<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CABLEVISION SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4841 11-2776686
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE MEDIA CROSSWAYS
WOODBURY, NEW YORK 11797
(516) 803-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
ROBERT S. LEMLE
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ONE MEDIA CROSSWAYS
WOODBURY, NEW YORK 11797
(516) 803-2300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
copies to:
<TABLE>
<S> <C> <C>
DUNCAN C. MCCURRACH A. DALE MAYO JANICE C. HARTMAN
SULLIVAN & CROMWELL CLEARVIEW CINEMA GROUP, INC. KIRKPATRICK & LOCKHART LLP
125 BROAD STREET 97 MAIN STREET 1500 OLIVER BUILDING
NEW YORK, NEW YORK 10004 CHATHAM, NEW JERSEY 07928 PITTSBURGH, PENNSYLVANIA 15222
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and after
all other conditions to the transactions contemplated by the Merger Agreement
have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
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. [ ]
- ---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value $0.01 per
share.................................... 1,003,237(1) N.A. $30,127,722.30(2) $8,376(3)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the maximum amount of Class A Common Stock, par value $.01 per
share ("Cablevision Class A Common Stock"), of Cablevision Systems
Corporation ("Cablevision") issuable upon the consummation of the merger
(the "Merger") between CCG Holdings, Inc., a wholly-owned subsidiary of
Cablevision ("Merger Sub"), and Clearview Cinema Group, Inc. ("Clearview")
pursuant to the Merger Agreement described herein. Upon the terms and
subject to the conditions of the Merger Agreement, including certain
allocation limitations and proration procedures, at the effective time of
the Merger, each share of Common Stock, par value $.01 per share ("Shares"),
Class A Convertible Preferred Stock, par value $.01 per share ("Class A
Preferred Shares", and Class C Convertible Preferred Stock, par value $.01
per share ("Class C Preferred Shares" and, collectively with the Shares and
the Class A Preferred Shares, the "Clearview Securities") will be converted
into, and become exchangeable for, at the option of the holder thereof, the
applicable Security Cash Consideration or the applicable Security Stock
Consideration (each as defined herein); provided, however, that if the
Average Cablevision Stock Price is less than the Floor Price (each as
defined herein), the Clearview Securities will be converted into, and only
be exchangeable for, the applicable Security Cash Consideration.
(2) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of 1933 and
solely for the purpose of calculating the registration fee, the proposed
maximum aggregate offering price is equal to the sum of (i) the market value
of the Shares to be canceled in exchange for shares of Cablevision Class A
Common Stock in the Merger, based upon $22.28, the average of the high and
low sales price of the Shares on the American Stock Exchange composite
transactions system on October 21, 1998, and (ii) the book value as of
September 30, 1998 of the Class A Preferred Shares and the Class C Preferred
Shares to be canceled in exchange for Shares of Cablevision Class A Common
Stock in the Merger for which there is no market.
(3) Computed in accordance with Rule 457(f) under the Securities Act to be
$8,376, which is .000278 multiplied by the proposed maximum aggregate
offering price of $30,127,722.30. In accordance with such Rule 457, the fee
of $15,162 paid by Clearview pursuant to Section 14(g)(1)(A) of the
Securities Exchange Act of 1934, upon the filing of Clearview's preliminary
proxy materials on September 30, 1998 has been credited against the
registration fee payable in connection with this filing. As a consequence,
no additional registration fee is payable.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CLEARVIEW CINEMA GROUP, INC.
97 MAIN STREET
CHATHAM, NEW JERSEY 07928
(973) 377-4646
October 28, 1998
Dear Clearview Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders
of Clearview Cinema Group, Inc. ("Clearview") to be held on Tuesday, December 1,
1998 at the offices of Kirkpatrick & Lockhart LLP, 1251 Avenue of the Americas,
45th Floor, New York, New York 10020, commencing at 10:00 a.m., local time.
At the Special Meeting, you will be asked to approve and adopt an Agreement
and Plan of Merger, dated as of August 12, 1998 (the "Merger Agreement"),
providing for the merger (the "Merger") of Clearview and a wholly-owned
subsidiary of Cablevision Systems Corporation ("Cablevision"). Upon the terms
and subject to the conditions set forth in the Merger Agreement, at the
effective time of the Merger (the "Effective Time"), (i) each outstanding share
of Common Stock, par value $.01 per share, of Clearview ("Shares") will be
converted into the right to receive, at the option of the holder thereof, (A)
$24.25 per share in cash or (B) that number of shares of Class A Common Stock,
par value $.01 per share, of Cablevision ("Cablevision Class A Common Stock")
equal to the amount derived by dividing $24.25 by the average (the "Average
Cablevision Share Price") of the average daily per share high and low sales
prices, regular way, of Cablevision Class A Common Stock as reported on the
American Stock Exchange, Inc. composite transactions reporting system on each of
the ten trading days ending on and including the third trading day prior to the
closing of the Merger (the "Share Conversion Number"); (ii) each outstanding
share of Class A Convertible Preferred Stock, par value $.01 per share, of
Clearview (the "Class A Preferred Shares") will be converted into the right to
receive, at the option of the holder thereof, (A) an amount in cash derived by
multiplying the number of Shares issuable upon conversion of a Class A Preferred
Share immediately prior to the Effective Time (the "Class A Conversion Number")
by $24.25 or (B) that number of shares of Cablevision Class A Common Stock
derived by multiplying the Class A Conversion Number and the Share Conversion
Number; and (iii) each outstanding share of Class C Convertible Preferred Stock,
par value $.01 per share, of Clearview (the "Class C Preferred Shares") will be
converted into the right to receive, at the option of the holder thereof, (A) an
amount in cash derived by multiplying the number of Shares issuable upon
conversion of a Class C Preferred Share based on an exchange ratio of 51 Shares
per Class C Preferred Share (the "Class C Conversion Number") by $24.25 and
adding to such amount the accrued but unpaid dividends on Class C Preferred
Shares through the Effective Time or (B) that number of shares of Cablevision
Class A Common Stock equal to the amount derived by multiplying the Class C
Conversion Number and the Share Conversion Number and adding to such number the
number of shares of Cablevision Class A Common Stock derived by dividing the
amount of accrued but unpaid dividends on a Class C Preferred Share through the
Effective Time by the Average Cablevision Share Price; provided, however, that
if the Average Cablevision Share Price is less than the Floor Price (as defined
in the Merger Agreement) (currently $36.00 reflecting an adjustment in
accordance with the terms of the Merger Agreement for Cablevision's two-for-one
stock split on August 21, 1998), then at the Effective Time, the outstanding
Shares, Class A Preferred Shares and Class C Preferred Shares will be converted
into the right to receive the applicable cash consideration and no holder of
Shares, Class A Preferred Shares or Class C Preferred Shares will have the right
to elect to receive consideration consisting of shares of Cablevision Class A
Common Stock.
The Board of Directors of Clearview considered and unanimously adopted the
Merger Agreement. The Board of Directors of Clearview has unanimously determined
that the Merger is advisable for, fair to and in the best interests of Clearview
and its stockholders and recommends that you vote FOR the proposal to approve
and adopt the Merger Agreement and the transactions contemplated thereby. Credit
Suisse First Boston Corporation, Clearview's financial advisor, has delivered a
written opinion, dated August 12, 1998, to the Board of Directors of Clearview
to the effect that, as of such date and based upon and subject to certain
matters stated in such opinion, the consideration to be received in the Merger
by the holders of Shares was
<PAGE> 3
fair, from a financial point of view, to such holders. The accompanying Proxy
Statement/Prospectus more fully describes the proposal to be considered at the
Special Meeting. You are urged to give it your careful attention.
Approval of the proposal to approve and adopt the Merger Agreement by
Clearview stockholders will require the affirmative vote of a majority of the
votes entitled to be cast by the record holders of outstanding Shares and Class
A Preferred Shares as of October 16, 1998, the Record Date for the Special
Meeting, voting together as a single class.
In connection with the Merger Agreement, certain stockholders of Clearview
that beneficially own Shares and Class A Preferred Shares representing
approximately 54.7% of the total number of votes entitled to be cast by the
record holders of Shares and Class A Preferred Shares at the Special Meeting,
entered into an agreement with Cablevision pursuant to which such holders
agreed, among other things, to vote such Shares and Class A Preferred Shares FOR
approval and adoption of the Merger Agreement and to deliver to Cablevision at
its request an irrevocable proxy to that effect; ACCORDINGLY, APPROVAL OF THE
MERGER AGREEMENT IS ASSURED, REGARDLESS OF THE VOTES OF ANY OTHER CLEARVIEW
STOCKHOLDERS.
To vote your Shares or Class A Preferred Shares, please complete, sign and
date the enclosed proxy card and return it promptly in the enclosed white
envelope marked "Proxy." Your proxy may be revoked at any time prior to the vote
at the Special Meeting by following the procedures set forth in the accompanying
Proxy Statement/Prospectus.
THE PROPOSED MERGER IS A "CASH ELECTION" MERGER. A FORM OF ELECTION AND
LETTER OF TRANSMITTAL ACCOMPANY THE PROXY STATEMENT/PROSPECTUS. IN ORDER TO MAKE
A VALID ELECTION TO RECEIVE THE APPLICABLE CASH AND/OR STOCK CONSIDERATION
DESCRIBED ABOVE, YOU MUST SUBMIT A PROPERLY COMPLETED AND EXECUTED FORM OF
ELECTION AND LETTER OF TRANSMITTAL BY THE DEADLINE (THE "ELECTION DEADLINE")
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
BECAUSE OF CERTAIN LIMITATIONS ON THE AMOUNT OF CASH CONSIDERATION AND
STOCK CONSIDERATION TO BE ISSUED IN THE MERGER, THERE CAN BE NO ASSURANCE THAT
HOLDERS OF SHARES, CLASS A PREFERRED SHARES OR CLASS C PREFERRED SHARES WILL
RECEIVE THE FORM OF CONSIDERATION THAT SUCH HOLDER ELECTS. IF THE ELECTIONS
RESULT IN AN OVERSUBSCRIPTION OF EITHER THE STOCK CONSIDERATION OR THE CASH
CONSIDERATION, THE PROCEDURES FOR ALLOCATING CASH AND SHARES OF CABLEVISION
CLASS A COMMON STOCK SET FORTH IN THE MERGER AGREEMENT AND DESCRIBED IN THE
PROXY STATEMENT/PROSPECTUS WILL BE FOLLOWED BY THE EXCHANGE AGENT.
PLEASE DO NOT SEND ANY SHARE CERTIFICATES REPRESENTING SHARES, CLASS A
PREFERRED SHARES OR CLASS C PREFERRED SHARES WITH YOUR PROXY CARD. YOUR SHARE
CERTIFICATES REPRESENTING SHARES, CLASS A PREFERRED SHARES AND CLASS C PREFERRED
SHARES SHOULD BE SENT ALONG WITH A PROPERLY EXECUTED AND COMPLETED FORM OF
ELECTION AND LETTER OF TRANSMITTAL IN THE ENCLOSED BROWN ENVELOPE MARKED "FORM
OF ELECTION AND LETTER OF TRANSMITTAL" SUFFICIENTLY IN ADVANCE OF THE ELECTION
DEADLINE SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT PRIOR THERETO.
Sincerely,
[Mayo signature]
A. Dale Mayo
Chairman of the Board,
President and Chief Executive Officer
<PAGE> 4
CLEARVIEW CINEMA GROUP, INC.
97 MAIN STREET
CHATHAM, NEW JERSEY 07928
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 1, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Clearview Cinema Group, Inc. ("Clearview") will be held on Tuesday,
December 1, 1998, at 10:00 a.m., local time at the offices of Kirkpatrick &
Lockhart LLP, 1251 Avenue of the Americas, 45th Floor, New York, New York 10020,
for the following purposes, as more fully described in the accompanying Proxy
Statement/ Prospectus.
1. To approve and adopt an Agreement and Plan of Merger, dated as of August
12, 1998, among Cablevision Systems Corporation ("Cablevision"), CCG Holdings,
Inc., a Delaware corporation and a wholly-owned subsidiary of Cablevision
("Merger Sub"), and Clearview (as it may be amended, supplemented or otherwise
modified from time to time, the "Merger Agreement"), providing for the merger
(the "Merger") of Clearview with and into Merger Sub, with Merger Sub being the
surviving corporation in the Merger; provided, however, that if the Average
Cablevision Share Price (as defined herein) is less than the Floor Price (as
defined in the Merger Agreement) (currently $36.00 reflecting an adjustment in
accordance with the terms of the Merger Agreement for Cablevision's two-for-one
stock split on August 21, 1998), at Cablevision's sole option and discretion, at
the effective time of the Merger (the "Effective Time"), Merger Sub will be
merged with and into Clearview, with Clearview being the surviving corporation.
The Merger Agreement provides that, upon the terms and subject to the conditions
set forth in the Merger Agreement, at the Effective Time:
(i) each share of common stock, par value $.01 per share, of Clearview
("Shares"), issued and outstanding at the Effective Time (other than (A)
Shares owned by Cablevision, Merger Sub or any other direct or indirect
subsidiary of Cablevision (collectively, the "Cablevision Companies") or by
Clearview or any direct or indirect subsidiary of Clearview (collectively,
the "Clearview Entities") and in each case not held on behalf of third
parties and (B) Shares that are held by stockholders exercising appraisal
rights pursuant to Section 262 of the Delaware General Corporation Law, as
amended (the "DGCL")), will be converted into, and become exchangeable for,
at the option of the holder thereof (the "Share Merger Consideration"), (A)
$24.25 in cash (the "Share Cash Consideration") or (B) that number of
shares of Class A Common Stock, par value $.01 per share, of Cablevision
("Cablevision Class A Common Stock") (the "Share Stock Consideration")
equal to the amount (rounded to four decimal places) (the "Share Conversion
Number") derived by dividing $24.25 by the average (rounded to four decimal
places) of the average daily per share high and low sales prices, regular
way (the "Average Cablevision Share Price") of Cablevision Class A Common
Stock as reported on the American Stock Exchange, Inc. composite
transactions reporting system (as reported in the New York City edition of
The Wall Street Journal or, if not reported therein, another authoritative
source) on each of the ten trading days (the "Averaging Period") ending on
and including the third trading day prior to the closing date of the
Merger; provided, however, that if the Average Cablevision Share Price is
less than the Floor Price, the Share Merger Consideration will be the Share
Cash Consideration and no holder of Shares will have the option or right to
elect to receive (and Cablevision will have no obligation to issue) Share
Stock Consideration;
(ii) each share of Class A Convertible Preferred Stock, par value $.01
per share, of Clearview ("Class A Preferred Shares") issued and outstanding
at the Effective Time (other than (A) Class A Preferred Shares owned by the
Cablevision Companies or by the Clearview Entities and in each case not
held on behalf of third parties and (B) Class A Preferred Shares that are
held by stockholders exercising appraisal rights pursuant to Section 262 of
the DGCL) will be converted into, and become exchangeable for, at the
option of the holder thereof (the "Class A Preferred Share Merger
Consideration") (A) the amount in cash (the "Class A Preferred Share Cash
Consideration"), derived by multiplying (x) the number of Shares issuable
upon conversion of a Class A Preferred Share immediately prior to the
<PAGE> 5
(continued from previous page)
Effective Time (the "Class A Conversion Number") by (y) the Share Cash
Consideration or (B) the number of shares of Cablevision Class A Common
Stock (the "Class A Preferred Share Stock Consideration") equal to the
amount (rounded to four decimal places) derived by multiplying the Class A
Conversion Number and the Share Conversion Number; provided, however, that
if the Average Cablevision Share Price is less than the Floor Price, the
Class A Preferred Share Merger Consideration will be the Class A Preferred
Share Cash Consideration and no holder of Class A Preferred Shares will
have the right or option to elect to receive (and Cablevision will have no
obligation to issue) Class A Preferred Share Stock Consideration; and
(iii) each share of the Class C Convertible Preferred Stock, par value
$.01 per share, of Clearview (the "Class C Preferred Shares") issued and
outstanding at the Effective Time (other than (A) Class C Preferred Shares
owned by the Cablevision Companies or by the Clearview Entities and in each
case not held on behalf of third parties and (B) Class C Preferred Shares
that are held by stockholders exercising appraisal rights pursuant to
Section 262 of the DGCL) will be converted into, and become exchangeable
for, at the option of the holder thereof (the "Class C Preferred Share
Merger Consideration") (A) the amount in cash (the "Class C Preferred Share
Cash Consideration") derived by multiplying (x) the number of Shares
issuable upon conversion of a Class C Preferred Share based on an exchange
ratio of 51 Shares per Class C Preferred Share (the "Class C Conversion
Number") by (y) the Share Cash Consideration and adding to such amount the
accrued but unpaid dividends on a Class C Preferred Share through the
Effective Time or (B) the number of shares of Cablevision Class A Common
Stock (the "Class C Preferred Share Stock Consideration") equal to the
amount (rounded to four decimal places) derived by multiplying the Class C
Conversion Number and the Share Conversion Number, and adding to such
number the number of shares of Cablevision Class A Common Stock derived by
dividing the amount of accrued but unpaid dividends on a Class C Preferred
Share through the Effective Time by the Average Cablevision Share Price;
provided, however, that if the Average Cablevision Share Price is less than
the Floor Price, the Class C Preferred Share Merger Consideration will be
the Class C Preferred Share Cash Consideration and no holder of Class C
Preferred Shares will have the right or option to elect to receive (and
Cablevision will have no obligation to issue) Class C Preferred Share Stock
Consideration.
The Merger Agreement is attached as Annex A to the accompanying Proxy
Statement/Prospectus and is incorporated herein by reference. Except as
otherwise noted herein or the context requires, all Cablevision share and per
share amounts in the accompanying Proxy Statement/Prospectus have been adjusted
for Cablevision's two-for-one stock splits effected as special stock
distributions on March 30, 1998 and August 21, 1998.
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Board of Directors of Clearview has fixed the close of business on
October 16, 1998 as the record date for determining the stockholders entitled to
notice of and to vote at the Special Meeting or at any adjournment or
postponement thereof. A complete list of stockholders entitled to vote at the
Special Meeting will be open to the examination of any stockholder during
ordinary business hours for a period of at least ten days prior to the Special
Meeting at the executive offices of Clearview, 97 Main Street, Chatham, New
Jersey 07928.
You are cordially invited to attend the Special Meeting in person. In order
to ensure your representation at the meeting, however, please promptly complete,
date, sign and return the enclosed proxy in the accompanying white envelope
marked "Proxy." If you should decide to attend the Special Meeting and vote your
shares in person, you may revoke your proxy at any time prior to the vote by
following the procedures set forth in the accompanying Proxy
Statement/Prospectus.
2
<PAGE> 6
(continued from previous page)
TO VOTE YOUR SHARES OR CLASS A PREFERRED SHARES, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED WHITE ENVELOPE
MARKED "PROXY." PLEASE DO NOT SEND CERTIFICATES REPRESENTING YOUR SHARES, CLASS
A PREFERRED SHARES OR CLASS C PREFERRED SHARES WITH YOUR PROXY CARD. IN ORDER TO
MAKE A VALID ELECTION TO RECEIVE THE APPLICABLE CASH AND/OR STOCK CONSIDERATION
DESCRIBED ABOVE, YOU MUST SUBMIT A PROPERLY COMPLETED AND EXECUTED FORM OF
ELECTION AND LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT PRIOR TO THE ELECTION
DEADLINE DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. YOUR
CERTIFICATES REPRESENTING SHARES , CLASS A PREFERRED SHARES OR CLASS C PREFERRED
SHARES SHOULD BE SENT ALONG WITH THE FORM OF ELECTION AND LETTER OF TRANSMITTAL
IN THE BROWN ENVELOPE MARKED "FORM OF ELECTION AND LETTER OF TRANSMITTAL"
SUFFICIENTLY IN ADVANCE OF THE ELECTION DEADLINE SO THEY ARE RECEIVED BY THE
EXCHANGE AGENT PRIOR THERETO.
By Order of the Board of Directors,
/s/ Robert D. Lister
Robert D. Lister
Secretary
October 28, 1998
3
<PAGE> 7
<TABLE>
<S> <C>
CLEARVIEW CINEMA CABLEVISION SYSTEMS
GROUP, INC. CORPORATION
PROXY STATEMENT PROSPECTUS
</TABLE>
------------------------
This Proxy Statement/Prospectus is being furnished to the stockholders of
Clearview Cinema Group, Inc., a Delaware corporation ("Clearview"), in
connection with the solicitation of proxies by the Board of Directors of
Clearview (the "Clearview Board") from holders of outstanding shares of common
stock, par value $.01 per share, of Clearview (the "Shares" or "Clearview Common
Stock") and holders of Class A Convertible Preferred Stock, par value $.01 per
share, of Clearview (the "Class A Preferred Shares" and, together with the
Shares, the "Voting Shares"), for use at a special meeting of stockholders of
Clearview to be held on December 1, 1998 at 10:00 a.m., local time, at the
offices of Kirkpatrick & Lockhart LLP ("Kirkpatrick & Lockhart"), 1251 Avenue of
the Americas, 45th Floor, New York, New York 10020 (including any adjournments
or postponements thereof, the "Special Meeting").
At the Special Meeting, holders of Shares and Class A Preferred Shares will
be asked to consider and vote together as a single class upon a proposal (the
"Merger Proposal") to approve and adopt an Agreement and Plan of Merger, dated
as of August 12, 1998, among Cablevision Systems Corporation ("Cablevision"),
CCG Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of
Cablevision ("Merger Sub"), and Clearview (as it may be amended, supplemented or
otherwise modified from time to time, the "Merger Agreement"). The Merger
Agreement is attached as Annex A to this Proxy Statement/Prospectus and is
incorporated herein by reference. The Merger Agreement provides for the merger
(the "Merger") of Clearview with and into Merger Sub, with Merger Sub being the
surviving corporation in the Merger; provided, however, that if the Average
Cablevision Share Price (as defined herein) is less than the Floor Price (as
defined in the Merger Agreement) (currently $36.00 reflecting an adjustment in
accordance with the terms of the Merger Agreement for Cablevision's two-for-one
stock split effected as a special stock distribution on August 21, 1998), at
Cablevision's sole option and discretion, at the effective time of the Merger
(the "Effective Time"), Merger Sub will be merged with and into Clearview, with
Clearview being the surviving corporation. The corporation that survives the
merger (Merger Sub or Clearview, as the case may be) is referred to herein as
the "Surviving Corporation". See "THE MERGER -- General."
The Merger Agreement provides that, upon the terms and subject to the
conditions set forth in the Merger Agreement, at the Effective Time:
(i) each Share issued and outstanding at the Effective Time (other than (A)
Shares owned by Cablevision, Merger Sub or any other direct or indirect
subsidiary of Cablevision (collectively, the "Cablevision Companies") or by
Clearview or any direct or indirect subsidiary of Clearview (collectively, the
"Clearview Entities") and in each case not held on behalf of third parties and
(B) Shares ("Dissenting Shares") that are held by stockholders ("Dissenting
Common Stockholders") exercising appraisal rights pursuant to Section 262 of the
Delaware General Corporation Law, as amended (the "DGCL") (collectively,
"Excluded Shares")) will be converted into, and become exchangeable for, at the
option of the holder thereof
(continued on next page)
HOLDERS OF CLEARVIEW SECURITIES ARE STRONGLY URGED TO READ AND CONSIDER
CAREFULLY THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE
MATTERS REFERRED TO UNDER "RISK FACTORS" STARTING ON PAGE 19.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is October 27, 1998.
<PAGE> 8
(continued from previous page)
(the "Share Merger Consideration"), (A) $24.25 in cash (the "Share Cash
Consideration") or (B) that number of shares of Class A Common Stock, par value
$.01 per share, of Cablevision ("Cablevision Class A Common Stock") (the "Share
Stock Consideration") equal to the amount (rounded to four decimal places)(the
"Share Conversion Number") derived by dividing $24.25 by the average (rounded to
four decimal places) of the average daily per share high and low sales prices,
regular way (the "Average Cablevision Share Price") of Cablevision Class A
Common Stock as reported on the American Stock Exchange, Inc. (the "ASE")
composite transactions reporting system (as reported in the New York City
edition of The Wall Street Journal or, if not reported therein, another
authoritative source) on each of the ten trading days (the "Averaging Period")
ending on and including the third trading day prior to the closing of the Merger
(the "Closing Date"); provided, however, that if the Average Cablevision Share
Price is less than the Floor Price, the Share Merger Consideration will be the
Share Cash Consideration and no holder of Shares will have the option or right
to elect to receive (and Cablevision will have no obligation to issue) Share
Stock Consideration;
(ii) each Class A Preferred Share issued and outstanding at the Effective
Time (other than (A) Class A Preferred Shares owned by the Cablevision Companies
or by the Clearview Entities and in each case not held on behalf of third
parties and (B) Class A Preferred Shares ("Dissenting Class A Preferred Shares")
that are held by stockholders ("Dissenting Class A Preferred Stockholders")
exercising appraisal rights pursuant to Section 262 of the DGCL (collectively,
"Excluded Class A Preferred Shares")) will be converted into, and become
exchangeable for, at the option of the holder thereof (the "Class A Preferred
Share Merger Consideration"), (A) the amount in cash (the "Class A Preferred
Share Cash Consideration") derived by multiplying (x) the number of Shares
issuable upon conversion of a Class A Preferred Share immediately prior to the
Effective Time (the "Class A Conversion Number") by (y) the Share Cash
Consideration or (B) the number of shares of Cablevision Class A Common Stock
(the "Class A Preferred Share Stock Consideration") equal to the amount (rounded
to four decimal places) derived by multiplying the Class A Conversion Number and
the Share Conversion Number; provided, however, that if the Average Cablevision
Share Price is less than the Floor Price, the Class A Preferred Share Merger
Consideration will be the Class A Preferred Share Cash Consideration and no
holder of Class A Preferred Shares will have the right or option to elect to
receive (and Cablevision will have no obligation to issue) Class A Preferred
Share Stock Consideration; and
(iii) each share of the Class C Convertible Preferred Stock, par value $.01
per share, of Clearview (the "Class C Preferred Shares" and, together with the
Class A Preferred Shares, the "Preferred Shares" and the Preferred Shares
together with the Shares, the "Clearview Securities") issued and outstanding at
the Effective Time (other than (A) Class C Preferred Shares owned by the
Cablevision Companies or by the Clearview Entities and in each case not held on
behalf of third parties and (B) Class C Preferred Shares ("Dissenting Class C
Preferred Shares" and, together with the Dissenting Shares and the Dissenting
Class A Preferred Shares, the "Dissenting Securities") that are held by
stockholders ("Dissenting Class C Preferred Stockholders" and, together with the
Dissenting Common Stockholders and the Dissenting Class A Preferred
Stockholders, the "Dissenting Securityholders") exercising appraisal rights
pursuant to Section 262 of the DGCL (collectively, "Excluded Class C Preferred
Shares" and, together with the Excluded Shares and the Excluded Class A
Preferred Shares, the "Excluded Securities")) will be converted into, and become
exchangeable for, at the option of the holder thereof (the "Class C Preferred
Share Merger Consideration" and, together with the Share Merger Consideration
and the Class A Preferred Share Merger Consideration, the "Merger
Consideration") (A) the amount, in cash (the "Class C Preferred Share Cash
Consideration" and, together with the Share Cash Consideration and the Class A
Preferred Share Cash Consideration, the "Security Cash Consideration") derived
by multiplying (x) the number of Shares issuable upon conversion of a Class C
Preferred Share based on an exchange ratio of 51 Shares per Class C Preferred
Share (the "Class C Conversion Number" and, together with the Conversion Number
and the Class A Conversion Number, the "Security Conversion Number") by (y) the
Share Cash Consideration and adding to such amount the accrued but unpaid
dividends on a Class C Preferred Share through the Effective Time or (B) the
number of shares of Cablevision Class A Common Stock (the "Class C Preferred
Share Stock Consideration" and,
ii
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(continued from previous page)
together with the Share Stock Consideration and the Class A Preferred Share
Stock Consideration, the "Security Stock Consideration") equal to the amount
(rounded to four decimal places) derived by multiplying the Class C Conversion
Number and the Share Conversion Number and adding to such number of shares of
Cablevision Class A Common Stock, the number of shares of Cablevision Class A
Common Stock derived by dividing the amount of accrued but unpaid dividends on a
Class C Preferred Share through the Effective Time by the Average Cablevision
Share Price; provided, however, that if the Average Cablevision Share Price is
less than the Floor Price, the Class C Preferred Share Merger Consideration will
be the Class C Preferred Share Cash Consideration and no holder of Class C
Preferred Shares will have the right or option to elect to receive (and
Cablevision will have no obligation to issue) Class C Preferred Share Stock
Consideration. See "THE MERGER -- Terms of the Merger."
Cablevision Class A Common Stock is listed on the ASE under the trading
symbol "CVC". On October 26, 1998, the last reported sale price of Cablevision
Class A Common Stock on the ASE was $48.50.
Subject to the allocation and proration procedures described below, if the
Average Cablevision Share Price is greater than or equal to the Floor Price,
each holder of Clearview Securities (other than Excluded Securities) will be
entitled to (i) elect to receive the applicable Security Cash Consideration (a
"Cash Election") or the applicable Security Stock Consideration (a "Stock
Election") or (ii) indicate that such holder has no preference as to the receipt
of the applicable Security Stock Consideration or the applicable Security Cash
Consideration (a "Non-Election") in which event Cablevision, subject to the
conditions described below, may, in its sole and absolute discretion, deem such
securities to be, in whole or in part, Clearview Securities in respect of which
Stock Elections or Cash Elections have been made.
The Merger Agreement provides that notwithstanding anything in the Merger
Agreement to the contrary, (i) the aggregate number of Share Equivalents (as
defined herein) (the "Stock Election Number") represented by the Clearview
Securities to be converted into the right to receive the applicable Security
Stock Consideration shall be equal, as closely as practicable, to 45% of the sum
of (A) the aggregate number of Share Equivalents represented by outstanding
Clearview Securities immediately prior to the Effective Time and (B) the
aggregate number of Share Equivalents represented by any shares of Class B
Nonvoting Cumulative Redeemable Preferred Stock, par value $.01 per share, of
Clearview ("Class B Preferred Shares"), all of which have been redeemed prior to
the date of this Proxy Statement/Prospectus, and (ii) the aggregate number of
Share Equivalents (the "Cash Election Number") represented by the Clearview
Securities to be converted into the right to receive the applicable Security
Cash Consideration shall equal, as closely as practicable, the number of Share
Equivalents represented by the difference between (A) the aggregate number of
Share Equivalents represented by outstanding Clearview Securities immediately
prior to the Effective Time and (B) the Stock Election Number. For purposes of
the Merger Agreement, "Share Equivalents" means (i) with respect to Shares, the
number of outstanding Shares, (ii) with respect to Class B Preferred Shares, the
amount derived by multiplying (A) the number of outstanding Class B Preferred
Shares by (B) the amount derived by dividing the Class B Preferred Share Cash
Consideration (equal to the redemption price per Class B Preferred Share that
would have been payable by Clearview if Clearview had redeemed the Class B
Preferred Shares immediately prior to the Effective Time) by the Share Cash
Consideration, and (iii) with respect to the Class A Preferred Shares and the
Class C Preferred Shares, the number of Shares into which each such outstanding
Preferred Share could be converted immediately prior to the Effective Time. If,
as of the Effective Time, the aggregate value of the Security Stock
Consideration (calculated using the most recent available price for Cablevision
Class A Common Stock on the ASE) would be less than 45% of the sum of the
aggregate value of the Security Cash Consideration and the aggregate value of
the Security Stock Consideration, then the Stock Election Number and the Cash
Election Number (but not the Security Conversion Numbers) will be adjusted as
necessary so that, as of the Effective Time, the aggregate value of the Security
Stock Consideration equals, as closely as possible, 45% of the sum of the
aggregate value of the Security Cash Consideration and the aggregate value of
the Security Stock Consideration; provided, however, that if the Stock Election
Number resulting from such adjustment would be greater than the Stock Election
Number that would have resulted if the Average Cablevision Share Price had been
equal to the Floor Price, then Cablevision, at its sole discretion, will have
the option of either
iii
<PAGE> 10
(continued from previous page)
(i) adjusting the Stock Election Number and the Cash Election Number as set
forth above or (ii) treating the Average Cablevision Share Price as being less
than the Floor Price for all purposes of the Merger Agreement, including the
availability of the election to have Clearview be the Surviving Corporation and
the concomitant change in the form of the Merger Consideration to all cash.
If the aggregate number of Share Equivalents represented by Clearview
Securities in respect of which Cash Elections have been made exceeds the Cash
Election Number, (a) all Clearview Securities in respect of which Stock
Elections have been made or are deemed to have been made (the "Stock Election
Securities") shall be converted into the right to receive the applicable
Securities Stock Consideration, (b) all Clearview Securities in respect of which
a Non-Election are made ("Non-Election Securities) shall be deemed Clearview
Securities in respect of which Stock Elections have been made and treated as
Stock Election Securities and (c) a proration adjustment shall be made in
respect of Clearview Securities in respect of which Cash Elections have been
made so that an aggregate number of Clearview Securities in respect of which
Cash Elections have been made shall be deemed converted into and treated as
Stock Election Securities, so that the aggregate number of Share Equivalents
represented by Clearview Securities deemed Stock Election Securities pursuant to
this clause (c) when added to the Share Equivalents represented by all other
Stock Election Securities (including Non-Election Securities deemed to be Stock
Election Securities), shall equal as closely as practicable the Stock Election
Number and any remaining Clearview Securities in respect of which Cash Elections
have been made shall be converted into the right to receive the applicable
Security Cash Consideration. If the aggregate number of Share Equivalents
represented by Clearview Securities in respect of which Stock Elections have
been made exceeds the Stock Election Number, (a) all Clearview Securities in
respect of which Cash Elections have been made or are deemed to have been made
(the "Cash Election Securities") shall be converted into the right to receive
the applicable Securities Cash Consideration, (b) all Non-Election Securities
shall be deemed Clearview Securities in respect of which Cash Elections have
been made and treated as Cash Election Securities and (c) a proration adjustment
shall be made in respect of Clearview Securities in respect of which Stock
Elections have been made so that an aggregate number of Clearview Securities in
respect of which Stock Elections have been made shall be deemed converted into
and treated as Cash Election Securities, so that the aggregate number of Share
Equivalents represented by Clearview Securities deemed Cash Election Securities
pursuant to this clause (c) when added to the Share Equivalents represented by
all other Cash Election Securities (including Non-Election Securities to be
deemed Cash Election Securities), shall equal as closely as practicable the Cash
Election Number and any remaining Clearview Securities in respect of which Stock
Elections have been made shall be converted into the right to receive the
applicable Security Stock Consideration. See "THE MERGER -- Terms of the Merger"
for a detailed description of the allocation limitations and proration
procedures.
BECAUSE OF CERTAIN LIMITATIONS ON THE AMOUNT OF SECURITY CASH CONSIDERATION
AND SECURITY STOCK CONSIDERATION TO BE ISSUED IN THE MERGER, THERE CAN BE NO
ASSURANCE THAT HOLDERS OF CLEARVIEW SECURITIES WILL RECEIVE THE FORM OF
CONSIDERATION THAT SUCH HOLDER ELECTS. IF THE ELECTIONS RESULT IN AN
OVERSUBSCRIPTION OF EITHER THE SECURITY STOCK CONSIDERATION OR THE SECURITY CASH
CONSIDERATION, THE PROCEDURES FOR ALLOCATING CASH AND SHARES OF CABLEVISION
CLASS A COMMON STOCK SET FORTH IN THE MERGER AGREEMENT AND DESCRIBED IN THIS
PROXY STATEMENT/PROSPECTUS WILL BE FOLLOWED BY THE EXCHANGE AGENT. SEE "THE
MERGER -- TERMS OF THE MERGER."
A FORM OF ELECTION AND LETTER OF TRANSMITTAL (THE "FORM OF ELECTION") WITH
WHICH HOLDERS OF CLEARVIEW SECURITIES CAN, UPON THE TERMS AND SUBJECT TO THE
CONDITIONS SET FORTH IN THE MERGER AGREEMENT AND THE FORM OF ELECTION INCLUDING
THE ALLOCATION LIMITATIONS AND PRORATION PROCEDURES DESCRIBED ABOVE, ELECT TO
RECEIVE THE APPLICABLE SECURITY STOCK CONSIDERATION AND/OR THE APPLICABLE
SECURITY CASH CONSIDERATION ACCOMPANIES THIS PROXY STATEMENT/PROSPECTUS. IN
ORDER TO ELECT THE APPLICABLE SECURITY STOCK CONSIDERATION AND/OR THE APPLICABLE
SECURITY CASH CONSIDERATION, EACH HOLDER OF CLEARVIEW SECURITIES MUST SUBMIT A
DULY COMPLETED AND EXECUTED FORM OF ELECTION, ACCOMPANIED BY THE CERTIFICATE(S)
REPRESENTING THE CLEARVIEW SECURITIES AS TO WHICH THE ELECTION IS BEING MADE
("CERTIFICATES") TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C. (THE "EXCHANGE
AGENT") BY NO LATER THAN 5:00 P.M., NEW YORK CITY TIME, ON THE BUSINESS DAY THAT
IS TWO TRADING DAYS PRIOR TO THE CLOSING DATE (THE "ELECTION DEADLINE"). THE
FORM OF ELECTION
iv
<PAGE> 11
(continued from previous page)
ACCOMPANYING THIS PROXY STATEMENT/PROSPECTUS CONTAINS IMPORTANT INFORMATION
CONCERNING THE TIMING AND PROCEDURES FOR MAKING AN ELECTION AND SHOULD BE READ
CAREFULLY. THE ELECTION DEADLINE WILL BE ANNOUNCED IN A NEWS RELEASE DELIVERED
TO THE DOW JONES NEWS SERVICE AS SOON AS PRACTICABLE, BUT IN NO EVENT LESS THAN
TEN TRADING DAYS PRIOR TO THE CLOSING DATE. SEE "THE MERGER -- EXCHANGE OF
CLEARVIEW CERTIFICATES FOR SHARES OF CABLEVISION CLASS A COMMON STOCK."
NO FRACTIONAL SHARES OF CABLEVISION CLASS A COMMON STOCK WILL BE ISSUED IN
THE MERGER. INSTEAD, THE MERGER AGREEMENT PROVIDES THAT ANY HOLDERS OF CLEARVIEW
SECURITIES WHO WOULD HAVE OTHERWISE BEEN ENTITLED TO RECEIVE A FRACTION OF A
SHARE OF CABLEVISION CLASS A COMMON STOCK IN THE MERGER WILL BE ENTITLED TO
RECEIVE A CASH PAYMENT IN LIEU THEREOF BASED ON THE AVERAGE CABLEVISION SHARE
PRICE.
Approval of the Merger Proposal requires the affirmative vote of a majority
of the votes that entitled to be cast by the record holders of Shares and Class
A Preferred Shares outstanding as of the Record Date, voting together as a
single class (the "Clearview Requisite Vote"). For the purpose of the Merger
Proposal, abstentions and broker non-votes will be counted as present for the
purposes of determining whether a quorum is present but will be counted as a
vote against the Merger Proposal.
Pursuant to a Stockholders Agreement (the "Stockholders Agreement"), dated
as of August 12, 1998, among Cablevision and certain beneficial owners (the
"Selling Stockholders") of Shares and Class A Preferred Shares representing
approximately 54.7% of the total number of votes entitled to be cast by the
holders of Shares and Class A Preferred Shares at the Special Meeting, the
Selling Stockholders have agreed, among other things, that they will vote FOR
approval and adoption of the Merger Proposal and to deliver to Cablevision at
its request an irrevocable proxy to that effect; ACCORDINGLY, APPROVAL OF THE
MERGER PROPOSAL IS ASSURED, REGARDLESS OF THE VOTES OF ANY OTHER CLEARVIEW
STOCKHOLDERS. No approval by shareholders of Cablevision is required to effect
the Merger. See "THE SPECIAL MEETING -- Vote Required."
In considering the recommendations of the Clearview Board, holders of
Clearview Securities should be aware that certain members of management of
Clearview and of the Clearview Board have certain interests in the Merger that
are in addition to the interests of holders of Clearview Securities generally
and may create potential conflicts of interest. See "THE MERGER -- Interests of
Certain Persons in the Merger."
Cablevision has filed a Registration Statement on Form S-4 (including
exhibits and amendments thereto, the "Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering the shares
of Cablevision Class A Common Stock that may be issued upon consummation of the
Merger. This Proxy Statement/Prospectus constitutes the Proxy Statement of
Clearview relating to the solicitation of proxies for use at the Special Meeting
and the Prospectus of Cablevision filed as part of the Registration Statement.
The information contained or incorporated by reference herein concerning
Cablevision and Merger Sub has been furnished by Cablevision, and the
information contained herein concerning Clearview has been furnished by
Clearview.
This Proxy Statement/Prospectus and the accompanying proxy are first being
provided to holders of Clearview Securities on or about October 28, 1998.
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<PAGE> 12
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
AND ANALYSES WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
FORWARD-LOOKING STATEMENTS ARE STATEMENTS OTHER THAN HISTORICAL INFORMATION OR
STATEMENTS OF CURRENT CONDITION. SOME FORWARD-LOOKING STATEMENTS MAY BE
IDENTIFIED BY USE OF TERMS SUCH AS "BELIEVES," "ANTICIPATES," "INTENDS,"
"ESTIMATES" OR "EXPECTS." THESE FORWARD-LOOKING STATEMENTS RELATE TO, AMONG
OTHER MATTERS, THE PLANS AND OBJECTIVES OF CABLEVISION AND CLEARVIEW FOR FUTURE
OPERATIONS. IN LIGHT OF THE RISKS AND UNCERTAINTIES INHERENT IN ALL FUTURE
PROJECTIONS, THE INCLUSION OF FORWARD-LOOKING STATEMENTS IN THIS PROXY
STATEMENT/PROSPECTUS SHOULD NOT BE CONSIDERED A REPRESENTATION BY CABLEVISION,
CLEARVIEW OR ANY OTHER PERSON THAT THE PLANS AND OBJECTIVES OF CABLEVISION AND
CLEARVIEW WILL BE IMPLEMENTED OR ACHIEVED. NUMEROUS FACTORS COULD CAUSE
CABLEVISION'S AND CLEARVIEW'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
THE FORWARD-LOOKING STATEMENTS, INCLUDING THE FOLLOWING: (I) THE LEVEL OF
CABLEVISION'S AND CLEARVIEW'S REVENUES, (II) THE DEMAND FOR CABLE AND OTHER
SERVICES PROVIDED BY CABLEVISION, ATTENDANCE AT THEATRICAL AND SPORTING
EXHIBITIONS, COMPETITION, THE COST OF CABLE PROGRAMMING AND FILMS AND OTHER
CONDITIONS IN THE CABLE TELEVISION AND THEATRICAL EXHIBITION INDUSTRIES, (III)
THE REGULATORY ENVIRONMENT IN WHICH CABLEVISION AND CLEARVIEW OPERATE, (IV) THE
LEVEL OF CABLEVISION'S AND CLEARVIEW'S CAPITAL EXPENDITURES AND GENERAL,
ADMINISTRATIVE AND OTHER OPERATING EXPENSES, (V) PENDING AND FUTURE ACQUISITIONS
AND DISPOSITIONS OF ASSETS BY CABLEVISION AND THE SURVIVING CORPORATION, (VI)
WHETHER ANY PENDING TRANSACTIONS ARE CONSUMMATED ON THE TERMS AND AT THE TIMES
SET FORTH (IF AT ALL), (VII) NEW COMPETITORS ENTERING CABLEVISION'S AND
CLEARVIEW'S AREAS OF OPERATION AND (VIII) OTHER RISKS AND UNCERTAINTIES INHERENT
IN THE CABLE TELEVISION AND THE THEATRICAL EXHIBITION BUSINESSES. SEE "RISK
FACTORS." CABLEVISION AND CLEARVIEW UNDERTAKE NO OBLIGATION TO RELEASE PUBLICLY
THE RESULTS OF ANY FUTURE REVISIONS THEY MAY MAKE TO FORWARD-LOOKING STATEMENTS
TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS. FURTHER INFORMATION ON OTHER FACTORS WHICH
COULD AFFECT THE FINANCIAL RESULTS OF CABLEVISION OR CLEARVIEW AFTER THE MERGER
IS INCLUDED IN SECURITIES AND EXCHANGE COMMISSION ("SEC") FILINGS INCORPORATED
BY REFERENCE HEREIN.
AVAILABLE INFORMATION
Each of Cablevision and Clearview is subject to the informational
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements and other information with the SEC. The reports, proxy
statements and other information filed by Cablevision and Clearview with the SEC
can be inspected and copied at the SEC's public reference room located at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the public reference facilities in the SEC's regional offices located at: 7
World Trade Center, 13th Floor, New York, New York 10048, and Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained at prescribed rates by writing to the Securities
and Exchange Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC maintains a Website that contains reports, proxy
and information statements and other information regarding registrants,
including Cablevision and Clearview, that file electronically with the SEC. The
address of such site is http://www.sec.gov. The shares of Cablevision Class A
Common Stock and the Shares are listed on the ASE. As a consequence, the
periodic reports, proxy statements and other information filed with the SEC by
Cablevision and Clearview can also be inspected at the offices of the ASE at 86
Trinity Place, New York, New York 10006.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement and exhibits thereto covering the securities
offered hereby which Cablevision has filed with the SEC, certain portions of
which have been omitted in accordance with the rules and regulations of the SEC,
and to which portions reference is hereby made for further information with
respect to Cablevision, Clearview and the securities offered hereby. Statements
contained herein concerning any documents filed as an exhibit to the
Registration Statement are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to or
incorporated by reference in the Registration Statement. Each such statement is
qualified in its entirety by such reference.
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<PAGE> 13
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. ANY SUCH DOCUMENTS RELATING TO
CABLEVISION, EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED HEREIN BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE UPON
REQUEST TO THE CORPORATE SECRETARY OF CABLEVISION'S PRINCIPAL EXECUTIVE OFFICES
AT ONE MEDIA CROSSWAYS, WOODBURY, NEW YORK 11797, TELEPHONE NUMBER (516)
803-2300. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY OF SUCH DOCUMENTS IN ADVANCE
OF THE SPECIAL MEETING TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES, ANY
REQUEST SHOULD BE MADE BY NOVEMBER 13, 1998.
The following documents filed with the SEC by Cablevision (File No. 1-9046)
are incorporated herein by reference: (a) Cablevision's and CSC Holdings, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1997 and Amendment
No. 1 thereto on Form 10-K/A (the "Cablevision Form 10-K"); (b) Cablevision's
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1998
and June 30, 1998 (the "Cablevision Form 10-Qs"); (c) Cablevision's Current
Reports on Form 8-K filed on February 5, 1998, March 4, 1998, March 19, 1998 and
September 1, 1998, and on Form 8-K/A filed on May 18, 1998 (the "Cablevision
Form 8-Ks"); and (d) Cablevision's proxy statement for its 1998 annual meeting
of stockholders filed on May 18, 1998.
All documents filed by Cablevision pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated herein by reference and to be a part hereof from the
date of filing of such document. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes hereof to the extent that a statement
contained herein or in any other subsequently filed document which is, or is
deemed to be, incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part hereof, except as so modified or superseded.
No person is authorized to give any information or to make any
representations not contained in this Proxy Statement/Prospectus or in the
documents incorporated herein by reference in connection with the solicitation
and the offering made hereby and, if given or made, such information or
representation should not be relied upon as having been authorized by
Cablevision or Clearview. This Proxy Statement/Prospectus does not constitute an
offer to sell, or a solicitation of an offer to purchase, the securities offered
by this Proxy Statement/Prospectus, or the solicitation of a proxy from any
person, in any jurisdiction in which it is unlawful to make such offer,
solicitation of an offer or proxy solicitation. Neither the delivery of this
Proxy Statement/ Prospectus nor any distribution of the securities made under
this Proxy Statement/Prospectus hereunder shall, under any circumstances, create
an implication that there has been no change in the affairs of Cablevision or
Clearview since the date of this Proxy Statement/Prospectus other than as set
forth in the documents incorporated herein by reference.
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TABLE OF CONTENTS
<TABLE>
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... vi
AVAILABLE INFORMATION....................................... vi
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... vii
SUMMARY..................................................... 1
The Companies............................................. 1
Cablevision Recent Developments........................... 2
Risk Factors.............................................. 2
The Special Meeting....................................... 2
The Merger................................................ 3
Dissenters' Rights of Appraisal........................... 10
Accounting Treatment...................................... 10
Certain Tax Consequences of the Merger.................... 10
Certain Effects of the Merger on the Rights of Holders of
Clearview Securities................................... 11
COMPARATIVE STOCK PRICES.................................... 12
SELECTED HISTORICAL FINANCIAL DATA.......................... 13
UNAUDITED COMPARATIVE PER SHARE DATA........................ 18
RISK FACTORS................................................ 19
Substantial Indebtedness and High Degree of Leverage...... 19
Net Losses and Stockholders' Deficiency................... 19
Intangible Assets......................................... 19
Possible Noncompletion of Certain Transactions............ 19
Need for Additional Financing............................. 20
Commitments............................................... 20
Voting Control by Majority Stockholders; Disparate Voting
Rights................................................. 20
Restrictive Covenants..................................... 21
No Dividends Paid or to be Paid; Fluctuations in the Price
of Cablevision Class A Common Stock.................... 21
Risks Related to Regulation............................... 21
Risk of Competition....................................... 21
Competition from Telephone Companies...................... 22
Risk of Non-exclusive Franchises and Franchise Renewals... 22
Year 2000................................................. 22
THE SPECIAL MEETING......................................... 23
General................................................... 23
Date, Place and Time...................................... 23
Matters to Be Considered at the Special Meeting........... 23
Record Date............................................... 23
Vote Required............................................. 23
Stockholders Agreement.................................... 24
Voting and Revocation of Proxies.......................... 25
Solicitation of Proxies................................... 25
THE COMPANIES............................................... 26
Cablevision............................................... 26
Clearview................................................. 27
Merger Sub................................................ 28
CABLEVISION RECENT DEVELOPMENTS............................. 28
</TABLE>
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THE MERGER.................................................. 29
General................................................... 29
Background of the Merger.................................. 29
Reasons for the Merger; Recommendations................... 33
Opinion of Clearview's Financial Advisor.................. 34
Terms of the Merger....................................... 37
Closing; Effective Time................................... 39
Exchange of Clearview Certificates for Shares of
Cablevision Class A Common Stock....................... 39
Dissenters' Rights of Appraisal........................... 40
Representations and Warranties............................ 41
Certain Covenants......................................... 41
Certain Regulatory Filings and Approvals.................. 43
Stock Exchange Listing and De-listing..................... 44
Employee Benefits......................................... 44
Expenses.................................................. 44
Indemnification; Directors' and Officers' Insurance....... 44
Conditions................................................ 45
Termination............................................... 47
Certain Termination Expenses.............................. 47
Resale of Cablevision Class A Common Stock................ 48
Interests of Certain Persons in the Merger................ 48
DISSENTERS' RIGHTS OF APPRAISAL............................. 51
ACCOUNTING TREATMENT........................................ 53
CERTAIN TAX CONSEQUENCES OF THE MERGER...................... 54
DESCRIPTION OF CABLEVISION CAPITAL STOCK.................... 55
Cablevision Class A Common Stock and Cablevision Class B
Common Stock........................................... 55
Cablevision Preferred Stock............................... 56
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS OF CABLEVISION
AND CLEARVIEW............................................. 58
General................................................... 58
Size and Classification of the Board of Directors......... 58
Removal of Directors; Filling Vacancies on the Board of
Directors.............................................. 59
Meetings of Stockholders.................................. 59
Stockholder Proposals and Stockholder Nominations of
Directors.............................................. 59
Required Vote for Authorization of Certain Actions........ 60
Amendment of Corporate Charter and Bylaws................. 60
Conflict-of-Interest Transactions......................... 61
Dividends and Other Distributions......................... 61
SELECTED HISTORICAL FINANCIAL DATA OF CLEARVIEW............. 62
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CLEARVIEW.................... 74
Overview.................................................. 74
Results of Operations..................................... 75
Liquidity and Capital Resources........................... 79
Quarterly Results and Seasonality......................... 80
Effects of Inflation...................................... 81
Year 2000................................................. 81
</TABLE>
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DESCRIPTION OF BUSINESS OF CLEARVIEW........................ 81
Recent Acquisitions....................................... 82
Recent Financing Transactions............................. 83
Existing Theaters......................................... 84
Theater Expansion and Development......................... 86
Film Licensing............................................ 87
Concessions............................................... 89
Other Sources of Revenue.................................. 89
Industry Overview......................................... 90
Competition............................................... 91
Employees................................................. 92
Regulatory Environment.................................... 92
Clearview Properties...................................... 93
Clearview Legal Proceedings............................... 93
CLEARVIEW MANAGEMENT........................................ 94
Executive Officers........................................ 94
Executive Compensation.................................... 95
Employment Agreement...................................... 96
CERTAIN TRANSACTIONS........................................ 96
PRINCIPAL STOCKHOLDERS...................................... 97
EXPERTS..................................................... 98
VALIDITY OF CABLEVISION CLASS A COMMON STOCK................ 98
STOCKHOLDER PROPOSALS....................................... 98
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
<TABLE>
<S> <C>
ANNEX A: Agreement and Plan of Merger, among Cablevision Systems
Corporation, CCG Holdings, Inc. and Clearview Cinema Group,
Inc.
ANNEX B: Stockholders Agreement between certain stockholders of
Clearview Cinema Group, Inc. and Cablevision Systems
Corporation
ANNEX C: Opinion of Credit Suisse First Boston Corporation
ANNEX D: Section 262 of the Delaware General Corporation Law
</TABLE>
x
<PAGE> 17
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus, does not purport to be complete and is
qualified in its entirety by reference to the full text of this Proxy
Statement/Prospectus, including the Annexes attached hereto and the documents
incorporated herein by reference. The information contained or incorporated by
reference in this Proxy Statement/Prospectus with respect to Cablevision and
Merger Sub has been furnished by Cablevision, and the information with respect
to Clearview has been furnished by Clearview. Neither Cablevision or Merger Sub,
on the one hand, nor Clearview, on the other hand, accepts responsibility for
inaccuracies, if any, in the information furnished by the other party for use
herein. Holders of Clearview Securities are urged to review this entire Proxy
Statement/Prospectus carefully, including such Annexes and such documents.
THE COMPANIES
Cablevision
Cablevision owns and operates, through various subsidiaries, cable
television systems in 8 states with approximately 3,406,000 subscribers at June
30, 1998. Through Rainbow Media Holdings, Inc. ("Rainbow Media"), a company
owned 75% by Cablevision and 25% by NBC Cable Holding, Inc., a subsidiary of
National Broadcasting Company, Inc., Cablevision owns interests in and manages
numerous national and regional programming networks, the Madison Square Garden
sports and entertainment business and cable television advertising sales
companies. Cablevision, through Cablevision Lightpath, Inc., a wholly-owned
subsidiary of Cablevision ("Cablevision Lightpath"), provides switched telephone
service. Cablevision also owns Cablevision Electronics Investments, Inc.
("Cablevision Electronics"), doing business as Nobody Beats The Wiz, an
electronics retailer operating approximately 40 retail locations in the New York
City metropolitan area. See "The Companies -- Cablevision."
As described in the Cablevision Form 10-K, on March 4, 1998, Cablevision
and CSC Holdings, Inc., a Delaware corporation ("CSC Holdings"), completed a
reorganization whereby a holding company (now named Cablevision Systems
Corporation) was formed and CSC Holdings became a subsidiary of Cablevision. In
connection with those reorganization transactions, Cablevision and subsidiaries
of Tele-Communications, Inc. completed the "TCI Transactions" described in the
Cablevision Form 10-K. Cablevision's historical financial information represents
the historical financial information of CSC Holdings. For purposes of the
financial data for Cablevision, all share and per share information has been
retroactively restated to reflect the shares of Cablevision Class A Common Stock
issued to shareholders in the reorganization transactions described above.
Except as otherwise indicated or the context otherwise requires, all share and
per share information in this Proxy Statement/Prospectus have also been adjusted
for the two-for-one stock splits effected as special stock distributions on
March 30, 1998 and August 21, 1998.
The mailing address of Cablevision's principal executive offices is One
Media Crossways, Woodbury, New York 11797, and its telephone number is (516)
803-2300.
Clearview
Clearview is a major regional first run motion picture exhibitor that
operates primarily community-based multiplex theaters in affluent suburban
communities in the New York/New Jersey metropolitan area. Clearview offers a
broad mix of first run films with a particular focus on films designed to appeal
to sophisticated moviegoers and families with younger children residing in these
communities. Founded in 1994 with four theaters and eight screens, Clearview has
grown through both acquisitions and theater development. As of September 30,
1998, Clearview operated 43 theaters with a total of 203 screens.
The mailing address of Clearview's principal executive offices is 97 Main
Street, Chatham, New Jersey 07928, and its telephone number is (973) 377-4646.
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<PAGE> 18
Merger Sub
Merger Sub, a wholly-owned subsidiary of Cablevision, was formed solely for
the purpose of effecting the Merger and effecting the other transactions
contemplated by the Merger Agreement. The mailing address of Merger Sub's
principal executive offices is One Media Crossways, Woodbury, New York 11797,
and its telephone number is (516) 803-2300.
CABLEVISION RECENT DEVELOPMENTS
On August 21, 1998, Cablevision effected a two-for-one stock split (the
"Cablevision August Stock Split") as a special stock distribution of one share
of Cablevision Class A Common Stock for each share of Cablevision Class A Common
Stock issued and outstanding as of August 10, 1998 and one share of Class B
Common Stock, par value $.01 per share, of Cablevision (the "Cablevision Class B
Common Stock" and together with the Cablevision Class A Common Stock, the
"Cablevision Common Stock") for each share of Cablevision Class B Common Stock
issued and outstanding as of August 10, 1998.
CSC Holdings and Loews Cineplex Entertainment Corporation ("Loews") have
entered into an agreement dated August 26, 1998 as amended October 12, 1998 (the
"Initial Theaters Agreement") relating to the acquisition (the "Initial Loews
Transaction") by CSC Holdings from Loews of Loews' interests in the real
property and assets specifically related to or located at 12 movie theaters in
New York City and one in northern New Jersey (the "Initial Loews Theaters").
Loews was required to divest the Initial Loews Theaters (other than the New
Jersey theater) under the terms of a final judgment (the "DOJ Final Judgment")
of the U.S. Department of Justice (the "DOJ") which permitted the merger of
Loews Theaters Exhibition Group and Cineplex Odeon Corporation ("Cineplex")
earlier in 1998. Under the Initial Theaters Agreement, CSC Holdings will pay
Loews $85.0 million in cash for the Initial Loews Theaters. In addition, CSC
Holdings has entered into a second agreement with Loews pursuant to which CSC
Holdings has the right, subject to satisfactory completion of its due diligence
investigation, to purchase up to an additional 10 movie theaters (the
"Additional Loews Theaters") in the greater New York metropolitan area for
approximately $6.7 million in cash (the "Additional Loews Theaters
Transaction"). In connection with the Additional Loews Theaters Transaction,
Loews has granted CSC Holdings a right of first offer on an additional 21 movie
theaters in the greater New York metropolitan area until the first anniversary
of the closing of the Initial Loews Transaction. The Initial Loews Transaction
is expected to be completed later this year and the Additional Loews Theaters
Transaction is expected to be completed contemporaneously therewith or shortly
thereafter. The closings of both transactions are subject to customary closing
conditions including the receipt of various consents and approvals, and, in
respect of the Initial Loews Transaction, the receipt by Loews of written notice
that the DOJ does not object to the consummation of the transaction contemplated
by the Initial Theaters Agreement in accordance with the DOJ Final Judgment.
RISK FACTORS
The information set forth under "RISK FACTORS" on page 19 should be
reviewed and carefully considered in evaluating the Merger and in determining
whether to elect to receive Cablevision Class A Common Stock as consideration in
the Merger.
THE SPECIAL MEETING
The Special Meeting to consider and vote upon the Merger Proposal will be
held on December 1, 1998 at 10:00 a.m., local time, at the offices of
Kirkpatrick & Lockhart, 1251 Avenue of the Americas, 45th Floor, New York, New
York 10020. Only holders of record of Shares and Class A Preferred Shares at the
close of business on October 16, 1998 (the "Record Date") will be entitled to
notice of and to vote at the Special Meeting. On the Record Date, there were
2,304,802 Shares and 779 Class A Preferred Shares outstanding and entitled to
vote. Each Share is entitled to one vote at the Special Meeting. Each Class A
Preferred Share is entitled to 600 votes at the Special Meeting. See "THE
SPECIAL MEETING -- Vote Required."
Approval of the Merger Proposal requires the affirmative vote of a majority
of the votes entitled to be cast by the record holders of the Shares and Class A
Preferred Shares outstanding as of the Record Date, voting
2
<PAGE> 19
together as a single class. No approval by the stockholders of Cablevision is
required to effect the Merger. As of the Record Date, the directors and
executive officers of Clearview (and their affiliates) beneficially owned Shares
and Class A Preferred Shares representing approximately 58.8% of the total
number of votes entitled to be cast by holders of Shares and Class A Preferred
Shares at the Special Meeting and have indicated their intentions to vote their
Voting Shares FOR the Merger Proposal.
Pursuant to the Stockholders Agreement, the Selling Stockholders have
agreed, among other things, that they will vote FOR the Merger Proposal and to
deliver to Cablevision at its request an irrevocable proxy to that effect. As of
the Record Date, the Shares and Class A Preferred Shares beneficially owned by
the Selling Stockholders represented approximately 54.7% of the total number of
votes entitled to be cast by holders of Shares and Class A Preferred Shares at
the Special Meeting. ACCORDINGLY, APPROVAL OF THE MERGER PROPOSAL IS ASSURED
REGARDLESS OF THE VOTES OF ANY OTHER CLEARVIEW STOCKHOLDER.
For additional information relating to the Special Meeting, see "THE
SPECIAL MEETING."
THE MERGER
The Merger Agreement provides for a merger of Merger Sub and Clearview
pursuant to which, subject to the satisfaction of the conditions therein, at the
Effective Time, Clearview will be merged with and into Merger Sub, with Merger
Sub being the Surviving Corporation; provided, however, that if the Average
Cablevision Share Price is less than the Floor Price, at Cablevision's sole
option and discretion, at the Effective Time, Merger Sub will be merged with and
into Clearview, with Clearview being the Surviving Corporation. In either case,
the Surviving Corporation will be a wholly-owned subsidiary of Cablevision. The
Merger is intended to qualify as a "purchase" for accounting and financial
reporting purposes and, subject to the discussion below and provided that the
Average Cablevision Share Price is greater than or equal to the Floor Price, as
a tax-free "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), for federal income tax purposes.
See "Accounting Treatment" and "Certain Tax Consequences of the Merger." If the
Average Cablevision Share Price is $48.50 (the last sales price of Cablevision
Class A Common Stock on October 26, 1998), then as a result of the allocation
limitations and proration procedures in the Merger Agreement the holders of
Clearview Securities outstanding on the Record Date will receive an aggregate
number of shares of Cablevision Class A Common Stock in the Merger representing
less than one percent of the aggregate number of shares of Cablevision Class A
Common Stock outstanding as of the date of this Proxy Statement/Prospectus and
representing less than one percent of the aggregate voting power of all classes
of Cablevision Common Stock outstanding as of such date. The Cablevision Class A
Common Stock is entitled to one vote per share, while the Cablevision Class B
Common Stock (as defined under the caption "DESCRIPTION OF CABLEVISION CAPITAL
STOCK") is entitled to ten votes per share. See "DESCRIPTION OF CABLEVISION
CAPITAL STOCK."
Pursuant to the Merger Agreement, at the Effective Time, (i) each Share
issued and outstanding at the Effective Time (other than Excluded Shares) will
be converted into, and become exchangeable for, at the option of the holder
thereof, (A) the Share Cash Consideration or (B) the Share Stock Consideration;
(ii) each Class A Preferred Share issued and outstanding at the Effective Time
(other than Excluded Class A Preferred Shares) will be converted into, and
become exchangeable for, at the option of the holder thereof, (A) the Class A
Preferred Share Cash Consideration or (B) the Class A Preferred Share Stock
Consideration; and (iii) each Class C Preferred Share issued and outstanding at
the Effective Time (other than Excluded Class C Preferred Shares) will be
converted into, and become exchangeable for, at the option of the holder
thereof, (A) the Class C Preferred Share Cash Consideration or (B) the Class C
Preferred Share Stock Consideration; provided, however, that, with respect to
each of (i), (ii) and (iii) above, if the Average Cablevision Share Price is
less than the Floor Price (currently $36.00 reflecting an adjustment in
accordance with the terms of the Merger Agreement for the Cablevision August
Stock Split), Shares, Class A Preferred Shares and the Class C Preferred Share,
will be converted into the right to receive the applicable Security Cash
Consideration and no holder of Shares, Class A Preferred Shares and Class C
Preferred Shares will have the right to elect to receive consideration
consisting of Cablevision Class A Common Stock. See "THE MERGER -- Terms of the
Merger."
3
<PAGE> 20
As described above, if the Average Cablevision Share Price is greater than
or equal to the Floor Price, subject to the allocation limitations and proration
procedures described below, each record holder of Clearview Securities (other
than Excluded Securities) will be entitled to make a Cash Election, a Stock
Election or a Non-Election (which Cablevision may deem in its sole and absolute
discretion, subject to the conditions described below, to be either a Stock
Election or Cash Election). Additionally, the Merger Agreement provides that
notwithstanding anything in the Merger Agreement to the contrary, (i) the Stock
Election Number shall be equal, as closely as practicable, to 45% of the sum of
(A) the aggregate number of Share Equivalents represented by outstanding
Clearview Securities immediately prior to the Effective Time and (B) the
aggregate number of Share Equivalents represented by the previously outstanding
Class B Preferred Shares, all of which have been redeemed prior to the date of
this Proxy Statement/Prospectus, and (ii) the Cash Election Number shall equal,
as closely as practicable, the number of Share Equivalents represented by the
difference between (A) the aggregate number of Share Equivalents represented by
outstanding Clearview Securities immediately prior to the Effective Time and (B)
the Stock Election Number. If, as of the Effective Time, the aggregate value of
the Security Stock Consideration (calculated using the most recent available
price for Cablevision Class A Common Stock on the ASE) would be less than 45% of
the sum of the aggregate value of the Security Cash Consideration and the
aggregate value of the Security Stock Consideration, then the Stock Election
Number and the Cash Election Number (but not the Security Conversion Numbers)
will be adjusted as necessary so that, as of the Effective Time, the aggregate
value of the Security Stock Consideration equals, as closely as possible, 45% of
the sum of the aggregate value of the Security Cash Consideration and the
aggregate value of the Security Stock Consideration; provided, however, that if
the Stock Election Number resulting from such adjustment would be greater than
the Stock Election Number that would have resulted if the Average Cablevision
Share Price had been equal to the Floor Price, then Cablevision, at its sole
discretion, will have the option of either (i) adjusting the Stock Election
Number and the Cash Election Number as set forth above in this paragraph or (ii)
treating the Average Cablevision Share Price as being less than the Floor Price
for all purposes of the Merger Agreement, including the availability of the
election to have Clearview be the Surviving Corporation and the concomitant
change in the form of the Merger Consideration to all cash.
If the aggregate number of Share Equivalents represented by Clearview
Securities in respect of which Cash Elections have been made exceeds the Cash
Election Number, (a) all Stock Election Securities shall be converted into the
right to receive the applicable Securities Stock Considerations, (b) all
Non-Election Securities shall be deemed Clearview Securities in respect of which
Stock Elections have been made and treated as Stock Election Securities and (c)
a proration adjustment shall be made in respect of Clearview Securities in
respect of which Cash Elections have been made so that an aggregate number of
Clearview Securities in respect of which Cash Elections have been made shall be
deemed converted into and treated as Stock Election Securities, so that the
aggregate number of Share Equivalents represented by Clearview Securities deemed
Stock Election Securities pursuant to this clause (c) when added to the Share
Equivalents represented by all other Stock Election Securities (including
Non-Election Securities deemed Stock Election Securities), shall equal as
closely as practicable the Stock Election Number and any remaining Clearview
Securities in respect of which Cash Elections have been made shall be converted
into the right of receive the applicable Security Cash Consideration. If the
aggregate number of Share Equivalents represented by Clearview Securities in
respect of which Stock Elections have been made exceeds the Stock Election
Number, (a) all Cash Election Securities shall be converted into the right to
receive the applicable Securities Cash Consideration, (b) all Non-Election
Securities shall be deemed Clearview Securities in respect of which Cash
Elections have been made and treated as Cash Election Securities and (c) a
proration adjustment shall be made in respect of such Clearview Securities in
respect of which Stock Elections have been made so that an aggregate number of
Clearview Securities in respect of which Stock Elections have been made shall be
deemed converted into and treated as Cash Election Securities, so that the
aggregate number of Share Equivalents represented by Clearview Securities deemed
Cash Election Securities pursuant to this clause (c) when added to the Share
Equivalents represented by all other Cash Election Securities (including Non-
Election Securities deemed Cash Election Securities), shall equal as closely as
practicable the Cash Election Number and any remaining Clearview Securities in
respect of which Stock Elections have been made shall be
4
<PAGE> 21
converted into the right to receive the applicable Security Stock Consideration.
See "THE MERGER -- Terms of the Merger" for a detailed description of the
allocation limitations and proration procedures.
Because of certain limitations on the amount of Security Cash Consideration
and Security Stock Consideration to be issued in the Merger, there can be no
assurance that holders of Clearview Securities will receive the form of
consideration that such holder elects. If the elections result in an
oversubscription of either the Security Stock Consideration or the Security Cash
Consideration, the procedures for allocating cash and shares of Cablevision
Class A Common Stock set forth in the Merger Agreement and described in this
Proxy Statement/Prospectus will be followed by the Exchange Agent. See "THE
MERGER -- Terms of the Merger."
No fractional shares of Cablevision Class A Common Stock will be issued in
the Merger. Instead, the Merger Agreement provides that each holder of Clearview
Securities who would otherwise have been entitled to receive a fractional share
of Cablevision Class A Common Stock in the Merger will be entitled to receive a
cash payment in lieu thereof, which payment will represent such holder's
proportionate interest in a share of Cablevision Class A Common Stock based on
the Average Cablevision Share Price.
Reasons for the Merger; Recommendations
Cablevision and Merger Sub
The Board of Directors of each of Cablevision (the "Cablevision Board") and
Merger Sub (the "Merger Sub Board") has determined that the Merger Agreement and
the transactions contemplated thereby are advisable for, fair to, and in the
best interests of, Cablevision and Merger Sub and their respective stockholders
and the Merger Sub Board has adopted the Merger Agreement and has recommended
that Cablevision, as the sole stockholder of Merger Sub, approve the Merger
Agreement. See "THE MERGER -- Reasons for the Merger;
Recommendations -- Cablevision."
Clearview
The Clearview Board has unanimously determined that the terms of the Merger
Agreement and the transactions contemplated thereby are advisable for, fair to,
and in the best interests of, Clearview and its stockholders. ACCORDINGLY, THE
CLEARVIEW BOARD HAS ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT THE HOLDERS
OF SHARES AND CLASS A PREFERRED SHARES VOTE FOR THE MERGER PROPOSAL. The reasons
for the Merger and the recommendation of the Clearview Board are based on a
number of considerations described in "THE MERGER -- Reasons for the Merger;
Recommendations -- Clearview."
Opinion of Clearview's Financial Advisor
Credit Suisse First Boston Corporation ("CSFB"), financial advisor to
Clearview, has rendered to the Clearview Board a written opinion, dated August
12, 1998, to the effect that, as of such date and based upon and subject to
certain matters stated in such opinion, the Share Merger Consideration was fair
to the holders of Shares from a financial point of view. A copy of the opinion
of CSFB dated August 12, 1998 is attached hereto as Annex C and should be read
carefully in its entirety with respect to the procedures followed, assumptions
made, matters considered and limitations on the review undertaken in connection
with such opinion. THE OPINION OF CSFB IS DIRECTED TO THE CLEARVIEW BOARD AND
RELATES ONLY TO THE FAIRNESS OF THE SHARE MERGER CONSIDERATION FROM A FINANCIAL
POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED MERGER OR ANY
RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING OR THE FORM OF
SHARE MERGER CONSIDERATION TO BE ELECTED BY SUCH STOCKHOLDER IN THE MERGER. See
"THE MERGER -- Opinion of Clearview's Financial Advisor."
Effective Time
The Effective Time will occur when the certificate of merger (the
"Certificate of Merger") has been duly filed with the Secretary of State of the
State of Delaware or such other time as agreed upon by the parties and
5
<PAGE> 22
set forth in the Certificate of Merger in accordance with the DGCL. See "THE
MERGER -- Closing; Effective Time."
Exchange of Certificates
A Form of Election with which holders of Clearview Securities can, subject
to certain allocation limitations and proration procedures, elect to receive the
applicable Security Stock Consideration and/or the applicable Security Cash
Consideration accompanies this Proxy Statement/Prospectus. In order to elect the
applicable Security Stock Consideration and/or the applicable Security Cash
Consideration, each holder of Clearview Securities must submit a Form of
Election to the Exchange Agent at its designated office by no later than 5:00
p.m., New York City time on the Election Deadline, accompanied by the
Certificate(s) representing the Clearview Securities as to which the election is
being made (or by an appropriate guarantee of delivery). The Form of Election
accompanying this Proxy Statement/Prospectus contains important information
concerning the timing and procedures for making an election and should be read
carefully. The Election Deadline will be announced in a news release delivered
to the Dow Jones News Service as soon as practicable, but in no event less than
ten trading days prior to the Closing Date. Procedures relating to the exchange
of Clearview Securities for Share Merger Consideration are also described in
such Form of Election. See "THE MERGER -- Terms of the Merger," and "THE
MERGER -- Exchange of Clearview Certificates for Shares of Cablevision Class A
Common Stock."
Representations and Warranties
The Merger Agreement contains various representations and warranties of
Clearview, Cablevision and Merger Sub, certain of which are qualified as to
materiality and certain of which are subject to certain exceptions disclosed by
each of Clearview and Cablevision to the other. See "THE
MERGER -- Representations and Warranties."
Certain Covenants
The Merger Agreement provides for certain covenants, including Clearview's
covenant to carry on its and its Subsidiaries' businesses in the ordinary and
usual course, and covenants of Clearview regarding its assets, contracts,
rights, claims, compensation structure, financial condition and capital
structure. Pursuant to the Merger Agreement, Clearview has also agreed, subject
to certain exceptions, that neither it nor any of its Subsidiaries nor any of
its or its Subsidiaries' officers and directors will, and that it will direct
and use its best efforts to cause its and its Subsidiaries' representatives not
to, initiate or solicit, encourage or otherwise knowingly facilitate any
Acquisition Proposal (as defined under the caption "THE MERGER -- Certain
Covenants"). See "THE MERGER -- Certain Covenants."
Certain Regulatory Filings and Approvals
Pursuant to the Merger Agreement, each of Clearview and Cablevision has
agreed to cooperate with the other and use all reasonable efforts to take or
cause to be taken all actions to consummate the Merger and the other
transactions contemplated by the Merger Agreement as soon as practicable.
However, the terms of the Merger Agreement do not require Cablevision to agree
to sell or hold separate any assets, businesses or interest in any assets or
businesses of either Cablevision or Clearview, or any of their respective
Affiliates (as defined in the Merger Agreement) or to agree to any material
changes or restriction in the operations of any such assets or businesses. See
"THE MERGER -- Certain Regulatory Filings and Approvals."
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder, certain transactions,
including the Merger, may not be consummated unless certain waiting period
requirements have been satisfied. Cablevision and Clearview each filed a
Premerger Notification and Report Form (a "Notification and Report Form")
pursuant to the HSR Act with the DOJ and the Federal Trade Commission ("FTC") on
September 21, 1998. On October 20, 1998, Clearview and Cablevision were notified
by the FTC that early termination of the waiting period under the HSR Act had
been granted. At any time before or after the Effective Time, the FTC, the DOJ
or others could take action
6
<PAGE> 23
under the antitrust laws with respect to the Merger, including seeking to enjoin
the consummation of the Merger, to rescind the Merger or to require divestiture
of substantial assets of Cablevision or Clearview. There can be no assurance
that a challenge to the Merger on antitrust grounds will not be made or, if such
a challenge is made, that it would not be successful.
Stock Exchange Listing
Cablevision has agreed to use its best efforts to cause the shares of
Cablevision Class A Common Stock to be issued in the Merger to be approved for
listing on the ASE, subject to official notice of issuance, prior to the Closing
Date, and such approval for listing is a condition to consummation of the
Merger. See "THE MERGER -- Stock Exchange Listing and De-listing."
Employee Benefits
Stock Options
The Merger Agreement provides that at the Effective Time, each outstanding
option to purchase Shares (a "Clearview Option") under Clearview's 1997 Stock
Incentive Plan, as amended and restated on April 28, 1998 (the "Stock Plan"),
whether vested or unvested, will be canceled and the holder thereof will be
entitled to receive an amount of cash equal to the product of (x) the amount, if
any, by which the Share Merger Consideration exceeds the exercise price per
Share under such Clearview Option and (y) the number of Shares issuable pursuant
to the unexercised portion of such Clearview Option, less any required
withholding of taxes (such amount, the "Option Consideration"). See "THE
MERGER -- Employee Benefits -- Stock Options."
Benefit Plans
Each of Cablevision and Merger Sub has agreed that, during the period
commencing at the Effective Time and ending on the first anniversary thereof,
the employees of the Surviving Corporation and its Subsidiaries will continue to
be provided with benefits under employee benefit plans (other than plans
involving the issuance of Shares) (the "Compensation and Benefit Plans") that
are substantially similar in the aggregate to those currently provided by
Clearview and its Subsidiaries to such employees. Cablevision will, and will
cause the Surviving Corporation to, honor all employee benefit obligations to
current and former employees under the Compensation and Benefit Plans and all
employee severance plans (or policies) in existence as of the date of the Merger
Agreement and all employment or severance agreements entered into by Clearview
or adopted by the Clearview board prior to the date of the Merger Agreement.
Cablevision has agreed to offer or cause Merger Sub to offer employment
contracts to certain senior executive officers of Clearview immediately prior to
the Effective Time. See "THE MERGER -- Interests of Certain Persons in the
Merger -- Executive Employment Contracts." Nothing in the Merger Agreement will
prevent Cablevision from terminating any Compensation and Benefit Plan. Each of
Cablevision and Merger Sub has agreed that the employees of the Surviving
Corporation will receive full credit for purposes of eligibility and vesting
under the employee benefit plans or arrangements maintained by the Surviving
Corporation for such employees' service with Clearview or any of its
Subsidiaries to the same extent recognized by Clearview immediately prior to the
Effective Time. See "THE MERGER -- Employee Benefits -- Benefit Plans."
Expenses
The Surviving Corporation will pay all charges and expenses, including
those of the Exchange Agent, in connection with the exchange of shares, transfer
of cash and issuance of Cablevision Class A Common Stock contemplated by the
Merger Agreement, and Cablevision will reimburse the Surviving Corporation for
such charges and expenses. Except as otherwise provided in the Merger Agreement
with respect to transfer taxes and the Termination Expenses (as defined herein),
the Merger Agreement provides that whether or not the Merger is consummated, all
costs and expenses incurred in connection with the Merger Agreement and the
Merger and the other transactions contemplated by the Merger Agreement will be
paid by the party incurring such cost or expense, except that expenses incurred
in connection with the filing fee for the Registration
7
<PAGE> 24
Statement and printing and mailing of this Proxy Statement/Prospectus and the
Registration Statement will be shared equally by Cablevision and Clearview. See
"THE MERGER -- Expenses."
Indemnification; Directors' and Officers' Insurance
The Merger Agreement provides that, from and after the Effective Time,
Cablevision and the Surviving Corporation will indemnify and hold harmless each
present and former director and officer of Clearview against any Costs (as
defined in the Merger Agreement) incurred in connection with any claim, action,
suit, proceeding or investigation, existing or occurring at or prior to the
Effective Time. See "THE MERGER -- Indemnification; Directors' and Officers'
Insurance."
The Merger Agreement also provides that Cablevision or the Surviving
Corporation, subject to certain limitations set forth in the Merger Agreement,
will maintain Clearview's existing officers' and directors' liability insurance
("D&O Insurance") for a period of six years after the Effective Time. See "THE
MERGER -- Indemnification; Directors' and Officers' Insurance."
Conditions
The respective obligations of Clearview, Cablevision and Merger Sub to
effect the Merger are subject to the satisfaction or waiver at or prior to the
Effective Time of a number of conditions including the following: (a) the Merger
Agreement having been duly approved by the Clearview Requisite Vote and duly
approved by Cablevision as the sole shareholder of Merger Sub; (b) the shares of
Cablevision Class A Common Stock issuable to the stockholders of Clearview
pursuant to the Merger Agreement having been authorized for listing on the ASE
upon official notice of issuance; (c) the waiting period applicable to the
consummation of the Merger under the HSR Act having expired or been terminated
and, other than as provided in the Merger Agreement, all Governmental Consents
(as defined under the caption "THE MERGER -- Representations and Warranties")
having been made or obtained; (d) no court or Governmental Entity (as defined
under the caption "THE MERGER -- Representations and Warranties") of competent
jurisdiction having enacted, issued, promulgated, enforced or entered any
statute, law, ordinance, rule, regulation, judgement, decree injunction or other
order (whether temporary, preliminary or permanent (collectively, an "Order"))
that is in effect and restrains, enjoins or otherwise prohibits consummation of
the Merger or the other transactions contemplated by the Merger Agreement and no
Governmental Entity having instituted any proceeding or threatened to institute
any proceeding seeking any such Order; and (e) the Registration Statement having
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement having been issued, and no
proceedings for that purpose having been initiated or threatened, by the SEC.
See "THE MERGER -- Conditions."
The Merger Agreement also provides that the obligations of Cablevision and
Merger Sub to effect the Merger are also subject to the satisfaction or waiver
by Cablevision at or prior to the Effective Time of a number of conditions
including the following: (a) the representations and warranties of Clearview set
forth in the Merger Agreement being true and correct, subject to the
qualifications described under the caption "THE MERGER -- Representations and
Warranties"; (b) Clearview having performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date; (c) Clearview having obtained certain specified
consents and the consent or approval of each Person (as defined in the Merger
Agreement) whose consent or approval is required under any Contract (as defined
in the Merger Agreement) except for such consents or approvals the failure to
obtain would not, individually or in the aggregate, be reasonably likely to have
a Company Material Adverse Effect or be reasonably likely to prevent Clearview
from consummating the transactions contemplated by the Merger Agreement; (d) if
applicable, Cablevision having received the opinion of Sullivan & Cromwell,
counsel to Cablevision, dated the Closing Date, to the effect that the Merger
will be treated for federal income tax purposes as a "reorganization"; and (e)
Cablevision and/or Merger Sub having entered into an agreed form of employment
agreement with A. Dale Mayo. "Company Material Adverse Effect" means a material
adverse effect on the financial condition, properties, business or results of
operations of Clearview and its Subsidiaries taken as a whole or a material
condition, restriction or other limitation on Cablevision's ability to own,
operate or otherwise control Clearview and its Subsidiaries or their respective
assets and businesses, taken as a whole; provided, however,
8
<PAGE> 25
that a Company Material Adverse Effect does not include any effect upon the
financial condition, properties, business or results of operations of Clearview,
or any of its Subsidiaries, resulting or arising from (A) changes in national
economic or business conditions generally or affecting the movie theater
industry specifically, or (B) the public announcement of the execution of the
Merger Agreement and the transactions contemplated thereby. See "THE
MERGER -- Conditions."
The Merger Agreement further provides that the obligation of Clearview to
effect the Merger is also subject to the satisfaction or waiver by Clearview at
or prior to the Effective Time of a number of conditions including the
following: (a) the representation and warranties of Cablevision set forth in the
Merger Agreement being true and correct, subject to the qualifications described
under the caption "THE MERGER -- Representations and Warranties"; (b) each of
Cablevision and Merger Sub having performed all material obligations required to
be performed by it under the Merger Agreement at or prior to the Closing Date;
and (c) if applicable, Clearview having received the opinion of Kirkpatrick &
Lockhart, counsel to Clearview, dated the Closing Date, to the effect that the
Merger will be treated for federal income tax purposes as a tax free
"reorganization." See "THE MERGER -- Conditions."
Termination
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, (i) by mutual written consent of Clearview
and Cablevision, or (ii) by actions of the Clearview Board or the Cablevision
Board if (a) the Merger has not been consummated by February 28, 1999; provided,
however, that if Cablevision determines that additional time is necessary in
order to forestall any action to restrain, enjoin or prohibit the Merger by any
in Governmental Entity, such date may be extended to a date no later than April
30, 1999 (the "Termination Date"), (b) the approval of the stockholders of
Clearview required by the Merger Agreement has not been obtained or (c) any
order permanently restraining, enjoining or otherwise prohibiting consummation
of the Merger becomes final and non-appealable. See "THE MERGER -- Termination."
Further, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by action of the Clearview
Board if there has been a material breach by Cablevision or Merger Sub of any
representation, warranty, covenant or agreement contained in the Merger
Agreement that is not curable, or, if curable, is not cured within 30 days after
written notice of such breach is given by Clearview to the party committing such
breach. See "THE MERGER -- Termination."
In addition, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by action of the Cablevision
Board if (i) the Clearview Board withdraws or adversely modifies its approval or
recommendation of the Merger Agreement or approves or recommends a Superior
Proposal (as defined under the caption "THE MERGER -- Certain Covenants), or
(ii) there has been a material breach by Clearview of any representation,
warranty, covenant or agreement contained in the Merger Agreement that is not
curable, or, if curable, is not cured within 30 days after written notice of
such breach is given to Clearview by Cablevision. See "THE
MERGER -- Termination."
Certain Termination Expenses
The Merger Agreement provides that in the event that (i) an Acquisition
Proposal will have been made to Clearview or any person has publicly announced
an intention to make an Acquisition Proposal with respect to Clearview or any
subsidiary of Clearview and thereafter the Merger Agreement is terminated by
either Cablevision or Clearview because the stockholders of Clearview failed to
approve the Merger Agreement or (ii) the Merger Agreement is terminated by
Cablevision pursuant to the provisions of the Merger Agreement permitting it to
terminate because the Clearview Board has withdrawn or adversely modified its
approval or recommendation of the Merger Agreement, or approved or recommended a
Superior Proposal (as defined in the Merger Agreement), then Clearview will
promptly pay Cablevision a fee equal to $1.6 million and will promptly pay all
of the charges and expenses, including those of the Exchange Agent, incurred by
Cablevision or Merger Sub in connection with the Merger Agreement and the
transactions contemplated by the Merger
9
<PAGE> 26
Agreement, up to a maximum amount of $400,000 (collectively, the "Termination
Expenses"). See "THE MERGER -- Certain Termination Expenses."
Interests of Certain Persons in the Merger
In considering the recommendations of the Clearview Board, stockholders
should be aware that certain members of management of Clearview and of the
Clearview Board have certain interests in the Merger that are in addition to the
interests of stockholders generally and may create potential conflicts of
interest. See "THE MERGER -- Interests of Certain Persons in the Merger."
