<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999
REGISTRATION NO. 333-77637
REGISTRATION NO. 333-77637-01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
BRESNAN COMMUNICATIONS GROUP LLC
BRESNAN CAPITAL CORPORATION
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
<TABLE>
<S> <C> <C>
DELAWARE 4841 38-2558446
DELAWARE 4841 13-3887244
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
709 WESTCHESTER AVENUE
WHITE PLAINS, NEW YORK 10604
(914) 993-6600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT V. BRESNAN
709 WESTCHESTER AVENUE
WHITE PLAINS, NEW YORK 10604
(914) 993-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
BARRY A. BROOKS, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
399 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 318-6000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER OF PUBLIC EXCHANGE
OFFER: As soon as practicable after this Registration Statement becomes
effective.
If any of 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. [ ]
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. [ ]
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THE PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN ORDER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED JULY 9, 1999
PROSPECTUS [LOGO]
OFFER TO EXCHANGE
ANY AND ALL OUTSTANDING
8% SENIOR NOTES DUE 2009, SERIES A
FOR
8% SENIOR NOTES DUE 2009, SERIES B
AND
9 1/4% SENIOR DISCOUNT NOTES DUE 2009, SERIES A
FOR
9 1/4% SENIOR DISCOUNT NOTES DUE 2009, SERIES B
OF
BRESNAN COMMUNICATIONS GROUP LLC AND
BRESNAN CAPITAL CORPORATION
TERMS OF EXCHANGE OFFER
- The exchange offer expires 5:00 p.m., New York City time,
, 1999, unless we extend it.
- The notes to be issued in the exchange offer will not trade on any
established exchange.
- We will not receive any proceeds from the exchange offer.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE NEW NOTES.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
The date of this prospectus is , 1999.
<PAGE> 3
Each broker-dealer that receives registered notes for its own account in
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of those 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 of 1933. 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 registered
notes received in exchange for outstanding notes where the outstanding notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. We have agreed that, starting on , 1999
and ending on the close of business , 2000 we will make this
prospectus available to any broker-dealer for use in connection with any such
resales. See "Plan of Distribution."
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 9
The TCI Transactions........................................ 20
Use of Proceeds............................................. 21
The Exchange Offer.......................................... 22
Capitalization.............................................. 32
Selected Consolidated and Combined Financial and Operating
Data...................................................... 33
Unaudited Pro Forma Consolidated Financial Data............. 35
Management's Discussion and Analysis of Financial Conditions
and Results of Operations................................. 38
Business.................................................... 47
Legislation and Regulation.................................. 63
Security Ownership of Certain Beneficial Owners and
Management................................................ 78
Certain Relationships and Related Transactions.............. 79
Description of The Partnership Agreement.................... 84
Description of The New Credit Facility...................... 88
Description of Notes........................................ 90
Certain Federal Tax Considerations.......................... 132
Plan of Distribution........................................ 136
Legal Matters............................................... 137
Experts..................................................... 137
Available Information....................................... 137
Index to Financial Statements............................... F-1
</TABLE>
i
<PAGE> 5
PROSPECTUS SUMMARY
The following summary contains basic information about this exchange offer.
It does not contain all of the information that is important to you in making a
decision to exchange your outstanding notes. For a more complete understanding
of this exchange offer, we encourage you to read this entire document.
THE EXCHANGE OFFER
We completed a private offering on February 2, 1999 of $170,000,000
aggregate principal amount of our 8% senior notes due 2009 and $275,000,000
aggregate principal amount at maturity of our 9 1/4% senior discount notes due
2009. On the same day, we entered into a registration rights agreement with the
initial purchasers of the original notes agreeing, among other things, to
deliver to you this prospectus and to complete this exchange offer within 210
days of the issuance of the original notes. You should read the discussion under
the headings "Summary Description of the New Notes" and "Description of the New
Notes" for further information regarding the registered notes.
THE COMPANY
We are a leading operator of cable television systems in small- and
medium-sized communities in the midwestern United States. Currently, we operate
cable television systems in Michigan, Minnesota, Nebraska, Wisconsin, Kansas and
Illinois. As of March 31, 1999, our cable television systems passed
approximately 973,000 homes and served approximately 656,000 basic subscribers,
ranking us among the 20 largest multiple system operators in the United States.
We assemble our cable systems in geographic clusters, emphasize customer
satisfaction and maintain strong community relations. As a result, we have one
of the highest basic subscriber penetration rates in the industry. As of March
31, 1999 we served approximately 67.4% of our homes passed. We believe that the
nature and size of our markets makes our cable television systems less subject
to competition and customer turnover than urban cable television systems.
In June 1999, we entered into an agreement to sell nearly all of our
business to Charter Communications Holding Company, LLC for a purchase price of
approximately $3.1 billion in cash and stock which will be reduced by the
assumption of our debt at closing. The cable systems to be acquired are located
in Michigan, Minnesota, Wisconsin and Nebraska. These cable systems have
approximately 690,000 customers. We anticipate that this transaction will close
in early 2000.
Bresnan Communications Group LLC was formed in 1998 and Bresnan Capital
Corporation was formed in 1996. Prior to the issuance of the original notes,
these companies had no assets or liabilities nor had they commenced operations.
The assets and liabilities contributed to us on February 2, 1999 were owned by
TCI and its affiliates and Bresnan Communications Company. Our principal
executive office is located at 709 Westchester Avenue, White Plains, New York
10604-3023. Our telephone number is (914) 993-6600.
1
<PAGE> 6
The following chart illustrates in summary form our organizational
structure and certain related entities.
ORGANIZATION
[ORGANIZATIONAL STRUCTURE FLOW CHART]
- ---------------
(a) BCI (USA), LLC is an affiliate of William J. Bresnan.
(b) The combined financial statements of Bresnan Communications Group Systems,
the predecessor for accounting and financial reporting purposes, presented
elsewhere in this prospectus are the combination of the financial statements
of Bresnan Communications Company and the cable systems contributed to us by
Tele-Communications, Inc.
(c) TCI is a wholly-owned subsidiary of AT&T.
2
<PAGE> 7
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer............ We are offering to exchange (1) $1,000
principal amount of new 8% senior notes due
2009 for each $1,000 principal amount of
original 8% senior notes due 2009, and (2)
$1,000 principal amount at maturity of new
9 1/4% senior discount notes due 2009 for each
$1,000 principal amount at maturity of original
9 1/4% senior discount notes due 2009.
The new notes are substantially identical to
the original notes, except that:
(1) the new notes will be freely
transferable, other than as described
in this prospectus;
(2) will not contain any legend
restricting their transfer;
(3) holders of the new notes will not be
entitled to certain rights of the
holders of the original notes under
the registration rights agreement; and
(4) the new notes will not contain any
provisions regarding the payment of
special interest.
Resales....................... We believe that you may resell or otherwise
transfer new notes without compliance with the
registration and prospectus delivery provisions
of the Securities Act. You may freely transfer
the new notes if:
- you are not an "affiliate," within the
meaning of Rule 405 under the Securities
Act, of ours;
- you are not a broker-dealer who acquired
your original notes directly from us
without compliance with the registration
and prospectus delivery provisions of
the Securities Act;
- you acquired your new notes issued in
the exchange offers in the ordinary
course of your business; and
- you have not engaged in, do not intend
to engage in, or do not have an
arrangement or understanding with any
person to participate in the
distribution of the new notes issued in
the exchange offer.
By tendering your notes you will be making
representations to this effect.
Transfer Restrictions on the
New Notes................... You may incur liability under the Securities
Act if:
- any of the representations listed above
are not true; and
- you transfer any new note issued to you
in the exchange offer without:
-- delivering a prospectus meeting the
requirements of the Securities Act;
or
-- an exemption from the Securities
Act's requirements to register your
new notes.
3
<PAGE> 8
We do not assume or indemnify you against such
liability. Each broker-dealer that is issued
new notes for its own account in exchange for
original notes that were acquired as a result
of market-making or other trading activities,
must acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
the new notes. A broker-dealer may use this
prospectus for an offer to resell, a resale or
other retransfer of the new notes issued to it
in the exchange offer.
Expiration of Exchange
Offer......................... 5:00 p.m., New York City time, on
, 1999, unless we extend the
exchange offer.
Conditions to the Exchange
Offer......................... Our obligation to complete the exchange offer
is subject to various conditions. See "The
Exchange Offer -- Conditions." We reserve the
right to terminate or amend the exchange offer
at any time before the expiration date if
various specific events occur.
Withdrawal Rights............. You may withdraw the tender of your original
notes at any time prior to the expiration date.
Procedures for Tendering
Original Notes.............. See "The Exchange Offer -- Procedures for
Tendering Original Notes."
Certain U.S. Federal Tax
Consequences................ We believe that by exchanging original notes
for 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; and
- you must include interest on the new
notes in gross income to the same extent
as the original notes.
Exchange Agent................ State Street Bank and Trust Company is serving
as our exchange agent in connection with the
exchange offer.
4
<PAGE> 9
SUMMARY DESCRIPTION OF THE NEW NOTES
The form and terms of the new notes will be substantially the same as the
form and terms of the original notes except that:
(1) the new notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer; and
(2) the holders of the new notes, except for limited instances, will
not be entitled to further registration rights under the registration
rights agreement.
The new notes will evidence the same debt as the original notes and will be
entitled to the benefits of the indenture under which the original notes were
issued.
Notes Offered................. -- $170.0 million aggregate principal amount of
8% senior notes due 2009.
-- $275.0 million aggregate principal amount at
maturity of 9 1/4% senior discount notes due
2009.
Maturity Date................. February 1, 2009.
Interest; Accreted Value...... We will pay interest on the senior notes at the
rate of 8% per year on February 1 and August 1
of each year, beginning on August 1, 1999.
The issue price of the original senior discount
notes was $636.44 per $1,000 principal amount
at maturity. The senior discount notes will
accrete at a rate of 9 1/4% per year to an
aggregate principal amount of $275.0 million by
February 1, 2004. The new senior discount notes
will not accrue interest prior to February 1,
2004, unless we elect to accrue interest on or
after February 1, 2002. On and after August 1,
2004, we will pay interest on the new senior
discount notes at the rate of 9 1/4% per year
on February 1 and August 1 of each year.
Ranking....................... The notes are:
(1) our senior unsecured obligations,
ranking equally in right of payment
with all existing and future senior
unsecured debt holders;
(2) senior in right of payment to all of
our existing and future subordinated
indebtedness; and
(3) effectively subordinated to all of our
secured indebtedness to the extent of
the value of the assets securing that
indebtedness.
Substantially all our operating assets are
owned by our subsidiaries, effectively
subordinating the notes to all existing and
future obligations of our subsidiaries. See
"Description of Notes."
Sinking Fund.................. None.
Optional Redemption........... We may not redeem the notes prior to February
1, 2004 except as described below. After
February 1, 2004, we may, at our option, redeem
the notes, in whole or in part, at any time
prior to maturity at the redemption prices
listed under "Description of Notes -- Optional
Redemption."
5
<PAGE> 10
In addition, at any time on or prior to
February 1, 2002, we may redeem up to 35% of
the aggregate principal amount of the senior
notes and/or 35% of the aggregate principal
amount at maturity of the senior discount notes
with the net cash proceeds of certain equity
offerings at a redemption price of 108.000% of
the aggregate principal amount of the senior
notes or 109.250% of the accreted value of the
senior discount notes, as applicable, in each
case, plus accrued and unpaid interest, if any,
to the date of redemption. See "Description of
Notes -- Optional Redemption."
Change of Control............. Upon a change of control under the indenture
governing the new notes, you will have the
right to require us to repurchase all or a
portion of your notes at a price equal to 101%
of the principal amount or accreted value
thereof, as applicable, in each case, plus
accrued and unpaid interest, if any, to the
date of repurchase. See "Description of
Notes -- Purchase at the Option of Holders Upon
a Change of Control."
Certain Covenants............. The indenture governing the notes will limit
our ability and the ability of our restricted
subsidiaries to, among other things:
- incur additional indebtedness,
- make certain restricted payments,
- create certain liens,
- in the case of our restricted
subsidiaries, create or permit to exist
dividend or payment restrictions with
respect to us,
- in the case of our restricted
subsidiaries, guarantee indebtedness,
- consolidate, merge or transfer all or
substantially all of our assets or the
assets of our subsidiaries on a
consolidated basis,
- sell assets, and
- transact business with our affiliates.
All of these limitations will be subject to a
number of important qualifications. See
"Description of Notes -- Certain Covenants."
Absence of a Public Market for
the Notes................... The new notes are a new issue of securities for
which there is currently no established trading
market. There can be no assurance as to the
development or liquidity of any market for any
of the notes. We do not intend to apply for
listing of any of the notes on any securities
exchange.
Use of Proceeds............... We will not receive any cash proceeds from the
exchange offer. See "Use of Proceeds."
RISK FACTORS
You should consider carefully all of the information set forth in this
prospectus and, in particular, should evaluate the specific factors described
under "Risk Factors" in deciding whether to invest in the new notes.
6
<PAGE> 11
SUMMARY CONSOLIDATED AND COMBINED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
The summary combined financial data as of and for the three years ended
December 31, 1998 set forth below have been derived from the audited combined
financial statements of Bresnan Communications Group Systems (a combination of
the financial statements of Bresnan Communications Company and the cable systems
transferred to us by TCI), the predecessor for accounting and financial
reporting purposes. Prior to the transfer to us of cable systems by TCI, Bresnan
Communications Company and the owners of the cable systems transferred to us
were under the common ownership and control of TCI. Based on that common
ownership and control, the financial data are presented at historical cost on a
combined basis. See "Use of Proceeds."
The summary consolidated financial data as of and for the three months
ended March 31, 1998 and 1999 are derived from our unaudited consolidated
financial statements, which in our opinion, contain all adjustments, consisting
of only normal recurring adjustments, necessary for a fair presentation. The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for a full year.
The data set forth below are qualified in their entirety by, and should be
read in conjunction with our consolidated financial statements and the
historical combined financial statements of Bresnan Communications Group
Systems, and the related notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................ $216,609 $247,108 $261,964 $ 62,463 $ 67,295
Operating costs and expenses:
Programming.......................... 46,087 53,857 63,686 15,491 17,748
Operating............................ 31,405 31,906 28,496 8,315 7,539
Selling, general and
administrative.................... 52,485 50,572 58,568 11,791 15,720
Depreciation and amortization........ 50,908 53,249 54,308 12,780 13,669
-------- -------- -------- -------- ---------
Total operating costs and expenses..... 180,885 189,584 205,058 48,377 54,676
-------- -------- -------- -------- ---------
Operating income....................... 35,724 57,524 56,906 14,086 12,619
Other income (expense)(a):
Interest -- related party............ (1,859) (1,892) (1,872) (470) (152)
Interest -- other.................... (13,173) (16,823) (16,424) (4,292) (14,394)
Gain (loss) on sale of cable
television systems................ -- -- 27,027 7,010 (181)
Other, net........................... (844) (978) (273) (54) (82)
-------- -------- -------- -------- ---------
Total other income
(expense).................. (15,876) (19,693) 8,458 2,194 (14,809)
-------- -------- -------- -------- ---------
Net earnings (loss).................... $ 19,848 $ 37,831 $ 65,364 $ 16,280 $ (2,190)
======== ======== ======== ======== =========
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(b).............................. $ 86,632 $110,773 $111,214 26,866 26,288
Capital expenditures................... 78,248 33,875 58,601 5,845 7,948
Ratio of total debt to EBITDA(c)....... 8.1
Ratio of earnings to cover fixed
charges(d)........................... 2.1x 2.9x 4.4x 4.3x --
Deficiency of earnings available to
fixed charges(d)..................... -- -- -- -- (3,967)
Average monthly total revenue per
average basic subscriber(e).......... $ 30.95 $ 33.16 $ 34.61 $ 33.26 $ 35.41
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Net cash provided by operations........ 79,143 92,548 102,361 26,616 10,931
Net cash used in investing............. (78,335) (34,103) (72,276) (22,835) (24,473)
Net cash provided by (used in)
financing............................ (3,100) (54,741) (25,406) 4,674 7,456
SUMMARY OPERATING DATA (end of period):
Homes passed........................... 847,364 914,182 901,792 913,826 973,193
Basic subscribers...................... 584,807 620,862 617,867 631,326 655,564
Basic penetration...................... 69.0% 67.9% 68.5% 69.1% 67.4%
Premium units.......................... 295,727 262,900 243,501 259,450 261,596
Pay-to-basic ratio(f).................. 50.6% 42.3% 39.4% 41.1% 39.9%
BALANCE SHEET DATA (end of period):
Total assets........................... $596,047 $617,198 $664,436 -- $ 688,149
Total debt............................. 207,234 214,170 232,617 -- 848,007
Parents' investment/member's
equity (deficit)..................... 347,188 359,098 381,748 -- (210,349)
</TABLE>
- ---------------
(a) The historical combined financial data for the periods through December 31,
1998 do not include any indebtedness or related interest expense in respect
of the $708.9 million of debt transferred by TCI. For the three month period
ended March 31, 1999, the operations include interest expense on the
indebtedness for the period subsequent to the financings related to our
transactions with TCI which occurred on February 2, 1999.
(b) EBITDA represents operating income before depreciation and amortization. We
believe that EBITDA is a meaningful measure of performance because it is
commonly used in the cable television industry to analyze and compare cable
television companies on the basis of operating performance, leverage and
liquidity. In addition, our credit facility and the indenture which governs
the notes contain certain covenants in which compliance is measured by
computations substantially similar to those used in determining EBITDA.
EBITDA, however, is not a measure determined in accordance with GAAP and
should not be considered in isolation or as a substitute for or an
alternative to net income, cash flow from operating activities or other
income or cash flow data prepared in accordance with GAAP, or as a measure
of a company's operating performance or liquidity. EBITDA as presented may
not be comparable to other similarly titled measures used by other
companies.
(c) The ratio of total debt to EBITDA was calculated by dividing total debt by
annualized EBITDA for the three months ended March 31, 1999.
(d) For purposes of this calculation, earnings is defined as earnings before
fixed charges. Fixed charges represent interest paid or accrued on
indebtedness, the amortization of deferred financing costs and the portion
of rents deemed representative of the interest factor. The historical
combined financial statements of Bresnan Communications Group Systems
appearing elsewhere in this prospectus do not reflect the debt assumed from
TCI under the terms of the contribution agreement and repaid with the net
proceeds of Blackstone's cash contributions and the financings related to
the transfer of cable systems.
(e) Represents average monthly total revenue for the periods indicated divided
by the number of average basic subscribers in each period.
(f) Pay-to-basic ratio measures premium units as a percentage of basic
subscribers.
8
<PAGE> 13
RISK FACTORS
An investment in the new notes involves a high degree of risk. You should
carefully consider the risk factors set forth below, as well as the other
information appearing elsewhere in this prospectus, before making an investment
in the new notes.
OUR SUBSTANTIAL INDEBTEDNESS AND DEFICIT IN MEMBER'S EQUITY COULD ADVERSELY
AFFECT OUR FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER
THE NOTES.
We have a significant amount of indebtedness and the carrying value of our
liabilities exceeds the carrying value of our assets by a substantial amount.
All of our indebtedness, other than the notes, is structurally senior to the
notes and our indebtedness and other liabilities exceed our assets by $210.3
million as at March 31, 1999.
Our substantial indebtedness and deficit in member's equity could have
important consequences to you. For example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the new notes;
- increase our vulnerability to general adverse economic and
telecommunications industry conditions, including:
-- interest rate fluctuations; and
-- limit our ability to obtain necessary financing to fund future
working capital requirements, capital expenditures, acquisitions of
additional systems, debt service and other general corporate
requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, including the notes and our
credit facility, thereby reducing the availability of our cash flow to
fund working capital requirements, capital expenditures, acquisitions of
additional systems, and other general corporate requirements;
- limit our flexibility in planning for, or reacting to, changes in our
business and the telecommunications industry;
- place us at a competitive disadvantage compared to our competitors that
have less debt or whose liabilities do not exceed their assets; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, including the new notes and our credit facility, among
other things, our ability to borrow additional funds. Our failure to
comply with those covenants could result in an event of default which, if
not cured or waived, could have a material adverse effect on us.
The following chart shows certain important credit statistics and is
presented for the three months ended on March 31, 1999 and assuming that the
transfer of cable systems from TCI and the related financings were completed as
of December 31, 1998 and we applied the proceeds from these financings as
intended:
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
(IN MILLIONS)
--------------
<S> <C>
Total indebtedness.......................................... $ 848.0
Member's equity (deficit)................................... $(210.3)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA FOR THE PRO FORMA FOR
YEAR ENDED THE THREE
DECEMBER 31, MONTHS ENDED
1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Ratio of earnings to fixed charges.................... 1.2x
Deficiency of earnings available to cover fixed
charges............................................. $8.7
</TABLE>
9
<PAGE> 14
In addition, had the pro forma combined statement of operations for the
year ended December 31, 1998 been prepared excluding the gain on sale of cable
television systems, we would have a deficiency of earnings available to cover
fixed charges of $12.4 million.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY STILL BE ABLE TO INCUR
SUBSTANTIALLY MORE INDEBTEDNESS. THIS COULD EXACERBATE THE RISKS DESCRIBED
ABOVE.
We may be able to incur substantial additional indebtedness in the future.
This could exacerbate the risks described above. The terms of the indenture
governing the new notes do not fully prohibit us from doing so. Further, the
indenture allows for the incurrence of all such indebtedness at our
subsidiaries, all of which would be structurally senior to the new notes. In
addition, as of March 31, 1999, our subsidiary, Bresnan Telecommunications
Company would have been permitted to borrow additionally up to approximately
$144.9 million under our credit facility, subject to the covenants contained in
that facility, after giving effect to the transfer of cable systems to us by TCI
and the related financings. All of those borrowings would be structurally senior
to the new notes. We expect to continue to borrow funds under our credit
facility. Furthermore, our credit facility provides Bresnan Telecommunications
Company with the right to request that the lenders thereunder lend it up to an
additional $200.0 million, subject to the terms and conditions contained
therein. If new indebtedness is added to our current indebtedness levels, the
related risks that we and you now face could intensify.
TO SERVICE OUR INDEBTEDNESS AND GROW OUR BUSINESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH.
Our ability to make payments on and to refinance our indebtedness,
including the notes and our credit facility, which has a maturity date prior to
that of the notes, and to fund planned capital expenditures will depend on our
ability to generate cash and secure financings in the future. There are many
factors that could have a negative impact on our ability to generate cash and do
any of the things mentioned in the previous sentence. These factors include:
- changes in general economic conditions;
- changes in the financial markets;
- changes in competition in the cable industry; and
- legislative or regulatory changes.
Our inability to generate adequate cash or refinance our indebtedness may
impact our ability to repay our obligations on the notes.
Based on our current level of operations, we believe our cash flow from
operations, available cash and available borrowings under our credit facility,
subject to the covenants contained therein, will be adequate to enable us to
service indebtedness, make capital expenditures and meet operating costs and
expenses for the next 18 months. We cannot, however, ensure that the assumptions
underlying such projections will remain constant, and therefore we may not be
able to meet our future liquidity needs.
WE MAY BE UNABLE TO BORROW FUNDS IN THE FUTURE TO MEET OUR NEEDS.
To the extent our business may not generate sufficient cash flow from
operations to fully fund our capital needs, future borrowings may not be
available to us under our credit facility or other sources of financing in an
amount sufficient to enable us to service our indebtedness, including the notes
and our credit facility, to grow our business or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness, including
the notes and our credit facility, on or before maturity. We may not be able to
refinance any of our indebtedness, including the notes and our credit facility,
on commercially reasonable terms or at all.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT TO CONTINUE TO EXPERIENCE NET
LOSSES.
Our cable systems, excluding those cable systems transferred to us from
TCI, sustained net losses in each of the years in the four-year period ended
December 31, 1997. For the year ended December 31, 1998, those systems recorded
net income of $18.8 million after recognizing a gain of $27.0 million on the
sale of certain
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cable systems. Without the recognition of this gain in 1998, the loss for such
period would have been $8.2 million. As part of TCI's transfer of cable systems,
we have repaid the assumed TCI debt of $708.9 million. The combined historical
financial information of Bresnan Communications Group Systems does not include
such assumed indebtedness on the balance sheet or the effect such indebtedness
would have had on our results of operations.
IF WE ARE IN DEFAULT UNDER OUR CREDIT FACILITY, OUR LENDERS COULD PREVENT
US FROM BEING ABLE TO MAKE PAYMENTS TO THE HOLDERS OF THE NOTES.
Our credit facility limits the amount of dividends and other distributions
Bresnan Telecommunications Company will be able to pay or make to us. In
addition, no dividends or distributions are allowed at any time that Bresnan
Telecommunications Company is in violation of any of the covenants or
representations of our credit facility, which include maintenance covenants --
such as senior leverage ratio, total leverage ratio, maximum capital
expenditures and operating cash flow to interest expense ratio. For so long as a
default under our credit facility continues, we will be unable to make payments
to you in respect of the notes without the consent of the lenders under our
credit facility. There is no limit on how long this prohibition on dividends and
distributions, and our inability to make payments to you, may continue and the
lenders are not required to accelerate the maturity of the loans or consent to
the making of payments on the notes.
OUR CREDIT FACILITY IMPOSES SIGNIFICANT RESTRICTIONS ON US.
Our credit facility contains a number of significant covenants that, among
other things, restrict the ability of our subsidiary Bresnan Telecommunications
Company and its subsidiaries to:
- pay dividends or make distributions to us, including distributions
necessary to make payments on the new notes;
- pledge assets;
- dispose of assets or merge;
- incur indebtedness;
- repurchase or redeem equity interests and indebtedness;
- create liens;
- make certain capital expenditures;
- make certain investments or acquisitions;
- provide guarantees;
- enter into leases; and
- enter into affiliate transactions.
In addition, our credit facility contains, among other covenants,
requirements that we maintain specified financial ratios. Our credit facility
also restricts our ability to incur additional indebtedness. The breach of any
of these covenants will result in a default under this credit facility. In
addition, our ownership interest in Bresnan Telecommunications Company is
pledged under our credit facility and our subsidiaries guarantee the
indebtedness under such facility.
In the event of any default, our lenders could elect to declare all amounts
borrowed under our credit facility, together with accrued interest and other
fees, to be due and payable and could prevent the distribution of funds by
Bresnan Telecommunications Company to Bresnan Communication Group. If the
amounts outstanding under our credit facility were to be accelerated, thereby
causing an acceleration of amounts outstanding under the notes, we may not be
able to repay such amounts.
Our credit facility provides that certain changes in the indirect ownership
interests in Bresnan Telecommunications Company of TCI or Blackstone would
constitute an event of default. As a result, the lenders under our credit
facility may have the right to accelerate the loans. If the loans were
accelerated it
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could significantly impair our ability to make payments to you in respect of the
new notes. A change of control under the our facility may not constitute a
change of control under the indenture governing the notes for which we would be
required to make an offer to purchase the notes.
THE NOTES ARE THE OBLIGATIONS OF A HOLDING COMPANY WHICH HAS NO OPERATIONS
AND DEPENDS ON ITS SUBSIDIARIES FOR CASH.
The notes are the obligations of Bresnan Communications Group, which is a
holding company. Our subsidiaries conduct all of our consolidated operations and
own substantially all of our consolidated assets. Consequently, our cash flow
and our ability to meet our debt service obligations depends upon the cash flow
of our subsidiaries and the payment of funds by our subsidiaries to the holding
company in the form of loans, dividends or otherwise. Our subsidiaries are not
obligated to make funds available to us for payment on the notes or otherwise.
In addition, our subsidiaries' ability to make any payments will depend on their
earnings, the terms of their indebtedness, including our credit facility,
business and tax considerations and legal restrictions. Our credit facility
limits our subsidiaries' ability to make funds available to us, the holding
company and, therefore, our ability to make payments to you.
The notes will effectively rank junior to all liabilities of our
subsidiaries, including our credit facility. In the event of a bankruptcy,
liquidation or dissolution of a subsidiary and following payment of these
liabilities, our subsidiaries may not have sufficient assets remaining to make
payments to us as a shareholder or otherwise. In addition, our ownership
interest in Bresnan Telecommunications Company is pledged under our credit
facility and our subsidiaries guarantee the indebtedness under this facility.
As of March 31, 1999, our subsidiaries had approximately $548.5 million of
outstanding liabilities, including $503.0 million of indebtedness.
WE MAY NOT HAVE THE ABILITY TO INTEGRATE THE NEW SYSTEMS AND BASIC
SUBSCRIBERS OBTAINED FROM TCI.
We own and operate cable television systems serving approximately 655,564
basic subscribers, as compared to approximately 201,000 basic subscribers we
served prior to our acquisition of cable systems from TCI. The integration of
these new cable television systems and basic subscribers will place significant
demands on our management and our operational, financial and marketing
resources. Our current operating and financial systems and controls may not be
adequate and any steps taken to improve these systems and controls may not be
sufficient. Our failure to successfully integrate and manage the new systems may
have a material adverse effect on our business, financial condition and results
of operations.
IF WE ARE UNSUCCESSFUL IN IMPLEMENTING OUR GROWTH STRATEGY WE MAY BE UNABLE
TO FULFILL OUR OBLIGATIONS UNDER THE NOTES.
We have evaluated and we expect to continue to evaluate possible strategic
acquisitions and dispositions of related businesses and assets, some of which
may be significant, on an ongoing basis and at any given time we may be engaged
in discussions or negotiations or enter into agreements regarding acquisitions
or dispositions.
We expect that a substantial portion of any of our future growth will be
achieved through the provision of new and enhanced services and through
acquisitions and joint ventures. We may not be able to offer successfully new
and enhanced services and such new and enhanced services may not generate
additional cash flows which may impair our ability to make payments to you.
THE FAILURE TO RECEIVE FCC APPROVAL WILL HAMPER OUR ABILITY TO MAKE
ACQUISITIONS AND GROW OUR BUSINESS.
We may engage in acquisitions which are subject to certain material
contingencies, including approval by the FCC of transfers and assignments of
certain licenses and, in most instances, approval by each municipality or
franchising authority of the transfer of the franchises issued by it. We may not
be able to obtain the required approvals to complete any future acquisitions and
onerous conditions may be imposed in connection with obtaining any approval. If
we fail to make acquisitions, our ability to obtain additional financing in the
future may be affected. A significant limitation on our ability to obtain
additional financing may impair our ability to make payments to you.
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WE MAY NOT BE ABLE TO INTEGRATE NEW BUSINESSES OR ATTRACT NEW PERSONNEL.
THIS COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
We may not be able to successfully complete acquisitions of additional
cable television systems consistent with our business strategy or successfully
integrate any acquired businesses into our operations. Furthermore, unexpected
liabilities and contingencies associated with acquired businesses may accompany
acquisitions. Our continued growth may also increase our need for qualified
personnel. We may not be successful in attracting, integrating and retaining
qualified personnel. Additionally, in the event that we enter into a definitive
agreement with respect to any acquisition or joint venture, we may require
additional financing. We may not be able to obtain additional financing for any
future acquisitions or joint ventures on commercially reasonable terms or at
all. These limitations may affect our future growth and our ability to generate
cash with which to make payments to you.
OUR CAPITAL INVESTMENT PROGRAM MAY NOT GENERATE PROJECTED RESULTS AND WE
MAY NEED TO OBTAIN ADDITIONAL CAPITAL TO FUND ALL PLANNED CAPITAL EXPENDITURES.
WE MAY NOT BE ABLE TO OBTAIN SUCH ADDITIONAL CAPITAL WHICH WOULD ADVERSELY
AFFECT OUR GROWTH STRATEGY.
We intend to upgrade a significant portion of our cable systems and make
other capital investments. We expect to make approximately $124.7 million in
capital investments during 1999. We may not be able to fund our planned capital
investments. Our ability to incur additional indebtedness is limited under the
terms of our indebtedness and, under certain circumstances, requires the consent
of two-thirds of the holders of Bresnan Communications Company's limited
partnership interests. Moreover, successful completion of our upgrade may not
allow us to compete effectively with competitors which either do not rely on
cable to deliver telecommunications services into the home or have access to
significantly greater amounts of capital and an existing telecommunications
network. Our failure to make our planned capital expenditures could have a
material adverse effect on our financial condition or results of operations, our
competitive position and our ability to make payments to you.
WE OPERATE IN A VERY COMPETITIVE BUSINESS ENVIRONMENT.
The industry in which we operate is highly competitive and we may compete
against competitors with fewer regulatory burdens, greater financial and
personnel resources, greater brand name recognition and long-standing
relationships with regulatory authorities. Moreover, mergers, joint ventures and
alliances among franchise, wireless or private cable television operators,
Regional Bell Operating Companies and others may result in providers capable of
offering cable television and other telecommunications services in direct
competition with us.
We face competition from several sources, including:
- alternative methods of receiving and distributing television signals,
including direct broadcast satellite, multipoint multichannel
distribution systems, master antenna television systems and satellite
master antenna television systems;
- data transmission and Internet service providers; and
- other sources of news, information and entertainment such as off-air
television broadcast programming, newspapers, movie theaters, live
sporting events and home video products, including videotape cassette
recorders and digital video disc players.
Moreover, the FCC and Congress are expected to consider proposals to
enhance the ability of direct broadcast satellite providers to provide
programming. If these proposals are adopted, cable television system operators
may lose a competitive advantage over direct broadcast satellite providers.
Regional Bell Operating Companies, other telephone companies, public
utility companies and other entities are in the process of entering our
business. The existing relationships that telephone companies have the
households in their service areas, their substantial financial resources, and,
in some cases, an existing infrastructure which may be capable of delivering
cable television service make telephone companies another
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source of competition that we may encounter. Additional competition may
adversely affect our results of operations.
SOME REGULATIONS GOVERNING OUR INDUSTRY MAY INCREASE THE COMPETITION WE
FACE.
Cable television systems generally operate according to franchises granted
on a non-exclusive basis. In addition, the Cable Television Consumer Protection
and Competition Act of 1992 prohibits franchising authorities from unreasonably
denying requests for additional franchises and permits franchising authorities
to operate cable television systems in their communities without franchises.
Our cable systems are operated under non-exclusive franchises granted by
local franchising authorities. Since the franchises are non-exclusive, local
franchising authorities can grant additional franchises to competitors in the
same geographic area. As a result, competing operators may build systems in
areas in which we hold franchises. The existence of more than one cable system
operating in the same territory is referred to as an overbuild. Overbuilds can
affect our ability to compete. We are currently aware of overbuild situations in
six of our systems representing approximately 54,000 basic subscribers, or
approximately 8% of our total basic subscribers.
OUR PROGRAMMING COSTS ARE INCREASING.
In recent years, our business has experienced a rapid escalation in the
cost of programming, and in particular, sports programming. This escalation may
continue and we may not be able to pass programming, cost increases on to our
subscribers. In addition, as we add programming to our basic and preferred basic
tiers and reposition the Disney premium service to the preferred basic tier, we
may face additional market constraints on our ability to pass these costs on to
our subscribers. Our inability to pass such increased costs to our subscribers
could have material adverse affect on our results of operations.
OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENTAL LEGISLATION AND
REGULATION. THE APPLICABLE LEGISLATION AND REGULATIONS AND CHANGES TO THEM COULD
ADVERSELY AFFECT OUR BUSINESS.
The cable television industry is subject to extensive legislation and
regulation at the federal and local levels, and, in some instances, at the state
level, and many aspects of such regulation are currently the subject of judicial
proceedings and administrative or legislative proposals. Future changes in
legislation or regulations could have an adverse impact on us and our business
operations.
WE FACE PROPOSALS TO REQUIRE US TO ALLOW OTHERS TO USE OUR CABLE SYSTEMS
FOR INTERNET ACCESS.
Proposals have been introduced before the FCC, local franchising
authorities and state regulators to require cable operators offering high-speed
Internet services using their broadband high capacity infrastructure and cable
modems to allow access to their broadband capacity on an unbundled basis by
other Internet service providers. While the FCC recently declined to adopt such
proposals, it cannot be determined whether the FCC, local franchising
authorities or state regulators will require unbundled access to cable
operators' broadband capacity by other Internet service providers.
On June 3, 1999, a federal district court judge in Oregon rejected AT&T's
and TCI's challenges to a city ordinance and a county resolution requiring that
AT&T allow unaffiliated internet service provider's, or ISP's, to connect their
equipment directly to AT&T's cable modem platform, bypassing @Home, AT&T's
proprietary cable ISP. The court upheld the local franchising authority's power
to require access to the cable modem platform as a condition of approving AT&T's
acquisition of cable franchises from TCI, and rejected AT&T's constitutional and
other claims. AT&T has announced that it will likely appeal this decision.
Imposition of an unbundled access requirement could impede the ability of
cable operators, including us, to successfully market Internet services to
consumers in competition with Internet service providers and could dissuade
cable operators from investing in broadband capacity. If such a requirement to
open cable lines to competitors were imposed, it could adversely affect us.
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THE CABLE ACT OF 1992, WHICH INCREASED REGULATION OF OUR RATES FOR
SERVICES, HAS BEEN AMENDED BY THE TELECOMMUNICATIONS ACT OF 1996.
The Cable Act of 1992 significantly expanded the scope of cable television
regulation. In particular, under the Cable Act of 1992, the FCC adopted
regulations that limit our ability to set and increase rates for our basic
packages and for the provision of cable television-related equipment. Prior to
March 31, 1999, our cable programming service tier was also subject to
regulations. The Cable Act of 1992 permits certified local franchising
authorities and the FCC to order rate reductions and refunds of previously
collected rates determined to be in excess of the permitted reasonable rates. It
is possible that future rate reductions or refunds of previously collected fees
may be required in the future.
The Telecommunications Act of 1996 materially altered federal, state and
local laws and regulations on cable television, telecommunications and other
related services. In particular, the Telecommunications Act substantially amends
the Communications Act of 1934 to restrict the ability of the FCC and, in
certain instances, franchising authorities, to regulate rates under the Cable
Act of 1992.
Certain provisions of the Telecommunications Act could materially affect
the growth and operation of the cable television industry and the cable services
we provide. Certain provisions of the legislation have substantially lessened
regulatory burdens, such as the deregulation of rates for the cable programming
service tier which occurred on March 31, 1999. However, the cable television
industry is subject to additional competition as a result of the legislation.
Furthermore, certain provisions of the Telecommunications Act and the FCC's
implementing regulations have been, and likely will be, subject to judicial
challenge, and the FCC continues to implement the Telecommunication Act in rule
making proceedings. At this time, we cannot predict the outcome of such
litigation or the short and long-term effect, financial or otherwise, of the
Telecommunications Act and FCC rulemakings on our operations.
AS WE CONTINUE TO OFFER TELECOMMUNICATIONS SERVICES, WE MAY BE SUBJECT TO
ADDITIONAL REGULATORY BURDENS WHICH MAY ADVERSELY IMPACT OUR BUSINESS.
As we continue to enter the business of offering wireline
telecommunications services, we may be required to obtain federal, state and
local licenses or other authorizations to offer such services. We may not be
able to obtain such authorizations in a timely manner, if at all, and conditions
could be imposed upon such licenses or authorizations that may not be favorable
to us.
Furthermore, telecommunications carriers are subject to additional
regulation, as well as higher rates for pole attachments. In particular, under
the Telecommunications Act, providers of telecommunications services who cannot
reach agreement with local utilities over pole attachment rates in states that
do not regulate pole attachment rates will be subject to an FCC methodology for
determining the rates, which rates would be higher than those paid by cable
operators. The rate increases are to be phased in over a five-year period
beginning on February 8, 2001. If we become subject to such regulation or higher
rates, we may incur additional costs which may be material to our business.
WE COULD LOSE OUR CURRENT ACCESS TO FAVORABLE PROGRAMMING SERVICE RATES AND
EQUIPMENT DISCOUNTS.
We have the right under an agreement with TCI to purchase various
programming services at TCI's cost plus an administrative surcharge. In
connection with the transfer to us of cable systems by TCI, TCI has agreed to
use its reasonable best efforts to make goods and services that are provided to
TCI available to us on the same terms and conditions as they are made available
to TCI, subject to certain conditions and restrictions. We could lose this
beneficial treatment under certain circumstances, including in the event that
TCI does not own the required interest in us or upon an initial public offering
of our equity securities.
If TCI's ownership in the Bresnan Communications Company falls below a
required contractual ownership threshold we may lose our beneficial rates, but
not necessarily trigger a change of control under the indenture governing the
notes. Our management believes that the rates at which we purchase programming
and equipment from TCI are significantly lower than those it could obtain
independently. Loss of access to programming and equipment at such favorable
rates could have a material adverse effect on our financial condition and
results of operations.
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We also have access to certain technological innovations as a result of our
affiliation with TCI. We may not be able to purchase programming services at
these rates, receive equipment discounts or have access to certain technological
innovations in the future.
OUR OWNERS MAY BE FORCED TO OR MAY ELECT TO EXIT THEIR PARTNERSHIP. IN THIS
EVENT, AMONG OTHER THINGS, WE MAY LOSE OUR ACCESS TO FAVORABLE PROGRAMMING AND
GOODS AND SERVICES SUPPLY.
Under the terms of the partnership agreement entered into in connection
with the consummation of our transactions with TCI, Blackstone or TCI may elect
to sell their interests in Bresnan Communications Company after February 2,
2004, which is up to approximately five years prior to the maturity of the new
notes. They may also, in limited circumstances, cause an initial public offering
after three years from the date of the consummation of our transactions with
TCI. A sale by either Blackstone or TCI of their interests in Bresnan
Communications Company or an initial public offering may have one or more of the
following consequences:
- we may be forced to sell our business;
- William J. Bresnan and affiliates of William J. Bresnan may elect to sell
their interests in Bresnan Communications Company;
- if either Blackstone or TCI sells their interest to the other, William J.
Bresnan and affiliates of William J. Bresnan may be forced to sell their
interests in Bresnan Communications Company; and
- we may lose our access to favorable programming and goods and services
supply.
In addition, William J. Bresnan and affiliates of William J. Bresnan may
have the right to force TCI to purchase their interests in Bresnan
Communications Company upon the occurrence of certain events.
HOLDERS OF THE NEW SENIOR DISCOUNT NOTES WILL GENERALLY BE REQUIRED TO
INCLUDE AMOUNTS IN GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES IN ADVANCE OF
RECEIVING CASH AND INTEREST DEDUCTIONS WHICH MAY BE DISALLOWED TO CERTAIN OF OUR
BENEFICIAL OWNERS, RESULTING IN INCREASED TAX DISTRIBUTIONS AND REDUCED CASH.
The new senior discount notes will be issued with original issue discount
for federal income tax purposes. Consequently, holders of the new senior
discount notes will be required to include amounts in gross income for federal
income tax purposes in advance of receiving cash payments attributable to the
income. In the event of our bankruptcy, a new senior discount note holder's
claim likely will be limited to the issue price plus the accrued portion of the
original issue discount (as determined by the bankruptcy court) at the date of
bankruptcy filing. Although the beneficial owners of the partners of Bresnan
Communications Company that are affiliates of William J. Bresnan are not taxable
as corporations, some of the beneficial owners of Blackstone are corporations.
According to the partnership agreement among TCI, Blackstone, BCI (USA) LLC and
William J. Bresnan, Bresnan Communications Company is obligated to make certain
tax distributions to William J. Bresnan, the partners of Bresnan Communications
Company that are affiliates of William J. Bresnan and Blackstone. Based on
certain financial forecasts set forth in the partnership agreement, Bresnan
Communications Company is generally required to apply certain tax allocation
methods so that Blackstone is allocated no more than $50,000 of income for our
first six fiscal years.
THE LOSS OF CERTAIN KEY EXECUTIVE OFFICERS COULD ADVERSELY AFFECT US.
Our operations are managed by a small number of key executive officers,
including William J. Bresnan, Jeffrey S. DeMond and Michael W. Bresnan. We have
not entered into any employment agreements with or procured key man life
insurance on any of our key executive officers. The loss of William J. Bresnan,
Jeffrey S. DeMond or Michael W. Bresnan could have a material adverse effect on
our financial condition and results of operations.
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OUR MANAGEMENT IS ALSO RESPONSIBLE FOR MANAGING OTHER CABLE TELEVISION
OPERATIONS AND MAY NOT BE ABLE TO DEVOTE THEIR FULL TIME TO OUR OPERATIONS.
In addition to us, William J. Bresnan and TCI control a partnership with
significant international cable television operations. We do not hold any equity
interests in this entity and do not derive any revenue from or have any
obligations to it.
Our management is performed by the officers of one of our affiliates, which
is wholly owned by William J. Bresnan. These officers also perform substantial
management and administrative services for the international operations
described above. Consequently, there are constraints on the ability of these
officers to devote all or a significant portion of their time to us and
conflicts of interest may arise in the allocation of management and
administrative services and personnel between us and the international
operations described above. No formal procedures exist or are planned for
determining whether we or the international operations described above will
receive priority with respect to personnel requirements.
In addition, TCI and other media and telecommunications companies in which
either TCI and/or Blackstone have ownership interests are in the business of
providing cable, telephony and other telecommunications services. As a result,
TCI and/or Blackstone may have interests or acquire interests in the future in
entities that may conflict with our interests. We have no ability to preclude
TCI or Blackstone from pursuing such other interests.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE
CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of certain specific kinds of change of control events,
including the loss of one or more of our owners, we will be required to offer to
repurchase all outstanding new notes. However, we may not have sufficient funds
at the time of the change of control to make the required repurchase of new
notes or restrictions in our credit facility or other indebtedness may not allow
such repurchases. In addition, certain important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness,
would not constitute a change of control under the indenture governing the
notes.
CERTAIN OF THE CABLE SYSTEMS TRANSFERRED TO US BY TCI HAVE BEEN, AND WE MAY
IN THE FUTURE BE, NAMED IN ACTIONS RELATING TO THE IMPOSITION OF LATE FEES.
THESE ACTIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Certain of the cable systems transferred to us by TCI have been named in
purported class actions in various jurisdictions concerning late fee charges and
practices. Certain of our cable television systems charge late fees to
subscribers who do not pay their cable bills on time. Plaintiffs generally
allege that the late fees charged by such cable television systems are not
reasonably related to the costs incurred by the cable television systems as a
result of the late payments. Plaintiffs seek to require cable television systems
to provide compensation for alleged excessive late fee charges for past periods.
These cases are at various stages of the litigation process. Under an agreement
with TCI, the pending actions, to the extent they relate to the cable systems
transferred to us by TCI and to periods prior to the consummation of that
transfer, will remain liabilities of TCI. However, we may be named in the
pending actions or there may be future actions relating to late fees brought
against us and our subsidiaries, which may, if successful, have a detrimental
impact on our business.
OUR NON-EXCLUSIVE FRANCHISES ARE SUBJECT TO NON-RENEWAL OR TERMINATION IN
CERTAIN CIRCUMSTANCES.
We operate under franchises typically granted by local authorities which
are subject to renewal and renegotiation from time to time. Our business is
dependent upon the retention and renewal of our local franchises. Our franchises
are generally granted for a fixed term, for instance, ranging from five to 15
years, but in many cases are terminable if we fail to comply with the material
provisions of the franchises. Although we believe that we generally have good
relationships with our franchise authorities, we may not be able to retain or
renew such franchises and the terms of any such renewals may be on terms which
are not as favorable to us as our existing franchises. The non-renewal or
termination of franchises relating to a significant portion of our subscribers
could have a material adverse effect on our results of operations.
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THE YEAR 2000 PROBLEM WILL REQUIRE SIGNIFICANT EXPENDITURES AND COULD
DISRUPT OUR OPERATIONS, IMPACTING OUR REVENUES.
We have implemented enterprise-wide, comprehensive efforts to assess and
remediate our computer systems and related software and equipment to ensure such
systems, software and equipment recognize, process and store information in the
year 2000 and thereafter.
We currently estimate the remaining costs associated with our year 2000
program to be at least $4.4 million. Our failure to address or correct a
material year 2000 problem could result in an interruption or failure of certain
important business operations. We believe our year 2000 program will
significantly reduce risks associated with the changeover to the year 2000 and
we are currently developing certain contingency plans to minimize the effect of
any potential year 2000 related disruptions. We cannot assure you that we will
be fully prepared for difficulties relating to the year 2000 problems. If we
experience significant problems as a result of the year 2000 problem, our
operations, revenue, cash flow and other important aspects of our business and
financial well-being may be adversely affected.
BRESNAN CAPITAL CORPORATION HAS NOMINAL ASSETS AND NO OPERATIONS.
Bresnan Capital Corporation's sole purpose is to be a co-obligor of the new
notes. Bresnan Capital Corporation has nominal assets and no operations. You
should not expect Bresnan Capital Corporation to pay you any amounts on the new
notes. Moreover, in the event that our obligations on the new notes are
accelerated or we are required to repurchase them, Bresnan Capital Corporation
will not be able to supply funds for such payments to you.
YOU MAY FIND IT DIFFICULT TO SELL YOUR NOTES.
Currently, there is no public market for the new notes or the original
notes. We do not intend to apply for listing of any of the notes on any
securities exchange or on any automated dealer quotation system. Although the
initial purchasers of the original notes have informed us that they intend to
make a market in the original notes, they are not obligated to do so and may
discontinue any such market at any time without notice. In addition, such market
making activity may be limited during the exchange offer or during an offering
under a shelf registration statement should we decide to file one. As a result,
we can make no assurance to you as to the development or liquidity of any market
for the new notes, your ability to sell the new notes, or the price at which you
may be able to sell the new notes. Future trading prices of the new notes will
depend on many factors, including, among other things, prevailing interest
rates, our operating results and the market for similar securities.
Historically, the market for securities similar to the new notes, including
non-investment grade debt, has been subject to disruptions that have caused
substantial volatility in the prices of such securities. We cannot assure you
that, if a market develops, it will not be subject to similar disruptions. Any
such disruptions may have an adverse effect on the holders of the new notes.
IF YOU FAIL TO EXCHANGE YOUR ORIGINAL NOTES OR FOLLOW THE PROCEDURE FOR
TENDERING, YOUR ORIGINAL NOTES WILL CONTINUE TO BE RESTRICTED.
Issuance of new notes in exchange for the original notes in the exchange
offer will only be made following the prior satisfaction of the procedures and
conditions set forth in this prospectus. Such procedures and conditions include
timely receipt by the exchange agent of such original notes, and of a properly
completely and duly executed letter of transmittal. Failure to exchange notes
that are not tendered or are tendered but not accepted will, following the
consummation of the exchange offer, continue to be restricted securities under
the Securities Act and may not be offered or sold except according to any
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities law.
WE MAY NOT BE ABLE TO MEET THE GOALS WE HAVE SET OUT FOR OURSELVES WHICH
ARE EXPRESSED IN OUR FORWARD LOOKING STATEMENTS.
Although we believe that our plans, intentions and expectations reflected
in or suggested by such forward-looking statements are reasonable, such plans,
intentions or expectations may not be achieved. Important
18
<PAGE> 23
factors that could cause actual results to differ materially from the
forward-looking statements we make in this prospectus are set forth below and
elsewhere in this prospectus. All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by the
following cautionary statements.
INFORMATION REGARDING 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 anticipated growth strategies,
- our intention to introduce new and enhanced services,
- anticipated trends in our businesses, including trends in the market for
telecommunications services,
- future expenditures for capital investments, and
- our ability to effectively compete with our competitors.
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.
19
<PAGE> 24
THE TCI TRANSACTIONS
In June of 1998, Blackstone B.C. Capital Partners L.P., Bresnan
Communications Company, William J. Bresnan and certain of his affiliates, TCID
of Michigan, Inc., a Nevada corporation, and certain other affiliates of TCI,
entered into a contribution agreement. Under that agreement, on February 2,
1999, TCI transferred cable systems and assumed debt to Bresnan Communications
Company. The amount of the debt assumed by Bresnan Communications Company was
approximately $708.9 million. In connection with these transactions the assets
and liabilities of our existing cable systems and the cable systems transferred
to us by TCI, were transferred to Bresnan Communications Group LLC, a wholly
owned subsidiary of Bresnan Communication Company. Bresnan Communications Group
then contributed those assets and some or all of the related liabilities to
Bresnan Telecommunications Company LLC, a wholly owned subsidiary of Bresnan
Communications Group. We repaid our existing indebtedness and the debt assumed
from TCI with the net proceeds received from Blackstone's cash contribution and
the financings relating to the contribution of cable systems from TCI.
Since the consummation of these transactions, Bresnan Communications
Company has been managed by its general partner, BCI (USA), LLC, an affiliate of
William J. Bresnan. As a result of these transactions, as well as other recent
acquisitions of cable systems in Michigan and Minnesota, we are operating cable
television systems that served as of March 31, 1999 approximately 656,000 basic
subscribers in six states.
As the sole general partner, subject to certain governance provisions set
forth in the partnership agreement among TCI, Blackstone, BCI (USA) and William
J. Bresnan, BCI (USA) is managing our business and day-to-day operations.
Blackstone indirectly owns approximately a 39.8% equity interest in us, TCI
indirectly owns a 50.0% equity interest in us, and William J. Bresnan and BCI
(USA) collectively indirectly own approximately a 10.2% equity interest in us.
20
<PAGE> 25
USE OF PROCEEDS
We will not receive any cash proceeds from this exchange offer. The new
notes will evidence the same debt as the original notes surrendered in exchange
for the new notes. Accordingly, issuance of the new notes will not result in any
change in our indebtedness.
The net proceeds from the private offering of the original notes on
February 2, 1999 were approximately $331.0 million. The following table sets
forth the sources and uses of funds of our transactions with TCI and the related
financings:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Our credit facility....................................... $513.4
Senior notes.............................................. 170.0
Senior discount notes..................................... 175.0
Blackstone contribution(a)................................ 136.5
------
$994.9
======
USES OF FUNDS:
Repayment of existing debt, including accrued
interest(b)............................................ $256.0
Repayment of the assumed TCI debt(c)...................... 708.9
Payment of certain fees and expenses(d)................... 30.0
------
$994.9
======
</TABLE>
- ---------------
(a) Blackstone's contribution to Bresnan Communications Company was reduced by
$2.7 million in fees paid in connection with the transactions in which TCI
transferred cable systems to us.
(b) Includes repayment of the obligations under Bresnan Communications Company's
prior credit facility in the amount of approximately $213.8 million and the
promissory note in favor of TCI in the amount of approximately $42.2
million.
(c) The aggregate amount of TCI's debt assumed is subject to working capital
adjustment pursuant to the terms of the contribution agreement through which
the debt was assumed.
(d) Includes a transaction fee equal to 1% of the ascribed value of each of
TCI's, Blackstone's and the contributions of William J. Bresnan and his
affiliates to Bresnan Communications Company (approximately $3.4 million in
the aggregate) and fees and expenses of each of TCI, Blackstone and William
J. Bresnan and his affiliates paid under the terms of the partnership
agreement among them. The total fees and expenses included $9.5 million in
commissions paid to the initial purchasers of the original notes and $4.5
million in other expenses related to the private offering.
The amounts outstanding under Bresnan Communications Company's prior credit
facility which would have become due and payable from March 31, 1999 through
March 31, 2006 and bore interest at rates which, as of December 31, 1998, ranged
from 6.815% to 8.0%. The promissory note in favor of TCI, including accrued
interest, would have become due and payable on the earlier of April 30, 2001 or
the first business day following the full repayment of all amounts outstanding
under Bresnan Communications Company's existing credit facility and bear
interest at a rate equal to the prime rate of The Toronto-Dominion Bank's New
York branch which, as of December 31, 1998, was 7.75%.
The Toronto-Dominion Bank, an affiliate of TD Securities (USA) Inc., and
The Chase Manhattan Bank, an affiliate of Chase Securities Inc., were lenders
under Bresnan Communications Company's prior credit facility and received
approximately $37.7 million and approximately $22.4 million, respectively, from
the repayment of borrowings under such facility.
21
<PAGE> 26
THE EXCHANGE OFFER
The following discussion sets forth or summarizes the material terms of the
exchange offer, including those set forth in the letter of transmittal
distributed with this prospectus. This summary is qualified in its entirety by
reference to the full text of the documents underlying the exchange offer,
including the indenture and the registration rights agreement governing the
original and new notes, which are exhibits to the exchange offer registration
statement of which this prospectus is a part.
GENERAL
In connection with the sale of the original notes to the initial
purchasers, we entered into a registration rights agreement with the initial
purchasers. Under such registration rights agreement, we agreed to use our
reasonable best efforts to:
- file a registration statement with the SEC relating to the exchange offer
within 120 days after February 2, 1999;
- cause the registration statement relating to the registered exchange
offer to become effective under the Securities Act within 180 days after
the original issue date;
- upon the effectiveness of such exchange offer registration statement,
commence the exchange offer and keep the exchange offer open for not less
than 20 days, or longer if required by applicable law; and
- cause the exchange offer to be consummated within 45 days after the
effective date of the registration statement relating to the exchange
offer.
If we complete this exchange offer within the required time periods, we
will satisfy our obligations under the registration rights agreement. This
prospectus, together with the letter of transmittal, is being sent to all
beneficial holders known to us.
In addition, we agreed to file a shelf registration statement pursuant to
Rule 415 under the Securities Act, if:
- a change in law or applicable interpretations of the staff of the SEC do
not permit us to effect the exchange offer;
- for any other reason the exchange offer is not consummated within 210
days after the original issuance date;
- an initial purchaser of the original notes requests that we file such a
shelf registration with respect to original notes not eligible to be
exchanged for new notes in the exchange offer; or
- any holder of original notes, other than an initial purchaser, is not
eligible to participate in the exchange offer or does not receive freely
tradeable new notes in the exchange offer other than by reason of that
holder being our affiliate within the meaning of the Securities Act.
For purposes of determining whether we are obligated to file a shelf
registration statement, the requirement that a broker-dealer deliver this
prospectus in connection with sales of new notes shall not result in such new
notes being not freely tradeable.
We have agreed to use our reasonable best efforts to cause a shelf
registration statement to become effective under the Securities Act as soon as
practicable but in no event later than 60 days after the filing of the shelf
registration statement. In addition, we agreed to use our reasonable best
efforts to keep that shelf registration statement continually effective,
supplemented and amended for a period of at least two years following the
original issue date, or such shorter period which terminates when all notes
covered by that shelf registration statement have been sold under it.
22
<PAGE> 27
INCREASE IN INTEREST RATE
Special interest will accrue on the principal amount or accreted value, as
applicable, of the original notes, in addition the stated interest on the
original notes, from and including the date on which a registration default
occurs to but excluding the date on which all registration defaults have been
cured.
The occurrence of any of the following is a registration default:
(1) the exchange offer registration statement has not been filed with the
SEC on or before the 120th day following February 2, 1999 or we have
not filed a shelf registration statement within 60 days of becoming
obligated to do so.
(2) the exchange offer registration statement has not been declared
effective on or before the 180th day following February 2, 1999 or the
shelf registration statement has not been declared effective on or
before the 120th day of our becoming obligated to file a shelf
registration statement.
(3) the exchange offer has not been completed on or before the earlier of
the 45th day after the exchange offer registration statement has been
declared effective or the 210th day following February 2, 1999.
(4) after either the exchange offer registration statement or the shelf
registration statement has been declared effective, that registration
statement ceases to be effective or usable, subject to certain
exceptions, in connection with resales of original notes or new notes
in accordance with and during the periods specified in the registration
agreement.
Special interest will accrue at a rate of 0.25% per annum on the notes
during the 90-day period after the occurrence of the registration default and
will increase by 0.25% per annum at the end of each subsequent 90-day period. If
the exchange offer is completed on the terms and within the period contemplated
by this prospectus, no special interest will be payable.
In no event, will the special interest exceed in the aggregate 1% per year
on the principal amount or accrued value of the notes; except upon:
(1) the filing of the registration statement or a shelf registration
statement,
(2) the effectiveness of the registration statement related to the exchange
offer or shelf registration statement, or
(3) the exchange of all original notes tendered for new notes, or upon the
effectiveness of the shelf registration statement which had ceased to
remain effective, other than as a result of a suspension period.
The summary of the provisions of the registration agreement contained in
this prospectus does not purport to be complete. This summary is subject to and
is qualified in its entirety by reference to all the provisions of the
registration agreement, a copy of which is an exhibit to the registration
statement of which this prospectus is a part.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date will be 5:00 p.m., New York City time, on ,
1999, unless we, in our sole discretion, extend the exchange offer, in which
case the expiration date will be the latest date and time to which the exchange
offer is extended.
To extend the exchange offer, we will notify the exchange agent of any
extension by oral or written notice, followed by a public announcement thereof
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. In no event will the expiration date be
extended to a date more than 30 business days after effectiveness of the
registration statement.
23
<PAGE> 28
We reserve the right, in our reasonable judgment:
(1) to delay accepting any original notes, to extend the exchange offer or
to terminate the exchange offer if any of the conditions described
below under "-- Conditions" shall not have been satisfied, by giving
oral or written notice of such delay, extension or termination to the
exchange agent, or
(2) to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by a public announcement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, we will accept any and all original notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time on the
expiration date. We will issue $1,000 principal amount for the senior notes or
$1,000 principal amount at maturity for the senior discount notes of new notes
in exchange for each $1,000 principal amount for the senior notes or $1,000
principal amount at maturity for the senior discount notes, as applicable, of
original notes accepted in the exchange offer. Holders of the original notes may
tender some or all of their original notes pursuant to the exchange offer;
however, original notes may be tendered only in integral multiples of $1,000.
The new notes will evidence the same debt as the original notes and will be
entitled to the benefits of the indenture. The form and terms of the new notes
are substantially the same as the form and terms of the original notes, except
that:
- the new notes have been registered under the Securities Act and will not
bear legends restricting the transfer thereof; and
- holders of the new notes generally will not be entitled to certain rights
under the registration rights agreement or special interest, which rights
generally will terminate upon consummation of the exchange offer.
Holders of original notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law or the indenture in connection with
the exchange offer. We intend to conduct the exchange offer in accordance with
the applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC, including Rule 14e-1.
We shall be deemed to have accepted validly tendered original notes when,
as and if we have given oral or written notice thereof to the exchange agent.
The exchange agent will act as agent for the tendering holders pursuant to the
exchange agent agreement for the purpose of receiving the new notes from us.
If any tendered original notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, the certificates for any such unaccepted original notes
will be returned, without expense, to the tendering holder thereof as promptly
as practicable after the expiration date.
Holders who tender their original notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
original notes in the exchange offer. We will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
exchange offer.
PROCEDURES FOR TENDERING ORIGINAL NOTES
You may tender your original notes in the exchange offer. To tender in the
exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of it,
- have the signatures guaranteed if required by the letter of transmittal,
and
24
<PAGE> 29
- mail or otherwise deliver such letter of transmittal or such facsimile,
together with the original notes and any other required documents, to the
exchange agent so as to be received by the exchange agent at the address
set forth below prior to 5:00 p.m., New York City time, on the expiration
date.
Delivery of the original notes may be made by book-entry transfer of such
original notes into the exchange agent's account at The Depository Trust
Corporation in accordance with the procedures described below. Confirmation of
such book-entry transfer must be received by the exchange agent prior to the
expiration date.
By executing the letter of transmittal, you will make to us the
representation described below in the first paragraph under the heading
"-- Resale of New Notes."
The tender by you and our acceptance will constitute an agreement between
you and us in accordance with the terms and subject to the conditions set forth
in this section and in the letter of transmittal.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO US. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS ON THEIR BEHALF.
Any beneficial owner whose original notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on such beneficial owner's behalf.
Signatures on the letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible institution, which are defined
below, unless the original notes tendered:
(1) are signed by the registered holder, unless such holder has completed
the box entitled "Special Exchange Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or
(2) are tendered for the account of an eligible institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States, or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act. Any of the entities described in the prior sentence is an eligible
institution.
If the letter of transmittal is signed by a person other than the
registered holder of any original notes listed in that letter, the original
notes must be endorsed or accompanied by a properly completed bond power, signed
by the registered holder as the registered holder's name appears on such
original notes, with the signature on the bond power guaranteed by an eligible
institution.
If the letter of transmittal or any original notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by us,
evidence satisfactory to us of their authority to so act must be submitted with
the letter of transmittal.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered original notes and withdrawal of tendered
original notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to reject
any and all original notes not properly tendered or any original notes our
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular original notes. Our 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.
25
<PAGE> 30
Unless waived, any defects or irregularities in connection with tenders of
original notes must be cured within such time as we shall determine. Although we
intend to notify holders of original notes of defects or irregularities with
respect to tenders of original notes, neither of us nor the exchange agent or
any other person shall incur any liability for failure to give such
notification. Tenders of original notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any original
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 the letter of transmittal, as soon as practicable following the
expiration date.
BOOK-ENTRY DELIVERY PROCEDURES
Promptly after the date of this prospectus, the exchange agent will
establish accounts with respect to the original notes at DTC, which will be the
book-entry transfer facility for purposes of the exchange offer. Any financial
institution that is a participant in the book-entry transfer facility systems
may make book-entry delivery of the original notes by causing DTC to transfer
such original notes into the exchange agent's account at such book-entry
transfer facility in accordance with such book-entry transfer facility's
procedures for such transfer. Timely book-entry delivery of original notes in
connection with the exchange offer, however, requires receipt of a confirmation
of a book-entry transfer prior to the expiration date. In addition, although
delivery of original notes may be effected through book-entry transfer into the
exchange agent's account at the book-entry transfer facility, the letter of
transmittal or a manually signed facsimile thereof, together with any required
signature guarantees and any other required documents, or an agent's message,
which is defined below, in connection with a book-entry transfer, must, in any
case, be delivered or transmitted to and received by the exchange agent at its
address set forth on the cover page of the letter of transmittal prior to the
expiration date to receive new notes for tendered original notes, or the
guaranteed delivery procedure described below must be complied with. Tender will
not be deemed made until such documents are received by the exchange agent.
Delivery of documents to the book-entry transfer facility does not constitute
delivery to the exchange agent.
TENDER OF ORIGINAL NOTES HELD THROUGH DTC
The exchange agent and DTC have confirmed that the exchange offer is
eligible for DTC's Automated Tender Offer Program. Accordingly, participants in
DTC's Automated Tender Offer Program may, instead of physically completing and
signing the applicable letter of transmittal and delivering it to the exchange
agent, electronically transmit their acceptance of the exchange offer by causing
DTC to transfer original notes to the exchange agent in accordance with DTC's
Automated Tender Offer Program procedures for transfer. DTC will then send an
agent's message to the exchange agent.
The term agent's message means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, which states
that DTC has received an expressed acknowledgment from a participant in DTC's
Automated Tender Offer Program that is tendering original notes which are the
subject of a confirmation of book-entry transfer, that such participant has
received and agrees to be bound by the terms of the applicable letter of
transmittal or, in the case of an agent's message relating to guaranteed
delivery, that such participant has received and agrees to be bound by the
applicable notice of guaranteed delivery, and that we may enforce such agreement
against such participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their original notes and:
(1) whose original notes are not immediately available;
(2) who cannot deliver their original notes, the letter of transmittal
or any other required documents to the exchange agent; or
(3) who cannot complete the procedures for book-entry transfer, prior
to the exchange offer's expiration date, may effect a tender if:
(a) the tender is made through an eligible institution;
26
<PAGE> 31
(b) prior to the expiration date, the exchange agent receives from
such eligible institution a properly completed and duly executed notice
of guaranteed delivery by facsimile transmission, mail or hand delivery
setting forth the name and address of the holder, the certificate
number(s) of such original notes and the principal amount or principal
amount at maturity, as applicable, of original notes tendered, stating
that the tender is being made thereby and guaranteeing that, within
three (3) New York Stock Exchange trading days after the expiration
date, the letter of transmittal or facsimile thereof, together with the
certificate(s) representing the original notes or a confirmation of a
book-entry transfer of such original notes into the exchange agent's
account at DTC and all other documents required by the letter of
transmittal, will be deposited by the eligible institution with the
exchange agent; and
(c) such properly completed and executed letter of transmittal or
facsimile thereof, as well as the certificate(s) representing all
tendered original notes in proper form for transfer or a confirmation of
a book-entry transfer of such original notes into the exchange agent's
account at DTC and all other documents required by the letter of
transmittal, are received by the exchange agent within three (3) New
York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their original notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of original 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 original notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at the address set forth herein prior to 5:00 p.m., New York City time, on
the expiration date. Any such notice of withdrawal must:
- specify the name of the person having deposited the original notes to be
withdrawn;
- identify the original notes to be withdrawn, including the certificate
number(s) and principal amount or principal amount at maturity, as
applicable, of such original notes, or, in the case of original notes
transferred by book-entry transfer, the name and number of the account at
DTC to be credited;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such original notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee under the indenture
register the transfer of such original notes into the name of the person
withdrawing the tender; and
- specify the name in which any such original notes are to be registered,
if different from that of the person who deposited the original notes.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices. Our determination shall be final and
binding on all parties. Any original 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 original notes so withdrawn are
validly retendered. Any original notes which have been tendered but which are
not accepted for exchange will be returned to such holder without cost to such
holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn original notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior the expiration date.
27
<PAGE> 32
CONDITIONS
Despite any other term of the exchange offer, we shall not be required to
accept for exchange any original notes, and may terminate or amend the exchange
offer as provided herein before the acceptance of such original notes, if:
(a) in the opinion of our counsel, the exchange offer or any part
thereof contemplated herein violates any applicable law or interpretation
of the staff of the SEC;
(b) any action or proceeding shall have been instituted or threatened
in any court or by any governmental agency which might materially impair
our ability to proceed with the exchange offer or any material adverse
development shall have occurred in any such action or proceeding with
respect to us;
(c) any governmental approval has not been obtained, which approval we
shall deem necessary for the consummation of the exchange offer as
contemplated hereby;
(d) any cessation of trading on The Nasdaq Stock Market or any
exchange, or any banking moratorium, shall have occurred, as a result of
which we are unable to proceed with the exchange offer; or
(e) a stop order shall have been issued by the SEC or any state
securities authority suspending the effectiveness of the registration
statement or proceedings shall have been initiated or, to our knowledge,
threatened for that purpose.
If we determine in our reasonable judgment that any of the foregoing conditions
are not satisfied, we may:
(a) refuse to accept any original notes and return all tendered
original notes to the tendering holders;
(b) extend the exchange offer and retain all original notes tendered
prior to the expiration of the exchange offer, subject, however, to the
rights of holders to withdraw such original notes (see "-- Withdrawals of
Tenders"); or
(c) waive such unsatisfied conditions with respect to the exchange
offer and accept all properly tendered original notes which have not been
withdrawn.
EXCHANGE AGENT
State Street Bank and Trust Company will act as exchange agent for the
exchange offer with respect to the original notes.
Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal for the original notes and
requests for copies of the notice of guaranteed delivery should be directed to
the exchange agent, addressed as follows:
By registered or certified mail or overnight courier:
State Street Bank and Trust Company
Corporate Trust Division
P.O. Box 778
Boston, MA 02102-0078
Attn: Kellie Mullen
<TABLE>
<S> <C>
By facsimile (for eligible institutions only): (617) 664-5290
Confirm by telephone: (617) 664-5587
Kellie Mullen
</TABLE>
FEES AND EXPENSES
We will pay the expenses of soliciting original notes for exchange. The
principal solicitation is being made by mail by the exchange agent. However,
additional solicitations may be made by telephone, facsimile or in
28
<PAGE> 33
person by our officers and regular employees and our affiliates and by persons
so engaged by the exchange agent.
We will pay the exchange agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith and pay other registration expenses, including fees and
expenses of the trustee under the indenture, filing fees, blue sky fees and
printing and distribution expenses.
We will pay all transfer taxes, if any, applicable to the exchange of the
original notes in connection with the exchange offer. If, however, certificates
representing the new notes or the original notes for principal amounts or
principal amounts at maturity, as applicable, not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the registered holder of the original notes tendered, or if tendered
original notes are registered in the name of any person other than the person
signing the letter of transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the original notes in this exchange offer,
then the amount of any such transfer taxes, whether imposed on the registered
holder or any other person, will be payable by the tendering holder.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the original
notes, which is the aggregate principal amount or accreted value, as applicable,
of the original notes, as reflected in our accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized in connection with the exchange offer. The expenses of the original
notes offering and the exchange offer will be amortized over the term of the new
notes.
RESALE OF NEW NOTES
We are making the exchange offer in reliance on the position of the staff
of the SEC expressed in the Exxon Capital No-Action Letter, Morgan Stanley
No-Action Letter, Shearman & Sterling No-Action Letter, and other interpretive
letters by the staff of the SEC addressed to third parties in other
transactions, however, we have not sought our own interpretive letter addressing
such matters and there can be no assurance that the staff of the SEC would make
a similar determination with respect to the exchange offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the SEC, and subject to the two immediately following sentences, we
believe that new notes issued in connection with this exchange offer in exchange
for original notes may be offered for resale, resold and otherwise transferred
by holders of such new notes, other than such a holder who is a broker-dealer,
without further 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 holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution within the meaning of the Securities Act of such
new notes. Despite the above, any holder of original notes may be subject to
restrictions on the transferability of its notes if it:
- is our "affiliate" within the meaning of Rule 405 under the Securities
Act of 1933;
- does not acquire such new notes in the ordinary course of its business;
- intends to participate in the exchange offer for the purpose of
distributing new notes; or
- is a broker-dealer who purchased such original notes directly from us.
Holders of original notes falling into any of the categories above:
- will not be able to rely on the interpretations of the staff of the SEC
set forth in the above-mentioned interpretive letters;
- will not be permitted or entitled to tender such original notes in the
exchange offer; and
29
<PAGE> 34
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or other transfer of such
original notes unless such sale is made in reliance on an exemption from
such requirements.
Each broker-dealer that receives new notes for its own account in exchange
for original notes, where those original notes were acquired by such
broker-dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such new notes. The SEC has taken the position that broker-dealers may fulfill
their prospectus delivery requirements with respect to new notes, other than a
resale of an unsold allotment from the original sale of the original notes, with
this prospectus. Under the registration rights agreement, we are required during
the period required by the Securities Act to allow broker-dealers and other
persons, if any, with similar prospectus delivery requirements to use this
prospectus in connection with the resale of such new notes.
In addition, as described below, if any broker-dealer holds original notes
acquired for its own account, then such broker-dealer may be deemed a statutory
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such new notes.
