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SCHEDULE 14A
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</TABLE>
CABLEVISION SYSTEMS CORPORATION
(Name of Registrant as Specified in Its Charter)
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CABLEVISION SYSTEMS CORPORATION
1111 Stewart Avenue
Bethpage, New York 11714
[DATE], 2000
Dear Stockholder:
Our board of directors has approved an amendment to our amended and
restated certificate of incorporation that would allow us to create a series of
Cablevision common stock to be called Rainbow Media Group tracking stock. We
intend the Rainbow Media Group tracking stock to reflect the separate economic
performance of the businesses and interests of the Rainbow Media Group, which
are currently part, but not all, of our Rainbow Media Holdings subsidiary, such
as:
- our interest in our five nationally distributed entertainment programming
networks,
- our interest in our six regional Fox Sports Net networks outside of the
New York metropolitan area,
- our interest in National Sports Partners, which owns and distributes Fox
Sports Net,
- our interest in a regional sports news business, which produces the
Regional Sports Report, a regional complement to Fox Sports Net's
National Sports Report,
- our interest in National Advertising Partners, which provides advertising
representation services to all of the Fox Sports Net networks,
- Rainbow Network Communications, a full service network programming
origination and distribution company, and
- Sterling Digital, a company designed to develop new niche audience
programming.
Our existing common stock, which will be redesignated as our Cablevision
NY Group common stock, is intended to reflect the separate economic performance
of our other assets. These assets are concentrated primarily in the New York
metropolitan area and we refer to these assets as the Cablevision NY Group. The
Cablevision NY Group includes all of our businesses other than those included in
the Rainbow Media Group, such as:
- our cable television business, including our residential telephone and
high-speed modem businesses,
- the commercial telephone and internet operations of our subsidiary,
Cablevision Lightpath, Inc.,
- our New York metropolitan area sports and entertainment business,
including Madison Square Garden, the professional sports teams we own,
Radio City Music Hall, MSG Network and Fox Sports Net New York,
- the electronics retail operations of our subsidiary, Cablevision
Electronics Investments, Inc., doing business as The WIZ,
- our motion picture theater business, doing business as Clearview Cinemas,
- our MetroChannels and our regional news businesses, doing business as
News 12 Networks, in the New York metropolitan area,
- our advertising sales representation business,
- our equity interests in @Home Corporation, a provider of multimedia
internet services,
- the shares of common stock of Adelphia Communications Corporation,
Charter Communications, Inc. and AT&T Corp. that we will own following
completion of certain pending transactions,
- our interest in certain direct broadcast satellite assets, and
- our interests in certain wireless personal communications services.
YOU SHOULD NOTE THAT THE RAINBOW MEDIA GROUP INCLUDES ONLY PART OF THE
ASSETS IN OUR RAINBOW MEDIA HOLDINGS SUBSIDIARY - A NUMBER OF SIGNIFICANT
RAINBOW MEDIA HOLDINGS' ASSETS, INCLUDING OUR NEW YORK METROPOLITAN AREA SPORTS
AND ENTERTAINMENT BUSINESS, ARE NOT PART OF THE RAINBOW MEDIA GROUP.
Before we can proceed with the creation of Rainbow Media Group tracking
stock, however, (1) the holders of our existing Class A common stock, (2) the
holders of our existing Class B common stock and (3) the holders of our existing
Class A common stock and Class B common stock, voting together, must vote in
favor of the amendment to our amended and restated certificate of incorporation.
We have called a special meeting of stockholders to be held at [TIME], New York
time, on [DATE], 2000, at our principal executive offices, 1111 Stewart Avenue,
Bethpage, New York 11714 so you can vote on:
- a proposal to amend our amended and restated certificate of incorporation
to authorize the creation and distribution of the Rainbow Media Group
tracking stock and redesignate our existing common stock as Cablevision
NY Group common stock, and
- a proposal to amend our existing stock option plan to accommodate the
tracking stock.
After the charter amendment is approved at the special meeting, we expect
to make a pro rata distribution of Rainbow Media Group Class A tracking stock to
holders of our outstanding Class A common stock, which will have been
redesignated Cablevision NY Group Class A common stock, and of Rainbow Media
Group Class B tracking stock to holders of our outstanding Class B common stock,
which will have been redesignated Cablevision NY Group Class B common stock. We
intend this distribution to represent 100% of the equity value of Cablevision
attributable to the Rainbow Media Group.
This document describes the special meeting, the proposed amendments to
our charter and stock option plan, and related matters. I URGE YOU TO READ THIS
ENTIRE DOCUMENT CAREFULLY.
In addition, we have attached for your convenience, in "Q and A" format,
a summary of certain questions you may have about the creation of the tracking
stock and our answers to those questions. Thank you for your cooperation and
continued support and interest in Cablevision.
Sincerely,
Charles F. Dolan
Chairman
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<PAGE> 3
QUESTIONS AND ANSWERS
ABOUT THE
TRACKING STOCK PROPOSAL
Q: WHY AM I RECEIVING THIS DOCUMENT? WHAT IS THE TRACKING STOCK PROPOSAL?
A: We are sending you this document in connection with a special meeting to
be held at [TIME], New York time, on [DATE], 2000 at our principal
executive offices, 1111 Stewart Avenue, Bethpage, New York 11714. At the
special meeting you will be asked to consider a proposal (the "TRACKING
STOCK PROPOSAL") designed to allow the board of directors to change our
existing common stock into two series of our common stock, one of which
is intended to reflect the separate economic performance of the assets to
be included in the Rainbow Media Group and the other of which is intended
to reflect the separate economic performance of our other assets,
concentrated primarily in the New York metropolitan area, which we refer
to as the Cablevision NY Group. When we refer to the tracking stock
proposal, we are referring to the two separate proposals that will be
voted on at the special meeting:
- a proposal to amend our amended and restated certificate of
incorporation to authorize the creation and distribution of
the Rainbow Media Group tracking stock as a series of our
common stock and redesignate our existing common stock as
Cablevision NY Group common stock, and
- a proposal to amend our existing stock option plan to
accommodate the tracking stock.
Specifically, the tracking stock proposal would allow us to amend
our charter to:
- increase the number of authorized shares of common stock
from 570 million to 1.88 billion, of which:
- 800 million would be Cablevision NY Group
Class A common stock,
- 320 million would be Cablevision NY Group
Class B common stock,
- 600 million would be Rainbow Media Group
Class A tracking stock, and
- 160 million would be Rainbow Media Group
Class B tracking stock,
- authorize the board of directors to change the terms of our
existing Class A common stock and Class B common stock to:
- redesignate our Class A common stock into
Cablevision NY Group Class A common stock,
and
- redesignate our Class B common stock into
Cablevision NY Group Class B common stock,
- create and authorize the board of directors to issue shares
of:
- Rainbow Media Group Class A tracking stock,
and
- Rainbow Media Group Class B tracking stock,
- define the assets and liabilities to be attributed to each
of the Cablevision NY Group and the Rainbow Media Group,
- provide for the other terms relating to each Group and
class of common stock, and
- permit and authorize the board of directors to distribute
Rainbow Media Group Class A tracking stock in respect of
our existing Class A common stock, which will have been
redesignated Cablevision NY Group Class A common stock, and
Rainbow Media Group Class B tracking stock in respect of
our existing Class B common stock, which will have been
redesignated Cablevision NY Group Class B common stock.
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<PAGE> 4
Q: WHAT IS THE RAINBOW MEDIA GROUP? WHAT IS THE CABLEVISION NY GROUP?
A: The term "Rainbow Media Group" does not represent a separately
incorporated entity but means those businesses, assets and liabilities of
Cablevision that are currently part, but not all, of our 74%-owned
Rainbow Media Holdings subsidiary and that will initially include:
- our interest in our five nationally distributed
entertainment programming networks,
- our interest in our six regional Fox Sports Net networks
outside of the New York metropolitan area,
- our interest in National Sports Partners, which owns and
distributes Fox Sports Net,
- our interest in a regional sports news business, which
produces the Regional Sports Report, a regional complement
to Fox Sports Net's National Sports Report,
- our interest in National Advertising Partners, which
provides advertising representation services to all of the
Fox Sports Net networks,
- Rainbow Network Communications, a full service network
programming origination and distribution company, and
- Sterling Digital, a company designed to develop new niche
audience programming.
YOU SHOULD NOTE THAT THE RAINBOW MEDIA GROUP INCLUDES ONLY PART OF THE ASSETS IN
OUR RAINBOW MEDIA HOLDINGS SUBSIDIARY - A NUMBER OF SIGNIFICANT RAINBOW MEDIA
HOLDINGS' ASSETS, INCLUDING OUR NEW YORK METROPOLITAN AREA SPORTS AND
ENTERTAINMENT BUSINESS, ARE NOT PART OF THE RAINBOW MEDIA GROUP.
The term "Cablevision NY Group" does not represent a separately incorporated
entity but means those businesses, assets and liabilities of Cablevision that
are concentrated primarily in the New York metropolitan area and will initially
include, without limitation:
- our cable television business, including our residential
telephone and high-speed modem businesses,
- the commercial telephone and internet operations of our
subsidiary, Cablevision Lightpath, Inc.,
- our New York metropolitan area sports and entertainment
business, including Madison Square Garden, the professional
sports teams we own, Radio City Music Hall, MSG Network and
Fox Sports Net New York,
- the electronics retail operations of our subsidiary,
Cablevision Electronics Investments, Inc., doing business
as The WIZ,
- our motion picture theater business, doing business as
Clearview Cinemas,
- our MetroChannels and our regional news businesses, doing
business as News 12 Networks, in the New York metropolitan
area,
- our advertising sales representation business,
- our equity interests in @Home Corporation, a provider of
multimedia internet services,
- the common stock of Adelphia Communications Corporation,
Charter Communications, Inc. and AT&T Corp. that we will
own following completion of pending transactions,
- our interest in certain direct broadcast satellite assets,
and
- our interests in certain wireless personal communications
services.
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<PAGE> 5
Q: WILL THE RAINBOW MEDIA GROUP TRACKING STOCK TRACK ALL OF THE BUSINESSES
AND ASSETS OF RAINBOW MEDIA?
A: No, the Rainbow Media Group tracking stock will track only certain
businesses and assets of Rainbow Media Holdings. Among the significant
assets of Rainbow Media Holdings that will not be tracked by the Rainbow
Media Group tracking stock are our New York metropolitan area sports and
entertainment business, including Madison Square Garden, the professional
sports teams we own, Radio City Music Hall, MSG Network and Fox Sports
Net New York, our MetroChannels and our regional news businesses, doing
business as News 12 Networks, in the New York metropolitan area and our
interest in certain direct broadcast satellite assets. In addition, a
subsidiary of NBC will continue to own 26% of the equity securities of
Rainbow Media Holdings following the tracking stock distribution and
will have the right to convert their interest into up to 34% of the
Rainbow Media Group tracking stock over time.
Q: WHY DOESN'T RAINBOW MEDIA GROUP TRACKING STOCK TRACK ALL OF THE ASSETS OF
RAINBOW MEDIA HOLDINGS?
A: The Board of Directors has determined that certain of the businesses and
assets of Rainbow Media Holdings are so integrally related to our
metropolitan New York cable and other operations that it would be more
appropriate to treat those businesses and assets as part of the
Cablevision NY Group and to have those businesses and assets tracked by
the Cablevision NY Group common stock.
Q: WHAT IS "TRACKING STOCK"?
A: "Tracking stock", which people sometimes call "alphabet stock", "letter
stock" or "targeted stock", is a type of common stock that the issuing
company intends to reflect or "track" the performance of a particular
business rather than the performance of the company as a whole. As
mentioned above, we propose creating a new series of tracking stock,
which is intended to reflect the separate economic performance of the
assets to be included in the Rainbow Media Group, and to redesignate our
existing common stock as Cablevision NY Group common stock, which is
intended to reflect the separate economic performance of our remaining
assets, which we refer to as the Cablevision NY Group.
We can't assure you that the market values of Cablevision NY Group common
stock and Rainbow Media Group tracking stock will in fact reflect the
performance of the Cablevision NY Group and the Rainbow Media Group as we
intend. Holders of Cablevision NY Group common stock and Rainbow Media
Group tracking stock will continue to be common stockholders of
Cablevision and, as such, will be subject to all risks associated with an
investment in Cablevision and all of our businesses, assets and
liabilities.
Q: WHAT WILL HAPPEN TO MY SHARES OF CABLEVISION COMMON STOCK?
A: When we file the charter amendment, that filing will automatically
redesignate each of your existing shares of Class A common stock into
Cablevision NY Group Class A common stock and each of your existing
shares of Class B common stock into Cablevision NY Group Class B common
stock. Because this redesignation is automatic, you do not need to send
in your stock certificates or make any notations reflecting the change.
After we file the charter amendment and until we distribute shares of
Rainbow Media Group tracking stock, your shares of Cablevision NY Group
common stock will continue to reflect an interest in all of the assets
and businesses of Cablevision. Following the distribution of shares of
Rainbow Media Group tracking stock, we intend that your shares of
Cablevision NY Group common stock will reflect the economic performance
of the assets and businesses of Cablevision, other than the assets and
businesses of the Rainbow Media Group reflected in distributed shares of
Rainbow Media Group tracking stock.
Q: HOW WILL YOU ISSUE RAINBOW MEDIA GROUP TRACKING STOCK?
A: The charter amendment being considered at the special meeting will not
restrict in any way our right to distribute Rainbow Media Group tracking
stock, which could, for example, be (1) sold for cash in a public
offering, (2) issued in connection with an acquisition, (3) distributed
to our existing stockholders, or (4) offered to our existing stockholders
in exchange for some or all of their existing common stock. Also, the
proposed charter amendment will not require us to ever distribute all, or
any portion of, Rainbow Media Group tracking stock. In that event, your
redesignated Cablevision NY Group common stock would continue to reflect
an interest in Rainbow Media Group tracking stock, which will then be
held by Cablevision as an inter-group interest. However, our board of
directors currently intends that, after the charter amendment is approved
at the special meeting, a pro rata distribution will be made to holders
of our common stock as follows:
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<PAGE> 6
- one share of Rainbow Media Group Class A tracking stock for
each two shares of our outstanding Class A common stock,
which will have been redesignated as Cablevision NY Group
Class A common stock, and
- one share of Rainbow Media Group Class B tracking stock for
each two shares of our outstanding Class B common stock,
which will have been redesignated as Cablevision NY Group
Class B common stock.
We intend this distribution to represent 100% of the equity value of
Cablevision attributable to the Rainbow Media Group.
Q: WHEN WILL YOU IMPLEMENT THE TRACKING STOCK PROPOSAL? WHEN WILL YOU
REDESIGNATE THE EXISTING CLASS A COMMON STOCK AND THE CLASS B COMMON
STOCK?
A: We currently expect to file the charter amendment implementing the
tracking stock proposal and redesignating our existing Class A common
stock into Cablevision NY Group Class A common stock and redesignating
our existing Class B common stock into Cablevision NY Group Class B
common stock as soon as practicable after the special meeting. If the
tracking stock proposal is not approved, we will not file the charter
amendment and no shares of tracking stock will be authorized or issued.
The board of directors has the right to abandon the tracking stock
proposal at any time, even if it is approved by our stockholders.
Q: HOW WILL NBC'S INTEREST IN RAINBOW MEDIA HOLDINGS BE AFFECTED BY THE
TRACKING STOCK DISTRIBUTION?
A: NBC-Rainbow Holding, Inc., a subsidiary of National Broadcasting Company,
Inc., currently owns 26% of the common stock of our subsidiary, Rainbow
Media Holdings. Immediately after the tracking stock distribution,
NBC-Rainbow Holding will continue to hold stock directly in Rainbow Media
Holdings. Rainbow Media Holdings will own assets that are part of the
Rainbow Media Group as well as assets that are part of the Cablevision NY
Group. Thus, the Rainbow Media Group tracking stock will not initially
represent 100% of Rainbow Media Holdings' economic interest in the
Rainbow Media Group's businesses. However, we have agreed with NBC as
follows:
- At or prior to the distribution of Rainbow Media Group
tracking stock, we will effect a recapitalization of
Rainbow Media Holdings and create a new class of Rainbow
Media Holdings preferred stock to be held by us that will
be entitled to receive any and all dividends and
distributions on, and will carry a liquidation preference
with respect to, certain assets of Rainbow Media Holdings
that are included in the Cablevision NY Group.
- NBC-Rainbow Holding will have the right to exchange the
Rainbow Media Holdings Class A common stock held by it,
representing 26% of the outstanding equity securities of
Rainbow Media Holdings, for 34% of the Rainbow Media Group
Class A tracking stock over a period of nine years, ending
on December 31, 2009. If not already exchanged, all shares
of Rainbow Media Holdings common stock held by NBC-Rainbow
Holding will be exchanged for Rainbow Media Group Class A
tracking stock on the earlier of December 31, 2009 or the
occurrence of certain Rainbow Media Holdings or Cablevision
capital transactions. As a result, on or prior to December
31, 2009, NBC will have exchanged all of its direct
interests in Rainbow Media Holdings for approximately 44.7
million shares of Rainbow Media Group Class A tracking
stock.
Q: WHY ARE YOU DOING THIS?
A: Primarily for the following reasons:
- The proposed amendment will permit the market to review
separate information about the Rainbow Media Group and the
Cablevision NY Group and separately value the Rainbow Media
Group and the Cablevision NY Group. This should encourage
investors and analysts to focus more attention on the
Rainbow Media Group and result in greater market
recognition of the value of the Rainbow Media Group.
- The proposed amendment will provide us with greater
flexibility to raise capital and respond to strategic
opportunities, including acquisitions, because it will
allow us to issue either Cablevision NY Group common stock
or Rainbow Media Group tracking stock as appropriate under
the circumstances.
- The proposed amendment could allow us to monetize some of
the value of the Rainbow Media Group while preserving the
financial, operational, strategic and other benefits of
being a single consolidated entity.
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- The proposed amendment will allow investors to invest in
either or both series of common stock, depending on their
particular investment objectives.
- The proposed amendment will allow us to create more
effective management incentive and retention programs for
the Rainbow Media Group and the Cablevision NY Group
because it will allow us to issue stock-based compensation
tied to Rainbow Media Group tracking stock and stock-based
compensation tied to Cablevision NY Group common stock.
Q: WILL CABLEVISION NY GROUP COMMON STOCK BE LISTED ON THE NYSE? HOW ABOUT
RAINBOW MEDIA GROUP TRACKING STOCK?
A: When we redesignate our Class A common stock as Cablevision NY Group
Class A common stock, it will continue to trade on the NYSE under the
symbol "CVC". We currently intend to apply for listing of Rainbow Media
Group Class A tracking stock on the NYSE under the symbol "RMG".
Q: WHAT VOTING RIGHTS WILL I HAVE?
A: Each share of Cablevision NY Group Class A common stock will have one
vote per share and each share of Cablevision NY Group Class B common
stock will have 10 votes per share. Each share of Rainbow Media Group
Class A tracking stock will have 1/2 of a vote per share and each share
of Rainbow Media Group Class B tracking stock will have 5 votes per
share.
Holders of Cablevision NY Group common stock and Rainbow Media Group
tracking stock will vote together unless a separate class vote is
required by our charter or applicable law. We will keep our existing
charter provisions allowing the holders of our Class A common stock to
elect 25% of the board of directors and allowing the holders of our Class
B common stock to elect 75% of the board of directors. Under the amended
charter, the holders of Cablevision NY Group Class A common stock and
Rainbow Media Group Class A tracking stock will vote together as a
separate class to elect 25% of the board of directors, and the holders of
Cablevision NY Group Class B common stock and Rainbow Media Group Class B
tracking stock will vote together as a separate class to elect the
remaining 75% of the board of directors.
Q: WHY DOES THE BOARD OF DIRECTORS INTEND TO DISTRIBUTE RAINBOW MEDIA GROUP
CLASS B TRACKING STOCK, WHICH HAS A HIGHER VOTE PER SHARE THAN THE
RAINBOW MEDIA GROUP CLASS A TRACKING STOCK, TO HOLDERS OF CABLEVISION'S
CLASS B COMMON STOCK?
A: The Board of Directors believes that the tracking stock proposal and a
distribution of the Rainbow Media Group tracking stock is in the best
interests of Cablevision's stockholders. The Board of Directors believes
that the tracking stock proposal should be structured in a manner which
does not alter the relative voting rights of the holders of existing
Class A common stock and Class B common stock. In addition, the tracking
stock proposal cannot be adopted without the favorable votes of holders
of not less than 66 2/3% of the outstanding shares of our existing Class
B common stock. Certain holders of our existing Class B common stock have
indicated informally that their support would not exist if the tracking
stock proposal and the subsequent distribution would have the effect of
diminishing the relative voting power of the Class B common stockholders.
Q: WILL THE TRACKING STOCK PROPOSAL RESULT IN A SPIN-OFF OF RAINBOW MEDIA
HOLDINGS?
A: No. The tracking stock proposal will not result in a distribution or
spin-off of any assets or liabilities of Cablevision or its subsidiaries,
including Rainbow Media Holdings.
Q: WHY ARE YOU ISSUING A TRACKING STOCK INSTEAD OF SPINNING OFF THE RAINBOW
MEDIA GROUP?
A: The tracking stock proposal is intended to separate the economic
performance of the Cablevision NY Group and the Rainbow Media Group into
two classes of stockholders while continuing to provide us with the
advantages of doing business under common ownership. We will continue to
benefit from synergies of the two Groups, including strategic and
financial synergies, that would not necessarily be available if the
Cablevision NY Group and the Rainbow Media Group were not under common
control.
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<PAGE> 8
Q: HOW WILL THE TRACKING STOCK PROPOSAL AFFECT THE FUTURE FINANCIAL
STATEMENT PRESENTATION OF CABLEVISION?
A: For purposes of preparing the financial statements of the Cablevision NY
Group, the Rainbow Media Group and Cablevision included in the
accompanying proxy statement, we have allocated all of our consolidated
assets, liabilities, revenues, expenses and cash flow between the
Cablevision NY Group and the Rainbow Media Group. After we issue the
tracking stock, we will present separate financial statements for the
Cablevision NY Group and the Rainbow Media Group, as well as CSC
Holdings' and our consolidated financial statements. Presentation of the
separate financial statements of the Cablevision NY Group and the Rainbow
Media Group will provide current and potential investors in each Group
with financial information regarding the Cablevision NY Group and the
Rainbow Media Group. Cablevision, however, will retain all beneficial
ownership and control of both the Cablevision NY Group's and the Rainbow
Media Group's assets and operations and you will be subject to the risks
associated with an investment in Cablevision as a whole.
Q: HOW WILL THIS AFFECT THE MANAGEMENT OF CABLEVISION?
A: No changes in management are currently planned as a result of the
tracking stock proposal.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE TRACKING STOCK PROPOSAL?
A: Provided that recent legislative proposals regarding tracking stock do
not apply to the issuance and intended distribution of the Rainbow Media
Group tracking stock, we believe that neither you nor Cablevision will
recognize any income, gain or loss for federal income tax purposes as a
result of the redesignation of our existing common stock into Cablevision
NY Group common stock or the intended distribution of Rainbow Media Group
tracking stock to holders of re-designated Cablevision NY Group common
stock. The legislative proposals would, if enacted in their current form,
apply to tracking stock issued or distributed on or after the date of
enactment by Congress. There are no court decisions bearing directly on
similar transactions and the Internal Revenue Service has announced that
it will not issue advance rulings on the federal income tax consequences
of such transactions. THUS, YOU SHOULD CONSULT A TAX ADVISOR.
Q: DO YOU INTEND TO PAY DIVIDENDS?
A: We have never paid cash dividends on our common stock. We do not
currently expect to pay any dividends on any series or class of our
common stock for the foreseeable future.
Q: WHEN AND WHERE WILL THE SPECIAL MEETING BE HELD?
A: We will hold the special meeting at [TIME], New York time, on [DATE],
2000, at our principal executive offices, 1111 Stewart Avenue, Bethpage,
New York 11714.
Q: WHAT DOES THE BOARD OF DIRECTORS RECOMMEND?
A: The board of directors has carefully considered and unanimously approved
the tracking stock proposal described in this document and recommends
that you vote "FOR" it.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE TRACKING STOCK PROPOSAL?
A: The proposal to amend our charter requires:
- the affirmative vote of holders of a majority of the outstanding
shares of Class A common stock and Class B common stock, voting
together as a class,
- the affirmative vote of holders of a majority of the outstanding
shares of Class A common stock, voting together as a class, and
- the affirmative vote of holders of at least 66 2/3% of the
outstanding shares of Class B common stock, voting together as a
class.
CLASS B COMMON STOCKHOLDERS OWNING IN EXCESS OF 66 2/3% OF THE
OUTSTANDING SHARES OF CLASS B COMMON STOCK HAVE AGREED THAT THEY WILL
VOTE "FOR" APPROVAL OF THE PROPOSAL TO AMEND OUR CHARTER.
The proposal to amend our stock option plan requires the affirmative vote
of holders of a majority of the outstanding shares of Class A common
stock and Class B common stock, voting together as a class. CABLEVISION
STOCKHOLDERS HAVING A
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MAJORITY OF CABLEVISION'S VOTING POWER HAVE AGREED THAT THEY WILL VOTE
"FOR" APPROVAL OF THE PROPOSAL TO AMEND CERTAIN OF OUR STOCK OPTION PLAN.
ACCORDINGLY, APPROVAL OF THIS PROPOSAL IS ASSURED.
Q: WILL THE AMENDMENT TO CABLEVISION'S CHARTER GIVE RISE TO ANY APPRAISAL
RIGHTS UNDER DELAWARE LAW?
A: No.
Q: WHAT DO I DO IF I HAVE ADDITIONAL QUESTIONS?
A: If you have any questions prior to the special meeting or if you would
like copies of any document we refer to or that we incorporate by
reference in this document, please call Investor Relations at (516)
803-2300.
Q: HOW DOES THE DOLAN FAMILY INTEND TO VOTE?
A: Our chairman, Charles F. Dolan, who, as of March 1, 2000, owned less than
1% of the Class A common stock, 53.6% of the Class B common stock and
44.1% of the total voting power of both classes of common stock, has
indicated that he and certain trusts for the benefit of members of his
family, which, as of March 1, 2000, owned less than 1% of the Class A
common stock, 34.4% of the Class B common stock and 26.4% of the total
voting power of both classes of common stock, will vote for these
proposals. In addition, Charles F. Dolan, James L. Dolan, our president
and chief executive officer, Thomas C. Dolan and Patrick C. Dolan all
voted in favor of the tracking stock proposal in their capacity as
directors.
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF CABLEVISION SYSTEMS CORPORATION
TO BE HELD ON [DATE], 2000
Time:
--------------------------------
Date:
---------------------------------
Place: Cablevision Systems Corporation
Corporate Headquarters
1111 Stewart Avenue
Bethpage, New York
Purpose:
- To approve and adopt an amendment to our amended and
restated certificate of incorporation to authorize the
creation of a series of Cablevision common stock to be
called Rainbow Media Group tracking stock, which is
intended to reflect the separate economic performance of
the businesses and interests of the Rainbow Media Group,
and to redesignate our existing common stock as Cablevision
NY Group common stock, which is intended to reflect the
separate economic performance of our remaining assets
concentrated primarily in the New York metropolitan area,
which we refer to as the Cablevision NY Group, and to amend
other provisions of our amended and restated certificate of
incorporation so that it reads in its entirety as set forth
in Annex II to the accompanying proxy statement.
- To approve amendments to our existing stock option plan to
accommodate the tracking stock so that it reads in its
entirety as set forth in Annex III to the accompanying
proxy statement.
- To transact such other business as may properly come before
the annual meeting or any adjournment or postponement.
We refer to the proposal to amend our charter and the
proposal to amend our stock option plan as the "TRACKING STOCK PROPOSAL".
We describe the proposals in more detail in the
accompanying proxy statement. We encourage you to read it in its entirety before
voting.
Only stockholders of record on [DATE], 2000 may vote at the
special meeting.
The board of directors has carefully considered and
unanimously approved each of the proposals described above and recommends that
you vote "FOR" each one.
YOUR VOTE IS IMPORTANT. We urge you to vote as soon as
possible by telephone, internet or mail.
By order of the board of directors,
Robert S. Lemle
Executive Vice President,
General Counsel and Secretary
Bethpage, New York
[DATE], 2000
<PAGE> 11
PROXY STATEMENT
-----------------
CABLEVISION SYSTEMS CORPORATION
----------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [DATE], 2000
----------------
The board of directors of Cablevision Systems Corporation is
furnishing this proxy statement in connection with a special meeting of
stockholders to be held at [TIME], New York time, on [DATE], 2000 at our
principal executive offices, 1111 Stewart Avenue, Bethpage, New York 11714. At
this special meeting we will ask you to consider and approve the tracking stock
proposal described in this document.
The tracking stock proposal is designed to allow the board of
directors to change our existing common stock into two series of common stock,
one of which is intended to reflect the separate economic performance of the
businesses and interests of the Rainbow Media Group and the other of which is
intended to reflect the separate economic performance of our remaining assets,
which we refer to as the Cablevision NY Group. When we refer to our tracking
stock proposal, we are referring to the two separate proposals that will be
voted on at the special meeting:
- a proposal to amend our amended and restated certificate of
incorporation to authorize the creation and distribution of
Rainbow Media Group tracking stock and to redesignate our
existing common stock as Cablevision NY Group common stock,
and
- a proposal to amend our existing stock option plan to
accommodate the tracking stock.
The board of directors has carefully considered and unanimously
approved each of the proposals described above and recommends that you vote
"FOR" each.
Because the special meeting is being held for the sole purpose of
voting on the tracking stock proposal, there will not be any presentations by
officers of Cablevision at the special meeting. Officers of Cablevision will be
available at the special meeting to answer stockholder questions regarding the
tracking stock proposal before the vote.
Our chairman, Charles F. Dolan, who, as of March 1, 2000, owned less
than 1% of the Class A common stock, 53.6% of the Class B common stock and 44.1%
of the total voting power of both classes of common stock, has indicated that he
and certain trusts for the benefit of members of his family, which, as of March
1, 2000, owned less than 1% of the Class A common stock, 34.4% of the Class B
common stock and 26.4% of the total voting power of both classes of common
stock, will vote for these proposals. In addition, Charles F. Dolan, James L.
Dolan, our president and chief executive officer, Thomas C. Dolan, and Patrick
C. Dolan all voted in favor of the tracking stock proposal in their capacity as
directors.
See "Risk Factors" beginning on page 28 for certain information
relating to an evaluation of the tracking stock proposal.
The date of this proxy statement is [DATE], 2000. We are first
sending this proxy statement to stockholders on or about that date.
<PAGE> 12
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.....................................................................4
PROXY STATEMENT SUMMARY.......................................................................................................5
GENERAL....................................................................................................................5
TRACKING STOCK.............................................................................................................5
CABLEVISION, THE RAINBOW MEDIA GROUP AND THE CABLEVISION NY GROUP..........................................................5
CABLEVISION SYSTEMS CORPORATION SELECTED FINANCIAL AND STATISTICAL DATA...................................................13
THE RAINBOW MEDIA GROUP SELECTED FINANCIAL AND STATISTICAL DATA...........................................................14
THE CABLEVISION NY GROUP SELECTED FINANCIAL AND STATISTICAL DATA..........................................................16
THE SPECIAL MEETING.......................................................................................................18
PROPOSAL 1--AMENDMENTS TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION...........................................19
PROPOSAL 2--AMENDMENTS TO OUR STOCK OPTION PLAN...........................................................................26
RISK FACTORS.................................................................................................................27
RISK FACTORS RELATING TO THE TRACKING STOCK PROPOSAL......................................................................27
RISKS RELATING TO CABLEVISION SYSTEMS CORPORATION.........................................................................34
RISK FACTORS RELATING TO THE RAINBOW MEDIA GROUP..........................................................................39
THE SPECIAL MEETING..........................................................................................................43
PROPOSAL 1--AMENDMENTS TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION..............................................47
GENERAL...................................................................................................................47
NO INTER-GROUP INTEREST OF THE CABLEVISION NY GROUP IN THE RAINBOW MEDIA GROUP............................................49
NBC'S CURRENT INTEREST IN RAINBOW MEDIA HOLDINGS..........................................................................49
OPTIONS...................................................................................................................50
RECOMMENDATION OF THE BOARD OF DIRECTORS..................................................................................51
BACKGROUND AND REASONS FOR THE TRACKING STOCK PROPOSAL....................................................................51
DIVIDEND POLICY...........................................................................................................53
CERTAIN INTER-GROUP RELATIONSHIPS.........................................................................................53
TRACKING STOCK POLICY STATEMENT...........................................................................................54
LIQUIDITY AND CAPITAL RESOURCES...........................................................................................58
LIQUIDITY AND CAPITAL RESOURCES - CABLEVISION NY GROUP....................................................................58
LIQUIDITY AND CAPITAL RESOURCES - RAINBOW MEDIA GROUP.....................................................................60
DESCRIPTION OF CABLEVISION NY GROUP COMMON STOCK AND RAINBOW MEDIA GROUP TRACKING STOCK...................................61
LIMITATIONS ON POTENTIAL UNSOLICITED ACQUISITIONS; ANTI-TAKEOVER CONSIDERATIONS...........................................78
CERTAIN PROVISIONS OF DELAWARE LAW........................................................................................78
</TABLE>
2
<PAGE> 13
<TABLE>
<CAPTION>
<S> <C>
NO APPRAISAL RIGHTS....................................................................................................... 78
FINANCIAL ADVISORS........................................................................................................ 78
STOCK TRANSFER AGENT AND REGISTRAR........................................................................................ 79
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................................................................. 79
PROPOSAL 2--AMENDMENTS TO OUR STOCK OPTION PLAN.............................................................................. 81
GENERAL................................................................................................................... 81
DESCRIPTION OF OUR STOCK OPTION PLAN...................................................................................... 81
EXECUTIVE COMPENSATION....................................................................................................... 84
SUMMARY COMPENSATION TABLE................................................................................................ 84
OPTION GRANTS IN 1999..................................................................................................... 85
AGGREGATED OPTION/SAR EXERCISES IN 1999 AND FISCAL YEAR-END OPTION/SAR VALUES............................................. 85
LONG-TERM INCENTIVE PLANS AWARDS IN 1999.................................................................................. 86
DEFINED BENEFIT PENSION PLAN.............................................................................................. 86
EMPLOYMENT CONTRACTS AND SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS..................................................... 86
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............................................................... 87
CONFLICTS OF INTEREST..................................................................................................... 88
OUR EXECUTIVE OFFICERS.................................................................................................... 88
STOCK OWNERSHIP TABLE........................................................................................................ 91
AVAILABLE INFORMATION........................................................................................................ 95
WHERE YOU CAN FIND MORE INFORMATION.......................................................................................... 95
ADDITIONAL INFORMATION ABOUT CABLEVISION..................................................................................... 96
INDEX OF CERTAIN DEFINED TERMS.............................................................................................. I-1
PROPOSAL 1--OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.......................................................... II-1
PROPOSAL 2--OUR AMENDED AND RESTATED STOCK OPTION PLAN CABLEVISION SYSTEMS
CORPORATION THIRD AMENDED AND RESTATED EMPLOYEE STOCK PLAN....................................................... III-1
CABLEVISION SYSTEMS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS.......................................................... IV-1
THE RAINBOW MEDIA GROUP..................................................................................................... V-1
CONSOLIDATED FINANCIAL STATEMENTS...................................................................................... V-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................V-30
DESCRIPTION OF BUSINESS................................................................................................V-36
THE CABLEVISION NY GROUP................................................................................................... VI-1
CONSOLIDATED FINANCIAL STATEMENTS..................................................................................... VI-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................VI-50
DESCRIPTION OF BUSINESS...............................................................................................VI-64
</TABLE>
3
<PAGE> 14
<TABLE>
<CAPTION>
<S> <C>
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR SPECIAL MEETING OF STOCKHOLDERS -
CLASS A COMMON STOCK.............................................................................................VII-1
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR SPECIAL MEETING OF STOCKHOLDERS -
CLASS B COMMON STOCK............................................................................................VIII-1
</TABLE>
-------------------------
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This document contains or incorporates by reference statements that
constitute forward-looking information within the meaning of the Private
Securities Litigation Reform Act of 1995. We caution you that these
forward-looking statements are not guarantees of future performance or results
and involve risks and uncertainties. Actual results or developments may differ
materially from the forward-looking statements as a result of various factors.
Factors that may cause these differences to occur include, but are not limited
to:
<TABLE>
<CAPTION>
<S> <C>
- the level of our revenues - new competitors entering our franchise areas
- subscriber demand, competition, the cost - other risks and uncertainties inherent in the
of programming and industry conditions cable television business, the programming
and entertainment businesses and our other
- the regulatory environment in which we businesses
operate
- financial community and rating agency
- the level of our capital expenditures and perceptions of our business, operations,
whether our expenses continue to increase financial condition and the industry in which
or increase at a rate faster than expected we operate
- pending and future acquisitions and - the factors described in CSC Holdings, Inc.'s
dispositions of assets most recent registration statement on Form
S-3, including the section entitled "Risk
- whether any pending uncompleted Factors" contained therein.
transactions are completed on the terms
and at the times set forth, if at all
</TABLE>
We undertake no obligation to update or revise any forward-looking statements
because of new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
document might not occur. When considering such forward-looking statements, you
should keep in mind the factors described in "Risk Factors", other cautionary
statements appearing in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for each of Cablevision, the Cablevision NY
Group and the Rainbow Media Group and elsewhere in this document and our Form
10-K for the year ended December 31, 1999, including the statements under "2000
Outlook" therein. Such risk factors and statements describe circumstances which
could cause actual results to differ materially from those contained in any
forward-looking statement.
4
<PAGE> 15
PROXY STATEMENT SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To better
understand the proposals on which you are being asked to vote, you should read
this entire document carefully, as well as the additional documents to which we
refer you.
GENERAL
We are asking you to vote on the tracking stock proposal, which is
designed to allow us to change our existing common stock into two series of our
common stock, one of which is intended to reflect the separate economic
performance of the businesses and interests of the Rainbow Media Group and the
other of which is intended to reflect the separate economic performance of our
other assets that are concentrated primarily in the New York metropolitan
area, and which we refer to as the Cablevision NY Group.
TRACKING STOCK
Tracking stock represents a separate series of common stock of a company
that is intended to track the economic performance of a specific business
instead of the overall economic performance of the company. Because it tracks a
specific business, tracking stock has many economic similarities to stock of a
subsidiary of the parent corporation. There are, however, a number of important
differences between tracking stock and subsidiary stock. In particular, holders
of tracking stock have no direct claim to the businesses' stock or assets and
are not represented by a separate board of directors. Instead, holders of
tracking stock are stockholders of the parent corporation, with a single board
of directors and subject to all of the risks and liabilities of the parent
corporation. Accordingly, tracking stock should not be considered equivalent to
stock of a subsidiary which conducts the tracked business.
Rainbow Media Group tracking stock and Cablevision NY Group common stock
will have dividend and liquidation rights and redemption and exchange terms,
modeled after other publicly traded tracking stocks, that attempt to provide
economic rights in the businesses they track that are similar to the rights that
common stock would have if the "tracked business" were a separate corporation.
Our goal in creating these separate securities is to enable the market to treat
each security as if it represented an ownership interest in a separate
corporation and to react to the business performance and transactions of each
Group as if it were stock in a separate corporation.
Holders of Rainbow Media Group stock and Cablevision NY Group stock will
continue to be common stockholders of Cablevision, and, as such, will be subject
to all risks associated with an investment in Cablevision and all of our
businesses, assets and liabilities.
CABLEVISION, THE RAINBOW MEDIA GROUP AND THE CABLEVISION NY GROUP
CABLEVISION SYSTEMS CORPORATION
Cablevision is one of the largest operators of cable television systems
in the United States, with approximately 3,504,000 subscribers in seven states
as of March 31, 2000, based on the number of subscribers in systems that we own
and manage. Our cable television systems are currently concentrated principally
in and around three major metropolitan areas -- New York City, Boston, and
Cleveland. See our December 31, 1999 Form 10-K and our March 31, 2000 Form 10-Q
for a description of the agreements that we have entered into to sell our Boston
area cable television systems to AT&T Corp. and our Cleveland cable television
systems to Adelphia Corporation.
Rainbow Media Holdings, Inc. is our majority-owned programming and
entertainment subsidiary. Rainbow Media Holdings has been a leader in the
innovation in cable programming for more than 20 years. Rainbow Media Holdings
created and manages some of the country's most-watched and recognized national
entertainment networks, including American Movie Classics, Bravo, The
Independent Film Channel, Romance Classics and MuchMusic USA.
Rainbow Media Holdings also has a 20-year history in regional sports
programming. Rainbow Media Holdings' regional sports networks telecast in top
regional markets in the United States, including New York, New England, Ohio,
Chicago, Florida and the San Francisco Bay area. In 1997, Rainbow Media Holdings
partnered with Fox Entertainment to create Fox Sports Net, which delivers
regional sporting events and news on a national platform.
5
<PAGE> 16
YOU SHOULD NOTE THAT THE RAINBOW MEDIA GROUP INCLUDES ONLY PART OF THE
ASSETS IN OUR RAINBOW MEDIA HOLDINGS SUBSIDIARY - A NUMBER OF SIGNIFICANT
RAINBOW MEDIA HOLDINGS' ASSETS, INCLUDING OUR NEW YORK METROPOLITAN AREA SPORTS
AND ENTERTAINMENT BUSINESS, ARE NOT PART OF THE RAINBOW MEDIA GROUP.
Our principal executive offices are located at 1111 Stewart Avenue,
Bethpage, New York 11714. Our telephone number is (516) 803-2300.
THE RAINBOW MEDIA GROUP TRACKING STOCK
We have developed and own or manage high quality niche programming
assets. We believe these assets position us well to capitalize on the increased
demand for quality content resulting from the continued growth in video
distribution services, the introduction of digital and interactive television,
the increasing penetration of broadband consumer internet access technologies,
and the introduction and adoption of wireless internet access devices.
WE HAVE A STRONG PORTFOLIO OF NATIONAL ENTERTAINMENT NETWORKS
The Rainbow Media Group will include both highly and lesser penetrated
national entertainment networks:
- AMC is one of the top basic cable services in the United States,
based on its audience reach of approximately 73 million
subscribers as of March 31, 2000. AMC features classic,
uninterrupted American films and original programming including
series, specials and mini-documentaries.
- Bravo was the first network for the performing arts, providing
programming which includes musical, dance and theatrical
performances, original programming and films, and served 54
million basic subscribers as of March 31, 2000.
- The Independent Film Channel was the first network dedicated to
independent films and related features and programming, and served
36 million basic subscribers as of March 31, 2000.
- Romance Classics is a 24-hour per day entertainment network
targeting women, and served 31 million basic subscribers as of
March 31, 2000.
- MuchMusic USA is a 24-hour all-music entertainment network and
served 18 million basic subscribers as of March 31, 2000.
WE OWN INTERESTS IN AND MANAGE SEVERAL LEADING REGIONAL SPORTS NETWORKS
The Rainbow Media Group manages six regional sports networks that served
an aggregate 18 million basic subscribers as of March 31, 2000. The regional
sports networks have the rights to telecast live games of 21 teams in the
National Basketball Association, the National Hockey League and Major League
Baseball. Because of their home team programming, we believe that regional
sports networks have strong local appeal in their respective markets, resulting
in higher advertising revenue and attractive subscriber fees from cable and
satellite distributors. These networks are complemented by our interest in
National Sports Partners, which distributes Fox Sports Net, which provides
national programming for distribution by our regional sports networks and others
under the Fox Sports Net name to over 76 million basic subscribers nationwide as
of March 31, 2000.
OUR BRANDS ARE RECOGNIZABLE
Our recognizable brands and programming resources have historically
enabled us to expand our network offerings through the development of new
specialized niche networks. For example, Romance Classics was formed in 1997,
utilizing AMC's infrastructure and relationships to create a new channel
targeting the female audience, and The Independent Film Channel was formed in
1994 as a specialized offshoot of Bravo. We believe the continued roll-out of
set-top boxes and the increased channel capacity offered by digital technology
will provide opportunities for additional networks created in the same manner to
be successful.
In addition, we anticipate that the proliferation of consumer high speed
internet access technologies and wireless internet access devices will result in
a significant increase in demand for broadband content. By providing our brands
to multiple platforms, we believe we will be able to develop new revenue streams
as well as to increase our brand exposure. For example, AMC's multiple platforms
currently include:
6
<PAGE> 17
- AMC Networks;
- AMC Magazine;
- www.amctv.com, AMC's web site which includes original broadband
Internet programming;
- AMC's American Pop!, the first digital entertainment network to
offer unified content during the American Pop!-branded block on
AMC and the broadband network and Internet site, www.ampop.com.
OUR NICHE AND REGIONAL PROGRAMMING ALLOW THE RAINBOW MEDIA GROUP TO PROVIDE
TARGETED ADVERTISING
We believe that the Rainbow Media Group's specialized niche and
regional programming provide a significant opportunity for advertisers to reach
highly geographically or demographically concentrated consumers across both
television and the internet. In 1999, advertising revenue represented
approximately 22% of the Rainbow Media Group's net revenue. We believe we will
be able to maximize revenue by providing advertisers a choice of general
audience and/or targeted marketing through networks such as Bravo, Romance
Classics and IFC.
OUR PROGRAMMING AND DEVELOPMENT EXPERIENCE PROVIDES THE RAINBOW MEDIA GROUP WITH
GROWTH OPPORTUNITIES
We believe our programming and development experience and historical
successes in managing and growing new channels will enable us to create new
brands and networks targeted towards further specialized viewing audiences.
RISK FACTORS
Investing in our common stock, the Rainbow Media Group tracking stock or
the Cablevision NY Group common stock involves significant risks. We refer you
to "Risk Factors--Risks Relating to Cablevision Systems Corporation," and "Risk
Factors--Risks Relating to the Rainbow Media Group" for a discussion of certain
material risks.
------------------------
The following chart sets forth the existing ownership and structure of
Rainbow Media Holdings.
<TABLE>
<S> <C> <C>
---------------------------------------
Cablevision Systems Corporation
---------------------------------------
100%
---------------------------------------
CSC Holdings, Inc.
---------------------------------------
74%
----------------------------------------- --------------------------------------- ------------------------
Rainbow Media
Various Subsidiaries Holdings, Inc. NBC
-------------------- 26%
Cable Television Business
Commercial Telephone --------------------------------------- ------------------------
Cable Modem Business
Residential Telephone
Retail Electronics
Theatres ------------------- --------------------
PCS License Interests Various Various
Equity Interest in @ Home subsidiaries: subsidiaries:
------------ ------------
Madison Square National
----------------------------------------- Garden Programming
Metro Channels Regional Sports
News 12 Networks Partnerships
------------------- --------------------
</TABLE>
7
<PAGE> 18
The following chart shows the ownership of Rainbow Media Holdings and all
of its businesses and interests and the designation of those businesses and
interests between the Cablevision NY Group and the Rainbow Media Group following
the creation of the Rainbow Media Group tracking stock. Entities within the
Rainbow Media Group are in gray boxes.
<TABLE>
<S> <C> <C>
---------------------------------
Rainbow Media Holdings, Inc.
CABLEVISION NY GROUP RAINBOW MEDIA GROUP
---------------------------------
------------------- ------------------------------- -----------------------
Regional Programming Partners
News 12 60% (40% Fox) Rainbow Media
Networks (100%) Group (100%)
-------------------- ------------------------------- -----------------------
--------------------
Cable TV --------------------------
Advertising Sales ----------------------- -----------------------
(100%) National Networks
-------------------- Madison Square Fox Sports Net: (100%)
Garden (100%) - Florida (100%) - AMC
-------------------- - MSG - Ohio (100%) - Bravo
- Radio City - Cincinnati (100%) - IFC
Interest in DBS - Professional Sports - Chicago (50%) - Romance
50% (50% Loral) Teams - Pacific (50%) - MuchMusic USA
- MSG Network - New England (50%)
-------------------- - Fox Sports Net NY --------------------------
----------------------- -----------------------
--------------------------
Rainbow Network
----------------------- Communications
(100%)
Metro Channels --------------------------
(100%)
--------------------------
-----------------------
Sterling Digital
(100%)
----------------------- --------------------------
NY Magazine
Partnership (50%)
-----------------------
</TABLE>
8
<PAGE> 19
FINANCIAL STATEMENT PRESENTATION
For purposes of preparing the financial statements of the Rainbow Media
Group and the Cablevision NY Group included in this proxy statement in Annexes V
and VI, we have allocated all of our consolidated assets, liabilities, revenues,
expenses and cash flow between the Cablevision NY Group and the Rainbow Media
Group. We have also recorded all intercompany transactions between the Rainbow
Media Group and the Cablevision NY Group. Because these transactions are
eliminated in preparing our consolidated financial statements, the sum of
certain income statement and balance sheet categories of the Rainbow Media Group
and the Cablevision NY Group exceed our consolidated total. After we issue the
tracking stock, we will present separate financial statements for the
Cablevision NY Group and the Rainbow Media Group, as well as CSC Holdings' and
our consolidated financial statements. Presentation of the separate financial
statements of the Cablevision NY Group and the Rainbow Media Group will provide
current and potential investors in each series of stock with financial
information regarding the Cablevision NY Group and the Rainbow Media Group.
Cablevision, however, will retain all beneficial ownership and control of both
the Cablevision NY Group's and the Rainbow Media Group's assets and operations
and you will be subject to the risks associated with an investment in
Cablevision as a whole. In this document, we sometimes refer to each of the
Cablevision NY Group and the Rainbow Media Group as a "GROUP". We briefly
describe the Rainbow Media Group and the Cablevision NY Group below.
ARRANGEMENTS WITH NBC
NBC-Rainbow Holding, Inc., a subsidiary of National Broadcasting Company,
owns 26% of the common stock of Rainbow Media Holdings and therefore has a 26%
interest in all of Rainbow Media Holdings' businesses and interests, including
the businesses and interests to be included in the Rainbow Media Group. We own
the remaining 74% of Rainbow Media Holdings.
In connection with the implementation of the tracking stock proposal and
the distribution of the Rainbow Media Group tracking stock, NBC-Rainbow Holding
will exchange its 26% interest in Rainbow Media Holdings common stock over a
period of up to 9 years for a 34% interest in Rainbow Media Group tracking
stock, based on primary shares distributed in the initial tracking stock
distribution. This exchange will occur on a deferred basis in the following
steps:
- First, at or prior to the time of the tracking stock distribution,
we will effect a recapitalization of Rainbow Media Holdings and
create a new class of Rainbow Media Holdings preferred stock to be
held by us that will be entitled to receive any and all dividends
and distributions on, and will carry a liquidation preference with
respect to, the Cablevision NY Group businesses and interests
included in Rainbow Media Holdings. NBC-Rainbow Holding will have
the right to exchange the series of Rainbow Media Holdings Class A
common stock held by it, representing 26% of the outstanding
equity securities of Rainbow Media Holdings, for 34% of the
Rainbow Media Group Class A tracking stock.
- Second, we have agreed with NBC-Rainbow Holding that we will
exchange each share of Rainbow Media Holdings common stock held by
it for approximately 16,868 shares of Rainbow Media Group Class A
tracking stock, for an aggregate of approximately 44.7 million
shares. NBC-Rainbow Holding can elect to make this exchange, in
whole or in part, at its election, each calendar quarter prior to
December 31, 2009, and any shares not exchanged prior to
December 31, 2009 will be exchanged then.
- NBC-Rainbow Holding has agreed not to transfer any shares of
Rainbow Media Group tracking stock received upon an exchange for
Rainbow Media Holdings common stock (other than to other
wholly-owned subsidiaries of NBC) during the 12-month period
commencing on the date of the initial tracking stock distribution.
After such 12-month period has elapsed, NBC-Rainbow Holding will
be entitled to transfer any shares of Rainbow Media Group tracking
stock; provided that:
- any transferee of more than 10% of NBC-Rainbow Holding's
"original block" that intends to hold those shares for
investment will be required to execute an agreement to be
bound by the provisions of a stockholders agreement
between Cablevision and NBC,
- any person that by virtue of a transfer from NBC-Rainbow
Holding would own shares totaling more than 50% of
NBC-Rainbow Holding's "original block" that intends to hold
those shares for investment will be required to execute an
agreement to be bound by the provisions of the stockholders
agreement between Cablevision and NBC,
- NBC-Rainbow Holding will afford Cablevision a right of
first refusal prior to transferring more than 10% of
NBC-Rainbow Holding's "original block" to a person
intending to hold those shares for investment,
9
<PAGE> 20
- NBC-Rainbow Holding will have ten demand registration rights, five
of which may be used for underwritten public offerings of shares
of its Rainbow Media Group Class A tracking stock and five of
which may be used in order to consummate sale or hedging
transactions with respect to shares of its Rainbow Media Group
Class A tracking stock. We will not be obligated to effect more
than one demand registration for NBC-Rainbow Holding during any
calendar year.
These agreements permit NBC to exchange into the tracking stock over
time, but ensure the economics of such transfer to us and our stockholders are
as if the exchange occurred at the time of the tracking stock distribution to
our common stockholders.
THE RAINBOW MEDIA GROUP
The chart on page 8 of this proxy statement highlights each of the
businesses and interests attributed to the Rainbow Media Group. The following
chart sets forth each of the Rainbow Media Group's programming businesses and
subscriber information as of March 31, 2000 (except as noted):
<TABLE>
<CAPTION>
NUMBER OF
PROGRAMMING YEAR OF AFFILIATED BASIC VIEWING
BUSINESSES % OWNERSHIP(1) LAUNCH SUBSCRIBERS(2) SUBSCRIBERS(3)
---------- ----------- ------ ----------- -----------
<S> <C> <C> <C> <C>
NATIONAL ENTERTAINMENT
PROGRAMMING NETWORKS:
American Movie Classics (classic film 100% 1984 72,587,000 67,023,000
channel featuring classic, unedited and
uncolorized American films produced
between the 1930s and 1980s and a
diverse blend of original series,
documentaries and interstitials)
Bravo (a national cable network for the 100% 1980 54,047,000 40,102,000
performing arts featuring films and
performing arts programming as well
as original programs on the arts)
The Independent Film Channel (the first 100% 1994 36,326,000 11,515,000
network dedicated to independent films
and related features and programming)
Romance Classics (a 24-hour entertainment 100% 1997 31,360,000 19,369,000
service for women featuring recent hit
movies and world premiere films, original
biographies of inspiring women and
lifestyle programs)
MuchMusic USA (a 24-hour all music entertainment 100% 1994 17,975,000 11,566,000
programming network featuring musical
series and concerts as well as music videos)
</TABLE>
10
<PAGE> 21
<TABLE>
<CAPTION>
NUMBER OF
PROGRAMMING YEAR OF AFFILIATED BASIC VIEWING
BUSINESSES % OWNERSHIP(1) LAUNCH SUBSCRIBERS(2) SUBSCRIBERS(3)
---------- ----------- ------ ----------- -----------
<S> <C> <C> <C> <C>
REGIONAL SPORTS NETWORKS:
Fox Sports Net Ohio/Cincinnati (regional 60% 1989 4,342,000 4,069,000
sports network in Ohio featuring
Cleveland Indians, Cincinnati Reds,
Cleveland Cavaliers and Columbus Blue
Jackets (NHL))
Fox Sports Net New England (regional sports 30% 1981 3,854,000 3,364,000
network in New England featuring
Boston Celtics)
Fox Sports Net Chicago (regional sports network 30% 1984 3,518,000 3,310,000
in Chicago area featuring Chicago Cubs,
Chicago White Sox, Chicago Bulls and
Chicago Blackhawks)
Fox Sports Net Bay Area (regional sports network 30% 1990 3,310,000 3,018,000
in Northern California featuring Oakland
Athletics, San Francisco Giants, Golden State
Warriors, Sacramento Kings and San Jose Sharks)
Fox Sports Net Florida (regional sports network in 60% 1987 3,255,000 3,072,000
Florida featuring Florida Marlins, Florida
Panthers and Tampa Bay Devil Rays)
NATIONAL SPORTS NETWORKS:
Fox Sports Net (national network that complements all 50% 1997 76,100,000 69,100,000
22 regional sports networks operating under the
Fox Sports Net name with a synchronized schedule
of national programming)
</TABLE>
-------------------
1 % Ownership represents the ownership of the Rainbow Media Group as if
NBC-Rainbow Holding had exchanged all of its Rainbow Media Holdings
common stock for Rainbow Media Group Class A tracking stock as described
under "Arrangements with NBC" above as of March 31, 2000. All percentages
are as of March 31, 2000, except MuchMusic USA, which is as of May 31,
2000.
2 The number of affiliated basic subscribers is the total of the number of
subscribers covered or served by distributors' systems that offer the
referenced programming network.
3 The number of viewing subscribers is the sum of subscribers to
distributors' systems that receive the referenced programming network.
The Rainbow Media Group is more fully described under "Annex V -- The
Rainbow Media Group -- Description of Business".
11
<PAGE> 22
THE CABLEVISION NY GROUP
We intend Cablevision NY Group common stock to reflect the separate
economic performance of our assets other than those included in the Rainbow
Media Group, concentrated primarily in the New York metropolitan area, which we
refer to as the Cablevision NY Group. A number of these businesses and interests
are part of out Rainbow Media Holdings subsidiary. The Cablevision NY Group will
initially consist primarily of:
- our cable television business, including our residential telephone
and high-speed modem businesses,
- the commercial telephone and internet operations of our
subsidiary, Cablevision Lightpath, Inc.,
- our New York metropolitan area sports and entertainment business,
including Madison Square Garden, the professional sports teams we
own, Radio City Music Hall, MSG Network and Fox Sports Net New
York,
- the electronics retail operations of our subsidiary, Cablevision
Electronics Investments, Inc., doing business as The WIZ,
- our motion picture theater business, doing business as Clearview
Cinemas,
- our MetroChannels and our regional news businesses, doing business
as News 12 Networks, in the New York metropolitan area,
- our advertising sales representation business,
- our equity interests in @Home Corporation, a provider of
multimedia internet services,
- the shares of common stock of Adelphia Communications Corporation,
Charter Communications, Inc. and AT&T Corp., which we will own
following completion of pending transactions described in Annex
VI--"The Cablevision NY Group--Description of Business",
- our interest in certain direct broadcast satellite assets, and
- our interests in certain wireless personal communications
services.
The Cablevision NY Group is described more fully under "Annex VI -- The
Cablevision NY Group -- Description of Business".
12
<PAGE> 23
CABLEVISION SYSTEMS CORPORATION
SELECTED FINANCIAL AND STATISTICAL DATA
The operating and balance sheet data included in the following selected
financial data have been derived from the consolidated financial statements of
Cablevision Systems Corporation. Acquisitions made 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, except for
assets previously owned by Charles F. Dolan or affiliates of Charles F. Dolan
which were recorded at historical cost. Acquisitions are reflected in operating,
balance sheet and statistical data from the time of acquisition. The selected
financial data presented below should be read in conjunction with the
consolidated financial statements of Cablevision Systems Corporation and the
notes thereto included in Annex IV.
<TABLE>
<CAPTION>
CABLEVISION SYSTEMS CORPORATION
------------------------------------------------------------------------------------------
Three Months Ended March 31, Years Ended December 31,
------------------------------- ---------------------------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
(Unaudited)
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Net revenues............................ $1,048,224 $ 933,708 $3,942,985 $3,265,143 $1,949,358
Operating expenses:
Technical and operating.............. 440,028 401,881 1,535,423 1,268,786 853,800
Retail electronics cost of sales..... 112,453 98,092 484,760 367,102 -
Selling, general and
administrative..................... 202,660 335,329 1,203,119 906,465 514,574
Depreciation and amortization........ 233,352 205,453 893,797 734,107 499,809
--------------- ------------- -------------- ------------- ---------------
Operating profit (loss)................. 59,731 (107,047) (174,114) (11,317) 81,175
Other income (expense):.................
Interest expense, net................ (130,778) (106,413) (465,740) (402,374) (363,208)
Equity in net loss of affiliates,
net................................ (2,316) (3,395) (19,234) (37,368) (27,165)
Gain on sale of programming
interests and cable assets, net.... - - - 170,912 372,053
Gain on redemption of subsidiary
preferred stock.................... - - - - 181,738
Write off of deferred interest
and financing costs................ - - (4,425) (23,482) (24,547)
Provision for preferential
payment to related party........... - - - (980) (10,083)
Minority interests................... (41,395) (17,619) (120,524) (124,677) (209,461)
Miscellaneous, net................... (737) (4,173) (16,570) (19,218) (12,606)
--------------- ------------- -------------- ------------- ---------------
Net loss................................ $ (115,495) $(238,647) $ (800,607) $ (448,504) $ (12,104)
=============== ============= ============== ============= ===============
Basic and diluted net loss per
common share............................ $ (0.67) $ (1.57) $ (5.12) $ (3.16) $ (0.12)
=============== ============= ============== ============= ===============
Average number of basic and diluted
common shares outstanding (in
thousands).............................. 173,351 151,625 156,503 142,016 99,608
=============== ============= ============== ============= ===============
Cash dividends declared per common
share................................... $ - $ - $ - $ - $ -
=============== ============= ============== ============= ===============
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
CABLEVISION SYSTEMS CORPORATION
----------------------------------------------------------------------------------------
March 31, December 31,
------------------------------- ----------------------------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets....................... $7,275,082 $7,021,956 $7,130,308 $7,061,062 $5,614,788
Total debt......................... 6,462,393 5,543,847 6,094,701 5,357,608 4,694,062
Minority interests................. 605,321 693,806 592,583 719,007 821,782
Preferred stock of CSC Holdings... 1,444,210 1,615,178 1,404,511 1,579,670 1,456,549
Stockholders' deficiency........... (3,178,135) (2,848,708) (3,067,083) (2,611,685) (2,711,514)
</TABLE>
13
<PAGE> 24
THE RAINBOW MEDIA GROUP
SELECTED FINANCIAL AND STATISTICAL DATA
The operating and balance sheet data included in the following selected
financial data have been derived from the combined financial statements of the
Rainbow Media Group. Acquisitions made by companies within the Rainbow Media
Group 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 operating, balance
sheet and statistical data from the time of acquisition. The selected financial
data presented below should be read in conjunction with the combined financial
statements of the Rainbow Media Group and the notes thereto included in Annex V
of this proxy statement.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
RAINBOW MEDIA GROUP
---------------------------------------------------------------------------------
Three Months Ended March 31, Years Ended December 31,
--------------------------------- ----------------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues................................ $110,460 $80,695 $361,756 $283,546 $230,556
Operating expenses:
Technical and operating................. 42,775 34,960 146,378 123,804 104,776
Selling, general and administrative..... 32,895 39,310 152,416 120,307 88,465
Depreciation and amortization........... 9,720 9,768 39,902 34,424 33,015
----------------- ------------ ------------ ------------- ----------
Operating profit (loss)..................... 25,070 (3,343) 23,060 5,011 4,300
Other income (expense):
Interest expense, net................... (11,201) (7,196) (32,948) (32,101) (32,048)
Equity in net income (loss) of
affiliates, net....................... (1,787) 352 (7,674) (13,402) (6,374)
Gain on sale of programming interests... - - - 17,648 158,428
Miscellaneous, net...................... (588) (23) (1,715) 597 (235)
----------------- ------------ ------------ ------------- ----------
Net income (loss)........................... $11,494 $(10,210) $(19,277) $(22,247) $124,071
================= ============ ============ ============= ==========
</TABLE>
<TABLE>
<CAPTION>
RAINBOW MEDIA GROUP
---------------------------------------------------------------------------------
March 31, December 31,
--------------------------------- -------------------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................................... $ 808,744 $ 576,312 $ 649,496 $ 565,116 $ 458,777
Total debt........................................ 562,949 324,974 395,390 299,782 413,610
Deficit investment in affiliates.................. 3,496 5,640 2,966 12,683 12,126
Group deficiency.................................. (181,896) (183,117) (237,754) (178,752) (170,230)
</TABLE>
14
<PAGE> 25
THE RAINBOW MEDIA GROUP
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------- Pro Forma
2000 2000 1999 Percent
Actual Pro Forma (1) Pro Forma (1) Change
------ --------- --------- ------
NET REVENUES
(Dollars in Thousands)
(Unaudited)
<S> <C> <C> <C> <C>
AMC...................................... $ 47,222 $ 47,222 $ 43,159 9.4%
Bravo.................................... 22,443 22,443 16,148 39.0%
IFC...................................... 6,489 6,489 3,443 88.5%
Consolidated Regional Sports(2).......... 22,722 22,722 20,325 11.8%
Developing/Other(3)...................... 15,448 17,942 16,011 12.1%
Eliminations............................. (3,864) (3,864) (4,203) 8.1%
--------- --------- ---------
TOTAL RAINBOW MEDIA GROUP............ $ 110,460 $ 112,954 $ 94,883 19.0%
========= ========= =========
OPERATING CASH FLOW
AMC...................................... 23,149 23,149 19,204 20.5%
Bravo.................................... 7,023 7,023 4,803 46.2%
IFC...................................... 1,772 1,772 (848) --
Consolidated Regional Sports(2).......... 4,442 4,442 2,768 60.5%
Developing/Other(3)...................... (4,701) (5,006) (7,189) 30.4%
--------- --------- ---------
SUB-TOTAL............................ 31,685 31,380 18,738 67.5%
========= ========= =========
Stock plan income attributed to
Rainbow Media Group.................. 3,154 -- -- --
Year 2000 Remediation.................... (49) (49) (119) 58.8%
--------------- ------------ ------------
TOTAL RAINBOW MEDIA GROUP............ 34,790 31,331 18,619 68.3%
=============== ============ ============
</TABLE>
-----------------------------------------
(1) The pro forma net revenues and operating cash flows give effect to
the acquisition of SportsChannel Florida and MuchMusic USA in 2000
as if the acquisitions had occurred on January 1, 1999. Pro forma
operating cash flows represent operating profit before
depreciation and amortization and exclude the effect of stock plan
income or expense attributed to the group.
(2) Includes Fox Sports Net Ohio/Cincinnati and Fox Sports Net
Florida.
(3) Includes principally Romance Classics, Bravo Latin America,
MuchMusic USA, Rainbow Network Communications and other developing
businesses.
15
<PAGE> 26
THE CABLEVISION NY GROUP
SELECTED FINANCIAL AND STATISTICAL DATA
The operating and balance sheet data included in the following
selected financial data have been derived from the combined financial statements
of the Cablevision NY Group. Acquisitions 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, except for assets previously
owned by Charles F. Dolan or affiliates of Charles F. Dolan which were recorded
at historical cost. Acquisitions are reflected in operating, balance sheet and
statistical data from the time of acquisition. The selected financial data
presented below should be read in conjunction with the combined financial
statements of the Cablevision NY Group and the notes thereto included in Annex
VI of this proxy statement.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Cablevision NY Group
----------------------------------------------------------------------------
Three Months Ended March 31, Years Ended December 31,
------------------------------ ------------------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues............................... $942,986 $858,310 $3,601,727 $2,998,734 $1,736,752
Operating expenses:
Technical and operating............... 402,475 372,218 1,409,543 1,162,119 766,974
Retail electronics cost of sales...... 112,453 98,092 484,760 367,102 -
Selling, general and administrative... 169,765 296,019 1,050,703 786,158 426,109
Depreciation and amortization......... 223,632 195,685 853,895 699,683 466,794
--------- --------- --------- --------- --------
Operating profit (loss).................... 34,661 (103,704) (197,174) (16,328) 76,875
Other income (expense):
Interest expense, net................. (119,577) (99,217) (432,792) (370,273) (331,160)
Equity in net loss of affiliates...... (529) (3,747) (11,560) (23,966) (20,791)
Gain on sale of programming
interests and cable assets, net.... - - - 153,264 213,625
Gain on redemption of subsidiary
preferred stock.................... - - - - 181,738
Write off of deferred interest and
financing costs.................... - - (3,012) (23,482) (24,547)
Provision for preferential payment
to related party................... - - - (980) (10,083)
Miscellaneous, net.................... (149) (4,150) (16,268) (19,815) (12,371)
---------- ---------- ---------- ---------- ---------
Net income (loss) before dividend
requirements............................ (85,594) (210,818) (660,806) (301,580) 73,286
Dividend requirements applicable to
preferred stock......................... (39,703) (42,843) (170,087) (161,872) (148,767)
---------- ---------- ---------- ---------- ---------
Net loss................................... $(125,297) $(253,661) $(830,893) $(463,452) $(75,481)
========== ========== ========== ========== =========
</TABLE>
16
<PAGE> 27
<TABLE>
<CAPTION>
CABLEVISION NY GROUP
-------------------------------------------------------------------------------
March 31, December 31,
----------------------------- ---------------------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (unaudited)
Total assets................... $6,586,327 $6,570,884 $6,629,312 $6,637,073 $5,191,278
Total debt..................... 5,899,444 5,218,873 5,699,311 5,057,826 4,280,452
Redeemable preferred stock..... 1,444,210 1,291,847 1,404,511 1,256,339 1,123,808
Group deficiency............... (2,390,918) (1,648,454) (2,236,746) (1,390,595) (1,386,761)
</TABLE>
<TABLE>
<CAPTION>
CABLEVISION NY GROUP
-------------------------------------------------------------------------------
March 31, December 31,
----------------------------- ---------------------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATISTICAL DATA:
Homes passed by cable.............. 5,216,000 5,130,000 5,200,000 5,115,000 4,398,000
Basic service subscribers.......... 3,504,000 3,438,000 3,492,000 3,412,000 2,844,000
Basic service subscribers as a
percentage of homes passed..... 67.2% 67.0% 67.2% 66.7% 64.7%
Number of premium television
units (1)...................... 7,600,000 7,230,000 7,715,000 6,754,000 4,471,000
Average number of premium units
per basic subscriber at period
end (1)........................ 2.2 2.1 2.2 2.0 1.6
Average monthly revenue per basis
subscriber (2)................. $46.36 $43.88 $44.38 $42.56 $38.53
</TABLE>
-----------------------
(1) Restated for 1997 and 1998 to conform to 1999's definition and reflects
in 1997 the operations of certain cable television systems which had
relatively lower premium unit penetration and were sold by December 1998.
(2) Based on recurring service revenues divided by average subscribers for
the month of March or December, as applicable.
17
<PAGE> 28
THE SPECIAL MEETING
<TABLE>
<S> <C>
TIME, DATE AND PLACE [TIME], New York time, on [DATE],
2000, at our principal executive
offices, 1111 Stewart Avenue,
Bethpage, New York 11714.
RECORD DATE [DATE], 2000.
PURPOSE At the special meeting, you will be
asked to consider the tracking stock
proposal designed to allow the board
of directors to change our existing
common stock into two series of common
stock, one of which is intended to
reflect the separate economic
performance of the assets to be
included in the Rainbow Media Group
and the other of which is intended to
reflect the separate economic
performance of our remaining assets
that are concentrated primarily in the
New York metropolitan area, which we
refer to as the Cablevision NY Group.
When we refer to our tracking stock
proposal, we are referring to the two
separate proposals described below
that will be voted on at the special
meeting.
PROPOSALS TO BE CONSIDERED VOTE REQUIRED FOR APPROVAL
- Proposal 1--Amendments to Our The proposal to amend our charter
Amended and Restated Certificate requires the affirmative vote of
of Incorporation holders of a majority of the
outstanding shares of Class A common
stock, voting together as a class, the
affirmative vote of holders of at
least 66 2/3% of the outstanding
shares of Class B common shares,
voting together as a class, and the
affirmative vote of holders of a
majority of the outstanding shares of
Class A common stock and Class B
common stock, voting together as a
class. CLASS B COMMON STOCKHOLDERS
OWNING IN EXCESS OF 66 2/3% OF THE
OUTSTANDING SHARES OF CLASS B COMMON
STOCK HAVE AGREED THAT THEY WILL VOTE
"FOR" APPROVAL OF THE PROPOSAL TO
AMEND OUR CHARTER.
- Proposal 2--Amendments to Our The proposal to amend our stock option
Stock Option Plan plan requires the affirmative vote of
holders of a majority of the
outstanding shares of Class A common
stock and Class B common stock, voting
together as a class. CABLEVISION
STOCKHOLDERS HAVING A MAJORITY OF
CABLEVISION'S VOTING POWER HAVE AGREED
THAT THEY WILL VOTE "FOR" APPROVAL OF
THE PROPOSAL TO AMEND OUR STOCK OPTION
PLAN. ACCORDINGLY, APPROVAL OF THIS
PROPOSAL IS ASSURED.
APPRAISAL RIGHTS You will not have appraisal rights in
connection with the tracking stock
proposal.
QUESTIONS If you have any questions prior to
the special meeting, please call
Investor Relations at (516) 803-2300.
</TABLE>
-------------------------------------------------------------------------------
THE CABLEVISION BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED AND UNANIMOUSLY
APPROVED THESE PROPOSALS AND RECOMMENDS THAT YOU VOTE "FOR" THEM.
-------------------------------------------------------------------------------
18
<PAGE> 29
PROPOSAL 1--AMENDMENTS TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
GENERAL
We are asking you to consider and approve certain amendments to our
amended and restated certificate of incorporation which would, among other
things, permit us to implement the tracking stock proposal which is designed to
allow the board of directors to change our existing common stock into two series
of common stock, one of which is intended to reflect the separate economic
performance of the assets to be included in the Rainbow Media Group and the
other of which is intended to reflect the separate economic performance of our
remaining assets that are concentrated primarily in the New York metropolitan
area, which we refer to as the Cablevision NY Group. Specifically, the tracking
stock proposal would alter the terms of our existing Class A common stock and
Class B common stock to:
- increase the number of authorized shares of common stock from 570
million to 1.88 billion, of which:
- 800 million would be Cablevision NY Group Class A common
stock,
- 320 million would be Cablevision NY Group Class B common
stock,
- 600 million would be Rainbow Media Group Class A tracking
stock, and
- 160 million would be Rainbow Media Group Class B tracking
stock,
- authorize the board of directors to change the terms of our
existing Class A common stock and Class B common stock to:
- redesignate our Class A common stock into Cablevision NY
Group Class A common stock, and
- redesignate our Class B common stock into Cablevision NY
Group Class B common stock,
- create and authorize the board of directors to issue shares of:
- Rainbow Media Group Class A tracking stock, and
- Rainbow Media Group Class B tracking stock,
- define the assets and liabilities to be attributed to each of the
Cablevision NY Group and the Rainbow Media Group,
- provide for the other terms relating to each Group and class of
common stock, and
- permit and authorize the board of directors to distribute Rainbow
Media Group Class A tracking stock in respect of our existing
Class A common stock, which will have been redesignated
Cablevision NY Group Class A common stock, and Rainbow Media Group
Class B tracking stock in respect of our existing Class B common
stock, which will have been redesignated Cablevision NY Group
Class B common stock.
Capitalized terms used in the following description of the tracking stock
proposal and not otherwise defined have the meanings given to them elsewhere in
this document. See Annex I - Index of Certain Defined Terms.
If the tracking stock proposal is approved by stockholders, we intend to
file with the Delaware Secretary of State a certificate of amendment to our
amended and restated certificate of incorporation in the form set forth in Annex
II to this document. We currently expect that the filing will be made as soon as
practicable after the special meeting. In this document, we refer to our amended
and restated certificate of incorporation as we propose to amend it to reflect
the tracking stock proposal as our "AMENDED CHARTER". The board of directors may
abandon the tracking stock proposal in whole, but not in part, without further
action by the stockholders, at any time prior to the filing of the amended
charter. If the tracking stock proposal is not approved, we will not file the
amended charter and no shares of tracking stock will be authorized or issued.
19
<PAGE> 30
NO INTER-GROUP INTEREST
The number of shares of Rainbow Media Group Class A tracking stock and
Rainbow Media Group Class B tracking stock to be issued pursuant to the
distribution is intended to represent 100% of our common stockholders' equity
value attributable to Rainbow Media Holdings' interest in the assets and
businesses included in the Rainbow Media Group. Accordingly, the Cablevision NY
Group will not have an inter-group interest in the Rainbow Media Group.
OPTIONS
The amendment to our stock option plan contemplated by Proposal 2 would
increase the number of shares of our common stock available for issuance under
our stock option plan by 19.2 million shares of Class A stock, any or all of
which may be Cablevision NY Group Class A common stock or Rainbow Media Group
Class A tracking stock.
Options to purchase shares of our existing Class A common stock that are
outstanding under our existing stock option plan immediately prior to the
tracking stock distribution (the "ADJUSTABLE OPTIONS") will be adjusted upon
completion of the distribution so that each holder of such an option, in
substitution therefor and cancellation thereof, will have two new options:
- one for the purchase of the number of shares of Cablevision NY
Group Class A common stock that would have been issuable upon
exercise of Adjustable Options immediately prior to the tracking
stock distribution (whether or not such options are, in fact, then
exercisable), and
- one for the purchase of a number of shares of Rainbow Media Class
A tracking stock equal to 50% (rounded up or down to the nearest
whole number with 1/2 rounded up) of the number of shares of our
existing Class A common stock that would have been issuable upon
exercise of such Adjustable Options immediately prior to the
tracking stock distribution (whether or not such options are, in
fact, exercisable).
The exercise price for each resulting Cablevision NY Group common stock
option and each Rainbow Media Group tracking stock option will be calculated by
multiplying the exercise price of the existing Adjustable Option by a fraction,
- the numerator of which is the average of the high and low prices
of the Class A stock of the applicable series underlying the
option on the first date that the stock is traded, regular way, on
the NYSE, following the tracking stock distribution; and
- the denominator of which is the sum of the average of the high and
low prices of both series of Class A stock on the first date that
the stock is traded, regular way, on the NYSE, following the
tracking stock distribution.
The other terms of each of such options at the time of issuance will be
the same as the terms of the Adjustable Options that they replace, including the
vesting schedule.
REASONS FOR THE TRACKING STOCK PROPOSAL
We believe the tracking stock proposal is in the best interests of
Cablevision stockholders primarily for the following reasons:
- The proposal will permit the market to review separate information
about the Rainbow Media Group and the Cablevision NY Group and
separately value Rainbow Media Group tracking stock and
Cablevision NY Group common stock. This should encourage investors
and analysts to focus more attention on the Rainbow Media Group
and result in greater market recognition of the value of the
Rainbow Media Group.
- The proposal will provide us with greater flexibility to raise
capital and respond to strategic opportunities, including
acquisitions, because it will allow us to issue either Cablevision
NY Group common stock or the Rainbow Media Group tracking stock as
appropriate under the circumstances.
- The proposal could enable us to monetize some of the value of the
Rainbow Media Group while preserving the financial, operational,
strategic and other benefits of being a single consolidated
entity.
20
<PAGE> 31
- The proposal will allow investors to invest in either or both
series of common stock, depending on their particular investment
objectives.
- The proposal will allow us to create more effective management
incentive and retention programs for the Rainbow Media Group and
the Cablevision NY Group because it will allow us to issue
stock-based compensation tied to the Rainbow Media Group tracking
stock and stock-based compensation tied to Cablevision NY Group
common stock.
If you vote "FOR" proposal 1 at the special meeting, you may be
forfeiting your right to challenge the tracking stock proposal in the future.
SUMMARY DESCRIPTION OF THE TRACKING STOCK PROPOSAL
The following chart summarizes certain selected terms of Cablevision NY
Group common stock and Rainbow Media Group tracking stock under our amended
charter by comparing the terms of our existing common stock to the proposed
terms of Cablevision NY Group common stock and Rainbow Media Group tracking
stock. This summary is not complete and should be read together with the more
detailed discussion set forth under "Description of Cablevision NY Group Common
Stock and Rainbow Media Group tracking stock" and the text of the charter
amendment set forth in Annex II.
<TABLE>
<CAPTION>
Existing Common Stock
-----------------------------------
<S> <C>
BASIC INVESTMENT CHARACTERISTICS: Our existing common stock reflects
the performance of all of our
businesses.
</TABLE>
<TABLE>
<CAPTION>
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
BASIC INVESTMENT CHARACTERISTICS: CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
<S> <C> <C>
We intend Cablevision NY Group We intend Rainbow Media Group
common stock to reflect the tracking stock to reflect the
separate economic performance of separate economic performance of
the assets to be included in the the assets to be included in the
Cablevision NY Group. The Rainbow Media Group. The Rainbow
Cablevision NY Group will initially Media Group will initially consist
consist primarily of: primarily of:
- our cable television business, - our interest in five
including our residential nationally-distributed
telephone and high-speed modem entertainment programming
businesses, networks,
- the commercial telephone and - our interest in six regional Fox
internet operations of our Sports Net networks outside of
subsidiary, Cablevision the New York area,
Lightpath, Inc.,
- our interest in National Sports
- our MSG sports and entertainment Partners, which owns and
business, including Madison distributes Fox Sports Net,
Square Garden, the professional
sports teams we own, Radio City - our interest in a regional sports
Music Hall, MSG Network and Fox news business, which produces the
Sports Net New York, Regional Sports Report, a
regional complement to Fox Sports
- the electronics retail operations Net's National Sports Report,
of our subsidiary, Cablevision
Electronics Investments, Inc., - our interest in National
doing business as The WIZ, Advertising Partners, which
provides advertising
- our motion picture theater representation services to all of
business, doing business as the Fox Sports Net networks,
Clearview Cinemas,
- Rainbow Network Communications, a
- our MetroChannels and our full service network programming
regional news business in the New origination and distribution
York Metropolitan area, company, and
- our advertising sales - Sterling Digital, a company
representation business, designed to develop new niche
audience programming.
- our equity interests in @Home
Corporation, a provider of We cannot assure you that the
multimedia internet services, market value of Rainbow Media Group
tracking stock will in fact reflect
- the common stock of Adelphia the performance of the Rainbow
Communications Corporation and Media Group as we intend. Holders
AT&T Corporation and Charter of Rainbow Media Group tracking
Communications, Inc. that we will stock
own following completion of
certain pending transactions,
</TABLE>
21
<PAGE> 32
<TABLE>
<CAPTION>
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
BASIC INVESTMENT CHARACTERISTICS: CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
(continued) ----------------------------------- ----------------------------------
<S> <C> <C>
- our interest in certain direct will continue to be holders
broadcast satellite assets, and of Cablevision and, as such, will
be subject to all risks associated
- our interests in certain wireless with an investment in Cablevision
personal communications services. and all of our businesses, assets
and liabilities. In addition, we
We cannot assure you that the could determine to pursue future
market value of Cablevision NY business opportunities through one
Group common stock will in fact Group instead of the other Group,
reflect the performance of the or jointly through both Groups.
Cablevision NY Group as we intend.
Holders of Cablevision NY Group
common stock will continue to be
holders of Cablevision and, as
such, will be subject to all risks
associated with an investment in
Cablevision and all of our
businesses, assets and liabilities.
In addition, we could determine to
pursue future business
opportunities through one Group
instead of the other Group, or
jointly through both Groups.
Existing Common Stock
-----------------------------------
AUTHORIZED CAPITAL STOCK: We are currently authorized to
issue up to 570 million shares,
consisting of 400 million shares of
Class A common stock, 160 million
shares of Class B common stock and
10 million shares of preferred
stock.
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
The tracking stock proposal will The tracking stock proposal will
authorize us to increase the number authorize us to increase the number
of authorized shares of common of authorized shares of common
stock from 570 million to 1.88 stock from 570 million to 1.88
billion, of which 800 million would billion, of which 600 million would
be Cablevision NY Group Class A be Rainbow Media Group Class A
common stock and 320 million would tracking stock and 160 million
be Cablevision NY Group Class B would be Rainbow Media Group Class
common stock. B tracking stock.
It would also authorize the board of directors to issue common stock in two
series, Cablevision NY Group common stock and Rainbow Media Group tracking
stock, with two classes within each series, Class A common stock and Class B
common stock.
Existing Common Stock
-----------------------------------
DIVIDENDS AND SECURITIES We have never paid cash dividends
DISTRIBUTIONS: on our common stock and do not
currently intend to pay cash
dividends on any series or class of
our common stock in the foreseeable
future.
Cablevision is a holding company
with no operating assets.
Accordingly, our ability to pay
dividends is dependent upon the
receipt of dividends from our
subsidiaries. Although certain loan
agreements and other debt
instruments to which certain of our
subsidiaries are parties currently
limit the payment of dividends, we
are otherwise permitted to pay
dividends out of the assets of
Cablevision legally available for
the payment of dividends under
Delaware law.
If dividends are paid on our
existing common stock, holders of
our existing Class A common stock
and Class B common stock are
entitled to receive dividends, and
other distributions in cash, stock
or property, equally on a per share
basis, except that stock dividends
with respect to Class A common
stock may be paid with shares of
Class A common stock and stock
dividends with respect to Class B
common stock may be paid with
shares of Class B common stock. If
dividends are paid with respect to
any outstanding share of our
existing Class A common stock and
Class B common stock, then the same
dividend must be paid with respect
to each share of Class A common
stock and Class B common stock.
</TABLE>
22
<PAGE> 33
<TABLE>
<CAPTION>
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
<S> <C> <C>
DIVIDENDS AND SECURITIES We have never paid cash dividends We have never paid cash dividends
DISTRIBUTIONS: on our common stock and do not on our common stock and do not
(continued) currently intend to pay cash currently intend to pay cash
dividends on any series or class of dividends on any series or class of
our common stock, including our common stock, including Rainbow
Cablevision NY Group common stock, Media Group tracking stock, in the
in the foreseeable future. foreseeable future.
Cablevision is a holding company Cablevision is a holding company
with no operating assets. with no operating assets.
Accordingly, our ability to pay Accordingly, our ability to pay
dividends is dependent upon the dividends is dependent upon the
receipt of dividends from our receipt of dividends from our
subsidiaries. Although certain loan subsidiaries. Although certain loan
agreements to which certain of our agreements to which certain of our
subsidiaries are parties currently subsidiaries are parties currently
limit the payment of dividends, we limit the payment of dividends, we
will otherwise be permitted to pay will otherwise be permitted to pay
dividends on Cablevision NY Group dividends on Rainbow Media Group
common stock out of the assets of tracking stock out of the assets of
Cablevision legally available for Cablevision legally available for
the payment of dividends under the payment of dividends under
Delaware law; however, the total of Delaware law; however, the total of
the amounts paid as dividends on the amounts paid as dividends on
Cablevision NY Group common stock the Rainbow Media Group tracking
cannot be more than the Available stock cannot be more than the
Dividend Amount for the Available Dividend Amount for the
Cablevision NY Group. The Available Rainbow Media Group. The Available
Dividend Amount for the Cablevision Dividend Amount for the Rainbow
NY Group is based on the amount Media Group is based on the
that would be legally available for amount that would be legally
the payment of dividends under available for the payment of
Delaware law if the Cablevision NY dividends under Delaware law if the
Group were a separate Delaware Rainbow Media Group were a separate
corporation. Delaware corporation.
If dividends are paid on our If dividends are paid on our
Cablevision NY Group common stock, Rainbow Media Group tracking stock,
holders of our Cablevision NY Group holders of our Rainbow Media Group
Class A common stock and Class A tracking stock and Rainbow
Cablevision NY Group Class B common Media Group Class B tracking stock
stock are entitled to receive are entitled to receive dividends,
dividends, and other distributions and other distributions in cash,
in cash, stock or property, equally stock or property, equally on a per
on a per share basis, except that share basis, except that stock
stock dividends with respect to dividends with respect to Rainbow
Cablevision NY Group Class A common Media Group Class A tracking stock
stock are paid only with shares of are paid only with shares of
Cablevision NY Group Class A common Rainbow Media Group Class A
stock and stock dividends with tracking stock and stock dividends
respect to Cablevision NY Group with respect to Rainbow Media Group
Class B common stock are paid only Class B tracking stock are paid
with shares of Cablevision NY Group only with shares of Rainbow Media
Class B common stock. If dividends Group Class B tracking stock. If
are paid with respect to any dividends are paid with respect to
outstanding share of our any outstanding share of our
Cablevision NY Group Class A common Rainbow Media Group Class A
stock or Cablevision NY Group Class tracking stock or Rainbow Media
B common stock, then the same Group Class B tracking stock, then
dividend must be paid with respect the same dividend must be paid with
to each share of Cablevision NY respect to each share of Rainbow
Group Class A common stock and Media Group Class A tracking stock
Cablevision NY Group Class B common and Rainbow Media Group Class B
stock. tracking stock.
Subject to the above, dividends may be declared and paid on Cablevision NY Group
common stock and/or Rainbow Media Group tracking stock in equal or unequal
amounts, notwithstanding the relationship among the Cablevision NY Group
Available Dividend Amount and the Rainbow Media Group Available Dividend Amount,
the respective amounts of prior dividends paid on, or liquidation rights of
(i.e., amounts stockholders would receive if Cablevision were liquidated),
Cablevision NY Group common stock or Rainbow Media Group tracking stock or any
other factor.
Any decision to pay dividends in the future will depend on our financial
condition, results of operations and business requirements as a whole. In making
a determination as to the allocation of any future dividends between Cablevision
NY Group common stock and Rainbow Media Group tracking stock, the board of
directors expects to consider, among other factors, the relative financial
condition, results of operations, and business requirements of the respective
Groups.
Existing Common Stock
----------------------------------
CONVERSION AT OPTION OF HOLDER: Each share of Class B common stock
of Cablevision is convertible, at
the option of the holder thereof,
into one share of Class A common
stock of Cablevision. Shares of
Class A common stock of Cablevision
are not convertible into Class B
common stock of Cablevision.
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
CONVERSION AT OPTION OF HOLDER: Each share of Class B common stock of a Group will be convertible, at the option
of the holder thereof, into one share of Class A common stock of the same Group.
Shares of Class A common stock will not be convertible into shares of Class B
common stock.
</TABLE>
23
<PAGE> 34
<TABLE>
<CAPTION>
Existing Common Stock
-----------------------------------
<S> <C>
CONVERSION AT OPTION OF None.
CABLEVISION:
</TABLE>
<TABLE>
<CAPTION>
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
<S> <C> <C>
CONVERSION AT OPTION OF We may, in the sole discretion of the board of directors, elect at any time
CABLEVISION: following the first anniversary of the tracking stock distribution to convert
all of the outstanding shares of Rainbow Media Group tracking stock into shares
of Cablevision NY Group common stock at a 10% premium.
In such a case, shares of Rainbow Media Group Class A tracking stock would be
converted into shares of Cablevision NY Group Class A common stock and shares of
Rainbow Media Group Class B tracking stock would be converted into shares of
Cablevision NY Group Class B common stock.
If a "Tax Event" occurs at any time, we may decide to require a conversion of
all of the outstanding shares of Rainbow Media Group tracking stock into shares
of Cablevision NY Group common stock; however, holders of the Rainbow Media
Group tracking stock will not receive any premium in that conversion.
</TABLE>
<TABLE>
<CAPTION>
Existing Common Stock
-----------------------------------
<S> <C> <C>
MANDATORY DIVIDEND, REDEMPTION AND None.
CONVERSION RIGHTS ON DISPOSITION OF
ASSETS:
</TABLE>
<TABLE>
<CAPTION>
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
<S> <C> <C>
MANDATORY DIVIDEND, REDEMPTION AND None. If we dispose of all or
CONVERSION RIGHTS ON DISPOSITION OF substantially all of the assets of
ASSETS: the Rainbow Media Group (i.e., 80%
or more on a current market basis)
and the disposition is not an
exempt disposition, as defined, we
would be required to choose one of
the following three alternatives:
- pay a dividend to holders of
Rainbow Media Group tracking
stock in an amount equal to the
Net Proceeds of such disposition,
- redeem from holders of Rainbow
Media Group tracking stock, for
an amount equal to the Net
Proceeds of such disposition,
outstanding shares of Rainbow
Media Group tracking stock, or
- issue Cablevision NY Group common
stock in exchange for outstanding
Rainbow Media Group tracking
stock at a 10% premium (based on
the average market value of
Rainbow Media Group Class A
tracking stock as compared to the
average market value of
Cablevision NY Group Class A
common stock over a specified
20-trading day period prior to
the exchange).
For purposes of such exchange,
Cablevision NY Group Class A common
stock will only be exchanged for
Rainbow Media Group Class A
tracking stock and Cablevision NY
Group Class B common stock will
only be exchanged for Rainbow Media
Group Class B tracking stock.
</TABLE>
<TABLE>
<CAPTION>
Existing Common Stock
-----------------------------------
<S> <C> <C>
OPTIONAL EXCHANGE FOR STOCK OF A None.
SUBSIDIARY:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
OPTIONAL EXCHANGE FOR STOCK OF A None. We will have the right at any time
SUBSIDIARY: to transfer all of the assets and
liabilities of the Rainbow Media
Group to a qualifying subsidiary
and deliver all of the stock of
that subsidiary in exchange for all
of the outstanding Rainbow Media Group
tracking stock.
</TABLE>
24
<PAGE> 35
<TABLE>
<CAPTION>
Existing Common Stock
-----------------------------------
<S> <C> <C>
VOTING RIGHTS: Our existing Class A common stock
is entitled to one vote per share
and our existing Class B common
stock is entitled to 10 votes per
share, voting as a class, except to
the extent separate class or series
votes are required by law or our
existing charter.
Our existing charter allows the
holders of our Class A common stock
to elect 25% of the board of
directors and the holders of our
Class B common stock to elect 75%
of the board of directors.
</TABLE>
<TABLE>
<CAPTION>
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
<S> <C> <C>
VOTING RIGHTS: Each share of Cablevision NY Group Each share of Rainbow Media Group
Class A common stock will have one Class A tracking stock will have
vote per share. Each share of 1/2 of a vote per share. Each share
Cablevision NY Group Class B common of Rainbow Media Group Class B
stock will have 10 votes per share. tracking stock will have 5 votes
Holders of Cablevision NY Group per share. Holders of Rainbow Media
common stock will vote together Group tracking stock will vote
with holders of Rainbow Media Group together with holders of
tracking stock unless a separate Cablevision NY Group common stock
class vote is required by our unless a separate class vote is
charter or applicable law. required by our charter or
applicable law.
Under our amended charter, the holders of Cablevision NY Group Class A common
stock and Rainbow Media Group Class A tracking stock will vote together as a
separate class to elect 25% of the board of directors and the holders of
Cablevision NY Group Class B common stock and Rainbow Media Group Class B
tracking stock will vote together as a separate class to elect the remaining
75% of the board of directors.
</TABLE>
<TABLE>
<CAPTION>
Existing Common Stock
-----------------------------------
<S> <C> <C>
INTER-GROUP INTEREST: None.
</TABLE>
<TABLE>
<CAPTION>
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
<S> <C> <C>
INTER-GROUP INTEREST: We currently intend to make a pro rata distribution of all of the Rainbow Media
Group tracking stock. Accordingly, Cablevision NY Group will not have any
inter-Group interest in the Rainbow Media Group.
</TABLE>
<TABLE>
<CAPTION>
Existing Common Stock
-----------------------------------
<S> <C> <C>
LIQUIDATION: Upon any winding up, liquidation or
dissolution of Cablevision, holders of
existing common stock are entitled to
receive the net assets of Cablevision,
if any, remaining for distribution to
stockholders (after payment or provision
for all liabilities of Cablevision and
payment of the liquidation preference
payable to any holders of our preferred
stock).
</TABLE>
<TABLE>
<CAPTION>
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
<S> <C> <C>
LIQUIDATION: Upon any winding up, liquidation or dissolution of Cablevision, holders of
Cablevision NY Group common stock and Rainbow Media Group tracking stock will be
entitled to receive the net assets of Cablevision, if any, remaining for
distribution to stockholders (after payment or provision for all liabilities of
Cablevision and payment of the liquidation preference payable to any holders of
our preferred stock). Amounts due upon liquidation in respect of shares of
Cablevision NY Group common stock and shares of Rainbow Media Group tracking
stock will be distributed pro rata in accordance with the average market value
of Cablevision NY Group common stock and the average market value of Rainbow
Media Group tracking stock over a specified 20-trading day period prior to the
liquidation.
Of the amounts distributed in respect of shares of Cablevision NY Group common
stock and shares of Rainbow Media Group tracking stock, holders of Class A
common stock and Class B common stock will be treated equally.
</TABLE>
<TABLE>
<CAPTION>
Existing Common Stock
-----------------------------------
<S> <C> <C>
STOCK EXCHANGE LISTINGS: Our existing Class A common stock
is listed on the NYSE under the
symbol "CVC".
</TABLE>
<TABLE>
<CAPTION>
TRACKING STOCK PROPOSAL
--------------------------------------------------------------------------
CABLEVISION NY GROUP COMMON STOCK RAINBOW MEDIA GROUP TRACKING STOCK
----------------------------------- ----------------------------------
<S> <C> <C>
STOCK EXCHANGE LISTINGS: Cablevision NY Group Class A common We currently intend to apply for
stock will be listed on the NYSE listing of Rainbow Media Group
under the symbol "CVC". Class A tracking stock on the NYSE
under the symbol "RMG".
</TABLE>
25
<PAGE> 36
NO APPRAISAL RIGHTS
You will not have appraisal rights in connection with the tracking
stock proposal.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
We believe that neither you nor Cablevision will recognize any income,
gain or loss for federal income tax purposes as a result of the redesignation of
our existing common stock into Cablevision NY Group common stock or the creation
of Rainbow Media Group tracking stock. There are, however, no court decisions
bearing directly on similar transactions and the Internal Revenue Service has
announced that it will not issue advance rulings on the federal income tax
consequences of such transactions. THUS, YOU SHOULD CONSULT A TAX ADVISOR. For a
more detailed description of possible federal income tax consequences, see
"Proposal 1--Amendments to Our Amended and Restated Certificate of
Incorporation--Certain Federal Income Tax Considerations".
PROPOSAL 2--AMENDMENTS TO OUR STOCK OPTION PLAN
At the special meeting, we will also ask you to consider and approve a
proposal to amend our Amended and Restated 1996 Employee Stock Plan to reflect
the redesignation of our existing Class A common stock into Cablevision NY Group
Class A common stock, and the distribution of Rainbow Media Group Class A
tracking stock in respect of our existing Class A common stock.
