock appreciation
rights may be granted under the Employee Stock Option Plan. Generally, the
option price of incentive and non-statutory stock options granted may be as
determined by the Employee Stock Option Committee, but must be at least equal
to the fair market value of the shares on the date of grant. The maximum term
of each option is ten years.
For any participant who owns shares possessing more than 10% of the
voting rights of the outstanding Common Stock, the exercise price of any
incentive stock option must be at least 110% of the fair market value of the
shares subject to such option on the date of grant and the term of the option
may not be longer than five years. Options become exercisable at such time or
times as the Employee Stock Option Committee may determine when it grants
options. The Employee Stock Option Plan permits the exercise of options by the
payment of cash or delivery of shares of Class A Common Stock equal in fair
market value on the date of exercise to the exercise price. Options granted
under the Employee Stock Option Plan are not transferable by the holder.
Since December 27, 1991, the Company has awarded options to purchase
approximately 2,210,782 shares of Class A Common Stock under the Employee Stock
Option Plan to approximately 215 employees of the Company, including executive
officers and directors. During the fiscal years ended May 31, 1998, 1997 and
1996 the number of such options awarded were approximately 488,000, 925,782,
and 0, respectively. At May 31, 1998, 558,245 options were exercisable.
Director Option Plan
The Company's Non-Employee/ Officer Director Option Plan (the "Director
Option Plan") was adopted on October 27, 1993. The Director Option Plan
provides for the grant of non-qualified options to purchase up to 50,000 shares
of Class A Common Stock to non-employee/officer directors, who are not
employees of the Company or its subsidiaries. Options for 1,000 shares of Class
A Common Stock shall be automatically granted under the Director Option Plan on
the date of the annual meeting of shareholders of the Company in each of the
years 1993 through 2002. The Board of Directors may amend the Director Option
Plan, except that the approval of the stockholders is necessary to increase the
total number of shares which may be issued or transferred under the Director
Option Plan, to change the minimum purchase price for shares subject to
options, to change the maximum period during which options may be exercised or
to extend the period during which options may be granted under the Director
Option Plan. Generally, the option price of non-qualified stock options granted
may be as determined by the Director Option Committee, but must be at least
equal to 100% of the fair market value of the shares on the date of the grant.
Options become exercisable at the rate of 20% per year beginning with the
first anniversary of the date of the grant. The Director Option Plan permits
the exercise of options by payments of cash or Class A Common Stock equal in
value to the option price. Options granted under the Director Option Plan are
not transferable by the holder other than by will or the laws of descent and
distribution. During each of the fiscal
F-34
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
years ended May 31, 1998, 1997 and 1996, 4,000 of such options were awarded. As
of May 31, 1998, 18,198 options were outstanding under the Director Option
Plan, of which 6,756 were exercisable. No options had been exercised as of May
31, 1998.
A summary of the status of the Company's stock options as of May 31,
1996, 1997 and 1998 and changes during the years then ended are presented
below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number Price
--------- --------
<S> <C> <C>
1996 Outstanding at June 1, 1995......................... 1,296,952 $ 8.71
Granted............................................... 4,000 $18.25
Exercised............................................. (423,665) $ 1.00
Canceled.............................................. (155,715) $ 5.35
---------
Outstanding at May 31, 1996........................... 721,572 $13.98
1997 Granted............................................. 1,362,282 $11.57
Exercised............................................. (1,704) $ 9.75
Canceled.............................................. (929,296) $14.40
---------
Outstanding at May 31, 1997........................... 1,152,854 $10.80
1998 Granted............................................. 492,000 $19.00
Exercised............................................. (50,616) $10.53
Canceled.............................................. (91,595) $13.38
---------
Options outstanding as of May 31, 1998................ 1,502,643 $13.34
=========
Options exercisable at May 31, 1998................... 565,001 $10.81
========= ======
</TABLE>
The following table summarizes information about options outstanding at
May 31, 1998:
<TABLE>
<CAPTION>
Range of Number Weighted Average Number
Exercise Outstanding Remaining Weighted Average Exercisable Weighted Average
Prices at 5/31/98 Contractual Life Exercise Price at 5/31/98 Exercise Price
-------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$9.75--$13.5............ 1,023,445 7.20 years $10.84 559,045 $10.73
$17--$20................ 479,198 9.52 years 18.67 5,956 18.62
--------- ---------- ------ ------- ------
1,502,643 7.94 years $13.34 565,001 $10.81
========= ========== ====== ======= ======
</TABLE>
1991 Employee Stock Purchase Plan
The Company has reserved 200,000 shares of Class A Common Stock for
issuance under the 1991 Employee Stock Purchase Plan (the "Purchase Plan").
Under the Purchase Plan, eligible employees (which generally includes all full-
time employees of the Company) are able to subscribe for shares of Class A
Common Stock at a purchase price of 85% of the average market price (as
defined) of the Class A Common Stock on the first day or last day of the
payroll deduction period relating to an offering under the Purchase Plan.
Payment of the purchase price of the shares is to be made in installments
through payroll deductions, with no right of prepayment. The Purchase Plan is
administered by the Compensation Committee of the Board of Directors. Rights to
purchase shares of Class A Common Stock under the Purchase Plan may not be
transferred
F-35
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
by the recipient and may be forfeited in the event of the recipient's
termination of employment. As of May 31, 1998, approximately 1,476 employees
and officers of the Company were eligible to participate in the Purchase Plan.
As of May 31, 1998, approximately 35,260 shares were subscribed for under the
Purchase Plan.
Equity Incentive Plan
The Company's 1993 Equity Incentive Plan (the "Equity Plan") was adopted
by the Board of Directors and approved by the stockholders on October 27, 1993
and amended on October 29, 1996. The plan permits the issuance of up to 350,000
shares of the Company's Class A Common Stock for high levels of performance and
productivity by officers and other management employees of the Company. The
Equity Plan is administered by the Compensation Committee of the Company's
Board of Directors. The plan authorizes the Committee to grant stock based
awards that include but are not limited to, restricted stock, performance
shares and deferred stock. The Committee determines the recipients and
provisions of the grants under the Equity Plan, including the grant price, term
and number of shares subject to grant.
Generally, any employee will realize compensation taxable as ordinary
income, and the Company will be entitled to a corresponding tax deduction in an
amount equal to the sum of any cash received by the employee plus the fair
market value of any shares of Class A Common Stock received by the employee.
During the fiscal years ended May 31, 1998, 1997 and 1996, the number of
restricted shares issued for awards under the Equity Plan were 131,000, 0 and
82,500. As of May 31, 1998, 216,500 restricted shares were outstanding under
the Equity Plan. The expense reflected in the consolidated financial statements
related to these restricted shares was not material. These restricted shares
vest five years after the date of grant or upon the completion of the Plan of
Merger (See Note 2).
The estimated fair value of options granted during fiscal 1998, 1997 and
1996 were $6.69 per share, $3.49 per share and $5.81 per share, respectively.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
with respect to its stock option, and stock purchase plans. Had compensation
cost for the Company's stock option plans and stock purchase plan been
determined based on the fair value of the awards on the grant dates in
accordance with the accounting provisions of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), the
Company's net loss and net loss per common share for the years ended May 31,
1998, 1997 and 1996 would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Loss applicable to Common shares:
As reported................................. $(48,398) $(49,243) $(30,221)
Pro forma................................... $(49,306) $(49,921) $(30,237)
Loss per common share:
As reported................................. $ (1.85) $ (1.83) $ (1.13)
Pro forma................................... $ (1.88) $ (1.85) $ (1.13)
</TABLE>
F-36
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
The fair value of options granted under the Company's stock option plans
during fiscal 1998, 1997 and 1996 was estimated on the dates of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions used:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Expected Volatility........................... 43.63% 36.78% 36.78%
Risk-Free Interest Rate....................... 5.45% 6% 6%
Expected Lives of Option Grants............... 3 years 3 years 3 years
</TABLE>
Incentive Award Plan
The Incentive Award Plan (the "Incentive Plan") permits the grant of
awards to key employees of the Company, which may include employee-directors
and officers, payable in cash or shares of Class A Common Stock. The Company
has reserved 200,000 shares of Class A Common Stock for issuance under the
Incentive Plan. The awards are payable in five to ten equal annual installments
on January 1 of the succeeding years after the grant of the award, provided
that the recipient is an employee on the installment payment date. The
Incentive Plan is administered by the Compensation Committee of the Board of
Directors, which selects the recipients of awards as well as the amount of such
awards and any restriction on such awards. The Board of Directors may amend the
Incentive Plan. Awards granted under the Incentive Plan may not be transferred
by the recipient and may be forfeited in the event of the recipient's
termination of employment. As of May 31, 1998, approximately 1,490 employees,
officers and directors of the Company were eligible to participate in the
Incentive Plan. No awards have been made under the Incentive Plan.
1991 Stock Equivalent Plan
The Company's 1991 Stock Equivalent Plan (the "Equivalent Plan") permits
the grant of units of Class A Common Stock Equivalents ("units") to key
employees of the Company, including officers and directors. The Equivalent Plan
is administered by the Compensation Committee of the Board of Directors, which
selects the employees to be granted units, determines the number of units
covered by each grant, determines when units will be granted and the conditions
subject to which any amount may become payable with respect to the units, and
prescribes the form of instruments evidencing units granted under the
Equivalent Plan. Payments for units may be made by the Company in cash or in
shares of Class A Common Stock at the fair market value of the Class A Common
Stock on the date of payment. The Company has reserved 200,000 shares of Class
A Common Stock for issuance under the Equivalent Plan. As of May 31, 1998,
approximately 1,490 employees, officers and directors of the Company were
eligible to participate in the Equivalent Plan. Under the terms of the
Equivalent Plan, the total number of units included in all grants to any
participant may not exceed 10% of the total number of units for which grants
may be made under the Equivalent Plan. Units granted under the Equivalent Plan
are not transferable. As of May 31, 1998, no units had been granted under the
Equivalent Plan.
Retirement Plan
Effective January 1, 1994, the Company adopted a 401(k) defined
contribution retirement plan covering employees of its wholly owned
subsidiaries. If a participant decides to contribute, a portion of the
contribution is matched by the Company. Total expense under the plan was
approximately $326, $221, and $134 for the years ended May 31, 1998, 1997, and
1996, respectively.
F-37
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
NOTE 14. SEGMENT INFORMATION
The Company's consolidated financial statements include two distinct
business segments. The Domestic Wireless segment owns, operates and invests in
wireless telephone systems. The Company's Puerto Rico Wireless segment began
providing wireless telephone service in Puerto Rico on December 12, 1996 and
participates in the alternative access business in Puerto Rico pursuant to the
Federal Communications Commission's requirements for interstate service and
pursuant to an authorization issued to Puerto Rico Wireless in December 1994 by
the Public Service Commission of the Commonwealth of Puerto Rico for intrastate
service. Puerto Rico Wireless began providing alternative access service in
September 1997.
Information about the Company's operations in its two business segments
for the years ended May 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Year Ended May 31, 1998 1997 1996
------------------ -------- -------- --------
<S> <C> <C> <C>
Gross revenues:
Domestic Wireless........................... $182,944 $145,120 $112,197
Puerto Rico Wireless........................ 54,557 5,903 --
-------- -------- --------
$237,501 $151,023 $112,197
======== ======== ========
Operating income (loss):
Domestic Wireless........................... $ 6,710 $(11,311) $(18,615)
Puerto Rico Wireless........................ (20,011) (14,746) (494)
-------- -------- --------
$(13,301) $(26,057) $(19,109)
======== ======== ========
Net loss:
Domestic Wireless........................... $ (1,188) $(16,081) $(15,585)
Puerto Rico Wireless........................ (30,759) (17,214) (1,046)
-------- -------- --------
$(31,947) $(33,295) $(16,631)
======== ======== ========
Assets, at end of period:
Domestic Wireless........................... $718,231 $764,495 $710,222
Puerto Rico Wireless........................ 221,504 150,455 75,590
Eliminations................................ (92,318) (70,100) --
-------- -------- --------
$847,417 $844,850 $785,812
======== ======== ========
Depreciation and amortization:
Domestic Wireless........................... $ 81,402 $ 77,392 $ 70,910
Puerto Rico Wireless........................ 32,792 6,328 79
-------- -------- --------
$114,194 $ 83,720 $ 70,989
======== ======== ========
Capital expenditures:
Domestic Wireless........................... $ 38,996 $ 38,921 $ 22,604
Puerto Rico Wireless........................ 90,304 50,069 15,478
-------- -------- --------
$129,300 $ 88,990 $ 38,082
======== ======== ========
</TABLE>
F-38
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
Note 14--Continued
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
MAY 31, 1998
<TABLE>
<CAPTION>
Centennial
Cellular
Corp. before
Consolidation
of Puerto Rico Puerto Rico Eliminations Consolidated
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 6,503 $ 8,117 $ -- $ 14,620
Accounts receivable--
net................... 29,653 7,525 -- 37,178
Inventory--Phones and
Accessories........... 5,657 1,647 -- 7,304
Prepaid expenses and
other current assets.. 295 253 -- 548
-------- -------- -------- --------
Total current
assets.............. 42,108 17,542 -- 59,650
Property, plant &
equipment--net.......... 128,969 134,692 -- 263,661
Investment in Puerto
Rico, at cost........... 90,100 -- (90,100) --
Equity investments in
wireless telephone
systems--net............ 87,634 -- -- 87,634
Debt issuance costs--
net..................... 5,502 3,036 -- 8,538
Cellular telephone
licenses--net........... 235,508 -- -- 235,508
Personal communications
services licenses--net.. -- 60,435 -- 60,435
Goodwill--net............ 124,533 -- -- 124,533
Other assets--net........ 3,877 5,799 (2,218) 7,458
-------- -------- -------- --------
$718,231 $221,504 $(92,318) $847,417
======== ======== ======== ========
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable....... $ 5,460 $ 4,345 $ -- $ 9,805
Accrued expenses and
other current
liabilities........... 40,691 23,754 -- 64,445
Payable to affiliate... 250 185 -- 435
-------- -------- -------- --------
Total current
liabilities......... 46,401 28,284 -- 74,685
Long-term debt........... 360,000 150,000 -- 510,000
Deferred liability....... 2,200 2,218 (2,218) 2,200
Deferred income taxes.... 26,584 -- -- 26,584
Convertible redeemable
preferred stock......... 186,287 -- -- 186,287
Second series convertible
redeemable preferred
stock................... 7,252 -- -- 7,252
Common stockholders'
equity:
Common stock, par value
$.01 per share:
Class A.............. 167 -- -- 167
Class B.............. 105 -- -- 105
Additional paid-in
capital............... 358,018 90,100 (90,100) 358,018
Other.................. (33,643) -- -- (33,643)
Accumulated deficit.... (235,140) (49,098) -- (284,238)
-------- -------- -------- --------
Total common
stockholders'
equity.............. 89,507 41,002 (90,100) 40,409
-------- -------- -------- --------
$718,231 $221,504 $(92,318) $847,417
======== ======== ======== ========
</TABLE>
F-39
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
Note 14--Continued
CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
YEAR ENDED MAY 31, 1998
<TABLE>
<CAPTION>
Centennial
Cellular
Corp. before
Consolidation
of Puerto Rico Puerto Rico Eliminations Consolidated
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue.................. $182,944 $ 54,557 $-- $237,501
-------- -------- ---- --------
Costs and expenses:
Cost of equipment
sold.................. 15,623 806 -- 16,429
Cost of services....... 24,226 14,163 -- 38,389
Selling, general &
administrative........ 54,983 26,807 -- 81,790
Depreciation and
amortization.......... 81,402 32,792 -- 114,194
-------- -------- ---- --------
176,234 74,568 -- 250,802
-------- -------- ---- --------
Operating income (loss).. 6,710 (20,011) -- (13,301)
-------- -------- ---- --------
Income from equity
investments............. 13,069 -- -- 13,069
Gain on sale of assets... 5 -- -- 5
Interest expense......... 34,407 10,748 -- 45,155
-------- -------- ---- --------
Loss before income tax
benefit and minority
interest................ (14,623) (30,759) -- (45,382)
Income tax benefit....... 13,597 -- -- 13,597
-------- -------- ---- --------
Loss before minority
interest................ (1,026) (30,759) -- (31,785)
Minority interest in
income of subsidiaries.. (162) -- -- (162)
-------- -------- ---- --------
Net loss................. $ (1,188) $(30,759) $-- $(31,947)
======== ======== ==== ========
</TABLE>
F-40
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 31, 1998, 1997 and 1996
(Amounts in thousands, except subscriber and share data)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
August 31, November 30, February 29, May 31,
1995 1995 1996 1996
---------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues........................ $26,922 $27,713 $27,938 $ 29,624
Operating loss.................. (4,704) (4,822) (6,571) (3,012)
Net (loss) income............... (3,418) (7,349) (8,807) 2,943
Net loss per common share....... (.25) (.40) (.45) (.03)
<CAPTION>
Three Months Ended
---------------------------------------------
August 31, November 30, February 28, May 31,
1996 1996 1997 1997
---------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues........................ $32,365 $35,359 $39,174 $ 44,125
Operating loss.................. (3,399) (4,712) (8,046) (9,900)
Net loss........................ (6,107) (6,121) (9,486) (11,581)
Net loss per common share....... (.36) (.38) (.50) (.58)
<CAPTION>
Three Months Ended
---------------------------------------------
August 31, November 30, February 28, May 31,
1997 1997 1998 1998
---------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues........................ $52,853 $59,134 $59,179 $ 66,335
Operating income (loss)......... (2,128) (5,374) (8,359) 2,560
Net loss........................ (6,786) (9,626) (9,670) (5,865)
Net loss per common share....... (.41) (.52) (.54) (.39)
</TABLE>
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Centennial Cellular Corp.
New Canaan, Connecticut
We have audited the consolidated financial statements of Centennial
Cellular Corp. and subsidiaries (the "Company") as of May 31, 1998 and 1997 for
each of the three years in the period ended May 31, 1998, and have issued our
report thereon dated July 17, 1998; such report is included elsewhere in this
Form 10-K. Our audits also included the financial statement schedules listed in
Item 14. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
Deloitte & Touche LLP
Stamford, Connecticut
July 17, 1998
S-1
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Amounts in thousands)
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Service revenue......................... $ 177,999 $ 140,674 $ 105,461
Equipment sales......................... 3,504 2,643 2,649
Interest income......................... 1,441 1,803 4,087
--------- --------- ---------
182,944 145,120 112,197
--------- --------- ---------
COSTS AND EXPENSES:
Cost of services........................ 24,226 19,061 15,291
Cost of equipment sold.................. 15,623 15,441 10,838
Selling, general and administrative..... 54,983 44,537 33,757
Depreciation and amortization........... 81,402 77,392 70,910
--------- --------- ---------
176,234 156,431 130,796
--------- --------- ---------
OPERATING INCOME (LOSS)................... 6,710 (11,311) (18,599)
INTEREST EXPENSE.......................... 34,407 30,911 27,334
GAIN ON SALE OF ASSETS.................... 5 3,819 8,310
INCOME (LOSS) FROM EQUITY INVESTMENTS..... (17,690) (2,034) 9,411
--------- --------- ---------
LOSS BEFORE INCOME TAX BENEFIT AND
MINORITY INTEREST...................... (45,382) (40,437) (28,212)
INCOME TAX BENEFIT........................ (13,597) (7,295) (11,596)
--------- --------- ---------
LOSS BEFORE MINORITY INTEREST........... (31,785) (33,142) (16,616)
MINORITY INTEREST IN INCOME OF SUBSIDIAR-
IES...................................... (162) (153) (15)
--------- --------- ---------
NET LOSS.................................. (31,947) (33,295) (16,631)
ACCUMULATED DEFICIT, BEGINNING OF YEAR.... (252,291) (218,996) (202,365)
--------- --------- --------- ---
ACCUMULATED DEFICIT, END OF YEAR.......... $(284,238) $(252,291) $(218,996)
========= ========= =========
</TABLE>
See notes to condensed financial information
S-2
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Year Ended May 31,
------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Cash Received from Subscribers and others..... $ 214,995 $ 169,242 $130,196
Cash Paid to suppliers, employees and govern-
mental agencies.............................. (131,484) (103,255) (73,460)
Interest Paid................................. (33,372) (29,068) (31,668)
--------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 50,139 36,919 25,068
--------- --------- --------
INVESTING ACTIVITIES:
Proceeds from Sale of equipment............... 45 5,200 --
Capital expenditures.......................... (38,996) (38,921) (23,594)
Acquisition of other assets................... (176) (489) (1,643)
Acquisition/exchange of wireless telephone
systems...................................... -- (34,908) 396
Acquisition of personal communications service
license...................................... -- 60,006 (44,813)
Cash advances to subsidiary................... (22,218) (54,507) (15,327)
Distributions received from equity invest-
ments........................................ 10,109 6,863 6,870
Capital contributed to equity investments..... (787) (2,877) (1,463)
--------- --------- --------
NET CASH (USED IN) INVESTING ACTIVITIES....... (52,023) (59,633) (79,574)
--------- --------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt.................. 10,000 45,000 --
Principal payments on long-term debt.......... (5,000) (40,000) --
Debt issuance costs paid...................... (143) (648) (304)
Proceeds from Issuance of Class A Common
Stock........................................ 863 132 456
Proceeds from shareholder note receivable..... 3,000 -- --
Treasury stock purchases...................... (28,813) -- --
Dividends paid on preferred stock............. (12,338) (8,226) --
--------- --------- --------
NET CASH PROVIDED BY (USED IN) FINANCING AC-
TIVITIES..................................... (32,431) (3,742) 152
--------- --------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS... (34,315) (26,456) (54,354)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.. 40,818 67,274 121,628
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR........ $ 6,503 $ 40,818 $ 67,274
========= ========= ========
</TABLE>
See notes to condensed financial information
S-3
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Reconciliation of net loss to net cash provided
by operating activities:
Net loss........................................ $(31,947) $(33,295) $(16,631)
-------- -------- --------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................... 81,402 77,392 70,910
Minority interest in income of subsidiaries..... 162 153 15
Deferred income tax-decrease.................... (17,393) (10,623) (13,000)
Equity in undistributed earnings of investee
companies...................................... 17,690 2,034 (9,411)
Gain on sale of assets.......................... (5) (3,819) (4,176)
Other........................................... 2,604 1,800 (4,131)
Change in assets and liabilities net of effects
of acquired/exchanged wireless telephone
systems:
Accounts receivable--(increase)............... (2,939) (2,158) (4,689)
Prepaid expense and other current assets--
(increase)................................... (1,723) (2,103) (411)
Accounts payable and accrued expenses--
increase (decrease).......................... (173) 4,855 4,605
Customer deposits and prepayments--increase... 2,461 2,683 1,987
-------- -------- --------
Total adjustments............................... 82,086 70,214 41,699
-------- -------- --------
Net Cash Provided by Operating Activities....... $ 50,139 $ 36,919 $ 25,068
======== ======== ========
</TABLE>
See notes to condensed financial information
S-4
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
May 31, May 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 6,503 $ 40,819
Accounts receivable....................................... 29,653 28,753
Inventory--phones and accessories......................... 5,657 4,010
Prepaid expenses and other current assets................. 295 216
--------- ---------
TOTAL CURRENT ASSETS.................................... 42,108 73,798
PROPERTY PLANT AND EQUIPMENT -net......................... 128,969 102,230
INVESTMENT IN PUERTO RICO................................. 41,002 51,761
EQUITY INVESTMENT IN WIRELESS SYSTEMS -net................ 87,634 94,153
DEBT ISSUANCE COSTS....................................... 5,502 6,986
CELLULAR TELEPHONE LICENSES............................... 235,508 285,202
PERSONAL COMMUNICATIONS SERVICE LICENSE................... -- --
GOODWILL.................................................. 124,533 130,065
OTHER ASSETS.............................................. 1,659 1,961
DUE FROM SUBSIDIARY....................................... 2,218 7,321
--------- ---------
TOTAL ASSETS............................................ $ 669,133 $ 753,477
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 5,460 $ 1,692
Accrued Interest Payable................................ 2,450 2,880
Other Accrued expenses.................................. 28,114 25,922
Customers' deposits and prepayments..................... 10,127 7,665
Payable to affiliate.................................... 250 399
--------- ---------
TOTAL CURRENT LIABILITIES............................. 46,401 38,558
LONG-TERM DEBT............................................ 360,000 355,000
DEFERRED LIABILITY........................................ 2,200 2,200
DEFERRED INCOME TAXES..................................... 26,584 43,977
PREFERRED STOCK:
Convertible redeemable preferred stock.................. 186,287 186,287
Second series convertible redeemable preferred stock.... 7,252 7,252
COMMON STOCKHOLDERS' EQUITY:
Common stock............................................ 272 270
Additional paid-in capital.............................. 358,018 377,025
Accumulated deficit..................................... (284,238) (252,291)
--------- ---------
74,052 125,004
Less: Cost of Common shares in treasury................. (30,614) (1,801)
Shareholder note receivable........................... -- (3,000)
Deferred Compensation................................. (3,029) --
--------- ---------
TOTAL COMMON STOCKHOLDERS' EQUITY....................... 40,409 120,203
--------- ---------
TOTAL................................................. $ 669,133 $ 753,477
========= =========
</TABLE>
See notes to condensed financial information
S-5
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
(Amounts in thousands)
1. BASIS OF PRESENTATION
The attached condensed financial information of Registrant represents
the financial statements of Centennial Cellular Corp. and subsidiaries
exclusive of Puerto Rico Wireless. Within this condensed financial
information, the Registrant's investment in Puerto Rico Wireless has been
accounted for using the equity method. Within the Company's consolidated
financial statements, however, the financial statements of Puerto Rico
Wireless have been consolidated for financial reporting purposes. The
inclusion of the attached condensed financial information of Registrant is
required due to certain restrictions placed on the net assets of Puerto Rico
Wireless under the Puerto Rico Credit Facility (See note 8 to Consolidated
Financial Statements).
2. PERSONAL COMMUNICATIONS SERVICE LICENSE ("PCS")
On October 29, 1996 the Federal Communications Commission granted
consent to the assignment of the PCS license acquired in March 1995 from the
Registrant to Puerto Rico Wireless. On December 13, 1996, the Registrant
contributed to Puerto Rico Wireless the PCS license and certain PCS property
and equipment as follows:
<TABLE>
<S> <C>
Property, plant and equipment.................................... $ 3
PCS license...................................................... 62,605
-------
Total assets contributed......................................... $62,608
=======
</TABLE>
3. LONG-TERM DEBT
See Note 8 to the consolidated financial statements for details of long-
term debt.
4. RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
S-6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dealer Prospectus Delivery Obligation
Until , 1999, all dealers that effect transactions in these
securities, whether or not participating in this Exchange Offer, may be
required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
No person is authorized in connection with any offering made hereby to
give any information or to make any representation other than as contained in
this Prospectus or the accompanying Letter of Transmittal, and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company or Centennial Cellular Operating. Neither this
Prospectus nor the accompanying Letter of Transmittal or both together
constitute an offer to sell or a solicitation of an offer to buy any security
other than the New Notes offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any securities offered hereby to any
person in any jurisdiction in which it is unlawful to make such offer or
solicitation to such person. Neither the delivery of this Prospectus or the
accompanying Letter of Transmittal or both together, nor any sale made
hereunder shall under any circumstances imply that the information contained
herein is correct as of any date subsequent to the date hereof.
[LOGO] Centennial Cellular Corp.
Centennial Cellular Corp.
Centennial Cellular Operating Co. LLC
Offer to Exchange Their
10 3/4% Senior Subordinated Notes due 2008, Series B,
for Any and All of Their Outstanding
10 3/4% Senior Subordinated Notes due 2008, Series A
----------------
PROSPECTUS
----------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") empowers a Delaware corporation to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. A corporation may indemnify such person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. A Delaware corporation may indemnify officers
and directors in an action by or in the right of the corporation to procure a
judgment in its favor under the same conditions, except that no indemnification
is permitted without judicial approval if the officer or director is adjudged
to be liable to the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses (including attorneys' fees)
which he actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under any corporation's by-law,
agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, Centennial Cellular Corp.
("Centennial") has adopted a by-law that provides that, to the fullest extent
permitted by DGCL, Centennial shall indemnify any person serving as a director
or officer of Centennial and every such director or officer serving at the
request of Centennial as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for expenses
incurred in the defense of, or in connection with, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative. Under Section 145 of the DGCL and Centennial's by-laws, such
indemnification shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 18-108 of the Delaware Limited Liability Company Act (the "LLC
Act") empowers a Delaware limited liability company to indemnify and hold
harmless any member or manager or other person from and against any and all
claims and demands whatsoever. In accordance with such section, the limited
liability company agreement of Centennial Cellular Operating Co. LLC
("Centennial Cellular Operating") provides that, to the fullest extent
permitted by the LLC Act, Centennial Cellular Operating shall indemnify a
member, any affiliate of a member, any officers, directors, shareholders,
partners, employees, representatives or agents of a member, or their respective
affiliates, or any employee or agent of Centennial Cellular Operating or its
affiliates (each, a "Covered Person") for any loss, damage or claim incurred by
such Covered Person by reason of any act or omission performed or omitted by
such Covered Person in good faith on behalf of Centennial Cellular Operating
and in a manner reasonably believed to be within such Covered Person's scope of
authority.