Each holder of original notes and each initial purchaser who is required to
deliver a prospectus in connection with sales or market making activities, by
acquisition of original notes, agrees that, upon a receipt of notice from us
that:
(1) the SEC has issued a stop order suspending the effectiveness of
the exchange offer registration statement under the Securities Act or by
any state securities commission suspending the qualification of the new
notes from being offered or sold in any jurisdiction, or a proceeding has
been initiated for any of the preceding purposes, or
(2) the existence of any fact or the happening of any event that makes
any statement of a material fact made in the registration statement or this
prospectus, or any amendment or supplement to it or any document
incorporated in this prospectus by reference untrue, or that requires the
making of any additions or changes in the registration statement or this
prospectus in order to make the statements in this prospectus, in light of
the circumstances under which they were made, not misleading,
such holder or person shall discontinue disposition of the original notes under
this prospectus until such holder or person has received copies of the
supplemented or amended prospectus or such holder or person is advised in
writing by us that use of the prospectus may be resumed and has received copies
of any additional or supplemental filings that are incorporated by reference in
the prospectus.
In addition, each holder or person will be deemed to have agreed that it
will either:
(1) destroy any prospectuses, other than permanent file copies, then
in such holder or person's possession which have been replaced by us with
more recently dated prospectuses; or
(2) deliver to us, at our expense, all copies, other than permanent
file copies, then in such holder's or person's possession of the prospectus
covering such original notes that was current at the time of receipt of the
notice regarding the happening of any event described in part (2) of the
prior paragraph.
We shall extend the time period regarding the effectiveness of the
registration statement by a number of days equal to the number of days in the
period from and including the date of delivery of the notice regarding the
happening of any event described in part (2) of the prior paragraph to the date
of delivery of the supplement or amendment.
CONSEQUENCES OF FAILURE TO EXCHANGE
Any original notes tendered and exchanged in the exchange offer will reduce
the aggregate principal amount or aggregate principal at maturity, as
applicable, of original notes outstanding. Following the consummation of the
exchange offer, holders who did not tender their original notes generally will
not have any further registration rights under the registration rights
agreement, and such original notes will continue to
30
<PAGE> 35
be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for such original notes could be adversely affected.
The original notes are currently eligible for sale pursuant to Rule 144A
through PORTAL. Because we anticipate that most holders will elect to exchange
original notes for new notes in the exchange offer due to the absence of
restrictions on the resale of new notes, except for applicable restrictions on
any holder of new notes who is our affiliate or is a broker-dealer which
acquired the original notes directly from us, under the Securities Act, we
anticipate that the liquidity of the market for any original notes remaining
after the consummation of the exchange offer may be substantially limited.
The original notes that are not exchanged for new notes in the exchange
offer will remain restricted securities within the meaning of the Securities
Act. Accordingly, such original notes may be resold only:
- to us or any of our subsidiaries;
- inside the United States to a qualified institutional buyer in compliance
with Rule 144A under the Securities Act;
- inside the United States to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), an
"accredited investor" that, prior to such transfer, furnishes or has
furnished on its behalf by a U.S. broker-dealer to the trustee under the
indenture a signed letter containing certain representations and
agreements relating to the restrictions on transfer of the notes, the
form of which letter can be obtained from such trustee;
- outside the United States in compliance with Rule 904 under the
Securities Act;
- under the exemption from registration provided by Rule 144 under the
Securities Act, if available; or
- under an effective registration statement under the Securities Act.
Each accredited investor that is not a qualified institutional buyer and
that is an original purchaser of any of the original notes from the initial
purchasers will be required to sign a letter confirming that such person is an
accredited investor under the Securities Act and that such person acknowledges
the transfer restrictions summarized herein.
OTHER
Participation in the exchange offer is voluntary and holders of original
notes should carefully consider whether to accept the offer to exchange their
original notes. Holders of original notes are urged to consult their financial
and tax advisors in making their own decision on what action to take with
respect to the exchange offer. We may in the future seek to acquire untendered
original notes in open market or privately negotiated transactions, through
subsequent exchange offers or otherwise. We have no present plans to acquire any
original notes that are not tendered in the exchange offer or to file a
registration statement to permit resales of any untendered original notes.
31
<PAGE> 36
CAPITALIZATION
The following table sets forth our unaudited consolidated capitalization as
of March 31, 1999 reflecting the assumed TCI debt and subsequently repaid, our
financings that we completed on February 2, 1999 and the contribution to us by
Blackstone.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------
(IN MILLIONS)
<S> <C>
Debt:
Credit facility........................................... 501.6 (a)
Senior notes.............................................. 170.0
Senior discount notes..................................... 175.0
Other debt................................................ 1.4
Total debt........................................ 848.0
Equity:
Member's deficit.......................................... (210.3)
-------
Total capitalization.............................. $ 637.7
=======
</TABLE>
- ---------------
(a) As of March 31, 1999, Bresnan Telecommunications Company would have been
permitted to borrow additionally up to approximately $144.9 million under
our credit facility, subject to its covenants, after giving effect to the
transfer to us of cable systems by TCI and the related financings. Bresnan
Telecommunications Company expects to continue to borrow funds under our
credit facility.
32
<PAGE> 37
SELECTED CONSOLIDATED AND COMBINED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
The selected combined financial data as of and for the four years ended
December 31, 1998 set forth below have been derived from the audited combined
financial statements of Bresnan Communications Group Systems, a combination of
the financial statements of Bresnan Communications Company and the cable systems
transferred to us by TCI. Prior to consummating the transactions with TCI,
Bresnan Communications Company and the owners of the cable systems transferred
to us by TCI were under the common ownership and control of TCI. Based on such
common ownership and control, the financial data are presented at historical
cost on a combined basis.
The selected consolidated and combined financial data as of and for the
year ended December 31, 1994 and the three months ended March 31, 1998 and 1999
are derived from our unaudited consolidated and or our predecessor's unaudited
combined financial statements, which in our opinion, contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results of operations to be expected
for a full year.
The data set forth below are qualified in their entirety by, and should be
read in conjunction with our consolidated financial statements, the historical
combined financial statements of Bresnan Communications Group Systems, the
predecessor to the Company for accounting and financial reporting purposes, and
the related notes thereto, "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue..................... $179,235 $195,364 $216,609 $247,108 $261,964 $ 62,463 $ 67,295
Operating costs and
expenses:
Programming............... 36,347 39,168 46,087 53,857 63,686 15,491 17,748
Operating................. 18,152 26,966 31,405 31,906 28,496 8,315 7,539
Selling, general and
administrative......... 42,403 47,180 52,485 50,572 58,568 11,791 15,720
Depreciation and
amortization........... 40,486 47,201 50,908 53,249 54,308 12,780 13,669
-------- -------- -------- -------- -------- -------- ---------
Total operating
costs and
expenses........ 137,388 160,515 180,885 189,584 205,058 48,377 54,676
-------- -------- -------- -------- -------- -------- ---------
Operating income............ 41,867 34,849 35,724 57,524 56,906 14,086 12,619
Other income (expense)(a):
Interest -- related
party.................. (1,600) (1,978) (1,859) (1,892) (1,872) (470) (152)
Interest -- other......... (10,957) (14,085) (13,173) (16,823) (16,424) (4,292) (14,394)
Gain (loss) on sale of
cable television
systems................ -- -- -- -- 27,027 7,010 (181)
Other, net................ (424) 61 (844) (978) (273) (54) (82)
-------- -------- -------- -------- -------- -------- ---------
Total other income
(expense)....... (12,981) (16,002) (15,876) (19,693) 8,458 2,194 (14,809)
-------- -------- -------- -------- -------- -------- ---------
Net earnings (loss)......... $ 28,886 $ 18,847 $ 19,848 $ 37,831 $ 65,364 $ 16,280 $ (2,190)
======== ======== ======== ======== ======== ======== =========
</TABLE>
33
<PAGE> 38
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND OTHER
DATA:
EBITDA...................... $ 82,050 $ 86,632 $110,773 $111,214 $ 26,866 $ 26,288
Capital expenditures........ 98,004 78,248 33,875 58,601 5,845 7,948
Ratio of total debt to
EBITDA(b)................. 8.1
Ratio of earnings to fixed
charges(c)................ 3.2x 2.1x 2.1x 2.9x 4.4x 4.3x --
Deficiency of earnings
available to cover fixed
charges(c)................ -- -- -- -- -- -- (3,967)
Average monthly total
revenue per average basic
subscriber(d)............. $ 28.01 $ 28.49 $ 30.95 $ 33.16 $ 34.61 $ 33.26 $ 35.41
CASH FLOW DATA:
Net cash provided by
operations................ -- 61,200 79,143 92,548 102,361 26,616 10,931
Net cash used in
investing................. -- (52,175) (78,335) (34,103) (77,276) (22,835) (24,473)
Net cash provided by (used
in) financing............. (8,203) (3,100) (54,741) (25,406) 4,674 7,456
SUMMARY OPERATING DATA (END
OF PERIOD):
Homes passed................ 800,383 841,145 847,364 914,182 901,792 913,826 973,193
Basic subscribers........... 561,333 581,553 584,807 620,862 617,867 631,326 655,564
Basic penetration........... 70.1% 69.1% 69.0% 67.9% 68.5% 69.1% 69.4%
Premium units............... 283,283 294,533 295,727 262,900 243,501 259,450 261,596
Pay-to-basic ratio(e)....... 50.5% 50.6% 50.6% 42.3% 39.4% 41.1% 56.6%
BALANCE SHEET DATA (END OF
PERIOD):
Total assets................ $569,189 $564,591 $596,047 $617,198 $664,436 -- $ 688,149
Total debt.................. 187,798 185,480 207,234 214,170 232,617 -- 848,007
Parents' investment/member's
equity (deficit).......... 338,781 344,664 347,188 359,098 381,748 -- (210,349)
</TABLE>
- ---------------
(a) The historical combined financial data for the periods through December 31,
1998 do not include any indebtedness or related interest expense in respect
of the $708.9 million of debt transferred by TCI. For the three month period
ended March 31, 1999, the operations include interest expense on the
indebtedness for the period subsequent to the financings related to our
transactions with TCI which occurred on February 2, 1999.
(b) The ratio of total debt to EBITDA was calculated by dividing total debt by
annualized EBITDA for the three months ended March 31, 1999.
(c) For purposes of this calculation, earnings is defined as earnings before
fixed charges. Fixed charges represent interest paid or accrued on
indebtedness, the amortization of deferred financing costs and the portion
of rents deemed representative of the interest factor. The historical
combined financial statements of Bresnan Communications Group Systems,
appearing elsewhere in this prospectus do not reflect the assumption of
TCI's debt.
(d) Represents average monthly total revenue for the periods indicated divided
by the number of average basic subscribers in each period.
(e) Pay-to-basic ratio measures premium units as a percentage of basic
subscribers.
34
<PAGE> 39
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
Our unaudited pro forma statement of operations information presented below
are derived from the December 31, 1998 combined financial statements of Bresnan
Communications Group Systems and our March 31, 1999 unaudited consolidated
financial statements. The combined financial statements of Bresnan
Communications Group Systems are the combination of the financial statements of
Bresnan Communications Company and the systems transferred to us by TCI.
The unaudited pro forma statement of operations information give effect to
our formation and to each of the following: (1) the transactions with TCI, and
(2) the related financings as if such transactions had been consummated on
January 1, 1998. Pro forma consolidated balance sheet information has not been
presented since the effects of the transactions mentioned in the prior sentence
are reflected in our March 31, 1999 historical balance sheet presented elsewhere
in this prospectus. The unaudited pro forma consolidated financial data do not
give effect to our recent acquisitions and disposition.
The unaudited pro forma statement of operations information may not be
indicative of the results that actually would have occurred if the transactions
described above had been completed and in effect for the periods indicated or
the results that may be obtained in the future. The unaudited pro forma
statement of operations information presented below are qualified in their
entirety by, and should be read in conjunction with our March 31, 1999 financial
statements and the historical combined financial statements of Bresnan
Communications Group Systems, and related notes thereto, "The TCI Transactions"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
BRESNAN COMMUNICATIONS GROUP LLC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED TCI PRO FORMA
HISTORICAL TRANSACTIONS FINANCINGS CONSOLIDATED(A)
---------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Revenue.................................. $261,964 $ -- $ -- $261,964
Operating costs and expenses
Programming............................ 63,686 -- -- 63,686
Operating.............................. 28,496 -- -- 28,496
Selling, general and administrative.... 58,568 (2,655)(b) -- 55,913
Depreciation and amortization.......... 54,308 -- -- 54,308
-------- ------- ---------- --------
Total operating costs and
expenses..................... 205,058 (2,655) -- 202,403
-------- ------- ---------- --------
Operating income......................... 56,906 2,655 -- 59,561
Interest expense......................... (18,296) -- (54,354)(c) (72,650)
Other.................................... (273) -- -- (273)
Gain on sale of cable television
systems................................ 27,027 -- -- 27,027
-------- ------- ---------- --------
8,458 -- (54,354) (45,896)
-------- ------- ---------- --------
Net earnings (loss)...................... 65,364 2,655 (54,354) 13,665
======== ======= ========== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations.
35
<PAGE> 40
BRESNAN COMMUNICATIONS GROUP LLC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED TCI PRO FORMA
HISTORICAL TRANSACTIONS FINANCINGS CONSOLIDATED(A)
------------ ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Revenue................................ $ 67,295 $ -- $ -- $67,295
Operating costs and expenses
Programming.......................... 17,748 -- -- 17,748
Operating............................ 7,539 -- -- 7,539
Selling, general and
administrative.................... 15,720 (221)(b) -- 15,499
Depreciation and amortization........ 13,669 -- -- 13,669
-------- ----- ------- -------
Total operating costs and
expenses................... 54,676 (221) -- 54,455
-------- ----- ------- -------
Operating income....................... 12,619 221 -- 12,840
Interest expense....................... (14,546) -- (4,963)(d) (19,509)
Other.................................. (82) -- -- (82)
Loss on sale of cable television
systems.............................. (181) -- -- (181)
-------- ----- ------- -------
$(14,809) -- (4,963) (19,772)
-------- ----- ------- -------
Net loss............................... (2,190) 221 $(4,963) $(6,932)
======== ===== ======= =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations.
36
<PAGE> 41
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AND THE THREE MONTH PERIOD ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
GENERAL
(a) Does not give pro forma effect to our recent acquisitions and
disposition.
TRANSACTIONS WITH TCI
(b) Represents the net adjustment to reverse actual allocated overhead
expenses and to include anticipated contractual management fees to be charged by
BCI (3% of revenue), contractual monitoring fees to be paid to TCI, Blackstone
and the Bresnan Group, and certain other general and administrative expenses to
be incurred by us.
FINANCINGS
(c) Represents the net adjustment to increase interest expense for the year
ended December 31, 1998 as if the financings relating to the transfer to us of
cable systems by TCI had occurred on January 1, 1998 and reverse interest
expense included in the historical combined financial statements of Bresnan
Communications Group Systems. An illustration of this adjustment for the year
ended December 31, 1998 along with the related interest rate assumptions,
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Borrowings under our credit facility........................ $510,330
Borrowings under senior notes............................... 170,000
Borrowings under senior discount notes...................... 175,021
--------
Total new indebtedness............................ 855,351
Expected weighted average annual interest rate.............. 8.1%
Pro rata for the period (days outstanding/365 days)......... 100.00%
Computed pro forma interest expense......................... 70,266
Amortization of deferred financing fees..................... 2,384
--------
Total pro forma interest expense............................ 72,650
Reverse historical interest expense......................... (18,296)
--------
Net interest expense adjustment............................. $ 54,354
========
Effect of a 1/8 percent change in interest rate............ $ 647
========
</TABLE>
(d) Represents the net adjustment to increase interest expense for the
three months ended March 31, 1999 as if the financings related to the transfer
to us of cable systems by TCI had occurred on January 1, 1999. The financings
related to the transfer to us of cable systems by TCI were actually completed on
February 2, 1999, accordingly, the effects of those financings are included in
our historical financial statements from that point forward.
37
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
GENERAL
On June 3, 1998, Blackstone, Bresnan Communications Company, William J.
Bresnan and certain of his affiliates, TCID and TCI and certain of its
affiliates entered into a contribution agreement. Under that agreement, on
February 2, 1999, TCI transferred several cable systems to us. The combined
financial statements of Bresnan Communications Group Systems contained in this
prospectus are the combination of the financial statements of Bresnan
Communications Company and the cable systems transferred to us by TCI. Before
TCI transferred to us several of its cable systems, Bresnan Communications
Company and the affiliates of TCI which contributed cable systems to us, were
under the common ownership and control of TCI. Based on such common ownership
and control, the financial statements are presented at historical cost on a
combined basis. The following discussion relates to the combined financial
statements of Bresnan Communications Group Systems.
Revenue. Substantially all of our revenue is earned from:
- subscriber fees for cable television programming services;
- the sale of advertising;
- commissions for products sold through home shopping networks, fees for
ancillary services, such as the rental of converters and remote control
devices and installations; and
- fees for high-speed Internet service.
We generated increases in revenue for each of the past three years,
primarily as a result of:
- internal subscriber growth;
- basic and preferred basic tier rate increases;
- acquisitions; and
- to a lesser extent, through growth in advertising and equipment rental
which were partially offset by decreases in premium services and
installation revenue.
From the year ended December 31, 1994 through March 31, 1999, revenue
increased at a compound annual growth rate of 8.5%.
The operation of our cable television systems is regulated at the federal,
state and local levels. Under federal law, certain services are regulated if the
appropriate franchise authority is certified by the FCC to regulate rates. Until
March 31, 1999, rates for the cable programming service tier were also subject
to regulation. During the three months ended March 31, 1999, 79.5% of our
revenue was derived from these regulated services. Any increases in rates
charged for these regulated services are governed by regulation pursuant to the
Communications Act. Competitive factors may also limit our ability to increase
our rates.
The following table sets forth for the periods indicated the percentage of
our total revenue attributable to the sources indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ----------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Basic and preferred basic.................. 74.4% 75.6% 76.0% 76.5% 76.3%
Premium.................................... 12.5% 11.0% 9.1% 9.6% 8.4%
Other...................................... 13.1% 13.4% 14.9% 13.9% 15.3%
----- ----- ----- ----- -----
Total revenue.................... 100.0% 100.0% 100.0% _100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
38
<PAGE> 43
Operating Costs and Expenses. Our operating costs and expenses consist of:
- programming expenses;
- operating costs;
- selling, general and administrative expenses; and
- depreciation and amortization expense.
Our programming expenses have historically increased at rates in excess of
inflation due to system acquisitions, and increases in the number, quality and
cost of programming services we offered. Operating costs primarily include
expenses related to wages and employee benefits of technical personnel,
electricity, systems supplies and vehicles.
Selling, general and administrative expenses include:
- wages and employee benefits of customer service;
- accounting and administrative personnel;
- franchise fees;
- marketing and advertising costs; and
- expenses related to billing, payment processing, office administration
and corporate overhead.
Depreciation and amortization expense relates to the depreciation of our
tangible assets and the amortization of our franchise costs.
RESULTS OF OPERATIONS
The following table, which is derived from, and should be read in
conjunction with, the combined financial statements of Bresnan Communications
Group Systems and related notes included elsewhere in this prospectus, sets
forth the historical combined statement of operations data and the components of
net earnings and EBITDA expressed as a percentage of revenue for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED MARCH 31,
------------------------------------------------------ ----------------------------------
1996 1997 1998 1998 1999
---------------- ---------------- ---------------- --------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue............ $216,609 100.0% $247,108 100.0% $261,964 100.0% $62,463 100.0% $ 67,295 100.0%
Operating costs and
expenses:
Programming........ 46,087 21.3% 53,857 21.8% 63,686 24.3% 15,491 24.8% 17,748 26.4%
Operating.......... 31,405 14.5% 31,906 12.9% 28,496 10.9% 8,315 13.3% 7,539 11.1%
Selling, general
and
administrative... 52,485 24.2% 50,572 20.5% 58,568 22.4% 11,791 18.9% 15,720 23.4%
Depreciation and
amortization..... 50,908 23.5% 53,249 21.5% 54,308 20.7% 12,780 20.4% 13,669 20.3%
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Total operating costs
and expenses....... 180,885 83.5% 189,584 76.7% 205,058 78.3% 48,377 77.4% 54,676 81.2%
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Operating income..... 35,724 16.5% 57,524 23.3% 56,906 21.7% 14,086 22.6% 12,619 18.8%
Interest expense..... (15,032) 6.9% (18,715) 7.6% (18,296) 7.0% (4,762) 7.6% (14,546) 21.6%
Gain on sale of cable
television
systems............ -- -- -- -- 27,027 10.3% 7,010 11.2% (181) 0.3%
Other, net........... (844) .4% (978) .4% (273) 0.1% (54) 0.1% (82) 0.1%
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Net earnings......... $ 19,848 9.2% $ 37,831 15.3% $ 65,364 25.0% $16,280 26.1% $ (2,190) 3.2%
======== ===== ======== ===== ======== ===== ======= ===== ======== =====
EBITDA............... $ 86,632 40.0% $110,773 44.8% $111,214 42.5% $26,866 43.0% $ 26,288 39.1%
======== ===== ======== ===== ======== ===== ======= ===== ======== =====
</TABLE>
39
<PAGE> 44
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED MARCH 31,
------------------------------------------------------ ----------------------------------
1996 1997 1998 1998 1999
---------------- ---------------- ---------------- --------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Net cash provided by
operations......... 79,143 92,548 102,361 26,616 10,931
Net cash used in
investing.......... (78,335) (34,103) (72,276) (22,835) (24,473)
Net cash provided by
(used in)
financing.......... (3,100) (54,741) (25,406) 4,674 7,456
</TABLE>
Three Months Ended March 31, 1999 Compared with Three Months Ended March 31,
1998
Revenue increased $4.8 million or 7.7% to $67.3 million for the three
months ended March 31, 1999 as compared to the same period in 1998, primarily as
a result of basic and preferred basic tier rate increases, acquisitions and, to
a lesser extent, growth in advertising, equipment rental and pay-per-view
revenue. The basic and preferred basic tier rate increases included (1) amounts
to cover our increase in programming costs and (2) regulated rate increases.
This increase in revenue was partially offset by a decrease in revenue from
premium services of $.5 million or 8.4% to $5.6 million due to a decrease in
premium units resulting from changes in marketing of the premium services and
the need, in certain instances, to use a converter to receive these services.
Advertising and home shopping revenue grew by $.6 million or 17.1% to $4.3
million due to an increase in customer buy rates and additional advertising
insertion.
Operating costs and expenses increased $6.3 million or 13.0% to $54.7
million for the three months ended March 31, 1999 as compared to the same period
in 1998. In the three months ended March 31, 1999, programming expense increased
$2.3 million or 14.6% to $17.7 million, operating expense decreased $0.8 million
or 9.3% to $7.5 million and selling, general and administrative expense
increased $3.9 million or 33.3% to $15.7 million, in each case as compared to
the same period in 1998.
The increase in programming expense was caused by increases in rates
charged by programming suppliers, including substantial increases in rates
relating to sports programming and the offering of new channels to our
customers. Management anticipates that our programming costs will continue to
increase in future periods.
The decrease in operating expense was primarily related to an increase in
capitalized labor and overhead resulting primarily from increased installation
and construction activities. Selling, general and administrative expense
increased due to additional corporate overhead charges, marketing expenses,
advertising expenses and costs related to the reorganization.
Marketing and advertising expense increased $0.9 million to $4.0 million
for the three months ended March 31, 1999 as compared to the same period in
1998, as we focused our marketing efforts upon completion of the contribution
agreement on February 2, 1999. All other variable expenses increased as a result
of an increase in the number of basic subscribers we served.
Depreciation and amortization increased $0.9 million or 7.0% to $13.7
million for the three months ended March 31, 1999 as compared to the same period
in 1998, primarily as a result of the increase in capital expenditures.
Interest expense increased $9.8 million or 205.5% to $14.5 million for the
three months ended March 31, 1999 as compared to the same period in 1998 as a
result of the financings completed during this period.
Operating income and net earnings decreased $1.5 million or 10.4% to $12.6
million and $18.5 million or 113.5% to a loss of $2.2 million, respectively, for
the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998.
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<PAGE> 45
EBITDA decreased $0.6 million or 2.2% to $26.3 million for the three months
ended March 31, 1999 as compared to the same period in 1998 as a result of
increases in programming expenses and selling, general and administrative
expense. EBITDA margin decreased from 43.0% to 39.1%, primarily as a result of
expenses increasing at a rate greater than revenue.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Revenue increased $14.9 million or 6.0% to $262.0 million for the year
ended December 31, 1998 as compared to the same period in 1997, primarily as a
result of basic and preferred basic tier rate increases, acquisitions and, to a
lesser extent, growth in advertising, equipment rental and pay-per-view revenue.
The 1998 basic and preferred basic tier rate increases included (1) amounts to
cover our increase in programming costs, offset by a reduction for the
approximate .2% correction of the estimated inflation rate used in the 1997 rate
setting for regulated services and (2) regulated rate increases. This increase
in revenue was partially offset by a decrease in revenue from premium services
of $3.2 million or 11.7% to $24.1 million due to a 7.4% decrease in premium
units resulting from a repositioning of the Disney service from premium to basic
and other changes in marketing to the premium customers, including changes to
security which required, in certain instances, the use of a converter to receive
these services.
Advertising and home shopping revenue grew by $1.3 million or 8.2% to $17.1
million due to an increase in customer buy rates and additional advertising
insertion. A portion of the increase in advertising sales revenue was
attributable to arrangements with programming suppliers that may not continue at
current levels in future periods.
Operating costs and expenses increased $15.5 million or 8% to $205.1
million for the year ended December 31, 1998 as compared to the same period in
1997. In the year ended December 31, 1998, programming expense increased $9.8
million or 18.3% to $63.7 million, operating expense decreased $3.4 million or
10.7% to $28.5 million and selling, general and administrative expense increased
$8.0 million or 15.8% to $58.6 million, in each case as compared to the same
period in 1997.
The increase in programming expense was caused by increases in rates
charged by programming suppliers, including substantial increases in rates
relating to sports programming (18.9% versus an average of 10.3% for non-sports
programming). Programming expense also increased as a result of the
repositioning in 1998 of the Disney service from a premium service to a
preferred basic tier service. Management anticipates that the Company's
programming costs will continue to increase in future periods.
The decrease in operating expense was primarily related to an increase in
capitalized labor and overhead resulting primarily from increased installation
and construction activities. Selling, general and administrative expense
increased due to additional corporate overhead charges, customer billing charges
and marketing expenses. Included in selling, general and administrative expense
are $1.9 million of additional costs incurred by Bresnan Communications Company
in anticipation of the transfer to us of cable systems by TCI.
Our billing expense increased $2.0 million in connection with a new
customer billing system and other billing charges. We also experienced an
increase in marketing expenses of $2.2 million as it renewed its efforts in
marketing after having experienced a significant decrease in marketing expenses
the previous year. All other variable expenses increased as a result of an
increase in the number of basic subscribers we served.
Depreciation and amortization increased $1.1 million or 2.0% to $54.3
million for the year ended December 31, 1998 as compared to the same period in
1997, primarily as a result of the previous year's increase in capital
expenditures.
Operating income decreased $.6 million or 1.1% to $56.9 million for the
year ended December 31, 1998 as compared to the same period in 1997 as a result
of increases in expenses noted above more than offsetting the increases in
revenue.
Interest expense decreased $.4 million or 2.2% to $18.3 million for the
year ended December 31, 1998 as compared to the same period in 1997 as a result
of a $1.4 million write-off of deferred financing costs in 1997 relating to
Bresnan Communications Company's amendment of its credit facility. This decrease
was partially offset by increased interest rates and debt balances in 1998.
41
<PAGE> 46
Net earnings increased $27.5 million or 72.8% to $65.4 million for the year
ended December 31, 1998 as compared to the same period in 1997 as a result of
the recognition of a $27.0 million gain on our sale of cable television systems.
EBITDA increased $.4 million or .4% to $111.2 million for the year ended
December 31, 1998 as compared to the same period in 1997 as a result of
increases in revenue partially offset by increases in programming expenses and
selling, general and administrative expense. EBITDA margin decreased from 44.8%
to 42.5%, primarily as a result of expenses increasing at a rate greater than
revenue.
Year Ended December 31, 1997 Compared with Year Ended December 1996
Revenue increased $30.5 million or 14.1% to $247.1 million for the year
ended December 31, 1997 as compared to the same period in 1996, primarily as a
result of a 6.5% increase in the number of basic subscribers from 583,000
average basic subscribers to 621,000 average basic subscribers, the recognition
of revenue from a cable television system we acquired in early 1997, basic and
preferred basic rate increases and, to a lesser extent, growth in advertising,
equipment rental and pay-per-view revenue. Revenue, without giving effect to
revenue recognized as a result of the acquisition, increased by 7.5%. Revenue
from premium services grew by $.1 million or .5% to $27.3 million due to an
increase in premium units, including increases resulting from acquisitions.
Revenue from advertising increased $2.5 million or 19.6% to $15.3 million
as a result of increased capacity to provide advertising and advertising
revenues recognized from the acquired system described above. Revenue from
equipment rental increased $1.2 million or 30.0% to $5.2 million as we began
offering its basic subscribers advanced analog converters. Revenue from
pay-per-view services increased $.4 million or 16.2% to $2.8 million as a result
of increased customer buy rates, increased channel capacity for this service and
the recognition of a full year of revenue from the acquired system described
above.
Operating costs and expenses increased $8.7 million or 4.8% to $189.6
million for the year ended December 31, 1997 as compared to the same period in
1996, primarily due to the recognition of costs and expenses related to a cable
television system acquired in early 1997 and an increase in programming expense,
resulting from the launch of new services and rate increases on existing
services.
For the year ended December 31, 1997, programming expense increased $7.8
million or 16.9% to $53.9 million, operating expense increased $.5 million or
1.6% to $31.9 million, and selling, general and administrative expense decreased
$1.9 million or 3.6% to $50.6 million, in each case as compared to the same
period in 1996. Programming expense increased as a result of increases in the
number of cable television channels provided and increases in programming rates,
as well as subscriber growth. Operating expense increased as a result of
subscriber growth.
Selling, general and administrative expense decreased primarily as a result
of decreased marketing and advertising costs.
Depreciation and amortization increased $2.3 million or 4.6% to $53.2
million for the year ended December 31, 1997 as compared to the same period in
1996 primarily as a result of increased capital expenditures and acquisitions.
Interest expense increased $3.7 million or 24.5% to $18.7 million as a
result of increased interest rates and debt balances. We also recorded a $1.4
million write-off of deferred financing costs in 1997 relating to Bresnan
Communications Company's amendment of its old credit facility.
Operating income and net earnings increased $21.8 million or 61.0% and
$18.0 million or 90.6%, respectively, to $57.5 million and $37.8 million,
respectively, for the year ended December 31, 1997 as compared to the year ended
December 31, 1996 as a result of acquisitions, rate increases and other revenue
increases, offset slightly by increases in programming expense, operating
expense and depreciation and amortization.
EBITDA increased $24.1 million or 27.9% to $110.8 million for the year
ended December 31, 1997 as compared to the same period in 1996. The increase was
primarily the result of the items described above. EBITDA margin increased from
40.0% to 44.8%, primarily as a result of the items described above.
42
<PAGE> 47
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, we made capital expenditures
of $7.9 million as we continued to upgrade the cable systems transferred to us
by TCI and rolling out digital cable and advanced analog cable services to both
our existing systems and the cable systems transferred to us by TCI. During the
year ended December 31, 1998, we made capital expenditures of $58.6 million as
compared to $33.9 million for the same period during the year ended 1997 as we
began upgrading the cable systems contributed to us by TCI and rolling out
digital cable and advance analog cable services to all of our cable systems. Our
business requires substantial cash for operations and capital expenditures. In
addition, we have followed a strategy of expansion through selective
acquisitions of cable television systems. To date, cash requirements have been
funded by cash flow from operating activities and by borrowings and the
financings which occurred on February 2, 1999.
As part of its capital investment program, we plan to invest, over the next
three years,
(1) approximately $82.9 million to upgrade system architecture and
capacity primarily in the cable systems contributed to us by TCI, complete
return activations and deploy additional fiber and
(2) approximately $38.8 million to interconnect certain of our
systems.
We have budgeted approximately $124.7 million for capital expenditures in
1999. Our capital expenditures are expected to consist of the following:
(1) approximately $68.6 million to upgrade system architecture and
capacity primarily in our systems transferred to us by TCI, complete return
activations, deploy additional fiber and to interconnect certain of our
systems,
(2) approximately $14.7 million to purchase digital and advanced
analog addressable converters,
(3) approximately $7.8 million to launch high-speed Internet access
and telephony services, and
(4) approximately $33.6 million for ongoing replacement and other
capital expenditures. We expect to fund these expenditures through cash
flow from operations and additional borrowings under our credit facility.
Cash provided by operating activities was $10.9 million for the three
months ended March 31, 1999, a decrease of $15.7 million from the same period in
1998. This decrease was primarily a result of increased debt servicing costs
associated with the financing of our transactions with TCI. Cash provided by
operating activities was $102.4 million for the year ended December 31, 1998, an
increase of $9.8 million from the same period in 1997. This increase was
primarily a result of basic and "preferred basic" tier rate increases and
subscriber growth. Cash provided by operating activities was $92.5 million for
the year ended December 31, 1997, an increase of $13.4 million from the same
period in 1996. This increase was primarily a result of the increase in our net
earnings which was primarily a result of subscriber growth, both from
acquisitions and internal growth, and basic and preferred basic tier rate
increases, offset slightly by an increase in our receivables.
As part of our transactions with TCI, we became liable for assumed TCI's
debt in an aggregate amount of $708.9 million. The net proceeds from the
financings related to the transfer of cable systems from TCI to us and the cash
contribution from Blackstone were used to pay amounts outstanding under Bresnan
Communications Company's credit facility, the promissory note in favor of TCI
and assumed TCI's debt. As of March 31, 1999, we have borrowed approximately
$501.6 million under our credit facility and would have the ability to borrow an
additional $144.9 million in revolving loans under this facility, subject to the
covenants contained therein, after giving effect to the transfer of cable
systems by TCI and the related financings. We expect to continue to borrow funds
under our credit facility. We may use such borrowings for general purposes, such
as capital expenditures, and to finance acquisitions. In addition, we may borrow
additional funds in connection with our joint venture with AT&T. We have
evaluated and expect to continue to evaluate possible strategic acquisitions and
dispositions of related businesses and assets, some of which may be significant,
on an ongoing basis and at any given time we may be engaged in discussions or
negotiations or enter into agreements with respect thereto. In the event that we
enter into a definitive agreement with respect to any acquisition or joint
venture, we may require additional financing.
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<PAGE> 48
We have entered into fixed interest rate exchange agreements to effectively
fix or set maximum interest rates on portions of our floating rate long-term
debt. We are exposed to credit loss in the event of nonperformance by the
counterparties to the fixed interest rate exchange agreements. These exchange
agreements have been entered into with a number of the institutions that are
lenders under Bresnan Communications Company's old credit facility. As of March
31, 1999, the fixed interest rate exchange agreements effectively fix or set a
maximum interest rates on an aggregate notional principal amount of $110.0
million with a rate between 7.84% and 8.08% upon the occurrence of certain
events. The expiration dates of the exchange agreements range from August 25,
1999 to April 3, 2000. Following the consummation of the transactions with TCI,
the related financings and the application of the net proceeds, we intend to
keep in place these fixed interest rate exchange agreements. The difference
between the fair market value and the book value of long-term debt and the
exchange agreements as of March 31, 1999 was not material.
Management believes that, after giving effect to the TCI transactions and
the related financings and based on our current level of operations, cash flow
provided from operating activities, together with expected availability under
our subsidiaries' credit facility, subject to the covenants contained in that
facility, will be sufficient to enable us to service indebtedness, make capital
expenditures and meet operating costs and expenses for the next 18 months. If
and when appropriate, we or our affiliates may elect to incur additional
indebtedness or to raise equity in the public or private markets.
QUANTITATIVE AND QUALITATIVE MARKET RISK
Bresnan Communications Group nor its predecessor engage in the trading of
derivatives. We manage our overall exposure to fluctuations in interest rates by
issuing both fixed- and floating-rate debt instruments and by entering into
interest rate hedging transactions to achieve a targeted mix within our debt
portfolio.
Of our total debt outstanding at March 31, 1999, all of it is fixed-rate
debt, except for the senior credit facility of approximately $501 million. As a
result, our debt which is subject to interest rate exposure totaled $501 million
on March 31, 1999. A one percent increase in interest rates would increase our
annual interest expense related to all our variable debt by approximately $5
million. Management considers it unlikely that interest rate fluctuations
applicable to these instruments will result in a material adverse effect on our
financial position, results of operations or liquidity. We have effectively
converted $110 million of variable-rate debt to fixed-rate debt through the use
of interest rate swaps that set a maximum interest rate at approximately 8%.
Our operations and expenses are all incurred in the United States and,
therefore, we have no foreign currency exposure.
YEAR 2000
During 1998 and the first quarter of 1999, TCI and Bresnan Communications
Company continued comprehensive efforts to assess and correct their computer
systems to ensure that the systems, software and equipment recognize, process
and store information in the year 2000 and thereafter. Such year 2000 remedial
efforts, which encompass the cable systems contributed by TCI and our cable
systems, include an assessment of their most critical systems, such as customer
service and billing systems, headends and other cable plant, business support
operations, and other equipment and facilities. TCI and Bresnan Communications
Company also continued our efforts to verify the year 2000 readiness of their
significant suppliers and vendors and continued to communicate with significant
business partners and affiliates to assess our partners and affiliates' year
2000 status.
TCI and Bresnan Communications Company has formed year 2000 program
management teams to organize and manage its year 2000 remedial efforts. The
program management teams are responsible for overseeing, coordinating and
reporting on their respective year 2000 remedial efforts. Since the transfer of
cable systems from TCI, assessment and the remediation of year 2000 issues for
the systems transferred to us by TCI has become our responsibility. We are
continuing the approach of the respective project teams since we obtained the
cable systems from TCI.
The program management teams have defined a four-phase approach to
determining the year 2000 readiness of their respective internal systems,
software and equipment. This approach is intended to provide a detailed method
for tracking the evaluation, repair and testing of their respective systems,
software and equipment.
44
<PAGE> 49
Phase 1 -- Assessment, involves the inventory of all systems, software and
equipment and the identification of any year 2000 issues. Phase 1 also includes
the preparation of the work plans needed for remediation.
Phase 2 -- Remediation, involves repairing, upgrading and/or replacing any
non-compliant equipment and systems.
Phase 3 -- Testing, involves testing their respective systems, software,
and equipment for year 2000 readiness, or in certain cases, relying on test
results provided to TCI or Bresnan Communications Company
Phase 4 -- Implementation, involves placing compliant systems, software and
equipment into production or service.
As of March 31, 1999, the combined status of TCI's and Bresnan
Communications Company's projects related to those systems were as follows:
Phase 1 of the projects was substantially complete, with expected
completion by July 1999;
Phase 2 was underway with expected completion by August 1999; and
Phases 3 and 4 were just beginning, with expected completion dates in
September 1999.
The completion dates set forth above are based on current expectations.
However, due to the uncertainties inherent in year 2000 remedial efforts, no
guarantees can be given that the projects will be completed on these dates.
The project management teams are completing an inventory of their important
systems with embedded technologies and are currently determining the correct
remedial approach. The embedded technologies assessments are expected to be
complete by July 1999.
Third Party Systems, Software and Equipment
The project management teams continue their surveys of significant
third-party vendors and suppliers whose systems, services or products are
important to their operations, including suppliers of addressable controllers
and set-top boxes, and the provider of billing services. The year 2000 readiness
of such providers is critical to continued provision of cable television
service. The project management teams have received information that the most
critical systems, services or products supplied to their respective cable
television systems by third parties are either year 2000 ready or are expected
to be year 2000 ready by the third quarter of 1999.
In addition to the survey process described above, management of TCI and
Bresnan Communications Company have identified their most critical
supplier/vendor relationships and have instituted a verification process to
determine the vendors' year 2000 readiness. Such verification includes, as
deemed necessary, reviewing vendors' test and other data and engaging in regular
conferences with vendors' year 2000 teams. TCI and Bresnan Communications
Company are testing to validate the year 2000 compliance of certain critical
products and services.
Costs
To date, year 2000 costs incurred have not been material. Management of TCI
and Bresnan Communications Company currently estimate our remaining year 2000
costs to be at least $4.4 million. Although no assurances can be given,
management currently expects that:
(1) cash flow from operations will fund the costs associated with year
2000 compliance, and
(2) the total projected cost associated with the year 2000 programs
will not be material to our financial position, results of operations or
cash flows.
Contingency Plans
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. Management
believes that our year 2000 program will significantly reduce risks associated
with the changeover to the year 2000 and is currently developing certain
contingency plans to minimize the effect of any potential year 2000 related
disruptions. The risks and the uncertainties discussed
45
<PAGE> 50
below and the associated contingency plans relate to systems, software,
equipment, and services that TCI and Bresnan Communications Company have deemed
critical in regard to customer service, business operations, financial impact or
safety.
The failure of addressable controllers contained in the cable television
system headends could disrupt the delivery of premium services to customers and
could necessitate crediting customers for failure to receive such premium
services. In this unlikely event, management expects that it will identify and
transmit the lowest cost programming tier. Unless other contingency plans are
developed with the program suppliers, premium and adult content channels would
not likely be transmitted until the addressable controller failure has been
repaired.
Customer service networks and/or automated voice response systems failure
could prevent access to customer account information, hamper installation
scheduling, and disable the processing of pay-per-view requests. We plan to have
our customer service representatives answer telephone calls from customers in
the event of outages and expect to retrieve needed customer information manually
from the billing service provider.
A failure of the services provided by billing systems service providers
could result in a loss of customer records which could disrupt the ability to
bill customers for a protracted period. We plan to prepare electronic backup
records of their customer billing information prior to the year 2000 to allow
for data recovery and to continue to monitor the year 2000 readiness of our key
customer-billing suppliers.
Advertising revenue could be adversely affected by the failure of certain
equipment which could impede or prevent the insertion of advertising spots in
cable television programming. Management anticipates that it can minimize such
effect by manually resetting the dates each day until the equipment is repaired.
Security and fire protection systems failure could leave facilities
vulnerable to intrusion and fire. Management expects to return its systems to
normal functioning by turning the power off and then on again. Management also
plans to have additional security staff on site and plans to implement a backup
plan for communicating with local fire and police departments. Also, certain
personal computers interface and control elevators, escalators, wireless
systems, public access systems and certain telephony systems. In the event such
computers cease operating, turning the power off then on again is expected to
resume normal functioning. If turning the power off then on again does not
resume normal functioning, management expects to resolve the problem by
resetting the computer to a pre-designated date which precedes the year 2000.
In the event that the local public utility cannot supply power, we expect
to supply power for a limited time to cable headends and office sites through
backup generators.
The financial impact of any or all of the above worst-case scenarios has
not been and cannot be estimated by management due to the numerous uncertainties
and variables associated with such scenarios.
INFLATION
The net impact of inflation on our results of operations has not been
material in the last three years due to the relatively low rates of inflation
during this period. If the rate of inflation increases, we may increase
subscriber rates to keep pace with the increase in inflation, although there may
be timing delays and other market considerations.
46
<PAGE> 51
BUSINESS
THE COMPANY
We are a leading operator of cable television systems in small- and
medium-sized communities in the midwestern United States. Currently, we operate
cable television systems in Michigan, Minnesota, Nebraska, Wisconsin, Kansas and
Illinois. As of March 31, 1999, our cable television systems passed
approximately 973,000 homes and served approximately 656,000 basic subscribers,
ranking us among the 20 largest multiple system operators in the United States.
We assemble our cable systems in geographic clusters, emphasize customer
satisfaction and maintain strong community relations. As a result, we have one
of the highest basic subscriber penetration rates in the industry. As of March
31, 1999, we served approximately 67.4% of our homes passed.
In June 1999, we entered into an agreement to sell nearly all of our
business to Charter Communications for a purchase price of approximately $3.1
billion in cash and stock, which will be reduced by the assumption of our debt
at closing. The cable systems to be acquired are located in Michigan, Minnesota,
Wisconsin and Nebraska. These cable systems are expected to have approximately
690,000 customers by the end of 1999. We anticipate that this transaction will
close in early 2000.
BUSINESS STRATEGY
Focusing on Small- and Medium-Sized Communities. We focus on serving
small- and medium-sized communities located primarily in four midwestern states:
Michigan, Minnesota, Wisconsin and Nebraska. Management believes that the cable
television systems in these communities are less susceptible to competition from
direct broadcast satellite providers, due to the importance of local programming
to residents in these communities, and from cable overbuilders, due to the
relatively small size of these communities. Our strategy of upgrading systems
and aggressively launching new and enhanced services should also limit consumer
demand for alternative multichannel television and high-speed Internet service
providers. Additionally, we believe that residents of the areas that we serve
generally have a greater sense of community than residents of metropolitan
areas, and as a result are more receptive to our extensive community relations
and customer satisfaction initiatives. Consequently, our management believes
that our brand name is well established with our subscribers, enhancing our
ability to launch new services and bundle service offerings.
Interconnection of Cable Television Systems. We have pursued the
acquisition and development of cable television systems in communities that are
within close proximity to our existing systems in order to maximize economies of
scale and operating efficiencies. Such operating efficiencies include
centralized billing and the sharing of general management, customer service,
marketing and technical support. We intend to interconnect systems with fiber
optic cable, enabling the consolidation of our network facilities or headends.
Headend consolidation facilitates the launch of new and enhanced services, such
as digital cable and high-speed Internet services, in smaller communities than
would otherwise be economically attractive, by allowing us to spread the capital
and operating costs associated with these services over a larger subscriber
base. The integration of the cable systems we obtained from TCI is expected to
significantly enhance the clustering and interconnection of our cable television
systems. We intend to completely interconnect our headends within three years
allowing us to also eliminate several existing headends. Upon completion of this
program, the number of headends required to serve our subscribers will be
reduced from 128 to 16 and approximately 72% of our subscribers will be served
from six central headend facilities.
Upgrading to State-of-the-Art Technology. We made an early commitment to
upgrade our cable systems in order to increase programming choices, provide new
and enhanced services and improve overall customer satisfaction. Reflecting this
commitment, as of March 31, 1999, approximately 72.2% of the basic subscribers
in our systems were served by a hybrid of fiber optic and coaxial cable capable
of delivering high capacity broadband services and approximately 61.2% were
served by 750 MHZ capacity plant. Our management believes that the cable
systems, other than those we received from TCI, are technologically advanced
beyond the systems operated by most other multiple system operators. We plan to
invest, over the next three years, approximately $82.9 million to upgrade our
cable system and capacity, primarily in the TCI
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systems we recently acquired, complete return activations and deploy additional
fiber optic cable. Many of the cable systems transferred to us by TCI have
already been upgraded to facilitate the launch of digital cable service. As of
March 31, 1999, 51% of the subscribers to the cable systems transferred to us by
TCI were served by 550 MHZ capacity or greater plant.
Providing New and Enhanced Services. The improved clustering of our cable
television systems combined with upgrades to state-of-the-art technology will
allow us to accelerate the introduction of new and enhanced services including
the following:
- digital cable service, which allows for a significant increase in channel
capacity and enhanced offerings, including near-video-on-demand, and is
available to a majority of our basic subscribers;
- high-speed Internet service, which has been launched in ten markets under
either the "Bresnan@Home" brand or the proprietary "BresnanLink" brand;
- wide area network and dedicated data circuits;
- digital advertising.
- and regional toll and long distance resale services, which have been
launched in the Upper Michigan cluster.
Our management believes that these new and enhanced service offerings
attract new subscribers, enhance revenue and cash flow per subscriber, increase
customer loyalty and reduce customer turnover, or churn.
Maintaining Strong Community Relations. Our ongoing community relations
initiatives in the markets served by our existing systems have resulted in
widespread brand recognition and numerous industry awards. Our management
believes that maintaining strong community relations will continue to be
important to our long-term success. Our community-oriented initiatives include
educational programs and the sponsorship of programs and events recognizing
outstanding local citizens. Our management believes that our ongoing community
relations initiatives result in consumer and governmental goodwill and name
recognition which have increased customer loyalty and will facilitate future
efforts to provide telecommunications services. Our management intends to
implement these initiatives in the cable system transferred to us by TCI.
Emphasizing Customer Satisfaction. In order to maximize customer
satisfaction, we strive to provide reliable, high-quality service offerings,
superior customer service and attractive programming choices at reasonable
rates. We have implemented stringent internal customer service standards, which
our management believes meet or exceed those established by the National Cable
Television Association. We have received six Beacon Awards in the past six years
from the Cable Television Public Affairs Association. Our most recent award
recognized our "On Time Guarantee Program" as the outstanding customer relations
program by a multiple system operator in the United States. Additionally, our
management believes that by upgrading our cable television systems we have
increased the quality and reliability of our services, resulting in increased
customer satisfaction. Management believes that our customer service efforts
have contributed to our subscriber growth, the acceptance of its new and
enhanced service offerings and ongoing patronage by existing subscribers. We
plan to provide a level of emphasis on customer satisfaction in the cable
systems transferred to us by TCI similar to the level that we have provided in
our cable systems in the past.
THE TCI TRANSACTIONS
Reflecting our management's strategy of acquiring and developing cable
television systems in regional clusters, our affiliates entered into a
contribution agreement with TCI and Blackstone on June 3, 1998. As a result of
that agreement, TCI transferred to us several cable systems which serve
approximately 416,000 basic subscribers in small- and medium-sized communities.
These communities are largely adjacent to our existing systems. We also agreed
to assume some of TCI's outstanding debt in connection with such agreement.
Also in connection with the contribution agreement, Blackstone contributed
approximately $136.5 million in cash. We and our affiliates repaid existing debt
and the debt we assumed from TCI with the net
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proceeds from Blackstone's contribution and other financings related to the
transfer of the cable systems from TCI.
TCI, Blackstone, and William J. Bresnan, collectively with management,
indirectly beneficially own approximately 50.0%, 39.8% and 10.2%, respectively,
of our outstanding equity interests.
DESCRIPTION OF OPERATING REGIONS
To manage and operate our cable television systems, we have established
five operating regions: Lower Michigan, Upper Michigan, Minnesota, Wisconsin and
Nebraska. Within each region, certain groups of cable television systems have
been or are expected to be interconnected. As of March 31, 1999, and giving
effect to the completion of our planned system interconnection and headend
elimination program, approximately 99.7% of our basic subscribers would have
been served by six central headend facilities. The following table and the
discussion that follows provide an overview of selected financial, operating and
technical data for each of our operating regions as of and for the three months
ended March 31, 1999.
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1999
----------------------------------------------------------------
LOWER UPPER
MICHIGAN MICHIGAN MINNESOTA WISCONSIN NEBRASKA TOTAL
-------- -------- --------- --------- -------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenue........................... $17,544 $7,696 $23,176 $12,250 $6,629 $67,295
Average monthly basic revenue per
average basic subscriber(a)..... 26.38 27.22 27.04 27.51 27.86 27.04
Average monthly total revenue per
average basic subscriber(b)..... 34.23 37.35 34.85 36.58 36.49 35.41
OPERATING AND TECHNICAL DATA
(END OF PERIOD):
Homes passed...................... 274,964 94,478 336,907 179,646 87,198 973,193
Miles of plant.................... 5,357 1,810 4,468 1,878 1,126 14,639
Density(c)........................ 51 52 75 96 77 66
Basic subscribers................. 178,532 68,379 235,978 112,155 60,520 655,564
Basic penetration................. 64.9% 72.4% 70.0% 62.4% 69.4% 67.4%
Premium units..................... 74,646 34,617 75,960 142,143 34,230 261,596
Pay-to-basic ratio(d)............. 41.8% 50.6% 32.2% 37.6% 56.6% 39.9%
Headends.......................... 41 10 40 9 28 128(e)
Planned headend eliminations...... 63 9 36 8 23 112(e)
Plant bandwidth(f):
330 MHZ or less................... 22.5% 2.5% 12.6% 23.1% 13.4%
350-400 MHZ....................... 11.6% 1.3% 14.2% 0.0% .7% 8.4%
450-550 MHZ....................... 34.5% 22.9% 20.4% 47.9% 76.1% 34.4%
625-750 MHZ....................... 31.4% 74.3% 52.7% 50.1% 0.0% 43.9%
</TABLE>
- ---------------
(a) Represents average monthly revenue from basic programming services for the
three months ended March 31, 1999 divided by the number of average basic
subscribers for the period.
(b) Represents average monthly total revenue for the three months ended March
31, 1999 divided by the number of average basic subscribers in each period.
(c) Represents homes passed divided by miles of plant.
(d) Pay-to-basic ratio measures premium units as a percentage of basic
subscribers.
(e) We have 128 headends prior to eliminations and 112 planned headend
eliminations.
(f) Represents percentage of basic subscribers within a region served by the
indicated plant bandwidth. Approximately 61% of our basic subscribers are
served by plant of 550 MHZ or greater.
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LOWER MICHIGAN REGION. After completion of planned interconnects, we
expect that approximately 177,740 or 99.6%, of our basic subscribers located in
the Lower Michigan Region will be served by one central headend facility.
The Lower Michigan Region consists of the Bay City, Saginaw, Petoskey
and Luddington areas.
Saginaw County is the center of agriculture, commerce and industry in
central Michigan. Numerous manufacturing companies are based or have
facilities in the area. Saginaw Township and Thomas Township are rapidly
growing communities where we believe there will be strong demand for our
high-speed Internet service.
In the cities of Bay City and Midland, we operate a 750 MHZ cable
system, a substantial portion of which is two-way activated. In October
1998, we launched our high-speed Internet service in these cities, and have
already achieved a penetration rate in excess of 1% of two-way activated
homes. We have a contract with Delta College and a number of other
businesses to provide data and telecommunications services.
The economy of Petoskey is primarily driven by tourism and
manufacturing. Many families maintain second homes in this area, due to the
year round resort attractions, such as golf and skiing. Most households
maintain their cable television service throughout the year, which keeps
customer turnover low in this cluster.
UPPER MICHIGAN REGION. As of March 31, 1999, the Upper Michigan region was
comprised of approximately 68,379 basic subscribers served by 10 headends. In
1997, we completed interconnects and, as of March 31, 1999, approximately
51,300, or 74%, of the basic subscribers in this cluster were served by one
central headend facility.
Industry in the Upper Michigan area includes tourism, retail sales,
mining and manufacturing. Several universities, including Northern Michigan
University, Michigan Technological University and Lake Superior State
University are located in the area.
We launched our high-speed Internet service in Marquette in July 1997.
We subsequently launched service in additional systems in the Upper
Michigan region, achieving penetration rates from 1% to 5% of two-way
activated homes. We have also interconnected universities and school
districts in the area with fiber in order to provide high-speed Internet
service and distance learning services. In 1997, we created a high-speed
link connecting the Escanaba Daily Press and the Iron Mountain Daily News
to their printing facility in another city. We also provide virtual private
network services between three office locations for a state employment
agency. Our virtual private networks are private networks configured within
a public network. These networks physically share trunks with other
customers, but access control and encryption of the network maintain
privacy. Additionally, we launched digital cable service in the Upper
Michigan cluster in August 1998.
MINNESOTA REGION. Our Minnesota Region consists of two interconnects which
we refer to as: the Rochester interconnect and the St. Cloud interconnect. After
we complete our the interconnections we expect that approximately 235,978 or
99.8%, of our basic subscribers located in the Minnesota Region will be served
by two central headend facilities.
Rochester Interconnect. As of March 31, 1999, the Rochester
interconnect was comprised of approximately 111,843 basic subscribers
served by 10 headends. After we complete our planned interconnects within
the Rochester interconnect, we expect that eight headends will be
eliminated and that approximately 111,533, or 97.7%, of the basic
subscribers in this cluster will be served by one central headend facility.
For each of the past four years Rochester has been named by USA Today
as one of the areas in the United States with the highest quality of life,
highlighted by low crime and unemployment rates. The economy of the
Rochester area is supported by the presence of several universities, as
well as numerous technology, healthcare and agriculture companies. For
example, the city of Rochester serves as the headquarters for the Mayo
Clinic, one of the preeminent medical facilities in the world.
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We also began offering high-speed Internet service in Rochester in
December 1998 achieving penetration of over one percent as of March 31,
1999. We believe that the high education levels among residents and the
presence of universities in this area indicate strong potential demand for
its high-speed Internet service. We launched digital cable service in
December 1997 and, as of March 31, 1999, such service was available to over
77% of the basic subscribers served by the Rochester interconnect.
St. Cloud Interconnect. As of March 31, 1999, the St. Cloud
interconnect was comprised of approximately 124,135 basic subscribers
served by 30 headends. After we complete our planned interconnects, we
expect that 28 headends will be eliminated and that approximately 123,935,
or 99.8%, of the basic subscribers in the St. Cloud interconnect will be
served by one central headend facility.
St. Cloud is the center of one of Minnesota's fastest growing
metropolitan areas and is located along Interstate 94, northwest of
Minneapolis/St. Paul. St. Cloud is home to three universities. The granite,
printing and lens manufacturing industries are important to St. Cloud's
local economy.
We have installed broadband connections to provide cable television
and high-speed Internet service to the dormitories at Southwest State
University in the town of Marshall. We launched our high-speed Internet
service in Marshall in June 1998 and expect to launch this service in St.
Cloud in the second quarter of 1999. We launched digital cable service in
the St. Cloud interconnect in March 1998 and, as of March 31, 1999, it was
available to approximately 34% of the basic subscribers located in this
interconnect.
WISCONSIN REGION. We expect that our Wisconsin Region will be served by a
single interconnected cable system serving the Madison and Walworth/Fontana
areas. After we complete our planned interconnects within the Madison cluster,
we expect that eight headends will be eliminated and that approximately 112,155
or 100%, of our basic subscribers located in the Wisconsin Region will be served
by one central headend facility.
The centerpiece of the Wisconsin region is the city of Madison.
Madison is the state capital of Wisconsin and home of the main campus of
the University of Wisconsin, which accounts for a significant portion of
the area's workforce. Federal, state and county governments in this area
employ approximately 20,000 people. Numerous small- and medium-sized
manufacturing and service firms are also located in the area.
We believe that the presence of numerous businesses and the University
of Wisconsin in the Madison cluster indicate strong potential demand for
high-speed Internet service, virtual private networks, wide area networks
and dedicated data services.
NEBRASKA REGION. After we complete our planned interconnection of the
cable systems within this region, we expect that 23 headends will be eliminated
and that approximately 60,104, or 99.3%, of the basic subscribers in this region
will be served by one central headend facility.
The Nebraska economy is based primarily on agriculture, and numerous
sugar processing plants are located throughout our service area. The
largest railroad switching yard in the United States is located in North
Platte. Numerous junior colleges and regional hospitals are major employers
in the region.
We have launched digital cable service in many of the larger systems
making it available to over 65% of the basic subscribers in the Nebraska
Region as of March 31, 1999, and expect to launch digital cable service in
the near future in many of the remaining systems.
TECHNOLOGY OVERVIEW
In our ongoing system upgrades we plan to use hybrid fiber coaxial cable,
or HFC, as our standard. HFC uses a combination of fiber optic cables and
coaxial cables to deliver cable television services to our customers. In most of
our systems, we deploy fiber optic cables to connect our base of operations, or
headends, to individual nodes, a facility to amplify signals. Each node serves
an average of 600 homes or commercial buildings. We use coaxial cable to connect
the node to the home or building. We believe that this network
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<PAGE> 56
design provides high capacity and superior signal quality. This design also
enables us to provide the newest forms of telecommunications services to our
subscribers.
The primary advantages of using HFC over traditional coaxial cable networks
include:
- increased channel capacity;
- better signal quality and reliability due to a reduction in the number of
amplifiers in cascade from the headend to the home;
- more network capacity to provide high-speed Internet services because of
the reduced number of homes per node;
- fewer disruptions in the network;
- avoidance of interference problems due to reversal of signals; and
- minimized ongoing network maintenance costs.
Using HFC in our cable systems enables us to offer new and enhanced
services, including:
- additional channels and tiers;
- expanded pay-per-view options;
- high-speed Internet service;
- wide area network and dedicated data circuits; and
- digital advertising.
Using HFC also provides us with a high-quality network infrastructure of
suitable quality to offer telephony services using our own facilities, although
we will have to make additional capital investments before we can offer these
services to our subscribers.
We made an early commitment to upgrade our systems in order to increase
programming choices, provide new and enhanced services and improve overall
customer satisfaction. Reflecting this commitment, we have substantially
completed the upgrade of our systems, excluding the systems we acquired from
TCI, by utilizing HFC. We serve approximately 61% of the basic subscribers in
these systems with 750 MHZ capacity plant, with an average of approximately 600
homes per node which can further be reduced to 150 homes. We are generating
incremental revenue by offering new and enhanced services such as digital cable
service, advanced analog cable service and high-speed Internet service to
subscribers in upgraded systems. We intend to activate most of these systems for
two-way data transmission.
As part of our capital investment program, we plan to invest, over the next
three years, approximately $82.9 million to upgrade our system and capacity,
primarily in the systems transferred to us by TCI, complete return activations,
deploy additional fiber and approximately $38.8'million to interconnect certain
of our systems. Upon completion of this capital investment program, we expect to
serve approximately 73% of the basic subscribers in its systems with 750 MHZ
capacity cable with a majority of these systems activated for two-way data
transmission.
Currently, approximately 62% of the systems contributed by TCI have been
upgraded to HFC and 51% have been upgraded to 550 MHZ or greater cable. Upon
completion of the capital investment program, we expect that approximately 92%
of our basic subscribers will be served by HFC and approximately 99.9% will be
served by 550 MHZ or greater plant. We anticipate that upon completion of our
planned system interconnection and headend elimination program, the number of
headends required to serve its basic subscribers will be reduced from 128 to 16
and that approximately 99.7% of our basic subscribers will be served from six
central headend facilities.
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We are continuing our extensive capital investment program, which has been
substantially completed in our systems other than the systems we received from
TCI. We now plan to focus on capital investments in the systems we received from
TCI. We believe that our investment will benefit us in several ways:
- extensive use of fiber optic technology reduces operating and maintenance
costs;
- consolidation and upgrade of headends improves system reliability and
reduces maintenance costs;
- use of addressable technology, including digital and advanced analog
converters, broadens choices for subscribers and develops new revenue
streams;
- use of two-way transmission capability facilitates the offering of
"impulse" pay-per-view, interactive data services and voice services; and
- use of digital compression, which greatly increases the number of
channels available to subscribers, augments current analog channel
offerings.
NEW AND ENHANCED SERVICES ARE AVAILABLE TO OUR SUBSCRIBERS
Our system upgrades have facilitated the introduction of the following new
and enhanced services to a substantial portion of our subscribers:
- Additional Channels and Tiers. As of March 31, 1999, we made digital
cable or advanced analog cable services available to approximately 72.4%
of our basic subscribers. Our digital program offerings are supplied
through TCI's digital compression service and include an interactive
program guide and the ability to offer up to 101 additional video
channels and 43 audio channels.
- Expanded Pay-Per-View Options. We currently offer pay-per-view
programming featuring movies, sports and special events. Our digital
pay-per-view offerings are supplied through Viewer's Choice and include
up to 30 channels. The use of Viewer's Choice permits the offering of a
number of current top video releases, commencing at 30-minute intervals
and encourages impulse buying. As we expand our digital cable service, we
intend to make our near-video-on-demand service available to a greater
number of subscribers.
- Residential High-Speed Internet Service. We offer a high-speed Internet
service, that provides local content and Internet access to our
subscribers. We market these services under the "Bresnan@Home" brand and
our own "BresnanLink" brand in portions of the following systems:
<TABLE>
<CAPTION>
SYSTEM LAUNCH DATE SERVICE
- ------ ----------- -------
<S> <C> <C>
Marquette, Michigan July 1997 BresnanLink
Escanaba, Michigan October 1997 BresnanLink
Houghton, Michigan April 1998 BresnanLink
Iron Mountain, Michigan May 1998 BresnanLink
Marshall, Minnesota June 1998 BresnanLink
Bay City/Midland, Michigan October 1998 @Home
Rochester, Minnesota December 1998 @Home
Winona, Minnesota March 1999 @Home
Duluth, Minnesota March 1999 BresnanLink
Mankato, Minnesota March 1999 BresnanLink
</TABLE>
As of March 31, 1999, high-speed Internet service was available to
approximately 215,000 two-way activated homes. We provided this service to
approximately 3,400 residential subscribers. We anticipate that we will be able
to offer this service in the St. Cloud, Minnesota, and Madison, Wisconsin,
markets in the second quarter of 1999. We are currently evaluating the potential
rollout of BresnanLink and Bresnan@Home services in other markets.
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- Business Data Services. We offer three primary services to the business
community through our BresnanLink service:
(1) high-speed Internet service,
(2) wide area networks and dedicated data circuits, and
(3) virtual private networks.
As of March 31, 1999, we signed multiyear contracts with business customers
that are expected to generate over $2 million in annual revenue.
We have made a significant commitment to the development of distance
learning. Distance learning delivers educational training programs to people
located at remote sites from the point of instruction by transmitting two-way
video and audio signals over our fiber optic networks. A number of school
districts have contracted with us to provide interactive television networks as
well as high-speed data and Internet service. We now connect almost 200
educational sites for distance learning.
- Digital Advertisement Insertion. We have purchased two state-of-the-art
regional digital video servers to enable us to provide digital
advertisement insertion. Digital advertisement insertion allows us to
insert advertisements targeted to specific segments of a community. As a
result, we expect digital advertisement insertion to provide us with
greater flexibility to offer regional and more targeted advertising. We
believe that our geographic clustering and favorable subscriber
demographics enable us to offer greater and more attractive audience
reach to advertisers.
- Telephone Services. We have launched regional toll and long distance
resale services to business customers in the Upper Michigan cluster. We
continue to evaluate the launch of these services in additional markets.
Furthermore, following the completion of the planned capital investment
program, management believes that we will be well positioned to provide
other voice services to residential and business customers in some of our
systems. The introduction of these services may require significant
capital investments. In addition, Bresnan Communications Company recently
entered into a letter of intent with AT&T to form a joint venture for the
introduction of local or any distance communications services, other than
mobile wireless services, video entertainment services and high speed
Internet services. The joint venture partners intend to offer these
services to residential consumers and certain small business customers
under the "AT&T" brand name using our cable infrastructure. We will be
required to apply for and obtain prior authorization from the Federal
Communications Commission and certain states to offer certain
telecommunications services, and to comply with a variety of ongoing
regulatory requirements applicable to telecommunications carriers.
- Other Services. We continue to evaluate new services on an ongoing basis
as these services become available, such as set top Internet service,
video games and video-on-demand, and add these services to our offerings
as they become commercially viable.
BRESNAN'S COMMITMENT TO COMMUNITY RELATIONS
We encourage local management to take a leadership role in community and
civic activities. The success of our local initiatives was cited in 1992 when
William J. Bresnan received the industry's Cable Television Public Affairs
Association President's Award, the industry's top award for excellence in public
affairs. In 1998, William J. Bresnan received the Distinguished Service Award
from the North Central Cable Television Association. Other examples of our
community relations activities are as follows:
- Local Origination Programs. In Midland and Bay City, Michigan, we
produce local origination programs, including Government Update and
Hometown News. Government Update is an interview program with political
leaders, including federal, state and local government officials, which
reinforces our relationship with these important members of the
community. Hometown News, which airs in conjunction with CNN Headline
News, features local news on people and events. Hometown News has won
several awards for programming excellence from the Cable Television
Public Affairs
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Association and the Michigan Cable Television Association. Orchids and
Onions, also honored by the Michigan Cable Television Association, is a
series of editorial opinion spots we produced, running in many of our
cable television systems in Michigan. The series highlights local people
and organizations and serves as a vehicle for us to comment on programs
and issues that concern the public interest. Certain of our cable
television systems televise local sports programs, telethons for the
arts, cultural and community activities and governmental public meetings,
including City Council sessions and voter forums and debates. We have won
several awards for its local productions.
- Community Relations Programs. Six years ago, we created an annual award
program in Upper Michigan to enhance our relationship with the senior
citizen community, a significant demographic segment in that market. The
Super Senior Award honors senior citizens who have made significant
contributions to their communities. Honorees are selected from a pool of
senior citizens nominated by local civic organizations, churches, senior
centers and friends. The program received statewide attention when
Hillary Rodham Clinton and Congressman Bart Stupak presented the Super
Senior Awards in June 1995.
- Educational and Family Viewing Programs. Our Education Program provides
certain public and private schools in its franchised areas with free
installation and monthly cable service and 525 hours per month of
commercial-free educational programming and data services. We began a
series of community workshops for parents and family members on media
literacy skills. The "Critical Viewing," or "Take Charge of Your TV,"
workshops are designed to teach parents and teachers how to critically
select programming appropriate for their children to watch. We have also
undertaken a partnership with The Discovery Networks to co-sponsor a
series of "Critical Viewing" workshops in all of the communities we
serve.
CUSTOMER SATISFACTION
We strive to provide reliable, high-quality service offerings, superior
customer service and attractive programming choices at reasonable rates. We have
implemented stringent internal customer service standards, which management
believes meet or exceed those established by the National Cable Television
Association. We offer 30-day trial periods for new subscribers, with a
money-back guarantee for subscribers who are not completely satisfied with their
cable television service, as well as 24-hour repair service. We believe that our
commitment to customer service has contributed and will continue to contribute
to our success relative to direct broadcast satellite providers, which we
believe are not currently able to provide a comparable level of installation and
repair service. Additionally, we believe that by upgrading our cable systems we
have increased the quality and reliability of our services, resulting in
increased customer satisfaction. Our management believes that our customer
service efforts have contributed to our subscriber growth, the acceptance of our
new and enhanced service offerings and ongoing patronage by existing
subscribers. We plan to provide a similar level of emphasis on customer
satisfaction in the cable systems that were transferred to us by TCI.
SALES AND MARKETING
We seek to increase penetration levels for our basic, preferred basic,
digital and advanced analog, premium and ancillary services through a variety of
marketing, branding and promotional strategies. We also seek to maximize our
revenue per subscriber through the use of tiered packaging strategies to market
premium services and to develop and promote niche programming services. We
regularly use targeted telemarketing campaigns to sell these tiers and services
to our existing subscriber base. Our customer service representatives are
trained and given the incentive to use their daily contacts with subscribers as
opportunities to sell our new service offerings.
Due to the nature of the communities we serve, we are able to market our
services in ways not typically used by urban cable operators. We market our
products and services to our subscribers at our local offices where many of our
subscribers pay their cable bills in person. Examples of our in-store marketing
include the promotion of premium services as well as display stands that allow
subscribers to try our high-speed Internet service and the DMX digital music
product. We also aggressively promote our services utilizing both broad
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and targeted marketing strategies, including outbound telemarketing, direct
mail, cross-channel promotion and media advertising events.
We promote awareness of our brand through advertising campaigns and
community relations efforts. Involvement in and promotion of our distance
learning services also strengthen our brand recognition. As a result of our
branding efforts and consistent service, we believe we have developed a
reputation for quality and reliability in the communities served by our existing
systems. We intend to implement these strategies in the communities served by
the cable systems transferred to us by TCI.
We believe that these strategies are particularly effective due to our
regional clustering, which enables us to reach a greater number of potential
subscribers and increase our brand recognition with our marketing campaigns.
PROGRAMMING AND EQUIPMENT SUPPLY
Many cable television companies enter into contracts to obtain basic and
premium programming from program suppliers whose compensation typically is based
on a fixed fee per subscriber. Some program suppliers provide volume discount
pricing structures and offer marketing support to cable television operators.
Through an agreement with TCI, we are able to purchase substantially all of
our programming services at TCI's cost plus an administrative surcharge,
although we retain the option to purchase programming directly from other
parties in certain circumstances. Our management believes that these rates are
significantly lower than the rates we could obtain independently. The agreement
may be terminated by TCI under various circumstances, including in the event
that TCI does not own the required interest in us or upon an initial public
offering. We may not be able to purchase programming services at these rates in
the future. Other than TCI and providers of local broadcast programming, no
other single party provides a material portion of our programming. Programming
has historically been and is expected to be our largest single operating expense
item, accounting for approximately 33% of total operating costs and expenses
during the year ended March 31, 1999.
CUSTOMER RATES AND SERVICES
Our cable television systems typically offer five levels of programming
services:
- basic service;
- preferred basic service;
- digital or advanced analog service;
- premium services; and
- pay-per-view.
As of March 31, 1999, the basic service package consisted of local off-air
broadcast channels, regional broadcast channels, such as WGN, and public access
channels. The number of satellite services offered with the basic service
package varies among our cable television systems. As of March 31, 1999, the
monthly rate charged for the basic service package averaged $11.99. Rates for
the basic service packages in certain markets are currently subject to
government regulation.
Preferred Basic Service
The preferred basic service package consists of satellite-delivered
services such as ESPN, MTV, CNN, The Discovery Channel and USA Network, in
addition to regional sports services like Mid-West Sports. As of March 31, 1999,
the monthly rate charged for the preferred basic service package averaged $17.27
in addition to the monthly rate charged for the basic service package. As a
cable programming service tier, the preferred basic tier ceased being subject to
rate regulation on March 31, 1999, pursuant to the Telecommunications Act.
However, the FCC will continue to process complaints regarding rates for
Customer Programming Service tier services provided prior to March 31, 1999.
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Digital or Advanced Analog Service
As of March 31, 1999, the digital or advanced analog tier consisted of from
19 to 61 additional video channels. The tier is available at average monthly
rates of $13.00 for digital and $8.95 for advanced analog, including, in each
case, converter rental in addition to the monthly rate charged for the basic
service package.
Premium Services
Our premium services, include HBO, Cinemax, Showtime, The Disney Channel,
The Movie Channel, The Sundance Channel, Starz and Encore. We offer residential
DMX digital music product as a premium service. While all premium services are
not available in all markets, some combination of these services is available in
each of our markets. As of March 31, 1999, the individual retail rates for these
services ranged from $7.95 to $13.95 per month. Premium service packages, such
as the Showtime/The Movie Channel/ Encore package ($11.95 per month) and the
Showtime/The Movie Channel/Encore plus any additional premium service package
($19.95 per month), are available in certain of our markets. Rates for premium
services are currently exempt from governmental rate regulation.
Pay-Per-View Services
Our cable television systems typically offer pay-per-view special events
programming and certain of our cable television systems offer up to 29 channels
of pay-per-view feature films. The average per-film price is $3.95. Special
event prices vary considerably based on market demand and programming charges.
Pay-per-view services are not subject to governmental rate regulation.
High-Speed Internet Services
We offer high-speed Internet service in certain of our systems, through
either the "Bresnan@Home" brand or the proprietary "BresnanLink" brand, for
$39.95 per month, including cable modem rental.