The amendments also increase the number of shares available for issuance
under our stock option plan by 19.2 million shares of Class A stock, any or all
of which may be Cablevision NY Group common stock or Rainbow Media Group
tracking stock. Further, the amendments increase the total number of awards a
participant may be granted over the term of our stock option plan to 4.0 million
shares of Class A stock, any or all of which may be Cablevision NY Group shares
or Rainbow Media Group shares.
Finally, the amendments to our stock option plan make certain technical
changes to reflect amendments to Rule 16b-3 of the Securities Exchange Act of
1934. The text of our stock option plan, as so amended is set forth in Annex
III hereto. For a more detailed description of the proposals to amend the stock
option plan, see "Proposal 2--Amendments to Our Stock Option Plan".
CABLEVISION STOCKHOLDERS HAVING A MAJORITY OF CABLEVISION'S VOTING POWER
HAVE AGREED THAT THEY WILL VOTE "FOR" APPROVAL OF THE PROPOSAL TO AMEND OUR
STOCK OPTION PLAN. ACCORDINGLY, APPROVAL OF THIS PROPOSAL IS ASSURED.
26
<PAGE> 37
RISK FACTORS
-------------------------------------------------------------------------------
You should carefully consider the risk factors described below, as well as the
other information included in this document, before you decide how to vote on
the proposals.
-------------------------------------------------------------------------------
RISK FACTORS RELATING TO THE TRACKING STOCK PROPOSAL
HOLDERS OF CABLEVISION NY GROUP COMMON STOCK AND RAINBOW MEDIA GROUP TRACKING
STOCK WILL BE COMMON STOCKHOLDERS OF CABLEVISION AND WILL, THEREFORE, BE SUBJECT
TO RISKS ASSOCIATED WITH AN INVESTMENT IN CABLEVISION AS A WHOLE.
Even though we have allocated (for financial reporting purposes) all of
our consolidated assets, liabilities, revenue, expenses and cash flow between
the Cablevision NY Group and the Rainbow Media Group in order to prepare their
respective financial statements, the tracking stock proposal will not change the
legal title to any assets or responsibility for any liabilities and will not
affect the rights of any of our creditors. Further, holders of Cablevision NY
Group common stock and Rainbow Media Group tracking stock will not have any
legal rights related to specific assets of either the Cablevision NY Group or
the Rainbow Media Group and, in any liquidation, will receive a share of the net
assets of Cablevision based on the relative trading prices of Cablevision NY
Group common stock and Rainbow Media Group tracking stock rather than on any
assessment of their respective actual values. Holders of Cablevision NY Group
common stock and Rainbow Media Group tracking stock will continue to be common
stockholders of Cablevision and, as such, will be subject to all risks
associated with an investment in Cablevision and all of our businesses, assets
and liabilities. For example, if the cash flow of either the Cablevision NY
Group or the Rainbow Media Group is insufficient to satisfy any debt owed by
that Group or any inter-Group loans, both the Cablevision NY Group and the
Rainbow Media Group would be adversely affected.
IF CABLEVISION RUNS INTO FINANCIAL DIFFICULTY, THE VALUE OF EITHER THE
CABLEVISION NY GROUP'S OR THE RAINBOW MEDIA GROUP'S STOCK MAY SUFFER FOR REASONS
HAVING NOTHING TO DO WITH THE PROSPECTS FOR THAT GROUP.
Financial results of either the Cablevision NY Group or the Rainbow Media
Group will affect Cablevision's consolidated results of operations, financial
position and borrowing costs. This could affect the results of operations,
financial position or borrowing costs of the other Group or the market price of
shares issued with respect to the other Group. Because Cablevision NY Group
common stock and Rainbow Media Group tracking stock are series of stock of
Cablevision, investors may attribute negative results for one Group to the other
Group and the stock of one Group may decline if there are perceived negative
results relating to the other Group's business.
In addition, any dividends or distributions on, or repurchases of, either
series of common stock, will reduce the assets of Cablevision legally available
for dividends on both series of common stock. Accordingly, you should read the
financial information for each Group together with the financial information for
the other Group and for Cablevision.
WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE.
Cablevision is a holding company with no operating assets. Accordingly,
our ability to pay dividends is dependent upon the receipt of dividends from our
subsidiaries. Various loan agreements and debt instruments to which our
subsidiaries are parties currently limit the payment of dividends, and, in any
event, we do not expect to pay any dividends for the foreseeable future on
either series of common stock.
WE MAY NOT PAY DIVIDENDS EQUALLY ON CABLEVISION NY GROUP COMMON STOCK AND
RAINBOW MEDIA GROUP TRACKING STOCK.
Although as stated above we do not intend to pay dividends in the
foreseeable future, we have the right to pay dividends on Cablevision NY Group
common stock or Rainbow Media Group tracking stock, or both, in equal or unequal
amounts. Such a decision would not necessarily have to reflect:
- the financial performance of either the Cablevision NY Group or
the Rainbow Media Group,
- the amount of assets available for dividends on either series,
- the amount of prior dividends declared on either series, or
27
<PAGE> 38
- any other factor.
In addition, any dividends or distributions on, or repurchases of, either series
of common stock, will reduce the assets of Cablevision legally available for
dividends on both that series and the other series.
HAVING TWO SERIES OF COMMON STOCK COULD CREATE CONFLICTS OF INTEREST AND THE
CABLEVISION BOARD OF DIRECTORS MAY MAKE DECISIONS THAT ADVERSELY AFFECT HOLDERS
OF RAINBOW MEDIA GROUP TRACKING STOCK AND/OR CABLEVISION NY GROUP COMMON STOCK.
Having two series of common stock could give rise to occasions when the
interests of holders of one series might diverge or appear to diverge from the
interests of holders of the other series. In addition, due to the extensive
relationships between the Cablevision NY Group and the Rainbow Media Group,
there may be inherent conflicts of interests between the two Groups. Officers
and directors of Cablevision owe fiduciary duties to both classes of
stockholders. The fiduciary duties owed by such officers and directors are to
Cablevision as a whole, and decisions deemed to be in the best interests of
Cablevision may not be in the best interest of a Group when considered on its
own. Examples include:
- our decisions as to the business relationships between the
Cablevision NY Group and the Rainbow Media Group and the terms of
those relationships, including payments from one Group to the
other,
- our decisions as to how to allocate consideration to be received
in connection with a merger involving Cablevision between holders
of Cablevision NY Group common stock and holders of Rainbow Media
Group tracking stock,
- our decisions as to whether and to what extent the two Groups
compete with each other and how corporate opportunities are
allocated between the two Groups,
- our decisions as to whether and how to make transfers of funds
from one Group to the other and, more generally, our decisions as
to other operational and financial matters that could be
considered detrimental to one Group or the other,
- our decisions as to whether and when to exchange Rainbow Media
Group tracking stock for Cablevision NY Group common stock,
- our decisions as to whether and when to approve dispositions of
assets of either the Cablevision NY Group or the Rainbow Media
Group, and
- our decisions as to whether to pay dividends on Cablevision NY
Group common stock and/or Rainbow Media Group tracking stock.
In addition, if directors own disproportionate interests (in percentage
or value terms) in Cablevision NY Group common stock and Rainbow Media Group
tracking stock, that disparity could create or appear to create conflicts of
interest when they are faced with decisions that could have different
implications for the different Groups.
Other than certain contractual arrangements described herein under
"Proposal 1--Amendments to our Amended and Restated Certificate of
Incorporation--Certain Inter-Group Relationships," we have not adopted any
specific procedures for consideration of matters involving a divergence of
interests among holders of Cablevision NY Group common stock and Rainbow Media
Group tracking stock. Rather than develop additional specific procedures in
advance, the board of directors intends to exercise its judgment from time to
time, depending on the circumstances, as to how best to (a) obtain information
regarding the divergence (or potential divergence) of interests, (b) determine
under what circumstances to seek the assistance of outside advisers, (c)
determine whether a committee of the board of directors should be appointed to
address the matter, and (d) assess which available alternative is in the best
interests of Cablevision and its stockholders.
The board of directors believes the advantage of retaining flexibility in
determining how to fulfill its responsibilities in such circumstances as they
may arise outweighs any perceived advantages from adopting additional specific
procedures in advance.
28
<PAGE> 39
PRINCIPLES OF DELAWARE LAW MAY PROTECT DECISIONS OF THE BOARD OF DIRECTORS THAT
HAVE A DISPARATE IMPACT UPON HOLDERS OF CABLEVISION NY GROUP COMMON STOCK AND
HOLDERS OF RAINBOW MEDIA GROUP TRACKING STOCK.
Under Delaware law, the board of directors has a duty to act with due
care and in the best interests of all of Cablevision's stockholders, including
the holders of Cablevision NY Group common stock and Rainbow Media Group
tracking stock. Having two series of common stock, however, could give rise to
occasions when the interests of holders of one series might diverge or appear to
diverge from the interests of holders of the other series.
Principles of Delaware law established in cases involving differing
treatment of two classes of common stock provide that a board of directors owes
an equal duty to all common stockholders regardless of class or series and does
not have separate or additional duties to either group of stockholders. Recent
cases in Delaware involving tracking stocks have established that decisions by
directors or officers involving differing treatment of tracking stocks may be
judged under the business judgment rule. Under the principles of Delaware law
referred to in the preceding sentence and the "business judgment rule", you may
not be able to challenge decisions that have a disparate impact upon holders of
Cablevision NY Group common stock and Rainbow Media Group tracking stock if the
board of directors:
- is disinterested and adequately informed with respect to such
decisions and
- acts in good faith and in the honest belief that it is acting in
the best interests of all of Cablevision's stockholders.
If, for example, the board of directors were to make a decision which it
in good faith believed to be in the best interest of Cablevision as a whole, and
such decision had a positive impact on Cablevision NY Group common stock and a
negative impact on Rainbow Media Group tracking stock, holders of Rainbow Media
Group tracking stock may not be able to challenge the board of directors'
decision.
THE BOARD OF DIRECTORS MAY MAKE OPERATIONAL AND FINANCIAL DECISIONS AFFECTING
THE CABLEVISION NY GROUP AND THE RAINBOW MEDIA GROUP DIFFERENTLY.
The board of directors, in its sole discretion, will make operational
and financial decisions and implement policies that affect the businesses of the
Cablevision NY Group and the Rainbow Media Group differently. Examples include:
- transfers of funds between the Cablevision NY Group and the
Rainbow Media Group,
- the manner of accounting for transfers between the Cablevision NY
Group and the Rainbow Media Group,
- amount of funds for capital expenditures,
- other transactions between the Cablevision NY Group and the
Rainbow Media Group,
- the allocation of tax liabilities and other tax-related items
between the Cablevision NY Group and the Rainbow Media Group,
- the allocation of financing opportunities in public markets, and
- the allocation of business opportunities, resources and personnel.
Decisions of the board of directors may favor either the Cablevision NY Group or
the Rainbow Media Group at the expense of the other. For example, the decision
to provide funds for one Group may adversely affect the ability of the other
Group to obtain funds sufficient to implement its growth strategies.
THE BOARD OF DIRECTORS HAS SOLE DISCRETION TO ADMINISTER OUR TREASURY ACTIVITIES
AND THIS DISCRETION MAY INCREASE THE RISK TO A HOLDER OF CABLEVISION NY GROUP
COMMON STOCK OR RAINBOW MEDIA GROUP TRACKING STOCK AS COMPARED TO OUR EXISTING
COMMON STOCK.
Under "Proposal 1--Amendments to Our Amended and Restated Certificate of
Incorporation--Certain Inter-Group Relationships--Treasury Activities," we set
forth our intent with respect to treasury activities, including certain capital
29
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transactions between the Rainbow Media Group and the Cablevision NY Group. It is
within the board's sole discretion to change, eliminate or add to the activities
described and such changes may affect one Group and the common stockholders of
that Group adversely. For example, cash proceeds from the issuance of securities
by one Group may be loaned to or invested in entities in the other Group. This
discretion makes it riskier to be a holder of Cablevision NY Group common stock
or Rainbow Media Group tracking stock than a holder of our existing common
stock.
In the event that the Cablevision board determines in its business
judgment that it is appropriate for the Cablevision NY Group to provide funding
to the Rainbow Media Group or for the Rainbow Media Group to provide funding to
the Cablevision NY Group, the board will also determine whether such a cash
transfer should be treated as a revolving credit advance, long term loan,
preferred stock or other type of investment. Factors the board may consider in
this determination may include:
- the current and projected capital structure of each Group,
- the relative levels of internally generated funds of each Group,
- the financing needs and objectives of the recipient Group,
- the investment objectives of the transferring Group,
- the availability, cost and timing associated with alternative
financing sources, and
- prevailing interest rates and general economic conditions.
The determination of the board of directors as to how to account for a
cash transfer will affect the amount of interest expense and interest income and
stockholders' equity as reflected in the financial statements of the Cablevision
NY Group and the Rainbow Media Group.
If either the Cablevision NY Group or the Rainbow Media Group is unable
to repay advances or loans owed to the other Group, both Groups would be
adversely affected. Also, if either Cablevision NY Group or the Rainbow Media
Group extends an advance or loan to the other Group at an interest rate below
the lending Group's cost of funds or opportunity cost, the lending Group's
results would be adversely affected to the extent of the difference.
STOCKHOLDERS WILL NOT VOTE ON HOW TO ALLOCATE CONSIDERATION RECEIVED IN
CONNECTION WITH A MERGER INVOLVING CABLEVISION AMONG HOLDERS OF CABLEVISION NY
GROUP COMMON STOCK AND HOLDERS OF RAINBOW MEDIA GROUP TRACKING STOCK.
Our amended charter will not contain any provisions governing how
consideration received in connection with a merger or consolidation involving
Cablevision is to be allocated between holders of Cablevision NY Group common
stock and holders of Rainbow Media Group tracking stock. Neither holders of
Cablevision NY Group common stock nor holders of Rainbow Media Group tracking
stock will have a separate class vote in any merger or consolidation as long as
we divide the type and amount of consideration between holders of Cablevision NY
Group common stock and holders of Rainbow Media Group tracking stock in a manner
the board of directors determines, in its sole discretion, to be fair. In any
such merger or consolidation, the different ways the board of directors may
divide the consideration might have materially different results. As a result,
the consideration to be received by holders of Cablevision NY Group common stock
or Rainbow Media Group tracking stock in any such merger or consolidation may be
materially less valuable than the consideration they would have received if they
had a separate class vote on such merger or consolidation.
WE MAY DISPOSE OF ASSETS OF EITHER THE CABLEVISION NY GROUP OR THE RAINBOW MEDIA
GROUP WITHOUT YOUR APPROVAL.
Delaware law requires stockholder approval only for a sale or other
disposition of all or substantially all of the assets of Cablevision. As long as
the assets attributed to either the Cablevision NY Group or the Rainbow Media
Group represent less than substantially all of Cablevision's assets, we may
approve sales and other dispositions of any amount of the assets of that Group
without any stockholder approval. Based on the initial composition of the
Rainbow Media Group, a sale of all of the Rainbow Media Group would not be
considered a sale of substantially all the assets of Cablevision.
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If we dispose of all or substantially all of the assets of the Rainbow
Media Group (defined for this purpose as 80% of the Rainbow Media Group's assets
by fair market value), we would be required, if the disposition is not an exempt
disposition under the terms of our amended charter, to choose one of the
following three alternatives:
- declare and pay a dividend on Rainbow Media Group tracking stock,
- redeem shares of Rainbow Media Group tracking stock, or
- exchange shares of Cablevision NY Group common stock for
outstanding shares of Rainbow Media Group tracking stock at a 10%
premium.
Consequently, holders of Rainbow Media Group tracking stock may receive
less value for their shares than the value that a third-party buyer might pay
for all or substantially all of the assets of the Rainbow Media Group. In
addition, if we elect to complete an exchange in connection with the
disposition, such exchange could be completed at a time when Rainbow Media Group
tracking stock may be considered to be undervalued.
The terms of our amended charter do not include a similar requirement for
the Cablevision NY Group.
The board of directors will decide, in its sole discretion, how to
proceed and is not required to select the option that would result in the
highest value to holders of Cablevision NY Group common stock or Rainbow Media
Group tracking stock.
HOLDERS OF RAINBOW MEDIA GROUP TRACKING STOCK WILL VOTE TOGETHER WITH HOLDERS OF
CABLEVISION NY GROUP COMMON STOCK AND WILL HAVE LIMITED SEPARATE VOTING RIGHTS.
Holders of Cablevision NY Group common stock and Rainbow Media Group
tracking stock will vote together as a single class, except in certain limited
circumstances provided under our amended charter and under the Delaware General
Corporation Law, such as amendments to our amended charter adversely affecting
one class. Each share of Cablevision NY Group common stock will have two times
the voting power of a share of Rainbow Media Group tracking stock of the same
class. When holders of Cablevision NY Group common stock and Rainbow Media Group
tracking stock vote together as a single class, holders of the series of common
stock having a majority of the votes will be in a position to control the
outcome of the vote even if the matter involves a conflict of interest between
holders of Cablevision NY Group common stock and holders of Rainbow Media Group
tracking stock.
The issuance of common stock of one series, like any issuance of common
stock, would dilute the voting rights and equity interest of holders of common
stock of each other series.
THE COST OF MAINTAINING SEPARATE GROUPS WILL EXCEED THE COSTS ASSOCIATED WITH
OPERATING CABLEVISION AS A SINGLE ENTITY.
The costs associated with implementing the tracking stock proposal and
the ongoing costs of separate Groups will exceed the costs associated with
operating Cablevision as it currently exists. In particular, the issuance of
Rainbow Media Group tracking stock will result in a complex capital structure
and additional financial reporting requirements with respect to each Group. The
increased financial reporting requirements will result in additional personnel
costs, higher audit costs, increased stockholder communications costs and
additional public relations costs.
WE CANNOT PREDICT HOW THE DISTRIBUTION OF TRACKING STOCK WILL AFFECT THE MARKET
PRICE OF CABLEVISION NY GROUP COMMON STOCK AND THE MARKET PRICE OF RAINBOW MEDIA
GROUP TRACKING STOCK MAY BE VOLATILE.
Because there has been no prior market for Cablevision NY Group common
stock or Rainbow Media Group tracking stock, we cannot predict the prices at
which Cablevision NY Group common stock or Rainbow Media Group tracking stock
will trade after the tracking stock proposal is implemented and we cannot assure
you that the combined market prices of two shares of Cablevision NY Group common
stock and one share of Rainbow Media Group tracking stock will equal or exceed
the market price of two shares of our existing common stock. If an active market
does develop, we cannot assure you that it will be maintained. The trading price
of either series of stock may fluctuate significantly.
Certain terms of Cablevision NY Group common stock and Rainbow Media
Group tracking stock may adversely affect the trading price of Cablevision NY
Group common stock or Rainbow Media Group tracking stock. These terms include
the
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right of the board of directors to exchange shares of Rainbow Media Group
tracking stock for shares of Cablevision NY Group common stock and the
discretion of the board of directors to make various determinations regarding
inter-Group relationships or enter into transactions between the Groups.
THE MARKET PRICE OF CABLEVISION NY GROUP COMMON STOCK AND RAINBOW MEDIA GROUP
TRACKING STOCK MAY NOT REFLECT THE PERFORMANCE OF THE CABLEVISION NY GROUP AND
THE RAINBOW MEDIA GROUP AS WE INTEND.
We cannot assure you that the market price of Cablevision NY Group common
stock and Rainbow Media Group tracking stock will in fact reflect the
performance of the Cablevision NY Group and the Rainbow Media Group as we
intend. Holders of Cablevision NY Group common stock and Rainbow Media Group
tracking stock will continue to be common stockholders of Cablevision and, as
such, will be subject to all risks associated with an investment in Cablevision
and all of our businesses, assets and liabilities.
THE VALUES OF CABLEVISION NY GROUP COMMON STOCK AND RAINBOW MEDIA GROUP TRACKING
STOCK MAY DECLINE DUE TO FURTHER ISSUANCES OF CABLEVISION NY GROUP COMMON STOCK
OR RAINBOW MEDIA GROUP TRACKING STOCK.
Our amended charter will allow the board of directors, in its sole
discretion, to issue authorized but unissued shares of common stock. The board
of directors may issue Cablevision NY Group common stock or Rainbow Media Group
tracking stock to, among other things:
- raise capital,
- provide compensation or benefits to employees,
- pay stock dividends, or
- acquire companies or businesses.
Under the Delaware General Corporation Law, the board of directors
would not need your approval for these issuances. The board of directors does
not intend to seek your approval for any such issuances unless:
- stock exchange regulations or other applicable law require
approval or
- the board of directors in its discretion deems it advisable.
THERE ARE MANY FACTORS WHICH MAY INHIBIT OR PREVENT ACQUISITION BIDS FOR THE
CABLEVISION NY GROUP OR THE RAINBOW MEDIA GROUP.
Our chairman, Charles F. Dolan, as of March 1, 2000, owned less than 1%
of the Class A common stock, 53.6% of the Class B common stock and 44.1% of the
total voting power of both classes of common stock. In addition, certain trusts
for the benefit of members of his family, as of March 1, 2000, owned less than
1% of the Class A common stock, 34.4% of the Class B common stock and 26.4% of
the total voting power of both classes of common stock. The Dolan family is
therefore able to prevent or cause a change of control of Cablevision and no
person interested in acquiring Cablevision, the Cablevision NY Group or the
Rainbow Media Group will be able to do so without obtaining the consent of the
Dolan family.
If the Cablevision NY Group and the Rainbow Media Group were separate
companies, any person interested in acquiring either the Cablevision NY Group or
the Rainbow Media Group without negotiating with management could seek control
of that entity by obtaining control of its outstanding voting stock by means of
a tender offer or proxy contest. Although we intend Cablevision NY Group common
stock and the Rainbow Media Group tracking stock to reflect the separate
economic performance of the Cablevision NY Group and the Rainbow Media Group,
respectively, a person interested in acquiring only one Group without
negotiation with Cablevision's management could obtain control of that Group
only by obtaining control of the outstanding voting stock of Cablevision.
The existence of two series of common stock could present complexities
and could in certain circumstances pose obstacles, financial and otherwise, to
an acquiring person. The existence of two series of common stock could, under
certain
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circumstances, prevent stockholders from profiting from an increase in the
market value of their shares as a result of a change in control of Cablevision
by delaying or preventing such a change in control.
If the tracking stock proposal is implemented, as of March 31, 2000,
there would have been approximately 1,152 million shares of Cablevision Class A
common stock available for future issuance without further stockholder approval.
One of the effects of the existence of authorized and unissued common stock and
preferred stock could be to enable the board of directors to issue shares to
persons friendly to current management, which could render more difficult or
discourage an attempt to obtain control of Cablevision by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
our management. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of Cablevision.
In addition, certain provisions of our amended charter and by-laws, and
certain provisions of Delaware law, may inhibit changes of control not approved
by the board of directors. For additional anti-takeover constraints, see
"Proposal 1--Amendments to Our Amended and Restated Certificate of
Incorporation--Certain Provisions of Delaware Law".
THE BOARD OF DIRECTORS HAS SOLE DISCRETION TO CONVERT RAINBOW MEDIA GROUP
TRACKING STOCK INTO CABLEVISION NY GROUP COMMON STOCK.
The proposed amendment to our charter will permit the board of directors,
in its sole discretion, to convert all of the outstanding shares of Rainbow
Media Group tracking stock into shares of Cablevision NY Group common stock at
any time after the first anniversary of the tracking stock distribution on the
terms described under "Proposal 1--Amendments to Our Amended and Restated
Certificate of Incorporation--Description of Cablevision NY Group Common Stock
and Rainbow Media Group tracking stock--Conversion and Redemption". We cannot
predict the impact on the market prices of Rainbow Media Group tracking stock or
Cablevision NY Group common stock of the board of directors' ability to effect
any such conversion or the effect, if any, that the exercise by Cablevision of
this conversion right would have on the market price of Rainbow Media Group
tracking stock or Cablevision NY Group common stock prevailing at such time.
WE MAY NOT COMPLETE ANY OF THE PROPOSED TRANSACTIONS.
This document describes our current plans for the tracking stock proposal
and the distributions. These transactions are subject to various conditions and
uncertainties, and we cannot assure you that these transactions will be
completed at all or on the terms we describe in this document.
REGISTRATION RIGHTS WE HAVE GRANTED COVERING A PORTION OF OUR SHARES WILL APPLY
TO SHARES OF BOTH GROUPS; WE HAVE GRANTED REGISTRATION RIGHTS TO NBC-RAINBOW
HOLDING IN CONNECTION WITH THE TRACKING STOCK IT WILL RECEIVE FROM US.
As we describe below under "Risk Factors--Risks Relating to Cablevision
Systems Corporation--We have granted registration rights to cover a portion of
our shares," we have granted registration rights covering a significant number
of shares of our existing Class A common stock. These registration rights will
be applicable to the Cablevision NY Group Class A common stock and, in certain
cases, will be applicable to the Rainbow Media Group Class A tracking stock. In
addition, we have granted NBC-Rainbow Holding registration rights with respect
to the 44.7 million shares of Rainbow Media Group Class A tracking stock it is
entitled to receive upon exchange of its Rainbow Media Holdings common stock.
Sales of a substantial number of shares of our Class A stock or Class B stock of
either Group could adversely affect the market price of the Class A stock of
either or both Groups and could impair our ability to raise capital through an
offering of our equity securities.
THE FEDERAL INCOME TAX CONSIDERATIONS OF THE TRACKING STOCK PROPOSAL ARE
UNCERTAIN.
We believe that neither you nor Cablevision will recognize any income,
gain or loss for federal income tax purposes as a result of the redesignation of
existing Class A common stock into Cablevision NY Group Class A common stock,
the redesignation of existing Class B common stock into Cablevision NY Group
Class B common stock or the intended distribution of the Rainbow Media Group
tracking stock to holders of the Cablevision NY Group common stock. On the
redesignation of the existing common stock as Cablevision NY Group common stock,
your basis and holding period in your existing common stock would be transferred
to your Cablevision NY Group common stock. On the distribution of the Rainbow
Media Group tracking stock, the Rainbow Media Group tracking stock received
would have the same holding period as your Cablevision NY Group common stock and
your basis in your Cablevision NY Group common stock would be allocated between
your Cablevision NY
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Group common stock and the Rainbow Media Group tracking stock received in the
distribution in proportion to their relative fair market values on the
distribution date. There are, however, no court decisions bearing directly on
similar transactions.
Legislative proposals made by the Clinton Administration in February 1999
would, if enacted, impose a corporate-level tax on the issuance of stock similar
to the Rainbow Media Group tracking stock and permit the Treasury Department to
treat tracking stock as an interest in other than stock, thereby making such
tracking stock ineligible for the tax-free treatment available under the
Internal Revenue Code in certain transactions. The Clinton Administration's
fiscal year 2001 budget proposal issued in February 2000 would, if enacted,
treat the receipt of tracking stock in a distribution made by a corporation with
respect to its stock or in an exchange for other stock of the issuing
corporation as the receipt of property other than stock of the issuing
corporation. If the distribution of the Rainbow Media Group tracking stock were
treated as a distribution of property other than Cablevision stock, the
distribution would, to the extent of the value of the Rainbow Media Group
tracking stock distributed, be treated first as a taxable dividend to the extent
of Cablevision's current or accumulated earnings and profits, then as a
distribution in reduction of the stockholder's basis to the extent thereof and
thereafter as gain on a deemed disposition of the shares on which the
distribution was made. The February 2000 proposals give the Treasury Department
the authority to treat tracking stock as non-stock or stock of an entity other
than the issuer, as appropriate. As proposed by the Clinton Administration,
these provisions would be effective for tracking stock issued on or after the
date of enactment by Congress and thus such proposals will likely not affect the
initial issuance and intended distribution of Rainbow Media Group tracking
stock. Tax legislation enacted by Congress subsequent to the Clinton
Administration proposals has not included any provision corresponding to the
proposals. However, the Company cannot predict whether the Clinton
Administration proposals will be enacted by Congress and, if enacted, whether
they will be in the form, and with the effective date, proposed.
If either of the Clinton Administration's proposals regarding tracking
stock were to be enacted, it would affect subsequent issuances of Rainbow Media
Group tracking stock and we might decide to exercise our right to convert all of
the outstanding shares of Rainbow Media Group tracking stock into Cablevision NY
Group common stock without being required to pay any premium.
You should consult your own tax advisor as to the particular tax
consequences of the tracking stock proposal under federal, state, local or
foreign law. See "Proposal 1--Amendments to Our Amended and Restated Certificate
of Incorporation--Certain Federal Income Tax Considerations."
RISKS RELATING TO CABLEVISION SYSTEMS CORPORATION
WE HAVE SUBSTANTIAL INDEBTEDNESS AND WE ARE HIGHLY LEVERAGED AS A RESULT.
We have incurred, and we will continue to incur in the future,
substantial amounts of indebtedness to finance operations, expand cable
operations and acquire other cable television systems, programming networks,
sources of programming and other businesses. We also have incurred, and we will
continue to incur, indebtedness in order to offer new services like high speed
internet access, digital video service and residential telephone service to
present and potential customers. In addition, we have borrowed, and we will
continue to borrow, money from time to time to refinance existing indebtedness
and redeem our mandatorily redeemable preferred stock. At March 31, 2000, our
consolidated debt plus the amount of our two series of mandatorily redeemable
preferred stock issued by our subsidiary, CSC Holdings, Inc., totaled $7.9
billion. We urge you to read carefully our consolidated financial statements
contained in our Form 10-K and our March 31, 2000 Form 10-Q, which provide more
detailed information about our indebtedness and CSC Holdings' mandatorily
redeemable preferred stock.
Because of our substantial indebtedness and CSC Holdings' mandatorily
redeemable preferred stock, we are highly leveraged. This means that our
payments on our borrowings and our mandatorily redeemable preferred stock are
significant in relation to our revenues and cash flow. This leverage exposes us
to significant risk in the event of downturns in our businesses, in our
industries or in the economy generally, because although our cash flows would
decrease in this scenario, our required payments in respect of indebtedness and
preferred stock will not.
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OUR FINANCIAL STATEMENTS REFLECT NET LOSSES AND A STOCKHOLDER'S DEFICIENCY.
We have reported recent net losses applicable to our common
stockholders as follows:
<TABLE>
<CAPTION>
<S> <C>
FOR THE THREE MONTHS ENDED:
March 31, 2000........................................... $115.5 million
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED:
<S> <C>
December 31, 1999........................................ $800.6 million
December 31, 1998........................................ $448.5 million
December 31, 1997........................................ $ 12.1 million
</TABLE>
Net losses are calculated by subtracting (1) operating expenses,
including depreciation and amortization, (2) interest expense, (3) preferred
stock dividends of CSC Holdings, (4) other income and expenses, and (5) net
profit or loss from affiliate operations from gross revenues.
The net losses described above primarily reflect our high interest expense,
preferred stock dividends of CSC Holdings and depreciation and amortization
charges, which we expect to continue. As a result of these net losses, at March
31, 2000, we had a stockholder's deficiency of $3.2 billion. We urge you to read
carefully our consolidated financial statements contained in our Form 10-K and
our March 31, 2000 Form 10-Q, which provide more detailed information about
these net losses.
We expect our net losses to continue and to remain substantial for the
foreseeable future because:
- interest expense, preferred stock dividends and depreciation and
amortization charges relating to our existing indebtedness and
preferred stock and completed acquisitions and capital
expenditures will remain high for the foreseeable future,
- we expect that future indebtedness incurred to fund pending and
future acquisitions and the development of our existing and new
businesses, including, but not limited to, capital expenditures
and additional investments in our cable television plant and
programming operations, will result in significant additional
charges to gross revenues, and
- we expect expenses and depreciation relating to each new service
we offer to be particularly high in relation to the amount of
revenues the new service will generate in its first years of
operations, resulting in significant net losses each time we begin
offering a new service or supporting a new business we acquire.
WE WILL NEED SIGNIFICANT ADDITIONAL BORROWINGS, AND WE HAVE COMMITTED TO
SIGNIFICANT FUTURE CAPITAL EXPENDITURES AND OTHER CAPITAL COMMITMENTS.
Our business is very capital-intensive. Operating, maintaining and
upgrading our cable television plant require significant amounts of cash
payments to third parties. In addition, we have incurred significant expenses to
start up and operate new businesses, like high speed internet access, digital
video service and residential telephone service and to roll out the non-Long
Island based commercial telephone businesses. We expect these expenses to
continue or grow as we continue to introduce these and possibly other new
services to our cable television customers.
We also incur significant start-up costs in funding new cable programming
services before they have positive cash flow, typically during their start-up
and development. Our acquisition and development of other businesses, like
electronics retailing and movie theaters, also result in significant
expenditures. We also pay a significant amount of interest in respect of our
outstanding indebtedness, and significant amounts of cash will be required to
repay our existing indebtedness and redeem CSC Holdings' mandatorily redeemable
preferred stock.
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We will not be able to generate sufficient cash internally to finance
these projects, to repay our indebtedness at maturity and redeem CSC Holdings'
mandatorily redeemable preferred stock at the mandatory redemption date. Because
we will be unable to generate sufficient cash internally for these purposes, we
will have to do one of the following:
- raise additional capital, through debt or equity issuances or
both,
- cancel or scale back current and future spending programs, or
- sell assets.
However, you should not assume that we will be able to raise any required
additional capital if we are unable to pursue our current and future spending
programs and we may not be able to compete effectively as a result.
Some of our subsidiaries have substantial future capital commitments in
the form of long-term contracts that require substantial payments over a long
period of time. For example, rights agreements with sports teams under which we
carry games on our programming networks almost always involve multi-year
contracts that are difficult and expensive to terminate. The acquisition and
development activities of some of our subsidiaries, like the acquisition of
entertainment businesses and the acquisition and development of entertainment
facilities, will also result in significant expenditures.
Accordingly, if we are forced to cancel or scale back current and future
spending programs as described above, our choice of which spending programs to
cancel or scale back may be limited.
A SIGNIFICANT AMOUNT OF OUR BOOK VALUE CONSISTS OF INTANGIBLE ASSETS.
At March 31, 2000, we reported $7.3 billion of consolidated total assets,
of which $2.8 billion were intangible. Intangible assets include assets like
franchises from city and county governments to operate cable television systems,
affiliation agreements, amounts representing the cost of some acquired assets in
excess of their fair value and some deferred costs associated with past
financings, acquisitions and other transactions.
You should not assume that we would receive any cash from the voluntary
or involuntary sale of these intangible assets. We urge you to read carefully
our consolidated financial statements contained in our Form 10-K and our March
31, 2000 Form 10-Q, which provide more detailed information about these
intangible assets.
WE MAY NOT BE ABLE TO COMPLETE OUR PENDING TRANSACTIONS.
We have announced and may continue to announce a number of transactions,
some of which are or may be significant to our business. Because of the
conditions required to be fulfilled before we can complete these transactions,
we cannot assure you that any of our announced transactions will be completed on
the terms or schedule we announce, or that any of them will be completed at all.
Our pending transactions are generally disclosed in our Form 10-K and our March
31, 2000 Form 10-Q. We urge you to read carefully the description of our pending
transactions contained therein, particularly the conditions required to be
fulfilled in order to complete these transactions.
WE ARE CONTROLLED BY THE DOLAN FAMILY.
Our chairman, Charles F. Dolan, as of March 1, 2000, owned less than 1%
of the Class A common stock, 53.6% of the Class B common stock and 44.1% of the
total voting power of both classes of common stock. In addition, certain trusts
for the benefit of members of his family, as of March 1, 2000, owned less than
1% of the Class A common stock, 34.4% of the Class B common stock and 26.4% of
the total voting power of both classes of common stock. The Dolan family is
therefore able to prevent or cause a change of control of Cablevision and no
person interested in acquiring Cablevision, the Cablevision NY Group or the
Rainbow Media Group will be able to do so without obtaining the consent of the
Dolan family. We also discuss this factor under "Risk Factors--Risk Factors
Relating to the Tracking Stock Proposal--There are many factors which may
inhibit or prevent acquisition bids for the Cablevision NY Group or the Rainbow
Media Group".
As a result of Dolan's stock ownership and the stock ownership of his
family members, Mr. Dolan has the power to elect all the directors of
Cablevision subject to election by holders of the Class B stock. In addition,
Dolan family members may control stockholder decisions on matters in which
holders of the Cablevision common stock vote together as a class. These
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matters include the amendment of some provisions of Cablevision's certificate of
incorporation and the approval of fundamental corporate transactions, including
mergers. Because the tracking stock distribution is a pro rata distribution, the
tracking stock distribution will not alter the control rights of Mr. Dolan and
his family members.
In addition, because the affirmative vote or consent of the holders of at
least 66 2/3% of the outstanding shares of the Class B stock, voting separately
as a class, is required to approve:
- the authorization or issuance of any additional shares of Class B
stock and
- any amendment, alteration or repeal of any of the provisions of
Cablevision's certificate of incorporation that adversely affects
the powers, preferences or rights of the Class B stock,
Dolan family members also have the power to prevent such issuance or amendment.
The voting rights of the Class B stock beneficially owned by the Dolan family
members will not be modified as a result of any transfer of legal or beneficial
ownership of the Class B stock.
SIGNIFICANT RESTRICTIVE COVENANTS IN OUR FINANCING AGREEMENTS LIMIT OUR
FLEXIBILITY.
Our credit agreement and some of our debt instruments contain various
financial and operating covenants which, among other things, require the
maintenance of some financial ratios and restrict the relevant borrower's
ability to incur debt from other sources and to use funds for various purposes,
including investments in some subsidiaries. Violation of these covenants could
result in a default which would permit the parties who have lent money under our
credit agreement and such other debt instruments to:
- restrict our ability to borrow undrawn funds under our credit
agreement and
- require the immediate repayment of the borrowings under our credit
agreement and such other debt instruments.
REGULATORY RISKS ARE INHERENT AND SUBSTANTIAL IN OUR BUSINESSES.
GENERAL. The FCC and state and local governments extensively regulate the
rates we may charge our customers for video services. They also regulate us in
other ways that affect the daily conduct of our video delivery and video
programming business, our telephone business and possibly in the future, our
high speed internet access business. Any action by the FCC, the states of New
York, New Jersey, Connecticut, Massachusetts or Ohio or concerted action by
local regulators, the likelihood or extent of which we cannot predict, could
have a material financial effect on us.
For example, in 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 CABLE ACT"), which was a
significant change in the regulatory framework under which cable television
systems operate. In 1993 and 1994, the FCC ordered reductions in cable
television rates based on the 1992 Cable Act. Congress subsequently enacted the
Telecommunications Act of 1996, which relaxes the regulation of higher tier
cable television rates. This higher tier rate regulation relaxation went into
effect on March 31, 1999. The regulation by local governments of basic cable
rates will continue in most communities in which we operate.
RECENT FCC AND CONGRESSIONAL ISSUES MAY AFFECT OUR BUSINESSES. The FCC
recently redefined its national 30% limit on the number of households that any
cable company can serve to apply to all multichannel video households, not just
cable households. The outcome of this court proceeding could affect us because
of AT&T's investment in Cablevision through its acquisition of TCI. This issue
recently has been given greater visibility at the FCC and in Congress as a
result of AT&T's acquisition of MediaOne Group.
Some parties have proposed statutory and regulatory requirements that
would force cable systems to provide carriage to third-party internet access
providers. The FCC thus far has rejected these requests, but legislation has
been introduced that would effectively require that this access be provided. We
cannot predict at this time whether or to what extent this legislation might be
successful or whether the FCC might reevaluate its initial conclusion not to
impose such regulation. The U.S. Court of Appeals for the 9th Circuit, in which
we do not operate, has recently invalidated a local franchising authority's
requirement that the cable system in that community provide access to all
third-party internet access providers. Local franchising authorities in several
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other states in which we do not operate have subsequently imposed similar access
requirements, and the judicial invalidity of one of these is on appeal to
another federal circuit court. Some local franchising authorities where we
operate might attempt to impose a similar requirement on us, depending upon the
outcome of this litigation.
OUR CURRENT FRANCHISES ARE GENERALLY NON-EXCLUSIVE, AND OUR FRANCHISORS
NEED NOT RENEW OUR FRANCHISES. Our 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
television authorities. Consequently, our business is dependent on our ability
to obtain and renew our franchises. Although we have never lost a franchise as a
result of a failure to obtain a renewal, our franchises are subject to
non-renewal or termination under some circumstances.
In some cases, franchises have not been renewed at expiration, and we
operate under either temporary operating agreements or without a license while
negotiating renewal terms with the franchising authorities. In the case of one
of our franchises in Ohio with 9,000 subscribers as of March 31, 2000, we are
operating on a temporary extension without a license while we appeal the denial
of the franchise renewal in federal court in accordance with the provisions of
the Cable Communications Policy Act of 1984.
WE ARE EXPOSED TO A SIGNIFICANT AND CREDIBLE RISK OF COMPETITION.
GENERAL. Cable operators compete with a variety of television programming
distribution systems, including:
- broadcast television stations,
- direct broadcasting satellite systems,
- multichannel multipoint distribution services,
- satellite master antenna systems and
- private home dish earth stations.
For example, two direct broadcasting satellite systems are now operational in
the U.S. Companies with substantial resources like Hughes Electronics Corp. have
invested in some of these systems. Cable systems also compete with the entities
that make videotaped movies and programs available for home rental.
The Telecommunications Act of 1996 gives telephone companies and other
video providers the option of providing video programming to subscribers through
"open video systems", a wired video delivery system similar to a cable
television system that may not require a local cable franchise. RCN, an open
video system operator that teams with electric utilities, is currently operating
systems in Boston and parts of New York City that compete with us. Additional
video competition to cable systems is possible from new wireless local
multipoint distribution services authorized by the FCC, for which spectrum was
recently auctioned by the FCC.
The 1992 Cable Act prohibits a cable programmer that is owned by or
affiliated with a cable operator, like our subsidiary Rainbow Media Holdings,
Inc., 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
- unreasonably refusing to sell service to any multichannel video
programming distributor.
COMPETITION FROM TELEPHONE COMPANIES. The Cable Communications Policy Act
of 1984 barred co-ownership of telephone companies and cable television systems
operating in the same service areas. The Telecommunications Act of 1996 repealed
this restriction and permits a telephone company to provide video programming
directly to subscribers in its telephone service territory, subject to some
regulatory requirements, but generally prohibits a telephone company from
acquiring an in-region cable operator, except in some small markets under some
circumstances. Telephone companies, like Ameritech Corp. in Ohio and Southern
New England Telephone Co. in Connecticut, have obtained or applied for local
franchises to construct and
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operate cable television systems in several communities in which we currently
hold cable franchises, and in some locations have begun offering service in
competition with us.
WE HAVE NOT PAID DIVIDENDS, AND WE DO NOT INTEND TO PAY DIVIDENDS IN THE
FORESEEABLE FUTURE.
Cablevision has never declared or paid dividends on any of its common
stock and has no intention to pay cash dividends on such stock in the
foreseeable future. In addition, some debt instruments to which we are a party
contain covenants which effectively prohibit the payment of such dividends.
WE HAVE GRANTED REGISTRATION RIGHTS COVERING A PORTION OF OUR SHARES.
On March 31, 2000, 130,258,082 shares of Class A common stock were
outstanding. Cablevision has granted to each of Charles F. Dolan, some Dolan
family interests, the Dolan Family Foundation, John Tatta, a director of
Cablevision, and some Tatta family interests registration rights with respect to
2,723,025 shares of Class A common stock held by them on such date, as well as
with respect to 43,126,836 shares of Class A common stock issuable upon
conversion of shares of Class B common stock. These registration rights will
also apply to our Class A and Class B common stock following its redesignation
as Cablevision NY Group Class A and Class B common stock and to shares of
Rainbow Media Group Class A and Class B common stock issued in respect of those
shares in the tracking stock distribution. The direct or indirect subsidiaries
of AT&T Corp. holding Class A common stock have some registration rights with
respect to such shares of Class A common stock and we have granted a third party
certain registration rights for shares of our Class A stock that the third party
may dispose of when settling up to $100 million of obligations that we may
create under a forward swap contract facility that is described in our Form 10-K
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Financial Instruments." Sales of
a substantial number of shares of Class A stock or Class B stock of either Group
could adversely affect the market price of the Class A stock of either or both
Groups and could impair our future ability to raise capital through an offering
of our equity securities.
RISK FACTORS RELATING TO THE RAINBOW MEDIA GROUP
THE RAINBOW MEDIA GROUP HAS A HISTORY OF NET LOSSES AND WE CANNOT ASSURE YOU
THAT IT WILL REPORT NET INCOME IN THE FUTURE.
The Rainbow Media Group has historically sustained net losses. It
sustained net losses of $22.2 million in 1998 and $19.3 million in 1999.
A number of the Rainbow Media Group's programming operations have a
limited operating history and are expected to continue to generate significant
net losses for the next several years. The Rainbow Media Group also intends to
develop new programming networks that may also generate significant operating
losses and we cannot assure you that it will report net income in the future.
For more information regarding these net losses, see "The Rainbow Media
Group--Selected Historical Combined Financial and Other Data" herein and "The
Rainbow Media Group--Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "The Rainbow Media Group--Consolidated Financial
Statements" included in Annex IV of this proxy statement.
THE RAINBOW MEDIA GROUP WILL REQUIRE SIGNIFICANT ADDITIONAL FUNDING FOR
INVESTMENTS IN NEW PROGRAMMING CONTENT AND SERVICES.
The Rainbow Media Group will require significant additional funding for
investments in new programming content and services. This funding may be
provided by internally generated funds, from bank credit facilities, equity
capital, public debt securities, or a combination thereof; however, no
assurances as to the Rainbow Media Group's ability to raise the necessary
funding can be provided.
NEW DISTRIBUTION TECHNOLOGIES MAY FUNDAMENTALLY CHANGE THE WAY THE RAINBOW MEDIA
GROUP DISTRIBUTES ITS CHANNELS AND COULD SIGNIFICANTLY DECREASE ITS REVENUES.
The advent of digital technology is likely to accelerate the convergence
of broadcast, telecommunications, internet and other media and could result in
material changes in the economics, regulations, intellectual property usage and
technical platforms on which the Rainbow Media Group's business relies,
including lower retail rates for video services. The Rainbow Media Group's plans
for the launch of new programming networks rely on the strength of digital
penetration. These changes will
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fundamentally affect the scale, source and volatility of the Rainbow Media
Group's revenue streams, cost structures and profitability, and may require the
Rainbow Media Group to significantly change its operations. There is a risk that
the Rainbow Media Group's business and prospects will be harmed by these changes
and that the Rainbow Media Group will not identify or adapt to them as quickly
as its competitors do.
THE RAINBOW MEDIA GROUP'S SUCCESS DEPENDS UPON THE AVAILABILITY OF PROGRAMMING
THAT IS ADEQUATE IN QUANTITY AND QUALITY.
The Rainbow Media Group's success depends upon the availability of
programming that is adequate in quantity and quality. In particular, the
national entertainment networks depend upon the availability of films and music
in their niche markets and the regional sports networks depend upon the
availability of local sports programming, especially professional sports
programming.
The national entertainment networks are parties to film rights agreements
giving the networks the right to carry certain films during certain window
periods. The regional sports networks are parties to sports rights agreements
giving the networks the right to carry all or a portion of the games of local
professional sports teams. These rights agreements expire at varying times, may
be terminated by the other party if we are not in compliance with the terms of
the agreement, and, in the case of all sports rights agreements, are subject to
league rules and regulations.
We cannot assure you that Rainbow Media Group will ultimately be
successful in negotiating renewals of its rights agreements or in negotiating
adequate substitute rights agreements in the event that its rights agreements
expire or are terminated.
THE RAINBOW MEDIA GROUP IS COMMITTED TO MAKE SUBSTANTIAL PAYMENTS OVER EXTENDED
PERIODS OF TIME UNDER NUMEROUS CONTRACTS RELATING TO THE ACQUISITION OF
PROGRAMMING.
The Rainbow Media Group has entered into numerous contracts relating to
the acquisition of programming, including rights agreements with film companies
and professional and other sports teams. These contracts typically require
substantial payments over extended periods of time. For more information
regarding these commitments, see Note 10 to the Rainbow Media Group Consolidated
Financial Statements, "The Rainbow Media Group--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "The Rainbow
Media Group--Description of Business--Programming Operations."
THE RAINBOW MEDIA GROUP'S SUCCESS DEPENDS UPON THE EXISTENCE OF AGREEMENTS WITH
A LIMITED NUMBER OF DISTRIBUTORS FOR ITS PROGRAMMING.
The Rainbow Media Group's success depends upon the existence of
agreements between its programming networks and distributors. Existing
affiliation agreements of the Rainbow Media Group's programming networks expire
at various dates and, as described below, some are due to expire at the end of
2000 or are not evidenced by executed agreements. The loss of any of those
significant distributors could potentially severely impact its business and
results of operations. In addition, in some cases, if a distributor is acquired,
the affiliation agreement of the acquiring distributor will govern following the
acquisition. In those circumstances, the acquisition of a distributor that is
party to one or more affiliation agreements with the Rainbow Media Group on
terms that are not as favorable to us could adversely impact our business and
results of operations.
SOME OF AMC'S AND BRAVO'S AFFILIATION AGREEMENTS WILL EXPIRE IN 2000 AND WE
CANNOT ASSURE YOU THAT THEY WILL BE RENEWED.
Affiliation agreements covering 25% of AMC's basic subscribers and 32% of
Bravo's basic subscribers expire by the end of 2000. Failure to renew these AMC
and Bravo affiliation agreements would have a material adverse effect on the
businesses of AMC and Bravo and on the Rainbow Media Group. In addition, we can
not assure you that, even if these affiliation agreements are renewed, that the
renewal rates will equal or exceed the rates that are currently being charged.
In addition, certain parties have the right to terminate their affiliation
agreements prior to the expiration of their term under certain circumstances.
CERTAIN AFFILIATION ARRANGEMENTS ARE NOT EVIDENCED BY EXECUTED AGREEMENTS AND
COULD BE TERMINATED BY THE DISTRIBUTOR AT ANY TIME.
Certain affiliation arrangements that we are party to are not evidenced
by written agreements. We cannot assure you that the Rainbow Media Group will
ultimately be successful in negotiating definitive documentation of such
affiliation
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arrangements or that the counterparties will continue to carry our networks
under these arrangements at the rates currently being paid under these
arrangements. Loss of affiliation arrangements with these parties could have a
material adverse effect on the business of the Rainbow Media Group.
IF THE RAINBOW MEDIA GROUP'S PROGRAMMING DECLINES IN POPULARITY, ITS ADVERTISING
REVENUES COULD FALL AND ITS CONTRACTS WITH ITS DISTRIBUTORS MAY NOT BE RENEWED.
The success of the Rainbow Media Group's programming depends partly upon
unpredictable and volatile factors beyond its control, such as:
- viewer preferences,
- the strength of the advertising market,
- competing programming, and
- the availability of other entertainment activities.
A shift in viewer preferences could cause the Rainbow Media Group's
programming to decline in popularity, which could cause a decline in advertising
fee revenues and could jeopardize renewal of its contracts with distributors.
The Rainbow Media Group may not be able to anticipate and react effectively to
shifts in tastes and interests in its markets. A decline in available
advertising expenditures by advertisers could also cause a decline in fee
revenues regardless of a change in viewer preferences. In addition, the Rainbow
Media Group's competitors may have more flexible programming arrangements, as
well as greater volumes of production, distribution and capital resources, and
may be able to react more quickly to shifts in tastes and interests. We cannot
assure you that the Rainbow Media Group will be able to maintain the success of
any of its current programming, or generate sufficient demand and market
acceptance for its new programming.
THE RAINBOW MEDIA GROUP FACES INTENSE COMPETITION FOR SOURCING AND DISTRIBUTING
PROGRAMMING.
The business of sourcing and distributing programming for cable
television and other video service distributors is highly competitive, and most
existing channel capacity is in use. The Rainbow Media Group directly competes
with other programming networks for distribution.
The markets in which the Rainbow Media Group operates are in a constant
state of change due to technological, economic and regulatory developments. We
are unable to predict what forms of competition will develop in the future, the
extent of such competition or its possible effects on the Rainbow Media Group's
business.
For a further description of the competitive factors affecting the
Rainbow Media Group, see "The Rainbow Media Group--Description of
Business--Competition" in Annex V hereto.
THE RAINBOW MEDIA GROUP'S COMPETITORS FOR SOURCING OF PROGRAMMING MAY HAVE A
COMPETITIVE ADVANTAGE OVER THE RAINBOW MEDIA GROUP.
Many of the Rainbow Media Group's competitors are owned, operated or
financed by companies larger than Cablevision and it. In addition, some of the
programming networks that compete with the Rainbow Media Group are affiliated
with cable television operators, as is the Rainbow Media Group. Such direct
affiliations with distributors may give such programming networks a competitive
advantage in obtaining distribution on affiliated cable television operations.
In addition, some of the programming networks that compete with the
Rainbow Media Group are affiliated with broadcast networks. Such affiliation
with broadcast networks may give such programming networks a competitive
advantage in obtaining distribution if the broadcast networks require cable
television operators to carry their affiliated programming networks in
connection with granting retransmission consent.
Some of the programming networks that compete with the Rainbow Media
Group in the sourcing of programming also own sports teams or independent film
libraries. These interests give such competitors an advantage over the Rainbow
Media Group in obtaining access to such affiliated programming sources.
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THE RAINBOW MEDIA GROUP COMPETES WITH OTHER COMPANIES IN THE ENTERTAINMENT
INDUSTRY.
The Rainbow Media Group also competes, in varying degrees, with other
leisure-time activities such as broadcast television, the internet, radio,
online services, print media, personal computers, motion picture theaters, video
cassettes, sporting events and other alternative sources of entertainment and
information for total entertainment dollars in the marketplace.
When distribution is obtained, the programming offered by the Rainbow
Media Group competes, in varying degrees, for viewers and advertisers with
programming networks, broadcast television, pay-per-view, video-on-demand, and
other content offered on cable television and other programming distribution
methods. On other mediums, the Rainbow Media Group competes with other content
and services available to the consumer through online services. We cannot assure
you that the Rainbow Media Group will be able to compete effectively.
If the Rainbow Media Group is unable to compete effectively with large
diversified entertainment companies that have substantially greater resources
than it has, its operating margins and market share could be reduced, and the
growth of its business inhibited.
THE RAINBOW MEDIA GROUP'S RELATIONSHIP WITH THE CABLEVISION NY GROUP COULD
CREATE CONFLICTS OF INTEREST.
The Cablevision NY Group and the Rainbow Media Group have differing
interests in the pricing for the services that the Rainbow Media Group delivers
to the Cablevision NY Group. The Cablevision NY Group's affiliation agreements
with the Rainbow Media Group are generally favorable to the Cablevision NY
Group, reflecting the Cablevision NY Group's support of the Rainbow Media
Group's development of programming services. For a discussion of these and
other relationships between the Rainbow Media Group and the Cablevision NY
Group, see "Proposal 1--Amendments to our Amended and Restated Certificate of
Incorporation--Certain Inter-Group Relationships."
THE RAINBOW MEDIA GROUP'S BUSINESS IS LIMITED INDIRECTLY BY REGULATORY
CONSTRAINTS.
Although the Rainbow Media Group's programming business is not directly
regulated by the Federal Communications Commission under the Communications Act
of 1934, to the extent that regulations and laws, either presently in force or
proposed, hinder or stimulate the growth of the cable television and satellite
industries, the business of the Rainbow Media Group will be affected.
The regulation of cable television services and satellite carriers is
subject to the political process and has been in constant flux over the past
decade. Further material changes in the law and regulatory requirements must be
anticipated. We cannot assure you that the Rainbow Media Group's business will
not be adversely affected by future legislation, new regulation or deregulation.
THE RAINBOW MEDIA GROUP WILL INCUR SIGNIFICANT FUNDING REQUIREMENTS IN ORDER TO
INTRODUCE NEW SERVICES AND ADAPT TO TECHNOLOGICAL CHANGE.
The cable and satellite television industry has been, and is likely to
continue to be, subject to:
- frequent introductions of new services and alternative
technologies, including new technologies for providing video
services, and
- rapid and significant technological change, including continuing
developments in technology which do not presently have widely
accepted standards.
The Rainbow Media Group's future success will depend, in part, on its
ability to anticipate and adapt to technological changes and to offer, on a
timely basis, services that meet customer demands and evolving industry
standards. The introduction of new services may require the Rainbow Media Group
to have significant funding requirements. In addition, the Rainbow Media Group
expects that new technologies will emerge that may be superior to, or may not be
compatible with, some of its current technologies. These technologies may impose
significant funding requirements on the Rainbow Media Group in order for it to
implement its strategy and remain competitive.
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THE SPECIAL MEETING
TIME, PLACE AND MATTERS TO BE VOTED ON
Cablevision is giving you this document to solicit proxies for the
special meeting of stockholders to be held on [DATE], at [TIME] New York time,
at our principal executive offices, 1111 Stewart Avenue, Bethpage, New York
11714 and at any adjournments or postponements. We solicit proxies to give all
stockholders on the record date an opportunity to vote on matters that will come
before the special meeting. This procedure is necessary because our stockholders
live in different states and abroad and may not be able to attend the special
meeting.
At the special meeting, you will be asked to consider and vote on:
- a proposal to amend our amended and restated charter to authorize
the creation of the Rainbow Media Group tracking stock and to
redesignate our existing common stock as Cablevision NY Group
common stock so that it reads in its entirety as set forth in
Annex II,
- a proposal to amend our existing stock option plan to accommodate
the tracking stock so that it reads in its entirety as set forth
in Annex III, and
- any other business related to these proposals that may properly
come before the special meeting.
In this proxy statement we refer to the proposal described above to amend
our charter and the proposal described above to amend our stock option plan as
the "TRACKING STOCK PROPOSAL."
--------------------------------------------------------------------------------
If you vote "FOR" the tracking stock proposal at the annual meeting, you may be
forfeiting your right to challenge the tracking stock proposal in the future.
--------------------------------------------------------------------------------
RECOMMENDATIONS TO STOCKHOLDERS
Cablevision's board of directors has unanimously approved, and recommends
that Cablevision stockholders vote "FOR" approval of:
- the amendments described above to our amended and restated
charter, and
- the amendments described above to our stock option plan.
VOTING
WHO MAY VOTE
Holders of our Class A common stock and Class B common stock, as recorded
in our stock register on [DATE], may vote at the special meeting.
A total of [NUMBER] Class A common shares and [NUMBER] Class B common
shares can vote at the special meeting.
VOTES YOU HAVE
At the special meeting:
- holders of Class A common stock will have one vote per share for
each Class A common share that our records show they owned at the
close of business on [DATE], 2000, and
- holders of Class B Common stock will have 10 votes per share for
each Class B common share that our records show they owned at the
close of business on [DATE], 2000.
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HOW TO VOTE
You may vote in person at the special meeting. You may also vote by
telephone, over the internet or using a proxy. We recommend you vote by proxy
even if you plan to attend the special meeting. You can always change your vote
at the special meeting.
VOTES NEEDED
We will hold the special meeting if holders of a majority of the
outstanding Cablevision common shares entitled to vote either attend the special
meeting in person or sign and return their proxy cards. For this purpose, we
will include you as attending the special meeting even if you abstain from
voting. If you do not attend the special meeting in person or by proxy or if you
abstain from voting, the effect will be the same as if you voted against both
the approval of the tracking stock proposal and the amendments to the stock
option plan.
The proposal to amend our charter requires:
- the affirmative vote of holders of the majority of the shares of
Class A and Class B common stock, voting together as a single
class
- the affirmative vote of holders of a majority of the outstanding
Class A common shares, voting together as a class, and
- the affirmative vote of holders of at least 66 2/3% of the
outstanding Class B common shares, voting together as a class.
CLASS B COMMON STOCKHOLDERS OWNING IN EXCESS OF 66 2/3% OF THE
OUTSTANDING SHARES OF CLASS B COMMON STOCK HAVE AGREED THAT THEY WILL VOTE "FOR"
APPROVAL OF THE PROPOSAL TO AMEND OUR CHARTER.
The proposal to amend our stock option plan requires the affirmative vote
of holders of the majority of the shares of Class A and Class B common stock,
voting together as a single class. CABLEVISION STOCKHOLDERS HAVING A MAJORITY OF
CABLEVISION'S VOTING POWER HAVE AGREED THAT THEY WILL VOTE "FOR" APPROVAL OF THE
PROPOSAL TO AMEND OUR STOCK OPTION PLAN. ACCORDINGLY, APPROVAL OF THIS PROPOSAL
IS ASSURED.
VOTES BY DIRECTORS AND EXECUTIVE OFFICERS
Cablevision's directors and executive officers are entitled to vote the
following number of Cablevision common shares at the special meeting:
- [NUMBER] Class A common shares, or about [NUMBER]% of the Class A
common shares entitled to vote.
- [NUMBER] Class B common shares, or about [NUMBER]% of the Class B
common shares entitled to vote.
The directors and executive officers have indicated that they intend to
vote their Cablevision common shares in favor of approval of the charter
amendment and the amendments to our stock option plan.
Our chairman, Charles F. Dolan, who, as of March 1, 2000, owned less than
1% of the Class A common stock, 53.6% of the Class B common stock and 44.1% of
the total voting power of both classes of common stock, has indicated that he
and certain trusts for the benefit of members of his family, which, as of March
1, 2000, owned less than 1% of the Class A common stock, 34.4% of the Class B
common stock and 26.4% of the total voting power of both classes of common
stock, will vote for these proposals. In addition, Charles F. Dolan, James L.
Dolan, our president and chief executive officer, Thomas C. Dolan, and Patrick
C. Dolan all voted in favor of the tracking stock proposal in their capacity as
directors.
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PROXIES
HOW PROXIES WORK
A form of proxy for use at the special meeting has been included with
each copy of this document mailed to Cablevision stockholders. Unless
subsequently revoked, Cablevision common shares represented by a proxy submitted
as described below and received at or before the special meeting will be voted
in accordance with the instructions of the proxy.
YOUR VOTE IS IMPORTANT. We recommend that you vote by proxy even if you
plan to attend the meeting. You can always change your vote at the meeting. To
submit a written proxy by mail, you should complete, sign, date and mail the
proxy card in accordance with the instructions on the card. If a proxy card is
signed and returned without indicating any voting instructions, the Cablevision
common shares represented by the proxy will be voted "FOR" the approval of the
tracking stock proposal and "FOR" the amendments to our stock option plan.
If a broker, who is the record holder of certain shares, indicates on a
form of proxy that it does not have discretionary authority to vote such shares
on any proposal, or if shares are voted in other circumstances in which proxy
authority is defective or has been withheld with respect to such proposal, these
non-voted shares will be counted for quorum purposes but will have the same
effect as a negative vote on the proposed tracking stock proposal and no effect
on the proposed amendments to our stock option plan.
SOLICITATION
In addition to this mailing, Cablevision employees may solicit proxies
personally, electronically or by telephone. Cablevision pays the costs of
soliciting this proxy. We also reimburse brokers and other nominees for their
expenses in sending these materials to you and getting your voting instruction.
REVOKING A PROXY
You may revoke your proxy before it is voted by submitting a new proxy
with a later date; by voting in person at the meeting; or by notifying the
Company's Secretary in writing. Unless you decide to vote your shares in person,
you should revoke your prior proxy card in the same way you initially submitted
it, that is, by telephone, internet or mail.
QUORUM
In order to carry on the business of the special meeting, we must have a
quorum. This means that at least a majority of the outstanding shares eligible
to vote must be represented at the special meeting, either by proxy or in
person.
CONFIDENTIAL VOTING
Independent inspectors count the votes. Your individual vote is kept
confidential (including those delivered by telephone or internet) from us unless
special circumstances exist. For example, a copy of your proxy card will be sent
to us if you write comments on the card.
OTHER MATTERS TO BE VOTED ON AT THE SPECIAL MEETING
Your board of directors is not currently aware of any business to be
acted on at the special meeting other than what we have described in this
document. If, however, other matters are properly brought before the special
meeting, the persons you choose as proxies will have discretion to vote or to
act on these matters according to their best judgment, unless you indicate
otherwise on your proxy.
One of the other matters that could come before the special meeting is a
proposal to adjourn or postpone the meeting. Sometimes this proposal is made for
the purpose of soliciting additional proxies. The persons you choose as proxies
will have discretion to vote on adjournment of the special meeting. Shares
represented by proxies voting against the proposals, however, will be voted
against a proposal to adjourn or postpone the special meeting for the purpose of
soliciting additional proxies.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THESE PROPOSALS AND
RECOMMENDS THAT YOU VOTE "FOR" THEM.
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PROPOSAL 1--AMENDMENTS TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The description of the material terms of the tracking stock proposal set
forth below is not complete. We qualify this description by reference to the
form of proposed charter amendment, which is attached as Appendix II to this
document. We urge all stockholders to read it in its entirety.
GENERAL
At the special meeting, we will ask you to consider and approve certain
amendments to our amended and restated certificate of incorporation which would,
among other things, permit us to implement the tracking stock proposal which is
designed to allow the board of directors to change our existing common stock
into two series of common stock, one of which is intended to reflect the
separate economic performance of the assets to be included in the Rainbow Media
Group and the other of which is intended to reflect the separate economic
performance of our remaining assets that are concentrated primarily in the New
York metropolitan area, which we refer to as our Cablevision NY Group.
Specifically, the tracking stock proposal would alter the terms of the series of
our existing Class A common stock and Class B common stock to:
- increase the number of authorized shares of common stock from 570
million to 1.88 billion, of which:
- 800 million would be Cablevision NY Group Class A common
stock,
- 320 million would be Cablevision NY Group Class B common
stock,
- 600 million would be Rainbow Media Group Class A tracking
stock, and
- 160 million would be Rainbow Media Group Class B tracking
stock,
- authorize the board of directors to change the terms of our
existing Class A common stock and Class B common stock to:
- redesignate our Class A common stock into Cablevision NY
Group Class A common stock, and
- redesignate our Class B common stock into Cablevision NY
Group Class B common stock,
- create and authorize the board of directors to issue shares of:
- Rainbow Media Group Class A tracking stock, and
- Rainbow Media Group Class B tracking stock,
- define the assets and liabilities to be attributed to each of the
Cablevision NY Group and the Rainbow Media Group,
- provide for the other terms relating to each Group and class of
common stock, and
- permit and authorize the board of directors to distribute Rainbow
Media Group Class A tracking stock in respect of our existing
Class A common stock, which will have been redesignated
Cablevision NY Group Class A common stock, and Rainbow Media Group
Class B tracking stock in respect of our existing Class B common
stock, which will have been redesignated Cablevision NY Group
Class B common stock.
We intend Rainbow Media Group tracking stock to reflect the separate
economic performance of the certain of assets and businesses currently included
in our Rainbow Media Holdings subsidiary and to be included in the Rainbow Media
Group, which initially includes:
- our interest in our five nationally distributed entertainment
programming networks,
- our interest in our six regional Fox Sports Net networks outside
of the New York metropolitan area,
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- our interest in National Sports Partners, which owns and
distributes Fox Sports Net,
- our interest in a regional sports news business, which produces
the Regional Sports Report, a regional complement to Fox Sports
Net's National Sports Report,
- our interest in National Advertising Partners, which provides
advertising representation services to all of the Fox Sports Net
networks,
- Rainbow Network Communications, a full service network programming
origination and distribution company, and
- Sterling Digital, a company designed to develop new niche audience
programming.
We intend our Cablevision NY Group common stock to reflect the separate
economic performance of the assets other than those to be included in the
Rainbow Media Group that are concentrated primarily in the New York metropolitan
area, initially including:
- our cable television business, including our residential telephone
and high-speed modem business,
- the commercial telephone and internet operations of our
subsidiary, Cablevision Lightpath, Inc.,
- our New York metropolitan area sports and entertainment business,
including Madison Square Garden, the professional sports team we
own, Radio City Music Hall, MSG Network and Fox Sports Net New
York,
- the electronics retail operations of our subsidiary, Cablevision
Electronics Investments, Inc., doing business as The WIZ,
- our motion picture theater business, doing business as Clearview
Cinemas,
- our MetroChannels and our regional news businesses, doing business
as News 12 Networks, in the New York metropolitan area,
- our advertising sales representation business,
- our equity interests in @Home Corporation, a provider of
multimedia internet services,
- the common stock of Adelphia Communications Corporation, Charter
Communications, Inc. and AT&T Corp. that we will own following
completion of pending transactions described in Annex VI--"The
Cablevision NY Group--Description of Business",
- our interest in certain direct broadcast satellite assets, and
- our interests in certain wireless personal communications
services.
YOU SHOULD NOTE THAT THE RAINBOW MEDIA GROUP INCLUDES ONLY PART OF THE
ASSETS IN OUR RAINBOW MEDIA HOLDINGS SUBSIDIARY - A NUMBER OF SIGNIFICANT
RAINBOW MEDIA HOLDINGS' ASSETS, INCLUDING OUR NEW YORK METROPOLITAN AREA SPORTS
AND ENTERTAINMENT BUSINESS, ARE NOT PART OF THE RAINBOW MEDIA GROUP.
If the tracking stock proposal is approved by stockholders, we intend to
file the certificate of amendment to our amended and restated certificate of
incorporation with the Delaware Secretary of State as soon as practicable after
the special meeting. The board of directors may abandon the tracking stock
proposal in whole, but not in part, without further action by the stockholders,
at any time prior to the filing. If the tracking stock proposal is not approved,
we will not file the amended charter and no shares of tracking stock will be
authorized or issued.
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NO INTER-GROUP INTEREST OF THE CABLEVISION NY GROUP IN THE RAINBOW MEDIA GROUP
The number of shares of Rainbow Media Group Class A tracking stock and
Rainbow Media Group Class B tracking stock that would be issued pursuant to the
distribution would be intended initially to represent 100% of our common
stockholders' equity value attributable to Rainbow Media Holdings' interest in
the assets and businesses included in the Rainbow Media Group, which will
initially represent 66% of Rainbow Media Holdings' interest in those assets and
businesses. Accordingly, there will be no Inter-Group Interest of the
Cablevision NY Group in the Rainbow Media Group.
NBC'S CURRENT INTEREST IN RAINBOW MEDIA HOLDINGS
NBC-Rainbow Holding, Inc., a subsidiary of National Broadcasting Company,
owns 26% of the common stock of Rainbow Media Holdings and therefore has a 26%
interest in all of Rainbow Media Holdings' businesses and interests, including
the businesses and interests to be included in the Rainbow Media Group. We own
the remaining 74% of Rainbow Media Holdings.
In connection with the implementation of the tracking stock proposal and
the distribution of the Rainbow Media Group tracking stock, NBC-Rainbow Holding
will exchange its 26% interest in Rainbow Media Holdings common stock over a
period of up to 9 years for a 34% interest in the Rainbow Media Group tracking
stock, based on primary shares distributed in the initial tracking stock
distribution. This exchange will occur on a deferred basis in the following
steps:
- First, at or prior to the time of the tracking stock distribution,
we will effect a recapitalization of Rainbow Media Holdings and
create a new class of Rainbow Media Holdings preferred stock to be
held by us that will be entitled to receive any and all dividends
and distributions on, and will carry a liquidation preference with
respect to, the Cablevision NY Group businesses and interests
included in Rainbow Media Holdings. The series of Rainbow Media
Holdings Class A common stock held by NBC-Rainbow, representing
26% of the outstanding equity securities of Rainbow Media
Holdings, will have the right to be exchanged for 34% of the
Rainbow Media Group Class A tracking stock.
- Second, the shares of Rainbow Media Holdings common stock held by
NBC-Rainbow Holding will be exchangeable, from time to time on any
business day during the last calendar month of each calendar
quarter prior to December 31, 2009, for Rainbow Media Group Class
A tracking stock based on a ratio of 16,868 shares of Rainbow
Media Group tracking stock for each share of Rainbow Media
Holdings common stock held by NBC-Rainbow Holding, for an
aggregate of approximately 44.7 million shares. If not already
exchanged, all shares of Rainbow Media Holdings common stock held
by NBC-Rainbow Holding will be exchanged for Rainbow Media Group
Class A tracking stock on the earlier of December 31, 2009 or
the occurrence of certain Rainbow Media Holdings or Cablevision
capital transactions.
- If at any time we exercise our option to convert the Rainbow Media
Group tracking stock into shares of Cablevision common stock, the
right of NBC-Rainbow Holding to exchange Rainbow Media Holdings
common stock for Rainbow Media Group tracking stock will become,
automatically and without any action by us or NBC-Rainbow Holding,
the right to exchange such Rainbow Media Holdings common stock for
the series or class of Cablevision common stock issued in the
conversion by Cablevision such that, following the exchange in
full by NBC-Rainbow Holding, NBC-Rainbow Holding would own the
same number of shares of Cablevision common stock it would have
owned had the exchange by NBC-Rainbow Holding been completed
immediately preceding the conversion of Rainbow Media Group
tracking stock into shares of Cablevision common stock.
- Cablevision and NBC have also agreed that:
- on all matters submitted to a vote of Cablevision
stockholders, other than the election of directors,
NBC-Rainbow Holding will vote all its shares of Cablevision
common stock (including Rainbow Media Group Class A
tracking stock) in the same proportion as the holders of
Cablevision Class A stock, other than NBC, AT&T Corp. and
their respective affiliates,
- NBC-Rainbow Holding will not transfer any shares of Rainbow
Media Holdings common stock without Cablevision's consent,
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- NBC-Rainbow Holding will not transfer (other than to a
wholly-owned subsidiary of NBC) any shares of Cablevision
common stock received upon an exchange for Rainbow Media
Holdings common stock during the 12-month period commencing
on the date of the initial distribution of Rainbow Media
Group tracking stock to the existing stockholders of
Cablevision,
- after such 12-month period has elapsed, NBC-Rainbow Holding
will be entitled to transfer shares of Rainbow Media Group
tracking stock in accordance with applicable securities
laws restrictions; provided that:
- any transferee of more than 10% of NBC-Rainbow
Holding's "original block" that intends to hold
those shares for investment will be required to
execute an agreement to be bound by the provisions
of the stockholders agreement between Cablevision
and NBC,
- any person that by virtue of a transfer of shares
from NBC-Rainbow Holding would own shares totalling
more than 50% of NBC-Rainbow Holding's "original
block" that intends to hold those shares for
investment will be required to execute an agreement
to be bound by the provisions of the stockholders
agreement between Cablevision and NBC, and
- Cablevision will have a right of first refusal prior
to any transfer by NBC-Rainbow Holding of more than
10% of its "original block" to a person intending to
hold those shares for investment at the price
established by NBC-Rainbow Holding and the proposed
transferee.
- NBC-Rainbow Holding will have ten demand registration
rights, five of which may be used for underwritten public
offerings of its Rainbow Media Group Class A tracking stock
and five of which may be used in order to consummate
sale or hedging transactions with respect to its Rainbow
Media Group Class A tracking stock. We will not be
obligated to effect more than one demand registration for
NBC-Rainbow Holding during any calendar year.
These agreements permit NBC to exchange into the tracking stock over
time, but ensure the economics of the exchange to Cablevision and its
stockholders are as if the exchange occurred at the time of the tracking stock
distribution to our common stockholders.
OPTIONS
The amendment to our stock option plan contemplated by Proposal 2 would
increase the number of shares of our common stock available for issuance under
our stock option plan by 19.2 million shares of Class A stock, any or all of
which may be Cablevision NY Group Class A common stock or Rainbow Media Group
Class A tracking stock.
Options to purchase shares of our existing Class A common stock that are
outstanding under our existing stock option plan immediately prior to the
tracking stock distribution (the "ADJUSTABLE OPTIONS") will be adjusted upon
completion of the distribution so that each holder of such an option, in
substitution therefor and cancellation thereof, will have two new options:
- one for the purchase of the number of shares of Cablevision
NY Group Class A common stock that would have been issuable
upon exercise of Adjustable Options immediately prior to
the tracking stock distribution (whether or not such
options are, in fact, then exercisable), and
- one for the purchase of a number of shares of Rainbow Media
Class A tracking stock equal to 50% (rounded up or down to
the nearest whole number with 1/2 rounded up) of the number
of shares of our existing Class A common stock that would
have been issuable upon exercise of such Adjustable Options
immediately prior to the tracking stock distribution
(whether or not such options are, in fact, exercisable).
The exercise price for each resulting Cablevision NY Group common stock
option and each Rainbow Media Group tracking stock option will be calculated by
multiplying the exercise price of the existing Adjustable Option by a fraction,
- the numerator of which is the average of the high and low
prices of the Class A stock of the applicable series
underlying the option on the first date that the stock is
traded, regular way, on the NYSE, following the tracking
stock distribution; and
- the denominator of which is the sum of the average of the
high and low prices of both series of Class A stock on the
first date that the stock is traded, regular way, on the
NYSE, following the tracking stock distribution.
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The other terms of each of such options at the time of issuance will be
the same as the terms of the Adjustable Options that they replace, including the
vesting schedule.
The board of directors will have the authority in its sole discretion to
issue authorized but unissued shares of common stock from time to time for any
proper corporate purpose. The board of directors will have the authority to do
so without your approval (except as provided by Delaware law or the rules and
regulations of any securities exchange on which any series of outstanding common
stock may then be listed).
In determining whether awards under our stock option plan in respect of
Cablevision NY Group Class A common stock, Rainbow Media Group Class A common
stock, or a combination thereof, are to be made to specific employees, it is
anticipated that the Compensation Committee will consider, among other things,
the identity of the Group to which the employee in question provides services.
It is also anticipated, however, that the Compensation Committee will consider
that employees should be rewarded based on the success of Cablevision as a whole
and that a policy of granting awards solely in respect of the common stock
relating to the Group for which the employee provides services may be
counterproductive to our overall success. In addition, because of the
complementary nature of the business of the Cablevision NY Group and the Rainbow
Media Group, it is anticipated that services performed in respect of one Group
would have at least an indirect effect upon the business of the other Group.
Therefore it is anticipated that the Compensation Committee could decide that in
order to provide the maximum incentive to employees regarding the overall
success of the Company, it may be appropriate to grant awards consisting of
securities in respect of both Groups to employees consisting of stock options
on, or stock appreciation rights respecting, both Cablevision NY Group Class A
common stock and Rainbow Media Group Class A common stock, with the allocation
between the two at the Compensation Committee's discretion.
RECOMMENDATION OF THE BOARD OF DIRECTORS
On [DATE], 2000, the board of directors carefully considered the tracking
stock proposal, determined the tracking stock proposal to be in the best
interests of Cablevision and its stockholders, unanimously approved it and
resolved to recommend that you vote "FOR" it.
BACKGROUND AND REASONS FOR THE TRACKING STOCK PROPOSAL
We continually review each of our businesses and Cablevision as a whole
to determine the best way to realize its inherent value. As a result of the
review process, we evaluated various restructuring alternatives, including a
"tracking stock" intended to reflect the separate economic performance of the
Rainbow Media Group. Upon management's recommendation and after extensive
consultation with our financial and legal advisors, the board of directors
determined that the issuance of tracking stock would be in the best interests of
Cablevision because, among other things, issuances of tracking stock, unlike the
issuance of direct stock, are expected to preserve certain favorable financial,
operational, strategic and other benefits of being a single consolidated entity.
POSITIVE ASPECTS OF THE TRACKING STOCK PROPOSAL
In arriving at its determination and recommendation, the board of
directors, with the assistance of its financial and legal advisors, considered,
among other things, the following:
POSSIBLE INCREASE IN RECOGNITION OF THE VALUE OF THE RAINBOW MEDIA GROUP.
We believe the creation of a Rainbow Media Group tracking stock will permit the
market to review separate information about the Rainbow Media Group and the
Cablevision NY Group and separately value the Rainbow Media Group and the
Cablevision NY Group. This should encourage investors and analysts to focus more
attention on the Rainbow Media Group and result in greater market recognition of
the value of the Rainbow Media Group.
GREATER FINANCIAL FLEXIBILITY. We believe the creation of a Rainbow Media
Group tracking stock will provide greater flexibility to raise capital and
respond to strategic opportunities (including acquisitions) because it will
allow us to issue either Cablevision NY Group common stock or Rainbow Media
Group tracking stock as appropriate under the circumstances.
ADVANTAGES OF DOING BUSINESS UNDER COMMON OWNERSHIP. The tracking stock
proposal could enable us to monetize some of the value of the Rainbow Media
Group while preserving the financial, operational, strategic and other benefits
of being a single consolidated entity.
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INCREASED STOCKHOLDER CHOICE. A corporation typically uses tracking stocks
in situations where the corporation has two or more businesses that have
distinctly different investor profiles. We believe the creation of a Rainbow
Media Group tracking stock will allow investors to invest in either or both
series of common stock, depending on their particular investment objectives.
MANAGEMENT INCENTIVES. We believe the creation of a Rainbow Media Group
tracking stock will permit the creation of more effective management incentive
and retention programs. In particular, it will allow us to issue stock-based
compensation and other incentive awards to employees of each Group that are tied
more directly to the performance of that Group.
IMPLEMENTATION OF TRACKING STOCK PROPOSAL NOT TAXABLE. In addition to the
considerations described above, the board of directors considered the
expectation that the implementation of the tracking stock proposal will not be
taxable for U.S. federal income tax purposes to us or to our stockholders.
POSSIBLE NEGATIVE ASPECTS OF TRACKING STOCK PROPOSAL
The board of directors also evaluated the potential negative aspects of
the tracking stock proposal, including the following:
- the tracking stock proposal will expand the board of directors'
responsibility to oversee the interests of two series of common
stockholders which may conflict at times,
- the potential diverging or conflicting interests between the
holders of Cablevision NY Group common stock and the holders of
Rainbow Media Group tracking stock and the issues that the board
of directors may face in resolving any conflicts,
- the tracking stock proposal will result in a complex capital
structure with two series of common stock which creates additional
reporting requirements with respect to each Group,
- the costs associated with implementing the tracking stock proposal
may be significant and the ongoing cost of operating separate
Groups will exceed the costs associated with operating Cablevision
as it currently exists,
- the use of a tracking stock in connection with a future
acquisition by Cablevision could have various adverse effects,
such as the possible inability or increased difficulty of
receiving a ruling from the Internal Revenue Service for an
acquisition designed to be tax-free, and
- the fact that the Clinton Administration's budget proposals that
were released in February 1999 included a provision that would, if
enacted in its proposed form, require recognition of gain by an
issuer upon its issuance of tracking stock and would authorize the
Treasury to treat tracking stock as nonstock or stock of another
entity (if this provision were enacted following the designation
of the tracking stock, Cablevision might decide to unwind the
tracking stock designation), and
- the fact that the Clinton Administration's budget proposals that
were released in February 2000 included a provision that would, if
enacted in its proposed form, treat the receipt of tracking stock
in a distribution made by a corporation with respect to its stock
or in an exchange for other stock in the issuing corporation as
the receipt of property other than stock of the issuing
corporation and would authorize the Treasury to treat tracking
stock as nonstock or stock of another entity (if this provision
were enacted following the designation of the tracking stocks,
Cablevision might decide to unwind the tracking stock
designation).
The board of directors determined that the positive aspects of the
tracking stock proposal outweighed the negative aspects and concluded that the
tracking stock proposal is in the best interests of Cablevision and its
stockholders. In light of the number and variety of factors that the board of
directors considered, the board of directors believes it is not practicable to
assign relative weights to the factors discussed above, and accordingly, the
board of directors did not do so.
The tracking stock proposal will authorize the board of directors to
distribute Rainbow Media Group tracking stock in such manner as the board of
directors shall determine. The board of directors currently intends to
distribute Rainbow Media Group Class B tracking stock (which has a higher vote
per share that the Rainbow Media Group Class A tracking stock) to holders of our
Class B common stock (which will have been redesignated as "Cablevision NY Group
Class B common stock")
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and Rainbow Media Group class A tracking stock to holders of our Class A
common stock (which will have been redesignated as "Cablevision NY Group Class A
common stock"). The board of directors believes that the tracking stock proposal
is in the best interests of our stockholders and that the proposal and the
anticipated distribution of the Rainbow Media Group tracking stock should be
structured in a manner which does not alter the relative voting rights of the
holders of existing Class A common stock and Class B common stock. In addition,
the tracking stock proposal cannot be adopted without the favorable vote of
holders of not less than 66 2/3% of the outstanding shares of Class B common
stock and certain holders of Class B Common Stock indicated informally that
their support would not exist if the tracking stock proposal and the subsequent
distribution would have the effect of diminishing the relative voting power of
the Class B common stockholders.
DIVIDEND POLICY
We have never paid dividends on our common stock and we currently intend to
retain all of our earnings to finance our operations, repay our indebtedness and
fund future growth. We do not expect to pay dividends on Cablevision NY Group
common stock or Rainbow Media Group tracking stock for the foreseeable future.
For a further description of dividends in respect of the Cablevision NY Group
common stock and the Rainbow Media Group tracking stock, see "Description of
Cablevision NY Group Common Stock and Rainbow Media Group tracking stock -
Dividends".
CERTAIN INTER-GROUP RELATIONSHIPS
TREASURY ACTIVITIES
Historically, we have managed the financial activities, including the
issuance, repayment and repurchase of short-term and long-term debt, the
disbursement of funds, the investment of surplus cash and the issuance and
repurchase of common and preferred stock for Rainbow Media Holdings and its
subsidiaries separate from the activities of CSC Holdings and its other
subsidiaries.
Within each of these groups, separate credit facilities have been
established where possible based on the underlying assets and creditworthiness
of individual entities. Within Rainbow Media Holdings, separate credit
facilities currently exist for Rainbow Media Holdings, American Movie Classics
and Madison Square Garden. In addition, Rainbow Media Holdings entities' cash
requirements have been met from time to time with cash contributions from
strategic equity partners, such as Fox, and from time to time, excess cash from
certain entities has been lent or distributed to other Rainbow Media Holdings
entities with a funding requirement. Further, certain expenses, in particular
stock plan expense and certain interest charges attributed to the Rainbow Media
Group, have been paid for by the Cablevision NY Group with no reimbursement.
These charges have been recorded in the financial statements of each Group as
capital contributions.
It is our intent to further separate the financing arrangements between
the tracked and non-tracked assets within Rainbow Media Holdings after the
issuance of the Rainbow Media Group tracking stock, such that the Rainbow Media
Holdings' entities which are part of the Rainbow Media Group tracking stock will
secure funding arrangements independent from the Cablevision NY Group, including
the Rainbow Media Holdings businesses that are part of the Cablevision NY Group.
The primary source of the Rainbow Media Group financing is expected to be
provided by a bank credit facility, which Cablevision is currently in
discussions to establish. The Cablevision NY Group common stock will continue to
rely on separately established financing arrangements independent from the
Rainbow Media Group, including, in the case of the assets within Rainbow Media
Holdings that are part of the Cablevision NY Group, the Madison Square Garden
credit facility. In addition, it is our intent that any charges paid by the
Cablevision NY Group which are attributable or allocated to the Rainbow Media
Group will be reimbursed by the Rainbow Media Group, and that any charges paid
by the Rainbow Media Group which may be attributable to the Cablevision NY Group
will be reimbursed by the Cablevision NY Group.
Although the board of directors may, in its sole discretion, determine
that the Groups' funding requirements should no longer be separated, it is our
current intent to:
- allocate each future issuance or incurrence of debt or preferred
stock (and the proceeds thereof) to the Group to which the obligor
or issuer belongs (for example, borrowings by Bravo under the
proposed Rainbow Media Group bank credit facility would be
allocated to Bravo and to the Rainbow Media Group and borrowings
by Madison Square Garden under its credit facility would be
allocated to Madison Square Garden, which is part of the
Cablevision NY Group); and
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- attribute each future issuance of Cablevision NY Group common
stock (and the proceeds thereof) to the Cablevision NY Group and
each future issuance of Rainbow Media Group tracking stock (and
the proceeds thereof) to the Rainbow Media Group. It is also
Cablevision's current intention that dividends on and repurchases
of Cablevision NY Group common stock will be charged against the
Cablevision NY Group and dividends on and repurchases of Rainbow
Media Group tracking stock will be charged against the Rainbow
Media Group.
In the event that the Cablevision board determines in its business
judgment that it is appropriate for the Cablevision NY Group to provide funding
to the Rainbow Media Group or for the Rainbow Media Group to provide funding to
the Cablevision NY Group, the board will also determine whether such a cash
transfer should be treated as a revolving credit advance, long term loan or
other type of investment. Factors the board may consider in this determination
may include:
- the current and projected capital structure of each Group,
- the relative levels of internally generated funds of each Group,
- the financing needs and objectives of the recipient Group,
- the investment objectives of the transferring Group,
- the availability, cost and timing associated with alternative
financing sources, and
- prevailing interest rates and general economic conditions.
Any cash transfers that may occur and be accounted for as a revolving
credit advance, long-term loan or preferred stock contribution will bear
interest or accrue dividends and have other terms and conditions determined by
the board of directors to be reflective of interest or dividend rates, terms and
conditions that generally reflect the prevailing market terms.
TRACKING STOCK POLICY STATEMENT
In connection with the creation and issuance of our Rainbow Media Group
tracking stock, our board of directors will, effective upon the issuance of our
Rainbow Media Group tracking stock, adopt our tracking stock policy statement,
which we initially intend to follow, but which we may change at any time and
from time to time in the sole discretion of our board of directors, as described
below under "Amendment and Modification to our Tracking Stock Policy Statement".
This section sets forth our initial tracking stock policy statement.
GENERAL POLICY
Our board of directors has determined that, except as described in this
tracking stock policy statement, all material matters in which holders of
Cablevision NY Group common stock and Rainbow Media Group tracking stock may
have divergent interests will be generally resolved in a manner that is in the
best interests of Cablevision and all of its shareholders after giving fair
consideration to the potentially divergent interests and other relevant
interests of the holders of the separate classes and series of our common stock.
As described in this tracking stock policy statement, this general policy will
be carried out in a manner that continues to recognize the unique value that the
businesses and interests forming the Rainbow Media Group and the businesses and
interests forming the Cablevision NY Group have historically generated for each
other. As a result, in furtherance of this tracking stock policy statement, the
Rainbow Media Group and the Cablevision NY Group may enter into inter-Group
commercial transactions that are not on an arm's-length basis and are different
than the commercial transactions that either Group would have entered into with
an unaffiliated third party.
RELATIONSHIP BETWEEN THE CABLEVISION NY GROUP AND THE RAINBOW MEDIA GROUP
GENERAL. Under this tracking stock policy statement, we will seek to
manage the Cablevision NY Group and the Rainbow Media Group in a manner designed
to maximize the operations, assets and value of the entire company. In that
process, we will continue to recognize the unique value that the businesses and
interests forming the Rainbow Media Group and the businesses and interests
forming the Cablevision NY Group have historically generated for each other.
We believe that Rainbow Media Holdings should continue to be a leader in
the innovation of cable programming and that we should foster that innovation by
continuing to provide the businesses that will comprise the Rainbow Media Group
with an outlet for such cable programming on our cable television systems, which
will be part of the Cablevision NY Group. For example, in carrying out this
belief historically, especially when the Cablevision NY Group has become the
initial outlet for new programming from the businesses of the Rainbow Media
Group, the Cablevision NY Group has given Rainbow Media Group networks
preferential roll-out timing on its cable television systems, has not
historically received launch support or marketing
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support payments from the Rainbow Media Group and has not received periods where
networks are provided to all subscribers without charge, or "free subscriber
months", from Rainbow Media Group networks. On the other hand, the Cablevision
NY Group has used a great deal of discretion in positioning and repositioning
the Rainbow Media Group networks on its cable television systems and rates
under the affiliation agreements between the national entertainment
networks of the Rainbow Media Group and the businesses that will comprise the
Cablevision NY Group reflect the Cablevision NY Group's support of Rainbow Media
Group's development of programming services. This relationship is one that we
intend to continue under this tracking stock policy statement.
CONTRACTUAL AGREEMENTS BETWEEN THE GROUPS. In connection with the
issuance of the Rainbow Media Group tracking stock, we will enter into and/or
continue a number of agreements between members of the Cablevision NY Group and
members of the Rainbow Media Group. Except as noted in this tracking stock
policy statement, these agreements will continue arrangements that have existed
historically, either pursuant to written agreements or course of dealing. Except
as provided in this tracking stock policy statement, consistent with past
practice, these arrangements may or may not be on arm's-length terms, and may
or may not be provided to unaffiliated third parties on the same terms as such
arrangements are provided pursuant to the terms of this tracking stock policy
statement, if at all. Although we intend to carry out the arrangements on the
terms described below, under this tracking stock policy statement, our board of
directors may modify, suspend or cancel these agreements in its sole discretion.
These agreements are as follows:
- Each of the national networks existing on the date of the issuance
of the Rainbow Media Group tracking stock (AMC, Bravo, IFC,
Romance Classics, MuchMusic) will continue to be carried on the
Cablevision NY Group cable television systems carrying those
services on the date of the tracking stock distribution under
affiliation agreements. As noted above, the terms of carriage have
historically been favorable to the Cablevision NY Group reflecting
the Cablevision NY Group's support of Rainbow Media Group's
development of programming services. The affiliation agreements,
which have terms of between 3 and 5 years, also provide for
automatic renewal on the same terms as the initial agreements.
These affiliation agreements result in both the recognition of
revenue for the Rainbow Media Group and expense for the
Cablevision NY Group.
- The Cablevision NY Group has historically provided and, through a
services agreement, will continue to provide general management
and other corporate services, including executive, treasury,
controller, legal, audit, accounting, tax, advertising sales,
employee resources and benefits, purchasing, billing and
collections, voice and data services, information services,
transportation, facilities, insurance, research and strategic
marketing, security services, and such future services as the
parties may agree, to the Rainbow Media Group. The Rainbow Media
Group reimburses the Cablevision NY Group for costs and expenses
incurred by the Cablevision NY Group in connection with providing
these services. The services agreement also provides that the
Rainbow Media Group will from time to time provide services to the
Cablevision NY Group, including, without limitation, uplink
services, in each case, on such terms and conditions as the
parties may reasonably determine. The services agreement is
automatically renewed every five years unless either party elects
to terminate it except that if there is a breach by either party
or either party is bankrupt, the agreement is immediately
terminable at the option of the other party. Amounts paid by the
Rainbow Media Group represent an expense to that Group and revenue
to the Cablevision NY Group and vice versa.
- Cablevision and AMC are parties to a consulting agreement.
Cablevision will continue the consulting agreement with AMC and
Romance Classics. The consulting agreement will apply to those
businesses and to any future businesses owned by AMC and Romance
Classics and will require the reimbursement of the costs and
expenses incurred by the Cablevision NY Group in connection with
the consulting agreement and payment of an annual fee equal to
3.5% of the gross revenues of the respective businesses for the
applicable year. The consulting agreement is automatically renewed
every five years unless the Cablevision NY Group elects to
terminate it, except that if there is a breach by any party or any
party is bankrupt, the agreement is immediately terminable at the
option of the other party. Amounts paid by the Rainbow Media Group
represent an expense to that Group and offsets the expense of the
Cablevision NY Group.
In addition, subsidiaries of the Cablevision NY Group are parties to
various agreements with third parties under which the rights and obligations of
the Cablevision NY Group and the Rainbow Media Group have been allocated between
the Groups. Under these agreements, we have historically allocated the rights
and obligations, including the right to receive payments, between the members of
the Cablevision NY Group and the Rainbow Media Group and that allocation is
reflected in the financial statements of the two Groups presented herein. Under
the tracking stock policy statement, the historic allocation in place on the
date of the tracking stock distribution would continue to govern existing
agreements unless modified by our board of directors,
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and allocations under new agreements would be determined in accordance with the
general guidelines of the tracking stock policy statement.
OTHER RELATIONSHIPS BETWEEN THE GROUPS. The relationships between the two
Groups that are not included in the agreements described above will be governed
by this tracking stock policy statement.
These relationships could include any or all of the following:
- carriage of existing Rainbow Media Group networks by Cablevision
NY Group cable television systems where such services are not
carried on the date of the tracking stock distribution;
- carriage of new Rainbow Media Group networks by Cablevision NY
Group cable television systems;
- provision of promotion opportunities for Rainbow Media Group
networks on set-top boxes in Cablevision NY Group cable television
systems;
- featuring broadband content and future digital services of Rainbow
Media Group networks on Cablevision NY Group's high speed internet
service;
- launch fees and tenant fees payable from the Rainbow Media Group
to the Cablevision NY Group in connection with the carriage of
existing or new services, the integration of available interactive
features into existing programming, and featuring broadband
content for internet distribution;
- free subscriber months for Cablevision NY Group subscribers in
connection with the carriage of existing or new services, the
integration of available interactive features into existing
programming and featuring broadband content for internet
distribution;
- cash or in-kind marketing support, in-market promotional support
and advertising availability for the Cablevision NY Group in
connection with the carriage of existing or new services, the
integration of available interactive features into existing
programming and featuring broadband content for internet
distribution; and
- revenue sharing provisions in connection with the carriage of
existing or new services, the integration of available interactive
features into existing programming and featuring broadband content
for internet distribution.
Examples of situations in which these relationships could be implemented
and the commitments to be made in implementing the initial tracking stock policy
statement are discussed more fully below:
CARRIAGE OF NEW RAINBOW MEDIA GROUP SERVICES. The Cablevision NY Group
would, upon the reasonable request of the Rainbow Media Group, provide digital
distribution of new networks created by the Rainbow Media Group, on the
Cablevision NY Group's owned or managed cable television systems reasonably
requested by the Rainbow Media Group. The Cablevision NY Group will use
reasonable efforts to position any such networks at such level as the Rainbow
Media Group may reasonably request; provided that the Rainbow Media Group
acknowledges the Cablevision NY Group's right to package or price any such
networks to its customers in its sole discretion, subject to any contractual
limitations pertaining to the Rainbow Media Group. The terms and conditions
applicable to the carriage of such networks may, upon the reasonable request of
the Cablevision NY Group, include launch fees, free subscriber months, cash or
in-kind marketing support, in-market promotional support, advertising
availability and revenue sharing provisions in exchange for such commitment.