Each of Centennial and Centennial Cellular Operating has purchased and
maintains insurance to protect persons entitled to indemnification pursuant to
its by-laws or limited liability company agreement (as the case may be), the
DGCL or the LLC Act against expenses, judgments, fines and amounts paid in
settlement, to the fullest extent permitted by the DGCL or the LLC Act (as the
case may be).
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of Centennial
Cellular Corp.*................................................
3.2 Amended and Restated By-Laws of Centennial Cellular Corp.*.....
3.3 Certificate of Formation of Centennial Cellular Operating Co.
LLC............................................................
3.4 Limited Liability Company Agreement of Centennial Cellular
Operating Co. LLC..............................................
4.1 Indenture dated as of December 14, 1998 between Centennial
Cellular Operating Co. LLC and Centennial Finance Corp. and The
Chase Manhattan Bank, as trustee, relating to the 10 3/4%
Senior Subordinated Notes due 2008*............................
4.2 Assumption Agreement and Supplemental Indenture, dated as of
January 7, 1999, to the Indenture dated as of December 14,
1998*..........................................................
4.3 Form of 10 3/4% Senior Subordinated Note due 2008, Series B of
the registrant (included in Exhibit 4.1).......................
4.4 Registration Rights Agreement, dated as of December 14, 1998,
among Centennial Cellular Operating Co. LLC, Centennial Finance
Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
NationsBanc Montgomery Securities LLC, Morgan Stanley & Co.
Incorporated and Chase Securities Inc., as initial
purchasers*....................................................
4.5 Pledge and Escrow Agreement, dated as of December 14, 1998,
from Centennial Cellular Operating Co. LLC and Centennial
Finance Corp., as Pledgors, to The Chase Manhattan Bank, as
Trustee*.......................................................
5.1 Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol as to
the legality of the securities being registered**..............
10.1 Purchase Agreement, dated December 9, 1998, among Centennial
Cellular Operating Co. LLC, Centennial Finance Corp., and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, NationsBanc
Montgomery Securities LLC, Morgan Stanley & Co. Incorporated
and Chase Securities Inc., as initial purchasers, relating to
the issuance and sale of $370,000,000 aggregate principal
amount of the registrants' 10 3/4% Senior Subordinated Notes
due 2008, Series A.............................................
10.2 Credit Agreement dated as of January 7, 1999 among Centennial
Cellular Operating Co. LLC, as Borrowe; Centennial Wireless PCS
Operations Corp., as PR Borrower; Centennial Cellular Corp., as
a Guarantor; the other Guarantors party thereto; each of the
lenders named therein; Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as lead arranging agent;
Nationsbank, N.A., as co-arranger and administrative agent; The
Chase Manhattan Bank, as co-arranger and co-documentation
agent; The Bank of Nova Scotia, as co-documentation agent;
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as syndication agent; and Morgan Stanley Senior
Funding, Inc., as senior managing agent*.......................
10.3 Employment Agreement dated as of January 7, 1999 between
Centennial Cellular Corp. and Michael Small*...................
10.4 Employment Agreement dated as of January 7, 1999 between
Centennial Cellular Corp. and Rudy J. Graf*....................
12.1 Statements re Computation of Ratios**..........................
21.1 Subsidiaries of Centennial Cellular Corp.***...................
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
23.1 Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol
(included in their opinion filed as Exhibit 5.1)**.............
23.2 Consent of Deloitte & Touche LLP...............................
24.1 Power of Attorney of the members of the Board of Directors of
the registrant (included in the signature pages)...............
25.1 Statement on Form T-1 of Eligibility of Trustee**..............
27.1 Financial Data Schedule**......................................
99.1 Form of Letter of Transmittal..................................
99.2 Form of Notice of Guaranteed Delivery..........................
99.3 Stockholders Agreement dated as of January 7, 1999 among CCW
Acquisition Corp. and the Purchasers named in Schedules I, II,
III and IV thereto.............................................
</TABLE>
- --------
* Filed as an Exhibit to the Current Report on Form 8-K of Centennial
Cellular Corp. filed with the Commission on January 22, 1999.
** To be filed by amendment.
*** Filed as an Exhibit to the Annual Report on Form 10-K of Centennial
Cellular Corp. filed with the Commission on August 20, 1998.
Item 22. Undertakings
Each of the undersigned registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
Each of the undersigned registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the
registrants has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Neptune,
state of New Jersey, on March 5, 1999.
Centennial Cellular Corp.
/s/ Michael J. Small
_____________________________________
Michael J. Small,
Chief Executive Officer and
Director
Centennial Cellular Operating Co.
LLC
By: Centennial Cellular Corp., its
sole member
/s/ Michael J. Small
_____________________________________
Michael J. Small,
Chief Executive Officer and
Director
The undersigned directors and officers of each of Centennial Cellular
Corp. and Centennial Cellular Operating Co. LLC, hereby appoint Michael J.
Small and Thomas E. McInerney, or either of them individually, as attorney-in-
fact for the undersigned, with full power of substitution for, and in the name,
place and stead of the undersigned, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, any and all
amendments (including post-effective amendments) and exhibits to this
registration statement on Form S-4 and any and all applications and other
documents to be filed with the Securities and Exchange Commission pertaining to
the registration of the securities covered hereby, with full power and
authority to do and perform any and all acts and things whatsoever requisite
and necessary or desirable, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael J. Small Chief Executive Officer March 5, 1999
______________________________________ and Director (Principal
Michael J. Small Executive Officer)
/s/ Peter W. Chehayl Vice President, Treasurer March 5, 1999
______________________________________ and Chief Financial
Peter W. Chehayl Officer (Principal
Financial and Accounting
Officer)
/s/ Rudy J. Graf President and Chief March 5, 1999
______________________________________ Operating Officer,
Rudy J. Graf Director
/s/ Thomas E. McInerney Director March 5, 1999
______________________________________
Thomas E. McInerney
/s/ Anthony J. de Nicola Director March 5, 1999
______________________________________
Anthony J. de Nicola
/s/ Rudolph E. Rupert Director March 5, 1999
______________________________________
Rudolph E. Rupert
Director March 5, 1999
______________________________________
Mark T. Gallogly
/s/ Lawrence H. Guffey Director March 5, 1999
______________________________________
Lawrence H. Guffey
</TABLE>
II-5
<PAGE>
Exhibit 3.3
CERTIFICATE OF FORMATION
OF
CENTENNIAL CELLULAR OPERATING CO. LLC
This Certificate of Formation of CENTENNIAL CELLULAR OPERATING CO. LLC
(the "LLC"), dated as of November 30, 1998, is being duly executed and filed by
Centennial Finance Corp., a Delaware corporation, as an authorized person, to
form a limited liability company under the Delaware Limited Liability Company
Act (6 Del.C. s.s. 18-101, et seq.)
FIRST. The name of the limited liability company formed hereby is
CENTENNIAL CELLULAR OPERATING CO. LLC.
SECOND. The address of the registered office of the LLC in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
19805. The name of the LLC's registered agent for service of process at such
address is CSC - Corporation Service Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
CENTENNIAL FINANCE CORP.
By: /s/ Michael J. Small
-------------------------------
Name: Michael J. Small
Title: Chief Executive Officer
<PAGE>
Exhibit 3.4
LIMITED LIABILITY COMPANY AGREEMENT
OF
CENTENNIAL CELLULAR OPERATING CO. LLC
This Limited Liability Company Agreement of Centennial Cellular
Operating Co. LLC (the "Company"), is made as of November 30, 1998, by
Centennial Finance Corp., a Delaware corporation ("Parent"), and the Persons who
become members of the Company in accordance with the provisions hereof and whose
names are set forth as Members on Schedule A hereto.
WHEREAS, Parent desires to form a limited liability company pursuant to
the Delaware Limited Liability Company Act, 6 Del. C. Sections 18-101, et seq.,
as amended from time to time (the "Delaware Act"), by filing a Certificate of
Formation of the Company with the office of the Secretary of State of the State
of Delaware and entering into this Agreement.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and intending to be legally bound,
the Members hereby agree as follows:
ARTICLE I
DEFINED TERMS
Section 1.1 Definitions. Unless the context otherwise requires, the
terms defined in this Article I shall, for the purposes of this Agreement, have
the meanings herein specified.
"Additional Members" has the meaning set forth in Section 13.1 hereof.
"Affiliate" means with respect to a specified Person, any Person that
directly or indirectly controls, is controlled by, or is under common control
with, the specified Person. As used in this definition, the term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"Agreement" means this Limited Liability Company Agreement of the
Company, as amended, modified, supplemented or restated from time to time.
<PAGE>
"Capital Account" means, with respect to any Member, the account
maintained for such Member in accordance with the provisions of Section 4.4
hereof.
"Capital Contribution" means, with respect to any Member, the aggregate
amount of money and the fair market value of any property (other than money)
contributed to the Company pursuant to Section 4.1 hereof with respect to such
Member's Interest.
"Certificate" means the Certificate of Formation of the Company and any
and all amendments thereto and restatements thereof filed on behalf of the
Company with the office of the Secretary of State of the State of Delaware
pursuant to the Delaware Act.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any corresponding federal tax statute enacted after the date of this
Agreement. A reference to a specific section of the Code refers not only to such
specific section but also to any corresponding provision of any federal tax
statute enacted after the date of this Agreement, as such specific section or
corresponding provision is in effect on the date of application of the
provisions of this Agreement containing such reference.
"Company" means Centennial Cellular Operating Co. LLC, the limited
liability company formed and continued under and pursuant to the Delaware Act
and this Agreement.
"Covered Person" means a Member, any Affiliate of a Member, any
officers, directors, shareholders, partners, employees, representatives or
agents of a Member, or their respective Affiliates, or any employee or agent of
the Company or its Affiliates.
"Delaware Act" means the Delaware Limited Liability Company Act, 6
Del.C. Sections 18-101, et seq., as amended from time to time.
"Fiscal Year" means (i) the period commencing upon the formation of the
Company and ending on December 31, 1998, (ii) any subsequent twelve (12) month
period commencing on January 1 and ending on December 31, or (iii) any portion
of the period described in clause (ii) of this sentence for which the Company is
required to allocate Profits, Losses and other items of Company income, gain,
loss or deduction pursuant to Article VIII hereof.
"Interest" means a Member's limited liability company interest in the
Company which represents such Member's share of the profits and losses of the
Company and a Member's right to receive distributions of the Company's assets in
accordance with the provisions of this Agreement and the Delaware Act.
"Member" means Parent and includes any Person admitted as an Additional
Member pursuant to the provisions of this Agreement, in such Person's capacity
as a member of the Company; and "Members" means two (2) or more of such Persons
when acting in their capacities
2
<PAGE>
as members of the Company. For purposes of the Delaware Act, the Members shall
constitute one (1) class or group of members.
"Net Cash Flow" means, for each Fiscal Year or other period of the
Company, the gross cash receipts of the Company from all sources, but excluding
any amounts, such as gross receipts taxes, that are held by the Company as a
collection agent or in trust for others or that are otherwise not
unconditionally available to the Company, less all amounts paid by or for the
account of the Company during the same Fiscal Year or other period (including,
without limitation, payments of principal and interest on any Company
indebtedness and expenses reimbursed to the Members under Section 5.2 hereof),
and less any amounts determined by the Members to be necessary to provide a
reasonable reserve for working-capital needs or any other contingencies of the
Company. Net Cash Flow shall be determined in accordance with the cash receipts
and disbursements method of accounting and otherwise in accordance with
generally accepted accounting principles consistently applied. Net Cash Flow
shall not be reduced by depreciation, amortization, cost recovery deductions,
depletion, similar allowances or other non-cash items, but shall be increased by
any reduction of reserves previously established.
"Percentage Interest" means the Interest of a Member, expressed as a
portion of one hundred percent, as shown on Schedule A hereto.
"Person" includes any individual, corporation, association, partnership
(general or limited), joint venture, trust, estate, limited liability company,
or other legal entity or organization.
"Profits" and "Losses" means, for each Fiscal Year, an amount equal to
the Company's taxable income or loss for such Fiscal Year, determined in
accordance with Section 703(a) of the Code.
"Tax Matters Partner" has the meaning set forth in Section 11.1 hereof.
"Treasury Regulations" means the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
Section 1.2 Headings. The headings and subheadings in this Agreement
are included for convenience and identification only and are in no way intended
to describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
ARTICLE II
FORMATION AND TERM
3
<PAGE>
Section 2.1 Formation.
2.1.1 The Members hereby form the Company as a limited
liability company under and pursuant to the provisions of the Delaware
Act and agree that the rights, duties and liabilities of the Members
shall be as provided in the Delaware Act, except as otherwise provided
herein.
2.1.2 Upon the execution of this Agreement or a counterpart of
this Agreement, Parent shall be admitted as the sole member of the
Company.
2.1.3 The name and mailing address of each Member and the
amount contributed to the capital of the Company shall be listed on
Schedule A attached hereto. The Members shall be required to update
Schedule A from time to time as necessary to accurately reflect the
information therein. Any amendment or revision to Schedule A made in
accordance with this Agreement shall not be deemed an amendment to this
Agreement. Any reference in this Agreement to Schedule A shall be
deemed to be a reference to Schedule A as amended and in effect from
time to time.
2.1.4 Parent, as an authorized person within the meaning of
the Delaware Act, shall execute, deliver and file the Certificate.
Section 2.2 Name. The name of the Company formed hereby is Centennial
Cellular Operating Co. LLC. The business of the Company may be conducted upon
compliance with all applicable laws under any other name designated by the
Members.
Section 2.3 Term. The term of the Company shall commence on the date
the Certificate is filed in the office of the Secretary of State of the State of
Delaware and shall continue until December 31, 2030, unless the Company is
dissolved before such date in accordance with the provisions of this Agreement.
The existence of the Company as a separate legal entity shall continue until
cancellation of the Certificate in the manner required by the Delaware Act.
Section 2.4 Registered Agent and Office. The Company's registered agent
and office in the State of Delaware shall be CSC - Corporation Service Company,
1013 Centre Road, Wilmington (County of New Castle), Delaware 19805. At any
time, the Members may designate another registered agent and/or registered
office.
Section 2.5 Principal Place of Business. The principal place of
business of the Company shall be c/o Welsh, Carson, Anderson & Stowe, 320 Park
Avenue, Suite 2500, New York, NY 10022. At any time, the Members may change the
location of the Company's principal place of business.
Section 2.6 Qualification in Other Jurisdictions. The Members shall, if
required by law or if deemed advisable by the Members, cause the Company to be
qualified, formed or registered
4
<PAGE>
under assumed or fictitious name statutes or similar laws in any jurisdiction in
which the Company transacts business. Parent, as an authorized person within the
meaning of the Delaware Act, shall execute, deliver and file any certificates
(and any amendments and/or restatements thereof) necessary for the Company to
qualify to do business in a jurisdiction in which the Company may wish to
conduct business.
ARTICLE III
PURPOSE AND POWERS OF THE COMPANY
Section 3.1 Purpose. The Company is formed for the object and purpose
of, and the nature of the business to be conducted and promoted by the Company
is, engaging in any lawful act or activity for which limited liability companies
may be formed under the Delaware Act and engaging in any and all activities
necessary, convenient, desirable or incidental to the foregoing, including,
without limitation, acquiring, holding, managing, operating and disposing of
securities of corporations, partnerships, limited liability companies and
trusts.
Section 3.2 Powers of the Company.
3.2.1 The Company shall have the power and authority to take
any and all actions necessary, appropriate, proper, advisable,
incidental or convenient to or for the furtherance of the purpose set
forth in Section 3.1, including, but not limited to, the power:
3.2.1.1 to conduct its business, carry on its operations and
have and exercise the powers granted to a limited liability
company by the Delaware Act in any state, territory, district
or possession of the United States, or in any foreign country
that may be necessary, convenient or incidental to the
accomplishment of the purpose of the Company;
3.2.1.2 to acquire by purchase, contribution of property or
otherwise, own, hold, operate, maintain, finance, sell,
convey, transfer, or dispose of any securities or other
personal property that may be necessary, convenient or
incidental to the accomplishment of the purpose of the
Company;
3.2.1.3 to enter into, perform and carry out contracts of any
kind, including, without limitation, contracts with any
Member, any Affiliate thereof, or any agent of the Company
necessary to, in connection with, convenient to, or incidental
to the accomplishment of the purpose of the Company;
3.2.1.4 to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, vote, use, employ, sell, mortgage, lend,
pledge, or otherwise dispose of, and
5
<PAGE>
otherwise use and deal in and with, shares or other interests
in or obligations of domestic or foreign corporations,
associations, general or limited partnerships (including,
without limitation, the power to be admitted as a partner
thereof and to exercise the rights and perform the duties
created thereby), trusts, limited liability companies
(including, without limitation, the power to be admitted as a
member or appointed as a manager thereof and to exercise the
rights and perform the duties created thereof), or individuals
or direct or indirect obligations of the United States or of
any government, state, territory, governmental district or
municipality or of any instrumentality of any of them;
3.2.1.5 to lend money for its proper purpose, to invest and
reinvest its funds, to take and hold real and personal
property for the payment of funds so loaned or invested;
3.2.1.6 to sue and be sued, complain and defend, and
participate in administrative or other proceedings, in its
name;
3.2.1.7 to appoint employees and agents of the Company, and
define their duties and fix their compensation;
3.2.1.8 to indemnify any Person in accordance with the
Delaware Act and to obtain any and all types of insurance;
3.2.1.9 to cease its activities and cancel its Certificate;
3.2.1.10 to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take
any other action with respect to any lease, contract or
security agreement in respect of any assets of the Company;
3.2.1.11 to borrow money and issue evidences of indebtedness,
and to secure the same by a mortgage, pledge or other lien on
the assets of the Company;
3.2.1.12 to pay, collect, compromise, litigate, arbitrate or
otherwise adjust or settle any and all other claims or demands
of or against the Company or to hold such proceeds against the
payment of contingent liabilities; and
3.2.1.13 to make, execute, acknowledge and file any and all
documents or instruments necessary, convenient or incidental
to the accomplishment of the purpose of the Company.
6
<PAGE>
3.2.2 The Company may merge with, or consolidate into, another
Delaware limited liability company or other business entity (as defined
in Section 18-209(a) of the Delaware Act) upon the approval of all of
the Members.
ARTICLE IV
CAPITAL CONTRIBUTIONS, INTERESTS,
CAPITAL ACCOUNTS AND ADVANCES
Section 4.1 Capital Contributions.
4.1.1 Each Member has contributed or is deemed to have
contributed to the capital of the Company the amount set forth opposite
the Member's name on Schedule A attached hereto. The agreed value of
the Capital Contributions made or deemed to have been made by each
Member shall be set forth on Schedule A.
4.1.2 No Member shall be required to make any additional
capital contribution to the Company. However, a Member may make
additional capital contributions to the Company with the written
consent of all of the Members.
Section 4.2 Member's Interest. A Member's Interest shall for all
purposes be personal property. A Member has no interest in specific Company
property.
Section 4.3 Status of Capital Contributions.
4.3.1 Except as otherwise provided in this Agreement, the
amount of a Member's Capital Contributions may be returned to it, in
whole or in part, at any time, but only with the consent of all of the
Members. Any such returns of Capital Contributions shall be made to all
Members in proportion to the Percentage Interests. Notwithstanding the
foregoing, no return of a Member's Capital Contributions shall be made
hereunder if such distribution would violate applicable state law.
Under circumstances requiring a return of any Capital Contribution, no
Member shall have the right to demand or receive property other than
cash, except as may be specifically provided in this Agreement.
4.3.2 No Member shall receive any interest, salary or drawing
with respect to its Capital Contributions or its Capital Account or for
services rendered on behalf of the Company or otherwise in its capacity
as a Member, except as otherwise specifically provided in this
Agreement.
4.3.3 Except as otherwise provided herein and by applicable
state law, the Members shall be liable only to make their capital
contributions pursuant to Section 4.1 hereof, and no Member shall be
required to lend any funds to the Company or, after a
7
<PAGE>
Member's Capital Contributions have been fully paid pursuant to Section
4.1 hereof, to make any additional capital contributions to the
Company. No Member shall have any personal liability for the repayment
of any Capital Contribution of any other Member.
Section 4.4 Capital Accounts.
4.4.1 An individual Capital Account shall be established and
maintained for each Member.
4.4.2 The Capital Account of each Member shall be maintained
in accordance with the following provisions:
4.4.3 to such Member's Capital Account there shall be credited
such Member's Capital Contributions (consisting of cash or the
fair market value of any property net of any liabilities
secured by such contributed property that the Company is
considered to assume or take subject to under Section 752 of
the Code); such Member's distributive share of Profits; and
such Member's distributive share of other items of income,
gain or credits; and
4.4.4 from such Member's Capital Account there shall be
debited the amount of cash and the fair market value of
property distributed by the Company to such Member (net of
liabilities secured by such distributed property which the
Member is considered to assume or take subject to under
Section 752 of the Code); such Member's distributive share of
Losses; and such Member's distributive share of other items of
loss or deduction.
Section 4.5 Advances. If any Member shall advance any funds to the
Company in excess of its Capital Contributions, the amount of such advance shall
neither increase its Capital Account nor entitle it to any increase in its share
of the distributions of the Company. The amount of any such advance shall be a
debt obligation of the Company to such Member and shall be subject to such terms
and conditions acceptable to the Company and each Member. Any such advance shall
be payable and collectible only out of Company assets, and the other Members
shall not be personally obligated to repay any part thereof. No Person who makes
any nonrecourse loan to the Company shall have or acquire, as a result of making
such loan, any direct or indirect interest in the profits, capital or property
of the Company, other than as a creditor.
ARTICLE V
MEMBERS
8
<PAGE>
Section 5.1 Powers of Members. The Members shall have the power to
exercise any and all rights or powers granted to the Members pursuant to the
express terms of this Agreement and the Delaware Act.
Section 5.2 Reimbursements. The Company shall reimburse the Members for
all ordinary and necessary out-of-pocket expenses incurred by the Members on
behalf of the Company. Such reimbursement shall be treated as an expense of the
Company that shall be deducted in computing the Net Cash Flow and shall not be
deemed to constitute a distributive share of Profits or a distribution or return
of capital to any Member.
Section 5.3 Partition. Each Member waives any and all rights that it
may have to maintain an action for partition of the Company's property.
Section 5.4 Resignation. A Member may not resign from the Company
without the written consent of all of the other Members.
ARTICLE VI
MANAGEMENT
Section 6.1 Management of the Company.
6.1.1 In accordance with Section 18-402 of the Delaware Act,
management of the Company shall be vested in the Members. Except as
otherwise expressly provided herein, whenever this Agreement requires
or permits actions to be taken by the Members, the decision by Members
owning more than fifty percent (50%) of the Percentage Interests shall
control.
6.1.2 The Members shall have full, exclusive and complete
discretion to manage the business and affairs of the Company, to make
all decisions affecting the business and affairs of the Company and to
take such actions as they deem necessary or appropriate to accomplish
the purpose of the Company as set forth herein. There shall not be a
"manager" (within the meaning of the Delaware Act) of the Company.
6.1.3 With respect to third parties, each Member is an agent
of the Company's business, and each Member may bind the Company. If a
Member binds the Company, but did not have the authority to so act
under this Agreement (including by failing to obtain necessary consents
from other Members), in addition to any other remedy (at law or in
equity) that may be available against such Member, such Member shall be
liable for all damages caused by breaching this Agreement.
9
<PAGE>
Section 6.2 Reliance by Third Parties. Any Person dealing with the
Company or any Member may rely upon a certificate signed by any Member as to:
6.2.1 the identity of a Member of the Company;
6.2.2 the existence or non-existence of any fact or facts which
constitute a condition precedent to acts by the Members or in any other
manner germane to the affairs of the Company;
6.2.3 the Persons who are authorized to execute and deliver any
instrument or document of, or on behalf of, the Company; or
6.2.4 any act or failure to act by the Company or as to any
other matter whatsoever involving the Company or any Member.
ARTICLE VII
AMENDMENTS AND MEETINGS
Section 7.1 Amendments. Any amendment to this Agreement shall be
adopted and be effective as an amendment hereto if it receives the affirmative
vote of all of the Members; provided that such amendment be in writing and
executed by all of the Members.
Section 7.2 Meetings of the Members.
7.2.1 Meetings of the Members may be called at any time by any
Member. Notice of any meeting shall be given to all Members not less
than two (2) days nor more than thirty (30) days prior to the date of
such meeting. Each Member may authorize any Person to act for it by
proxy on all matters in which a Member is entitled to participate,
including waiving notice of any meeting, or voting or participating at
a meeting. Every proxy must be signed by the Member or its
attorney-in-fact.
7.2.2 The Members shall establish all other provisions
relating to meetings of Members, including notice of the time, place or
purpose of any meeting at which any matter is to be voted on by any
Members, waiver of any such notice, action by consent without a
meeting, the establishment of a record date, quorum requirements,
voting in person or by proxy or any other matter with respect to the
exercise of any such right to vote.
7.2.3 The Company may take any action contemplated by this
Agreement as approved by the unanimous written consent of the Members.
10
<PAGE>
ARTICLE VIII
ALLOCATIONS
Section 8.1 Profits and Losses.
8.1.1 Subject to the allocation rules of Section 8.2 hereof,
Profits for any Fiscal Year shall be allocated among the Members in
proportion to the Percentage Interests.
8.1.2 Subject to the allocation rules of Section 8.2 hereof,
Losses for any Fiscal Year shall be allocated among the Members in
proportion to the Percentage Interests.
Section 8.2 Allocation Rules.
8.2.1 For purposes of determining the Profits, Losses or any
other items allocable to any period, Profits, Losses and any such other
items shall be determined on a daily, monthly or other basis, as
determined by the Members using any method that is permissible under
Section 706 of the Code and the Treasury Regulations thereunder.
8.2.2 Except as otherwise provided in this Agreement, all
items of Company income, gain, loss, deduction and any other
allocations not otherwise provided for shall be divided among the
Members in the same proportions as they share Profits and Losses for
the Fiscal Year in question.
8.2.3 The Members are aware of the income tax consequences of
the allocations made by this Article VIII and hereby agree to be bound
by the provisions of this Article VIII in reporting their shares of
Company income and loss for income tax purposes.
8.2.4 The Members intend that the allocation provisions set
forth in this Agreement are intended to comply with Section 704(b) of
the Code and the Treasury Regulations issued thereunder and the
provisions are to be interpreted in a manner consistent with those
Treasury Regulations.
Section 8.3 Tax Allocations; Section 704(c) of the Code. In accordance
with Section 704(c) of the Code and the Treasury Regulations thereunder, income,
gain, loss and deduction with respect to any property contributed to the capital
of the Company shall, solely for income tax purposes, be allocated among the
Members so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its initial
fair market value.
ARTICLE IX
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<PAGE>
DISTRIBUTIONS
Section 9.1 Net Cash Flow. Except as otherwise provided in Article XV
hereof (relating to the dissolution of the Company), any distribution of the Net
Cash Flow during any Fiscal Year shall be made to the Members in proportion to
the Percentage Interests.
Section 9.2 Distribution Rules. All distributions pursuant to Section
9.1 hereof shall be at such times and in such amounts as shall be determined by
the Members.
Section 9.3 Limitations on Distribution. Notwithstanding any provision
to the contrary contained in this Agreement, the Company shall not make a
distribution to any Member on account of its interest in the Company if such
distribution would violate Section 18-607 of the Delaware Act or other
applicable law.
ARTICLE X
BOOKS AND RECORDS
Section 10.1 Books, Records and Financial Statements.
10.1.1 At all times during the continuance of the Company, the
Company shall maintain, at its principal place of business, separate
books of account for the Company that shall show a true and accurate
record of all costs and expenses incurred, all charges made, all
credits made and received and all income derived in connection with the
operation of the Company business in accordance with generally accepted
accounting principles consistently applied, and, to the extent
inconsistent therewith, in accordance with this Agreement. Such books
of account, together with a copy of this Agreement and of the
Certificate, shall at all times be maintained at the principal place of
business of the Company and shall be open to inspection and examination
at reasonable times by each Member and its duly authorized
representative for any purpose reasonably related to such Member's
interest in the Company.