COMPETITION
Cable systems, including ours, face competition from other competing cable
operators and from alternative methods of receiving and distributing television
signals, including:
- direct broadcast satellite;
- multiple channel distribution systems;
- master antenna television and satellite master antenna television
systems;
- data transmission;
- Internet service providers; and
- from other sources of news, information and entertainment such as off-air
television broadcast programming, newspapers, movie theaters, live
sporting events and home video products, including videotape cassette
recorders and digital video disc players.
The extent to which a cable system like ours is competitive depends in
part, upon that system's ability to provide, at a reasonable price to
subscribers, a greater variety of programming and other communications services
than those which are available off-air or through alternative delivery sources
and upon superior technical performance and customer service.
To date, we do not believe that we have lost a significant number of
subscribers or a significant amount of revenue to the systems of our
competitors. However, in the future, competition from these technologies may
have a negative impact on our cable television business. Moreover, mergers,
joint ventures and alliances among franchise, wireless or private cable
television operators, telephone companies and others may result in providers who
can compete directly with us by offering cable television and telecommunications
services in the markets that we serve. As advances are made in communications
technology and changes take place in the
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marketplace and in regulations governing the industry, other new technologies
may compete with the services that we offer. It is not possible to predict what
effects any additional competition may have on the cable television industry or
on our business and results of operations.
In addition, as we expand our business to include telecommunications
services, we will face competition from other telecommunications providers. Some
of the companies in the telecommunications industry have greater financial
resources, personnel resources and brand recognition than we do. They may also
have established long-standing relationships with regulatory authorities.
Overbuilds. Under the Cable Act of 1992, franchising authorities are
prohibited from granting exclusive cable television franchises and from
unreasonably refusing to award additional competitive franchises. As a result,
our cable television systems are operated under non-exclusive franchises granted
by local authorities. These franchises are subject to renewal and renegotiation
from time to time. Therefore, operators of cable television systems, including
us, may experience competition from other operators that overbuild, including
municipal authorities. Municipal authorities are permitted under the Cable Act
of 1992 to operate cable television systems in their communities without
franchises.
We are aware of overbuild situations in several of our cable television
systems, including the St. Cloud, Minnesota system, the Winona, Minnesota
system, the Marshall, Minnesota system and the Negaunee portion of the
Marquette, Michigan system. These systems provide service to approximately
41,000 basic subscribers, or approximately 6% of our total basic subscribers.
St. Cloud system. The St. Cloud system, which was contributed by TCI,
is being overbuilt by Seren, a subsidiary of Northern States Power Company,
which has begun construction. In response to this overbuild, TCI has
prioritized the upgrade of cable plant and the launch of new and enhanced
services in this system. TCI has added 40 new channels of compressed
digital cable and audio services and we are in the process of upgrading our
cable system to use 750 MHZ two-way HFC.
Winona system. The Winona system, which was contributed by TCI, is
being overbuilt by Hiawatha Broadband Company, which has partially
constructed a network passing approximately 4,000 homes. In response to
this overbuild situation, TCI has upgraded the plant in the Winona system
to use 625 MHZ two-way HFC and we plan to further upgrade this system to
750 MHZ in 1999.
Marshall system. In the Marshall system, Dakota Telecom Group has
been granted a franchise but has not yet begun construction of a competing
cable system. We have responded to this overbuild by completing an upgrade
of our Marshall system to use 750 MHZ two-way HFC.
Marquette system. A portion of our Marquette system covering
approximately 1,700 homes was overbuilt by the City of Negaunee prior to
our acquisition of this system in 1984.
Other systems. We recently became aware of requests for competitive
franchises in our Sauk Center, Minnesota system, Park Rapids, Minnesota
system, Ely, Minnesota system, and Willmar, Minnesota system. These systems
serve an aggregate of approximately 13,000 basic subscribers, or
approximately 2% of our total basic subscribers.
Constructing a competing cable system is a capital intensive process which
involves a high degree of risk. We believe that, in order to be successful, a
competitorIs overbuild would need to be able to serve the homes and businesses
in the overbuilt area on a more cost-effective basis than we do. Any of these
overbuild operations would require either significant access to capital or
access to facilities already in place that are capable of delivering cable
television programming.
We cannot predict the extent to which additional competition from
overbuilds will materialize or, if such competition materializes, the extent of
its effect on our business and results of operations.
Broadcast Television. In most of the areas served by our cable systems,
our customers can also receive a variety of terrestrial off-air broadcast
television programming. In each of our markets, there are typically three to ten
VHF/UHF broadcast channels that provide local, network and syndicated
programming free of charge. However, the quality of the reception is often poor
and the selection of programming generally quite limited.
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As such, we do not believe that off-air broadcast television has a material
impact on the operation of our cable systems. However, our cable television
systems in Marshall, Montevideo, and Duluth, Minnesota face competition from UHF
low power television service operators that provide services for approximately
$30 per month.
In the future, we may face competition from new broadcast television
technologies. The FCC has adopted regulations and policies for the issuance of
licenses for digital television, or DTV, to incumbent television broadcast
licensees. DTV is expected to deliver high definition television pictures and
multiple digital-quality program streams, as well as CD-quality audio
programming and advanced digital services, including data transfer and
subscription video. The FCC also has authorized television broadcast stations to
transmit textual and graphic information.
Alternative Video Distribution Systems. Cable television operators,
including us, also face competition from companies that provide video
programming using alternative technologies for receiving and distributing
television signals. The competitors using alternative video distribution systems
include direct broadcast satellite systems, multiple channel, multi-point
distribution systems and master antenna television and satellite master antenna
television systems.
Direct Broadcast Satellite Systems. Direct broadcast satellite providers,
which distribute programming to subscribers' receiving equipment using
high-powered satellite transmissions, are our biggest competitors. Currently,
there are two direct broadcast satellite providers that have launched services
that compete with the cable television services we provide in our service areas:
DirecTV, Inc. and EchoStar Communications Corp.
According to a recent FCC report concerning competition in the United
States video market, direct broadcast satellite providers and PRIMESTAR, Inc.
served, in the aggregate, approximately 7.0 million subscribers, constituting
9.4% of the multichannel video programing service market. Currently, franchised
cable operators continue to service 85% of the multichannel video programming
service market. While the effect of competition from these direct broadcast
satellite services cannot be predicted, there has been significant growth in
direct broadcast satellite subscribers nationwide. This competition may continue
as technology increases satellite transmitter power and decreases the cost and
size of equipment needed to receive these transmissions. In addition, direct
broadcast satellite providers are not subject to many of the regulations imposed
on franchised cable operators, like us, including rate regulation and franchise
fee payments. In some cases, direct broadcast satellite providers have been able
to obtain exclusive programming distribution rights.
The direct broadcast satellite industry is undergoing consolidation. Hughes
Electronics Corporation, the owner of DirecTV, has acquired PRIMESTAR's
approximately 2.3 million medium power satellite subscriber business and related
high power satellite assets. Hughes also recently acquired another direct
broadcast satellite provider, United States Satellite Broadcasting Corporation,
Inc. Hughes estimates that the combination of DirecTV, PrimeStar and USSB will
result in its direct broadcast satellite business serving more than 7 million
subscribers with more than 370 entertainment channels. In November 1998,
EchoStar announced that it will purchase satellite television assets from News
Corp. and MCI WorldCom, Inc., including an agreement for the transfer to
EchoStar of a direct broadcast satellite license, subject to appropriate
regulatory and shareholder approvals. The FCC approved this transfer on May 19,
1999. EchoStar believes that it will be able to transmit more than 500 channels
with its existing and new facilities. In addition, there are several companies
licensed or authorized to operate direct broadcast satellite systems who have
yet to begin service, including Televisa International, LLC., which the FCC has
authorized to offer service to subscribers in the United States via a Mexican
satellite. Others may announce their intention to enter the direct broadcast
satellite market in direct competition within our market areas.
We believe that our services will continue to have a competitive advantage
over direct broadcast satellite systems for the following reasons:
- our initial equipment and installation costs are significantly lower than
direct broadcast satellite technology;
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- direct broadcast satellite providers cannot broadcast local and regional
off-air signals, except in limited circumstances;
- different individuals in one household may not view different channels
simultaneously using direct broadcast satellite technology unless they
install additional receivers for each television set, usually at an
additional costs;
- direct broadcast satellite subscribers may lose their signal in extreme
weather conditions; and
- direct broadcast satellite providers have a limited ability to provide
interactive services.
The direct broadcast satellite industry is seeking to modify current law so
that they may transmit local channels to their subscribers.
Multiple Channel, Multi-Point Distribution Systems. Multiple channel
multi-point distribution systems, which use low power microwave frequencies to
transmit video programming over the air to subscribers, and which are also
referred to as wireless cable or wireless distribution services, compete with
our systems in Bay City, Michigan, Madison, Wisconsin, North Platte, Grand
Island and Beatrice, Nebraska. We do not currently believe that any of these
competitors is a material threat to our business and operations.
Wireless distribution services generally provide many of the programming
services provided by cable systems. In addition, digital compression technology
is likely to increase significantly the channel capacity of these systems.
However, in order for subscribers to obtain service from a multiple channel
multi-point distribution system, the subscriber must have an unobstructed line
of sight transmission path.
Multiple channel multi-point distribution systems generally charge lower
fees to subscribers since these systems typically offer fewer channels of
programming.
Master Antenna Television and Satellite Master Antenna Television. Master
antenna television and satellite master antenna television systems are small,
closed cable television systems which operate within hotels, apartment
complexes, condominium complexes and individual residences. These private cable
television systems can offer both improved reception of local television
stations and many satellite-delivered program services offered by franchised
cable television systems. Master antenna television and satellite master antenna
television systems have fewer regulatory burdens than traditional cable
television systems. In addition, unlike traditional cable television systems,
these private cable television systems have no requirement to service low
density or economically depressed communities.
The Telecommunications Act may reduce some of the advantages that master
antenna television and satellite master antenna television systems have had over
traditional cable television systems because the Telecommunications Act reduced
certain regulations applicable to franchise cable systems, such as rate
regulation of the cable programming service tier. However, master antenna
television and satellite master antenna television systems are not subject to
most of the cable regulation under the Communications Act of 1934, as amended,
which still impact traditional cable television systems.
Telephone Companies. We may also face competition from telephone
companies. The Telecommunications Act removed the barriers that prevented local
telephone exchange carriers, also known as local exchange carriers, from
providing a number of video services. For example, telephone companies may now
provide video programming directly to their customers in their telephone service
territory, subject to regulatory requirements. Some local exchange carriers have
begun to provide video programming services, both inside and outside of their
telephone service areas, using distribution methods that include using broadband
wire and wireless transmission facilities.
Local exchange carriers are not required, under some circumstances, to
obtain local franchises to deliver video programming services which puts cable
television systems at a competitive disadvantage. If local exchange carriers are
able to cross-subsidize their video and telephony services, cable television
systems may be further disadvantaged. We cannot predict whether video
programming ventures of local exchange carriers will succeed and any impact that
these ventures might have on our business or operations.
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We may also face competition from telephone companies in providing
interactive services, such as Internet services, data and other non-video
services. Local exchange carriers already provide many of these services to
their customers in some areas. We cannot predict whether telephone companies
will be successful in providing these services or any impact competition in
these areas might have on our business or operations.
Open Video Systems. By using an open video system, a local exchange
carrier, for example, may distribute video programming to subscribers within
their service region. An open video system is similar to a cable system in that
it provides an alternate avenue for the delivery of video programming. However,
unlike a cable system, the open video system operator must provide
non-discriminatory access to a portion of its channel capacity to unaffiliated
programmers. In January 1999, the Fifth Circuit reversed major portions of the
FCC's rules applicable to open video systems. The FCC has filed a petition for
rehearing of this decision.
Internet Video. Video programming may be distributed over the Internet or
other data channels for viewing on computer terminals. These systems use video
compression technologies and downloading of video data for later playback or
video streaming, which is a one-way data transmission that provides
uninterrupted motion. Due to bandwidth and other limitations this method of
video distribution does not yet produce programming that is comparable in
length, quality, or convenience to cable television service.
Public Utility Holding Companies. The Telecommunications Act authorizes
registered utility holding companies and their subsidiaries to provide video
programming services, even though these companies may be subject to the Public
Utility Holding Company Act. Electric utilities also have the potential to
become significant competitors in the video marketplace due to their established
networks of fiber optic transmission lines. In the last year, several utilities
have announced, commenced, or moved forward with ventures involving multichannel
video programming distribution.
FRANCHISES
Generally, we have to obtain franchises from local authorities in order to
provide cable service in the communities that we serve. As of December 31, 1998,
we have an aggregate of 488 cable television franchises. We believe that all of
our franchise relationships are satisfactory.
Franchises usually require that we pay fees to the issuing authority,
usually the local government to apply for and maintain our franchise. However,
franchising authorities may not impose annual franchise fees in excess of 5% of
the gross revenues obtained from subscribers located in the franchise area.
Additionally, cable system operators, including us, may renegotiate and modify
franchise requirements if warranted by changed circumstances. For the three
years ended December 31, 1998, we paid an average of approximately 4% of our
gross cable television revenues.
The table below illustrates the grouping of our franchises as of December
31, 1998:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------
NUMBER OF PERCENTAGE OF
EXPIRATION FRANCHISES TOTAL FRANCHISES
---------- ---------- ----------------
<S> <C> <C>
1999....................................................... 31 6.3
2000....................................................... 15 3.1
2001....................................................... 53 10.9
2002....................................................... 52 10.6
2003 and after............................................. 277 56.8
--- ----
Total...................................................... 428 87.7
=== ====
</TABLE>
As of December 31, 1998, we had 43 expired franchises, approximately 8.8%
of our total franchises. We are in the process of renewing our expired
franchises. In addition, 11 of our franchises have indefinite expiration dates.
We have six systems in which either no franchises are required to operate, there
exist no written agreements, or are being operated pursuant to extension
permits.
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The renewal of franchises is governed by the Communications Act of 1934, as
amended, which prohibits franchising authorities from unreasonably withholding
the renewal of a franchise. The renewal application is assessed on its own merit
and not as part of a comparative assessment of competing applications. If a
franchise renewal is denied and the system is acquired by the franchising
authority or a third party, the operator must be paid the fair market value for
the system covered by the franchise.
The Communications Act of 1934 requires franchising authorities to make a
final decision on any franchise transfer request within 120 days after all of
the required information is provided to the franchising authority. If the
franchising authority fails to act upon the request within 120 days, the request
is deemed granted. The franchising authority may extend the deadline by
agreement with the parties to the transfer request.
Cable television operators are not required to obtain franchises to provide
telecommunications services. In addition, franchising authorities may not limit,
restrict or condition the provisions of telecommunications services by cable
television operators, subject to some exceptions. Franchising authorities are
also prohibited from requiring any cable television operator to provide
telecommunications services or facilities as a condition of an initial
franchising grant, a franchise renewal or a franchise transfer.
PROPERTIES
Our principal physical assets, located in Minnesota, Michigan, Wisconsin,
Nebraska, Kansas and Illinois, consist of cable television plant and equipment,
including signal receiving, encoding and decoding devices, headend reception
facilities, distribution systems and customer drop equipment for each of our
cable television systems. Our cable television plant and related equipment are
generally attached to utility poles under pole rental agreements with local
public utilities and telephone companies, and in certain locations are buried in
underground ducts or trenches. The physical components of our cable television
systems require maintenance and periodic upgrading to keep pace with
technological advances.
We own or lease real property for signal reception sites and business
offices in many of the communities served by its systems and for its principal
executive offices. We own most of our service vehicles.
Management believes that our properties are in good operating condition and
are suitable and adequate for our business operations.
LEGAL PROCEEDINGS
We are involved in various legal proceedings, all of which have arisen in
the ordinary course of business. Management does not believe that any of such
proceedings will have a material adverse effect on our financial condition or
results of operations.
EMPLOYEES
As of March 31, 1999, after giving effect to the transfer of systems by TCI
, we had 1,390 employees at 48 locations, 1,377 of which were full-time. Of the
1,377 full-time employees, 30 were covered by collective bargaining agreements
at one location. We consider our relationship with our employees to be
satisfactory.
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LEGISLATION AND REGULATION
The cable television industry is subject to extensive regulation under
federal law by Congress and the FCC. In addition, the cable television industry
is regulated by some state governments and substantially all local governments.
In the future, Congress and some federal agencies may consider legislative and
regulatory proposals that may materially affect the regulation, operations and
business of the cable television industry.
The four most significant pieces of federal legislation that affect the
telecommunications and cable television industry are:
- the Communications Act of 1934;
- the 1984 Cable Act, the Cable Act of 1992; and
- the Telecommunications Act of 1996.
The following is a summary of these laws and other significant federal laws
and regulations which affect our growth and operation and that of the cable
television industry. We have also included a description of important state and
local laws.
This summary does not purport to describe all of the present and proposed
federal, state and local regulations and legislation affecting the
telecommunications industry. Currently, other existing federal and state
legislation and regulations are the subject of judicial proceedings, legislative
hearings, and administrative proposals which could change, in varying degrees,
the manner in which this industry operates. Neither the outcome of these
proceedings, nor their impact upon the telecommunications industry or us can be
predicted at this time. For example, the Telecommunications Act required the FCC
to undertake a host of implementing rulemakings, the final outcome of which
cannot yet be determined. Moreover, Congress and the FCC have frequently
revisited the subject of cable television regulation and may do so again.
FEDERAL STATUTORY LAW
The 1984 Cable Act became effective on December 29, 1984. This federal
statute, which amended the Communications Act of 1934, created uniform national
standards and guidelines for the regulation of cable television systems. The
1984 Cable Act was amended in many respects by the Cable Act of 1992, which was
enacted by Congress on October 5, 1992. The Cable Act of 1992 significantly
changed the regulatory environment in which participants in the cable industry
operate. Principal responsibility for implementing the policies of the 1984
Cable Act and the Cable Act of 1992 is allocated between the FCC and state or
local franchising authorities. The Cable Act of 1992 and the FCC's implementing
regulations allowed for a greater degree of regulation of the cable television
industry with respect to, among other things:
- cable television system rates for both basic (and associated equipment)
and certain non-basic services;
- program access and exclusivity arrangements;
- access to cable channels by unaffiliated programming services;
- leased access terms and conditions;
- horizontal and vertical ownership of cable television systems;
- customer service requirements;
- franchise renewals;
- television broadcast signal carriage and retransmission consent;
- technical standards;
- customer privacy;
- consumer protection matters;
- cable equipment compatibility;
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- obscene or indecent programming; and
- imposing requirements that subscribers need only to subscribe to basic
service as a condition of purchasing premium service.
The Cable Act of 1992 and the FCC's implementing regulations encouraged
competition with existing cable television systems. They encouraged competition
in several ways, including:
- by allowing municipalities to own and operate their own cable television
systems without having to obtain a franchise;
- preventing franchising authorities from granting exclusive franchises or
unreasonably refusing to award additional franchises covering an existing
cable television system's service area; and
- prohibiting, with certain exceptions, the common ownership of cable
television systems and multiple channel multi-point distribution systems
or satellite master antenna television systems located in the same
service areas. The Telecommunications Act modified these cross-ownership
restrictions. The Cable Act of 1992 and the FCC's implementing
regulations also precluded operators of cable television systems
affiliated with video programmers from favoring these programmers when
determining what program to carry on their cable systems. In addition,
video programmers were prohibited from unreasonably restricting the sale
of their programming to other multichannel video distributors.
In a significant development, the Telecommunications Act became law in
1996. The Telecommunications Act materially altered federal, state and local
laws pertaining to cable television, telecommunications and other related
services. For example, the legislation deregulated rates for cable programming
service packages as of March 31, 1999. The legislation also deregulated rates
with respect to some small cable operators and cable operators that face video
competition from local exchange carriers. Our preferred basic services are
classified as cable programming service packages. The Telecommunications Act
also encourages additional competition in the video programming industry by,
among other things, allowing local exchange carriers, including the Regional
Bell Operating Companies and their subsidiaries, to provide video programming in
their own telephone service areas, with some regulatory safeguards, in
competition with operators of cable television systems.
FEDERAL REGULATION
The FCC is the principal federal regulatory agency with jurisdiction over
the cable television industry. Accordingly, the FCC has promulgated regulations
covering a number of matters relevant to the cable industry. The FCC has the
authority to enforce these regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate transmission facilities frequently used in connection with cable
operations. A brief summary of the most significant federal regulations and,
where applicable, the effect of the Telecommunications Act on these regulations
follows.
Rate Regulation
The 1984 Cable Act codified the FCC's authority to regulate rates for
premium channels and optional nonbasic service packages. The 1984 Cable Act also
deregulated basic service rates for cable television systems which the FCC
determined to be subject to effective competition. The Cable Act of 1992
replaced the FCC's old standard for determining when effective competition
exists, under which most cable television systems were exempt from rate
regulation, with a statutory provision that subjected nearly all cable
television systems to regulation of basic and cable programming service rates.
Under the Cable Act of 1992, a local franchising authority in a community
that is not subject to effective competition generally is authorized to regulate
basic cable rates. First, however, the local franchising authority must certify
to the FCC that, among other things, it will adopt and administer rate
regulation consistent with FCC rules, in a manner that will provide a reasonable
opportunity to consider the views of interested parties. Upon certification, the
franchising authority obtains the right to approve the basic rates charged by an
operator
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of cable television systems. In regulating the basic service rates, certified
local franchise authorities have the authority to order a rate refund of
previously paid rates determined to be in excess of the maximum permitted
reasonable rates. The Telecommunications Act expands the definition of effective
competition to include any franchise area in which a local exchange carrier, or
an affiliate thereof, provides video programming services to subscribers by any
means, other than through direct broadcast satellite services. In order to
qualify as effective competition, the local exchange carrier must provide
programming services that are comparable to services provided by operators of
cable television systems in the franchise area.
Additionally, the Cable Act of 1992:
- authorized the FCC to adopt a formula to be applied by franchising
authorities to ensure that basic service rates are reasonable;
- allowed the FCC to review rates for cable programming service packages
(other than per-channel or per-program services) in response to
complaints filed by franchising authorities and/or cable subscribers;
- prohibited cable television systems from requiring subscribers to
purchase service tiers above the basic service tier in order to purchase
premium services where the relevant system is technically capable of
providing such services;
- required the FCC to adopt regulations to establish, on the basis of
actual costs, prices for the installation of cable service, remote
controls, converter boxes and additional outlets; and
- allowed the FCC to impose restrictions on the retiering and rearrangement
of cable services under certain limited circumstances.
Despite the enactment of the Telecommunications Act, some rate regulation
provisions under the Cable Act of 1992 remain in effect for operators of cable
television systems subject to rate regulation. In particular, basic service
rates remain subject to regulation by local franchising authorities, except, in
some instances, with respect to small cable operators. The Telecommunications
Act immediately eliminated regulation of rates for cable programming service
packages for a defined class of "small cable operators." Rates for the basic
service tiers of small cable operators are deregulated if their systems offered
only a single tier of services as of December 31, 1994. To qualify as a small
cable operator, the operator, including affiliates, must serve in the aggregate
fewer than one percent of all subscribers located in the United States and have
affiliate gross revenues not exceeding $250 million. The exception applies in
any franchise area in which the operator serves 50,000 or fewer subscribers. We
do not believe that we would qualify as a small cable operator under the
Telecommunications Act because we would likely be deemed to have affiliate gross
revenues exceeding $250 million as a result of our affiliation with TCI.
Therefore, under the Telecommunications Act, our systems continue to be subject
to basic service rate regulation in jurisdictions where the local franchising
authorities have been certified to regulate rates. Our systems were also subject
to regulation of rates for cable programming service packages until the
statutory repeal of that regulation occurred on March 31, 1999, as described
below.
The Telecommunications Act eliminated regulation of rates for cable
programming service packages for all cable operators on March 31, 1999. The FCC
will continue to process complaints regarding cable programming service filed
prior to March 31, 1999. These Telecommunications Act provisions should
materially alter the applicability of FCC rate regulations adopted under the
Cable Act of 1992 for non-basic service.
The Telecommunications Act relaxes the uniform rate requirements of the
Cable Act of 1992. The Uniform rate requirement required an operator of cable
television systems to have a uniform rate structure for the provision of cable
services throughout the geographic area in which the operator provides cable
service. Specifically, the legislation clarifies that the uniform rate provision
does not apply where an operator of a cable television system faces effective
competition. In addition, bulk discounts to multiple dwelling units are exempted
from the uniform rate requirements. The FCC recently clarified that a bulk
discount is a discount available to all residents of a multiple dwelling unit.
However, complaints may be made to the FCC against
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operators of cable television systems not subject to effective competition for
predatory pricing, including pricing for bulk discounts to multiple dwelling
units.
The Telecommunications Act also permits operators of cable television
systems to aggregate, on a franchise, system, regional or company level, its
equipment costs in broad categories. The Telecommunications Act is also expected
to facilitate the rationalization of equipment rates across jurisdictional
boundaries. However, these cost-aggregation rules do not apply to the limited
equipment used by subscribers who only receive basic service. The FCC has issued
rules to implement the cost-aggregation provisions.
The FCC has adopted rules designed to implement the Cable Act of 1992's
rate regulation provisions. The FCC's revised regulations contain standards for
the regulation of basic service rates. The revised rate regulations adopt a
benchmark price cap system for measuring whether existing basic service rates
are reasonable. These rate regulations also provide a formula for evaluating
future rate increases. Alternatively, operators of cable systems have the
opportunity to make showings to the local franchising authority of their actual
costs of service, which, in some cases, can justify rates above the applicable
benchmarks. The rules also require that charges for cable-related equipment, the
converter boxes and remote control devices, and installation services be
unbundled from the provision of cable service. Instead, charges for this
equipment may be based upon the actual cost of the equipment plus a reasonable
profit. The FCC's regulations require that charges for equipment and
installation services be recalculated annually and adjusted accordingly.
Anti-Buy Through Provisions
The Cable Act of 1992 and corresponding FCC regulations allow subscribers
to purchase video programming which is offered on a per channel or per program
basis without having to subscribe to any service other than the basic service,
subject to available technology. The available technology exception ends on
October 5, 2002. The FCC may waive compliance with this requirement for a
reasonable and appropriate period of time if it determines that compliance with
this requirement would require the operator to increase its rates and the waiver
would serve the public interest. Most of our cable television systems do not
have the technological capability to offer programming in the manner required by
the Cable Act of 1992 therefore our systems are currently exempt from complying
with the requirement. We cannot predict the extent to which this provision of
the Cable Act of 1992 and the corresponding FCC rules may cause subscribers to
discontinue their subscriptions for optional cable programming service packages
in favor of the less expensive basic cable service.
Carriage of Broadcast Television Signals
The Cable Act of 1992 allows commercial television broadcast stations which
are local to a cable television system to elect every three years either to
require the cable television system to carry the station, subject to certain
exceptions, known as the must carry requirement, or to deny the cable television
system the right to carry the station without the station's express consent,
known as retransmission consent. Local noncommercial television stations are
also given mandatory carriage rights, subject to certain exceptions, but are not
given the option to negotiate retransmission consent for the carriage of their
signal. In addition, cable television systems must obtain retransmission consent
for the carriage of all distant commercial broadcast stations, except for
certain superstations. Superstations include, for example, commercial
satellite-delivered independent stations such as WGN. The must carry provisions
were under judicial review in the United States Supreme Court and remained in
effect during the litigation.
On March 31, 1997, the U.S. Supreme Court upheld the must carry provisions
on constitutional grounds. Thus, operators of cable television systems remain
subject to the must carry requirements. Under the Telecommunications Act, FCC is
considering the must carry rights of digital television stations, which could
substantially increase the burden associated with must carry rights. Congress
and the FCC may also consider whether direct broadcast satellite operators
should be subject to must carry requirements.
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Renewal of Franchises
The 1984 Cable Act established renewal procedures and criteria designed to
protect incumbent franchisees against arbitrary denials of renewal. While these
formal procedures are not mandatory unless timely invoked by either the operator
of the cable television system or the franchising authority, they can provide
substantial protection to incumbent franchisees. Despite the renewal process,
franchising authorities and operators of cable television systems remain free to
negotiate a renewal outside the formal process. Nevertheless, renewal is by no
means assured, as the franchisee must meet certain statutory standards if the
formal renewal procedures are invoked. Even if a franchise is renewed, a
franchising authority may impose new and more onerous requirements, including
requiring upgrades to facilities and equipment, although the municipality must
take into account the cost of meeting such requirements.
The Cable Act of 1992 made several changes to the process by which an
operator of cable television systems may seek to enforce its renewal rights.
These changes could make it easier in some cases for a franchising authority to
deny renewal. Under the Cable Act of 1992, franchising authorities may consider
the level of programming service provided by an operator of cable television
systems in deciding whether to renew. For alleged franchise violations occurring
after December 29, 1984, franchising authorities are no longer precluded from
denying renewal based on failure to substantially comply with the material terms
of the franchise where the franchising authority has effectively acquiesced to
such past violations. Rather, the franchising authority cannot deny renewal if,
after giving the operator notice and opportunity to cure, it fails to respond to
a written notice from the operator of its failure or inability to cure. Courts
may not reverse a denial of renewal based on procedural violations found to be
harmless error.
Franchise Transfers
The Cable Act of 1992 requires franchising authorities to act on any
franchise transfer request within 120 days after receipt of all information
required by FCC regulations and by the franchising authority. Approval is deemed
to be granted if the franchising authority fails to render a final decision on
the request within this period unless an extension of time has been agreed to by
the franchising authority and the parties to the transfer application.
Channel Set-Asides
The 1984 Cable Act permits local franchising authorities to require
operators of cable television systems to set aside certain channels for public,
educational and governmental access programming. The 1984 Cable Act further
requires cable television systems with 36 or more activated channels to
designate a portion of their channel capacity for commercial leased access by
unaffiliated third parties. The channels set aside may be utilized by the
operator for other activities until utilized for third party programming. The
U.S. Supreme Court has upheld the statutory right of cable operators to prohibit
or limit the provision of indecent or obscene programming on commercial leased
access channels.
While operators of cable television systems are permitted to set reasonable
leased access rates, the FCC has established a formula for determining maximum
reasonable rates, as required under the Cable Act of 1992. The FCC reconsidered
and revised its rules governing the rates that operators may charge for this
designated channel capacity as well as its rules governing the use of leased
access channels. Among other revisions to the rules, operators must now compute
the rates for these channels based on average revenues, rather than on the
highest spread between program costs and subscriber revenues. Consequently, the
rates that operators are permitted to charge for these channels may have
decreased.
Inside Wiring; Subscriber Access
In a 1997 order, the FCC established rules that require an incumbent cable
operator, upon expiration of a multiple dwelling unit service contract, to sell,
abandon, or remove wiring that was installed by the cable operator in a multiple
dwelling unit building. These inside wiring rules are expected to assist
building owners in their attempts to replace existing cable operators with new
programming providers who are willing to pay the building owner a higher fee,
where a fee is permissible. Additionally, the FCC has proposed to restrict
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exclusive contracts between building owners and cable operators or other
multichannel video programming distributors.
In another proceeding, the FCC has issued an order preempting state, local
and private restrictions on over-the-air reception antennas placed on rental
properties in areas where a tenant has exclusive use of the property, including
balconies or patios. However, tenants may not install such antennas on the
common areas of multiple dwelling units, such as on roofs. This new order may
limit the extent to which multiple dwelling unit owners and we may enforce
certain aspects of multiple dwelling unit agreements. These multiple unit
dwelling agreements would otherwise prohibit, for example, placement of direct
broadcast satellite receive antennae in multiple dwelling unit areas, such as
apartment balconies or patios, under the exclusive occupancy of a renter.
Equal Employment Opportunity
The 1984 Cable Act included provisions to ensure that minorities and women
are provided equal employment opportunities within the cable television
industry. The statute required the FCC to adopt reporting and certification
rules that apply to all operators of cable television systems with more than
five full-time employees. Pursuant to the requirements of the Cable Act of 1992,
the FCC has imposed more detailed annual Equal Employment Opportunity, or EEO,
reporting requirements on operators of cable television systems and has expanded
those requirements to all multichannel video service distributors. Failure to
comply with the EEO requirements can result in the imposition of fines and/or
other administrative sanctions. Failure also may, in certain circumstances, be
cited by a franchising authority as a reason for denying a franchisee's renewal
request. A recent federal appeals court decision overturning the FCC's broadcast
EEO rules on constitutional grounds may call into question the validity of the
cable EEO rules. However, we cannot predict the effect of that litigation on the
cable industry at this time. As a direct result of this federal appellate court
decision, the FCC is now considering rules which reevaluate both the broadcast
and cable EEO regulations.
Technical Requirements
The FCC has imposed technical standards applicable to all channels on which
downstream video programming is carried. The FCC has also prohibited franchising
authorities from adopting standards which are in conflict with or more
restrictive than those established by the FCC. The Telecommunications Act
provides that local and state authorities may not prohibit, restrict or
condition a cable television system's use of any transmission technology or
subscriber equipment. In order to prevent harmful interference with aeronautical
navigation and safety radio services, the FCC also has adopted additional
standards applicable to cable television systems using frequencies in the
108-137 MHZ and 225-400 MHZ bands. In addition, the FCC established limits on
cable television system signal leakage. Periodic testing by cable operators for
compliance with these technical standards and signal leakage limits is required.
The FCC has adopted regulations to implement the requirements of the Cable
Act of 1992 designed to improve the compatibility of cable television systems
and consumer electronics equipment. These regulations, among others, generally
prohibit operators of cable television systems from scrambling their basic
service.
Other Matters
FCC regulations also address numerous other matters, including:
- cable television system's carriage of local sports programming;
- franchise fees;
- pole attachments;
- customer service;
- rules applicable to origination cablecasts governing political
programming;
- rates charged to political candidates;
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- personal attacks;
- sponsorship identification;
- lottery information; and
- limitations on advertising contained in children's programming
We are presently the subject of various proceedings before the FCC
regarding rates charged to subscribers for both basic service and cable
programming service packages, none of which we believe to be material to our
operations. From time to time, we may be the subject of other proceedings before
the FCC. We cannot predict the outcome of any pending proceedings or any other
proceeding that may be before the FCC in the future.
TELECOMMUNICATIONS LEGISLATION
The Telecommunications Act materially altered federal, state and local laws
and regulations pertaining to cable television, telecommunications and other
services.
The most far-reaching changes in the communications industry may result
from the telephony provisions of the Telecommunications Act. These provisions
promote local exchange competition as a national policy by eliminating legal
barriers to competition in the local telephone business and setting standards to
govern the relationships among telecommunications providers. The provisions also
establish uniform requirements and standards for entry, competitive carrier
interconnection, and unbundling of local exchange carrier monopoly services.
Subject to certain limitations, the Telecommunications Act expressly prohibits
any legal barriers to competition in intrastate or interstate communications
service under state and local laws. The Telecommunications Act also empowers the
FCC, after notice and an opportunity for comment, to preempt the enforcement of
any statute, regulation or legal requirement that prohibits, or has the effect
of prohibiting, the ability of any entity to provide any intrastate or
interstate telecommunications service.
The Telecommunications Act is intended, in part, to promote substantial
competition in the marketplace for telephone service and in the delivery of
video and other services. It also permits operators of cable television systems
to enter the local telephone exchange market. The cable industry's ability to
offer telephone services competitively may be adversely affected by the degree
and form of regulatory flexibility afforded to local exchange carriers. In part,
the cable industry's ability to offer telephone services competitively will
depend upon the outcome of various FCC rulemakings and judicial proceedings,
including the proceedings dealing with the interconnection obligations of
telecommunications carriers.
The FCC adopted regulations implementing the Telecommunications Act
requirement that local exchange carriers open their telephone networks to
competition by providing competitors interconnection, access to unbundled
network elements and retail services at wholesale rates. Numerous parties
appealed these regulations. The U.S. Court of Appeals for the Eighth Circuit,
where the appeals were consolidated, vacated key portions of the FCC's
regulations, including the FCC's pricing and non-discrimination rules. The
Eighth Circuit's decision was appealed to the U.S. Supreme Court, which issued
its decision on January 25, 1999. The U.S. Supreme Court upheld most of the
FCC's interconnection regulations, including the pricing and nondiscrimination
rules provisions, but remanded certain unbundling rules to the FCC. The FCC has
begun a new proceeding with respect to the unbundling requirements. The ultimate
outcome of the FCC's rulemakings, and the ultimate impact of the
Telecommunications Act or any final regulations adopted pursuant to this
legislation or any additional litigation on us or our business cannot be
determined at this time.
We may be required to apply for and obtain prior authorization from the FCC
and states to offer telecommunications services, and to comply with a variety of
ongoing regulatory requirements applicable to telecommunications carriers.
Telephone Company Provision of Video Programming
The Telecommunications Act repeals the statutory ban against telephone
companies providing video programming services in their telephone service areas.
Under the legislation, local exchange carriers, including
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the Regional Bell Operating Companies and their subsidiaries, are allowed to
compete with operators of cable television systems, including us, both inside
and outside the local exchange carriers' telephone service areas, with some
regulatory safeguards. The legislation recognizes several means by which
telephone companies may opt to provide competitive video programming, each of
which may subject the telephone company to different regulation.
If a telephone company provides video programming services via radio
communications, it will be regulated under Title III of the Communications Act,
the general sections governing use of the airwaves, rather than under Title VI,
which regulates cable. If a telephone company provides common carriage transport
of video programming, it will be subject to the requirements of Title II of the
Communications Act, the general common carrier provisions, rather than Title VI.
Telephone companies providing video programming through any other means, other
than as an open video system, will be regulated under Title VI.
The FCC prescribed rules that prohibit open video systems from
discriminating among video programming providers with regard to carriage. These
rules also ensure that open video system rates, terms, and conditions for
service are reasonable and not unjustly or unreasonably discriminatory. The FCC
also adopted regulations prohibiting an open video system operator and its
affiliates from occupying more than one-third of the system's activated channels
when demand for channel capacity exceeds supply. The Telecommunications Act also
mandates open video system regulations that:
- permit the operator to use channel-sharing arrangements;
- extend to open video systems the FCC's sports exclusivity, network
non-duplication and syndicated exclusivity regulations; and
- prohibit the operator from unreasonably discriminating in its own favor
in the way information about programming is presented or provided to
subscriber.
Open video systems will be subject to the authority of local governments to
manage public rights-of-way. Local franchising authorities may require open
video system operators to pay fees, which are limited to a percentage of the
gross revenue of the operator and its affiliates. These fees may not exceed the
rate at which franchise fees are imposed on any operator of cable television
systems in the corresponding franchise area. The Fifth Circuit Court of Appeals
reversed certain of the FCC's open video system rules, including the FCC's rule
preempting local franchise requirements, and the FCC has filed a petition for
rehearing of that decision. The decision may be subject to further appeals.
Buyouts
The Telecommunications Act generally prohibits some buyouts of cable
television systems, including:
- any ownership interest of such systems exceeding 10%, by local exchange
carriers within a local exchange carrier's telephone service area;
- buyouts by operators of cable television systems of local exchange
carrier systems within a cable operator's franchise area; and
- joint ventures between operators of cable television systems and local
exchange carriers in the same markets.
There are some statutory exceptions, including a rural exemption which
permits buyouts in which the purchased system serves a non-urban area with fewer
than 35,000 inhabitants. Also, the FCC may grant waivers of the buyout
provisions in some cases, including instances where:
- the operator of a cable television system or the local exchange carrier
would be subject to undue economic distress if such provisions were
enforced;
- the system or facilities would not be economically viable in the absence
of a buyout or a joint venture; or
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- the anticompetitive effects of the proposed transaction are clearly
outweighed by the transaction's effect in light of community needs.
The respective local franchising authority must approve any such waiver.
The FCC has also granted temporary waivers of this anti-buyout provision.
Public Utility Competition
The Telecommunications Act also authorizes registered utility holding
companies and their subsidiaries to provide video programming services,
notwithstanding the Public Utility Holding Company Act. In order to take
advantage of the legislation, public utilities must establish separate
subsidiaries through which to operate any cable operations. Such utility
companies must also apply to the FCC for operating authority. Several such
utilities have been granted broad authority by the FCC to engage in activities
which could include the provision of video programming.
Cross-Ownership; Reduced Regulations
The Telecommunications Act makes several other changes to relax ownership
restrictions and regulation of cable television systems. The Telecommunications
Act repeals the Cable Act of 1992's three-year holding requirement pertaining to
sales of cable television systems. The statutory broadcast/cable cross-ownership
restriction imposed under the 1984 Cable Act have also been eliminated, although
the FCC's regulations prohibiting broadcast/cable common-ownership currently
remain in effect. The satellite master antenna television/cable cross-ownership
and the multiple channel distribution systems/cable cross-ownership restrictions
have been eliminated for operators of cable television systems subject to
effective competition.
The Telecommunications Act may also exempt certain of our competitors from
regulation as cable systems. The legislation amends the definition of a cable
system under the Communications Act of 1934 so that competitive providers of
video services will be regulated and franchised as cable systems only if they
use public rights-of-way. Thus, a broader class of entities which provide video
programming, including some entities which may be in competition with us, may be
exempt from regulation as cable television systems under the Communications Act
of 1934.
Pole Attachments
The Communications Act of 1934 requires the FCC to regulate the rates,
terms and conditions imposed by public utilities for cable television systems'
use of utility pole and conduit space unless state authorities can demonstrate
that they adequately regulate pole attachment rates, as is the case in some
states in which we operate. In the absence of state regulation, the FCC
administers pole attachment rates on a formula basis. In some cases, utility
companies have increased pole attachment fees for cable television systems that
have installed fiber optic cables and that are using these cables for the
distribution of non-video services.
The FCC's existing pole attachment rate formula governs charges for
utilities for attachments by cable operators providing only cable television
services. The Telecommunications Act and the FCC's implementing regulations
modify the current pole attachment provisions of the Communications Act of 1934
by immediately permitting some providers of telecommunications services to rely
upon the protections of the current law. The Telecommunications Act and the
FCC's implemented regulations also require that utilities provide cable
television systems and telecommunications carriers with nondiscriminatory access
to any pole, conduit or right-of-way controlled by the utility.
The FCC also has adopted new regulations to govern the charges for pole
attachments used by companies who are providing telecommunications services,
including cable television operators. These new pole attachment rate regulations
will become effective in February 2001. Any resulting increase in attachment
rates will be phased in equal annual increments over a period of five years
beginning in February 2001. The ultimate impact of any revised FCC rate formula
or of any new pole attachment rate regulations on us or our businesses cannot be
determined at this time.
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Miscellaneous Requirements
The Telecommunications Act also imposes requirements on operators of cable
television systems, including an obligation, upon request, to fully scramble or
block at no charge the audio and video portion of any channel not specifically
subscribed to by a household. In addition, it requires that sexually explicit
programming be scrambled, blocked or restricted to those hours of the day when
children are unlikely to view the programming, although a recent federal
district court ruling found the scrambling provision unconstitutional. This
decision has been appealed to the U.S. Supreme Court. The scrambling requirement
could increase operating expenses for operators of cable television systems and
provide a competitive advantage to less regulated providers of video programming
services. However, the decision has no impact on our operating expenses.
FEDERAL COMMUNICATIONS COMMISSION IMPLEMENTATION OF THE TELECOMMUNICATIONS ACT
The FCC is presently engaged in numerous proceedings to implement various
provisions of the Telecommunications Act. In addition to the proceedings
previously discussed, the FCC recently completed a proceeding to implement most
of the cable-related reform provisions of the Telecommunications Act.
In this proceeding, the FCC clarified that rates for cable programming
service provided after March 31, 1999 will not be subject to FCC review and
regulation. The FCC will continue to process complaints regarding rates for
services provided prior to March 31, 1999. The FCC determined that effective
competition, which removes a cable system from rate regulation, will be found if
a local exchange carrier's service offering substantially overlaps the incumbent
cable operator's service in the same franchise area. Potential as well as actual
local exchange carrier service can be considered. The Telecommunications Act
also requires that the local exchange carriers' programming service be
comparable to the incumbent cable operator's service. The FCC adopted the
definition used for the competing provider test for effective competition, which
specifies that comparable service must include at least 12 channels of video
programming, including at least one channel of nonbroadcast service.
Certain provisions of the Telecommunications Act could materially affect
the growth and operation of the cable television industry and the cable services
provided by us. Although the legislation may substantially lessen regulatory
burdens, the cable television industry may be subject to additional competition
as a result of this Act. There are numerous rulemakings which have been, and
which will be, undertaken by the FCC which will interpret and implement the
provisions of the Telecommunications Act. Additionally, certain provisions of
the Telecommunications Act have been, and likely will continue to be, subject to
judicial challenge. We are unable at this time to predict the outcome of such
rulemakings or litigation or the short- and long-term effects, financial or
otherwise, of the Telecommunications Act and the FCC rulemakings on our
operations.
COPYRIGHT
Cable television systems are subject to federal copyright licensing
requirements covering carriage of broadcast signals. In exchange for making
semi-annual payments to a federal copyright royalty pool and meeting other
obligations, operators of cable television systems obtain a compulsory license
to retransmit broadcast signals. The amount of this royalty payment varies,
depending on the amount of system revenues from certain sources, the number of
distant signals carried and the location of the cable television system with
respect to over-the-air television stations. Operators of cable television
systems are liable for interest on underpaid, latepaid and unpaid royalty fees,
but are not entitled to collect interest on refunds received for overpayment of
copyright fees.
The Copyright Office recently issued a report to Congress reviewing the
various copyright licensing regimes governing the retransmission of broadcast
signals by multichannel video providers. The Copyright Office recommended that
Congress make major revisions of both the cable television and satellite
compulsory licenses to make them as simple as possible to administer, to provide
copyright owners with full compensation for the use of their works, and to treat
every multichannel video delivery system the same, except to the extent that
technological differences or differences in the regulatory burdens placed upon
the delivery system justify different copyright treatment. The possible
simplification, modification or elimination of the compulsory
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copyright license is the subject of continuing legislative review. The
elimination or substantial modification of the cable compulsory license could
adversely affect our ability to obtain suitable programming and could
substantially increase the cost of programming that remains available for
distribution to our customers. We cannot predict the outcome of this legislative
activity.
The present policies of the Copyright Office governing the consolidated
reporting of some cable television systems have often led to substantial
increases in the amount of copyright fees owed by the systems affected. These
situations have most frequently arisen in the context of cable television system
mergers and acquisitions. Any changes adopted by the Copyright Office in its
current policies may increase the copyright impact of certain transactions
involving cable company mergers and cable television system acquisitions.
Cable operators distribute programming and advertising that use music
controlled by the two principal major music performing rights organizations, the
Association of Songwriters, Composers, Artists and Producers, or ASCAP, and
Broadcast Music, Inc., or BMI. In October 1989, the special rate court of the
U.S. District Court for the Southern District of New York imposed interim rates
on the cable industry's use of ASCAP-controlled music. The same federal district
court also established a special rate court for BMI. BMI and cable industry
representatives concluded negotiations for a standard licensing agreement
covering the performance of BMI music contained in advertising and other
information inserted by operators into cable programming and on certain local
access and origination channels carried on cable systems. Our settlement with
BMI did not have a significant impact on our business and operations.
ASCAP and cable industry representatives have met to discuss the
development of a standard licensing agreement covering ASCAP-controlled music in
local origination and access channels and pay-per-view programming. Although we
cannot predict the ultimate outcome of these industry negotiations or the amount
of any license fees it may be required to pay for past and future use of
ASCAP-controlled music, we do not believe these license fees will be significant
to our business and operations.
STATE AND LOCAL REGULATION
Because cable television systems use local streets and rights-of-way, cable
television systems are subject to state and local regulation, typically imposed
through the franchising process. Local and/or state officials are usually
involved in:
- franchise selection;
- system design and construction;
- safety;
- service rates;
- consumer relations;
- billing practices; and
- community-related programming and services.
Cable television systems are generally operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and in
many cases are terminable if the franchise operator fails to comply with
material provisions. Although the 1984 Cable Act provides for certain procedural
protections, there can be no assurance that renewals of our franchises will be
granted or that renewals will be made on similar terms and conditions.
Franchises usually call for the payment of fees, which are limited to 5% of the
system's gross revenues for cable services under the Communications Act of 1934,
to the granting authority.
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Upon receipt of a franchise, the cable television system owner is usually
subject to a broad range of obligations to the issuing authority directly
affecting the business of the system. Franchises generally contain provisions
governing:
- charges for basic cable television services;
- fees to be paid to the franchising authority;
- length of the franchise term;
- renewal;
- sale or transfer of the franchise;
- territory of the franchise;
- design and technical performance of the system; and
- use and occupancy of public streets and number and types of cable
services provided.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction, and even from city to city within the same state, historically
ranging from reasonable to highly restrictive or burdensome.
The Cable Act of 1992 prohibits exclusive franchises, and allows
franchising authorities to exercise greater control over the operation of
franchised cable television systems than did the 1984 Cable Act, especially in
the areas of customer service and basic service rate regulation. The Cable Act
of 1992 also allows franchising authorities to operate their own multichannel
video distribution system without having to obtain a franchise. Moreover,
franchising authorities are immunized from monetary damage awards arising from
regulation of cable television systems or decisions made on franchise grants,
renewals, transfers and amendments.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the jurisdiction
of centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although the state and local
jurisdictions in which our systems are located are not among those which have
adopted legislation centralizing the regulation of cable television systems,
there are no assurances that similar legislation may not be considered or
adopted in the future by states and local jurisdictions in which we operate.
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MANAGEMENT
Our business and operations are conducted and managed exclusively by BCI
(USA), which is the general partner of our parent, Bresnan Communications
Company. BCI (USA)'s control is subject to certain consent or other rights of
our parent's limited partners. BCI (USA) has engaged Bresnan Communications,
Inc., which we refer to as BCI, a corporation wholly owned by William J.
Bresnan, to perform management and administrative services, on its behalf, for
us.
In addition, we have an advisory Committee. The Advisory Committee is
comprised of nine representatives. BCI (USA), TCI and Blackstone each have the
right to designate three members of our Advisory Committee. The Advisory
Committee consults with us on certain strategic business initiatives from time
to time.
EXECUTIVE OFFICERS AND ADVISORY COMMITTEE MEMBERS
The Company. The following table sets forth the names, ages and positions
of the members of the Advisory Committee and the executive officers of BCI who
are responsible for providing us with significant services. Prior to January 1,
1996, certain of the individuals listed below functioned effectively as
executive officers of Bresnan Communications Company, and were compensated for
their service as such by Bresnan Communications Company. William J. Bresnan,
was, however, compensated by BCI. On January 1, 1996 all such individuals became
executive officers of BCI and, in certain instances, another affiliate of
William J. Bresnan.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William J. Bresnan................... 65 President and Chief Executive Officer; Member of the
Advisory Committee
Jeffrey S. DeMond.................... 43 Executive Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary; Member of the
Advisory Committee
Michael W. Bresnan................... 40 Executive Vice President -- Domestic Division; Member
of the Advisory Committee
Leonard Higgins...................... 40 Senior Vice President -- Telephone and Data Services
Andrew C. Kober...................... 36 Vice President and Controller
Gareth P. McIntosh................... 56 Senior Vice President -- Engineering
Roger D. Worboys..................... 51 Senior Vice President -- Operations
Joshua H. Astrof..................... 27 Member of the Advisory Committee
Derek Chang.......................... 30 Member of the Advisory Committee
William R. Fitzgerald................ 41 Member of the Advisory Committee
Mark T. Gallogly..................... 41 Member of the Advisory Committee
Leo J. Hindery, Jr................... 51 Member of the Advisory Committee
Simon P. Lonergan.................... 30 Member of the Advisory Committee
</TABLE>
William J. Bresnan has been the President and Chief Executive Officer of
BCI since its inception in 1984 and is a member of our Advisory Committee. Mr.
Bresnan is also the Secretary and the sole director of BCI, and has served in
such capacities since BCI's inception. Prior to founding BCI and Bresnan
Communications Company, Mr. Bresnan served as Chairman and Chief Executive
Officer of Group W Cable, Inc. from 1981 to 1984. Mr. Bresnan also served as
President of Group W Cable's predecessor organization, the Cable TV Division of
Teleprompter Corp., from 1974 to 1981. During the twenty years prior to 1984,
Mr. Bresnan continuously managed the first, second, or third largest cable
company in the U.S., and oversaw the cable build-outs of major metropolitan
markets such as San Francisco, Dallas, and Tampa-St. Petersburg. Mr. Bresnan
served as President of the Cable Television Division of Teleprompter Corporation
from 1974 to 1981. Mr. Bresnan has served on the Board of Directors of the
National Cable Television Association for 30 non-consecutive years and as a
member of its Executive Committee for non-consecutive terms aggregating 15
years. In addition, Mr. Bresnan is a director of each of Cable in the Classroom,
Cable Television Laboratories, the Foundation for Minority Interests in Media,
the Cable Television Advertising Bureau and C-SPAN, and is
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currently Chairman of CablePAC and the National Cable Television Center and
Museum. Mr. Bresnan has 40 years of experience in the cable television industry.
Jeffrey S. DeMond, C.P.A., is Executive Vice President and Chief Financial
Officer of BCI and is a member of our Advisory Committee. Mr. DeMond served as
Treasurer and Assistant Secretary of BCI since November 1985. Mr. DeMond served
as Senior Vice President of BCI from January 1996 through March 1999, Vice
President of BCI from December 1986 through December 1995. In addition, Mr.
DeMond served as Bresnan Communications Company's Vice President -- Finance and
Chief Financial Officer from November 1986 through December 1995 and as its
Director of Finance from November 1985 through November 1986. Before joining
Bresnan Communications Company, Mr. DeMond served as a Senior Manager at Peat,
Marwick, Mitchell & Co., now KPMG LLP, where he worked with clients in a variety
of industries, including radio broadcasting and film syndication from 1979
through 1985. Mr. DeMond is currently an active member of the Accounting
Committee of the National Cable Television Association.
Michael W. Bresnan is Executive Vice President -- Domestic Division of BCI
and is a member of our Advisory Committee of the Company. Mr. Bresnan served as
Senior Vice President -- Domestic Division of BCI from January 1997 through
March 1999 and as Senior Vice President -- Operations of Bresnan Communications
Company from January 1996 through December 31, 1996 and as Bresnan
Communications Company's Director of Operations from August 1987 through
December 1995. Mr. Bresnan served as General Manager of Bresnan Communications
Company's Marquette, Michigan system from October 1985 through August 1987, Mr.
Bresnan joined Bresnan Communications Company in July 1985 as its Project
Manager. Before joining Bresnan Communications Company, Mr. Bresnan was a design
engineer at TRW, Inc., where he was responsible for the design and development
of state-of-the-art microwave electronics for use in communications satellites.
Mr. Bresnan is a member of the National Cable Television Association's Coalition
Opposing Signal Theft.
Leonard Higgins has been Senior Vice President -- Telephone and Data
Services of BCI since March 1999. From September 1997 through March 1999, Mr.
Higgins was Vice President -- Telephone and Data Services of BCI. Before joining
BCI, Mr. Higgins was Executive Director of Strategic Business Development at
Bellcore from July 1996 to September 1997. Mr. Higgins joined Bellcore after
serving as Vice President of Development for Sutton Capital, Inc., from March
1993 to July 1996. Sutton is a telecommunications investment company with
interests in cable television systems, cellular operations and alternative
access networks. While at Sutton, Mr. Higgins directed the development of an
alternative local telecommunications network in New Jersey and he directed
Sutton's participation in the FCC PCS auctions. Prior to joining Sutton, Mr.
Higgins was Director of Corporate Development for Teleport Communications Group,
from 1988 to 1993. While at Teleport, Mr. Higgins oversaw the expansion of
Teleport's local telecommunications networks into a number of new markets.
Andrew C. Kober, C.P.A., is Vice President and Controller of BCI. Mr. Kober
served as Controller of Bresnan Communications Company from August 1990 through
December 1995. Before joining us, Mr. Kober worked at Arthur Young & Company,
now Ernst & Young LLP, from 1984 through 1990. At Arthur Young & Company, Mr.
Kober worked with clients in the broadcasting, cable and cable programming
industries, as well as with clients in the manufacturing and legal services
industries. Mr. Kober is a member of the New York State Society of Certified
Public Accountants, the American Institute of Certified Public Accountants and
the Cable Television Tax Professionals Institute.
Gareth P. McIntosh is Vice President -- Engineering of BCI. Mr. McIntosh
served as Bresnan Communications Company's Director of Engineering from November
1994 through December 1995. Before joining Bresnan Communications Company, Mr.
McIntosh served as Vice President of Engineering of Fundy Cable Ltd. in Canada
from April 1990 to November 1994. At Fundy Cable Ltd., Mr. McIntosh played an
instrumental role in developing its joint cable-telephony system in the United
Kingdom. From 1980 to 1990, Mr. McIntosh served as Vice President of Engineering
for the Canadian-based Rogers Cablesystems Limited, where he was responsible for
its cable television systems and was involved in the initial stages of the
development of a national Canadian cellular communications system.
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Roger D. Worboys is Senior Vice President -- Cable Operations of BCI. From
January 1996 through March 1999, Mr. Worboys was Vice President -- Operations of
BCI. Before joining BCI in January 1996, Mr. Worboys was Vice President of
Operations for Insight Communications in New York from 1988 to December 1995,
where he was responsible for cable television systems located in six states and
for the development of Insight Communications' one million subscriber operations
in the United Kingdom. Mr. Worboys joined Insight Communications after serving
as Vice President of Operations of Simmons Communications from 1986 to 1988,
where he supervised its five operating regions which served 330,000 subscribers
in 17 states. Mr. Worboys has over 20 years of experience in the cable
television industry.
Joshua H. Astrof is a member of our Advisory Committee. Mr. Astrof is an
Associate of The Blackstone Group L.P. which he joined in August 1998. Prior to
joining Blackstone, Mr. Astrof received his MBA from Harvard Business School in
1998. Prior to attending Harvard, Mr. Astrof was an Associate and an Analyst
with Donaldson, Lufkin & Jenrette Securities Corporation from 1993 to 1996.
Derek Chang is a member of our Advisory Committee. Mr. Chang has served as
Executive Vice President of Corporate Development and Partnership Relations for
AT&T Broadband and Internet Services since March 1999. Prior to serving as
Executive Vice President, Mr. Chang held the same position with TCI beginning in
April 1997. Prior to serving as Executive Vice President with TCI, Mr. Chang was
Assistant to TCI's President and CEO Leo J. Hindery, Jr. Prior to joining TCI,
Mr. Chang served as Treasurer of InterMedia Partners, L.P. from 1994 to 1997.
Prior to joining InterMedia, Mr. Chang received an MBA from Stanford
University's Graduate School of Business in 1994. Prior to attending Stanford,
Mr. Chang served as an analyst for The First Boston Corporation in the Mergers
and Acquisitions Group from 1990 to 1992. He is on the Advisory Boards or Boards
of Directors of InterMedia Capital Partners IV, L.P., InterMedia Capital
Partners VI, L.P., Insight Communications, Falcon Communications and TCI's
partnerships with Time Warner in Kansas City and Houston.
William R. Fitzgerald is a member of our Advisory Committee. Mr. Fitzgerald
has served as Executive Vice President and Chief Operating Officer of AT&T
Broadband and Internet Services since March 1999. In this capacity, Mr.
Fitzgerald manages the day-to-day cable operations of the company. Prior to
serving as Executive Vice President and Chief Operating Officer, Mr. Fitzgerald
held the same position with TCI beginning in 1996. Prior to joining TCI in March
1996, he was a Senior Vice President and partner with Daniels & Associates, a
leading brokerage and investment banking firm to the communications industry.
Before joining Daniels & Associates, Mr. Fitzgerald was Vice President at The
First National Bank of Chicago. He is on the Advisory Boards or Boards of
Directors of InterMedia Capital Partners IV, L.P., InterMedia Capital Partners
VI, L.P., Insight Communications, Falcon Communications and TCI's partnerships
with Time Warner in Kansas City and Houston. Mr. Fitzgerald received an
undergraduate degree from Indiana University School of Business and a master's
degree in business and finance from the J.L. Kellogg Graduate School of
Management at Northwestern University.
Mark T. Gallogly is a member of our Advisory Committee. Mr. Gallogly is a
member of the limited liability company that acts as the general partner of
Blackstone Capital Partners III, 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 on the Advisory Boards or Boards of Directors of
InterMedia Capital Partners VI, L.P., CommNet Cellular Inc., TWFanch-One Co. and
Centennial Cellular Corp.
Leo J. Hindery, Jr. is a member of our Advisory Committee. Mr. Hindery has
served as the President and Chief Executive Officer with AT&T Broadband and
Internet Services since March 1999 and is a director of TCI. From March 1997 to
March 1999, Mr. Hindery served as President and Chief Operating Officer and a
Director of TCI. Mr. Hindery is also President and Chief Executive Officer of
TCI Communications, Inc. and is Chairman of the Board of and a director of TCI
Music. Mr. Hindery was previously founder, Managing General Partner and Chief
Executive Officer of InterMedia Partners, a cable TV operator, and its
affiliated entities since 1988. Mr. Hindery is a director of National Cable
Television Association, Cable Television Systems Corporation, USA Networks, Inc.
and the At Home Corporation and Chairman and Director of C-SPAN.
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Simon P. Lonergan is a member of our Advisory Committee. Mr. Lonergan is a
Vice President of The Blackstone Group L.P. which he joined in 1996. Prior to
joining Blackstone, Mr. Lonergan received his MBA from Harvard Business School
in 1996. Prior to attending Harvard, Mr. Lonergan was an Associate at Bain
Capital, Inc. from 1992 to 1994 and a Consultant at Bain & Co. from 1989 to
1992. Mr. Lonergan is a member of the Board of Directors of CommNet Cellular
Inc. and a member of the Advisory Committee of each of Graham Packaging Company
and InterMedia Capital Partners VI, L.P.
William J. Bresnan is the father of Michael W. Bresnan.
Bresnan Capital Corporation, a Delaware corporation and our wholly owned
subsidiary, exists for the sole purpose of serving as co-obligor of the notes.
The sole director of Bresnan Capital Corporation is William J. Bresnan. Mr.
Bresnan serves as President and Secretary of Bresnan Capital Corporation and
Jeffrey S. DeMond serves as its Vice President and Assistant Secretary. Bresnan
Capital Corporation has nominal assets and does not conduct any operations.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Bresnan Communications Company was formed in 1984 and Bresnan
Communications Group was formed in August 1998. None of the officers of BCI has
ever received any compensation from Bresnan Communications Group nor have they
received any compensation from Bresnan Communications Company Limited
Partnership since January 1, 1996. None of such individuals expects to receive
any compensation from us or Bresnan Communications Company at any time in the
future.
Members of the Advisory Committee will receive no compensation for their
services on the committee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the date of this
prospectus with respect to the beneficial ownership of partnership interests of
Bresnan Communications Company and interests owned by all persons that function
effectively as our executive officers. Unless otherwise noted, the individuals
have sole voting and investment power. Bresnan Communications Company owns all
of our outstanding equity interests.
<TABLE>
<CAPTION>
NAME AND ADDRESS TYPE OF INTEREST INTEREST
- ---------------- ---------------- --------
<S> <C> <C>
BCI (USA), LLC........................................... General Partner Interest 1.0%(a)
c/o Bresnan Communications, Inc.
709 Westchester Avenue White Plains, NY 10604
C. Michael Armstrong..................................... Limited Partner Interest 50.0%(b)
Chairman and CEO,
TCI Bresnan LLC/TCID of Michigan, Inc.
9197 South Peoria Street
Englewood, CO 80112
Blackstone............................................... Limited Partner Interest 39.8%(c)
c/o The Blackstone Group L.P.
345 Park Avenue
31st Floor
New York, NY 10154
BCI (USA), LLC........................................... Limited Partner Interest 8.2%
c/o Bresnan Communications, Inc.
709 Westchester Avenue
White Plains, NY 10604
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS TYPE OF INTEREST INTEREST
- ---------------- ---------------- --------
<S> <C> <C>
William J. Bresnan....................................... Limited Partner Interest 1.0%
c/o Bresnan Communications, Inc.
709 Westchester Avenue
White Plains, NY 10604
All executive officers as a group (14 persons)(d)........ 10.2%
</TABLE>
- ---------------
(a) William J. Bresnan holds a 41.5% interest in BCI (USA), William J. Bresnan
Family Trust No. 2 holds a 18.9% interest in BCI (USA), William J. Bresnan
and Barbara J. Bresnan Grantor Trust holds a 26.3% interest in BCI (USA),
BCI holds a 1.5% interest in BCI (USA), BCI Management (USA) 2 L.P. holds a
1.0% interest in BCI (USA) and BCI Management, L.P. holds a 10.8% interest
in BCI (USA). See footnote (d).
BCI, a corporation wholly owned by William J. Bresnan, holds a 4.76%
general partner interest in BCI Management, L.P. and a 100% capital
interest in BCI Management (USA) 2 L.P. The limited partner interests in
BCI Management, L.P. and BCI Management (USA) 2 L.P. are held by our
employees and those of BCI. The limited partner interests represent an
economic interest rather than a beneficial ownership interest.
(b) Includes interests held by each of TCI Bresnan LLC and TCID. TCI Bresnan LLC
and TCID are affiliates of Tele-Communications, Inc.
(c) Bresnan Communications Company partnership interests beneficially owned by
Blackstone are held collectively by Blackstone B.C. Capital Partners L.P.,
Blackstone B.C. Offshore Capital Partners L.P. and an affiliated Delaware
limited partnership. The general partner of each of these entities with
voting and investment control of Bresnan Communications Company partnership
interests is a Delaware limited liability company. Messrs. Peter G. Peterson
and Stephen A. Schwarzman are founding members of the limited liability
company and may be deemed to share beneficial ownership of Bresnan
Communications Company partnership interests owned by Blackstone.
(d) None of the executive officers hold a beneficial interest in us in excess of
1%, other than William J. Bresnan who holds a beneficial interest in us of
10.2%.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EXISTING AGREEMENTS AND ARRANGEMENTS
The following descriptions are summaries of the relevant material
provisions of certain agreements and arrangements in existence prior to the
consummation of the transfer of systems to us by TCI. These agreements and
arrangements relate only to our previously existing cable systems.
Service Agreements
Prior to January 1, 1996, Bresnan Communications Company paid all of its
overhead expenses, other than the salary and related benefits of the President
of BCI. Currently, BCI performs substantial management services for both Bresnan
Communications Company and Bresnan Communications Poland LLC. Bresnan
Communications Company pays its portion of the expenses related to such services
under the management agreement and the administration agreement. In connection
with the consummation of the transfer of cable systems to and by TCI, the
management agreement and the administration agreement were terminated and
services are performed for us under the terms of the partnership agreement.
Management Agreement
Bresnan Communications Company entered into a management agreement with
BCI, a corporation wholly owned by William J. Bresnan, on December 31, 1995.
Under the management agreement, BCI provided certain services to Bresnan
Communications Company in connection with the management and
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operation of our cable television systems, related businesses, projects and
investments. This management agreement was terminated in connection with the
consummation of our transactions with TCI.
Payments by Bresnan Communications Company under the cable television
management agreement and the former management agreement aggregated
approximately $2.6 million, $2.5 million and $6.7 million for the years ended
December 31, 1996, 1997 and 1998, respectively. BCI has, effective as of January
1, 1996, assumed a substantial portion of Bresnan Communications Company's
obligations to pay overhead expenses for which Bresnan Communications Company
had previously been directly responsible, including BCI-related salaries,
insurance, executive office rental and travel expenses.
Administration Agreement
Bresnan Communications Company entered into administration agreement with
Bresnan Management Services, Inc., an affiliate of William J. Bresnan. Under
that agreement, Bresnan Management Services agreed to provide Bresnan
Communications Company with administrative services related to the
administration and operation of its cable systems, businesses, projects and
investments. This administration agreement was terminated in connection with the
consummation of our transactions with TCI.
Bresnan Management Services, effective as of January 1, 1996, assumed all
of Bresnan Communications Company's obligations to pay certain administration
expenses for which Bresnan Communications Company had previously been directly
responsible, including, costs of accounting and administration and expenses
relating to headquarters operations, excluding BCI-related expenses. Payments by
Bresnan Communications Company under the administration agreement aggregated to
approximately $1.6 million and $2.3 million for the years ended December 31,
1996 and 1997, respectively. Effective January 1, 1998 Bresnan Communications
Company paid these costs itself.
Agreements with and Purchases from TCI and its Affiliates
Prior to the consummation of our transactions with TCI, our parent
purchased substantially all of its programming services from TCI and its
affiliates though to a supply agreement with Satellite Services, Inc., a
subsidiary of TCI. These purchases were made in the normal course of business
and at rates which Bresnan Communications Company's management believes are
significantly lower than those it could obtain from third-parties and for the
years ended December 31, 1996, 1997 and 1998, aggregated approximately $14.4
million, $13.4 million and $15.6 million respectively.
TCID held an unexercised option under to which TCID may purchase from
William J. Bresnan a portion of his interests in Bresnan Communications Company
for $1, which was exercised prior to the consummation of our transactions with
TCI. The exercise of the option increased TCID's partnership interest in Bresnan
Communications Company to approximately 78.4%.
As a result of Bresnan Communications Company's prior partnership
agreement, TCID and William J. Bresnan transferred through BCI, to BCI
Management, L.P., approximately 1.6% and 0.5%, respectively, of TCID's and
William J. Bresnan's economic and voting interest in Bresnan Communications
Company. TCID and William J. Bresnan were not paid in connection with the
transfer. The transfer occurred as of October 1, 1996.
In May 1998, Bresnan Communications Company entered into a five-year
service agreement with At Home Corporation with respect to certain of its
systems. That agreement provides At Home Corporation with the exclusive right,
subject to certain conditions, to provide high-speed residential Internet
service for subscribers in such systems. In consideration of providing its
services, At Home Corporation was paid an up-front fee of $.1 million, which was
credited toward service payments made by Bresnan Communications Company for
services rendered. On an on-going basis At Home Corporation is entitled to a
specified percentage of revenues earned by Bresnan Communications Company for
providing the @Home services.
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TCID Note
Bresnan Communications Company has issued to TCID, as lender, a promissory
note, dated May 12, 1988 in the principal amount of $25.0 million, of which
$22.1 million was borrowed. Interest accrued on this promissory note at a per
year rate, based on a 360-day year, equal to the prime rate of The
Toronto-Dominion Bank's New York branch which, as of December 31, 1998 was
7.75%. Under an agreement dated as of October 10, 1994, the term of this
promissory note was extended from April 30, 1998 to April 30, 2001. As of
December 31, 1998, the aggregate amount of indebtedness outstanding under this
promissory note was $22.1 million of principal and $19.9 million of accrued
interest.
TCID is a subsidiary of TCI. The promissory note from TCID was repaid in
full, including all accrued interest, with a portion of the proceeds from our
transactions with TCI and the related financings on February 2, 1999.
Subordinated Promissory Note
Bresnan Communications Company executed a subordinated promissory note
dated July 22, 1994 in favor of TCID for a maximum principal amount of $2.9
million. The interest on this note will be computed at a rate of 12% per year,
compounded quarterly, based on a 365-day year. This note was canceled in May
1996. No amounts were ever drawn under this note and no fees were paid in
connection it.
Other Loans and Advances to or from Affiliates
During the normal course of business, Bresnan Communications Company
incurred management costs and made and received advances on behalf of Bresnan
Communications Poland LLC and TCI International Partners (Chile), L.P., formerly
Bresnan International Partners (Chile), L.P., who have invested in new cable
television systems in Chile and Poland. In August 1998, an affiliate of William
J. Bresnan transferred its interest in Bresnan International to an affiliate of
TCI. These costs totaled approximately $39,000, $0 and $0 for the years ended
December 31, 1996, 1997 and 1998, respectively, and are reflected as a reduction
of selling, general and administrative expenses. Bresnan Communications Company
formerly provided to Bresnan Poland and Bresnan International the management and
administrative services currently provided to Bresnan Poland by BCI. All amounts
due to Bresnan Poland and Bresnan International have been repaid in full. During
the period from January 1, 1996 through December 31, 1998, the largest amount of
indebtedness of Bresnan Poland and Bresnan International owed to us outstanding
at any time was $6.0 million. Bresnan Communications Company has no current
commitment to make any loan or advance to, nor any obligation to repay any
amounts advanced by, either of Bresnan Poland and Bresnan International or,
except under to the promissory note issued to TCID and any other affiliate.
Bresnan Communications Company currently does not provide services to Bresnan
Poland and Bresnan International and does not anticipate that it will make any
loans or receive any loans to or from either Bresnan Poland or Bresnan
International. Bresnan Poland is effectively controlled by William J. Bresnan
and TCI. Bresnan International is controlled by TCI. Certain of the persons that
function effectively as our executive officers also function in the same
capacity for Bresnan Poland.
Guarantee
A guarantee of borrowings made by Bresnan Communications Company under its
prior credit facility in the amount of $3.0 million has been provided by William
J. Bresnan. No consideration was paid to Mr. Bresnan in connection with the
guarantee. The guarantee will continue under the terms of our current credit
facility.
Purchases from Other Affiliates
During the normal course of business, Bresnan Communications Company
purchases automobiles and airline transportation services at amounts no less
favorable than those Bresnan Communications Company could obtain from third
parties from The Irving Corporation, Atlantic Imports, Inc. and Bresnan
Aviation, Inc. William J. Bresnan and Jeffrey S. DeMond are shareholders of The
Irving Corporation and Atlantic Imports, Inc. William J. Bresnan and Mr. DeMond
are directors of those companies. Bresnan Aviation, Inc. is
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a corporation wholly owned by William J. Bresnan. Payments made by Bresnan
Communications Company to The Irving Corporation and Atlantic Imports, Inc.
aggregated approximately, $0, $61,000 and $160,000 for the years ended December
31, 1996, 1997 and 1998, respectively. Payments made by Bresnan Communications
Company or Bresnan Management Services on behalf of Bresnan Communications
Company to Bresnan Aviation, Inc. aggregated approximately $114,000, $342,000
and $347,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
AGREEMENTS ENTERED INTO IN CONNECTION WITH THE TCI
The following descriptions are summaries of the relevant material
provisions of certain agreements we entered into in connection with our
transactions with TCI.
Contribution Agreement
On June 3, 1998, Blackstone, Bresnan Communications Company, the Bresnan
Group, TCID and the affiliates of TCI, which contributed systems to us entered
into a contribution agreement. That agreement provided for the transfer of
systems from TCI and Bresnan Communications Company to us. The terms of the
contribution agreement were determined through arms-length negotiations among
the parties. The contribution agreement contains certain adjustment mechanisms
through which the ownership interests of Blackstone and the Bresnan Group and
TCI's debt we assumed may change. In addition, under the terms of the
contribution agreement, in the event of certain overbuild situations, TCI is
required to either:
(1) pay Bresnan Communications Company an adjustment amount determined
by the contribution agreement,
(2) acquire the affected systems through a redemption of a portion of
its equity interest in Bresnan Communications Company equal to the
adjustment amount, or
(3) cause its equity interest in Bresnan Communications Company to be
reduced to reflect the adjustment amount.