DISSENTERS' RIGHTS OF APPRAISAL
Holders of Clearview Securities who comply with the requirements of Section
262 of the DGCL may dissent from the Merger and obtain payment of the fair value
of their Clearview Securities. A copy of Section 262 of the DGCL is attached as
Annex D to this Proxy Statement/Prospectus. See "THE MERGER -- Dissenters'
Rights of Appraisal" and "DISSENTERS' RIGHTS OF APPRAISAL."
ACCOUNTING TREATMENT
Cablevision will account for the Merger using the purchase method of
accounting. See "THE MERGER" and "ACCOUNTING TREATMENT."
CERTAIN TAX CONSEQUENCES OF THE MERGER
Provided that the Average Cablevision Share Price is greater than or equal
to the Floor Price, and, if applicable, Cablevision does not exercise its option
to have Clearview be the Surviving Corporation, the Merger is intended to
qualify for federal income tax purposes as a "reorganization" within the meaning
of Section 368(a) of the Code. Assuming the Merger so qualifies as a
"reorganization" within the meaning of Section 368(a) of the Code, in general,
no gain or loss will be recognized by holders of Clearview Securities with
respect thereto on the surrender of their Clearview Securities in exchange for
Cablevision Class A Common Stock, except with respect to cash received in lieu
of fractional shares, and no gain or loss will be recognized by Cablevision,
Merger Sub or Clearview. A holder who surrenders Clearview Securities in the
Merger in exchange for cash consideration will recognize a gain or loss equal to
the excess of such cash consideration over such holder's adjusted tax basis in
the Clearview Securities surrendered therefor. Under the Merger Agreement, if,
and only if, the Average Cablevision Share Price is greater than or equal to the
Floor Price, and, if applicable, Cablevision does not exercise its option to
have Clearview be the Surviving Corporation, it is a condition precedent to the
respective obligations of Cablevision and Clearview to consummate the Merger
that each of Cablevision and Clearview will have received an opinion of its
respective counsel dated the Closing Date to the effect that the Merger will be
treated for federal income tax purposes as a "reorganization" within the meaning
of Section 368(a) of the Code, and that each of Clearview, Cablevision and
Merger Sub will be a party to the "reorganization" within the meaning of Section
368(b) of the Code.
If (i) the Average Cablevision Share Price is less than the Floor Price
and/or (ii) Cablevision exercises its option to have Clearview be the Surviving
Corporation, each holder of Clearview Securities will receive only cash pursuant
to the Merger of Merger Sub into Clearview (the "Reverse Merger") and the
Reverse Merger will not constitute a "reorganization" within the meaning of
Section 368(a) of the Code. Each holder of Clearview Securities will recognize
capital gain or loss in an amount equal to the difference between the amount of
cash received pursuant to the Reverse Merger and the adjusted tax basis of the
Clearview Securities surrendered therefor. The capital gain or loss will be
long-term capital gain or loss if the holder's holding period in such
surrendered Clearview Securities is more than one year. Under recently enacted
legislation, long-term capital gains recognized by a non-corporate taxpayer are
subject to a maximum federal income tax rate of 20%. For a further discussion of
certain tax consequences of the Merger and the Reverse Merger, see "CERTAIN TAX
CONSEQUENCES OF THE MERGER."
10
<PAGE> 27
CERTAIN EFFECTS OF THE MERGER ON THE RIGHTS OF HOLDERS OF CLEARVIEW SECURITIES
Upon consummation of the Merger, holders of Clearview Securities who
receive Security Stock Consideration will become shareholders of Cablevision.
The internal affairs of Cablevision are governed by the DGCL, the Amended and
Restated Certificate of Incorporation of Cablevision (the "Cablevision Restated
Certificate") and the Bylaws of Cablevision (the "Cablevision Bylaws"). The
internal affairs of Clearview are governed by the DGCL, the Amended and Restated
Certificate of Incorporation of Clearview (the "Clearview Restated Certificate")
and the Clearview Amended and Restated Bylaws (the "Clearview Bylaws"). For a
description of certain differences between the rights holders of Clearview
Securities currently have under the Clearview Restated Certificate, the
Clearview Bylaws and the DGCL and those they will have as holders of Cablevision
Class A Common Stock, see "DESCRIPTION OF CABLEVISION CAPITAL STOCK" and
"COMPARISON OF CERTAIN RIGHTS OF SHAREHOLDERS OF CABLEVISION AND CLEARVIEW."
11
<PAGE> 28
COMPARATIVE STOCK PRICES
The shares of Cablevision Class A Common Stock and the Shares are each
listed on the ASE. The shares of Cablevision Class A Common Stock are listed on
the ASE under the symbol "CVC" and the Shares are listed under the symbol "CLV."
The following table sets forth, for the periods indicated, the high and low
sales prices per share of Cablevision Class A Common Stock (adjusted for
Cablevision's two-for-one stock splits effected as special distributions on
March 30, 1998 and August 21, 1998 (the "1998 Cablevision Distributions")) and
the Shares as reported on the ASE composite transactions system. The Shares were
listed, and commenced trading, on the ASE on August 19, 1997.
<TABLE>
<CAPTION>
CABLEVISION
CLASS A CLEARVIEW
SHARES SHARES
---------------- ----------------
CALENDAR QUARTER HIGH LOW HIGH LOW
- ---------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1996
First Quarter......................................... $15.09 $13.19 -- --
Second Quarter........................................ 14.50 11.00 -- --
Third Quarter......................................... 11.56 9.72 -- --
Fourth Quarter........................................ 10.84 6.25 -- --
1997
First Quarter......................................... 8.88 7.44 -- --
Second Quarter........................................ 13.83 6.78 -- --
Third Quarter......................................... 15.69 12.28 $17.25 $ 8.25
Fourth Quarter........................................ 23.94 15.88 14.25 10.19
1998
First Quarter......................................... 33.50 21.78 14.13 10.75
Second Quarter........................................ 42.00 21.31 23.00 13.94
Third Quarter......................................... 44.69 32.00 23.25 19.88
Fourth Quarter (through October 26, 1998)............. 48.50 36.50 23.38 21.56
</TABLE>
On August 11, 1998, the last trading day before the public announcement of
the Merger Agreement, the closing prices of Cablevision Class A Common Stock and
the Shares as reported on the ASE composite transactions system were $41.69 per
share (as adjusted for the Cablevision August Stock Split) and $21.69 per share,
respectively. The Merger has been structured so that the Share Stock
Consideration (based on the Average Cablevision Share Price) will have a value
of $24.25.
On October 26, 1998, the most recent practicable date prior to the mailing
of this Proxy Statement/ Prospectus, the last reported sales prices of the
shares of Cablevision Class A Common Stock and the Shares as reported on the ASE
were $48.50 per share and $23.38 per share, respectively.
Stockholders are urged to obtain current quotations for the market prices
of Cablevision Class A Common Stock and the Shares.
No assurance can be given as to the market price of the Cablevision Class A
Common Stock at the Effective Time. Because the Security Stock Consideration is
determined in the Merger Agreement based on the Average Cablevision Share Price,
the market value of the shares of Cablevision Class A Common Stock that holders
of Clearview Securities will receive at the time they exchange their
Certificates may vary from the market value of the shares of Cablevision Class A
Common Stock represented by the Average Cablevision Share Price.
Cablevision has never paid any cash dividends on the Cablevision Class A
Common Stock. The payment of future dividends on the Cablevision Class A Common
Stock will be a business decision made by the Cablevision Board from time to
time based upon the results of operations and financial condition of Cablevision
and such other factors as the Cablevision Board determines are appropriate.
12
<PAGE> 29
SELECTED HISTORICAL FINANCIAL DATA
CABLEVISION
The historical consolidated statement of operations data (except for book
value per common share) and consolidated balance sheet data for each year ended
and as of December 31 in each year in the five-year period ended December 31,
1997, included in the following selected financial data have been derived from
the Cablevision consolidated financial statements and, prior to March 4, 1998,
CSC Holdings' consolidated financial statements audited by KPMG Peat Marwick LLP
("KPMG Peat Marwick"), independent certified public accountants. The historical
consolidated statement of operations data and balance sheet data as of and for
the six-month periods ended as of June 30, 1998 and 1997 included in the
following selected financial data have been derived from financial statements of
Cablevision that have not been audited, but that, in the opinion of the
management of Cablevision, reflect all adjustments necessary for the fair
presentation of such data for the interim periods. The historical financial
information for periods prior to March 4, 1998 represent the historical
financial information of CSC Holdings. All historical share and per share
information has been adjusted to reflect the reorganization transactions
effected on March 4, 1998 and Cablevision's two-for-one stock splits effected as
special stock distributions on March 30, 1998 and August 21, 1998. The results
of operations for the six-month period ended June 30, 1998 are not necessarily
indicative of the results of operations for the full year, although Cablevision
expects to incur a loss for the year ending December 31, 1998. Such data are
qualified by reference to the Cablevision consolidated financial statements and
the Cablevision Form 10-Qs and Cablevision Form 10-K, which are incorporated by
reference herein. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
13
<PAGE> 30
SELECTED HISTORICAL FINANCIAL DATA OF CABLEVISION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- --------- ---------- ---------- ---------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA(1):
Revenues...................... $1,480,918 $ 797,065 $1,949,358 $1,315,142 $1,078,060 $ 837,169 $ 666,724
Operating expenses:
Technical................... 760,356 340,430 853,800 538,272 412,479 302,885 241,877
Selling, general and
administrative............ 393,521 214,619 514,574 313,476 266,209 195,942 172,687
Restructuring charge........ -- -- -- -- -- 4,306(2) --
Depreciation and
amortization.............. 318,946 222,581 499,809 388,982 319,929 271,343 194,904
---------- --------- ---------- ---------- ---------- --------- ---------
Operating profit............ 8,095 19,435 81,175 74,412 79,443 62,693 57,256
Other income (expense):
Interest expense, net....... (198,269) (152,957) (363,208) (265,015) (311,887) (261,781) (230,327)
Provision for preferential
payment to related
party..................... (980) (2,800) (10,083) (5,600) (5,600) (5,600) (5,600)
Write-off of deferred
interest and financing
costs(3).................. (1,616) -- (24,547) (37,784) (5,517) (9,884) (1,044)
Gain on redemption of
subsidiary preferred
stock..................... -- -- 181,738(4) -- -- -- --
Gain (loss) on redemption of
debentures................ -- -- -- -- -- (7,088)(3) --
Share of affiliates' net
losses.................... (14,893) (31,481) (27,165) (82,028) (93,024) (82,864) (61,017)
Gain (loss) on sale of
programming and affiliate
interests, net............ 141,488 -- 372,053 -- 35,989 -- (330)
Minority interest........... 9,096 3,828 (60,694) (9,417) (8,637) (3,429) 3,000
Miscellaneous, net.......... (13,988) (3,991) (12,606) (6,647) (8,225) (7,198) (8,720)
---------- --------- ---------- ---------- ---------- --------- ---------
Net income (loss)............. (71,067) (167,966) 136,663 (332,079) (317,458) (315,151) (246,782)
Dividend requirements
applicable to preferred
stock of CSC Holdings....... (79,088) (72,731) (148,767) (127,780) (20,249) (6,385) (885)
---------- --------- ---------- ---------- ---------- --------- ---------
Net loss applicable to common
stockholders................ $ (150,155) $(240,697) $ (12,104) $ (459,859) $ (337,707) $(321,536) $(247,667)
========== ========= ========== ========== ========== ========= =========
Basic and diluted loss per
common share................ $ (1.13) $ (2.42) $ (.12) $ (4.63) $ (3.54) $ (3.43) $ (2.71)
========== ========= ========== ========== ========== ========= =========
Average number of common
shares outstanding (in
thousands).................. 133,146 99,368 99,608 99,308 95,304 93,776 91,436
========== ========= ========== ========== ========== ========= =========
Book value per common share... $ (15.62) $ (26.30) $ (23.72) $ (23.90) $ (19.15) $ (19.27) $ (16.19)
========== ========= ========== ========== ========== ========= =========
</TABLE>
14
<PAGE> 31
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF -------------------------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
------------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE MONTHLY REVENUE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(1):
Total assets...................... $ 6,620,550 $ 5,625,091 $ 3,034,725 $ 2,502,305 $ 2,176,413 $ 1,327,418
Total debt........................ 5,122,043 4,694,062 3,334,701 3,157,107 3,169,236 2,235,499
Redeemable preferred stock........ 1,188,226 1,123,808 1,005,265 257,751 -- --
Stockholders' deficiency.......... (2,350,126) (2,378,773) (2,374,285) (1,891,676) (1,818,535) (1,503,244)
STATISTICAL DATA(1):
Homes passed by cable(5).......... 5,116,032 4,398,414 3,858,000 3,328,000 2,899,000 2,240,000
Basic service subscribers......... 3,406,485 2,844,408 2,445,000 2,061,000 1,768,000 1,379,000
Basic penetration(6).............. 66.6% 64.7% 63.4% 61.9% 61.0% 61.6%
Number of premium television
units........................... 4,807,283 4,183,130 3,862,000 3,990,000 3,208,000 3,003,000
Average number of premium units
per basic subscriber............ 1.4 1.5 1.6 1.9 1.8 2.2
Average monthly revenue per basic
subscriber(7)................... $ 42.24 $ 38.53 $ 36.71 $ 37.07 $ 36.33 $ 36.59
</TABLE>
- ---------------
(1) The consolidated statement of operations, balance sheet, statistical, ratios
and other data reflect various acquisitions of cable television systems and
other businesses during the periods presented. See "BUSINESS -- Cable
Television Operations" in the Cablevision Form 10-K. Acquisitions made by
Cablevision during the periods presented were accounted for under the
purchase method of accounting and, accordingly, the acquisition costs were
allocated to the net assets acquired based on their fair value. Acquisitions
are reflected in the consolidated statement of operations, balance sheet and
statistical data from the time of acquisition.
(2) Cablevision recorded a one-time charge in the first quarter of 1994 to
provide for employee severance and related costs resulting from a
restructuring of its operations.
(3) Cablevision wrote off approximately $1.0 million of deferred financing costs
in 1993, related to the replacement of bank debt with subordinated debt. In
October 1994, Cablevision entered into a new bank credit agreement and
redeemed $200 million of its reset debentures. The related deferred
financing costs and unamortized discount of $9.9 million relating to each
were written off (the portions relating to Cablevision of New York City and
Cablevision of New Jersey amounting to $3.2 million were written off in
1995) and charges of approximately $2.0 million in redemption fees, $4.5
million in deferred financing costs and $0.6 million in unamortized discount
were recorded in connection with the redemption of the reset debentures. In
January 1995, Rainbow Media amended its credit agreement to refinance its
existing borrowings and to provide funds for the acquisition of the
third-party interest in SportsChannel New York and Rainbow News 12,
resulting in an approximately $2.3 million write-off of deferred financing
costs. In April 1996, Cablevision wrote off approximately $24.0 million of
deferred interest and financing costs in connection with the refinancing of
all indebtedness of V Cable, Inc. and VC Holding, Inc. and the formation of
Cablevision of Ohio. In September 1996, Cablevision wrote off approximately
$10.7 million of deferred financing costs in connection with the refinancing
of the Cablevision's principal bank credit facility, and in the fourth
quarter of 1996, an additional $3.1 million of deferred financing costs
relating to Cablevision's MFR subsidiary were written off in connection with
a reorganization and refinancing of Cablevision MFR, Inc. In July 1997,
Cablevision paid a premium of approximately $8.4 million to redeem its
10 3/4% Senior Subordinated Debentures due 2004 and wrote off deferred
financing costs of approximately $5.3 million in connection therewith. In
addition, in 1997, Cablevision wrote off deferred financing costs of $4.1
million in connection with the repayment of Cablevision of Ohio's bank debt
and $6.5 million in connection with the amendment to and repayment of the
term loans of the Madison Square Garden, L.P. credit facility.
(4) In July 1997, Cablevision redeemed the Series A Preferred Stock of A-R Cable
Services, Inc. and recognized a gain principally representing the reversal
of accrued preferred dividends in excess of amounts paid.
(5) Homes passed is based upon homes passed by cable actually marketed and does
not include multiple dwelling units passed by the cable plant that are not
connected to it.
(6) Basic penetration represents basic service subscribers at the end of the
period as a percentage of homes passed at the end of the period.
(7) Based on recurring service revenues, excluding installation charges and
certain other revenues such as advertising, pay-per-view and home shopping
revenues, for the month of June or December, as the case may be, divided by
the average number of basic subscribers for that month.
15
<PAGE> 32
CLEARVIEW
The following summary financial data should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CLEARVIEW" and the historical consolidated financial statements,
including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. The Statement of Operations Data for the year ended
December 31, 1997 presented below are derived from Clearview's consolidated
financial statements audited by PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), independent accountants, whose report covering
Clearview's consolidated financial statements as of December 31, 1997 and for
the year then ended and the related financial statements are included elsewhere
herein. The Statement of Operations Data for the years ended December 31, 1996
and 1995 presented below are derived from Clearview's consolidated financial
statements audited by Wiss & Company, LLP ("Wiss & Company"), independent
accountants, whose report covering Clearview's consolidated financial statements
as of December 31, 1996 and 1995 and for the years then ended and the related
financial statements are included elsewhere herein. The Statement of Operations
Data for the periods ended as of June 30, 1998 and 1997 presented below have
been derived from financial statements of Clearview that have not been audited,
but that, in the opinion of the management of Clearview, reflect all adjustments
necessary for the fair presentation of such data for the interim periods. The
Operating Data presented below have been derived from other records of
Clearview.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF CLEARVIEW
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PRO JUNE 30, PRO YEAR ENDED DECEMBER 31,
FORMA --------------------- FORMA ----------------------------------
1998(2) 1998 1997 1997(2) 1997(1) 1996(1) 1995
-------- ---------- -------- -------- ---------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Theater revenues:
Box office............................... $16,343.. $ 13,645 $ 4,709 $ 35,704 $ 12,926 $ 6,195 $ 1,759
Concession............................... 5,465... 4,591 1,338 11,498 3,914 1,861 555
Other.................................... 613..... 590 141 1,175 422 142 31
-------- ---------- -------- -------- ---------- ---------- --------
Total.................................... 22,421.. 18,826 6,188 48,377 17,262 8,198 2,345
-------- ---------- -------- -------- ---------- ---------- --------
Operating expenses:
Film rental and booking fees............. 7,829... 6,529 2,189 16,247 6,168 3,022 824
Cost of concession sales................. 795..... 660 221 1,881 635 279 99
Theater operating expenses............... 8,807... 7,140 2,449 18,161 6,591 3,298 1,078
General and administrative expenses...... 1,690... 1,670 405 2,849 1,131 590 375
Depreciation and amortization............ 3,428... 2,883 798 6,045 2,051 635 100
-------- ---------- -------- -------- ---------- ---------- --------
Total.................................... 22,549 18,882 6,062 45,183 16,576 7,824 2,476
-------- ---------- -------- -------- ---------- ---------- --------
Operating income (loss).................... (128) (56) 126 3,194 686 374 (131)
Interest expense........................... 3,787... 2,626 724 7,725 2,015 592 85
-------- ---------- -------- -------- ---------- ---------- --------
Loss before extraordinary item............. (3,915) (2,682) (598) (4,531) (1,329) (218) (216)
Extraordinary item -- Loss on redemption of
debt..................................... -- (2,030) -- -- -- -- --
-------- ---------- -------- -------- ---------- ---------- --------
Net loss................................... $ (3,915) $ (4,712) $ (598) $ (4,531) $ (1,329) $ (218) $ (216)
======== ========== ======== ======== ========== ========== ========
Basic and diluted loss per share(3)........ $ (1.67) $ (2.71) $ (.33) $ (2.79) $ (1.03) $ (.29) $ (.36)
======== ========== ======== ======== ========== ========== ========
OPERATING DATA:
Box office margin(4)....................... 52.1% 52.2% 53.5% 54.5% 52.3% 51.2% 53.2%
Concession margin(5)....................... 85.5% 85.6% 83.5% 83.6% 83.8% 85.0% 82.2%
Number of theaters......................... 43 40 16 43 31 16 7
Number of screens.......................... 203 193 64 203 148 60 21
Attendance................................. N/A 2,487,000 892,000 N/A 2,322,063 1,167,409 315,406
Average ticket price(6).................... N/A $ 5.49 $ 5.28 N/A $ 5.57 $ 5.31 $ 5.58
Average concession revenue per patron
(7)...................................... N/A $ 1.85 $ 1.50 N/A $ 1.69 $ 1.59 $ 1.76
</TABLE>
16
<PAGE> 33
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PRO JUNE 30, PRO YEAR ENDED DECEMBER 31,
FORMA --------------------- FORMA ----------------------------------
1998(2) 1998 1997 1997(2) 1997(1) 1996(1) 1995
-------- ---------- -------- -------- ---------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM:
Operating activities....................... N/A $ 1,716 $ 538 N/A $ 3,934 $ 1,147 $ 119
Investing activities....................... N/A (18,128) (1,494) N/A (33,647) (7,295) (1,239)
Financing activities....................... N/A 36,005 963 N/A 30,608 6,723 853
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------
HISTORICAL PRO FORMA
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $21,240 $16,012
Total assets................................................ 97,273 96,523
Total long-term debt........................................ 80,000 80,000
Redeemable preferred shares................................. 750 --
Total stockholders' equity.................................. 10,240 10,240
</TABLE>
- ---------------
(1) See Note 2 of the Notes to Consolidated Financial Statements of Clearview
for the year ended December 31, 1997 with respect to its acquisitions in
1996 and 1997.
(2) For a discussion of assumptions and adjustments underlying the unaudited pro
forma combined financial information, see "UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION".
(3) Basic loss per share is calculated by dividing net loss available for common
stock by the weighted average number of common shares outstanding during the
period. Diluted loss per share is calculated by dividing net loss by the
weighted average number of common shares outstanding, while also giving
effect to all dilutive potential common shares that were outstanding during
the period.
(4) Box office margin represents total box office revenues less film rental and
booking fees divided by total box office revenues.
(5) Concession margin represents total concession revenues less cost of
concession sales divided by total concession revenues.
(6) Average ticket price represents total box office revenue divided by
attendance.
(7) Average concession revenue per patron represents concession revenue divided
by attendance.
17
<PAGE> 34
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth certain loss, dividend and book value per
share data for Cablevision and Clearview on a historical basis and historical
equivalent basis. All historical per share information has been adjusted to
reflect the 1998 Cablevision Distributions. The pro forma effect of the Merger
on Cablevision is not material for purposes of the per share data presented
below. The Clearview Equivalent Pro Forma for holders of Shares data was
determined by multiplying Cablevision's historical per share data by an assumed
exchange ratio. The assumed exchange ratio of .50 is determined by dividing
$24.25 by the last reported sale price of Cablevision Class A Common Stock on
October 26, 1998 of $48.50. The information set forth below should be read in
conjunction with the historical consolidated financial statements of Cablevision
and Clearview, including the notes thereto, incorporated by reference or
appearing elsewhere in this Proxy Statement/Prospectus. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1998 1997
-------------- ------------
<S> <C> <C>
CABLEVISION HISTORICAL
Basic and diluted loss per share.......................... $ (1.13) $ (.12)
Cash dividends declared per share......................... -- --
Book value per share...................................... $(15.62) $(23.72)
CLEARVIEW HISTORICAL
Basic and diluted loss per Share.......................... $ (2.71) $ (1.03)
------- -------
Cash dividends declared per Share......................... -- --
------- -------
Book value per Share...................................... $ 4.44 $ 4.67
------- -------
CLEARVIEW EQUIVALENT PRO FORMA FOR HOLDERS OF SHARES
Basic and diluted loss per Share.......................... $ (.57) $ (.06)
------- -------
Cash dividends declared per Share......................... -- --
------- -------
Book value per Share...................................... $ (7.81) $(11.86)
------- -------
</TABLE>
18
<PAGE> 35
RISK FACTORS
The following are certain factors that should be considered by the holders
of Clearview Securities in evaluating the Merger and an investment in
Cablevision Class A Common Stock. Certain statements under this caption "Risk
Factors" constitute forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. See "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE" and "CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS."
SUBSTANTIAL INDEBTEDNESS AND HIGH DEGREE OF LEVERAGE
Cablevision and its subsidiaries have incurred substantial indebtedness and
issued substantial amounts of mandatorily redeemable preferred stock, primarily
to finance acquisitions and expansion of its operations, to refinance
outstanding indebtedness and, to a lesser extent, for investments in and
advances to affiliates. Cablevision's consolidated debt, including CSC Holdings'
11 3/4% Series H Redeemable Exchangeable Preferred Stock and 11 1/8% Series M
Redeemable Exchangeable Preferred Stock ("CSC's Mandatorily Redeemable Preferred
Stock"), aggregated approximately $6.3 billion at June 30, 1998. As a result of
Cablevision's high level of indebtedness and the significant amount of CSC
Holdings' redeemable preferred stock, Cablevision and its subsidiaries have
significant cash requirements to service indebtedness and to pay dividends and
redemption amounts on CSC's Mandatorily Redeemable Preferred Stock, increasing
Cablevision's vulnerability to adverse developments in its business and adverse
economic and industry conditions.
NET LOSSES AND STOCKHOLDERS' DEFICIENCY
Cablevision reported net losses applicable to common stockholders for the
six months ended June 30, 1998 and 1997 of $150.2 million and $240.7 million,
respectively, and for the years ended December 31, 1997, 1996 and 1995 of $12.1
million, $459.9 million and $337.7 million, respectively. At June 30, 1998,
Cablevision had a stockholders' deficiency of $2.4 billion. The net losses
primarily reflect high levels of interest expense and depreciation and
amortization charges relating to the depreciation of assets obtained through,
and debt incurred to finance, acquisitions. Interest expense and depreciation
and amortization charges remained at a high level throughout 1995, 1996 and 1997
and are expected to continue at high levels throughout 1998 and future years as
a result of previously completed, pending and future acquisitions, expected
capital expenditures and additional investments in Cablevision's programming and
other operations. Cablevision expects to continue incurring substantial losses
for at least the next several years.
INTANGIBLE ASSETS
Cablevision had total assets at June 30, 1998 of $6.6 billion, of which
$3.0 billion were intangible assets, consisting of franchises, affiliation
agreements, excess cost over fair value of net assets acquired and deferred
financing, acquisition and other costs. It is possible that no cash would be
recoverable from the voluntary or involuntary sale of these intangible assets.
POSSIBLE NONCOMPLETION OF CERTAIN TRANSACTIONS
There can be no assurances that Cablevision's pending transactions referred
to in the Cablevision Form 10-Q for the fiscal quarter ended June 30, 1998,
including the transactions contemplated by the non-binding letter of intent for
Cablevision to acquire the cable television systems owned by
Tele-Communications, Inc. in and around Hartford, Vernon, Brandford and
Lakeville, Connecticut, or the pending acquisitions of theatres from Loews
referred to under "CABLEVISION RECENT DEVELOPMENTS" will be consummated in a
timely manner or at all. Cablevision does not believe that the failure to
consummate such pending transactions would be reasonably likely to have a
material adverse effect on Cablevision and its subsidiaries taken as a whole.
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<PAGE> 36
NEED FOR ADDITIONAL FINANCING
Cablevision's businesses require substantial investment on a continuing
basis to finance capital expenditures and related expenses for, among other
things, upgrade of cable plant, offering of new services and the further
participation in existing services, the funding of development costs of cable
programming services prior to their becoming cash-flow positive, and the
servicing, repayment or refinancing of its indebtedness and CSC's Mandatorily
Redeemable Preferred Stock.
Cablevision also intends to incur additional costs to facilitate the
startup of such adjunct businesses as high speed data service, digital video
service and residential telephony. Depending upon the timing and scope of the
rollout of these businesses, as to which Cablevision has not yet made any
definitive decisions, Cablevision may require significant additional capital.
Depending on the scope of Cablevision's participation in personal communications
services and direct broadcast satellite ventures (as to which Cablevision has
not made any definitive decisions), significant additional capital may also be
required for these businesses. There can be no assurance that Cablevision will
be able to raise additional capital on satisfactory terms, or at all, to meet
its future financing needs.
COMMITMENTS
Cablevision, through Rainbow Media and its subsidiaries, has entered into
numerous contracts relating to cable television programming, including rights
agreements with professional and other sports teams and, contracts with players
on professional sports teams owned by Madison Square Garden. These contracts
typically require substantial payments over extended periods of time.
VOTING CONTROL BY MAJORITY STOCKHOLDERS; DISPARATE VOTING RIGHTS
As of September 30, 1998, Charles F. Dolan beneficially owned and possessed
sole voting power with respect to 1,094,682 shares or 1.0% of Cablevision's
outstanding Cablevision Class A Common Stock and 18,703,100 shares or 43.3% of
Cablevision's outstanding Cablevision Class B Common Stock. In addition, as of
August 31, 1998, an aggregate of 4,534,024 shares or 10.5% of the outstanding
Cablevision Class B Common Stock were held by the 1997 Grantor Retained Annuity
Trust (the "GRA Trust") established by Mr. Dolan for estate planning purposes.
Mr. Dolan may be deemed to have beneficial ownership of the shares of
Cablevision Class B Common Stock held by the GRA Trust due to his right to
reacquire the Class B Common Stock held by the GRA Trust by substituting other
property of equivalent value, but, until such event, the GRA Trust, through its
co-trustees (who are Mr. Dolan and his spouse), has the power to vote and
dispose of the shares of Cablevision Class B Common Stock held by it. As a
result of his beneficial ownership of the shares held by the GRA Trust, as of
August 31, 1998, Mr. Dolan beneficially owned 1,094,682 shares or 1.0% of the
Cablevision Class A Common Stock and 23,237,124 shares or 53.8% of the
Cablevision Class B Common Stock. On a combined basis, these shares represented
16.1% of the total number of shares of both classes of Cablevision Common Stock
and 43.3% of the total voting power of the Cablevision Common Stock. Other
trusts established by Mr. Dolan for the benefit of certain Dolan family members,
and as to which Mr. Dolan disclaims beneficial ownership, owned, as of September
30, 1998, an additional 3,599,000 shares of Cablevision Class A Common Stock or
3.3% of the Cablevision Class A Common Stock and 19,987,712 shares of
Cablevision Class B Common Stock or 46.2% of the Cablevision Class B Common
Stock and 37.7% of the total voting power of all classes of the Cablevision
Common Stock. As a result of this stock ownership, Dolan family members have the
power to elect all the directors of Cablevision subject to election by holders
of the Cablevision Class B Common Stock, which directors constitute 75% of the
entire Cablevision Board. Moreover, because holders of Cablevision Class B
Common Stock are entitled to ten votes per share while holders of Cablevision
Class A Common Stock are entitled to one vote per share, Dolan family members
may control stockholder decisions on matters in which holders of the Cablevision
Common Stock vote together as a class. These matters include the amendment of
certain provisions of the Cablevision Restated Certificate and the approval of
fundamental corporate transactions, including mergers. In addition, because the
affirmative vote or consent of the holders of at least 66 2/3% of the
outstanding shares of the Cablevision Class B Common Stock, voting separately as
a class, is required to approve (i) the authorization or issuance of any
additional shares of Cablevision Class B Common Stock and (ii) any amendment,
alteration or repeal of any of the
20
<PAGE> 37
provisions of the Cablevision Restated Certificate which adversely affects the
powers, preferences or rights of the Cablevision Class B Common Stock, Dolan
family members also have the power to prevent such issuance or amendment. The
voting rights of the Cablevision Class B Common Stock beneficially owned by the
Dolan family members will not be modified as a result of any transfer of legal
or beneficial ownership thereof.
RESTRICTIVE COVENANTS
Cablevision's principal bank credit facility (the "Credit Agreement") and
certain of Cablevision's other debt instruments contain various financial and
operating covenants which, among other things, require the maintenance of
certain financial ratios and restrict Cablevision's ability to borrow funds from
other sources and to utilize funds for various purposes, including investments
in certain subsidiaries. Violation of the covenants in the Credit Agreement or
in the indentures governing Cablevision's publicly issued debentures and notes
could result in a default under the Credit Agreement which would permit the bank
lenders thereunder (i) to restrict Cablevision's ability to borrow undrawn funds
under the Credit Agreement and (ii) to accelerate the maturity of borrowings
thereunder.
In addition, the indenture (the "Clearview Indenture") which governs
Clearview's 10 7/8% Senior Notes due 2008 ("Clearview's Senior Notes") contains
various financial and operating covenants. It is currently contemplated that on
or about the date of this Proxy Statement/Prospectus, Clearview will commence a
tender offer for Clearview's Senior Notes and solicit consents to eliminate,
modify or otherwise amend certain of such restrictions. It is currently
contemplated that the receipt of sufficient consents to modify such restrictions
and the satisfaction or waiver of all of the conditions to the Merger will be
conditions to the consummation of the tender offer for Clearview's Senior Notes,
and that such modifications or amendments would not become effective until
immediately prior to the acceptance of Clearview's Senior Notes pursuant to such
tender offer immediately prior to the Effective Time. There can be no assurance
that a sufficient number of consents will be obtained or that the tender offer
will be consummated, but neither is a condition to the consummation of the
Merger.
NO DIVIDENDS PAID OR TO BE PAID; FLUCTUATIONS IN THE PRICE OF CABLEVISION CLASS
A COMMON STOCK
Cablevision has never declared or paid cash dividends on the Cablevision
Class A Common Stock and does not intend to pay cash dividends on such stock in
the foreseeable future. In addition, certain debt instruments to which
Cablevision is a party contain covenants which effectively prohibit the payment
of such dividends. Accordingly, holders of Cablevision Class A Common Stock will
receive a return on their investment only through the sale of such stock. The
price of Cablevision Class A Common Stock on the ASE has fluctuated
significantly and is likely to continue to fluctuate.
RISKS RELATED TO REGULATION
Cablevision's cable television operations may be adversely affected by
government regulation, the impact of competitive forces and technological
changes. In 1992, Congress enacted the 1992 Cable Act, which represented a
significant change in the regulatory framework under which cable television
systems operate. In 1993 and 1994, the Federal Communications Commission ("FCC")
ordered reductions in cable television rates. In 1995, a federal appeals court
upheld the material aspects of the FCC's rate regulation scheme. Congress
subsequently enacted legislation (the "Telecommunication Act of 1996") that
relaxes the regulation of cable television rates; however, the most significant
rate regulation relaxation affecting Cablevision will not occur until after
March 31, 1999, and legislation has been introduced in Congress to postpone the
effective date of such legislation indefinitely.
RISK OF COMPETITION
Cable operators compete with a variety of distribution systems, including
broadcast television stations, DBS, multichannel multipoint distribution
services ("MMDS"), satellite master antenna systems ("SMATV") and private home
dish earth stations. For example, four DBS systems are now operational in the
United States, some with investment by companies with substantial resources such
as Hughes Electronics
21
<PAGE> 38
Corp., AT&T Corp. and News Corporation. The 1992 Cable Act prohibits a cable
programmer that is owned by or affiliated with a cable operator (such as Rainbow
Media) from unreasonably discriminating among or between cable operators and
other multichannel video distribution systems with respect to the price, terms
and conditions of sale or distribution of the programmer's service and from
unreasonably refusing to sell service to any multichannel video programming
distributor. Cable systems also compete with the entities that make videotaped
movies and programs available for home rental. The 1992 Cable Act regulates the
ownership by cable operators of MMDS and SMATV. Under the Telecommunications Act
of 1996, the cross-ownership provisions do not apply to any cable operator in a
franchise area in which a cable operator faces competition from video
programming distributors meeting certain statutory requirements. The
Telecommunications Act of 1996 gives telephone companies and other video
providers the option of providing video programming to subscribers through "open
video systems" ("OVS"), a wired video delivery system similar to a cable
television system that would not require a local cable franchise. Several OVS
operators have sought to enter New York City, Boston and Westchester County, New
York. Additional video competition to cable systems is possible from new
wireless local multipoint distribution services ("LMDS") authorized by the FCC,
for which spectrum was recently auctioned by the FCC.
COMPETITION FROM TELEPHONE COMPANIES
The 1984 Cable Act barred co-ownership of telephone companies and cable
television systems operating in the same service areas. The Telecommunications
Act of 1996 repeals this restriction and permits a telephone company to provide
video programming directly to subscribers in its telephone service territory,
subject to certain regulatory requirements, but generally prohibits a telephone
company from acquiring an in-region cable operator, except in certain small
markets under certain circumstances. Telephone companies (Ameritech Corp. in
Ohio and Southern New England Telephone Co. in Connecticut) have obtained or
applied for local franchises to construct and operate cable television systems
in several communities in which Cablevision currently holds cable franchises,
and in certain locations have commenced offering service in competition with
Cablevision.
RISK OF NON-EXCLUSIVE FRANCHISES AND FRANCHISE RENEWALS
Cablevision's cable television systems are operated primarily under
non-exclusive franchise agreements with local government franchising
authorities, in some cases with the approval of state cable authorities.
Cablevision's business is dependent on its ability to obtain and renew its
franchises. Although Cablevision has never lost a franchise as a result of a
failure to obtain a renewal, its franchises are subject to non-renewal or
termination under certain circumstances. In certain cases, franchises have not
been renewed at expiration and Cablevision operates under either temporary
operating agreements or without a license while negotiating renewal terms with
the franchising authorities.
YEAR 2000
Cablevision recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk.
Cablevision is in the process of identifying and evaluating the risks
associated with its financial and operational systems, including obtaining
information from outside data processing suppliers and others as to the status
of their exposure to Year 2000 problems. The total cost of compliance and its
effect on Cablevision's future results of operations have not yet been
determined, but could be significant.
22
<PAGE> 39
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Clearview
Securities in connection with the solicitation of proxies by the Clearview Board
for use at the Special Meeting, to be held on November 25, 1998, and any
adjournments or postponements thereof, for such holders to consider and vote
upon the Merger Proposal. No other business will be transacted at the Special
Meeting.
THE CLEARVIEW BOARD HAS ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT
HOLDERS OF SHARES AND CLASS A PREFERRED SHARES VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER PROPOSAL.
Each copy of this Proxy Statement/Prospectus mailed to holders of Voting
Shares is accompanied by a form of proxy for use by holders of Shares and Class
A Preferred Shares at the Special Meeting.
This Proxy Statement/Prospectus is also furnished to holders of Clearview
Securities as a prospectus in connection with the issuance by Cablevision of
shares of Cablevision Class A Common Stock in connection with the Merger.
DATE, PLACE AND TIME
The Special Meeting will be held on December 1, 1998 at 10:00 a.m., local
time, at the offices of Kirkpatrick & Lockhart, 1251 Avenue of the Americas,
45th Floor, New York, New York 10020.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of Shares and Class A Preferred Shares will
consider and vote upon the Merger Proposal.
RECORD DATE
The Clearview Board has fixed the close of business on October 16, 1998 as
the Record Date for the determination of the holders of Shares and Class A
Preferred Shares entitled to receive notice of and to vote at the Special
Meeting and at any adjournments or postponements thereof.
VOTE REQUIRED
As of the Record Date, there were 2,304,802 Shares and 779 Class A
Preferred Shares issued and outstanding. Each Share outstanding on the Record
Date is entitled to one vote on the Merger Proposal, and each Class A Preferred
Share is entitled to 600 votes on the Merger Proposal. The affirmative vote of a
majority of the votes that could be cast by the record holders of the Shares and
Class A Preferred Shares outstanding as of the Record Date, voting together as a
single class, is required to approve the Merger Proposal. Any failure to be
present at the Special Meeting, in person or by proxy, any abstention and any
broker non-vote will have the same effect as a vote against the Merger Proposal.
THE PRESENCE, IN PERSON OR BY PROXY, OF HOLDERS OF SHARES AND CLASS A
PREFERRED SHARES REPRESENTING A MAJORITY OF THE VOTES ENTITLED TO BE CAST AT THE
SPECIAL MEETING WILL CONSTITUTE A QUORUM FOR THE TRANSACTION OF BUSINESS.
ABSTENTIONS AND BROKER NON-VOTES WILL BE COUNTED AS PRESENT FOR THE PURPOSES OF
DETERMINING WHETHER A QUORUM IS PRESENT. THE SPECIAL MEETING MAY BE ADJOURNED OR
POSTPONED FROM TIME TO TIME WITHOUT FURTHER NOTICE, INCLUDING FOR THE PURPOSE OF
SOLICITING ADDITIONAL PROXIES BY THE HOLDERS OF SHARES AND CLASS A PREFERRED
SHARES REPRESENTING MAJORITY OF VOTES ENTITLED TO BE CAST THEREON PRESENT AT THE
SPECIAL MEETING, IN PERSON OR BY PROXY, WHETHER OR NOT CONSTITUTING A QUORUM.
PROXIES CONTAINING A VOTE AGAINST THE MERGER PROPOSAL WILL NOT BE VOTED IN FAVOR
OF SUCH ADJOURNMENT OR POSTPONEMENT.
As of the Record Date, directors and executive officers of Clearview and
their affiliates owned beneficially an aggregate of 1,158,802 Shares (including
shares which may be acquired within 60 days upon exercise of employee stock
options) and 779 Class A Preferred Shares, representing approximately 58.8% of
the total number of votes entitled to be cast by record holders of Shares and
Class A Preferred Shares at the Special
23
<PAGE> 40
Meeting. The directors and executive officers of Clearview have indicated their
intention to vote their Shares and Class A Preferred Shares for the Merger
Proposal. See "THE MERGER -- Interests of Certain Persons in the Merger."
No approval by the shareholders of Cablevision is required to effect the
Merger.
STOCKHOLDERS AGREEMENT
As a condition and inducement to Cablevision's and Merger Sub's willingness
to enter into the Merger Agreement, the Selling Stockholders entered into the
Stockholders Agreement with Cablevision pursuant to which such Selling
Stockholders have agreed, amongst other things, to vote all the Shares and Class
A Preferred beneficially owned and thereafter acquired by such Selling
Stockholders ("Selling Stockholders' Securities") FOR the Merger Proposal. As of
the Record Date, the Selling Stockholders' beneficially owned Shares and Class A
Preferred representing approximately 54.7% of the votes that could be cast at
the Special Meeting. ACCORDINGLY, APPROVAL OF THE MERGER PROPOSAL IS ASSURED,
REGARDLESS OF THE VOTES OF ANY OTHER CLEARVIEW STOCKHOLDER.
Pursuant to the Stockholders Agreement, to the extent such rights arise as
a result of the Merger, the execution of the Stockholders Agreement, the Merger
Agreement or the other transactions contemplated by such agreements, each
Selling Stockholder has irrevocably waived (i) any rights of appraisal or rights
to dissent from the Merger, (ii) other than pursuant to the terms of the Merger
Agreement relating to the conversion of Clearview Securities into the right to
receive the applicable Merger Consolidation at the Effective Time, any rights to
require or otherwise cause Clearview or Cablevision to exercise, convert or
exchange any of such Selling Stockholder's Securities for shares of capital
stock or other securities or property or assets of Cablevision or Clearview,
(iii) any rights to require or otherwise cause Clearview or Cablevision to
redeem any of such Selling Stockholder's Preferred Shares, (iv) any rights to
receive preferential payments or other distributions upon a Liquidation Event,
Mandatory Redemption Event (each as defined in the applicable Certificate of
Designation with respect to the Preferred Shares) or other similar events or (v)
any rights to vote separately as a class of Preferred Shares upon adoption of
the Merger Agreement at a meeting of stockholders of Clearview.
Each of the Selling Stockholders has severally agreed that in the event (i)
any stock dividend, stock split, recapitalization, reclassification, combination
or exchange of shares of capital stock of Clearview on, of or affecting a
Selling Stockholder's Securities, (ii) such Selling Stockholder purchases or
otherwise acquires beneficial ownership of any Clearview Securities after the
execution of the Stockholders Agreement, (iii) such Selling Stockholder
voluntarily acquires the right to vote or share in the voting of any Clearview
Securities other than such Selling Stockholder's Securities, or (iv) such
Selling Stockholder converts any Preferred Shares into or exercises any Warrants
beneficially owned by such Selling Stockholder for Shares, whether pursuant to
the Stockholders Agreement or otherwise (Clearview Securities beneficially
acquired pursuant to (i), (ii), (iii) or (iv) being collectively referred to as
"New Securities"), such New Securities will be subject to the terms of the
Stockholders Agreement to the same extent as if they constituted such Selling
Stockholders' Securities. The Stockholders Agreement does not require any
Selling Stockholder that owns Preferred Shares to convert such Preferred Shares
into Shares.
In the Stockholders Agreement, each Selling Stockholder has severally
agreed to deliver to Cablevision upon request an irrevocable proxy and to use
all reasonable efforts to take, or cause to be taken, all actions necessary or
advisable in order to consummate the transactions contemplated by the
Stockholders Agreement. Each of the Selling Stockholders has also severally
agreed not to voluntarily transfer, sell, offer, pledge or otherwise dispose of
or encumber any of his or her Selling Stockholder's Securities or New Securities
prior to the earlier of (a) immediately following adoption of the Merger
Agreement by the Clearview Requisite Vote or (b) the date the Stockholders
Agreement is terminated in accordance with its terms.
A copy of the Stockholders Agreement is attached as Annex B to this Proxy
Statement/Prospectus and is incorporated herein by reference.
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<PAGE> 41
VOTING AND REVOCATION OF PROXIES
Voting Shares represented by a proxy properly signed and received at or
prior to the Special Meeting, unless properly revoked, will be voted in
accordance with the instructions thereon. IF A PROXY IS SIGNED AND RETURNED
WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES AND CLASS A PREFERRED SHARES
REPRESENTED BY THE PROXY WILL BE VOTED FOR THE MERGER PROPOSAL. A stockholder
submitting a proxy may revoke it at any time before it is voted, either by
voting in person at the meeting, or by executing and delivering a later dated
proxy or written instrument revoking such proxy. All written notices of
revocation and other communications with respect to revocation of proxies should
be addressed as follows: Robert D. Lister, Vice-President, Secretary and General
Counsel, Clearview Cinema Group, Inc., 97 Main Street, Chatham, New Jersey
07928.
Holders of Clearview Securities will not be entitled to present any matter
for consideration at the Special Meeting, and no business is to be acted upon at
the Special Meeting other than as set forth in the Notice of Special Meeting of
Stockholders.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Clearview, none of whom will be specifically compensated for such services, may
solicit proxies from holders of Shares and Class A Preferred Shares personally
or by telephone, telecopy or telegram or other forms of communication. Brokerage
houses, nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending proxy materials to beneficial owners.
HOLDERS OF CLEARVIEW SECURITIES SHOULD NOT SEND CERTIFICATES REPRESENTING
THEIR SHARES AND CLASS A PREFERRED SHARES WITH THEIR PROXY CARDS; CERTIFICATES
REPRESENTING CLEARVIEW SECURITIES (OR AN APPROPRIATE GUARANTEE OF DELIVERY) MUST
ACCOMPANY THE FORM OF ELECTION ENCLOSED WITH THIS PROXY STATEMENT/ PROSPECTUS
PURSUANT TO WHICH HOLDERS OF CLEARVIEW SECURITIES CAN, UPON THE TERMS AND
SUBJECT TO THE CONDITIONS SET FORTH IN THE MERGER AGREEMENT INCLUDING CERTAIN
ALLOCATION LIMITATIONS AND PRORATION PROCEDURES, ELECT TO RECEIVE THE APPLICABLE
SECURITY STOCK CONSIDERATION AND/OR THE APPLICABLE SECURITY CASH CONSIDERATION.
SEE "THE MERGER -- EXCHANGE OF CLEARVIEW CERTIFICATES FOR SHARES OF CABLEVISION
CLASS A COMMON STOCK".
25
<PAGE> 42
THE COMPANIES
CABLEVISION
For a description of Cablevision's businesses and recent developments
concerning Cablevision and its businesses, see the Cablevision Form 10-K, the
Cablevision Form 10-Qs and the Cablevision Form 8-Ks, each of which is
incorporated by reference herein. The following description is qualified in its
entirety by reference to such incorporated documents. See "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE."
Cablevision owns and operates, through various subsidiaries, cable
television systems in eight states with approximately 3,406,000 subscribers at
June 30, 1998. Through Rainbow Media, Cablevision owns interests in and manages
numerous national and regional programming networks, the Madison Square Garden
sports and entertainment business and cable television advertising sales
companies. Cablevision, through Cablevision Lightpath, provides switched
telephone service. Cablevision also owns Cablevision Electronics, doing business
as Nobody Beats The Wiz, an electronics retailer operating approximately 40
retail locations in the New York City metropolitan area.
Description of Cablevision; Cable Operations. Cablevision is one of the
largest operators of cable television systems in the United States, with
approximately 3,406,000 subscribers in eight states as of June 30, 1998, based
on the number of basic subscribers in systems that are currently majority owned
and managed by Cablevision. Cablevision's strategy has been to concentrate its
cable television systems in and around three major metropolitan areas: New York
City, Boston and Cleveland, with a view to being a significant cable provider in
each of these markets; to maximize its revenue per subscriber by marketing
premium services; to develop and promote niche programming and entertainment
services; and to remain an industry leader in upgrading the technological
capabilities of its systems. Cablevision believes that its cable television
systems on Long Island, New York comprise the largest contiguous group of cable
television systems under common ownership in the United States (measured by
number of subscribers). By developing systems in and around major metropolitan
areas, including expansion through acquisitions in areas in which Cablevision
has existing systems, Cablevision has been able to realize economies of scale in
the operation and management of its systems and to capitalize on opportunities
to create and market programming of regional interest. Through the current and
planned upgrade of its cable plant, including the utilization of fiber optic
cable and associated electronics, Cablevision is seeking to increase
significantly its channel capacity so as to accommodate more analog and add new
digital channel capacity, which will facilitate the startup of such adjunct
businesses as information services, interactive services (including internet
access), near video on demand, video on demand, residential telephony and
commercial telephony. To successfully roll out these adjunct new businesses
significantly beyond the initial development phases, Cablevision will require
additional capital. See "RISK FACTORS -- Need for Additional Financing."
Programming and Entertainment. Cablevision conducts its programming and
entertainment activities through Rainbow Media, its 75% owned subsidiary, and
through subsidiaries of Rainbow Media in partnership with certain unaffiliated
entities, including Fox/Liberty Networks, L.L.C. ("Fox/Liberty"). The remaining
25% interest in Rainbow Media is owned by NBC Cable Holding, Inc. Rainbow
Media's businesses include leading national and regional programming networks
and the Madison Square Garden sports and entertainment businesses. Rainbow Media
also owns cable television advertising businesses. Rainbow Media's national
entertainment networks include American Movie Classics (which features American
theatrically released classic films and original programming), Bravo (which
features films and performing arts programs, including jazz, dance, classical
music and theatrical and original programming), Romance Classics (which features
theatrically released films, mini-series, made for television movies and
original programming having a romantic theme), MuchMusic (which features a
diverse mix of new and established musical artists) and The Independent Film
Channel (which features independent films made outside the traditional Hollywood
system). National Sports Partners is a national sports network featuring Fox
Sports Net, which provides national sports programming to regional sports
networks. National Sports Partners is 50% owned by Rainbow Media and is managed
and 50% owned by Fox/Liberty. Rainbow Media owns a 60% interest in, and manages,
Regional Programming Partners, a partnership with Fox/Liberty. Regional
Programming Partners owns an
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approximate 96.3% interest in Madison Square Garden Arena and the adjoining
Theatre at Madison Square Garden, the New York Knickerbockers professional
basketball team, the New York Rangers professional hockey team, the New York
Liberty professional women's basketball team, the New York City Hawks
professional arena football team, the Madison Square Garden Network, Fox Sports
New York and Radio City Productions (which operates Radio City Music Hall in New
York City). Regional Programming Partners also owns interests in regional sports
networks that provide regional sports programming to the New England, Chicago,
Cincinnati, Cleveland, San Francisco and Florida areas, in addition to Madison
Square Garden Network and Fox Sports New York which provide regional sports
programming to the New York City metropolitan area. Rainbow Media owns Rainbow
News 12 which operates regional news networks servicing suburban areas
surrounding New York City. Rainbow Media also owns and operates Rainbow
Advertising Sales Corporation, a cable television advertising company, and owns
a 50% interest in National Advertising Partners, which sells national
advertising for regional sports networks and is managed and 50% owned by Fox/
Liberty. See "BUSINESS -- Programming Operation -- General" in the Cablevision
Form 10-K.
The mailing address of Cablevision's principal executive offices is One
Media Crossways, Woodbury, New York 11797 and its telephone number is (516)
803-2300.
CLEARVIEW
Clearview is a major regional first-run motion picture exhibitor that
operates primarily community-based multiplex theaters in affluent suburban
communities in the New York/New Jersey metropolitan area. Clearview offers a
broad mix of first-run films with a particular focus on films designed to appeal
to sophisticated moviegoers and families with younger children residing in these
communities. As of September 30, 1998, Clearview operated 43 theaters with a
total of 203 screens. For the year ended December 31, 1997, on a pro forma basis
after giving effect to the 1997 Acquisitions, 1998 Acquisitions and the
Transactions (each as defined under the caption "DESCRIPTION OF BUSINESS OF
CLEARVIEW -- Recent Acquisitions"), Clearview's revenues and net loss would have
been $48.4 million and $4.5 million, respectively. For the six months ended June
30, 1998, on a pro forma basis after giving effect to the 1998 Acquisitions
(other than the Cobble Hill Acquisition and the Bala Cynwyd Acquisition) and the
Transactions (each as defined under the caption "DESCRIPTION OF BUSINESS OF
CLEARVIEW -- Recent Acquisitions"), Clearview's revenues and net loss would have
been approximately $22.4 million and $3.9 million, respectively.
Clearview operates clean, comfortable, visually appealing and
service-oriented theaters predominantly located in affluent towns and
communities rather than in shopping malls or near highways. Clearview believes
that, in many suburban communities in the Middle Atlantic and New England
states, theaters located in town or in community-based retail centers serve
audiences that prefer the convenience and familiarity of such theaters to the
larger out-of-town megaplex theaters that appear to be the focus of the major
theater circuits. Many of Clearview's target markets are in densely populated,
affluent areas consisting of numerous small municipalities with local business
districts that are well suited to Clearview's strategy of operating community-
based theaters. In many of these areas it can be difficult for theater circuit
operators to build or expand theaters into large multiplexes or megaplexes due
to a lack of affordable real estate, zoning laws and community resistance.
Founded in 1994 with four theaters and eight screens, Clearview has grown
through both acquisitions and theater development. Since that time, Clearview
has completed 16 acquisitions, representing 34 theaters with a total of 170
screens, and entered into agreements to operate four theaters with 13 screens.
Management has successfully integrated these theaters into its operations by
reducing operating expenses and implementing new operating standards, management
controls and information systems. Clearview has also upgraded the seating,
improved the sound and projection equipment, refurbished the interior
furnishings and broadened the concession offerings in most locations.
Additionally, since early 1995 Clearview has added seven screens to existing
theaters and constructed a new five-screen theater in an existing building,
resulting in an aggregate of 43 theaters with a total of 203 screens as of
September 30, 1998. See "DESCRIPTION OF BUSINESS OF CLEARVIEW -- Existing
Theaters."
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The mailing address of Clearview's principal executive offices is 97 Main
Street, Chatham, New Jersey, 07928 and its telephone number is (973) 377-4646.
MERGER SUB
Merger Sub, a wholly-owned subsidiary of Cablevision, was formed solely for
the purpose of effecting the Merger and effecting the other transactions
contemplated by the Merger Agreement. The mailing address of Merger Sub's
principal executive offices is One Media Crossways, Woodbury, New York 11797 and
its telephone number is (516) 803-2300.
CABLEVISION RECENT DEVELOPMENTS
On August 21, 1998, Cablevision paid a dividend of one share of Cablevision
Class A Common Stock for each share of Cablevision Class A Common Stock issued
and outstanding as of August 10, 1998, and one share of Cablevision Class B
Common Stock for each share of Cablevision Class B Common Stock issued and
outstanding as of August 10, 1998.
CSC Holdings and Loews have entered into the Initial Theaters Agreement
relating to the Initial Loews Transaction. Loews was required to divest the
Initial Loews Theaters (other than the New Jersey theater) under the terms of
the DOJ Final Judgement which permitted the merger of Loews Theaters Exhibition
Group and Cineplex earlier in 1998. Under the Initial Theaters Agreement, CSC
Holdings will pay Loews $85.0 million in cash for the Initial Loews Theaters. In
addition, CSC Holdings has entered into a second agreement with Loews pursuant
to which CSC Holdings has the right, subject to satisfactory completion of its
due diligence investigation, to purchase the Additional Theaters in the greater
New York metropolitan area for approximately $6.7 million in cash. In connection
with the Additional Loews Theaters Transaction, Loews has granted CSC Holdings a
right of first offer on an additional 21 movie theaters in the greater New York
metropolitan area until the first anniversary of the closing of the Initial
Loews Transaction. The Initial Loews Transaction is expected to be completed
later this year and the Additional Loews Theaters Transaction is expected to be
completed contemporaneously therewith or shortly thereafter. The closings of
both transactions are subject to customary closing conditions, including the
receipt of various consents and approvals, and, in respect of the Initial Loews
Transaction, the receipt by Loews of written notice that the DOJ does not object
to the consummation of the transaction contemplated by the Initial Theaters
Agrement in accordance with the DOJ Final Judgment.
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THE MERGER
This section of this Proxy Statement/Prospectus describes certain aspects
of the Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached as Annex A to
this Proxy Statement/Prospectus and is incorporated herein by reference. All
holders of Clearview Securities are urged to read the Merger Agreement in its
entirety.
GENERAL
The Merger Agreement provides for a business combination between Merger Sub
and Clearview pursuant to which, subject to the conditions therein, at the
Effective Time, Clearview will be merged with and into Merger Sub, with Merger
Sub being the Surviving Corporation, provided, however, that if the Average
Cablevision Share Price is less than the Floor Price, at Cablevision's sole
option and discretion, at the Effective Time, Merger Sub will be merged with and
into Clearview, with Clearview being the Surviving Corporation. In either case,
the Surviving Corporation will be a wholly-owned subsidiary of Cablevision. The
Merger is intended to qualify as a "purchase" for accounting and financial
reporting purposes and, subject to the discussion below and provided that the
Average Cablevision Share Price is greater than or equal to the Floor Price, as
a tax-free "reorganization" within the meaning of Section 368(a) of the Code for
federal income tax purposes. See "ACCOUNTING TREATMENT" and "CERTAIN TAX
CONSEQUENCES OF THE MERGER." Each previously outstanding share of Cablevision
Class A Common Stock will remain outstanding and unaffected by the Merger. If
the Average Cablevision Share Price is $48.50 (the last reported sale price of
Cablevision Class A Common Stock on October 26, 1998) then as a result of the
allocation limitations and proration procedures in the Merger Agreement the
holders of Clearview Securities outstanding on the Record Date will receive an
aggregate number of shares of Cablevision Class A Common Stock in the Merger
representing less than one percent of the aggregate number of shares of
Cablevision Class A Common Stock outstanding as of the date of this Proxy
Statement/Prospectus and representing less than one percent of the aggregate
voting power of all classes of Cablevision Common Stock outstanding as of such
date. The Cablevision Class A Common Stock is entitled to one vote per share,
while the Cablevision Class B Common Stock is entitled to ten votes per share.
See "DESCRIPTION OF CABLEVISION CAPITAL STOCK."
BACKGROUND OF THE MERGER
Clearview's corporate strategy has been to acquire and develop clusters of
movie theaters that are close to its existing theaters and to seek to acquire or
develop similar clusters of theaters in other target markets in the Middle
Atlantic and New England states. Clearview has financed its acquisitions
primarily through a combination of: bank borrowings; the issuance of
subordinated promissory notes, Class B Preferred Stock and Shares; the net
proceeds (approximately $7.1 million) of its initial public offering of Common
Stock in August 1997; the net proceeds (approximately $3.0 million) from the
sale of the Class C Preferred Stock in April 1998; and the sale in June 1998 of
$80 million aggregate principal amount of Clearview's Senior Notes. While the
Clearview Board believes that available cash, cash flow from operations and
other available sources of cash (including amounts available under its existing
bank credit facility) are sufficient to fund Clearview's stand-alone growth
strategy through at least the end of 1998, the Clearview Board and management
have recognized that additional funds would be required to finance expansion
plans consistent with its growth strategy and that Clearview's ability to incur
additional indebtedness or to issue preferred stock is limited by restrictive
covenants in the Clearview Indenture and in its existing bank credit facility.
Accordingly, Clearview's management has, from time to time, consulted CSFB
regarding ways in which CSFB might assist Clearview in obtaining sufficient
financing to permit the implementation of its growth strategy over the long
term.
In June 1998, in light of the publicly announced intention of LTM Holdings,
Inc. ("LTM"), a subsidiary of Loews, to divest certain New York and Chicago
theaters (the "Loews Theaters") pursuant to the DOJ Final Judgment, the
Clearview Board authorized Clearview's President, A. Dale Mayo, to explore
opportunities for Clearview to acquire movie theaters in the Borough of
Manhattan, New York City, including certain of the Loews Theaters. The Clearview
Board believed that the divestiture by LTM of the Loews Theaters
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presented a unique opportunity to acquire multiple theaters in Manhattan.
Clearview understood that final bids for the Loews Theaters might have to be
submitted as early as late July 1998 and accordingly, on June 19, 1998,
Clearview's management advised LTM of Clearview's preliminary non-binding
indication of interest in acquiring the assets of the Loews Theaters located in
Manhattan. Clearview recognized, however, that there were likely to be other
bidders for the Loews Theaters with considerably greater financial resources
and, given its available sources of cash and the restrictions on its ability to
incur additional indebtedness, that Clearview might have to form a strategic
alliance or enter into another type of relationship or transaction with a third
party in order to finance a competitive bid.
Contemporaneously CSFB, in its capacity as financial advisor to, and at the
direction of, LTM, contacted representatives of Cablevision to explore whether
Cablevision might be interested in acquiring the Loews Theaters. In light of the
fact that Cablevision did not operate any movie theaters, CSFB suggested the
possibility of Cablevision working with a company already engaged in the theater
exhibition business to pursue a possible bid. Cablevision expressed an interest
in exploring such possibilities with Clearview, who Cablevision understood
operated a theater exhibition business in geographic areas complementary to
Cablevision's primary geographic focus. CSFB informed Mr. Mayo that Cablevision
had indicated that it might be interested in entering the theater exhibition
business and was interested in discussing the possibility of an arrangement with
Clearview that would facilitate Cablevision entering the bidding for the Loews
Theaters. CSFB made it clear to Clearview, however, that while CSFB could advise
Clearview regarding a possible transaction or arrangement between Clearview and
Cablevision, CSFB could not advise either Clearview or Cablevision with respect
to the possible acquisition of the Loews Theaters. Mr. Mayo informed the other
Clearview directors of Cablevision's interest, and asked the directors to begin
to familiarize themselves with Cablevision so that Clearview would be in a
position to react promptly if Cablevision were to propose some form of
transaction or arrangement. At the same time, Clearview continued to explore
with CSFB the possibility of Clearview returning to the public equity market to
finance its growth strategy over the long term.
On June 30, 1998, an exploratory meeting was held among senior executive
officers of Cablevision, representatives of Gemini Associates, Inc. ("Gemini"),
financial advisor to Cablevision, Mr. Mayo, and representatives of CSFB,
financial advisor to Clearview. While no specific transaction or arrangement was
discussed or proposed, Cablevision's representatives indicated that Cablevision
was interested in acquiring the Loews Theaters, but that if there were to be any
transaction or arrangement between Cablevision and Clearview, the terms would
have to be finalized prior to the time bids were due on the Loews Theaters. It
was understood that pending any further discussions between the two companies,
Cablevision and Clearview would each continue to pursue independently their
respective interests in acquiring the Loews Theaters.
On July 9, 1998, Mr. Mayo met with representatives of Cablevision to review
and discuss Clearview's business and growth strategy. Representatives of CSFB
and Gemini were also present. On July 24, 1998, Clearview was informed that the
deadline for final proposals to acquire the Loews Theaters was August 11, 1998.
On July 27, 1998, Mr. Mayo was advised by Gemini that Cablevision was in
the process of determining whether to propose some kind of arrangement or
transaction with Clearview relating to a bid for the Loews Theaters, and that
Cablevision had concluded that it would not submit a bid for the Loews Theaters
without assurances that, if the Cablevision bid were successful, Clearview's
experienced management would be available to manage and operate the theaters. On
the following day, Mr. Mayo and Robert D. Lister, Clearview's General Counsel,
arranged to meet with CSFB and Kirkpatrick & Lockhart, Clearview's outside
counsel, to discuss possible alternative transaction structures or arrangements,
including the possibility of forming a special purpose joint venture entity.
Shortly prior to that meeting, Gemini informed CSFB that Cablevision wanted to
promptly commence a due diligence investigation of Clearview so that Cablevision
could determine whether to propose a merger pursuant to which Cablevision would
acquire Clearview for a consideration per Share in excess of the then current
market price of the Shares. Clearview understood that Cablevision would need to
complete its due diligence investigation and finalize the terms of any
transaction prior to the August 11 deadline for the submission of bids for the
Loews Theaters. Clearview also understood that Cablevision would not be willing
to submit a bid for the Loews Theaters unless holders of Clearview
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Securities having the right to cast a majority of the votes entitled to be cast
at a meeting of Clearview stockholders, on a fully diluted basis, had entered
into an agreement with Cablevision obligating such stockholders to vote in favor
of the Merger or unless Cablevision had other satisfactory assurances that it
would be able to consummate the acquisition of Clearview and retain the services
of Clearview senior management. At the direction of Clearview's directors,
Clearview management facilitated Cablevision's due diligence efforts over the
ensuing two weeks.
During the week of August 3, 1998, an initial draft of a proposed merger
agreement was prepared by Cablevision's counsel and delivered to Clearview's
counsel. The draft, which did not indicate the value of the consideration
Cablevision was prepared to offer, was circulated to Clearview's directors and
financial advisor.
On August 5, 1998, Mr. Mayo met with representatives of Cablevision to
discuss various issues raised by Clearview's counsel regarding the proposed form
of Merger Agreement and issues relating to a possible bid for Loews Theaters. On
August 6, 1998, a special meeting of the Clearview Board was held to discuss the
status of discussions with Cablevision and Clearview's possible responses. The
Clearview Board was informed that Cablevision had not yet made a definitive
proposal to acquire Clearview, but that a proposal consisting of cash, or cash
and stock, at a consideration per Share in excess of the then current market
price for the Shares, was expected shortly. At such meeting, the Clearview
directors reviewed, among other things, the history of Cablevision's interest in
Clearview; certain publicly available information concerning Cablevision
(including various research reports prepared by financial analysts), other
motion picture exhibitors and recent transactions and financings involving
motion picture exhibitors; the historical market prices, trading volume and
liquidity for the Shares; and the prospects for Clearview's ability to enter the
equity markets in the near term in order to obtain sufficient financing on
acceptable terms to implement its growth strategy over the long term. Following
such discussion, the Clearview Board unanimously agreed that negotiations with
Cablevision should continue with respect to various issues raised by
Cablevision's draft agreement, but that any decision on whether to proceed would
await, among other things: receipt of a definitive offer that was not contingent
on Cablevision's acquisition of the Loews Theaters; a thorough evaluation of
whether the financial and other terms of any Cablevision offer were in the best
interests of all Clearview stockholders; a review of additional financial
information by CSFB; satisfactory assurances that Clearview would not be
required to repurchase any of Clearview's Senior Notes as a result of a Change
of Control (as defined in Clearview's Indenture); and satisfactory assurances
that, to the fullest extent possible, any merger agreement would limit
Cablevision's ability to terminate the merger agreement or otherwise not be
required to consummate the proposed transaction. The Clearview Board was
informed that certain stockholders of Clearview, including Mr. Mayo, had
retained separate counsel to respond to Cablevision's requirement that it
receive satisfactory assurances that holders of Clearview Securities entitled to
cast a majority of votes, on a fully diluted basis, at a meeting of Clearview
stockholders would be obligated to vote in favor of the approval of the Merger
Agreement.
Following the August 6, 1998 Clearview Board meeting, Clearview's counsel
communicated the Clearview Board's position to Cablevision's counsel, together
with comments on the draft merger agreement. Representatives of Clearview
attended a meeting the same day with representatives of Cablevision to discuss
their respective views regarding a possible bid for the Loews Theaters.
On August 7, 1998, Mr. Mayo and his counsel met with representatives of
Cablevision and Cablevision's counsel to discuss the terms and conditions upon
which Mr. Mayo and certain other members of Clearview's senior management would
be willing to serve as executive officers of the Surviving Corporation.
Cablevision indicated that execution of an employment agreement with Mr. Mayo
would be a condition to its execution of a merger agreement with Clearview.
On August 9, 1998, Gemini informed CSFB of the principal terms of
Cablevision's proposal to acquire Clearview for consideration of $24.00 per
Share pursuant to a cash election merger (with a fixed allocation of 55% cash,
45% Cablevision Class A Common Stock in order for the Merger to qualify as a
tax-free "reorganization" within the meaning of Section 368(a) of the Code),
with a reversion to an all cash transaction if the average price of Cablevision
Class A Common Stock fell by an unspecified percentage during a specified
period. The Cablevision proposal was promptly communicated to Clearview's
directors.
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On August 10, 1998, a special meeting of the Clearview Board was held to
review the status of negotiations with Cablevision. CSFB summarized the
financial terms of Cablevision's proposal and Clearview's counsel updated the
Board on the status of negotiations regarding both the Merger Agreement and Mr.
Mayo's employment contract. CSFB also reviewed with the Clearview Board certain
financial and stock market information regarding Cablevision, including a
chronology of recent significant developments and data regarding the market
performance of Cablevision's stock, recent views of various financial analysts
that follow Cablevision, and certain financial data of Cablevision and other
comparable cable operators. CSFB also discussed certain factors affecting
Clearview's valuation by the equity market, the prices and premiums paid in
recent transactions involving other motion picture exhibitors and certain issues
that Clearview would likely face if it remained independent, including the
potentially dilutive impact of obtaining the additional funds necessary to
finance Clearview's growth strategy over the long term through equity
financings. After discussing the issues at length, the Clearview Board
unanimously instructed CSFB to make a counter-proposal to Cablevision of $27.00
per Share, to indicate Clearview's willingness to consider an all cash
transaction and to express the Board's concerns about other aspects of
Cablevision's proposal, including the Board's concern that Clearview might be
required to repurchase Clearview's Senior Notes and its dissatisfaction with the
scope of certain provisions of Cablevision's proposed form of merger agreement
relating to Cablevision's ability under certain circumstances to terminate the
Merger Agreement.
In the interim, with the concurrence of the Clearview Board, Mr. Mayo met
with senior executives and other representatives of Cablevision, including
Gemini, to discuss further the bid that Cablevision proposed to submit to LTM
the following day with respect to the Loews Theaters. While Mr. Mayo was at
Cablevision's offices, he was informed that Cablevision was not prepared to
increase the per Share consideration reflected in its proposal.
During a telephone meeting on the evening of August 10, 1998, CSFB informed
the Clearview Board that Cablevision had indicated that it would not increase
the consideration offered, but would agree to certain other changes in the
Merger Agreement. After further discussion of the issues, the Board instructed
Clearview's legal and financial advisors to contact Cablevision's legal and
financial advisors and to communicate the Clearview Board's position on various
issues, including the consideration to be received per Share, concerns regarding
the possible obligation to repurchase Clearview's Senior Notes and the
provisions regarding Cablevision's ability to terminate the Merger Agreement,
particularly in the case of adverse changes affecting the movie theater industry
generally.
On August 11, 1998, Cablevision responded that it would not increase the
consideration per Share previously proposed, but that it was prepared (subject
to certain conditions and other limitations) to agree to purchase any of
Clearview's Senior Notes that Clearview was required to repurchase as a result
of the proposed transaction, and to accept the risk of material adverse changes
in the business, financial condition and results of operations of Clearview
resulting from changes affecting the movie theater industry generally. During a
telephone meeting that day, after further discussion, the Clearview Board
directed CSFB to again request that Cablevision increase the value of the
consideration per Share in its offer. At a second telephone meeting, the
Clearview Board was informed that Cablevision had agreed to increase the
consideration per Share to $24.25.
At a meeting of the Clearview Board on August 12, 1998, the principal terms
of the draft Merger Agreement, stockholders agreement and Mr. Mayo's employment
agreement were reviewed and the financial terms of the proposed transaction were
summarized by Clearview's legal and financial advisors. The Clearview Board was
also informed that the Merger was not contingent upon Cablevision acquiring the
Loews Theaters, and that, subject to certain terms and conditions, Cablevision
had agreed to purchase any of Clearview's Senior Notes that Clearview was
required to repurchase as a result of a Change of Control (as defined in the
Clearview Indenture). CSFB then reviewed with the Clearview Board the financial
analyses performed by CSFB in connection with its evaluation of the Share Merger
Consideration and rendered to the Clearview Board an oral opinion (which opinion
was subsequently confirmed by delivery of a written opinion dated August 12,
1998) to the effect that, as of such date and based upon and subject to certain
matters stated in its written opinion, the Share Merger Consideration to be
received in the Merger by the holders of Shares was fair to such holders from a
financial point of view. After further discussion, the Clearview Board
unanimously
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concluded that the terms of the proposed Merger were advisable for, fair to, and
in the best interests of, Clearview's stockholders, and authorized management to
finalize, execute and deliver the Merger Agreement and other related documents.
On August 12, 1998, the Cablevision Board met to consider the Merger
Agreement and other documents relating to the transactions contemplated thereby,
including the proposed consideration to be paid in the Merger. After
deliberation, the Cablevision Board authorized the execution and delivery of the
Merger Agreement. The Cablevision Board reviewed and considered the matters set
forth under "-- Reasons for the Merger; Recommendations -- Cablevision."
REASONS FOR THE MERGER; RECOMMENDATIONS
Cablevision
The Cablevision Board and the Merger Sub Board have each determined that
the Merger Agreement and the transactions contemplated thereby are advisable
for, fair to, and in the best interests of, Cablevision, Merger Sub and their
respective stockholders, and the Merger Sub Board has adopted the Merger
Agreement and has recommended that Cablevision, as sole stockholder of Merger
Sub, approve the Merger Agreement. In reaching its determination, the
Cablevision Board concluded that the opportunities created by the Merger to
increase shareholder value more than offset the risks inherent in the Merger
because they believe the Merger would, among other things:
- expand Cablevision's position in the New York area entertainment
marketplace, providing marketing, cross-promotion and co-branding
opportunities;
- provide an entree into a niche market in the film exhibition business
that combines a successful business model and a talented management team;
- provide access to a customer base in Cablevision's core geographic
territory that matches the profile of its most desired customers; and
- constitute the addition of an experienced and entrepreneurial management
team to manage Clearview and the movie theatres that Cablevision proposed
to acquire from Loews. See "CABLEVISION RECENT DEVELOPMENTS."
The foregoing discussion of the information and factors which were given
weight by the Cablevision Board is not intended to be exhaustive but is believed
to include all material factors considered by the Cablevision Board. The
Cablevision Board did not assign specific weights to the foregoing factors and
individual directors may have given different weights to different factors.
Clearview
THE CLEARVIEW BOARD HAS DETERMINED THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY ARE ADVISABLE FOR AND IN THE BEST INTERESTS OF
CLEARVIEW AND ITS STOCKHOLDERS AND HAS ADOPTED THE MERGER AGREEMENT. THE
CLEARVIEW BOARD RECOMMENDS THAT THE STOCKHOLDERS OF CLEARVIEW VOTE FOR THE
MERGER PROPOSAL.
The Clearview Board, in the course of reaching its decision to approve the
Merger Agreement and the transactions contemplated thereby, consulted with
Clearview's counsel and financial advisor and considered a number of factors,
including the following material factors:
- the fact that the per Share consideration to be received by holders of
Shares represented a premium of approximately 12% over the closing price
of the Shares on August 11, 1998, the last trading day prior to the
announcement of the signing of the Merger Agreement;
- the Clearview Board's view that Clearview would be unlikely to receive,
within a reasonable time frame, an offer to acquire Clearview that would
be superior to Cablevision's offer;
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- current industry, economic and market conditions, which have encouraged
consolidation, and Clearview's continuing need for capital to pursue its
growth strategy;
- the financial presentation of CSFB and its oral opinion (which opinion
was subsequently confirmed by delivery of a written opinion dated August
12, 1998) to the effect that, as of such date and based upon and subject
to certain matters stated in its written opinion, the Share Merger
Consideration to be received in the Merger by the holders of Shares was
fair to such holders from a financial point of view;
- the opportunity, if the Cablevision Average Share Price is equal to or
greater than the Floor Price, for holders of Clearview Securities to
become stockholders of a combined organization with significantly greater
market capitalization and access to capital than Clearview as a
stand-alone entity on a tax-free basis; and
- the terms and conditions of the Merger Agreement, including Cablevision's
agreement that, subject to certain terms and conditions, Cablevision
would purchase any of Clearview's Senior Notes Clearview was required to
repurchase as a result of a Change in Control. Cablevision's inability to
terminate the Merger Agreement as a result of material adverse changes in
the business, financial condition and results of operations of Clearview
resulting from changes affecting the movie industry generally and the
Clearview Board's ability in specified circumstances to provide
information to and negotiate with a third party making a Superior
Proposal.
The foregoing discussion of the information and factors which were given
weight by the Clearview Board is not intended to be exhaustive but is believed
to include all material factors considered by the Clearview Board. The Clearview
Board did not assign specific weights to the foregoing factors and individual
directors may have given different weights to different factors.
OPINION OF CLEARVIEW'S FINANCIAL ADVISOR
CSFB has acted as financial advisor to Clearview in connection with the
Merger. CSFB was selected by Clearview based on CSFB's experience, expertise and
familiarity with Clearview and its business. CSFB is an internationally
recognized investment banking firm and is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions, leveraged
buyouts, negotiated underwritings, competitive biddings, secondary distributions
of listed and unlisted securities, private placements and valuations for
corporate and other purposes.
In connection with CSFB's engagement, Clearview requested that CSFB
evaluate the fairness of the Share Merger Consideration to be received in the
Merger by holders of Shares from a financial point of view. On August 12, 1998,
the date on which the Merger Agreement was executed, CSFB rendered to the
Clearview Board its oral opinion (which opinion was subsequently confirmed by
delivery of a written opinion dated August 12, 1998) to the effect that, as of
such date and based upon and subject to certain matters stated in its written
opinion, the Share Merger Consideration to be received in the Merger by the
holders of Shares was fair to such holders from a financial point of view.
THE FULL TEXT OF CSFB'S WRITTEN OPINION TO THE CLEARVIEW BOARD DATED AUGUST
12, 1998, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C TO
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS
OF SHARES ARE URGED TO READ THIS OPINION CAREFULLY AND IN ITS ENTIRETY. CSFB'S
OPINION IS DIRECTED TO THE CLEARVIEW BOARD AND RELATES ONLY TO THE FAIRNESS OF
THE SHARE MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS
ANY OTHER ASPECT OF THE PROPOSED MERGER OR ANY RELATED TRANSACTION AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE SPECIAL MEETING OR THE FORM OF SHARE MERGER CONSIDERATION TO BE
ELECTED BY SUCH STOCKHOLDER IN THE MERGER. THE SUMMARY OF THE OPINION OF CSFB
SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, CSFB reviewed the Merger Agreement and certain
publicly available business and financial information relating to Clearview and
Cablevision. CSFB also reviewed certain other information relating to Clearview
and Cablevision, including financial forecasts, provided to or otherwise
discussed with
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CSFB by Clearview, and met with the management of Clearview and Cablevision to
discuss the businesses and prospects of Clearview and Cablevision. CSFB also
considered certain financial and stock market data of Clearview and Cablevision
and compared those data with similar data for other publicly held companies in
businesses similar to Clearview and Cablevision and considered, to the extent
publicly available, the financial terms of certain other business combinations
and other transactions recently effected. CSFB also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which CSFB deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the information provided to or otherwise
reviewed by CSFB and relied on such information being complete and accurate in
all material respects. With respect to the financial forecasts, CSFB was
informed by Clearview, and CSFB assumed, that such forecasts were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of Clearview as to the future financial performance
of Clearview. In addition, CSFB was not requested to, and did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Clearview or Cablevision, nor was CSFB furnished with any such
evaluations or appraisals. CSFB's opinion was necessarily based upon information
available to, and financial, economic, market and other conditions as they
existed and could be evaluated by, CSFB on the date of its opinion. CSFB did not
express any opinion as to what the actual value of the Cablevision Class A
Common Stock will be when issued pursuant to the Merger or the prices at which
the Cablevision Class A Common Stock will trade subsequent to the Merger. In
connection with its engagement, CSFB was not requested to, and did not, approach
third parties to solicit third party indications of interest in possible
acquisition of all or part of Clearview. Although CSFB evaluated the Share
Merger Consideration from a financial point of view, CSFB was not requested to,
and did not, recommend the specific consideration payable in the Merger, which
consideration was determined through negotiation between Clearview and
Cablevision. No other limitations were imposed on CSFB with respect to the
investigations made or procedures followed by CSFB in rendering its opinion.
In preparing its opinion to the Clearview Board, CSFB performed a variety
of financial and comparative analyses, including those described below. The
summary of CSFB's analyses set forth below does not purport to be a complete
description of the analyses underlying CSFB's opinion. The preparation of a
fairness opinion is a complex analytic process involving various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. In arriving
at its opinion, CSFB made qualitative judgments as to the significance and
relevance of each analysis and factor considered by it. Accordingly, CSFB
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, CSFB made numerous
assumptions with respect to Clearview, Cablevision, industry performance,
regulatory, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Clearview and
Cablevision. No company, transaction or business used in such analyses as a
comparison is identical to Clearview, Cablevision or the proposed Merger, nor is
an evaluation of the results of such analyses entirely mathematical; rather,
such analyses involve complex considerations and judgments concerning financial
and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions being analyzed. The estimates contained in such analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by such analyses.
In addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. CSFB's opinion and financial
analyses were only one of many factors considered by the Clearview Board in its
evaluation of the proposed Merger and should not be viewed as determinative of
the views of the Clearview Board or management with respect to the Merger or the
Share Merger Consideration.
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The following is a summary of the material financial analyses performed by
CSFB in connection with its opinion dated August 12, 1998:
Selected Transactions Analysis. Using publicly available information, CSFB
analyzed, among other things, the purchase prices and implied transaction
multiples paid or proposed to be paid in the following selected transactions in
the exhibition industry (acquiror/target): Kohlberg Kravis Roberts & Co. L.P.
("KKR")/Regal Cinemas, Inc. ("Regal"); KKR/Act III Theatres Inc.; LTM/Cineplex;
Cobb Theatres L.L.C./Regal; Silver Cinemas International, Inc./The Landmark
Theatre Corp.; Hicks, Muse, Tate & Furst Incorporated/United Artists Theatre
Company; Cypress Group L.L.C./Cinemark USA, Inc. ("Cinemark"); Regal/Kerkorian
Premiere Theatres; Regal/Georgia State Theatres, Inc.; Virgin Cinemas Group
Ltd./MGM UK (MGM Cinemas/Credit Lyonnais); Cineplex/Cinemark (withdrawn);
Regal/Litchfield Theatres, Ltd.; Carmike Cinemas, Inc. ("Carmike")/Westwynn
Theatres, Inc.; Metro-Goldwyn-Mayer Inc./U.K. Movie Theatre Business (Credit
Lyonnais Bank Nederland N.V.); AMC Entertainment Inc. ("AMC")/ Exhibition
Enterprises Partnership; Management and Merrill Lynch Capital Partners/United
Artists Motion Picture Theatre Company (Tele-Communications, Inc.); and
Universal City Studios (MCA Inc.)/Plitt Theatres (Cineplex) (collectively, the
"Selected Transactions"). CSFB compared the purchase prices payable in the
Selected Transactions as a multiple of, among other things, estimated calendar
year 1998 earnings before interest, taxes, depreciation and amortization
("EBITDA"). All multiples were based on information available at the time of
such transaction. Applying a range of selected multiples of estimated calendar
year 1998 EBITDA of the Selected Transactions of 10.5x to 12.5x to corresponding
financial data for Clearview resulted in an enterprise reference range for
Clearview of approximately $90 million to $115 million.
Discounted Cash Flow Analysis. CSFB estimated the present value of the
future streams of after-tax cash flows that Clearview could produce for the
period 1998 through 2003 based on certain operating and financial forecasts and
other information provided by the management of Clearview (the "Management
Case") and certain sensitivities to the Management Case based on discussions
with the management of Clearview to reflect, among other things, lower potential
screen growth (the "Alternative Case"). Ranges of terminal values were estimated
using multiples of 2003 projected EBITDA ranging from 9.5x to 11.5x. The free
cash flow streams and estimated terminal values were then discounted to present
value using discount rates of 12% to 13%. This analysis indicated an enterprise
reference range for Clearview of approximately $135 million to $155 million
(Management Case) and approximately $125 million to $140 million (Alternative
Case).
Current Trading Analysis. CSFB compared certain financial and operating
data of Clearview to corresponding data of selected publicly traded companies in
the exhibition industry, including: AMC; Carmike; GC Companies Inc.; and Loews
(collectively, the "Selected Companies"). CSFB compared, among other things,
enterprise values (equity market values plus debt less cash) of the Selected
Companies and Clearview as multiples of estimated calendar year 1999 EBITDA,
which indicated a range of 6.1x to 6.4x estimated calendar year 1999 EBITDA for
the Selected Companies and 7.8x estimated calendar year 1999 EBITDA for
Clearview. All multiples were based on closing stock prices on August 11, 1998.
CSFB also calculated the implied enterprise value for Clearview based on the
closing price of the Shares on the ASE on August 10, 1998 of $123 million.
Aggregate Reference Range. On the bases of the valuation methodologies
employed in the analyses described above, CSFB derived an aggregate enterprise
reference range for Clearview of approximately $115 million to $140 million, as
compared to the enterprise value for Clearview implied by the Share Merger
Consideration of approximately $135 million.
Certain Other Factors and Comparative Analyses. In rendering its opinion,
CSFB considered certain other factors and other comparative analyses, including,
among other things, (i) a comparison of the premium payable in the Merger with
premiums paid or proposed to be paid in selected public company acquisitions
consummated in 1998, (ii) a comparison of the purchase price paid in the Merger
and the purchase prices paid or proposed to be paid in selected transactions in
the exhibition industry as a multiple of latest 12 months EBITDA, (iii) an
extrapolation of a theoretical trading price for Clearview on a stand-alone
basis as of August 1999, and (iv) the historical stock price performance of
Cablevision relative to the S&P 500 Index.
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Miscellaneous. Pursuant to the terms of CSFB's engagement, Clearview has
agreed to pay CSFB for its financial advisory services in connection with the
Merger an aggregate fee equal to 1.5% of the aggregate consideration (including
liabilities assumed) payable in the Merger as calculated and payable upon the
closing of the Merger. Clearview also has agreed to reimburse CSFB for
out-of-pocket expenses incurred by CSFB in performing its services, including
the fees and expenses of its legal counsel and any other advisor retained by
CSFB, and to indemnify CSFB and certain related persons and entities against
certain liabilities under the federal securities laws arising out of CSFB's
engagement. In the ordinary course of business, CSFB and its affiliates may
actively trade the debt and equity securities of both Clearview and Cablevision
for their own accounts and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities. In addition, an
affiliate of CSFB beneficially owns all of the outstanding Clearview Class C
Preferred Shares.