INTEGRATION OF INTERACTIVE FEATURES INTO EXISTING RAINBOW MEDIA GROUP
PROGRAMMING BY THE CABLEVISION NY GROUP. To the extent it is technically
feasible to do so, and to the extent the Rainbow Media Group has all necessary
rights to do so, the Cablevision NY Group would, upon the reasonable request of
the Rainbow Media Group, integrate available interactive features into any of
the programming described herein, including, without limitation, offering all or
parts of such programming on a video-on-demand basis and enabling interactive
marketing or e-commerce opportunities. The terms and conditions applicable to
the provision of such opportunities may, upon the reasonable request of the
Cablevision NY Group, include launch fees, tenant
56
<PAGE> 67
fees, free subscriber months, cash or in-kind marketing support, in-market
promotional support, advertising availability and revenue sharing provisions in
exchange for such commitment.
PROMOTION OF RAINBOW MEDIA GROUP NETWORKS ON CABLEVISION NY GROUP
SYSTEMS. The Cablevision NY Group would, upon the reasonable request of the
Rainbow Media Group, provide each Rainbow Media Group network with placement on
any channel guide or program selection mechanism included in its digital set-top
offering. The Cablevision NY Group will use reasonable efforts to position any
such content at the level as the Rainbow Media Group may reasonably request;
provided that the Rainbow Media Group acknowledges the Cablevision NY Group's
right to package or price any such content to its customers in its sole
discretion, subject to any contractual limitations pertaining to the Rainbow
Media Group.
FEATURING RAINBOW MEDIA GROUP NETWORKS ON THE CABLEVISION NY GROUP'S
HIGH-SPEED INTERNET SERVICE. The Cablevision NY Group would, upon the reasonable
request of the Rainbow Media Group, feature any broadband content created by the
Rainbow Media Group for internet distribution, on its Optimum On-Line high-speed
internet service or on any successor to such service. The Cablevision NY Group
will use reasonable efforts to position any such content at such level as the
Rainbow Media Group may reasonably request; provided that the Rainbow Media
Group acknowledges the Cablevision NY Group's right to package or price any such
content to its customers in its sole discretion, subject to any contractual
limitations pertaining to the Rainbow Media Group. The terms and conditions
applicable to the carriage of such broadband content may, upon the reasonable
request of the Cablevision NY Group, include launch fees, free subscriber
months, cash or in-kind marketing support, in-market promotional support,
advertising availability and revenue sharing provisions in exchange for such
commitment.
In accordance with this tracking stock policy, these relationships may or
may not be on an arm's-length basis, may or may not be consistent with past
practice, and may or may not be consistently applied to all situations in the
future. In addition, these opportunities may or may not be made available to
third parties and similar arrangements may or may not be available from third
parties.
TAXES
Cablevision cannot currently file federal income tax returns that reflect
the operations of both the Cablevision NY Group and the Rainbow Media Group on a
consolidated return basis, as a significant portion of the operating assets of
the Rainbow Media Group are held directly or indirectly by Rainbow Media
Holdings, which is not, given the current ownership of Rainbow Media Holdings'
stock, includible as a member of Cablevision's consolidated return group for
federal income tax purposes. To the extent that federal and state income taxes
are determined on a basis that includes operations or assets of both the
Cablevision NY Group and the Rainbow Media Group, such taxes will be allocated
to each Group, and reflected in their respective financial statements, in
accordance with Cablevision's tax allocation policy. In general, this policy
provides that the consolidated tax provision, and related tax payments or
refunds, will be allocated between the Groups based principally upon the
financial income, taxable income, credits and other amounts directly related to
the respective Groups. Under the policy, the amount of taxes payable or
refundable, which are allocated to the Rainbow Media Group in circumstances
where consolidated federal or state income tax returns are filed, will generally
be comparable to those that would have resulted if the Groups had filed separate
tax returns. Accordingly, the Rainbow Media Group will only realize the benefits
of its tax attributes when it generates sufficient taxable income to utilize
such attributes.
AMENDMENT AND MODIFICATION TO OUR TRACKING STOCK POLICY STATEMENT
Our board of directors may modify, suspend or rescind the policies set
forth in this tracking stock policy statement, including any resolution
implementing the provisions of this policy statement. Our board of directors may
also adopt additional or other policies or make exceptions with respect to the
application of the policies described in this tracking stock policy statement in
connection with particular facts and circumstances, all as our board of
directors may determine, consistent with its fiduciary duties to Cablevision and
all of our shareholders.
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<PAGE> 68
LIQUIDITY AND CAPITAL RESOURCES
We do not have any operations independent of our subsidiaries. In
addition, we have no borrowings and do not have any securities outstanding other
than our Class A common stock and Class B common stock, and, after issuance of
the proposed Rainbow Media Group tracking stock, Cablevision NY Group Class A
common stock, Cablevision NY Group Class B common stock, Rainbow Media Group
Class A tracking stock and Rainbow Media Group Class B tracking stock, on which
we do not intend to pay any dividends in the foreseeable future. Accordingly, we
do not have cash needs independent of the needs of our subsidiaries.
The following table presents selected historical results of operations
and other financial information related to the captioned groups or entities as
of and for the year ended December 31, 1999.
<TABLE>
<CAPTION>
Revenues AOCF*
-------- -----
(dollars in thousands)
CABLEVISION NY GROUP:
<S> <C> <C>
Restricted Group**.................................. $ 2,080,554 $ 916,107
New Media***........................................ 70,754 126
Rainbow NY Group.................................... 877,990 102,744
Retail Electronics.................................. 603,294 (37,934)
Other (including eliminations)...................... (30,865) (51,996)
------------- -----------
CABLEVISION NY GROUP............................ $ 3,601,727 $ 929,047
============= ===========
RAINBOW MEDIA GROUP..................................... $ 361,756 $ 87,902
============= ===========
<CAPTION>
Interest Expense Capital Expenditures
---------------- --------------------
(dollars in thousands)
CABLEVISION NY GROUP:
<S> <C> <C>
Restricted Group**.................................. $ 404,696 $ 643,526
New Media***........................................ 115 89,003
Rainbow NY Group.................................... 23,495 78,625
Retail Electronics.................................. 10,192 35,106
Other (including eliminations)...................... (1,010) 12,263
------------- --------------
CABLEVISION NY GROUP............................ $ 437,488 $ 858,523
============= ==============
RAINBOW MEDIA GROUP..................................... $ 33,061 $ 12,643
============= ==============
</TABLE>
---------------------------
* Defined as operating income (loss) before depreciation and amortization
and excluding incentive stock plan expense of $255,789 and the costs of
Year 2000 remediation of $41,477.
** Includes systems held for sale.
*** Consists of developmental operations, including those of systems held for
sale.
LIQUIDITY AND CAPITAL RESOURCES - CABLEVISION NY GROUP
2000 OUTLOOK
For 2000, we forecasted capital investment of between $800 and $850
million in our cable, Long Island commercial telephone and New Media businesses.
This capital includes investments for digital video services in anticipation of
a pilot rollout of Sony digital boxes in the fourth quarter of this year, cable
modem services, as we double the number of homes marketed for such services, and
the development of commercial telephone services outside Long Island. In
addition, for 2000, we forecasted capital investments aggregating between $205
and $245 for the Rainbow Media Holdings' subsidiaries included in the
Cablevision NY Group, which we call the Rainbow NY Group, retail electronics,
theatres and corporate activities. Our non-New York metropolitan area systems
held for sale in Massachusetts, Ohio and Michigan are anticipated to have
capital requirements of between $200 million and $250 million, covering
primarily plant rebuild and developmental activities.
Funding for the Cablevision NY Group's ongoing capital investment and
operational requirements is generally provided through separate financial
arrangements made available to the Restricted Group, Madison Square Garden and
the WIZ. Debt and redeemable preferred stock attributable to Cablevision NY
Group, as of March 31, 2000, are outlined in the table below.
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<PAGE> 69
<TABLE>
<CAPTION>
Restricted Other
Group Entities Total
----- -------- -----
(dollars in thousands)
Senior Debt:
<S> <C> <C> <C>
Restricted Group senior debt.................... $1,666,948 - $1,666,948
MSG senior debt................................. - $380,000 380,000
Retail Electronics senior debt.................. - 75,569 75,569
Other senior debt and capital leases............ - 35,627 35,627
Senior notes and debentures..................... 2,692,754 - 2,692,754
Subordinated notes and debentures............... 1,048,546 - 1,048,546
--------- --------- ---------
5,408,248 491,196 5,899,444
--------- --------- ---------
Redeemable preferred stock of CSC Holdings............ 1,444,210 - 1,444,210
--------- --------- ---------
Total debt and redeemable preferred stock............. $6,852,458 $491,196 $7,343,654
========== ========= ==========
</TABLE>
RESTRICTED GROUP
The Cablevision NY Group's Restricted Group consists of CSC Holdings Inc.
and its cable operations in and around the greater New York City metropolitan
area, in and around the greater Cleveland, Ohio metropolitan area, in and around
the Boston, Massachusetts metropolitan area, and in Kalamazoo, Michigan, as well
as the commercial telephone operations of Cablevision Lightpath, Inc. on Long
Island, New York. At March 31, 2000, the Restricted Group encompassed
approximately 3,504,126 cable television subscribers, including approximately
716,735 subscribers in its Ohio, Massachusetts and Michigan systems. During 1999
and early 2000, as described in our Form 10-K and our March 31, 2000 Form 10-Q,
we announced the sale of our cable systems in Ohio, Massachusetts and Michigan.
Cablevision NY Group expects to apply the proceeds received, which may include
proceeds from the monetization of common stock received in such transactions,
toward the reduction of outstanding debt. The consummation of each of these
transactions is subject to the receipt of franchise transfer and other required
approvals.
The Restricted Group's plant upgrade, combined with additional amounts
required for the start up and operation of new businesses such as high speed
internet access, digital video services, the expansion of residential telephone
services and the roll out of non-Long Island based commercial telephone business
(collectively, "NEW MEDIA"), as well as additional investments or acquisitions,
including potential investments in the Rainbow NY Group programming entities
other than MSG, will require significant additional funding. The Restricted
Group expects to obtain the requisite funds through internally generated cash,
amounts available under existing credit facilities, proceeds from asset sales
and/or additional capital markets issuances.
As of July 10, 2000, the Restricted Group had in total $2.2 billion in
reducing revolving credit facilities, consisting of a $1.2 billion facility
available to Cablevision MFR Inc. and certain of our New Jersey subsidiaries and
a $1.0 billion facility available to CSC Holdings, Inc. and other Restricted
Group subsidiaries. Both facilities mature in March 2007 and begin to reduce in
June 2001. As of July 10, 2000, the Restricted Group had total drawings under
these credit facilities of $1.9 billion and letters of credit of $39 million.
Unrestricted and undrawn funds available to the Restricted Group amounted to
approximately $278 million as of July 10, 2000.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
As of July 10, 2000
(in thousands)
--------------
-------------------------------------------------------------------
CSC Holdings MFR Total
------------ --- -----
<S> <C> <C> <C>
Total facility.................................. $1,000,000 $1,200,000 $2,200,000
Outstanding debt................................ 847,000 1,036,000 1,883,000
Outstanding letters of credit................... 39,000 -- 39,000
---------- ---------- ----------
Availability................................. $ 114,000 $ 164,000 $ 278,000
========== ========== ==========
</TABLE>
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<PAGE> 70
The Restricted Group's credit facilities contain certain financial
covenants that may limit its ability to utilize all of the undrawn funds
available thereunder, including covenants requiring the Restricted Group to
maintain certain financial ratios and restricting the permitted uses of borrowed
funds.
To provide additional availability until such time as the sale of our
Ohio, Massachusetts and Michigan cable systems close, CSC Holdings has obtained
an additional $450 million bank credit facility. This facility will be repaid
with cash proceeds received from the sales or upon monetization of any stock
received in such sales and matures in July 2001 and contains terms and
conditions similar to those of the Restricted Group's existing bank credit
facilities.
As of July 10, 2000, CSC Holdings had entered into interest exchange
(swap) agreements with several of its banks covering a notional principal amount
of $300 million. Swaps in the aggregate of $250 million require CSC Holdings to
pay a floating rate of interest by CSC Holdings and mature in August 2000.
In November 1999, CSC Holdings entered into an interest rate cap
agreement with American Movie Classics, a Rainbow Media Group entity, in a
notional principal amount of $105 million. The agreement caps AMC's floating
interest costs paid on the basis of LIBOR at 7.0% through May 2001 and at 7.5%
from May 2001 through May 2002 in exchange for a cash payment made to CSC
Holdings.
MADISON SQUARE GARDEN
MSG has a $500 million revolving credit facility maturing on December 31,
2004. As of July 10, 2000, outstanding debt under this facility was $380
million. In addition, MSG had outstanding letters of credit of $13.1 million,
resulting in unrestricted and undrawn funds available amounting to $106.9
million. The MSG credit facility contains certain financial covenants that may
limit its ability to utilize all of the undrawn funds available thereunder,
including covenants requiring MSG to maintain certain financial ratios. We
believe that for MSG, internally generated funds, together with funds available
under its existing credit agreement will be sufficient to meet its projected
funding requirements for the next twelve months, including requirements of
certain of Rainbow NY Group's programming-related entities.
Garden Programming LLC, an unrestricted subsidiary of MSG, has a $20
million term loan maturing on July 11, 2002. Garden Programming LLC has in turn
made a $40 million loan to an unrelated entity, maturing on November 1, 2011.
RETAIL ELECTRONICS
Cablevision Electronics has a $130 million stand alone credit facility.
Under the terms of the credit facility, the total amount of borrowing available
to Cablevision Electronics is subject to an availability calculation based on a
percentage of eligible inventory. On July 10, 2000, usage under the credit
facility was $91.6 million, with $0.1 million available thereunder based on the
level of inventory as of that date. As of July 10, 2000, CSC Holdings' total
cash investment in Cablevision Electronics, including equity and intercompany
loans, totaled $240.4 million. Cablevision Electronics has also received
financial support from CSC Holdings of approximately $40.3 million through July
10, 2000 in the form of letters of credit, guarantees, and intercompany
receivables. We believe that Cablevision Electronics will require additional
financial support from CSC Holdings in respect of planned increases in
inventory, capital expenditures, and other operating requirements and that funds
available under Cablevision Electronics' credit agreement, together with this
additional financial support, will be sufficient to meet its projected funding
requirements for the next twelve months.
CCG Holdings
CCG Holdings, Inc., which owns our motion picture theater assets, currently has
a $15 million revolving credit bank facility maturing on June 30, 2003. As of
July 10, 2000, $12.0 million was outstanding under this bank facility. The
Company believes that for CCG Holdings, Inc., internally generated funds,
together with funds available under the existing credit agreement or from CSC
Holdings, Inc. will be sufficient to meet its projected funding requirements
for the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES - RAINBOW MEDIA GROUP
2000 OUTLOOK
For 2000, we projected that the Rainbow Media Group would have capital
investment requirements of approximately $20 to $30 million, primarily to
upgrade the Rainbow Networks Communications technology and for other production
equipment. In addition, the Rainbow Media Group has committed to make available
up to $150 million to fund expenses and investments of Sterling Digital.
RAINBOW MEDIA
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<PAGE> 71
Financing for the Rainbow Media Group entities has historically been
provided by a combination of bank credit facilities, intercompany borrowings,
and, from time to time, by equity contributions from partners. Currently,
Rainbow Media Holdings and American Movie Classics each have bank credit
facilities. Borrowings under the Rainbow Media Holdings credit facility have
been used primarily to support businesses of the Rainbow Media Group and, to a
considerably lesser extent certain Rainbow NY Group entities. All outstanding
debt of Rainbow Media Holdings is being attributed to the Rainbow Media Group.
It is our intent to replace the outstanding debt of American Movie
Classics and Rainbow Media Holdings with up to a $1 billion bank credit facility
based on the cash flows of American Movie Classics, Bravo and the Independent
Film Channel. The facility would provide availability to fund cash requirements
of all of the Rainbow Media Group, including those of Sterling Digital as
discussed above. We are currently in discussions with banks to establish such a
facility; however, no assurances can be given that we will be able to obtain the
new credit facility on acceptable terms and conditions or at all.
The Rainbow Media Group's potential future investments in new programming
content and services, such as new digital channels, will require significant
funding. We may obtain this funding through internally generated funds,our
proposed credit facility, through equity capital, through public debt
securities, or a combination thereof. However, no such assurances can be given
that such funding will be obtained on satisfactory terms and conditions, or at
all.
As of July 10, 2000, Rainbow Media Holdings' credit facility consisted of
a $300 million non-amortizing revolving credit facility maturing on December 31,
2000, of which $79.5 million was restricted to provide for repayment of a like
amount of intercompany borrowings from Regional Programming Partners. Direct
borrowings as of July 10, 2000 amounted to $196 million, leaving a balance of
$24.5 million available as of that date.
American Movie Classics, a wholly-owned subsidiary of Rainbow Media
Holdings and part of the Rainbow Media Group, has a $425 million credit facility
consisting of a $200 million reducing revolving credit facility and a $225
million amortizing term loan, both of which will mature on March 31, 2006. The
amount of the available commitment will not begin to be reduced until June 2004.
As of July 10, 2000, American Movie Classics had outstanding borrowings of $360
million and unrestricted funds available of $65 million.
Both the Rainbow Media Holdings' and American Movie Classics credit
facilities contain certain financial covenants that may limit the ability to
utilize all of the undrawn funds available, including covenants requiring that
certain financial covenants be maintained.
In November 1999, CSC Holdings entered into an interest rate cap
agreement with American Movie Classics in a notional principal amount of $105
million. The agreement caps AMC's floating interest costs paid on the basis of
LIBOR at 7.0% through May 2001 and at 7.5% from May 2001 through May 2002 in
exchange for a cash payment made to CSC Holdings.
DESCRIPTION OF CABLEVISION NY GROUP COMMON STOCK AND RAINBOW MEDIA GROUP
TRACKING STOCK
--------------------------------------------------------------------------------
THE FOLLOWING DESCRIPTION IS NOT COMPLETE AND SHOULD BE READ WITH ANNEX II TO
THIS DOCUMENT, WHICH CONTAINS THE FULL TEXT OF THE AMENDED CHARTER THAT WILL BE
FILED PURSUANT TO THE TRACKING STOCK PROPOSAL.
--------------------------------------------------------------------------------
GENERAL
Our current amended and restated certificate of incorporation (which we
call the "CURRENT CHARTER") authorizes us to issue 570 million shares,
consisting of 400 million shares of Class A common stock, par value $.01 per
share (our existing "CLASS A COMMON STOCK"), 160 million shares of Class B
common stock, par value $.01 per share (our existing "CLASS B COMMON STOCK"),
and 50 million shares of preferred stock, par value $.01 per share (our
"PREFERRED STOCK"). Only our preferred stock is currently issuable in series by
the board of directors. As of March 31, 2000, we had approximately 130.3 million
shares of Class A common stock, 43.1 million shares of Class B common stock and
no shares of preferred stock issued and outstanding.
In order to implement the tracking stock proposal, we would file the
certificate of amendment which would amend our current charter. The amended
charter would alter the terms of the series of our existing Class A common stock
and Class B common stock to:
- increase the number of authorized shares of common stock from 570
million to 1.88 billion, of which:
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<PAGE> 72
- 800 million would be Cablevision NY Group Class A common
stock,
- 320 million would be Cablevision NY Group Class B common
stock,
- 600 million would be Rainbow Media Group Class A tracking
stock, and
- 160 million would be Rainbow Media Group Class B tracking
stock,
- authorize the board of directors to change the terms of our
existing Class A common stock and Class B common stock to:
- redesignate our Class A common stock into Cablevision NY
Group Class A common stock, and
- redesignate our Class B common stock into Cablevision NY
Group Class B common stock,
- create and authorize the board of directors to issue shares of:
- Rainbow Media Group Class A tracking stock, and
- Rainbow Media Group Class B tracking stock,
- define the assets and liabilities to be attributed to each of the
Cablevision NY Group and the Rainbow Media Group,
- provide for the other terms relating to each Group and class of
common stock, and
- permit and authorize the board of directors to distribute Rainbow
Media Group Class A tracking stock in respect of our existing
Class A common stock, which will have been redesignated
Cablevision NY Group Class A common stock, and Rainbow Media Group
Class B tracking stock in respect of our existing Class B common
stock, which will have been redesignated Cablevision NY Group
Class B common stock.
Cablevision NY Group common stock and Rainbow Media Group tracking stock
will have dividend and liquidation rights and redemption and exchange terms that
attempt to provide economic rights in the businesses they track that are similar
to the rights that common stock would have if the "tracked business" were a
separate corporation. Our goal in creating these separate securities is to
enable the market to treat each security as if it represented an ownership
interest in a separate corporation and to react to the business performance and
transactions of each Group as if it were stock in a separate corporation. We
have allocated, for financial accounting purposes, all of our consolidated
assets, liabilities, revenue, expenses and cash flow between the Cablevision NY
Group and the Rainbow Media Group. In the future, we will publish financial
statements of the Cablevision NY Group and the Rainbow Media Group together with
the consolidated financial statements of Cablevision and CSC Holdings.
"RAINBOW MEDIA GROUP" means:
- our interest in our five nationally distributed entertainment
programming networks,
- our interest in our six regional Fox Sports Net networks outside
of the New York metropolitan area,
- our interest in National Sports Partners,
- our interest in Regional Sports News, LLC,
- our interest in National Advertising Partners,
- Rainbow Network Communications,
- Sterling Digital,
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<PAGE> 73
- all other businesses, assets and liabilities of Cablevision and
its subsidiaries that the board of directors has by resolution, as
of the Effective Date, allocated to the Rainbow Media Group,
- any businesses, assets or liabilities, developed, acquired or
incurred after the Effective Date in the ordinary course of
business by our businesses or the businesses of any of our
subsidiaries that have been allocated to the Rainbow Media Group
unless our board of directors has by resolution allocated such
businesses, assets or liabilities to the Cablevision NY Group,
- any businesses, assets or liabilities, developed, acquired or
incurred by Cablevision or any of its subsidiaries after the
Effective Date that the board of directors has allocated to the
Rainbow Media Group or that Cablevision otherwise allocates to the
Rainbow Media Group from time to time in the sole discretion of
the board of directors, and
- the rights and obligations of the Rainbow Media Group under any
inter-Group debt deemed to be owed to or by the Rainbow Media
Group (as such rights and obligations are determined from time to
time in the sole discretion of the board of directors);
provided that Cablevision may re-allocate businesses, assets or liabilities from
one Group to the other Group in return for such consideration by that other
Group as may be determined in the sole discretion of the board of directors from
time to time.
"CABLEVISION NY GROUP" means (a) all of the businesses, assets and
liabilities of Cablevision and its subsidiaries, other than the businesses,
assets and liabilities that are part of the Rainbow Media Group, and (b) the
rights and obligations of the Cablevision NY Group under any inter-Group debt
deemed to be owed to or by the Cablevision NY Group (as such rights and
obligations are defined from time to time by the board of directors in its sole
discretion); provided that Cablevision may re-allocate businesses, assets or
liabilities from one Group to the other Group in return for such consideration
by that other Group as may be determined in the sole discretion of the board of
directors from time to time.
The board of directors will have the authority to increase or decrease
from time to time the total number of shares comprising any series of common
stock. The board of directors, however, could not increase the number of shares
of a series above a number which, when added to all of the authorized shares of
the other series of common stock, would exceed the total authorized number of
shares of common stock of such series. Likewise, the board of directors could
not decrease the number of authorized shares of a series below the number of
shares of such series then outstanding.
We may from time to time, by action of the board of directors:
- offer shares of Cablevision NY Group common stock or Rainbow Media
Group tracking stock for cash in one or more public offerings,
- issue shares of Cablevision NY Group common stock or Rainbow Media
Group tracking stock as consideration for acquisitions or
investments,
- issue shares of Cablevision NY Group common stock or Rainbow Media
Group tracking stock to our employees pursuant to our stock-based
compensation plans or otherwise as compensation, or
- issue shares of Cablevision NY Group common stock or Rainbow Media
Group tracking stock for any other proper corporate purpose.
As long as sufficient authorized shares are available, the timing,
sequence, size and terms of such transactions would be determined by the board
of directors, without further approval of the stockholders, unless deemed
advisable by the board of directors in its sole discretion or required by
applicable law, regulation or stock exchange requirements.
VOTING RIGHTS
Currently, except in the election of directors, as described below,
holders of existing Class A common stock have one vote per share and holders of
existing Class B common stock have 10 votes per share on all matters submitted
to a vote of stockholders. Once the tracking stock proposal is implemented,
holders of Cablevision NY Group common stock and Rainbow
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<PAGE> 74
Media Group tracking stock would vote together as one class on all matters as to
which common stockholders generally are entitled to vote, unless a separate
class vote is required by our amended charter or applicable law. On all such
matters for which no separate vote is required:
- each outstanding share of Cablevision NY Group Class A common
stock entitles the holder to one vote per share and each
outstanding share of Rainbow Media Group Class A tracking stock
entitles the holder to 1/2 of a vote per share, and
- each outstanding share of Cablevision NY Group Class B common
stock entitles the holder to 10 votes per share and each
outstanding share of Rainbow Media Group Class B tracking stock
entitles the holder to 5 votes per share.
Because each share of Cablevision NY Group common stock will have two
times the vote of each share of Rainbow Media Group tracking stock and the
tracking stock distribution is expected to be effected on a pro rata basis,
absent a significant change in the number of outstanding shares of either Group,
the Cablevision NY Group will be in a position to control the outcome of any
vote in which holders of Cablevision NY Group common stock and Rainbow Media
Group tracking stock vote together as a single class, even if the matter
involves a conflict of interest between the holders of Cablevision NY Group
common stock and holders of Rainbow Media Group tracking stock.
Under the terms of the amended charter and Delaware law, the following
proposals will require a separate class or series vote:
<TABLE>
<CAPTION>
PROPOSAL VOTE REQUIRED
<S> <C>
- The authorization or issuance of any additional - The affirmative vote or consent of holders of
shares of Cablevision NY Group Class B common at least 66 2/3% of the outstanding shares of
stock. Cablevision NY Group Class B common stock.
- The authorization or issuance of any additional - The affirmative vote or consent of holders of
shares of Rainbow Media Group Class B tracking at least 66 2/3% of the outstanding shares of
stock. Rainbow Media Group Class B tracking stock.
- The authorization of any increase or decrease in - The affirmative vote or consent of the holders
the par value of the shares of any class or of at least a majority the voting power of
series of common stock. such class or series, as the case may be.
- Any amendment, alteration or repeal of any of - The affirmative vote or consent of holders of
the provisions of the charter that adversely at least a majority of the outstanding shares
affects the powers, preferences or special of that class, or if only one series of the
rights of Class A common stock. Class A common stock is adversely affected,
the affirmative vote or consent of holders of
at least a majority of the outstanding shares
of that series.
- Any amendment, alteration or repeal of any of - The affirmative vote or consent of holders of
the provisions of the amended charter that at least 66 2/3% of the outstanding shares of
adversely affects the powers, preferences or Class B common stock, or if only one series of
rights of the Class B common stock. the Class B common stock is adversely
affected, the affirmative vote of at least
66 2/3% of the outstanding shares of that
series.
- Any amendment, alteration or repeal of any of - The affirmative vote or consent of holders of
the provisions of the amended charter that at least 66 2/3% of the outstanding shares of
adversely affects the powers, preferences or Rainbow Media Group Class B tracking stock.
rights of Rainbow Media Group Class B tracking
stock.
</TABLE>
In the event of a vote to increase the number of authorized shares of
common stock, AT&T has agreed to vote all of its shares of common stock in
proportion to votes of shares of common stock of holders not affiliated with us
and NBC has agreed to vote any shares of common stock owned by it or its
affiliates in proportion to votes of shares of common stock of holders not
affiliated with AT&T or us.
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<PAGE> 75
ELECTION OF DIRECTORS. With respect to the election of directors,
- If on the record date for any stockholder meeting for which
directors are to be elected, the aggregate number of outstanding
shares of Cablevision NY Group Class A common stock and Rainbow
Media Group Class A tracking stock is at least 10% of the total
aggregate number of outstanding shares of common stock, holders of
Cablevision NY Group Class A common stock and holders of Rainbow
Media Group Class A tracking stock will vote together as a
separate class, with holders of Cablevision NY Group Class A
common stock having one vote per share and holders of the Rainbow
Media Group Class A tracking stock having 1/2 a vote per share,
and will be entitled to elect 25% of the total number of directors
elected by the holders of Class A common stock and Class B common
stock (the "COMMON STOCK DIRECTORS").
- If such 25% is not a whole number, then the holders of Cablevision
NY Group Class A common stock and Rainbow Media Group Class A
tracking stock will be entitled to elect the nearest higher whole
number of directors that is at least 25% of the total number of
the Common Stock Directors.
- Holders of Cablevision NY Group Class B common stock and holders
of Rainbow Media Group Class B tracking stock will vote together
as a separate class, with holders of Cablevision NY Group Class B
common stock having ten votes per share and holders of Rainbow
Media Group Class B tracking stock having 5 votes per share, to
elect the remaining Common Stock Directors.
- If on the record date for any stockholder meeting for which
directors are to be elected, the aggregate number of outstanding
shares of Cablevision NY Group Class A common stock and Rainbow
Media Group Class A tracking stock is less than 10% of the total
aggregate number of outstanding shares of common stock, the
holders of all series of Class A common stock and Class B common
stock will vote together as a single class with respect to the
election of the Common Stock Directors and the holders of
Cablevision NY Group Class A common stock and Rainbow Media Group
Class A tracking stock will not have the right to elect 25% of the
Common Stock Directors, but the holders of each class of common
stock will have the following number of votes per share for all
Common Stock Directors:
- Cablevision NY Group Class A common stock: 1
- Cablevision NY Group Class B common stock: 10
- Rainbow Media Group Class A tracking stock: 1/2
- Rainbow Media Group Class B tracking stock: 5
- If on the record date for any stockholder meeting at which Common
Stock Directors are to be elected, the aggregate number of
outstanding shares of Cablevision NY Group Class B common stock
and Rainbow Media Group Class B tracking stock is less than
12 1/2% of the total aggregate number of outstanding shares of
common stock, then the holders of Cablevision NY Group Class A
common stock and Rainbow Media Group Class A tracking stock,
voting together as a separate class, will continue to elect a
number of directors equal to not less than 25% of the total
number of Common Stock Directors and, in addition, will vote
together with the holders of Cablevision NY Group Class B common
stock and Rainbow Media Group Class B tracking stock, voting
together as a single class, to elect the remaining Common Stock
Directors, with the holders of each class of common stock will
have the following number of votes per share for all Common Stock
Directors:
- Cablevision NY Group Class A common stock: 1
- Cablevision NY Group Class B common stock: 10
- Rainbow Media Group Class A tracking stock: 1/2
- Rainbow Media Group Class B tracking stock: 5
In addition, Delaware law requires a separate vote of holders of shares
of common stock of any class or series on any amendment if the amendment would
increase or decrease the par value of the shares of such class or series or
alter or change the powers, preferences or special rights of the shares of such
class or series so as to affect them adversely. Because Cablevision NY Group
common stock and Rainbow Media Group tracking stock will each be a separate
series of two classes of stock (i.e., Class A and Class B), each class or series
would be entitled to vote separately as a class upon an amendment to the amended
charter
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that would alter or change the powers, preferences or special rights of such
class or series so as to affect them adversely. Delaware law does not provide
for any other separate voting rights of a class or series of capital stock
(other than with respect to a change in par value or, in certain circumstances
not applicable in the case of our outstanding stock, an increase or decrease in
the authorized shares of such class or series).
AT&T has agreed to vote its shares of common stock in favor of nominees
for director nominated by the board of directors.
After the Cablevision NY Group common stock is designated and the Rainbow
Media Group tracking stock is issued, we will set forth the number of
outstanding shares of Cablevision NY Group common stock and Rainbow Media Group
tracking stock in our annual and quarterly reports filed pursuant to the
Exchange Act, and disclose in any proxy statement for a stockholder meeting the
number of outstanding shares and per share voting rights of Cablevision NY Group
common stock and Rainbow Media Group tracking stock.
DIVIDENDS
We have never paid dividends on our common stock and we currently intend
to retain all of our earnings to finance operations, repay our indebtedness and
fund future growth. We do not expect to pay dividends on Cablevision NY Group
common stock or Rainbow Media Group tracking stock for the foreseeable future.
Cablevision is a holding company with no operating assets. Accordingly,
our ability to pay dividends is dependent upon the receipt of dividends from our
subsidiaries. Although certain loan agreements and other debt instruments to
which certain of our subsidiaries are parties contain restricted payment
provisions that currently limit the payment of dividends, other than stock
dividends, we are otherwise permitted to pay dividends on our common stock out
of legally available funds under Delaware law, subject to the prior payment of
dividends on outstanding shares of preferred stock. Future loan agreements may
also contain similar restrictions and limits. Delaware law limits the amount of
distributions on the common stock to funds legally available for that purpose,
which are determined on the basis of the entire company and not just the Groups.
Consequently, the amount of legally available funds will be reduced by the
amount of any dividends or distributions on, or repurchases of, Cablevision NY
Group common stock and Rainbow Media Group tracking stock and dividends on, or
certain repurchases of, preferred stock.
Although, as stated above, we do not expect to pay any dividends for the
foreseeable future on any series or class of common stock, we will otherwise be
permitted to pay dividends:
- On Cablevision NY Group common stock out of the assets of
Cablevision legally available for the payment of dividends under
Delaware law, but the total amounts paid as dividends on
Cablevision NY Group common stock cannot exceed the Available
Dividend Amount for the Cablevision NY Group,
- On Rainbow Media Group tracking stock out of the assets of
Cablevision legally available for the payment of dividends under
Delaware law, but the total amounts paid as dividends on Rainbow
Media Group tracking stock cannot exceed the Available Dividend
Amount for the Rainbow Media Group,
- In the form of additional shares of common stock on any class of
common stock (i.e., Class A common stock and Class B common stock)
of any Group (i.e., the Cablevision NY Group or the Rainbow Media
Group), which will be paid only with shares of that class of
common stock (i.e., Class A common stock and Class B common stock)
of that Group (i.e., the Cablevision NY Group or the Rainbow Media
Group).
If dividends are paid on any class of common stock (i.e., Class A common
stock and Class B common stock) of any Group (i.e., the Cablevision NY Group or
the Rainbow Media Group), then an equal per share dividend will be concurrently
paid on both classes of common stock within that Group. As described below under
"-Securities Distributions," special rules apply when a dividend is paid in the
form of common stock or other securities comprising that series.
The Available Dividend Amount for each Group is intended to be equivalent
to the amount that would be legally available for the payment of dividends on
that Group's common stock under Delaware law if the Group were a separate
Delaware corporation.
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- The "AVAILABLE DIVIDEND AMOUNT" for the Cablevision NY Group at
any time is the amount that our board of directors determines in
its sole discretion would then be legally available for the
payment of dividends on Cablevision NY Group common stock under
Delaware law if:
- the Cablevision NY Group and the Rainbow Media Group were
each a separate Delaware corporation,
- the Cablevision NY Group had outstanding a number of shares
of common stock equal to the number of shares of
Cablevision NY Group common stock that are then
outstanding,
- the Cablevision NY Group had outstanding a number of shares
of preferred stock equal to the number of shares of
preferred stock of Cablevision that have been attributed to
the Cablevision NY Group and are then outstanding, and
- the assumptions about the Rainbow Media Group set forth
below were true.
- The "AVAILABLE DIVIDEND AMOUNT" for the Rainbow Media Group at any
time is the amount that our board of directors determines in its
sole discretion would then be legally available for the payment of
dividends on Rainbow Media Group tracking stock under Delaware law
if:
- the Cablevision NY Group and the Rainbow Media Group were
each a separate Delaware corporation,
- the Rainbow Media Group had outstanding a number of shares
of common stock equal to the number of shares of Rainbow
Media Group tracking stock that are then outstanding,
- the Rainbow Media Group had outstanding a number of shares
of preferred stock equal to the number of shares of
preferred stock of Cablevision that have been attributed to
the Rainbow Media Group and are then outstanding, and
- the assumptions made about the Cablevision NY Group and set
forth above were true.
Initially, there are no shares of Cablevision preferred stock
outstanding. There can be no assurance that there will be an Available Dividend
Amount for any Group.
The amount legally available for the payment of dividends on common stock
of a corporation under Delaware law is generally limited to:
- the total assets of the corporation less its total liabilities
less
- the aggregate par value of the outstanding shares of its common
and preferred stock.
If the amount legally available for payment of dividends on common stock
is not greater than zero, however, the corporation may also pay dividends out of
the net profits for the corporation for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Preferred stock dividends will also
have a priority to common stock dividends. We have not historically had net
profits and do not anticipate having net profits for the foreseeable future.
Therefore, our ability to pay any dividends will require the availability of
adequate "surplus" under Delaware law, defined as the excess, if any, of our net
assets over our capital. Because our liabilities substantially exceed our
assets, we have historically not calculated net assets based on the amounts
reflected on our balance sheet. Accordingly, to pay a dividend, the board of
directors would need to determine that we have adequate surplus on the basis of
valuation of our assets at higher amounts than those reflected on the financial
statements, for example, by using current market-based valuations. The board of
directors has made this determination in connection with the payment of
preferred stock dividends, but would not anticipate doing so for any common
stock dividends for the foreseeable future.
As mentioned above, these restrictions will form the basis for
calculating the Available Dividend Amounts for the Cablevision NY Group and the
Rainbow Media Group. These restrictions will also form the basis for calculating
the aggregate amount of dividends that Cablevision as a whole can pay on its
common stock, regardless of series. Thus, any dividends and
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distributions on, or repurchases of, any class series of common stock, will
reduce the assets legally available for dividends on all series of common stock.
Subject to the foregoing limitations (and to any other limitations set
forth in any future series of preferred stock or in any agreements binding on
Cablevision from time to time), we have the sole discretion and authority to pay
dividends on, or refrain from declaring and paying dividends on, all, one or
none of the series of common stock in equal or unequal amounts, notwithstanding
the performance of any Group, the amount of assets available for dividends on
any series, the amount of prior dividends paid on any series, the respective
voting rights of each series or any other factor. Notwithstanding the foregoing,
if dividends are declared on a series of common stock, we will be required to
pay equivalent dividends on each share of Class A common stock and Class B
common stock. For example, if the board of directors declared and paid a cash
dividend on the Cablevision NY Group Class B common stock, it would be required
to declare and pay a cash dividend in the same per share amount on each share of
Cablevision NY Group Class A common stock. However, it would not be required to
declare and pay any dividend on the Rainbow Media Group tracking stock. As
described below under "-Securities Distributions," special rules apply when a
dividend is paid in the form of common stock or other securities.
Any decision to pay dividends in the future will depend on our financial
condition, results of operations and business requirements of Cablevision as a
whole. In making a determination as to the allocation of any future dividends
between Cablevision NY Group common stock and Rainbow Media Group tracking
stock, the board of directors expects to consider, among other factors, the
relative financial condition, results of operations and business requirements of
the respective Groups.
SECURITIES DISTRIBUTIONS
DISTRIBUTIONS ON CABLEVISION NY GROUP COMMON STOCK. If at any time, a
share distribution is to be paid in Cablevision NY Group common stock (a "SHARE
DISTRIBUTION"), such share distribution may be declared and paid only as
follows:
- a share distribution consisting of shares of Cablevision NY Group
Class A common stock (or securities convertible into or
exercisable or exchangeable for shares of Cablevision NY Group
Class A common stock) to holders of Cablevision NY Group Class A
common stock and Cablevision NY Group Class B common stock, on an
equal per share basis,
- a share distribution consisting of shares of Cablevision NY Group
Class A common stock (or securities convertible into or
exercisable or exchangeable for shares of Cablevision NY Group
Class A common stock) to holders of Cablevision NY Group Class A
common stock and, on an equal per share basis, shares of
Cablevision NY Group Class B common stock (or securities
convertible into or exercisable or exchangeable for shares of
Cablevision NY Group Class B common stock) to holders of
Cablevision NY Group Class B common stock, and
- a share distribution consisting of any class or series of our
securities or the securities of any other person other than as
described in the preceding clauses, either (1) on the basis of a
distribution of identical securities, on an equal per share basis,
to holders of Cablevision NY Group Class A common stock and
Cablevision NY Group Class B common stock or (2) on the basis of a
distribution of one class or series of securities to holders of
Cablevision NY Group Class A common stock and another class or
series of securities to holders of Cablevision NY Group Class B
common stock, provided that the securities distributed (and if the
distributed securities consist of convertible securities, the
securities into which convertible securities are convertible) do
not differ in any respect other than differences in designation,
conversion, redemption and share distribution provisions
consistent in all material respects with the differences between
Cablevision NY Group Class A common stock and Cablevision NY Group
Class B common stock and differences in their relative voting
rights, with holders of shares of Cablevision NY Group Class B
common stock receiving the class or series having the higher
relative voting rights (without regard to whether such voting
rights differ to a greater or lesser extent than the corresponding
differences in voting rights of the Cablevision NY Group Class A
common stock and the Cablevision NY Group Class B common stock as
set forth in our amended charter), provided that if the securities
so distributed constitute capital stock of a subsidiary of
Cablevision, such voting rights will not differ to a greater
extent than the corresponding differences in voting rights of
Cablevision NY Group Class A common stock and Cablevision NY Group
Class B common stock, and provided in each case that such
distribution is otherwise made on an equal per share basis.
We will not subdivide, consolidate or reclassify Cablevision NY Group
Class A common stock without subdividing, consolidating or reclassifying
Cablevision NY Group Class B common stock in the same proportion and the same
manner, and
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we will not subdivide, consolidate or reclassify Cablevision NY
Group Class B common stock without subdividing, consolidating or reclassifying
Cablevision NY Group Class A common stock in the same proportion and the same
manner.
DISTRIBUTIONS ON RAINBOW MEDIA GROUP TRACKING STOCK. If at any time
a share distribution is to be made with respect to Rainbow Media Group tracking
stock, such share distribution may be declared and paid only as follows (or as
described under "--Conversion and Redemption" below with respect to the
redemptions and other distributions referred to therein):
- a share distribution consisting of shares of Rainbow Media Group
Class A tracking stock (or securities convertible into or
exercisable or exchangeable for shares of Rainbow Media Group
Class A tracking stock) to holders of Rainbow Media Group Class A
tracking stock and Rainbow Media Group Class B tracking stock, on
an equal per share basis;
- a share distribution consisting of shares of Rainbow Media Group
Class A tracking stock (or securities convertible into or
exercisable or exchangeable for shares of Rainbow Media Group
Class A tracking stock) to holders of Rainbow Media Group Class A
tracking stock and, on an equal per share basis, shares of Rainbow
Media Group Class B tracking stock (or securities convertible into
or exercisable or exchangeable for shares of Rainbow Media Group
Class B tracking stock) to holders of Rainbow Media Group Class B
tracking stock, and
- a share distribution consisting of any class or series of our
securities or securities of any other person other than as
described in the preceding clauses and other than Cablevision NY
Group common stock (or securities convertible into or exercisable
or exchangeable for shares of Cablevision NY Group common stock),
either (1) on the basis of a distribution of identical securities,
on an equal per share basis, to holders of Rainbow Media Group
Class A tracking stock and Rainbow Media Group Class B tracking
stock or (2) on the basis of a distribution of one class or series
of securities to holders of Rainbow Media Group Class A tracking
stock and another class or series of securities to holders of
Rainbow Media Group Class B tracking stock, provided that the
securities distributed (and if the distributed securities consist
of convertible securities, the securities into which convertible
securities are convertible) do not differ in any respect other
than differences in designation, conversion, redemption and share
distribution provisions consistent in all material respects with
the differences between the Rainbow Media Group Class A common
stock and the Rainbow Media Group Class B common stock and
differences in their relative voting rights, with holders of
shares of Rainbow Media Group Class B tracking stock receiving the
class or series having the higher relative voting rights (without
regard to whether such voting rights differ to a greater or lesser
extent than the corresponding differences in voting rights of
Rainbow Media Group Class A tracking stock and Rainbow Media Group
Class B tracking stock as set forth in our amended charter),
provided that if the securities so distributed constitute capital
stock of a subsidiary of Cablevision, such voting rights will not
differ to a greater extent than the corresponding differences in
voting rights of Rainbow Media Group Class A tracking stock and
Rainbow Media Group Class B tracking stock, and provided in each
case that such distribution is otherwise made on an equal per
share basis.
No distributions on Rainbow Media Group tracking stock of shares of
Cablevision NY Group common stock (or related convertible securities) are
permitted.
We will not subdivide, consolidate or reclassify Rainbow Media Group
Class A common stock without subdividing, consolidating or reclassifying Rainbow
Media Group Class B common stock in the same proportion and the same manner, and
we will not subdivide, consolidate or classify Rainbow Media Group Class B
common stock without subdividing, consolidating or reclassifying Rainbow Media
Group Class A common stock in the same proportion and the same manner.
CONVERSION AND REDEMPTION
CONVERSION AT THE OPTION OF THE HOLDER. Each share of Class B common
stock of a Group will be convertible, at the option of the holder thereof, into
one share of Class A common stock of the same Group. Shares of Class A common
stock of a Group will not be convertible into shares of Class B common stock of
a Group.
EXCHANGE AT CABLEVISION'S OPTION AT ANY TIME AFTER FIRST ANNIVERSARY. The
board of directors may at any time after the first anniversary of the tracking
stock distribution, with respect to the Rainbow Media Group, declare that:
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- each share of Rainbow Media Group Class A tracking stock will be
exchanged for a number (or fraction) of fully paid and
nonassessable shares of Cablevision NY Group Class A common stock
equal to the Rainbow Media Group Optional Conversion Ratio (as
defined below), and
- each share of Rainbow Media Group Class B tracking stock will be
exchanged for a number (or fraction) of fully paid and
nonassessable shares of Cablevision NY Group Class B common stock
equal to the Rainbow Media Group Optional Conversion Ratio.
"RAINBOW MEDIA GROUP OPTIONAL EXCHANGE RATIO" means the product of (a)
the quotient (calculated to the nearest five decimal places) obtained by
dividing (i) the average Market Value of a share of Rainbow Media Group Class A
common stock over the 20 consecutive Trading Day period ending on the fifth
Trading Day immediately preceding the date on which we mail the notice of
conversion to holders of Rainbow Media Group common stock by (ii) the average
Market Value of a share of Cablevision NY Group Class A common stock over the
same 20 consecutive Trading Day period as specified in clause (i) above, and (y)
110%, unless a Tax Event (as defined below) shall have occurred, in which event
the percentage in this clause (b) shall be 100%). However, if a Tax Event occurs
at any time, a factor of 100% rather than 110% will be applied to the ratio of
the average Market Values. This means that holders of the common stock being
converted will not receive a premium in such conversion.
"TAX EVENT" means the receipt by Cablevision of an opinion of its tax
counsel that, as a result of:
- any amendment to, or change in, the laws or regulations
interpreting such laws of the United States or any political
subdivision or taxing authority in the United States, including
any announced proposed change by an applicable legislative
committee or its chair in such laws or by an administrative agency
in such regulations, or
- any official or administrative pronouncement, action or judicial
decision interpreting or applying such laws or regulations,
it is more likely than not for U.S. federal income tax purposes that:
- Cablevision or our stockholders are, or, at any time in the
future, will be subject to tax upon the issuance of shares of
either Rainbow Media Group tracking stock or Cablevision NY Group
common stock, or
- either Rainbow Media Group tracking stock or Cablevision NY Group
common stock is not or, at any time in the future, will not be
treated solely as stock of Cablevision.
For purposes of rendering such an opinion, tax counsel will assume that
any legislative or administrative proposals will be adopted or enacted as
proposed.
These provisions allow us the flexibility to recapitalize the four
classes of common stock into two classes of common stock that would, after such
recapitalization, represent an equity interest in all of our businesses. The
optional conversion or redemption could be exercised at any future time if our
board of directors determines that, under the facts and circumstances then
existing, an equity structure consisting of four classes of common stock was no
longer in the best interests of all of our stockholders. Such exchange could be
exercised, however, at a time that is disadvantageous to the holders of two of
the classes of common stock. See "Risk Factors--Risk Factors Relating to the
Tracking Stock Proposal--Having two series of common stock could create
conflicts of interest and the Cablevision board of directors could make
decisions that adversely affect holders of Rainbow Media Group tracking stock
and/or Cablevision NY Group common stock" and "--Principles of Delaware law may
protect decisions of the board of directors that have a disparate impact upon
holders of Cablevision NY Group common stock and holders of Rainbow Media Group
tracking stock".
Many factors could affect the Market Values of the Rainbow Media Group
tracking stock or the Cablevision NY Group common stock, including our results
of operations and those of each of the Groups, trading volume and general
economic and market conditions. Market Values could also be affected by
decisions by our board of directors or our management that investors perceive to
affect differently one class of common stock compared to the other. These
decisions could include transfers of assets between Groups, allocations of
corporate opportunities and financing resources between the Groups and changes
in dividend policies.
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The following illustration demonstrates the calculation of the number of
shares issuable upon conversion of one share of Rainbow Media Group Class A
tracking stock into shares of Cablevision NY Group Class A common stock at our
option if:
- a Tax Event has not occurred,
- the average Market Value of one share of the Cablevision NY Group
common stock over the 20-Trading Day valuation period was $60, and
- the average Market Value of one share of Rainbow Media Group
tracking stock over the same valuation period was $20,
then each such share of Rainbow Media Group Class A tracking stock could be
converted into .36667 shares of Cablevision NY Group Class A common stock based
on the following calculation:
1.1 x $20 = .36667 shares
---
$60
Any such conversion would dilute the interests of holders of Cablevision
NY Group common stock and would preclude holders of Rainbow Media Group tracking
stock from retaining their interest in a security reflecting separately the
business of the Rainbow Media Group. See "Risk Factors--Risk Factors Relating to
the Tracking Stock Proposal--The board of directors has sole discretion to
convert Rainbow Media Group tracking stock into Cablevision NY Group common
stock."
MANDATORY DIVIDEND, REDEMPTION OR EXCHANGE ON DISPOSITION OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS OF THE RAINBOW MEDIA GROUP
If we dispose through a sale or other disposition (not including a
financing transaction) of All or Substantially All of the Assets of the Rainbow
Media Group (a "DISPOSITION"), and the Disposition is not an Exempt Disposition,
as defined below, we would be required, on or prior to the 85th Trading Day
after the consummation of such Disposition, to take one of the following three
alternatives:
- subject to the provisions described above under "-Dividends",
declare and pay a dividend to holders of each class of Rainbow
Media Group tracking stock in any combination of cash, securities
or other property in an amount having a Fair Value equal to the
Net Proceeds of such Disposition,
- redeem from holders of each class of common stock of the Rainbow
Media Group, for any combination of cash, securities or other
property, in an amount having a Fair Value equal to the Net
Proceeds of such Disposition, all of the outstanding shares of the
relevant series of common stock or, if the Rainbow Media Group
continues after such Disposition to own any material assets other
than the proceeds of such Disposition, a number of shares of such
series of common stock having an aggregate average Market Value,
during the 20 consecutive Trading Day period beginning on the 16th
Trading Day immediately following the date on which the
Disposition is consummated, equal to such Fair Value, or
- issue shares of Cablevision NY Group Class A common stock in
exchange for all of the outstanding shares of Rainbow Media Group
Class A common stock and shares of Cablevision NY Group Class B
common stock in exchange for all of the outstanding shares of
Rainbow Media Group Class B common stock having an aggregate value
equal to 110% of the aggregate value of all of the outstanding
common stock of the Rainbow Media Group (where in each case based
on the average Market Value of a share of the relevant series of
Class A common stock as compared to the average Market Value of a
share of the other series of Class A common stock during the 20
consecutive Trading Day period beginning on the 16th Trading Day
immediately following the date on which the Disposition is
consummated).
We may elect to pay the dividend or redemption price referred to above
either in the same form as the proceeds of the Disposition were received or in
any other combination of cash, securities or other property that the board of
directors determines will have an aggregate Market Value on a fully distributed
basis, of not less than the amount of the applicable Net Proceeds.
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If the dividend or redemption price is paid in the form of securities of
an issuer other than Cablevision, the board of directors may determine either to
(a) pay the dividend or redemption price in the form of separate classes or
series of securities, with one class or series of such securities to holders of
Rainbow Media Group Class A tracking stock and another class or series of
securities to holders of Rainbow Media Group Class B tracking stock, provided
that such securities (and, if such securities are convertible into or
exercisable or exchangeable for shares of another class or series of securities,
the securities so issuable upon such conversion, exercise or exchange) do not
differ in any respect other than differences in their rights (other than voting
rights) consistent in all material respects with differences between the Rainbow
Media Group Class A tracking stock and Rainbow Media Group Class B tracking
stock and differences in their relative voting rights, with holders of shares of
Rainbow Media Group Class B tracking stock receiving the class or series having
the higher relative voting rights (without regard to whether such voting rights
differ to a greater or lesser extent than the corresponding differences in the
voting rights of the Rainbow Media Group Class A tracking stock and the Rainbow
Media Group Class B tracking stock), provided that if such securities constitute
capital stock of a subsidiary of Cablevision, such voting rights will not differ
to a greater extent than the corresponding differences in voting rights of the
Rainbow Media Group Class A tracking stock and the Rainbow Media Group Class B
tracking stock provided in the charter, and otherwise such securities will be
distributed on an equal per share basis, or (b) pay the dividend or redemption
price in the form of a single class of securities without distinction between
the shares received by the holders of Rainbow Media Group Class A tracking stock
and Rainbow Media Group Class B tracking stock.
The exceptions to the foregoing requirements, among other things, would
enable us to enter into transactions in which the properties or assets of the
Rainbow Media Group may be considered to be "disposed of" in exchange for equity
securities of an entity engaged or proposing to engage in similar or
complementary business areas to those of the Rainbow Media Group "disposed of"
while maintaining the capital structure and delineation of business Groups
contemplated by the tracking stock proposal.
The option to convert the Rainbow Media Group tracking stock into common
stock of the Cablevision NY Group in the event of a Disposition provides us with
additional flexibility by allowing us to deliver consideration in the form of
shares of Cablevision NY Group common stock rather than cash or securities or
other properties. This alternative could be used, for example, in circumstances
when we did not have sufficient legally available assets under Delaware law to
pay the full amount of an otherwise required dividend or redemption or when we
desired to retain such proceeds.
If we do not have the legal capacity under Delaware law or our charter to
pay a dividend or redeem shares with the full amount of the Net Proceeds, our
board of directors has the right to pay out as much as we are able to pay and
deposit the balance in an escrow or other account of the corporation for further
application as soon as we are able to do so under Delaware law and our charter.
In addition, at any time within one year after completing any dividend or
partial redemption of the sort referred to above, we will have the right to
issue shares of the series of common stock of the Cablevision NY Group in
question in exchange for all of the remaining outstanding shares of the series
of common stock of the Rainbow Media Group whose assets were the subject of the
applicable disposition having an aggregate value equal to 110% of the aggregate
value of all of the outstanding shares of the series of common stock of the
Rainbow Media Group (based on the average Market Value of a share of Rainbow
Media Group Class A tracking stock as compared to the average Market Value of a
share of Cablevision NY Group Class A common stock during the 20 consecutive
Trading Day period ending on the fifth Trading Day immediately preceding the
date on which Cablevision mails the notice of exchange to holders of the Rainbow
Media Group tracking stock). In determining whether to effect any such exchange
following such a dividend or partial redemption, we would, in addition to other
matters, consider whether the remaining assets of the Rainbow Media Group
continue to constitute a viable business, the number of shares of such common
stock remaining issued and outstanding, the per share market price of such
common stock and the ongoing cost of continuing to have a separate series of
such common stock outstanding.
If at the time of such an exchange for shares of one or more Group
Subsidiaries, there are outstanding any securities convertible into or
exercisable for shares of Rainbow Media Group common stock that would become
exercisable or convertible for shares of one or more Group Subsidiaries as a
result of such exchange, and the obligation to issue such shares under such
options, warrants, convertible securities or similar rights is not assumed or
otherwise provided for by one or more Group Subsidiaries, then the shares of
Rainbow Media Group common stock underlying such convertible securities will be
taken into account for purposes of determining the Exchange Rate for such
exchange.
The following terms used in this document have the meanings specified in
our amended charter and are set forth below:
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"ALL OR SUBSTANTIALLY ALL OF THE ASSETS" of the Rainbow Media Group means
a portion of such assets that represents at least 80% of the then-current Fair
Value of the assets of the Rainbow Media Group as of a date selected by the
board of directors.
"DISPOSITION" means a sale or other disposition (whether by merger,
consolidation, sale or otherwise but not in a financing transaction) of All or
Substantially All of the Assets of the Rainbow Media Group to one or more
persons or entities, in one transaction or a series of related transactions.
"EFFECTIVE DATE" means the date on which the amended charter becomes
effective under Delaware law.
"EXEMPT DISPOSITION" means any of the following:
- a Disposition in connection with the liquidation, dissolution or
winding-up of Cablevision and the distribution of assets to
stockholders,
- a Disposition to any person or entity controlled by Cablevision
(as determined by the board of directors in its sole discretion),
- a Disposition by the Rainbow Media Group for which Cablevision
receives consideration primarily consisting of equity securities
(including, without limitation, capital stock of any kind,
interests in a general or limited partnership, interests in a
limited liability company or debt securities convertible into or
exchangeable for, or options or warrants to acquire, any of the
foregoing, in each case without regard to the voting power or
other management or governance rights associated therewith) of an
entity which is primarily engaged or proposes to primarily engage
in one or more businesses similar or complementary to businesses
conducted by the Rainbow Media Group prior to the Disposition, as
determined by the board of directors in its sole discretion),
- a dividend, out of the Rainbow Media Group's assets, to holders of
Rainbow Media Group tracking stock, and
- any other Disposition, if (a) at the time of the Disposition there
are shares of only one series of stock outstanding or (b) before
the 30th Trading Day following the Disposition we have mailed a
notice stating that we are exercising our right to exchange all of
the outstanding shares of Rainbow Media Group tracking stock for
newly issued shares of Cablevision NY Group common stock as
contemplated under "--Conversion and Redemption--Conversion at
Cablevision's option at any time" above.
"FAIR VALUE" means (a) in the case of cash, the amount thereof, (b) in
the case of capital stock that has been Publicly Traded for a period of at least
15 months, the Market Value thereof, and (c) in the case of other assets or
securities, the fair market value thereof as the board of directors shall
determine in its sole discretion (which determination shall be conclusive and
binding on all stockholders).
"MARKET VALUE" of a share of any class or series of capital stock on any
Trading Day generally means the average of the high and low reported sales
prices regular way of a share of such class or series on such Trading Day,
subject to certain exceptions as described in our amended charter. A share of
Class B common stock will have the same "Market Value" as a share of Class A
common stock of the same series.
The "NET PROCEEDS" of a Disposition of any of the assets of the Rainbow
Media Group means the positive amount, if any, remaining from the gross proceeds
of such Disposition allocated to the Group (as determined by the board of
directors in its sole discretion) after payment of, or reasonable provision (as
determined by the board of directors in its sole discretion),
- any taxes payable by Cablevision or any of its subsidiaries or
affiliates in respect of such Disposition,
- any taxes payable by Cablevision in respect of any resulting
dividend or redemption,
- any payments required to be made to repay or redeem any
indebtedness that, by its terms, requires repayment from, or based
upon, the proceeds of the Disposition,
- any transaction costs borne by Cablevision or any of its
subsidiaries or affiliates, including, without limitation, any
legal, investment banking and accounting fees and expenses,
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- any liabilities (contingent or otherwise) of, attributable to, or
related to, the Rainbow Media Group, including, without
limitation, any liabilities for deferred taxes, any indemnity or
guarantee obligations which are outstanding or incurred in
connection with the Disposition or otherwise, any liabilities for
future purchase price adjustments and any obligations with respect
to outstanding securities (other than common stock) attributed to
the Rainbow Media Group, and
- any preferential amounts accumulated and unpaid dividends and
other obligations in respect of preferred stock attributable to
the Rainbow Media Group.
"PUBLICLY TRADED" with respect to any security means (a) registered under
Section 12 of the Exchange Act (or any successor provision of law) and (b)
listed for trading on the New York Stock Exchange (or any other national
securities exchange registered under Section 7 of the Exchange Act (or any
successor provision of law)) or quoted on the Nasdaq Stock Market (or any
successor market system).
"TRADING DAY" means each weekday on which the relevant security (or, if
there are two or more relevant securities, each relevant security) is traded on
the principal national securities exchange on which it is listed or admitted to
trading or on the Nasdaq Stock Market or, if such security is not listed or
admitted to trading on a national securities exchange or quoted on the Nasdaq
Stock Market, traded in the principal over-the-counter market in which it
trades.
If the Rainbow Media Group consummates a Disposition in a series of
related transactions, such Disposition will not be deemed to have been completed
until consummation of the last of such transactions as determined by the board
of directors in its sole discretion.
OPTIONAL EXCHANGE FOR STOCK OF A SUBSIDIARY
At any time at which all of the assets and liabilities attributed to the
Rainbow Media Group have become and continue to be held directly or indirectly
by any one or more corporations that are Qualifying Subsidiaries (as defined
below) (each, a "GROUP SUBSIDIARY"), the board of directors may, subject to the
availability of assets of Cablevision legally available therefor, redeem on a
pro rata basis all of the outstanding shares of common stock of the Rainbow
Media Group in exchange for all of the fully paid and nonassessable shares of
each Group Subsidiary held by Cablevision.
A "QUALIFYING SUBSIDIARY" for this purpose is a subsidiary of Cablevision
that is either wholly owned, directly or indirectly, by Cablevision or in which
our direct or indirect ownership and voting interest is sufficient to satisfy
the requirements of the Internal Revenue Service for a distribution of our
interest in such subsidiary to holders of common stock of the Rainbow Media
Group to be tax free to such holders.
In effecting such a redemption, the board of directors may determine
either to (a) redeem shares of Class A common stock and Class B common stock in
exchange for shares of separate classes or series of common stock of each Group
Subsidiary with relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions not greater than the
corresponding differences in voting rights, designation, conversion, redemption
and share distribution provisions between the Rainbow Media Group Class A
tracking stock and the Rainbow Media Group Class B tracking stock, with holders
of shares of the Rainbow Media Group Class B tracking stock receiving the class
or series having the higher relative voting rights, or (b) redeem shares of the
Rainbow Media Group Class A tracking stock and the Rainbow Media Group Class B
tracking stock in exchange for shares of a single class of common stock of each
Group Subsidiary without distinction between the shares distributed to the
holders of the classes of common stock.
GENERAL DIVIDEND, EXCHANGE AND REDEMPTION PROVISIONS
If we complete a Disposition in respect of the Rainbow Media Group (other
than an Exempt Disposition), we will, not more than the 10 Trading Days after
the consummation of such Disposition, either issue a press release or send a
notice by first-class mail, postage prepaid, to holders of the relevant series
of our common stock at their addresses as they appear in our transfer books,
specifying (a) the Net Proceeds of such Disposition, (b) the number of shares of
the series of common stock related to the Rainbow Media Group then outstanding,
and (c) the number of shares of such series of common stock issuable upon
conversion, exchange or exercise of any convertible or exchangeable securities,
options or warrants and the conversion, exchange or exercise prices thereof. Not
more than 30 Trading Days after such consummation, we will announce, either by
press release or notice sent by first-class mail, postage prepaid, to holders of
the relevant series of our common stock at their addresses as they appear in our
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transfer books, which of the actions specified in the first paragraph under
"--Mandatory Dividend, Redemption or Exchange on Disposition of All or
Substantially All of the Assets of the Rainbow Media Group" we have determined
to take, and upon making that announcement or the giving of that notice, that
determination would become irrevocable. In addition, we will, not more than 30
Trading Days after such consummation and not less than 10 Trading Days before
the applicable payment date, redemption date or exchange date, send a notice by
first-class mail, postage prepaid, to holders of the relevant series of common
stock at their addresses as they appear on our transfer books.
- If we determine to pay a special dividend, we will specify in the
notice (a) the record date for such dividend, (b) the payment date
of such dividend (which cannot be more than 85 Trading Days after
such consummation) and (c) the aggregate amount and type of
property to be paid in such dividend (and the approximate per
share amount thereof).
- If we determine to undertake a redemption, we will specify in the
notice (a) the date of redemption (which cannot be more than 85
Trading Days after such consummation), (b) the aggregate amount
and type of property to be paid as a redemption price (and the
approximate per share amount thereof), (c) if less than all shares
of the relevant series of common stock are to be redeemed, the
number of shares to be redeemed and (d) the place or places where
certificates for shares of such series of common stock, properly
endorsed or assigned for transfer (unless we waive such
requirement), should be surrendered in return for delivery of the
cash, securities or other property to be paid by Cablevision in
such redemption.
- If we determine to undertake an exchange, we will specify in the
notice (a) the date of exchange (which cannot be more than 85
Trading Days after such consummation) (except that in the
circumstances contemplated by the amended charter whereby
Cablevision does not have sufficient capacity or sufficient
legally available funds under Delaware law, to apply the full
amount to the Net Proceeds of a Disposition to the payment of a
dividend or redemption amount)), (b) the number of shares of
another series of common stock to be issued in exchange for each
outstanding share of such series of common stock and (c) the place
or places where certificates for shares of such series of common
stock, properly endorsed or assigned for transfer (unless we waive
such requirement), should be surrendered in return for delivery of
the other series of common stock to be issued by Cablevision in
such exchange.
If we determine to complete any exchange described under "--Conversion
and Redemption--Conversion at Cablevision's option at any time" or "--Optional
Exchange for Stock of a Subsidiary", we will, between 10 to 30 Trading Days
before the exchange date, send a notice by first-class mail, postage prepaid, to
holders of the relevant series of common stock at their addresses as they appear
on our transfer books, specifying (a) the exchange date and the other terms of
the exchange and (b) the place or places where certificates for shares of such
series of common stock, properly endorsed or assigned for transfer (unless we
waive such requirement), should be surrendered for delivery of the stock to be
issued or delivered by Cablevision in such exchange.
Neither the failure to mail any required notice to any particular holder
nor any defect therein will affect the sufficiency thereof with respect to any
other holder or the validity of any dividend, redemption or exchange.
If we are redeeming less than all of the outstanding shares of a series
of common stock as described above, we will redeem such shares pro rata or by
lot or by such other method as the board of directors determines to be
equitable.
No holder of shares of a series of common stock being exchanged or
redeemed will be entitled to receive any cash, securities or other property to
be distributed in such exchange or redemption until such holder surrenders
certificates for such shares, properly endorsed or assigned for transfer, at
such place as we specify (unless we waive such requirement). As soon as
practicable after our receipt of certificates for such shares, we will deliver
to the person for whose account such shares were so surrendered, or to the
nominee or nominees of such person, the cash, securities or other property to
which such person is entitled, together with any fractional payment referred to
below, in each case without interest. If less than all of the shares of common
stock represented by any one certificate were to be exchanged or redeemed, we
would also issue and deliver a new certificate for the shares of such common
stock not exchanged or redeemed.
We will not be required to issue or deliver fractional shares of any
capital stock or any other fractional securities to any holder of common stock
upon any exchange, redemption, dividend or other distribution described above.
If more than one share of common stock were held at the same time by the same
holder, we may aggregate the number of shares of any capital stock that would be
issuable or any other securities that would be distributable to such holder upon
any such exchange, redemption, dividend or other distribution. If there are
fractional shares of any capital stock or any other fractional securities to be
issued or
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distributed to any holder, we may, at our election, in lieu of issuing such
fractional shares or securities, pay cash in respect of such fractional shares
or securities in an amount equal to the Fair Value thereof (without interest).
From and after the date set for any exchange or redemption, all rights of
a holder of shares of common stock that were exchanged or redeemed will cease
except for the right, upon surrender of the certificates representing such
shares, to receive the cash, securities or other property for which such shares
were exchanged or redeemed, together with any fractional payment as provided
above, in each case without interest (and, if such holder was a holder of record
as of the close of business on the record date for a dividend not yet paid, the
right to receive such dividend). A holder of shares of common stock being
exchanged will not be entitled to receive any dividend or other distribution
with respect to shares of another series of common stock until after the
certificates theretofore representing the shares being exchanged are surrendered
as contemplated above. Upon such surrender, we will pay to the holder the amount
of any dividends or other distributions (without interest) which theretofore
became payable with respect to a record date occurring after the date set for
the exchange, but which were not paid by reason of the foregoing, with respect
to the number of whole shares of another series of common stock represented by
the certificate or certificates issued upon such surrender. From and after the
date set for any exchange, we will, however, be entitled to treat the
certificates for shares of common stock being exchanged that were not yet
surrendered for exchange as evidencing the ownership of the number of whole
shares of the other series of common stock for which the shares of such common
stock should have been exchanged, notwithstanding the failure to surrender such
certificates.
We will pay any and all documentary, stamp or similar issue or transfer
taxes that might be payable in respect of the issue or delivery of any shares of
capital stock and/or other securities on any exchange or redemption described
herein. We will not, however, be required to pay any tax that might be payable
in respect of any transfer involved in the issue or delivery of any shares of
capital stock and/or other securities in a name other than that in which the
shares so exchanged or redeemed were registered, and no such issue or delivery
will be made unless and until the person requesting such issue pays to
Cablevision the amount of any such tax or establishes to our satisfaction that
such tax has been paid. We will not be liable to a holder of shares being
exchanged for dividends or distributions thereon with respect to shares or other
securities or dividends or distributions delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
We may, subject to applicable law, establish such other rules,
requirements and procedures to facilitate any dividend, redemption or exchange
contemplated as described above as the board of directors may determine to be
appropriate under the circumstances.
LIQUIDATION
Currently, holders of common stock are entitled, upon voluntary or
involuntary liquidation, dissolution or winding-up of Cablevision, to receive
their proportionate interest in the net assets of Cablevision, if any, remaining
for distribution to stockholders (after payment of or provision for all
liabilities, including contingent liabilities, of Cablevision and payment of the
liquidation preference payable to any holders of our preferred stock).
Once the tracking stock proposal is implemented, holders of Cablevision
NY Group common stock and holders of Rainbow Media Group tracking stock will be
entitled, upon voluntary or involuntary liquidation, dissolution or winding-up
of Cablevision, to receive in respect of shares of Cablevision NY Group common
stock and shares of Rainbow Media Group tracking stock their proportionate
interest in the net assets of Cablevision, if any, remaining for distribution to
stockholders (after payment of or provision for all liabilities, including
contingent liabilities, of Cablevision and payment of the liquidation preference
payable to any holders of our preferred stock),
- the holders of the shares of Cablevision NY Group Class A common
stock and the holders of the shares of Cablevision NY Group Class
B common Stock will share equally, on a share-for-share basis, in
a percentage of our remaining assets and funds available for
distribution to common stockholders equal to the ratio of the
Cablevision NY Group Market Capitalization (as defined below) to
the Total Market Capitalization (as defined below),
- the holders of the shares of Rainbow Media Group Class A common
stock and the holders of the shares of Rainbow Media Group Class B
common will share equally, on a share-for-share basis, in a
percentage of our remaining assets and funds available for
distribution to common stockholders equal to the ratio of the
Rainbow Media Group Market Capitalization (as defined below) to
the Total Market Capitalization.
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"CABLEVISION NY GROUP MARKET CAPITALIZATION" means the aggregate average
Market Value of all shares of Cablevision NY Group common stock (assigning a
share of Cablevision NY Group Class B common stock the same Market Value as a
share of Cablevision NY Group Class A common stock) during the 20 consecutive
Trading Day period ending on the 5th Trading Day before the date of the first
public announcement of a voluntary liquidation, dissolution or winding-up by the
corporation or the institution of any proceeding for the involuntary
liquidation, dissolution or winding-up of the corporation.
"RAINBOW MEDIA GROUP MARKET CAPITALIZATION" means the aggregate average
Market Value of all shares of Rainbow Media Group common stock (assigning a
share of Rainbow Media Group Class B common stock the same Market Value as a
share of Rainbow Media Group Class A common stock) during the 20 consecutive
Trading Day period ending on the 5th Trading Day before the date of the first
public announcement of a voluntary liquidation, dissolution or winding-up by the
corporation or the institution of any proceeding for the involuntary
liquidation, dissolution or winding-up of the corporation.
"TOTAL MARKET CAPITALIZATION" means the sum of the Cablevision NY Group
Market Capitalization and the Rainbow Media Group Market Capitalization.
The liquidation formula is intended to provide liquidation rights for
each series of common stock proportionate to the respective Market Values at the
time of any liquidation.
Neither the merger nor consolidation of Cablevision with any other
entity, nor a sale, transfer or lease of all or any part of the assets of
Cablevision, would alone be deemed a liquidation, dissolution or winding-up for
these purposes. Except for certain circumstances involving mandatory dividend,
redemption or exchange or disposition of all or substantially all the assets of
the Rainbow Media Group, no holder of common stock will have any special right
to receive specific assets of the Group in the case of any dissolution,
liquidation or winding-up of Cablevision.
DETERMINATIONS BY THE BOARD OF DIRECTORS
Any determinations made by the board of directors under any provision of
our amended charter will be final and binding on all of our stockholders, except
as may otherwise be required by law. See "Risk Factors--Risk Factors Relating
to the Tracking Stock Proposal--Principles of Delaware law may protect decisions
of the board of directors that have a disparate impact upon holders of
Cablevision NY Group common stock and holders of Rainbow Media Group tracking
stock".
Various sections of our charter require our board of directors to make
various determinations and decisions, some of which may adversely affect the
holders of common stock of one Group as compared with the holders of common
stock of the other Group. Without limiting the effect of provisions of the
amended charter indemnifying our directors of from liability under certain
circumstances, each stockholder will, to the fullest extent permitted by law, be
deemed to have approved and ratified each such determination and decision and to
have waived any claim on our behalf and any such stockholder based upon the
fact, belief, claim or allegation that such determination or decision has had or
will have a direct or indirect impact on the holders of common stock of one
Group that is adverse in relation to the holders of common stock of the other
Group, including, without limitation, determinations and decisions relating to
(a) the businesses, assets and liabilities included in either Group as of the
Effective Date, (b) any subsequent allocation of businesses, assets or
liabilities to either Group, (c) any re-allocation of assets from one Group to
another Group, (d) the decision to pay a dividend on the common stock of one
Group and not on the common stock of the other Group or to pay a dividend on the
common stock of one Group that differs as to timing or amount from the dividend
on the common stock of the other Group, (e) the decision to make a share
distribution on the common stock of one Group and not on the common stock of the
other Group or a share distribution on the common stock of one Group that
differs as to timing, amount or the nature of the securities included in the
share distribution from the share distribution on the common stock of the other
Group, (f) the decision to exchange common stock of one Group for common stock
of the other Group or shares of one or more Group Subsidiaries for shares of
common stock of a Group, (g) a decision to distribute shares of Rainbow Media
Group Class A common stock to holders of Cablevision NY Group Class A common
stock and shares of Rainbow Media Group Class B common stock to holders of
Cablevision NY Group Class B common stock, and (h) any other decision with
respect to our businesses, assets, liabilities or securities that is alleged to,
or does, benefit, directly or indirectly, the holders of common stock of one
Group in a manner that is adverse in relation to the holders of common stock of
the other Group.
PREEMPTIVE RIGHTS
Holders of Cablevision NY Group common stock and Rainbow Media Group
tracking stock will not have any preemptive rights to subscribe for any
additional shares of capital stock or securities that we may issue in the
future.
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LIMITATIONS ON POTENTIAL UNSOLICITED ACQUISITIONS; ANTI-TAKEOVER CONSIDERATIONS
If the Cablevision NY Group and the Rainbow Media Group were separate
independent companies, any person interested in acquiring either Group without
negotiating with management could seek control of that entity by obtaining
control of its outstanding voting stock by means of a tender offer or proxy
contest. Although we intend Cablevision NY Group common stock and Rainbow Media
Group tracking stock to reflect the separate economic performance of the
Cablevision NY Group and the Rainbow Media Group, a person interested in
acquiring only one Group without negotiation with Cablevision's management could
obtain control of that Group only by obtaining control of the outstanding voting
stock of Cablevision.
The existence of two series of common stock could present complexities
and could in certain circumstances pose obstacles, financial and otherwise, to
an acquiring person. The existence of two series of common stock could, under
certain circumstances, prevent stockholders from profiting from an increase in
the market value of their shares as a result of a change in control of
Cablevision by delaying or preventing such a change in control.
If the tracking stock proposal is implemented, as of March 31, 2000 there
would have been approximately 1,152 million additional shares of Cablevision
Class A common stock available for future issuance without further stockholder
approval. One of the effects of the existence of authorized and unissued common
stock and preferred stock could be to enable the board of directors to issue
shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of Cablevision by means of
a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of our management. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of Cablevision.
CERTAIN PROVISIONS OF DELAWARE LAW
Cablevision is subject to the business combination provisions of Section
203 of the DGCL. In general, such provisions prohibit a publicly-held Delaware
corporation from engaging in various business combination transactions with any
interested stockholder for a period of three years after the date of the
transaction in which the person became an interested stockholder unless: (a) the
business combination transaction, or the transaction in which the interested
stockholder became an interested stockholder, is approved by the board of
directors prior to the date the interested stockholder obtained such status, (b)
upon consummation of the transaction which resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (1) persons who are directors and also
officers and (2) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer, or (c) on or subsequent to such
date the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of holders of at least 66 2/3% of the outstanding voting stock which is not
owned by the interested stockholder. A "BUSINESS COMBINATION" is defined to
include mergers, asset sales and other transactions resulting in financial
benefit to a stockholder. In general, an "interested stockholder" is a person
who, together with affiliates and associates, owns (or, within three years, did
own) 15% or more of a corporation's voting stock. The statute could prohibit or
delay mergers or other takeover or change in control attempts with respect to
Cablevision and, accordingly, may discourage attempts to acquire Cablevision.
NO APPRAISAL RIGHTS
Under the DGCL, you will not have appraisal rights in connection with the
tracking stock proposal.
FINANCIAL ADVISORS
Bear, Stearns & Co. Inc. and Merrill Lynch & Co. (together, the
"ADVISORS") have given us strategic financial advice in connection with the
tracking stock proposal. The Advisors assisted our analysis and consideration of
various financial alternatives related to the Rainbow Media Group and the
formulation of the tracking stock proposal. We are paying our advisors customary
fees for their services and have also agreed to reimburse them for certain
reasonable out-of-pocket expenses.
The Advisors will not participate in the solicitation of proxies.
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STOCK TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services is the registrar and transfer agent for
our existing common stock. We expect ChaseMellon Shareholder Services to serve
as registrar and transfer agent for Cablevision NY Group common stock and
Rainbow Media Group tracking stock.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
consequences of the tracking stock proposal and the receipt of Rainbow Media
Group tracking stock in the intended distribution. This discussion is based on
the provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Department regulations, published positions of the Internal Revenue
Service and court decisions now in effect, all of which are subject to change.
In particular, Congress could enact legislation affecting the treatment of stock
with characteristics similar to the Cablevision NY Group common stock or the
Rainbow Media Group tracking stock or the Treasury Department could issue
regulations or other guidance that change current law, including, without
limitation, regulations issued under the broad grant of authority under Section
337(d) of the Code, that affect the treatment of tracking stock. Any future
legislation, regulations or other guidance could apply retroactively.
Because United States tax consequences may differ from one holder to the
next, the discussion set out below does not purport to address all of the tax
considerations that may be relevant to you in light of your particular
situation. In addition, the discussion below does not address matters of state,
local or foreign tax law. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS REGARDING THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL
AS TO THE APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS TO WHICH YOU MAY
BE SUBJECT.
We believe that for federal income tax purposes Cablevision NY Group
common stock and Rainbow Media Group tracking stock will be considered common
stock of Cablevision. Accordingly, we believe that for federal income tax
purposes neither you nor Cablevision will recognize any income, gain or loss as
a result of the reclassification of existing common stock into Cablevision NY
Group common stock. Subject to the discussion below regarding the tax
consequences of the intended distribution of Rainbow Media Group tracking stock
to holders of Cablevision NY Group common stock, your basis and holding period
in your shares of existing common stock will carry over to your shares of
Cablevision NY Group common stock on the reclassification.
We believe that for federal income tax purposes neither you nor
Cablevision will recognize any income, gain or loss as a result of the intended
distribution of the Rainbow Media Group tracking stock to holders of the
Cablevision NY Group common stock. On the distribution of the Rainbow Media
Group tracking stock, the Rainbow Media Group tracking stock received by you
would have the same holding period as your Cablevision NY Group common stock and
your basis in your Cablevision NY Group common stock would be allocated between
your Cablevision NY Group common stock and the Rainbow Media Group tracking
stock received in the distribution in proportion to their relative fair
market values on the distribution date.
We have not sought any ruling from the Internal Revenue Service in
connection with the reclassification of the existing common stock or the
issuance and distribution of the Rainbow Media Group tracking stock. The
Internal Revenue Service has announced that it will not issue advance rulings on
the classification of an instrument such as Cablevision NY Group common stock or
Rainbow Media Group tracking stock that has certain voting and liquidation
rights in the issuing corporation, but that has dividend rights that are
determined by reference to the earnings of a segregated portion of the issuing
corporation's assets, including assets held by a subsidiary. In addition, there
are no court decisions or other authorities that bear directly upon the
classification for tax purposes of instruments with characteristics similar to
those of the Cablevision NY Group common stock or the Rainbow Media Group
tracking stock.
Legislative proposals made by the Clinton Administration in February 1999
would, if enacted, impose a corporate-level tax on the issuance of stock similar
to the Rainbow Media Group tracking stock and permit the Treasury Department to
treat tracking stock as an interest in other than stock, thereby making such
tracking stock ineligible for the tax-free treatment available under the
Internal Revenue Code in certain transactions. The Treasury Department's
explanation of the proposal expresses the view that the use of tracking stock
"is clearly outside the contemplation of" the Code and says that "no inference
regarding the tax treatment of [such stock] under current law is intended" by
the proposal. The Clinton Administration's Fiscal Year 2001 Budget Proposal
issued in February 2000 would, if enacted, treat the receipt of tracking stock
in a distribution made by a corporation with respect to its stock or in an
exchange for other stock of the issuing corporation as the receipt of property
other than stock of the issuing corporation. If the distribution of the Rainbow
Media Group tracking stock were treated as a distribution of property other than
Cablevision stock, the distribution would, to the extent of the value of the
Rainbow Media Group tracking
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stock distributed, be treated first as a taxable dividend to the extent of
Cablevision's current or accumulated earnings and profits, then as a
distribution in reduction of the stockholder's basis to the extent thereof and
thereafter as gain on a deemed disposition of the shares on which the
distribution was made. The February 2000 proposals also give the Treasury
Department the authority to treat tracking stock as nonstock or stock of an
entity other than the issuer, as appropriate. As proposed by the Clinton
Administration, these provisions would be effective for tracking stock issued on
or after the date of enactment by Congress and thus such proposals will likely
not affect the initial issuance and intended distribution of Rainbow Media Group
tracking stock. Tax legislation enacted by Congress subsequent to the Clinton
Administration proposals has not included any provision corresponding to the
proposals. However, the Company cannot predict whether the Clinton
Administration proposals will be enacted by Congress and, if enacted, whether
they will be in the form, and with the effective date, proposed.
If either of the Clinton Administration's proposals regarding tracking
stock were to be enacted, it would affect subsequent issuances of Rainbow Media
Group tracking stock and we might decide to exercise our right to redeem all of
the outstanding shares of Rainbow Media Group tracking stock.
Certain non-corporate holders of Cablevision NY Group common stock or
Rainbow Media Group tracking stock could be subject to backup withholding at a
rate of 31% on the payment of dividends on or proceeds from the sale of such
stock. Backup withholding will apply only if the stockholder (a) fails to
furnish its taxpayer identification number ("TIN"), which, for an individual,
would be his or her social security number, (b) furnishes an incorrect TIN, (c)
is notified by the IRS that it has failed to properly report payments of
interest or dividends or (d) under certain circumstances, fails to certify under
penalties of perjury that it has furnished a correct TIN and has been notified
by the IRS that it is subject to backup withholding for failure to report
payments of interest or dividends. Stockholders should consult their own tax
advisors regarding their qualification for exemption from backup withholding and
the procedures for obtaining such an exemption if applicable. The amount of any
backup withholding from a payment to a holder of Cablevision NY Group common
stock or Rainbow Media Group tracking stock will be allowed as a credit against
such stockholder's federal income tax liability and may entitle such holder to a
refund, provided that the required information is furnished to the IRS.
----------------
Approval of Proposal 1 will require the affirmative vote of holders of:
- the affirmative vote of holders of a majority of the outstanding
common stock, voting together as a class,
- the affirmative vote of holders of a majority of the outstanding
Class A common shares, voting together as a class, and
- the affirmative vote of holders of at least 66 2/3% of the
outstanding Class B common shares, voting together as a class.
THE CABLEVISION BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE TRACKING STOCK
PROPOSAL.
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<PAGE> 91
PROPOSAL 2--AMENDMENTS TO OUR STOCK OPTION PLAN
GENERAL
At the special meeting, we will also ask you to consider and approve a
proposal to amend our Amended and Restated 1996 Employee Stock Plan.
DESCRIPTION OF OUR STOCK OPTION PLAN
On February 13, 1996, Cablevision's Board of Directors adopted, subject
to stockholder approval, the Cablevision Systems Corporation 1996 Employee Stock
Plan (the "1996 PLAN"). On April 25, 1996, the Board of Directors approved
certain amendments to the 1996 Plan (as so amended, the "RESTATED 1996 STOCK
PLAN") and the Restated 1996 Stock Plan was approved by the stockholders of
Cablevision at the 1996 Annual Meeting. The Restated 1996 Stock Plan was further
amended by the Board of Directors (as so amended, the "PARENT EMPLOYEE STOCK
PLAN") in connection with the transactions authorized by the Amended and
Restated Contribution and Merger Agreement dated as of June 6, 1997 with TCI
Communications, Inc., CSC Parent Corporation and CSC Merger Corporation and the
Parent Employee Stock Plan was approved by the stockholders of Cablevision at a
Special Meeting of Stockholders held on February 18, 1998.
The Parent Employee Stock Plan has been amended and adopted by the Board
of Directors to reflect the redesignation of our existing Class A common stock
into Cablevision NY Group Class A common stock, and the distribution of Rainbow
Media Group Class A tracking stock in respect of our existing Class A common
stock (as so amended and restated, the "THIRD RESTATED 1996 STOCK PLAN"). The
amendments also increase the number of shares available for issuance under the
Third Restated 1996 Stock Plan by 19.2 million, any or all of which may be
Cablevision NY Group shares or Rainbow Media Group shares. Further, the
amendments increase the total number of awards a participant may be granted over
the term of the Third Restated 1996 Stock Plan to 4.0 million, any or all of
which may be Cablevision NY Group shares or Rainbow Media Group shares. Finally,
the amendments to the Third Restated 1996 Stock Plan make certain technical
changes to reflect amendments to Rule 16b-3 of the Securities Exchange Act of
1934. The text of the Third Restated 1996 Stock Plan is set forth in Exhibit A
hereto, and the following discussion is qualified in its entirety by reference
thereto.
The Third Restated 1996 Stock Plan will be administered by the
Compensation Committee. Awards may be granted under the Third Restated 1996
Stock Plan to key employees of Cablevision and its affiliates (other than
members of the Compensation Committee) as the Compensation Committee may
determine. Grants of awards made to the Chief Executive Officer and the four
highest compensated officers other than the Chief Executive Officer are made by
the Senior Officers Compensation Subcommittee (which hereinafter shall also be
referred to as the Compensation Committee). The Compensation Committee may make
awards under the Third Restated 1996 Stock Plan for up to an aggregate number of
shares equal to the sum of (i) 38.7 million shares, which may be either treasury
shares or authorized and unissued shares, any or all of which may be Cablevision
NY Group shares or Rainbow Media Group shares, and (ii) the number of restricted
shares, if any, purchased from employees by Cablevision. Additionally, if an
award is paid or settled in cash, or expires, lapses, terminates or is cancelled
without the issuance of shares, then the Compensation Committee may grant awards
with respect to shares subject to such prior awards. In the event of any stock
dividend, stock split, spin-off, reclassification, recapitalization, or other
similar event resulting in dilution of the Cablevision NY Group shares or the
Rainbow Media Group shares, then the number of Cablevision NY Group shares or
the Rainbow Media Group shares issuable under the Third Restated 1996 Stock Plan
shall be proportionately adjusted to reflect such transaction. No single
employee may be issued awards for a number of shares exceeding 4.0 million over
the term of the Third Restated 1996 Stock Plan, any or all of which may be
Cablevision NY Group shares or Rainbow Media Group shares.
Under the Third Restated 1996 Stock Plan, Cablevision may grant
"incentive stock options", as defined in Section 422A of the Internal Revenue
Code of 1986 (the "CODE"), nonqualified stock options, restricted stock and
bonus award shares. Bonus award shares are restricted shares that are payable
upon vesting in cash and/or stock at Cablevision's election. The option exercise
price of stock options may not be less than the fair market value per share of
Class A Common Stock on the date the option is granted. Other than in the case
of the death of an award recipient, such options may be exercised for a term no
longer than ten years. The Third Restated 1996 Stock Plan provides that, in
conjunction with the grant of an option, Cablevision may grant stock
appreciation rights ("SARS") pursuant to which the employee may elect to receive
payment, either in lieu of the right to exercise such option or in addition to
the stock received upon the exercise of such option, as the Compensation
Committee may determine at the time the SAR is granted, equal to the difference
between the fair market value of the stock as of the date the SAR
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<PAGE> 92
is exercised and the option exercise price. The Third Restated 1996 Stock Plan
permits the granting of restricted shares and bonus award shares at prices
determined by the Compensation Committee.
Under the Third Restated 1996 Stock Plan, the Compensation Committee has
the authority, in its discretion, to add performance criteria as a condition to
any employee's exercise of a stock option or SAR, or the vesting or payment of
any bonus award shares or restricted shares, granted under the Third Restated
1996 Stock Plan. Additionally, the Third Restated 1996 Stock Plan specifies
certain performance criteria that may, in the case of certain executive officers
of Cablevision, be conditions precedent to the vesting of bonus award shares or
restricted shares granted to such executives under the Third Restated 1996 Stock
Plan. These performance criteria include: (i) earnings per share, (ii) total
return to stockholders, (iii) return on equity, (iv) operating income or net
income, (v) return on capital, (vi) costs, (vii) results relative to budget,
(viii) cash flow, (ix) cash flow margin, (x) cash flow per subscriber, (xi)
revenues, (xii) revenues per subscriber, (xiii) subscriber growth, (xiv) results
relative to quantitative customer service standards, (xv) results relative to
quantitative customer satisfaction standards, or (xvi) specified increase in the
Fair Market Value of the Cablevision NY Group shares or the Rainbow Media Group
shares. Application of the performance criteria may be by reference to the
performance of Cablevision or an affiliate of Cablevision, or a subdivision or
other business unit of either, including the Cablevision NY Group or the Rainbow
Media Group or any combination of the foregoing, or based on comparative
performance relative to other companies. Restricted shares, bonus award shares
and shares issuable upon the exercise of an option are paid, at the specified
vesting or exercise date, as the case may be, in Cablevision NY Group shares or
Rainbow Media Group shares (each, the "SHARES") unless satisfied or settled in
cash pursuant to the terms of the Third Restated 1996 Stock Plan.
The Board of Directors or the Compensation Committee may discontinue the
Third Restated 1996 Stock Plan at any time and from time to time may amend or
revise the terms of the Third Restated 1996 Stock Plan, as permitted by
applicable law, except that it may not revoke or alter, in any manner
unfavorable to the recipient of an outstanding award under the Third Restated
1996 Stock Plan, any award made under the Third Restated 1996 Stock Plan,
without the consent of the recipient of that award, nor may it amend the Third
Restated 1996 Stock Plan without the approval of the stockholders of Cablevision
if such approval is required by Rule 16b-3 under the Exchange Act for
transactions pursuant to the Third Restated 1996 Stock Plan to continue to be
exempt thereunder.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following summary generally
describes the principal Federal (but not state and local) income tax
consequences of the issuance and exercise of options under the Third Restated
1996 Stock Plan. It is general in nature and is not intended to cover all tax
consequences that may apply to a particular participant or Cablevision. The
provisions of the Code and the regulations thereunder relating to these matters
are complex and their impact in any one case may depend upon the particular
circumstances.
An employee will generally not realize any income when an incentive stock
option is granted under the Third Restated 1996 Stock Plan or when such an
option is exercised, and Cablevision will not be entitled to a deduction with
respect to the grant or exercise of such an option. The difference between the
exercise price of an incentive stock option and the fair market value of the
Shares subject to the option at the time of exercise is an item of tax
preference which may result in the employee being subject to the alternative
minimum tax. If the employee holds the Shares acquired under an incentive stock
option for at least two years from the date the option is granted and at least
one year from the date of exercise of the option, any gain realized by the
employee when the Shares are sold will be taxable as capital gain. If the
holding periods are not satisfied, the employee will realize ordinary income in
the year of the disposition of the Shares in an amount equal to the excess of
the fair market value of such Shares on the date of exercise (or the proceeds of
the disposition, if lower) over the option price, and Cablevision will be
entitled to a corresponding deduction. Any remaining gain will generally be
capital gain. If an incentive stock option is settled by Cablevision in cash,
Shares or a combination thereof, the employee will recognize ordinary income at
the time of settlement equal to the fair market value of such cash, Shares or
combination thereof and Cablevision shall be entitled to a corresponding
deduction.
An employee will not realize any income, and Cablevision will not be
entitled to a deduction, at the time that a nonqualified stock option is granted
under the Third Restated 1996 Stock Plan. Upon exercising a nonqualified stock
option, an employee will realize ordinary income, and Cablevision will be
entitled to a corresponding deduction, in an amount equal to the excess of the
fair market value on the exercise date of the Shares subject to the option over
the exercise price of the option. The employee will have a basis in the Shares
received as a result of the exercise, for purposes of computing capital gain or
loss, equal to the fair market value of those Shares on the exercise date and
the employee's holding period in the Shares received will commence on the date
of exercise. If a nonqualified stock option is settled by Cablevision in cash,
Shares or a combination thereof, the employee will recognize ordinary income at
the time of settlement equal to the fair market value of such cash, Shares or
combination thereof and Cablevision shall be entitled to a corresponding
deduction.
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<PAGE> 93
LONG-TERM CAPITAL GAIN. The maximum rate of tax on long-term capital gain
is 20% if the Shares have been held for more than twelve months. The maximum
rate is reduced to 18% with respect to options granted after December 31, 2000
if the options and the Shares acquired on exercise have been held for at least
five years from the grant of the option.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR AUTHORIZATION AND APPROVAL
OF THE THIRD RESTATED 1996 STOCK PLAN.
----------------------------
Proposal 2 requires the affirmative vote of holders of a majority of the
shares of common stock present in person or represented by proxy at the special
meeting. CABLEVISION STOCKHOLDERS HAVING A MAJORITY OF CABLEVISION'S VOTING
POWER HAVE AGREED THAT THEY WILL VOTE "FOR" APPROVAL OF THE PROPOSAL TO AMEND
OUR STOCK OPTION PLAN. ACCORDINGLY, APPROVAL OF THIS PROPOSAL IS ASSURED.
THE CABLEVISION BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
83
<PAGE> 94
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
This table shows the compensation for those persons who were, as of May
17, 2000, Cablevision's chief executive officer and the four other most highly
paid executives.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
SALARY BONUS
NAME AND PRINCIPAL POSITION YEAR ($) ($)
--------------------------- ---- ---------------- -----------------
<S> <C> <C> <C>
Charles F. Dolan
Chairman & Director 1999 900,000 2,000,000
1998 900,000 1,160,000
1997 525,000 525,000
James L. Dolan
President, Chief Executive Officer & 1999 950,000 2,000,000
Director 1998 900,000 2,500,000
1997 550,000 2,750,000
William J. Bell
Vice Chairman & Director 1999 770,000 1,400,000
1998 700,000 1,900,000
1997 525,000 2,150,000
Robert S. Lemle
Executive Vice President, General Counsel, 1999 625,000 875,000
Secretary & Director 1998 525,000 1,000,000
1997 475,000 1,250,000
Andrew B. Rosengard
Executive Vice President, 1999 575,000 900,000
Finance & Controller 1998 450,000 900,000
1997 350,000 800,000
<CAPTION>
LONG-TERM COMPENSATION AWARDS
--------------------------------------------
SECURITIES
UNDERLYING ALL OTHER
OPTIONS/SARs COMPENSATION
NAME AND PRINCIPAL POSITION (#) ($) (1)
--------------------------- ------------------ ---------------------
<S> <C> <C>
Charles F. Dolan
Chairman & Director 0 388,721
0 473,229
0 315,962
James L. Dolan
President, Chief Executive Officer & 0 4,463,681
Director 160,000 137,682
0 213,684
William J. Bell
Vice Chairman & Director 0 2,263,128
0 119,611
700,000 117,275
Robert S. Lemle
Executive Vice President, General Counsel, 0 1,825,380
Secretary & Director 0 60,539
605,200 51,753
Andrew B. Rosengard
Executive Vice President, 0 181,565
Finance & Controller 0 147,875
0 619,833
</TABLE>
------------
(1) For 1999, represents the sum of (i) for each individual, $3,200
contribution by CSC Holdings on behalf of such individual under the
Cablevision Cash Balance Pension Plan (the "PENSION PLAN"), (ii) for each
individual, $30,000 credited to such individual (other than Mr. James
Dolan and Mr. Rosengard) on the books of Cablevision pursuant to the
defined contribution portion of the Cablevision Supplemental Benefit Plan
(the "SUPPLEMENTAL PLAN"), (iii) for each individual, $4,000 contributed
by Cablevision on behalf of such individual as a matching contribution
under the Cablevision 401(k) Plan, (iv) for each individual, the
following amounts paid as a premium on individual life insurance policies
purchased by Cablevision for the executive officer to replace coverage
under the integrated policy previously provided by Cablevision: Mr.
