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File No. 33-62717
Filed Pursuant to
Rule 424(b)(3)
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
28 TRAVIS STREET
BOSTON, MASSACHUSETTS 02134
October 18, 1995
To the Limited Partners of
Cablevision of Boston Limited Partnership:
Cablevision of Boston Limited Partnership (the 'Partnership') is seeking
your consent to two separate transactions (together, the 'Transactions'). The
first transaction involves the transfer of substantially all of the
Partnership's assets and liabilities to a new corporation ('Boston Sub') that is
a wholly-owned subsidiary of the Partnership (the 'Incorporation'). The second
transaction involves the merger (the 'Merger') of a wholly-owned subsidiary of
Cablevision Systems Corporation ('Cablevision') with and into Boston Sub, in
which the Partnership will receive shares of Class A Common Stock of Cablevision
(the 'Cablevision Class A Common Stock') for its stock of Boston Sub. The
Cablevision Class A Common Stock is listed on the American Stock Exchange and is
traded under the symbol 'CVC'. After consummation of the Merger, the Partnership
will liquidate (the 'Liquidation') and the Cablevision Class A Common Stock
received by the Partnership in the Merger will be distributed to the partners of
the Partnership and the holders of the Partnership's preferred equity. The
Partnership has entered into an agreement with Cablevision to effect the Merger,
which is subject to several conditions, including the approval by the limited
partners of the Partnership (the 'Limited Partners') who are unaffiliated with
the General Partners of both the Incorporation and the Merger. Upon completion
of the Transactions and the Liquidation, Boston Sub will become a wholly-owned
subsidiary of Cablevision and the Limited Partners will become stockholders of
Cablevision. See 'Description of the Incorporation' and 'Description of the
Merger' in the accompanying Consent Solicitation Statement/Prospectus.
It is anticipated that Cablevision Class A Common Stock having an aggregate
value of approximately $40.0 million (or approximately $10,000 per unit of
limited partnership interest in the Partnership (collectively, the 'Units'),
which is 100% of the per Unit amounts initially invested by each unaffiliated
Limited Partner) will be available for distribution to the Limited Partners in
liquidation of their limited partnership interests. If the Merger had been
consummated on October 17, 1995, an aggregate of approximately 694,000 shares of
Cablevision Class A Common Stock (representing approximately 5.7% of the
outstanding Cablevision Class A Common Stock as of August 31, 1995) would have
been allocated to the Limited Partners as a result of the Transactions. There is
no assurance that the market value of the Cablevision Class A Common Stock to be
received by the Limited Partners in the Merger and Liquidation will be
maintained. No distributions have been made to the partners of the Partnership
since its organization in 1981. See 'Description of the Merger -- Consideration
to be Received by Limited Partners', ' -- Consideration to be Received by
Affiliates' and ' -- Determination of Allocation of Consideration' in the
accompanying Consent Solicitation Statement/Prospectus.
Each of the Transactions is subject to the separate consent and approval of
the Limited Partners (other than Limited Partners affiliated with the General
Partners) entitled to 50% or more of the net profits and net losses of the
Partnership allocated to such Limited Partners. The Partnership is soliciting
your consent to both Transactions. THE TIMING OF THE PROPOSED TRANSACTIONS
REQUIRES THAT WE OBTAIN YOUR PROPERLY SIGNED AND DATED CONSENT FOR THE
INCORPORATION NO LATER THAN NOVEMBER 21, 1995 AND YOUR PROPERLY SIGNED AND DATED
CONSENT FOR THE MERGER NO LATER THAN NOVEMBER 28, 1995, UNLESS, IN EITHER CASE,
SUCH DEADLINE IS EXTENDED BY THE GENERAL PARTNERS. THE MERGER IS CONDITIONED
UPON THE CONSUMMATION OF THE INCORPORATION AND THUS WILL NOT BE CONSUMMATED
UNLESS BOTH TRANSACTIONS ARE APPROVED BY THE REQUIRED VOTE OF THE LIMITED
PARTNERS. Approval of the Merger is not, however, a condition to the
Incorporation. If the Incorporation is approved and consummated and the Merger
is not consummated, the Partnership will not liquidate and the Limited Partners
will not receive any distributions absent further action on the part of the
General Partners and Limited Partners.
The General Partners have reviewed and considered the terms and conditions
of the Transactions, have approved each of the Transactions and have determined
to recommend that the Limited Partners approve each of the Transactions because
the General Partners believe that the Transactions are fair to and in the best
interests of the unaffiliated Limited Partners. For a detailed description of
the factors considered by the General Partners, see 'The Transactions --
Recommendations of the General Partners; Fairness of the Transactions'
in the accompanying Consent Solicitation Statement/Prospectus.
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The General Partners negotiated the Transactions on behalf of the
Partnership without the assistance of any independent representative of, or
counsel to, the Limited Partners. The Transactions involve inherent conflicts of
interest and material benefits to the General Partners and Cablevision and their
respective affiliates. On October 5, 1994, Cablevision, the Partnership, the
General Partners and other affiliated entities were named as defendants in a
complaint filed by a Limited Partner, on behalf of a purported class consisting
of owners of partnership units, alleging, among other matters, breaches of
fiduciary duty in connection with the negotiation of the Merger. See 'The
Transactions -- Certain Litigation' in the accompanying Consent Solicitation
Statement/Prospectus. The Transactions and an investment in Cablevision Class A
Common Stock involve additional significant risks that should be considered by
Limited Partners. For a detailed discussion of certain risks related to the
Transactions and an investment in Cablevision Class A Common Stock, see 'Risk
Factors' in the accompanying Consent Solicitation Statement/Prospectus.
In connection with their consideration of the Transactions, the General
Partners received the opinion of PaineWebber Incorporated, New York, New York
('PaineWebber'), the independent financial advisor to the General Partners,
that, as of the date of such opinion, the consideration to be received by the
unaffiliated Limited Partners in the Liquidation is fair, from a financial point
of view, to such Limited Partners. PaineWebber was directed by the General
Partners to make certain important assumptions for purposes of its analysis, as
disclosed in 'The Transactions -- Fairness Opinion Received by the General
Partners -- Opinion of PaineWebber' in the accompanying Consent Solicitation
Statement/Prospectus. Richard H. Hochman, who was a managing director of
PaineWebber on the date PaineWebber was retained and on the date of its initial
opinion, is a director of Cablevision and owns six Units. A copy of the opinion
of PaineWebber is attached to the accompanying Consent Solicitation
Statement/Prospectus as Appendix A and should be read in its entirety.
All of the Limited Partners, including Limited Partners who vote against
the Transactions, will be bound by the decision of a Majority of the Limited
Partners (as such term is defined in the Glossary to the Consent Solicitation
Statement/Prospectus), although the Limited Partners who do not consent to the
Merger and properly perfect their appraisal rights will be afforded limited
appraisal rights in connection with the Merger. See 'Description of the
Merger -- Appraisal Rights' in the accompanying Consent Solicitation
Statement/Prospectus and Annex VI to the Merger Agreement, a copy of which is
attached as Appendix B to the Consent Solicitation Statement/Prospectus.
The accompanying Consent Solicitation Statement/Prospectus describes the
Transactions in detail. I urge you to read the Consent Solicitation
Statement/Prospectus carefully in making your decision with respect to the
Transactions.
Separate forms of consent for the Incorporation and the Merger are enclosed
with the Consent Solicitation Statement/Prospectus and are color coded as
follows: the BLUE card for the Incorporation and the WHITE card for the Merger.
In order to ensure that your interests will be counted, please complete, date
and sign each of the enclosed consent cards and return them PROMPTLY in the
enclosed envelopes, which require no postage if mailed in the United States. The
BLUE envelope should be used to return the BLUE card for the Incorporation and
the WHITE envelope should be used to return the WHITE card for the Merger. D.F.
King & Co., Inc. has been retained by the Partnership to assist in the
solicitation of consents. Questions regarding the Transactions should be
directed to D.F. King & Co., Inc., toll free (800) 578-5378.
FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE TRANSACTIONS.
Sincerely yours,
CHARLES F. DOLAN
Managing General Partner
YOUR VOTE IS IMPORTANT.
PLEASE SIGN AND RETURN THE ENCLOSED
CONSENTS PROMPTLY IN THE ENCLOSED ENVELOPES.
IF YOU WISH TO APPROVE THE MERGER, YOU SHOULD COMPLETE, DATE AND SIGN BOTH OF
THE ENCLOSED CONSENT CARDS AND RETURN THEM PROMPTLY.
<PAGE>
CONSENT SOLICITATION STATEMENT/PROSPECTUS
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
SOLICITATION OF CONSENTS
---------------
CABLEVISION SYSTEMS CORPORATION
ISSUANCE OF UP TO 920,000 SHARES OF
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------
This Consent Solicitation Statement/Prospectus is being provided by
Cablevision of Boston Limited Partnership (the 'Partnership') to its limited
partners (the 'Limited Partners') in connection with the Partnership's
solicitation of consents to two separate transactions (the 'Transactions'). The
first transaction for which consent is being sought is the transfer of
substantially all of the assets (the 'Assets') and all of the liabilities of the
Partnership to a newly-formed corporation ('Boston Sub') that is a wholly-owned
subsidiary of the Partnership (the 'Incorporation'). The second transaction for
which consent is being sought is the merger (the 'Merger') of a wholly-owned
subsidiary of Cablevision Systems Corporation ('Cablevision') with and into
Boston Sub, pursuant to which the Partnership will receive shares of
Cablevision's Class A Common Stock, par value $.01 per share (the 'Cablevision
Class A Common Stock'), and Cablevision will receive all of the capital stock of
Boston Sub. Upon consummation of the Merger, the Partnership will dissolve and
be liquidated (the 'Liquidation') and Cablevision Class A Common Stock will be
distributed to the Limited Partners. It is anticipated that Cablevision Class A
Common Stock having an aggregate value (based on the Average Cablevision Stock
Price, as defined in the Glossary) of approximately $40.0 million (or
approximately $10,000 per unit of limited partnership interest in the
Partnership (collectively, the 'Units') held by unaffiliated Limited Partners,
which is 100% of the per Unit amounts initially invested by each such
unaffiliated Limited Partner), will be available for distribution to the Limited
Partners in liquidation of their limited partnership interests. See 'Description
of the Incorporation' and 'Description of the Merger.'
THE TRANSACTIONS AND AN INVESTMENT IN CABLEVISION CLASS A COMMON STOCK
INVOLVE SIGNIFICANT RISKS THAT SHOULD BE CONSIDERED BY LIMITED PARTNERS,
INCLUDING THE FOLLOWING RISKS, MORE FULLY DISCUSSED UNDER 'RISK FACTORS:'
The terms of the Transactions were negotiated by the General Partners (all of
whom are affiliated with Cablevision) on behalf of the Partnership and might
have been more favorable to the Limited Partners if an independent third party
representing the interests of the unaffiliated Limited Partners had taken part
in the negotiations.
There are inherent conflicts of interest of the General Partners and
Cablevision in connection with the Transactions because they are affiliates of
each other and because they and their affiliates will receive material benefits
in connection with the Transactions.
The General Partners and their affiliates, other than Cablevision and its
subsidiaries, who, since the inception of the Partnership, have invested in and
loaned to the Partnership a total of approximately $4.7 million in cash, as
well as contributing a provisional cable television license for the City of
Boston, will receive the amount of, and a return on, their investments in and
loans to the Partnership, as well as from management fees earned (approximately
$15.0 million), in the form of Cablevision Class A Common Stock aggregating
approximately $404,000 and cash aggregating approximately $19.7 million (as of
June 30, 1995). Cablevision and its affiliates, other than the General Partners
and their affiliates, who invested approximately $48.4 million in cash
(including the reinvestment of accrued interest thereon) in the Partnership and
loaned or advanced approximately $9.8 million in cash to the Partnership, will
receive the amount of, and a return on, their investments in and loans and
advances to the Partnership in the form of Cablevision Class A Common Stock
aggregating approximately $51.0 million (as of June 30, 1995) and assumption of
indebtedness aggregating approximately $40.6 million (as of June 30, 1995). The
unaffiliated Limited Partners will receive only the approximate amount of, and
no return on, their investments in the form of Cablevision Class A Common
Stock.
The terms of the Transactions might not reflect the market value for the
Systems because the General Partners did not obtain an appraisal of the fair
market value of the Systems and did not solicit offers for the Systems from
unaffiliated third parties.
(cover continued on next page)
The date of this Consent Solicitation Statement/Prospectus is October 18, 1995.
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There are uncertainties concerning the validity of the issuance of the
Preferred Equity of the Partnership to affiliates of the General Partners,
which has been challenged in a lawsuit brought by a Limited Partner on behalf
of a purported class of Limited Partners. The General Partners believe that the
consent of the Limited Partners to the Transactions is a factor that a court
would consider in deciding whether Limited Partners would be barred from
challenging the validity of the Preferred Equity in the pending, or any other,
lawsuit.
It is possible that the Internal Revenue Service might view the Incorporation
or the Merger as a taxable exchange even though no cash distributions to pay
any such taxes will be received by the Limited Partners in the Liquidation.
PaineWebber was chosen to render a fairness opinion to the General Partners
even though a director of Cablevision was a managing director of PaineWebber
when PaineWebber was retained and when it delivered its initial opinion.
PaineWebber was directed by the General Partners to make certain important
assumptions for purposes of its analysis, including assumptions with respect to
the value of the Preferred Equity as disclosed in 'The Transactions -- Fairness
Opinion Received by the General Partners.'
It is possible that the Incorporation might be consummated, but the Merger
might not, which would result in (i) income generated from the Assets becoming
subject to corporate-level tax and (ii) the Limited Partners being subject to
all the risks inherent in the continued operation of the business of the
Partnership.
The exact number of shares of Cablevision Class A Common Stock to be
distributed in the Liquidation will depend on the timing of the Merger and the
Liquidation, the Average Cablevision Stock Price and other factors and may have
a market value less than 100% of the amounts initially invested in the
Partnership by each unaffiliated Limited Partner. There can be no assurance
that the market value of the Cablevision Class A Common Stock to be received by
the Limited Partners in the Merger and Liquidation will be maintained, and
there is a significant possibility that the market value of the Cablevision
Class A Common Stock to be received by the Limited Partners in the Merger and
Liquidation may decrease significantly, including as a result of the issuance
of a significant number of shares.
Limited Partners will not receive a return of their investment in the form of
cash proceeds, and, if they wish to obtain cash for their investment, will need
to sell the shares of Cablevision Class A Common Stock received in the
Liquidation.
An investment in Cablevision Class A Common Stock involves risks related to
Cablevision's substantial indebtedness ($3.4 billion at June 30, 1995) and high
degree of leverage.
An investment in Cablevision Class A Common Stock involves risks related to
Cablevision's historic net losses ($195.4 million and $111.9 million for the
six months ended June 30, 1995 and 1994, respectively, and $315.2 million and
$246.8 million for the years ended December 31, 1994 and 1993, respectively)
and stockholders' deficit ($2.0 billion at June 30, 1995).
An investment in Cablevision Class A Common Stock involves risks related to
Cablevision's need for significant additional financing to meet its capital
expenditure plans and other obligations.
An investment in Cablevision Class A Common Stock involves risks related to the
significant fluctuation of Cablevision Class A Common Stock on the American
Stock Exchange.
Cablevision has not paid any dividends on any of its Common Stock and
Cablevision does not intend to pay any dividends on its Common Stock in the
foreseeable future.
An investment in Cablevision Class A Common Stock involves risks related to
voting control of Dolan family members and trusts for their benefit and the
disparate voting rights of Cablevision's two classes of common stock, which
give Dolan family members and trusts for their benefit the power to elect 75%
of the members of the Board of Directors of Cablevision and control stockholder
decisions with respect to matters on which holders of Cablevision Class A
Common Stock and Class B Common Stock vote together as a single class.
There will be a fundamental change in the nature of a Limited Partner's
investment through the receipt of shares of Cablevision Class A Common Stock in
exchange for Units, which will subject Limited Partners to different tax and
investment risks.
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2
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NEITHER THESE TRANSACTIONS NOR THE SECURITIES OFFERED HEREBY HAVE
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THESE
TRANSACTIONS OR UPON THE ACCURACY OR ADEQUACY OF THIS
CONSENT SOLICITATION STATEMENT/PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
Consummation of each of the Transactions is subject to the satisfaction of
the conditions set forth herein under 'The Transactions -- Conditions to the
Transactions.' Each holder of Units, other than Cablevision, will receive the
same consideration for each Unit (approximately $10,000) as a result of the
Merger and the Liquidation. Cablevision, which owns 282 Units, will receive
Cablevision Class A Common Stock worth approximately $9,000 per Unit. Separate
consents are being sought from holders of the Units for each of the
Incorporation and the Merger. Consents relating to the Merger will be held in
escrow with Bank of Boston (the 'Agent') until the Incorporation Expiration Date
(as such term is defined in the Glossary). All of the Limited Partners,
including Limited Partners who vote against the Transactions, will be bound by
the decision of a Majority of the Limited Partners (as such term is defined in
the Glossary), although Limited Partners who do not consent to the Merger and
properly perfect their appraisal rights will be afforded limited appraisal
rights in connection with the Merger. See 'Description of the
Merger -- Appraisal Rights.' See the 'Glossary' for definitions of certain key
terms used in this Consent Solicitation Statement/Prospectus.
THE CONSENT SOLICITATION FOR THE INCORPORATION WILL EXPIRE AT 5:00 P.M., NEW
YORK TIME ON NOVEMBER 21, 1995, UNLESS EXTENDED. THE CONSENT SOLICITATION
FOR THE MERGER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME ON NOVEMBER
28, 1995, UNLESS EXTENDED.
This Consent Solicitation Statement/Prospectus also constitutes a
prospectus in connection with the registration by Cablevision of up to 920,000
shares of Cablevision Class A Common Stock to be issued in connection with the
Merger and the subsequent Liquidation. The Cablevision Class A Common Stock is
traded on the American Stock Exchange (the 'ASE') under the symbol 'CVC'. The
actual number of shares to be issued will be based on the Average Cablevision
Stock Price (which is defined as the arithmetic average of the closing price per
share of the Cablevision Class A Common Stock on the ASE for the 20 trading days
ending on the second trading day prior to the date the Merger is consummated),
which cannot be determined until the close of such second trading date. If the
Merger had been consummated on October 17, 1995, the Average Cablevision Stock
Price would have been $58.23 and approximately 694,000 shares of Cablevision
Class A Common Stock (representing approximately 5.7% of the outstanding
Cablevision Class A Common Stock on August 31, 1995) would have been issued to
Limited Partners in the Liquidation. The last reported sale price of Cablevision
Class A Common Stock on the ASE on October 18, 1995 was $56 1/8. Application has
been made to list the shares of Cablevision Class A Common Stock that are issued
as contemplated hereby on the ASE.
The mailing of this Consent Solicitation Statement/Prospectus to holders of
Units commenced on or about October 20, 1995. On such date, there were 4,025
Units outstanding, including an aggregate of 300 Units held by a subsidiary and
certain directors and officers of Cablevision, and there were a total of 640
holders of Units. Accordingly, the consents of Limited Partners (other than such
Cablevision subsidiary and such directors and officers of Cablevision) holding
at least 1,863 Units are required to approve each of the Transactions. All
holders of Units are urged to review this Consent Solicitation
Statement/Prospectus carefully in its entirety.
3
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AVAILABLE INFORMATION
Cablevision and the Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'), and in accordance therewith are required to file reports, proxy
statements (in the case of Cablevision) and other information with the
Securities and Exchange Commission (the 'Commission'). Such reports, proxy
statements and other information filed by Cablevision and the Partnership may be
inspected and copied at the public reference facilities of the Commission 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 such material can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. With respect to Cablevision,
such reports, proxy statements and other information also may be inspected at
the offices of the American Stock Exchange, 86 Trinity Place, New York, New York
10006.
This Consent Solicitation Statement/Prospectus constitutes a part of a
registration statement (the 'Registration Statement') filed by Cablevision with
the Commission under the Securities Act of 1933, as amended (the 'Securities
Act'). As permitted by the rules and regulations of the Commission, this Consent
Solicitation Statement/Prospectus does not contain all of the information
contained in the Registration Statement and the exhibits and schedules thereto
and reference is hereby made to the Registration Statement and the exhibits and
schedules thereto for further information with respect to Cablevision and the
Partnership and the securities offered hereby. Statements contained herein
concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Cablevision hereby incorporates by reference into this Consent Solicitation
Statement/Prospectus the following documents or information filed with the
Commission:
(a) Cablevision's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (the 'Cablevision Form 10-K');
(b) Cablevision's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31 and June 30, 1995 (each, a 'Cablevision Form
10-Q');
(c) Cablevision's Current Reports on Form 8-K filed on September 1,
1995, September 7, 1995 and October 17, 1995 (the October 17, 1995 Current
Report on Form 8-K is referred to herein as the 'Cablevision Form 8-K');
and
(d) all documents filed by Cablevision pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act on or after the date of this Consent
Solicitation Statement/Prospectus and prior to the termination of the
offering and solicitations made hereby.
The Partnership hereby incorporates by reference into this Consent
Solicitation Statement/Prospectus the following documents or information filed
with the Commission:
(a) the Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (the 'Partnership Form 10-K');
(b) the Partnership's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31 and June 30, 1995 (each, a 'Partnership Form
10-Q');
(c) the Partnership Current Report on Form 8-K filed on February 9,
1995; and
(d) all documents filed by the Partnership pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act on or after the date of this Consent
Solicitation Statement/Prospectus and prior to the termination of the
offering and solicitations made hereby.
Any statement contained herein or in any documents incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for the purpose of this Consent
4
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Solicitation Statement/Prospectus to the extent that a subsequent statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Consent
Solicitation Statement/ Prospectus.
THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. WITH RESPECT TO
BOTH CABLEVISION AND THE PARTNERSHIP, THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST, WITHOUT CHARGE, FROM ROBERT S. LEMLE, EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY OF CABLEVISION AT CABLEVISION'S PRINCIPAL
EXECUTIVE OFFICES LOCATED AT ONE MEDIA CROSSWAYS, WOODBURY, NEW YORK 11797,
TELEPHONE NUMBER: (516) 364-8450. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER 21, 1995.
------------------------
As used herein, unless the context otherwise requires, the term
'Cablevision' refers to Cablevision Systems Corporation and its subsidiaries.
The term 'Cablevision Consolidated Financial Statements' refers to Cablevision's
Consolidated Financial Statements and the notes thereto incorporated by
reference from the Cablevision Form 10-K and the documents incorporated by
reference therein. The term 'Cablevision Management's Discussion and Analysis'
refers to Management's Discussion and Analysis of Financial Condition and
Results of Operations incorporated by reference from the Cablevision Form 10-K,
the Cablevision Form 10-Qs and 'Liquidity and Capital Resources' in the
Cablevision Form 8-K.
As used herein, unless the context otherwise requires, the term
'Partnership' refers to Cablevision of Boston Limited Partnership. The term
'Partnership Consolidated Financial Statements' refers to the Partnership's
Consolidated Financial Statements and the notes thereto included elsewhere in
this Consent Solicitation Statement/Prospectus.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON. THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
CONSENT SOLICITATION STATEMENT/PROSPECTUS NOR THE DISTRIBUTION OF ANY SECURITIES
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF CABLEVISION OR THE PARTNERSHIP OR IN THE
INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
5
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TABLE OF CONTENTS
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AVAILABLE INFORMATION..................................................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 4
SUMMARY................................................................................................... 9
The Parties.......................................................................................... 9
The Transactions..................................................................................... 9
Risk Factors......................................................................................... 10
Risks Associated with the Incorporation and Merger................................................... 10
Risks Associated with an Investment in Cablevision................................................... 12
The Incorporation.................................................................................... 13
The Merger........................................................................................... 14
Background of the Transactions....................................................................... 20
Reasons for and Alternatives to the Transactions..................................................... 21
Recommendations of the General Partners.............................................................. 21
Fairness Opinion Received by the General Partners.................................................... 23
Certain Litigation................................................................................... 23
The Consent Solicitations............................................................................ 24
Comparison of Cablevision Class A Common Stock with Units............................................ 25
Certain Federal Income Tax Consequences.............................................................. 25
Organizational Charts................................................................................ 27
The Partnership...................................................................................... 29
Cablevision.......................................................................................... 29
Cable Regulation..................................................................................... 30
Limited Partners' Names and Addresses................................................................ 30
Selected Financial and Operating Information......................................................... 31
Cablevision Condensed Pro Forma Consolidated Financial Information................................... 35
Cablevision Supplemental Financial and Operating Data................................................ 39
RISK FACTORS.............................................................................................. 42
Risks Associated with the Incorporation and Merger................................................... 42
Lack of Independent Representation for Unaffiliated Limited Partners................................. 42
Conflicts of Interest................................................................................ 42
Material Benefits to General Partners and their Affiliates and Cablevision and its Affiliates........ 42
No Appraisal Obtained for Systems.................................................................... 43
Uncertainties Regarding Validity of the Preferred Equity............................................. 43
Risk that IRS May View Incorporation and Merger as Fully Taxable..................................... 43
Material Assumptions in PaineWebber's Opinion........................................................ 44
Risks Related to the Incorporation................................................................... 44
Risks Associated with an Investment in Cablevision................................................... 45
Risk of Decrease in Market Value of Consideration Received........................................... 45
Risks of an Investment in Cablevision if Merger is Consummated....................................... 45
Competition and Substantial Regulation in the Cable Television Industry.............................. 49
Fundamental Change in Nature of Investment........................................................... 50
THE TRANSACTIONS.......................................................................................... 51
Background of the Transactions....................................................................... 51
Certain Litigation................................................................................... 62
Reasons for and Alternatives to the Transactions..................................................... 62
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Interests of Certain Persons in the Transactions; Conflicts of Interest.............................. 64
Recommendations of the General Partners; Fairness of the Transactions................................ 70
Fairness Opinion Received by the General Partners.................................................... 75
Risks that Neither Transaction is Consummated........................................................ 80
Effect of the Merger on the Partnership and the Partners; Cablevision's Purposes and Reasons for the
Transactions; Plans of Cablevision for the Systems.................................................. 81
Conditions to the Transactions....................................................................... 83
Certain Regulatory Matters........................................................................... 83
DESCRIPTION OF THE INCORPORATION.......................................................................... 84
The Incorporation.................................................................................... 84
Conditions to the Incorporation...................................................................... 85
Vote Required for Approval........................................................................... 85
Accounting Treatment for the Incorporation........................................................... 86
No Appraisal Rights.................................................................................. 86
Expenses............................................................................................. 86
DESCRIPTION OF THE MERGER................................................................................. 86
The Merger........................................................................................... 86
Consideration to be Received by Limited Partners..................................................... 86
Effective Time....................................................................................... 87
Representations and Warranties....................................................................... 87
Conditions to the Merger............................................................................. 87
Waiver and Amendment; Termination.................................................................... 89
ASE Listing.......................................................................................... 89
Expenses............................................................................................. 89
Vote Required for Approval........................................................................... 89
Liquidation of the Partnership Following the Merger.................................................. 90
Consideration to be Received by Affiliates........................................................... 91
Determination of Allocation of Consideration......................................................... 92
Accounting Treatment of the Merger................................................................... 96
Appraisal Rights..................................................................................... 97
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................................................... 99
Incorporation........................................................................................ 100
The Incorporation and Merger......................................................................... 101
Liquidation and Dissolution of the Partnership....................................................... 102
Section 754 Election................................................................................. 103
Continued Classification of the Partnership as a Partnership......................................... 103
CERTAIN MASSACHUSETTS INCOME TAX CONSEQUENCES............................................................. 104
LIMITED MARKET FOR UNITS; DISTRIBUTIONS................................................................... 105
PRICE RANGE OF CABLEVISION CLASS A COMMON STOCK AND DIVIDEND POLICY....................................... 106
CONSENT SOLICITATIONS..................................................................................... 107
The Incorporation Solicitation....................................................................... 107
The Merger Solicitation.............................................................................. 108
Both Transactions.................................................................................... 108
Availability of Partners' Names and Addresses........................................................ 109
</TABLE>
7
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<TABLE>
<CAPTION>
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COMPARISON OF CABLEVISION CLASS A COMMON STOCK WITH UNITS................................................. 109
Form of Organization................................................................................. 110
Liability............................................................................................ 110
Nature of Investment................................................................................. 112
Marketability and Transferability of Interests....................................................... 113
Dividends and Distributions.......................................................................... 113
Taxation............................................................................................. 114
Voting............................................................................................... 115
Meetings............................................................................................. 116
Dissolution and Liquidation.......................................................................... 117
Right to Investor Lists.............................................................................. 118
Access to other Books and Records.................................................................... 119
Compensation of the General Partner.................................................................. 119
CABLEVISION OF BOSTON..................................................................................... 123
Selected Financial Data.............................................................................. 123
Management's Discussion and Analysis of Financial Condition and Results of Operations................ 125
Business............................................................................................. 128
Certain Relationships and Related Transactions....................................................... 131
Potential Conflicts Relating to the General Partners................................................. 132
Management Projections............................................................................... 133
Operating Assumptions For Projections................................................................ 133
CABLEVISION SYSTEMS CORPORATION........................................................................... 136
Business............................................................................................. 136
CABLEVISION PRO FORMA FINANCIAL INFORMATION............................................................... 139
CERTAIN COMPARATIVE DATA.................................................................................. 147
CABLE REGULATION.......................................................................................... 148
DESCRIPTION OF CABLEVISION CAPITAL STOCK.................................................................. 154
Cablevision Class A Common Stock and Cablevision Class B Common Stock................................ 154
Cablevision Preferred Stock.......................................................................... 155
FEES AND EXPENSES......................................................................................... 159
LEGAL MATTERS............................................................................................. 160
EXPERTS................................................................................................... 160
GLOSSARY.................................................................................................. 162
INDEX TO FINANCIAL STATEMENTS............................................................................. F-1
Appendix A -- Opinion of PaineWebber...................................................................... A-1
Appendix B -- Merger Agreement............................................................................ B-1
</TABLE>
8
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SUMMARY
The following information is qualified in its entirety by the more detailed
information, financial statements and pro forma financial information appearing
elsewhere in this Consent Solicitation Statement/Prospectus or incorporated by
reference herein. Investment in the Cablevision Class A Common Stock involves
significant risks. See 'Risk Factors.' See the 'Glossary' for definitions of
certain terms used in this Consent Solicitation Statement/Prospectus.
THE PARTIES
THE PARTNERSHIP
The Partnership and its affiliate, Cablevision of Brookline Limited
Partnership, a Massachusetts limited partnership ('Brookline' and, together with
the Partnership, the 'Related Partnerships'), operate cable television systems
in the City of Boston (the 'Boston System') and the Town of Brookline,
Massachusetts (the 'Brookline System' and, together with the Boston System, the
'Systems'). The General Partners of the Partnership (the 'General Partners' and,
together with the Limited Partners, the 'Partners') are Charles F. Dolan
('Dolan') and Cablevision Systems Boston Corporation, a Massachusetts
corporation wholly-owned by Dolan ('CSBC'). For information concerning the
ownership of the interests in the Partnership, see 'Description of the Merger --
Liquidation of the Partnership Following the Merger.' Dolan and Cablevision
Systems Brookline Corporation, a Delaware corporation wholly-owned by Dolan
('CSBrC'), are the general partners of Brookline who together hold a 1%
partnership interest. The remaining 99% partnership interest in Brookline is
held by the Partnership.
CABLEVISION
Cablevision is one of the largest operators of cable television systems in
the United States, with approximately 2,753,000 subscribers in 19 states as of
June 30, 1995, based on the number of basic subscribers in systems which
Cablevision manages and which it owns or in which it has investments (including
the Related Partnerships). Cablevision also has ownership interests in companies
that produce and distribute national and regional programming services and
provide advertising sales services for the cable television industry. Dolan is
the chairman of, and, as of August 31, 1995, beneficially owned common stock
representing approximately 18.6% of the total voting power of Cablevision common
stock. On October 16, 1995, the Board of Directors of Cablevision elected James
L. Dolan to succeed Charles F. Dolan as chief executive officer effective
immediately. James L. Dolan, a son of Charles F. Dolan, has been chief executive
officer of Rainbow Programming Holdings, Inc. since 1992 and has been a member
of the Board of Directors of Cablevision since 1991. In addition, trusts
established by Dolan for the benefit of certain Dolan family members, and as to
which Dolan disclaims beneficial ownership, owned at such date common stock
representing approximately 72.5% of the total voting power of Cablevision common
stock.
THE TRANSACTIONS
The Partnership is soliciting the consent of its Limited Partners to two
separate transactions. The first transaction involves the transfer of
substantially all of the Partnership's Assets and all of its liabilities to
Boston Sub, a new corporation that is a wholly-owned subsidiary of the
Partnership. See 'Description of the Incorporation -- The Incorporation.' The
second transaction involves the Merger of a wholly-owned subsidiary of
Cablevision with and into Boston Sub in which the Partnership will receive
shares of Cablevision Class A Common Stock in exchange for all of the issued and
outstanding capital stock of Boston Sub (the 'Boston Sub Capital Stock') and
Cablevision will receive all of the Boston Sub Capital Stock. After consummation
of the Merger, the Partnership will liquidate and the shares of Cablevision
Class A Common Stock received by the Partnership in the Merger will be
distributed to the Partners and to the holder of preferred equity interests in
the Partnership which, at
9
<PAGE>
the time of the Liquidation, will be Cablevision Finance Limited Partnership
('Cablevision Finance'), a subsidiary of Cablevision.
The Partnership has entered into an agreement (the 'Merger Agreement') with
Cablevision to effect the Merger, which is subject, among other things, to the
approval of each of the Incorporation and Merger by Limited Partners who are not
affiliates of the General Partners then entitled to 50% or more of the Net
Profits and Net Losses (in each case, as defined in the Partnership's Articles
of Limited Partnership (as amended to date, the 'Partnership Agreement')) of the
Partnership allocated to all such unaffiliated Limited Partners (a 'Majority of
the Limited Partners'). The Merger is conditioned upon the consummation of the
Incorporation; however, approval of the Merger is not a condition to the
Incorporation.
RISK FACTORS
The Transactions and an investment in Cablevision Class A Common Stock
involve significant risks that should be considered by Limited Partners and
prospective investors, including the following risks. This summary is qualified
in its entirety by the more detailed discussion in the section entitled 'Risk
Factors' contained in this Consent Solicitation Statement/Prospectus:
RISKS ASSOCIATED WITH THE INCORPORATION AND MERGER
Lack of Independent Representation for the Unaffiliated Limited Partners. The
General Partners negotiated the terms of the Transactions on behalf of the
Partnership. All of the General Partners are affiliated with Cablevision. No
independent representative or counsel has acted on behalf of the unaffiliated
Limited Partners in connection with determining the terms of either
Transaction, nor did the General Partners negotiate the terms of either
Transaction with any unaffiliated Limited Partners. There is a possibility
that, if such representatives or unaffiliated Limited Partners had taken part,
the terms of the Transactions would have been different and, perhaps, more
favorable to the unaffiliated Limited Partners. See 'The
Transactions -- Recommendations of the General Partners; Fairness of the
Transactions' and ' -- Interests of Certain Persons in the Transactions;
Conflicts of Interest.'
Conflicts of Interest. The General Partners, Cablevision and their respective
affiliates will receive substantial benefits if the Merger is consummated and,
accordingly, had an inherent conflict of interest in structuring the terms and
conditions of the Transactions. Employees of Cablevision manage the operations
of the Partnership and all of the General Partners are affiliated with
Cablevision. In addition, Dolan, the managing General Partner of the
Partnership (the 'Managing General Partner'), is chairman of Cablevision, and,
as of August 31, 1995, beneficially owned common stock representing
approximately 18.6% of the total voting power of, Cablevision common stock. In
addition, trusts established by Dolan for the benefit of certain Dolan family
members, and as to which Dolan disclaims beneficial ownership, owned at such
date common stock representing approximately 72.5% of the total voting power of
Cablevision common stock.
Material Benefits to General Partners and their Affiliates and Cablevision and
its Affiliates. The General Partners and their affiliates, other than
Cablevision and its subsidiaries, who, since the inception of the Partnership,
have invested in and loaned to the Partnership a total of approximately $4.7
million in cash, as well as contributing a provisional cable television license
for the City of Boston, will receive the amount of, and a return on, their
investments in and loans to the Partnership, as well as from management fees
earned (approximately $15.0 million), in the form of Cablevision Class A Common
Stock aggregating approximately $404,000 and cash aggregating approximately
$19.7 million (as of June 30, 1995). Cablevision and its affiliates, other than
the General Partners and their affiliates, who invested approximately $48.4
million in cash (including the reinvestment of accrued interest thereon) in the
Partnership and loaned or advanced approximately $9.8 million in cash to the
Partnership, will receive the amount of, and a return on, their investments in
and loans and advances to the Partnership in the form of Cablevision Class A
Common Stock aggregating approximately $51.0 million (as of June 30, 1995) and
assumption of indebtedness aggregating
10
<PAGE>
approximately $40.6 million (as of June 30, 1995). The unaffiliated Limited
Partners will receive only the approximate amount of, and no return on, their
investment in the form of Cablevision Class A Common Stock. Dolan, as a general
partner of the Partnership and Brookline, is personally liable for all
obligations of the Related Partnerships, other than the obligations under the
Partnership's Loan Agreement (as defined in the Glossary). Cablevision has
agreed to indemnify the General Partners for substantially all liabilities in
connection with the Transactions and, if the Transactions are consummated, in
respect of substantially all other liabilities related to the Related
Partnerships.
No Appraisal Obtained for Systems. The General Partners did not obtain an
appraisal of the fair market value of the Systems and did not solicit offers
for the Systems from unaffiliated third parties. As a result, it is possible
that the terms of the Transactions do not reflect the fair market value of the
Systems. See 'The Transactions -- Reasons for and Alternatives to the
Transactions,' ' -- Recommendations of the General Partners; Fairness of the
Transactions,' ' -- Fairness Opinion Received by the General Partners' and
'Description of the Merger -- Consideration to be Received by Limited
Partners.'
Uncertainties Regarding Validity of the Preferred Equity. On October 5, 1994,
following the filing of preliminary consent solicitation materials with the
Securities and Exchange Commission that discussed uncertainties with respect to
the Preferred Equity, a Limited Partner filed a purported class action (the
'Lawsuit') in Massachusetts Superior Court alleging, among other things, that
the Partnership issued its Preferred Equity (the 'Preferred Equity') to
affiliates of the General Partners in violation of the Partnership Agreement.
The Lawsuit seeks, among other things, a declaratory judgment that holders of
the Preferred Equity are not entitled to the accrued cumulative distributions
thereon. See 'The Transaction -- Certain Litigation.' While the General
Partners believe that the Preferred Equity was validly issued, they recognize
that the outcome of litigation cannot be predicted with certainty. The General
Partners believe, based on the advice of counsel, that the holders of the
Preferred Equity would more likely than not be entitled to at least $80 million
in respect of such interests (which is approximately $27.2 million more than
the amount allocated to the holders of the Preferred Equity in the Merger and
Liquidation) if, hypothetically, the validity of the Preferred Equity were
fully adjudicated and the Partnership and Cablevision consummated the Merger
and Liquidation, substituting the adjudicated rights of the Preferred Equity
for the approximately $52.8 million (as of June 30, 1995) that Cablevision
Finance has agreed to receive in respect of the Preferred Equity Interests in
the Liquidation. It is possible, however, that the court could conclude that
the holders of the Preferred Equity are entitled to receive less than they have
been allocated in the Merger and Liquidation. If a court were to determine that
the holders of the Preferred Equity are entitled to receive less than they have
been allocated in the Merger and Liquidation, and if Cablevision were still
willing to proceed with the Transactions, Limited Partners would be entitled to
receive more consideration than they have been allocated in the Merger and
Liquidation. Based on advice of counsel, the General Partners believe that
Limited Partners who consent to the Incorporation or Merger could be, but will
not necessarily be, precluded from challenging the issuance of the Preferred
Equity solely because of that consent; however, Cablevision Finance, the
General Partners and the other defendants in the Lawsuit have indicated that
they would raise the consent as part of the defense to any challenge to the
Preferred Equity, and the General Partners believe that the consent of the
Limited Partners to the Transactions is a factor that a court would consider in
deciding whether the Limited Partners would be barred from challenging the
issuance of the Preferred Equity. See 'The Transactions -- Background of the
Transactions -- Uncertainties Regarding Validity of the Preferred Equity.'
Risk that IRS May View Incorporation and Merger as Fully Taxable. The Limited
Partners will recognize gain in connection with the Incorporation, although, in
the opinion of counsel to Cablevision and counsel to the General Partners, it
is more likely than not that, in general, any gain recognized will be offset by
at-risk suspended losses. See 'Certain Federal Income Tax
Consequences -- Incorporation -- Consequences to Limited Partners.' In the
opinion of counsel to Cablevision and counsel to the General Partners, the
receipt of Cablevision Class A Common Stock by the Partnership in the Merger
and the distribution of Cablevision Class A Common Stock to the
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<PAGE>
Limited Partners in the Liquidation more likely than not will be viewed as
tax-free. The matter, however, is not free from doubt. The Partnership has not
requested or obtained a ruling from the Internal Revenue Service (the 'IRS').
If the Merger is consummated, it is possible that the IRS may take the view
that the Incorporation or the Merger is fully taxable, and that the Limited
Partners would therefore realize additional net taxable gains in an amount
approximately equal to the market value of the Cablevision Class A Common Stock
distributed to them in the Liquidation. Limited Partners will not receive any
cash distributions in connection with either Transaction with which to pay any
such taxes. See 'Certain Federal Income Tax Consequences -- The Incorporation
and Merger' and 'Certain Federal Income Tax Consequences -- Liquidation and
Dissolution of the Partnership.'
Material Assumptions in PaineWebber's Opinion. The General Partners directed
PaineWebber Incorporated ('PaineWebber'), their financial advisor, to assume in
rendering its opinion to the General Partners with respect to the fairness of
the consideration to be received by the unaffiliated Limited Partners in the
Liquidation, that the holders of the Preferred Equity are entitled to receive
at least $80 million for their interests. PaineWebber's opinion does not
address whether the consideration to be received by the unaffiliated Limited
Partners in the Liquidation would be fair if the holders of Preferred Equity
were found to be entitled to receive less than $80 million. This assumption and
the other assumptions in such opinion are discussed in 'The
Transactions -- Fairness Opinion Received by the General Partners -- Opinion of
PaineWebber.' Richard Hochman, a director of Cablevision and owner of six
Units, was a managing director of PaineWebber when PaineWebber was retained and
when it delivered its initial opinion.
Risks Related to the Incorporation. Because approval of the Merger is not a
condition to the Incorporation and the General and Limited Partners will not
know whether the Merger will be approved at the time the Incorporation is
consummated, there is a risk that the Merger may not be consummated following
the Incorporation. If the Merger is not consummated, the Partnership will not
liquidate absent a recommendation by the General Partners and a further vote of
the Limited Partners and the Limited Partners will be subject to all of the
risks inherent in the continued operation of the business of the Partnership.
See 'The Transactions -- Risks that Neither Transaction is Consummated.' If the
Merger is not consummated, the General Partners would consider liquidating the
Partnership through the distribution of the stock of Boston Sub to the Limited
Partners or another transaction involving the sale of Boston Sub if they
concluded that such a distribution or transaction would increase the liquidity
and value of the Limited Partners' investment in the Partnership and that an
allocation of such stock or other acquisition consideration between the Limited
Partners and other parties holding priority claims in the Partnership that is
fair to the Limited Partners could be achieved. See 'Risk Factors -- Risks
Associated with the Incorporation and the Merger -- Risks Related to the
Incorporation -- Other Risks.' If the Partnership is not liquidated, income
generated from the operation of the Systems by Boston Sub will no longer be
offset by prior losses generated by the Partnership and will instead be subject
to a corporate-level tax. See 'Risk Factors -- Risks Associated with the
Incorporation and the Merger -- Risks Related to the Incorporation -- Risk of
Corporate-Level Tax.' It is anticipated that, following the Incorporation,
income, if any, generated by the Systems generally will be subject to tax
sooner than would be the case if the Incorporation were not consummated.
RISKS ASSOCIATED WITH AN INVESTMENT IN CABLEVISION
Risk of Decrease in Market Value of Consideration Received. If the Merger is
consummated, the exact number of shares of Cablevision Class A Common Stock to
be distributed to the Limited Partners in the Liquidation will be based on the
Average Cablevision Stock Price, which is calculated over the 20 trading days
ending on the second trading day prior to the effective date of the Merger. As
a result, the exact number of shares of Cablevision Class A Common Stock to be
distributed in the Liquidation and the market value thereof will depend on the
timing of the Merger and the Liquidation, the Average Cablevision Stock Price
and other factors. There can be no assurance that
12
<PAGE>
the market value of the Cablevision Class A Common Stock to be received by the
Limited Partners in the Merger and Liquidation will be maintained, and there is
a significant possibility that the market value of the Cablevision Class A
Common Stock to be received by the Limited Partners in the Merger and
Liquidation may decrease significantly, including as a result of the issuance
of a significant number of shares. In addition, Limited Partners will not
receive a return of their investment in the form of cash proceeds, and, if they
wish to obtain cash for their investment, will need to sell the shares of
Cablevision Class A Common Stock received in the Liquidation on the ASE or in a
private transaction. These risks are accentuated by the potential for
significant fluctuation in the market price of the Cablevision Class A Common
Stock.
Risk of an Investment in Cablevision if Merger is Consummated. An investment in
Cablevision involves various risks, including:
An investment in Cablevision Class A Common Stock involves risks related to
Cablevision's substantial indebtedness ($3.4 billion at June 30, 1995) and
high degree of leverage.
An investment in Cablevision Class A Common Stock involves risks related to
Cablevision's historic net losses ($195.4 million and $111.9 million for the
six months ended June 30, 1995 and 1994, respectively, and $315.2 million
and $246.8 million for the years ended December 31, 1994 and 1993,
respectively) and stockholders' deficit ($2.0 billion at June 30, 1995).
An investment in Cablevision Class A Common Stock involves risks related to
Cablevision's need for significant additional financing to meet its capital
expenditure plans and other obligations.
An investment in Cablevision Class A Common Stock involves risks related to
the significant fluctuation in the price of Cablevision Class A Common Stock
on the American Stock Exchange.
Cablevision has not paid any dividends on any of its Common Stock and
Cablevision does not intend to pay any dividends on its Common Stock in the
foreseeable future.
An investment in Cablevision Class A Common Stock involves risks related to
voting control of Dolan family members and trusts for their benefit and the
disparate voting rights of Cablevision's two classes of common stock, which
give Dolan family members and trusts for their benefit the power to elect
75% of the members of the Board of Directors of Cablevision and control
stockholder decisions with respect to matters on which holders of
Cablevision Class A Common Stock and Class B Common Stock vote together as a
single class.
See 'Risk Factors -- Risks of an Investment in Cablevision if Merger is
Consummated.'
Fundamental Change in Nature of Investment. An investment in Cablevision Class
A Common Stock would constitute a fundamental change in the nature of the
investment of the Limited Partners, including the change from an investment in
a partnership with a limited life to an investment in a corporation with an
infinite life. These changes include significant modifications to the rights of
the Limited Partners with respect to dividends and distributions, voting,
meetings of holders, dissolution and liquidation, and access to investor lists
and other books and records. Also, there will be changes with respect to the
management of the entity, taxation of the entity and its investors,
marketability and transferability of the interests and the compensation of
controlling entities. All of these changes are discussed under 'Comparison of
Cablevision Class A Common Stock with Units.' The Partnership only owns and
operates the Systems, whereas an investment in Cablevision involves an
investment in an entity which operates cable television systems in 19 states as
of June 30, 1995 with substantially more subscribers. Cablevision also has
ownership interests in companies that produce and distribute national and
regional programming and advertising sales services. See 'Risk Factors -- Risks
Associated with the Incorporation and Merger' and ' -- Risks of an Investment
in Cablevision if Merger is Consummated.'
THE INCORPORATION
General. If the Incorporation is approved and all of the conditions thereto
are satisfied, the Partnership will transfer substantially all of the Assets,
including the Boston System and its 99% limited
13
<PAGE>
partnership interest in Brookline, to Boston Sub. Boston Sub will also assume
all of the Partnership's liabilities and obligations, including any liabilities
under the Merger Agreement. Following the Incorporation, the Partnership will
own all of the outstanding capital stock of Boston Sub, which will own and
operate the Systems. The General Partners believe that the Incorporation will
facilitate the Merger (or, if the Merger is not approved, a future tax-free
transaction). See 'Description of the Merger -- The Merger' and ' -- Conditions
of the Merger.' The General Partners, Cablevision and their affiliates will
receive substantial benefits in connection with the Merger. See 'Description of
the Merger -- Consideration to be Received by Affiliates' and 'The
Transactions -- Interests of Certain Persons in the Transactions; Conflicts of
Interest.'
Vote Required for Approval. Pursuant to the terms of the Partnership
Agreement, the Incorporation requires the consent and approval of a Majority of
the Limited Partners. ALL OF THE LIMITED PARTNERS, INCLUDING LIMITED PARTNERS
WHO VOTE AGAINST THE INCORPORATION, WILL BE BOUND BY THE DECISION OF A MAJORITY
OF THE LIMITED PARTNERS.
No Appraisal Rights. The Limited Partners are not entitled to any statutory
rights to dissent and receive payment for, or to obtain appraisal of, the value
of the Units in connection with the Incorporation. In addition, there is no
provision in the Partnership Agreement providing for such an appraisal.
Conditions/Regulatory Approval. Consummation of the Incorporation is
subject to various conditions, including, among other things, the approval of a
Majority of the Limited Partners and regulatory and other approvals, including
approval of the City of Boston and the Town of Brookline (which approvals have
been obtained). In addition, the Incorporation will not be consummated if the
General Partners determine that consummation of the Incorporation is not in the
best interests of the unaffiliated Limited Partners and the Partnership. See
'Description of the Incorporation -- Conditions to the Incorporation.'
Consummation of the Incorporation is a condition to the Merger. Approval of the
Merger is not, however, a condition to the Incorporation.
THE MERGER
General. The Merger Agreement provides for the merger of a wholly-owned
subsidiary of Cablevision with and into Boston Sub. Boston Sub will be the
surviving corporation in the Merger. Following the Merger, Cablevision will own
all of the Boston Sub Capital Stock and the Partnership will receive shares of
Cablevision Class A Common Stock in the Merger. The shares of Cablevision Class
A Common Stock received by the Partnership in the Merger will be distributed by
the Partnership in the Liquidation to its Partners and to Cablevision Finance
which, at the time of the Liquidation, will be the holder of all of the
Preferred Equity. See 'Description of the Merger -- Liquidation of the
Partnership Following the Merger.' Consummation of the Incorporation is a
condition to the Merger. See 'Description of the Merger -- The Merger' and
' -- Conditions to the Merger.'
Vote Required for Approval. Pursuant to the terms of the Partnership
Agreement, the Merger and the Merger Agreement require the consent and approval
of a Majority of the Limited Partners. See 'Description of the Merger -- Vote
Required for Approval.' ALL OF THE LIMITED PARTNERS, INCLUDING LIMITED PARTNERS
WHO VOTE AGAINST THE MERGER, WILL BE BOUND BY THE DECISION OF A MAJORITY OF THE
LIMITED PARTNERS, ALTHOUGH THE LIMITED PARTNERS WHO VOTE AGAINST THE MERGER AND
PROPERLY PERFECT THEIR APPRAISAL RIGHTS WILL BE AFFORDED LIMITED APPRAISAL
RIGHTS IN CONNECTION WITH THE MERGER. See 'Description of the
Merger -- Appraisal Rights.'
Consideration to be Received by Limited Partners. The Limited Partners will
receive in the Liquidation Cablevision Class A Common Stock with an expected
Average Cablevision Stock Price of approximately $40.0 million (or approximately
$10,000 per Unit held by Limited Partners other than Cablevision, which is 100%
of the per Unit amounts originally invested by the unaffiliated Limited
Partners). The 'Average Cablevision Stock Price' is defined in the Merger
Agreement as the arithmetic average of the closing price per share of the
Cablevision Class A Common Stock for the 20 trading days ending on the second
trading day prior to the Effective Date. See 'Description of the Merger --
14
<PAGE>
Consideration to be Received by Limited Partners.' This allocation was designed
to allow the unaffiliated Limited Partners to receive consideration in the
Liquidation which the General Partners believed was fair under any reasonable
valuation of the Systems in light of all the circumstances relating to the
Transactions, and would be sufficient to induce the Limited Partners to approve
the Transactions. The General Partners' determination that the consideration to
be received by the unaffiliated Limited Partners was fair was made without the
benefit of an appraisal or other valuation of the Partnership. The General
Partners reached this belief as to reasonable values for the Systems based on
their experience in the cable television industry and on information as to the
terms of recent sales of cable television systems. The General Partners did not
believe that an outside valuation of the Systems was necessary because of their
level of experience and the amount of publicly available information with
respect to sales of other cable television systems. See 'The
Transactions -- Recommendations of the General Partners; Fairness of the
Transactions.' The General Partners agreed that such allocations could be paid
in shares of Cablevision Class A Common Stock instead of cash because
Cablevision was willing to pay more if it paid in shares and because such
payment would provide unaffiliated Limited Partners seeking liquidity with
publicly traded securities. Such payment also will enable the Partnership and
the Limited Partners to receive the shares in a transaction that will more
likely than not be viewed as tax-free. Any cash payment would be taxable. See
'Description of the Merger -- Determination of Allocation of Consideration.'
If the Merger had been consummated on October 17, 1995, an aggregate of
approximately 694,000 shares of Cablevision Class A Common Stock (representing
approximately 5.7% of the outstanding Cablevision Class A Common Stock as of
August 31, 1995) would have been allocated to the Limited Partners as a result
of the Transactions.
Consideration to be Received by Affiliates; Allocation of Consideration. At
June 30, 1995, the Partnership had the following outstanding contractual
obligations to the General Partners, Cablevision and their respective affiliates
that are required to be paid prior to any distributions to Limited Partners:
<TABLE>
<CAPTION>
AT JUNE 30, 1995
----------------
(DOLLARS IN
MILLIONS)
<S> <C>
Subordinated debt, advances, management fees and interest thereon
('Affiliate Claims')(1)................................................... $ 55.7
Preferred Equity............................................................ 50.3
Cumulative unpaid distributions on Preferred Equity......................... 117.7
</TABLE>
- ------------
(1) Interest on subordinated debt accrues at 14% per annum, interest on
management fees accrues at the Partnership's borrowing rate under the Loan
Agreement plus 1% (currently 9.0% per annum) and interest on unpaid advances
accrues at 9.0% per annum. See 'The Transactions -- Interests of Certain
Persons in the Transactions; Conflicts of Interest' for a further
description of the Affiliate Claims and the rates of interest thereon.
(2) For information regarding uncertainties concerning the Preferred Equity, see
'The Transactions -- Background of the Transactions -- Uncertainties
Regarding Validity of the Preferred Equity.'
15
<PAGE>
The following table sets forth the aggregate amounts and forms of
consideration that Cablevision is paying to the Limited Partners, to the
Partnership's bank lenders, and to the General Partners and their affiliates
(other than Cablevision and its subsidiaries) and Cablevision and its affiliates
(other than the General Partners) in connection with the Merger:
<TABLE>
<CAPTION>
AMOUNTS ESTIMATED TO
BE PAID IN MERGER AND
LIQUIDATION
PARTY RECEIVING CONSIDERATION (AS OF JUNE 30, 1995) FORM OF CONSIDERATION
- ------------------------------------ --------------------- -----------------------------------------------
<S> <C> <C>
Limited Partners:
Unaffiliated Limited Partners
($10,000 per Unit)........... $ 37,250,000 Cablevision Class A Common Stock
Affiliated Limited Partners.... 2,718,000(1) Cablevision Class A Common Stock
---------------------
39,968,000
---------------------
Bank Lenders:
Bank Indebtedness.............. 61,106,000 Cash
---------------------
General Partners and
Affiliates(2):
General Partnership
Interests.................... 404,000(3) Cablevision Class A Common Stock
Subordinated Debt and
Management Fees.............. 15,067,000 Cash
Preferred Equity............... 4,600,000(4) Cash
---------------------
20,071,000
---------------------
Cablevision and Affiliates(5):
Unpaid Advances, Subordinated
Debt, Management Fees and
Interest..................... 40,623,000 Becomes intercompany debt of Cablevision
Preferred Equity............... 45,700,000(6) Cablevision Class A Common Stock
Cumulative Preferred Equity
Distributions................ 2,532,000 Cablevision Class A Common Stock
---------------------
88,855,000
---------------------
$ 210,000,000
---------------------
---------------------
</TABLE>
- ------------
(1) Cablevision (which holds 282 Units) and certain of its officers and
directors (who collectively hold 12 Units) paid $9,000 for each of their
Units, reflecting the fact that no selling expenses were paid by the
Partnership in connection with the sale of Units to Cablevision and Units
purchased by such officers and directors were purchased after certain
investors defaulted after paying $1,000 therefor. Another director paid
$10,000 for each of his six Units. Cablevision has agreed to receive $9,000
for each of its Units in the Liquidation.
(2) The General Partners and affiliates consist of Dolan, CSBC and Cablevision
Systems Services Corporation ('CSSC'). CSBC and CSSC are wholly-owned by
Dolan.
(3) The General Partners are receiving $404,000 for their partnership interests
although they contributed only $200 cash and a provisional cable television
license for the City of Boston.
(4) CSSC will sell all of its Preferred Equity to Cablevision Finance for
$4,600,000 in cash immediately prior to the Merger.
(5) Cablevision and affiliates consist of Cablevision and Cablevision Finance,
each of which is an affiliate of Dolan.
(6) Cablevision Finance will also receive Cablevision Class A Common Stock with
an expected Average Cablevision Stock Price equal to $4,600,000 in the
Liquidation in respect of Preferred Equity to be purchased for cash from
CSSC by Cablevision Finance immediately prior to the Merger.
(7) Excludes $4,600,000 in respect of Preferred Equity to be purchased for cash
from CSSC immediately prior to the Merger.