TERMS OF THE MERGER
Upon the terms and subject to the conditions set forth on the Merger
Agreement, at the Effective Time, (i) each outstanding Share (other than
Excluded Shares) will be converted into the right to receive, at the option of
the holder thereof, (A) the Share Cash Consideration or (B) the Share Stock
Consideration; (ii) each outstanding Class A Preferred Share (other than
Excluded Class A Preferred Shares) will be converted into the right to receive,
at the option of the holder thereof, (A) the Class A Preferred Share Cash
Consideration or (B) the Class A Preferred Share Stock Consideration; and (iii)
each outstanding Class C Preferred Share (other than Excluded Class C Preferred
Shares) will be converted into the right to receive, at the option of the holder
thereof (A) the Class C Preferred Share Cash Consideration or (B) the Class C
Preferred Share Stock Consideration; provided, however, that, with respect to
each of (i), (ii) and (iii) above, if the Average Cablevision Share Price is
less than the Floor Price (currently $36.00 reflecting an adjustment in
accordance with the terms of the Merger Agreement for Cablevision's two-for-one
stock split on August 21, 1998), Shares, Class A Preferred Shares and Class C
Preferred Shares will be converted into the right to receive the applicable cash
considerations and no holder of Shares, Class A Preferred Shares and Class C
Preferred Shares will have the right to elect to receive consideration
consisting of shares of Cablevision Class A Common Stock.
The Merger Agreement provides that notwithstanding anything in the Merger
Agreement to the contrary, (i) the Stock Election Number will be equal, as
closely as practicable, to 45% of the sum of (A) the aggregate number of Share
Equivalents represented by outstanding Clearview Securities immediately prior to
the Effective Time and (B) the aggregate number of Share Equivalents represented
by the previously outstanding Class B Preferred Shares, all of which have been
redeemed; and (ii) the Cash Election Number will equal, as closely as
practicable, the number of Share Equivalents represented by the difference
between (A) the aggregate number of Share Equivalents represented by outstanding
Clearview Securities immediately prior to the Effective Time and (B) the Stock
Election Number.
Notwithstanding anything in the Merger Agreement to the contrary, unless
the Average Cablevision Share Price is less than the Floor Price, if as of the
Effective Time the aggregate value of the Security Stock Consideration
(calculated using the most recent available price for Cablevision Class A Common
Stock on the ASE) would be less than 45% of the sum of (x) the aggregate value
of the Security Cash Consideration and (y) the aggregate value of the Security
Stock Consideration (calculated using the most recent available price for
Cablevision Class A Common Stock on the ASE), then the Stock Election Number and
the Cash Election Number (but not the Security Conversion Numbers) will be
adjusted as necessary so that, as of the Effective Time, the aggregate value of
the Security Stock Consideration (calculated using the most recent available
price for Cablevision Class A Common Stock on the ASE) equals, as closely as
possible, 45% of the sum of (x) the aggregate value of the Security Cash
Consideration and (y) the aggregate value of the Security Stock Consideration
(calculating using the most recent available price for Cablevision Class A
Common Stock on the ASE); provided, however, that if the Stock Election Number
resulting from such adjustment would be greater than the Stock Election Number
that would have resulted if the Average Cablevision Share Price had been equal
to the Floor Price, then Cablevision, at its sole discretion, shall have the
option of either (i) adjusting the Stock Election Number and the Cash Election
Number as set forth above in this paragraph
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or (ii) treating the Average Cablevision Share Price as being less than the
Floor Price for all purposes of the Merger Agreement, including the availability
of the election to have Clearview be the Surviving Corporation and the
concomitant change in the form of the Merger Consideration to all cash as set
forth in the Merger Agreement.
The Merger Agreement also provides that, (i) if the Average Cablevision
Share Price is greater than or equal to the Floor Price, subject to the
allocation limitations and proration procedures in accordance with the
provisions of the Merger Agreement, each holder of Clearview Securities (other
than Excluded Securities) will be entitled to make a Cash Election, a Stock
Election or a Non-Election (which Cablevision may deem, in its sole and absolute
discretion to be, in whole or in part, Clearview Securities in respect of which
Cash Elections or Stock Elections have been made); (ii) in the event that the
aggregate number of Share Equivalents represented by the outstanding Clearview
Securities in respect of which Cash Elections have been made exceeds the Cash
Election Number, (a) all Stock Election Securities shall be converted into the
right to receive the applicable Security Stock Consideration, and (b) all
Non-Election Securities and Clearview Securities in respect of which Cash
Elections have been made shall be converted into the right to receive the
respective applicable Security Stock Consideration or Security Cash
Consideration in the following order and manner: (A) first, all Non-Election
Securities shall be deemed to be Clearview Securities in respect of which Stock
Elections have been made and treated as Stock Election Securities; (B) second,
if necessary, an aggregate number of Clearview Securities in respect of which
Cash Elections have been made shall be deemed converted into and treated as
Stock Election Securities (such aggregate number to be apportioned pro rata
among record holders of such Clearview Securities, based on the number of Share
Equivalents represented thereby), so that the number of Share Equivalents
represented by the Clearview Securities so converted, when added to the Share
Equivalents represented by all other Stock Election Securities (including
Non-Election Securities deemed to be Stock Election Securities), equals, as
closely as practicable, the Stock Election Number; and (C) third, any remaining
Clearview Securities in respect of which Cash Elections have been made shall be
converted into the right to receive the applicable Security Cash Consideration;
(iii) in the event that the aggregate number of Share Equivalents represented by
the outstanding Clearview Securities in respect of which Stock Elections have
been made exceeds the Stock Election Number, (a) all Cash Election Securities
shall be converted into the right to receive the applicable Security Cash
Consideration, and (b) all Non-Election Securities and Clearview Securities in
respect of which Stock Elections have been made shall be converted into the
right to receive the respective applicable Security Cash Consideration and
Security Stock Consideration in the following order and manner: (A) first, all
Non-Election Securities shall be deemed to be Clearview Securities in respect of
which Cash Elections have been made and treated as Cash Election Securities; (B)
second, if necessary, an aggregate number of Clearview Securities in respect of
which Stock Elections have been made shall be deemed converted into and treated
as Cash Election Securities (such aggregate number to be apportioned pro rata
among record holders of such Clearview Securities, based on the number of Share
Equivalents represented thereby), so that the number of Share Equivalents
represented by the Clearview Securities so converted, when added to the Share
Equivalents represented by all other Cash Election Securities (including
Non-Election Securities to be deemed Cash Election Securities), equals as
closely as practicable the Cash Election Number; and (C) third, any remaining
Clearview Securities in respect of which Stock Elections have been made shall be
converted into the right to receive the applicable Security Stock Consideration;
and (iv) in the event that clauses (ii) and (iii) above are not applicable, all
Non-Election Securities shall be deemed by Cablevision, in its sole and absolute
discretion, to be, in whole or in part, Clearview Securities in respect of which
Cash Elections or Stock Elections have been made, as applicable.
Because of certain limitations on the amount of Security Cash Consideration
and Security Stock Consideration to be issued in the Merger, there can be no
assurance that holders of Clearview Securities will receive the form of
consideration that such holder elects. If the elections result in an
oversubscription of either the Security Stock Consideration or the Security Cash
Consideration, the procedures for allocating cash and shares of Cablevision
Class A Common Stock set forth in the Merger Agreement and described in this
Proxy Statement/Prospectus will be followed by the Exchange Agent.
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No fractional shares of Cablevision Class A Common Stock will be issued in
the Merger. Instead, the Merger Agreement provides that any holder of Clearview
Securities who would otherwise have been entitled to receive a fractional share
of Cablevision Class A Common Stock in the Merger will be entitled to receive a
cash payment in lieu thereof, which payment will represent such holder's
proportionate interest in a share of Cablevision Class A Common Stock based on
the Average Cablevision Share Price.
CLOSING; EFFECTIVE TIME
The Merger Agreement provides that the Closing Date will be on the first
business day on which the last to be fulfilled or waived of the conditions set
forth in the Merger Agreement are satisfied or waived in accordance with the
Merger Agreement (other than conditions that by their nature are to be satisfied
at the Closing Date, but subject to the fulfillment or waiver of those
conditions), or on such other date as Cablevision and Clearview may agree in
writing (the "Closing"). As soon as practicable following the Closing, Clearview
and Cablevision will cause the Certificate of Merger to be signed, acknowledged
and delivered for filing with the Secretary of the State of Delaware as provided
in Section 251 of the DGCL. The Merger will become effective at the Effective
Time when the Certificate of Merger has duly filed with the Secretary of State
of Delaware.
EXCHANGE OF CLEARVIEW CERTIFICATES FOR SHARES OF CABLEVISION CLASS A COMMON
STOCK
Procedures. In order to elect the applicable Security Cash Consideration
and/or the applicable Security Stock Consideration, holders of Clearview
Securities must submit a Form of Election to the Exchange Agent prior to the
Election Deadline. To be effective, a Form of Election must be (x) properly
completed, signed and submitted to the Exchange Agent at its designated office
by 5:00 p.m., New York City time, on the Election Deadline and (y) accompanied
by the Certificate(s) representing the Clearview Securities as to which the
election is being made (or by an appropriate guarantee of delivery of such
Certificate(s) by a commercial bank or trust company in the United States or a
member of a registered national security exchange or of the National Association
of Securities Dealers, Inc., provided, that such Certificates are in fact
delivered to the Exchange Agent within five trading days after the date of
execution of such guarantee of delivery). Clearview will use its best efforts to
make a Form of Election available to all persons who become holders of record of
Clearview Securities (other than Excluded Securities) between the date of
mailing of this Proxy Statement/ Prospectus and the Election Deadline.
Cablevision will determine, in its sole and absolute discretion, which authority
it may delegate in whole or in part to the Exchange Agent, whether Forms of
Election have been properly completed, signed and submitted or revoked. The
decision of Cablevision (or the Exchange Agent, as the case may be) in such
matters will be conclusive and binding. Neither Cablevision nor the Exchange
Agent will be under any obligation to notify any person of any defect in a Form
of Election submitted to the Exchange Agent. A holder of Clearview Securities
that does not submit an effective Form of Election prior to the Election
Deadline will be deemed to have made a Non-Election. An election may be revoked,
but only by written notice received by the Exchange Agent prior to the Election
Deadline. Any Certificate(s) representing Clearview Securities that have been
submitted to the Exchange Agent in connection with an election shall be returned
without charge to the holder thereof in the event such election is revoked as
aforesaid and such holder requests in writing the return of such Certificate(s).
Upon any such revocation, unless a duly completed Form of Election is thereafter
submitted prior to the Election Deadline, such Clearview Securities will be
deemed Non-Election Securities. In the event that the Merger Agreement is
terminated pursuant to its terms and any Clearview Securities have been
transmitted to the Exchange Agent, such Clearview Securities will promptly be
returned without charge to the person submitting the same.
Upon surrender of a Certificate representing Stock Election Securities for
cancellation to the Exchange Agent together with a duly completed Form of
Election, the holder of such Certificate will, following the Effective Time, be
entitled to receive (a) a certificate representing that number of whole shares
of Cablevision Class A Common Stock that such holder is entitled to receive, (b)
a check in the amount (after giving effect to any required tax withholdings) of
(x) any cash in lieu of fractional shares plus (y) any unpaid non-stock
dividends and any other dividends or other distributions that such holder has
the right to receive, and the Certificate so surrendered will forthwith be
canceled. No interest will be paid or accrued on any amount
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payable upon the surrender of the Certificates representing Stock Election
Securities. In the event of a transfer of ownership of Clearview Securities that
is not registered in the transfer records of Clearview, the applicable Stock
Merger Consideration payable in respect of such Clearview Securities may be
issued and/or paid to such a transferee if the Certificate formerly representing
such Clearview Securities is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. If any certificate for shares of
Cablevision Class A Common Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of such exchange that the person requesting such exchange will
pay any transfer or other taxes required by reason of the issuance of
certificates for shares of Cablevision Class A Common Stock in a name other than
that of the registered holder of the Certificate surrendered, or certified to
the Exchange Agent that such tax has been paid or is not applicable. Upon
surrender of a Certificate representing Cash Election Securities (or, if the
Average Cablevision Share Price is less than or pursuant to the Merger Agreement
is, at Cablevision's option, treated as being less than the Floor Price, any
Clearview Securities) for cancellation to the Exchange Agent together with a
duly completed Form of Election, the holder of such Certificate will be entitled
to receive a check in the amount such holder is entitled to receive pursuant to
the Merger Agreement, and the Certificate so surrendered will forthwith be
canceled. In the event of a transfer of ownership of Clearview Securities that
is not registered in the transfer records of Clearview, the applicable Cash
Merger Consideration payable in respect of such Clearview Securities may be
issued and/or paid to such a transferee if the Certificate formerly representing
such Clearview Securities is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
Distributions with Respect to Unexchanged Shares; Voting. The Merger
Agreement provides that all shares of Cablevision Class A Common Stock to be
issued pursuant to the Merger will be deemed issued and outstanding as of the
Effective Time and whenever a dividend or other distribution is declared by
Cablevision in respect to the Cablevision Class A Common Stock, the record date
for which is at or after the Effective Time, that declaration will include
dividends or other distributions in respect of all shares issuable pursuant to
the Merger Agreement. No dividends or other distributions in respect of
Cablevision Class A Common Stock will be paid to any holder of any unsurrendered
Certificate representing Stock Election Securities until such Certificate is
surrendered for exchange in accordance with the terms of the Merger Agreement.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there will be issued and/or paid to such holder certificates
representing whole shares of Cablevision Class A Common Stock issued in exchange
therefor, without interest, (A) at the time of such surrender, the dividends or
other distributions with respect to such whole shares of Cablevision Class A
Common Stock and not paid and (B) at the appropriate payment date, the dividends
or other distributions payable with respect to such whole shares of Cablevision
Class A Common Stock with a record date after the Effective Time but with a
payment date subsequent to such surrender. Further, Holders of unsurrendered
Certificates representing Stock Election Securities will be entitled to vote
after the Effective Time at any meeting of Cablevision stockholders the number
of whole shares of Cablevision Class A Common Stock represented by such
Certificates, regardless of whether such holders have exchanged their
Certificates.
DISSENTERS' RIGHTS OF APPRAISAL
The Merger Agreement provides that no Dissenting Securityholder will be
entitled to any Merger Consideration pursuant to the terms of the Merger
Agreement unless and until the such Dissenting Securityholder thereof has failed
to perfect or has effectively withdrawn or lost such holder's right to dissent
from the Merger under the DGCL, and any Dissenting Securityholder will be
entitled to receive only the payment provided by Section 262 of the DGCL with
respect to Clearview Securities owned by such Dissenting Securityholder. The
Merger Agreement also provides that if any Person who would otherwise be deemed
a Dissenting Securityholder has failed to perfect or has effectively withdrawn
or lost the right to dissent with respect to any Clearview Securities, such
Clearview Securities will thereupon be Non-Election Shares. See "Dissenters'
Rights of Appraisal."
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Clearview, Cablevision and Merger Sub, certain of which are qualified as to
materiality and certain of which are subject to certain exceptions disclosed by
each of Clearview and Cablevision to the other.
Mutual Representations and Warranties
Each of Clearview and Cablevision has represented and warranted to the
other with respect to, among other things: (i) their organization and related
corporate matters, (ii) their capitalization, (iii) corporate authority to enter
into and consummate the Merger Agreement and other transactions contemplated
thereby, (iv) required notices, reports or other filings required to be made
with and consents, registrations, approvals, permits and authorizations
("Governmental Consents") required to be obtained from any governmental or
regulatory authority, agency, commission, body or other governmental entity
("Governmental Entity"), (v) breaches or violations of or defaults under
governing instruments and Contracts, (vi) documents filed with the SEC, (vii)
the accuracy of financial statements, (viii) the absence of certain changes,
(ix) litigation and undisclosed liability and (x) compliance with laws.
Additional Representations and Warranties of Clearview
Clearview has made additional representations and warranties to Cablevision
with respect to, among other things: (i) employee benefits, (ii) the
applicability of Takeover Statutes (as defined in the Merger Agreement), (iii)
environmental matters, (iv) tax matters, (v) labor matters, (vi) insurance
policies, (vii) intellectual property rights, (viii) certain contracts, (ix)
real property matters and (x) operating assets.
CERTAIN COVENANTS
Interim Operations. Pursuant to the Merger Agreement, Clearview has agreed
as to itself and its Subsidiaries that, after the date of the Merger Agreement
and prior to the earlier of the termination of the Merger Agreement in
accordance with its terms and the Effective Time, except as otherwise expressly
contemplated by the Merger Agreement or unless Cablevision otherwise approves in
writing: (i) its and its Subsidiaries' businesses will be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and its
Subsidiaries will use all reasonable efforts to preserve its business
organization intact and maintain its existing relations and goodwill with
customers, suppliers, regulators, distributors, creditors, lessors, employees
and business associates; (ii) it will not (A) issue, sell, pledge, dispose of or
encumber any capital stock owned by it in any of its Subsidiaries; (B) amend its
certificate of incorporation or by-laws; (C) split, combine or reclassify its
outstanding shares of capital stock; (D) declare, set aside or pay any dividend
payable in cash, stock or property in respect of any capital stock, other than
dividends from its direct or indirect wholly-owned Subsidiaries; or (E) except
for the repurchase of a Warrant held by MidMark Capital, L.P. (the
"Warrantholder") to purchase 282,600 Shares (the "Class A Warrant") contemplated
by the agreement among Clearview, Cablevision and the Warrantholder, pursuant to
which the Warrantholder shall surrender the Class A Warrant prior to the
Effective Time to Clearview for cancellation for $1.00 and the redemption of the
outstanding Class B Preferred Shares, repurchase, redeem or otherwise acquire,
or permit any of its Subsidiaries to purchase or otherwise acquire, any shares
of its capital stock or any securities convertible into or exchangeable or
exercisable for any shares of its capital stock; (iii) neither it nor any of its
Subsidiaries will (A) issue, sell, pledge, dispose of or encumber any shares of,
or securities convertible into or exchangeable or exercisable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of its
capital stock of any class or any other property or assets (other than Shares
issuable pursuant to options outstanding on the date of the Merger Agreement
under the Stock Plan) or upon conversion of the Class A Preferred Shares and
Class C Preferred Shares); (B) transfer, lease, license, guarantee, sell,
mortgage, pledge, dispose of or encumber any material property or assets
(including capital stock of any of its Subsidiaries) or incur or modify any
material indebtedness or other liability; or (C) make or authorize or commit for
any capital expenditures other than in amounts less than $25,000 individually
and $100,000 in the aggregate or, by any means, make any acquisition of, or
investment in, assets or stock of any other Person or entity in excess of
$25,000; (iv) neither it nor any of its Subsidiaries will terminate, establish,
adopt, enter into,
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make any new grants or awards under, amend or otherwise modify, any Clearview
Compensation and Benefit Plans or increase the salary, wage, bonus or other
compensation of any employees except increases for non-executive employees
occurring in the ordinary and usual course of business (which, the Merger
Agreement provides, includes normal periodic performance reviews and related
compensation and benefit increases); (v) neither it nor any of its Subsidiaries
will settle or compromise any material claims or litigation, or, except in the
ordinary and usual course of business, modify, amend or terminate any of its
material Contracts or waive, release or assign any material rights or claims;
(vi) neither it nor any of its Subsidiaries shall make any Tax election or
permit any insurance policy naming it as a beneficiary or loss-payable payee to
be canceled or terminated except in the ordinary course of business; and (vii)
neither it nor any of its Subsidiaries will authorize or enter into an agreement
to do any of the foregoing.
Acquisition Proposals. Pursuant to the Merger Agreement, Clearview has
agreed that neither it nor any of its Subsidiaries nor any of its or its
Subsidiaries' officers and directors will, and that it will direct and use its
best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly,
initiate, solicit, encourage or otherwise knowingly facilitate any inquiries or
the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation or similar transaction involving, or any purchase
of all or 15% or more of the assets or any equity securities of, Clearview or
any of its Subsidiaries (an "Acquisition Proposal"). Clearview has further
agreed that neither it nor any of its Subsidiaries nor any of its or its
Subsidiaries' officers and directors will, and that it will direct and use its
best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly, have
any discussions with or provide any confidential information or data to any
Person other than Cablevision or Merger Sub relating to an Acquisition Proposal,
or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal. The Merger Agreement does not, however, prevent Clearview
or the Clearview Board from (A) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal; (B) providing information
in response to a request therefor by a Person who has made an unsolicited bona
fide written Acquisition Proposal if the Clearview Board receives from the
person so requesting such information an executed a customary form of
confidentiality agreement; (C) engaging in any negotiations or discussions with
any person who has made an unsolicited bona fide written Acquisition Proposal;
or (D) withdrawing, modifying or changing, in a manner adverse to Cablevision,
its recommendation to the shareholders of Clearview with respect to the Merger
Agreement or the Merger, if and only to the extent that, (i) in each such case
referred to in clause (B), (C) or (D) above, the Clearview Board determines in
good faith by a majority vote after consultation with outside legal counsel that
failing to take such action would be reasonably likely to result in a breach of
their fiduciary duties under applicable law and (ii) in each case referred to in
clause (C) or (D) above, the Clearview Board determines in good faith (after
consultation with its financial advisor) that such Acquisition Proposal, if
accepted, is reasonably likely to be consummated, taking into account all legal,
financial and regulatory aspects of the proposal and the Person making the
proposal and would, if consummated, result in a transaction more favorable to
the Clearview's stockholders from a financial point of view than the transaction
contemplated by the Merger Agreement (a "Superior Proposal").
In the Merger Agreement, Clearview has also agreed to cease and terminate
any then-existing activities, discussions, or negotiations with any person other
than Cablevision conducted heretofore with respect to any Acquisition Proposal.
In addition, pursuant to the Merger Agreement, Clearview has agreed to notify
Cablevision promptly if any of the inquiries, proposals or offers referred to in
the previous paragraph are received by, any such information is requested from,
or any such discussions or negotiations are sought to be initiated or continued
with, any of Clearview's representatives indicating, in connection with such
notice, the name of such Person and the material terms and conditions of any
proposals or offers and thereafter to keep Cablevision informed, on a current
basis, of the status and terms of any such proposals or offers and the status of
any such discussions or negotiations. Clearview has also agreed that it will
promptly request any person that has heretofore executed a confidentiality
agreement in connection with its consideration of acquiring it or any of its
Subsidiaries to return all confidential information heretofore furnished to such
person by or on behalf of it or any of its Subsidiaries.
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Information Supplied. The Merger Agreement provides that Clearview and
Cablevision each agrees, as to itself and its Subsidiaries, that none of the
information supplied or to be supplied by it or its Subsidiaries for inclusion
or incorporation by reference in the Registration Statement will, at the time
the Registration Statement becomes effective under the Securities Act, and this
Prospectus/Proxy Statement and any amendment or supplement thereto will, at the
date of mailing to Clearview stockholders and at the time of the Special
Meeting, in any such case, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
The Special Meeting. Clearview has agreed in the Merger Agreement to take
all action necessary to convene the Special Meeting as promptly as practicable
after the Registration Statement of which this Proxy Statement/Prospectus forms
a part is declared effective. Clearview has further agreed that subject to its
fiduciary duties under applicable law, the Clearview Board will recommend
adoption and approval of the Merger Agreement and the Merger by holders of
Shares and Class A Preferred Shares and it will take all lawful action to
solicit such adoption and approval.
CERTAIN REGULATORY FILINGS AND APPROVALS
Pursuant to the Merger Agreement, each of Clearview and Cablevision has
agreed to cooperate with the other and use (and cause their respective
Subsidiaries to use) all reasonable efforts to take or cause to be taken all
actions, and do or cause to be done all things, necessary, proper or advisable
on its part under the Merger Agreement and applicable laws to consummate and
make effective the Merger and the other transactions contemplated by the Merger
Agreement as soon as practicable after the execution of the Merger Agreement,
including preparing and filing as promptly as practicable after the date of the
Merger Agreement all documentation to effect all necessary notices, reports and
other filings and to obtain as promptly as practicable all consents,
registrations, approvals, permits and authorizations necessary or advisable to
be obtained from any third party and/or any Governmental Entity in order to
consummate the Merger or any of the other transactions contemplated by the
Merger Agreement. However, the Merger Agreement does not require that
Cablevision proffer to, or agree to, sell or hold separate and agree to sell,
before or after the Effective Time, any assets, businesses, or interest in any
assets or businesses of either Cablevision or Clearview, or any of their
respective affiliates (or to consent to any sale, or agreement to sell, by
Clearview of any of its assets or businesses) or to agree to any material
changes or restriction in the operations of any such assets or businesses. The
Merger Agreement also provides that, subject to applicable laws relating to the
exchange of information, Cablevision and Clearview will have the right to review
in advance, and to the extent practicable each will consult the other on, all
the information relating to Cablevision or Clearview, as the case may be, and
their respective Subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party and/or Governmental Entity in connection
with the Merger and the transactions contemplated in the Merger Agreement.
HSR
Under the HSR Act and the rules promulgated thereunder, certain
transactions, including the Merger, may not be consummated unless certain
waiting period requirements have been satisfied. Cablevision and Clearview each
filed a Notification and Report Form pursuant to the HSR Act with the DOJ and
the FTC on September 21, 1998. On October 20, 1998, Clearview and Cablevision
were notified by the FTC that early termination of the waiting period under the
HSR Act had been granted. At any time before or after the Effective Time, the
FTC, the DOJ or others could take action under the antitrust laws with respect
to the Merger, including seeking to enjoin the consummation of the Merger, to
rescind the Merger or to require divestiture of substantial assets of
Cablevision or Clearview. There can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if such a challenge is made,
that it would not be successful.
There can be no assurance that the requisite regulatory approvals will be
obtained or that they will be obtained in a timely manner. In addition, there
can be no assurance that such approvals will not include conditions that will
result in the abandonment of the Merger.
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STOCK EXCHANGE LISTING AND DE-LISTING
Cablevision has agreed to use its best efforts to cause the shares of
Cablevision Class A Common Stock to be issued in the Merger to be approved for
listing on the ASE, subject to official notice of issuance, prior to the Closing
Date, and such approval for listing is a condition to consummation of the
Merger. The Merger Agreement provides that the Surviving Corporation will use
its best efforts to cause the Shares to be de-listed from the ASE and
de-registered under the Exchange Act as soon as practicable following the
Effective Time.
EMPLOYEE BENEFITS
Stock Options. The Merger Agreement provides that at the Effective Time,
each Clearview Option under the Stock Plan, whether vested or unvested, will be
canceled and the holder thereof will be entitled to receive the Option
Consideration. The Option Consideration will be paid as soon as practicable
following the Effective Time. Prior to the Effective Time, Clearview will take
such actions as may be necessary to effectuate the foregoing, including without
limitation obtaining all applicable consents. The cancellation of a Clearview
Option in exchange for the Option Consideration will be deemed a release of any
and all rights the holder had or may have had in respect of such Clearview
Option, and any required consents received from Clearview Option holders shall
so provide.
Benefit Plans. Each of Cablevision and Merger Sub has agreed that, during
the period commencing at the Effective Time and ending on the first anniversary
thereof, the employees of the Surviving Corporation and its Subsidiaries will
continue to be provided with benefits under employee benefit plans (other than
plans involving the issuance of Shares) that are substantially similar in the
aggregate to those currently provided by Clearview and its Subsidiaries to such
employees. Cablevision will, and will cause the Surviving Corporation to, honor
all employee benefit obligations to current and former employees under the
Compensation and Benefit Plans and all employee severance plans (or policies) in
existence on the date of the Merger Agreement and all employment or severance
agreements entered into by Clearview or adopted by the Clearview Board prior to
the date of the Merger Agreement. Cablevision has agreed to offer or cause
Merger Sub to offer employment contracts with the persons and on the terms set
forth on Schedule I to the Merger Agreement immediately prior to the Effective
Time. Nothing in the Merger Agreement will prevent Cablevision from terminating
any Compensation and Benefit Plan. Each of Cablevision and Merger Sub has agreed
that the employees of the Surviving Corporation will receive full credit for
purposes of eligibility and vesting under the employee benefit plans or
arrangements maintained by the Surviving Corporation for such employees' service
with Clearview or any of its Subsidiaries to the same extent recognized by
Clearview immediately prior to the Effective Time.
EXPENSES
The Surviving Corporation will pay all charges and expenses, including
those of the Exchange Agent, in connection with the exchange of shares, transfer
of cash and issuance of Cablevision Class A Common Stock contemplated by the
Merger Agreement, and Cablevision will reimburse the Surviving Corporation for
such charges and expenses. Except as otherwise provided in the Merger Agreement
with respect to transfer taxes and the Termination Expenses, the Merger
Agreement provides that whether or not the Merger is consummated, all costs and
expenses incurred in connection with the Merger Agreement and the Merger and the
other transactions contemplated by the Merger Agreement will be paid by the
party incurring such expense, except that expenses incurred in connection with
the filing fee for the Registration Statement and printing and mailing this
Proxy Statement/Prospectus and the Registration Statement will be shared equally
by Cablevision and Clearview.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
The Merger Agreement provides that, from and after the Effective Time,
Cablevision and the Surviving Corporation will indemnify and hold harmless each
Indemnified Party (as defined herein) against any Costs (as defined in the
Merger Agreement) incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, resulting from matters existing or
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occurring at or prior to the Effective Time (including, without limitation, any
claim, action, suit, proceeding or investigation resulting from the transactions
contemplated by the Merger Agreement), whether asserted or claimed prior to, at
or after the Effective Time, to the fullest extent that Clearview would have
been permitted under Delaware law and its certificate of incorporation or
by-laws in effect on the date of the Merger Agreement to indemnify such person
(and Cablevision or the Surviving Corporation will also advance expenses as
incurred to the fullest extent permitted under applicable law, if the Person to
whom expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such Person is not entitled to indemnification,
provided, that any determination required to be made with respect to whether an
officer's or director's conduct complies with the standards set forth under
Delaware law and Clearview's certificate of incorporation and by-laws shall be
made by independent counsel selected by the Surviving Corporation). For the
purposes of the Merger Agreement, "Indemnified Party" means each present and
former director and officer of Clearview (when acting in such capacity or when
serving at the request of Clearview as a director or officer of a Subsidiary or
a fiduciary of a Compensation and Benefits Plan) determined as of the Effective
Time.
The Merger Agreement also provides that Cablevision or the Surviving
Corporation will maintain D&O Insurance for a period of six years after the
Effective Time so long as the annual premium therefor is not in excess of 200%
of the last annual premium paid prior to the date of the Merger Agreement (the
"Current Premium"). However, if the existing D&O Insurance expires, is
terminated or canceled during such six-year period, Cablevision will use all
reasonable efforts and will cause the Surviving Corporation to use all
reasonable efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis) of
200% of the Current Premium. Clearview will use all reasonable efforts to obtain
officers and directors liability insurance to become effective at the Effective
Time with coverage amounts and a term reasonably satisfactory to Cablevision.
See "-- Interests of Certain Persons in the Merger."
CONDITIONS
The respective obligations of Clearview, Cablevision and Merger Sub to
effect the Merger are subject to the satisfaction or waiver at or prior to the
Effective Time of each of the following conditions: (a) the Merger Agreement
having been duly approved by the Clearview Requisite Vote and by the sole
stockholder of Merger Sub in accordance with applicable law and the certificate
and by-laws of each such corporation; (b) the shares of Cablevision Class A
Common Stock issuable to the stockholders of Clearview pursuant to the Merger
Agreement having been authorized for listing on the ASE upon official notice of
issuance; (c) the waiting period applicable to the consummation of the Merger
under the HSR Act having expired or been terminated and, other than the filing
provided for in the Merger Agreement, the Cablevision Required Consents and the
Clearview Required Consents in connection with the execution and delivery of the
Merger Agreement and the consummation of the Merger and the other transactions
contemplated hereby by Clearview, Cablevision and Merger Sub shall have been
made or obtained (as the case may be); (d) no Order that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger or the
other transactions contemplated by the Merger Agreement and no Governmental
Entity having instituted any proceeding or threatened in writing or publicly
announced its intention to institute any proceeding seeking any such Order; and
(e) the Registration Statement having become effective under the Securities Act
and no stop order suspending the effectiveness of the Registration Statement
having been issued, and no proceedings for that purpose having been initiated or
threatened, by the SEC.
The Merger Agreement provides that the obligations of Cablevision and
Merger Sub to effect the Merger are also subject to the satisfaction or waiver
by Cablevision at or prior to the Effective Time of the following conditions:
(a) the representations and warranties of Clearview set forth in the Merger
Agreement being true and correct as of the date of the Merger Agreement and as
of the Closing Date as though made on and as of the Closing Date (except to the
extent any such representation or warranty expressly speaks as of an earlier
date), and Cablevision having received a certificate signed on behalf of
Clearview by the Chief Executive Officer of Clearview to such effect; provided,
however, that notwithstanding anything in the Merger Agreement to the contrary,
this condition will be deemed to have been satisfied even if such
representations or
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warranties (without giving effect to any qualifications as to "Company Material
Adverse Effect," "material" or similar qualifications) are not so true and
correct unless the failure of such representations or warranties (without giving
effect to any qualifications as to "Company Material Adverse Effect," "material"
or similar qualifications) to be so true and correct, individually or in the
aggregate, has had, or is reasonably likely to have, a Company Material Adverse
Effect or is reasonably likely to prevent Clearview from consummating the
transactions contemplated by the Merger Agreement; (b) Clearview having
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to the Closing Date, and Cablevision
having received a certificate signed on behalf of Clearview by the Chief
Executive Officer of Clearview to such effect; (c) Clearview having obtained
certain specified consents and the consent or approval of each Person whose
consent or approval is required under any Contract except for such consents or
approvals that the failure to obtain would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect or be
reasonably likely to prevent Clearview from consummating the transactions
contemplated by the Merger Agreement; (d) if, and only if, the Average
Cablevision Share Price is greater than the Floor Price (and treated as being
greater than or equal to the Floor Price after giving effect to the allocation
if the Security Stock Consideration is less than 45% of the sum of (x) the
aggregate value of the Security Cash Consideration and (y) the aggregate value
of the Security Stock Consideration (calculated using the most recent available
price for Cablevision Class A Common Stock on the ASE), Cablevision having
received the opinion of Sullivan & Cromwell, dated the Closing Date, to the
effect that the Merger will be treated for federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Code, and that each
of Cablevision, Merger Sub and Clearview will be a party to that
"reorganization" within the meaning of Section 368(b) of the Code; (e)
Cablevision having received the resignations of each director of Clearview; (f)
Cablevision and/or Merger Sub having entered into an employment agreement with
A. Dale Mayo, as described under "-- Interests of Certain Persons in the
Merger"; and (g) Cablevision having received an Affiliates Letter (as defined
under the caption "-- Resale of Cablevision Class A Common Stock") from each
affiliate of Clearview.
The Merger Agreement further provides that the obligation of Clearview to
effect the Merger is also subject to the satisfaction or waiver by Clearview at
or prior to the Effective Time of the following conditions: (a) the
representations and warranties of Cablevision and Merger Sub set forth in the
Merger Agreement being true and correct as of the date of the Merger Agreement
and as of the Closing Date (except that certain representations and warranties
shall not be required to be so true and correct as of such dates if the Average
Cablevision Share Price is less than the Floor Price, and in which event neither
Cablevision nor Merger Sub shall have any obligation or liability (and Clearview
shall have no rights) in respect of a breach of such representations and
warranties) as though made on and as of the Closing Date (except to the extent
any such representation and warranty expressly speaks as of an earlier date) and
Clearview shall have received a certificate signed on behalf of Cablevision by
an executive officer of Cablevision and an executive officer of Merger Sub to
such effect; provided, however, that notwithstanding anything herein to the
contrary, this condition shall be deemed to have been satisfied even if such
representations or warranties (without giving effect to any qualifications as to
"Parent Material Adverse Effect," "material" or similar qualifications) are not
so true and correct unless the failure of such representations or warranties
(without giving effect to any qualifications as to "Parent Material Adverse
Effect," "material" or similar qualifications) to be so true and correct,
individually or in the aggregate, has had, or is reasonably likely to have, a
Parent Material Adverse Effect or is reasonably likely to prevent Cablevision
from consummating the transactions contemplated by the Merger Agreement; (b)
each of Cablevision and Merger Sub having performed all material obligations
required to be performed by it under the Merger Agreement at or prior to the
Closing Date, and Clearview having received a certificate signed on behalf of
Cablevision and Merger Sub by an executive officer of Cablevision and an
executive officer of Merger Sub to such effect; and (c) if, and only if, the
Average Cablevision Share Price is greater than the Floor Price (and treated as
being greater than or equal to the Floor Price after giving effect to the
allocation if the Security Stock Consideration is less than 45% of the sum of
(x) the aggregate value of the Security Cash Consideration and (y) the aggregate
value of the Security Stock Consideration (calculated using the most recent
available price for Cablevision Class A Common Stock on the ASE), Clearview
having received the opinion of Kirkpatrick & Lockhart, dated the Closing Date,
to the effect that the Merger will be treated for federal income tax purposes as
a "reorganization" within the meaning
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of Section 368(a) of the Code, and that each of Cablevision, Merger Sub and
Clearview will be a party to that "reorganization" within the meaning of Section
368(b) of the Code. "Parent Material Adverse Effect" means a material adverse
effect on the financial condition, properties, business or results of operations
of Cablevision and its Subsidiaries taken as a whole provided, however, that a
Parent Material Adverse Effect does not include any effect upon the financial
condition, properties, business or results of operations of Cablevision, or any
of its Subsidiaries resulting from national economic or business conditions,
generally or the public announcement of the execution of the Merger Agreement
and the transactions contemplated thereby.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, whether before or after the approval by
stockholders of Clearview at the Special Meeting and Cablevision, by mutual
written consent of Clearview and Cablevision, by action of their respective
boards of directors. Further, the Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of
either the Cablevision Board or the Clearview Board if (i) the Merger has not
been consummated by February 28, 1999, whether such date is before or after the
date of approval by the stockholders of Clearview; provided, however, that if
Cablevision determines that additional time is necessary in order to forestall
any action to restrain, enjoin or prohibit the Merger by any Governmental
Entity, the Termination Date may be extended by Cablevision to a date no later
than April 30, 1999; provided further, that such right to terminate will not be
available to any party that has breached in any material respect its obligations
under the Merger Agreement in any manner that has proximately caused the event
that would otherwise give rise to a right to terminate the Merger Agreement;
(ii) the adoption of the Merger Agreement by the stockholders of Clearview
required by the Merger Agreement is not obtained at a meeting duly convened
therefor or at any adjournment or postponement thereof; or (iii) any Order
permanently restraining, enjoining or otherwise prohibiting consummation of the
Merger becomes final and non-appealable (whether before or after the approval by
the stockholders of Clearview).
Further, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after the
approval by the stockholders of Clearview at the Special Meeting, by action of
the Clearview Board if there has been a material breach by Cablevision or Merger
Sub of any representation, warranty, covenant or agreement contained in the
Merger Agreement which is not curable, or, if curable, is not cured within 30
days after written notice of such breach is given by Clearview to the party
committing such breach.
In addition, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by action of the Cablevision
Board if (i) the Clearview Board has withdrawn or adversely modified its
approval or recommendation of the Merger Agreement or approved or recommended a
Superior Proposal or (ii) there has been a material breach by Clearview of any
representation, warranty, covenant or agreement contained in the Merger
Agreement that is not curable, of, if curable, is not cured within 30 days after
written notice of such breach is given by Cablevision to the party committing
such breach.
CERTAIN TERMINATION EXPENSES
The Merger Agreement provides that in the event that (i) an Acquisition
Proposal has been made to Clearview or any of its Subsidiaries or any of its
stockholders or any Person has publicly announced an intention (whether or not
conditional) to make a bona fide Acquisition Proposal with respect to Clearview
or any Subsidiary of Clearview and thereafter the Merger Agreement is terminated
by either Cablevision or Clearview because the stockholders of Clearview failed
to approve the Merger Agreement or (ii) the Merger Agreement is terminated by
Cablevision pursuant to the provisions of the Merger Agreement permitting it to
terminate if the Clearview Board has withdrawn or adversely modified its
approval or recommendation of the Merger Agreement, or approved or recommended a
Superior Proposal, then Clearview will promptly, but in no event later than two
days after the date of such termination, pay Cablevision a Termination Fee of
$1.6 million and will promptly, but in no event later than two days after being
notified of such by Cablevision, pay all of the charges and expenses, including
those of the Exchange Agent, incurred by Cablevision or Merger Sub in connection
with the Merger Agreement and the transactions contemplated by the Merger
Agreement up to a
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maximum amount of $400,000, in each case payable by wire transfer of same day
funds (the "Termination Expenses").
RESALE OF CABLEVISION CLASS A COMMON STOCK
The shares of Cablevision Class A Common Stock issuable to stockholders of
Clearview in connection with the Merger have been registered under the
Securities Act. Such shares may be traded freely and without restriction by
those stockholders not deemed to be "affiliates" of Clearview prior to the date
of the Special Meeting, or Cablevision following the Effective Time, as that
term is defined in the rules under the Securities Act. "Affiliates" are
generally defined as persons who control, are controlled by or are under common
control with Clearview at the time of the Special Meeting or Cablevision
following the Effective Time. Shares of Cablevision Class A Common Stock
received by those stockholders of Clearview who are deemed to be "affiliates" of
Clearview may be resold without registration as provided for by Rule 144 or 145,
or as otherwise permitted, under the Securities Act. This Proxy
Statement/Prospectus does not cover any resales of Cablevision Class A Common
Stock received by affiliates of Clearview in the Merger or by certain of their
family members or related interests.
Pursuant to the Merger Agreement, Clearview has agreed to deliver to
Cablevision at least 30 days prior to the Special Meeting a letter identifying
all persons whom Clearview believes to be, as of the date of the Special
Meeting, "affiliates" of Clearview within the meaning of Rule 145 under the
Securities Act. Clearview has agreed to use its best efforts to cause each
person who is identified as an "affiliate" in the letter referred to above and
who makes a Stock Election to deliver to Cablevision prior to the date of the
Special Meeting a written agreement in the appropriate form as attached to the
Merger Agreement (an "Affiliates Letter").
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Clearview Board, stockholders
should be aware that certain members of management of Clearview and of the
Clearview Board have certain interests in the Merger that are in addition to the
interests of stockholders generally and which may create potential conflicts of
interest. The Clearview Board was made aware of such interests as they arose and
considered them in the course of their evaluation of the Merger Agreement and
the Merger.
Mayo Employment Agreement. On August 12, 1998, in contemplation of the
Merger, Clearview entered into an employment agreement with A. Dale Mayo (the
"Mayo Employment Agreement"). The Mayo Employment Agreement is subject to the
consummation of the Merger, and will be of no effect if the transactions
contemplated by the Merger Agreement are not consummated by March 31, 1999. See
"Clearview Management" for a description of Mr. Mayo's current employment
agreement with Clearview (the "Prior Agreement").
Pursuant to the Mayo Employment Agreement, Mr. Mayo will serve as President
and Chief Executive Officer of Clearview, report to the President and/or Chief
Executive Officer of Madison Square Garden, L.P. ("MSG") or such other senior
executive of MSG or Cablevision as designated by Cablevision, and will have
direct managerial authority over all movie theaters owned or operated by
Cablevision, other than Radio City Music Hall or theaters physically located in
the Madison Square Garden complex. Clearview will take such action to cause Mr.
Mayo to be appointed to and/or remain a member of the Clearview Board. The Mayo
Employment Agreement is for a term expiring on December 31, 2003.
Pursuant to the Mayo Employment Agreement, Mr. Mayo will receive an annual
base salary of no less than $400,000, and will be eligible to participate in
Cablevision's annual incentive compensation plan, with a target annual cash
bonus of a minimum of 45%, and a maximum of 90%, of Mr. Mayo's base salary. Mr.
Mayo's bonus for the 1998 calendar year, however, will be comprised of (i) the
pro-rata amount of the bonus earned by and payable to Mr. Mayo under the terms
of Mr. Mayo's Prior Agreement with respect to the period ending immediately
prior to the Effective Time, and (ii) the pro-rata amount of any bonus payable
in accordance with the preceding sentence with respect to the period commencing
on the Effective Time.
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Pursuant to the Mayo Employment Agreement, Mr. Mayo, subject to the
authorization of Cablevision's Compensation Committee, will be granted at the
Effective Time options ("Cablevision Options") to acquire 11,500 shares of
Cablevision Class A Common Stock (the "Initial Options"), and conjunctive rights
(the "Cablevision Rights") in respect of 11,500 shares of Cablevision Class A
Common Stock (the "Initial Rights"), in each case with an exercise price equal
to the fair market value of one share of Cablevision Class A Common Stock on the
date of grant. The Initial Options and Initial Rights will vest ratably on each
of the first, second and third anniversary of the date of grant, and will
otherwise be subject to the terms and conditions of Cablevision's stock option
plan, the specific award agreements evidencing such Initial Options and Initial
Rights, and the Mayo Employment Agreement. In the event of the failure to secure
the required authorization of Cablevision's Compensation Committee for the
grants of such Initial Options and Initial Rights, Clearview will make
alternative arrangements with substantially equivalent economic value. During
the term of the Mayo Employment Agreement, Mr. Mayo will be eligible to receive
additional grants of Cablevision Options (including Cablevision Rights) and
other equity-based awards on the same terms and conditions as other similarly
situated executives of MSG and Cablevision.
Pursuant to the Mayo Employment Agreement, Mr. Mayo also will be eligible
to participate in all retirement, savings, welfare and fringe benefit plans,
practices, policies and programs maintained by Cablevision and Clearview at
levels commensurate with those of similarly situated executives of Cablevision,
MSG and Clearview, as applicable.
Pursuant to the Mayo Employment Agreement, if Clearview terminates Mr.
Mayo's employment other than for Cause (but not for Disability), or Mr. Mayo
terminates his employment for Good Reason (each as defined in the Mayo
Employment Agreement), then, subject to the effectiveness of Mr. Mayo's
execution of a general release of claims against Clearview: (i) Clearview will
continue to pay to Mr. Mayo his base salary for the remainder of the scheduled
term of the Mayo Employment Agreement (assuming Mr. Mayo's employment had not
been terminated) (the "Continuation Period"); provided, that the Continuation
Period will not be less than two years; provided, further, that if the date of
termination is subsequent to August 12, 2001, the amount will be at an annual
rate of not less than $550,000; (ii) during the Continuation Period, Clearview
will continue to provide Mr. Mayo (and/or Mr. Mayo's family) with welfare
benefits substantially equivalent to those that would have been provided to them
(assuming Mr. Mayo's employment had not been terminated); (iii) if the date of
termination occurs subsequent to August 12, 2000, the Initial Options and
Initial Rights (or any other alternative arrangements in lieu thereof) will
fully vest and become immediately exercisable; and (iv) if there is a Change in
Control (as defined in the Mayo Employment Agreement) of Clearview subsequent to
August 12, 2000, at the discretion of Cablevision's Compensation Committee,
either (x) all Cablevision Options and Cablevision Rights (and any other
alternative arrangements in lieu of all or any portion thereof) will fully vest
or (y) Clearview will cause such Cablevision Options and Cablevision Rights (and
any such alternative arrangements) to be assumed by the entity acquiring
Clearview in an equitable manner as determined by Cablevision's Compensation
Committee in its sole discretion; provided, that the amounts under (i) and (ii)
above will be payable only so long as Mr. Mayo complies with Mr. Mayo's
covenants regarding confidentiality, noncompetition and nonsolicitation
(described below).
Pursuant to the Mayo Employment Agreement, if Mr. Mayo's employment is
terminated for Cause or Mr. Mayo terminates his employment without Good Reason
(other than due to his death), the Mayo Employment Agreement will terminate
without further additional obligations to Mr. Mayo, and (i) in the event of
termination for Cause, all Cablevision Options and Cablevision Rights (and any
other equity-based awards granted to Mr. Mayo) (whether vested or unvested) will
immediately terminate and be forfeited, and (ii) in the case of termination by
Mr. Mayo without Good Reason, all unvested Cablevision Options and Cablevision
Rights (and any other unvested equity-based awards granted to Mr. Mayo) will
immediately terminate and be forfeited.
Pursuant to the Mayo Employment Agreement, Mr. Mayo has agreed not to use
confidential information other than in accordance with any restrictions placed
by Clearview on its use or disclosure. In addition, Mr. Mayo has agreed, during
the term of the Mayo Employment Agreement and for a period (the "Applicable
Period") ending on the later of (i) the expiration of the 12-month period
following the date of termination, and (ii) in the event of a termination of
employment by Clearview other than for Cause (but not
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for Disability) or by Mr. Mayo for Good Reason, if applicable, the expiration of
the Continuation Period, not to compete with Clearview (including associating
with any business that (x) engages in the operation and/or ownership of movie
theaters or screens within 100 miles of (I) any movie theaters or screens that
are operated or owned, directly or indirectly, by Clearview or Cablevision or
(II) any cable television system operated or owned, directly or indirectly, by
Cablevision, in each case including any theaters, screens or cable television
systems in respect of which Cablevision or Clearview has contracted or entered
into negotiations to acquire or (y) books, markets, promotes, presents, sells
tickets to, or otherwise exploits entertainment events in the greater New York
metropolitan area, or, with respect to each of (x) and (y) above, owns a 5% or
greater interest in any entity that engages in the activities described in
clauses (x) or (y)). Furthermore, Mr. Mayo has agreed that during the term of
the Mayo Employment Agreement and for the Applicable Period thereafter, he will
not, in any manner, directly or indirectly, (i) solicit any person who is an
employee of Clearview to apply for or accept employment with any competition,
(ii) solicit any client of Clearview to whom Mr. Mayo provided services, or for
whom Mr. Mayo transacted business, or whose identity became known to Mr. Mayo in
connection with Mr. Mayo's employment with Clearview to transact business with a
competitor or reduce or refrain from doing any business with Clearview, or (iii)
interfere with or damage (or attempt to interfere with or damage) any
relationship between Clearview and any such client.
Executive Employment Contracts. Pursuant to the Merger Agreement,
Cablevision has agreed to offer or cause Merger Sub to offer employment
contracts (the "Executive Contracts"), immediately prior to the Effective Time,
on the terms and conditions described below, with the following Clearview
executives: Paul Kay, Senior Vice President, Operations; Robert D. Lister, Vice
President, General Counsel and Secretary; Joan Romine, Vice President -- Finance
and Treasurer; and Craig Zeltner, Vice President -- Film and President -- Cinema
Services Division (the "Executives"). Mr. Zeltner is currently a party to an
employment agreement, and it is anticipated that Mr. Zeltner's employment
agreement will be modified accordingly. Each Executive Contract generally will
have a term of three years; provided, however, that the term of Mr. Zeltner's
Executive Contract will expire on February 14, 2003. The Executive Contracts
will provide for a base salary of $170,000, $125,000, $125,000 and $100,000 for
Mr. Kay, Mr. Lister, Ms. Romine and Mr. Zeltner, respectively. Each Executive
Contract also will provide for (i) annual incentive compensation to be payable
in accordance with Cablevision's applicable bonus plan, (ii) each executive to
be eligible to receive grants of options to purchase Cablevision Class A Common
Stock, as determined by Cablevision in its sole discretion, (iii) each executive
to be eligible to participate in all retirement, pension and welfare plans and
programs maintained by Cablevision, and (iv) severance compensation no less
favorable than the severance compensation provided under Cablevision's severance
policy (provided, that the incentive compensation and severance compensation to
be provided under Mr. Zeltner's Executive Contract will be the amount determined
under Mr. Zeltner's current employment agreement).
Outstanding Equity Awards. Under the existing terms of the Stock Plans,
the vesting of all outstanding Clearview Options will be accelerated at the
Effective Time. The Merger Agreement provides that at the Effective Time, each
Clearview Option under the Stock Plan, whether vested or unvested, will be
cancelled and the holder thereof will be entitled to receive the Option
Consideration. See "-- Employee Benefits --
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Stock Options." As of the Record Date, the following Clearview directors and
executive officers held the following vested and unvested Clearview Options
under the Stock Plans:
<TABLE>
<CAPTION>
VESTED AVERAGE
AND EXERCISE
UNVESTED PRICE AMOUNT PAYABLE AT
NAME OPTIONS PER SHARE EFFECTIVE TIME
---- -------- ------------- -----------------
<S> <C> <C> <C>
A. Dale Mayo, Chairman, CEO and President.... 100,000 $12.45 $1,180,000
Paul Kay, Senior Vice President,
Operations................................. 50,000 $12.79 $ 573,000
Joan M. Romine, Vice President Finance and
Treasurer.................................. 25,000 $14.01 $ 256,000
Robert D. Lister, Vice President, General
Counsel and Secretary...................... 17,500 $15.48 $ 153,475
Craig Zeltner, Vice President--Film and
President--Cinema Services Division........ 10,000 $13.57 $ 106,800
Wayne Clevenger, Director.................... 5,000 $20.25 $ 20,000
Robert Davidoff, Director.................... 5,000 $20.25 $ 20,000
Phillip Getter, Director..................... 5,000 $20.25 $ 20,000
Brett E. Marks, Director..................... 15,000 $12.08 $ 182,500
Sueanne Hall Mayo, Director.................. 25,000 $11.56 $ 317,250
Denis Newman, Director....................... 5,000 $20.25 $ 20,000
</TABLE>
DISSENTERS' RIGHTS OF APPRAISAL
Section 262 of the DGCL entitles any holder of record of Clearview
Securities (including shares not entitled to vote on the approval and adoption
of the Merger Agreement) who makes a written demand prior to the taking of the
vote at the Special Meeting and who follows the procedures prescribed by Section
262 to an appraisal of the "fair value" of all, but not less than all, of such
shares by the Delaware Court of Chancery (the "Court"), and to the payment of
such fair value by Clearview, in lieu of receiving the consideration provided
under the Merger Agreement.
Set forth below is a summary of the procedures relating to the exercise of
appraisal rights as provided in Section 262 of the DGCL. Such summary does not
purport to be complete and is qualified in its entirety by reference to the full
text of Section 262 attached hereto as Annex D. Failure to comply with any of
the required steps may result in termination of any appraisal rights the
Dissenting Securityholder may have under the DGCL.
Dissenting Securityholders who follow the procedures set forth in Section
262 of the DGCL may receive a cash payment equal to the fair value of the
Dissenting Securities, determined exclusive of any element of value arising from
the accomplishment or expectation of the Merger. Unless all the procedures set
forth in Section 262 are followed by a stockholder who wishes to exercise
appraisal rights, such stockholder will be bound by the terms of the Merger.
Each stockholder electing to demand the appraisal of his or her shares must (i)
deliver to Clearview, prior to the Special Meeting, a written demand for
appraisal of the stockholder's shares, setting forth the stockholder's intent to
demand an appraisal and giving the stockholder's identity and (ii) not vote such
stockholder's shares in favor of the approval and adoption of the Merger
Agreement. Within ten days after the Effective Time, Clearview shall notify each
stockholder who has complied with these requirements that the Merger has become
effective.
Within 120 days after the Effective Time, any Dissenting Securityholder,
upon written request, shall be entitled to receive a statement from Clearview,
setting forth the aggregate number of shares which were not voted in favor of
the Merger and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Clearview shall then mail
such written statement to the Dissenting Securityholder as set forth in Section
262 of the DGCL.
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Within 120 days after the Effective Time, a Dissenting Securityholder who
has perfected rights of appraisal as set forth in Section 262 of the DGCL and
who is otherwise entitled to appraisal rights may file a petition in the Court
demanding a determination of the value of all the Dissenting Securities. Upon
the filing of any such petition by a Dissenting Securityholder, such Dissenting
Securityholder is required to serve a copy thereof upon Clearview. At the
hearing on such petition, the Court shall determine the Dissenting
Securityholders that have complied with the provisions of Section 262 of the
DGCL and have become entitled to appraisal rights. The Court may require the
stockholders who have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to the
Delaware Register in Chancery for notation thereon of the pendency of the
appraisal proceedings. Failure to comply with such a demand by the Court could
result in dismissal of the proceedings as to such stockholder. The Delaware
Register in Chancery, if so ordered, shall give notice of the time and place
fixed for the hearing of the petition by registered or certified mail to
Cablevision and to the stockholders who have demanded payment for their shares
and with whom agreements as to the value of their shares have not been reached
by Clearview. Notice shall also be given by one or more publications at least
one week before the day of the hearing in a newspaper of general circulation
published in the city of Wilmington, Delaware or such publications as the Court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by Clearview.
After determining the Dissenting Securityholders entitled to an appraisal,
the Court shall appraise the Dissenting Securities by determining their fair
value exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining fair value,
the Court is to take into account all relevant factors. The Delaware Supreme
Court has stated that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings and that
"fair price obviously requires consideration of all relevant factors involving
the value of a company." The Delaware Supreme Court has stated that, in making
this determination of fair value, the Court must consider "market value, asset
value, dividends, earnings prospects, the nature of the enterprise and any other
facts which were known or which could be ascertained as of the date of the
merger which throw any light on future prospects of the merger corporation." The
Delaware Supreme Court has also held that "elements of future value, including
the nature of the enterprise, which are known or susceptible of proof as of the
date of the merger and not the product of speculation, may be considered." The
Court may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal before a final determination of all
stockholders entitled to an appraisal.
The Court shall direct the payment of the fair value of the shares,
together with interest thereon, if any, by Clearview to the stockholders
entitled to payment. Payment shall be made to the holders of Dissenting
Securities only upon the surrender to Clearview of the certificates representing
such Dissenting Securities. The costs of the proceedings shall be allocated
between the parties in the manner that the Court deems equitable in the
circumstances. Upon application of a Dissenting Securityholder, the Court may
order all or a portion of the expenses incurred in connection with the appraisal
proceeding, including reasonable attorneys' fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
From and after the Effective Time, no Dissenting Securityholder shall be
entitled to vote or to receive payment of dividends or other distributions on
his or her Dissenting Securities (except for dividends or other distributions
payable to stockholders of record as of a date prior to the Effective Time).
Any Dissenting Securityholder may, within 60 days after the Effective Time,
withdraw such demand and accept the terms of the Merger. No such demand may be
withdrawn after the expiration of the 60 day period, however, unless Clearview
shall consent thereto. If no petition for an appraisal of such Dissenting
Securities by the Court shall have been filed within the time provided in
Section 262(e) of the DGCL, or if the Dissenting Securityholder delivers a
written withdrawal of his or her demand for an appraisal and an acceptance of
the Merger, either within 60 days after the Effective Time or thereafter with
the written approval of Clearview, the right of such Dissenting Securityholder
to an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court shall be dismissed as to any Dissenting Securityholder
without the approval of the Court, which may be conditioned upon such terms as
the Court deems just.
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A VOTE AGAINST APPROVAL AND ADOPTION OF THE MERGER AGREEMENT WILL NOT
SATISFY THE REQUIREMENT FOR A WRITTEN DEMAND FOR APPRAISAL.
Exercise of the right to an appraisal under the DGCL may result in a
judicial determination that the "fair value" of Dissenting Securities is higher
or lower than the value of the shares of Cablevision Class A Common Stock to be
received in respect thereof pursuant to the Merger Agreement. If Clearview
complies with the requirements of the DGCL, any stockholder who fails to comply
with the requirements of the DGCL will be without a statutory remedy for the
recovery of the value of his or her shares or for money damages to the
stockholder with respect to the Merger.
Reference is made to Annex D attached hereto for the complete text of the
provisions of Section 262 of the DGCL relating to the rights of Dissenting
Securityholders. Statements made in this Proxy Statement/ Prospectus summarizing
those provisions are qualified in their entirety by reference to Annex D. The
provisions are technical in nature and complex. It is suggested that any
stockholder who desires to exercise rights to an appraisal of Clearview
Securities consult counsel. Failure to comply strictly with the provisions of
the statute may defeat a stockholder's right to an appraisal.
ACCOUNTING TREATMENT
Cablevision will account for the Merger using the purchase method of
accounting in accordance with the provisions of Accounting Principles Board
Opinion No. 16, "Business Combinations." Accordingly, Cablevision will record at
its cost the acquired assets less liabilities assumed, with the excess of such
cost over the estimated fair value of such net assets reflected as goodwill.
Additionally, certain costs directly related to the acquisition will be
reflected as additional purchase price in excess of the net assets acquired.
Cablevision has not yet determined whether the new basis of the net assets of
Clearview will be recorded on Clearview's separate financial statements. Should
Cablevision determine to record such amounts on such separate financial
statements, the increase in net assets would result principally in the recording
of goodwill, which would be amortized over future periods.
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CERTAIN TAX CONSEQUENCES OF THE MERGER
In the opinion of Kirkpatrick & Lockhart and Sullivan & Cromwell, tax
counsels to Clearview and Cablevision, respectively, the following summary
discusses the material federal income tax consequences of the Merger. The
summary is based upon the Code, applicable Treasury Regulations thereunder and
administrative rulings and judicial authority as of the date hereof
(collectively, "Currently Applicable Law"), and certain representations as to
factual matters made or to be made by Clearview and Cablevision (such
representations, the "Factual Representations"). Any change in Currently
Applicable Law, which may or may not be retroactive, or failure of the Factual
Representations to be true, correct and complete in all material respects could
affect the continuing validity of this discussion. The discussion assumes that
holders of Clearview Securities hold such shares as a capital asset within the
meaning of Section 1221 of the Code. Further, the discussion does not address
the tax consequences that may be relevant to a particular stockholder subject to
special treatment under certain federal income tax laws, such as dealers in
securities or foreign currency, banks, trusts, tax-exempt organizations, persons
that hold Clearview Securities as part of a straddle, a hedge against currency
risk or a constructive sale or conversion transaction, persons that have a
functional currency other than the U.S. dollar, non-United States persons,
stockholders who acquired Clearview Securities through the exercise of options
or otherwise as compensation or through a tax-qualified retirement plan, and
holders of options granted under Clearview's Compensation and Benefit Plans.
This discussion addresses only federal income tax consequences and does not
address any consequences arising under the laws of any state, locality or
foreign jurisdiction.
Neither Clearview nor Cablevision has requested a ruling from the Internal
Revenue Service ("IRS") with regard to any of the federal income tax
consequences of the Merger and the opinions of counsel as to such federal income
tax consequences set forth below will not be binding on the IRS. As a result,
there can be no assurance that the IRS will not disagree with or challenge any
of the conclusions set forth in this discussion.
As of the date hereof, provided that the Average Cablevision Share Price is
greater than or equal to the Floor Price, and, if applicable, Cablevision does
not exercise its option to have Clearview be the Surviving Corporation, it is
intended that the Merger will constitute a reorganization pursuant to Section
368(a) of the Code and that for federal income tax purposes no gain or loss will
be recognized by Cablevision, Clearview or Merger Sub. If such conditions are
satisfied, the obligations of Cablevision and Merger Sub, on the one hand, and
Clearview, on the other hand, to consummate the Merger are respectively
conditioned on the receipt by Cablevision of an opinion of Sullivan & Cromwell
and the receipt by Clearview of an opinion of Kirkpatrick & Lockhart, each such
opinion, dated the Closing Date, to the effect that the Merger will be treated
for federal income tax purposes as a "reorganization" within the meaning of
Section 368(a) of the Code, and that each of Cablevision, Clearview and Merger
Sub will be a party to the "reorganization" within the meaning of Section 368(b)
of the Code. Such opinions will be based upon, among other things, (i) Factual
Representations dated as of the Closing Date and (ii) the assumption that the
Merger will be consummated in accordance with the terms of the Merger Agreement.
Assuming that (i) the Merger is consummated in accordance with the terms of
the Merger Agreement and as described in this Proxy Statement/Prospectus, and
(ii) the Average Cablevision Share Price is greater than or equal to the Floor
Price, and, if applicable, Cablevision does not exercise its option to have
Clearview be the Surviving Corporation, and based upon Currently Applicable Law
and the Factual Representations, the Merger will be treated as a
"reorganization" within the meaning of Section 368(a) of the Code, and
Clearview, Cablevision and Merger Sub will each be parties to that
"reorganization" within the meaning of Section 368(b) of the Code. Therefore,
(i) each of Clearview, Cablevision, and Merger Sub will not recognize gain or
loss as a result of the Merger, (ii) holders of Clearview Securities will not
recognize gain or loss on the surrender of Clearview Securities in exchange for
shares of Cablevision Class A Common Stock pursuant to the Merger, (iii) the
aggregate adjusted tax basis of the shares of Cablevision Class A Common Stock
received pursuant to the Merger will be the same as the aggregate adjusted tax
basis of the Clearview Securities surrendered therefor, and (iv) the holding
period of the shares of Cablevision Class A Common Stock received pursuant to
the Merger will include the holding period of the Clearview Securities
surrendered therefor. Holders of Clearview Securities who receive cash pursuant
to the Merger, including the receipt of cash in lieu of fractional shares, will
recognize capital gain or loss in an amount equal to the difference
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between the amount of cash received and the adjusted tax basis of the Clearview
Securities surrendered therefor. The capital gain or loss will be long-term
capital gain or loss if the holder's holding period in such surrendered
Clearview Securities is more than one year. Under recently enacted legislation,
long-term capital gains recognized by a non-corporate taxpayer are subject to a
maximum federal income tax rate of 20%.
If the Average Cablevision Share Price is less than the Floor Price and/or
Cablevision exercises its option to have Clearview be the Surviving Corporation,
each holder of Clearview Securities will receive only cash pursuant to the
Reverse Merger and the Reverse Merger will not constitute a "reorganization"
within the meaning of Section 368(a) of the Code. Each holder of Clearview
Securities will recognize capital gain or loss in an amount equal to the
difference between the amount of cash received pursuant to the Reverse Merger
and the adjusted tax basis of the Clearview Securities surrendered therefor. The
capital gain or loss will be long-term capital gain or loss if the holder's
holding period in such surrendered Clearview Securities is more than one year.
Under recently enacted legislation, long-term capital gains recognized by a
non-corporate taxpayer are subject to a maximum federal income tax rate of 20%.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX CONSEQUENCES OF THE MERGER OR THE REVERSE
MERGER. THUS, HOLDERS OF CLEARVIEW SECURITIES ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER AND THE
REVERSE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY
AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS AND THE
EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
DESCRIPTION OF CABLEVISION CAPITAL STOCK
The following description of Cablevision capital stock is not complete and
is qualified in its entirety by reference to the DGCL and to the complete text
of the Cablevision Restated Certificate, which is incorporated herein by
reference.
Cablevision is authorized to issue 200,000,000 shares of Cablevision Class
A Common Stock, par value $.01 per share, 80,000,000 shares of Cablevision Class
B Common Stock, par value $0.01 per share ("Cablevision Class B Common Stock"),
and 10,000,000 shares of Preferred Stock.
CABLEVISION CLASS A COMMON STOCK AND CABLEVISION CLASS B COMMON STOCK
Voting. Holders of Cablevision Class A Common Stock are entitled to one
vote per share. Holders of Cablevision Class B Common Stock are entitled to ten
votes per share. All actions submitted to a vote of stockholders are voted on by
holders of Cablevision Class A Common Stock and Cablevision Class B Common Stock
voting together as a single class, except for the election of directors and as
otherwise set forth below. With respect to the election of directors, holders of
Cablevision Class A Common Stock vote as a separate class and are entitled to
elect 25% of the total number of directors constituting the whole Board of
Directors (the "Class A Directors") and, if such 25% is not a whole number, then
the holders of Cablevision Class A Common Stock are entitled to elect the
nearest higher whole number of directors that is at least 25% of the total
number of directors so long as the number of outstanding shares of Cablevision
Class A Common Stock is at least 10% of the total number of outstanding shares
of Cablevision Common Stock. Holders of Cablevision Class B Common Stock, voting
as a separate class, are entitled to elect the remaining directors.
If, however, on the record date for any stockholder meeting at which
directors are to be elected, the number of outstanding shares of Cablevision
Class A Common Stock is less than 10% of the total number of outstanding shares
of both classes of Cablevision Common Stock, the holders of Cablevision Class A
Common Stock and Cablevision Class B Common Stock will vote together as a single
class with respect to the election of directors and the holders of Cablevision
Class A Common Stock will not have the right to elect 25% of the total number of
directors but will have one vote per share for all directors and holders of
Cablevision Class B Common Stock will have ten votes per share for all
directors.
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<PAGE> 72
If, on the record date for any stockholder meeting at which directors are
to be elected, the number of outstanding shares of Cablevision Class B Common
Stock is less than 12 1/2% of the total number of outstanding shares of
Cablevision Common Stock, then the holders of Cablevision Class A Common Stock,
voting as a separate class, would continue to elect a number of Class A
Directors equal to 25% of the total number of directors constituting the whole
Board of Directors and, in addition, would vote together with the holders of
Cablevision Class B Common Stock to elect the remaining directors to be elected
at such meeting, with the holders of the Cablevision Class A Common Stock
entitled to one vote per share and the holders of Cablevision Class B Common
Stock entitled to ten votes per share.
In addition, the affirmative vote or consent of the holders of at least
66 2/3% of the outstanding shares of Cablevision Class B Common Stock, voting
separately as a class, is required for the authorization or issuance of any
additional shares of Cablevision Class B Common Stock and for any amendment,
alteration or repeal of any provisions of the Cablevision Restated Certificate
which would affect adversely the powers, preferences or rights of the
Cablevision Class B Common Stock. The Cablevision Restated Certificate does not
provide for cumulative voting.
Conversion. The Cablevision Class A Common Stock has no conversion rights.
The Cablevision Class B Common Stock is convertible into Cablevision Class A
Common Stock in whole or in part at any time and from time to time on the basis
of one share of Cablevision Class A Common Stock for each share of Cablevision
Class B Common Stock.
Dividends. Holders of Cablevision Class A Common Stock and Cablevision
Class B Common Stock are entitled to receive dividends equally on a per share
basis if and when such dividends are declared by the Board of Directors from
funds legally available therefor. No dividends may be declared or paid in cash
or property on shares of either Cablevision Class A Common Stock or Cablevision
Class B Common Stock unless the same dividend is paid simultaneously on each
share of the other class of Cablevision Common Stock. In the case of any stock
dividend, holders of Cablevision Class A Common Stock are entitled to receive
the same percentage dividend (payable in shares of Cablevision Class A Common
Stock) as holders of Cablevision Class B Common Stock receive (payable in shares
of Cablevision Class B Common Stock). The Cablevision Restated Certificate
provides that the distribution of shares of capital stock of any subsidiary to
common stockholders may differ to the extent that the common stock differs as to
voting rights and rights in connection with certain dividends.
Liquidation. Holders of Cablevision Class A Common Stock and Cablevision
Class B Common Stock share with each other on a ratable basis as a single class
in the net assets available for distribution in respect of Cablevision Class A
Common Stock and Cablevision Class B Common Stock in the event of liquidation.
Other Terms. Neither the Cablevision Class A Common Stock nor the
Cablevision Class B Common Stock may be subdivided, consolidated, reclassified
or otherwise changed unless contemporaneously therewith the other class of
shares is subdivided, consolidated, reclassified or otherwise changed in the
same proportion and in the same manner.
In any merger, consolidation or business combination, the consideration to
be received per share by holders of either Cablevision Class A Common Stock or
Cablevision Class B Common Stock must be identical to that received by holders
of the other class of Cablevision Common Stock, except that in any such
transactions in which shares of capital stock are distributed, such shares may
differ as to voting rights only to the extent that voting rights now differ
between Cablevision Class A Common Stock and Cablevision Class B Common Stock.
CABLEVISION PREFERRED STOCK
Under the Cablevision Restated Certificate, the Cablevision Board is
authorized, without further stockholder action, to provide for the issuance of
up to 10,000,000 shares of Cablevision Preferred Stock. Subject to limitations
imposed by law or the Cablevision Restated Certificate, the Board of Directors
is empowered to determine (a) the maximum number of shares to constitute the
series and the distinctive designation thereof; (b) whether the shares of such
series shall have voting rights, in addition to any voting
56
<PAGE> 73
rights provided by law, and, if so, the terms of such voting rights; (c) the
dividend rate, if any, on the shares of such series, the conditions and dates
upon which such dividends shall be payable, the preference or relation which
such dividends shall bear to the dividends payable on any other class or classes
or on any other series of capital stock, and whether such dividends shall be
cumulative or non-cumulative; (d) whether the shares of such series shall be
subject to redemption by Cablevision, and, if made subject to redemption, the
times, prices and other terms and conditions of such redemption; (e) the rights
of holders of shares of such series upon the liquidation, dissolution or winding
up of Cablevision; (f) whether or not the shares of such series shall be subject
to the operation of a retirement sinking fund, and, if so, the extent to and
manner in which any such retirement of sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or to other
corporate purposes and the terms and provisions relative to the operation
thereof; (g) whether or not the shares of such series shall be convertible into,
or exchangeable for, the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same; (h) the limitations and
restrictions, if any, to be effective while any shares of such series are
outstanding upon the payment of dividends or making of other distributions on,
and upon the purchase, redemption or other acquisition by Cablevision of, the
Cablevision Class A Common Stock, the Cablevision Class B Common Stock or any
other class or classes of stock of Cablevision ranking junior to the shares of
such series either as to dividends or upon liquidation; (i) the conditions or
restrictions, if any, upon the creation or indebtedness of Cablevision or upon
the issue of any additional stock (including additional shares of such series or
of any other series or of any other class) ranking on a parity with or prior to
the shares of such series as to dividends or distribution of assets on
liquidation, dissolution or winding up; (j) whether fractional interests in
shares of the series will be offered in the form of depositary shares; and (k)
any other preference and relative, participating, optional or other special
rights or qualifications, limitations or restrictions thereof.
57
<PAGE> 74
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS
OF CABLEVISION AND CLEARVIEW
GENERAL
As a result of the Merger, holders of Clearview Securities who receive
Security Stock Consideration will become holders of Cablevision Class A Common
Stock and the rights of all such former holders of Clearview Securities who
receive Security Stock Consideration will thereafter be governed by the
Cablevision Restated Certificate, the Cablevision Bylaws and the DGCL. The
rights of the holders of Clearview Securities are presently governed by the
Clearview Restated Certificate, the Clearview Bylaws and the DGCL. The following
summary, which does not purport to be a complete statement of the differences
among the rights of the Stockholders of Cablevision and Clearview, sets forth
certain differences between the Cablevision Restated Certificate and the
Cablevision Bylaws, on the one hand, and the Clearview Restated Certificate and
the Clearview Bylaws on the other hand. This summary is qualified in its
entirety by reference to the full text of each of such documents and the DGCL.
Since both Clearview and Cablevision are organized under the laws of the
State of Delaware, any differences in the rights of the stockholders of
Clearview and Cablevision would arise solely from differences in their
respective certificates of incorporation and bylaws.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Cablevision
The number of directors on the Cablevision Board may be fixed by the
Cablevision Board from time to time but cannot be less than three persons.
Currently, the Cablevision Board consists of 16 directors. If, on the record
date for any meeting at which directors are to be elected, the outstanding
Cablevision Class A Common Stock is at least 10% of the total number of
outstanding shares of Cablevision Class A Common Stock and Cablevision Class B
Common Stock, the holders of the Cablevision Class A Common Stock voting as a
separate class have the right to elect 25% of the total number of directors and
the holders of the Cablevision Class B Common Stock voting as a separate class
have the right to elect the remaining directors. If, on the record date for any
meeting at which directors are to be elected, the outstanding Cablevision Class
A Common Stock is less than 10% of the total number of outstanding shares, the
holders of the Cablevision Class A Common Stock and the Cablevision Class B
Common Stock will vote together as a single class and the holders of Cablevision
Class A Common Stock will not have the right to elect 25% of the number of
directors but will have one vote per share and the Cablevision Class B Common
Stock will have 10 votes per share. If, on the record date for any meeting at
which directors are to be elected, the outstanding Cablevision Class B Common
Stock is less than 12.5% of the total number of outstanding shares, then the
Cablevision Class A Common Stock will have the right to elect 25% of the total
number of directors and in addition, will vote together with the holders of the
Cablevision Class B Common Stock to elect the remaining directors, with the
Cablevision Class A Common Stock entitled to one vote per share and the
Cablevision Class B Common Stock entitled to 10 votes per share.
Clearview
The number of directors on the Clearview Board may be fixed by the
Clearview Board from time to time but cannot be less than three persons.
Currently, the Clearview Board consists of 7 directors. The Clearview Board is
divided into two groups; one group (the "Common Directors") is elected by the
holders of Shares and the other group (the "Preferred Directors") is elected by
the holders of the Class A Preferred Shares. Further, the Common Directors are
divided into three classes (Class I, Class II and Class III) with each class
consisting of, as nearly as possible, one-third of the whole number of Common
Directors. The term of each class of Common Director is three years and is
staggered with one-third of the Common Directors elected every year. The
Preferred Directors are elected annually. If the outstanding Class A Preferred
Shares have in the aggregate at least 15% of the voting power of the outstanding
Voting Shares, then the holders of the Class A Preferred Shares, voting
separately as a single class, are entitled to elect up to two Preferred
Directors.
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<PAGE> 75
If the holders of the Class A Preferred Shares have in the aggregate at least 5%
but less than 15% of the voting power of the outstanding Voting Shares, then the
holders of the Class A Preferred Shares, voting separately as a single class,
are entitled to elect up to one Preferred Director. If the holders of the Class
A Preferred Shares have in the aggregate less than 5% of the voting power of the
outstanding Voting Shares, then the holders of the Class A Preferred Shares do
not have the right, voting separately as a single class, to elect any Preferred
Directors.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Cablevision
Pursuant to the Cablevision Bylaws, any director or the entire Cablevision
Board may be removed for cause or without cause by the Cablevision Board or by
stockholders. The affirmative vote of a majority of the outstanding shares of a
class of Cablevision capital stock entitled to vote in the election of
directors, voting separately as a class, is required to remove without cause any
director elected by that class. The Cablevision Restated Certificate provides
that vacancies in the office of directors elected by holders of Cablevision
Class A Common Stock and Cablevision Class B Common Stock may be filled by a
vote of such holders voting as a separate class.
Clearview
The Clearview Bylaws provide that directors may be removed from office by
the majority vote of stockholders entitled to vote thereon only for cause at a
special meeting of the stockholders called for such purpose. A vacancy in any
directorship elected solely by the holders of the Class A Preferred Shares can
be filled only by the vote or written consent of holders of shares of the Class
A Preferred Shares.
MEETINGS OF STOCKHOLDERS
Cablevision
The Cablevision Bylaws provide that the annual meeting and any special
meeting will be held on a date and at a place as determined by the Cablevision
Board.
Clearview
Pursuant to Clearview's Bylaws, annual meetings of stockholders will be
held the third Thursday of May each year, at 10:00 A.M., or on such other date
and at such other time as shall be designated by the Clearview Board. Special
meetings may be called at any time only by the Chairman of the Clearview Board,
the Chief Executive Officer, the President or a majority of the directors then
in office. However, 50% of the holders of outstanding Class A Preferred Shares
may call a special meeting of the holders of outstanding Class A Preferred
Shares to vote on any matter upon which such holders have the right to vote
separately as a class.
STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS OF DIRECTORS
Cablevision
Pursuant to the Cablevision Bylaws, at any annual or special meeting of
stockholders, proposals by stockholders and persons nominated for election as
directors by stockholders will be considered only if advance notice thereof has
been timely given. Notice of any proposal to be presented by any stockholder or
of the name of any person to be nominated by any shareholder for election as a
director of Cablevision at any meeting of stockholders must be given to the
Secretary of Cablevision not less than 60 nor more than 90 days prior to the
date of the meeting. The person presiding at the meeting will determine whether
such notice has been duly given and will direct that proposals and nominees not
be considered if such notice has not been given.
Clearview
The provisions of Clearview's Bylaws with respect to stockholder proposals
and stockholder nominations of directors are substantially the same as set forth
in Cablevision's Bylaws described above, except that notice
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<PAGE> 76
must be given not less than 60 nor more than 90 days in advance of the first
anniversary of the previous year's annual meeting, provided, however, that if
the annual meeting date has changed by more than 30 days, notice must be
received no later than the close of business on the fifth day following the day
on which public announcement of the date of such meeting is first made.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
Cablevision
Except for the election of directors described above, the Cablevision
Restated Certificate provides that the holders of Cablevision Class A Common
Stock (entitled to 1 vote per share) and Cablevision Class B Common Stock
(entitled to 10 votes per share) shall vote together as a single class, except
that the affirmative vote of holders of at least 66 2/3% of the outstanding
shares of Cablevision Class B Common Stock, voting separately as a class, is
required for (i) the authorization and issuance of any additional shares of
Cablevision Class B Common Stock and (ii) any amendment, alteration or repeal of
any provisions of the Cablevision Restated Certificate which adversely affects
the powers, preferences or rights of the Cablevision Class B Common Stock.
Clearview
The affirmative vote of more than 50% of the outstanding Class A Preferred
Shares, voting separately as a single class, is required under the Clearview
Restated Certificate to: (i) amend the Clearview Restated Certificate if such
amendment would alter the aggregate number of restated shares or par value of
the Class A Preferred Shares or adversely affect the powers, preferences or
rights of the Class A Preferred Shares; and (ii) issue capital stock having a
dividend or liquidation preference on par with or senior to the Class A
Preferred Shares; except that such right to vote separately as a single class
shall terminate when the outstanding shares of Class A Preferred Shares have in
aggregate less than 5% of the voting power of the outstanding Voting Shares.
Clearview may not, without first obtaining the approval of the holders of the
Class C Preferred Shares: (i) alter or change the rights, preferences or
privileges of the Class C Preferred Shares or any other capital stock of
Clearview so as to affect adversely the Class C Preferred Shares; (ii) create
any new class or series of capital stock having a preference over or ranking
pari passu with the Class C Preferred Shares as to redemption, the payment of
dividends or distribution of assets upon a liquidation event (as defined in the
Certificate of Designation of the Class C Preferred Shares) or any other
liquidation, dissolution or winding up of Clearview; (iii) increase the
authorized number of Preferred Shares; (iv) re-issue any shares of Class C
Preferred Shares which have been converted in accordance with the terms of the
Certificate of Designation of the Class C Preferred Shares; (v) issue any pari
passu or senior securities (other than debt securities which are not convertible
into or exchangeable for Shares or any other equity or convertible security of
Clearview or pursuant to rights granted to holders of Class B Preferred Shares);
or (vi) redeem, or declare, pay or make any provision for any dividend or
distribution with respect to, Shares or any other capital stock of Clearview
ranking junior to the Class C Preferred Shares as to dividends or as to the
distribution of assets upon liquidation, dissolution or winding up of Clearview.
AMENDMENT OF CORPORATE CHARTER AND BYLAWS
Cablevision
The Cablevision Restated Certificate and the Cablevision Bylaws provide
that both the Cablevision Board and Cablevision stockholders entitled to vote in
the election of directors are expressly authorized to amend, alter or repeal the
Cablevision Bylaws.
Clearview
The Clearview Restated Certificate and the Clearview Bylaws provide that
the Clearview Board is authorized to adopt, amend or repeal the Clearview
Bylaws, subject always to the power of the stockholders to adopt, amend or
repeal such Bylaws by the affirmative vote of the holders of at least two-thirds
of the voting power of the outstanding Voting Shares. The Clearview Restated
Certificate also requires the affirmative vote
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<PAGE> 77
of at least two-thirds of the voting power of the outstanding Voting Shares to
delete, amend or supplement certain provisions of the Clearview Restated
Certificate relating to the classification of directors, limitations on
directors' liability and amending the Clearview Restated Certificate. Clearview
may not, without first obtaining the approval of the holders of the Class C
Preferred Shares, alter or change the rights, preferences or privileges of the
Class C Preferred Shares or any other capital stock of Clearview so as to affect
adversely the Class C Preferred Shares.
CONFLICT-OF-INTEREST TRANSACTIONS
The Cablevision Bylaws require approval by the Special Committee (as
defined in the Cablevision Bylaws) to make an investment in or advance to a
Dolan Affiliate (as defined in the Cablevision Bylaws).
DIVIDENDS AND OTHER DISTRIBUTIONS
Pursuant to Clearview's Restated Certificate, the holders of Class A
Preferred Shares are entitled to receive out of any funds legally available
therefor, when and as declared by the Clearview Board, preferential dividends
thereon in a per share amount equal to the product of (i) the per share dividend
amount declared on the Shares multiplied by (ii) the number of Shares into which
each such Class A Preferred Share is convertible on the record date for the
payment of such Share dividend. Generally, so long as any Class A Preferred
Shares remain outstanding, no dividend or other distribution, is payable unless
all dividends on the Class A Preferred Shares have been paid. Subject to certain
limitations, dividends may be paid on the Shares or shares ranking junior to the
Class A Preferred Shares if such payment is not otherwise restricted or
prohibited by law. Pursuant to the Certificate of Designation of the Class C
Preferred Shares, the holders of Class C Preferred Shares are entitled to
receive, to the extent permitted by applicable law, subject to prior full
payment of any accumulated and unpaid dividends on any class or series of senior
securities and in preference to the payment of any dividend on any class or
series of junior securities, cumulative dividends on each Class C Preferred
Share in an amount equal to, on an annualized basis, the stated value of such
Class C Preferred Share times 5%. Dividends will accrue, whether or not earned
or declared, on each Class C Preferred Share from the date of the original
issuance thereof through the earlier to occur of (i) the maturity date, and (ii)
the redemption or conversion thereof. Any amount of dividends payable in cash
which is not paid within five business days of the applicable dividend payment
date will bear interest at an annual rate equal to the highest rate permitted by
applicable law, up to 3%.