In connection with the contribution agreement, TCI entered into an
agreement under which it will, under limited circumstances, make loans to
Bresnan Communications Company and its subsidiaries.
Partnership Agreement
Under the partnership agreement, TCI, Blackstone and the Bresnan Group
receive, an annual monitoring fee equal to the product of (1) such partner's
partnership interest percentage in Bresnan Communications Company and (2)
$500,000, which will be payable on a quarterly basis in advance.
BCI (USA) receives an annual management fee, payable in advance in equal
quarterly installments equal to 3% of Bresnan Communications Company's budgeted
consolidated gross operating revenues for such year, or partial year, with
respect to a specified number of base subscribers. The partnership agreement
contains a mechanism for reimbursement of any overpayment or underpayment, as
applicable, of management fees once actual revenues are determined. The
management fee will be increased by such budgeted amount as agreed to by BCI
(USA) and at least 66 2/3% in interest of the limited partners to reflect
certain expected incremental costs and expenses associated with operating and
managing additional subscribers beyond the base number of subscribers.
Under the terms of the partnership agreement, Bresnan Communications
Company will pay or reimburse TCI, Blackstone and the Bresnan Group for all
reasonable fees and expenses relating to the transactions with TCI and the
related financings. In addition, under the terms of the partnership agreement,
Bresnan Communications Company paid to TCI, Blackstone and the Bresnan Group or
its designated affiliate a transaction fee, approximately $3.4 million in the
aggregate, in cash in an amount equal to 1% of the capital contributions made by
such partner.
According to the terms of the partnership agreement, Bresnan Communications
Company is required to cause its subsidiaries to continue carriage of the Starz
and Encore programming services in the systems transferred to us by TCI on the
terms as were in effect before these systems were transferred. In addition, we
are required to use our reasonable best efforts to launch the Starz and Encore
programming services in our
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other systems on the terms described in Bresnan Communications Company's
agreement with those programmers as soon as possible. Starz and Encore are
subsidiaries of TCI.
Programming Supply Agreement
In connection with our transactions with TCI, Bresnan Telecommunications
Company entered into a programming supply agreement with Satellite Services
which will replace the prior supply agreement by which Satellite Services
provides us with programming. Subject to the terms and conditions of the new
supply agreement, Bresnan Telecommunications Company, subject to certain
exceptions, is required to buy and procure certain programming services from
Satellite Services for which it pays Satellite Services its cost plus surcharge.
The term of the new supply agreement will initially be 15 years and in the
absence of certain events will be automatically extended for successive one year
periods. The new supply agreement may be terminated by the parties under certain
circumstances, including but not limited to, in the event that TCI's interest in
Bresnan Telecommunications Company falls below a specified percentage or upon
certain initial public offerings.
Advertising Arrangement
We entered into an agreement with TCI for our advertising sales business.
That agreement expired as of June 30, 1999.
Agreement Relating to At Home Corporation
Under the terms of the partnership agreement, Bresnan Communications
Company is required to operate, for a period up to and until June 2002, the
cable systems transferred to us by TCI, subject to certain exceptions, in
accordance with TCI's distribution agreement with At Home Corporation, an
affiliate of TCI. Such obligations include, among other things, the requirement
that Bresnan Communications Company provide the "@Home" services through the
systems transferred to us by TCI, in accordance with the terms of TCI's
distribution agreement with At Home Corporation; provided that if the costs paid
by Bresnan Communications Company for providing the services under such
agreement is less favorable than Bresnan Communications Company's agreement with
At Home Corporation then Bresnan Communications Company will be released from
those obligations.
Up to June 2002 we are not permitted to conduct or engage in any restricted
business with respect to the cable systems transferred to us by TCI other than
through At Home Corporation. Restricted businesses include, among other things,
the provision of residential Internet service, as defined in the agreement, over
its cable television plant or equipment at bit rate speeds greater than 128 kbps
whose primary purpose is the provision to consumers of entertainment,
information content, transactional services or e-mail, chat and news groups or
substantially similar services. So long as Bresnan Communications Company is in
compliance with these provisions, TCI has agreed to use commercially reasonable
efforts to obtain for the benefit of the systems transferred to us by TCI the
benefits available to TCI and its controlled affiliates, as such term is
defined, under its distribution agreement with At Home Corporation, including
the benefits under the most favored nations provisions of that agreement. Under
its agreement with At Home Corporation, TCI pays At Home Corporation a specified
percentage of revenues collected by TCI for the services provided by At Home
Corporation.
Billing Agreement
In connection with the consummation of our transactions with TCI, Bresnan
Communications Company entered into a billing contract with CSG Systems, Inc.
with respect to the subscribers previously served by TCI. If the number of
subscribers served by this billing agreement falls below the number served by
the cable systems transferred to us by TCI and billed by CSG Systems on February
2, 1999, plus the number of subscribers of the systems transferred to us by TCI
scheduled to be billed under such agreement within the six month period
beginning on February 2, 1999, then, subject to certain limitations, Bresnan
Communications Company will be required to pay TCI a penalty fee. This
obligation will remain in effect until December 31, 2012 or an earlier date upon
which this billing agreement terminates.
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DESCRIPTION OF THE PARTNERSHIP AGREEMENT
Organization and Duration. The partnership agreement became effective on
February 2, 1999. Bresnan Communications Company will continue to exist until
February 1, 2014 unless terminated prior to such date in accordance with its
partnership agreement.
General Partner. The sole general partner of Bresnan Communications
Company will BCI (USA). Subject to the partnership matters that require the
approval of the limited partners, the business and operations of Bresnan
Communications Company will be conducted and managed exclusively by BCI (USA).
Change of Control of General Partner. Upon the occurrence of any of the
following:
(1) the death of William J. Bresnan;
(2) the incapacity of William J. Bresnan such that he is unable to
perform substantially all of his duties as Chief Executive Officer of the
general partner for a period of nine months;
(3) the bankruptcy, insolvency, or appointment of a trustee, in
connection with a bankruptcy or insolvency, to manage the affairs of
William J. Bresnan;
(4) any other event that either:
- causes William J. Bresnan and his wife and their descendants
including their spouses, any trust established for the benefit of
these individuals or any partnership or other entity at least 80%
owned by any of these persons to own, directly or indirectly, less
than 50% of the economic and voting interests in the general
partner,
- causes third parties, other than William J. Bresnan, the family
members listed above and officers of Bresnan Communications Company
to own more than 20% of the economic and voting interests in the
general partner,
- causes William J. Bresnan not to control the general partner, or
- causes William J. Bresnan and the family members listed above to
own, directly or indirectly, less than 50% of the economic and
voting interests in the owner of the interest as a limited partner
in Bresnan Communications Company initially owned by BCI (USA); or
(5) William J. Bresnan ceases to serve as Chief Executive Officer of
Bresnan Communications Company other than as a result of (1) or (2) above;
then a new Chief Executive Officer of the general partner will be elected to
replace William J. Bresnan as CEO of the general partner and that new CEO must
be approved by the consent of 66 2/3% in interest of the limited partners.
Tax Distributions. Under the partnership agreement, Bresnan Communications
Company generally is required to make distributions to partners, other than TCI,
to allow them to pay their federal, state and local income tax liabilities
attributable to their investment in us. The amount distributable to a partner
each fiscal year will be based upon the federal taxable income, including income
attributable to guaranteed payments, allocated to such partner for such year,
treating partnership losses generated subsequent to the effective date of the
partnership agreement as carried forward to and reducing taxable income in
subsequent fiscal years. The computation of federal taxable income will take
into account the effect of the AHYDO rules, as described in "Risk
Factors -- Holders of the new senior discount notes will generally be required
to include amounts in gross income for federal income tax purposes in advance of
receiving cash and interest deductions may be disallowed to certain of our
beneficial owners, resulting in increased Tax Distributions and reduced cash"
and "Certain Federal Tax Considerations," to the extent relevant to our
beneficial owners. Despite these requirements, Bresnan Communications Company is
generally required to apply certain tax allocation methods so that, based on
certain financial forecasts set forth in the partnership agreement, Blackstone
is allocated no more than $50,000 of income for our first six fiscal years,
taking into account only certain effects of the AHYDO rules on such income.
Generally, the partnership agreement provides that the computation of the amount
of the tax distributions to each partner will be determined as if such partner
was taxable at the
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highest marginal rates for regular and alternative minimum tax purposes, as the
case may be, applicable to individuals residing in the State and City of New
York, regardless of the actual status of such partner.
Capital Contributions and Distributions Other than Tax
Distributions. Other than the contributions made in the contribution agreement,
the partners of Bresnan Communications Company will not be required to make any
additional contributions. Subject to any restrictions contained in any
indebtedness of Bresnan Communications Company or its subsidiaries,
distributions other than tax distributions will be made to the partners on a
quarterly basis in accordance with the terms of the partnership agreement.
Expenses and Fees. Bresnan Communications Company reimbursed each partner
for all reasonable fees and expenses relating to the transactions with TCI and
the related financings. In addition, at the closing, Bresnan Communications
Company paid to each partner or its designated affiliate a transaction fee in
cash in an amount equal to 1% of the capital contributions made by such partner.
Each partner received a monitoring fee equal to the product of (1) such
partner's partnership interest percentage in Bresnan Communications Company and
(2) $500,000, which will be payable on a quarterly basis in advance.
BCI (USA) receives an annual management fee, payable in advance in equal
quarterly installments equal to 3% of Bresnan Communications Company's budgeted
consolidated gross operating revenues for such year, or partial year, with
respect to a specified number of base subscribers. The partnership agreement
contains a mechanism for reimbursement of any overpayment or underpayment, as
applicable, of management fees once actual revenues are determined. The
management fee will be increased by the budgeted amount as agreed to by BCI
(USA) and at least 66 2/3% in interest of the limited partners to reflect
certain expected incremental costs and expenses associated with operating and
managing additional subscribers beyond the base number of subscribers.
CONSENT AND OTHER RIGHTS OF PARTNERS.
Matters Subject to Partner Consent. Certain matters are subject to receipt
of the consent of 66 2/3% in interest of the limited partners of Bresnan
Communications Company. Actions or events that require the consent of a
supermajority of the limited partnership interests include, but are not limited
to:
(1) any expenditures that are a specified percentage above those
budgeted for in Bresnan Communications Company's annual budget;
(2) any transaction with any partner or any affiliate of a partner,
with certain permitted exceptions;
(3) the selection of a person to manage Bresnan Communications
Company's operations other than as provided for in the partnership
agreement;
(4) the incurrence of indebtedness by Bresnan Communications Company
or its subsidiaries which causes that indebtedness to exceed the total
amount available under any debt facilities in place at the closing of the
transactions with TCI, or any refinancing or guarantee of that indebtedness
of a material amount or any material amendment to those debt facilities;
(5) any incurrence of indebtedness by Bresnan Communications Company
or its subsidiaries that would cause it or its subsidiaries to exceed a
specified maximum leverage ratio;
(6) the sale or other transfer of assets or cable systems of Bresnan
Communications Company for consideration in excess of $25 million in the
aggregate;
(7) the issuance or sale of additional equity interests in Bresnan
Communications Company or the admission of new partner;
(8) the purchase of assets in excess of $25 million in any calendar
year;
(9) the merger of or consolidation of Bresnan Communications Company
with any other entity;
(10) any amendments or modifications to any approved operating plan or
annual budget;
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(11) the liquidation or dissolution of Bresnan Communications Company
except by following the terms of the partnership agreement;
(12) any fundamental change in the business of Bresnan Communications
Company; and
(13) any action by any subsidiary of Bresnan Communications Company
which, if taken by Bresnan Communications Company, would require consent of
the limited partners under the Partnership Agreement.
Other Rights. In addition to the rights described in the immediately
preceding section, upon the written request of 66 2/3% in interest of the
limited partners the general partner is required to take certain actions. Except
for the actions described in clauses (1) and (6) below, which actions will be
taken in accordance with such clauses, the general partner will:
(1) amend the partnership agreement; provided that such amendment does
not adversely affect any partner, in which case such affected partner's
consent will be required -- but such partner's consent will not be required
for any such amendment necessary to give effect to any actions described in
clauses (2), (3), (4) or (5) below;
(2) sell additional interests in Bresnan Communications Company to a
person that is not a partner or an affiliate of a partner at the time of
that sale and use the proceeds of that sale in the manner specified by
66 2/3% in interest of the limited partners, subject to certain exceptions;
(3) incur indebtedness, by Bresnan Communications Company or its
subsidiaries, or refinance any of that type of then existing indebtedness
on behalf of Bresnan Communications Company or its subsidiaries and use the
proceeds of that indebtedness in the manner specified by 66 2/3% in
interest of the limited partners; provided that the leverage ratio of
Bresnan Communications Company and its subsidiaries after giving effect to
such incurrence or refinancing does not exceed the specified maximum
leverage ratio;
(4) sell Bresnan Communications Company or all or substantially all of
its assets to any entity that is not its affiliate or merge or consolidate
Bresnan Communications Company with or into any other entity that is not
its affiliate;
(5) sell, exchange or otherwise transfer any assets or cable systems
of Bresnan Communications Company or enter into any contract for that
purpose; and
(6) under certain circumstances, pursue on behalf of Bresnan
Communications Company any and all rights available to it with respect to
claims under agreements with affiliates of any of the partners.
Transfer Restrictions. No limited partner may transfer all or any portion
of its interest in Bresnan Communications Company to any third party until
February 1, 2004 other than:
(1) with the consent of the general partner and 66 2/3% in interest of
the other limited partners, which consent may be granted or denied at the
sole discretion of such partners;
(2) subject to certain conditions, to a limited number of enumerated
permitted transferees; or
(3) in connection with the transactions described in below in "Exit
Provisions."
The general partner may transfer all, but not less than all, of its
partnership interest as a general partner to certain enumerated permitted
assignees so long as such assignment or transfer:
(1) does not cause any of the events described above in "-- Change of
Control of General Partner";
(2) will not, in the reasonable judgment of at least 66 2/3% in
interest of the limited partners, other than the Bresnan Partners, cause
certain events to occur with respect to Bresnan Communications Company or
violate any of its, or its subsidiary's, franchise or other agreements or
licenses; and
(3) is evidenced by documents in form and substance reasonably
satisfactory to the limited partners.
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Exit Provisions. At any time after February 1, 2004, if TCI or Blackstone
wishes to sell its interests in Bresnan Communications Company, it must notify
the other. In addition, the selling party must deliver an investment banker's
non-binding written valuation of the fair value of Bresnan Communications
Company. After the notice and delivery, a negotiation period will commence. The
negotiations may lead to a sale of its interests by either TCI or Blackstone to
the other or to a third party, a sale of all of Bresnan Communications Company
or its assets or an IPO, which is defined in the partnership agreement. Each
possible outcome is subject to compliance with numerous procedures and time
constraints specified in the partnership agreement. Various tag along and drag
along rights may also apply if TCI, Blackstone or the Bresnan Group wishes to
exit.
After February 1, 2002, TCI or Blackstone may initiate an IPO, subject to
consent of the other. Consent may not be withheld unless it would cause
uncompensated adverse tax consequences. In addition, an IPO, together with all
distributions, including tax distributions, previously received by each limited
partner, would be required to reflect an implied valuation of Bresnan
Communications Company, based on such IPO price, that would provide the partners
at least a specified annual internal rate of return based upon their actual
capital contributions to Bresnan Communications Company.
In connection with the consummation of an IPO, Bresnan Communications
Company would be reorganized into a corporation upon terms agreed to by the
partners. In connection with such reorganization, the partners would enter into
a previously agreed upon shareholders agreement and registration rights
agreement. That shareholders agreement would contain, among other things,
provisions relating to voting for nominees of the various shareholders for the
corporation's board of directors, restrictions on transfer and tag-along rights
for the shareholders. The registration rights agreement would provide the
shareholders with demand registration rights under certain circumstances and
unlimited incidental registration rights, subject to customary cut-backs.
In addition, upon:
(1) removal of BCI (USA) as general partner;
(2) the death of William J. Bresnan;
(3) subject to the last sentence of this paragraph, after February 1,
2007; or
(4) the replacement of William J. Bresnan as CEO with a new CEO that
is not a member of his family described above in "-- Change of Control of
General Partner,"
BCI (USA) has the right to force TCI to purchase the interests in Bresnan
Communications Company held by the Bresnan Partners at fair market value.
The exercise of the put right under clause (3) above will be effective only
if Blackstone does not initiate its exit rights within 30 days after such put
exercise, and if Blackstone does initiate its exit rights, then any sale
pursuant to the put right, but not pursuant to other exit rights, will be
delayed until the earlier of the closing of Blackstone's sale pursuant to the
exit provisions or Blackstone's abandonment of such exit process.
Upon a sale to TCI by the Bresnan Partners, TCI will have the right to
replace BCI (USA) as sole general partner, subject to Blackstone's consent,
which will not be unreasonably withheld.
VENDOR TERMS
Subject to various limitations, TCI has agreed, in the partnership
agreement, to use its reasonable best efforts to make available to Bresnan
Communications Company and its wholly-owned subsidiaries goods and services that
are provided to TCI with respect to cable television systems owned and operated
by TCI at the same cost and on the same terms and conditions as those goods and
services are made available to TCI.
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DESCRIPTION OF THE CREDIT FACILITY
Bresnan Telecommunications Company, our wholly owned subsidiary, is the
owner of all of our cable systems. It has obtained commitments from a consortium
of financial institutions for up to $650 million in senior bank credit
facilities. The $650 million commitments consist of Facility A, which includes a
$150 million reducing revolving credit facility and a term loan of up to $328
million, and Facility B, which is a term loan of up to $172 million.
The commitments under our credit facility will reduce commencing with the
quarter ending March 31, 2002. Facility A permanently reduces in quarterly
amounts ranging from 2.5% to 6.25% of the Facility A amount starting March 31,
2002. This facility matures approximately eight and one half years after
February 2, 1999. Facility B is also to be repaid in quarterly installments of
.25% of the Facility B amount beginning in March 2002. This facility matures
approximately nine years after February 2, 1999, on which date all remaining
amounts of Facility B will be due and payable. Additional reductions of our
credit facility will also be required upon certain asset sales, subject to the
right of Bresnan Telecommunications Company and its subsidiaries to reinvest
asset sale proceeds under certain circumstances.
The interest rate options include a LIBOR option and a Prime Rate option,
which are defined in our credit facility, plus applicable margin rates based on
Bresnan Telecommunications Company's total leverage ratio. In addition, Bresnan
Telecommunications Company is required to pay a commitment fee on the unused
revolver portion of Facility A which will accrue at a rate ranging from .25% to
.375% per annum, depending on Bresnan Telecommunications Company's total
leverage ratio.
Though the borrowings under credit facility are generally unsecured, we
have pledged 100% of our membership interest in Bresnan Telecommunications
Company and Bresnan Telecommunications Company and its restricted subsidiaries
have provided negative pledges on all of their existing and future assets,
subject to certain exceptions to be agreed upon. In addition, Bresnan
Telecommunications Company is required to pledge all future inter-company notes
held by itself or any subsidiary and its equity interest in its restricted
subsidiaries, in each case subject to certain exceptions. Bresnan Communications
Company and all of the present and future restricted wholly owned subsidiaries
of Bresnan Telecommunications Company guaranteed our credit facility.
Our credit facility contains financial covenants which, among other things,
(1) limit the amount that Bresnan Telecommunications Company or
Bresnan Communications Group may borrow in the future;
(2) limit the amount of debt that can be maintained by Bresnan
Telecommunications Company;
(3) require Bresnan Telecommunications Company to maintain specified
levels of the ratio of cash flow to future debt service;
(4) require Bresnan Telecommunications Company to maintain specified
levels of the ratio of cash flow to interest expense; and
(5) limit the amount of capital expenditures Bresnan
Telecommunications Company may make based on its total leverage.
In addition, our credit facility contains covenants that provide for
certain limitations on Bresnan Telecommunications Company, Bresnan
Communications Group and/or Bresnan Communications Company with respect to
additional indebtedness, liens, mergers and acquisitions, restricted payments,
investments, the sale, disposition or exchange of assets, certain amendments to
material agreements and transactions with affiliates.
Under our credit facility, Bresnan Telecommunications Company is permitted
to make restricted payments to pay interest and principal at stated maturity on
the notes but only so long as no default or event of default, as those terms are
defined in our credit facility, has occurred and is continuing or would be
caused by the restricted payments. Events of default under our credit facility
include nonpayment of amounts when due, bankruptcy, violation of covenants,
breaches of representations, cross defaults, loss of certain licenses, certain
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judgments and certain changes in the ownership of Bresnan Communications Company
or its indirect ownership interest in Bresnan Telecommunications Company.
In addition, our credit facility provides Bresnan Telecommunications
Company with the right to request the lenders to make available to it an
incremental facility of up to an additional $200 million. The incremental
facility is uncommitted and the decision of any lender to make such a commitment
is in the lender's sole discretion. The terms of the incremental facility are
unnegotiated, however, the terms of the incremental facility cannot be more
restrictive than the terms of Facility A.
The notes are joint and several obligations of Bresnan Capital Corporation
and debt service in respect of the notes require the payment of funds from
Bresnan Telecommunications Company to Bresnan Communications Group, a holding
company. Our credit facility prohibits such payments upon a default or an event
of default under our credit facility. In addition, the lenders have a pledge of
the membership interests of Bresnan Telecommunications Company owned by Bresnan
Communications Group. Moreover, the holding company structure provides holders
of the notes with a claim only on the equity of Bresnan Telecommunications
Company and the notes are structurally subordinated to our credit facility and
any other debt of Bresnan Communications Group's subsidiaries, including Bresnan
Telecommunications Company.
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DESCRIPTION OF NOTES
The new notes, like the original notes, will be issued under the indenture,
dated February 2, 1999 among Bresnan Communications Group LLC, Bresnan Capital
Corporation, our wholly-owned subsidiary, and State Street Bank and Trust
Company, as trustee. Upon the effectiveness of the registration statement, of
which this prospectus is a part, the indenture will be subject to and governed
by the Trust Indenture Act of 1939, as amended.
Unless otherwise indicated, the information regarding the notes described
in this section applies to each of the new senior notes and the new senior
discount notes.
The new notes are the same as the original notes except that the new notes:
- will not contain certain terms providing for an increase in the interest
rate under the circumstances described in the registration rights
agreement and
- will not bear legends restricting their transfer.
The indenture and the registration rights agreement contain the full legal
text of the matters described in this section. A copy of the indenture and the
registration rights agreement have been filed with the SEC as part of our
registration statement. See "Available Information" for information on how to
obtain copies.
Because this section is a summary, it does not describe every aspect of the
notes. This summary is subject to and qualified in its entirety by reference to
all of the provisions of the indenture, including definitions of some terms used
in the indenture. For example, capitalized words are used to signify defined
terms that have been given special meaning in the indenture or the registration
rights agreement. The meaning of only the more important terms is given under
the heading "Definitions" below. We also make reference to terms of the
indenture. Whenever we refer to particular provisions of the indenture or
registration rights agreement, these sections or defined terms are incorporated
by reference into this prospectus.
In this description of new notes:
- the term "Company" refers to Bresnan Communications Group LLC, excluding
its subsidiaries;
- the term "Parent" refers to Bresnan Communication Company Limited
Partnership;
- the term "Issuers" refers to the Company and Bresnan Capital Corporation;
and
BRIEF DESCRIPTION OF THE NEW NOTES
The senior notes:
- will be unsecured unsubordinated obligations of the Issuers;
- will be limited to $250.0 million aggregate principal amount; except that
up to $170.0 million aggregate principal amount of new senior notes are
being offered by this prospectus in exchange for $170.0 million aggregate
principal amount of original senior notes;
- will mature on February 1, 2009;
- will bear interest at the rate of 8% per annum;
- interest will be paid semiannually on February 1 and August 1 of each
year, beginning on August 1, 1999, to the registered holder at the close
of business on the preceding January 15 or July 15; and
- are not convertible into any other security.
The senior discount notes:
- will be unsecured unsubordinated obligations of the Issuers;
- will be limited to an aggregate principal amount at maturity of $275.0
million;
- will be issued at a discount to their aggregate principal amount at
maturity;
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- will accrete at a rate of approximately 9 1/4% per annum, compounded
semiannually;
- will not accrue interest until February 1, 2004, except as set forth
below under "The Exchange Offer"; provided, however, that the Company may
elect, upon not less than 60 days prior notice, to commence the accrual
of interest on all outstanding senior discount notes on or after February
1, 2002, in which case the outstanding principal amount at maturity of
each senior discount note will on such commencement date be reduced to
the Accreted Value of such senior discount note as of such date and
interest shall be payable with respect to such senior discount note on
each February 1 and August 1 thereafter;
- except as otherwise provided above, interest will accrue and will be
payable in cash semiannually in arrears on February 1 and August 1,
beginning August 1, 2004; and
- are not convertible into any other security.
Interest on the notes will be computed on the basis of a 360 day year
comprised of twelve 30-day months. The interest rate on the notes is subject to
increase in the circumstances (such additional interest is referred to as
"Special Interest") described under "The Exchange Offer." All references in this
section to interest on the notes shall include such Special Interest, if
appropriate.
The notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. See "Book-Entry;
Delivery and Form." Settlement for the notes will be made in immediately
available funds. The new notes will trade in The Depository Trust Company's Same
Day funds Settlement System until maturity, and secondary market trading
activity in the new notes will therefore settle in immediately available funds.
RANKING
The indebtedness evidenced by the notes:
- will rank equally in right of payment with all existing and future senior
indebtedness of the Company and
- will be senior in right of payment to all existing and future
subordinated indebtedness of the Company.
Bresnan Capital Corporation has no, and the terms of the indenture prohibit
it from having any, obligations other than the notes. As of March 31, 1999, the
Company would have had no Indebtedness outstanding other than the notes.
All the operations of the Company are conducted through its subsidiaries.
As a holding company, the Company has no operations and, therefore, is dependent
on the cash flow of its subsidiaries and other entities to meet its own
obligations, including the payment of interest and principal obligations on the
notes when due. Claims of creditors of such subsidiaries, including the lenders
under the New Credit Facility, trade creditors, secured creditors and creditors
holding indebtedness and guarantees issued by such subsidiaries, and claims of
holders (other than the Company), if any, of Equity Interests of such
subsidiaries, will have priority with respect to the assets and earnings of such
subsidiaries over the claims of creditors of the Company, including holders of
the notes. The notes, therefore, will be structurally subordinated to all
liabilities of the Company's subsidiaries (other than Bresnan Capital
Corporation), including obligations under the New Credit Facility and
obligations owing to trade creditors, and will be effectively subordinated to
claims of holders (other than the Company), if any, of Preferred Equity
Interests of subsidiaries of the Company.
As of March 31, 1999, the total balance sheet liabilities of the Company's
subsidiaries (including trade payables and accrued liabilities) would have been
approximately $540.1 million, of which approximately $511.8 million would have
been Indebtedness. At March 31, 1999, holders of the notes would have been
structurally or effectively subordinated to all other Indebtedness of the
Company and its subsidiaries.
The payment of dividends and the making of loans and advances to the
Company by its Subsidiaries are subject to statutory restrictions and
restrictions under the New Credit Facility. Although the indenture limits the
Incurrence of Indebtedness and Preferred Equity Interests of certain of the
Company's subsidiaries, such
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limitations are subject to a number of significant qualifications. Furthermore,
all the Indebtedness that may be Incurred under and in accordance with the terms
of the indenture may be Incurred in its entirety by the Company's subsidiaries.
Moreover, the indenture does not impose any limitation on the Incurrence by such
subsidiaries of liabilities that are not considered Indebtedness under the
indenture. See "-- Certain Covenants -- Limitation on Indebtedness."
OPTIONAL REDEMPTION
The notes will not be redeemable prior to February 1, 2004, except as set
forth below. At any time on or after February 1, 2004, and prior to maturity,
the notes will be redeemable at the option of the Issuers, in whole or in part,
on not less than 30 nor more than 60 days' notice.
The new senior notes and the original senior notes are redeemable at the
following redemption prices (expressed as percentages of principal amount), plus
accrued and unpaid interest, if any, to the date of redemption (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
commencing February 1 of the year indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2004........................................................ 104.000%
2005........................................................ 102.667%
2006........................................................ 101.333%
</TABLE>
and thereafter, beginning February 1, 2007, at 100% of the principal amount of
the new senior notes or the original senior notes, as applicable.
The new senior discount notes and the original senior discount notes are
redeemable at the following redemption prices (expressed as percentages of their
Accreted Value) plus accrued and unpaid interest, if any, to the date of
redemption (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date), if redeemed
during the 12-month period commencing February 1 of the year indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2004........................................................ 104.625%
2005........................................................ 103.083%
2006........................................................ 101.542%
</TABLE>
and thereafter, beginning February 1, 2007, at 100% of the Accreted Value of the
new senior discount notes or the original senior discount notes, as applicable.
In the event of redemption of fewer than all the new senior notes and the
original senior notes or the new senior discount notes and the original senior
discount notes, as the case may be, the trustee shall select by lot or in such
manner as it shall deem fair and equitable such notes to be redeemed. On and
after any redemption date, interest will cease to accrue or accrete, as
applicable, on such notes or portions thereof called for redemption unless the
Issuers shall fail to redeem any such notes.
In addition, at any time or from time to time prior to February 1, 2002,
the Issuers may redeem:
- up to 35% of the aggregate principal amount of the senior notes or,
- up to 35% of the aggregate principal amount at maturity of the senior
discount notes,
- the redemption price in these cases would be
-- 108.000% of the principal amount of the senior notes redeemed or,
-- 109.250% of the Accreted Value of the senior discount notes,
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in each case, plus accrued and unpaid interest, if any, to the date of
redemption (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date), with the
net cash proceeds to the Company of one or more Equity Offerings, provided that
at least 65% of the aggregate principal amount of senior notes would remain
outstanding immediately after giving effect to such redemption and at least 65%
of the original aggregate principal amount at maturity of the senior discount
notes would remain outstanding immediately after giving effect to such
redemption. Any such redemption shall be made within 75 days of any such Equity
Offering upon not less than 30 nor more than 60 days' prior notice.
SINKING FUND
There will be no mandatory sinking fund payments for the notes.
PURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of notes shall have
the right to require the Issuers to purchase all or any part (equal to $1,000 or
an integral multiple thereof) of such holder's notes pursuant to the offer
described below (the "Change of Control Offer") at a purchase price equal to
101% of the principal amount thereof in the case of the senior notes, and 101%
of the Accreted Value thereof in the case of the senior discount notes, in each
case plus accrued and unpaid interest, if any, to the purchase date (the "Change
of Control Payment").
Within 30 days following any Change of Control, the Issuers shall:
(A) cause a notice of the Change of Control Offer to be sent at least
once to the Dow Jones News Service or similar business news service in the
United States and
(B) mail a notice to each holder of notes stating:
(1) that a Change of Control has occurred and a Change of Control
Offer is being made pursuant to the covenant entitled "Purchase at the
Option of Holders Upon a Change of Control" and that, subject to the
terms and conditions set forth herein, all notes timely tendered will be
accepted for payment;
(2) the purchase price and the purchase date, which shall be,
subject to any contrary requirements of applicable law, no earlier than
30 days nor later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date");
(3) that any note (or portion thereof) accepted for payment (and
duly paid on the Change of Control Payment Date) pursuant to the Change
of Control Offer shall cease to accrue or accrete interest, as
applicable, after the Change of Control Payment Date;
(4) that any notes (or portions thereof) not tendered will continue
to accrue or accrete interest, as applicable;
(5) a description of the transaction or transactions constituting the
Change of Control; and
(6) the procedures that holders of notes must follow in order to
tender their notes (or portions thereof) for payment and the procedures
that holders of notes must follow in order to withdraw an election to
tender notes (or portions thereof) for payment.
The Issuers shall not be required to make a Change of Control Offer upon a
Change of Control if a third-party makes the Change of Control Offer in a
manner, at the times and otherwise in compliance with all requirements
applicable to a Change of Control Offer made by the Issuers and purchases all
notes validly tendered and not withdrawn under such Change of Control Offer.
Notes repurchased by either Issuer or such third-party pursuant to a Change of
Control Offer shall have the status of notes issued but not outstanding or shall
be retired and canceled, at the option of the Issuers.
The Issuers will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act, and any other related securities laws and
regulations to the extent such laws and regulations are
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applicable in connection with the purchase of notes in connection with a Change
of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions relating to the Change of Control
Offer, the Issuers will comply with the applicable securities laws and
regulations and will not be deemed to have breached their obligations described
above acting in accordance with the security laws or regulations.
Except as described in this section with respect to a Change of Control,
the indenture does not contain any provisions that permit the holders of the
notes to require that the Issuers purchase or redeem the notes in the event of a
takeover, recapitalization or similar restructuring.
The Change of Control purchase feature is the result of negotiations among
the Issuers and the initial purchasers of the original notes. Management has no
present intention to engage in a transaction involving a Change of Control,
although it is possible that the Company could decide to do so in the future.
Subject to the limitations discussed below, the Company could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company and its Restricted Subsidiaries
to Incur additional Indebtedness are contained in the covenants described under
"-- Certain Covenants -- Limitation on Indebtedness" and "-- Certain
Covenants -- Limitation on Liens." Such restrictions can only be waived with the
consent of the registered holders of a majority in principal amount, in the case
of the new senior notes and original senior notes, and principal amount at
maturity, in the case of the new senior discount notes and original senior
discount notes, then outstanding. Except for the limitations contained in such
covenants, however, the indenture will not contain any covenants or provisions
that may afford holders of the notes protection in the event of a highly
leveraged transaction.
There can be no assurance that the Issuers will be able to fund any
purchase of the notes upon a Change of Control. The Issuers may not have
sufficient funds at the time of the Change of Control to make the Change of
Control Offer or restrictions in the New Credit Facility may prohibit the
distribution of funds from the Company's subsidiaries which may be necessary in
order to make the Change of Control Offer. In addition, certain important
corporate events, such as leveraged recapitalizations that would increase the
level of the Company's Indebtedness, would not constitute a Change of Control.
BOOK-ENTRY SYSTEM
Notes offered and sold to "qualified institutional buyers" will be issued
in the form of one or more fully registered notes in global form, referred to as
U.S. global notes. Notes offered and sold outside the United States in reliance
on Regulation S under the Securities Act will be issued in the form of a single
note in temporary global form, referred to as the temporary Regulation S note,
which will not be exchangeable for an interest in a U.S. global note or a
Regulation S global note, or any other note without a legend containing
restrictions on transfer, until the expiration of the "40-day restricted period"
within the meaning of Rule 903(c)(3) of Regulation S under the Securities Act
and then only upon certification that beneficial interests in such U.S. global
note, Regulation S global note or other note are owned either by non-U.S.
Persons or U.S. Persons who purchased such interests in a transaction that did
not require registration under the Securities Act, which is the "Regulation S
certification."
The U.S. global notes and the temporary Regulation S note will be deposited
upon issuance with the trustee as custodian for the Depository Trust Company,
New York, New York and registered in the name of Cede & Co., as DTC's nominee.
Until the expiration of such 40-day restricted period under Regulation S,
transfers of interests in the temporary Regulation S note may only be effected
through the Euroclear System or Cedel S.A. (as indirect participants in DTC) in
accordance with the restrictions set forth in "Notice to Investors." Euroclear
and Cedel will hold interests in the temporary Regulation S note and the
Regulation S global note on behalf of their participants through customers'
securities accounts in their respective names on the books of their respective
depositories, which are Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of Euroclear, and Citibank, N.A., as operator of Cedel.
Following the expiration of the
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40-day restricted period, interests in the temporary Regulation S note may be
exchanged for interests in Regulation S global note, interests in the U.S.
global note or certificated notes in the names requested by Euroclear or Cedel
upon delivery by the holder thereof of the Regulation S certification. U.S.
global notes and Regulation S global notes are collectively referred to in this
section as "global securities."
Upon the issuance of a global security, DTC or its nominee will credit the
accounts of Persons holding through it with, in the case of the new senior
notes, the respective principal amounts or, in the case of the new senior
discount notes, the respective principal amounts at maturity represented by such
global security received by such Persons in the exchange offer. Such accounts
shall be designated by the initial purchasers of the original notes with respect
to notes placed by the initial purchasers for the Issuers. Ownership of
beneficial interests in a global security will be limited to Persons that have
accounts with DTC, called participants, or Persons that may hold interests
through participants. Any Person acquiring an interest in a global security
through an offshore transaction in reliance on Regulation S of the Securities
Act may hold such interest through Cedel or Euroclear. Ownership of beneficial
interests by participants in a global security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by DTC for such global security. Ownership of beneficial interests in
such global security by Persons that hold through participants will be shown on,
and the transfer of that ownership interest within such participant will be
effected only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. These limits and laws may impair
the ability to transfer beneficial interests in a global security.
Payment of principal and interest on notes represented by any global
security will be made to DTC or its nominee, as the case may be, as the sole
registered owner and the sole holder of the notes represented thereby for all
purposes under the indenture. None of the Issuers, the trustee, any agent of the
Issuers, or the initial purchasers of the original notes will have any
responsibility or liability for any aspect of DTC's records relating to or
payments made on account of beneficial ownership interests in a global security
representing any notes or for maintaining, supervising, or reviewing any of
DTC's records relating to such beneficial ownership interests.
The Issuers have been advised by DTC that upon receipt of any payment of
principal of, or interest on, any global security, DTC will immediately credit,
on its book-entry registration and transfer system, the accounts of participants
with payments in amounts proportionate to their respective beneficial interests
in the principal or face amount of global security as shown on the records of
DTC. Payments by participants to owners of beneficial interests in a global
security held through such participants will be governed by standing
instructions and customary practices as is now the case with securities held for
customer accounts registered in "street name" and will be the sole
responsibility of such participants.
A global security may not be transferred except as a whole by DTC or a
nominee of DTC to a nominee of DTC or to DTC. A global security is exchangeable
for certificated notes only if:
(1) DTC notifies the Issuers that it is unwilling or unable to
continue as a depositary for that global security or if at any time DTC
ceases to be a clearing agency registered under the Exchange Act,
(2) the Issuers execute and deliver to the trustee a notice that the
global security shall be so transferable, registrable, and exchangeable,
and such transfers shall be registrable or
(3) there shall have occurred and be continuing a Default or an Event
of Default with respect to the notes represented by that global security.
Any global security that is exchangeable for certificated notes under the
preceding sentence will be transferred to, and registered and exchanged for,
certificated notes in authorized denominations and registered in such names as
DTC or any successor depositary holding such global security may direct.
Subject to the prior paragraph, a global security is not exchangeable,
except for a global security of like denomination to be registered in the name
of DTC or any successor depositary or its nominee. In the event that a global
security becomes exchangeable for certificated notes,
(1) certificated notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof,
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(2) payment of principal, any repurchase price, and interest on the
certificated notes will be payable, and the transfer of the certificated
notes will be registrable, at the office or agency of the Issuers
maintained for such purposes, and
(3) no service charge will be made for any registration of transfer or
exchange of the certificated notes, although the Issuers may require
payment of a sum sufficient to cover any tax or governmental charge imposed
in connection with that transfer or exchange.
So long as DTC or any successor depositary for a global security, or any
nominee, is the registered owner of that global security, DTC or such successor
depositary or nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by that global security for the purposes of
receiving payment on the notes, receiving notices, and for all other purposes
under the indenture and the notes. Beneficial interests in notes will be
evidenced only by, and transfers of notes will be effected only through, records
maintained by DTC or any successor depositary and its participants. Cede & Co.
has been appointed as the nominee of DTC.
Except as provided above, owners of beneficial interests in a global
security will not be entitled to and will not be considered the holders thereof
for any purposes under the indenture. Accordingly, each Person owning a
beneficial interest in a global security must rely on the procedures of DTC or
any successor depositary, and, if such Person is not a participant, on the
procedures of the participant through which such Person owns its interest, to
exercise any rights of a holder under the indenture. The Issuers understand that
under existing industry practices, in the event that the Issuers request any
action of holders or that an owner of a beneficial interest in a global security
desires to give or take any action which a holder is entitled to give or take
under the indenture, DTC or any successor depositary would authorize the
participants holding the relevant beneficial interest to give or take such
action and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
DTC has advised the Issuers that it is:
(1) a limited-purpose trust company organized under the Banking Law of
the State of New York,
(2) a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and
(3) a "clearing agency" registered under the Exchange Act.
DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (including the Initial Purchasers), banks, trust companies, clearing
corporations, and certain other organizations some of whom (and/or their
representatives) own DTC. Access to DTC's book-entry system is also available to
others, such as banks, brokers, dealers, and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
CERTAIN COVENANTS
Set forth below are summaries of certain covenants contained in the
indenture. During any period of time that (a) the notes have Investment Grade
Ratings from both Rating Agencies and (b) no Default or Event of Default has
occurred and is continuing under the indenture, the Company and the Restricted
Subsidiaries will not be subject to the provisions of the indenture applicable
to them described under "-- Limitation on Indebtedness," "-- Limitation on
Restricted Payments," "-- Limitation on Asset Dispositions," "-- Limitation on
Restrictions on Distributions from Restricted Subsidiaries," "-- Limitation on
Transactions with Affiliates," clause (x) of the second paragraph (and such
clause (x) as referred to in the first paragraph) of "-- Designation of
Restricted and Unrestricted Subsidiaries" and clause (5) of the first paragraph
of "-- Merger, Consolidation and Sale of Assets" (collectively, the "Suspended
Covenants"). In the event that
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the Company and the Restricted Subsidiaries are not subject to the Suspended
Covenants for any period of time as a result of the preceding sentence and,
subsequently, one or both of the Rating Agencies withdraws its ratings or
downgrades the ratings assigned to the notes below the required Investment Grade
Ratings or a Default or Event of Default occurs and is continuing, then the
Company and the Restricted Subsidiaries will thereafter again be subject to the
Suspended Covenants and compliance with the Suspended Covenants with respect to
Restricted Payments made after the time of such withdrawal, downgrade, Default
or Event of Default will be calculated in accordance with the terms of the
covenant described below under "-- Limitation on Restricted Payments" as though
such covenant had been in effect during the entire period of time from the
Original Issue Date.
Limitation on Indebtedness. The Company shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness
unless, after giving effect to the Incurrence on a pro forma basis (a) the
Company's Leverage Ratio would not exceed 8.0 to 1.0 or (b) such Indebtedness is
Permitted Indebtedness.
Permitted Indebtedness is defined to include any and all of the following:
(1) the Notes;
(2) Indebtedness outstanding on the Funding Date;
(3) Indebtedness under the New Credit Facility in an aggregate
principal amount outstanding or available at any one time not to exceed
$875.0 million, which amount shall be permanently reduced by the amount of
Net Available Proceeds used to Repay Indebtedness under the New Credit
Facility to the extent such Net Available Proceeds are not intended to be
subsequently reinvested in replacements, improvements or additions to
existing or new Properties used or usable in a Domestic Telecommunications
Business or used for the permanent repayment or reduction of other
Indebtedness, pursuant to the covenant described under "-- Limitation on
Asset Dispositions" (except at any time after the Issuers have made an
Offer to Purchase in accordance with the covenant described under
"-- Limitation on Asset Dispositions," any Net Available Proceeds remaining
after such Offer to Purchase shall only reduce such amount to the extent
such remaining Net Available Proceeds are used to permanently Repay
Indebtedness under the New Credit Facility);
(4) Permitted Refinancing Indebtedness Incurred in respect of
Indebtedness Incurred pursuant to the provisions of clause (a) of the
immediately preceding paragraph or clauses (1), (2), (9) and (10) of this
paragraph;
(5) Indebtedness of the Company owing to and held by a Restricted
Subsidiary and Indebtedness of a Restricted Subsidiary owing to and held by
the Company or any other Restricted Subsidiary; provided, however, that any
event that results in any such Restricted Subsidiary holding such
Indebtedness ceasing to be a Restricted Subsidiary, or any subsequent
transfer of any such Indebtedness (except to the Company or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Indebtedness by the issuer thereof;
(6) Indebtedness under Interest Rate Agreements entered into for the
purpose of limiting risk in the ordinary course of the financial management
of the Company or any of its Restricted Subsidiaries and not for
speculative purposes; provided, however, that the obligations under such
agreements are related to payment obligations on Indebtedness that was
otherwise permitted to be Incurred by the terms of the Indenture at the
time it was Incurred;
(7) Indebtedness in connection with one or more standby letters of
credit or performance bonds issued in the ordinary course of business or
pursuant to self-insurance obligations (including, but not limited to,
workers' compensation) and, in each case, not in connection with the
borrowing of money or the obtaining of advances or credit (other than the
extension of credit represented by the issuance for the account of the
Company or any of its Restricted Subsidiaries of such letter of credit or
performance bond itself);
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(8) Indebtedness not otherwise permitted hereunder in an amount
outstanding at any time during the period from the beginning of the fiscal
quarter during which the Original Issue Date occurred to the end of the
sixth fiscal quarter after the quarter during which the Original Issue Date
occurred (the "First Six Fiscal Quarters") not to exceed $35.0 million and
at all times after the First Six Fiscal Quarters an amount outstanding at
any time not to exceed $25.0 million, provided that any Indebtedness
Incurred under this clause (8) shall cease to be deemed Incurred or
outstanding for purposes of this clause (8) but shall be deemed Incurred
for purposes of clause (a) of the first paragraph of this covenant from and
after the first date on which the Company could have Incurred such
Indebtedness under clause (a) of the first paragraph of this covenant
without reliance upon this clause (8);
(9) Indebtedness Incurred by the Company or any of its Restricted
Subsidiaries consisting of Capitalized Lease Obligations or Purchase Money
Indebtedness for Property use d or to be used in connection with a Domestic
Telecommunications Business, provided that:
(A) the aggregate principal amount of such Indebtedness (exclusive
of the interest portion thereof and the reasonable costs of financing)
does not exceed the lesser of the Fair Market Value or the purchase
price and related costs of design, development, acquisition,
construction or improvement of such Property at the time of such
Incurrence and
(B) the aggregate principal amount of all Indebtedness Incurred and
then outstanding pursuant to this clause (9) (together with all
Permitted Refinancing Indebtedness Incurred in respect of Indebtedness
previously Incurred pursuant to this clause (ix)) does not exceed $25.0
million;
(10) Acquired Indebtedness, provided that after giving effect to the
underlying acquisition, merger or consolidation, either:
(A) the Company would be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Leverage Ratio referred to in
clause (a) of the first paragraph of this covenant or
(B) such Leverage Ratio is no greater immediately following such
acquisition, merger or consolidation than the Leverage Ratio immediately
prior to such acquisition, merger or consolidation;
(11) other Indebtedness in an amount not greater than twice the
aggregate amount of cash Equity Interest Sale Proceeds, provided that such
Equity Interest Sale Proceeds have not, in the discretion of the Company,
been treated as Equity Interest Sale Proceeds for purposes of clause (c)(2)
in the first paragraph of the covenant described under "-- Limitation on
Restricted Payments" and, provided further that such Indebtedness shall
have been Incurred at substantially the same time as such cash Equity
Interest Sale Proceeds were received; and
(12) Indebtedness arising from agreements providing for
indemnification or adjustment of purchase price or from guarantees securing
any obligations of the Company or any Restricted Subsidiary pursuant to
such agreements, Incurred or assumed in connection with the disposition of
any Property or Restricted Subsidiary of the Company, other than guarantees
or similar credit support by the Company or any Restricted Subsidiary of
Indebtedness incurred by any Person acquiring all or any portion of such
Property or Restricted Subsidiary for the purpose of financing such
acquisition, provided that the maximum aggregate liability in respect of
all such Indebtedness permitted pursuant to this clause (12) shall at no
time exceed the net proceeds actually received from the sale of such
Property or Restricted Subsidiary.
For purposes of determining compliance with this covenant,
(1) in the event that an item of Indebtedness (including Indebtedness
issued to banks or other lenders) meets the criteria of more than one of
the categories of Indebtedness described above (including clause (a) of the
first paragraph of this covenant), the Company, in its sole discretion,
will classify such item of Indebtedness as of the time of the Incurrence
thereof (subject to the proviso in clause (8) of the
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preceding paragraph) and will only be required to include the amount and
type of such Permitted Indebtedness in one of the above clauses; and
(2) an item of Indebtedness (including Indebtedness issued to banks or
other lenders) may be divided and classified in more than one of the types
of Indebtedness described above.
The accrual of interest, accretion of Accreted Value and payment of
interest in the form of additional subordinated Indebtedness will not be deemed
to be an Incurrence of Indebtedness for purposes of this covenant.
Limitation on Restricted Payments. The Company shall not make, and shall
not permit any Restricted Subsidiary to make, any Restricted Payment if at the
time of, and after giving effect to, such proposed Restricted Payment,
(a) Default or Event of Default shall have occurred and be continuing,
(b) the Company could not Incur at least $1.00 of additional
Indebtedness pursuant to clause (a) of the first paragraph of
"-- Limitation on Indebtedness," or
(c) the aggregate amount of such Restricted Payment and (subject to
the second succeeding paragraph) all other Restricted Payments made since
the Issue Date (the amount of any Restricted Payment, if made other than in
cash, to be based upon Fair Market Value) would exceed an amount equal to
the sum of
(1) the result of (A) Cumulative EBITDA minus (B) the product of
1.2 and Cumulative Interest Expense, plus
(2) Equity Interest Sale Proceeds, plus
(3) the amount by which Indebtedness of the Company (other than
subordinated Indebtedness) or any Restricted Subsidiary is reduced on
the Company's consolidated balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the Original
Issue Date of any Indebtedness of the Company or any Restricted
Subsidiary convertible or exchangeable for Equity Interests (other than
Disqualified Equity Interests) in the Company (less the amount of any
cash or other Property distributed by the Company or any Restricted
Subsidiary upon conversion or exchange), plus
(4) an amount equal to the deemed net reduction in Investments made
by the Company and its Restricted Subsidiaries subsequent to the
Original Issue Date in any Person resulting from (A) dividends,
repayment of loans or advances, or other transfers or distributions of
Property (unless such transfers or distributions are otherwise included
in the calculation of EBITDA for purposes of clause (c)(1)(A) above), in
each case to the Company or any Restricted Subsidiary from any Person or
(B) the redesignation of any Unrestricted Subsidiary as a Restricted
Subsidiary, not to exceed, in the case of (A) or (B), the amount of such
Investments previously made by the Company and its Restricted
Subsidiaries in such Person or such Unrestricted Subsidiary, as the case
may be, which were treated as Restricted Payments.
Despite the limitation described above, the Company or any Restricted
Subsidiary (as the case may be) may:
(a) pay dividends on or make distributions in respect of Equity
Interests in the Company within 60 days of the declaration thereof if, on
the declaration date, such dividends or distributions could have been paid
in compliance with the foregoing limitation;
(b) redeem, repurchase, defease, acquire or retire for value, any
Indebtedness subordinate (whether pursuant to its terms or by operation of
law) in right of payment to the notes with the proceeds of or in exchange
for any Permitted Refinancing Indebtedness;
(c) acquire, redeem or retire Equity Interests in the Company or
Indebtedness of the Company subordinate (whether pursuant to its terms or
by operation of law) in right of payment to the notes in
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exchange for, or in connection with a substantially concurrent issuance
(other than to a Subsidiary of the Company or an employee stock ownership
plan or trust established by the Company or any such Subsidiary for the
benefit of their employees) of, Equity Interests in the Company (other than
Disqualified Equity Interests) or in exchange for cash contributions to the
equity capital of the Company;
(d) with respect to any taxable year or portion of that year that the
Company is a Pass-Through Entity, pay any dividend or other distribution on
Equity Interests in the Company in an amount not to exceed the aggregate
amount necessary to permit each Relevant Taxpayer to pay the Tax Liability
of such Relevant Taxpayer with respect to such taxable year;
(e) pay any dividend or other distribution on Equity Interests in the
Company or make loans to Bresnan Communications Company, in each case to
allow BCI Management L.P. to acquire, redeem or retire Equity Interests in
the Company held directly or indirectly by a present or former employee of
the Company or any Restricted Subsidiary (or such employee's estate, as the
case may be) upon such employee's death, disability, retirement or
termination of employment with the Company and any Restricted Subsidiary in
an aggregate amount not to exceed $5.0 million per year (the "Base
Amount"), provided that, to the extent not all the Base Amount is utilized
to pay dividends in such year, the unused portion of such Base Amount may
be carried forward to and be deemed part of the Base Amount for the
immediately subsequent year, provided further that the Base Amount may not
exceed $10.0 million in any year;
(f) make Investments in Persons (including Unrestricted Subsidiaries)
the primary businesses of which are Cable Businesses, Cable Programming
Businesses or Related Businesses (other than Investments in Equity
Interests in the Company or Tele-Communications, Inc.) in an aggregate
amount (based on the amount actually invested) for all such Investments
made pursuant to this clause (f) not to exceed the sum of (1) $20.0
million, (2) an amount equal to the deemed net reduction in Investments
made by the Company and its Restricted Subsidiaries subsequent to the
Original Issue Date in any Person resulting from payment of dividends,
repayment of loans or advances, or other transfers or distributions of
Property to the Company or any Restricted Subsidiary from any Person (but
only to the extent such net reduction has not been utilized to increase the
amount of Restricted Payments permissible pursuant to clauses (c)(1) or
(c)(4) in the immediately preceding paragraph), and not to exceed, in the
case of this clause (f)(2), the amount of such Investments previously made
by the Company and its Restricted Subsidiaries in such Person which were
made in reliance on this clause (f) and (3) Equity Interest Sale Proceeds
to the extent such Proceeds have not, in the discretion of the Company,
been treated as Equity Interest Sale Proceeds for purposes of clause (c)(2)
in the immediately preceding paragraph;
(g) pay dividends to Bresnan Communications Company, the proceeds of
which are or will be used to pay, or reimburse Bresnan Communications
Company for the payment of, management fees and monitoring fees of Bresnan
Communications Company pursuant to and in amounts provided for in the
Partnership Agreement, provided that such management fees may be increased
on an annual basis to up to 5.0% of consolidated gross revenues of the
Company to the extent necessary to cover the pro-rata reimbursement of
operating expenses (including pro-rata amounts of salaries of Company
Employees and overhead expenses) attributable to the Company, provided
further that if at the time of such dividend a Default or an Event of
Default shall have occurred and be continuing (or would result therefrom)
such dividend shall be limited to an amount not to exceed the portion of
the management fees that represents a pro-rata reimbursement of operating
expenses attributable to the Company;
(h) declare and pay scheduled dividends (not constituting a return on
capital) to holders of any Disqualified Equity Interests of the Company or
any of its Restricted Subsidiaries subject to and Incurred in accordance
with the covenant described under "-- Limitation on Indebtedness";
(i) make Investments with Excluded Contributions, provided that such
Excluded Contribution was received by the Company at substantially the same
time as such Investment was made;
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(j) make Investments in connection with the AT&T Joint Venture in an
aggregate amount not to exceed the lesser of 66 2/3% of the amount of any
cash equity contributions made by AT&T or its Affiliates (other than the
Company and its Affiliates) in the AT&T Joint Venture and $25.0 million;
(k) to the extent Investments in connection with the AT&T Joint
Venture are made with Excluded Contributions in accordance with clause (i)
of this paragraph, make additional Investments in the AT&T Joint Venture in
an aggregate amount not to exceed the lesser of 50% of the amount of such
Excluded Contributions and $20.0 million, provided that each such
additional Investment is made at substantially the same time as such
Investment pursuant to clause (i) of this paragraph was made, provided
further that such Investment shall not be made at the same time or
substantially the same time as the Company makes a distribution (other than
a Tax Distribution) with respect to its Equity Interests;
(l) acquire Equity Interests of any Person who beneficially owns,
directly or indirectly, 50% or more of the total voting power of the Voting
Equity Interests of the Company for the sole purpose of contributing the
acquired Equity Interests to the Company's 401(k) Plan, provided that the
contribution of the acquired Equity Interests is in the ordinary course and
in lieu of cash contributions the Company would otherwise make to its
401(k) Plan; and
(m) make other Restricted Payments in an aggregate amount not to
exceed $15.0 million.
Any payments made under clauses (b), (c), (d), (g), (h), (i), (k) and (l)
of the immediately preceding paragraph shall be excluded from the calculation of
the aggregate amount of Restricted Payments made after the Original Issue Date;
provided, however, that the proceeds from the issuance of Equity Interests
pursuant to clause (c) of the immediately preceding paragraph shall not
constitute Equity Interest Sale Proceeds to the extent such proceeds are used in
the manner set forth in such clause (c) for purposes of clause (c)(2) of the
first paragraph of this covenant.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary that has Guaranteed
(a) any Indebtedness of the Company, or
(b) any Indebtedness of a Restricted Subsidiary that has Guaranteed
any Indebtedness of the Company to, directly or indirectly, Incur or suffer
to exist, any Lien (other than Permitted Liens) upon any of its Property,
whether now owned or hereafter acquired, or any interest therein or any
income or profits therefrom, unless it has made or will make effective
provision whereby the notes will be secured by such Lien equally and
ratably with all other Indebtedness of the Company or such Restricted
Subsidiary secured by such Lien for so long as any such other Indebtedness
of the Company or such Restricted Subsidiary shall be so secured; provided,
however, that no Lien may be granted with respect to Indebtedness of the
Company that is subordinated to the notes.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective, or enter into any agreement with any Person that
would cause to become effective, any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to:
(a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Equity Interests, or pay any
Indebtedness or other obligation owed, to the Company or any other
Restricted Subsidiary,
(b) make any loans or advances to the Company or any other Restricted
Subsidiary, or
(c) transfer any of its Property to the Company or any other
Restricted Subsidiary.
Such limitation will not apply:
(1) with respect to clauses (a), (b) and (c), to encumbrances and
restrictions:
(A) in existence on the Original Issue Date under or by reason of
any agreements in effect on the Original Issue Date, including under the
indenture and the notes,
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(B) in existence under or by reason of the New Credit Facility,
provided that such restrictions or encumbrances are no less favorable to
the holders of the notes than those restrictions or encumbrances
pursuant to the New Credit Facility as in effect on the Funding Date and
as described in this prospectus; provided further, however, that the
provisions of the New Credit Facility permit distributions to the
Company for the purpose of, and in an amount sufficient to fund, the
payment of principal due at Stated Maturity and interest in respect of
the notes (provided, in either case, that such payment is due or to
become due within 30 days from the date of such distribution) at a time
when there does not exist an event which after notice or passage of time
or both would permit the lenders under the New Credit Facility to
declare all amounts thereunder due and payable,
(C) relating to Indebtedness of a Restricted Subsidiary and
existing at such Restricted Subsidiary at the time it became a
Restricted Subsidiary if either (1) such encumbrance or restriction was
not created in connection with or in anticipation of the transaction or
series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the Company
or a Restricted Subsidiary or (2) such encumbrance or restriction was
created in connection with the refinancing of preexisting Indebtedness
in connection with or in anticipation of the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by the Company or a Restricted
Subsidiary, and the new Indebtedness satisfies the requirements of
"-- Certain Definitions -- Permitted Refinancing Indebtedness," and such
encumbrance or restriction relates only to the Property previously
subject to an encumbrance or restriction under the preexisting
Indebtedness and such encumbrance or restriction is no more restrictive
than was its predecessor,
(D) which result from the renewal, refinancing, extension or
amendment of an agreement referred to in clauses (1)(A), (B) and (C)
above and in clauses (2)(A) and (B) below, provided such encumbrance or
restriction is no more restrictive to such Restricted Subsidiary and is
not materially less favorable to the holders of notes than those under
or pursuant to the agreement so renewed, refinanced, extended or
amended, and
(E) customary encumbrances or restrictions on distributions of cash
or other deposits or customary net worth maintenance covenants imposed
by customers under contracts entered into in the ordinary course of
business, and
(2) with respect to clause (c) only, to:
(A) any encumbrance or restriction relating to Indebtedness that is
permitted to be Incurred and secured pursuant to the provisions under
"-- Limitation on Indebtedness" and "-- Limitation on Liens" that limits
the right of the debtor to dispose of the Property securing such
Indebtedness,
(B) any encumbrance or restriction in connection with an
acquisition of Property, so long as such encumbrance or restriction
relates solely to the Property so acquired (and any improvements
thereto) and was not created in connection with or in anticipation of
such acquisition,
(C) customary provisions restricting subletting or assignment of
leases and customary provisions in other agreements that restrict
assignment of such agreements or rights thereunder,
(D) customary restrictions contained in asset sale agreements
limiting the transfer of such assets pending the closing of such sale,
or
(E) customary restrictions contained in cable television franchise
agreements limiting the transfer of those franchises.
Limitation on Issuances of Guarantees by Restricted Subsidiaries. The
Company will not permit any Restricted Subsidiary, directly or indirectly, to
Guarantee any Indebtedness of the Company which ranks
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equally in right of payment with or subordinate in right of payment to the notes
("Guaranteed Indebtedness"), unless:
(1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the indenture providing for a Guarantee (a
"Subsidiary Guarantee") of payment of the notes by that Restricted
Subsidiary and
(2) until one year after all the notes have been paid in full in cash,
such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any
other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee, provided that this paragraph
shall not be applicable to any Guarantee of any Restricted Subsidiary that
(a) existed at the time such Person became a Restricted Subsidiary
and was not Incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or
(b) guarantees the payment of any principal, interest, penalties,
fees, indemnification obligations, reimbursement obligations (including,
without limitation, reimbursement obligations with respect to letters of
credit and banker's acceptances), damages or other liabilities of the
Company or any Restricted Subsidiary under the New Credit Facility. If
the Guaranteed Indebtedness is (x) pari passu with, or subordinated to,
the Subsidiary Guarantee or (y) subordinated to the notes, then the
Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated to the notes.
In spite of the prior paragraph, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon:
(1) any sale, exchange or transfer, to any Person not an Affiliate of
the Company, of all of the Company's and each Restricted Subsidiary's
Equity Interests in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited
by the indenture) or
(2) the release or discharge of the Guarantee which resulted in the
creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee.
Limitation on Asset Dispositions. The Company may not, and may not permit
any Restricted Subsidiary to, make any Asset Disposition unless:
(1) the Company or the Restricted Subsidiary, as the case may be,
receives consideration for such disposition at least equal to the Fair
Market Value of the Property sold or disposed of as determined by the
Governing Authority in good faith and evidenced by a Resolution filed with
the trustee;
(2) (A) at least 75% of the consideration for such disposition
consists of:
(x) cash or Temporary Cash Investments,
(y) the assumption of Indebtedness of the Company or any Restricted
Subsidiary (other than Indebtedness that is subordinated to the Notes)
and release of the Company and all Restricted Subsidiaries from all
liability on the Indebtedness assumed or
(z) any notes, obligations or other securities received by the
Company or such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash (to the
extent of the cash received) within 180 days following the closing of
such Asset Disposition or
(B) the consideration paid to the Company or such Restricted
Subsidiary is in the form of Property (including franchises and licenses
required to own or operate such Property) which is determined in good faith
by the Governing Authority, as evidenced by a Resolution, to be used or
usable in a Domestic Telecommunications Business; and
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(3) the Company delivers an Officers' Certificate to the trustee
certifying that such Asset Disposition complies with clauses (1) and (2)
above
The Net Available Proceeds (or any portion thereof) from Asset Dispositions
may be applied by the Company or a Restricted Subsidiary, to the extent the
Company or such Restricted Subsidiary elects (or is required by the terms of any
Indebtedness):
(1) to the permanent repayment or reduction of Indebtedness of the
Company (other than subordinated Indebtedness) or a Restricted Subsidiary
then outstanding (other than Indebtedness owed to the Company or any
Affiliate of the Company); or
(2) to reinvest in replacements, improvements or additions to existing
or new Properties (including franchises and licenses required to own or
operate such Properties) used or usable in a Domestic Telecommunications
Business (including by means of an investment by a Restricted Subsidiary
with Net Available Proceeds received by the Company or another Restricted
Subsidiary).
Pending the final application of any such Net Available Proceeds, the Company or
such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Available Proceeds in
Temporary Cash Investments.
Any Net Available Proceeds from an Asset Disposition not applied in
accordance with the preceding paragraph within 365 days from the date of the
receipt of such Net Available Proceeds shall constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will
be required to make an Offer to Purchase with such Excess Proceeds on a pro-rata
basis according to principal amount (or, in the case of Indebtedness issued at a
discount, the then-Accreted Value) for:
(1) outstanding notes at a price in cash equal to, in the case of the
senior notes, 100% of the principal amount thereof and, in the case of the
senior discount notes, 100% of the Accreted Value thereof on the purchase
date plus, in each case, accrued and unpaid interest, if any, thereon
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date) in accordance
with the procedures (including prorating in the event of oversubscription)
set forth in the indenture and
(2) any other Indebtedness of the Company that is pari passu with the
notes, at a price no greater than 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the purchase date (or 100% of the
then-Accreted Value plus accrued and unpaid interest, if any, to the
purchase date in the case of original issue discount Indebtedness), to the
extent, in the case of this clause (2), required under the terms thereof
(other than Indebtedness owed to the Company or any Affiliate of the
Company).
Any remaining Excess Proceeds may be applied to any use as determined by the
Company which is not otherwise prohibited by the indenture, and the amount of
Excess Proceeds shall be reset to zero.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, lease or exchange of any
Property, the rendering of any service or the modification, renewal or extension
of any existing agreement with Affiliates of the Company) with, or for the
benefit of, any Affiliate of the Company (an "Affiliate Transaction") unless the
terms of such Affiliate Transaction are:
(a) (1) with respect to an Affiliate Transaction involving, or
reasonably expected to involve, aggregate payments or value in excess of
$1.0 million, set forth in writing, and
(2) no less favorable to the Company or such Restricted Subsidiary, as
the case may be, than those that could be obtained at the time of such
Affiliate Transaction for a similar transaction in arms-length dealings
with a Person who is not such an Affiliate,
(b) with respect to an Affiliate Transaction involving, or reasonably
expected to involve, aggregate payments or value in excess of $10.0
million, the Governing Authority approves such Affiliate
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Transaction and, in its good faith judgment, believes that such Affiliate
Transaction complies with clause (a)(2) of this paragraph as evidenced by a
Resolution and
(c) with respect to an Affiliate Transaction involving, or reasonably
expected to involve, aggregate payments in excess of $50.0 million, the
Company obtains an opinion letter from an Independent Appraiser to the
effect that the consideration to be paid or received in connection with
such Affiliate Transaction is fair, from a financial point of view to the
Company and its Restricted Subsidiaries.
Despite limitation in the prior paragraph, the Company or any of its
Restricted Subsidiaries may enter into or suffer to exist the following:
(1) any transaction pursuant to any contract in existence on the
Funding Date or any renewal, amendment, extension or replacement of such
contract on terms that are in the aggregate no less favorable to the
Company and its Restricted Subsidiaries, including contracts for the
acquisition of cable television programming and equipment; provided that as
this clause (1) relates to the partnership agreement, the contribution
agreement, the supply agreement, the advertising arrangement, the
promissory note of TCID and the debt transferred in connection with the
transfer of TCI's cable systems, all of which are described elsewhere in
this prospectus, each such agreement, note or debt in existence on the
Funding Date shall be on terms that are no less favorable to the Company
and its Restricted Subsidiaries than as are contemplated (including any
changes to such terms) in this prospectus, provided further that any
material amendment, modification or replacement or successor agreements to
the supply agreement shall have been approved by the Governing Authority
and a majority of the disinterested limited partners of Bresnan
Communications Company;
(2) any Restricted Payment made in accordance with "-- Limitation on
Restricted Payments" or any Permitted Investment;
(3) any Restricted Payment made in accordance with "-- Limitation on
Restricted Payments" or any Permitted Investment;
(4) any transaction or series of transactions between the Company and
one or more of its Restricted Subsidiaries or between two or more of its
Restricted Subsidiaries;
(5) the payment of reasonable compensation (including amounts or
Equity Interests (other than Disqualified Equity Interests) paid pursuant
to employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of its Restricted Subsidiaries;
(6) loans and advances to Company Employees (such loans to be made
either directly to such Company Employees or through Bresnan Communications
Company, the General Partner, Bresnan Communications, Inc. or BCI
Management, L.P.) or loans to BCI Management, L.P. (directly or indirectly
through Bresnan Communications Company, the General Partner or Bresnan
Communications, Inc.) to allow BCI Management, L.P. to acquire, redeem or
retire Equity Interests in BCI Management, L.P. held by Company Employees
(or such Company Employee's estate, as the case may be) upon such
employee's death, disability, retirement or termination of employment,
provided that such loans and advances do not exceed $5.0 million at any one
time outstanding;
(7) customary indemnification payments to members of the Governing
Body or officers of the Company, any Restricted Subsidiary, Bresnan
Communications Company, the General Partner or BCI Management L.P. For
liabilities incurred in connection with the rendering of services to the
Company; and
(8) issuances of Equity Interests in the Company (other than
Disqualified Equity Interests or Preferred Equity Interests) in connection
with capital contributions.
References, directly or indirectly, to any Person in the foregoing list of
transactions is not intended to imply and should not be construed as implying
that any such Person is an Affiliate of the Company.
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Designation of Restricted and Unrestricted Subsidiaries. The Governing
Authority may designate any Subsidiary of the Company to be an Unrestricted
Subsidiary if:
(1) the Subsidiary to be so designated does not own any Equity
Interests or Indebtedness of, or own or hold any Lien on any Property of,
the Company or any other Restricted Subsidiary and
(2) either:
(a) the Subsidiary to be so designated has total assets of $1,000
or less,
(b) the portion (proportionate to the Company's Equity Interests in
such Subsidiary) of the Fair Market Value of such Subsidiary at the time
of such designation would be permitted as, and shall be deemed to
constitute, an Investment pursuant to the covenant described under
"-- Limitation on Restricted Payments," or
(c) such designation is effective immediately upon such entity
becoming a Subsidiary of the Company.
Unless so designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company will be classified as a Restricted Subsidiary;
provided, however, that such Subsidiary shall not be designated a Restricted
Subsidiary and shall be automatically classified as an Unrestricted Subsidiary
if either of the requirements set forth in clauses (x) and (y) of the
immediately following paragraph will not be satisfied after giving pro forma
effect to such classification. Except as provided in the first sentence of the
first paragraph of this description of this covenant, no Restricted Subsidiary
may be redesignated as an Unrestricted Subsidiary. The indenture further
provides that neither the Company nor any Restricted Subsidiary shall at any
time be directly or indirectly liable for any Indebtedness that provides that
the holder thereof may (with the passage of time or notice or both) declare a
default thereon or cause the payment thereof to be accelerated or payable prior
to its Stated Maturity upon the occurrence of a default with respect to any
Indebtedness, Lien or other obligation of any Unrestricted Subsidiary (including
any right to take enforcement action against such Unrestricted Subsidiary). Upon
designation of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with this covenant, such Restricted Subsidiary shall, by execution
and delivery of a supplemental indenture in form satisfactory to the trustee, be
released from any Guarantee previously made by such Restricted Subsidiary.
The Governing Authority may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation:
(x) the Company could Incur at least $1.00 of additional Indebtedness
pursuant to clause (a) of the first paragraph of the covenant described
under "-- Limitation on Indebtedness" or the Company's Leverage Ratio would
be no greater immediately following such designation than the Company's
Leverage Ratio immediately preceding such designation and
(y) no Default or Event of Default shall have occurred and be
continuing or would result from such designation.
In the case of the redesignation of an Unrestricted Subsidiary (which was
previously a Restricted Subsidiary) as a Restricted Subsidiary, the Company
shall be deemed to have a continuing "Investment" in an Unrestricted Subsidiary
equal to the amount (if positive) equal to (1) the Company's "Investment" in
such Unrestricted Subsidiary at the time of such redesignation less (2) the
portion (proportionate to the Company's Equity Interests in such Unrestricted
Subsidiary) of the Fair Market Value of the net assets of such Unrestricted
Subsidiary at the time of such redesignation.
Any such designation or redesignation by the Governing Authority will be
evidenced to the trustee by filing with the trustee a Resolution giving effect
to such designation or redesignation and an Officers' Certificate (a) certifying
that such designation or redesignation complies with the foregoing provisions
and (b) giving the effective date of such designation or redesignation, such
filing with the trustee to occur within 75 days after the end of the fiscal
quarter of the Company in which such designation or redesignation is made
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(or, in the case of a designation or redesignation made during the last fiscal
quarter of the Company's fiscal year, within 120 days after the end of such
fiscal year).
The Company shall at all times cause each of Bresnan Capital Corporation
and Bresnan Telecommunications Company LLC to be a direct Wholly Owned
Subsidiary.
Limitation on Conduct of Business of Bresnan Capital Corporation. Bresnan
Capital Corporation shall not conduct any business or other activities, own any
Property, enter into agreements or Incur any Indebtedness or other liabilities,
other than in connection with serving as an Issuer and obligor with respect to
the notes.
Merger, Consolidation and Sale of Assets. Neither of the Issuers may
consolidate with or merge with or into any other Person (other than a merger of
a Restricted Subsidiary (other than Bresnan Capital Corporation) into the
Company), or convey, sell, transfer, lease or otherwise dispose of all or
substantially all of its Property (in one transaction or a series of related
transactions), unless:
(1) such Issuer shall be the surviving Person (the "Surviving
Person"), or the Surviving Person (if other than such Issuer) formed by
such consolidation or into which such Issuer is merged or to which the
Property of such Issuer is transferred shall be, in the case of Bresnan
Capital Corporation, a corporation, or in any other case, a corporation,
partnership or trust, organized and existing under the laws of the United
States or any State thereof or the District of Columbia;
(2) the Surviving Person (if other than such Issuer) shall expressly
assume, by supplemental indenture, executed and delivered to the trustee,
in form satisfactory to the trustee, all of the obligations of such Issuer
under the notes and the indenture, and the obligations under the indenture
shall remain in full force and effect;
(3) in the case of a sale, transfer, assignment, lease, conveyance or
other disposition of all or substantially all of an Issuer's Property, such
Property shall have been transferred as an entirety or virtually as an
entirety to one or more Persons, provided that all such transferees shall
have jointly and severally assumed, as the Surviving Person, the
obligations of such Issuer pursuant to clause (2);
(4) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(5) immediately after giving effect to such transaction on a pro forma
basis (including, any Indebtedness Incurred or anticipated to be Incurred
in connection with such transaction or series of transactions), (A) the
Surviving Person would be able to Incur at least $1.00 of additional
Indebtedness pursuant to clause (a) of the first paragraph of
"-- Limitation on Indebtedness" or (B) the Leverage Ratio for the Surviving
Person would be no greater immediately following such transaction than the
Company's Leverage Ratio immediately preceding such transaction.