10.1.2 The Members shall prepare and maintain, or cause to be
prepared and maintained, the books of account of the Company. The
Members shall prepare and file, or cause to be prepared and filed, all
applicable federal and state tax returns.
Section 10.2 Accounting Method. For both financial and tax reporting
purposes and for purposes of determining Profits and Losses, the books and
records of the Company shall be kept on the accrual method of accounting applied
in a consistent manner and shall reflect all Company transactions and be
appropriate and adequate for the Company's business.
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Section 10.3 Annual Audit. At any time at a Member's sole discretion,
the financial statements of the Company may be audited by an independent
certified public accountant, selected by such Member, with such audit to be
accompanied by a report of such accountant containing its opinion. The cost of
such audits will be an expense of the Company. A copy of any such audited
financial statements and accountant's report will be made available for
inspection by the Members.
ARTICLE XI
TAX MATTERS
Section 11.1 Tax Matters Partner.
11.1.1 Parent is hereby designated as "Tax Matters Partner" of
the Company for purposes of Section 6231(a)(7) of the Code. Parent may
not choose a forum for the resolution of tax matters or extend any
statute of limitation without the written consent of all of the
Members.
11.1.2 The Tax Matters Partner shall, within ten (10) days of
the receipt of any notice from the Internal Revenue Service in any
administrative proceeding at the Company level relating to the
determination of any Company item of income, gain, loss, deduction or
credit, mail or otherwise deliver a copy of such notice to each Member.
Section 11.2 Taxation as Partnership. The Company shall be treated as
a partnership for U.S. federal income tax purposes.
ARTICLE XII
LIABILITY, EXCULPATION AND INDEMNIFICATION
Section 12.1 Liability. Except as otherwise provided by the Delaware
Act, the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company, and no Covered Person shall be obligated personally
for any such debt, obligation or liability of the Company solely by reason of
being a Covered Person.
Section 12.2 Exculpation.
12.2.1 No Covered Person shall be liable to the Company or any
other Covered Person for any loss, damage or claim incurred by reason
of any act or omission performed or omitted by such Covered Person in
good faith on behalf of the Company and in a
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manner reasonably believed to be within the scope of authority
conferred on such Covered Person by this Agreement, except that a
Covered Person shall be liable for any such loss, damage or claim
incurred by reason of such Covered Person's gross negligence or willful
misconduct.
12.2.2 A Covered Person shall be fully protected in relying in
good faith upon the records of the Company and upon such information,
opinions, reports or statements presented to the Company by any Person
as to matters the Covered Person reasonably believes are within such
other Person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the Company, including
information, opinions, reports or statements as to the value and amount
of the assets, liabilities, Profits,
Losses or Net Cash Flow or any other facts pertinent to the existence
and amount of assets from which distributions to Members might properly
be paid.
Section 12.3 Fiduciary Duty. To the extent that, at law or in equity, a
Covered Person has duties (including fiduciary duties) and liabilities relating
thereto to the Company or to any other Covered Person, a Covered Person acting
under this Agreement shall not be liable to the Company or to any Member for its
good faith reliance on the provisions of this Agreement. The provisions of this
Agreement, to the extent that they restrict the duties and liabilities of a
Covered Person otherwise existing at law or in equity, are agreed by the parties
hereto to replace such other duties and liabilities of such Covered Person.
Section 12.4 Indemnification. To the fullest extent permitted by
applicable law, a Covered Person shall be entitled to indemnification from the
Company for any loss, damage or claim incurred by such Covered Person by reason
of any act or omission performed or omitted by such Covered Person in good faith
on behalf of the Company and in a manner reasonably believed to be within the
scope of authority conferred on such Covered Person by this Agreement, except
that no Covered Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Covered Person by reason of gross
negligence or willful misconduct with respect to such acts or omissions;
provided, however, that any indemnity under this Section 12.4 shall be provided
out of and to the extent of Company assets only, and no Covered Person shall
have any personal liability on account thereof.
Section 12.5 Expenses. To the fullest extent permitted by applicable
law, expenses (including legal fees) incurred by a Covered Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Company of an undertaking by or
on behalf of the Covered Person to repay such amount if it shall be determined
that the Covered Person is not entitled to be indemnified as authorized in
Section 12.4 hereof.
Section 12.6 Insurance. The Company may purchase and maintain
insurance, to the extent and in such amounts as the Members shall, in their sole
discretion, deem reasonable, on behalf of Covered Persons and such other Persons
as the Members shall determine, against any
14
<PAGE>
liability that may be asserted against or expenses that may be incurred by any
such Person in connection with the activities of the Company or such
indemnities, regardless of whether the Company would have the power to indemnify
such Person against such liability under the provisions of this Agreement. The
Members and the Company may enter into indemnity contracts with Covered Persons
and such other Persons as the Members shall determine and adopt written
procedures pursuant to which arrangements are made for the advancement of
expenses and the funding of obligations under Section 12.5 hereof and containing
such other procedures regarding indemnification as are appropriate.
Section 12.7 Outside Businesses. Any Member or Affiliate thereof may
engage in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of the Company, and the Company and the Members shall have no rights by virtue
of this Agreement in and to such independent ventures or the income or profits
derived therefrom, and the pursuit of any such venture, even if competitive with
the business of the Company, shall not be deemed wrongful or improper. No Member
or Affiliate thereof shall be obligated to present any particular investment
opportunity to the Company even if such opportunity is of a character that, if
presented to the Company, could be taken by the Company, and any Member or
Affiliate thereof shall have the right to take for its own account (individually
or as a partner or fiduciary) or to recommend to others any such particular
investment opportunity.
ARTICLE XIII
ADDITIONAL MEMBERS
Section 13.1 Admission. By approval of all of the Members, the Company
is authorized to admit any Person as an additional member of the Company (each,
an "Additional Member" and collectively, the "Additional Members"). Each such
Person shall be admitted as an Additional Member at the time such Person (i)
executes this Agreement or a counterpart of this Agreement and (ii) is named as
a Member on Schedule A hereto. The legal fees and expenses associated with such
admission shall be borne by the Company.
Section 13.2 Allocations. Additional Members shall not be entitled to
any retroactive allocation of the Company's income, gains, losses, deductions,
credits or other items; provided that, subject to the restrictions of Section
706(d) of the Code, Additional Members shall be entitled to their respective
share of the Company's income, gains, losses, deductions, credits and other
items arising under contracts entered into before the effective date of the
admission of any Additional Members to the extent that such income, gains,
losses, deductions, credits and other items arise after such effective date. To
the extent consistent with Section 706(d) of the Code and Treasury Regulations
promulgated thereunder, the Company's books may be closed at the time Additional
Members are admitted (as though the Company's tax year had ended) or the Company
may credit to the Additional Members pro rata allocations of the Company's
income,
15
<PAGE>
gains, losses, deductions, credits and items for that portion of the
Company's Fiscal Year after the effective date of the admission of the
Additional Members.
ARTICLE XIV
ASSIGNABILITY AND SUBSTITUTE MEMBERS
Section 14.1 Assignability of Interests. No Member may assign the whole
or any part of its Interests.
Section 14.2 Recognition of Assignment by Company. No assignment or
pledge of any Interest, or any part thereof, that is in violation of this
Article XIV shall be valid or effective, and neither the Company nor the Members
shall recognize the same for the purpose of making distributions pursuant to
this Agreement. Neither the Company nor the Members shall incur any liability as
a result of refusing to make any such distributions to the assignee of any such
invalid assignment.
Section 14.3 Pledge. No Member may pledge or otherwise encumber the
whole or any part of its Interests.
ARTICLE XV
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 15.1 No Dissolution. The Company shall not be dissolved by the
admission of Additional Members in accordance with the terms of this Agreement.
Section 15.2 Events Causing Dissolution. The Company shall be dissolved
and its affairs shall be wound up upon the occurrence of any of the following
events:
15.2.1 the expiration of the term of the Company, as provided
in Section 2.3 hereof;
15.2.2 the written consent of all Members;
15.2.3 the death, retirement, resignation, expulsion,
bankruptcy or dissolution of a Member or the occurrence of any other
event under the Delaware Act that terminates the continued membership
of a Member in the Company unless, within ninety (90) days after the
occurrence of such an event, all of the remaining Members agree in
writing to continue the business of the Company; or
16
<PAGE>
15.2.4 the entry of a decree of judicial dissolution under
Section 18-802 of the Delaware Act.
Section 15.3 Liquidation. Upon dissolution of the Company, the Members
shall carry out the winding up of the Company and shall immediately commence to
wind up the Company's affairs; provided, however, that a reasonable time shall
be allowed for the orderly liquidation of the assets of the Company and the
satisfaction of liabilities to creditors so as to enable the Members to minimize
the normal losses attendant upon a liquidation. The Members shall continue to
share Profits and Losses during liquidation in the same proportions, as
specified in Article VIII hereof, as before liquidation. The proceeds of
liquidation shall be distributed in the following order and priority:
15.3.1 to creditors of the Company, including Members who are
creditors, to the extent otherwise permitted by law, in satisfaction of
the liabilities of the Company (whether by payment or the making of
reasonable provision for payment thereof); and
15.3.2 to the Members in accordance with their Capital Account
balances, after giving effect to all contributions, distributions and
allocations for all periods.
Section 15.4 Termination. The Company shall terminate when all of the
assets of the Company, after payment of or due provision for all debts,
liabilities and obligations of the Company, shall have been distributed to the
Members in the manner provided for in this Article XV and the Certificate shall
have been canceled in the manner required by the Delaware Act.
Section 15.5 Claims of the Members. The Members and former Members
shall look solely to the Company's assets for the return of their Capital
Contributions, and if the assets of the Company remaining after payment of or
due provision for all debts, liabilities and obligations of the Company are
insufficient to return such Capital Contributions, the Members and former
Members shall have no recourse against the Company or any other Member.
ARTICLE XVI
MISCELLANEOUS
Section 16.1 Notices. All notices provided for in this Agreement shall
be in writing, duly signed by the party giving such notice, and shall be
delivered, mailed via an overnight courier service, telecopied or mailed by
registered or certified mail, as follows:
16.1.1 If given to the Company, to the address set forth in
Section 2.5 hereof.
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16.1.2 If given to any Member, to the address set forth
opposite its name on Schedule A attached hereto, or at such other
address as such Member may hereafter designate by written notice to the
Company.
All such notices shall be deemed to have been given when received.
Section 16.2 Failure to Pursue Remedies. The failure of any party to
seek redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
Section 16.3 Cumulative Remedies. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
Section 16.4 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of all of the parties and, to the extent permitted by this
Agreement, their successors, legal representatives and assigns.
Section 16.5 Interpretation. Throughout this Agreement, nouns, pronouns
and verbs shall be construed as masculine, feminine, neuter, singular or plural,
whichever shall be applicable. All references herein to "Articles," "Sections"
and "Paragraphs" shall refer to corresponding provisions of this Agreement.
Section 16.6 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision was omitted.
Section 16.7 Counterparts. This Agreement may be executed in any number
of counterparts with the same effect as if all parties hereto had signed the
same document. All counterparts shall be construed together and shall constitute
one instrument.
Section 16.8 Integration. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
Section 16.9 Governing Law. This Agreement and the rights of the
parties hereunder shall be interpreted in accordance with the laws of the State
of Delaware, and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above stated.
MEMBERS:
CENTENNIAL FINANCE CORP.
By: /s/ Michael J. Small
-------------------------
Name: Michael J. Small
Title: Chief Executive Officer
19
<PAGE>
SCHEDULE A
MEMBERS
<TABLE>
<CAPTION>
Mailing Capital Agreed Percentage
Name Address Contribution Value Interest
- ---- ------- ------------ ------- ----------
<S> <C> <C> <C> <C>
Centennial Finance Corp. 320 Park Avenue $100 $100 100%
Suite 2500
New York, NY 10022
</TABLE>
20
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EXHIBIT 10.1
================================================================================
CENTENNIAL CELLULAR OPERATING CO. LLC
(a Delaware limited liability company)
CENTENNIAL FINANCE CORP.
(a Delaware corporation)
(to be merged with and into
Centennial Cellular Corp.
at the time of the Merger)
$370,000,000
10 3/4% Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
Dated: December 9, 1998
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Purchase Agreement........................................................................ 1
SECTION 1. Representations and Warranties............................................... 4
(a) Representations and Warranties by the Issuer and Finance Corp............... 4
(i) Similar Offerings................................................... 4
(ii) Offering Memorandum................................................. 4
(iii) Independent Accountants............................................. 4
(iv) Financial Statements................................................ 5
(v) No Material Adverse Change in Business.............................. 5
(vi) Good Standing of the Issuer......................................... 5
(vii) Good Standing of Centennial......................................... 6
(viii) Good Standing of Finance Corp....................................... 6
(ix) Good Standing of Subsidiaries....................................... 6
(x) Capitalization...................................................... 7
(xi) Authorization of Agreements......................................... 7
(xii) Authorization of the Indenture and Supplemental Indenture........... 8
(xiii) Authorization of the Securities and Exchange Securities............. 9
(xiv) Authorization of the Credit Facilities.............................. 9
(xv) Authorization of the Subordinated Notes............................. 9
(xvi) Authorization of the Recapitalization Transactions.................. 9
(xvii) Description of the Securities, the Indenture, the Registration
Rights Agreement, the Pledge and Escrow
Agreement, the Mezzanine
Financing, the Recapitalization Documents and the Recapitalization
Transactions........................................................ 10
(xviii) Absence of Defaults and Conflicts................................... 10
(xix) Absence of Labor Disputes........................................... 11
(xx) Absence of Proceedings.............................................. 11
(xxi) Possession of Intellectual Property................................. 11
(xxii) Absence of Further Requirements..................................... 12
(xxiii) Possession of Licenses and Permits.................................. 12
(xxiv) Title to Property................................................... 13
(xxv) Tax Returns......................................................... 13
(xxvi) Insurance........................................................... 14
(xxvii) Solvency............................................................ 14
(xxviii) Stabilization or Manipulation....................................... 14
(xxix) Suppliers........................................................... 14
(xxx) Environmental Laws.................................................. 14
(xxxi) Registration Rights................................................. 15
(xxxii) Accounting Controls................................................. 15
(xxxiii) Investment Company Act.............................................. 15
(xxxiv) Rule 144A Eligibility............................................... 16
</TABLE>
-i-
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<TABLE>
<CAPTION>
<S> <C> <C>
(xxxv) No General Solicitation........................................... 16
(xxxvi) No Registration Required.......................................... 16
(xxxvii) No Directed Selling Efforts....................................... 16
(xxxviii) PORTAL .......................................................... 16
(xxxix) Year 2000 and Euro Disclosures.................................... 16
(xl) Pre-Merger Activities............................................. 16
(b)Officer's Certificates..................................................... 16
SECTION 2. Sale and Delivery to Initial Purchasers; Closing........................... 17
(a) Securities.............................................................. 17
(b) Payment................................................................. 17
(c) Qualified Institutional Buyer........................................... 17
(d) Denominations; Registration............................................. 18
SECTION 3. Covenants of the Issuer and Finance Corp................................... 18
(a) Offering Memorandum..................................................... 18
(b) Notice and Effect of Material Events.................................... 18
(c) Amendment to Offering Memorandum and Supplements........................ 18
(d) Qualification of Securities for Offer and Sale.......................... 19
(e) Integration............................................................. 19
(f) Rating of Securities.................................................... 19
(g) Rule 144A Information................................................... 19
(h) Restriction on Resales.................................................. 19
(i) Use of Proceeds......................................................... 19
(j) Restriction on Sale of Securities....................................... 20
(k) DTC Clearance........................................................... 20
(l) Legends................................................................. 20
(m) Interim Financial Statements............................................ 20
(n) Periodic Reports........................................................ 20
(o) Merger of Finance Corp. into Centennial................................. 20
(p) Recapitalization Documents.............................................. 21
(q) Subordinated Notes...................................................... 21
(r) Transfer of Assets to Issuer............................................ 21
(s) Consent Solicitations and Tender Offers................................. 21
SECTION 4. Payment of Expenses........................................................ 21
(a) Expenses................................................................ 21
(b) Termination of Agreement................................................ 22
SECTION 5. Conditions of Initial Purchasers' Obligations.............................. 22
(a) Opinion of Counsel for the Issuer and Finance Corp...................... 22
(b) Opinion of Regulatory Counsel for the Issuer and Finance Corp........... 22
(c) Opinion of Counsel for the Initial Purchasers........................... 22
(d) Officers' Certificate................................................... 23
(e) Accountant's Comfort Letter and Consent................................. 23
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(f) Bring-down Comfort Letter............................................... 23
(g) PORTAL.................................................................. 23
(h) Officer's Certificate; Solvency Opinion................................. 23
(i) Registration Rights Agreement, Pledge and Escrow Agreement and the
Indenture............................................................... 24
(j) Escrow Amounts.......................................................... 24
(k) Consent Solicitations and Tender Offers................................. 24
(l) Merger Agreement........................................................ 24
(m) Additional Documents.................................................... 24
(n) Termination of Agreement................................................ 24
SECTION 6. Indemnification............................................................. 24
(a) Indemnification of Initial Purchasers................................... 24
(b) Indemnification of the Issuer, Finance Corp. and Directors.............. 26
(c) Actions against Parties; Notification................................... 26
(d) Settlement without Consent if Failure to Reimburse...................... 26
SECTION 7. Contribution................................................................ 27
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.............. 28
SECTION 9. Termination of Agreement.................................................... 28
(a) Termination; General....................................................... 28
(b) Liabilities................................................................ 28
SECTION 10. [Intentionally Omitted.]................................................... 28
SECTION 11. Notices.................................................................... 28
SECTION 12. Parties.................................................................... 29
SECTION 13. Governing Law And Times.................................................... 29
SECTION 14. Effect of Headings......................................................... 29
</TABLE>
Schedule A Initial Purchasers
Schedule B Securities
Schedule C Subsidiaries
Exhibit A-1 Form of Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol
Exhibit A-2 Form of Opinion of Wilkinson, Barker, Knauer & Quinn, LLP
Exhibit B Form of Comfort Letter from Deloitte & Touche LLP
-iii-
<PAGE>
$370,000,000
CENTENNIAL CELLULAR OPERATING CO. LLC
(a Delaware limited liability company)
CENTENNIAL FINANCE CORP.
(a Delaware corporation)
(to be merged with and into
Centennial Cellular Corp.
at the time of the Merger)
PURCHASE AGREEMENT
December 9, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
NationsBanc Montgomery Securities LLC
Morgan Stanley & Co. Incorporated
Chase Securities Inc.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Centennial Cellular Operating Co. LLC, a Delaware limited liability company
(the "Issuer"), and Centennial Finance Corp., a Delaware corporation (which will
be merged with and into Centennial Cellular Corp., a Delaware corporation
("Centennial"), upon consummation of the Merger (as defined below)), as co-
obligor ("Finance Corp."), confirm their respective agreements with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and each of the other Initial Purchasers named in Schedule A hereto
(collectively, the "Initial Purchasers"), for whom Merrill Lynch is acting as
representative (in such capacity, the "Representative"), with respect to the
issue and sale by the Issuer and Finance Corp., jointly and severally, and the
purchase by the Initial Purchasers, acting severally and not jointly, of
$370,000,000 (including the approximate amount necessary to fund an interest
escrow equal to the first three regularly scheduled semi-annual interest
payments on the Notes (the "Interest Escrow")) aggregate principal amount of the
Issuer's and Finance Corp.'s Senior
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<PAGE>
Subordinated Notes due 2008 (the "Securities"). Each Initial Purchaser shall
purchase, severally and not jointly, an amount of Securities equal to the total
amount of Securities purchased by all Initial Purchasers multiplied by the
percentage set forth next to its name in Schedule A hereto. The Securities are
to be issued pursuant to an indenture dated as of December 14, 1998 (the
"Indenture") among the Issuer, Finance Corp. and The Chase Manhattan Bank, as
trustee (the "Trustee"). Securities issued in book-entry form will be issued to
Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant to a
letter agreement, to be dated as of the Closing Time (as defined in Section
2(b)) (the "DTC Agreement"), among the Issuer, Finance Corp., the Trustee and
DTC.
The Securities are being issued as part of the financing necessary to
effect the merger (the "Merger") of CCW Acquisition Corp., a Delaware
corporation ("Acquisition"), with and into Centennial, whereby Centennial will
be the surviving corporation in the Merger. The Merger will be effected
pursuant to the Merger Agreement, dated as of July 2, 1998, between Centennial
and Acquisition, as amended on November 29, 1998 (as amended, the "Merger
Agreement"). Immediately following consummation of the Merger, Centennial (a)
shall cause all shares of capital stock and other equity interests of its
existing operating subsidiaries to be directly or indirectly contributed to the
Issuer and (b) shall have no other material assets other than its interest in
the capital stock of the Issuer. Upon consummation of the Merger, Finance Corp.
will merge with and into Centennial, which will become a joint and several co-
obligor of the Securities.
In connection with the Merger, Acquisition has received commitments from
Merrill Lynch Capital Corporation and others to provide the Issuer with $1.050
billion in senior secured credit facilities (the "Credit Facilities").
Acquisition has received commitments for $400 million in equity contributions
(the "Equity Contribution") from several investors (the "Equity Investors") and
Centennial has received a commitment from WCAS Capital Partners III, L.P. to
purchase senior subordinated notes in an aggregate principal amount of $180
million (the "Subordinated Notes"), as well as common stock of Centennial, for a
total price of $180 million (the "Mezzanine Financing"). In connection with the
Equity Contribution, the Equity Investors and Acquisition will enter into a
securities purchase agreement, stockholders agreement and registration rights
agreement which will govern the terms of their investment (the "Investment
Agreements"). Centennial will make and consummate tender offers (the "Tender
Offers") to acquire all of its 8 7/8% Senior Notes due 2001 (the "1993 Notes")
and its 10 1/8% Senior Notes due 2005 (the "1995 Notes" and together with the
1993 Notes, the "Old Notes"). The Merger Agreement, the Credit Facilities, the
Investment Agreements, and the agreements in connection with the Equity
Contribution, the Mezzanine Financing and the Tender Offers and all other
documents and instruments executed in connection with or pursuant to any of the
foregoing are collectively referred to herein as the "Recapitalization
Documents." The Merger, the borrowings pursuant to the Credit Facilities, the
Equity Contribution, the Mezzanine Financing, the Tender Offers and the issuance
of the Securities are collectively referred to herein as the "Recapitalization
Transactions."
Pending consummation of the Merger, the Initial Escrow Funds (as defined in
the Offering Memorandum) (which consist of the net proceeds from the sale of the
Securities and
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<PAGE>
cash in the amount of $25 million from the Equity Investors (the "Additional
Escrow Amount")) will be held by the Trustee in an escrow and pledge account
(the "Initial Escrow and Pledge Account") pursuant to a Pledge and Escrow
Agreement (the "Pledge and Escrow Agreement"). The Initial Escrow Funds will be
required to be invested in Cash Equivalents (as defined in the Offering
Memorandum). The Issuer will be permitted to obtain release of the Initial
Escrow Funds (other than an amount necessary to purchase the Pledged Securities
(as defined in the Pledge and Escrow Agreement)) upon consummation of the Merger
and related transactions provided that at that time (a) Centennial shall have
received the Equity Contribution and Mezzanine Financing of at least $580
million, (b) (i) the Issuer shall have incurred or assumed no more than $1.350
billion and no less than $1.250 billion of Indebtedness under the Credit
Facilities and the Securities and (ii) Centennial shall have outstanding under
the Credit Facility, the Securities and the Mezzanine Financing no more than
$1.550 billion (less the principal amount of Old Notes not tendered and not
defeased) and no less than $1.40 billion of Indebtedness (plus the amount of any
(x) Old Notes which have been properly defeased and (y) Equity Contribution and
Mezzanine Financing in excess of $580 million less the principal amount of Old
Notes not tendered and not defeased) and (c) (i) the Issuer and its Restricted
Subsidiaries shall not have outstanding more than $25 million of Indebtedness
for borrowed money (other than the Securities and the borrowings under the
Credit Facilities) and (ii) Centennial shall not have outstanding more than $25
million of Indebtedness for borrowed money (other than its obligations under the
Securities and the Credit Facilities, the Mezzanine Financing and any remaining
Old Notes which have been properly defeased or not tendered and not defeased)
(collectively, the "Financing Condition"). Upon the earlier to occur of (i)
termination of the Merger Agreement and (ii) 60 days after the Issue Date (as
defined in the Offering Memorandum) (which date may be extended to 90 days in
certain circumstances described in the Pledge and Escrow Agreement), if the
Initial Escrow Funds have not been released by that time, all of the outstanding
Securities will be subject to a Special Mandatory Redemption (as defined in the
Offering Memorandum) upon seven days' prior written notice to the Holders with
the Initial Escrow Funds at a redemption price equal to 101% of the principal
amount plus accrued and unpaid interest, if any, to the date of redemption.
Upon the closing of the Merger, Finance Corp. will merge with and into
Centennial, with Centennial as the surviving corporation, and Centennial will
assume by Supplemental Indenture (the "Supplemental Indenture") all of Finance
Corp.'s obligations, and the co-obligors under the Securities and the Indenture
will at such time and thereafter be the Issuer and Centennial. Upon the closing
of the Merger, pursuant to the Pledge and Escrow Agreement the Issuer and
Centennial must purchase and pledge the Pledged Securities in such amount as
will be sufficient upon receipt of scheduled interest and principal payments of
such securities to provide for payment of the first three scheduled interest
payments due on the Securities (unless already paid).
The Issuer and Finance Corp. understand that the Initial Purchasers propose
to make an offering of the Securities on the terms and in the manner set forth
herein and agree that the Initial Purchasers may resell, subject to the
conditions set forth herein, all or a portion of the Securities to purchasers
("Subsequent Purchasers") at any time after the date of this Agreement. The
Securities are to be offered and sold through the Initial Purchasers without
being registered under
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<PAGE>
the Securities Act of 1933, as amended (the "1933 Act"), in reliance upon
exemptions therefrom. Pursuant to the terms of the Securities and the Indenture,
investors that acquire the Securities may only resell or otherwise transfer such
Securities if such Securities are hereafter registered under the 1933 Act or if
an exemption from the registration requirements of the 1933 Act is available
(including the exemption afforded by Rule 144A ("Rule 144A") or Regulation S
("Regulation S") of the rules and regulations promulgated under the 1933 Act by
the Securities and Exchange Commission (the "Commission")).
Centennial, the Issuer and Finance Corp. have prepared and delivered to
each Initial Purchaser copies of a preliminary offering memorandum dated
November 30, 1998 (the "Preliminary Offering Memorandum") and have prepared and
will deliver to each Initial Purchaser, on the date hereof or the next
succeeding day, copies of a final offering memorandum dated December 9, 1998
(the "Final Offering Memorandum"), each to be used by such Initial Purchaser in
connection with its solicitation of purchases of, or offering of, the
Securities. "Offering Memorandum" means, for purposes of this Agreement, each
of the Preliminary Offering Memorandum and the Final Offering Memorandum.
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the Offering
Memorandum (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information which
is incorporated by reference in the Offering Memorandum; and all references in
this Agreement to amendments or supplements to the Offering Memorandum shall be
deemed to mean and include the filing of any document under the Securities
Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in the
Offering Memorandum.
The holders of the Securities will be entitled to the benefits of the
registration rights agreement to be dated as of the Closing Time (the
"Registration Rights Agreement"), among the Issuer, Finance Corp. and the
Initial Purchasers.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Issuer and Finance Corp.
The Issuer and Finance Corp., jointly and severally, represent and warrant
to each Initial Purchaser as of the date hereof and as of the Closing Time
referred to in Section 2(b) hereof, and agree with each Initial Purchaser as
follows:
(i) Similar Offerings. None of Centennial, the Issuer, Finance
-----------------
Corp. or any of their respective Subsidiaries has, directly or indirectly,
solicited any offer to buy or offered to sell, or will, directly or
indirectly, solicit any offer to buy or offer to sell, in the United States
or to any United States citizen or resident, any security which is or would
be integrated with the sale of the Securities in a manner that would
require the Securities to be registered under the 1933 Act.
(ii) Offering Memorandum. The Offering Memorandum does not, and at
-------------------
the Closing Time will not, include an untrue statement of a material fact
or omit to state a
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<PAGE>
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, that this representation, warranty and agreement shall not apply
to statements in or omissions from the Offering Memorandum made in reliance
upon and in conformity with information furnished to the Issuer or Finance
Corp. in writing by any Initial Purchaser expressly for use in the Offering
Memorandum.
(iii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Offering
Memorandum are independent certified public accountants with respect to
Centennial and its Subsidiaries (as defined below) within the meaning of
Regulation S-X under the 1933 Act.