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SELECTED HISTORICAL FINANCIAL DATA OF CLEARVIEW
The following summary financial data should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CLEARVIEW" and the historical consolidated financial statements,
including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. The Statement of Operations Data for the year ended
December 31, 1997 presented below are derived from Clearview's consolidated
financial statements audited by PricewaterhouseCoopers, independent accountants,
whose report covering Clearview's consolidated financial statements as of
December 31, 1997 and for the year then ended and the related financial
statements are included elsewhere herein. The Statement of Operations Data for
the years ended December 31, 1996 and 1995 presented below are derived from
Clearview's consolidated financial statements audited by Wiss & Company,
independent accountants, whose report covering Clearview's consolidated
financial statements as of December 31, 1996 and 1995 and for the years then
ended and the related financial statements are included elsewhere herein. The
Statement of Operations Data for the periods ended as of June 30, 1998 and 1997
presented below have been derived from financial statements of Clearview that
have not been audited, but that, in the opinion of the management of Clearview,
reflect all adjustments necessary for the fair presentation of such data for the
interim periods. The Operating Data presented below have been derived from other
records of Clearview.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------
1998 1997 1997(1) 1996(1) 1995
------------- ----------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Theater revenues:
Box office........................ $ 13,645 $ 4,709 $ 12,926 $ 6,195 $ 1,759
Concession........................ 4,591 1,338 3,914 1,861 555
Other............................. 590 141 422 142 31
---------- -------- ---------- ---------- --------
Total............................. 18,826 6,188 17,262 8,198 2,345
---------- -------- ---------- ---------- --------
Operating expenses:
Film rental and booking fees...... 6,529 2,189 6,168 3,022 824
Cost of concession sales.......... 660 221 635 279 99
Theater operating expenses........ 7,140 2,449 6,591 3,298 1,078
General and administrative
expenses....................... 1,670 405 1,131 590 375
Depreciation and amortization..... 2,883 798 2,051 635 100
---------- -------- ---------- ---------- --------
Total............................. 18,882 6,062 16,576 7,824 2,476
---------- -------- ---------- ---------- --------
Operating income (loss)............. (56) 126 686 374 (131)
Interest expense.................... 2,626 724 2,015 592 85
---------- -------- ---------- ---------- --------
Loss before extraordinary item...... $ (2,682) $ (598) $ (1,329) $ (218) $ (216)
Extraordinary item -- loss on
redemption of debt................ (2,030) -- -- -- --
---------- -------- ---------- ---------- --------
Net loss............................ (4,712) (598) (1,329) (218) (216)
========== ======== ========== ========== ========
Basic and diluted loss per
share(2).......................... $ (2.71) $ (.33) $ (1.03) $ (.29) $ (.36)
========== ======== ========== ========== ========
OPERATING DATA:
Box office margin(3)................ 52.2% 53.5% 52.3% 51.2% 53.2%
Concession margin(4)................ 85.6% 83.5% 83.8% 85.0% 82.2%
Number of theaters.................. 40 16 31 16 7
Number of screens................... 193 64 148 60 21
Attendance.......................... 2,487,000 892,000 2,322,063 1,167,409 315,406
Average ticket price(5)............. $ 5.49 $ 5.28 $ 5.57 $ 5.31 $ 5.58
Average concession revenue per
patron(6)......................... $ 1.85 $ 1.50 $ 1.69 $ 1.59 $ 1.76
</TABLE>
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<PAGE> 79
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------
1998 1997 1997(1) 1996(1) 1995
------------- ----------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM:
Operating activities................ $ 1,716 $ 538 $ 3,934 $ 1,147 $ 119
Investing activities................ (18,128) (1,494) (33,647) (7,295) (1,239)
Financing activities................ 36,005 963 30,608 6,723 853
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------
HISTORICAL
-------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $21,240
Total assets................................................ 97,273
Total long-term debt, including current maturities.......... 80,000
Redeemable preferred stock.................................. 750
Total stockholders' equity.................................. 10,240
</TABLE>
- ---------------
(1) See Note 2 of the Notes to Consolidated Financial Statements of Clearview
for the year ended December 31, 1997 with respect to its acquisitions in
1996 and 1997.
(2) Basic loss per share is calculated by dividing net loss available for common
stock by the weighted average number of common shares outstanding during the
period. Diluted loss per share is calculated by dividing net loss by the
weighted average number of common shares outstanding, while also giving
effect to all dilutive potential common shares that were outstanding during
the period.
(3) Box office margin represents total box office revenues less film rental and
booking fees divided by total box office revenues.
(4) Concession margin represents total concession revenues less cost of
concession sales divided by total concession revenues.
(5) Average ticket price represents total box office revenue divided by
attendance.
(6) Average concession revenue per patron represents concession revenue divided
by attendance.
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<PAGE> 80
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information presents
the Pro Forma Combined Balance Sheet of Clearview at June 30, 1998 and the Pro
Forma Combined Statements of Operations of Clearview for the year ended December
31, 1997 and the six months ended June 30, 1998.
The Unaudited Pro Forma Combined Balance Sheet is based on the historical
consolidated balance sheet of Clearview as of June 30, 1998, and gives effect to
the Subsequent Transactions (as defined under the caption "DESCRIPTION OF
BUSINESS OF CLEARVIEW -- Recent Financing Transactions") as if they had been
consummated by June 30, 1998.
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1997 is based on the historical combined statements of operations
of Clearview, the UA I Theaters, the CJM Theaters, the Nelson Ferman Theaters,
the Other 1997 Acquisitions, and the 1998 Acquisitions (each as defined under
the caption "DESCRIPTION OF BUSINESS OF CLEARVIEW -- Recent Acquisitions") and
gives effect to the Transactions (as defined under the caption "DESCRIPTION OF
BUSINESS OF CLEARVIEW -- Recent Financing Transactions"), the 1997 Acquisitions
and the 1998 Acquisitions as if they had been consummated at January 1, 1997.
The Unaudited Pro Forma Combined Statement of Operations for the six months
ended June 30, 1998 is based on the historical combined statements of operations
of Clearview and the 1998 Acquisitions and gives effect to the Transactions and
the 1998 Acquisitions as if they had been consummated at January 1, 1997.
In the opinion of Clearview's management, all adjustments necessary to
present fairly such unaudited pro forma combined financial information have been
made.
The pro forma acquisition adjustments give effect to the acquisitions under
the purchase method of accounting and the assumptions and adjustments (which
Clearview believes to be reasonable) described in the accompanying Notes to
Unaudited Pro Forma Combined Financial Information. Under the purchase method of
accounting, assets acquired and liabilities assumed will be recorded at their
estimated fair value at the date of acquisition. The pro forma adjustments set
forth in the following Unaudited Pro Forma Combined Financial Information are
estimated and may differ from the actual adjustments when they become known.
In connection with the Merger, Cablevision will account for the Merger
using the purchase method of accounting in accordance with the provisions of
Accounting Principles Board Opinion No. 16 "Business Combinations." Accordingly,
Cablevision will record as its cost the acquired assets less liabilities
assumed, with the excess of such cost over the estimated fair value of such net
assets reflected as goodwill. Additionally, certain costs directly related to
the acquisition will be reflected as additional purchase price in excess of the
net assets acquired. Cablevision has not yet determined whether the new basis of
the net assets of Clearview will be recorded on Clearview's separate financial
statements. Should Cablevision record such amounts on such separate financial
statements, the increase in net assets would result principally in the recording
of goodwill, which would be amortized over future periods.
The Unaudited Pro Forma Combined Financial Information is provided for
comparative purposes only. It does not purport to be indicative of the results
that actually would have occurred if the acquisitions of the UA I Theaters, the
CJM Theaters, the Nelson Ferman Theaters, the Other 1997 Acquisitions and the
1998 Acquisitions had been consummated on the dates indicated or that may be
obtained in the future. The Unaudited Pro Forma Combined Financial Information
should be read in conjunction with the notes thereto, the financial statements
of the UA I Theaters, the CJM Theaters, and the Nelson Ferman Theaters and the
notes thereto, included elsewhere herein, and Clearview's consolidated financial
statements and the notes thereto, included elsewhere herein.
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<PAGE> 81
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
PRO
HISTORICAL PRO FORMA FORMA
CLEARVIEW ADJUSTMENTS AS ADJUSTED
---------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including escrow deposit...... $21,240 $ (5,228)(1) $16,012
Inventories.............................................. 187 187
Other current assets..................................... 559 559
------- ---------- -------
Total current assets.................................. 21,986 (5,228) 16,758
Property, equipment and leaseholds, net.................... 41,283 2,535(2) 43,818
Intangible assets, net..................................... 33,200 2,456(2) 35,656
Other non-current assets................................... 804 (513)(3) 291
------- ---------- -------
$97,273 $ (750) $96,523
======= ========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................... 6,283 6,283
------- -------
Total current liabilities............................. 6,283 6,283
Senior Notes............................................... 80,000 80,000
Class B Redeemable Preferred Shares........................ 750 (750)(4)
Stockholders' equity:
Undesignated Preferred Shares, 2,475,697 shares
authorized............................................ -- --
Class A Preferred Shares, par value $.01, 1,303 shares
authorized, 779 shares issued and outstanding......... -- --
Class C Preferred Shares, par value $.01, 3,000 shares
authorized, issued and outstanding.................... -- --
Common Shares, par value $.01, 10,000,000 shares
authorized, 2,304,802 shares issued and outstanding... 23 23
Additional paid-in capital............................... 18,231 18,231
Accumulated deficit...................................... (8,014) (8,014)
------- ---------- -------
Total stockholders' equity............................ 10,240 10,240
------- ---------- -------
$97,273 $ (750) $96,523
======= ========== =======
</TABLE>
65
<PAGE> 82
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1998
(1) Cash and cash equivalents, including escrow deposit, has been adjusted for
the following (in thousands):
<TABLE>
<S> <C>
- Redemption of Class B Preferred Shares.................. (750)
- Purchase price of the Subsequent Acquisitions........... (2,213)
- Purchase of real estate formerly under lease............ (1,150)
- Long Island Purchase.................................... (1,115)
-------
Net change in cash.......................................... $(5,228)
=======
</TABLE>
Cash and cash equivalents includes $750,000 which is restricted and which
is held in escrow to fund the contingent additional consideration to be
paid to a seller in connection with the acquisition of the CJM Theaters.
(2) Reflects the allocation of purchase price paid (or to be paid in the case of
the Long Island Purchase) in connection with the following, based on the
estimated fair values of the assets acquired (or to be acquired), which
includes only land, buildings and improvements or leasehold interests,
furniture and equipment and intangible assets.
<TABLE>
<CAPTION>
BALA WEST LONG
CYNWYD MILLBURN LIVINGSTON MILFORD ISLAND TOTAL
------- -------- ---------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Land..................... $ 150 $ 150 $ 300
Buildings and
improvements........... 600 600 1,200
Leasehold interest and
improvements........... $ 29 $ 39 68
Furniture and
equipment.............. 207 118 175 128 $ 339 967
---- ------- ------ ---- ------ ------
Total property,
equipment and
leaseholds, net... 236 868 925 167 339 2,535
Covenant non-compete..... 10 60 70
Goodwill................. 467 282 125 283 1,229 2,386
---- ------- ------ ---- ------ ------
Total intangible
assets............ 477 282 125 283 1,289 2,456
---- ------- ------ ---- ------ ------
Total purchase price..... $713 $ 1,150 $1,050 $450 $1,628 $4,991
==== ======= ====== ==== ====== ======
</TABLE>
(3) Reflects the elimination of escrow deposit relating to the Long Island
Purchase (as defined under the caption "DESCRIPTION OF BUSINESS OF
CLEARVIEW -- Recent Acquisitions") which will be applied against the
purchase price and allocated to property, equipment, leasehold and
intangible assets for these theaters.
(4) Reflects the application of the proceeds from the Notes Offering (as defined
under the caption "DESCRIPTION OF BUSINESS OF CLEARVIEW -- Recent
Acquisitions") to repay indebtedness and to redeem Class B Preferred Stock
of $750,000.
66
<PAGE> 83
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------------------------- -----------
OTHER
NELSON COMPLETED PRO FORMA PRO FORMA
CLEARVIEW UA I(1) CJM(2) FERMAN(3) ACQUISITIONS(4) ADJUSTMENTS COMBINED
--------- ------- ------ --------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Theater revenues
Box office................ $12,926 $2,599 $4,382 $4,594 $11,203 $35,704
Concession................ 3,914 759 1,259 1,095 3,207 $1,264(5) 11,498
Other..................... 422 178 15 96 464 1,175
------- ------ ------ ------ ------- ------- ---------
17,262 3,536 5,656 5,785 14,874 1,264 48,377
------- ------ ------ ------ ------- ------- ---------
Operating expenses
Film rental and booking
fees.................... 6,168 1,167 1,999 1,990 5,201 (278)(6) 16,247
Cost of concession
sales................... 635 126 241 433 446(5) 1,881
Theater operating
expenses................ 6,591 1,288 2,101 1,768 6,400 13(7) 18,161
General and administrative
expenses................ 1,131 181 145 820 647 (75)(8) 2,849
Depreciation and
amortization............ 2,051 132 242 356 988 2,276(9) 6,045
------- ------ ------ ------ ------- ------- ---------
16,576 2,894 4,728 4,934 13,669 2,382 45,183
------- ------ ------ ------ ------- ------- ---------
Operating income (loss)..... 686 642 928 851 1,205 (1,118) 3,194
Interest expense, net....... 2,015 306 191 176 324 3,307(10) 6,319
Provision for income
taxes..................... 26 (26)
------- ------ ------ ------ ------- ------- ---------
Net income (loss)........... $(1,329) $ 336 $ 711 $ 675 $ 881 $(4,399) $ (3,125)
======= ====== ====== ====== ======= ======= =========
Basic and diluted loss per
share(11)................. $ (1.03)
<CAPTION>
PRO FORMA
------------------------
PRO FORMA
NOTES PRO FORMA
OFFERING AS
ADJUSTMENT ADJUSTED
---------- ----------
<S> <C> <C>
Theater revenues
Box office................ $35,704
Concession................ 11,498
Other..................... 1,175
---------- -------
48,377
---------- -------
Operating expenses
Film rental and booking
fees.................... 16,247
Cost of concession
sales................... 1,881
Theater operating
expenses................ 18,161
General and administrative
expenses................ 2,849
Depreciation and
amortization............ 6,045
---------- -------
45,183
---------- -------
Operating income (loss)..... 3,194
Interest expense, net....... 1,406(10) 7,725
Provision for income
taxes.....................
---------- -------
Net income (loss)........... $ (1,406) $(4,531)
========== =======
Basic and diluted loss per
share(11)................. $ (2.79)
</TABLE>
67
<PAGE> 84
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(1) Derived from the unaudited financial statements of United Artists Theaters
at Bronxville, Larchmont, Wayne, New City and Mamaroneck for the period
from January 1, 1997 through September 12, 1997, the date of acquisition of
the UA I Theaters.
(2) Derived from the audited combined financial statements of the CJM Theaters
at Kin-Mall, Middlebrook, Cedar Grove and Bellevue for the period from
January 1, 1997 through September 30, 1997 and the unaudited results for
the period from October 1, 1997 through December 11, 1997.
(3) Derived from the audited combined financial statements of Nelson Ferman
Theaters at Parsippany and Roxbury for the period from January 1, 1997
through September 30, 1997 and the unaudited combined financial statements
for the period from October 1, 1997 through the acquisition date of
November 21, 1997.
(4) Other Completed Acquisitions includes combined results of the Other 1997
Acquisitions and the 1998 Acquisitions. The historical results were derived
from:
(a) Unaudited historical financial information of the Roslyn Cinemas in
Roslyn, NY for the period from January 1, 1997 through the acquisition
date of November 3, 1997.
(b) Unaudited historical financial information for Edison Cinemas in
Edison, NJ and Woodbridge Cinemas in Woodbridge, NJ for the period
from January 1, 1997 through the acquisition dates of December 12,
1997.
(c) Unaudited historical financial information for Clairidge Cinemas in
Montclair, NJ; Manhasset Cinemas in North Hempstead, NY; Babylon
Cinemas in Babylon, NY; and Cobble Hill Cinemas in Brooklyn, NY for
the year ended December 31, 1997.
(d) Unaudited historical financial information of the Great Neck Squire
Cinemas in Great Neck, NY for the twelve month period from February
14, 1997 through February 11, 1998.
(e) Unaudited historical financial information of the Franklin Square
Cinemas in Franklin Square, NY for the year ended December 31, 1997.
(f) Unaudited historical financial information of the Headquarters 10
Cinemas in Morristown, NJ for the fiscal year period from March 28,
1997 through March 27, 1998.
(g) Unaudited historical financial information of the Colony Cinemas in
Livingston, NJ and the West Milford Cinemas in West Milford, NJ for
the year ended December 31, 1997.
(h) Unaudited historical financial information of the Bala Theater in Bala
Cynwyd, PA for the year ended December 31, 1997.
(5) Reflects an increase in historical concession revenue of approximately
$1,264,000, representing revenues that were not recognized by the sellers
for the Nelson Ferman Theaters, Clairidge Cinemas, Franklin Square Cinemas
and Great Neck Squire Cinemas because each of the sellers operated the
respective concession stands through independent third party
concessionaires. The cost of concession sales of approximately $446,000 is
estimated based on the historical costs of the concession sales of
Clearview. Upon acquisition of such theaters by Clearview, theater
management began operating the concession stands, and the respective
agreements with the independent third party concessionaires were
terminated.
(6) In February 1998, Clearview employed three professionals to perform film
booking services in-house for all screens operated by Clearview and, in
March 1998, terminated its arrangements for third party film booking
services. The pro forma adjustment of approximately $278,000 in film rental
and booking fees represents amounts paid for third party film booking
services by Clearview, the Nelson Ferman Theaters and the CJM Theaters
during 1997. The pro forma adjustment to general and administrative
expenses
68
<PAGE> 85
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
includes an increase of approximately $190,000 representing costs of
Clearview's three film booking professionals assuming that such
professionals were hired on January 1, 1997. See note (9) below.
(7) Reflects a reduction of rent of $50,000 for the Roslyn Cinemas as the
application of net proceeds from the Notes Offering includes the
acquisition of the underlying fee real estate of this theater and an
increase in rent of $62,800 for the Bala Theater as the former owners owned
the property and did not charge rent to the theater.
(8) The former owners of the Franklin Square Cinemas, the Cobble Hill Cinemas
and the CJM Theaters provided management advisory services to the theaters
and received compensation for such services of approximately $100,000,
$100,000 and $70,000, respectively, during the year ended December 31,
1997. Upon acquisition of these theaters, the owner/manager of each no
longer provides such services to the theaters as Clearview is able to
support the operations of these seven theaters under its current management
structure. These decreases in expenses have been offset by $190,000 in
general and administrative expenses related to the employment of the three
film booking professionals referred to in note (6) above.
(9) Reflects an increase in depreciation and amortization expense of $2,276,000
for property and equipment, leasehold interests and intangible assets
acquired or to be acquired in the 1997 Acquisitions, the 1998 Acquisitions,
and the Long Island Purchase, including amortization of the excess of the
purchase price (or expected purchase price) over the estimated fair values
of the assets acquired. Clearview estimates the useful lives to be 40 years
for buildings and improvements and five to seven years for furniture and
equipment. Leasehold interests represent acquired rights to operate
theaters under previously existing operating leases. The fair value
assigned to these leasehold interests is amortized over the term of the
lease. Goodwill represents the excess of the purchase price, including
acquisition costs, over the fair value of the tangible and identifiable
intangible assets acquired which is amortized over fifteen years.
(10) Pro forma interest expense is calculated as follows:
<TABLE>
<S> <C>
Historical combined interest expense, net (pre-acquisition
basis)................................................. $3,012
Interest expense adjustment assuming all acquisitions were
consummated on January 1, 1997 under the Old Credit
Facility............................................... 3,307
------
Pro forma combined interest expense....................... 6,319
------
Less: amounts in historical combined interest expense for
refinanced debt........................................ (6,267)
Add: interest expense on the Notes at 10.875%............. 7,303
Amortization of debt issuance costs....................... 370
------
Pro forma Notes Offering adjustment....................... 1,406
------
Pro forma interest expense................................ $7,725
======
</TABLE>
Pro forma interest expense has been calculated based on the amount of the
Notes which was or will be used to repay the Old Credit Facility (as
defined under the caption "DESCRIPTION OF BUSINESS OF CLEARVIEW -- Recent
Financing Transactions"), repay other indebtedness, redeem the Class B
Preferred Shares, pay the escrow deposit, close the Subsequent
Acquisitions and pay estimated fees and expenses of the Notes Offering of
$67.2 million. Pro forma interest expense is not indicative of results
that will actually occur upon issuance of the $80 million of Notes as it
does not include interest expense of approximately $1,397,000 on $12.8
million of the Notes to be used for general corporate purposes.
69
<PAGE> 86
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(11) Basic loss per share is calculated by dividing net loss by the weighted
average number of shares outstanding during the period. Diluted loss per
share is calculated by dividing net loss by the weighted average number of
common shares outstanding, while also giving effect to all dilutive
potential common shares that were outstanding during the period. Unaudited
pro forma basic and diluted loss per share has been calculated for the year
ended December 31, 1997 by dividing unaudited pro forma net loss available
to common shareholders by the weighted average number of shares outstanding
during the period. Unaudited pro forma net loss available to common
shareholders is computed as unaudited pro forma net loss less preferred
stock dividends. Unaudited pro forma net loss available to common
shareholders includes recognition of non-cash preferred stock dividends on
the Class C Preferred Shares issued on April 23, 1998. The non-cash
preferred stock dividend of $1.7 million represents the amount that will be
reflected in stockholders' equity during 1998 (the period from issuance to
earliest conversion date in July 1998) based on the fair value of the
conversion feature as measured on the date of issuance. The pro forma
weighted average number of common shares outstanding used to calculate pro
forma basic and diluted loss per share for the year ended December 31, 1997
is 2,304,802 shares.
70
<PAGE> 87
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- --------------------------------------------------
PRO FORMA PRO FORMA
1998 ACQUISITION PRO FORMA OFFERING PRO FORMA
CLEARVIEW ACQUISITIONS(1) ADJUSTMENTS COMBINED ADJUSTMENT AS ADJUSTED
--------- --------------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Theater revenues
Box office...................... $13,645 $2,698 $16,343 $16,343
Concession...................... 4,591 737 137(2) 5,465 5,465
Other........................... 590 23 613 613
------- ------ ----- ------- ----- -------
18,826 3,458 137 22,421 22,421
------- ------ ----- ------- ----- -------
Operating expenses
Film rental and booking fees.... 6,529 1,346 (46)(3) 7,829 7,829
Cost of concession sales........ 660 91 44(2) 795 795
Theater operating expenses...... 7,140 1,695 (28)(4) 8,807 8,807
General and administrative
expenses..................... 1,670 109 (89)(5) 1,690 1,690
Depreciation and amortization... 2,883 148 397(6) 3,428 3,428
------- ------ ----- ------- ----- -------
18,882 3,389 278 22,549 22,549
------- ------ ----- ------- ----- -------
Operating income (loss)........... (56) 69 (141) (128) (128)
Interest expense, net............. 2,626 117 449(7) 3,192 595(7) 3,787
------- ------ ----- ------- ----- -------
Net loss from continuing
operations(8)................... $(2,682) $ (48) $(590) $(3,320) $(595) $(3,915)
------- ------ ----- ------- ----- -------
Basic and diluted loss per
share(9)........................ $ (2.71) $ (1.67)
</TABLE>
71
<PAGE> 88
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(1) The historical results of the 1998 Acquisitions were derived from:
(a) Unaudited historical financial information for Clairidge Cinemas in
Montclair, NJ for the period from January 1, 1998 through the
acquisition date of February 12, 1998.
(b) Unaudited historical financial information for Manhasset Cinemas in
North Hempstead, NY and Babylon Cinemas in Babylon, NY for the period
from January 1, 1998 through the acquisition date of March 6, 1998.
(c) Unaudited historical financial information for the period from January
1, 1998 through the acquisition date of June 17, 1998 for Franklin
Square Cinemas in Franklin Square, NY and the Great Neck Squire Cinemas
in Great Neck, NY.
(d) Historical financial information for Cobble Hill Cinemas in Brooklyn,
NY for the period from January 1, 1998 through the acquisition date of
March 23, 1998 has not been included as no financial information was
available.
(e) Unaudited historical financial information for the period from January
1, 1998 through the acquisition date of June 24, 1998 for the
Headquarters 10 Cinemas in Morristown, NJ.
(f) Unaudited historical financial information for the six months ended
June 30, 1998 of the Colony Cinemas in Livingston, NJ, and the West
Milford Cinemas in West Milford, NJ.
(g) Historical financial information for the Bala Theater in Bala Cynwyd,
PA for the six months ended June 30, 1998 has not been included as no
financial information was available.
(2) Reflects an increase in historical concession revenue of approximately
$137,000, representing revenues that were not recognized by the sellers, for
the Clairidge Cinemas, Franklin Square Cinemas and Great Neck Squire Cinemas
because each of the sellers operated the respective concession stands
through independent third party concessionaires. The cost of concession
sales of approximately $44,000 is estimated based on the historical costs of
the concession sales of Clearview. Upon acquisition of such theaters by
Clearview, theater management began operating the concession stands and the
respective agreements with the independent third party concessionaires have
been terminated.
(3) In February 1998, Clearview employed three professionals to perform film
booking services in-house for all screens operated by Clearview and, in
March 1998, terminated its arrangements for third party film booking
services. The pro forma adjustment of approximately $46,000 in film rental
and booking fees represents amounts paid for third party film booking
services by Clearview during 1998. The pro forma adjustment to general and
administrative expenses includes an increase of approximately $48,000
representing costs of Clearview's three film booking professionals assuming
that such professionals were hired on January 1, 1997.
(4) Reflects a reduction of rent of $28,000 for the Roslyn Cinemas as the
application of net proceeds of the Offering includes the acquisition of the
underlying fee real estate of this theater.
(5) The net decrease in general and administrative expenses is due to management
advisory services provided by the former owner of the Franklin Square
Cinemas, offset by the addition of film booking professionals for the six
months ended June 30, 1998 as more fully described in note (3) above and in
note (8) to the Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1997.
(6) Reflects an increase in depreciation and amortization expense of $397,000
for property and equipment, leasehold interests and intangible assets
acquired in connection with the 1998 Acquisitions and the Long Island
Purchase, including amortization of the excess of the purchase price over
the estimated fair values of the assets acquired. Clearview estimates the
useful lives to be 40 years for buildings and improvements and five to seven
years for furniture and equipment. Leasehold interests represent acquired
rights to
72
<PAGE> 89
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS--(CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
operate theaters under previously existing operating leases. The fair value
assigned to these leasehold interests is amortized over the term of the
lease. Goodwill represents the excess of the purchase price, including
acquisition costs, over the fair value of the tangible and identifiable
intangible assets acquired which is amortized over fifteen years.
(7) Pro forma interest expense is calculated as follows:
<TABLE>
<S> <C>
Historical combined interest expense, net (pre-acquisition
basis).................................................... $2,743
Interest expense adjustment assuming all acquisitions were
consummated on January 1, 1997 under the Old Credit
Facility.................................................. 449
------
Pro forma combined interest expense, net.................... 3,192
------
Less: amounts in historical combined interest expense for
refinanced debt........................................... (2,835)
Add: interest expense on the Notes at 10.875%............... 3,266
Amortization of debt issuance costs......................... 164
------
Pro forma Notes Offering adjustment......................... 595
------
Pro forma interest expense.................................. $3,787
======
</TABLE>
Pro forma interest expense has been calculated based on the amount of the
Notes which was or will be used to repay the Old Credit Facility, repay
other indebtedness, redeem the Class B Preferred Shares, pay the escrow
deposit, close the Great Neck/Franklin Square Acquisition, the AMC
Acquisition and the Subsequent Acquisitions, purchase the underlying leases
of five theaters formerly operated under agreements with the previous owners
and pay fees and expenses of the Notes Offering of $67.2 million. Pro forma
interest expense is not indicative of results that will actually occur upon
issuance of the $80 million of Notes as it does not include interest expense
of approximately $699,000 on the $12.8 million of the Notes to be used for
general corporate purposes.
(8) The historical results of operations of Clearview does not include an
extraordinary loss of approximately $2,030,000 resulting from the repayment
of the Old Credit Facility. The extraordinary loss includes a prepayment
penalty of $410,000 and write-off of unamortized debt discount and debt
issuance costs of approximately $242,000 and $1,378,000, respectively.
(9) Basic loss per share is calculated by dividing net loss by the weighted
average number of shares outstanding during the period. Diluted loss per
share is calculated by dividing net loss by the weighted average number of
common shares outstanding, while also giving effect to all dilutive
potential common shares that were outstanding during the period. Unaudited
pro forma basic and diluted loss per share has been calculated for the six
months ended June 30, 1998 by dividing unaudited pro forma net loss
available to common shareholders by the weighted average number of shares
outstanding during the period. Unaudited pro forma net loss available to
common shareholders is computed as unaudited pro forma net loss less
preferred stock dividends. The pro forma weighted average number of common
shares outstanding used to calculate pro forma basic and diluted loss per
share for the six month period ended is 2,304,802 Shares.
73
<PAGE> 90
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF CLEARVIEW
The following discussion and analysis of Clearview's results of operations
and financial condition should be read in conjunction with the information set
forth in the financial statements and the notes thereto included elsewhere in
this Proxy Statement/Prospectus.
OVERVIEW
Since the inception of its business in December 1994, when Clearview
acquired the right to operate four theaters with eight screens, through June 30,
1998, Clearview had acquired the right to operate an additional 35 theaters with
173 screens, had added seven screens to three existing theaters and had
constructed a new five-screen theater in an existing building, resulting in a
total of 40 theaters and 193 screens operated by Clearview at June 30, 1998.
Clearview operated 16 theaters with 64 screens as of June 30, 1997. Clearview
expects that its future revenue growth will be derived primarily from the
acquisition of additional theaters, the addition of screens to existing theaters
and the development of new theaters. In order to fund its plans for continued
growth, Clearview may need to seek additional debt or equity financing. Failure
to obtain any such financing could require Clearview to significantly curtail
its acquisition activities. Clearview has had no theater closings since
inception.
On August 13, 1998, the Company announced that it had entered into the
Merger Agreement pursuant to which Clearview would be acquired by Cablevision.
Clearview's revenues are predominantly generated from box office receipts,
concession sales and on-screen advertising. Direct theater costs include film
rental and the cost of concessions. Other theater operating expenses consist
primarily of theater labor and related fringe benefit costs and occupancy costs
(including rent and/or real estate taxes, utilities, repairs and maintenance,
cleaning costs and supplies). Film rental costs are directly related to the
popularity of a film and the number of weeks the film has run. Film rental costs
generally decline as a percentage of box office receipts the longer a film has
been showing. Because certain concession items, such as fountain drinks and
popcorn, are purchased in bulk and not prepackaged for individual servings,
Clearview has significant gross profit margins on those items.
General and administrative expenses consist primarily of corporate overhead
costs, such as management and office salaries and related fringe benefits costs,
professional fees, insurance costs and general office expenses. Clearview
believes that its current internal controls and management information system
will allow Clearview to expand its number of screens significantly without
incurring proportionate increases in general and administrative expenses.
Clearview's management information system has on-line capabilities to collect
information concerning box office receipts, ticketing, concession sales,
inventory control and booking. This system allows Clearview to closely track and
manage box office and concession revenues.
During the six months ended June 30, 1998, Clearview purchased the
Clairidge Cinemas in Montclair, New Jersey (6 screens) for $2.1 million in cash
and 14,782 Common Shares; the Manhasset Cinemas in North Hempstead, NY (3
screens) and the Babylon Cinemas in Babylon, NY (3 screens) for an aggregate of
$1.5 million in cash; the Cobble Hill Cinemas in Brooklyn, NY (5 screens) for
$2.2 million in cash; the Great Neck Squire Cinemas in Nassau, NY (7 screens)
and the Franklin Square Cinemas in Suffolk, NY (6 screens) for $6.5 million in
cash; and the Headquarters 10 Cinema in Morristown, NJ (10 screens) for $2.8
million in cash. In the first three months of 1998, Clearview also leased the
Millburn Twin Cinemas in Millburn, New Jersey (2 screens) and The Screening Zone
in Montclair, New Jersey (2 screens). The acquisition and lease of these
additional theaters increased Clearview's total number of theaters to 40 and its
screen count to 193, as of June 30, 1998.
74
<PAGE> 91
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Total Revenues. Total revenues for the six months ended June 30, 1998 and
1997 were $18,825,637 and $6,187,810, respectively. The increase in revenues of
204.2% was primarily due to the operation of the theaters acquired in the third
and fourth quarters of 1997 and in the first two quarters of 1998. Box office
receipts for the six months ended June 30, 1998 were $13,644,849 and $4,708,854,
respectively. The increase in box office receipts of 189.8% resulted primarily
from the increase in attendance of 178.8% to approximately 2,487,000 for the six
months ended June 30, 1998 from 892,000 attendees in the comparable 1997 period.
Total concession sales for the six months ended June 30, 1998 and 1997 were
$4,591,268 and $1,337,821, respectively. The increase in concession sales of
243.2% was primarily due to the increase in the number of theaters operated.
Other revenues, which consist primarily of advertising revenue and rental income
on fee-owned properties, were $589,520 and $141,135 for the six months ended
June 30, 1998 and 1997, respectively. The increase in other revenues of 317.7%
is the result of operating additional theaters during 1998, and an increase in
Clearview's on-screen advertising, which provided for increased commission rates
in 1998.
Film Rental Fees. Film rental fees increased by 198.3% to $6,529,384 for
the six months ended June 30, 1998 from $2,188,700 for the six months ended June
30, 1997. The increase was principally due to the operation of additional
theaters, as previously discussed. Film rental fees as a percentage of box
office receipts was 47.9% for the six months ended June 30, 1998, as compared to
46.5% for the same 1997 period. The increase was due to weak film product in the
second quarter, along with high rental costs for that product and unusually high
film settlements in the second quarter.
Cost of Concession Sales. Cost of concession sales increased by 198.3% to
$660,148 for the six months ended June 30, 1998 from $221,278 for the six months
ended June 30, 1997. This increase was attributable primarily to the operation
of the theaters acquired in the third and fourth quarters of 1997 and in the
first two quarters of 1998. As a percentage of concession revenues, the cost of
concession sales was 14.4 % for the six months ended June 30, 1998 compared to
16.5% for the six months ended June 30, 1997. The decrease was primarily
attributable to the concession purchasing efficiencies made as a result of
achieving greater economies of scale from Clearview's growth and the
participation in a vendor rebate program.
Theater Operating Expenses. Theater operating expenses increased by 191.6%
to $7,140,267 for the six months ended June 30, 1998 from $2,448,960 for the six
months ended June 30, 1997. This increase was attributable primarily to the
operation of the theaters acquired as previously discussed. Theater operating
expenses as a percentage of total revenues decreased to 37.9% for the six months
ended June 30, 1998 compared to 39.6% for the six months ended June 30, 1997.
This decrease was attributable to Clearview's efficient management of its
controllable operating costs and, in particular, direct theater labor costs.
General and Administrative Expenses. General and administrative expenses
increased by 312.5% to $1,669,519 for the six months ended June 30, 1998 from
$404,718 for the six months ended June 30, 1997. The increase was due
principally to the hiring of personnel and related increases in salaries to
support Clearview's growth. As a percentage of total revenues, general and
administrative expenses increased to 8.9% for the six months ended June 30, 1998
compared to 6.5% for the six months ended June 30, 1997. The increase was due to
the increased expenses attributable to the establishment of in-house film buying
and legal departments in the first quarter of 1998 to support Clearview's growth
and future expansion plans, and the incurrence of outside professional costs in
connection with Clearview's first fiscal year-end since becoming a publicly
traded company.
Depreciation and Amortization. Depreciation and amortization expense
increased by 261.4% to $2,882,568 for the six months ended June 30, 1998 from
$797,707 for the six months ended June 30, 1997. The increase is a direct result
of the addition of 24 theaters through acquisition or build-out in the second
half of 1997 and first half of 1998, which significantly increased Clearview's
depreciable and amortizable assets.
Operating Income (Loss). Clearview had an operating loss of $56,249 for
the six months ended June 30, 1998, compared with operating income of $126,447
for the six months ended June 30, 1997. As a percentage of total revenues,
operating income (loss) was (0.3%) for the six months ended June 30, 1998 and
2.0% for
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the six months ended June 30, 1997. The increase in operating loss as a
percentage of total revenues is due to the increase in depreciation and
amortization, as a direct result of the increase in theaters, the aforementioned
increase in film rental fees, and the first quarter 1998 increase in general and
administrative expenses as explained above.
Interest Expense. Interest expense increased by 262.7% to $2,626,348 for
the six months ended June 30, 1998 from $724,146 for the six months ended June
30, 1997. The increase is due to the significant increase in total debt
outstanding during the first half of 1998 as compared to the corresponding 1997
period, primarily due to fund acquisitions. The increase in outstanding debt was
partially offset by a decrease in the interest rate under Clearview's
then-existing credit facility, from Prime + 2% to Prime + 1.5% in September
1997. All of Clearview's debt was retired and replaced in June 1998 by the
issuance of Clearview's Senior Notes bearing interest at 10.875%.
Extraordinary Item. The extraordinary item of $2,029,649 relates to the
early extinguishment of the debt under Clearview's then-existing credit facility
in June 1998.
Net Loss. Net loss increased to $4,712,246 for the six months ended June
30, 1998 from $597,699 for the six months ended June 30, 1997. The increase in
net loss was attributable primarily to substantial increases in both
depreciation and amortization expense, interest expense, and general and
administrative expenses resulting from Clearview's growth through acquisitions
and related borrowings, and the above-mentioned extraordinary item.
Loss Available for Shares. Loss Available for Shares reflects the net
loss, the components of which are explained above, and preferred shares
dividends of $1,392,915 for the six months ended June 30, 1998. The preferred
shares dividend is primarily a result of the April 1998 issuance of 3,000 shares
of Class C Preferred Shares, and the resulting non-cash dividend recorded
through June 30, 1998. In accordance with Emerging Issues Task Force Abstract
D-60 ("EITF Abstract D-60"), "Accounting for the Issuance of Convertible
Preferred Shares with a Nondetachable Conversion Feature," the intrinsic value
of the beneficial conversion feature of the Class C Preferred Shares, which is
measured as the difference between the conversion price and fair value of the
common shares on the date of issuance, is recognized as a non-cash preferred
shares dividend over the period from issuance to earliest conversion (90 days)
in the statement of changes in shareholders' equity. Based on Clearview's Share
price on April 23, 1998 (issuance date), the fair value of the conversion
feature is $1,714,286, which will be reflected as a preferred share dividend
over the period from issuance through July 20, 1998, the earliest conversion
date. The amount recorded from issuance through June 30, 1998 was $1,295,238,
with the remainder to be recorded in July 1998.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Total Revenues. Total revenues for 1997 increased 110.6% to $17,261,977
from $8,197,974 in 1996. The increase in box office receipts resulted primarily
from an increase in attendance of 98.9% to approximately 2,322,000 attendees in
1997 from approximately 1,167,000 attendees in 1996. This increase in attendance
is attributable primarily to Clearview's operation of the nine theaters acquired
during 1996 for a full year in 1997, as well as the operation of the 14 theaters
acquired and the one theater developed during 1997. Additionally, the average
ticket price increased from $5.31 in 1996 to $5.57 in 1997. Total concession
sales increased 110.3% for 1997 to $3,914,416 from $1,861,155 in the comparable
1996 period, primarily due to the increase in the number of theaters operated.
Film Rental and Booking Fees. Film rental and booking fees for 1997
increased 104.1% to $6,168,380 in 1997 from $3,022,377 in 1996, principally due
to the operation of additional theaters as discussed above. Film rental and
booking fees, as a percentage of box office receipts, decreased to 47.7% for the
year ended December 31, 1997 compared to 48.8% for 1996.
Cost of Concession Sales. Cost of concession sales for 1997 increased
126.9% to $634,395 from $279,549 for 1996. This increase was attributable
primarily to the operation of the additional theaters acquired in 1997 and 1996.
As a percentage of concession revenues, the cost of concession sales increased
to 16.2% in
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1997 from 15.0% in 1996. This increase was attributable to the number of
theaters Clearview added at the height of the 1997 holiday season when the
majority of the concession sales are lower-margin candy sales.
Theater Operating Expenses. Theater operating expenses for 1997 increased
99.8% to $6,590,703 from $3,297,825 for 1996. This increase was attributable
primarily to the operation of the additional theaters acquired in 1997 and 1996.
As a percentage of total revenues, theater operating expenses decreased to 38.2%
in 1997 from 40.2% in 1996. The decrease, as a percentage of total revenues, was
primarily due to Clearview's ability to control and manage its variable costs,
such as labor, and the lower average per-theater fixed costs, such as occupancy
costs, property taxes and utilities, of the theaters acquired in 1997 as
compared to Clearview's other theaters.
General and Administrative Expenses. General and administrative expenses
for 1997 increased 91.7% to $1,130,855 from $589,822 in 1996. This increase was
due principally to the hiring of additional personnel and related increases in
salaries resulting from the transition from seven locations and 21 screens at
January 1, 1996 to 16 locations and 60 screens at January 1, 1997 and to 31
theaters and 148 screens at December 31, 1997. The increase was also due to the
increase in certain costs in 1997, such as professional fees, which are
typically associated with the transition from a private company to a public
company. As a percentage of total revenues, however, general and administrative
expenses for 1997 decreased to 6.6% from 7.2% for 1996. This decrease was
primarily due to Clearview's internal controls and management information system
which allowed Clearview to expand its number of screens without incurring
proportionate increases in general and administrative expenses.
Depreciation and Amortization. Depreciation and amortization expense for
1997 increased 223.0% to $2,051,163 from $635,007 in 1996. This increase was a
direct result of the 14 additional theaters acquired in 1997, which
significantly increased Clearview's depreciable and amortizable assets, as well
as the effect of a full year of depreciation and amortization on the assets of
the nine theaters acquired in 1996.
Operating Income. Operating income for 1997 increased 83.8% to $686,481
from $373,394 for 1996. As a percentage of total revenues, operating income
decreased to 4.0% for the year ended December 31, 1997, compared to 4.6% for the
year ended December 31, 1996. Operating income decreased as a percentage of
total revenues primarily due to the substantial increase in depreciation and
amortization expense, which more than tripled in 1997 over 1996, compared to
total revenues, which approximately doubled over the same period. Excluding
depreciation and amortization, increases in Clearview's other operating expenses
were less, on a percentage basis, than the growth in total revenues, as
summarized below:
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE OVER
1996
-------------
<S> <C>
Total theater revenues................................. 110.6%
Film rental and booking fees........................... 104.1%
Other theater operating expenses....................... 99.8%
General and administrative expenses.................... 91.7%
Depreciation and amortization.......................... 223.0%
</TABLE>
Interest Expense. Interest expense increased 240.6% in 1997 to $2,015,419
from $591,722 in 1996. Clearview's borrowing rate on its then-existing credit
facility decreased from Prime + 2% to Prime + 1.5% in September 1997. This
decrease was offset by a significant increase in total debt outstanding during
1997 as a result of the funding of Clearview's acquisitions.
Net Loss. Net loss for the year ended December 31, 1997 increased to
$1,328,938 from $218,328 in the comparable 1996 period. This increase in net
loss was attributable primarily to the substantial increases in both
depreciation and amortization ($1,416,156) and interest expense ($1,423,697),
together totaling over $2,800,000. These increases were due to the additional
screens operated by Clearview in 1997 and their related acquisition financing
costs, which were offset by reduced film rental costs, theater operating
expenses and general and administrative expenses, which were less, on a
percentage basis, than the growth in total revenues.
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YEARS ENDED DECEMBER 31, 1996 AND 1995
Total Revenues. Total revenues for 1996 increased 249.5% to $8,197,974
from $2,345,697 for 1995. This increase in total revenues was primarily a result
of an increase in attendance of 270% to approximately 1,167,000 attendees in
1996 from approximately 315,000 attendees in 1995. The increase in attendance
occurred principally because of the addition of 39 screens during 1996 and the
first full year of operation of the 11 screens added during 1995. Revenues from
those theaters operated by Clearview throughout 1995 and 1996 increased 15.7%
from $1,541,843 to $1,783,260. This increase in same-theater revenues was
attributable primarily to an overall increase in attendance at two theaters and
the conversion from a single-screen to a triplex at another theater location.
Average ticket prices for Clearview's theaters remained relatively constant
during 1995 and 1996. Total concession sales increased 235.5% in 1996 to
$1,861,155 from $554,671 in 1995 principally for the same reasons.
Film Rental and Booking Fees. Film rental and booking fees for 1996
increased 266.9% to $3,022,377 from $823,791 for 1995. As a percentage of box
office receipts, film rental and booking fees increased to 48.8% from 46.8% for
the years ended December 31, 1996 and 1995, respectively. This increase was
primarily attributable to Clearview's acquisition of the six theaters acquired
in May and July of 1996 (film rental and booking fees as a percentage of box
office receipts are generally higher during the summer months than most of the
rest of the year).
Cost of Concession Sales. Cost of concession sales for 1996 increased
181.6% to $279,549 from $99,261 for 1995. As a percentage of concession
revenues, the cost of concession sales decreased to 15.0% from 17.9% for the
years ended December 31, 1996 and 1995, respectively. Clearview's gross margin
on concession revenues improved in 1996 when compared to 1995 as a result of
obtaining volume discounts.
Theater Operating Expenses. Theater operating expenses for 1996 increased
205.8% to $3,297,825 from $1,078,370 for 1995 primarily due to Clearview's
acquisitions during 1996. As a percentage of total revenues, theater operating
expenses decreased to 40.2% from 46.0% for the years ended December 31, 1996 and
1995, respectively. This reduction was due to Clearview's careful management of
its theater labor and fringe benefit costs and the lower average per-theater
fixed costs, such as occupancy costs, taxes and common area maintenance costs,
of the theaters acquired in 1996 as compared to Clearview's other theaters. As a
percentage of box office receipts, theater labor and fringe benefit costs
decreased to 20.9% from 23.2% for the years ended December 31, 1996 and 1995,
respectively.
General and Administrative Expenses. General and administrative expenses
for 1996 increased 57.2% to $589,822 from $375,262 for 1995. This increase was
due principally to the hiring of additional personnel and increases in salaries
resulting from the transition from seven locations and 21 screens at the
beginning of 1996 to 16 locations and 60 screens by the end of 1996. As a
percentage of total revenues, however, general and administrative expenses
decreased to 7.2% from 16.0% for the years ended December 31, 1996 and 1995,
respectively. This decrease was primarily due to Clearview's internal controls
and management information system which allowed Clearview to expand its number
of screens without incurring proportionate increases in general and
administrative expenses.
Depreciation and Amortization. Depreciation and amortization expense for
1996 increased 537.4% to $635,007 from $99,632 for 1995. This increase was
primarily a result of the acquisition of the nine theaters acquired in 1996,
which significantly increased Clearview's depreciable and amortizable assets.
Operating Income. Operating income for 1996 increased to $373,394 from an
operating loss of $130,619 for 1995. This increase in Clearview's operating
income was primarily due to certain improvements in operating efficiency, the
lower average occupancy costs per theater of the theaters acquired in 1996 as
compared to Clearview's other theaters, and an increase in general and
administrative expenses which was less, on a percentage basis, than the growth
in total revenues, offset by higher depreciation and amortization expense.
Interest Expense. Interest expense for 1996 increased 590.5% to $591,722
from $85,697 for 1995. The increase was primarily attributable to the
significant increase in Clearview's total debt during 1996, which was primarily
incurred to finance Clearview's acquisitions during that year.
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Net Loss. Net loss for 1996 increased 1.0% to $218,328 from a net loss of
$216,316 for 1995. The increase in net loss was primarily due to Clearview's
acquisitions during 1996 that resulted in a significant increase in depreciation
and amortization expense, which is a non-cash expense, and a large increase in
interest expense, offset by better operating efficiencies indicated above.
LIQUIDITY AND CAPITAL RESOURCES
Clearview receives substantially all of its revenues in cash from box
office receipts and concession sales and, therefore, benefits from minimal
accounts receivable and inventory requirements. Clearview's most significant
operating expense, film rental fees, continues to be paid to distributors 30 to
45 days following the receipt of the applicable cash ticket payments. In
addition, nearly all of Clearview's other operating expenses such as concession
purchases, theater payroll and theater rents, are paid bi-weekly or monthly,
respectively. The period between the receipt of cash from operations and the use
of that cash to pay the related expenses provides certain operating capital to
Clearview.
Since Clearview is in an industry which is capital intensive, substantially
all of its assets are non-current. Clearview's primary current asset is cash,
while inventories are relatively insignificant throughout the fiscal year.
Clearview had positive working capital of $15,702,761 at June 30, 1998 and
negative working capital of $1,766,222 at June 30, 1997, respectively. Clearview
had negative working capital of $5,334,136 at December 31, 1997 and $1,710,825
at December 31, 1996, respectively. The increase in working capital from June
30, 1997 to June 30, 1998 was attributable to an increase in cash due to the
proceeds from the Notes and Class C Preferred Shares Offering (as defined
herein), partially offset by an increase in accounts payable and film rent
payable to support Clearview's additional theaters. The increases in negative
working capital from 1996 to 1997 were attributable to the increase in the
current portion of long-term debt used to finance Clearview's theater
acquisitions during such periods, and the increase in film rental fees payable
due to the increase in the number of screens.
Clearview has financed its day-to-day operations principally from the cash
flow generated by its operating activities. Such cash flow totaled $1,715,484
for the six months ended June 30, 1998, as compared to $537,526 for the
comparable 1997 period, and $3,934,204 in 1997 as compared to $1,147,062 in
1996. The difference between Clearview's net losses and its cash flows from
operating activities for these periods was principally due to non-cash
depreciation and amortization expenses and increases in accounts payable and
accrued expenses. In addition, the 1998 period was impacted by the extraordinary
item related to the early extinguishment of debt.
Clearview's primary capital requirements are to fund additional theater
acquisitions and for remodeling, expansion and maintenance of existing theaters.
While Clearview has acquired fee-owned theaters from time to time, Clearview
prefers to acquire theaters as leasehold properties in order to preserve
capital. Clearview also has historically developed, and plans to continue
developing, new theaters principally by entering into long-term leases, which
provide an opportunity to share construction and development costs with the
lessor. All of Clearview's landlords are unaffiliated third parties. As of June
30, 1998, the aggregate annualized minimum lease payments for all of Clearview's
theaters over the next five years after giving effect to the Subsequent
Acquisitions (as defined under the caption "DESCRIPTION OF BUSINESS OF
CLEARVIEW -- Recent Acquisitions") are as follows: 1998: $3,991,672; 1999:
$4,290,069; 2000: $4,239,306; 2001: $4,049,198; and 2002: $4,109,480.
Capital expenditures, exclusive of theater acquisitions, totaled
approximately $2,871,487 in the first six months of 1998 and $1,392,692 in the
first six months of 1997. The 1998 amount includes $700,000 related to the
purchase of the underlying real estate of a theater previously leased, and
$445,117 of construction costs related to the Mansfield Theater. During 1998,
Clearview funded its capital expenditures, other than theater acquisitions,
through cash flow from operations.
Clearview's capital requirements in 1997 arose principally in connection
with theater acquisitions ($37.9 million), the renovation of acquired and
existing theaters ($2.4 million), the development of a new theater ($866,000)
and the addition of screens to an existing theater ($258,000). Capital
expenditures, exclusive of theater acquisitions, totaled approximately
$3,486,000 in 1997 and $318,000 in 1996. During 1997, Clearview
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funded its capital expenditures, including theater acquisitions, through the net
proceeds of its initial public offering of approximately $7.1 million,
approximately $24 million of bank borrowings, issuance of $6.0 million of
subordinated debt, the issuance of 750 Class B Preferred Shares valued at
$750,000 and the issuance of 104,297 Shares, valued at approximately $1.2
million.
On June 12, 1998, Clearview received $80.0 million in aggregate gross
proceeds before fees and expenses from the Notes Offering (as defined under the
caption "DESCRIPTION OF BUSINESS OF CLEARVIEW -- Recent Financing
Transactions"), repaid the $40.2 million outstanding under Clearview's
then-existing bank credit facility, and entered into a new bank credit facility
(the "New Credit Facility") providing for a secured revolving line of credit in
the aggregate principal amount of $15.0 million. The New Credit Facility will
mature on June 12, 2003. The New Credit Facility is collateralized by
substantially all of the assets of Clearview and contains various restrictive
covenants.
In April 1998, Clearview designated a new series, consisting of 3,000
shares of its preferred stock, $.01 par value, as Class C Convertible Preferred
Stock (the "Class C Preferred Shares"). Concurrently, Clearview entered into a
Securities Purchase Agreement and issued the 3,000 shares of its Class C
Preferred Shares for $2.97 million in cash, net of offering costs (the "Class C
Preferred Shares Offering").
Clearview's future capital expenditures for planned maintenance will be
funded through cash flow from operations. In accordance with Clearview's
strategic plan, Clearview intends to continue to acquire theaters and is
pursuing the acquisition of additional locations. Based on Clearview's current
operations and anticipated revenue growth, management believes that cash flow
from operations and other available cash (including from the Notes Offering),
together with available borrowings under the New Credit Facility, will be
sufficient to fund Clearview's growth strategy through at least the end of 1998.
Thereafter, however, or in the event Clearview exceeds its currently anticipated
expansion plans, Clearview anticipates that it will need to seek additional debt
or equity financing to fund its growth strategy. Failure to obtain any such
financing could have a material adverse effect on Clearview's ability to achieve
its growth strategy. In the absence of additional financing, Clearview believes
that it is capable of funding its current operations (including principal and
interest payments as they come due) through internally generated cash flow from
operations and existing debt financing.
On August 13, 1998, Clearview announced that it had entered into the Merger
Agreement among Cablevision, Merger Sub and Clearview pursuant to which
Clearview would be merged with and into CCG Holdings. Each issued and
outstanding share of common shares of Clearview would be acquired at $24.25 per
share, payable in a combination of cash and Cablevision Class A Common Stock on
the basis of 55% cash and 45% Cablevision Class A Common Stock. The gross value
of the transaction is estimated at approximately $160 million, based on the
acquisition of approximately 3.3 million shares of Clearview Common Stock on a
fully diluted basis and the assumption of the $80 million of Notes outstanding
as of August 13, 1998. Clearview made a tender offer to repurchase Clearview's
Senior Notes with the funding for such repurchase to be made by Cablevision. The
tender offer expired September 17, 1998, with no holders electing to tender
their Notes.
QUARTERLY RESULTS AND SEASONALITY
Historically, the most successful films have been released during the
summer months (July and August) and Thanksgiving through the year-end holiday
season. Consequently, motion picture exhibitors generally have had
proportionally higher revenues during such periods, although seasonality of
motion picture exhibition revenues has become less pronounced in recent years as
studios have begun to release major motion pictures more evenly throughout the
year. Clearview believes that its regular exhibition of first-run independent
films has contributed to a moderation in the seasonality of its own revenues as
compared to the seasonality of the revenues of some of its competitors.
Nevertheless, Clearview's revenues and income in any particular quarter will be
substantially the result of the commercial success of the particular films being
exhibited during such quarter.
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EFFECTS OF INFLATION
Inflation has not had a significant impact on Clearview's operations to
date.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of Clearview's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculations
or system failures, causing disruption in operations, including, but not limited
to, an inability to send and receive electronic data, or to engage in routine
business activities and operations.
This issue creates risk for Clearview from unforeseen problems in its own
computer systems and from third parties with whom Clearview deals on
transactions. Clearview is in the early stages of evaluating the potential
impact of the Year 2000 on the electronic data processing and other information
systems relevant to Clearview's business, and is developing a plan to resolve
this issue. As part of that plan, Clearview recently hired an outside consulting
firm to assist in the completion of the first phase of its Year 2000 project.
Those activities, which will occur in the fourth quarter of 1998, include the
compiling of a detailed inventory of Clearview's computer hardware and software
applications; the identification of imbedded chips in any non-IT equipment, the
development of detailed project plans to address each component, and the
development of an estimated cost for the remainder of the project.
Clearview has had formal discussions with certain of its major suppliers
concerning their Year 2000 compliance, and intends to continue such discussions
into the fourth quarter of 1998. However, there can be no assurance that the
systems of other companies that interact with Clearview will be sufficiently
Year 2000 compliant so as to avoid an adverse impact on Clearview's operations,
financial condition and results of operations.
Clearview anticipates that it will complete its Year 2000 project,
including contingency planning, during 1999 but there can be no assurance that
Clearview will be successful in meeting this schedule. It is currently unknown
what specific potential adverse consequences could result from failure to
properly mitigate the Year 2000 problem, and, in addition, Clearview is
currently unable to estimate the overall cost associated with its Year 2000
project. No costs have been incurred to date.
DESCRIPTION OF BUSINESS OF CLEARVIEW
Clearview is a major regional first-run motion picture exhibitor that
operates primarily community-based multiplex theaters in affluent suburban
communities in the New York/New Jersey metropolitan area. Clearview offers a
broad mix of first-run films with a particular focus on films designed to appeal
to sophisticated moviegoers and families with younger children residing in these
communities. As of September 30, 1998, Clearview operated 43 theaters with a
total of 203 screens. Through additions of screens to existing theaters and new
theater development, Clearview also plans to add a total of 60 new screens by
May 31, 1999. Based on the number of screens currently operated, Clearview
believes that it is one of the largest motion picture exhibitors in the New
York/New Jersey metropolitan region and the second largest in New Jersey. As of
September 30, 1998, approximately 70.0% of Clearview's theaters were the sole
exhibitors in their film zones, and approximately 16.0% were the leading
exhibitors in their film zones.
Clearview operates clean, comfortable, visually appealing and
service-oriented theaters predominantly located in affluent towns and
communities rather than in shopping malls or near highways. Clearview believes
that in many suburban communities in the Middle Atlantic and New England states,
theaters located in town or in community-based retail centers serve audiences
that prefer the convenience and familiarity of such theaters to the larger
out-of-town megaplex theaters that appear to be the focus of the major theater
circuits. Many of Clearview's target markets are in densely populated, affluent
areas consisting of numerous small municipalities with local business districts
that are well-suited to Clearview's strategy of operating community-based
theaters. In many of these areas it can be difficult for theater circuit
operators to build or expand
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theaters into large multiplexes or megaplexes due to a lack of affordable real
estate, zoning laws and community resistance.
Founded in 1994 with four theaters and eight screens, Clearview has grown
through both acquisitions and theater development. Since that time, Clearview
has completed 16 acquisitions, representing 34 theaters with a total of 170
screens, and entered into agreements to operate four theaters with 13 screens.
Management has successfully integrated these theaters into its operations by
reducing operating expenses and implementing new operating standards, management
controls and information systems. Clearview has also upgraded the seating,
improved the sound and projection equipment, refurbished the interior
furnishings and broadened the concession offerings in most locations.
Additionally, since early 1995 Clearview has added seven screens to existing
theaters and constructed a new five-screen theater in an existing building,
resulting in an aggregate of 43 theaters with a total of 203 screens as of
September 30, 1998. See "-- Existing Theaters."
During the past ten years, overall movie theater attendance in the United
States has grown from 1,089 million in 1987 to 1,388 million in 1997. Admission
revenue increased from a total of approximately $4.3 billion in 1987 to
approximately $6.4 billion in 1997, or a compound annual growth rate of 4.1%.
The theatrical exhibition industry is fragmented. Although the eleven largest
theater circuits operated approximately 60% of the screens at May 1, 1997, 268
of the approximately 478 remaining exhibitors operated four or fewer screens.
There is also a strong trend toward consolidation in the motion picture
exhibition industry. Two recent major transactions combined Cineplex
(approximately 1,729 screens) with Loews Theater Exhibition Group (approximately
1,020 screens), and combined Act III Cinemas ("Act III") (approximately 832
screens) with Regal (approximately 2,337 screens). Clearview believes that it
has an opportunity to acquire additional theaters as the major circuits seek to
divest theaters which do not fit into their strategic plans and independent
theater operators find it increasingly difficult to compete with larger
circuits.
RECENT ACQUISITIONS
Since its initial acquisition of four theaters in December 1994, Clearview
has completed 16 acquisitions, representing 34 theaters with an aggregate of 170
screens. See "THE COMPANIES -- Clearview -- Existing Theaters." Listed below is
a summary of Clearview's acquisitions during 1997 and 1998.
1997 Acquisitions
UA I Theaters. On September 12, 1997, Clearview purchased from United
Artists Theater Circuits, Inc., for total consideration of approximately $8.7
million in cash, the Mamaroneck Playhouse in Mamaroneck, NY (4 screens), the
Bronxville Cinemas in Bronxville, NY (3 screens), the Larchmont Cinemas in
Larchmont, NY (1 screen), the Cinema 304 in New City, NY (2 screens) and the
Wayne Preakness Cinemas in Wayne, NJ (4 screens) (collectively, the "UA I
Theaters").
Nelson Ferman Theaters. On November 21, 1997, Clearview purchased from an
independent theater operator, for total consideration of $18.5 million paid in a
combination of cash, subordinated notes of Clearview and shares of Common Stock,
the Parsippany Cinema 12 in Parsippany, NJ (12 screens) and the Succasunna
Cinema 10 in Succasunna, NJ (10 screens) (together, the "Nelson Ferman
Theaters").
CJM Theaters. On December 12, 1997, Clearview purchased from an
independent theater operator, for total consideration of $8.7 million paid in a
combination of cash, shares of Clearview's Class B Preferred Shares, and Shares,
the Bellevue Theaters in Upper Montclair, NJ (4 screens), the Kin Mall Cinemas
in Kinnelon, NJ (8 screens), the Cinema 23 in Cedar Grove, NJ (5 screens) and
the Middlebrook Galleria Cinema in Middlebrook, NJ (10 screens) (collectively,
the "CJM Theaters").
Other 1997 Acquisitions. Also during 1997, Clearview acquired for an
aggregate of approximately $2.0 million in cash, the Roslyn Cinemas in Roslyn,
NY (3 screens), the Edison Cinemas in Edison, NJ (8 screens) and the Woodbridge
Cinemas in Woodbridge, NJ (5 screens) (collectively, the "Other 1997
Acquisitions"). The acquisitions of the UA I Theaters, the Nelson Ferman
Theaters and the CJM Theaters, together with the Other 1997 Acquisitions, are
hereinafter referred to as the "1997 Acquisitions."
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1998 Acquisitions
During the six months ended June 30, 1998, Clearview has purchased for an
aggregate of approximately $15.3 million, paid in a combination of cash and
Shares, the Clairidge Cinemas in Montclair, NJ (6 screens), the Manhasset
Cinemas in North Hempstead, NY (3 screens), the Babylon Cinemas in Babylon, NY
(3 screens), the Cobble Hill Cinemas in Brooklyn, NY (5 screens) (the "Cobble
Hill Acquisition"), the Headquarters 10 Cinemas in Morristown, NJ (10 screens)
(the "AMC Acquisition"), the Great Neck Squire Cinemas in Great Neck, NY (7
screens), and the Franklin Square Cinemas in Franklin Square, NY (6 screens)
(together, the "Great Neck/Franklin Square Acquisition"); and, subsequent to
June 30, 1998, Clearview has purchased for an aggregate of $2.2 million in cash,
the Colony Cinemas in Livingston, NJ (3 screens), the West Milford Cinemas in
West Milford, NJ (4 screens) and the Bala Theater in Bala Cynwyd, PA (3 screens)
(the "Bala Cynwyd Acquisition") (together, the "Subsequent Acquisitions" and,
collectively, the "1998 Acquisitions").
Clearview has financed all of its completed acquisitions through a
combination of borrowings under the Old Credit Facility, the issuance of
subordinated promissory notes, Class B Preferred Shares and Shares, the net
proceeds from its initial public offering of Shares in August 1997 (the "Common
Stock Offering"), its sale of the Class C Preferred Shares in April 1998 and its
offering of the Old Notes in June 1998 (the "Notes Offering"). See Clearview's
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Clearview."
RECENT FINANCING TRANSACTIONS
In August 1997, Clearview completed the Common Stock Offering for $7.1
million in aggregate net proceeds. In late 1997 and early 1998, Clearview
amended its Credit Agreement with The Provident Bank (as amended, the "Old
Credit Facility") to, among other things, increase availability under the term
loans from $11.2 million to $40.8 million, substantially all of which was used
to fund in part the acquisition of additional theaters. In April 1998, Clearview
completed the sale of the Class C Preferred Shares to Marshall Capital
Management, Inc. for aggregate consideration of approximately $3.0 million.
Additionally, in June 1998, Clearview completed the Notes Offering for
$80,000,000 in gross proceeds before fees and expenses. Concurrent with the
closing of the Notes Offering, Clearview repaid the Old Credit Facility and
entered into a new credit facility with The Provident Bank, which provides for a
secured revolving line of credit in the aggregate principal amount of $15.0
million.
References in this Proxy Statement/Prospectus to the "Transactions" are to
(i) the Notes Offering and the application of the net proceeds therefrom
(including the AMC Acquisition, the Great Neck/Franklin Square Acquisition and
the Subsequent Acquisitions); (ii) the issuance of the Class C Preferred Shares;
and (iii) the issuance of Shares in connection with the acquisition of the
leasehold interest and related construction permit for a new theater in
Mansfield Township, New Jersey (the "Mansfield Theater"). Prior to June 30,
1998, the net proceeds from the sale of the Notes have been used to repay the
amount outstanding under the Old Credit Facility of $40.2 million along with a
prepayment premium of approximately $400,000 and accrued interest of
approximately $470,000; to repay the outstanding indebtedness of approximately
$6.3 million; to repurchase 600 shares of the outstanding Class B Preferred
Shares for approximately $600,000; to pay the issuance costs on the new credit
facility of approximately $155,000; to fund the aggregate purchase price of $9.3
million for the AMC Acquisition and the Great Neck/Franklin Square Acquisition;
to purchase the fee real estate interest in a property Clearview had been
operating under lease for approximately $700,000 (the "Rosyln Purchase"); and to
pay approximately $3.7 million in fees and expenses of the Notes Offering.
Subsequent to June 30, 1998, the net proceeds from the sale of the Notes have
been used to fund the aggregate purchase price for the Subsequent Acquisitions
of approximately $2.2 million; a $750,000 escrow account in connection with the
acquisition of the CJM Theaters; and the purchase for $1,150,000 of the fee real
estate interest of one theater Clearview had been operating under an agreement
with the owner (the "Millburn Purchase") (together, the "Post June 30
Transactions"). The remaining net proceeds will be used to fund the $1,115,000
to purchase the operations and leasehold of three theaters Clearview had been
operating under an agreement with the owner (the "Long Island Purchase")
(together with the Post June 30
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<PAGE> 100
Transactions, the "Subsequent Transactions"); and for working capital, capital
expenditures and general corporate purposes, including the buildout of
additional screens at existing theaters, new theater developments and possible
additional theater acquisitions. See "-- Theater Expansion and Development."
EXISTING THEATERS
Founded in 1994 with four theaters and eight screens, Clearview has since
acquired 34 theaters, entered into agreements to operate four theaters and
developed one theater, resulting in an increase in the number of Clearview
theaters to 43 and the number of Clearview screens to 203. A list of the
theaters currently operated by Clearview is set forth in the following table:
<TABLE>
<CAPTION>
NUMBER
DATE OF INITIAL COMMUNITY/ COUNTY/ OF
ACQUISITION THEATER NAME STATE SCREENS OCCUPANCY EXPIRATION
- ---------------------- ---------------------------- ------------------- ------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Dec. 21, 1994......... Bernardsville Somerset, NJ 3 Lease Dec. 31, 1999(1)
(Bernardsville Cinema 3)
Dec. 21, 1994......... Chester Morris, NJ 6 Lease Jan. 31, 2008(1)
(Chester Cinema 6)
Dec. 21, 1994......... Madison Morris, NJ 4 Lease Dec. 31, 2000(1)
(Madison Cinema 4)
Dec. 21, 1994......... Manasquan Monmouth, NJ 1 Lease Jan. 14, 2002
(Algonquin Arts Theater)
Sept. 8, 1995......... Baldwin Nassau, NY 2 Operating Aug. 31, 2015(2)
(Grand Avenue Cinema) Contract
Sept. 8, 1995......... New Hyde Park Nassau, NY 2 Operating Aug. 31, 2022(2)
(Herricks Cinemas) Contract
Sept. 8, 1995......... Port Washington Nassau, NY 7 Operating Jan. 31, 2010(2)
(Port Washington Cinemas) Contract
May 29, 1996.......... Clifton Passaic, NJ 6 Lease Jan. 14, 2007
(Allwood Cinemas)
May 29, 1996.......... Emerson Bergen, NJ 4 Lease Dec. 31, 2006
(Emerson Quad)
May 29, 1996.......... New City Rockland, NY 6 Lease Dec. 31, 2017
(New City Cinemas)
May 29, 1996.......... Washington Twp. Bergen, NJ 3 Lease Oct. 31, 2006
(Washington Twp. Cinemas)
July 18, 1996......... Bedford Westchester, NY 2 Lease Dec. 31, 2011
(Bedford Cinemas)
July 18, 1996......... Mount Kisco Westchester, NY 5 Lease Dec. 31, 2003
(Mt. Kisco Cinemas)
Dec. 13, 1996......... Bergenfield Bergen, NJ 5 Own (3)
(Bergenfield Cinema 5)
Dec. 13, 1996......... Closter Bergen, NJ 4 Lease Aug. 31, 1999(1)
(Closter Cinema 4)
Dec. 13, 1996......... Tenafly Bergen, NJ 4 Own (3)
(Tenafly Cinema 4)
July 2, 1997.......... Summit Union, NJ 5 Lease Dec. 31, 2007(1)
(Beacon Hill 5)
Sept. 12, 1997........ Bronxville Westchester, NY 3 Own (3)
(Bronxville Cinemas)
Sept. 12, 1997........ Larchmont Westchester, NY 1 Lease Sept. 30, 2016(1)
(Larchmont Cinemas)
Sept. 12, 1997........ Mamaroneck Westchester, NY 4 Own (3)
(Mamaroneck Playhouse)
Sept. 12, 1997........ New City Rockland, NY 2 Own (3)
(Cinema 304 New City)
</TABLE>
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<PAGE> 101
<TABLE>
<CAPTION>
NUMBER
DATE OF INITIAL COMMUNITY/ COUNTY/ OF
ACQUISITION THEATER NAME STATE SCREENS OCCUPANCY EXPIRATION
- ---------------------- ---------------------------- ------------------- ------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Sept. 12, 1997........ Wayne Passaic, NJ 4 Lease Nov. 2006(1)
(Wayne Preakness Cinemas)
Nov. 7, 1997.......... Roslyn Nassau, NY 4 Own (3)(5)(6)
(Roslyn Cinemas)
Nov. 21, 1997......... Parsippany Morris, NJ 12 Lease Dec. 2015 (1)
(Parsippany Cinema 12)
Nov. 21, 1997......... Succasunna Morris, NJ 10 Lease Dec. 31, 2019(1)
(Succasunna Cinema 10)
Dec. 9, 1997.......... Edison Middlesex, NJ 8 Lease Dec. 31, 2004(1)
(Edison Cinemas )
Dec. 9, 1997.......... Woodbridge Middlesex, NJ 5 Lease Dec. 30, 2003
(Woodbridge Cinemas)
Dec. 12, 1997......... Upper Montclair Essex, NJ 4 Lease Nov. 30, 2017(1)
(Bellevue Theaters)
Dec. 12, 1997......... Cedar Grove Essex, NJ 5 Lease May 31, 2010
(Cinema 23)
Dec. 12, 1997......... Kinnelon Morris, NJ 8 Lease April 30, 2002(1)
(Kin Mall Cinemas)
Dec. 12, 1997......... Middlebrook Monmouth, NJ 10 Lease Oct. 31, 1999(1)
(Middlebrook Galleria
Cinemas)
Jan. 29, 1998......... Millburn Essex, NJ 2 Own (3)(4)
(Millburn Twin Cinemas)
Feb. 13, 1998......... Montclair Essex, NJ 6 Lease Dec. 31, 2016(1)
(Clairidge Cinemas)
Feb. 15, 1998......... Montclair Essex, NJ 2 Operating Feb. 15, 2008
(The Screening Zone) Contract
Mar. 6, 1998.......... Manhasset Nassau, NY 3 Own (3)
(Manhasset Cinemas)
Mar. 6, 1998.......... Babylon Suffolk, NY 3 Own (3)
(Babylon Cinemas)
Mar. 23, 1998......... Cobble Hill Kings, NY 5 Lease Mar. 23, 2003(1)
(Cobble Hill Cinema)
Jun. 17, 1998......... Great Neck Nassau, NY 7 Lease May 31, 2021(1)
(Great Neck Squire Cinemas)
Jun. 17, 1998......... Franklin Square Suffolk, NY 6 Lease Dec. 31, 2014(1)
(Franklin Square Cinemas)
Jun. 24, 1998......... Morristown Morris, NY 10 Lease July 31, 2007(1)
(Headquarters 10)
Aug. 13, 1998......... Bala Cynwyd Montgomery, PA 3 Lease Aug. 31, 2018(1)
(Bala Theater)
Aug. 20, 1998......... Livingston Essex, NJ 3 Own (3)
(Colony Cinemas)
Aug. 20, 1998......... West Milford Passaic, NH 4 Lease Mar. 31, 2000(1)
(West Milford Cinemas)
</TABLE>
- ---------------
(1) Under these leases, Clearview has one or more renewal options.
(2) The Company has an option expiring in September 2000 to acquire the
operations and leaseholds of these theaters. The Company's right to operate
these theaters will terminate if the option is not exercised.
(3) Not applicable because the theater is owned by Clearview.
(4) In August 1998, Clearview exercised its option to acquire the operations and
fee real estate interest of this theater.
(5) During the second quarter of 1998, Clearview added a screen to this theater
to increase the number of screens from three to four.
(6) In June 1998, Clearview acquired the fee real estate interest of this
theater.
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<PAGE> 102
THEATER EXPANSION AND DEVELOPMENT
Part of Clearview's growth strategy is theater expansion and development.
When considering theater expansion and development opportunities, Clearview
typically analyzes the demographics, including population density and household
income data, admissions revenue data for existing theaters within a 10 to 15
mile radius of the proposed site, and projected return on investment, to assess
a location's desirability for a new theater or additional screens. Clearview
also researches existing and proposed development plans of its competitors for
this purpose.
Screen Additions. Since inception, Clearview has added a total of seven
screens to three existing theaters. The following table sets forth the screens
which Clearview currently plans to add to existing theaters. There can be no
assurance that all or any of such additions will be made.
PROJECTED SCREEN ADDITIONS
<TABLE>
<CAPTION>
NUMBER OF TOTAL
PROJECTED OPENING DATE COMMUNITY SCREENS TO BE ADDED RESULTING SCREENS
- --------------------------- --------- ------------------- -----------------
<S> <C> <C> <C>
March 1999................. Mamaroneck, NY 1 5
December 1998.............. Millburn, NJ 2 4
February 1999.............. Kinnelon, NJ 3 11
December 1998.............. Larchmont, NY 2 3
January 1999............... Succasunna, NJ 6 16
March 1999................. Bronxville, NY 1 4
January 1999............... New Hyde Park, NY 2 4
January 1999............... Baldwin, NY 3 5
-- --
20 52
</TABLE>
New Theater Development. Clearview has constructed one five-screen theater
in an existing building (the Beacon Hill 5 in Summit, New Jersey), and currently
plans to develop four theaters with a total of 40 screens in the New York/New
Jersey metropolitan area and the Philadelphia main line by May 31, 1999. The
following table sets forth Clearview's planned new theater development. There
can be no assurance that any or all of such projects will be completed or, if
completed, that the development ultimately will prove profitable.
PLANNED NEW THEATER DEVELOPMENT
<TABLE>
<CAPTION>
PROJECTED
NUMBER
PROJECTED OPENING DATE COMMUNITY NUMBER OF THEATERS OF SCREENS
- ---------------------- ----------------- ------------------ ----------------
<S> <C> <C> <C>
December 1998......................... Anthony Wayne, PA 1 4
December 1998......................... Mansfield, NJ 1 15
March 1999............................ Carmel, NY 1 11
May 1999.............................. Bayonne, NJ 1 10
-- ---
4 40
</TABLE>
In April 1998, Clearview issued approximately $1.5 million in Common Stock
to acquire the leasehold interest and related construction permit for the
Mansfield Theater. Construction began in May 1998 and is expected to be
completed by the end of December 1998. The estimated cost of development is $3.1
million. The Mansfield Theater will be located in Warren County, New Jersey and
currently is planned to be a 15-screen multiplex. Clearview began paying 50% of
the monthly rental payments of $29,167 as of May 1, 1998 and will become liable
for the full monthly rent on the earlier of the opening of the theater and
January 1, 1999. Currently, there is no multiplex in Warren County, New Jersey,
and Clearview is not aware of any other proposed development in that county.
86
<PAGE> 103
In March 1998, Clearview entered into an agreement with a public real
estate investment trust, subject to obtaining certain approvals, to develop a
new 11-screen multiplex theater in the Carmel ShopRite Center in Putnam County,
New York. The agreement provides that after the theater is constructed Clearview
will add the seats, projection equipment and a concession stand at a cost of
approximately $1.1 million. Monthly rental payments of $22,500 are payable
beginning on the earlier of 120 days after the landlord completes construction
and the date that Clearview begins operating the theater. Construction is
expected to be completed by March 1999.
In February 1997, Clearview entered into an agreement with a private
developer to lease a new multiplex theater to be constructed by the landlord on
a "turn key" basis. This theater project is currently planned to include at
least 10 screens in Bayonne, New Jersey. The landlord has agreed to install all
theater seats, projection and sound equipment, concession stands and final
finishes according to Clearview's specifications. Clearview does not expect to
incur any capital costs for this project. Currently there is no multiplex in
Bayonne, New Jersey, and the Clearview is not aware of any other proposed
development in that county. Construction is expected to be completed in May
1999, at which time a subsidiary of Clearview would be obligated to make monthly
rental payments of $41,667. The construction contract for this theater has not
yet been signed.
In June 1998, Clearview entered into an agreement with a private developer
to develop a new multiplex theater, subject to obtaining certain approvals, in
Anthony Wayne, Pennsylvania, along the Philadelphia main line. The estimated
cost of development is $750,000. The theater is expected to have four screens,
and construction is expected to be completed by December 1998. A subsidiary of
Clearview will be obligated to make monthly rental payments of $4,500 on the
earlier of 120 days after all permits have been obtained or the date that
Clearview begins operating the theater.
FILM LICENSING
Clearview's success depends to a significant extent on its knowledge of
movie-viewing trends. To augment its resources in this aspect of its business,
Clearview hired Mr. Craig Zeltner in February 1998 to serve as its Vice
President -- Film. Mr. Zeltner has more than 20 years of experience as a film
buyer, particularly in film buying for Clearview's target market. Clearview also
employs two film "bookers" to assist Mr. Zeltner, and recently hired a senior
film buyer. Clearview licenses films from distributors on a film-by-film and
theater-by-theater basis. Prior to negotiating for film licenses, senior
management of Clearview evaluates the prospects for upcoming films using many
factors, including cast, director, plot, performance of similar films, estimated
film rental costs and expected Motion Picture Association of America rating.
Clearview's success when licensing particular films depends in large part upon
its knowledge of trends, historical film preferences of the residents in the
markets served by its theaters, as well as on the availability of motion
pictures that Clearview believes will be successful in those markets.
Films are licensed either from film distributors owned by major film
production companies or from one of the independent film distributors that
generally distribute films for smaller production companies for exhibition at
only one theater in a particular film licensing zone. Film distributors
typically recognize geographic film licensing zones with a radius of three to
five miles in suburban markets, depending primarily on population density. Of
Clearview's current theaters, approximately 70.0% are the sole exhibitors in
their film zones, permitting Clearview to choose which films it wishes to
exhibit at these theaters, and approximately 16.0% are the leading exhibitors in
their film zones.
In film zones where Clearview is the sole exhibitor, a film license is
generally obtained by Clearview after selecting a film from among those offered
and negotiating directly with its distributor. In film zones where there are
multiple exhibitors, a distributor will either require the exhibitors in the
film zone to bid for a film or will allocate films among the exhibitors in the
film zone. When films are licensed under the allocation process, a distributor
will choose which exhibitor is to be offered a movie and then that exhibitor
will negotiate film rental terms directly with that distributor. Over the past
several years, distributors have almost exclusively used the allocation process
rather than the bidding process to license their films in the New York/New
Jersey metropolitan area. When films are licensed through a bidding process,
exhibitors compete for licenses based
87
<PAGE> 104
upon the film rental fees to be paid. Clearview currently does not bid for films
in any of its film zones, although it may be required to do so in the future.
Clearview predominantly licenses "first run" films. If Clearview believes
that a film has substantial remaining potential following its first run, it may
license that film for a "second run." Second runs enable Clearview to exhibit a
variety of films during periods in which there are few new releases and to offer
its target audience an opportunity to see a film that did not fit into
Clearview's first-run schedule. Film distributors establish second-run
availability on a national or market-by-market basis after a film's release from
first-run theaters, and generally permit each theater within a market to exhibit
that film.
Each film license typically specifies that the rental fee is based on
either a gross box office receipts formula or a theater admissions revenue
formula, depending upon which one results in the larger film rental fee. In
addition, if a distributor deems a film to be extremely promising, exhibitors
may be required to pay non-refundable guarantees of film rental fees or to make
refundable advance payments of film rental fees or both in order to obtain a
license for that film. Under a gross box office receipts formula, the
distributor receives a specified percentage of box office receipts from the
licensed film, with the percentage declining over the term of the film run.
First-run commercial and family-oriented film rental fees typically begin at
approximately 70% to 50% of box office receipts for the licensed film (depending
on the type of film and its distributor) and gradually decline, over a period of
four to seven weeks, to as low as 30% of box office receipts. First-run art film
rental fees and second-run commercial and family-oriented film rental fees
typically begin at 35% to 40% of box office receipts for the licensed film and
often decline to 30% to 35% of box office receipts after the first week. Under a
theater admissions revenue formula (commonly known as a "90/10" clause), the
distributor receives a specified percentage (i.e., 90%) of the excess of box
office receipts for a given film over a negotiated allowance for theater
overhead expenses. Although generally not specifically contemplated by the
provisions of film licenses, the terms of a film license often are adjusted or
renegotiated subsequent to the initial release of the film.
Clearview's business is dependent upon the availability of marketable
first-run commercial, family-oriented and art motion pictures and its
relationships with distributors. Although many distributors provide first-run
movies to the motion picture exhibition industry, distribution has been
dominated historically by a limited number of distributors (Warner Brothers,
Paramount, 20th Century Fox, Universal, Disney/ Touchstone, MGM/UA and
Columbia/Tri-Star) which, since 1989, have typically accounted for well over 75%
of domestic admission revenues and virtually every one of the top 25 grossing
films in a given year. No single major distributor dominates the market.
Disruption in the production of motion pictures by the major studios and/or
independent producers, poor commercial success of motion pictures or poor
relationships with distributors could have a material adverse effect upon
Clearview's business and results of operations.
Clearview licenses films from each of the major distributors and believes
that it has good relationships with these distributors. Clearview also licenses
films from independent film distributors on a consistent basis. Because these
distributors often have difficulty licensing films at theaters that are
well-maintained and technologically up-to-date, these distributors have
generally cooperated with Clearview when it seeks to move prints, modify the
length of a film's run or change a film's rental fee. From year to year, the box
office revenues of Clearview attributable to individual distributors will vary
depending upon the films they distribute. Set forth below are the top 15 and 16
distributors to Clearview for 1996 and 1997, respectively, ranked by the number
of films shown.
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<PAGE> 105
DISTRIBUTORS RANKED BY NUMBER OF FILMS EXHIBITED
<TABLE>
<CAPTION>
1996 1997
- ----------------------------------------------- -----------------------------------------------
NAME # OF FILMS NAME # OF FILMS
---- ---------- ---- ----------
<S> <C> <C> <C>
Buena Vista........................ 31 Buena Vista........................ 29
Sony............................... 22 Sony............................... 27
Warner Brothers.................... 21 Warner Brothers.................... 25
Miramax............................ 20 Paramount.......................... 22
Paramount.......................... 17 20th Century Fox................... 21
20th Century Fox................... 16 Miramax............................ 18
MCA/Universal...................... 15 New Line........................... 14
MGM/UA............................. 13 MCA/Universal...................... 11
New Line........................... 9 MGM/UA............................. 7
Gramercy........................... 6 Gramercy........................... 6
Fine Line.......................... 4 Sony Classic....................... 5
Orion.............................. 4 October............................ 5
Samuel Goldwyn..................... 4 Fox Search Light................... 4
Sony Classic....................... 4 Orion.............................. 3
October............................ 3 Fine Line.......................... 3
Dream Works........................ 3
</TABLE>
CONCESSIONS
Concession sales are generally the second largest source of revenue for
Clearview after box office receipts, representing approximately 22.7% of the
revenue for the year ended December 31, 1997 and 24.3% of revenue for the six
months ended June 30, 1998. Clearview has devoted considerable management effort
to increasing concession sales and improving concession margins. Clearview's
concession margin was 83.8% for the year ended December 31, 1997 and 85.6% for
the six months ended June 30, 1998. Clearview's efforts include implementing the
following strategies:
Tailoring product mix to customer base. Clearview's mix of concession
items reflects the preferences of its customer base. While Clearview's theaters
provide the traditional concession items such as popcorn, soda and candy,
Clearview also offers items which appeal to more upscale moviegoers. Examples of
these products include cappuccino, Swiss chocolates, fruit and bottled water.
Clearview varies its concessions by theater based on preferences of the
particular community. Clearview believes its product mix further enhances the
appeal of its theaters to its patrons by differentiating its theaters from those
of larger circuits.
Cost control. Clearview negotiates its concession supplies on a bulk rate
basis for all of its theaters. Clearview often realizes improvements in the
concession margins of acquired theaters by integrating their concession
purchasing with Clearview's existing theaters. Clearview believes that
acquisitions of additional theaters would further increase Clearview's ability
to obtain more favorable pricing from concession distributors.
OTHER SOURCES OF REVENUE
Clearview also seeks to increase revenues and cash flow from sources other
than admissions and concessions, including party, theater rental and on-screen
advertising revenues. For the year ended December 31, 1997, Clearview had other
revenues of approximately $420,000, or 2.4% of total revenues, and for the six
months ended June 30, 1998 had other revenues of approximately $590,000, or 3.1%
of total revenues. Clearview intends to increase these high margin revenue
sources in the future. For example, in May 1998 Clearview initiated a children's
party program which is designed to maximize use of its theaters at times when
they otherwise would not be operating. Clearview also rents certain of its
theaters to special interest groups, receiving a fixed payment for the screen
rental and incremental concession income. In addition, the special interest
groups supply the films and pay the film rental costs. With respect to on-screen
advertising, Clearview
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<PAGE> 106
sells advertising space on its screens prior to the exhibition of films in both
slide form, which typically promotes local area businesses, and rolling stock
form, which focuses more on national promotions. The slide and rolling stock
promotions are sold through third parties. Clearview has recently renegotiated
its contracts to increase the rates for slide and rolling stock promotions.
The following table shows Clearview's other revenues for each of the last
three years and for the six months ended June 30, 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------- ENDED
1995 1996 1997 JUNE 30, 1998
------- -------- -------- -------------
<S> <C> <C> <C> <C>
Other Revenues................. $31,895 $141,420 $421,427 $589,520
Other Revenues as a % of Total
Revenues..................... 1.4% 1.7% 2.4% 3.1%
</TABLE>
INDUSTRY OVERVIEW
Theatrical exhibition is the primary initial distribution channel for new
motion picture releases. Clearview believes that the successful theatrical
release of a movie abroad and in "downstream" distribution channels, such as
home video and pay-per-view, network, syndicated and satellite television, is
largely dependent upon its successful theatrical release in the United States.
Clearview further believes that the emergence of new motion picture distribution
channels has not adversely affected attendance at theaters and that these
distribution channels do not provide an experience comparable to the out-of-home
experience of viewing a movie in a theater. Clearview also believes that the
public will continue to recognize the advantages of viewing a movie on a large
screen with superior audio and visual quality, while enjoying a variety of
concessions and sharing the experience with a large audience. In addition, when
compared with other forms of entertainment, such as many sporting events and
cultural events, movies remain one of the best entertainment values for
families.
The theatrical exhibition industry is fragmented. Although the 10 largest
theater circuits operated approximately 60% of the screens at May 1, 1997, 268
of the remaining approximately 478 exhibitors operated four or fewer screens.
From 1987 through 1997, the net number of indoor screens increased from
approximately 21,048 to approximately 30,825. There is a strong trend toward
consolidation in the motion picture exhibition industry. Two recent major
transactions combined Cineplex (approximately 1,729 screens) with Loews Theater
Exhibition Group (approximately 1,020 screens), and combined Act III
(approximately 832 screens) with Regal (approximately 2,337 screens).