16
<PAGE>
In the Transactions, the amounts owing to the General Partners and their
affiliates with respect to subordinated debt and management fees will be paid in
full in cash and, in the case of interest on subordinated debt and management
fees and interest on management fees assigned by the General Partners and their
affiliates to affiliates of Cablevision, by assumption of indebtedness. The
amounts owing to Cablevision and its affiliates with respect to unpaid advances
and subordinated debt and interest on subordinated debt will be treated as
indebtedness assumed by Cablevision and eliminated after consummation of the
Merger. CSSC will also sell all of its Preferred Equity to Cablevision Finance
for $4.6 million in cash immediately prior to the Merger. Claims in respect of
the Preferred Equity (the 'Preferred Equity Interests') of $168.0 million as of
June 30, 1995, will be satisfied by the payment of $4.6 million in cash to CSSC
and by the distribution to Cablevision Finance of shares of Cablevision Class A
Common Stock with an expected Average Cablevision Stock Price of approximately
$52.8 million. Even with this reduction, Cablevision Finance will be receiving
the amount of, and a return on, its investments in the Partnership, while the
unaffiliated Limited Partners will be receiving the approximate amount of, and
no return on, their investments because the Preferred Equity is by its terms
senior to all partnership interests. As described below under ' -- Uncertainties
Concerning the Preferred Equity,' the issuance of the Preferred Equity has been
challenged as not having fully complied with certain terms of the Partnership
Agreement and, if such challenge is successful, the Preferred Equity might be
held not to be entitled to its full preferential position and unpaid cumulative
distributions at a rate of 15% per annum.
Cablevision will acquire the Systems in the Merger. No independent third
party has been retained to assess the value of the Systems in connection with
the Transactions. See 'Risk Factors -- Risks Associated with the Incorporation
and Merger -- No Appraisal Obtained for Systems.' Any excess in the value of the
Systems over amounts actually paid by Cablevision to entities other than
Cablevision and its subsidiaries (approximately $80.8 million in cash and $37.8
million in Cablevision Class A Common Stock as of June 30, 1995) and debt
assumed by Cablevision (approximately $40.6 million at June 30, 1995) will be
realized by Cablevision.
For a discussion of factors the General Partners considered in determining
to recommend the Transactions to Limited Partners, including the value the
General Partners have placed on the consideration to be received by the
Partnership from Cablevision in the Merger, see ' -- Recommendations of the
General Partners.'
Uncertainties Regarding Validity of the Preferred Equity. In 1984, the
Partnership was in serious financial difficulty and required additional capital.
The Partnership was advised by its investment bankers, and in good faith
believed, that it was not feasible for the Partnership to raise additional
capital from third parties. Accordingly, the Partnership formulated a
refinancing plan that provided for the issuance of Preferred Equity to
Cablevision Finance, a subsidiary of a predecessor of Cablevision (which
predecessor was then owned by Dolan and trusts for members of his family), and
distributed a copy of such plan to the Limited Partners. Cablevision Finance
provided financing to the Partnership in exchange for Preferred Equity. The
General Partners did not seek or obtain the approval of the Limited Partners to
issue the Preferred Equity and Limited Partners were not given an opportunity to
purchase Preferred Equity. The General Partners believe that, without the
capital represented by the Preferred Equity, the Partnership would have been
unable to obtain from any other source the funds required to complete the
construction of the Systems and to meet the Partnership's other financial
obligations. See 'The Transactions -- Background of the
Transactions -- Background of the Related Partnerships.'
In connection with their consideration of the Transactions, the General
Partners, together with their counsel, Debevoise & Plimpton, reviewed the
issuance of the Preferred Equity. Although the General Partners continue to
believe that the Preferred Equity was validly issued, they concluded, based on
such review and the advice of their counsel, that one or more Limited Partners
could bring litigation challenging the issuance of the Preferred Equity on the
grounds that it did not fully comply with the Partnership Agreement and claiming
that the holders of the Preferred Equity are not entitled to the Full
Contractual Rights of the Preferred Equity (as defined in the Glossary),
including payment of the full amounts contributed to the Partnership in respect
of the Preferred Equity and unpaid
17
<PAGE>
cumulative distributions thereon at the rate of 15% per annum, compounded
semi-annually, prior to any distribution to Partners. See ' -- Certain
Litigation' below for a description of litigation brought by a Limited Partner.
In assessing the fairness of the consideration to be received by the
unaffiliated Limited Partners in the Liquidation and in view of the
uncertainties concerning the Preferred Equity, PaineWebber asked the General
Partners to establish a value of the Preferred Equity for PaineWebber to assume
for purposes of its fairness opinion. In light of this request and as part of
their own consideration of whether the amount to be received by the unaffiliated
Limited Partners in the Liquidation is fair, the General Partners requested that
their counsel advise them as to the most likely outcomes if litigation were
brought by one or more Limited Partners challenging the issuance of the
Preferred Equity. The General Partners recognize that the outcome of litigation
involving claims that are highly fact dependent and that require the analysis of
complex issues and documents cannot be predicted with certainty and that any
such litigation could result in a judicial determination that the Preferred
Equity is not entitled to receive its Full Contractual Rights. Such a
determination could, in turn, lead to a determination that the holders of
Preferred Equity are entitled to a reduced amount of the proceeds of a
liquidation of the Partnership or of other distributions. Any such reduction
could increase the amount that the Limited Partners would be entitled to receive
from the proceeds of a liquidation of the Partnership or of other distributions.
After analyzing the issues that might be raised in litigation brought by a
Limited Partner and the applicability of various available defenses, counsel to
the General Partners identified litigation outcomes that they believe represent
the range of possible outcomes of such a litigation and assessed the probability
of such outcomes. Based on their assessment of the likelihoods of such outcomes,
such counsel advised the General Partners that the holders of the Preferred
Equity would more likely than not be entitled to at least $80 million if,
hypothetically, the validity of the Preferred Equity were fully adjudicated and
the Partnership and Cablevision consummated the Merger and Liquidation
substituting the adjudicated rights of the Preferred Equity for the
approximately $52.8 million (as of June 30, 1995) that Cablevision Finance has
agreed to receive in respect of the Preferred Equity Interests in the
Liquidation. The $80 million amount exceeds by approximately $27.2 million the
amount actually allocated to the holders of Preferred Equity in the Liquidation.
Based on the foregoing analysis, the General Partners instructed PaineWebber to
assume for purposes of its fairness opinion that the Preferred Equity has a
value of at least $80 million. The Preferred Equity may have a value, after
resolution of the uncertainty relating to its issuance, that is greater or less
than $80 million.
On October 5, 1994, following the filing of preliminary consent
solicitation materials with the Securities and Exchange Commission that
discussed the uncertainty with respect to the Preferred Equity, the General
Partners, Cablevision, the Partnership and other affiliated entities were named
as defendants in the Lawsuit filed by a Limited Partner on behalf of a purported
class consisting of holders of Units alleging, among other things, breaches of
fiduciary duty against certain defendants and aiding and abetting breaches of
fiduciary duty by other defendants in connection with the issuance of the
Preferred Equity allegedly in violation of the Partnership Agreement and in
connection with the negotiation of the Merger and Liquidation, among other
matters. The complaint seeks damages as well as injunctive and declaratory
relief. Counsel to the General Partners has advised the General Partners that
the institution of the Lawsuit does not affect its previously-expressed views on
the issues relating to the Preferred Equity.
Cablevision has advised the General Partners that, other than in connection
with the Transactions, Cablevision Finance will not agree to any reductions in
or modifications of the Full Contractual Rights of its Preferred Equity and, if
necessary, will pursue all legal remedies to enforce those rights. Cablevision
believes that Cablevision Finance advanced funds to the Partnership for valid
business purposes at a time when no other sources of funding were available.
Cablevision also believes that Cablevision Finance acquired the Preferred Equity
in good faith and on terms that were favorable to the Partnership.
18
<PAGE>
Based on advice of counsel, the General Partners believe that Limited
Partners who consent to the Incorporation or Merger could be, but will not
necessarily be, precluded from challenging the issuance of the Preferred Equity
solely because of that consent; however, Cablevision Finance, the General
Partners and the other defendants in the Lawsuit have indicated that they would
raise the consent as part of the defense to any challenge, and the General
Partners believe that the consent of the Limited Partners to the Transactions is
a factor that would be considered by a court in deciding whether the Limited
Partners would be barred from challenging the issuance of the Preferred Equity.
For a more detailed discussion of the uncertainties related to the
Preferred Equity and the possible outcomes of any legal challenge to the
issuance of the Preferred Equity, see 'The Transactions -- Background of the
Transactions -- Uncertainties Regarding Validity of the Preferred Equity.' For a
discussion of the effect of this analysis on the fairness opinion received by
the General Partners from PaineWebber, see 'Risk Factors -- Risks Associated
with the Incorporation and Merger -- Material Assumptions in PaineWebber's
Opinion' and 'The Transactions -- Recommendations of the General Partners;
Fairness of the Transactions.'
Conditions/Regulatory Approval. Consummation of the Merger and the issuance
of the shares of Cablevision Class A Common Stock pursuant to the Merger
Agreement are subject to various conditions, including, among other matters, the
consummation of the Incorporation, the adoption and approval of the Merger
Agreement by a Majority of the Limited Partners, regulatory and other approvals,
including approval of the City of Boston and the Town of Brookline (which
approvals have been obtained), and holders of not more than 200 Units (other
than Units held by a Cablevision subsidiary and affiliates of Cablevision)
having perfected their appraisal rights pursuant to the Merger Agreement. It is
a condition to the consummation of the Merger that there are no proceedings
pending or threatened against the Partnership, Brookline or Boston Sub which are
reasonably likely to have a material adverse effect on the Partnership and its
affiliates, taken as a whole, or which involve the validity of any amount
payable in respect of any outstanding security of, interest in or claim of any
member of the Cablevision Group or the GP Group against the Partnership,
Brookline or Boston Sub (see ' -- Certain Litigation' below for a description of
litigation that has been brought which challenges, among other matters, the
validity of amounts payable in respect of the Preferred Equity that could, if
not dismissed or settled, result in a failure of such condition). In addition,
the Merger will not be consummated if, prior to the consummation of the
Incorporation, Cablevision determines that the Incorporation or Merger is not in
the best interests of Cablevision's public stockholders or the General Partners
determine that the Incorporation or Merger is not in the best interests of the
unaffiliated Limited Partners and the Partnership. See 'Description of the
Merger -- Conditions to the Merger' and ' -- Waiver and Amendment; Termination.'
Appraisal Rights. The Partnership is a Massachusetts limited partnership
and neither the Uniform Limited Partnership Act of the Commonwealth of
Massachusetts nor the Partnership Agreement provides the Limited Partners any
right to dissent from the Merger and receive payment for such Limited Partners'
Units pursuant to an independent appraisal. Nevertheless, in connection with the
proposed Transactions, Cablevision has agreed that, upon consummation of the
Merger, dissenting Limited Partners will have the right to receive compensation
for their Units based upon an appraisal performed by a qualified appraiser
unaffiliated with Cablevision and the General Partners. The Merger Agreement
provides that the value of the Units will be determined by the appraiser based
upon the value of the assets of the Partnership immediately prior to the Merger
(and without giving consideration to any expectancy of the Merger), less the
liabilities of Boston Sub and any remaining liabilities of the Partnership and
less all prior claims to the assets of the Partnership (including Preferred
Equity Interests), in each case as of the date of and immediately prior to the
Merger. The appraised value will not give effect to any of the reductions in the
Preferred Equity Interests agreed to by Cablevision Finance in connection with
the Transactions (other than certain limited reductions agreed to in connection
with the Incorporation) and will instead deduct the full contractual amount of
unpaid cumulative distributions on the Preferred Equity in determining the
appraised value of the Units. Accordingly, the General Partners believe that the
appraised value will be less, and perhaps substantially less, than the value of
the Cablevision Class A Common Stock provided for in the
19
<PAGE>
Liquidation for Limited Partners that do not exercise their appraisal rights. It
is a condition to the Merger that holders of no more than 200 Units seek an
appraisal of their Units. FAILURE OF A LIMITED PARTNER TO STRICTLY ADHERE TO THE
APPRAISAL PROCEDURES SET FORTH IN THE MERGER AGREEMENT WILL RESULT IN SUCH
LIMITED PARTNER LOSING SUCH APPRAISAL RIGHTS. See 'Description of the
Merger -- Appraisal Rights' and Annex VI to the Merger Agreement, a copy of
which is attached as Appendix B to this Consent Solicitation
Statement/Prospectus.
Stock Exchange Listing. Cablevision Class A Common Stock is listed on the
ASE. It is a condition to consummation of the Merger that the Cablevision Class
A Common Stock to be issued to the Partnership pursuant to the Merger Agreement
be approved for listing on the ASE subject to official notice of issuance.
BACKGROUND OF THE TRANSACTIONS
When the Partnership was formed, one of its primary objectives was to
provide cash distributions to the Limited and General Partners. However, for the
reasons described under 'The Transactions -- Background of the Transactions,'
the Partnership has been unable to make any cash distributions to its Partners
and does not believe it is likely that any cash distributions will be made in
the foreseeable future. Moreover, because of the lack of any trading market for
the Units (see 'Limited Market for Units; Distributions'), Limited Partners who
desire liquidity in their investment in the Partnership may have no practical
means of disposing of their Units.
From 1987 through the end of 1989, Cablevision and the General Partners
periodically engaged in informal discussions and negotiations concerning the
possible sale of the Systems to Cablevision for cash. Cablevision was interested
in pursuing these discussions because of its belief that an acquisition of the
Systems would fit well with its business plan and strategy, its desire to derive
a return of its investments in the Partnership described under 'The
Transactions -- Background of the Transactions,' and its desire to alleviate
certain potential conflicts that could arise between the Partnership and
Cablevision because of Dolan's control relationship with both entities, from the
use of Cablevision's personnel to manage the Related Partnerships' businesses
and in connection with the negotiation of pricing of programming services
purchased by the Partnership from Cablevision affiliates. The General Partners
were interested in pursuing discussions with Cablevision because of their desire
to provide the Limited Partners with more liquidity than they have in respect of
their current investments in the Partnership, their desire to provide affiliates
of the General Partners with a return of their investment in the Partnership and
their desire to alleviate the potential conflicts referred to above. These
discussions and negotiations, however, did not produce a definitive agreement
for the sale of the Systems to Cablevision because the General Partners and
Cablevision were unable to agree on a price which would be sufficient to return
to the Limited Partners a substantial portion of their original investment in
the Partnership, a condition the General Partners wanted satisfied before they
would recommend a transaction to the unaffiliated Limited Partners. In late
1989, negotiations concerning a potential cash transaction ended.
The General Partners and Cablevision continued thereafter to discuss
informally from time to time various alternative structures for a possible
transaction between the Partnership and Cablevision. In 1992, the parties began
discussing a structure involving Cablevision's purchase of the Systems using
shares of Cablevision Class A Common Stock for a significant portion of the
consideration to be paid in such transaction, thereby increasing the aggregate
amount Cablevision would be willing to pay, while still providing unaffiliated
Limited Partners seeking liquidity with publicly-traded securities. The General
Partners proposed the structure involving the Incorporation followed by the
Merger and the Liquidation as an alternative that would enable the Partnership
to receive shares of Cablevision Class A Common Stock in a transaction that they
believe more likely than not would be viewed as tax-free. In connection with
these discussions, the General Partners and Cablevision recognized that
reductions in the aggregate amounts payable by the Partnership in respect of the
Preferred Equity Interests would be required in order to increase the amount of
consideration distributable to the unaffiliated Limited Partners to a level that
the General Partners considered fair and necessary to induce the Limited
20
<PAGE>
Partners to approve the Transactions. See 'Description of the
Merger -- Determination of Allocation of Consideration,' ' -- Consideration to
be Received by Affiliates' and 'The Transactions -- Background of the
Transactions.'
REASONS FOR AND ALTERNATIVES TO THE TRANSACTIONS
The General Partners believe that the Incorporation will facilitate the
Merger (or if the Merger is not approved, a future tax-free transaction). See
'The Transactions -- Background of the Transactions' and 'Description of the
Incorporation -- The Incorporation.' The Incorporation is a condition to the
Merger. The General Partners are proposing the Merger because they believe that
(i) the consideration to be received by the unaffiliated Limited Partners is
fair to such Limited Partners, (ii) it is unlikely that Limited Partners will
receive any cash distributions from the Partnership in the foreseeable future
because the Partnership's cash flow will not be sufficient to operate the
Systems, service outstanding indebtedness and pay prior claims for the
foreseeable future (see 'Cablevision of Boston -- Management Projections') and
(iii) because existing Affiliate Claims and Preferred Equity interests continue
to accrue interest and distributions at rates of between 9% and 15% and
management fees equal to 3 1/2% of gross revenues continue to accrue, it is
unlikely that the consideration that Limited Partners would receive from any
sale of the Systems in the foreseeable future, if such a sale could be
structured and consummated, would exceed the value to be received by them in the
Transactions. The Merger is also being proposed because it will provide the
unaffiliated Limited Partners with a more liquid security than their current
investment in the Partnership by giving them the opportunity to receive a
distribution of publicly-traded shares of Cablevision Class A Common Stock in
liquidation of their interests in the Partnership with a market value (based on
the Average Cablevision Stock Price) sufficient to return to such Limited
Partners approximately 100% of the amounts they had originally invested in the
Partnership. In addition, the General Partners believe that it is more likely
than not that most Limited Partners will not recognize any net amount of taxable
income as a result of the consummation of the Transactions and the Liquidation.
Since 1987, the General Partners have engaged in periodic discussions to sell
the Systems to Cablevision in order to provide liquidity to Limited Partners.
The General Partners decided to enter into the Transactions at this time because
they were able to structure a transaction that would provide liquidity to
Limited Partners at a price the General Partners believed, based on such price
and the factors discussed above in this paragraph and under ' -- Recommendations
of the General Partners' below, was desirable and fair from the perspective of
all relevant parties. See 'The Transactions -- Reasons for and Alternatives to
the Transactions,' ' -- Risks that Neither Transaction is Consummated,'
' -- Background of the Transactions' and 'Description of the
Merger -- Determination of Allocation of Consideration.' As described more fully
under 'The Transactions -- Interests of Certain Persons in the Transactions;
Conflicts of Interest,' the General Partners and their affiliates (including
Cablevision) will receive substantial benefits as a result of the Transactions.
Since the inception of the Partnership, the General Partners and their
affiliates, other than Cablevision and its subsidiaries, have been responsible
for the management of the Partnership and have invested a total of approximately
$4.7 million in cash in the Partnership, as well as the provisional license for
the Boston System. In the Transactions they will receive cash and Cablevision
Class A Common Stock aggregating approximately $20.1 million (calculated as of
June 30, 1995).
The General Partners considered two primary alternatives to the
Transactions: (i) a sale of the Systems to a third party other than Cablevision
followed by a liquidation of the Partnership and (ii) the continuation of the
Partnership's current business and ownership structure. The General Partners did
not consider such alternatives to be as attractive to the Partnership and the
Limited Partners as the Transactions for the reasons set forth under 'The
Transactions -- Reasons for and Alternatives to the Transactions.'
RECOMMENDATIONS OF THE GENERAL PARTNERS
The General Partners have reviewed and considered the terms and conditions
of each of the Transactions, have unanimously approved each of the Transactions
and believe that each of the
21
<PAGE>
Transactions is fair to and in the best interests of the Limited Partners who
are not affiliated with the General Partners. THE GENERAL PARTNERS RECOMMEND
THAT THE LIMITED PARTNERS CONSENT TO AND APPROVE BOTH THE INCORPORATION AND THE
MERGER.
In reaching the conclusion that each of the Transactions is fair to and in
the best interests of the Limited Partners who are not affiliated with the
General Partners, the General Partners considered a number of factors, including
the following factors that were given the most weight by the General Partners:
(i) the opinion of PaineWebber, financial advisor to the General Partners,
discussed under 'The Transactions -- Fairness Opinion Received by the General
Partners -- Opinion of PaineWebber,' that the consideration to be received by
the unaffiliated Limited Partners in the Liquidation is fair, from a financial
point of view, to the unaffiliated Limited Partners, (ii) the expected market
value of the Cablevision Class A Common Stock to be distributed to the Limited
Partners in connection with the Liquidation which will return to the
unaffiliated Limited Partners approximately 100% of the amounts they have
invested in the Partnership, (iii) the existence of a public trading market for
the Cablevision Class A Common Stock, which should provide Limited Partners who
so desire the ability to liquidate their investment in Cablevision Class A
Common Stock received in the Liquidation at a market price, (iv) the
Partnership's existing financial obligations, including the Partnership's
obligations to make payments in respect of indebtedness under its Loan Agreement
and Affiliate Claims and Preferred Equity Interests, and its current and
projected cash flows, which are set forth under 'Cablevision of
Boston -- Management Projections,' (v) the limited trading market for the Units
(see 'Limited Market for Units; Distributions'), which may prevent Limited
Partners who desire liquidity in their investment in the Partnership from having
any practical means of disposing of their Units, and (vi) the General Partners'
belief as to the value of the consideration to be received from Cablevision in
the Merger. In considering the factors set forth under clauses (ii), (iv) and
(vi) above, the General Partners considered the analysis of the uncertainties
regarding the validity of the Preferred Equity discussed under 'The
Transactions -- Background of the Transactions -- Uncertainties Regarding
Validity of the Preferred Equity.' Based on such analysis, the General Partners
concluded that the holders of the Preferred Equity would more likely than not be
entitled to at least $80 million in respect of such interests if,
hypothetically, the validity of the Preferred Equity were fully adjudicated and
the Partnership and Cablevision consummated the Merger and Liquidation,
substituting the adjudicated rights of the Preferred Equity for the
approximately $52.8 million (as of June 30, 1995) that Cablevision Finance has
agreed to receive in respect of the Preferred Equity Interests in the
Liquidation. Accordingly, the General Partners believe that Cablevision
Finance's agreement to forego unpaid cumulative distributions in respect of the
Preferred Equity is more likely than not worth at least $27.2 million to the
Partnership (reflecting the difference between $80 million and $52.8 million)
and that the value of the consideration to be received by the Partnership from
Cablevision in the Merger is at least $235 million. This minimum value of at
least $235 million is calculated as follows:
<TABLE>
<CAPTION>
AT JUNE 30, 1995
----------------------
(DOLLARS IN MILLIONS)
<S> <C>
Bank indebtedness to be paid by Cablevision................................................. $ 61.1
Subordinated debt, advances, management fees and interest to be paid or assumed in the
Merger.................................................................................... 55.7
Allocation to Limited Partners.............................................................. 40.0
Allocation to General Partners.............................................................. 0.4
Minimum estimated value of Preferred Equity................................................. 80.0(1)
-------
Total.................................................................................. $237.2
-------
-------
</TABLE>
- ------------
(1) The value of the Preferred Equity, as of June 30, 1995 (excluding
possibilities that the General Partners believe are remote), may be between
$50.3 million (assuming the holders of the Preferred Equity are determined
not to be entitled to any unpaid cumulative distributions thereon, an
outcome the General Partners believe is unlikely) and $168.0 million
(assuming the holders of the Preferred Equity are determined to be entitled
to all of the unpaid cumulative distributions thereon). See 'The
Transactions -- Background of the Transactions -- Uncertainties Concerning
the Preferred Equity.'
22
<PAGE>
A value of at least $235 million yields a multiple of at least 13 times the
estimated 1995 operating cash flow (operating income plus depreciation and
amortization and management fees) for the Systems and compares favorably with
recent sales prices for cable television systems. See 'The Transactions --
Recommendations of the General Partners; Fairness of the Transactions' for a
detailed discussion of the numerous other factors considered by the General
Partners in recommending the Transactions. That discussion also includes an
analysis of the potential negative factors taken into account by the General
Partners, including (a) the effect of the uncertainties relating to the
Preferred Equity on the General Partners' fairness analysis (including the
effect of such uncertainties on PaineWebber's fairness opinion, which assumes an
$80 million minimum value of the Preferred Equity and does not address the
fairness of the Merger and Liquidation in the event such assumption proved to be
incorrect) and (b) the fact that the General Partners, Cablevision and their
respective affiliates will receive a return of, and a return on, their
investments in the Partnership (all of which interests, other than partnership
interests of the General Partners, are senior to the interests of the Limited
Partners), including, in the case of the General Partners and their affiliates,
substantial cash payments, while the Limited Partners will receive only a return
of, and no return on, their investment in the form of Cablevision Class A Common
Stock.
FAIRNESS OPINION RECEIVED BY THE GENERAL PARTNERS
Prior to the General Partners' approval of the Merger and execution of the
Merger Agreement, the General Partners received the written opinion of
PaineWebber that, as of the date of such opinion, the consideration to be
received by the unaffiliated Limited Partners in the Liquidation is fair, from a
financial point of view, to such Limited Partners. The General Partners directed
PaineWebber to assume that the holders of the Preferred Equity would be entitled
to receive at least $80 million for their interests. This assumption, as well as
other assumptions of such opinion are discussed in 'The Transactions -- Fairness
Opinion Received by the General Partners -- Opinion of PaineWebber.' This
opinion was subsequently confirmed by PaineWebber in its written opinion, dated
October 17, 1995. LIMITED PARTNERS SHOULD READ PAINEWEBBER'S OPINION IN ITS
ENTIRETY. The full text of the written opinion of PaineWebber is attached as
Appendix A hereto.
CERTAIN LITIGATION
On October 5, 1994, following the filing of preliminary consent
solicitation materials with the Securities and Exchange Commission that
discussed the uncertainty with respect to the Preferred Equity, the General
Partners, Cablevision, the Partnership and other affiliated entities were named
as defendants in a purported class action filed in Massachusetts Superior Court
by a Limited Partner on behalf of holders of Units. The action alleges breaches
of fiduciary duty against certain defendants and aiding and abetting breaches of
fiduciary duty by other defendants in connection with the issuance of the
Preferred Equity allegedly in violation of the Partnership Agreement and in
connection with the negotiation of the Merger and Liquidation, among other
things (i) a declaration that the defendants have breached their fiduciary
duties to the Limited Partners or aided and abetted such breaches of fiduciary
duties, (ii) a declaration that it would be a breach of fiduciary duty for the
defendants to cause the Partnership to pay themselves any distributions on the
Preferred Equity because the Preferred Equity was unlawfully issued to
defendants, (iii) an order that the defendants provide an accounting to the
Partnership and Limited Partners for the Partnership's operations prior to any
Liquidation, (iv) a preliminary and permanent injunction against consummation of
the Merger and Liquidation, (v) rescission of the Merger and Liquidation if they
are consummated or rescissory damages if they cannot be rescinded, and (vi)
compensatory damages. All defendants have answered the complaint and intend to
defend the action vigorously. Unless such action is dismissed or settled, the
conditions to the Incorporation and Merger will not be satisfied. See 'The
Transactions -- Certain Litigation' for a full discussion of the Lawsuit and its
impact.
23
<PAGE>
THE CONSENT SOLICITATIONS
Pursuant to the terms of the Partnership Agreement, each of the
Transactions requires the consent and approval of a Majority of the Limited
Partners.
GENERAL
Consents to the Incorporation and Merger are being solicited by and on
behalf of the Partnership. In addition to the solicitations by use of the mails,
consents may be solicited by the General Partners and the directors, officers
and employees of their affiliates, and by the management of the Partnership, in
person or by telephone, telecopy, telegraph or other means of communication.
D.F. King & Co., Inc. has been retained by the Partnership to assist in the
solicitation of consents for a fee of $5,000 plus an additional fee for each
telephonic communication with Limited Partners plus reasonable costs and
expenses. See 'Fees and Expenses.'
THE INCORPORATION SOLICITATION
Limited Partners are being asked to consent to and approve the
Incorporation by completing, signing and dating the BLUE consent card
accompanying this Consent Solicitation Statement/Prospectus (the 'Incorporation
Consent') and delivering the Incorporation Consent to Bank of Boston, the agent
for the consent solicitation (the 'Agent'), no later than 5:00 p.m., New York
time, on November 21, 1995 (as extended from time to time, the 'Incorporation
Expiration Date'), or by requesting their nominees to do the same on their
behalf. The solicitation for the Incorporation will commence on October 20,
1995, and will be completed on the Incorporation Expiration Date. The contents
of the executed Incorporation Consents will be counted immediately thereafter.
The General Partners anticipate that the results will be announced on the day
following the Incorporation Expiration Date and that, if the Incorporation is
approved, it will be consummated within two days of such approval, provided that
the conditions to the Incorporation are satisfied. Completed Incorporation
Consents should be returned in the enclosed, stamped BLUE envelope, or hand
delivered to the Agent at Proxy Department, Bank of Boston, P.O. Box 1628,
Boston, Massachusetts 02105-9903. Any Incorporation Consent may be revoked by
the person giving such Incorporation Consent or by a subsequent holder of the
Units for which an Incorporation Consent was given at any time prior to 5:00
p.m., New York time, on the Incorporation Expiration Date, by delivery to the
Agent of a written notice of revocation or a changed Incorporation Consent
bearing a date later than the date of the prior Incorporation Consent delivered
to the Agent. FAILURE TO EXECUTE AND DELIVER AN INCORPORATION CONSENT PRIOR TO
THE INCORPORATION EXPIRATION DATE WILL HAVE THE EFFECT OF A VOTE AGAINST THE
INCORPORATION. The Merger is conditioned upon the Incorporation and,
accordingly, failure to vote for the Incorporation could result in the Merger
not being consummated. The Incorporation is not conditioned upon the Merger.
THE MERGER SOLICITATION
Limited Partners are being asked to consent to and approve the Merger by
completing, signing and dating the WHITE consent card accompanying this Consent
Solicitation Statement/Prospectus (the 'Merger Consent') and delivering the
Merger Consent to the Agent no later than 5:00 p.m., New York time, on November
28, 1995 (as extended from time to time, the 'Merger Expiration Date'), or by
requesting their nominees to do the same on their behalf. The solicitation for
the Merger will commence on October 20, 1995, and will be completed on the
Merger Expiration Date. The contents of the executed Merger Consents will be
counted immediately thereafter. The General Partners anticipate that the results
will be announced on the day following the Merger Expiration Date and that, if
approved, the Merger will be consummated promptly following such approval,
provided that the conditions to the Merger have been satisfied. Completed Merger
Consents should be returned in the enclosed, stamped WHITE envelope, or hand
delivered to the Agent at Proxy Department, Bank of Boston, P.O. Box 1628,
Boston, Massachusetts 02105-9903. Any Merger Consent may be revoked by the
24
<PAGE>
person giving such Merger Consent or by a subsequent holder of the Units for
which a Merger Consent was given at any time prior to 5:00 p.m., New York time,
on the Merger Expiration Date, by delivery to the Agent of a written notice of
revocation or a changed Merger Consent bearing a date later than the date of the
prior Merger Consent delivered to the Agent. FAILURE TO EXECUTE AND DELIVER A
MERGER CONSENT PRIOR TO THE MERGER EXPIRATION DATE WILL HAVE THE EFFECT OF A
VOTE AGAINST THE MERGER. The Merger is conditioned upon the Incorporation and,
accordingly, failure to vote for the Incorporation could result in the Merger
not being consummated.
All executed consents in respect of the Merger solicitation that are
delivered to the Agent will be held in escrow by the Agent pursuant to an escrow
arrangement. Under such arrangement, the contents of such executed Merger
Consents will not be disclosed or released to the General Partners or their
affiliates, including Cablevision, or the Limited Partners, until such time as
the Incorporation is approved and consummated.
As of the date of this Consent Solicitation Statement/Prospectus, there
were 4,025 Units outstanding, including an aggregate of 300 Units held by a
subsidiary and certain directors and officers of Cablevision, and there were a
total of 640 holders of Units. Accordingly, the consents of Limited Partners
(other than such Cablevision subsidiary and such directors of Cablevision)
holding at least 1,863 Units are required to consent to and to approve each of
the Transactions.
COMPARISON OF CABLEVISION
CLASS A COMMON STOCK WITH UNITS
If the Merger is approved and consummated, the Partnership will receive
shares of Cablevision Class A Common Stock and the Limited Partners will receive
a portion of such shares in the Liquidation. The effect of the Merger,
therefore, is to convert the Units into shares of Cablevision Class A Common
Stock. An investment in Units of limited partnership interest in the Partnership
is fundamentally different from an investment in Cablevision Class A Common
Stock. These differences include a change from an investment in a partnership
with a limited life to an investment in a corporation with an infinite life, as
well as significant modifications to the rights of the Limited Partners with
respect to dividends and distributions, voting, meetings of holders, dissolution
and liquidation, and access to investor lists and other books and records. Also,
there will be changes with respect to the management of the entity, taxation of
the entity and its investors, marketability and transferability of the interests
and the compensation of controlling entities. All of these changes are discussed
under 'Comparison of Cablevision Class A Common Stock with Units.' The
Partnership only owns and operates the Systems, whereas an investment in
Cablevision involves an investment in an entity which operates cable television
systems in 19 states as of June 30, 1995 with substantially more subscribers.
Cablevision also has ownership interests in companies that produce and
distribute national and regional programming and advertising sales services.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Transactions involve numerous federal income tax consequences to
holders of Units. For a complete discussion describing these consequences, see
'Certain Federal Income Tax Consequences.'
Currently, the Partnership is organized as a limited partnership and
treated as a partnership for federal income tax purposes. As a partnership, the
Partnership is not subject to taxation as an entity. Instead, each Partner is
subject to tax on his or her distributive share of income, gain, loss, deduction
and credit realized by the Partnership. Although the matter is not free from
doubt, in the opinion of Debevoise & Plimpton, special counsel to the General
Partners, gain or loss will be recognized by the Limited Partners upon the
Incorporation assuming that the Merger is not consummated only to the extent
that (i) liabilities of the Partnership assumed by Boston Sub exceed the
Partnership's basis in its Assets and (ii) the Limited Partners are deemed,
under partnership tax accounting principles, to have been relieved of their
share of liabilities of the Partnership in an amount in excess of the Limited
Partners' basis in their interests in the Partnership. The Partnership estimates
that the gain and ordinary
25
<PAGE>
income that should be recognized by an unaffiliated Limited Partner with respect
to a Unit as a result of the Incorporation will be approximately equal to the
Available Suspended Losses for such Unit as of the end of 1993, adjusted for the
operating results of the Partnership after 1993. Available Suspended Losses were
$21,289 per Exchange Unit (original limited partnership units of the
Partnership, after a six-for-one split thereof) and $13,209 per New Unit
(limited partnership units issued in 1983) as of the end of 1993. See 'Certain
Federal Income Tax Consequences -- Incorporation -- Consequences to Limited
Partners.' Accordingly, based on the above estimates, a Limited Partner will not
recognize any net amount of taxable income as a result of the Incorporation
(i.e., there should be no excess of his or her projected income over his or her
Available Suspended Losses). Limited Partners will not receive cash
distributions for the payment of taxes, if any.
In the opinion of Sullivan & Cromwell, special counsel to Cablevision, and
Debevoise & Plimpton, special counsel to the General Partners, it is more likely
than not that if both the Incorporation and the Merger are consummated neither
the Incorporation nor the Merger will result in the recognition of gain by any
Limited Partner except as described in the previous paragraph. However, in the
event that the occurrence of the Merger causes the Incorporation to be held to
be a fully taxable transaction or the Merger itself is characterized as a
taxable transaction, the Limited Partners would recognize such gain in an amount
equal to their proportionate share of the excess of the consideration received
by the Partnership from the disposition of its Assets over its basis in such
Assets. The amount of such gain would be reduced by the amount of gain
recognized upon the Incorporation as described in the preceding paragraph. Any
net additional gain recognized by the Partnership should be allocated among the
Limited Partners and the General Partners generally in an amount equal to the
market value of Cablevision Class A Common Stock received by such Partners
measured on the date of the Merger and the balance of such net gain should be
allocated to the holders of the Preferred Equity. The Partnership estimates that
any such additional gain would be approximately $10,000 per Unit, depending upon
the difference between the Average Cablevision Stock Price and the market price
of the Cablevision Class A Common Stock on the date of the Merger.
The Liquidation of the Partnership is not a taxable event for the
Partnership and, assuming an original Partner receives only Cablevision Class A
Common Stock upon such dissolution and Liquidation, such Partner will not
recognize any gain or loss on the dissolution and liquidation of the
Partnership.
In the opinion of Debevoise & Plimpton, special counsel to the General
Partners, the federal income tax consequences to a Limited Partner who exercises
appraisal rights (or whose appraisal rights are perfected at the time of the
Merger but are later withdrawn or lost) are uncertain. The tax result may be the
same as for all other Limited Partners. However, it is possible that such a
Limited Partner will be viewed as having exchanged his or her Units for shares
of Cablevision Class A Common Stock. Such an exchange would be a taxable
exchange in which gain would be recognized to the extent that the sum of the
fair market value of Cablevision Class A Common Stock received by such a Limited
Partner plus the amount of the debt of the Partnership attributable to such
Limited Partner's interest in the Partnership exceeded the Limited Partner's
basis in his or her Units. Any such gains will be offset to the extent of such
Limited Partner's previously suspended at-risk losses.
There can be no assurance that the IRS will not challenge one or more of
the tax consequences of the Transactions and Liquidation described herein, as no
ruling from the IRS has been or will be sought as to any such tax consequences.
ACCORDINGLY, EACH LIMITED PARTNER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO SUCH LIMITED PARTNER'S OWN TAX SITUATION, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND ANY
POSSIBLE CHANGES IN THE TAX LAWS AFTER THE DATE HEREOF.
26
<PAGE>
ORGANIZATIONAL CHARTS
The following chart summarizes the existing relationship among the
Partnership, Dolan, Cablevision, their affiliates and other related entities.
[GRAPHIC REPRESENTATION]
Chart summarizing the existing ownership and business relationships among the
Partnership, Dolan, Cablevision, their affiliates and other related entities.
27
<PAGE>
The following chart summarizes the relevant aspects of the organizational
structure of Cablevision, including Boston Sub, after consummation of the
Transactions and Liquidation.
[GRAPHIC REPRESENTATION]
Chart summarizing the relevant aspects of Cablevision, including Boston Sub,
after consummation of the Transactions and liquidation, showing that (i) other
Stockholders including unaffiliated former Limited Partners of the Partnership
hold an interest in Cablevision, (ii) Dolan and trusts for Dolan family members
have 90+% voting control and 50+% percent of equity interest in Cablevision,
(iii) Cablevision wholly owns Cablevision Systems Brookline Corporation and
Boston Sub (including Boston System), (iv) Cablevision Systems Brookline
Corporation is the managing general partner in Brookline and (v) Boston Sub
(including Boston System) has a 99% limited partnership interest in the
Brookline.
28
<PAGE>
THE PARTNERSHIP
The Partnership and its affiliate, Cablevision of Brookline Limited
Partnership, operate cable television systems in the City of Boston and the Town
of Brookline, Massachusetts. The Partnership was organized in 1981 to construct,
own and operate the Boston System. In December 1982, the Partnership was issued
a nonexclusive franchise by the City of Boston for such purpose which expires in
1997 (the 'Boston License'). The General Partners of the Partnership are Dolan
and CSBC, who together hold a 1% pre-Payout (and 18.8% post-Payout) partnership
interest. The Limited Partners hold a 99% pre-Payout (and 48.0% post-Payout)
partnership interest in the Partnership. Cablevision and Cablevision Finance own
the remaining 33.2% post-Payout partnership interest (of which 20% is
attributable to Cablevision Finance's Preferred Equity). For information
concerning the ownership of the post-Payout interests in the Partnership, see
'Description of the Merger -- Liquidation of the Partnership Following the
Merger.'
Brookline was organized in 1983 and acquired a nonexclusive franchise in
the Town of Brookline which expires in 1997 (the 'Brookline License') to
construct, own and operate the Brookline System. Dolan and CSBrC are the general
partners of Brookline (who together hold a 1% general partnership interest). The
remaining 99% limited partnership interest in Brookline is held by the
Partnership.
The Related Partnerships provide various levels of service to their
subscribers in packaged and non-packaged forms. The basic service carries most
local broadcast television stations, public, educational and governmental
channels and may include locally-originated programming. Subscribers may
purchase programming services in addition to basic service. An expanded basic
service is available for an additional fee. The Related Partnerships also offer
syndicated pay television services, such as American Movie Classics, Bravo,
Cinemax, Home Box Office, Showtime and The Movie Channel which are offered on an
individual basis and in packages for which subscribers pay a separate monthly
fee, as well as individual programs offered on a pay-per-view basis.
As of June 30, 1995, the Related Partnerships had approximately 140,000
subscribers. The Related Partnerships' revenue per subscriber and ratio of
premium service units to basic subscribers for June 1995 were $34.81 and 1.1:1,
respectively. In calculating revenue per subscriber, the Related Partnerships
include only recurring service revenues and exclude installation charges and
certain other revenues such as advertising, pay-per-view and home shopping
revenues.
CABLEVISION
GENERAL. Cablevision is one of the largest operators of cable television
systems in the United States, with approximately 2,753,000 subscribers in 19
states as of June 30, 1995, based on the number of basic subscribers in systems
which Cablevision manages and which it owns or in which it has investments
(including the Related Partnerships). Cablevision also has ownership interests
in companies that produce and distribute national and regional programming
services and provide advertising sales services for the cable television
industry.
CABLE TELEVISION. The cable television systems that are majority owned and
managed by Cablevision ('Cablevision's cable television systems') served
approximately 1,866,000 subscribers as of June 30, 1995 in New York, Ohio,
Connecticut, New Jersey, Michigan and Massachusetts. In addition, Cablevision
has non-majority investments in and manages cable television systems which
served approximately 887,000 subscribers as of June 30, 1995 in Alabama,
Arkansas, Florida, Illinois, Kansas, Kentucky, Maine, Massachusetts,
Mississippi, Missouri, New Jersey, New York, North Carolina, Oklahoma,
Pennsylvania and Tennessee. Cablevision's cable television systems have
generally been characterized by relatively high revenues per subscriber ($37.14
for June 1995) and ratios of premium service units to basic subscribers (1.7:1
for June 1995). In calculating revenue per subscriber, Cablevision includes only
recurring service revenues and excludes installation charges and certain other
revenues such as advertising, pay-per-view and home shopping revenues.
PROGRAMMING SERVICES. Cablevision conducts its programming activities
through Rainbow Programming, its wholly-owned subsidiary, and through
subsidiaries of Rainbow Programming in
29
<PAGE>
partnership with certain unaffiliated entities, including National Broadcasting
Company, Inc. ('NBC') and Liberty Media Corporation ('Liberty'). Rainbow
Programming's businesses include eight regional SportsChannel services, four
national entertainment services (American Movie Classics Company ('AMCC'), Bravo
Network ('Bravo'), MuchMusic ('MM') and the Independent Film Channel ('IFC')),
News 12 Long Island (a regional news service serving Long Island) and the
national backdrop sports services of Prime SportsChannel Networks ('Prime
SportsChannel'). Rainbow Programming also owns an interest in Madison Square
Garden Corporation (discussed below). Rainbow Programming's SportsChannel
services provide regional sports programming to the New York, Philadelphia, New
England, Chicago, Cincinnati, Cleveland, San Francisco and Florida areas. AMCC
is a national program service featuring classic, unedited and non-colorized
films from the 1930s through the 1970s. Bravo is a national program service
offering international films and performing arts programs, including jazz,
dance, classical music, opera and theatrical programs. MM is a Canadian music
service featuring music primarily from Canadian artists. IFC is a national
program service that airs independent films made outside the traditional
Hollywood system. See 'Business -- Programming Operations -- General' in the
Cablevision Form 10-K.
In July 1994, Rainbow Programming purchased Liberty's 50% interest in AMCC
for a purchase price of approximately $181.0 million pursuant to a buy-sell
procedure set forth in the Partnership Agreement of AMCC. In July 1995, Rainbow
Programming purchased NBC's interest in SportsChannel (New York) Associates and
Rainbow News 12 Company for an aggregate purchase price of approximately $95.5
million, and, effective as of such date, consolidated the results of operations
of SportsChannel (New York) Associates and Rainbow News 12 Company with those of
the Company. See 'Business -- Programming Services' in the Cablevision Form
10-K.
On March 10, 1995, MSG Holdings, L.P. ('Holdings'), a partnership between a
subsidiary of Rainbow Programming and a subsidiary of ITT Corporation, acquired
Madison Square Garden Corporation ('MSG') in a transaction in which MSG was
merged with and into Holdings. MSG owns the Madison Square Garden Arena and the
adjoining Paramount Theater, the New York Rangers professional hockey team, the
New York Knicks professional basketball team and the Madison Square Garden
Network, a sports programming network with over five million subscribers. See
'Cablevision Systems Corporation -- Business -- Programming Services' in the
Cablevision Form 10-K.
ADVERTISING SERVICES. Rainbow Advertising sells advertising time to
national, regional and local advertisers on behalf of Cablevision's cable
television systems and the SportsChannel and News 12 programming services, as
well as on behalf of unaffiliated cable television systems.
CABLE REGULATION
Both the Partnership and Cablevision are subject to substantial
governmental regulation. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the '1992 Cable
Act'). The 1992 Cable Act, together with regulations adopted by the FCC
thereunder, represents a significant change in the regulatory framework under
which cable television systems operate. See 'Cable Regulation' and 'Cablevision
of Boston -- Management's Discussion and Analysis of Financial Condition and
Results of Operations' herein, and 'Management's Discussion and
Analysis -- Recent Cable Regulatory Developments,' 'Business -- Cable Television
Operations -- Competition' and 'Business -- Cable Television
Operations -- Regulation' in the Cablevision Form 10-K.
LIMITED PARTNERS' NAMES AND ADDRESSES
The Partnership will furnish to any Limited Partner, upon oral or written
request, a current alphabetized listing of the names and addresses of all
Partners. Limited Partners also have the right under the Partnership Agreement
and under state law to inspect certain books and records of the Partnership at
all reasonable times. Requests should be directed to the Partnership, c/o
Cablevision Systems Corporation, Attention: Robert S. Lemle, at One Media
Crossways, Woodbury, New York 11797; telephone: (516) 364-8450.
30
<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION
RELATED PARTNERSHIPS
The following table sets forth selected financial data for the Related
Partnerships' for the six months ended June 30, 1995 and 1994 and the past five
fiscal years. The historical consolidated statement of operations data and
balance sheet data (except for book value per limited partnership unit) for each
year ended December 31 and as of December 31 in each year in the five-year
period ended December 31, 1994 included in the following selected financial data
have been derived from the Partnership Consolidated Financial Statements,
audited by KPMG Peat Marwick LLP, independent public accountants. The historical
consolidated statement of operations data and balance sheet data for the periods
ended June 30, 1995 and 1994 and as of June 30, 1995, respectively, included in
the following selected financial data have not been audited, but in the opinion
of the General Partners reflect all adjustments necessary for the fair
presentation of such data for such interim periods. The results of operations
for the six-month period ended June 30, 1995 for the Related Partnerships are
not necessarily indicative of the results of operations for the full year. The
selected financial data presented below should be read in conjunction with the
Partnership's Consolidated Financial Statements and 'Cablevision of
Boston -- Management's Discussion and Analysis of Financial Condition and
Results of Operations' in the Partnership's Form 10-Q for the fiscal quarter
ended June 30, 1995 and the Partnership Form 10-K.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------- YEAR ENDED DECEMBER 31,
JUNE 30 JUNE 30, --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues............................... $ 30,671 $ 29,713 $ 59,239 $ 58,081 $ 53,948 $ 50,964 $ 47,893
Technical, selling, general and
administrative expense................... 23,844 21,904 43,868 43,348 39,345 37,150 35,429
Depreciation and amortization.............. 4,421 4,022 8,428 12,533 18,451 18,003 17,696
-------- -------- -------- -------- -------- -------- --------
Operating profit (loss).................. 2,406 3,787 6,943 2,200 (3,848) (4,189) (5,232)
Other expense:
Interest expense, net.................... (5,235) (3,923) (8,739) (8,742) (8,970) (10,381) (11,803)
Miscellaneous, net....................... (89) (92) (307) (250) (180) (791) (30)
-------- -------- -------- -------- -------- -------- --------
Loss before extraordinary item............. (2,918) (228) (2,103) (6,792) (12,998) (15,361) (17,065)
Extraordinary item: Gain on forgiveness of
debt..................................... -- -- -- -- -- 13,220 --
-------- -------- -------- -------- -------- -------- --------
Net loss................................... $ (2,918) $ (228) $ (2,103) $ (6,792) $(12,998) $ (2,141) $(17,065)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net loss per limited partnership unit
(4,025 units)............................ $ (718) $ (56) $ (517) $ (1,671) $ (3,197) $ (527) $ (4,197)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Book value per limited partnership unit.... $(34,565) $(33,386) $(33,847) $(33,330) $(31,660) $(28,463) $(27,936)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
OTHER OPERATING DATA:
Cash flows from operations................. $ 5,420 $ 6,766 $ 12,931 $ 10,454 $ 8,343 $ 9,168 $ 6,858
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Cash flows from investing activities....... $ (2,877) $ (2,170) $ (7,055) $ (7,825) $ (9,448) $ (8,959) $ (9,209)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Cash flows from financing activities....... $ (2,172) $ (3,780) $ (4,010) $ (2,145) $ 1,264 $ 556 $ (2,520)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Operating cash flow(1)..................... $ 6,827 $ 7,809 $ 15,371 $ 14,733 $ 14,603 $ 13,814 $ 12,464
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
JUNE 30, -------------------------------------------------------------
1995 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 5,967 $ 5,801 $ 4,845 $ 4,762 $ 4,395 $ 3,439
Net increase in unrestricted cash and cash
equivalents.................................. 371 1,866 484 159 765 169
Total assets................................... 47,097 48,688 47,567 50,877 59,198 68,574
Total liabilities.............................. 137,678 136,351 133,127 129,645 124,968 132,203
Total debt..................................... 86,443 88,580 91,765 93,820 91,918 90,233
Preferred equity contributions(2).............. 50,300 50,300 50,300 50,300 50,300 50,300
Partners' deficiency:
General Partners............................. $ (1,756) $ (1,727) $ (1,706) $ (1,638) $ (1,508) $ (1,487)
Limited Partners............................. (139,125) (136,236) (134,154) (127,430) (114,562) (112,442)
--------- --------- --------- --------- --------- ---------
Total partners' deficiency................. $(140,881) $(137,963) $(135,860) $(129,068) $(116,070) $(113,929)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
STATISTICAL DATA:
Homes passed by cable(3)....................... 254,800 254,200 252,000 249,400 244,000 237,600
Basic service subscribers...................... 139,900 136,000 128,700 122,300 115,500 112,400
Basic penetration(4)........................... 54.9% 53.5% 51.1% 49.0% 47.3% 47.3%
Number of premium television units............. 162,100(5) 249,700 268,900 258,700 267,500 279,000
Average number of premium units per basic
subscriber................................... 1.1(5) 1.8 2.1 2.1 2.3 2.5
Average monthly revenue per basic
subscriber(6)................................ $ 34.81 $ 35.22 $ 36.81 $ 35.89 $ 35.93 $ 34.62
</TABLE>
FOOTNOTES
(1) Operating cash flow is defined as operating profit before depreciation and
amortization and is presented here to provide additional information about
the Partnership's ability to meet future debt service, capital expenditures
and working capital requirements. Operating cash flow should be considered
in addition to and not as a substitute for net income and cash flows as
indicators of financial performance and liquidity as reported in accordance
with generally accepted accounting principles.
(2) Amounts shown do not include accrued and unpaid distributions on the
Preferred Equity. See 'The Transactions -- Background of the Transactions.'
(3) Homes passed by cable is based upon homes actually marketed and does not
include multiple dwelling units passed by the cable plant that are not
connected to it.
(4) Basic penetration represents basic service subscribers at the end of the
period as a percentage of homes passed at the end of the period.
(5) Reflects primarily the reclassification of The Disney Channel subscribers to
non-premium units in May 1995.
(6) Based on recurring service revenues, excluding installation charges and
certain other revenues such as advertising, pay-per-view and home shopping
revenues, for the last month of the period, divided by average basic
subscribers for that month.
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<PAGE>
CABLEVISION
The historical consolidated statement of operations data (except for book
value per common share and cash dividends declared per common share) and balance
sheet data for each year ended December 31 and as of December 31 in each year in
the five-year period ended December 31, 1994, included in the following selected
financial data have been derived from the Cablevision Consolidated Financial
Statements, audited by KPMG Peat Marwick LLP, independent public accountants.
The historical consolidated statement of operations data and balance sheet data
for the periods ended and as of June 30, 1995 and 1994 included in the following
selected financial data have been derived from Cablevision financial statements
that have not been audited, but that, in the opinion of the management of
Cablevision, reflect all adjustments necessary for the fair presentation of such
data for the interim periods. The results of operations for the six-month period
ended June 30, 1995 are not necessarily indicative of the results of operations
for the full year although Cablevision expects to incur a substantial loss for
the year ending December 31, 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA(1):
Net revenues...................... $ 509,135 $ 368,177 $ 837,169 $ 666,724 $ 572,487 $ 603,272 $ 562,989
Operating expenses:
Technical....................... 193,243 134,640 302,885 241,877 204,449 213,059 202,850
Selling, general and
administrative................ 131,611 72,404 195,942 172,687 120,356 121,527 118,825
Restructuring charge............ -- 4,306(2) 4,306 (2) -- -- -- --
Depreciation and amortization... 159,537 110,095 271,343 194,904 168,538 215,326 216,288
--------- --------- --------- --------- --------- --------- ---------
Operating profit.................. 24,744 46,732 62,693 57,256 79,144 53,360 25,026
Other income (expense):
Interest expense, net........... (154,528) (118,094) (261,781) (230,327) (193,379) (257,189) (261,114)
Provision for preferential
payment to related party...... (2,800) (2,800) (5,600) (5,600) (2,662) -- --
Provision for loss on Olympics
venture....................... -- -- -- -- (50,000)(3) -- --
Loss on sale of preferred
stock......................... -- -- -- -- (20,000)(4) -- --
Write-off of deferred financing
costs......................... (2,888)(5) -- (9,884)(5) (1,044)(5) (12,284)(5) -- --
Loss on redemption of
debentures.................... -- -- (7,088)(5) -- -- -- --
Share of affiliates' net loss... (52,692) (34,257) (82,864) (61,017) (47,278) (23,780) (39,980)
Gain (loss) on sale of
programming interests, net.... -- -- -- (330) 7,053 15,505 --
Minority interest............... (4,276) -- (3,429) 3,000 -- -- --
Gain on sale of marketable
securities, net............... -- -- -- -- 733 5,806 --
Settlement of litigation and
related matters............... -- -- -- -- (5,655) (9,677) --
Transaction fees................ -- -- -- -- -- -- 14,759
Miscellaneous, net.............. (2,999) (3,432) (7,198) (8,720) (6,175) (11,224) (10,066)
--------- --------- --------- --------- --------- --------- ---------
Net loss.......................... (195,439) (111,851) (315,151) (246,782) (250,503) (227,199) (271,375)
Preferred dividend requirement.... (4,918) (2,054) (6,385) (885) (885) (4,464) (4,065)
--------- --------- --------- --------- --------- --------- ---------
Net loss applicable to common
shareholders.................... $(200,357) $(113,905) $(321,536) $(247,667) $(251,388) $(231,663) $(275,440)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per common share......... $ (8.45) $ (4.88) $ (13.72) $ (10.83) $ (11.17) $ (10.32) $ (12.36)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Average number of common shares
outstanding (in thousands)...... 23,710 23,323 23,444 22,859 22,512 22,446 22,290
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Cash dividends declared per common
share........................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Book value per common share....... $ (84.77) $ (64.52) $ (76.93) $ (64.61) $ (55.28) $ (41.49) $ (31.36)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
JUNE 30, ------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(1):
Total assets.......................... $2,254,868 $2,176,413 $1,309,444 $1,251,157 $1,475,672 $1,631,612
Total debt............................ 3,345,942 3,169,236 2,235,499 2,004,452 2,211,056 2,170,275
Cumulative redeemable preferred
stock(4)............................ -- -- -- -- 32,094 28,515
Stockholders' deficiency.............. (2,016,763) (1,818,535) (1,503,244) (1,250,248) (932,428) (702,448)
STATISTICAL DATA(1):
Homes passed(6)......................... 3,004,000 2,899,000 2,240,000 2,019,000 2,005,000 1,976,000
Basic service subscribers............... 1,866,000 1,768,000 1,379,000 1,262,000 1,372,000 1,326,000
Basic penetration(7).................... 62.1% 61.0% 61.5% 62.5% 68.4% 67.1%
Number of premium television units...... 3,223,000 3,208,000 3,003,000 2,802,000 2,326,000 2,401,000
Average number of premium units per
basic subscriber...................... 1.7 1.8 2.2 2.2 1.7 1.8
Average monthly revenue per basic
subscriber(8)......................... $ 37.14 $ 36.33 $ 36.59 $ 37.64 $ 34.43 $ 34.09
</TABLE>
FOOTNOTES
(1) The consolidated statement of operations, balance sheet and statistical data
reflect (i) the deconsolidation of A-R Cable Services, Inc. ('A-R Cable')
effective as of January 1, 1992, as a result of the restructuring of A-R
Cable, (ii) the acquisition of Cablevision of New York City ('Cablevision of
NYC'), effective as of July 10, 1992, and (iii) various acquisitions of
cable television systems and other businesses during the periods presented.
(See 'Business -- Cable Television Operations' in the Cablevision Form 10-K
and 'Cablevision Pro Forma Financial Information' herein.) Acquisitions made
by Cablevision during the periods presented were accounted for under the
purchase method of accounting and, accordingly, the acquisition costs were
allocated to the net assets acquired based on their fair value, except for
the acquisition of partnership interests in Cablevision of NYC from Mr.
Dolan and entities affiliated with him, which were recorded at Mr. Dolan's
and such entities' historical costs. Acquisitions are reflected in the
consolidated statement of operations, balance sheet and statistical data
from the time of acquisition. Certain reclassifications have been made to
the 1991 and 1990 financial statement amounts to conform to the 1992
presentation.
(2) Cablevision recorded a one-time charge in the first quarter of 1994 to
provide for employee severance and related costs, resulting from a
restructuring of its operations.
(3) In 1992, Cablevision recognized a $50.0 million loss in connection with
Rainbow Programming's commitment in respect of its venture with NBC relating
to the 1992 Summer Olympics, which Cablevision paid in January 1993.