(iv) Financial Statements. The financial statements, together with
--------------------
the related schedules and notes, included in the Offering Memorandum
present fairly the financial position of Centennial and its consolidated
subsidiaries at the dates indicated and the statements of income, changes
in shareholders' equity and cash flows of Centennial and its consolidated
subsidiaries for the periods specified; said financial statements have been
prepared in conformity with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved. The selected financial data and the summary financial information
included in the Offering Memorandum present fairly the information shown
therein and have been compiled on a basis consistent with that of the
audited financial statements included in the Offering Memorandum. The pro
forma financial statements of Centennial and its Subsidiaries and the
related notes thereto, and the other pro forma financial information
included in the Offering Memorandum, present fairly the information shown
therein, have been prepared in all material respects in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements included in a registration statement under the 1933 Act and have
been properly compiled on the bases described therein, and the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein. The financial statements included in the
Offering Memorandum are the only financial statements which would be
required by Regulation S-X to be included in the Offering Memorandum if the
Offering Memorandum was a registration statement on Form S-1. The Merger
may be accounted for as a "recapitalization" for financial reporting
purposes.
(v) No Material Adverse Change in Business. Since May 31, 1998, (A)
--------------------------------------
there has been no material adverse change in the financial condition,
earnings, or business affairs of Centennial, the Issuer and their
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by Centennial, the Issuer or any of their
Subsidiaries, other than those contemplated hereby or in the ordinary
course of business, which are material with respect to Centennial, the
Issuer and their Subsidiaries considered as one enterprise, and (C) there
has been no dividend or distribution of any
-5-
<PAGE>
kind declared, paid or made by Centennial, the Issuer or any of their
Subsidiaries on any class of their capital stock or other equity interest.
(vi) Good Standing of the Issuer. The Issuer has been duly formed
---------------------------
and is validly existing as a limited liability company in good standing
under the laws of the State of Delaware and has power and authority to own,
lease and operate its properties and to conduct its business as it will be
conducted after the Merger and as described in the Offering Memorandum and
to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement, the Pledge and Escrow Agreement, the
Indenture, the Supplemental Indenture, the Securities, the Exchange
Securities, the DTC Agreement and each of the Recapitalization Documents to
which it is a party and to enter into and consummate all the transactions
in connection therewith and the Recapitalization Transactions as
contemplated in the Offering Memorandum; and the Issuer is duly qualified
as a foreign limited liability company to transact business and is in good
standing in each other jurisdiction in which such qualification is required
or will be required after the Merger, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so
to qualify or to be in good standing would not result in a Material Adverse
Effect.
(vii) Good Standing of Centennial. Centennial has been duly
---------------------------
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority (a)
to own, lease and operate its properties, (b) to conduct its business as
described in the Offering Memorandum, (c) to enter into and perform its
obligations, from and after the consummation of the Merger, under this
Agreement, the Registration Rights Agreement, the Indenture, the
Supplemental Indenture, the Securities, the Exchange Securities and the
Pledge and Escrow Agreement, (d) to enter into and perform its obligations
under each of the Recapitalization Documents to which it is a party and (e)
to enter into and consummate the Recapitalization Transactions as
contemplated in the Offering Memorandum; and Centennial is duly qualified
as a foreign corporation to transact business and is in good standing in
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(viii) Good Standing of Finance Corp. Finance Corp. has been duly
-----------------------------
incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has power and authority to own,
lease and operate its properties and to conduct its business as described
in the Offering Memorandum and to enter into and perform its obligations
under this Agreement, the Registration Rights Agreement, the Pledge and
Escrow Agreement, the Indenture, the Securities, the DTC Agreement and each
of the Recapitalization Documents to which it is a party and to enter into
and consummate all the transactions in connection therewith as contemplated
in the Offering Memorandum; and Finance Corp. is duly qualified as a
foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is
-6-
<PAGE>
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(ix) Good Standing of Subsidiaries. Each direct and indirect
-----------------------------
subsidiary of the Issuer, Finance Corp. and Centennial (each a "Subsidiary"
and collectively the "Subsidiaries") has been duly organized and is validly
existing as a corporation, partnership or limited liability company in good
standing under the laws of the jurisdiction of its incorporation or
existence, has corporate or partnership power and authority to own, lease
and operate its properties and to conduct its business as described in the
Offering Memorandum and is duly qualified as a foreign corporation,
partnership or limited liability company to transact business and is in
good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect; except as otherwise
disclosed in the Offering Memorandum, all of the issued and outstanding
capital stock or partnership or membership interests (or other equity
interests) of each Subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable and is owned by Centennial, directly or
through its Subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock or partnership interests of the
Subsidiaries was issued in violation of any preemptive or similar rights
arising by operation of law, or under the charter, by-laws or other charter
documents of any Subsidiary or under any agreement to which Centennial, the
Issuer or any of their respective Subsidiaries is a party. All of the
Subsidiaries (including investment interests and non-wholly owned
subsidiaries) of Centennial are listed on Schedule C attached hereto; the
term Subsidiary as used herein shall include all of the entities listed on
said Schedule C (including investment interests and non-wholly owned
subsidiaries). The Issuer and Finance Corp. have taken no actions other
than in connection with the Recapitalization Transactions.
(x) Capitalization. The authorized, issued and outstanding capital
--------------
stock of Centennial was at the date indicated in the Offering Memorandum as
set forth in the table labeled "Capitalization" under the column titled
"Actual" and will be upon consummation of the Recapitalization Transactions
as set forth in the table labeled "Capitalization" under the column titled
"As Adjusted" included in the Offering Memorandum. All of the shares of
issued and outstanding capital stock of Finance Corp. have been duly
authorized and have been, and as of the Closing Time and upon consummation
of the Recapitalization Transactions will have been, validly issued and
fully paid and non-assessable and are owned by WCA Management Corporation;
and none of the outstanding shares of capital stock of Finance Corp. was
issued in violation of the preemptive or other similar rights of any
securityholder of Finance Corp. arising by operation of law, under the
charter or by-laws of Finance Corp., under any agreement to which
Centennial or any of the Subsidiaries is a party or otherwise. All of the
membership interests in the Issuer have been duly authorized and have been,
and as of the Closing Time and upon consummation of the Recapitalization
Transactions will have
-7-
<PAGE>
been, validly issued and fully paid and non-assessable and are owned by
Finance Corp.; and none of the outstanding membership interests in the
Issuer was issued in violation of the preemptive or other similar rights of
any securityholder of the Issuer arising by operation of law, under the
charter, by-laws or any such organizational documents of the Issuer, under
any agreement to which Centennial or any of its Subsidiaries is a party or
otherwise.
(xi) Authorization of Agreements. This Agreement has been duly
---------------------------
authorized, executed and delivered by each of the Issuer and Finance Corp.
The Registration Rights Agreement has been duly authorized by each of the
Issuer and Finance Corp. and as of the Closing Time will have been executed
and delivered by each of the Issuer and Finance Corp. and will constitute
valid and binding obligations of each of such entities, enforceable against
each such entity in accordance with its terms. The DTC Agreement has been
duly authorized by the Issuer and Finance Corp. and as of the Closing Time
the DTC Agreement will have been duly executed and delivered by the Issuer
and Finance Corp. and will constitute the valid and binding obligation of
each of the Issuer and Finance Corp., enforceable against the Issuer and
Finance Corp., as the case may be, in accordance with its terms.
The Pledge and Escrow Agreement has been duly authorized by the Issuer
and Finance Corp., and as of the Closing Time the Pledge and Escrow
Agreement will have been duly executed and delivered by the Issuer and
Finance Corp. and will constitute the valid and binding obligation of each
of the Issuer and Finance Corp., enforceable against the Issuer and Finance
Corp., as the case may be, in accordance with its terms.: At the time of
the deposit of the Initial Funds (as defined in the Pledge and Escrow
Agreement) into the Initial Escrow and Pledge Account (as defined in the
Pledge and Escrow Agreement), the pledge of the Initial Collateral (as
defined in the Pledge and Escrow Agreement) securing the payment of the
Initial Secured Obligations (as defined in the Pledge and Escrow Agreement)
for the benefit of the Trustee and the Holders of the Securities will
constitute a first priority perfected security interest in such Initial
Collateral, enforceable against all creditors of the Issuer, Finance Corp.
or Centennial and any persons purporting to purchase any of the Collateral
from the Issuer, Finance Corp. or Centennial. At the Release Time (as
defined in the Pledge and Escrow Agreement), the pledge of the Subsequent
Collateral (as defined in the Pledge and Escrow Agreement) securing the
payment of the Subsequent Secured Obligations (as defined in the Pledge and
Escrow Agreement) for the benefit of the Trustee and the Holders of the
Securities will constitute a first priority perfected security interest in
such Subsequent Collateral, enforceable against all creditors of the
Issuer, Finance Corp. or Centennial and any persons purporting to purchase
any of the Collateral from the Issuer, Finance Corp. or Centennial. Upon
the consummation of the Merger, Centennial will become an obligor under the
Pledge and Escrow Agreement in place of Finance Corp. There are no Liens
on any of the: Initial Collateral or Subsequent Collateral other then
pursuant to the Pledge and Escrow Agreement.
-8-
<PAGE>
(xii) Authorization of the Indenture and Supplemental Indenture. The
---------------------------------------------------------
Indenture has been duly authorized by the Issuer and Finance Corp. and, at
the Closing Time, will have been duly executed and delivered by the Issuer
and Finance Corp. and will constitute valid and binding agreements of the
Issuer and Finance Corp., enforceable against the Issuer and Finance Corp.
in accordance with its terms. The Supplemental Indenture has been duly
authorized by the Issuer and Finance Corp. and upon the consummation of the
Merger and the merger of Finance Corp. into Centennial will have been duly
authorized by Centennial and executed and delivered by the Issuer, Finance
Corp. and Centennial and will constitute a valid and binding agreement of
such entities, enforceable against such entities in accordance with its
terms. Upon the execution and delivery of the Supplemental Indenture by
Centennial, the Indenture will constitute a valid and binding agreement of
Centennial and the Issuer, enforceable against Centennial and the Issuer in
accordance with its terms.
(xiii) Authorization of the Securities and Exchange Securities. The
-------------------------------------------------------
Securities have been duly authorized by the Issuer and Finance Corp. and,
at the Closing Time, will have been duly executed and delivered by the
Issuer and Finance Corp. and will constitute valid and binding agreements
of the Issuer and Finance Corp., enforceable against the Issuer and Finance
Corp. in accordance with their terms, and will be in the form contemplated
by, and entitled to the benefits of, the Indenture. Upon the consummation
of the Merger and the merger of Finance Corp. into Centennial, the
Securities will constitute a valid and binding agreement of Centennial and
the Issuer enforceable against Centennial and the Issuer in accordance with
their terms. The Exchange Securities have been duly authorized by
Centennial and the Issuer and, when executed and authenticated and issued
and delivered by Centennial and the Issuer in exchange for the Securities
pursuant to the Exchange Offer (as defined in the Registration Rights
Agreement), will constitute valid and binding obligations of Centennial and
the Issuer enforceable against Centennial and the Issuer in accordance with
their terms and will be in the form contemplated by, and entitled to the
benefits of, the Indenture.
(xiv) Authorization of the Credit Facilities. The Credit Facilities
--------------------------------------
have been duly authorized by Centennial, the Issuer and their Subsidiaries
which are a party thereto and, when duly executed and delivered by
Centennial, the Issuer and such Subsidiaries, will constitute valid and
binding obligations of Centennial, the Issuer and such Subsidiaries,
enforceable against Centennial, the Issuer and such Subsidiaries in
accordance with their terms.
(xv) Authorization of the Subordinated Notes. The Subordinated Notes
---------------------------------------
have been duly authorized by Centennial and, when executed and delivered by
Centennial, will constitute the valid and binding obligations of
Centennial, enforceable against Centennial in accordance with their terms.
(xvi) Authorization of the Recapitalization Transactions. Each of
--------------------------------------------------
Centennial, the Issuer and their respective Subsidiaries have all necessary
corporate power and authority to enter into, to perform the obligations to
be performed by them under, and to
-9-
<PAGE>
consummate the transactions contemplated by the Merger, the Merger
Agreement, the Recapitalization Transactions and the Recapitalization
Documents to which it is a party. The Merger, the Merger Agreement and the
Recapitalization Documents have each been duly authorized by Centennial,
the Issuer and their Subsidiaries, as the case may be. The Merger Agreement
has been duly authorized, executed and delivered by Centennial and
Acquisition and constitutes the legal, valid and binding obligation of each
of Centennial and Acquisition, enforceable against the parties thereto in
accordance with their terms. All actions and proceedings required by law to
be taken by Centennial, Acquisition and their Subsidiaries prior to the
Closing Time in connection with the Merger and the Recapitalization
Transactions have been or prior to the Closing Time will have been duly and
validly taken. All actions and proceedings required by law to be taken by
Centennial, Acquisition and their Subsidiaries prior to the consummation of
the Merger in connection with the Recapitalization Transactions will have
been duly and validly taken. The Form S-4 filed by Centennial with the
Commission in connection with the Merger (the "Form S-4") has been duly
authorized by Centennial and at the time filed, the date hereof and its
effective date complied or will comply as to form with all legal
requirements under the 1933 Act and the 1934 Act. The Form S-4 has been
declared effective by the Commission and no stop order with respect thereto
has been issued .
(xvii) Description of the Securities, the Indenture, the Registration
--------------------------------------------------------------
Rights Agreement, the Pledge and Escrow Agreement, the Mezzanine Financing,
---------------------------------------------------------------------------
the Recapitalization Documents and the Recapitalization Transactions. The
--------------------------------------------------------------------
Securities, the Indenture, the Registration Rights Agreement, the Credit
Facilities, the Pledge and Escrow Agreement and the employment agreements
with the Issuer's executive officers conform or at the Closing Time will
conform to the respective statements relating thereto contained in the
Offering Memorandum and will be in substantially the respective forms
delivered to the Initial Purchasers on or prior to November 29, 1998. Each
of the Recapitalization Documents and the Supplemental Indenture conforms
or upon consummation of the Recapitalization Transactions will conform to
the respective statements relating thereto contained in the Offering
Memorandum and all provisions material to the holders of the Notes have
been described in the Offering Memorandum. The Exchange Securities will
conform in all material respects to the statements relating thereto
contained in the Offering Memorandum and the Exchange Offer Registration
Statement (as defined in the Offering Memorandum) at the time it becomes
effective. There are no contracts or documents which are required to be
described in a registration statement on Form S-1 under the 1933 Act which
have not been described in the Offering Memorandum.
(xviii) Absence of Defaults and Conflicts. None of Centennial, the
---------------------------------
Issuer or any of their Subsidiaries is in violation of its charter or by-
laws or other constituent document or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which Centennial, the
Issuer or any of their Subsidiaries is a party or by which any of them may
be bound, or to which any of the property or assets of Centennial, the
Issuer or any of their Subsidiaries is
-10-
<PAGE>
subject (collectively, "Agreements and Instruments") or has violated or is
in violation of any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over Centennial, the Issuer
or any of their Subsidiaries or any of their assets or properties, except
in each case for such defaults or violations that would not result in a
Material Adverse Effect.
The execution, delivery and performance of this Agreement, the
Registration Rights Agreement, the Pledge and Escrow Agreement, the
Indenture, the Supplemental Indenture, the DTC Agreement, the Securities,
the Exchange Securities, each of the Recapitalization Documents and any
other agreement or instrument entered into or issued or to be entered into
or issued by Centennial, the Issuer, Finance Corp. or any of their
Subsidiaries, as the case may be, in connection with the transactions
contemplated hereby or thereby or in the Offering Memorandum or in
connection with the consummation of the transactions contemplated herein
and in the Offering Memorandum (including each of the Recapitalization
Transactions and the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities and the other financing
transactions as described in the Offering Memorandum under the caption "Use
of Proceeds") and compliance by Centennial, the Issuer, Finance Corp. and
their respective Subsidiaries with their obligations hereunder and under
the Recapitalization Documents and under the Indenture and the Securities
(and, upon consummation of the Merger and the merger of Finance Corp. with
and into Centennial and execution and delivery of the Supplemental
Indenture, by the Issuer and Centennial) do not on the date hereof and will
not, at the Closing Time and upon consummation of the Recapitalization
Transactions, whether with or without the giving of notice or passage of
time or both, (a) conflict with or constitute a breach of, or a violation
under the charter or by-laws of Centennial, the Issuer or any of their
Subsidiaries or (b) conflict with or constitute a breach of, or default or
a Repayment Event (as defined below) under, or (except as contemplated by
the Credit Facilities and the Pledge and Escrow Agreement) result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of Centennial, the Issuer or any of their Subsidiaries pursuant
to the Agreements and Instruments or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
Centennial, the Issuer or any of their Subsidiaries or any of their assets
or properties, except in the case of clause (b) for such as would not
result in a Material Adverse Effect. As used herein, a "Repayment Event"
means any event or condition which gives the holder of any note, debenture
or other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of all
or a portion of such indebtedness by Centennial, the Issuer or any of their
Subsidiaries.
(xix) Absence of Labor Disputes. No labor dispute with the employees
-------------------------
of any of Centennial, the Issuer or any of their Subsidiaries exists or, to
the knowledge of the Issuer, is imminent, and none of the Issuer or any of
their Subsidiaries is aware of any existing or imminent labor disturbance
by the employees of any of Centennial's, the Issuer's or any of their
Subsidiaries' principal suppliers, manufacturers, customers or
-11-
<PAGE>
contractors, which, in either case, may reasonably be expected to result in
a Material Adverse Effect.
(xx) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation (including, without limitation, those of the
Federal Communications Commission (the "FCC") or any state, local or
commonwealth communications agency or commission), in each case before or
by any court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Issuer or any of its Subsidiaries,
threatened, against or affecting Centennial, the Issuer or any of their
Subsidiaries which, singly or in the aggregate, might reasonably be
expected to result in a Material Adverse Effect, or which singly or in the
aggregate, might reasonably be expected to materially and adversely affect
the consummation of this Agreement or any of the Recapitalization
Transactions or the performance by any of Centennial, the Issuer or any of
their Subsidiaries of their obligations hereunder or under the Securities,
the Exchange Securities or any of the Recapitalization Documents.
(xxi) Possession of Intellectual Property. Centennial, the Issuer and
-----------------------------------
their Subsidiaries own, possess or license, or can acquire on reasonable
terms, adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them except for such Intellectual Property the absence of
which would not reasonably be expected to result in a Material Adverse
Effect, and none of Centennial, the Issuer or any of their Subsidiaries has
received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property (including Intellectual Property which is licensed) or of any
facts or circumstances which would render any Intellectual Property invalid
or inadequate to protect the interest of Centennial, the Issuer or any of
their Subsidiaries therein, and which infringement or conflict or
invalidity or inadequacy, singly or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect.
(xxii) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required as of the date hereof, the Closing Time or upon
consummation of the Recapitalization Transactions (i) for the performance
by Centennial, the Issuer or any of their Subsidiaries of any of their
respective obligations hereunder or under any of the Recapitalization
Documents, (ii) in connection with the offering, issuance or sale of the
Securities hereunder or the consummation of the Recapitalization
Transactions and the transactions contemplated thereby or (iii) for the due
execution, delivery or performance of and the consummation of the
transactions contemplated by this Agreement, the Registration Rights
Agreement, the Pledge and Escrow Agreement, the Indenture, the Supplemental
Indenture, the DTC Agreement, the Securities, the Exchange Securities, each
of the Recapitalization Documents or any other agreement or instrument
entered into or issued or to be entered
-12-
<PAGE>
into or issued by Centennial, the Issuer or any of their Subsidiaries in
connection with the consummation of the Recapitalization Transactions or
the transactions contemplated herein and in the Offering Memorandum
(including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Offering
Memorandum under the caption "Use of Proceeds") except for those the
failure to obtain which would not have a Material Adverse Effect. The
necessary consent of the FCC with respect to the transfer of the FCC
licenses to occur upon consummation of the Recapitalization Transactions
has become a "final order" (as customarily understood) and no consent,
approval or other action is necessary by the FCC or any local, state or
commonwealth communications agency in order to issue the Securities and
consummate the sale of the Securities.
(xxiii) Possession of Licenses and Permits. Centennial, the Issuer
----------------------------------
and their Subsidiaries possess all governmental permits, licenses,
approvals, consents, certificates and other authorizations (collectively,
"Governmental Licenses") issued by the appropriate federal, state, local,
commonwealth or foreign regulatory agencies or bodies necessary to conduct
the business now operated by them respectively (including, without
limitation, all waivers, licenses, permits, certificates, franchises,
registrations and other authorizations to develop, implement and operate
the cellular, wireless, wireline, PCS, paging, conventional mobile
telephone systems and SMR systems of Centennial, the Issuer and their
Subsidiaries as described in the Offering Memorandum) except for such
Governmental Licenses the absence of which would not reasonably be expected
to result in a Material Adverse Effect; Centennial, the Issuer and their
Subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses and with the rules and regulations of the regulatory
authorities and governing bodies having jurisdiction with respect thereto,
except where the failure so to comply would not, singly or in the
aggregate, have a Material Adverse Effect; all of the Governmental Licenses
are valid and in full force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be in
full force and effect would not have a Material Adverse Effect; and none of
Centennial, the Issuer or any of their Subsidiaries has received any notice
of proceedings relating to the revocation or modification of any such
Governmental Licenses, nor are there, to the knowledge of the Issuer or
Finance Corp., pending or threatened actions, suits, claims or proceedings
against Centennial, the Issuer or any of their Subsidiaries before any
court, governmental agency or body or otherwise that would reasonably be
expected to limit, revoke, cancel, suspend or cause not to be renewed any
Governmental License, in each case, which, singly or in the aggregate,
would result in a Material Adverse Effect.
(xxiv) Title to Property. Centennial, the Issuer and their
-----------------
Subsidiaries have good and marketable title to all material real property
owned by them and good title to all other material properties owned by
them, in each case, free and clear of all mortgages, pledges, liens,
security interests, claims, restrictions or encumbrances of any kind except
such as do not, singly or in the aggregate, materially affect the value of
such property and do not interfere with the use made and proposed to be
made of such property by the Centennial, the Issuer or any of their
Subsidiaries; and all of the leases and subleases
-13-
<PAGE>
material to the business of Centennial, the Issuer and their Subsidiaries,
considered as one enterprise, and under which Centennial, the Issuer or any
of their Subsidiaries holds properties described in the Offering
Memorandum, are in full force and effect, and none of Centennial, the
Issuer or any of their Subsidiaries, has any notice of any material claim
of any sort that has been asserted by anyone adverse to the rights of
Centennial, the Issuer or any of their Subsidiaries under any of the leases
or subleases mentioned above, or affecting or questioning the rights of
Centennial, the Issuer or any Subsidiary to the continued possession of the
leased or subleased premises under any such lease or sublease.
(xxv) Tax Returns. All material United States federal income tax
-----------
returns of Centennial and its Subsidiaries required by law to be filed have
been filed and all taxes shown by such returns or otherwise assessed, which
are due and payable, have been paid, except assessments against which
appeals have been or will be promptly taken and as to which adequate
reserves have been provided. Centennial and its Subsidiaries have filed all
other tax returns that are required to have been filed by them pursuant to
applicable foreign, federal, state, local or other law except insofar as
the failure to file such returns would not result in a Material Adverse
Effect, and have paid all taxes due pursuant to such returns or pursuant to
any assessment received by Centennial and its Subsidiaries, except for such
taxes, if any, as are being contested in good faith and by appropriate
proceedings and as to which adequate reserves have been provided. The
charges, accruals and reserves on the books of Centennial and its
Subsidiaries in respect of all federal, state, local and foreign tax
liabilities of Centennial and each Subsidiary of Centennial for any years
not finally determined are adequate to meet any assessments or re-
assessments for additional income tax for any years not finally determined,
except to the extent of any inadequacy that would not result in a Material
Adverse Effect.
(xxvi) Insurance. Centennial, the Issuer and their Subsidiaries
---------
carry or are entitled to the benefits of insurance, including business
interruption insurance, with financially sound and reputable insurers, in
such amounts, containing such deductibles and covering such risks as they
believe to be generally maintained by companies of established repute
engaged in the same or similar business, and all such insurance is in full
force and effect.
(xxvii) Solvency. Each of Centennial, Finance Corp. and the Issuer
--------
is, and immediately after the Closing Time and immediately upon
consummation of the Recapitalization Transactions will be, Solvent. As used
herein, the term "Solvent" means, with respect to an entity, on a
particular date, that on such date (a) the fair value of the property of
such person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such person, (b) the present
fair salable value of the assets of such person is not less than the amount
that will be required to pay the probable liability of such person on its
debts as they become absolute and matured, (c) such person does not intend
to, and does not believe that it will, incur debts and liabilities beyond
such person's ability to pay as such debts and liabilities mature, (d) such
person is not engaged in a
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business or a transaction, and is not about to engage in a business or a
transaction, for which such person's property would constitute an
unreasonably small capital and (e) such person is able to pay its debts as
they become due and payable.
(xxviii) Stabilization or Manipulation. None of Centennial, the
-----------------------------
Issuer, any of their Subsidiaries or their officers, directors or
controlling persons has taken, directly or indirectly, any action designed
to cause or to result in, or that has constituted or which might reasonably
be expected to constitute, the stabilization or manipulation of the price
of any security of Centennial, the Issuer or any Subsidiary in order to
facilitate the sale or resale of the Securities. Centennial, the Issuer and
their Subsidiaries have not distributed and, prior to the later to occur of
(i) the Closing Time and (ii) completion of the distribution of the
Securities, will not distribute any offering material in connection with
the offering and sale of the Securities other than the Offering Memorandum
or other materials, if any, permitted by the 1933 Act and approved by the
Representative.
(xxix) Suppliers. No supplier of merchandise to Centennial, the
---------
Issuer or any of their Subsidiaries has ceased shipments of merchandise to
Centennial, the Issuer or any of their Subsidiaries, other than in the
normal and ordinary course of business consistent with past practices,
which cessation would not result in a Material Adverse Effect.
(xxx) Environmental Laws. Except such matters as would not, singly
------------------
or in the aggregate, result in a Material Adverse Effect, (A) none of
Centennial, the Issuer or any of their Subsidiaries is in violation of any
federal, state, local or foreign statute, law, rule, regulation, ordinance,
code, policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent,
decree or judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened release
of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products or nuclear or radioactive material
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) Centennial, the
Issuer and their Subsidiaries have all permits, licenses, authorizations and
approvals currently required for their respective businesses under any
applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings relating to any
Environmental Law against Centennial, the Issuer or any of their Subsidiaries
and (D) there are no events, facts or circumstances that might reasonably be
expected to form the basis of any liability or obligation of Centennial, the
Issuer or any of their Subsidiaries, including, without limitation, any order,
decree, plan or agreement requiring clean-up or remediation, or any action, suit
or proceeding by any private party or governmental body or agency, against or
affecting Centennial, the Issuer or any of their Subsidiaries relating to any
Hazardous Materials or Environmental Laws.
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(xxxi) Registration Rights. There are no holders of securities (debt
-------------------
or equity) of Centennial, the Issuer or any Subsidiary, or holders of
rights (including, without limitation, preemptive rights), warrants or
options to obtain securities of Centennial, the Issuer or any Subsidiary,
who in connection with the issuance, sale and delivery of the Securities
and the Exchange Securities, if any, and the execution, delivery and
performance of this Agreement and the Registration Rights Agreement, have
the right to request the Issuer to register securities held by them under
the 1933 Act.
(xxxii) Accounting Controls. Centennial and its consolidated
-------------------
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurances that (A) transactions are executed in
accordance with management's general or specific authorization; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for
assets; (C) access to assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxxiii) Investment Company Act. None of Centennial, the Issuer or
-----------------------
Finance Corp. is, and upon the issuance and sale of the Securities as
herein contemplated and the application of the net proceeds therefrom as
described in the Offering Memorandum will be, an "investment company" or an
entity "controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xxxiv) Rule 144A Eligibility. The Securities are eligible for
---------------------
resale pursuant to Rule 144A and will not be, at the Closing Time, of the
same class as securities listed on a national securities exchange
registered under Section 6 of the 1934 Act, or quoted in a U.S. automated
interdealer quotation system.
(xxxv) No General Solicitation. None of Centennial, the Issuer or
-----------------------
any of their affiliates, as such term is defined in Rule 501(b) under the
1933 Act ("Affiliates"), or any person acting on any of their behalf (other
than the Initial Purchasers) has engaged or will engage, in connection with
the offering of the Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the 1933 Act.