The multiplex theater was introduced to the movie going public in the
1960's and multiplexes are now considered the industry standard. The advantages
of a multiplex format include the following: (i) the ability to play a range of
movies to fit the various tastes of the movie-going public; (ii) the ability to
accommodate the expected size of the audience for a particular movie; (iii) the
ability to run a popular movie for a longer period of time and to exhibit newer
films immediately upon their release; and (iv) the ability to show a single film
in two or more auditoriums simultaneously, thereby effectively increasing the
viewing capacity for a popular film.
Revenues for the theatrical exhibition industry are a function of theater
attendance, ticket prices, trends in movie releases and concession sales.
According to data released by the Motion Picture Association of America, overall
movie theater attendance in the United States has grown from 1,089 million in
1987 to 1,388 million in 1997. Clearview believes that the primary reason for
year-to-year variances in attendance is the overall audience appeal of the films
released and, to a lesser extent, general economic conditions. Admissions
revenues increased from a total of approximately $4.3 billion in 1987 to
approximately $6.4 billion in 1997, or a compound annual growth rate of 4.1%.
Over the same period, the average ticket price increased at a compound annual
growth rate of approximately 1.6%, whereas the U. S. Consumer Price Index
increased at a compound annual growth rate of approximately 3.4%. The following
table represents the results of a survey by
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<PAGE> 107
the Motion Picture Association of America outlining the historical trends in U.
S. theater attendance, average ticket prices and box office sales for the last
eleven years.
<TABLE>
<CAPTION>
YEAR ATTENDANCE AVERAGE TICKET PRICE U.S. BOX OFFICE SALES
- ---- ---------- -------------------- ---------------------
(MILLIONS) (DOLLARS IN BILLIONS)
<S> <C> <C> <C>
1987.. 1,089 3.91 4.25
1988.. 1,085 4.11 4.46
1989.. 1,263 3.99 5.03
1990.. 1,189 4.23 5.02
1991.. 1,141 4.21 4.80
1992.. 1,173 4.15 4.87
1993.. 1,244 4.14 5.15
1994.. 1,292 4.18 5.40
1995.. 1,263 4.35 5.49
1996.. 1,339 4.42 5.91
1997.. 1,388 4.59 6.37
</TABLE>
- ---------------
Sources: MPAA; 1989-1997 figures for attendance and average ticket prices based
on Ernst & Young survey; previous years based on CPI-W index.
From 1987 to 1997, the number of movies released remained relatively
constant, and Clearview expects that trend to continue, with some annual
variability. Clearview also believes that movies generally are being released to
a wider number of screens as studios seek to recover higher costs. Historically,
the motion picture industry was somewhat seasonal, as major film distributors
generally released the films expected to have the greatest commercial appeal
during the summer and during the Thanksgiving through year-end holiday season.
The seasonality of motion picture exhibition has become less pronounced in
recent years as studios have begun to release major motion pictures somewhat
more evenly throughout the year.
Clearview believes that certain demographic trends favor the theater
exhibition industry. Information obtained from the U.S. Bureau of Census
indicates that the number of 10 to 20 year olds in the United States, the
largest movie-going segment of the population, was projected to grow an
aggregate of 5.8% from 1996 through the year 2000. Furthermore, of particular
significance for Clearview's target audiences, according to the Motion Picture
Association of America, the number of patrons over 40 years old as a percentage
of the total movie audience has increased from approximately 20% in 1987 to
approximately 33% in 1997. According to American Demographics, film attendance
by the age groups 45-54 and 55-64 is expected to grow 14.5% and 12.2%,
respectively, in years 1996-2000 and 14.1% and 28.5% in years 2000-2006. Also
according to American Demographics, based on 1996 data, the percentage of adults
who attend movies at least once a month rises with household income.
COMPETITION
The motion picture exhibition industry is highly competitive, particularly
with respect to licensing films, attracting patrons and acquiring or developing
theaters to operate. Clearview's theaters compete with theaters operated by
national and regional circuits and by smaller independent exhibitors. Clearview
believes that the principal competitive factors with respect to film licensing
include licensing terms, seating capacity, location and reputation of an
exhibitor's theaters, quality of projection and sound equipment at an
exhibitor's theaters and an exhibitor's ability and willingness to promote
films. Competition for patrons is dependent upon factors such as the
availability of popular films, the location of theaters, the comfort and quality
of theaters and ticket prices. Clearview believes that it competes favorably
with respect to each of these factors.
There were approximately 489 domestic motion picture exhibitors as of May
1, 1997. Motion picture exhibitors vary substantially in size, from small
independent operators of single-screen theaters to large national chains of
multi-screen theaters. Many of Clearview's larger competitors have been in
existence significantly longer than Clearview and may be better established in
the markets where Clearview's theaters
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<PAGE> 108
are, or may in the future be, located. Certain of Clearview's larger competitors
have sought to increase the number of theaters and screens in operation in
particular markets. Such increases may cause those markets or portions of those
markets to become overscreened, which could negatively impact the earnings of
Clearview's theaters, if any, in those markets.
Clearview analyzes the level of competition in a geographic area prior to,
and in the early stages of, the negotiation of any development or acquisition of
a theater. This analysis is critical, as many of Clearview's potential theater
locations are in well-established communities that have previously experienced
the building of large out-of-town multiplexes and the addition of screens to
in-town theaters.
Clearview's theaters also face competition from a number of other
motion-picture delivery systems, such as cable television, direct satellite
delivery, video cassettes and pay-per-view television. The impact of such
delivery systems on the motion picture exhibition industry is difficult to
determine precisely, and there can be no assurance that existing or future
delivery systems will not have an adverse impact on attendance at movie
theaters. Clearview, however, believes that the public will continue to
recognize the advantages of viewing a movie on a large screen with superior
audio-visual quality as a shared experience in a public forum and that
alternative delivery systems do not provide an experience comparable to the
out-of-home entertainment experience of attending a movie in a theater.
Clearview believes that movie theaters also face competition from other forms of
outside-the-home entertainment that compete for the public's leisure time and
disposable income. Clearview believes that movie exhibition is priced
competitively relative to other out-of-home entertainment options, such as music
concerts, sporting events and live theater.
EMPLOYEES
As of June 30, 1998, Clearview had 960 employees, of whom 22 were employed
at the corporate headquarters, 6 were district managers, 15 were salaried
theater managers and 917 were hourly employees, including 205 theater managers
and/or projectionists. Clearview employs one primary manager and one or more
relief managers at each of its theaters. In most of its theaters, each shift
(which is five to six hours) has a manager and a projectionist or a single
manager/projectionist. Generally, the theater manager serves as the
projectionist if the applicable theater has four or fewer screens. In the larger
theaters there are separate managers and projectionists. In addition,
Clearview's six district managers, each of whom also manages a theater within
his district, have certain supervisory obligations. Clearview has entered into
an agreement with the International Alliance of Theatrical Stage Employees union
that provides for a skilled projectionist for every shift at a substantial
number of its theaters. Clearview believes that it has a positive working
relationship with the union.
REGULATORY ENVIRONMENT
The distribution of motion pictures is in large part regulated by U.S.
federal and state antitrust laws and has been the subject of numerous antitrust
cases. Clearview has never been a party to any of such cases or the resulting
decrees, but its licensing operations are subject to those decrees. The consent
decrees resulting from such cases bind certain major motion picture distributors
and require the films of those distributors to be offered and licensed to
exhibitors, including Clearview, on a film-by-film and theater-by-theater basis.
Consequently, exhibitors such as Clearview cannot assure themselves of a supply
of films by entering into long-term arrangements with major distributors, but
must negotiate for licenses on a film-by-film and theater-by-theater basis.
The U.S. Americans With Disabilities Act (the "Disabilities Act") prohibits
discrimination on the basis of disability in public accommodations and
employment. The Disabilities Act became effective as to public accommodations in
January 1992 and as to employment in July 1992. Clearview will have new theaters
constructed to be accessible to the disabled and believes that it is otherwise
in substantial compliance with all current applicable regulations relating to
accommodations for the disabled. Clearview intends to comply with any future
regulations relating to accommodating the needs of the disabled, and Clearview
currently does not anticipate that such compliance will require Clearview to
expend substantial funds.
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<PAGE> 109
Clearview's theater operations are also subject to U.S. federal, state and
local laws governing such matters as wages and working conditions, health and
sanitation requirements and licensing. A significant portion of Clearview's
employees are paid just above the federal minimum wage and, accordingly, further
increases in that minimum wage could increase Clearview's labor costs.
In connection with the construction, renovation and operation of its
theaters, Clearview and its contractors and landlords are required to obtain
proper building and operating permits and to comply with the other requirements
of local zoning and other laws and regulations. Clearview does not anticipate
that compliance with such laws and regulations will have a material adverse
effect on its business.
CLEARVIEW PROPERTIES
Clearview leases or otherwise operates under contract all of its theaters
other than ten theaters located in Livingston, Millburn, Tenafly and
Bergenfield, New Jersey, and Bronxville, Mamaroneck, New City, Manhasset,
Babylon and Roslyn, New York. Those ten theaters are owned by Clearview. The
theaters located in Baldwin, New Hyde Park and Port Washington, New York are
being operated under agreements pursuant to which Clearview pays rent to the
landlords and has the right to acquire the underlying leaseholds and theater
operations upon payment of an amount to be calculated based on the operating
cash flow of the theaters. This option will expire in September 2000 if not
exercised, and Clearview's right to lease the theaters would terminate in such
event. For a discussion of the Long Island Purchase, see "-- Recent Financing
Transactions."
When Clearview develops a theater or negotiates directly with a landlord,
the term of the relevant lease, including all renewal options, is usually more
than 25 years. If a lease is acquired from an exhibitor, typically the lease is
assigned to Clearview and still has a substantial term. Most of Clearview's
current leases have terms, including all renewal options, of at least ten years
and provide for periodic rent increases. Only one theater that is leased by
Clearview has a lease that expires in the next five years under which Clearview
does not have one or more renewal options or an option to purchase the theater,
and that theater is not material to Clearview's business and future operations.
All of Clearview's landlords are unaffiliated third parties. As of June 30,
1998, the aggregate annual minimum lease payments for all of Clearview's
theaters over the next five years are as follows: 1998: $4,086,000;1999:
$4,385,000; 2000: $4,334,000; 2001: $4,144,000; and 2002: $4,205,000. After
giving effect to the Subsequent Acquisitions, such aggregate annual minimum
lease payments would be: 1998: $3,991,672; 1999: $4,290,069; 2,000: $4,239,306;
2001: $4,049,198; and 2002: $4,109,480.
Clearview's corporate office is located in approximately 4,000 square feet
of space in Chatham, New Jersey, and is subject to a lease agreement, the term
of which expires on December 31, 2002.
CLEARVIEW LEGAL PROCEEDINGS
From time to time Clearview is involved in litigation in the ordinary
course of its business. Currently, Clearview does not have pending any
litigation that management believes would have a material adverse effect upon
Clearview.
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CLEARVIEW MANAGEMENT
EXECUTIVE OFFICERS
Set forth below is certain information concerning Clearview's executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
A. Dale Mayo 57 Chairman of the Board, President,
Chief Executive Officer and
Director
Paul Kay 57 Senior Vice President--Operations
Craig L. Zeltner 47 Vice President--Film, and
President--Cinema Services
Division
Sueanne Hall Mayo 51 Vice President--Management
Information Systems,
Assistant Secretary and Director
Joan M. Romine 47 Vice President -- Finance, Chief
Financial Officer and Treasurer
Robert D. Lister 29 Vice President, General Counsel
and Secretary
</TABLE>
A. Dale Mayo has been the Chairman of the Board, President and Chief
Executive Officer and a director of Clearview since its incorporation in 1994.
He was the President of Clearview Cinema Corp. from 1987 to 1993. Mr. Mayo
founded and was President of Clearview Leasing Corporation, a lessor of computer
peripherals for larger scale computer systems, from 1981 to 1987. Mr. Mayo is a
member of the Foundation of Motion Picture Pioneers and the Motion Picture Club.
He is the spouse of Sueanne Hall Mayo. Mr. Mayo is a Class III Common Director,
with a term expiring in 2000.
Clearview Cinema Corp. was formed in 1987 by Mr. Mayo and two other persons
to operate one theater and it acquired an additional three theaters over the
next several years. It was sold in 1993, after Mr. Mayo and his then-partners
were unable to agree on its future, with Mr. Mayo retaining the rights to the
Clearview name and trademark and one of those theaters through 1994.
Paul Kay was appointed Senior Vice President--Operations on February 23,
1998 and had been the Vice President--Operations of Clearview since its
incorporation. He was the vice president and general manager of Clearview Cinema
Corp. from 1987 to 1993. Prior to joining Clearview, Mr. Kay was an independent
theater owner and had held various management positions with Universal Pictures
and Paramount Pictures. Mr. Kay has over 30 years of experience in the film
industry.
Craig Zeltner was appointed Vice President--Film and President of
Clearview's Cinema Services Division on February 23, 1998. Prior to joining
Clearview, Mr. Zeltner was the President of Cinema Services, Inc., an
independent film buying service, for more than 20 years. Prior to that, Mr.
Zeltner held various positions as a film buyer and in the advertising and
publicity divisions of Loew's Theater, Esquire Theaters and Mid-States Theaters.
Sueanne Hall Mayo has been the Vice President--Management Information
Systems and Assistant Secretary of Clearview since 1997, and a director of
Clearview since its incorporation. She joined Clearview in 1994 as its Vice
President--Finance and Treasurer. Ms. Mayo was the Treasurer of Clearview Cinema
Corp. from 1987 to 1993. Ms. Mayo has more than 25 years of experience in
computerized accounting systems. She is married to A. Dale Mayo. Ms. Mayo is a
Class II Common Director, with a term expiring in 1999.
Joan M. Romine has been the Treasurer and Chief Financial Officer of
Clearview since 1997 and Vice-President -- Finance since September 1998. Prior
to joining Clearview in 1996 as its Controller, she was the Controller of Magic
Cinemas, L.L.C. from 1995 through 1996 and Controller and Treasurer of Hanita
Cutting Tools, Inc., a U.S. subsidiary of an international metalworking company,
from 1988 through 1994.
Robert D. Lister has been the General Counsel and Secretary of Clearview
since March 1998 and a Vice-President since September 1998. From September 1993
through March 1996, Mr. Lister was an attorney with Kelley Drye & Warren, a New
York law firm, and served as associate general counsel of Merit Behavioral Care
Corporation, a behavioral healthcare company, from March 1996 until his
employment by Clearview.
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<PAGE> 111
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
Clearview's Chairman of the Board, President and Chief Executive Officer, the
only executive officer of Clearview whose annual salary and bonus exceeded
$100,000 during Fiscal 1997.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for each of the two
fiscal years ended December 31, 1997 for Clearview's Chief Executive Officer.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
----------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------------------------- UNDERLYING
NAME AND OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION (1) YEAR SALARY ($) BONUS ($) COMPENSATION($) (3) COMPENSATION($)
---------------------- ---- ---------- --------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
A. Dale Mayo(2) 1997 120,000 104,500 -- 50,000 --
Chairman of the Board, 1996 99,167 37,371 -- -- --
Chief Executive Officer and
President
</TABLE>
- ---------------
(1) No other officer earned more than $100,000 in total annual salary and bonus
for either of the two fiscal years ended December 31, 1997.
(2) Since May 29, 1996, Mr. Mayo's compensation has been determined in
accordance with his employment agreement (as described below). Prior to that
date, Mr. Mayo's annual compensation was equal to 2% of the first $5,000,000
in gross revenues of Clearview, plus 1% of gross revenues in excess of
$5,000,000.
(3) Represents options granted pursuant to Clearview's 1997 Stock Incentive
Plan.
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth information with respect to stock options
granted to Mr. Mayo during Fiscal 1997 under Clearview's 1997 Stock Incentive
Plan. The options listed below are included in the Summary Compensation Table
above.
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
GRANTED TO
NUMBER OF SECURITIES EMPLOYEES IN EXERCISE
UNDERLYING OPTIONS FISCAL PRICE EXPIRATION
NAME GRANTED(1) YEAR ($/SH) DATE
---- -------------------- ------------------ -------- ----------
<S> <C> <C> <C> <C>
A. Dale Mayo 50,000 40.8% 8.00 8/18/2007
</TABLE>
- ---------------
(1) The options were granted under Clearview's 1997 Stock Incentive Plan. The
exercise price of the options was set at 100% of the fair market value of
the shares on the date of grant. The options have a ten-year term and become
exercisable over four years from the date of grant in installments of 5,000,
12,500, 15,000 and 17,500 shares, respectively, subject to earlier vesting
or termination in certain circumstances. In the event of a change in control
(as defined in the 1997 Stock Incentive Plan), options become fully
exercisable. The options will remain exercisable for one year following a
termination of employment by reason of death, disability or retirement but
will expire on the date of termination for any other reason. The exercise
price may be paid by delivery of cash or shares owned for more than six
months, and any income tax obligations related to exercise may be satisfied
by surrender of shares received upon exercise, subject to certain
conditions.
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<PAGE> 112
The table below sets forth information with respect to the number of
unexercised options held by Mr. Mayo on December 31, 1997 on a pre-tax basis.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END ($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------------- -------------------------
<S> <C> <C>
A. Dale Mayo -0-/50,000 -0-/162,500
</TABLE>
- ---------------
(1) Computed as the difference between the aggregate fair market value of
the Shares subject to the options on December 31, 1997, based on the
closing price of the Shares on the ASE on that date, and the aggregate
exercise price of the options.
EMPLOYMENT AGREEMENT
Pursuant to an employment agreement by and between Clearview and Mr. Mayo
dated May 29, 1996 (the "Prior Employment Agreement"), Mr. Mayo has agreed to
serve as Chairman of the Board, President and Chief Executive Officer of
Clearview. As compensation, Mr. Mayo is to receive an annual base salary of not
less than $120,000, plus an annual bonus equal to one percent of Clearview's
annual gross revenues in excess of $7,000,000; provided, however, that such
total compensation may not exceed $750,000 in any one year. The initial term of
the Prior Employment Agreement expires on May 29, 2003. Thereafter, the term of
the Prior Employment Agreement will be automatically extended for successive
one-year periods ending on May 29 of each year, unless terminated by either
party upon at least six months' advance notice. The Prior Employment Agreement
also provides that, for a period of three years after its termination, Mr. Mayo
may not, directly or indirectly, engage, have a financial interest in or become
interested in any other businesses similar to or in competition with Clearview
within a 50 mile radius of any theater owned or operated by Clearview as of the
date of that termination.
CERTAIN TRANSACTIONS
Pursuant to a Contribution and Exchange Agreement dated December 21, 1994,
Clearview issued to Mr. Mayo and Brett E. Marks 330,000 and 120,000 Shares,
respectively, in exchange for (i) all of the outstanding shares of capital stock
of Clearview Theater Group, Inc., CCC Madison Triple Cinema Corp., CCC Chester
Twin Cinema Corporation and CCC Manasquan Cinema Corporation (collectively, the
"CTG Theaters") and (ii) promissory notes of certain of the CTG Theaters with an
aggregate principal amount of $250,000. The principal assets of the CTG Theaters
were the leases for Clearview's existing movie theaters in Bernardsville,
Chester, Madison and Manasquan, New Jersey and the related leasehold
improvements and equipment. Concurrent with that contribution and pursuant to an
Investment and Stockholders Agreement dated December 21, 1994, Clearview sold
150,000 Shares to CMNY Capital II, L.P. ("CMNY") for an aggregate purchase price
of $500,000 in cash.
Mr. Mayo had formed CCC Chester Twin Cinema Corporation in August 1993 to
be the lessee of the Chester Twin Theater. In September 1993, as part of the
consideration for the sale of Clearview Cinema Corp., Mayo acquired the capital
stock of Clearview Theater Group, Inc. The terms of that sale were negotiated at
arm's length between the owners of Clearview Cinema Corp. and the purchaser. In
February 1994, Mr. Mayo had sold to Mr. Marks 49% of the capital stock of CCC
Madison Triple Cinema Corp. and of CCC Chester Twin Cinema Corporation for
$10,000 and $5,000, respectively. Simultaneously, Mr. Marks had loaned CCC
Madison Triple Cinema Corp. $125,000 and received a promissory note in exchange.
In May 1994, Mr. Mayo had formed CCC Manasquan Cinema Corporation to be the
lessee of the Algonquin Theater in Manasquan, New Jersey.
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<PAGE> 113
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Shares as of
October 16, 1998 by each beneficial owner of more than 5% of the outstanding
Shares, each director, and all of Clearview's directors and executive officers
as a group. All of the Class A Preferred Shares are owned by MidMark. All of the
Class C Preferred Shares are owned by Marshall Capital Management, Inc., an
affiliate of CSFB. Unless otherwise indicated, the holders of all Shares shown
in the table have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
---------------------
NAME AND ADDRESS(1) NUMBER PERCENT
------------------- ---------- -------
<S> <C> <C>
A. Dale Mayo(2) 881,802 38.3%
MidMark Capital, L.P.(3) 527,400 19.0%
CMNY Capital II, L.P.(4) 184,080 8.0%
Marshall Capital Management, Inc.(5) 156,437 6.4%
Wayne L. Clevenger(3)(6) 527,400 19.0%
Robert G. Davidoff(5)(7) 216,000 9.4%
Philip M. Getter(8) -- --
Brett E. Marks(2)(9) 118,600 5.1%
Denis Newman(3)(6) 527,400 19.0%
Susanne Hall Mayo(10) -- --
All directors and executive officers as a group(2) 1,630,202 58.8%
</TABLE>
- ---------------
(1) The address of each person set forth above is 97 Main Street, Chatham, New
Jersey 07928, except as otherwise noted.
(2) Includes 5,000 Shares subject to options that are exercisable within 60
days of the date of the table set forth above. Mr. Mayo owns directly
316,000 Shares. The other 560,802 Shares are owned by other stockholders of
Clearview, including Mr. Marks, subject to voting trust agreements for
which Mr. Mayo is the trustee. Under those agreements, Mr. Mayo has the
right to exercise all voting rights with respect to those shares for a
period of 20 years or until they are sold in a public offering under the
Securities Act or in accordance with Rule 144 under the Securities Act.
(3) The address for MidMark and Messrs. Clevenger and Newman is c/o MidMark
Associates, Inc., 466 Southern Boulevard, Chatham, New Jersey 07928.
MidMark beneficially owns 527,400 Shares by means of its ownership of (i)
60,000 Shares and (ii) 779 shares of Class A Preferred Shares, which
represent all of the outstanding Class A Preferred Shares, and which are
convertible into 467,400 Shares.
(4) The address for CMNY and Mr. Davidoff is c/o Carl Marks & Co., Inc., 135
East 57th Street, New York, New York 10022.
(5) Represents the Shares into which the Class C Preferred Shares were
convertible at June 30, 1998. The address for Marshall Capital Management,
Inc. is 11 Madison Avenue, New York, New York 10010.
(6) Comprises the shares owned by MidMark. Both Mr. Clevenger and Mr. Newman
disclaim beneficial ownership of the Shares beneficially owned by MidMark.
(7) Includes 184,080 Shares owned by CMNY and 15,960 Shares owned by CMCO. Mr.
Davidoff disclaims beneficial ownership of the Shares owned by either CMNY
or CMCO.
(8) The address for Philip M. Getter is 810 Seventh Avenue, 9th Floor, New
York, New York 10019.
(9) Includes 1,000 Shares subject to options that are exercisable within 60
days of the date of the table set forth above. The address for Mr. Marks is
c/o First New York, 310 Madison Avenue, New York, New York 10017.
(10) Ms. Mayo disclaims beneficial ownership of all of the Shares beneficially
owned by Mr. Mayo.
97
<PAGE> 114
EXPERTS
The consolidated balance sheet of Cablevision as of December 31, 1997, and
the consolidated financial statements and schedule of CSC Holdings as of
December 31, 1997 and 1996, and for each of the years in the three-year period
ended December 31, 1997 that are included in the Cablevision Form 10-K which is
incorporated by reference in this Proxy Statement/Prospectus have been audited
by KPMG Peat Marwick, independent accountants, as set forth in their reports
thereon, which are incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such reports
and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Clearview and its subsidiaries as
of December 31, 1997 and for the year then ended included in this Proxy
Statement/Prospectus have been audited by PricewaterhouseCoopers, independent
accountants, as stated in their report appearing herein.
The consolidated financial statements of Clearview and its subsidiaries as
of December 31, 1996 and for each of the two years in the period then ended, the
combined financial statements of the UA I Theaters as of December 31, 1996 and
for each of the two years in the period then ended, the combined financial
statements of the Nelson Ferman Theaters as of September 30, 1997 and for the
nine months then ended and the year ended December 31, 1996, and the combined
financial statements of the CJM Theaters as of September 30, 1997 and for the
nine months then ended and for the year ended December 31, 1996 have been
audited by Wiss & Company, independent auditors, as set forth in their
respective reports appearing herein.
VALIDITY OF CABLEVISION CLASS A COMMON STOCK
The validity of the Cablevision Class A Common Stock to be issued pursuant
to the Merger will be passed upon for Cablevision by Robert S. Lemle, Executive
Vice President, General Counsel and Secretary of Cablevision. As of the date of
this Proxy Statement/Prospectus, Mr. Lemle owned less than 1% of the shares
(including options representing certain rights to purchase shares) of
Cablevision Class A Common Stock.
STOCKHOLDER PROPOSALS
In the event that the Merger is not approved pursuant to the terms of the
Merger Agreement, the date by which stockholder proposals are required to have
been received by Clearview for inclusion in the proxy materials relating to the
1999 annual meeting of stockholders of Clearview is January 1, 1999.
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<PAGE> 115
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CLEARVIEW CINEMA GROUP, INC.
Consolidated Balance Sheets as of December 31, 1997 and
June 30, 1998.......................................... F-2
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1997 and 1998................ F-3
Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1998................. F-4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1998........................... F-5
Notes to Consolidated Financial Information............... F-6
CLEARVIEW CINEMA GROUP, INC.
Report of Independent Accountants (PricewaterhouseCoopers
LLP)................................................... F-13
Independent Auditors' Report (Wiss & Company, LLP)........ F-14
Consolidated Balance Sheet as of December 31, 1996 and
1997................................................... F-15
Consolidated Statement of Operations for the Years Ended
December 31, 1995, 1996 and 1997....................... F-16
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1996 and
1997................................................... F-17
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997....................... F-18
Notes to Consolidated Financial Statements................ F-19
THEATERS ACQUIRED FROM UNITED ARTISTS
Independent Auditors' Report (Wiss & Company, LLP)........ F-33
Combined Balance Sheets at December 31, 1996 and March 31,
1997 (unaudited)....................................... F-34
Combined Statements of Income and Divisional Equity for
the Years Ended December 31, 1995 and 1996 and the
Three Months Ended March 31, 1996 and 1997
(unaudited)............................................ F-35
Combined Statements of Cash Flows for the Years Ended
December 31, 1995 and 1996 and the Three Months Ended
March 31, 1996 and 1997 (unaudited).................... F-36
Notes to Combined Financial Statements.................... F-37
THEATERS ACQUIRED FROM NELSON FERMAN THEATERS AT PARSIPPANY
AND ROXBURY
Independent Auditors' Report (Wiss & Company, LLP)........ F-40
Combined Balance Sheet at September 30, 1997.............. F-41
Combined Statements of Income and Changes in Retained
Earnings for the Year Ended December 31, 1996 and the
Nine Months Ended September 30, 1997................... F-42
Combined Statements of Cash Flows for the Year Ended
December 31, 1996 and Nine Months Ended September 30,
1997................................................... F-43
Notes to Combined Financial Statements.................... F-44
THEATERS ACQUIRED FROM CJM THEATERS AT KIN-MALL,
MIDDLEBROOK, CEDAR GROVE AND BELLEVUE
Independent Auditors' Report (Wiss & Company, LLP)........ F-47
Combined Balance Sheet, September 30, 1997................ F-48
Combined Statements of Income and Changes in Retained
Earnings for the Year Ended December 31, 1996 and the
Nine Months Ended September 30, 1997................... F-49
Combined Statements of Cash Flow for the Year Ended
December 31, 1996 and the Nine Months Ended September
30, 1997............................................... F-50
Notes to Combined Financial Statements.................... F-51
</TABLE>
F-1
<PAGE> 116
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 1,647,176 $21,239,630
Inventories............................................... 116,655 187,087
Other current assets...................................... 341,273 559,211
----------- -----------
Total current assets.............................. 2,105,104 21,985,928
Property, Equipment and Leaseholds, Net..................... 34,488,714 41,282,655
Intangible assets, net...................................... 19,931,555 33,199,903
Other non-current assets.................................... 827,019 804,712
----------- -----------
$57,352,392 $97,273,198
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 2,876,607 $ --
Accounts payable and accrued expenses..................... 4,562,633 6,283,167
----------- -----------
Total current liabilities......................... 7,439,240 6,283,167
Long-term debt, less current maturities..................... 32,234,955 80,000,000
Subordinated notes payable -- long term..................... 6,000,000 --
Commitments and Contingencies (Note 7)
Class B Redeemable Preferred Stock.......................... 1,350,000 750,000
Stockholders' Equity:
Undesignated preferred stock:
2,475,697 shares authorized............................ -- --
Class A Preferred Stock, par value $.01, 1,303 shares
authorized; 779 shares issued and outstanding.......... 8 8
Class C Preferred Stock, par value $.01, 3,000 shares
authorized; 3,000 shares issued and outstanding........ -- 30
Common Stock, par value $.01, 10,000,000 shares
authorized; 2,213,097 and 2,304,802 shares issued and
outstanding............................................ 22,131 23,048
Additional paid-in capital................................ 12,214,515 18,230,563
Accumulated deficit....................................... (1,908,457) (8,013,618)
----------- -----------
Total stockholders' equity........................ 10,328,197 10,240,031
----------- -----------
$57,352,392 $97,273,198
=========== ===========
</TABLE>
See accompanying notes to consolidated financial information.
F-2
<PAGE> 117
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1997 1998 1997 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
THEATER REVENUES:
Box office...................................... $1,996,644 $ 6,567,730 $4,708,854 $13,644,849
Concession...................................... 593,835 2,307,209 1,337,821 4,591,268
Other........................................... 91,396 269,889 141,135 589,520
---------- ----------- ---------- -----------
2,681,875 9,144,828 6,187,810 18,825,637
---------- ----------- ---------- -----------
OPERATING EXPENSES:
Film rental..................................... 992,574 3,469,187 2,188,700 6,529,384
Cost of concession sales........................ 106,029 302,683 221,278 660,148
Theater operating expenses...................... 1,228,805 3,685,008 2,448,960 7,140,267
General and administrative expenses............. 212,912 659,720 404,718 1,669,519
Depreciation and amortization................... 384,696 1,619,943 797,707 2,882,568
---------- ----------- ---------- -----------
2,925,016 9,736,541 6,061,363 18,881,886
---------- ----------- ---------- -----------
OPERATING (LOSS) INCOME........................... (243,141) (591,713) 126,447 (56,249)
Interest expense, net............................. 365,180 1,465,601 724,146 2,626,348
---------- ----------- ---------- -----------
LOSS BEFORE EXTRAORDINARY ITEM.................... (608,321) (2,057,314) (597,699) (2,682,597)
Extraordinary item -- loss on redemption of
debt............................................ -- (2,029,649) -- (2,029,649)
---------- ----------- ---------- -----------
NET LOSS.......................................... (608,321) (4,086,963) (597,699) (4,712,246)
Preferred Stock Dividends......................... -- (1,362,990) -- (1,392,915)
---------- ----------- ---------- -----------
LOSS AVAILABLE FOR COMMON STOCK................... $ (608,321) $(5,449,953) $ (597,699) $(6,105,161)
========== =========== ========== ===========
BASIC AND DILUTED LOSS PER SHARE.................. $ (0.34) $ (2.39) $ (0.33) $ (2.71)
========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial information.
F-3
<PAGE> 118
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS C
PREFERRED STOCK COMMON STOCK PREFERRED STOCK ADDITIONAL
--------------- ------------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ --------- ------- ------ ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997:... 779 $8 2,213,097 $22,131 -- -- $12,214,515 $(1,908,457) $10,328,197
Issuance of common stock
for assets acquired....... -- -- 91,705 917 -- -- 1,747,083 -- 1,748,000
Issuance of preferred
stock..................... -- -- 3,000 $30 2,973,727 -- 2,973,757
Preferred stock dividend.... -- -- -- -- -- -- 1,295,238 (1,392,915) (97,677)
Net loss.................... -- -- -- -- -- -- -- (4,712,246) (4,712,246)
--- -- --------- ------- ----- --- ----------- ----------- -----------
BALANCE, JUNE 30, 1998........ 779 $8 2,304,802 23,048 3,000 $30 $18,230,563 $(8,013,618) $10,240,031
=== == ========= ======= ===== === =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial information.
F-4
<PAGE> 119
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (597,699) $ (4,712,246)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization of property, equipment
and leaseholds....................................... 705,071 1,945,546
Amortization of intangible assets...................... 92,636 937,022
Amortization of debt discount and issuance costs....... 87,649 179,607
Extraordinary loss from early extinguishment of debt... -- 2,029,649
Changes in operating assets and liabilities:
Inventories.......................................... (3,908) (70,432)
Other current assets................................. (125,005) (217,938)
Other non-current assets............................. 769 (46,821)
Accounts payable and accrued expenses................ 378,013 1,671,097
----------- ------------
Net cash provided by operating activities......... 537,526 1,715,484
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase and construction of property, equipment and
leaseholds............................................. (1,392,692) (2,871,487)
Acquisitions of theaters.................................. -- (15,025,000)
Acquisition costs......................................... (101,036) (231,171)
----------- ------------
Net cash used in investing activities............. (1,493,728) (18,127,658)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long term debt.................. 1,550,000 85,800,000
Payments on long term debt................................ (423,621) (47,154,291)
Prepayment premium on long term debt repaid............... -- (410,000)
Debt issuance costs....................................... -- (4,556,598)
Deferred offering costs................................... (163,285) --
Redemption of class B preferred stock..................... -- (600,000)
Proceeds from issuance of class C preferred stock......... -- 3,000,000
Preferred stock issuance costs............................ -- (26,243)
Preferred stock dividends paid............................ -- (48,240)
----------- ------------
Net cash provided by financing activities......... 963,094 36,004,628
----------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 6,892 19,592,454
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 751,345 1,647,176
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 758,237 $ 21,239,630
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 577,080 $ 2,432,164
=========== ============
Non-cash investing and financing activities:
Issuance of common stock as consideration for theater
and assets acquired.................................. $ -- $ 1,748,000
=========== ============
Warrants repurchased through issuance of debt.......... $ 1,000,000 $ --
=========== ============
</TABLE>
See accompanying notes to consolidated financial information.
F-5
<PAGE> 120
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
NOTE 1 -- BASIS OF PRESENTATION
The balance sheet as of December 31, 1997 has been derived from the audited
balance sheet contained in the Form 10-KSB of Clearview Cinema Group, Inc. (the
"Company"), and is presented for comparative purposes. All other financial
information is unaudited. In the opinion of management, all adjustments, which
include only normal recurring adjustments necessary to present fairly the
financial position, results of operations and cash flows for all periods
presented, have been made. Results of operations for interim periods are not
necessarily indicative of the operating results for a full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. The financial information presented in this report should
be read in conjunction with the annual financial statements included in the
Annual Report on Form 10-KSB.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 128, Earnings Per Share ("SFAS 128") which is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. The Company adopted SFAS 128 in the fourth quarter of
1997. SFAS 128 replaces the presentation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Basic earnings per share is
calculated based on the weighted average number of common shares outstanding
during the period and excludes all dilution. Diluted earnings per share is
calculated by using the weighted average number of common shares outstanding,
while also giving effect to all dilutive potential common shares that were
outstanding during the period. Prior period amounts have been restated to
conform to the requirements of SFAS 128.
For the three and six months ended June 30, 1998, the net loss available to
common stockholders was $5,449,953 and $6,105,161, respectively after giving
effect to the preferred stock dividend. For the three and six months ended June
30, 1997, the net loss available to common stockholders (no preferred dividend
was applicable for the 1997 periods) was $608,321 and $597,699, respectively.
For the three and six months ended June 30, 1998 the weighted average number of
shares outstanding used in the computation of basic and diluted loss per share
was 2,280,288 and 2,250,717, respectively. For the three and six months ended
June 30, 1997, the weighted average number of shares outstanding used in the
computation of basic and diluted loss per share was 1,797,000.
Reclassification -- Certain amounts previously reported have been
reclassified to conform to current period presentation.
NOTE 2 -- STOCK BASED COMPENSATION
At the June 11, 1998 Annual Meeting of Stockholders, the shares of common
stock that are authorized to be issued under the 1997 Stock Incentive Plan ("the
Plan") was increased from 200,000 to 450,000. During the three and six months
ended June 30, 1998 the Company granted stock options to purchase 101,000 and
162,000 shares of common stock, respectively, under the Plan with exercise
prices equal to the closing quoted market price of the Company's common stock on
the date of grant. In accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", no compensation costs have been
recognized as the options had no intrinsic value (exercise price equaled fair
value of common stock) on the dates of issuance. Awards granted under the Plan
become fully vested upon a change in control of the Company (see Note 8).
NOTE 3 -- LONG-TERM DEBT AND SUBORDINATED NOTES PAYABLE
In February 1998, the Company amended and restated its then-existing Credit
Facility (the "Old Credit Facility") by obtaining a third term note ("Term Note
C") totaling $5.8 million which was used to acquire four additional theaters.
F-6
<PAGE> 121
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
In June 1998, the Company completed an offering of Senior Notes (the
"Notes") for $80.0 million (approximately $76.1 million after issuance costs and
related fees). The Notes mature on June 1, 2008 and bear interest at a fixed
rate of 10.875%, payable semiannually on June 1 and December 1, commencing on
December 1, 1998. At any time prior to June 1, 2001, the Company may on any one
or more occasions redeem up to 33% of the aggregate principal amount of Notes at
a redemption price of 110.875% of the principal amount thereof, with the net
cash proceeds of a public offering of common stock of the Company or the net
cash proceeds from a strategic equity investment in the Company, provided that,
among other things, at least $53.3 million in the aggregate principal amount of
the Notes remains outstanding immediately after such redemption. After June 1,
2003 the Notes are subject to redemption at any time at the option of the
Company, at specified redemption prices. Upon a change of control of the
Company, each holder of the Notes shall have the right to require the Company to
repurchase all or any part of such holder's Notes at an offer price equal to
101% of the aggregate principal amount thereof. The Notes also stipulate that
the holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes due and payable immediately upon the occurrence of
certain events of default, such as default in payment of principal and interest
when due, default under other agreements relating to indebtedness individually
or in the aggregate exceeding $5 million and failure to comply with the
covenants and other provisions of the Notes agreement. The Notes further provide
that if any event of default occurs prior to June 1, 2003 and is due to any
willful action or inaction taken or not taken by the Company with the intention
of avoiding the prohibition on redemption of certain portions of the Notes prior
to June 1, 2003, then the Notes shall become immediately due and payable at a
specified premium, ranging from 107.25% to 110.875% of the principal amount
depending on the date the event of default occurs. The Notes impose various
restrictive covenants, including restrictions on the payment of dividends, the
incurrence of additional indebtedness, the entering into of certain transactions
and the issuance of preferred stock in certain circumstances.
Concurrent with the closing of the Notes offering, the Company repaid the
borrowings under the Old Credit Facility ($41.1 million, including accrued
interest and a prepayment premium) and entered into a New Credit Facility with
the same institution, which provides for a secured revolving line of credit in
the aggregate principal amount of $15.0 million. The New Credit Facility bears
interest at the prime rate (8.50% at June 30, 1998) with all outstanding
indebtedness repayable on the fifth anniversary of the closing of the New Credit
Facility. The New Credit Facility is collateralized by substantially all of the
assets of the Company and contains various restrictive covenants including
minimum interest and debt service coverage ratios, restrictions on the payment
of dividends (except on the Class B Preferred Stock and Class C Preferred Stock
now outstanding), restrictions on payments to purchase, redeem or otherwise
acquire or retire for value any shares or rights to acquire shares of the
Company's capital stock and subordinated indebtedness (except the Class B
Preferred Stock, Class C Preferred Stock and any subordinated indebtedness
outstanding at the time of the agreement), the incurrence of additional
indebtedness and the entering into of certain transactions. The New Credit
Facility agreement further stipulates that the lender may terminate the credit
commitment and declare all of the amounts outstanding under the agreement to be
immediately due and payable upon the occurrence of certain events including
default on payment of principal and interest when due, noncompliance with
covenants, default under other agreements relating to indebtedness individually
or in the aggregate exceeding $5 million, and change of control of the Company.
There were no amounts outstanding under the New Credit Facility as of the date
hereof.
In June 1998 the Company repaid the $6.0 million of Subordinated Notes
Payable, issued in 1997 to the seller in connection with the Nelson Ferman
Acquisition, from the proceeds of the Notes and Class C Preferred Stock
offerings (see Note 4).
NOTE 4 -- PREFERRED STOCK
In April 1998 the Company designated a new series, consisting of 3,000
shares of its preferred stock, $.01 par value, as Class C Convertible Preferred
Stock (the "Class C Preferred Stock"). Concurrently, the
F-7
<PAGE> 122
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
Company entered into a Securities Purchase Agreement and issued the 3,000 shares
of its Class C Preferred Stock for $2.97 million in cash, net of offering costs.
The conversion feature grants the holder of the Class C Preferred Stock the
right to convert to common stock based on a formula any time after July 20, 1998
at a conversion price equal to the lesser of (a) $21.95 and (b) 87 1/2% of the
average of the 4th, 5th, and 6th lowest closing trade price of the Company's
common stock during the 20 trading days preceding the conversion date. As more
fully described in Note 8, on August 13, 1998 an announcement was made of a
definitive agreement for Cablevision Systems Corp. to acquire all outstanding
shares of the Company's common stock. The Class C Preferred Stock Agreement
provides that, upon any public announcement by the Company regarding such a
change of control transaction, the conversion price of the Class C Preferred
Stock adjusts to the lower of (a) the average closing trade price of the
Company's common stock for the five trading days immediately preceding the
announcement date ($22.11), and (b) the conversion price as determined by the
conversion formula discussed above and will remain in effect for a specified
period of time. The holder of the Class C Preferred Stock is subject to certain
conversion limitations which restricts conversion of the preferred shares if (a)
the aggregate number of shares of the Company's common stock already issued and
to be issued on conversion would exceed 19.99% of the number of the Company's
common stock outstanding, and (b) the number of shares of the Company's common
stock beneficially owned by the holder plus the number of shares of the
Company's common stock issuable upon conversion would equal or exceed 4.99% of
the number of shares of the Company's common stock then issued and outstanding.
The Class C Preferred Stock will be automatically converted two years following
the issue date.
The Class C Preferred Stock agreement also provides the holders the right
to redeem their preferred shares at a price based on a formula upon the
occurrence of certain events involving voluntary actions or failure to take
action by the Company, such as change in control transactions, failure to
deliver shares of common stock upon conversion of the Class C Preferred Stock,
delisting of the Company's common stock on a national exchange and material
breach of covenants and other terms of the agreements surrounding the issuance
of the Class C Preferred Stock.
In accordance with the Registration Rights agreement included in the
Securities Purchase Agreement, the Company filed with the Securities and
Exchange Commission a registration statement covering 257,143 shares of the
Company's common stock representing at least 150% of the number of shares of
common stock then issuable upon conversion of the Class C Preferred Stock.
In accordance with Emerging Issues Task Force Abstract D-60 ("EITF Abstract
D-60"), "Accounting for the Issuance of Convertible Preferred Stock with a
Nondetachable Conversion Feature", the intrinsic value of the beneficial
conversion feature of the Class C Preferred Stock, which is measured as the
difference between the conversion price and fair value of the common stock on
the date of issuance, is recognized as a non-cash preferred stock dividend over
the period from issuance to earliest conversion (90 days) in the statement of
changes in stockholders' equity. Based on the Company's stock price on April 23,
1998 (date of issuance), the fair value of the conversion feature is $1,714,286,
which will be recorded as a preferred stock dividend on a straight line basis
over the period from issuance through July 20, 1998, the earliest conversion
date. The amount recorded from issuance through June 30, 1998 was $1,295,238,
with the remainder to be recorded in July 1998.
In June 1998, the Company redeemed 600 shares of its Class B Preferred
Stock for $600,000 from the proceeds of the Notes (see Note 3) and the Class C
Preferred Stock offerings. The holder of the remaining 750 shares of Class B
Preferred Stock acquired the right to require the Company to redeem the shares
for $750,000 at any time upon the consummation of the Notes offering on June 12,
1998.
F-8
<PAGE> 123
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
NOTE 5-- THEATER ACQUISITIONS:
During the first quarter of 1998, the Company acquired a total of four
theaters and acquired the right to operate two theaters, totaling twenty one
screens, and during the second quarter of 1998 the Company acquired a total of
three theaters and 23 screens, located in New Jersey and New York. The
acquisitions have been accounted for under the purchase method of accounting.
Under the purchase method of accounting, the purchase price for each transaction
has been allocated based on the estimated fair value of identifiable tangible
and intangible assets (principally property, equipment and leasehold interest)
of the respective theaters with the excess purchase price, together with
acquisition costs, being allocated to goodwill. The results of operations of the
acquired theaters are included in the accompanying consolidated financial
information from the respective acquisition dates.
Clairidge Acquisition -- In February 1998, the Company acquired
substantially all the assets, including the leasehold interest, equipment and
various operating contracts, of one theater from Clairidge Cinemas, Inc. (the
"Clairidge Acquisition") for a total purchase price of $2.3 million. The Company
paid $2.1 million in cash from borrowings under the Old Credit Facility and
issued 14,782 shares of Company common stock with an aggregate market value of
$200,000 based on the closing price of the Company's stock on the ten trading
days preceding the acquisition. The leasehold interest acquired is to be
amortized over the theater lease, which has a remaining lease term through
December 31, 2016. The purchase price has been allocated as follows:
<TABLE>
<S> <C>
Leasehold interest............................. $ 104,500
Equipment...................................... 345,000
Goodwill....................................... 1,850,500
----------
$2,300,000
==========
</TABLE>
UA II Acquisition -- In March 1998, the Company acquired substantially all
the assets, including land, building, equipment and various operating contracts,
of two theaters from United Artists Theater Circuit, Inc. (the "UA II
Acquisition") for a total purchase price of $1.5 million paid in cash from
borrowings under the Old Credit Facility. The purchase price has been allocated
as follows:
<TABLE>
<S> <C>
Land........................................... $ 252,000
Building....................................... 1,008,000
Equipment...................................... 240,000
----------
$1,500,000
==========
</TABLE>
Cobble Hill Acquisition -- In March 1998, the Company acquired
substantially all the assets, including equipment and various operating
contracts of one theater from Cobble Hill Cinemas, Inc. (the "Cobble Hill
Acquisition") for a total purchase price of $2.15 million, paid in cash from
borrowings under the Old Credit Facility. The purchase price has been allocated
as follows:
<TABLE>
<S> <C>
Equipment...................................... $ 188,500
Non-compete.................................... 14,000
Goodwill....................................... 1,947,500
----------
$2,150,000
==========
</TABLE>
Great Neck/Franklin Square Acquisition -- In June 1998, the Company
acquired substantially all the assets, including the leasehold interests,
equipment and various operating contracts of two theaters from Great Neck
Theater Associates, Inc. and WSA Theater Corp. (the "Great Neck/Franklin Square
Acquisition") for
F-9
<PAGE> 124
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
a total purchase price of $6.5 million, paid in cash from the proceeds of the
Notes and Class C Preferred Stock offerings. The purchase price has been
allocated as follows:
<TABLE>
<S> <C>
Leasehold Interest............................. $ 458,000
Equipment...................................... 1,022,000
Non-compete.................................... 23,000
Goodwill....................................... 4,997,000
----------
$6,500,000
==========
</TABLE>
AMC Acquisition -- In June 1998, the Company acquired substantially all the
assets, including the leasehold interest, equipment and various operating
contracts of one theatre from American Multi-Cinema, Inc. (the "AMC
Acquisition") for a total purchase price of $2.775 million, paid in cash from
the proceeds of the Notes and Class C Preferred Stock offerings. The purchase
price has been allocated as follows:
<TABLE>
<S> <C>
Leasehold Interest............................. $ 242,000
Equipment...................................... 460,000
Goodwill....................................... 2,073,000
----------
$2,775,000
==========
</TABLE>
NOTE 6 -- EXTRAORDINARY CHARGE:
In connection with the early extinguishment of the debt under the Old
Credit Facility (see Note 3), the Company recognized an extraordinary charge of
$2,029,649 or $.89 and $.90 per share for the three and six months ended June
30, 1998, respectively. The extraordinary charge consisted of a prepayment
premium of $410,000 and the write-off of unamortized debt discount and debt
issuance costs of $242,729 and $1,376,920, respectively.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
In June 1998, the Company entered into an agreement, subject to obtaining
certain approvals, to develop a new multiplex theater in Wayne, PA. Construction
is expected to be completed by December 1998 and is estimated to cost $750,000.
In addition, monthly rental payments of $4,500 will be due on the earlier of 120
days after all permits have been obtained or the date that the Company begins
operating the theater.
In June 1998, the Company entered into agreements to purchase the Colony
Cinemas in Livingston, NJ (3 screens) and the West Milford Cinemas in West
Milford, NJ (4 screens) for an aggregate of $1.5 million in cash. The Company
will purchase the land, building and other assets of the Colony Cinemas, and the
leasehold interest underlying the West Milford Cinemas. These acquisitions are
expected to be completed by the end of August 1998.
In March 1998, the Company entered into an agreement to develop a new
multiplex theater in Putnam County, NY. The agreement provides that after the
theater is constructed the Company will add the seats and other theater
equipment at an estimated cost of approximately $1.1 million. Monthly rental
payments of approximately $22,500 are payable beginning on the earlier of 120
days after the landlord completes construction and the date that Clearview
begins operating the theater. Construction is expected to be completed by the
end of 1998.
In February 1998, the Company entered into a lease agreement to operate a
theater facility in Montclair, N.J. for ten years with four 5-year renewal
options. The lease provides for a monthly base rent of $3,125 and is adjusted
upward each year based on a formula.
F-10
<PAGE> 125
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
In connection with the CJM Acquisition consummated in 1997, the Company
agreed to pay the seller additional consideration of 750 shares of Class B
redeemable preferred stock valued at $750,000 if another competing theater is
not opened in the operating vicinity of the purchased theaters within two years
of the date of the agreement, or December 12, 1999. However, such consideration
is deemed to be contingent and, as such, will only be recorded on when it
becomes probable that no competing theater will be opened by December 12, 1999.
On April 30, 1998, the Company issued 76,923 shares of common stock having
a market value of $1,548,000 in order to acquire the leasehold interest and
related construction permit from Warren County Cinemas, for a 15-screen
multiplex theater in Mansfield, NJ. The shareholders of Warren County Cinemas
have the right to receive additional consideration, dependent upon future
earnings of the theater for the next two years, of up to $500,000. The shares of
common stock issued are unregistered shares and are subject to a Voting Trust
Agreement whereby the Chairman of the Company has the right to exercise all
rights as an owner of the shares, including the right to vote, until the shares
are sold or registered. The shares may be sold at any time subject to certain
restrictions on the amount and holding period of the shares as stipulated under
Rule 144 of the Securities Act of 1933 ("the Securities Act"). The shareholders
also have the right to participate in certain registered offerings undertaken by
the Company under the Securities Act that could result in the sale of the shares
held. Construction began in May 1998 and is expected to be completed by the end
of October 1998. The estimated cost of development is $3.1 million. The Company
began paying 50% of the monthly rental payments of $29,167 and will become
liable for the full monthly rent on the earlier of the opening of the theater
and January 1, 1999.
In February 1997, the Company entered into an agreement to lease a new
multiplex theater to be constructed in Bayonne, N.J. The landlord has agreed to
install all seats and other theater equipment according to the Company's
specifications, and therefore the Company does not expect to incur any capital
costs for the project. Construction is expected to be completed in early 1999,
at which time the Company would be obligated to begin monthly rental payments of
$41,667.
During September 1995, the Company entered into an agreement providing for
the lease of three New York theater locations with annual combined rent of
approximately $300,000 and the option to purchase certain assets of the three
theaters through September 2000. Until the exercise of this option, the Company
is required to make annual payments which are recorded as interest expense. It
is the Company's intention to exercise this option.
NOTE 8 -- SUBSEQUENT EVENTS
On August 13, 1998, the Company announced that it had entered into an
Agreement and Plan of Merger among Cablevision Systems Corporation
("Cablevision"), CCG Holdings Inc., a subsidiary of Cablevision, and the
Company, pursuant to which the Company would be acquired by Cablevision. Each
issued and outstanding share of common stock of the Company would be acquired at
$24.25 per share, payable in a combination of cash and Cablevision common stock
on the basis of 55% cash and 45% Cablevision common stock. The gross value of
the transaction is estimated at approximately $160 million, based on the
acquisition of approximately 3.3 million shares of the Company's common stock on
a fully diluted basis and the assumption of the $80 million of Notes outstanding
as of August 13, 1998.
The consummation of the transaction, expected to be completed in the fourth
quarter of 1998, is subject to the satisfaction of certain closing conditions
including, among others, receipt of certain governmental approvals and approval
of the transaction by the stockholders of the Company. Approximately 54.7% of
the voting stockholders of the Company have entered into agreements with
Cablevision pursuant to which such stockholders have agreed to vote their
securities in favor of the transaction.
F-11
<PAGE> 126
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
The acquisition of the Company by Cablevision would be considered a change
in control transaction which would trigger certain provisional rights as
stipulated in various security and debt agreements of the Company. Specifically,
a change in control would (a) entitle the holders of the Notes the right to
require the Company to repurchase all or any portion of the Notes at 101% of the
aggregate principal amount outstanding (see Note 3), (b) grant the lender under
the New Credit Facility the right to terminate the credit commitment and declare
all amounts outstanding immediately due and payable (see Note 3), (c) result in
an adjustment of the conversion price of the Class C Preferred Stock and also
give the holders the right to redeem the shares held (see Note 4), (d) result in
all stock options outstanding to purchase 284,500 shares of the Company's common
stock to become fully exercisable, and (e) result in the automatic conversion of
the Class A Preferred Stock into 467,400 shares of the Company's common stock.
Cablevision made a tender offer, which expired on September 17, 1998, to
repurchase the Company's 10 7/8% Senior Notes. No holder elected to tender their
Notes. The change in control provision under the Notes continues to be
operational.
In January 1998, the Company entered into an agreement providing for the
lease of a theater in Millburn, N.J. with the option to purchase certain assets
of the theater for $1.15 million in cash. The initial lease period was for three
months, with an option to extend for an additional three months, at $9,000 per
month, which the Company exercised. In August 1998 the Company exercised its
option to purchase the theater, using a portion of the proceeds from the Notes
offering.
In August 1998, the Company purchased substantially all the assets,
including equipment and leasehold interests of one theater located in Bala
Cynwyd, Pennsylvania from Constantine Sotolidis (the "Bala Cynwyd Acquisition"),
for $700,000 in cash, using a portion of the proceeds from the Notes offering.
F-12
<PAGE> 127
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Clearview Cinema Group, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity, and
of cash flows present fairly, in all material respects, the financial position
of Clearview Cinema Group, Inc. and its subsidiaries (the "Company") at December
31, 1997, and the results of their operations and their cash flows for the year
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
New York, New York
March 19, 1998
F-13
<PAGE> 128
INDEPENDENT AUDITORS' REPORT
Board of Directors
Clearview Cinema Group, Inc.
We have audited the consolidated balance sheet of Clearview Cinema Group,
Inc. and subsidiaries as of December 31, 1996 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Clearview
Cinema Group, Inc. and subsidiaries at December 31, 1996 and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
WISS & COMPANY, LLP
Woodbridge, New Jersey
February 10, 1997 (except as to
the stock split described in Note 7
and as to Note 12, for which the dates
are August 7, 1997 and February 3, 1998)
F-14
<PAGE> 129
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 751,345 $ 1,647,176
Inventories............................................... 45,102 116,655
Other current assets...................................... 34,866 341,273
----------- -----------
Total current assets.............................. 831,313 2,105,104
Property, equipment and leaseholds, net..................... 11,412,217 34,488,714
Intangible assets, net...................................... 2,711,518 19,931,555
Other non-current assets.................................... 805,496 827,019
----------- -----------
$15,760,544 $57,352,392
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt...................... $ 835,650 $ 2,876,607
Current maturities of subordinated notes payable.......... 479,986
Accounts payable and accrued expenses..................... 1,226,502 4,562,633
----------- -----------
Total current liabilities......................... 2,542,138 7,439,240
Long-term debt, less current maturities..................... 7,742,611 32,234,955
Subordinated notes payable, less current maturities......... 1,193,882 6,000,000
Commitments and contingencies (Note 10)
Class A redeemable preferred stock at redemption price...... 2,132,294
Class B redeemable preferred stock.......................... 1,350,000
Redeemable common stock at redemption price................. 357,305
Stockholders' equity
Undesignated preferred stock 2,498,697 and 2,478,697
shares authorized, respectively
Class A preferred stock, par value $.01, 1,303 shares
authorized; 779 shares issued and outstanding.......... 8 8
Common stock, par value $.01, 10,000,000 shares
authorized; 832,800 and 2,213,097 shares issued and
outstanding, respectively.............................. 8,328 22,131
Additional paid-in-capital................................ 4,827,096 12,214,515
Accumulated deficit....................................... (553,519) (1,908,457)
Less: Redemption price of redeemable stock................ (2,489,599)
----------- -----------
Total stockholders' equity........................ 1,792,314 10,328,197
----------- -----------
$15,760,544 $57,352,392
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE> 130
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Theater revenues
Box office.......................................... $1,759,131 $6,195,399 $12,926,134
Concession.......................................... 554,671 1,861,155 3,914,416
Other............................................... 31,895 141,420 421,427
---------- ---------- -----------
2,345,697 8,197,974 17,261,977
---------- ---------- -----------
Operating expenses
Film rental and booking fees........................ 823,791 3,022,377 6,168,380
Cost of concession sales............................ 99,261 279,549 634,395
Theater operating expenses.......................... 1,078,370 3,297,825 6,590,703
General and administrative expenses................. 375,262 589,822 1,130,855
Depreciation and amortization....................... 99,632 635,007 2,051,163
---------- ---------- -----------
2,476,316 7,824,580 16,575,496
---------- ---------- -----------
Operating income (loss)............................. (130,619) 373,394 686,481
Interest expense, net................................. 85,697 591,722 2,015,419
---------- ---------- -----------
Net loss............................................ $ (216,316) $ (218,328) $(1,328,938)
========== ========== ===========
Basic and diluted loss per share...................... $ (.36) $ (.29) $ (1.03)
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 131
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- ------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ --------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994...... 600,000 $ 6,000 $ 765,200 $ (78,875) $ 692,325
Dividends paid................ (30,000) (30,000)
Issuance of warrants in
connection with subordinated
debt........................ 19,610 19,610
Net loss...................... (216,316) (216,316)
--- -- --------- ------- ----------- ------------ -----------
Balance, December 31, 1995...... 600,000 6,000 784,810 (325,191) 465,619
Proceeds from sale of
preferred stock, net of
related costs of $154,911... 779 $8 2,345,081 2,345,089
Dividends paid................ (10,000) (10,000)
Issuance of common stock
For cash.................... 12,600 126 69,874 70,000
Upon conversion of debt..... 12,000 120 79,880 80,000
For assets acquired......... 208,200 2,082 1,107,918 1,110,000
Issuance of warrants in
connection with
Subordinated debt........... 23,532 23,532
Bank financing.............. 416,001 416,001
Net loss...................... (218,328) (218,328)
--- -- --------- ------- ----------- ------------ -----------
Balance, December 31, 1996...... 779 8 832,800 8,328 4,827,096 (553,519) 4,281,913
Repurchase of warrants held by
lender...................... (1,000,000) (1,000,000)
Sale of underwriter
warrants.................... 1,000 1,000
Issuance of common stock
At initial public offering,
net of costs.............. 1,150,000 11,500 7,055,597 7,067,097
Upon termination of
preferred stock redemption
right..................... 60,000 600 25,400 (26,000)
In exchange for warrants
surrendered............... 66,000 660 103,340 104,000
In exchange for assets
acquired.................. 104,297 1,043 1,202,082 1,203,125
Net loss...................... (1,328,938) (1,328,938)
--- -- --------- ------- ----------- ------------ -----------
Balance, December 31, 1997...... 779 $8 2,213,097 $22,131 $12,214,515 $ (1,908,457) $10,328,197
=== == ========= ======= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 132
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss............................................ $ (216,316) $ (218,328) $(1,328,938)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization of property,
equipment and leaseholds....................... 95,445 526,182 1,675,856
Amortization of intangible assets................ 4,187 108,825 375,307
Amortization of debt discount and debt issuance
costs.......................................... 5,320 42,715 281,190
Interest expense recognized upon surrender of
warrants....................................... 104,000
Changes in operating assets and liabilities
Inventories.................................... (4,938) (28,455) (71,553)
Other current assets........................... (62,014) 32,954 (306,407)
Other non-current assets....................... (9,600) (48,063) (131,382)
Accounts payable and accrued expenses.......... 306,736 731,232 3,336,131
----------- ----------- -----------
Net cash provided by operating activities... 118,820 1,147,062 3,934,204
----------- ----------- -----------
Cash flows from investing activities
Purchase of property, equipment and leaseholds...... (630,675) (317,946) (3,486,123)
Acquisitions of theaters............................ (6,499,000) (29,875,000)
Acquisition costs and other......................... (608,315) (477,906) (285,499)
----------- ----------- -----------
Net cash used in investing activities....... (1,238,990) (7,294,852) (33,646,622)
----------- ----------- -----------
Cash flows from financing activities
Proceeds from issuance of long-term debt............ 400,000 4,317,228 30,386,108
Payments on long-term debt.......................... (17,448) (136,543) (4,995,054)
Proceeds from issuance of subordinated notes
payable.......................................... 580,000 600,000
Payments on subordinated notes payable.............. (1,100,000)
Debt issuance costs................................. (342,842) (750,902)
Proceeds from issuance of common stock upon initial
public offering.................................. 9,200,000
Initial public offering costs....................... (2,132,903)
Proceeds from issuance of common stock.............. 70,000
Proceeds from issuance of preferred stock........... 2,500,000
Preferred stock issuance costs...................... (154,911)
Dividends paid...................................... (30,000) (10,000)
Proceeds from issuance of underwriter warrants...... 1,000
Payments on option.................................. (80,000) (120,000)
----------- ----------- -----------
Net cash provided by financing activities... 852,552 6,722,932 30,608,249
----------- ----------- -----------
Net change in cash and cash equivalents............... (267,618) 575,142 895,831
Cash and cash equivalents, beginning of year.......... 443,821 176,203 751,345
----------- ----------- -----------
Cash and cash equivalents, end of year................ $ 176,203 $ 751,345 $ 1,647,176
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 133
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of Clearview Cinema Group, Inc. ("Clearview") and its wholly-owned
subsidiaries (collectively referred to as the "Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
Nature of the Business--The Company was incorporated November 23, 1994 and
is a regional motion picture exhibitor that acquires and operates in-town
multiplex theaters primarily located in affluent suburban communities in the New
York/New Jersey metropolitan area. As of December 31, 1997, the Company's 31
theaters with 148 screens show a mix of first-run commercial, art and
family-oriented films. The Company licenses films from distributors on a
film-by-film and theater-by-theater basis. The Company's business is seasonal
with a substantial portion of its revenue and operating income being derived
during the summer months (June through August) and the holiday season (November
and December).
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results, as determined at a later date,
could differ from those estimates.
Film rental costs owed to distributors are estimated as a percentage of the
film's box office receipts and the length of a film's run and are ultimately
settled with distributors within a period approximating three months.
Revenue Recognition--The Company recognizes revenues from box office
admissions and concession sales at the time of sale.
Cash Equivalents--Cash equivalents include commercial paper investments
purchased with original maturities of three months or less.
Inventories--Inventories consist of concession products and are stated at
the lower of cost (first-in, first-out method) or market.
Property, Equipment and Leaseholds--Property, equipment and leaseholds are
stated at cost less accumulated depreciation and amortization. Buildings and
improvements, furniture and equipment are depreciated using the straight line
method over the estimated useful lives of the assets as follows: buildings and
improvements--40 years; furniture and equipment--5 to 7 years. Leasehold
interests represent acquired rights to operate theatres under previously
existing operating leases. The fair value assigned to these leasehold interests
and lease improvements are capitalized and amortized using the straight-line
method over the shorter of the term of the lease or the estimated useful life of
the assets.
In 1996, the Company adopted Statement of Financial Accounting Standards
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ("SFAS 121"). SFAS 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by the Company be
reviewed for impairment whenever there is an indication that the carrying amount
of the asset may not be recoverable. Recoverability of these assets is
determined by comparing the forecasted undiscounted net cash flows of the
operation to which the assets relate, to the carrying amount, including
associated intangible assets, of such operation. The adoption of SFAS 121 did
not have a significant effect on the consolidated financial position or results
of operations.
Intangible Assets--Intangible assets consist of cost in excess of the
tangible and identifiable intangible assets of the theaters acquired (goodwill),
debt issuance costs, covenants not to compete, and organization costs. Costs are
amortized on a straight line basis over the following lives: goodwill--15 years,
covenants not to
F-19
<PAGE> 134
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
compete--3 to 5 years, organization costs--5 years. The Company evaluates the
recoverability of goodwill on an ongoing basis in light of changes in any
business conditions, events or circumstances that may indicate the potential
impairment of intangibles. Debt issuance costs are amortized as interest expense
over the term of the related debt.
Stock-Based Compensation--The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25") and related interpretations in accounting for stock-based compensation. The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123").
Income Taxes--Deferred tax assets and liabilities are computed annually for
temporary differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
temporary differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Net Loss Per Share--In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards 128, Earnings Per Share
("SFAS 128") which is effective for financial statements for both interim and
annual periods ending after December 15, 1997. The Company adopted SFAS 128 in
the fourth quarter of 1997. SFAS 128 replaces the presentation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share is calculated based on the weighted average number of
common shares outstanding during the period and excludes all dilution. Diluted
earnings per share is calculated by using the weighted average number of common
shares outstanding, while also giving effect to all dilutive potential common
shares that were outstanding during the period. Prior period amounts have been
restated to conform to the requirements of SFAS 128.
Disclosure of Fair Value of Financial Instruments--The carrying amounts
reported for cash and cash equivalents and accounts payable and accrued expenses
approximate fair value due to the short maturities of these assets and
liabilities. The fair value of the long term debt, subordinated notes payable
and Class B redeemable preferred stock are estimated based on discounted future
cash flows using rates currently available for debt and equity instruments with
similar terms. At December 31, 1997, the fair values approximate carrying
values.
NOTE 2--THEATER ACQUISITIONS
During 1997, the Company acquired a total of fourteen theaters and 79
screens located in New Jersey and New York. The acquisitions have been accounted
for under the purchase method of accounting. Under the purchase method of
accounting, the purchase price for each transaction has been allocated based on
the estimated fair value of identifiable tangible and intangible assets
(principally property, equipment and leasehold interest) of the respective
theaters with the excess purchase price, together with acquisition costs
approximating $285,000 being allocated to goodwill. The results of operations of
the acquired theaters are included in the accompanying consolidated financial
statements from the respective acquisition dates.
UA Acquisition--In September 1997 the Company acquired substantially all
the assets, including land, building, leasehold interests, equipment and various
operating contracts of five theaters from United Artists Theater Circuit, Inc.
(the "UA Acquisition") for a total purchase price of $8.65 million in cash from
proceeds of the initial public offering (Note 7) and borrowings under the Credit
Facility (Note 6). Leasehold interests
F-20
<PAGE> 135
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 2--THEATER ACQUISITIONS--(CONTINUED)
acquired are to be amortized over the related theater leases which have
remaining lease terms through December 31, 2019. The purchase price has been
allocated as follows:
<TABLE>
<S> <C>
Land........................................................ $1,527,000
Buildings................................................... 3,665,000
Leasehold interests......................................... 2,641,000
Equipment................................................... 695,000
Goodwill.................................................... 122,000
----------
$8,650,000
==========
</TABLE>
Nelson Ferman Acquisition--In November 1997 the Company acquired
substantially all the assets, including leasehold interests, equipment and
various operating contracts of two theaters from F&N Cinema, Inc. (the "Nelson
Ferman Acquisition") for a total purchase price of $18.5 million. The Company
paid $12 million in cash from borrowings under the Credit Facility, issued $6
million in subordinated notes payable (Note 6) and issued 41,797 shares of
common stock with an aggregate market value of $500,000 based on the closing
price of the Company's stock on the ten days preceding the acquisition.
Leasehold interests acquired are to be amortized over the related theater leases
which have remaining lease terms through December 31, 2016. The purchase price
has been allocated as follows:
<TABLE>
<S> <C>
Leasehold interests......................................... $ 6,500,000
Equipment................................................... 1,270,000
Non-compete................................................. 10,000
Goodwill.................................................... 10,720,000
-----------
$18,500,000
===========
</TABLE>
CJM Acquisition--In December 1997 the Company executed four separate
agreements to acquire certain assets, including leasehold interests and
equipment of four theaters from CJM Enterprises (the "CJM Acquisition") for a
total purchase price of approximately $8.7 million. Pursuant to the agreements,
the Company paid $7.25 million in cash from borrowings under the Credit
Facility, issued 62,500 shares of common stock with an aggregate market value of
approximately $703,000 (based on the closing price of the Company's stock on the
date of acquisition) and agreed to issue either 750 shares of Class B redeemable
preferred stock (Note 7) by March 31, 1998 or pay $750,000 in cash in lieu of
stock if the Company consummated a private placement offering by such date. As
the private placement offering is not likely to occur by March 31, 1998, the 750
shares of Class B redeemable preferred stock will be issued and have been
reflected as such in the accompanying financial statements. The agreements also
provide for additional consideration of 750 additional shares of Class B
redeemable preferred stock valued at $750,000 to be paid to the seller if
another competing theater is not opened in the operating vicinity of the
purchased theaters within two years. However, such consideration is deemed to be
contingent and, as such, will only be recorded on December 12, 1999 if no
competing theater has opened. Leasehold interests acquired in the CJM
Acquisition are to be amortized over the related theater leases which have
remaining lease terms through November 30, 2017. The purchase price has been
allocated as follows:
<TABLE>
<S> <C>
Leasehold interests......................................... $1,503,000
Equipment................................................... 1,510,400
Non-compete................................................. 60,000
Goodwill.................................................... 5,629,725
----------
$8,703,125
==========
</TABLE>
F-21
<PAGE> 136
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 2--THEATER ACQUISITIONS--(CONTINUED)
The shares of common stock issued in the Nelson Ferman Acquisition and the
CJM Acquisition are unregistered shares and are subject to Voting Trust
Agreements whereby the President and Chief Executive Officer has the right to
vote the shares until the shares are sold or registered.
The Company acquired three additional theaters during 1997 in two separate
transactions for $1,975,000 in cash from borrowings under the Credit Facility
and working capital.
The following unaudited pro forma consolidated results of operations for
the years ended December 31, 1996 and 1997 assumes the UA Acquisition, the
Nelson Ferman Acquisition and the CJM Acquisition, along with the Company's 1996
acquisitions, had occurred on January 1, 1996 giving effect to purchase
accounting adjustments and financing. The pro forma results have been prepared
for informational purposes only and do not reflect any benefit from economies
which might be achieved from combined operations. The pro forma results do not
represent results which would have occurred if the acquisition had taken place
on the basis assumed above, nor are they indicative of the results of future
combined operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Revenues.......................................... $28,960,499 $32,105,444
Net loss.......................................... (3,692,950) (3,692,996)
Basic and diluted loss per share.................. $ (1.68) $ (1.67)
</TABLE>
During 1996, the Company acquired the leaseholds of seven theaters and two
theaters with the underlying real estate, all located in New Jersey and New York
(the "1996 Acquisitions"). The 1996 Acquisitions have also been accounted for
under the purchase method of accounting. The results of operations of the
acquired theaters are included in the accompanying consolidated financial
statements from their respective acquisition dates. The 1996 Acquisitions are
described as follows:
May 1996--The Company purchased the leaseholds of three New Jersey theaters
and one New York theater in May 1996 for $5,000,000 in cash and the issuance of
208,200 shares of the Company's Common Stock. The total cost was allocated as
follows: $835,000--theater equipment, $5,075,000--leasehold interests and
$200,000--covenant not to compete.
July 1996--The Company purchased the leaseholds of two New York theaters in
July 1996. The total cost of $1,499,000 was paid in cash and was allocated as
follows: $1,489,000--leasehold interests and $10,000--covenant not to compete.
December 1996--The Company purchased two theaters and the underlying real
estate and the leasehold of another theater in New Jersey in December 1996. The
total cost of $5,000,000 was paid with a $4,400,000 secured note and $600,000
subordinated note. The purchase price was allocated as follows: $400,000--land,
$1,300,000--buildings and leasehold improvements, $832,000--theater equipment,
$848,000--leasehold interests and $1,620,000--goodwill.
The following unaudited pro forma results of operations for the years ended
December 31, 1995 and 1996 assume the 1996 Acquisitions occurred as of January
1, 1995 after giving effect to certain adjustments, including depreciation and
increased interest expense on acquisition debt. The pro forma results have been
prepared for comparative purposes only and do not purport to indicate the
results of operations which would
F-22
<PAGE> 137
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 2--THEATER ACQUISITIONS--(CONTINUED)
actually have occurred had the combinations been in effect on the dates
indicated, or which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.......................................... $10,754,531 $13,182,481
Net loss.......................................... $(1,658,987) $(1,268,766)
Basic and diluted loss per common share........... $ (2.05) $ (1.55)
</TABLE>
NOTE 3--PROPERTY, EQUIPMENT AND LEASEHOLDS
Property, equipment and leaseholds are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Land.............................................. $ 400,000 $ 1,927,848
Buildings and improvements........................ 1,302,098 5,491,183
Leasehold interest and improvements............... 8,095,097 21,704,639
Furniture and equipment........................... 2,347,117 7,772,995
----------- -----------
12,144,312 36,896,665
Less: Accumulated depreciation and amortization... 732,095 2,407,951
----------- -----------
$11,412,217 $34,488,714
=========== ===========
</TABLE>
NOTE 4--INTANGIBLE ASSETS
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
Goodwill............................................. $2,151,437 $19,004,450
Debt issuance costs.................................. 378,264 1,129,166
Covenants not to compete............................. 210,000 305,000
Organization costs................................... 36,362 42,234
---------- -----------
2,776,063 20,480,850
Less: Accumulated amortization....................... 64,545 549,295
---------- -----------
$2,711,518 $19,931,555
========== ===========
</TABLE>
F-23
<PAGE> 138
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 5--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Film rental and booking fees payable................ $ 699,444 $1,613,834
Accounts payable.................................... 243,278 1,936,552
Accrued interest.................................... 55,351 369,874
Accrued payroll..................................... 68,632 254,538
Sales taxes payable................................. 49,228 100,688
Other accrued expenses.............................. 110,569 287,147
---------- ----------
$1,226,502 $4,562,633
========== ==========
</TABLE>
NOTE 6--LONG-TERM DEBT AND SUBORDINATED NOTES PAYABLE
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
DESCRIPTION INTEREST RATE 1996 1997
----------- ------------- ---- ----
<S> <C> <C> <C>
Term notes A & B under Credit Facility,
interest payable in monthly
installments, principal due in
quarterly installments through
September 2002, net of unamortized debt 10% at December 31, 1997
discount of $384,976 and $242,729, (floating rate of 1.5%
respectively........................... above prime) $3,790,024 $34,757,271
Notes payable--Seller, refinanced as
described below........................ 4,400,000
Note payable to bank, in monthly
installments of principal and interest
of $5,029, due October 2005............ 11 1/4% 337,009 313,096
Other.................................... 51,228 41,195
---------- -----------
8,578,261 35,111,562
Less: Current maturities................. 835,650 2,876,607
---------- -----------
$7,742,611 $32,234,955
========== ===========
</TABLE>
Credit Facility--In September 1997 the Company entered into an amended and
restated credit agreement with Provident Bank (the "Credit Facility") consisting
of a revolving credit line of $1.0 million, Term Note A of $12 million and Term
Note B of $17 million, the proceeds of which were used to refinance existing
term loans with the same bank of $10.4 million and finance acquisitions (Note
2). In December 1997 the Company further increased its Credit Facility to $36
million by increasing the availability under Term Note B to $23 million through
the participation of an additional bank, the proceeds of which were used to
finance acquisitions (Note 2). In February 1998, the Company increased its
Credit Facility by obtaining a $5.8 million Term Note C (Note 14).
F-24
<PAGE> 139
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 6--LONG-TERM DEBT AND SUBORDINATED NOTES PAYABLE--(CONTINUED)
The revolving credit line of $1 million bears interest at prime +1.5%,
terminates on September, 2002 and can be used for refinancing existing debt,
financing working capital, financing acquisitions and for general corporate
purposes. There were no amounts outstanding on the revolving credit line at
December 31, 1997.
The Credit Facility is collateralized by substantially all of the assets of
the Company and contains various restrictive covenants, including maintenance of
specified levels of net worth and debt coverage ratios. All such covenants were
satisfied or waived by the bank at December 31, 1997 and 1996. The Credit
Facility also restricts certain payments by the Company including the payment of
dividends, retirement of equity securities or retirement of any subordinated
debt through premium payments.
In accordance with the provisions of the Credit Facility, the Company
maintains a $2.5 million key-man life insurance policy on its President and
Chief Executive Officer.
Refinancing--In January 1997, seller-financing of $4,400,000 was paid with
$100,000 from the Company's operating cash and the proceeds from a $4,300,000
bank term note, issued under the Company's credit agreement with its principal
lender. Accordingly, the note payable at December 31, 1996 was classified in
accordance with the terms of this new bank term note.
Subordinated Notes--In November 1997, the Company issued $6 million in
subordinated notes payable to the seller in connection with the Nelson Ferman
Acquisition (Note 2). The notes bear interest at 10 1/2% which is payable
monthly. The principal and any unpaid interest on one note in the amount of $2
million is due on the earlier of the consummation of a private debt offering or
January 1999. The principal on the $4 million note is due the earlier of the
consummation of a private debt offering or November 2002.
During 1995 and 1996, the Company sold 8% subordinated notes totalling
$1,100,000 to certain related parties. In October 1997, the Company repaid
$500,000 of these subordinated notes payable and in December 1997, the Company
converted the remaining $600,000 of subordinated notes payable into 600 shares
of Class B redeemable preferred stock valued at $600,000 (Note 7).
The Company had a $600,000 12% subordinated note payable which was issued
in connection with its acquisition of certain theaters in December 1996. Such
note was repaid in August 1997 upon consummation of the Company's initial public
offering.
Long-term debt and subordinated notes payable at December 31, 1997 mature
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998........................................................ $ 2,876,607
1999........................................................ 8,984,318
2000........................................................ 6,989,036
2001........................................................ 7,024,619
2002........................................................ 15,091,387
2003 and thereafter......................................... 145,595
-----------
$41,111,562
===========
</TABLE>
NOTE 7--STOCKHOLDERS' EQUITY
Stock Split--In May 1997, the Company's Board of Directors approved a 600
to 1 stock split which has been retroactively reflected in the accompanying
consolidated financial statements.
F-25
<PAGE> 140
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 7--STOCKHOLDERS' EQUITY--(CONTINUED)
Initial Public Offering--In August 1997, the Company consummated an initial
public offering (the "Offering") through the sale of 1,150,000 shares of its
common stock, $.01 par value for total proceeds of approximately $7.1 million,
net of offering costs of approximately $2.1 million.
Preferred Stock--The Company's Certificate of Incorporation authorizes the
issuance of up to 2,500,000 shares of preferred stock. The Board of Directors is
authorized to issue shares of preferred stock from time to time in one or more
series and to establish and designate any such series and to determine the
number of shares and the relative conversion rights, voting rights, terms of
redemption and liquidation.
Class A Preferred Stock and Warrant--In May and July 1996, the Company
issued 779 shares of Class A preferred stock and warrants in exchange for
$2,500,000. Each share of Class A preferred stock is convertible at any time at
the option of the holders into 600 shares of common stock. Upon the occurrence
of certain events, the shares of Class A preferred stock will automatically
convert into shares of common stock. The warrants, which entitled the holder to
purchase up to 471 shares of Class A preferred stock were exchanged at the time
of the offering for a new warrant exercisable for 282,600 shares of common
stock.
The warrant is not exercisable until June 1, 2001 unless, prior to that
date, the Company sells all or substantially all of its assets, liquidates,
dissolves or merges with another corporation in a transaction which results in a
change in control of the Company's voting stock. The number of shares of common
stock for which the warrant is exercisable is subject to reduction, including
not being exercisable into any shares, based on a formula and the fair value of
the Company's stock as defined, upon the occurrence of certain events.
Class B Redeemable Preferred Stock--During 1997 the Company authorized
20,000 shares and issued 1,350 shares of Class B non-voting, 10 1/2% cumulative
redeemable preferred stock with a liquidation value of $1,000 per share. The
holders of the Class B redeemable preferred stock are entitled to receive
preferential dividends, when and as declared by the Board of Directors. So long
as any shares of Class B redeemable preferred stock are outstanding, unless all
dividends on the Class B redeemable preferred stock have been paid, no dividend
or other distribution may be paid or made on the common stock, Class A preferred
stock or any other capital stock of the Company ranking junior as to dividends
to the Class B redeemable preferred stock. In the event of any sale of all or
substantially all of the assets of the Company or any liquidation, dissolution
or winding up of the Company, the holders of the Class B redeemable preferred
stock will be entitled to receive an amount per share equal to a liquidation
value ($1,000) plus all unpaid dividends per share on the Class B redeemable
preferred stock, prior to any distribution to holders of the common stock, Class
A preferred stock or any other capital stock of the Company ranking junior upon
liquidation or dissolution. The holder of Class B redeemable preferred stock can
redeem upon the earlier to occur of dissolution of the Company, within ten
business days after the date of closing of a private placement offering with
aggregate proceeds of $70 million, or five years after the date of issuance of
such shares. The Company can redeem these shares at any time.
Warrants--In consideration of services provided at the time of the
Offering, the Company issued to the underwriter of the Offering, for a nominal
amount of $1,000, warrants to purchase 100,000 shares of common stock with an
initial exercise price of $9.60 per share. As provided in the warrant agreement,
the exercise price and the number of shares that may be purchased upon the
exercise of the warrants are subject to modification and adjustment upon the
occurrence of certain events, as defined in the warrant agreement. The warrants
are exercisable for a four year period commencing on August 12, 1998. The fair
value of services provided of approximately $200,000 has been determined based
on the fair value of the warrants using an option pricing model in accordance
with SFAS 123 and has no impact on stockholders' equity as the services provided
are considered additional offering costs.
F-26
<PAGE> 141
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 7--STOCKHOLDERS' EQUITY--(CONTINUED)
During 1995 and 1996, the Company issued 200 warrants, convertible into
120,000 shares of common stock, together with the issuance of certain
subordinated debt. Concurrent with the consummation of the Offering, holders of
warrants to purchase 97,500 shares of common stock (at exercise prices ranging
from $3.33 to $6.67 per share) exchanged such warrants for 66,000 shares of
common stock and also amended the terms of certain subordinated notes payable.
The fair value of the common stock issued, less the value of the warrants
surrendered, was recorded as interest expense of $104,000 in the accompanying
financial statements. The remaining warrants were canceled upon retirement of
the subordinated debt on December 12, 1997 (Note 6) in accordance with the terms
of the debt and warrant agreement.
In connection with the bank financing as described in Note 6 and pursuant
to a May 1996 warrant agreement (amended in December 1996), the Company issued
seven-year warrants in May and December 1996 to its principal lender to purchase
43,800 and 50,400 shares of the Company's common stock, respectively, at an
exercise price of $.01 per share. In June 1997, the Company repurchased those
warrants for $1 million which approximated the put price at that time. As a
result, the repurchase has been recorded as a charge to additional
paid-in-capital.
Terminated Redemption Rights--A certain common stockholder had the right to
sell its shares of common stock at a redemption price based upon a formula. If
such stockholder did not exercise that right, the Company had the right to
purchase those shares of common stock from such stockholder at a price based
upon the same formula. Such stockholder and the Company terminated those rights
upon consummation of the Offering.
The holder of the outstanding shares of the Company's Class A preferred
stock, $.01 par value had the right to sell to the Company all of those shares
or the shares of common stock into which those shares had been converted at a
redemption price determined in accordance with a specified formula. Such holder
terminated that right upon consummation of the Offering in exchange for the
issuance of 60,000 shares of common stock. The fair value of the 60,000 shares
of common stock issued, less the estimated value of the redemption right
terminated, was recorded as a preferred stock dividend of $26,000 during 1997.
As of December 31, 1996, the Company reported the Class A redeemable
preferred stock and the redeemable common stock at the current redemption value
separately between liabilities and stockholders' equity, since redemption was
outside of the Company's control. A corresponding reduction was made to
stockholders' equity, as the equivalent of treasury stock. The per share
redemption value of the Class A redeemable preferred stock was based on the
greater of gross revenues (as defined) or six times theater operating income
before general and administrative expenses, interest and taxes for the preceding
twelve months divided by the number of shares of common stock issued and, as if
converted or exercised, all convertible securities, options, warrants and
similar instruments. The redemption value of the common stock was based on book
value per share computed on a fully diluted basis.
NOTE 8--INCOME TAXES
Deferred income taxes reflect the tax consequences on future years of
differences between the bases of assets and liabilities for financial reporting
purposes and income tax purposes. A valuation allowance is provided when it is
more likely than not that some portion of the deferred tax assets will not be
realized. The Company has determined, based on its recurring net losses since
inception, that a full valuation allowance of $85,000, $172,000 and $621,000 is
appropriate at December 31, 1995, 1996 and 1997.
F-27
<PAGE> 142
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 8--INCOME TAXES--(CONTINUED)
The income tax effect of temporary differences that give rise to the
deferred tax assets and deferred tax liabilities at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Deferred tax assets
Net operating loss carryforwards.......................... $ 678,000
Other..................................................... 46,000
---------
Gross deferred tax assets................................... 724,000
Deferred tax liabilities
Property, equipment and leaseholds........................ (103,000)
---------
621,000
Valuation allowance......................................... (621,000)
---------
Net deferred tax assets................................... $
=========
</TABLE>
A reconciliation between the statutory federal income tax rate of 34% and
the effective rate of income tax expense for the years ended December 31, 1995,
1996 and 1997 follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Income tax benefit at federal statutory rate...... $(72,000) $(74,000) $(452,000)
State income tax benefit, net of federal tax
effect.......................................... (13,000) (13,000) (79,000)
Increase in net operating loss carryforwards...... 85,000 87,000 531,000
-------- -------- ---------
Provision (benefit) for income taxes.............. $ $ $
======== ======== =========
</TABLE>
The Company has available at December 31, 1997 net operating loss
carryforwards totaling approximately $1,698,000 that may be applied against
future consolidated federal and state taxable income of the respective
subsidiary companies. The loss carryforwards will expire through 2012.