In connection with any consolidation, merger or transfer contemplated by
this provision, the Issuers shall deliver, or cause to be delivered, to the
trustee, in form and substance reasonably satisfactory to the trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereof comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with. After any such consolidation, merger or transfer (other than a lease of
all or substantially all of an Issuer's Property) effected in compliance with
the terms of the indenture, references to such Issuer shall mean the Surviving
Person and shall not mean the Person who was previously the Issuer.
SEC REPORTS
Although the Issuers may not be required to remain subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the SEC (but only if the SEC accepts such filings) and provide the trustee
and holders of the notes with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S.
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corporation subject to such sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such sections.
Despite the prior paragraph, such reporting requirements shall be deemed
satisfied (x) prior to April 10, 1999, if the Company delivers to the trustee
and the holders of the notes on or prior to such date copies of the audited
consolidated financial statements of the Company for the three-year period ended
December 31, 1998 and (y) prior to May 20, 1999, by filing with the SEC and
delivering to the trustee and the holders of the notes on or prior to such date
a registration statement under the Securities Act that contains the information
that would be required in a Form 10-K for the Company for the year ended
December 31, 1998 and a Form 10-Q for the Company for the quarter ended March
31, 1999 and any Form 8-K required under Section 13 or 15(d) of the Exchange
Act.
EVENTS OF DEFAULT
The following events are defined in the indenture as "Events of Default":
(1) the Issuers fail to make the payment of any principal or Accreted
Value, as applicable, of, or premium, if any, on the notes when the same
becomes due and payable at maturity, upon acceleration, redemption,
mandatory repurchase or declaration, or otherwise;
(2) the Issuers fail to make the payment of any interest on the notes
when the same becomes due and payable, and such failure continues for a
period of 30 days;
(3) either Issuer fails to comply with the covenant described under
"-- Certain Covenants -- Merger, Consolidation and Sale of Assets;"
(4) either Issuer fails to comply with any other covenant applicable
to it in the notes or indenture and such failure continues for 60 days
after written notice specifying the default (and demanding that such
default be remedied) from the trustee or the registered holders of not less
than 25% in aggregate principal amount, in the case of the new senior notes
and original senior notes, and aggregate principal amount at maturity, in
the case of the new senior discount notes and senior discount notes, then
outstanding;
(5) a default under any Indebtedness by the Company or any Restricted
Subsidiary which results in acceleration of the maturity of such
Indebtedness, or the failure to pay any such Indebtedness at final maturity
(giving effect to any applicable grace periods), in an amount aggregating
$15.0 million or more (the "cross acceleration provisions");
(6) any judgment or judgments for the payment of money (other than
judgments which are covered by enforceable insurance policies issued by
solvent carriers) in an aggregate amount in excess of $15.0 million shall
be rendered against the Company or any Restricted Subsidiary and shall not
be waived, satisfied or discharged for any period of 60 consecutive days
during which a stay of enforcement shall not be in effect (the "judgment
default provisions") and
(7) certain events involving bankruptcy, insolvency or reorganization
of either of the Issuers or any Significant Subsidiary of the Company (the
"bankruptcy provisions").
The indenture provides that the trustee may withhold notice to the holders of
the notes of any default (except in payment of principal or Accreted Value, as
applicable, or premium, if any, or interest on such notes) if the trustee
considers it to be in the best interest of the holders of the notes to do so.
The indenture provides that if an Event of Default with respect to the
notes (other than an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization with respect to the Company) shall have
occurred and be continuing, the trustee or the registered holders of not less
than 25% in aggregate principal amount, in the case of the senior notes and
aggregate principal amount at maturity, in the case of the senior discount
notes, then outstanding may declare to be immediately due and payable the
principal amount or Accreted Value, as applicable, of the notes of such series
then outstanding, plus accrued but unpaid interest to the date of acceleration
by written notice to the Issuers specifying the relevant Event of
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Default and that the written notice constitutes a "notice of acceleration";
provided, however, that after such acceleration but before a judgment or decree
based on acceleration is obtained by the trustee, the registered holders of a
majority in aggregate principal amount, in the case of the new senior notes and
original senior notes, and aggregate principal amount at maturity, in the case
of the new senior discount notes and original senior discount notes, then
outstanding may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of accelerated
principal or Accreted Value, as applicable, premium or interest, have been cured
or waived as provided in the indenture. In case an Event of Default resulting
from certain events of bankruptcy, insolvency or reorganization with respect to
the Company shall occur, such amount with respect to all of the notes shall be
due and payable immediately without any declaration or other act on the part of
the trustee or the holders of the notes.
The registered holders of a majority in principal amount, in the case of
the senior notes, and aggregate principal amount at maturity, in the case of the
senior discount notes, then outstanding shall have the right to waive any
existing Default or Event of Default with respect to such series of notes or
compliance with any provision of the indenture or such series of notes and to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee, subject to certain limitations specified in the
indenture.
No holder of the notes will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless such holder shall
have previously given to the trustee written notice of a continuing Event of
Default and unless also the registered holders of at least 25% in aggregate
principal amount, in the case of the new senior notes and original senior notes,
and aggregate principal amount at maturity, in the case of the new senior
discount notes and original senior discount notes, then outstanding shall have
made written request and offered reasonable indemnity to the trustee to
institute such proceeding as a trustee, and unless the trustee shall not have
received from the registered holders of a majority in aggregate principal
amount, in the case of the new senior notes and original senior notes, and
aggregate principal amount at maturity, in the case of the new senior discount
notes and original senior discount notes, then outstanding a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a note for enforcement of payment of the principal or
Accreted Value, as applicable, of and premium, if any, or interest on such note
on or after the respective due dates expressed in such note.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended with respect to
the notes of a series with the consent of the registered holders of a majority
in principal amount, in the case of the new senior notes and original senior
notes, and aggregate principal amount at maturity, in the case of the new senior
discount notes and original senior discount notes, of the notes of such series
then outstanding affected by such amendment (including consents obtained in
connection with a tender offer or exchange for the notes) and any past default
or compliance with any provisions may also be waived in respect of any series
(except a default in the payment of principal, Accreted Value, premium or
interest and certain covenants which cannot be amended without the consent of
each holder of an outstanding note of a series) with the consent of the
registered holders of a majority in aggregate principal amount, in the case of
the new senior notes and original senior notes, and aggregate principal amount
at maturity, in the case of the new senior discount notes and original senior
discount notes, of the notes of such series then outstanding.
However, without the consent of each holder of an outstanding note of any
series affected, no amendment may, among other things:
(1) reduce the amount of notes of any series whose holders must
consent to an amendment or waiver,
(2) reduce the rate of or extend the time for payment of interest on
any note,
(3) reduce the principal or Accreted Value, as applicable, of or
extend the Stated Maturity of any note,
(4) make any note payable in money other than that stated in the note,
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(5) impair the right of any holder of the notes to receive payment of
principal or Accreted Value, as applicable, of and interest on such
holder's notes on or after the due dates therefor or to institute suit for
the enforcement of any payment on or with respect to such holder's notes,
(6) subordinate in right of payment, or otherwise subordinate, the
notes to any other obligation of either Issuer,
(7) make any change in the amendment provisions that require each
holder's consent or in the waiver provisions,
(8) reduce the premium payable upon the redemption of any note or
change the time at which any note may or shall be redeemed as described
under "-- Optional Redemption,"
(9) reduce the premium payable upon a Change of Control or, at any
time after a Change of Control has occurred, change the time at which the
Change of Control Offer relating thereto must be made or at which the notes
must be repurchased pursuant thereto,
(10) at any time after the Company is obligated to make an Offer to
Purchase with the Excess Proceeds from Asset Dispositions, change the time
at which such Offer to Purchase must be made or at which the notes must be
repurchased pursuant thereto,
(11) modify any provision of the indenture relating to the calculation
of Accreted Value,
(12) modify any provision of the indenture relating to the Escrowed
Funds or the Special Mandatory Redemption or
(13) release either of the Issuers from its respective obligations
under the indenture (other than pursuant to "-- Certain
Covenants -- Merger, Consolidation and Sale of Assets").
Without the consent of any holder of the notes, the Issuers and the trustee
may amend the indenture:
(1) to cure any ambiguity, omission, defect or inconsistency,
(2) to provide for the assumption by a successor Person of the
respective obligations of the Issuers or any Restricted Subsidiary under
the indenture or any Subsidiary Guarantee,
(3) to provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Internal Revenue
Code, or in a manner such that the uncertificated notes are described in
Section 163(f)(2)(B) of the Internal Revenue Code),
(4) to add Guarantees with respect to the notes of any series or to
reflect the release pursuant to the terms of the indenture of a Restricted
Subsidiary from its obligations with respect to its Subsidiary Guarantee,
(5) to secure the notes of any series,
(6) to add to the covenants of the Issuers for the benefit of the
holders of the notes of any series or to surrender any right or power
conferred upon the Issuers,
(7) to make any change that does not adversely affect the rights of
any holder of the notes of any series or
(8) to comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act.
The consent of the holders of the notes is not necessary under the
indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, the Issuers are
required to mail to each registered holder of the notes at such holder's address
appearing in the security register a notice briefly
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describing such amendment. However, the failure to give such notice to all
holders of the notes, or any defect therein, will not impair or affect the
validity of the amendment.
DEFEASANCE
The Issuers at any time may terminate all of their and any Restricted
Subsidiaries' respective obligations under the notes and the indenture, referred
to as legal defeasance, except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the notes, to replace mutilated, destroyed, lost or stolen notes and
to maintain a registrar and paying agent in respect of the notes.
The Issuers at any time may terminate their and any Restricted
Subsidiaries' obligations under the covenants described under "-- Certain
Covenants" (other than the covenant described under "-- Certain
Covenants -- Merger, Consolidation and Sale of Assets"), the operation of the
cross acceleration provisions, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"-- Events of Default" and the limitations contained in clause (v) under the
first paragraph of "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets," referred to as covenant defeasance.
The Issuers may exercise their legal defeasance option notwithstanding
their prior exercise of their covenant defeasance option. If the Issuers
exercise their legal defeasance option, payment of the notes may not be
accelerated because of an Event of Default with respect thereto. If the Issuers
exercise their covenant defeasance option, payment of the notes may not be
accelerated because of an Event of Default specified in clause (4), (5), (6) or
(7) (with respect only to Significant Subsidiaries) under "-- Events of Default"
or because of the failure of the Company to comply with clause (5) under the
first paragraph of "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets."
In order to exercise either defeasance option, the Issuers must irrevocably
deposit in trust known as the defeasance trust, with the trustee money or U.S.
Government Obligations for the payment of principal or Accreted Value, as
applicable, of and interest on the notes to maturity or an earlier redemption in
accordance with the terms of the indenture and must comply with certain other
conditions, including delivery to the trustee of an Opinion of Counsel to the
effect that holders of the notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Accreted Value" of any outstanding new senior discount note or original
senior discount note as of or to any date of determination prior to February 1,
2004, or of any other Indebtedness issued at a price less than the principal
amount at stated maturity, means, as of any date of determination, an amount
equal to the sum of (a) the issue price of such new senior discount note or
original senior discount note or Indebtedness, as applicable, as determined in
accordance with Section 1273 of the Internal Revenue Code or any successor
provisions (which, in the case of the new senior discount notes or original
senior discount notes, will be $636.44 per $1,000 principal amount at maturity
of the new senior discount notes or original senior discount notes) plus (b) the
aggregate of the portions of the original issue discount (the excess of the
amounts considered as part of the "stated redemption price at maturity" of such
new senior discount note or original senior discount note or Indebtedness, as
applicable, within the meaning of Section 1273(a)(2) of the Internal Revenue
Code or any successor provisions, whether denominated as principal or interest,
over the issue price of such new senior discount note or original senior
discount note or Indebtedness, as applicable) that shall theretofore have
accrued pursuant to Section 1272 of the Internal Revenue Code (without regard to
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Section 1272(a)(7) of the Internal Revenue Code) from the date of issue of such
new senior discount note or original senior discount note or Indebtedness, as
applicable, to the date of determination (which amount, in the case of the new
senior discount notes or original senior discount notes, shall be amortized on a
daily basis and compounded semiannually on each February 1 and August 1 at a
rate of 9 1/4% per annum from the Original Issue Date through the date of
determination on the basis of a 360-day year of twelve 30-day months), minus all
amounts theretofore paid in respect of such new senior discount note or original
senior discount note or Indebtedness, as applicable, within the meaning of
Section 1273(a)(2) of the Internal Revenue Code or any successor provisions
(whether such amounts paid were denominated principal or interest). The Accreted
Value of any outstanding new senior discount note or original senior discount
note on or after February 1, 2004 will mean the principal amount at maturity of
such new senior discount note or original senior discount note. Notwithstanding
the foregoing, if the Company elects to pay interest on the new senior discount
notes or original senior discount notes on or after February 1, 2002 and prior
to February 1, 2004, the senior discount notes shall cease to accrete, and the
Accreted Value and the principal amount at maturity of such new senior discount
note or original senior discount note shall be the Accreted Value on the date of
commencement of such accrual as calculated in accordance with the first sentence
of this definition.
"Acquired Indebtedness" means Indebtedness of a Person:
(1) existing at the time such Person becomes a Restricted Subsidiary
of the Company or
(2) assumed in connection with the acquisition of assets (or from
merger or consolidation with or into) 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, provided that Indebtedness of such Person which
is redeemed, defeased, retired or otherwise repaid at the time of, or
substantially contemporaneously with, the consummation of the transactions by
which such Person becomes a Restricted Subsidiary or such asset acquisition
shall not constitute Acquired Indebtedness.
"Affiliate" of any specified Person means :
(1) any other Person, directly or indirectly, controlling or
controlled by or under direct or indirect common control with such
specified Person or
(2) any individual who is a director or officer:
(a) of such specified Person,
(b) of any Subsidiary of such specified Person or
(c) of any Person described in clause (1) above.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For the purposes of the section described
under "-- Certain Covenants -- Limitation on Transactions with Affiliates,"
"Affiliate" shall also mean (x) any beneficial owner of interests representing
10% or more of the total voting power of the then outstanding Voting Equity
Interests (on a fully diluted basis) of the Company and (y) any Person who would
be an Affiliate pursuant to the first sentence hereof of any such beneficial
owner of interests representing 10% or more of the total voting power of the
then outstanding Voting Equity Interests of the Company.
"Annualized EBITDA" means, with respect to any Person, the product of such
Person's EBITDA for the latest fiscal quarter for which financial statements are
available multiplied by four.
"Asset Disposition" means any transfer, conveyance, sale, lease, issuance
or other disposition by the Company or any Restricted Subsidiary in one or more
related transactions (including a consolidation or merger or other sale of any
such Restricted Subsidiary with, into or to another Person in a transaction in
which such Restricted Subsidiary ceases to be a Restricted Subsidiary of the
Company, but excluding a disposition
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by a Restricted Subsidiary to the Company or a Restricted Subsidiary or by the
Company to a Restricted Subsidiary) of:
(1) Equity Interests of a Restricted Subsidiary,
(2) substantially of all the assets of the Company or any Restricted
Subsidiary representing a division or line of business or
(3) other Property of the Company or any Restricted Subsidiary outside
of the ordinary course of business (excluding any transfer, conveyance,
sale, lease or other disposition of equipment that is obsolete or no longer
used by or useful to the Company, provided that the Company has delivered
to the trustee an Officers' Certificate stating that such criteria are
satisfied).
The following shall not be Asset Dispositions:
(1) when used with respect to the Company, any Asset Disposition
permitted pursuant to "Mergers, Consolidations and Certain Sales of Assets"
which constitutes a disposition of all or substantially all of the assets
of the Company and the Restricted Subsidiaries taken as a whole or any
disposition that constitutes a Change of Control pursuant to the indenture,
(2) any disposition that constitutes a Restricted Payment permitted by
the covenant described under "Certain Covenants -- Limitation on Restricted
Payments" or a Permitted Investment,
(3) a disposition of Temporary Cash Investments and
(4) any disposition of assets in one or more related transactions with
an aggregate Fair Market Value of less than $1.0 million.
"AT&T Joint Venture" means the joint venture to be entered into between the
Company or a Restricted Subsidiary and AT&T Corp. or an Affiliate thereof
relating to the use of the Company's cable television systems in connection with
the provision of telephony services by the joint venture, as further described
elsewhere in this Prospectus.
"Attributable Indebtedness" means Indebtedness deemed to be Incurred in
respect of a Sale and Leaseback Transaction and shall be, at the date of
determination, the present value (discounted at the actual rate of interest
implicit in such transaction, compounded annually), of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale and Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Equity Interest, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years (rounded to the
nearest one-twelfth of one year) from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness
or redemption or similar payment with respect to such Preferred Equity
Interest multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bresnan Family Member" means William J. Bresnan, his spouse and
descendants (including spouses of his descendants), any trust established solely
for the benefit of any of the foregoing individuals, or any partnership or other
entity at least 80% owned or controlled directly or indirectly by any of the
foregoing persons.
"Cable Business" means the ownership, development, operation and/or
acquisition of cable television systems.
"Cable Programming Business" means the ownership, development or provision
of cable television programming.
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"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Cash Equivalents" means investments in time deposits, certificates of
deposit or money market deposits maturing within 90 days of the date of
acquisition thereof, entitled to U.S. federal deposit insurance for the full
amount thereof or issued by a bank or trust company which is organized under the
laws of the United States of America or any state thereof having capital in
excess of $500 million; provided that no such investment shall mature later than
the Assumed Redemption Date.
"Change of Control" means:
(1) at any time prior to the first Public Equity Offering that results
in a Public Market, the occurrence of any of the following events:
(A) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act or any successor provisions to
either of the foregoing), including any group acting for the purpose of
acquiring, holding, voting or disposing of securities within the meaning
of Rule 13d-5(b)(1) under the Exchange Act, other than any one or more
of the Permitted Holders, is (including as a result of consolidation or
merger, sale, transfer, lease conveyance or other disposition of assets,
or otherwise) the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% or more of the total
voting power of the Voting Equity Interests of the General Partner at
any time that the Permitted Holders are the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
in the aggregate of less than 50% of the total voting power of the
Voting Equity Interests of the Company (for purposes of this clause (A),
such person or group shall be deemed to beneficially own any Voting
Equity Interests of an entity (the "specified entity") held by any other
entity (the "parent entity") so long as such person or group
beneficially owns, directly or indirectly, in the aggregate a majority
of the total Equity Interests of such parent entity); or
(B) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act or any successor provisions to
either of the foregoing), including any group acting for the purpose of
acquiring, holding, voting or disposing of securities within the meaning
of Rule 13d-5(b)(1) under the Exchange Act, other than any one or more
of the Permitted Holders, is (including as a result of consolidation or
merger, sale, transfer, lease conveyance or other disposition of assets,
or otherwise) the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 50% of the total
voting power of the Voting Equity Interests of the Company (for purposes
of this clause (B), such person or group shall be deemed to beneficially
own any Voting Equity Interests of an entity (the "specified entity")
held by any other entity (the "parent entity") so long as such person or
group beneficially owns, directly or indirectly, in the aggregate a
majority of the total Equity Interests of such parent entity); or
(C) the holders of the Equity Interests of the Company shall have
approved any plan of liquidation or dissolution of the Company (other
than in connection with a reorganization effected for the sole purpose
of facilitating a Public Equity Offering that is consummated within 30
days of such approval); and
(2) on or after the first Public Equity Offering that results in a
Public Market, the occurrence of any of the following events:
(A) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act or any successor provisions to
either of the foregoing), including any group acting for the purpose of
acquiring, holding, voting or disposing of securities within the meaning
of Rule 13d-5(b)(1) under the Exchange Act, other than any one or more
of the Permitted Holders, is (including as a result of consolidation or
merger, sale, transfer, lease conveyance or other disposition of assets,
or otherwise) the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 35% or more of the total
voting Power of the Voting Equity Interests of the
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Company at any time that the Permitted Holders are the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, in the aggregate of a lesser percentage of the total voting
power of the Voting Equity Interests of the Company than such other
person or group (for purposes of this clause (A), such person or group
shall be deemed to beneficially own any Voting Equity Interests of an
entity (the "specified entity") held by any other entity (the "parent
entity") so long as such person or group beneficially owns, directly or
indirectly, in the aggregate a majority of the total Equity Interests of
such parent entity); or
(B) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election or appointment
by the Board of Directors or whose nomination for election by the
holders of the Voting Equity Interests of the Company was approved by a
vote of a majority of the members then still in office who were either
members at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office; or
(C) the holders of the Equity Interests of the Company shall have
approved any plan of liquidation or dissolution of the Company.
"Company Employee" means an employee of Bresnan Communications Company, the
General Partner, Bresnan Communications, Inc. or BCI Management, L.P., who, for
the twelve-month period immediately preceding or following the date of
determination, has spent or is reasonably expected in good faith to spend a
substantial amount of his or her working time performing management or
administrative services for the Company.
"Consolidated Interest Expense" means, for any Person (or in the case of
the Company, the Company and its Restricted Subsidiaries), for any period,
(1) the amount of interest in respect of Indebtedness (including
amortization of original issue discount, fees payable in connection with
financing, including commitment, availability and similar fees (but
excluding amortization of deferred financing fees related to the
Financings), non-cash interest payments on any Indebtedness and the
interest portion of any deferred payment obligation and after taking into
account the effect of elections made under, and the net costs associated
with, any Interest Rate Agreement, however denominated, with respect to
such Indebtedness),
(3) the amount of Redeemable Dividends in respect of Equity Interests
meeting the requirements of "-- Disqualified Equity Interests" in such
Person,
(4) the amount of Preferred Equity Interest dividends in respect of
all Preferred Equity Interests in Subsidiaries of such Person held by
Persons other than such Person or a Restricted Subsidiary of such Person
equal to the quotient of such dividend divided by the difference between
one and the maximum statutory federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such
Preferred Equity Interest,
(5) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, and
(6) the interest component of rentals in respect of any Capitalized
Lease Obligation or Sale and Leaseback Transaction paid, accrued or
scheduled to be paid or accrued by such Person during such period,
determined on a consolidated basis in accordance with GAAP.
For purposes of this definition, interest on a Capitalized Lease Obligation or a
Sale and Leaseback Transaction shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in such
Capitalized Lease Obligation or Sale and Leaseback Transaction in accordance
with GAAP consistently applied.
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"Consolidated Net Income" of a Person means for any period, the net income
(loss) of such Person and its Subsidiaries determined in accordance with GAAP;
provided, however, that there shall not be included in such Consolidated Net
Income:
(1) with respect to the Company, any net income (loss) of any Person
if such Person is not a Restricted Subsidiary, except that
(a) subject to the limitations contained in (4) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to a Restricted Subsidiary,
to the limitations contained in clause (3) below) and
(b) the Company's equity in a net loss of any such Person (other
than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income,
(2) any net income (loss) of any Person acquired by such Person or a
Subsidiary of such Person in a pooling of interests transaction for any
period prior to the date of such acquisition,
(3) with respect to the Company, any net income (loss) of any
Restricted Subsidiary if such Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that
(a) subject to the limitations contained in (4) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend
to another Restricted Subsidiary, to the limitation contained in this
clause) and
(b) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income,
(4) any net after-tax gain (or loss) realized upon the sale or other
disposition of any property, plant or equipment of such Person or its
consolidated Subsidiaries (including pursuant to any Sale and Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (or loss) realized upon the sale or other
disposition of any Equity Interests in any Person,
(5) any net after-tax extraordinary gain or loss,
(6) the net after-tax cumulative effect of a change in accounting
principles and
(7) for purposes of calculating the Leverage Ratio only, any net
after-tax income (or loss) from discontinued operations.
"Contribution Agreement" means the Contribution Agreement, dated as of June
3, 1998, as amended prior to the Original Issue Date, by and among Blackstone
Cable Acquisition Company, LLC, Bresnan Communications Company and certain of
its affiliates (including William J. Bresnan), TCID of Michigan, Inc., and
certain affiliates of Tele-Communications, Inc.
"Cumulative EBITDA" means at any date of determination the aggregate amount
of EBITDA of the Company during the period (treated as one accounting period)
from the beginning of the first full fiscal quarter following the fiscal quarter
during which the Funding Date occurs to the end of the most recent fiscal
quarter ending prior to the date of determination for which financial statements
are available or required or, if such aggregate EBITDA for such period is
negative, the amount (expressed as a negative number) by which such cumulative
EBITDA is less than zero.
"Cumulative Interest Expense" means at any date of determination the
aggregate amount of Consolidated Interest Expense paid, accrued or scheduled to
be paid or accrued by the Company and its Restricted Subsidiaries during the
period (treated as one accounting period) from the beginning of the first full
fiscal
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quarter following the fiscal quarter during which the Funding Date occurs to the
end of the most recent fiscal quarter ending prior to the date of determination
for which financial statements are available or required determined on a
consolidated basis in accordance with GAAP.
"Default" means any event which is, or after notice or the passage of time
or both would be, an Event of Default.
"Disqualified Equity Interest" means, with respect to any Person, any
Equity Interest that by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or otherwise:
(a) (1) matures or is mandatorily redeemable pursuant to a sinking
fund obligation or otherwise,
(2) is redeemable at the option of the holder thereof, in whole or in
part, or
(3) is or may become convertible or exchangeable at the option of the
holder for Indebtedness and
(b) as to which the maturity, mandatory redemption, conversion or
exchange or redemption at the option of the holder thereof occurs, or may
occur, on or prior to the Stated Maturity of the Notes;
provided, however, that Equity Interests in such Person that would not otherwise
be characterized as Disqualified Equity Interests under this definition shall
not constitute Disqualified Equity Interests if:
(A) such Equity Interests are convertible or exchangeable into
Indebtedness solely at the option of such Person or
(B) such Equity Interests would be Disqualified Equity Interests
solely because such Equity Interests require such Person to make an offer
to purchase such Equity Interests upon the occurrence of certain events and
such Equity Interests expressly provide that such offer may not be
satisfied until all the Notes have been paid in full.
"Domestic Telecommunications Business" means
(1) a Person actively engaged in, or assets constituting plant,
property or equipment used in the operation of, a Cable Business,
(2) a Person actively engaged in a Cable Programming Business or
(3) a Person actively engaged in, or assets which comprise, a Related
Business the services of which are offered in connection with the
operation, or utilizing the facilities, of a cable television system;
provided that each such Cable Business, Cable Programming Business or Related
Business is located in the United States.
"EBITDA" means, for any Person, for any period, an amount equal to
(A) the sum of:
(1) Consolidated Net Income for such period, plus, to the extent
deducted in the calculation of Consolidated Net Income,
(2) the provision for taxes for such period based on income or
profits and any provision for taxes utilized in computing net loss under
clause (1) hereof, plus
(3) Consolidated Interest Expense for such period, plus
(4) depreciation for such period on a consolidated basis, plus
(5) amortization of intangibles for such period on a consolidated
basis, plus
(6) any other non-cash items reducing Consolidated Net Income for
such period, plus
(7) any fees and expenses directly related to an offering of the
Equity Interests of such Person, Permitted Investments, acquisitions or
recapitalizations (in the case of the Company, including the
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recapitalization pursuant to the terms of the Contribution Agreement) or
Indebtedness, in each case, otherwise permitted under the indenture,
minus
(B) all non-cash items increasing Consolidated Net Income for such
period, all for such Person and its Subsidiaries determined in accordance
with GAAP consistently applied,
except that with respect to the Company, each of the foregoing items shall be
determined on a consolidated basis with respect to the Company and its
Restricted Subsidiaries only.
"Equity Interest Sale Proceeds" means the sum of
(a) the aggregate Net Cash Proceeds received by the Company from:
(1) the issue or sale (other than to a Subsidiary of the Company or
an employee ownership plan or trust established by the Company or any
Subsidiary of the Company) by the Company of any class of its Equity
Interests (other than Disqualified Equity Interests) on or after the
Original Issue Date or
(2) contributions to the equity capital of the Company on or after
the Original Issue Date which do not themselves constitute Disqualified
Equity Interests and
(b) the Fair Market Value, as determined by an Independent Appraiser
with experience underwriting debt and/or equity securities for operators of
Domestic Telecommunications Businesses, of any Domestic Telecommunications
Business contributed to the Company by Tele-Communications, Inc. or its
Affiliates in exchange in whole or in part for Equity Interests (other than
Disqualified Equity Interests) in the Company on or after the Original
Issue Date.
"Equity Interests" means, with respect to any Person, any and all shares or
other equivalents (however designated) of corporate stock, partnership interests
or any other participation, right, warrants, options or other interest (whether
or not currently exercisable) in the nature of an interest in equity in such
Person (including Preferred Equity Interests, but excluding any debt security
convertible or exchangeable into such equity interest), entitling the holders
thereof (together with the holders of all other interests of the same class) to
a pro rata share of any dividend or distribution, or a pro rata participation in
any other allocation, of the profits of such Person.
"Equity Offering" means a public or private offering by the Company or a
Person that owns all the outstanding Equity Interests of the Company for cash of
its Equity Interests (other than Disqualified Equity Interests).
"Event of Default" has the meaning set forth under "-- Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Contributions" means the aggregate Net Cash Proceeds received by
the Company after the Original Issue Date from
(a) contributions to the equity capital of the Company (which do not
themselves constitute Disqualified Equity Interests) for the purpose of
making an Investment in accordance with clauses (i) and (k) of the second
paragraph of the covenant described under "-- Limitation on Restricted
Payments" and
(b) the sale (other than to a Subsidiary of the Company or an employee
stock ownership plan or trust established by the Company or any such
Subsidiary for the benefit of their employees) of Equity Interests (other
than Disqualified Equity Interests) of the Company,
in each case designated as Excluded Contributions pursuant to an Officers'
Certificate executed by an Officer of the Company, the cash proceeds of which
are excluded from the calculation set forth in clause (c) of the first paragraph
under "-- Limitation on Restricted Payments."
"Fair Market Value" means with respect to any Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is
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under undue pressure or compulsion to complete the transaction. Fair Market
Value will be determined, except as otherwise provided,
(1) if such Property has a Fair Market Value of less than $5.0
million, by any Officer of the Company or
(2) if such Property has a Fair Market Value equal to or in excess of
$5.0 million, by a majority of the Governing Authority and evidenced by a
Resolution, dated within 30 days of the relevant transaction, of the
Governing Authority delivered to the trustee.
"GAAP" means United States generally accepted accounting principles as in
effect in the United States on the Original Issue Date.
"General Partner" means the Person acting as the managing general partner
of Bresnan Communications Company.
"Governing Authority" means, with respect to the Company, the General
Partner (subject to the approval of the limited partners of Bresnan
Communications Company, when and as provided in the Partnership Agreement), the
advisory committee, the executive committee, management committee, board of
directors or similar governing body of the Company, or any authorized committee
thereof, in any such case, with the authority to manage the business and affairs
of the Company.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, foreign exchange contract, currency
swap agreement, currency option or any other similar agreement or arrangement.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness; provided further, that solely for
purposes of determining compliance with "Certain Covenants -- Limitation on
Indebtedness," amortization of debt discount shall not be deemed to be the
Incurrence of Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness, secured or unsecured, contingent or otherwise, which is for
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), or evidenced by bonds,
notes, debentures or similar instruments or representing the balance deferred
and unpaid of the purchase price of any Property (excluding any balances that
constitute subscriber advance payments and deposits, accounts payable or trade
payables, and other accrued liabilities arising in the ordinary course of
business) if and to the extent
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any of the foregoing indebtedness would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, and shall also include,
to the extent not otherwise included:
(1) any Capitalized Lease Obligations,
(2) Indebtedness of other Persons secured by a Lien to which the
Property owned or held by such first-named Person is subject, whether or
not the obligation or obligations secured thereby shall have been assumed
(the amount of such Indebtedness being deemed to be the lesser of the value
of such Property or the amount of the Indebtedness so secured),
(3) Guarantees of Indebtedness of other Persons,
(4) any Disqualified Equity Interests,
(5) any Attributable Indebtedness,
(6) all obligations of such Person in respect of letters of credit,
bankers' acceptances or other similar instruments or credit transactions
(including reimbursement obligations with respect thereto), other than
obligations with respect to letters of credit securing obligations (other
than obligations entered into in connection with the borrowing of money or
the obtaining of advances or credit (other than the extension of credit
represented by the issuance for the account of the Company or any of its
Restricted Subsidiaries of such letter of credit itself)) entered into in
the ordinary course of business of such Person to the extent such letters
of credit are not drawn upon or, if and to the extent drawn upon, such
drawing is reimbursed no later than the third business day following
receipt by such Person of a demand for reimbursement following payment on
the letter of credit,
(7) Preferred Equity Interests (owned other than by such Person) in
its Restricted Subsidiaries and
(8) any payment obligations of any such Person at the time of
determination under any Hedging Obligation. For purposes of this
definition, the maximum fixed repurchase price of any Disqualified Equity
Interest that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Equity Interest as if such
Disqualified Equity Interest were repurchased on any date on which
Indebtedness shall be required to be determined pursuant to the indenture;
provided, however, that if such Disqualified Equity Interest is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Disqualified Equity Interest. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any contingent
obligations in respect thereof at such date. In the case of Indebtedness sold at
a discount, the amount of such Indebtedness shall at all times be the Accreted
Value of such Indebtedness at the date of determination as determined in
conformity with GAAP. For purposes of this definition, the amount of the payment
obligation with respect to any Hedging Obligation shall be an amount equal to:
(1) zero, if such obligation is an Interest Rate Agreement permitted
pursuant to clause (6) of the second paragraph of "-- Certain
Covenants -- Limitation on Indebtedness" or
(2) the amount appearing as a liability under GAAP in respect of such
Hedging Obligation, if such Hedging Obligation is not an Interest Rate
Agreement so permitted.
Notwithstanding the foregoing, Indebtedness shall not include any interest or
accrued interest.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing; provided, however,
that such firm or appraiser is not an Affiliate of the Company or
Tele-Communications, Inc.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate hedging agreement or other similar agreement.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
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"Investment" by any Person means any direct or indirect loan or advance
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Equity Interests, bonds, notes, debentures or
other securities or evidence of Indebtedness issued by, any other Person. In
determining the amount of any Investment made by transfer of any Property other
than cash, such Property shall be valued at its Fair Market Value at the time of
such Investment.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) by Moody's and BBB- (or the equivalent) by S&P.
"Letter of Credit" means an irrevocable documentary letter of credit from
an issuing bank of nationally recognized standing (whose debt is rated "A" or
higher according to the Rating Agencies) expiring on June 1, 1999, which names
the trustee as the beneficiary thereof and which shall be presentable for
payment at any time by the trustee, provided that the only condition to payment
thereunder shall be a certification signed by the trustee stating one of the
following:
(1) the trustee will use the amount drawn to fund a portion of the
aggregate Mandatory Redemption Price,
(2) a Remedies Trigger Event (as defined in the Escrow Agreement) has
occurred or
(3) the Special Mandatory Redemption has not taken place as of the
date of the certification and the Letter of Credit will expire within 10
business days of such date.
"Leverage Ratio" means the ratio of (1) the outstanding Indebtedness of a
Person and its Restricted Subsidiaries to (2) the Annualized EBITDA of such
Person and its Restricted Subsidiaries.
For purposes of computing the Company's Leverage Ratio, if:
(a) since the beginning of the relevant period, the Company or any
Restricted Subsidiary shall have made any Asset Disposition or an
Investment (by merger or otherwise) in any Restricted Subsidiary (or any
Person that becomes a Restricted Subsidiary) or an acquisition of Property
which constitutes all or substantially all of an operating unit of a
business (including cable television systems) or shall have Incurred or
Repaid any Indebtedness or shall have classified in accordance with GAAP
any operations as discontinued,
(b) the transaction giving rise to the need to calculate the Leverage
Ratio is such an Asset Disposition, Investment, acquisition, Incurrence or
Repayment of Indebtedness or discontinuation of operations or
(c) since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period) shall have
made such an Asset Disposition, Investment or acquisition, Incurrence or
Repayment of Indebtedness or discontinuation of operations,
the Leverage Ratio for such period shall be calculated after giving pro forma
effect to such Asset Sale, Investment, acquisition, Incurrence or Repayment of
Indebtedness or discontinuation of operations as if such Asset Disposition,
Investment, acquisition, Incurrence or Repayment of Indebtedness or
discontinuation of operations occurred on the first day of such period.
Any such pro forma calculation may include adjustments in the reasonable
determination of the Company as quantified and set forth in an Officers'
Certificate, to (1) reflect identified operating expense reductions reasonably
expected to result from any acquisition or (2) eliminate the effect of any
extraordinary accounting event with respect to any acquired Person on
Consolidated Net Income.
"Lien" means with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any
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easement not materially impairing usefulness or marketability), encumbrance,
preference, priority, or other security agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such Property (including any
Capitalized Lease Obligation, conditional sale or other title retention
agreement having substantially the same economic effect as any of the foregoing
or any Sale and Leaseback Transaction), provided that in no event shall an
operating lease that is not a Capitalized Lease Obligation or Sale and Leaseback
Transaction be deemed to constitute a Lien.
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or cash equivalents received (including amounts received by way of sale or
discounting of any note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Indebtedness or other obligations relating to such Property)
therefrom by such Person, net of:
(1) all legal, title and recording taxes, expenses and commissions and
other fees and expenses (including appraisals, brokerage commissions and
investment banking fees) Incurred and all federal, state, provincial,
foreign and local taxes required to be accrued as a liability as a
consequence of such Asset Disposition,
(2) all payments made by such Person or its Subsidiaries on any
Indebtedness which is secured by such Property in accordance with the terms
of any Lien upon or with respect to such Property or which must by the
terms of such Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such
Asset Disposition,
(3) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures of such Person
as a result of such Asset Disposition and
(4) appropriate amounts to be provided by such Person or any
Subsidiary thereof, as the case may be, as a reserve in accordance with
generally accepted accounting principles against any liabilities associated
with such Property and retained by such Person or any Subsidiary thereof,
as the case may be, after such Asset Disposition, including liabilities
under any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, in each case as
determined by the governing body of such Person, in its reasonable good
faith judgment evidenced by a resolution of such governing body filed with
the trustee;
provided, however, that any reduction in such reserve within twelve months
following the consummation of such Asset Disposition will be, for all purposes
of the indenture and the notes, treated as a new Asset Disposition at the time
of such reduction with Net Available Proceeds equal to the amount of such
reduction; provided further, however, that, in the event that any consideration
for a transaction (which would otherwise constitute Net Available Proceeds) is
required to be held in escrow pending determination of whether a purchase price
adjustment will be made, at such time as such portion of the consideration is
released to such Person or its Restricted Subsidiary from escrow, such portion
shall be treated for all purposes of the indenture and the notes as a new Asset
Disposition at the time of such release from escrow with Net Available Proceeds
equal to the amount of such portion of consideration released from escrow.
"Net Cash Proceeds" with respect to any issuance or sale of Equity
Interests, means the aggregate cash or Temporary Cash Investments received as
proceeds of such issuance or sale, net of attorney's fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"New Credit Facility" means the Loan Agreement dated February 2, 1999 by
and among Bresnan Telecommunications Company LLC, as borrower, and the lenders
from time to time party thereto, including any collateral documents, instruments
and agreements executed in connection therewith, substantially on terms as
described in this Prospectus under "Description of the New Credit Facility." The
term "New Credit Facility" shall also include any amendments, supplements,
modifications, extensions, renewals, restatements or refundings thereof with
another credit facility and any credit facilities that replace, refund or
refinance any
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part of the loans, other credit facilities or commitments thereunder, including
any such replacement, refunding or refinancing facility that increases the
amount that may be borrowed thereunder or alters the maturity thereof, with the
same or different lenders.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
to each holder of notes offering to purchase up to the principal amount in the
case of the new senior notes and original senior notes and the principal amount
at maturity in the case of the new senior discount notes and original senior
discount notes specified in such Offer at the purchase price specified in such
Offer (as determined pursuant to the indenture).
Unless otherwise required by applicable law, the Offer shall specify an
expiration date (the "Expiration Date") of the Offer to Purchase which shall be,
subject to any contrary requirements of applicable law, not less than 30 days or
more than 60 days after the date of such Offer and a settlement date (the
"Purchase Date") for purchase of notes within 5 business days after the
Expiration Date. The Company shall notify the trustee at least 10 business days
(or such shorter period as is acceptable to the trustee) prior to the mailing of
the Offer of the Company's obligation to make an Offer to Purchase, and the
Offer shall be mailed by the Company or, at the Company's request, by the
trustee in the name and at the expense of the Company.
The Offer shall contain information concerning the business of the Company
and its Subsidiaries which the Company in good faith believes will enable such
holders to make an informed decision with respect to the Offer to Purchase
(which at a minimum will include:
(1) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the
trustee pursuant to the indenture (which requirements may be satisfied by
delivery of such documents together with the Offer),
(2) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred
to in clause (1) (including a description of the events requiring the
Company to make the Offer to Purchase),
(3) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Company to
make the Offer to Purchase and
(4) any other information required by applicable law to be included
therein).
The Offer shall contain all instructions and material necessary to enable such
holders to tender notes pursuant to the Offer to Purchase. The Offer shall also
state:
(a) the Section of the indenture pursuant to which the Offer to
Purchase is being made;
(b) the Expiration Date and the Purchase Date;
(c) the aggregate principal amount in the case of the outstanding new
senior notes and original senior notes and aggregate principal amount at
maturity in the case of the outstanding new senior discount notes and
original senior discount notes offered to be purchased by the Company
pursuant to the Offer to Purchase (including, if less than 100%, the manner
by which such amount has been determined pursuant to the section of the
indenture requiring the Offer to Purchase) (the "Purchase Amount");
(d) the purchase price to be paid by the Company for $1,000 aggregate
principal amount in the case of the new senior notes and original senior
notes and aggregate principal amount at maturity in the case of the new
senior discount notes and original senior discount notes accepted for
payment (as specified pursuant to the indenture) (the "Purchase Price");
(e) that the holder may tender all or any portion of the notes
registered in the name of such holder and that any portion of a note
tendered must be tendered in an integral multiple of $1,000 principal
amount in the case of the new senior notes and original senior discount
notes and principal amount at maturity in the case of the new senior
discount notes and original senior discount notes;
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(f) the place or places where notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(g) that any notes not tendered or tendered but not purchased by the
Company will continue to accrue or accrete interest, as the case may be;
(h) that on the Purchase Date the Purchase Price will become due and
payable upon each note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon, if any, shall cease to accrue or
accrete, as the case may be, on and after the Purchase Date;
(i) that each holder electing to tender a note pursuant to the Offer
to Purchase will be required to surrender such note at the place or places
specified in the Offer prior to the close of business on the Expiration
Date (such note being, if the Company or the trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the trustee duly executed by, the holder
thereof or his or her attorney duly authorized in writing);
(j) that holders will be entitled to withdraw all or any portion of
notes tendered if the Company (or the Paying Agent) receives, not later
than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
principal amount in the case of the new senior notes and original senior
discount notes and the principal amount at maturity in the case of the new
senior discount notes and original senior discount notes the holder
tendered, the certificate number of the note the holder tendered and a
statement that such holder is withdrawing all or a portion of his or her
tender;
(k) that (1) if notes in an aggregate principal amount in the case of
the new senior notes and original senior notes and aggregate principal
amount at maturity in the case of the new senior discount notes and
original senior discount notes less than or equal to the Purchase Amount
are duly tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase all such notes and (2) if notes in an aggregate
principal amount in the case of the new senior notes and original senior
discount notes and aggregate principal amount at maturity in the case of
the new senior discount notes and original senior discount notes in excess
of the Purchase Amount are tendered and not withdrawn pursuant to the Offer
to Purchase, the Company shall purchase notes having an aggregate principal
amount in the case of the new senior notes and original senior notes and
aggregate principal amount at maturity in the case of the new senior
discount notes and original senior discount notes equal to the Purchase
Amount on a pro-rata basis (with such adjustments as may be deemed
appropriate so that only notes in denominations of $1,000 principal amount
in the case of the new senior notes and original senior notes and principal
amount at maturity in the case of the new senior discount notes and
original senior discount notes or integral multiples thereof shall be
purchased); and
(l) that in the case of any holder whose note is purchased only in
part, the Company shall execute, and the trustee shall authenticate and
deliver to the holder of such note without service charge, a new note or
notes, or any authorized denomination as required by such holder, in an
aggregate principal amount in the case of the new senior notes and original
senior notes and aggregate principal amount at maturity in the case of the
new senior discount notes and original senior discount notes equal to and
in exchange for the unpurchased portion of the note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase. The Issuers will comply, to the extent
applicable, with the requirements of Rule 14e-1 under the Exchange Act, and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the purchase of notes in
connection with a Offer to Purchase. To the extent that the provisions of any
securities laws or regulations conflict with the provisions relating to the
Offer to Purchase, the Issuers will comply with the applicable securities laws
and regulations and will not be deemed to have breached their obligations
described above by virtue thereof.
"Officer" means, with respect to the Company, the President, the Chief
Executive Officer, the Chief Financial Officer, any Senior Vice President, any
Executive Vice President, the Vice President -- Finance, the Vice
President -- Controller, the Treasurer or the Secretary of the Company.
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"Officers' Certificate" means, with respect to the Company, a certificate
signed by two Officers at least one of whom shall be the principal executive
officer, principal financial officer, treasurer or principal accounting officer
of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the trustee. The counsel may be counsel to the Company, the
General Partner or the trustee.
"Original Issue Date" means February 2, 1999.
"Pass-Through Entity" means a partnership, limited liability company, "S
corporation" or any other entity that is not subject to federal income tax and
whose members are taxed on a distributive share of such entity's income.
"Permitted Holder" shall mean any Bresnan Family Member, TCI Communications
Inc. and its successors (resulting from any corporate reorganization
contemplated on the Original Issue Date or any internal corporate
reorganization), Blackstone Capital Partners III Merchant Banking Fund L.P. and,
in each case, their respective Affiliates. Any person or group whose acquisition
of beneficial ownership constitutes a Change of Control in respect of which a
Change of Control Offer is made in accordance with the requirements of the
indenture will thereafter, together with its Affiliates, constitute an
additional Permitted Holder.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) a Restricted Subsidiary or a Person which will, upon the making of
such Investment, become a Restricted Subsidiary; provided, however, that
the primary business of such Restricted Subsidiary is a Cable Business, a
Cable Programming Business or a Related Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Cable Business,
a Cable Programming Business or a Related Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans and advances to Company Employees (such loans to be made
either directly to such employees or through Bresnan Communications
Company, the General Partner, Bresnan Communications, Inc. or BCI
Management, L.P.), provided that such loans and advances do not exceed $5.0
million at any one time outstanding;
(7) any Person to the extent such Investment represents the non-cash
portion of the consideration received in connection with an Asset Sale
consummated in compliance with the covenant described under "-- Certain
Covenants -- Limitation on Asset Dispositions";
(8) Equity Interests, obligations or securities received in settlement
of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments;
(9) any Investment existing on the Funding Date; and
(10) Investments consisting of the licensing or contribution of
intellectual property (excluding franchises and licenses required to own or
operate Property) pursuant to joint marketing arrangements with other
Persons.
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"Permitted Liens" means:
(1) Liens Incurred by the Company or any of its Restricted
Subsidiaries if, after giving effect to such Incurrence on a pro forma
basis, the amount of the total Indebtedness of the Company and its
Restricted Subsidiaries that is secured by a Lien does not exceed the
product of the Annualized EBITDA of the Company multiplied by 2.5;
(2) Liens on the Property of the Company or any of its Restricted
Subsidiaries existing on the Original Issue Date;
(3) Liens on the Property of the Company or any of its Restricted
Subsidiaries to secure any extension, renewal, refinancing, replacement or
refunding (or successive extensions, renewals, refinancings, replacements
or refundings), in whole or in part, of any Indebtedness secured by Liens
referred to in any of clauses (1), (2), (7) or (10); provided, however,
that any such Lien will be limited to all or part of the same Property that
secured the original Indebtedness (plus improvements on such Property) and
the aggregate principal amount of Indebtedness that is secured by such Lien
will not be increased to an amount greater than the sum of (A) the
outstanding principal amount, or, if greater, the committed amount, of the
Indebtedness described under clauses (1), (2), (7) and (10) at the time the
original Lien became a Permitted Lien under the indenture and (B) an amount
necessary to pay any premiums, fees and other expenses Incurred by the
Company or any of its Restricted Subsidiaries in connection with such
extension, renewal, refinancing, replacement or refunding;
(4) Liens for taxes, assessments or governmental charges or levies on
the Property of the Company or any of its Restricted Subsidiaries if the
same shall not at the time be delinquent or thereafter can be paid without
penalty, or are being contested in good faith and by appropriate
proceedings;
(5) Liens imposed by law, such as landlords and carriers',
warehousemen's, suppliers', materialmen's, repairmen's and mechanics' Liens
and other similar Liens on the Property of the Company or any of its
Restricted Subsidiaries which secure payment of obligations not more than
60 days past due or are being contested in good faith and by appropriate
proceedings;
(6) Liens on the Property of the Company or any of its Restricted
Subsidiaries Incurred to secure performance of obligations with respect to
statutory or regulatory requirements, performance or return-of-money bonds,
surety bonds or other obligations of a like nature and Incurred in a manner
consistent with industry practice;
(7) Liens on Property at the time the Company or any of its Restricted
Subsidiaries acquired such Property, including any acquisition by means of
a merger or consolidation with or into the Company or any of its Restricted
Subsidiaries; provided, however, that such Lien shall not have been
Incurred in anticipation of such transaction or series of related
transactions pursuant to which such Property was acquired by the Company or
any of its Restricted Subsidiaries;
(8) zoning restrictions, licenses, restrictions on the use of real
property, minor irregularities in the title thereto, or other Liens on the
Property of the Company or any of its Restricted Subsidiaries incidental to
the conduct of their respective businesses or the ownership of their
respective Properties which (except for acknowledgments in any credit
agreement of the lenders' right to setoff deposits held by such lenders so
long as such deposits were made in the ordinary course of business and not
with the intent to provide collateral to such lenders) were not created in
connection with the Incurrence of Indebtedness or the obtaining of advances
or credit and which do not in the aggregate materially detract from the
value of their respective Properties or materially impair the use thereof
in the operation of their respective businesses;
(9) pledges or deposits by the Company or any of its Restricted
Subsidiaries under workers' compensation laws, unemployment insurance laws
or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases
to which the Company or any of its Restricted Subsidiaries is a party, or
deposits to secure public or statutory obligations of the Company or any of
its Restricted Subsidiaries, or deposits for the payment of rent;
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(10) Liens on Property securing Acquired Indebtedness; provided,
however, that any such Lien (A) was not Incurred in connection with, or in
contemplation of, the Person obligated with respect to such Acquired
Indebtedness becoming a Restricted Subsidiary or the acquisition relating
to such Acquired Indebtedness and (B) may not extend to any other Property
of the Company or any other Restricted Subsidiary which is not a direct
Subsidiary of such Person;
(11) utility easements, rights-of-way, building restrictions and such
other encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar character and
which do not in the aggregate materially detract from the value or
materially impair the use of such property;
(12) leases or subleases granted to others not materially interfering
with the ordinary course of business of the Company and its Subsidiaries;
(13) customary Liens contained in asset sale agreements limiting the
transfer of such assets pending the closing of such sale or created by the
grant of options to purchase such assets; provided, in any such case, the
sale of such assets is not otherwise prohibited under the indenture;
(14) Liens on the Property of a Restricted Subsidiary securing
Indebtedness of such Restricted Subsidiary owed to the Company;
(15) judgment Liens in an aggregate amount outstanding at any one time
of not more than $15.0 million, provided such Lien is adequately bonded and
any appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired;
(16) any interest or title of a lessor under any Capitalized Lease
Obligation otherwise permitted under the indenture, provided that such
Liens do not extend to any Property which is not leased property subject to
such Capitalized Lease Obligation;
(17) Liens to secure Indebtedness permitted to be incurred under
clause (9) of the second paragraph of the covenant described under
"-- Certain Covenants -- Limitations on Indebtedness," provided that any
such Lien (A) may not extend to any Property of the Company or any
Restricted Subsidiary other than the Property acquired, constructed or
leased with the proceeds of such Indebtedness any improvements or
accessions to such Property and (B) shall be created within 180 days of the
acquisition, construction or lease of such Property by the Company or such
Restricted Subsidiary;
(18) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person in
the ordinary course of business to facilitate the purchase, shipment or
storage of such inventory or other goods;
(19) Liens securing reimbursement obligations with respect to
commercial letters of credit created in the ordinary course of business
which encumber Property relating to such letters of credit and products and
proceeds thereof;
(20) Liens securing Indebtedness under Hedging Obligations otherwise
permitted under the indenture;
(21) Liens securing Indebtedness outstanding under the New Credit
Facility that are created while commitments under the New Credit Facility
are outstanding; and
(22) Liens on Equity Interests of Unrestricted Subsidiaries to secure
nonrecourse Indebtedness of such Unrestricted Subsidiary, provided that any
such Lien may not extend to any Property of the Company or any Restricted
Subsidiary other than such Equity Interests, provided further that any
holder of Indebtedness of the Company or any Restricted Subsidiary shall
not have the ability to declare a default or accelerate payment thereunder
upon the occurrence of a default under the Indebtedness secured by such
Lien.
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"Permitted Refinancing Indebtedness" means any extensions, renewals,
substitutions, refinancings or replacements of any Indebtedness, including any
successive extensions, renewals, substitutions, refinancings or replacements so
long as:
(1) such Permitted Refinancing Indebtedness is incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate
principal amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being refinanced plus
any interest and premium payable thereon and any fees and expenses incurred
in connection therewith,
(2) the Average Life of such Indebtedness is equal to or greater than
the Average Life of the Indebtedness being refinanced,
(3) the Stated Maturity of such Indebtedness is no earlier than the
earlier of (a) the Stated Maturity of the Indebtedness being extended,
renewed, substituted for, refinanced or replaced and (b) the first
anniversary of the Stated Maturity of the notes and
(4) to the extent such new Indebtedness extends, renews, substitutes
for, refinances or replaces Indebtedness subordinated or pari passu to the
notes, such new Indebtedness is subordinated or pari passu to the same
extent as the Indebtedness being extended, renewed, substituted for,
refinanced or replaced,
provided that Permitted Refinancing Indebtedness shall not include (a)
Indebtedness of a Restricted Subsidiary that refinances Indebtedness of the
Company except to the extent that such Restricted Subsidiary was, prior to such
refinancing, a guarantor of such Indebtedness, or (b) Indebtedness of the
Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary, and provided further that, subject to the foregoing
proviso, subclause (4) of this definition will not apply to any extension,
renewal, substitution for refinancing or replacement of Indebtedness of any
Restricted Subsidiary that is not a guarantor of the notes.
"Person" means any individual, corporation, company (including limited
liability company), partnership, joint venture, trust, estate, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Equity Interest" means any Equity Interest in a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Equity Interests issued by such Person.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Equity Interests in any other
Person (but excluding Equity Interests or other securities issued by such
Person).
"Public Equity Offering" means an underwritten public offering of common
stock of the Company (or a corporation owning all of the outstanding Equity
Interests of the Company) pursuant to an effective registration statement under
the Securities Act.
"Public Market" means any time after (a) a Public Equity Offering has been
consummated and (b) at least 15% of the total issued and outstanding common
stock of the Company (or a corporation owning all of the outstanding Equity
Interests of the Company) has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness (a) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money obligations and
obligations in respect of industrial revenue bonds, in each case where the
Stated Maturity of such Indebtedness does not exceed the anticipated useful life
of the Property being financed, and (b) Incurred to finance the acquisition,
construction or lease by the Company or a Restricted Subsidiary of such
Property, including additions and improvements thereto; provided, however, that
such Indebtedness is Incurred within
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180 days after the acquisition, construction or lease of such Property by the
Company or such Restricted Subsidiary.
"Rating Agencies" mean Moody's and S&P.
"Redeemable Dividend" means, for any dividend with regard to Disqualified
Equity Interests, the quotient of the dividend divided by the difference between
one and the maximum statutory federal income tax rate (expressed as a decimal
number between 1 and 0) then applicable to the issuer of such Disqualified
Equity Interests.
"Related Business" means the provision of high-speed data services,
Internet access, interactive services, telephony (including personal
communications services) and/or any other telecommunications service.
"Relevant Taxpayer" means:
(1) in the case of any beneficial owner of an Equity Interest in the
Company that is an individual, such individual;
(2) in the case of any beneficial owner of an Equity Interest in the
Company that is taxed as a corporation, such corporation;
(3) in the case of any beneficial owner of an Equity Interest in the
Company that is a Pass-Through Entity, such Pass-Through Entity itself and
any indirect individual, corporate, trust or estate beneficial owner of an
Equity Interest in the Company through such Pass-Through Entity; and
(4) in the case of any direct or indirect beneficial owner of an
Equity Interest in the Company that is a trust or an estate, such trust or
estate and any individual (or other trust and estate) which is a
beneficiary of such trust or estate to the extent that such individual (or
other trust or estate) is taxable on the income of such trust or estate.
A Person shall be considered an indirect owner of an Equity Interest in the
Company only to the extent that such Person has an indirect interest in the
Company through a Pass-Through Entity or a trust or estate or through multiple
tiers of Pass-Through Entities, trusts or estates (or any combination thereof).
Notwithstanding anything in this paragraph to the contrary, the term Relevant
Taxpayer shall not include Tele-Communications, Inc. or any affiliate of
Tele-Communications, Inc..
"Repay" means, in respect of any Indebtedness, to repay, prepay,
repurchase, redeem, legally defease or otherwise retire such Indebtedness.
"Repayment" and "Repaid" shall have correlative meanings. For purposes of the
covenant described under "-- Limitation on Asset Dispositions" and the
definition of "Leverage Ratio," Indebtedness shall be considered to have been
Repaid only to the extent the related loan commitment, if any, shall have been
permanently reduced in connection therewith.
"Resolution" means a copy of a resolution certified by the Secretary or an
Assistant Secretary of the Company or the General Partner to have been duly
adopted by the Governing Authority (or the General Partner if the General
Partner constitutes the Governing Authority (subject to the adoption by the
limited partners of Bresnan Communications Company, when and as provided in the
Partnership Agreement)) and to be in full force and effect on the date of such
certification and delivered to the trustee.
"Restricted Payment" means:
(1) any dividend or distribution (whether made in cash, Property or
securities) declared or paid on or with respect to any Equity Interest in
the Company except dividends or distributions payable solely in Equity
Interests (other than Disqualified Equity Interests) in the Company or in
warrants, rights, or options to purchase or acquire (other than debt
securities convertible into an Equity Interest), directly or indirectly,
any Equity Interests (other than Disqualified Equity Interests) in the
Company;
(2) a payment made by the Company or any Restricted Subsidiary to
purchase, redeem, acquire or retire any Equity Interests in the Company or
Equity Interests in any Affiliate of the Company (other than a Restricted
Subsidiary) or any warrants, rights or options to directly or indirectly
purchase or
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acquire any such Equity Interests or any securities exchangeable for or
convertible into any such Equity Interests, except for payments made to the
Company or a Restricted Subsidiary;
(3) a payment made by the Company or any Restricted Subsidiary to
redeem, repurchase, defease or otherwise acquire or retire for value, prior
to any scheduled maturity, scheduled sinking fund or mandatory redemption
payment (other than the purchase, repurchase, or other acquisition of any
Indebtedness subordinate in right of payment to the notes purchased in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of
acquisition), Indebtedness of the Company which is subordinate (whether
pursuant to its terms or by operation of law) in right of payment to the
notes;
(4) an Investment (other than Permitted Investments), including a
deemed Investment pursuant to clause (4) of "-- Certain
Covenants -- Designation of Restricted and Unrestricted Subsidiaries," in
any Person.
"Restricted Subsidiary" means (a) Bresnan Capital Corporation; (b) any
Subsidiary of the Company unless such Subsidiary shall have been designated as
an Unrestricted Subsidiary as permitted pursuant to "Certain
Covenants -- Designation of Restricted and Unrestricted Subsidiaries" and (c) an
Unrestricted Subsidiary which is redesignated as a Restricted Subsidiary as
permitted pursuant to "Certain Covenants -- Designation of Restricted and
Unrestricted Subsidiaries."
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
to us by such Person or a Subsidiary of such Person and is thereafter leased
back from the purchaser or transferee thereof by such Person or one of its
Subsidiaries.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X under the
Securities Act as such Regulation is in effect on the Original Issue Date.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal or Accreted
Value, as applicable, of such security is due and payable, including pursuant to
any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the
happening of any contingency beyond the control of the issuer unless such
contingency has occurred).
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired,
(1) in the case of a corporation, of which more than 50% of the total
voting power of the Equity Interests entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of
its Subsidiaries; or
(2) in the case of a partnership, joint venture, association or other
business entity, with respect to which such first-named Person or any of
its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise if in
accordance with GAAP such entity is consolidated with the first-named
Person for financial statement purposes.
"Tax Distribution" shall have the meaning given to such term in Section
3.3(a) of the Amended and Restated Limited Partnership Agreement of Bresnan
Communications Company as in effect on the Funding Date (as such Tax
Distribution is described in this Prospectus under "Description of the
Partnership Agreement -- Tax Distributions").
"Tax Liability" means an amount, for each year, equal to the Tax
Distribution determined with respect to each Relevant Taxpayer.
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"Tele-Communications, Inc." means Tele-Communications, Inc., a Delaware
corporation, and any successor thereto by way of merger or consolidation or by
transfer of all or substantially all the assets of such first-named Person.
"Temporary Cash Investments" means any of the following:
(1) Investments in U.S. Government Obligations or in securities
guaranteed by the United States of America, in each case maturing within 90
days of the date of acquisition thereof,
(2) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 90 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America or any State thereof having capital,
surplus and undivided profits aggregating in excess of $500.0 million and
whose long-term debt is rated "A-3" or "A-" or higher according to Moody's
or S&P (or such similar equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under
the Securities Act)),
(3) repurchase obligations with a term of not more than 7 days for
underlying securities of the types described in clause (1) entered into
with a bank meeting the qualifications described in clause (2) above,
(4) Investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation organized and in
existence under the laws of the United States of America with a rating at
the time as of which any Investment therein is made of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)) and
(5) investments in money market funds that are registered under the
Investment Company Act of 1940, which have net assets of at least $500.0 million
and at least 85% of whose assets are investments or other obligations of the
type described in clauses (1) through (4) of this definition.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company which is
designated after the Original Issue Date as an Unrestricted Subsidiary as
permitted pursuant to "-- Certain Covenants -- Designation of Restricted and
Unrestricted Subsidiaries" and (b) any Subsidiary of an Unrestricted Subsidiary
and until such time, in each case, as it may thereafter be redesignated as a
Restricted Subsidiary as permitted pursuant to such covenant.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Equity Interests" means the Equity Interests in a corporation or
other Person with voting power under ordinary circumstances entitling the
holders thereof to elect or appoint the board of directors, executive committee
or other governing body of such corporation or Person or generally having the
right to vote with respect to organizational matters of such Person or generally
having the right to vote with respect to or veto significant transactions or
activities with respect to such Person or a Person holding a majority interest
in such Person; provided, however, that Preferred Equity Interests with
customary contingent voting rights shall not be deemed Voting Equity Interests
solely by virtue of such contingent voting rights.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company,
greater than 95% of the then outstanding Equity Interests in which (other than
directors' qualifying shares) are owned by the Company and/or one or more other
Wholly Owned Subsidiaries.
TRANSFER AND EXCHANGE
Holders may transfer or exchange their notes in accordance with the
indenture. The Registrar under the indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the indenture.
The registered holder of a note may be treated as the owner of it for all
purposes.
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NOTICES
Notices to holders of notes will be given by mail to the addresses of such
holders as they may appear in the security register.
GOVERNING LAW
The indenture, the notes and the Escrow Agreement are governed by and
construed in accordance with the internal laws of the State of New York without
reference to principles of conflicts of law.
THE TRUSTEE
State Street Bank and Trust Company is the trustee under the indenture and
has been appointed by the Issuers as Registrar and Paying Agent with regard to
the notes.
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set forth
in the indenture. During the existence of an Event of Default, the trustee will
exercise such rights and powers vested in it under the indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
CERTAIN FEDERAL TAX CONSIDERATIONS
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal
income tax consequences of an exchange of original notes for new notes and the
ownership of the new notes. It is based on the Internal Revenue Code of 1986, as
amended to the date of this prospectus, existing and proposed Treasury
regulations, and judicial and administrative determinations, all of which are
subject to change at any time, possibly on a retroactive basis. The following
relates only to notes that are held as "capital assets" within the meaning of
Section 1221 of the Code by the initial holders of the original notes. It does
not discuss state, local, or foreign tax consequences, nor does it discuss tax
consequences to subsequent purchasers who did not purchase the original notes in
the original issue. Categories of holders that are subject to special rules,
such as foreign persons, tax-exempt organizations, insurance companies, banks,
and dealers in stocks and securities are also not discussed. Tax consequences
may vary depending on the particular status of an investor. No rulings will be
sought from the IRS with respect to the federal income tax consequences of the
exchange offer.
As used in this section, a "U.S. Holder" is a beneficial owner of a note
who is for United States federal income tax purposes:
(1) a citizen or resident of the U.S.,
(2) a corporation, partnership or other entity created or organized in
or under the laws of the U.S. or any political subdivision thereof,
(3) an estate the income of which is subject to U.S. Federal income
taxation regardless of its source,
(4) a trust if:
(A) a United States court is able to exercise primary supervision
over the administration of the trust and
(B) one or more United States persons have the authority to control
all substantial decisions of the trust,
(5) a certain type of trust in existence on August 20, 1996, which was
treated as a United States person under the Code in effect immediately
prior to such date and which has made a valid election to be treated as a
United States person under the Code and
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(6) any person otherwise subject to U.S. federal income tax on a net
income basis in respect of its worldwide taxable income. A "Non-U.S.
Holder" is a beneficial owner of a note that is not a U.S. Holder.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE ORIGINAL
NOTES FOR NEW NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR
CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS, AS WELL AS THE
APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND OTHER TAX LAWS,
TO ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE ORIGINAL
NOTES FOR NEW NOTES.
THE EXCHANGE OFFER
We believe that the new notes received as a result of the exchange offer
will be treated as a continuation of the corresponding original notes because
the terms of the new notes are not materially different from the terms of the
original notes, and accordingly:
(1) such exchange will not constitute a taxable event to a U.S.
Holder,
(2) no gain or loss will be realized by a U.S. Holder upon receipt of
a new note,
(3) the holding period of the new note will include the holding period
of the original note exchanged therefor and
(4) the adjusted tax basis of the new note will be the same as the
adjusted tax basis of the original notes exchanged.
The filing of a shelf registration statement should not result in a taxable
exchange to us or any holder of a note.
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
Payments of Interest on the New Senior Notes
Interest on a new senior note will be taxable to a U.S. Holder as ordinary
income from domestic sources at the time it is paid or accrued in accordance
with the U.S. Holder's regular method of accounting for federal income tax
purposes.
Original Issue Discount on the New Senior Discount Notes
Because the senior discount notes were issued with original issue discount,
the new senior discount notes also will bear original issue discount that each
U.S. Holder generally will be required to include in income as it accrues, and
in advance of cash payments attributable to such income, as described below.
The amount of original issue discount with respect to the new senior
discount notes will be equal to the excess of the new senior discount note's
"stated redemption price at maturity" over its "issue price." The issue price of
a new senior discount note will be equal to the price of an original senior
discount note which was 63.644%. The stated redemption price at maturity of a
new senior discount will include all payments required to be made on the new
senior discount note, including any stated interest payments.
A U.S. Holder of a new senior discount note is required to include in gross
income for U.S. federal income tax purposes an amount equal to the sum of the
"daily portions" of such original issue discount for all days during the taxable
year on which the holder holds the new senior discount note. The daily portions
of original issue discount required to be included in such holder's gross income
in a taxable year will be determined on a constant yield. A proportionate amount
of the original issue discount on such new senior discount note which is
attributable to the "accrual period" in which such day is included will be
allocated to each day during the taxable year in which the holder holds the
senior discount note.
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A U.S. Holder may select any set of periods which may vary in length as the
accrual periods. However, no accrual period can be longer than one year and each
scheduled payment of interest or principal on the new senior discount note must
occur on the first or final day of an accrual period.
The amount of original issue discount attributable to each accrual period
will be equal to the product of the "adjusted issue price" at the beginning of
such accrual period and the "yield to maturity" of the instrument stated in a
manner appropriately taking into account the length of the accrual period.
The yield to maturity is the discount rate that, when used in computing the
present value of all payments to be made under the new senior discount notes,
produces an amount equal to the issue price of the new senior discount notes.
The adjusted issue price of a new senior discount note at the beginning of an
accrual period is generally defined as the issue price of the new senior
discount note plus the aggregate amount of original issue discount that accrued
in all prior accrual periods, less any cash payments made on the new senior
discount note. Accordingly, a U.S. Holder of a new senior discount note will be
required to include original issue discount thereon in gross income for U.S.
federal tax purposes in advance of the receipt of cash attributable to such
income.
The amount of original issue discount allocable to an initial short accrual
period may be computed using any reasonable method if all other accrual periods,
other than a final short accrual period, are of equal length. The amount of
original issue discount allocable to the final accrual period at maturity of a
new senior discount note is the difference between (A) the amount payable at the
maturity of the new senior discount note and (B) the new senior discount note's
adjusted issue price as of the beginning of the final accrual period.
Payments on the new senior discount notes, including principal and stated
interest payments, are not separately included in a U.S. Holder's income.
Instead, they are treated first as payments of accrued original issue discount
and then as payments of principal, which reduce the U.S. Holder's adjusted tax
basis in the new senior discount notes.
In determining the yield and maturity with respect to the new senior
discount notes, we will not be deemed to exercise any call option on the new
senior discount notes. In the event we elect to pay interest on the new senior
discount notes prior to February 1, 2004, the new senior discount notes will be
treated solely for the purposes of subsequently applying the original issue
discount rules as if each such new senior discount note was retired and then
reissued on the date of such election for an amount equal to its adjusted issue
price on that date.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange, retirement or other taxable disposition of a note,
the U.S. Holder will recognize gain or loss in an amount equal to the difference
between:
(1) the amount of cash and the fair market value of other property
received in exchange for the notes other than amounts attributable to
accrued but unpaid interest on the Exchange Senior notes which will be
taxable as such, and
(2) the U.S. Holder's adjusted tax basis in such note.
A U.S. Holder's adjusted tax basis in a note will equal the purchase price paid
by such U.S. Holder for the note increased, in the case of a new senior discount
note, by any original issue discount previously included in income by such
holder with respect to such note and decreased, in the case of a new senior
discount note, by any payments received.
Gain or loss realized on the sale, exchange, retirement or other taxable
disposition of a note will be capital gain or loss and will be long-term capital
gain or loss if at the time of sale, exchange, retirement, or other taxable
disposition, the note has been held for more than 12 months. The maximum rate of
tax on long-term capital gains with respect to notes held by an individual is
20%. The deductibility of capital losses is subject to certain limitations.
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UNITED STATES FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
The payment to a Non-U.S. Holder of interest, including the amount of any
payment that is attributable to original issue discount that accrued while such
Non-U.S. Holder held the note, on a note will not be subject to U.S. federal
withholding based on the "portfolio interest exception," provided that:
(1) the Non-U.S. Holder does not actually or constructively own 10% or
more of the capital or profits interest in us and is not a controlled
foreign corporation that is related to us within the meaning of the Code
and
(2) either:
(A) the beneficial owner of the notes certifies to us or our agent,
under penalties of perjury, that it is not a U.S. Holder and provides
its name and address on U.S. Treasury Form W-8, or a suitable substitute
form, or
(B) a financial institution such as a securities clearing
organization, bank or other financial institution that holds the notes
on behalf of such Non-U.S. Holder in the ordinary course of its trade or
business certifies under penalties of perjury that such a Form W-8, or
suitable substitute form, has been received from the beneficial owner by
it or by a financial institution between it and the beneficial owner and
furnishes the payor with a copy.
Final Treasury Regulations that will be effective January 1, 2000, the
"Withholding Regulations", provide alternative methods for satisfying the
certification requirement described in (2) above. The Withholding Regulations
will generally require, in the case of notes held by a foreign partnership, that
the certificate described in (2) above be provided by the partners rather than
by the foreign partnership, and that the partnership provide certain information
including a U.S. tax identification number.
If a Non-U.S. Holder cannot satisfy the requirements of the portfolio
interest exception described above, payments of interest, including the amount
of any payment that is attributable to original issue discount that accrued
while such Non-U.S. Holder held the note, made to such Non-U.S. Holder will be
subject to a 30% withholding tax. However, the 30% withholding tax can be
avoided if the beneficial owner of the note provides us or our paying agent, as
the case may be, with a properly executed:
(1) Internal Revenue Service Form 1001, or successor form, claiming an
exemption from or reduction in the rate of withholding under the benefit of
a tax treaty or
(2) Internal Revenue Service Form 4224, or successor form, stating
that interest paid on the note is not subject to withholding tax because it
is effectively connected with the beneficial owner's conduct of a trade or
business in the United States.
Even if the portfolio interest exemption applies, a Non-U.S. Holder of a
note may still be subject to federal income tax on the interest including
original issue discount. A Non-U.S. Holder of a note will be taxed as if it were
a U.S. Holder of a note when the Non-U.S. Holder is engaged in a trade or
business in the United States and interest on the note is effectively connected
with the conduct of such trade or business. In addition, if such Non-U.S. Holder
is a foreign corporation, it may be subject to a branch profits tax equal to 30%
of its effectively connected earnings and profits, subject to adjustment, for
that taxable year unless it qualifies for a lower rate under an applicable
income tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a Non-U.S. holder generally will not be subject
to U.S. federal income tax provided:
(1) such gain is not effectively connected with the conduct by such
holder of a trade or business in the United States,
(2) in the case of gains derived by an individual, such individual is
not present in the United States for 183 days or more in the taxable year
of the disposition and certain other conditions are met and
(3) the Non-U.S. Holder is not subject to tax according to the
provisions of U.S. federal income tax law applicable to certain
expatriates.
135
<PAGE> 140
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments within the United States of interest and original issue discount on the
notes, including payments made by the United States office of a paying agent,
broker or other intermediary. Information reporting requirements will also apply
to the proceeds of a sale, redemption or other disposition of notes through:
(1) a United States office of a United States or foreign broker; or
(2) the office of a foreign broker that is a controlled foreign
corporation for United States federal income tax purposes; or
(3) a foreign person 50 percent or more of whose gross income from all
sources for the three year period ending with the close of its taxable year
preceding the payment was effectively connected with a U.S. trade or
business.