(4) In connection with the 1992 V Cable Reorganization, Cablevision redeemed A-R
Cable's redeemable preferred stock on May 11, 1992, incurring a loss of $20
million.
(5) In connection with the 1992 V Cable Reorganization, Cablevision wrote off
approximately $7.5 million of deferred financing costs related to V Cable's
debt. Also, a portion of Cablevision's deferred financing costs of
approximately $4.8 million in 1992 and $1.0 million in 1993, related to the
replacement of bank debt with subordinated debt, were written off. In
October 1994, Cablevision entered into a new bank credit agreement and
redeemed $200 million of its reset debentures. The related deferred
financing costs and unamortized discount relating to each were written off
and approximately $2.0 million in redemption fees were incurred in
connection with the redemption of the reset debentures. In January 1995,
Rainbow Programing amended its credit agreement to refinance its existing
borrowings and to provide funds for the acquisition of SportsChannel (New
York) Associates and Rainbow News 12 Company, resulting in an approximately
$2.3 million write-off of deferred financing costs.
(6) Homes passed is based upon homes passed by cable actually marketed and does
not include multiple dwelling units passed by the cable plant that are not
connected to it.
(7) Basic penetration represents basic service subscribers at the end of the
period as a percentage of homes passed at the end of the period.
(8) Based on recurring service revenues, excluding installation charges and
certain other revenues such as advertising, pay-per-view and home shopping
revenues, for the last month of the period, divided by average basic
subscribers for that month.
34
<PAGE>
CABLEVISION CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following condensed pro forma consolidated balance sheet as of June 30,
1995 presents Cablevision's financial position as adjusted to give effect to the
Merger and the proposed transactions involving V Cable, Inc. ('V Cable') set
forth in the Cablevision Form 8-K (the 'Proposed V Cable Transactions'), as if
they had occurred as of that date. The following condensed pro forma
consolidated statement of operations for the year ended December 31, 1994
presents Cablevision's consolidated results of operations as adjusted to give
effect to (i) the acquisition (the 'AMCC Acquisition') of partnership interests
in American Movie Classics Company ('AMCC'), (ii) the acquisition of
substantially all of the assets of Monmouth Cablevision Associates ('Monmouth
Cable'), Riverview Cablevision Associates, L.P. ('Riverview Cable') and
Framingham Cablevision Associates Limited Partnership ('Framingham Cable'),
(iii) the Merger, and (iv) the Proposed V Cable Transactions as if the
acquisition of interests in AMCC, the acquisition of Monmouth Cable, Riverview
Cable and Framingham Cable, the Merger and the Proposed V Cable Transactions had
occurred at the beginning of the period presented. The following condensed pro
forma consolidated statement of operations for the six months ended June 30,
1995 presents Cablevision's consolidated results of operations as adjusted to
give effect to the Merger and the Proposed V Cable Transactions as if the Merger
and the Proposed V Cable Transactions had occurred at the beginning of the
period presented. The condensed pro forma consolidated financial statements
should be read in conjunction with the notes thereto and the historical
consolidated financial statements and notes thereto incorporated herein by
reference. The pro forma financial information is not necessarily indicative of
what the actual financial position or results of operations of Cablevision would
have been had the transactions occurred on the dates indicated nor does it
purport to indicate the future results of operations or the future financial
condition of Cablevision.
35
<PAGE>
CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROPOSED
CABLEVISION V CABLE PRO FORMA CABLEVISION PRO FORMA
HISTORICAL TRANSACTIONS* CABLEVISION OF BOSTON* AS ADJUSTED
----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........................... $ 23,487 $ 236 (1) $ 19,723 $ 5,967 (4) $ 22,690
(4,000)(2) (3,000)(5)
Accounts receivable, trade.......................... 71,406 331 (1) 71,737 2,165 (4) 73,902
Notes and other receivables......................... 17,872 502 (1) 18,374 601 (4) 18,975
Prepaid expenses and other current assets........... 13,256 464 (1) 13,720 470 (4) 14,190
Property, plant and equipment, net.................. 916,312 103,604 (1) 1,019,916 35,863 (4) 1,055,779
Investments in and advances to affiliates........... 182,080 324 (1) 182,404 (17,462)(4) 164,942
Feature film inventory.............................. 151,113 151,113 151,113
Intangible assets, net.............................. 795,631 133,610 (3) 929,241 114,188 (5) 1,042,204
(1,225)(6)
Deferred financing, interest expense and other
costs, net........................................ 83,711 (33,617)(2) 50,094 1,000 (5) 51,094
----------- ------------- ----------- ----------- -----------
$ 2,254,868 $ 201,454 $ 2,456,322 $ 138,567 $2,594,889
----------- ------------- ----------- ----------- -----------
----------- ------------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable.................................... $ 117,203 $ 9,381 (1) 126,584 $ 9,286 (4) $ 135,870
Accrued expenses.................................... 213,562 10,690 (1) 224,252 9,186 (4) 233,438
Accounts payable to affiliates...................... 27,577 27,577 665 (4) 28,242
Feature film rights payable......................... 131,026 131,026 131,026
Bank debt........................................... 1,499,762 1,499,762 80,773 (5) 1,580,535
Senior debt......................................... 880,888 215,000 (1) 595,888 595,888
(500,000)(2)
Subordinated debentures............................. 623,571 623,571 623,571
Subordinated notes payable.......................... 141,268 141,268 141,268
Obligation to related party......................... 190,212 190,212 190,212
Capital lease obligations and other debt............ 10,241 10,241 2,048 (4) 12,289
----------- ------------- ----------- ----------- -----------
3,835,310 (264,929) 3,570,381 101,958 3,672,339
----------- ------------- ----------- ----------- -----------
Deficit investment in affiliates.................... 436,321 436,321 436,321
----------- ----------- -----------
Stockholders' deficiency:
Preferred stock................................... 2 5 (2) 7 7
Common stock...................................... 238 238 6 (5) 244
Par value in excess of capital contributed........ (71,888) 499,995 (2) 428,107 37,828 (5) 464,710
(1,225)(6)
Accumulated deficit............................... (1,941,878) (33,617)(2) (1,975,495) (1,975,495)
----------- ------------- ----------- ----------- -----------
(2,013,526) 466,383 (1,547,143) 36,609 (1,510,534)
Less, treasury stock, at cost (50,000 shares)....... (3,237) (3,237) (3,237)
----------- ------------- ----------- ----------- -----------
(2,016,763) 466,383 (1,550,380) 36,609 (1,513,771)
----------- ------------- ----------- ----------- -----------
$ 2,254,868 $ 201,454 $ 2,456,322 $ 138,567 $2,594,889
----------- ------------- ----------- ----------- -----------
----------- ------------- ----------- ----------- -----------
</TABLE>
- ------------
* For footnotes, see Note A of Notes to Condensed Pro Forma Consolidated
Financial Statements under 'Cablevision Pro Forma Financial Information.'
36
<PAGE>
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS*
----------------------------------------
MONMOUTH
CABLE,
RIVERVIEW
AMERICAN CABLE AND PROPOSED V
CABLEVISION MOVIE FRAMINGHAM CABLE PRO FORMA CABLEVISION PRO FORMA
HISTORICAL CLASSICS CABLE TRANSACTIONS CABLEVISION OF BOSTON* AS ADJUSTED
----------- -------- ---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues.............. $ 837,169 $50,951 (7) $ 47,286 (13) $ 71,960 (19) $ 1,007,366 $59,239 (24) $1,066,605
----------- -------- ---------- ------------ ----------- ----------- -----------
Operating expenses:
Technical............... 302,885 16,262 (7) 15,127 (13) 29,674 (19) 363,948 26,749 (24) 390,697
Selling, general and
administrative........ 195,942 16,105 (7) 9,199 (13) 20,776 (19) 239,135 17,119 (24) 254,162
(859)(11) (2,028)(16) (2,092)(25)
Restructuring charge.... 4,306 4,306 4,306
Depreciation and
amortization.......... 271,343 142 (7) 12,488 (13) 41,861 (19) 360,012 8,428 (24) 379,478
10,827 (12) 27,273 (14) (3,922)(23) 11,038 (25)
----------- -------- ---------- ------------ ----------- ----------- -----------
774,476 42,477 62,059 88,389 967,401 61,242 1,028,643
----------- -------- ---------- ------------ ----------- ----------- -----------
Operating profit
(loss).............. 62,693 8,474 (14,773) (16,429) 39,965 (2,003) 37,962
Other income (expense):
Interest expense........ (263,299) (1,510)(7) (4,657)(13) (24,195)(19) (259,040) (8,955)(24) (266,443)
(7,615)(9) (11,093)(15) 47,323 (20) 1,552 (26)
6,006 (22)
Interest income......... 1,518 305 (7) 59 (13) 236 (19) 2,118 216 (24) 2,334
Share of affiliates' net
loss.................. (82,864) (4,304)(10) (521)(17) 8,594 (19) (79,367) (79,367)
(272)(18)
Write off of deferred
financing costs....... (9,884) (9,884) (9,884)
Loss on redemption of
debt.................. (7,088) (7,088) (7,088)
Provision for
preferential payment
to related party...... (5,600) (5,600) (5,600)
Minority interest....... (3,429) (4,321)(8) (7,750) (7,750)
Miscellaneous, net...... (7,198) (23)(7) (131)(13) (1,280)(19) (8,632) (307)(24) (8,939)
----------- -------- ---------- ------------ ----------- ----------- -----------
Loss before extraordinary
item.................... (315,151) (8,994) (31,388) 20,255 (335,278) (9,497) (344,775)
Extraordinary item:
Loss on redemption of
debt.................. (40,457)(20) (40,457) (40,457)
----------- -------- ---------- ------------ ----------- ----------- -----------
Net loss.................. (315,151) (8,994) (31,388) (20,202) (375,735) (9,497) (385,232)
Preferred stock dividend
requirement............. (6,385) (43,403)(21) (49,788) (49,788)
----------- -------- ---------- ------------ ----------- ----------- -----------
Net loss applicable to
common shareholders..... $(321,536) $(8,994) $(31,388) $(63,605) $ (425,523) $(9,497) $ (435,020)
----------- -------- ---------- ------------ ----------- ----------- -----------
----------- -------- ---------- ------------ ----------- ----------- -----------
Loss per common share
before extraordinary
item.................... $ (13.72) $ (16.42)
Extraordinary item........ -- (1.68)
----------- -----------
Net loss per common
share................... $ (13.72) $ (18.10)
----------- -----------
----------- -----------
Average number of common
shares outstanding (in
thousands).............. 23,444 23,444 593(24) 24,037
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- ------------
* For footnotes, see Note B of Notes to Condensed Pro Forma Consolidated
Financial Statements under 'Cablevision Pro Forma Financial Information.'
37
<PAGE>
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PROPOSED V
CABLEVISION CABLE PRO FORMA CABLEVISION PRO FORMA
HISTORICAL TRANSACTIONS* CABLEVISION OF BOSTON* AS ADJUSTED
----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Revenues..................................... $ 509,135 $ 37,892 (27) $ 547,027 $30,671 (32) $ 577,698
----------- ------------- ----------- ----------- ------------
Operating expenses:
Technical...................................... 193,243 16,596 (27) 209,839 14,334 (32) 224,173
Selling, general and administrative............ 131,611 11,004 (27) 142,615 9,510 (32) 151,035
(1,090)(33)
Depreciation and amortization.................. 159,537 19,560 (27) 177,479 4,421 (32) 187,419
(1,618)(31) 5,519 (33)
----------- ------------- ----------- ----------- ------------
484,391 45,542 529,933 32,694 562,627
----------- ------------- ----------- ----------- ------------
Operating profit (loss)...................... 24,744 (7,650) 17,094 (2,023) 15,071
Other income (expense):
Interest expense............................... (155,318) (12,642)(27) (133,922) (5,397)(32) (137,566)
30,477 (28) 1,753 (34)
3,561 (30)
Interest income................................ 790 38 (27) 828 162 (32) 990
Share of affiliates' net loss.................. (52,692) 2,840 (27) (49,852) (49,852)
Write off of deferred financing costs.......... (2,888) (2,888) (2,888)
Provision for preferential payment to related
party........................................ (2,800) (2,800) (2,800)
Minority interest.............................. (4,276) (4,276) (4,276)
Miscellaneous, net............................. (2,999) (237)(27) (3,236) (89)(32) (3,325)
----------- ------------- ----------- ----------- ------------
Net loss......................................... (195,439) 16,387 (179,052) (5,594) (184,646)
Preferred stock dividend requirement............. (4,918) (21,075)(29) (25,993) (25,993)
----------- ------------- ----------- ----------- ------------
Net loss applicable to common shareholders....... $(200,357) $ (4,688) $(205,045) $(5,594) $ (210,639)
----------- ------------- ----------- ----------- ------------
----------- ------------- ----------- ----------- ------------
Net loss per common share........................ $ (8.45) $ (8.67)
----------- ------------
----------- ------------
Average number of common shares outstanding (in
thousands)..................................... 23,710 23,710 593 (32) 24,303
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
- ------------
* For footnotes, see Note C of Notes to Condensed Pro Forma Consolidated
Financial Statements under 'Cablevision Pro Forma Financial Information.'
38
<PAGE>
CABLEVISION SUPPLEMENTAL FINANCIAL AND OPERATING DATA
The following tables set forth information concerning Cablevision's Core
Restricted Group (which excludes Cablevision of NYC), Cablevision of NYC,
combined Cablevision Restricted Group (which includes Cablevision of NYC), V
Cable and Monmouth Cable and Riverview Cable. In October 1994, Cablevision of
NYC became a member of Cablevision's Restricted Group. The data should be read
in conjunction with Cablevision Consolidated Financial Statements and
'Cablevision Management's Discussion and Analysis.'
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- ------------------------------------------
FINANCIAL DATA 1995 1994 1994 1993 1992
- ------------------------------------------------ ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CORE RESTRICTED GROUP:
STATEMENT OF OPERATIONS DATA:
Net revenues................................ $ 229,381 $ 212,632 $ 435,171 $ 393,815 $ 378,171
Operating profit before depreciation and
amortization(1)(2)........................ 107,014 107,007 212,388 196,760 192,553
Depreciation and amortization............... 60,846 53,667 119,760 90,407 85,939
Operating profit(2)......................... 46,168 53,340 92,628 106,353 106,614
Total interest expense...................... 75,829 66,259 138,154 129,799 112,137
BALANCE SHEET DATA:
Total assets................................ $1,018,329 $ 847,397 $ 929,376 $ 661,303 $ 547,373
Senior debt................................. 1,014,375(3) 469,252 829,895(3) 359,022 585,381
Subordinated debt........................... 623,571 822,855 623,534 822,781 474,247
Total debt.................................. 1,637,946(3) 1,292,107 1,453,429(3) 1,181,803 1,059,628
FINANCIAL RATIOS AND OTHER DATA:
Operating profit before depreciation and
amortization to net revenues.............. 46.7% 50.3% 48.8% 50.0% 50.9%
Total debt to operating profit before
depreciation and amortization............. 7.6x(4) 6.0x(4) 6.8x 6.0x 5.5x
Operating profit before depreciation and
amortization to total interest expense.... 1.41x 1.61x 1.54x 1.52x 1.72x
Capital expenditures........................ $ 52,015 $ 66,842 $ 147,534 $ 106,379 $ 65,331
CABLEVISION OF NYC:
STATEMENT OF OPERATIONS DATA:
Net revenues................................ $ 97,725 $ 68,402 $ 149,396 $ 101,539 $ 67,409
Operating profit before depreciation and
amortization(1)........................... 26,796 16,125 36,928 18,803 11,731
FINANCIAL RATIOS AND OTHER DATA:
Operating profit before depreciation and
amortization to net revenues.............. 27.4% 23.6% 24.7% 18.5% 17.4%
Captial expenditures........................ $ 45,213 $ 48,406 $ 103,544 $ 86,669 $ 55,652
RESTRICTED GROUP:
STATEMENT OF OPERATIONS DATA:
Net revenues................................ $ 327,106 $ 281,034 $ 584,567 $ 495,354 $ 445,580
Operating profit before depreciation and
amortization(1)........................... 133,810 123,132 249,316 215,563 204,284
Depreciation and amortization............... 81,483 68,523 154,187 111,366 102,015
Operating profit............................ 52,327 54,609 95,129 104,197 102,269
Total interest expense...................... 82,036 71,676 150,626 137,960 118,230
BALANCE SHEET DATA:
Total assets................................ $1,212,428 $1,052,675 $1,119,882 $ 838,746 $ 660,002
Senior debt................................. 1,152,975(3) 631,475 969,895(3) 488,128 664,081
Subordinated debt........................... 623,571 822,855 623,534 822,781 474,247
Obligation to related party................. 190,212 88,748 193,079 91,619 67,000
Total debt.................................. 1,966,758(3) 1,543,078 1,786,508(3) 1,402,528 1,205,328
FINANCIAL RATIOS AND OTHER DATA:
Operating profit before depreciation and
amortization to net revenues.............. 40.9% 43.8% 42.6% 43.5% 45.8%
Total debt to operating profit before
depreciation and amortization............. 7.3x(4) 6.3x(4) 7.2x 6.5x 5.9x
Operating profit before depreciation and
amortization to total interest expense.... 1.6x 1.7x 1.7x 1.6x 1.7x
Capital expenditures........................ $ 97,228 $ 115,248 $ 251,078 $ 193,048 $ 120,983
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- ------------------------------------------
FINANCIAL DATA 1995 1994 1994 1993 1992
- ------------------------------------------------ ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
V CABLE:
STATEMENT OF OPERATIONS DATA:
Net revenues................................ $ 72,789 $ 70,018 $ 140,691 $ 137,853 $ 129,409
Operating profit before depreciation and
amortization(1)........................... 32,929 34,796 68,592 65,789 63,773
Depreciation and amortization............... 33,965 40,012 83,671 80,287 69,148
Operating loss.............................. (1,036) (5,216) (15,079) (14,489) (5,375)
Total interest expense...................... 51,496 46,897 96,723 94,452 79,494
BALANCE SHEET DATA:
Total assets................................ $ 411,907 $ 490,087 $ 447,381 $ 536,629 $ 558,988
Total debt.................................. 880,888 844,091 862,440 832,964 799,098
FINANCIAL RATIOS AND OTHER DATA:
Operating profit before depreciation and
amortization to net revenues.............. 45.2% 49.7% 48.8% 47.7% 49.3%
Total debt to operating profit before
depreciation and amortization............. 13.3x(4) 12.0x(4) 12.6x 12.7x 12.5x
Operating profit before depreciation and
amortization to total interest expense.... 0.64x 0.74x 0.71x 0.70x 0.80x
Capital expenditures........................ $ 13,163 $ 6,793 $ 19,981 $ 20,304 $ 17,608
MONMOUTH CABLE AND RIVERVIEW CABLE:
BALANCE SHEET DATA:
Total assets................................ $ 348,574 -- 375,982 -- --
Senior debt................................. 209,000 -- 230,000 -- --
Subordinated debt........................... 141,268 -- 141,268 -- --
Total debt.................................. 350,268 -- 371,268 -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF JUNE 30, ------------------------------------------
STATISTICAL DATA 1995 1994 1993 1992
- ---------------------------------------------------------- -------------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CORE RESTRICTED GROUP:
Homes passed(5)......................................... 1,315,000 1,309,000 1,086,000 1,079,000
Basic service subscribers at end of period.............. 950,000 928,000 815,000 790,000
Basic penetration(6).................................... 72.2% 70.9% 75.0% 73.2%
Number of premium television units...................... 1,459,000 1,572,000 1,504,000 1,586,000
Average number of premium units per basic subscriber.... 1.5 1.7 1.8 2.0
Average revenue per basic subscriber(7)................. $ $37.82 $ 37.10 $ 38.01 $ 38.85
CABLEVISION OF NYC:
Homes passed(5)......................................... 912,000 829,000 645,000 436,000
Basic service subscribers at end of period.............. 371,000 315,000 214,000 134,000
Basic penetration(6).................................... 40.7% 37.9% 33.1% 30.7%
Number of premium television units...................... 1,272,000 1,127,000 1,053,000 730,000
Average number of premium units per basic subscriber.... 3.4 3.6 4.9 5.4
Average revenue per basic subscriber(7)................. $ 42.18 $ 41.84 $ 41.12 $ 46.62
RESTRICTED GROUP:
Homes passed(5)......................................... 2,227,000 2,138,000 1,731,000 1,515,000
Basic service subscribers at end of period.............. 1,321,000 1,243,000 1,029,000 924,000
Basic penetration(6).................................... 59.3% 58.1% 59.4% 61.0%
Number of premium television units...................... 2,731,000 2,699,000 2,557,000 2,316,000
Average number of premium units per basic subscriber.... 2.1 2.2 2.5 2.5
Average revenue per basic subscriber(7)................. $ 39.03 $ 38.29 $ 38.65 $ 39.96
V CABLE:
Homes passed(5)......................................... 515,000 513,000 509,000 504,000
Basic service subscribers at end of period.............. 372,000 364,000 350,000 338,000
Basic penetration(6).................................... 72.2% 71.1% 68.7% 67.1%
Number of premium television units...................... 360,000 375,000(8) 446,000 485,000
Average number of premium units per basic subscriber.... 1.0 1.0 1.3 1.4
Average revenue per basic subscriber(7)................. $ 31.10 $ 30.41 $ 30.56 $ 31.30
MONMOUTH CABLE AND RIVERVIEW CABLE:
Homes passed(5)......................................... 262,000 248,000 -- --
Basic service subscribers at end of period.............. 173,000 161,000 -- --
Basic penetration(6).................................... 66.0% 65.1% -- --
Number of premium television units...................... 132,000 133,000 -- --
Average number of premium units per basic subscriber.... 0.8 0.8 -- --
Average revenue per basic subscriber(7)................. $ 35.70 $ 34.67 -- --
</TABLE>
40
<PAGE>
FOOTNOTES
(1) Operating profit before depreciation and amortization is presented here to
provide additional information about Cablevision'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 and cash flows as
indicators of financial performance and liquidity as reported in accordance
with generally accepted accounting principles.
(2) Includes management fees from Cablevision of NYC of $3,420, $2,389, $5,228,
$3,538 and $2,359, respectively.
(3) Excludes Cablevision MFR seller note in the amount of approximately $141.3
million that is guaranteed by Cablevision's Core Restricted Group.
(4) Operating profit before depreciation and amortization is annualized for
purposes of preparing interim financial ratios that include balance sheet
items.
(5) Homes passed is based upon homes passed by cable actually marketed and does
not include multiple dwelling units passed by the cable plant that are not
connected to it.
(6) Basic penetration represents basic service subscribers at the end of the
period as a percentage of homes passed at the end of the period.
(7) Based on recurring service revenues, excluding installation charges and
certain other revenues such as advertising, pay-per-view and home shopping
revenues, for the last month in the period presented, divided by the average
number of basic subscribers for that month.
(8) Reflects the reclassification of units of Madison Square Garden Network
subscribers to non-premium units in February 1994.
41
<PAGE>
RISK FACTORS
The Transactions and an investment in Cablevision Class A Common Stock
involve significant risks that should be considered by Limited Partners and
prospective investors, including the following risks:
RISKS ASSOCIATED WITH THE INCORPORATION AND MERGER
LACK OF INDEPENDENT REPRESENTATION FOR UNAFFILIATED LIMITED PARTNERS
The General Partners negotiated the terms of the Transactions on behalf of
the Partnership. All of the General Partners are affiliated with Cablevision. No
independent representative or counsel has acted on behalf of the unaffiliated
Limited Partners in connection with determining the terms of either Transaction,
nor did the General Partners negotiate the terms of either Transaction with any
unaffiliated Limited Partners. There is a possibility that, if such
representatives or unaffiliated Limited Partners had taken part in such
determination or negotiation, the terms of the Transactions might have been
different and, perhaps, more favorable to the unaffiliated Limited Partners. See
'The Transactions -- Recommendations of the General Partners; Fairness of the
Transactions' and ' -- Interests of Certain Persons in the Transactions;
Conflicts of Interest.'
CONFLICTS OF INTEREST
The General Partners, Cablevision and their respective affiliates will
receive substantial benefits if the Merger is consummated, and, accordingly, had
an inherent conflict of interest in structuring the terms and conditions of the
Transactions. Employees of Cablevision manage the operations of the Related
Partnerships and all of the General Partners are affiliated with Cablevision. In
addition, Dolan is chairman of Cablevision, and, as of August 31, 1995,
beneficially owned common stock representing approximately 18.6% of the total
voting power of Cablevision common stock. On October 16, 1995, he was succeeded
as chief executive officer of Cablevision by James L. Dolan, his son. In
addition, Trusts established for the benefit of Dolan family members, as to
which Dolan disclaims beneficial ownership, also owned at such date common stock
with approximately 72.5% of the total voting power of Cablevision. See
' -- Risks of an Investment in Cablevision if Merger is Consummated -- Voting
Control by Majority Stockholders; Disparate Voting Rights' and 'The
Transactions -- Interests of Certain Persons in the Transactions; Conflicts of
Interest.'
MATERIAL BENEFITS TO GENERAL PARTNERS AND THEIR AFFILIATES AND CABLEVISION AND
ITS AFFILIATES
The General Partners and their affiliates, other than Cablevision and its
subsidiaries, who, since the inception of the Partnership, have invested in and
loaned to the Partnership a total of approximately $4.7 million in cash, as well
as contributing a provisional cable television license for the City of Boston,
will receive the amount of, and a return on, their investments in and loans to
the Partnership, as well as from management fees earned (approximately $15.0
million), in the form of Cablevision Class A Common Stock aggregating
approximately $404,000 and cash aggregating approximately $19.7 million (as of
December 31, 1994). Cablevision and its affiliates, other than the General
Partners and their affiliates, who invested approximately $48.4 million in cash
(including the reinvestment of accrued interest thereon) in the Partnership and
loaned or advanced approximately $9.8 million in cash to the Partnership, will
receive the amount of, and a return on, their investments in and loans and
advances to the Partnership in the form of Cablevision Class A Common Stock
aggregating $51.0 million (as of June 30, 1995) and assumption of indebtedness
aggregating approximately $40.6 million (as of June 30, 1995). The unaffiliated
Limited Partners will receive only the approximate amount of, and no return on,
their investment in the form of Cablevision Class A Common Stock. Dolan, as a
general partner of the Partnership and Brookline, is personally liable for all
obligations of the Related Partnerships, other than the obligations under the
Partnership's Loan Agreement. In addition, Cablevision has agreed to indemnify
the General Partners for substantially all liabilities to the Limited Partners
and others in connection with the Transactions and, if the Transactions are
consummated, for substantially all other liabilities related to the Related
Partnerships. See 'The Transactions -- Interests of Certain Persons in the
Transactions; Conflicts of Interest.'
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<PAGE>
NO APPRAISAL OBTAINED FOR SYSTEMS
The General Partners did not obtain an appraisal of the fair market value
of the Systems or solicit offers for the Systems from unaffiliated third
parties. As a result, there is the possibility that the terms of the
Transactions do not reflect the fair market value of the Systems. See 'The
Transactions -- Reasons for and Alternatives to the Transactions,'
' -- Recommendations of the General Partners; Fairness of the Transactions' and
' -- Fairness Opinion Received by the General Partners.'
UNCERTAINTIES REGARDING VALIDITY OF THE PREFERRED EQUITY
On October 5, 1994, following the filing of preliminary consent
solicitation materials with the Securities and Exchange Commission that
discussed the uncertainties concerning the Preferred Equity, a Limited Partner
filed an action in Massachusetts Superior Court on behalf of a purported class
of Limited Partners alleging, among other things, that the Partnership issued
its Preferred Equity (the 'Preferred Equity') to affiliates of the General
Partners in violation of the Partnership Agreement. The purported class action
seeks, among other things, a declaratory judgment that holders of the Preferred
Equity are not entitled to the accrued cumulative distributions thereon. See
'The Transactions -- Certain Litigation.' While the General Partners believe
that the Preferred Equity was validly issued, they recognize that the outcome of
litigation cannot be predicted with certainty. The General Partners believe,
based on the advice of counsel, that the holders of the Preferred Equity would
more likely than not be entitled to at least $80 million in respect of such
interests (which is approximately $27.2 million more than the amount allocated
to the holders of the Preferred Equity in the Merger and Liquidation) if,
hypothetically, the validity of the Preferred Equity were fully adjudicated and
the Partnership and Cablevision consummated the Merger and Liquidation
substituting the adjudicated rights of the Preferred Equity for the
approximately $52.8 million (as of June 30, 1995) that Cablevision Finance has
agreed to receive in respect of the Preferred Equity Interests in the
Liquidation. It is possible, however, that a court could conclude that the
holders of the Preferred Equity are entitled to receive less than they have been
allocated in the Merger and Liquidation. If a court were to determine that the
holders of the Preferred Equity are entitled to receive less than they have been
allocated in the Merger and Liquidation, and if Cablevision were still willing
to proceed with the Transactions, Limited Partners would be entitled to receive
more consideration than they have been allocated in the Merger and Liquidation.
Based on advice of counsel, the General Partners believe that Limited Partners
who consent to the Incorporation or Merger could be, but will not necessarily
be, precluded from challenging the issuance of the Preferred Equity solely
because of that consent; however, Cablevision Finance, the General Partners and
the other defendants in the litigation have indicated to the General Partners
that they would raise the consent as part of the defense to any challenge to the
Preferred Equity, and the General Partners believe that the consent of the
Limited Partners to the Merger and Liquidation is a factor that a court would
consider in deciding whether the Limited Partners would be barred from
challenging the issuance of the Preferred Equity. See 'The
Transactions -- Background of the Transactions -- Uncertainties Regarding
Validity of the Preferred Equity.'
RISK THAT IRS MAY VIEW INCORPORATION AND MERGER AS FULLY TAXABLE
The Limited Partners will recognize gain in connection with the
Incorporation, although in the opinion of counsel to Cablevision and counsel to
the General Partners, it is more likely than not that for most Limited Partners
any gain recognized will be offset by at-risk suspended losses. See 'Certain
Federal Income Tax Consequences -- Incorporation -- Consequences to Unaffiliated
Limited Partners.' In the opinion of Sullivan & Cromwell, special counsel to
Cablevision, and Debevoise & Plimpton, special counsel to the General Partners,
the receipt of Cablevision Class A Common Stock by the Partnership in the Merger
and the distribution of Cablevision Class A Common Stock to the Limited Partners
in the Liquidation more likely than not will be viewed as tax-free. The matter,
however, is not free from doubt. The Partnership has not requested or obtained a
ruling from the IRS. If the Merger is consummated, it is possible that the IRS
might take the view that the Incorporation or the Merger is fully taxable and
that the Limited Partners might recognize taxable gain in excess of their
at-risk suspended losses in an amount approximately equal to the market value of
the Cablevision Class A Common Stock distributed to them in the Liquidation.
Limited Partners will not receive any cash
43
<PAGE>
distributions in connection with either Transaction with which to pay any such
taxes. See 'Certain Federal Income Tax Consequences.'
MATERIAL ASSUMPTIONS IN PAINEWEBBER'S OPINION
The General Partners directed PaineWebber, their financial advisor, to
assume in rendering its opinion to the General Partners with respect to the
fairness of the consideration to be received by the unaffiliated Limited
Partners in the Liquidation, that the holders of the Preferred Equity are
entitled to receive at least $80 million for their interests. PaineWebber's
opinion does not address whether the consideration to be received by the
unaffiliated Limited Partners in the Liquidation would be fair if the holders of
Preferred Equity were found to be entitled to less than $80 million. The
assumptions in PaineWebber's opinion are discussed in greater detail in 'The
Transactions -- Fairness Opinion Received by the General Partners -- Opinion of
PaineWebber.' Richard Hochman, a director of Cablevision and owner of six Units,
was a managing director of PaineWebber at the time PaineWebber was retained and
when it delivered its initial opinion. The General Partners did not consider Mr.
Hochman's position to be a risk because of their understanding with PaineWebber
that Mr. Hochman would not be involved in the process of rendering the fairness
opinion.
RISKS RELATED TO THE INCORPORATION
The Limited Partners are being asked to consent to the Incorporation prior
to the Merger. If the Incorporation is approved by the Limited Partners and the
conditions thereto are satisfied (see 'Description of the
Incorporation -- Conditions to the Incorporation'), the General Partners intend
to cause the Incorporation to be consummated promptly following such approval.
Approval of the Merger by the Limited Partners is not a condition to the
Incorporation. Consents to the Merger will be held in escrow until the
Incorporation is approved and consummated by the Limited Partners in order to
ensure that Limited Partners consider the Incorporation separately from their
consideration of the Merger as is required for the desired tax treatment of the
Transactions. Accordingly, the General and Limited Partners will not know
whether the Merger will be accepted or rejected by the Limited Partners, or
whether each of the other conditions to the Merger (see 'The
Transactions -- Conditions to the Transactions') will be satisfied, prior to
consummation of the Incorporation. Thus, it is possible that the Merger may not
be consummated following the Incorporation. There are substantial risks involved
in the consummation of the Incorporation if the Merger is not consummated, as
set forth below.
RISK OF CORPORATE-LEVEL TAX. Consummation of the Incorporation without also
consummating the Merger will significantly affect the tax consequences of
operating the Systems. Because a significant amount of losses generated by the
Systems in prior years and allocated to the Limited Partners was not deductible
by the Limited Partners due to the 'at-risk' limitations under federal income
tax law, current and future taxable income generated by the Systems and
allocated through the Partnership to the Limited Partners can generally be
offset by most of the Limited Partners by the amount of such at-risk losses not
previously utilized. As a result, the General Partners believe that, based on
current projections, it is likely that most of the Limited Partners would not be
required to pay income taxes on income generated by the Related Partnerships for
the foreseeable future. The Limited Partners will recognize gain in connection
with the Incorporation, although the General Partners believe that, for most
Limited Partners, any gain recognized will be offset by suspended at-risk
losses. See 'Certain Federal Income Tax Consequences -- Incorporation --
Consequences to Unaffiliated Limited Partners.' Following the Incorporation,
such at-risk losses will no longer be available to offset taxable income
generated by the Systems. Instead, taxable income of the Systems will be subject
to corporate-level tax, although such income will be reduced in part by
additional depreciation deductions resulting from a partial 'step-up' in the
basis of the Assets upon the Incorporation. The General Partners also believe
that, following the Incorporation, Boston Sub would likely be required to pay
income taxes sooner than when the income of the Partnership allocable to most of
the Limited Partners would become subject to tax if the Incorporation were not
consummated. Based on current projections (see 'Cablevision of Boston --
Management Projections'), the General Partners believe that any corporate-level
taxes would not be significant until at least 1998. Moreover, the resulting tax
liability will be payable out of cash flow generated by the Systems and will not
be payable by Limited Partners directly. If the Incorporation
44
<PAGE>
were not consummated, any tax liabilities resulting from the taxable income of
the Systems generally would be borne directly by the Limited Partners after such
Limited Partners' at-risk losses have been exhausted. Such liabilities would
have to be satisfied by the Limited Partners from cash available to them from
sources other than the Partnership because, under current projections, the
Partnership will not generate cash flow sufficient to make cash distributions to
its Partners in the foreseeable future. See 'Certain Federal Income Tax
Consequences -- Incorporation.'
OTHER RISKS. If the Merger is not consummated, the Partnership will not
liquidate absent a recommendation by the General Partners and a further vote of
the Limited Partners. The Limited Partners will in such case be subject to all
the risks inherent in the continued operation of the business of the
Partnership, including the need to renegotiate the Partnership's Loan Agreement
at December 31, 1995. See 'The Transactions -- Risks that Neither Transaction is
Consummated.' If the Merger is not consummated, the General Partners would
consider liquidating the Partnership through the distribution of the stock of
Boston Sub to the Limited Partners or another transaction involving the sale of
Boston Sub if they conclude that such a distribution or transaction would
increase the liquidity and value of the Limited Partners' investment in the
Partnership and that an allocation of such stock or other acquisition
consideration between the Limited Partners and other parties holding priority
claims in the Partnership that is fair to the Limited Partners could be
achieved.
RISKS ASSOCIATED WITH AN INVESTMENT IN CABLEVISION
RISK OF DECREASE IN MARKET VALUE OF CONSIDERATION RECEIVED
If the Merger is consummated, the exact number of shares of Cablevision
Class A Common Stock to be distributed to the Limited Partners in the
Liquidation will be based on the Average Cablevision Stock Price. As a result,
the exact number of shares of Cablevision Class A Common Stock to be distributed
in the Liquidation and the market value thereof will depend on the timing of the
Merger and the Liquidation and other factors. Accordingly, the actual market
value of Cablevision Class A Common Stock received by the Limited Partners in
the Merger and subsequent Liquidation may have a market value less than 100% of
the amounts initially invested by each unaffiliated Limited Partner in the
Partnership. The trading price of the Class A Common Stock received by the
Limited Partners in the Liquidation will continue to fluctuate after the
Liquidation. There can be no assurance that the market value of the Cablevision
Class A Common Stock to be received by the Limited Partners in the Merger and
Liquidation will not decrease significantly. There is a significant possibility
that the market value of the Cablevision Class A Common Stock received by the
Limited Partners in the Liquidation may decrease significantly, including as a
result of the issuance of a significant number of shares. In addition, Limited
Partners will not receive a return of their investment in the form of cash
proceeds, and, if they wish to obtain cash for their investment, they will need
to sell the shares of Cablevision Class A Common Stock received in the
Liquidation on the ASE or in a private transaction. These risks are accentuated
by the potential for significant fluctuation in the market price of the
Cablevision Class A Common Stock.
RISKS OF AN INVESTMENT IN CABLEVISION IF MERGER IS CONSUMMATED
If both Transactions are consummated, the Limited Partners will no longer
hold a direct investment in the Systems. Their investment will, instead, be in
Cablevision Class A Common Stock. An investment in Cablevision Class A Common
Stock would constitute a fundamental change in the nature of the investment of
the Limited Partners. See 'Comparison of Cablevision Class A Common Stock with
Units.' An investment in Cablevision Class A Common Stock involves various
risks, including the following principal risks, which, together with the other
matters set forth or incorporated by reference herein, should be carefully
considered by the Limited Partners and prospective investors.
SUBSTANTIAL INDEBTEDNESS AND HIGH DEGREE OF LEVERAGE. Cablevision has
incurred substantial indebtedness, primarily to finance acquisitions and
expansion of its operations and, to a lesser extent, for investments in and
advances to affiliates. Cablevision's consolidated debt and Series E Redeemable
Convertible Exchangeable Preferred Stock aggregated approximately $3.4 billion
at June 30, 1995 ($3.2 billion on a pro forma basis after giving effect to the
Merger and the Proposed V Cable
45
<PAGE>
Transactions (as described in the Cablevision Form 8-K)), with varying
maturities to 2023, including an aggregate of approximately $711.1 million
maturing on or prior to December 31, 1999. See Note 4 of Notes to Cablevision
Consolidated Financial Statements included in the Cablevision Form 10-K. In
addition, Cablevision's consolidated subsidiary, Rainbow Programming, incurred
approximately $94.0 million of indebtedness in July 1995 in connection with the
acquisition of NBC's interest in SportsChannel (New York) Associates and Rainbow
News 12 Company, described under 'Business -- Programming Services' in the
Cablevision Form 10-K.
NET LOSSES AND STOCKHOLDERS' DEFICIT. Cablevision reported net losses for
the six months ended June 30, 1995 and 1994 of $195.4 million and $111.9
million, respectively, and for the years ended December 31, 1994, 1993 and 1992
of $315.2 million, $246.8 million and $250.5 million, respectively. At June 30,
1995, Cablevision had a stockholders' deficit of $2.0 billion. The losses
primarily reflect high levels of interest expense and depreciation and
amortization charges relating to assets obtained through, and debt incurred to
finance, acquisitions. Interest expense and depreciation and amortization
remained at a high level throughout 1992, 1993 and 1994 and will continue at
high levels in the future as a result of previously completed, pending and
future acquisitions, expected capital expenditures and additional investments in
Cablevision's programming operations, including the approximately $95.5 million
payment made in connection with the acquisition of NBC's interest in
SportsChannel (New York) Associates and Rainbow News 12 Company. Cablevision
expects to continue incurring substantial losses for at least the next several
years. See 'Cablevision Management's Discussion and Analysis -- Liquidity and
Capital Resources.'
NEED FOR ADDITIONAL FINANCING. Cablevision's business requires substantial
investment on a continuing basis to finance capital expenditures and related
expenses for, among other things, upgrade of Cablevision's cable plant
(including the need to make cable system upgrades mandated by franchise
authorities), the offering of new services and the servicing, repayment or
refinancing of its indebtedness. Cablevision will require significant additional
financing, through debt and/or equity issuances, to meet its capital expenditure
plans and to pay its debt obligations. There can be no assurance that
Cablevision will be able to issue additional debt or obtain additional equity
capital on satisfactory terms, or at all, to meet its future financing needs.
See 'Cablevision Management's Discussion and Analysis -- Liquidity and Capital
Resources.'
FUTURE CAPITAL EXPENDITURES AND PROGRAMMING COMMITMENTS. Cablevision's
cable systems have commitments for capital expenditures, including major system
upgrades, which will involve substantial expenditures over the next several
years. In addition, Cablevision, through Rainbow Programming, has entered into
numerous contracts relating to cable television programming, including rights
agreements with professional and other sports teams. These contracts typically
require substantial payments over extended periods of time. See Note 8 of Notes
to Cablevision Consolidated Financial Statements included in the Cablevision
Form 10-K for a discussion of commitments and contingencies. Cablevision also
has a commitment to fund annual payments to Dolan related to Cablevision of NYC.
See 'Business -- Consolidated Cable Affiliates -- Cablevision of New York City'
and 'Business -- Programming Operations' in the Cablevision Form 10-K and
'Cablevision Management's Discussion and Analysis -- Liquidity and Capital
Resources.'
INTANGIBLE ASSETS. Cablevision had total assets at June 30, 1995 of
approximately $2.3 billion, of which approximately $0.9 billion were intangible
assets, principally subscriber lists, franchises, excess costs over fair value
of net assets acquired, deferred financing, acquisition and other costs and
deferred interest expense. It is possible that no cash would be recoverable from
the voluntary or involuntary sale of these intangible assets.
LOSSES ON INVESTMENTS IN AND ADVANCES TO CERTAIN AFFILIATES. Cablevision
has made investments in and advances to certain affiliates of which Dolan is the
managing general partner or in which Dolan has substantial ownership interests.
At June 30, 1995, investments in and advances (less applicable reserves) to such
affiliates aggregated approximately $33.7 million (consisting of $17.6 million
for the Partnership, $12.5 million for Cablevision of Chicago (which has
subsequently been repaid, as explained below), and $3.6 million for Atlantic
Cable Television Publishing Corporation ('Atlantic Publishing')). Because Dolan
is the managing general partner or has a substantial interest in such
affiliates, an inherent conflict of interest exists with respect to such
investments and advances. There can be no assurances that such
46
<PAGE>
investments and advances and any amounts accrued with respect thereto will be
fully recovered or that conflicts of interest will not arise with respect to the
recovery of such amounts.
Cablevision wrote off for accounting purposes its entire investment in and
advances to the Partnership of $34.5 million at September 30, 1985. Between
September 1985 and May 1988, Cablevision made additional subordinated advances
to the Partnership, which amounted to approximately $17.6 million at June 30,
1995. See 'The Transactions -- Background of the Transactions.' Management of
Cablevision currently anticipates that no further funds will be advanced by
Cablevision to the Partnership to support operations. See 'The
Transactions -- Background of the Transactions' and 'Business -- Other Cable
Affiliates -- Cablevision of Boston' in the Cablevision Form 10-K. All such
additional subordinated advances will become intercompany indebtedness if the
Merger is consummated. See 'The Transactions -- Interests of Certain Persons in
the Transactions; Conflicts of Interest' and 'Description of the
Merger -- Consideration to be Received by Affiliates.'
On August 4, 1995, Cablevision of Chicago sold its cable television systems
to Continental Cablevision, Inc. and the loans from Cablevision to Cablevision
of Chicago, together with accrued interest reserved by Cablevision, were repaid
in full. Accordingly, in connection therewith, Cablevision recognized a gain in
the third quarter of 1995 of approximately $15.6 million.
Atlantic Publishing holds a minority equity interest and a debt interest in
a company that publishes cable television guides, which are offered to
Cablevision's subscribers and to other unaffiliated cable television operators.
As of June 30, 1995 Cablevision had advanced an aggregate of $17.9 million to
Atlantic Publishing, of which approximately $0.7 million was advanced during
1992, approximately $0.5 million was repaid during 1993 and $0.6 million was
repaid during 1994 and approximately $0.2 million was advanced during the first
six months of 1995. Cablevision has written off all of its advances to Atlantic
Publishing other than $3.6 million. Atlantic Publishing is owned by a trust for
certain Dolan family members; however, Cablevision has the option to purchase
Atlantic Publishing for an amount equal to the owner's net investment therein
plus interest. The current owner has only a nominal investment in Atlantic
Publishing. See 'Business -- Other Affiliates -- Atlantic Publishing' in the
Cablevision Form 10-K.
See 'Business -- Consolidated Cable Affiliates -- Cablevision of New York
City' in the Cablevision Form 10-K for a discussion of Cablevision's acquisition
of substantially all of Dolan's interest in Cablevision of NYC, which was
consummated as described therein in July 1992.
VOTING CONTROL BY MAJORITY STOCKHOLDERS; DISPARATE VOTING RIGHTS. Dolan
beneficially owned, as of August 31, 1995, 286,000 shares or 2.3% of
Cablevision's outstanding Cablevision Class A Common Stock and 2,347,494 shares
or 20.3% of Cablevision's outstanding Cablevision Class B Common Stock (the
'Cablevision Class B Common Stock' and together with the Cablevision Class A
Common Stock, the 'Common Stock'). On a combined basis, these shares represented
11.1% of the total number of shares of both classes of Common Stock and 18.6% of
the total voting power of both classes. Trusts established by Dolan for the
benefit of certain Dolan family members, and as to which Dolan disclaims
beneficial ownership, owned, as of August 31, 1995, an additional 500,000 shares
of Cablevision Class A Common Stock or 4.1% of Cablevision Class A Common Stock
and 9,225,928 shares of Cablevision Class B Common Stock, or 79.7% of the
Cablevision Class B Common Stock and 72.5% of the total voting power of all
classes of Cablevision Common Stock. As a result of this stock ownership, Dolan
and trusts for the benefit of Dolan family members have the power to elect all
12 directors subject to election by holders of the Cablevision Class B Common
Stock, which directors constitute 75% of the entire 16-member Board of Directors
of Cablevision. Moreover, because holders of Cablevision Class B Common Stock
are entitled to ten votes per share while holders of Cablevision Class A Common
Stock are entitled to one vote per share, Dolan and trusts for the benefit of
Dolan family members may control stockholder decisions on matters in which
holders of Cablevision Class A and Cablevision Class B Common Stock vote
together as a class. These matters include the amendment of certain provisions
of Cablevision's Certificate of Incorporation and the approval of fundamental
corporate transactions, including mergers. In addition, because the affirmative
vote or consent of the holders of at least 66 2/3% of the outstanding shares of
the Cablevision Class B Common Stock, voting separately as a class, is required
to approve (i) the authorization or issuance of any additional shares of
Cablevision Class B Common Stock and (ii) any amendment, alteration or repeal of
any of the provisions of the Certificate
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of Incorporation of Cablevision which adversely affects the powers, preferences
or rights of the Cablevision Class B Common Stock, Dolan and trusts for the
benefit of Dolan family members together also have the power to prevent such
issuance or amendment. The voting rights of the Cablevision Class B Common Stock
beneficially owned by Dolan and by certain of the trusts will not be modified as
a result of any transfer of legal or beneficial ownership thereof.
RESTRICTIVE COVENANTS. Cablevision's principal bank credit agreement (the
'Credit Agreement'), and certain of Cablevision's other debt instruments,
contain various financial and operating covenants which, among other things,
require the maintenance of certain financial ratios and restrict Cablevision's
ability to borrow funds from other sources and to utilize funds for various
purposes, including investments in certain subsidiaries. Violation of the
covenants in the Credit Agreement could result in a default under the Credit
Agreement which would permit the bank lenders thereunder to restrict
Cablevision's ability to borrow undrawn funds under the Credit Agreement and to
accelerate the maturity of borrowings thereunder. Cablevision currently is not
in violation of any covenant under the Credit Agreement or such other debt
instruments. See 'Cablevision Management's Discussion and Analysis -- Liquidity
and Capital Resources.' Also see 'Available Information.'
CONFLICTS OF INTEREST. Dolan and trusts for Dolan family interests have
varying economic interests in Cablevision's affiliates, including the Related
Partnerships. Dolan and other officers and directors of Cablevision are also
officers and directors of affiliated companies. Such officers and directors of
Cablevision devote such time to the business of Cablevision as is reasonably
required; however, they have other responsibilities which require various
amounts of their time and which could conflict with their duties to Cablevision.
See 'Comparison of Cablevision Class A Common Stock with Units -- Compensation
of the General Partner.'
NO DIVIDENDS PAID OR TO BE PAID. Cablevision has never declared or paid
dividends on any of its Common Stock and does not intend to pay cash dividends
on such stock in the foreseeable future. In addition, certain debt instruments
to which Cablevision is a party contain covenants which effectively prohibit the
payment of such dividends. Accordingly, holders of its Common Stock will receive
a return on their investment only through the sale of such stock.
FLUCTUATIONS IN THE PRICE OF CABLEVISION CLASS A COMMON STOCK. The price of
Cablevision Class A Common Stock on the American Stock Exchange has fluctuated
significantly. The price of such stock likely will continue to fluctuate during
the period in which the Average Cablevision Stock Price is determined and
following the Merger. See 'Price Range of Cablevision Class A Common Stock and
Dividend Policy.'
SHARES ELIGIBLE FOR FUTURE SALE. On August 31, 1995, 12,223,367 shares of
Cablevision Class A Common Stock were outstanding. Cablevision has granted to
each of Dolan, certain Dolan family interests, the Dolan Family Foundation, John
Tatta, a director of Cablevision, and certain Tatta family interests
registration rights with respect to 1,076,075 shares of Cablevision Class A
Common Stock held by them on such date, as well as with respect to 11,573,922
shares of Cablevision Class A Common Stock issuable upon conversion of shares of
Cablevision Class B Common Stock. Cablevision may determine to fund further
acquisitions and investments through sales of Cablevision Class A Common Stock
or other equity related securities. Sales of a substantial number of shares of
Cablevision Class A Common Stock or Cablevision Class B Common Stock could
adversely affect the market price of the Cablevision Class A Common Stock and
could impair Cablevision's future ability to raise capital through an offering
of its equity securities.
Cablevision and its subsidiaries, V Cable and VC Holding, Inc., have
entered into a general non-binding letter of intent with General Electric
Capital Corporation ('GECC'), the principal creditor of V Cable, pursuant to
which Cablevision would issue GECC shares of convertible preferred stock having
an initial aggregate liquidation preference of $500 million in the Proposed V
Cable Transactions. It is anticipated that such preferred stock would be
convertible at the option of the holder at certain times and in certain
circumstances in whole or in part into Class A Common Stock at a conversion rate
based upon the trading value of the Class A Common Stock at the time of such
conversion. Based on the market value of Class A Common Stock on October 13,
1995, approximately 9,209,375 shares of Class A Common Stock (which would
represent 43.0% of the outstanding Class A Common Stock after such conversion)
would be issuable upon conversion of the convertible preferred stock issued in
the
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Proposed V Cable Transactions. It is also anticipated that Cablevision would
grant GECC registration rights with respect to the Class A Common Stock issuable
upon any conversion of such preferred stock.
In 1990, a registration statement filed by Cablevision with the Commission
became effective with respect to 270,000 shares of Cablevision Class A Common
Stock held by A. Jerrold Perenchio, as trustee of the Jerry Perenchio Living
Trust, and 690,000 shares of Cablevision Class A Common Stock which Francis F.
Randolph, Jr. has a right to acquire upon the exercise of stock options held by
him. As of August 31, 1995, approximately 458,800 shares have been sold pursuant
to that registration statement. Sales of shares pursuant to that registration
statement could adversely affect the market price of the Cablevision Class A
Common Stock. Mr. Randolph and Mr. Perenchio are directors of Cablevision. Mr.
Randolph resigned as a Vice-Chairman of Cablevision effective June 30, 1994.
COMPETITION AND SUBSTANTIAL REGULATION IN THE CABLE TELEVISION INDUSTRY
RISKS RELATED TO REGULATION. Cablevision's cable television operations,
like those of the Partnership, may be adversely affected by government
regulation, the impact of competitive forces and technological changes. In 1992,
Congress enacted the 1992 Cable Act, which represented a significant change in
the regulatory framework under which cable television systems operate. In April
1993 and February 1994, the Federal Communications Commission (the 'FCC')
ordered reductions in cable television rates. In June 1995, a federal appeals
court upheld the material aspects of the FCC's rate regulation scheme.
Telecommunications legislation pending in Congress would relax the cable rate
regulation required by the 1992 Cable Act. The legislation would also open the
local telephone business to competition from cable television companies and
other providers and preempt state and local barriers to entry into that market.
While both the U.S. Senate and the House of Representatives have passed bills,
Cablevision cannot predict whether the legislation ultimately will be enacted
into law or what form the final legislation will take. See 'Business -- Cable
Television Operations -- Competition' and 'Business -- Cable Television
Operations -- Regulation' in the Cablevision Form 10-K.
RISK OF COMPETITION. Cable operators compete with a variety of distribution
systems, including broadcast television stations, multichannel multipoint
distribution services ('MMDS'), satellite master antenna systems ('SMATV'),
direct broadcast satellite systems ('DBS'), and private home dish earth
stations. For example, CAI Wireless Systems, Inc., an MMDS operator, has
received investments from Bell Atlantic Corporation and NYNEX Corporation and
owns operating systems or spectrum rights in a significant portion of
Cablevision's systems. In addition, three DBS systems are now operational in the
United States. The 1992 Cable Act prohibits a cable programmer that is owned or
affiliated with a cable operator (such as Rainbow Programming) from unreasonably
discriminating among or between cable operators and other multichannel video
distribution systems with respect to the price, terms and conditions of sale or
distribution of the programmer's service and from unreasonably refusing to sell
service to any multichannel video programming distributor. Cable systems also
compete with the entities that make videotaped movies and programs available for
home rental. The 1992 Cable Act regulates the ownership by cable operators of
MMDS and SMATV. The telecommunications legislation recently passed by the U.S.
Senate would eliminate these statutory cross-ownership limitations, while the
bill passed by the House of Representatives would retain them. In July 1992, the
FCC voted to authorize additional competition to cable television by video
programmers using broadband common carrier facilities constructed by telephone
companies. The FCC allowed telephone companies to take ownership interests of up
to 5% in such programmers. The FCC also reaffirmed an earlier holding, recently
upheld on appeal by a federal court, that programmers using such a telephone
company-provided 'video dialtone' system would not need to obtain a state or
municipal franchise. Several telephone companies have sought approval from the
FCC to build such 'video dialtone' systems. Such a system has been proposed in
several communities in which Cablevision currently holds a cable franchise and
several of such systems have been approved by the FCC. Additional competition to
cable systems is possible if the FCC authorizes the licensing of local
multipoint distribution services ('LMDS'). The FCC has proposed to license this
service to providers.
COMPETITION FROM TELEPHONE COMPANIES. The 1984 Cable Act bars co-ownership
of telephone companies and cable television systems operating in the same
service areas ('cable-telco cross-ownership prohibition'). Numerous Federal
district courts have held this prohibition to be unconstitu-
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tional. Several of these decisions have been upheld on appeal and a number of
other decisions are pending on appeal in various Federal appellate courts. The
U.S. Supreme Court is expected to consider the constitutionality of the
prohibition during the 1995-96 term.. Neither the 1984 Cable Act nor the 1992
Cable Act bars a telephone company from acquiring cable systems outside its
telephone service area, and several Regional Bell operating companies have
purchased or made investments in cable systems. Legislation to repeal the
cable-telco cross-ownership prohibition, subject to certain regulatory
requirements, has passed both the U.S. Senate and the House of Representatives;
repeal has also been endorsed by the Clinton Administration. These bills also
would permit a telephone company to acquire an in-region cable operator in
certain small markets under certain circumstances. Cablevision cannot predict
whether the legislation ultimately will be enacted into law or what form any
final legislation would take. See 'Business -- Cable Television
Operations -- Regulation' in the Cablevision Form 10-K.
RISK OF NON-EXCLUSIVE FRANCHISES AND FRANCHISE RENEWALS. Cablevision's
cable television systems, like those of the Partnership, are operated primarily
under nonexclusive franchise agreements with local government franchising
authorities, in some cases with the approval of state cable television
authorities. Cablevision's business, like the Partnership's business, is
dependent on its ability to obtain and renew its franchises. Although
Cablevision has never lost a franchise as a result of a failure to obtain a
renewal, its franchises are subject to non-renewal or termination under certain
circumstances. In certain cases, franchises have not been renewed at expiration
and Cablevision operates under temporary licenses while negotiating renewal
terms with the franchising authorities. See 'Business -- Cable Television
Operations -- Franchises' in the Cablevision Form 10-K.
FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT
If the Merger is consummated, the Limited Partners' investment in the
Systems will be through the ownership of Cablevision Class A Common Stock. An
investment in Cablevision Class A Common Stock would constitute a fundamental
change in the nature of the investment of the Limited Partners, including the
change from an investment in a partnership with a limited life to an investment
in a corporation with an infinite life. These changes include significant
modifications to the rights of the Limited Partners with respect to dividends
and distributions, voting, meetings of holders, dissolution and liquidation, and
access to investor lists and other books and records. Also, there will be
changes with respect to the management of the entity, taxation of the entity and
its investors, marketability and transferability of the interests and the
compensation of controlling entities. All of these changes are discussed under
'Comparison of Cablevision Class A Common Stock with Units.' The Partnership
only owns and operates the Systems, whereas an investment in Cablevision
involves an investment in an entity which operates cable television systems with
approximately 2,753,000 subscribers in 19 states as of June 30, 1995 based on
the number of basic subscribers in systems which Cablevision manages and which
it owns or in which it has investments. Cablevision also has ownership interests
in companies that produce and distribute national and regional programming and
advertising sales services.