Certain losses are subject to limitation by the provisions of Section 382
of the Internal Revenue Code due to a more than 50% change in ownership which
occurred upon the consummation of the Company's Offering.
NOTE 9--STOCK BASED COMPENSATION
In August 1997, the Company adopted the Stock Incentive Plan (the "Plan")
which provides for the granting of awards to purchase shares of the Company's
common stock to officers, directors and key employees and non-employees at the
discretion of a committee of the Board of Directors. Awards granted under the
Plan may be in the form of Non-Qualified Stock Options, Incentive Stock Options,
Stock Appreciation Rights, Restricted Shares and Performance Awards. The
exercise price of each share of stock awarded under the Plan shall be determined
by the committee; provided however, that the exercise price shall in all cases
be equal to or greater than the quoted market price of the Company's common
stock on the date of grant. At December 31, 1997, 200,000 shares of common stock
are reserved for issuance under the Plan. Awards granted under the Plan become
fully vested upon a change in control of the Company.
During 1997, the Company granted 122,500 incentive stock options with
exercise prices ranging from $8 to $12 and with a weighted average exercise
price of $8.40 per share. No options became exercisable or were forfeited during
1997. The awards granted during 1997 terminate in 10 years and have a graded
vesting schedule that provides for 100% vesting in four years as follows: Year
1--10%, Year 2--35%, Year 3--65%, Year 4--100%.
F-28
<PAGE> 143
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 9--STOCK BASED COMPENSATION--(CONTINUED)
Pro forma information, as required by SFAS 123, has been determined as if
the Company had accounted for stock options awarded under the Plan under the
fair value method as defined by SFAS 123. The fair value of these options was
estimated at the date of grant using the Black Scholes option pricing model with
the following weighted-average assumptions: risk-free rate of 6.5%; expected
common stock market price volatility factor of 30%; and an average expected life
of the options of six years. The weighted average fair value of each option on
the date of grant using the option pricing model was $3.26. If fair value based
accounting in accordance with SFAS 123 had been used to measure stock based
compensation cost, the Company's consolidated net loss would have increased by
$40,000 or $0.03 per share for the year ended December 31, 1997. This pro forma
impact only takes into account options granted since January 1, 1997 and is
likely to increase in future years as additional options are granted and
amortized ratably over the vesting period.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Theater Leases--A substantial portion of the Company's theaters and the
corporate office are operated under lease arrangements with initial lease terms
and renewal options. Future minimum rental payments for all non-cancellable
operating leases having initial or remaining lease terms in excess of one year
as of December 31, 1997 are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998........................................................ $ 2,685,334
1999........................................................ 2,699,106
2000........................................................ 2,646,440
2001........................................................ 2,557,795
2002........................................................ 2,602,006
2003 and thereafter......................................... 17,837,239
-----------
$31,027,920
===========
</TABLE>
Certain theaters operated by the company have operating leases that contain
escalating clauses. For these leases, the aggregate rent payments over the lease
term are recognized on a straight-line basis over the lease term. The
differences between the expense charged to operations and amounts payable under
such leases are recorded annually as deferred rent expense, which will
ultimately reverse over the lease term. In addition, leases require additional
amounts to be paid for common area maintenance and/or contingent rental payments
based on a percent of net revenues of the theater in excess of a predetermined
amount. Total rent expense for the years ended December 31, 1995, 1996 and 1997
was approximately $209,000, $802,000 and $1,287,000, respectively.
Acquisition Commitments--During September 1995, the Company entered into an
option agreement providing for the lease of three New York theater locations
with the option to purchase certain assets of the three theaters through
September 2000. In consideration of the option granted, the Company made an
initial $200,000 payment which was financed by the seller. Until exercise of the
option, the Company is required to make annual payments which are recorded as
interest expense in the accompanying financial statements. It is the Company's
intention to ultimately exercise this option.
In November 1997, the Company entered into an agreement to acquire a
theater upon completion of construction of such theater for a price of $1
million to be paid in common stock of the Company; provided however, that in no
event shall the common shares to be issued be greater than 90,909 or less than
76,923 shares. The closing date under this agreement will occur within ten
business days after receipt of a valid
F-29
<PAGE> 144
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 10--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
construction permit, but in no event later than January 1999. Neither the
Company nor the seller is obligated to close on this agreement if a valid
construction permit is not obtained by June 1998.
Employment Agreement--The Company is obligated through May 2003 to pay its
President and Chief Executive Officer an annual base salary of $120,000, plus an
additional amount based on gross revenue, provided that such total does not to
exceed $750,000.
NOTE 11--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Cash paid for interest.................................. $ 42,877 $ 623,656 $1,179,000
Non-cash investing and financing activities
Issuance of common stock as consideration for theaters
acquired........................................... 1,110,000 1,203,125
Issuance of subordinated notes payable as
consideration for theaters acquired................ 5,000,000 6,000,000
Issuance of Class B redeemable preferred stock as
consideration for theaters acquired................ 750,000
Conversion of subordinated notes payable into Class B
redeemable preferred stock......................... 600,000
Repurchase of warrants................................ 1,000,000
Common stock issued upon termination of preferred
stock redemption right............................. 26,000
Fair value of warrants issued in connection with
subordinated debt and bank financing............... 19,610 439,533
Conversion of subordinated note payable (related
party) into common stock........................... 80,000
Project acquisition costs in exchange for option
payable............................................ 200,000
</TABLE>
NOTE 12--SUPPLEMENTAL DISCLOSURE OF LOSS PER SHARE
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Net Loss............................................... $(216,316) $(218,328) $(1,328,938)
Less: Preferred stock dividends........................ (26,000)
--------- --------- -----------
Loss available to common stockholders.................. $(216,316) $(218,328) $(1,354,938)
========= ========= ===========
Weighted average shares outstanding.................... 600,000 744,038 1,312,865
========= ========= ===========
Basic and diluted loss per share....................... $ (.36) $ (0.29) $ (1.03)
========= ========= ===========
</TABLE>
The Class A preferred stock and warrant, underwriter warrants and incentive
stock options outstanding are potentially convertible into 972,500 shares of
common stock and have not been included in the computation of diluted loss per
share as the effect would have been antidilutive. The Company's loss per share
for the years ended December 31, 1995 and 1996 have been restated in accordance
with SFAS 128, as described in Note 1.
F-30
<PAGE> 145
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 13--RELATED PARTY TRANSACTIONS
In June 1997 the Company entered into a consulting and confidentiality
agreement with a director and stockholder of the Company to assist the Company
in the identification of theater acquisition candidates and provide other
services as requested by the Company. The director/stockholder is also an
executive vice president of First New York Realty Co., Inc. ("First New York").
To the extent, if any, that the director/stockholder identifies any person who
is interested in leasing a site to the Company in his capacity as an employee of
First New York and the Company determines to lease that site, First New York
could be entitled to a commission from that person and the director/stockholder
would then be entitled to a commission from First New York. During the years
ended December 31, 1995, 1996 and 1997 the Company incurred $0, $12,000 and
$17,000, respectively in consulting fees to the director/stockholder.
In May 1997 the Company renewed its agreement with an affiliated entity who
is a preferred stockholder and whose managing directors are directors of the
Company, to provide business strategy and financial and investment management
services for a fee equal to $60,000 per year. The Company incurred fees for such
services of $30,000 and $50,000 in 1996 and 1997, respectively. No such fees
were paid in 1995.
A director of the Company is an officer of the entity that served as the
underwriter for the Offering. The director was appointed to the Company's board
of directors subsequent to consummation of the Offering. Amounts paid to the
underwriter for services provided at the time of the Offering were $1,013,000.
NOTE 14--SUBSEQUENT EVENTS
In February 1998, the Company extended its existing Credit Facility through
the issuance of a Term Note C in the amount of $5.8 million to be used for
additional acquisitions. Interest is due quarterly at prime plus 1.5%. Principal
payments are to be paid quarterly commencing October 1, 1998 with final payment
due September 2002. The Company borrowed $3.8 million under Term Note C to fund
the acquisition of three theaters subsequent to December 31, 1997. The Company
continues to pursue the acquisition of additional theaters, the development of
new theaters and the addition of screens to existing theaters.
In March 1998, the Company adopted the Clearview Cinema Group 401(K) Plan
(the "401(K) Plan") that covers all employees of the Company who have reached
the age of 21 and have completed one year of service, as defined. The 401(K)
Plan provides for employee elective contributions up to 15% of annual
compensation, with matching contributions by the Company of 50% of the first 6%
of the employees' compensation contributed. Additionally, the Company, at its
discretion may make profit-sharing contributions to the 401(K) Plan. Employees
vest 100% in the Company's matching contributions and profit sharing
contributions after three years of service.
NOTE 15 -- SUBSEQUENT EVENT -- MERGER TRANSACTION (UNAUDITED)
On August 13, 1998, the Company announced that it had entered into an
Agreement and Plan of Merger among Cablevision Systems Corporation
("Cablevision"), CCG Holdings Inc., a subsidiary of Cablevision, and the
Company, pursuant to which the Company would be acquired by Cablevision. Each
issued and outstanding share of common stock of the Company would be acquired at
$24.25 per share, payable in a combination of cash and Cablevision common stock
on the basis of 55% cash and 45% Cablevision common stock. The gross value of
the transaction is estimated at approximately $160 million, based on the
acquisition of approximately 3.3 million shares of the Company's common stock on
a fully diluted basis and the assumption of the $80 million of Notes outstanding
as of August 13, 1998.
The consummation of the transaction, expected to be completed in the fourth
quarter of 1998, is subject to the satisfaction of certain closing conditions
including, among others, receipt of certain governmental
F-31
<PAGE> 146
CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 15--SUBSEQUENT EVENT--MERGER TRANSACTION (UNAUDITED)--(CONTINUED)
approvals and approval of the transaction by the stockholders of the Company.
Approximately 54.7% of the voting stockholders of the Company have entered into
agreements with Cablevision pursuant to which such stockholders have agreed to
vote their securities in favor of the transaction.
The acquisition of the Company by Cablevision would be considered a change
in control transaction which would trigger certain provisional rights as
stipulated in various security and debt agreements of the Company. Specifically,
a change in control would (a) entitle the holders of the Notes the right to
require the Company to repurchase all or any portion of the Notes at 101% of the
aggregate principal amount outstanding, (b) grant the lender under the New
Credit Facility the right to terminate the credit commitment and declare all
amounts outstanding immediately due and payable, (c) result in an adjustment of
the conversion price of the Class C Preferred Stock and also give the holders
the right to redeem the shares held, (d) result in all stock options outstanding
to purchase 284,500 shares of the Company's common stock to become fully
exercisable, and (e) result in the automatic conversion of the Class A Preferred
Stock into 467,400 shares of the Company's common stock. Clearview made a tender
offer, which expired on September 17, 1998, to repurchase the Company's 10 7/8%
Senior Notes. No holder elected to tender their Notes. The change of control
provision under the Notes continues to be operational.
F-32
<PAGE> 147
INDEPENDENT AUDITORS' REPORT
Board of Directors
Clearview Cinema Group, Inc.
We have audited the combined balance sheet of the United Artist Theatre
Circuit, Inc. Theaters at Bronxville, Larchmont, Wayne, New City and Mamaroneck
(the "UA Theaters"), as of December 31, 1996 and the related combined statements
of income and divisional equity and cash flows for each of the two years in the
period ended December 31, 1996. These combined financial statements are the
responsibility of the management of United Artist Theatre Circuit, Inc. 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 the UA Theaters at
December 31, 1996 and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the combined financial statements, United Artist
Theatre Circuit, Inc. changed its method of accounting for impairment of
long-lived assets in accordance with SFAS 121 in 1996.
WISS & COMPANY, LLP
Woodbridge, New Jersey
June 4, 1997
F-33
<PAGE> 148
UNITED ARTISTS THEATRES AT BRONXVILLE, LARCHMONT, WAYNE,
NEW CITY AND MAMARONECK
COMBINED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 61,716 $ 65,666
Inventories............................................... 22,122 22,930
Other current assets...................................... 19,366 43,799
---------- -----------
Total current assets................................... 103,204 132,395
---------- -----------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION....... 4,846,814 4,827,793
---------- -----------
OTHER ASSETS:
Due from parent and affiliate............................. 2,955,667 3,247,520
Security deposits......................................... 2,000 2,000
---------- -----------
2,957,667 3,249,520
---------- -----------
$7,907,685 $ 8,209,708
========== ===========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 731,595 $ 932,282
DIVISIONAL EQUITY........................................... 7,176,090 7,277,426
---------- -----------
$7,907,685 $ 8,209,708
========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE> 149
UNITED ARTISTS THEATRES AT BRONXVILLE, LARCHMONT, WAYNE,
NEW CITY AND MAMARONECK
COMBINED STATEMENTS OF INCOME AND DIVISIONAL EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------- -----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
THEATER REVENUES:
Box office............................... $3,503,949 $3,578,346 $ 864,313 $ 961,187
Concession............................... 1,004,651 1,048,292 239,725 278,823
Other.................................... 147,248 174,334 35,051 39,238
---------- ---------- ---------- ----------
4,655,848 4,800,972 1,139,089 1,279,248
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Film rental and booking fees............. 1,556,970 1,603,729 362,806 482,578
Cost of concession sales................. 171,003 176,031 42,005 43,294
Theater operating expenses............... 1,734,320 1,828,092 444,099 470,704
General and administrative............... 71,634 71,366 16,933 19,890
Depreciation and amortization............ 224,947 216,154 56,033 49,142
Impairment of long-lived assets.......... -- 224,908 -- --
---------- ---------- ---------- ----------
3,758,874 4,120,280 921,876 1,065,608
---------- ---------- ---------- ----------
OPERATING INCOME........................... 896,974 680,692 217,213 213,640
INTEREST EXPENSE........................... 588,577 444,534 111,000 112,304
---------- ---------- ---------- ----------
NET INCOME................................. 308,397 236,158 106,213 101,336
DIVISIONAL EQUITY:
Beginning of period...................... 6,631,535 6,939,932 6,939,932 7,176,090
---------- ---------- ---------- ----------
End of period............................ $6,939,932 $7,176,090 $7,046,145 $7,277,426
========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-35
<PAGE> 150
UNITED ARTISTS THEATRES AT BRONXVILLE, LARCHMONT, WAYNE,
NEW CITY AND MAMARONECK
COMBINED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------- ---------------------
1995 1996 1996 1997
--------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 308,397 $ 236,158 $ 106,213 $ 101,336
Adjustments to reconcile net income (loss)
to net cash flows from operating
activities:
Depreciation and amortization.......... 224,947 216,154 56,033 49,142
Loss in impairment of long-lived
asset................................ -- 224,908 -- --
Changes in operating assets and
liabilities:
Inventories.......................... 299 (1,442) (1,073) (808)
Other current assets................. 471 19,510 14,586 (24,433)
Security deposits.................... -- (2,000) (2,000) --
Accounts payable and accrued
expenses.......................... (73,043) 274,470 51,129 200,687
--------- ----------- --------- ---------
Net cash flows from operating
activities...................... 461,071 967,758 224,888 325,924
--------- ----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........ (180,994) (46,942) (28,277) (30,121)
Advances to parent and affiliate.......... (250,028) (1,004,461) (289,193) (291,853)
--------- ----------- --------- ---------
Net cash flows from investing
activities...................... (431,022) (1,051,403) (317,470) (321,974)
--------- ----------- --------- ---------
NET CHANGE IN CASH.......................... 30,049 (83,645) (92,582) 3,950
CASH, BEGINNING OF PERIOD................... 115,312 145,361 145,361 61,716
--------- ----------- --------- ---------
CASH, END OF PERIOD......................... $ 145,361 $ 61,716 $ 52,779 $ 65,666
========= =========== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................. $ -- $ -- $ -- $ --
--------- ----------- --------- ---------
Income taxes paid......................... $ -- $ -- $ -- $ --
--------- ----------- --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-36
<PAGE> 151
UNITED ARTISTS THEATRE CIRCUIT, INC. CINEMAS AT
BRONXVILLE, LARCHMONT, WAYNE, NEW CITY AND MAMARONECK
NOTES TO COMBINED FINANCIAL STATEMENTS
(Data relating to March 31, 1997 and 1996 are unaudited)
- --------------------------------------------------------------------------------
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination--The combined financial statements include the
accounts of the United Artist Theatre Circuit, Inc. theaters at Bronxville,
Larchmont, Wayne, New City and Mamaroneck (the "UA Theaters"). All significant
inter-location balances and transactions have been eliminated in combination.
Nature of the Business--The UA Theaters are regional motion picture houses
located in suburban communities in the New York/New Jersey metropolitan area.
Revenues and Film Rental Costs--The UA Theaters recognize revenues from box
office admissions and concession sales at the time of sale. Film rental costs
are based a film's box office receipts and length of a film's run.
Seasonality--The UA Theaters' business is seasonal with a large portion of
their revenues and profits being derived during the summer months (June through
August) and the holiday season (November and December).
Estimates and Uncertainties--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results, as determined at a later date,
could differ from those estimates.
Inventories--Inventories consist of concession products and are stated at
the lower of cost (first-in, first-out method) or market.
Property and Equipment--Property and equipment are stated at cost.
Buildings and improvements, theater equipment and office furniture and equipment
are depreciated using straight line and accelerated methods over the estimated
useful lives of the assets. In general, the estimated useful lives used in
computing depreciation and amortization are: buildings and improvements--39
years; theater equipment--5 to 10 years; office furniture and equipment--5 to 10
years. Leasehold improvements are amortized using the straight-line method over
the term of the related lease or the estimated useful life of the asset,
whichever is less.
Rent Expense--The Wayne theater included in the combined financial
statements is operated under a lease that contains predetermined increases in
the rent payable during the term of such lease. For this lease, the aggregate
rental expense over the lease term is recognized on a straight-line basis over
the lease term. The differences between the expense charged to operations and
the amount payable under that lease are recorded annually as deferred rent
expense, which will ultimately reverse over the lease term.
Additional rent is paid for common area maintenance and may also be charged
based on a percentage of net revenue in excess of a predetermined amount.
Financial Instruments--Financial instruments include cash, security
deposits, accounts payable and accrued expenses The amounts reported for
financial instruments are considered to be reasonable approximations of their
fair values, based on market information concerning financial instruments with
similar characteristics available to management.
Impairment of Long-Lived Assets--In 1996, the United Artists Theatre
Circuit, Inc. ("UA") adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (See Note 4). SFAS No. 121 prescribes that
an
F-37
<PAGE> 152
UNITED ARTISTS THEATRE CIRCUIT, INC. CINEMAS AT
BRONXVILLE, LARCHMONT, WAYNE, NEW CITY AND MAMARONECK
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(Data relating to March 31, 1997 and 1996 are unaudited)
- --------------------------------------------------------------------------------
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:--(CONTINUED)
impairment loss is recognized in the event that facts and circumstances indicate
that the carrying amount of an asset may not be recoverable.
Interim reporting--The interim financial statements included herein reflect
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. Such adjustments
consist solely of normal recurring accruals. Results for interim periods are not
necessarily indicative of results for a full year.
NOTE 2--PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
<S> <C> <C>
Land............................................... $1,520,650 $1,520,650
Buildings and improvements......................... 1,584,363 1,584,363
Leasehold improvements............................. 1,922,135 1,928,550
Office furniture and equipment..................... 874,058 897,702
---------- ----------
5,901,206 5,931,265
Less: Accumulated depreciation and amortization.... 1,054,392 1,103,472
---------- ----------
$4,846,814 $4,827,793
========== ==========
</TABLE>
NOTE 3--COMMITMENTS AND CONTINGENCIES:
Theater Leases--Certain of the UA Theaters are operated under lease
arrangements. The following is a schedule of future minimum rental payments
required for all non-cancellable operating leases (for theater facilities) that
have initial or remaining lease terms in excess of one year at December 31,
1996:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1997........................................................ $ 121,293
1998........................................................ 121,293
1999........................................................ 121,293
2000........................................................ 121,293
2001........................................................ 122,439
2002 and thereafter......................................... 961,689
----------
$1,569,300
==========
</TABLE>
Rent expense for theater operating leases in 1995 and 1996 was
approximately $108,000 and $151,000, respectively.
NOTE 4--IMPAIRMENT OF LONG-LIVED ASSETS:
In the third quarter of 1996, UA recorded a $224,908 charge for the
difference between the fair value and the carrying value of the New City theater
location. The fair value was determined based on an offer received by UA to sell
such location for approximately $1,300,000, reduced further for estimated sales
costs.
F-38
<PAGE> 153
UNITED ARTISTS THEATRE CIRCUIT, INC. CINEMAS AT
BRONXVILLE, LARCHMONT, WAYNE, NEW CITY AND MAMARONECK
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(Data relating to March 31, 1997 and 1996 are unaudited)
- --------------------------------------------------------------------------------
NOTE 5--RELATED PARTY TRANSACTIONS:
Operating Expenses, Management Fees and Interest Expense--The UA Theaters'
operations through the date of sale were significantly controlled by UA. In that
regard, the cash deposited to the UA Theaters' operating accounts was
transferred to UA which used the funds to pay operating expenses, along with the
funds from other UA affiliated theaters, on a company-wide basis using an
integrated system.
Interest expense represents an allocation of interest costs incurred by UA
and is charged to the UA Theaters based on each theater's respective net assets.
NOTE 6--SUBSEQUENT EVENTS (UNAUDITED):
In July, 1997, UA entered into an agreement to sell substantially all of
the assets, including leasehold interests, equipment and various operating
contracts, of the UA Theaters to Clearview Cinema Group, Inc. for $8,650,000.
F-39
<PAGE> 154
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Clearview Cinema Group, Inc.
We have audited the combined balance sheet of the Nelson Ferman Theaters at
Parsippany and Roxbury (the "NF Theaters"), as of September 30, 1997 and the
related combined statements of income and changes in retained earnings and cash
flows for the nine months ended September 30, 1997 and the year ended December
31, 1996. These combined financial statements are the responsibility of the
management of Nelson Ferman, Inc. 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 combined financials are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined 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 the NF Theaters at
September 30, 1997, and the results of their operations and their cash flows for
of the nine months ended September 30, 1997 and the year ended December 31,
1996, in conformity with generally accepted accounting principles.
WISS & COMPANY, LLP
Woodbridge, New Jersey
October 22, 1997
F-40
<PAGE> 155
NELSON FERMAN THEATERS AT PARSIPPANY AND ROXBURY
COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 37,017
Other current assets...................................... 84,415
---------
Total current assets.............................. $ 121,432
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION....... 3,828,748
OTHER ASSETS:
Due from affiliate........................................ 125,488
Other assets.............................................. 36,403 161,891
--------- ----------
$4,112,071
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 302,917
Current portion of deferred income........................ 100,000
Accounts payable and accrued expenses..................... 723,674
---------
Total current liabilities......................... $1,126,591
LONG-TERM LIABILITIES:
Long-term debt, less current maturities................... 1,633,333
Deferred income, net of current portion................... 625,000
---------
2,258,333
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock.............................................. 504,000
Additional paid-in capital................................ 27,000
Retained earnings......................................... 196,147
---------
Total Stockholders' Equity........................ 727,147
----------
$4,112,071
==========
</TABLE>
See accompanying notes to combined financial statements.
F-41
<PAGE> 156
NELSON FERMAN THEATERS AT PARSIPPANY AND ROXBURY
COMBINED STATEMENTS OF INCOME
AND CHANGES IN RETAINED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
THEATER REVENUES:
Box office................................................ $4,812,495 $4,015,770
Concession................................................ 1,129,729 989,484
Other..................................................... 39,167 35,979
---------- ----------
5,981,391 5,041,233
---------- ----------
OPERATING EXPENSES:
Film rental and booking fees.............................. 2,373,986 1,925,740
Theater operating expenses................................ 1,848,016 1,354,756
General and administrative expenses....................... 1,103,057 819,520
Depreciation and amortization............................. 403,075 298,980
---------- ----------
5,728,134 4,398,996
---------- ----------
OPERATING INCOME............................................ 253,257 642,237
INTEREST EXPENSE............................................ 250,156 188,963
---------- ----------
NET INCOME.................................................. 3,101 453,274
RETAINED EARNINGS (DEFICIT), BEGINNING OF PERIOD............ (260,228) (257,127)
---------- ----------
RETAINED EARNINGS (DEFICIT), END OF PERIOD.................. $ (257,127) $ 196,147
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-42
<PAGE> 157
NELSON FERMAN THEATERS AT PARSIPPANY AND ROXBURY
COMBINED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 3,101 $ 453,274
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation and amortization.......................... 403,075 298,980
Recognition of deferred revenue........................ (100,000) (75,000)
Amortization of accrued rent........................... 25,146 18,860
Changes in operating assets and liabilities:
Other current assets................................. (28,286) 32,466
Other assets......................................... 10,000 12,000
Accounts payable and accrued expenses................ 19,681 (157,215)
--------- ---------
Net cash flows from operating activities.......... 332,717 583,365
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (114,423) --
Advances to parent and affiliate.......................... (89,878) (494,209)
--------- ---------
Net cash flows from investing activities.......... (204,301) (494,209)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt................................ (156,604) (151,250)
--------- ---------
NET CHANGE IN CASH.......................................... (28,188) (62,094)
CASH, BEGINNING OF PERIOD................................... 127,299 99,111
--------- ---------
CASH, END OF PERIOD......................................... $ 99,111 $ 37,017
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 250,156 $ 188,963
========= =========
Income taxes paid......................................... $ -- $ --
========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-43
<PAGE> 158
NELSON FERMAN THEATERS AT PARSIPPANY AND ROXBURY
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination--The combined financial statements include the
accounts of two theater affiliates of Nelson Ferman, Inc. ("Nelson Ferman") at
Parsippany and Roxbury (the "NF Theaters"). All significant inter-location
balances and transactions have been eliminated in combination.
Nature of the Business--The NF Theaters operated multi-screen theaters in
Morris County, New Jersey.
Revenues and Film Rental Costs--The NF Theaters recognize revenues from box
office admissions at the time of sale. Concession sales are recognized as a
commission from a third party, when earned. Film rental costs are based on a
film's box office receipts and length of a film's run.
Seasonality--The NF Theaters' business is seasonal with a large portion of
their revenues and profits being derived during the summer months (June through
August) and the holiday season (November and December).
Estimates and Uncertainties--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results, as determined at a later date,
could differ from those estimates.
Property and Equipment--Property and equipment are stated at cost. Theater
equipment and office furniture and equipment are depreciated using straight line
and accelerated methods over the estimated useful lives of the assets of 7
years. Leasehold improvements are amortized using the straight-line method over
the term of the related lease or the estimated useful life of the asset,
whichever is less.
Rent Expense--The NF Theaters included in the combined financial statements
are operated under leases that contain predetermined increases in the rentals
payable during the term of such leases. For these leases, the aggregate rental
expense over the lease terms is recognized on a straight-line basis over the
lease terms. The differences between the expense charged to operations and the
amount payable under that lease are recorded annually as deferred rent expense,
which will ultimately reverse over the lease terms.
Additional rent is paid for common area maintenance and may also be charged
based on a percentage of net revenue in excess of a predetermined amount.
Financial Instruments--Financial instruments include cash and accounts
payable and accrued expenses. The amounts reported for financial instruments are
considered to be reasonable approximations of their fair values, based on market
information of financial instruments with similar characteristics available to
management.
Income Taxes--The NF Theaters have elected under Section 1361 of the
Internal Revenue Code and under New Jersey corporate statutes to be taxed as
small business corporations. Under these provisions, all earnings and losses of
the NF Theaters are reported on the tax returns of the shareholders.
Accordingly, no provision has been made for federal income taxes and the NF
Theaters are subject to state taxes at a nominal rate.
Impairment of Long-Lived Assets--In 1996, Nelson Ferman adopted Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The effect of the adoption of that statement did not have a material effect on
the financial statements.
F-44
<PAGE> 159
NELSON FERMAN THEATERS AT PARSIPPANY AND ROXBURY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2--PROPERTY AND EQUIPMENT:
Property and equipment at September 30, 1997 are summarized as follows:
<TABLE>
<S> <C>
Leasehold improvements...................................... $4,063,081
Furniture and equipment..................................... 1,563,084
----------
5,626,165
Less: Accumulated depreciation and amortization............. 1,797,417
----------
$3,828,748
==========
</TABLE>
NOTE 3--LONG-TERM DEBT:
Long-Term Debt--A summary of long-term debt at September 30, 1997 follows:
<TABLE>
<CAPTION>
INTEREST
DESCRIPTION RATE
----------- ---------
<S> <C> <C>
Notes payable, due in monthly installments of
$14,583 plus interest, through November 2000 with
the remaining balance of $1,239,583 due in Prime
January 2001..................................... plus .25% $1,808,333
Other.............................................. Various 127,917
----------
1,936,250
Less: Current maturities........................... 302,917
----------
$1,633,333
==========
</TABLE>
The above debt is secured by the leasehold interest and other operating
assets of the NF Theaters and is guaranteed by all affiliates of Nelson Ferman,
including its stockholders.
Long-term debt matures as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
<S> <C>
1998........................................................ $ 302,917
1999........................................................ 175,000
2000........................................................ 175,000
2001........................................................ 1,283,333
----------
$1,936,250
==========
</TABLE>
NOTE 4--DEFERRED INCOME:
The NF Theaters entered into an agreement with the concession vendor of the
Parsippany location in November, 1994, wherein the concessionaire paid
$1,000,000 as advance commissions. The commissions are being recognized as
income ratably over the term of the concession agreement, which expires in
November 2004. At September 30, 1997, the unamortized deferred commission
amounted to approximately $725,000.
The agreement stipulates that if the NF Theater at Parsippany cancels the
agreement prior to its expiration, the remaining unamortized balance must be
refunded to the concessionaire.
F-45
<PAGE> 160
NELSON FERMAN THEATERS AT PARSIPPANY AND ROXBURY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
NOTE 5--COMMON STOCK:
Common stock consists of the following at September 30, 1997:
<TABLE>
<S> <C>
Parsippany:
No par value, authorized and issued 100 shares............ $500,000
Roxbury:
No par value, authorized and issued 100 shares............ 4,000
--------
$504,000
========
</TABLE>
NOTE 6--COMMITMENTS AND CONTINGENCIES:
Theater Leases--The following is a schedule of future minimum rental
payments required for all non-cancelable operating leases (for theater
facilities) that have initial or remaining lease terms in excess of one year at
September 30, 1997:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
- -------------------------
<S> <C>
1997........................................................ $ 353,805
1998........................................................ 353,805
1999........................................................ 361,523
2000........................................................ 361,523
2001........................................................ 375,478
2002 and thereafter......................................... 5,954,209
----------
$7,760,343
==========
</TABLE>
Rent expense for theater operating leases for the year ended December 30,
1996 and the nine months ended September 30, 1997 was approximately $570,000 and
$384,000, respectively.
NOTE 7--RELATED PARTY TRANSACTIONS:
Operating Expenses, Management Fees and Interest Expense--The NF Theaters'
operations through the date of sale were significantly controlled by Nelson
Ferman. In that regard, the cash deposited to the NF Theaters' operating
accounts was transferred to Nelson Ferman, which used the funds to pay operating
expenses, along with the funds from other Nelson Ferman affiliated theaters, on
a company-wide basis using an integrated system.
Interest expense represents an allocation of interest costs incurred by
Nelson Ferman and is charged to the NF Theaters based on each theater's
respective net assets.
NOTE 8--SUBSEQUENT EVENT (UNAUDITED):
In November 1997, Nelson Ferman sold substantially all of the assets,
including leasehold interests, equipment and various operating contracts of the
NF Theaters at Parsippany and Roxbury to Clearview Cinema Group, Inc.
("Clearview") for $18.5 million; $11.6 million in cash, 10 1/2% subordinated
notes aggregating $6.0 million, and common stock of Clearview valued at
$500,000, with an additional $400,000 held in escrow until the satisfaction of
certain obligations of Nelson Ferman.
F-46
<PAGE> 161
INDEPENDENT AUDITORS' REPORT
Board of Directors
Clearview Cinema Group, Inc.
We have audited the combined balance sheet of the CJM Theaters at Kin-Mall,
Middlebrook, Cedar Grove and Bellevue (the "CJM Theaters") as of September 30,
1997 and the related combined statements of income and retained earnings and
cash flows for the nine months ended September 30, 1997 and the year ended
December 31, 1996. These combined financial statements are the responsibility of
the management of CJM Entertainment, Inc. 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 the CJM Theaters at
September 30, 1997, and the results of their operations and their cash flows for
the nine months ended September 30, 1997 and the year ended December 31, 1996,
in conformity with generally accepted accounting principles.
WISS & COMPANY, LLP
Woodbridge, New Jersey
December 4, 1997
F-47
<PAGE> 162
CJM THEATERS AT KIN-MALL, MIDDLEBROOK,
CEDAR GROVE AND BELLEVUE
COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $1,030,467
Inventories............................................... 15,657
Other current assets...................................... 31,668
----------
Total current assets................................... $1,077,792
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION..... 2,479,993
OTHER ASSETS................................................ 30,280
----------
$3,588,065
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES....................... $ 377,445
AMOUNTS DUE TO OFFICER...................................... 2,313,489
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock.............................................. $ 19,000
Retained earnings......................................... 878,131
----------
Total stockholders' equity............................. 897,131
----------
$3,588,065
==========
</TABLE>
See accompanying notes to combined financial statements.
F-48
<PAGE> 163
CJM THEATERS AT KIN-MALL, MIDDLEBROOK,
CEDAR GROVE AND BELLEVUE
COMBINED STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
THEATER REVENUES:
Box office................................................ $3,774,264 $3,532,934
Concession................................................ 1,211,383 1,015,434
Other..................................................... 10,008 12,300
---------- ----------
4,995,655 4,560,668
---------- ----------
OPERATING EXPENSES:
Film rental and booking fees.............................. 1,703,429 1,608,263
Cost of concessions....................................... 248,766 194,289
Theater operating expenses................................ 1,823,464 1,695,748
General and administrative expenses....................... 181,116 114,834
Depreciation and amortization............................. 314,976 191,781
---------- ----------
4,271,751 3,804,915
---------- ----------
OPERATING INCOME............................................ 723,904 755,753
INTEREST EXPENSE............................................ 182,296 151,409
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 541,608 604,344
PROVISION FOR INCOME TAXES.................................. 18,761 25,500
---------- ----------
NET INCOME.................................................. 522,847 578,844
RETAINED EARNINGS, BEGINNING OF PERIOD...................... 326,579 643,381
DISTRIBUTIONS TO STOCKHOLDERS............................... (206,045) (344,094)
---------- ----------
RETAINED EARNINGS, END OF PERIOD............................ $ 643,381 $ 878,131
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-49
<PAGE> 164
CJM THEATERS AT KIN-MALL, MIDDLEBROOK,
CEDAR GROVE AND BELLEVUE
COMBINED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 522,847 $ 578,844
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization.......................... 314,976 191,781
Changes in operating assets and liabilities:
Inventories.......................................... 40 (2,795)
Other current assets................................. 2,060 (10,553)
Other assets......................................... (29,668) 1,501
Accounts payable and accrued expenses................ 28,296 (148,958)
---------- ----------
Net cash flows from operating activities.......... 838,551 609,820
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (398,904) (293,327)
---------- ----------
Net cash flows from investing activities.......... (398,904) (293,327)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions to stockholders............................. (206,045) (344,094)
Net advances from officer................................. 58,418 30,666
Proceeds from issuance of common stock.................... 2,000 --
---------- ----------
Net cash flows from financing activities.......... (145,627) (313,428)
---------- ----------
NET CHANGE IN CASH.......................................... 294,020 3,065
CASH, BEGINNING OF PERIOD................................... 733,382 1,027,402
---------- ----------
CASH, END OF PERIOD......................................... $1,027,402 $1,030,467
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 182,296 $ 151,409
========== ==========
Income taxes paid......................................... $ 8,500 $ 18,000
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-50
<PAGE> 165
CJM THEATERS AT KIN-MALL, MIDDLEBROOK,
CEDAR GROVE AND BELLEVUE
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination--The combined financial statements include the
accounts of certain theater affiliates of CJM Entertainment, Inc. ("CJM") at
Kin-Mall, Middlebrook, Cedar Grove and Bellevue (the "CJM Theaters"). All
significant inter-location balances and transactions have been eliminated in
combination.
Nature of the Business--The CJM Theaters operated multi-screen theaters
located in Morris, Essex and Monmouth Counties, New Jersey.
Revenues and Film Rental Costs--The CJM Theaters recognize revenues from
box office admissions and concession sales at the time of sale. Film rental
costs are based on a film's box office receipts and length of a film's run.
Seasonality--The CJM Theaters' business is seasonal with a large portion of
their revenues and profits being derived during the summer months (June through
August) and the holiday season (November and December).
Estimates and Uncertainties--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results, as determined at a later date,
could differ from those estimates.
Property and Equipment--Property and equipment are stated at cost. Theater
equipment and office furniture and equipment are depreciated using straight line
and accelerated methods over the estimated useful lives of the assets of 7
years. Leasehold improvements are amortized using the straight-line method over
the term of the related lease or the estimated useful life of the asset, which
ever is less.
Rent Expense--The CJM Theaters included in the combined financial
statements are operated under leases that contain predetermined increases in the
rentals payable during the term of such leases. For these leases, the aggregate
rental expense over the lease terms is recognized on a straight-line basis over
the lease terms. The differences between the expense charged to operations and
the amount payable under that lease are recorded annually as deferred rent
expense, which will ultimately reverse over the lease term.
Additional rent is paid for common area maintenance and may also be charged
based on a percentage of net revenue in excess of a predetermined amount.
Financial Instruments--Financial instruments include cash and accounts
payable and accrued expenses The amounts reported for financial instruments are
considered to be reasonable approximations of their fair values, based on market
information of financial instruments with similar characteristics available to
management.
Income Taxes--The CJM Theaters have elected under Section 1361 of the
Internal Revenue Code and under New Jersey corporate statutes to be taxed as
small business corporations. Under these provisions, all earnings and losses of
the CJM Theaters are reported on the tax returns of the shareholders.
Accordingly, no provision has been made for federal income taxes and the CJM
Theaters are subject to state taxes at a nominal rate.
Impairment of Long-Lived Assets--In 1996, the CJM Theaters adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The effect of adoption of the statement did not have a material effect on
the financial statements.
F-51
<PAGE> 166
CJM THEATERS AT KIN-MALL, MIDDLEBROOK,
CEDAR GROVE AND BELLEVUE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2--PROPERTY AND EQUIPMENT:
Property and equipment at September 30, 1997 are summarized as follows:
<TABLE>
<S> <C>
Leasehold improvements...................................... $2,323,240
Furniture and other equipment............................... 1,480,472
----------
3,803,712
Less: Accumulated depreciation and amortization............. 1,323,719
----------
$2,479,993
==========
</TABLE>
NOTE 3--COMMON STOCK:
Common stock consist of the following at September 30, 1997:
<TABLE>
<S> <C>
Kin-Mall:
No par value, authorized 2500 shares, issued and
outstanding 200 shares................................. $ 2,000
Middlebrook:
No par value, authorized 2500 shares, issued and
outstanding 100 shares................................. 10,000
Cedar Grove:
No par value, authorized 2500 shares, issued and
outstanding 200 shares................................. 5,000
Bellevue:
No par value, authorized 2500 shares, issued and
outstanding 200 shares................................. 2,000
-------
$19,000
=======
</TABLE>
NOTE 4--COMMITMENTS AND CONTINGENCIES:
Theater Leases--The following is a schedule of future minimum rental
payments required for all non-cancellable operating leases that have initial or
remaining lease terms in excess of one year at September 30, 1997:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
- -------------------------
<S> <C>
1998........................................................ $ 712,112
1999........................................................ 668,135
2000........................................................ 448,250
2001........................................................ 470,325
2002........................................................ 430,326
2003 and thereafter......................................... 2,249,744
----------
$4,978,892
==========
</TABLE>
Rent expense for theater operating leases for the nine months ended
September 30, 1997 and the year ended December 31, 1996, was approximately
$608,000 and $750,000, respectively.
NOTE 5--RELATED PARTY TRANSACTIONS:
Due to Officer--The amount due to officer represent advances made to each
of the respective CJM Theaters' since their inception. No specified payment
terms have been determined.
F-52
<PAGE> 167
CJM THEATERS AT KIN-MALL, MIDDLEBROOK,
CEDAR GROVE AND BELLEVUE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
NOTE 6--SUBSEQUENT EVENT (UNAUDITED):
In December 1997, CJM sold substantially all of the assets, including
leasehold interests, equipment and various operating contracts of the CJM
Theaters at Kin-Mall, Middlebrook, Cedar Grove and Bellevue to Clearview Cinema
Group, Inc. ("Clearview").
CJM received 62,500 shares of common stock of Clearview in exchange for
certain furniture, fixtures, equipment, and personal property related to the
operation of its Bellevue theater, a four-screen theater located in Upper
Montclair, New Jersey and a leasehold interest in the real property on which
that theater is located.
Pursuant to three separate asset purchase agreements, CJM sold the
respective leasehold interests and furniture, fixtures, equipment and personal
property related to the operation of its eight-screen Kin-Mall theater located
in Kinnelon, New Jersey; its five-screen theater located in Cedar Grove, New
Jersey; and its ten-screen Middlebrook theater located in Ocean Township, New
Jersey. The aggregate purchase price of these three acquisitions totaled $8.75
million; $7.25 million in cash and the right to receive 1,500 shares of
Clearview's Class B Non-Voting Cumulative Redeemable Preferred Stock (the "Class
B Preferred Stock"). CJM will receive cash of $1.5 million (plus interest
accrued at 10 1/2%) in lieu of the Class B Preferred Stock if Clearview
consummates a specified debt offering by certain prescribed dates. In addition,
the right to receive 750 of the 1,500 shares of Clearview's Class B Preferred
Stock will also terminate if, prior to December 12, 1999, any other party
receives all material governmental approvals for the construction of a new
theater complex in a specified location.
F-53
<PAGE> 168
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
CABLEVISION SYSTEMS CORPORATION,
CCG HOLDINGS INC.
AND
CLEARVIEW CINEMA GROUP, INC.
DATED AS OF AUGUST 12, 1998
A-1
<PAGE> 169
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated
as of August 12, 1998, among Cablevision Systems Corporation, a Delaware
corporation ("Parent"), CCG Holdings Inc, a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Clearview Cinema Group,
Inc., a Delaware corporation (the "Company" the Company and Merger Sub sometimes
being hereinafter collectively referred to as the "Constituent Corporations")
RECITALS
WHEREAS, the respective boards of directors of each of Parent, Merger Sub
and the Company have approved the merger of the Company with Merger Sub (the
"Merger") and approved and declared advisable the Merger upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, provided that the Average Parent Share Price (as defined in
Section 4.1(a)) is greater than or equal to the Floor Price (as defined in
Section 1.1), it is intended that, for federal income tax purposes, the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code");
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, and as a condition and inducement to Parent's and Merger Sub's
willingness to enter into this Agreement, certain stockholders of the Company
(the "Selling Stockholders") who own or control the right to vote Shares and
other Company Securities (each as defined in Section 4.1(a)) representing a
majority of the outstanding Shares on a fully diluted basis are entering into
one or more voting and option agreements with Parent (the "Stockholder
Agreements"), pursuant to which each of the Selling Stockholders has agreed to
vote all of the Shares and other Company Securities currently beneficially owned
and hereinafter acquired by him, her or it in favor of the Merger (and has
agreed, if so requested by Parent, to exercise any warrants to purchase Shares
so that he, she or it may vote such Shares together with other holders of Shares
at the Stockholders Meeting);
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, and as a condition and inducement to Parent's and Merger Sub's
willingness to enter into this Agreement, Midmark Capital, L.P. (the
"Warrantholder"), the holder of a warrant (the "Class A Warrant") to purchase
282,600 Shares, is entering into an agreement with the Company and Parent (the
"Warrantholder Agreement"), pursuant to which the Warrantholder and the Company
have agreed that immediately prior to the Effective Time (as defined in Section
1.3) the Warrantholder shall surrender its Class A Warrant to the Company for
cancellation in exchange for payment by the Company of $1.00; and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement and the Merger.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1. The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time, the Company shall be merged with and
into Merger Sub and the separate corporate existence of the Company shall
thereupon cease. Merger Sub shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation"), and the
separate corporate existence of Merger Sub with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger. The
Merger shall have the effects specified in the Delaware General Corporation Law,
as amended (the "DGCL"); provided, however, that if the Average Parent Share
Price is less than $72.00 (the "Floor Price"), at Parent's sole option and
discretion, at the Effective Time (as defined in Section 1.3), Merger Sub will
be merged with and into the Company, the separate corporate existence of Merger
Sub shall cease, the
A-2
<PAGE> 170
Company shall be the Surviving Corporation and the separate corporate existence
of the Company shall continue unaffected by the Merger.
1.2. Closing. The closing of the Merger (the "Closing") shall take place
(i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York
at 9:00 A.M. on the first business day on which the last to be fulfilled or
waived of the conditions set forth in Article VII (other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place and time and/or on
such other date as the Company and Parent may agree in writing (the "Closing
Date").
1.3. Effective Time. As soon as practicable following the Closing, the
Company and Parent will cause a Certificate of Merger (the "Delaware Certificate
of Merger") to be executed, acknowledged and filed with the Secretary of State
of Delaware as provided in Section 251 of the DGCL. The Merger shall become
effective at the time when the Delaware Certificate of Merger has been duly
filed with the Secretary of State of Delaware (the "Effective Time").
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. The Certificate of Incorporation. The certificate of incorporation
of Merger Sub as in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation (the "Charter"), until
duly amended as provided therein or by applicable law; provided, however, that
if the Average Parent Share Price is less than the Floor Price and Parent shall
elect that Merger Sub merge with and into the Company at the Effective Time, the
Charter shall be amended and restated to be identical to the certificate of
incorporation of Merger Sub until duly amended as provided therein or by
applicable law.
2.2. The By-Laws. The by-laws of Merger Sub in effect at the Effective
Time shall be the by-laws of the Surviving Corporation (the "By-Laws"), until
thereafter amended as provided therein or by applicable law.
ARTICLE III
OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
3.1. Directors. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the Charter
and the By-Laws.
3.2. Officers. The officers of the Company at the Effective Time shall,
from and after the Effective Time, be the officers of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the Charter
and the By-Laws.
A-3
<PAGE> 171
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
4.1. Effect on Capital Stock. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock of
the Company:
(a) Merger Consideration. Subject to Section 4.1(b) and Section 4.2,
(i) each share of the Common Stock, par value $.01 per share, of the
Company (the "Shares") issued and outstanding at the Effective Time (other
than (A) Shares owned by Parent, Merger Sub or any other direct or indirect
subsidiary of Parent (collectively, the "Parent Companies") or by the
Company or any direct or indirect subsidiary of the Company (collectively,
the "Company Entities") and in each case not held on behalf of third
parties and (B) Shares ("Dissenting Shares") that are held by stockholders
("Dissenting Common Stockholders") exercising appraisal rights pursuant to
Section 262 of the DGCL (collectively, "Excluded Shares")) shall be
converted into, and become exchangeable for, at the option of the holder
thereof (the "Share Merger Consideration"), (A) $24.25 in cash (the "Share
Cash Consideration") or (B) that number of shares of Class A Common Stock,
par value $.01 per share, of Parent ("Parent Common Stock") (the "Share
Stock Consideration") equal to the amount (rounded to four decimal places)
(the "Share Conversion Number") derived by dividing $24.25 by the average
(rounded to four decimal places) of the average of the daily per share high
and low sales prices, regular way (the "Average Parent Share Price") of
Parent Common Stock as reported on the American Stock Exchange, Inc. (the
"ASE") composite transactions reporting system (as reported in the New York
City edition of The Wall Street Journal or, if not reported therein,
another authoritative source) on each of the ten (10) trading days (the
"Averaging Period") ending on and including the third trading day prior to
the Closing Date; provided, however, that, if the Average Parent Share
Price is less than the Floor Price, the Share Merger Consideration shall be
the Share Cash Consideration and no holder of Shares shall have the option
or right to elect to receive (and Parent shall have no obligation to issue)
Share Stock Consideration;
(ii) each share of the Class A Convertible Preferred Stock, par value
$.01 per share, of the Company (the "Class A Preferred Shares") issued and
outstanding at the Effective Time (other than (A) Class A Preferred Shares
owned by the Parent Companies or by the Company Entities and in each case
not held on behalf of third parties and (B) Class A Preferred Shares
("Dissenting Class A Preferred Shares") that are held by stockholders
("Dissenting Class A Preferred Stockholders") exercising appraisal rights
pursuant to Section 262 of the DGCL (collectively, "Excluded Class A
Preferred Shares") shall be converted into, and become exchangeable for, at
the option of the holder thereof (the "Class A Preferred Share Merger
Consideration"),(A) the amount, in cash (the "Class A Preferred Share Cash
Consideration"), derived by multiplying (x) the number of Shares issuable
upon conversion of a Class A Preferred Share immediately prior to the
Effective Time (the "Class A Conversion Number") by (y) the Share Cash
Consideration or (B) the number of shares of Parent Common Stock (the
"Class A Preferred Share Stock Consideration") equal to the amount (rounded
to four decimal places) derived by multiplying the Class A Conversion
Number and the Share Conversion Number; provided, however, that, if the
Average Parent Share Price is less than the Floor Price, the Class A
Preferred Share Merger Consideration shall be the Class A Preferred Share
Cash Consideration and no holder of Class A Preferred Shares shall have the
right or option to elect to receive (and Parent shall have no obligation to
issue) Class A Preferred Share Stock Consideration;
(iii) each share of the Class B Nonvoting Cumulative Redeemable
Preferred Stock, par value $.01 per share, of the Company (the "Class B
Preferred Shares") issued and outstanding at the Effective Time (other than
(A) Class B Preferred Shares owned by the Parent Companies or by the
Company Entities and in each case not held on behalf of third parties and
(B) Class B Preferred Shares ("Dissenting Class B Preferred Shares") that
are held by stockholders ("Dissenting Class B Preferred Stockholders")
exercising appraisal rights pursuant to Section 262 of the DGCL
(collectively, "Excluded Class B Preferred Shares") shall be converted
into, and become exchangeable for (the "Class B Preferred
A-4
<PAGE> 172
Share Merger Consideration"), the amount, in cash (the "Class B Preferred
Share Cash Consideration"), equal to the redemption price per Class B
Preferred Share that would be payable by the Company in accordance with the
Certificate of Designation of the Class B Preferred Shares if the Company
were to redeem the Class B Preferred Shares immediately prior to the
Effective Time; and
(iv) each share of the Class C Convertible Preferred Stock, par value
$.01 per share, of the Company (the "Class C Preferred Shares" and,
together with the Class A Preferred Shares and the Class B Preferred
Shares, the "Preferred Shares" and, the Preferred Shares together with the
Shares, the "Company Securities") issued and outstanding at the Effective
Time (other than (A) Class C Preferred Shares owned by the Parent Companies
or by the Company Entities and in each case not held on behalf of third
parties and (B) Class C Preferred Shares ("Dissenting Class C Preferred
Shares" and, together with the Dissenting Shares, the Dissenting Class A
Preferred Shares and the Dissenting Class B Preferred Shares, the
"Dissenting Securities") that are held by stockholders ("Dissenting Class C
Preferred Stockholders" and, together with the Dissenting Common
Stockholders, the Dissenting Class A Preferred Stockholders and the
Dissenting Class B Preferred Stockholders, the "Dissenting
Securityholders") exercising appraisal rights pursuant to Section 262 of
the DGCL (collectively, "Excluded Class C Preferred Shares" and, together
with the Excluded Shares, the Excluded Class A Preferred Shares and the
Excluded Class B Preferred Shares, the "Excluded Securities") shall be
converted into, and become exchangeable for, at the option of the holder
thereof (the "Class C Preferred Share Merger Consideration" and, together
with the Share Merger Consideration, the Class A Preferred Share Merger
Consideration and the Class B Preferred Stock Merger Consideration, the
"Merger Consideration") (A) the amount, in cash (the "Class C Preferred
Share Cash Consideration" and, together with the Share Cash Consideration,
the Class A Preferred Share Cash Consideration and the Class B Preferred
Share Cash Consideration, the "Security Cash Consideration"), derived by
multiplying (x) the number of Shares issuable upon conversion of a Class C
Preferred Share based on an exchange ratio of 51 Shares per Class C
Preferred Share (the "Class C Conversion Number" and, together with the
Conversion Number and the Class A Conversion Number, the "Security
Conversion Number") by (y) the Share Cash Consideration and adding to such
amount the accrued but unpaid dividends on a Class C Preferred Share
through the Effective Time or (B) the number of shares of Parent Common
Stock (the "Class C Preferred Share Stock Consideration" and, together with
the Share Stock Consideration and the Class A Preferred Share Stock
Consideration, the "Security Stock Consideration") equal to the amount
(rounded to four decimal places) derived by multiplying the Class C
Conversion Number and the Share Conversion Number and adding to such number
of shares of Parent Common Stock, the number of shares of Parent Common
Stock derived by dividing the amount of accrued but unpaid dividends on a
Class C Preferred Share through the Effective Time by the Average Parent
Share Price; provided, however, that, if the Average Parent Share Price is
less than the Floor Price, the Class C Preferred Share Merger Consideration
shall be the Class C Preferred Share Cash Consideration and no holder of
Class C Preferred Shares shall have the right or option to elect to receive
(and Parent shall have no obligation to issue) Class C Preferred Share
Stock Consideration.
(b) Cancellation of Company Securities. Each Excluded Security issued and
outstanding immediately prior to the Effective Time, shall, by virtue of the
Merger and without any action on the part of the holder thereof, cease to be
outstanding, shall be cancelled and retired without payment of any consideration
therefor and shall cease to exist subject to the rights of the holder thereof,
if such holder is a Dissenting Securityholder, under Section 262 of the DGCL. At
the Effective Time, all Company Securities shall no longer be outstanding and
shall be cancelled and retired and shall cease to exist, and each certificate
formerly representing any of such Company Securities (other than Excluded
Securities) (a "Certificate") shall, subject to the terms and upon the
conditions of this Agreement, thereafter represent only the right to receive the
applicable Merger Consideration and the right, if any, to receive pursuant to
Section 4.2(e) cash in lieu of any fractional shares into which such Company
Securities otherwise would have been converted pursuant to Section 4.1(a) and
any distribution or dividend pursuant to Section 4.2(c).
(c) Merger Sub. At the Effective Time, each share of Common Stock, par
value $.01 per share (the "Merger Sub Shares"), of Merger Sub issued and
outstanding immediately prior to the Effective Time shall
A-5
<PAGE> 173
remain outstanding and certificates evidencing any such shares of Merger Sub
shall continue to evidence shares of Common Stock of the Surviving Corporation;
provided, however, that if the Average Parent Share Price is less than the Floor
Price and Parent shall elect that Merger Sub be merged with and into the Company
at the Effective Time, each Merger Sub Share outstanding immediately prior to
the Effective Time shall be converted into one share of common stock of the
Surviving Corporation.
4.2. Allocation of Merger Consideration; Election Procedures. For
purposes of this Agreement "Share Equivalents" shall mean (i) with respect to
Shares, the number of outstanding Shares, (ii) with respect to Class B Preferred
Shares, the amount derived by multiplying (A) the number of outstanding Class B
Preferred Shares by (B) the amount derived by dividing the Class B Preferred
Share Cash Consideration by the Share Cash Consideration, and (iii) with respect
to the Class A Preferred Shares and the Class C Preferred Shares (the
"Convertible Preferred Shares"), the number of Shares into which such
outstanding Convertible Preferred Shares could be converted immediately prior to
the Effective Time.
(a) Allocation. (i) If the holders of Shares and Convertible Preferred
Shares have the option to elect Security Cash Consideration or Security Stock
Consideration, the number of Shares and Convertible Preferred Shares to be
converted into the right to receive the applicable Security Stock Consideration
and the applicable Security Cash Consideration in the Merger shall be determined
as follows:
(ii) Subject to Section 4.2(a)(iv), notwithstanding anything in this
Agreement to the contrary, the aggregate number of Share Equivalents (the
"Stock Election Number") represented by the Shares and Convertible
Preferred Shares to be converted into the right to receive the applicable
Security Stock Consideration shall be equal, as closely as practicable, to
forty-five percent (45%) of the sum of (A) the aggregate number of Share
Equivalents represented by outstanding Company Securities (treating any
Company Securities to be cancelled pursuant to Section 4.1(b) as not being
outstanding for this purpose) immediately prior to the Effective Time and
(B) the aggregate number of Share Equivalents represented by any Class B
Preferred Shares redeemed by the Company prior to the Effective Time.
(iii) Subject to Section 4.2(a)(iv), notwithstanding anything in this
Agreement to the contrary, the aggregate number of Share Equivalents (the
"Cash Election Number") represented by the Shares and Convertible Preferred
Shares to be converted into the right to receive the applicable Security
Cash Consideration shall equal, as closely as practicable, the number of
Share Equivalents represented by the difference between (A) the aggregate
number of Share Equivalents represented by outstanding Company Securities
immediately prior to the Effective Time and (B) the Stock Election Number.
(iv) Notwithstanding anything in this Agreement to the contrary,
unless the Average Parent Share Price is less than the Floor Price, if,
absent this Section 4.2(a)(iv), as of the Effective Time the aggregate
value of the Security Stock Consideration (calculated using the most recent
available price for Parent Common Stock on the ASE) would be less than 45%
of the sum of (x) the aggregate value of the Security Cash Consideration
and (y) the aggregate value of the Security Stock Consideration (calculated
using the most recent available price for Parent Common Stock on the ASE),
then the Stock Election Number and the Cash Election Number (but not the
Security Conversion Numbers) shall be adjusted as necessary so that, as of
the Effective Time, the aggregate value of the Security Stock Consideration
(calculated using the most recent available price for Parent Common Stock
on the ASE) shall equal, as closely as possible, 45% of the sum of (x) the
aggregate value of the Security Cash Consideration and (y) the aggregate
value of the Security Stock Consideration (calculated using the most recent
available price for Parent Common Stock on the ASE); provided, however,
that if the Stock Election Number resulting from such adjustment would be
greater than the Stock Election Number that would have resulted pursuant to
Section 4.2(a)(ii) (without regard to this Section 4.2(a)(iv)) if the
Average Parent Share Price had been equal to the Floor Price, then Parent,
at its sole discretion, shall have the option of either (i) adjusting the
Stock Election Number and the Cash Election Number as set forth above in
this Section 4.2(a)(iv) or (ii) treating the Average Parent Share Price as
being less than the Floor Price for all purposes of this Agreement,
including the availability of the election set forth in Section 1.1 and the
concomitant change in the form of the Merger Consideration to all cash as
set forth in the provisos to Sections 4.1(a)(i), (ii) and (iv).
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(b) Election and Proration Procedures.
(i) As of the Effective Time, Parent shall deposit, or shall cause to be
deposited, with an exchange agent selected by Parent, with the Company's prior
approval, which shall not be unreasonably withheld or delayed (the "Exchange
Agent"), for the benefit of the holders of Certificates representing Company
Securities issued and outstanding immediately prior to the Effective Time, the
shares of Parent Common Stock, cash and any dividends or other distributions
with respect to the Parent Common Stock to be issued or paid pursuant to Section
4.1 and this Section 4.2 in exchange for such Company Securities upon due
surrender of such Certificates pursuant to the provisions of this Article IV
(such cash and certificates representing shares of Parent Common Stock, together
with any dividends or other distributions payable with respect thereto, being
hereinafter referred to as the "Exchange Fund").
(ii) Provided the Average Parent Share Price is greater than or equal to
the Floor Price, and subject to allocation and proration in accordance with the
provisions of this Section 4.2, each record holder of Shares and Convertible
Preferred Shares (other than Excluded Securities) issued and outstanding
immediately prior to the Election Deadline (as defined below) shall be entitled
(A) to elect to receive in respect of each such Company Security (x) the
applicable Security Cash Consideration (a "Cash Election") or (y) the applicable
Security Stock Consideration (a "Stock Election") or (B) to indicate that such
record holder has no preference as to the receipt of the applicable Security
Cash Consideration or the applicable Security Stock Consideration for such
Shares or Convertible Preferred Shares (a "Non-Election"). Shares and
Convertible Preferred Shares in respect of which a Non-Election is made
(including Shares and Convertible Preferred Shares in respect of which such a
Non-Election is deemed to have been made pursuant to this Section 4.2 and
Section 4.3 (collectively, "Non-Election Securities") shall be deemed by Parent,
in its sole and absolute discretion, subject to Sections 4.2(b)(v)-(vii), to be,
in whole or in part, Shares and Convertible Preferred Shares in respect of which
Cash Elections or Stock Elections have been made.
(iii) Elections pursuant to Section 4.2(b)(ii) shall be made on a form with
such provisions as may be reasonably agreed upon by the Company and Parent (a
"Form of Election") to be provided by the Exchange Agent for that purpose to
record holders of Shares and Convertible Preferred Shares (other than holders of
Excluded Securities), together with appropriate transmittal materials, at the
time of mailing to holders of record of Company Securities of the
Prospectus/Proxy Statement (as defined in Section 6.3) in connection with the
Stockholders Meeting referred to in Section 6.4. Elections shall be made by
mailing to the Exchange Agent a duly completed Form of Election. To be
effective, a Form of Election must be (x) properly completed, signed and
submitted to the Exchange Agent at its designated office by 5:00 p.m. on the
business day that is two trading days prior to the Closing Date (which date
shall be publicly announced by Parent as soon as practicable but in no event
less than ten trading days prior to the Closing Date) (the "Election Deadline")
and (y) accompanied by the Certificate(s) representing the Shares and
Convertible Preferred Shares as to which the election is being made (or by an
appropriate guarantee of delivery of such Certificate(s) by a commercial bank or
trust company in the United States or a member of a registered national security
exchange or of the National Association of Securities Dealers, Inc., provided
that such Certificates are in fact delivered to the Exchange Agent within five
trading days after the date of execution of such guarantee of delivery). The
Company shall use its best efforts to make a Form of Election available to all
Persons who become holders of record of Shares or Convertible Preferred Shares
(other than Excluded Securities) between the date of mailing described in the
first sentence of this Section 4.2(b)(iii) and the Election Deadline. Parent
shall determine, in its sole and absolute discretion, which authority it may
delegate in whole or in part to the Exchange Agent, whether Forms of Election
have been properly completed, signed and submitted or revoked. The decision of
Parent (or the Exchange Agent, as the case may be) in such matters shall be
conclusive and binding. Neither Parent nor the Exchange Agent will be under any
obligation to notify any Person of any defect in a Form of Election submitted to
the Exchange Agent. A holder of Shares or Convertible Preferred Shares that does
not submit an effective Form of Election prior to the Election Deadline shall be
deemed to have made a Non-Election.
(iv) An election pursuant to Section 4.2(b)(ii) may be revoked, but
only by written notice received by the Exchange Agent prior to the Election
Deadline. Any Certificate(s) representing Company Securities that have been
submitted to the Exchange Agent in connection with an election shall be
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returned without charge to the holder thereof in the event such election is
revoked as aforesaid and such holder requests in writing the return of such
Certificate(s). Upon any such revocation, unless a duly completed Form of
Election is thereafter submitted prior to the Election Deadline in
accordance with paragraph (b)(iii), such Shares and Convertible Preferred
Shares shall be deemed Non-Election Securities. In the event that this
Agreement is terminated pursuant to the provisions hereof and any Company
Securities have been transmitted to the Exchange Agent pursuant to the
provisions hereof, such Company Securities shall promptly be returned
without charge to the Person (as defined below) submitting the same.
(v) In the event that the aggregate number of Share Equivalents represented
by the outstanding Shares and Convertible Preferred Shares in respect of which
Cash Elections have been made exceeds the Cash Election Number, (a) all Shares
and Convertible Preferred Shares in respect of which Stock Elections have been
made or are deemed to have been made (the "Stock Election Securities") shall be
converted into the right to receive the applicable Securities Stock
Consideration, and (b) all Non-Election Securities and Shares and Convertible
Preferred Shares in respect of which Cash Elections have been made shall be
converted into the right to receive the respective applicable Security Stock
Consideration or Security Cash Consideration in the following order and manner:
(A) first, all Non-Election Securities shall be deemed to be Shares
and Convertible Preferred Shares in respect of which Stock Elections have
been made and treated as Stock Election Securities;
(B) second, if necessary, an aggregate number of shares and
Convertible Preferred Shares in respect of which Cash Elections have been
made shall be deemed converted into and treated as Stock Election
Securities, (such aggregate number to be apportioned pro-rata among record
holders of such Shares and Convertible Preferred Shares, based on the
number of Share Equivalents represented thereby), so that the number of
Share Equivalents represented by the Shares and Convertible Preferred
Shares so converted, when added to the Share Equivalents represented by all
other Stock Election Securities (including Non-Election Securities deemed
to be Stock Election Securities), shall equal as closely as practicable,
the Stock Election Number; and
(C) third, any remaining Shares and Convertible Preferred Shares in
respect of which Cash Elections have been made and all Class B Preferred
Shares shall be converted into the right to receive the applicable Security
Cash Consideration.
(vi) In the event that the aggregate number of Share Equivalents
represented by the outstanding Shares and Convertible Preferred Shares in
respect of which Stock Elections have been made exceeds the Stock Election
Number, (a) all Shares and Convertible Preferred Shares in respect of which Cash
Elections have been made or are deemed to have been made (the "Cash Election
Securities") and all Class B Preferred Shares shall be converted into the right
to receive the applicable Securities Cash Consideration, and (b) all
Non-Election Securities and Shares and Convertible Preferred Shares in respect
of which Stock Elections have been made shall be converted into the right to
receive the respective applicable Security Cash Consideration and Security Stock
Consideration in the following order and manner:
(A) first, all Non-Election Securities shall be deemed to be Shares
and Convertible Preferred Shares in respect of which Cash Elections have
been made and treated as Cash Election Securities;
(B) second, if necessary, an aggregate number of shares and
Convertible Preferred Shares in respect of which Stock Elections have been
made shall be deemed converted into and treated as Cash Election
Securities, such aggregate number to be apportioned pro-rata among record
holders of such Shares and Convertible Preferred Shares, based on the
number of Share Equivalents represented thereby), so that the number of
Share Equivalents represented by the Shares and Convertible Preferred
Shares so converted, when added to the Share Equivalents represented by all
Class B Preferred Shares and all other Cash Election Securities (including
Non-Election Securities to be deemed Cash Election Securities), shall equal
as closely as practicable the Cash Election Number; and
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(C) third, any remaining Shares and Convertible Preferred Shares in
respect of which Stock Elections have been made shall be converted into the
right to receive the applicable Security Stock Consideration.
(vii) In the event that clauses (v) and (vi) of this Section 4.2(b) are not
applicable, all Non-Election Securities shall be deemed by Parent, in its sole
and absolute discretion, subject to Section 4.2(a), to be, in whole or in part,
Shares and Convertible Preferred Shares in respect of which Cash Elections or
Stock Elections have been made, as applicable.
(viii) The Exchange Agent, in consultation with Parent and the Company,
shall make all computations to give effect to this Section 4.2.
(ix) Subject to this Section 4.2(b) and Section 4.2(h), upon surrender of a
Certificate representing Stock Election Securities for cancellation to the
Exchange Agent together with a duly completed Form of Election, the holder of
such Certificate shall be entitled to receive (a) a certificate representing
that number of whole shares of Parent Common Stock that such holder is entitled
to receive pursuant to this Article IV, (b) a check in the amount (after giving
effect to any required tax withholdings) of (x) any cash in lieu of fractional
shares plus (y) any unpaid non-stock dividends and any other dividends or other
distributions that such holder has the right to receive pursuant to the
provisions of this Article IV, and the Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on any amount
payable upon due surrender of the Certificates representing Stock Election
Securities. In the event of a transfer of ownership of Company Securities that
is not registered in the transfer records of the Company, the applicable Stock
Merger Consideration payable in respect of such Company Securities may be issued
and/or paid to such a transferee if the Certificate formerly representing such
Company Securities is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Person (as defined below) requesting such
exchange shall pay any transfer or other taxes required by reason of the
issuance of certificates for shares of Parent Common Stock in a name other than
that of the registered holder of the Certificate surrendered, or shall establish
to the satisfaction of Parent or the Exchange Agent that such tax has been paid
or is not applicable.
(x) Subject to this Section 4.2(b) and Section 4.2(h), upon surrender of a
Certificate representing Cash Election Securities (or, if the Average Parent
Share Price is less than (or pursuant to Section 4.2(a)(iv), is, at Parent's
option, treated as being less than) the Floor Price, any Company Securities) for
cancellation to the Exchange Agent together with a duly completed Form of
Election, the holder of such Certificate shall be entitled to receive a check in
the amount such holder is entitled to receive pursuant to this Article IV, and
the Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Company Securities that is not registered in the
transfer records of the Company, the applicable Cash Merger Consideration
payable in respect of such Company Securities may be issued and/or paid to such
a transferee if the Certificate formerly representing such Company Securities is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
For the purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including not-for-profit entity), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined in Section 5.1(d) or
other entity of any kind or nature.
(c) Distributions with Respect to Unexchanged Company Securities;
Voting. (i) All shares of Parent Common Stock to be issued pursuant to the
Merger shall be deemed issued and outstanding as of the Effective Time and
whenever a dividend or other distribution is declared by Parent in respect of
the Parent Common Stock, the record date for which is at or after the Effective
Time, that declaration shall include dividends or other distributions in respect
of all shares issuable pursuant to this Agreement. No dividends or other
distributions in respect of Parent Common Stock shall be paid to any holder of
any unsurrendered Certificate representing Stock Election Securities until such
Certificate is surrendered for exchange in
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accordance with this Article IV. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be issued and/or paid
to the holder of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, (A) at the time of such
surrender, the dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Parent
Common Stock and not paid and (B) at the appropriate payment date, the dividends
or other distributions payable with respect to such whole shares of Parent
Common Stock with a record date after the Effective Time but with a payment date
subsequent to such surrender.
(ii) Holders of unsurrendered Certificates representing Stock Election
Securities shall be entitled to vote after the Effective Time at any meeting of
Parent stockholders the number of whole shares of Parent Common Stock
represented by such Certificates, regardless of whether such holders have
exchanged their Certificates.
(d) Transfers. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Company Securities that were
outstanding immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and any
holder of Company Securities entitled to receive a fractional share of Parent
Common Stock but for this Section 4.2(e) shall be entitled to receive a cash
payment in lieu thereof, which payment shall represent such holder's
proportionate interest in a share of Parent Common Stock based on the Average
Parent Share Price.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Common Stock)
that remains unclaimed by the stockholders of the Company for 180 days after the
Effective Time shall be paid to Parent. Any stockholders of the Company who have
not theretofore complied with this Article IV shall thereafter look only to
Parent for payment of their shares of Parent Common Stock and/or any cash,
dividends and other distributions in respect thereof payable and/or issuable
pursuant to Section 4.1 and this Section 4.2 upon due surrender of their
Certificates (or affidavits of loss in lieu thereof), in each case, without any
interest thereon. Notwithstanding the foregoing, none of Parent, the Surviving
Corporation, the Exchange Agent or any other Person shall be liable to any
former holder of Company Securities for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(g) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificate to be lost, stolen or
destroyed and, if required by Parent, the posting by such Person of a bond in
customary amount as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the shares of Parent Common Stock and/or
any cash payable and any unpaid dividends or other distributions in respect
thereof pursuant to Sections 4.1 and this 4.2 deliverable in respect of the
Company Securities represented by such Certificate pursuant to this Agreement.
(h) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "affiliate" (as determined pursuant
to Section 6.8) of the Company shall not be exchanged until Parent has received
a written agreement from such Person as provided in Section 6.8.
4.3. Dissenters' Rights. No Dissenting Securityholder shall be entitled to
any Merger Consideration pursuant to this Article IV unless and until such
Person thereof shall have failed to perfect or shall have effectively withdrawn
or lost such Person's right to dissent from the Merger under the DGCL, and any
Dissenting Securityholder shall be entitled to receive only the payment provided
by Section 262 of the DGCL with respect to Company Securities owned by such
Dissenting Securityholder. If any Person who otherwise would be deemed a
Dissenting Securityholder shall have failed to perfect or shall have effectively
withdrawn or lost the right to dissent with respect to any Company Securities,
such Company Securities shall immediately become Non-Election Shares. The
Company shall give Parent (i) prompt notice of any written demands for
appraisal, attempted withdrawals of such demands, and any other instruments
served pursuant to applicable law received by the Company relating to
stockholders' rights of appraisal and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company
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shall not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any demands for appraisal of Dissenting Securities,
offer to settle or settle any such demands or approve any withdrawal of any such
demands.
4.4. Adjustments to Prevent Dilution. In the event that the Company
changes the number of Company Securities or securities convertible or
exchangeable into or exercisable for Company Securities, or Parent changes the
number of shares of Parent Common Stock or securities convertible or
exchangeable into or exercisable for shares of Parent Common Stock, issued and
outstanding prior to the Effective Time as a result of a reclassification, stock
split (including, without limitation, the Parent's publicly announced
two-for-one stock split or any reverse split), stock dividend or distribution,
recapitalization, merger, subdivision, issuer tender or exchange offer or other
similar transaction, the Merger Consideration and the Floor Price shall be
equitably adjusted.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company. Except as set forth
in the corresponding sections or subsections of the disclosure letter delivered
to Parent by the Company on or prior to entering into this Agreement (the
"Company Disclosure Letter"), the Company hereby represents and warrants to
Parent and Merger Sub that:
(a) Organization, Good Standing and Qualification. Each of the Company and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization and has
all requisite corporate or similar power and authority to own and operate its
properties and assets and to carry on its business as presently conducted and is
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the ownership or operation of its properties or conduct
of its business requires such qualification, except where the failure to be so
qualified or in good standing, when taken together with all other such failures,
is not reasonably likely to have a Company Material Adverse Effect (as defined
below). The Company has made available to Parent a complete and correct copy of
the Company's and its Subsidiaries' certificates of incorporation and by-laws,
each as amended to date. The Company's and its Subsidiaries' certificates of
incorporation and by-laws as so made available are in full force and effect.
Section 5.1(a) of the Company Disclosure Letter contains a correct and complete
list of each jurisdiction where the Company and each of its Subsidiaries is
organized and qualified to do business.
As used in this Agreement, the term (i) "Subsidiary" means, with respect to
the Company, Parent or Merger Sub, as the case may be, any entity, whether
incorporated or unincorporated, of which at least a majority of the securities
or ownership interests having by their terms ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
is directly or indirectly owned or controlled by such party or by one or more of
its respective Subsidiaries or by such party and any one or more of its
respective Subsidiaries and (ii) "Company Material Adverse Effect" means a
material adverse effect on the financial condition, properties, business or
results of operations of the Company and its Subsidiaries taken as a whole or a
material condition, restriction or other limitation on Parent's ability to own,
operate or otherwise control the Company and its Subsidiaries or their
respective assets and businesses, taken as a whole; provided, however, that a
Company Material Adverse Effect shall not include any effect upon the financial
condition, properties, business or results of operations of the Company, or any
of its Subsidiaries, resulting or arising from (A) changes in national economic
or business conditions generally or affecting the movie theater industry
specifically, or (B) the public announcement of the execution of the Merger
Agreement and the transactions contemplated thereby.
(b) Capital Structure. The authorized capital stock of the Company
consists of 12,500,000 shares consisting of 10,000,000 Shares, of which
2,304,802 Shares were outstanding as of the close of business on August 11,
1998, and 2,500,000 shares of Preferred Stock, par value $.01 per share, of
which 779 Class A Preferred Shares, 750 Class B Preferred Shares and 3,000 Class
C Preferred Shares were outstanding as of the close of business on August 11,
1998. All of the outstanding Shares and Preferred Shares have been duly
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authorized and are validly issued, fully paid and nonassessable. Other than
467,400 Shares reserved for issuance upon conversion of the outstanding Shares
of Class A Preferred Shares and 367,347 Shares reserved for issuance upon
conversion of the outstanding Shares of Class C Preferred Shares, the Company
has no Shares or Preferred Shares reserved for issuance, except for 450,000
Shares reserved for issuance pursuant to options outstanding under the Company's
1997 Stock Incentive Plan, as amended and restated on April 28, 1998 (the "Stock
Plan"), 100,000 Shares reserved for issuance pursuant to warrants (the "IPO
Warrants") held by Prime Charter Ltd. and 282,600 Shares reserved for issuance
pursuant to the Class A Warrant. The Company Disclosure Letter contains a
correct and complete list of each outstanding option to purchase Shares under
the Stock Plan (each a "Company Option"), including the holder, date of grant,
exercise price and number of Shares subject thereto. Each of the outstanding
shares of capital stock or other securities of each of the Company's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and owned by a direct or indirect wholly-owned subsidiary of the Company, free
and clear of any lien, pledge, security interest, claim or other encumbrance
("Liens"). Except as set forth above, there are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock appreciation
rights, agreements, arrangements or commitments to issue or sell any shares of
capital stock or other securities of the Company or any of its Subsidiaries or
any securities or obligations convertible or exchangeable into or exercisable
for, or giving any Person a right to subscribe for or acquire, any securities of
the Company or any of its Subsidiaries, and no securities or obligations
evidencing such rights are authorized, issued or outstanding. The Company does
not have outstanding any bonds, debentures, notes or other obligations the
holders of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on any
matter ("Voting Debt"). The Securities (as defined in the Stockholders
Agreement) represent a majority of the outstanding Shares on a fully diluted
basis, excluding Options not scheduled to vest and become exercisable before
June 30, 1999.
(c) Corporate Authority; Approval and Opinion of Financial Advisor. (i)
The Company has all requisite corporate power and authority and has taken all
corporate action necessary in order to execute, deliver and perform its
obligations under this Agreement and to consummate the Merger, subject only to
approval of this Agreement by the holders of a majority of the outstanding
Shares and Class A Preferred Shares, voting together as a single class (the
"Company Requisite Vote"). This Agreement is a valid and binding agreement of
the Company enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception").
(ii) The Board of Directors of the Company (A) has unanimously approved and
declared advisable this Agreement and the Merger and the other transactions
contemplated hereby and (B) has received the opinion of its financial advisors,
Credit Suisse First Boston Corporation ("CSFB"), to the effect that, as of the
date of this Agreement, the Share Merger Consideration to be received by the
holders of Shares in the Merger is fair to such holders from a financial point
of view, a copy of the written opinion of which will be delivered to Parent
promptly after receipt thereof by the Company. It is agreed and understood that
such opinion is for the benefit of the Company's Board of Directors and may not
be relied on by Parent or Merger Sub.
(d) Governmental Filings; No Violations. (i) Other than the filings and/or
notices (A) pursuant to Section 1.3, (B) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Exchange Act and the
Securities Act of 1933, as amended (the "Securities Act"), (C) to comply with
state securities or "blue-sky" laws, and (D) required to be made with the ASE,
no notices, reports or other filings are required to be made by the Company or
any of its Subsidiaries with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by the Company or any of its
Subsidiaries from, any governmental or regulatory authority, agency, commission,
body or other governmental entity ("Governmental Entity"), in connection with
the execution and delivery of this Agreement by the Company and the consummation
by the Company of the Merger and the other transactions contemplated hereby,
except those that the failure to make or obtain are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent the Company from consummating the transactions contemplated by this
Agreement.
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(ii) The execution, delivery and performance of (A) this Agreement by the
Company and (B) the Stockholders Agreements by the Selling Stockholders do not,
and the consummation (x) by the Company of the Merger and the other transactions
contemplated hereby and (y) the Selling Stockholders of the transactions
contemplated thereby, will not, constitute or result in (A) a breach or
violation of, or a default under, the certificate of incorporation or by-laws of
the Company or the comparable governing instruments of any of its Subsidiaries,
(B) a breach or violation of, a default under, or the acceleration of any
obligations or the creation of a Lien on the assets of the Company or any of its
Subsidiaries (with or without notice, lapse of time or both) pursuant to, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation ("Contracts") binding upon the Company or any of its Subsidiaries or
any Law (as defined in Section 5.1(i) or governmental or non-governmental permit
or license to which the Company or any of its Subsidiaries is subject or (C) any
change in the rights or obligations of any party under any of the Contracts,
except, in the case of clause (B) or (C) above, for any breach, violation,
default, acceleration, creation or change that, individually or in the
aggregate, is not reasonably likely to have a Company Material Adverse Effect or
prevent the Company from consummating the transactions contemplated by this
Agreement and the Stockholders Agreements.
(e) Company Reports; Financial Statements. The Company has delivered to
Parent and Merger Sub each registration statement, report, proxy statement or
information statement prepared by it since December 31, 1997 (the "Audit Date"),
including the Company's Annual Report on Form 10-KSB for the year ended December
31, 1997, and the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998, each in the form (including exhibits, annexes and any amendments
thereto) filed with the Securities and Exchange Commission (the "SEC")
(collectively, including any such reports filed subsequent to the date hereof
and as amended, the "Company Reports"). As of their respective dates, (or, if
amended, as of the date of the latest of such amendments) the Company Reports
did not, and any Company Reports filed with the SEC subsequent to the date
hereof will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presents, or will fairly present, the consolidated
financial position of the Company and its Subsidiaries as of its date and each
of the consolidated statements of income and of changes in financial position
included in or incorporated by reference into the Company Reports (including any
related notes and schedules) fairly presents, or will fairly present, the
results of operations, retained earnings and changes in financial position, as
the case may be, of the Company and its Subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to notes and normal
year-end audit adjustments that will not be material in amount or effect), in
each case in accordance with generally accepted accounting principles ("GAAP")
con-sistently applied during the periods involved, except as may be noted
therein.
(f) Absence of Certain Changes. Except as disclosed in the Company Reports
filed prior to the date hereof, since the Audit Date the Company and its
Subsidiaries have conducted their respective businesses only in, and have not
engaged in any material transaction other than according to, the ordinary and
usual course of such businesses (other than the capital expenditures and
transactions listed in and permitted by Section 6.1(c)(iii) of the Company
Disclosure Letter) and there has not been (i) any change in the financial
condition, properties, business or results of operations of the Company and its
Subsidiaries taken as a whole or any development or combination of developments
that, individually or in the aggregate, has had or is reasonably likely to have
a Company Material Adverse Effect; (ii) any damage, destruction or other
casualty loss with respect to any asset or property owned, leased or otherwise
used by the Company or any of its Subsidiaries, whether or not covered by
insurance other than any such damage, destruction or casualty loss that,
individually or in the aggregate has not had or is not reasonably likely to have
a Company Material Adverse Effect; (iii) any declaration, setting aside or
payment of any dividend or other distribution in respect of the capital stock of
the Company; or (iv) any change by the Company in accounting principles,
practices or methods. Section 5.1(f) of the Company Disclosure Letter contains a
list of the executive officers of the Company and the annual compensation
payable to each.
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(g) Litigation and Liabilities. Except as disclosed in the Company Reports
filed prior to the date hereof, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the executive officers of the Company,
threatened against the Company or any of its Subsidiaries or (ii) liabilities,
whether or not accrued, contingent or otherwise and whether or not required to
be disclosed, or any other facts or circumstances of which the executive
officers of the Company have knowledge that could result in any claims against,
or liabilities of, the Company or any of its Affiliates, except for those that,
would not, individually or in the aggregate, be reasonably likely to have a
Company Material Adverse Effect or prevent the Company from consummating the
transactions contemplated by this Agreement. For purposes of this Agreement
"knowledge" shall mean actual knowledge without investigation.
(h) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
compensation, medical, health or other plan, agreement, policy or arrangement
that covers employees, directors, consultants, former employees, former
directors or former consultants of the Company and its Subsidiaries and under
which the Company and its Subsidiaries may have liability (the "Compensation and
Benefit Plans") and any trust agreement or insurance contract forming a part of
such Compensation and Benefit Plans has been made available to Parent prior to
the date hereof. The Compensation and Benefit Plans are listed in Section 5.1(h)
of the Company Disclosure Letter and any "change of control" or similar
provisions therein are specifically identified in Section 5.1(h) of the Company
Disclosure Letter.
(ii) All Compensation and Benefit Plans comply in all material respects
with all applicable law, including but not limited to the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each Compensation
and Benefit Plan that is an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA (a "Pension Plan") and that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
(including a determination that the related trust under such Compensation and
Benefit Plan is exempt from tax under Code Section 501(a) from the Internal
Revenue Service (the "IRS") for "TRA" (as defined in Rev. Proc. 93-39), and the
Company is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. There is no pending or, to the knowledge of
the executive officers of the Company, threatened litigation relating to the
Compensation and Benefit Plans other than routine claims for benefits. Neither
the Company nor any of its Subsidiaries has engaged in a transaction with
respect to any Compensation and Benefit Plan that, assuming the taxable period
of such transaction expired as of the date hereof, would subject the Company or
any of its Subsidiaries to a material tax or penalty imposed by either Section
4975 of the Code or Section 502 of ERISA.
(iii) Neither the Company nor any Subsidiary or any entity (an "ERISA
Affiliate") which is considered one employer with the Company under Section
4001(b) of ERISA or Section 414 of the Code (an "ERISA Affiliate Plan")
currently maintains a "single employer plan" within the meaning of Section
4001(a)(15) of ERISA. Except as scheduled in the list under Section 5.1(h)(iii)
of the Company Disclosure Letter, none of the Company, any of its Subsidiaries
or any ERISA Affiliate has contributed, or been obligated to contribute, to a
multiemployer plan (within the meaning of Section 3(37) of ERISA) under Subtitle
E of Title IV of ERISA at any time since September 26, 1980. There is no pending
investigation or enforcement action by the Department of Labor or IRS or any
other governmental agency with respect to any Compensation and Benefit Plan.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan, including any multiemployer plan (within the
meaning of Section 3(37) of ERISA), as of the date hereof have been timely made
or have been reflected on the Company's financial statements.
(v) Neither the Company nor its Subsidiaries have any obligations for
retiree health and life benefits under any Compensation and Benefit Plan, other
than benefits mandated by Section 4980 B of the Code except as set forth in the
Company Disclosure Letter. The Company or its Subsidiaries may amend or
terminate any such plan under the terms of such plan at any time without
incurring any material liability thereunder.
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(vi) The consummation of the Merger and the other transactions contemplated
by this Agreement and the Stockholders Agreements will not, directly or
indirectly (including, without limitation, as a result of any termination of
employment following the Effective Time) (x) entitle any employees, consultants
or directors of the Company or its Subsidiaries to any payment (including
severance pay or similar compensation) or any increase in compensation, (y)
accelerate the time of payment or vesting or trigger any payment of compensation
or benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any of the Compensation and Benefit Plans other than the
Stock Plan or (z) result in any breach or violation of, or a default under, any
of the Compensation and Benefit Plans.
(vii) The Company and its Subsidiaries do not maintain any Compensation and
Benefit Plans covering foreign Employees.
(viii) With respect to each Compensation and Benefit Plan, if applicable,
the Company has provided, made available, or will make available upon request,
to Purchaser, true and complete copies of existing: (A) two most recent Forms
5500 filed with the IRS; (B) most recent actuarial report and financial
statement; (C) the most recent summary plan description; (D) most recent
determination letter issued by the IRS; (E) any Form 5310 or Form 5330 filed
with the IRS; and (F) most recent nondiscrimination tests performed under ERISA
and the Code (including 401(k) and 401(m) tests).