Charles Dolan $130,276, Mr. James Dolan $37,705, Mr. Bell $82,037, Mr.
Lemle $20,268 and Mr. Rosengard $9,305, (v) for Mr. Charles Dolan, Mr.
James Dolan, Mr. Bell and Mr. Lemle: $221,245, $135,537, $2,271 and
$1,074, respectively, representing the value of personal use of the
Cablevision aircraft, determined in accordance with the Standard Industry
Fare Level as promulgated by the Internal Revenue Service, (vi) for Mr.
James Dolan, Mr. Bell and Mr. Lemle: $4,283,239, $2,141,620 and
$1,766,838, respectively, representing the payout of a Long Term
Incentive Plan award and (vii) in the case of Mr. Rosengard, amounts
allocated in respect of a deferred compensation plan, including an
initial amount of $500,000 in 1997 plus an annual amount equal to 20% of
base salary, together with attributable interest thereon, aggregating
$104,245, $131,370 and $165,060 in 1997, 1998 and 1999, respectively.
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<PAGE> 95
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------
% OF TOTAL EXERCISE
OPTIONS/ OF MARKET
OPTIONS SARs GRANTED BASE PRICE ON
GRANTED (#) TO EMPLOYEES PRICE DATE OF EXPIRATION
NAME (1) IN FISCAL YEAR ($/SHARE) GRANT ($) DATE
---- ------------ --------------- -------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
James L. Dolan................. 240,00 5.2% 67.50 67.50 8/03/09
William J. Bell................ 200,00 4.3% 67.50 67.50 8/03/09
Robert S. Lemle................ 150,00 3.2% 67.50 67.50 8/03/09
Andrew B. Rosengard............ 150,00 3.2% 67.50 67.50 8/03/09
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM (2)
----------------------------
NAME 5% ($) 10% ($)
---- ------------- ------------
<S> <C> <C>
James L. Dolan................. 10,188,093 25,818,628
William J. Bell................ 8,490,077 21,515,523
Robert S. Lemle................ 6,367,558 16,136,642
Andrew B. Rosengard............ 6,367,558 16,136,642
</TABLE>
------------
(1) Options granted on August 2, 1999, under the 1998 Employee Stock Plan.
Such options become exercisable in annual installments of 33.33% per
year, beginning on December 31, 2000 and on each of the first two
anniversaries of that date. Vesting of options may be accelerated upon a
change of control of Cablevision (see "Employee Contracts and Severance
and Change-In-Control Arrangements" below). No SARs were granted in 1999
to the named executive officers.
(2) The dollar amounts under these columns are the result of calculations at
5% and 10% rates set by the SEC, and therefore are not intended to
forecast possible future appreciation of the Cablevision stock price. In
all cases the appreciation is calculated from the award date to the end
of the option term.
AGGREGATED OPTION/SAR EXERCISES IN 1999 AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING UNEXERCISED
OPTIONS/SARs AT
12/31/99 (#)
----------------------------------------------
SHARES ACQUIRED
ON VALUE
NAME EXERCISE (#) (1) REALIZED ($) EXERCISABLE UNEXERCISABLE
---- --------------------- ----------------- -------------- ------------------
<S> <C> <C> <C> <C>
Charles F. Dolan.............. -- -- -- --
James L. Dolan................ -- -- 199,332 346,668
William J. Bell............... 475,332 34,361,217 266,668 200,000
Robert S. Lemle............... 239,000 16,197,594 532,200 150,000
Andrew B. Rosengard........... 73,338 5,038,550(2) 59,998(2) 150,000
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
MONEY OPTIONS/SARs
AT 12/31/99 ($)
-----------------------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------------- -----------------
<S> <C> <C>
Charles F. Dolan.............. -- --
James L. Dolan................ 12,039,936 7,020,064
William J. Bell............... 18,233,425 1,600,000
Robert S. Lemle............... 36,314,925 1,200,000
Andrew B. Rosengard........... 4,102,363(3) 1,200,000
</TABLE>
------------
(1) Exercise of stock options and SARs granted under CSC Holdings' Amended
and Restated Employee Stock Plan and CSC Holdings' First Amended and
Restated 1996 Employee Stock Plan.
(2) Including a cash payment of $614,118 representing a bonus related to
stock price improvements.
(3) Including a potential cash payment of $307,082 representing a bonus
related to potential stock price improvement.
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<PAGE> 96
LONG-TERM INCENTIVE PLANS AWARDS IN 1999
<TABLE>
<CAPTION>
NUMBER OF SHARES, PERFORMANCE OR
SHARES OF COMMON OTHER PERIOD ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
STOCK OR OTHER UNTIL PRICE-BASED PLANS
RIGHTS MATURATION OR --------------------------------------------------------------
NAME (#) PAYOUT THRESHOLD ($) TARGET ($)(1) MAXIMUM ($)
---- ----------------- -------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Charles F. Dolan.......... -- -- -- -- --
James L. Dolan............ N/A 12-36 mos. -- 4,500,000 --
William J. Bell........... N/A 12-36 mos. -- 2,500,000 --
Robert S. Lemle........... N/A 12-36 mos. -- 2,000,000 --
Andrew B. Rosengard....... N/A 12-36 mos. -- 1,200,000 --
</TABLE>
----------------
(1) Contingent cash awards granted under our Long-Term Incentive Plan, in the
amounts indicated. The indicated amounts are payable in full upon the
attainment of specified performance objectives, including (a) incremental
cash flow and revenues and cumulative revenues from new businesses, as
defined, in respect of calendar years 1999, 2000 and 2001 in excess of
specified targets, or (b) our private market value at the end of any
calendar quarter starting with the fourth quarter in 1999 in excess of
specified targets.
DEFINED BENEFIT PENSION PLAN
Cablevision's Nonqualified Supplemental Benefit Plan provides
actuarially-determined pension benefits, among other types of benefits, for nine
employees of Cablevision or its subsidiaries who were previously employed by
Cablevision Systems Services Corporation ("CSSC"). CSSC, which is wholly owned
by Charles Dolan, provided management services to Cablevision Company
(Cablevision's predecessor) and to certain affiliates of Cablevision. The
Supplemental Plan is designed to provide these employees, in combination with
certain qualified benefit plans maintained by Cablevision and certain qualified
retirement plans formerly maintained by CSSC, with the same retirement benefit
formulae they would have enjoyed had they remained employees of CSSC and
continued to participate in the former CSSC qualified plans. The Supplemental
Plan provides that Cablevision may set aside assets for the purpose of paying
benefits under the Supplemental Plan, but that any such assets remain subject to
the claims of creditors of Cablevision.
The defined benefit feature of the Supplemental Plan provides that, upon
attaining normal retirement age (the later of age 65 or the completion of five
years of service), a participant will receive an annual benefit equal to the
lesser of 75% of his or her average compensation (not including bonuses and
overtime) for his or her three most highly compensated years and the maximum
benefit permitted by the Code (the maximum in 1999 is $130,000 for employees who
retire at age 65), reduced by the amount of any benefits paid to such individual
pursuant to the qualified defined benefit plan formerly maintained by CSSC. This
benefit will be reduced proportionately if the participant retires or otherwise
terminates employment before reaching normal retirement age.
The following sets forth the estimated annual benefits payable upon
normal retirement under the defined benefit portion of the Supplemental Plan
(reduced by any retirement benefits paid in connection with the termination of
the CSSC Defined Benefit Pension Plan) to the following persons: Mr. Charles
Dolan, $193,092; Mr. James Dolan, $0; Mr. Bell, $105,323; Mr. Lemle, $116,129
and Mr. Rosengard, $0.
EMPLOYMENT CONTRACTS AND SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS
Charles F. Dolan has an employment agreement with Cablevision, which
expired in January 2000, and was automatically renewed until January 2001. The
employment agreement will automatically renew for successive one-year terms
unless terminated by either party at least three months prior to the end of the
then existing term. The agreement provides for annual compensation of not less
than $400,000 per year to Mr. Charles Dolan. The agreement also provides for
payment to Mr. Charles Dolan's estate in the event of his death during the term
of such agreement, of an amount equal to the greater of one year's base salary
or one-half of the compensation that would have been payable to Mr. Charles
Dolan during the remaining term of such agreement.
Under the applicable award agreements, the vesting of the bonus award
shares, stock options and SARs granted to employees, including Messrs. James
Dolan, Bell and Lemle under Cablevision's Employee Stock Plan and its
predecessor plans, may be accelerated, in certain circumstances, upon a "change
in control" of Cablevision. A "CHANGE IN CONTROL" is defined as the
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<PAGE> 97
acquisition by any person or group, other than Charles F. Dolan or members of
his immediate family (or trusts for the benefit of Charles Dolan or his
immediate family) or any employee benefit plan sponsored or maintained by
Cablevision, of (1) the power to direct the management of substantially all of
the cable television systems then owned by Cablevision in the New York City
metropolitan area or (2) after any fiscal year of the Company in which the
Company's cable television systems in the New York City metropolitan area
contributed in the aggregate less than a majority of the net revenues of the
Company and its consolidated subsidiaries, the power to direct the management of
Cablevision or substantially all of its assets. Upon such a change in control,
the bonus award shares, stock options and SARs may be converted into either a
right to receive an amount of cash based upon the highest price per share of
Common Stock paid in the transaction resulting in the change in control, or into
a corresponding award with equivalent profit potential in the surviving entity,
at the election of the Compensation Committee.
Cablevision adopted as of May 1, 1994, a severance pay plan pursuant to
which an employee whose employment is involuntarily terminated (other than for
cause) or who resigns with the approval of Cablevision, may receive a benefit in
an amount determined by Cablevision.
In March 1998, Cablevision entered into employment agreements with each
of Messrs. Bell and Lemle, which agreements replaced previous employment
agreements. The agreements are each for a three-year term that automatically
extends for additional one-year periods on January 1, 1999, 2000 and 2001,
respectively, unless Cablevision or the executive notifies the other of its
election not to extend by the preceding October 31. The agreements currently
expire on December 31, 2002. In January 1999, Cablevision entered into an
employment agreement with James Dolan. This agreement is for a three year term
expiring December 31, 2001 that automatically extends for additional one-year
periods on January 1, 2000 and 2001, respectively, unless Cablevision or Mr.
Charles Dolan notifies the other of an election not to extend by the preceding
October 31. The agreement currently expires on December 31, 2002. Under their
respective agreements, these executives are to receive annual salaries of not
less than $950,000 in the case of Mr. James Dolan, $700,000 in the case of Mr.
Bell, and $525,000 in the case of Mr. Lemle. Each agreement also provides that
in the event that the executive leaves the Company involuntarily (other than for
cause), following a change in control (as defined above), or because such
executive's compensation, title or responsibilities are reduced without his
consent, such executive shall be entitled to receive (1) a severance payment of
not less than the salary due for the remainder of the employment agreement or
one year's annual salary (or three times the sum of his annual salary plus his
prior year's annual bonus in the event of a change in control), whichever is
greater, (2) an annual bonus of not less than 100% of annual salary for Messrs.
James Dolan, Bell and 65% of annual salary for Mr. Lemle, pro rated for the
months worked during such year, (3) the right to receive payment of all bonus
shares and deferred compensation awards, and to exercise all stock option and
conjunctive right awards for the remainder of the term of the agreement, or a
period of 180 days, if greater, whether or not such awards are due or
exercisable at the time, (4) the right to receive payment of all outstanding
long-term performance awards, at such time, if any, as such awards shall be
earned (as if such employee remained in the continuous employ of Cablevision
through the payment date), (5) three years payment of life insurance premiums
and (6) the right to participate in Cablevision's health plan for retired
executives.
In February 1996, the Compensation Committee adopted the Cablevision
Systems Corporation Supplemental Life Insurance Premium Payment Plan (the
"SUPPLEMENTAL LIFE INSURANCE PREMIUM PAYMENT PLAN"). Under the Supplemental Life
Insurance Premium Payment Plan, at all times following a change in control (as
detailed above) Cablevision would pay on behalf of certain executive officers of
Cablevision, including Messrs. James Dolan, Bell and Lemle, all premiums on life
insurance policies purchased by Cablevision for such executive officers, up to
the aggregate amount of additional premiums, if any, necessary to fund fully the
face amount of such executive officer's policy as in effect immediately prior to
the change of control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As disclosed above, the Compensation Committee of the Board of Directors
is comprised of Messrs. Oristano, Tatta and Hochman. Mr. Tatta, the former
President of CSC Holdings, is currently a consultant to Cablevision. Mr.
Oristano and Mr. Hochman are not employees of Cablevision.
Cablevision has made investments in and advances to certain affiliates of
which Charles Dolan or Dolan family interests had or have ownership interests.
On August 23, 1996, Cablevision entered into an agreement with Northcoast
Operating Co., Inc. ("NORTHCOAST") and certain of its affiliates, to form a
limited liability company (the "LLC") to participate in the auctions conducted
by the Federal Communications Commission ("FCC") for certain licenses to conduct
a personal communications service ("PCS") business. As of March 1, 2000,
Cablevision had contributed an aggregate of approximately $58.9 million to the
LLC (either directly or through
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<PAGE> 98
a loan to Northcoast) and holds a 49.9% interest in the LLC and certain
preferential distribution rights. Northcoast is a Delaware corporation
controlled by John Dolan. John Dolan is a nephew of Charles Dolan and a cousin
of James Dolan.
CONFLICTS OF INTEREST
Charles Dolan and certain other principal officers of Cablevision and
various affiliates of Cablevision are subject to certain conflicts of interest.
These conflicts include, but are not limited to, the following:
Business Opportunities. Charles Dolan may from time to time be presented
with business opportunities which would be suitable for Cablevision and
affiliates of Cablevision in which Mr. Dolan and his family have varying
interests. Mr. Dolan has agreed that he will own and operate cable television
systems only through Cablevision, except for cable television systems which the
company elects not to acquire under its right of first refusal. Mr. Dolan will
offer to Cablevision the opportunity to acquire or invest in any cable
television system or franchise therefor or interest therein that is offered or
available to him or his family interests. If a majority of the members of the
board of directors, who are not employees of Cablevision or any of its
affiliates (the "INDEPENDENT DIRECTORS") rejects such offer, Mr. Dolan or such
family interests may acquire or invest in such cable television system or
franchise therefore or interest therein individually or with others on terms no
more favorable to Mr. Dolan than those offered to Cablevision. Mr. Dolan's
interests in companies other than Cablevision may conflict with his interest in
Cablevision.
Except for the limitations on the ownership and operation of cable
television systems as described above, Mr. Dolan is not subject to any
contractual limitations with respect to his other business activities and may
engage in programming and other businesses related to cable television. A
significant portion of Mr. Dolan's time may be spent, from time to time, in the
management of such affiliates. Mr. Dolan will devote as much of his time to the
business of Cablevision as is reasonably required to fulfill the duties of his
office. During 1999, substantially all of Mr. Dolan's professional time was
devoted to the business of Cablevision.
In the event that Charles Dolan or any Dolan family interest decides to
offer (other than to any Dolan family interest or an entity affiliated with Mr.
Dolan) for sale for his, her or its account any of his, her or its ownership
interest in any cable television system or franchise therefor, he, she or it
will (subject to the rights of third parties existing at such time) offer such
interest to Cablevision. Mr. Dolan or such Dolan family interest may elect to
require that, if Cablevision accepts such offer, up to one-half of the
consideration for such interest would consist of shares of Class B common stock,
which shares will be valued at the prevailing market price of the Class A common
stock, and the remainder would consist of shares of Class A common stock and/or
cash. If a majority of the independent directors rejects such offer, Mr. Dolan
or such Dolan family interest may sell such interest to third parties on terms
no more favorable to such third parties than those offered to the Company.
Cablevision's by-laws provide that Cablevision shall make any investment
in or advance, other than any investment or advance that constitutes
compensation for services rendered to Cablevision, to Charles Dolan and
affiliates of Charles Dolan (as defined therein) only if such investment or
advance is approved by a special committee of the board of directors comprised
of two non-employee directors and, subject to the provisions of the AT&T
Stockholders Agreement, two directors nominated by AT&T.
OUR EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Our executive officers are:
<S> <C>
Charles F. Dolan..................... Chairman
James L. Dolan....................... Chief Executive Officer and President
William J. Bell...................... Vice Chairman
Robert S. Lemle...................... Executive Vice President, General Counsel and Secretary
Andrew B. Rosengard.................. Executive Vice President, Finance and Controller
Sheila A. Mahony..................... Executive Vice President, Communications, Government and Public Affairs
Margaret Albergo..................... Executive Vice President, Planning and Operations
Thomas C. Dolan...................... Senior Vice President and Chief Information Officer
</TABLE>
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<PAGE> 99
- CHARLES F. DOLAN, 73, Director since 1985. Chairman of the Company since
1985. Chief Executive Officer of the Company from 1985 to October 1995.
Founded and acted as the General Partner of the Company's predecessor
from 1973 until 1985. Established Manhattan Cable Television in 1961 and
Home Box Office in 1971. Charles F. Dolan is the father of James L.
Dolan, Patrick F. Dolan and Thomas C. Dolan.
- JAMES L. DOLAN, 44, Director since 1991. President of the Company since
June 1998 and Chief Executive Officer of the Company since October 1995.
Chief Executive Officer of Rainbow Media Programming Holdings, Inc., a
subsidiary of the Company, from September 1992 to October 1995. Vice
President of the Company from 1987 to September 1992. James L. Dolan is
the son of Charles F. Dolan and the brother of Patrick F. Dolan and
Thomas C. Dolan.
- WILLIAM J. BELL, 60, Director since 1985. Vice Chairman of the Company
since 1985. Joined the Company's predecessor in 1979.
- ROBERT S. LEMLE, 47, Director since 1988. Executive Vice President,
General Counsel and Secretary of the Company since February 1994. Senior
Vice President, General Counsel and Secretary of the Company from 1986 to
February 1994.
- ANDREW R. ROSENGARD, 42, Executive Vice President, Finance and Controller
of the Company since April 1999. Executive Vice President, Financial
Planning and Controller of the Company from November 1997 to April 1999.
Senior Vice President and Controller of the Company from February 1996 to
November 1997. Senior Vice President, Finance for Rainbow Media
Programming Holdings, Inc., a subsidiary of the Company, from 1990 to
February 1996.
- SHEILA A. MAHONY, 58, Director since 1988. Executive Vice President,
Communications, Government and Public Affairs since April 1999. Senior
Vice President, Communications and Public Affairs of the Company from
June 1995 through April 1999. Vice President of Government Relations and
Public Affairs of the Company and the Company's predecessor from 1980 to
June 1995.
- MARGARET ALBERGO, 46, Executive Vice President, Planning and Operations
since April 1999. Senior Vice President, Planning and Performance of the
Company from October 1996 to April 1999. Senior Vice President,
Operations of Rainbow Media Programming Holdings, Inc., a subsidiary of
the Company from August 1995 to October 1996. Vice President, Corporate
Development of Rainbow Media Programming Holdings, Inc. from 1993 until
August 1995. Director of Operations and Administration of News 12 Long
Island from 1991 to 1993.
- THOMAS C. DOLAN, 47, Director since 1998. Senior Vice President and Chief
Information Officer of the Company since February 1996. Vice President
and Chief Information Officer of the Company from July 1994 to February
1996. General Manager of the Company's East End Long Island cable system
from November 1991 through July 1994. Thomas C. Dolan is the son of
Charles F. Dolan and brother of Patrick F. Dolan and James L. Dolan.
The Rainbow Media Holdings' executive officers who will be responsible for the
Rainbow Media Group are as follows:
- JOSHUA SAPAN, 49, President and Chief Executive Officer, Rainbow Media
Holdings, Inc. since 1995. Chief Operating Officer from 1991 to 1995.
President, National Entertainment Division, 1987 to 1991.
- HANK J. RATNER, 41, Chief Operating Officer, Rainbow Media Holdings, Inc.
since 1998. Executive Vice President from 1993 to 1998. Senior Vice
President, Legal and Business Affairs, 1990 to 1993. Vice President,
Business Affairs, 1988 to 1990. Assistant General Counsel, Cablevision
Systems Corporation, 1987 to 1988.
- KATE MCENROE, 45, President, AMC Networks since 1996. Executive Vice
President & General Manager, 1994 to 1996. Senior Vice President &
General Manager, 1992 to 1994. Vice President & General Manager, 1988 to
1992. Vice President Sales & Marketing, 1987 to 1988. Vice President
Field Operations 1986 to 1987. Regional Vice President, 1984 to 1986.
Regional Director, 1981 to 1984.
- KATHLEEN A. DORE, 49, President, President, Bravo Networks since 1996,
also President, The Independent Film Channel, since 1994. Executive Vice
President and General Manager, 1988 to 1994. Regional Director, American
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<PAGE> 100
Movie Classics, 1986 to 1988. Sales Director, American Movie Classics,
1986 to 1988. Sales Director, American Movie Classics, 1984 to 1986.
Affiliate Marketing Manager, Rainbow Programming Services, 1982 to 1984.
- GREG MOYER, 46, President, Regional Programming, Rainbow Media Holdings,
Inc. since January 1999. Mr. Moyer previously held a variety of positions
with Discovery Communications, Inc., including Chief Creative Officer and
President, U.S. Networks.
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<PAGE> 101
STOCK OWNERSHIP TABLE
This table shows the number and percentage of shares of Class A and Class
B common stock owned of record and beneficially by each director and each
executive officer of Cablevision named in the summary compensation table as of
March 1, 2000 (or in the case of Michael Huseby, as of June 6, 2000, that date
upon which he was elected a director). The table also shows the name, address
and the number and percent of shares of Class A and Class B common stock owned
by persons beneficially owning more than 5% percent of either class.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED (1) BENEFICIALLY OWNED (1) (2)
---------------- ---------------------- --------------------------
Amount % of Class Amount % of Class
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Charles F. Dolan (3) (4) (5)
1111 Stewart Avenue
Bethpage, NY 11714.................. 938,401 * 23,137,124 53.6%
Charles F. Dolan
1997 Grantor Retained
Annuity Trust (5)................... -- -- 4,230,655 9.8%
Gabelli Funds, Inc. (6)
GAMCO Investors, Inc. (6)
One Corporate Center
Rye, NY 10580....................... 8,828,650 6.8% -- --
AT&T Corporation (7)
32 Avenue of the Americas
New York, NY 10013.................. 49,982,572 38.4% -- --
James L. Dolan (11) (14) (22)....... 130,333 * 1,326,464 31.%
William J. Bell (8) (11)............ 201,195 * -- --
Robert S. Lemle (9) (11)............ 994,483 * -- --
Andrew B. Rosengard (11)............ 39,215 * -- --
Sheila A. Mahony (11)............... 35,585 * -- --
Thomas C. Dolan (11) (16) (21)...... 43,600 * 1,212,464 2.8%
Patrick F. Dolan (11) (15) (20)..... 47,333 * 1,215,140 2.8%
John Tatta (10) (12)................ 82,400 * -- --
Charles D. Ferris (12).............. 45,000 * -- --
Richard H. Hochman (12)............. 49,376 * -- --
Victor Oristano (12) (13) .......... 45,000 * -- --
Vincent Tese (12) .................. 19,000 * -- --
Daniel E. Somers (7) (12) .......... 20,000 * -- --
Michael Huseby (7) (12)............. 20,000 * -- --
</TABLE>
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<PAGE> 102
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMBINED
VOTING POWER
OF CLASS A &
CLASS B COMMON
STOCK
CLASS A & CLASS B COMMON STOCK BENEFICIALLY
NAME AND ADDRESS BENEFICIALLY OWNED (1) (2) OWNED (1) (2)
---------------- ------------------------------ --------------
Amount % of Class
------ ----------
<S> <C> <C> <C>
Charles F. Dolan (3) (4) (5)
1111 Stewart Avenue
Bethpage, NY 11714.................. 24,075,525 13% 44.1%
Charles F. Dolan
1997 Grantor Retained
Annuity Trust (5)................... 4,230,655 2.4% 7.5%
Gabelli Funds, Inc. (6)
GAMCO Investors, Inc. (6)
One Corporate Center
Rye, NY 10580....................... 8,828,650 5.1% 1.8%
AT&T Corporation (7)
32 Avenue of the Americas
New York, NY 10013.................. 49,982,572 28.8% 8.9%
James L. Dolan (11) (14) (22)....... 1,456,797 * 2.4%
William J. Bell (8) (11)............ 201,195 * *
Robert S. Lemle (9) (11)............ 994,483 * *
Andrew B. Rosengard (11)............ 39,215 * *
Sheila A. Mahony (11)............... 35,585 * *
Thomas C. Dolan (11) (16) (21)...... 1,256,064 * 2.2%
Patrick F. Dolan (11) (15) (20)..... 1,262,473 * 2.2%
John Tatta (10) (12)................ 82,400 * *
Charles D. Ferris (12).............. 45,000 * *
Richard H. Hochman (12)............. 49,376 * *
Victor Oristano (12) (13) .......... 45,000 * *
Vincent Tese (12) .................. 19,000 * *
Daniel E. Somers (7) (12) .......... 20,000 * *
Michael Huseby (7) (12)............. 20,000 * *
All executive officers and
directors as a group (16 persons)
(3) (4) (5) (8) (9) (10) (11)
(12) (13) (14) (15) (16) (20)
(21) (22) (23) (24) (25) (26)....... 2,724,929 2.1% 26,891,192 62.4%
Paul J. Dolan (17) (22)
100 Corporate Place Suite 150
Chardon, OH 44024................... 14,800 * 2,424,928 5.6%
Kathleen M. Dolan
(17) (23) (24) (25) (26) (27) (28)
1111 Stewart Avenue
Bethpage, NY 11714.................. 1,560,224 1.2% 6,283,744 14.6%
Mary S. Dolan (18) (20)
300 So. Riverside Plaza
Suite 1480 Chicago, IL 60606........ 11,000 * 2,389,604 5.5%
Deborah A. Dolan-Sweeney
(18) (23) (24) (25) (26) (27) (28)
1111 Stewart Avenue
Bethpage, NY 11714.................. 1,560,224 1.2% 6,283,744 14.6%
Matthew J. Dolan (19) (21)
231 Main Street
Court House Annex
Chardon, OH 44024................... 4,000 * 2,389,604 5.5%
Marianne E. Weber
(19) (23) (24) (25) (26) (27) (28)
1111 Stewart Avenue
Bethpage, NY 11714.................. 1,560,224 1.2% 6,248,420 14.5%
Dolan Family LLC (28)
c/o William A. Frewin, Jr.
340 Crossways Park Drive
Woodbury, NY 11797.................. -- -- 5,000,000 11.6%
Edward C. Atwood
(23) (24) (25) (26) (28) (29)
1111 Stewart Avenue
Bethpage, NY 11714.................. 162,033 * 5,445,104 12.6%
John MacPherson (30)
21 Old Town Lane
Halesite, NY 10019.................. 164,600 * 7,560,296 17.5%
</TABLE>
<TABLE>
<CAPTION>
COMBINED
VOTING POWER
OF CLASS A &
CLASS B COMMON
STOCK
CLASS A & CLASS B COMMON STOCK BENEFICIALLY
NAME AND ADDRESS BENEFICIALLY OWNED (1) (2) OWNED (1) (2)
---------------- ------------------------------ --------------
Amount % of Class
------ ----------
<S> <C> <C> <C>
All executive officers and
directors as a group (16 persons)
(3) (4) (5) (8) (9) (10) (11)
(12) (13) (14) (15) (16) (20)
(21) (22) (23) (24) (25) (26)....... 29,616,121 17.1% 48.4%
Paul J. Dolan (17) (22)
100 Corporate Place Suite 150
Chardon, OH 44024................... 2,439,728 1.4% 4.3%
Kathleen M. Dolan
(17) (23) (24) (25) (26) (27) (28)
1111 Stewart Avenue
Bethpage, NY 11714.................. 7,843,968 4.5% 11.5%
Mary S. Dolan (18) (20)
300 So. Riverside Plaza
Suite 1480 Chicago, IL 60606........ 2,400,604 1.4% 4.3%
Deborah A. Dolan-Sweeney
(18) (23) (24) (25) (26) (27) (28)
1111 Stewart Avenue
Bethpage, NY 11714.................. 7,843,968 4.5% 11.5%
Matthew J. Dolan (19) (21)
231 Main Street
Court House Annex
Chardon, OH 44024................... 2,393,604 1.4% 4.3%
Marianne E. Weber
(19) (23) (24) (25) (26) (27) (28)
1111 Stewart Avenue
Bethpage, NY 11714.................. 7,808,644 4.5% 11.4%
Dolan Family LLC (28)
c/o William A. Frewin, Jr.
340 Crossways Park Drive
Woodbury, NY 11797.................. 5,000,000 2.9% 8.9%
Edward C. Atwood
(23) (24) (25) (26) (28) (29)
1111 Stewart Avenue
Bethpage, NY 11714.................. 5,607,137 3.2% 9.7%
John MacPherson (30)
21 Old Town Lane
Halesite, NY 10019.................. 7,724,896 4.5% 13.5%
</TABLE>
-----------
* Less than 1%
(1) Beneficial ownership of a security consists of sole or shared voting
power (including the power to vote or direct the vote) and/or sole or
shared investment power (including the power to dispose or direct the
disposition) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise. Unless indicated,
beneficial ownership disclosed consists of sole voting and investment
power. Beneficial ownership of Class A Common Stock is exclusive of the
shares of Class A Common Stock that are issuable upon conversion of
shares of Class B Common Stock.
(2) Class B Common Stock is convertible into Class A Common Stock at the
option of the holder on a share for share basis. The holder of one share
of Class A Common Stock is entitled to one vote at a meeting of
stockholders of Cablevision, and the holder of one share of Class B
Common Stock is entitled to ten votes at a meeting of stockholders of
Cablevision except in the separate class elections of directors.
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<PAGE> 103
(3) Includes 774,555 shares of Class A Common Stock owned by the Dolan Family
Foundation, a New York not-for-profit corporation, the sole members of
which are Charles Dolan and his wife, Helen A. Dolan. Neither Mr. Dolan
nor Mrs. Dolan has an economic interest in such shares, but Mr. Dolan and
his wife share the ultimate power to vote and dispose of such shares.
Under certain rules of the Securities and Exchange Commission, so long as
Mr. Dolan and his wife retain such powers, each of Mr. Dolan and his wife
is deemed to have beneficial ownership thereof. Also includes 20,000
shares of Class A Common Stock owned directly by Mrs. Dolan.
(4) Does not include an aggregate of 14,835,712 shares of Class B Common
Stock and 151,000 shares of Class A Common Stock held by trusts for the
benefit of Dolan family interests (the "DOLAN FAMILY TRUSTS"). Mr. Dolan
disclaims beneficial ownership of the shares owned by the Dolan Family
Trusts, in that he has neither voting nor investment power with respect
to such shares.
(5) Includes 4,230,655 shares of Class B Common Stock owned by the Chares F.
Dolan 1997 Grantor Retained Annuity Trust (the "GRAT"). The GRAT was
established on April 30, 1997 by Charles F. Dolan for estate planning
purposes. The GRAT, through its trustees, has the sole power to vote and
dispose of such shares. The two co-trustees of the trust are Charles F.
Dolan and his wife, Mrs. Dolan. For three years, the GRAT will pay to
Charles F. Dolan, and in the event of his death, to Mrs. Dolan a certain
percentage of the fair market value of the property initially contributed
to the GRAT (the "Annuity"). If Mr. Dolan is living at the expiration of
the term of the GRAT, the remainder will pass into another trust for the
benefit of Mrs. Dolan and the descendants of Charles F. Dolan. If Mr.
Dolan is not living at the expiration of the term of the GRAT, the then
principal of the GRAT will pass to his estate or to Mrs. Dolan.
(6) Cablevision has been informed that certain operating subsidiaries of
Gabelli Funds, Inc. ("GFI") beneficially held, or exercise investment
discretion over various institutional accounts which beneficially held as
of December 15, 1999, an aggregate of 8,828,650 shares of Class A Common
Stock. Cablevision has been informed that GAMCO Investors, Inc., an
investment advisor registered under the Investment Advisors Act of 1940,
as amended and a wholly-owned subsidiary of Gabelli Asset Management,
Inc., held sole dispositive power over 6,372,087 of such shares and sole
voting power over 6,245,087 of such shares.
(7) Cablevision has been informed that AT&T beneficially owned an aggregate
of 48,942,172 shares of Class A Common Stock. AT&T or its subsidiaries
have sole voting and investment power with respect to such shares. Also
includes 1,040,400 shares held directly by Liberty Media Corporation, a
wholly-owned subsidiary of AT&T, as to which AT&T disclaims beneficial
ownership. AT&T is a party to a Stockholders Agreement with Cablevision
and holders of Class B Common Stock, which agreement, among other things,
requires the Class B Stockholders to vote to elect for director, up to
two persons nominated by AT&T, and requires AT&T to vote its shares of
Class A Common Stock in proportion to the vote of the other,
non-affiliated Class A Stockholders, on certain matters. Mr. Daniel E.
Somers and Mr. Michael Huseby, Directors of Cablevision, are officers of
AT&T. Each of Messrs. Somers and Huseby disclaims any beneficial
ownership interest in these shares.
(8) Includes 50,000 shares of Class A Common Stock purchased by William J.
Bell in April 1999.
(9) Includes 34,000 shares of Class A Common Stock purchased by Robert S.
Lemle in April 1999 and 10,000 shares of Class A Common Stock owned by a
family partnership of which Mr. Lemle is the general partner. Also
includes 65 shares of Class A Common Stock owned by a minor child. Also
includes 15,000 shares of Class A Common Stock owned by the Estate of
Marc Lustgarten for which Robert S. Lemle serves as co-executor and, in
such capacity, shares the power to vote and dispose of such shares and
581,000 shares of Class A Common Stock issuable upon the exercise of
options granted to Marc Lustgarten pursuant to Cablevision's Employee
Stock Plan which, on March 1, 2000 were unexercised but were exercisable
within a period of 60 days from that date, owned by the Estate of Marc
Lustgarten for which Robert S. Lemle serves as co-executor and, in such
capacity, will share the power to vote and dispose of such shares, when
issued.
(10) Includes 43,600 shares of Class A Common Stock by the John Tatta
Charitable Remainder Unitrust UAD 12/16/98 (the "JTCRT"). The JTCRT was
established on December 16, 1998 by John Tatta for charitable purposes.
Mr. Tatta, disclaims beneficial ownership of the stock beneficially owned
by trusts for the benefit of his family, in that he has neither voting
nor investment power with respect to such shares. Includes 33,800 shares
of Class A Common Stock held by the Anne Tatta Grantor Retained Annuity
Trust UTA June 21, 1999 ("ANNE TATTA GRAT"). The Anne Tatta GRAT is a New
York trust for the benefit of Tatta family interests of which Stephen A
Carb, Esq. is trustee.
(11) Includes shares of Class A Common Stock issuable upon the exercise of
options granted pursuant to Cablevision's Employee Stock Plan which on
March 1, 2000 were unexercised but were exercisable within a period of 60
days from that date. These amounts include the following number of shares
for the following individuals: Mr. James Dolan 126,333; Mr. Bell 150,000;
Mr. Lemle 309,600; Mr. Rosengard 29,999; Ms. Mahony 30,000; Mr. Patrick
Dolan 39,733 and Mr. Thomas Dolan 39,600; all executive officers and
directors as a group 752,433.
(12) Includes shares of Class A Common Stock issuable upon the exercise of
options granted pursuant to CSC Holdings' 1996 Stock Option Plan, as
amended, for Non-Employee Directors, which on March 1, 2000 were
unexercised but were exercisable within a period of 60 days from that
date. These amounts include the following number of shares for the
following individuals: Mr. Tatta 5,000; Mr. Ferris 41,000; Mr. Hochman
41,000; Mr. Oristano 41,000; Mr. Tese 19,000; Mr. Somers 20,000; and Mr.
Huseby 20,000.
(13) The shares listed are owned by the Oristano Foundation, a charitable
trust the trustees of which are members of the Oristano family.
(14) Includes 114,000 shares of Class B Common Stock owned by trusts for minor
children as to which James L. Dolan disclaims beneficial ownership. Also
includes 1,212,464 shares of Class B Common Stock held by a family trust
of which James L. Dolan is a contingent beneficiary and a co-trustee, as
to which James L. Dolan disclaims beneficial ownership, which shares are
also described in footnote (22).
(15) Includes 38,000 shares of Class B Common Stock owned by a trust for a
minor child as to which Patrick F. Dolan disclaims beneficial ownership.
Also includes 1,177,140 shares of Class B Common Stock held by a family
trust of which Patrick F. Dolan is a contingent beneficiary and a
co-trustee, as to which Patrick F. Dolan disclaims beneficial ownership,
which shares are also described in footnote (20).
(16) Includes 1,212,464 shares of Class B Common Stock held by a family trust
of which Thomas C. Dolan is a contingent beneficiary and a co-trustee, as
to which Thomas C. Dolan disclaims beneficial ownership, which shares are
also described in footnote (21).
(17) Includes 1,212,464 shares of Class B Common Stock held by the DC Kathleen
Trust, the co-trustees of which are Kathleen Dolan and Paul Dolan.
(18) Includes 1,212,464 shares of Class B Common Stock held by the DC Deborah
Trust, the co-trustees of which are Deborah Dolan-Sweeney and Mary Dolan.
(19) Includes 1,177,140 shares of Class B Common Stock held by the DC Marianne
Trust, the co-trustees of which are Marianne E. Weber and Matthew Dolan.
(20) Includes 1,177,140 shares of Class B Common Stock held by the DC Patrick
Trust, the co-trustees of which are Patrick Dolan and Mary Dolan.
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<PAGE> 104
(21) Includes 1,212,464 shares of Class B Common Stock held by the DC Thomas
Trust, the co-trustees of which are Thomas Dolan and Matthew Dolan.
(22) Includes 1,212,464 shares of Class B Common Stock held by the DC James
Trust, the co-trustees of which are James Dolan and Paul Dolan.
(23) Includes 23,500 shares of Class B Common Stock held by the Dolan
Descendants Trust, the co-trustees of which are Edward C. Atwood,
Kathleen M. Dolan, Marianne E. Weber, and Deborah Dolan-Sweeney.
(24) Includes 29,000 shares of Class B Common Stock held by the Dolan Progeny
Trust, the co-trustees of which are Edward C. Atwood, Kathleen M. Dolan,
Marianne E. Weber, and Deborah Dolan-Sweeney.
(25) Includes 16,500 shares of Class B Common Stock held by the Dolan
Grandchildren Trust, the co-trustees of which are Edward C. Atwood,
Kathleen M. Dolan, Marianne E. Weber, and Deborah Dolan-Sweeney.
(26) Includes 2,280 shares of Class B Common Stock held by the Dolan Spouse
Trust, the co-trustees of which are Edward C. Atwood, Kathleen M. Dolan,
Marianne E. Weber, and Deborah Dolan-Sweeney.
(27) Includes 1,556,224 shares of Class A Common Stock owned by the Dolan
Children's Foundation, a New York not-for-profit corporation, the sole
members of which are Marianne E. Weber, Kathleen M. Dolan and Deborah
Dolan-Sweeney. None of the members has an economic interest in such
shares, but each member shares the ultimate power to vote and dispose of
such shares.
(28) Includes 5,000,000 shares of Class B Common Stock owned by Dolan Family
LLC, a Delaware limited liability company, the members of which are four
Dolan family trusts, the co-trustees of which are Edward C. Atwood,
Marianne E. Weber , Kathleen M. Dolan and Deborah Dolan-Sweeney. Edward
C. Atwood serves as Manager of the Dolan Family LLC, but does not have an
economic interest in such shares. Each of the co-trustees shares the
ultimate power to vote and dispose of such shares.
(29) Includes 5,000 shares of Class A Common Stock owned directly by Edward C.
Atwood and his wife, Marie E. Atwood. Also includes 6,033 shares of Class
A Common Stock issuable upon the exercise of options granted pursuant to
Cablevision's Employee Stock Plan which on March 1, 2000 were unexercised
but were exercisable within a period of 60 days from that date. Also
includes 151,000 shares of Class A Common Stock held by a trust for the
benefit of Edward C. Atwood's wife, Marie E. Atwood and 373,824 shares of
Class B Common Stock held by a trust for the benefit of Edward C.
Atwood's wife, Marie E. Atwood.
(30) Includes an aggregate of 7,560,296 shares of Class B Common Stock and an
aggregate of 151,000 shares of Class A Common Stock each held by various
trusts for the benefit of family members of Charles F. Dolan's family for
which Mr. John MacPherson serves as Trustee and, in such capacity,
exercises sole voting power and dispositive power with respect to such
shares.
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AVAILABLE INFORMATION
We are subject to the informational requirements of the Exchange Act and
in accordance therewith file reports and other information with the SEC. You can
inspect and copy the reports and other information that we file with the SEC at
the public reference facilities of the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices: Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and copies of this material can be obtained from the Public Reference Room of
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
Further information on the operation of the SEC's Public Reference Room
in Washington, D.C. can be obtained by calling the SEC at 1-800-SEC-0330.
The SEC also maintains a Web site that contains reports, proxy statements
and other information about issuers, like Cablevision, who file electronically
with the SEC. The address of that site is http://www.sec.gov. These reports and
other information may be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10004.
WHERE YOU CAN FIND MORE INFORMATION
We hereby incorporate by reference into this document the following
documents or information filed with the SEC:
<TABLE>
<CAPTION>
CABLEVISION SYSTEMS CORPORATION PERIOD COVERED OR DATE FILED
------------------------------- ----------------------------
(FILE NO. 001-14764)
<S> <C>
Annual Reports on Form 10-K and Form 10-K/A Fiscal year ended December 31, 1999
Quarterly Reports on Form 10-Q Quarter ended March 31, 2000
Current Report on Form 8-K Filed on May 5, 2000 and July 3, 2000
</TABLE>
We also incorporate by reference into this document all documents we file
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after
the date of this offering made hereby.
Any statement contained herein or in any document incorporated or deemed
to be incorporated by reference in this document will be deemed to be modified
or superseded for the purpose of this document to the extent that a subsequent
statement contained herein or in any subsequently filed document that also is or
is deemed to be incorporated by reference herein modifies or supersedes the
statement. Any statement so modified or superseded will not be deemed, except as
so modified or superseded, to constitute a part of this document.
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<PAGE> 106
ADDITIONAL INFORMATION ABOUT CABLEVISION
This document incorporates important business and financial information
about Cablevision from documents that are not included in or delivered with this
document. You can obtain documents incorporated by reference in this document,
other than some exhibits to those documents, by requesting them in writing or by
telephone from us at the following:
CABLEVISION SYSTEMS CORPORATION
1111 STEWART AVENUE
BETHPAGE, NEW YORK 11714
ATTENTION: INVESTOR RELATIONS
(516) 803-2300
YOU WILL NOT BE CHARGED FOR ANY OF THE DOCUMENTS THAT YOU REQUEST. IF YOU
WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY [DATE] IN ORDER TO RECEIVE THEM
BEFORE THE SPECIAL MEETING.
See "Where You Can Find More Information" above to learn about other
sources from which you can obtain this additional information.
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<PAGE> 107
ANNEX I
INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED IN THE
TERM PROXY STATEMENT
---- ---------------
<S> <C>
Adjustable Options.....................................................................................................21
Advisors...............................................................................................................79
All or Substantially All of the Assets.................................................................................73
Amended Charter........................................................................................................20
Available Dividend Amount..........................................................................................67, 68
Cablevision NY Group Market Capitalization.............................................................................77
Cablevision NY Group...................................................................................................64
Change of Control......................................................................................................87
Class A Common Stock...................................................................................................62
Class B Common Stock...................................................................................................62
Code...................................................................................................................80
Common Stock Directors.................................................................................................66
Current Charter........................................................................................................62
Disposition........................................................................................................72, 73
Effective Date.........................................................................................................73
Exempt Disposition.....................................................................................................73
Fair Value.............................................................................................................74
Group Subsidiary.......................................................................................................75
Group...................................................................................................................9
Interested Stockholder.................................................................................................79
Market Value...........................................................................................................74
Net Proceeds...........................................................................................................74
Preferred Stock........................................................................................................62
Publicly Traded........................................................................................................75
Qualifying Subsidiary..................................................................................................75
Rainbow Media Group Market Capitalization..............................................................................78
Rainbow Media Group Optional Exchange Ratio............................................................................70
Rainbow Media Group....................................................................................................63
Restated 1996 Stock Plan...............................................................................................82
Share Distribution.....................................................................................................69
Shares.................................................................................................................83
Tax Event..............................................................................................................71
Third Restated 1996 Stock Plan.........................................................................................82
TIN....................................................................................................................81
Total Market Capitalization............................................................................................78
Tracking Stock Proposal................................................................................................44
Tracking Stock........................................................................................................iii
Trading Day............................................................................................................75
</TABLE>
I-1
<PAGE> 108
ANNEX II
PROPOSAL 1--OUR AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CABLEVISION SYSTEMS CORPORATION
FIRST: The name of this corporation (hereinafter called the
"corporation") is Cablevision Systems Corporation.
SECOND: The name and address, including street, number, city and
county, of the registered office of the corporation in the State of Delaware is
The Corporation Service Company, 1013 Centre Road, City of Wilmington, County of
New Castle.
THIRD: The nature of the business and of the purposes to be
conducted and promoted by the corporation are to conduct any lawful business, to
promote any lawful purpose, and to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The aggregate number of shares of capital stock which the
corporation shall have authority to issue shall be one billion nine hundred
thirty million (1,930,000,000) shares, which shall be divided into the following
classes:
(a) one billion four hundred million (1,400,000,000) shares shall be
of a class designated Class A common stock, par value $.01 per
share ("Class A Common Stock"), such class to be divided into
series as provided in Section II of Paragraph A of this Article
FOURTH;
(b) four hundred eighty million (480,000,000) shares shall be of a
class designated Class B common stock, par value $.01 per share
("Class B Common Stock" and together with Class A Common Stock,
"Common Stock"), such class to be divided into series as provided
in Section II of Paragraph A of this Article FOURTH;0
(c) fifty million (50,000,000) shares of a class designated preferred
stock, par value $.01 per share ("Preferred Stock").
The following is a statement of (a) the designations, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of the Common Stock; and
(b) the authority expressly vested in the Board of Directors hereunder with
respect to the issuance of series of Preferred Stock:
A. Common Stock.
I. Priority of Preferred Stock.
Each of the Class A Common Stock and Class B Common Stock is
subject to all the powers, rights, privileges, preferences and priorities of any
series of Preferred Stock as are stated and expressed herein and as shall be
stated and expressed in any Certificates of Designations filed with respect to
any series of Preferred Stock pursuant to authority expressly granted to and
vested in the Board of Directors by the provisions of Paragraph B of this
Article FOURTH.
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<PAGE> 109
II. Issuance of Class A Common Stock and Class B Common Stock
in Series; Designation; Redesignation.
The corporation shall have the authority to issue shares of Class
A Common Stock and Class B Common Stock in two series as follows:
(a) Class A Common Stock shall be divided into two
series of common stock, with eight hundred million (800,000,000) shares
of Class A Common Stock designated Cablevision NY Group Class A common
stock, par value $.01 per share ("Cablevision NY Group Class A Common
Stock"), and six hundred million (600,000,000) shares of Class A Common
Stock designated Cablevision - Rainbow Media Group Class A common stock,
par value $.01 per share ("Rainbow Media Group Class A Common Stock").
(b) Class B Common Stock shall be divided into two
series of common stock, with three hundred twenty million (320,000,000)
shares of Class B Common Stock designated Cablevision NY Group Class B
common stock, par value $.01 per share ("Cablevision NY Group Class B
Common Stock" and together with Cablevision NY Group Class A Common
Stock, "Cablevision NY Group Common Stock"), and one hundred sixty
million (160,000,000) shares of Class B Common Stock designated
Cablevision - Rainbow Media Group Class B common stock, par value $.01
per share ("Rainbow Media Group Class B Common Stock" and together with
Rainbow Media Group Class A Common Stock, "Rainbow Media Group Common
Stock").
As and to the extent provided herein, the Cablevision NY Group
Common Stock is intended to have dividend, distribution, exchange, redemption,
liquidation and other rights related to the assets included in the Cablevision
NY Group (as defined below) and the Rainbow Media Group Common Stock is intended
to have dividend, distribution, exchange, redemption, liquidation and other
rights related to the assets included in the Rainbow Media Group (as defined
below).
For purposes of this Certificate of Incorporation, the following
terms shall have the following meanings:
(a) "Cablevision NY Group" means (i) all of the
businesses, assets and liabilities of the corporation and its
subsidiaries, other than the businesses, assets and liabilities that are
part of the Rainbow Media Group, and (ii) the rights and obligations of
the Cablevision NY Group under any inter-Group debt deemed to be owed to
or by the Cablevision NY Group (as such rights and obligations are
defined from time to time by the Board of Directors in its sole
discretion); provided that the corporation may re-allocate businesses,
assets or liabilities from one Group to the other Group in return for
such consideration by that other Group as may be determined in the sole
discretion of the Board of Directors from time to time.
(b) "Rainbow Media Group" means:
(i) the corporation's interest in American Movie
Classics Company and its wholly-owned subsidiaries (including American
Movie Classics and Romance Classics), American Movie Classics Holding
Corp., Bravo Company and its wholly-owned subsidiaries (including Bravo
Company and The Independent Film Channel) and MuchMusic USA Venture;
(ii) the corporation's interest in SportsChannel
Chicago Associates (including Fox Sports Net Chicago), SportsChannel
Pacific Associates (including Fox Sports Net Pacific), SportsChannel Ohio
Associates (including Fox Sports Net Ohio), SportsChannel Cincinnati
Associates (including Fox Sports Net Cincinnati),
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<PAGE> 110
SportsChannel New England, L.P. (including Fox Sports Net New England)
and SportsChannel Florida Associates (including Fox Sports Net Florida);
(iii) the corporation's interest in National Sports
Partners;
(iv) the corporation's interest in National
Advertising Partners;
(v) the corporation's interest in Rainbow Network
Communications;
(vi) the corporation's interest in Sterling
Digital;
(vii) all other businesses, assets and liabilities
of the corporation and its subsidiaries that the Board of Directors has
by resolution, as of the date of filing of this Certificate of
Incorporation, allocated to the Rainbow Media Group;
(viii) any businesses, assets or liabilities
developed, acquired or incurred after the date of filing of this
Certificate of Incorporation in the ordinary course of business by the
businesses of corporation or any of its subsidiaries that have been
allocated to the Rainbow Media Group unless the Board of Directors has by
resolution allocated such businesses, assets or liabilities to the
Cablevision NY Group;
(ix) any businesses, assets or liabilities
developed, acquired or incurred by the corporation or any of its
subsidiaries after the date of filing of this Certificate of
Incorporation, that the Board of Directors has allocated to the Rainbow
Media Group or that the corporation otherwise allocates to the Rainbow
Media Group from time to time in the sole discretion of Board of
Directors; and
(x) the rights and obligations of the Rainbow
Media Group under any inter-Group debt deemed to be owed to or by the
Rainbow Media Group (as such rights and obligations are determined from
time to time in the sole discretion of the Board of Directors);
provided that the corporation may re-allocate businesses, assets or
liabilities from one Group to the other Group in return for such
consideration by that other Group as may be determined in the sole
discretion of the Board of Directors from time to time.
When the filing of this Certificate of Incorporation becomes
effective, (a) each share of Class A Common Stock outstanding immediately prior
thereto shall thereupon automatically be redesignated as one share of
Cablevision NY Group Class A Common Stock (and outstanding certificates that had
theretofore represented shares of Class A common stock shall thereupon represent
an equivalent number of shares of Cablevision NY Group Class A Common Stock
despite the absence of any indication thereon to that effect), and (b) each
share of Class B Common Stock outstanding immediately prior thereto shall
thereupon automatically be redesignated as one share of Cablevision NY Group
Class B Common Stock (and outstanding certificates that had theretofore
represented shares of Class B common stock shall thereupon represent an
equivalent number of shares of Cablevision NY Group Class B Common Stock despite
the absence of any indication thereon to that effect).
The Board of Directors is authorized to distribute shares of
Rainbow Media Group Common Stock in such manner as the Board of Directors shall
determine in its sole discretion. Without limiting the effect of the previous
sentence, the Board of Directors is authorized to effect a distribution in which
shares of Rainbow Media Group Class B Common Stock are distributed to holders of
Cablevision NY Group Class B Common Stock (in whole or in part as a dividend or
in exchange for shares of Cablevision NY Group Class B Common Stock) and shares
of Rainbow Media Group Class A Common
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<PAGE> 111
Stock are distributed to holders of Cablevision NY Group Class A Common Stock
(in whole or in part as a dividend or in exchange for shares of Cablevision NY
Group Class A Common Stock).
III. Dividends.
Subject to the rights of the holders under any other provisions of
this Certificate of Incorporation, as amended from time to time, and the
provisions of any Certificates of Designations filed with respect to any series
of Preferred Stock:
(a) Dividends on Cablevision NY Group Class A Common
Stock and Cablevision NY Group Class B Common Stock. Dividends on
Cablevision NY Group Class A Common Stock and Cablevision NY Group Class
B Common Stock may be declared and paid only out of the lesser of (i)
assets of the corporation legally available therefor and (ii) the
Available Dividend Amount (as defined below) for the Cablevision NY
Group. Other than with respect to dividends and distributions provided
for in Sections A.VI, A.VII and of this Article FOURTH, whenever a
dividend is paid to the holders of Cablevision NY Group Class A Common
Stock, holders of Cablevision NY Group Class B Common Stock shall be paid
a dividend per share equal to the dividend per share paid to the holders
of Cablevision NY Group Class A Common Stock, and whenever a dividend is
paid to the holders of Cablevision NY Group Class B Common Stock, holders
of Cablevision NY Group Class A Common Stock shall be paid a dividend per
share equal to the dividend per share paid to the holders of Cablevision
NY Group Class B Common Stock.
The "Available Dividend Amount" for the Cablevision NY Group at
any time is the amount that the Board of Directors determines in its sole
discretion would then be legally available for the payment of dividends
on Cablevision NY Group Common Stock under Delaware law if: (i)
Cablevision NY Group and the Rainbow Media Group were each a separate
Delaware corporation; (ii) the Cablevision NY Group had outstanding a
number of shares of common stock, par value $.01 per share, equal to the
number of shares of Cablevision NY Group Common Stock that are then
outstanding; (iii) the Cablevision NY Group had outstanding a number of
shares of preferred stock, par value $.01 per share, equal to the number
of shares of Preferred Stock that have been attributed to the Cablevision
NY Group and are then outstanding, and (iv) the assumptions about the
Rainbow Media Group set forth below were true.
(b) Dividends on Rainbow Media Group Class A Common
Stock and Rainbow Media Group Class B Common Stock. Dividends on Rainbow
Media Group Class A Common Stock and Rainbow Media Group Class B Common
Stock may be declared and paid only out of the lesser of (i) assets of
the corporation legally available therefor and (ii) the Available
Dividend Amount for the Rainbow Media Group. Other than with respect to
dividends and distributions provided for in Sections A.VI, A.VII and
A.VIII of this Article FOURTH, whenever a dividend is paid to the holders
of Rainbow Media Group Class A Common Stock, the holders of Rainbow Media
Group Class B Common Stock shall be paid a dividend per share equal to
the dividend per share paid to the holders of Rainbow Media Group Class A
Common Stock, and whenever a dividend is paid to the holders of Rainbow
Media Group Class B Common Stock, holders of Rainbow Media Group Class A
Common Stock shall be paid a dividend per share equal to the dividend per
share paid to the holders of Rainbow Media Group Class B Common Stock.
The "Available Dividend Amount" for the Rainbow Media Group at any
time is the amount that the Board of Directors determines in its sole
discretion would then be legally available for the payment of dividends
on Rainbow Media Group common stock under Delaware law if: (i)
Cablevision NY Group and the Rainbow Media Group were each a separate
Delaware corporation; (ii) the Rainbow Media Group had outstanding a
number of shares of common stock, par value $.01 per share, equal to the
number of shares of Rainbow Media Group Common Stock that are then
outstanding; (iii) the Rainbow Media Group had outstanding a number of
shares of Preferred Stock, par value $.01 per share, equal to the number
of shares of Preferred Stock that
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<PAGE> 112
have been attributed to the Rainbow Media Group and are then outstanding,
and (iv) the assumptions made about the Cablevision NY Group and set
forth above were true.
Initially, there are no shares of Preferred Stock
outstanding and no shares are therefore attributed to either Group.
(c) Discrimination Between or Among Series of Common
Stock. The Board of Directors, subject to the provisions of subsections
(a) and (b) of this Section III, shall have the sole authority and
discretion to declare and pay dividends (including dividends under
Section A.VI of this Article FOURTH) on (or to refrain from declaring and
paying dividends on) (i) the Cablevision NY Group Common Stock or (ii)
the Rainbow Media Group Common Stock, in equal or unequal amounts
(including the payment of dividends on one series and not the other),
notwithstanding the relationship between the Available Dividend Amount
for the Cablevision NY Group and the Available Dividend Amount for the
Rainbow Media Group, the respective amounts of prior dividends declared
on, or the liquidation rights of, Cablevision NY Group Class A Common
Stock and Cablevision NY Group Class B Common Stock or Rainbow Media
Group Class A Common Stock and Rainbow Media Group Class B Common Stock
or any other factor.
IV. Voting.
(a) Except as otherwise required (i) by statute, (ii)
pursuant to the provisions of this Certificate of Incorporation, as
amended from time to time, or (iii) pursuant to the provisions of any
Certificates of Designations filed with respect to any series of
Preferred Stock, the holders of Common Stock shall have the sole right
and power to vote on all matters on which a vote of stockholders is to be
taken. At every meeting of the stockholders, (1) each holder of
Cablevision NY Group Class A Common Stock shall be entitled to cast one
(1) vote in person or by proxy for each share of Cablevision NY Group
Class A Common Stock standing in his or her name on the transfer books of
the corporation, (2) each holder of NYMA Class B Common Stock shall be
entitled to cast ten (10) votes in person or by proxy for each share of
Cablevision NY Group Class B Common Stock standing in his or her name on
the transfer books of the corporation, (3) each holder of Rainbow Media
Group Class A Common Stock shall be entitled to cast one-half (1/2) of a
vote in person or by proxy for each share of Rainbow Media Group Class A
Common Stock standing in his or her name on the transfer books of the
corporation and (4) each holder of Rainbow Media Group Class B Common
Stock shall be entitled to cast five (5) votes in person or by proxy for
each share of Rainbow Media Group Class B Common Stock standing in his or
her name on the transfer books of the corporation.
Except in the election of directors of the corporation (voting in
respect of which shall be governed by the terms set forth in subsections
(b) and (c) of this Section IV) and as otherwise required (i) by statute,
(ii) pursuant to the provisions of this Certificate of Incorporation, as
amended from time to time, or (iii) pursuant to the provisions of any
Certificates of Designations filed with respect to any series of
Preferred Stock, the holders of Common Stock shall vote together as a
single class; provided, however, that (i) the affirmative vote or consent
of the holders of at least 66 2/3% of the outstanding shares of
Cablevision NY Group Class B Common Stock, voting separately as a class,
shall be required for (1) the authorization or issuance of any additional
shares of Cablevision NY Group Class B Common Stock and (2) any
amendment, alteration or repeal of any of the provisions of this
Certificate of Incorporation which adversely affects the powers,
preferences or rights of Cablevision NY Group Class B Common Stock and
(ii) the affirmative vote or consent of the holders of at least 66 2/3%
of the outstanding shares of Rainbow Media Group Class B Common Stock,
voting separately as a class, shall be required for (x) the authorization
or issuance of any additional shares of Rainbow Media Group Class B
Common Stock and (y) any amendment, alteration or repeal of any of the
provisions of this Certificate of Incorporation which adversely affects
the powers, preferences or rights of Rainbow Media Group Class B Common
Stock. Except as provided in the previous sentence, no class or series of
Common Stock shall have the
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<PAGE> 113
right to vote as a class or series on any amendment to this Certificate
of Incorporation to increase or decrease the authorized shares of such
class or series of Common Stock.
(b) With respect to the election of directors:
(i) If on the record date for any meeting of
stockholders of the corporation for which directors are to be elected,
the aggregate number of outstanding shares of Class A Common Stock is at
least 10% of the total aggregate number of outstanding shares of Common
Stock, holders of Class A Common Stock shall vote together as a separate
class and shall be entitled to elect 25% of the total number of directors
elected by the holders of Common Stock (the "Common Stock Directors");
provided that if such 25% is not a whole number, then the holders of
Class A Common Stock, voting together as a separate class, shall be
entitled to elect the nearest higher whole number of directors that is at
least 25% of the total number of the Common Stock Directors. Subject to
subsection (iii) of this Section IV(b), holders of Class B Common Stock
shall vote together as a separate class to elect the remaining Common
Stock Directors;
(ii) If on the record date for any meeting of
stockholders of the corporation at which directors are to be elected, the
aggregate number of outstanding shares of Class A Common Stock is less
than 10% of the total aggregate number of outstanding shares of Common
Stock, the holders of Common Stock shall vote together as a single class
with respect to the election of the Common Stock Directors and the
holders of Class A Common Stock, voting together as a separate class,
shall not have the right to elect 25% of the Common Stock Directors, but
shall have the number of votes per share for all Common Stock Directors
provided for in subsection (a) of this Section IV for such shares; and
(iii) If on the record date for any meeting of
stockholders of the corporation at which Common Stock Directors are to be
elected, the aggregate number of outstanding shares of Class B Common
Stock is less than 12 1/2% of the total aggregate number of outstanding
shares of Common Stock, then the holders of Class A Common Stock, voting
together as a separate class, shall continue to elect a number of
directors equal to not less than 25% of the total number of Common Stock
Directors in accordance with subsection (b)(i) of this Section IV and in
addition, shall vote together with the holders of Class B Common Stock,
as a single class, to elect the remaining Common Stock Directors, with
the holders of Common Stock having the number of votes per share for all
Common Stock Directors provided for in subsection (a) of this Section IV.
(c) Any vacancy in the office of a Common Stock Director
elected by the holders of Class A Common Stock voting as a separate class
shall be filled by a vote of holders of Class A Common Stock voting as a
separate class, and any vacancy in the office of a Common Stock Director
elected by the holders of Class B Common Stock voting as a separate class
shall be filled by a vote of holders of Class B Common Stock voting as a
separate class or, in the absence of a stockholder vote, in the case of a
vacancy in the office of a Common Stock Director elected by either class,
such vacancy may be filled by the remaining directors of such class. Any
director elected by the Board of Directors to fill a vacancy shall serve
until the next annual meeting of stockholders and until his or her
successor has been elected and has qualified. If the Board of Directors
increases the number of directors in accordance with Article FIFTH of
this Certificate of Incorporation, any vacancy so created may be filled
by the Board of Directors; provided that, so long as the holders of Class
A Common Stock have the rights provided in subsections (b) and (c) of
this Section IV in respect of the last preceding annual meeting of
stockholders to elect not less than 25% of the total number of Common
Stock Directors, the Board of Directors may be so enlarged by the
directors only to the
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extent that at least 25% of the enlarged board consists of Common Stock
Directors elected by the holders of Class A Common Stock or of persons
appointed to fill vacancies created by the death, resignation or removal
of persons elected by the holders of Class A Common Stock.
(d) Notwithstanding anything in this Section IV to the
contrary, the holders of Class A Common Stock shall have exclusive voting
power on all matters upon which, pursuant to this Certificate of
Incorporation or applicable laws, the holders of Common Stock are
entitled to vote, at any time when no shares of Class B Common Stock are
issued and outstanding.
(e) Wherever any provision of this Certificate of
Incorporation, as amended from time to time, sets forth a specific
percentage of the shares outstanding and entitled to vote which is
required for approval or ratification of any action upon which the vote
of the stockholders is required or may be obtained, such provision shall
mean such specified percentage of the votes entitled to be cast by
holders of shares then outstanding and entitled to vote on such action.
V. Conversion Rights.
(a) Subject to the terms and conditions of this Article
FOURTH, each share of Cablevision NY Group Class B Common Stock shall be
convertible at any time and from time to time, at the option of the
holder thereof, at the office of any transfer agent for such Cablevision
NY Group Class B Common Stock and at such other place or places, if any,
as the Board of Directors may designate, or, if the Board of Directors
shall fail so to designate, at the principal office of the corporation
(attention of the Secretary of the corporation), into one (1) fully paid
and non-assessable share of Cablevision NY Group Class A Common Stock and
each share of Rainbow Media Group Class B Common Stock shall be
convertible at any time or from time to time, at the option of the holder
thereof, at the office of any transfer agent for such Rainbow Media Group
Class B Common Stock and at such other place or places, if any, as the
Board of Directors may designate, or, if the Board of Directors shall
fail so to designate, at the principal office of the corporation
(attention of the Secretary of the corporation), into one (1) fully paid
and non-assessable share of Rainbow Media Group Class A Common Stock.
Upon conversion, the corporation shall make no payment or
adjustment on account of dividends accrued or in arrears on Class B
Common Stock surrendered for conversion or on account of any dividends on
the Class A Common Stock issuable on such conversion. Before any holder
of Class B Common Stock shall be entitled to convert the same into Class
A Common Stock of the same Group, he or she shall surrender the
certificate or certificates for such Class B Common Stock at the office
of said transfer agent (or other place as provided above), which
certificate or certificates, if the corporation shall so request, shall
be duly endorsed to the corporation or in blank or accompanied by proper
instruments of transfer to the corporation or in blank (such endorsements
or instruments of transfer to be in form satisfactory to the
corporation), and shall give written notice to the corporation at said
office that he or she elects so to convert said Class B Common Stock in
accordance with the terms of this Section V, and shall state in writing
therein the name or names in which he or she wishes the certificate or
certificates for Class A Common Stock of the same Group to be registered.
Every such notice of election to convert shall constitute a binding
contract between the holder of such Class B Common Stock and the
corporation, whereby the holder of such Class B Common Stock shall be
deemed to subscribe for the amount of Class A Common Stock which he or
she shall be entitled to receive upon such conversion, and, in
satisfaction of such subscription, to deposit the Class B Common Stock to
be converted and to release the corporation from all liability
thereunder, and thereby the corporation shall be deemed
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to agree that the surrender of the certificate or certificates therefor
and the extinguishment of liability thereon shall constitute full payment
of such subscription for Class A Common Stock to be issued upon such
conversion. The corporation will as soon as practicable after such
deposit of a certificate or certificates for Class B Common Stock,
accompanied by the written notice and the statement above prescribed,
issue and deliver at the office of said transfer agent (or other place as
provided above) to the person for whose account such Class B Common Stock
was so surrendered, or to his nominee or nominees, a certificate or
certificates for the number of full shares of Class A Common Stock to
which he shall be entitled as aforesaid. Subject to the provisions of
subsection (c) of this Section V, such conversion shall be deemed to have
been made as of the date of such surrender of the Class B Common Stock to
be converted; and the person or persons entitled to receive the Class A
Common Stock issuable upon conversion of such Class B Common Stock shall
be treated for all purposes as the record holder or holders of such Class
A Common Stock on such date. Upon conversion of shares of Class B Common
Stock, shares of Class B Common Stock so converted will be canceled and
retired by the corporation, such shares shall not be reissued and the
number of shares of Class B Common Stock which the corporation shall have
authority to issue shall be decreased by the number of shares of Class B
Common Stock so converted and the Board of Directors shall take such
steps as are required to so retire such shares.
(b) The issuance of certificates for shares of Class A
Common Stock upon conversion of shares of Class B Common Stock shall be
made without charge for any stamp or other similar tax in respect of such
issuance. However, if any such certificate is to be issued in a name
other than that of the holder of the share or shares of Class B Common
Stock converted, the person or persons requesting the issuance thereof
shall pay to the corporation the amount of any tax which may be payable
in respect of any transfer involved in such issuance or shall establish
to the satisfaction of the corporation that such tax has been paid or
that no such tax is due.
(c) The corporation shall not be required to convert
Class B Common Stock, and no surrender of Class B Common Stock shall be
effective for that purpose, while the stock transfer books of the
corporation are closed for any purpose; but the surrender of Class B
Common Stock for conversion during any period while such books are closed
shall be deemed effective for conversion immediately upon the reopening
of such books, as if the conversion had been made on the date such Class
B Common Stock was surrendered.
(d) The corporation will at all times reserve and keep
available, solely for the purpose of issue upon conversion of the
outstanding shares of Class B Common Stock, such number of shares of
Class A Common Stock of the same Group as shall be issuable upon the
conversion of all such outstanding shares, provided that nothing
contained herein shall be construed to preclude the corporation from
satisfying its obligations in respect of the conversion of the
outstanding shares of Class B Common Stock by delivery of shares of Class
A Common Stock of the same Group which are held in the treasury of the
corporation. The corporation covenants that if any shares of Class A
Common Stock, required to be reserved for purposes of conversion
hereunder, require registration with or approval of any governmental
authority under any federal or state law before such shares of Class A
Common Stock may be issued upon conversion, the corporation will use its
best efforts to cause such shares to be duly registered or approved, as
the case may be. The corporation will endeavor to list the shares of
Class A Common Stock required to be delivered upon conversion prior to
such delivery upon each national securities exchange, if any, upon which
the outstanding Class A Common Stock of the same Group is listed at the
time of such delivery. The corporation covenants that all shares of Class
A Common Stock which shall be issued upon conversion of the shares of
Class B Common Stock will, upon issue, be fully paid and non-assessable
and not entitled to any preemptive rights.
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VI. Securities Distributions.
The corporation may declare and pay a distribution consisting of
shares of Cablevision NY Group Class A Common Stock, Cablevision NY Group Class
B Common Stock, Rainbow Media Group Class A Common Stock, Rainbow Media Group
Class B Common Stock or any other securities of the corporation or any other
person (hereinafter sometimes called a "share distribution") to holders of one
or more classes or series of Common Stock only in accordance with the provisions
of this Section VI.
(a) Distributions on Cablevision NY Group Class A Common
Stock and Cablevision NY Group B Common Stock. If at any time a share
distribution is to be made with respect to Cablevision NY Group Class A
Common Stock or Cablevision NY Group Class B Common Stock, such share
distribution may be declared and paid only as follows:
(i) a share distribution consisting of shares of
Cablevision NY Group Class A Common Stock (or Convertible Securities (as
defined below) convertible into or exercisable or exchangeable for shares
of Cablevision NY Group Class A Common Stock) to holders of Cablevision
NY Group Class A Common Stock and Cablevision NY Group Class B Common
Stock, on an equal per share basis;
(ii) a share distribution consisting of shares of
Cablevision NY Group Class A Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Cablevision
NY Group Class A Common Stock) to holders of Cablevision NY Group Class A
Common Stock and, on an equal per share basis, shares of Cablevision NY
Group Class B Common Stock (or like Convertible Securities convertible
into or exercisable or exchangeable for shares of Cablevision NY Group
Class B Common Stock) to holders of Cablevision NY Group Class B Common
Stock; and
(iii) a share distribution consisting of any class
or series of securities of the corporation or any other person other than
as described in clauses (i) and (ii) of this subsection (a) of this
Section VI, either (1) on the basis of a distribution of identical
securities, on an equal per share basis, to holders of Cablevision NY
Group Class A Common Stock and Cablevision NY Group Class B Common Stock
or (2) on the basis of a distribution of one class or series of
securities to holders of Cablevision NY Group Class A Common Stock and
another class or series of securities to holders of Cablevision NY Group
Class B Common Stock, provided that the securities so distributed (and,
if the distribution consists of Convertible Securities, the securities
into which such Convertible Securities are convertible or for which they
are exercisable or exchangeable) do not differ in any respect other than
differences in their rights (other than voting rights) consistent in all
material respects with the differences between the Cablevision NY Group
Class A Common Stock and the Cablevision NY Group Class B Common Stock
and difference in their relative voting rights, with holders of shares of
Cablevision NY Group Class B Common Stock receiving the class or series
having the higher relative voting rights (without regard to whether such
voting rights differ to a greater or lesser extent than the corresponding
differences in the voting rights of the Cablevision NY Group Class A
Common Stock and the Cablevision NY Group Class B Common Stock provided
in Section A.IV of the Article FOURTH), provided that if the securities
so distributed constitute capital stock of a subsidiary of the
corporation, such voting rights shall not differ to a greater extent than
the corresponding differences in voting rights of the Cablevision NY
Group Class A Common Stock and the Cablevision NY Group Class B Common
Stock provided in Section A.IV of this Article FOURTH, and provided in
each case that such distribution is otherwise made on an equal per share
basis.
For purposes of this Certificate of Incorporation, "Convertible
Securities" shall mean any securities of the corporation (other than any series
of Common Stock) or any subsidiary thereof that are convertible into,
exchangeable for or evidence the right to purchase any shares of any series of
Common
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Stock, whether upon conversion, exercise, exchange, pursuant to anti-dilution
provisions of such securities or otherwise.
(b) Distributions on Rainbow Media Group Class A Common
Stock and Rainbow Media Group Class B Common Stock. If at any time a
share distribution is to be made with respect to Rainbow Media Group
Class A Common Stock or Rainbow Media Group Class B Common Stock, such
share distribution may be declared and paid only as follows (or as
permitted by subsection (c) of Section A.VII below with respect to the
redemptions and other distributions referred to therein):
(i) a share distribution consisting of shares of
Rainbow Media Group Class A Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Rainbow
Media Group Class A Common Stock) to holders of Rainbow Media Group Class
A Common Stock and Rainbow Media Group Class B Common Stock, on an equal
per share basis;
(ii) a share distribution consisting of shares of
Rainbow Media Group Class A Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Rainbow
Media Group Class A Common Stock) to holders of Rainbow Media Group Class
A Common Stock and, on an equal per share basis, shares of Rainbow Media
Group Class B Common Stock (or like Convertible Securities convertible
into or exercisable or exchangeable for shares of Rainbow Media Group
Class B Common Stock) to holders of Rainbow Media Group Class B Common
Stock; and
(iii) a share distribution consisting of any class
or series of securities of the corporation or any other person other than
as described in clauses (i) and (ii) of this subsection (b) of this
Section VI either (1) on the basis of a distribution of identical
securities, on an equal per share basis, to holders of Rainbow Media
Group Class A Common Stock and Rainbow Media Group Class B Common Stock
or (2) on the basis of a distribution of one class or series of
securities to holders of Rainbow Media Group Class A Common Stock and
another class or series of securities to holders of Rainbow Media Group
Class B Common Stock, provided that the securities so distributed (and,
if the distribution consists of Convertible Securities, the securities
into which such Convertible Securities are convertible or for which they
are exercisable or exchangeable) do not differ in any respect other than
differences in their rights (other than voting rights) consistent in all
material respects with the differences between the Cablevision NY Group
Class A Common Stock and the Cablevision NY Group Class B Common Stock
and differences in their relative voting rights, with holders of shares
of Rainbow Media Group Class B Common Stock receiving the class or series
having the higher relative voting rights (without regard to whether such
voting rights differ to a greater or lesser extent than the corresponding
differences in the voting rights of the Rainbow Media Group Class A
Common Stock and the Rainbow Media Group Class B Common Stock provided in
Section A.IV of this Article FOURTH), provided that if the securities so
distributed constitute capital stock of a subsidiary of the corporation,
such voting rights shall not differ to a greater extent than the
corresponding differences in voting rights of the Rainbow Media Group
Class A Common Stock and the Rainbow Media Group Class B Common Stock
provided in Section A.IV of this Article FOURTH, and provided in each
case that such distribution is otherwise made on an equal per share
basis.
VII. Mandatory Dividend, Redemption or Exchange on Disposition
of All or Substantially All of the Assets of the Rainbow
Media Group; Exchange of Rainbow Media Group Class A Common
Stock for Cablevision NY Group Class A Common Stock and
Rainbow Media Group Class B Common Stock for Cablevision NY
Group Class B Common Stock at the Option of the
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Corporation; Optional Redemption in Exchange for Stock of
Group Subsidiaries.
(a) Mandatory Dividend, Redemption or Exchange on
Disposition of All or Substantially All of the Assets of the Rainbow
Media Group. In the event of a Disposition (as defined below) of All or
Substantially All of the Assets (as defined below) of the Rainbow Media
Group (other than an Exempt Disposition (as defined below)), the
corporation shall, on or prior to the 85th Trading Day after the
consummation of such Disposition, take one of the following actions as
selected by the Board of Directors in its sole discretion:
(i) subject to the provisions described under
Section A.III of this Article FOURTH, declare and pay a dividend to
holders of each class of Common Stock of the Rainbow Media Group in any
combination of cash, securities or other property in an amount having a
Fair Value equal to the Net Proceeds (as defined below) of such
Disposition;
(ii) redeem from holders of each class of Common
Stock of the Rainbow Media Group, for any combination of cash, securities
or other property in an amount having a Fair Value equal to the Net
Proceeds of such Disposition, all of the outstanding shares of the
relevant series of Common Stock or, if the Rainbow Media Group continues
after such Disposition to own any material assets other than the proceeds
of such Disposition, a number of shares of such series of Common Stock
(rounded, if necessary, to the nearest whole number) having an aggregate
average Market Value, during the twenty (20) consecutive Trading Day
period beginning on (and including) the 16th Trading Day immediately
following the date on which the Disposition is consummated, equal to such
Fair Value; or
(iii) issue shares of Class A Common Stock of the
Cablevision NY Group in exchange for all of the outstanding shares of
Class A Common Stock of the Rainbow Media Group and shares of Class B
Common Stock of the Cablevision NY Group in exchange for all of the
outstanding shares of Class B Common Stock of the Rainbow Media Group
(rounded, if necessary, to the nearest whole number) having an aggregate
value equal to 110% of the aggregate value of all of the outstanding
shares of the series of Common Stock that relates to the Rainbow Media
Group (where in each case value is based on the average Market Value of a
share of the relevant series of Class A Common Stock as compared to the
average Market Value of a share of the other series of Class A Common
Stock during the twenty (20) consecutive Trading Day period beginning on
(and including) the 16th Trading Day immediately following the date on
which the Disposition is consummated).
In the event that the corporation does not have the ability
under Section A.III(a) or Section A.III(b) of this Article FOURTH, as the
case may be, or under Delaware law, to apply the full amount of the Net
Proceeds of a Disposition to the payment of a dividend or a redemption
amount under Section A.VII(a)(i) or A.VII(a)(ii) of this Article FOURTH,
as the case may be, the corporation may, at the election of the Board of
Directors in its sole discretion, apply so much of the Net Proceeds as it
may apply under Delaware law and under A.III(a) of this Article FOURTH or
Section A.III(b) of this Article FOURTH, as the case may be, and deposit
the balance of the Net Proceeds into an escrow or other account of the
corporation for further application under Section A.VII(a)(i) or
VII(a)(ii) of this Article FOURTH, as the case may be, as soon as the
corporation is able to do so.
At any time within one year after completing any dividend
or partial redemption pursuant to (i) or (ii) of the second preceding
paragraph, the corporation may issue, in exchange for all of the
remaining outstanding shares of the series of
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Common Stock of the Rainbow Media Group whose assets were the subject of
the applicable Disposition, a number of shares of the series of Common
Stock of the Cablevision NY Group (rounded, if necessary, to the nearest
whole number) having an aggregate value equal to 110% of the aggregate
value of all of the outstanding shares of the series of Common Stock of
the Rainbow Media Group (where in each case value is based on the average
Market Value of a share of the relevant series of Class A Common Stock as
compared to the average Market Value of a share of the other series of
Class A Common Stock during the twenty (20) consecutive Trading Day
period ending on (and including) the 5th Trading Day immediately
preceding the date on which the corporation mails the notice of exchange
to holders of the relevant series).
The following terms used in this Certificate of Incorporation have
the meanings specified below:
"All or Substantially All of the Assets" of the Rainbow
Media Group means a portion of such assets that represents at least 80%
of the then-current Fair Value of the assets of the Rainbow Media Group
as of a date selected by the Board of Directors.
"Disposition" means a sale or other disposition (whether by
merger, consolidation, sale or otherwise but not in a financing
transaction) of All or Substantially All the Assets of the Rainbow Media
Group to one or more persons or entities, in one transaction or a series
of related transactions.
"Exempt Disposition" means any of the following:
(1) a Disposition in connection with the liquidation,
dissolution or winding-up of the corporation and the distribution of
assets to stockholders;
(2) a Disposition to any person or entity controlled by the
corporation (as determined by the Board of Directors in its sole
discretion);
(3) a Disposition by the Rainbow Media Group for which the
corporation receives consideration primarily consisting of equity
securities (including, without limitation, capital stock of any kind,
interests in a general or limited partnership, interests in a limited
liability company or debt securities convertible into or exchangeable
for, or options or warrants to acquire, any of the foregoing, in each
case without regard to the voting power or other management or governance
rights associated therewith) of an entity which is primarily engaged or
proposes to primarily engage in one or more businesses similar or
complementary to businesses conducted by the Rainbow Media Group prior to
the Disposition, as determined by the Board of Directors in its sole
discretion;
(4) a dividend, out of the Rainbow Media Group's assets, to
holders of Rainbow Media Group Common Stock; and
(5) any other Disposition, if at the time of the
Disposition there are shares of only one series of stock outstanding or
before the 30th Trading Day following the Disposition the corporation has
mailed a notice stating that it is exercising its right to exchange all
of the outstanding shares of Rainbow Media Group Common Stock for newly
issued shares of Cablevision NY Group Common Stock as contemplated under
subsection (b) of this Section VII.
"Fair Value" means (a) in the case of cash, the amount
thereof, (b) in the case of capital stock that has been Publicly Traded
for a period of at least fifteen months, the Market Value thereof, and
(c) in the case of other assets or securities, the fair market value
thereof as the Board of Directors shall
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determine in its sole discretion (which determination shall be conclusive
and binding on all stockholders).
"Market Value" of a share of any class or series of capital
stock on any Trading Day means the average of the high and low reported
sales prices regular way of a share of such class or series on such
Trading Day or, in case no such reported sale takes place on such Trading
Day, the average of the reported closing bid and asked prices regular way
of a share of such class or series on such Trading Day, in either case as
reported on the New York Stock Exchange ("NYSE") Composite Tape or, if
the shares of such class or series are not listed or admitted to trading
on the NYSE on such Trading Day, on the principal national securities
exchange on which the shares of such class or series are listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange on such Trading Day, on The NASDAQ National
Market System of the NASDAQ Stock Market ("NASDAQ NMS") or, if the shares
of such class or series are not listed or admitted to trading on any
national securities exchange or quoted on the NASDAQ NMS on such Trading
Day, the average of the closing bid and asked prices of a share of such
class or series in the over-the-counter market on such Trading Day as
furnished by any NYSE member firm selected from time to time by the
corporation or, if such closing bid and asked prices are not made
available by any such NYSE member firm on such Trading Day, the fair
market value of a share of such class or series as the Board of Directors
shall determine in its sole discretion (which determination shall be
conclusive and binding on all stockholders); provided, that, for purposes
of determining the average Market Value of a share of any class or series
of capital stock for any period, (a) the "Market Value" of a share of any
class or series of capital stock on any day prior to any "ex-dividend"
date or any similar date occurring during such period for any dividend or
distribution (other than any dividend or distribution contemplated by
clause (b)(ii) of this sentence) paid or to be paid with respect to such
capital stock shall be reduced by the Fair Value of the per share amount
of such dividend or distribution and (b) the "Market Value" of a share of
any class or series of capital stock on any day prior to (i) the
effective date of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of outstanding shares
of such class or series of capital stock occurring during such period or
(ii) any "ex-dividend" date or any similar date occurring during such
period for any dividend or distribution with respect to such capital
stock to be made in shares of such class or series of capital stock,
shall be appropriately adjusted, as determined by the Board of Directors,
in its sole discretion, to reflect such subdivision, combination,
dividend or distribution.
The "Net Proceeds" of a Disposition of any of the assets of
the Rainbow Media Group means the positive amount, if any, remaining from
the gross proceeds of such Disposition allocated to the Rainbow Media
Group (as determined by the Board of Directors in its sole discretion )
after any payment of, or reasonable provision (as determined by the Board
of Directors in its sole discretion) for,
(b) any taxes payable by the corporation or any of its
subsidiaries in respect of such Disposition;
(c) any taxes payable by the corporation in respect of
any resulting dividend or redemption;
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(d) any transaction costs borne by the corporation or
any of its subsidiaries, including, without limitation, any legal,
investment banking and accounting fees and expenses;
(e) any payments required to be made to repay or redeem
any indebtedness that, by its terms, requires repayment from, or based
upon, the proceeds of the Disposition;
(f) any liabilities (contingent or otherwise) of,
attributable to, or related to, such Group, including, without
limitation, any liabilities for deferred taxes, any indemnity or
guarantee obligations which are outstanding or incurred in connection
with the Disposition or otherwise, any liabilities for future purchase
price adjustments and any obligations with respect to outstanding
securities (other than common stock) attributed to the Rainbow Media
Group; and
(g) any preferential amounts, accumulated and unpaid
dividends and other obligations in respect of Preferred Stock
attributable to the Rainbow Media Group.
"Publicly Traded" with respect to any security means (a)
registered under Section 12 of the Securities Exchange Act of 1934, as
amended (or any successor provision of law), and (b) listed for trading
on the NYSE (or any other national securities exchange registered under
Section 7 of the Securities Exchange Act of 1934, as amended (or any
successor provision of law)) or listed on the NASDAQ NMS (or any
successor market system).
"Trading Day" means each weekday on which the relevant
security (or, if there are two or more relevant securities, each relevant
security) is traded on the principal national securities exchange on
which it is listed or admitted to trading or on the NASDAQ NMS or, if
such security is not listed or admitted to trading on a national
securities exchange or quoted on the NASDAQ NMS, traded in the principal
over-the-counter market in which it trades.
For purposes of this Section VII(a), if the Rainbow Media Group
consummates a Disposition in a series of related transactions, such Disposition
shall not be deemed to have been completed until consummation of the last of
such transactions as determined by the Board of Directors in its sole
discretion.
The corporation may elect to pay the dividend or redemption price
referred to above either in the same form as the proceeds of the Disposition
were received or in any other combination of cash or securities or other
property that the Board of Directors determines will have an aggregate Market
Value on a fully distributed basis, of not less than the amount of the
applicable Net Proceeds. If the dividend or redemption price is paid in the form
of securities of an issuer other than the corporation, the Board of Directors
may determine either to (a) pay the dividend or redemption price in the form of
separate classes or series of securities, with one class or series of such
securities to holders of Class A Common Stock and another class or series of
securities to holders of Class B Common Stock, provided that such securities
(and, if such securities are Convertible Securities, the securities so issuable
upon such conversion, exercise or exchange) do not differ in any respect other
than differences in their rights (other than voting rights) consistent in all
material respects when the differences between the Class A Common Stock and the
Class B Common Stock and differences in their relative voting rights, with
holders of shares of Class B Common Stock receiving the class or series having
the higher relative voting rights (without regard to whether such voting rights
differ to a greater or lesser extent than the corresponding differences in the
voting rights of the Class A Common Stock and the Class B Common Stock of the
Rainbow Media Group provided in Section A.IV of this Article FOURTH), provided
that if such securities constitute capital stock of a subsidiary of the
corporation, such voting rights shall not differ to a greater extent than the
corresponding differences in the voting rights of the Class A Common Stock and
the Class B Common
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Stock provided in Section A.IV of this Article FOURTH, and otherwise such
securities shall be distributed on an equal per share basis, or (b) pay the
dividend or redemption price in the form of a single class of securities without
distinction between the shares received by the holders of Class A Common Stock
and Class B Common Stock of the applicable Group.
(b) Exchange of Rainbow Media Group Class A Common Stock for
Cablevision NY Group Class A Common Stock and Rainbow Media Group Class B Common
Stock for Cablevision NY Group Class B Common Stock at the Option of the
Corporation. At the option of the corporation by action of the Board of
Directors taken in its sole discretion at any time after the first (1st)
anniversary of the initial issuance of the Rainbow Media Group Common Stock, (i)
each share of Rainbow Media Group Class A Common Stock shall be exchanged for a
number (or fraction) of fully paid and nonassessable shares of Cablevision NY
Group Class A Common Stock equal to the Rainbow Media Group Optional Conversion
Ratio (as defined below), and (ii) each share of Rainbow Media Group Class B
Common Stock shall be exchanged for a number (or fraction) of fully paid and
nonassessable shares of Cablevision NY Group Class B Common Stock equal to the
Rainbow Media Group Optional Exchange Ratio.
For purposes of this Certificate of Incorporation, the following
terms shall have the following meanings:
"Rainbow Media Group Optional Exchange Ratio" shall mean
the product of (a) the quotient (calculated to the nearest five decimal
places) obtained by dividing (i) the average Market Value of a share of
Rainbow Media Group Class A Common Stock over the twenty (20) consecutive
Trading Day period ending on (and including) the fifth Trading Day
immediately preceding the date on which the corporation mails the notice
of conversion to holders of Rainbow Media Group Common Stock by (ii) the
average Market Value of a share of Cablevision NY Group Class A Common
Stock over the same twenty (20) consecutive Trading Day period as
specified in clause (1) above, and (y) 110%, unless a Tax Event (as
defined below) shall have occurred, in which event the percentage in this
clause (b) shall be 100%.
"Tax Event" means the receipt by the corporation of an
opinion of its tax counsel that, as a result of: (a) any amendment to, or
change in, the laws or regulations interpreting such laws of the United
States or any political subdivision or taxing authority in the United
States, including any announced proposed change by an applicable
legislative committee or its chair in such laws or by an administrative
agency in such regulations or (b) any official or administrative
pronouncement, action or judicial decision interpreting or applying such
laws or regulations, it is more likely than not for U.S. federal income
tax purposes that: (i) the corporation or its stockholders are, or, at
any time in the future, will be subject to tax upon the issuance of
shares of either Rainbow Media Group common stock or Cablevision NY Group
common stock or (ii) either Rainbow Media Group common stock or
Cablevision NY Group common stock is not or, at any time in the future,
will not be treated solely as stock of the corporation. For purposes of
rendering such an opinion, tax counsel will assume that any legislative
or administrative proposals will be adopted or enacted as proposed.
(c) Optional Redemption in Exchange for Common Stock of Group
Subsidiaries. At any time at which all of the assets and liabilities attributed
to the Rainbow Media Group have become and continue to be held directly or
indirectly by any one or more entities that are Qualifying Subsidiaries (as
defined below) (the "Group Subsidiaries"), the Board of Directors may, subject
to the availability of assets of the corporation legally available therefor,
redeem, on a pro rata basis, all of the outstanding shares of the Rainbow Media
Group in exchange for all of the fully paid and nonassessable shares of common
stock of each Group Subsidiary held by the corporation. If the redemption is in
exchange for the common stock of more than one Group Subsidiary, each holder of
shares of Common Stock of the Rainbow Media Group shall receive, on a pro rata
basis, shares of common stock of each such Group Subsidiary.
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If at the time of such an exchange for shares of one or more Group
Subsidiaries, there are outstanding any Convertible Securities convertible into
or exercisable for shares of Rainbow Media Group Common Stock that would become
exercisable or convertible for shares of the Rainbow Media Group as a result of
such exchange, and the obligation to issue such shares under such options,
warrants, convertible securities or similar rights is not assumed or otherwise
provided for by one or more Group Subsidiaries, then the shares of common stock
of the Rainbow Media Group underlying such Convertible Securities will be taken
into account for purposes of determining the exchange rate for such exchange.
A "Qualifying Subsidiary" is a subsidiary of the
corporation that is either wholly owned, directly or indirectly, by the
corporation or in which the corporation's direct or indirect ownership
and voting interest is sufficient to satisfy the requirements of the
Internal Revenue Service for a distribution of the corporation's interest
in such subsidiary to holders of common stock of the Rainbow Media Group
to be tax free to such holders.
In effecting such a redemption, the Board of Directors shall
redeem shares of Class A Common Stock and Class B Common Stock in exchange for
shares of separate classes or series of common stock of each Group Subsidiary
with relative voting rights and differences in designation, conversion,
redemption and share distribution provisions not greater than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Class A Common Stock and Class B Common
Stock, with holders of shares of Class B Common Stock receiving the class or
series having the higher relative voting rights.
(d) General Dividend, Exchange and Redemption Provisions.
(i) If the corporation completes a Disposition of
All or Substantially All of the Assets of the Rainbow Media Group (other
than an Exempt Disposition), the corporation shall, not more than the ten
(10) Trading Days after the consummation of such Disposition, either
issue a press release or send a notice by first-class mail, postage
prepaid, to holders of the relevant series of Common Stock at their
addresses as they appear on the transfer books of the corporation,
specifying (i) the Net Proceeds of such Disposition, (ii) the number of
shares of the series of Common Stock related to the Rainbow Media Group
then outstanding, and (iii) the number of shares of such series of Common
Stock issuable upon conversion, exchange or exercise of any convertible
or exchangeable securities, options or warrants and the conversion,
exchange or exercise prices thereof. The corporation shall, not more than
thirty (30) Trading Days after such consummation, either announce by
press release or by notice sent by first-class mail, postage prepaid, to
holders of the relevant series of Common Stock at their addresses as they
appear on the transfer books of the corporation, which of the actions
specified in subsection (a) of this Section VII it has determined to
take, and upon making that announcement or the giving of that notice,
that determination shall be irrevocable. In addition, the corporation
shall, not more than thirty (30) Trading Days after such consummation and
not less than ten (10) Trading Days before the applicable payment date,
redemption date or exchange date, send a notice by first-class mail,
postage prepaid, to holders of the relevant series of Common Stock at
their addresses as they appear on the transfer books of the corporation,
specifying:
(1) if the corporation has determined to pay a
special dividend, (A) the record date for such dividend,
(B) the payment date of such dividend (which shall not be
more than eighty-five (85) Trading Days after such
consummation) and (C) the aggregate amount and type of
property to be paid in such dividend (and the approximate
per share amount thereof);
(2) if the corporation has determined to
undertake a redemption, (A) the date of redemption (which
shall not be more than eighty-five (85) Trading Days after
such consummation), (B) the aggregate amount and type of
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property to be paid as a redemption price (and the
approximate per share amount thereof), (C) if less than all
shares of the relevant series of Common Stock are to be
redeemed, the number of shares to be redeemed and (D) the
place or places where certificates for shares of such
series of Common Stock, properly endorsed or assigned for
transfer (unless the corporation waives such requirement),
should be surrendered in return for delivery of the cash,
securities or other property to be paid by the corporation
in such redemption; and
(3) if the corporation has determined to
undertake an exchange, (A) the date of exchange (which
shall not be more than eighty-five (85) Trading Days after
such consummation (except in the circumstances contemplated
by the second full paragraph following Section
A.VII(a)(iii) of this Article FOURTH)), (B) the number of
shares of the other series of Common Stock to be issued in
exchange for each outstanding share of such series of
Common Stock and (C) the place or places where certificates
for shares of such series of Common Stock, properly
endorsed or assigned for transfer (unless the corporation
waives such requirement), should be surrendered in return
for delivery of the other series of Common Stock to be
issued by the corporation in such exchange.
(ii) If the corporation has determined to complete
any exchange described in subsection (a) or (b) of this Section VII, the
corporation shall, not less than ten (10) Trading Days and not more than
thirty (30) Trading Days before the exchange date, send a notice by
first-class mail, postage prepaid, to holders of the relevant series of
Common Stock at their addresses as they appear on the transfer books of
the corporation, specifying (1) the exchange date and the other terms of
the exchange and (2) the place or places where certificates for shares of
such series of Common Stock, properly endorsed or assigned for transfer
(unless the corporation waives such requirement), should be surrendered
for delivery of the stock to be issued or delivered by the corporation in
such exchange.
(iii) Neither the failure to mail any notice required by
this Section VII to any particular holder nor any defect therein would
affect the sufficiency thereof with respect to any other holder or the
validity of any dividend, redemption or exchange contemplated hereby.
(iv) If the corporation is redeeming less than all of the
outstanding shares of a series of Common Stock pursuant to subsection (a)
of this Section VII, the corporation shall redeem such shares pro rata or
by lot or by such other method as the Board of Directors determines to be
equitable.
(v) No holder of shares of a series of Common Stock
being exchanged or redeemed shall be entitled to receive any cash,
securities or other property to be distributed in such exchange or
redemption until such holder surrenders certificates for such shares,
properly endorsed or assigned for transfer, at such place as the
corporation shall specify (unless the corporation waives such
requirement). As soon as practicable after the corporation's receipt of
certificates for such shares, the corporation shall deliver to the person
for whose account such shares were so surrendered, or to the nominee or
nominees of such person, the cash, securities or other property to which
such person shall be entitled, together with any fractional payment
referred to below, in each case without interest. If less than all of the
shares of Common Stock represented by any one certificate is exchanged or
redeemed, the corporation shall also issue and deliver a new certificate
for the shares of such Common Stock not exchanged or redeemed.
(vi) The corporation shall not be required to issue or
deliver fractional shares of any capital stock or any other fractional
securities to any
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holder of Common Stock upon any exchange, redemption, dividend or other
distribution described above. If more than one share of Common Stock
shall be held at the same time by the same holder, the corporation may
aggregate the number of shares of any capital stock that would be
issuable or any other securities that would be distributable to such
holder upon any such exchange, redemption, dividend or other
distribution. If there are fractional shares of any capital stock or any
other fractional securities to be issued or distributed to any holder,
the corporation may, at its election, in lieu of issuing such fractional
shares or securities, pay cash in respect of such fractional shares or
securities in an amount equal to the Fair Value thereof (without
interest).