In addition, Cablevision's investment objectives are substantially broader
than those of the Partnership. Cablevision has broad powers to engage in
whatever types of activities it chooses while the Partnership is limited to
those activities relating to the operation of the Systems. Under either the
partnership or the corporate structure, Limited Partners (absent consummation of
the Merger) and holders of shares of Cablevision Class A Common Stock are
unlikely to receive any distributions of value with respect to their equity
interests in the foreseeable future. Stockholders of Cablevision are entitled to
vote on more matters than Limited Partners of the Partnership; however,
affiliates of Cablevision who hold voting stock of Cablevision, including Dolan,
also have voting rights. Because Dolan beneficially owns a majority of the total
voting power of Cablevision and a majority of the shares of Cablevision Class B
Common Stock, he has the power to elect the 75% of the directors subject to
election by holders of the Cablevision Class B Common Stock and may control
stockholder decisions on matters in which the holders of Cablevision Class A
Common Stock and Cablevision Class B Common Stock vote together as a class. See
' -- Risks of an Investment in Cablevision if Merger is Consummated -- Voting
Control by Majority Stockholders; Disparate Voting Rights.' Under the
Partnership Agreement, on substantially all matters on which Limited Partners
can vote, the General Partners and their affiliates have no vote. While Limited
Partners have a greater ability to call meetings
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of Partners than stockholders of Cablevision have to call meetings of
stockholders, Cablevision stockholders are much more likely to participate in
meetings of stockholders as such meetings are held on an annual basis.
See ' -- Risks of an Investment in Cablevision if Merger is Consummated'
and ' -- Competition and Substantial Regulation in the Cable Television
Industry' and 'Comparison of Cablevision Class A Common Stock with Units.'
THE TRANSACTIONS
BACKGROUND OF THE TRANSACTIONS
BACKGROUND OF THE RELATED PARTNERSHIPS. The Partnership was organized in
1981 to construct, own and operate the Boston System. During 1982, the
Partnership sold 575 units (the 'Original Units') of limited partnership
interests in the Partnership to qualified investors at a purchase price of
$60,000 per unit, thereby raising gross proceeds of $34.5 million, payable in
four installments through January 1985. Certain directors and officers of
Cablevision purchased three of the Original Units. Two such Original Units were
purchased by an officer and a director of Cablevision for $54,000 each after
certain investors defaulted after paying $6,000 therefor. In addition, Dolan and
CSBC each contributed $100 cash to the Partnership and CSBC has further
contributed to the capital of the Partnership the provisional cable television
license granted to CSBC on March 25, 1982 by Boston Mayor Kevin H. White, the
issuing authority for the City of Boston, and all rights pertaining thereto.
In 1983, the Partnership acquired a 99% limited partnership interest in
Brookline. Brookline subsequently purchased all the stock of, and then
liquidated, Times Mirror Cable Television of Brookline, Massachusetts, and
thereby acquired a 15-year non-exclusive license which expires in 1997 to
construct, own and operate the Brookline System. In order to raise additional
funds to finance the acquisition and completion of the Brookline System, in 1983
the Partnership offered an additional 575 units (the 'New Units') of limited
partnership interests in the Partnership to qualified investors at a purchase
price of $10,000 per unit. Under the terms of that offering, Dolan (or his
designee) was required to purchase any unsold New Units at a price of $9,000
(the amount of the net proceeds to the Partnership from the sale of the New
Units). Dolan purchased 282 New Units that were unsold in the offering and then
resold such Units to a predecessor of Cablevision at the same price. No selling
expenses were paid by the Partnership, Dolan or such Cablevision predecessor in
connection with Dolan's purchase of such New Units. As a result, the net
proceeds per New Unit to the Partnership from the sale of these New Units to
Dolan were the same as the net proceeds per New Unit from the sale of the New
Units to the unaffiliated Limited Partners. Upon the sale of the New Units, the
Original Units were split six-for-one so that each Limited Partner who
previously held one Original Unit thereafter held six units (the Original Units,
and collectively with the New Units, the 'Units'). As of December 31, 1985, the
Limited Partners had invested an aggregate of approximately $40 million in the
Partnership. The Partnership has not received any equity contributions from the
Limited Partners since such date.
The Partnership used all of the proceeds of the two offerings, net of
customary selling expenses, legal fees and other fees and expenses, to finance
the construction, operation and maintenance of the Boston System and, after
1983, the acquisition and construction, operation and maintenance of the
Brookline System. These activities consumed all of the Limited Partners' equity
contributions and required, as described in more detail below, extensive
borrowings by, and additional investments in, the Partnership.
When the Partnership was formed, one of its primary objectives was to
provide cash distributions to the Limited and General Partners. Based on
financial projections prepared by the General Partners in 1982 and 1983,
according to their best available estimates at that time, the Partnership had
projected that it would become a profitable investment vehicle that would be
able to make cash distributions to its Partners by the end of 1986 by
constructing and operating cable television systems in Boston and Brookline. For
the reasons described below, the Partnership never achieved this investment
objective and has not been profitable at any time since its organization,
although the General Partners believe that the Partnership may begin to generate
net profit commencing in 1999. The General Partners do
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not, however, believe that the Partnership will be able to generate cash flow
sufficient to make distributions to the Limited Partners in the foreseeable
future because all of the available cash flow will be required to be utilized to
operate the Systems and to repay outstanding indebtedness for the foreseeable
future. See 'Cablevision of Boston -- Management Projections.' Moreover, because
of the lack of an active trading market for the Units (see 'Limited Market for
Units; Distributions'), Limited Partners who desire liquidity in their
investment in the Partnership may have no practical means of disposing of their
Units.
FINANCIAL BACKGROUND. The Partnership began to experience business and
financial difficulties during 1984 and 1985. These difficulties were largely a
result of delays in wiring and marketing multiple dwelling units due to
unforeseen landlord objections, difficulty in obtaining access to public
housing, delays in accessing the Back Bay and Beacon Hill areas of Boston due to
objections from the Back Bay Historical Society, as well as other construction
delays, and shortfalls in the overall number of available homes from those
forecast in the Partnership's original franchise application. Such forecast was
based on census data provided by the City of Boston. In addition, a new state
property tax covering the Partnership's cable properties was enacted. As a
result of these problems, the Partnership had substantially fewer subscribers
beginning in late 1984 and at all times through 1988 than it had anticipated and
had lower cash flows from operations than it had originally budgeted.
Funds provided under the Amended and Restated Loan Agreement, dated
December 15, 1982 (the 'Original Loan Agreement'), with the Banks were intended
to finance completion of construction of the Systems. As of October 1, 1984, the
Partnership had borrowed $69.3 million under the Original Loan Agreement. The
Partnership's number of subscribers, however, was below that required as a
condition to the borrowing of amounts in excess of $15.0 million under the
Original Loan Agreement and, in October 1984, the Banks refused to lend any
additional funds. This situation resulted in a cash shortage and a shortage of
the capital funds necessary to access additional homes from existing cable trunk
and to complete construction of the Systems.
Obligations under the Original Loan Agreement were partially guaranteed by
Cablevision Systems Development Company ('CSDC'), a predecessor of Cablevision,
and Century Management Corporation ('Century'), an unaffiliated subsidiary of a
primary supplier of equipment to the Partnership, Cablevision and their
affiliates. These guarantees were supported by letters of credit in the amounts
of $7.0 million (the 'CSDC Letter of Credit') and $15.0 million (the 'Century
Letter of Credit'), which CSDC and Century, respectively, caused to be issued in
favor of the Banks. The Partnership's obligations to reimburse CSDC and Century
for their payments in respect of the CSDC Letter of Credit and the Century
Letter of Credit, respectively, were evidenced by separate subordinated loan
agreements. Any payments made by CSDC or Century pursuant to the foregoing
arrangements were treated as subordinated loans to the Partnership in an
equivalent amount. These subordinated loans were specifically contemplated by
the Partnership Agreement. In December 1984 and January 1985, the Banks drew an
aggregate of approximately $4.4 million under the CSDC Letter of Credit and the
full $15.0 million under the Century Letter of Credit and the Partnership
thereby incurred subordinated loans from CSDC and Century in the aggregate
amount of approximately $19.4 million. The remaining amount of the CSDC Letter
of Credit was cancelled as of September 1985.
The Partnership Agreement does not limit the incurrence of debt. The
Partnership Agreement does, however, provide that, in the event that the
Partnership incurs debt financing in excess of $80.0 million principal amount
(the '$80 Million Cap') as a result of cost overruns or a failure to meet
projected Partnership taxable income (excluding depreciation and amortization
and any gain or loss from the disposition of assets from January 1, 1982 to the
date of calculation), an amount of Century's and CSDC's subordinated loans to
the Partnership equal to such excess would be converted into capital of the
Partnership ('Loan Conversion Contributions'). Loan Conversion Contributions
were not to be repaid until after Payout and thereafter were to be repaid
(without interest or any return) from 25% of cash available for distributions.
As a condition to agreeing to the Century Letter of Credit, Century required the
Partnership to agree not to take any action that would result in the
Partnership's debt obligations to Century being converted into Loan Conversion
Contributions pursuant to the Partnership Agreement.
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Because of the Partnership's inability to make additional borrowings under
the Original Loan Agreement and constraints imposed by its agreement with
Century and the Partnership Agreement, the Partnership had to fund its working
capital needs and construction costs solely from subscriber revenues. These
revenues were, however, insufficient to meet its needs, resulting in, among
other things, a slowdown of construction and a dramatic increase in both the
total amount, and the overdue nature, of the Partnership's accounts payable to
trade creditors. When the Partnership could not make certain payments to its
trade creditors in December 1984, the Partnership borrowed funds from a
predecessor of Cablevision, because no other sources of funds were then
available to the Partnership. Such predecessor of Cablevision subsequently made
several such loans and advances to the Partnership, aggregating approximately
$9.4 million as of April 1985. After giving effect to these borrowings, the
Partnership's outstanding indebtedness did not exceed the $80 Million Cap.
The Partnership estimated in April 1985 that approximately $20.0 million in
additional financing would be required to complete construction of the Systems
and to meet its other financial obligations. At that time, the Partnership was
advised by outside financial advisors that, in light of the financial condition
of the Partnership and the overall depressed nature of the market for
investments in urban cable television systems at such time, such advisors would
be unable to raise from outside sources the funds required to meet the
Partnership's capital needs and the requirements of the Banks. Such advisors
also advised the Partnership that, in their opinion, any attempt to raise
additional capital from the Limited Partners would be impracticable.
Accordingly, in April 1985, after consultation with investment bankers and
legal counsel, the Partnership adopted a refinancing plan (the 'Refinancing
Plan') that called for Cablevision Finance Limited Partnership, an entity that
was then controlled by an affiliate of Dolan and which is now a wholly-owned
subsidiary of Cablevision ('Cablevision Finance'), to make an equity investment
of cash (the 'Cash Infusion') of an unspecified amount in order to permit the
Partnership to obtain waivers of certain defaults under the Original Loan
Agreement, to borrow additional funds under the Original Loan Agreement and to
pay down trade and other debt, explicitly including advances made by affiliates
of the Partnership and the General Partners. Under the Refinancing Plan,
Cablevision Finance was to receive Preferred Equity in exchange for the Cash
Infusion. The contractual terms of the Preferred Equity held by Cablevision
Finance provided for (i) cumulative distributions at a rate of 15%, compounded
semi-annually, (ii) the right to a priority return of the amount contributed and
any amounts of unpaid cumulative distributions whenever the Partnership had
funds available for distribution to partners within the limits permitted by the
Original Loan Agreement and (iii) the right to receive 20% of all amounts
available for post-Payout distributions ('Cablevision Finance Full Contractual
Rights'). This post-Payout interest reduced ratably the existing post-Payout
interests of the General Partners and their affiliates, on the one hand, and the
Limited Partners, on the other hand, from 40% to 32% and 60% to 48%,
respectively. The Refinancing Plan noted that the Preferred Equity would not be
accounted for as indebtedness of the Partnership for accounting purposes, but
did not give any assurance that the Preferred Equity would be treated as equity
rather than debt for tax purposes.
The General Partners distributed a copy of the Refinancing Plan to the
Limited Partners in 1985. Although the General Partners believed, based upon the
advice of the Partnership's financial advisors, that the Limited Partners were
at that time unlikely to have an interest in making an investment in the
Preferred Equity with Cablevision Finance, the Refinancing Plan also stated that
the Limited Partners would be offered the right to purchase a portion of the
Preferred Equity on the same terms and conditions as those made available to
Cablevision Finance. However, as the General Partners subsequently advised the
Limited Partners, the offering to the Limited Partners was initially deferred
due to uncertainty in negotiations for relief from certain requirements under
the Partnership's license agreement with the City of Boston and ongoing
negotiations concerning restrictions under the Original Loan Agreement. The
Limited Partners were not subsequently given an opportunity to purchase
Preferred Equity due to the commencement of discussions with Cablevision
regarding a sale of the Systems (see ' Discussions between the General Partners
and Cablevision' below) and the uncertainties as to the outcome of those
discussions.
The General Partners believe that the Partnership would have been unable to
obtain the required funds from any other source, which could have resulted in
the Partnership having to sell its assets to
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meet its debt obligations. As stated in the Refinancing Plan, the General
Partners believed that the funds realizable upon such a sale at such time would
have been sufficient to repay the obligations under the Original Loan Agreement
but would have been insufficient to pay all of the other creditors of the
Partnership or to return any portion of the capital contributions of the Limited
and General Partners.
From July 1985 through mid-1989, the Partnership issued to Cablevision
Finance an aggregate of $45.7 million of Preferred Equity in consideration of
the conversion of subordinated loans and cash advances made by, and cumulative
unpaid general and administrative expenses and direct charges due pursuant to
the Management Agreement owed to, Cablevision or its predecessors, totalling
$42.5 million and interest thereon of $3.2 million, including the $4.4 million
drawn on the CSDC Letter of Credit. In view of the amount of financial
assistance provided by Cablevision Finance to the Partnership, the unlikelihood
that any economic benefits would be derived from any such advances or
investments in the near term and the uncertainty of any long-term return,
Cablevision Finance stopped advancing funds to the Partnership in mid-1989.
From June 1989 through April 1990, the Partnership issued $4.6 million of
Preferred Equity to Cablevision Systems Services Corporation ('CSSC'), a
corporation wholly-owned by Dolan that provides management services to the
Related Partnerships, in consideration of cash infusions and the conversion of a
portion of the amount due and unpaid on a note previously issued by the
Partnership to Home Box Office, Inc. that had been purchased by CSSC. The
Preferred Equity issued to CSSC has the same contractual terms and conditions as
the Preferred Equity issued to Cablevision Finance, except that it has no right
to share in any post-Payout distributions and the principal amount thereof may
not be paid until the principal amount of Preferred Equity held by Cablevision
Finance has been paid ('CSSC Full Contractual Rights' and, together with
Cablevision Finance Full Contractual Rights, the 'Full Contractual Rights').
Such conversions by Cablevision Finance and CSSC of outstanding prior
advances and loans into Preferred Equity generally occurred when the Partnership
did not have the ability to borrow additional amounts under the Original Loan
Agreement, or could do so, but not without causing the Partnership's outstanding
indebtedness to exceed the $80 Million Cap.
In November 1990, the Partnership repaid $3.0 million in principal in
respect of the Century subordinated loan from funds obtained from bank
borrowings. In August 1991, as part of a transaction in which Dolan acquired
from Century the remaining $12.0 million in principal of the Century
subordinated loan in exchange for Cablevision Class A Common Stock owned by
Dolan and related registration rights, Century waived $13.2 million of accrued
interest with respect to the subordinated loan and the Partnership recorded a
gain on forgiveness of debt in that amount as a result. In September 1991, the
Partnership paid Dolan $12.0 million in full satisfaction of the subordinated
loan from funds obtained from bank borrowings.
As of June 30, 1995, subordinated debt, unpaid advances, and unpaid
management fees and interest thereon owing to Cablevision Finance, CSSC and
Dolan and accrued interest thereon aggregated $55.7 million, and Preferred
Equity contributions and cumulative unpaid distributions thereon aggregated
$168.0 million (including $117.7 million of unpaid cumulative distributions).
Under an agreement entered into when the Partnership was formed, CSSC has been
entitled to receive management fees equal to 3 1/2% of the Partnership's gross
receipts. Payment of such fees has, however, been subordinated and deferred
under the Original Loan Agreement. Unpaid management fees, together with
interest thereon, aggregated approximately $25.5 million of the $30.2 million
owing to CSSC and Dolan at June 30, 1995. To date, none of Dolan, CSSC or
Cablevision or its subsidiaries have received any payments in respect of its
advances made to, services rendered to, or Preferred Equity in, the Partnership,
other than the reimbursement of expenses, except that CSSC received $1.5 million
in respect of interest on unpaid management fees in 1992.
Except as disclosed in this Consent Solicitation Statement/Prospectus, none
of the General Partners nor the Related Partnerships has experienced any
material adverse financial developments since January 1, 1995 or believe that
they will experience any such difficulties in the near future. See 'Cablevision
of Boston -- Management's Discussion and Analysis of Financial Position and
Results of Operations' and 'Cable Regulation.'
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DISCUSSIONS BETWEEN THE GENERAL PARTNERS AND CABLEVISION. Cablevision
initiated informal discussions concerning a possible purchase of the Systems
from the Partnership during 1987 because of Cablevision's belief that an
acquisition of the Systems would fit well with its business plans and strategy,
its desire to derive a return on its investment in the Partnership and its
desire to alleviate the potential conflicts that could arise between the
Partnership and Cablevision. These potential conflicts arise from the fact that
Dolan is the chairman of Cablevision as well as the managing general partner of
each of the Related Partnerships. This dual role created potential conflicts
because of the Partnership's problems in obtaining financing for the completion
of the Systems from sources other than Cablevision and its affiliates, from the
use of Cablevision employees to manage the Partnership's business and in
connection with the negotiation of pricing of programming services purchased by
the Partnership from Cablevision affiliates. The General Partners were
interested in pursuing discussions with Cablevision because of their desire to
provide the Limited Partners with more liquidity than they have in respect of
their current investment in the Partnership, their desire to provide members of
the GP Group with a return on their investment in the Partnership and their
desire to alleviate the potential conflicts between the Partnership and
Cablevision described above. The General Partners and Cablevision informally
discussed a possible price range for a cash sale of the Systems. However, the
General Partners believed that such price range would not be sufficient to
return to the Limited Partners a substantial portion of their original
investment in the Partnership. The General Partners were unwilling to consider a
sale of the Systems absent such a return. As a result, the parties determined
that a sale of the Systems to Cablevision was not feasible at that time and the
discussions ended. The General Partners and Cablevision continued, however, to
have discussions from time to time, on an informal basis, in an attempt to
structure an asset or other sale transaction. These discussions led to the
negotiations discussed below regarding a possible sale of the Systems.
Beginning in 1989, a special committee of the Board of Directors of
Cablevision, composed of Charles D. Ferris, Victor Oristano and A. Jerrold
Perenchio, directors of Cablevision who were elected by holders of Cablevision's
Class A Common Stock and who are not employees of Cablevision (the 'Cablevision
Special Committee'), was requested to review matters relating to Cablevision's
investment in the Partnership. The Cablevision Special Committee was asked to
review these matters from the perspective of Cablevision's public stockholders
due to the potential conflict of interest implicit in Cablevision's investment,
as a result of Dolan's respective interests in Cablevision and the Partnership.
At that time, Cablevision determined that it would not advance additional funds
to the Partnership and that Cablevision should seek to derive an immediate
economic benefit from its investment in the Partnership by acquiring ownership
of the Systems. Also in 1989, the Cablevision Special Committee, with the
assistance of Goldman, Sachs & Co., as financial advisor, and legal counsel,
began reviewing Cablevision's investment in the Partnership and analyzing
possible transactions.
By the end of 1989, the General Partners and Cablevision had tentatively
agreed to a structure that contemplated the Partnership selling the Systems to a
subsidiary of Cablevision for cash, followed by the dissolution and liquidation
of the Partnership. In such liquidation, the Affiliate Claims and Preferred
Equity Interests were to be paid in full prior to any distributions to the
Limited Partners. The Limited Partners were to receive in such liquidation cash
distributions in respect of their limited partnership interests. However, the
General Partners and Cablevision were not able to agree on a price which the
General Partners believed would be sufficient to return to the Limited Partners
a substantial portion of their original investment in the Partnership. The
General Partners were unwilling to consider a sale of the Systems absent such a
return. Negotiations concerning this potential transaction thus ended.
The General Partners and Cablevision continued to discuss informally from
time to time a possible transaction between the Partnership and Cablevision.
These informal discussions led to negotiations between the General Partners and
the Cablevision Special Committee, as discussed below, in 1992, 1993 and 1994.
During these informal discussions, Cablevision proposed a purchase of the
Systems at a price based on a multiple of the Partnership's projected operating
cash flow (operating income plus depreciation and amortization and management
fees) because the purchase price of cable television systems is frequently based
upon such a calculation. For example, in 1993 Cablevision proposed the assumed
notional amount for the Systems of $210 million, which was based on a multiple
of 11 times 1993 budgeted operating cash flow and which Cablevision believed was
an appropriate sale multiple for
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the Systems. These discussions did not ultimately lead to any agreement between
the parties with respect to cash flow multiples because multiples of cash flow
used in recent sales of cable television systems would not have generated an
amount of consideration that the General Partners considered fair to the Limited
Partners in light of the circumstances and that would have induced the Limited
Partners to approve a transaction. In addition, the parties began discussing a
structure involving the use of shares of Cablevision Class A Common Stock for a
significant portion of the consideration to be paid in such transaction, thereby
increasing the aggregate amount Cablevision would be willing to pay, while
providing unaffiliated Limited Partners seeking liquidity with publicly traded
securities. The General Partners proposed the structure involving the
Incorporation followed by the Merger and Liquidation as an alternative that
would enable the Partnership to receive shares of Cablevision Class A Common
Stock in a transaction the General Partners believe more likely than not will be
viewed as tax-free.
Although this new proposed structure increased the aggregate amount
Cablevision would be willing to pay for the Systems, the amounts being discussed
were still not sufficient to return any amounts to the Limited Partners after
the payment of the Partnership's outstanding debt, management fees and Preferred
Equity Interests. (At December 31, 1992, the outstanding debt, Affiliate Claims
and Preferred Equity Interests totaled over $229 million.) Accordingly, in early
1993, the General Partners introduced into the discussions with Cablevision and
the Cablevision Special Committee the idea that each of the Cablevision Group
and the GP Group should agree to reductions in the amounts due them from the
Partnership in order to increase the amount of consideration that would be
distributable to the unaffiliated Limited Partners in a liquidation of the
Partnership in connection with the sale of the Systems to a level (i) that the
General Partners considered fair to the unaffiliated Limited Partners in light
of all the circumstances relating to any such sale and (ii) that would induce
the Limited Partners to approve any such transactions. The General Partners
initially proposed that CSSC and Cablevision Finance agree to forgive all
cumulative distributions on the Preferred Equity as a method of increasing the
distribution to Limited Partners. CSSC also offered to forgo, without additional
consideration, its right to continue to receive management fees. Thereafter, an
important element of discussions between the General Partners and Cablevision
was the aggregate amount to be distributed to the Limited Partners in the
Liquidation and the amount of and the allocation as between the GP Group and the
Cablevision Group of the aggregate reductions in Affiliate Claims and Preferred
Equity Interests necessary to achieve the agreed upon distribution to the
Limited Partners.
In late 1993, following discussions between the General Partners and
Cablevision regarding the possible terms of the potential transactions, the
Cablevision Special Committee authorized Cablevision to make an offer to the
General Partners with respect to the terms of the Transactions that would result
in a distribution of an aggregate of $32.2 million in the form of Cablevision
Class A Common Stock to the Limited Partners in the Liquidation and certain
limited concessions in connection with the Incorporation. The offer accepted the
concept of reductions in amounts due to members of the GP Group and the
Cablevision Group, and proposed that the Affiliate Claims and Preferred Equity
Interests held by members of the Cablevision Group and the GP Group be reduced
proportionally, as between the GP Group and the Cablevision Group, based on the
aggregate amounts of Affiliate Claims and Preferred Equity Interests of each
such Group, without regard to the contractual priorities otherwise applicable to
such amounts. In order to determine the amount of the reduction in the Preferred
Equity Interests necessary to distribute the amount allocated to the Limited
Partners in the Liquidation and to determine how much consideration Cablevision
would pay to members of the GP Group in respect of their Affiliate Claims and
Preferred Equity Interests, it was necessary to assume some notional amount for
the Systems. Cablevision proposed the assumed notional amount for the Systems of
$210 million, which was based on a multiple of 11 times 1993 budgeted operating
cash flow and which Cablevision believed was an appropriate sale multiple for
the Systems. In addition, the Cablevision Special Committee and Dolan agreed
that CSSC should not receive any amounts in respect of the future value of
management fees under its management agreements with the Related Partnerships.
The $32.2 million offer represented a return of approximately 80% of the
unaffiliated Limited Partners' original investments. The Cablevision Special
Committee considered the amount of such offer to be appropriate in light of the
proportional reductions in the amounts payable by the Partnership to members of
the GP Group and the Cablevision Group in respect of their Preferred Equity
Interests.
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<PAGE>
In late 1993, due to a conflict unrelated to the Transactions, Cablevision
and Goldman, Sachs & Co. determined that it was no longer possible for Goldman,
Sachs & Co. to continue to represent the Cablevision Special Committee.
Thereafter, the Cablevision Special Committee retained Donaldson, Lufkin &
Jenrette Securities Corporation ('DLJ') to advise the Cablevision Special
Committee with respect to the Transactions. See 'The
Transactions -- Cablevision's Purposes and Reasons for the Transactions.' The
General Partners began consulting with PaineWebber in 1993 with respect to their
discussions with Cablevision and negotiations with the Cablevision Special
Committee and retained such firm in May 1994 to evaluate the fairness of any
proposed transaction from the perspective of the unaffiliated Limited Partners.
In January 1994, the General Partners informed the members of the
Cablevision Special Committee that they had agreed to the proportional
reductions based on the aggregate amounts of Affiliate Claims and Preferred
Equity Interests of each such Group, without regard to the contractual
priorities otherwise applicable to such amounts, but that the $32.2 million
offer was not sufficient. The General Partners proposed that Limited Partners
receive in the Liquidation Cablevision Class A Common Stock with a market value
of approximately $36.2 million, representing a return of approximately 90% of
the unaffiliated Limited Partners' original investments in the Partnership, and
that members of the Cablevision Group and the GP Group agree to additional
concessions in connection with the Incorporation, including reducing the amount
of Affiliate Claims and Preferred Equity Interests and waiving the 20%
post-Payout interest in the Partnership in respect of Cablevision Finance's
Preferred Equity. The Cablevision Special Committee authorized a counteroffer to
increase the consideration to be received by the Limited Partners to $36.2
million and agreed to reduce the Affiliate Claims and Preferred Equity
Interests. In this connection, the Cablevision Special Committee refused,
however, to waive the post-Payout interest attributable to Cablevision Finance's
Preferred Equity if the Incorporation was effected but the Merger was not
consummated.
In April 1994, as a result of their further review of the proposed terms of
the Transactions, the General Partners were unable to conclude that $210 million
was an appropriate value for the Systems. The General Partners determined that
$235 million was a reasonable valuation for the Systems and that, based on such
valuation, and given the uncertainties regarding the Preferred Equity discussed
below under ' -- Uncertainties Regarding Validity of the Preferred Equity,' the
appropriate amount that the Limited Partners should receive in the Merger and
the subsequent Liquidation was Cablevision Class A Common Stock with a market
value of approximately $40.25 million, which would return to the unaffiliated
Limited Partners approximately 100% of the aggregate amounts they had originally
invested in the Partnership. The General Partners thus informed the Cablevision
Special Committee that they believed that the Limited Partners should be
allocated Cablevision Class A Common Stock with an approximate market value of
$40.25 million in the Merger and Liquidation and that the proposed proportional
reductions in Affiliate Claims and Preferred Equity Interests held by affiliates
should be based on an assumed notional amount for the Systems of $235 million.
Such increase in the assumed notional amount ascribed to the Systems would have
the effect of increasing the amount of cash to be received by the members of the
GP Group in connection with the Transactions.
In May 1994, the Cablevision Special Committee agreed to consider terms for
the Transactions that would enable the Limited Partners to receive Cablevision
Class A Common Stock with a market value of approximately $40.25 million and
provide for the Incorporation Concessions, but would not agree to base the
proportional reductions in Affiliate Claims and Preferred Equity Interests on an
assumed notional amount of $235 million. The Cablevision Special Committee would
not agree to base the proportional reductions in Affiliate Claims and Preferred
Equity Interests on a proposed assumed notional amount of $235 million because
they had previously agreed to allocate such interests based upon an assumed $210
million figure. An increase in the assumed notional amount to $235 million would
have, among other things, resulted in a larger cash payment to members of the GP
Group. The General Partners indicated that, as between members of the GP Group
and members of the Cablevision Group, they would agree to base the proportional
reductions in Affiliate Claims and Preferred Equity Interests on the original
notional amount of $210 million even though they could not conclude that $210
million was an appropriate value for the Systems. The increase in the
distribution to the Limited Partners in the Liquidation without any increase in
the assumed notional amount had the effect of decreasing the amount Cablevision
would pay members of the GP Group with respect to their Affiliate
57
<PAGE>
Claims and Preferred Equity Interests. Accordingly, the parties did not agree to
a specific value for the Systems. The General Partners determined that it was
not necessary for the parties to agree on a specific value for the Systems
because of the Partnership's outstanding contractual obligations, the reductions
agreed to by members of the GP Group and the Cablevision Group and the General
Partner's belief that the $40.25 million value allocated to the Limited Partners
would be fair under any reasonable valuation of the Systems.
On June 14, 1994 (i) the General Partners approved the Transactions, (ii)
the Cablevision Special Committee and the Cablevision Board of Directors
approved the Transactions, and (iii) the Merger Agreement was executed. For a
discussion of the reasons for such approval, see ' -- Recommendations of the
General Partners; Fairness of the Transactions.'
The amount of Cablevision Class A Common Stock that the Limited Partners
are expected to receive in the Merger and Liquidation has been reduced from
Cablevision Class A Common Stock with an Average Cablevision Stock Price of
$40.25 million to approximately $40.0 million because Cablevision, which owns
282 Units, has agreed to receive Cablevision Class A Common Stock with an
Average Cablevision Stock Price of $9,000 per Unit. Cablevision paid such lower
amount for its Units. The difference between $40.0 million and $40.25 million
reflects the $282,000 reduction in the Cablevision Class A Common Stock that
otherwise would have been received by Cablevision.
UNCERTAINTIES REGARDING VALIDITY OF THE PREFERRED EQUITY. The Preferred
Equity was issued to each of Cablevision Finance and CSSC pursuant to Paragraph
8.1(a)(vii) of the Partnership Agreement. Paragraph 8.1(a)(vii) provides, in
relevant part (with capitalized terms having the meanings set forth in the
Partnership Agreement), that the General Partners have the right and power
'on behalf of the Partnership, [to] enter into . . . participations or
agreements with affiliated or unaffiliated persons, firms or
corporations . . ., on any terms, including without limitation the granting
of an equity participation in the Partnership; provided, however, that the
General Partners may enter into any such . . . agreement or grant such
participation only if (A) the relative post-Payout and post-Breakeven
interests of the Cablevision Partners, as a group, and the Limited Partners,
as a group, would be affected proportionately by virtue of the entering into
such . . . agreement or the granting of such participation or (B) Limited
Partners then entitled to seventy percent (70%) or more of the Net Profits
and Net Losses of the Partnership allocated to all Limited Partners, and
Limited Partners (other than any person which, directly or indirectly,
controls or is controlled by or is under common control with (an
'Affiliate') of a General Partner) then entitled to fifty percent (50%) or
more of the Net Profits and Net Losses of the Partnership allocated to such
Limited Partners, have consented to the entering into of such . . .
agreement or the granting of such participation.'
The Partnership Agreement defines 'Cablevision Partners' as Dolan, Cablevision
Systems Boston Corporation and Cablevision Systems Development Corporation, and
it defines 'Limited Partners' as the limited partners listed on Schedule B to
the Partnership Agreement, which lists all of the holders of Units on the books
and records of the Partnership. Neither the term 'Cablevision Partners' nor the
term 'Limited Partners' is defined in the Partnership Agreement to include
either Cablevision Finance or CSSC. The contractual terms of the Preferred
Equity held by Cablevision Finance provided for, among others things, the right
to receive 20% of all amounts available for post-Payout distributions. This
post-Payout interest reduced ratably the existing post-Payout interests of the
General Partners from 40% to 32% and of the Limited Partners from 60% to 48%.
The General Partners did not seek or obtain the approval of the Limited
Partners to issue the Preferred Equity pursuant to Paragraph 8.1(a)(vii)(B) of
the Partnership Agreement because, based on the advice of their counsel, the
General Partners believed that Paragraph 8.1(a)(vii)(A) of the Partnership
Agreement authorized them to issue the Preferred Equity to affiliates of the
General Partners. That belief was based on the conclusion that the issuance of
the Preferred Equity affected the 'Cablevision Partners' and the 'Limited
Partners' proportionately because neither the term 'Cablevision Partners' nor
the term 'Limited Partners' is defined in the Partnership Agreement to include
Cablevision Finance or CSSC.
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In connection with their consideration of the Transactions, the General
Partners, together with their counsel, Debevoise & Plimpton, reviewed the
issuance of the Preferred Equity. The General Partners continue to believe that
the Preferred Equity was validly issued. They concluded, however, based on such
review and the advice of their counsel, that one or more Limited Partners could
bring litigation challenging the issuance of the Preferred Equity on the grounds
that it did not fully comply with Paragraph 8.1(a)(vii) of the Partnership
Agreement and claiming that the holders of the Preferred Equity are not entitled
to their Full Contractual Rights (including payment of the full amounts
contributed to the Partnership in respect of the Preferred Equity and unpaid
cumulative distributions thereon at the rate of 15% per annum, compounded
semi-annually, prior to any distribution to Partners). In such litigation, it
would also be possible that a Limited Partner would assert that interests in the
Partnership held by Cablevision Finance and CSSC, as affiliates of the General
Partners, should be deemed to be interests held by the Cablevision Partners and
that the issuance of the Preferred Equity therefore did not comply with
Paragraph 8.1(a)(vii)(A) because such issuance affected the relative post-Payout
and post-Breakeven interests of the Cablevision Partners and the Limited
Partners disproportionately. The General Partners recognized that such
litigation might be commenced notwithstanding that no post-Payout or
post-Breakeven distributions have been made to date or will be made in
connection with the Transactions and that, as a result, to date there has been
and, in connection with the Transactions there will be, no actual
disproportionate effect on the post-Payout or post-Breakeven interests of the
Limited Partners whether or not the interests in the Partnership of Cablevision
Finance and CSSC are deemed to be interests of Cablevision Partners. See
' -- Certain Litigation' below for a description of litigation brought by a
Limited Partner.
In assessing the fairness of the consideration to be received by
unaffiliated Limited Partners in the Liquidation and in view of the
uncertainties concerning the Preferred Equity, PaineWebber asked the General
Partners to establish a value of the Preferred Equity for PaineWebber to assume
for purposes of its fairness opinion. In light of this request and as part of
their own consideration of whether the amount to be received by the unaffiliated
Limited Partners in the Liquidation is fair, the General Partners requested that
their counsel advise them as to the most likely outcome if litigation were
brought by one or more Limited Partners challenging the issuance of the
Preferred Equity. The General Partners recognized that the outcome of litigation
involving claims that are highly fact dependent and that require the analysis of
complex issues and documents cannot be predicted with certainty, and that any
such litigation could result in a judicial determination that the Preferred
Equity is not entitled to receive its Full Contractual Rights. Such a
determination could, in turn, lead to a determination that holders of the
Preferred Equity are entitled to a reduced amount of the proceeds of a
liquidation of the Partnership or other distributions. Any such reduction could
increase the amount that the Limited Partners would be entitled to receive from
the proceeds of a liquidation of the Partnership or of other distributions.
Counsel to the General Partners analyzed the issues that could be raised
regarding compliance of the issuance of the Preferred Equity with the
Partnership Agreement and the applicability of various defenses that would be
available in such a litigation, including, among others, laches, estoppel,
acquiescence and the statute of limitations. Such counsel also analyzed the
various remedies that might be granted if a court concluded that the Preferred
Equity was not validly issued and that there are no valid legal or equitable
defenses to such claim.
Counsel to the General Partners identified the seven possible litigation
outcomes listed below, which they believe represent the range of possible
outcomes, and assessed the likelihood of such outcomes. Based upon their
analysis, counsel for the General Partners concluded that, if litigation were
brought by one or more Limited Partners challenging the issuance of the
Preferred Equity and such litigation were fully adjudicated, it is reasonably
probable that one of the first four outcomes listed below would occur. They
considered the fifth and sixth listed possible outcomes to be unlikely to occur
in the event of such litigation, and concluded that the last listed outcome is
remote.
1. The Preferred Equity would be held to have been issued in
compliance with the Partnership Agreement or any non-compliance would be
held to be immaterial.
2. A legal or equitable defense would bar the Limited Partners'
challenges.
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3. The holders of the Preferred Equity would be entitled to receive,
in lieu of their Full Contractual Rights, the principal amount of their
investments plus a reasonable return.
4. The amounts paid for the Preferred Equity would be treated as loans
to the Partnership with the consequence that the Partnership's indebtedness
would have exceeded the $80 Million Cap and approximately $18.5 million of
Preferred Equity and subordinated loans would be converted, pursuant to
Section 6.8 of the Partnership Agreement, into subordinated Loan Conversion
Contributions that may be repaid only from 25% of the amounts available for
post-Payout distributions. Holders of the Preferred Equity would receive,
in lieu of the Full Contractual Rights, repayment of the principal amounts
of their Preferred Equity investments, less the amount of Preferred Equity
converted into Loan Conversion Contributions, plus interest on such amount
at a reasonable rate pursuant to Section 10.1 of the Partnership Agreement.
5. All purchases of Preferred Equity would be treated as purchases of
limited partnership interests and, in lieu of the Full Contractual Rights,
holders of the Preferred Equity would share ratably with the Limited
Partners in any distributions.
6. The Preferred Equity holders would, in lieu of the Full Contractual
Rights, be entitled to receive only repayment of the amounts invested as
Preferred Equity, without any return on those investments.
7. The Preferred Equity holders would receive nothing in return for
their original $50.3 million investment.
The following table sets forth for each of the foregoing litigation
outcomes the amounts the holders of the Preferred Equity would be entitled to
claim in respect of their Preferred Equity Interests in a liquidation or other
distribution from the Partnership, as well as the value the Partnership would
need to receive from a hypothetical sale of the Systems to a third party to
generate distributions to the Limited Partners equal to the $40 million they
would receive in the Liquidation, assuming for purposes of this analysis that a
third party would be willing to purchase the Systems for such amount. The
amounts set forth in the table do not reflect either the litigation costs that
would be incurred or the delay in obtaining liquidity if no transaction were
consummated until after the uncertainties relating to the Preferred Equity were
adjudicated or otherwise resolved.
<TABLE>
<CAPTION>
HYPOTHETICAL
THIRD PARTY
PURCHASE PRICE
$40 MILLION NEEDED TO
ALLOCATED TO RETURN $40
TREATMENT OF PREFERRED EQUITY OTHER SENIOR LIMITED MILLION TO THE
PREFERRED EQUITY CLAIM CLAIMS PARTNERS LIMITED PARTNERS
-------------------------------------------- ---------------- ------------ ------------ ----------------
(DOLLARS IN MILLIONS)
(AS OF JUNE 30, 1995)
<S> <C> <C> <C> <C> <C>
Reasonably Probable Outcomes
1. Preferred Equity validly issued $168.0 $116.8 $ 40.0 $325.2
2. Challenge barred 168.0 116.8 40.0 325.2
3. Preferred Equity principal returned with
reasonable rate of return(1) 117.5 116.8 40.0 274.7
4. Preferred Equity treated as loans(2) 109.4 98.5 40.0 248.3
Unlikely Outcomes
5. Treated as Limited Partnership Units (3) 116.8 40.0 208.0
6. Preferred Equity investment returned without
dividends or interest 50.3 116.8 40.0 207.5
Remote Outcome
7. Preferred Equity paid nothing 0.0 116.8 40.0 157.2
The Merger(4)
8. Preferred Equity allocation in the
Liquidation 52.8 116.8 40.0 210.0
</TABLE>
(footnotes on next page)
60
<PAGE>
(footnotes from previous page)
(1) Assumes a rate of return of the prime rate plus 2%. The average of the prime
rate over the period during which the Preferred Equity has been outstanding
is 8.47%. There is a range of rates that might be deemed reasonable under
the circumstances. The General Partners consider such rate to be reasonable
in light of the very high degree of risk associated with the Preferred
Equity, which was issued after the Partnership had experienced business and
financial difficulties.
(2) Interest is calculated at the prime rate plus 2%, as described in footnote
1, and $18.5 million of Preferred Equity and subordinated loans have been
treated as Loan Conversion Contributions. See 'The
Transactions -- Background of the Transactions -- Financial Background.'
(3) The Preferred Equity would, in effect, be converted into 5,030 Units,
assuming, that the holders of Preferred Equity would have been deemed to
have purchased Units at a price of $10,000 per Unit. The holders of the
Preferred Equity and the Limited Partners would, under this outcome, receive
approximately 55% and 44%, respectively, of any pre-Payout distributions to
Partners, while the General Partners would receive 1% of such distributions.
Under this outcome, in a distribution where the Limited Partners receive $40
million, the holders of the Preferred Equity would receive $50.3 million.
Under such circumstance, Payout would be achieved upon the distribution of
$90.3 million to Limited Partners.
(4) Included for reference purposes only.
As set forth in the table above, in each of the reasonably probable
outcomes, the holders of the Preferred Equity would have a claim against the
Partnership in excess of both the approximately $52.8 million that Cablevision
Finance will receive in the Liquidation and the $80 million minimum value of the
Preferred Equity assumed by PaineWebber at the direction of the General Partners
for purposes of rendering its fairness opinion to the General Partners. Counsel
to the General Partners did not identify any outcome that they considered
reasonably probable that would result in the holders of the Preferred Equity
being held to have a claim of less than $80 million.
Based upon the foregoing and their assessment of the likelihoods of the
possible litigation outcomes, counsel to the General Partners advised the
General Partners that the Limited Partners would more likely than not receive
less than $40 million and the holders of the Preferred Equity would more likely
than not receive more than $80 million if, hypothetically, the validity of the
Preferred Equity were fully adjudicated and the Partnership and Cablevision
consummated the Merger and Liquidation substituting the adjudicated rights of
the Preferred Equity for approximately $52.8 million (as of June 30, 1995) that
Cablevision Finance has agreed to accept in respect of the Preferred Equity
Interests in the Liquidation. The $80 million amount (which includes the $50.3
million originally invested and a return of at least $29.7 million) exceeds by
approximately $27.2 million the amount actually allocated to the holders of
Preferred Equity in the Liquidation. Based on the foregoing analysis, the
General Partners concluded that the Preferred Equity is more likely than not
entitled to at least $80 million. The General Partners therefore instructed
PaineWebber to assume for purposes of its fairness opinion that the Preferred
Equity has a value of at least $80 million. The Preferred Equity may have a
value, after resolution of the uncertainties relating to its issuance, that is
greater or less than $80 million.
Cablevision Finance has agreed, solely in connection with the Merger, to
reduce the Preferred Equity Interests to approximately $52.8 million (as of June
30, 1995) upon consummation of the Merger. Cablevision has advised the General
Partners that, other than in connection with the Transactions, Cablevision
Finance will not agree to any reductions or modifications of the Full
Contractual Rights of its Preferred Equity and, if necessary, will pursue all
legal remedies to enforce those rights. Cablevision believes that Cablevision
Finance advanced funds to the Partnership for valid business purposes at a time
when no other sources of funding were available. Cablevision further believes
that Cablevision Finance acquired the Preferred Equity in good faith and on
terms that were favorable to the Partnership.
Based on advice of counsel, the General Partners believe that Limited
Partners who consent to the Incorporation or Merger could be, but will not
necessarily be, precluded from challenging the issuance of the Preferred Equity
solely because of that consent; however, Cablevision Finance and the other
defendants in the Litigation have informed the General Partners that they would
raise the consent as part of the defense to any challenge, and the General
Partners believe that the consent of the Limited Partners to the Transactions is
a factor that would be considered by a court in deciding whether the Limited
Partners would be barred from challenging the issuance of the Preferred Equity.
The Partnership is a Massachusetts limited partnership. Counsel to the
General Partners are not admitted to practice in Massachusetts. Such counsel's
advice with respect to the Preferred Equity was based on their judgment after
consultation with Massachusetts counsel as to how a court applying Massachusetts
law would be likely to decide these issues.
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CERTAIN LITIGATION
On October 5, 1994, following the Partnership's filing of preliminary
consent solicitation materials with the Securities and Exchange Commission that
discussed the uncertainty with respect to the Preferred Equity, a Limited
Partner brought the Lawsuit in Superior Court of the Commonwealth of
Massachusetts captioned Joel G. Lippe v. Cablevision Systems Corp., Charles F.
Dolan, Cablevision of Boston Limited Partnership, Cablevision Systems Boston
Corp., Cablevision of Brookline Limited Partnership, Cablevision Systems
Brookline Corp., Cablevision Systems Services Corp., Cablevision Finance Limited
Partnership, COB, Inc., and Cablevision of Boston, Inc., C.A. No. 94-5428. The
action is a purported class action on behalf of holders of Units other than the
defendants, members of the immediate family of Dolan, officers and directors of
the corporate defendants, affiliates of Cablevision and their representatives,
heirs, successors and assigns.
The action asserts, among other things, claims of breaches of fiduciary
duty or aiding and abetting breaches of fiduciary duty against the defendants
arising out of the Partnership's issuance of Preferred Equity allegedly in
violation of the Partnership Agreement and the defendants' negotiation of timing
and terms for the Merger and Liquidation that are allegedly not fair to Limited
Partners. The action seeks, among other things (i) a declaration that the
defendants have breached their fiduciary duties to the Limited Partners or aided
and abetted such breaches of fiduciary duties, (ii) a declaration that it would
be a breach of fiduciary duty for the defendants to cause the Partnership to pay
themselves any distributions on the Preferred Equity because the Preferred
Equity was unlawfully issued to defendants, (iii) an order that the defendants
provide an accounting to the Partnership and Limited Partners for the
Partnership's operations prior to any Liquidation, (iv) a preliminary and
permanent injunction against consummation of the Merger and Liquidation, (v)
rescission of the Merger and Liquidation if they are consummated or rescissory
damages if they cannot be rescinded, and (vi) compensatory damages. All
defendants have answered the complaint, and discovery has commenced. The
defendants intend to defend the action vigorously. If such action is not
dismissed or settled, the conditions to the Incorporation and Merger will not be
satisfied. See 'Description of the Incorporation -- Conditions to the
Incorporation' and 'Descriptions of the Merger -- Conditions to the Merger.'
REASONS FOR AND ALTERNATIVES TO THE TRANSACTIONS
The Transactions are being proposed at this time because the General
Partners were able at this time to structure a transaction that will provide
liquidity to Limited Partners at a price the General Partners believed was
desirable and fair from the perspective of all relevant parties.
The General Partners believe that the Incorporation will facilitate the
Merger (or if the Merger is not approved, a future tax-free transaction) and
will enable the Partnership to take advantage of the Incorporation Concessions.
The Incorporation is a condition to the Merger. The value of the Incorporation
Concessions may be affected by certain questions relating to whether the
Preferred Equity is entitled to its Full Contractual Rights. See 'The
Transactions -- Background of the Transactions -- Uncertainties Regarding
Validity of the Preferred Equity,' 'Description of the Incorporation -- The
Incorporation,' and 'Description of the Merger -- Determination of Allocation of
Consideration.' The Merger is being proposed by the General Partners because
they believe that (i) the consideration to be received by the unaffiliated
Limited Partners is fair to such Limited Partners, (ii) it is unlikely that
Limited Partners will receive any cash distributions from the Partnership in the
foreseeable future because the Partnership's cash flow will not be sufficient to
operate the Systems, service outstanding indebtedness and pay prior claims for
the foreseeable future and (iii) because existing Affiliate Claims and Preferred
Equity interests continue to accrue interest and distributions at rates of
between 9% and 15%, and management fees equal to 3 1/2% of gross revenues
continue to accrue, it is unlikely that the consideration that Limited Partners
would receive from any sale of the Systems in the foreseeable future, if such a
sale could be structured and consummated, would exceed the value to be received
by them in the Transactions. These beliefs were based, in part, on certain
projections prepared by management of the Partnership. See 'Cablevision of
Boston -- Management Projections.' The General Partners are also proposing the
Merger because they believe that the Merger will provide the unaffiliated
Limited Partners with a more liquid security than their current investment in
the Partnership by giving them the opportunity to receive a distribution of
publicly-traded shares of
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Cablevision Class A Common Stock in liquidation of their interests in the
Partnership with a market value (which will be based on the Average Cablevision
Stock Price) sufficient to return to such Limited Partners approximately 100% of
the amounts they had originally invested in the Partnership. In addition, the
General Partners believe, based on the opinion of counsel, that it is more
likely than not that most Limited Partners will not recognize any net amount of
taxable income as a result of the consummation of the Transactions and the
Liquidation.
The Merger will also provide members of the GP Group with a return of their
investment in the Partnership. As described more fully under ' -- Interests of
Certain Persons in the Transactions; Conflicts of Interest' below, the General
Partners and their affiliates (including Cablevision) will receive substantial
benefits as a result of the Transactions. Since the inception of the
Partnership, the General Partners and their affiliates, other than Cablevision
and its subsidiaries, have been responsible for the management of the
Partnership and have invested a total of approximately $4.7 million in cash in
the Partnership, as well as the provisional license for the Boston System. In
the Transactions, the General Partners and their affiliates (other than
Cablevision and its subsidiaries) will receive cash and Cablevision Class A
Common Stock aggregating approximately $20.1 million (calculated as of June 30,
1995). The Merger will also alleviate certain potential conflicts that could
arise between the Partnership and Cablevision because of Dolan's control
relationship with both entities, from the use of Cablevision's personnel to
manage the Related Partnerships' businesses and in connection with the
negotiation of pricing of programming services purchased by the Partnership from
Cablevision affiliates. See ' -- Risks that Neither Transaction is Consummated,'
' -- Background of the Transactions' and 'Description of the
Merger -- Determination of Allocation of Consideration.'
The General Partners considered two primary alternatives to the
Transactions: (i) a sale of the Systems to a third party other than Cablevision
followed by a liquidation of the Partnership; and (ii) the continuation of the
Partnership's current business and ownership structure.
The General Partners did not consider a sale of the Systems to a party
other than Cablevision followed by a liquidation of the Partnership to be an
attractive alternative to the Transactions because any such sale to a third
party would likely result in distributions to unaffiliated Limited Partners of
less than $10,000 per Unit. Any sale of the Systems to a third party would be
similar to the sale of the Systems to Cablevision. However, members of the GP
Group and the Cablevision Group have agreed to accept reductions in the
Preferred Equity Interests only in connection with the consummation of the
Incorporation and Merger. As a result, based on the amount of the Preferred
Equity Interests and other obligations of the Partnership as of June 30, 1995,
absent a reduction in the rights of the Preferred Equity, any third party that
purchases the Assets would likely have to pay $325.2 million or more for the
Systems (without giving effect to any capital gain or other taxes that might
become payable as a result of such transaction), in order to produce
distributions to the unaffiliated Limited Partners equal to the $40.0 million of
value they would receive in the Liquidation and more than $284.8 million to
provide any distribution to Limited Partners. The General Partners do not
believe that a third party would be willing to pay either $325.2 million or
$284.8 million in the foreseeable future because such sale prices represent
multiples of more than 18 times and 15.8 times, respectively, the estimated 1995
operating cash flow for the Systems, which multiples are well in excess of cash
flow multiples paid for cable television systems in recent years. The General
Partners believe that a multiple of cash flow is the indicator of value most
often used in the industry. See ' -- Fairness Opinion Received by the General
Partners -- Analysis of the Partnership.' In addition, a third party would be
unlikely to pay $40 million of consideration to Limited Partners absent either
an agreement from the holders of the Preferred Equity to accept a reduced
payment or an adjudication of the uncertainties relating to the Preferred Equity
in which the court determined that the Preferred Equity was entitled to a
substantially reduced amount. Cablevision has advised the General Partners that,
other than in connection with the Transactions, Cablevision Finance will not
agree to any reductions or modifications of the Full Contractual Rights of its
Preferred Equity and, if necessary, will pursue all legal remedies to enforce
those rights. As discussed in detail under ' -- Background of the
Transactions -- Uncertainties Regarding Validity of the Preferred Equity,' the
General Partners believe that even if the uncertainties relating to the
Preferred Equity were adjudicated, the holders of the Preferred Equity would
more likely than not be held to be entitled to receive as of June 30, 1995 an
amount at least equal to $80 million in respect of their Preferred Equity
Interests in the absence of any agreed-upon reduction and, accordingly, that a
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third party would need to pay at least $235 million (as of June 30, 1995) for
the Systems in order to generate distributions to the unaffiliated Limited
Partners equal to the value they would receive in the Liquidation. A value of
$235 million would yield a multiple of approximately 13 times the estimated 1995
operating cash flow for the Systems, which multiple is in excess of multiples
yielded in sales of cable television systems in recent years. See
' -- Recommendations of the General Partners; Fairness of the Transactions' and
' -- Fairness Opinion Received by the General Partners -- Analysis of the
Partnership.'
The General Partners did not consider a continuation of the Partnership's
current business and ownership structure to be an attractive alternative because
they believe that it is unlikely that the Limited Partners would receive any
distributions of value or achieve any liquidity in respect of their investment
in the Partnership for the foreseeable future. In addition, because the
Partnership's contractual obligations with respect to the Affiliate Claims and
Preferred Equity Interests will continue to accrue, any sale of the Systems in
the foreseeable future could result in the amount of the consideration received
by the unaffiliated Limited Partners being lower than the amount of
consideration that would be received by the unaffiliated Limited Partners in the
Liquidation. See ' -- Background of the Transactions -- Uncertainties Regarding
Validity of the Preferred Equity,' 'Description of the Merger -- Determination
of Allocation of Consideration' and 'Cablevision of Boston -- Management
Projections.' Continuation of the current business and structure will also
subject the Partnership to the risks described below under ' -- Risks that
Neither Transaction is Consummated.' Based upon the foregoing, the General
Partners believe that for the foreseeable future the value of the Units would be
less than $10,000 each in the absence of the proposed Transactions or a similar
proposal to acquire the Systems.
The General Partners did not consider liquidation of the Partnership in the
absence of a sale of the Systems to be a viable alternative. The Partnership's
assets consist of antennas and satellite earth stations to receive television
and radio signals, microwave relay systems, coaxial cables and associated
electronic equipment and cables from the Systems' distribution networks into
subscriber homes, as well as intangible assets such as the Boston License, the
Brookline License and subscriber lists. The book value of the Partnership's
assets (at June 30, 1995) was $47.1 million. The General Partners believe that
the value of these assets on a non-going-concern basis is limited and that
substantially more value can be achieved by selling the Systems as a
going-concern on the basis of its operating cash flow. The General Partners
believe that, if the assets were sold in a liquidation that did not involve the
sale of the Systems as a going concern, the value received would be
substantially less than the value to be received by the Partnership in the
Merger and Liquidation. In such a liquidation, the Limited Partners would almost
certainly receive substantially less than $10,000 per Unit and, perhaps, no
distribution at all. A liquidation involving a sale of the Systems as a going
concern would be substantially the same as the sale of the Systems to a third
party as discussed above.
If the Incorporation is approved and consummated and the Merger is not
approved and consummated, the General Partners will consider liquidating the
Partnership and distributing the stock of Boston Sub to the Limited Partners if
they believe that such a distribution would increase the liquidity of the
Limited Partners' investment in the Partnership and that an allocation of such
stock between the Limited Partners and other parties holding priority claims in
the Partnership that is fair to the unaffiliated Limited Partners could be
achieved. Any such liquidation would require the consent of a Majority of
Limited Partners.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS; CONFLICTS OF INTEREST
The management of Cablevision and the management of the Partnership are
substantially identical. All of the General Partners are affiliated with
Cablevision. The General Partners negotiated the terms of the Transactions on
behalf of the Partnership. No independent representative or independent counsel
has acted on behalf of the unaffiliated Limited Partners in connection with
determining the terms of either Transaction, nor did the General Partners
negotiate the terms of either Transaction with any unaffiliated Limited Partner.
See ' -- Recommendations of the General Partners; Fairness of the Transactions.'
Retention of an unaffiliated representative or independent counsel in the
context of the proposed Transactions is not required or contemplated by the
Partnership Agreement or other
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organizational documents of the Partnership. As a result, Limited Partners were
not offered the opportunity, through such representatives, to participate in the
negotiation or structuring of the terms of the proposed Transactions. There is a
possibility that, if any such representatives did participate, the terms of the
Transactions would have been different and, perhaps, more favorable to the
unaffiliated Limited Partners.
Members of the GP Group and the Cablevision Group will, as described below,
receive substantial amounts if the Merger is consummated. These amounts are,
however, less in the aggregate than these parties would have been contractually
entitled to receive in the Liquidation had such parties not agreed to grant
concessions to the Partnership in connection with the Transactions with respect
to the payment of certain amounts of the unpaid cumulative distributions on the
Preferred Equity. The value of such concessions may be affected by certain
questions relating to whether the Preferred Equity is entitled to its Full
Contractual Rights. In addition, because Cablevision will be receiving the
Systems in the Merger, the value received by Cablevision as a result of the
Transactions may be greater than the amounts allocated to members of the
Cablevision Group in respect of their Affiliate Claims and Preferred Equity
Interests. See ' -- Background of the Transactions -- Uncertainties Regarding
Validity of the Preferred Equity' and 'Description of the
Merger -- Determination of Allocation of Consideration.'