(ix) Neither the Company nor any of its Subsidiaries maintains any
compensation plans, programs or arrangements the payments under which would not
reasonably be expected to be deductible as a result of the limitations under
Section 162(m) of the Code and the regulations issued thereunder.
(x) With respect to the Company's Deferred Compensation Plan listed as item
#2 of the Compensation and Benefit Plans listed in Section 5.1(h)(i) of the
Company Disclosure Letter, there is no liability, vested or unvested, to any
individual under said plan of deferred compensation.
(i) Compliance with Laws; Permits. Except as set forth in the Company
Reports filed prior to the date hereof, the businesses of each of the Company
and its Subsidiaries have not been, and are not being, conducted in violation of
any federal, state, local or foreign law, statute, ordinance, rule, regulation,
judgment, order, injunction, decree, arbitration award, agency requirement,
license or permit (other than "Environmental Laws" as defined in Section 5.1(k))
of any Governmental Entity (collectively, "Laws"), except for violations that,
individually or in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect or prevent the Company from consummating the
transactions contemplated by this Agreement. Except as set forth in the Company
Reports filed prior to the date hereof, no investigation or review by any
Governmental Entity with respect to the Company or any of its Subsidiaries is
pending or, to the knowledge of the executive officers of the Company,
threatened except for those the outcome of which are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent the Company from consummating the transactions contemplated by this
Agreement. No material change is required in the Company's or any of its
Subsidiaries' processes, properties or procedures in connection with any such
Laws except for such changes the failure to make, individually or in the
aggregate, would not be reasonably be likely to have a Company Material Adverse
Effect; and the Company has not received any notice or communication of any
material noncompliance with any such Laws that has not been cured as of the date
hereof. The Company and its Subsidiaries each has all permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct its business as presently conducted
other than those the absence of which has not had and is not reasonably likely
to have a Company Material Adverse Effect.
(j) Takeover Statutes. No "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation (including
Section 203 of the DGCL) (each a "Takeover Statute") or any anti-takeover
provision in the Company's certificate of incorporation and by-laws is, or at
the Effective Time will be, applicable to the Company, the Company Securities,
the Merger or the other transactions contemplated by this Agreement and the
Stockholders Agreements. Assuming the accuracy of Parent's representations and
warranties contained in Section 5.2(j) (Ownership of Shares), the Board of
Directors of the Company has taken all action so that Parent will not be
prohibited from entering into a "business combination" with the Company as an
"interested stockholder" (in each case as such term is used in
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Section 203 of the DGCL) as a result of the execution of this Agreement, the
Stockholders Agreements or the consummation of the transactions contemplated
hereby or thereby.
(k) Environmental Matters. Except as disclosed in the Company Reports
prior to the date hereof and except for such matters that, alone or in the
aggregate, are not reasonably likely to have Company Material Adverse Effect;
(i) the Company and its Subsidiaries are in compliance with, and to the
knowledge of the executive officers of the Company have at all times been in
compliance with, all applicable Environmental Laws; (ii) the Company and its
Subsidiaries are not responsible or liable for the release or threatened release
of any Regulated Substance into the environment (including indoor and outdoor
air, soil, subsurface strata, surface water or groundwater) at any property
currently or formerly owned or operated by the Company or any of its
Subsidiaries, where such release may reasonably be expected to give rise to
claims, costs or requirements under applicable Environmental Laws for the
investigation, removal, or remediation of such Regulated Substances by the
Company or any of its Subsidiaries, or claims for personal injury or property
damage; (iii) neither the Company nor any of its Subsidiaries has received any
notice, demand, letter, claim or request for information alleging that the
Company or any of its Subsidiaries are in violation of any applicable
Environmental Law, or are subject to liability under any Environmental Law for
the release or threatened release of, or exposure to, any Regulated Substance
at, or for the investigation, removal or remediation of any Regulated Substance
at, any property currently or formerly owned or operated by the Company or its
Subsidiaries or at any facility owned or operated by a third party; (iv) to the
knowledge of the executive officers of the Company, neither the Company nor any
of its Subsidiaries are liable under any Environmental Law for the release or
threatened release of any Regulated Substance at any property currently or
formerly owned or operated by the Company or any of its Subsidiaries or at any
facility owned or operated by a third party; (v) neither the Company nor any of
its Subsidiaries is subject to any order, decree, injunction, consent order or
agreement with any Governmental Entity relating to liability under any
Environmental Law; (vi) neither the Company nor any of its Subsidiaries has
entered into any agreement with a third party under which the Company or any of
its Subsidiaries is obligated to indemnify such third party for liabilities
arising under applicable Environmental Laws or relating to the investigation,
removal or remediation of Regulated Substances; (vii) to the knowledge of the
executive officers of the Company, none of the properties currently owned or
leased by the Company or any of its Subsidiaries contains any underground
storage tanks or friable asbestos-containing materials requiring abatement, and
none of such properties contain any equipment containing polychlorinated
biphenyls for which the Company or any of its Subsidiaries are responsible;
(viii) to the knowledge of the executive officers of the Company, there are no
other circumstances or conditions involving the Company or any of its
Subsidiaries that could reasonably be expected to result in any claim,
liability, investigation, cost or restriction on the ownership, use, or transfer
of any property currently owned or lease by the Company or any of its
Subsidiaries pursuant to any Environmental Law; and (ix) the Company has
delivered to Parent copies of all environmental reports, studies, assessments,
sampling data, permits and other governmental approvals in its possession
relating to environmental conditions at the properties currently or formerly
owned or leased by the Company or any of its Subsidiaries, or to the compliance
of the operations of the Company and its Subsidiaries with applicable
Environmental Laws.
As used herein, the term "Environmental Law" means any applicable federal,
state, local or foreign statute, law, ordinance, regulation, order, common law
or published policy having the force of law relating to: (A) the protection,
investigation or restoration of the environment, health, safety, or natural
resources or (B) the generation, use, storage, treatment, processing, disposal,
release or threatened release of any Regulated Substance.
As used herein, the term "Regulated Substance" means (A) any substance,
hazardous material, pollutant, contaminant, toxic substance, toxic pollutant,
solid waste, municipal waste, industrial waste or hazardous waste that is
regulated or defined as such or otherwise regulated pursuant to any applicable
Environmental Law; and (B) any petroleum product or by-product,
asbestos-containing material, polychlorinated biphenyls, or radioactive
material.
(l) Tax Matters. As of the date hereof, neither the Company nor any of its
Affiliates has taken or agreed to take any action, nor do the executive officers
of the Company have any knowledge of any fact or
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circumstance, that would prevent the Merger and the other transactions
contemplated by this Agreement from qualifying as a "reorganization" within the
meaning of Section 368(a) of the Code.
(m) Taxes. Except as provided in Section 5.1(m) the Company Disclosure
Letter:
(i) the Company and each of its Subsidiaries have filed all Tax
Returns (as defined below) which are required by all applicable laws to be
filed by them and such Tax Returns were complete and correct in all
material respects, and have paid, or made adequate provision for the
payment of, all material Taxes (as defined below) which have or may become
due and payable pursuant to said Tax Returns and all other Taxes imposed to
date other than those Taxes being contested in good faith and for which
adequate provision has been made on the most recent balance sheet included
in the Company Reports;
(ii) all Taxes which the Company and its Subsidiaries are required by
law to withhold and collect have been duly withheld and collected, and have
been paid over, in a timely manner, to the proper Taxing Authorities (as
defined below) to the extent due and payable;
(iii) neither the Company nor any of its Subsidiaries has executed any
waiver to extend, or otherwise taken or failed to take any action that
would have the effect of extending, the applicable statute of limitations
in respect of any Tax liabilities of the Company or its Subsidiaries for
the fiscal years prior to and including the most recent fiscal year;
(iv) the Company is not a "consenting corporation" within the meaning
of Section 341(f) of the Code. The Company has at all times been taxable as
a Subchapter C corporation under the Code;
(v) the Company has never been a member of any consolidated group
(other than with its Subsidiaries) for Tax purposes. The Company is not a
party to any tax sharing agreement or arrangement, other than with its
Subsidiaries;
(vi) no material liens for Taxes exist with respect to any of the
assets or properties of the Company or its Subsidiaries, except for
statutory liens for Taxes not yet due or payable or that are being
contested in good faith;
(vii) all of the U.S. federal income Tax Returns filed by or on behalf
of each of the Company and its Subsidiaries have been examined by and
settled with the Internal Revenue Service, or the statute of limitations
with respect to the relevant Tax liability has expired, for all taxable
periods through and including the period ending on the date on which the
Effective Time occurs;
(viii) all Taxes due with respect to any completed and settled audit,
examination or deficiency litigation with any Taxing Authority have been
paid in full;
(ix) there is no audit, examination, deficiency, or refund litigation
pending with respect to any Taxes and during the past three years no Taxing
Authority has given written notice of the commencement of any audit,
examination, deficiency or refund litigation, with respect to any Taxes;
(x) the Company is not bound by any currently effective private
ruling, closing agreement or similar agreement with any Taxing Authority
with respect to any material amount of Tax;
(xi) the Company shall not be required to include in a taxable period
ending after the Effective Time any taxable income attributable to income
that economically accrued in a prior taxable period as a result of Section
481 of the Code, the installment method of accounting or any comparable
provision of state or local Tax law;
(xii) immediately following the Merger, the Company will not have any
material amount of income or gain that has been deferred under Treasury
Regulation Section 1.1502-13, or any material excess loss account in a
Subsidiary under Treasury Regulation Section 1.1502-19.
As used in this Agreement, (i) the term "Tax" (including, with correlative
meaning, the terms "Taxes" and "Taxable") shall mean, with respect to any
Person, (a) all taxes, domestic or foreign, including without limitation any
income (net, gross or other, including recapture of any tax items such as
investment tax credits), alternative or add-on minimum tax, gross income, gross
receipts, gains, sales, use, leasing, lease, user,
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ad valorem, transfer, recording, franchise, profits, property (real or personal,
tangible or intangible), fuel, license, withholding on amounts paid to or by
such Person, payroll, employment, unemployment, social security, excise,
severance, stamp, occupation, premium, environmental or windfall profit tax,
custom, duty or other tax, or other like assessment or charge of any kind
whatsoever, together with any interest, levies, assessments, charges, penalties,
additions to tax or additional amounts imposed by any Taxing Authority, (b) any
joint or several liability of such Person with any other Person for the payment
of any amounts of the type described in (a) of this definition and (c) any
liability of such Person for the payment of any amounts of the type described in
(a) as a result of any express or implied obligation to indemnify any other
Person; (ii) the term "Tax Return(s)" shall mean all returns, consolidated or
otherwise (including without limitation informational returns), required to be
filed with any Taxing Authority; and (iii) the term "Taxing Authority" shall
mean any authority responsible for the imposition or collection of any Tax.
(n) Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor,
as of the date hereof, is the Company or any of its Subsidiaries the subject of
any material proceeding asserting that the Company or any of its Subsidiaries
has committed an unfair labor practice or is seeking to compel it to bargain
with any labor union or labor organization nor is there pending or, to the
knowledge of the executive officers of the Company, threatened, nor has there
been for the past five years, any labor strike, dispute, walk-out, work
stoppage, slow-down or lockout involving the Company or any of its Subsidiaries.
(o) Insurance. All material fire and casualty, director and officer,
general liability, and business interruption, and sprinkler and water damage
insurance policies maintained by the Company or any of its Subsidiaries have
been issued by companies reasonably believed by the executive officers of the
Company to be reputable. Such policies insure the Company or such Subsidiary and
the directors and officers of the Company and its Subsidiaries (as the case may
be) for losses customarily insured against by other Persons engaged in similar
lines of business and are reasonable in both scope and amount, in light of the
risks attendant to the businesses conducted by the Company and its Subsidiaries
and except as would not, individually or in the aggregate, be reasonably likely
to have a Company Material Adverse Effect or prevent the Company from
consummating the transactions contemplated by this Agreement, are in compliance
with all requirements under any leases, mortgages or other contractual
obligations of the Company and its Subsidiaries pertaining to insurance matters.
(p) Intellectual Property.
(i) The Company and/or each of its Subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
technology, know-how, computer software programs or applications, and tangible
or intangible proprietary information or materials that are used in the business
of the Company and its Subsidiaries, except for any such failures to own, be
licensed or possess that, individually or in the aggregate, are not reasonably
likely to have a Company Material Adverse Effect.
(ii) Except as disclosed in Company Reports filed prior to the date hereof
or as is not reasonably likely to have a Company Material Adverse Effect:
(A) the Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any licenses, sublicenses and other agreements
as to which the Company is a party and pursuant to which the Company is
authorized to use any third-party patents, trademarks, service marks,
copyrights, trade secrets or computer software (collectively, "Third-Party
Intellectual Property Rights");
(B) no claims with respect to (I) the patents, registered and material
unregistered trademarks and service marks, registered copyrights, trade
names, and any applications therefor, trade secrets or computer software
owned by the Company or any of its Subsidiaries (collectively, the "Company
Intellectual Property Rights"); or (II) Third-Party Intellectual Property
Rights are currently pending or, to the knowledge of the executive officers
of the Company, are threatened by any Person;
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(C) the executive officers of the Company do not know of any valid
grounds for any bona fide claims (I) to the effect that the sale, licensing
or use of any product as now used, sold or licensed or proposed for use,
sale or license by the Company or any of its Subsidiaries, infringes on any
copyright, patent, trademark, service mark or trade secret of any Person;
(II) against the use by the Company or any of its Subsidiaries of any
Company Intellectual Property Right or Third-Party Intellectual Property
Right used in the business of the Company or any of its Subsidiaries as
currently conducted or as proposed to be conducted; (III) challenging the
ownership, validity or enforceability of any of the Company Intellectual
Property Rights; or (IV) challenging the license or legally enforceable
right to use of the Third-Party Intellectual Rights by the Company or any
of its Subsidiaries; and
(D) to the knowledge of the executive officers of the Company, there
is no unauthorized use, infringement or misappropriation of any of the
Company Intellectual Property Rights by any third party, including any
employee or former employee of the Company or any of its Subsidiaries.
(q) Rights Plan. The Company has not adopted or otherwise implemented a
stockholder rights plan or other similar agreement or instrument.
(r) Brokers and Finders. Neither the Company nor any of its officers,
directors (with respect to officers and directors, in such capacity as officers
or directors) or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in connection
with the Merger or the other transactions contemplated in this Agreement except
that the Company has engaged CSFB as its financial advisor, the arrangements
with which have been disclosed to Parent prior to the date hereof.
(s) Interested Transactions. To the knowledge of the executive officers of
the Company and except as set forth in the Company Reports prior to the date
hereof, no director or officer of the Company or any Subsidiary, (a) owns,
directly or indirectly, any 5% or greater interest in, or is a director,
officer, substantial stockholder or employee of, or consultant to, any
competitor or supplier of the Company or any Subsidiary, or is in any way
associated with or involved in the business conducted by the Company other than
in such capacity as a director or officer of the Company or a Subsidiary or a
stockholder of the Company, or (b) owns, directly or indirectly, in whole or in
part, any property, asset or right, tangible or intangible, which is associated
with any property, asset or right owned by the Company or a Subsidiary or which
the Company or a Subsidiary is presently operating.
(t) Contracts. Except as set forth in Section 5.1(t) of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries has or is
bound by:
(i) except for Compensation and Benefit Plans and leases covering the
Company Leased Real Property (as defined in Section 5.1(u), any agreement,
contract or commitment that involves the payment of an amount or value in
excess of $50,000 annually, unless terminable by the Company or its
relevant Subsidiary on not more than 90 days notice;
(ii) any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other distribution
in respect of its capital stock;
(iii) any agreement, contract or commitment to be performed relating
to capital expenditures in excess of $50,000 individually or $500,000 in
the aggregate;
(iv) any agreement, indenture or instrument relating to indebtedness
for borrowed money or the deferred purchase price of property;
(v) any loan or advance to (other than advances to employees in the
ordinary course of business in amounts of $20,000 or less to any individual
and $50,000 in the aggregate), or investment in (other than investments in
subsidiaries), any Person, or any agreement, contract or commitment
relating to the making of any such loan, advance or investment or any
agreement, contract or commitment involving a sharing of profits (except
for bonus arrangements with employees entered into in the ordinary course
of business consistent with past practice);
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(vi) except for guarantees of Subsidiary obligations by the Company,
any guarantee or other contingent liability in respect of any indebtedness
or obligation of any Person;
(vii) any management service, consulting or any other similar type of
contract, involving payments of more than $25,000 annually, unless
terminable by the Company on not more than 90 days notice,
(viii) any agreement, contract or commitment limiting the ability of
the Company or any of its subsidiaries to engage in any line of business or
to compete with any Person;
(ix) any warranty, guaranty or other similar undertaking with respect
to a contractual performance extended by the Company or any of its
subsidiaries other than in the ordinary course of business; or
(x) any material amendment, modification or supplement in respect of
any of the foregoing.
Except as otherwise set forth in Section 5.1(t) of the Company Disclosure
Letter, each contract or agreement set forth in Section 5.1(t) of the Company
Disclosure Letter is in full force and effect and (A) there exists no default or
event of default or event, occurrence, condition or act (including consummation
of the Merger) on the part of the Company or any Subsidiary which, with the
giving of notice, the lapse of time or both, would become a default or event of
default thereunder and (B) no approval or consent of, or notice to, any person
is needed in order that each such contract or agreement shall continue in full
force and effect in accordance with its terms without penalty, acceleration or
rights of early termination by reason of the consummation of the Merger and the
other transactions contemplated by this Agreement, except, in the case of each
of (A) and (B), such defaults or required approvals or consents (i) as to which
requisite waivers, consents or approvals have been obtained or (ii) which are
curable and are cured within the applicable period for cure permitted under such
contracts or agreements.
(u) Real Property. (i) Section 5.1(u)(i) of the Company Disclosure Letter
lists all real property leased, licensed or occupied under other occupancy
agreements or concession agreements by the Company or any of its Subsidiaries
(the "Company Leased Real Properties") and all real property owned by the
Company or any of its Subsidiaries (the "Company Owned Real Properties," and
together with the Company Leased Real Properties, the "Company Real
Properties"). For each Company Leased Real Property, Section 5.1(u)(i) of the
Company Disclosure Letter sets forth the following information: (A) the address
of the property; (B) the name of the landlord, manager or payee, as appropriate;
(C) the name of the tenant; (D) the date of the lease and all amendments
thereto; (E) the current expiration date of such lease; (F) any options to
extend the term of such lease; (G) if a theater site, the number of screens at
such theater; (H) whether the theaters on such site are operating or
non-operating; (I) whether the landlord's consent is required as a result of the
Merger; (J) any landlord right to terminate the lease (other than arising from a
default, casualty, or condemnation); (K) any tenant radius restrictions set
forth in such lease; (L) whether the landlord or the tenant has sent to the
other party under such lease a notice of default or a notice of termination of
such lease which remains uncured and, if so, specifying the alleged default; (M)
whether the tenant under such lease is obligated to purchase such property; (N)
whether such lease is required to be accounted for under GAAP as a capitalized
lease; (O) whether there are any leasehold mortgages secured by such lease and
whether the consent of the mortgagee is required in connection with the Merger;
and (P) whether the rent, common area charges, taxes or other payments due under
such lease are in arrears in excess of 30 days; (Q) the amount of any security
deposit posted with the landlord; (R) any existing guarantees given by the
Company in connection with such lease or any leasehold mortgage; (S) whether the
showing of movies is a permitted use under the lease; (T) any expansion
obligations of the tenant under the lease; (U) the amount of any brokerage
commissions owed by the tenant in connection with such lease; (V) any
obligations of the tenants under the leases to construct, remodel or expand
theaters; or (W) any material construction expected or budgeted to be undertaken
by the Company or any Subsidiary with respect to any Company Leased Property
within the next twelve months (for purposes of this item, Parent and Merger Sub
are referred to Sections 5.1(u)(i) and 6.1(c)(iii)(B) of the Company Disclosure
Letter); (X) material violations of law known to the executive officers of the
Company after inquiry of District Managers (exclusive of Environmental Laws
which are exclusively addressed in Section 5.1(k) hereof) which the tenant is
obligated to cure; and (Z) any permits required for use or occupancy of the
leased premises which are not in full force and effect. For each Company Owned
Real Property, Section 5.1(u)(i) of the Company Disclosure
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Letter lists: (a) the address for each such property and (b) whether the consent
of any mortgage or lien holder of such property is required as a result of the
Merger. Except for such exceptions as would not have a Company Material Adverse
Effect and except for (I) the items set forth in Section 5.1(u)(i) of the
Company Disclosure Letter; (II) zoning and planning restrictions, easements,
permits and other restrictions or limitations of public record affecting the use
of such properties; provided, that individually and in the aggregate, such
restrictions, easements and permits do not materially impair the use of such
properties as motion picture theaters or for such other purposes as such
properties are currently being used; (III) mechanic's liens or other similar
encumbrances arising in the ordinary course of business and securing obligations
of the Company or its Subsidiaries not yet due and payable; and (IV) other
encumbrances on the assets of the Company or its Subsidiaries that individually
and in the aggregate do not materially impair the ability of the owner to obtain
financing by using such assets as collateral, (x) the Company or one of its
Subsidiaries has good, marketable and insurable title to the Company Owned Real
Properties, (y) the Company Owned Real Properties are free and clear of all
mortgages, liens, leases, tenancies, security interests, options to purchase or
lease or rights of first refusal and material violations of law (exclusive of
Environmental Laws which are exclusively addressed in Section 5.1(k) hereof) and
reasonably expected by the Company to require the expenditure of in excess of
$25,000 per matter to resolve and (z) except for any matter of public record
affecting the use of such properties, such properties are free and clear of all
covenants, conditions, encumbrances, restrictions, rights-of-way, easements,
servitudes, judgments or other imperfections of title. The items listed in
subsections (I) through (IV) above are hereinafter collectively referred to as
the "Company Permitted Encumbrances." With respect to the Company Leased Real
Properties, to the knowledge of the executive officers of the Company as at the
date hereof, all such leases are in full force and effect. Except for such
exceptions as would not have a Company Material Adverse Effect, (a) all such
leases are the result of bona fide arm's-length negotiations between the parties
and (b) Company and the Company Subsidiaries are not in arrears in the payment
of rents, common area charges, real estate taxes or other amounts due under any
such leases in excess of 10 days. As at the date hereof, except for such
exceptions as would not have a Company Material Adverse Effect, with respect to
each Company Leased Real Property or as otherwise disclosed in the Company
Disclosure Letter, so long as the tenant performs all of its obligations under
such lease within applicable notice and grace periods, (a) the rights of Company
or any Company Subsidiary under such lease cannot be legally terminated by the
landlord thereof and (b) Company's or such Subsidiary's possession of such
Company Leased Real Property and the use and enjoyment thereof cannot be legally
disturbed by any landlord. Except for such exceptions as would not have a
Company Material Adverse Effect, the Company is not obligated to purchase any
Company Leased Real Property, and no Company Leased Real Property is required to
be accounted for under GAAP as a capitalized lease. To the knowledge of the
executive officers of the Company, except for such exceptions as would not have
a Company Material Adverse Effect, there are no intended public improvements
that will result in any material charge being levied against, or in the creation
of any encumbrances upon the Company Owned Real Properties or any portion
thereof, and there are no options, rights of first refusal, rights of first
offer or other similar rights with respect to the Company Owned Real Properties.
Section 5.1(u)(i) of the Company Disclosure Letter lists all mortgages affecting
the Company Owned Real Properties, indicates whether the transaction hereunder
would be an event of default or result in any acceleration of indebtedness
thereunder, and sets forth any uncured events of default thereunder or events or
conditions which may become events of default thereunder with the giving of
notice, lapse of time or both.
(ii) Except for such exceptions as would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect:
(A) the Company or a Company Subsidiary is the owner of, and no other
person, firm or corporation has any interest as owner in or to, or any
right to occupancy in, any Company Owned Real Property;
(B) the Company or a Company Subsidiary is the tenant or lessee with
respect to, and no other person, firm or corporation has any interest as
tenant or lessee in or to, or any right to occupancy in, any Company Leased
Real Property;
(C) there are no Persons currently in possession of the Company Real
Properties other than Company and its Subsidiaries, nor are there any
leases, subleases, licenses, concessions or other
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agreements permitting anyone other than Company and its Subsidiaries, to
use, manage, occupy or possess any Company Real Property or any part
thereof other than as disclosed in Section 5.1(u)(ii) which lists all the
leases affecting the Company Owned Real Properties, and (I) all rent and
additional rent payable thereunder, (II) all security deposits held by the
Company or any of its Subsidiaries thereunder, and (III) any notices of
default given or received by the landlord thereunder which remain uncured;
(D) (I) neither Company nor any of its Subsidiaries has received any
written notices or notices of violation of law or local or municipal
ordinances or orders, or regulations, presently noted in or issued by
federal, state, local or municipal departments having jurisdiction against
or affecting any of the Company Real Properties that remain uncured and
(II) to the knowledge of the executive officers of the Company the current
maintenance, operation, use and occupancy of the Company Real Properties
does not violate any building, zoning, health, environmental, fire or
similar law, ordinance, order or regulation (including the Americans with
Disabilities Act of 1990, 42 U.S.C. (S)12183, as amended (the "ADA") and
comparable state and municipal legislation), or the terms and conditions of
any of the applicable leases;
(E) (I) neither Company nor any of its Subsidiaries has received
written notice of its failure to obtain any necessary certificate of
occupancy (or similar permit) for use of each of the theaters located on
the Company Real Properties as a motion picture theater, (II) to the
knowledge of the executive officers of the Company, either Company or one
of its Subsidiaries possesses the certificate of occupancy and all other
certificates, approvals, permits and licenses from any Governmental Entity
having jurisdiction over such theaters that are necessary to permit the
lawful use and operation of such theaters as motion picture theaters (the
"Company Permits"), and all of the same are valid and in full force and
effect, and (III) to the knowledge of executive officers of the Company,
there exists no threatened revocation of any certificate of occupancy or
any of the Company Permits;
(F) neither Company nor any of its Subsidiaries has received any
written notice that it has failed to obtain any necessary sign permits,
illuminated sign permits, and marquee permits from the appropriate
Governmental Entity having jurisdiction over existing signs and marquees at
the Company Real Properties, and, to the knowledge of the executive
officers of the Company, such permits are valid and in full force and
effect and there exists no threatened revocation of any such permits;
(G) to the knowledge of the executive officers of the Company there
are no actions pending or threatened to change the zoning or building
ordinances affecting any of the Company Real Properties, or of any pending
or threatened condemnation of any of the Company Real Properties nor has
there been any material casualty damage to any of the Company Real
Properties which remains unrestored;
(H) neither the Company nor any of its Subsidiaries has received any
written notice from any insurance carrier of any work required to be
performed at any theater located on the Company Real Properties or the
Company Leased Properties (each, a "Company Theater") that has not been
performed as of the date hereof or of any defects or inadequacies in any
such theater that have not been corrected as of the date hereof and which
if not corrected could result in termination of insurance coverage or a
material increase in the cost thereof;
(I) with respect to all Company Theaters, all water, sewer, gas,
electricity, telephone and other utilities required for the operation of
each such theater are installed and operating and all installations and
connection charges charged to Company or any of its Subsidiaries pursuant
to applicable invoices that are not the subject of a good faith dispute
have been paid in full and any installation and connection charges that are
properly charges to Company or its Subsidiaries after the date hereof and
prior to the Closing Date shall be paid in full, except, in each case, for
payments that are current and will be paid in the ordinary course of
business;
(J) Section 5.1(u)(iii) of the Company Disclosure Letter lists all
radius restrictions or other non-competition agreements to which the
Company or any of its Subsidiaries is subject.
(v) Operating Assets. Except for such exceptions as would not have a
Company Material Adverse Effect, (i) Company has good and marketable title or
leasehold title or a valid license to all of the personal
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property used, or held for use, in connection with the theaters operated on the
Company Real Properties (other than gaming and vending machines used in the
ordinary course of business), subject to no encumbrance other than the Company
Permitted Encumbrances; (ii) no financing statement under the Uniform Commercial
Code or under the personal property securities laws and regulations of any
province or territory of Canada or any similar applicable statute has been filed
in any jurisdiction, and neither Company nor any of its Subsidiaries has signed
any such financing statement or any security agreement authorizing any secured
party thereunder to file any such financing statement, except in connection with
the Company Permitted Encumbrances; (iii) each theater located on a Company Real
Property and each of the items of personal property used or held for use in, or
in connection with, each such theater, including without limitation, seating,
projection equipment and screens, are in good operating condition, subject to
normal wear and tear, and are fit for the use for which they are intended and to
which they are presently devoted; (iv) each theater located on a Company Real
Property, together with the related items of personal property located therein,
constitutes a fully operable motion picture theater and is sufficient to permit
Company to operate the business as currently being conducted therein; and (v)
except as contemplated by this Agreement, since the Audit Date, neither the
Company nor any of its Subsidiaries has sold, removed or transferred any
equipment or property from any theater located on a Company Real Property,
except in the ordinary course of business and so long as such equipment or
property has been replaced prior to the date hereof.
5.2. Representations and Warranties of Parent and Merger Sub. Except as
set forth in the corresponding sections or subsections of the disclosure letter
delivered to the Company by Parent on or prior to entering into this Agreement
(the "Parent Disclosure Letter"), Parent and Merger Sub each hereby represent
and warrant to the Company that:
(a) Capitalization of Merger Sub. The authorized capital stock of Merger
Sub consists of 1000 shares of Common Stock, par value $.01 per share, all of
which are outstanding and are validly issued, fully paid and unassessable. All
of the issued and outstanding capital stock of Merger Sub is, and at the
Effective Time will be, owned by Parent, and there are (i) no other shares of
capital stock or voting securities of Merger Sub, (ii) no securities of Merger
Sub convertible into or exchangeable for shares of capital stock or voting
securities of Merger Sub and (iii) no options, warrants or other rights to
acquire from Merger Sub, and no obligations of Merger Sub to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Merger Sub. Merger Sub has not conducted
any business prior to the date hereof and has no, and prior to the Effective
Time will have no, assets, liabilities or obligations of any nature other than
those incident to its formation and pursuant to this Agreement and the Merger
and the other transactions contemplated by this Agreement.
(b) Organization, Good Standing and Qualification. Each of Parent and its
"Significant Subsidiaries" (as defined in Rule 1.02(w) of Regulation S-X
promulgated pursuant to the Exchange Act) is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of organization and has all requisite corporate or similar power
and authority to own and operate its properties and assets and to carry on its
business as presently conducted and is qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the ownership or
operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in such good
standing, when taken together with all other such failures, is not reasonably
likely to have a Parent Material Adverse Effect (as defined below).
As used in this Agreement, the term "Parent Material Adverse Effect" means
a material adverse effect on the financial condition, properties, business or
results of operations of the Parent and its Subsidiaries taken as a whole
provided, however, that a Parent Material Adverse Effect shall not include any
effect upon the financial condition, properties, business or results of
operations of the Company, or any of its Subsidiaries resulting from national
economic or business conditions, generally or the public announcement of the
execution of the Merger Agreement and the transactions contemplated thereby.
(c) Capital Structure. The authorized capital stock of Parent consists of
200,000,000 shares of Parent Common Stock, of which 53,694,331 shares were
outstanding as of the close of business on August 10, 1998, 80,000,000 shares of
Class B Common Stock , par value $.01 per share (the "Parent Class B Common
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Stock") of which 21,613,418 shares were outstanding as of the close of business
on August 10,1998, and 10,000,000 shares of Preferred Stock par value $.01 per
share (the "Parent Preferred Shares", and collectively with the Parent Common
Stock, the Parent Class B Common Stock, the "Parent Securities"), none of which
were outstanding as of the close of business on August 10,1998. All of the
outstanding Parent Securities have been duly authorized and are validly issued,
fully paid and nonassessable. Parent has no Parent Securities reserved for
issuance, except that, as of August 10, 1998, there were 6,045,940 shares of
Parent Common Stock reserved for issuance pursuant to the CSC 1998 Employee
Stock Plan, 453,150 shares of Parent Common Stock reserved for issuance pursuant
to the CSC Amended and Restated Employee Stock Plan and 120,000 shares of Parent
Common Stock reserved for issuance pursuant to the CSC 1996 Non-Employee
Director Stock Option Plan (collectively, the "Parent Stock Plans"), the
21,613,418 shares of Parent Common Stock subject to issuance upon conversion of
the outstanding shares of Parent Class B Common Stock, 10,231,320 shares of
Parent Common Stock subject to issuance upon conversion of the 8 1/2% Series I
Cumulative Convertible Exchangeable Preferred Stock of CSC Holdings, Inc., a
wholly owned subsidiary of Parent. In addition, in connection with a pending
two-for-one stock split of Parent Common Stock and Parent Class B Common Stock,
payable on August 21, 1998 to holders of record as of August 10,1998, Parent
has, as of the date hereof, reserved for issuance an additional 92,158,160
shares of Parent Common Stock and 21,613,418 shares of Parent Class B Common
Stock. Parent does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or convertible into or
exercisable for securities having the right to vote) with the stockholders of
Parent on any matter ("Parent Voting Debt").
(d) Corporate Authority.
(i) No vote of holders of capital stock of Parent is necessary to approve
this Agreement and the Merger and the other transactions contemplated hereby.
Each of the Parent and Merger Sub has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement and to consummate the
Merger. This Agreement is a valid and binding agreement of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with its
terms, subject to the Bankruptcy and Equity Exception.
(ii) Prior to the Effective Time, Parent will have taken all necessary
action to permit it to issue the number of shares of Parent Common Stock
required to be issued pursuant to Article IV. The Parent Common Stock, when
issued, will be validly issued, fully paid and nonassessable, and no stockholder
of Parent will have any preemptive right of subscription or purchase in respect
thereof. The Parent Common Stock, when issued, will be registered under the
Securities Act and Exchange Act and registered or exempt from registration under
any applicable state securities or "blue sky" laws.
(e) Governmental Filings; No Violations. (i) Other than the filings and/or
notices (A) pursuant to Section 1.3, (B) under the HSR Act, the Securities Act
and the Exchange Act, (C) to comply with state securities or "blue sky" laws,
and (D) required to be made with the ASE, no notices, reports or other filings
are required to be made by Parent or Merger Sub with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
Parent or Merger Sub from, any Governmental Entity, in connection with the
execution and delivery of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the Merger and the other transactions
contemplated hereby, except those that the failure to make or obtain are not,
individually or in the aggregate, reasonably likely to have a Parent Material
Adverse Effect or prevent Parent or Merger Sub from consummating the
transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by Parent
and Merger Sub do not, and the consummation by Parent and Merger Sub of the
Merger and the other transactions contemplated hereby will not, constitute or
result in (A) a breach or violation of, or a default under, the certificate or
by-laws of Parent or Merger Sub or the comparable governing instruments of any
of its Significant Subsidiaries, (B) a breach or violation of, or a default
under, or the acceleration of any obligations or the creation of a Lien on the
assets of Parent or any of its Subsidiaries (with or without notice, lapse of
time or both) pursuant to, any Contracts binding upon Parent or any of its
Subsidiaries or any Law or governmental or non-governmental permit or license to
which Parent or any of its Significant Subsidiaries is subject or (C) any change
in the
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rights or obligations of any party under any of the Contracts, except, in the
case of clause (B) or (C) above, for breach, violation, default, acceleration,
creation or change that, individually or in the aggregate, is not reasonably
likely to have a Parent Material Adverse Effect or prevent Parent or Merger Sub
from consummating the transactions contemplated by this Agreement.
(f) Parent Reports; Financial Statements. Parent has made available to the
Company each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1997 (the "Parent Audit Date"),
including (i) Parent's Annual Report on Form 10-K for the year ended December
31, 1997 and (ii) Parent's Quarterly Report on Form 10-Q for the period ended
March 31, 1998, each in the form (including exhibits, annexes and any amendments
thereto) filed with the SEC (collectively, including any such reports filed
subsequent to the date hereof, the "Parent Reports"). As of their respective
dates, (or, if amended, as of the date of the latest such amendments) the Parent
Reports did not, and any Parent Reports filed with the SEC subsequent to the
date hereof will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the Parent Reports (including the related notes
and schedules) fairly presents, or will fairly present, the consolidated
financial position of Parent and its Subsidiaries as of its date and each of the
consolidated statements of income and of changes in financial position included
in or incorporated by reference into the Parent Reports (including any related
notes and schedules) fairly presents, or will fairly present, the results of
operations, retained earnings and changes in financial position, as the case may
be, of Parent and its Subsidiaries for the periods set forth therein (subject,
in the case of unaudited statements, to notes and normal year-end audit
adjustments that will not be material in amount or effect), in each case in
accordance with GAAP consistently applied during the periods involved, except as
may be noted therein.
(g) Absence of Certain Changes. Except as disclosed in the Parent Reports
filed prior to the date hereof, since the Parent Audit Date Parent and its
Subsidiaries have conducted their respective businesses only in, and have not
engaged in any material transaction other than according to, the ordinary and
usual course of such businesses and there has not been (i) any change in the
financial condition, properties, business or results of operations of Parent and
its Subsidiaries taken as a whole or any development or combination of
developments, individually or in the aggregate, has had or is reasonably likely
to result in a Parent Material Adverse Effect; (ii) any damage, destruction or
other casualty loss with respect to any asset or property owned, leased or
otherwise used by Parent or any of its Subsidiaries, whether or not covered by
insurance other than any such damage, destruction or casualty loss that,
individually or in the aggregate has not had or is not reasonably likely to have
a Parent Material Adverse Effect; or (iii) any change by Parent in accounting
principles, practices or methods. Since the Parent Audit Date, except as
provided for herein or as disclosed in the Parent Reports filed prior to the
date hereof, there has not been any increase in the compensation payable or that
could become payable by the Parent or any of its Subsidiaries to officers or key
employees or any amendment of any of the Parent Compensation and Benefit Plans
other than increases or amendments in the ordinary course.
(h) Litigation and Liabilities. Except as disclosed in the Parent Reports
filed prior to the date hereof, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the executive officers of Parent, threatened
against Parent or any of its Affiliates or (ii) liabilities, whether or not
accrued, contingent or otherwise and whether or not required to be disclosed,
including those relating to environmental and occupational safety and health
matters, or any other facts or circumstances of which the executive officers of
Parent has knowledge that could result in any claims against, or obligations or
liabilities of, Parent or any of its Affiliates, except for those that, if
adversely determined, would not be reasonably likely to have a Parent Material
Adverse Effect or prevent Parent or Merger Sub from consummating the
transactions contemplated by this Agreement.
(i) Compliance with Laws. Except as set forth in the Parent Reports filed
prior to the date hereof, the businesses of each of Parent and its Subsidiaries
have not been, and are not being, conducted in violation of any Laws, except for
violations that, individually or in the aggregate, are not reasonably likely to
have a Parent Material Adverse Effect or prevent Parent or Merger Sub from
consummating the transactions contemplated
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by this Agreement. Except as set forth in the Parent Reports filed prior to the
date hereof, no investigation or review by any Governmental Entity with respect
to Parent or any of its Subsidiaries is pending or, to the knowledge of the
executive officers of Parent, threatened, except for those the outcome of which
are not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect or prevent Parent or Merger Sub from consummating the
transactions contemplated by this Agreement.
(j) Ownership of Shares. Except as to Company Securities deemed
beneficially owned by Parent pursuant to the Stockholders Agreement, neither
Parent nor any of its Subsidiaries beneficially owns (within the meaning of such
term under Rule 13d-3 of the Exchange Act) any Company Securities.
(k) Brokers and Finders. Neither Parent nor any of its officers, directors
or employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the Merger or the
other transactions contemplated by this Agreement, except that Parent has
engaged Gemini Associates Inc. ("Gemini") as its financial advisor.
(l) Available Funds. Parent has or will have available to it all funds
necessary to satisfy all of its obligations hereunder and in connection with the
Merger and the other transactions contemplated by this Agreement.
ARTICLE VI
COVENANTS
6.1. Interim Operations. The Company covenants and agrees as to itself
and its Subsidiaries that, after the date hereof and prior to the earlier of the
termination of this Agreement in accordance with its terms and the Effective
Time (unless Parent shall otherwise approve in writing, and except as otherwise
expressly contemplated by this Agreement):
(a) the business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and
its Subsidiaries shall use their respective best efforts to preserve its
business organization intact and maintain its existing relations and
goodwill with customers, suppliers, distributors, creditors, lessors,
employees and business associates;
(b) it shall not (i) issue, sell, pledge, dispose of or encumber any
capital stock owned by it in any of its Subsidiaries; (ii) amend its
certificate of incorporation or by-laws; (iii) split, combine or reclassify
its outstanding shares of capital stock; (iv) declare, set aside or pay any
dividend payable in cash, stock or property in respect of any capital stock
other than dividends from its direct or indirect wholly-owned Subsidiaries;
or (v) except for the repurchase of the Class A Warrant contemplated by the
Warrantholder Agreement and the repurchase of outstanding Class B Preferred
Shares, repurchase, redeem or otherwise acquire, or permit any of its
Subsidiaries to purchase or otherwise acquire, any shares of its capital
stock or any securities convertible into or exchangeable or exercisable for
any shares of its capital stock;
(c) except as set forth in Section 6.1(c) of the Company Disclosure
Letter, neither it nor any of its Subsidiaries shall (i) issue, sell,
pledge, dispose of or encumber any shares of, or securities convertible
into or exchangeable or exercisable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of its capital
stock of any class or any other property or assets (other than Shares
issuable pursuant to options outstanding on the date hereof under the Stock
Plan or upon conversion of the Class A Preferred Shares and Class C
Preferred Shares); (ii) transfer, lease, license, guarantee, sell,
mortgage, pledge, dispose of or encumber any material property or assets
(including capital stock of any of its Subsidiaries) or incur or modify any
material indebtedness or other liability; or (iii) except as set forth in
Section 6.1(c)(iii) of the Company Disclosure Letter, make or authorize or
commit for any capital expenditures other than in amounts less than $25,000
individually and $100,000 in the aggregate or, by any means, make any
acquisition of, or investment in, assets or stock of any other Person or
entity in excess of $25,000;
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(d) neither it nor any of its Subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any Compensation and Benefit Plans or increase the salary, wage,
bonus or other compensation of any employees except increases for
non-executive employees occurring in the ordinary and usual course of
business (which shall include normal periodic performance reviews and
related compensation and benefit increases);
(e) neither it nor any of its Subsidiaries shall settle or compromise
any material claims or litigation or, except in the ordinary and usual
course of business, modify, amend or terminate any of its material
Contracts or waive, release or assign any material rights or claims;
(f) neither it nor any of its Subsidiaries shall make any Tax election
or permit any insurance policy naming it as a beneficiary or loss-payable
payee to be cancelled or terminated except in the ordinary and usual course
of business; and
(g) neither it nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
6.2. Acquisition Proposals. The Company agrees that after the date hereof
and prior to the earlier of the termination of this Agreement in accordance with
its terms and the Effective Time, neither it nor any of its Subsidiaries nor any
of the officers and directors of it or its Subsidiaries shall, and that it shall
direct and use its best efforts to cause its and its Subsidiaries' employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, initiate or solicit, encourage or otherwise knowingly facilitate any
inquiries or the making of any proposal or offer with respect to a merger,
reorganization, share exchange, consolidation or similar transaction involving,
or any purchase of all or 15% or more of the assets or any equity securities of,
it or any of its Subsidiaries (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal"). The Company further agrees that
neither it nor any of its Subsidiaries nor any of the officers and directors of
it or its Subsidiaries shall, and that it shall direct and use its best efforts
to cause its and its Subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it or any
of its Subsidiaries) not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person other than Parent or Merger Sub relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; provided, however, that nothing contained in
this Agreement shall prevent the Company or its Board of Directors from (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal; (B) providing information in response to a request
therefor by a Person who has made an unsolicited bona fide written Acquisition
Proposal if the Board of Directors receives from the Person so requesting such
information an executed a customary form of confidentiality agreement; (C)
engaging in any negotiations or discussions with any Person who has made an
unsolicited bona fide written Acquisition Proposal; or (D) withdrawing,
modifying or changing, in a manner adverse to Parent, its recommendation to the
stockholders of the Company with respect to this Agreement or the Merger, if and
only to the extent that, (i) in each such case referred to in clause (B), (C) or
(D) above, the Board of Directors of the Company determines in good faith by a
majority vote after consultation with outside legal counsel that failing to take
such action would be reasonably likely to result in a breach of their fiduciary
duties under applicable law and (ii) in each case referred to in clause (C) or
(D) above, the Board of Directors of the Company determines in good faith (after
consultation with its financial advisor) that such Acquisition Proposal, if
accepted, is reasonably likely to be consummated, taking into account all legal,
financial and regulatory aspects of the proposal and the Person making the
proposal and would, if consummated, result in a transaction more favorable to
the Company's stockholders from a financial point of view than the transaction
contemplated by this Agreement (any such more favorable Acquisition Proposal
being referred to in this Agreement as a "Superior Proposal"). The Company
agrees that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties other than Parent or
Merger Sub conducted heretofore with respect to any Acquisitions Proposal. The
Company agrees that it will take the necessary steps to promptly inform any
individuals or entities referred to in the preceding sentence hereof of the
obligations undertaken in this Section 6.2. The Company agrees that it will
notify Parent immediately if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such discussions
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or negotiations are sought to be initiated or continued with, any of its
representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any proposals or offers and
thereafter shall keep Parent informed, on a current basis, on the status and
terms of any such proposals or offers and the status of any such discussions or
negotiations. The Company also agrees that it will promptly request any Person
that has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring it or any of its Subsidiaries to return all
confidential information heretofore furnished to such Person by or on behalf of
it or any of its Subsidiaries.
6.3. Information Supplied. The Company and Parent each agrees, as to
itself and its Subsidiaries, that none of the information supplied or to be
supplied by it or its Subsidiaries for inclusion or incorporation by reference
in (i) the Registration Statement on Form S-4 to be filed with the SEC by Parent
in connection with the issuance of shares of Parent Common Stock in the Merger
(including the proxy statement and prospectus (the "Prospectus/Proxy Statement")
constituting a part thereof) (the "S-4 Registration Statement") will, at the
time the S-4 Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
(ii) the Prospectus/Proxy Statement and any amendment or supplement thereto
will, at the date of mailing to stockholders and at the times of the meetings of
stockholders of the Company to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any 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.
6.4. Stockholders Meeting. Subject to their fiduciary obligations under
applicable law, the Company's Board of Directors shall recommend the adoption of
the Merger Agreement by holders of Shares and Class A Preferred Shares at the
meeting of such stockholders called to consider and vote upon adoption of the
Merger Agreement (the "Stockholders Meeting") and shall take all lawful action
to solicit such adoption. Whether or not the Board of Directors of the Company
determines at any time after the date hereof that this Agreement is no longer
advisable and recommends that the holders of Shares and Class A Preferred Shares
reject it, the Company is required to, and will take, in accordance with
applicable law and its certificate and by-laws, all action necessary to convene
the Stockholders Meeting as promptly as practicable after the S-4 Registration
Statement is declared effective to consider and vote upon the adoption of this
Agreement.
6.5. Filings; Other Actions; Notification. (a) The Company shall promptly
prepare and file with the SEC the Prospectus/Proxy Statement, and Parent shall
prepare and file with the SEC the S-4 Registration Statement as promptly as
practicable. Parent and the Company each shall use all reasonable efforts to
have the S-4 Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing, and promptly thereafter mail the
Prospectus/Proxy Statement to the stockholders of the Company. Parent shall also
use all reasonable efforts to obtain prior to the effective date of the S-4
Registration Statement all necessary state securities law or "blue sky" permits
and approvals required in connection with the Merger and to consummate the other
transactions contemplated by this Agreement and will pay all expenses incident
thereto.
(b) The Company and Parent shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) all reasonable efforts to take
or cause to be taken all actions, and do or cause to be done all things,
necessary, proper or advisable on its part under this Agreement and applicable
Laws to consummate and make effective the Merger and the other transactions
contemplated by this Agreement as soon as practicable, including preparing and
filing as promptly as practicable all documentation to effect all necessary
notices, reports and other filings and to obtain as promptly as practicable all
consents, registrations, approvals, permits and authorizations necessary or
advisable to be obtained from any third party and/or any Governmental Entity in
order to consummate the Merger or any of the other transactions contemplated by
this Agreement; provided, however, that nothing in this Section 6.5 shall
require, or be construed to require, Parent to proffer to, or agree to, sell or
hold separate and agree to sell, before or after the Effective Time, any assets,
businesses, or interest in any assets or businesses of Parent, the Company or
any of their respective Affiliates (or to consent to any sale, or agreement to
sell, by the Company of any of its assets or businesses) or to agree to any
material changes or restriction in the operations of any such assets or
businesses. Subject to applicable
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laws relating to the exchange of information, Parent and the Company shall have
the right to review in advance, and to the extent practicable each will consult
the other on, all the information relating to Parent or the Company, as the case
may be, and any of their respective Subsidiaries, that appear in any filing made
with, or written materials submitted to, any third party and/or any Governmental
Entity in connection with the Merger and the other transactions contemplated by
this Agreement. In exercising the foregoing right, each of the Company and
Parent shall act reasonably and as promptly as practicable.
(c) The Company and Parent each shall, upon request by the other, furnish
the other with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Prospectus/Proxy Statement, the S-4
Registration Statement or any other statement, filing, notice or application
made by or on behalf of Parent, the Company or any of their respective
Subsidiaries to any third party and/or any Governmental Entity in connection
with the Merger and the transactions contemplated by this Agreement.
(d) The Company and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Merger and the other transactions contemplated by this Agreement.
6.6. Taxation. Subject to Section 6.2, neither Parent nor the Company
shall take or cause to be taken any action, whether before or after the
Effective Time, that would disqualify the Merger as a "reorganization" within
the meaning of Section 368(a) of the Code if the Average Parent Share Price is
greater than or equal to the Floor Price.
6.7. Access. Upon reasonable notice, and except as may otherwise be
required by applicable law, the Company shall (and shall cause its Subsidiaries
to) afford the Parent's officers, employees, counsel, accountants and other
authorized representatives ("Representatives") reasonable access, during normal
business hours throughout the period prior to the earlier of termination of this
Agreement in accordance with its terms and the Effective Time, to its
properties, books, contracts and records and, during such period, each shall
(and shall cause its Subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as may reasonably
be requested, provided that no investigation pursuant to this Section shall
affect or be deemed to modify any representation or warranty made by the
Company, and provided, further, that the foregoing shall not require the Company
to permit any inspection, or to disclose any information, that would result in
the disclosure of any trade secrets of third parties or violate any of its
obligations with respect to confidentiality if the Company shall have used its
reasonable efforts to obtain the consent of such third party to such inspection
or disclosure. All requests for information made pursuant to this Section shall
be directed to an executive officer of the Company, or such Person as may be
designated by its executive officers. All such information shall be governed by
the terms of the Confidentiality Agreement.
6.8. Affiliates. At least 30 days prior to the Stockholders Meeting, the
Company shall deliver to Parent a list of names and addresses of those Persons
who will be, in the opinion of the Company, as of the time of the Stockholders
Meeting, "affiliates" of the Company within the meaning of Rule 145 under the
Securities Act. There shall be added to such list the names and addresses of any
other Person subsequently identified by either Parent or the Company as a Person
who may be deemed to be such an affiliate of the Company at such time; provided,
however, that no such Person identified by Parent shall be added to the list of
affiliates of the Company if Parent shall receive from the Company, on or before
the date of the Stockholders Meeting, an opinion of counsel reasonably
satisfactory to Parent to the effect that such Person is not such an affiliate.
The Company shall exercise its best efforts to deliver or cause to be delivered
to Parent, prior to the date of the Stockholders Meeting, from each affiliate of
the Company who makes a Stock Election identified in the foregoing list (as the
same may be supplemented as aforesaid), a letter dated as of the Closing Date
substantially in the form attached as Exhibit A-1 (the "Affiliates Letter").
Parent shall not be required to maintain the effectiveness of the S-4
Registration Statement or any other registration statement under the Securities
Act for the purposes of resale of Parent Common Stock by such affiliates
received in the Merger
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and the certificates representing Parent Common Stock received by such
affiliates shall bear a customary legend regarding applicable Securities Act
restrictions and the provisions of this Section.
6.9. Stock Exchange Listing and De-listing. Parent shall use its best
efforts to cause the shares of Parent Common Stock to be issued in the Merger to
be approved for listing on the ASE subject to official notice of issuance, prior
to the Closing Date. The Surviving Corporation shall use its best efforts to
cause the Shares to be de-listed from the ASE and de-registered under the
Exchange Act as soon as practicable following the Effective Time.
6.10. Publicity. The initial press release shall be a joint press release
and thereafter the Company and Parent each shall consult with each other prior
to issuing any press releases or otherwise making public announcements with
respect to the Merger and the other transactions contemplated by this Agreement
and prior to making any filings with any third party and/or any Governmental
Entity (including any national securities exchange) with respect thereto, except
as may be required by law or by obligations pursuant to any listing agreement
with or rules of any national securities exchange.
6.11. Benefits.
(a) Stock Options. At the Effective Time, each then outstanding option to
purchase Shares ("Option") under the Stock Plan, whether vested or unvested,
shall be cancelled and the holder thereof shall be entitled to receive an amount
of cash equal to the product of (x) the amount, if any, by which the Share Cash
Merger Consideration exceeds the exercise price per Share under such Option and
(y) the number of Shares issuable pursuant to the unexercised portion of such
Option, less any required withholding of taxes (such amount being hereinafter
referred to as the "Option Consideration"). The Option Consideration shall be
paid as soon as practicable following the Effective Time. Prior to the Effective
Time, the Company shall take such actions as may be necessary to effectuate the
foregoing, including without limitation obtaining all applicable consents. The
cancellation of an Option in exchange for the Option Consideration shall be
deemed a release of any and all rights the holder had or may have had in respect
of such Option, and any required consents received from Option holders shall so
provide.
(b) Employee Benefits.
(i) Each of Parent and Merger Sub agrees that, during the period
commencing at the Effective Time and ending on the first anniversary
thereof, the employees of the Surviving Corporation and its Subsidiaries
will continue to be provided with benefits under employee benefit plans
(other than plans involving the issuance of Shares) that are substantially
similar in the aggregate to those currently provided by the Company and its
Subsidiaries to such employees. Parent shall, and shall cause the Surviving
Corporation to, honor all employee benefit obligations to current and
former employees under the Compensation and Benefit Plans and all employee
severance plans (or policies) in existence on the date hereof and all
employment or severance agreements entered into by the Company or adopted
by the board of directors of the Company prior to the date hereof. Parent
agrees to offer or cause Merger Sub to offer employment contracts with the
persons and on the terms set forth on Schedule I to this Agreement
immediately prior to the Effective Time. Nothing herein shall prevent
Parent from terminating any Compensation and Benefit Plan.
(ii) Each of Parent and Merger Sub agrees that the employees of the
Surviving Corporation shall receive full credit for purposes of eligibility
and vesting under the employee benefit plans or arrangements maintained by
the Surviving Corporation for such employees' service with the Company or
any of its Subsidiaries to the same extent recognized by the Company
immediately prior to the Effective Time.
6.12. Expenses. The Surviving Corporation shall pay all charges and
expenses, including those of the Exchange Agent, in connection with the
transactions contemplated in Article IV, and Parent shall reimburse the
Surviving Corporation for such charges and expenses. Except as otherwise
provided in Section 8.5(b), whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the Merger and the
other transactions contemplated by this Agreement shall be paid by the party
incurring such expense, except that expenses incurred in connection with the
filing fee for the S-4 Registration
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Statement and printing and mailing the Prospectus/Proxy Statement and the S-4
Registration Statement shall be shared equally by Parent and the Company.
6.13. Indemnification; Directors' and Officers' Insurance. (a) From and
after the Effective Time, Parent and the Surviving Corporation shall indemnify
and hold harmless each present and former director and officer of the Company,
(when acting in such capacity or when serving at the request of the Company as a
director or officer of a Subsidiary or a fiduciary of a Compensation and
Benefits Plan) determined as of the Effective Time (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities (collectively, "Costs") incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, resulting from matters
existing or occurring at or prior to the Effective Time (including, without
limitation, any claim, action, suit, proceeding or investigation resulting from
the transactions contemplated by this Agreement), whether asserted or claimed
prior to, at or after the Effective Time, to the fullest extent that the Company
would have been permitted under Delaware law and its certificate of
incorporation or by-laws in effect on the date hereof to indemnify such Person
(and Parent or the Surviving Corporation shall also advance expenses as incurred
to the fullest extent permitted under applicable law, provided, the Person to
whom expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such Person is not entitled to indemnification),
and provided, further, that any determination required to be made with respect
to whether an officer's or director's conduct complies with the standards set
forth under Delaware law and the Company's certificate of incorporation and
by-laws shall be made by independent counsel selected by the Surviving
Corporation.
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 6.13, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Parent and the Surviving
Corporation thereof, but the failure to so notify shall not relieve Parent or
the Surviving Corporation of any liability it may have to such Indemnified Party
if such failure does not materially prejudice the indemnifying party. In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) Parent or the Surviving
Corporation shall have the right to assume the defense thereof and Parent shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified Parties
in connection with the defense thereof, (ii) Parent, the Surviving Corporation
and the Indemnified Parties will cooperate in the defense of any such matter and
(iii) Parent and the Surviving Corporation shall not be liable for any
settlement effected without its prior written consent (which consent will not be
unreasonably withheld); and provided, further, that Parent and the Surviving
Corporation shall not have any obligation hereunder to any Indemnified Party if
and when a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
(c) Parent shall and shall cause the Surviving Corporation to maintain the
Company's existing officers' and directors' liability insurance ("D&O
Insurance") for a period of six years after the Effective Time so long as the
annual premium therefor is not in excess of 200% of the last annual premium paid
prior to the date hereof (the "Current Premium"); provided, however, that if the
existing D&O Insurance expires, is terminated or cancelled during such six-year
period, Parent shall and shall cause the Surviving Corporation to use all
reasonable efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis) of
200% of the Current Premium. The Company will use all reasonable efforts to
obtain officers and directors liability insurance to become effective at the
Effective Time with coverage amounts and a term reasonably satisfactory to
Parent.
(d) If Parent or the Surviving Corporation or any of their respective
successors or assigns (i) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) shall transfer all or
substantially all of its properties and assets to any individual, corporation or
other entity, then, and in each such case, proper provisions shall be made so
that the successors and assigns of Parent or the Surviving Corporation, as the
case may be, shall assume all of the obligations set forth in this Section.
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(e) The provisions of this Section 6.13 shall survive the closing of the
transactions contemplated hereby, and are intended to be for the benefit of, and
shall be enforceable by, each of the Indemnified Parties, their heirs and their
representatives.
6.14. Other Actions by the Company; Takeover Statutes; Change of Control
Offer. The Company shall repurchase the outstanding Class A Warrant immediately
prior to the Effective Time for $1.00. The Company shall use all reasonable
efforts to obtain such waivers, consents and estoppel certificates as Parent
shall reasonably request, upon terms and conditions and in a form reasonably
satisfactory to Parent with respect to any material Contracts of the Company or
its Subsidiaries, it being understood and agreed that the Company shall not
amend or agree to amend such Contracts or make any additional payments or incur
any additional obligations or grant any additional rights in order to obtain
such waivers, consents and certificates without Parent's prior written consent.
If any Takeover Statute is or may become applicable to the Merger or the other
transactions contemplated by this Agreement or the Stockholders Agreements, the
Company and its Board of Directors shall grant such approvals and take such
actions as are necessary so that such transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement and the
Stockholders Agreements or by the Merger and otherwise act to eliminate or
minimize the effects of such statute or regulation on such transactions. The
Company agrees that it will mail a notice with respect to a Change of Control
Offer (as defined in the Indenture, dated as of June 12, 1998 (the "Indenture"),
between the Company and The Bank of New York, as Trustee, relating to the
Company's outstanding 10 7/8% Senior Notes due June 12, 2008 (the "Notes"))
pursuant to Section 4.19 of the Indenture, within five business days of the date
hereof and shall provide that the Change of Control Payment Date (as defined in
the Indenture) with respect to such Change of Control Offer shall not, without
Parent's written consent, be more than thirty days from the date such notice is
mailed. If the Company complies with preceding sentence and, prior to the Change
of Control Payment Date, there has been no public disclosure of any events,
conditions, circumstances or other matters relating to the Company or its
Subsidiaries the subject matter of which represents, individually or in the
aggregate (and without giving effect to any qualifications as to "Company
Material Adverse Effect," "material" or other similar qualifications), a breach
of the representations and warranties of the Company contained in this Agreement
as of the date hereof, which breaches have had or are reasonably likely to have,
a Company Material Adverse Effect or are reasonably likely to prevent the
Company from consummating the transactions contemplated by this Agreement, on
the Change of Control Payment Date, Parent will purchase any Notes required to
be purchased by the Company pursuant to such Change of Control Offer.
6.15. Parent Vote. Parent shall vote (or consent with respect to) or
cause to be voted (or a consent to be given with respect to) any Company
Securities entitled to vote and any shares of common stock of Merger Sub
beneficially owned by it or any of its Affiliates or with respect to which it or
any of its Affiliates has the power (by agreement, proxy or otherwise) to cause
to be voted (or to provide a consent), in favor of the adoption and approval of
this Agreement at any meeting of stockholders of the Company or Merger Sub,
respectively, at which this Agreement shall be submitted for adoption and
approval and at all adjournments or postponements thereof (or, if applicable, by
any action of stockholders of either the Company or Merger Sub by consent in
lieu of a meeting), and shall cause a meeting of stockholders of Merger Sub to
be called for such purpose unless such action is taken by consent in lieu
thereof.
ARTICLE VII
CONDITIONS
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been duly adopted
by holders of Company Securities constituting the Company Requisite Vote
and shall have been duly adopted by the sole stockholder of Merger Sub in
accordance with applicable law and the certificate and by-laws of each such
corporation.
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(b) ASE Listing. The shares of Parent Common Stock issuable to the
Company stockholders pursuant to this Agreement shall have been authorized
for listing on the ASE upon official notice of issuance.
(c) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated and, other than the filing provided for in Section 1.3, all
notices, reports and other filings required to be made prior to the
Effective Time by the Company or Parent or any of their respective
Subsidiaries with, and all consents, registrations, approvals, permits and
authorizations required to be obtained prior to the Effective Time by the
Company or Parent or any of their respective Subsidiaries from, any
Governmental Entity (collectively, "Governmental Consents") in connection
with the execution and delivery of this Agreement and the consummation of
the Merger and the other transactions contemplated hereby by the Company,
Parent and Merger Sub shall have been made or obtained (as the case may
be).
(d) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, law, ordinance, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) that is in
effect and restrains, enjoins or otherwise prohibits consummation of the
Merger or the other transactions contemplated by this Agreement
(collectively, an "Order"), and no Governmental Entity shall have
instituted any proceeding or threatened to institute any proceeding seeking
any such Order.
(e) S-4. The S-4 Registration Statement shall have become effective
under the Securities Act. No stop order suspending the effectiveness of the
S-4 Registration Statement shall have been issued, and no proceedings for
that purpose shall have been initiated or be threatened, by the SEC.
7.2. Conditions to Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to effect the Merger are also subject to the
satisfaction or waiver by Parent at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of an earlier date), and
Parent shall have received a certificate signed on behalf of the Company by
the Chief Executive Officer of the Company to such effect; provided,
however, that notwithstanding anything herein to the contrary, this Section
7.2(a) shall be deemed to have been satisfied even if such representations
or warranties (without giving effect to any qualifications as to "Company
Material Adverse Effect," "material" or similar qualifications) are not so
true and correct unless the failure of such representations or warranties
(without giving effect to any qualifications as to "Company Material
Adverse Effect," "material" or similar qualifications) to be so true and
correct, individually or in the aggregate, has had, or is reasonably likely
to have, a Company Material Adverse Effect or is reasonably likely to
prevent the Company from consummating the transactions contemplated by this
Agreement.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the
Chief Executive of the Company to such effect.
(c) Consents Under Agreements. The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be
required under the Contracts listed in Section 7.2(c) of the Parent
Disclosure Letter and all other consents or approvals from each Person
whose consent or approval is required under any Contract except for such
consents or approvals the failure to obtain would not, individually or in
the aggregate, be reasonably likely to have a Company Material Adverse
Effect or be reasonably likely to prevent the Company from consummating the
transactions contemplated by this Agreement.
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(d) Tax Opinion. If, and only if, the Average Parent Share Price is
greater than or equal to the Floor Price (and treated as being greater than
or equal to the Floor Price after giving effect to Section 4.2(a)(iv)),
Parent shall have received the opinion of Sullivan & Cromwell, counsel to
Parent, dated the Closing Date, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that each of Parent, Merger Sub
and the Company will be a party to that reorganization within the meaning
of Section 368(b) of the Code.
(e) Resignations. Parent shall have received the resignations of each
director of the Company.
(f) Employment Agreements. Parent and/or Merger Sub shall have
entered into an Employment Agreement with A. Dale Mayo, in the form
attached hereto as Schedule II.
(g) Affiliates Letters. Parent shall have received an Affiliates
Letter from each Person identified as an affiliate of the Company pursuant
to Section 6.8.
7.3. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be
true and correct as of the date of this Agreement and as of the Closing
Date (except that the representations and warranties of Parent and Merger
Sub contained in Sections 5.2(c), (g), (h) and (i) shall not be required to
be so true and correct as of such dates if the Average Parent Price is less
than the Floor Price, and in which event neither Parent nor Merger Sub
shall have any obligation or liability (and the Company shall have no
rights) in respect of a breach of such representations and warranties) as
though made on and as of the Closing Date, (except to the extent any such
representation and warranty expressly speaks as of an earlier date) and the
Company shall have received a certificate signed on behalf of Parent by an
executive officer of Parent and an executive officer of Merger Sub to such
effect; provided, however, that notwithstanding anything herein to the
contrary, this Section 7.3(a) shall be deemed to have been satisfied even
if such representations or warranties (without giving effect to any
qualifications as to "Parent Material Adverse Effect," "material" or
similar qualifications) are not so true and correct unless the failure of
such representations or warranties (without giving effect to any
qualifications as to "Parent Material Adverse Effect," "material" or
similar qualifications) to be so true and correct, individually or in the
aggregate, has had, or is reasonably likely to have, a Parent Material
Adverse Effect or is reasonably likely to prevent Parent from consummating
the transactions contemplated by this Agreement.
(b) Performance of Obligations of Parent and Merger Sub. Each of
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and the Company shall have received a certificate
signed on behalf of Parent and Merger Sub by an executive officer of Parent
and an executive officer of Merger Sub to such effect.
(c) Tax Opinion. If, and only if, the Average Parent Share Price is
greater than or equal to Floor Price (and treated as being greater than or
equal to the Floor Price after giving effect to Section 4.2(a)(iv)), the
Company shall have received the opinion of Kirkpatrick & Lockhart, counsel
to the Company, dated the Closing Date, to the effect that the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that each of Parent, Merger Sub
and the Company will be a party to that reorganization within the meaning
of Section 368(b) of the Code.
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ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company and Parent referred
to in Section 7.1(a), by mutual written consent of the Company and Parent by
action of their respective Boards of Directors.
8.2. Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either Parent or the Company if (i)
the Merger shall not have been consummated by February 28, 1999, whether such
date is before or after the date of approval by the stockholders of the Company;
provided, however, that if Parent determines that additional time is necessary
in order to forestall any action to restrain, enjoin or prohibit the Merger by
any Government Entity, the Termination Date may be extended by Parent to a date
not beyond April 30, 1999 (the "Termination Date"), (ii) the adoption of this
Agreement by Company's stockholders required by Section 7.1(a) shall not have
been obtained at a meeting duly convened therefor or at any adjournment or
postponement thereof, or (iii) any Order permanently restraining, enjoining or
otherwise prohibiting consummation of the Merger shall become final and
non-appealable (whether before or after the approval by the stockholders of the
Company; provided, that the right to terminate this Agreement pursuant to clause
(i) above shall not be available to any party that has breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately caused the event that would otherwise give rise to a right to
terminate this Agreement.
8.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by stockholders of the Company referred to in Section
7.1(a), by action of the Board of Directors of the Company if there has been a
material breach by Parent or Merger Sub of any representation, warranty,
covenant or agreement contained in this Agreement that is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Company to the party committing such breach.
8.4. Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
Board of Directors of Parent if (i) the Board of Directors of the Company shall
have withdrawn or adversely modified its approval or recommendation of this
Agreement or approved or recommended a Superior Proposal or (ii) there has been
a material breach by the Company of any representation, warranty, covenant or
agreement contained in this Agreement that is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by Parent to
the party committing such breach.
8.5. Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, this Agreement (other than as set forth in Section 9.1) shall
become void and of no effect with no liability on the part of any party hereto
(or of any of its directors, officers, employees, agents, legal and financial
advisors or other representatives); provided, however, except as otherwise
provided herein, no such termination shall relieve any party hereto of any
liability or damages resulting from any breach of this Agreement.
(b) In the event that (i) an Acquisition Proposal shall have been made to
the Company or any of its Subsidiaries or any of its stockholders or any Person
shall have publicly announced an intention (whether or not conditional) to make
an Acquisition Proposal with respect to the Company or any of its Subsidiaries
and thereafter this Agreement is terminated by either Parent or the Company
pursuant to Section 8.2(ii)or (ii) this Agreement is terminated by Parent
pursuant to Section 8.4(i), then the Company shall promptly, but in no event
later than two days after the date of such termination, pay Parent a termination
fee of $1,600,000 and shall promptly, but in no event later than two days after
being notified of such by Parent, pay all of the charges and expenses, including
those of the Exchange Agent, incurred by Parent or Merger Sub in connection with
this Agreement and the transactions contemplated by this Agreement up to a
maximum amount of $400,000, in each case payable by wire transfer of same day
funds. The Company acknowledges
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that the agreements contained in this Section 8.5(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent and Merger Sub would not enter into this Agreement; accordingly, if the
Company fails to promptly pay the amount due pursuant to this Section 8.5(b),
and, in order to obtain such payment, Parent or Merger Sub commences a suit
which results in a judgment against the Company for the fee set forth in this
paragraph (b), the Company shall pay to Parent or Merger Sub its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest on the amount of the fee at the prime rate of The Chase Manhattan Bank,
N.A. in effect on the date such payment was required to be made.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Survival. This Article IX and the agreements of the Company, Parent
and Merger Sub contained in Sections 6.6 (Taxation), 6.9 (Stock Exchange Listing
and De-listing), 6.11 (Benefits), 6.12 (Expenses) and 6.13 (Indemnification;
Directors' and Officers' Insurance) shall survive the consummation of the
Merger. This Article IX, the agreements of the Company, Parent and Merger Sub
contained in Section 6.12 (Expenses), Section 8.5 (Effect of Termination and
Abandonment) shall survive the termination of this Agreement. All other
representations, warranties, covenants and agreements in this Agreement shall
not survive the consummation of the Merger or the termination of this Agreement.
9.2. Modification or Amendment. Subject to the provisions of applicable
law, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
9.3. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (A) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF
DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of the State of
Delaware and the Federal courts of the United States of America located in the
State of Delaware solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated hereby, and hereby waive, and
agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a Delaware State
or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 9.6 or in such other
manner as may be permitted by law shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR
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RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS
WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
9.6. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to Parent or Merger Sub:
Cablevision Systems Corporation,
One Media Crossways,
Woodbury, New York 11797.
Attention: General Counsel
fax: (516) 364-8501.
(with copies to:
John P. Mead, Esq.
Duncan C. McCurrach, Esq.
Sullivan & Cromwell,
125 Broad Street,
New York, New York 10004
fax: (212) 558-3588.)
if to the Company:
Clearview Cinema Group, Inc.
97 Main Street,
Chatham, New Jersey 07928.
Attention: Chief Executive Officer
fax: (973) 377-4303
(with a copies to:
Warren Colodner, Esq.,
Janice C. Hartman, Esq.
Kirkpatrick & Lockhart,
1251 Sixth Avenue, 45th Floor,
New York, New York 10022
fax: (212) 536-3901.)
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement. This Agreement (including any exhibits hereto),
the Company Disclosure Letter, the Parent Disclosure Letter constitute the
entire agreement, and supersede all other prior agreements, understandings,
representations and warranties both written and oral, among the parties, with
respect to the subject matter hereof.
9.8. No Third Party Beneficiaries. Except as provided in Sections 6.13
(Indemnification; Directors' and Officers' Insurance), this Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
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9.9. Obligations of Parent and of the Company. Whenever this Agreement
requires a Subsidiary of Parent to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause such Subsidiary
to take such action. Whenever this Agreement requires a Subsidiary of the
Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such Subsidiary to take such action.
9.10. Transfer Taxes. Any liability arising out of the New York City Real
Property Gains Tax, if applicable and due with respect to the Merger, shall be
borne by the Company, as well as real property transfer taxes, if any, payable
in any other jurisdiction where any of the Company Real Properties is situated.
The parties shall cooperate in the allocation of the purchase price in a fair
and reasonable manner so as to determine what, if any value is being paid for
each of the Company Real Properties which may be subject to such a real estate
transfer tax, and the parties shall complete and file all required real property
transfer tax forms. All other transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including penalties and interest)
incurred in connection with the Merger shall be paid by Parent and Merger Sub
when due, and Parent and Merger Sub will indemnify the Company against liability
for any such taxes.
9.11. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
9.12. Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.13. Assignment. This Agreement shall not be assignable by operation of
law or otherwise; provided, however, that Parent may designate, by written
notice to the Company, another wholly-owned direct or indirect subsidiary to be
a Constituent Corporation in lieu of Merger Sub, in which event all references
herein to Merger Sub shall be deemed references to such other subsidiary, except
that all representations and warranties made herein with respect to Merger Sub
as of the date of this Agreement shall be deemed representations and warranties
made with respect to such other subsidiary as of the date of such designation.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
CABLEVISION SYSTEMS CORPORATION
By: /s/ ANDREW B. ROSENGARD
------------------------------------
Name: Andrew B. Rosengard
Title: Executive Vice President
CCG HOLDINGS INC.
By: /s/ ANDREW B. ROSENGARD
------------------------------------
Name: Andrew B. Rosengard
Title: Executive Vice President
CLEARVIEW CINEMA GROUP, INC.
By: /s/ A. DALE MAYO
------------------------------------
Name: A. Dale Mayo
Title: President
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ANNEX B
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (this "Agreement") is entered into as of August 12,
1998, between the undersigned stockholders (the "Stockholders") of Clearview
Cinema Group, Inc., a Delaware corporation (the "Company"), and Cablevision
Systems Corporation, a Delaware corporation ("Parent"). Capitalized terms used
but not defined herein shall have the meanings set forth in the Merger Agreement
(as defined below).
WHEREAS, concurrently with the execution and delivery of this Agreement
Parent, CCG Holdings Inc., a Delaware corporation and a wholly owned subsidiary
of Parent ("Newco"), and the Company have entered into an Agreement and Plan of
Merger dated as of August 12, 1998 (as in effect on the date hereof, the "Merger
Agreement"), providing for the merger of the Company with Newco (the "Merger")
upon the terms and subject to conditions of the Merger Agreement, and setting
forth certain representations, warranties, covenants and agreements of the
parties thereto in connection with the Merger; and
WHEREAS, as an inducement and a condition to Parent and Newco entering into
the Merger Agreement, pursuant to which each Stockholder will receive the
applicable Merger Consideration (as defined in the Merger Agreement) in exchange
for each outstanding Company Security owned by such Stockholder immediately
prior to the Effective Time, the Stockholders each have agreed to enter into
this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. Representations of Stockholders. Each of the Stockholders severally
represents as to himself, herself or itself that, except as set forth on Exhibit
A hereto:
(a) such Stockholder is the beneficial owner with the sole power to
vote and the sole power to dispose of and, if applicable, the sole power to
exercise the right to acquire Shares upon conversion of Convertible
Preferred Securities or warrants to purchase Shares ("Warrants"), that
number of Company Securities or Warrants set forth opposite such
Stockholder's name on Exhibit A hereto (in each case, such "Stockholder's
Securities" and collectively, the "Securities");
(b) such Stockholder does not beneficially own (as such term is
defined in the Securities Exchange Act of 1934, as amended (the "1934
Act")) any Company Securities or Warrants other than such Stockholder's
Securities, and any Shares which such Stockholder has the right to obtain
upon the exercise of employee stock options outstanding on the date hereof;
(c) such Stockholder has good and valid title to such Stockholder's
Securities free and clear of all pledges, liens, proxies, claims, charges,
security interests, preemptive rights and any other encumbrances whatsoever
with respect to the ownership, transfer or voting of such Securities (other
than restrictions on transfer under applicable Federal and state securities
laws, and other than pursuant to the agreements listed on Exhibit C);
(d) if such Stockholder is a corporation, partnership or other similar
business entity, such Stockholder is a duly organized and validly existing
corporation, partnership or other similar business entity, as the case may
be, in good standing under the laws of its jurisdiction of organization;
(e) such Stockholder has all requisite power and authority and has
taken all action necessary in order to execute, deliver and perform its
obligations under this Agreement and to take all actions required and to
consummate all of the transactions contemplated by, this Agreement. This
Agreement is a valid and binding agreement of such Stockholder, enforceable
against such Stockholder in accordance with its terms, subject to the
Bankruptcy and Equity Exception;
(f) other than the filings required pursuant to the HSR Act, no
notices, reports or other filings are required to be made by such
Stockholder with, nor are any consents, registrations, approvals, permits
or authorizations required to be obtained by such Stockholder from, any
Governmental Entity, in connection with the execution and delivery of this
Agreement by such Stockholder, the performance of its
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obligations hereunder or the consummation by such Stockholder of the
transactions contemplated hereby;
(g) the execution and delivery of this Agreement by such Stockholder
do not, and the performance of such Stockholder's obligations hereunder and
the consummation by such Stockholder of the transactions contemplated
hereby will not, constitute or result in (A) if the Stockholder is a
corporation, partnership or other similar business entity, a breach or
violation of, or a default under, the certificate or by-laws or the
comparable governing instruments of such Stockholder or (B) a breach or
violation of, or a default under, the acceleration of any obligations or
the creation of a lien, pledge, security interest or other encumbrance on
the assets (including the Securities, New Securities (as defined in Section
7) or any Company Securities issuable upon exercise, conversion or exchange
such Securities or New Securities) of such Stockholder (with or without
notice, lapse of time or both) pursuant to, any Contract binding upon such
Stockholder or any Law or governmental or non-governmental permit or
license to which such Stockholder is subject or by which such Stockholder
or its assets are bound. Exhibit C hereto sets forth a correct and complete
list of Contracts of such Stockholder pursuant to which consents or waivers
("Consents") are or may be required in order for such Stockholder to
perform its obligations hereunder. Pursuant to Section 2(d) of this
Agreement, such Stockholder has obtained all Consents that are or may be
required under such Contracts;
(h) such Stockholder will take all necessary action to ensure that
such Stockholder's Securities or New Securities will, except as set forth
in Section 1(c) or on Exhibit A (none of which shall prevent such
Stockholder from performing its obligations pursuant to Sections 2(a)
hereof), at all times during the term of this Agreement be held by such
Stockholder, or by a nominee or custodian for the account of such
Stockholder, free and clear of all pledges, liens, proxies, claims,
charges, security interests, preemptive rights and any other encumbrances
whatsoever with respect to the ownership, transfer or voting of such
Stockholder's Securities, New Securities or any Company Securities issuable
upon exercise, conversion or exchange of such Securities or New Securities;
and there are no (and with respect to New Securities, there will be no)
outstanding options, warrants or rights to purchase or acquire, or other
agreements relating to, such Securities or New Securities, as the case may
be, other than this Agreement;
(i) no agent, broker, person or firm acting on behalf of such
Stockholder or any of its Affiliates (other than the Company with respect
to which such Stockholder makes no representation) is, or will be, entitled
to any commission or broker's or finder's fees from Parent or any of its
Affiliates in connection with any of the sale, exchange, transfer or other
disposition of such Stockholder's Securities or New Securities as
contemplated by this Agreement or the Merger Agreement;
(j) none of the information supplied by such Stockholder for inclusion
or incorporation by reference in the Registration Statement, including the
Proxy Statement included therein, or any document incorporated by reference
thereby, as of the time the Registration Statement becomes effective, the
date of the Proxy Statement and the date of the Stockholders Meeting, will
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they are made, not misleading. Such
Stockholder agrees promptly to correct any information provided by it for
use in the Registration Statement and the Proxy Statement that shall be, or
shall become, false or misleading in any material respect;
(k) such Stockholder understands and acknowledges that Parent and
Newco are each entering into the Merger Agreement in reliance upon such
Stockholder's execution and delivery of this Agreement; and
The representations and warranties of each Stockholder contained herein are for
the benefit of Parent and its permitted assigns and shall be deemed made as of
the date hereof and as of each date from the date hereof through and including
the earlier of the date that the Merger is consummated or this Agreement is
terminated in accordance with its terms.
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2. Agreement to Vote Securities; Disclosure; Waivers.
(a) Each of the Stockholders severally agrees to vote such Stockholder's
Securities and any New Securities, and shall cause any holder of record of such
Stockholder's Securities or New Securities to vote, (i) in favor of adoption of
the Merger Agreement (and each other action and transaction contemplated by the
Merger Agreement and this Agreement) at every meeting of the stockholders of the
Company at which such matters are considered and at every adjournment thereof
and (ii) against any action or proposal that would compete with or could serve
to materially compete or interfere with, delay, discourage, adversely affect or
inhibit the timely consummation of the Merger. Any vote shall be cast or consent
shall be given in accordance with procedures relating thereto as shall ensure
that it is duly counted for purposes of determining that a quorum is present and
for purposes of recording the results of such vote or consent. Each Stockholder
severally agrees to deliver to Parent upon request a proxy substantially in the
form attached hereto as Exhibit B, which proxy shall be coupled with an interest
and irrevocable to the extent permitted under Delaware law, with the total
number of such Stockholder's Securities and any New Securities correctly
indicated thereon. Each Stockholder also agrees to use all reasonable efforts to
take, or cause to be taken, all action, and do, or cause to be done, all things
necessary or advisable in order to consummate and make effective the
transactions contemplated by this Agreement.
(b) Each Stockholder hereby agrees to permit Parent and Newco to publish
and disclose in the Registration Statement and the Proxy Statement its identity
and ownership of Company Securities and the nature of its commitments,
arrangements and understandings under this Agreement.
(c) To the extent such rights arise as a result of the Merger, the
execution of this Agreement or the Merger Agreement or the other transactions
contemplated herby or by the Merger Agreement under applicable law or the
certificates of designation relating to Preferred Shares (each, a "Certificate
of Designation"), each Stockholder irrevocably waives (i) any rights of
appraisal or rights to dissent from the Merger, (ii) other than pursuant to
Article IV of the Merger Agreement, this Agreement or with the prior written
consent of Parent, any rights to require or otherwise cause the Company or
Parent to exercise, convert or exchange any of such Stockholder's Securities for
shares of capital stock or other securities or property or assets of Parent or
the Company, (iii) any rights to require or otherwise cause the Company or
Parent to redeem any of such Stockholder's Preferred Shares, (iv) any rights to
receive preferential payments or other distributions upon a Liquidation Event,
Mandatory Redemption Event (each as defined in the applicable Certificate of
Designation) or other similar events or (v) any rights to vote separately as a
class of Peferred Shares upon adoption of the Merger Agreement at a meeting of
stockholders of the Company. In addition, each of such Stockholders agrees that
pursuant to the Merger, at the Effective Time, all of such Stockholder's
Securities shall no longer be outstanding, shall be cancelled and retired and
shall cease to exist, and each Certificate representing any such Stockholder's
Securities shall, subject to the terms and upon the conditions of the Merger
Agreement, thereafter represent only the right to receive the applicable Merger
Consideration and the right, if any, to receive pursuant to Section 4.2(e) of
the Merger Agreement, cash in lieu of any fractional shares of Parent Common
Stock into which such Stockholder's Securities otherwise would have been
converted pursuant to section 4.1(a) of the Merger Agreement and any
distribution or dividend pursuant to Section 4.2(c) of the Merger Agreement.
(d) To the extent such rights, privileges or obligations arise under any
voting trust, lockup, registration rights or other similar agreements
(including, without limitation, the agreements listed on Exhibit C hereto) to
which such Stockholder is a party, each such Stockholder irrevocably (i) waives
any obligations or restrictions or other limitations on the rights of all other
Stockholders party hereto, to the extent necessary for such other Stockholders
to fulfill their obligations pursuant to this Agreement (it being acknowledged
and agreed that this Agreement shall constitute any consent, approval or waiver
required for such purpose) and (ii) other than as specifically contemplated by
the Merger Agreement, waives any rights to require the Company or Parent to file
a registration statement under the Securities Act of 1933 for the public
offering of such Stockholders Securities or otherwise require the Company or
Parent to cause any such registration statement to cover the public offering of
any of such Stockholder's Securities.
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3. No Voting Trusts. After the date hereof, the Stockholders severally
agree that they will not, nor will they permit any entity under their control
to, deposit any of their Securities or New Securities in a voting trust or
subject any of their Securities or New Securities or Company Securities into
which they can be converted to any arrangement with respect to the voting of
such Securities or New Securities or Company Securities into which they can be
converted other than agreements entered into with Parent or Newco.
4. No Proxy Solicitations. Each of the Stockholders severally agrees that
such Stockholder will not, nor will such Stockholder permit any entity under
their control to, (a) solicit proxies or become a "participant" in a
"solicitation" (as such terms are defined in Regulation 14A under the Exchange
Act) in opposition to or competition with the consummation of the Merger or
otherwise encourage or assist any party in taking or planning any action which
would compete with or otherwise could serve to materially interfere with, delay,
discourage, adversely affect or inhibit the timely consummation of the Merger in
accordance with the terms of the Merger Agreement, (b) directly or indirectly
encourage, initiate or cooperate in a stockholders' vote or action by consent of
the Company's stockholders in opposition to or in competition with the
consummation of the Merger, or (c) become a member of a "group" (as such term is
used in Section 13(d) of the Exchange Act) with respect to any voting securities
of the Company for the purpose of opposing or competing with the consummation of
the Merger; provided, without limiting the provisions of Section 11(g), that the
foregoing shall not restrict any director of the Company from taking any action
such director believes in good faith, after consultation with outside counsel,
is necessary to satisfy such director's fiduciary duty to stockholders of the
Company.
5. Transfer and Encumbrance. On or after the date hereof, each of the
Stockholders severally agrees not to voluntarily transfer, sell, offer, pledge
or otherwise dispose of or encumber ("Transfer") any of his or her Securities or
New Securities prior to the earlier of (a) the immediately following adoption of
the Merger Agreement by the Company Requisite Vote or (b) the date this
Agreement shall be terminated in accordance with its terms.
6. Legend. As soon as practicable after the execution of this Agreement
(but no later than the tenth business day thereafter), each Stockholder shall
surrender to the Company the certificates representing the Securities (and,
thereafter, shall surrender any New Securities within five business days after
acquiring beneficial ownership of such New Securities), and shall cause the
following legend to be placed on the certificates representing such Securities
and New Securities prior to their prompt return to the Stockholder and shall
request that such legend remain thereon until the earlier of (i) expiration or
termination of the Agreement or (ii) the consummation of the Merger:
"The shares of capital stock represented by this certificate are
subject to a Selling Stockholders Agreement, dated as of August , 1998,
among the Stockholders named therein and [Parent], which, among other
things, restricts the sale or transfer and voting of such shares of capital
stock except in accordance therewith. Such restrictions expire and
terminate, whether or not this legend remains on any certificate and
without any notice, action or demand of any person, on the date such
Agreement terminates."