(xxxvi) No Registration Required. It is not necessary in connection
------------------------
with the offer, sale and delivery of the Securities to the Initial
Purchasers and to each Subsequent Purchaser in the manner contemplated by
this Agreement and the Offering Memorandum to register the Securities under
the 1933 Act or to qualify the Indenture under the Trust Indenture Act of
1939, as amended (the "1939 Act").
(xxxvii) No Directed Selling Efforts. With respect to those
---------------------------
Securities sold in reliance on Regulation S, (A) none of Centennial, the
Issuer, Finance Corp., any of their Affiliates or any person acting on
their behalf (other than the Initial Purchasers) has engaged or will engage
in any directed selling efforts within the meaning of Regulation S
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and (B) each of Centennial, the Issuer, Finance Corp., any of their
Affiliates and any person acting on their behalf (other than the Initial
Purchasers, as to whom they make no representation) has complied and will
comply with the offering restrictions requirement of Regulation S.
(xxxviii) PORTAL. The Issuer and Finance Corp. have been advised by
------
the National Association of Securities Dealers, Inc. PORTAL (as defined in
Section 4(a)) Market that the Securities will be designated PORTAL eligible
securities in accordance with the rules and regulations of the National
Association of Securities Dealers, Inc.
(xxxix) Year 2000 and Euro Disclosures. All disclosure regarding
------------------------------
year 2000 compliance and the Euro conversion that is required to be
described in a registration statement on Form S-1 under the 1933 Act
(including disclosures required by Staff Legal Bulletin No. 6, SEC Release
No. 33-7558 (July 29, 1998) and SEC Release No. 33-7609 (November 9, 1998))
has been included in the Offering Memorandum. None of Centennial, the
Issuer nor any of their respective Subsidiaries will incur significant
operating expenses or costs to ensure that its information systems will be
year 2000 compliant or to adjust its operating and information systems to
the conversion to a single currency in Europe, other than as disclosed in
the Offering Memorandum.
(xl) Pre-Merger Activities. The Issuer and Finance Corp. have
---------------------
taken no action, incurred no liabilities and acquired no assets other than
in connection with the Recapitalization Transactions.
(b) Officer's Certificates. Any certificate signed by any officer of
Centennial, the Issuer, Finance Corp. or any of the Subsidiaries delivered to
the Initial Purchasers or to counsel for the Initial Purchasers shall be deemed
a representation and warranty by Centennial, the Issuer, Finance Corp. or such
Subsidiary to each Initial Purchaser as to the matters covered thereby.
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.
------------------------------------------------
(a) Securities. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Issuer
and Finance Corp. agree to sell to each Initial Purchaser, and each Initial
Purchaser, severally and not jointly, agrees to purchase from the Issuer and
Finance Corp., at the price set forth in Schedule B, an aggregate principal
amount of Securities equal to the total amount of Securities purchased by all
Initial Purchasers multiplied by the percentage set forth in Schedule A opposite
the name of such Initial Purchaser.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the office of Fried, Frank,
Harris, Shriver & Jacobson, or at such other place as shall be agreed upon by
the Representative, the Issuer and Finance Corp. at 9:00 A.M. (New York Time) on
the third business day after the date hereof, or such other time not later than
ten business days after such date as shall be agreed upon by the Representative,
the Issuer and Finance Corp. (such time and date of payment and delivery being
herein called the "Closing Time").
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Payment shall be made to the Trustee by wire transfer of immediately
available funds to a bank account designated by the Trustee, against delivery to
the respective accounts of the Initial Purchasers of certificates for the
Securities to be purchased by them. It is understood that each Initial
Purchaser has authorized the Representative, for its account, to accept delivery
of, receipt for, and make payment of the purchase price for, the Securities
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the Initial Purchasers, may (but shall not be obligated to)
make payment of the purchase price for the Securities to be purchased by any
Initial Purchaser whose funds have not been received by the Closing Time, but
such payment shall not relieve such Initial Purchaser from its obligations
hereunder. The certificates representing the Securities shall be registered in
the name of Cede & Co. pursuant to the DTC Agreement, or physical certificates
representing the Securities shall be registered in the names and denominations
requested by the Initial Purchasers, and in either case shall be made available
for examination and packaging by the Initial Purchasers in The City of New York
not later than 9:00 A.M. on the last business day prior to the Closing Time.
(c) Qualified Institutional Buyer. Each Initial Purchaser severally and
not jointly represents and warrants to, and agrees with, the Issuer and Finance
Corp. that it (i) is a "qualified institutional buyer" within the meaning of
Rule 144A under the 1933 Act (a "Qualified Institutional Buyer") and an
"accredited investor" within the meaning of Rule 501(a) under the 1933 Act (an
"Accredited Investor"); (ii) has not and will not solicit offers for, or offer
or sell, Securities by means of any general solicitation or general advertising
within the meaning of Rule 502(c) under Regulation D under the 1933 Act; (iii)
will offer and sell the Securities only to institutional investors that are
reasonably believed by it to qualify as Qualified Institutional Buyers or non-
U.S. persons in offshore transactions in reliance upon Regulation S under the
1933 Act; and (iv) will otherwise act in accordance with the terms and
conditions set forth in this Agreement and in the Offering Memorandum in
connection with the placement of the Securities contemplated hereby.
(d) Denominations; Registration. Certificates for the Securities shall be
in such denominations ($1,000 or integral multiples thereof) and registered in
such names as the Representative may request in writing at least one full
business day before the Closing Time.
SECTION 3. Covenants of the Issuer and Finance Corp. The Issuer and
----------------------------------------
Finance Corp., jointly and severally, covenant with each Initial Purchaser as
follows:
(a) Offering Memorandum. The Issuer and Finance Corp., as promptly as
possible, will furnish to each Initial Purchaser, without charge, such number of
copies of the Preliminary Offering Memorandum, the Final Offering Memorandum and
any amendments and supplements thereto and documents incorporated by reference
therein as such Initial Purchaser may reasonably request.
(b) Notice and Effect of Material Events. The Issuer and Finance Corp.
will immediately notify each Initial Purchaser, and confirm such notice in
writing, of (x) any filing made by Centennial, the Issuer or Finance Corp. of
information relating to the offering of the Securities with any securities
exchange or any other regulatory body in the United States or any
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other jurisdiction, and (y) prior to the completion of the placement of the
Securities by the Initial Purchasers, any material changes in or affecting the
earnings, business affairs or business prospects of Centennial, the Issuer and
their Subsidiaries which (i) make any statement in any Offering Memorandum or
any document incorporated by reference in any Offering Memorandum false or
misleading or (ii) are not disclosed in the Offering Memorandum. In such event
or if during such time any event shall occur or condition shall exist as a
result of which it is necessary, in the opinion of the Issuer, Finance Corp.,
their counsel, the Initial Purchasers or counsel for the Initial Purchasers, to
amend or supplement any Offering Memorandum in order that such Offering
Memorandum not include any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein not misleading
in the light of the circumstances then existing, the Issuer and Finance Corp.
will forthwith amend or supplement such Offering Memorandum by preparing and
furnishing to each Initial Purchaser an amendment or amendments of, or a
supplement or supplements to, such Offering Memorandum (in form and substance
satisfactory in the reasonable opinion of counsel for the Initial Purchasers) so
that, as so amended or supplemented, the Offering Memorandum will not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to a Subsequent Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Issuer and
Finance Corp. will advise each Initial Purchaser promptly of any proposal to
amend or supplement any Offering Memorandum and will not effect such amendment
or supplement without the consent of the Initial Purchasers. Neither the consent
of the Initial Purchasers to, nor the Initial Purchaser's delivery of, any such
amendment or supplement, shall constitute a waiver of any of the conditions set
forth in Section 5 hereo f.
(d) Qualification of Securities for Offer and Sale. The Issuer and Finance
Corp. will use their best efforts to register or qualify the Securities for
offering and sale under the applicable securities laws of such jurisdictions as
the Representative may designate and will maintain such qualifications in effect
as long as required for the sale of the Securities; provided, however, that the
Issuer and Finance Corp. shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject
itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject.
(e) Integration. The Issuer and Finance Corp. agree that they will not
and will cause their affiliates not to make any offer or sale of securities of
Centennial, the Issuer or Finance Corp., as the case may be, of any class if, as
a result of the doctrine of "integration" referred to in Rule 502 under the 1933
Act, such offer or sale could be deemed to render invalid (for the purpose of
(i) the sale of the Securities by the Issuer and Finance Corp. to the Initial
Purchasers, (ii) the resale of the Securities by the Initial Purchasers to
Subsequent Purchasers or (iii) the resale of the Securities by such Subsequent
Purchasers to others) the exemption from the registration requirements of the
1933 Act provided by Section 4(2) thereof or by Rule 144A or by Regulation S
thereunder or otherwise.
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(f) Rating of Securities. The Issuer and Finance Corp. shall take all
reasonable action necessary to enable Standard & Poor's Corporation ("S&P"), and
Moody's Investors Service, Inc. ("Moody's"), to provide their respective credit
ratings of the Securities.
(g) Rule 144A Information. The Issuer and Finance Corp. agree that, in
order to render the Securities eligible for resale pursuant to Rule 144A under
the 1933 Act, while any of the Securities remain outstanding, they will make
available, upon request, to any holder of Securities or prospective purchasers
of Securities the information specified in Rule 144A(d)(4), unless Centennial,
the Issuer or Finance Corp. furnishes information to the Commission pursuant to
Section 13 or 15(d) of the 1934 Act (such information, whether made available to
holders or prospective purchasers or furnished to the Commission, is hereinafter
referred to as "Additional Information").
(h) Restriction on Resales. Until the expiration of two years after the
original issuance of the Securities, the Issuer and Finance Corp. will not, and
will cause their "affiliates" (as such term is defined in Rule 144(a)(1) under
the 1933 Act) not to, resell any Securities which are "restricted securities"
(as such term is defined under Rule 144(a)(3) under the 1933 Act) that have been
reacquired by any of them and shall immediately upon any purchase of any such
Securities submit such Securities to the Trustee for cancellation.
(i) Use of Proceeds. Centennial, the Issuer and Finance Corp. will use
the net proceeds received by the Issuer and Finance Corp. from the sale of the
Securities and the other Recapitalization Transactions in the manner specified
in the Offering Memorandum under "Use of Proceeds." Pending consummation of the
Merger, the Initial Escrow Funds (which consist of the net proceeds from the
sale of the Securities and the Additional Escrow Amount from the Equity
Investors in the amount of $25 million in cash) will be held by the Trustee in
the Initial Escrow and Pledge Account pursuant to the Pledge and Escrow
Agreement. The Issuer will release the Initial Escrow Funds (other than an
amount necessary to purchase the Pledged Securities (as defined in the Pledge
and Escrow Agreement)) only upon satisfaction of the Financing Condition.
(j) Restriction on Sale of Securities. During a period of 180 days from
the date of the Offering Memorandum, none of Centennial, the Issuer, Finance
Corp. or any of their Subsidiaries will, without the prior written consent of
Merrill Lynch, directly or indirectly, issue, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, or file a registration
statement with respect to, any debt securities or securities convertible into or
exchangeable or exercisable for debt securities of Centennial, the Issuer,
Finance Corp. or any of their Subsidiaries (other than with respect to the
Securities and the Exchange Securities, the Credit Facilities, the Subordinated
Notes (which may be sold or transferred solely to WCA&S) and other debt
securities which are issued directly to the seller(s) in consideration for the
transfer of a Related Business (as defined in the Indenture); provided that each
such seller agrees to a restriction on the sale of such debt securities on the
terms set forth in this clause (j).
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(k) DTC Clearance. The Issuer and Finance Corp. will use all reasonable
efforts in cooperation with the Initial Purchasers to permit the Securities to
be eligible for clearance and settlement through DTC.
(l) Legends. Each certificate for a Security will bear the legend
contained in "Notice to Investors" in the Offering Memorandum for the time
period and upon the other terms stated in the Offering Memorandum.
(m) Interim Financial Statements. Prior to the Closing Time, the Issuer
shall furnish to the Initial Purchasers copies of any budgets, projections,
revised budgets or revised projections for fiscal 1999 and any unaudited interim
financial statements of Centennial and the Issuer, which the Issuer has
received, promptly after they have been received, for any periods subsequent to
the periods covered by the financial statements appearing in the Offering
Memorandum.
(n) Periodic Reports. For a period of three years after the Closing Time,
the Issuer and Finance Corp. will furnish to the Initial Purchasers copies of
all annual reports, quarterly reports and current reports filed by Centennial,
the Issuer or any of their Subsidiaries with the Commission on Forms 10-K, 10-Q
and 8-K, or such other similar forms as may be designated by the Commission, and
such other documents, reports and information as shall be furnished by
Centennial, the Issuer or any of their Subsidiaries generally to the holders of
the Securities or to security holders of its publicly issued securities
generally.
(o) Merger of Finance Corp. into Centennial. Upon the closing of and
simultaneously with the Merger and the closing of the Recapitalization
Transactions, Centennial and Finance Corp. shall effect the merger of Finance
Corp. with and into Centennial and Centennial and the Issuer shall execute a
Supplemental Indenture such that Centennial and the Issuer shall be co-obligors
under the Indenture and the Securities and Centennial shall be liable for all of
Finance Corp.'s liabilities under this Agreement, the Securities, the Indenture,
the Pledge and Escrow Agreement and the Registration Rights Agreement.
(p) Recapitalization Documents. The Issuer will provide the Initial
Purchasers with drafts of all Recapitalization Documents in substantially final
form a reasonable period of time prior to the Closing Time and a complete set of
closing documents and opinions in connection with the Recapitalization
Transactions a reasonable time after the consummation of the Recapitalization
Transactions.
(q) Subordinated Notes. The Subordinated Notes to be issued by Centennial
shall not exceed $180 million and shall include provisions requiring all
interest not paid in cash to be paid in kind, restricting the transfer of the
Subordinated Notes to third parties and allowing acceleration of the
Subordinated Notes only (except in the case of the bankruptcy or similar event
of Centennial) if the Securities or the Credit Facilities shall have been
accelerated and such acceleration shall not have been rescinded within 90 days
after notice.
(r) Transfer of Assets to Issuer. Immediately following consummation of
the Merger, Centennial and the Issuer shall cause all of the capital stock and
other equity interests of
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all of Centennial's existing Subsidiaries (including its investment interests)
to be contributed directly or indirectly to the Issuer and Centennial shall have
no material assets other than its investment in the capital stock of the Issuer.
(s) Consent Solicitations and Tender Offer. At or prior to the
consummation of the Merger, Centennial shall have authorized, executed and
delivered the supplemental indentures with respect to the Old Notes and such
supplemental indentures shall be in full force and effect and enforceable in
accordance with their terms.
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses. The Issuer and Finance Corp. will pay all expenses incident
to the performance of their obligations under this Agreement, including (i) the
preparation, printing and any filing of the Offering Memorandum and the
Registration Statement (including financial statements and any schedules or
exhibits) and of each amendment or supplement thereto, including the preliminary
prospectuses and the prospectus to be contained in the Registration Statement,
(ii) the preparation, printing and delivery to the Initial Purchasers of this
Agreement, the Registration Rights Agreement, the Pledge and Escrow Agreement,
the Indenture, the Supplemental Indenture and such other documents as may be
required in connection with the offering, purchase, sale and delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Initial Purchasers, including any charges of DTC in
connection therewith, (iv) the fees and disbursements of the Issuer's, Finance
Corp.'s and their Subsidiaries' counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Initial Purchasers in connection therewith
and in connection with the preparation of the Blue Sky Survey, any supplement
thereto and any Legal Investment Survey, (vi) the fees and expenses of the
Trustee, including the fees and disbursements of counsel for the Trustee in
connection with the Indenture and the Securities, (vii) any fees payable in
connection with the rating of the Securities and the listing of the Securities
with the Private Offerings, Resales and Trading Through Automated Linkages
("PORTAL") market, and (viii) any filing fees incident to, and any reasonable
fees and disbursements of counsel to the Initial Purchasers in connection with,
the review by the National Association of Securities Dealers, Inc. of the terms
of the sale of the Securities.
(b) Termination of Agreement. If this Agreement is terminated by the
Representative in accordance with the provisions of Section 5 or Section 9(a)(i)
or 9(a)(ii) hereof, the Issuer and Finance Corp. shall reimburse the Initial
Purchasers for all of their out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the Initial Purchasers.
SECTION 5. Conditions of Initial Purchasers' Obligations.
---------------------------------------------
The obligations of the several Initial Purchasers hereunder are subject to
the accuracy (in all material respects, with respect to representations and
warranties which are not qualified by materiality or Material Adverse Effect or
similar measure) of the representations and warranties of the Issuer and Finance
Corp. contained in Section 1 hereof or in certificates of any officer of
Centennial, the Issuer or any of the Subsidiaries delivered pursuant to the
provisions hereof, to
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the performance by Centennial, the Issuer and Finance Corp. of their covenants
and other obligations hereunder, to the performance by CCW Acquisition Corp. of
all of its obligations under the Forward Underwriting Commitment Letter, dated
November 29, 1998, between CCW Acquisition Corp. and the Initial Purchasers (the
"Commitment Letter") and the Fee Letter, dated November 29, 1998, between CCW
Acquisition Corp. and the Initial Purchasers (the "Fee Letter"), and to the
following further conditions:
(a) Opinion of Counsel for the Issuer and Finance Corp. At the Closing
Time, the Initial Purchasers shall have received the favorable opinions, dated
as of the Closing Time, of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel
for the Issuer and Finance Corp., in form and substance satisfactory to counsel
for the Initial Purchasers, together with signed or reproduced copies of such
letters for each of the other Initial Purchasers to the effect set forth in
Exhibit A-1 hereto, and to such further effect as counsel to the Initial
Purchasers may reasonably request.
(b) Opinion of Regulatory Counsel for the Issuer and Finance Corp.
At the Closing Time, the Initial Purchasers shall have received the favorable
opinion, dated as of the Closing Time, of Wilkinson, Barker, Knauer & Quinn,
LLP, regulatory counsel to the Issuer and Finance Corp., in form and substance
satisfactory to counsel for the Initial Purchasers, together with signed or
reproduced copies of such letters for each of the other Initial Purchasers to
the effect set forth in Exhibit A-2 hereto and to such further effect as counsel
to the Initial Purchasers may reasonably request.
(c) Opinion of Counsel for the Initial Purchasers. At the Closing Time,
the Initial Purchasers shall have received the favorable opinion, dated as of
the Closing Time, of Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Initial Purchasers, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers, with respect to certain matters set forth
in paragraphs (ii), (iii), (xi), (xii), (xiv), (xv), (xvi), (xxi) and (xxiii)
(solely as to the information in the Offering Memorandum under "Description of
the Notes") and the penultimate paragraph of Exhibit A-1 hereto. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the federal law of
the United States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to the Representative. Such counsel may
also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of
Centennial, the Issuer or their Subsidiaries and certificates of public
officials.
(d) Officers' Certificate. At the Closing Time, (i) the Offering
Memorandum, as it may then be amended or supplemented, shall not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
(ii) there shall not have been, since May 31, 1998, any material adverse change
in the condition (financial or otherwise), earnings or business affairs of
Centennial, the Issuer and their Subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business; (iii) the Issuer and
Finance Corp. shall have complied in all material respects with all agreements
and satisfied all conditions on their part to be performed or satisfied at or
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prior to the Closing Time; and (iv) the representations and warranties of the
Issuer and Finance Corp. in Section 1 which are qualified by materiality or
Material Adverse Effect or similar measure shall be accurate and true and
correct as though expressly made at and as of the Closing Time and the
representations and warranties of the Issuer and Finance Corp. in Section 1
which are not qualified by materiality or Material Adverse Effect shall be
accurate and correct in all material respects as though expressly made at and as
of the Closing Time. At the Closing Time, the Initial Purchasers shall have
received certificates of Rudy Graf and Michael Small, in each case dated as of
the Closing Time, to such effect (which certificate may provide that such
certificate is being delivered on behalf of the Issuer).
(e) Accountant's Comfort Letter and Consent. At the time of the execution
of this Agreement, the Initial Purchasers shall have received from Deloitte &
Touche LLP a letter dated such date, in form and substance satisfactory to the
Representative or to counsel for the Initial Purchasers, together with signed or
reproduced copies of such letter for each of the other Initial Purchasers,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to Initial Purchasers with respect to the
financial statements and certain financial information contained in the Offering
Memorandum and in the form of Exhibit B attached hereto.
(f) Bring-down Comfort Letter. At the Closing Time, the Initial
Purchasers shall have received from Deloitte & Touche LLP a letter, dated as of
the Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to the Closing Time.
(g) PORTAL. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.
(h) Officer's Certificate; Solvency Opinion. At the Closing Time, the
Initial Purchasers shall have received a certificate of Rudy Graf as to certain
agreed upon accounting matters and with respect to the solvency of Centennial,
the Issuer and Finance Corp. immediately after the consummation of the
Recapitalization Transactions. In addition, the Initial Purchasers shall have
received, at the Issuer's expense, an opinion of a nationally recognized
appraisal firm or valuation consultant in form and substance satisfactory to the
Representative.
(i) Registration Rights Agreement, Pledge and Escrow Agreement and the
Indenture. Each of the Issuer and Finance Corp., as the case may be, shall have
duly authorized, executed and delivered the Registration Rights Agreement, the
Pledge and Escrow Agreement, the DTC Agreement and the Indenture in the forms
delivered to the Initial Purchasers on or prior to November 29, 1998.
(j) Escrow Amounts. The Equity Investors shall have caused to be deposited
cash in the amount of $25 million in respect of the Additional Escrow Amount in
the Escrow and Pledge Account. The Issuer and Finance Corp. shall have
established escrow and pledge arrangements in form and substance satisfactory to
the Representative pursuant to which the Issuer and Finance
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<PAGE>
Corp. will pledge for the benefit of the holders of the Notes government
securities in an amount sufficient to pay interest on the Securities for the
first three interest payment dates.
(k) Consent Solicitations and Tender Offers. Centennial shall have
received the Requisite Consents (as defined in Centennial's Offer to Purchase
and Consent Solicitation, dated September 8, 1998) pursuant to Centennial's
Tender Offers with respect to the Old Notes.
(l) Merger Agreement. At the Closing Time, the Merger Agreement shall be
in full force and effect.
(m) Additional Documents. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Securities and the other Recapitalization Transactions as herein
contemplated, or in order to evidence the accuracy of any of the representations
or warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by Centennial, the Issuer and Finance Corp. in
connection with the issuance and sale of the Securities as herein contemplated
shall be satisfactory in form and substance to the Initial Purchasers and
counsel for the Initial Purchasers.
(n) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representative by notice to the Issuer and
Finance Corp. at any time at or prior to the Closing Time, and such termination
shall be without liability of any party to any other party except as provided in
Section 4 and except that Sections 1, 6 and 7 shall survive any such termination
and remain in full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of Initial Purchasers. The Issuer and Finance Corp.,
jointly and severally, agree to indemnify and hold harmless each Initial
Purchaser and each person, if any, who controls any Initial Purchaser within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Final Offering Memorandum (or any amendment or supplement
thereto (including any document incorporated by reference into the
Preliminary Offering Memorandum or Final Offering Memorandum)), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or
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<PAGE>
omission, or any such alleged untrue statement or omission; provided that
(subject to Section 6(d) below) any such settlement is effected with the
written consent of Centennial and the Issuer; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to Centennial, the
Issuer and Finance Corp. by any Initial Purchaser through Merrill Lynch
expressly for use in the Offering Memorandum (or any amendment thereto);
provided, further, that the Issuer and Finance Corp. will not be liable to the
- -------- -------
Initial Purchasers or any person controlling such Initial Purchasers with
respect to any such untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Offering Memorandum to the extent that
the Issuer and Finance Corp. shall sustain the burden of proving that any such
loss, liability, claim, damage or expense resulted from the fact that the
Initial Purchaser sold securities to a person to whom such Initial Purchaser
failed to send or give, at or prior to the written confirmation of the sale of
such Securities, a copy of the Final Offering Memorandum (as amended or
supplemented) if the Issuer and Finance Corp. have previously furnished copies
thereof to the Initial Purchasers (sufficiently in advance of the Closing Time
to allow for distribution of the Final Offering Memorandum in a timely manner)
and complied with their obligations under Sections 3(b) and 3(c) hereof and the
loss, liability, claim, damage or expense of the Initial Purchasers resulted
from an untrue statement or omission or alleged untrue statement or omission of
a material fact contained in or omitted from such Preliminary Offering
Memorandum (as amended or supplemented) which was corrected in the Final
Offering Memorandum (as amended or supplemented).
(b) Indemnification of the Issuer, Finance Corp. and Directors. Each
Initial Purchaser severally agrees to indemnify and hold harmless the Issuer,
Finance Corp. and their directors, and each person, if any, who controls the
Issuer or Finance Corp. within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Offering Memorandum in
reliance upon and in conformity with written information furnished to the Issuer
or Finance Corp. by such Initial Purchaser expressly for use in the Offering
Memorandum.
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an
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<PAGE>
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 6(a) above, counsel to the indemnified parties shall be
selected by Merrill Lynch, and, in the case of parties indemnified pursuant to
Section 6(b) above, counsel to the indemnified parties shall be selected by the
Issuer and Finance Corp. An indemnifying party may participate at its own
expense in the defense of any such action; provided, however, that counsel to
-------- -------
the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 60 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section 6
------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Issuer and Finance
Corp. on the one hand and the Initial Purchasers on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Issuer and Finance Corp. on the one
hand and of the Initial Purchasers on the other hand in connection with the
statements or omissions which resulted in
-27-
<PAGE>
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.
The relative benefits received by the Issuer and Finance Corp. on the one
hand and the Initial Purchasers on the other hand in connection with the
offering of the Securities pursuant to this Agreement shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
the Securities pursuant to this Agreement (before deducting expenses) received
by the Issuer and Finance Corp. and the total underwriting discount received by
the Initial Purchasers, bear to the aggregate initial offering price of the
Securities.
The relative fault of the Issuer and Finance Corp. on the one hand and the
Initial Purchasers on the other hand shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Issuer and Finance Corp. or by the Initial
Purchasers, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Issuer, Finance Corp. and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Initial Purchasers were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 7. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
7 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Initial Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each director of the Issuer, Finance Corp. and each person, if
any, who controls the Issuer and Finance Corp. within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Issuer and Finance Corp. The Initial Purchasers' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the principal amount of Securities set forth opposite their respective names
in Schedule A hereto and not joint.
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<PAGE>
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
-------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of Centennial, the Issuer or any of their Subsidiaries
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Initial Purchaser or
controlling person, or by or on behalf of Centennial, the Issuer or any
Subsidiary, and shall survive delivery of the Securities to the Initial
Purchasers.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Representative may terminate this
Agreement, by notice to the Issuer and Finance Corp., at any time at or prior to
the Closing Time (i) if there has been, since the time of execution of this
Agreement or since May 31, 1998, a Material Adverse Effect, or (ii) if trading
in any securities of Centennial or the Issuer has been suspended or limited by
the Commission or the NASDAQ National Market System, or if trading generally on
the American Stock Exchange or the New York Stock Exchange or in the NASDAQ
National Market System has been suspended or limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices have been
required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iii) if a banking moratorium has been declared by
either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6 and 7 shall survive such termination and remain in full force and effect.
SECTION 10. [Intentionally Omitted.]
------------------------
SECTION 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed, delivered
by a nationally recognized courier service or transmitted by any standard form
of telecommunication. Notices to the Initial Purchasers shall be directed to the
Representatives at North Tower, World Financial Center, New York, New York
10281-1201, attention of Sean Crowley, with a copy to Fried, Frank, Harris,
Shriver & Jacobson, 1 New York Plaza, New York, New York 10004, attention of
Valerie Ford Jacob, Esq.; notices to the Issuer and Finance Corp. shall be
directed to Michael Small and Rudolph E. Rupert c/o Welsh, Carson, Anderson &
Stowe, 320 Park Avenue, New York, New York 10022-6815, with a copy to Reboul,
MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York
10111, attention of Robert A. Schwed, Esq.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
-------
and be binding upon the Initial Purchasers, the Issuer, Finance Corp. and their
respective successors (including Centennial as the successor to Finance Corp.
but solely upon consummation of the Merger). Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Initial Purchasers, the Issuer, Finance Corp. and
their respective successors and the controlling persons and directors referred
to in Sections 6 and 7 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in
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<PAGE>
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Initial Purchasers, the Issuer, Finance Corp. and their
respective successors, and said controlling persons and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Initial Purchaser shall be
deemed to be a successor by reason merely of such purchase.
SECTION 13. Governing Law And Times. THIS AGREEMENT SHALL BE GOVERNED BY
-----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY HEREIN REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Issuer and Finance Corp. a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the Initial Purchasers, the Issuer and Finance Corp. in
accordance with its terms.