INTERESTS OF MEMBERS OF THE GP GROUP. Dolan is the chairman of the Board of
Directors and the holder of a majority of the voting power of Cablevision. Dolan
beneficially owned, as of August 31, 1995, 2.3% of the Cablevision Class A
Common Stock and 20.3% of the Cablevision Class B Common Stock, representing, on
a combined basis, 18.6% of the total voting power of both classes. In addition,
trusts established for the benefit of Dolan family members, as to which Dolan
disclaims beneficial ownership, together own Cablevision common stock
representing approximately 72.5% of the total voting power of both classes. See
'Risk Factors -- Risks Associated with the Incorporation and Merger -- Risks of
an Investment in Cablevision if Merger is Consummated -- Voting Control by
Majority Stockholders; Disparate Voting Rights.' Dolan is also the Managing
General Partner of the Partnership and the sole stockholder and a director of
CSBC, which is the other General Partner of the Partnership. The General
Partners together hold a 1% pre-Payout and 18.8% post-Payout partnership
interest in the Partnership. Dolan is the sole stockholder of CSSC, which is a
party to separate management agreements with each of the Related Partnerships.
See 'Description of the Merger -- Liquidation of the Partnership Following the
Merger.'
Dolan is also the managing general partner of Brookline, in which the
Partnership holds a 99% limited partnership interest, and the sole stockholder
and a director of CSBrC, which is the other general partner of Brookline.
Together, the general partners of Brookline hold a 1% general partnership
interest in Brookline. In connection with the Merger, Dolan has agreed to sell
all of the outstanding capital stock of CSBrC to Cablevision for $100. CSBrC
will then succeed Dolan as managing general partner of Brookline. This sale,
which is a condition to the closing under the Merger Agreement, will only be
consummated if the Merger is consummated. Neither the Partnership nor any of the
Limited Partners will share in the proceeds of such sale. Dolan will retain a
0.5% general partnership interest in Brookline following the Merger and remain
liable as a general partner on certain amounts due by Brookline to the
Partnership. If Brookline were liquidated and Dolan ceased to be liable on the
debt due to the Partnership, Dolan would incur an estimated $8.7 million tax
liability in respect of his general partnership interest in Brookline.
Cablevision will have a right of first refusal to acquire such interest and a
right to acquire such interest on the earlier to occur of Dolan's death and
January 1, 2002 at the greater of $10,000 and the book value of such interest.
Dolan's estate will have the right to put such interest to Cablevision in the
event of Dolan's death at the same price. In the event of a change in control of
Cablevision or of Brookline, Dolan will have the right to put such interest to
Cablevision at the greater of (i) prices declining from $4.4 million in 1995 to
$10,000 in 2002 and (ii) the book value of such interest. These prices are
designed to compensate Dolan for the interest he could have earned but for the
acceleration of his tax liability to a year prior to 2002 as a result of the
exercise of such put.
Dolan, as a general partner of the Partnership and Brookline, is personally
liable for all obligations of the Related Partnerships, other than obligations
under the Loan Agreement. If the Incorporation is
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approved and consummated, Dolan and CSBC will not be liable for any future
obligations of Boston Sub or for any obligations of the Partnership assumed by
Boston Sub that are released upon the Incorporation. Cablevision and its
affiliates have agreed to release the Partnership from liability with respect to
obligations owed to such parties upon the assumption thereof by Boston Sub in
the Incorporation. In addition, in the Merger Agreement, Cablevision has agreed
to release the General Partners, as general partners, from liability with
respect to the obligations of the Partnership under the Merger Agreement.
Cablevision has also agreed to indemnify Dolan and CSBC for substantially all
liabilities of the Related Partnerships (other than Brookline's debt to the
Partnership) in connection with the Transactions. In addition, if the
Transactions are consummated, Cablevision has agreed to indemnify the General
Partners in respect of substantially all other liabilities relating to the
Related Partnerships.
Dolan and the other General Partner are accountable to the Partnership and
the Limited Partners as fiduciaries and, consequently, must exercise good faith
and integrity in handling the affairs of the Partnership. The Partnership
Agreement provides that the Partnership will indemnify and hold harmless the
General Partners from any loss, damage, fine, penalty, expense, judgment or
amounts paid in settlement by reason of any act performed or omitted by the
General Partners in connection with the business of the Partnership or in
furtherance of its interests except for those acts or omissions that are the
result of the General Partner's gross negligence or willful misconduct or are
undertaken with respect to the offer, issuance or sale by a General Partner of
its own securities. The Partnership Agreement provides that the General Partners
will not be liable to any of the Limited Partners for any errors in judgment or
for any acts or omissions that do not constitute gross negligence or willful
misconduct or for the negligence, dishonesty or bad faith of employees and
agents of the Partnership selected and supervised by the General Partners with
reasonable care. In all other cases, the Limited Partners must look solely to
the assets of the Partnership for the return of their capital and shall have no
recourse against any General Partner or any Limited Partner for the return of
the same. Further, any act or omission by any General Partner, the effect of
which may cause or result in loss or damage to the Partnership, if done pursuant
to the opinion of tax, accounting or independent legal counsel selected with
reasonable care, shall be conclusively presumed not to constitute gross
negligence or willful misconduct by such General Partner. See 'Comparison of
Cablevision Class A Common Stock with Units -- Liability.' A Limited Partner may
institute legal action on behalf of himself or herself and all other similarly
situated Limited Partners to recover damages for a breach by a General Partner
of his or her fiduciary duty. Under the Massachusetts Uniform Limited
Partnership Act ('MULPA'), under certain circumstances, a Limited Partner may
bring an action on behalf of the Partnership to recover damages from third
parties. However, the expenses involved in instituting such legal proceedings
can be substantial. The fiduciary duties to the Limited Partners will remain in
effect following both the Incorporation and the Merger until the Liquidation is
complete. However, Cablevision has agreed to indemnify the General Partners for
substantially all liabilities to the Limited Partners, including liabilities for
breach of their fiduciary duties, in connection with the Transactions and, upon
consummation of the Merger, all other liabilities relating to the Related
Partnerships other than their obligations to distribute Cablevision Class A
Common Stock as provided in this Consent Solicitation Statement/Prospectus or as
otherwise required by law.
The Related Partnerships have management services agreements with CSSC, a
corporation that is wholly owned by Dolan. These agreements provide for the
payment of a fee equal to 3 1/2% of gross receipts until Payout is achieved, 5%
thereafter until two times Payout is achieved, and 6% thereafter. 'Payout' means
the date on which the Limited Partners, in the aggregate, are distributed the
amount of their original investment in the Partnership. These agreements are
renewable indefinitely at the option of CSSC. Other than a payment of $1.5
million of accrued interest made in 1992, no payments have been made in respect
of the management fees because of restrictions contained in the Loan Agreement.
Interest accrues on the unpaid principal balance at 1% above the Partnership's
average borrowing rate. Under CSSC's management agreement with the Partnership,
CSSC is also entitled to be reimbursed for certain expenses it incurs in
managing the Partnership. Since the agreement was entered into, however, the
employees of CSSC have become employees of Cablevision and Cablevision receives
the expense reimbursement.
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During March of 1986, CSSC assumed approximately $2.0 million of the
Partnership's liability to Home Box Office, Inc. ('HBO') in exchange for the
Partnership's 14% subordinated demand note (the 'HBO Note'). At that time, HBO
was demanding payment of such liability and the Partnership did not have
sufficient cash resources to make the payment. During 1990, $1.9 million of the
HBO Note was converted into Preferred Equity. At June 30, 1995, the unpaid
balance of the HBO Note and unpaid interest accrued thereon amounted to $3.5
million. Interest accrues on the unpaid balance and interest thereon at the rate
of 14% per year.
In 1988, Dolan made a subordinated loan (the 'Dolan Loan') to the
Partnership of $2.7 million due September 30, 1990. This loan was assigned to
CSSC in 1989. CSSC exchanged the entire $2.7 million principal balance of the
Dolan Loan for Preferred Equity in December 1990. Accrued interest on such debt
of approximately $0.7 million was not exchanged for Preferred Equity. At June
30, 1995, the Partnership had accrued approximately $1.2 million of interest
with respect to the Dolan Loan. Interest accrues on the unpaid balance of
interest at the rate of 14% per year.
In any liquidation of the Partnership, such management fees and debt,
together with accrued interest thereon, would be required to be paid prior to
any distributions with respect to the Preferred Equity or any general or limited
partnership interest.
Payment of such management fees and debt, together with accrued interest
thereon, is subject to a subordination agreement with the Banks. The Loan
Agreement currently permits a maximum of $4.2 million of subordinated debt and
management fees to be paid over the remaining term of the Loan Agreement. To
date, no subordinated debt or management fees have been paid, although an
aggregate of $1.5 million of interest on unpaid management fees was paid to CSSC
in 1992. Salaries and expenses attributable to management services may be
reimbursed by the Partnership subject to certain limitations under the Loan
Agreement. Cablevision is reimbursed for all such costs on a current basis. In
the absence of the Merger, it is unlikely that any of the accrued management
fees or subordinated debt or the accrued interest thereon (other than the
possible payment of the additional $4.2 million permitted by the Loan Agreement)
would be paid while the Loan Agreement is in effect. If the Incorporation is
approved and consummated, the management agreement and all of the foregoing
management fees and debt, together with accrued interest thereon, will be
assumed by and become liabilities of Boston Sub, and the Partnership will be
released from all direct liability with respect thereto. CSSC has agreed to
terminate the management services agreements and surrender the right to receive
future management fees upon consummation of the Merger without further
consideration. If the Merger is not consummated, the management services
agreements will remain in full force and effect.
As described above, in 1989 and 1990, CSSC exchanged an aggregate of $4.6
million of principal amount of the HBO Note and the Dolan Loan for Preferred
Equity having the same terms as Cablevision Finance's Preferred Equity described
under ' -- Interests of Members of the Cablevision Group,' except that such
Preferred Equity does not have a right to share in any amounts available for
post-Payout distributions and the principal amount thereof may not be paid until
the principal amount of Preferred Equity held by Cablevision Finance has been
paid.
INTERESTS OF MEMBERS OF THE CABLEVISION GROUP. Cablevision owns 282 Units
in the Partnership (approximately 7.0% of all Units). Certain directors and
officers of Cablevision also own an additional 18 Units in the Partnership.
Cablevision and certain officers and directors paid $9,000 for each of their 282
Units and 12 Units, respectively. Cablevision, which owns 282 Units, has agreed
to receive Cablevision Class A Common Stock with an Average Cablevision Stock
Price of $9,000 per Unit in the Liquidation. See ' -- Background of the
Transactions -- Background of the Related Partnerships.' Cablevision also holds
a 13.2% post-Payout partnership interest in the Partnership (in addition to the
20% post-Payout interest held by Cablevision Finance in connection with its
Preferred Equity). Neither Cablevision nor Cablevision Finance will receive any
distribution with respect to its post-Payout interest in the Partnership in the
Liquidation. See 'Description of the Merger -- Liquidation of the Partnership
Following the Merger.'
Cablevision, which provides management services to the Partnership, pays
the compensation of the employees who manage the Partnership's business, incurs
the related overhead expenses and is entitled to be reimbursed at cost for
expenses (other than Dolan's compensation) under the management agreement. Such
reimbursed expenses were approximately $1.0 million, $2.0 million and $1.9
million for
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the six months ended June 30, 1995 and the years 1994 and 1993, respectively.
The management services agreements will terminate upon consummation of the
Merger.
Prior to 1988, Cablevision Finance made secured subordinated loans to the
Partnership in the aggregate amount of $52.2 million. An aggregate of $42.5
million of principal of such loans and $3.2 million of accrued interest thereon
(totalling $45.7 million) were converted into Preferred Equity in 1985, 1986 and
1988. See ' -- Background of the Transactions.' At June 30, 1995, the total
remaining amount in respect of such subordinated loans owed Cablevision Finance,
including accrued interest, amounted to $25.5 million. Loans from Cablevision
currently bear interest at a rate of 9.0% compounded monthly and are due on
demand. If the Incorporation is approved and consummated, all of the foregoing
loan obligations, together with accrued interest thereon, will be assumed by and
become liabilities of Boston Sub, and the Partnership will be released from all
liabilities with respect thereto. If the Merger is approved and consummated, all
such obligations (including obligations assigned to Cablevision Finance by CSSC
and Dolan) will become intercompany indebtedness of Cablevision.
At June 30, 1995, $45.7 million of Preferred Equity was held by Cablevision
Finance and unpaid cumulative distributions thereon amounted to $111.9 million.
Under the terms of the Preferred Equity, the outstanding amount of such
Preferred Equity and unpaid cumulative distributions thereon must be returned
prior to any distributions to the General Partners or the Limited Partners in
respect of their partnership interests. In the absence of the Transactions, it
is unlikely that any distributions would be made in respect of the Preferred
Equity for the foreseeable future. The possibility of any return being paid in
respect of the Preferred Equity was considered sufficiently uncertain that, as
of September 30, 1985, Cablevision wrote down to zero for accounting purposes
the value of $34.5 million of Cablevision Finance's Preferred Equity and
cumulative unpaid distributions on such amount have not been recognized on
Cablevision's books.
SUMMARY TABLE OF INTERESTS OF AFFILIATES IN THE TRANSACTIONS. The following
table summarizes the approximate aggregate amounts expected to be paid by
Cablevision to itself, the General Partners and their respective affiliates in
connection with the Merger and Liquidation, the type and amount of debt and
other obligations owed by the Partnership to such affiliates, the percentage of
the amounts owed to be received in the Transactions and the type of
consideration that will be received by such affiliates in the Transactions, in
each case as of June 30, 1995 and without giving effect to the Incorporation
Concessions. Cablevision will also acquire the Systems in the Merger. The table
does not include the release of and indemnification by Cablevision relating to
the General Partners' Partnership liabilities or the $100 Dolan will receive for
the sale of his stock in CSBrC described above under ' -- Interests of Members
of the GP Group.' The actual value to be distributed to affiliates of the
General Partners and Cablevision in connection with the Merger and Liquidation
will depend upon the timing of the Merger, but such actual value will not affect
the amounts to be received by the unaffiliated Limited Partners in the
Liquidation. See 'Description of the Merger -- Determination of Allocation of
Consideration.'
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<TABLE>
<CAPTION>
AMOUNT ESTIMATED TO BE PAID IN
MERGER OR LIQUIDATION
-------------------------------------------------------------------
FORM OF
PARTNERSHIP OBLIGATION OR INTEREST AMOUNT ACCRUED AMOUNT PERCENTAGE(1) CONSIDERATION
- ------------------------------------------------- -------------- ------------ ------------- ------------------
(AS OF JUNE 30, 1995)
<S> <C> <C> <C> <C>
GP Group
General Partnership Interests (Dolan and CSBC)... -- $ 404,000(2) Cablevision Class
A Common Stock(9)
Subordinated Debt (CSSC)......................... $ 109,000 109,000 100.00% Cash
Interest on Subordinated Debt (at 14% per annum)
(Dolan and CSSC)............................... 4,603,000 --(3) 0.00% --
Management Fees (CSSC)........................... 17,181,000 14,958,000(3) 87.06%(7) Cash
Interest on Management Fees (CSSC)(10)........... 8,296,000 --(3) 0.00% --
Preferred Equity (CSSC).......................... 4,600,000 4,600,000(4) 100.00% Cash(4)
Cumulative Preferred Equity Distributions (at 15%
per annum) (CSSC).............................. 5,745,000 0.00% --
--------------
Total........................................ 40,534,000
Cablevision Group
Units held by Cablevision........................ -- $ 2,538,000(5) 100.00%(5) Cablevision Class
A Common Stock(9)
Units held by Officers and Directors of
Cablevision.................................... -- 180,000(6) 107.14%(6) Cablevision Class
A Common Stock
Unpaid Advances and Subordinated Debt(11)........ 25,501,000 25,501,000 100.00% Becomes
intercompany debt
of Cablevision
Interest on Subordinated Debt (Cablevision
Finance)....................................... -- 4,603,000 100.00%(7) Becomes inter-
company debt of
Cablevision
Management Fees (Cablevision Finance)............ -- 2,229,000 12.94%(7) Becomes
intercompany debt
of Cablevision
Interest on Management Fees (Cablevision
Finance)....................................... -- 8,296,000 100.00%(7) Becomes
intercompany debt
of Cablevision
Preferred Equity (Cablevision Finance)........... 45,700,000 45,700,000(8) 100.00% Cablevision Class
A Common Stock(9)
Cumulative Preferred Equity Distributions (at 15%
per annum) (Cablevision Finance)............... 111,935,000 2,532,000 2.26% Cablevision Class
A Common Stock(9)
183,136,000
--------------
Total........................................ $223,670,000
--------------
--------------
</TABLE>
- ------------
(1) Represents the percentage of amounts invested, in the case of Units and the
percentage of amounts accrued, in the case of other claims.
(2) The General Partners contributed an aggregate of $200 in cash to the
Partnership and the provisional cable television license granted to CSBC on
March 25, 1982 by Boston Mayor Kevin H. White, the issuing authority for
the City of Boston, and all rights pertaining thereto. Because such
provisional license has not been valued, no percentage for general
partnership interests is included.
(3) Excludes, in the case of the GP Group, and includes, in the case of the
Cablevision Group, $15,122,000 of interest on subordinated debt, management
fees and interest on management fees due members of the GP Group which will
be assigned to the Cablevision Group immediately prior to the consummation
of the Merger. See 'Description of the Merger -- Consideration to be
Received by Affiliates.'
(4) CSSC will sell all of its Preferred Equity Interests to Cablevision Finance
for $4,600,000 in cash immediately prior to the Merger.
(5) Represents 100.00% of the amounts paid by a predecessor of Cablevision for
its Units, which were purchased for $9,000 each, reflecting the fact that
no selling expenses were paid by the Partnership in connection with the
sale of such Units.
(6) Represents approximately 107.14% of the amounts paid by officers and
directors of Cablevision for an aggregate of 18 Units. Certain of
Cablevision's officers and directors holding 12 Units paid only $9,000 for
each of their Units, reflecting the fact that such Units were purchased
after certain investors defaulted after paying $1,000 therefor. Another
director paid $10,000 for each of his six units.
(7) Percentages relating to amounts assigned to the Cablevision Group, are
calculated based on the total amounts owed to the GP Group. The combined
amount for each category is 100.00%.
(8) Excludes $4,600,000 in respect of Preferred Equity to be purchased for cash
from CSSC immediately prior to the Merger.
(footnotes continued on next page)
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(footnotes continued from previous page)
(9) The value of the Cablevision Class A Common Stock may vary from that shown
in the table above due to fluctuations in the value of Cablevision Class A
Common Stock. See 'Risk Factors -- Risk of Fluctuation in Market Value of
Consideration Received.'
(10) Interest currently accrues at 9.0% (1% above the Partnership's borrowing
rate under the Loan Agreement).
(11) Includes interest at a rate per annum equal to 9.0%.
Cablevision will acquire the Systems in the Merger. No independent third
party has been retained to appraise the value of the Systems in connection with
the Transactions. See 'Risk Factors -- No Appraisal Obtained for Systems.'
Accordingly, any excess in the value of the Systems over amounts actually paid
by Cablevision to entities other than Cablevision and its subsidiaries
(approximately $80.8 million in cash and $37.8 million in Cablevision Class A
Common Stock as of June 30, 1995) and debt assumed by Cablevision (approximately
$40.6 million at June 30, 1995) will be realized by Cablevision.
Even with the agreed upon reductions in the Preferred Equity Interests, the
holders of the Preferred Equity will be receiving the amount of, and a return
on, their investments in the Partnership, while the unaffiliated Limited
Partners will be receiving only the amount of, and no return on, their
investment because the Preferred Equity is, by its terms, senior to all
partnership interests. As described under ' -- Background of the
Transactions -- Uncertainties Regarding Validity of the Preferred Equity,' the
issuance of the Preferred Equity has been challenged as not having fully
complied with certain terms of the Partnership Agreement and, if such challenge
is successful, the Preferred Equity might be held not to be entitled to its full
preferential position and unpaid cumulative distributions thereon at a rate of
15% per annum.
For a discussion of factors the General Partners considered in determining
to recommend the Transactions to Limited Partners, including the value the
General Partners have placed on the consideration to be received by the
Partnership from Cablevision in the Merger, see ' -- Recommendations of the
General Partners; Fairness of the Transactions.'
Members of the GP Group will receive cash for most of their interests in
the Partnership, while Limited Partners will receive distributions only in
Cablevision Class A Common Stock, the value of which is likely to fluctuate. See
'Risk Factors -- Risks Associated with an Investment in Cablevision --
Fluctuations in the Price of Cablevision Class A Common Stock.'
The Related Partnerships from time to time enter into agreements to
purchase services from entities in which Dolan, Cablevision, CSSC or their
affiliates have substantial interests; all of such agreements have been on terms
no less favorable to the Related Partnerships than could be obtained from
unaffiliated third parties. See 'Cablevision of Boston -- Certain Relationships
and Related Transactions' for a description of such agreements.
RECOMMENDATIONS OF THE GENERAL PARTNERS; FAIRNESS OF THE TRANSACTIONS
The General Partners have reviewed and considered the terms and conditions
of each of the Transactions, have unanimously approved each of the Transactions
and believe that each of the Transactions is fair to and in the best interests
of the Limited Partners who are not affiliated with the General Partners. THE
GENERAL PARTNERS RECOMMEND THAT THE LIMITED PARTNERS CONSENT TO AND APPROVE BOTH
THE INCORPORATION AND THE MERGER.
BECAUSE CONSUMMATION OF THE INCORPORATION IS A CONDITION TO THE MERGER,
LIMITED PARTNERS WHO WISH TO APPROVE THE MERGER SHOULD VOTE IN FAVOR OF BOTH THE
INCORPORATION AND THE MERGER.
In view of the potential conflict of interest implicit in the Transactions,
the General Partners retained PaineWebber to evaluate the fairness of the
consideration to be received in the Liquidation by the unaffiliated Limited
Partners. PaineWebber is a nationally recognized investment banking firm. As
part of its investment banking business, PaineWebber is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings, competitive biddings, leveraged buy-outs, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. In selecting PaineWebber,
the General Partners took into account its expertise in the mergers and
acquisitions area, its substantial experience in valuing securities and its
familiarity with the cable television industry. Richard H. Hochman, who was a
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managing director of PaineWebber at the time PaineWebber was retained and when
it delivered its opinion, is a director of Cablevision elected by the holders of
Cablevision Class A Common Stock. Mr. Hochman is not a member of the Cablevision
Special Committee. Mr. Hochman also owns six Units. See ' -- Fairness Opinion
Received by the General Partners.' The General Partners did not consider Mr.
Hochman's position to be a risk because of their understanding with PaineWebber
that Mr. Hochman would not be involved in the process of rendering the fairness
opinion.
Prior to the execution of the Merger Agreement, the General Partners
received the written opinion of PaineWebber that, as of the date of such
opinion, the consideration to be received by the unaffiliated Limited Partners
in the Liquidation was fair, from a financial point of view, to such Limited
Partners. This opinion was subsequently confirmed by PaineWebber in its written
opinion, dated October 17, 1995, a copy of which is attached to this Consent
Solicitation Statement/Prospectus as Appendix A. PaineWebber's opinion is based
upon several important assumptions, including an assumption that the value of
the Preferred Equity is at least $80 million. Limited Partners are urged to read
a copy of the PaineWebber fairness opinion in its entirety. See ' -- Fairness
Opinion Received by the General Partners -- Opinion of PaineWebber.'
In reaching the conclusion that each of the Transactions is fair to and in
the best interests of the Limited Partners who are not affiliated with the
General Partners, the General Partners considered the factors described in this
section entitled ' -- Recommendations of the General Partners; Fairness of the
Transactions.' The General Partners considered the following factors to be most
important to their determination that each of the Transactions is fair to and in
the best interests of the Limited Partners who are not affiliated with the
General Partners: (i) the opinion of PaineWebber, financial advisor to the
General Partners, discussed below under ' -- Fairness Opinion Received by the
General Partners -- Opinion of PaineWebber,' that the consideration to be
received by the unaffiliated Limited Partners in the Liquidation, is fair, from
a financial point of view, to the unaffiliated Limited Partners, (ii) the
expected market value of the Cablevision Class A Common Stock to be distributed
to the Limited Partners in connection with the Liquidation, which will return to
the unaffiliated Limited Partners approximately 100% of the amounts they have
invested in the Partnership, which the General Partners believe is fair based on
the value of the consideration to be received in the Merger and the nature and
amount of obligations of the Partnership that are senior in right of payment to
the Units, as more fully described below, (iii) the opinion of counsel to the
General Partners that such distribution more likely than not will be viewed as
tax-free, which will allow a Limited Partner to avoid taxation on the shares
received in the Liquidation until such Limited Partner sells his or her shares,
(iv) the existence of a public trading market for the Cablevision Class A Common
Stock, which should provide Limited Partners who so desire the ability to
liquidate their investment in Cablevision Class A Common Stock received in the
Liquidation at a market price, (v) the Partnership's existing financial
obligations, including the Partnership's obligations to make payments in respect
of indebtedness under its Loan Agreement and Affiliate Claims and Preferred
Equity Interests, and its current and projected cash flows, which are set forth
under 'Cablevision of Boston -- Management Projections,' which indicate that (x)
the Affiliate Claims and Preferred Equity Interests are likely to continue to
accrue at a faster rate than the Partnership's cash flow, (y) it is unlikely
that any cash distributions will be made to the Limited Partners in the
foreseeable future if the Transactions do not occur, and (z) based upon the
General Partners, (1) extensive experience in the cable television industry, (2)
involvement in numerous acquisitions of cable systems, (3) general awareness of
the terms of purchases and sales of cable television systems by others and (4)
review of the principal terms of publicly disclosed cable systems transactions
over the past several years, a sale of the Systems in the foreseeable future
could result in the amount of the consideration received by the Limited Partners
being lower than the amount of the consideration that would be received by them
as a result of the Transactions because of the rate of accrual of Affiliate
Claims and Preferred Equity Interests in comparison to cash flow, (vi) the
limited trading market for the Units (see 'Limited Market for Units;
Distributions'), which may prevent Limited Partners who desire liquidity in
their investment in the Partnership from having any practical means of disposing
of their Units, (vii) the General Partners' belief as to the value of the
consideration to be received from Cablevision in the Merger, (viii) Cablevision
Finance's agreement to forego payment of a portion of the unpaid cumulative
distributions on the Preferred Equity to which the holders of the Preferred
Equity are contractually entitled in connection with the Transactions because
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(a) absent a reduction in the rights of the Preferred Equity, any third party
which purchased the Systems would likely have to pay at least $325.2 million (or
more than 18 times estimated 1995 operating cash flow) in order to generate
distributions to the unaffiliated Limited Partners of 100% of the per Unit
amounts originally invested by such Limited Partners in the Partnership and (b)
the General Partners believe that, as discussed under ' -- Background of the
Transactions -- Uncertainties Regarding Validity of the Preferred Equity,' upon
an adjudication of the uncertainties relating to the Preferred Equity, the
holders of the Preferred Equity would more likely than not be held to be
entitled to receive at least $80 million in respect of the Preferred Equity
Interests, and the Limited Partners less than the amounts they will receive in
the Liquidation, in the absence of Cablevision Finance's agreement to reduce the
Preferred Equity Interests to approximately $52.8 million (as of June 30, 1995)
in connection with the Merger. In considering the factors set forth under
clauses (ii), (v), (vii) and (viii) above, the General Partners considered the
analysis of the uncertainties with respect to the Preferred Equity discussed
under 'The Transactions -- Background of the Transactions -- Uncertainties
Regarding Validity of the Preferred Equity.' Based on that analysis, the General
Partners concluded that the holders of the Preferred Equity would more likely
than not be entitled to at least $80 million if, hypothetically, the validity of
the Preferred Equity were fully adjudicated and the Partnership and Cablevision
consummated the Merger and Liquidation, substituting the adjudicated rights of
the Preferred Equity for the approximately $52.8 million (as of June 30, 1995)
that Cablevision Finance has agreed to receive in respect of the Preferred
Equity Interests in the Liquidation. Accordingly, the General Partners believe
that Cablevision Finance's agreement to forego unpaid cumulative distributions
in respect of the Preferred Equity is more likely than not worth at least $27.2
million to the Partnership (reflecting the difference between $80 million and
$52.8 million) and that the value of the consideration to be received by the
Partnership from Cablevision in the Merger is at least $235 million. This
minimum value of at least $235 million is calculated as follows:
<TABLE>
<CAPTION>
JUNE 30, 1995
--------------------
(DOLLARS IN MILLION)
<S> <C>
Bank Indebtedness to be paid by Cablevision............................ $ 61.1
Subordinated debt, advances, management fees and interest to be paid or
assumed in the Merger................................................ 55.7
Allocation to Limited Partners......................................... 40.0
Allocation to General Partners......................................... 0.4
Minimum estimated value of Preferred Equity............................ 80.0(1)
-------
Total............................................................. $237.2
-------
-------
</TABLE>
- ------------
(1) The value of the Preferred Equity, as of June 30, 1995 (excluding
possibilities that the General Partners believe are remote), may be between
$50.3 million (assuming the holders of the Preferred Equity are determined
not to be entitled to any unpaid cumulative distributions thereon, an
outcome the General Partners believe is unlikely) and $168.0 million
(assuming the holders of the Preferred Equity are determined to be entitled
to all of the unpaid cumulative distributions thereon). See ' -- Background
of the Transactions -- Uncertainties Regarding Validity of the Preferred
Equity.'
A value of $235 million would yield a multiple of approximately 13 times
the estimated 1995 operating cash flow of the Partnership. The General Partners
believe that such value compares favorably with recent sales prices for cable
television systems based on available information with respect to reported sales
of cable television systems since January 1, 1991, which indicates that average
sale multiples were less than 12 times projected operating cash flow, that only
one sale of a cable television system for more than $50 million was made at a
multiple greater than 12 times projected operating cash flow and that the value
of the Systems based on the average multiples paid in such years would be
between approximately $163 million and $198 million. The General Partners did
not, however, determine a specific value or range of values for the Systems
because of the General Partners' belief, based on the foregoing and their
experience in the cable television industry, that the allocation to Limited
Partners in the Liquidation would be fair under any reasonable valuation of the
Systems in light of all of the circumstances relating to the Transactions.
Other material factors considered by the General Partners, including
negative factors, are described below. The General Partners gave more weight to
the factors described under clauses (i), (ii), (iv), (v), (vi) and (vii) above
than to the other factors considered because they believed those factors to be
the
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most relevant in determining the value to unaffiliated Limited Partners and the
liquidity of the consideration to be received by the Partnership in the Merger
and by such Limited Partners in the Liquidation.
In reaching the conclusion that the Incorporation is fair to and in the
best interests of the unaffiliated Limited Partners, the General Partners also
considered the following factors: that (i) the Incorporation is a condition to
consummation of the Merger and the General Partners believe the Merger is fair
to and in the best interests of the unaffiliated Limited Partners, (ii) the
Incorporation Concessions, including the reduction in the unpaid cumulative
distributions and future rate of distributions in respect of the Preferred
Equity, will increase the possibility that there will be residual equity
available for the Limited Partners if the Merger is not consummated, (iii)
following the Incorporation, taxable income of the Systems will give rise to tax
liabilities that are general obligations of Boston Sub and may be satisfied out
of cash generated by the Systems, whereas any such taxable income in excess of
the Limited Partners' available suspended losses that is generated by the
Systems while in partnership form will be payable directly by the Limited
Partners and the Limited Partners would likely have to satisfy such tax
liabilities out of cash available to them from sources other than their
investment in the Partnership, (iv) Boston Sub will obtain the benefit of a
partial 'step-up' in the basis of the Assets for purposes of calculating its
federal tax depreciation or gain upon sale of the Assets, (v) the Incorporation
may increase the likelihood that an acquisition of the Systems by an
unaffiliated purchaser could be effected in a single tax-free transaction, which
may make such an acquisition more attractive to the Partnership and (vi) the
opinion of counsel to the General Partners that the Incorporation more likely
than not will permit the Merger to be consummated on a tax-free basis. The
General Partners also considered that, upon the Incorporation, the General
Partners will no longer have personal liability with respect to the future
operation of the Systems and with respect to Partnership liabilities assumed by
Boston Sub that are released upon the Incorporation. See ' -- Interests of
Certain Persons in the Transactions; Conflicts of Interest.' In reaching the
conclusion that the Merger is fair to and in the best interests of the
unaffiliated Limited Partners, the General Partners also considered that (i)
Limited Partners will continue to have the opportunity to participate generally
in the cable television industry through their ownership of Cablevision Class A
Common Stock, (ii) the Merger will alleviate certain potential conflicts that
could arise between the Partnership and Cablevision because of Dolan's control
relationship with both entities, from the use of Cablevision's personnel to
manage the Related Partnerships' businesses and in connection with the
negotiation of pricing of programming services purchased by the Partnership from
Cablevision affiliates, (iii) Dolan will not receive any additional compensation
as an officer of Cablevision as a result of the Merger and CSSC, which is
wholly-owned by Dolan, will not be entitled to management fees from the
Partnership or Brookline following the Merger and (iv) it is likely that the
going-concern and liquidation values of the Partnership are less than the value
to be received in the Merger, as described under ' -- Reasons for and
Alternatives to the Transactions.' The General Partners also considered that
Cablevision has agreed to indemnify the General Partners for all liabilities
relating to the Partnership and Brookline, including liabilities to Limited
Partners, upon consummation of the Merger.
The book value of the Partnership's assets at June 30, 1995 was $47.1
million and the net book value of the Units was negative, and, in each case,
substantially lower than the value to be received from Cablevision in the
Merger. Such book values were not believed by the General Partners to be
relevant to their consideration of the fairness of the Transactions. Due to the
limited market for the Units, the fair market value of the Units cannot be
assessed. Although the General Partners do not believe that the foregoing are
relevant to a determination of fairness, they believe that if the fairness of
the Transactions were evaluated with respect to book value and market price, the
Transactions would be fair to the unaffiliated Limited Partners.
The General Partners considered the following as potential negative factors
that could result in adverse consequences to the Partnership and the
unaffiliated Limited Partners if the Incorporation is approved but the Merger is
not approved: (i) the fact that the Partners will not know whether the Merger
will be approved at the time the Incorporation is consummated, (ii) Boston Sub's
obligation to pay corporate income taxes generally and the resultant reduction
in cash flow, (iii) the likelihood that Boston Sub will be required to pay
income taxes sooner than when the income to the Partnership allocable to most of
the Limited Partners would become subject to tax if the Incorporation were not
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consummated, (iv) the imposition of an additional corporate-level tax in the
event of any sale of the Assets, (v) the likely need to renegotiate the Loan
Agreement and (vi) that the Partnership's only source of cash flow will be
dividends received from Boston Sub and that such dividends are likely to be
severely restricted or prohibited by the Loan Agreement. See 'Risk
Factors -- Risks Related to the Incorporation.' The General Partners determined
that the benefits of the Incorporation outweigh the foregoing negative factors.
In considering the Merger, the General Partners considered as a potential
negative factor that, if a challenge to the validity of the Preferred Equity
were to be successful, it is possible that the holders of Preferred Equity could
be found to be entitled to receive less than the $52.8 million (as of June 30,
1995) that has been allocated in the Merger or less than the $80 million minimum
value ascribed to the Preferred Equity by the General Partners. The opinion of
PaineWebber as to the fairness of the consideration to be received by the
unaffiliated Limited Partners in the Liquidation does not address whether such
consideration would be fair if the holders of the Preferred Equity were found to
be entitled to less than $80 million. As a result of such an adjudication, the
Limited Partners could be entitled to receive more than the consideration to be
distributed to them in the Merger and Liquidation. The General Partners
determined that this factor was outweighed by the benefits of the Transactions
because (a) of their belief as to the more likely outcome of an adjudication of
the uncertainties relating to the Preferred Equity as discussed under
' -- Background of the Transactions -- Uncertainties Regarding Validity of the
Preferred Equity,' and (b) there would be a substantial delay in obtaining
liquidity for the Limited Partners if no transaction were consummated until
after adjudication of any challenge to the issuance of the Preferred Equity. See
' -- Certain Litigation.' The General Partners also considered as negative
factors each of the factors discussed under 'Risk Factors', including (i) the
inherent conflicts of interest and material benefits to the General Partners,
Cablevision and their affiliates in connection with the Transactions, described
under ' -- Conflicts of Interests of Certain Persons in the Transactions;
Conflicts of Interest,' (ii) the fundamental change in the nature of the
investment of the Limited Partners as a result of the receipt of Cablevision
Class A Common Stock in the Merger described under 'Comparison of Cablevision
Class A Common Stock with Units,' and (iii) the fact that such affiliates will
receive the return of, and a return on, their investments in the Partnership,
including, in the case of members of the GP Group, substantial cash payments,
while the Limited Partners will receive only the return of, and no return on,
their investment in the form of Cablevision Class A Common Stock. The General
Partners considered the nature of the obligations due to affiliates that will be
paid as a result of the Transactions, which are senior to the partnership
interests held by the Limited Partners and are contractually entitled to payment
in full, including payment of interest and cumulative distributions, prior to
any distributions to Limited Partners. Based upon the foregoing and the positive
factors described above, the General Partners determined that the positive
factors outweighed the negative factors.
The General Partners are not aware of, nor have they solicited, any offers
by any unaffiliated person for any merger or consolidation involving the
Partnership or any sale or other transfer of any substantial part of the Assets,
including the Systems, or any securities of the Partnership which would enable
the purchaser of such securities to exercise control over the Partnership.
Except for the Incorporation Concessions, members of the Cablevision Group and
the GP Group have agreed to accept reductions in the amount of the Preferred
Equity Interests only in the event of the consummation of the Merger. In
addition, the General Partners have been advised that Cablevision Finance would
assert its entitlement to its Full Contractual Rights of the Preferred Equity in
the absence of the Transactions.
The General Partners also believe that the procedures for approving the
Transactions are fair to the Limited Partners. Pursuant to the terms of the
Partnership Agreement, each of the Incorporation and the Merger requires the
consent and approval of a Majority of the Limited Partners. The votes of
affiliates of the General Partners or Cablevision who own Units will not count
in determining whether either of the Transactions is approved by the Limited
Partners, but such affiliates will be bound by the vote of a Majority of the
Limited Partners. The solicitation of the requisite consents of the unaffiliated
Limited Partners with respect to the approval of the Incorporation and the
Merger will commence on October 20, 1995, and will be completed on the
Incorporation Expiration Date and the Merger Expiration Date, respectively. Each
solicitation will be conducted separately, and all executed consents
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will be received and tallied by, and all executed consents in respect of the
Merger solicitation will be deposited in escrow with, the Agent. Limited
Partners will be able to obtain from the Agent a current tally of votes with
respect to the Incorporation at any time prior to the Incorporation Expiration
Date. The contents of executed Merger Consents will not be disclosed to the
General Partners or their affiliates, including Cablevision, or to the Limited
Partners, until after the Incorporation is approved by the unaffiliated Limited
Partners and consummated. The General Partners anticipate that the results of
the Incorporation solicitation and the Merger solicitation will be announced on
the day following the Incorporation Expiration Date and the Merger Expiration
Date, respectively, that, if the Incorporation is approved, it will be
consummated within two days of such approval, provided that the conditions to
the Incorporation have been satisfied or waived and that, if approved, the
Merger will be consummated promptly following such approval, provided that the
conditions to the Merger have been satisfied or waived. This procedure is
necessary to ensure that the Limited Partners consider the Incorporation
separately from their consideration of the Merger as is required for the desired
tax treatment of the Transactions. See 'Certain Federal Income Tax
Consequences -- The Incorporation and the Merger.' Limited Partners will be able
to obtain from the Agent a current tally of votes in respect of the Merger at
any time following the Incorporation and prior to the Merger Expiration Date.
With respect to each of the Incorporation and the Merger, all of the Limited
Partners (including affiliates of the General Partners and Cablevision) will be
bound by the decision of a Majority of the Limited Partners. However, if the
Incorporation is not approved, all consents with respect to the Merger will have
no force or effect. See 'Consent Solicitations.'
In considering the Transactions, the Limited Partners should consider the
matters set forth under ' -- Interests of Certain Persons in the Transactions;
Conflicts of Interest.'
FAIRNESS OPINION RECEIVED BY THE GENERAL PARTNERS
OPINION OF PAINEWEBBER. The General Partners began consulting with
PaineWebber in 1993. On May 20, 1994, the Partnership formally engaged
PaineWebber to render an opinion to the General Partners as to the fairness from
a financial point of view to the Limited Partners not affiliated with
Cablevision and the General Partners (the 'Unaffiliated Limited Partners') of
the consideration to be received by such Unaffiliated Limited Partners in the
Liquidation. On June 13, 1994, prior to the General Partners' approval of the
Transactions, PaineWebber delivered its written opinion to the General Partners
that the consideration to be received in the Liquidation by the Unaffiliated
Limited Partners is fair, from a financial point of view, to such Unaffiliated
Limited Partners. This opinion was subsequently confirmed by PaineWebber in an
oral opinion delivered to the General Partners on October 3, 1995 and by its
written opinion (the 'October 1995 Opinion'), dated October 17, 1995. The June
13, 1994 opinion and the October 1995 Opinion are together referred to herein as
the 'Opinion.' The full text of the October 1995 Opinion of PaineWebber is
attached as Appendix A hereto. Reference is made to such opinion for a
description of the procedures followed, matters considered and assumptions made
by PaineWebber in arriving at its Opinion. Limited Partners are urged to read
the PaineWebber October 1995 Opinion in its entirety.
PaineWebber was not authorized to nor did it solicit third parties that
might be interested in making an investment in or acquiring the Partnership or
all or part of its assets. PaineWebber's Opinion did not address the fairness of
the consideration to be received by any particular Limited Partner. PaineWebber
was not requested to, and did not, express any opinion regarding the fairness of
(i) the Incorporation to any party, (ii) the consideration to be received in the
Merger and the subsequent Liquidation by any member of the GP Group or the
Cablevision Group, including any consideration received in any such member's
capacity as a Limited Partner, (iii) the allocation of the consideration to
holders of Preferred Equity relative to the holders of other interests in the
Partnership, (iv) the relative allocation of the consideration among the
Partners under the Partnership Agreement, or (v) the consideration to be
received by the Limited Partners who elect to exercise appraisal rights.
PaineWebber also expressed no opinion as to the price at which the Cablevision
Class A Common Stock will trade after consummation of the Merger and the
distribution of such stock in the Liquidation.
Neither the Partnership, the General Partners nor any of their affiliates
imposed any limitation with respect to the Opinion rendered by PaineWebber. The
General Partners did direct PaineWebber to
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make certain assumptions with respect to the Preferred Equity Interests.
PaineWebber did not recommend the amount of the consideration to be received by
any Limited Partner, which was determined through negotiations between the
General Partners and Cablevision and the Cablevision Special Committee.
PaineWebber is a nationally recognized investment banking firm. As part of
its investment banking business, PaineWebber is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings, competitive biddings, leveraged buy-outs, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. In reviewing the
qualifications of investment banking firms to render a fairness opinion in
connection with the consideration to be received in the Liquidation, the General
Partners considered the relative experience of investment banking firms. In
retaining PaineWebber, the Partnership took into account its expertise in the
merger and acquisition area, its substantial experience in valuing securities
and its familiarity with the cable television industry. The Partnership did not
consult with any unaffiliated Limited Partners in the selection of PaineWebber
as financial advisor.
Richard H. Hochman, who was a managing director of PaineWebber at the time
PaineWebber was retained by the General Partners and when it delivered its June
13, 1994 opinion, is a director of Cablevision and during the past two years
received $57,500 for his services as such. Mr. Hochman is not a member of the
Cablevision Special Committee. Mr. Hochman also owns six Units. The General
Partners did not believe that these interests would negatively affect
PaineWebber's ability to render an opinion because of their understanding that
Mr. Hochman would not be involved in the process of rendering the fairness
opinion and because PaineWebber was an experienced investment banking firm that
had not rendered services to Cablevision in the past and did not have another
conflict of interest.
In connection with rendering its October 1995 Opinion, PaineWebber (i)
reviewed the preliminary Consent Solicitation Statement/Prospectus dated as of
September 18, 1995 filed with the Securities and Exchange Commission; (ii)
reviewed the Merger Agreement; (iii) reviewed both the Partnership's and
Cablevision's Annual Reports on Form 10-K for the three years ended December 31,
1994 and Quarterly Reports on Form 10-Q for the quarter ended June 30, 1995;
(iv) reviewed certain operating and financial information furnished by
management of each of Cablevision and the Partnership relating to the business,
properties, financial condition, results of operations and prospects of
Cablevision and the Partnership; (v) reviewed certain financial ratios of
Cablevision and the Partnership; (vi) conducted discussions with members of
senior management of Cablevision and the Partnership with respect to the
business, properties, financial condition, results of operations and prospects
of Cablevision and the Partnership; (vii) reviewed certain financial and
business information and analyses specifically prepared by management of
Cablevision and the Partnership in connection with the Transactions relating to
the assets and operations of Cablevision and the Partnership; (viii) reviewed
certain financial projections prepared by management of each of Cablevision and
the Partnership relating to Cablevision and the Partnership; (ix) reviewed the
historical market prices and trading volumes of Cablevision Class A Common
Stock; (x) analyzed public information with respect to certain other entities
that it deemed to be generally comparable to Cablevision and the Partnership;
(xi) considered the financial terms of selected recent business combinations
which PaineWebber considered to be generally comparable to the Merger; and (xii)
conducted such other financial studies, analyses and investigations as
PaineWebber deemed appropriate.
In the course of preparing its opinion, PaineWebber relied upon the
accuracy and completeness of the financial and other information provided by
Cablevision and the Partnership and the assurances of the management of
Cablevision and the Partnership that they are unaware of any information or
factors regarding Cablevision or the Partnership that would make the information
supplied to PaineWebber incomplete or misleading. PaineWebber did not assume any
responsibility to undertake any independent verification of such information or
any independent appraisal or evaluation of any of the assets or earnings of
Cablevision or the Partnership. PaineWebber's June 13, 1994 opinion and October
1995 Opinion were each based on conditions as they existed and could be
evaluated on the respective dates thereof. PaineWebber assumed that the final
Consent Solicitation Statement/Prospectus with respect to the Transactions would
contain information and data substantially similar to that previously furnished
to PaineWebber. PaineWebber did not consider the tax effects to the Limited
Partners of the
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Transactions or any other transaction. PaineWebber did not analyze the relative
rights of the Limited Partners as limited partners of the Partnership to the
rights of the Limited Partners as holders of Cablevision Class A Common Stock.
PaineWebber's analysis did not take into account any of the effects of the
Incorporation. PaineWebber assumed that all of the conditions to the Merger
would be satisfied, including, without limitation, that the Incorporation will
have been effected. PaineWebber also assumed that the Limited Partners will
receive as a distribution in the Liquidation Cablevision Class A Common Stock
with an aggregate Average Cablevision Stock Price of $40.0 million and that,
upon such distribution, the Limited Partners will not be subject to any other
liabilities of the Partnership.
PaineWebber was directed by the General Partners to assume for purposes of
its analysis that the holders of the Preferred Equity are entitled to receive in
the Liquidation an amount at least equal to $80 million in respect of the
Preferred Equity Interests in the absence of the agreed upon reductions.
PaineWebber has informed the General Partners that it has not attempted to reach
an independent conclusion as to the amounts due in respect of the Preferred
Equity Interests. PaineWebber's Opinion notes that this Consent Solicitation
Statement/Prospectus indicates that there is uncertainty as to the amounts due
in the respect of the Preferred Equity Interests. PaineWebber's analysis did not
take into account the possibility that the holders of Preferred Equity could be
found to be entitled to receive less than $80 million. PaineWebber's opinion
further notes that the holders of the Preferred Equity have agreed to accept an
amount less than $80 million in connection with the Merger and Liquidation.
Additionally, PaineWebber has informed the General Partners that it has not
relied on any legal opinion advising as to the amounts due in respect of the
Preferred Equity, although it understands that the General Partners have
received legal advice with respect to such issues. PaineWebber's Opinion notes
that the General Partners' stated belief that is it is more likely than not that
the holders of the Preferred Equity would be held to be entitled to receive an
amount at least equal to $80 million in the absence of the agreed upon
reductions was limited to the Liquidation.
PaineWebber's Opinion does not address the relative merits of the
Transactions and any other transactions or other business strategies discussed
by the General Partners as alternatives to the Transactions or the decision of
the General Partners to proceed with the Transactions. PaineWebber's Opinion
does not constitute a recommendation to any Limited Partner as to how such
Limited Partner should vote on the Transactions.
PaineWebber assumed no responsibility to revise or update its Opinion if
there is a change in (i) the financial condition or prospects of the Partnership
or Cablevision from that disclosed or projected in the information PaineWebber
reviewed as set forth above, (ii) general, economic or market conditions or
(iii) the stock price of Cablevision Class A Common Stock. PaineWebber assumed
that there had been no material change in the Partnership's or Cablevision's
assets, financial condition, results of operations, business or prospects since
the date of the last financial statements made available to PaineWebber. In
rendering its Opinion, PaineWebber was not engaged to act as an agent or
fiduciary of, and the Partnership has expressly waived any duties or liabilities
PaineWebber may have to, the Limited Partners of the Partnership or any other
third party.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Furthermore, in arriving at its
Opinion, PaineWebber did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis or factor. Accordingly, PaineWebber
believes that its analysis must be considered as a whole and that considering
any portion of such analysis and of the factors considered, without considering
all analyses and factors, could create a misleading or incomplete view of the
process underlying its Opinion. In its analyses, PaineWebber made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Partnership and Cablevision. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein, and none of PaineWebber, the Partnership or Cablevision assumes
responsibility for the accuracy of such
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estimates. In addition, analyses relating to the value of the Systems do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold.
The following paragraphs summarize the significant analyses performed by
PaineWebber in arriving at the oral opinion presented to the General Partners of
the Partnership on October 3, 1995 and in delivering its October 1995 Opinion.
For purposes of the following discussions the outstanding amount of Affiliate
Claims, $80 million in respect of the Preferred Equity Interests, and the
Partnership's bank obligations are collectively referred to as the 'Partnership
Obligations,' and the consideration to be received by the Partners in the
Liquidation plus the Partnership Obligations are collectively referred to as the
'Adjusted Purchase Price.' For purposes of the October 1995 Opinion, such
amounts were estimated as of June 30, 1995 and the Partnership Obligations were
estimated to be $196.8 million and the Adjusted Purchase Price was estimated to
be $237.2 million. As directed by the General Partners, PaineWebber assumed that
approximately $80 million of the Partnership Obligations consisted of the
Preferred Equity Interests.
The Partnership Obligations and Adjusted Purchase Price were derived by
PaineWebber by adding the following amounts (which had been rounded from actual
or assumed amounts) (as of June 30, 1995):
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
Partnership Obligations
Indebtedness under Loan Agreement......................... $ 61.1
Subordinated debt, management fees and interest thereon... 55.7
Assumed Minimum Value of Preferred Equity Interests
(including face amount and cumulative unpaid
distributions)(1)....................................... 80.0
-------
196.8
Partners' Allocation
Allocation to Limited Partners............................ 40.0
Allocation to General Partners............................ .4
-------
40.4
-------
Adjusted Purchase Price................................... $ 237.2
-------
-------
</TABLE>
- ------------
(1) This assumption was made solely for purposes of PaineWebber's analysis.
ANALYSIS OF THE PARTNERSHIP. Selected Comparable Public Analysis. Using
publicly available information and certain third party research materials,
PaineWebber compared selected historical and projected financial and operating
data of the Partnership to the corresponding data of certain publicly traded
companies. These comparable companies consisted of Adelphia Communications
Corporation, Cablevision Systems Corporation, Century Communications, Inc.,
Comcast Corporation, TCA Cable TV, Inc. and Tele-Communications, Inc.
Because of the inherent differences between the operations of the
Partnership and the selected comparable companies, PaineWebber believed that an
appropriate use of comparable company analysis in this instance would involve
qualitative judgments concerning differences between the financial and operating
characteristics which would affect the public trading values of the selected
companies and the Partnership.
To determine a total value range for the Partnership based upon the
comparable public company analysis but subject to the foregoing limitations,
PaineWebber imputed ranges to apply to the Partnership's historical operating
results of 9.0x to 11.0x the Partnership's latest twelve months (for which
information was publicly available) ('LTM') operating cash flow (defined as
operating income plus depreciation and amortization) ('OCF'), of 9.0x to 11.0x
the Partnership's projected OCF (the fiscal year ended December 31, 1995, as
provided by the management of the Partnership) and of $1,500 to $1,800 per
subscriber based on the Partnership's subscribers on June 30, 1995. This
analysis resulted in the following total value ranges for the Partnership from
$155 million to $190 million utilizing LTM OCF; from $158 million to $193
million utilizing projected OCF; and from $210 million to $252 million
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utilizing the Partnership's subscribers. PaineWebber deducted the Partnership
Obligations to determine the resulting Partners' equity value ranges. This
analysis resulted in the following Partners' adjusted equity value ranges: from
($42) million to ($7) million utilizing LTM OCF; from ($39) million to ($4)
million utilizing projected OCF; and from $13 million to $55 million utilizing
the number of subscribers. PaineWebber noted that the consideration to be
received by the Partners in the Liquidation as disclosed in the Consent
Solicitation Statement/Prospectus had an Average Cablevision Stock Price of
approximately $40.4 million.
Selected Comparable Transaction Analysis. Using publicly available cable
television industry analyses, PaineWebber compared selected historical and
projected financial data and historical subscriber data of the 44 transactions
in the cable television industry with transaction values greater than $50
million from January 1, 1995 to August 31, 1995 ('YTD Transactions') and of the
41 transactions in the cable television industry with transaction values between
$50 million and $500 million from August 1, 1994 to August 31, 1995 ('$50-$500
million Transactions').
Based on the foregoing, PaineWebber determined that for the YTD
Transactions the median multiple of projected OCF for the target companies in
these transactions was 9.8x and the median price per subscriber for the target
companies in these transactions was $1,945 and for the $50-$500 million
Transactions the median multiple of projected OCF for the target companies was
9.7x and median price per subscriber for the target companies was $1,985.
PaineWebber then multiplied the medians from the transaction analysis by the
Partnership's corresponding projected OCF and historical subscriber data
supplied by management of the Partnership to determine an implied total value
for the Partnership. This analysis resulted in a total value of $172 million on
a projected OCF basis and $272 million on a value per subscriber basis using the
YTD Transactions, and a total value of $170 million on a projected OCF basis and
$278 million on a value per subscriber basis using the $50-$500 million
Transactions. PaineWebber then deducted the Partnership Obligations to determine
the resulting adjusted equity value of the Partnership. This analysis resulted
in an adjusted equity value of ($25) million on a projected OCF basis and $75
million on a value per subscriber basis using the YTD Transactions, and an
adjusted equity value of ($27) million on a projected OCF basis and $81 million
on a value per subscriber basis using the $50-$500 million Transactions.
PaineWebber again noted that the consideration to be received by the Partners in
the Liquidation as disclosed in this Consent Solicitation Statement/Prospectus
had an Average Cablevision Stock Price of approximately $40.4 million.
Multiples Paid Analysis. PaineWebber performed an analysis of the implied
multiples of the Adjusted Purchase Price for the Partnership's LTM OCF,
projected OCF and subscriber data for the quarter ended June 30, 1995. This
analysis resulted in the following multiples: 13.8x LTM OCF; 13.5x projected
OCF; and $1,695 per subscriber. PaineWebber noted that the comparable public
company analysis indicated median multiples of 10.2x LTM OCF; 9.9x projected OCF
and $1,977 per subscriber and the comparable transaction analysis indicated
median multiples of 9.8x projected OCF and $1,945 per subscriber using the YTD
Transactions and median multiples of 9.7x projected OCF and $1,985 per
subscriber using the $50-$500 million Transactions. PaineWebber also performed
an analysis of the implied multiples of the Adjusted Purchase Price for the
projected operating cash flow for the year ended December 31, 1996. This
analysis resulted in a multiple of 13.2x such projected operating cash flow and
PaineWebber noted that a comparable public company analysis indicated a median
multiple of 8.9x projected 1996 operating cash flow.
Discounted Cash Flow Analysis. PaineWebber performed an unlevered
discounted cash flow analysis of the projected financial performance of the
Partnership, as provided to PaineWebber by management of the Partnership.
The discounted cash flow analysis determined the present value of the
Partnership's unlevered cash flows generated over a five-year period and then
added to such discounted value the present value of the estimated residual
valuation at the end of the five years to determine a total value. 'Unlevered
cash flows' were calculated as OCF plus (or minus) net changes in non-cash
working capital, minus capital expenditures, plus (or minus) net changes in
other assets and liabilities. Due to the Partnership's historical operating
losses, PaineWebber did not tax-affect the unlevered cash flows. The analysis
calculated a terminal value based upon a range of multiples of OCF from 10.0x to
11.5x. The unlevered cash flows and the terminal values were discounted using a
range of discount rates from 12.0% to
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15.0%, which were selected by PaineWebber based on PaineWebber's investment
banking experience. This range also reflects the risk assumptions applied by
PaineWebber to the financial forecasts. The discounted cash flow analysis
resulted in a range of total value from $188 million to $203 million, from which
PaineWebber deducted the Partnership Obligations, resulting in an adjusted
equity value range from ($9) million to $6 million.
CABLEVISION CLASS A COMMON STOCK. PaineWebber reviewed the stock market
price and volume data of the Cablevision Class A Common Stock for the twelve
months ended September 28, 1995. PaineWebber compared the multiples of LTM OCF,
projected OCF and number of subscribers of Cablevision to those of selected
comparable public companies consisting of Adelphia Communications Corporation,
Century Communications, Inc., Comcast Corporation, TCA Cable TV, Inc. and
Tele-Communications, Inc. PaineWebber also reviewed certain third party research
materials with respect to Cablevision and such comparable companies. PaineWebber
performed an analysis of Cablevision's assets and liabilities to determine a
range of equity values per share for the Cablevision Class A Common Stock.
PaineWebber determined that the market price of Cablevision Class A Common Stock
as of the date of its opinion was within this range of values.