In the event that Parent requests that a proxy be executed and delivered by a
Stockholder to it pursuant to Section 2 hereof, such Stockholder shall promptly
surrender to the Company the certificates representing the Securities or New
Securities covered by such proxy prior to their prompt return to the Stockholder
and cause the foregoing legend to be revised to add to the end of such legend
the following words:
", and such shares are also subject to an irrevocable proxy, coupled
with an interest under the Delaware General Corporation Law."
Each Stockholder shall provide Parent with reasonably satisfactory evidence of
its compliance with this Section 6 on or prior to the date ten business days
after the execution hereof with respect to Securities (or within five business
days of the date of acquisition of beneficial ownership of any New Securities)
or of the request relating to Stockholder's proxy, as the case may be.
7. Exercise of Warrants; Additional Purchases. Each Stockholder that
beneficially owns any Warrants severally agrees that upon the written notice of
Parent delivered to such Stockholder at the address set forth
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below such Stockholder's name on Exhibit A hereto, such Stockholder will, at the
option and direction of Parent set forth in such notice, complete and provide to
the Company the appropriate notice of exercise with respect such Stockholder's
Warrants and pay the applicable exercise price for such Warrants, it being
understood and agreed that such Stockholder shall only exercise such number of
Warrants as shall be required for such Stockholder to acquire the number of
Shares specified in Parent's notice. Such Stockholder shall cause such exercise
to become effective such that such Stockholder is the record holder of the
Shares issuable upon exercise of such Warrants prior to the record date for the
Stockholders Meeting. Each of the Stockholders severally agrees that in the
event (i) any stock dividend, stock split, recapitalization, reclassification,
combination or exchange of shares of capital stock of the Company on, of or
affecting the Securities of a Stockholder, (ii) such Stockholder purchases or
otherwise acquires beneficial ownership of any Company Securities after the
execution of this Agreement, (iii) such Stockholder voluntarily acquires the
right to vote or share in the voting of any Company Securities other than such
Stockholder's Securities, or (iv) such Stockholder converts any Convertible
Preferred Shares or exercises any Warrants beneficially owned by such
Stockholder into Shares, whether pursuant to this Section 7 or otherwise
(Company Securities beneficially acquired pursuant to (i), (ii), (iii) or (iv)
being collectively referred to as "New Securities"), such Stockholder agrees
that such New Securities shall be subject to the terms of this Agreement to the
same extent as if they constituted Securities. Without limiting the generality
of the foregoing, nothing herein shall require any Stockholder that owns
Convertible Preferred Shares to convert such Convertible Preferred Shares into
Shares.
8. Specific Performance. Each party hereto severally acknowledges that it
will be impossible to measure in money the damage to the other party if the
party hereto fails to comply with any of the obligations imposed by this
Agreement, that every such obligation is material and that, in the event of any
such failure, the other party will not have an adequate remedy at law or
damages. Accordingly, each party hereto severally agrees that injunctive relief
or other equitable remedy, in addition to remedies at law or damages, is the
appropriate remedy for any such failure and will not oppose the granting of such
relief on the basis that the other party has an adequate remedy at law. Each
party hereto severally agrees that it will not seek, and agrees to waive any
requirement for, the securing or posting of a bond in connection with any other
party's seeking or obtaining such equitable relief.
9. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
and shall not be assignable without the written consent of all other parties
hereto; provided however, that Parent may assign all of its rights pursuant to
this Agreement to Newco or any other direct or indirect wholly owned subsidiary
of Parent.
10. Entire Agreement. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by Parent on the one hand and the relevant
Stockholder(s) whose rights and/or obligations are thereby amended, supplement
or modified on the other. No waiver of any provisions hereof by any party shall
be deemed a waiver of any other provisions hereof by any such party, nor shall
any such waiver be deemed a continuing waiver of any provision hereof by such
party.
11. Miscellaneous.
(a) This Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of
Delaware.
(b) If any provision of this Agreement or the application of such provision
to any person or circumstances shall be held invalid by a court of competent
jurisdiction, the remainder of the provision held invalid and the application of
such provision to persons or circumstances, other than the party as to which it
is held invalid, shall not be affected.
(c) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
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(d) This Agreement shall terminate upon the earliest to occur of (i) the
Effective Time or (ii) termination of the Merger Agreement in accordance with
its terms.
(e) All Section headings herein are for convenience of reference only and
are not part of this Agreement, and no construction or reference shall be
derived therefrom.
(f) The parties agree that there is not and has not been any other
agreement, arrangement or understanding between the parties hereto with respect
to the matters set forth herein.
(g) Each of the Stockholders are acting hereunder in their capacities as
holders of Securities only, and make no agreement or understanding herein in any
capacities as directors or officers of the Company. Nothing herein shall limit
or affect any actions which the Stockholders and/or their Affiliates may take in
their capacities as officers and/or directors of the Company.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
CABLEVISION SYSTEMS CORPORATION
By: /s/ ANDREW B. ROSENGARD
------------------------------------
Name: Andrew B. Rosengard
Title: Executive Vice President
THE STOCKHOLDERS:
/s/ ROBERT G. DAVIDOFF
--------------------------------------
Name: CMNY Capital II, L.P. by
Robert G. Davidoff
/s/ ROBERT G. DAVIDOFF
--------------------------------------
Name: CMCO, Inc. by Robert G.
Davidoff, President and Robert
G. Davidoff, individually
/s/ DENIS NEWMAN
--------------------------------------
Name: MidMark Capital, L.P. by
MidMark Associates, Inc.,
General Partner by Denis
Newman, Managing Director
/s/ PHILIP M. GETTER
--------------------------------------
Name: Prime Charter Ltd. by
Philip M. Getter, Managing
Director
/s/ A. DALE MAYO
--------------------------------------
Name: A. Dale Mayo
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/s/ BRETT E. MARKS
--------------------------------------
Name: Brett E. Marks
/s/ JOHN NELSON
--------------------------------------
Name: John Nelson individually and as
President of F&N Cinema, Inc.,
Roxbury Cinemas, Inc. and Olde
EC, Inc. f/k/a Emerson Cinemas,
Inc.
/s/ MICHAEL C. RUSH
--------------------------------------
Name: Michael C. Rush
/s/ PAMELA FERMAN
--------------------------------------
Name: Pamela Ferman
/s/ SETH FERMAN
--------------------------------------
Name: Seth Ferman
/s/ CRAIG ZELTNER
--------------------------------------
Name: Craig Zeltner
/s/ CLARIDGE CINEMAS, INC.
--------------------------------------
Name: Claridge Cinemas, Inc.
by Craig Zeltner, President
/s/ PAUL KAY
--------------------------------------
Name: Paul Kay
/s/ CINDY KAY
--------------------------------------
Name: Cindy Kay
/s/ ALLAN WEINER
--------------------------------------
Name: Marshall Capital Management,
Inc.
by Allan Weiner
/s/ A. DALE MAYO
--------------------------------------
Name: A. Dale Mayo, as Voting
Trustee, under the Voting Trust
Agreement by and between
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<PAGE> 214
John Nelson and A. Dale Mayo as
Voting Trustee, dated September
1, 1997; the Voting Trust
Agreement by and between Seth
Ferman and A. Dale Mayo as
Voting Trustee, dated September
1, 1997; the Voting Trust
Agreement by and between Pamela
Ferman and A. Dale Mayo as
Voting Trustee, dated September
1, 1997; and the Voting Trust
Agreement by and between Craig
Zeltner and A. Dale Mayo as
Voting Trustee, dated September
2, 1997.
/s/ A. DALE MAYO
--------------------------------------
Name: A. Dale Mayo, as Voting Trustee,
under the Voting Trust Agreement
by and between Brett E. Marks
and A. Dale Mayo as Voting
Trustee, dated December 21,
1994; the Voting Trust Agreement
by and between Michael C. Rush
and A. Dale Mayo as Voting
Trustee, dated June 20, 1995;
the Voting Trust Agreement by
and between Emerson Cinema, Inc.
and A. Dale Mayo as Voting
Trustee, dated May 29, 1996; the
Voting Trust Agreement by and
among Paul Kay, Cindy Kay and A.
Dale Mayo as Voting Trustee,
dated July 31, 1996; the Voting
Trust Agreement dated as of
November 21, 1997 by and among
F&N Cinema, Inc., Roxbury
Cinema, Inc. and A. Dale Mayo,
as Trustee; the Voting Trust
Agreement dated as of February
13, 1998 by and between Claridge
Cinemas, Inc. and A. Dale Mayo,
as Trustee; and the Voting Trust
Agreement dated as of April 30,
1998 by and among John Nelson,
Seth Ferman, Pamela Ferman,
Martin Drescher and A. Dale
Mayo, as Trustee, with respect
to only those Shares that are
subject to such agreements the
other beneficial owners of which
have also executed this
Agreement.
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[Credit Suisse First Boston Corporation Letterhead]
August 12, 1998
The Board of Directors
Clearview Cinema Group, Inc.
97 Main Street
Chatham, New Jersey 07940
Members of the Board:
You have asked us to advise you with respect to the fairness to the holders of
the common stock of Clearview Cinema Group, Inc. ("CCG") from a financial point
of view of the consideration to be received by such holders pursuant to the
terms of the Agreement and Plan of Merger, dated as of August 12, 1998 (the
"Merger Agreement"), among Cablevision Systems Corp. ("CSC"), CCG Holdings Inc.,
a wholly owned subsidiary of CSC ("Merger Sub"), and CCG. The Merger Agreement
provides for, among other things, the merger of CCG and Merger Sub (the
"Merger") pursuant to which, subject to certain allocation and proration
procedures set forth in the Merger Agreement (as to which we express no
opinion), (A) each outstanding share of the Common Stock, par value $0.01 per
share, of CCG (the "CCG Common Stock") will be converted into the right to
receive, at the election of the holder thereof, either (i) $24.25 in cash (the
"Cash Consideration") or (ii) that number of shares (the "Stock Consideration"
and, together with the Cash Consideration, the "Merger Consideration") of the
Class A Common Stock, par value $0.01 per share, of CSC (the "CSC Common Stock")
equal to the amount derived by dividing $24.25 by the average of the daily per
share high and low sales prices of CSC Common Stock on the American Stock
Exchange, Inc. on each of the 10 trading days ending on and including the third
trading day prior to the closing date of the Merger (the "Average CSC Share
Price"); provided that if the Average CSC Share Price is less than $72, each
outstanding share of CCG Common Stock will be converted only into the Cash
Consideration (the "Floor Event"); (B) each outstanding share of the Class A
Convertible Preferred Stock, par value $0.01 per share, of CCG and the Class C
Convertible Preferred Stock, par value $0.01 per share, of CCG (the "CCG Class C
Convertible Preferred Stock") will be converted into the right to receive, at
the election of the holder thereof, either cash or, absent the Floor Event, CSC
Common Stock, as more fully set forth in the Merger Agreement; and (C) each
outstanding share of the Class B Nonvoting Cumulative Redeemable Preferred
Stock, par value $0.01 per share, of CCG will be converted into the right to
receive cash, as more fully set forth in the Merger Agreement.
In arriving at our opinion, we have reviewed the Merger Agreement and certain
publicly available business and financial information relating to CCG and CSC.
We have also reviewed certain other information, including financial forecasts,
provided to or discussed with us by CCG, and have met with the managements of
CCG and CSC to discuss the businesses and prospects of CCG and CSC. We have also
considered certain financial and stock market data of CCG and CSC, and we have
compared those data with similar data for other publicly held companies in
businesses similar to CCG and CSC and we have considered, to the extent publicly
available, the financial terms of certain other business combinations and other
transactions which have recently been effected. We also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With
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[Credit Suisse First Boston Corporation Letterhead]
The Board of Directors
Clearview Cinema Group, Inc.
August 12, 1998
Page 2
respect to the financial forecasts, you have informed us, and we have assumed,
that such forecasts have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of CCG as to the
future financial performance of CCG.
In addition, we have not made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of CCG or CSC, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon information available to us, and financial, economic, market and
other conditions as they exist and can be evaluated, on the date hereof. We are
not expressing any opinion as to what the value of the CSC Common Stock actually
will be when issued pursuant to the Merger or the prices at which such CSC
Common Stock will trade subsequent to the Merger. In connection with our
engagement, we were not requested to, and we did not, solicit third party
indications of interest in acquiring all or part of CCG.
We have acted as financial advisor to CCG in connection with the Merger and will
receive a fee for our services, which fee is contingent upon the consummation of
the Merger. In the ordinary course of business, Credit Suisse First Boston and
its affiliates may actively trade the debt and equity securities of both CCG and
CSC for their own accounts and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities. In addition,
an affiliate of Credit Suisse First Boston beneficially owns shares of CCG Class
C Convertible Preferred Stock.
It is understood that this letter is for the information of the Board of
Directors of CCG in connection with its evaluation of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to any matter relating to the Merger or the form of
consideration to be elected by such stockholder in the Merger, and is not to be
quoted or referred to, in whole or in part, in any registration statement,
prospectus or proxy statement, or in any other document used in connection with
the offering or sale of securities, nor shall this letter be used for any other
purposes, without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Merger Consideration to be received in the Merger by holders of CCG
Common Stock is fair to such holders from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Robert S. Wiesenthal
----------------------------------------------------------
Robert S. Wiesenthal
Director
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ANNEX D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State who
holds shares on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to sec.
228 of this title shall be entitled to an appraisal by the Court of Chancery of
the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sec.sec. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from
such merger of consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the merger
or consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event of all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale
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of all or substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, will apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, will notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation will notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise
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entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisals have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertified stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
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(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE> 221
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation -- a "derivative action"),
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
rights to which those seeking indemnification may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
The first paragraph of Article Ninth of Cablevision's Amended and Restated
Certificate of Incorporation provides:
The corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, or by any successor thereto, indemnify any and
all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters
referred to in or covered by said section. Such right to indemnification
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors
and administrators of such a person. The indemnification provided for
herein shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any By-Law, agreement, vote
of stockholders or disinterested directors or otherwise.
Article VIII of the By-Laws of Cablevision provides:
A. The corporation shall indemnify each person who was or is made a
party or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was a director or officer of the corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or
alleged action in any other capacity while serving as a director, officer,
employee or agent, to the maximum extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the corporation to provide broader indemnification rights than said
law permitted the corporation to provide prior to such amendment), against
all expense, liability and loss (including attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred by such person in connection with such
proceeding. Such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators. The right to
indemnification conferred in this Article shall be a contract right and
shall include the right to be paid by the corporation the expenses incurred
in defending any such proceeding in advance of its final disposition;
provided that, if the Delaware General Corporation Law so requires, the
payment of such expenses incurred by a director or officer in advance of
the final disposition of a proceeding shall be made only upon receipt by
the corporation of an undertaking by or on behalf of such person to repay
all
II-1
<PAGE> 222
amounts so advanced if it shall ultimately be determined that such person
is not entitled to be indemnified by the corporation as authorized in this
Article or otherwise.
B. The right to indemnification and advancement of expenses conferred
on any person by this Article shall not limit the corporation from
providing any other indemnification permitted by law nor shall it be deemed
exclusive of any other right which any such person may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation,
by-law, agreement, vote of stockholders or disinterested directors or
otherwise.
C. The corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of
the corporation or another corporation, partnership, joint venture, or
other enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
Cablevision has entered into indemnification agreements with certain of its
officers and directors indemnifying such officers and directors from and against
certain expenses, liabilities or other matters referred to in or covered by
Section 145 of the Delaware General Corporation Law. Cablevision has also
entered into an agreement with Charles F. Dolan ("Mr. Dolan"), the Chairman of
Cablevision, pursuant to which Mr. Dolan has agreed to guarantee Cablevision's
obligation to indemnify its officers and directors to the fullest extent
permitted by Delaware law. In addition, subject to certain limitations, Mr.
Dolan has agreed to indemnify such officers and directors against any loss or
expense such person may incur in connection with any transaction involving Mr.
Dolan or entities affiliated with Mr. Dolan to the extent indemnification is not
provided by Cablevision. Any payment required to be made by Mr. Dolan pursuant
to such agreement will be reduced by any proceeds of insurance or reimbursement
under any other form of indemnification reimbursement available to such officer
or director. Cablevision maintains directors' and officers' liability insurance.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The second paragraph of Article Ninth of Cablevision's Certificate of
Incorporation provides for such limitation of liability.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 12, 1998,
among Cablevision Systems Corporation ("Cablevision" or the
"Registrant"), CCG Holdings, Inc. and Clearview Cinema
Group, Inc. ("Clearview") (included as Annex A to the Proxy
Statement/Prospectus which is part of this Registration
Statement).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1
to Cablevision's Registration Statement on Form S-4, dated
January 20, 1998, File No. 333-44547 (the "S-4").
3.2 Bylaws of the Registrant (incorporated herein by reference
to Exhibit 3.2 to the S-4).
4.2 Certificate of Designations for the Cablevision Series L
Redeemable Exchangeable Preferred Stock (incorporated herein
by reference to Exhibit 3.1G of Cablevision's Annual Report
on Form 10-K for the year ended December 31, 1995).
4.3 Certificate of Designations for the Cablevision Series M
Redeemable Exchangeable Preferred Stock (incorporated by
reference to Exhibit 4.1(f) to Cablevision's Registration
Statement on Form S-4, Registration No. 333-00527).
</TABLE>
II-2
<PAGE> 223
<TABLE>
<C> <S>
4.4 Indenture dated as of December 1, 1997 relating to
Cablevision's $500,000,000 7 1/8% Senior Notes due 2007
(incorporated herein by reference to Exhibit 4.4 to the
S-4).
4.5 Indenture dated as of February 15, 1993 relating to
Cablevision's $200,000,000 9 7/8% Senior Subordinated
Debentures due February 15, 2013 (incorporated herein by
reference to Exhibit 4.3 to Cablevision Annual Report on
Form 10-K for the fiscal year ended December 31, 1992 (the
"1992 10-K")).
4.6 Indenture dated as of April 1, 1993 relating to
Cablevision's $150,000,000 9 7/8% Senior Subordinated
Debentures due 2023 (incorporated by reference to
Cablevision Registration Statement on Form S-4, Registration
No. 33-61814).
4.7 Supplemental Indenture dated as of November 1, 1995 between
Cablevision and The Bank of New York, Trustee to the
Indenture dated November 1, 1995 (incorporated by reference
to Exhibit 99.6 to Cablevision's Current Report on Form 8-K
(File No. 1-9046), filed November 1, 1995).
4.8 Indenture dated August 15, 1997 relating to Cablevision's
$400,000,000 8 1/8% Senior Debentures due 2009 (incorporated
herein by reference to Cablevision's Registration Statement
on Form S-4, Registration No. 333-38013).
4.9 Indenture dated as of November 1, 1995 relating to
Cablevision's $150,000,000 9 7/8% Senior Subordinated Notes
due 2006, $300,000,000 9 1/4% Senior Subordinated Notes due
2005 and $250,000,000 10 1/2% Senior Subordinated Debentures
due 2016 (incorporated by reference to Exhibit 99.6 to
Cablevision's Current Report on Form 8-K filed November 1,
1995).
4.10 Certificate of Designations for the Cablevision Series E
Redeemable Exchangeable Convertible Preferred Stock
(incorporated herein by reference to Cablevision's Annual
Report on Form 10-K/A for the year ended December 31, 1993,
filed on April 13, 1994).
4.11 Certificate of Designations for the Cablevision Series F
Redeemable Preferred Stock (incorporated herein by reference
to Cablevision's Annual Report on Form 10-K/A for the year
ended December 31, 1993, filed on April 13, 1994).
4.12 Certificate of Designations for the Cablevision Series G
Redeemable Exchangeable Preferred Stock (incorporated herein
by reference to Exhibit 3.1D to Cablevision's Registration
Statement on Form S-4, Registration No. 33-62717).
4.13 Certificate of Designations for the Cablevision Series H
Redeemable Exchangeable Preferred Stock (incorporated by
reference to Exhibit 4.1E to Cablevision's Registration
Statement on Form S-4, Registration No. 33-63691).
4.14 Certificate of Designations for the Cablevision Series I
Cumulative Convertible Exchangeable Preferred Stock
(incorporated by reference to Exhibit 99.3 to Cablevision's
Current Report on Form 8-K (File No. 1-9046) dated November
7, 1995).
5.1 Opinion of Robert S. Lemle, Executive Vice President,
General Counsel and Secretary of Cablevision regarding the
validity of the shares of Cablevision Class A Common Stock
being registered.
8.1 Opinion of Sullivan & Cromwell regarding certain federal
income tax matters.
8.2 Opinion of Kirkpatrick & Lockhart LLP regarding certain
federal income tax matters.
23.1 Consents of PricewaterhouseCoopers LLP.
23.2 Consent of Wiss & Company, LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Robert S. Lemle (included in the opinion filed as
Exhibit 5.1 hereto).
23.5 Consent of Sullivan & Cromwell (included in the opinion
filed as Exhibit 8.1 hereto).
23.6 Consent of Kirkpatrick & Lockhart LLP (included in the
opinion filed as Exhibit 8.2 hereto).
24.1 Power of Attorney (included in the signature page attached
hereto).
99.1 Consent of Credit Suisse First Boston Corporation.
</TABLE>
II-3
<PAGE> 224
<TABLE>
<C> <S>
99.2 Stockholders Agreement, dated as of August 12, 1998, between
certain stockholders of Clearview and Cablevision (included
as Annex B to the Proxy Statement/Prospectus which is part
of this Registration Statement).
99.3 Proxy Card.
99.4 Form of Election and Letter of Transmittal.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
All other schedules for which provisions is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
or are inapplicable and therefore have been omitted, or the required information
has been incorporated by reference herein or disclosed in the financial
statements which form a part of this Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(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 Securities and Exchange 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; and
(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 in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will 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 which remain unsold at the termination of the
offering.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Securities and
Exchange Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
II-4
<PAGE> 225
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.
(c) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The undersigned registrant hereby undertakes that every
prospectus: (i) that is filed pursuant to paragraph (c) immediately
preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes 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.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant, pursuant to the provisions described
in Item 15 or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant 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 any such director, officer or controlling person in
connection with the securities being registered, the registrant 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 of whether or not such indemnification is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(f) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-5
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Woodbury
and the State of New York, on the 27th day of October, 1998.
CABLEVISION SYSTEMS CORPORATION
By: /s/ WILLIAM J. BELL
------------------------------------
Name: William J. Bell
Title: Vice Chairman and Director
(Principal Financial Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William J. Bell, Robert S. Lemle and Andrew B.
Rosengard, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on October 27, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JAMES L. DOLAN President, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
James L. Dolan
/s/ WILLIAM J. BELL Vice Chairman and Director (Principal
- --------------------------------------------- Financial Officer)
William J. Bell
/s/ ANDREW B. ROSENGARD Executive Vice President, Financial Planning
- --------------------------------------------- and Controller (Principal Accounting Officer)
Andrew B. Rosengard
/s/ CHARLES F. DOLAN Chairman of the Board of Directors
- ---------------------------------------------
Charles F. Dolan
/s/ MARC A. LUSTGARTEN Vice Chairman and Director
- ---------------------------------------------
Marc A. Lustgarten
Chief Operating Officer and Director
- ---------------------------------------------
Robert P. May
/s/ ROBERT S. LEMLE Executive Vice President, General Counsel,
- --------------------------------------------- Secretary and Director
Robert S. Lemle
</TABLE>
II-6
<PAGE> 227
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Senior Vice President and Director
- ---------------------------------------------
Sheila A. Mahony
/s/ THOMAS C. DOLAN Senior Vice President, Chief Information
- --------------------------------------------- Officer and Director
Thomas C. Dolan
Director
- ---------------------------------------------
John Tatta
Director
- ---------------------------------------------
Patrick F. Dolan
/s/ CHARLES D. FERRIS Director
- ---------------------------------------------
Charles D. Ferris
/s/ RICHARD H. HOCHMAN Director
- ---------------------------------------------
Richard H. Hochman
Director
- ---------------------------------------------
Victor Oristano
/s/ VINCENT TESE Director
- ---------------------------------------------
Vincent Tese
/s/ JOHN C. MALONE Director
- ---------------------------------------------
John C. Malone
/s/ LEO J. HINDERY, JR. Director
- ---------------------------------------------
Leo J. Hindery, Jr.
</TABLE>
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<PAGE> 228
INDEX TO EXHIBITS
Certain of the following documents are filed herewith. Certain other of the
following documents have been previously filed with the Securities and Exchange
Commission and, pursuant to Rule 12b-32, are incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 12, 1998,
among Cablevision Systems Corporation ("Cablevision" or the
"Registrant"), CCG Holdings, Inc. and Clearview Cinema
Group, Inc. ("Clearview") (included as Annex A to the Proxy
Statement/Prospectus which is part of this Registration
Statement).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1
to Cablevision's Registration Statement on Form S-4, dated
January 20, 1998, File No. 333-44547 (the "S-4").
3.2 Bylaws of the Registrant (incorporated herein by reference
to Exhibit 3.2 to the S-4).
4.2 Certificate of Designations for the Cablevision Series L
Redeemable Exchangeable Preferred Stock (incorporated herein
by reference to Exhibit 3.lG of Cablevision's Annual Report
on Form 10-K for the year ended December 31, 1995).
4.3 Certificate of Designations for the Cablevision Series M
Redeemable Exchangeable Preferred Stock (incorporated by
reference to Exhibit 4.1(f) to Cablevision's Registration
Statement on Form S-4, Registration No. 333-00527).
4.4 Indenture dated as of December 1, 1997 relating to
Cablevision's $500,000,000 7 1/8% Senior Notes due 2007
(incorporated herein by reference to Exhibit 4.4 to the
S-4).
4.5 Indenture dated as of February 15, 1993 relating to
Cablevision's $200,000,000 9 7/8% Senior Subordinated
Debentures due February 15, 2013 (incorporated herein by
reference to Exhibit 4.3 to Cablevision Annual Report on
Form 10-K for the fiscal year ended December 31, 1992 (the
"1992 10-K")).
4.6 Indenture dated as of April 1, 1993 relating to
Cablevision's $150,000,000 9 7/8% Senior Subordinated
Debentures due 2023 (incorporated by reference to
Cablevision Registration Statement on Form S-4, Registration
No. 33-61814).
4.7 Supplemental Indenture dated as of November 1, 1995 between
Cablevision and The Bank of New York, Trustee to the
Indenture dated November 1, 1995 (incorporated by reference
to Exhibit 99.6 to Cablevision's Current Report on Form 8-K
(File No. 1-9046), filed November 1, 1995).
4.8 Indenture dated August 15, 1997 relating to Cablevision's
$400,000,000 8 1/8% Senior Debentures due 2009 (incorporated
herein by reference to Cablevision's Registration Statement
on Form S-4, Registration No. 333-38013).
4.9 Indenture dated as of November 1, 1995 relating to
Cablevision's $150,000,000 9 7/8% Senior Subordinated Notes
due 2006, $300,000,000 9 1/4% Senior Subordinated Notes due
2005 and $250,000,000 10 1/2% Senior Subordinated Debentures
due 2016 (incorporated by reference to Exhibit 99.6 to
Cablevision's Current Report on Form 8-K filed November 1,
1995).
4.10 Certificate of Designations for the Cablevision Series E
Redeemable Exchangeable Convertible Preferred Stock
(incorporated herein by reference to Cablevision's Annual
Report on Form 10-K/A for the year ended December 31, 1993,
filed on April 13, 1994).
4.11 Certificate of Designations for the Cablevision Series F
Redeemable Preferred Stock (incorporated herein by reference
to Cablevision's Annual Report on Form 10-K/A for the year
ended December 31, 1993, filed on April 13, 1994).
4.12 Certificate of Designations for the Cablevision Series G
Redeemable Exchangeable Preferred Stock (incorporated herein
by reference to Exhibit 3.1D to Cablevision's Registration
Statement on Form S-4, Registration No. 33-62717).
</TABLE>
<PAGE> 229
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<C> <S>
4.13 Certificate of Designations for the Cablevision Series H
Redeemable Exchangeable Preferred Stock (incorporated by
reference to Exhibit 4.lE to Cablevision's Registration
Statement on Form S-4, Registration No. 33-63691).
4.14 Certificate of Designations for the Cablevision Series I
Cumulative Convertible Exchangeable Preferred Stock
(incorporated by reference to Exhibit 99.3 to Cablevision's
Current Report on Form 8-K (File No. 1-9046) dated November
7, 1995).
5.1 Opinion of Robert S. Lemle, Executive Vice President,
General Counsel and Secretary of Cablevision regarding the
validity of the shares of Cablevision Class A Common Stock
being registered.
8.1 Opinion of Sullivan & Cromwell regarding certain federal
income tax matters.
8.2 Opinion of Kirkpatrick & Lockhart LLP regarding certain
federal income tax matters.
23.1 Consents of PricewaterhouseCoopers LLP.
23.2 Consent of Wiss & Company, LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Robert S. Lemle (included in the opinion filed as
Exhibit 5.1 hereto).
23.5 Consent of Sullivan & Cromwell (included in the opinion
filed as Exhibit 8.1 hereto).
23.6 Consent of Kirkpatrick & Lockhart LLP (included in the
opinion filed as Exhibit 8.2 hereto).
24.1 Power of Attorney (included in the signature page attached
hereto).
99.1 Consent of Credit Suisse First Boston Corporation.
99.2 Stockholders Agreement, dated as of August 12, 1998, between
certain stockholders of Clearview and Cablevision (included
as Annex B to the Proxy Statement/Prospectus part of this
Registration Statement).
99.3 Proxy Card.
99.4 Form of Election and Letter of Transmittal.
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF ROBERT S. LEMLE]
October 27, 1998
Cablevision Systems Corporation
One Media Crossways
Woodbury, New York 11797
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act"), of 1,003,237 shares of Class A common stock, par value $.01
per share (the "Securities"), of Cablevision Systems Corporation, a Delaware
corporation, I, as counsel to Cablevision, have examined such corporate records,
certificates and other documents, and such questions of law, as I have
considered necessary or appropriate for the purposes of this opinion. The
Securities are intended to be issued by Cablevision in connection with the
Agreement and Plan of Merger, dated as of August 12, 1998 (the "Merger
Agreement"), among Cablevision CCG Holdings, Inc., a Delaware corporation and a
wholly-owned subsidiary of Cablevision ("Merger Sub") and Clearview Cinema
Group, Inc. ("Clearview"), providing among other things, for the merger of
Merger Sub with Clearview (the "Merger").
Upon the basis of the aforementioned examination, I advise you that, in my
opinion, when the Registration Statement on Form S-4 of Cablevision relating to
the Securities (the "Registration Statement") has become effective under the
Act, any approvals required under state law shall have been obtained, the Merger
has become effective in accordance with the terms and conditions of the Merger
Agreement, the certificates representing the Securities have been duly signed by
Cablevision and countersigned by the transfer agent and registrar of
Cablevision, and the Securities have been issued in accordance with the terms of
the Merger Agreement and delivered as contemplated by the Proxy
Statement/Prospectus which is included in the Registration Statement (the "Proxy
Statement/Prospectus"), the Securities will be validly issued, fully paid and
nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the laws of the State of Delaware, and I am expressing no opinion as to the
effect of the laws of any other jurisdiction.
Also, with your approval, I have relied as to certain matters on
information obtained from public officials, officers of Cablevision and other
sources believed by me to be responsible, and I have assumed that the signatures
on all documents examined by me are genuine, which assumption I have not
independently verified.
I hereby consent to the filing of this opinion as to an exhibit to the
Registration Statement and to the reference to me under the heading "VALIDITY OF
CABLEVISION CLASS A COMMON STOCK" in the Proxy Statement/Prospectus. In giving
such consent, I do not thereby admit that I am in the category of persons whose
consent is required under Section 7 of the Act.
Very truly yours,
/s/ ROBERT S. LEMLE
Robert S. Lemle
Executive Vice President,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 8.1
October 27, 1998
Cablevision Systems Corporation,
One Media Crossways,
Woodbury, New York 11797.
Ladies and Gentlemen:
We have acted as counsel to Cablevision Systems Corporation ("Cablevision")
in connection with the Registration Statement on Form S-4 of Cablevision filed
with the Securities and Exchange Commission on October 27, 1998 and hereby
confirm to you our opinion set forth under the heading "CERTAIN TAX CONSEQUENCES
OF THE MERGER" in the Proxy Statement/Prospectus included in the Registration
Statement, subject to the assumptions set forth under such heading.
We hereby consent to the filing with the Securities and Exchange Commission
of this letter as an exhibit to the Registration Statement and to the reference
to us under the caption "CERTAIN TAX CONSEQUENCES OF THE MERGER" in the
Registration Statement and the Proxy Statement/Prospectus included therein. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ SULLIVAN & CROMWELL
<PAGE> 1
EXHIBIT 8.2
October 27, 1998
Clearview Cinema Group, Inc.,
97 Main Street,
Chatham, New Jersey 07928.
Ladies and Gentlemen:
We have acted as counsel to Clearview Cinema Group, Inc. ("Clearview") in
connection with the Proxy Statement of Clearview forming a part of the
Registration Statement on Form S-4 of Cablevision Systems Corporation filed with
the Securities and Exchange Commission on October 27, 1998 and hereby confirm to
you our opinion set forth under the heading "CERTAIN TAX CONSEQUENCES OF THE
MERGER" in the Proxy Statement/Prospectus included in the Registration
Statement, subject to the assumptions set forth under such heading.
We hereby consent to the filing with the Securities and Exchange Commission
of this letter as an exhibit to the Registration Statement and to the reference
to us under the caption "CERTAIN TAX CONSEQUENCES OF THE MERGER" in the
Registration Statement and the Proxy Statement/Prospectus included therein. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ KIRKPATRICK & LOCKHART LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement/Prospectus constituting part
of this Registration Statement on Form S-4 of our report dated March 19, 1998
relating to the consolidated financial statements of Clearview Cinema Group,
Inc. and its subsidiaries which appears in such Proxy Statement/Prospectus. We
also consent to the references to us under the heading "EXPERTS", "SELECTED
HISTORICAL FINANCIAL DATA -- Clearview" and "SELECTED HISTORICAL FINANCIAL DATA
OF CLEARVIEW" in such Proxy Statement/Prospectus. However, it should be noted
that PricewaterhouseCoopers LLP has not prepared or certified such "SELECTED
HISTORICAL FINANCIAL DATA -- Clearview" and "SELECTED HISTORICAL FINANCIAL DATA
OF CLEARVIEW."
PricewaterhouseCoopers LLP
New York, New York
October 27, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Proxy Statement/Prospectus constituting
part of the Registration Statement on Form S-4 of our reports dated February 10,
1997 relating to the consolidated financial statements of Clearview Cinema
Group, Inc.; June 4, 1997 relating to the combined financial statements of the
United Artists Theatre Circuit, Inc. Theaters at Bronxville, Larchmont, Wayne,
New City and Mamaroneck; October 22, 1997 relating to the combined financial
statements of the Nelson Ferman Theaters at Parsippany and Roxbury; and December
4, 1997, relating to the combined financial statements of the CJM Theaters at
Kin-Mall, Middlebrook, Cedar Grove and Bellevue which appear in such Proxy
Statement/Prospectus.
We also consent to the reference to us under the headings "EXPERTS" and
"SELECTED HISTORICAL FINANCIAL DATA -- Clearview" and "SELECTED HISTORICAL
FINANCIAL DATA OF CLEARVIEW" which appear in such Proxy Statement/Prospectus.
However, it should be noted that Wiss and Company, LLP did not prepare or
certify such "SELECTED HISTORICAL FINANCIAL DATA -- Clearview" and "SELECTED
HISTORICAL FINANCIAL DATA OF CLEARVIEW."
/s/ WISS & COMPANY, LLP
Woodbridge, New Jersey
October 27, 1995
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Cablevision Systems Corporation
We consent to the incorporation by reference of our reports dated March 20,
1998, on (i) the consolidated balance sheet of Cablevision Systems Corporation
and subsidiary as of December 31, 1997, and (ii) the consolidated balance sheets
of CSC Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' deficiency and cash
flows for each of the years in the three-year period ended December 31, 1997,
which reports appear in the combined 1997 Form 10-K of Cablevision Systems
Corporation and CSC Holdings, Inc. which is incorporated by reference in the
Proxy Statement/Prospectus of Clearview Cinema Group, Inc. and the Registration
Statement on Form S-4, of Cablevision Systems Corporation, and to the references
to our firm under the headings "EXPERTS" and "SELECTED HISTORICAL FINANCIAL
DATA" in the Proxy Statement/Prospectus and the Registration Statement.
/s/ KPMG PEAT MARWICK LLP
Melville, New York
October 27, 1998
<PAGE> 1
EXHIBIT 99.1
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
The Board of Directors
Clearview Cinema Group, Inc.
97 Main Street
Chatham, New Jersey 07940
Members of the Board:
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Clearview Cinema Group, Inc. ("Clearview") as Annex C to the Proxy
Statement/Prospectus of Clearview and Cablevision Systems Corporation
("Cablevision") relating to the proposed merger transaction involving Clearview
and Cablevision and references thereto in such Proxy Statement/Prospectus under
the captions "SUMMARY -- The Merger -- Opinion of Clearview's Financial Advisor"
and "THE MERGER -- Opinion of Clearview's Financial Advisor." In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under, and we do not admit that we are "experts" for
purposes of, the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
By: /s/ Credit Suisse First Boston
Corporation
---------------------------------------
CREDIT SUISSE FIRST BOSTON CORPORATION
New York, New York
October 27, 1998
<PAGE> 1
EXHIBIT 99.3
CLEARVIEW CINEMA GROUP, INC.
97 MAIN STREET, CHATHAM, NEW JERSEY 07928
PROXY
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 1, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints A. Dale Mayo and Robert D. Lister and
each or either of them as proxies, each with power to appoint his
substitute, and hereby authorizes any of them to represent and to vote, as
designated on the reverse side of this proxy card, all shares of Common
Stock, par value $.01 per share of Clearview Cinema Group, Inc. (the
"Company"), and all shares of Class A Convertible Preferred Stock, par
value $.01 per share of the Company, which the undersigned is entitled to
vote at the Special Meeting of Stockholders of the Company to be held on
December 1, 1998, commencing at 10:00 a.m., local time, at Kirkpatrick &
Lockhart LLP, 1251 Avenue of the Americas, 45th Floor, New York, New York
10020 or any adjournment or postponement thereof as follows on the reverse
side of this proxy card.
PLEASE DATE AND SIGN ON REVERSE SIDE
CLEARVIEW CINEMA GROUP, INC.
P.O. BOX 11441
NEW YORK, N.Y. 10203-0441
<PAGE> 2
[ ]
1. To approve and adopt an Agreement and Plan of Merger, dated as of August 12,
1998, among Cablevision Systems Corporation ("Cablevision"), CCG Holdings,
Inc., a Delaware corporation and a wholly-owned subsidiary of Cablevision
("Merger Sub"), and the Company, which provides for the merger (the "Merger")
of Merger Sub with and into the Company, with Merger Sub being the surviving
corporation in the Merger; provided, however, that if the Average Cablevision
Share Price (as defined in the accompanying Proxy Statement/Prospectus) is
less than the Floor Price (as defined in the accompanying Proxy
Statement/Prospectus), or in certain other circumstances at Cablevision's
sole option and discretion, at the effective time of the Merger, Merger Sub
will be merged with and into the Company, with the Company being the
surviving corporation, as described in the accompanying Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C>
</TABLE>
2. In their discretion, the proxy holders are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED "FOR" IN THE MERGER PROPOSAL.
Change of Address and
or Comments Mark Here[ ]
Note: Please sign exactly as name
or names appear hereon. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title. If a
corporation, please sign in full
corporate name by president or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
DATED
-----------------------------------,
1998
-----------------------------------
SIGNATURE(S)
-----------------------------------
SIGNATURE(S)
Please mark, sign, date and return this proxy card promptly using the enclosed
white postage paid envelope marked "Proxy". Votes must be indicated
(x) in Black or Blue
ink. [ ]
<PAGE> 1
EXHIBIT 99.4
FORM OF ELECTION AND LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK, PAR VALUE $.01
PER SHARE
("SHARES"), SHARES OF CLASS A CONVERTIBLE PREFERRED STOCK, PAR VALUE $.01 PER
SHARE
("CLASS A PREFERRED SHARES") AND SHARES OF CLASS C CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.01 PER
SHARE (CLASS C PREFERRED SHARES)(COLLECTIVELY, "CLEARVIEW SECURITIES"), OF
CLEARVIEW CINEMA GROUP, INC. ("CLEARVIEW")
or a proper guarantee of delivery hereof, when submitted pursuant to an
election to receive in respect of:
(i) each Share, (A) $24.25 per share in cash (the "Share Cash
Consideration") or (B) that number of shares of Class A Common Stock, par value
$.01 per share ("Cablevision Class A Common Stock"), of Cablevision Systems
Corporation (the "Share Stock Consideration") equal to the amount (the "Share
Conversion Number") derived by dividing $24.25 by the Average Cablevision Share
Price (as defined in the accompanying Proxy Statement/Prospectus) (the Share
Cash Consideration and the Share Stock Consideration, the "Share Merger
Consideration");
(ii) each Class A Preferred Share, (A) the amount in cash (the "Class A
Preferred Share Cash Consideration"), derived by multiplying (x) the number of
Shares issuable upon a conversion of a Class A Preferred Share immediately prior
to the Effective Time (the "Class A Conversion Number") by (y) the Share Cash
Consideration or (B) the number of shares of Cablevision Class A Common Stock
(the "Class A Preferred Share Stock Consideration") equal to the amount derived
by multiplying the Class A Conversion Number and the Share Conversion Number
(the Class A Preferred Share Cash Consideration and the Class A Preferred Share
Stock Consideration, the "Class A Preferred Share Merger Consideration"); and
(iii) each Class C Convertible Preferred Share, (A) the amount, in cash
(the "Class C Preferred Share Cash Consideration"), derived by multiplying (x)
the number of Shares issuable upon conversion of a Class C Preferred Share based
on an exchange ratio of 51 Shares per Class C Preferred Share (the "Class C
Conversion Number") by $24.25 in cash and adding to such amount the amount of
accrued but unpaid dividends on a Class C Preferred Share through the effective
time of the Merger (the "Effective Time"), or (B) the number of shares of
Cablevision Class A Common Stock (the "Class C Preferred Share Stock
Consideration") equal to the amount derived by multiplying the Class C
Conversion Number and the Share Conversion Number and adding to such number the
number of shares of Cablevision Class A Common Stock derived by dividing the
amount of accrued by unpaid dividends in a Class C Preferred Share through the
Effective Time by the Average Cablevision Share Price (the Class C Preferred
Share Cash Consideration and the Class C Preferred Share Stock Consideration,
the "Class C Preferred Share Merger Consideration"), provided, however, that,
with respect to each of (i), (ii) and (iii) above, if the Average Cablevision
Share Price is less than the Floor Price (as defined in the accompanying Proxy
Statement/Prospectus) (currently $36.00 reflecting an adjustment in accordance
with the terms of the Merger Agreement for Cablevision's two-for-one stock split
on August 21, 1998), at the Effective Time, the surrendered Shares, Class A
Preferred Shares and Class C Preferred Shares will be exchanged for the
applicable cash consideration and no holder of Class C Preferred Shares will
have the right or option to elect to receive consideration consisting of shares
of Cablevision Class A Common Stock;
upon the terms and subject to the conditions, including certain allocation
limitations and proration procedures, set forth in the Agreement and Plan of
Merger, dated as of August 12, 1998 (the "Merger Agreement"), among Cablevision,
CCG Holdings, Inc., a wholly-owned subsidiary of Cablevision ("Merger Sub"), and
Clearview, in connection with the merger (the "Merger") of a wholly-owned
subsidiary of
CABLEVISION SYSTEMS CORPORATION ("CABLEVISION")
WITH CLEARVIEW.
CHASEMELLON SHAREHOLDER SERVICES, L.L.C. ("CHASEMELLON") IS THE EXCHANGE AGENT
AND THE INFORMATION AGENT
<TABLE>
<CAPTION>
By Mail: By Overnight Courier By Hand
<S> <C> <C>
Post Office Box 3301 85 Challenger Rd, Mail Drop-Reorg 120 Broadway, 13th Floor
South Hackensack, NJ 07606 Ridgefield Park, NJ 07660 New York, NY 10271
Attn: Reorganization Department Attn: Reorganization Department Attn: Reorganization Department
By Facsimile
(For Eligible Institutions Only)
(201) 296-4293
Confirm Facsimile Only:
(201) 296-4860
</TABLE>
INFORMATION CALL TOLL FREE: 1 (877) 698-6870.
<PAGE> 2
PLEASE READ THE INSTRUCTIONS IN THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
BOX A: ELECTION(S) AND DESCRIPTION OF CLEARVIEW SECURITIES ENCLOSED
(Attach additional sheets if necessary).
See "Election" and Instruction 13
- -------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF REGISTERED HOLDER(S) CLASS OF NUMBER OF SECURITIES
(PLEASE FILL IN, IF BLANK, EXACTLY AS CLEARVIEW CERTIFICATE --------------------------------
NAME(S) APPEAR(S) ON CERTIFICATE(S)) SECURITY NUMBER(S) STOCK NON-
CASH ELECTION ELECTION ELECTION
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
Total Number of
Securities
- -------------------------------------------------------------------------------------------------------
Check this box if this election represents a revocation of any earlier election. [ ]
For the consequences of making a Stock Election, Cash Election or Non-Election,
See Instructions 3 and 13.
- -------------------------------------------------------------------------------------------------------
</TABLE>
THE ELECTION DEADLINE IS 5:00 P.M., NEW YORK TIME, ON THE BUSINESS DAY THAT
IS TWO TRADING DAYS PRIOR TO THE CLOSING DATE OF THE MERGER (WHICH DATE WILL BE
PUBLICLY ANNOUNCED IN A NEWS RELEASE DELIVERED TO THE DOW JONES NEWS SERVICES AS
SOON AS PRACTICABLE, BUT IN NO EVENT LESS THAN TEN TRADING DAYS PRIOR TO THE
CLOSING DATE). BY THE ELECTION DEADLINE, A COMPLETED FORM OF ELECTION AND LETTER
OF TRANSMITTAL, TOGETHER WITH YOUR CERTIFICATES OR DELIVERY OF SUCH SECURITIES
BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY
TRANSFER FACILITY (AS DEFINED BELOW) (OR CUSTOMARY AFFIDAVITS AND
INDEMNIFICATION REGARDING THE LOSS OR DESTRUCTION OF SUCH CERTIFICATES BY A
COMMERCIAL BANK OR TRUST COMPANY IN THE UNITED STATES OR A MEMBER OF A
REGISTERED NATIONAL SECURITIES EXCHANGE OR OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC.), MUST BE RECEIVED BY THE EXCHANGE AGENT IN ORDER FOR
ANY STOCK ELECTION OR CASH ELECTION (AS SUCH TERMS ARE DEFINED BELOW) CONTAINED
HEREIN TO BE VALID. ANY FORM OF ELECTION AND LETTER OF TRANSMITTAL NOT RECEIVED
BY THE EXCHANGE AGENT PRIOR TO THE ELECTION DEADLINE SHALL BE DEEMED TO BE A
NON-ELECTION.
Nominee record holders, which include a nominee, trustee or any other
person that holds Clearview Securities in any capacity whatsoever on behalf of
another person or entity ("Nominees"), are directed to Instruction 14 hereto
and, if submitting more than one election, must complete Box B below. Each
record holder of Clearview Securities submitting more than one election, other
than a Nominee record holder submitting more than one election, should indicate
such holder's election(s) in Box A above.
<PAGE> 3
- --------------------------------------------------------------------------------
BOX B: TO BE COMPLETED ONLY BY A NOMINEE, TRUSTEE OR ANY OTHER PERSON THAT
HOLDS CLEARVIEW SECURITIES IN ANY CAPACITY WHATSOEVER ON BEHALF OF
MORE THAN ONE PERSON OR ENTITY.
If this Box B is completed, the undersigned, acting for itself and as
nominee, trustee or in another representative capacity on behalf of
another person or entity, hereby submits the following elections and
attaches certificates for all Clearview Securities held of record by the
undersigned (attach additional sheets if necessary, numbering each
additional election with consecutive numbers starting with "B").
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CLASS OF NUMBER OF CLEARVIEW SECURITIES
NUMBER OF CLEARVIEW TOTAL NUMBER OF CLEARVIEW CERTIFICATE -----------------------------------------------
ELECTION SECURITY SECURITIES SUBJECT TO ELECTION NUMBER(S) CASH ELECTION STOCK ELECTION NON-ELECTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1
- ---------------------------------------------------------------------------------------------------------------------
2
- ---------------------------------------------------------------------------------------------------------------------
3
- ---------------------------------------------------------------------------------------------------------------------
4
- ---------------------------------------------------------------------------------------------------------------------
5
- ---------------------------------------------------------------------------------------------------------------------
6
- ---------------------------------------------------------------------------------------------------------------------
7
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
DELIVERY BY BOOK-ENTRY TRANSFER
SEE INSTRUCTION 1.
[ ] Check here if Clearview Securities are being delivered by book-entry
transfer to the Exchange Agent's account on the book-entry transfer
facilities at The Depository Trust Company ("Book-Entry Transfer Facility")
and complete the following:
Account Number: ____________
<PAGE> 4
GUARANTEE OF DELIVERY
If certificates for Clearview Securities are not available prior to the
Election Deadline, the following Guarantee may be completed by an Eligible
Institution and the election made herein will be valid if such Certificates,
together with a completed Election Form and Letter of Transmittal, are in fact
delivered to the Exchange Agent within five trading days after the date of
execution hereof.
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States,
hereby guarantees that, within five New York Stock Exchange trading days from
the date of this Form of Election and Letter of Transmittal, certificates
representing the Clearview Securities covered hereby in proper form for transfer
and any required documents, together with a completed Form of Election and
Letter of Transmittal, will be deposited by the undersigned with the Exchange
Agent. IF YOU COMPLETE THIS GUARANTEE OF DELIVERY, YOU WILL NEED A SIGNATURE
GUARANTEE BY AN ELIGIBLE INSTITUTION. SEE INSTRUCTION 5.
The undersigned acknowledges that it must deliver the Clearview Securities
covered hereby to the Exchange Agent within the time period set forth above and
that failure to do so could result in financial loss to the undersigned.
<TABLE>
<S> <C>
Dated: -----------------------------------------
-----------------------------------------------------
(Firm -- Please Print)
Number of Securities: -------------------------
-----------------------------------------------------
(Authorized Signature)
[ ] Check here if Clearview Securities will be delivered by book-entry transfer to the Exchange Agent's
account at The Depository Trust Company
-----------------------------------------------------
-----------------------------------------------------
(Address)
Account Number: -----------------------------
-----------------------------------------------------
(Area Code and Telephone Number)
</TABLE>
<PAGE> 5
NOTICE OF DELIVERY UNDER GUARANTEE
(TO BE COMPLETED UPON DELIVERY OF CLEARVIEW SECURITIES PURSUANT
TO A GUARANTEE OF DELIVERY)
Name(s) of Registered Holder(s):
- ----------------------------------------------------------------------------
Window Ticket No.
- --------------------------------------------------------------------------------
Date of Execution of Guarantee of Delivery:
- -----------------------------------------------------------------
Name of Institution which provided Guarantee of Delivery:
- --------------------------------------------------
[ ] Check here if Clearview Securities will be delivered by book-entry transfer
(assuming such procedure is available) to the Exchange Agent's account at
The Depository Trust Company.
Account Number:
- ------------------------------- Transaction Code Number:
- -------------------------------
Information as to the federal income tax consequences of receiving the
applicable Security Stock Consideration or Security Cash Consideration in
exchange for your Clearview Securities is set forth under the caption "CERTAIN
TAX CONSEQUENCES OF THE MERGER" in the Proxy Statement/Prospectus furnished to
you concurrently herewith. You are urged, in addition, to consult with your tax
advisor.
<PAGE> 6
TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C.:
In connection with the Merger, and pursuant to the Merger Agreement, the
undersigned hereby makes the election or elections set forth herein and
surrenders to ChaseMellon Shareholder Services, L.L.C. for cancellation, as
exchange agent (the "Exchange Agent"), certificates representing all of the
undersigned's Clearview Securities (each such certificate, a "Certificate")
listed in Box A (or, if held by a nominee, trustee or other representative
making multiple elections, in Box B) above in exchange for, subject to the
allocation limitations, proration procedures and other provisions of the Merger
Agreement as more fully described in the accompanying Proxy
Statement/Prospectus, as applicable, (i) the Share Cash Consideration, the Class
A Preferred Share Cash Consideration or the Class C Preferred Share Cash
Consideration (a "Cash Election"), (ii) the Share Stock Consideration, the Class
A Preferred Share Stock Consideration and the Class C Preferred Share Stock
Consideration (a "Stock Election"), or (iii) the right to make a Non-Election (a
"Non-Election"), which Cablevision may deem in its sole and absolute discretion
to be either a Stock Election or a Cash Election. See "THE MERGER -- Terms of
the Merger" and "-- Exchange of Clearview Certificates for Shares of Cablevision
Class A Common Stock" in the accompanying Proxy Statement/ Prospectus. In
addition, it is understood that the Exchange Agent will pay cash in lieu of any
fractional shares of Cablevision Class A Common Stock otherwise issuable in
connection with the Merger as specified in the accompanying Proxy
Statement/Prospectus. Except as expressly provided herein, capitalized terms
shall have the meanings ascribed to them in the accompanying Proxy
Statement/Prospectus. The description of the Merger herein is qualified in its
entirety by reference to the terms and conditions of the Merger Agreement, which
is attached on Annex A to the accompanying Proxy Statement/Prospectus.
Additionally, the Merger Agreement provides that notwithstanding anything
in the Merger Agreement to the contrary, (i) the Stock Election Number shall be
equal, as closely as practicable, to 45% of the sum of (A) the aggregate number
of Share Equivalents represented by outstanding Clearview Securities immediately
prior to the Effective Time and (B) the aggregate number of Share Equivalents
represented by any shares of Class B Preferred Shares, all of which have been
redeemed prior to the date of the accompanying Proxy Statement/Prospectus; and
(ii) the Cash Election Number shall equal, as closely as practicable, the number
of Share Equivalents represented by the difference between (A) the aggregate
number of Share Equivalents represented by outstanding Clearview Securities
immediately prior to the Effective Time and (B) the Stock Election Number. If,
as of the Effective Time, the aggregate value of the Security Stock
Consideration (calculated using the most recent available price for Cablevision
Class A Common Stock on the ASE) would be less than 45% of the sum of the
aggregate value of the Security Cash Consideration and the aggregate value of
the Security Stock Consideration, then the Stock Election Number and the Cash
Election Number will be adjusted as necessary so that, as of the Effective Time,
the aggregate value of the Security Stock Consideration equals, as closely as
possible, 45% of the sum of the aggregate value of the Security Cash
Consideration and the aggregate value of the Security Stock Consideration;
provided, however, that if the Stock Election Number resulting from such
adjustment would be greater than the Stock Election Number that would have
resulted if the Average Cablevision Share Price had been equal to the Floor
Price, then Cablevision, at its sole discretion, will have the option of either
(i) adjusting the Stock Election Number and the Cash Election Number as set
forth above in this paragraph or (ii) treating the Average Cablevision Share
Price as being less than the Floor Price for all purposes of the Merger
Agreement, including the availability of the election to have Clearview be the
Surviving Corporation and the concomitant change in the form of the Merger
Consideration to all cash. If the aggregate number of Share Equivalents
represented by Clearview Securities in respect of which Cash Elections have been
made exceeds the Cash Election Number, (a) all Clearview Securities in respect
of which Stock Elections have been made or are deemed to have been made (the
"Stock Election Securities") shall be converted into the right to receive the
applicable Securities Stock Consideration, and (b) all Clearview Securities in
respect of which a Non-Election is made ("Non-Election Securities") shall be
deemed Clearview Securities in respect of which Stock Elections have been made
and treated as Stock Election Securities and (c) a proration adjustment shall be
made in respect of Clearview Securities in respect of which Cash Elections have
been made so that an aggregate number of Share Equivalents represented by
Clearview Securities in respect of which Cash Elections have been made shall be
deemed converted into and treated as Stock Election Securities, so that the
aggregate number of Share Equivalents represented by Clearview Securities deemed
Stock Election Securities pursuant to this clause (c)
<PAGE> 7
when added to the Share Equivalents represented by all other Stock Election
Securities (including Non-Election Securities deemed to be Stock Election
Securities), shall equal as closely as practicable the Stock Election Number and
any remaining Clearview Securities in respect of which Cash Elections have been
made shall be converted into the right to receive the applicable Security Cash
Consideration. If the aggregate number of Share Equivalents represented by
Clearview Securities in respect of which Stock Elections have been made exceeds
the Stock Election Number, (a) all Clearview Securities in respect of which Cash
Elections have been made or are deemed to have been made (the "Cash Election
Securities") shall be converted into the right to receive the applicable
Securities Cash Consideration, and (b) all Non-Election Securities shall be
deemed Clearview Securities in respect of which Cash Elections have been made
and treated as Cash Election Securities and (c) a proration adjustment shall be
made in respect of Clearview Securities in respect of which Stock Elections have
been made so that an aggregate number of Share Equivalents represented by
Clearview Securities in respect of which Stock Elections have been made shall be
deemed converted into and treated as Cash Election Securities, so that the
aggregate number of Share Equivalents represented by Clearview Securities deemed
Cash Election Securities pursuant to this clause (c) when added to the Share
Equivalents represented by all other Cash Election Securities (including Non-
Election Securities to be deemed Cash Election Securities), shall equal as
closely as practicable the Cash Election Number and any remaining Clearview
Securities in respect of which Stock Elections have been made shall be converted
into the right to receive the applicable Security Stock Consideration. See "THE
MERGER -- Terms of the Merger" for a detailed description of the allocation
limitations and proration procedures.
The undersigned understands that the election referred to above are subject
to certain terms, conditions and limitations that are set forth in the Merger
Agreement, the Instructions below and the accompanying Proxy
Statement/Prospectus. The Merger Agreement is included as Annex A to the Proxy
Statement/ Prospectus. Extra copies of this Form of Election and Letter of
Transmittal and the Proxy Statement/ Prospectus may be requested from the
Information Agent, at the phone number shown above. The filing of this Form of
Election and Letter of Transmittal with the Exchange Agent is acknowledgment of
the receipt of the Proxy Statement/Prospectus. The undersigned understands and
acknowledges that all questions as to the validity, form and eligibility of any
Election and surrender of the Securities hereunder shall be reasonably
determined by the Exchange Agent, and such determination shall be final and
binding.
The undersigned hereby represents and warrants that the undersigned is, as
of the date hereof, and will be as of the Effective Time of the Merger, the
registered holder of the Clearview Securities represented by the Certificate(s)
surrendered herewith, with good title to the above-described Clearview
Securities and full power and authority to sell, assign and transfer such
Clearview Securities free and clear of all liens, claims and encumbrances, and
not subject to any adverse claims. The undersigned will, upon request, execute
any additional documents necessary or desirable to complete the surrender and
exchange of such Clearview Securities. The undersigned hereby irrevocably
appoints the Exchange Agent, as agent of the undersigned, to effect the exchange
pursuant to the Merger Agreement and the Instructions hereto. All authority
conferred or agreed to be conferred in the Form of Election and Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
Certificates and receive on behalf of the undersigned, in exchange for Clearview
Securities represented thereby, any check for cash or any certificate for shares
of Cablevision Class A Common Stock issuable in the Merger pursuant to the
Merger Agreement. If the Certificate(s) is (are) not delivered herewith or by
book-entry transfer, there is furnished herewith (i) a guarantee of delivery of
such Certificate(s) from a member of a registered national securities exchange,
a member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office in the United States in accordance with
Instruction 5 or (ii) an affidavit and indemnification regarding the loss, theft
or destruction of such Certificate(s) reasonably acceptable to Cablevision in
accordance with Instruction 12.
<PAGE> 8
ELECTION
The appropriate elections(s) must be made in Box A (or, if a nominee,
trustee or other representative making multiple elections, Box B) above in order
to make a Stock Election, a Cash Election or Non-Election (each as defined
above) with respect to each Security represented by the Certificate(s)
surrendered herewith.
Because of certain limitations on the amount of Security Cash Consideration
and Security Stock Consideration to be issued in the Merger, there can be no
assurance that holders of Clearview Securities will receive the form of
consideration that such holder elects. If the elections result in an
oversubscription of either the Security Stock Consideration or the Security Cash
Consideration, the procedures for allocating cash and shares of Cablevision
Class A Common Stock set forth in the Merger Agreement and described in the
Proxy Statement/Prospectus will be followed by the Exchange Agent. See "THE
MERGER -- Terms of the Merger" in the Proxy Statement/Prospectus and Instruction
3 hereto. ALL DECISIONS BY THE EXCHANGE AGENT WITH RESPECT TO SUCH PROCESS SHALL
BE FINAL AND BINDING.
ALL HOLDERS OF CLEARVIEW SECURITIES WISHING TO MAKE A STOCK ELECTION OR A
CASH ELECTION MUST ENSURE THAT THE EXCHANGE AGENT RECEIVES A PROPERLY COMPLETED
FORM OF ELECTION AND LETTER OF TRANSMITTAL PRIOR TO THE ELECTION DEADLINE. ALL
HOLDERS OF CLEARVIEW SECURITIES SUBMITTING ELECTION FORMS AND LETTERS OF
TRANSMITTAL AFTER SUCH TIME WILL BE DEEMED TO HAVE MADE A NON-ELECTION
REGARDLESS OF THE ELECTION SPECIFIED ON SUCH FORM. HOLDERS OF CLEARVIEW
SECURITIES WISHING TO MAKE A NON-ELECTION ARE NOT REQUIRED TO SUBMIT THIS FORM
OF ELECTION AND LETTER OF TRANSMITTAL PRIOR TO THE ELECTION DEADLINE OR PRIOR TO
THE EFFECTIVE TIME BUT SUCH HOLDER'S CERTIFICATES MUST BE SURRENDERED IN ORDER
TO RECEIVE THE APPLICABLE MERGER CONSIDERATION.
THE EXCHANGE AGENT RESERVES THE RIGHT TO DEEM THAT YOU HAVE CHECKED THE
"NON-ELECTION" BOX IF:
A. NO ELECTION CHOICE IS INDICATED IN BOX A (OR, IF A NOMINEE,
TRUSTEE OR OTHER REPRESENTATIVE MAKING MULTIPLE ELECTIONS, BOX B) ABOVE;
B. YOU FAIL TO FOLLOW THE INSTRUCTIONS ON THIS FORM OF ELECTION AND
LETTER OF TRANSMITTAL (INCLUDING SUBMISSION OF YOUR CERTIFICATES) OR
OTHERWISE FAIL TO PROPERLY MAKE AN ELECTION; OR
C. A COMPLETED FORM OF ELECTION AND LETTER OF TRANSMITTAL (INCLUDING
SUBMISSION OF YOUR CERTIFICATES) IS NOT ACTUALLY RECEIVED BY THE ELECTION
DEADLINE (OR IN ACCORDANCE WITH THE GUARANTEE PROVISIONS FOR LATE DELIVERY
OF CERTIFICATES).
In order to receive the applicable Merger Consideration, this Form of
Election and Letter of Transmittal must be (i) completed and signed in the space
provided below and on the Substitute Form W-9 and (ii) mailed or delivered with
your Certificate(s) to the Exchange Agent at either of the addresses set forth
above. In order to properly make a Stock Election or Cash Election, these
actions must be taken in a timely fashion such that the Form of Election and
Letter of Transmittal is received by the Exchange Agent prior to the Election
Deadline.
The method of delivery of the Certificates and all other required documents
is at the election and risk of the stockholder; however, if the Certificates are
sent by mail, it is recommended that they be sent by registered mail,
appropriately insured, with return receipt requested.
Unless otherwise indicated below under "Special Issuance and Payment
Instructions," in exchange for the enclosed Certificates, the undersigned
requests issuance of the applicable Merger Consideration to the undersigned.
Similarly, unless otherwise indicated below under "Special Delivery
Instructions," the undersigned requests that the applicable Merger Consideration
be mailed to the undersigned at the address shown above. In the event that both
the "Special Delivery Instructions" and the "Special Issuance and Payment
<PAGE> 9
Instructions" are completed, please issue the applicable Merger Consideration in
the name of, and mail the applicable Merger Consideration to, the person or
entity so indicated at the address so indicated. Appropriate signature
guarantees have been included with respect to Clearview Securities for which
Special Issuance, Payment Instructions or Special Delivery Instructions have
been given.
CONSUMMATION OF THE MERGER IS SUBJECT TO THE SATISFACTION OF CERTAIN
CONDITIONS. NO PAYMENTS RELATED TO ANY SURRENDERED CERTIFICATES WILL BE MADE
PRIOR TO THE EFFECTIVE TIME.
In the event that the Merger Agreement is terminated, the Exchange Agent
will promptly return Certificates previously submitted with Forms of Election
and Letters of Transmittal. In such event, Clearview Securities held through The
Depository Trust Company are expected to be available for sale or transfer
promptly following such termination; however, Certificates representing
Clearview Securities held of record directly by the beneficial owners of such
Clearview Securities will be returned as promptly as practicable by first class,
insured mail.
<PAGE> 10
- ------------------------------------------------------
SPECIAL ISSUANCE AND PAYMENT
INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5, 9, 10 AND 11)
- ------------------------------------------------------
To be completed ONLY if the certificate representing the Security Stock
Consideration and/or the check representing the Security Cash Consideration or
cash in lieu of fractional shares, as the case may be, is to be issued in the
name of someone other than the undersigned. NOTE: THE PERSON NAMED IN THESE
SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS MUST BE THE PERSON WHO COMPLETES THE
SUBSTITUTE FORM W-9.
Issue the certificate representing the Security Stock Consideration
and/or the check representing the Security Cash Consideration or cash in lieu
of fractional shares to:
Name:
---------------------------------------------
(PLEASE PRINT)
Address:
-------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
(INCLUDE ZIP CODE)
-----------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
If you complete this box, you will need a signature guarantee by an Eligible
Institution. See Instruction 5.
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5 AND 10)
- ------------------------------------------------------
To be completed ONLY if the certificate representing the Security Stock
Consideration and/or the check representing the Security Cash Consideration or
cash in lieu of fractional shares, as the case may be, is to be sent to
someone other than the undersigned or to the undersigned at an address other
than that shown above.
Mail the certificate representing the Security Stock Consideration and/or
the check representing the Security Cash Consideration or cash in lieu of
fractional shares to:
Name:
---------------------------------------------
(PLEASE PRINT)
Address:
-------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
(INCLUDE ZIP CODE)
Check this box if this is a permanent change of address. [ ]
If you complete this box, you will need a signature guarantee by an Eligible
Institution. See Instruction 5.
- ------------------------------------------------------
<PAGE> 11
The undersigned represents and warrants that the undersigned has full power
and authority to transfer the Clearview Securities surrendered hereby and that
the transferee will acquire good and unencumbered title thereto, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim when the Clearview Securities are accepted for exchange by the
Exchange Agent. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or Cablevision to be necessary
and desirable to complete the transfer of the Clearview Securities surrendered
hereby.
Date:
- ------------------------------------------------
PLEASE SIGN HERE
Signature:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
Must be signed by registered holder(s) as name(s) appear(s) on
Certificate(s). If signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, the capacity of the person signing should be
indicated. (See Instruction 8 hereto).
Dated:
- ------------------------------------------------------
Name(s):
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity:
- --------------------------------------------------------------------------------
Daytime Area Code and Telephone Number:
- ----------------------------------------------------------
THE EXCHANGE AGENT HAS BEEN INSTRUCTED NOT TO MAKE ANY EXCHANGE OF YOUR
CLEARVIEW SECURITIES UNTIL THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL HAS
BEEN EXECUTED AND DELIVERED TO THE EXCHANGE AGENT TOGETHER WITH YOUR
CERTIFICATES.
SIGNATURE GUARANTEE
(REQUIRED ONLY IN THE CIRCUMSTANCES SPECIFIED IN INSTRUCTION 5)
The undersigned hereby guarantees the signature(s) which appear(s) on this Form
of Election and Letter of Transmittal.
Dated:
- ------------------------------------------------------
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION ISSUING GUARANTEE)
(PLEASE PRINT)
- --------------------------------------------------------------------------------
(AFFIX MEDALLION STAMP ABOVE)
<PAGE> 12
INSTRUCTIONS
This Form of Election and Letter of Transmittal is to be completed and
submitted to the Exchange Agent prior to the Election Deadline by those
Clearview stockholders desiring to make a Stock Election or Cash Election. All
holders of Clearview Securities, including those making a Non-Election, must
surrender their Certificates to the Exchange Agent in order to receive the
applicable Merger Consideration. Until a record holder's Certificates are
received by the Exchange Agent at one of the addresses set forth above, together
with such documents as the Exchange Agent may require, and until the same are
processed for exchange by the Exchange Agent, such holders will not receive any
certificates representing the Security Stock Consideration and/or the check
representing the Security Cash Consideration or cash in lieu of fractional
shares (if any) in exchange for their Certificates. No interest will accrue on
the Merger Consideration. If your Certificate(s) is (are) lost, stolen or
destroyed, please refer to Instruction 12 below.
A HOLDER OF CLEARVIEW SECURITIES MUST MAKE THE APPROPRIATE ELECTION(S) IN
BOX A (OR, IF A NOMINEE, TRUSTEE OR OTHER REPRESENTATIVE MAKING MULTIPLE
ELECTIONS, BOX B) ABOVE TO MAKE AN EFFECTIVE STOCK ELECTION OR CASH ELECTION.
Your election is subject to certain terms, conditions and limitations that
have been set out in the Merger Agreement and the Proxy Statement/Prospectus.
The Merger Agreement is included as Annex A to the Proxy Statement/Prospectus.
Extra copies of the Proxy Statement/Prospectus may be requested from the
Information Agent at the phone number shown above. The filing of this Form of
Election and Letter of Transmittal with the Exchange Agent is acknowledgment of
the receipt of the Proxy Statement/Prospectus.
1. Election Deadline. For any Stock Election or Cash Election contained
herein to be considered, this Form of Election and Letter of Transmittal,
properly completed, and the related Certificates must be received by the
Exchange Agent at one of the addresses shown above on this Form of Election and
Letter of Transmittal no later than 5:00 p.m., New York time, on the Election
Deadline. The Election Deadline is the business day that is two trading days
prior to the Closing Date and will be announced in a news release delivered to
the Dow Jones News Service as soon as practicable, but in no event less than ten
trading days prior to the Closing Date.
Holders whose Certificate(s) is (are) not immediately available or holders
who cannot complete the procedure for delivery by book-entry transfer on a
timely basis may deliver the Certificates (or the Clearview Securities by
book-entry transfer) and may also make an effective Election by (a) completing
Box A or B herein, as appropriate, having the Box entitled "Guarantee of
Delivery" herein properly completed and duly executed with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and delivering such documents to the Exchange Agent prior to the
Election Deadline; and (b) delivering their Certificates, in proper form for
transfer, or a confirmation of a book-entry transfer of such Securities, if such
procedure is available, into the Exchange Agent's account at the Book-Entry
Transfer Facility within five New York Stock Exchange trading days after the
date of execution hereof. In addition, at the time the Certificate(s) (or the
Clearview Securities pursuant to a book-entry transfer) are delivered pursuant
to the Guarantee of Delivery, the guarantor must submit to the Exchange Agent
another Form of Election and Letter of Transmittal with only the section
entitled "Notice of Delivery Under Guarantee" properly completed (or must
otherwise provide such information to the Exchange Agent). If the guarantor
fails to deliver the Certificate(s) (or the Clearview Securities by book-entry
transfer) in accordance with the guaranteed delivery procedures contained
herein, without limitation of any other recourse, any purported Election with
respect to the Clearview Securities subject to such guarantee will be void. The
term "Agent's Message" means a message, transmitted by the Book-Entry Transfer
Facility to, and received by, the Exchange Agent and forming a part of a
book-entry confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility delivering the Clearview Securities, that such participant has
received and agrees to be bound by the terms of this Form of Election and Letter
of Transmittal and that Cablevision may enforce such agreement against the
participant.
2. Revocation or Amendment of Form of Election and Letter of
Transmittal. An election may be revoked or amended, but only by written notice
received by the Exchange Agent prior to the Election
<PAGE> 13
Deadline. Such notice must specify the person in whose name the Clearview
Securities to be withdrawn had been deposited, the number of Clearview
Securities to be withdrawn, the name of the registered holder thereof, and the
serial numbers shown on the certificate(s) representing the Clearview Securities
to be withdrawn. Any Certificate(s) representing Clearview Securities that have
been submitted to the Exchange Agent in connection with an election shall be
returned without charge to the holder thereof in the event such election is
revoked as aforesaid and such holder requests in writing the return of such
Certificate(s). Upon any such revocation, unless a duly completed Form of
Election and Letter of Transmittal is thereafter submitted in accordance with
the procedures set forth in the Proxy Statement or Prospectus, such Clearview
Securities shall be declared Non-Election Securities, as described therein.
3. Allocation. As set forth in the Proxy Statement/Prospectus the
Clearview Securities to be converted into the right to receive the applicable
Security Cash Consideration and the applicable Security Stock Consideration in
the Merger are subject to allocation limitations, proration procedures and other
limitations. AS A CONSEQUENCE, NO ASSURANCE CAN BE GIVEN THAT HOLDERS OF
SECURITIES WILL RECEIVE THEIR REQUESTED FORM OF MERGER CONSIDERATION.
4. No Fractional Interests. No certificate representing fractional shares
of Cablevision Class A Common Stock will be issued. The Exchange Agent will
remit cash without interest in lieu of such fractional shares. No holder of
Clearview Securities shall be entitled to dividends, voting rights or any other
rights in respect of any fractional share.
5. Guarantee of Signatures. Signatures on this Form of Election and Letter
of Transmittal need not be guaranteed unless the "Special Issuance and Payment
Instructions" or "Special Delivery Instructions" box or the "Guarantee of
Delivery" section has been completed. In such event, signatures on this Form of
Election and Letter of Transmittal (unless delivery of such Securities is made
by book-entry transfer) must be guaranteed by an eligible guarantor institution
(an "Eligible Institution") pursuant to Rule 17Ad-15 promulgated under the
Securities Exchange Act of 1934 (generally a member firm of the New York Stock
Exchange or any bank or trust company which is a member of the Medallion
Program). Public notaries cannot execute acceptable guarantees of signatures.
6. Delivery of Form of Election and Letter of Transmittal and
Certificates. This Form of Election and Letter of Transmittal, properly
completed and duly executed, together with the Certificate(s) representing
Clearview Securities, should be delivered to the Exchange Agent at one of the
addresses set forth above. The method of delivery of the Certificates and all
other required documents is at the election and risk of the record holder of
such Clearview Securities; however, if such Certificates are sent by mail, it is
recommended that they be sent by registered mail, appropriately insured, with
return receipt requested.
7. Inadequate Space. If the space provided herein is inadequate, the
Certificate numbers and the class and numbers of Clearview Securities
represented thereby should be listed on additional sheets and attached hereto.
8. Signatures on Election Form, Stock Powers and Endorsements.
(a) All signatures must correspond exactly with the name written on
the face of the Certificate(s) without alteration, variation or any change
whatsoever.
(b) If the Certificate(s) surrendered is (are) held of record by two
or more joint owners, all such owners must sign this Form of Election and
Letter of Transmittal.
(c) If any Clearview Securities surrendered are registered in
different names on several Certificates, it will be necessary to complete,
sign and submit as many separate Forms of Election and Letters of
Transmittal as there are different registrations of Certificates.
(d) If this Form of Election and Letter of Transmittal is signed by a
person(s) other than the record holder(s) of the Certificates listed (other
than as set forth in paragraph (e) below), such Certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the record holder(s) appears on such Certificate.
<PAGE> 14
(e) If this Form of Election and Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative
capacity and such person is not the record holder of the accompanying
Certificates, he or she must indicate the capacity when signing and must
submit proper evidence of his or her authority to act.
9. Stock Transfer Taxes. In the event that any transfer or other taxes
become payable by reason of the issuance of the applicable Merger Consideration
in any name other than that of the registered holder, such transferee or
assignee must pay such tax to the Exchange Agent or must establish to the
satisfaction of the Exchange Agent that such tax has been paid.
10. Special Issuance and Payment and Delivery Instructions. Indicate the
name and/or address of the person(s) to whom the applicable Security Stock
Consideration and/or the check representing the applicable Security Cash
Consideration or cash in lieu of fractional shares (if any) is to be issued
and/or sent, if different from the name and/or address of the person(s) signing
this Form of Election and Letter of Transmittal.
11. Withholding. Each surrendering Clearview stockholder is required to
provide the Exchange Agent with such holder's correct Taxpayer Identification
Number ("TIN") on the Substitute Form W-9 and to certify whether such holder is
subject to backup withholding. The TIN that must be provided is that of the
Clearview stockholder with respect to the Certificate(s) surrendered herewith or
of the last transferee appearing, on the transfers attached to or endorsed on
such Certificate(s) (or, if a check is made payable to another person as
provided in the box above entitled "Special Issuance and Payment Instructions,"
then the TIN of such person). Failure to provide the information on the
Substitute Form W-9 may subject the surrendering stockholder to 31% federal
income tax back up withholding on payments made to such surrendering holder with
respect to the Clearview Securities and on future dividends paid by Cablevision.
A holder of Clearview Securities must cross out item (2) in the certification
box of Substitute Form W-9 if such holder has been notified by the Internal
Revenue Service ("IRS") that such holder is currently subject to backup
withholding. The box in Part 3 of the Substitute Form W-9 should be checked if
the surrendering stockholder has not been issued a TIN and has applied for a TIN
or intends to apply for a TIN in the near future. If the box in Part 3 is
checked and the Exchange Agent is not provided with a TIN within 60 days
thereafter, Cablevision will withhold 31% of all such payments and dividends
until a TIN is provided to the Exchange Agent. Foreign investors should consult
their tax advisors regarding the need to complete IRS Form W-8 and any other
forms that may be required.
12. Lost, Stolen, or Destroyed Certificates. You cannot submit an
effective Form of Election and Letter of Transmittal without attaching your
Certificates to this Form of Election and Letter of Transmittal. If your
Certificate(s) has (have) been lost, stolen or destroyed prior to the Effective
Time, you are urged to call The Bank of New York as the transfer agent
("Transfer Agent") for Clearview toll free at 1 (800) 524-4458. You will then be
instructed as to the steps that must be taken in order to replace the
Certificate(s). ANY STOCKHOLDER OF CLEARVIEW WHOSE CERTIFICATE(S) HAVE BEEN
LOST, STOLEN OR DESTROYED SHOULD ALLOW SUFFICIENT TIME TO REPLACE SUCH
CERTIFICATE(S) AND IS URGED TO CONTACT THE TRANSFER AGENT AS PROMPTLY AS
PRACTICABLE AFTER RECEIVING THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL.
Following the Effective Time, if any of your Certificate(s) have been lost,
stolen or destroyed, you should promptly notify the Exchange Agent at the
address and phone number shown on the first page of this Form of Election and
Letter of Transmittal.
13. Elections, Certificates and Allocations. Each holder of Clearview
Securities is entitled to make a Stock Election and/or a Cash Election, provided
the Form of Election and Letter of Transmittal for any holder making such
election(s) is properly completed and received by the Exchange Agent prior to
the Election Deadline. All holders of Securities must complete Box A (or, if a
nominee, trustee or other representative making more than one election, Box B)
in order to receive (subject to the allocation limitations and proration
procedures set forth in the Merger Agreement) the desired Merger Consideration.
To properly complete Box A (or, if a nominee, trustee or other representative
making more than one election, Box B), the number of each Certificate
surrendered herewith must be written in the column under the heading
"Certificate Number," and the class and number of Securities represented by each
Certificate surrendered herewith in connection with a specific election should
be written in the appropriate column under the heading
<PAGE> 15
"Class of Clearview Security" and "Number of Clearview Securities" beside each
Certificate number. Stockholders wishing to make more than one election may do
so on one Form of Election and Letter of Transmittal by specifying under the
appropriate heading the number of Clearview Securities for which a Stock
Election, Cash Election or Non-Election is desired, including multiple elections
with respect to Clearview Securities represented by a single Certificate. All
holders of Clearview Securities, including those making a Non-Election, must
surrender their Certificates (or deliver Clearview Securities by book-entry
transfer) to the Exchange Agent in order to receive the Merger Consideration.
Holders of Securities should consult the Proxy Statement/Prospectus for
important tax consequences of various elections.
14. Holders Who are Nominees, Trustees or Other Representatives. Each
holder of record is entitled to make an election and submit a Form of Election
and Letter of Transmittal covering all Clearview Securities actually held of
record by such holder. Nominee record holders, which include nominees, trustees
or any other person that holds Clearview Securities in any capacity whatsoever
on behalf of more than one person or entity, are entitled to make an election
for such nominee record holders as well as an election on behalf of each
beneficial owner of Clearview Securities held through such nominee record
holders, but such elections must be made on one Form of Election and Letter of
Transmittal. Beneficial owners who are not record holders are not entitled to
submit Forms of Election and Letters of Transmittal. Persons submitting a Form
of Election and Letter of Transmittal on behalf of a registered holder of
Clearview Securities as trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or acting in another fiduciary or
representative capacity should refer to Instruction 8(e) above.
15. Miscellaneous. Neither Cablevision nor the Exchange Agent is under
any duty to give notification of defects in any Form of Election and Letter of
Transmittal. Cablevision and the Exchange Agent shall not incur any liability
for failure to give such notification, and each of Cablevision and the Exchange
Agent has the absolute right to reject any and all Forms of Election and Letters
of Transmittal not in proper form or to waive any irregularities in any Form of
Election and Letter of Transmittal.
16. Information and Additional Copies; Questions or Requests. Information
and additional copies of this Form of Election and Letter of Transmittal may be
obtained by telephoning the Information Agent, ChaseMellon, toll-free at 1 (877)
698-6870. Any questions or requests for assistance should similarly be directed
to ChaseMellon as Information Agent, at this toll-free telephone number.
<PAGE> 16
IMPORTANT TAX INFORMATION
Withholding. Under the federal income tax law, the Exchange Agent is
required to file a report with the IRS disclosing any payments of cash being
made to each holder of Certificates pursuant to the Merger Agreement and to
impose 31% backup withholding if required. If the correct certifications on
Substitute Form W-9 are not provided, a $50 penalty may be imposed by the IRS
and payments made for Clearview Securities may be subject to backup withholding
of 31%. Withholding is also required if the IRS notifies recipients that they
are subject to backup withholding as a result of a failure to report interest
and dividends.
In order to avoid backup withholding of federal income tax resulting from a
failure to provide a correct certification, a United States ("U.S.") citizen or
resident or other U.S. entity must, unless an exemption applies, provide the
Exchange Agent with his or her correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 as set forth on this Form of Election and Letter of
Transmittal. Such person must certify under penalties of perjury that such
number is correct and that such holder is not otherwise subject to backup
withholding. The TIN that must be provided is that of the registered holder of
the Certificate(s) or of the last transferee appearing on the transfers attached
to or endorsed on the Certificate(s) (or, if a check is made payable to another
person as provided in the box entitled "Special Issuance and Payment
Instructions," then the TIN of such person). Foreign investors should consult
their tax advisors regarding the need to complete IRS Form W-8 and any other
forms that may be required.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
Please read the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional important
information on how to complete the Substitute Form W-9.
<PAGE> 17
TO BE COMPLETED BY ALL HOLDERS OF SECURITIES
(SEE INSTRUCTION 11)
PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES. L.L.C.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW ---------------------------------
DEPARTMENT OF THE TREASURY Social Security Number
INTERNAL REVENUE SERVICE
OR
---------------------------------
Employer Identification
Number
-------------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR TAXPAYER PART 2 -- CERTIFICATION -- Under penalties of
IDENTIFICATION NUMBER ("TIN") perjury, I certify that: PART 3 --
(1) The number shown on this form is my correct Awaiting TIN
Taxpayer Identification Number (or I am waiting
for a number to be issued for me); and [ ]
(2) I am not subject to backup withholding because:
(a) I am exempt from backup withholding, (b) I
have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup
withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to
backup withholding
- -----------------------------------------------------------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) in Part 2 above if you have
been notified by the IRS that you are subject to backup withholding because of
under-reporting interest or dividends on your last return. However, if after being
notified by the IRS that you were subject to backup withholding you received another
notification from the IRS stating that you are no longer subject to backup withholding,
do not cross out item (2).
- -----------------------------------------------------------------------------------------------------------------------------------
SIGNATURE --------------------------------------------------------------------- DATE ------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW
THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification
Number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a Taxpayer Identification Number within 60
days, 31 percent of all reportable payments made to me thereafter will be
withheld until I provide a number.
Signature
--------------------------------------------------------------------------
Date
---------------------------
- --------------------------------------------------------------------------------
<PAGE> 18
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<C> <S> <C>
- -------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL
SECURITY
NUMBER OF--
- -------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual
account) owner of the
account or, if
combined
funds, any one
of the
individuals(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-
trust account (grantor is also trustee(1)
trustee)
b. So-called trust account that is The actual
not a legal or valid trust owner(1)
under State law
5. Sole proprietorship account The Owner(3)
- -------------------------------------------------------
- -------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: EMPLOYER
IDENTIFICATION
NUMBER OF--
- -------------------------------------------------------
6. A valid trust, estate, or pension Legal entity
(Do not
furnish the
identifying
number of the
personal
representative
or trustee
unless the
legal entity
itself is not
designated in
the account
title.)(4)
7. Corporate account The
corporation
8. Association, club, religious, The
charitable, educational, or other organization
tax-exempt organization account
9. Partnership The
partnership
10. A broker or registered nominee The broker or
nominee
11. Account with the Department of The public
Agriculture in the name of a entity
public entity (such as a State or
local government, school district,
or prison) that receives
agricultural program payments
- -------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(4) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 19
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under Section 501(a), of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual retirement
plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any of its agencies, or instrumentalities.
- A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
- A futures commission merchant registered with the Commodity Futures Trading
Commission.
- A real estate investment trust.
- A common trust fund operated by a bank under Section 584(a) of the Code.
- An exempt charitable remainder trust, or a non-exempt trust described in
Section 4947(a)(1) of the Code.
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to non-resident aliens subject to withholding under Section 1441 of
the Code.
- Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to an appropriate nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
Section 852 of the Code).
- Payments described in Section 6049(b)(5) of the Code to non-resident aliens.
- Payments on tax-free covenant bonds under Section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments made to an appropriate nominee.
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NON-RESIDENT ALIEN OR A
FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Sections 6041, 6041A(a),
6042, 6044, 6045, 6049, and 6050N of the Code.
PRIVACY ACT NOTICE.--Section 6109 of the Code requires most recipients of
dividends, interest, or other payments to give taxpayer identification numbers
to payers who must report the payments to IRS. IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish
your correct taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