(vii) From and after the date set for any exchange or
redemption contemplated by this Section VII, all rights of a holder of
shares of Common Stock being exchanged or redeemed shall cease except for
the right, upon surrender of the certificates theretofore representing
such shares, to receive the cash, securities or other property for which
such shares were exchanged or redeemed, together with any fractional
payment as provided above, in each case without interest (and, if such
holder was a holder of record as of the close of business on the record
date for a dividend not yet paid, the right to receive such dividend). A
holder of shares of Common Stock being exchanged shall not be entitled to
receive any dividend or other distribution with respect to shares of the
other series of Common Stock until after certificates theretofore
representing the shares being exchanged are surrendered as contemplated
above. Upon such surrender, the corporation shall pay to the holder the
amount of any dividends or other distributions (without interest) which
theretofore became payable with respect to a record date occurring after
the date set for the exchange, but which were not paid by reason of the
foregoing, with respect to the number of whole shares of the other series
of Common Stock represented by the certificate or certificates issued
upon such surrender. From and after the date set for any exchange, the
corporation shall, however, be entitled to treat the certificates for
shares of a series of Common Stock being exchanged that were not yet
surrendered for exchange as evidencing the ownership of the number of
whole shares of the other series of Common Stock for which the shares of
such Common Stock should have been exchanged, notwithstanding the failure
to surrender such certificates.
(viii) The corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes that might be
payable in respect of the issue or delivery of any shares of capital
stock and/or other securities on any exchange or redemption contemplated
by this Section VII, provided, however, that the corporation shall not be
required to pay any tax that might be payable in respect of any transfer
involved in the issue or delivery of any shares of capital stock and/or
other securities in a name other than that in which the shares so
exchanged or redeemed were registered, and no such issue or delivery will
be made unless and until the person requesting such issue pays to the
corporation the amount of any such tax, or establishes to the
satisfaction of the corporation that such tax has been paid. Under no
circumstances shall the corporation be liable to a holder of shares being
exchanged for dividends or distributions thereon with respect to shares
or other securities or dividends or distributions delivered to a public
official pursuant to any applicable abandoned property, escheat or
similar law.
(ix) The corporation may, subject to applicable
law, establish such other rules, requirements and procedures to
facilitate any dividend, redemption or exchange contemplated by this
Section VII as the Board of Directors may determine to be appropriate
under the circumstances.
VIII. Liquidation Rights.
In the event of any liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the corporation and subject to the
prior payment in full of the amounts to be paid to holders of Preferred Stock
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as set forth in any Certificates of Designations filed with respect thereto, the
remaining assets and funds of the corporation shall be divided as follows: (a)
the holders of the shares of Cablevision NY Group Class A Common Stock and the
holders of the shares of Cablevision NY Group Class B Common Stock (including
those persons who shall become holders of Cablevision NY Group Class A Common
Stock by reason of the conversion of their shares of Cablevision NY Group Class
B Common Stock) shall share equally, on a share for share basis, in a percentage
of the remaining assets and funds of the corporation available for distribution
to common stockholders equal to the ratio of the Cablevision NY Group Market
Capitalization (as defined below) to the Total Market Capitalization (as defined
below); and (b) the holders of the shares of Rainbow Media Group Class A Common
Stock and the holders of the shares of Rainbow Media Group Class B Common Stock
(including those persons who shall become holders of Rainbow Media Group Class A
Common stock by reason of the conversion of their shares of Rainbow Media Group
Class B Common Stock) shall share equally, on a share for share basis, in a
percentage of the remaining assets and funds of the corporation available for
distribution to common stockholders equal to the ratio of the Rainbow Media
Group Market Capitalization (as defined below) to the Total Market
Capitalization.
"Cablevision NY Group Market Capitalization" shall mean the
aggregate average Market Value of all shares of Cablevision NY Group Common
Stock (assigning a share of Cablevision NY Group Class B Common Stock the same
Market Value as a share of Cablevision NY Group Class A Common Stock) during the
twenty (20) consecutive Trading Day period ending on (and including) the 5th
Trading Day before the date of the first public announcement of (a) a voluntary
liquidation, dissolution or winding-up by the corporation or (b) the institution
of any proceeding for the involuntary liquidation, dissolution or winding up of
the corporation.
"Rainbow Media Group Market Capitalization" shall mean the
aggregate average Market Value of all shares of Rainbow Media Group Common Stock
(assigning a share of Rainbow Media Group Class B Common Stock the same Market
Value as a share of Rainbow Media Group Class A Common Stock) during the twenty
(20) consecutive Trading Day period ending on (and including) the 5th Trading
Day before the date of the first public announcement of (a) a voluntary
liquidation, dissolution or winding-up by the corporation or (b) the institution
of any proceeding for the involuntary liquidation, dissolution or winding up of
the corporation.
"Total Market Capitalization" shall mean the sum of the
Cablevision NY Group Market Capitalization and the Rainbow Media Group Market
Capitalization.
For the purposes hereof, the voluntary sale, conveyance, exchange
or transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all the property or assets of the corporation shall be
deemed a voluntary liquidation, dissolution or winding up of the corporation,
but a consolidation or merger of the corporation with one or more other
corporations shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.
IX. Reclassifications, Etc.
Neither the Class A Common Stock nor the Class B Common Stock may
be subdivided, consolidated, reclassified or, except as expressly provided to
the contrary in Section A.VII of the Article FOURTH, otherwise changed unless
contemporaneously therewith the other class of Common Stock of the same Group is
subdivided, consolidated, reclassified or otherwise changed in the same
proportion and in the same manner.
X. Mergers, Consolidations, Etc.
Except as expressly provided to the contrary in Section A.VII of
this Article FOURTH, in any merger, consolidation or business combination of the
corporation with or into another corporation, whether or not the corporation is
the surviving corporation, the consideration per share to be received by holders
of Class A Common Stock and Class B Common Stock of a Group in such merger,
consolidation or business combination must be identical to that received by
holders of the other class of Common Stock of the same Group, except that in any
such transaction in which shares of capital stock are distributed, such
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shares may differ as to voting rights to the extent and only to the extent that
the voting rights of the Class A Common Stock and Class B Common Stock differ as
provided herein.
XI. Rights and Warrants.
In case the corporation shall issue rights or warrants to purchase
shares of capital stock of the corporation, the terms of the rights and
warrants, and the number of rights or warrants per share, to be received by
holders of Class A Common Stock or Class B Common Stock of a Group must be
identical to that received by holders of the other class of Common Stock of the
same Group, except that the shares of capital stock into which such rights or
warrants are exercisable may differ as to voting rights to the extent and only
to the extent that the voting rights of the Class A Common Stock and Class B
Common Stock differ as provided herein.
B. Preferred Stock.
I. Issuance.
Preferred Stock may be issued from time to time in one or more
series, the shares of each series to have such powers, designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as are stated and expressed
herein or in a Certificate or Certificates of Designations providing for the
issuance of such series, adopted by the Board of Directors as hereinafter
provided.
II. Powers of the Board of Directors.
Authority is hereby expressly granted to the Board of Directors to
authorize the issue of one or more series of Preferred Stock, and with respect
to each series to set forth in a Certificate or Certificates of Designations
provisions with respect to the issuance of such series:
(a) The maximum number of shares to constitute such
series and the distinctive designation thereof;
(b) Whether the shares of such series shall have voting
rights, in addition to any voting 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 the corporation, and, if made subject to redemption, the
times, prices and other terms and conditions of such redemption;
(e) The rights of the holders of shares of such series
upon the liquidation, dissolution or winding up of the corporation;
(f) Whether or not the shares of such series shall be
subject to the operation of a retirement or sinking fund, and, if so, the
extent to and manner in which any such retirement or 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, shares of stock of any other class
or classes, or of any other
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series of the same class, and if so convertible or exchangeable, 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 the corporation of the Class
A Common Stock, the Class B Common Stock or any other class or classes of
stock of the corporation 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 of indebtedness of the corporation 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; and
(j) Any other preference and relative, participating,
optional, or other special rights, and qualifications, limitations or
restrictions thereof as shall not be inconsistent with this Article
FOURTH.
III. Ranking.
All shares of any one series of Preferred Stock shall be identical
with each other in all respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends, if any, thereon
shall be cumulative; and all series shall rank equally and be identical in all
respects, except as permitted by the foregoing provisions of Section A.II of
this Article FOURTH; and all shares of Preferred Stock shall rank senior to the
common stock both as to dividends and upon liquidation.
IV. Liquidation Rights.
In the event of any liquidation, dissolution or winding up of the
corporation, before any payment or distribution of the assets of the corporation
(whether capital or surplus) shall be made to or set apart for the holders of
any class or classes of stock of the corporation ranking junior to the Preferred
Stock upon liquidation, the holders of the shares of the Preferred Stock shall
be entitled to receive payment at the rate fixed herein or in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
series, plus (if dividends on shares of such series of Preferred Stock shall be
cumulative) an amount equal to all dividends (whether or not earned or declared)
accumulated to the date of final distribution to such holders; but they shall be
entitled to no further payment. If, upon any liquidation, dissolution or winding
up of the corporation, the assets of the corporation, or proceeds thereof,
distributable among the holders of the shares of the Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid, then such assets,
or the proceeds thereof, shall be distributed among such holders ratably in
accordance with the respective amounts which would be payable on such shares if
all amounts payable thereon were paid in full. For the purposes of this Section
IV, the voluntary sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all the
property or assets of the corporation shall be deemed a voluntary liquidation,
dissolution or winding up of the corporation, but a consolidation or merger of
the corporation with one or more other corporations shall not be deemed to be
liquidation, dissolution or winding up, voluntary or involuntary.
V. Voting.
Except as shall be otherwise stated and expressed herein or in the
Certificate or Certificates of Designations adopted by the Board of Directors
with respect to the issuance of any series of Preferred Stock and except as
otherwise required by the laws of the State of Delaware, the holders of shares
of Preferred Stock shall have, with respect to such shares, no right or power to
vote on any question or in any proceeding or to be represented at, or to receive
notice of, any meeting of stockholders.
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FIFTH: The management of the business and the conduct of
the affairs of the corporation, including the election of the Chairman, if any,
the President, the Treasurer, the Secretary, and other principal officers of the
corporation, shall be vested in its Board of Directors. The number of directors
of the corporation shall be fixed by the By-Laws of the corporation and may be
altered from time to time as provided therein. A director shall be elected to
hold office until the expiration of the term for which such person is elected,
and until such person's successor shall be duly elected and qualified.
SIXTH: The name and mailing address of the incorporator are
as follows: Melissa L. Halbach-Merz, Sullivan & Cromwell, 125 Broad Street, New
York, New York 10004.
SEVENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this corporation or any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this corporation as a consequence of such compromise or arrangement, and the
said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
corporation, as the case may be, and also on this corporation.
EIGHTH: The original By-Laws of the corporation shall be
adopted by the incorporator. Thereafter, the power to make, alter, or repeal the
By-Laws, and to adopt any new By-Law, shall be vested in the Board of Directors
and the stockholders entitled to vote in the election of directors.
NINTH: 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.
No director of this corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that this paragraph shall not eliminate or limit the
liability of a director (I) for any breach of the director's duty of loyalty to
this 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) under Section 174 of the General Corporation Law of the State of Delaware,
or (IV) for any transaction from which the director derived an improper personal
benefit.
Article FOURTH and the first sentence of Article FIFTH of this
Certificate of Incorporation require the Board of Directors to make various
determinations and decisions, some of which may adversely affect the holders of
Common Stock of one Group as compared with the holders of Common Stock of the
other Group. Without limiting the effect of the immediately preceding paragraph,
each stockholder of the corporation shall, to the fullest extent permitted by
law, be deemed to have approved and ratified each such determination and
decision and to have waived any claim on behalf of the corporation and any such
stockholder based upon the fact, belief, claim or allegation that such
determination or decision has had or will have a direct or indirect impact on
the holders of Common Stock of one Group that
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is adverse in relation to the holders of Common Stock of the other Group,
including, without limitation, determinations and decisions relating to (a) the
businesses, assets and liabilities included in either Group as of the date of
filing of this Certificate of Incorporation, (b) any subsequent allocation of
businesses, assets or liabilities to either Group, (c) any re-allocation of
assets from one Group to another Group pursuant to Section A.II of Article
FOURTH of this Certificate of Incorporation, (d) the decision to pay a dividend
on the Common Stock of one Group and not on the Common Stock of the other Group
or to pay a dividend on the Common Stock of one Group that differs as to timing
or amount from the dividend on the Common Stock of the other Group, (e) the
decision to make a share distribution on the Common Stock of one Group and not
on the Common Stock of the other Group or a share distribution on the Common
Stock of one Group that differs as to timing, amount or the nature of the
securities included in the share distribution from the share distribution on the
Common Stock of the other Group, (f) the decision to exchange Common Stock of
the Cablevision NY Group for Common Stock of the Rainbow Media Group or shares
of one or more Group Subsidiaries for shares of Common Stock of the Rainbow
Media Group under Section A.VII(b) of Article FOURTH of this Certificate of
Incorporation, (g) a decision to distribute shares of Rainbow Media Group Class
A Common Stock to holders of Cablevision NY Group Class A Common Stock and
shares of Rainbow Media Group Class B Common Stock to holders of Cablevision NY
Group Class B Common Stock as contemplated by the last paragraph of Section A.II
of Article FOURTH of this Certificate of Incorporation, and (h) any other
decision with respect to the business, assets, liabilities or securities of the
corporation which is alleged to, or does, benefit, directly or indirectly, the
holders of Common Stock of one Group in a manner that is adverse in relation to
the holders of Common Stock of the other Group.
TENTH: No contract or transaction between the corporation
and one or more of its directors or officers, or between the corporation and any
other corporation, partnership, association or other organization in which one
or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if:
A. The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the Board
of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
B. The material facts as this relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
C. The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
Common or interested directors may be counted in the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction."
IN WITNESS WHEREOF, Cablevision Systems Corporation has caused
this Amended and Restated Certificate of Incorporation to be executed this _____
day of _________, 2000.
-----------------------
Attest:
----------------
Robert S. Lemle
Secretary
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ANNEX III
PROPOSAL 2--OUR AMENDED AND RESTATED STOCK OPTION PLAN
CABLEVISION SYSTEMS CORPORATION
THIRD AMENDED AND RESTATED EMPLOYEE STOCK PLAN
1. PURPOSE. The purpose of the Cablevision Systems Corporation 1996
Employee Stock Plan, is to compensate key employees of the Company and its
Affiliates who are and have been largely responsible for the management and
growth of the business of the Company and its Affiliates and to advance the
interests of the Company by encouraging and enabling the acquisition of a larger
personal proprietary interest in the Company by key employees upon whose
judgment and keen interest the Company and its Affiliates are largely dependent
for the successful conduct of their operations. It is anticipated that such
compensation and the acquisition of such proprietary interest in the Company
will stimulate the efforts of such key employees on behalf of the Company and
its Affiliates, and strengthen their desire to remain with the Company and its
Affiliates. It is also expected that such compensation and the opportunity to
acquire such a proprietary interest will enable the Company and its Affiliates
to attract desirable personnel.
2. DEFINITIONS. When used in this Plan, unless the context otherwise
requires:
(a) "AFFILIATE" shall mean (i) any corporation controlling, controlled
by, or under common control with the Company or any other Affiliate, (ii) any
corporation in which the Company owns at least five percent of the outstanding
shares of all classes of common shares of such corporation, (iii) any
unincorporated trade or business controlling, controlled by, or under common
control with the Company or any other Affiliate, and (iv) any unincorporated
trade or business in which the Company owns at least a five percent interest in
the capital or profits of such trade or business.
(b) "AWARDS" shall mean options, Rights, Restricted Shares or Bonus
Awards which are granted or made under the Plan.
(c) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted at any time.
(d) "BONUS AWARDS" shall mean awards made pursuant to Section 11.
(e) "CABLEVISION NY GROUP SHARE" shall mean a share of the Company's
Cablevision NY Group Class A Common Stock.
(f) "COMMITTEE" shall mean the Committee of the Board of Directors, as
described in Section 3.
(g) "COMPANY" shall mean Cablevision Systems Corporation, a Delaware
corporation.
(h) "EXECUTIVE OFFICER" shall mean a person who is an officer of the
Company within the meaning of Rule 16b-1(f) promulgated under the Securities
Exchange Act of 1934, as amended from time to time.
(i) "FAIR MARKET VALUE" on a specified date shall mean the average of the
bid and asked closing prices at which one Share is traded on the
over-the-counter market, as reported on the National Association of Securities
Dealers Automated Quotation System, or the closing price for a Share on the
stock exchange, if any, on which such Shares are primarily traded, but if no
Shares were traded on such date, then on the last previous date on which a Share
was so traded, or, if none of the above is applicable, the value of a Share as
established by the Committee for such date using any reasonable method of
valuation.
(j) "INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended.
(k) "OPTIONS" shall mean the stock options issued pursuant to this Plan.
(l) "PERFORMANCE CRITERIA" shall mean a goal or goals established by the
Committee and measured over a period or periods selected by the Committee, such
goal(s) to constitute a requirement that must be met prior to either the
vesting, exercise or payment of an Award under the Plan as specified by the
Committee. Unless the Committee otherwise determines at the time of grant of an
award of Restricted Shares or a Bonus Award to an Executive Officer, the
Performance Criteria with respect to such award shall be related to at least one
of the following criteria, which may be determined by reference to the
performance of
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the Company or an Affiliate, subdivision or other business unit of either, or
any combination of the foregoing, or based on comparative performance relative
to other companies: (i) earnings per share, (ii) total return to stockholders,
(iii) return on equity, (iv) operating income or net income, (v) return on
capital, (vi) costs, (vii) results relative to budget, (viii) cash flow, (ix)
cash flow margin, (x) cash flow per subscriber, (xi) revenues, (xii) revenues
per subscriber, (xiii) subscriber growth, (xiv) results relative to quantitative
customer service standards, (xv) results relative to quantitative customer
satisfaction standards, or (xvi) a specified increase in the Fair Market Value
of the Rainbow Media Group Shares or the Cablevision NY Group Shares.
(m) "PLAN" shall mean the Cablevision Systems Corporation 1996 Employee
Stock Plan.
(n) "RAINBOW MEDIA GROUP SHARE" shall mean a share of the Company's
Rainbow Media Group Class A tracking stock.
(o) "RESTRICTED PERIOD" shall mean the period of time during which
Restrictions shall apply to a Restricted Share, as determined by the Committee
pursuant to Section 10 hereof.
(p) "RESTRICTED SHARES" shall mean the Shares granted pursuant to Section
10 hereof.
(q) "RESTRICTIONS" shall mean the restrictions upon the sale, assignment,
transfer, pledge or other disposal or encumbrance on a Restricted Share as set
forth in Section 10 hereof.
(r) "RIGHTS" shall mean the stock appreciation rights issued to the
grantee of an Option pursuant to Section 7 of the Plan to receive from the
Company cash or Shares or a combination of cash or Shares, based on the excess
of the Fair Market Value of the Shares at the time of exercise over the exercise
price of the Shares subject to the related option, subject to the terms and
conditions of the Plan.
(s) "SHARES" shall mean Rainbow Media Group Shares or Cablevision NY
Group Shares, or both, as applicable.
(t) "SUBSIDIARY" shall mean any "subsidiary corporation," as defined in
Section 424(f) of the Internal Revenue Code.
3. ADMINISTRATION. The Plan shall be administered by the Committee, which
shall consist of at least three members of the Board of Directors of the Company
who shall be appointed by, and shall serve at the pleasure of, the Board of
Directors of the Company. Except as otherwise determined by the Board of
Directors of the Company, the members of the Committee shall be "non-employee
directors" under Rule 16b-3 of the Securities Exchange Act of 1934 (the
"EXCHANGE ACT"), and "outside directors" under Section 162(m) of the Internal
Revenue Code. The Committee may delegate any of its powers under the Plan to a
subcommittee of the Committee consisting of non-employee directors and outside
directors.
The Committee or a subcommittee thereof (which hereinafter shall also be
referred to as the Committee) shall have full authority, subject to the terms of
the Plan, to select the persons to whom Awards shall be granted or made under
the Plan, to set the date of any such Award and any terms or conditions
associated with any such Award. The Committee also shall have the authority to
establish such rules and regulations; not inconsistent with the provisions of
the Plan, for the proper administration of the Plan and to make such
determinations and interpretations under and in connection with the Plan as it
deems necessary or advisable. The Plan, and all such rules, regulations,
determinations and interpretations, shall be binding and conclusive upon the
Company, its stockholders and all employees, and upon their respective legal
representatives, heirs, beneficiaries, successors and assigns and upon all other
persons claiming under or through any of them.
4. PARTICIPANTS. Except as hereinafter provided, all officers and key
employees of the Company or an Affiliate shall be eligible to receive Awards
under the Plan, except that Options that are intended to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code
shall be granted only to employees of the Company or a Subsidiary. In addition,
Charles F. Dolan shall not be eligible to receive Awards under the Plan. Nothing
herein contained shall be construed to prevent the making of one or more Awards
at the same or different times to the same employee.
5. SHARES. The Committee may make Awards under this Plan for up to an
aggregate number of Rainbow Media Group Shares and Cablevision NY Group Shares
equal to the sum of (i) 38,700,000 Shares, which may be either treasury Shares
or authorized but unissued Shares, and which may be either Rainbow Media Group
Shares or Cablevision NY Group Shares, and (ii) the number of Restricted Shares,
if any, purchased from employees by the Company. Notwithstanding the foregoing,
in no event shall any Participant be granted Awards for a number of Rainbow
Media Group Shares and Cablevision NY Group Shares
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exceeding 4,000,000 in the aggregate over the term of the Plan, any or all of
which may be Rainbow Media Group Shares or Cablevision NY Group Shares. If an
Award shall be paid or settled or shall expire, lapse, terminate or be
cancelled for any reason without the issuance of Shares, or if Restricted
Shares shall revert back to the Company, then the Committee may grant Awards
with respect to the Shares subject to any such prior Award or the Restricted
Shares which have reverted back to the Company. Awards payable only in cash
shall not reduce the aggregate remaining number of Shares with respect to which
Awards may be made under the Plan.
The maximum number of Shares that may be issued under the Plan and the
number of Shares with respect to which Awards may be made shall be adjusted to
the extent necessary to accommodate the adjustments provided for in Section 12
hereof as well as those adjustments provided for in grants or awards made prior
to the effective date of the Plan.
6. OPTIONS. Options granted under the Plan shall be either incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code,
or non-qualified options, as determined by the Committee in its sole discretion.
(a) Terms and Conditions. The form, terms and conditions of each Option
shall be determined by the Committee and shall be set forth in a certificate or
agreement (the "OPTION CERTIFICATE") signed by the Option holder and an officer
of the Company. The Option Certificate shall state whether or not the Option is
an incentive stock option. The Committee may, in its sole discretion, establish
one or more conditions to the exercise of an Option including, without
limitation, conditions the satisfaction of which are measured by performance
criteria applicable to the recipient or the Company, as the Committee may deem
appropriate, provided that, if such Option is designated as an incentive stock
option, then such condition or conditions shall not be inconsistent with Section
422 of the Internal Revenue Code.
(b) Exercise Price for Options. The exercise price per Share of the
Shares to be purchased pursuant to any Option shall be fixed by the Committee at
the time an Option is granted, but in no event shall it be less than the Fair
Market Value of a Rainbow Media Group Share or a Cablevision NY Group Share, as
applicable, on the day on which the Option is granted. Such exercise price shall
thereafter be subject to adjustment as required by the Option certificate
relating to each Option.
(c) Duration of Options. The duration of any Option granted under this
Plan shall be for a period fixed by the Committee but shall, except as described
in the next sentence, in no event be more than ten years. Notwithstanding the
foregoing, the Option Certificate issued in connection with a nonqualified
Option granted under this Plan may provide that, in the event the Option holder
dies while the Option is exercisable, the Option will remain exercisable by the
holder's estate or beneficiary only until the first anniversary of the holder's
date of death, and whether or not such first anniversary occurs prior to or
following the expiration of ten years from the date the Option was granted.
(d) Options Granted to Ten Percent Stockholders. No Option which is
intended to qualify as an incentive stock option shall be granted under this
Plan to any employee who, at the time the Option is granted, owns, or is
considered as owning, within the meaning of Section 422 of the Internal Revenue
Code, shares possessing more than ten percent of the total combined voting power
or value of all classes of stock of the Company or any Subsidiary, unless the
exercise price under such Option is at least 110 percent of the Fair Market
Value of a Rainbow Media Group Share or a Cablevision NY Group Share, as
applicable, on the date such Option is granted and the duration of such option
is no more than five years.
(e) Initial Exercisability Limitation. The aggregate Fair Market Value
(determined at the time that an Option is granted) of the Shares with respect to
incentive stock options granted in any calendar year under all stock option
plans of the Company or any corporation which (at the time of the granting of
such incentive stock option) was a parent or Subsidiary of the Company, or of
any predecessor corporation of any such corporation, which are exercisable for
the first time by an Option holder during any calendar year shall not exceed
$100,000.
(f) Settlement of an Option. When an Option is exercised pursuant to
Section 8 hereof, the Committee, in its sole discretion, may elect, in lieu of
issuing Rainbow Media Group Shares or Cablevision NY Group Shares pursuant to
the terms of the Option, to settle the Option by paying the Option holder an
amount equal to the product obtained by multiplying (i) the excess of the Fair
Market Value of one Share on the date the Option is exercised over the exercise
price of the Option (the "OPTION SPREAD") by (ii) the number of Shares with
respect to which the Option is exercised. The amount payable to the Option
holder in these circumstances shall be paid by the Company either in cash or in
Shares having a Fair Market Value equal to the Option Spread, or a combination
thereof, as the Committee shall determine at the time the Option is exercised or
at the time the Option is granted.
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7. RIGHTS. At the time an Option is granted, or anytime thereafter prior
to its expiration, the Committee, in its sole discretion may issue to the
recipient of such Option related Rights with respect to the same number of
Shares as are covered by the Option, subject to adjustment pursuant to the terms
of Section 12 hereof. The duration of any such Right shall be coextensive with
the duration of the related Option.
(a) Conjunctive and Alternative Rights. Such Rights shall entitle the
holder to receive cash from the Company:
(i) in addition to the right to exercise the related Option (such
Rights being hereinafter referred to as "CONJUNCTIVE RIGHTS"); and/or
(ii) in lieu of the right to exercise the related Option (such
Rights being hereinafter referred to as "ALTERNATIVE RIGHTS");
as the Committee may determine, in its sole discretion, at the time the Right is
granted. If the Option holder is granted Conjunctive Rights, he may exercise
such Rights only if, and to the extent that, the related Option has been
exercised or is exercisable. If the Option holder is granted Alternative Rights,
he may exercise such Rights only to the extent such related Option is
exercisable and the exercise of such Alternative Rights shall result in the
cancellation of the related Option to the extent of the number of Shares with
respect to which such Alternative Rights have been exercised and the exercise of
the related Option shall result in the cancellation of the Alternative Rights to
the extent of the number of Shares with respect to which such Option has been
exercised.
(b) Terms and Conditions. Upon the exercise of any Rights, the Option
holder shall be entitled to receive from the Company an amount in cash equal to
the product obtained by multiplying (i) the excess of the Fair Market Value of
one Share on the date the Rights are exercised over the exercise price of the
related Option (the "RIGHTS SPREAD") by (ii) the number of Shares with respect
to which such Rights are exercised. The form, terms and conditions of Rights
shall be determined by the Committee. A certificate of Rights (the "RIGHTS
CERTIFICATE") signed by an officer of the Company shall be issued to each person
to whom Rights are granted.
8. Exercise of Options and Rights. Except as otherwise provided herein,
an Option (and any related Rights), after the grant thereof, shall be
exercisable by the holder at such rate and times as may be fixed by the
Committee at the time the Option and the related Rights, if any, are granted;
provided, however, that any Rights issued to the Option holder shall be
exercisable only at the times and in the amounts at which the related Option
shall be exercisable.
All or any part of any remaining unexercised Options (and any related
Rights) granted to any person shall be exercisable in full upon the occurrence
of such special circumstances or events as, in the sole discretion of the
Committee, merits special consideration.
An Option shall be exercised by the delivery to any person who has been
designated by the Company for the purpose of receiving the same, of a written
notice duly signed by the Option holder thereof (or the representative of the
estate or the heirs of a deceased Option holder) to such effect. Unless the
Company chooses to settle the Option in cash, Shares or a combination thereof
pursuant to Section 6(f) hereof, the holder of the Option shall be required to
deliver to the Company, within five days of the delivery of the notice described
above, either cash, a check payable to the order of the Company or Shares duly
endorsed over to the Company (which Shares shall be valued at their Fair Market
Value as of the date preceding the day of such exercise) or any combination of
such methods of payment, which together amount to the full exercise price of the
Shares purchased pursuant to the exercise of the Option. Notwithstanding the
preceding sentence, the Company and the holder of the Option may agree upon any
other reasonable manner of providing for payment of the exercise price of the
Option.
Any Rights may be exercised by the holder thereof (or the representative
of the estate or the heirs of a deceased Option holder), by delivery of a
written notice of exercise of such Rights, together with the Rights Certificate
to any person who has been designated by the Company for the purpose of
receiving the same. No Option (or related Rights) may be granted pursuant to the
Plan or exercised at any time when such Option or Rights, or the granting or
exercise thereof, may result in the violation of any law or governmental order
or regulation.
Unless the Committee chooses to settle an Option in cash, Shares or a
combination thereof pursuant to Section 6(f) hereof, within a reasonable time
after exercise of an Option the Company shall cause to be delivered to the
person entitled thereto (i) a certificate for the Shares purchased pursuant to
the exercise of the Option and (ii) a check for the cash payable, if any, upon
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the exercise of the Rights. If the Option and/or related Rights shall have been
exercised with respect to less than all of the Shares subject to the Option, the
Company shall also cause to be delivered to the person entitled thereto a new
Option Certificate and Rights Certificate, if applicable, in replacement of the
Option Certificate and the Rights Certificate surrendered at the time of the
exercise of the Option and Rights, indicating the number of Shares with respect
to which the Option and related Rights remain available for exercise, or the
original Option Certificate and Rights Certificate, if any, shall be endorsed to
give effect to the partial exercise thereof.
9. TERMINATION OF OPTIONS AND RIGHTS UPON TERMINATION OF EMPLOYMENT. At
the time an Option and the related Rights if any, are granted, the Committee
shall determine the period of time during which the Option holder may exercise
such Option and related Rights, if any, following his termination of employment
with the Company and its Affiliates; provided, however, that an Option shall be
exercisable only to the extent such Option, by its terms, is exercisable as of
the date the Option holder's employment is terminated, unless such Option is
made fully exercisable by the Committee pursuant to Section 8 hereof, and such
exercise must be accomplished prior to the expiration of the term of such Option
and related Rights. The Committee may fix different periods of time during which
such Option and related Rights may be exercised following the Option holder's
termination of employment, depending on the cause for the Option holder's
termination of employment. The Committee shall decide whether, and under what
conditions, the Options and related Rights may continue in force in the event of
an approved leave of absence.
10. RESTRICTED SHARES. The Committee, in its sole discretion, may grant
to employees the right to receive such number of Restricted Shares, as
determined by the Committee in its sole discretion.
(a) Issuance. The employee shall have forty-five (45) business days from
the date of such grant to pay to the Company, in cash or by check, an amount
equal to the par value of a Rainbow Media Group Share or a Cablevision NY Group
Share multiplied by the number of Restricted Shares which have been granted to
the employee by the Committee. Subject to the provisions of Section 15 hereof,
upon the receipt of such payment, the Company shall issue to the employee a
certificate representing such Restricted Shares. The terms and conditions of the
grant of such Restricted Shares and the Restrictions applicable to such Shares
shall be set forth in writing, in an agreement signed by the employee and an
officer of the Company (the "RESTRICTED SHARES AGREEMENT"). In the event the
employee fails to make payment to the Company for such Restricted Shares within
ten (10) business days of the grant thereof, the grant of Restricted Shares
shall lapse and the Committee may again grant Awards with respect to such
Shares.
(b) Restrictions on Shares. In no event shall a Restricted Share be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered until the
expiration of the Restricted Period which relates to such Restricted Share. As
of the date the Restricted Shares are granted, the Committee, in its sole
discretion, shall specify the dates as of which, and the number of Shares with
respect to which, Restrictions upon the Restricted Shares shall cease. Without
limiting the foregoing, the Committee may provide with respect to any grant of
Restricted Shares, that the termination of Restrictions on such Restricted
Shares may be subject to, among other things, conditions, the satisfaction of
which is measured by one or more Performance Criteria applicable to the
recipient or the Company, an Affiliate, division or other business unit, as the
Committee may deem appropriate.
(c) Forfeiture of Restricted Shares. If the employment of an employee by
the Company and its Affiliates ceases prior to the end of the Restricted Period
for any one of the reasons specified by the Committee at the time the Restricted
Shares are granted and set forth in the Restricted Shares Agreement, Restricted
Shares held by such employee which are subject to Restrictions shall revert back
and belong to the Company. In the event that any Restricted Shares should revert
back and belong to the Company pursuant to this section, any stock certificate
or certificates representing such Restricted Shares shall be cancelled and the
Restricted Shares shall be returned to the treasury of the Company. Upon the
reversion of such Restricted Shares, the Company shall repay to the employee or
(in the case of death) to the representative of the employee's estate, the full
amount paid to the Company by the employee for such Restricted Shares.
Notwithstanding the preceding, the Restrictions upon the Restricted Shares shall
cease and upon the termination of the employee's employment with the Company,
and its Affiliates the Restricted Shares shall not revert back and belong to the
Company, upon the occurrence of such special circumstances or events as the
Committee shall determine in its sole discretion, at or after grant, merit
special consideration.
(d) Right to Vote and Receive Dividends on Restricted Shares. Each holder
of Restricted Shares shall, during the Restricted Period, be the beneficial and
record owner of such Restricted Shares and shall have full voting rights with
respect thereto. During the Restricted Period, all dividends and distributions
paid upon any Restricted Share shall be retained by the Company for the account
of the holder of such Restricted Share. Such dividends and distributions shall
revert back to the Company if for any reason the Restricted Share upon which
such dividends and distributions were paid reverts back to the
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Company. Upon the expiration of the Restricted Period, all dividends and
distributions made on such Restricted Share and retained by the Company will be
paid to the holder.
11. BONUS AWARDS.
(a) Grant and Terms of Awards. The Committee shall determine the
employees that shall receive Bonus Awards, the number of Shares to be so
awarded, and the terms and conditions of such Bonus Awards. The Committee shall
determine whether, and under what conditions, Bonus Awards shall remain in force
in the event of the termination of the awardee's employment with the Company and
its Affiliates.
(b) Time for Issuance of Bonus Awards. Each grantee of a Bonus Award
under the Plan shall receive a letter (the "BONUS AWARD LETTER") after he has
been selected to receive such Bonus Award, which letter shall state the terms of
the Bonus Award, including, without limitation, the amount of the Bonus Award,
the number of Shares proposed to be issued to him, the vesting schedule for such
Bonus Award and the date or dates and the conditions upon which such Bonus Award
shall be paid to the grantee. Without limiting the foregoing, the Committee may
provide with respect to any Bonus Award, that the vesting of such Bonus Award
may be subject to, among other things, conditions, the satisfaction of which is
measured by one or more Performance Criteria applicable to the recipient or the
Company, an Affiliate, division or other business unit, including the
Cablevision NY Group or the Rainbow Media Group, as the Committee may deem
appropriate. The time of issuance of Shares to any grantee may be accelerated by
the Committee in its sole discretion. The Committee, in its sole discretion, may
instruct the Company to pay on the date when Shares would otherwise be issued
pursuant to a Bonus Award, in lieu of such Shares, a cash amount equal to the
number of such Shares multiplied by the Fair Market Value of a Share on the date
when Shares would otherwise have been issued. If a grantee is entitled to
receive other stock, securities or other property as a result of adjustment,
pursuant to Section 12 hereof, the Committee, in its sole discretion, may
instruct the Company to pay, in lieu of such other stock, securities or other
property, cash equal to the fair market value thereof as determined in good
faith by the Committee.
12. CERTAIN ADJUSTMENTS.
(a) Dividends, Stock Splits, Spin-offs, Conversions, Etc. If, during the
period prior to complete exercise of any Option or Right (as to such Option or
Right) or during the Restricted Period (as to Restricted Stock) or prior to the
issuance and delivery of Shares pursuant to a Bonus Award (as to such Bonus
Award) (such period being referred to herein as the "AWARD PERIOD"), there shall
be declared and paid a stock or property dividend or any other distribution by
way of dividend, stock split (including a reverse stock split), or spin-off with
respect to the Shares, or if the Rainbow Media Group Shares or the Cablevision
NY Group Shares of the Company shall be converted, exchanged, reclassified or
recapitalized, or if the Shares shall be in any way substituted for in a merger
in which the entity surviving such merger or its parent is a public Company,
then:
(i) in the case of an Option or Right, the Option or Right, to
the extent that it has not been exercised, shall entitle the holder
thereof upon the future exercise of the Option or Right to such number
and kind of securities or cash or other property, subject to the terms of
the Option or Right, to which he would have been entitled had he actually
owned the Shares subject to the unexercised portion of the Option or
Right at the time of the occurrence of such dividend, stock split,
spin-off, conversion, exchange, reclassification, recapitalization or
substitution, and the aggregate purchase price upon the future exercise
of the Option or Right shall be the same as if the Shares originally
subject to the Option or Right were being purchased or used to determine
the amount of the payment to which the holder is entitled thereunder;
(ii) in the case of a Restricted Share, the holder of the
Restricted Share shall receive, subject to the provisions of Section
10(c) hereof, the same securities or other property as are received by
the other holders of the Company's Shares pursuant to such dividend,
stock split, spin-off, conversion, exchange, reclassification,
recapitalization or substitution; and
(iii) in the case of a Bonus Award, the Bonus Award shall entitle
the holder thereof upon the future issuance and delivery of Shares
pursuant to a Bonus Award to such number and kind of securities or cash
or other property, subject to the terms of the Bonus Award, to which he
would have been entitled had he actually owned the Shares subject to the
Bonus Award at the time of the occurrence of such dividend, stock split,
spin-off, conversion, exchange, reclassification, recapitalization or
substitution.
(b) Other Events Resulting in Dilution. If, during the Award Period,
there occurs any event as to which the provisions against the effect of dilution
contained in the Plan are not strictly applicable, but the failure to make any
adjustment would not
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fairly protect the rights represented by the Award in accordance with the
essential intent and principles thereof, then, in each such case, the Company
shall appoint a firm of independent certified public accountants of recognized
national standing, which shall give its opinion upon the adjustment, if any, on
a basis consistent with the essential intent and principles established in the
Plan, which they believe is necessary to preserve without dilution, the rights
represented by the Award. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the holder and shall make the adjustment
described therein.
(c) Fractional Shares or Securities. Any fractional shares or securities
payable upon the exercise of the Option or Right or to the holder of a
Restricted Share or pursuant to a Bonus Award as a result of an adjustment
pursuant to this Section 12 shall, at the election of the Committee, be payable
in cash, Shares, or a combination thereof, based upon the fair market value of
such shares or securities at the time of exercise.
13. NO RIGHTS OF A STOCKHOLDER. An Option holder, Rights holder or
grantee of a Bonus Award shall not be deemed to be the holder of, or have any of
the rights of a stockholder with respect to, any Shares subject to such Option,
any related Rights or the Bonus Award unless and until (i) the Option and/or
related Rights shall have been exercised pursuant to the terms thereof or the
Shares subject to the Bonus Award shall have vested, (ii) the Company shall have
issued and delivered Shares to the Option holder or grantee of a Bonus Award,
and (iii) said holder's name shall have been entered as a stockholder of record
on the books of the Company. Thereupon, said holder shall have full voting,
dividend and other ownership rights with respect to such Shares.
The Company will not be obligated to issue or deliver any Shares unless
and until all legal matters in connection with the issuance and delivery of
Shares have been approved by the Company's counsel and the Company's counsel
determines that all applicable federal, state and other laws and regulations
have been complied with and all listing requirements for relevant stock
exchanges have been met.
14. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained herein or in any
Options or Rights Certificate, Restricted Share Agreement or Bonus Award Letter
shall be construed to confer on any employee any right to continue in the employ
of the Company or any Affiliate or derogate from the right of the Company and
any Affiliate to retire, request the resignation of, or discharge such employee,
at any time, with or without cause.
15. ISSUANCE OF SHARES AND COMPLIANCE WITH THE SECURITIES LAWS.
(a) Certain Assurances. Before issuing or delivering any Shares to an
Option holder, or at any time prior to the end of the Restricted Period as to
any Shares, the Company may: (i) require the holder to give satisfactory
assurances that such Shares are being purchased for investment and not with a
view to resale or distribution, and will not be transferred in violation of the
applicable securities laws; (ii) restrict the transferability of such Shares and
require a legend to be endorsed on the certificates representing the Shares; and
(iii) condition the issuance and delivery of such Shares upon the listing,
registration or qualification of such Shares upon a securities exchange or under
applicable securities laws. The Company may also condition the issuance and
delivery of Shares upon compliance with all applicable federal, state and other
laws and regulations, as determined by the Company's counsel.
(b) Registration Rights Incident to Awards. Prior to the issuance of
Shares pursuant to an Award under the Plan, the Company will cause an
appropriate registration statement covering the shares to be issued pursuant to
the Plan to be filed with the Securities and Exchange Commission under the
Securities Act, if required, and, in any event, will cause a registration
statement covering the reoffer and resale of Shares by grantees who may be
deemed to be affiliates of the Company to be so filed, and shall use its best
efforts to cause each such registration statement to become and remain effective
for a period of at least two years from the date such Shares offered for resale
were issued by the Company.
(c) Legended Stock. Each stock certificate representing Restricted Shares
shall contain an appropriate legend referring to the Plan and the Restrictions
upon such Restricted Shares. Simultaneously with delivery of each stock
certificate for Restricted Shares, the Company may cause a stop transfer order
with respect to such certificate to be placed with the transfer agent of the
Shares.
16. WITHHOLDING. If the Company or an Affiliate shall be required to
withhold any amounts by reason of any federal, state or local tax laws, rules or
regulations in respect of the payment of cash or the issuance of Shares pursuant
to the exercise of an Option or Rights, an award of Restricted Stock or a Bonus
Award, the Company or an Affiliate shall be entitled to deduct or withhold such
amounts from any cash payments to be made to the holder. In any event, the
holder shall make available to the
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Company or Affiliate, promptly when requested by the Company or such Affiliate,
sufficient funds to meet the requirements of such withholding and the Company or
Affiliate shall be entitled to take and authorize such steps as it may deem
advisable in order to have such funds made available to the Company or Affiliate
out of any funds or property to become due to the holder.
The holder may elect, subject to the approval of the Committee, to
satisfy the requirements of such tax withholding, in whole or in part, by having
the Company withhold from the Shares which would otherwise be issued to the
holder pursuant to the exercise of an Option or Rights or a Bonus Award, Shares
having a Fair Market Value which is equal to the amount of tax required to be
withheld. The election must be irrevocable and must be made on or before the
date on which the amount of tax to be withheld is determined.
17. NON-TRANSFERABILITY OF AWARDS. Unless the Committee shall permit (on
such terms and conditions as it shall establish) an Award to be transferred to a
member of the Participant's immediate family or to a trust or similar vehicle
for the benefit of such immediate family members (collectively, the "PERMITTED
TRANSFEREES"), no Award shall be assignable or transferable except by will or
the laws of descent and distribution, and except to the extent required by law,
no right or interest of any Participant shall be subject to any lien, obligation
or liability of the Participant. All rights with respect to Awards granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant or, if applicable, the Permitted Transferees.
18. ADMINISTRATION AND AMENDMENT OF THE PLAN. The Board of Directors or
the Committee may discontinue the Plan at any time and from time to time may
amend or revise the terms of the Plan, as permitted by applicable law, except
that it may nor revoke or alter, in any manner unfavorable to the recipient of
an outstanding award under the Plan, any award made under the Plan, without the
consent of the recipient of that award, nor may it amend the Plan without the
approval of the stockholders of the Company if such approval is required by Rule
16b-3 under the Exchange Act for transactions pursuant to the Plan to continue
to be exempt thereunder.
19. EFFECTIVE DATE. This Plan shall become effective upon its adoption by
the Board of Directors or the Committee and shall be submitted to the
stockholders of the Company for their approval. In the event that the Plan is
not approved by stockholders within 12 months of its adoption by the Board of
Directors, the Plan and any awards granted hereunder on or after the date of
adoption by the Board of Directors shall become null and void, notwithstanding
any other provisions of the Plan to the contrary.
20. ASSUMPTION OF OPTIONS. The Committee, in its sole discretion, may,
with the consent of the Option holder, elect to treat as an Option issued under
this Plan (but not as an incentive stock Option, within the meaning of Section
422 of the Internal Revenue Code) an Option to purchase Shares (the "ASSUMED
OPTION") which has been granted by any person other than the Company to a person
who, as of the date such Assumed Option was granted, was an employee of the
Company or an Affiliate. Thereafter, such Assumed Option shall be subject to the
terms and conditions of this Plan except that for determining the exercise price
of such Assumed Option, when and to what extent such Assumed Option may be
exercised and the expiration date of such Assumed Option, the date as of which
such Option was granted by such third party shall be treated as the date of
grant for purposes of the Plan. Subject to the foregoing, to the extent that
there is any conflict between the terms and conditions of this Plan and the
Assumed Option, the terms and conditions of this Plan shall control. The number
of Shares which may be purchased upon the exercise of any Assumed Option shall
reduce, by the same amount, the number of Shares with respect to which Options,
related Rights, Restricted Shares and Bonus Awards remain to be granted under
the Plan pursuant to Section 5 hereof. In exchange for assuming an Option
granted by someone other than the Company, the Company shall receive such
consideration, if any, from such third party which the Committee, in its sole
discretion, deems appropriate.
21. INTERPRETATION. Notwithstanding anything to the contrary in the Plan,
if any award of Restricted Shares or any Bonus Award is intended, at the time of
grant, to be "other performance-based compensation" within the meaning of
Section 162(m)(4)(C) of the Internal Revenue Code, to the extent required to so
qualify any such Award hereunder the Committee shall not be entitled to exercise
any discretion otherwise authorized under the Plan with respect to such Award if
the ability to exercise such discretion (as opposed to the exercise of such
discretion) would cause such Award to fail to qualify as "other
performance-based compensation."
22. FINAL ISSUANCE DATE. No Awards shall be made under this Plan after
February 13, 2006.
III-8
<PAGE> 139
ANNEX IV
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
IV-1
<PAGE> 140
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report........................................................................... IV-3
Consolidated Balance Sheets - December 31, 1999 and 1998............................................... IV-4
Consolidated Statements of Operations - Years
ended December 31, 1999, 1998 and 1997........................................................ IV-6
Consolidated Statements of Stockholders' Deficiency - Years
ended December 31, 1999, 1998 and 1997........................................................ IV-7
Consolidated Statements of Cash Flows - Years ended
December 31, 1999, 1998 and 1997.............................................................. IV-8
Notes to Consolidated Financial Statements............................................................. IV-10
Combined Balance Sheets - March 31, 2000 (unaudited) and December 31, 1999............................. IV-43
Combined Statements of Operations - Three months
ended March 31, 2000 and 1999 (unaudited)........................................................ IV-45
Combined Statements of Cash Flows - Three months
ended March 31, 2000 and 1999 (unaudited)........................................................ IV-46
Notes to Combined Financial Statements (unaudited)..................................................... IV-47
</TABLE>
IV-2
<PAGE> 141
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cablevision Systems Corporation
We have audited the accompanying consolidated balance sheets of Cablevision
Systems Corporation and subsidiaries as of December 31, 1999 and 1998, 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, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cablevision Systems
Corporation and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Melville, New York
March 13, 2000
IV-3
<PAGE> 142
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
1999 1998
---- ----
<S> <C> <C>
Cash and cash equivalents............................................................... $ 62,665 $ 173,826
Accounts receivable trade (less allowance for doubtful accounts of
$35,357 and $34,377)................................................................. 226,304 197,726
Notes and other receivables............................................................. 129,596 188,455
Inventory, prepaid expenses and other assets............................................ 219,487 206,073
Property, plant and equipment, net...................................................... 2,752,495 2,506,834
Investments in affiliates............................................................... 306,557 276,231
Advances to affiliates.................................................................. 46,685 36,964
Feature film inventory.................................................................. 335,826 293,310
Net assets held for sale................................................................ 269,349 11,006
Franchises, net of accumulated amortization of
$703,237 and $640,735................................................................ 651,777 850,653
Affiliation and other agreements, net of accumulated amortization of
$244,249 and $181,928................................................................ 173,250 206,456
Excess costs over fair value of net assets acquired and other intangible assets,
net of accumulated amortization of
$727,134 and $775,557................................................................ 1,816,030 2,003,128
Deferred financing, acquisition and other costs, net of
accumulated amortization of $51,063 and $41,882...................................... 140,287 110,400
------------ ------------
$7,130,308 $7,061,062
========== ==========
</TABLE>
See accompanying notes to
consolidated financial statements.
IV-4
<PAGE> 143
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<S> <C> <C>
Accounts payable................................................................... $ 411,804 $ 423,039
Accrued liabilities:
Interest....................................................................... 117,854 88,798
Employee related costs......................................................... 463,925 330,700
Other.......................................................................... 466,844 465,990
Feature film and contract obligations.............................................. 371,126 373,722
Deferred revenue................................................................... 274,043 334,213
Bank debt.......................................................................... 2,254,487 2,051,549
Senior notes and debentures........................................................ 2,692,602 2,194,443
Subordinated notes and debentures ................................................. 1,048,513 1,048,375
Capital lease obligations and other debt........................................... 99,099 63,241
------------- -------------
Total liabilities.............................................................. 8,200,297 7,374,070
----------- -----------
Minority interests................................................................. 592,583 719,007
------------ ------------
Preferred Stock of CSC Holdings, Inc............................................... 1,404,511 1,579,670
----------- -----------
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, $.01 par value, 10,000,000 shares authorized,
none issued................................................................ - -
Class A Common Stock, $.01 par value, 400,000,000 shares authorized,
130,091,237 and 108,276,606 shares issued.................................. 1,301 1,083
Class B Common Stock, $.01 par value, 160,000,000 shares authorized,
43,126,836 and 43,226,836 shares issued.................................... 431 432
Paid-in capital................................................................ 731,986 386,495
Accumulated deficit............................................................ (3,800,302) (2,999,695)
---------- ----------
(3,066,584) (2,611,685)
Treasury stock, at cost (7,118 shares)......................................... (499) -
----------- ----------
Total stockholders' deficiency................................................. (3,067,083) (2,611,685)
---------- ----------
$ 7,130,308 $ 7,061,062
=========== ============
</TABLE>
See accompanying notes
to consolidated financial statements.
IV-5
<PAGE> 144
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 1998 AND 1997
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Revenues, net (including retail electronics sales of
$603,294, $464,388 and $-0-).................................................. $3,942,985 $3,265,143 $1,949,358
---------- ---------- ----------
Operating expenses:
Technical and operating....................................................... 1,535,423 1,268,786 853,800
Retail electronics cost of sales.............................................. 484,760 367,102 -
Selling, general and administrative........................................... 1,203,119 906,465 514,574
Depreciation and amortization................................................. 893,797 734,107 499,809
------------ ------------ ------------
4,117,099 3,276,460 1,868,183
----------- ----------- -----------
Operating profit (loss).......................................................... (174,114) (11,317) 81,175
------------ ------------ -------------
Other income (expense):
Interest expense.............................................................. (470,549) (426,402) (368,700)
Interest income............................................................... 4,809 24,028 5,492
Equity in net loss of affiliates.............................................. (19,234) (37,368) (27,165)
Gain on sale of programming interests and cable assets, net................... - 170,912 372,053
Gain on redemption of subsidiary preferred stock.............................. - - 181,738
Write off of deferred interest and financing costs............................ (4,425) (23,482) (24,547)
Provision for preferential payment to related party........................... - (980) (10,083)
Minority interests............................................................ (120,524) (124,677) (209,461)
Miscellaneous, net............................................................ (16,570) (19,218) (12,606)
------------ ------------ ------------
(626,493) (437,187) (93,279)
----------- ------------ ------------
Net loss......................................................................... $ (800,607) $ (448,504) $ (12,104)
========== ========== ===========
Basic and diluted net loss per common share...................................... $ (5.12)$ $ (3.16) $ (.12)
========== ========== ===========
Average number of common shares outstanding (in thousands)....................... 156,503 142,016 99,608
========= =========== ===========
</TABLE>
See accompanying notes
to consolidated financial statements.
IV-6
<PAGE> 145
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Class A Class B
Common Common Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996............... $544 $452 $(168,935) $(2,539,087) $ - $(2,707,026)
Net loss............................. - - - (12,104) - (12,104)
Employee stock transactions.......... 8 - 7,608 - - 7,616
Conversion of Class B to Class A..... 8 (8) - - - -
----- ---- --------- ----------- ----------- -----------
Balance December 31, 1997............... 560 444 (161,327) (2,551,191) - (2,711,514)
Net loss............................. - - - (448,504) - (448,504)
Employee stock transactions.......... 12 - 12,071 - - 12,083
Issuance of common stock............. 499 - 535,751 - - 536,250
Conversion of Class B to Class A..... 12 (12) - - - -
----- ---- -------- ----------- ----------- -----------
Balance December 31, 1998............... 1,083 432 386,495 (2,999,695) - (2,611,685)
Net loss............................. - - -- (800,607) - (800,607)
Employee stock transactions.......... 11 - 15,159 - - 15,170
Conversion of Class B to Class A..... 1 (1) - - - -
Issuance of common stock............. 1 - 7,304 - - 7,305
Conversion of CSC Holdings'
Series I preferred to Class A.. 205 - 323,028 - - 323,233
Purchase of treasury stock........... - - - - (499) (499)
----- ----- --------- ----------- ----------- -----------
Balance December 31, 1999............... $1,301 $431 $731,986 $(3,800,302) $(499) $(3,067,083)
====== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes
to consolidated financial statements.
IV-7
<PAGE> 146
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................................... $ (800,607) $(448,504) $ (12,104)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization........................................... 893,797 734,107 499,809
Equity in net loss of affiliates........................................ 19,234 37,368 27,165
Minority interests...................................................... 98,609 95,336 179,237
Gain on sale of programming interests and cable assets, net............. - (170,912) (372,053)
Gain on sale of investments............................................. (10,861) - -
Write off of investment in affiliate.................................... 15,100 - -
Write off of deferred interest and financing costs...................... 4,425 23,482 24,547
Gain on redemption of subsidiary preferred stock........................ - - (181,738)
(Gain) loss on sale of equipment, net................................... 9,811 (604) 5,325
Amortization of deferred financing and debenture discount............... 9,407 8,532 7,707
Change in assets and liabilities, net of effects of acquisitions and
dispositions:
Accounts receivable trade........................................... (31,419) 19,007 (34,268)
Notes and other receivables......................................... 33,961 (94,164) (67,683)
Inventory, prepaid expenses and other assets........................ (23,243) (51,425) 1,232
Advances to affiliates.............................................. (10,461) (21,701) (528)
Feature film inventory.............................................. (42,516) (112,734) (8,269)
Other deferred costs................................................ 955 11,689 -
Accounts payable.................................................... 3,952 133,891 50,667
Accrued liabilities................................................. 165,645 174,557 91,497
Feature film and contract obligations............................... (2,596) 81,376 (258)
Deferred revenue.................................................... (60,170) (18,268) 37,664
Minority interests.................................................. 1,094 (961) (6,486)
---------- ----------- ---------
Net cash provided by operating activities.................................. 274,117 400,072 241,463
--------- ---------- ---------
Cash flows from investing activities:
Capital expenditures......................................................... (871,166) (561,642) (457,590)
Payments for acquisitions, net of cash acquired.............................. (117,660) (317,594) (747,134)
Net proceeds from sale of programming interests and cable assets............. - 446,284 945,534
Proceeds from sale of equipment.............................................. 1,467 8,817 1,930
Proceeds from sale of investments............................................ 10,861 - -
(Increase) decrease in investments in affiliates, net........................ (49,938) (31,035) 9,267
Additions to other intangible assets......................................... (5,076) (13,253) (623)
----------- ---------- ---------
Net cash used in investing activities...................................... $(1,031,512) $(468,423) $(248,616)
----------- --------- ---------
</TABLE>
See accompanying notes
to consolidated financial statements.
IV-8
<PAGE> 147
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from bank debt...................................................... 3,791,073 $ 5,442,101 $ 3,385,703
Repayment of bank debt....................................................... (3,588,135) (6,304,757) (3,147,165)
Proceeds from senior debt.................................................... - - 147,750
Repayment of senior debt..................................................... - (112,500) (433,617)
Repayment of subordinated notes payable...................................... - (151,000) -
Redemption of senior notes payable........................................... - (94,848) -
Redemption of senior subordinated debt....................................... - - (283,445)
Issuance of senior notes and debentures...................................... 497,670 1,296,076 897,983
Redemption of subsidiary preferred stock..................................... (98) (9,409) (112,301)
Issuance of common stock..................................................... 15,170 12,082 7,616
Obligation to related party.................................................. - (197,183) 4,364
Payments on capital lease obligations and other debt......................... (22,036) (12,306) (7,501)
Additions to deferred financing and other costs.............................. (46,911) (36,220) (53,705)
Purchase of treasury stock................................................... (499) - -
---------- ----------- ---------
Net cash provided by (used in) financing activities........................ 646,234 (167,964) 405,682
---------- ----------- ---------
Net increase (decrease) in cash and cash equivalents............................ (111,161) (236,315) 398,529
Cash and cash equivalents at beginning of year.................................. 173,826 410,141 11,612
---------- ----------- ----------
Cash and cash equivalents at end of year........................................ $ 62,665 $ 173,826 $ 410,141
========== =========== ==========
</TABLE>
See accompanying notes
to consolidated financial statements.
IV-9
<PAGE> 148
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and Related Matters
-------------------------------
CSC Parent Corporation ("Parent") was formed on November 21, 1997 as a
wholly-owned subsidiary of Cablevision Systems Corporation ("Cablevision").
Parent did not conduct any business activities prior to March 4, 1998, other
than those incident to its formation and the execution of certain documents in
connection with contributions to Parent of certain partnership interests and
assets of TCI Communications, Inc. (see Note 2).
In connection with the Contribution and Merger Agreement described in Note 2, a
wholly-owned subsidiary of Parent was merged with and into Cablevision and
Cablevision became a wholly-owned subsidiary of Parent (the "Merger"). In the
Merger, each outstanding share of Cablevision Class A Common Stock and
Cablevision Class B Common Stock was converted into one share of Parent Class A
Common Stock and Parent Class B Common Stock, respectively. Subsequent to the
Merger, Cablevision changed its name to CSC Holdings, Inc. ("CSC Holdings") and
Parent changed its name to Cablevision Systems Corporation (the "Company"). The
Merger was accounted for in a manner similar to a pooling of interests, whereby
the assets and liabilities of CSC Holdings have been recorded at historical book
value. Cablevision Systems Corporation's historical financial information
represents the historical financial information of CSC Holdings. References to
the "Company" refer to Cablevision Systems Corporation or CSC Holdings, Inc. as
the context may require.
The Company owns and operates cable television systems and has ownership
interests in companies that produce and distribute national and regional
entertainment and sports programming services, including Madison Square Garden,
L.P. ("MSG"). The Company also owns companies that provide advertising sales
services for the cable television industry, provide switched telephone service,
operate a retail electronics chain and operate motion picture theaters. The
Company classifies its business interests into three segments: Telecommunication
Services, consisting principally of its cable television, telephone and modem
services operations; Rainbow Media, consisting principally of interests in cable
television programming networks and MSG, which owns and operates professional
sports teams, regional cable television networks, live productions and
entertainment venues; and Retail Electronics, which represents the operations of
its retail electronics stores.
Authorized Common Stock
-----------------------
In 1999, the shareholders of the Company authorized an amendment to the
Certificate of Incorporation to increase the number of authorized shares of
Class A Common Stock from 200 million to 400 million and the Class B Common
Stock from 80 million to 160 million.
IV-10
<PAGE> 149
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Two-for-One Stock Splits
------------------------
On March 4, 1998 and July 22, 1998, the Company's Board of Directors declared a
two-for-one stock split to be effected in the form of a common stock dividend of
one share of Class A Common Stock for each share of Class A Common Stock issued
and outstanding and one share of Class B Common Stock for each share of Class B
Common Stock issued and outstanding. The stock dividends were paid on March 30,
1998 and August 21, 1998 to stockholders of record on March 19, 1998 and August
10, 1998, respectively. All share and per share information has been adjusted to
reflect the two-for-one stock splits described above.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. The Company's interests in less
than majority-owned entities and until July 2, 1997, its 100% common stock
interest in A-R Cable Services, Inc., are carried on the equity method.
Subsequent to July 2, 1997, results of operations of A-R Cable Services, Inc.
are consolidated with those of the Company (see Note 2). Advances to affiliates
are recorded at cost, adjusted when recoverability is doubtful. All significant
intercompany transactions and balances are eliminated in consolidation.
Revenue Recognition
-------------------
The Company recognizes cable television, internet access, telephony and
programming revenues as services are provided to subscribers. Advertising
revenues are recognized when commercials are telecast. Revenue from retail
electronic sales is recognized upon delivery, with an appropriate provision for
returned merchandise based upon historical experience. Revenues derived from
other sources are recognized when services are provided or events occur.
Long-Lived Assets
-----------------
Property, plant and equipment, including construction materials, are carried at
cost, which includes all direct costs and certain indirect costs associated with
the construction of cable television transmission and distribution systems, and
the costs of new subscriber installations. Franchises are amortized on the
straight-line basis over the average remaining terms (5 to 12 years) of the
franchises at the time of acquisition. Affiliation and other agreements
(primarily cable television system programming agreements) are amortized on a
straight-line basis over periods ranging from 8 to 10 years. Other intangible
assets are amortized on the straight-line basis over the periods benefited (1 to
15 years), except that excess costs over fair value of net assets acquired are
being
IV-11
<PAGE> 150
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
amortized on the straight-line basis over periods ranging from 6 to 40
years. The Company reviews its long-lived assets (property, plant and equipment,
and related intangible assets that arose from business combinations accounted
for under the purchase method) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of the expected cash flows, undiscounted and without interest, is less than the
carrying amount of the asset, an impairment loss is recognized as the amount by
which the carrying amount of the asset exceeds its fair value.
Feature Film Inventory
----------------------
Rights to feature film inventory acquired under license agreements along with
the related obligations are recorded at the contract value. Costs are charged to
technical and operating expense on a straight-line basis over the respective
contract periods. Amounts payable during the five years subsequent to December
31, 1999 related to feature film telecast rights are $60,310 in 2000, $37,777 in
2001, $35,095 in 2002, $31,791 in 2003, and $26,664 in 2004.
Inventory
---------
Carrying amounts of retail merchandise are determined on an average cost basis
and are stated at the lower of cost or market.
Deferred Financing Costs
------------------------
Costs incurred to obtain debt are deferred and amortized, on a straight-line
basis, over the life of the related debt.
Income Taxes
------------
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
liability method of accounting for deferred income taxes and permits the
recognition of deferred tax assets, subject to an ongoing assessment of
realizability.
Loss Per Share
--------------
Basic and diluted net loss per common share is computed by dividing net loss by
the weighted average number of common shares outstanding. Potential dilutive
common shares of approximately 7,460,000 were not included in the computation as
their effect would be antidilutive. Loss per share amounts have been adjusted,
for all years presented, to reflect the two-for-one stock
IV-12
<PAGE> 151
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
splits of the Company's common stock effective March 30, 1998 and August 21,
1998 (see discussion above).
Segment Information
-------------------
On December 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, 'Disclosures about Segments of an Enterprise and Related
Information' ('SFAS 131'). The new rules establish revised standards for public
companies relating to the reporting of financial and descriptive information
about their operating segments in financial statements. The adoption of SFAS 131
did not have a material effect on the Company's primary financial statements,
but did affect the disclosure of segment information contained elsewhere herein
(see Note 15).
Reclassifications
-----------------
Certain reclassifications have been made in the 1998 and 1997 financial
statements to conform to the 1999 presentation.
Cash Flows
----------
For purposes of the consolidated statements of cash flows, the Company considers
short-term investments with a maturity at date of purchase of three months or
less to be cash equivalents. The Company paid cash interest expense of
approximately $432,086, $383,179 and $352,660 during 1999, 1998 and 1997,
respectively.
During 1999, 1998 and 1997, the Company's noncash investing and financing
activities were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Capital lease obligations......................... $ 57,919 $ 28,795 $ 24,820
Issuance of common stock in connection
with the redemption of CSC Holdings'
preferred stock.............................. 323,233 - -
Issuance of common stock in connection
with acquisitions and redemption
of partnership interests..................... 7,305 536,250 -
Receipt of warrants from At Home
Corporation.................................. - 74,788 173,346
Capital contribution of equipment by
minority partner............................. - - 38,000
</TABLE>
IV-13
<PAGE> 152
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Comprehensive Income
--------------------
The Company has not provided a separate statement of comprehensive income as
items of other comprehensive income for all periods presented were not material.
Use of Estimates in Preparation of Financial Statements
-------------------------------------------------------
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 liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
ACQUISITIONS
1999 Acquisitions
-----------------
At various times during 1999, the Company acquired interests in the real
property and assets specifically related to certain movie theaters for an
aggregate purchase price of approximately $29,700. The acquisitions were
accounted for as purchases with the operations of the acquired theaters being
consolidated with those of the Company as of the acquisition dates. The purchase
price will be allocated to the specific assets acquired when an independent
appraisal is obtained.
In December 1999, the Company acquired cable television systems with
approximately 4,500 subscribers located in the Port Jervis, New York area for
approximately $7,400, $7,300 of which was paid in shares of the Company's Class
A Common Stock.
In April 1999, ITT Corporation ("ITT") exercised its second put for the
remainder of its interest in MSG and settled certain matters between the parties
for a payment of $87,000.
See also "Dispositions" for a discussion of an exchange of cable television
assets.
1998 Acquisitions
-----------------
The WIZ
-------
On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of CSC Holdings, acquired substantially
all of the assets associated with
IV-14
<PAGE> 153
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
40 The WIZ consumer electronics store locations from The Wiz, Inc. and certain
of its subsidiaries and affiliates (collectively, "TWI"). TWI had filed for
bankruptcy protection on December 16, 1997. Cablevision Electronics paid
approximately $101,300 for the assets (including transaction costs and
pre-closing operating costs).
The acquisition was accounted for as a purchase with the operations of the
stores being consolidated with the operations of the Company as of the date of
acquisition. The purchase price was allocated to the specific assets acquired
based upon independent appraisals as follows:
IV-15
<PAGE> 154
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
<TABLE>
<S> <C>
Inventory..................................................... $ 66,200
Property and equipment........................................ 16,800
Other assets.................................................. 4,000
Liabilities................................................... (24,000)
Excess cost over fair value of net assets acquired............ 38,300
----------
$101,300
==========
</TABLE>
In 1999, the Company recorded an impairment loss of $35,490 representing the
balance of unamortized goodwill recorded on the TWI acquisition. Current losses
and projected future operating losses caused the Company to reassess the
recoverability of the goodwill. The impairment loss resulted from the carrying
amount of this asset exceeding its estimated fair value based on discounted
estimated future cash flows.
TCI Systems
-----------
On March 4, 1998, the Company completed a holding company reorganization (the
"Holding Company Reorganization") pursuant to an Amended and Restated
Contribution and Merger Agreement, dated June 6, 1997 (the "Contribution and
Merger Agreement"), by and among the Company, CSC Holdings and TCI
Communications, Inc. ("TCI").
Pursuant to the Contribution and Merger Agreement, TCI caused to be contributed
to the Company or its designees all of the partnership interests and capital
stock of certain entities owned directly or indirectly by TCI and all the assets
related to the businesses of certain cable television systems owned and operated
directly or indirectly by TCI ("TCI Systems"). In consideration for those cable
television systems, the Company issued to certain TCI entities an aggregate of
48,942,172 shares (after adjusting for the March 1998 and August 1998
two-for-one stock splits discussed in Note 1) of the Company's Class A Common
Stock, valued for accounting purposes at approximately $498,000, and assumed
certain liabilities related to such systems (including an aggregate amount of
indebtedness for borrowed money equal to $669,000).
The acquisition was accounted for as a purchase with the operations of the
acquired systems being consolidated with those of the Company as of the
acquisition date. The excess of the purchase price over the net book value of
assets acquired of approximately $746,769 was allocated to the specific assets
acquired based upon independent appraisals as follows:
<TABLE>
<S> <C>
Property, plant and equipment................................. $ (17,133)
Franchises.................................................... 594,921
Excess cost over fair value of net assets acquired............ 168,981
---------
$746,769
========
</TABLE>
IV-16
<PAGE> 155
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In April 1999, the Company contributed the TCI Systems to CSC Holdings.
Madison Square Garden
---------------------
In June 1998, the Company purchased 50% of ITT's then remaining interest in MSG
for $94,000 pursuant to ITT's exercise of its first put option, increasing
Regional Programming Partners' interest in MSG to 96.3% (see discussion below
and "1999 Acquisitions" above).
Clearview
---------
In December 1998, the Company acquired all of the outstanding shares of stock of
Clearview Cinema Group, Inc. ("Clearview") for approximately $158,700 (including
assumed debt of $80,000) of which approximately $33,400 was paid in shares of
the Company's Class A Common Stock.
The acquisition was accounted for as a purchase with the operations of the
acquired business being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows.
<TABLE>
<S> <C>
Property, plant and equipment................................. $ 34,787
Other assets.................................................. 21,518
Liabilities................................................... (16,433)
Excess cost over fair value of net assets acquired............ 118,851
---------
$158,723
========
</TABLE>
In April 1999, the Company contributed its interest in the subsidiary formed to
purchase Clearview to CSC Holdings.
Loews
In December 1998, the Company acquired interests in the real property and assets
specifically related to 15 movie theaters from Loews Cineplex Entertainment
Corporation ("Loews") for an aggregate purchase price of approximately $67,300.
The acquisition was accounted for as a purchase with the operations of the
acquired assets being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows:
<TABLE>
<S> <C>
Property and equipment........................................ $ 9,700
Other assets.................................................. 2,200
Excess cost over fair value of net assets acquired............ 55,400
--------
$67,300
=======
</TABLE>
IV-17
<PAGE> 156
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
1997 Acquisitions:
------------------
NBC Transaction
---------------
On April 1, 1997, Rainbow Media Holdings, Inc. ("Rainbow Media") consummated a
transaction in which Rainbow Programming Holdings, Inc. merged with and into
Rainbow Media, a newly formed subsidiary of the Company. In addition, NBC Cable,
Inc. (a subsidiary of National Broadcasting Company ("NBC")) received a 25%
equity interest (which interest was increased to 26% in February 2000 and may be
further increased by up to an additional 1% under certain circumstances without
additional cash payment) in common stock of Rainbow Media. The Company owns the
remaining 74% equity interest in Rainbow Media. The partnership interests in
certain of Rainbow Media's programming services formerly owned by NBC are now
owned by subsidiaries of Rainbow Media. The exchange of 25% of the Company's
interest in Rainbow Media for NBC's interests, in April 1997, in certain
entities was accounted for at historical cost with the difference between the
cost basis of a 25% interest in Rainbow Media and the partnership interests
received in exchange recorded as goodwill of $54,385, which is being amortized
over a 10 year period.
Madison Square Garden
---------------------
In February 1997, Rainbow Media made a payment to ITT of $168,750 plus interest,
fully equalizing its interest in MSG, a partnership among subsidiaries of
Rainbow Media and subsidiaries of ITT, and bringing Rainbow Media's total
payments at that time to $360,000, plus interest payments aggregating $47,700.
In April 1997, the Company and certain of its affiliates and ITT and certain of
its affiliates entered into definitive agreements relating to the acquisition by
subsidiaries of the Company of ITT's 50 percent interest in MSG. The transaction
closed on June 17, 1997 when MSG borrowed $799,000 under its credit facility
which was used to redeem a portion of ITT's interest in MSG for $500,000 and to
repay its existing indebtedness. Rainbow Media contributed its SportsChannel
Associates programming company to MSG, which, together with the redemption,
increased Rainbow Media's interest in MSG to 89.8% and reduced ITT's interest to
10.2%. In connection with the Fox transaction discussed below, Rainbow Media's
interest in MSG was contributed to Regional Programming Partners. ITT's interest
in MSG was further reduced to 7.8% as a result of the $450,000 capital
contribution by Regional Programming Partners to MSG which was used by MSG to
pay down outstanding debt. See "1998 Acquisitions" and "1999 Acquisitions" above
for a discussion of the Company's purchase of the remaining interest in MSG. The
acquisition was accounted for using the purchase method of accounting. The
assets and liabilities and results of operations of MSG have been consolidated
with those of the Company as of June 17, 1997. Previously, the Company's
investment in MSG was accounted for using the equity method of
IV-18
<PAGE> 157
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
accounting. The excess of the purchase price over the net book value of assets
acquired of approximately $397,093 was allocated to the specific assets acquired
based upon independent appraisals as follows:
<TABLE>
<S> <C>
Property, plant and equipment................................. $ 19,687
Affiliation and other agreements.............................. 34,168
Franchises.................................................... 46,125
Excess cost over fair value of net assets acquired............ 297,113
---------
$397,093
========
</TABLE>
In connection with the Company and ITT's acquisition of MSG in 1995, certain
liabilities relating to a long-term sports rights contract were recorded. In
1999, 1998 and 1997, approximately $23,000, $21,900 and $21,700, respectively,
of this liability was amortized to reduce operating expenses in respect of those
rights.
Warburg Transactions
--------------------
In June 1997, the Company acquired from Warburg Pincus Investors, L.P.
("Warburg") the interests that the Company did not already own in A-R Cable
Partners ("Nashoba") and Cablevision of Framingham Holdings, Inc. ("CFHI") for a
purchase price of approximately $33,348 and $7,865, respectively. The
acquisitions of Nashoba and CFHI were accounted for as purchases with the
operations of these companies being consolidated with those of the Company as of
the acquisition date. The excess of the purchase price over the net book value
of assets acquired approximates $97,015 and has been allocated based upon
independent appraisals as follows:
<TABLE>
<S> <C>
Property, plant and equipment................................. $ 4,060
Franchises.................................................... 59,923
Excess cost over fair value of net assets acquired............ 33,032
--------
$97,015
=======
</TABLE>
On July 2, 1997, the Company redeemed from Warburg the Series A Preferred Stock
of A-R Cable Services, Inc. ("A-R Cable") for an aggregate amount of
approximately $112,301. The assets and liabilities of A-R Cable have been
consolidated with those of the Company as of July 2, 1997. Previously, the
Company's investment in A-R Cable was accounted for using the equity method of
accounting. In connection with this transaction, the Company recognized a gain
of $181,738 representing principally the reversal of accrued preferred dividends
in excess of amounts paid.
Radio City
----------
On December 5, 1997, MSG purchased all of the membership interests in Radio City
Productions, LLC ("Radio City"), the production company that operates Radio City
Music Hall in New York City, for approximately $70,000 in cash. Simultaneously,
Radio City entered into a 25-year lease
IV-19
<PAGE> 158
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
for Radio City Music Hall. The assets and liabilities and results of operations
of Radio City have been consolidated with those of the Company as of the date of
acquisition. The excess of the purchase price over the net book value of assets
acquired of approximately $76,200 was allocated to the specific assets acquired
based upon independent appraisals as follows:
<TABLE>
<S> <C>
Property, plant and equipment................................. $ 1,500
Capital lease obligation...................................... (80,000)
Other liabilities............................................. (13,400)
Excess cost over fair value of net assets acquired............ 168,100
---------
$ 76,200
=========
</TABLE>
DISPOSITIONS
Cable Systems
-------------
In October 1998, A-R Cable transferred its cable television system in
Rensselaer, New York plus approximately $16,000 in cash to Time Warner
Entertainment Company, L.P. ("Time Warner") in exchange for Time Warner's
Litchfield, Connecticut system. The Company recognized a gain of approximately
$15,500 in connection with this transaction.
In 1998 and 1997, the Company completed the sale of cable television systems for
aggregate sales prices of approximately $426,500 and $88,200, respectively, and
recognized aggregate gains of approximately $137,700 and $59,000, respectively.
Regional Programming Partners
-----------------------------
In December 1997, Rainbow Media and Fox Sports Networks, LLC ("Fox") organized
Regional Programming Partners (a partnership that owns MSG and interests in
regional sports programming businesses previously owned by Rainbow Media)
("RPP"). In connection with the formation of RPP, affiliates of Rainbow Media
indirectly contributed to RPP in consideration for the issuance of a 60% general
partnership interest in RPP their ownership interests in several regional sports
networks, including their interest in MSG. In consideration for the issuance of
a 40% general partnership interest in RPP, Fox contributed $850,000 in cash to
RPP. Thereafter, RPP made a capital contribution of approximately $450,000 to
MSG which was used by MSG to repay a portion of MSG's debt. As a result of RPP's
investment in MSG, RPP's interest in MSG increased from 89.8% to 92.2%. In
connection with this transaction, Rainbow Media recognized a gain of
approximately $305,000. See discussions above under "1998 Acquisitions" and
"1999 Acquisitions" for further increases in RPP's interest in MSG.
Other
-----
In 1998 and 1997, RPP and Rainbow Media completed the sale of an interest in a
sports programming business and substantially all of the assets of a radio
station. In connection with these sales, RPP and Rainbow Media recognized gains
of $17,700 and $7,400, respectively.
IV-20
<PAGE> 159
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
A-R CABLE RESTRUCTURING
In 1992, the Company and A-R Cable consummated a restructuring and refinancing
transaction (the "A-R Cable Restructuring"). Among other things, this
transaction involved an additional $45,000 investment in A-R Cable by the
Company to purchase a new Series B Preferred Stock and the purchase of a new
Series A Preferred Stock in A-R Cable by Warburg for $105,000. As a result of
the A-R Cable Restructuring, the Company no longer had financial or voting
control over A-R Cable's operations. Prior to the redemption of A-R Cable's
Series A Preferred Stock on July 2, 1997 (see discussion above), the Company
accounted for its investment in A-R Cable using the equity method of accounting
whereby the Company recorded 100% of the net losses of A-R Cable since it
continued to own 100% of A-R Cable's outstanding common stock.
Included in equity in net loss of affiliates in the accompanying consolidated
statements of operations for the period ended July 1, 1997 is $35,835,
representing A-R Cable's net loss plus dividend requirements for the Series A
Preferred Stock of A-R Cable, which was not owned by the Company. Beginning on
July 2, 1997, the operations of A-R Cable have been consolidated with those of
the Company.
Pro Forma Results of Operations
-------------------------------
The following unaudited pro forma condensed results of operations are presented
for the year ended December 31, 1998 as if the acquisition of the TCI Systems
and the sale of assets of certain cable systems had occurred on January 1, 1998.
Results of operations for acquisitions made in 1999 are not material.
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
<S> <C>
Net revenues............................ $3,329,627
==========
Net loss................................ $ (520,968)
===========
Net loss per common share............... $ (3.47)
===============
</TABLE>
The pro forma information presented above gives effect to certain adjustments,
including the amortization of acquired intangible assets and increased interest
expense on acquisition debt. The pro forma information has been prepared for
comparative purposes only and does not purport to indicate the results of
operations which would actually have occurred had the transactions been made at
the beginning of the periods indicated or which may occur in the future.
IV-21
<PAGE> 160
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 3. NET ASSETS HELD FOR SALE
The Company had entered into definitive agreements covering the sale of certain
cable television systems as of December 31, 1999 and 1998.
In December 1999, the Company entered into definitive agreements with Adelphia
Communications Corporation ("Adelphia") under which the Company will sell its
cable television systems in the Greater Cleveland metropolitan area to Adelphia
for total cash and stock consideration of $1,530,000, subject to certain
adjustments.
In January 1998, the Company, CSC Holdings and a subsidiary of TCI entered into
a non-binding letter of intent for the Company to acquire certain of TCI's cable
television systems in exchange for cash, stock and certain cable systems
including those serving Kalamazoo, Michigan. This non-binding letter of intent
is no longer in effect. In March 2000, the Company entered into an agreement to
sell its cable system serving Kalamazoo, Michigan to Charter Communications,
Inc. for total consideration of $172,500 in Charter Communications, Inc. common
stock.
For financial reporting purposes, the assets and liabilities attributable to
cable systems whose sale or transfer was pending at December 31, 1999 and 1998
have been classified in the consolidated balance sheet as net assets held for
sale and are included in the telecommunications segment (see Note 15). Such net
assets consist of the following:
<TABLE>
<CAPTION>
December, 31
-------------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Property, plant and equipment, net.................. $222,695 $ 14,548
Intangible assets, net.............................. 73,055 215
Other assets (including trade
receivables, prepaid expenses, etc.)........... 9,796 603
----------- ------------
Total assets........................................ 305,546 15,366
Total liabilities................................... (36,197) (4,360)
---------- -----------
Net assets.......................................... $269,349 $ 11,006
======== =========
</TABLE>
The accompanying consolidated statement of operations for the years ended
December 31, 1999 and 1998 includes net revenues aggregating approximately
$177,904 and $18,937, respectively, and net income (loss) aggregating
approximately $(4,109) and $9,095, respectively, relating to the cable systems
held for sale or transfer.
IV-22
<PAGE> 161
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following assets, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
<TABLE>
<CAPTION>
December 31, Estimated
1999 1998 Useful Lives
------------ -------------- ------------
<S> <C> <C> <C>
Communication transmission and distribution systems:
Customer equipment............................... $ 600,271 $ 615,867 3 to 8 years
Headends......................................... 118,311 125,013 7 to 15 years
Multimedia....................................... 18,732 9,075 4 years
Central office equipment......................... 132,191 87,208 10 years
Infrastructure................................... 2,189,863 2,189,625 5 to 12 years
Program, service and data processing equipment... 571,773 380,350 2 to 9 years
Microwave equipment.............................. 21,881 16,947 2 to 9 years
Construction in progress (including
materials and supplies)........................ 227,991 133,848 -
Furniture and fixtures............................... 230,742 195,660 1 to 8 years
Transportation equipment............................. 143,511 131,476 4 to 15 years
Building and building improvements................... 185,118 171,567 20 to 40 years
Leasehold improvements............................... 276,015 140,766 Term of lease
Land and land improvements........................... 47,914 45,573 -
----------- -----------
4,764,313 4,242,975
Less accumulated depreciation and amortization....... 2,011,818 1,736,141
----------- -----------
$2,752,495 $2,506,834
========== ==========
</TABLE>
NOTE 5. DEBT
Bank Debt
---------
Restricted Group/TCI Systems
----------------------------
For financing purposes, CSC Holdings, Inc. and certain of its subsidiaries are
collectively referred to as the "Restricted Group". In May 1998, CSC Holdings
and certain other subsidiaries of the Company entered into a new $2.8 billion
reducing revolving credit facility (the "Credit Agreement") with a group of
banks led by Toronto-Dominion (Texas), Inc. ("Toronto-Dominion"), as
administrative and arranging agent. This Credit Agreement replaced a $1.7
billion facility that was also with a group of banks led by Toronto-Dominion.
The $2.8 billion reducing revolving credit facility, maturing in March 2007,
consisted of a $1.4 billion CSC Holdings credit facility, a $1.4 billion MFR
credit facility of which $600,000 was available, and an $800,000 credit facility
for the TCI Systems. While the $800,000 TCI Systems credit facility was in
place, only $600,000 of the $1.4 billion MFR facility could be utilized.
IV-23
<PAGE> 162
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In July 1998, CSC Holdings' credit facility was reduced by $400,000 to $1.0
billion, and the MFR credit facility was reduced by $200,000 to $1.2 billion,
which included a reduction of the TCI Systems credit facility by $100,000 to
$700,000.
The TCI Systems credit facility matured on April 4, 1999 and concurrent with the
transfer of the TCI Systems to CSC Holdings, which occurred on April 5, 1999,
the restriction on the MFR credit facility was eliminated and the borrowings
under the MFR facility increased by an amount equal to the borrowings
outstanding under the TCI Systems credit facility.
The total amount of bank debt outstanding under the Credit Agreement, including
amounts outstanding under a separate overdraft facility at December 31, 1999 and
1998 was $1,454,206 and $1,410,226, respectively. At December 31, 1999, $613,000
and $828,500 was outstanding under the CSC Holdings facility and the MFR credit
facility, respectively. As of December 31, 1999, approximately $39,274 was
restricted for certain letters of credit issued on behalf of CSC Holdings.
Unrestricted and undrawn funds available to the Restricted Group under the
Credit Agreement amounted to approximately $719,226 at December 31, 1999. The
Credit Agreement contains certain financial covenants that may limit the
Restricted Group's ability to utilize all of the undrawn funds available
thereunder. The Credit Agreement contains various restrictive covenants, among
which are the maintenance of various financial ratios and tests, and limitations
on various payments, including preferred dividends and dividends on its common
stock. The Company was in compliance with the covenants of its Credit Agreement
at December 31, 1999.
Interest on outstanding amounts may be paid, at the option of the Company, based
on the prime rate or Eurodollar rate. As of December 31, 1999, CSC Holdings had
outstanding interest exchange (swap) agreements with several of its banks with a
total notional value of $300,000. Swaps with an aggregate notional amount of
$250,000 require CSC Holdings to pay a floating rate of interest based on LIBOR
in exchange for fixed rate payments ranging from 6.125% to 6.76% and have a
maturity of 18 to 31 months. The remainder of the swaps require payment of a
fixed rate of interest by CSC Holdings in exchange for floating rate payments
and have a maturity of 6 months. CSC Holdings enters into interest rate swap
agreements to hedge against interest rate risk and accounts for these agreements
as hedges whereby interest expense is recorded using the revised rate with any
fees or other payments amortized as yield adjustments. The Company is exposed to
credit loss in the event of nonperformance by the other parties to the interest
rate swap agreements; however, the Company does not anticipate nonperformance by
the counterparties.
The weighted average interest rate on all bank indebtedness was 7.11% and 6.48%
on December 31, 1999 and 1998, respectively. The Company is also obligated to
pay fees from .1875% to .25% per annum on the unused loan commitment and from
.4% to 2.0% per annum on letters of credit issued under the Credit Agreement.
IV-24
<PAGE> 163
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Unrestricted Group
------------------
Rainbow Media
-------------
Rainbow Media has a $300,000, three year credit facility with Canadian Imperial
Bank of Commerce and Toronto-Dominion as co-agents and a group of banks which
matures on December 31, 2000. The credit facility contains certain financial
covenants that may limit Rainbow Media's ability to utilize all the undrawn
funds available thereunder, including covenants requiring it to maintain certain
financial ratios. The facility bears interest at varying rates above the lead
bank's base or Eurodollar rate depending on the ratio of debt to borrower value,
as defined in the credit agreement. The loan is secured by a pledge of the
Company's stock in Rainbow Media, a pledge of all of the stock of all
wholly-owned subsidiaries of Rainbow Media and is guaranteed by the subsidiaries
of Rainbow Media, as permitted.
At December 31, 1999 and 1998, Rainbow Media had outstanding borrowings under
its credit facility including amounts outstanding under a separate overdraft
facility of $52,317 and $71,241, respectively. Undrawn funds available to
Rainbow Media under the credit facility amounted to approximately $51,000 at
December 31, 1999.
The weighted average interest rate on Rainbow Media's bank debt was 8.9% and
7.7% on December 31, 1999 and 1998, respectively. The credit agreement contains
various restrictive covenants with which Rainbow Media was in compliance at
December 31, 1999.
American Movie Classics Company
-------------------------------
On May 12, 1999, American Movie Classics Company ("AMC"), a wholly-owned
subsidiary of Rainbow Media, entered into a new $425,000 credit facility
consisting of a $200,000 reducing revolving credit facility and a $225,000
amortizing term loan, both of which mature on March 31, 2006 ("AMC Credit
Facility"). The amount of the available commitment under the revolver will not
begin to be reduced until June 2004. Borrowings under the AMC Credit Facility
bear interest at varying rates at or above the lead bank's base lending rate or
above the Eurodollar rate depending on the ratio of debt to cash flow, as
defined in the AMC Credit Facility. At December 31, 1999, the weighted average
interest rate on bank indebtedness was 7.6%. On May 12, 1999, AMC distributed to
Rainbow Media, approximately $97,000, which Rainbow Media used to repay
outstanding borrowings plus interest and fees under its credit facility. As of
December 31, 1999, AMC had outstanding borrowings of $309,456 (including amounts
outstanding under a separate overdraft facility), leaving unrestricted funds
available of $117,000.
Prior to May 12, 1999, AMC's credit facility was comprised of a $146,000 term
loan and a $100,000 revolving loan ("AMC Loan Agreement"). Borrowings under the
AMC Loan Agreement
IV-25
<PAGE> 164
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
bore interest at varying rates above or at the lead bank's base or above the
Eurodollar rate depending on the ratio of debt to cash flow, as defined in the
AMC Loan Agreement. At December 31, 1998, the weighted average interest rate on
bank indebtedness was 6.1%. On December 31, 1998, $128,000 was outstanding under
the term loan, $64,250 was outstanding under the revolving loan and $3,290 was
outstanding under a separate overdraft facility.
Substantially all of the assets of AMC, amounting to approximately $320,192 at
December 31, 1999, have been pledged to secure the borrowings under the AMC
Credit Facility. The AMC Credit Facility contains various restrictive covenants
with which AMC was in compliance at December 31, 1999.
Madison Square Garden
---------------------
MSG has a $500,000 credit facility (the "MSG Credit Facility") with a group of
banks led by Chase Manhattan Bank, as agent, which expires on December 31, 2004.
Loans under the MSG Credit Facility bear interest at current market rates plus a
margin based upon MSG's consolidated leverage ratio. At December 31, 1999 and
1998, loans outstanding amounted to $335,000 and $310,000, respectively, and
bore interest at a weighted average rate of 7.0% and 6.038%, respectively. The
MSG Credit Facility contains certain financial covenants with which MSG was in
compliance at December 31, 1999. The MSG Credit Facility also contains certain
financial covenants that may limit MSG's ability to utilize all of the undrawn
funds available thereunder.
In July 1997, a wholly-owned subsidiary of MSG borrowed $20,000 under promissory
notes with various lending institutions which bear interest at LIBOR plus a
margin (8.19% and 7.22% at December 31, 1999 and 1998, respectively) and mature
in July 2002.
Cablevision Electronics
-----------------------
In February 1998, Cablevision Electronics entered into a three year $130,000
revolving credit facility maturing on February 9, 2001. Under the terms of the
credit facility, the total amount of borrowings available to Cablevision
Electronics is subject to an availability calculation based on a percentage of
eligible inventory. The total amount outstanding under the credit agreement at
December 31, 1999 and 1998 was approximately $73,817 and $44,542, respectively,
and bore interest at 7.8% and 7.2%, respectively. As of December 31, 1999,
$26,874 was restricted for certain letters of credit issued on behalf of
Cablevision Electronics. Unrestricted and undrawn funds available amounted to
$29,309 on December 31, 1999 based on the level of inventory as of that date.
Borrowings under the credit agreement are secured by Cablevision Electronics'
assets. The credit agreement contains various restrictive covenants with which
Cablevision Electronics was in compliance at December 31, 1999.
IV-26
<PAGE> 165
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
CCG Holdings, Inc.
------------------
CCG Holdings, Inc. has a $15,000 revolving credit bank facility maturing on June
30, 2003. As of December 31, 1999, there was $9,691 outstanding under this bank
facility, leaving undrawn funds available of $5,309. There were no outstanding
borrowings under this bank facility as of December 31, 1998.
Senior Notes and Debentures
---------------------------
In July 1999, CSC Holdings issued $500,000 face amount ($497,786 amortized
amount at December 31, 1999) of 8-1/8% Senior Notes due 2009. The net proceeds
were used to reduce bank borrowings. The notes are not redeemable by CSC
Holdings prior to maturity.
In December 1998, the Company redeemed Clearview's 10-7/8% Senior Notes for
approximately $94,800 in cash. This payment included a premium of $11,200, a
consent fee of $3,600 and accrued interest of $48.
In July 1998, CSC Holdings issued $500,000 principal amount of 7-1/4% Senior
Notes due 2008 (the "2008 Notes") and $500,000 principal amount ($499,541 and
$499,516 amortized amount at December 31, 1999 and 1998, respectively) of 7-5/8%
Senior Debentures due 2018 (the "Debentures"). The Debentures were issued at a
discount of $495. The 2008 Notes and Debentures are not redeemable by CSC
Holdings prior to maturity.
In February 1998, CSC Holdings issued $300,000 principal amount ($296,893 and
$296,721 amortized amount at December 31, 1999 and 1998, respectively) of 7-7/8%
Senior Debentures due 2018 (the "2018 Debentures"). The 2018 Debentures were
issued at a discount of $3,429. The 2018 Debentures are not redeemable by CSC
Holdings prior to maturity.
In December 1997, CSC Holdings issued $500,000 principal amount ($499,584 and
$499,532 amortized amount at December 31, 1999 and 1998, respectively) of 7-7/8%
Senior Notes due 2007 (the "2007 Notes"). The 2007 Notes were issued at a
discount of $525. The 2007 Notes are not redeemable by CSC Holdings prior to
maturity.
In August 1997, CSC Holdings issued $400,000 principal amount ($398,798 and
$398,674 amortized amount at December 31, 1999 and 1998, respectively) of 8-
1/8% Senior Debentures due 2009 (the "2009 Notes"). The 2009 Notes were issued
at a discount of $1,492. The 2009 Notes are not redeemable by CSC Holdings
prior to maturity.
The indentures under which the senior notes and debentures were issued contain
various convenants, which are generally less restrictive than those contained in
the Company's Credit Agreement, with which the Company was in compliance at
December 31, 1999.
IV-27
<PAGE> 166
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Subordinated Notes and Debentures
---------------------------------
In May 1996, CSC Holdings issued $150,000 principal amount ($149,558 and
$149,545 amortized amount at December 31, 1999 and 1998, respectively) of 9-7/8%
Senior Subordinated Notes due 2006 (the "2006 Notes") and $250,000 principal
amount of 10-1/2% Senior Subordinated Debentures due 2016 (the "2016
Debentures"). The 2006 Notes are redeemable at CSC Holdings' option, in whole or
in part, on May 15, 2001, May 15, 2002 and May 15, 2003 at the redemption price
of 104.938%, 103.292% and 101.646%, respectively, of the principal amount and
thereafter at 100% of the aggregate principal amount, in each case together with
accrued interest to the redemption date. The 2016 Debentures are redeemable at
CSC Holdings' option, in whole or in part, on May 15, 2006, May 15, 2007, May
15, 2008, and May 15, 2009, at the redemption price of 105.25%, 103.938%,
102.625%, and 101.313%, respectively, of the principal amount and thereafter at
100% of the aggregate principal amount, in each case together with accrued
interest to the redemption date.
In November 1995, CSC Holdings issued $300,000 principal amount of 9-1/4% Senior
Subordinated Notes due 2005 (the "2005 Notes"). The 2005 Notes are redeemable at
CSC Holdings' option, in whole or in part, on November 1, 2000, November 1, 2001
and November 1, 2002 at the redemption price of 104.625%, 103.1% and 101.5%,
respectively, of the principal amount and thereafter at 100% of the principal
amount, in each case together with accrued interest to the redemption date.
In February 1993, CSC Holdings issued $200,000 face amount ($199,180 and
$199,117 amortized amount at December 31, 1999 and 1998, respectively) of its
9-7/8% Senior Subordinated Debentures due 2013 (the "2013 Debentures"). The 2013
Debentures are redeemable, at CSC Holdings' option, on February 15, 2003,
February 15, 2004, February 15, 2005, and February 15, 2006 at the redemption
price of 104.80%, 103.60%, 102.40%, and 101.20%, respectively, of the principal
amount and thereafter at the redemption price of 100% of the principal amount,
in each case together with accrued interest to the redemption date.
Also in 1993, CSC Holdings issued $150,000 face amount ($149,775 and $149,713
amortized amount at December 31, 1999 and 1998, respectively) of its 9-7/8%
Senior Subordinated Debentures due 2023 (the "2023 Debentures"). The 2023
Debentures are redeemable, at CSC Holdings' option, on and after April 1, 2003
at the redemption price of 104.938% reducing ratably to 100% of the principal
amount on and after April 1, 2010, in each case together with accrued interest
to the redemption date.
The indentures under which the subordinated notes and debentures were issued
contain various covenants, which are generally less restrictive than those
contained in the Company's Credit Agreement and with which the Company was in
compliance at December 31, 1999.
IV-28
<PAGE> 167
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Summary of Five Year Debt Maturities
------------------------------------
Total amounts payable by the Company and its subsidiaries under its various debt
obligations, including capital leases, during the five years subsequent to
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $91,000
2001 124,000
2002 61,000
2003 54,000
2004 632,000
</TABLE>
NOTE 6. PREFERRED STOCK OF CSC HOLDINGS, INC.