For its services provided in connection with delivery of the Opinion
PaineWebber has received a fee of $600,000 from the Partnership. In addition,
the General Partners have the right, exercisable one time prior to the closing
of the Merger, for an additional fee of $100,000 to require PaineWebber either
to confirm its Opinion or inform the General Partners that, based on its
analysis at the time in question, it has determined that its Opinion cannot be
confirmed. The fees payable to PaineWebber to date were not contingent, and none
of the fees which may become payable to PaineWebber in the future are
contingent, upon whether the Opinion rendered by PaineWebber was favorable or
unfavorable or upon the outcome of the Transactions. The fees of PaineWebber
were determined through negotiations between the General Partners and
PaineWebber. The Partnership has also agreed to reimburse PaineWebber for its
reasonable out-of-pocket expenses, including the fees and expenses of its
counsel. Furthermore, the Partnership, has agreed to indemnify PaineWebber
against certain liabilities in connection with the Merger, including liabilities
under the federal securities laws. If the Merger is consummated, Cablevision
will assume all of such indemnification obligations.
RISKS THAT NEITHER TRANSACTION IS CONSUMMATED
If neither Transaction is approved or consummated, the Partnership will
continue to operate as heretofore. The General Partners believe that funds
generated from operations, together with borrowings available under the Loan
Agreement, will be sufficient to meet capital expenditures, working capital
needs and cash interest and principal repayment requirements on the
Partnership's senior debt only until December 31, 1995. However, the Partnership
forecasts that it will be unable to meet the repayment terms on its bank debt
under the Loan Agreement at December 31, 1995. See 'Cablevision of
Boston -- Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
RISKS OF NEED TO RENEGOTIATE THE PARTNERSHIP'S LOAN AGREEMENT. The General
Partners believe that, based on current projections, if the Transactions are not
consummated, Boston Sub will be unable to meet the repayment terms on its bank
debt under the Loan Agreement at December 31, 1995 and thereafter. Accordingly,
if the Transactions are not consummated, Boston Sub will likely be required to
renegotiate its Loan Agreement. The Partnership would seek to renegotiate the
terms of the Loan Agreement in such circumstances but there can be no assurance
that the Banks would agree to such renegotiation or what the terms of any such
renegotiated agreement would be.
RISK OF NO CASH DISTRIBUTIONS. Payments of interest and principal on the
Partnership's subordinated debt, management fees and advances from affiliates
are subordinated and deferred under the terms of the Loan Agreement. At June 30,
1995, an aggregate of approximately $61.1 million principal amount of debt and
accrued interest thereon was outstanding under the Loan Agreement. At June 30,
1995 approximately $27.1 million principal amount of subordinated debt,
management fees and advances from affiliates was outstanding and approximately
$28.6 million of unpaid interest was accrued thereon. The Loan Agreement allows
for the payment of up to $4.2 million of subordinated debt, advances and
management fees over the remaining life of the Loan Agreement, which matures on
June 30, 1999. As this amount is not sufficient to pay all accrued interest
payable on such liabilities, if the Transactions are not consummated, the
Partnership's obligations with respect thereto will continue to
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increase over time. In addition, the Loan Agreement precludes the Partnership
from making any distributions with respect to the Partnership's outstanding
Preferred Equity. At June 30, 1995, $50.3 million of Preferred Equity was
outstanding and unpaid cumulative distributions thereon were $117.7 million. If
neither Transaction is consummated, the contractual terms of the Preferred
Equity provide that cumulative unpaid distributions on the Preferred Equity will
continue to accrue at the rate of 15% per annum and that all such Preferred
Equity and unpaid cumulative distributions will be paid prior to any
distributions to the Limited Partners. See ' -- Background of the
Transactions -- Uncertainties Regarding Validity of the Preferred Equity' for a
discussion of certain questions relating to whether the Preferred Equity is
entitled to its Full Contractual Rights.
As a result, the General Partners believe that it is unlikely that any cash
distributions will be made to the Limited Partners in the foreseeable future. In
addition, it is unlikely that the Limited Partners will derive any further tax
deductions from their investment in the Partnership. Absent a sale of the
Systems, the continued accumulation of unpaid obligations and cumulative unpaid
distributions on the Preferred Equity will likely further delay or even
eliminate any likelihood of cash distributions to the Limited Partners, will
likely result in a reduction in the amount of distributions ultimately received
by the Limited Partners in respect of their investment in the Partnership and
may result in a decline in the value of the Units.
See ' -- Background of the Transactions -- Financial Background,'
'Cablevision of Boston -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.'
CONTINUED POTENTIAL CONFLICTS. If the Merger is not consummated, the
potential conflicts of interest that could arise between the Partnership and
Cablevision because of Dolan's control relationship with both entities, from the
use of Cablevision's personnel to manage the Related Partnerships' businesses
and in connection with the negotiation of pricing of programming services
purchased by the Partnership from Cablevision affiliates will remain unresolved.
Dolan and the principal officers of Cablevision attempt to minimize these
potential conflicts whenever possible. To date, the programming services
purchased by the Related Partnerships from Cablevision affiliates have been
purchased at favorable rates sought by the General Partners and Cablevision
personnel have had sufficient time and resources to manage the Related
Partnerships' businesses and Cablevision has provided such personnel at cost. If
Cablevision became unwilling to provide such services at favorable rates, the
Partnership would seek arrangements for such services to be provided by a third
party. The potential for such conflicts cannot, however, be eliminated under the
existing structure of the Related Partnerships.
LIQUIDITY RISKS. If neither Transaction is consummated, Limited Partners
who desire liquidity in respect of their investment in the Partnership may have
no practical means of disposing of their Units as there is no trading market for
the Units. See 'Limited Market for Units; Distributions.'
RISKS ASSOCIATED WITH SYSTEMS FRANCHISE AGREEMENTS. If the Transactions are
not consummated, the Related Partnerships' only assets will be the Systems. The
Systems are operated under non-exclusive franchise agreements with the City of
Boston and Town of Brookline. The licenses for both Systems will expire in 1997.
The Related Partnerships' business is dependent on its ability to renew such
licenses. Although the General Partners have no reason to believe that the
Related Partnerships will not be able to renew their franchises when they expire
in 1997, the General Partners cannot predict the future success of the Related
Partnerships in retaining their franchises after expiration of the original
terms. No assurances can be given that the Related Partnerships will be able to
renew their franchises, or, if such renewals are obtained, what the terms of the
franchises will be.
EXPENSES. Cablevision has only agreed to bear all of the Partnership's
costs and expenses in connection with the Transactions if the Transactions are
consummated. If the Transactions are not consummated, the Partnership may be
required to bear all or a portion of such costs and expenses. In certain
circumstances, the Partnership may also be required to bear Cablevision's costs
and expenses in connection with the Transactions. Such costs and expenses are
expected to be substantial. See 'Fees and Expenses.'
EFFECT OF THE MERGER ON THE PARTNERSHIP AND THE PARTNERS; CABLEVISION'S PURPOSES
AND REASONS FOR THE TRANSACTIONS; PLANS OF CABLEVISION FOR THE SYSTEMS
The Merger would be considered the sale or exchange of all or substantially
all of the Partnership's assets. As such, consummation of the Merger will cause
the Partnership to dissolve under the terms of the
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Partnership Agreement. Upon the dissolution of the Partnership, the Partnership
will be liquidated in the Liquidation and the General Partners will act as
liquidating trustees. The Merger will not occur unless the Incorporation is
approved and consummated. After payment of or provision for creditors and all
other payments that must be made prior to distributions to Limited Partners, the
remaining assets of the Partnership will be distributed in kind among the
Partners in accordance with the Partnership Agreement. All of the Partnership's
liabilities will be transferred to Boston Sub in connection with the
Incorporation and will become obligations of, and be payable by, a subsidiary of
Cablevision upon the Merger.
Following the Merger and Liquidation, the Limited Partners will no longer
have a direct investment in the Systems. Their investment, instead, will be in
Cablevision Class A Common Stock. Cablevision will own the Systems through a
wholly-owned subsidiary, as well as its other businesses. See 'Cablevision
Systems Corporation.' An investment in Cablevision Class A Common Stock involves
various risks as described under 'Risk Factors -- Risks Associated with an
Investment in Cablevision -- Risks of an Investment in Cablevision if Merger is
Consummated' and differs in significant respects from an investment in the
Partnership. For a comparison of certain differences between an investment in
Cablevision Class A Common Stock and a limited partnership interest in the
Partnership, see 'Comparison of Cablevision Class A Common Stock with Units.'
Following the Liquidation, the Partnership will no longer be subject to the
requirement to file periodic reports with the Commission pursuant to the
Exchange Act and the Units will cease to be registered pursuant to Section 12(g)
of the Exchange Act. The Cablevision Class A Common Stock to be received by the
Limited Partners in the Liquidation will be publicly traded and listed on the
ASE. Following the consummation of the Transactions, Cablevision will continue
to be subject to the requirement to file periodic reports with the Commission
pursuant to the Exchange Act.
The Board of Directors of Cablevision has determined to pursue the
Transactions at this time in order to (i) acquire the Systems, which Cablevision
believes fit well with Cablevision's business plan and strategy, (ii) realize
some of the economic benefits from Cablevision Finance's prior investments in
the Partnership and (iii) alleviate the potential for conflicts that could arise
between Cablevision and the Partnership because of Dolan's control relationship
as to both the Partnership and Cablevision, from the use of Cablevision's
personnel to manage the Related Partnerships' businesses and in connection with
the negotiation of pricing of programming services purchased by the Partnership
from Cablevision affiliates.
In view of the potential conflict of interest implicit in the Transactions,
the Transactions were considered by the Cablevision Special Committee, which
participated in the negotiation of the Transactions. In this connection, the
Cablevision Special Committee retained DLJ to render an opinion as to whether
the consideration to be paid by Cablevision in the Merger is fair to Cablevision
from a financial point of view. The Cablevision Special Committee determined to
retain DLJ based on DLJ's expertise in the merger and acquisition area and
because of its substantial experience in valuing securities and its familiarity
with the cable television industry generally, and Cablevision specifically. On
June 13, 1994, DLJ rendered an opinion to the Cablevision Special Committee that
the consideration to be paid by Cablevision in the Merger, pursuant to the
Merger Agreement, is fair to Cablevision from a financial point of view. In
connection with its services, DLJ received a fee of $350,000. In addition,
Cablevision has agreed to reimburse DLJ for all of its reasonable out-of-pocket
expenses and to indemnify DLJ against certain liabilities in connection with the
Transactions, including liabilities under the federal securities laws. DLJ, as
part of its investment banking services, is regularly engaged in the valuation
of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. DLJ
has performed investment banking and other services for Cablevision in the past
and is currently engaged in providing on-going advisory services for the
Cablevision Special Committee and Cablevision, including co-managing two debt
offerings for Cablevision in 1993, and has received compensation for such
services.
Cablevision intends to finance the approximately $80.8 million of cash
(approximately $61.1 million in satisfaction of the Partnership's Loan Agreement
and approximately $19.7 million payable to the members of the GP Group as
described under ' -- Interests of Certain Persons in the Transactions; Conflicts
of Interest') that it expects to pay in connection with the Merger through
borrowings under Cablevision's Credit Agreement. See 'Cablevision Management's
Discussion and Analysis -- Liquidity
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and Capital Resources -- Restricted Group' in the Cablevision Form 10-K for a
description of Cablevision's Credit Agreement.
Cablevision currently anticipates that the business and operations of the
Systems will be continued by Cablevision substantially as they are currently
being conducted, with the existing personnel and employees of the Related
Partnerships. Although Cablevision has no present plans or proposals which
relate to or would result in an extraordinary transaction with respect to the
Systems, Cablevision reserves the right to formulate and implement different
plans or proposals with respect to any of the foregoing matters.
The Transactions will enable Cablevision to consolidate the results of
operations of the Partnership with those of Cablevision. Accordingly, changes in
the results of operations of the Partnership will be reflected in the results of
operations of Cablevision. To the extent that advances by Cablevision to the
Systems after the Transactions have a positive effect on the results of
operations of the Systems, Cablevision will obtain the benefit of such effect.
CONDITIONS TO THE TRANSACTIONS
The Incorporation will not be consummated unless the conditions set forth
in 'Description of the Incorporation -- Conditions to the Incorporation,' among
others, occur or are waived. There can be no assurance that such conditions will
be satisfied. Approval of the Merger is not a condition to the Incorporation.
The Merger will not be consummated unless the conditions set forth in
'Description of the Merger -- Conditions to the Merger,' among others, occur or
are waived. Consummation of the Incorporation is a condition to the Merger.
There can be no assurance that such conditions will be satisfied.
CERTAIN REGULATORY MATTERS
ANTITRUST MATTERS. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the 'HSR Act'), provides that certain transactions (including
the Merger) may not be consummated until certain information has been furnished
to the Department of Justice (the 'Justice Department') and the Federal Trade
Commission (the 'FTC') and certain waiting period requirements have been
satisfied. Materials required to be filed under the HSR Act with respect to the
Merger were filed with the Justice Department and the FTC and the waiting period
under the HSR Act has expired. At any time before or after consummation of the
Merger, the Justice Department, the FTC or some other person could seek to
enjoin or rescind the acquisition on antitrust grounds.
FRANCHISE APPROVALS. Massachusetts law requires that the City of Boston and
the Town of Brookline each grant its prior approval to the transfer of the cable
television franchises held by the Partnership and Brookline, respectively, which
will be transferred as part of the Transactions. An application is required to
be filed with each of the City of Boston and Town of Brookline containing
certain operating and financial information with respect to Cablevision, the
Partnership and Brookline. Applications were filed with the City of Boston and
the Town of Brookline and the City of Boston and the Town of Brookline have
approved the Transactions.
FCC APPROVALS. The rules and regulations of the Federal Communications
Commission (the 'FCC') require that the FCC's prior consent with respect to
satellite earth station, point-to-point microwave and cable television relay
service licenses granted to the Partnership and Brookline which will be
transferred as part of the Transactions be obtained. Such consents are routinely
granted by the FCC after submission of an appropriate application to the FCC.
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DESCRIPTION OF THE INCORPORATION
THE INCORPORATION
If the Incorporation is approved and all of the conditions thereto are
satisfied, the Partnership will transfer the Assets, including the Boston System
and the Partnership's 99% limited partnership interest in Brookline, to Boston
Sub, a newly formed corporation. The Partnership owns all of the outstanding
capital stock of Boston Sub. Following the Incorporation, the Partnership will
own all of the outstanding capital stock of Boston Sub, which will own and
operate the Systems.
Boston Sub will also assume all of the Partnership's liabilities,
obligations and agreements. These liabilities will include all of the
Partnership's liabilities with respect to all Affiliate Claims owed to members
of the GP Group and the Cablevision Group. These affiliates have agreed to
release the Partnership from its obligations with respect to such amounts upon
the assumption thereof by Boston Sub in the Incorporation. The Partnership will
also seek a release from its obligations under the Loan Agreement in connection
with the Incorporation.
The General Partners believe that the Incorporation will facilitate the
Merger (or if the Merger is not approved, a future tax-free transaction) and
will enable the Partnership to take advantage of certain reductions in
cumulative distributions on the Preferred Equity described under ' -- Certain
Preferred Equity Reductions' below. Consummation of the Incorporation is a
condition to the Merger. See 'Description of the Merger -- The Merger' and
' -- Conditions to the Merger.' ACCORDINGLY, LIMITED PARTNERS WHO WISH TO
APPROVE THE MERGER SHOULD VOTE IN FAVOR OF THE INCORPORATION. If the Merger is
not consummated, the Incorporation will reduce the rate of continued
accumulation of unpaid cumulative distributions in respect of the Preferred
Equity Interests to 10% per annum and reduce by approximately $11.8 million (as
of June 30, 1995) the aggregate amount of the unpaid cumulative distributions on
the Preferred Equity, all of which could serve to increase the amount of
distributions that may be paid to the Limited Partners in respect of their
investment in the Partnership over that which may be paid in the absence of the
Incorporation. The Incorporation may also increase the likelihood that an
unaffiliated purchaser could acquire the Systems in a tax-free transaction in
the future, which may make such an acquisition more attractive to the
Partnership.
There are several adverse consequences to the Partnership and the
unaffiliated Limited Partners which could result if the Incorporation is
approved but the Merger is not thereafter consummated. See 'Risk
Factors -- Risks Associated with the Incorporation and Merger Risks Related to
the Incorporation.' The General Partners believe that these adverse factors are
outweighed by the benefits of the Incorporation. See 'The
Transactions -- Recommendations of the General Partners; Fairness of the
Transactions.'
If the Incorporation is approved and consummated and the Merger is not
consummated, the General Partners will consider liquidating the Partnership
through the distribution of stock in Boston Sub to the Limited Partners or
another transaction involving the sale of Boston Sub if they conclude that such
a distribution or transaction would increase the liquidity of the Limited
Partners' investment in the Partnership and that an allocation of such stock or
acquisition consideration between the Limited Partners and other parties holding
priority claims in the Partnership that is fair to the Limited Partners could be
achieved. There can be no assurance that such an allocation can be achieved. Any
such liquidation or transaction would require the consent of a Majority of the
Limited Partners.
CERTAIN PREFERRED EQUITY REDUCTIONS. In connection with the Incorporation,
the following Preferred Equity reductions have been agreed to by members of the
GP Group and the Cablevision Group: (i) the reduction, from and after the date
of the Incorporation, in the rate of cumulative distributions on the Preferred
Equity held by an affiliate of the General Partners and Cablevision Finance from
15% to 10% per annum and (ii) a 10% reduction in the aggregate amount of the
then unpaid cumulative distributions on the Preferred Equity owed by the
Partnership to an affiliate of the General Partners and Cablevision Finance
(approximately $11.8 million at June 30, 1995, at which time approximately
$117.7 million of unpaid cumulative distributions were outstanding). The value
of these reductions may be affected by certain questions relating to whether the
Preferred Equity is entitled to its Full Contractual Rights. See 'The
Transactions -- Background of the Transactions -- Uncertainties Regarding
Validity of the Preferred Equity' and 'Description of the
Merger -- Determination of
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Allocation of Consideration.' Because members of the Cablevision Group hold most
of the Preferred Equity Interests, the Cablevision Group would bear a greater
proportion of the reductions associated with the Incorporation than is
represented by its percentage ownership of the total amount of Affiliate Claims
and Preferred Equity Interests in the Partnership. In order to make these
reductions proportionate, CSSC has agreed to assign to Cablevision Finance a
sufficient amount of the unpaid cumulative distributions on its Preferred Equity
so that the reductions are proportionate to the total amount of each group's
Affiliate Claims and Preferred Equity Interests in the Partnership. Based on the
total amount of such Affiliate Claims and Preferred Equity Interests as of June
30, 1995, in connection with the consummation of the Incorporation, CSSC will
assign its right to receive approximately $1.6 million in unpaid cumulative
distributions on the Preferred Equity to Cablevision Finance in order to
effectuate this agreement.
CONDITIONS TO THE INCORPORATION
The Incorporation will not be consummated unless each of the following
events occur or are waived: (i) a Majority of the Limited Partners consent to
the Incorporation (see ' -- Vote Required for Approval'); (ii) all permits,
orders, approvals and consents of, notices to, and registrations and filings
with the City of Boston and the Town of Brookline, which are required in
connection with the consummation of the Incorporation and the transactions
contemplated by the Merger Agreement are received and effective (which approvals
have been obtained); (iii) the Loan Agreement is amended to provide for the
assignment of the Loan Agreement to Boston Sub in connection with the
Incorporation; (iv) there is no order, injunction, decree or judgment of any
court or governmental authority and there is no pending or threatened action or
proceeding before any court or administrative body to restrain, enjoin or
otherwise prevent the consummation of the Transactions or to recover any damages
or obtain other relief as a result of such Transactions; and (v) all material
consents to the Transactions required by any governmental authority (other than
those consents delivered pursuant to clause (ii) above) or under any agreement
or contract to which the Partnership or Brookline is a party or is bound have
been received. In addition, the Incorporation will not be consummated if the
General Partners determine that consummation of the Incorporation or Merger is
not in the best interests of the unaffiliated Limited Partners and the
Partnership or Cablevision determines that the Incorporation or Merger is not in
the best interests of Cablevision's public stockholders. See 'The
Transactions -- Recommendations of the General Partners; Fairness of the
Transactions' and ' -- Certain Regulatory Matters.' There can be no assurance
that such conditions will be satisfied or waived or that the Incorporation will
be consummated. As described under 'The Transactions -- Certain Litigation,' the
Lawsuit has been commenced to, among other matters, enjoin the Transactions and
to recover damages in connection therewith. Unless such action is dismissed or
settled, the condition set forth in clause (iv) above will not be satisfied.
Neither party has made a determination as to whether the condition set forth in
clause (iv) above will be waived.
Approval of the Merger by the Limited Partners is not a condition to the
Incorporation. Because consents to the Merger will be held in escrow until the
Incorporation is approved and consummated by the Limited Partners in order to
ensure the separate consideration by the Limited Partners of the Incorporation
and the Merger, the General and Limited Partners will not know whether the
Merger will be accepted or rejected by the Limited Partners prior to
consummation of the Incorporation. See 'Consent Solicitations -- The Merger
Solicitation.'
VOTE REQUIRED FOR APPROVAL
Pursuant to the terms of the Partnership Agreement, the Incorporation
requires the consent and approval of a Majority of the Limited Partners. ALL OF
THE LIMITED PARTNERS, INCLUDING LIMITED PARTNERS WHO VOTE AGAINST THE
INCORPORATION, WILL BE BOUND BY THE DECISION OF A MAJORITY OF THE LIMITED
PARTNERS. Failure to execute and deliver an Incorporation Consent prior to the
Incorporation Expiration Date will have the effect of a vote AGAINST the
Incorporation.
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ACCOUNTING TREATMENT FOR THE INCORPORATION
Upon the Incorporation, the Partnership will transfer the Assets and all of
its liabilities to Boston Sub, a wholly-owned subsidiary of the Partnership.
Because the existing Partners in the Partnership will retain their respective
interests in the assets and liabilities of Boston Sub, the Assets and such
liabilities will be recorded by Boston Sub at the historical cost of the
Partnership.
NO APPRAISAL RIGHTS
The Limited Partners are not entitled to any statutory rights to dissent
and receive payment for, or to obtain appraisal of, the value of the Units in
connection with the Incorporation. In addition, there is no provision in the
Partnership Agreement providing for such an appraisal.
EXPENSES
For a description of the agreements regarding payment of, and reimbursement
for, fees and expenses of the Transactions, see 'Fees and Expenses.'
DESCRIPTION OF THE MERGER
The following information, insofar as it relates to matters contained in
the Merger Agreement, is qualified in its entirety by reference to the Merger
Agreement, which is incorporated herein by reference and attached hereto as
Appendix B. LIMITED PARTNERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS
ENTIRETY.
THE MERGER
The Merger Agreement provides for the merger of a wholly-owned subsidiary
of Cablevision with and into Boston Sub. Boston Sub will be the surviving
corporation in the Merger. Following the Merger, Cablevision will own all of the
Boston Sub Common Stock (as defined below). The Partnership will receive shares
of Cablevision Class A Common Stock in the Merger. The shares of Cablevision
Class A Common Stock received by the Partnership in the Merger will be
distributed by the Partnership in the Liquidation to its Partners and to
Cablevision Finance, which, at the time of the Liquidation, will be the holder
of all of the Preferred Equity. See 'The Transactions -- Interests of Certain
Persons in the Transactions; Conflicts of Interest' and ' -- Liquidation of the
Partnership Following the Merger.'
CONSIDERATION TO BE RECEIVED BY LIMITED PARTNERS
As more fully described below, consummation of the Transactions will result
in the Partnership receiving Cablevision Class A Common Stock with an expected
Average Cablevision Stock Price of approximately $40.4 million less $10,000
times the number of Units as to which appraisal rights are perfected (the
'Partners Allocation') plus the amount to be allocated (approximately $52.8
million as of June 30, 1995) to the Preferred Equity (the 'Preferred Equity
Allocation'). The Limited Partners will receive approximately $40.0 million of
such amount, or approximately $10,000 per Unit held by unaffiliated Limited
Partners (and $9,000 per Unit held by Cablevision), which is equal to 100% of
the per Unit amounts originally invested by the unaffiliated Limited Partners
and by Cablevision, less $10,000 times the number of Units as to which appraisal
rights are perfected (the 'Limited Partners Allocation'). Specifically, the
Merger Agreement provides that at the Effective Time, all of the shares of
Boston Sub common stock issued and outstanding immediately prior to the
Effective Time (the 'Boston Sub Common Stock') will by virtue of the Merger be
converted in the aggregate into the right to receive the number of shares of
Cablevision Class A Common Stock obtained by dividing the sum of the Partners
Allocation and the Preferred Equity Allocation by the Average Cablevision Stock
Price (as defined below), rounded up to the next whole share. The 'Average
Cablevision Stock Price' is defined in the Merger Agreement as the arithmetic
average of the closing price per share of the Cablevision Class A Common Stock
on the ASE for the 20 trading days ending on the second trading day prior to the
Effective Date. The market value of shares of Cablevision Class A Common Stock
actually received by a Limited Partner in respect of a Unit may be more or less
than such value due to the timing of the
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Liquidation (as discussed below) and the market value of such shares of
Cablevision Class A Common Stock at the date that such shares are distributed to
Limited Partners in the Liquidation. See ' -- Liquidation of the Partnership
Following the Merger.'
If the Merger had been consummated on October 17, 1995, an aggregate of
approximately 694,000 shares of Cablevision Class A Common Stock (representing
approximately 5.7% of the outstanding Cablevision Class A Common Stock as of
August 31, 1995) would have been allocated to the Limited Partners as a result
of the Transactions.
No fractional shares of Cablevision Class A Common Stock will be issued in
the Merger to the Partnership or in the Liquidation to unaffiliated Limited
Partners. In the Liquidation, fractional shares will be aggregated for each
Limited Partner and, if there is a fractional share after such aggregation, such
fractional share will be rounded up to the next whole number. Cablevision has
agreed that in the Liquidation, Cablevision will be distributed such lesser
number of shares of Cablevision Class A Common Stock in respect of its Units as
is necessary in order to effect the rounding of fractional shares of the Limited
Partners other than Cablevision.
EFFECTIVE TIME
The 'Effective Time' with respect to the Merger will be the time of the
filing of a certificate of merger with the Secretary of State of the State of
Delaware in accordance with the DGCL. It is anticipated that a certificate of
merger will be filed with the Secretary of State of the State of Delaware as
promptly as practicable after the expiration of all applicable waiting periods
in connection with approvals of governmental authorities and the satisfaction or
waiver of all other conditions to the consummation of the Merger set forth in
the Merger Agreement. The 'Effective Date' will be the date on which the
Effective Time occurs. See ' -- Conditions to the Merger.'
REPRESENTATIONS AND WARRANTIES
Cablevision, the Partnership, Dolan and the General Partners have made
certain representations and warranties to each other in the Merger Agreement
with respect to, among other things, organization, capitalization, ownership of
subsidiaries, financial statements and public disclosure materials furnished in
connection with the proposed Merger, the absence of material adverse changes and
the absence of certain legal proceedings, including legal proceedings pending or
threatened against the Partnership, Brookline, Boston Sub, or any member of the
GP Group that involve the validity of any amount payable in respect of, or which
relate in any way to, any outstanding security of, interest in or claim of
Cablevision, Cablevision Finance or any member of the GP Group against the
Partnership, Brookline or Boston Sub. All such representations and warranties
must be true and correct on the date made and as of the Effective Date and shall
terminate upon the consummation of the Merger.
CONDITIONS TO THE MERGER
The respective obligations of each of the parties to the Merger Agreement
to consummate the Transactions are subject to the fulfillment of certain
conditions, including each of the following: (i) the consummation of the
Incorporation; (ii) the adoption and approval of the Merger Agreement by a
Majority of the Limited Partners and by the Partnership as the sole stockholder
of Boston Sub; (iii) the receipt and effectiveness of all permits, orders,
approvals and consents of, notices to, and registrations and filings with the
City of Boston and the Town of Brookline, which are required to transfer the
franchise agreements and the franchises relating to the Systems in connection
with the consummation of the transactions contemplated by the Merger Agreement
(which approvals have been obtained); (iv) the amendment to the Partnership's
Loan Agreement to provide for the assignment of such agreement to Boston Sub, to
change the maturity date of the indebtedness thereunder to a date eighteen
months after the date of the Incorporation and to adjust such other provisions
contained therein that the Banks deem necessary or advisable to effect the
change in corporate structure; (v) the amendment to Cablevision's Credit
Agreement to permit the consummation of the Transactions (which may require,
among other things, an amendment to increase the investment basket that
Cablevision is permitted to use); (vi) the absence of any order, injunction,
decree or judgment of any court or governmental authority, and the
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absence of any pending or threatened action or proceeding on the Closing Date
(as defined in the Merger Agreement) before any court or administrative body to
restrain, enjoin or otherwise prevent the consummation of the Transactions or to
recover any damages or obtain other relief as a result of such Transactions;
(vii) the amendment to Brookline's Partnership Agreement as contemplated by the
Merger Agreement and the execution and delivery of the agreement relating to the
transfer of Dolan's general partnership interest in Brookline as contemplated by
the Merger Agreement; (viii) the receipt of all material consents to the
Transactions required by any governmental authority (other than those consents
delivered pursuant to clause (iii) above) or under any agreement or contract to
which any party to the Merger Agreement is a party or is bound; (ix) the absence
of any stop order suspending the effectiveness of the Registration Statement of
which this Consent Solicitation Statement/Prospectus forms a part and the
absence of any initiated or threatened proceedings by the Commission for that
purpose; (x) the receipt of all state securities and 'Blue Sky' permits and
other authorizations necessary to consummate the Transactions; (xi) the
authorization for listing on the ASE subject to official notice of issuance of
the shares of Cablevision Class A Common Stock issuable to the Partnership
pursuant to the Merger Agreement; (xii) the tender by Dolan of all of the
outstanding capital stock of CSBrC for purchase and the purchase by Cablevision
of such outstanding capital stock, as provided in the Merger Agreement; (xiii)
the purchase by Cablevision Finance, and sale by CSSC, of all of CSSC's
Preferred Equity Interests as provided in the Merger Agreement; and (xiv) the
execution and delivery of the Merger Restructuring Agreement (as defined in the
Merger Agreement) relating to, among other things, the assignment of a portion
of the GP Group's rights to accrued and unpaid management fees and interest on
management fees and subordinated debt to the Cablevision Group, the cash payment
of Affiliate Claims held by the GP Group, the reduction of the amount of the
Preferred Equity Interests and the termination of the management agreements
between the Related Partnerships and CSSC. As described under 'The
Transactions -- Certain Litigation,' an action has been commenced to, among
other matters, enjoin the Transactions and to recover damages in connection
therewith. Unless such action is dismissed or settled, the condition set forth
in clause (vi) above will not be satisfied. Neither party has made a
determination as to whether the condition set forth in clause (vi) above will be
waived.
The obligation of Cablevision to consummate the Transactions to which it is
a party is subject to certain additional conditions, including the following:
(i) the representations and warranties of Dolan and the Partnership contained in
the Merger Agreement being true and correct in all material respects as of the
date made and as of the Effective Date, and the performance by the Partnership
(or Boston Sub, if appropriate) and the General Partners in all material
respects of all agreements and conditions required by the Merger Agreement to be
performed by such party; (ii) the holders of not more than 200 Units (other than
Units held by Cablevision and its affiliates) having perfected their appraisal
rights pursuant to the Merger Agreement; (iii) the absence of any material
adverse change in the business, operations or condition (financial or otherwise)
of the Related Partnerships and Boston Sub; and (iv) receipt of an opinion from
Debevoise & Plimpton, counsel to the General Partners, relating to the Merger
Agreement and related agreements and certain other customary matters with
respect to the General Partners and the Partnership and certain of their
affiliates.
The obligation of the General Partners and the Partnership to consummate
the Transactions to which they are parties is subject to certain additional
conditions, including the following: (i) the representations and warranties of
Cablevision contained in the Merger Agreement being true and correct in all
material respects as of the date made and as of the Effective Date, and the
performance by Cablevision in all material respects of all agreements and
conditions required by the Merger Agreement to be performed by such party; (ii)
the absence of any material adverse change in the business, operations or
condition (financial or otherwise) of Cablevision; and (iii) receipt of an
opinion from counsel of Cablevision relating to the Merger Agreement and related
agreements and certain other customary matters with respect to Cablevision and
certain of its affiliates.
In addition, the Merger will not be consummated if, prior to the
consummation of the Incorporation, Cablevision determines that consummation of
the Incorporation or Merger is not in the best interests of Cablevision's public
stockholders or the General Partners determine that consummation of the
Incorporation or Merger is not in the best interests of the unaffiliated Limited
Partners and the Partnership. See ' -- Waiver and Amendment; Termination.'
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There can be no assurance that such conditions will be satisfied or waived
or that the Merger will be consummated.
WAIVER AND AMENDMENT; TERMINATION
WAIVER AND AMENDMENT. No amendment, modification or discharge of the Merger
Agreement, and no waiver thereunder, will be valid or binding unless set forth
in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought.
TERMINATION. The Merger Agreement may be terminated and the Merger may be
abandoned (i) at any time prior to the Effective Time, before or after the
approval by a Majority of the Limited Partners of the Incorporation or the
Merger, by the mutual consent of Cablevision and the General Partners on behalf
of the Partnership (ii) by Cablevision, the General Partners or the Partnership
by written notice to the other parties after December 31, 1995, if the Merger
shall not have been consummated pursuant to the Merger Agreement, unless such
date is extended by the mutual written consent of the parties to the Merger
Agreement, (iii) by action of Cablevision, the Partnership or the General
Partners if the approval of the Limited Partners to the Incorporation or the
Merger required by the Merger Agreement shall not have been obtained by the
relevant consent solicitation expiration date (including any extensions
thereof), (iv) by Cablevision upon a material breach of the Merger Agreement by
a member of the GP Group and by the General Partners or the Partnership upon a
material breach of the Merger Agreement by a member of the Cablevision Group, in
each case if such material breach is not cured after notice from the other party
(subject to limitations before the cure), (v) at any time prior to the
consummation of the Incorporation, by Cablevision if Cablevision determines that
the Incorporation or Merger is not in the best interests of Cablevision's public
stockholders, or (vi) at any time prior to the consummation of the
Incorporation, by the General Partners if the General Partners determine that
the Incorporation or Merger is not in the best interests of the unaffiliated
Limited Partners and the Partnership.
In the event of the termination of the Merger Agreement pursuant to the
provisions set forth in the preceding sentence, the Merger Agreement shall
become void and have no effect, without any liability in respect of the Merger
Agreement on the part of any party thereto, or any of its directors, officers,
employees, agents, consultants, representatives or stockholders, to any other
party to the Merger Agreement, except (a) for any liability resulting from such
party's willful breach of the Merger Agreement and (b) for the obligations of
the parties to pay expenses and the obligations of Cablevision to indemnify the
General Partners in connection with the Transactions pursuant to the Merger
Agreement.
ASE LISTING
Cablevision Class A Common Stock is listed on the ASE. It is a condition to
consummation of the Merger that the Cablevision Class A Common Stock to be
issued to the Partnership pursuant to the Merger Agreement will be approved for
listing on the ASE subject to official notice of issuance.
EXPENSES
For a description of the agreements regarding payment of, and reimbursement
for, fees and expenses of the Transactions, see 'Fees and Expenses.'
VOTE REQUIRED FOR APPROVAL
Pursuant to the terms of the Partnership Agreement, the Merger requires the
consent and approval of a Majority of the Limited Partners. Failure to execute
and deliver a Merger Consent prior to the Merger Expiration Date will have the
effect of a vote AGAINST the Merger. ALL OF THE LIMITED PARTNERS, INCLUDING
THOSE LIMITED PARTNERS WHO VOTE AGAINST THE MERGER, WILL BE BOUND BY THE
DECISION OF A MAJORITY OF THE LIMITED PARTNERS, ALTHOUGH LIMITED PARTNERS WHO
PROPERLY DISSENT FROM THE MERGER WILL BE AFFORDED LIMITED APPRAISAL RIGHTS IN
CONNECTION WITH THE MERGER. See ' -- Appraisal Rights.'
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LIQUIDATION OF THE PARTNERSHIP FOLLOWING THE MERGER
The Merger would be considered the sale or exchange of all or substantially
all of the Partnership's non-cash assets pursuant to the Partnership Agreement.
As such, consummation of the Merger will cause the Partnership to dissolve under
the terms of the Partnership Agreement. Upon the dissolution of the Partnership,
the Partnership will be liquidated and the General Partners will act as
liquidating trustees. After payment of or provision for creditors and all other
payments that must be made pursuant to contractual rights prior to distributions
to Limited Partners (including payments in respect of the Preferred Equity
Interests), the remaining assets of the Partnership will be distributed in kind
among the General and Limited Partners (other than Limited Partners who properly
perfect their appraisal rights). Under the contractual terms of the Preferred
Equity and the Partnership Agreement, in the absence of the agreement of the
holders of the Preferred Equity to forgo a portion of the consideration due to
them, assets would be distributed first to the holders of Preferred Equity
Interests up to the face amount of the Preferred Equity plus all unpaid
cumulative distributions thereon and then among the Partners, Cablevision and
Cablevision Finance in accordance with the following table:
<TABLE>
<CAPTION>
UNTIL AFTER
PAYOUT PAYOUT*
------ -------
<S> <C> <C>
General Partners............................. 1% 18.8%
Limited Partners............................. 99% 48.0%
Cablevision.................................. -- 13.2%
Cablevision Finance.......................... -- 20.0%
</TABLE>
- ------------
* The Partnership Agreement provides that the post-Payout and post-Breakeven
interests of the General Partners and the Limited Partners are 40% and 60%,
respectively. However, in 1984, in consideration of its financial assistance
in creating the Partnership, the General Partners assigned to a predecessor
of Cablevision a 16.5% post-Payout interest in the Partnership then held by
the General Partners, reducing the General Partners' post-Payout interest to
23.5%. Thereafter, the 20% post-Payout interest to which Cablevision Finance
is entitled pursuant to the terms of the Preferred Equity reduced the General
Partners' and Limited Partners' post-Payout interests to 18.8% and 48%,
respectively, and reduced Cablevision's previously assigned 16.5% post-Payout
interest to 13.2%.
All of the Partnership's liabilities (including liabilities for costs and
expenses related to the Incorporation) will be transferred to Boston Sub in
connection with the Incorporation and will be payable by a Cablevision
subsidiary upon the Merger. Cablevision has agreed to cause a Cablevision
subsidiary to satisfy all of such obligations in the ordinary course upon
completion of the Merger. Cablevision has also agreed to pay all of the
Partnership's costs and expenses in connection with the Transactions if the
Merger is consummated. Accordingly, no provision will need to be made for
payments to creditors of the Partnership in the Liquidation. Because the
Preferred Equity is not a liability, it will remain an obligation of the
Partnership following the Incorporation. Cablevision Finance has, however,
agreed to reduce the amounts contractually payable to it in respect of the
unpaid cumulative distributions on the Preferred Equity in connection with the
Transactions and the Liquidation. See ' -- Consideration to be Received by
Affiliates' and ' -- Determination of Allocation of Consideration.' CSSC, the
other holder of the Preferred Equity, will sell all of its Preferred Equity,
including all unpaid cumulative distributions thereon, to Cablevision Finance
immediately prior to the consummation of the Merger for $4.6 million, the face
amount of such Preferred Equity. The Preferred Equity Interests held by
Cablevision Finance at the time of the Merger will be satisfied through a
distribution of shares of Cablevision Class A Common Stock with an aggregate
value based upon the Average Cablevision Stock Price. See ' -- Consideration to
be Received by Affiliates.' Accordingly, assuming no Limited Partners exercise
their appraisal rights, it is anticipated that shares of Cablevision Class A
Common Stock with an average market value over the 20 trading days prior to the
Merger of approximately $40.4 million will be available for distribution to the
Limited and General Partners in the Liquidation.
Based upon the foregoing, in the Liquidation Limited Partners will receive
Cablevision Class A Common Stock with an Average Cablevision Stock Price of
approximately $40.0 million less $10,000 times the number of Units as to which
appraisal rights are perfected (or $10,000 per Unit held by Limited Partners
other than Cablevision, which would return approximately 100% of the amounts
originally invested by each unaffiliated Limited Partner) and the General
Partners will receive Cablevision Class A Common Stock with an Average
Cablevision Stock Price of approximately $0.4
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million, or 1% of the amount expected to be distributed to all Partners in the
Liquidation. No post-Payout distributions will be made in the Liquidation.
Cablevision, which owns 282 Units, has agreed to receive Cablevision Class A
Common Stock with an Average Cablevision Stock Price of $9,000 per Unit because
it paid such lower amount for its Units. The $9,000 amount paid reflected the
fact that the Partnership did not have to pay any placement fees or commissions
with respect to the sale of such Units. A Limited Partner who dissents from the
Merger and perfects his or her right to an appraisal of the fair value of his or
her Units will not receive any such distribution in the Liquidation. See
' -- Appraisal Rights' below.
No fractional shares of Cablevision Class A Common Stock will be issued in
the Merger or the Liquidation to unaffiliated Limited Partners. In the
Liquidation, fractional shares will be aggregated for each Limited Partner and,
if there is a fractional share after such aggregation, such fractional share
will be rounded up to the next whole number.
Promptly after the consummation of the Merger, the General Partners will
cause the Liquidation of the Partnership. Promptly after the Liquidation, the
Partnership will cause Mellon Securities Trust Company, acting in its capacity
as distribution agent for the Partnership (the 'Distribution Agent'), to mail to
each former holder of record of Units (other than holders who have properly
perfected their appraisal rights) certificates representing the number of shares
of Cablevision Class A Common Stock to which such holder is entitled determined
in the manner described above. No other cash or assets will be distributed to
Limited Partners in the Liquidation.
Holders of Units are not required to take any action to cause the
Partnership to mail to them certificates representing shares of Cablevision
Class A Common Stock. The Partnership will mail such shares without any action
by holders of Units promptly after consummation of the Merger.
The General Partners currently anticipate that the Liquidation and
distribution of certificates representing shares of Cablevision Class A Common
Stock will be effected immediately after the consummation of the Merger. The
market value of shares of Cablevision Class A Common Stock actually received by
a Limited Partner in respect of a Unit may be more or less than the value set
forth under ' -- Consideration to be Received by Limited Partners' due to the
timing of the Liquidation and the market value of such shares of Cablevision
Class A Common Stock at the date that the shares of Cablevision Class A Common
Stock are actually distributed by the Partnership and received by such former
Unitholder.
After the Effective Time, there will be no transfers on the Partnership's
transfer books of Units issued and outstanding immediately prior to the
Effective Time.
Any holder of Units with respect to which appraisal rights have been
properly perfected will have the right to receive the appraised value of such
Units in accordance with the procedures described under ' -- Appraisal Rights'
below and in Annex VI to the Merger Agreement. A copy of the Merger Agreement is
attached as Appendix B to this Consent Solicitation Statement/Prospectus.
CONSIDERATION TO BE RECEIVED BY AFFILIATES
At June 30, 1995, the General Partners, Cablevision and their affiliates
held an aggregate of approximately $55.7 million of Affiliate Claims and an
aggregate of approximately $168.0 million of Preferred Equity Interests,
including approximately $117.7 million in unpaid cumulative distributions
thereon. In connection with the Merger and Liquidation, as of June 30, 1995, the
General Partners and their affiliates would have received approximately $19.7
million in cash and Cablevision Class A Common Stock with an Average Cablevision
Stock Price of approximately $0.4 million, and Cablevision and its affiliates
would have received Cablevision Class A Common Stock with an Average Cablevision
Stock Price of $51.0 million and intercompany debt of approximately $40.6
million, or an aggregate of $91.6 million. Cablevision will also acquire the
Systems in the Merger. No independent third party has been retained to determine
the value of the Systems in connection with the Transactions.
For more detailed information with respect to amounts to be received by
affiliates in connection with the Merger, see 'The Transactions -- Interests of
Certain Persons in the Transactions; Conflicts of Interest.'
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DETERMINATION OF ALLOCATION OF CONSIDERATION
At June 30, 1995, the Partnership had $284.8 million of outstanding
obligations that are contractually required to be paid prior to any
distributions to Limited Partners. If all such amounts were paid in full,
Limited Partners would not receive any distribution in the Merger or
Liquidation. Following extensive negotiations, the General Partners and
Cablevision agreed that Partners would receive in the Liquidation Cablevision
Class A Common Stock with an expected aggregate market value of approximately
$40.4 million, of which the unaffiliated Limited Partners would receive
approximately $10,000 per Unit, which would return approximately 100% of the
amounts they had originally invested in the Partnership, and that CSSC and
Cablevision Finance would agree to significant reductions in their Preferred
Equity Interests. This allocation was designed to allow the unaffiliated Limited
Partners to receive consideration in the Liquidation which the General Partners
believed was fair under any reasonable valuation of the Systems in light of all
the circumstances relating to the Transactions, and would be sufficient to
induce the Limited Partners to approve the Transactions. The General Partners'
determination that the consideration to be received by the unaffiliated Limited
Partners was fair under any reasonable valuation of the Systems was made without
the benefit of an appraisal or other valuation of the Partnership. The General
Partners considered reasonable values for the Systems based on their experience
in the cable television industry and on publicly available information provided
by PaineWebber and others as to recent sale prices for cable television systems,
without the benefit of an appraisal or other valuation of the Partnership.
Because of the nature of the Transactions and the Partnership's outstanding
contractual obligations, it was not necessary for the parties to agree on a
single value or range of values for the Systems. The General Partners agreed
that such allocations could be paid in shares of Cablevision Class A Common
Stock instead of cash because Cablevision was willing to pay more if it paid in
shares and because such payment would provide unaffiliated Limited Partners
seeking liquidity with publicly traded securities. Such payment also will enable
the Limited Partners to receive the shares in a transaction that will more
likely than not be viewed as tax-free. Any cash payment would be taxable. See
'The Transactions -- Recommendations of the General Partners; Fairness of the
Transactions.'
The General Partners and Cablevision originally determined that the
consideration to be received from Cablevision in the Merger and distributed in
the Liquidation would be allocated among members of the GP Group and the
Cablevision Group based on an assumed notional amount of $210 million, from
which amounts payable to certain creditors of the Partnership and the
approximately $40.4 million amount allocated to the Partners in the Liquidation
would be deducted. This $210 million amount was proposed by Cablevision in 1993
based on a multiple of 11 times the Partnership's 1993 budgeted operating cash
flow and was agreed to in March 1994. The General Partners and Cablevision
determined that this amount would be allocated first to the repayment of the
outstanding principal and interest due under the Loan Agreement (approximately
$61.1 million as of June 30, 1995). Because all of the Partnership's liabilities
will be payable by Boston Sub, which will become a Cablevision subsidiary upon
the Merger, and Cablevision has agreed to pay all of the Partnership's costs and
expenses in connection with the Transactions if the Merger is consummated, no
provision will need to be made for payment to the Partnership's other creditors.
This allocation produced a remainder of approximately $108.5 million to be
allocated among members of the GP Group and the Cablevision Group in respect of
their respective Affiliate Claims and Preferred Equity Interests. Following
additional negotiations, the General Partners, Cablevision and their affiliates
agreed that such Affiliate Claims would be satisfied in full through the payment
of cash, in the case of amounts owing to members of the GP Group, and the
creation of intercompany debt of Boston Sub, in the case of amounts owing to
members of the Cablevision Group, and that the aggregate amounts due them in
respect of their Preferred Equity Interests, approximately $168.0 million as of
June 30, 1995, would be satisfied through the distribution in the liquidation of
Cablevision Class A Common Stock with an Average Cablevision Stock Price of
approximately $52.8 million (as of June 30, 1995), in order to allow the
distribution discussed above to be made to the Limited Partners. The value of
the reductions in Preferred Equity Interests agreed to by CSSC and Cablevision
Finance may be affected by certain uncertainties as to whether the Preferred
Equity is entitled to its Full Contractual Rights. See 'The Transactions --
Background of the Transactions -- Uncertainties Regarding Validity of the
Preferred Equity.' Even with the agreed-upon reductions in the Preferred Equity
Interests, the holders of the Preferred Equity will
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be receiving the amount of, and a return on, their investments in the
Partnership, while the unaffiliated Limited Partners will be receiving only the
amount of, and no return on, their investments.
If the Merger had been consummated on October 17, 1995, an aggregate of
approximately 694,000 shares of Cablevision Class A Common Stock (representing
approximately 5.7% of the outstanding Cablevision Class A Common Stock on August
31, 1995) would have been allocated to the Limited Partners as a result of the
Transactions.
Calculation of Allocation of Consideration. The following table shows the
calculation of the allocation of the consideration to be received in connection
with the Merger to creditors of and investors in the Partnership based on the
aggregate amount of claims and interests as of June 30, 1995, based on the
assumed notional amount of $210 million, without giving effect to the
Incorporation Concessions. In the case of each member of the GP Group and the
Cablevision Group, the table also shows (i) the face amount of each member's
non-current claims and interests in the Partnership, and (ii) the percentage
that the portion of the value to be received by each such member in respect of
each such claim and interest bears to the face amount of each such claim and
interest, after giving effect to the agreed upon reductions thereto in
connection with the Merger. The table also shows the total amounts allocated to
Limited Partners, the Banks and members of the GP Group and the Cablevision
Group in the Merger and Liquidation. Because borrowings under the Loan Agreement
and accrued interest thereon will fluctuate, management fees will continue to be
earned and interest on management fees, unpaid advances and subordinated debt
and cumulative distributions on the Preferred Equity will continue to accrue
until the date of the Merger, the actual amounts paid to the Banks and members
of the GP and Cablevision Groups will vary from those set forth below. Amounts
distributable to Limited Partners, however, will not vary from those set forth
below, except for variations due to fluctuations in the market price of
Cablevision Class A Common Stock during and following the computation period of
the Average Cablevision Stock Price. See 'Risk Factors -- Risks Associated with
an Investment in Cablevision -- Fluctuations in the Price of Cablevision Class A
Common Stock.'
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CALCULATION OF ALLOCATION OF CONSIDERATION
(BALANCES AT JUNE 30, 1995)
<TABLE>
<S> <C> <C>
1. CALCULATION OF AMOUNT TO BE DISTRIBUTED
TO LIMITED PARTNERS AND GENERAL PARTNERS
Consideration to the Limited Partners
Total Units Outstanding and held by Limited Partners other than Cablevision 3,743
Times Consideration Per Unit $ 10,000
---------------
Total $ 37,430,000
---------------
Units held by Cablevision 282
Times Consideration per Unit $ 9,000
---------------
Total $ 2,538,000
---------------
Total Consideration to Limited Partners $ 39,968,000
---------------
---------------
Consideration To Partners
99% to Limited Partners $ 39,968,000
1 % to General Partners 404,000(1)
---------------
Total Consideration to Partners $ 40,372,000
---------------
---------------
2. TOTAL NON-CURRENT CLAIMS OF GP GROUP AND CABLEVISION GROUP
A) GP Group
Subordinated Debt $ 109,000
Interest on Subordinated Debt 4,603,000
Management Fees 17,181,000
Management Fee Interest 8,296,000
Preferred Equity 4,600,000
Cumulative Preferred Distributions 5,745,000
---------------
Total Due GP Group $ 40,534,000
---------------
---------------
B) Cablevision Group
Unpaid Advances and Subordinated Debt (including interest) $ 25,501,000
Preferred Equity 45,700,000
Cumulative Preferred Distributions 111,935,000
---------------
Total Due Cablevision Group $ 183,136,000
---------------
---------------
C) Total Due Groups
Total Due GP Group $ 40,534,000
Total Due Cablevision Group 183,136,000
---------------
Total Due Groups $ 223,670,000
---------------
---------------
</TABLE>
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<TABLE>
<CAPTION>
AMOUNT ACCRUED AT ALLOCATION IN MERGER
JUNE 30, 1995 AND LIQUIDATION
----------------- --------------------
<S> <C> <C> <C> <C>
3. CALCULATION OF AMOUNT TO BE DISTRIBUTED TO
GP GROUP AND CABLEVISION GROUP
Reductions
Assumed Notional Amount -- $ 210,000,000
(Less) Bank Debt/Accrued Interest $ 61,106,000 (61,106,000)
(Less) Amount Allocated to Limited Partners and
General Partners (See above) -- (40,372,000)
--------------------
Balance Available for Distribution to GP Group and
Cablevision Group -- $ 108,522,000
--------------------
Deficit (Aggregate Reduction in Preferred Equity
Interests) -- $ (115,148,000)
--------------------
--------------------
Allocation of Balance Available for Distribution %
GP Group $ 40,534,000 $ 19,667,000 18.12%
Cablevision Group 183,136,000 88,855,000 81.88%
----------------- -------------------- -------
Total Allocation $ 223,670,000 $ 108,522,000 100.00%
----------------- -------------------- -------
----------------- -------------------- -------
4. ALLOCATION OF GP GROUP DISTRIBUTION % of
Claim
Subordinated Debt $ 109,000 $ 109,000 100.00%
Interest on Subordinated Debt 4,603,000 0(2) 0.00%(2)
Management Fees 17,181,000 14,958,000(2) 87.06%(2)
Management Fees Interest 8,296,000 0(2) 0.00%(2)
Preferred Equity 4,600,000 4,600,000 100.00%
Cumulative Preferred Equity Distributions 5,745,000 0 0.00%
----------------- --------------------
Total $ 40,534,000 $ 19,667,000 48.52%
----------------- --------------------
----------------- --------------------
5. ALLOCATION OF CABLEVISION GROUP
DISTRIBUTION(2)
Unpaid Advances and Subordinated Debt $ 25,501,000 $ 25,501,000 100.00%
Interest on Subordinated Debt(3) -- 4,603,000 100.00%
Management Fees(3) -- 2,223,000 12.94%
Interest on Management Fees(3) -- 8,296,000 100.00%
Preferred Equity 45,700,000 45,700,000 100.00%
Cumulative Preferred Equity Distributions 111,935,000 2,532,000 2.26%
----------------- --------------------
Total $ 183,136,000 $ 88,855,000 48.52%
----------------- --------------------
----------------- --------------------
6. TOTAL ALLOCATION
Partnership Interests
Unaffiliated Limited Partners -- $ 37,250,000 100.00%(4)
Affiliated Limited Partners -- 2,718,000 100.44%(5)
General Partners -- 404,000(1) (6)
Bank Indebtedness $ 61,106,000 61,106,000 100.00%
Amounts due GP Group 40,534,000 19,667,000(2) 48.52%
Amounts due Cablevision Group 183,136,000 88,855,000(2,3) 48.52%
----------------- --------------------
Total Allocation $ 284,776,000 $ 210,000,000
----------------- --------------------
----------------- --------------------
</TABLE>
- ------------
1. The General Partners are receiving $404,000 for their partnership interests
although they contributed only $200 cash and a provisional cable television
license for the City of Boston.
2. Excludes, in the case of the GP Group, and includes, in the case of the
Cablevision Group, a total of $15,122,000 of Affiliate Claims to be assigned
by the GP Group to the Cablevision Group for no additional consideration. See
' -- Certain
(footnotes continued on next page)
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<PAGE>
(footnotes continued from previous page)
Adjustments.' The combined total percentages of both groups is 100.00%.
Cablevision Group percentages are based on the total amounts owed to the GP
Group.
3. Does not include approximately $2,538,000 to be received in respect of the
282 Units held by Cablevision that is included in consideration to be
received by the Limited Partners in item 1 above.
4. Represents 100.00% of the amounts initially paid by unaffiliated Limited
Partners for their Units.
5. Represents 100.00% of the amounts paid by a predecessor of Cablevision and
approximately 107.14% of the amounts paid by certain officers and directors
of Cablevision for an aggregate of 18 Units. Cablevision (who holds 282
Units) and certain of its officers and directors (who hold 12 Units) paid
only $9,000 for each of their Units. Another director paid $10,000 for each
of his six Units. Cablevision has agreed to receive $9,000 per Unit in the
Liquidation.
6. The General Partners contributed an aggregate of $200 in cash to the
Partnership and the provisional cable television license granted to CSBC on
March 25, 1982 by Boston Mayor Kevin H. White, the issuing authority for the
City of Boston, and all rights pertaining thereto. Because such provisional
license has not been valued, no percentage for general partnership interests
is included.
Cablevision will acquire the Systems in the Merger. No independent third
party has been retained to appraise the value of the Systems in connection with
the Transactions. See 'Risk Factors -- Risks Associated with the Incorporation
and Merger -- No Appraisal Obtained for Systems.' Accordingly, any excess in the
value of the Systems over amounts actually paid by Cablevision to entities other
than Cablevision and its subsidiaries (approximately $80.8 million in cash and
$37.8 million in Cablevision Class A Common Stock as of June 30, 1995) and debt
assumed by Cablevision (approximately $40.6 million at June 30, 1995) will be
realized by Cablevision.
For a discussion of factors the General Partners considered in determining
to recommend the Transactions to Limited Partners, including the value the
General Partners have placed on the consideration to be received by the
Partnership from Cablevision in the Merger, see 'The
Transactions -- Recommendations of the General Partners; Fairness of the
Transactions.'
Certain Adjustments. The members of the GP Group and the Cablevision Group
have agreed that, in connection with the Transactions, they will bear any
reduction in their Preferred Equity Interests in proportion to the total amounts
of their Affiliate Claims and Preferred Equity Interests, regardless of the
priorities for payment that would otherwise exist. Based on the total amount of
the accrued Affiliate Claims and Preferred Equity Interests as of June 30, 1995
the GP Group would be entitled to 18.12% and the Cablevision Group would be
entitled to 81.88% of the total payments to be received from the Partnership in
the Merger in respect of all of the Affiliate Claims and Preferred Equity
Interests.
Because the Cablevision Group is owed approximately 95.1% of the total
accrued and unpaid distributions on the Preferred Equity as of June 30, 1995,
the Cablevision Group would bear a greater proportion of the reductions of such
amounts than is represented by its percentage ownership of all of the Affiliate
Claims and Preferred Equity Interests. In order to make these reductions
proportionate, members of the GP Group have agreed to assign a sufficient amount
of their Affiliate Claims to the Cablevision Group so that, after receipt of all
payments from the Partnership in the Merger, each of the GP Group and the
Cablevision Group would receive payments from the Partnership that are
proportionate to the total amount of its respective Affiliate Claims and
Preferred Equity Interests. Based on the total amount of the Affiliate Claims
and Preferred Equity Interests as of June 30, 1995, members of the GP Group will
assign their right to receive approximately $15.1 million in accrued and unpaid
management fees and interest on management fees and subordinated debt to a
member of the Cablevision Group in order to effectuate this agreement. All
accrued and unpaid management fees and interest on management fees and
subordinated debt assigned by such members of the GP Group to such member of the
Cablevision Group will become intercompany indebtedness of Cablevision as a
result of the Merger.