Very truly yours,
CENTENNIAL CELLULAR OPERATING CO. LLC
By: Centennial Finance Corp.
/s/ Thomas E. McInerney
By______________________________________
Name: Thomas E. McInerney
Title: President
CENTENNIAL FINANCE CORP.
/s/ Thomas E. McInerney
By______________________________________
Name: Thomas E. McInerney
Title: President
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<PAGE>
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
/s/ Lex Maultsby
By_________________________________
Authorized Signatory
For itself and the other Initial Purchasers
named in Schedule A hereto.
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<PAGE>
SCHEDULE A
Percentage of
Name of Initial Purchaser Securities
------------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................... 36%
NationsBanc Montgomery Securities, LLC......................... 27
Morgan Stanley & Co. Incorporated.............................. 27
Chase Securities Inc........................................... 10
----
Total 100%
====
-1-
<PAGE>
SCHEDULE B
CENTENNIAL CELLULAR OPERATING CO. LLC
CENTENNIAL FINANCE CORP.
$370,000,000 Senior Subordinated Notes due 2008
1. The initial offering price of the Securities shall be 100% of the
principal amount thereof, plus accrued interest, if any, from the date of
issuance.
2. The purchase price to be paid by the Initial Purchasers for the
Securities shall be 96.5% of the principal amount thereof.
3. The interest rate on the Securities shall be 10 3/4% per annum.
4. The interest payment dates of the Securities shall be June 15 and
December 15 of each year, commencing June 15, 1999.
5. The Securities will be subject to redemption at any time on or after
December 15, 2003, at the option of the Issuer and Finance Corp., at the
following redemption prices (expressed as percentages of the principal amount),
if redeemed during the 12-month period beginning December 15 of the years
indicated below:
Redemption
Year Price
---- ---------------
2003 105.375%
2004 103.583%
2005 101.792%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due on
an interest payment date).
6. The price at which the Issuer and Finance Corp. may repurchase up to
35% of the Securities pursuant to the equity claw-back feature of the optional
redemption provisions of the Indenture shall be 110.75%.
-1-
<PAGE>
SCHEDULE C
Subsidiaries of Centennial Cellular Corp.
-----------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Centennial Cellular Operating Co. LLC (after the Merger) Delaware
Alexandria Cellular Corp. Delaware
Alexandria Cellular License Corp. Delaware
Bauce Communications, Inc. Oregon
Bauce Communications of Beaumont, Inc. Oregon
Centennial Asia Pacific Cellular Holding Corp. Nevada
Centennial Ashe Cellular Corp. Delaware
Centennial Beauregard Cellular LLC Delaware
Centennial Beauregard Holding Corp. Delaware
Centennial Benton Harbor Cellular Corp. Delaware
Centennial Benton Harbor Holding Corp. Delaware
Centennial Caldwell Cellular Corp. Delaware
Centennial Cellular Telephone Company of Del Norte Delaware
Centennial Cellular Telephone Company of Lawrence Delaware
Centennial Cellular Telephone Company of Modoc Delaware
Centennial Cellular Telephone Company of Sacramento Valley Delaware
Centennial Cellular Telephone Company of San Francisco Delaware
Centennial Cellular Wireless Holding Corp. New Jersey
Centennial Clairborne Cellular Corp. Delaware
Centennial Clinton Cellular Corp. Delaware
Centennial DeSoto Cellular Corp. Delaware
Centennial Hammond Cellular LLC Delaware
Centennial Iberia Holding Corp. Delaware
Centennial Jackson Cellular Corp. Delaware
Centennial Lafayette Cellular Corp. Louisiana
Centennial Lake Charles Cellular Corp. Delaware
Centennial Louisiana Holding Corp. Delaware
Centennial Mega Comm Holding Corp. Delaware
Centennial Michigan RSA 6 Cellular Corp. Delaware
Centennial Michigan RSA 7 Cellular Corp. Delaware
Centennial Microwave Corp. Delaware
Centennial Morehouse Cellular LLC Delaware
Centennial Puerto Rico Realty Corporation Puerto Rico
Centennial Puerto Rico Wireless Corporation Delaware
Centennial Randolph Cellular LLC Delaware
Centennial Wireless PCS License Corp. Delaware
Centennial Wireless PCS Operations Corp. Delaware
Century Beaumont Cellular Corp. Delaware
</TABLE>
-1-
<PAGE>
Century Cellular Realty Corp. Delaware
Century Charlottesville Cellular Corp. Virginia
Century Charlottesville Cellular Corp. Delaware
Century El Centro Corp. California
Century Elkhart Cellular Corp. Delaware
Century Indiana Cellular Corp.
Century Lynchburg Cellular Corp. Delaware
Century Lynchburg Cellular Corp. Virginia
Century Michiana Cellular Corp. Delaware
Century Michigan Cellular Corp. Delaware
Century Montgomery Cellular Corp. Delaware
Century Roanoke Cellular Corp. Delaware
Century Roanoke Cellular Corp. Virginia
Century Rural Cellular Corp. Delaware
Century South Bend Cellular Corp. Delaware
Century Yuma Paging Corp. Delaware
Century Yuma Cellular Corp. Delaware
El Centro Cellular Corporation Delaware
Elkhart Metronet, Inc. Indiana
Hendrix Electronics, Inc. California
Hendrix Radio Communications, Inc. California
Iberia Cellular Telephone Company LLC Delaware
Lafayette Communications, Inc. Delaware
Lambda Communications, Incorporated (Incorporado) Puerto Rico
Lambda Operations Corp. Delaware
Lambda PCS Corp. Nevada
Lambda Realty Corp. Delaware
Mega Comm, Inc. Delaware
Centennial Mega Comm Holding Corp. Delaware
Michiana Metronet Inc. Indiana
South Bend Metronet, Inc. Indiana
Centennial Cellular Tri-State Operating Partnership Delaware
Non-Wholly Owned Subsidiaries and Partnership Interests
-------------------------------------------------------
Subsidiary or Partnership Economic Interest
- ------------------------- -----------------
Alexandria Cellular License Corporation 92.3%
Lafayette Cellular Telephone Company (a general partnership) 94.5%
Elkhart Cellular Telephone Company (a general partnership) 91.7%
Cal-One Cellular L.P. 6.9%
Lake Charles CellTellCo 25.1%
Modoc RSA Limited Partnership 25.0%
Pennsylvania RSA NO. 6 Limited Partnership (I & II) 14.3%
Sacramento Valley Limited Partnership 23.5%
-2-
<PAGE>
GTE Mobilnet of California Limited Partnership 2.9%
-3-
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Centennial
Cellular Corp. on Form S-4 of our report dated July 17, 1998, appearing in the
Prospectus, which is part of this Registration Statement, and of our report
dated July 17, 1998 relating to the financial statement schedules appearing
elsewhere in this Registration Statement. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Stamford, Connecticut
March 4, 1999
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10 3/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
OF
CENTENNIAL CELLULAR CORP.
AND
CENTENNIAL CELLULAR OPERATING CO. LLC
PURSUANT TO THE PROSPECTUS DATED , 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1999 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS
EXTENDED BY CENTENNIAL CELLULAR CORP. AND CENTENNIAL CELLULAR OPERATING CO.
LLC IN THEIR SOLE DISCRETION, IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL
MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS
MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
THE EXCHANGE AGENT IS:
[ ]
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Courier:
[ ] [ ]
[ ] [ ]
[ ] [ ]
Attention: [ ] Attention: [ ]
</TABLE>
By Facsimile (for Eligible Institutions only):
( ) -
Attention: [ ]
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
( ) -
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
<PAGE>
The undersigned acknowledges receipt of the Prospectus dated , 1999 (the
"Prospectus"), of Centennial Cellular Corp., a Delaware corporation
("Centennial"), and Centennial Cellular Operating Co. LLC, a Delaware limited
liability company (together with Centennial, the "Issuers"), and this Letter
of Transmittal (the "Letter of Transmittal"), which together with the
Prospectus constitutes the Issuers' offer (the "Exchange Offer") to exchange
$1,000 principal amount of their 10 3/4% Senior Subordinated Notes due 2008,
Series B (the "New Notes"), for each $1,000 principal amount of their
outstanding 10 3/4% Senior Subordinated Notes due 2008, Series A (the "Old
Notes"). Recipients of the Prospectus should read the requirements described
in such Prospectus with respect to eligibility to participate in the Exchange
Offer. Capitalized terms used but not defined herein have the meaning given to
them in the Prospectus.
The undersigned hereby tenders the Old Notes described under "Description of
Old Notes" below pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Old Notes, and the undersigned represents that it has
received from each beneficial owner of Old Notes ("Beneficial Owners") a duly
completed and executed form of "Instruction to Registered Holder from
Beneficiary Owner" accompanying this Letter of Transmittal, instructing the
undersigned to take the action described in this Letter of Transmittal.
This Letter of Transmittal is to be used by a holder of Old Notes (i) if
certificates representing Old Notes are to be forwarded herewith, (ii) if
delivery of Old Notes is to be made by book-entry transfer to the Exchange
Agent's account at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer," or (iii) if a tender is made pursuant to the guaranteed delivery
procedures in the section of the Prospectus entitled "The Exchange Offer."
The undersigned hereby represents and warrants that the information received
from the beneficial owners is accurately reflected in the boxes entitled
"Beneficial Owner(s)--Purchaser Status" and "Beneficial Owner(s) Residence."
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact such registered holder of Old Notes promptly and
instruct such registered holder of Old Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter of
Transmittal and delivering its Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such beneficial owner's name or
obtain a properly completed bond power from the registered holder of Old
Notes. The transfer of record ownership may take considerable time.
In order to properly complete this Letter of Transmittal, a holder of Old
Notes must (i) complete the box entitled "Description of Old Notes," (ii)
complete the boxes entitled "Beneficial owner(s)--Purchaser Status" and
"Beneficial Owner(s)--Residence," (iii) if appropriate, check and complete the
boxes relating to book-entry transfer, guaranteed delivery, Special Issuance
Instructions and Special Delivery Instructions, (iv) sign the Letter of
Transmittal by completing the box entitled "Sign Here" and (v) complete the
Substitute Form W-9. Each holder of Old Notes should carefully read the
detailed instructions below prior to completing the Letter of Transmittal.
Holders of Old Notes who desire to tender their Old Notes for exchange and
(i) whose Old Notes are not immediately available or (ii) who cannot deliver
their Old Notes, this Letter of Transmittal and all other documents required
hereby to the Exchange Agent on or prior to the Expiration Date, must tender
the Old Notes pursuant to the guaranteed delivery procedures set forth in the
section of the Prospectus entitled "The Exchange Offer." See Instruction 2.
Holders of Old Notes who wish to tender their Old Notes for exchange must
complete columns (1) through (3) in the box below entitled "Description of Old
Notes," complete the boxes entitled and sign the box below entitled "Sign
Here." If only those columns are completed, such holder of Old Notes will have
tendered for exchange all Old Notes listed in column (3) below. If the holder
of Old Notes wishes to tender for exchange less than all of such Old Notes,
column (4) must be completed in full. In such case, such holder of Old Notes
should refer to Instruction 5.
2
<PAGE>
DESCRIPTION OF OLD NOTES
<TABLE>
<S> <C> <C> <C>
Name(s) and
Address(es) of
Registered Holder(s)
of
Old Note(s), Exactly
as Aggregate Principal
Name(s) Appear(s) on Amount Tendered for
Old Note(s) Exchange
Certificate(s) Private Note Numbers Aggregate Principal Must be in Integral
(please fill in, if (attach signed list, Amount Represented by Multiples
blank): if necessary) Certificates(1) of $1,000(2)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF NOTES TENDERED:
1. Unless indicated in the column "Principal Amount Tendered For Exchange,"
any tendering Holder of 10 3/4% Senior Subordinated Notes due 2008, Series
A, will be deemed to have tendered the entire aggregate principal amount
represented by the column labeled "Aggregate Principal Amount Represented
by Certificate(s)."
2. The minimum permitted tender is $1,000 in principal amount of 10 3/4%
Senior Subordinated Notes due 2008, Series A. All other tenders must be in
integral multiples of $1,000.
----------------
[_]CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER DEFINED)
ONLY):
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Private Note(s): ______________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Window Ticket Number (if available): _______________________________________
Name of Institution that Guaranteed Delivery: ______________________________
Account Number (if delivered by book-entry transfer): ______________________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
---------------------------------------------------------------------------
---------------------------------------------------------------------------
3
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 1, 6, 7 and 8) SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 6, 7 and 8)
To be completed ONLY (i) if the
New Notes issued in exchange for Old
Notes, certificates for Old Notes in
a principal amount not exchanged for
New Notes, or Old Notes (if any) not
tendered for exchange, are to be
issued in the name of someone other
than the undersigned or (ii) if Old
Notes tendered by book-entry
transfer which are not exchanged are
to be returned by credit to an
account maintained at DTC.
To be completed ONLY if the New
Notes issued in exchange for Old
Notes, certificates for Old Notes in
a principal amount not exchanged for
New Notes, or Old Notes (if any) not
tendered for exchange, are to be
mailed or delivered (i) to someone
other than the undersigned or (ii)
to the undersigned at an address
other than the address shown below
the undersigned's signature.
Issue to: Mail or deliver to:
Name: _______________________________ Name: _______________________________
(Please Type or Print) (Please Type or Print)
Address: ____________________________ Address: ____________________________
------------------------------------- -------------------------------------
------------------------------------- -------------------------------------
(Include Zip Code) (Include Zip Code)
------------------------------------- -------------------------------------
(Tax Identification or Social (Tax Identification or Social
Security No.) Security No.)
Credit Old Notes not exchanged and
delivered by book-entry transfer to
DTC account set forth below:
-------------------------------------
(Account Number)
BENEFICIAL OWNER(S)--RESIDENCE
-----------------------------------------------------------
<TABLE>
<S> <C>
State of Domicile Principal Principal Amount of Private
Place of Business of Each Notes Held for Account of
Beneficial Owner of Old Notes Beneficial Owner(s)
----------------------------- ---------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
4
<PAGE>
BENEFICIAL OWNER(S)--PURCHASER STATUS
The beneficial owner of each of the Old Notes described herein is (check the
box that applies):
[_]A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[_]A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Old Notes outside the United States in accordance
with Rule 904 of the Securities Act
[_]Other (describe): _______________________________________________________
----------------------------------------------------------------------------
SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
5
<PAGE>
Ladies and Gentlemen:
Pursuant to the offer by Centennial Cellular Corp., a Delaware corporation
(the "Company"), and Centennial Cellular Operating Co. LLC, a Delaware limited
liability company (together with Centennial, the "Issuers"), upon the terms
and subject to the conditions set forth in the Prospectus dated , 1999
(the "Prospectus") and this Letter of Transmittal (the "Letter of
Transmittal"), which together with the Prospectus constitutes an offer (the
"Exchange Offer") by the Issuers to exchange $1,000 principal amount of their
10 3/4% Senior Subordinated Notes due 2008, Series B (the "New Notes"), for
each $1,000 principal amount of its outstanding 10 3/4% Senior Subordinated
Notes due 2008, Series A (the "Old Notes"), the undersigned hereby tenders to
the Issuers for exchange the Old Notes indicated above.
By executing this Letter of Transmittal and subject to and effective upon
acceptance for exchange of the Old Notes tendered for exchange herewith, the
undersigned will have irrevocably sold, assigned, transferred and exchanged,
to the Issuers, all right, title and interest in, to and under all of the Old
Notes tendered for exchange hereby, and hereby will have appointed the
Exchange Agent as the true and lawful agent and attorney-in-fact (with full
knowledge that the Exchange Agent also acts as agent of the Issuers) of such
holder of Old Notes with respect to such Old Notes, with full power of
substitution to (i) deliver certificates representing such Old Notes, or
transfer ownership of such Old Notes on the account books maintained by DTC
(together, in any such case, with all accompanying evidences of transfer and
authenticity), to the Issuers, (ii) present and deliver such Old Notes for
transfer on the books of the Issuers and (iii) receive all benefits and
otherwise exercise all rights and incidents of beneficial ownership with
respect to such Old Notes, in accordance with the terms of the Exchange Offer.
The power of attorney granted in this paragraph shall be deemed to be
irrevocable and complete with an interest.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner; (ii) has a net long position within the meaning of Rule 14e-4 under
the Securities Exchange Act as amended ("Rule 14e-4") equal to or greater than
the principal amount of Old Notes tendered hereby; (iii) the tender of such
Old Notes complies with Rule 14e-4 (to the extent that Rule 14e-4 is
applicable to such exchange); (iv) the undersigned has full power and
authority to tender, exchange, assign and transfer the Old Notes and (v) that
when such Old Notes are accepted for exchange by the Issuers, the Issuers will
acquire good and marketable title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claims.
The undersigned will, upon receipt, execute and deliver any additional
documents deemed by the Exchange Agent or the Issuers to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered for exchange hereby.
By tendering, the undersigned hereby further represents to the Issuers that
(i) the New Notes to be acquired by the undersigned in exchange for the Old
Notes tendered hereby and any beneficial owner(s) of such Old Notes in
connection with the Exchange Offer will be acquired by the undersigned and
such beneficial owner(s) in the ordinary course of business of the
undersigned, (ii) the undersigned have no arrangement or understanding with
any person to participate in the distribution of the New Notes, (iii) the
undersigned and each beneficial owner acknowledge and agree that any person
who is a broker-dealer registered under the Exchange Act or is participating
in the Exchange Offer for the purpose of distributing the New Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the New
Notes acquired by such person and cannot rely on the position of the staff of
the Commission set forth in certain no-action letters, (iv) the undersigned
and each beneficial owner understand that a secondary resale transaction
described in clause (iii) above and any resales of New Notes obtained by the
undersigned in exchange for the Old Notes acquired by the undersigned directly
from Issuers should be covered by an effective registration statement
Containing the selling securityholder information, required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Commission and (vi) neither
the undersigned nor any beneficial owner is an "affiliate," as defined under
Rule 405 under the Securities Act, of the Issuers. If the undersigned is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a prospectus
6
<PAGE>
meeting the requirements of the Securities Act in connection with any resale
of such New Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For purposes of the Exchange Offer, the Issuers will be deemed to have
accepted for exchange, and to have exchanged, validly tendered Old Notes, if,
as and when the Issuers give oral or written notice thereof to the Exchange
Agent. Tenders of Old Notes for exchange may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders" in the Prospectus. Any Old Notes tendered by the
undersigned and not accepted for exchange will be returned to the undersigned
at the address set forth above unless otherwise indicated in the box above
entitled "Special Delivery Instructions" as promptly as practicable after the
Expiration Date.
The undersigned acknowledges that the Issuers' acceptance of Old Notes
validly tendered for exchange pursuant to any one of the procedures described
in the section of the Prospectus entitled "The Exchange Offer" and in the
instructions hereto will constitute a binding agreement among the undersigned
and the Issuers upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please return any Old Notes not entered for exchange in the
name(s) of the undersigned. Similarly, unless otherwise indicated in the box
entitled "Special Delivery Instructions," please mail any certificates for Old
Notes not tendered or exchanged (and accompanying documents, as appropriate)
to the undersigned at the address shown below the undersigned's signature(s).
In the event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the certificates representing the
New Notes issued in exchange for the Old Notes accepted for exchange in the
name(s) of, and return any Old Notes not tendered for exchange or not
exchanged to, the person(s) so indicated. The undersigned recognizes that the
Issuers have no obligation pursuant to the "Special Issuance Instructions" and
"Special Delivery Instructions" to transfer any Old Notes from the name of the
holder thereof if the Issuers do not accept for exchange any of the Old Notes
so tendered for exchange or if such transfer would not be in compliance with
any transfer restrictions applicable to such Old Notes.
IN ORDER TO VALIDLY TENDER OLD NOTES FOR EXCHANGE, HOLDERS OF OLD NOTES MUST
COMPLETE, EXECUTE, AND DELIVER THIS LETTER OF TRANSMITTAL.
Except as stated in the Prospectus, all authority herein conferred or agreed
to be conferred shall survive the death, incapacity, or dissolution of the
undersigned, and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as otherwise stated in the Prospectus, this tender for
exchange of Old Notes is irrevocable.
7
<PAGE>
TENDERING HOLDERS SIGN HERE
---------------------------------------------------------------
Signature(s) of Owner(s)
Dated:_______________________
Must be signed by the registered holder(s) of Old Notes
exactly as name(s) appear(s) on certificate(s) representing
the Old Notes or on a security position listing or by
person(s) authorized to become registered Old Note holder(s)
by certificates and documents transmitted herewith. If
signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity,
please provide the following information. (See Instruction 6).
Name(s):_______________________________________________________
---------------------------------------------------------------
(Please Print)
Capacity (full title):_________________________________________
Address:_______________________________________________________
---------------------------------------------------------------
(Include Zip Code)
Principal place of business (if different from address listed
above):________________________________________________________
---------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.: ( ) ___________
Tax Identification or Social Security Nos.: ________
PLEASE COMPLETE SUBSTITUTE FORM W-9
GUARANTEE OF SIGNATURE(S)
(Signature(s) must be guaranteed if required by instruction 1)
Authorized Signature: _________________________________________
Dated: ________________________________________________________
Name and Title: _______________________________________________
(Please Print)
Name and Title: _______________________________________________
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
that is (1) a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., (2) a commercial bank or
trust company having an office or correspondent in the United States, or (3)
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Securities Exchange Act of 1934 which is a member of one of the following
recognized Signature Guarantee Programs (an "Eligible Institution"):
a.The Securities Transfer Agents Medallion Program (STAMP)
b.The New York Stock Exchange Medallion Signature Program (MSP)
c.The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Old Notes
tendered herewith and such registered holder(s) have not completed the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (ii) if such Old Notes are
tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. Delivery of this Letter of Transmittal and Old Notes; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed by holders of Old
Notes (i) if certificates are to be forwarded herewith or (ii) if tenders are
to be made pursuant to the procedures for tender by book-entry transfer or
guaranteed delivery set forth in the section of the Prospectus entitled "The
Exchange Offer." Certificates for all physically tendered Old Notes or any
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation"), as
well as a properly completed and duly executed copy of this Letter of
Transmittal or facsimile hereof, and an other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at its address
set forth on the cover of this Letter of Transmittal prior to 5:00 p.m., New
York City time, on the Expiration Date. Holders of Old Notes who elect to
tender Old Notes and (i) whose Old Notes are not immediately available or (ii)
who cannot deliver the Old Notes, this Letter of Transmittal or other required
documents to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date, must tender their Old Notes according to the guaranteed
delivery of procedures set forth in the Prospectus. Holders may have such
tender elected if: (a) such tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time, on the Expiration Date, the
Exchange Agent has received from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery, setting forth the
name and address of the holder of such Old Notes, the certificate numbers(s)
of such Old Notes and the principal amount of Old Notes tendered for exchange,
stating that tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, this Letter of
Transmittal (or a facsimile thereof, together with the certificates)
representing such Old Notes (or a Book-Entry Confirmation), in proper form for
transfer, and any other documents required by this Letter of Transmittal, will
be deposited by such Eligible Institution with the Exchange Agent; and (c) a
properly executed Letter of Transmittal (or a facsimile hereof), as well as
the certificates) for all tendered Old Notes in proper form for transfer or a
Book-Entry Confirmation, together with any other documents required by this
Letter of Transmittal, are received by the Exchange Agent within five New York
Stock Exchange trading days after the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT.
9
<PAGE>
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT
OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NEITHER THIS LETTER OF TRANSMITTAL NOR ANY OLD NOTES SHOULD
BE SENT TO THE ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Old Notes, by execution of this Letter of Transmittal (or
facsimile hereof, if applicable), waive any right to receive notice of the
acceptance of their Old Notes for exchange.
3. Inadequate Space. If the space provided in the box entitled "Description
of Old Notes" above is inadequate, the certificate numbers and principal
amounts of the Old Notes being tendered should be listed on a separate signed
schedule affixed hereto.
4. Withdrawals. A tender of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date by delivery of written
or facsimile notice of withdrawal to the Exchange Agent at the address set
forth on the cover of this Letter of Transmittal. To be effective, a notice of
withdrawal of Old Notes must (i) specify the name of the person who tendered
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes
to be withdrawn (including the certificate number or numbers and aggregate
principal amount of such Old Notes), and (iii) be signed by the holder of Old
Notes in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature Guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Issuers
in their sole discretion, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will thereafter be deemed not validly
tendered for purposes of the Exchange Offer and no New Notes will be issued
with respect thereto unless the Old Notes so withdrawn are validly retendered.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described in the section of the Prospectus entitled "The Exchange
Offer -- Procedures for Tendering" at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
5. Partial Tenders. Tenders of Old Notes will be accepted only in integral
multiples of $1,000 principal amount. If a tender for exchange is to be made
with respect to less than the entire principal amount of an Old Notes, fill in
the principal amount of Old Notes which are tendered for exchange in column
(4) of the box entitled "Description of Old Notes," as more fully described in
the footnotes thereto. In case of a partial tender for exchange, a new
certificate, in fully registered form, for the remainder of the principal
amount of the Old Notes, will be sent to the holders of Old Notes unless
otherwise indicated in the appropriate box on this Letter of Transmittal as
promptly as practicable after the expiration or termination of the Exchange
Offer.
6. Signatures on this Letter of Transmittal, Assignment and Endorsements.
(a) The signature(s) of the holder of Old Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
(b) If tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter of Transmittal.
(c) If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal and any necessary or required
documents as there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the Old Notes
listed and transmitted hereby, no endorsements of Old Notes or bond powers are
required. If, however, Old Notes not tendered or not accepted are to be issued
or returned in the name of a person other than the holder of Old Notes, then
the Old Notes transmitted hereby must be endorsed or accompanied by a properly
completed bond power, in a form satisfactory to the Issuers, in either case
signed exactly as the name(s) of the holder of Old Notes appear(s) on the Old
Notes. Signatures on such Old Notes or bond powers must be guaranteed by an
Eligible Institution (unless signed by an Eligible Institution).
10
<PAGE>
(e) If this Letter of Transmittal or Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuers,
evidence satisfactory to the Issuers of their authority to so act must be
submitted with this Letter of Transmittal.
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Old Notes listed, the Old Notes must be endorsed or
accompanied by a properly completed bond power, in either case signed by such
registered holder exactly as the name(s) of the registered holder of Old Notes
appear(s) on the certificates. Signatures on such Old Notes or bond powers
must be guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
7. Transfer Taxes. Except as set forth in this Instruction 7, the Issuers
will pay all transfer taxes, if any, applicable to the exchange of Old Notes
pursuant to the Exchange offer. If, however, a transfer tax is imposed for any
reason other than the exchange of the Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemptions
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
8. Special Issuance and Delivery Instructions. If the New Notes are to be
issued, or if any Old Notes not tendered for exchange are to be issued or sent
to someone other than the holder of Old Notes or to an address other than that
shown above, the appropriate boxes on this Letter of Transmittal should be
completed. Holders of Old Notes tendering Old Notes by book-entry transfer may
request that Old Notes not accepted be credited to such account maintained at
DTC as such holder of Old Notes may designate.
9. Irregularities. All questions as to the validity, form, eligibility
(including time of receipt), compliance with conditions, acceptance and
withdrawal of tendered Old Notes will be determined by the Issuers in its sole
discretion, which determination will be final and binding. The Issuers reserve
the absolute right to reject any and all Old Notes not properly tendered or
any Old Notes the Issuers' acceptance of which would, in the opinion of
counsel for the Issuers, be unlawful. The Issuers also reserve the right to
waive any defects, irregularities or conditions of tender as to particular Old
Notes. The Issuers' interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Issuers shall determine. Although the Issuers intend to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Issuers, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived
will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
10. Waiver of Conditions. The Issuers reserve the absolute right to waive,
amend or modify certain of the specified conditions as described under "The
Exchange Offer -- Conditions" in the Prospectus in the case of any Old Notes
tendered (except as otherwise provided in the Prospectus).
11. Requests for Information or Additional Copies. Requests for information
or for additional copies of the Prospectus and this Letter of Transmittal may
be directed to the Exchange Agent at the address or telephone number set forth
on the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE
NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
11
<PAGE>
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of Old Notes whose tendered
Old Notes are accepted for exchange may be subject to backup withholding
unless the holder provides the Issuers (as payor), through the Exchange Agent,
with either (i) such holder's correct taxpayer identification number ("TIN")
on Substitute Form W-9 attached hereto, certifying that the TIN provided on
Substitute Form W-9 is correct (or that such holder of Old Notes is awaiting a
TIN) and that (A) the holder of Old Notes has not been notified by the
Internal Revenue Service that he or she is subject to backup withholding as a
result of a failure to report all interest or dividends or (B) the Internal
Revenue Service has notified the holder of Old Notes that he or she is no
longer subject to backup withholding; or (ii) an adequate basis for exemption
from backup withholding. If such holder of Old Notes is an individual, the TIN
is such holder's social security number. If the Exchange Agent is not provided
with the correct taxpayer identification number, the holder of Old Notes may
be subject to certain penalties imposed by the Internal Revenue Service.