A 31% backup withholding tax may apply to such payments if made to a U.S.
Holder and such U.S. Holder fails to provide a correct taxpayer identification
number or certification of exempt status or, with respect to certain payments,
the U.S. Holder fails to report in full all dividend and interest income and the
IRS notifies the payor of a duty to withhold.
Non-U.S. Holders are generally exempt from the information reporting and
backup withholding rules but may be required to comply with certification and
identification requirements in order to prove their exemption.
The Withholding Regulations alter the foregoing rules in certain respects.
Among other things, such regulations expand the number of foreign intermediaries
that are potentially subject to information reporting and address certain
documentary evidence requirements relating to exemption from the backup
withholding requirements. Holders of the notes should consult their tax advisers
concerning the possible application of such regulations to any payments made on
or with respect to the notes.
Any amounts withheld under the backup withholding rules from a payment to a
holder of the notes will be allowed as a refund or a credit against such
holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.
We must report annually to the IRS and to each Non-U.S. Holder any interest
that is subject to withholding, or that is exempt from U.S. withholding tax
based on a tax treaty, or interest that is exempt from U.S. tax under the
portfolio interest exception. Copies of these information returns may also be
made available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-U.S. Holder resides.
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 original notes
where such original notes were acquired as a result of market-making activities
or other trading activities. We have agreed that, starting on the expiration
date and ending on the close of business one year after the expiration date, we
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
, 199 , all dealers effecting transactions in the new notes may
be required to deliver a prospectus.
We 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 negotiated prices. Any such resale may be made
directly to
136
<PAGE> 141
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
participate in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit resulting
from any such resale of new notes and any commissions or concessions received by
any such persons 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.
For a period of one year after the expiration date, we 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. We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holder of the original notes)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the original notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the validity of the new notes offered
hereby will be passed upon on our behalf by Paul, Hastings, Janofsky & Walker
LLP, New York, New York.
EXPERTS
The combined financial statements of Bresnan Communications Group Systems
(as defined in Note 1 to the combined financial statements) as of December 31,
1997 and 1998 and for each of the years in the three year period ended December
31, 1998, have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
accounting and auditing.
The financial statements of Bresnan Capital Corporation as of December 31,
1997 and 1998 have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
We are subject to the information requirements of the Exchange Act and in
accordance with the Exchange Act we file reports, proxy statements and other
information with the SEC. You may read and copy any of such information on file
with the SEC at the SEC's public reference facilities at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional
offices located at Seven World Trade Center, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 140, Chicago,
Illinois 60661-2511. Copies of filed documents can be obtained, at prescribed
rates, by mail from the Public Reference Section of the SEC at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 or by telephone at
1-800-SEC-0330, or electronically through the Securities and Exchange
Commission's Electronic Data Gathering, Analysis and Retrieval system at the
Securities and Exchange Commission's Web site (http://www.sec.gov).
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act of 1933, with respect to the new notes offered by this
prospectus. As permitted by the rules and regulations of the SEC, this
prospectus omits certain information contained in the registration statement.
For further information about us and the new notes, reference is made to the
registration statement, including its exhibits and the financial statements,
notes and schedules filed as a part of it, which you may read and copy at the
public reference facilities of the SEC referred to above.
137
<PAGE> 142
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BRESNAN CAPITAL CORPORATION
Independent Auditors Report................................. F-2
Balance Sheets as at December 31, 1997 and 1998 and
unaudited March 31, 1999.................................. F-3
Note to Balance Sheet....................................... F-4
BRESNAN COMMUNICATIONS GROUP LLC
Unaudited Consolidated Financial Statements
Consolidated Balance Sheet as of December 31, 1998 and
March 31, 1999......................................... F-5
Consolidated Statements of Operations and Member's Equity
(Deficit) for the three months ended March 31, 1998 and
1999................................................... F-6
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1999.......................... F-7
Notes to Consolidated Financial Statements March 31,
1999................................................... F-8
BRESNAN COMMUNICATIONS GROUP SYSTEMS
Independent Auditors' Report................................ F-13
Combined Balance Sheets as of December 31, 1997 and 1998.... F-14
Combined Statements of Operations and Parents' Investment
for the years ended December 31, 1996, 1997 and 1998...... F-15
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-16
Notes to Combined Financial Statements December 31, 1997 and
1998...................................................... F-17
</TABLE>
F-1
<PAGE> 143
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bresnan Capital Corporation:
We have audited the accompanying balance sheets of Bresnan Capital
Corporation as of December 31, 1997 and 1998. The financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan an perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Bresnan Capital Corporation
at December 31, 1997 and 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Denver, Colorado
June 22, 1999
F-2
<PAGE> 144
BRESNAN CAPITAL CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.............................. $1 $1 $1
-- -- --
$1 $1 $1
== == ==
LIABILITIES AND STOCKHOLDER S EQUITY
Stockholder's equity................................... $1 $1 $1
-- -- --
Common stock, $.01 par value. 100 shares authorized,
issued and outstanding............................... $1 $1 $1
== == ==
</TABLE>
See accompanying notes.
F-3
<PAGE> 145
BRESNAN CAPITAL CORPORATION
NOTE TO BALANCE SHEETS
DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
(1) ORGANIZATION
Bresnan Capital Corporation, a wholly-owned subsidiary of Bresnan
Communications Group LLC (BCG), was incorporated in the state of Delaware on
April 25, 1996 for the sole purpose of acting as a co-issuer with BCG of
$170,000,000 aggregate principal amount of senior notes and $275,000,000
aggregate principal amount of senior discount notes.
The above notes were issued on February 2, 1999 with all proceeds received
by BCG.
F-4
<PAGE> 146
BRESNAN COMMUNICATIONS GROUP LLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 6,636 $ 550
Restricted cash............................................. 47,199 2,129
Trade and other receivables, net............................ 8,874 10,371
Property and equipment, at cost:
Land and buildings........................................ 4,123 6,603
Distribution systems...................................... 443,114 454,769
Support equipment......................................... 50,178 56,865
-------- ---------
497,415 518,237
Less accumulated depreciation............................. 190,752 192,574
-------- ---------
306,663 325,663
Franchise costs, net........................................ 291,103 327,804
Other assets, net of accumulated amortization............... 3,961 21,632
-------- ---------
Total assets........................................... $664,436 $ 688,149
======== =========
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Accounts payable............................................ $ 3,193 3,463
Accrued expenses............................................ 13,395 9,723
Accrued interest............................................ 21,835 9,154
Due to affiliated companies................................. -- 7,583
Debt........................................................ 232,617 848,007
Other liabilities........................................... 11,648 20,568
-------- ---------
Total liabilities...................................... 282,688 898,498
Member's equity (deficit)................................... 381,748 (210,349)
-------- ---------
Commitments and contingencies (note 5)
Total liabilities and member's equity (deficit)........ $664,436 $ 688,149
======== =========
</TABLE>
F-5
<PAGE> 147
BRESNAN COMMUNICATIONS GROUP LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND MEMBER'S EQUITY (DEFICIT)
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
--------- --------
<S> <C> <C>
Revenue..................................................... $ 62,463 $ 67,295
Operating costs and expenses:
Programming (note 4)...................................... 15,491 17,748
Operating................................................. 8,315 7,539
Selling, general and administrative (note 4).............. 11,791 15,720
Depreciation and amortization............................. 12,780 13,669
--------- --------
48,377 54,676
--------- --------
Operating income....................................... 14,086 12,619
Other income (expense):
Interest expense:
Related party (note 4)................................. (470) (152)
Other.................................................. (4,292) (14,394)
Gain (loss) on sale of cable television systems........... 7,010 (181)
Other, net................................................ (54) (82)
--------- --------
2,194 (14,809)
--------- --------
Net earnings (loss).................................... 16,280 (2,190)
Member's equity (deficit)
Beginning of period....................................... 359,098 381,748
Operating expense allocations and charges................. 16,353 17,503
Cash transfers, net....................................... (28,034) --
Capital contributions by members.......................... 131,189
Capital distributions to members.......................... (738,599)
--------- --------
End of period............................................. $ 363,697 $(210,349)
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 148
BRESNAN COMMUNICATIONS GROUP LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ 16,280 $ (2,190)
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 12,780 13,669
Loss (gain) on sale of cable systems................... (7,010) 181
Amortization of deferred financing costs............... -- 2,058
Changes in operating assets and liabilities, net of
effects of acquisitions:
Change in receivables................................ 6,498 (1,497)
Change in other assets............................... 82 (1,693)
Change in accounts payable, accrued expenses and
other liabilities................................... (2,014) 403
-------- ---------
Net cash provided by operating activities............ 26,616 10,931
-------- ---------
Cash flows from investing activities:
Capital expended for property and equipment............... (5,845) (7,948)
Capital expended for franchise costs...................... (573) (918)
Cash paid in acquisitions of cable television systems..... (16,417) (64,763)
Proceeds on dispositions of cable televisions systems..... -- 4,085
Change in restricted cash................................. -- 45,071
-------- ---------
Net cash used in investing activities............. (22,835) (24,473)
Cash flows from financing activities:
Borrowings under note agreement........................... 22,700 852,551
Repayments under note agreement........................... (6,345) (237,161)
Deferred finance costs paid............................... -- (18,027)
Contributions from members................................ 136,500
Distributions to members.................................. (11,681) (726,407)
-------- ---------
Net cash provided by financing activities......... 4,674 7,456
-------- ---------
Net increase (decrease) in cash................... 8,455 (6,086)
Cash and cash equivalents:
Beginning of period....................................... 6,957 6,636
-------- ---------
End of period............................................. $ 15,412 $ 550
======== =========
Supplemental disclosure of cash flow information -- cash
paid during the period for interest....................... $ 4,704 $ 25,169
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 149
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
(1) FORMATION AND BASIS OF PRESENTATION
Bresnan Communications Group, LLC and its subsidiaries ("BCG" or the
"Company") are wholly owned by Bresnan Communications Company Limited
Partnership, a Michigan limited partnership ("BCCLP"), is a Delaware limited
liability corporation formed on August 5, 1998 for the purpose of acting as co-
issuer with its wholly-owned subsidiary, Bresnan Capital Corporation ("BCC"), of
$170,000 aggregate principal amount at maturity of 8% Senior Notes and $275,000
aggregate principal amount at maturity of 9.25% Senior Discount Notes, both due
in 2009 (collectively the "Notes"). Prior to the issuance of the Notes on
February 2, 1999, BCCLP completed the terms of a contribution agreement dated
June 3, 1998, as amended, whereby certain affiliates of Tele-Communications,
Inc. ("TCI") contributed certain cable television systems along with assumed TCI
debt of approximately $708,854 to BCCLP. In addition, Blackstone BC Capital
Partners LP and affiliates contributed $136,500 to BCCLP. Upon completion of the
Notes offering on February 2, 1999 BCCLP contributed all of its assets and
liabilities to BCG, which simultaneously formed a wholly owned subsidiary,
Bresnan Telecommunications Company LLC ("BTC"), into which it contributed all of
its assets and liabilities. The above noted contributed assets and liabilities
were accounted for at predecessor cost because of the common ownership and
control of TCI and have been reflected in the accompanying financial statements
in a manner similar to a pooling of interests.
The Company owns and operates cable television systems in small- and
medium-sized communities in the midwestern United States.
The accompany interim consolidated financial statements are unaudited but,
in the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results of such
periods. The results of operations for the period ended March 31, 1999 are not
necessarily indicative of results for a full year. These consolidated financial
statements should be read in conjunction with the combined financial statements
and notes thereto of the predecessor to the Company contained in the Bresnan
Communications Group Systems financial statements for the year ended December
31, 1998.
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 at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(2) ACQUISITIONS AND SYSTEM DISPOSITIONS
In February 1998, the Company acquired certain cable television assets
located in Michigan which were accounted for under the purchase method. The
purchase price was allocated to the cable television assets acquired in relation
to their fair values as increase in property and equipment of $3,703 and
franchise costs of $12,797. In addition, the Company acquired two additional
systems in the first quarter of 1999 which were accounted for under the purchase
method. The purchase price was allocated to the cable televisions assets
acquired in relation to their estimated fair values as increase in property and
equipment of $22,200 and franchise costs of $44,600.
The results of these operations of these cable television systems have been
included in the accompanying consolidated statements of operations from their
dates of acquisition. Pro forma information has not been presented because the
effect was not significant.
F-8
<PAGE> 150
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
The Company also disposed of cable television systems during 1998 and 1999
for gross proceeds of $12,000 and $4,400 respectively and resulting in gain
(loss) on cable television systems of $7,010 and $(181) for 1998 and 1999,
respectively. The results of operations of these cable television systems
through the date of the disposition and the gain (loss) from the dispositions
have been included in the accompanying consolidated statements of operations. As
part of one of the dispositions, the Company received cash that was restricted
to reinvestment in additional cable television systems.
(3) DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C>
Senior Credit Facility(a)................................... $501,600
Senior Notes Payable(b)..................................... 170,000
Senior Discount Notes Payable(b)............................ 175,021
Other Debt.................................................. 1,386
--------
$848,007
========
</TABLE>
- ---------------
(a) The Senior Credit Facility represents borrowings under a $650,000 senior
reducing revolving credit and term loan facilities (the "Credit Facility")
as documented in the loan agreement as of February 2, 1999. The Credit
Facility calls for a current available commitment of $650,000 of which
$501,600 is outstanding at March 31, 1999. The Credit Facility provides for
three tranches, a revolving loan tranche for $150,000 (the "Revolving
Loan"), a term loan tranche of $328,000 (the "A Term Loan" and together with
the Revolving Loan, "Facility A") and a term loan tranche of $172,000 (the
"Facility B").
The commitments under the New Credit Facility will reduce commencing with
the quarter ending March 31, 2002. Facility A permanently reduces in
quarterly amounts ranging from 2.5% to 6.25% of the Facility A amount
starting March 31, 2002 and matures approximately eight and one half years
after February 2, 1999. Facility B is also to be repaid in quarterly
installments of .25% of the Facility B amount beginning in March 2002 and
matures approximately nine years after February 2, 1999, on which date all
remaining amounts of Facility B will be due and payable. Additional
reductions of the New Credit Facility will also be required upon certain
asset sales, subject to the right of the Company and its subsidiaries to
reinvest asset sale proceeds under certain circumstances. The interest rate
options include a LIBOR option and a Prime Rate option plus applicable
margin rates based on the Company's total leverage ratio. In addition, the
Company is required to pay a commitment fee on the unused revolver portion
of Facility A which will accrue at a rate ranging from .25% to .375% per
annum, depending on the Company's total leverage ratio.
The rate applicable to balances outstanding at March 31, 1999 ranged from
6.97% to 8.75%. Covenants of the Credit Facility require, among other
conditions the maintenance of specific levels of the ratio of cash flows to
future debt and interest expense and certain limitations on additional
investments, indebtedness, capital expenditures, asset sales and affiliate
transactions.
(b) On February 2, 1999, the Company sold $170,000 aggregate principal amount
senior notes payable (the "Senior Notes"). In addition, on the same date,
the Company issued $275,000 aggregate principal amount at maturity of senior
discount notes, (the "Senior Discount Notes") for approximately $175,000
gross proceeds collectively (the "Notes").
F-9
<PAGE> 151
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
The Senior Notes are unsecured and will mature on February 1, 2009. The
Senior Notes bear interest at 8% per annum payable semi-annually on
February 1 and August 1 of each year, commencing August 1, 1999.
The Senior Discount Notes are unsecured and will mature on February 1,
2009. The Senior Discount Notes were issued at a discount to their
aggregate principal amount at maturity and will accrete at a rate of
approximately 9.25% per annum, compounded semi-annually, to an aggregate
principal amount of $275,000 on February 1, 2004. Subsequent to February 1,
2004, the Senior Discount Notes will bear interest at a rate of 9.25% per
annum payable semi-annually in arrears on February 1 and August 1 of each
year, commencing August 1, 2004.
The Company may elect, upon not less than 60 days prior notice, to commence
the accrual of interest on all outstanding Senior Discount Notes on or
after February 1, 2002, in which case the outstanding principal amount at
maturity of each Senior Discount Note will on such commencement date be
reduced to the accreted value of such Senior Discount Note as of such date
and interest shall be payable with respect to the Senior Discount Notes on
each February and August 1 thereafter.
The Company may not redeem the Notes prior to February 1, 2004 except that
prior to February 1, 2002, the Company may redeem up to 35% of the Senior
Notes and Senior Discount Notes at redemption prices equal to 108% and 109%
of the applicable principal amount or accreted value. Subsequent to
February 1, 2004, the Company may redeem the Notes at redemption prices
declining annually from approximately 104% of the principal amount or
accreted value.
Bresnan Communications Group LLC and its wholly owned subsidiary Bresnan
Capital Corporation are the sole obligors of the Senior Notes and Senior
Discount Notes. Bresnan Communications Group LLC has no other assets or
liabilities other than its investment in its wholly owned subsidiary
Bresnan Telecommunications Company LLC. Bresnan Capital Corporation has no
other assets or liabilities.
Upon change of control of the Company, the holders of the notes have the
right to require the Company to purchase the outstanding notes at a price
equal to 101% of the principal amount or accrete value plus accrued and
unpaid interest.
BCG has entered into an interest rate swap agreement to effectively fix or
set a maximum interest rate on a portion of its floating rate long-term
debt. BCG is exposed to credit loss in the event of nonperformance by the
counterparties to the interest rate swap agreement.
At March 31, 1999, such Interest Rate Swap agreement effectively fixed or
set a maximum interest rate between 7.89% and 8.08% on an aggregate
notional principal amount of $110,000 which rate would become effective
upon the occurrence of certain events. The effect of the Interest Rate Swap
on interest expense for the three months ended March 31, 1998 and 1999 was
not significant. The expiration dates of the Interest Rate Swaps ranges
from August 25, 1999 to April 3, 2000. The difference between the fair
market value and book value of long-term debt and the Interest Rate Swap at
March 31, 1998 and 1999 is not significant.
(4) TRANSACTIONS WITH RELATED PARTIES
BCG and its predecessor purchased, at TCI's cost, substantially all of its
pay television and other programming from affiliates of TCI. Charges for such
programming were $13,808 and $14,864 for the three months ended March 31, 1998
and 1999, respectively, and are included in programming expenses in the
accompanying consolidated financial statements.
F-10
<PAGE> 152
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
Prior to February 2, 1999, certain affiliates of the predecessor to BCG
provided administrative services to BCG and assumed managerial responsibility of
BCG's cable television system operations and construction. As compensation for
these services, BCG paid a monthly fee calculated pursuant to certain agreed
upon formulas. Subsequent to the TCI Transaction on February 2, 1999, certain
affiliates of BCG provide administrative services and have assumed managerial
responsibilities of BCG. As compensation for these services, BCG pays a monthly
fee equal to 3% of gross revenues. Such aggregate charges totaled $2,544 and
$2,639 and have been included in selling, general and administrative expenses
for the three months ended March 31, 1998 and 1999, respectively.
(5) COMMITMENTS AND CONTINGENCIES
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST"). The
FCC itself directly administered rate regulation of any cable programming
service tier ("CPST"). The FCC's authority to regulate CPST rates expired on
March 31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but no later than 180 days after
the last CPST rate increase imposed prior to March 31, 1999), and will strictly
limit its review (and possible refund orders) to the time period predating the
sunset date.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price structure that allows for the recovery
of inflation and certain increased costs, as well as providing some incentive
for expanding channel carriage. Operators also have the opportunity to bypass
this "benchmark" regulatory structure in favor of the traditional
"cost-of-service" regulation in cases where the latter methodology appears
favorable. Premium cable service offered on a per-channel or per-program basis
remain unregulated, as do affirmatively marketed packages consisting entirely of
new programming product.
The management of BCG believes that it has complied in all material
respects with the provisions of the 1992 Cable Act and the 1996 Act, including
its rate setting provisions. If, as a result of the review process, a system
cannot substantiate its rates, it could be required to retroactively reduce its
rates to the appropriate benchmark and refund the excess portion of rates
received. Any refunds of the excess portion of CPST rates would be retroactive
to the date of complaint. Any refunds of the excess portion of BST or equipment
rates would be retroactive to one year prior to the implementation of the rate
reductions.
Certain plaintiffs have filed or threatened separate class action
complaints against certain of the systems of BCG, alleging that the systems'
practice of assessing an administrative fee to subscribers whose payments are
delinquent constitutes an invalid liquidated damage provision, a breach of
contract, and violates local consumer protection statutes. Plaintiffs seek
recovery of all late fees paid to the subject systems as a class purporting to
consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs.
BCG has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. Although it is possible that
BCG may incur losses upon conclusion of the matters referred
F-11
<PAGE> 153
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
to above, an estimate of any loss or range of loss cannot presently be made.
Based upon the facts available, management believes that, although no assurance
can be given as to the outcome of these actions, the ultimate disposition should
not have material adverse effect upon the combined financial condition of BCG.
BCG leases business offices, has entered into pole attachment agreements
and uses certain equipment under lease arrangements. Rental expense under such
arrangements amounted to $776 and $878 during the three months ended March 31,
1998 and 1999, respectively.
Future minimum lease payments under noncancelable operating leases are
estimated to approximate $2,240 per year for each of the next five years.
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced by leases on the same or other properties.
During 1999, BCG has continued enterprise-wide comprehensive efforts to
assess and remediate its respective computer systems and related software and
equipment to ensure such systems, software and equipment recognized, process and
store information in the year 2000 and thereafter. Such year 2000 remediation
efforts, include an assessment of its most critical systems, such as customer
service and billing systems, headends and other cable plant, business support
operations, and other equipment and facilities. BCG also continued its efforts
to verify the year 2000 readiness of its significant suppliers and vendors and
continued to communicate with significant business partners and affiliates to
assess affiliates' year 2000 status.
BCG has formed a year 2000 program management team to organize and manage
its year 2000 remediation efforts. The program management team is responsible
for overseeing, coordinating and reporting on its respective year 2000
remediation efforts.
During 1999, the project management team continued its surveys of
significant third-party vendors and suppliers whose systems, services or
products are important to its operations (e.g., suppliers of addressable
controllers and set-top boxes, and the provider of billing services). BCG has
instituted a verification process to determine the vendors' year 2000 readiness.
Such verification includes, as deemed necessary, reviewing vendors' test and
other data and engaging in regular conferences with vendors' year 2000 teams.
BCG is also requiring testing to validate the year 2000 compliance of certain
critical products and services. The year 2000 readiness of such providers is
critical to continued provision of cable service.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the systems of BCG or the systems of other companies on which
they rely will be converted in time, or that any such failure to convert by the
BCG or other companies will not have a material adverse effect on the financial
position, results of operations or cash flows of BCG.
(6) SUBSEQUENT EVENT
In June 1999, the Partners of BCCLP entered into an agreement to sell all
of their partnership interests in BCCLP to Charter Communications Holding
Company, LLC for a purchase price of approximately $3.1 billion in cash and
stock which will be reduced by the assumption of BCCLP'S debt at closing. The
cable systems to be acquired are located in Michigan, Minnesota, Wisconsin and
Nebraska. BCCLP anticipates that this transaction will close in early 2000.
F-12
<PAGE> 154
INDEPENDENT AUDITORS' REPORT
Tele-Communications, Inc.:
We have audited the accompanying combined balance sheets of Bresnan
Communications Group Systems, (as defined in Note 1 to the combined financial
statements) as of December 31, 1997 and 1998, and the related combined
statements of operations and Parents' investment and cash flows for each of the
years in the three-year period ended December 31, 1998. These combined financial
statements are the responsibility of the Bresnan Communications Group Systems
management. Our responsibility is to express an opinion on these combined
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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Bresnan
Communications Group Systems, as of December 31, 1997 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Denver, Colorado
April 2, 1999
F-13
<PAGE> 155
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 6,957 $ 6,636
Restricted cash (note 3).................................... -- 47,199
Trade and other receivables, net............................ 11,700 8,874
Property and equipment, at cost:
Land and buildings........................................ 5,229 4,123
Distribution systems...................................... 410,158 443,114
Support equipment......................................... 45,687 50,178
-------- --------
461,074 497,415
Less accumulated depreciation............................. 157,618 190,752
-------- --------
303,456 306,663
Franchise costs, net........................................ 291,746 291,103
Other assets, net of accumulated amortization............... 3,339 3,961
-------- --------
Total assets........................................... $617,198 $664,436
======== ========
LIABILITIES AND PARENTS' INVESTMENT
Accounts payable............................................ $ 2,071 $ 3,193
Accrued expenses............................................ 11,809 13,395
Accrued interest............................................ 20,331 21,835
Debt........................................................ 214,170 232,617
Other liabilities........................................... 9,719 11,648
-------- --------
Total liabilities...................................... 258,100 282,688
Parents' investment......................................... 359,098 381,748
-------- --------
Commitments and contingencies (note 7)
Total liabilities and Parents' investment.............. $617,198 $664,436
======== ========
</TABLE>
F-14
<PAGE> 156
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENTS' INVESTMENT
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Revenue.................................................... $216,609 $247,108 $261,964
Operating costs and expenses:
Programming (note 6)..................................... 46,087 53,857 63,686
Operating................................................ 31,405 31,906 28,496
Selling, general and administrative (note 6)............. 52,485 50,572 58,568
Depreciation and amortization............................ 50,908 53,249 54,308
-------- -------- --------
180,885 189,584 205,058
-------- -------- --------
Operating income...................................... 35,724 57,524 56,906
Other income (expense):
Interest expense:
Related party (note 4)................................ (1,859) (1,892) (1,872)
Other................................................. (13,173) (16,823) (16,424)
Gain on sale of cable television systems................. -- -- 27,027
Other, net............................................... (844) (978) (273)
-------- -------- --------
(15,876) (19,693) 8,458
-------- -------- --------
Net earnings.......................................... 19,848 37,831 65,364
Parents' investment:
Beginning of year........................................ 344,664 347,188 359,098
Operating expense allocations and charges (notes 4 and
6).................................................... 54,643 60,389 71,648
Net assets of acquired systems (note 3).................. -- 33,635 --
Cash transfers, net...................................... (71,967) (119,945) (114,362)
-------- -------- --------
End of year.............................................. $347,188 $359,098 $381,748
======== ======== ========
</TABLE>
F-15
<PAGE> 157
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings.............................................. $19,848 $37,831 $65,364
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 50,908 53,249 54,308
Gain on sale of cable television systems............... -- -- (27,027)
Other noncash charges.................................. 1,171 2,141 452
Changes in operating assets and liabilities, net of
effects of acquisitions:
Change in receivables................................ (291) (3,413) 2,826
Change in other assets............................... (144) 164 --
Change in accounts payable, accrued expenses and
other liabilities................................. 7,178 2,305 6,141
Other, net........................................... 473 271 297
------- ------- -------
Net cash provided by operating activities......... 79,143 92,548 102,361
------- ------- -------
Cash flows from investing activities:
Capital expended for property and equipment............... (78,248) (33,875) (58,601)
Capital expended for franchise costs...................... (87) (1,407) (157)
Cash received in acquisitions............................. -- 1,179 28,681
Change in restricted cash................................. -- -- (47,199)
------- ------- -------
Net cash used in investing activities............. (78,335) (34,103) (77,276)
------- ------- -------
Cash flows from financing activities:
Borrowings under note agreement........................... 40,300 31,300 49,400
Repayments under note agreement........................... (18,546) (24,364) (30,953)
Deferred finance costs paid............................... (595) (2,121) (1,139)
Change in Parents' investment............................. (24,259) (59,556) (42,714)
------- ------- -------
Net cash used in financing activities............. (3,100) (54,741) (25,406)
------- ------- -------
Net increase (decrease) in cash................... (2,292) 3,704 (321)
Cash and cash equivalents:
Beginning of year......................................... 5,545 3,253 6,957
------- ------- -------
End of year............................................... $ 3,253 $ 6,957 $ 6,636
======= ======= =======
Supplemental disclosure of cash flow information --
Cash paid during the year for interest.................... $12,996 $16,971 $16,792
======= ======= =======
</TABLE>
F-16
<PAGE> 158
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(1) BASIS OF PRESENTATION AND PARTNERSHIP FORMATION
The financial statements of Bresnan Communications Group Systems are the
combination of the financial statements of Bresnan Communications Company
Limited Partnership ("BCCLP") and certain additional cable television systems
(the "TCI Bresnan Systems") owned by affiliates of Tele-Communications, Inc.
("TCI"). BCCLP and the TCI Bresnan Systems are under the common ownership and
control of TCI for all periods presented. Based on such common ownership and
control, the accompanying financial statements are presented herein at
historical cost on a combined basis and will serve as a predecessor to Bresnan
Communications Group LLC. The combined net assets of Bresnan Communications
Group Systems are herein referred to as "Parents' investment."
BCCLP is a partnership between a subsidiary of TCI and William J. Bresnan
and certain entities which he controls (collectively, the "Bresnan Entities").
BCCLP owns and operates cable television systems principally located in the
midwestern United States. TCI and the Bresnan Entities hold 78.4% and 21.6%
interests, respectively, in BCCLP.
Certain of the TCI Bresnan Systems have been acquired through transactions
whereby TCI acquired various larger cable entities (the "Original Systems"). The
accounts of certain of the TCI Bresnan Systems include allocations of purchase
accounting adjustments from TCI's acquisition of the Original Systems. Such
allocations and the related franchise cost amortization are based upon the
relative fair market values of the systems involved. In addition, certain costs
of TCI and the Bresnan Entities are charged to the Bresnan Communications Group
Systems based on the methodologies described in note 6. Although such
allocations are not necessarily indicative of the costs that would have been
incurred by the Bresnan Communications Group Systems on a stand alone basis,
management of TCI and the Bresnan Entities believe that the resulting allocated
amounts are reasonable.
On June 3, 1998, certain affiliates of TCI, the Bresnan Entities, BCCLP and
Blackstone Cable Acquisition Company, LLC ("Blackstone") (collectively, the
"Partners") entered into a Contribution Agreement. Effective February 2, 1999
under the terms of the contribution agreement, certain systems of affiliates of
TCI were transferred to BCCLP along with approximately $708,854 of assumed TCI
debt (the "TCI Transaction") which is not reflected in the accompanying combined
financial statements. At the same time, Blackstone contributed $136,500 to
BCCLP. As a result of these transactions, the Bresnan Entities remain the
managing partner of BCCLP, with a 10.2% combined general and limited partner
interest, while TCI and Blackstone are 50% and 39.8% limited partners of BCCLP,
respectively. The amount of the assumed TCI debt will be adjusted based on
certain working capital adjustments at a specified time after the consummation
of TCI Transaction. Upon completion of these transactions BCCLP formed a
wholly-owned subsidiary, Bresnan Communications Group LLC ("BCG"), into which it
contributed all its assets and liabilities. Simultaneous with this transaction
Bresnan Communications Group LLC formed a wholly-owned subsidiary, Bresnan
Telecommunications Company LLC ("BTC"), into which it contributed all its assets
and liabilities.
In anticipation of these transactions, on January 25, 1999, BCG sold
$170,000 aggregate principal amount of 8% senior notes (the "Senior Notes") due
2009 and $275,000 aggregate principal amount at maturity (approximately $175,000
gross proceeds) of 9.25% senior discount notes (the "Senior Discount Notes") due
2009. The net proceeds from the offering of the Senior Notes and the Senior
Discount Notes approximated $336,000 after giving effect to discounts and
commissions. Also, BTC borrowed $508,000 of $650,000 available under a new
credit facility (the "Credit Facility").
F-17
<PAGE> 159
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
The proceeds of the Senior Notes, the Senior Discount Notes and the Credit
Facility were used to retire the assumed TCI debt and the outstanding debt of
the Bresnan Communications group systems prior to the TCI Transaction (see Note
4), as well as the payment of certain fees and expenses. Deferred financing
costs of $2.6 million associated with the retired debt will be written off.
After giving effect to the issuance of debt noted above, the unaudited
proforma debt outstanding at December 31, 1998 would be $857 million and the
Parents' investment would decrease to a deficit position of $206 million at
December 31, 1998.
On March 9, 1999, AT&T Corp. ("AT&T") acquired TCI in a merger (the "AT&T
Merger"). In the AT&T Merger, TCI became a subsidiary of AT&T.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
Cash equivalents consist of investments which are readily convertible into
cash and have maturities of three months or less at the time of acquisition.
(b) Trade and Other Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1997 and 1998 was not significant.
(c) Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including interest
during construction and applicable overhead, are capitalized. During 1996, 1997
and 1998, interest capitalized was $1,005, $324 and $47, respectively.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, and salvage, if any, is credited
thereto. Gains or losses are only recognized in connection with the sales of
properties in their entirety.
(d) Franchise Costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts allocated to their tangible assets. Such amounts
are generally amortized on a straight-line basis over 40 years. Costs incurred
by Bresnan Communications Group Systems in negotiating and renewing franchise
agreements are amortized on a straight-line basis over the life of the
franchise, generally 10 to 20 years.
(e) Impairment of Long-Lived Assets
Management periodically reviews the carrying amounts of property and
equipment and identifiable intangible assets to determine whether current events
or circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary based on an analysis of undiscounted cash flow,
such loss is measured by the amount that the carrying value of such assets
exceeds their fair value.
F-18
<PAGE> 160
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
Considerable management judgment is necessary to estimate the fair value of
assets. Accordingly, actual results could vary significantly from such
estimates. Assets to be disposed of are carried at the lower of their financial
statement carrying amount or fair value less costs to sell.
(f) Financial Instruments
Bresnan Communications Group Systems has entered into fixed interest rate
exchange agreements ("Interest Rate Swaps") which are used to manage interest
rate risk arising from its financial liabilities. Such Interest Rate Swaps are
accounted for as hedges; accordingly, amounts receivable or payable under the
Interest Rate Swaps are recognized as adjustments to interest expense. Such
instruments are not used for trading purposes.
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS 133"), which is effective for all fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting and reporting
standards for derivative instruments and hedging activities by requiring that
all derivative instruments be reported as assets or liabilities and measured at
their fair values. Under SFAS 133, changes in the fair values of derivative
instruments are recognized immediately in earnings unless those instruments
qualify as hedges of the (1) fair values of existing assets, liabilities, or
firm commitments, (2) variability of cash flows of forecasted transactions, or
(3) foreign currency exposures of net investments in foreign operations.
Although management has not completed its assessment of the impact of SFAS 133
on its combined results of operations and financial position, management
estimates that the impact of SFAS 133 will not be material.
(g) Income Taxes
The majority of the net assets comprising the TCI Bresnan Systems and BCCLP
were historically held in partnerships. In addition, BCG has been formed as a
limited liability company, to be treated for tax purposes as a flow-through
entity. Accordingly, no provision has been made for income tax expense or
benefit in the accompanying combined financial statements as the earnings or
losses of Bresnan Communications Group Systems will be reported in the
respective tax returns of BCG's members (see note 5).
(h) Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising,
pay-per-view programming is recognized in the period that services are
delivered. Installation revenue is recognized in the period the installation
services are provided to the extent of direct selling costs. Any remaining
amount is deferred and recognized over the estimated average period that
customers are expected to remain connected to the cable distribution system.
(i) Combined Statements of Cash Flows
Except for acquisition transactions described in note 3, transactions
effected through Parents' investment have been considered constructive cash
receipts and payments for purposes of the combined statements of cash flows.
(j) 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
F-19
<PAGE> 161
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
(3) ACQUISITIONS AND SYSTEM DISPOSITIONS
In January 1997, affiliates of TCI acquired certain cable television assets
located in or around the Saginaw, Michigan area which are included in the TCI
Bresnan Systems. TCI's cost basis in such acquired assets has been allocated
based on their respective fair values. Such allocation has been reflected in the
accompanying combined financial statements as follows:
<TABLE>
<S> <C>
Cash........................................................ $ 1,179
Property and equipment...................................... 10,786
Franchise costs............................................. 21,670
-------
Parents' investment....................................... $33,635
=======
</TABLE>
In addition in 1998, BCCLP acquired two cable systems which were accounted
for under the purchase method. The purchase prices were allocated to the assets
acquired in relation to their fair values as increases in property and equipment
of $7,099 and franchise costs of $21,651.
The results of operations of these cable television systems have been
included in the accompanying combined statements of operations from their dates
of acquisition. Pro forma information on the acquisitions has not been presented
because the effects were not significant.
During 1998, BCCLP also disposed of two cable systems for gross proceeds of
$58,949, which resulted in gain on sale of cable television systems of $27,027.
In connection with one of the dispositions, a third party intermediary received
$47,199 of cash that is designated to be reinvested in certain identified assets
for income tax purposes.
(4) DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Notes payable to banks(a).............................. $190,300 $209,000
Notes payable to partners(b)......................... 22,100 22,100
Other debt........................................... 1,770 1,517
-------- --------
$214,170 $232,617
======== ========
</TABLE>
- ---------------
(a) The notes payable to banks represent borrowings under a $250,000 senior
unsecured reducing revolving credit and term loan facility (the "Bank
Facility") as documented in the loan agreement as amended and restated as of
August 5, 1998. The Bank Facility calls for a current available commitment
of $250,000 of which $209,000 is outstanding at December 31, 1998. The Bank
Facility provides for two tranches, a revolving loan tranche of $175,000
(the "Revolving Loan Tranche") and a term loan tranche of $75,000 (the "Term
Loan Tranche"). The Revolving Loan Tranche is available through March 30,
1999 and then requires quarterly payments/commitment reductions ranging from
2.5% to 7.5% of the principal through its maturity on March 31, 2005. The
Term Loan Tranche, fully drawn at closing and maturing March 31, 2006,
requires quarterly payments of .25% beginning March 31, 1999 through
December 31, 2004,
F-20
<PAGE> 162
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
quarterly payments of 2.5% for the year ended December 31, 2005 and 84% of
the principal at maturity. The Bank Facility provides for interest at
varying rates based on two optional measures: 1) for the Revolving Loan
Tranche, the prime rate plus .625% and/or the London Interbank Offered Rate
("LIBOR") plus 1.625% and 2) for the Term Loan Tranche, the prime rate plus
1.75% and/or LIBOR plus 2.75%. The Bank Facility has provisions for certain
performance-based interest rate reductions which are available under either
interest rate option. In addition, the Bank Facility allows for interest
rate swap agreements.
The rates applicable to balances outstanding at December 31, 1998 ranged
from 6.815% to 8.000% Covenants of the Bank Facility require, among other
conditions, the maintenance of certain earnings, cash flow and financial
ratios and include certain limitations on additional investments,
indebtedness, capital expenditures, asset sales, management fees and
affiliate transactions. Commitment fees of .375% per annum are payable on
the unused principal amounts of the available commitment under the Bank
Facility, as well as an annual agency fee to a bank of $60. A guarantee in
the amount of $3,000, has been provided by one of the BCCLP partners.
Balances outstanding at December 31, 1998 are due as follows:
<TABLE>
<S> <C>
1999........................................... $ 14,150
2000........................................... 17,500
2001........................................... 20,850
2002........................................... 24,200
2003 and thereafter............................ 132,300
--------
$209,000
========
</TABLE>
(b) The note payable to a partner is comprised of a $25,000 subordinated note of
which $22,100 was outstanding at December 31, 1997 and 1998. The note, dated
May 12, 1988, is junior and subordinate to the senior debt represented by
the notes payable to banks. Interest is to be provided for at the prime rate
(as defined) and is payable quarterly, to the extent allowed under the bank
subordination agreement, or at the maturity date of the note, which is the
earlier of April 30, 2001 or the first business day following the full
repayment of the entire amount due under the notes payable to banks.
Applicable interest rates at December 31, 1997 and 1998 were 8.25% and
7.75%, respectively. The note also provides for repayment at any time
without penalty, subject to subordination restrictions.
Bresnan Communications Group Systems has entered into Interest Rate Swaps
to effectively fix or set a maximum interest rate on a portion of its floating
rate long-term debt. Bresnan Communications Group Systems is exposed to credit
loss in the event of nonperformance by the counterparties to the Interest Rate
Swaps.
At December 31, 1998, such Interest Rate Swaps effectively fixed or set
maximum interest rates between 9.625% and 9.705% on an aggregate notional
principal amount of $110,000, which rate would become effective upon the
occurrence of certain events. The effect of the Interest Rate Swaps was to
increase interest expense by $851, $460, and $19 for the years ended December
31, 1996, 1997 and 1998, respectively. The expiration dates of the Interest Rate
Swaps ranges from August 25, 1999 to April 3, 2000. The difference between the
fair market value and book value of long-term debt and the Interest Rate Swaps
at December 31, 1997 and 1998 is not significant.
F-21
<PAGE> 163
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(5) INCOME TAXES
Taxable earnings differ from those reported in the accompanying combined
statements of operations due primarily to differences in depreciation and
amortization methods and estimated useful lives under regulations prescribed by
the Internal Revenue Service. At December 31, 1998, the reported amounts of
Bresnan Communications Group Systems' assets exceeded their respective tax bases
by approximately $394 million.
(6) TRANSACTIONS WITH RELATED PARTIES
Bresnan Communications Group Systems purchases, at TCI's cost,
substantially all of its pay television and other programming from affiliates of
TCI. Charges for such programming were $42,897, $48,588 and $58,562 for 1996,
1997 and 1998, respectively, and are included in programming expenses in the
accompanying combined financial statements.
Certain affiliates of the Partners provide administrative services to
Bresnan Communications Group Systems and have assumed managerial responsibility
of Bresnan Communications Group Systems cable television system operations and
construction. As compensation for these services, Bresnan Communications Group
Systems pays a monthly fee calculated pursuant to certain agreed upon formulas.
Such charges totaled $11,746, $11,801 and $13,086 and have been included in
selling, general and administrative expenses for years ended December 31, 1996,
1997 and 1998, respectively.
(7) COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and 1994,
the Federal Communications Commission ("FCC") adopted certain rate regulations
required by the 1992 Cable Act and imposed a moratorium on certain rate
increases. As a result of such actions, Bresnan Communications Group Systems'
basic and tier service rates and its equipment and installation charges (the
"Regulated Services") are subject to the jurisdiction of local franchising
authorities and the FCC. Basic and tier service rates are evaluated against
competitive benchmark rates as published by the FCC, and equipment and
installation charges are based on actual costs. Any rates for Regulated Services
that exceeded the benchmarks were reduced as required by the 1993 and 1994 rate
regulations. The rate regulations do not apply to the relatively few systems
which are subject to "effective competition" or to services offered on an
individual service basis, such as premium movie and pay-per-view services.
Bresnan Communications Group Systems believes that it has complied in all
material respects with the provisions of the 1992 Cable Act, including its rate
setting provisions. However, Bresnan Communications Group Systems' rates for
Regulated Services are subject to review by the FCC, if a complaint has been
filed by a customer, or the appropriate franchise authority, if such authority
has been certified by the FCC to regulate rates. If, as a result of the review
process, a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of tier
service rates would be retroactive to the date of complaint. Any refunds of the
excess portion of all other Regulated Service rates would be retroactive to one
year prior to the implementation of the rate reductions.
Certain of Bresnan Communications Group Systems' individual systems have
been named in purported class actions in various jurisdictions concerning late
fee charges and practices. Certain of Bresnan Communications Group Systems'
cable systems charge late fees to customers who do not pay their cable bills on
time. Plaintiffs generally allege that the late fees charged by such cable
systems are not reasonably related to the
F-22
<PAGE> 164
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
costs incurred by the cable systems as a result of the late payment. Plaintiffs
seek to require cable systems to provide compensation for alleged excessive late
fee charges for past periods. These cases are at various stages of the
litigation process. Based upon the facts available, management believes that,
although no assurances can be given as to the outcome of these actions, the
ultimate disposition of these matters should not have a material adverse effect
upon the financial condition or results of operations of Bresnan Communications
Group Systems.
BCCLP entered into three letters of intent with three different cable
operators pursuant to which the BCCLP intends to sell a small cable television
system in Michigan and acquire cable television systems in both Michigan and
Minnesota. These transactions would result in a net cost to the BCCLP of
approximately $63,000, $2,000 was deposited for the acquisition in Michigan.
BCCLP expects to fund these transactions through the use of restricted cash,
cash flow from operations and additional borrowings.
Bresnan Communications Group Systems has other contingent liabilities
related to legal proceedings and other matters arising in the ordinary course of
business. Although it is reasonably possible Bresnan Communications Group
Systems may incur losses upon conclusion of such matters, an estimate of any
loss or range of loss cannot be made. In the opinion of the management, it is
expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying combined
financial statements.
Bresnan Communications Group Systems leases business offices, has entered
into pole attachment agreements and uses certain equipment under lease
arrangements. Rental expense under such arrangements amounted to $3,208, $3,221
and $2,833 in 1996, 1997 and 1998, respectively.
Future minimum lease payments under noncancelable operating leases are
estimated to approximate $2,240 per year for each of the next five years.
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced by leases on the same or similar properties.
During 1998, TCI and BCCLP have continued enterprise-wide, comprehensive
efforts to assess and remediate their respective computer systems and related
software and equipment to ensure such systems, software and equipment will
recognize, process and store information in the year 2000 and thereafter. Such
year 2000 remediation efforts, which encompass the TCI Bresnan Systems and the
Bresnan Entities, respectively, include an assessment of their most critical
systems, such as customer service and billing systems, headends and other cable
plant, business support operations, and other equipment and facilities. TCI and
BCCLP also continued their efforts to verify the year 2000 readiness of their
significant suppliers and vendors and continued to communicate with significant
business partners' and affiliates to assess such partners and affiliates' year
2000 status.
TCI and BCCLP have formed year 2000 program management teams to organize
and manage their year 2000 remediation efforts. The program management teams are
responsible for overseeing, coordinating and reporting on their respective year
2000 remediation efforts. Upon consummation of the TCI Transaction, assessment
and remediation of year 2000 issues for the TCI Bresnan Systems became the
responsibility of BCCLP.
During 1998, the project management teams continued their surveys of
significant third-party vendors and suppliers whose systems, services or
products are important to their operations (e.g., suppliers of addressable
controllers and set-top boxes, and the provider of billing services). The year
2000 readiness of such providers is critical to continued provision of cable
service.
F-23
<PAGE> 165
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
TCI and BCCLP have instituted a verification process to determine the
vendors' year 2000 readiness. Such verification includes, as deemed necessary,
reviewing vendors' test and other data and engaging in regular conferences with
vendors' year 2000 teams. TCI and BCCLP are also requiring testing to validate
the year 2000 compliance of certain critical products and services.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the systems of Bresnan Communications Group Systems or the
systems of other companies on which they rely will be converted in time, or that
any such failure to convert by the Bresnan Communications Group Systems or other
companies will not have a material adverse effect on the financial position,
results of operations or cash flows of Bresnan Communications Group Systems.
F-24
<PAGE> 166
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS EXCHANGE
OFFER OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[LOGO]
BRESNAN
COMMUNICATIONS
GROUP LLC
BRESNAN CAPITAL CORPORATION
OFFER TO EXCHANGE
8% SENIOR NOTES DUE 2009, SERIES A
FOR ALL OUTSTANDING
8% SENIOR NOTES DUE 2009, SERIES B
AND
9 1/4% SENIOR DISCOUNT NOTES DUE 2009, SERIES A
FOR ALL OUTSTANDING
9 1/4% SENIOR DISCOUNT NOTES DUE
2009, SERIES B
--------------------
PROSPECTUS
--------------------
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 167
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION UNDER THE LIMITED LIABILITY COMPANY AGREEMENT OF THE COMPANY.
The Limited Liability Company Agreement of Bresnan Communications Group LLC
("BCG") dated August 5, 1998, (the "Operating Agreement") between BCG and
Bresnan Communications Company Limited Partnership ("BCCLP"), its member (the
"Member") provides certain Indemnifiable Persons (as defined therein) shall be
indemnified and held harmless by the Company to the fullest extent permitted by
law from and against any losses, claims, demands, liabilities, costs, damages
and causes of action of any nature whatsoever, and amounts paid in settlement of
any claims, including, without limitation, any reasonable legal, accounting or
other expenses incurred in connection with investigating or defending any actual
or threatened claims, investigations, suits, proceedings or actions, arising out
of or incidental to an Indemnifiable Person's conduct of the affairs of BCG
within the scope of authority conferred by the Operating Agreement
(collectively, "Claims"). Notwithstanding the foregoing, no indemnification is
available under the Operating Agreement in respect of any Claim adjudged to be
primarily the result of fraud or willful misconduct of an Indemnifiable Person.
Unless the Member otherwise determines, BCG will pay the costs and expenses,
including reasonable legal fees, incurred by any Indemnifiable Person in
connection with any Claim for which an Indemnifiable Person may be entitled to
indemnification in accordance with the Operating Agreement in advance of the
final disposition of such Claim, upon receipt by the Company of an undertaking
of such Indemnifiable Person to repay such payment if there is a final
adjudication or determination that such Indemnifiable Person is not entitled to
indemnification as provided under the Operating Agreement. The indemnification
rights contained in the Operating Agreement shall be cumulative and in addition
to any and all other rights, remedies and recourse to which an Indemnifiable
Person shall be entitled, whether pursuant to the provisions of this Agreement,
at law, or in equity. Payment of the indemnification obligations set forth
herein shall be made from the assets of BCG and the Member shall not be
personally liable to an Indemnifiable Person for payment of indemnification
thereunder. Notwithstanding anything contained in the Operating Agreement to the
contrary, all indemnification obligations of BCG shall survive the termination
of BCG.
INDEMNIFICATION UNDER THE DELAWARE LIMITED LIABILITY COMPANY ACT.
Section 18-108 of the Delaware Limited Liability Company Act authorizes a
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,
subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement.
INDEMNIFICATION UNDER THE BY-LAWS OF BCC.
The By-Laws of Bresnan Communications Corporation ("BCC") provide that BCC,
to the fullest extent permitted by applicable law, will indemnify any officer or
director of BCC 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 in nature, by reason of the fact that
such person is or was a director or officer of BCC, or is or was serving at the
request of BCC as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, 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
and/or the defense or settlement of such action or suit, and BCC may enter into
agreements with any such person for the purpose of providing for such
indemnification. To the extent that a director or officer of BCC has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in the preceding paragraph, or in defense of any claim,
issue or matter therein, and BCC has not previously reimbursed or paid for all
such expenses, such person will be indemnified against its expenses (including
attorneys' fees and disbursements) actually and reasonably incurred by such
II-1
<PAGE> 168
person in connection therewith. Expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by BCC in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such officer or director to repay such amount if
it shall ultimately be determined that such officer or director was not entitled
to be indemnified by BCC against such expenses as authorized in the By-Laws of
BCC. The indemnification and advancement of expenses permitted in the By-Laws of
BCC will not be deemed exclusive of any other rights to which any person may be
entitled under any agreement, or by virtue of vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding an office,
and will continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
person.
INDEMNIFICATION UNDER THE DELAWARE GENERAL CORPORATION LAW
Section 145 of the Delaware General Corporation Law (the "DGCL), authorizes
a corporation to indemnify its directors, officers, employees and agents and its
former directors, officers, employees, and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any settlements in nonderivative in which they or
any of them wee or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The DGCL provides,
however, that such person must have acted in good faith and in a manner such
person reasonably believed to be in (or not opposed to) the best interests of
the corporation and, in the case of a criminal action, such person must have had
no reasonable cause to believe his or her conduct was unlawful. In addition, the
DGCL does not permit indemnification in an action or suit by or in the right of
the corporation, where such person has been adjudged liable to the corporation,
unless and only to the extent that, a court determines that such person fairly
and reasonably is entitled to indemnity for costs the court deems proper in
light of liability adjudication. Indemnity is mandatory to the extent a claim,
issue or matter has been successfully defended. The DGCL also prohibits
limitations on officer or director liability for acts or omissions which
resulted in violation of a statute prohibiting certain dividend declarations,
certain payments to stockholders after dissolution and particular types of
loans. The effect of these provisions is to eliminate the rights of BCI and its
stockholders (through stockholders' derivative suits on behalf of BCI to recover
monetary damages against an officer or director for breach of fiduciary as an
officer or director (including breaches resulting from grossly negligent
behavior), except in the situations described above. These provisions will not
limit the liability of directors or officers under the federal securities laws
of the United States.
II-2
<PAGE> 169
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Purchase Agreement, dated January 25, 1999, among the
Issuers, BCCLP and the Initial Purchasers named therein*
3.1 Certificate of Formation of BCG*
3.2 Limited Liability Company Agreement of BCG*
3.3 Certificate of Incorporation of BCC*
3.4 By-Laws of BCC*
4.1 Indenture, dated February 2, 1999, among BCG, BCC and State
Street Bank and Trust Company, as trustee, relating to the
Issuers' $170,000,000 principal amount of 8% Senior Notes
due 2009 and $275,000,000 aggregate principal amount at
maturity of 9 1/4% Senior Discount Notes due 2009*
4.2 Form of 144A Senior Note*
4.3 Form of 144A Senior Discount Note*
4.4 Form of Regulation S Senior Note*
4.5 Form of Regulation S Senior Discount Note*
4.7 Registration Rights Agreement, dated January 25, 1999, among
the Issuers and the Initial Purchasers named therein*
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP*
10.1 Loan Agreement dated as of February 2, 1999 among BTC,
various lending institutions, Toronto Dominion (Texas),
Inc., as the Administrative Agent for the Lenders, with TD
Securities (USA) Inc., Chase Securities Inc., the Bank of
Nova Scotia, BNY Capital Markets, Inc. and NationsBanc
Montgomery Securities LLC, collectively, the Arranging
Agents, Chase Securities Inc., as Syndication Agent, the
Bank of Nova Scotia, the Bank of New York Company, Inc., and
NationsBanc Montgomery Securities LLC, as Documentation
Agents, and TD Securities (USA) Inc., and Chase Securities
Inc., as Joint Book Managers and Joint Lead Arrangers*
10.2 Management Services Agreement by and between BCI (USA), LLC
and BCCLP**
10.3 Purchase and Contribution Agreement dated as of June ,
1999 among BCI (USA), LLC, William J. Bresnan, Blackstone BC
Capital Partners, L.P., Blackstone BC Offshore Capital
Partners, L.P., Blackstone Family Investment Partnership III
L.P., TCI Bresnan LLC and TCID of Michigan, Inc., as
Sellers, and Charter Communications Holding Company, LLC, as
Buyer
12 Ratio of Earnings to Fixed Charges Calculation*
21 Subsidiaries of the Company*
23.1 Consents of KPMG LLP
23.2 Consent of Paul, Hastings, Janofsky & Walker LLP (contained
in Exhibit 5.1)*
25.1 Statement of Eligibility of State Street Bank and Trust
Company, as Trustee on Form T-1*
27.1 Financial Data Schedule of the Company*
27.2 Financial Data Schedule of BCC*
99.1 Form of Letter of Transmittal**
99.2 Form of Notice of Guaranteed Delivery**
</TABLE>
b. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
c. Not applicable
- ---------------
* Previously filed
** To be filed by amendment
II-3
<PAGE> 170
ITEM 22. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions, or otherwise, the Registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrants of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 171
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANTS
HAVE DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK ON THE 8TH DAY OF JULY, 1999.
BRESNAN COMMUNICATIONS GROUP LLC
By: BRESNAN COMMUNICATIONS COMPANY
LIMITED PARTNERSHIP, its member
By: BCI (USA), LLC, its managing
partner
By: BRESNAN COMMUNICATIONS, INC.,
its managing member
By: /s/ JEFFREY S. DEMOND
------------------------------------
Name: Jeffrey S. DeMond
Title: Executive Vice President
and
Chief Financial Officer
BRESNAN CAPITAL CORPORATION
By: /s/ JEFFREY S. DEMOND
------------------------------------
Name: Jeffrey S. DeMond
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, the Amendment
to the 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/ WILLIAM J. BRESNAN Director of BCI July 8, 1999
- ---------------------------------------------------
/s/ WILLIAM J. BRESNAN Director of BCC July 8, 1999
- ---------------------------------------------------
</TABLE>
II-5
<PAGE> 172
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCES AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
PERIOD EXPENSES DEDUCTIONS(1) OF PERIOD
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
For the quarter ended march 31, 1999
Allowance for receivables 626,465.25 779,394.00 (1,020,966.99) 384,892.26
For the year ended December 31, 1998
Allowance for receivables 824,815.56 3,040,503.27 (3,238,853.58) 626,465.25
For the year ended December 31, 1997
Allowance for receivables 540,742.90 3,737,347.99 (3,453,275.33) 824,815.56
For the year ended December 31, 1996
Allowance for receivables 399,630.80 2,900,988.67 (2,759,876.57) 540,742.90
</TABLE>
- ---------------
(1) Represents the write-off of uncollectible accounts, net of recoveries and
the sale of receivables to acquiring companies.
<PAGE> 173
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
2.1 Purchase Agreement, dated January 25, 1999, among the
Issuers, BCCLP and the Initial Purchasers named therein*
3.1 Certificate of Formation of BCG*
3.2 Limited Liability Company Agreement of BCG*
3.3 Certificate of Incorporation of BCC*
3.4 By-Laws of BCC*
4.1 Indenture, dated February 2, 1999, among BCG, BCC and State
Street Bank and Trust Company, as trustee, relating to the
Issuers' $170,000,000 principal amount of 8% Senior Notes
due 2009 and $275,000,000 aggregate principal amount at
maturity of 9 1/4% Senior Discount Notes due 2009*
4.2 Form of 144A Senior Note*
4.3 Form of 144A Senior Discount Note*
4.4 Form of Regulation S Senior Note*
4.5 Form of Regulation S Senior Discount Note*
4.7 Registration Rights Agreement, dated January 25, 1999, among
the Issuers and the Initial Purchasers named therein*
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP*
10.1 Loan Agreement dated as of February 2, 1999 among BTC,
various lending institutions, Toronto Dominion (Texas),
Inc., as the Administrative Agent for the Lenders, with TD
Securities (USA) Inc., Chase Securities Inc., the Bank of
Nova Scotia, BNY Capital Markets, Inc. and NationsBanc
Montgomery Securities LLC, collectively, the Arranging
Agents, Chase Securities Inc., as Syndication Agent, the
Bank of Nova Scotia, the Bank of New York Company, Inc., and
NationsBanc Montgomery Securities LLC, as Documentation
Agents, and TD Securities (USA) Inc., and Chase Securities
Inc., as Joint Book Managers and Joint Lead Arrangers*
10.2 Management Services Agreement by and between BCI (USA), LLC
and BCCLP**
10.3 Purchase and Contribution Agreement dated as of June ,
1999 among BCI (USA), LLC, William J. Bresnan, Blackstone BC
Capital Partners, L.P., Blackstone BC Offshore Capital
Partners, L.P., Blackstone Family Investment Partnership III
L.P., TCI Bresnan LLC and TCID of Michigan, Inc., as
Sellers, and Charter Communications Holding Company, LLC, as
Buyer
12 Ratio of Earnings to Fixed Charges Calculation*
21 Subsidiaries of the Company*
23.1 Consent of KPMG LLP
23.2 Consent of Paul, Hastings, Janofsky & Walker LLP (contained
in Exhibit 5.1)*
25.1 Statement of Eligibility of State Street Bank and Trust
Company, as Trustee on Form T-1*
27.1 Financial Data Schedule of the Company*
27.2 Financial Data Schedule of BCC*
99.1 Form of Letter of Transmittal**
99.2 Form of Notice of Guaranteed Delivery**
</TABLE>
b. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
c. Not applicable
- ---------------
* Previously filed
** To be filed by amendment
<PAGE> 1
EXHIBIT 10.3
PURCHASE AND CONTRIBUTION AGREEMENT
DATED AS OF JUNE ___, 1999
AMONG
BCI (USA), LLC,
WILLIAM J. BRESNAN,
BLACKSTONE BC CAPITAL PARTNERS, L.P.,
BLACKSTONE BC OFFSHORE CAPITAL PARTNERS, L.P.,
BLACKSTONE FAMILY INVESTMENT PARTNERSHIP III L.P.,
TCI BRESNAN LLC and
TCID OF MICHIGAN, INC., as Sellers,
AND
CHARTER COMMUNICATIONS HOLDING COMPANY, LLC,
as Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 CERTAIN DEFINITIONS 1
1.1 Terms Defined in this Section 1
1.2 Terms Defined Elsewhere in this Agreement 11
1.3 Rules of Construction 13
ARTICLE 2 SALE AND PURCHASE OF PURCHASED INTERESTS;
PURCHASE PRICE 14
2.1 Sale and Purchase of Purchased Interests; Contribution of
Contributed Interests 14
2.2 Purchase Price for Purchased Interests 14
2.3 Adjustments to Purchase Price 15
2.4 Payment at Closing 17
2.5 Post-Closing Purchase Price Adjustments 18
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLERS 20
3.1 Organization and Ownership of Partnership 20
3.2 Authorizations; No Conflict; Required Consents 21
3.3 Partnership Assets 22
3.4 System Franchises, System Licenses, and System Contracts 22
3.5 Real Property 23
3.6 Environmental 24
3.7 Compliance with Legal Requirements 25
3.8 Intellectual Property 25
3.9 Financial Statements; Absence of Certain Changes or Events 25
3.10 Litigation 26
3.11 Tax Returns 26
3.12 Employment Matters 27
3.13 Partnership Systems Information 31
3.14 Finders and Brokers 31
3.15 Transactions with Affiliates 31
3.16 Competition 31
3.17 Pending Transactions 32
3.18 Acquisition Agreement Schedules; Schedule References 32
3.19 Securities Law Matters 32
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER 32
4.1 Organization; Authority 32
4.2 Authorization and Binding Obligation 33
4.3 No Conflict; Required Consents 33
4.4 Finders and Brokers 33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.5 Securities Law Matters 33
4.6 Investment Company 34
4.7 Litigation 34
4.8 Balance Sheet 34
4.9 Financing 34
4.10 Capitalization; Delivery of Limited Liability Company Interests 34
4.11 Pending Buyer Acquisitions 35
4.12 SEC Filings; Financial Information 35
ARTICLE 5 SPECIAL COVENANTS AND AGREEMENTS 35
5.1 Access to Premises and Records 35
5.2 Continuity and Maintenance of Operations; Certain Deliveries and Notices 35
5.3 Required Consents, Franchise Renewal 38
5.4 Confidentiality; Press Release 40
5.5 Cooperation; Commercially Reasonable Efforts 41
5.6 HSR Act 41
5.7 Tax Matters 42
5.8 Certain Financing Matters 44
5.9 Consent and Agreements of Sellers and Buyer 45
5.10 WARN Act 46
5.11 Programming and Other Commitments 46
5.12 401(k) Plans 46
5.13 Notification of Certain Matters 46
5.14 Offers 46
5.15 Buyer Acquisition Documents 47
5.17 Restructuring of the Partnership 47
ARTICLE 6 CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS 48
6.1 Conditions to Buyer's Obligations 48
6.2 Conditions to Sellers' Obligations 49
ARTICLE 7 CLOSING AND CLOSING DELIVERIES 50
7.1 The Closing; Time and Place 50
7.2 Deliveries by Sellers 50
7.3 Deliveries by Buyer 51
ARTICLE 8 TERMINATION. 52
8.1 Termination by Agreement 52
8.2 Termination by the Sellers 52
8.3 Termination by Buyer 52
8.4 Effect of Termination 53
8.5 Attorneys' Fees 54
ARTICLE 9 MISCELLANEOUS 54
</TABLE>
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<TABLE>
<S> <C>
9.1 Fees and Expenses 54
9.2 Notices 54
9.3 Benefit and Binding Effect 55
9.4 Further Assurances 56
9.5 GOVERNING LAW 56
9.6 Entire Agreement 56
9.7 Amendments; Waiver of Compliance 56
9.8 Counterparts 56
9.9 Rights Cumulative 56
9.10 Survival 56
9.11 Limitation of Recourse against Sellers 57
9.12 Limitation of Recourse against Buyer 58
9.13 Specific Performance 59
9.14 Commercially Reasonable Efforts 59
9.15 Construction 59
</TABLE>
TABLE OF SCHEDULES ATTACHED TO DISCLOSURE LETTER
<TABLE>
<CAPTION>
Schedule Description
-------- -----------
<S> <C>
Schedule 3.1 Organization and Ownership of Partnership
Schedule 3.2 Conflicts; Required Consents
Schedule 3.3(a) Permitted Liens
Schedule 3.3(b) Tangible Personal Property
Schedule 3.4 System Franchises, System Licenses and System Contracts
Schedule 3.5 Real Property
Schedule 3.6 Environmental
Schedule 3.7 Compliance with Legal Requirements
Schedule 3.8 Intellectual Property
Schedule 3.9 Absence of Certain Changes or Events
Schedule 3.10 Partnership and Seller Litigation
Schedule 3.11 Tax Matters
Schedule 3.12 Employment Matters
Schedule 3.13 Partnership Systems Information
Schedule 3.15 Transactions with Affiliates
Schedule 3.16 Competition
</TABLE>
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<TABLE>
<S> <C>
Schedule 3.17 Acquisition Agreements
Schedule 4.7 Buyer Litigation
Schedule 4.10(a) Rights in Buyer's Securities
Schedule 4.11 Pending Buyer Acquisitions
Schedule 4.12(b) Buyer Cash Flow Statements
Schedule 5.2-I Post-Signing Operations
Schedule 5.2-II Partnership's Budget
Schedule 5.2(g) Permitted Activities
Schedule 5.9 Excluded Assets
Schedule 6.1 Scheduled Subscribers
</TABLE>
TABLE OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
Exhibit A Sellers' Proportionate Interests
Exhibit B Designated Programming Services
Exhibit C Fourth Amendment to Contribution Agreement
Exhibit D Adjustment Escrow Agreement
Exhibit E Operating Agreement Term Sheet
Exhibit F Exchange Agreement Term Sheet
Exhibit G Form of Registration Rights Agreement
Exhibit H Form of Put Agreement
Exhibit I LLC Unit Formula
Exhibit J Form of TCI Put Agreement
</TABLE>
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<PAGE> 6
PURCHASE AND CONTRIBUTION AGREEMENT
THIS PURCHASE AND CONTRIBUTION AGREEMENT (this "Agreement") is entered
into as of June ___, 1999, by and among BCI (USA), LLC, a Delaware limited
liability company (the "General Partner"), and William J. Bresnan ("WBresnan"),
Blackstone BC Capital Partners L.P., a Delaware limited partnership ("BBC"),
Blackstone BC Offshore Capital Partners L.P., a Cayman Islands exempted limited
partnership ("BBCO"), Blackstone Family Investment Partnership III L.P., a
Delaware limited partnership ("BFI"), TCID of Michigan, Inc., a Nevada
corporation ("TCID-MI") and TCI Bresnan LLC ("TCI LLC"), as Sellers, and
Charter Communications Holding Company, LLC, a Delaware limited liability
company ("Buyer").
RECITALS
The General Partner owns all of the general partnership interests in
Bresnan Communications Company Limited Partnership, a Michigan limited
partnership (the "Partnership"). The Sellers are each limited partners of the
Partnership and own, in the aggregate, all of limited partnership interests in
the Partnership. Buyer desires to acquire all the partnership interests in the
Partnership, and the General Partner, WBresnan, BBC, BBCO, BFI, TCID-MI and TCI
LLC (referred to collectively as the "Sellers" and individually as a "Seller")
desire to sell and contribute to Buyer such partnership interests in the
Partnership, in each case for the consideration and on the terms and conditions
set forth in this Agreement.
AGREEMENTS
In consideration of the above recitals and of the mutual agreements
and covenants contained in this Agreement, the parties to this Agreement,
intending to be bound legally, agree as follows:
12. CERTAIN DEFINITIONS
0.1. Terms Defined in this Section . The following terms, as used
in this Agreement, have the meanings set forth in this Section:
"1992 Cable Act" means the Cable Television Consumer Protection and
Competition Act of 1992, as amended, and the FCC rules and regulations
promulgated thereunder, all as in effect from time to time.
"Acquisition Agreement Service Area" refers to the cable television
systems to be acquired by the Partnership or the Subsidiaries under the
Acquisition Agreements and means either (i) any geographic area in which the
seller under any Acquisition Agreement provides cable television service and an
Acquisition Agreement System Franchise is not required pursuant to applicable
Legal Requirements, or (ii) with respect to an Acquisition Agreement System
Franchise, the geographic area in which such seller is authorized to provide
cable television service pursuant to such Acquisition Agreement System
Franchise.
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<PAGE> 7
"Acquisition Agreement System Franchises" means all franchise
agreements, operating permits or similar governing agreements, instruments,
resolutions, statutes, ordinances, approvals, authorizations and permits
obtained from any Franchising Authority in connection with the cable television
systems to be acquired by the Partnership or the Subsidiaries under the
Acquisition Agreements.
"Acquisition Agreements" means those binding agreements described on
Schedule 3.17 pursuant to which the Partnership or a Subsidiary has agreed to
acquire cable television systems and those non-binding expressions of intent to
which the Partnership or a Subsidiary is a party as of the date of this
Agreement pursuant to which the Partnership has indicated an intent to acquire
cable television systems.
"Adjustment Time" means 11:59 p.m., Eastern time, on the day before
the Closing Date.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with the specified Person,
where "control" means the ownership, directly or indirectly, of voting
securities representing the right generally to elect a majority of the
directors (or similar officials) of a Person or the possession, by contract or
otherwise, of the authority to direct the management and policies of a Person.
"Basic Services" means the lowest tier of cable television service
offered to subscribers of a Partnership System that includes the retransmission
of local broadcast signals as defined by the Cable Act and the 1992 Cable Act.
"BCG S-4" means that Form S-4 Registration Statement filed with the
SEC as of May 3, 1999 (File No. 333-77637) by Bresnan Communications Group LLC
and Bresnan Capital Corporation.
"Business Day" means any day other than a Saturday, Sunday or a day on
which the banking institutions in New York, New York are required or authorized
to be closed.
"Cable Act" means the Cable Communications Policy Act of 1984, as
amended, and the FCC rules and regulations promulgated thereunder, all as in
effect from time to time.
"Charter Documents" means the articles or certificate of
incorporation, bylaws, certificate of limited partnership, partnership
agreement, certificate of formation, limited liability company operating
agreement, articles of association, and similar charter documents, as
applicable to any Person other than an individual.
"Closing" means the consummation of the purchase and sale of the
Purchased Interests and the contribution of the Contributed Interests pursuant
to this Agreement in accordance with the provisions of Article 7.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury
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<PAGE> 8
Regulations promulgated thereunder, all as in effect from time to time.
"Communications Act" means the Communications Act of 1934, as amended,
and the FCC rules and regulations promulgated thereunder, all as in effect from
time to time.
"Contract" means any contract, mortgage, deed of trust, bond,
indenture, lease, license, note, franchise, certificate, option, warrant, right
or other instrument, document, obligation or agreement, whether written or
oral.
"Contribution Agreement" means the Contribution Agreement among the
Partnership, TCID-MI and various of its Affiliates, predecessors of BBC, BBCO
and BFI, WBresnan and predecessors of the General Partner, dated as of June 3,
1998, as amended on September 17, 1998, on February 2, 1999 and on the date of
this Agreement.
"Copyright Act" means the Copyright Act of 1976, as amended and in
effect from time to time.
"Corporate Office" means 709 Westchester Avenue, White Plains, New
York 10604.
"Credit Facility" means the Loan Agreement dated as of February 2,
1999 among Bresnan Telecommunications Company LLC, the lenders party thereto
and Toronto Dominion (Texas), Inc., as Administrative Agent for the lenders,
and the Arranging Agents, Syndication Agent, Documentation Agents and Joint
Book Managers and Joint Lead Arrangers, as further set forth therein, as it may
be amended.
"Environmental Law" means any binding applicable Legal Requirement
concerning the protection of the environment and public or employee health (to
the extent relating to the environment), including Legal Requirements relating
to emissions, discharges, releases or threatened releases of Hazardous
Substances into the environment, air (including both ambient and within
buildings and other structures), surface water, ground water or land or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances.
"Equity Agreements" means the Operating Agreement, the Exchange
Agreement, the Registration Rights Agreement, the Put Agreement and the TCI Put
Agreement.
"Equivalent Basic Subscribers" means, as of the Closing Date or any
other date of determination and for each Partnership System, without
duplication, the aggregate of all of the following that are receiving Basic
Services provided by the Partnership Systems: (a) private residential customer
accounts that are billed by the Partnership by individual unit (regardless of
whether such accounts are in single family homes or in individually billed
units in apartment houses and other multi-unit buildings, but exclusive of
secondary outlets and courtesy accounts), each of which shall be counted as one
"Equivalent Basic Subscriber"; and (b) all commercial, bulk-billed and other
accounts not billed by individual unit, such as hotels, motels, apartment
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<PAGE> 9
houses and multi-family homes, provided that the number of "Equivalent Basic
Subscribers" serviced by each such account shall be deemed to be an amount
equal to the quotient of (x) the aggregate monthly revenue for Basic Services
and Expanded Basic Services derived by the Partnership Systems from such
accounts, in each case for the last calendar month preceding the date of such
determination, divided by (y) the standard monthly fees charged for the
provision of Basic Service plus (for accounts receiving Expanded Basic Service)
the standard monthly fees charged for the provision of Expanded Basic Service.
In each case under clause (y) above, such standard monthly fees will be the
fees charged to customers served in the same Service Area, as of the date of
determination. Notwithstanding the foregoing, the term "Equivalent Basic
Subscribers" shall not include any commercial, residential or other subscriber
who (i) pays less than the standard rate (excluding bulk accounts) for Basic
Services (other than as a result of discounts offered in the ordinary course of
business), (ii) has not paid for one full month of service, or (iii) is more
than 65 days delinquent from the date of billing on any amount due from such
subscriber in excess of $10.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder and published
interpretations with respect thereto, all as in effect from time to time.
"ERISA Affiliate" means, with respect to any Person, a trade or
business affiliated within the meaning of Sections 414(b), (c) or (m) of the
Code.
"Exchange Agreement" means the Exchange Agreement by and among the
parties named therein, containing the provisions set forth in Exhibit F hereto
and such other provisions as contemplated in Section 5.16, which agreement
shall, subject to Section 5.16, be executed and delivered on the Closing Date.
"Excluded Assets" means the Partnership Assets described on Schedule
5.9.
"Expanded Basic Services" means any CPS tier of any Partnership System
designated as such in the rate filings of the Partnership.
"FCC" means the Federal Communications Commission.
"Franchising Authorities" means all Governmental Authorities that have
issued or granted a System Franchise relating to the operation of a Partnership
System.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"General Partnership Interest" means the general partnership interest
in the Partnership held by the General Partner.