For further information with respect to amounts to be received by
affiliates in connection with the Merger, see 'The Transactions -- Interests of
Certain Persons in the Transactions; Conflicts of Interest.'
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for by Cablevision as a purchase. Accordingly,
the acquisition costs for the assets and liabilities purchased will be allocated
to such assets and liabilities based upon their respective fair values, except
for the portion of the purchase price allocable to the pro rata interests of
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Dolan and his affiliates which will be accounted for in a manner similar to a
pooling of interests, whereby such pro rata portion of the assets and
liabilities of the Partnership will be recorded by Cablevision at the
Partnership's historical cost. The approximately $1.2 million excess of the pro
rata portion of the purchase price allocable to such interests over the
historical cost of the related allocable net assets acquired will be charged to
equity.
Immediately prior to the consummation of the Merger, the amounts to be
received by Cablevision Finance in respect of cumulative preferred distributions
on the Preferred Equity will be adjusted on the books of the Partnership. These
adjustments will result in a charge to partners' deficiency in a manner similar
to a dividend, with a corresponding reduction in the amounts available to the
General and Limited Partners.
APPRAISAL RIGHTS
The Partnership is a Massachusetts limited partnership and neither the
Uniform Limited Partnership Act of the Commonwealth of Massachusetts nor the
Partnership Agreement provides to the Limited Partners any right to dissent from
the Merger and receive payment for the Units pursuant to an independent
appraisal. Nevertheless, in connection with the proposed Transactions,
Cablevision has agreed that, upon consummation of the Merger, dissenting Limited
Partners will have the right to receive compensation for their Units based upon
an appraisal of the assets of the Partnership performed by a qualified appraiser
unaffiliated with Cablevision or the General Partners. The appraisal will be
conducted in the manner set forth below. The provisions regarding appraisal
rights are set forth in the Merger Agreement. FAILURE OF A LIMITED PARTNER TO
STRICTLY ADHERE TO THE APPRAISAL PROCEDURES SET FORTH IN THE MERGER AGREEMENT
WILL RESULT IN SUCH LIMITED PARTNER LOSING SUCH APPRAISAL RIGHTS. The following
is a brief summary of the procedures to be followed in order to dissent from the
Merger and to perfect appraisal rights under the Merger Agreement. This summary
is qualified in its entirety by reference to Annex VI to the Merger Agreement. A
complete copy of the Merger Agreement is attached as Appendix B hereto.
Limited Partners considering exercising their dissenters' rights should be
aware that the value of their Units will be determined by the appraiser based
upon an appraisal of the value of the assets of the Partnership immediately
prior to the Merger (and without giving consideration to any expectancy of the
Merger) performed by a qualified appraiser unaffiliated with Cablevision or the
General Partners, less any remaining liabilities of the Partnership and less all
prior claims to the assets of the Partnership (including Preferred Equity
Interests), in each case as of the date of and immediately prior to the Merger.
The appraisal of the assets shall be made as if the assets were sold in an
orderly manner in a reasonable period of time less the cost of sale and shall be
made otherwise in a manner consistent with industry practice.
The appraised value will not give effect to any of the reductions in unpaid
cumulative distributions on the Preferred Equity agreed to by Cablevision
Finance in the Merger Restructuring Agreement and the appraiser will instead
deduct the full value of the Preferred Equity including the full contractual
amount of unpaid cumulative distributions thereon before determining the
appraised value of the Units. Accordingly, the appraised value of the
Partnership's assets would need to be more than $313.4 million (as of June 30,
1995), giving effect to the Incorporation, for the appraised value of the Units
to be more than $10,000 per Unit. As a result, the General Partners believe that
the appraised value will be less, and perhaps substantially less, than the value
of the Cablevision Class A Common Stock provided for in the Liquidation for
Limited Partners that do not exercise their appraisal rights. If the appraised
value of the Units is less than the value of the Cablevision Class A Common
Stock provided for in the Liquidation for Limited Partners who do not exercise
their appraisal rights, Limited Partners seeking appraisal will be entitled to
receive only the lower appraised value of their Units. In the event of an
appraisal, no payment will be made in respect of Units for which appraisal
rights are exercised until there is a determination of the appraised value as
provided in Annex VI to the Merger Agreement and no interest will be paid in
respect of such appraised value. Compensation to dissenting Limited Partners
will be in the form of Cablevision Class A Common Stock valued at the arithmetic
average of the closing sale price of such securities on the ASE over the 20
trading days immediately following the Merger. The federal income tax
consequences to a Limited Partner of exercising his or her appraisal
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rights (or to a Limited Partner who has perfected his or her rights to appraisal
as of the Effective Time of the Merger but later withdraws his or her demand
for, or loses his or her rights to, appraisal as provided below) are uncertain
and the receipt of shares of Cablevision Class A Common Stock pursuant to such
exercise (or upon such withdrawal or loss) may be deemed a taxable exchange. See
'Certain Federal Income Tax Consequences -- Liquidation and Dissolution of the
Partnership -- Appraisal Rights.'
It is a condition to the Merger that holders of no more than 200 Units seek
an appraisal of the value of their Units. If holders of more than such number of
Units seek an appraisal, Cablevision will not be obligated to consummate the
Merger. If the Merger is not consummated, the Liquidation will not occur and
Limited Partners will not be entitled to any right to seek an appraisal of the
value of their Units.
THE RIGHT OF APPRAISAL WILL BE LOST IF THESE PROCEDURAL REQUIREMENTS ARE
NOT FOLLOWED EXACTLY. IF THE RIGHT OF APPRAISAL IS LOST, THE LIMITED PARTNER
WILL RECEIVE THE AMOUNT OF CABLEVISION CLASS A COMMON STOCK PROVIDED FOR IN THE
MERGER AND THE LIQUIDATION. SET FORTH BELOW IS A SUMMARY OF THE RELEVANT
PROCEDURAL REQUIREMENTS FOR A LIMITED PARTNER TO EXERCISE HIS OR HER APPRAISAL
RIGHTS.
BEFORE THE MERGER. If any holder of Units elects to exercise his or her
right to dissent from the Merger and demands appraisal, such holder must satisfy
EACH of the following conditions:
1. A Limited Partner electing to exercise appraisal rights must deliver a
written demand for appraisal of his or her Units to the Agent at Proxy
Department, Bank of Boston, P.O. Box 1628, Boston, Massachusetts
02105-9903, which written demand must be received by the Agent prior to
the Merger Expiration Date. To be effective, such demand must (i)
identify the number of Units held by such Limited Partner for which
appraisal is being sought, (ii) set forth the identity of the Limited
Partner with reasonable specificity (including the identity of any
controlled or controlling persons or entities) and (iii) state that it
is such person's intention to demand the appraisal of his or her Units.
2. Such Limited Partner must not vote in favor of the Merger or the
Incorporation. If a Limited Partner returns a signed Incorporation
Consent or Merger Consent but does not specify a vote against the
Incorporation or Merger, as the case may be, or a direction to abstain,
the Incorporation Consent or Merger Consent will be voted in favor of
the Incorporation or Merger, as the case may be, which will have the
effect of waiving that Limited Partner's appraisal rights.
Only the Limited Partner of record of Units is entitled to seek appraisal
of the fair value of the Units registered in such Limited Partner's name. To be
effective, the demand for appraisal must be executed by or for the Limited
Partner of record, fully and correctly, as such Limited Partner's name appears
in the Partnership's books. Beneficial owners of Units whose Units are held of
record by another person should instruct the record holder to follow the
procedures outlined herein if such persons wish to seek an appraisal with
respect to their Units.
If the Units are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand must be made in that capacity, and if
the Units are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand must be made for all owners of record. An
authorized agent, including one of two or more joint owners, may execute the
demand for appraisal for a holder of record; however, such agent must (i)
identify the record owner or owners; (ii) expressly state, in such demand, that
the agent is acting as agent for the record owner or owners of such Units; and
(iii) provide the Agent with reasonable documentation supporting such authorized
agent's authority. A record holder, such as a broker, who holds Units as a
nominee for several beneficial owners, some of whom desire to demand appraisal,
must exercise appraisal rights on behalf of each beneficial owner who desires to
demand appraisal with respect to the Units held for each such beneficial owner.
In such case, the written demand should set forth the number of Units covered
thereby. Where the number of Units is not expressly stated, the demand will be
presumed to cover all Units outstanding in the name of such record owner.
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AFTER THE MERGER. A Limited Partner who has demanded appraisal rights in
accordance with the procedures set forth above will not receive any shares of
Cablevision Class A Common Stock in the Liquidation unless such holder withdraws
his or her demand during the first 30 days after the date of the approval of the
Merger by delivering written notice thereof to Cablevision, attention: Robert S.
Lemle, One Media Crossways, Woodbury, New York 11797. Any Limited Partner who
has demanded appraisal and withdraws his or her demand within such 30-day period
will receive and accept the Cablevision Class A Common Stock provided for in the
Merger Agreement and will thereafter waive any right to appraisal.
A Limited Partner will effectively lose his or her right of appraisal if
either (i) such Limited Partner withdraws his or her demand for appraisal or
(ii) no written request for appraisal is delivered to and received by the Agent
within 30 days after the date on which the Agent mails a notice to the Limited
Partners that the Merger has been consummated (the 'Merger Notice Date'), except
that any attempt to withdraw not made within 30 days after the date of the
approval of the Merger requires the approval of Cablevision. The Merger Notice
Date shall not be more than 30 days after the Effective Date.
If any Limited Partner who has properly exercised his or her appraisal
rights delivers a written request for appraisal to the Agent prior to the Merger
Expiration Date, Cablevision will, within 120 days after the Effective Date,
engage an independent appraiser to conduct the appraisal.
From and after the Effective Date, a Limited Partner who has perfected
appraisal rights under the Merger Agreement shall cease to have any rights as a
Limited Partner other than the right to receive the appraised value of his or
her Units thereunder or, if such Limited Partner withdraws his or her demand
for, or loses his or her right to, appraisal, the right to receive Cablevision
Class A Common Stock as provided above, and shall waive any rights under the
Partnership Agreement.
All written requests for appraisal shall be addressed to the Agent at Proxy
Department, Bank of Boston, P.O. Box 1628, Boston, Massachusetts 02105-9903,
with a copy to: Robert S. Lemle, Executive Vice President, General Counsel and
Secretary of Cablevision at Cablevision's principal executive offices located at
One Media Crossways, Woodbury, New York 11797. It is the responsibility of the
Limited Partners wishing to dissent to ensure that a written request for
appraisal is received by the Agent within such 30-day request period.
No fractional shares shall be issued in connection with the exercise of
appraisal rights. Instead, fractional shares will be rounded to the nearest
whole number.
The cost of the appraisal will be borne by Cablevision.
THE PROVISIONS OF THIS SECTION ARE TECHNICAL IN NATURE AND COMPLEX. LIMITED
PARTNERS DESIRING TO EXERCISE APPRAISAL RIGHTS MAY WISH TO CONSULT COUNSEL SINCE
THE FAILURE TO COMPLY STRICTLY WITH THESE PROVISIONS WILL RESULT IN THE LOSS OF
THEIR APPRAISAL RIGHTS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a description of the principal federal income tax
consequences of the proposed Transactions and the Liquidation and a very limited
discussion of certain state and local tax considerations.
The statements in this discussion concerning federal income taxes are based
upon current provisions of the Internal Revenue Code of 1986, as amended (the
'Code'), existing and currently proposed Treasury Regulations ('Regulations')
under the Code, legislative history of the Code, existing administrative
rulings, practices and announcements of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes will
not be forthcoming that would affect the accuracy of any statements in this
discussion. Any such changes may or may not be retroactive with respect to
transactions entered into or contemplated prior to the effective date of such
changes.
The portions of the discussion below that relate to a Limited Partner
generally apply only to a Limited Partner who is an individual and who is an
original holder of a Unit (an 'Original Holder'). Consequences to a holder who
acquired his or her interest in the Partnership through a purchase or other
transfer from a prior Limited Partner (a 'Subsequent Holder') may differ
significantly from those
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described below depending, among other things, on the nature of the transaction
in which such holder acquired the interest and the price, if any, paid for such
interest. In addition, certain holders, such as corporations, trusts, estates,
partnerships, tax-exempt organizations or foreign persons, may be subject to
rules not discussed below.
There can be no assurance that the IRS will not challenge one or more of
the tax consequences of the Transactions and Liquidation described herein, and
no ruling from the IRS has been or will be sought as to any of such tax
consequences.
ACCORDINGLY, EACH LIMITED PARTNER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO SUCH LIMITED PARTNER'S OWN TAX SITUATION, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND ANY
POSSIBLE CHANGES IN THE TAX LAWS AFTER THE DATE HEREOF.
INCORPORATION
The Partnership is not subject to federal income tax liability as an
entity. Instead, each Partner is required to report on his or her personal
federal income tax return his or her distributive share of the taxable income,
gain, loss, deduction and credit realized by the Partnership.
In the opinion of Debevoise & Plimpton, special counsel to the General
Partners, the Incorporation if not followed by the Merger will qualify as an
exchange described in Section 351 of the Code and the discussion that follows
assumes that the Incorporation will so qualify. As such, no gain or loss should
be recognized by the Partnership as a result of the Incorporation to the extent
that the Partnership receives stock of Boston Sub as consideration for the
Assets. However, the assumption by Boston Sub of liabilities of the Partnership
in excess of the Partnership's basis in its Assets will result in the
recognition of gain (but not loss) by the Partnership under Section 357 of the
Code to the extent of such excess. Under Section 1239 of the Code, such gain
will be ordinary income to the extent that the gain is attributable to property
which will be subject to depreciation under Section 167 of the Code in the hands
of Boston Sub or is attributable to assets of Brookline that are 'inventory
items which have appreciated substantially in value' or 'unrealized receivables'
(as those terms are described in Section 751 of the Code, collectively, 'Section
751 assets'). The remainder of such gain will be capital gain.
The basis of the Partnership in its shares of stock of Boston Sub (the
'Boston Sub Shares') will be the same as its basis in the Assets prior to the
Incorporation decreased by the amount of money and the fair market value of any
other property received by the Partnership on the Incorporation and increased by
the amount of gain recognized by the Partnership on the Incorporation. For
purposes of the foregoing, the assumption by Boston Sub of liabilities of the
Partnership will be treated as the receipt of money by the Partnership in the
Incorporation. The Partnership will have a 'split' holding period for the Boston
Sub Shares. The portion of each Boston Sub Share attributable to any portion of
the Assets that are capital assets or property described in Section 1231 of the
Code will have a holding period that includes the holding period of the
Partnership for such Assets, and the holding period for the remaining portion of
any such Boston Sub Share will begin on the day after the date of the
Incorporation.
CONSEQUENCES TO UNAFFILIATED LIMITED PARTNERS. The discussion below is not
applicable to Limited Partners who are affiliates of the General Partners
('Affiliated Limited Partners').
The Partnership projects that it will recognize net gain with respect to
each Unit upon the Incorporation. A Limited Partner's distributive share of gain
or loss on the Incorporation will be determined generally in accordance with the
allocation provisions of the Partnership Agreement. The characterization of an
item of income, gain, loss or deduction (for instance, as capital or ordinary in
nature) will generally be the same for a Limited Partner as for the Partnership.
Under Section 752 of the Code, as a result of the assumption by Boston Sub
of the liabilities of the Partnership, each Partner will be deemed for federal
income tax purposes to have received a distribution of cash equal to its
proportionate share of such liabilities of the Partnership. A Limited Partner
will recognize additional gain upon the Incorporation to the extent that the
Limited Partner is deemed to have received such a distribution in an amount that
exceeds the Limited Partner's basis in its Partnership Units (determined after
giving effect to the Limited Partner's distributive share of gain
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recognized by the Partnership upon the Incorporation). For this purpose, a
Partner's basis in his or her Partnership interest includes the Partner's
allocable share of debt of the Partnership. Such gain will be ordinary income to
the extent attributable to 'Section 751 assets' of the Partnership or Brookline.
The balance of such gain will be capital gain.
Under current law, long-term capital gains of an individual are subject to
tax at a maximum statutory rate of 28%, and short-term capital gains and
ordinary income of an individual are subject to tax at a maximum statutory rate
of 39.6%. In addition, capital losses of an individual are deductible in any
year only to the extent of capital gains of such individual during such year
plus $3,000 of ordinary income. Unused net capital losses may be carried forward
indefinitely. Losses allocated to a Limited Partner in an earlier year that were
not deductible by him or her because they exceeded the Limited Partner's at-risk
amount in the Partnership as of the end of a Partnership year (as determined
under Section 465 of the Code) will become deductible (and available to offset
income and gain of the Limited Partner, including gain recognized on the
Incorporation) to the extent the Limited Partner's at-risk amount in his or her
Unit is increased (the 'Available Suspended Losses'). A Limited Partner's
at-risk amount should be increased by his or her income recognized upon the
Incorporation.
Available Suspended Losses were $21,289 per Exchange Unit and $13,209 per
New Unit as of the end of 1993. The Partnership estimates that these amounts,
adjusted for the operating results of the Partnership after 1993, will be
approximately equal to the gain and ordinary income per Unit that should be
recognized by a Limited Partner with respect to the Incorporation. Accordingly,
based on the above estimates, a Limited Partner will not recognize any net
amount of taxable income as a result of the Incorporation (i.e., there should be
no excess of his or her projected income over his or her Available Suspended
Losses).
A Limited Partner's income and gain from the Incorporation will constitute
'passive activity income' for purposes of the passive activity loss limitation
rules of Section 469 of the Code. To the extent not otherwise offset by
Available Suspended Losses, such income may be offset for federal income tax
purposes by a Limited Partner's losses from other passive activities.
CONSEQUENCES TO AFFILIATED LIMITED PARTNERS. The Affiliated Limited
Partners' distributive share of gain or loss on the Incorporation will be
determined, generally in accordance with the allocation provisions of the
Partnership Agreement. The characterization of an item of income, gain, loss or
deduction will generally be the same for Affiliated Limited Partners as for the
Partnership. Because losses allocated to the Affiliated Limited Partners in
previous years were not subject to limitation under the at-risk rules of Section
465 of the Code, it is expected that the Affiliated Limited Partners will
recognize a net amount of taxable income upon the Incorporation.
CONSEQUENCES TO GENERAL PARTNERS. The General Partners' distributive share
of gain or loss on the Incorporation will be determined in accordance with the
allocation provisions of the Partnership Agreement. The characterization of an
item of income, gain, loss or deduction will generally be the same for General
Partners as for the Partnership. Because losses allocated to the General
Partners in previous years were not subject to limitation under the at-risk
rules of Section 465 of the Code, it is expected that the General Partners will
recognize a net amount of taxable income upon the Incorporation.
THE INCORPORATION AND MERGER
In the opinion of Sullivan & Cromwell, special counsel to Cablevision, and
Debevoise & Plimpton, special counsel to the General Partners, it is more likely
than not that the Incorporation and the exchange of shares of capital stock of
Boston Sub for Cablevision Class A Common Stock pursuant to the Merger will
qualify, respectively, as an exchange pursuant to Section 351 of the Code and as
an exchange pursuant to a reorganization described in Section 368(a) of the
Code, and the discussion that follows assumes that the Transactions will so
qualify. As such, the Partnership should not recognize any gain or loss as a
result of the Incorporation (except to the extent of any gain under Section 357
as discussed above under ' -- Incorporation') or the Merger. The aggregate basis
of Cablevision Class A Common Stock received in the Merger by the Partnership
will be the same as the basis of the shares of capital stock of Boston Sub
exchanged therefor, and, assuming that such shares of capital stock of
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Boston Sub were held as a capital asset at the time of the Merger, the holding
periods of the Partnership in the Cablevision Class A Common Stock will include
its holding periods in the shares of capital stock of Boston Sub exchanged
therefor. Accordingly, a Limited Partner should not recognize any gain or loss
as a result of the Merger, and neither his or her basis in his or her
Partnership interest nor his or her holding period for such interest should be
affected by the Merger. However, in the event that the Incorporation or the
Merger is held to be a fully taxable transaction, the Partnership would
recognize additional gain in an amount equal to the excess of the consideration
received from the disposition of its Assets over its basis in such Assets. The
amount of such gain would be reduced by the amount of gain recognized upon the
Incorporation as described above in ' -- Incorporation.' Such additional gain
should be allocated among the Limited Partners and the General Partners in
accordance with the Cablevision Class A Common Stock each receives in the Merger
generally in an amount equal to the Cablevision Class A Common Stock received by
such Partners valued on the date of the Merger and the balance of such
additional gain should be allocated to the holders of the Preferred Equity. The
Partnership estimates that any such additional gain would be approximately
$10,000 per Unit, depending upon the difference between the Average Cablevision
Stock Price and the market price of the Cablevision Class A Common Stock on the
date of the Merger. The taxation of such gain to the Partners would be generally
the same as taxation of the gain described above in ' -- Incorporation,' except
that it is not anticipated that Limited Partners would have any suspended
at-risk losses to offset such additional gain.
LIQUIDATION AND DISSOLUTION OF THE PARTNERSHIP
The dissolution of the Partnership will involve a distribution to the
General and Limited Partners of any assets remaining after payment of all of the
Partnership's debts and liabilities. It is expected that immediately after the
Merger, the Partnership will have no assets other than Cablevision Class A
Common Stock and no liabilities. If the Transactions are approved, it is
estimated that the Partnership will distribute to its General and Limited
Partners an amount of Cablevision Class A Common Stock having a value of
approximately $40.4 million. See 'Description of the Merger -- Liquidation of
the Partnership Following the Merger.' The Partnership will recognize no gain or
loss upon its liquidation and distribution of Cablevision Class A Common Stock
to its Partners.
CONSEQUENCES TO PARTNERS. Assuming an original Partner receives only
Cablevision Class A Common Stock upon dissolution, such Partner should not
recognize gain or loss on the dissolution. Under a recent amendment to Section
731 of the Code, gain may be recognized by a Partner upon a distribution to it
of marketable securities such as Cablevision Class A Common Stock under certain
circumstances. While the matter is not entirely free from doubt, because the
distributions to Partners will be pro rata, it is anticipated that a Limited
Partner will not recognize gain upon the distribution to it of Cablevision Class
A Common Stock under such amendment. A Partner will have holding periods in his
or her Cablevision Class A Common Stock that include the holding periods of the
Partnership for such Cablevision Class A Common Stock. The basis of Cablevision
Class A Common Stock distributed by the Partnership to a Partner in liquidation
of the Partner's interest will be equal to the adjusted basis of such partner's
interest in the Partnership reduced by any money distributed to the Partner in
the Liquidation (which, for the original Limited Partners, is expected to be
zero) increased by the amount of any gain recognized by such Partner under the
recent amendment to Section 731 of the Code (which is also expected to be zero).
Therefore, most former Limited Partners who sell Cablevision Class A Common
Stock received in the Liquidation should recognize gain (in addition to the gain
recognized upon the Incorporation, described above under ' -- Incorporation --
Consequences to Limited Partners') equal to the entire amount realized on the
sale of the Cablevision Class A Common Stock. While the matter is not free from
doubt, the legislative history of Section 469 of the Code indicates that if, in
the taxable year of the Incorporation, a Limited Partner disposes of all of the
Cablevision Class A Common Stock that he or she receives in the Liquidation,
then the Available Suspended Losses with respect to his or her Units that become
currently deductible under the at-risk loss limitation rules may be utilized to
offset income of the Partner generally, rather than just passive income such as
gain from the Incorporation. See ' -- Incorporation.'
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APPRAISAL RIGHTS. In the opinion of Debevoise & Plimpton, special counsel
to the General Partners, the federal income tax consequences to a Limited
Partner of exercising his or her appraisal rights are uncertain. A Limited
Partner may take the position that his or her receipt of Cablevision Class A
Common Stock pursuant to his or her exercise of appraisal rights should have the
same tax consequences as though (x) such shares of Cablevision Class A Common
Stock were received by the Partnership pursuant to the Merger with respect to
Boston Sub Shares held by the Partnership that are attributable to such Limited
Partner's interest and (y) such shares of Cablevision Class A Common Stock were
distributed to such Limited Partner in complete liquidation of his or her
interest in the Partnership. In that event, the tax consequences to the Limited
Partner of exercising his or her appraisal rights would be similar to the tax
consequences to other Limited Partners of the receipt of Cablevision Class A
Common Stock pursuant to the Merger and the Liquidation. However, such exercise
may be viewed as an exchange of the Limited Partner's interest in the
Partnership for the shares of Cablevision Class A Common Stock received by such
Limited Partner pursuant to his or her exercise of appraisal rights. Such an
exchange would be a taxable exchange, in which case such Limited Partner would
(i) recognize gain (in addition to the gain recognized upon the Incorporation,
described above under ' -- Incorporation -- Consequences to Limited Partners')
which for most Limited Partners is expected to be equal to the fair market value
of such Cablevision Class A Common Stock at the time of its receipt by the
Limited Partner, (ii) obtain a tax basis in such shares of Cablevision Class A
Common Stock equal to such fair market value and (iii) have a holding period for
such shares commencing on the day after the date of such receipt. However, other
characterizations of the exercise of appraisal rights are possible. The tax
consequences to a Limited Partner who withdraws his or her demand for appraisal
or loses his or her right of appraisal following the Merger and who receives
Cablevision Class A Common Stock directly from Cablevision should be the same as
the tax consequences to a Limited Partner who exercises his or her appraisal
rights.
SECTION 754 ELECTION
The Partnership has made the election described in Section 754 of the Code.
Original Holders will not be affected by such election, but the tax consequences
to a Subsequent Holder may differ from those described above as a result of such
election. In particular, the amount of gain that would be recognized by a
subsequent holder of a Unit may be more or less than the amount attributable to
an original holder of a Unit as described above under ' -- Incorporation --
Consequences to Limited Partners' and ' -- The Incorporation and Merger' to
reflect any difference between the basis of a transferee Limited Partner in his
or her Units and the basis of his or her transferor in such Units. Subsequent
Holders are urged to consult their own tax advisors with respect to the
consequences to them of the Partnership's election under Section 754 of the
Code. Brookline has not made an election under Section 754 of the Code.
CONTINUED CLASSIFICATION OF THE PARTNERSHIP AS A PARTNERSHIP
The Partnership has not requested and does not intend to request a ruling
from the IRS that through the end of the Transactions it will continue to be
treated as a partnership for federal income tax purposes. In the opinion of
Debevoise & Plimpton, special counsel to the General Partners, the Partnership
will continue to be treated as a partnership, and not as an association taxable
as a corporation.
THE PROJECTED AMOUNTS OF INCOME ALLOCABLE TO A PARTNER AS DESCRIBED ABOVE
ARE ESTIMATES ONLY AND ARE SUBJECT TO CHANGE UPON THE FINALIZATION OF TERMS OF
THE TRANSACTIONS, THE FILING OF PARTNERSHIP INCOME TAX RETURNS FOR THE YEAR (OR
YEARS) OF THE TRANSACTIONS AND REDETERMINATION UPON AUDIT BY THE IRS. THE
PARTNERSHIP AND THE GENERAL PARTNERS MAKE NO REPRESENTATIONS THAT THE FINAL
AMOUNTS OF PARTNERSHIP INCOME DETERMINED WILL BE AS SO ESTIMATED.
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CERTAIN MASSACHUSETTS INCOME TAX CONSEQUENCES
The following discussion of certain Massachusetts tax consequences is based
upon the advice of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., special
Massachusetts counsel to the Partnership.
Since the Partnership is engaged solely in the conduct of a trade or
business carried on in Massachusetts, its income and losses are deemed to be
from Massachusetts sources. Limited Partners are, accordingly, required to
account, for Massachusetts income tax purposes, for their distributive shares of
Partnership income or loss for any full or partial taxable period during which
they remain partners, including their shares of Partnership income or loss
realized by the Partnership on the Incorporation. The amount of any such share
of gain or loss taken into account by a Limited Partner will increase or
decrease, respectively, such Partner's tax basis in the Units.
For Massachusetts personal income tax classification purposes, Part A
income, consisting generally of interest (other than from a Massachusetts bank),
dividends and capital gain, is taxed at the rate of 12%, and Part B income,
consisting of other income, is taxed at the rate of 5.95%. In computing Part A
income, a deduction is allowed in the amount of one-half of net capital gain
(the excess of net long-term capital gains over short-term capital losses). Net
losses for a taxable year may not be carried over to other taxable years except
that capital losses not absorbed in a particular year may be carried forward
indefinitely. Limited Partners will be entitled to deduct, at the same time they
are deductible for federal income tax purposes, any amount of Partnership losses
not previously deductible by them by reason of the operation of the so-called
'at risk' rules.
The Massachusetts personal income and corporate excise (income) tax rules
relating to tax-free incorporation and tax-free mergers generally follow the
federal income tax rules, and the Incorporation and the Merger will therefore be
treated in a manner similar to the federal income tax treatment. Consistent with
the preceding discussion relating to federal income tax consequences and the
qualifications expressed therein, this discussion of Massachusetts income tax
consequences assumes that the Incorporation will qualify as an exchange
described in Section 351 of the Code and that the Merger will qualify as a
reorganization described in Section 368(a) of the Code. Accordingly, no gain or
loss should be recognized for Massachusetts income tax purposes as a result of
the Incorporation or the Merger other than gain attributable to the assumption
by Boston Sub of liabilities of the Partnership in excess of the Partnership's
basis in its Assets, as described above. However, in the event that the
Incorporation or the Merger is held to be a taxable transaction, the Partnership
would recognize gain for Massachusetts income tax purposes equal to the excess
of the consideration received from the disposition of its Assets over its basis
in such Assets. Such gain would be allocated among the Partners generally in the
same manner as for federal income tax purposes.
When the proceeds from the Incorporation and the Merger, and any other
remaining net assets of the Partnership are distributed to the Limited Partners
in liquidation of their Units, such liquidation will be treated for
Massachusetts personal income tax purposes in the same manner as for federal
income tax purposes and, accordingly, original individual Partners in the
Partnership receiving only Cablevision Class A Common Stock will have no gain or
loss upon the Liquidation.
If an individual Limited Partner whose tax residence is Massachusetts has
Massachusetts gross income from all sources (including, for this purpose, that
individual's share of the Partnership's gross operating receipts and any gain
from the Incorporation) in excess of $8,000, whether filing singly or jointly,
such Partner will be required to file a Massachusetts income tax return, even if
the resulting calculations indicate that there will be no tax due. If an
individual Limited Partner whose tax residence is not Massachusetts has
Massachusetts gross income from all sources (including, for this purpose, that
individual's share of the Partnership's gross operating receipts and any gain
from the Incorporation) in excess of $2,200 (if filing singly) or $4,400 (if
filing jointly), such Limited Partner will be required to file a Massachusetts
income tax return, even if the resulting calculations indicate that there will
be no tax due. A nonresident individual Limited Partner with Massachusetts gross
income below such amounts may, depending on his or her particular sources of
income, have to file as well.
Corporations that are Limited Partners are generally subject to the
Massachusetts corporate excise (income) tax, and must file Massachusetts
corporate excise tax returns, although under certain circumstances a
non-Massachusetts corporate Limited Partner may be exempt from such tax if the
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interest of such Limited Partner is de minimis. Ordinarily, if neither the
Partnership's Massachusetts property, nor its Massachusetts payroll, nor its
Massachusetts sales, when multiplied by the interest in the Partnership held by
the non-Massachusetts corporate partner, exceeds $10,000, such Partner's
interest will be deemed de minimis.
The foregoing summary is based upon the provisions of the Massachusetts
General Laws currently in effect and upon the interpretation of those laws thus
far publicly made by the Massachusetts Department of Revenue or Massachusetts
courts. Since the Massachusetts tax rules applicable to partnerships and
interests in partnerships are not dealt with extensively in the statute or
regulations, it is possible that Massachusetts tax authorities may, in the
future, interpret the statute differently or may change prior announced
positions. Holders of Units should therefore consult their own tax advisors as
to whether they are required to file Massachusetts income tax returns on which
to account for their respective allocations of Partnership income or loss and/or
on which to account for the Incorporation. They should also consult with and
rely upon their own tax advisors in reporting the tax consequences of the
contemplated Transactions. They should not treat or rely upon the foregoing
general discussion as tax advice to them.
LIMITED MARKET FOR UNITS; DISTRIBUTIONS
There is no established public trading market for the Units. The General
Partners believe that the only transfers of Units from the inception of the
Partnership to the date of the announcement of the Transactions (other than
Dolan's 1984 transfer of 282 Units to a predecessor of Cablevision) have been
transfers upon death or to facilitate estate planning and other family-related
matters of Limited Partners, in each case, without consideration. Since the
announcement of the proposed Transactions, there have been a limited number of
transfers of Units. On the date of the mailing of this Consent Solicitation
Statement/Prospectus, there were a total of 640 holders of Units.
The Partnership has not made any cash distributions to holders of Units and
does not anticipate making any cash distributions to holders of Units for the
foreseeable future. The Loan Agreement prohibits any cash distributions to
Partners in respect of their Units. In addition, under the terms of the
Preferred Equity, cash may not be distributed to the Partners until the unpaid
cumulative distributions on the Preferred Equity and, subject to the rights of
the Partners to receive cash distributions equal to their tax liability from
ownership of limited partnership interests, the total capital contributions in
respect of the Preferred Equity have been distributed to holders of the
Preferred Equity. If both Transactions are approved and consummated, Partners
will receive a publicly traded security in the Liquidation. See 'Description of
the Merger -- Liquidation of the Partnership Following the Merger' and
' -- Consideration to be Received by Affiliates' and 'Comparison of Cablevision
Class A Common Stock with Units -- Nature of Investment.'
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PRICE RANGE OF CABLEVISION CLASS A COMMON STOCK AND DIVIDEND POLICY
The Cablevision Class A Common Stock is listed on the ASE under the symbol
CVC. The following table sets forth on a per share basis the high and low sale
prices for the Cablevision Class A Common Stock as reported on the ASE for the
periods indicated:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK PRICE
RANGE
----------------------------
HIGH LOW
----------- -----------
<S> <C> <C>
1992
First Quarter......................................................... 36 29
Second Quarter........................................................ 32 1/2 27
Third Quarter......................................................... 35 25 3/4
Fourth Quarter........................................................ 35 24 7/8
1993
First Quarter......................................................... 44 34 3/8
Second Quarter........................................................ 38 7/8 29 3/8
Third Quarter......................................................... 49 5/8 37 1/2
Fourth Quarter........................................................ 72 48 1/4
1994
First Quarter......................................................... 67 7/8 52 3/8
Second Quarter........................................................ 52 7/8 39
Third Quarter......................................................... 61 3/8 45 7/8
Fourth Quarter........................................................ 59 7/8 45 7/8
1995
First Quarter......................................................... 58 3/4 48 7/8
Second Quarter........................................................ 63 3/4 52 1/4
Third Quarter......................................................... 69 3/4 58
Fourth Quarter (through October 18, 1995)............................. 60 3/8 54 3/8
</TABLE>
For a recent sale price of the Cablevision Class A Common Stock, see the
cover page of this Consent Solicitation Statement/Prospectus. As of August 31,
1995, there were approximately 639 holders of record of the Cablevision Class A
Common Stock. There is no public trading market for the Cablevision Class B
Common Stock. As of August 31, 1995, there were 24 holders of record of the
Cablevision Class B Common Stock.
Cablevision has not paid any cash dividends on shares of Cablevision Class
A Common Stock or Cablevision Class B Common Stock. Cablevision does not
anticipate paying any cash dividends on shares of Cablevision Class A Common
Stock or Cablevision Class B Common Stock in the foreseeable future. Cablevision
may pay cash dividends on its capital stock only from surplus as determined
under Delaware law. Holders of Cablevision Class A Common Stock and Cablevision
Class B Common Stock are entitled to receive dividends equally on a per-share
basis if and when such dividends are declared by the Board of Directors of
Cablevision from funds legally available therefor. No dividend may be declared
or paid in cash or property on shares of either Cablevision Class A Common Stock
or Cablevision Class B Common Stock unless the same dividend is paid
simultaneously on each share of the other class of common stock. In the case of
any stock dividend, holders of Cablevision Class A Common Stock are entitled to
receive the same percentage dividend (payable in shares of Cablevision Class A
Common Stock) as the holders of Cablevision Class B Common Stock receive
(payable in shares of Cablevision Class B Common Stock). On June 14, 1994,
Cablevision's stockholders approved an amendment to Cablevision's certificate of
incorporation to permit the distribution of shares of capital stock of any
Cablevision subsidiary to Cablevision common stockholders that differ to the
extent that the Cablevision common stock differs as to voting rights and rights
in connection with certain dividends.
Cablevision is effectively prohibited from paying dividends on its capital
stock, other than Cablevision's 8% Series C Cumulative Preferred Stock and its
Series E Preferred Stock, under the provisions of its debt agreements. Under the
most restrictive of these provisions, cash dividends could not be paid on
Cablevision Class A Common Stock or Cablevision Class B Common Stock at June 30,
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1995. Dividends may not be paid in respect of shares of Cablevision Class A
Common Stock or Cablevision Class B Common Stock unless all dividends due and
payable in respect of the preferred stock of Cablevision have been paid or
provided for.
CONSENT SOLICITATIONS
Pursuant to the terms of the Partnership Agreement, each of the
Transactions requires the consent and approval of a Majority of the Limited
Partners. All of the Limited Partners will be bound by the decision of a
Majority of the Limited Partners. Neither the Uniform Limited Partnership Act of
the Commonwealth of Massachusetts nor the Partnership Agreement provide to the
Limited Partners any rights to dissent from either the Incorporation or the
Merger and receive payment for such Limited Partner's Units pursuant to an
independent appraisal. However, Cablevision has agreed to grant to dissenting
Limited Partners the right to an appraisal with respect to the Merger. See
'Description of the Merger -- Appraisal Rights.' No appraisal rights are being
granted in connection with the Incorporation. These solicitations are being made
by and on behalf of the Partnership. In addition to the solicitations by use of
the mails, consents may be solicited by the General Partners and the directors,
officers and employees of their affiliates, and by the management of the
Partnership, in person or by telephone, telecopy, telegraph or other means of
communication. Such persons will not be additionally compen-sated, but may be
reimbursed for out-of-pocket expenses in connection with such solicitations.
D.F. King & Co., Inc. has been retained by the Partnership to assist in the
solicitation of consents for a fee of $5,000 plus an additional fee for each
telephonic communication with Limited Partners plus reasonable costs and
expenses. The total cost of soliciting consents will be borne by Cablevision.
See 'Fees and Expenses.' This Consent Solicitation Statement/ Prospectus is
being mailed to all Limited Partners on or about October 20, 1995. Limited
Partners entitled to give consent to the Incorporation and the Merger will be
determined based upon the Partnership records as of the Incorporation Expiration
Date and as of the Merger Expiration Date, respectively. Only persons who are
Limited Partners on the books and records of the Partnership on such dates will
be entitled to consent to the Transactions.
This Consent Solicitation Statement/Prospectus and the accompanying
Consents are being distributed to the Limited Partners who were Limited Partners
as of October 19, 1995.
THE INCORPORATION SOLICITATION
Limited Partners are being asked to consent to and approve the
Incorporation by completing, signing and dating the BLUE Consent card
accompanying this Consent Solicitation Statement/Prospectus (the 'Incorporation
Consent') and delivering the Incorporation Consent to Bank of Boston, the Agent,
no later than 5:00 p.m., New York time, on November 21, 1995 (as extended from
time to time, the 'Incorporation Expiration Date'), or by requesting their
nominees to do the same on their behalf. Completed Incorporation Consents should
be returned in the enclosed, stamped BLUE envelope, or hand delivered to the
Agent at Proxy Department, Bank of Boston, P.O. Box 1628, Boston, Massachusetts
02105-9903. The General Partners may extend the Incorporation Expiration Date in
their sole discretion. The General Partners intend to extend the Incorporation
Expiration Date until the earlier of such time as all the conditions to the
Incorporation have been satisfied or waived and December 24, 1995. See
'Description of the Incorporation -- Conditions to the Incorporation.' If an
Incorporation Consent is properly executed, dated and delivered to the
Partnership prior to the Incorporation Expiration Date, but no box on the
Incorporation Consent is marked, the Limited Partner who executed such
Incorporation Consent will be deemed to have consented to and approved the
Incorporation. The solicitation for the Incorporation will commence on October
20, 1995 and will be completed on the Incorporation Expiration Date. The
contents of the executed Incorporation Consents will be counted immediately
thereafter. The General Partners anticipate that the results will be announced
on the day following the Incorporation Expiration Date and that, if the
Incorporation is approved, it will be consummated within two days of such
approval; provided that the conditions to the Incorporation are satisfied or
waived. Approval of the Incorporation by the Limited Partners is a condition to
the Merger. ACCORDINGLY, LIMITED PARTNERS WHO WISH TO APPROVE THE MERGER SHOULD
VOTE IN FAVOR OF THE INCORPORATION.
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Any Incorporation Consent given by a Limited Partner shall be binding on
the successors and assigns of such Limited Partner. Any Incorporation Consent
may be revoked by the person giving such Incorporation Consent or by a
subsequent holder of the Units for which such Incorporation Consent was given at
any time prior to 5:00 p.m., New York time, on the Incorporation Expiration
Date, by delivery to the Agent of a written notice of revocation or a changed
Incorporation Consent bearing a date later than the date of the prior
Incorporation Consent delivered to the Agent. FAILURE TO EXECUTE AND DELIVER AN
INCORPORATION CONSENT AS WELL AS ABSTENTIONS PRIOR TO THE INCORPORATION
EXPIRATION DATE (INCLUDING FAILURES TO VOTE BY BROKERS AND OTHER NOMINEES) WILL
HAVE THE EFFECT OF A VOTE AGAINST THE INCORPORATION.
THE MERGER SOLICITATION
Limited Partners are being asked to consent to and approve the Merger by
completing, signing and dating the WHITE Consent card accompanying this Consent
Solicitation Statement/Prospectus (the 'Merger Consent') and delivering the
Merger Consent to the Agent no later than 5:00 p.m., New York time, on November
28, 1995 (as extended from time to time, the 'Merger Expiration Date'), or by
requesting their nominees to do the same on their behalf. Completed Merger
Consents should be returned in the enclosed, stamped WHITE envelope, or hand
delivered to the Agent at Proxy Department, Bank of Boston, P.O. Box 1628,
Boston, Massachusetts 02105-9903. The General Partners may extend the Merger
Expiration Date in their sole discretion. The General Partners intend to extend
the Merger Expiration Date until the earlier of such time as the conditions to
the Merger have been satisfied or waived and December 31, 1995. See 'Description
of the Merger -- Conditions to the Merger.' If a Merger Consent is properly
executed, dated and delivered to the Agent prior to the Merger Expiration Date,
but no box on the Merger Consent is marked, the Limited Partner who executed
such Merger Consent will be deemed to have consented to and approved the Merger.
The contents of the executed Merger Consents will be counted immediately
thereafter. The General Partners anticipate that the results will be announced
on the day following the Merger Expiration Date and that, if approved, the
Merger will be consummated promptly following such approval, provided that the
conditions to the Merger have been satisfied or waived.
Any Merger Consents given by Limited Partners shall be binding on the
successors and assigns of such Limited Partners. Any Merger Consent may be
revoked by the person giving such Merger Consent or by a subsequent holder of
the Units for which such Merger Consent was given at any time prior to 5:00
p.m., New York time, on the Merger Expiration Date, by delivery to the Agent of
a written notice of revocation or a changed Merger Consent bearing a date later
than the date of the prior Merger Consent delivered to the Agent. FAILURE TO
EXECUTE AND DELIVER A MERGER CONSENT AS WELL AS ABSTENTIONS PRIOR TO THE MERGER
EXPIRATION DATE (INCLUDING FAILURES TO VOTE BY BROKERS AND OTHER NOMINEES) WILL
HAVE THE EFFECT OF A VOTE AGAINST THE MERGER.
All executed consents in respect of the Merger solicitation that are
delivered to the Agent will be held in escrow by the Agent pursuant to an escrow
arrangement. Under such arrangement, the contents of such executed Merger
Consents will not be disclosed to the General Partners or their affiliates,
including Cablevision, or to the Limited Partners until such time as the
Incorporation is approved and consummated. All such consents may only be
released to the General Partners and such affiliates in the event of the
approval and consummation of the Incorporation.
BOTH TRANSACTIONS
With respect to each of the Incorporation and the Merger, all of the
Limited Partners (including affiliates of the General Partners and Cablevision)
will be bound by the decision of a Majority of the Limited Partners. However, if
the Incorporation is not approved, all consents with respect to the Merger will
have no force or effect.
The Agent will collect and tabulate consents to each of the Incorporation
and the Merger as well as dissents to the Merger. Limited Partners will be able
to obtain the current tally for the Incorporation by written request to the
Agent at any time prior to the Incorporation Expiration Date. Limited Partners
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will be able to obtain the current tally for the Merger by written request to
the Agent at any time following the consummation of the Incorporation and prior
to the Merger Expiration Date.
Each Transaction is subject to various conditions, as described under 'The
Transactions -- Conditions to the Transactions.' Accordingly, there can be no
assurance that the conditions to either Transaction will be satisfied or that
either or both Transactions will be consummated. See, also, 'Description of the
Incorporation -- Conditions to the Incorporation' and 'Description of the
Merger -- Conditions to the Merger.'
AVAILABILITY OF PARTNERS' NAMES AND ADDRESSES
The Partnership will furnish to any Limited Partner, upon oral or written
request, a current alphabetized listing of the names and addresses of all
Partners which includes the number of Units beneficially owned by each Partner.
Under Sections 5 and 21 of the Uniform Limited Partnership Act of the
Commonwealth of Massachusetts (the 'MULPA'), each Limited Partner has the right
to inspect and copy (i) a current list of the full name and last known address
of each Partner, separately identifying in alphabetical order the General
Partners and the Limited Partners and (ii) a writing setting out the amount of
cash and a description and statement of the agreed value of the other property
or services contributed by each Partner and which each Partner has agreed to
contribute and any right of a Partner to receive, or of a General Partner to
make distributions to a Partner which include a return of all or any part of the
Partner's contribution, at the reasonable request and at the expense of any
Partner during ordinary business hours.
Under Rule 14a-7 of the Securities Exchange Act of 1934, as amended ('Rule
14a-7'), the Partnership is obligated, upon the written request of a Limited
Partner, to deliver to the Limited Partner (i) a statement of the approximate
number of existing Limited Partners in the Partnership and (ii) the estimated
cost of mailing a proxy statement, form of proxy or other similar communication
to such Limited Partners. In addition, pursuant to Rule 14a-7, a Limited Partner
has the right, at his or her option, either (x) to have the Partnership mail (at
the Limited Partner's expense) copies of any proxy statement, proxy form or
other soliciting material furnished by the Limited Partner to the Partnership's
holders of Units (the 'Unitholders') designated by the Limited Partner, or (y)
to have the Partnership deliver, within five business days of the receipt of the
request, a reasonably current list of the names, addresses and class of Units
held by the Unitholders, which list shall be updated as often as practicable
prior to the Incorporation Expiration Date or Merger Expiration Date, as the
case may be. The right to receive the list of Unitholders is subject to the
Limited Partner's payment of the cost of mailing and duplication.
Limited Partners also have the right to inspect certain books and records
of the Partnership at all reasonable times. Limited Partners are afforded these
rights under the Partnership Agreement and under state law. Requests should be
directed to the Partnership, c/o Cablevision Systems Corporation, Attention:
Robert S. Lemle at One Media Crossways, Woodbury, New York 11797; telephone
(516) 364-8450.
COMPARISON OF CABLEVISION CLASS A COMMON STOCK WITH UNITS
If the Merger is approved and consummated, the Partnership will receive
shares of Cablevision Class A Common Stock and the Limited Partners will receive
a portion of such shares upon the Liquidation of the Partnership. The effect of
the Merger, therefore, is to convert the Partnership's Units into shares of
Cablevision Class A Common Stock. An investment in Units of limited partnership
interest in the Partnership is fundamentally different from an investment in
Cablevision Class A Common Stock. The discussion of the comparative rights of
the Limited Partners of the Partnership and the stockholders of Cablevision set
forth below does not purport to be complete and is subject to and qualified in
its entirety by reference to the MULPA, the Delaware General Corporation Law
(the 'DGCL'), the Partnership Agreement and Cablevision's Restated Certificate
of Incorporation and By-laws (the 'Cablevision Governing Documents'). Copies of
these documents have been filed as exhibits to the Registration Statement of
which this Consent Solicitation Statement/Prospectus is a part. See 'Available
Information.' A summary of this comparison is set forth under 'Summary.'
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PARTNERSHIP UNITS CABLEVISION CLASS A COMMON STOCK
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FORM OF ORGANIZATION
The Partnership was formed as a limited partnership under the MULPA while Cablevision was organized as a
corporation under the DGCL.
The Partnership is a limited partnership organized Cablevision is organized as a corporation under the
under the MULPA. The Partnership has been treated as a laws of the State of Delaware. As a corporation,
partnership for federal and Massachusetts income tax Cablevision is subject to the DGCL. The rights of
purposes. The rights of the Limited Partners are stockholders of Cablevision are governed by the DGCL
governed by the MULPA and by the Partnership Agreement and by the Cablevision Governing Documents.
and the documents governing the terms of the Pre- Consummation of the Merger and the Liquidation will
ferred Equity. not change the rights of Cablevision's existing
stockholders under the DGCL or the Cablevision
Governing Documents.
LIABILITY
The rights of the stockholders against the management of Cablevision in certain circumstances will be
more limited than the rights of the Limited Partners against the General Partners.
The General Partners have full responsibility and, The business and affairs of Cablevision are managed by
subject to certain limitations, exclusive and complete and under the direction of its Board of Directors,
discretion in the management and control of the which is elected by its stockholders. Under Delaware
business of the Partnership. Further, the Partnership law, the directors are accountable to the corporation
Agreement gives the General Partners the right and and its stockholders as fiduciaries and are required
power to do all things necessary to carry on the to perform their duties in good faith, in a manner
business of the Partnership and specifically believed to be in the best interests of the
authorizes Dolan, as Managing General Partner, to corporation and its stockholders and with such care as
manage the affairs and business of the Partnership, an ordinarily prudent person in a like position would
with few exceptions, such as the fact that certain use under similar circumstances. Members of the Board
limited matters, including each of the Transactions, of Directors do not have general liability for
can only be approved by a vote of the Limited Cablevision's obligations. Section 145 of the DGCL
Partners. The General Partners are accountable to the provides that a corporation may indemnify directors
Partnership as fiduciaries and, consequently, must and officers as well as other employees and
exercise good faith and integrity in handling the individuals against expenses (including attorneys'
affairs of the Partnership. A Limited Partner may fees), judgments, fines and amounts paid in settlement
institute legal action on behalf of himself or herself in connection with specified actions, suits or
and all other similarly situated Limited Partners to proceedings, whether civil, criminal, administrative
recover damages for a breach by a General Partner of or investigative (other than an action by or in the
his or her fiduciary duty. Under the MULPA, under right of the corporation -- a 'derivative action'), if
certain circumstances, a Limited Partner may bring an such persons acted in good faith and in a manner they
action on behalf of the Partnership to recover damages reasonably believed to be in or not opposed to the
from third parties. However, the expenses involved in best interests of the corporation, and, with respect
instituting such legal proceedings can be substantial. to any criminal action or proceeding, had no rea-
The General Partners also have general liability for sonable cause to believe their conduct was unlawful. A
all Partnership obligations. The Partnership Agreement similar standard is applicable in the case of
provides that the Partnership shall indemnify and hold derivative actions, except that indemnification only
harmless the General Partners from any loss, damage, extends to expenses (including attorneys' fees)
fine, penalty, expense, judgment or amounts paid in incurred in connection with defense or settlement of
settlement by reason of any act performed or omitted such action, and the statute requires court approval
by the General Partner in connection with the business before there can be any indemnification where the
person seeking indem-
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PARTNERSHIP UNITS CABLEVISION CLASS A COMMON STOCK
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of the Partnership or in furtherance of its interests nification has been found liable to the corporation.
except for those acts or omissions that are the result The statute provides that it is not exclusive of other
of the General Partner's gross negligence or willful rights to which those seeking indemnification may be
misconduct or are undertaken with respect to the entitled under any by-law, agreement, vote of
offer, issuance or sale by a General Partner of its stockholders or disinterested directors or otherwise.
own securities. The Partnership Agreement provides The Cablevision Governing Documents provide that
that the General Partners will not be liable to any of Cablevision shall, to the fullest extent permitted by
the Limited Partners for any errors in judgment or for Section 145 of the DGCL, indemnify any and all persons
any acts or omissions that do not constitute gross whom it shall have the power to indemnify under said
negligence or willful misconduct or for the section from and against any and all of the expenses,
negligence, dishonesty or bad faith of employees and liabilities or other matters referred to in, or
agents of the Partnership selected and supervised by covered by, said section. The right to indemnification
the General Partners with reasonable care. In all and advancement of expenses conferred on any person by
other cases, the Partners shall look solely to the the Cablevision Governing Documents shall not limit
assets of the Partnership for the return of their Cablevision from providing any other indemnification
capital and shall have no recourse against any General permitted by law nor shall it be deemed exclusive of
Partner or any Limited Partner for the return of the any other right which any such person may have or
same. Further, any act or omission by any General hereafter acquire under any statute, provision of the
Partner, the effect of which may cause or result in Cablevision Governing Documents, agreement, vote of
loss or damage to the Partnership, if done pursuant to stockholders or disinterested directors or otherwise.
the opinion of tax, accounting or independent legal Cablevision maintains insurance, at its expense, to
counsel selected with reasonable care, shall be protect itself and any director, officer, employee or
conclusively presumed not to constitute gross agent of the corporation or another corporation, part-
negligence or willful misconduct by such General nership, joint venture, or other enterprise against
Partner. any expense, liability or loss, whether or not
Cablevision would have the power to indemnify such
person against such expense, liability or loss under
the DGCL. Cablevision has entered into indemnification
agreements with certain of its officers and directors
indemnifying such officers and directors from and
against certain expenses, liabilities or other matters
referred to in or covered by Section 145 of the DGCL.
Cablevision and its directors have also entered into
an agreement with Dolan, the Chairman of Cablevision,
pursuant to which Dolan has agreed to guarantee
Cablevision's obligation to indemnify its officers and
directors to the fullest extent permitted by Delaware
law. In addition, subject to certain limitations,
Dolan has agreed to indemnify such officers and
directors against any loss or expense such persons may
incur in connection with any transaction involving
Dolan or entities affiliated with Dolan to the extent
indemnification is not provided by Cablevision. Any
payment required to be made by Dolan pursuant to such
agreement will be reduced by any proceeds of insurance
or reimbursement under any other form of
indemnification reimbursement available to such
officer or director.
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Section 102(b)(7) of the DGCL permits a corporation to
provide in its certificate of incorporation that a
director of the corporation shall not be personally
liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty by such
director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or
its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or
a knowing violation of law, (iii) for payments of
unlawful dividends or unlawful stock repurchases or
redemptions or (iv) for any transaction from which the
director derived an improper personal benefit. The
Cablevision Governing Documents provide for such
limitation of liability. Under Section 141(e) of the
DGCL, a member of the board of directors, or a member
of any committee designated by the board of directors,
will in the performance of his duties, be fully
protected in relying in good faith upon the records of
the corporation and upon such information, opinions,
reports or statements presented to the corporation by
any of the corporation's officers or employees, or
committees of the board of directors, or by any other
person as to matters the member reasonably believes
are within such other person's professional or expert
competence and who has been selected with reasonable
care by or on behalf of the corporation.
NATURE OF INVESTMENT
Cablevision's investment objectives are substantially broader than those of the Partnership. Cablevision
has broad powers to engage in whatever types of activities it chooses while the Partnership is limited to
those activities relating to the operation of the Systems. Limited Partners receiving shares of Cablevision
Class A Common Stock in the Liquidation will exchange an investment in a partnership with a finite existence
for an investment in a corporation with a perpetual existence.
The Partnership was organized to construct, own, Cablevision is authorized under its Restated
operate and maintain the Boston System and, later, to Certificate of Incorporation to conduct any lawful
construct, own and operate the Brookline System business and to engage in any lawful act or activity
through its 99% limited partnership interest in for which corporations may be organized under the DGCL
Brookline. The Partnership's objectives were to and, accordingly, has broad powers to engage in
provide the Limited Partners with distributions of whatever types of investment or business the
operating cash flow, which were expected to commence corporation chooses and to reinvest cash flow
in the mid-1980s and increase over time, and to generated in its business. To date, Cablevision has
provide the Limited Partners with tax deductions principally engaged in the businesses of constructing,
pending such cash distributions. The Partnership's owning, operating and managing cable television
financial results have not permitted it to make cash systems; owning and managing companies that produce
distributions in the past and it is not expected to be and distribute national and regional programming
able to do so for the foreseeable future. See 'The services; and providing advertising sales services for
Transac- the cable
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PARTNERSHIP UNITS CABLEVISION CLASS A COMMON STOCK
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tions -- Background of the Transactions.' television industry. There can be no assurance that
Cablevision will not engage in business activities
which differ, perhaps significantly, from those in
which it has engaged in the past. Cablevision has not
paid any dividends on shares of Cablevision Class A
Common Stock and does not anticipate paying any cash
dividends in the foreseeable future.
MARKETABILITY AND TRANSFERABILITY OF INTERESTS
One of the primary objectives of the Transactions is to provide liquidity to the Limited Partners.
Because of the active trading market for the Cablevision Class A Common Stock, shares received in the
Liquidation should provide increased liquidity to the Limited Partners.
There is no established public trading market for the The shares of Cablevision Class A Common Stock are
Units. In addition, the Units have not been registered listed on the ASE. There is a public trading market
under the Securities Act and were initially offered for such shares. See 'Price Range of Cablevision Class
and sold in reliance upon the exemption from A Common Stock and Dividend Policy.' The shares of
registration provided by Section 4(2) of the Cablevision Class A Common Stock distributed to
Securities Act and the rules and regulations unaffiliated Limited Partners in the Liquidation will
thereunder and, in many states, exemptions under be publicly traded.
applicable state laws. As a consequence, purchasers of
the Units are unable to resell or otherwise transfer
the Units unless the Units are registered under the
Securities Act or unless an exemption from
registration for such resale or transfer is available.