Certain holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders of Old Notes should indicate their
exempt status on Substitute Form W-9. A foreign individual may qualify as an
exempt recipient by submitting to the Exchange Agent a properly completed
Internal Revenue Service Form W-8 (which the Exchange Agent will provide upon
request) signed under penalty of perjury, attesting to the holder's exempt
status. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "Guidelines") for additional
instructions.
If backup withholding applies, the Issuers are required to withhold 31% of
any payment made to the holder of Old Notes or other payee. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
The holder of Old Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) of the record
owner of the Old Notes. If the Old Notes are held in more than one name or are
not held in the name of the actual owner, consult the enclosed Guidelines for
additional guidance regarding which number to report.
12
<PAGE>
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF 10 3/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
OF
CENTENNIAL CELLULAR CORP.
AND
CENTENNIAL CELLULAR OPERATING CO. LLC
The undersigned hereby acknowledges receipt of the Prospectus dated , 1999
(the "Prospectus") of Centennial Cellular Corp., a Delaware corporation
("Centennial"), and Centennial Cellular Operating Co. LLC, a Delaware limited
liability company (together with Centennial, the "Issuers") and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), which
together constitute the offer (the "Exchange Offer") by the Issuers.
Capitalized terms used but not defined herein have the meanings ascribed to
them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the 10 3/4% Senior
Subordinated Notes due 2008, Series A (the "Old Notes"), held by you for the
account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount): $ of the Old Notes.
With respect to the Exchange offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, if
any):
$ of the Old Notes.
[_] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner of the Old Notes, including but not limited to the
representations that (i) the undersigned's principal residence is in the state
of (fill in state) , (ii) the undersigned is acquiring the New Notes in
the ordinary course of business of the undersigned, (iii) the undersigned has
no arrangement or understanding with any person to participate in the
distribution of New Notes, (iv) the undersigned acknowledges that any person
who is a broker-dealer registered under the Exchange Act or is participating
in the Exchange Offer for the purpose of distributing the New Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended, in connection with a secondary resale
transaction of the New Notes acquired by such person and cannot rely on the
position of the Staff of the Securities and Exchange Commission set forth in
certain no-action letters (See the section of the Prospectus entitled "The
Exchange Offer--Resale of the New Notes"), (v) the undersigned understands
that a secondary resale transaction described in clause (iv) above and any
resales of New Notes obtained be the undersigned in exchange for the Old Notes
acquired by the undersigned directly from the Issuers should be covered by an
effective registration statement containing the selling securityholder
information required by Item 507 or Item 508, if applicable, of Regulation S-K
of the Commission, (vi) the undersigned is not an "affiliate," as defined in
Rule 405 under the Securities Act, of the Issuers, and (vii) if the
undersigned is a broker-dealer that will receive New Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such New
13
<PAGE>
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act; (b) to agree, on behalf of the undersigned, as
set forth in the Letter of Transmittal; and (c) to take such other action as
necessary under the Prospectus or the Letter of Transmittal to effect the
valid tender of Old Notes.
The purchaser status of the undersigned is (check the box that applies):
[_] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[_] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Old Notes outside the United States in accordance
with Rule 904 of the Securities Act
[_] Other (describe)
SIGN HERE
Name of Beneficial Owner(s): ______________________________________
Signature(s): _____________________________________________________
Name(s) (please print): ___________________________________________
Address: __________________________________________________________
Principal place of business (if different from address listed
above): ___________________________________________________________
Telephone Number(s): ______________________________________________
Taxpayer Identification or Social Security Number(s): _____________
Date: _____________________________________________________________
14
<PAGE>
PAYER'S NAME:
- -------------------------------------------------------------------------------
SUBSTITUTE FORM W-9 PART I-- Social Security Number
PLEASE PROVIDE YOUR TIN
IN THE BOX AT RIGHT AND
CERTIFY BY SIGNING AND
DATING BELOW.
DEPARTMENT OF THE
TREASURY OR
Employer Identification
INTERNAL REVENUE SERVICE Number
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER (TIN)
PART II--CERTIFICATIONS--Under penalties of perjury, I certify that:
(1) The number shown on this form is my current taxpayer identification number
(or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTION--You must cross out item (2) in Part 2 above if you
have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return. However,
if after being notified y the IRS that you are subject to backup withholding
you receive another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2).
PART III--Awaiting TIN [_]
Name:__________________________________________________________________________
(Please Print)
Address: ______________________________________________________________________
- -------------------------------------------------------------------------------
(Including Zip Code)
Signature _________________________________________________________Date
- -------------------------------------------------------------------------------
15
<PAGE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER.
PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-91" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
Payor's Name: [ ]
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer
Identification Number has not been issued to me, and either
(a) I have mailed or delivered an application to receive a
Taxpayer Identification Number to the appropriate Internal
Revenue Service Center or Social Security Administration
Office or (b) I intend to mail or deliver such an application
in the near future. I understand that if I do not provide a
Taxpayer Identification Number with sixty (60) days, 31% of
all reportable payments made to me thereafter will be withheld
until I provide such a number.
Signature _________________________________________Date
16
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
10 3/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
OF
CENTENNIAL CELLULAR CORP.
AND CENTENNIAL CELLULAR OPERATING CO. LLC
THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY ANY HOLDER
OF 10 3/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A (THE "OLD NOTES"), OF
CENTENNIAL CELLULAR CORP., A DELAWARE CORPORATION (THE "CENTENNIAL"), AND
CENTENNIAL CELLULAR OPERATING CO. LLC, A DELAWARE LIMITED LIABILITY COMPANY
(TOGETHER WITH CENTENNIAL, THE "ISSUERS"), WHO WISHES TO TENDER OLD NOTES
PURSUANT TO THE EXCHANGE OFFER (AS DEFINED IN THE PROSPECTUS DATED , 1999
(THE "PROSPECTUS")) OF THE ISSUERS AND (I) WHOSE OLD NOTES ARE NOT IMMEDIATELY
AVAILABLE OR (II) WHO CANNOT DELIVER SUCH OLD NOTES OR ANY OTHER DOCUMENTS
REQUIRED BY THE LETTER OF TRANSMITTAL ON OR BEFORE THE EXPIRATION DATE (AS
DEFINED IN THE PROSPECTUS) OR (III) WHO CANNOT COMPLY WITH THE BOOK-ENTRY
TRANSFER PROCEDURE ON A TIMELY BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE
TRANSMISSION, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE EXCHANGE
OFFER" IN THE PROSPECTUS.
CENTENNIAL CELLULAR CORP.
CENTENNIAL CELLULAR OPERATING CO. LLC
NOTICE OF GUARANTEED DELIVERY
<TABLE>
<S> <C>
TO: [ ]
By Registered or Certified Mail: By Hand or Overnight Courier:
[ ] [ ]
[ ] [ ]
[ ] [ ]
Attention: [ ] Attention: [ ]
</TABLE>
By Facsimile (for Eligible Institutions only):
( ) [ ]
Attention: [ ]
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
( ) [ ]
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuers upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes specified below pursuant to the guaranteed delivery procedures set
forth under "AThe Exchange Offer" in the Prospectus. By so tendering, the
undersigned does hereby make, at and as of the date hereof, the
representations and warranties of a tendering Holder of Old Notes set forth in
the Letter or Transmittal. The undersigned hereby tenders the Old Notes listed
below:
<TABLE>
<S> <C>
Certificate Numbers (If Available) Principal Amount Tendered
</TABLE>
- -------------------------------------------------------------------------------
----------------------------------- -----------------------------------
All authority herein conferred or agreed to be conferred shall survive
the death, incapacity, or dissolution of the undersigned, and every
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned.
If Old Notes will be tendered by
book-entry transfer:
Sign Here
Name of Tendering Institution:
---------------------------------
----------------------------------- Signature(s)
The Depository Trust Company ---------------------------------
Account No.: Name (Please Print)
----------------------------------- ---------------------------------
Date: _____________________________ ---------------------------------
Address (Include Zip Code)
---------------------------------
Area Code and Telpephone No.
2
<PAGE>
GUARANTEE
(Not to be Use for Signature Guarantee)
The undersigned, a participant in a Recognized Signature Guarantee Medallion
Program, guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Old Notes tendered
hereby in proper form for transfer, or confirmation of the book-entry transfer
of such Old Notes into the Exchange Agent's account at the Depository Trust
Company, pursuant to the procedure for book-entry transfer set forth in the
Prospectus, and any other required documents, all by 5:00 p.m., New York City
time, on the fifth New York Stock Exchange trading day following the
Expiration Date (as defined in the Prospectus).
Name of Firm: Sign Here
- ------------------------------------- -------------------------------------
Authorized Signature
-------------------------------------
Name (Please Print)
-------------------------------------
-------------------------------------
Address (include Zip code)
Date: _______________________________ _____________________________________
Area Code and Telephone No.
<PAGE>
DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF
CERTIFICATES FOR OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at one of its addresses set forth on the cover hereof prior
to the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange
Agent. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service, properly insured. If such delivery is by
mail, it is recommended that the holder use properly insured, registered mail
with return receipt requested. For a full description of the guaranteed
delivery procedures, see the Prospectus under "The Exchange Offer." In all
cases, sufficient time should be allowed to assure timely delivery. No Notice
of Guaranteed Delivery should be sent to the Issuers.
2. Signature on this Notice of Guaranteed Delivery; Guarantee of
Signatures. If this Notice of Guaranteed Delivery is signed by the registered
holder(s) of the Old Notes referred to herein, then the signature must
correspond with the name(s) as written on the face of the Old Notes without
alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Old Notes listed, this Notice of Guaranteed
Delivery must be accompanied by a properly completed bond power signed as the
name of the registered holder(s) appear(s) on the face of the Old Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and, unless waived by the Issuers, evidence satisfactory
to the Issuers of their authority so to act must be submitted with this Notice
of Guaranteed Delivery.
3. Requests for Assistance or Additional Copies. Questions relating to the
Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the Letter
of Transmittal and this Notice of Guaranteed Delivery, may be directed to the
Exchange Agent at the address set forth on the cover hereof or to your broker,
dealer, commercial bank or trust company.
<PAGE>
Exhibit 99.3
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of January 7, 1999, by and
among CCW ACQUISITION CORP., a Delaware corporation (the "Company"), the several
persons named in Schedule I hereto (each a "WCAS Purchaser" and collectively the
"WCAS Purchasers"), the several persons named in Schedule II hereto (each a
"Blackstone Purchaser" and collectively the "Blackstone Purchasers"), the
several persons named in Schedule III hereto (each a "Signal Purchaser" and
collectively the "Signal Purchasers") and the several persons named in Schedule
IV hereto (each a "Management Purchaser" and collectively the "Management
Purchasers"). The WCAS Purchasers, the Blackstone Purchasers, the Signal
Purchasers and the Management Purchasers are herein sometimes referred to
collectively as the "Stockholders."
WHEREAS, the Company and the Stockholders have entered into a
Securities Purchase Agreement, dated as of December 29, 1998 (the "Purchase
Agreement"), pursuant to which (i) the Company (on behalf of itself and
Centennial Cellular Corp. ("Centennial"), the corporation that will survive the
"Merger" referred to in Section 21 hereof) has agreed to sell to the
Stockholders an aggregate 9,638,554 shares of Class A Common Stock, $.01 par
value ("Common Stock"), of the Company, and (ii) Centennial will issue to one of
the Stockholders a Senior Subordinated Note of the Company due 2009, in the
principal amount of $180,000,000 (the "Note");
WHEREAS, upon the consummation of all the transactions
contemplated by the Purchase Agreement and the "Merger Agreement" (as defined in
Section 7 hereof), each Stockholder will own the number of shares of Common
Stock of the Company appearing opposite the name of such Stockholder on Schedule
I, Schedule II, Schedule III or Schedule IV hereto, as the case may be; and
WHEREAS, the Company and each of the Stockholders desire to
make certain arrangements among themselves with respect to the governance of the
Company and the other matters set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, the parties hereto hereby
agree as follows:
SECTION 1. Voting Agreement.
(a) From and after the Closing Date (as defined in the
Purchase Agreement), at each annual or special stockholders meeting called for
the election of directors, and whenever the stockholders of the Company act by
written consent with respect to the election of directors,
<PAGE>
each Stockholder agrees to vote or otherwise give such Stockholder's consent in
respect of all shares of capital stock of the Company (whether now or hereafter
acquired) owned by such Stockholder, and take all other appropriate action, and
the Company shall take all necessary and desirable actions within its control,
in order to cause:
(i) the authorized number of directors on the Board of
Directors of the Company (the "Board") to be established at nine;
(ii) the election to the Board of:
a) three directors designated by the holders of a
majority of the Common Stock then held by all WCAS
Purchasers (the "WCAS Designees") so long as the WCAS
Purchasers own (in the aggregate) not less than 25%
of the shares of Common Stock owned by them on the
date hereof, which directors will initially be Thomas
E. McInerney, Anthony J. de Nicola and Rudolph E.
Rupert;
b) two directors designated by the holders of a
majority of the Common Stock then held by all Blackstone
Purchasers (the "Blackstone Designees") so long as the
Blackstone Purchasers own (in the aggregate) not less than 25%
of the shares of Common Stock owned by them on the date
hereof, which directors will initially be Mark T. Gallogly and
Lawrence H. Guffey; and
c) the Chief Executive Officer and the Chief
Operation Officer of the Company (initially Michael J. Small
and Rudy J. Graf, respectively);
all of which persons shall hold office, subject to their earlier
removal in accordance with clause (iii) below, the By-laws of the
Company and applicable corporate law, until their respective successors
shall have been elected and shall have qualified;
(iii) the removal from the Board (with or without cause) of
any director elected in accordance with subpart a) or b) of clause (ii)
above upon the written request of the Stockholders that designated such
director;
(iv) upon any vacancy in the Board as a result of any
individual designated as provided in clause (ii) above ceasing to be a
member of the Board, whether by resignation or otherwise, the election
to the Board as promptly as possible of an individual designated by the
Stockholders that designated such individual (or, in the case of a
director specified in subpart c) of clause (ii) above, an individual
meeting such qualifications); and
(v) their respective designees to the Board of Directors of
the Company to elect Thomas E. McInerney (or such other person as may
be designated by the WCAS Purchasers) as Chairman of the Board of
Directors.
2
<PAGE>
(b) The two directors not designated pursuant to clause (ii)
of paragraph (a) above shall be directors (the "Outside Directors") that shall
be elected by the stockholders of the Company. In any such election, the
Stockholders shall vote their shares only for persons that (x) are not employees
or officers of (i) the Company or any of its subsidiaries or (ii) the
Stockholders or their respective stockholders, members or partners and (y)
otherwise qualify as "independent directors" under the rules applicable to
Nasdaq National Market companies as in effect on the date hereof and satisfy any
other requirements under applicable law or the rules of any exchange or
quotation system on which the Common Stock is then listed or traded.
(c) Each Stockholder agrees to use its best efforts to cause
its designees to the Board to vote or otherwise give such Director's consent to
the creation and maintenance of:
(i) a Compensation Committee of the Board consisting of three
directors, two of whom shall be WCAS Designees, if any then exist, and
the third of whom shall be a Blackstone Designee, if any then exist,
which Compensation Committee shall approve all grants of stock options
to employees of the Company, all increases in compensation of officers
of the Company, all annual bonuses granted to officers of the Company
and all other employee benefits (including, without limitation,
vacation policy, benefit plans, company automobiles and insurance)
granted to officers of the Company, and shall have such other duties
and responsibilities as the Board of Directors may from time to time
determine;
(ii) an Audit Committee of the Board of Directors, consisting
of three directors, one of whom shall be a WCAS Designee, if any then
exist, one of whom shall be a Blackstone Designee, if any then exist,
and one of whom shall be an Outside Director, which Audit Committee
shall review and approve the financial statements of the Company as
audited by the Company's independent certified public accountants, and
shall have such other duties and responsibilities as the Board of
Directors may from time to time deter mine; and
(iii) such other committees as the Board shall from time to
time deem appropri ate, consisting of at least two directors, at least
one of whom shall be a WCAS Designee, if any then exist, and at least
one of whom shall be a Blackstone Designee, if any then exist, which
committees shall have such duties and responsibilities as the Board may
from time to time determine.
To the extent there are no WCAS Designees or Blackstone
Designees, the committee seats allocated to them above shall be filled
as the Board shall determine.
(d) No Stockholder shall grant any proxy or enter into or
agree to be bound by any voting trust with respect to Common Stock held by it,
nor shall any Stockholder enter into any stockholder agreement or arrangement of
any kind with respect to Common Stock held by it, which conflicts or is
inconsistent in any manner with the provisions of this Agreement.
3
<PAGE>
SECTION 2. Restrictions on Transfers by Management Purchasers.
In addition to the other restrictions set forth herein, each Management
Purchaser hereby agrees that such Management Purchaser shall not sell or in any
other way, directly or indirectly, transfer, assign, distribute or otherwise
dispose of any shares of capital stock (whether now owned or hereafter acquired)
then held by such Management Purchaser except:
(i) any transfer made with the prior written consent of the
holders of a majority in interest of the shares of Common Stock then
held by the WCAS Purchasers;
(ii) any transfer by such Management Purchaser to the spouse
or lineal descendants of such Management Purchaser, including without
limitation any transfer by bequest or devise, or to a trust or trusts
for the benefit of such Management Purchaser or any of the foregoing;
(iii) any transfer of shares of capital stock that are the
subject of an effective registration statement under the Securities Act
of 1933, as amended (the "Securities Act"); or
(iv) any transfer of shares of capital stock pursuant to
Section 3 or 4 hereof;
provided, in the case of a transfer pursuant to clause (i) or (ii) above, that
any such transferee that is not already a party to this Agreement shall agree in
writing to be bound by, and to comply with, all provisions of this Agreement as
though such transferee were a Management Purchaser.
SECTION 3. Tag-Along Rights.
(a) Subject to the provisions of paragraph (d) below, if a
WCAS Purchaser or group of WCAS Purchasers (for purposes of this Section 3, a
"Selling Stockholder") wishes to directly or indirectly sell, transfer or
otherwise dispose of all or any portion of the Common Stock held by him, her or
it at any time, then such Selling Stockholder shall promptly deliver a notice
(an "Offering Notice") to the Company in writing of the proposed transfer,
specifying the number of such shares of Common Stock to be transferred by such
Selling Stockholder (such specified shares, the "Offered Shares"), the name of
the proposed purchaser or purchasers, the proposed purchase price per share, the
proposed date of transfer, the payment terms and all other material terms and
conditions thereof. In the event that the terms and/or conditions set forth in
the Offering Notice are thereafter amended in any respect, the Selling
Stockholder shall also give written notice (an "Amended Notice") of the amended
terms and conditions of the proposed transaction to the Company. Upon its
receipt of any Offering Notice or Amended Notice, the Company shall promptly,
but in all events within three (3) business days of its receipt thereof, forward
copies thereof to each of the Blackstone Purchasers, Signal Purchasers and
Management Purchasers (collectively, the "Other Stockholders"). The Selling
Stockholder shall provide such additional information with respect to the
proposed transfer as may be reasonably requested by the Company or the Other
Stockholders.
4
<PAGE>
(b) Each Other Stockholder shall have the right and option,
exercisable upon written notice to the Company and the Selling Stockholder
within 15 days after receipt by such Other Stockholder of the Offering Notice,
or, if later, within 7 days after receipt by such Other Stockholder of the most
recent Amended Notice, to participate in the proposed transfer of shares by the
Selling Stockholder to the proposed purchaser on the same terms and conditions
as the Selling Stockholder (such participation right being hereinafter referred
to as a "tag-along" right); provided that no Other Stockholder shall be required
to make any representations or warranties or covenants, or bear any liability,
with respect to any other Stockholder or with respect to the Company or the
Company's business other than such Other Stockholder's pro rata share (based on
the number of shares of Common Stock to be transferred) of any indemnity
obligations for representations and warranties regarding the Company or its
business. Each Other Stockholder may participate in such transfer with respect
to all or any part of that number of shares of Common Stock which is equal to
the product obtained by multiplying (i) the number of Offered Shares by (ii) a
fraction, the numerator of which is the number of shares of Common Stock at the
time owned by such Other Stockholder and the denominator of which is the
aggregate number of shares of Common Stock then owned by the Stockholders. Any
Other Stockholders that have not notified the Selling Stockholder and the
Company of their intent to exercise their tag-along rights within 7 days after
receipt of an Amended Notice shall be deemed to have elected not to exercise
such rights with respect to the transaction contemplated by such Amended Notice
(regardless of their election pursuant to the Offering Notice or any prior
Amended Notice relating to such transaction), but only if such Amended Notice
sets forth the provisions of this sentence.
(c) Any Other Stockholder participating in the proposed
disposition shall deliver to the Company, as agent for such Other Stockholder,
for transfer to the proposed acquiror one or more certificates, properly
endorsed for transfer and with all stock transfer taxes paid and stamps affixed,
which represent the number of shares of Common Stock that such Other Stockholder
elects to dispose of pursuant to paragraph (b) above. The consummation of such
proposed disposition shall be subject to the sole discretion of the Selling
Stockholder, who shall have no liability or obligation whatsoever to any Other
Stockholder participating therein other than to obtain for such Other
Stockholder the same terms and conditions as those set forth in the Offering
Notice (or most recent Amended Notice, as the case may be). Upon the
consummation of any such sale, the Company (i) shall transfer to the acquiror a
stock certificate or certificates representing the number of shares of Common
Stock to be disposed of by any Other Stockholders and (ii) shall promptly
thereafter remit to each Other Stockholder (i) that portion of the proceeds of
the disposition to which such Other Stockholder is entitled by reason of such
participation and (ii) a stock certificate representing any balance of shares of
Common Stock that were not so disposed of (or all shares of Common Stock, in the
event the proposed disposition is not consummated).
(d) Anything to the contrary herein notwithstanding, the
provisions of this Section 3 shall not apply to (i) any transfer by a WCAS
Purchaser to any other WCAS Purchasers or affiliates thereof, (ii) any
distribution or transfer by any WCAS Purchaser that is a limited partnership to
its limited partners or (iii) in the case of a WCAS Purchaser who is an
individual,
5
<PAGE>
transfer by such WCAS Purchaser to the spouse or lineal descendants of such WCAS
Purchaser, including, without limitation, transfer by bequest or devise, or to a
trust or trusts for the benefit of such WCAS Purchaser or any of the foregoing;
provided that in the case of a transfer pursuant to clause (i) or (iii) above,
such transferee agrees in writing to be bound by this Agreement as though such
transferee were a WCAS Purchaser.
(e) Each WCAS Purchaser, severally and not jointly, represents
and warrants to the Signal Purchasers that as of the date hereof there is no
contract, commitment or understanding between such person and any Blackstone
Purchaser with respect to "tag-along" or similar rights relating to shares of
capital stock of the Company, other than this Agreement. Each Blackstone
Purchaser, severally and not jointly, represents and warrants to the Signal
Purchasers that as of the date hereof there is no contract, commitment or
understanding between such person and any WCAS Purchaser with respect to
"tag-along" or similar rights relating to shares of capital stock of the
Company, other than this Agreement.
SECTION 4. Drag-Along Rights. In the event that any of the
WCAS Purchasers or the Company receives a bona fide offer from a third party not
affiliated with any WCAS Purchaser to purchase at least 80% of the outstanding
shares of capital stock of the Company and a majority in interest of the WCAS
Purchasers desires to accept such offer, and so long as the WCAS Purchasers
collectively own a greater number of outstanding shares of Common Stock than the
Blackstone Purchasers, such WCAS Purchasers shall have the right to require all
(but not less than all) of the Stockholders to sell all (or such lesser
percentage as may be necessary to achieve recapitalization accounting treatment,
but in no event less than 80%) of the shares of capital stock (together with any
options or warrants to acquire capital stock) then held by them (including all
or the same percent of all shares, options and warrants held by such WCAS
Purchasers) on the following terms:
(i) such sale shall only be a sale for cash or marketable
securities and all expenses of the transaction, including, without
limitation, legal, accounting and investment banking fees and expenses,
shall be borne by the Company (for purposes of this paragraph,
"marketable securities" shall mean securities which are debt or equity
securities that are actively traded on a national securities exchange
located in the United States or on Nasdaq that are part of an issue
with a public capitalization in excess of $100 million and that may be
freely traded without limitation as to volume on such exchange or
Nasdaq immediately following receipt thereof or at any time thereafter
by each Stockholder);
(ii) the proceeds from such sale (and, in the case of a sale
of less than all of the outstanding shares of Common Stock of the
Company, the number of shares to be sold by each Stockholder) shall be
allocated among the Stockholders on a pro rata basis, based on the
number of shares of Common Stock (treating all "in the money" options
and warrants as the number of shares of Common Stock issuable upon the
exercise thereof, less such number of shares of Common Stock the
aggregate fair market value of which (based on
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the value attributed in such sale) would be required to pay the
aggregate exercise price therefor, and treating any shares of
convertible preferred stock or debt of the Company on an "as-converted"
basis) then held by each Stockholder;
(iii) not less than 20 days prior to the closing date of such
sale, such WCAS Purchasers shall notify each of the other Stockholders
in writing of such sale, the terms thereof and the closing date
thereof, and shall provide additional written notification promptly
upon any amendment or modification to any thereof, all of which terms
shall apply equally to all Stockholders except that no Other
Stockholder shall be required to make any representations, warranties
or covenants, or bear any liability, with respect to the Company or the
Company's business or with respect to any other Stockholder;
(iv) at the closing of such sale, each of the Stockholders
shall deliver certificates evidencing the Common Stock, options and
warrants then held by it and to be sold in such sale, duly endorsed for
transfer or accompanied by stock powers executed in blank, against
payment of the purchase price therefor by wire transfer to the account
or accounts specified by such Stockholder; and
(v) the Other Stockholders shall not be obligated to
participate in such sale if all of the WCAS Purchasers shall not have
concurrently sold all or the same percentage of their shares of Common
Stock, options and/or warrants to be sold by them in connection with
such sale.
SECTION 5. Preemptive Rights.
(a) The Company hereby grants to each Stockholder the right to
purchase such Stockholder's Proportionate Percentage (as hereinafter defined) of
any future Eligible Offering (as hereinafter defined). For the purposes of this
Section 5, the following terms shall have the meanings set forth below:
"Proportionate Percentage" means, with respect to any
Stockholder as of any date, the result (expressed as a percentage)
obtained by dividing (i) the number of shares of Common Stock owned by
such Stockholder as of such date by (ii) the total number of shares of
Common Stock outstanding as of such date.
"Eligible Offering" means an offer by the Company to sell to
any person or persons (including any of the Stockholders) for cash,
cash equivalents or indebtedness any equity securities of the Company,
or any security convertible into or exchangeable for, or carrying
rights or options to purchase, equity securities of the Company, other
than an offering by the Company:
(i) of shares of Common Stock or options to purchase
shares of Common Stock in connection with or pursuant to any
stock option or stock
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purchase plan approved by the Board of Directors of the
Company to full-time employees, officers, directors,
consultants and/or advisors to the Company or its
subsidiaries;
(ii) in a public offering (a "Public Offering")
registered under the Securities Act.
(b) The Company shall, before issuing any securities pursuant
to an Eligible Offering, give written notice thereof to each Stockholder. Such
notice shall specify the security or securities the Company proposes to issue,
the proposed date of issuance, the consideration that the Company intends to
receive therefor and all other material terms and conditions of such proposed
issuance. For a period of 15 days following the date of such notice, each
Stockholder shall be entitled, by written notice to the Company, to elect to
purchase all or any part of such Stockholder's Proportionate Percentage of the
securities being sold in the Eligible Offering; provided, however, that if two
or more securities shall be proposed to be sold as a "unit" in an Eligible
Offering, any such election must relate to such unit of securities. To the
extent that elections pursuant to this Section 5(b) shall not be made with
respect to any securities included in an Eligible Offering within such 15-day
period, then the Company may issue such securities, but only for consideration
not less than, and otherwise on no less favorable terms to the Company than,
those set forth in the Company's notice and only within 60 days after the end of
such 15-day period. In the event that any such offer is accepted by a
Stockholder or Stockholders, the Company shall sell to such Stockholder or
Stockholders, and such Stockholder or Stockholders shall purchase from the
Company, for the consideration and on the terms set forth in the notice as
aforesaid, the securities that such Stockholder or Stockholders shall have
elected to purchase.
SECTION 6. Right of First Offer.