"Governmental Authority" means the United States of America, any
state, commonwealth, territory or possession of the United States of America
and any political
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<PAGE> 10
subdivision or quasi-governmental authority of any of the same, including any
court, tribunal, department, commission, board, bureau, agency, county,
municipality, province, parish or other instrumentality of any of the
foregoing, and including any Franchising Authority.
"Hazardous Substances" means (a) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act of 1976 (RCRA) (42 U.S.C. Sections
6901 et seq.), as amended, and the rules and regulations promulgated
thereunder, all as in effect from time to time; (b) any "hazardous substance"
as defined by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (15 U.S.C. Sections 9601 et seq.) (CERCLA), as amended,
and the rules and regulations promulgated thereunder, all as in effect from
time to time; (c) any substance regulated by the Toxic Substances Control Act
(TSCA) (15 U.S.C. Sections 2601 et seq.), or the Insecticide, Fungicide and
Rodenticide Act (IFRA) (7 U.S.C. Sections 136 et seq.), each as amended, and
the rules and regulations promulgated thereunder, all as in effect from time to
time; (d) asbestos or asbestos-containing material of any kind or character;
(e) polychlorinated biphenyls; (f) any substances regulated under the
provisions of Subtitle I of RCRA relating to underground storage tanks; (g) any
substance the presence, use, handling, treatment, storage or disposal of which
on real property is prohibited by any Environmental Law; and (h) any other
substance which by any Environmental Law requires special handling, reporting
or notification of any Governmental Authority in its collection, storage, use,
treatment or disposal.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended and the regulations promulgated by the Federal Trade
Commission with respect thereto, all as in effect from time to time.
"Intellectual Property" means any (i) trademarks, trade dress, trade
names, service marks, logos and other similar proprietary rights, (ii) domain
names, (iii) copyrights and (iv) patents and patentable know-how, inventions
and processes.
"Judgment" means any judgment, writ, order, injunction, award or
decree of any court, judge, justice or magistrate, including any bankruptcy
court or judge or the arbitrator in any binding arbitration, and any order of
or by any Governmental Authority.
"Keepwell Agreement" means the letter agreement dated February 2, 1999
addressed to the Partnership and entered into among it and TCI Bresnan LLC,
Beatrice Cable TV Company, TCI of Illinois, Inc., Heritage Cablevision of South
East Massachusetts, Inc., TCI of Southern Minnesota, Inc., TCI Cablevision of
Nebraska, Inc.,WestMarc Development, Inc. and TCID of Michigan, Inc.
"Knowledge" means, with respect to any Person, the actual knowledge
of a particular matter of such Person, or if such Person is an entity, one or
more of the principal corporate personnel of such Person, and, with respect to
the General Partner, includes the actual knowledge of one or more of the
executive vice presidents or more senior officers of the Partnership or
regional vice presidents of the Partnership Systems.
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<PAGE> 11
"Leased Real Property" means all leasehold interests in real property
that are held for use or used in connection with the Partnership's Business
which the Partnership has, or acquires prior to Closing, including those
described as Leased Real Property on Schedule 3.5.
"Legal Requirement" means applicable common law and any statute,
ordinance, code or other law, rule, regulation, order, technical or other
written standard, requirement, policy or procedure enacted, adopted,
promulgated, applied or followed by any Governmental Authority, including any
Judgment and all judicial decisions applying common law or interpreting any
other Legal Requirement, in each case, as amended.
"Lien" means any security interest, any interest retained by the
transferor under a conditional sale or other title retention agreement,
mortgage, lien, pledge, option, encumbrance, adverse interest, constructive
exception to, defect in or other condition affecting title or other ownership
interest (including reservations, rights of entry, possibilities of reverter,
encroachments, easements, rights-of- way, restrictive covenants, leases and
licenses) of any kind, which constitutes an interest in or claim against
property, whether arising pursuant to any Legal Requirement, System License,
System Franchise, System Contract or otherwise.
"Limited Partnership Interests" means the limited partnership
interests in the Partnership held by each of the Sellers.
"Litigation" means any written claim, action, suit, proceeding,
arbitration or hearing that could result in a Judgment, or any written notice
of such claim, action, suit, proceeding, arbitration or hearing.
"Loan Documents" means the Credit Facility and the Senior Indenture.
"Loan Document Liens" means Liens created by the Loan Documents in
favor of the lenders or trustee thereunder.
"Material Adverse Effect" means a material adverse effect on (i) the
Partnership Assets or the business, results of operations or financial
condition of the Partnership, taken as a whole, but without giving effect to
any effect resulting from changes in conditions (including economic conditions,
changes in FCC regulations, or federal, state or local governmental actions,
legislation or regulations) that are applicable to the economy or the cable
television industry on a national, regional, state or local basis or any
changes in technology or competition affecting the business of the Partnership
Systems, or (ii) on the ability of any Seller to perform its obligations under
this Agreement.
"MMDS" means multichannel multipoint distribution service.
"Multichannel Video Programming Distributor" or "MVPD" means a
distributor of cable television services, MMDS, direct broadcast satellite
service or television receive-only satellite programming, who makes available
for purchase, by subscribers or customers, multiple channels of video
programming, other than Persons distributing such services only to multiple
dwelling
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<PAGE> 12
unit or other commercial customers (including hotels, motels, resorts,
hospitals, dormitories, prisons, restaurants, bars and similar establishments).
"Operating Agreement" means the limited liability company agreement of
Buyer containing the provisions set forth in Exhibit E hereto and such other
provisions as contemplated in Section 5.16, which agreement shall be executed
and delivered on the Closing Date.
"Other Intangibles" means all intangible assets other than System
Franchises, System Licenses and System Contracts, including subscriber lists,
accounts receivable, claims, patents, and copyrights that are owned, held for
use or used in connection with the Partnership's Business and in which the
Partnership has, or acquires prior to Closing, any right, title or interest.
"Other Real Property Interests" means all easements and rights of
access (other than those relating to multiple dwelling units) and other
interests in real property that are held for use or used in connection with the
Partnership's Business and in which the Partnership has, or acquires prior to
Closing, any right, title or interest, including those interests described as
Other Real Property Interests on Schedule 3.5, but not including Leased Real
Property or Owned Real Property.
"Owned Real Property" means all fee interests in real property that
are held for use or used in connection with the Partnership's Business which
the Partnership owns, or acquires prior to Closing, including those described
as Owned Real Property on Schedule 3.5 and all improvements thereon.
"Partnership Agreement" means the Bresnan Communications Company
Limited Partnership Amended and Restated Limited Partnership Agreement dated as
of February 2, 1999, as it may be amended prior to the Closing.
"Partnership Assets" means all assets, properties, privileges, rights,
contracts, licenses, permits, interests and claims, real and personal, tangible
and intangible, of every type and description that are owned, leased, held for
use or used in connection with the Partnership's Business and in which the
Partnership or any Subsidiary has any right, title or interest or acquires any
right, title or interest on or before the Closing, including Tangible Personal
Property, Owned Real Property, Leased Real Property, Other Real Property
Interests, System Franchises, System Licenses, System Contracts, and Other
Intangibles.
"Partnership Systems" means the cable television systems owned and
operated by the Partnership or any Subsidiary or any combination of any of
them, each of which may be referred to herein individually as a "Partnership
System."
"Partnership's Budget" means the budget for the Partnership's Business
for the period and in the form attached hereto as Schedule 5.2-II, as the same
may be supplemented or modified by the Partnership with Buyer's consent, which
consent will not be unreasonably withheld, conditioned or delayed; except that
Buyer's consent will not be required if the Partnership's
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<PAGE> 13
proposed supplement or modification to the Partnership's Budget (i) would not,
in the aggregate after giving effect to the cumulative effect of supplements
and modifications, increase the Partnership's gross annual expenses by more
than 3% or (ii) reflects the consummation of any Acquisition Agreement,
provided that the modification resulting from such consummation is made in a
manner consistent with past practices.
"Partnership's Business" means the cable television business and all
related and ancillary businesses and all other businesses conducted by the
Partnership or any Subsidiary, whether conducted through the Partnership
Systems or otherwise.
"Pay TV" means a la carte tiers or premium programming services
selected by and sold to subscribers on a per channel or per program basis.
"Permitted Lien" means any (a) Lien securing Taxes, assessments and
governmental charges not yet due and payable, (b) zoning law or ordinance or
any similar Legal Requirement, (c) right reserved to any Governmental Authority
to regulate the affected property, (d) as to Owned Real Property and Other Real
Property Interests, any easement, right of way, condition, covenant,
restriction or imperfection of title that does not individually or in the
aggregate interfere with the right or ability to own, use or operate the Owned
Real Property or Other Real Property Interests as they are being used or
operated or to convey good and marketable title to such Owned Real Property or
Other Real Property Interests, (e) in the case of Owned Real Property and
Leased Real Property, any lease or sublease by the Partnership in favor of a
third party that is disclosed in the Schedules to this Agreement, (f) in the
case of Leased Real Property, the rights of any lessor and any Lien granted by
any lessor of Leased Real Property which do not, individually or in the
aggregate with any other such Liens, materially interfere with the
Partnership's or any Subsidiary's use of such Leased Real Property, (g) any
inchoate materialmen's, mechanics', workmen's, repairmen's or other like Liens
arising in the ordinary course of business, (h) the Loan Document Liens, (i)
Liens described on Schedule 3.3(a), (j) the transfer restrictions created by
the Partnership Agreement in favor of the partners thereunder, and (k) recorded
exceptions included in any title policy that relates to Owned Real Property
that is listed on Schedule 3.5 and was delivered to Buyer prior to execution of
this Agreement; provided that "Permitted Lien" will not include any Lien
securing a debt (other than the Loan Document Liens) or any Lien that could
prevent or impair in any way the conduct of the business of the affected
Partnership System as it is currently being conducted.
"Person" means any natural person, Governmental Authority,
corporation, general or limited partnership, limited liability company, joint
venture, trust, association or unincorporated entity of any kind.
"Proportionate Interest" with respect to each Seller means the
percentage set forth in Exhibit A, which Exhibit may be attached or amended by
the Sellers, in their discretion, at any time prior to Adjustment Time,
provided that the sum of the Proportionate Interests for all Sellers shall
equal 100%.
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<PAGE> 14
"Put Agreement" means each Put Agreement by and among the parties
named therein, substantially in the form of Exhibit H hereto, which agreement
shall be executed and delivered as set forth in Section 5.16(d).
"Registration Rights Agreement" means the Registration Rights
Agreement by and among the parties named therein, substantially in the form of
Exhibit G hereto, which agreement shall be executed and delivered on the
Closing Date.
"Required Consents" means the consents, permits, approvals and
authorizations of Governmental Authorities and other Persons, and filings,
notices, and applications with Governmental Authorities and other Persons,
necessary to transfer lawfully the Purchased Interests and the Contributed
Interests to Buyer or otherwise to consummate lawfully the transactions
contemplated by this Agreement.
"Scheduled Subscribers" means for each Service Area and each
Acquisition Agreement Service Area, the approximate number of Equivalent Basic
Subscribers served as of a date certain, as set forth on Schedule 6.1.
"SEC" means the United States Securities and Exchange Commission.
"Senior Indenture" means the Indenture dated as of February 2, 1999,
among Bresnan Communications Group LLC ("BCG"), Bresnan Capital Corporation
("BCC") and State Street Bank and Trust Company, as trustee, pursuant to which
BCG and BCC issued their 8% Senior Notes due 2009 and 9-1/4% Senior Discount
Notes due 2009.
"Service Area" means either (i) any geographic area in which the
Partnership or its Subsidiaries provides cable television service and a System
Franchise is not required pursuant to applicable Legal Requirements, or (ii)
with respect to any System Franchise, the geographic area in which the
Partnership is authorized to provide cable television service pursuant to such
System Franchise.
"SSI Supply Agreement" means the Satellite Services, Inc. Programming
Supply Agreement, between Bresnan Telecommunications Company LLC and Satellite
Services, Inc., as applicable to the Partnership's Business on the date of this
Agreement, and as may be amended prior to Closing.
"Subsidiary" means Bresnan Telecommunications Company LLC, Bresnan
Public Corporation, Bresnan Telephone of Michigan L.L.C., Bresnan Telephone of
Minnesota, L.L.C., Bresnan Communications Group LLC, or Bresnan Capital
Corporation, as the context may require.
"System Contracts" means all pole line agreements, underground conduit
agreements, crossing agreements, multiple dwelling, bulk billing or commercial
service agreements, leased channel access agreements, retransmission consents,
lease agreements for tangible personal
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property and other Contracts (other than System Franchises and System Licenses)
held for use or used in connection with the Partnership's Business and to which
the Partnership or a Subsidiary is, or becomes prior to Closing, a party or
bound, including those described on Schedule 3.4.
"System Franchises" means all franchise agreements, operating permits
or similar governing agreements, instruments, resolutions, statutes,
ordinances, approvals, authorizations and permits obtained from any Franchising
Authority in connection with the Partnership's Business, including those listed
on Schedule 3.4, including all amendments and modifications thereto and all
renewals thereof.
"System Licenses" means the intangible cable television channel
distribution rights, cable television relay service (CARS), business radio and
other licenses, earth station registrations, copyright notices and other
licenses, authorizations, consents or permits issued by the FCC or any other
Governmental Authority in connection with the Partnership's Business (other
than System Franchises, System Contracts and Other Real Property Interests),
including those described on Schedule 3.4.
"Tangible Personal Property" means all tangible personal property that
is owned, leased, held for use or used in connection with the Partnership's
Business and in which the Partnership has, or acquires prior to Closing any
right, title or interest, including towers, tower equipment, aboveground and
underground cable, distribution systems, headend amplifiers, line amplifiers,
microwave equipment, converters, testing equipment, motor vehicles, office
equipment, computers and billing equipment, furniture, fixtures, supplies,
inventory and other physical assets, the material items of which, including all
motor vehicles, are described on Schedule 3.3(b).
"Tax" or "Taxes," as the context may require, include any income,
alternative or add-on minimum tax, gross income, gross receipts, franchise,
profits, sales, use, ad valorem, business license, withholding, payroll,
employment, excise, stamp, transfer, recording, occupation, premium, property,
value added, custom duty, severance, windfall profit or license tax,
governmental fee, including estimated taxes relating to any of the foregoing,
or other similar tax or other like assessment or charge of similar kind
whatsoever together with any interest and any penalty, addition to tax or
additional amount imposed by any Governmental Authority responsible for the
imposition of any such Tax.
"Tax Returns" means any tax return, declaration of estimated tax, tax
report or other tax statement, or any other similar filing, including any
schedule or attachment thereto, and including any amendment thereof, required
to be submitted to any Governmental Authority with respect to any Tax.
"TCI Put Agreement" means each TCI Put Agreement by and among the
parties named therein, substantially in the form of Exhibit J hereto, which
agreement shall be executed and delivered on the Closing Date.
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"Transferable Service Area" means a Service Area or an Acquisition
Agreement Service Area with respect to which: (a) no franchise or similar
authorization is required for the provision of cable television service in such
Service Area or Acquisition Agreement Service Area, (b) no Required Consent is
necessary for the transfer of control of any System Franchise or Acquisition
Agreement System Franchise for such Service Area or Acquisition Agreement
Service Area in connection with the consummation of the transactions
contemplated by this Agreement, (c) if a Required Consent is necessary for the
transfer of control of any System Franchise or Acquisition Agreement System
Franchise for such Service Area or Acquisition Agreement Service Area in
connection with the consummation of the transactions contemplated by this
Agreement (including any expired System Franchise or Acquisition Agreement
System Franchise), an effective consent or approval has been obtained (or shall
have been deemed obtained by operation of law in accordance with the provisions
of the Cable Act) without the imposition of any condition or any modification
that in either case makes, or is reasonably likely to make, the underlying
System Franchise or Acquisition Agreement System Franchise materially more
onerous or materially reduces in any respect, or is reasonably likely to
materially reduce in any respect, the benefits available under the System
Franchise or Acquisition Agreement System Franchise in respect of which the
Required Consent relates (except, in each case, as approved by Buyer) or (d) if
a Required Consent is necessary for the transfer of control of any System
Franchise or Acquisition Agreement System Franchise for such Service Area or
Acquisition Agreement Service Area in connection with the consummation of the
transactions contemplated by this Agreement, the applicable franchising
authority does not expressly reject a request for approval to transfer such
System Franchise or Acquisition Agreement System Franchise within 120 days
after the due and proper submission of a completed Form 394 to such Franchising
Authority (plus such extensions of time as are mutually agreed upon by Buyer
and Sellers); provided that, with respect to any expired System Franchise or
Acquisition Agreement System Franchise for which the Franchising Authority has
not granted continuing operation authority to the Partnership or applicable
Subsidiary and pursuant to which consent was not required prior to its
expiration, the corresponding Service Area or Acquisition Agreement Service
Area shall not be a Transferable Franchise Area unless and until the applicable
Franchising Authority has either (i) consented to the consummation of the
Transactions contemplated by this Agreement, or (ii) renewed such System
Franchise or Acquisition Agreement System Franchise.
"Transaction Documents" means this Agreement, and the other documents,
agreements, certificates and other instruments to be executed, delivered and
performed by the parties in connection with the transactions contemplated by
this Agreement.
"Units" means common membership interests in Buyer, with the rights
and limitations set forth in the Operating Agreement.
"Upset Date" means May 1, 2000.
0.1.1. Terms Defined Elsewhere in this Agreement . For purposes of
this Agreement, the following terms have the meanings set forth in the sections
indicated:
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<PAGE> 17
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Adjustment Assets Section 2.3(a)(1)
Adjustment Escrow Agent Section 2.4(b)(1)
Adjustment Escrow Agreement Section 2.4(b)(1)
Adjustment Escrow Amount Section 2.4(b)(1)
Adjustment Liabilities Section 2.3(a)(2)
Agreement First Paragraph
Antitrust Division Section 5.6
Auditor Section 2.5(a)(2)
BBC First Paragraph
BBCO First Paragraph
BCI Section 5.12
BFI First Paragraph
Bresnan Plan Section 5.12
Buyer First Paragraph
Capital Expenditures Section 2.3(d)
CCH S-4 Section 4.12(a)
Charter Holdings Value Section 2.1(b)
Closing Date Section 7.1
commercially reasonable efforts Section 9.14
Confidential Information Section 5.4(a)
Contributed Interest Section 2.1(b)
Disclosure Letter Section 1.3
Equity Consideration Section 2.1(b)
Estimated Purchase Price Section 2.4(a)
Excluded Rights Section 5.9(e)
Final Closing Statement Section 2.5(a)(1)
Final Purchase Price Section 2.5(b)(1)(A)
FTC Section 5.6
General Partner First Paragraph
</TABLE>
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<PAGE> 18
<TABLE>
<S> <C>
Partnership First Paragraph
Partnership ERISA Affiliates Section 3.12(b)
Partnership Plans Section 3.12(b)
Partnership's Financial Statements Section 3.9
Pending Buyer Acquisitions Section 4.11
Preliminary Closing Statement Section 2.4
Preliminary Purchase Price Section 2.4(b)(2)
PublicCo Section 5.16(c)
Purchase Guaranty Section 9.12
Purchase Price Section 2.2
Purchased Interests Section 2.1
reasonable commercial efforts Section 9.14
Seller Recitals
Shared Reduction Amount Section 2.3(a)
Subscriber Adjustment Section 2.3(b)
Subscriber Shortfall Section 2.3(b)
Subscriber Threshold Section 2.3(b)
Subsequent Buyer Acquisition Section 5.15
Successor Plan Section 5.12
TCI LLC First Paragraph
TCID-MI First Paragraph
Vulcan Puts Section 5.16(d)
WARN Act Section 3.12(a)
WBresnan First Paragraph
</TABLE>
0.1.2. Rules of Construction . Words used in this Agreement,
regardless of the gender and number specifically used, shall be deemed and
construed to include any other gender and any other number as the context
requires. As used in this Agreement, the word "including" is not limiting, and
the word "or" is not exclusive. Except as specifically otherwise provided in
this Agreement in a particular instance, a reference to a Section is a
reference to a Section of this Agreement, a reference to an Exhibit is a
reference to an Exhibit to this Agreement, a reference to a Schedule is a
reference to a Schedule to that Disclosure Letter delivered on the date of this
Agreement (the "Disclosure Letter"), and the terms "hereof," "herein," and
other like terms refer
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<PAGE> 19
to this Agreement as a whole, including the Schedules and the Exhibits to this
Agreement, and not solely to any particular part of this Agreement. The
descriptive headings in this Agreement are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. Any reference in this Agreement to a "day"
or a number of "days" (without the explicit qualification of Business) will be
interpreted as a reference to a calendar day or number of calendar days. If
any action or notice is to be taken or given on or by a particular calendar
day, and such calendar day is not a Business Day, then such action or notice
will be deferred until, or may be taken or given on, the next Business Day.
0.1.3.SALE AND PURCHASE OF PURCHASED INTERESTS; PURCHASE PRICE
0.2. Sale and Purchase of Purchased Interests; Contribution of
Contributed Interests .
0.2.1. Subject to the terms and conditions set forth in this
Agreement, each Seller hereby agrees to sell, transfer, and deliver to Buyer at
the Closing, and Buyer hereby agrees to purchase at the Closing, the
partnership interests specified below (the "Purchased Interests"), free and
clear of all Liens:
0.2.1.1. from the General Partner, the entire
General Partnership Interest; and
0.2.1.2. from each Seller, that portion of
its Limited Partnership Interest that is not represented by a Contributed
Interest.
0.2.2. TCI LLC agrees to contribute to Buyer all of its
Limited Partnership Interest, and each other Seller agrees to contribute to
Buyer a portion of its Limited Partnership Interest, in each case free and
clear of all Liens and subject to the Legal Requirements (each such contributed
Limited Partnership Interest, a "Contributed Interest"). The aggregate
interest in the Partnership represented by the Contributed Interests will be a
fraction, the numerator of which is $1,000,000,000 plus the Shared Reduction
Amount, if any, and the denominator of which is $3,100,000,000, as adjusted
pursuant to Section 2.3 plus the Shared Reduction Amount, if any. The
percentage of each Seller's (other than TCI LLC's) Limited Partnership Interest
represented by the Contributed Interest shall be set forth in a written notice
delivered to Buyer at least two days prior to Closing. In exchange for such
contribution to Buyer, each Seller shall receive Units in Buyer (the "Equity
Consideration"). The number of Units issued to Sellers will be calculated as
set forth on Exhibit I. For purposes of this Section 2.1, if the Adjustment
Assets exceed the Adjustment Liabilities, the "Shared Reduction Amount" will be
zero, and otherwise, the "Shared Reduction Amount" will equal one-half of the
difference between the Adjustment Liabilities and the Adjustment Assets, as
calculated on the Preliminary Closing Statement, provided that the Shared
Reduction Amount shall in no event be greater than $15,000,000.
0.3. Purchase Price for Purchased Interests . Buyer shall pay and
deliver to the Sellers, by wire transfer of immediately available funds to one
or more accounts of the Sellers, as
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<PAGE> 20
designated in writing by the Sellers not later than the Business Day before
Closing, as consideration for the sale of the Purchased Interests an aggregate
amount in cash equal to $2,100,000,000, subject to adjustment as provided in
Section 2.3 (the "Purchase Price") and subject to the provisions of Sections
2.4 and 2.5. Buyer shall have no liability or obligation arising from its
allocation of the Purchase Price among the Sellers, provided that Buyer
complies with the written instructions of the Sellers provided under the
preceding sentence.
0.4. Adjustments to Purchase Price .
0.4.1. Working Capital Adjustment. The Purchase Price shall
be increased by the amount of the Adjustment Assets as of the Adjustment Time
and shall be decreased by the Adjustment Liabilities as of the Adjustment Time.
0.4.1.1. Subject to the other provisions of
this Section 2.3(a), "Adjustment Assets" means the sum of: (A) cash and cash
equivalents (but only to the extent such cash is held by the Partnership and
the Subsidiaries at the Closing), (B) Eligible Accounts Receivable net of any
credit balances owed to cable television subscribers of the Partnership
Systems, (C) Prepaid Expenses, (D) Deposits, and (E) Other Current Assets, in
each case of clauses (A) through (E) computed for the Partnership and the
Subsidiaries as of the Adjustment Time on a consolidated basis and without
duplication in accordance with GAAP applied on a basis consistent with the
preparation of the Partnership's Financial Statements.
(I) "Eligible Accounts Receivable" means
the face amount of all Subscriber Accounts Receivable that are 60 or fewer days
past due as of the Adjustment Time, all Advertising Accounts Receivable that
are 120 days or fewer past due as of the Adjustment Time and all other accounts
receivable. No Subscriber Accounts Receivable that are more than 60 days past
due and no Advertising Accounts Receivable that are more than 120 days past due
will be included in Eligible Accounts Receivable.
(II) "Subscriber Accounts Receivable"
means accounts receivable of the Partnership and the Subsidiaries (excluding
Advertising Accounts Receivable) resulting from the provision of cable
television service by the Partnership Systems to active subscribers as of the
Adjustment Time and that relate to periods prior to the Adjustment Time. For
purposes of making "past due" calculations to determine whether Subscriber
Accounts Receivable are Eligible Accounts Receivable, the subscriber billing
statements will be deemed to be due and payable on the first day of the period
during which the service to which such billing statements relate is provided.
(III) "Advertising Accounts Receivable"
means accounts receivable of the Partnership and the Subsidiaries resulting
from advertising on a Partnership System or another cable television system
sold either directly by the Partnership and the Subsidiaries or by an ad sales
representative or an advertising agency of the Partnership and the Subsidiaries
or through an advertising interconnect partnership or otherwise. For purposes
of making "past due" calculations to determine whether Advertising Accounts
Receivable are Eligible Accounts Receivable, invoices will be deemed to be due
and payable upon date of
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<PAGE> 21
invoice.
(IV) "Prepaid Expenses" means the book
value of prepaid expenses of the Partnership and the Subsidiaries (but only to
the extent constituting a current asset and only to the extent that such
prepaid expenses will accrue to the benefit of the Partnership and the
Subsidiaries upon and after the Adjustment Time).
(V) "Deposits" means all monies which
are on deposit with third parties as of the Adjustment Time for the account of
the Partnership or the Subsidiaries or as security for the performance of their
respective obligations, including deposits on real property leases and deposits
for utilities that will accrue to the benefit of the Partnership or the
Subsidiaries upon and after the Adjustment Time.
(VI) "Other Current Assets" means all
other current assets of the Partnership and the Subsidiaries; provided,
however, notwithstanding any provision of this Agreement to the contrary,
Adjustment Assets shall not include inventory or accounts receivable that are
not Eligible Accounts Receivable.
0.4.1.2. Subject to the other provisions of
this Section 2.3(a), "Adjustment Liabilities" means the sum of: (A) Accounts
Payable, (B) Subscriber Prepayments and Deposits, (C) Deferred Revenue, and (D)
Other Current Liabilities, in each case of clauses (A) through (D) computed for
the Partnership and the Subsidiaries as of the Adjustment Time on a
consolidated basis and without duplication in accordance with GAAP applied on a
basis consistent with the preparation of the Partnership's Financial
Statements.
(I) "Accounts Payable" means the book
value of all accounts payable of the Partnership and the Subsidiaries.
(II) "Subscriber Prepayments and
Deposits" means the sum of (1) all outstanding deposits of subscribers of the
Partnership Systems for converters, decoders and similar items (and, if
required to be paid to such subscribers, accrued interest thereon), and (2) all
payments received by the Partnership and the Subsidiaries prior to the
Adjustment Time for services to be rendered to subscribers of the Partnership
Systems after the Adjustment Time.
(III) "Deferred Revenue" means liabilities
to subscribers representing advance billings for services to be performed by
the Partnership and the Subsidiaries after the Adjustment Time.
(IV) "Other Current Liabilities" means
all other current liabilities of the Partnership and the Subsidiaries,
including accrued expenses.
0.4.1.3. For purposes of making the
adjustments pursuant to this Section 2.3(a), revenues and expenses shall be
treated as prepaid or accrued so as to reflect the principle that revenues and
expenses will be prorated so that the revenues and expenses attributable to the
period prior to the Adjustment Time shall be for the account of Sellers and the
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<PAGE> 22
revenues and expenses attributable to the period after the Adjustment Time
shall be for the account of Buyer.
0.4.2. Subscriber Adjustment. The Purchase Price shall be
decreased by the dollar amount equal to the product of (1) the Subscriber
Shortfall multiplied by (2) $4,492 (such decrease, the "Subscriber
Adjustment"). For purposes of this Agreement, the "Subscriber Shortfall"
equals the number, if any, by which the total number of Equivalent Basic
Subscribers for all of the Partnership Systems as of the Adjustment Time (as
adjusted in accordance with the following sentence) is less than 665,850. If
any Acquisition Agreement remains pending but not yet consummated prior to the
Adjustment Time, then (i) the number of Equivalent Basic Subscribers of cable
television systems that the Partnership intends to acquire by such Acquisition
Agreement, as set forth on Schedule 3.17, will solely for purposes of this
Section 2.3(b) be deemed to be Equivalent Basic Subscribers of the Partnership
Systems as of the Adjustment Time and (ii) the Partnership debt, for purposes
of Section 2.3(c), will be deemed to be increased on a pro forma basis by the
purchase price under such Acquisition Agreement.
0.4.3. Debt Adjustment. The Purchase Price shall be
decreased by the sum of (1) all obligations of the Partnership and the
Subsidiaries for borrowed money (including all accrued and unpaid interest
unless otherwise taken into account in Section 2.3(a)) under the Loan Documents
and under any bonds, debentures, notes, indentures, mortgages, or similar
instruments to which the Partnership or any of the Subsidiaries are a party or
by which any of them are bound, (2) all capital lease obligations of the
Partnership and the Subsidiaries and (3) any other non-current liabilities
(other than deferred taxes, launch support payments and other items that do not
reflect a cash obligation of the Partnership), each as calculated as of the
Closing Date in accordance with GAAP.
0.4.4. Adjustment for Capital Expenditures. (1) The
Purchase Price shall be decreased by the amount (if any) by which $73,467,300
exceeds the amount of Capital Expenditures. "Capital Expenditures" shall mean
capital expenditures made by the Partnership and the Subsidiaries on a
consolidated basis between January 1, 1999 and the Closing in connection with
the upgrade or rebuild of plant, headend consolidation or system
interconnection, data services equipment, reverse activation and any other
expenditures approved in writing by Buyer plus the cost of inventory acquired
by the Partnership during such period for use in connection with any of the
foregoing, but which costs have not yet been accounted for as a capital
expenditure (to reflect the principle that all adjustments be made without
duplication).
(2) The Purchase Price shall be increased by the
amount of any Capital Expenditures incurred with respect to capital projects
that are not contemplated in the Partnership's Budget, provided that Buyer
provides express prior written consent (in its sole and absolute discretion) to
the incurrence of such Capital Expenditures.
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0.5. Payment at Closing .
0.5.1. No later than ten Business Days prior to the date
scheduled for the Closing, the General Partner, in its capacity as the
representative of the Sellers, shall prepare and deliver to Buyer a written
report in reasonable detail (the "Preliminary Closing Statement") setting forth
the Sellers' estimate of the Purchase Price, as determined in accordance with
this Article 2. The Preliminary Closing Statement shall be prepared by the
General Partner in its capacity as the representative of the Sellers in good
faith and shall be certified by the General Partner, in such capacity, to be
its good faith estimate of the Purchase Price and the other amounts set forth
therein as of the date thereof. The Preliminary Closing Statement will be
accompanied by appropriate documentation supporting the amounts set forth
therein and such additional information as Buyer shall reasonably request
relating to the matters set forth in the Preliminary Closing Statement. The
Sellers shall provide to Buyer reasonable access, upon reasonable notice, to
all records in their possession for purposes of verification of the Preliminary
Closing Statement. The Purchase Price to be delivered at the Closing shall be
determined on the basis of the Preliminary Closing Statement, with any changes
thereto mutually agreed to by the Sellers and Buyer (the "Estimated Purchase
Price").
0.5.2. At Closing, Buyer shall pay cash as follows:
0.5.2.1. Buyer shall pay cash to Chase
Manhattan Bank or other escrow agent mutually satisfactory to the parties (the
"Adjustment Escrow Agent") in an amount equal to $10,000,000 (the "Adjustment
Escrow Amount"), such cash to be held by the Adjustment Escrow Agent in escrow
on behalf of the parties substantially in accordance with the terms of the
escrow agreement attached as Exhibit D (the "Adjustment Escrow Agreement") and
Section 2.5;
0.5.2.2. Buyer shall pay cash to Sellers in
an aggregate amount equal to the excess of (i) the Estimated Purchase Price
over (ii) the Adjustment Escrow Amount (such excess, the "Preliminary Purchase
Price").
0.5.3. None of the Adjustment Escrow Amount will be
available for any purpose, other than as described in Section 2.5(b), and the
Adjustment Escrow Amount shall not be available to satisfy any other
obligations of Sellers under this Agreement or otherwise.
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0.6. Post-Closing Purchase Price Adjustments .
0.6.1. Final Closing Statement.
0.6.1.1. Within 90 days after the Closing
Date, the Sellers shall prepare and deliver to Buyer a written report (the
"Final Closing Statement") setting forth the Sellers' final estimate of the
Purchase Price, as determined in accordance with this Article 2. The Final
Closing Statement shall be prepared by the General Partner, in its capacity as
the representative of the Sellers, in good faith and shall be certified by the
General Partner, in such capacity, to be its good faith estimate of the
Purchase Price and the other amounts set forth therein as of the date thereof.
The Final Closing Statement will be accompanied by appropriate documentation
supporting the amounts set forth therein and such additional information as
Buyer shall reasonably request relating to the matters set forth in the Final
Closing Statement. The Sellers and Buyer will each provide to the other
reasonable access, upon reasonable notice, to all records in its possession for
purposes of the preparation and verification of the Final Closing Statement.
0.6.1.2. Within 30 days after the date that
the Final Closing Statement is delivered by the Sellers to Buyer, Buyer shall
complete its examination thereof and may deliver to the Sellers a written
report setting forth any proposed adjustments to any amounts set forth in the
Final Closing Statement. If Buyer notifies the Sellers of Buyer's acceptance
of the amounts set forth in the Final Closing Statement, the amounts set forth
in the Final Closing Statement shall be conclusive, final, and binding on the
parties as of the date of such notification. If Buyer fails to deliver its
report of any proposed adjustments within the 30-day period specified in the
preceding sentence, the amounts set forth in the Final Closing Statement shall
be conclusive, final, and binding on the parties as of the last day of such
30-day period. Buyer and the Sellers shall use good faith efforts to resolve
any dispute involving the amounts set forth in the Final Closing Statement. If
the Sellers and Buyer fail to agree on any amount set forth in the Final
Closing Statement within 10 days after the Sellers receive Buyer's report
pursuant to this Section 2.5(a), the disputed amounts will be determined within
the following 30-day period by Ernst & Young (the "Auditor"). The Auditor
shall endeavor to resolve the dispute as promptly as practicable and such
auditor's resolution of the dispute shall be final and binding on the parties,
and a judgment may be entered thereon in any court of competent jurisdiction.
All of the costs and expenses of the Auditor and its services rendered pursuant
to this Section 2.5 shall be borne by Buyer, on the one hand, and Sellers, on
the other hand, as nearly as possible in the proportion to the amount by which
the determination of all matters related to such costs and expenses varies from
the positions of Buyer and the Sellers, respectively, on all such matters.
0.6.2. Payment of Purchase Price Adjustments.
0.6.2.1. After final determination of all
amounts (including resolution of disputed amounts under Section 2.5(a)(2)),
payments shall be made as follows:
(A) If the amount of the Purchase Price
as determined pursuant
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to Section 2.5(a) ("Final Purchase Price") exceeds the Preliminary Purchase
Price, then within three Business Days after the date the amount of the Final
Purchase Price is determined, (i) Buyer and the Sellers shall direct the
Adjustment Escrow Agent to pay to Sellers the amount of such excess (not to
exceed the amounts on deposit in the Adjustment Escrow Account), and (ii) Buyer
and the Sellers shall direct the Adjustment Escrow Agent to pay to Buyer the
balance (if any) in the Adjustment Escrow Account. To the extent that the
Final Purchase Price exceeds the Preliminary Purchase Price by more than the
amount on deposit in the Adjustment Escrow Account, Buyer shall pay the
remainder of the Final Purchase Price to Sellers within such three Business Day
period.
(B) If the amount of the Preliminary
Purchase Price exceeds the Final Purchase Price, then within three business
days after the date on which the amount of the Final Purchase Price is
determined, (i) Buyer and the Sellers shall direct the Adjustment Escrow Agent
to pay to Buyer in cash all amounts remaining in the Adjustment Escrow Account
and (ii) Sellers will pay to Buyer in cash an amount equal to the excess of the
Preliminary Purchase Price exceeds the Final Purchase Price.
0.6.2.2. All payments to be made to the
Sellers pursuant to this Section 2.5(b) shall be paid by wire or accounts
transfer of immediately available funds to the accounts designated by the
Sellers by written notice to Buyer. All payments to be made to Buyer pursuant
to this Section 2.5(b) shall be paid by wire or accounts transfer of
immediately available funds to one or more accounts designated by Buyer by
written notice to the Sellers. Buyer shall have no liability or obligation
arising from its allocation among the Sellers of payments made to the Sellers
pursuant to this Section 2.5(b), provided that Buyer complies with the written
instructions of the Sellers provided under the preceding sentence.
0.6.2.2.1.REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller represents and warrants, to the extent set forth in
Section 9.11(b) and not jointly and severally, to Buyer as follows:
0.7. Organization and Ownership of Partnership .
0.7.1. The Partnership is a limited partnership duly formed,
validly existing, and in good standing under the laws of the jurisdiction of
its formation and has the requisite partnership power and authority to own,
lease, and operate its properties and assets and to carry on its business in
the places where such properties and assets are now owned, leased, or operated.
The Partnership and each of its Subsidiaries is duly qualified and in good
standing in all jurisdictions in which the ownership or leasing of the
Partnership Assets owned or leased by it or the nature of its activities in
connection with the Partnership's Business makes such qualification necessary
and in which failure to so qualify would, individually or in the aggregate,
have a Material Adverse Effect.
0.7.2. The General Partner holds of record and owns
beneficially, and as of the
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Closing will hold of record and own beneficially, a 1.0% General Partnership
Interest, free and clear of all Liens. Each Seller holds of record and owns
beneficially, and as of the Closing will hold of record and own beneficially,
its respective Limited Partnership Interest, free and clear of all Liens, and
the percentage interest of such Seller is as set forth on Schedule 3.1.
0.7.3. Except for this Agreement and the Partnership
Agreement, such Seller (1) is not party to, and has not granted to any other
Person, any options, warrants, subscription rights, rights of first refusal or
any other rights providing for the acquisition or disposition of partnership
interests or other equity interests in the Partnership, and (2) is not a party
to any voting agreement, voting trust, proxy or other agreement or
understanding with respect to the voting of any of the Purchased Interests or
the Contributed Interests.
0.8. Authorizations; No Conflict; Required Consents.
0.8.1. Such Seller has the requisite power and authority to
execute, deliver and perform this Agreement and the other Transaction Documents
to which such Seller is a party according to their respective terms. The
execution, delivery, and performance by such Seller of this Agreement and the
other Transaction Documents to which such Seller is a party have been duly
authorized by all necessary action on the part of such Seller. This Agreement
and the other Transaction Documents to which such Seller is a party have been
duly executed and delivered by such Seller (or, in the case of Transaction
Documents to be executed and delivered at Closing, when executed and delivered
will be duly executed and delivered) and constitute (or, in the case of
Transaction Documents to be executed and delivered at Closing, when executed
and delivered will constitute) the legal, valid, and binding obligation of such
Seller, enforceable against such Seller in accordance with their terms, except
as the enforceability of this Agreement and such other Transaction Documents
may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws affecting creditors' rights generally or
by judicial discretion in the enforcement of equitable remedies.
0.8.2. Except as described on Schedule 3.2, the execution
and delivery by such Seller, the performance by such Seller under, and the
consummation of the transactions contemplated by, this Agreement (other than
the transactions described in Section 5.17) and the Transaction Documents to
which such Seller is a party do not and will not: (a) conflict with or violate
any provision of the Charter Documents of such Seller; (b) violate in any
material respect any provision of any Legal Requirement applicable to such
Seller; (c) require any material consent, approval or authorization of, or
filing of any certificate, notice, application, report or other document with,
any Governmental Authority or other Person; or (d) (i) materially conflict
with, result in a material breach of or constitute a material default under
(without regard to requirements of notice, lapse of time or elections of other
Persons or any combination thereof), (ii) permit or result in the termination,
suspension or material modification of, (iii) result in the material
acceleration of (or give any Person the right to accelerate) the performance of
such
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<PAGE> 27
Seller under, or (iv) result in the creation or imposition of any Lien upon the
Purchased Interest or Contributed Interest held by such Seller under, any
Contract or other instrument by which such Seller or any of its assets is bound
or affected.
0.8.3. Except as described on Schedule 3.2, the execution
and delivery by such Seller, the performance by such Seller under, and the
consummation of the transactions contemplated by, this Agreement (other than
the transactions described in Section 5.17) and the Transaction Documents do
not and will not: (a) conflict with or violate any provision of the Charter
Documents of the Partnership or any Subsidiary; (b) violate in any material
respect any provision of any Legal Requirement applicable to the Partnership or
any Subsidiary; (c) require any material consent, approval or authorization of,
or filing of any material certificate, notice, application, report or other
document with, any Governmental Authority or other Person; or (d) (i)
materially conflict with, result in a material breach of or constitute a
material default under (without regard to requirements of notice, lapse of time
or elections of other Persons or any combination thereof), (ii) permit or
result in the termination, suspension or material modification of, (iii) result
in the material acceleration of (or give any Person the right to accelerate)
the performance of the Partnership or any Subsidiary under, or (iv) result in
the creation or imposition of any material Lien upon any of the Partnership
Assets under, any System Franchise, material System License or any material
System Contract by which the Partnership, any Subsidiary or any of the
Partnership Assets is bound or affected.
0.9. Partnership Assets .
0.9.1. The Partnership or a Subsidiary has good and valid
title to (or, in the case of the Partnership Assets that are leased, valid
leasehold interests in) the Partnership Assets (other than Owned Real Property,
Leased Real Property and Other Real Property Interests, as to which
representations and warranties in Section 3.5 apply). The Partnership Assets
are free and clear of all Liens, except Permitted Liens.
0.9.2. Except as set forth on Schedule 3.3(b), the
Partnership Assets include substantially all of the assets necessary to permit
the Partnership to conduct the Partnership's Business substantially as it is
being conducted and operated on the date of this Agreement and to operate the
Partnership Systems in material compliance with all Legal Requirements. The
Sellers have previously delivered to Buyer a list of the material items of
Tangible Personal Property. Except as described on Schedule 3.3(b), the
material Tangible Personal Property is in operating condition and repair
(ordinary wear and tear excepted) and is suitable for continued use in the
manner in which it is presently being used.
0.10. System Franchises, System Licenses, and System Contracts .
0.10.1. Except as described on Schedules 3.4 or 3.5, neither
the Partnership nor any Subsidiary is bound or affected by any of the
following: (i) any material lease of real property; (ii) any material lease of
personal property that will remain effective for more than one year after
Closing or requiring payments by the Partnership or any Subsidiary exceeding
$50,000
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in aggregate; (iii) franchises for the construction or operation of cable
television systems, or Contracts of substantially equivalent effect; (iv)
licenses, authorizations, consents or permits of the FCC; (v) other material
licenses, authorizations, consents or permits of any other Governmental
Authority; (vi) material easements or rights of access; (vii) material pole
line and joint line agreements, underground conduit agreements, crossing
agreements, or bulk or commercial service agreements; (viii) any Contract for
any fiber or fiber capacity lease or use arrangements that provide to any other
Person the right to use any fiber or capacity of a Partnership System; (ix) any
Contract for any internet access or on-line services arrangements that provide
to any other Person the right to use the transmission capacity of a Partnership
System to provide internet access or other on-line services over such
Partnership System; (x) any Contract or agreement limiting the right of the
Partnership or any Subsidiary prior to the Closing, or Buyer or any of its
subsidiaries or controlled affiliates at or after the Closing to engage in, or
to compete with any Person in, any business, including each contract or
agreement containing exclusivity provisions restricting the geographical area
in which, or the method by which, any business may be conducted by the
Partnership or any Subsidiary prior to the Closing, or Buyer or any of its
subsidiaries or controlled Affiliates after the Closing; or (xi) any Contract
that is not the subject matter of any other clause of this Section 3.4(a) that
will remain effective for more than one year after Closing or requiring
payments by the Partnership or any Subsidiary exceeding $50,000 under any
single contract or series of related contracts; other than any of the Contracts
described in clauses (i) through (vii) or (xi), above, that is entered into
after the date of this Agreement in the ordinary course of business or
otherwise as a result of consummating any of the Acquisition Agreements.
0.10.2. Complete and correct copies of the System
Franchises and System Licenses have been delivered by the General Partner to
Buyer. Except as described in Schedule 3.4, the System Franchises and System
Licenses are currently in full force and effect and are valid and enforceable
under all applicable Legal Requirements according to their terms. No event has
occurred that, with notice or lapse of time or both, would constitute a
material breach, violation or default by the Partnership, any Subsidiary or any
Partnership System, and to such Seller's Knowledge, no event has occurred that,
with notice or lapse of time or both, would constitute a material breach,
violation or default by any other Person, of any material obligations under the
System Franchises or the System Licenses. The Partnership and the Subsidiaries
are in material compliance with the terms and conditions of all System
Franchises and System Licenses and with other applicable material requirements
of all Governmental Authorities (including the FCC and the Register of
Copyrights) relating to the System Franchises and System Licenses.
0.10.3. Complete and correct copies of all System
Contracts listed on Schedule 3.4 and all Contracts relating to Leased Real
Property and Other Real Property Interests described on Schedule 3.5 have been
provided to or made available to Buyer (other than System Contracts designated
as "Missing" on Schedule 3.4 or 3.5). Except as otherwise disclosed on
Schedule 3.4, there has not occurred any breach by the Partnership or any
subsidiary, which breach is continuing, of any material terms or conditions
thereunder, and to such Seller's Knowledge, there has not occurred any default
(without regard to requirements of notice, lapse of time, elections of other
Persons, or any combination thereof) by any other Person
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under any material terms or conditions thereunder.
0.11. Real Property . All Partnership Assets consisting of Owned
Real Property, Leased Real Property and material Other Real Property Interests
are described on Schedule 3.5. Except as otherwise disclosed on Schedule 3.5
or as would not have a Material Adverse Effect, the Partnership or a Subsidiary
holds title to the Owned Real Property free and clear of all Liens (except
Permitted Liens). To such Seller's Knowledge, except as otherwise disclosed on
Schedule 3.5, the Partnership or a Subsidiary has valid and enforceable
leasehold interests in all Leased Real Property. To such Seller's Knowledge,
except for ordinary wear and tear and routine repairs, all of the material
improvements, leasehold improvements and the premises of the Owned Real
Property and the premises demised under the leases and other documents
evidencing the Leased Real Property are in operating condition and repair and
are suitable for continued use in the manner in which it is currently being
used. Each parcel of Owned Real Property and each parcel of Leased Real
Property and any improvements thereon (i) has access to and over public streets
or private streets for which the Partnership, a Subsidiary or a Partnership
System has a valid right of ingress and egress, and (ii) conforms in is current
use and occupancy to all material zoning requirements without reliance upon a
variance issued by a Governmental Authority or a classification of the parcel
in question as a nonconforming use. There are no pending condemnation,
expropriation, eminent domain or similar proceedings affecting, in any material
respect, all or any portion of the Owned Real Property, Leased Real Property,
or, to such Seller's Knowledge, Other Real Property.
0.12. Environmental . Except as would not reasonably be expected to
result in fines or penalties under Environmental Laws or environmental
remediation costs required to be incurred under Environmental Laws:
0.12.1. Except as disclosed on Schedule 3.6, to the best of
such Seller's Knowledge (i) the Owned Real Property and Leased Real Property
currently comply in all material respects with all Environmental Laws, (ii)
neither the Partnership nor any Subsidiary has caused any events, conditions,
circumstances, activities, practices or incidents (including but not limited to
the presence, use, generation, manufacture, disposal, release or threatened
release of any Hazardous Substances from or on the Owned Real Property or the
Leased Real Property), which could interfere with or prevent continued
compliance, or which are reasonably likely to give rise to any liability, based
upon or related to the processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any Hazardous Substance from or
attributable to the Owned Real Property or Leased Real Property and (iii) there
is not any pending or threatened claim or investigation based on Environmental
Laws which arises from any condition of any Owned Real Property or Leased Real
Property.
0.12.2. The General Partner has provided Buyer with complete
and correct copies of (i) any studies, reports, surveys or other materials in
the Partnership's or any Subsidiary's possession or to which the Partnership or
any Subsidiary has access relating to the presence or alleged presence of
Hazardous Substances at, on or affecting the Owned Real Property, Leased
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Real Property or Other Real Property, (ii) any notices or other materials in
the Partnership's or any Subsidiary's possession that were received from any
Governmental Authority having the power to administer or enforce any
Environmental Laws relating to current or past ownership, use or operation of
the Owned Real Property, Leased Real Property or Other Real Property or
activities at the Owned Real Property, Leased Real Property or Other Real
Property, and (iii) any materials in the Partnership's or any Subsidiary's
possession, or to which the Partnership or any Subsidiary has access, relating
to any claim, allegation or action by any Person other than a Governmental
Entity under any Environmental Law.
0.12.3. Except as described on Schedule 3.6, to the Knowledge
of such Seller, (i) no aboveground or underground storage tanks are currently
or have been located on any Owned Property or Leased Property, and (ii) no
Owned Property or Leased Property has been used at any time as a gasoline
service station or other facility for storing, pumping, dispensing or producing
gasoline or any other petroleum products or wastes.
0.13. Compliance with Legal Requirements . Except as disclosed in
Schedule 3.7, and except for any such noncompliance as has been remedied, each
of the Partnership, its Subsidiaries, and the Partnership Systems is in
compliance and has been operated in compliance in all material respects with
all Legal Requirements (including, without limitation, the Cable Act, the
Copyright Act and the FCC's Cumulative Leakage Index, but excluding Legal
Requirements for which more specific representations are set forth in Sections
3.6, 3.11 and 3.12). The Partnership has delivered or made available to Buyer
complete and correct copies of all FCC forms relating to rate regulation filed
by the Partnership, its Subsidiaries or the Partnership Systems with any
Governmental Authority with respect to the Partnership Systems and copies of
all correspondence from or to the Partnership, its Subsidiaries or the
Partnership Systems with any Governmental Authority relating to rate regulation
generally and any other Rate Regulatory Matter or specific rates charged to
subscribers of the Partnership Systems, and any other documentation prepared by
the Partnership, its Subsidiaries or the Partnership Systems supporting an
exemption from the rate regulation provisions of the Cable Act claimed by the
Partnership, its Subsidiaries or the Partnership Systems with respect to any of
the Partnership Systems. The Partnership has made available to Buyer, to the
extent in the possession of the Partnership, copies of all FCC forms relating
to rate regulation filed with any Governmental Authority with respect to the
Partnership Systems by parties other than the Partnership, its Subsidiaries or
the Partnership Systems and copies of all correspondence from or to parties
other than the Partnership, its Subsidiaries or the Partnership Systems with
any Governmental Authority relating to rate regulation generally and any other
Rate Regulatory Matter or specific rates charged to subscribers of the
Partnership Systems, and any other documentation supporting any exemption from
the rate regulation provisions of the Cable Act claimed by the Partnership
Systems by parties other than the Partnership, its Subsidiaries or the
Partnership Systems.
0.14. Intellectual Property . The General Partner has delivered to
Buyer complete and correct copies of all current reports and filings for the
past three years, made or filed with the U.S. Copyright Office pursuant to
copyright rules and regulations with respect to the Partnership's Business.
Except as set forth on Schedule 3.8, the Partnership and the Subsidiaries
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do not own or use any Intellectual Property related to and material to the
operation of the Partnership Systems and are not a party to any license or
royalty agreement with respect to any such Intellectual Property, except for
licenses respecting program material and obligations under the Copyright Act
applicable to cable television systems generally. To such Seller's Knowledge,
except as described on Schedule 3.8, the Partnership Systems and the
Partnership's Business have been operated in such a manner so as not to
materially violate or infringe upon the rights, or give rise to any rightful
material claim of any Person for infringement of Intellectual Property or
license.
0.15. Financial Statements; Absence of Certain Changes or Events .
Buyer has received copies of the BCG S-4. The BCG S-4 contains complete and
correct copies of the audited consolidated balance sheets of the Partnership
and the Subsidiaries and related statements of income, stockholders' equity and
cash flows for the fiscal year ended December 31, 1998, as adjusted to reflect
the combination of certain assets to reflect the contribution by TCI LLC and
its Affiliates to the Partnership on February 2, 1999, including all notes and
schedules thereto (all of such financial statements and notes being hereinafter
referred to as the "Partnership's Financial Statements"). The Partnership's
Financial Statements are in accordance with the books and records of the
Partnership and were prepared in accordance with GAAP, except as may be
described therein, applied on a consistent basis throughout the periods covered
thereby. Except as set forth on Schedule 3.9 and after giving effect to the
various transactions consummated on February 2, 1999, and related financings,
since December 31, 1998, there has been no (i) event or events (other than any
affecting the cable television industry generally) occurred that, individually
or in the aggregate, are reasonably likely to result in a Material Adverse
Effect and (ii) material change in accounting principles or practices (other
than as a result of changes in GAAP) with respect to the Partnership Systems or
revaluation by the Partnership of the Partnership Assets for financial
reporting, property tax or other purposes. From December 31, 1998 to the date
of this Agreement, except with respect to the closing of various transactions
on February 2, 1999, and related financings, the Partnership's Business has
been conducted only in the usual, regular and ordinary course, except as
disclosed on Schedule 3.9 and except where the failure to conduct business in
such manner would not have a Material Adverse Effect.
0.16. Litigation .
0.16.1. Except as set forth in Schedule 3.10: (i)
there is no Litigation pending or, to such Seller's Knowledge, threatened
against the Partnership or any Subsidiary; and (ii) there is not in existence
any Judgment (other than Judgments affecting the cable television industry in
general) requiring the Partnership or any Subsidiary to take any action of any
kind with respect to the Partnership Assets or the operation of the Partnership
Systems.
0.16.2. Except as set forth in Schedule 3.10, there
is no Litigation pending or, to such Seller's Knowledge, threatened against
such Seller which, individually or in the aggregate, is reasonably likely to
adversely affect the ability of such Seller to perform its obligations under
this Agreement.
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0.17. Tax Returns .
0.17.1. Except as described on Schedule 3.11, the Partnership
and the Subsidiaries have duly and timely filed in correct form all federal Tax
Returns and all other material Tax Returns required to be filed by it, and all
such Tax Returns are complete and correct in all material respects, except
where the failure of such Tax Returns to be complete or correct would not
result in a material liability to the Partnership or the Subsidiaries. The
Partnership and the Subsidiaries have timely paid all material Taxes which have
become due and payable on such Tax Returns, except for Taxes reflected in the
Partnership's Financial Statements, such amounts as are being contested
diligently and in good faith and are not in the aggregate material or Taxes
reflected as an adjustment to the Purchase Price under Article 2. Neither the
Partnership nor any Subsidiary has received any written notice of, nor does
such Seller have any Knowledge of, any deficiency, assessment or audit, or
proposed deficiency, assessment or audit from any taxing Governmental Authority
that could result in any material liability on behalf of the Partnership.
0.17.2. The appropriate Tax Returns of each of the
Partnership and the Subsidiaries have not been examined by the Internal Revenue
Service for the last six years.
0.17.3. Except as set forth in Schedule 3.11, there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any material Tax Returns required to be filed by, or which
include, the Partnership or any of the Subsidiaries.
0.17.4. Except as set forth in Schedule 3.11, neither the
Partnership nor any of the Subsidiaries is subject to any joint venture,
partnership or other arrangement or contract which is treated as a partnership
for federal income tax purposes, other than ownership of any of the
Subsidiaries.
0.17.5. Except as set forth in Schedule 3.11, there are no
material tax sharing agreements or similar arrangements with respect to or
involving the Partnership or any of the Subsidiaries.
0.17.6. The Partnership and each of the Subsidiaries (except
Bresnan Capital Corporation) has been treated properly as either a partnership
or disregarded entity for federal income tax purposes since its inception,
respectively.
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0.18. Employment Matters .
0.18.1. Except as set forth on Schedule 3.12, the
Partnership and the Subsidiaries have complied in all material respects with
all applicable Legal Requirements relating to the employment of labor,
including the Worker Adjustment and Retraining Notification Act, as amended
(the "WARN Act"), ERISA, continuation coverage requirements with respect to
group health plans and those relating to wages, hours, collective bargaining,
unemployment insurance, worker's compensation, equal employment opportunity,
age and disability discrimination, immigration control and the payment and
withholding of Taxes, except as would not have a Material Adverse Effect.
0.18.2. With respect to the Partnership, any
Subsidiary, and the Partnership Plans (as defined below):
0.18.2.1. Except as is disclosed on Schedule
3.12, (i) neither the Partnership, any Subsidiary nor any of their ERISA
Affiliates maintains or sponsors (or ever maintained or sponsored), or makes or
is required to make contributions to, any Partnership Plans, (ii) none of the
Partnership Plans is or was a "multi-employer plan," as defined in Section
3(37) of ERISA, (iii) none of the Partnership Plans is or was a "defined
benefit pension plan" within the meaning of Section 3(35) of ERISA, (iv) none
of the Partnership Plans provides or provided post-retirement medical or health
benefits (except as required by Section 4980B of the Code or similar Laws), (v)
none of the Partnership Plans is or was a "welfare benefit fund," as defined in
Section 419(e) of the Code, or an organization described in Sections 501(c)(9)
or 501(c)(20) of the Code, and (vi) neither the Partnership, any Subsidiary,
nor any of their ERISA Affiliates has announced or otherwise made any
commitment to create or amend any Partnership Plan. There is no Partnership
Plan which the Partnership will not be able to terminate immediately after the
Closing in accordance with its terms and ERISA. The Partnership has delivered
to Buyer true and complete copies of: (i) each of the Partnership Plans and any
related funding agreements thereto (including insurance contracts) including
all amendments, (ii) the currently effective Summary Plan Description
pertaining to each of the Partnership Plans, (iii) the most recent annual
report for each of the Partnership Plans (including all relevant schedules),
and (iv) the most recent Internal Revenue Service determination letter for each
Partnership Plan which is intended to constitute a qualified Partnership Plan
under Section 401 of the Code, (v) the most recently filed PBGC Form 1, if
applicable, (vi) for each funded Partnership Plan, ERISA-required financial
statements.
0.18.2.2. Neither the Partnership, any
Subsidiary nor any of their ERISA Affiliates is subject to any liability, tax
or penalty whatsoever to any person or agency whomsoever as a result of
engaging in a prohibited transaction under ERISA or the Code, and neither the
Partnership, any Subsidiary nor any of their ERISA Affiliates has any knowledge
of any circumstances which reasonably might result in any liability, tax or
penalty, including, but not limited to, a penalty under Section 502 of ERISA,
as a result of a breach of any duty under ERISA or under other laws. There has
been no material failure of any Partnership Plan which is required to comply
with the provisions of Sections 4980B and 4980C of the Code, or with the
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requirements referred to in Section 4980D(a) of the Code, to comply. No event
has occurred which could subject any Partnership Plan to any material tax under
Section 511 of the Code.
0.18.2.3. Each of the Partnership Plans which
is intended to be a qualified plan under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service.
There has been no failure to administer any of the Partnership Plans in
material compliance with the terms of such Partnership Plan, ERISA, the Code
and all other applicable laws. All contributions required to be made to each
of the Partnership Plans under the terms of that Partnership Plan, ERISA, the
Code or any other applicable laws have been timely made. The financial
statements of the Partnership delivered to Buyer pursuant to Section 3.9
properly reflect all amounts required to be accrued as liabilities to date
under each of the Partnership Plans. Except as set forth on Schedule 3.12,
there is no contract, agreement or benefit arrangement covering any employee of
the Partnership or any Subsidiary which, individually or collectively, could
give rise to the payment of any amount which would constitute an "excess
parachute payment" (as defined in Section 280G of the Code). Except as set
forth on Schedule 3.12, the execution and performance of this Agreement will
not (i) result in any obligation or liability (with respect to accrued benefits
or otherwise) of the Partnership or any Subsidiary to any Partnership Plan, or
any present or former employee of the Partnership or any Subsidiary, (ii) be a
trigger event under any Partnership Plan that will result in any payment
(whether of severance pay or otherwise) becoming due to any present or former
employee, officer, director, shareholder, contractor, or consultant, or any of
their dependents, or (iii) accelerate the time of payment or vesting, or
increase the amount, of compensation due to any employee, officer, director,
shareholder, contractor, or consultant of the Partnership or any Subsidiary.
With respect to any insurance policy which provides, or has provided, funding
for benefits under any Partnership Plan, (I) except as described on Schedule
3.12, there is and will be no liability of the Partnership or Buyer in the
nature of a retroactive or retrospective rate adjustment, loss sharing
arrangement, or actual or contingent liability as of the Closing Date, nor
would there be any such liability if such insurance policy were terminated as
of the Closing Date, and (II) no insurance company issuing any such policy is
in receivership, conservatorship, bankruptcy, liquidation, or similar
proceeding, and, to the knowledge of the Partnership or any Subsidiary, no such
proceedings with respect to any insurer are imminent.
0.18.2.4. The present value of all accrued
benefits under any Partnership Plans subject to Title IV of ERISA shall not, as
of the Closing Date, exceed the value of the assets of such Partnership Plans
allocated to such accrued benefits, based upon the applicable provisions of the
Code and ERISA, and each such Partnership Plan shall be capable of being
terminated as of the Closing Date in a "standard termination" under Section
4041(b) of ERISA. The transactions contemplated hereunder, including without
limitation the termination of any Partnership Plans at or prior to the Closing,
shall not result in any such withdrawal or other liability under any applicable
laws. There are no Liens against the Partnership Assets under Section 412(n)
of the Code or Sections 302(f) or 4068 of ERISA. With respect to any
multi-employer plan within the meaning of Section 3(37) of ERISA, or any plan
subject to Title IV of ERISA, to which the Partnership, any Subsidiary or any
of their ERISA Affiliates is or ever was obligated to contribute, (a) there has
been no material "reportable event" described in
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Sections 4043(c)(1), (2), (3), (5), (6), (7), (10), or (13) of ERISA, (b) no
"accumulated funding deficiency" (as defined in Section 302 of ERISA) or
"withdrawal liability" (as determined under Section 4201 et seq. of ERISA) has
occurred, exists or is continuing with respect to any such plan other than a
multi-employer plan (as defined in Section 3(37) of ERISA), or, to the
Knowledge of the Partnership, its Subsidiaries or any of their ERISA
Affiliates, with respect to any such plan which is a multi-employer plan (as
defined in Section 3(37) of ERISA), (c) no such plan has been terminated other
than in accordance with ERISA or at a time when such plan was not sufficiently
funded, and (d) there has been no (i) withdrawal by the Partnership, its
Subsidiaries or any of their ERISA Affiliates that is a substantial employer
from a single-employer plan and that has two or more contributing sponsors at
least two of whom are not under common control, as referred to in Section
4063(b) of ERISA, or (ii) cessation by the Partnership, its Subsidiaries or any
of their ERISA Affiliates of operations at a facility causing more than twenty
percent (20%) of plan participants to be separated from employment, as referred
to in Section 4062(e) of ERISA. The Partnership and its ERISA Affiliates have
no liability under Section 4064 of ERISA relating to any "defined benefit
pension plan" (within the meaning of Section 3(35) of ERISA) maintained or
contributed to by any ERISA Affiliate within the five-year period before the
Closing Date.
0.18.2.5. Other than routine claims for
benefits under the Partnership Plans, there are no pending, or, to the best
knowledge of the Partnership or any Subsidiary, threatened, investigations,
proceedings, claims, lawsuits, disputes, actions, audits or controversies
involving the Partnership Plans, or the fiduciaries, administrators, or
trustees of any of the Partnership Plans or the Partnership, any Subsidiary or
any of their ERISA Affiliates as the employer or sponsor under any Partnership
Plan, with any of the Internal Revenue Service, the Department of Labor, the
Pension Benefit Guaranty Corporation, any participant in or beneficiary of any
Partnership Plan or any other person whomsoever. To the Knowledge of the
Partnership and any Subsidiary, there is no reasonable basis for any such
claim, lawsuit, dispute, action or controversy.
For purposes of this Section 3.12(b), the term
"Partnership Plans" shall mean (i) all "employee benefit plans" (as such term
is defined in Section 3(3) of ERISA, of which the Partnership, any Subsidiary
or any of their ERISA Affiliates (a "Partnership ERISA Affiliate") is or ever
was within the three-year period ending on the Closing Date a sponsor or
participating employer or as to which the Partnership, any Subsidiary or any
Partnership ERISA Affiliate makes contributions or is required to make
contributions, and (ii) any similar employment, severance or other arrangement
or policy of the Partnership or any Subsidiary providing for insurance coverage
(including self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits or retirement
benefits, or for profit sharing, deferred compensation, bonuses, stock options,
stock appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits.
0.18.3. Except as set forth on Schedule 3.12, there
are no union or collective bargaining agreements applicable to any Person
employed by the Partnership or any Subsidiary that renders services in
connection with the Partnership Systems and neither the
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Partnership nor any Subsidiary has any duty to bargain with any labor
organization with respect to any such Person. There has been no work stoppage
or strike by employees of the Partnership and the Subsidiaries within the last
three years except as disclosed on Schedule 3.12. Except as set forth on
Schedule 3.12, there are not (i) any unfair labor practice charges or
arbitration proceedings pending, or to such Seller's Knowledge, threatened
against the Partnership or any Subsidiary, (ii) any pending demand for
recognition or (iii) any other pending effort of or request or demand from, a
labor organization for representative status with respect to any Person
employed by the Partnership or any Subsidiary that renders services in
connection with the Partnership Systems or the Partnership's Business. Except
as described on Schedule 3.12, neither the Partnership nor any Subsidiary has
any employment Contracts, either written or oral, with any employee of the
Partnership Systems, and none of such employment agreements listed on Schedule
3.12 requires Buyer to employ any person after Closing.
The Sellers have delivered to Buyer a list
describing, as of the date of this Agreement, individually and by category, the
name of each officer, employee and consultant of the Partnership and each
Subsidiary (but not including employees of BCI and employees of the Partnership
who work out of the Corporate Office), together with such person's position or
function, annual base salary or wage and any incentive, severance or bonus
arrangements with respect to such person due from the Partnership, in each case
as of the date of this Agreement. Except as disclosed in Schedule 3.12, the
completion of the transactions contemplated by this Agreement will not result
in any payment or increased payment becoming due from the Partnership or any
Subsidiary to any officer, director, or employee of, or consultant to, the
Partnership or any Subsidiary (but not including employees of BCI and employees
of the Partnership who work out of the Corporate Office), and to such Seller's
Knowledge no employee of the Partnership or any Subsidiary has made any threat,
or otherwise revealed an intent, to terminate said employee's relationship with
the Partnership or any Subsidiary, for any reason, including because of the
consummation of the transactions contemplated by this Agreement. Neither the
Partnership nor any Subsidiary is a party to any agreement for the provision of
labor from any outside agency except as disclosed in Schedule 3.12. To the
Partnership's Knowledge, within the three year period preceding the Closing
Date there have been no claims by employees of such outside agencies, if any,
with regard to employees assigned to work for the Partnership or any
Subsidiary, and no claims by any governmental agency with regard to such
employees except as disclosed in Schedule 3.12. To such Seller's Knowledge,
there are no organizational efforts presently underway or threatened involving
any employees performing work for the Partnership or any Subsidiary but
provided by an outside employment agency, if any.
Neither the Partnership nor any Subsidiary has any
written policies and/or employee handbooks or manuals except as disclosed in
Schedule 3.12.
0.19. Partnership Systems Information . Schedule 3.13 sets forth
the approximate number of plant miles (aerial and underground) for each
headend, the approximate bandwidth capability of each headend, the stations and
signals carried by each headend and the channel position of each such signal
and station, which information is true and correct in all material respects, in
each case as of the applicable dates specified therein and subject to any
qualifications
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set forth therein. The Sellers have delivered to Buyer channel lineups and the
monthly rates charged for each class of service for each headend in the
Partnership Systems, which information is true and correct in all material
respects, in each case as of the applicable dates specified therein and subject
to any qualifications set forth therein. Except as described in Schedule 3.13,
each Partnership System is capable of providing all channels, stations and
signals reflected as being carried on such Partnership System on Schedule 3.13.
The Sellers have prepared Schedule 6.1 in good faith on information believed by
them to be reliable.
0.20. Finders and Brokers . None of such Seller, the Partnership
nor any Person acting on behalf of such Seller or the Partnership has employed
any financial advisors, broker or finder or incurred any liability for any
financial advisory, brokerage, finder's or similar fee or commission in
connection with the transactions contemplated by this Agreement, except such
fees of Goldman, Sachs and Company, Waller Capital Corporation and Daniels &
Associates that will be paid in full by the Sellers.
0.21. Transactions with Affiliates . Effective at and as of the
Closing, except as disclosed in Schedule 3.15, neither the Partnership nor any
Subsidiary will be involved in any business arrangement or business
relationship with any Affiliate of the Partnership (other than a Subsidiary),
and no Affiliate of the Partnership (other than a Subsidiary) owns any property
or right, tangible or intangible, that will be used in the Partnership's
Business or the operation of the Partnership Systems. For purposes of this
Section 3.15, the reference to Affiliates includes the Persons who are
Affiliates immediately prior to Closing.
0.22. Competition . Except as set forth on Schedule 3.16, and other
than direct broadcast satellite and satellite master antenna television, as of
the date of this Agreement with respect to each Service Area: (i) no Person is
operating a cable television system or other non-satellite MVPD (or to Seller's
Knowledge, MMDS not emitting signals from a Service Area) other than a
Partnership System in such area; (ii) no local franchising authority has
awarded a cable television franchise in such area to any Person other than the
Partnership, any Subsidiary or a Partnership System; and (iii) to the Knowledge
of such Seller, no MVPD has applied for a cable television franchise to serve
such area.
0.23. Pending Transactions . Other than the transactions
contemplated by the Acquisition Agreements, neither the Partnership nor any
Subsidiary has entered into any agreement or letter of intent or other
commitment to acquire or dispose of any cable television system that has not
been consummated prior to the execution of this Agreement.
0.24. Acquisition Agreement Schedules; Schedule References . Any
information set forth in or disclosed in the schedules to the Acquisition
Agreements or any definitive agreement entered into by the Partnership or any
Subsidiary in connection therewith in each case as in effect on the date of
this Agreement, shall be deemed by this reference to be included in the
Schedules to this Agreement to the extent such information and disclosures
would reasonably be deemed relevant (based on the level of detail and
sufficiency of information provided therein) to the corresponding or analogous
representations and warranties made by the Sellers in this Article 3. True and
complete copies of the foregoing agreements have been delivered to Buyer prior
to the
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date hereof. Schedule and exhibit references contained in this Agreement are
for convenience only and any matter disclosed pursuant to one section,
subsection or other provision of this Agreement, are deemed disclosed for all
purposes of this Agreement, as long as the disclosure with respect to such
matter provides a truthful, accurate and adequate description of all relevant
aspects of such matter.
0.25. Securities Law Matters . Such Seller understands and
acknowledges that the Equity Consideration has not been registered or qualified
under the federal or applicable state securities laws and the Equity
Consideration is being transferred to the Sellers in reliance upon applicable
exemptions from such registration and qualification requirements. Such Seller
is an "accredited investor" within the meaning of the federal securities laws
and acknowledges it has been furnished with or afforded access to, and has had
the opportunity to ask questions and receive answers concerning, all
information pertaining to the Equity Consideration. The Equity Consideration
is being acquired by such Seller for investment only and not with a view to any
public distribution thereof. Such Seller understands that the Equity
Consideration represents "restricted securities" within the meaning of the
federal securities laws and agrees that it will not offer to sell or otherwise
dispose of the Equity Consideration in violation of the registration and
qualification requirements of the federal and applicable state securities laws.
0.25.1. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to each Seller as follows:
0.26. Organization; Authority . Buyer is a limited liability
company duly organized, validly existing, and in good standing under the laws
of the State of Delaware. Buyer has the requisite power and authority to
conduct its activities as such activities are currently conducted and to
execute, deliver and perform this Agreement and the other Transaction Documents
to which Buyer is a party according to their respective terms. Buyer is duly
qualified to do business as a foreign limited liability company and is in good
standing in all jurisdictions in which such qualification is necessary, except
where such failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on the ability of Buyer to perform
its obligations under this Agreement.
0.27. Authorization and Binding Obligation . The execution,
delivery, and performance by Buyer of this Agreement and the other Transaction
Documents to which Buyer is a party have been duly authorized by all necessary
action on the part of Buyer. This Agreement and the other Transaction
Documents to which Buyer is a party have been duly executed and delivered by
Buyer (or, in the case of Transaction Documents to be executed and delivered at
Closing, when executed and delivered will be duly executed and delivered) and
constitute (or, in the case of Transaction Documents to be executed and
delivered at Closing, when executed and delivered will constitute) the legal,
valid, and binding obligation of Buyer, enforceable against Buyer in accordance
with their terms, except as the enforceability of this Agreement and such other
Transaction Documents may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws affecting creditors' rights
generally or by judicial
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discretion in the enforcement of equitable remedies.
0.28. No Conflict; Required Consents . The execution and delivery
by Buyer, the performance by Buyer under, and the consummation of the
transactions contemplated by, this Agreement and the Transaction Documents to
which Buyer is a party do not and will not: (a) conflict with or violate any
provision of the Charter Documents of Buyer; (b) violate any provision of any
Legal Requirement; (c) require any material consent, approval or authorization
of, or filing of any certificate, notice, application, report or other document
with, any Governmental Authority or other Person; or (d) (i) result in a
material breach of or constitute a material default under (without regard to
requirements of notice, lapse of time or elections of other Persons or any
combination thereof), (ii) permit or result in the termination, suspension or
material modification of, or (iii) result in the material acceleration of (or
give any Person the right to accelerate) the performance of Buyer under, any
Contract or other instrument by which Buyer or any of its assets is bound or
affected, except for any of the foregoing that would not materially adversely
affect Buyer's ability to perform its obligations under this Agreement.
0.29. Finders and Brokers . Neither Buyer nor any Person acting on
behalf of Buyer has employed any financial advisors broker or finder or
incurred any liability for any financial advisory, brokerage, finder's or
similar fee or commission in connection with the transactions contemplated by
this Agreement, except any of the foregoing that will be paid in full by Buyer.