The following summarizes the changes in each series of CSC Holdings' preferred
stock:
<TABLE>
<CAPTION>
Series I Preferred Series M Preferred Series H Preferred Total
Shares Balance Shares Balance Shares Balance Balance
------ ------- ------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996 .... 13,800,000 $ 323,331 7,157,585 $ 715,759 2,895,063 $ 289,506 $ 1,328,596
Dividends paid in
additional shares -- -- 830,018 83,001 355,415 35,542 118,543
----------- ----------- ----------- ----------- ----------- ----------- -----------
December 31, 1997 .... 13,800,000 323,331 7,987,603 798,760 3,250,478 325,048 1,447,139
Dividends paid in
additional shares -- -- 926,260 92,626 399,050 39,905 132,531
----------- ----------- ----------- ----------- ----------- ----------- -----------
December 31, 1998 .... 13,800,000 323,331 8,913,863 891,386 3,649,528 364,953 1,579,670
Dividend paid in
additional shares -- -- 1,033,678 103,368 448,042 44,804 148,172
Redemption ........... (13,800,000) (323,331) -- -- -- -- (323,331)
----------- ----------- ----------- ----------- ----------- ----------- -----------
December 31, 1999 .... -- $ -- 9,947,541 $ 994,754 4,097,570 $ 409,757 $ 1,404,511
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
In September 1999, CSC Holdings exercised its right to redeem all of its
outstanding shares of 8 1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock ("Series I Preferred"). The redemption occurred on November 2,
1999, at a price equal to 102.8% of the liquidation preference, plus accrued
dividends. Investors held the Series I Preferred through interests in depositary
shares (each of which represented a 1/10th interest in a share of the Series I
Preferred) which were redeemable simultaneously. Each depositary share was
convertible into approximately 1.4828 shares of the Company's Class A Common
Stock. As of December 31, 1999, 13,797,625 depositary shares out of 13,800,000
depositary shares outstanding had been converted into 20,458,925 shares of the
Company's Class A Common Stock, with the remaining 2,375 depositary shares being
redeemed for cash. CSC Holdings paid a cash dividend on the Series I Preferred
of approximately $21,898 in 1999 and $29,325 in each of 1998 and 1997.
IV-29
<PAGE> 168
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In February 1996, CSC Holdings issued 6,500,000 depositary shares, representing
65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the
"Series L Preferred Stock"), which were subsequently exchanged for Series M
Redeemable Exchangeable Preferred Stock (the "Series M Preferred Stock") in
August 1996 with terms identical to the Series L Preferred Stock. The depositary
shares are exchangeable, in whole but not in part, at the option of CSC
Holdings, for CSC Holdings' 11-1/8% Senior Subordinated Debentures due 2008. CSC
Holdings is required to redeem the Series M Preferred Stock on April 1, 2008 at
a redemption price equal to the liquidation preference of $10,000 per share plus
accumulated and unpaid dividends. The Series M Preferred Stock is redeemable at
various redemption prices beginning at 105.563% at any time on or after April 1,
2003, at the option of CSC Holdings, with accumulated and unpaid dividends
thereon to the date of redemption. Before April 1, 2001, dividends may, at the
option of CSC Holdings, be paid in cash or by issuing fully paid and
nonassessable shares of Series M Preferred Stock with an aggregate liquidation
preference equal to the amount of such dividends. On and after April 1, 2001,
dividends must be paid in cash.
In September 1995, CSC Holdings issued 2,500,000 shares of its $.01 par value
11-3/4% Series H Redeemable Exchangeable Preferred Stock (the "Series H
Preferred Stock") with an aggregate liquidation preference of $100 per share.
CSC Holdings is required to redeem the Series H Preferred Stock on October 1,
2007 at a redemption price per share equal to the liquidation preference of $100
per share, plus accrued and unpaid dividends thereon. Before October 1, 2000,
dividends may, at the option of CSC Holdings, be paid in cash or by issuing
fully paid and nonassessable shares of Series H Preferred Stock with an
aggregate liquidation preference equal to the amount of such dividends. On and
after October 1, 2000, dividends must be paid in cash. The terms of the Series H
Preferred Stock permit CSC Holdings, at its option, to exchange the Series H
Preferred Stock for CSC Holdings' 11-3/4% Senior Subordinated Debentures due
2007 in an aggregate principal amount equal to the aggregate liquidation
preference of the shares of Series H Preferred Stock.
Preferred stock dividend requirements of CSC Holdings are included in minority
interests in the accompanying consolidated statements of operations.
NOTE 7. INCOME TAXES
The Company and certain of its subsidiaries file consolidated income tax
returns. Effective April 1, 1997, as a result of the transaction described in
Note 2, Rainbow Media files a separate consolidated federal income tax return
with its subsidiaries. At December 31, 1999, the Company had consolidated net
operating loss carry forwards of approximately $1,250,000 and Rainbow Media had
consolidated federal net operating loss carry forwards of approximately $570,000
expiring on various dates through 2019. As a result of a Holding Company
Reorganization and the 1997 change in Rainbow Media's ownership described in
Note 2, Rainbow Media's loss carry
IV-30
<PAGE> 169
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
forwards may be subject to annual limitations on deductions. The Company's net
operating loss carry forwards reflect approximately $50,000 in stock expense
which would result in an adjustment to paid-in capital upon realization of such
net operating loss carry forward.
The tax effects of temporary differences which give rise to significant portions
of deferred tax assets or liabilities and the corresponding valuation allowance
at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred Asset (Liability)
Depreciation and amortization ..... $ (54,085) $(182,226)
Receivables from affiliates ....... 27,476 23,406
Benefit plans ..................... 120,847 108,495
Allowance for doubtful accounts ... 10,526 7,016
Deferred gain ..................... (185,287) (130,650)
Benefits of tax loss carry forwards 764,625 596,175
Other ............................. -- (50)
--------- ---------
Net deferred tax assets .. 684,102 422,166
Valuation allowance ............... (684,102) (422,166)
--------- ---------
$ -- $ --
========= =========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the periods in
which temporary differences or net operating loss carry forwards become
deductible. Management considers scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies which
can be implemented by the Company in making this assessment.
NOTE 8. OPERATING LEASES
The Company leases certain office, production, transmission, theater, event, and
retail store facilities under terms of leases expiring at various dates through
2027. The leases generally provide for fixed annual rentals plus certain real
estate taxes and other costs. Rent expense for the years ended December 31,
1999, 1998 and 1997 amounted to $97,300, $83,003 and $26,773, respectively.
IV-31
<PAGE> 170
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In addition, the Company rents space on utility poles for its operations. The
Company's pole rental agreements are for varying terms, and management
anticipates renewals as they expire. Pole rental expense for the years ended
December 31, 1999, 1998 and 1997 amounted to approximately $13,081, $12,490 and
$10,737, respectively.
The minimum future annual rentals for all operating leases during the next five
years, including pole rentals from January 1, 2000 through December 31, 2004,
and thereafter, at rates now in force are approximately: 2000, $99,835; 2001,
$95,902; 2002, $93,872; 2003, $91,645; 2004, $89,105; thereafter, $664,104.
NOTE 9. AFFILIATE TRANSACTIONS
The Company purchases services from certain cable television programming and
advertising companies, in which Rainbow Media directly or indirectly held
varying ownership interests during the three years ended December 31, 1999.
Costs incurred by the Company for programming and advertising services provided
by these non-consolidated affiliates and included in operating expense for the
years ended December 31, 1999, 1998 and 1997 amounted to approximately $4,691,
$2,942 and $16,581, respectively. At December 31, 1999 and 1998 amounts due to
certain of these affiliates, primarily for programming services provided to the
Company, aggregated $1,391 and $3,644, respectively, and are included in
accounts payable. At December 31, 1999 and 1998, amounts due from certain of
these programming and advertising affiliates aggregated $801 and $13,075,
respectively, and are included in advances to affiliates.
The Company's equity in the net income (losses) of these affiliates was
approximately $(11,318), $(31,851) and $10,672 in 1999, 1998 and 1997,
respectively. At December 31, 1999, the Company's investment in these
programming and advertising companies amounted to approximately $46,420. At
December 31, 1998, the Company's net deficit investment in these programming and
advertising companies amounted to approximately $338.
During 1999, 1998 and 1997, the Company provided programming services to or
incurred costs on behalf of other affiliates engaged in providing cable
television, cable television programming, and related services. Amounts due from
these affiliates amounted to $16,518 and $310 at December 31, 1999 and 1998,
respectively and are included in advances to affiliates.
In 1992, the Company acquired from Mr. Dolan substantially all of the interests
in Cablevision of New York City ("CNYC") that it did not previously own. Mr.
Dolan remained a 1% partner in CNYC and was entitled to certain preferential
payments. The total amount owed to Mr. Dolan at December 31, 1997 amounted to
approximately $197,183. In 1998, the Company paid all amounts due Mr. Dolan.
IV-32
<PAGE> 171
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In October 1997, the Company entered into an agreement with At Home Corporation
("@Home") and certain of its shareholders, pursuant to which the Company agreed
to enter into agreements for the distribution of the @Home service over certain
of the Company's cable television systems on the same terms and conditions as
@Home's founding partners, TCI, Comcast Corporation and Cox Communications, Inc.
The Company received a warrant to purchase 15,751,568 shares of @Home's Series A
Common Stock at an exercise price of $.25 per share. Additionally, in 1998 a
warrant to purchase 4,711,028 shares of @Home's Series A Common Stock at $.25
per share was received in connection with the acquisition of the TCI Systems
(see Note 2). The @Home network distributes high-speed interactive services to
residences and businesses using its own network architecture and a variety of
transport options, including the cable industry's hybrid fiber coaxial
infrastructure.
The aggregate fair market value of the warrants received of $248,134, as
determined by independent appraisals, has been recorded in investments in
affiliates in the accompanying consolidated balance sheets. The difference
between the appraised value of the warrants and the price paid has been recorded
as deferred revenue and is being amortized to income over the period which the
Company is obligated to provide the necessary services to @Home. In 1999 and
1998, the Company recorded $50,136 and $35,821, respectively, of revenue
relating to this transaction.
In August 1996, the Company entered into an agreement with NorthCoast Operating
Co., Inc. ("NorthCoast") and certain of its affiliates, to form a limited
liability company (the "LLC") to participate in the auctions conducted by the
Federal Communications Commission ("FCC") for certain licenses to conduct a
personal communications service ("PCS") business. The Company has contributed an
aggregate of approximately $50,100 to the LLC (either directly or through a loan
to NorthCoast) and holds a 49.9% interest in the LLC and certain preferential
distribution rights. The Company recorded a loss of $7,916 and $5,517 in 1999
and 1998, respectively, representing its share of the losses of the LLC.
NorthCoast is a Delaware corporation controlled by John Dolan. John Dolan is a
nephew of Charles F. Dolan and a cousin of James L. Dolan.
In 1996, Rainbow Media invested in a joint venture formed with a subsidiary of
Loral Space and Communications, Ltd. for the purpose of exploiting certain
direct broadcast satellite ("DBS") frequencies. Rainbow Media also contributed
to the joint venture its interest in certain agreements with the licensee of
such frequencies. Rainbow Media's investment amounted to $386 and $14,913 at
December 31, 1999 and 1998, respectively. In 1999, based upon its then current
business plans, the Company determined that it could no longer recover its
investment in the joint venture and wrote down its investment by $15,100.
IV-33
<PAGE> 172
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 10. BENEFIT PLANS
Effective January 1, 1998, the Company established a Cash Balance Retirement
Plan (the "Retirement Plan"), which replaced the Company's former money purchase
pension plan for the benefit of employees other than those of MSG, The WIZ and
CCG Holdings, Inc. Under the Retirement Plan, the Company will credit a certain
percentage of eligible base pay into an account established for each participant
which will earn a market based rate of return annually. Net periodic pension
cost for the years ended December 31, 1999 and 1998 amounted to $6,218 and
$5,555, respectively. At December 31, 1999 and 1998, the accumulated benefit
obligation amounted to $11,309 and $5,312, respectively.
The Company also maintains a 401(k) savings plan, pursuant to which an employee
can contribute a percentage of eligible annual compensation, as defined. The
Company also makes matching contributions for a portion of employee
contributions to the 401(k) savings plan.
The cost associated with the money purchase pension plan and the 401(k) savings
plan was approximately $6,102, $4,492 and $7,445 for the years ended December
31, 1999, 1998 and 1997, respectively.
The Company maintains the CSSC Supplemental Benefit Plan (the "Supplemental
Plan") for the benefit of certain officers and employees of the Company. As part
of the Supplemental Plan, the Company established a nonqualified defined benefit
pension plan, which provides that, upon attaining normal retirement age, a
participant will receive a benefit equal to a specified percentage of the
participant's average compensation, as defined. All participants are 100% vested
in the Supplemental Plan. Net periodic pension cost for the years ended December
31, 1999, 1998 and 1997 was negligible. At December 31, 1999 and 1998, the fair
value of Supplemental Plan assets exceeded the projected benefit obligation by
approximately $3,071 and $2,688, respectively.
MSG sponsors several non-contributory pension plans covering MSG's employees.
Benefits payable to retirees under these plans are based upon years of service
and participant's compensation and are funded through trusts established under
the plans. Plan assets are invested primarily in common stocks, bonds, United
States government securities and cash. At December 31, 1999 and 1998, the
accrued benefit cost amounted to $10,796 and $8,883, respectively, and for the
years ended December 31, 1999, 1998 and 1997, net periodic pension cost amounted
to $2,611, $2,254 and $1,613, respectively.
MSG also sponsors a welfare plan which provides certain postretirement health
care and life insurance benefits to certain employees and their dependents who
are eligible for early or normal retirement under MSG's retirement plan. The
welfare plan is insured through a managed care provider and MSG funds these
benefits with premium payments. For the years ended December 31, 1999, 1998 and
1997, the periodic postretirement benefit cost amounted to $204, $84 and $133,
respectively, and the accrued benefit cost amounted to $6,154 and $6,087,
respectively.
IV-34
<PAGE> 173
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 11. STOCK BENEFIT PLANS
The Company has an Employee Stock Plan (the "Stock Plan") under which the
Company is authorized to issue a maximum of 14,000,000 shares. Pursuant to its
terms, no awards could be granted under the Stock Plan after December 5, 1995.
Under the Stock Plan, the Company granted incentive stock options, nonqualified
stock options, restricted stock, stock appreciation rights, stock grants and
stock bonus awards. The exercise price of stock options could not be less than
the fair market value per share of Class A Common Stock on the date the option
was granted and the options could expire no longer than ten years from date of
grant. Stock appreciation rights permit the employee to elect to receive payment
in cash, either in lieu of the right to exercise such option or in addition to
the stock received upon the exercise of such option, in an amount equal to the
difference between the fair market value of the stock as of the date the right
is exercised, and the exercise price.
In June 1996, the Company's shareholders approved the First Amended and Restated
1996 Employee Stock Plan, as amended, (the "1996 Plan"), under which the Company
is authorized to issue a maximum of 13,000,000 shares. Under the 1996 Plan, the
Company is able to grant incentive stock options, nonqualified stock options,
restricted stock, conjunctive and alternative stock appreciation rights, stock
grants and stock bonus awards. The other terms of the 1996 Plan are
substantially identical to those of the Stock Plan except that under the 1996
Plan the Compensation Committee has the authority, in its discretion, to add
performance criteria as a condition to any employee's exercise of an award
granted under the 1996 Plan.
During 1999, the Company granted options under the 1996 Plan to purchase
3,108,561 shares of Class A Common Stock and stock appreciation rights related
to 1,512,449 shares under option. The options and related stock appreciation
rights are exercisable at various prices ranging from $67.50 to $76.31 per share
and vest in 33 1/3% annual increments beginning one year from the date of grant.
During 1998, the Company granted options under the 1996 Plan to purchase
2,265,500 shares of Class A Common Stock and stock appreciation rights related
to 2,265,500 shares under option. The options and related stock appreciation
rights are exercisable at various prices ranging from $27.63 to $43.50 per share
and vest in 33 1/3% annual increments beginning one year from the date of grant.
During 1997, the Company granted options under the 1996 Plan to purchase
2,230,888 shares of Class A Common Stock and stock appreciation rights related
to 2,210,288 shares under option. The options and related stock appreciation
rights are exercisable at prices of $7.13 and $7.88 per
IV-35
<PAGE> 174
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
share and vest in either 25% or 33 1/3% annual increments beginning one year
from the date of the grant or the beginning of 1997.
As a result of stock awards, bonus awards, stock appreciation rights and the
expensing of the cash payment made for certain executive stock options, the
Company recorded expense of approximately $255,789, $146,179 and $64,361 in
1999, 1998 and 1997, respectively. These amounts reflect vesting schedules for
applicable grants as well as fluctuations in the market price of the Company's
Class A Common Stock.
The Company applies APB 25 and related interpretations in accounting for its
stock option plans. Had compensation cost been recognized consistent with
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), for options
granted in 1995 through 1999, the Company's net loss would have increased by
$45,607, $16,151 and $7,323 in 1999, 1998 and 1997, respectively. Pro forma net
loss per share would have been $(5.41), $(3.27) and $(.20) for the years ended
December 31, 1999, 1998 and 1997, respectively.
The per share weighted average value of stock options issued by the Company
during 1999, 1998 and 1997, as determined by the Black-Scholes option pricing
model, was $35.27, $14.25 and $3.32, respectively, on the date of grant. In
these years, the Company assumed no declaration of dividends and an expected
life of five years in determining the value of stock options granted. In
addition, the calculations assumed a risk free interest rate of approximately
6.3%, 5.0% and 5.9% and expected volatility of 49.7%, 52.8% and 43.5% in 1999,
1998 and 1997, respectively.
Stock transactions under the Stock Plan and the 1996 Plan are as follows:
<TABLE>
<CAPTION>
Shares Stock
Under Appreciation Stock Available Option
Option Rights Awards For Grant Price Range
------ ------------ ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 5,492,616 5,624,016 615,650 3,477,770 $3.63-$13.04
Granted 2,230,888 2,210,288 - (2,230,888) $7.13-$7.88
Exercised/issued (950,924) (1,245,160) - - $5.32-$13.03
Cancelled-Stock Plan (964,356) (948,024) (31,196) - $5.32-$13.03
Cancelled-1996 Plan (300,676) (300,176) (45,452) 346,128 $7.13-$12.38
---------- ---------- -------- ----------
Balance, December 31, 1997 5,507,548 5,340,944 539,002 1,593,010 $5.32-$13.03
1996 Plan amendment - - - 7,000,000
Granted 2,265,500 2,265,500 - (2,265,500) $27.63-$43.50
Exercised/issued (1,263,220) (1,164,932) (221,852) - $6.13-$30.16
Cancelled-Stock Plan (6,604) (6,604) (6,840) - $6.91-$13.03
Cancelled-1996 Plan (345,364) (345,360) (32,060) 377,424 $7.13-$12.38
----------- ----------- -------- ----------
Balance, December 31, 1998 6,157,860 6,089,548 278,250 6,704,934 $6.13-$43.50
Granted 3,108,561 1,512,449 9,180 (3,117,741) $67.50-$76.31
Exercised/issued (1,174,609) (1,740,534) - - $6.13-$42.88
Cancelled-Stock Plan (22,852) (28,400) - - $6.13-$42.88
Cancelled-1996 Plan (609,301) (812,535) (28,538) 637,839 $7.13-$12.38
----------- ------------ -------- ----------
Balance, December 31, 1999 7,459,659 5,020,528 258,892 4,225,032 $6.13-$76.31
=========== =========== ======== ==========
</TABLE>
IV-36
<PAGE> 175
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------- ---------------------------------
Weighted Weighted Weighted
Average Average Average
Ranges of Remaining Exercise Exercise
Exercise Prices Shares Life in Years Price Shares Price
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 6.13 - 7.63 1,576,058 6.9 $ 7.10 1,576,058 $ 7.10
7.64 - 15.26 910,538 5.7 11.42 685,013 11.37
15.27 - 22.89 4,667 8.1 22.47 2,833 22.47
22.90 - 30.53 1,983,562 8.3 27.49 693,968 27.41
30.54 - 38.16 40,000 8.2 33.73 40,000 33.73
38.17 - 45.79 116,001 8.1 41.54 34,674 41.56
61.05 - 68.68 2,266,000 8.9 67.47 208,333 67.40
68.69 - 76.31 562,833 5.9 75.44 261,500 76.31
</TABLE>
At December 31, 1999, options for 7,459,659 shares were outstanding with a
weighted average exercise price of $37.23 and a weighted average remaining life
of 7.6 years. At December 31, 1999, options for 3,502,379 shares were
exercisable with a weighted average exercise price of $21.37.
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company, through Rainbow Media, has entered into several contracts,
including rights agreements, with professional sports teams and others relating
to cable television programming. In addition, Rainbow Media, through MSG, has
employment agreements with both players and coaches of its professional sports
teams. Certain of these contracts, which provide for payments that are
guaranteed regardless of employee injury or termination, are covered by
disability insurance if certain conditions are met. Future cash payments
required under these contracts as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $271,398
2001 217,300
2002 172,800
2003 136,164
2004 109,968
Thereafter 1,020,554
----------
Total $1,928,184
==========
</TABLE>
IV-37
<PAGE> 176
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The Company and its cable television affiliates have an affiliation agreement
with a program supplier whereby the Company is obligated to make base rate
annual payments, as defined and subject to certain adjustments pursuant to the
agreement, through 2004. The Company would be contingently liable for the base
rate annual payments, based on subscriber usage, of approximately $13,335 in
2000 and for the years 2001 through 2004 such payments would increase by
percentage increases in the Consumer Price Index, or five percent, whichever is
less, over the prior year's base rate annual payment.
NOTE 13. OTHER MATTERS
The Company is party to various lawsuits, some involving substantial amounts.
Management does not believe that the resolution of these lawsuits will have a
material adverse impact on the financial position of the Company.
NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable Trade, Notes and Other
Receivables, Prepaid Expenses and Other Assets, Advances to Affiliates, Accounts
Payable and Accrued Liabilities.
The carrying amount approximates fair value due to the short maturity of these
instruments.
At Home Warrants
The fair value of the At Home warrants is based upon the quoted market price of
the underlying securities.
Bank Debt, Senior Notes and Debentures, Subordinated Notes and Debentures and
Redeemable Exchangeable Preferred Stock of CSC Holdings
The fair values of each of the Company's long-term debt instruments and
redeemable preferred stock of CSC Holdings are based on quoted market prices for
the same or similar issues or on the current rates offered to the Company for
instruments of the same remaining maturities.
Interest Rate Swap Agreements
The fair values of interest rate swap and cap agreements are obtained from
dealer quotes. These values represent the estimated amount the Company would
receive or pay to terminate agreements, taking into consideration current
interest rates and the current creditworthiness of the counterparties.
IV-38
<PAGE> 177
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The fair value of the Company's financial instruments are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------
Carrying Estimated
Amount Fair Value
------ ----------
<S> <C> <C>
At Home warrants.............................................. $ 248,134 $ 867,103
========== ===========
Long term debt instruments:
Bank debt................................................. $2,254,487 $ 2,254,487
Senior notes and debentures............................... 2,692,602 2,608,845
Subordinated notes and debentures......................... 1,048,513 1,102,500
Redeemable exchangeable preferred
stock of CSC Holdings.................................. 1,404,511 1,539,173
---------- -----------
$7,400,113 $ 7,505,005
========== -==========
Interest rate swap agreements:
In a net payable position................................. $ -- $ 3,265
========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------
Carrying Estimated
Amount Fair Value
<S> <C> <C>
At Home warrants.............................................. $ 248,134 $ 755,479
=========== ===========
Long term debt instruments:
Bank debt................................................. $ 2,051,549 $ 2,051,549
Senior notes and debentures............................... 2,194,443 2,271,340
Subordinated notes and debentures......................... 1,048,375 1,168,375
Redeemable exchangeable preferred
stock of CSC Holdings.................................. 1,256,339 1,417,241
----------- -----------
$ 6,550,706 $ 6,908,505
=========== -==========
Interest rate swap agreements:
In a net payable position................................. $ -- $ 4,116
=========== ===========
</TABLE>
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
IV-39
<PAGE> 178
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 15. SEGMENT INFORMATION
The Company classifies its business interests into three segments:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow Media, consisting principally
of interests in cable television programming networks and MSG, which owns and
operates professional sports teams, regional cable television networks, live
productions and entertainment venues; and Retail Electronics, which represents
the operations of Cablevision Electronics' retail electronics stores.
The Company's reportable segments are strategic business units that are managed
separately. The Company evaluates segment performance based on several factors,
of which the primary financial measure is business segment adjusted operating
cash flow (defined as operating income (loss) before depreciation and
amortization, incentive stock plan expense and the costs of year 2000
remediation). The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Intersegment sales
are accounted for at fair value as if the sales were to third parties.
Information as to the operations of the Company's business segments is set forth
below.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
REVENUES
<S> <C> <C> <C>
Telecommunication Services $ 2,151,308 $ 1,886,190 $ 1,364,264
Rainbow Media ............ 1,234,113 1,007,639 637,648
Retail Electronics ....... 603,294 464,388 --
All Other ................ 85,529 6,614 1,707
Intersegment eliminations (131,259) (99,688) (54,261)
----------- ----------- -----------
Total .. $ 3,942,985 $ 3,265,143 $ 1,949,358
=========== =========== ===========
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
ADJUSTED OPERATING CASH FLOW (UNAUDITED)
<S> <C> <C> <C>
Telecommunication Services ............. $ 916,233 $ 762,823 $ 545,927
Rainbow Media .......................... 190,646 135,259 101,122
Retail Electronics ..................... (37,934) (19,737) --
All Other .............................. (51,996) (1,783) (1,704)
----------- ----------- -----------
Total ................ $ 1,016,949 $ 876,562 $ 645,345
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Telecommunication Services............. $ 4,490,364 $ 4,411,194 $ 2,927,640
Rainbow Media ......................... 2,682,235 2,720,127 2,838,987
Retail Electronics .................... 220,898 199,194 --
Other ................................. 274,003 253,564 10,270
Corporate and intersegment eliminations (537,192) (523,017) (162,109)
----------- ----------- -----------
Total ............... $ 7,130,308 $ 7,061,062 $ 5,614,788
=========== =========== ===========
</TABLE>
IV-40
<PAGE> 179
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
A reconciliation of reportable segment amounts to the Company's consolidated
balances is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Total revenue for reportable segments .................................... $ 3,988,715 $ 3,358,217 $ 2,001,912
Other revenue and intersegment eliminations .............................. (45,730) (93,074) (52,554)
----------- ----------- -----------
Total consolidated revenue ................................... $ 3,942,985 $ 3,265,143 $ 1,949,358
=========== =========== ===========
ADJUSTED OPERATING CASH FLOW TO NET LOSS
Total adjusted operating cash flow for reportable
segments (unaudited) ......................................... 1,068,945 878,345 647,049
Other adjusted operating cash flow deficit (unaudited) ................... (51,996) (1,783) (1,704)
Items excluded from adjusted operating cash flow
Depreciation and amortization ................................ (893,797) (734,107) (499,809)
Incentive stock plan expense ................................. (255,789) (146,179) (64,361)
Year 2000 remediation ........................................ (41,477) (7,593) --
Interest expense ............................................. (470,549) (426,402) (368,700)
Interest income .............................................. 4,809 24,028 5,492
Equity in net loss of affiliates ............................. (19,234) (37,368) (27,165)
Gain on sale of programming interests and cable
assets, net ............................................. -- 170,912 372,053
Gain on redemption of subsidiary preferred stock ............. -- -- 181,738
Write off of deferred interest and financing costs ........... (4,425) (23,482) (24,547)
Provision for preferential payment to related party .......... -- (980) (10,083)
Minority interests ........................................... (120,524) (124,677) (209,461)
Miscellaneous, net ........................................... (16,570) (19,218) (12,606)
----------- ----------- -----------
Net loss ........................................... $ (800,607) $ (448,504) $ (12,104)
=========== =========== ===========
</TABLE>
Substantially all revenues and assets of the Company's reportable segments are
attributed to or located in the United States.
The Company does not have a single external customer which represents 10 percent
or more of its consolidated revenues.
IV-41
<PAGE> 180
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 16. INTERIM FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of selected quarterly financial data for the years
ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30,
--------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues .............. $ 933,708 $ 675,728 $ 946,309 $ 805,190 $ 902,310 $ 806,871
Operating expenses .... 1,040,755 686,888 954,580 785,935 922,674 790,822
----------- ----------- ----------- ----------- ----------- -----------
Operating profit (loss) $ (107,047) $ (11,160) $ (8,271) $ 19,255 $ (20,364) $ 16,049
=========== -========== =========== --========= -========== -==========
Net loss .............. $ (238,647) $ (27,204) $ (167,847) $ (122,951) $ (178,063) $ (113,614)
=========== -========== --========= --========= --========= --=========
Basic and diluted
net loss per
common share ...... $ (1.57) $ (.23) $ (1.10) $ (.82) $ (1.17) $ (.75)
=========== =========== ========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, TOTAL
--------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Revenues .............. $ 1,160,658 $ 977,354 $ 3,942,985 $ 3,265,143
Operating expenses .... 1,199,090 1,012,815 4,117,099 3,276,460
----------- ----------- ----------- -----------
Operating profit (loss) $ (38,432) $ (35,461) $ (174,114) $ (11,317)
=========== =========== -========== ===========
Net loss .............. $ (216,050) $ (184,735) $ (800,607) $ (448,504)
=========== -========== -========== -==========
Basic and diluted
net loss per
common share ...... $ (1.27) $ (1.22) $ (5.12) $ (3.16)
=========== =========== =========== ===========
</TABLE>
IV-42
<PAGE> 181
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Cash and cash equivalents............................................................ $ 51,341 $ 62,665
Accounts receivable trade (less allowance for doubtful accounts of
$36,987 and $35,357)........................................................... 250,957 226,304
Notes and other receivables.......................................................... 114,538 129,596
Inventory, prepaid expenses and other assets......................................... 232,758 219,487
Property, plant and equipment, net................................................... 2,830,532 2,752,495
Investments in affiliates............................................................ 323,284 306,557
Advances to affiliates............................................................... 51,620 46,685
Feature film inventory............................................................... 330,843 335,826
Net assets held for sale............................................................. 272,290 269,349
Franchises, net of accumulated amortization of
$746,092 and $703,237.......................................................... 608,922 651,777
Affiliation and other agreements, net of accumulated amortization of
$258,130 and $244,249.......................................................... 159,369 173,250
Excess costs over fair value of net assets acquired and other intangible assets,
net of accumulated amortization of
$755,003 and $727,134.......................................................... 1,898,541 1,816,030
Deferred financing, acquisition and other costs, net of
accumulated amortization of $59,630 and $51,063................................ 150,087 140,287
---------- ----------
$7,275,082 $7,130,308
========== ==========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
IV-43
<PAGE> 182
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<S> <C> <C>
Accounts payable.................................................................. $ 442,416 $ 411,804
Accrued liabilities............................................................... 896,125 1,048,623
Feature film and contract obligations............................................. 356,608 371,126
Deferred revenue.................................................................. 246,144 274,043
Bank debt......................................................................... 2,610,134 2,254,487
Senior notes and debentures....................................................... 2,692,754 2,692,602
Subordinated notes and debentures................................................. 1,048,546 1,048,513
Capital lease obligations and other debt.......................................... 110,959 99,099
----------- ----------
Total liabilities......................................................... 8,403,686 8,200,297
---------- ----------
Minority interests................................................................ 605,321 592,583
---------- ----------
Preferred stock of CSC Holdings, Inc.............................................. 1,444,210 1,404,511
--------- ----------
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized, none issued........................................... - -
Class A Common Stock, $.01 par value, 400,000,000 shares
authorized, 130,265,200 and 130,091,237 shares issued............. 1,303 1,301
Class B Common Stock, $.01 par value, 160,000,000 shares
authorized, 43,126,836 shares issued.............................. 431 431
Paid-in capital........................................................... 736,427 731,986
Accumulated deficit....................................................... (3,915,797) (3,800,302)
---------- ----------
(3,177,636) (3,066,584)
Treasury stock, at cost (7,118 shares).................................... (499) (499)
---------- ----------
Total stockholders' deficiency............................................ (3,178,135) (3,067,083)
---------- ----------
$7,275,082 $7,130,308
========== ==========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
IV-44
<PAGE> 183
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenues .................................. $ 1,048,224 $ 933,708
----------- -----------
Operating expenses:
Technical and operating ............. 440,028 401,881
Retail electronics cost of sales .... 112,453 98,092
Selling, general and
administrative ............... 202,660 335,329
Depreciation and amortization ....... 233,352 205,453
----------- -----------
988,493 1,040,755
----------- -----------
Operating income (loss) ..... 59,731 (107,047)
----------- -----------
Other income (expense):
Interest expense .................... (132,079) (109,292)
Interest income ..................... 1,301 2,879
Equity in net loss of affiliates .... (2,316) (3,395)
Minority interests .................. (41,395) (17,619)
Miscellaneous, net .................. (737) (4,173)
----------- -----------
(175,226) (131,600)
----------- -----------
Net loss .................................. $ (115,495) $ (238,647)
=========== -==========
Basic and diluted net loss per common share $ (0.67) $ (1.57)
=========== ===========
Average number of common shares outstanding
(in thousands) ...................... 173,351 151,625
=========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
IV-45
<PAGE> 184
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................ $(115,495) $ (238,647)
--------- ----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................... 233,352 205,453
Equity in net loss of affiliates ........................ 2,316 3,395
Minority interests ...................................... 41,391 10,284
Gain on sale of investments ............................. -- (10,861)
Write off of investment in affiliate .................... -- 15,006
Amortization of deferred financing and debenture discount 2,564 2,200
Loss (gain) on sale of equipment ........................ (50) 1,159
Changes in assets and liabilities, net of effects
of acquisitions and dispositions .................. (168,752) 17,438
---------- ----------
Net cash provided by (used in) operating activities ..... (4,674) 5,427
---------- ----------
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired ..................... (106,183) (24,787)
Proceeds from sale of investments ................................... -- 10,861
Capital expenditures ................................................ (203,348) (157,613)
Proceeds from sale of equipment ..................................... 84 155
Additions to intangible assets ...................................... (94) (6,169)
Increase in investments in affiliates, net .......................... (19,043) (24,075)
---------- ----------
Net cash used in investing activities ................... (328,584) (201,628)
---------- ----------
Cash flows from financing activities:
Proceeds from bank debt ............................................. 891,800 515,877
Repayment of bank debt .............................................. (556,153) (331,499)
Issuance of common stock ............................................ 4,443 2,082
Purchase of treasury stock .......................................... -- (458)
Payments on capital lease obligations and other debt ................ (9,236) (3,186)
Additions to deferred financing and other costs ..................... (8,920) (1,867)
---------- ----------
Net cash provided by financing activities ............... 321,934 180,949
---------- ----------
Net decrease in cash and cash equivalents .............................. (11,324) (15,252)
Cash and cash equivalents at beginning of year ......................... 62,665 173,826
---------- ----------
Cash and cash equivalents at end of period ............................. $ 51,341 $ 158,574
========== ==========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
IV-46
<PAGE> 185
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Cablevision Systems Corporation and its majority owned subsidiaries (the
"Company") have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
Note 2. Responsibility for Interim Financial Statements
The financial statements as of and for the three month periods ended March 31,
2000 and 1999 presented in this Form 10-Q are unaudited; however, in the opinion
of management, such statements include all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation of the results
for the periods presented.
The interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's and CSC
Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1999.
The results of operations for the interim periods are not necessarily indicative
of the results that might be expected for future interim periods or for the full
year ending December 31, 2000.
Note 3. Reclassifications
Certain reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation.
Note 4. Loss Per Common Share
Basic and diluted net loss per common share is computed by dividing net loss by
the weighted average number of common shares outstanding. Potential dilutive
common shares were not included in the computation as their effect would be
antidilutive.
Note 5. Cash Flows
For purposes of the condensed consolidated statements of cash flows, the Company
considers short-term investments with a maturity at date of purchase of three
months or less to be cash equivalents. The Company paid cash interest expense of
approximately $140,580 and $84,893 for the three months ended March 31, 2000 and
1999, respectively. The Company's noncash financing activities for the three
months ended March 31, 2000 and 1999 included capital lease obligations of
$21,077 and 4,919, respectively, incurred when the Company entered into leases
for new equipment.
IV-47
<PAGE> 186
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 6. Acquisition
In January 2000, Regional Programming Partners acquired the 70% interest in
SportsChannel Florida held by Front Row Communications for approximately
$130,100 (including the repayment of $20,000 in debt) increasing its ownership
to 100%. The acquisition was accounted for as a purchase with the operations of
the acquired business being consolidated with those of the Company as of the
acquisition date. The purchase price will be allocated to the specific assets
acquired when an independent appraisal is obtained.
Note 7. At Home
As of March 31, 2000 and 1999, deferred revenue derived from the receipt of At
Home warrants, net of amortization taken, amounted to approximately $146,419 and
$199,680, respectively. For the three months ended March 31, 2000 and 1999, the
Company recognized approximately $15,000 and $12,534, respectively, of this
deferred revenue.
Note 8. Segment Information
The Company's reportable segments are strategic business units that are managed
separately. The Company evaluates segment performance based on several factors,
of which the primary financial measure is business segment adjusted operating
cash flow (defined as operating income or loss before depreciation and
amortization, incentive stock plan income or expense and the costs of Year 2000
remediation).
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
2000 1999
---- ----
<S> <C> <C>
REVENUES
Telecommunication Services................................. $ 567,068 $525,490
Rainbow Media.............................................. 361,482 298,595
Retail Electronics......................................... 136,656 123,017
All Other.................................................. 18,173 18,307
Intersegment Eliminations.................................. (35,155) (31,701)
---------- --------
Total............................................. $1,048,224 $933,708
========== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
2000 1999
---- ----
<S> <C> <C>
ADJUSTED OPERATING CASH FLOW
Telecommunication Services................................. $238,666 $218,358
Rainbow Media.............................................. 46,956 28,250
Retail Electronics......................................... (17,888) (11,305)
All Other.................................................. (13,215) (7,986)
--------- ---------
Total............................................. $254,519 $227,317
======== =========
</TABLE>
IV-48
<PAGE> 187
A reconciliation of reportable segment amounts to the Company's consolidated
balances is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
REVENUE
Total revenue for reportable segments............................ $1,065,206 $947,102
Other revenue and intersegment eliminations...................... (16,982) (13,394)
-------------- ----------
Total consolidated revenue................................. $1,048,224 $933,708
========== ========
ADJUSTED OPERATING CASH FLOW TO NET LOSS
Total adjusted operating cash flow for
reportable
segments................................................... $ 267,734 $ 235,303
Other adjusted operating cash flow deficit....................... (13,215) (7,986)
Items excluded from adjusted operating cash flow:
Depreciation and amortization.............................. (233,352) (205,453)
Incentive stock plan income (expense)...................... 41,124 (121,339)
Year 2000 remediation costs................................ (2,560) (7,572)
Interest expense........................................... (132,079) (109,292)
Interest income............................................ 1,301 2,879
Equity in net loss of affiliates........................... (2,316) (3,395)
Minority interests......................................... (41,395) (17,619)
Miscellaneous, net......................................... (737) (4,173)
--------------- ------------
Net loss......................................... $ (115,495) $(238,647)
=========== =========
</TABLE>
Substantially all revenues and assets of the Company's reportable segments are
attributed to or located in the United States.
The Company does not have a single external customer which represents 10 percent
or more of its consolidated revenues.
Note 9. Net Assets Held For Sale
The net assets attributable to the Company's cable television systems located in
and around the greater Cleveland, Ohio metropolitan area and in Kalamazoo,
Michigan are classified in the accompanying balance sheet as net assets held for
sale.
Note 10. Recent Developments
In April 2000, the Company entered into agreements with AT&T Corporation
("AT&T") for the sale of its cable systems in Boston and Eastern Massachusetts
in exchange for AT&T's cable systems in certain northern New York suburbs,
approximately $878,000 in AT&T stock and approximately $284,000 in cash, subject
to certain adjustments.
IV-49
<PAGE> 188
ANNEX V
THE RAINBOW MEDIA GROUP
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Financial Statements.........................................................................V-2
Management's Discussion and Analysis of Financial Condition and Results of Operations.................V-30
Description of Business...............................................................................V-36
</TABLE>
V-1
<PAGE> 189
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................................... V-3
Combined Balance Sheets - December 31, 1999 and 1998................................................... V-4
Combined Statements of Operations - Years
ended December 31, 1999, 1998 and 1997........................................................ V-6
Combined Statements of Group Deficiency - Years
ended December 31, 1999, 1998 and 1997........................................................ V-7
Combined Statements of Cash Flows - Years ended
December 31, 1999, 1998 and 1997.............................................................. V-8
Notes to Combined Financial Statements................................................................. V-9
Combined Balance Sheets - March 31, 2000 (unaudited) and December 31, 1999............................. V-24
Combined Statements of Operations - Three months
ended March 31, 2000 and 1999 (unaudited)........................................................ V-26
Combined Statements of Cash Flows - Three months
ended March 31, 2000 and 1999 (unaudited)........................................................ V-27
Notes to Combined Financial Statements (unaudited)..................................................... V-28
</TABLE>
V-2
<PAGE> 190
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cablevision Systems Corporation
We have audited and reported separately herein on the consolidated financial
statements of Cablevision Systems Corporation and subsidiaries ("Cablevision")
as of December 31, 1999 and 1998, and for each of the years in the three-year
period ended December 31, 1999.
We have also audited the accompanying combined balance sheets of Rainbow Media
Group (a combination of certain assets and businesses of Cablevision, as
described in Note 1) as of December 31, 1999 and 1998, and the related combined
statements of operations, group deficiency and cash flows for each of the years
in the three-year period ended December 31, 1999. These combined financial
statements are the responsibility of Cablevision's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Rainbow Media Group has been operated as an integral part of Cablevision, and
has no separate legal existence. As described in Note 1, these combined
financial statements have been derived from the consolidated financial
statements and accounting records of Cablevision and reflect certain assumptions
and allocations. Moreover, as indicated in Note 4, Rainbow Media Group relies
upon Cablevision for administrative, management and other services. The
financial position, results of operations and cash flows of Rainbow Media Group
could differ from those that might have resulted had Rainbow Media Group
operated autonomously or as an entity independent of Cablevision. The combined
financial statements of Rainbow Media Group are presented for purposes of
additional analysis of Cablevision's consolidated financial statements, and
should be read in conjunction with those statements.
In our opinion, the combined financial statements referred to in the second
paragraph above present fairly, in all material respects, the financial position
of Rainbow Media Group as of December 31, 1999 and 1998, and the results of its
operations and its cash flows on the basis of presentation described in Note 1,
for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
KPMG LLP
Melville, New York
August 8, 2000
V-3
<PAGE> 191
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
COMBINED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash................................................................................. $ 105 $ 99
Trade accounts receivable (less allowance for doubtful accounts of
$9,126 and $7,654)................................................................... 46,950 29,216
Accounts receivable-affiliates, net.................................................. 39,175 29,538
Prepaid expenses and other current assets............................................ 2,899 11,583
Feature film inventory............................................................... 51,555 42,977
----------- -----------
Total current assets........................................................... 140,684 113,413
Long-term feature film inventory........................................................ 284,708 249,283
Property and equipment, net............................................................. 49,274 41,742
Investments in affiliates............................................................... 47,398 22,791
Deferred carriage fees (less accumulated amortization of
$4,605 in 1999) ..................................................................... 19,757 -
Deferred financing costs (less accumulated amortization of
$1,769 and $1,746)................................................................... 3,212 2,585
Deferred transmission costs (less accumulated amortization of
$1,175 and $1,006)................................................................... 825 994
Intangible assets (less accumulated amortization of
$132,206 and $101,536)............................................................... 103,638 134,308
--------- ---------
$649,496 $565,116
========= ========
</TABLE>
See accompanying notes to
combined financial statements.
V-4
<PAGE> 192
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
COMBINED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
1999 1998
---- ----
LIABILITIES AND GROUP DEFICIENCY
<S> <C> <C>
Current liabilities:
Bank debt, current................................................................... $ 53,773 $ 25,331
Current portion of capital lease obligations......................................... 4,381 3,774
Accounts payable..................................................................... 45,051 34,798
Accrued employee related costs....................................................... 34,566 25,856
Other accrued expenses............................................................... 17,224 14,136
Accounts payable-affiliates.......................................................... 35,168 25,530
Note payable - affiliate............................................................ 90,000 90,000
Feature film and contract rights payable, current.................................... 60,409 44,513
----------- ---------
Total current liabilities...................................................... 340,572 263,938
Bank debt, long-term.................................................................... 308,000 241,450
Feature film rights payable, long-term.................................................. 206,476 196,570
Capital lease obligations, long-term.................................................... 29,236 29,227
----------- ---------
Total liabilities.............................................................. 884,284 731,185
Deficit investment in affiliates........................................................ 2,966 12,683
Commitments and contingencies
Group deficiency..................................................................... (237,754) (178,752)
---------- ----------
$ 649,496 $ 565,116
========== ==========
</TABLE>
See accompanying notes to
combined financial statements.
V-5
<PAGE> 193
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
COMBINED STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues, net....................................................................$361,756 $283,546 $230,556
-------- -------- --------
Operating expenses:
Technical and operating....................................................... 146,378 123,804 104,776
Selling, general and administrative........................................... 152,416 120,307 88,465
Depreciation and amortization................................................. 39,902 34,424 33,015
-------- ---------- ----------
338,696 278,535 226,256
--------- --------- ---------
Operating income........................................................ 23,060 5,011 4,300
-------- ----------- -----------
Other income (expense):
.
Interest expense...................................................... ....... (33,061) (32,124) (32,204)
Interest income............................................................... 113 23 156
Equity in net loss of affiliates, net......................................... (7,674) (13,402) (6,374)
Gain on sale of programming interests......................................... - 17,648 158,428
Miscellaneous, net............................................................ (1,715) 597 (235)
-------- ------------ ------------
(42,337) (27,258) 119,771
--------- --------- ---------
Net income (loss).......................................................$(19,277) $(22,247) $124,071
======== ======== ========
</TABLE>
See accompanying notes to
combined financial statements.
V-6
<PAGE> 194
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision
Systems Corporation)
COMBINED STATEMENTS OF GROUP DEFICIENCY
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<S> <C>
Balance, January 1, 1997.......................................................$ (30,805)
Net income.................................................................... 124,071
Net distributions to CNYG.....................................................(263,496)
--------
Balance, December 31, 1997.......................................................(170,230)
Net loss...................................................................... (22,247)
Net contributions from CNYG................................................... 13,725
---------
Balance, December 31, 1998.......................................................(178,752)
Net loss...................................................................... (19,277)
Net distributions to CNYG..................................................... (39,725)
--------
Balance, December 31, 1999......................................................$(237,754)
=========
</TABLE>
See accompanying notes to
combined financial statements.
V-7
<PAGE> 195
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................. $ (19,277) $ (22,247) $ 124,071
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................... 39,902 34,424 33,015
Amortization and write-off of deferred costs................ 2,258 771 838
Equity in net loss of affiliates, net....................... 7,674 13,402 6,374
Gain on sale of programming interests....................... - (17,648) (158,428)
Gain on sale of equipment................................... (254) - -
Non-cash expenses attributed to RMG......................... 33,409 26,057 31,332
Changes in assets and liabilities:
Trade accounts receivable, net.......................... (17,734) (3,716) (4,764)
Accounts receivable-affiliates, net..................... (9,637) (19,503) (8,617)
Prepaid expenses and other current assets............... 8,684 ( 3,701) (3,954)
Feature film inventory.................................. (70,116) (112,734) (8,792)
Deferred carriage fees.................................. 4,605 - -
Accounts payable and accrued liabilities................ 12,995 12,512 30,013
Accounts payable affiliates............................. 9,638 23,651 2,217
Feature film and contract rights payable................ 51,915 104,989 (3,552)
--------- -------- ----------
Net cash provided by operating activities.......... 54,062 36,257 39,753
--------- --------- ----------
Cash flows from investing activities:
Capital expenditures.......................................... (12,643) (4,945) (2,043)
Proceeds from sale of equipment............................... 722 - -
------------ -------------- --------------
Net cash used in investing activities.............. (11,921) (4,945) (2,043)
--------- ---------- ----------
Cash flows from financing activities:
Net proceeds from (repayments of) bank debt.................. 113,916 (5,261) 181,873
Distributions to CNYG......................................... (125,000) (24,023) (220,001)
Principal payments on capital lease obligations............... (3,973) (3,308) (2,947)
Additions to deferred carriage fees.......................... (24,362) - -
Financing costs on bank debt.................................. (2,716) - (2,012)
----------- --------------- -----------
Net cash used in financing activities.............. (42,135) (32,592) (43,087)
---------- ---------- ----------
Net increase (decrease) in cash.................................. 6 (1,280) (5,377)
Cash at beginning of year........................................ 99 1,379 6,756
-------------- ------------ -----------
Cash at end of year.............................................. $ 105 $ 99 $ 1,379
============ ============= ==========
</TABLE>
See accompanying notes to
combined financial statements.
V-8
<PAGE> 196
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 1. BASIS OF PRESENTATION
The stockholders of Cablevision Systems Corporation ("Cablevision") are
scheduled to vote on a proposal (the "Tracking Stock Proposal") to amend its
certificate of incorporation to, among other things, (i) authorize the creation
and distribution of two new classes of common stock, to be designated as Rainbow
Media Group ("RMG") tracking stock which, when issued, will be intended to
reflect the performance of the assets and businesses of Cablevision attributed
to RMG, (ii) increase the aggregate number of authorized shares of common stock
that Cablevision may issue from 570 million to 1.88 billion, and (iii)
redesignate each share of Cablevision common stock into a share of Cablevision
NY Group ("CNYG") common stock, which, following a distribution of RMG tracking
stock, will be intended to reflect the performance of all of Cablevision's
assets and businesses which have not been attributed to RMG.
RMG represents a combination of certain assets, liabilities and businesses owned
by Cablevision, consisting of: (i) five nationally-distributed entertainment
programming networks, (ii) Cablevision's interests in six regional Fox Sports
Net networks outside of the New York metropolitan area, (iii) an interest in
National Sports Partners, which owns and distributes Fox Sports Net, (iv) an
interest in National Advertising Partners, which provides advertising
representation services to all of the Fox Sports Net networks, (v) Rainbow
Network Communications, a full service network programming origination and
distribution company and (vi) certain developmental activities of Cablevision's
Rainbow Media Holdings, Inc. subsidiary. RMG has been operated as an integral
part of Cablevision, and has no separate legal existence.
Historically, RMG has not prepared separate financial statements in accordance
with generally accepted accounting principles ("GAAP") in the ordinary course
of operations. However, these combined financial statements were prepared in
accordance with GAAP for the purposes of this filing, and have been derived
from the consolidated financial statements and accounting records of
Cablevision. These combined RMG financial statements, together with the
combined CNYG financial statements, include all of the accounts contained in
Cablevision's consolidated financial statements. Cablevision intends to
prepare, and include in its filings with the Securities and Exchange Commission
("SEC"), the consolidated financial statements of Cablevision together with the
combined financial statements of RMG as long as RMG's tracking stock is
outstanding.
Amounts in the accompanying combined financial statements reflect Cablevision's
basis in the net assets of the combined businesses. However, minority interests
in the net assets and results of operations of these businesses are not
reflected. Such minority interests are recorded in the Consolidated Financial
Statements of Cablevision.
The accompanying RMG combined financial statements are intended to reflect the
assets, liabilities, revenues and expenses that Cablevision has attributed to
RMG, as well as certain allocations deemed reasonable by management, to present
the combined financial position and results of operations of RMG as if it were a
separate entity for all periods presented. However, primarily as a result of
allocations and inter-group related party transactions (Note 4), the financial
information included herein may not necessarily reflect the combined financial
position
V-9
<PAGE> 197
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
and results of operations of RMG had it operated as a separate stand-alone
entity during the periods presented.
Even though Cablevision has attributed certain assets, liabilities, revenue and
cash flows to RMG, that attribution does not change the legal title to any
assets or responsibility for any liabilities and does not affect the rights of
any creditors. Further, financial results of CNYG that affect Cablevision's
consolidated financial condition could affect the financial position or results
of operations of RMG. Any dividends or distributions on, or repurchases of,
Cablevision stock will reduce the assets of Cablevision legally available for
dividends on RMG stock. Accordingly, holders of CNYG common stock and RMG
tracking stock will continue to be subject to risks associated with an
investment in a single corporation and all of Cablevision's businesses, assets
and liabilities.
As a result of the factors described above, the combined financial statements
of RMG should be read in conjunction with the consolidated financial statements
of Cablevision.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accompanying combined financial statements include the accounts of the
following consolidated subsidiaries of Cablevision:
American Movie Classics Company ("AMC")
AMC includes the American Movie Classics and Romance Classics
programming services;
Bravo Company ("Bravo")
Bravo includes the Bravo and Independent Film Channel programming
services;
Sportschannel Ohio Associates (also known as Fox Sports Net Ohio);
Sportschannel Cincinnati Associates (also known as Fox Sports Net
Cincinnati); and
Rainbow Network Communications ("RNC").
All significant intra-group transactions and balances have been eliminated in
combination.
V-10
<PAGE> 198
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Group Deficiency
Group deficiency represents the aggregate interests of all stockholders,
partners and members in the net assets or liabilities of all combined companies
comprising RMG. Cablevision includes its share of such amount in its
consolidated financial statements, after consideration of the interests of
parties other than Cablevision.
Revenue Recognition
RMG recognizes revenue when programming services are provided to cable
television systems or other pay television operators. Advertising revenue is
recognized when commercials are telecast.
Long-Lived Assets
Property and equipment are carried at cost and depreciated on a straight line
basis over the estimated useful lives of the assets or, with respect to
leasehold improvements, amortized over the shorter of the lease term or the
assets' useful lives.
RMG reviews its long-lived assets (property and equipment, and related
intangible assets that arose from business combinations accounted for under the
purchase method) for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of the
expected cash flows, undiscounted and without interest, is less than the
carrying amount of the asset, an impairment loss is recognized as the amount by
which the carrying amount of the asset exceeds its fair value.
Feature Film Inventory
Rights to feature film inventory acquired under license agreements along with
the related obligations are recorded at the contract value. Costs are amortized
on the straight-line basis over the respective license periods throughout the
contract term. Film telecast rights expected to be amortized within one year are
classified as current assets while contract amounts payable within one year are
classified as current liabilities.
Amounts payable during the five years subsequent to December 31, 1999 related to
feature film rights amount to $60,310 in 2000, $37,777 in 2001, $35,095 in 2002,
$31,791 in 2003, and $26,664 in 2004.
Investments in Affiliates
Investments in affiliates are carried at cost, adjusted for RMG's equity in net
earnings or losses, if any, from the date of acquisition and any known
impairment in value.
Deferred Carriage Fees
Deferred carriage fees primarily represent payments to a multiple cable system
operator to guarantee carriage of the Romance Classics service and are amortized
over the period of guarantee (5 years).
V-11
<PAGE> 199
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized to interest expense
over the life of the related debt.
Deferred Transmission Costs
Deferred transmission costs represent prepayments to secure transponder space on
a satellite and are amortized to technical and operating expense over the
projected life (12 years) of the satellite.
Income Taxes
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
liability method of accounting for deferred income taxes and permits the
recognition of deferred tax assets, subject to an ongoing assessment of
realizability.
Earnings (Loss) Per Share
Historical earnings (loss) per share for RMG has been omitted from the
statements of operations since RMG stock was not part of the capital structure
of Cablevision for the periods presented. Following the implementation of the
Tracking Stock Proposal, per share results for RMG will be presented only in
the consolidated financial statements of Cablevision and will be computed by
applying the "two class" method of Statement of Financial Accounting Standard
No. 128, "Earnings Per Share."
Supplemental Cash Flow Information
RMG paid cash interest expense of approximately $19,727, $20,673 and $12,815
during 1999, 1998 and 1997, respectively. During 1999, RMG reduced feature film
inventory and rights payable by approximately $26,113 in connection with an
amendment to an existing film license agreement.
During 1999 and 1997, RMG's noncash investing and financing activities included
capital lease obligations of $4,589 and $39,256, respectively, incurred when RMG
entered into leases for new equipment. No capital lease obligations were
incurred in 1998.
During 1999, 1998 and 1997, CNYG made contributions of $41,998, $20,997 and
$25,991, respectively, to equity method investee companies attributed to RMG.
Such amounts have been reflected as capital contributions from CNYG to RMG.
V-12
<PAGE> 200
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
During 1999, 1998 and 1997, CNYG made net payments of $18,924, $105,259 and
$25,500, respectively, on indebtedness and $11,245, $15,123 and $12,444,
respectively, of related interest attributed to RMG. Such amounts have been
reflected as capital contributions from CNYG to RMG.
During 1999, 1998 and 1997, CNYG made payments of $13,108, $4,017 and $961,
respectively, relating to stock plan obligations attributed to RMG. Such amounts
have been reflected as capital contributions from CNYG to RMG.
Use of Estimates in Preparation of Financial Statements
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 liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation,
fines and penalties and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment can be reasonably
estimated.
NOTE 3. LIQUIDITY
Although RMG had a working capital deficit as of December 31, 1999, RMG is
operated as an integral part of Cablevision. Cablevision intends to provide RMG
with sufficient liquidity to meet its working capital requirements through (i)
renegotiation or replacement of existing credit facilities, (ii) the sale of
debt or equity securities, or, if necessary, (iii) advances from CNYG.
Note 4. ALLOCATIONS AND RELATED PARTY TRANSACTIONS
ALLOCATIONS
The combined financial statements of RMG reflect the application of certain
allocation and cash management policies of Cablevision, which are summarized
below. Cablevision's board of directors may modify or rescind any of these
allocation policies without the approval of the stockholders, although no such
changes are currently contemplated. Any such changes adopted by the board of
directors would be made in its good faith business judgment of Cablevision's
best interests, taking into consideration the best interests of all Cablevision
shareholders. Management believes that these allocations have been made on a
reasonable basis. However, it is not practicable to determine whether the
allocated amounts represent amounts that might have been incurred on a
stand-alone basis. Explanations of the composition and the amounts of the more
significant allocations are described below.
Corporate General and Administrative Costs
General and administrative costs, including costs of maintaining corporate
headquarters, facilities and common support functions (such as human resources,
legal, accounting, tax, audit, treasury, strategic planning, investor relations,
information technology, etc.) have been allocated by Cablevision generally based
upon management's estimate of proportionate usage. When determinations based
upon usage are impractical, Cablevision uses other methods and criteria
V-13
<PAGE> 201
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
that management believes to be equitable and provide a reasonable estimate of
costs attributable to RMG. Such costs allocated to RMG amounted to $18,369,
$14,404 and $7,825 for the years ended December 31, 1999, 1998 and 1997,
respectively, and have been included in selling, general and administrative
expenses.
Year 2000 Remediation Costs
Selling, general and administrative expenses for the year ended December 31,
1999 includes $2,813 of Year 2000 remediation costs which includes direct
charges and allocations from Cablevision.
Indebtedness and Interest
Cablevision has attributed indebtedness generally based upon approximate funding
of start up costs for certain of RMG's programming services. As more fully
described in Note 8, indebtedness related to the stand-alone bank facilities of
AMC and Rainbow Media Holdings, Inc. ("Rainbow Media Holdings"), currently a 74%
owned subsidiary of Cablevision, has been attributed to RMG. Additionally,
inter-group indebtedness of approximately $90,000 has been attributed to RMG
reflecting the start up costs of certain of RMG's programming services. Interest
expense associated with the stand-alone bank facilities and this attributed
indebtedness amounted to $28,783, $25,939 and $28,187 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Income Taxes
To the extent that federal and state income taxes are determined on a basis that
includes operations of both CNYG and RMG, such taxes are allocated to each
group, and reflected in their respective financial statements, in accordance
with Cablevision's tax allocation policy. In general, this policy provides that
the consolidated tax provision, and related tax payments or refunds, will be
allocated between the groups based principally upon the financial income,
taxable income, credits and other amounts directly related to the respective
groups. Under the policy, the amount of taxes payable or refundable which are
allocated to RMG will generally be comparable to those that would have resulted
if the groups had filed separate tax returns. Further, RMG is responsible to
CNYG for its share of any consolidated income tax liabilities determined in
accordance with the policy. Accordingly, RMG will realize the benefits of its
tax attributes when it generates sufficient taxable income to utilize such
attributes.
Stock-Based Compensation
Cablevision charges RMG for the cost of certain employee stock incentive plans.
RMG was charged, based upon proportionate payroll costs, approximately $22,129,
$13,747 and $6,701, in 1999, 1998 and 1997, respectively, related to these stock
incentive plans.
V-14
<PAGE> 202
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Health and Welfare Benefits
Employees of entities attributed to RMG participate in health and welfare plans
sponsored by Cablevision. Health and welfare benefit costs have generally been
allocated by Cablevision based upon the proportionate number of participants in
the plan. Such costs amounted to $1,746, $1,660 and $974 for the years ended
December 31, 1999, 1998 and 1997, respectively, and have been included in
selling, general and administrative expenses.
Cash Management
Surplus cash is swept nightly from certain entities within RMG to Rainbow Media
Holdings. Such inter-group transfers do not bear interest.
RELATED-PARTY TRANSACTIONS
As described below, RMG provides services to and receives services from
affiliates and CNYG. As many of these transactions are conducted between
subsidiaries under common control of Cablevision, amounts charged for these
services have not necessarily been based upon arm's length negotiations.
However, it is not practicable to determine whether the amounts charged
represent amounts that might have been incurred on a stand-alone basis for RMG.
During 1999, Cablevision entered into a new affiliation agreement with a service
provider which resulted in higher rates per subscriber charged to Cablevision
than those under the previous agreement. As part of the negotiations, the
service provider agreed to amend its existing film license agreement with AMC,
reducing the license fees and revising the list of film titles licensed. Since
AMC received the benefit of Cablevision's negotiations in the form of discounted
license fees, Cablevision charged AMC $10,000, which was treated as a cost to
acquire the rights to the revised list of film titles and classified as feature
film inventory.
RMG provides programming to cable television systems owned or managed by CSC
Holdings, Inc. ("CSC Holdings"), a wholly-owned subsidiary of Cablevision, and
other affiliates under contracts called affiliation agreements. Affiliate
revenues earned by RMG from services provided to these cable television systems
amounted to approximately $64,912, $45,392, and $16,755 for the years ended
December 31, 1999, 1998, and 1997, respectively.
RNC provides certain transmission and production services to programming
entities owned or managed by Rainbow Media Holdings and included in CNYG. For
the years ended December 31, 1999, 1998 and 1997, approximately $12,827,
$13,077, and $9,762, respectively, of revenues was earned from services provided
to these entities.
V-15
<PAGE> 203
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Under contractual agreements, CSC Holdings provides certain consulting services
to AMC and Romance Classics. These agreements provide for payment, in addition
to expense reimbursement, of an aggregate fee of 3.5% of the businesses' gross
revenues, as defined. The agreements are automatically renewable every five
years at the option of CSC Holdings. Pursuant to the terms of these agreements,
RMG was charged consulting fees of $6,832, $5,710 and $4,848 in 1999, 1998 and
1997, respectively.
National Sports Partners, an equity method investee which has been attributed to
RMG, provides certain programming to RMG. RMG was charged approximately $1,869,
$2,273 and $130 for the years ended December 31, 1999 and 1998 and for the
period from December 18, 1997 (inception) to December 31, 1997, respectively,
for this programming.
National Advertising Partners, an equity method investee which has been
attributed to RMG, provides national advertising services to RMG. RMG was
charged fees for such services of approximately $601, $543 and $136 for the
years ended December 31, 1999 and 1998 and for the period from December 18, 1997
(inception) to December 31, 1997, respectively.
As of December 31, 1999, AMC had outstanding an interest exchange (cap)
agreement with CSC Holdings with a total notional value of $105,000 maturing on
May 13, 2002. The agreement caps AMC's floating rate of interest based on LIBOR
at 7% through May 2001 and at 7.5% from May 2001 through May 2002. AMC entered
into this cap agreement to hedge against interest rate risk and accounts for
this agreement as a hedge whereby interest expense is recorded using the revised
rate with any fees amortized as a yield adjustment.
Note payable-affiliate of $90,000 represents an attributed portion of a loan
made in June 1998 by Regional Programming Partners to Rainbow Media Holdings.
Such loan is a four year demand note maturing on March 31, 2002 and bears
interest at a rate of LIBOR plus 7/8% per annum.
NOTE 5. SIGNIFICANT TRANSACTIONS
NBC Transaction
In April 1997, Cablevision acquired, among other things, NBC's interests in AMC,
Bravo, Fox Sports Net Cincinnati, Fox Sports Net Ohio, RNC and certain other
companies accounted for under the equity method, in exchange for a 25% interest
in Rainbow Media Holdings. This transaction was accounted for by Cablevision at
historical cost and resulted in goodwill attributed to RMG of $50,037. Such
goodwill is being amortized over ten years.
V-16
<PAGE> 204
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Formation of Regional Programming Partners
In December 1997, Cablevision contributed its interests in its regional sports
programming businesses (including those attributed to RMG) to a partnership with
Fox Sports Networks, LLC, controlled by Cablevision (Regional Programming
Partners ("RPP")). The formation of RPP resulted in a gain to Cablevision, of
which $158,428 has been attributed to RMG.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, Estimated
-------------------------------
1999 1998 Useful Lives
------------ -------------- ------------
<S> <C> <C> <C>
Program, service and test equipment.................. $76,400 $66,871 5 to 8 years
Furniture and fixtures............................... 12,921 9,203 3 to 8 years
Leasehold improvements............................... 8,473 5,055 Life of lease
--------- ---------
97,794 81,129
Less accumulated depreciation
and amortization................................... (48,520) (39,387)
-------- --------
$49,274 $41,742
======== ========
NOTE 7. INVESTMENTS IN AFFILIATES
The following table reflects ownership percentages and balances of equity method
investments attributed to RMG as of December 31, 1999 and 1998:
</TABLE>
<TABLE>
<CAPTION>
Ownership Percentages Investment Balances
--------------------- -------------------
December 31,
-----------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
MuchMusic USA Venture........................... 50% 50% $ 3,359 $ 2,995
SportsChannel Chicago Associates................ 50 50 30,260 12,149
SportsChannel Pacific Associates................ 50 50 6,531 5,853
SportsChannel Florida Associates................ 30 30 36 (2,411)
SportsChannel New England
Limited Partnership........................ 50 50 2,534 1,794
National Sports Partners........................ 50 50 4,678 (10,135)
National Advertising Partners................... 50 50 (2,966) (137)
-------- -------
$44,433 $10,108
======= =======
</TABLE>
V-17
<PAGE> 205
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
RMG's share of the net loss of these affiliates for the years ended
December 31, 1999, 1998 and 1997 aggregated $7,674, $13,402 and $6,374,
respectively.
NOTE 8. BANK DEBT
The following table summarizes bank debt attributed to RMG:
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------
Rainbow
Media
AMC Holdings Total
--- --------- ----
<S> <C> <C> <C>
Total facility.................... $425,000 $300,000 $725,000
Outstanding debt.................. 308,000 49,000 357,000
Other restrictions................ - 200,000 200,000
-------------- -------- ---------
Availability................. $117,000 $ 51,000 $168,000
======== ======== ========
</TABLE>
AMC has a credit agreement which matures on March 31, 2006 and consists of a
term loan and a revolving loan. On May 12, 1999, the credit agreement was
amended and restated, increasing the term loan from $124,000 to $225,000 and the
revolving loan from $100,000 to $200,000. Borrowings under the credit agreement
bear interest at varying rates based upon the banks' Base Rate or Eurodollar
Rate, depending on the ratio of debt to cash flow, as defined. At December 31,
1999 and 1998, the weighted-average interest rate on bank indebtedness
approximated 7.6% and 6.1%, respectively. The term loan will begin amortizing
March 31, 2001 and requires quarterly amortization payments. The revolving loan
does not start to reduce until June 30, 2004. On December 31, 1999 and 1998,
$225,000 and $128,000 was outstanding under the term loan, $83,000 and $64,250
was outstanding under the revolving loan and $1,456 and $3,290 was outstanding
under a separate overdraft facility, respectively.
Substantially all of the assets of AMC, amounting to approximately $320,192 at
December 31, 1999, have been pledged to secure borrowings under the AMC credit
agreement. The AMC credit agreement contains various restrictive covenants with
which AMC was in compliance at December 31, 1999. AMC must pay an annual
commitment fee of 0.625% on the aggregate unused balance of the revolver.
Rainbow Media Holdings has a $300,000, three year credit facility which matures
on December 31, 2000. The credit facility contains certain financial covenants
that may limit Rainbow Media Holdings' ability to utilize all the undrawn funds
available thereunder, including covenants requiring it to maintain certain
financial ratios. The facility bears interest at varying rates above the
V-18
<PAGE> 206
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
lead bank's base or Eurodollar rate depending on the ratio of debt to borrower
value, as defined in the credit agreement. The loan is secured by a pledge of
Cablevision's stock in Rainbow Media Holdings, a pledge of all of the stock of
all wholly-owned subsidiaries of Rainbow Media Holdings and is guaranteed by
the subsidiaries of Rainbow Media Holdings, as permitted.
At December 31, 1999 and 1998, Rainbow Media Holdings had outstanding borrowings
under its credit facility of $52,317 and $71,241, respectively (including
amounts outstanding under a separate overdraft facility of $3,317 and $4,041,
respectively). Undrawn funds available to Rainbow Media Holdings under the
credit facility amounted to approximately $51,000 at December 31, 1999.
The weighted average interest rate on Rainbow Media Holdings' bank debt was 8.9%
and 7.7% on December 31, 1999 and 1998, respectively. The credit agreement
contains various restrictive covenants with which Rainbow Media Holdings was in
compliance at December 31, 1999. Rainbow Media Holdings is required to pay a fee
of 0.5% based on the unused portion of the commitment.
Amounts payable under the Rainbow Media Holdings credit facility and the AMC
credit agreement, including outstanding bank overdrafts, during the five years
subsequent to December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $53,773
2001 27,000
2002 29,250
2003 36,000
2004 56,250
</TABLE>
V-19
<PAGE> 207
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 9. INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Depreciation and amortization $ 2,700 $ 1,996
Benefit plans 25,273 12,459
Allowance for doubtful accounts 3,833 3,215
Deferred gains (57,512) (61,936)
Benefits of tax loss carry forwards 126,000 113,148
--------- ---------
Net deferred tax assets 100,294 68,882
Valuation allowance (100,294) (68,882)
--------- ----------
$ - $ -
============== ==============
</TABLE>
The operations of RMG are included in the consolidated Federal income tax
returns filed by Rainbow Media Holdings, a subsidiary of Cablevision. At
December 31, 1999, Rainbow Media Holdings had consolidated net operating loss
carry forwards of approximately $570,300, of which $300,000 has been allocated
to RMG. These loss carry forwards may be subject to annual limitations on
deductions due to changes in the ownership of Rainbow Media Holdings.
RMG has provided a valuation allowance for the total amount of net deferred tax
assets since realization of these assets is not assured, principally due to
RMG's history of net losses.
RMG's tax provision for 1997 was reduced to $0 as a result of available loss
carryovers.
NOTE 10. LEASES
RMG leases certain facilities and transponder space on a satellite under
operating lease agreements with third parties which expire at various dates
through 2006. Rent expense for operating leases amounted to approximately
$9,704, $7,026 and $2,995 for the years ended December 31, 1999, 1998 and 1997,
respectively. The following is a schedule of future minimum lease payments for
operating leases as of December 31, 1999:
<TABLE>
<S> <C>
2000 $ 3,319
2001 2,766
2002 2,547
2003 2,389
2004 2,278
Thereafter 9,763
-------
Total minimum lease payments $23,062
=======
</TABLE>
V-20
<PAGE> 208
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
RMG leases certain equipment and transponder space on a satellite under capital
leases. Future minimum capital lease payments as of December 31, 1999 are:
<TABLE>
<S> <C>
2000 $ 7,440
2001 7,440
2002 7,440
2003 7,440
2004 7,080
Thereafter 8,380
----------
Total minimum lease payments................... 45,220
Less amount representing interest (10%)........ 11,603
----------
Present value of net minimum
capital lease payments................ 33,617
Less current installments...................... 4,381
-----------
Obligations under capital leases,
excluding current installments........ $ 29,236
=========
</TABLE>
At December 31, 1999 and 1998, the gross amount of origination equipment and
related accumulated amortization recorded under capital leases were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Origination equipment $43,831 $39,255
Less accumulated amortization 14,467 9,030
-------- ---------
$29,364 $30,225
======= =======
</TABLE>
NOTE 11. BENEFIT PLANS
Cablevision sponsors a pension plan and a 401(k) savings plan pursuant to which
the businesses of RMG contribute a percent of eligible employees' annual
compensation, as defined, to the pension plan and makes matching contributions
for a portion of employee voluntary contributions to the 401(k) savings plan.
The cost associated with these plans was approximately $810, $685 and $542 for
the years ended December 31, 1999, 1998 and 1997, respectively.
V-21
<PAGE> 209
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 12. COMMITMENTS AND CONTINGENCIES
Several of the companies which comprise RMG have entered into contracts,
including rights agreements, with professional sports teams and others relating
to cable television programming. Future cash payments required under these
contracts as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $14,381
2001 15,479
2002 15,975
2003 15,478
2004 13,183
-------
Total $74,496
=======
</TABLE>
Broadcast Music, Inc. ("BMI") and the American Society of Composers, Authors and
Publishers ("ASCAP"), organizations which license the performance of musical
compositions of respective members, allege that certain of the companies within
RMG require a license to exhibit musical compositions in their respective
catalogs and that continued use requires a license. BMI and ASCAP have each
agreed to interim fees based on revenues covering certain periods. The interim
fee agreements have been extended several times, and are currently extended on a
month-to-month basis. These matters have been submitted to a Federal Rate Court,
and are subject to retroactive adjustment either at such time as a final
decision is made by the Court or a final agreement is reached by the parties.
In addition, RMG is party to various legal matters arising out of the ordinary
conduct of its business, some involving substantial amounts. Management does not
believe that the final outcome of these lawsuits, including the BMI and ASCAP
rate matters, will have a material adverse impact on the financial position of
RMG.
NOTE 13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Trade Accounts Receivable, Accounts Receivable - Affiliates, Accounts Payable,
Accrued Expenses, Accounts Payable - Affiliates, and Contract Rights Payable.
The carrying amount approximates fair value due to the short maturity of these
instruments.
Bank Debt
The estimated fair value of bank debt approximates its carrying value based on
the current rates offered to the entities within RMG for instruments of the same
remaining maturities.
V-22
<PAGE> 210
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Interest Rate Cap Agreements
At December 31, 1999, the fair value of the outstanding cap agreement was $599
(net receivable position). Fair value was obtained from a dealer quote. This
value represents the estimated amount RMG would receive to terminate the
agreement, taking into consideration current interest rates and the current
creditworthiness of the counterparty.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 14. SUBSEQUENT EVENT
In January 2000, RPP acquired the 70% interest in SportsChannel Florida
Associates that it did not already own and held by Front Row Communications for
approximately $130,100 (including the repayment of $20,000 in debt) increasing
its ownership to 100%.
V-23
<PAGE> 211
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
COMBINED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash................................................................................. $ 14 $ 105
Trade accounts receivable (less allowance for doubtful accounts of
$11,206 and $9,126)............................................................... 61,348 46,950
Accounts receivable-affiliates, net.................................................. 56,609 39,175
Prepaid expenses and other current assets............................................ 10,343 4,386
Feature film inventory............................................................... 51,975 50,068
--------- ---------
Total current assets........................................................... 180,289 140,684
Long-term feature film inventory........................................................ 277,817 284,708
Property and equipment, net............................................................. 54,213 49,274
Investments in affiliates............................................................... 62,431 47,398
Deferred carriage fees (less accumulated amortization of
$5,691 and 4,605).................................................................... 28,671 19,757
Deferred financing costs (less accumulated amortization of
$1,957 and $1,769)................................................................... 3,027 3,212
Deferred transmission costs (less accumulated amortization of
$1,215 and $1,174)................................................................... 785 825
Intangible assets (less accumulated amortization of
$139,829 and $132,206)............................................................... 201,511 103,638
--------- ---------
$808,744 $649,496
======== ========
</TABLE>
See accompanying notes to
combined financial statements.
V-24
<PAGE> 212
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
COMBINED BALANCE SHEETS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(unaudited)
LIABILITIES AND GROUP DEFICIENCY
<S> <C> <C>
Current liabilities:
Bank debt, current................................................................... $ 203,215 $ 53,773
Current portion of capital lease obligations......................................... 4,716 4,381
Accounts payable..................................................................... 38,501 45,051
Accrued employee related costs....................................................... 22,189 34,566
Other accrued expenses............................................................... 17,555 17,224
Accounts payable-affiliates.......................................................... 51,588 35,168
Deferred revenue..................................................................... 7,800 -
Note payable - affiliate............................................................. 39,750 90,000
Feature film rights payable, current................................................. 53,293 60,409
--------- ----------
Total current liabilities...................................................... 438,607 340,572
Bank debt, long-term.................................................................... 322,750 308,000
Feature film rights payable, long-term.................................................. 193,519 206,476
Capital lease obligations, long-term.................................................... 32,268 29,236
--------- ----------
Total liabilities.............................................................. 987,144 884,284
Deficit investment in affiliates........................................................ 3,496 2,966
Commitments and contingencies
Group deficiency..................................................................... (181,896) (237,754)
---------- ----------
$ 808,744 $ 649,496
========== ==========
</TABLE>
See accompanying notes to
combined financial statements.
V-25
<PAGE> 213
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
COMBINED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenues, net.................................................................... $110,460 $ 80,695
-------- ---------
Operating expenses:
Technical..................................................................... 42,775 34,960
Selling, general and administrative........................................... 32,895 39,310
Depreciation and amortization................................................. 9,720 9,768
-------- -----------
85,390 84,038
-------- ----------
Operating income (loss)................................................. 25,070 (3,343)
-------- ----------
Other income (expense):
Interest expense.............................................................. (11,408) (7,205)
Interest income............................................................... 207 9
Equity in net loss of affiliates, net......................................... (1,787) 352
Miscellaneous, net............................................................ (588) (23)
-------- ------------
(13,576) (6,867)
-------- ----------
Net income (loss)............................................................. $ 11,494 $ (10,210)
======== =========
</TABLE>
See accompanying notes
to combined financial statements.
V-26
<PAGE> 214
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
COMBINED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $ 11,494 $ (10,210)
Adjustments to reconcile net income (loss) to net cash
Provided by operating activities:
Depreciation and amortization.................................... 9,720 9,768
Amortization and write-off of deferred costs..................... 1,314 184
Equity in net loss of affiliates, net............................ 1,787 (352)
Non-cash expenses attributed to RMG.............................. 29,039 13,953
Changes in assets and liabilities:
Trade accounts receivable, net............................... (4,800) (1,691)
Accounts receivable-affiliates, net.......................... (17,434) (1,336)
Prepaid expenses and other current assets.................... (2,941) (373)
Feature film inventory....................................... 4,984 4,772
Deferred carriage fees....................................... 3,387 -
Accounts payable and accrued liabilities..................... (18,706) (8,084)
Accounts payable affiliates............................... 14,956 4,070
Feature film rights payable.................................. (20,073) (7,048)
----------- -----------
Net cash provided by operating activities............... 12,727 3,653
----------- -----------
Cash flows from investing activities:
Capital expenditures............................................... (593) (1,018)
------------- -----------
Net cash used in investing activities................... (593) (1,018)
------------- -----------
Cash flows from financing activities:
Net proceeds from (repayments of) bank debt....................... 1,387 (1,807)
Distributions to CNYG.............................................. (12,500) -
Principal payments on capital lease obligations.................... (1,109) (635)
Financing costs on bank debt....................................... (3) -
------------- -----------
Net cash used in financing activities................... (12,225) (2,442)
------------- -----------
Net increase (decrease) in cash....................................... (91) 193
Cash at beginning of year............................................. 105 99
------------- -----------
Cash at end of period................................................. $ 14 $ 292
============= ===========
</TABLE>
See accompanying notes
to combined financial statements.
V-27
<PAGE> 215
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited combined financial statements of Rainbow Media Group
("RMG") have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
NOTE 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the three month periods ended March 31,
2000 and 1999 presented are unaudited; however, in the opinion of management,
such statements include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the results for the periods
presented.
The interim financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1999.
The results of operations for the interim periods are not necessarily indicative
of the results that might be expected for future interim periods or for the full
year ending December 31, 2000.
NOTE 3. LIQUIDITY
Although RMG had a working capital deficit as of March 31, 2000, RMG is operated
as an integral part of Cablevision. Cablevision intends to provide RMG with
sufficient liquidity to meet its working capital requirements through (i)
renegotiation or replacement of existing credit facilities, (ii) the sale of
debt or equity securities, or, if necessary, (iii) advances from CNYG.
NOTE 4. CASH FLOWS
For purposes of the combined statements of cash flows, RMG considers short-term
investments with a maturity at date of purchase of three months or less to be
cash equivalents. RMG paid cash interest expense of approximately $6,094 and
$3,591 for the three months ended March 31, 2000 and 1999, respectively. RMG's
noncash financing activities for the three months ended March 31, 2000 and 1999
included capital lease obligations of $4,476 and $4,589, respectively, incurred
when RMG entered into leases for new equipment. For the three months ended March
31, 2000 and 1999, CNYG made contributions of $1,772 and $23,405, respectively,
to equity method investee companies attributed to RMG. Such amounts have been
reflected as capital contributions from CNYG to RMG. For the three months ended
March 31, 2000 and 1999, CNYG received net proceeds of $142,805, and $23,045,
respectively, on indebtedness and made payments of $3,803 and $2,714,
respectively, of related interest attributed to RMG. Such amounts have been
reflected as capital distributions from RMG to CNYG. For the three months ended
March 31, 2000 and 1999, CNYG made payments of $5,916, and $2,771, respectively,
relating to stock plan obligations attributed to RMG. Such amounts have been
reflected as capital contributions from CNYG to RMG.
V-28
<PAGE> 216
Rainbow Media Group
(a combination of certain assets and businesses of Cablevision Systems
Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(unaudited)
(continued)
NOTE 5. ACQUISITION
In January 2000, Regional Programming Partners acquired the 70% interest in
SportsChannel Florida Associates that it did not already own and held by Front
Row Communications for approximately $130,100 (including the repayment of
$20,000 in debt) increasing its ownership to 100%. The acquisition was accounted
for as a purchase with the operations of the acquired business being combined
with those of RMG as of the acquisition date. The purchase price will be
allocated to the specific assets acquired when an independent appraisal is
obtained. Had the acquisition occurred on January 1, 1999, pro forma revenue and
net loss would have been $91,295 and $11,572, respectively for the three months
ended March 31, 1999.
NOTE 6. DEFERRED REVENUE
In January 2000, Rainbow Media Holdings, Inc. acquired 1,110,000 common shares
of Salon.com, representing 10% of Salon.com's outstanding common stock at that
time, in exchange for the provision of future advertising and promotional time
on certain of Rainbow Media Holdings, Inc.'s programming services. The fair
market value of the common stock of approximately $7,300 has been recorded in
investment in affiliates and in deferred revenue in the accompanying combined
balance sheet. The deferred revenue will be amortized to income as the services
are provided to Salon.com.
NOTE 7. INCOME TAXES
RMG's tax provision for the three months ended March 31, 2000 was reduced to $0
as a result of available loss carryovers.
V-29
<PAGE> 217
THE RAINBOW MEDIA GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
TRANSACTIONS
1998 Transactions. In January 1998, Rainbow Media Holdings, Inc. ("Rainbow
Media Holdings") completed the sale of an interest in SportsChannel New
England.
1997 Transactions. In December 1997, Rainbow Media Holdings completed certain
transactions involving its interests in certain regional sports programming
networks, Madison Square Garden, L.P. ("MSG" or "Madison Square Garden") and
certain Fox entities with Fox Sports Networks, LLC ("Fox"). In April 1997, CSC
Holdings, Inc. ("CSC Holdings") exchanged 25% of its interest in Rainbow Media
Holdings for NBC's interest in several of Rainbow Media Holdings' programming
entities ("NBC Transaction").
The above transactions completed in 1998 and 1997 are collectively referred to
as the "Transactions."
RESULTS OF OPERATIONS
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1999 1998
------------------------ ------------------------ (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues, net....................................... $ 361,756 100% $283,546 100% $ 78,210
Operating expenses:
Technical and operating.......................... 146,378 40 123,804 44 (22,574)
Selling, general & administrative................ 152,416 42 120,307 42 (32,109)
Depreciation and amortization.................... 39,902 11 34,424 12 (5,478)
--------- --------- ---------
Operating income.................................... 23,060 6 5,011 2 18,049
Other income (expense):.............................
Interest expense, net............................ (32,948) (9) (32,101) (11) (847)
Equity in net loss of affiliates, net............ (7,674) (2) (13,402) (5) 5,728
Gain on sale of programming interests............ - - 17,648 6 (17,648)
Miscellaneous, net............................... (1,715) - 597 - (2,312)
--------- ----------- ---------
Net loss............................................ $ (19,277) (5)% $ (22,247) (8)% $ 2,970
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1998 1997
--------------------- ------------------------ (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues, net....................................... $ 283,546 100% $230,556 100% $ 52,990
Operating expenses:
Technical and operating.......................... 123,804 44 104,776 46 (19,028)
Selling, general & administrative................ 120,307 42 88,465 38 (31,842)
Depreciation and amortization.................... 34,424 12 33,015 14 (1,409)
--------- -------- ---------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Operating income.................................... 5,011 2 4,300 2 711
Other income (expense):
Interest expense, net........................... (32,101) (11) (32,048) (14) (53)
Equity in net loss of affiliates, net............ (13,402) (5) (6,374) (3) (7,028)
Gain on sale of programming interests............ 17,648 6 158,428 69 (140,780)
Miscellaneous, net............................... 597 - (235) - 832
--------- -------- ---------
Net income (loss)................................... $ (22,247) (8)% $124,071 54% $(146,318)
========= ======== =========
</TABLE>
V-30
<PAGE> 218
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED DECEMBER 31, 1998
Revenues for the year ended December 31, 1999 increased $78.2 million (28%) as
compared to revenues for the prior year. Approximately $55.7 million (20%) of
the increase was attributable to growth in programming network subscribers and
rate increases. Approximately $19.9 million (7%) of the increase was
attributable to higher advertising revenues. The remaining $2.6 million (1%)
increase was derived from other increases in revenue sources.
Technical and operating expenses increased $22.6 million (18%) for the year
ended December 31, 1999 over the same 1998 period due primarily to increases in
those costs directly associated with the increases in revenues discussed above.
As a percentage of revenues, technical and operating expenses decreased 4%
during 1999 compared to 1998.
Selling, general and administrative expenses increased $32.1 million (27%) for
1999 as compared to the 1998 level. Approximately $20.9 million (18%) was
attributable to increases in sales and marketing initiatives and other general
cost increases, approximately $8.4 million (7%) of the increase was due to
charges attributed to RMG related to an incentive stock plan, with the remaining
$2.8 million (2%) increase a result of Year 2000 remediation costs. As a
percentage of revenues, selling, general and administrative expenses remained
relatively constant in 1999 compared to 1998. Excluding the effects of the
incentive stock plan charges and Year 2000 remediation costs, as a percentage of
revenues such costs decreased 4%.
Depreciation and amortization expense increased $5.5 million (16%) during 1999
as compared to 1998 as a result of depreciation on fixed asset additions made
during the period, as well as additional amortization expense.
Net interest expense increased $0.8 million (3%) during 1999 compared to 1998.
The net increase is primarily attributable to higher debt balances.
Equity in net loss of affiliates decreased to $7.7 million in 1999 from $13.4
million in 1998. Such amounts consist of Rainbow Media Group's ("RMG") share of
the net profits and losses of certain programming businesses, primarily regional
and national sports programming companies and a national advertising company, in
which Rainbow Media Holdings has varying minority ownership interests.
Gain on sale of programming interests for the year ended December 31, 1998 of
$17.6 million resulted from the sale of an interest in a regional sports
programming business.
Net miscellaneous expense increased to $1.7 million for the year ended December
31, 1999 compared to $0.6 million of net miscellaneous income for the prior
year. In 1999, miscellaneous expense consisted principally of the write off of
deferred financing costs in connection with amendments to American Movie
Classic's credit agreement.
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COMPARISON OF YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997
RAINBOW MEDIA GROUP
Revenues for the year ended December 31, 1998 increased $53.0 million (23%) as
compared to revenues for the prior year. Approximately $30.4 million (13%) of
the increase was attributable to the Transactions and approximately $22.6
million (10%) resulted from growth in programming network subscribers, rate
increases and new channel launches.
Technical and operating expenses for 1998 increased $19.0 million (18%) over the
1997 amount. Approximately $11.0 million (11%) of the increase was attributable
to the Transactions and approximately $8.0 million (7%) was attributable to
increased costs directly associated with the growth in revenues discussed above.
As a percentage of revenues, technical and operating expenses decreased 2%
during 1998 as compared to 1997.
Selling, general and administrative expenses increased $31.8 million (36%) for
1998 as compared to the 1997 level. Approximately $13.8 million (16%) of the
increase was directly attributable to the Transactions, approximately $11.0
million (12%) of the increase was attributable to sales and marketing
initiatives related to the promotion of new and established programming networks
and to other general cost increases and approximately $7.0 million (8%) of the
increase was due to charges attributed to RMG related to an incentive stock
plan. As a percentage of revenues, selling, general and administrative expenses
increased 4% in 1998 compared to 1997. Excluding the effects of the incentive
stock plan, as a percentage of revenues such costs increased 3%.
Depreciation and amortization expense increased $1.4 million (4%) during 1998 as
compared to 1997. An increase of approximately $1.1 million (3%) was directly
attributable to the Transactions, with the remaining $0.3 million (1%) resulting
from additional capital expenditures made during the period.
Gain on sale of programming interests for the year ended December 31, 1998 of
$17.7 million resulted from the sale of an interest in a regional sports
programming business. The gain of $158.4 million for the year ended December 31,
1997 represents RMG's proportionate share of the gain resulting from the Fox
transaction.
Equity in net loss of affiliates amounted to $13.4 million for 1998 as compared
to $6.4 million in 1997. Such amounts consisted of RMG's share of the net
profits and losses of certain programming businesses, primarily regional and
national sports programming companies and a national advertising company, in
which Rainbow Media Holdings has varying minority ownership interests.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 And 1999
TRANSACTION
2000 Acquisition. In January 2000, Regional Programming Partners ("RPP")
acquired the 70% interest in SportsChannel Florida Associates that it did not
already own from Front Row Communications, Inc., increasing RPP's ownership to
100%.
RESULTS OF OPERATIONS
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
2000 1999
--------------------- ------------------------ (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues, net....................................... $110,460 100% $ 80,695 100% $ 29,765
Operating expenses:
Technical and operating.......................... 42,775 39 34,960 43 (7,815)
Selling, general & administrative................ 32,895 30 39,310 49 6,415
Depreciation and amortization.................... 9,720 9 9,768 12 48
--------- --------- ----------
Operating income (loss)............................. 25,070 23 (3,343) (4) 28,413
Other income (expense):
Interest expense, net............................ (11,201) (10) (7,196) (9) (4,005)
Equity in net income (loss) of affiliates, net... (1,787) (2) 352 - (2,139)
Miscellaneous, net............................... (588) - (23) - (565)
--------- --------- ---------
Net income (loss)................................... $ 11,494 10% $ (10,210) (13)% $ 21,704
========= ========= =========
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS ENDED
MARCH 31, 1999
Revenues for the three months ended March 31, 2000 increased $29.8 million (37%)
compared to the same period in 1999. Approximately $13.1 million (16%) of the
increase was attributable to growth in program network subscribers and rate
increases, approximately $12.0 million (15%) was directly attributable to the
acquisition of SportsChannel Florida, with the remaining increase of $4.7
million (6%) resulting from higher advertising revenues.
Technical and operating expenses increased $7.8 million (22%) for the three
months ended March 31, 2000 over the comparable 1999 period primarily as a
result of the acquisition of SportsChannel Florida. As a percentage of revenues,
technical and operating expenses decreased 4%.
Selling, general and administrative expenses decreased $6.4 million (16%) for
the three months ended March 31, 2000 over the same period in 1999. A decrease
of $13.9 million (35%) was due to benefits attributed to RMG related to an
incentive stock plan. This decrease was partially offset by an increase of $4.8
million (12%) attributable to increases in sales and marketing initiatives and
other general cost increases and approximately $2.7 million (7%) resulting from
the acquisition of SportsChannel Florida. As a percentage of revenues, selling,
general and administrative expenses decreased 19%. Excluding the effects of the
incentive stock plan, as a percentage of revenues such costs decreased 2%.
Depreciation and amortization expense remained relatively constant for the three
months ended March 31, 2000 over the comparable 1999 period. An increase of $1.6
million (16%), directly attributable to the acquisition of SportsChannel
Florida, was offset by decreases in depreciation resulting from assets which
became fully depreciated over the period.
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Net interest expense increased $4.0 million (56%) during the 2000 period when
compared to the 1999 period primarily due to higher debt levels and, to a lesser
extent, higher interest rates.
Equity in net loss of affiliates amounted to $1.8 million during the three
months ended March 31, 2000 compared to equity in net income of affiliates of
$0.4 million during the same 1999 period. Such amounts consist of RMG's share of
the net profits and losses of certain programming businesses, primarily regional
and national sports programming companies and a national advertising company, in
which Rainbow Media Holdings has varying minority ownership interests.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
OPERATING ACTIVITIES
Cash provided by operating activities amounted to $54.1 million for the year
ended December 31, 1999 compared to $36.3 million for the year ended December
31, 1998. The 1999 cash provided by operating activities consisted primarily of
net income of $63.7 million before depreciation, amortization and other non-cash
items, partially offset by a net decrease in cash resulting from changes in
assets and liabilities of $9.6 million.
Cash provided by operating activities amounted to $36.3 million for the year
ended December 31, 1998 compared to $39.8 million for the year ended December
31, 1997. The 1998 cash provided by operating activities consisted primarily of
net income of $34.8 million before depreciation, amortization and other non-cash
items and a net increase in cash resulting from changes in assets and
liabilities of $1.5 million.
Cash provided by operating activities amounted to $39.8 million for the year
ended December 31, 1997. The 1997 cash provided by operating activities
consisted primarily of net income of $37.2 million before depreciation,
amortization and other non-cash items and a net increase in cash resulting from
changes in assets and liabilities of $2.6 million.
INVESTING ACTIVITIES
Net cash used in investing activities for the year ended December 31, 1999 was
$11.9 million compared to $4.9 million for the year ended December 31, 1998. The
1999 investing activities consisted of $12.6 million of capital expenditures,
partially offset by $0.7 million of proceeds from the sale of equipment.
Net cash used in investing activities for the year ended December 31, 1998 was
$4.9 million compared to $2.0 million for the year ended December 31, 1997. The
1998 and 1997 investing activities consisted solely of capital expenditures.
FINANCING ACTIVITIES
Net cash used in financing activities amounted to $42.1 million for the year
ended December 31, 1999 compared to $32.6 million for the year ended December
31, 1998. In 1999, financing activities consisted primarily of net distributions
to CNYG of $125.0 million and other cash payments aggregating $31.0 million,
principally payments in respect of carriage of certain of RMG's programming
services, partially offset by $113.9 million of net proceeds from bank debt.
Cash used in financing activities amounted to $32.6 million for the year ended
December 31, 1998 compared to $43.1 million for the year ended December 31,
1997. In 1998, financing activities consisted primarily of net distributions to
CNYG of $24.0 million, net repayments of bank debt of $5.3 million and the
payment of capital lease obligations of $3.3 million.
Cash used in financing activities amounted to $43.1 million for the year ended
December 31, 1997. In 1997, financing activities consisted of $220.0 million of
net distributions to CNYG and other net cash payments aggregating $5.0 million,
partially offset by $181.9 million of net proceeds from bank debt.
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THREE MONTHS ENDED MARCH 31, 2000 AND 1999
OPERATING ACTIVITIES
Net cash provided by operating activities amounted to $12.7 million for the
three months ended March 31, 2000 compared to $3.7 million for the three months
ended March 31, 1999. The 2000 cash provided by operating activities consisted
primarily of net income of $53.3 million before depreciation and amortization
and other non-cash items, partially offset by a net decrease in cash resulting
from changes in assets and liabilities of $40.6 million.
The 1999 net cash provided by operating activities of $3.7 million consisted
primarily of net income before depreciation, amortization and other non-cash
items of approximately $13.3 million, partially offset by a net decrease in cash
resulting from changes in assets and liabilities of $9.6 million.
INVESTING ACTIVITIES
Net cash used in investing activities for the three months ended March 31, 2000
was $0.6 million compared to $1.0 million for the three months ended March 31,
1999. Such investing activities consisted solely of capital expenditures.
FINANCING ACTIVITIES
Net cash used in financing activities amounted to $12.2 million for the three
months ended March 31, 2000 compared to $2.4 million in 1999. In 2000, financing
activities consisted of net distributions to CNYG of $12.5 million and other
cash payments aggregating $1.1 million, partially offset by net proceeds of bank
debt of $1.4 million.
Net cash used in financing activities of $2.4 million for the three months ended
March 31, 1999 consisted of repayments of bank debt of $1.8 million and payments
of capital lease obligations of $0.6 million.
YEAR 2000
The Year 2000 issue ("Y2K") refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999.
For the year ended December 31, 1999, RMG recorded approximately $2.8 million of
expenses relating to Y2K remediation. For the three months ended March 31, 2000
and 1999, expenses relating to Y2K remediation were not material.
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THE RAINBOW MEDIA GROUP
DESCRIPTION OF BUSINESS
GENERAL
The Rainbow Media Group includes our interests in certain of Rainbow
Media Holdings' national programming assets and investments and includes:
- five nationally distributed 24-hour entertainment programming
networks
- American Movie Classics
- Bravo
- The Independent Film Channel
- Romance Classics
- MuchMusic USA
- Rainbow Media Holdings' 60% ownership interest in the following
regional sports networks owned by Regional Programming Partners,
all of which Rainbow Media Holdings manages under the Fox Sports
Net name
- Fox Sports Net Florida
- Fox Sports Net Ohio and
- Fox Sports Net Cincinnati
- Rainbow Media Holdings' 30% ownership interest in the following
regional sports networks owned by Regional Programming Partners,
all of which Rainbow Media Holdings manages under the Fox Sports
Net name
- Fox Sports Net Chicago
- Fox Sports Net Bay Area and
- Fox Sports Net New England
- Rainbow Media Holdings' 50% ownership interest in National Sports
Partners, which owns and distributes Fox Sports Net
- Rainbow Media Holdings' 50% ownership interest in National
Advertising Partners, which provides national advertising
representation services to all of the Fox Sports Net regional
sports networks
- Rainbow Network Communications, a full service network programming
origination and distribution company
- Sterling Digital, a company designed to develop new niche audience
programming.