(a) If any Blackstone Purchaser (for purposes of this Section
6, a "Seller") desires to sell, exchange or in any other manner dispose of
(other than in a manner permitted by Section 6(d) hereof) any shares of capital
stock of the Company held by it, then such Seller shall give to the Company a
written notice (a "Notice of Desire to Sell") which shall set forth in
reasonable detail the class and number of shares of capital stock which it
desires to sell and may, if the Seller so chooses to specify, set forth any
other terms and conditions of the desired disposition. The Company shall deliver
such Notice of Desire to Sell to each of the WCAS Purchasers promptly upon
receipt thereof. A Seller may deliver a Notice of Desire to Sell whether or not
such Seller has received an offer from a third party to purchase such shares of
capital stock.
(b) The WCAS Purchasers shall have the right, exercisable upon
written notice to the Seller within 15 days after receipt of any Notice of
Desire to Sell (the "Offer Notice"), to offer to purchase any or all shares of
capital stock proposed to be sold by the Seller at a purchase price equal to the
proposed purchase price specified in the Notice of Desire to Sell if so
specified, or as proposed in the Offer Notice if not specified in the Notice of
Desire to Sell,
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and otherwise on the terms and conditions specified in the Notice of Desire
to Sell to the extent so specified and any additional terms and conditions
proposed in the Offer Notice (collectively, including with respect to
purchase price, the "Offer Terms"). Each Offer Notice shall state the
number of shares to be purchased by the WCAS Purchasers delivering such
Offer Notice (the "Purchasing Stockholders") and that the Purchasing
Stockholders will purchase such shares within 45 days thereafter (or such
longer period as is necessary to obtain any necessary consents or approvals
or to otherwise comply with applicable law). In the event that more than
one WCAS Purchaser exercises its right to offer to purchase pursuant to
this paragraph (b), the allocation among such WCAS Purchasers of any shares
actually sold pursuant to this paragraph (b) shall be as agreed by such
WCAS Purchasers.
(c) If the WCAS Purchasers deliver, within the period
specified in paragraph (b) above, an Offer Notice with respect to capital stock
that is the subject of the Notice of Desire to Sell, the Seller shall be
entitled to sell such capital stock to such Purchasing Stockholders, on the
Offer Terms within the 45-day period specified in paragraph (b) above (or such
longer period as is necessary to obtain any necessary consents or approvals or
to otherwise comply with applicable law). Following the period specified in
paragraph (b) above, the Seller may (subject to any other applicable
restrictions hereunder) transfer such capital stock to any third party; provided
that, if an Offer Notice with respect to all of such shares of capital stock was
delivered within the 15 day period specified in paragraph (b) above, the Seller
may not sell such shares to such third party on material terms which are the
same as or more favorable, in the aggregate, to such third party than the
material terms set forth in the Offer Terms. Any such sale with respect to which
definitive documentation is not entered into within 60 days after the expiration
of the period specified in paragraph (b) above, or which is not consummated
within 60 days of the execution of such definitive documentation (or such longer
period as is necessary to obtain any necessary consents or approvals or to
otherwise comply with applicable law) shall again be subject to the requirements
of this Section 6.
(d) Anything herein to the contrary notwithstanding, and
subject to any other applicable restrictions hereunder, no right of first offer
hereunder shall apply with respect to (i) a transfer by a Blackstone Purchaser
to an affiliate of such Blackstone Purchaser; provided, however, that any such
transferee that is not already a party to this Agreement shall agree in writing
to be bound by, and to comply with, all provisions of this Agreement as though
such transferee were a Blackstone Purchaser, (ii) any distribution or transfer
by a Blackstone Purchaser that is a limited partnership to its limited partners,
(iii) any transfer by a Blackstone Purchaser to the public pursuant to an
offering registered under the Securities Act or sold in compliance with Rule 144
under the Securities Act and (iv) any transfer by a Blackstone Purchaser
pursuant to Section 3 or Section 4.
SECTION 7. Restrictions.
(a) While this Agreement is in effect, in addition to any
other vote of stock holders that may be required by law or by the Certificate of
Incorporation of the Company,
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the Company shall not, without the consent of (i)the holders of a majority of
the Common Stock then held by all the WCAS Purchasers and (ii) the holders of
a majority of the Common Stock then held by all the Blackstone Purchasers:
(i) amend, alter or repeal its Certificate of Incorporation or
its By-laws in any manner that adversely affects the respective rights,
preferences or voting power of the Common Stock, or the rights of the
Stockholders hereunder, it being understood that, in the event of any
such amendment or alteration that adversely affects only the Signal
Purchasers and/or the Management Purchasers, such amendment or
alteration shall also require the consent of a majority in interest of
the Signal Purchasers and/or the Management Purchasers, as the case may
be; or
(ii) enter into, or permit any of its subsidiaries to enter
into, any transaction with (w) any of its or any subsidiary's officers,
directors or employees; (x) any person related by blood or marriage to
any such person; (y) any entity in which any such person owns any
beneficial interest; or (z) any stockholder of the Company (or any
affiliate of any such stockholder) that owns, either individually or
collectively with all stockholders affiliated with such stockholder, at
least 25% of the outstanding capital stock of the Company; provided,
however, that this clause (ii) shall not apply to (A) normal employment
arrangements, benefit programs and employee incentive option programs
on reasonable terms, (B) any transaction with a director of the
Company (or an affiliate of such director) that is approved by the
Board of Directors of the Company in accordance with the provisions of
Section 144(a)(1) of the Delaware General Corporation Law, (C) customer
transactions in the ordinary course of business, (D) the closing of the
transac tions contemplated by the Purchase Agreement and the Agreement
and Plan of Merger, dated as of July 2, 1998, as amended (the "Merger
Agreement"), between the Company and Centennial, and (E) the
transactions contemplated by the Registration Rights Agree ment, dated
as of the date hereof among the parties hereto..
(b) Except as expressly set forth in Section 1 hereof, each
Stockholder agrees not to, and agrees to cause its affiliates not to, directly
or indirectly, alone or in concert with others, without the prior written
consent of the holders of a majority of the shares of Common Stock held by the
WCAS Purchasers, take any of the following actions set forth below:
(i) effect, seek, offer, engage in, propose (whether publicly
or otherwise) or participate in:
a) any acquisition of beneficial ownership of equity
or debt securities of the Company or any of its subsidiaries
other than (1) pursuant to the Purchase Agreement, (2)
pursuant to Section 5 hereof, (3) acquisitions from other
Stockholders or (4) any stock dividend, stock
reclassification or other distribution or dividends to the
holders of Common Stock generally;
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b) any tender or exchange offer, merger,
consolidation, share exchange, business combination,
recapitalization, restructuring, liquidation, dissolution or
other extraordinary transaction involving the Company or any
material portion of its business or any purchase of all or any
substantial part of the assets of the Company or any material
portion of its business; or
c) any "solicitation" of "proxies" (as such terms are
used in the proxy rules of the Securities and Exchange
Commission ("SEC")) without regard to the exclusion set forth
in Section 14a-1(1)(2)(iv) under the Exchange Act from the
definition of "solicitation") with respect to the Company or
any of its affiliates or any action resulting in Stockholder
or any of its affiliates becoming a "participant" in any
"election contest" (as such terms are used in the proxy rules
of the SEC) with respect to the Company or any of its
subsidiaries;
(ii) propose any matter for submission to a vote of
stockholders of the Company;
(iii) seek to place a representative on the Company Board, or
seek the removal of (other than for cause or in accordance with Section
1(a)(iii)) any director of the Company; or
(iv) form, join or in any way participate in or assist in the
formation of a group (within the meaning of Section 13(d)(3) of the
Exchange Act) with respect to any Common Stock, other than any such
group consisting exclusively of Stockholders and their affiliates.
SECTION 8. Right and Option to Repurchase Shares of Common
Stock From Management Purchasers Upon Termination of Employment.
(a) In the event that any Management Purchaser ceases to be
employed by the Company or Centennial or any subsidiary thereof on a full-time
basis for any reason (including, without limitation, as a result of his death,
disability, incapacity, retirement, resignation or dismissal with or without
"cause" (as defined below)), the WCAS Purchasers shall have the right and
option, but not the obligation, to purchase from such Management Purchaser (or
in the case of his death, his legal representative), in such proportions as the
WCAS Purchasers shall agree, any or all of the shares of Common Stock purchased
by such Management Purchaser pursuant to the Purchase Agreement (the "Repurchase
Shares"). In the event that the WCAS Purchasers exercise such right and option,
the WCAS Purchasers shall pay to such Management Purchaser as the purchase price
for such Repurchase Shares (the "Purchase Price"), an amount per share equal to
the fair market value thereof as of the date such Management Purchaser ceased to
be so em ployed by the Company or Centennial or any subsidiary thereof, such
fair market value to be determined in good faith by the Board on a basis
consistent with the manner of determining the
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fair market value of the Common Stock for purposes of offering of the Company's
Common Stock to equity investors (the "Fair Market Value").
(b) The WCAS Purchasers may exercise the right and option
described in Section 8(a) above by giving such Management Purchaser (or in the
case of his death, his legal representative) a written notice of election to
purchase at any time within 60 days after the date such employment ceases, which
notice of election shall specify the number of shares to be purchased by each
electing WCAS Purchaser and the Purchase Price for such shares. The closing for
the purchase by the WCAS Purchasers of Repurchase Shares pursuant to Section
8(a) will take place at the offices of Welsh, Carson, Anderson & Stowe on the
date specified in the written notice of election with respect to such shares,
which date shall be a business day not later than 60 days (or such longer period
as is necessary to obtain any necessary consents or approvals or to otherwise
comply with applicable law) after the date such notice is given. At such
closing, the Management Purchaser (or in the case of his death, his legal
representative) will deliver such shares, duly endorsed for transfer, against
payment in cash of the Purchase Price thereof.
(c) In the event that the WCAS Purchasers choose not to
exercise their rights and options under Section 8(a) hereof within the 60 day
period referred to in Section 8(b), the Company shall have the right and option,
but not the obligation, to purchase from the Management Purchaser whose
employment was terminated (or in the case of his death, his legal
representative) any or all of the Repurchase Shares. In the event that the
Company exercises such right and option, the purchase price for such shares
shall be the Purchase Price determined in accordance with Section 8(a).
(d) The Company may exercise the right and option described in
Section 8(c) above by giving such Management Purchaser (or in the case of his
death, his legal representative) a written notice of election to purchase at any
time within 30 days after the expiration of the 60 day period referred to in
Section 8(b) above, which notice of election shall specify the number of
Repurchase Shares to be purchased and the Purchase Price for such shares. The
closing for the purchase by the Company of Repurchase Shares pursuant to Section
8(c) will take place at the offices of the Company on the date specified in the
written notice of election with respect to such shares, which date shall be a
business day not later than 60 days (or such longer period as is necessary to
obtain any necessary consents or approvals or to otherwise comply with
applicable law) after the date such notice is given. At such closing, the
Management Purchaser (or in the case of his death, his legal representative)
will deliver such shares, duly endorsed for transfer, against payment in cash of
the Purchase Price thereof.
SECTION 9. Financial and Other Information. For so long as any
Stockholder holds at least 25% of the Common Stock held by it as of the date
hereof, the Company shall furnish to such Stockholder:
(i) within 90 days after the end of each fiscal year of the
Company, a consolidated balance sheet of the Company and its
subsidiaries as of the end of such fiscal year
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and the related consolidated statements of operations, changes in
stockholders' equity and changes in financial position of the Company
and its subsidiaries for the fiscal year then ended, together with
supporting notes thereto, certified without qualification as to scope
of audit by a firm of independent certified public accountants of
recognized national standing selected by the Board of Directors of the
Company;
(ii) within 45 days after the end of each quarter in each
fiscal year (other than the last quarter in each fiscal year), a
consolidated balance sheet of the Company and its subsidiaries and the
related consolidated statements of operations, changes in stockholders'
equity and changes in financial position of the Company and its
subsidiaries for the quarter then ended, unaudited but certified by the
principal financial officer of the Com pany, such balance sheet to be
as of the end of such quarter and such statements of opera tions,
changes in stockholders' equity and changes in financial position to be
for such quarter and for the period from the beginning of the fiscal
year to the end of such quarter, in each case subject to normal year-
end adjustments;
(iii) within 30 days after the end of each month in each
fiscal year, a consolidated balance sheet of the Company and its
subsidiaries and the related consolidated statement of operations for
the month then ended, unaudited but certified by the principal
financial officer of the Company, such balance sheet to be as of the
end of such month and such statement of operations to be for such month
and for the period from the beginning of the fiscal year to the end of
such month, in each case subject to normal year-end adjust ments;
(iv) promptly upon filing, copies of all registration
statements, prospectuses, periodic reports and other documents filed by
the Company with the SEC; and
(v) promptly, from time to time, such other information
regarding the opera tions, business, affairs and financial condition of
the Company or any subsidiary as such Stockholder may reasonably
request, subject to such confidentiality agreements as the Company may
reasonably request.
SECTION 10. Legend on Stock Certificates. Each certificate
representing shares of Common Stock owned by any Stockholder shall conspicuously
bear the following legend until such time as the shares represented thereby are
no longer subject to the provisions hereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A STOCKHOLDERS AGREEMENT, DATED AS
OF JANUARY 7, 1999, AMONG THE COMPANY AND THE OTHER PARTIES
THERETO. COPIES MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
COMPANY."
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The Company covenants that it shall keep a copy of this
Agreement on file at the address listed in Section 19 for the purpose of
furnishing copies to the holders of record of shares of Common Stock.
SECTION 11. Duration of Agreement. (a) This Agreement (other
than the provisions of Sections 1, 10, 11(b) and 15 through 25) shall terminate
upon the earlier to occur of (i) the tenth anniversary of the date hereof or
(ii) the consummation of (x) a Public Offering by the Company of Common Stock
having an aggregate offering price to the public of not less than $50,000,000,
and (y) the sale, transfer or other disposition (including a distribution by a
limited partnership to its partners) by either the WCAS Purchasers or the
Blackstone Purchasers to persons or entities not required to become parties
hereto of at least 50% of the shares of Common Stock held by the WCAS Purchasers
or the Blackstone Purchasers, as the case may be, on the date hereof.
(b) The provisions of Sections 1, 10, 11(b) and 15 through 25
shall terminate upon the earlier to occur of (i) the tenth anniversary of the
date hereof or (ii) the consummation of (x) a Public Offering by the Company of
Common Stock having an aggregate offering price to the public of not less than
$50,000,000, and (y) the sale, transfer or other disposition (including a
distribution by a limited partnership to its partners) by both of the WCAS
Purchasers and the Blackstone Purchasers to persons or entities not required to
become parties hereto of at least 50% of the shares of Common Stock held by the
WCAS Purchasers or the Blackstone Purchasers, respectively, on the date hereof.
SECTION 12. Advisory and Monitoring Fee. On each anniversary
of the date of this Agreement, the Company shall pay advisory and monitoring
fees of (i) $450,000, plus reasonable expenses, to WCA Management Corporation,
or another entity or entities designated by the holders of a majority of the
Common Stock held by the WCAS Purchasers, for so long as the WCAS Purchasers
hold at least 25% of the shares of Common Stock held by the WCAS Purchasers on
the date hereof, and (ii) $300,000, plus reasonable expenses, to Blackstone
Management Partners III L.L.C., or another entity or entities designated by the
holders of a majority of the Common Stock held by the Blackstone Purchasers, for
so long as the Blackstone Purchasers hold at least 25% of the shares of Common
Stock held by the Blackstone Purchasers on the date hereof. To the extent that
payment of such monitoring fees is prohibited by any provision of any credit
agreement or other debt instrument, the Company shall use commercially
reasonable efforts to cause the lender or holder of such debt instrument to
waive any such prohibition. If, despite such efforts, such lender or holder is
unwilling to permit the Company to pay such monitoring fee, then any amounts not
so paid shall accrue and shall bear interest at the rate of 13% per annum until
paid, and the Company shall promptly pay such sums when no such prohibitions
exist.
SECTION 13. Representations and Warranties by the
Stockholders. Each Stockholder, severally and not jointly, represents and
warrants to the Company and the other Stockholders as follows:
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(a) The execution, delivery and performance of this Agreement
by such Stockholder will not violate any provision of applicable law, any order
of any court or other agency of government, or any provision of any indenture,
agreement or other instrument to which such Stockholder or any of his, her or
its properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument.
(b) This Agreement has been duly executed and delivered by
such Stockholder, and when executed by the other parties hereto will constitute
the legal, valid and binding obligation of such Stockholder, enforceable in
accordance with its terms.
(c) The shares of Common Stock listed opposite the name of
such Stockholder on Schedule I, Schedule II, Schedule III or Schedule IV hereof,
as the case may be, constitute all the shares of Common Stock of the Company
owned by such Stockholder as of the date hereof (except that Welsh, Carson,
Anderson & Stowe VIII, L.P., owns one additional share of Common Stock).
SECTION 14. Representations and Warranties by the Company. The
Company hereby incorporates by reference and makes the representations and
warranties set forth in the Purchase Agreement, to the extent applicable to this
Agreement or the transactions contemplated hereby, as of the date hereof.
SECTION 15. Headings. Headings of articles, sections and
paragraphs of this Agreement are inserted for convenience of reference only and
shall not affect the interpretation or be deemed to constitute a part hereof.
SECTION 16. Severability. In the event that any one or more of
the provisions contained in this Agreement or in any other instrument referred
to herein shall, for any reason, be held to be invalid, illegal or
unenforceable, such illegality, invalidity or unenforceability shall not affect
any other provisions of this Agreement.
SECTION 17. Benefits of Agreement. Nothing expressed by or
mentioned in this Agreement is intended or shall be construed to give any person
other than the parties hereto and their respective successors and permitted
assigns any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective successors and
permitted assigns. Notwithstanding anything in this Section 17 to the contrary,
subject to compliance with the terms of this Agree ment, each Stockholder shall
have the right to assign its interests hereunder in whole or in part to any
transferee of the Common Stock held by such Stockholder in compliance with this
Agree ment; provided, however, that such transferee shall agree in writing with
the parties hereto to be bound by, and to comply with, all applicable provisions
of this Agreement and to be deemed to be a Stockholder for purposes of this
Agreement (it being understood that for purposes
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<PAGE>
of this Agreement any successor to or assigns of any (i) WCAS Purchaser shall be
deemed to be a WCAS Purchaser, (ii) Blackstone Purchaser shall be deemed to be a
Blackstone Purchaser, (iii) Purchaser shall be deemed to be a Signal Purchaser
and (iv) Management Purchaser shall be deemed to be a Management Purchaser);
provided, further, however, that whether or not such transferee is assigned any
interest hereunder, any transferee of a Stockholder shall agree in writing with
the parties hereto to be bound by, and to comply with, all applicable provisions
of this Agreement and to be deemed to be a Stockholder for purposes of this
Agreement in the manner provided above so long as such transferee is, with
respect to the transferring Stockholder, a transferee of the type specified in
clause (i) or (iii) of Section 3(d). Any Stockholder may assign to any of its
affiliates which are also Stockholders all or any part of its tag-along rights
with respect to a particular proposed sale pursuant to Section 3 or its rights
to purchase securities pursuant to Section 5; provided the aggregate number of
shares of Common Stock to which such rights apply with respect to all such
affiliated Stockholders, taken as a whole, shall not be increased thereby.
Except as expressly permitted hereby, each party's rights and obligations under
this Agreement shall not be subject to assignment or delegation by any party
hereto, and any attempted assignment or delegation in violation hereof shall be
null and void ab initio.
SECTION 18. Notice of Transfer. To the extent that any
Stockholder shall transfer any shares of Common Stock, notice of which transfer
is not otherwise required to be delivered to the Stockholders hereunder, such
Stockholder shall, within three days following consummation of such transfer,
deliver notice thereof to the Company and the other Stockholders; provided,
however, that no such notice shall be required to be delivered unless the
aggregate number of shares of Common Stock transferred by such Stockholder and
its affiliates since the date of the last notice delivered by such Stockholder
pursuant to this Section 17 exceeds 1% of the outstanding Common Stock.
SECTION 19. Notices. Any notice or other communications
required or permitted hereunder shall be deemed to be sufficient and received if
contained in a written instrument delivered in person or by courier or duly sent
by first class certified mail, postage pre paid, or by facsimile addressed to
such party at the address or facsimile number set forth below:
(1) if to the Company, to it at:
1305 Campus Parkway
Neptune, New Jersey 07753
Telecopy Number: (732) 919-1022
Attention: President
with a copy to:
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Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Telecopy Number: (212) 841-5725
Attention: Robert A. Schwed, Esq.
(2) if to any Stockholder, to the address of such Stockholder
appearing in Schedule I, Schedule II, Schedule III or Schedule IV
hereto;
or, in any case, at such other address or facsimile number as shall have been
furnished in writing by such party to the other parties hereto. All such
notices, requests, consents and other communi cations shall be deemed to have
been received (a) in the case of personal or courier delivery, on the date of
such delivery, (b) in the case of mailing, on the fifth business day following
the date of such mailing and (c) in the case of facsimile, when received.
SECTION 20. Entire Agreement; Modification. This Agreement
(including the Schedules hereto) constitutes the entire agreement of the parties
with respect to the subject matter hereof and may not be amended or modified
except by an instrument in writing signed by the Company and a majority in
interest of (i) the WCAS Purchasers, (ii) the Blackstone Purchasers and (iii)
only in the case of any such modification affecting their rights hereunder, the
Signal Purchasers and/or the Management Purchasers, as the case may be. Any
waiver of any provision of this Agreement must be in a writing signed by the
party against whom enforcement of such waiver is sought.
SECTION 21. Covenants Bind Successors and Assigns. All the
covenants, stipulations, promises and agreements in this Agreement contained by
or on behalf of any party shall bind its successors and permitted assigns,
whether so expressed or not. Without limiting the generality of the foregoing,
upon the consummation of the merger contemplated by the Merger Agreement (the
"Merger"), the corporation that survives the Merger shall succeed to all obliga
tions of the Company set forth herein and, immediately following such Merger,
shall execute and deliver to each Stockholder a supplement hereto in form and
substance reasonably acceptable to each Stockholder acknowledging that it is
bound by all such obligations of the Company.
SECTION 22. Counterparts. This Agreement may be executed in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
but one agreement.
SECTION 23. Changes in Common Stock. If, and as often as,
there are any changes in the Common Stock by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof as may be required so that the
17
<PAGE>
rights and privileges granted hereby shall continue with respect to the Common
Stock as so changed.
SECTION 24. Specific Performance. Each party hereto agrees
that a remedy at law for any breach or threatened breach by such party of this
Agreement would be inadequate and therefore agrees that any other party hereto
shall be entitled to specific performance of this Agreement in addition to any
other available rights and remedies in case of any such breach or threatened
breach.
SECTION 25. Governing Law. This Agreement shall be governed by,
enforceable under, and construed in accordance with the laws of the State of
Delaware.
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement as a sealed instrument, all as of the day and year first above
written.
CCW ACQUISITION CORP.
By /s/ Thomas E. McInerney
---------------------------------
Name: Thomas E. McInerney
Title: President
WELSH, CARSON, ANDERSON & STOWE VII,
L.P. By WCAS VII Partners, L.P.,
General Partner
By /s/ Laura Van Buren
---------------------------------
General Partner
WELSH, CARSON, ANDERSON & STOWE
VIII, L.P. By WCAS VIII Associates,
L.L.C., General Partner
By /s/ Laura Van Buren
---------------------------------
Managing Member
WCAS CAPITAL PARTNERS III, L.P.
By WCAS CP III Associates, L.L.C.,
General Partner
By /s/ Laura Van Buren
---------------------------------
Managing Member
WCAS INFORMATION PARTNERS, L.P.
By /s/ Thomas E. McInerney
---------------------------------
General Partner
<PAGE>
Patrick J. Welsh
Russell L. Carson
Bruce K. Anderson
Andrew M. Paul
Thomas E. McInerney
Laura VanBuren
Robert A. Minicucci
Anthony J. de Nicola
Paul B. Queally
Lawrence B. Sorrel
Priscilla A. Newman
Rudolph E. Rupert
D. Scott Mackesy
By /s/ Laura Van Buren
-----------------------------------------------
Laura M. VanBuren
Individually and
as Attorney-in-fact
WCA MANAGEMENT CORPORATION
By: /s/ Patrick J. Welsh
----------------------------------------------
Name: Patrick J. Welsh
Title: President
KRISTIN M. ANDERSON TRUST
By: /s/ Patrick J. Welsh
----------------------------------------------
Trustee
MARK S. ANDERSON TRUST
By: /s/ Patrick J. Welsh
----------------------------------------------
Trustee
DANIEL B. ANDERSON TRUST
By: /s/ Patrick J. Welsh
---------------------------------------------
Trustee
<PAGE>
BLACKSTONE CCC CAPITAL PARTNERS L.P.
By: Blackstone Management Associates III L.L.C.,
Its general partner
By: /s/ Mark T. Gallogly
------------------------------------------
Name: Mark T. Gallogly
Title: Senior Managing Director
BLACKSTONE CCC OFFSHORE CAPITAL
PARTNERS L.P.
By: Blackstone Management Associates III L.L.C.,
Its general partner
By: /s/ Mark T. Gallogly
-------------------------------------------
Name: Mark T. Gallogly
Title: Senior Managing Director
BLACKSTONE FAMILY INVESTMENT
PARTNERSHIP III L.P.
By: Blackstone Management Associates III L.L.C.,
Its general partner
By: /s/ Mark T. Gallogly
---------------------------------------------
Name: Mark T. Gallogly
Title: Senior Managing Director
<PAGE>
SIGNAL/CENTENNIAL PARTNERS, L.L.C.
By: Signal/Centennial Associates LLC
By: Signal Partners LLC
By /s/ Timothy P. Bradley
-----------------------------------
Managing Member
ROBERT W. BAIRD & CO., INC., TRUSTEE
F/B/O MICHAEL J. SMALL ROLLOVER IRA
By: /s/ Michael J. Small
----------------------------------
Title:
/s/ Michael J. Small
-----------------------------------
Michael J. Small
/s/ Peter W. Chehayl
------------------------------------
Peter W. Chehayl
/s/ Edward G. Owen
-------------------------------------
Edward G. Owen
<PAGE>
SCHEDULE I
WCAS Purchasers
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Purchaser of Common Stock
<S> <C>
Welsh, Carson, Anderson & Stowe VII, L.P. 648,117
Welsh, Carson, Anderson & Stowe VIII, L.P. 4,791,333
WCAS Information Partners, L.P 22,741
WCAS Capital Partners III, L.P. 542,169
WCA Management Corporation 56,852
Patrick J. Welsh 51,776
Russell L. Carson 51,776
Bruce K. Anderson 48,364
Kristin M. Anderson Trust 1,137
Mark S. Anderson Trust 1,137
Daniel B. Anderson Trust 1,137
Thomas E. McInerney 51,776
Andrew M. Paul 39,448
Robert A. Minicucci 20,012
Anthony J. de Nicola 4,548
Paul B. Queally 4,207
Lawrence B. Sorrel 4,548
Rudolph E. Rupert 4,548
D. Scott Mackesy 1,137
Priscilla A. Newman 1,478
Laura M. VanBuren 455
--------------
TOTAL: 6,348,696
</TABLE>
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, New York 10022
Telecopy: (212) 893-9575
Attention: Thomas E. McInerney
<PAGE>
SCHEDULE II
Blackstone Purchasers
Number of Shares
Name and Address of Purchaser of Common Stock
Blackstone CCC Capital Partners L.P. 2,490,358
Blackstone CCC Offshore Capital
Partners L.P. 452,055
Blackstone Family Investment
Partnership III L.P. 187,814
---------
TOTAL 3,130,227
c/o The Blackstone Group
345 Park Avenue
New York, New York 10154
Attn: Mark T. Gallogly
Telecopy: 212-754-8704
with a copy to:
Robert L. Friedman
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telecopy: 212-455-2502
<PAGE>
SCHEDULE III
Signal Purchasers
Number of Shares
Name and Address of Purchaser of Common Stock
Signal/Centennial Partners, L.L.C. 142,131
10 East 53rd Street
32nd Floor
New York, NY 10022
Telecopy: (212) 253-4235
Attention: Alfred J. Puchala
with a copy to:
O'Sullivan, Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Telecopy: (212) 408-2420
Attention: Phyllis Schwartz, Esq.
<PAGE>
SCHEDULE IV
Management Purchasers
Number of Shares
Name and Address of Purchaser of Common Stock
Michael J. Small 6,000
Michael J. Small Rollover IRA 4,000
Peter W. Chehayl 2,500
Edward G. Owen 5,000
------
TOTAL: 17,500
c/o Centennial Cellular Corp.
1305 Campus Parkway
Neptune, NJ 07753