0.30. Securities Law Matters . Buyer understands and acknowledges
that the Purchased Interests and the Contributed Interests have not been
registered or qualified under the federal or applicable state securities laws
and the Purchased Interests are being sold to and purchased by Buyer and the
Contributed Interests are being contributed to Buyer in reliance upon
applicable exemptions from such registration and qualification requirements.
Buyer is an "accredited investor" within the meaning of the federal securities
laws and acknowledges it has been furnished with or afforded access to, and has
had the opportunity to ask questions and receive answers concerning, all
information pertaining to the Purchased Interests and the Contributed
Interests. The Purchased Interests and the Contributed Interests are being
acquired by Buyer for investment only and not with a view to any public
distribution thereof. Buyer understands that the Purchased Interests and the
Contributed Interests are "restricted securities" within the meaning of the
federal securities laws and agrees that it will not offer to sell or otherwise
dispose of the Purchased Interests and the Contributed Interests in violation
of the registration and qualification requirements of the federal and
applicable state securities laws.
0.31. Investment Company . Buyer is not, and upon consummation of
the transactions contemplated by this Agreement will not be, an "Investment
Company" required to register as such under the Investment Company Act of 1940,
as amended.
0.32. Litigation . Except as set forth in Schedule 4.7, there is no
Litigation pending or, to Buyer's Knowledge, threatened against Buyer which,
individually or in the aggregate, is reasonably likely to materially adversely
affect the ability of Buyer to perform its obligations under this Agreement.
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<PAGE> 40
0.33. Balance Sheet . Buyer has delivered to the Sellers a true and
complete copy of an audited consolidated balance sheet of Buyer and its
consolidated subsidiaries as of December 31, 1998. As of the date of this
Agreement, all cable television operations of Buyer and its Affiliates are
conducted through Buyer or one or more of its subsidiaries or joint ventures or
other Persons in which Buyer holds an equity interest.
0.34. Financing . As of the Closing Date, Buyer will have available
cash or cash equivalents on hand in an amount sufficient to enable it to pay in
cash the full amount of the Purchase Price and consummate the transactions
contemplated by this Agreement. At the Closing Date, Buyer will be able to
arrange the refinancing of the Credit Facility, if necessary. On the date
required for repurchase pursuant to any tender offer, Buyer also will have
available the cash or cash equivalents, or access to such cash equivalents
under its existing credit facility, to repurchase at 101% of the principal
amount thereof any of the notes that are tendered pursuant to the change of
control repurchase offer that will be made following the Closing pursuant to
Section 5.8(b).
0.35. Capitalization; Delivery of Limited Liability Company
Interests .
0.35.1. As of the date hereof, all of the equity interests in
Buyer are owned of record and beneficially by Charter Communications, Inc. As
of the date hereof, there are no preemptive rights, whether at law or
otherwise, to purchase any securities of Buyer and, except as disclosed in
Schedule 4.10(a), there are no outstanding options, warrants, subscriptions,
agreements, plans, rights or other commitments pursuant to which Buyer is or
may become obligated to sell or issue any Units or any other equity security,
and there are no outstanding securities convertible into such Units or any
other equity security.
0.35.2. The Equity Consideration being issued hereunder, when
issued and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly authorized and validly issued. The
delivery of such Equity Consideration pursuant to this Agreement will transfer
to the Sellers good and valid title to such Equity Consideration, free and
clear of all Liens and any other limitations or restrictions (including any
restrictions on the right to vote, sell or otherwise dispose of such interest),
other than the transfer restrictions created by the Operating Agreement or
imposed by applicable Legal Requirements.
0.36. Pending Buyer Acquisitions . Schedule 4.11 sets forth a
description of each pending transaction as of the date hereof in which Buyer,
directly or indirectly, would acquire a majority or other equity interests in,
or the operating business of, any Person (the "Pending Buyer Acquisitions").
Except as set forth on Schedule 4.11, Buyer has delivered to Sellers true and
complete copies of the purchase agreement and/or other acquisition documents in
connection with or relating to each of the Pending Buyer Acquisitions. Buyer
will deliver to Sellers within 30 days of this Agreement true and complete
copies of the purchase agreement and/or other acquisition documents in
connection with or relating to each of the Pending Buyer Acquisitions described
on Schedule 4.11, subject to reasonable confidentiality restrictions; provided
that
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Buyer uses commercially reasonable efforts to secure a waiver of such
restrictions.
0.37. SEC Filings; Financial Information .
0.37.1. Buyer has delivered to the Sellers Amendment No. 2
to the Registration Statement on Form S-4 filed by Charter Communications
Holdings, LLC with the SEC (File No. 333-77499) on June 21, 1999 (the "CCH
S-4"). Other than with respect to information regarding the transactions
contemplated by this Agreement, the CCH S-4, as of the date hereof does not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
0.37.2. The pro forma system cash flow information for Buyer
and its subsidiaries (giving pro forma effect to the Pending Buyer Acquisitions
and the transactions contemplated herein) attached as Schedule 4.12(b) have
been prepared in good faith on the basis of assumptions believed by Buyer to be
reasonable.
0.37.2.1. SPECIAL COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
0.38. Access to Premises and Records . Between the execution of
this Agreement and the Closing, upon reasonable notice the General Partner will
cause the Partnership and the Subsidiaries to give to Buyer and its
representatives reasonable access during normal business hours to all the
premises and books and records of the Partnership's Business and to all of the
Partnership Assets and Partnership Systems' personnel and will furnish to Buyer
and its representatives all such documents, financial information and other
information regarding the Partnership's Business, the Partnership Systems and
the Partnership Assets as Buyer from time to time reasonably may request.
0.39. Continuity and Maintenance of Operations; Certain Deliveries
and Notices . Except as described on Schedule 5.2-I or as Buyer may otherwise
consent (which, in the case of Sections 5.2(a) and 5.2(g) (except as
specifically set forth therein), will not be unreasonably withheld, conditioned
or delayed) between the date of this Agreement and the Closing, the Sellers
will cause the Partnership and the Subsidiaries to:
0.39.1. conduct the Partnership's Business in good
faith and operate the Partnership Systems only in the usual, regular and
ordinary course and consistent with past practices, except as provided in this
Agreement and the Partnership's Budget (subject to, and except as modified by,
compliance with the following covenants), including operating substantially in
accordance with the Partnership's Budget, completing ongoing and planned line
extensions, placing conduit or cable in new developments, fulfilling
installation requests, completing disconnection work orders and disconnecting
and discontinuing service to customers whose accounts are delinquent, and, to
the extent consistent with such conduct and operation, use
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its commercially reasonable efforts to (i) preserve the Partnership's Business
intact in all material respects, including preserving existing relationships
with franchising authorities, suppliers, customers and others having business
dealings with the Partnership Systems, and (ii) keep available the services of
its employees and agents providing services in connection with the
Partnership's Business and the Partnership Systems, and (iii) continue budgeted
marketing, advertising and promotional expenditures with respect to the
Partnership's Business and the Partnership Systems consistent with past
practices;
0.39.2. (i) maintain the Partnership Assets in
operating condition; (ii) maintain inventory for the Partnership Systems at
levels consistent with past practices (as adjusted for historical rebuild
activities) and sufficient to operate the Partnership Systems in the ordinary
course of business; (iii) use commercially reasonably efforts to maintain in
full force and effect policies of insurance with respect to the Partnership's
Business consistent with past practices; (iv) promptly notify Buyer of any
event that results in any material loss or damage to the Partnership Assets or
Partnership Systems (whether resulting from fire, theft, or any other
casualty); (v) maintain its books, records and accounts with respect to the
Partnership Assets and the operation of the Partnership Systems in the usual,
regular and ordinary manner on a basis consistent with past practices; (vi)
comply in all material respects with all Legal Requirements applicable to the
Partnership and the operation of the Partnership's Business; (vii) and subject
to the availability of labor and materials and to other matters outside the
reasonable control of the Partnership, continue to make capital expenditures,
including rebuild expenditures, materially consistent with the Partnership's
Budget or otherwise implement the rebuild program contemplated by the
Partnership's Budget;
0.39.3. promptly deliver to Buyer true and complete
copies of all quarterly financial statements and all monthly and quarterly
financial and operating reports with respect to the operation of the
Partnership's Business prepared in the ordinary course of business by or for
any of the Partnership at any time from the date of this Agreement until the
Closing;
0.39.4. give or cause to be given to Buyer and its
counsel, accountants and other representatives, as soon as reasonably possible
but in any event prior to the date of submission to the appropriate
Governmental Authority, copies of all FCC Forms 1200, 1205, 1210, 1215, 1220,
1225, 1235 and 1240 or any other FCC forms required to be filed with any
Governmental Authority under the 1992 Cable Act with respect to rates and
prepared with respect to any of the Partnership Systems;
0.39.5. timely file a notice of renewal under Section
626 of the Cable Act with the appropriate Franchising Authority with respect to
any System Franchise (other than those disclosed in Schedule 3.7) that will
expire within 30 months after any date between the date of this Agreement and
the Closing Date;
0.39.6. promptly notify Buyer of any fact,
circumstance, event or action by it or otherwise (i) which if known at the date
of this Agreement would have been required to be disclosed by it in or pursuant
to this Agreement or (ii) the existence, occurrence or taking of
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which would result in the condition set forth in Section 6.1(a) not being
satisfied at the Closing, and, with respect to clause (ii), will use its
commercially reasonable efforts to remedy the same.
0.39.6.1. except as set forth in Schedule 5.2(g), not
(i) modify, terminate, renew, suspend or abrogate any
System Contract (other than the System Contracts listed in the other
clauses of this Section 5.2(g));
(ii) enter into, modify, terminate, renew, suspend or
abrogate any retransmission consent System Contract, System Franchise
or System License, except for renewals (other than renewals of System
Franchises) on terms that are not materially different from those
which currently exist and renewals of System Franchises as otherwise
required or permitted under this Agreement or modify or amend any
Acquisition Agreement in a manner that is materially less favorable to
the Partnership than the terms thereof as of the date of this
Agreement;
(iii) enter into, modify, terminate, renew, suspend
or abrogate any System Contract evidencing Leased Property or Other
Real Property Interests, lease agreements for Tangible Personal
Property except for renewals on terms that are not materially
different from those which currently exist;
(iv) engage in any marketing, subscriber installation,
collection or disconnection practices;
(v) make any election with respect to any cost of
service proceeding conducted in accordance with Part 76.922 of Title
47 of the Code of Federal Regulations or any similar proceeding with
respect to any Partnership System, in either case without providing
notice of such election to Buyer;
(vi) enter into any agreement with or commitment to
any competitive access provider and/or local exchange company or any
internet access or on-line services provider with respect to the use
or lease of any of the Partnership Assets;
(vii) except as contemplated by this Agreement, sell,
transfer or assign any portion of the Partnership Assets or permit the
creation of a Lien (other than Permitted Liens) on any of the
Partnership Assets;
(viii) decrease the rate charged for any level of
Basic Services, Expanded Basic Services or any Pay TV or add, delete,
retier or repackage any analog programming services, in each case
except to the extent required under the 1992 Cable Act or any other
Legal Requirement; provided, however, that if rates are decreased in
order to so comply, the Partnership will provide the Buyer with copies
of any FCC forms (even if not filed with any Governmental Authority)
that the Partnership, any Subsidiary or any Partnership
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System used to determine that the new rates were required;
(ix) convert any Partnership Systems to any billing
system or otherwise change billing arrangements for any of the
Partnership Systems;
(x) enter into any Contract of any kind relating to
the Cable Business to be assumed by Buyer that individually or in the
aggregate call for payments over its terms or otherwise involving
expenditures in excess of $100,000, except for the renewal of
Contracts that would, but for such renewal, terminate in accordance
with their terms prior to Closing;
(xi) except pursuant to or required by plans,
agreements or arrangements already in effect on the date hereof or as
set forth in Section 5.12, make any material increase in compensation
or benefits payable or to become payable to employees or make any
material change in personnel policies, or modify, terminate, renew,
renegotiate, suspend or abrogate any insurance or annuity policy or
contract used to provide benefits under any Partnership Plan;
(xii) except as disclosed on Schedule 3.12, take any
action with respect to the grant or increase of severance or
termination pay in excess of $400,000 in the aggregate, payable by the
Partnership or any Subsidiary after the Closing Date;
(xiii) engage in any material transaction with
respect to the Partnership's Business or the Partnership Systems not
otherwise contemplated by the Partnership's Budget, except for the
renewal of Contracts that would, but for such renewal, terminate in
accordance with their terms prior to Closing and the Acquisition
Agreements listed on Schedule 3.17 (including definitive agreements
relating thereto);
(xiv) enter into, modify, terminate, renew, suspend
or abrogate any System Contract relating to programming or to the
provision of telephony or related services;
(xv) offer services under the ICTV, TCI@Home,
Bresnan@Home, World Gate or OSS agreements to any Subscribers other
than in the Partnership Systems set forth on Schedule 5.2(g);
(xvi) modify or extend the ICTV, TCI@Home,
Bresnan@Home or OSS agreements;
(xvii) enter into, modify or amend any Contract for
any fiber or fiber capacity lease or use arrangements or for any
internet access or on-line services arrangements (other than Systems
Contracts for the provision of internet access to business premises
and leases for point to point business data exchange); or (xviii)
agree to do any of the foregoing;
<PAGE> 45
provided, with respect to (i), (iii), (iv), (vii), (viii), (x), (xi) and (xii),
the Partnership and its Subsidiaries may take such actions to the extent
consistent with the ordinary course of business, past practice or the
Partnership's Budget;
provided, further, that notwithstanding the preamble to Section 5.2, any
consent of the Buyer relating to an action which is prohibited by clauses (ii),
(vi), (vii), (ix), (x), (xiii), (xiv), (xv), (xvi), (xvii) and (xviii) (but
only to the extent that clause (xviii) relates to the foregoing clauses) of
this Section 5.2(g) may be withheld by Buyer in its sole and absolute
discretion.
0.39.7. use its commercially reasonable efforts to
challenge and contest any Litigation brought against or otherwise involving the
Partnership, any Subsidiary or the Partnership Systems that could result in the
imposition of Legal Requirements that could cause the conditions to the Closing
not to be satisfied.
<PAGE> 46
0.40. Required Consents, Franchise Renewal .
0.40.1. Prior to the Closing, the Sellers will cause
the Partnership to use commercially reasonable efforts to obtain in writing as
promptly as possible all of the Required Consents in form and substance
reasonably satisfactory to Buyer, and will deliver to Buyer copies of such
Required Consents promptly after they are obtained. Buyer will cooperate with
the Sellers and the Partnership in their efforts to obtain the Required
Consents; provided that Buyer will not be required to accept or agree or accede
to any modifications or amendments to, or the imposition of any condition to
the transfer of control of, any of the material System Franchises, System
Licenses, System Contracts, or leases or documents evidencing Leased Real
Property or Other Real Property Interests, that in either case, would make, or
are reasonably likely to make, the underlying instrument materially more
onerous or that would materially reduce in any respect, or are reasonably
likely to materially reduce in any respect, the benefits available under the
instrument in respect of which the consent relates. Within 45 days after the
date of this Agreement, the General Partner, in its capacity as the
representative of the Sellers, and Buyer will cooperate with each other to
complete, execute and deliver, or cause to be completed, executed and delivered
to the appropriate Governmental Authority or other Person, an application on
FCC Form 394 (or other appropriate form) and appropriate letters of transmittal
requesting such Governmental Authority's or other Person's consent to transfer
of control of each System Franchise, System License, System Contract, or lease
or document evidencing Leased Real Property or Other Real Property Interest as
to which such consent is required. The parties agree that without the Sellers'
and Buyer's prior consent, no notice or application or similar document filed
with a Governmental Authority or other Person for the purpose of requesting a
Required Consent (including any FCC Form 394 filed hereunder with respect to a
System Franchise) or notifying such party of the transactions contemplated by
this Agreement will state that the purchase and sale of the Purchased
Interests, contribution of the Contributed Interests and the Closing hereunder
are conditioned on or will necessarily result in consummation of any
transaction other than the transactions contemplated by this Agreement or will
request that any such Required Consent be conditioned on consummation of any
transaction other than the occurrence of the Closing hereunder, and Sellers and
Buyer will not be required to accept a Required Consent that is so conditioned
without the Sellers' or Buyer's consent, respectively.
0.40.2. Prior to the Closing, each Seller will use
commercially reasonable efforts to obtain in writing as promptly as possible
all of the Required Consents required to be obtained by such Seller, in form
and substance reasonably satisfactory to Buyer, and will deliver to Buyer
copies of such Required Consents promptly after they are obtained. No Seller
will take any action that would result in the condition set forth in Section
6.1(a) not being satisfied with respect to such Seller at the Closing. All
documents delivered or filed with any Governmental Authority or any Person by
or on behalf of the Partnership, any Subsidiary or the Partnership Systems
pursuant to this Section, when so delivered or filed, will be correct, current
and complete in all material respects. Sellers will cause the Partnership, any
Subsidiary and the Partnership Systems to cooperate with Buyer to obtain all
Required Consents and no Party shall intentionally take any action or steps
that would prejudice or jeopardize the obtaining of any
<PAGE> 47
Required Consent. The Partnership, any Subsidiary and the Partnership Systems
will not accept or agree or accede to any modifications or amendments to, or
the imposition of any condition to the transfer of, any of the System
Franchises, System Licenses or System Contracts that are not reasonably
acceptable to the other Party. No Seller will sell, assign, transfer or
otherwise dispose of all or any portion of the Purchased Interests and the
Contributed Interests held or represented to be held by it on the date of this
Agreement.
0.40.3. Notwithstanding the provisions of subsections
(a) and (b) above, no Person will have any further obligation to obtain
Required Consents: (i) with respect to license agreements relating to pole
attachments where the licensing authority will not consent to an assignment of
such license agreement but requires that Buyer enter into a new agreement with
such licensing authority, in which case Buyer shall use its commercially
reasonable efforts to enter into such agreement prior to Closing or as soon as
practicable thereafter and the General Partner, in its capacity as the
representative of the Sellers, will cooperate with and assist Buyer in
obtaining such agreements; (ii) for any business radio license or any private
operational fixed service (POFS) microwave license which the General Partner,
in its capacity as the representative of the Sellers, reasonably expects can be
obtained within 120 days after the Closing and so long as a conditional
temporary authorization (for a business radio license) or a special temporary
authorization (for a POFS license) is obtained by Buyer under FCC rules with
respect thereto; (iii) with respect to Contracts evidencing Leased Real
Property, if, with the consent of Buyer, the Sellers cause the Partnership to
obtain and make operational prior to Closing substitute Leased Real Property
that is reasonably satisfactory to Buyer; (iv) with respect to Contracts
evidencing leased Tangible Personal Property that is material to the
Partnership's Business, if, with the consent of Buyer, the Sellers cause the
Partnership to obtain and make operational prior to Closing substitute Tangible
Personal Property that is reasonably satisfactory to Buyer; and (v) with
respect to Contracts which are not identified with an asterisk (*) on Schedule
3.2, if the Sellers use commercially reasonable efforts to obtain the Required
Consent of the other party to such Contract but fails to obtain such consent on
or prior to Closing.
0.40.4. Prior to the Closing, the Sellers will cause
the Partnership to use commercially reasonable efforts to obtain a renewal or
extension of any System Franchise (for a period expiring no earlier than three
years after the Closing Date) for which a valid notice of renewal pursuant to
the formal renewal procedures established by Section 626 of the Cable Act has
not been timely delivered to the appropriate Governmental Authority and no
written confirmation has been received from such Governmental Authority that
the procedures established by Section 626 of the Cable Act nonetheless will be
applicable with respect to the renewal or extension of such System Franchise.
<PAGE> 48
0.41. Confidentiality; Press Release .
0.41.1. Sellers may from time to time in the course
of this transaction disclose to Buyer information and material concerning the
Sellers, the Partnership and the Subsidiaries, the Partnership Assets and the
Partnership Systems, including proprietary information, contracts, marketing
information, technical information, product or service concepts, subscriber
information, rates, financial information, ideas, concepts and research and
development (any of the foregoing and any analysis, compilations, studies or
other documents prepared by or on behalf of Buyer in respect thereof are
hereafter collectively referred to as "Confidential Information"). The term
"Confidential Information" does not include any item of information that (1) is
publicly known at the time of its disclosure or (2) is lawfully received from a
third party not bound to keep such information confidential. Prior to the
Closing, Buyer may disclose Confidential Information if disclosure is required,
in the reasonable opinion of counsel, by applicable Legal Requirements and if
Buyer has used all reasonable efforts, and has afforded the other parties
hereto the opportunity, to obtain an appropriate protective order, or other
satisfactory assurance of confidential treatment, for the information compelled
to be disclosed. Buyer agrees that Confidential Information received from the
Sellers or, prior to the Closing, from the Partnership shall be used solely in
connection with the transaction contemplated by this Agreement. Buyer agrees
that it shall treat confidentially and not directly or indirectly, divulge,
reveal, report, publish, transfer or disclose, for any purpose whatsoever
(other than to its investors, financing sources and agents for the purpose of
consummating the transactions contemplated by this Agreement, each of whom
Buyer shall cause to maintain the confidentiality of such Confidential
Information), all or any portion of the Confidential Information disclosed to
it by the Sellers or by the Partnership or the Subsidiaries. In the event of a
breach of the covenants contained in this Section 5.4(a), the Sellers shall be
entitled to seek injunctive relief as well as any and all other remedies at law
or equity. If the Closing does not occur, the Confidential Information, except
for that portion which consists of analysis, compilations, studies or other
documents prepared by or on behalf of Buyer, will be returned to the Sellers
immediately upon the Sellers' request therefor; and that portion of the
Confidential Information which consists of analysis, compilations, studies or
other documents prepared by or on behalf of Buyer will be held by Buyer and
kept confidential and subject to the terms of this Section 5.4(a), or will be
destroyed.
0.41.2. No party will, and the Sellers will not
permit the Partnership to, issue any press release or make any other public
announcements concerning this Agreement or the transactions contemplated by
this Agreement without the prior written consent and approval of Buyer (in the
case of the Sellers or the Partnership) or the Sellers (in the case of Buyer)
except for disclosures required by applicable Legal Requirements. With respect
to press releases or any other public announcement required by applicable Legal
Requirements, the party intending to make such release or disclosure shall
provide the other parties with an advance copy and a reasonable opportunity to
review.
0.41.3. This Section 5.4 shall be deemed in addition to, and
not in limitation of, those restrictions contained in the Confidentiality and
Nondisclosure Letter Agreement dated
<PAGE> 49
May 27, 1999, between Charter Communications, Inc. and Waller Capital
Corporation on behalf of the Partnership, which agreement is hereby
incorporated herein by this reference.
0.41.4. Notwithstanding the provisions of this Section 5.4,
any party or its Affiliate may file a copy of this Agreement (but not the
Disclosure Letter or Schedules) as an exhibit, if reasonably required, to any
Registration Statement filed with the SEC.
0.41.4.1. Cooperation; Commercially Reasonable Efforts . The
parties shall cooperate, and the Sellers shall cause the Partnership to
cooperate, with each other and their respective counsel and accountants in all
commercially reasonable respects in connection with any actions required to be
taken as part of their respective obligations under this Agreement, and
otherwise use their commercially reasonable efforts, and the parties shall
also, and the Sellers shall cause the Partnership to, use its commercially
reasonable efforts to consummate the transactions contemplated hereby and to
fulfill their obligations hereunder as expeditiously as practicable.
0.42. HSR Act . To the extent required by law, and no later than 30
days after the execution of this Agreement, Buyer and the Sellers will each
complete and file, or cause to be completed and filed at its own cost and
expense, any notification and report required to be filed under the HSR Act
with respect to the transactions contemplated by this Agreement and each such
filing shall request early termination of the waiting period imposed by the HSR
Act. The parties shall use their respective commercially reasonable efforts to
respond as promptly as reasonably practicable to any inquiries received from
the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") for additional information or
documentation and to respond as promptly as reasonably practicable to all
inquiries and requests received from any other Governmental Authority in
connection with antitrust matters. The parties shall use their respective
commercially reasonable efforts to overcome any objections which may be raised
by the FTC, the Antitrust Division or any other Governmental Authority having
jurisdiction over antitrust matters. Each party will cooperate to prevent
inconsistencies between their respective filings and between their respective
responses to all such inquiries and responses, and will furnish to each other
such necessary information and reasonable assistance as the other may
reasonably request in connection with its preparation of necessary filings or
submissions under the HSR Act. Notwithstanding the foregoing, no party shall
be required to make any significant change in the operations or activities of
the business (or any material assets employed therein) of such party or any of
its Affiliates, if a Party determines in good faith that such change would be
materially adverse to the operations or activities of the business (or any
material assets employed therein) of such party or any of its Affiliates having
significant assets, net worth or revenue.
0.43. Tax Matters .
The following provisions shall govern the allocation of responsibility
between Buyer and Sellers for certain tax matters following the Closing Date:
<PAGE> 50
0.43.1. Tax Returns to be Filed After the Closing
Date. The Sellers shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of the Partnership which are required to be filed
after the Closing Date and relate solely to periods, or portions thereof,
ending on or prior to the Closing Date, including the return for the
Partnership's taxable year ending on the Closing Date as a result of the
Partnership's constructive termination. Such Tax Returns shall be prepared in
accordance with the Partnership's past custom and practice (subject to
applicable Legal Requirements and determined on the basis of the appropriate
permanent records of such Partnership), notwithstanding any provision of the
Partnership Agreement to the contrary. The Sellers shall use reasonable
commercial efforts to prepare such Tax Returns in a manner that is consistent
with past practice. The Sellers shall provide Buyer with drafts of such Tax
Returns (together with the relevant back-up information), and Buyer may submit
comments which it deems necessary to the Sellers in connection with the
preparation of such Tax Returns. The Sellers shall in good faith consider the
inclusion of such comments; provided, however, that the Sellers have the final
discretion in determining the final form of such Tax Returns and may file such
Tax Returns with the proper Governmental Authority without Buyer's consent.
0.43.2. Cooperation on Tax Matters.
0.43.2.1. Buyer and the Sellers shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section 5.7 and
any audit, litigation, or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request)
the provision of records and information which are reasonably relevant to any
such audit, Litigation, or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Buyer and the Sellers agree to give the other
party reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests, Buyer or the
Sellers, as the case may be, shall allow the other party to take possession of
such books and records to the extent they would otherwise be destroyed or
discarded, subject to a reasonable confidentiality agreement. After the
Closing the Sellers and Buyer shall promptly notify the others of any audit or
other Tax matter relating to any periods, or portions thereof, prior to the
Closing Date which is brought to its attention by notice from the Internal
Revenue Service or any other state, local or foreign taxing Governmental
Authority and forward to the other copies of any notices, correspondence,
reports or other instruments, communications or documents received in
connection therewith. Buyer will not settle or compromise any such audit or
Tax matter without the consent of the Sellers, which consent shall not be
unreasonably withheld.
0.43.2.2. Buyer and the Sellers further agree,
upon request, to use commercially reasonable efforts to obtain any certificate
or other document from any Governmental Authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including Taxes with respect to the transactions contemplated hereby).
<PAGE> 51
0.43.3. Tax Sharing Agreements. All tax sharing
agreements or similar agreements with respect to or involving the Partnership
or any of the Subsidiaries shall be terminated as of the Closing Date and,
after the Closing Date, neither the Partnership, any of the Subsidiaries nor
Buyer shall be bound thereby or have any liability thereunder.
0.43.4. Certain Taxes. All transfer, documentary,
sales, use, stamp, registration and other such Taxes and fees (including any
penalties and interest) incurred in connection with this Agreement shall be
borne one-half by Buyer and one-half by Sellers. Buyer and the Sellers will
cooperate in all reasonable respects to prepare and file all necessary Tax
Returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees.
0.43.5. Section 754 Elections. To the extent not already in
effect, each of the Partnership and its Subsidiaries that is treated as a
partnership for federal income tax purposes shall timely file an election under
Section 754 of the Code so that such entities shall be able to adjust the tax
basis of their assets (collectively, the "Partnership Assets") under Section
743(b) of the Code as a result of the transactions contemplated herein.
0.43.6. Allocation of Purchase Consideration. The Purchase
Price, as finally determined pursuant to Section 2.5 and the liabilities of the
Partnership and the Subsidiaries attributable to the Purchased Interests
(together, the "Purchase Consideration") shall be allocated among the portions
of the Partnership Assets attributable to the Purchased Interests in an
allocation agreement (the "Allocation Agreement") to be prepared in accordance
with the rules under Sections 743(b), 751, 755 and 1060 of the Code. The
parties agree that the Purchase Consideration shall be allocated among the
Partnership Assets by allocating an amount to the tangible assets of the
Partnership and the Subsidiaries equal to the portion of the book value for
financial statement purposes of such tangible assets attributable to the
Purchased Interests and the remainder to the System Franchises of the
Partnership and the Subsidiaries. Buyer shall deliver a draft of the
Allocation Agreement to the General Partner, in its capacity as the
representative of the Sellers, within thirty (30) days after a final
determination is reached pursuant to Section 2.5 for approval and consent, and
Buyer and the General Partner, in its capacity as the representative of the
Sellers, shall mutually agree upon the Allocation Agreement. Neither Buyer nor
any of the Sellers shall unreasonably withhold its approval and consent with
respect to the Allocation Agreement. Unless otherwise required by applicable
law, Buyer, Sellers, the Partnership and the Subsidiaries agree to act, and
cause their respective affiliates to act, in accordance with the computations
and allocations contained in the Allocation Agreement in any relevant Tax
Returns or similar filings (including any forms or reports required to be filed
pursuant to Section 1060 of the Code ("1060 Forms")), to cooperate in the
preparation of any 1060 Forms, to file such 1060 Forms in the manner required
by applicable law and to not take any position inconsistent with such
Allocation Agreement upon examination of any tax refund or refund claim, in any
litigation or otherwise.
<PAGE> 52
0.44. Certain Financing Matters .
0.44.1. Prior to the Closing (or the date on which the
Closing would occur but for a breach of this Section 5.8(a)), the Sellers will
use commercially reasonable efforts to either (1) procure from the lenders
under the Credit Facility, at Buyer's expense, a written waiver, in form and
substance reasonably satisfactory to Buyer and the Sellers, that (A) will
permit the transactions contemplated by this Agreement to be consummated
without an event of default or acceleration thereunder being caused thereby and
(B) will permit the sale and transfer of the Purchased Interests and the
contribution of the Contributed Interests to Buyer as contemplated by this
Agreement and the receipt by the Sellers of the Purchase Price therefor free
and clear of any Liens or other restrictions; or (2) cooperate with Buyer to
obtain refinancing of all of the Partnership's existing indebtedness for
borrowed money under the Credit Facility to the extent such indebtedness would
otherwise be subject to acceleration upon consummation of the Closing absent
the consent and waiver described in clause (1).
0.44.2. After the Closing (or the date on which the Closing
would occur but for a breach of this Section 5.8(b)), Buyer will use
commercially reasonable efforts to take all actions required or permitted under
the Senior Indenture, in form and substance reasonably satisfactory to the
Sellers, that will permit the transactions contemplated by this Agreement to be
consummated without an event of default or acceleration thereunder being caused
thereby. Without limiting the foregoing, Buyer will make a change of control
repurchase offer and take all other steps as may be required under the Senior
Indenture following the Closing.
0.44.3. Prior to the Closing, the Sellers shall cause the
Partnership to use commercially reasonable efforts to make effective the
registration statement with respect to the 8% Senior Notes due 2009 and the 9
1/4% Senior Discount Notes due 2009 of Bresnan Communications Group LLC.
0.44.4. Buyer understands that consummation of the
transactions contemplated by this Agreement requires the prior consent of the
lenders under the Credit Facility, and in the absence of such consent, Buyer
would have to cause the Partnership and/or the Subsidiaries to refinance such
facility at Closing and, subject to Section 5.8(a), no Seller will be
responsible for the failure to obtain such consent or to effect such
refinancing, which shall be Buyer's responsibility to obtain. Buyer
understands that the consummation of the transactions contemplated by this
Agreement will constitute a "change of control" under the Senior Indenture and
as a result, a repurchase offer must be made following the Closing in
accordance with the requirements of the Senior Indenture.
0.45. Consent and Agreements of Sellers and Buyer .
0.45.1. Each Seller consents to the execution,
delivery, and performance of this Agreement by each Seller and to the taking by
each Seller and the Partnership of all actions contemplated by this Agreement
to be taken by such Person, including the sale of the Purchased Interests and
the contribution of the Contributed Interests by each Seller to Buyer.
<PAGE> 53
0.45.2. At or prior to the Closing, each of the Sellers and
the Partnership will enter into the Fourth Amendment to Contribution Agreement
attached hereto as Exhibit C.
0.45.3. TCID-MI, TCI LLC and their Affiliates may amend the
Keepwell Agreement in their sole discretion at any time at or prior to the
Closing, provided that no such amendment shall give rise to any obligations or
liability of the Partnership or any Subsidiary post-closing.
0.45.4. At or prior to the Closing, the Partnership may sell,
transfer or distribute the Excluded Assets described on Schedule 5.9 for such
consideration or no consideration and on such terms as the Sellers may
determine; provided, however, that the Sellers shall cause the Partnership, its
Subsidiaries and the Partnership Systems to have no obligations or liabilities
after the Closing Date with respect to the Excluded Assets which are Contracts.
0.45.5. For a period of 180 days after the Closing, the
Partnership will be entitled to use the trademarks, trade names, service marks,
service names, logos and similar proprietary rights included in the Excluded
Assets (the "Excluded Rights") to the extent incorporated in or on the
Partnership Assets at the Closing on a royalty-free basis, provided that Buyer
will cause the Partnership to exercise commercially reasonable efforts to
remove all Excluded Rights (except to the extent otherwise permitted by the
Seller to which such Excluded Rights are distributed) from the Partnership
Assets as soon as reasonably practicable, and in any event within 180 days
following the Closing. Notwithstanding the foregoing, nothing in this Section
will require Buyer or the Partnership post-closing to remove or discontinue
using any Excluded Rights embodied in a mark or logo that is affixed to
converters or other items in or to be used in customer homes or properties, or
as are used in a similar fashion making such removal or discontinuation
impracticable.
0.45.6. Buyer covenants that, after the Closing, it shall not
take any action or cause or permit any of its Affiliates to take any action
that would result in a name change of the "Bresnan Arena" located in Mankato,
Minnesota, as provided in that Exclusive Naming Agreement dated January 31,
1999, between Mankato State University and the Partnership.
0.46. WARN Act . Buyer will not, on or within 90 days after the
Closing Date, permit the Partnership to effectuate a "plant closing" or "mass
layoff" resulting in "employment loss" at any of the employment sites of the
Partnership (as those terms are defined in the WARN Act).
0.47. Programming and Other Commitments . The SSI Supply Agreement
shall be terminated concurrently with the Closing without any further action by
the parties. Buyer agrees that the Partnership and the Subsidiaries will be
bound by the programming and other commitments described on Exhibit B from and
after the Closing.
0.48. 401(k) Plans . The Partnership is the sponsor or
participating employer in a retirement plan qualified under Code section 401(a)
that contains a cash or deferred arrangement
<PAGE> 54
under Code section 401(k) (hereinafter referred to as the "Bresnan Plan") and
Bresnan Communications, Inc. ("BCI") is a participating employer in such plan.
If, as of the Closing Date, BCI is still a participating employer in the
Bresnan Plan, then, effective as of the Closing, BCI shall cease participation
in the Bresnan Plan and no contributions shall be made to the Bresnan Plan with
respect any of BCI's employees for compensation earned after the Closing. If,
as of the Closing Date, any active employee or employees of BCI shall have
account balances in the Bresnan Plan, then, as soon as practicable following
the Closing Date, Buyer shall cause the trustee of the Bresnan Plan to transfer
to the trustee of a successor plan established by BCI (the "Successor Plan")
cash and/or assets, including plan loan obligations, equal to the value of the
account balances of each of such BCI's employees under the Bresnan Plan as of
the last valuation date immediately preceding the transfer date, which amount
shall be credited to the respective account or accounts under the Successor
Plan. Notwithstanding the foregoing, the amount so transferred with respect to
any employee of BCI shall be reduced by any withdrawals and other distributions
made from the Bresnan Plan to such employee between such valuation date and
such transfer date.
0.49. Notification of Certain Matters . Buyer will promptly notify
the Sellers in writing of any fact, event, circumstance, action or omission of
which Buyer obtains knowledge the existence or occurrence of (i) which if known
at the date of this Agreement would have been required to be disclosed by
Seller in or pursuant to this Agreement and (ii) the existence, occurrence or
taking of which would result in the condition set forth in Section 6.1(a) not
being satisfied at Closing.
0.50. Offers . No Seller (and, where applicable, such Seller's
directors, officers, employees, representatives and agents) shall directly or
indirectly, (i) offer its Partnership Interest, the Partnership Assets or the
Partnership's Business for sale, (ii) solicit, encourage or entertain offers
for such Partnership Interest, Partnership Assets or the Partnership's
Business, (iii) initiate negotiations or discussions for the sale of such
Partnership Interest, Partnership Assets or the Partnership's Business or (iv)
make information about such Partnership Interest, Partnership Assets or the
Partnership's Business available to any Third Party in connection with the
possible sale of such Partnership Interest, Partnership Assets or the
Partnership's Business prior to the Closing Date or the date this Agreement is
terminated in accordance with its terms.
0.51. Buyer Acquisition Documents . Upon execution of any material
amendments or modifications to the purchase agreement and/or other acquisition
documents in connection with or relating to any of the Pending Buyer
Acquisitions, Buyer shall promptly deliver to Sellers a true and complete copy
of any such amendment or modification. In addition, Buyer shall promptly
deliver to the Sellers any information reasonably requested by the Sellers
regarding the Pending Buyer Acquisitions. Upon execution of any purchase
agreement and/or other acquisition documents to acquire, directly or
indirectly, majority or other equity interests in, or the operating business
of, any Person other than the Pending Buyer Acquisitions (a "Subsequent Buyer
Acquisition"), Buyer shall promptly deliver to the Sellers (i) true and
complete copies of the purchase agreement and/or other acquisition documents in
connection with or relating to such Subsequent Buyer Acquisition, (ii) copies
of the most recent audited (and, if later, or, if audited
<PAGE> 55
statements are not available, unaudited) financial statements of the Person
which is the subject of such Subsequent Buyer Acquisition and (iii) other
information reasonably requested by the Sellers regarding such Subsequent Buyer
Acquisition. In each case, Buyer's obligations under this Section 5.15 shall be
subject to reasonable confidentiality restrictions; provided that Buyer uses
commercially reasonable efforts to secure a waiver of such restrictions.
0.52. Other Agreements.
0.52.1. Buyer and Sellers shall negotiate in good faith (i)
within 90 days after the date hereof, the definitive Operating Agreement to be
effective upon the Closing in accordance with the terms set forth on Exhibit E
and such additional terms as Buyer and the Sellers may mutually agree and (ii)
within 30 days after the date hereof, the definitive Exchange Agreement in
accordance with the terms set forth on Exhibit F and such additional terms as
Buyer and Sellers may mutually agree. If Buyer and the Sellers do not agree on
a definitive Operating Agreement and/or a definitive Exchange Agreement prior
to the Closing, the terms set forth in Exhibits E and F, respectively, shall be
binding on each of Buyer and the Sellers.
0.52.2. Prior to the Closing and issuance of the Equity
Consideration to the Sellers, Buyer shall not dispose of its assets other than
in the ordinary course of its business or other than for fair market value.
0.52.3. If the entity defined as "Charter" in the
Registration Rights Agreement ("PublicCo") is formed prior to the Closing,
Buyer shall cause PublicCo to execute and deliver the Registration Rights
Agreement and the Exchange Agreement at the Closing. If PublicCo is formed
after the Closing, Buyer will cause PublicCo to execute and deliver the
Registration Rights Agreement and the Exchange Agreement at the time of the
formation of PublicCo.
0.52.4. Concurrently with the delivery of this Agreement,
Vulcan Ventures, Inc., an Affiliate of Buyer controlled by Paul G. Allen, has
delivered into escrow a Put Agreement with respect to each Seller, in the form
attached as Exhibit H (the "Vulcan Puts"). Buyer shall cause Paul G. Allen to
deliver to an escrow agent reasonably acceptable to the Sellers no later than
two weeks after the date of this Agreement pursuant to escrow instructions
mutually acceptable to the parties, a Put Agreement with respect to each
Seller, in the form attached as Exhibit H, duly executed by Paul G. Allen or
his attorney-in-fact (conformed copies of which will be delivered to the
Sellers). Upon such delivery, the Vulcan Puts shall be terminated and of no
further force or effect. In the event any Put Agreement is executed by an
attorney-in-fact of Paul G. Allen, Buyer shall deliver to the Sellers,
concurrently with the delivery of such Put Agreement and again at Closing, a
legal opinion of legal counsel reasonably acceptable to the Sellers, in form
and substance satisfactory to the Sellers, confirming that such
attorney-in-fact is duly empowered under a power of attorney that is in full
force and effect to bind Paul G. Allen under the terms of the Put Agreements
executed by such attorney-in-fact.
(e) Buyer shall deliver to each of TCID-MI and TCI LLC on
the Closing Date, a TCI Put Agreement in the form attached as Exhibit J, duly
executed by Buyer.
<PAGE> 56
0.53. Restructuring of the Partnership . At the election of Buyer,
the Sellers will, and will cause the Partnership to, cooperate in good faith
with Buyer in effecting a restructuring of the Partnership prior to Closing, as
a result of which the Partnership will be merged into or succeeded by a limited
liability company. Such restructuring will be at the direction of, and at the
sole expense of, Buyer; provided that none of the Sellers will be required to
undertake any actions that would, or could reasonably be expected to (as
determined by the affected Seller): (i) have an adverse economic effect or any
other material adverse effect on such Seller or any of its Affiliates, unless
Buyer makes such Seller or its Affiliates whole, or (ii) delay the Closing. If
Buyer does not elect to so restructure the Partnership, it will acquire the
Purchased Interests and the Contributed Interests in such a manner so as not to
cause a dissolution of the Partnership under state law.
0.53.1. CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS
0.54. Conditions to Buyer's Obligations . The obligations of Buyer
to consummate the transactions contemplated by this Agreement are subject to
the satisfaction at or before the Closing of the following conditions, any of
which may be waived by Buyer.
0.54.1. Accuracy of Representations and Warranties.
The representations and warranties of each Seller in this Agreement and in any
Transaction Document, without giving effect to any references to or
qualifications based on Material Adverse Effect or materiality contained
therein, shall be true, complete and correct in all respects, at and as of the
Closing with the same effect as if made at and as of the Closing, except for
any representation or warranty which is made as of a specified date, which
representation or warranty shall be so true and correct as of such specified
date; provided, this condition will be deemed satisfied if all such untrue or
incorrect representations and warranties in the aggregate, do not have a
Material Adverse Effect.
0.54.2. Performance of Agreements. Each Seller shall
have performed in all material respects all obligations and agreements and
complied in all material respects with all covenants in this Agreement and in
any Transaction Document to be performed and complied with by it at or before
the Closing.
0.54.3. Deliveries. Each Seller shall have delivered
the items and documents required to be delivered by it pursuant to this
Agreement, including those required under Section 7.2.
0.54.4. Legal Proceedings. No Judgment shall have
been entered and not vacated by any Governmental Authority or arbitration
tribunal and no Legal Requirement shall have been enacted, promulgated or
issued or become or deemed applicable to any of the transactions contemplated
by this Agreement by any Governmental Authority or arbitration tribunal, which
would prevent or make illegal the purchase and sale of the Purchased Interests
or the contribution of the Contributed Interests as contemplated by this
Agreement.
<PAGE> 57
0.54.5. Franchise Required Consents. The aggregate
number of Scheduled Subscribers in the Service Areas and the Acquisition
Agreement Services Areas set forth on Schedule 6.1 that are, as of the
Adjustment Time, Transferable Service Areas shall be at least 90% of the total
Scheduled Subscribers; provided that Schedule 6.1 shall be amended from time to
time as necessary to reflect all Acquisition Agreement Service Areas that are
the subject of any pending Acquisition Agreements which have not been
terminated.
0.54.6. Other Required Consents. Seller shall have
received evidence, in form and substance reasonably satisfactory to it, that
the Required Consents marked with an asterisk on Schedule 3.2 have been
obtained in accordance with this Agreement.
0.54.7. No Material Adverse Change. Since December
31, 1998, no event has occurred which has had a Material Adverse Effect or has
occurred which is reasonably likely to result in a Material Adverse Effect (for
purposes of this paragraph a reduction in Equivalent Basic Subscribers shall
not constitute by itself a Material Adverse Effect).
0.54.8. Subscriber Adjustment. The Subscriber
Adjustment (as reasonably estimated by the Sellers in the Preliminary Closing
Statement) shall not be greater than $310,000,000.
0.54.9. HSR Act Waiting Period. All necessary pre-merger
notification filings required under the HSR Act will have been made with the
FTC and the Antitrust Division and the prescribed waiting periods (and any
extensions thereof) will have expired or been terminated.
0.55. Conditions to Sellers' Obligations . The obligations of the
Sellers to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or before the Closing of the following
conditions, any of which may be waived if all Sellers so agree.
0.55.1. Accuracy of Representations and Warranties.
The representations and warranties of Buyer in this Agreement and in any
Transaction Document, without giving effect to any references to or
qualifications based on Material Adverse Effect or materiality contained
therein, shall be true, complete and correct in all respects, at and as of the
Closing with the same effect as if made at and as of the Closing, except for
any representation or warranty which is made as of a specified date, which
representation or warranty shall be so true and correct as of such specified
date; provided, this condition will be deemed satisfied if all such untrue or
incorrect representations and warranties in the aggregate, do not have a
material adverse effect on the ability of Buyer to perform its obligations
under this Agreement.
0.55.2. Performance of Agreements. Buyer shall have
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants in this Agreement and in any
Transaction Document to be performed and complied with by it at or before the
Closing.
<PAGE> 58
0.55.3. Deliveries. Buyer shall have delivered the
items and documents required to be delivered by it pursuant to this Agreement,
including those required under Section 7.3.
0.55.4. Legal Proceedings. No Judgment shall have
been entered and not vacated by any Governmental Authority or arbitration
tribunal and no Legal Requirement shall have been enacted, promulgated or
issued or become or deemed applicable to any of the transactions contemplated
by this Agreement by any Governmental Authority or arbitration tribunal, which
would prevent or make illegal the purchase and sale of the Purchased Interests
or the contribution of the Contributed Interests contemplated by this
Agreement.
0.55.5. Subscriber Adjustment. Either (1) the
Subscriber Adjustment (as reasonably estimated by the Sellers in the
Preliminary Closing Statement) shall not be greater than $310,000,000, or (2)
Buyer shall have waived its right to the Subscriber Adjustment in excess of
$310,000,000.
0.55.6. Debt. The consummation of the Closing will not
constitute (or would not, with notice or passage of time or both, constitute) a
default under the Credit Facility, Senior Indenture or any related instruments,
agreements or documents, unless such default shall have been waived or the debt
under which such default would occur has been refinanced.
0.55.7. HSR Act Waiting Period. All necessary pre-merger
notification filings required under the HSR Act will have been made with the
FTC and the Antitrust Division and the prescribed waiting periods (and any
extensions thereof) will have expired or been terminated.
0.55.7.1. CLOSING AND CLOSING DELIVERIES
0.56. The Closing; Time and Place . Subject to the terms and
conditions of this Agreement, the Closing shall be held at the offices of Irell
& Manella LLP, in Los Angeles, California, at 10:00 a.m., local time, on the
Business Day 10 days after the conditions set forth in Sections 6.1(e) and
6.1(f) shall have been satisfied or waived (provided that each Party shall have
at least five days' prior notice of the scheduled Closing Date in order to
prepare for the Closing), but in no event prior to February 3, 2000, or if the
other conditions set forth in Article 6 (other than Sections 6.1(c) and 6.2(c))
are not then satisfied, on the earliest date thereafter when such conditions
are satisfied, or at such other place, date and time as may be mutually agreed
upon by the Parties. The transactions to be consummated at Closing shall be
deemed to have been consummated as of 11:59 p.m., Eastern Time, on the Closing
Date. The "Closing Date" is the date on which the Closing occurs.
0.57. Deliveries by Sellers . Prior to or at the Closing, Sellers
shall deliver or cause to be delivered to Buyer the following:
0.57.1. Purchased Interests and Contributed
Interests. Assignment agreements providing for the assignment of the Purchased
Interests and the Contributed Interests to Buyer, in a form reasonably
satisfactory to Buyer.
<PAGE> 59
0.57.2. Seller's Certificate. A certificate executed
by each Seller, dated as of the Closing Date, certifying that the closing
conditions specified in Sections 6.1(a) and (b) have been satisfied as to such
Seller, except as disclosed in such certificate. Such certificate will merge
into the Closing and will not give rise to any claim against any Seller.
0.57.3. Consents. Copies of all Required Consents
which have been obtained by the Sellers or the Partnership prior to the
Closing.
0.57.4. Lien Releases. The Sellers shall have
delivered to Buyer at or prior to the Closing evidence reasonably satisfactory
to Buyer that all Liens, if any, affecting or encumbering the Purchased
Interests and the Contributed Interests have been terminated, released or
waived, as appropriate, or original executed instruments in form reasonably
satisfactory to Buyer effecting such terminations, releases or waivers.
0.57.4.1. Deliveries by Buyer . Prior to or at the Closing,
Buyer shall deliver to Sellers the following:
0.57.5. Estimated Purchase Price. The Estimated
Purchase Price for the Purchased Interests will be paid to the Sellers by wire
or accounts transfer of immediately available funds to accounts designated by
the Sellers by written notice to Buyer not less than two Business Days prior to
the Closing.
0.57.6. Equity Consideration. Assignment agreements
providing for the assignment of the Equity Consideration to the Sellers, in a
form reasonably satisfactory to the Sellers.
0.57.7. Buyer's Certificate. A certificate executed
by Buyer, dated as of the Closing Date, certifying that the closing conditions
specified in Sections 6.2(a) and (b) have been satisfied as to Buyer, except as
disclosed in such certificate. Such certificate will merge into the Closing
and will not give rise to any claim against Buyer.
0.57.8. Exchange Agreement. Subject to Section 5.16, the
Exchange Agreement, in the form attached as Exhibit F, duly executed by Buyer
and PublicCo.
0.57.9. Registration Rights Agreement. The Registration
Rights Agreement, in the form attached as Exhibit G, duly executed by PublicCo.
0.57.10. Legal Opinion. The legal opinion (if any)
required to be delivered under Section 5.16(d).
0.57.11. Release of Escrow. Such notice or agreement
as may be required to cause the escrow agent described in Section 5.16(d) to
release the Put Agreements held by such escrow agent and deliver such Put
Agreements to the Sellers, and such Put Agreements
<PAGE> 60
shall be in full force and effect without any default thereunder and in the
form delivered to the Sellers as conformed copies under Section 5.16(d).
(h) TCI Put Agreements. The TCI Put Agreements, duly
executed by Buyer.
0.57.11.1. TERMINATION.
0.58. Termination by Agreement . This Agreement may be terminated
at any time prior to the Closing by mutual agreement among the Sellers and
Buyer.
0.59. Termination by the Sellers . This Agreement may be terminated
at any time prior to the Closing by the Sellers and the purchase and sale of
the Purchased Interests and contribution of the Contributed Interests
abandoned, upon written notice to Buyer, upon the occurrence of any of the
following:
0.59.1. Uncured Breach. Prior to the Closing (if the
Seller exercising such termination right is not then in material breach of any
of its obligations contained in this Agreement), if Buyer is in material breach
or default of any of its obligations in this Agreement, or if any of its
representations in this Agreement is not true and correct, in either case in
such a manner that would cause the conditions contained in Sections 6.2(a) or
6.2(b) not to be met if such breach, default, or other condition were not cured
prior to Closing, if Sellers provide Buyer with prompt written notice that
provides a reasonably detailed explanation of the facts and circumstances
surrounding such breach or default; provided that Sellers shall have no right
to terminate if (i) Buyer cures such breach or default within 30 days after its
receipt of such written notice, unless such breach or default cannot be cured
within such 30-day period; or (ii) the breach or default is capable of being
cured prior to the Closing Date and Buyer commences to cure such breach or
default within such 30-day period and diligently continues to take all action
reasonably necessary to cure such breach or default prior to the Closing Date
and such breach or default is cured prior to the Closing Date; provided,
however, that if such breach is not cured prior to the Upset Date, the Sellers
will have the right to terminate this Agreement under Section 8.2(c).
0.59.1. Failure to Deliver Letter Regarding Delivery
of the Put Agreements. If, within two weeks after the date of this Agreement,
Buyer has not satisfied the delivery requirements contained in Section 5.16(d).
0.59.2. Conditions. If the Closing shall not have
occurred on any date designated therefor pursuant to Section 7.1 solely because
Buyer has refused to consummate the Closing and all of the conditions set forth
in Section 6.1 had been satisfied as of such date (or would have been satisfied
by actions to be taken at the Closing).
0.59.3. Upset Date. If the Closing shall not have
occurred on or prior to the Upset Date, unless the failure of the Closing to
occur was principally caused by any Seller's failure to act in good faith or a
breach of its obligations in accordance with the terms of this
<PAGE> 61
Agreement.
0.60. Termination by Buyer . This Agreement may be terminated at
any time prior to the Closing by Buyer and the purchase and sale of the
Purchased Interests and contribution of the Contributed Interests abandoned,
upon written notice to the Sellers, upon the occurrence of any of the
following:
0.60.1. Uncured Breach. Prior to the Closing (if
Buyer itself is not then in material breach of any of its obligations contained
in this Agreement), if any Seller is in material breach or default of any of
its obligations in this Agreement, or if any of its representations in this
Agreement is not true and correct, in either case in such a manner that would
cause the conditions contained in Sections 6.1(a) or 6.1(b) not to be met if
such breach, default or other condition were not cured prior to Closing, if
Buyer provides the breaching Seller with prompt written notice that provides a
reasonably detailed explanation of the facts and circumstances surrounding such
breach or default; provided that Buyer shall have no right to terminate if (i)
the breaching Seller cures such breach or default within 30 days after its
receipt of such written notice, unless such breach or default cannot be cured
within such 30-day period; or (ii) the breach or default is capable of being
cured prior to the Closing Date and the breaching Seller commences to cure such
breach or default within such 30-day period and diligently continues to take
all action reasonably necessary to cure such breach or default prior to the
Closing Date and such breach or default is cured prior to the Closing Date;
provided, however, that if such breach is not cured prior to the Upset Date,
Buyer will have the right to terminate this Agreement under Section 8.3(c).
0.60.2. Conditions. If the Closing shall not have
occurred on any date designated therefor pursuant to Section 7.1 solely because
any Seller has refused to consummate the Closing and all of the conditions set
forth in Section 6.2 had been satisfied as of such date (or would have been
satisfied by actions to be taken at the Closing).
0.60.3. Upset Date. If the Closing shall not have
occurred on or prior to the Upset Date, unless the failure of the Closing to
occur was principally caused by Buyer's failure to act in good faith or a
breach of its obligations in accordance with the terms of this Agreement.
0.61. Effect of Termination . If this Agreement is terminated as
provided in this Article 8, then this Agreement will forthwith become null and
void and there will be no liability on the part of any party hereto to any
other party hereto or any other Person in respect thereof, provided that:
0.61.1. Surviving Obligations. The obligations of
the parties described in Sections 5.4, 8.4 and 9.1 (and all other provisions of
this Agreement relating to expenses) will survive any such termination.
0.61.2. Withdrawal of Applications. All filings,
applications and other
<PAGE> 62
submissions relating to the transfer of the Purchased Interests and the
Contributed Interests shall, to the extent practicable, be withdrawn from the
Governmental Authority or other Person to whom made.
0.61.3. Breach by Buyer. No such termination will
relieve Buyer from liability for breach of its obligations under this
Agreement, and in such event the Sellers shall have all rights and remedies
available at law or equity, including the right of specific performance against
Buyer.
0.61.4. Breach by the Sellers. No such termination
will relieve any Seller from liability for breach of its obligations under this
Agreement, and in such event Buyer shall have all rights and remedies available
at law or equity, including the remedy of specific performance against such
breaching Seller.
0.62. Attorneys' Fees . Notwithstanding any provision in this
Agreement that may limit or qualify a party's remedies, in the event of a
default by any party that results in a lawsuit or other proceeding for any
remedy available under this Agreement, the prevailing party shall be entitled
to reimbursement from the defaulting party of its reasonable legal fees and
expenses (whether incurred in arbitration, at trial, or on appeal).
0.62.1. MISCELLANEOUS
0.63. Fees and Expenses . Except as otherwise provided in this
Agreement, each party shall pay its own expenses incurred in connection with
the authorization, preparation, execution, and performance of this Agreement,
including all fees and expenses of counsel, accountants, agents, and
representatives.
0.64. Notices . All notices, demands, and requests required or
permitted to be given under the provisions of this Agreement shall be in
writing, may be sent by telecopy (with automatic machine confirmation),
delivered by personal delivery, or sent by commercial delivery service or
certified mail, return receipt requested, shall be deemed to have been given on
the date of actual receipt, which may be conclusively evidenced by the date set
forth in the records of any commercial delivery service or on the return
receipt, and shall be addressed to the recipient at the address specified
below, or with respect to any party, to any other address that such party may
from time to time designate in a writing delivered in accordance with this
Section 9.2:
<TABLE>
<S> <C>
If to Buyer: c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 400
St. Louis, Missouri 63131
Attention: Curtis S. Shaw, Esq.
Telecopier: (314) 965-8793
</TABLE>
<PAGE> 63
<TABLE>
<S> <C>
with a copy (which shall not Irell & Manella LLP
constitute notice) to: 1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attention: Alvin G. Segel, Esq.
Telecopier: (310) 203-7199
If to the General Partners
or WBresnan: c/o Bresnan Communications, Inc.
709 Westchester Avenue
White Plains, New York 10604
Attention: Jeffrey S. DeMond and
Robert V. Bresnan, Esq.
Telecopier: (914) 993-6601
With a copy (which shall Paul, Hastings, Janofsky & Walker LLP
not constitute notice) to: 399 Park Avenue
New York, New York 10022
Attention: Marie Censoplano, Esq.
Telecopier: (212) 319-4090
If to BBC, BBCO or BFI: c/o The Blackstone Group
345 Park Avenue
New York, New York 10154
Attention: Simon Lonergan
Telecopy: (212) 583-5710
with a copy (which shall not Simpson Thacher & Bartlett
constitute notice) to: 425 Lexington Avenue
New York, New York 10017-3954
Attention: Wilson Neely, Esq.
Telecopier: (212) 455-2502
If to TCID-MI or TCI LLC: c/o AT&T Broadband & Internet Services
9197 South Peoria Street
Englewood, Colorado 80112
Attention: Derek Chang
Telecopier: (720) 875-5396
</TABLE>
<PAGE> 64
<TABLE>
<S> <C>
with a copy (which shall not Sherman & Howard, L.L.C.
constitute notice) to: 633 Seventeenth Street
Suite 3000
Denver, Colorado 80202
Attention: Arlene S. Bobrow, Esq.
Telecopier: (303) 299-8140
</TABLE>
0.65. Benefit and Binding Effect . Neither this Agreement nor any
of the rights or obligations hereunder may be assigned by any Party hereto
without the prior written consent of each other Party, except that Buyer may
assign its rights and obligations under this Agreement to an Affiliate of Buyer
or an entity in which Paul G. Allen has a direct or indirect equity interest of
at least $100,000,000; provided, however, that no such assignment shall be
permitted if it could reasonably be expected to delay the Closing. Subject to
the foregoing, this Agreement shall be binding upon and inure to the benefit of
the Parties hereto and their respective heirs, legal representatives,
successors and permitted assigns. This Agreement shall be for the sole benefit
of the Parties hereto and their respective heirs, successors, permitted assigns
and legal representatives and is not intended, nor shall be construed, to give
any Person, other than the Parties hereto and their respective heirs,
successors, assigns and legal representatives, any legal or equitable right,
remedy or claim hereunder.
0.66. Further Assurances . After the Closing the parties shall take
any actions and execute any other documents that may be necessary or desirable
to the implementation and consummation of this Agreement upon the reasonable
request of the other party, at the expense of the requesting party. TCI shall
further use commercially reasonable efforts to cooperate with the Partnership
to obtain any material consents that were required to be obtained by TCI prior
to the closing under the Contribution Agreement that have not yet been obtained
and to execute any documents that may be necessary or desirable to evidence the
transfer of assets to the Partnership pursuant to the Contribution Agreement.
0.67. GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED,
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF).
0.68. Entire Agreement . This Agreement and the Exhibits hereto,
the Disclosure Letter and the other Transaction Documents to be delivered by
the parties pursuant to this Agreement, collectively represent the entire
understanding and agreement between Buyer and Sellers with respect to the
subject matter of this Agreement and supersedes all prior agreements,
understandings and negotiations between the parties.
0.69. Amendments; Waiver of Compliance . This Agreement may be
amended and any provision of this Agreement may be waived; provided that any
such amendment or waiver (a) will be binding upon a Seller only if such
amendment or waiver is set forth in a writing executed by such Seller, and (b)
will be binding upon Buyer only if such amendment or waiver is set forth in a
writing executed by Buyer. No waiver shall operate as a waiver of, or estoppel
with respect
<PAGE> 65
to, any subsequent or other matter not expressly waived.
0.70. Counterparts . This Agreement may be signed in counterparts
with the same effect as if the signature on each counterpart were upon the same
instrument.
0.71. Rights Cumulative . All rights and remedies of each of the
parties under this Agreement will be cumulative, and the exercise of one or
more rights or remedies will not preclude the exercise of any other right or
remedy available under this Agreement or applicable law.
0.72. Survival .
0.72.1. Covenants and Agreements. Sections 5.16(d),
5.16(e), 7.3(g) and 7.3(h) and all covenants and agreements contained in this
Agreement which by their terms are to be performed after the Closing shall
survive the Closing and shall survive until performed in full, including all
such covenants and agreements contained in Article 2, and Sections 5.7, 5.8(b),
5.9(e), 5.11 and 9.1.
0.72.2. Representations and Warranties of the
Sellers. The representations and warranties of the Sellers contained in
Article 3 of this Agreement (other than the representations and warranties
contained in Sections 3.1(b), 3.1(c), 3.1(d), 3.2(a) and 3.14 which shall
survive the Closing until the expiration of the applicable statute of
limitations) shall expire as of the Closing Date and shall not survive the
Closing.
0.72.3. Representations and Warranties of Buyer. The
representations and warranties of Buyer contained in Article 4 of this
Agreement (other than the representations and warranties contained in Sections
4.4, 4.5 and 4.6, which shall survive the Closing until the expiration of the
applicable statute of limitations) shall expire as of the Closing Date and
shall not survive the Closing.
0.72.4. Acknowledgment by Buyer. Buyer understands
that the representations and warranties of the Sellers contained in this
Agreement will not survive the Closing (except as expressly set forth in
Section 9.10(b)) and constitute the sole and exclusive representations and
warranties of the Sellers to Buyer in connection with the transactions
contemplated hereby. BUYER UNDERSTANDS, ACKNOWLEDGES AND AGREES THAT ALL OTHER
REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE EXPRESSED OR IMPLIED
(INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR PURPOSE AND ANY
WARRANTIES RELATING TO THE FUTURE OR HISTORICAL FINANCIAL CONDITION, RESULTS OF
OPERATIONS, ASSETS OR LIABILITIES OF THE PARTNERSHIP) ARE SPECIFICALLY
DISCLAIMED BY THE SELLERS. Buyer has conducted its own inspection of the
Partnership's Business and the Partnership Systems to its own satisfaction and
has independently investigated, analyzed and appraised the condition, value,
prospects, and profitability thereof and the risks associated therewith.
<PAGE> 66
0.72.5. Acknowledgment by the Sellers. Each Seller
understands that the representations and warranties of Buyer contained in this
Agreement will not survive the Closing (except as expressly set forth in this
Section 9.10) and constitute the sole and exclusive representations and
warranties of Buyer to the Sellers in connection with the transactions
contemplated hereby, and each Seller understands, acknowledges and agrees that
all other representations and warranties of any kind or nature expressed or
implied are specifically disclaimed by Buyer.
0.73. Limitation of Recourse against Sellers .
0.73.1. Following the Closing, in the absence of its own
actual fraud, no Seller shall have any liability or obligation to indemnify or
otherwise hold harmless Buyer or the Partnership (or any of their successors or
permitted assigns) for any claim or any loss or liability arising from or in
any way relating to this Agreement or any of the transactions contemplated
hereby (including any misrepresentation or inaccuracy in, or breach of, any
representations or warranties (other than the representations or warranties
contained in Sections 3.1(b), 3.1(c), 3.1(d), 3.2(a) and 3.14 ) or any breach
or failure in performance prior to the Closing of any covenants or agreements
made by the Sellers, or any of them, in this Agreement or in any exhibit or the
Schedules hereto or any certificate or instrument delivered hereunder), and
neither Buyer nor the Partnership (or any of their successors or permitted
assigns) shall be entitled to bring any claim based on, relating to or arising
out of any of the foregoing against any Seller (or any of their respective
employees, directors, officers, attorneys, agents or representatives). Without
limiting the generality of the foregoing, in the absence of actual fraud,
neither Buyer nor its respective successors or permitted assigns shall be
entitled to seek any rescission of the transactions consummated under this
Agreement or other remedy at law or in equity. Notwithstanding the foregoing,
this Section 9.11 shall not preclude Buyer from making any claim in respect of
a breach of any representation, warranty, covenant or agreement which survives
the Closing or any claim under the assignments delivered at the Closing or is
contained in the Equity Agreements, which shall each be governed by its
respective terms. Buyer agrees that, notwithstanding any other provision of
this Agreement or any Transaction Document, and any rule of law or equity to
the contrary, the Sellers' obligations and liabilities under this Agreement and
the other Transaction Documents shall be nonrecourse to all direct and indirect
stockholders, general and limited partners and members of the Sellers and to
their successors and assigns and to all of their respective officers,
directors, shareholders, employees, and agents, and none of the foregoing
(except to the extent (i) it is a Seller (ii) of its interests in the assets of
such Seller and (iii) any distribution which has been received by it and which
is required by applicable law to be returned, directly or indirectly, to such
Seller) shall have any obligation or liability to Buyer arising out of or in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents.
0.73.2. The Sellers shall not be jointly and severally liable
to Buyer under this Agreement. Except as set forth below with respect to
Sections 2.1, 3.1(b), 3.1(c), 3.2, 3.10(b) and 3.19, each Seller will be liable
to Buyer solely for such Seller's Proportionate Interest of any
<PAGE> 67
liability or obligation owed to Buyer by any Seller hereunder (regardless of
whether such liability or obligation is attributable to any particular Seller).
Buyer waives all recourse against each Seller for claims in excess of such
Proportionate Interest. Solely with respect to the obligations set forth in
Section 2.1 or the representations and warranties set forth in Sections 3.1(b),
3.1(c), 3.2, 3.10(b) and 3.19, each Seller will be fully responsible for its
own breach of such obligations or representations and warranties and will have
no liability or obligation arising from any other Seller's breach of such
obligations or representations and warranties.
0.74. Limitation of Recourse against Buyer . Following the Closing,
in the absence of actual fraud, Buyer shall not have any liability or
obligation to indemnify or otherwise hold harmless the Sellers or the
Partnership (or any of their successors or permitted assigns) for any claim or
any loss or liability arising from or in any way relating to this Agreement or
any of the transactions contemplated hereby (including any misrepresentation or
inaccuracy in, or breach of, any representations or warranties (other than the
representations or warranties contained in Sections 4.5 and 4.6) or any breach
or failure in performance prior to the Closing of any covenants or agreements
made by Buyer in this Agreement or in any exhibit or the Schedules hereto or
any certificate or instrument delivered hereunder), and neither the Sellers nor
any of their successors or permitted assigns shall be entitled to bring any
claim based on, relating to or arising out of any of the foregoing against
Buyer or the Partnership (or any of Buyer's or the Partnership' employees,
directors, agents or representatives). Without limiting the generality of the
foregoing, in the absence of actual fraud, neither the Sellers nor their
respective successors or permitted assigns shall be entitled to seek any
rescission of the transactions consummated under this Agreement or other remedy
at law or in equity. Notwithstanding the foregoing, this Section 9.12 shall
not preclude the Sellers from making any claim in respect of a breach of any
representation, warranty, covenant or agreement which survives the Closing or
is contained in the Equity Agreements, which shall each be governed by its
respective terms. Concurrently with the execution of this Agreement, Charter
Communications, Inc. has delivered to the Sellers a performance guaranty with
respect to the terms of this Agreement (the "Purchase Guaranty"). Each Seller
agrees that, notwithstanding any other provision of this Agreement or any
Transaction Document, and any rule of law or equity to the contrary, and except
as set forth in the Purchase Guaranty and the Equity Agreements, Buyer's
obligations and liabilities under this Agreement and the other Transaction
Documents shall be nonrecourse to all direct and indirect general and limited
partners of Buyer and to their successors and assigns and to all of their
respective officers, directors, shareholders, employees, and agents, and none
of the foregoing (except to the extent (i) of its interests in the assets of
Buyer and (iii) any distribution which has been received by it and which is
required by applicable law to be returned, directly or indirectly, to Buyer)
shall have any obligation or liability to any Seller arising out of or in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents.
0.75. Specific Performance . Each of the parties acknowledges and
agrees that the other party would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each party agrees that
the other party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically
<PAGE> 68
this Agreement and the terms and provisions hereof in any action instituted in
any court of the United States or any state thereof having jurisdiction over
the parties and the matter (subject to Section 9.5) without the requirement of
posting a bond or other security therefor, in addition to any other remedy to
which they may be entitled, at law or in equity.
0.76. Commercially Reasonable Efforts . For purposes of this
Agreement, "commercially reasonable efforts" or "reasonable commercial efforts"
will not be deemed to require a party to undertake extraordinary measures,
including the initiation or prosecution of legal proceedings or the payment of
amounts in excess of normal and usual filing fees and processing fees, if any,
or other payments with respect to any contract that are significant in the
context of such contract (or are significant on an aggregate basis as to all
contracts).
0.77. Construction . This Agreement has been negotiated by the
parties and their respective legal counsel, and legal or other equitable
principles that might require the construction of this Agreement or any
provision of this Agreement against the party drafting this Agreement will not
apply in any construction or interpretation of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK;
SIGNATURES ON FOLLOWING PAGES]
<PAGE> 69
IN WITNESS WHEREOF, this Agreement has been executed by Buyer, the General
Partner and the other Sellers as of the date first written above.
BUYER:
CHARTER COMMUNICATIONS HOLDING COMPANY, LLC
By:
Curtis S. Shaw
Senior Vice President
GENERAL PARTNER:
BCI (USA), LLC
By: Bresnan Communications, Inc., its
Managing Member
By:
Name:
Title:
<PAGE> 70
OTHER SELLERS:
BCI (USA), LLC
By: Bresnan Communications, Inc., its Managing Member
By:
Name:
Title:
William J. Bresnan, individually
TCID OF MICHIGAN, INC.
By:
Name:
Title:
TCI BRESNAN LLC
By:
Name:
Title:
BLACKSTONE BC CAPITAL PARTNERS L.P.
By: Blackstone Management Associates
III L.L.C., its General Partner
By:
Name:
Title:
[THIS IS A SIGNATURE PAGE
TO THE PURCHASE AGREEMENT]
BLACKSTONE FAMILY INVESTMENT
PARTNERSHIP III L.P.
By: Blackstone Management Associates
III L.L.C., its General Partner
By:
Name:
Title:
BLACKSTONE BC OFFSHORE CAPITAL
PARTNERS L.P.
By: Blackstone Management
Associates III L.L.C., its
Investment General Partner
By:
Name:
Title:
S-2
<PAGE> 71
EXHIBIT B TO PURCHASE AGREEMENT
Buyer agrees that the Partnership and the Subsidiaries will be bound
by the programming and other commitments described on this Exhibit B from and
after the Closing.
1. Programming Carriage. Notwithstanding the termination of the SSI Supply
Agreement at Closing, as to all of the cable television systems that TCID-MI,
TCI LLC or any Affiliate of either contributed to the Partnership (the "TCI
Contributed Systems") pursuant to the Contribution Agreement after Closing
under the Purchase Agreement, Buyer will cause such TCI Contributed Systems to
continue carriage of the programming services listed below through the
following expiration dates:
<TABLE>
<CAPTION>
SERVICE EXPIRATION DATE
<S> <C>
American Movie Classics 6/30/06
Animal Planet 12/30/06
Bravo 6/30/06
</TABLE>
[THIS IS A SIGNATURE PAGE
TO THE PURCHASE AGREEMENT]
S-3
<PAGE> 72
<TABLE>
<S> <C>
Court TV 7/2/01
Discovery Channel* 12/30/06
DMX 6/30/07
Encore/Starz!** 7/2/22
The Learning Channel*** 12/31/06
Odyssey 12/31/06
Romance Classics 6/30/06
Travel Channel 12/30/07
</TABLE>
* Discovery Channel will remain on basic if headend carries Discovery
Channel on basic as of the Effective Date.
** Monthly fee structure will continue in accordance with previously
disclosed terms.
*** The Learning Channel will remain on basic if headend carries The
Learning Channel on basic as of the Effective Date.
2. @ Home. Buyer agrees that after the Closing the TCI Contributed Systems
will become subject to an At Home Corporation distribution agreement containing
terms and conditions that are no less favorable to Buyer than the terms and
conditions of Buyer's (or its affiliate's) existing @Home Network Distribution
Agreement covering its Fort Worth, Texas cable system, except that At Home
Corporation will remain the exclusive Internet service provider for the TCI
Contributed Systems for a period ending no earlier than June 4, 2002.
S-4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Bresnan Capital Corporation
We consent to the use of our report dated June 22, 1999, with respect to the
balance sheets of Bresnan Capital Corporation as of December 31, 1997 and 1998,
included herein and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG LLP
Denver, Colorado
July 9, 1999
<PAGE> 2
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Tele-Communications, Inc.
We consent to the use of our report dated April 2, 1999, with respect to the
combined balance sheet of Bresnan Communications Group Systems (as defined in
Note 1 to the combined financial statements) as of December 31, 1997 and 1998,
and the related Combined Statements of Operations and Parents' Investment and
Cash Flows for each of the years in the three year period ended December 31,
1998 included herein and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG LLP
Denver, Colorado
July 9, 1999