The Rainbow Media Group also will include our 48% interest in the
Regional Sports News business.
PROGRAMMING OPERATIONS
The following chart sets forth each of the Rainbow Media Group's
programming businesses and subscriber information as of March 31, 2000 (except
as noted):
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<TABLE>
<CAPTION>
RAINBOW MEDIA NUMBER OF
PROGRAMMING HOLDINGS OWNERSHIP AFFILIATED BASIC VIEWING
BUSINESSES INTEREST SUBSCRIBERS(1) SUBSCRIBERS(2)
---------- -------- ----------- -----------
<S> <C> <C> <C>
NATIONAL ENTERTAINMENT
PROGRAMMING NETWORKS:
American Movie Classics 100% 72,587,000 67,023,000
Bravo 100% 54,047,000 40,102,000
The Independent Film Channel 100% 36,326,000 11,515,000
Romance Classics 100% 31,360,000 19,369,000
MuchMusic USA 100%(3) 17,975,000 11,566,000
REGIONAL SPORTS NETWORKS:
Fox Sports Net Ohio/Cincinnati 60% 4,342,000 4,069,000
Fox Sports Net New England 30% 3,854,000 3,364,000
Fox Sports Net Chicago 30% 3,518,000 3,310,000
Fox Sports Net Bay Area 30% 3,310,000 3,018,000
Fox Sports Net Florida 60% 3,255,000 3,072,000
NATIONAL SPORTS NETWORKS:
Fox Sports Net 50% 76,100,000 67,472,000
</TABLE>
------------------
1. The number of affiliated basic subscribers is the total of the number of
subscribers covered or served by distributors' systems that offer the
referenced programming network.
2. The number of viewing subscribers is the sum of subscribers to distributors'
systems that receive the referenced programming network.
3. Rainbow Media Holdings acquired the 50% interest in MuchMusic USA it did not
already own in May 2000.
Some of Rainbow Media Holdings' assets that are concentrated primarily
within the New York metropolitan area will not be included in the Rainbow Media
Group. These include:
- our stake in Madison Square Garden, L.P., which includes the
Madison Square Garden Arena complex, the New York Knicks, the New
York Rangers and the New York Liberty professional sports teams,
MSG Network, Fox Sports Net New York, and Radio City
Entertainment, including a long-term lease on Radio City Music
Hall;
- the News 12 Networks in Long Island, Connecticut, New Jersey,
Westchester and the Bronx;
- our MetroChannels in the New York metropolitan area; and
- Rainbow Advertising Sales Corporation.
BUSINESS STRATEGY
Rainbow Media Holdings has been successful in introducing and developing
innovative entertainment and sports networks that provide distinctive
programming to subscribers and distributors. Rainbow Media Holdings' networks
deliver value to their subscribers by identifying and serving market niches with
high-quality programming that is often exclusive to the networks and which is
packaged and marketed in a manner that creates brand affection and subscriber
loyalty.
We believe that the strong brand and name recognition of the Rainbow
Media Group's programming services and the loyalty of its subscribers will
enable it to take advantage of ongoing technological developments and advances
to grow and expand its businesses in a number of key areas. First, we believe
that the continuing roll-out by cable television system operators of advanced
digital set-top boxes and the increased channel capacity resulting from the
roll-out of those boxes, coupled with improvements in digital compression
technology, creates an opportunity to develop and distribute new digital
networks that leverage the brand recognition and the programming resources of
our existing networks. Second, the proliferation of high-speed internet services
provides the opportunity to leverage these same attributes and resources to
create new broadband services that
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both enhance the viewing experience of our television networks and develop new
revenue streams, while further developing the strength of our brands through
multi-platform exposure and cross-promotion.
We are focusing efforts on transforming our television networks into such
multi-platform brands both through in-house development and by seeking focused
strategic alliances, consistent with our network's editorial voices.
Our regional sports services also implement the strategy of serving a
targeted audience in a specific programming niche by taking advantage of the
strong identification most subscribers have with the region in which they live
and their loyalty to their local professional sports teams. The Rainbow Media
Group has taken advantage of its strategic partnership with Fox Sports to
utilize the combined market reach of our regional sports services and those
owned and operated by Fox to improve our competitive position for national
advertising sales and to achieve efficiencies in the creation of backdrop
programming to supplement the professional sports events carried by the regional
sports services.
NATIONAL ENTERTAINMENT PROGRAMMING NETWORKS
The Rainbow Media Group includes five nationally distributed
entertainment networks which acquire, produce and license programming throughout
the United States.
AMERICAN MOVIE CLASSICS
American Movie Classics, or AMC, is a 24-hour movie network featuring
award-winning original productions about the world of American film. With
contractual rights to one of the most comprehensive libraries of classic films
from the 1930s through the 1980s and a diverse blend of original series,
documentaries and interstitials, the service offers in-depth information on
timeless and contemporary Hollywood classics that enhances passionate movie
fans' appreciation of classic movies. AMC is available in 73 million American
homes, representing 91% of all cable television and DBS subscribers in America.
AMC's originally produced series, specials, short subjects and
mini-documentaries include:
- Backstory - A weekly series that tells the stories behind the
biggest movies of all time. Backstory provides insights into the
struggles and triumphs behind the making of movies with personal
interviews, rare and restored footage, and thoughts and opinions
of experts, critics and moviemakers.
- Hollywood Fashion Machine - A highly stylized, Emmy-nominated
documentary series that provides a revealing look at the influence
and impact Hollywood has on fashion throughout the world. Hosted
by Bo Derek and Daryl Hannah.
- The Lot - A mix of fact and fiction, this critically acclaimed,
Emmy-nominated drama series showcases stories and events based on
real Hollywood history from the late 1930s.
- Cinema Secrets - A weekly documentary series that reveals the
magic behind the world of special effects. Interviews with today's
top effects artists, plus scenes from contemporary blockbusters
are combined with rare historical footage to provide a
comprehensive look at special effects.
- Behind the Screen - AMC's weekly signature guide to the world of
classic movies and programming on AMC is the on-air and on-line
portal for classic movie fans. Hosted by AMC's John Burke and
nominated for three Daytime Emmy Awards.
- Film Preservation Festival - AMC's annual event that supports the
network's efforts to preserve America's film heritage by
supporting the seven preeminent archives that save rapidly
deteriorating films. Includes on and off-air fundraising through
an annual charity auction hosted by Martin Scorcese and specially
themed on-air film festivals. Past festivals have paid tribute to
Alfred Hitchcock and John Ford and were highlighted by television
premieres of fully restored films such as Rear Window, Vertigo and
How Green Was My Valley.
In 1999, AMC was rated among the top 10 networks in television by Time
Magazine. In 1998 and 1999, AMC was nominated for more daytime Emmy awards than
any other basic cable network. Among AMC's awards, the network was honored with
the prestigious President's Award from The Academy of Television Arts and
Sciences.
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AMC continues to enhance and expand its content and delivery, bringing
in-depth information to film lovers through the technologies of the digital age.
Through the network's multiple platforms--its website (www.amctv.com), original
internet broadband programming, and AMC Magazine--the entertainment provider
informs movie fans about the history behind their favorite films.
DISTRIBUTION. As of March 31, 2000, AMC was licensed by distributors
serving approximately 72.6 million basic subscribers, which represents an
increase of approximately 4.0 million basic subscribers since December 31, 1998,
and was viewed by approximately 67.0 million subscribers. AMC is available on
cable television and other distribution platforms such as direct broadcast
satellite, or DBS. It is carried on basic or expanded basic where subscribers do
not have to pay a premium to receive the network. Affiliate revenues, which in
1999 accounted for over 95% of AMC's revenues, are based on fees paid by the
distributors for the right to carry the programming.
Distributors generally pay the network according to the number of basic
subscribers rather than the number of subscribers actually receiving AMC. The
network generally enters into five- to seven- year distribution contracts with
its distributors. Affiliation agreements covering about 25% of AMC's basic
subscribers expire prior to the end of 2000.
PROGRAMMING. AMC's film library consists of films that are licensed from
major studios such as Columbia TriStar, Twentieth Century Fox, Paramount, Warner
Brothers, Universal, MGM/UA and RKO under long-term contracts. As of March 31,
2000, AMC had about 3,500 films currently available to it with enough films
under contract to program the channel fully through 2005. AMC generally
structures its contracts for the exclusive cable television right to carry the
films during identified windows.
AMERICAN POP! AMC's American Pop! is the first digital entertainment
network to offer convergence programming, that is, unified content linking
content available on-air during the branded programming block on AMC (Saturdays
10:00 P.M. - Midnight eastern time) to the American Pop! broadband network and
internet website (www.ampop.com). This enhanced entertainment network was
created by AMC to capitalize on the rising interest in Twentieth Century popular
culture and nostalgia. American Pop! was launched on internet and cable modem
services in 1998 as a broadband service with select short form programming and
interactivity features such as online auctions of collectibles, and has been
featured weekly on AMC. American Pop! also provides distributors with high speed
internet content.
BRAVO
GENERAL. Bravo premiered in December 1980 as the first national cable
network for the performing arts. Bravo features films and performing arts
programming including jazz, classical music, ballet, opera, dance, and
theatrical performances, as well as original programs on the arts that profile
the creative process and the creative culture around us. For example, Bravo has
produced or licensed:
- Inside the Actors Studio, which features in-depth conversations
with performing artists, writers and directors such as Alec
Baldwin, Sally Field, Dennis Hopper, Paul Newman, Neil Simon,
Stephen Sondheim, Steven Spielberg, Meryl Streep and Shelley
Winters;
- Bravo Profiles, which offers a penetrating look at a variety of
influential creative icons, from fine artists like Salvador Dali
to pop stars like Madonna;
- Bravo on Broadway, an annual festival of Broadway-inspired
product, including performances, music and profiles;
- The Awful Truth, Michael Moore's social documentaries taking on
topics ranging from impeachment hearings to corporate downsizing;
- Louis Theroux's Wild Weekends, which provides viewers with a hip
travelogue that explores peculiarly American sub-cultures like pro
wrestling and UFO chasing; and
- The Count of Monte Cristo, Bravo's first original mini-series.
In 1999, Bravo was awarded the Creators Award by the National Academy of
Creative Programming, recognizing original and creative content improving the
quality and offerings of cable television.
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Along with its sister network, The Independent Film Channel, Bravo plays
a leading role as a purveyor of arts on the new media frontier. Bravo's new
media content extends its brands across new technology platforms including
broadband and the internet as well as other interactive opportunities. Bravo's
interactive unit includes:
- Bravo Online (www.bravotv.com), dedicated to film and arts
- World Cinema Online (www.worldcinematv.com), the comprehensive
online resource for foreign film
- IFC Online and IFC Broadband (www.ifctv.com), helping to further
the audience for independent film
In addition, Rainbow's 1999 production and marketing co-venture with
Salon.com brings Bravo new content and branding opportunities.
DISTRIBUTION. As of March 31, 2000, Bravo served approximately 54.0
million basic subscribers, a 39% increase from the 38.8 million basic
subscribers served as of December 31, 1998, and was viewed by 40.1 million
subscribers. Bravo is generally carried on basic or expanded basic where
subscribers do not have to pay a premium fee to receive the network.
Affiliate revenues, which accounted for approximately 63% of total
revenues in the first quarter of 2000, are based on fees paid by the
distributors for the right to carry the programming. Distributors generally pay
the network according to the number of subscribers actually receiving Bravo.
Bravo generally enters into five- to ten- year distribution contracts with its
distributors. Affiliation agreements covering about 32% of Bravo's basic
subscribers expire prior to the end of 2000.
PROGRAMMING. Bravo's film library consists of films that are licensed
from major studios such as Universal, Disney, Twentieth Century Fox, Paramount,
Sony and Warner Bros. and smaller studios such as Artisan, New Line, USA, Lion's
Gate and Miramax under long-term contracts. As of March 31, 2000, Bravo had
about 1,200 films currently available to it with enough films under contract to
program the channel fully through 2003, with significant product volume through
2005. Bravo generally structures its contracts for the exclusive cable
television rights to carry the films during identified window periods.
ADVERTISING. Bravo generated sponsorship revenue from 1992 through the
third quarter of 1998. Beginning in September 1998, Bravo launched a traditional
format of advertising with commercial program interruptions and the utilization
of Nielsen ratings to gauge viewership. Advertising revenue for 1999 represented
about 30% of Bravo's revenues for 1999.
THE INDEPENDENT FILM CHANNEL
The Independent Film Channel, or IFC, is the first network dedicated to
independent films and related features and programming. IFC presents
feature-length films (domestically and internationally produced), documentaries,
shorts, animation, new works, "cult classics" and originally produced programs
which chronicle independent film trends. Based on the popularity of independent
films shown on Bravo, and using its infrastructure, existing contacts and strong
relationships with independent film producers and distributors, IFC was launched
in 1994 with the support of its Advisory Board. The Advisory Board, which
includes Martin Scorsese, Robert Altman, Spike Lee, Tim Robbins, Joel and Ethan
Coen, Martha Coolidge, Jim Jarmusch, Steven
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Soderbergh and Jodie Foster, is a council of prominent filmmakers and artists
who advise IFC on artistic content and format and provide promotional support.
IFC features films from leading independent film distributors like
Miramax, Artisan, Lion's Gate, Sony Classics, Fox Searchlight, USA and Fine
Line. IFC also features live coverage of notable film events like the Cannes
Film Festival, the Independent Spirit Awards and the Gotham Awards. In addition,
IFC provides coverage of major film festivals. The network supplements this
coverage with additional real-time information on its film site on the internet
and enhanced broadband. Through shows like Split Screen hosted by independent
film pioneer John Pierson, and documentaries like In Bad Taste: The John Waters
Story, viewers get a first-person perspective on independent film and film
making from groundbreaking producers, directors and actors.
Formed in 1998, IFC's subsidiaries include IFC Productions, which
provides financing for established film makers, and Next Wave Films, which
provides finishing funds for ultra-low budget features. IFC Productions is the
name behind numerous critical and commercial successes, including John Sayles'
Men with Guns and Kimberly Peirce's Boys Don't Cry, which received two Oscar
nominations and for which Hilary Swank won a Golden Globe and Academy Award for
Best Actress. Next Wave Films has brought five award-winning films to the screen
including the Lion's Gate release Blood, Guts, Bullets and Octane. Both IFC
Productions and Next Wave Films have commenced financing digital features in
addition to their film activities.
IFC's new ventures include IFC Films, a subsidiary through which IFC is
building its film library through the purchase of films or through the purchase
of distribution rights in perpetuity to films, such as its recent acquisition of
Errol Morris' award-winning films Gates of Heaven, Vernon, Florida and A Thin
Blue Line.
As of March 31, 2000, IFC was licensed by distributors throughout the
United States serving approximately 36.3 million basic subscribers and was
viewed by approximately 11.5 million subscribers.
ROMANCE CLASSICS
GENERAL. Romance Classics, launched in 1997, is a 24-hour entertainment
service for women. It is designed to be "time-out TV" to help women disconnect
from the stresses of the everyday world. Romance Classics features recent hit
movies and world premier films, original biographies of inspiring women and
lifestyle programs on subjects like travel, beauty, home, entertaining and
relationships, including:
- Cool Women, profiles of ordinary women who do extraordinary
things, produced by award-winning
director/producer/actress/choreographer Debbie Allen
- Journey Women, which tracks the experiences of women as they
travel exotic points on the globe in search of adventure
- Everyday Elegance, a lifestyle instruction show hosted by style
guru and celebrity party planner Colin Cowie
- Styleworld, a magazine show featuring shopping, travel and style
hosted by actress/model Rachel Hunter
- Great Romances of the 20th Century, a biography series that
explores the love affairs of high profile couples such as Paul and
Linda McCartney, Ronald and Nancy Reagan and Marilyn Monroe and
Joe DiMaggio.
Every night in prime time the network offers Cinematherapy. Two women
cinematherapists/hosts present polls on topics of interest, interact with the
audience via e-mail, and conduct interviews while prescribing movies.
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Romance Classics' original broadband content and website
(www.romanceclassics.com) help women simplify their lives. The interactive,
broadband-delivered StyleGuide offers information and instruction on such topics
as entertaining, wedding planning, travel and food preparation, as well as a
streaming video programming guide to the network's offerings.
DISTRIBUTION. As of March 31, 2000, Romance Classics served approximately
31.6 million basic subscribers, which represented a 57.8% increase from the 19.9
million basic subscribers served as of December 31, 1998, and was viewed by 19.4
million subscribers. Affiliation agreements covering about 14% of Romance
Classic's basic subscribers are unexecuted.
PROGRAMMING. Romance Classics has licensed exclusive film titles to
supplement its slate of original programming, providing significant product
volume through 2005. Exclusive deals have been concluded with major Hollywood
studios such as Twentieth Century Fox, Universal and Columbia as well as
independents like Castle Hill and Artisan. In addition, the network acquires
films for world premiere with such high-profile stars as Daryl Hannah and
Catherine Zeta-Jones.
MUCHMUSIC USA
MuchMusic USA is a 24-hour, all-music entertainment programming network
which was launched in the United States in July 1994 and currently features the
MuchMusic programming feed produced by Chum Limited, a Canadian programmer,
under a long-term programming license agreement with Chum Limited that permits
MuchMusic USA to use all or any part of the MuchMusic programming. MuchMusic USA
produces an average of 13 hours of live programming every day, including musical
series and concerts, as well as music videos featuring rock, pop, alternative,
blues, metal and rap. The network includes music from all genres and features
established as well as emerging artists in a live, interactive format. MuchMusic
USA supplements its videos with interviews and drop-in performances by both
established stars and emerging acts. MuchMusic USA features weekday series like
Break This and Rap City and specials like The Wedge, Electric Circus and
MuchCombatZone.
MuchMusic USA's concert and interview series, "Intimate and Interactive"
("I&I"), connects viewers with top performers in a live, intimate setting, via
real-time internet sessions, phone, fax and live audience participation. The
show recently migrated to the United States with live simulcast performances and
has become a staple on the MuchMusic USA programming schedule.
As of March 31, 2000, MuchMusic USA was licensed by distributors
throughout the United States serving approximately 18.0 million basic
subscribers and was viewed by approximately 11.6 million subscribers.
REGIONAL SPORTS NETWORKS
The Rainbow Media Group has a 44% interest in three regional sports
networks operating under the Fox Sports Net name and has a 22% interest in three
other regional sports networks operating under the Fox Sports Net name. The
Rainbow Media Group manages each of these regional sports networks, which are
distributed in their respective region in the United States as well as
nationally through DBS and TVRO distributors. Each of these networks derives its
revenue from two principal sources:
- fees paid by distributors licensed to receive and distribute the
network to subscribers, and
- fees paid by advertisers purchasing commercial time on the
network.
Affiliation fees vary from network-to-network depending on an array of
factors including:
- the nature and volume of sporting events carried by the network
and the market served by them, and
- distribution and positioning commitments made by the distributor
and the market location of the affiliate.
Each market is defined based upon its geographic location and
restrictions in the applicable cable television rights agreements, including
applicable league rules, to which the regional sports network is a party.
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The following chart sets forth, for each of the Rainbow Media Group's
regional sports networks, basic subscribers, the professional sports team
affiliations and areas of distribution as of March 31, 2000:
<TABLE>
<CAPTION>
BASIC PROFESSIONAL SPORTS
REGIONAL SPORTS NETWORK SUBSCRIBERS TEAM AFFILIATIONS DISTRIBUTION AREA(1)
----------------------- ----------- ----------------- --------------------
<S> <C> <C> <C>
Fox Sports Net Ohio/Cincinnati 4,342,000 Cleveland Indians Ohio
Cleveland Cavaliers Western Pennsylvania
Cincinnati Reds Northwestern
Columbus Blue Jackets New York
(NHL in 2000) West Virginia
Columbus Crew Kentucky
(MLS) Indiana
Fox Sports Net New England 3,854,000 Boston Celtics Massachusetts
New England Maine
Revolution (MLS) New Hampshire
Rhode Island
Vermont
Connecticut (except
Fairfield County)
Fox Sports Net Chicago 3,518,000 Chicago Cubs Illinois
Chicago White Sox Indiana
Chicago Bulls Iowa
Chicago Blackhawks Wisconsin
Chicago Fire (MLS)
Fox Sports Net Bay Area 3,310,000 Oakland Athletics Northern California
San Francisco Giants Northern Nevada
Golden State Warriors Southern
Sacramento Kings Oregon
San Jose Sharks
San Jose Earthquakes
(MLS)
Fox Sports Net Florida 3,255,000 Florida Marlins Florida
Florida Panthers
Tampa Bay Devil Rays
</TABLE>
--------------------
(1) In addition to the regions listed above, all or a portion of the
programming of each of the Rainbow Media Group's regional sports networks
is made available nationally to viewers through other distributors, such
as DBS and TVRO.
Regional Sports Report was launched in July 2000. It is an extensive
network of sports news gathering teams which produce regional sports news
programming as a complement to Fox Sport Net's National Sports Report. The
programming will be produced in production centers located in several regional
offices. The format will include a 30-minute update at 11:00 pm which provides
heavy emphasis on key local stories and scores. The Rainbow Media Holdings
managed Regional Sports Report hubs will be in Chicago, New England and New York
and will cover five regional sports networks managed by Rainbow Sports.
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NATIONAL SPORTS NETWORKS
FOX SPORTS NET. Fox Sports Net is distributed by National Sports
Partners, a 50%/50% partnership between Rainbow Media Holdings and Fox
Entertainment that was formed in December 1997. Fox Sports Net was launched
during January 1998 under Fox's management and links 22 regional sports networks
under the Fox Sports Net name, including the six Fox Sports Net networks in
which the Rainbow Media Group owns an interest described above, and delivers
local, regional and national sports programming to more than 69 million
households nationwide.
Fox Sports Net has been structured based on the "broadcast network
affiliate" model in which each regional sports network airs a slate of local
programming, which is supplemented by a schedule of network provided national
programming, consistent across all regions. Unlike the typical "broadcast
network affiliate" model, each regional sports network's programming is anchored
by highly rated local programming, including exclusive coverage of major
professional teams, during prime time, with national Fox Sports Net programming
during the balance of the schedule. The primary function of Fox Sports Net is to
complement regional sports programs with a synchronized schedule of quality
national programming, the cornerstone of which is the National Sports Report.
The National Sports Report provides coverage of all sports news nationwide,
presenting a consistent brand image with high quality on-air graphics. A
regionally produced pre-game show will air at 6:30 p.m. in each market and the
one-hour National Sports Report will air at 10:00 p.m., each of which is shown
locally in each time zone. Fox Sports Net also provides other sports programming
events, including nationally televised Major League Baseball games, NCAA college
football and basketball, boxing, PGA golf, Formula One racing and other sporting
events, as well as original sports-related programming such as The Last Word and
Going Deep. In addition to providing national programming, Fox Sports Net also
supplies corporate marketing support, as well as technical operations to our
regional sports networks, helping to create a cohesive network.
Fox Sports Net has entered into affiliation agreements with 24 regional
sports networks across the country with rights to telecast 73 professional
sports teams out of a total of 77 U.S.-based teams in the combined Major League
Baseball, National Basketball Association and National Hockey League teams.
These affiliation agreements include our regional sports networks in the Rainbow
Media Group, certain regional sports networks that Regional Programming Partners
owns and operates, regional sports networks owned and operated by Fox, and, in
certain regions where neither Rainbow nor Fox holds interests in regional sports
networks, with third party owned regional sports networks. These agreements
allow the regional sports networks to carry certain programming of Fox Sports
Net in exchange for a per subscriber fee. The affiliation agreements also permit
Fox Sports Net to market and sell advertising time during the national portions
of the regional sports networks programming schedule. Pursuant to separate
advertising representation agreements, the National Advertising Partnership is
permitted to sell advertising time for the regional sports networks during a
portion of the regional sports networks' regional sports programming.
OTHER SERVICES
NATIONAL ADVERTISING PARTNERS.
National Advertising Partners is a 50%/50% partnership between Rainbow
Media Holdings and Fox Entertainment that was formed in December 1997 and began
operations under the management of Fox in January 1998. National Advertising
Partners provides national advertising representation services for Fox Sports
Net and the Fox Sports Net regional programming networks, offering advertisers
access to millions of sports fans in the nation's top television markets and
covering most of the Major League Baseball, National Basketball Association and
National Hockey League teams.
RAINBOW NETWORK COMMUNICATIONS.
Rainbow Network Communications, which is wholly owned by Rainbow Media
Holdings, is a full service network programming origination and distribution
company. Its services include origination, transmission, video engineering,
uplinking, encryption, affiliate engineering, technology consulting, transponder
negotiation, content ordering, quality control and editing.
Rainbow Network Communications is in the process of completing a state of
the art technology center which will consolidate all master control/playback and
uplink facilities at one location. This new center will be fully digital which
will enable Rainbow Network Communications to process audio and video signals in
both standard and high definition.
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STERLING DIGITAL
Sterling Digital, a subsidiary of Rainbow Media Holdings, Inc., is a
company established by Charles F. Dolan, which is designed to develop new niche
audience programming to be distributed and marketed using new media platforms,
including digital video channels.
PROVISIONS OF PARTNERSHIP AGREEMENTS
CERTAIN PROVISIONS OF THE GENERAL PARTNERSHIP AGREEMENT OF REGIONAL
PROGRAMMING PARTNERS. The following are summaries of certain provisions of the
General Partnership Agreement of Regional Programming Partners, or RPP.
MANAGEMENT. The business and affairs of RPP are directed and controlled
by a subsidiary of Rainbow Media Holdings, as the managing partner, except where
the agreement provides for decisions to be made by the Partner's Committee. The
managing partner has exclusive authority to act for RPP, holding the power to
provide management and other services that are necessary or appropriate to the
conduct of the business. The managing partner is entitled to reimbursement for
all direct and indirect expenses incurred in the furtherance of the business of
RPP, provided that all indirect expenses incurred are allocated pursuant to an
agreed allocation policy. Upon certain defined "changes of control" of Rainbow
Media Holdings, the managing partner may be removed by written notice within 60
days of the change of control. The Partner's Committee consists of two
individuals designated from each of Fox and Rainbow Media Holdings, with each
partner receiving one vote at meetings of the Partner's Committee.
The Partner's Committee meets quarterly to review development plans, the
financial position of RPP, the status of negotiations for the purchase and sale
of programming rights, financial projections and any other material matters
relating to the business of RPP. The Partner's Committee also meets annually to
review the annual budget and the business plan. It is also the responsibility of
the managing partner to submit a budget and a revised five-year business plan to
the Partner's Committee annually. Any action taken by the Partner's Committee
must be approved by a 66 2/3% vote, calculated by partnership percentage.
The unanimous consent of all partners is required for the managing
partner or the Partners' Committee to do any of the following: (1) amending the
partnership agreement, (2) admitting a new partner, (3) merging the partnership,
(4) dissolving the partnership, (5) transferring the partnership's assets other
than in connection with an initial public offering, (6) making any capital
calls, (7) purchasing or selling material assets of the partnership, (8)
directly acquiring a substantial interest in another entity, and (9) incurring
indebtedness.
CAPITAL CONTRIBUTIONS. The managing partner may call any capital
contribution due in accordance with the budget. All contributions are to be made
in proportion to each partner's respective sharing percentage. Failure of a
partner to make a required capital contribution causes a dilution of that
partner's interest in RPP, leading to an increase in the sharing percentage of
the complying partners. Complying partners may make capital contributions for a
non-complying partner, with the effect of an increase in the complying partner's
sharing percentage. If at any time a partner's sharing percentage is less than
40% of its initial sharing percentage, the partner forfeits voting rights and
rights to consent to partnership actions.
DISTRIBUTIONS. The managing partner may distribute an amount of cash to
the partners that it determines to be in excess of the amounts reasonably
necessary for the continued efficient operation of the partnership. The managing
partner may retain excess funds if it feels that they are necessary for the
efficient operation of the business, or if these funds are to be used in a
manner generally related to the media or entertainment business.
RESTRICTIONS ON TRANSFER. A partner does not have the right to transfer
its interest without offering a right of first refusal to the remaining
partners. If no partner purchases the interest, the selling partner has 90 days
to sell the offered interest in its entirety to a third party. Aside from this,
no partner has the right to transfer all or any part of its interest without the
prior written consent of all of the partners.
BUY-OUT PROCEDURE. A buy-out may be initiated by the Rainbow Media
Holdings partner if the Fox partner votes against certain measures brought to
the Partner's Committee by the Rainbow Media Holdings partner. If a buy-out is
initiated, Rainbow Media Holdings and Fox are required to negotiate in good
faith to determine the fair market value of the partnership
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interests, selecting an appraiser if no value can be agreed upon. Within 60 days
of the determination of a value, Rainbow Media Holdings is obligated to purchase
and Fox is obligated to sell all of the interest at a price calculated at the
greater of (1) the fair market value of the partnership interests or (2) $2.125
billion (increased by capital contributions and reduced by distributions) times
the sharing percentage of the Fox partner plus a rate of return of this amount
at a per annum rate equal to 8%.
IPO-CALL PROCEDURE. An IPO-Call may be initiated by the Fox partner
beginning in December 2002. If an IPO-Call is made, the Rainbow partner is
obligated to purchase, and the Fox partner is obligated to sell all of the
interests of the Fox partner at the call price. For 45 days after the receipt of
an IPO-Call notice, the Fox partner and the Rainbow partner will negotiate in
good faith to determine the fair market value of the partnership interests,
selecting an appraiser if they fail to agree upon a value. The call price will
be the determined value multiplied by the sharing percentage of the Fox partner.
Within 30 days after the determination of the call price, the Rainbow partner
may elect to either (i) purchase the interest in the Fox partner for either (A)
a number of marketable securities of Cablevision or Rainbow Media Holdings
calculated by dividing the call price by the current market price of such
securities, or (B) a promissory note of the Rainbow partner secured by the
interest purchased, or (ii) consummate an initial public offering of RPP within
180 days.
CERTAIN PROVISIONS OF THE GENERAL PARTNERSHIP AGREEMENTS OF NATIONAL
SPORTS PARTNERS AND NATIONAL ADVERTISING PARTNERS. The following are summaries
of certain provisions of the General Partnership Agreement of National Sports
Partners, or NSP, and National Advertising Partners, or NAP.
MANAGEMENT. The business and affairs of NSP and NAP are directed and
controlled by a Fox subsidiary, as the managing partner, except where the
agreement provides for decisions to be made by the Partner's Committee. The
managing partner has exclusive authority to act for the partnership, holding the
power to provide such management and other services as may be necessary or
appropriate to the conduct of the business. The NSP managing partner is required
to (1) return to the partners their capital contribution, (2) return to the
partners a 25% annual profit margin in respect of NSP's national sports service
carried by regional sports networks within RPP, (3) distribute to the regional
sports networks within RPP all profits in excess thereof in accordance with
their affiliation agreements, and (4) distribute funds available for
distribution to the partners in accordance with their sharing percentages.
It is the responsibility of the managing partner of each of NSP and NAP
to keep the Partner's Committee informed with respect to all material matters
and to report to the Partner's Committee once per quarter.
The managing partner is entitled to reimbursement for all direct and
indirect expenses incurred in the furtherance of the business of the
partnership, provided that all indirect expenses incurred are allocated pursuant
to the agreement's allocation policy.
The Partner's Committee consists of two individuals designated from each
of Fox and Rainbow Media Holdings, with each partner receiving one vote at
meetings of the Partner's Committee. The Partner's Committee meets quarterly to
review development plans, the financial position of the partnership, the status
of negotiations for the purchase and sale of programming rights, financial
projections, and any other material matters relating to the business of the
partnership. It is the responsibility of the managing partner to submit a budget
and a revised five-year business plan to the Partner's Committee annually for
approval by the Partners' Committee. Any action taken by the Partner's Committee
must be approved by a 66 2/3% vote, calculated by partnership percentage.
The Partner's Committee also meets to make certain "Extraordinary
Decisions", including (1) making loans to non-partners, (2) incurring capital
expenditures, (3) commencing, abandoning or settling legal proceedings, (4)
adopting or changing accounting principles, and (5) entering into a material
contract or agreement.
The unanimous consent of all partners is required for the managing
partner or the Partners' Committee to do any of the following: (1) amending the
partnership agreement, (2) admitting a new partner, (3) merging the partnership,
(4) dissolving the partnership, (5) lending or borrowing funds, (6) transferring
the partnership's assets other than in connection with an initial public
offering, (7) making any capital calls, (8) purchasing or selling material
assets of the partnership, (9) directly acquiring a substantial interest in
another entity, (10) incurring indebtedness, and (11) entering into a
transaction with a partner or an affiliate of a partner.
CAPITAL CONTRIBUTIONS. The managing partner may call any capital
contribution due in accordance with the budget. All contributions are to be made
in proportion to each partner's respective sharing percentage. Failure of a
partner to make a required
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capital contribution causes a dilution of that partner's interest in the
partnership, leading to an increase in the sharing percentage of the complying
partners. Complying partners may make capital contributions for a non-complying
partner, with the effect of an increase in the complying partner's sharing
percentage. If at any time a partner's sharing percentage is less than 40% of
its initial sharing percentage, the partner forfeits voting rights and rights to
consent to partnership actions.
DISTRIBUTIONS. The managing partner may distribute an amount of cash to
the partners that it determines to be in excess of the amounts reasonably
necessary for the continued efficient operation of the partnership, including
reasonable reserves.
RESTRICTIONS ON TRANSFER. A partner does not have the right to transfer
its interest without offering a right of first refusal to the remaining
partners. If no partner purchases the interest, the selling partner has 90 days
to sell the offered interest in its entirety to a third party. Aside from this,
no partner has the right to transfer all or any part of its interest without the
prior written consent of all of the partners.
IPO-CALL PROCEDURE. An IPO-Call may be initiated by the Rainbow partner
beginning in December 2002. If an IPO-Call is made, the Fox partner is obligated
to purchase, and the Rainbow partner is obligated to sell all of the interests
of Rainbow partner at the call price. For 45 days after the receipt of the
IPO-Call notice, the Fox partner and the Rainbow partner are required to
negotiate in good faith to determine the fair market value of the partnership
interests, selecting an appraiser if they fail to agree upon a value. The call
price is the determined value multiplied by the sharing percentage of the
Rainbow partner. Within 30 days after the determination of the call price, Fox
partner shall elect to either (i) purchase the interest of the Rainbow partner
for either (A) a number of marketable securities of the News Corporation Limited
or a person that holds all of the Fox interests in sports programming,
calculated by dividing the call price by the current market price of such
securities, or (B) a promissory note of Fox partner secured by the interest
purchased, or (ii) consummate an initial public offering of the partnership
within 180 days.
CERTAIN PROVISIONS OF THE GENERAL PARTNERSHIP AGREEMENTS OF SPORTSCHANNEL
CHICAGO ASSOCIATES AND SPORTSCHANNEL PACIFIC ASSOCIATES. The following are
summaries of certain provisions of the General Partnership Agreement of
SportsChannel Chicago Associates and SportsChannel Pacific Associates.
MANAGEMENT. The business and affairs of the partnership are directed and
controlled by a subsidiary of Rainbow Media Holdings, as the managing partner,
who serves without compensation. The managing partner has exclusive authority to
act for the partnership, holding the power to provide such management and other
services as may be necessary or appropriate to the conduct of the business,
including negotiation of pay television agreements. The managing partner is
entitled to reimbursement for all direct and indirect expenses incurred in the
furtherance of the business of the partnership, provided that all indirect
expenses incurred are allocated pursuant to the agreement's allocation policy.
CAPITAL CONTRIBUTIONS. The managing partner may give notice to each
partner of any capital contribution due. All contributions are to be made in
proportion to each partner's respective sharing percentage. Failure of a partner
to make a required capital contribution causes a dilution of that partner's
interest in the partnership. This reduction leads to an increase in the sharing
percentage of the complying partner. Complying partners may also make capital
contributions for the non-complying partner, with the effect of an increase in
the sharing percentage of the complying partner. If at any time a partner's
sharing percentage is less than 40% of its initial sharing percentage, such
partner forfeits voting rights and rights to consent to partnership actions.
DISTRIBUTIONS. The managing partner may distribute an amount of cash to
the partners that it determines to be in excess of the amounts reasonably
necessary for the continued efficient operation of the partnership. The managing
partner may retain excess funds if it feels that they are necessary for the
efficient operation of the business, or if these funds are to be used in a
manner generally related to the media or entertainment business.
RESTRICTIONS ON TRANSFER. A partner does not have the right to transfer
its interest without offering a right of first refusal to the remaining
partners. If no partner purchases the interest, the selling partner has 90 days
to sell the offered interest in its entirety to a third party. Aside from this,
no partner has the right to transfer all or any part of its interest without the
prior written consent of all of the partners.
IPO-CALL PROCEDURE. An IPO-Call may be initiated by Fox Partner beginning
in 2002. Upon making an IPO-Call, the Rainbow partner is obligated to purchase,
and the Fox partner is obligated to sell all of the interests of the Fox partner
at the call price. For 45 days after the receipt of the IPO-Call notice, the Fox
partner and the Rainbow partner are required to negotiate in
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good faith to determine the fair market value of the partnership interests,
selecting an appraiser if they fail to agree upon a value. The call price is the
determined value multiplied by the sharing percentage of Fox Partner. Within 30
days after the determination of the call price, the Rainbow partner may elect to
either (i) purchase the interest of the Fox partner for either (A) a number of
marketable securities of Cablevision or Rainbow Media Holdings calculated by
dividing the call price by the current market price of such securities, or (B) a
promissory note of the Rainbow partner secured by the interest purchased or (ii)
consummate an initial public offering of the partnership within 180 days.
CERTAIN PROVISIONS OF THE LIMITED PARTNERSHIP AGREEMENT OF SPORTSCHANNEL
NEW ENGLAND LIMITED PARTNERSHIP. The following is a summary of certain
provisions of the Limited Partnership Agreement of SportsChannel New England.
The business and affairs of SportsChannel New England are directed and
controlled by a subsidiary of RPP, as the managing partner, except where the
agreement provides for decisions to be made by the Partner's Committee. The
managing partner has exclusive authority to act for the partnership, holding the
power to provide such management and other services as may be necessary or
appropriate to the conduct of the business.
The managing partner is entitled to reimbursement for all direct and
indirect expenses incurred in the furtherance of the business of the
partnership, provided that all indirect expenses incurred are allocated pursuant
to the agreement's allocation policy.
The Partner's Committee consists of two individuals designated from each
of MediaOne and RPP, with each partner receiving one vote at meetings of the
Partner's Committee. The Partner's Committee meets quarterly to review
development plans, the financial position of the partnership, the status of
negotiations for the purchase and sale of programming rights, financial
projections, and any other material matters relating to the business of the
partnership. It is the responsibility of the managing partner to submit a budget
to the Partner's Committee annually for approval by the Partners' Committee. Any
action taken by the Partner's Committee must be approved by a 66 2/3% vote,
calculated by partnership percentage.
The unanimous consent of all partners is required for the managing
partner or the Partners' Committee to do any of the following: (1) admitting a
new partner; (2) launching a new programming service, (3) making cash
distributions to partners, (4) effecting a fundamental change in the general
theme of the partnership's programming, (5) selling material assets of the
partnership, (6) directly acquiring a substantial interest in another entity,
(7) incurring indebtedness, and (8) entering into a transaction with a partner
or an affiliate of a partner not on fair market value terms.
COMPETITION
Our programming networks compete in two basic markets, each of which is
highly competitive. First, our programming networks compete in the market for
distribution of programming networks to cable television systems and other
distributors of video services, such as DBS services. For example, AMC and Fox
Sports Net Chicago compete with other networks for the right to be carried on
cable systems and ultimately for viewing by each system's subscribers. Second,
our programming networks compete with other networks that sell to cable systems
and other video service distributors as well as and with broadcast and other
programming entities to secure desired entertainment and sports programming. In
each of these markets, some of our competitors are large publicly held companies
that have greater financial resources than Cablevision, Rainbow Media Holdings
and the Rainbow Media Group.
DISTRIBUTION OF PROGRAMMING NETWORKS
The business of distributing programming networks to cable television
systems and other video service distributors is highly competitive, and most
existing channel capacity is in use. In distributing a programming network, we
face competition with other providers of programming networks for the right to
be carried by a particular cable system and for the right to be carried by that
cable system on a preferential "tier". Once the Rainbow Media Group's network is
selected by a cable system or satellite distributor, that network competes not
only with the other channels available on the cable network for viewers, but
also with off-air broadcast television, pay-per-view and video-on-demand
networks, online, radio, print, media, motion picture theaters, video cassettes
and other sources of information, sporting events, and entertainment.
Important to the Rainbow Media Group's success in each area of
competition it faces are the prices it charges for its programming network, the
quantity, quality and variety of the programming offered on its network, and the
effectiveness of the
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networks marketing efforts. The competition for viewers in the context of
non-premium programming networks is directly correlated with the competition for
advertising revenues with each of the competitors discussed above.
Competition with other programming networks may be hampered because the
cable television systems through which distribution is sought may be affiliated
with other programming networks. In addition, because such affiliated cable
television systems may have a substantial number of subscribers, the ability of
such programming networks to obtain distribution on affiliated cable television
operators may lead to increased subscriber and advertising revenue for such
networks because of their increased penetration compared to the Rainbow Media
Group's programming networks. Even if such affiliated cable television operators
were to continue to carry the Rainbow Media Group's programming networks, we
cannot assure you that such cable television operators would not move the
Rainbow Media Group's networks to less desirable tiers in the operator's
services offering while moving the affiliated programming network to a more
desirable tier, thereby giving the affiliated programming network a competitive
advantage.
New programming networks with affiliations to desired broadcasting
networks may also have a competitive advantage over the Rainbow Media Group's
new networks in obtaining distribution through the "bundling" of affiliation
agreements with the right to carry the broadcasting network. For example, ESPN2
reportedly became widely distributed in a relatively short period of time in
part because many cable systems were given the legal right to retransmit the ABC
network broadcast programming network over cable in exchange for carrying ESPN2.
An important part of our strategy involves exploiting identified niches
of the cable television viewing audience that are generally well-defined and
limited in size. We have faced and will continue to face increasing competition
as other programming networks are launched that seek to serve the same or
similar niches. For example:
- AMC and Turner Classic Movies both feature American-made classic
movies,
- Romance Classics and Lifetime both feature programming oriented to
female viewers,
- Arts & Entertainment Network, like Bravo, features performing arts
and film programming,
- The Independent Film Channel and The Sundance Channel both feature
independent films, and
- FoxSports Net and ESPNews and CNN/SI are 24-hour sports news
networks.
The introduction of new entrants into the defined niches in which the
Rainbow Media Group currently operates and those in which it contemplates
operating, could have a significant negative impact on the Rainbow Media Group's
future revenues. Although we believe that our strategy of being first to
identify and serve these niches and cultivating a loyal audience within these
niches will be a competitive advantage in such situations, we cannot assure you
that the Rainbow Media Group will not lose viewership to such a new entrant.
SOURCES OF PROGRAMMING
The Rainbow Media Group also competes with other programming networks to
secure desired programming. Although some of this programming is generated
internally through the Rainbow Media Group's efforts in original programming,
most of the Rainbow Media Group's programming is obtained through agreements
with other parties that have produced or own the rights to such programming. We
anticipate that the competition for such programming will increase as the number
of programming networks increases. Other programming networks that are
affiliated with programming sources such as movie or television studios, film
libraries, or sports teams may have a competitive advantage over the Rainbow
Media Group in this area.
COMPETITION FOR ENTERTAINMENT PROGRAMMING SOURCES. With respect to the
acquisition of entertainment programming, such as syndicated programs and
movies, which are not produced by or specifically for programming networks,
competitors include:
- national commercial broadcast television networks,
- local commercial broadcast television stations,
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- the Public Broadcasting Service and local public television
stations,
- pay-per-view programs
- other cable program networks
Some of these competitors have exclusive contracts with motion picture
studios or independent motion picture distributors or, like Turner, own film
libraries.
COMPETITION FOR SPORTS PROGRAMMING SOURCES. Because the loyalty of the
sports viewing audience to a sports programming network is driven by loyalty to
a particular team or teams, access to adequate sources of sports programming is
particularly critical to the Rainbow Media Group's sports networks. Our sports
networks compete for national rights for teams or events principally with:
- national cable networks that specialize in or carry sports
programming,
- television "superstations", like WGN, which distribute sports and
other programming by satellite,
- the national commercial broadcast television networks, and
- independent syndicators that acquire and resell such rights
nationally, regionally and locally,
- DBS operators such as DIRECTV.
Our sports networks also compete for local and regional rights with the
same group of competitors, with local commercial broadcast television stations
and with other local commercial and regional sports networks, such as "New
England Sports Network" and "Sunshine Network".
The owners of distribution outlets such as cable television systems may
also contract directly with the sports teams in their local service areas for
the right to distribute a number of such teams' games on their systems. Some of
these competitors may also have ownership interests in sports teams or sports
promoters, which may give them an advantage in obtaining broadcast rights for
such teams or the sports promoted by such promoters.
In order to remain competitive in the acquisition and retention of rights
to sports programming, our sports networks attempt to secure long-term rights
agreements with teams and athletic conferences. We also attempt to include in
our rights agreements with teams terms that provide our sports networks with
exclusive negotiation periods prior to the scheduled expiration of the term of
such agreements and/or which provide our sports networks with the right to match
an offer made by a competing distributor of sports programming. Our sports
networks, however, are not always successful in attaining these objectives, and
we cannot assure you that our strategy will enable our sports networks to offer
sports programming of the type and in the quantity or quality necessary for our
networks to remain competitive.
In addition to the above considerations, we operate in an environment
that is affected by changes in technology. It is difficult to predict the future
effect of technology on many of the factors affecting the Rainbow Media Group's
competitive position. For example, data compression technology may make it
possible for most video programming distributors to increase their channel
capacity, thereby reducing the competition among programming networks and
broadcasters for channel space. As more channel space becomes available, we
believe that the position of our programming networks in the most favorable
tiers of these distributors would be an important goal. Likewise, our inability
to place the Rainbow Media Group's programming networks on distributors'
favorable tiers would be a competitive disadvantage.
PROPERTIES
The Rainbow Media Group does not directly own any real property. The
Rainbow Media Group and the Cablevision NY Group are parties to a services
agreement under which Cablevision NY Group provides the Rainbow Media Group with
sufficient office, studio and other space to cover all of its current space
requirements and the additional space that the Rainbow Media Group believes it
requires.
V-50
<PAGE> 238
LITIGATION
In the ordinary course of business, the Rainbow Media Group is subject to
various pending claims, lawsuits and contingent liabilities. The Rainbow Media
Group does not believe that the disposition of these matters will have a
material adverse effect on the Rainbow Media Group's consolidated financial
position or results of operations. See Note 12 to Notes to Consolidated
Financial Statements.
REGULATION
Cable television program distributors, such as Rainbow Media Holdings,
and including the Rainbow Media Group, are not directly regulated by the FCC
under the Communications Act of 1934, but they are regulated indirectly when
they are affiliated with a cable television system operation like Cablevision.
Moreover, to the extent that regulations and laws, either presently in force or
proposed, hinder or stimulate the growth of the cable television and satellite
industries, which are directly regulated by the FCC, the business of the Rainbow
Media Group will be directly affected.
The 1992 Cable Act limits in certain ways our ability to freely manage
the Rainbow Media Group's services or carry the Rainbow Media Group's services
on affiliated cable systems and imposes or could impose other regulations on us
and the Rainbow Media Group's services. The "program access" provisions of the
1992 Cable Act require that the Rainbow Media Group's services be sold, under
certain circumstances, to other multichannel video programming providers such as
DBS companies that compete with our local cable systems. The 1996 Telecom Act
extends the program access requirements of the 1992 Cable Act to a telephone
company that provides video programming by any means directly to subscribers,
and to programming in which such a company holds an attributable ownership
interest, thus allowing our cable systems similar access to any programming that
may be developed by their telephone company competitors. Such telephone company
competitors have not, as yet, deregulated such programming.
Under a mandate in the 1996 Telecom Act, the FCC has also imposed
requirements on cable operators that, in effect, require certain of the Rainbow
Media Group services to provide closed captioning for the hearing-impaired. The
FCC is also considering rules that would force certain of the Rainbow Media
Group services to provide video descriptions for the sight-impaired.
The 1984 Cable Act limits the number of commercial leased access channels
that a cable television operator must make available for potentially competitive
services to any of the Rainbow Media Group networks it carries. The 1992 Cable
Act, however, empowered the FCC to set the rates and conditions for such leased
access channels, which it has done in a manner designed to increase use of such
channels.
The 1992 Cable Act also guarantees broadcast stations the right to be
carried on cable systems under the so-called "must carry" rules. This reduces
significantly the amount of channel space that is available for cable system
carriage of networks. The FCC is currently considering whether to require cable
systems to carry each broadcast station's digital broadcast signal, as well as
its existing analog broadcast signal, during the transition period to complete
conversion of all broadcast television stations from analog technology to
digital technology, scheduled to occur by December 31, 2006. If the FCC decides
to require such "dual must carry, " this would even more significantly reduce
the amount of channel space available for our networks on cable systems.
Satellite common carriers, from which the Rainbow Media Group and its
affiliates obtain transponder channel time to distribute their programming, are
directly regulated by the FCC. All common carriers must obtain from the FCC a
certificate for the construction and operation of their interstate
communications facilities. Satellite common carriers must also obtain FCC
authorization to utilize satellite orbital slots assigned to the United States
by the World Administrative Radio Conference. Such slots are finite in number,
thus limiting the number of carriers that can provide satellite service and the
number of channels available for program producers and distributors such as the
Rainbow Media Group and its affiliates. Nevertheless, there are at present
numerous competing satellite services that provide transponders for video
services to the cable industry.
All common carriers must offer their communications service to the
Rainbow Media Group and others on a nondiscriminatory basis (including by means
of a lottery). A satellite carrier cannot unreasonably discriminate against any
customer in its charges or conditions of carriage.
V-51
<PAGE> 239
EMPLOYEES
As of March 31, 2000, the Rainbow Media Group had approximately 621
full-time employees, of which 196 were employed by Regional Programming
Partners. None of the employees of the Rainbow Media Group or those of Regional
Programming Partners are covered by collective bargaining agreements. The
Rainbow Media Group believes that its relationship with its employees and the
relationship of Regional Programming Partners with its employees included in the
Rainbow Media Group are satisfactory.
V-52
<PAGE> 240
ANNEX VI
THE CABLEVISION NY GROUP
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Financial Statements.....................................................................VI-2
Management's Discussion and Analysis of Financial Condition and Results of Operations.............VI-50
Description of Business...........................................................................VI-64
</TABLE>
VI-1
<PAGE> 241
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................................... VI-3
Combined Balance Sheets - December 31, 1999 and 1998................................................... VI-4
Combined Statements of Operations - Years
ended December 31, 1999, 1998 and 1997........................................................ VI-6
Combined Statements of Group Deficiency - Years
ended December 31, 1999, 1998 and 1997........................................................ VI-7
Combined Statements of Cash Flows - Years ended
December 31, 1999, 1998 and 1997.............................................................. VI-8
Notes to Combined Financial Statements................................................................. VI-10
Combined Balance Sheets - March 31, 2000 (unaudited) and December 31, 1999............................. VI-42
Combined Statements of Operations - Three months
ended March 31, 2000 and 1999 (unaudited)........................................................ VI-44
Combined Statements of Cash Flows - Three months
ended March 31, 2000 and 1999 (unaudited)........................................................ VI-45
Notes to Combined Financial Statements (unaudited)..................................................... VI-47
</TABLE>
VI-2
<PAGE> 242
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cablevision Systems Corporation
We have audited and reported separately herein on the consolidated financial
statements of Cablevision Systems Corporation and subsidiaries ("Cablevision")
as of December 31, 1999 and 1998, and for each of the years in the three-year
period ended December 31, 1999.
We have also audited the accompanying combined balance sheets of Cablevision NY
Group (a combination of certain assets and businesses of Cablevision, as
described in Note 1) as of December 31, 1999 and 1998, and the related combined
statements of operations, group deficiency and cash flows for each of the years
in the three-year period ended December 31, 1999. These combined financial
statements are the responsibility of Cablevision's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Cablevision NY Group has been operated as an integral part of Cablevision, and
has no separate legal existence. As described in Note 1, these combined
financial statements have been derived from the consolidated financial
statements and accounting records of Cablevision and reflect certain assumptions
and allocations. Moreover, as indicated in Note 3, Cablevision NY Group relies
upon Cablevision for administrative, management and other services. The
financial position, results of operations and cash flows of Cablevision NY Group
could differ from those that might have resulted had Cablevision NY Group been
operated autonomously or as an entity independent of Cablevision. The combined
financial statements of Cablevision NY Group are presented for purposes of
additional analysis of Cablevision's consolidated financial statements, and
should be read in conjunction with those statements.
In our opinion, the combined financial statements referred to in the second
paragraph above present fairly, in all material respects, the financial position
of Cablevision NY Group as of December 31, 1999 and 1998, and the results of its
operations and its cash flows on the basis of presentation described in Note 1,
for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
KPMG LLP
Melville, New York
August 8, 2000
VI-3
<PAGE> 243
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
COMBINED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents .......................................................... $ 62,560 $ 173,727
Accounts receivable trade (less allowance for doubtful accounts of
$26,231 and $26,723) ............................................................ 179,354 168,510
Notes and other receivables ........................................................ 128,852 181,869
Inventory, prepaid expenses and other assets ....................................... 216,895 202,126
Property, plant and equipment, net ................................................. 2,703,221 2,465,092
Investments in affiliates .......................................................... 262,125 266,123
Advances to affiliates ............................................................. 153,044 135,870
Net assets held for sale ........................................................... 269,349 11,006
Franchises, net of accumulated amortization of
$703,237 and $640,735 ........................................................... 651,777 850,653
Affiliation and other agreements, net of accumulated amortization of
$165,474 and $117,697 ........................................................... 106,580 125,242
Excess costs over fair value of net assets acquired and other intangible assets,
net of accumulated amortization of
$673,702 and $738,251 ........................................................... 1,779,062 1,950,034
Deferred financing, acquisition and other costs, net of
accumulated amortization of $48,119 and $39,130 ................................. 116,493 106,821
---------- ----------
$6,629,312 $6,637,073
========== ==========
</TABLE>
See accompanying notes to
combined financial statements.
VI-4
<PAGE> 244
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
COMBINED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
LIABILITIES AND GROUP DEFICIENCY
--------------------------------
<S> <C> <C>
Accounts payable ................................... $ 387,119 $ 401,155
Accrued liabilities:
Interest ....................................... 114,972 85,782
Employee related costs ......................... 429,359 304,844
Other .......................................... 452,502 454,870
Contract obligations ............................... 104,241 132,639
Deferred revenue ................................... 274,043 334,213
Bank debt .......................................... 1,892,714 1,784,768
Senior notes and debentures ........................ 2,692,602 2,194,443
Subordinated notes and debentures .................. 1,048,513 1,048,375
Capital lease obligations and other debt ........... 65,482 30,240
----------- -----------
Total liabilities .............................. 7,461,547 6,771,329
Series H Redeemable Exchangeable Preferred Stock ... 409,757 364,953
Series M Redeemable Exchangeable Preferred Stock ... 994,754 891,386
Commitments and contingencies
Group deficiency ................................... (2,236,746) (1,390,595)
----------- -----------
$ 6,629,312 $ 6,637,073
=========== ===========
</TABLE>
See accompanying notes to
combined financial statements.
VI-5
<PAGE> 245
CABLEVISION NY GROUP
(a combination of certain assets and businesses of Cablevision
Systems Corporation)
COMBINED STATEMENTS OF OPERATIONS
December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues, net (including retail electronics sales of
$603,294, $464,388 and $-0-) ............................................ $ 3,601,727 $ 2,998,734 $ 1,736,752
----------- ----------- -----------
Operating expenses:
Technical and operating ................................................. 1,409,543 1,162,119 766,974
Retail electronics cost of sales.....................................- .. 484,760 367,102 -
Selling, general and administrative ..................................... 1,050,703 786,158 426,109
Depreciation and amortization ........................................... 853,895 699,683 466,794
----------- ----------- -----------
3,798,901 3,015,062 1,659,877
----------- ----------- -----------
Operating income (loss) .................................................... (197,174) (16,328) 76,875
----------- ----------- -----------
Other income (expense):
Interest expense ........................................................ (443,105) (397,703) (336,496)
Interest income ......................................................... 10,313 27,430 5,336
Equity in net loss of affiliates, net ................................... (11,560) (23,966) (20,791)
Gain on sale of programming interests and cable assets, net ............. - 153,264 213,625
Gain on redemption of subsidiary preferred stock ........................ - - 181,738
Write off of deferred interest and financing costs ...................... (3,012) (23,482) (24,547)
Provision for preferential payment to related party ..................... - (980) (10,083)
Miscellaneous, net ...................................................... (16,268) (19,815) (12,371)
----------- ----------- -----------
(463,632) (285,252) (3,589)
----------- ----------- -----------
Net income (loss) before dividend requirements ............................. (660,806) (301,580) 73,286
Dividend requirements applicable to preferred stock ..................... (170,087) (161,872) (148,767)
----------- ----------- -----------
Net loss ................................................................... $ (830,893) $ (463,452) $ (75,481)
=========== =========== ===========
</TABLE>
See accompanying notes to
combined financial statements.
VI-6
<PAGE> 246
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
COMBINED STATEMENTS OF GROUP DEFICIENCY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1997 ............. $(2,343,480)
Net contributions from RMG ....... 263,496
Net income ....................... 73,286
Preferred dividend requirements .. (148,767)
Employee stock transactions ...... 7,616
Net payments from partners or
stockholders ..................... 761,088
-----------
Balance, December 31, 1997 ........... (1,386,761)
Net distributions to RMG ......... (13,725)
Net loss ......................... (301,580)
Preferred dividend requirements .. (161,872)
Redemption of preferred stock of
CSC Holdings...................... (9,409)
Employee stock transactions ...... 12,082
Net payments to partners
or stockholders .................. (65,580)
Issuance of Cablevision common
stock ............................ 536,250
-----------
Balance, December 31, 1998 ........... (1,390,595)
Net contributions from RMG ....... 39,725
Net loss ......................... (660,806)
Preferred dividend requirements .. (170,087)
Redemption of preferred stock of
CSC Holdings...................... (98)
Employee stock transactions ...... 15,170
Net payments to partners or
stockholders ..................... (76,861)
Issuance of Cablevision common
stock ............................ 7,305
Purchase of treasury stock ....... (499)
-----------
Balance, December 31, 1999 ........... $(2,236,746)
===========
</TABLE>
See accompanying notes to
combined financial statements.
VI-7
<PAGE> 247
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................................... $ (660,806) $ (301,580) $ 73,286
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ...................................... 853,895 699,683 466,794
Equity in net loss of affiliates, net .............................. 11,560 23,966 20,791
Gain on sale of programming interests and cable assets, net ........ - (153,264) (213,625)
Gain on sale of investments ........................................ (10,861) - -
Write off of deferred interest and financing costs ................. 3,012 23,482 24,370
Gain on redemption of subsidiary preferred stock ................... - - (181,738)
(Gain) loss on sale of equipment, net .............................. 10,061 (604) 5,325
Write off of investment in affiliate ............................... 15,100 - -
Amortization of deferred financing and debenture discount .......... 9,067 7,761 7,046
Change in assets and liabilities, net of effects of acquisitions and
dispositions:
Accounts receivable trade ...................................... (13,685) 22,838 (29,504)
Notes and other receivables .................................... 28,119 (91,091) (64,892)
Inventory, prepaid expenses and other assets ................... (24,652) (50,242) 3,659
Advances to affiliates ......................................... (17,914) (17,501) (7,024)
Other deferred costs ........................................... 506 11,689 -
Accounts payable ............................................... 1,151 117,249 38,170
Accrued liabilities ............................................ 162,903 169,669 86,136
Contract obligations ........................................... (28,398) (23,613) 3,294
Deferred revenue ............................................... (60,170) (18,268) 37,664
----------- ----------- -----------
Net cash provided by operating activities ............................. 278,888 420,174 269,752
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures .................................................... (858,523) (556,697) (455,547)
Payments for acquisitions, net of cash acquired ......................... (117,660) (317,594) (747,134)
Net proceeds from sale of programming interests and cable assets ........ - 446,284 945,534
Proceeds from sale of equipment ......................................... 745 8,817 1,930
Proceeds from sale of investments ....................................... 10,861 - -
(Increase) decrease in investments in affiliates, net ................... (48,844) (31,996) 2,781
Additions to other intangible assets .................................... (5,072) (13,253) (623)
----------- ----------- -----------
Net cash used in investing activities ................................. $(1,018,493) $ (464,439) $ (253,059)
----------- ----------- -----------
</TABLE>
See accompanying notes to
combined financial statements.
VI-8
<PAGE> 248
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from (repayments of) bank debt ............. $ 89,022 $ (857,395) $ 56,665
Proceeds from senior debt ............................... - - 147,750
Repayment of senior debt ................................ - (112,500) (433,617)
Repayment of subordinated notes payable ................. - (151,000) -
Redemption of senior notes payable ...................... - (94,848) -
Redemption of senior subordinated debt .................. - - (283,445)
Issuance of senior notes and debentures ................. 497,670 1,296,076 897,983
Redemption of subsidiary preferred stock ................ (98) (9,409) (112,301)
Preferred stock dividends ............................... (21,915) (29,341) (30,224)
Issuance of Cablevision common stock .................... 15,170 12,082 7,616
Obligation to related party ............................. - (197,183) 4,364
Payments on capital lease obligations and other debt .... (18,063) (8,998) (4,554)
Additions to deferred financing and other costs ......... (24,440) (36,220) (51,693)
Purchase of Cablevision treasury stock .................. (499) - -
Capital contributions (distributions) from/to RMG, net ... 91,591 (2,034) 188,669
----------- ----------- -----------
Net cash provided by (used in) financing activities ... 628,438 (190,770) 387,213
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ....... (111,167) (235,035) 403,906
Cash and cash equivalents at beginning of year ............. 173,727 408,762 4,856
----------- ----------- -----------
Cash and cash equivalents at end of year ................... $ 62,560 $ 173,727 $ 408,762
=========== =========== ===========
</TABLE>
See accompanying notes to
combined financial statements.
VI-9
<PAGE> 249
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1. BASIS OF PRESENTATION
The stockholders of Cablevision Systems Corporation ("Cablevision") are
scheduled to vote on a proposal (the "Tracking Stock Proposal") to amend its
certificate of incorporation to, among other things, (i) authorize the creation
and distribution of two new classes of common stock, to be designated as Rainbow
Media Group ("RMG") tracking stock which, when issued, will be intended to
reflect the performance of the assets and businesses of Cablevision attributed
to RMG, (ii) increase the aggregate number of authorized shares of common stock
that Cablevision may issue from 570 million to 1.88 billion, and (iii)
redesignate each share of Cablevision common stock into a share of Cablevision
NY Group ("CNYG") common stock, which, following a distribution of RMG tracking
stock, will be intended to reflect the performance of all of Cablevision's
assets and businesses which have not been attributed to RMG.
CNYG represents a combination of assets, liabilities and businesses owned by
Cablevision which have not been attributed to RMG. These assets, liabilities and
businesses include: (i) cable television businesses, including Cablevision's
residential telephone and high-speed modem businesses, (ii) commercial telephone
and internet operation businesses, (iii) electronics retail businesses (iv),
Cablevision's interests in New York metropolitan area sports and entertainment
businesses including Madison Square Garden, Radio City Music Hall, MSG Network,
Fox Sports Net New York and professional sports teams, (v) motion picture
theater businesses, (vi) advertising sales representation businesses and (vii)
certain equity interests in a multimedia internet service provider, certain
direct broadcast satellite assets and interests in wireless personal
communications services. CNYG has been operated as an integral part of
Cablevision, and has no separate legal existence.
Historically, CNYG has not prepared separate financial statements in accordance
with generally accepted accounting principles ("GAAP") in the ordinary
course of operations. However, these combined financial statements were
prepared in accordance with GAAP for the purposes of this filing, and have been
derived from the consolidated financial statements and accounting records of
Cablevision. These combined CNYG financial statements, together with the
combined RMG financial statements, include all of the accounts contained in
Cablevision's consolidated financial statements. Cablevision intends to
prepare, and include in its filings with the Securities and Exchange Commission
("SEC"), the consolidated financial statements of Cablevision together with the
combined financial statements of CNYG as long as CNYG's common stock is
outstanding.
Amounts in the accompanying combined financial statements reflect Cablevision's
basis in the net assets of the combined businesses. However, minority interests
in the net assets and results of operations of these businesses are not
reflected. Such minority interests are recorded in the Consolidated Financial
Statements of Cablevision.
VI-10
<PAGE> 250
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
The accompanying CNYG combined financial statements are intended to reflect the
assets, liabilities, revenues and expenses that Cablevision has attributed to
CNYG, as well as certain allocations deemed reasonable by management, to present
the combined financial position and results of operations of CNYG as if it were
a separate entity for all periods presented. However, primarily as a result of
allocations and inter-group related party transactions (Note 3), the financial
information included herein may not necessarily reflect the combined financial
position and results of operations of CNYG had it operated as a separate
stand-alone entity during the periods presented.
Even though Cablevision has attributed certain assets, liabilities, revenue and
cash flows to CNYG, that attribution does not change the legal title to any
assets or responsibility for any liabilities and does not affect the rights of
any creditors. Further, financial results of RMG that affect Cablevision's
consolidated financial condition could affect the financial position or results
of operations of CNYG. Any dividends or distributions on, or repurchases of,
Cablevision stock will reduce the assets of Cablevision legally available for
dividends on CNYG stock. Accordingly, holders of RMG tracking stock and CNYG
common stock will continue to be subject to risks associated with an investment
in a single corporation and all of Cablevision's businesses, assets and
liabilities.
As a result of the factors described above, the combined financial statements of
CNYG should be read in conjunction with the consolidated financial statements of
Cablevision.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accompanying combined financial statements include the accounts of all
consolidated subsidiaries of Cablevision that have not been attributed to RMG.
All significant intra-group transactions and balances have been eliminated in
combination. Cablevision's interests in less than majority-owned entities and
until July 2, 1997, its 100% common stock interest in A-R Cable Services, Inc.,
are carried on the equity method. Subsequent to July 2, 1997, results of
operations of A-R Cable Services, Inc. are combined with those of CNYG (see Note
4). Advances to affiliates are recorded at cost, adjusted when recoverability is
doubtful.
Group Deficiency
Group deficiency represents the aggregate interests of all stockholders,
partners and members in the net assets or liabilities of all combined companies
comprising CNYG. Cablevision includes its share of such amount in its
consolidated financial statements, after consideration of the interests of
parties other than Cablevision.
Payments to (from) partners and stockholders appearing in the accompanying
combined statements of group deficiency represent amounts exchanged with
partners and stockholders of companies comprising CNYG primarily during the
formation of Regional Programming Partners (in 1997) and the redemption of ITT
Corporation's interests in Madison Square Garden, L.P. ("MSG") in each of the
years presented.
Revenue Recognition
CNYG recognizes cable television and programming revenues as services are
provided to subscribers. Advertising revenues are recognized when commercials
are telecast. Revenues
VI-11
<PAGE> 251
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
derived from other sources are recognized when services are provided, events
occur or products are delivered.
Long-Lived Assets
Property, plant and equipment, including construction materials, are carried at
cost, which includes all direct costs and certain indirect costs associated with
the construction of cable television transmission and distribution systems, and
the costs of new subscriber installations. Franchises are amortized on the
straight-line basis over the average remaining terms (5 to 12 years) of the
franchises at the time of acquisition. Affiliation and other agreements
(primarily cable television system programming agreements) are amortized on a
straight-line basis over periods ranging from 8 to 10 years. Other intangible
assets are amortized on the straight-line basis over the periods benefited (1 to
15 years), except that excess costs over fair value of net assets acquired are
being amortized on the straight-line basis over periods ranging from 6 to 40
years. CNYG reviews its long-lived assets (property, plant and equipment, and
related intangible assets that arose from business combinations accounted for
under the purchase method) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of the expected cash flows, undiscounted and without interest, is less than the
carrying amount of the asset, an impairment loss is recognized as the amount by
which the carrying amount of the asset exceeds its fair value.
Inventory
Carrying amounts of retail merchandise are determined on an average cost basis
and are stated at the lower of cost or market.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized to interest expense
over the life of the related debt.
Income Taxes
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
liability method of accounting for deferred income taxes and permits the
recognition of deferred tax assets, subject to an ongoing assessment of
realizability.
VI-12
<PAGE> 252
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Loss Per Share
Historical loss per share for CNYG has been omitted from the statements of
operations since CNYG stock was not part of the capital structure of Cablevision
for the periods presented. Following the implementation of the Tracking Stock
Proposal, per share results for CNYG will be presented only in the consolidated
financial statements of Cablevision and will be computed by applying the "two
class" method of Statement of Financial Accounting Standard No. 128, "Earnings
Per Share."
Segment Information
On December 31, 1998, CNYG adopted Statement of Financial Accounting Standards
No. 131, 'Disclosures about Segments of an Enterprise and Related Information'
('SFAS 131'). The new rules establish revised standards for public companies
relating to the reporting of financial and descriptive information about their
operating segments in financial statements. The adoption of SFAS 131 did not
have a material effect on CNYG's primary financial statements, but did affect
the disclosure of segment information contained elsewhere herein (see Note 15).
Supplemental Cash Flow Information
For purposes of the combined statements of cash flows, CNYG considers short-term
investments with a maturity at date of purchase of three months or less to be
cash equivalents. CNYG paid cash interest expense of approximately $412,359,
$362,506 and $339,845 during 1999, 1998 and 1997, respectively.
During 1999, 1998 and 1997, CNYG's noncash investing and financing activities
were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Capital lease obligations ................... $ 53,330 $ 28,795 $ 7,344
Issuance of common stock in connection
with the redemption of CSC Holdings'
preferred stock ........................ 323,233 - -
Issuance of common stock in connection
with acquisitions and redemption
of partnership interests ............... 7,305 536,250 -
Receipt of warrants from At Home
Corporation ............................ - 74,788 173,346
Capital contribution of equipment by
minority partner ....................... - - 38,000
Contributions to equity method
investees attributed to RMG ........... (41,998) (20,997) (25,991)
Net payments on indebtedness
attributed to RMG ..................... (18,924) (105,259) (25,500)
Payments of stock plan obligations
attributed to RMG...................... (13,108) (4,017) (961)
Payments of interest attributed to RMG....... (11,245) (15,123) (12,444)
</TABLE>
VI-13
<PAGE> 253
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Comprehensive Income
A separate statement of comprehensive income has not been provided as items of
other comprehensive income for all periods presented were not material.
Use of Estimates in Preparation of Financial Statements
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 liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 3. ALLOCATIONS AND RELATED PARTY TRANSACTIONS
ALLOCATIONS
The combined financial statements of CNYG reflect the application of certain
allocation and cash management policies of Cablevision, which are summarized
below. Cablevision's board of directors may modify or rescind any of these
allocation policies without the approval of the stockholders, although no such
changes are currently contemplated. Any such changes adopted by the board of
directors would be made in its good faith business judgment of Cablevision's
best interests, taking into consideration the best interests of all Cablevision
shareholders. Management believes that these allocations have been made on a
reasonable basis. However, it is not practicable to determine whether the
allocated amounts represent amounts that might have been incurred on a
stand-alone basis. Explanations of the composition and the amounts of the more
significant allocations are described below.
Corporate General and Administrative Costs
General and administrative costs, including costs of maintaining corporate
headquarters, facilities and common support functions (such as human resources,
legal, accounting, tax, audit, treasury, strategic planning, investor relations,
information technology, etc.) have been allocated by Cablevision generally based
upon actual charges or management's estimate of proportionate usage. When
determinations based upon usage are impractical, Cablevision uses other methods
and criteria that management believes to be equitable and provide a reasonable
estimate of costs attributable to CNYG. CNYG's allocated share of such costs
amounted to $64,778, $47,341 and $32,804 for the years ended December 31, 1999,
1998 and 1997, respectively, and have been included in selling, general and
administrative expenses.
VI-14
<PAGE> 254
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Year 2000 Remediation Costs
Selling, general and administrative expenses for the years ended December 31,
1999 and 1998 include $38,666 and $7,593, respectively, of Year 2000 remediation
costs which include direct charges and allocations from Cablevision.
Indebtedness and Interest
Cablevision has attributed indebtedness generally based upon approximate funding
of start up costs for certain of CNYG's businesses. As more fully described in
Note 7, indebtedness related to the stand-alone bank facilities of CSC Holdings,
Inc. ("CSC Holdings"), MFR, Madison Square Garden, Cablevision Electronics and
CCG Holdings, Inc. has been attributed to CNYG.
Income Taxes
To the extent that federal and state income taxes are determined on a basis that
includes operations of both CNYG and RMG, such taxes are allocated to each
group, and reflected in their respective financial statements, in accordance
with Cablevision's tax allocation policy. In general, this policy provides that
the consolidated tax provision, and related tax payments or refunds, will be
allocated between the groups based principally upon the financial income,
taxable income, credits and other amounts directly related to the respective
groups. Under the policy, the amount of taxes payable or refundable which are
allocated to CNYG will generally be comparable to those that would have resulted
if the groups had filed separate tax returns. Further, RMG is responsible to
CNYG for its share of any consolidated income tax liabilities determined in
accordance with the policy. RMG's share of such liabilities is generally
determined by reference to the amount of tax that RMG would owe on a separately
filed tax return. Accordingly, CNYG will realize the benefits of its tax
attributes when it generates sufficient taxable income to utilize such
attributes.
Stock-Based Compensation
Cablevision charges CNYG for the cost of its employee stock incentive plans.
CNYG was charged, based upon proportionate payroll costs, approximately
$233,660, $132,432 and $57,660, in 1999, 1998 and 1997, respectively, related to
these stock incentive plans.
Health and Welfare Benefits
Employees of entities attributed to CNYG participate in health and welfare plans
sponsored by Cablevision. Health and welfare benefit costs have generally been
allocated by Cablevision based upon the proportionate number of participants in
the plan. Such costs amounted to $37,464, $32,159 and $20,746 for the years
ended December 31, 1999, 1998 and 1997, respectively, and have been included in
selling, general and administrative expenses.
VI-15
<PAGE> 255
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Cash Management
Surplus cash is swept nightly from certain entities within RMG to Rainbow Media
Holdings, Inc. ("Rainbow Media Holdings"). Such inter-group transfers do not
bear interest.
RELATED-PARTY TRANSACTIONS
As described below, CNYG provides services to and receives services from
affiliates and RMG. As many of these transactions are conducted between
subsidiaries under common control of Cablevision, amounts charged for these
services have not necessarily been based upon arm's length negotiations.
However, it is not practicable to determine whether the amounts charged
represent amounts that might have been incurred on a stand-alone basis for CNYG.
Cablevision held varying ownership interests, directly or indirectly, during the
three years ended December 31, 1999 in certain cable television programming and
entertainment companies attributed to CNYG. Accordingly, CNYG recorded income
(losses) of approximately $(3,643), $(7,657) and $6,253 in 1999, 1998 and 1997,
respectively, representing its percentage interests in the results of operations
of these programming companies. At December 31, 1998, CNYG's net deficit
investment in these programming and entertainment companies amounted to
approximately $12,067. Costs incurred by CNYG for programming services provided
by these affiliates and included in operating expense for the years ended
December 31, 1999, 1998 and 1997 amounted to approximately $2,733, $1,176 and
$12,314, respectively. At December 31, 1998, amounts due to certain of these
affiliates, primarily for programming services provided to CNYG, aggregated $56
and are included in accounts payable. At December 31, 1998, amounts due from
certain of these programming affiliates aggregated $184 and are included in
advances to affiliates.
CNYG has affiliation agreements with certain cable television programming and
transmission and production companies which are included in RMG. Costs incurred
by CNYG for programming services provided by these affiliates and included in
operating expense for the years ended December 31, 1999, 1998 and 1997 amounted
to approximately $22,194, $18,595 and $13,027, respectively. At December 31,
1999 and 1998, amounts due to certain of these affiliates, primarily for
programming services provided to CNYG, aggregated $21,757 and $16,845,
respectively, and are included in accounts payable. At December 31, 1999 and
1998, amounts due from certain of these programming affiliates aggregated
$109,378 and $105,129, respectively, and are included in advances to affiliates.
During 1999, 1998 and 1997, CNYG provided programming services to or incurred
costs on behalf of other affiliates engaged in providing cable television, cable
television programming, and related services. Amounts due from these affiliates
amounted to $14,300 and $7,505 at December 31, 1999 and 1998, respectively, and
are included in advances to affiliates.
VI-16
<PAGE> 256
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
In 1992, CSC Holdings, Inc. ("CSC Holdings"), a wholly-owned subsidiary of
Cablevision, acquired from Mr. Dolan substantially all of the interests in
Cablevision of New York City ("CNYC") that it did not previously own. Mr. Dolan
remained a 1% partner in CNYC and was entitled to certain preferential payments.
The total amount owed to Mr. Dolan at December 31, 1997 amounted to
approximately $197,183. In 1998, all amounts due Mr. Dolan were paid.
In October 1997, CSC Holdings entered into an agreement with At Home Corporation
("@Home") and certain of its shareholders, pursuant to which CSC Holdings agreed
to enter into agreements for the distribution of the @Home service over CNYG's
cable television systems on the same terms and conditions as @Home's founding
partners, TCI, Comcast Corporation and Cox Communications, Inc. CSC Holdings
received a warrant to purchase 15,751,568 shares of @Home's Series A Common
Stock at an exercise price of $.25 per share. Additionally, in 1998 a warrant to
purchase 4,711,028 shares of @Home's Series A Common Stock at $.25 per share was
received in connection with the acquisition of the TCI Systems (see Note 4). The
@Home network distributes high-speed interactive services to residences and
businesses using its own network architecture and a variety of transport
options, including the cable industry's hybrid fiber coaxial infrastructure.
The aggregate fair market value of the warrants received of $248,134, as
determined by independent appraisals, has been recorded in investments in
affiliates in the accompanying combined balance sheets. The difference between
the appraised value of the warrants and the price paid has been recorded as
deferred revenue and is being amortized to income over the period which CSC
Holdings is obligated to provide the necessary services to @Home. In 1999 and
1998, CNYG recorded $50,136 and $35,821, respectively, of revenue relating to
this transaction.
In August 1996, CSC Holdings entered into an agreement with NorthCoast Operating
Co., Inc. ("NorthCoast") and certain of its affiliates, to form a limited
liability company (the "LLC") to participate in the auctions conducted by the
Federal Communications Commission ("FCC") for certain licenses to conduct a
personal communications service ("PCS") business. CSC Holdings has contributed
an aggregate of approximately $50,100 to the LLC (either directly or through a
loan to NorthCoast) and holds a 49.9% interest in the LLC and certain
preferential distribution rights. CNYG recorded a loss of $7,916 and $5,517 in
1999 and 1998, respectively, representing its share of the losses of the LLC.
NorthCoast is a Delaware corporation controlled by John Dolan. John Dolan is a
nephew of Charles F. Dolan, Cablevision's chairman and a cousin of James L.
Dolan, Cablevision's chief executive officer.
In 1996, Rainbow Media Holdings invested in a joint venture formed with a
subsidiary of Loral Space and Communications, Ltd. for the purpose of exploiting
certain direct broadcast satellite ("DBS") frequencies. Rainbow Media Holdings
also contributed to the joint venture its interest in
VI-17
<PAGE> 257
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
certain agreements with the licensee of such frequencies. Rainbow Media
Holdings' investment amounted to $386 and $14,913 at December 31, 1999 and 1998,
respectively. In 1999, based upon its then current business plans, CNYG
determined that it could no longer recover its investment in the joint venture
and wrote down its investment by $15,100.
As of December 31, 1999, CSC Holdings had outstanding an interest exchange (cap)
agreement with AMC with a total notional value of $105,000 maturing on May 13,
2002. The agreement caps AMC's floating rate of interest based on LIBOR at 7%
through May 2001 and at 7.5% from May 2001 through May 2002. CSC Holdings
entered into this cap agreement to hedge against interest rate risk and accounts
for this agreement as a hedge whereby interest expense is recorded using the
revised rate with any fees amortized as a yield adjustment.
NOTE 4. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
ACQUISITIONS
1999 Acquisitions
At various times during 1999, Cablevision acquired interests in the real
property and assets specifically related to certain movie theaters for an
aggregate purchase price of approximately $29,700. The acquisitions were
accounted for as purchases with the operations of the acquired theaters being
combined with those of CNYG as of the acquisition dates. The purchase price will
be allocated to the specific assets acquired when an independent appraisal is
obtained.
In December 1999, Cablevision acquired cable television systems with
approximately 4,500 subscribers located in the Port Jervis, New York area for
approximately $7,400, $7,300 of which was paid in shares of Cablevision's Class
A Common Stock.
In April 1999, ITT Corporation ("ITT") exercised its second put for the
remainder of its interest in MSG and settled certain matters between the parties
for a payment of $87,000.
See also "Dispositions" for a discussion of an exchange of cable television
assets.
1998 Acquisitions
The WIZ
On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of CSC Holdings, acquired substantially
all of the assets associated with
VI-18
<PAGE> 258
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
40 The WIZ consumer electronics store locations from The Wiz, Inc. and certain
of its subsidiaries and affiliates (collectively, "TWI"). TWI had filed for
bankruptcy protection on December 16, 1997. Cablevision Electronics paid
approximately $101,300 for the assets (including transaction costs and
pre-closing operating costs).
The acquisition was accounted for as a purchase with the operations of the
stores being combined with the operations of CNYG as of the date of acquisition.
The purchase price was allocated to the specific assets acquired based upon
independent appraisals as follows:
<TABLE>
<S> <C>
Inventory ............................................ $ 66,200
Property and equipment ............................... 16,800
Other assets ......................................... 4,000
Liabilities .......................................... (24,000)
Excess cost over fair value of net assets acquired ... 38,300
---------
$ 101,300
=========
</TABLE>
In 1999, CNYG recorded an impairment loss of $35,490 representing the balance of
unamortized goodwill recorded on the TWI acquisition. Current losses and
projected future operating losses caused CNYG to reassess the recoverability of
the goodwill. The impairment loss resulted from the carrying amount of this
asset exceeding its estimated fair value based on discounted estimated future
cash flows.
TCI Systems
On March 4, 1998, Cablevision completed a holding company reorganization (the
"Holding Company Reorganization") pursuant to an Amended and Restated
Contribution and Merger Agreement, dated June 6, 1997 (the "Contribution and
Merger Agreement"), by and among Cablevision, CSC Holdings and TCI
Communications, Inc. ("TCI").
Pursuant to the Contribution and Merger Agreement, TCI caused to be contributed
to Cablevision or its designees all of the partnership interests and capital
stock of certain entities owned directly or indirectly by TCI and all the assets
related to the businesses of certain cable television systems owned and operated
directly or indirectly by TCI ("TCI Systems"). In consideration for those cable
television systems, Cablevision issued to certain TCI entities an aggregate of
48,942,172 shares (after adjusting for the March 1998 and August 1998
two-for-one stock splits) of Cablevision's Class A Common Stock, valued for
accounting purposes at approximately $498,000, and assumed certain liabilities
related to such systems (including an aggregate amount of indebtedness for
borrowed money equal to $669,000).
The acquisition was accounted for as a purchase with the operations of the
acquired systems being combined with those of CNYG as of the acquisition date.
The excess of the purchase price over the net book value of assets acquired of
approximately $746,769 was allocated to the specific assets acquired based upon
independent appraisals as follows:
VI-19
<PAGE> 259
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
<TABLE>
<S> <C>
Property, plant and equipment ........................ $ (17,133)
Franchises ........................................... 594,921
Excess cost over fair value of net assets acquired ... 168,981
---------
$ 746,769
=========
</TABLE>
Madison Square Garden
In June 1998, CSC Holdings purchased 50% of ITT's remaining interest in MSG for
$94,000 pursuant to ITT's exercise of its first put option, increasing Regional
Programming Partners' interest in MSG to 96.3% (see discussion below and "1999
Acquisitions" above).
Clearview
In December 1998, Cablevision acquired all of the outstanding shares of stock of
Clearview Cinema Group, Inc. ("Clearview") for approximately $158,700 (including
assumed debt of $80,000) of which approximately $33,400 was paid in shares of
Cablevision's Class A Common Stock.
The acquisition was accounted for as a purchase with the operations of the
acquired business being combined with those of CNYG as of the acquisition date.
The purchase price was allocated to the specific assets acquired based upon
independent appraisals as follows.
<TABLE>
<S> <C>
Property, plant and equipment ........................ $ 34,787
Other assets ......................................... 21,518
Liabilities .......................................... (16,433)
Excess cost over fair value of net assets acquired ... 118,851
---------
$ 158,723
=========
</TABLE>
Loews
In December 1998, Cablevision acquired interests in the real property and assets
specifically related to 15 movie theaters from Loews Cineplex Entertainment
Corporation ("Loews") for an aggregate purchase price of approximately $67,300.
The acquisition was accounted for as a purchase with the operations of the
acquired assets being combined with those of CNYG as of the acquisition date.
The purchase price was allocated to the specific assets acquired based upon
independent appraisals as follows:
<TABLE>
<S> <C>
Property and equipment ............................... $ 9,700
Other assets ......................................... 2,200
Excess cost over fair value of net assets acquired ... 55,400
-------
$67,300
=======
</TABLE>
VI-20
<PAGE> 260
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
1997 Acquisitions:
NBC Transaction
On April 1, 1997, Rainbow Media Holdings consummated a transaction in which
Rainbow Programming Holdings, Inc. merged with and into Rainbow Media Holdings,
a newly formed subsidiary of CSC Holdings. In addition, NBC Cable, Inc. (a
subsidiary of National Broadcasting Company ("NBC")) received a 25% equity
interest (which interest was increased to 26% in February 2000 and may be
further increased by up to an additional 1% under certain circumstances without
additional payment) in common stock of Rainbow Media Holdings. CSC Holdings owns
the remaining 74% equity interest in Rainbow Media Holdings. The partnership
interests in certain of Rainbow Media Holdings' programming services formerly
owned by NBC are now owned by subsidiaries of Rainbow Media Holdings. The
exchange of 25% of CSC Holdings' interest in Rainbow Media Holdings for NBC's
interests, in April 1997, in certain entities was accounted for at historical
cost with the difference between the cost basis of a 25% interest in Rainbow
Media Holdings and the partnership interests received in exchange recorded as
goodwill. Goodwill of $4,348 has been attributed to CNYG and is being amortized
over a 10 year period.
Madison Square Garden
In February 1997, Rainbow Media Holdings made a payment to ITT of $168,750 plus
interest, fully equalizing its interest in MSG, a partnership among subsidiaries
of Rainbow Media Holdings and subsidiaries of ITT, and bringing Rainbow Media
Holdings' total payments at that time to $360,000, plus interest payments
aggregating $47,700.
In April 1997, CSC Holdings and certain of its affiliates and ITT and certain of
its affiliates entered into definitive agreements ("MSG Agreement") relating to
the acquisition by subsidiaries of CSC Holdings of ITT's 50 percent interest in
MSG. The transaction closed on June 17, 1997 when MSG borrowed $799,000 under
its credit facility which was used to redeem a portion of ITT's interest in MSG
for $500,000 and to repay its existing indebtedness. Rainbow Media Holdings
contributed its SportsChannel Associates programming company to MSG, which,
together with the redemption, increased Rainbow Media Holdings' interest in MSG
to 89.8% and reduced ITT's interest to 10.2%. In connection with the Fox
transaction discussed below, Rainbow Media Holdings' interest in MSG was
contributed to Regional Programming Partners ("RPP"). ITT's interest in MSG was
further reduced to 7.8% as a result of a $450,000 capital contribution by RPP to
MSG, which was used by MSG to pay down outstanding debt. See "1998 Acquisitions"
above for a discussion of CSC Holdings' purchase of the remaining interest in
MSG. The acquisition was accounted for using the purchase method of accounting.
The assets and liabilities and results of operations of MSG have been combined
with those of CNYG as of June 17, 1997. Previously, CSC Holdings' (and,
therefore, CNYG's) investment in MSG was accounted for using the equity
VI-21
<PAGE> 261
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
method of accounting. The excess of the purchase price over the net book value
of assets acquired of approximately $397,093 was allocated to the specific
assets acquired based upon independent appraisals as follows:
<TABLE>
<S> <C>
Property, plant and equipment......................... $ 19,687
Affiliation and other agreements...................... 34,168
Franchises............................................ 46,125
Excess cost over fair value of net assets acquired.... 297,113
---------
$ 397,093
=========
</TABLE>
In connection with CSC Holdings and ITT's acquisition of MSG in 1995, certain
liabilities relating to a long-term sports rights contract were recorded. In
1999, 1998 and 1997, approximately $23,000, $21,900 and $21,700, respectively,
of this liability was amortized to reduce operating expenses in respect of those
rights.
Warburg Transactions
In June 1997, CSC Holdings acquired from Warburg Pincus Investors, L.P.
("Warburg") the interests that CSC Holdings did not already own in A-R Cable
Partners ("Nashoba") and Cablevision of Framingham Holdings, Inc. ("CFHI") for a
purchase price of approximately $33,348 and $7,865, respectively. The
acquisitions of Nashoba and CFHI were accounted for as purchases with the
operations of these companies being combined with those of CNYG as of the
acquisition date. The excess of the purchase price over the net book value of
assets acquired approximates $97,015 and has been allocated based upon
independent appraisals as follows:
<TABLE>
<S> <C>
Property, plant and equipment....................... $ 4,060
Franchises.......................................... 59,923
Excess cost over fair value of net assets acquired.. 33,032
--------
$ 97,015
========
</TABLE>
On July 2, 1997, CSC Holdings redeemed from Warburg the Series A Preferred Stock
of A-R Cable Services, Inc. ("A-R Cable") for an aggregate amount of
approximately $112,301. The assets and liabilities of A-R Cable have been
combined with those of CNYG as of July 2, 1997. Previously, CSC Holdings' (and,
therefore, CNYG's) investment in A-R Cable was accounted for using the equity
method of accounting. In connection with this transaction, CNYG recognized a
gain of $181,738 representing principally the reversal of accrued preferred
dividends in excess of amounts paid.
VI-22
<PAGE> 262
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Radio City
On December 5, 1997, MSG purchased all of the membership interests in Radio City
Productions, LLC ("Radio City"), the production company that operates Radio City
Music Hall in New York City, for approximately $70,000 in cash. Simultaneously,
Radio City entered into a 25-year lease for Radio City Music Hall. The assets
and liabilities and results of operations of Radio City have been combined with
those of CNYG as of the date of acquisition. The excess of the purchase price
over the net book value of assets acquired of approximately $76,200 was
allocated to the specific assets acquired based upon independent appraisals as
follows:
Property, plant and equipment................................. $ 1,500
Capital lease obligation...................................... (80,000)
Other liabilities............................................. (13,400)
Excess cost over fair value of net assets acquired............ 168,100
---------
$ 76,200
=========
DISPOSITIONS
Cable Systems
In October 1998, A-R Cable transferred its cable television system in
Rensselaer, New York plus approximately $16,000 in cash to Time Warner
Entertainment Company, L.P. ("Time Warner") in exchange for Time Warner's
Litchfield, Connecticut system. CNYG recognized a gain of approximately $15,500
in connection with this transaction.
In 1998 and 1997, CSC Holdings completed the sale of certain cable television
systems for aggregate sales prices of approximately $426,500 and $88,200,
respectively, and CNYG recognized aggregate gains of approximately $137,700 and
$59,000, respectively.
Regional Programming Partners
In December 1997, Rainbow Media Holdings and Fox Sports Networks, LLC ("Fox")
organized Regional Programming Partners (a partnership that owns MSG and
interests in regional sports programming businesses previously owned by Rainbow
Media Holdings) ("RPP"). In connection with the formation of RPP, affiliates of
Rainbow Media Holdings indirectly contributed to RPP their ownership interests
in several regional sports networks, including their interest in MSG in
consideration for the issuance of a 60% general partnership interest in RPP.
In consideration for the issuance of a 40% general partnership interest in RPP,
Fox contributed $850,000 in cash to RPP. Thereafter, RPP made a capital
contribution of approximately $450,000 to MSG which was used by MSG to repay a
portion of MSG's debt. As a result of RPP's investment in MSG, RPP's interest in
MSG increased from 89.8% to 92.2%. In connection with this transaction, CNYG
recognized a gain of approximately $146,572. See above under "1998 Acquisitions"
and "1999 Acquisitions" for further discussion of increases in RPP's interest in
MSG.
VI-23
<PAGE> 263
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
A-R CABLE RESTRUCTURING
In 1992, CSC Holdings and A-R Cable consummated a restructuring and refinancing
transaction (the "A-R Cable Restructuring"). Among other things, this
transaction involved an additional $45,000 investment in A-R Cable by CSC
Holdings to purchase a new Series B Preferred Stock and the purchase of a new
Series A Preferred Stock in A-R Cable by Warburg for $105,000. As a result of
the A-R Cable Restructuring, CSC Holdings no longer had financial or voting
control over A-R Cable's operations. Prior to the redemption of A-R Cable's
Series A Preferred Stock on July 2, 1997 (see discussion above), CSC Holdings
accounted for its investment in A-R Cable using the equity method of accounting
whereby CSC Holdings recorded 100% of the net losses of A-R Cable since it
continued to own 100% of A-R Cable's outstanding common stock.
Included in equity in net loss of affiliates in the accompanying combined
statements of operations for the period ended July 1, 1997 is $35,835
representing A-R Cable's net loss plus dividend requirements for the Series A
Preferred Stock of A-R Cable, which was not owned by CSC Holdings. Beginning on
July 2, 1997, the operations of A-R Cable have been combined with those of CNYG.
Pro Forma Results of Operations
The following unaudited pro forma condensed results of operations are presented
for the year ended December 31, 1998 as if the acquisition of the TCI Systems
and the sale of assets of certain cable systems had occurred on January 1, 1998.
Results of operations for acquisitions made in 1999 are not material.
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Net revenues................................ $3,063,664
Net loss before preferred dividend
requirements............................ $ (373,598)
</TABLE>
The pro forma information presented above gives effect to certain adjustments,
including the amortization of acquired intangible assets and increased interest
expense on acquisition debt. The pro forma information has been prepared for
comparative purposes only and does not purport to indicate the results of
operations which would actually have occurred had the transactions been made at
the beginning of the periods indicated or which may occur in the future.
VI-24
<PAGE> 264
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 5. NET ASSETS HELD FOR SALE
Cablevision had entered into definitive agreements covering the sale of certain
cable television systems as of December 31, 1999 and 1998.
In December 1999, Cablevision entered into definitive agreements with Adelphia
Communications Corporation ("Adelphia") under which Cablevision will sell its
cable television systems in the Greater Cleveland metropolitan area to Adelphia
for total cash and stock consideration of $1,530,000, subject to certain
adjustments.
In January 1998, Cablevision, CSC Holdings and a subsidiary of TCI entered into
a non-binding letter of intent for CSC Holdings to acquire certain of TCI's
cable television systems in exchange for cash, stock and certain cable systems
including those serving Kalamazoo, Michigan. The non-binding letter of intent is
no longer in effect. In March 2000, Cablevision entered into an agreement to
sell its cable system serving Kalamazoo, Michigan to Charter Communications,
Inc. for total consideration of $172,500 in Charter Communications, Inc. common
stock.
For financial reporting purposes, the assets and liabilities attributable to
cable systems whose sale or transfer was pending at December 31, 1999 and 1998
have been classified in the combined balance sheet as net assets held for sale
and consist of the following:
<TABLE>
<CAPTION>
December, 31
--------------------------
1999 1998
-------- ---------
<S> <C> <C>
Property, plant and equipment, net............ $222,695 $ 14,548
Intangible assets, net........................ 73,055 215
Other assets (including trade
receivables, prepaid expenses, etc.)..... 9,796 603
-------- ---------
Total assets.................................. 305,546 15,366
Total liabilities............................. (36,197) (4,360)
-------- ---------
Net assets.................................... $269,349 $ 11,006
======== =========
</TABLE>
The accompanying combined statement of operations for the years ended December
31, 1999 and 1998 includes net revenues aggregating approximately $177,904 and
$18,937, respectively, and net income (loss) aggregating approximately $(4,109)
and $9,095, respectively, relating to the cable systems held for sale or
transfer.
VI-25
<PAGE> 265
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following assets, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
<TABLE>
<CAPTION>
December 31,
------------------------- Estimated
1999 1998 Useful Lives
--------- ----------- ------------
<S> <C> <C> <C>
Communication transmission and
distribution systems:
Customer equipment.................. $ 600,271 $ 615,867 3 to 8 years
Headends............................ 118,311 125,013 7 to 15 years
Multimedia.......................... 18,732 9,075 4 years
Central office equipment............ 132,191 87,208 10 years
Infrastructure...................... 2,189,863 2,189,625 5 to 12 years
Program, service and data
processing equipment............... 505,853 321,667 2 to 9 years
Microwave equipment................. 11,401 8,759 2 to 9 years
Construction in progress
(including materials and supplies). 227,991 133,848 -
Furniture and fixtures.................. 217,821 186,457 1 to 8 years
Transportation equipment................ 143,511 131,476 4 to 15 years
Building and building improvements...... 185,118 171,567 20 to 40 years
Leasehold improvements.................. 267,542 135,711 Term of lease
Land and land improvements.............. 47,914 45,573 -
----------- ----------
4,666,519 4,161,846
Less accumulated depreciation and
amortization....... (1,963,298) (1,696,754
----------- ----------
$ 2,703,221 $2,465,092
=========== ==========
</TABLE>
NOTE 7. DEBT AND FINANCIAL INSTRUMENTS
Bank Debt
Bank debt of Rainbow Media Holdings and American Movie Classics is attributed to
RMG. The following summarizes the credit facilities attributable to CNYG.
Restricted Group/TCI Systems
For financing purposes, CSC Holdings and certain of its subsidiaries are
collectively referred to as the "Restricted Group". In May 1998, CSC Holdings
and certain other subsidiaries of CSC Holdings entered into a new $2.8 billion
reducing revolving credit facility (the "Credit Agreement") with a group of
banks led by Toronto-Dominion (Texas), Inc. ("Toronto-Dominion"), as
administrative and arranging agent. This Credit Agreement replaced a $1.7
billion facility that was also with a group of banks led by Toronto-Dominion.
VI-26
<PAGE> 266
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
The $2.8 billion reducing revolving credit facility, maturing in March 2007,
consisted of a $1.4 billion CSC Holdings credit facility, a $1.4 billion MFR
credit facility of which $600,000 was available, and an $800,000 credit facility
for the TCI Systems. While the $800,000 TCI Systems credit facility was in
place, only $600,000 of the $1.4 billion MFR facility could be utilized.
In July 1998, CSC Holdings' credit facility was reduced by $400,000 to $1.0
billion, and the MFR credit facility was reduced by $200,000 to $1.2 billion,
which included a reduction of the TCI Systems credit facility by $100,000 to
$700,000.
The TCI Systems credit facility matured on April 4, 1999 and concurrent with the
transfer of the TCI Systems by Cablevision to CSC Holdings, which occurred on
April 5, 1999, the restriction on the MFR credit facility was eliminated and the
borrowings under the MFR facility increased by an amount equal to the borrowings
outstanding under the TCI Systems credit facility.
The total amount of bank debt outstanding under the Credit Agreement, including
amounts outstanding under a separate overdraft facility at December 31, 1999 and
1998 was $1,454,206 and $1,410,226, respectively. At December 31, 1999, $613,000
and $828,500 was outstanding under the CSC Holdings facility and the MFR credit
facility, respectively. As of December 31, 1999, approximately $39,274 was
restricted for certain letters of credit issued on behalf of CSC Holdings.
Unrestricted and undrawn funds available to the Restricted Group under the
Credit Agreement amounted to approximately $719,226 at December 31, 1999. The
Credit Agreement contains certain financial covenants that may limit the
Restricted Group's ability to utilize all of the undrawn funds available
thereunder. The Credit Agreement contains various restrictive covenants, among
which are the maintenance of various financial ratios and tests, and limitations
on various payments, including preferred dividends and dividends on its common
stock. CSC Holdings was in compliance with the covenants of its Credit Agreement
at December 31, 1999.
Interest on outstanding amounts may be paid, at the option of CSC Holdings,
based on the prime rate or Eurodollar rate. As of December 31, 1999, CSC
Holdings had outstanding interest exchange (swap) agreements with several of its
banks with a total notional value of $300,000. Swaps with an aggregate notional
amount of $250,000 require CSC Holdings to pay a floating rate of interest based
on LIBOR in exchange for fixed rate payments ranging from 6.125% to 6.76% and
have a maturity of 18 to 31 months. The remainder of the swaps require payment
of a fixed rate of interest by CSC Holdings in exchange for floating rate
payments and have a maturity of 6 months. CSC Holdings enters into interest rate
swap agreements to hedge against interest rate risk and accounts for these
agreements as hedges whereby interest expense is recorded using the revised rate
with any fees or other payments amortized as yield adjustments. CNYG is exposed
to credit loss in the event of nonperformance by the other parties to the
interest rate swap agreements; however, CNYG does not anticipate nonperformance
by the counterparties.
VI-27
<PAGE> 267
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
The weighted average interest rate on all Restricted Group bank indebtedness was
7.11% and 6.48% on December 31, 1999 and 1998, respectively. CNYG is also
obligated to pay fees from 0.1875% to 0.25% per annum on the unused loan
commitment and from 0.4% to 2.0% per annum on letters of credit issued under the
Credit Agreement.
Madison Square Garden
MSG has a $500,000 credit agreement (the "MSG Credit Facility") with a group of
banks led by Chase Manhattan Bank, as agent, which expires on December 31, 2004.
Loans under the MSG Credit Facility bear interest at current market rates plus a
margin based upon MSG's consolidated leverage ratio. At December 31, 1999 and
1998, loans outstanding amounted to $335,000 and $310,000, respectively, and
bore interest at a weighted average rate of 7.0% and 6.038%, respectively. The
MSG Credit Facility contains certain financial covenants with which MSG was in
compliance at December 31, 1999. The MSG Credit Facility also contains certain
financial covenants that may limit MSG's ability to utilize all of the undrawn
funds available thereunder.
In July 1997, a wholly-owned subsidiary of MSG borrowed $20,000 under promissory
notes with various lending institutions which bear interest at LIBOR plus a
margin (aggregating 8.19% and 7.22% at December 31, 1999 and 1998, respectively)
and mature in July 2002.
Cablevision Electronics
In February 1998, Cablevision Electronics entered into a three year $130,000
revolving credit facility maturing on February 9, 2001. Under the terms of the
credit facility, the total amount of borrowings available to Cablevision
Electronics is subject to an availability calculation based on a percentage of
eligible inventory. The total amount outstanding under the credit agreement at
December 31, 1999 and 1998 was approximately $73,817 and $44,542, respectively,
and bore interest at 7.8% and 7.2%, respectively. As of December 31, 1999,
$26,874 was restricted for certain letters of credit issued on behalf of
Cablevision Electronics. Unrestricted and undrawn funds available amounted to
$29,309 on December 31, 1999 based on the level of inventory as of that date.
Borrowings under the credit agreement are secured by Cablevision Electronics'
assets. The credit agreement contains various restrictive covenants with which
Cablevision Electronics was in compliance at December 31, 1999.
VI-28
<PAGE> 268
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
CCG Holdings, Inc.
CCG Holdings, Inc. has a $15,000 revolving credit bank facility maturing on June
30, 2003. As of December 31, 1999, there was $9,691 outstanding under this bank
facility, leaving undrawn funds available of $5,309. There were no outstanding
borrowings under this bank facility as of December 31, 1998.
Senior Notes and Debentures
In July 1999, CSC Holdings issued $500,000 face amount ($497,786 amortized
amount at December 31, 1999) of 8-1/8% Senior Notes due 2009. The net proceeds
were used to reduce bank borrowings. The notes are not redeemable by CSC
Holdings prior to maturity.
In December 1998, CSC Holdings redeemed Clearview's 10-7/8% Senior Notes for
approximately $94,800 in cash. This payment included a premium of $11,200, a
consent fee of $3,600 and accrued interest of $48.
In July 1998, CSC Holdings issued $500,000 principal amount of 7-1/4% Senior
Notes due 2008 (the "2008 Notes") and $500,000 principal amount ($499,541 and
$499,516 amortized amount at December 31, 1999 and 1998, respectively) of 7-5/8%
Senior Debentures due 2018 (the "Debentures"). The Debentures were issued at a
discount of $495. The 2008 Notes and Debentures are not redeemable by CSC
Holdings prior to maturity.
In February 1998, CSC Holdings issued $300,000 principal amount ($296,893 and
$296,721 amortized amount at December 31, 1999 and 1998, respectively) of 7-7/8%
Senior Debentures due 2018 (the "2018 Debentures"). The 2018 Debentures were
issued at a discount of $3,429. The 2018 Debentures are not redeemable by CSC
Holdings prior to maturity.
In December 1997, CSC Holdings issued $500,000 principal amount ($499,584 and
$499,532 amortized amount at December 31, 1999 and 1998, respectively) of 7-7/8%
Senior Notes due 2007 (the "2007 Notes"). The notes were issued at a discount of
$525. The 2007 Notes are not redeemable by CSC Holdings prior to maturity.
In August 1997, CSC Holdings issued $400,000 principal amount ($398,798 and
$398,674 amortized amount at December 31, 1999 and 1998, respectively) of 8-1/8%
Senior Debentures due 2009 (the "2009 Notes"). The 2009 Notes were issued at a
discount of $1,492. The 2009 Notes are not redeemable by CSC Holdings prior to
maturity.
The indentures under which the senior notes and debentures were issued contain
various convenants, which are generally less restrictive than those contained in
the CSC Holdings' Credit Agreement, with which CSC Holdings was in compliance at
December 31, 1999.
VI-29
<PAGE> 269
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Subordinated Notes and Debentures
In May 1996, CSC Holdings issued $150,000 principal amount ($149,558 and
$149,545 amortized amount at December 31, 1999 and 1998, respectively) of 9-7/8%
Senior Subordinated Notes due 2006 (the "2006 Notes") and $250,000 principal
amount of 10-1/2% Senior Subordinated Debentures due 2016 (the "2016
Debentures"). The 2006 Notes are redeemable at CSC Holdings' option, in whole or
in part, on May 15, 2001, May 15, 2002 and May 15, 2003 at the redemption price
of 104.938%, 103.292% and 101.646%, respectively, of the principal amount and
thereafter at 100% of the aggregate principal amount, in each case together with
accrued interest to the redemption date. The 2016 Debentures are redeemable at
CSC Holdings' option, in whole or in part, on May 15, 2006, May 15, 2007, May
15, 2008 and May 15, 2009, at the redemption price of 105.25%, 103.938%,
102.625% and 101.313%, respectively, of the principal amount and thereafter at
100% of the aggregate principal amount, in each case together with accrued
interest to the redemption date.
In November 1995, CSC Holdings issued $300,000 principal amount of 9-1/4% Senior
Subordinated Notes due 2005 (the "2005 Notes"). The 2005 Notes are redeemable at
CSC Holdings' option, in whole or in part, on November 1, 2000, November 1, 2001
and November 1, 2002 at the redemption price of 104.625%, 103.1% and 101.5%,
respectively, of the principal amount and thereafter at 100% of the principal
amount, in each case together with accrued interest to the redemption date.
In February 1993, CSC Holdings issued $200,000 face amount ($199,180 and
$199,117 amortized amount at December 31, 1999 and 1998, respectively) of its
9-7/8% Senior Subordinated Debentures due 2013 (the "2013 Debentures"). The 2013
Debentures are redeemable, at CSC Holdings' option, on February 15, 2003,
February 15, 2004, February 15, 2005 and February 15, 2006 at the redemption
price of 104.80%, 103.60%, 102.40% and 101.20%, respectively, of the principal
amount and thereafter at the redemption price of 100% of the principal amount,
in each case together with accrued interest to the redemption date.
Also in 1993, CSC Holdings issued $150,000 face amount ($149,775 and $149,713
amortized amount at December 31, 1999 and 1998, respectively) of its 9-7/8%
Senior Subordinated Debentures due 2023 (the "2023 Debentures"). The 2023
Debentures are redeemable, at CSC Holdings' option, on and after April 1, 2003
at the redemption price of 104.938% reducing ratably to 100% of the principal
amount on and after April 1, 2010, in each case together with accrued interest
to the redemption date.
The indentures under which the subordinated notes and debentures were issued
contain various covenants, which are generally less restrictive than those
contained in CSC Holdings' Credit Agreement and with which CSC Holdings was in
compliance at December 31, 1999.
VI-30
<PAGE> 270
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Summary of Five Year Debt Maturities
Total amounts payable by CNYG under its various debt obligations, including
capital leases, during the five years subsequent to December 31, 1999 are as
follows:
2000 $ 34,000
2001 93,000
2002 26,000
2003 12,000
2004 570,000
NOTE 8. PREFERRED STOCK
The following summarizes the changes in each series of CSC Holdings' preferred
stock:
<TABLE>
<CAPTION>
Series I Preferred Series M Preferred Series H Preferred
Shares Balance Shares Balance Shares Balance
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996....... 13,800,000 $ 323,331 7,157,585 $ 715,759 2,895,063 $ 289,506
Dividends paid in
additional shares.. - - 830,018 83,001 355,415 35,542
---------- --------- --------- --------- --------- ---------
December 31, 1997....... 13,800,000 323,331 7,987,603 798,760 3,250,478 325,048
Dividends paid in
additional shares.. - - 926,260 92,626 399,050 39,905
---------- --------- --------- --------- --------- ---------
December 31, 1998....... 13,800,000 323,331 8,913,863 891,386 3,649,528 364,953
Dividend paid in
additional shares.. - - 1,033,678 103,368 448,042 44,804
Redemption.............. (13,800,000) (323,331) - - - -
---------- --------- --------- --------- --------- ---------
December 31, 1999....... - $ - 9,947,541 $ 994,754 4,097,570 $ 409,757
========== ========= ========= ========= ========= =========
</TABLE>
In September 1999, CSC Holdings exercised its right to redeem all of its
outstanding shares of 8 1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock ("Series I Preferred"). The redemption occurred on November 2,
1999, at a price equal to 102.8% of the liquidation preference, plus accrued
dividends. Investors held the Series I Preferred through interests in depositary
shares (each of which represented a 1/10th interest in a share of the Series I
Preferred) which were redeemable simultaneously. Each depositary share was
convertible into approximately 1.4828 shares of Cablevision's Class A Common
Stock. As of December 31, 1999, 13,797,625 depositary shares out of 13,800,000
depositary shares outstanding had been converted into 20,458,925 shares of
Cablevision's Class A Common Stock, with the remaining 2,375 depositary shares
being redeemed for cash. CSC Holdings paid a cash dividend on the Series I
Preferred of approximately $21,898 in 1999 and $29,325 in each of 1998 and 1997.
VI-31
<PAGE> 271
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
In February 1996, CSC Holdings issued 6,500,000 depositary shares, representing
65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the
"Series L Preferred Stock"), which were subsequently exchanged for Series M
Redeemable Exchangeable Preferred Stock (the "Series M Preferred Stock") in
August 1996 with terms identical to the Series L Preferred Stock. The depositary
shares are exchangeable, in whole but not in part, at the option of CSC
Holdings, for CSC Holdings' 11-1/8% Senior Subordinated Debentures due 2008. CSC
Holdings is required to redeem the Series M Preferred Stock on April 1, 2008 at
a redemption price equal to the liquidation preference of $10,000 per share plus
accumulated and unpaid dividends. The Series M Preferred Stock is redeemable at
various redemption prices beginning at 105.563% at any time on or after April 1,
2003, at the option of CSC Holdings, with accumulated and unpaid dividends
thereon to the date of redemption. Before April 1, 2001, dividends may, at the
option of CSC Holdings, be paid in cash or by issuing fully paid and
nonassessable shares of Series M Preferred Stock with an aggregate liquidation
preference equal to the amount of such dividends. On and after April 1, 2001,
dividends must be paid in cash.
In September 1995, CSC Holdings issued 2,500,000 shares of its $.01 par value
11-3/4% Series H Redeemable Exchangeable Preferred Stock (the "Series H
Preferred Stock") with an aggregate liquidation preference of $100 per share.
CSC Holdings is required to redeem the Series H Preferred Stock on October 1,
2007 at a redemption price per share equal to the liquidation preference of $100
per share, plus accrued and unpaid dividends thereon. Before October 1, 2000,
dividends may, at the option of CSC Holdings, be paid in cash or by issuing
fully paid and nonassessable shares of Series H Preferred Stock with an
aggregate liquidation preference equal to the amount of such dividends. On and
after October 1, 2000, dividends must be paid in cash. The terms of the Series H
Preferred Stock permit CSC Holdings, at its option, to exchange the Series H
Preferred Stock for CSC Holdings' 11-3/4% Senior Subordinated Debentures due
2007 in an aggregate principal amount equal to the aggregate liquidation
preference of the shares of Series H Preferred Stock.
VI-32
<PAGE> 272
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 9. INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Depreciation and amortization.............................. $ (56,785) $ (184,222)
Investments in affiliates.................................. 27,476 23,406
Benefit plans.............................................. 95,476 96,036
Allowance for doubtful accounts............................ 6,693 3,801
Gains deferred for tax purposes............................ (127,775) (68,714)
Benefits of tax loss carry forwards........................ 638,625 483,026
---------- ----------
Net deferred tax assets............................... 583,710 353,333
Valuation allowance........................................ (583,710) (353,333)
---------- ----------
$ - $ -
========== ==========
</TABLE>
The operations of CNYG are included in two consolidated federal income tax
returns; one consolidated return includes the telecommunications and retail
electronics companies ("Cablevision"), and the second consolidated return
includes the Rainbow Media Holdings companies. The Rainbow Media Holdings
consolidated tax returns also include the operations of RMG. At December 31,
1999, Cablevision had net operating loss carry forwards of approximately
$1,250,000 and Rainbow Media Holdings had net operating loss carry forwards of
approximately $570,300, of which $300,000 has been allocated to RMG.
Approximately $50,000 of these carry forwards relate to exercises of
non-qualified stock options, the tax benefit of which, if realized, will be
credited to paid-in capital. As a result of the Holding Company reorganization
and the 1997 change in the ownership of Rainbow Media Holdings described in
Note 4, Rainbow Media Holdings' loss carry forwards may be subject to annual
limitations on deductions.
CNYG has provided a valuation allowance for the total amount of net deferred tax
assets since realization of these assets is not assured, principally due to
CNYG's history of net losses. When the sale transactions described in Note 5 are
consummated, it is expected that the benefit of the deferred tax assets will be
recorded.
CNYG'S tax provision for 1997 was reduced to $0 as a result of available loss
carry fowards.
NOTE 10. OPERATING LEASES
CNYG leases certain office, production, transmission, theater, event, and retail
store facilities under terms of leases expiring at various dates through 2027.
The leases generally provide for fixed annual rentals plus certain real estate
taxes and other costs. Rent expense for the years ended December 31, 1999, 1998
and 1997 amounted to $87,596, $71,657 and $14,386, respectively.
In addition, CNYG rents space on utility poles for its operations. CNYG's pole
rental agreements are for varying terms, and management anticipates renewals as
they expire. Pole rental expense for the years ended December 31, 1999, 1998 and
1997 amounted to approximately $13,081, $12,490 and $10,737, respectively.
VI-33
<PAGE> 273
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
The minimum future annual rentals for all operating leases during the next five
years, including pole rentals from January 1, 2000 through December 31, 2004,
and thereafter, at rates now in force are approximately: 2000, $96,516; 2001,
$93,136; 2002, $91,325; 2003, $89,256; 2004, $86,827; thereafter, $654,341.
NOTE 11. BENEFIT PLANS
Effective January 1, 1998, CSC Holdings established a Cash Balance Retirement
Plan (the "Retirement Plan"), which replaced CSC Holdings' former money purchase
pension plan for the benefit of employees other than those of MSG, The WIZ and
CCG Holdings, Inc.
CSC Holdings also maintains a 401(k) savings plan, pursuant to which an employee
can contribute a percentage of eligible annual compensation, as defined. CNYG
also makes matching contributions for a portion of employee contributions to the
401(k) savings plan.
For the years ended December 31, 1999, 1998 and 1997, CSC Holdings allocated
$11,510, $9,362 and $6,903, respectively, to CNYG with respect to the Retirement
Plan, money purchase pension plan and the 401(k) savings plan.
CSC Holdings maintains the CSSC Supplemental Benefit Plan (the "Supplemental
Plan") for the benefit of certain officers and employees of CNYG. As part of the
Supplemental Plan, CSC Holdings established a nonqualified defined benefit
pension plan, which provides that, upon attaining normal retirement age, a
participant will receive a benefit equal to a specified percentage of the
participant's average compensation, as defined. All participants are 100% vested
in the Supplemental Plan. Net periodic pension cost for the years ended December
31, 1999, 1998 and 1997 was negligible. At December 31, 1999 and 1998, the fair
value of Supplemental Plan assets exceeded the projected benefit obligation by
approximately $3,071 and $2,688, respectively.
MSG sponsors several non-contributory pension plans covering MSG's employees.
Benefits payable to retirees under these plans are based upon years of service
and participant's compensation and are funded through trusts established under
the plans. Plan assets are invested primarily in common stocks, bonds, United
States government securities and cash. At December 31, 1999 and 1998, the
accrued benefit cost amounted to $10,796 and $8,883, respectively, and for the
years ended December 31, 1999, 1998 and 1997, net periodic pension cost amounted
to $2,611, $2,254 and $1,613, respectively.
MSG also sponsors a welfare plan which provides certain postretirement health
care and life insurance benefits to certain employees and their dependents who
are eligible for early or normal
VI-34
<PAGE> 274
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
retirement under MSG's retirement plan. The welfare plan is insured through a
managed care provider and MSG funds these benefits with premium payments. For
the years ended December 31, 1999 and 1998, the periodic postretirement benefit
cost amounted to $204 and $84, respectively, and the accrued benefit cost
amounted to $6,154 and $6,087, respectively.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Rainbow Media Holdings has entered into several contracts, including rights
agreements, with professional sports teams and others relating to cable
television programming. In addition, Rainbow Media Holdings, through MSG, has
employment agreements with both players and coaches of its professional sports
teams. Certain of these contracts, which provide for payments that are
guaranteed regardless of employee injury or termination, are covered by
disability insurance if certain conditions are met. Future cash payments
required under these contracts as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $257,017
2001 201,821
2002 156,825
2003 120,686
2004 96,785
Thereafter 1,020,554
----------
Total $1,853,688
==========
</TABLE>
Cablevision and its cable television affiliates have an affiliation agreement
with a program supplier whereby Cablevision is obligated to make base rate
annual payments, as defined and subject to certain adjustments pursuant to the
agreement, through 2004. Cablevision would be contingently liable for the base
rate annual payments, based on subscriber usage, of approximately $13,335 in
2000 and for the years 2001 through 2004 such payments would increase by
percentage increases in the Consumer Price Index, or five percent, whichever is
less, over the prior year's base rate annual payment.
NOTE 13. OTHER MATTERS
The entities which comprise the CNYG are party to various lawsuits, some
involving substantial amounts. Management does not believe that the resolution
of these lawsuits will have a material adverse impact on the financial position
of CNYG.
VI-36
<PAGE> 275
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounts Receivable Trade, Notes and Other Receivables, Prepaid Expenses and
Other Assets, Advances to Affiliates, Accounts Payable and Accrued Liabilities.
The carrying amount approximates fair value due to the short maturity of these
instruments.
At Home Warrants
The fair value of the At Home warrants is based upon the quoted market price of
the underlying securities.
Bank Debt, Senior Notes and Debentures, Subordinated Notes and Debentures and
Redeemable Exchangeable Preferred Stock of CSC Holdings
The fair values of each of CNYG's long-term debt instruments and redeemable
preferred stock of CSC Holdings are based on quoted market prices for the same
or similar issues or on the current rates offered to entities which comprise
CNYG for instruments of the same remaining maturities.
Interest Rate Hedging Agreements
The fair values of interest rate swap and cap agreements are obtained from
dealer quotes. These values represent the estimated amount CNYG would receive or
pay to terminate agreements, taking into consideration current interest rates
and the current creditworthiness of the counterparties.
The fair value of CNYG's financial instruments are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------
Carrying Estimated
Amount Fair Value
---------- -----------
<S> <C> <C>
At Home warrants............................................. $ 248,134 $ 867,103
=========== ===========
Long term debt instruments:
Bank debt.................................................. $ 1,892,714 $ 1,892,714
Senior notes and debentures................................ 2,692,602 2,608,845
Subordinated notes and debentures.......................... 1,048,513 1,102,500
Redeemable exchangeable preferred
stock of CSC Holdings................................... 1,404,511 1,539,173
----------- -----------
$ 7,038,340 $ 7,143,232
=========== ===========
Interest rate hedging agreements:
In a net payable position.................................. $ - $ 3,864
=========== ===========
</TABLE>
VI-37
<PAGE> 276
\
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------
Carrying Estimated
Amount Fair Value
----------- -----------
<S> <C> <C>
At Home warrants............................................. $ 248,134 $ 755,479
=========== ===========
Long term debt instruments:
Bank debt.................................................. $ 1,784,768 $ 1,784,768
Senior notes and debentures................................ 2,194,443 2,271,340
Subordinated notes and debentures.......................... 1,048,375 1,168,375
Redeemable exchangeable preferred
stock of CSC Holdings................................... 1,256,339 1,417,241
----------- -----------
$ 6,283,925 $ 6,641,724
=========== ===========
Interest rate swap agreements:
In a net payable position.................................. $ - $ 4,116
=========== ===========
</TABLE>
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 15. SEGMENT INFORMATION
CNYG classifies its business interests into three fundamental areas:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow NY Group, consisting
principally of interests in cable television programming networks in the New
York metropolitan area and MSG, which owns and operates professional sports
teams, regional cable television networks, live productions and entertainment
venues; and Retail Electronics, which represents the operations of Cablevision
Electronics' retail electronics stores.
CNYG's reportable segments are strategic business units that are managed
separately. CNYG evaluates segment performance based on several factors, of
which the primary financial measure is business segment adjusted operating cash
flow (defined as operating income (loss) before depreciation and amortization,
incentive stock plan expense and the costs of Year 2000 remediation). The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Intersegment sales are accounted for
at fair value as if the sales were to third parties. Information as to the
operations of CNYG's business segments is set forth below.
VI-38
<PAGE> 277
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
----------- ---------- ----------
REVENUES
--------
<S> <C> <C> <C>
Telecommunication Services................................. $2,151,308 $1,886,190 $1,364,264
Rainbow NY Group........................................... 877,990 729,378 414,726
Retail Electronics......................................... 603,294 464,388 -
All Other.................................................. 85,529 6,614 1,119
Intersegment eliminations.................................. (116,394) (87,836) (43,357)
---------- ---------- ----------
Total............................................. $3,601,727 $2,998,734 $1,736,752
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
----------- ---------- ----------
ADJUSTED OPERATING CASH FLOW
----------------------------
<S> <C> <C> <C>
Telecommunication Services................................. $ 916,233 $ 762,823 $ 545,927
Rainbow NY Group........................................... 102,744 82,077 56,917
Retail Electronics......................................... (37,934) (19,737) -
All Other.................................................. (51,996) (1,783) (1,515)
---------- ---------- ----------
Total............................................. $ 929,047 $ 823,380 $ 601,329
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ----------- ----------
ASSETS
------
<S> <C> <C> <C>
Telecommunication Services................................. $4,490,364 $4,411,194 $2,927,640
Rainbow NY Group........................................... 2,032,739 2,155,011 2,380,210
Retail Electronics......................................... 220,898 199,194 -
Other...................................................... 274,003 253,564 10,270
Corporate and intersegment eliminations.................... (388,692) (381,890) (126,842)
---------- ---------- ----------
Total............................................. $6,629,312 $6,637,073 $5,191,278
========== ========== ==========
</TABLE>
A reconciliation of reportable segment amounts to CNYG's combined balances is as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
---------- ---------- ----------
REVENUE
-------
<S> <C> <C> <C>
Total revenue for reportable segments...................... $3,632,592 $3,079,956 $1,778,402
Other revenue and intersegment eliminations................ (30,865) (81,222) (41,650)
---------- ---------- ----------
Total combined revenue................................. $3,601,727 $2,998,734 $1,736,752
========== ========== ==========
ADJUSTED OPERATING CASH FLOW TO NET LOSS
----------------------------------------
Total adjusted operating cash flow for reportable
segments............................................... 981,043 825,163 604,054
Other adjusted operating cash flow deficit................. (51,996) (1,783) (2,725)
Items excluded from adjusted operating cash flow
Depreciation and amortization.......................... (853,895) (699,683) (466,794)
Incentive stock plan expense........................... (233,660) (132,432) (57,660)
</TABLE>
VI-39
<PAGE> 278
CABLEVISION NY GROUP
(a combination of certain assets and businesses of
Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
<TABLE>
<S> <C> <C> <C>
Year 2000 remediation.................................. (38,666) (7,593) -
Interest expense....................................... (443,105) (397,703) (336,496)
Interest income........................................ 10,313 27,430 5,336
Equity in net loss of affiliates....................... (11,560) (23,966) (20,791)
Gain on sale of programming interests and cable
assets, net....................................... - 153,264 213,625
Gain on redemption of subsidiary preferred stock....... - - 181,738
Write off of deferred interest and financing costs..... (3,012) (23,482) (24,547)
Provision for preferential payment to related party.... - (980) (10,083)
Miscellaneous, net..................................... (16,268) (19,815) (12,371)
---------- ---------- ------------
Net income (loss)............................ $ (660,806) $ (301,580) $ 73,286
=========== =========== ============
</TABLE>
Substantially all revenues and assets of CNYG's reportable segments are
attributed to or located in the United States.
CNYG does not have a single external customer which represents 10 percent or
more of its combined revenues.
NOTE 16. SUBSEQUENT EVENT
In April 2000, Cablevision entered into agreements with AT&T Corporation
("AT&T") for the sale of its cable systems in Boston and Eastern Massachusetts
in exchange for AT&T's cable systems in certain northern New York suburbs,
approximately $878,000 in AT&T stock and approximately $284,000 in cash, subject
to certain adjustments.
VI-40
<PAGE> 279
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents............................................................... $ 51,327 $ 62,560
Accounts receivable trade (less allowance for doubtful accounts of
$25,781 and $26,231)................................................................. 189,609 179,354
Notes and other receivables............................................................. 112,174 128,852
Inventory, prepaid expenses and other assets............................................ 225,830 216,895
Property, plant and equipment, net...................................................... 2,776,319 2,703,221
Investments in affiliates............................................................... 264,349 262,125
Advances to affiliates.................................................................. 111,504 153,044
Net assets held for sale................................................................ 272,290 269,349
Franchises, net of accumulated amortization of
$746,092 and $703,237................................................................ 608,922 651,777
Affiliation and other agreements, net of accumulated amortization of
$175,720 and $165,474................................................................ 96,334 106,580
Excess costs over fair value of net assets acquired and other intangible assets,
net of accumulated amortization of
$697,583 and $673,702................................................................ 1,760,065 1,779,062
Deferred financing, acquisition and other costs, net of
accumulated amortization of $50,767 and $48,119...................................... 117,604 116,493
---------- ----------
$6,586,327 $6,629,312
========== ==========
</TABLE>
See accompanying notes to
combined financial statements.
VI-42
<PAGE> 280
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED BALANCE SHEETS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(unaudited)
LIABILITIES AND GROUP DEFICIENCY
<S> <C> <C>
Accounts payable...................................................................... $ 429,070 $ 387,119
Accrued liabilities:
Interest.......................................................................... 103,308 114,972
Employee related costs............................................................ 355,332 429,359
Other............................................................................. 397,741 452,502
Contract obligations.................................................................. 109,796 104,241
Deferred revenue...................................................................... 238,344 274,043
Bank debt............................................................................. 2,084,169 1,892,714
Senior notes and debentures........................................................... 2,692,754 2,692,602
Subordinated notes and debentures..................................................... 1,048,546 1,048,513
Capital lease obligations and other debt.............................................. 73,975 65,482
----------- -----------
Total liabilities................................................................. 7,533,035 7,461,547
Series H Redeemable Exchangeable Preferred Stock...................................... 421,792 409,757
Series M Redeemable Exchangeable Preferred Stock...................................... 1,022,418 994,754
Commitments and contingencies
Group deficiency...................................................................... (2,390,918) (2,236,746)
----------- -----------
$ 6,586,327 $ 6,629,312
=========== ===========
</TABLE>
See accompanying notes
to combined financial statements.
VI-43
<PAGE> 281
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenues, net (including retail electronics sales of
$136,656 and $123,017)............................................................ $ 942,986 $ 858,310
--------- ---------
Operating expenses:
Technical and operating........................................................... 402,475 372,218
Retail electronics cost of sales.................................................. 112,453 98,092
Selling, general and administrative............................................... 169,765 296,019
Depreciation and amortization..................................................... 223,632 195,685
--------- ---------
908,325 962,014
--------- ---------
Operating income (loss).............................................................. 34,661 (103,704)
--------- ---------
Other income (expense):
Interest expense.................................................................. (121,391) (103,472)
Interest income................................................................... 1,814 4,255
Equity in net loss of affiliates, net............................................. (529) (3,747)
Miscellaneous, net................................................................ (149) (4,150)
--------- ---------
(120,255) (107,114)
--------- ---------
Net loss before dividend requirements................................................ (85,594) (210,818)
Dividend requirements applicable to preferred stock............................... (39,703) (42,843)
--------- ---------
Net loss............................................................................. $(125,297) $(253,661)
========= =========
</TABLE>
See accompanying notes
to combined financial statements.
VI-44
<PAGE> 282
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------- ------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................................... $ (85,594) $(210,818)
Adjustments to reconcile loss to net cash provided by (used in) operating
activities:
Depreciation and amortization............................................... 223,632 195,685
Equity in net loss of affiliates............................................ 529 3,747
Gain on sale of investments................................................. - (10,861)
Write off of investment in affiliate........................................ - 15,006
(Gain) loss on sale of equipment, net....................................... (50) 1,159
Amortization of deferred financing and debenture discount................... 1,250 2,016
Change in assets and liabilities, net of effects of acquisitions and
dispositions:
Accounts receivable trade............................................... (8,012) (9,778)
Notes and other receivables............................................. 16,674 7,692
Inventory, prepaid expenses and other assets............................ (8,310) 15,218
Advances to affiliates.................................................. (2,511) (10,837)
Other deferred costs.................................................... 2,408 4,067
Accounts payable........................................................ 36,188 (14,028)
Accrued liabilities..................................................... (150,775) 104,792
Contract obligations.................................................... 7,305 5,309
Deferred revenue........................................................ (35,699) (75,278)
----------- -----------
Net cash provided by (used in) operating activities............................ (2,965) 23,091
----------- -----------
Cash flows from investing activities:
Capital expenditures............................................................. (202,755) (156,595)
Payments for acquisitions, net of cash acquired.................................. (106,183) (24,787)
Proceeds from sale of equipment.................................................. 84 155
Proceeds from sale of investments................................................ - 10,861
Increase in investments in affiliates, net....................................... (7,897) (24,052)
Additions to other intangible assets............................................. (92) (6,167)
------------ ------------
Net cash used in investing activities.......................................... $(316,843) $(200,585)
----------- -------------
</TABLE>
See accompanying notes
to combined financial statements.
VI-45
<PAGE> 283
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(Dollars in thousands)
(unaudited)
(continued)
<TABLE>
<CAPTION>
2000 1999
----- ----
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from bank debt..................................................... $ 334,260 $ 186,185
Preferred stock dividends....................................................... (4) (7,335)
Issuance of Cablevision common stock............................................ 4,443 2,082
Payments on capital lease obligations and other debt............................ (8,127) (2,551)
Additions to deferred financing and other costs................................. (5,458) (1,921)
Purchase of Cablevision treasury stock.......................................... - (458)
Capital distribution to RMG..................................................... (16,539) (13,953)
--------- ---------
Net cash provided by financing activities..................................... 308,575 162,049
--------- ---------
Net decrease in cash and cash equivalents.......................................... (11,233) (15,445)
Cash and cash equivalents at beginning of year..................................... 62,560 173,727
--------- ---------
Cash and cash equivalents at end of period......................................... $ 51,327 $ 158,282
========= =========
</TABLE>
See accompanying notes
to combined financial statements.
VI-46
<PAGE> 284
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited combined financial statements of CNYG have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
NOTE 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the three month periods ended March 31,
2000 and 1999 presented are unaudited; however, in the opinion of management,
such statements include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the results for the periods
presented.
The interim financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1999.
The results of operations for the interim periods are not necessarily indicative
of the results that might be expected for future interim periods or for the full
year ending December 31, 2000.
VI-47
<PAGE> 285
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(unaudited)
NOTE 3. CASH FLOWS
For purposes of the combined statements of cash flows, CNYG considers short-term
investments with a maturity at date of purchase of three months or less to be
cash equivalents. CNYG paid cash interest expense of approximately $134,486 and
$81,302 for the three months ended March 31, 2000 and 1999, respectively. CNYG's
noncash financing activities for the three months ended March 31, 2000 and 1999
included capital lease obligations of $16,601 and $330, respectively, incurred
when CNYG entered into leases for new equipment. For the three months ended
March 31, 2000 and 1999, CNYG made contributions of $1,772 and $23,405,
respectively, to equity method investee companies attributed to RMG. Such
amounts have been reflected as capital distributions from CNYG to RMG. For the
three months ended March 31, 2000 and 1999, CNYG received net proceeds of
$143,573, and $23,525, respectively, on indebtedness and made payments of $3,803
and $2,714, respectively, of related interest attributed to RMG. Such amounts
have been reflected as capital contributions from RMG to CNYG. For the three
months ended March 31, 2000 and 1999, CNYG made payments of $5,916, and $2,771,
respectively, relating to stock plan obligations attributed to RMG. Such amounts
have been reflected as capital contributions from CNYG to RMG.
NOTE 4. AT HOME
As of March 31, 2000 and 1999, deferred revenue derived from the receipt of At
Home warrants, net of amortization taken, amounted to approximately $146,419 and
$199,680, respectively. For the three months ended March 31, 2000 and 1999, CNYG
recognized approximately $15,000 and $12,534, respectively, of this deferred
revenue.
NOTE 5. SEGMENT INFORMATION
CNYG's reportable segments are strategic business units that are managed
separately. CNYG evaluates segment performance based on several factors, of
which the primary financial measure is business segment adjusted operating cash
flow (defined as operating income or loss before depreciation and amortization,
incentive stock plan income or expense and the costs of Year 2000 remediation).
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------
2000 1999
---- ----
REVENUES
--------
<S> <C> <C>
Telecommunication Services....................................... $567,068 $525,490
Rainbow NY Group................................................. 252,488 219,515
Retail Electronics............................................... 136,656 123,017
All Other........................................................ 18,173 18,307
Intersegment Eliminations........................................ (31,399) (28,019)
-------- --------
Total................................................... $942,986 $858,310
======== ========
ADJUSTED OPERATING CASH FLOW
----------------------------
Telecommunication Services....................................... $238,666 $218,358
Rainbow NY Group................................................. 15,271 10,943
Retail Electronics............................................... (17,888) (11,305)
All Other........................................................ (13,215) (7,986)
-------- --------
Total................................................... $222,834 $210,010
======== ========
</TABLE>
VI-48
<PAGE> 286
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
A reconciliation of reportable segment amounts to the combined balances is as
follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
REVENUE
-------
<S> <C> <C>
Total revenue for reportable segments............................ $ 956,212 $ 868,022
Other revenue and intersegment eliminations...................... (13,226) (9,712)
--------- ---------
Total combined revenue..................................... $ 942,986 $ 858,310
========= =========
ADJUSTED OPERATING CASH FLOW TO NET LOSS
-----------------------------------------
Total adjusted operating cash flow for reportable
segments................................................... $ 236,049 $ 217,996
Other adjusted operating cash flow deficit....................... (13,215) (7,986)
Items excluded from adjusted operating cash flow:
Depreciation and amortization.............................. (223,632) (195,685)
Incentive stock plan income (expense)...................... 37,970 (110,576)
Year 2000 remediation costs................................ (2,511) (7,453)
Interest expense........................................... (121,391) (103,472)
Interest income............................................ 1,814 4,255
Equity in net loss of affiliates........................... (529) (3,747)
Miscellaneous, net......................................... (149) (4,150)
--------- ---------
Net loss......................................... $ (85,594) $(210,818)
========= =========
</TABLE>
Substantially all revenues and assets of CNYG's reportable segments are
attributed to or located in the United States.
CNYG does not have a single external customer which represents 10 percent or
more of its combined revenues.
NOTE 6. NET ASSETS HELD FOR SALE
The net assets attributable to CNYG's cable television systems located in and
around the greater Cleveland, Ohio metropolitan area and in Kalamazoo, Michigan
are classified in the accompanying balance sheet as net assets held for sale.
NOTE 7. SUBSEQUENT EVENT
In April 2000, Cablevision entered into agreements with AT&T Corporation
("AT&T") for the sale of its cable systems in Boston and Eastern Massachusetts
in exchange for AT&T's cable systems in certain northern New York suburbs,
approximately $878,000 in AT&T stock and approximately $284,000 in cash, subject
to certain adjustments.
VI-49
<PAGE> 287
THE CABLEVISION NY GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TRANSACTIONS
1999 Acquisitions. In April 1999, CSC Holdings purchased ITT Corporation's
("ITT") remaining minority interest in Madison Square Garden. In 1999, CSC
Holdings acquired interests in the real property and assets related to certain
movie theaters.
1998 Acquisitions. In December 1998, CSC Holdings acquired the net assets of
Clearview Cinema Group, Inc. ("Clearview") and certain assets from Loews
Cineplex Entertainment Corporation ("Loews"). In June 1998, CSC Holdings
purchased 50% of ITT's then remaining minority interest in Madison Square
Garden. In March 1998, Cablevision Systems Corporation ("Cablevision") acquired
certain cable television systems in New York and New Jersey from
Tele-Communications, Inc. ("TCI"). In addition, in February 1998, Cablevision
Electronics Investments, Inc. ("Cablevision Electronics") acquired substantially
all of the assets associated with 40 The WIZ consumer electronics store
locations (the "WIZ Transaction").
1998 Dispositions. In 1998, CSC Holdings completed the sale of substantially all
of the assets of U.S. Cable Television Group, L.P. ("U.S. Cable") and the sale
of several smaller cable television systems. Also in 1998, CSC Holdings
transferred its cable television system in Rensselaer, New York plus
approximately $16 million in cash to Time Warner in exchange for Time Warner's
Litchfield, Connecticut system.
1997 Acquisitions and Transactions. In December 1997, Rainbow Media Holdings
completed certain transactions with Fox. Also in December 1997, Madison Square
Garden acquired all of the membership interests in Radio City Productions, LLC.
In July 1997, CSC Holdings acquired from Warburg Pincus Investors, L.P.
("Warburg Pincus") the Series A Preferred Stock of A-R Cable Services, Inc.
("A-R Cable") which resulted in the consolidation of A-R Cable's operations from
the date of the transaction. In June 1997, CSC Holdings acquired from Warburg
Pincus the equity interest that Warburg Pincus had in certain cable television
systems in Massachusetts giving CSC Holdings full ownership of these systems. In
June 1997, CSC Holdings redeemed a portion of ITT's interest in Madison Square
Garden, which increased Rainbow Media Holdings' interest in Madison Square
Garden from 50% to 89.8%. In April 1997, CSC Holdings exchanged 25% of its
interest in Rainbow Media Holdings for NBC's interest in certain of Rainbow
Media Holdings' programming entities ("NBC Transaction").
1997 Dispositions. In 1997, CSC Holdings completed the sale of certain cable
television systems and Rainbow Media Holdings completed the sale of the assets
of a radio station.
The above transactions completed in 1999, 1998 and 1997 are collectively
referred to as the "Net Acquisitions."
VI-50
<PAGE> 288
RESULTS OF OPERATIONS
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
Years Ended December 31,
-----------------------------------------------------
1999 1998
----------------------- -------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues, net....................................... $3,601,727 100% $2,998,734 100% $602,993
Operating expenses:
Technical and operating.......................... 1,409,543 39 1,162,119 39 (247,424)
Retail electronics cost of sales................. 484,760 13 367,102 12 (117,658)
Selling, general & administrative................ 1,050,703 29 786,158 26 (264,545)
Depreciation and amortization.................... 853,895 24 699,683 23 (154,212)
---------- ---------- ----------
Operating loss...................................... (197,174) (5) (16,328) (1) (180,846)
Other income (expense):
Interest expense, net............................ (432,792) (12) (370,273) (12) (62,519)
Equity in net loss of affiliates, net............ (11,560) - (23,966) (1) 12,406
Gain on sale of programming interests and cable
assets, net.................................. - - 153,264 5 (153,264)
Write off of deferred interest and financing costs (3,012) - (23,482) (1) 20,470
Provision for preferential payment to related party - - (980) - 980
Miscellaneous, net............................... (16,268) - (19,815) (1) 3,547
----------- ---------- ----------
Net loss before dividend requirements............... (660,806) (18) (301,580) (10) (359,226)
Dividend requirements applicable to preferred stock (170,087) (5) (161,872) (5) (8,215)
---------- ---------- ----------
Net loss............................................ $ (830,893) (23)% $ (463,452) (15)% $ (367,441)
========== ========== ==========
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1998 1997
-------------------- --------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues, net....................................... $2,998,734 100% $1,736,752 100% $1,261,982
Operating expenses:
Technical and operating.......................... 1,162,119 39 766,974 44 (395,145)
Retail electronics cost of sales................. 367,102 12 - - (367,102)
Selling, general & administrative................ 786,158 26 426,109 25 (360,049)
Depreciation and amortization.................... 699,683 23 466,794 27 (232,889)
---------- ----------- ----------
Operating income (loss)............................. (16,328) (1) 76,875 4 (93,203)
Other income (expense):
Interest expense, net............................ (370,273) (12) (331,160) (19) (39,113)
Equity in net loss of affiliates, net............ (23,966) (1) (20,791) (1) (3,175)
Gain on sale of programming interests and cable
assets, net.................................. 153,264 5 213,625 12 (60,361)
Gain on redemption of subsidiary preferred stock. - - 181,738 10 (181,738)
Write off of deferred interest and financing costs (23,482) (1) (24,547) (1) 1,065
Provision for preferential payment to related party (980) - (10,083) - 9,103
Miscellaneous, net............................... (19,815) (1) (12,371) (1) (7,444)
---------- ----------- -----------
Net income (loss) before dividend requirements...... (301,580) (10) 73,286 4 (374,866)
Dividend requirements applicable to preferred stock (161,872) (5) (148,767) (9) (13,105)
---------- ----------- ----------
Net loss............................................ $ (463,452) (15)% $ (75,481) (4)% $ (387,971)
========== =========== ==========
</TABLE>
VI-51
<PAGE> 289
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED DECEMBER 31, 1998
COMBINED RESULTS
Revenues for the year ended December 31, 1999 increased $603.0 million (20%) as
compared to revenues for the prior year. Approximately $306.6 million (10%) of
the increase was attributable to the Net Acquisitions; approximately $204.3
million (7%) was from increases in other revenue sources such as Rainbow NY
Group's programming and entertainment services (including Madison Square
Garden), advertising on Cablevision NY Group's ("CNYG") cable television
systems, revenue derived from the developing commercial telephone business and
revenue recognized in connection with the At Home transaction; and approximately
$58.6 million (2%) resulted from higher revenue per subscriber. The remaining
increase of $33.5 million (1%) was attributable to internal growth of 65,700 in
the average number of cable television subscribers during the year.
Technical and operating expenses for 1999 increased $247.4 million (21%) over
the 1998 amount. Approximately $158.1 million (13%) reflected increased costs
directly associated with the growth in revenues and subscribers discussed above,
as well as increases in programming costs for cable television services, with
the remaining $89.3 million (8%) attributable to the Net Acquisitions. As a
percentage of revenues, technical and operating expenses remained relatively
constant during 1999 as compared to 1998.
Retail electronics cost of sales amounted to approximately $484.8 million (80%
of retail electronics sales) for the year ended December 31, 1999, compared to
approximately $367.1 million (79% of retail electronics sales) from the date of
the WIZ Transaction through December 31, 1998. Cost of sales includes the cost
of merchandise sold, including freight costs incurred, as well as store
occupancy and buying costs for the retail electronics segment.
Selling, general and administrative expenses increased $264.5 million (34%) for
1999 as compared to the 1998 level. Approximately $101.2 million (13%) was due
to charges attributed to CNYG related to an incentive stock plan and $76.2
million (10%) resulted from higher administrative, sales and marketing, and
customer service costs. An additional $60.6 million (8%) was directly
attributable to the Net Acquisitions with the remaining $26.5 million (3%) due
to Year 2000 remediation costs. As a percentage of revenues, selling, general
and administrative expenses increased 3% in 1999 compared to 1998. Excluding the
effects of the incentive stock plan and Year 2000 remediation costs, as a
percentage of revenues such costs remained relatively constant during 1999 as
compared to 1998.
Operating profit before depreciation and amortization decreased $26.6 million
(4%) to $656.7 million for 1999 from $683.4 million for 1998. This decrease
resulted from the combined effects of the revenue and expense changes discussed
above. On a pro forma basis, giving effect to the Net Acquisitions as if they
had occurred on January 1, 1998 and excluding the incentive stock plan charges
referred to above and the costs of Year 2000 remediation, operating profit
before depreciation and amortization would have increased 8.1% in 1999.
Operating profit before depreciation and amortization is presented here to
provide additional information about CNYG's ability to meet future debt service,
capital expenditures and working capital requirements. Operating profit before
depreciation and amortization should be considered in addition to and not as a
substitute for net income (loss) and cash flows as indicators of financial
performance and liquidity as reported in accordance with generally accepted
accounting principles.
VI-52
<PAGE> 290
Depreciation and amortization expense increased $154.2 million (22%) during 1999
as compared to 1998. Approximately $103.2 million (15%) of the increase was
directly attributable to the Net Acquisitions. The remaining $51.0 million (7%)
increase resulted from depreciation on new plant assets, partially offset by a
decrease in amortization expense resulting from certain intangible assets
becoming fully amortized during 1999.
Net interest expense increased $62.5 million (17%) during 1999 compared to 1998.
The net increase is primarily attributable to debt incurred to fund acquisitions
and capital expenditures, partly offset by generally lower interest rates.
Equity in net loss of affiliates decreased to $11.6 million in 1999 from $24.0
million in 1998. Such amounts consist of CNYG's share of the net profits and
losses of certain programming and personal communications services ("PCS")
businesses in which Cablevision has varying minority ownership interests.
Gain on sale of programming interests and cable assets for the year ended
December 31, 1998 consists primarily of a gain of $153.3 million from the
disposition of certain cable television systems.
Write off of deferred interest and financing costs of $3.0 million in 1999
consists principally of the write off of deferred financing costs recorded in
connection with amendments to CSC Holdings' credit agreements. The write off of
deferred interest and financing costs of $23.5 million in 1998 consists
principally of a $14.9 million premium paid to redeem Clearview's senior notes
payable and the write off of deferred financing costs of $4.7 million recorded
in connection with amendments to CSC Holdings' credit agreements.
Provision for preferential payment to related party consists of the expensing of
the proportionate amount due with respect to an annual payment to Charles F.
Dolan made in connection with the acquisition of Cablevision of New York City.
Effective March 4, 1998, these preferential payments were terminated upon the
retirement of Mr. Dolan's preferred interest.
Net miscellaneous expense decreased to $16.3 million for the year ended December
31, 1999 compared to $19.8 million for the prior year. In 1999, miscellaneous
expense included a charge of $15.1 million resulting from the write off of an
investment held by Rainbow Media Holdings and attributable to CNYG, $6.7 million
relating to federal, state and local income taxes and $5.4 million relating to
various other items, partially offset by a gain of $10.9 million resulting from
the sale of certain marketable securities. In 1998, miscellaneous expense
included $13.5 million relating to federal, state and local income taxes and
$6.3 million relating to various other items.
VI-53
<PAGE> 291
BUSINESS SEGMENTS RESULTS
CNYG classifies its business interests into three fundamental areas:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow NY Group, consisting
principally of interests in cable television programming networks in the New
York metropolitan area and MSG, which owns and operates professional sports
teams, regional cable television networks, live productions and entertainment
venues; and Retail Electronics, which represents the operations of Cablevision
Electronics' retail electronics stores. CSC Holdings allocates certain costs to
each segment based upon their proportionate estimated usage of services.
Telecommunication Services
Refer to Cablevision Systems Corporation's Annual Report on Form 10-K.
Rainbow NY Group
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
Rainbow NY Group.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1999 1998
---------------------------- ---------------------------
% of Net % of Net
Amount Revenues Amount Revenues
--------------- ----------- -------------- -----------
(dollars in thousands)
----------------------
<S> <C> <C> <C> <C>
Revenues, net...................................... $ 877,990 100% $ 729,378 100%
Technical and operating expenses................... 587,822 67 471,632 65
Selling, general and administrative expenses....... 255,907 29 213,618 29
Depreciation and amortization...................... 121,767 14 132,237 18
--------- ----------
Operating loss................................ $ (87,506) (10)% $ (88,109) (12)%
========= ==========
</TABLE>
Revenues for the year ended December 31, 1999 increased $148.6 million (20%) as
compared to revenues for the prior year. Approximately $78.2 million (11%) of
the increase was attributable to a greater number of events at Madison Square
Garden, including Knicks and Rangers games and other special events during the
1999 period, partially offset by a decrease resulting from fewer performances at
Radio City Music Hall due to its temporary closing in 1999 for restoration.
Approximately $49.0 million (7%) of the increase was attributable to internal
growth in programming network subscribers, rate increases and new channel
launches. The remaining $21.4 million (2%) increase was attributable to higher
advertising revenues.
Technical and operating expenses increased $116.2 million (25%) for the year
ended December 31, 1999 over the same 1998 period. Approximately $93.4 million
(20%) of the increase was attributable to a greater number of sporting events at
Madison Square Garden, including Knicks and Rangers games, partially offset by
fewer concerts and other events due to the temporary closing of Radio City Music
Hall for restoration. Increases of $20.5 million (4%) were due to new
programming service launches with the remaining $2.3 million (1%) increase
attributable to costs directly associated with the increases in revenues
discussed above. As a percentage of revenues, technical and operating expenses
increased 2% during 1999 compared to 1998.
VI-54
<PAGE> 292
Selling, general and administrative expenses increased $42.3 million (20%) for
1999 as compared to the 1998 level. Approximately $18.9 million (9%) of the
increase was due to charges attributed to CNYG related to an incentive stock
plan and approximately $11.8 million (6%) was attributable to increases in sales
and marketing initiatives including the promotion of new channel launches and
other general cost increases. The remaining $11.6 million (5%) increase was a
result of Year 2000 remediation costs. As a percentage of revenues, selling,
general and administrative expenses remained relatively constant in 1999
compared to 1998. Excluding the effects of the incentive stock plan and Year
2000 remediation costs, as a percentage of revenues such costs decreased 3%.
Depreciation and amortization expense decreased $10.5 million (8%) during 1999
as compared to 1998. Increased depreciation on fixed asset additions was more
than offset by a reduction in amortization as certain intangible assets became
fully amortized.
Retail Electronics
Refer to Cablevision Systems Corporation's Annual Report on Form 10-K.
VI-55
<PAGE> 293
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997
COMBINED RESULTS
Revenues for the year ended December 31, 1998 increased $1,262.0 million (73%)
as compared to revenues for the prior year. Approximately $1,101.6 million (64%)
of the increase was attributable to the Net Acquisitions; approximately $88.8
million (5%) resulted from higher revenue per subscriber; and approximately
$39.4 million (2%) was from increases in other revenue sources such as Rainbow
NY Group's programming services, advertising on CNYG's cable television systems,
revenue derived from the developing commercial telephone business and revenue
recognized in connection with the At Home transaction. The remaining increase of
$32.2 million (2%) was attributable to internal growth of 67,300 in the average
number of cable television subscribers during the year.
Technical and operating expenses for 1998 increased $395.1 million (52%) over
the 1997 amount. Approximately $332.7 million (43%) was attributable to the Net
Acquisitions, with the remaining $62.4 million (9%) attributable to increased
costs directly associated with the growth in revenues and subscribers discussed
above, as well as to increases in programming costs for cable television
services. As a percentage of revenues, technical and operating expenses
decreased 5% during 1998 as compared to 1997.
Retail electronics cost of sales for 1998 amounted to approximately $367.1
million (79% of retail electronics sales) from the date of the WIZ Transaction
through December 31, 1998. Cost of sales includes the cost of merchandise sold,
including freight costs incurred, as well as store occupancy and buying costs
for the retail electronics segment.
Selling, general and administrative expenses increased $360.1 million (85%) for
1998 as compared to the 1997 level. Approximately $228.9 million (54%) was
directly attributable to the Net Acquisitions and $74.8 million (18%) was due to
charges related to an incentive stock plan. The remaining $56.4 million (13%)
increase resulted from higher customer service, administrative and sales and
marketing costs. As a percentage of revenues, selling, general and
administrative expenses increased 1% in 1998 compared to 1997. Excluding the
effects of the incentive stock plan, as a percentage of revenues such costs
increased 1% during 1998 as compared to 1997.
Operating profit before depreciation and amortization increased $139.7 million
(26%) to $683.4 million for 1998 from $543.7 million for 1997. The Net
Acquisitions contributed approximately $172.9 million (32%) of the increase.
This increase was partially offset by a decrease of $33.2 million (6%) resulting
from the combined effect of the revenue and expense changes discussed above. On
a pro forma basis, giving effect to the Net Acquisitions as if they had occurred
on January 1, 1997 and excluding the incentive stock plan charges referred to
above, operating profit before depreciation and amortization would have
increased 11.5% in 1998. Operating profit before depreciation and amortization
is presented here to provide additional information about CNYG's ability to meet
future debt service, capital expenditures and working capital requirements.
Operating profit before depreciation and amortization should be considered in
addition to and not as a substitute for net income (loss) and cash flows as
indicators of financial performance and liquidity as reported in accordance with
generally accepted accounting principles.
VI-56
<PAGE> 294
Depreciation and amortization expense increased $232.9 million (50%) during 1998
as compared to 1997. Approximately $212.9 million (46%) of the increase was
directly attributable to the Net Acquisitions. The remaining $20.0 million (4%)
increase resulted primarily from depreciation on new plant assets, partially
offset by a decrease in amortization expense resulting from certain intangible
assets becoming fully amortized during 1998.
Net interest expense increased $39.1 million (12%) during 1998 compared to 1997.
The net increase is primarily attributable to debt incurred to fund acquisitions
and capital expenditures, partly offset by lower interest rates.
Equity in net loss of affiliates increased to $24.0 million for 1998 from $20.8
million in 1997. For the year ended December 31, 1998, such amount consisted of
CNYG's share of the net profits and losses of certain programming businesses in
which Cablevision has varying minority ownership interests. For the year ended
December 31, 1997, such amount consisted primarily of CNYG's share of net losses
in certain cable affiliates for the period prior to consolidation ($37.9
million) and CNYG's share of the net profits in certain programming businesses
in which Cablevision had varying ownership interests.
Gain on sale of programming interests and cable assets for the year ended
December 31, 1998 consists primarily of a gain of $153.3 million from the
disposition of certain cable television systems. For the year ended December 31,
1997, the gain consists primarily of CNYG's proportionate share ($146.6 million)
of the gain resulting from the Fox transactions, a gain of approximately $59.0
million resulting from the sale of certain cable television systems, and a gain
of approximately $7.4 million from the sale of Rainbow Media Holdings' radio
station.
Gain on redemption of subsidiary preferred stock for the year ended December 31,
1997 represents the gain recognized upon the redemption of A-R Cable's Series A
Preferred Stock of $181.7 million. Such gain represents primarily the reversal
of accrued preferred dividends in excess of amounts paid.
Write off of deferred interest and financing costs of $23.5 million in 1998
consists principally of the premium of $14.9 million paid to redeem Clearview's
senior notes payable. Additionally, in 1998 CNYG wrote off deferred financing
costs of $4.7 million in connection with amendments to CSC Holdings' credit
agreements. The write off of deferred interest and financing costs of $24.5
million in 1997 consists principally of the payment of a premium of $8.4 million
to redeem Clearview's 10 3/4% Senior Subordinated Debentures due 2004 and the
write off of $5.3 million in deferred financing costs in connection with such
redemption. In addition, CNYG 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 an amendment to and repayment of the term loans of
the Madison Square Garden credit facility.
Provision for preferential payment to related party consists of the expensing of
the proportionate amount due with respect to an annual payment to Charles F.
Dolan made in connection with the acquisition of Cablevision of New York City.
Effective March 4, 1998, these preferential payments were terminated upon the
retirement of Mr. Dolan's preferred interest.
Net miscellaneous expense increased to $19.8 million for the year ended December
31, 1998 compared to $12.4 million for the prior year. Approximately $9.6
million of the increase related to federal alternative minimum taxes and state
income taxes, while an offsetting decrease of $2.2 million reflects a reduction
in various other miscellaneous items.
BUSINESS SEGMENTS RESULTS
Telecommunication Services
Refer to Cablevision Systems Corporation's Annual Report on Form 10-K.
Rainbow NY Group
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
Rainbow NY Group.
VI-57
<PAGE> 295
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1998 1997
----------------------------- ----------------------------
% of Net % of Net
Amount Revenues Amount Revenues
--------------- ------------ -------------- ------------
(dollars in thousands)
----------------------
<S> <C> <C> <C> <C>
Revenues, net...................................... $ 729,378 100 % $ 414,726 100 %
Technical and operating expenses................... 471,632 65 255,071 61
Selling, general and administrative expenses....... 213,618 29 123,030 30
Depreciation and amortization...................... 132,237 18 58,193 14
--------- ---------
Operating loss................................ $ (88,109) (12)% $ (21,568) (5)%
========= =========
</TABLE>
Revenues for the year ended December 31, 1998 increased $314.7 million (76%) as
compared to revenues for the prior year. Approximately $302.1 million (73%) of
the increase was attributable to the Net Acquisitions; approximately $7.4
million (2%) was from an increase in cable television advertising sales; and
approximately $5.2 million (1%) resulted from growth in programming network
subscribers, rate increases and the launch of new programming networks.
Technical and operating expenses for 1998 increased $216.5 million (85%) over
the 1997 amount. Approximately $207.0 million (81%) was attributable to the Net
Acquisitions, with the remaining $9.5 million (4%) attributable to increased
costs directly associated with the growth in revenues discussed above. As a
percentage of revenues, technical and operating expenses increased 4% during
1998 as compared to 1997.
Selling, general and administrative expenses increased $90.6 million (74%) for
1998 as compared to the 1997 level. Approximately $56.4 million (46%) was
directly attributable to the Net Acquisitions and $17.7 million (14%) was due to
charges attributed to CNYG related to an incentive stock plan. The remaining
$16.5 million (14%) increase was primarily attributable to sales and marketing
initiatives related to the promotion of new and established programming networks
and from higher administrative costs. As a percentage of revenues, selling,
general and administrative expenses decreased 1% in 1998 compared to 1997.
Excluding the effects of the incentive stock plan, as a percentage of revenues
such costs decreased 1%.
Depreciation and amortization expense increased $74.0 million (127%) during 1998
as compared to 1997. Approximately $71.1 million (122%) of the increase was
directly attributable to the Net Acquisitions. The remaining $2.9 million (5%)
increase resulted primarily from depreciation on new fixed assets.
Retail Electronics
Refer to Cablevision Systems Corporation's Annual Report on Form 10-K.
VI-58
<PAGE> 296
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Cablevision NY Group - Three Months Ended March 31, 2000 and 1999
TRANSACTIONS
1999 Acquisitions. In April 1999, CSC Holdings purchased ITT Corporation's
remaining minority interest in Madison Square Garden. In 1999, CSC Holdings
acquired interests in the real property and assets related to certain movie
theaters.
RESULTS OF OPERATIONS
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------
2000 1999
-------------------- --------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues, net....................................... $ 942,986 100% $ 858,310 100% $ 84,676
Operating expenses:
Technical and operating.......................... 402,475 43 372,218 43 (30,257)
Retail electronics cost of sales................. 112,453 12 98,092 11 (14,361)
Selling, general & administrative................ 169,765 18 296,019 34 126,254
Depreciation and amortization.................... 223,632 24 195,685 23 (27,947)
--------- --------- ---------
Operating income (loss)............................. 34,661 4 (103,704) (12) 138,365
Other income (expense):
Interest expense, net............................ (119,577) (13) (99,217) (12) (20,360)
Equity in net loss of affiliates, net............ (529) - (3,747) - 3,218
Miscellaneous, net............................... (149) - (4,150) - 4,001
--------- --------- ---------
Net loss before dividend requirements............... (85,594) (9) (210,818) (25) 125,224
Dividend requirements applicable to preferred stock (39,703) (4) (42,843) (5) 3,140
--------- --------- ---------
Net loss............................................ $(125,297) (13)% $(253,661) (30)% $ 128,364
========= ========= =========
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS ENDED
MARCH 31, 1999
COMBINED RESULTS
Revenues for the three months ended March 31, 2000 increased $84.7 million (10%)
as compared to revenues for the same period in the prior year. Approximately
$33.3 million (4%) of the increase was attributable to increased revenues in
Rainbow NY Group's programming services, approximately $23.6 million (3%)
resulted from higher revenue per subscriber and approximately $18.6 million (2%)
was from increases in other revenue sources, primarily higher retail electronics
sales and revenue derived from the developing telephone and modem businesses.
The remaining increase of $9.2 million (1%) was attributable to internal growth
of 71,600 in the average number of subscribers during the period.
Technical and operating expenses for the three months ended March 31, 2000
increased $30.3 million (8%) compared to the same period in 1999. The increase
was attributable to increased costs directly associated with the growth in
revenues and subscribers discussed above, as well as to increases in programming
costs for cable television services. As a percentage of revenues, technical and
operating expenses remained constant during the 2000 period as compared to the
1999 period.
Retail electronics cost of sales for the three months ended March 31, 2000
amounted to approximately $112.5 million (82% of retail electronics sales)
compared to approximately $98.1 million (80% of retail electronics sales) for
the three months ended March 31, 1999. Cost of sales includes the cost of
merchandise sold, including freight costs incurred and certain occupancy and
buying costs, for the retail electronics segment.
VI-59
<PAGE> 297
Selling, general and administrative expenses decreased $126.3 million (43%) for
the three months ended March 31, 2000 over the comparable period in 1999. A
$148.6 million (50%) decrease was due to benefits attributed to CNYG related to
an incentive stock plan and a $5.0 million (2%) decrease was due to lower Year
2000 remediation costs. These decreases were partially offset by an increase of
approximately $27.3 million (9%) resulting from additional customer service,
sales and marketing and administrative costs. As a percentage of revenues,
selling, general and administrative expenses decreased 16% in the 2000 period
compared to the 1999 period. Excluding the effects of the incentive stock plan
adjustments and the Year 2000 remediation costs, as a percentage of revenues
such costs increased 1%.
Operating profit before depreciation and amortization increased $166.3 million
(181%) to $258.3 million for the three months ended March 31, 2000 from $92.0
million for the comparable period in 1999. Approximately $148.6 million (162%)
of the increase resulted from benefits attributed to CNYG related to an
incentive stock plan referred to above and approximately $17.7 million (19%)
resulted from the combined effect of the revenue and expense changes discussed
above. On a pro forma basis, excluding the systems held for sale, the incentive
stock plan adjustments referred to above and the costs of Year 2000 remediation,
operating profit before depreciation and amortization would have increased 7.4%
in 2000. Operating profit before depreciation and amortization is presented here
to provide additional information about CNYG's ability to meet future debt
service, capital expenditures and working capital requirements. Operating profit
before depreciation and amortization should be considered in addition to and not
as a substitute for net income (loss) and cash flows as indicators of financial
performance and liquidity as reported in accordance with generally accepted
accounting principles.
Depreciation and amortization expense increased $27.9 million (14%) for the
three months ended March 31, 2000 as compared to the same period in 1999
primarily due to depreciation of new plant assets.
Net interest expense increased $20.4 million (21%) for the three months ended
March 31, 2000 compared to the same period in 1999. The net increase is
primarily attributable to debt incurred to fund capital expenditures and
acquisitions and generally higher interest rates.
Equity in net loss of affiliates decreased to $0.5 million for the three months
ended March 31, 2000 from $3.7 million for the same 1999 period. Such amounts
consisted of CNYG's share of the net losses of certain businesses in which
Cablevision has varying minority ownership interests.
Net miscellaneous expense of $4.0 million for the three months ended March 31,
1999 consisted primarily of a charge of approximately $15.0 million resulting
from the write off of an investment held by Rainbow Media Holdings and
attributable to CNYG, offset by again of $10.9 million resulting from the sale
of certain marketable securities.
BUSINESS SEGMENTS RESULTS
CNYG classifies its business interests into three fundamental areas:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow NY Group, consisting
principally of interests in cable television programming networks in the New
York metropolitan area and MSG, which owns and operates professional sports
teams, regional cable television networks, live productions and entertainment
venues; and Retail Electronics, which represents the operations of Cablevision
Electronics' retail electronics stores. CSC Holdings allocates certain costs to
each segment based upon their proportionate estimated usage of services.
Telecommunication Services
Refer to Cablevision Systems Corporation's Quarterly Report on Form 10-Q.
VI-60
<PAGE> 298
Rainbow NY Group
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
Rainbow NY Group.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------------
2000 1999
---------------------------- ---------------------------
% of Net % of Net
Amount Revenues Amount Revenues
--------------- ----------- -------------- -----------
(dollars in thousands)
----------------------
<S> <C> <C> <C> <C>
Revenues, net...................................... $252,488 100% $219,515 100%
Technical and operating expenses................... 187,329 74 169,116 77
Selling, general and administrative expenses....... 40,820 16 68,864 31
Depreciation and amortization...................... 38,268 15 29,748 14
--------- ---------
Operating loss................................ $ (13,929) (6)% $ (48,213) (22)%
========= =========
</TABLE>
Revenues for the three months ended March 31, 2000 increased $33.0 million (15%)
as compared to revenues for the same period in the prior year. Approximately
$18.1 million (8%) of the increase resulted from increases in advertising
revenue and approximately $12.4 million (6%) of the increase was attributable to
growth in programming network subscribers and rate increases. The remaining $2.5
million (1%) increase resulted from additional regular season Knicks games as
well as a greater number of concerts at Madison Square Garden and Radio City,
partially offset by fewer sporting and other events in the first quarter of 2000
as compared to the same 1999 period.
Technical and operating expenses for the three months ended March 31, 2000
increased $18.2 million (11%) over the comparable 1999 period. The increase was
due to cost increases directly associated with the growth in revenues discussed
above. As a percentage of revenues, technical and operating expenses decreased
3% during the 2000 period as compared to the 1999 period.
Selling, general and administrative expenses decreased $28.0 million (41%) for
the three months ended March 31, 2000 as compared to the same period in 1999.
The decrease resulted from benefits attributed to the group of approximately
$35.6 million (52%) relating to an incentive stock plan and a decrease of
approximately $2.9 million (4%) in Year 2000 remediation costs, partially
offset by increases in sales, marketing, advertising and other general cost
increases of $10.5 million (15%). As a percentage of revenues, selling, general
and administrative expenses decreased 15% during the 2000 period as compared to
the 1999 period. Excluding the effects of the incentive stock plan and the Year
2000 remediation costs, such costs as a percentage of revenues increased 2%.
Depreciation and amortization expense increased $8.5 million (29%) for the three
months ended March 31, 2000 over the comparable period in 1999 primarily due to
depreciation on fixed asset additions.
Retail Electronics
Refer to Cablevision Systems Corporation's Quarterly Report on Form 10-Q.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
OPERATING ACTIVITIES
Cash provided by operating activities amounted to $278.9 million for the year
ended December 31, 1999 compared to $420.2 million for the year ended December
31, 1998. The 1999 cash provided by operating activities consisted primarily of
$231.0 million of income before depreciation, amortization and other non-cash
items and a net increase in cash resulting from changes in assets and
liabilities of $47.9 million.
Cash provided by operating activities amounted to $420.2 million for the year
ended December 31, 1998 compared to $269.8 million for the year ended December
31, 1997. The 1998 cash provided by operating activities consisted primarily of
$299.5 million of income before depreciation, amortization and other non-cash
items and an increase in cash resulting from changes in assets and liabilities
of $120.7 million.
Cash provided by operating activities amounted to $269.8 million for the year
ended December 31, 1997. The 1997 cash provided by operating activities
consisted primarily of $202.2 million of income before depreciation,
amortization and other non-cash items and a net increase in cash resulting from
changes in assets and liabilities of $67.6 million.
INVESTING ACTIVITIES
Net cash used in investing activities for the year ended December 31, 1999 was
$1,018.5 million compared to $464.4 million for the year ended December 31,
1998. The 1999 investing activities consisted of $858.5 million of capital
expenditures, $117.7 million of payments for acquisitions and other net cash
payments of $53.2 million, partially offset by net proceeds of $10.9 million
from the sale of marketable securities.
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Net cash used in investing activities for the year ended December 31, 1998 was
$464.4 million compared to $253.1 million for the year ended December 31, 1997.
The 1998 investing activities consisted of $556.7 million of capital
expenditures, $317.6 million of payments for acquisitions and other net cash
payments of $36.4 million, partially offset by net proceeds of $446.3 million
from the sale of programming interests and cable assets.
Net cash used in investing activities for the year ended December 31, 1997 was
$253.1 million. The 1997 investing activities consisted of $455.5 million of
capital expenditures and $747.1 million of payments for acquisitions, partially
offset by net proceeds of $945.5 million from the sale of programming interests
and cable assets and other items of $4.0 million.
FINANCING ACTIVITIES
Cash provided by financing activities amounted to $628.4 million for the year
ended December 31, 1999 compared to net cash used in financing activities of
$190.8 million for the year ended December 31, 1998. In 1999, financing
activities consisted primarily of $497.7 million derived from the issuance of
senior notes and debentures and $89.0 million from the net proceeds from bank
debt and other net cash receipts aggregating $41.7 million.
Cash used in financing activities amounted to $190.8 million for the year ended
December 31, 1998 compared to net cash provided by financing activities of
$387.2 million for the year ended December 31, 1997. In 1998, financing
activities consisted primarily of the net repayment of bank debt, subordinated
notes payable, senior notes payable and senior debt aggregating $1,215.7
million, the repayment of an obligation to a related party of $197.2 million
and other net cash payments aggregating $74.0 million, partially offset by
$1,296.1 million derived from the issuance of senior notes and debentures.
Cash provided by financing activities amounted to $387.2 million for the year
ended December 31, 1997. In 1997, financing activities consisted of $898.0
million from the issuance of senior notes and debentures, $56.7 million of net
proceeds from bank debt and other net cash receipts aggregating $114.1 million,
offset by the redemption of senior subordinated debentures of $283.4 million,
net repayments of senior debt of $285.9 million and the redemption of A-R
Cable's Series A Preferred Stock of $112.3 million.
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
OPERATING ACTIVITIES
Net cash used in operating activities amounted to $3.0 million for the three
months ended March 31, 2000 compared to net cash provided by operating
activities of $23.1 million for the three months ended March 31, 1999. The 2000
cash used in operating activities consisted primarily of $139.7 million of
income before depreciation, amortization and other non-cash items and a net
decrease in cash resulting from changes in assets and liabilities of $142.7
million.
The 1999 cash provided by operating activities of $23.1 million consisted
primarily of an increase in cash resulting from changes in assets and
liabilities of $27.2 million, partially offset by $4.1 million of net loss
before depreciation, amortization and other non-cash items.
INVESTING ACTIVITIES
Net cash used in investing activities for the three months ended March 31, 2000
was $316.8 million compared to $200.6 million for the three months ended March
31, 1999. The 2000 investing activities consisted of $202.8 million of capital
expenditures, payments for acquisitions of $106.2 million and other net cash
payments aggregating $7.8 million.
Net cash used in investing activities for the three months ended March 31, 1999
of $200.6 million consisted of $156.6 million of capital expenditures, $24.8
million of payments for acquisitions and other net cash payments aggregating
$19.2 million.
FINANCING ACTIVITIES
Net cash provided by financing activities amounted to $308.6 million for the
three months ended March 31, 2000 compared to $162.0 million for the three
months ended March 31, 1999. In 2000, financing activities consisted primarily
of additional bank borrowings of $334.3 million, partially offset by capital
contributions to RMG of $16.5 million and other cash payments aggregating $9.2
million.
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Net cash provided by financing activities of $162.0 million for the three months
ended March 31, 1999 consisted primarily of additional bank borrowings of $186.2
million, partially offset by capital contributions to RMG of $14.0 million and
other items aggregating $10.2 million.
YEAR 2000
The Year 2000 issue ("Y2K") refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999.
For the years ended December 31, 1999 and 1998, CNYG recorded approximately
$38.7 million and $7.6 million, respectively, of expenses relating to Y2K
remediation. For the three months ended March 31, 2000 and 1999, CNYG recorded
approximately $2.5 million and $7.5 million, respectively, of expenses relating
to Y2K remediation.
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), requires that all derivative
financial instruments, such as interest rate swap contracts, be recognized in
the financial statements and measured at fair value regardless of the purpose or
intent for holding them. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or stockholders' equity
(as a component of comprehensive income), depending on whether the derivative
is being used to hedge changes in fair value or cash flows. SFAS 133, as
amended, is effective for fiscal years beginning after June 15, 2000. CNYG and
RMG do not expect that the adoption of SFAS 133 will have a material effect on
their financial condition or results of operations.
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN 44") clarifies the application of APB Opinion. 25,
"Accounting for Stock Issued to Employees" ("Opinion 25"). Among other things,
FIN 44 requires the application of Opinion 25 to stock compensation based upon
the stock of a parent company granted to employees of a consolidated subsidiary
for purposes of reporting in the separate financial statements of that
subsidiary. Cablevision's compensatory stock-based compensation has
been allocated to CNYG and RMG based upon proportionate payroll costs. FIN 44
will be adopted effective July 1, 2000. Although the adoption of FIN 44 is not
expected to have a significant effect on the consolidated financial statements
of Cablevision, its adoption may prospectively change the amount of stock-based
compensation recognized in the separate financial statements of CNYG and RMG.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101") which summarizes certain of the
SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. CNYG and RMG will be required to
adopt the accounting provisions of SAB 101 during the fourth quarter of 2000.
CNYG and RMG do not believe that the implementation of SAB 101 will have a
significant effect on their financial condition or results of operations.
Statement of Position 00-02 "Accounting by Producers or Distributors of Films"
("SOP 00-02") replaces Statement of Financial Accounting Standards No. 53, and
provides guidance covering revenue recognition for sales or licenses of films
and the accounting and reporting of film production costs. SOP 00-02 is
effective for financial statements for fiscal years beginning after December 31,
2000. RMG does not believe that the adoption of SOP 00-02 will have a
significant effect on its financial position or results of operations.
EITF Issue No. 00-14, "Accounting for Certain Sales Incentives" ("EITF 00-14")
addresses among other things, (i) the recognition, measurement, and income
statement classification for sales incentives offered voluntarily by a vendor
without charge to customers; (ii) vendor offers that entitle a customer to
receive a reduction in the price of a product or service by submitting a form or
claim for a refund or rebate of a specified amount, and (iii) offers by a vendor
for a free product or service when the customer purchases another specified item
if the vendor will deliver that free product or service to the customer at the
point of sale of the specified item. EITF 00-14 is effective for all reporting
periods beginning after May 18, 2000, and will be applied prospectively. CNYG
does not believe that the adoption of EITF 00-14 will have a significant effect
on its financial position or results of operations.
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THE CABLEVISION NY GROUP
DESCRIPTION OF BUSINESS
CABLE TELEVISION OPERATIONS
GENERAL
Cable television is a service that delivers multiple channels of television
programming to subscribers who pay a monthly fee for the services they receive.
Television signals are received over-the-air or via satellite delivery by
antennas, microwave relay stations and satellite earth stations and are
modulated, amplified and distributed over a network of coaxial and fiber optic
cable to the subscribers' television sets. Cable television systems typically
are constructed and operated pursuant to non-exclusive franchises awarded by
local governmental authorities for specified periods of time.
The Cablevision NY Group's cable television systems offer varying levels of
service which may include, among other programming, local broadcast network
affiliates and independent television stations, certain other news, information
and entertainment channels such as CNN, CNBC, ESPN, and MTV, and certain premium
services such as HBO, Showtime, The Movie Channel, Starz and Cinemax.
The Cablevision NY Group's cable television revenues are derived
principally from monthly fees paid by subscribers. In addition to recurring
subscriber revenues, the Cablevision NY Group derives revenues from the sales of
pay-per-view movies and events, from the sale of advertising time on advertiser
supported programming and from installation charges. Certain services and
equipment provided by substantially all of the Cablevision NY Group's cable
television systems are subject to regulation.
As of March 31, 2000, the Cablevision NY Group's cable television systems
served approximately 3,504,000 subscribers, primarily in the greater New York,
Boston and Cleveland metropolitan areas.
The Cablevision NY Group's cable television systems are concentrated in the
New York City greater metropolitan area (80% of the Cablevision NY Group's total
subscribers as of March 31, 2000), the Boston and suburban Massachusetts areas
(10% of total subscribers as of March 31, 2000) and the greater Cleveland
metropolitan area (9% of total subscribers as of March 31, 2000). We believe
that our cable systems in the New York City greater metropolitan area comprise
the largest metropolitan cluster of cable television systems under common
ownership in the United States (measured by number of subscribers).
CABLE TELEVISION SYSTEM SALES
In December 1999, we entered into definitive agreements with Adelphia
Communications Corporation under which we will sell the Cablevision NY Group's
cable television systems in the greater Cleveland metropolitan area to Adelphia
for total consideration of $1.53 billion ($990 million in cash and $540 million
in Adelphia Class A common stock), subject to certain adjustments.
In March 2000, we entered into a definitive agreement to sell the
Cablevision NY Group's Kalamazoo, Michigan system to Charter Communications,
Inc. in exchange for $172.5 million in Charter Communications, Inc. common
stock.
In April 2000, we entered into definitive agreements with AT&T Corp. under
which we will sell the Cablevision NY Group's cable television system in the
Boston and suburban Massachusetts areas to AT&T for consideration including
about $878 million of AT&T stock, about $284 million in cash and certain cable
television systems the New York suburbs, subject to certain adjustments.
SUBSCRIBER RATES AND SERVICES; MARKETING AND SALES
The Cablevision NY Group's cable television systems offer a package of
services, generally marketed as "Family Cable", which includes, among other
programming, broadcast network local affiliates and independent television
stations and certain other news, information and entertainment channels such as
CNN, CNBC, ESPN and MTV. For additional charges, the Cablevision NY Group's
cable television systems provide certain premium services such as HBO, Showtime,
The Movie
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Channel, Starz and Cinemax, which may be purchased either individually (in
conjunction with Family Cable) or in combinations or in tiers.
In addition, the Cablevision NY Group's cable television systems offer a
basic package which includes broadcast network local affiliates and public,
educational or governmental channels and certain leased access channels.
The Cablevision NY Group has a branded product offering called "OptimumTV",
which packages all of the premium networks available on its cable systems at
discounted prices. Optimum TV includes the Family and basic services notes
above, as well as all of the premium a la carte programming available on the
cable system, grouped into three premium packages. Optimum TV also includes
additional pay-per-view channels that offer movies and sporting events on a
transactional basis.
In other areas, the Cablevision NY Group offers premium services on an
individual basis and as components of different "tiers". Successive tiers
include additional premium services for additional charges that reflect
discounts from the charges for such services if purchased individually. For
example, in most of the Cablevision NY Group's cable systems, subscribers may
elect to purchase Family Cable plus one, two or three premium services with
declining incremental costs for each successive tier. In addition, many systems
offer a "Rainbow" package consisting of between five and seven premium services,
and a "Rainbow Gold" package consisting of between eight and ten premium
services.
Since its existing cable television systems are substantially fully built,
the Cablevision NY Group's sales efforts are primarily directed toward
increasing penetration and revenues in its franchise areas. The Cablevision NY
Group markets its cable television services through in person selling, as well
as telemarketing, direct mail advertising, promotional campaigns and local media
and newspaper advertising.
Certain services and equipment (converters supplied to subscribers)
provided by substantially all of the Cablevision NY Group's cable television
systems are subject to regulation. See "Cable Television Operations - Regulation
- 1992 Cable Act" below.
SYSTEM CAPACITY
The Cablevision NY Group is engaged in an ongoing effort to upgrade the
technical capabilities of its cable plant and to increase channel capacity for
the delivery of additional programming and new services. The Cablevision NY
Group's cable television systems have a minimum capacity of 42 channels. As of
December 31, 1999, 87% of its homes are served by at least 77 channels. As a
result of ongoing upgrades, the Cablevision NY Group has projected that by
December 2000 approximately 96% of its subscribers will be served by systems
having a capacity of at least 77 channels. All of the system upgrades either
completed or underway will utilize fiber optic cable.
PROGRAMMING
Adequate programming is available to the systems from a variety of sources
including that available from the Rainbow Media Group and affiliates of AT&T,
Fox Entertainment Group, Inc. and NBC. Program suppliers' compensation is
typically a fixed, per subscriber monthly fee based, in most cases, either on
the total number of subscribers of the cable systems and certain of its
affiliates, or on the number of subscribers subscribing to the particular
service. The programming contracts are generally for a fixed period of time and
are subject to negotiated renewal. Cable programming costs have increased in
recent years and are expected to continue to increase due to additional
programming being provided to most subscribers, increased costs to produce or
purchase cable programming and other factors. Management believes that the
systems will continue to have access to programming services at reasonable price
levels.
FRANCHISES
The systems are operated primarily under nonexclusive franchise agreements
with local governmental franchising authorities, in some cases with the approval
of state television authorities. Franchising authorities generally charge a fee
of up to 5% based on a percentage of certain revenues of the franchisee.
The franchise agreements are generally for a term of ten to fifteen years
from the date of grant, although some recent renewals have been for five to ten
year terms. Some of the franchises grant the cable television system an option
to renew. In cases where franchises have expired or not been renewed, the
Cablevision NY
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Group is operating under temporary operating authority or without a license
while negotiating renewal terms with the franchising authorities. Franchises
usually require the consent of the franchising authority prior to the sale,
assignment, transfer or change in ownership or operating control of the
franchisee.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") provide significant procedural protections for cable operators
seeking renewal of their franchises. See "Business - Regulation - Cable
Television" in our Form 10-K. In connection with a renewal, a franchising
authority may impose different and more stringent terms. The Cablevision NY
Group has never lost a franchise as a result of a failure to obtain a renewal.
PROGRAMMING AND ENTERTAINMENT OPERATIONS
GENERAL
The Cablevision NY Group conducts its programming activities through
Rainbow Media Holdings. Rainbow Media Holdings' businesses in the Cablevision NY
Group, which we refer to as the "Rainbow NY Group," include the Madison Square
Garden sports and entertainment businesses, our MetroChannels and the News 12
Networks, along with our cable television advertising businesses.
Rainbow Media Holdings owns a 60% interest in, and manages, Regional
Programming Partners, a partnership with Fox. Regional Programming Partners owns
Madison Square Garden, a sports and entertainment company that owns and operates
the Madison Square Garden Arena and the adjoining Theater 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 England Seawolves professional arena football team, the
Hartford Wolf Pack professional hockey team, the Madison Square Garden Network,
Fox Sports Net New York and Radio City Entertainment (which operates Radio City
Music Hall in New York City). Additionally, Madison Square Garden manages and
operates the Hartford Civic Center. Regional Programming Partners also owns
MetroChannels which provide regional and local sports, news and educational
programming to the New York metropolitan area.
Rainbow Media Holdings owns Rainbow News 12 which operates regional news
networks servicing suburban areas surrounding New York City. Rainbow Media
Holdings also owns and operates Rainbow Advertising Sales Corporation, a cable
television advertising company.
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The following table sets forth ownership information and estimated
subscriber information as of March 31, 2000 for each of the programming
businesses in the Cablevision NY Group whose ownership interest is held directly
or indirectly by Rainbow Media and which Rainbow Media manages.
<TABLE>
<CAPTION>
Affiliated Basic Viewing
Programming Businesses Subscribers(1) Subscribers(2) Ownership(3)
-------------------------------------- ------------------ ----------------- ----------------------
(In Millions)
<S> <C> <C> <C>
MSG Network/Fox Sports Net New York 14.4 11.2 RPP - 100%
NEWS SERVICES:
News 12 Long Island .8 .8 Rainbow Media - 100%
News 12 Connecticut .2 .2 Rainbow Media - 100%
News 12 New Jersey 1.7 1.7 Rainbow Media - 100%
News 12 Westchester .2 .2 Rainbow Media - 100%
News 12 Bronx .3 .3 Rainbow Media - 100%
Neighborhood News L.I. .2 .2 Rainbow Media - 100%
OTHER:
Metro Guide 4.1 3.8 RPP - 100%
Metro Traffic and Weather 2.7 2.5 RPP - 100%
Metro Learning 2.7 2.5 RPP - 100%
</TABLE>
------------------------------------------
(1) Represents the total of the number of subscribers covered or served by
distributors' systems that offer the service.
(2) Represents the sum of subscribers to distributors' systems that receive
the referenced service.
(3) Ownership percentage is as of March 31, 2000, except for News 12 New
Jersey which is as of August 3, 2000.
TELEPHONE AND MODEM SERVICES
The Cablevision NY Group, through Lightpath, a competitive local exchange
carrier, provides basic and advanced local telecommunications services to the
business market. Lightpath provides a full range of local dial tone, switched
services, private line and advances networking features on the local and long
distance levels on its own facilities and network. As of March 31, 2000,
Lightpath's fiber optic network connected approximately 500 buildings and
provided over 53,000 access lines. In addition, the Company provides residential
telephone and cable modem internet access service in portions of the greater New
York City metropolitan area and parts of southern Connecticut. At March 31,
2000, the Cablevision NY Group served approximately 70,500 modem subscribers.
THE WIZ
In February 1998, Cablevision Electronics Investments, Inc., a wholly-owned
subsidiary of CSC Holdings, acquired substantially all of the assets associated
with 40 of The WIZ consumer electronics store locations from The Wiz, Inc. and
certain of its subsidiaries and affiliates. Cablevision Electronics paid
approximately $93 million, including transaction costs, for the assets. In
addition, prior to closing, Cablevision Electronics provided approximately $8
million for The Wiz, Inc. to meet certain operating costs. The WIZ is an
electronics retailer selling primarily video and audio equipment, home office
equipment, compact disks and other pre-recorded music, digital video disks, and
VHS video and other pre-recorded movies.
THEATERS
In December 1998, we acquired all of the outstanding shares of stock of
Clearview Cinema Group. The total purchase price amounted to approximately
$158.7 million (including assumed debt of $80 million) of which approximately
$33.4 million was paid in shares of our Class A common stock. From December 1998
through February 1999, we acquired a total of 16 movie theaters from Loews
Cineplex Entertainment Corporation ("Loews"), for an aggregate purchase price of
approximately $89.8 million and a total of 7 movie theaters from other parties
for an aggregate purchase price of $7.2 million.
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AT HOME CORPORATION
The Cablevision NY Group owns warrants to acquire approximately 20.4
million shares of common stock of At Home Corporation, which warrants are
exercisable at $.25 per share. At Home Corporation distributes interactive
services to residences and businesses using its own network architecture and a
variety of transport options. These warrants were issued to us in exchange for
certain agreements with respect to the distribution of the At Home internet
access service to cable subscribers.
There have been a number of performance issues associated with the At Home
service. See our Form 10-K, March 31, 2000 Form 10-Q and our other documents
incorporated by reference herein for a discussion of these issues.
PCS
The Cablevision NY Group holds a 49.9% interest and certain preferential
distribution rights in NorthCoast Communications, LLC, which holds certain
licenses to conduct a personal communications service, or PCS, business. We have
contributed an aggregate of approximately $54.7 million as of March 31, 2000 to
NorthCoast (either directly or through a loan to NorthCoast Operating Co., Inc.,
the other member in NorthCoast).
OTHER INVESTMENTS
The Cablevision NY Group holds a 50% interest in R/L DBS Company LLC, a
joint venture with Loral Space and Communications, Ltd. that holds certain
frequencies granted by the FCC for the operation of a direct broadcast satellite
business. We have contributed an aggregate of approximately $15.6 million
through March 31, 2000 to R/L DBS or its predecessor businesses.
PROPERTIES
The Cablevision NY Group owns or leases the real estate where its business
offices, microwave receiving antennae, earth stations, transponders, microwave
towers, warehouses, headend equipment, hub sites, program production studios and
access studios are located. The Cablevision NY Group owns its headquarters
building located in Bethpage, New York with approximately 536,000 square feet of
space and leases several business offices in Woodbury, New York with an
aggregate of approximately 173,000 square feet of space. Other significant
leasehold properties include approximately 140,000 square feet housing Madison
Square Garden's office operations and approximately 569,000 square feet
comprising Radio City Music Hall. Cablevision Electronics leases 41 retail store
locations, a warehouse and a corporate office aggregating approximately
1,703,000 square feet. In addition, in February 2000, the Cablevision NY Group
entered into a long-term lease for business offices in Jericho, New York with
approximately 311,000 square feet of space.
The Cablevision NY Group generally owns all assets (other than real
property) related to its cable television operations, including its program
production equipment, headend equipment (towers, antennae, electronic equipment
and satellite earth stations), cable system plant (distribution equipment,
amplifiers, subscriber drops and hardware), converters, test equipment, tools
and maintenance equipment. The Cablevision NY Group, through Madison Square
Garden, also owns the Madison Square Garden arena and theater complex in New
York City comprising approximately 1,016,000 square feet.
CCG Holdings, Inc. leases 51 theaters with approximately 45,800 seats and
owns an additional 13 theaters with approximately 10,900 seats.
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ANNEX VII
CABLEVISION SYSTEMS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS --
CLASS A COMMON STOCK
The undersigned, having received the Notice of Special Meeting of
Stockholders and Proxy Statement dated [DATE], 2000 (the "Proxy Statement") of
Cablevision Systems Corporation (the "Company"), hereby appoints William J. Bell
and Robert S. Lemle, and each of them, proxies of the undersigned, with full
power of substitution, to represent the undersigned at the Special Meeting of
stockholders of the Company to be held on [DATE], 2000 and at any adjournments
or postponements thereof (the "Special Meeting") and to vote all shares of
common stock which the undersigned would be entitled to vote if personally
present at the Special Meeting in the manner the undersigned specifies in this
Proxy Card (or, if the undersigned does not specify how to vote, to vote all
such shares "FOR" all Proposals referred to in this Proxy Card and to vote in
the discretion of the proxies as to any other matters coming before the Special
Meeting).
Please promptly mark this Proxy Card to specify how you would like your
shares voted and date, sign and mail it in the enclosed envelope. No postage is
required. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL OF THE
PROPOSALS REFERRED TO IN THIS PROXY CARD.
<TABLE>
<S> <C>
Proposal 1. Proposal to amend the Company's Amended and
Restated Certificate of Incorporation in the
manner described in the Proxy Statement.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
Proposal 2. Proposal to amend the Company's Stock Option
Plan in the manner described in the Proxy
Statement.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
</TABLE>
In addition, the undersigned authorizes such proxies to vote such shares in
their discretion as to any other matters coming before the Special Meeting.
IF YOU EXECUTE AND RETURN THIS PROXY CARD BUT DO NOT SPECIFY THE MANNER IN
WHICH THE PROXIES SHOULD VOTE YOUR SHARES, THE PROXIES WILL VOTE YOUR SHARES FOR
ALL OF THE FOREGOING PROPOSALS AND IN THEIR DISCRETION AS TO ANY OTHER MATTERS
COMING BEFORE THE MEETING.
------------------------------------------------
(Signature)
------------------------------------------------
(Signature if held jointly)
Dated: , 2000
------------------------------------
Please date this Proxy Card and sign your name exactly as it
appears hereon. Where there is more than one owner, each should
sign. When signing as an attorney, administrator, executor,
guardian or trustee, please add your title as such. If executed
by a corporation, this Proxy Card should be signed by a duly
authorized officer. If executed by a partnership, please sign in
partnership name by authorized persons.
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ANNEX VIII
CABLEVISION SYSTEMS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOR SPECIAL MEETING OF STOCKHOLDERS --
CLASS B COMMON STOCK
The undersigned, having received the Notice of Special Meeting of
Stockholders and Proxy Statement dated [DATE], 2000 (the "Proxy Statement") of
Cablevision Systems Corporation (the "Company"), hereby appoints William J. Bell
and Robert S. Lemle, and each of them, proxies of the undersigned, with full
power of substitution, to represent the undersigned at the Special Meeting of
stockholders of the Company to be held on [DATE], 2000 and at any adjournments
or postponements thereof (the "Special Meeting") and to vote all shares of
common stock which the undersigned would be entitled to vote if personally
present at the Special Meeting in the manner the undersigned specifies in this
Proxy Card (or, if the undersigned does not specify how to vote, to vote all
such shares "FOR" all Proposals referred to in this Proxy Card and to vote in
the discretion of the proxies as to any other matters coming before the Special
Meeting).
Please promptly mark this Proxy Card to specify how you would like your
shares voted and date, sign and mail it in the enclosed envelope. No postage is
required. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL OF THE
PROPOSALS REFERRED TO IN THIS PROXY CARD.
<TABLE>
<S> <C>
Proposal 1. Proposal to amend the Company's Amended and
Restated Certificate of Incorporation in the
manner described in the Proxy Statement.
[ ]FOR [ ] AGAINST [ ] ABSTAIN
Proposal 2. Proposal to amend the Company's Stock Option
Plan in the manner described in the Proxy
Statement.
[ ]FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
In addition, the undersigned authorizes such proxies to vote such shares in
their discretion as to any other matters coming before the Special Meeting.
IF YOU EXECUTE AND RETURN THIS PROXY CARD BUT DO NOT SPECIFY THE MANNER IN
WHICH THE PROXIES SHOULD VOTE YOUR SHARES, THE PROXIES WILL VOTE YOUR SHARES FOR
ALL OF THE FOREGOING PROPOSALS AND IN THEIR DISCRETION AS TO ANY OTHER MATTERS
COMING BEFORE THE MEETING.
------------------------------------------------
(Signature)
------------------------------------------------
(Signature if held jointly)
Dated: ,2000
-------------------------------------
Please date this Proxy Card and sign your name exactly as it
appears hereon. Where there is more than one owner, each should
sign. When signing as an attorney, administrator, executor,
guardian or trustee, please add your title as such. If executed
by a corporation, this Proxy Card should be signed by a duly
authorized officer. If executed by a partnership, please sign in
partnership name by authorized persons.
VIII-1