Any applicable state laws requiring registration or
qualification also must be satisfied before any resale
or transfer. In addition, Limited Partners are not
permitted to sell, assign, pledge or otherwise
transfer all or any portion of their interests in the
Partnership without the prior written consent of the
General Partners, which consent shall not be
unreasonably withheld. A Limited Partner seeking to
transfer all or any part of its interest is required
to pay all of the Partnership's legal and other
reasonable and necessary expenses in connection with
such transfer. In addition, no Limited Partner has the
right to retire or withdraw from the Partnership. The
interests of a bankrupt Limited Partner shall be
purchased by the Partnership upon the terms and condi-
tions contained in the Partnership Agreement.
DIVIDENDS AND DISTRIBUTIONS
Under either the partnership or the corporate structure, the Limited Partners (absent the Merger) and
holders of shares of Cablevision Class A Common Stock are unlikely to receive any distributions of value with
respect to their equity interests in the foreseeable future.
Units represent equity interests in the Partnership. Shares of Cablevision Class A Common Stock represent
Distributions of cash to the Partners will be made at equity interests in Cablevision. Each stockholder will
such times and in such amounts as the be entitled to receive dividends
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PARTNERSHIP UNITS CABLEVISION CLASS A COMMON STOCK
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Managing General Partner, in his sole discretion, pro rata on a per share basis if, as and when such
shall determine, subject to restrictions on distri- dividends are declared by Cablevision's Board of
butions to Partners under the Loan Agreement, the Directors out of funds legally available therefor.
Partnership's subordinated debt agreements and the Under the DGCL, dividends may be paid out of the
terms of the Preferred Equity. Those instruments surplus of a corporation or, if there is no surplus,
currently prohibit distributions to partners. As out of net profits for the year in which the dividend
described under 'The Transactions -- Background of the is declared or the preceding fiscal year. Cablevision
Transactions,' no distributions are expected to be has not paid any dividends on shares of Cablevision
made with respect to the Units in the foreseeable Class A Common Stock and does not anticipate paying
future. The Partnership Agreement and agreements any cash dividends in the foreseeable future. In
creating the Preferred Equity provide that, except in addition, certain debt instruments to which
liquidation and dissolution, cash flow available after Cablevision is a party contain covenants which
payment of outstanding Preferred Equity and unpaid effectively prohibit the payment of such dividends.
cumulative distributions thereon will be allocated 1% See 'Price Range of Cablevision Class A Common Stock
to the General Partners and 99% to the Limited and Dividend Policy.'
Partners until Payout and 20% to Cablevision Finance
in respect of its Preferred Equity, 32% to the General
Partners and 48% to the Limited Partners thereafter.
The General Partners have assigned their rights to
13.2% of post-Payout distributions to Cablevision.
TAXATION
Cablevision is subject to corporate-level tax, whereas the Partnership as an entity is not subject to
federal income tax.
The Partnership, as an entity, is not subject to Cablevision, as a corporation, is subject to
federal income tax. Instead, the Partners of the corporate-level tax. Distributions made by Cablevision
Partnership report their allocable share of Part- to shareholders of Cablevision Class A Common Stock
nership income and loss on their respective tax are taxable to the stockholders to the extent paid out
returns. Because a significant amount of Partnership of earnings and profits of Cablevision.
losses in prior years which were allocated to the
Limited Partners were not deductible by them due to
the at-risk limitations under federal income tax
principles, current and future taxable income of the
Partnership allocated to a Limited Partner could be
offset by the amount of such Limited Partner's at-risk
losses not previously utilized. As a result, it is
likely that many of the Limited Partners would not be
required to pay federal or Massachusetts income taxes
on taxable income of the Partnership for the
foreseeable future.
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PARTNERSHIP UNITS CABLEVISION CLASS A COMMON STOCK
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VOTING
Stockholders of Cablevision are entitled to vote on more matters than Limited Partners of the
Partnership; however, affiliates of Cablevision who hold voting stock of Cablevision, including Dolan, also
have voting rights. Because Dolan and trusts for the benefit of Dolan family members beneficially own a
majority of the total voting power of Cablevision and a majority of the shares of Cablevision Class B Common
Stock, they have the power to elect 75% of Cablevision's directors and also have the power to control
stockholder decisions on matters in which the holders of Cablevision Class A Common Stock and Cablevision
Class B Common Stock vote together as a class. See 'Risk Factors -- Risks Related to the Merger and Risks
Related to an Investment in Cablevision -- Voting Control by Majority Stockholders; Disparate Voting Rights.'
Under the Partnership Agreement, on substantially all matters on which Limited Partners can vote, the General
Partners and their affiliates have no vote.
Under the Partnership Agreement, Limited Partners can Under Delaware law, stockholders are entitled to vote
vote only in certain extraordinary circumstances on a wide variety of matters, including the election
because the General Partners have the authority to of directors and extraordinary matters, such as
make nearly all management decisions affecting the amendments to the certificate of incorporation,
Partnership. The Limited Partners do not have the mergers, sales of all or substantially all of the
right under the Partnership Agreement to elect or assets and dissolution. Holders of Cablevision Class A
remove the General Partners. The Limited Partners' Common Stock are entitled to one vote per share.
limited rights to vote include the right to consent to Holders of Cablevision Class B Common Stock are
(i) sales of all or substantially all of the assets of entitled to ten votes per share. All actions submitted
the Partnership before Payout and after Payout, if, in to a vote of stockholders are voted on by holders of
the Managing General Partner's good faith judgment Cablevision Class A Common Stock and Cablevision Class
such post-Payout sale would have a material adverse B Common Stock voting together as a single class,
effect on the Limited Partners, (ii) the incorporation except for the election of directors, as otherwise set
of the assets of the Partnership and the merger of the forth below and as required by the DGCL. With respect
Partnership into another corporation, if, in the to the election of directors, holders of the
Managing General Partner's judgment, such transfer, Cablevision Class A Common Stock vote as a separate
merger or combination would have a material adverse class and are entitled to elect 25% of the total
effect on the Limited Partners and (iii) amendments to number of directors constituting the whole Cablevision
the Partnership Agreement which would (x) increase the Board of Directors (the 'Cablevision Class A
Limited Partners' liability or change the Directors') and, if such 25% is not a whole number,
contributions required of Limited Partners, their then the holders of the Cablevision Class A Common
rights and interests in profits and losses and income Stock will be entitled to elect the nearest higher
tax allocations of the Partnership, or their rights whole number of directors that is at least 25% of the
upon liquidation thereof or (y) specify a voting total number of directors. Holders of the Cablevision
requirement in excess of that provided in the Class B Common Stock, voting as a separate class, are
Partnership Agreement. Limited Partners do not have entitled to elect the remaining directors. If,
the right to submit a proposal to the vote of Limited however, on the record date for any stockholder
Partners under either the MULPA or the Partnership meeting at which directors are to be elected, the
Agreement. number of outstanding shares of the Cablevision Class
A Common Stock is less than 10% of the total number of
outstanding shares of both classes of common stock,
then the holders of the Cablevision Class A Common
Stock and Cablevision Class B Common Stock will vote
to-gether as a single class with respect to the
election of directors and the holders of the
Cablevision Class A Common Stock will not have the
right to elect 25% of the number of the directors, but
will have one vote per share for all
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PARTNERSHIP UNITS CABLEVISION CLASS A COMMON STOCK
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directors and the holders of the Cablevision Class B
Common Stock will have ten votes per share for all
directors. If, on the record date for any stockholder
meeting at which directors are to be elected, the
number of outstanding shares of the Cablevision Class
B Common Stock is less than 12.5% of the total number
of outstanding shares of both classes of common stock,
then the holders of the Cablevision Class A Common
Stock, voting as a separate class, will continue to
elect a number of Cablevision Class A Directors equal
to 25% of the total number of directors constituting
the whole Cablevision Board of Directors and, in
addition, will vote together with the holders of the
Cablevision Class B Common Stock to elect the
remaining directors to be elected at such meeting,
with the holders of the Cablevision Class A Common
Stock entitled to one vote per share and the holders
of the Cablevision Class B Common Stock entitled to
ten votes per share. In addition, the affirmative vote
or consent of the holders of at least 66% of the
outstanding shares of Cablevision Class B Common
Stock, voting separately as a class, is required for
the authorization or issuance of any additional shares
of Cablevision Class B Common Stock and for any
amendment, alteration or repeal of any provisions of
Cablevision's Certificate of Incorporation which would
affect adversely the powers, preferences or rights of
the Cablevision Class B Common Stock. The Cablevision
Certificate of Incorporation does not provide for
cumulative voting.
MEETINGS
While Limited Partners have the ability to call meetings of Partners and stockholders of Cablevision
cannot call meetings of stockholders, Cablevision stockholders are much more likely to participate in meetings
of stockholders as such meetings are held on an annual basis and stockholders are entitled to vote on more
matters.
Meetings of the Limited Partners, for whatever Annual and special meetings of the stockholders of
purpose, shall be called by the Managing General Cablevision may be called by resolution of the
Partner upon receipt of a request in writing signed by Cablevision Board of Directors only. In addition,
Limited Partners holding at least 20% of the Units under the DGCL, if a corporation delays holding its
then outstanding. Notice of any such meeting, stating annual meeting for more than 13 months, the Delaware
its purpose and the business to be transacted, shall Court of Chancery may order a meeting to be held upon
be delivered to all Partners by the Managing General application of any stockholder or director.
Partner at least 30 days prior to the date of such Cablevision holds meetings of stockholders on an
meeting. To date, there have been no meetings of the annual basis.
Limited Partners of the Partnership.
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DISSOLUTION AND LIQUIDATION
Under the Partnership Agreement, the Partnership will Under the DGCL, a corporation may be dissolved if (i)
dissolve upon the earliest to occur of (i) the death, the board of directors of the corporation, by
retirement, dissolution or adjudication of bankruptcy, resolution adopted by a majority of the whole board at
incompetency or insolvency of a General Partner unless any meeting called for that purpose for which proper
the remaining General Partner(s) or Limited Partners notice was mailed, deems such dissolution advisable
entitled to 60% of the net profits and net losses of and (ii) a majority of the outstanding voting power of
the Partnership allocated to Limited Partners elect to the corporation votes for the proposed dissolution at
allow the remaining General Partner to continue the a stockholders' meeting called for the purpose of
Partnership, (ii) the sale, exchange or involuntary acting upon such resolution. Under Cablevision's
conversion of all, or substantially all, of the Certificate of Incorporation, the voluntary sale,
Partnership's non-cash assets or (iii) December 31, conveyance, exchange or transfer (for cash, shares of
2050. Upon dissolution, the Partnership shall be stock, securities or other consideration) of all or
liquidated. After payment of or provision for substantially all of the property or assets of the
creditors and others having preferential rights to corporation shall be deemed a voluntary liquidation,
receive distributions, the assets of the Partnership dissolution or winding up of the corporation. Upon
shall be distributed in kind among the Partners first, dissolution, holders of Cablevision Class A Common
on a pro rata basis, to return any positive balance in Stock and Cablevision Class B Common Stock share with
their capital accounts and then in the same each other on a ratable basis as a single class in the
proportions in which the Partners share in net assets of the corporation available for
distributions of cash flow. See 'Description of the distribution in respect of the common stock. Under the
Merger -- Liquidation of the Partnership Following the DGCL holders of Cablevision Class A Common Stock only
Merger.' The Partnership Agreement and agreements have the right to vote to compel the dissolution or
creating the Preferred Equity provide that, except in liquidation of Cablevision if they, along with all
liquidation and dissolution, cash flow available after other holders of Cablevision Common Stock, unanimously
payment of outstanding Preferred Equity and unpaid vote to do so.
cumulative distributions thereon will be allocated 1%
to the General Partners and 99% to the Limited
Partners until Payout and thereafter 20% to
Cablevision Finance in respect of its Preferred
Equity, 32% to the General Partners and 48% to the
Limited Partners. The General Partners have assigned
their rights to 13.2% of post-Payout distributions to
Cablevision. Under Section 38 of the MULPA, (i) if a
Partner has received the return of any part of his
contribution without violation of the Partnership
Agreement or the MULPA, he is liable to the
Partnership for a period of one year thereafter for
the amount of the returned contribution, but only to
the extent necessary to discharge the Partnership's
liabilities to creditors who extended credit to the
Partnership during the period the contribution was
held by the Partnership and (ii) if a Partner has
received the return of any part of his contribution in
violation of the Partnership Agreement or the MULPA,
he is liable to the Partnership for a period of six
years thereafter for the amount of the contribution
wrongfully returned. The Limited Partners do not have
the right to vote to compel dissolution or liquidation
</TABLE>
117
<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP UNITS CABLEVISION CLASS A COMMON STOCK
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
of the Partnership under either the MULPA or the
Partnership Agreement.
RIGHT TO INVESTOR LISTS
The right of Cablevision stockholders to obtain a list of investors is somewhat more limited than the
corresponding right of holders of Units in the Partnership.
Under Sections 5 and 21 of the MULPA, each Limited Pursuant to the DGCL and the Cablevision Governing
Partner has the right to inspect and copy (i) a Documents, a complete list of stockholders that
current list of the full name and last known address includes the number of shares beneficially owned by
of each Partner, separately identifying in each holder shall be prepared and made available for
alphabetical order the General Partners and the the examination of every stockholder during the 10-day
Limited Partners and (ii) a writing setting out the period prior to any annual or special meeting of
amount of cash and a description and statement of the stockholders and at the time and place of such meeting
agreed value of the other property or services during the whole term thereof, and may be inspected by
contributed by each Partner and which each Partner has any stockholder who is present. In addition, under
agreed to contribute and any right of a Partner to Rule 14a-7, in connection with any meeting of
receive, or of a General Partner to make distributions stockholders or action by consent of stockholders,
to a Partner which include a return of all or any part Cablevision is obligated, upon the written request of
of the Partner's contribution, at the reasonable a stockholder, to deliver to the stockholder (i) a
request and at the expense of any Partner during statement of the appropriate number of existing
ordinary business hours. In addition, under Rule stockholders in Cablevision and (ii) the estimated
14a-7, in connection with any meeting of Partners or cost of mailing a proxy statement, form of proxy or
action by consent of Partners, the Partnership is other similar communication to such stockholders. In
obligated, upon the written request of a Limited addition, pursuant to Rule 14a-7, a stockholder has
Partner, to deliver to the Limited Partner (i) a the right, at his or her option, either (x) to have
statement of the appropriate number of existing Cablevision mail (at the stockholder's expense) copies
Limited Partners in the Partnership and (ii) the of any proxy statement, proxy form or other soliciting
estimated cost of mailing a proxy statement, form of material furnished by the stockholder to Cablevision's
proxy or other similar communication to such Limited stockholders designated by the stockholder, or (y) to
Partners. In addition, pursuant to Rule 14a-7, a have Cablevision deliver, within five business days of
Limited Partner has the right, at his or her option, the receipt of the request, a reasonably current list
either (x) to have the Partnership mail (at the of the names, addresses and class of stock held by the
Limited Partner's expense) copies of any proxy stockholders, which list shall be updated as often as
statement, proxy form or other soliciting material practicable prior to the record date for stockholders
furnished by the Limited Partner to the Partnership's for such meeting or action by consent. The right to
holders of Units (the 'Unitholders') designated by the receive the list of stockholders is subject to the
Limited Partner, or (y) to have the Partnership stockholder's payment of the cost of mailing and
deliver, within five business days of the receipt of duplication.
the request, a reasonably current list of the names,
addresses and class of Units held by the Unitholders,
which list shall be updated as often as practicable
prior to the record date for Unitholders for such
meeting or action by consent. The right to receive the
list of Unitholders is subject to the Limited
Partner's payment of the cost of mailing and
duplication.
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP UNITS CABLEVISION CLASS A COMMON STOCK
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
ACCESS TO OTHER BOOKS AND RECORDS
Under the Partnership Agreement, each Partner and/or Pursuant to the DGCL, stockholders have a right of
legal representative may at all reasonable times have access to and inspection of Cablevision's other books
free access to and the right to inspect the or records upon written demand and during usual
Partnership's books of account during ordinary business hours.
business hours. Pursuant to the MULPA, each Partner
also has a right to inspect and copy (at the
reasonable request and at the expense of such partner)
a current list of the full name and last known address
of each Partner of the Partnership, copies of the
Partnership's tax returns for the three most recent
years and all effective partnership agreements and
amendments.
COMPENSATION OF THE GENERAL PARTNER
The General Partners do not receive any compensation Dolan is the Chairman of Cablevision. Decisions
for services rendered to the Partnership solely by regarding his compensation are the responsibility of
reason of being General Partners but are permitted the two non-employee members of the Compensation
reimbursement of reasonable expenses incurred and/or Committee of Cablevision's Board of Directors (the
paid on behalf of and for the benefit of the 'Executive Compensation Committee'), subject to
Partnership in accordance with the Partnership approval by Cablevision's Board of Directors.
Agreement. The Partnership Agreement and agreements Recommendations of the Executive Compensation
creating the Preferred Equity provide that, except in Committee are concerned only with salary and annual
liquidation and dissolution of the Partnership, cash bonus, since Dolan is ineligible for grants of
flow available after payment of the Preferred Equity long-term stock incentives under the terms of
and cumulative distributions thereon, that is to be Cablevision's long- term stock incentive plans. Dolan
distributed to the Partners will be allocated 1% to received a salary of $600,000 in 1994, the same as in
the General Partners and 99% to the Limited Partners 1993, and will receive the same salary in 1995, the
until Payout and 20% to Cablevision Finance in respect eighth consecutive year at $600,000. Dolan has
of the Preferred Equity, 32% to the General Partners requested in recent years that his salary not be
and 48% to the Limited Partners thereafter. The increased, a request acceded to by the Executive
General Partners have assigned their rights to 13.2% Compensation Committee. The Executive Compensation
of post-Payout distributions to Cablevision. To date, Committee recognizes, however, that this practice will
no distributions have been made to the General need to be reviewed and probably changed in the near
Partners in respect of their partnership interests. No future so as not to compress the salaries of other
amounts are currently payable with respect to either senior executives. Dolan's cash bonus for 1994 was set
Units or general partnership interests. The General by the Executive Compensation Committee at $375,000
Partners have, however, been reimbursed for their which was the same as the bonus paid to Dolan for
expenses as described under 'The 1993, $25,000 less than the $400,000 paid to Dolan for
Transactions -- Background of the Transactions.' 1992 and $125,000 less than the $500,000 bonus paid
Certain affiliates of the General Partners provide for each of the three years previous to that. The
services to the Partnership for which they are amount of Dolan's 1994 bonus was paid in 1995. In
entitled to receive compensation and reimbursement of 1994, Cablevision contributed $2,250 on behalf of
expenses. In order to take advantage of cost savings Dolan under Cablevision's Money Purchase Pension Plan,
attributable to the combined purchasing power of CSSC credited $25,500 to Dolan on the books of Cablevision
and its affiliates, CSSC purchased a premium program- pursuant to the defined contribution portion of
ming service from an unaffiliated program supplier. Cablevision's Supplemental Benefit Plan, contributed
CSSC made such service available to the $3,250 on behalf of Dolan as
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP UNITS CABLEVISION CLASS A COMMON STOCK
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
Partnership at CSSC's cost in return for the basic and matching contributions under Cablevision's
Partnership's assumption of a portion of CSSC's 401(k) plan and paid $119,861 as premiums for an
obligations under its agreements with such unaf- individual whole life insurance policy purchased by
filiated program supplier. In the years ended December Cablevision to replace coverage under an integrated
31, 1994 and 1993, an aggregate of $2,098,878 and policy pursuant to which death benefits were payable
$2,317,370, respectively, was paid by the Partnership to Dolan's beneficiaries and any cash surrender value
to or on behalf of CSSC for such premium programming belonged to Cablevision. Dolan and his beneficiaries
service. The Partnership also purchases certain other are entitled to the cash surrender value in the whole
premium television services produced or distributed by life insurance policy purchased for him by Cablevision
Cablevision affiliates at rates comparable to those in 1993. Dolan has an employment agreement with
charged to similarly situated entities unrelated to Cablevision expiring in January 1996 with automatic
such affiliates. In the six months ended June 30, 1995 renewals for successive one- year terms unless
and 1994, an aggregate of approximately $475,000 and terminated by either party at least three months prior
$419,000 was paid to these affiliates. At June 30, to the end of the then- existing term. The agreement
1995, the Partnership did not owe CSSC any amounts for provides for annual compensation of not less than
premium television services and owed Atlantic $400,000 per year to Dolan. The agreement also
Publishing $580,000 for cable guide services. See provides for payment to Dolan's estate in the event of
'Cablevision of Boston -- Certain Relationships and his death during the term of such agreement, of an
Related Transactions.' CSSC, a corporation wholly- amount equal to the greater of one year's base salary
owned by Dolan, provides management services to the or one-half of the compensation that would have been
Partnership under an agreement that entitles CSSC, in payable to Dolan during the remaining term of such
addition to reimbursement of expenses, to payment of a agreement. Cablevision from time to time enters into
fee equal to 3 1/2% of gross receipts of the agreements with entities in which Dolan or his
Partnership until Payout and increasing amounts affiliates have substantial interests. In order to
thereafter. In the six months ended June 30, 1995 and take advantage of cost savings attributable to the
1994, approximately $1,090,000 and $934,000 was combined purchasing power of CSSC and its affiliates,
charged to the Partnership in respect of this CSSC purchased a premium programming service from an
agreement. At June 30, 1995, $17,181,000 in management unaffiliated program supplier. CSSC made such service
fees to CSSC, and $8,296,000 in interest thereon, had available to Cablevision at CSSC's cost in return for
accrued. To date, no management fees have been paid, Cablevision's assumption of a portion of CSSC's
although an aggregate of $1.5 million of interest on obligations under its agreements with such
unpaid management fees was paid in August 1992. All unaffiliated program supplier. In the years ended
such affiliates are reimbursed for their expenses on a December 31, 1994 and 1993, an aggregate of $8,344,008
current basis. See 'The Transactions -- Background of and $8,008,738, respectively, was paid by Cablevision
the Transactions.' Dolan and his affiliates will to or on behalf of CSSC for such premium programming
receive substantial amounts in connection with the service. Cablevision also purchases certain other
Merger. See 'The Transactions -- Interests of Certain premium television services produced or distributed by
Persons in the Transactions; Conflicts of Interest.' its affiliates at rates comparable to those charged to
Following the Merger, Dolan will continue to receive similarly situated entities unrelated to such
compensation from Cablevision in his capacity as affiliates. In the six months ended June 30, 1995 and
Chairman of Cablevision. It is not anticipated that 1994, an aggregate of approximately $11,095,000 and
his compensation as such will be affected by the $8,870,000, was paid to these affiliates. CSSC is also
consummation of the Transactions. Upon consummation of a party to management agreements with various
the Merger, the Related Partnerships' management affiliates of Cablevision, including the Related
services agreements with CSSC will be terminated and Partnerships. The agreements generally provide for
CSSC will not be entitled to any future management payment of a specified percentage of revenues to CSSC
fees with respect to the Systems. Dolan will continue for management services rendered to such affiliates
to act as a general partner of Brookline and the reimbursement of certain expenses.
</TABLE>
120
<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP UNITS CABLEVISION CLASS A COMMON STOCK
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
following the Merger, without compensation (subject to Since these agreements were entered into, the
his right to reimbursement for his expenses). There employees of CSSC have become employees of
are no fees or other expenses payable to the General Cablevision. Accordingly, Cablevision, which provides
Partners and their affiliates solely because of the management services to the Related Partnership and
Transactions. For more information concerning other affiliated entities, pays the compensation of
compensation, fees and distribution payments to such employees and incurs related overhead expenses.
members of the GP Group, see the table labeled 'Pro To the extent that such employees (other than Dolan)
Forma Presentation of Compensation, Fees and render services to affiliated entities on an as-needed
Distributions' below. basis, such entities will reimburse Cablevision for
the allocable portion of such employees' compensation
and related expenses. The amount so reimbursed to
Cablevision from the Partnership amounted to
approximately $980,000 and $1,017,000 during the six
months ended June 30, 1995 and 1994, respectively. The
affiliated entities are not otherwise obligated to
reimburse Cablevision for such employees' compensation
and related expenses. The executive officers of
Cablevision devote such time to the business of
Cablevision as is reasonably required to fulfill the
duties of their offices. However, pursuant to the
management agreements described above, certain of the
executive officers of Cablevision are involved in the
management of affiliated entities, which requires
significant amounts of their time and which could
conflict with their duties to Cablevision. To the
extent that there are conflicting demands for the
services of such executive officers, such conflict is
resolved in favor of Cablevision, including with
respect to conflicts regarding the Partnership. For
further information with respect to compensation and
other arrangements between Cablevision and the General
Partners and their affiliates, see 'Executive
Compensation' and 'Certain Relationships and Related
Transactions' in the Cablevision Form 10-K.
</TABLE>
PRO FORMA PRESENTATION OF COMPENSATION, FEES AND DISTRIBUTIONS. The
following pro forma presentation of compensation, fees and distribution payments
to members of the GP Group reflects the pro forma effects of the historical
compensation, fees, reimbursable expenses and distributions for the six months
ended June 30, 1995 and for each of the years ended December 31, 1994, 1993 and
1992. The pro forma presentation was prepared as if the Merger were consummated
on the first day of each of the fiscal years for which information is presented
and includes only cash payments and does not include any amounts for management
fees, Preferred Equity, and advances that accrued during this period but which
are being paid in a reduced amount, in connection with the Merger. There are no
fees or other expenses payable to the General Partners and their affiliates
solely because of the Transactions.
121
<PAGE>
SIX MONTHS ENDED JUNE 30, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
PRO FORMA PRO
TYPE OF COMPENSATION PARTNERSHIP CABLEVISION ADJUSTMENT FORMA
- --------------------------------------------------------------- ----------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Management fees................................................ $ 0 $ 0 $ 0 $ 0
Reimbursement of expenses(1)................................... 980 0 (980) 0
Salary and other compensation to Dolan and affiliates(2)....... 0 300 0 300
Fees to independent directors(3)............................... 0 103 0 103
Cash distributions to General Partners......................... 0 0 0 0
----------- ----------- ---------- -------
$ 980 $ 403 $ (980) $ 403
----------- ----------- ---------- -------
----------- ----------- ---------- -------
YEAR ENDED DECEMBER 31, 1994
(dollars in thousands)
Management fees................................................ $ 0 $ 0 $ 0 $ 0
Reimbursement of expenses(1)................................... 4,049 8,344 (1,950) 10,443
Salary and other compensation to Dolan and affiliates(2)....... 0 1,126 0 1,126
Fees to independent directors(3)............................... 0 178 0 178
Cash distributions to General Partners......................... 0 0 0 0
----------- ----------- ---------- -------
$ 4,049 $ 9,648 $ (1,950) $11,747
----------- ----------- ---------- -------
----------- ----------- ---------- -------
YEAR ENDED DECEMBER 31, 1993
(dollars in thousands)
Management fees................................................ $ 0 $ 0 $ 0 $ 0
Reimbursement of expenses(1)................................... 4,204 8,009 (1,887) 10,326
Salary and other compensation to Dolan and affiliates(2)....... 0 1,126 0 1,126
Fees to independent directors(3)............................... 0 115 0 115
Cash distributions to General Partners......................... 0 0 0 0
----------- ----------- ---------- -------
$ 4,204 $ 9,250 $ (1,887) $11,567
----------- ----------- ---------- -------
----------- ----------- ---------- -------
YEAR ENDED DECEMBER 31, 1992
(dollars in thousands)
Management fees(4)............................................. $ 1,500 $ 0 $ (1,500) $ 0
Reimbursement of expenses...................................... 3,916 6,641 (1,613) 8,944
Salary and other compensation to Dolan and affiliates.......... 0 1,030 0 1,030
Fees to independent directors.................................. 0 123 0 123
Cash distributions to General Partners......................... 0 0 0 0
----------- ----------- ---------- -------
$ 5,416 $ 7,794 $ (3,113) $10,097
----------- ----------- ---------- -------
----------- ----------- ---------- -------
</TABLE>
- ------------
(1) Includes payments by the Related Partnerships and Cablevision to CSSC of
$10,443, $10,326 and $8,944 for the years ended December 31, 1994, 1993 and
1992, respectively, for reimbursement at cost for programming expenses of
the Disney Channel, as well as the reimbursement by the Related Partnerships
of $1,950, $1,887 and $1,613 for the years ended December 31, 1994, 1993 and
1992, respectively, and $980 for the six months ended June 30, 1995, for
general and administrative expenses incurred by Cablevision on behalf of the
Related Partnerships. Such general and administrative expenses are
eliminated in the pro forma presentation.
(2) Consists of Dolan's salary and bonus of $975, $975 and $1,000 and other
compensation of $151, $151 and $30 for the years ended December 31, 1994,
1993 and 1992, respectively, and Dolan's salary of $300 for the six months
ended June 30, 1995.
(3) Includes meeting and committee fees paid to independent directors of
Cablevision.
(4) Payment of interest in respect of management fees by the Partnership to
Dolan in 1992 are eliminated in the pro forma presentation.
122
<PAGE>
CABLEVISION OF BOSTON
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Related
Partnerships for the six months ended June 30, 1995 and 1994, and for the past
five fiscal years. The historical consolidated statement of operations data
(except for book value per limited partnership unit and deficiency of earnings
available to cover fixed charges) and balance sheet data for each year ended
December 31 and as of December 31 in each year in the five-year period ended
December 31, 1994 included in the following selected financial data have been
derived from the Partnership Consolidated Financial Statements, audited by KPMG
Peat Marwick LLP, independent public accountants. The historical consolidated
statement of operations data and balance sheet data for the periods ended June
30, 1995 and 1994 and as of June 30, 1995, respectively, included in the
following selected financial data have not been audited, but in the opinion of
the General Partners reflect all adjustments necessary for the fair presentation
of such data for such interim periods. The results of operations for the
six-month period ended June 30, 1995 for the Related Partnerships are not
necessarily indicative of the results of operations for the full year. The
selected financial data presented below should be read in conjunction with the
Partnership Consolidated Financial Statements included elsewhere in this Consent
Solicitation Statement/Prospectus and ' -- Management's Discussion and Analysis
of Financial Condition and Results of Operations' in the Partnership's Form 10-Q
for the fiscal quarter ended June 30, 1995 and the Partnership's Form 10-K.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues......................................... $ 30,671 $ 29,713 $ 59,239 $ 58,081 $ 53,948 $ 50,964 $ 47,893
Technical, selling, general and administrative
expense............................................ 23,844 21,904 43,868 43,348 39,345 37,150 35,429
Depreciation and amortization........................ 4,421 4,022 8,428 12,533 18,451 18,003 17,696
-------- -------- -------- -------- -------- -------- --------
Operating profit (loss).......................... 2,406 3,787 6,943 2,200 (3,848) (4,189) (5,232)
Other income (expense):
Interest expense, net........................ (5,235) (3,923) (8,739) (8,742) (8,970) (10,381) (11,803)
Miscellaneous, net........................... (89) (92) (307) (250) (180) (791) (30)
-------- -------- -------- -------- -------- -------- --------
Loss before extraordinary item....................... (2,918) (228) (2,103) (6,792) (12,998) (15,361) (17,065)
Extraordinary item: Gain on forgiveness of debt...... -- -- -- -- -- 13,220 --
-------- -------- -------- -------- -------- -------- --------
Net loss......................................... $ (2,918) $ (228) $ (2,103) $ (6,792) $(12,998) $ (2,141) $(17,065)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net loss per limited partnership unit (4,025
units)............................................. $ (718) $ (56) $ (517) $ (1,671) $ (3,197) $ (527) $ (4,197)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Book value per limited partnership unit.............. $(34,565) $(33,386) $(33,847) $(33,330) $(31,660) $(28,463) $(27,936)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Deficiency of earnings available to cover fixed
charges(1)......................................... $ (2,918) $ (228) $ (2,103) $ (6,792) $(12,998) $ (2,141) $(17,065)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
<CAPTION>
OTHER OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operations........................... $ 5,420 $ 6,766 $ 12,931 $ 10,454 $ 8,343 $ 9,168 $ 6,858
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Cash flows from investing activities................. $ (2,877) $ (2,170) $ (7,055) $ (7,825) $ (9,448) $ (8,959) $ (9,209)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Cash flows from financing activities................. $ (2,172) $ (3,780) $ (4,010) $ (2,145) $ 1,264 $ 556 $ 2,520
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Operating cash flow(2)............................... $ 6,827 $ 7,809 $ 15,371 $ 14,733 $ 14,603 $ 13,814 $ 12,464
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
123
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
AS OF JUNE 30, ---------------------------------------------------------
1995 1994 1993 1992 1991 1990
-------------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 5,967 $ 5,801 $ 4,845 $ 4,762 $ 4,395 $ 3,439
-------------- --------- --------- --------- --------- ---------
Net increase in unrestricted cash and cash
equivalents...................................... 371 1,866 484 159 765 169
Total assets....................................... 47,097 48,688 47,567 50,877 59,198 68,574
Total liabilities.................................. 137,678 136,351 133,127 129,645 124,968 132,203
Total debt (including capitalized lease obligations
and amounts due to partners)..................... 86,443 88,580 91,765 93,820 91,918 90,233
Preferred equity contributions..................... 50,300 50,300 50,300 50,300 50,300 50,300
General Partners............................... $ (1,756) $ (1,727) $ (1,706) $ (1,638) $ (1,508) $ (1,487)
Limited Partners............................... (139,125) (136,236) (134,154) (127,430) (114,562) (112,442)
-------------- --------- --------- --------- --------- ---------
Total partners' deficiency................. $ (140,881) $(137,963) $(135,860) $(129,068) $(116,070) $(113,929)
-------------- --------- --------- --------- --------- ---------
-------------- --------- --------- --------- --------- ---------
STATISTICAL DATA:
Homes passed by Cable(3)....................... 254,800 254,200 252,000 249,400 244,000 237,600
Basic service subscribers...................... 139,900 136,000 128,700 122,300 115,500 112,400
Basic penetration(4)........................... 54.9% 53.5% 51.1% 49.0% 47.3% 47.3%
Number of premium television units............. 162,100 249,700 268,900 258,700 267,500 279,000
Average number of premium units per basic
subscriber................................... 1.1 1.8 2.1 2.1 2.3 2.5
Average monthly revenue per basic
subscriber(5)................................ $ 34.81 $ 35.22 $ 36.81 $ 35.89 $ 35.93 $ 34.62
</TABLE>
- ------------
(1) For purposes of determining the deficiency of earnings available to cover
fixed charges, earnings are defined as income (loss) before income taxes
plus fixed charges. Fixed charges consist of interest expense on all
indebtedness (including amortization of deferred debt issuance costs and
preferred stock dividend requirements applicable to wholly-owned
subsidiaries) and the portion of operating lease rental expense that is
representative of the interest factor (deemed to be one-third of minimum
operating lease rentals).
(2) Operating cash flow is defined as operating profit before depreciation and
amortization and is presented here to provide additional information about
the Partnership's ability to meet future debt service, capital expenditures
and working capital requirements. Operating cash flow should be considered
in addition to and not as a substitute for net income and cash flows as
indicators of financial performance and liquidity as reported in accordance
with generally accepted accounting principles.
(3) Homes passed by cable is based upon homes actually marketed and does not
include multiple dwelling units passed by the cable plant that are not
connected to it.
(4) Basic penetration represents basic service subscribers at the end of the
period as a percentage of homes passed at the end of the period.
(5) Based on recurring service revenues, excluding installation charges and
certain other revenues such as advertising, pay-per-view and home shopping
revenues, for the last month of the period, divided by average basic
subscribers for that month.
124
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RECENT CABLE REGULATORY DEVELOPMENTS: In December 1994, the Federal
Communications Commission's Cable Services Bureau (the 'Bureau') issued an order
(the 'Order') holding that the Partnership's Family Cable programming package
should have been subject to rate regulation as of September 1, 1993. If the
Order were to have been sustained on appeal by the FCC, it would have required
the Partnership to reduce the rates it charges for its basic service tier and
for its Metro Service package of programming services. The Order also stated
that the Partnership would have been liable for refunds, on account of the
Order, for the difference between the rates charged for these service packages
and the rates that would have been charged for them if Family Cable had been
considered a regulated offering as of September 1, 1993.
The Partnership filed a motion to ask the Bureau to reconsider its Order.
In February 1995, the Bureau ordered a stay of the Order pending resolution of
the Partnership's motion for reconsideration. In April 1995, the FCC tentatively
agreed to terms proposed by the Partnership that would resolve issues raised by
the Order and pending rate complaints against the Partnership. Under the terms,
the Partnership would not be required to make any further reduction in rates or
any additional subscriber refunds. On August 7, 1995, the FCC issued an order
adopting the terms proposed by the Partnership.
GENERAL: The Related Partnerships reported net losses for the years ended
December 31, 1994, 1993 and 1992 of $2.1 million, $6.8 million and $13.0
million, respectively. The decrease in net loss for 1994 and 1993 resulted
primarily from decreased depreciation and amortization expense.
Operating profit before depreciation and amortization was $15.4 million,
$14.7 million and $14.6 million for 1994, 1993 and 1992, respectively. Operating
profit before depreciation and amortization is presented here to provide
additional information about the Partnership'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 and cash flows as indicators of financial
performance and liquidity as reported in accordance with generally accepted
accounting principles.
The Partnership's ability to service its existing debt obligations,
including cash interest payments, to fund capital expenditures and to meet
ongoing operating requirements has, to a large extent, come from operating
profit before depreciation and amortization and amounts available under its Loan
Agreement. See 'Liquidity and Capital Resources' for a discussion of the
Partnership's future cash requirements.
RESULTS OF OPERATIONS: The following table sets forth certain items related
to operations as a percentage of historical net revenues for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------- ------------------------------------------------------------
1995 1994 1994 1993 1992
------------------ ------------------ ------------------ ------------------ ------------------
% OF % OF % OF % OF % OF
NET NET NET NET NET
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues........ $30,671 100% $29,713 100% $59,239 100% $58,081 100% $53,948 100%
Operating expenses:
Technical....... 14,334 47% 13,442 45% 26,749 45% 26,675 46% 23,901 44%
Selling, general
and
administrative.. 9,510 31% 8,462 28% 17,119 29% 16,673 28% 15,444 29%
Depreciation and
amortization... 4,421 14% 4,022 14% 8,428 14% 12,533 22% 18,451 34%
------- ------- ------- ------- -------
Operating profit
(loss)........ $2,406 8% $3,787 13% $6,943 12% $2,200 4% $(3,848) (7)%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Interest expense,
net............... $5,235 17% $3,923 13% $8,739 15% $8,742 15% $8,970 17%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Miscellaneous,
net............... $ 89 $ 92 $ 307 1% $ 250 -- $ 180 --
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
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The following table sets forth the approximate increases and (decreases) in
certain items and other information related to operations for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------
1995 TO 1994 1994 TO 1993 1993 TO 1992
------------------ ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT %
OF CHANGE CHANGE OF CHANGE CHANGE OF CHANGE CHANGE
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Increase in net revenues.................................. $ 958 3% $ 1,158 2% $ 4,133 8%
Increase (Decrease) in operating expenses:
Technical............................................. 892 7% 74 --% 2,774 12%
Selling, general and administrative................... 1,048 12% 446 3% 1,229 8%
Depreciation and amortization......................... 399 10% (4,105) (33)% (5,918) (32)%
Increase (decrease) in operating income............... (1,381) (36)% 4,743 216% 6,048 157%
Increase (decrease) in interest expense, net.............. 1,312 33% (3) --% (228) (3)%
Increase (decrease) in miscellaneous...................... (3) (3)% 57 23% 70 39%
Number of basic service subscribers added, net............ 4,617 3% 7,312 6% 6,402 5%
Marketable homes passed, end of period.................... 584 -- 2,208 1% 2,577 2%
</TABLE>
COMPARISON OF PERIODS ENDED JUNE 30, 1995 AND 1994.
REVENUES. Revenues for the six months ended June 30, 1995 increased 3% over
the comparable 1994 period. Increases in recurring revenues of 3%, primarily due
to a rise in the average number of subscribers (contributing to revenue
increases of 6%), were partially offset by decreases in average revenue per
subscriber of 3%, substantially attributable to the most recent round of FCC
rate regulation which became effective in July 1994.
OPERATING EXPENSES. Technical expenses increased 7% for the six months
ended June 30, 1995 as compared to the same 1994 period primarily as a result of
increased programming and other variable costs attributable to the increased
number of subscribers, mentioned above. As a percentage of revenues, technical
expenses increased approximately 2% in the six month 1995 period over the same
1994 period.
Selling, general and administrative expenses increased 12% for the six
months ended June 30, 1995 over the corresponding 1994 period, primarily as a
result of higher administrative and customer service costs. As a percentage of
revenues such expenses increased 2% for the six month 1995 period over the
corresponding 1994 period.
Depreciation and amortization expense increased 10% during the six month
period ended June 30, 1995 over the same 1994 period as depreciation charges on
assets placed in service were substantially offset by assets which became fully
depreciated during 1995.
INTEREST EXPENSE AND OTHER. Interest expense, net increased 33%, for the
six months ended June 30, 1995 when compared to the same 1994 period due to
generally higher interest rates during 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992.
REVENUES. In December 1994, the FCC's Cable Service Bureau issued an order
holding that the Partnership's Family Cable programming package, which is
currently offered on an unregulated basis, should have been subject to rate
regulation as of September 1, 1993. See 'Cable Regulation -- 1992 Cable Act' for
a further description. In addition, the Partnership provided for refunds of
approximately $0.5 million for the period from July 15 through December 31, 1994
in compliance with a rate order made by the City of Boston.
Net revenues for 1994 increased $1.2 million (2%) compared to 1993. An
increase of 6,500 (over 5%) in the average number of basic subscribers
contributed $2.7 million (5%) of additional revenues in 1994 and increases in
non-recurring revenues such as installation, pay-per-view and advertising, were
responsible for a $0.8 million (1%) increase in 1994 revenues. These increases
were partially offset by a $0.5 million (1%) decrease attributable to the
subscriber refunds ordered by the City of Boston, discussed above, in addition
to further rate reductions undertaken in July 1994 in compliance with the second
round of FCC rate regulation.
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Net revenues for 1993 increased $4.1 million (8%) compared to 1992 due
primarily to an increase of almost 6,400 (over 5%) in the average number of
basic subscribers, and, to a lesser extent, to rate increases implemented during
the first quarter of 1993. The full impact of the rate increase was offset to
some extent by a net reduction in rates charged due to FCC regulation and, to a
lesser extent, by a decline in the average level of service purchased by
subscribers.
OPERATING EXPENSES. Technical expenses for 1994 increased slightly (less
than 1%) from 1993 as higher programming and other variable costs directly
associated with revenue gains attributable to higher subscriber levels,
discussed above, were substantially offset by decreases in various other
technical expenses. As a percentage of revenues, technical expenses decreased 1%
in 1994 compared to 1993.
Technical expenses for 1993 increased $2.8 million (12%) over the prior
year due primarily to higher programming and other variable costs directly
associated with the higher subscriber levels mentioned above, as well as to
higher real estate tax rates paid to the City of Boston. As a percentage of
revenues, technical expenses increased 2% over 1992.
Selling, general and administrative expenses increased $0.4 million (3%) in
1994 compared to 1993 primarily due to general cost increases, as well as to
higher customer service costs. As a percentage of revenues, selling, general and
administrative expenses increased 1% in 1994 from 1993.
Selling, general and administrative expenses increased $1.2 million (8%) in
1993 as compared to 1992 due primarily to increased sales and marketing,
customer service and administrative costs, a portion of which were attributable
to compliance with FCC rate regulation and to general cost increases. As a
percentage of revenues, selling, general and administrative expenses decreased
1% in 1993 from 1992.
Depreciation and amortization expense decreased 33% during 1994 as compared
to 1993 due primarily to a decrease in depreciation related to a portion of the
cable television system, which became fully depreciated. This decrease more than
offset depreciation charges on assets currently placed in service.
Depreciation and amortization expense decreased 32% during 1993 as
depreciation charges related to current capital expenditures were more than
offset by decreases in depreciation resulting from assets which became fully
depreciated during 1993 and 1992.
INTEREST EXPENSE AND OTHER. Net interest expense remained relatively
constant in 1994 compared to 1993 as slightly higher interest rates were offset
by lower average debt levels.
Net interest expense during 1993 decreased $0.2 million (3%) due primarily
to lower average interest rates during 1993 and, to a lesser extent, lower
average debt levels outstanding during 1993 as compared to the prior year.
INFLATION.
During the three-year period, the impact of inflation on the Related
Partnerships' operations has not been significant.
LIQUIDITY AND CAPITAL RESOURCES.
The Partnership made capital expenditures of $3.4 million, $8.0 million and
$8.7 million, respectively, during the six months ended June 30, 1995 and for
the years ended December 31, 1994 and 1993. The Related Partnerships financed
their capital expenditures for the construction, development and maintenance in
those years from borrowings and cash flow provided by operating activities.
On September 30, 1991, the Partnership entered into the Loan Agreement with
a group of banks and The Toronto-Dominion Bank Trust Company as agent (the
'Agent'). The Loan Agreement incorporates semi-annual commitment reductions and
matures on June 30, 1999. The committed amount at June 30, 1995 was $69.0
million. Outstanding borrowings amounted to $60.0 million as of August 8, 1995
and $0.1 million was restricted for certain letters of credit issued for the
Partnership. Borrowings under the Loan Agreement bear interest at varying rates
above the Agent bank's base rate,
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CD or LIBOR rate, depending on the ratio of senior debt to cash flow, as defined
in the Loan Agreement.
Cablevision Finance and CSSC had exchanged, as of December 31, 1994, $50.3
million of advances, unreimbursed expenses and accrued interest thereon for
$50.3 million of preferred equity of the Partnership.
Management believes that funds generated from operations coupled with
borrowings available under the Loan Agreement will be sufficient to fund capital
expenditures, meet required repayments of bank debt, pay cash interest on the
Partnership's senior debt and to meet working capital requirements only until
December 31, 1995. The Partnership forecasts that it will be unable to meet the
repayment terms on its bank debt under the Loan Agreement at December 31, 1995.
The Partnership would seek to renegotiate the terms of its Loan Agreement in
such circumstances but there can be no assurance that the banks would agree to
such renegotiation or what the terms of any such renegotiated agreement would
be.
Payments of principal and interest totalling $55.1 million at June 30, 1995
on the Partnership's subordinated debt, including management fees and advances
from affiliates, together with accrued interest thereon, are subordinated and
deferred under the terms of the Loan Agreement. The Loan Agreement allows for
the payment of up to $4.2 million of subordinated debt and management fees. In
addition, payment of the cumulative unpaid distributions on the Partnership's
preferred equity is subordinated and deferred.
BUSINESS
THE RELATED PARTNERSHIPS
The Related Partnerships operate the Systems. At June 30, 1995, the Systems
passed approximately 254,800 homes and served approximately 139,900 subscribers
who subscribed to approximately 162,000 premium units. (Premium units are pay
services for which individual charges are assessed.) The Related Partnerships'
average monthly recurring revenue per subscriber and ratio of premium service
units to basic subscribers was $34.18 and 1.1:1, respectively for June 1995. In
calculating revenue per subscriber, the Related Partnerships include only
recurring service revenues and exclude installation charges and certain other
revenues such as advertising, pay-per-view and home shopping revenues.
ORGANIZATIONAL DEVELOPMENT OF THE RELATED PARTNERSHIPS. The Partnership was
organized in 1981 to construct, own and operate the Boston System. In December
1982, the Partnership was issued a non-exclusive franchise by the City of Boston
for such purpose which expires in 1997 (the 'Boston License'). The General
Partners of the Partnership are Dolan and CSBC.
Brookline was organized in 1983 and acquired a nonexclusive franchise which
expires in 1997 (the 'Brookline License') to construct, own and operate a cable
television system in the Town of Brookline. Dolan and CSBrC are the General
Partners of Brookline (who together hold a 1% general partnership interest). The
remaining 99% limited partnership interest is held by the Partnership.
CABLE TELEVISION OPERATIONS
CABLE TELEVISION SYSTEMS. The Systems are served by one headend facility
which is the source for all signals distributed throughout the Systems. Signals
are formatted at the headend facility for frequency bands suitable for
distribution over the aerial and underground cable used by the Systems. The
Systems primarily utilize coaxial cable, but use a limited amount of fiber optic
cable. Fiber optic cable is generally able to provide enhanced picture quality
and greater channel capacity; however, the General Partners believe the Systems'
current usage of both coaxial and fiber optic cable is adequate. Connections are
made from the cable to subscribers by means of 'drops,' and converters are
provided to substantially all subscribers to translate the incoming signals.
SUBSCRIBER SERVICES. The Systems provide various levels of service to their
subscribers in packaged and nonpackaged forms. The basic service carries most
local broadcast television stations, public, educational and governmental
channels and may include locally-originated programming. Subscribers may
purchase programming services in addition to basic service. For an additional
fee, an expanded
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basic service is available. At this expanded level of service, the converters
provided by the Systems have the capacity to receive pay-per-view programming.
The Systems also offer syndicated pay television services, such as American
Movie Classics, Bravo, Cinemax, Home Box Office, Showtime and The Movie Channel.
Those services are offered on an individual basis and in packages for which
subscribers pay a separate monthly fee. The Related Partnerships generally
obtain programming for the Systems by entering into contractual arrangements
with third party programming suppliers and some of the pay television services
offered by the Systems are purchased from affiliates of the General Partners.
See Note 6 of the Notes to Consolidated Financial Statements of the Partnership.
The services offered by the System include both scrambled and unscrambled
signals.
Certain rates and terms of subscriptions are currently subject to
regulation by the City of Boston or the Town of Brookline and the Massachusetts
Community Antenna Television Commission. See 'Cable Regulation -- State and
Municipal Regulation of Cable Television.'
FRANCHISE FEES. The Partnership is obligated to pay franchise fees to the
City of Boston equal to 3% of the Partnership's gross revenues. Brookline is
obligated to pay franchise fees to the Town of Brookline amounting to 3% of
gross revenues; the fee in excess of 50 per subscriber per year is passed along
to subscribers as a surcharge. In addition, the Partnership is required to pay a
fee of $0.80 per subscriber per year to the State of Massachusetts.
ADDITIONAL SERVICES IN THE BOSTON SYSTEM. An independent, nonprofit
corporation, The Boston Community Access and Programming Foundation, Inc. (the
'Foundation'), manages access to designated Boston System channels, facilities
and equipment by community groups and individuals seeking to provide local
noncommercial programming. The Partnership is obligated to pay monthly fees to
the Foundation. Approximately $932,000 and $427,000 was paid during 1994 and the
first six months of 1995, respectively, and, pursuant to the terms of the Boston
License, the Partnership has agreed to share with the Foundation, whenever
possible, technical expertise and facilities including neighborhood studios. The
Partnership has leased for the Foundation a primary studio facility and has
agreed to provide the necessary funds for equipment. The Partnership is also
obligated to make available to the Foundation an aggregate of eight downstream
channels and one upstream channel on the A and B cables.
The Partnership is obligated under the Boston License to construct the
Commercial Institutional Network ('CIN') and to construct and operate the Public
Institutional Network ('PIN'). These institutional networks are intended to
provide data, text, audio and/or video services, as well as two-way interactive
services such as teleconferencing. The CIN is intended to market business
services as well as lease time to commercial users. The PIN is intended to
provide services to local governmental agencies and nonprofit corporations
located in the City of Boston. The Foundation, the City of Boston and the
Partnership share managerial authority of the PIN. The trunk cable and amplifier
components of these networks have been constructed in conjunction with the
Partnership's subscriber system.
ADDITIONAL SERVICES IN THE BROOKLINE SYSTEM. The System has two
institutional networks which perform functions similar to those of the CIN and
PIN of the Boston System. The Board of Selectmen of the Town of Brookline has
full authority over Brookline's public institutional network.
Brookline funds an independent, nonprofit corporation known as the
Brookline Community Trust, Inc. (the 'Community Trust') which manages access by
community groups and individuals to designated Brookline System channels,
facilities and equipment. The Community Trust is funded by a series of
stipulated annual grants made by Brookline, which expense amounted to
approximately $106,000 and $53,000 in 1994 and the first six months of 1995
through December 31, 1997 (the remainder of the initial franchise term).
Brookline is required to share with the Community Trust technical expertise and
facilities (including Brookline's studios and cablecasting center) whenever
possible and to give the Community Trust access to five channels for its local
programming, some of which are currently utilized by Brookline. Brookline is
also required to provide several hours of local origination programming.
Brookline has agreed voluntarily to provide basic service and standard
installation to Medicaid eligible recipients at one-half of the normal price.
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NEGOTIATIONS WITH THE CITY OF BOSTON AND THE FOUNDATION
In December 1988, the Partnership entered into an agreement with the City
of Boston and the Foundation which significantly decreased the Partnership's
construction obligations with regard to the Boston System. Also pursuant to this
agreement, the amount payable to the Foundation was changed from 5% of gross
revenues (as defined) to a fixed monthly payment including maintenance fees of
approximately $54,000, adjusted annually for increases in the Consumer Price
Index. The Partnership further agreed, and continues, to provide basic service
and standard installation to Medicaid eligible recipients at one-half of the
normal price.
The licenses for both Systems will expire in 1997. Federal law prescribes a
timetable for processing cable franchise renewals, including the respective
responsibilities of the cable operator and the franchising authority. The
factors used by a franchising authority to determine whether to grant a renewal
include, among other things, substantial compliance with the material terms of
the franchise and applicable law and whether the franchisee will serve future
cable and community needs. Notices of intention to renew must be given to the
respective franchising authority within 30-36 months of the franchise expiration
date. The Related Partnerships have filed their respective notices to renew
licenses for both systems. Typically, notices are followed by public hearings
and negotiation of the terms of renewal. The Related Partnerships' business is
substantially dependent on its ability to renew such licenses. Although the
General Partners have no reason to believe that the Related Partnerships will
not be able to renew their franchises when they expire in 1997, the General
Partners cannot predict the future success of the Related Partnerships in
retaining their franchises after expiration of the original terms. No assurances
can be given that the Related Partnerships will be able to renew their
franchises, or, if such renewal is obtained, what the terms of the franchises
will be.
SUBSCRIBER RATES AND SERVICES; MARKETING AND SALES
The Systems offer a package of services, generally marketed as 'Metro
Service,' which includes, among other programming, broadcast network local
affiliates and independent television stations, satellite-delivered
'superstations' and certain other news, information and entertainment channels
such as CNN, CNBC, ESPN and MTV: Music Television. For additional charges, the
Related Partnerships' Systems provide another package of services called 'Family
Cable' which includes additional satellite-delivered services such as TNT,
Disney, Comedy Channel and Discovery Channel. For further charges, the Related
Partnerships' Systems offer certain premium services such as HBO, Showtime, The
Movie Channel and Cinemax, which may be purchased either individually (in
conjunction with the basic service described below), in combinations or in
packages.
In addition, the Systems recently introduced a basic package which includes
broadcast network local affiliates and public, educational or governmental
channels and may include locally-originated programming.
The Related Partnerships offer premium services on an individual basis and
as components of different 'packages.' Successive packages include additional
premium services for additional charges that reflect discounts from the charges
for such services if purchased individually. For example, subscribers may elect
to purchase Family Cable plus one, two or three premium services with declining
incremental costs for each successive package. In addition, most 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 their existing cable television systems are substantially fully
built, the Related Partnerships' sales efforts are primarily directed toward
increasing penetration and revenues in their franchise areas. The Related
Partnerships sell their cable television services through door-to-door selling
supported by telemarketing, direct mail advertising, promotional campaigns and
local media newspaper advertising.
Certain services and equipment provided by substantially all of the Systems
are subject to regulation. See 'Cable Regulation -- 1992 Cable Act.'
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the formation of the Related Partnerships, certain transactions
(described below) have been effected among the Related Partnerships and their
affiliates including, without limitation, CSSC and Cablevision. These
transactions were not negotiated on an arm's-length basis.
The Related Partnerships have management services agreements with CSSC, a
corporation wholly-owned by Dolan, the managing general partner of the Related
Partnerships. These agreements provide for the payment of a fee, in addition to
expense reimbursement at cost, equal to 3 1/2% of gross receipts until Payout is
achieved, 5% thereafter until two times Payout, and 6% thereafter. These
agreements are renewable indefinitely at the option of CSSC. Payment of such
fees (together with accrued interest) is subject to a subordination agreement
with the Banks. The Loan Agreement currently permits a maximum of $5.7 million
of subordinated debt and management fees to be repaid over the life of the Loan
Agreement. To date, no management fees have been paid. In 1992, an aggregate of
$1.5 million representing interest on unpaid management fees was paid, thereby
reducing the maximum amount permitted to be paid on subordinated debt and
management fees to $4.2 million. Interest accrues on the unpaid balance at 1%
above the Partnership's borrowing rate. Salaries and expenses attributable to
management services may be reimbursed at cost by the Partnership subject to
certain limitations under the Loan Agreement. Pursuant to these agreements,
selling, general and administrative expenses include approximately $1.1 million,
$2.1 million, $2.1 million and $1.9 million for management fees payable to CSSC
in the first six months of 1995 and in the years of 1994, 1993 and 1992,
respectively. For the first six months of 1995 and the years of 1994, 1993 and
1992, the Related Partnerships accrued approximately $1.1 million, $1.5 million,
$1.4 million and $1.3 million, respectively, for interest on unpaid management
fees.
See 'The Transactions -- Interests of Certain Persons in the Transactions;
Conflicts of Interest' for a description of the transactions relating to the HBO
Note. At June 30, 1995 and at December 31, 1994 and 1993, the unpaid balance of
the note plus accrued interest amounted to $3.4 million, $3.3 million and $2.8
million, respectively. Interest accruing on this note in the first six months of
1995 and the years of 1994 and 1993 amounted to approximately $233,000, $423,000
and $370,000, respectively.
At June 30, 1995 and at December 31, 1994 and 1993, the total amount owing
CSSC, including accrued interest, was approximately $29.0 million, $26.6 million
and $22.5 million, respectively, and is included in accounts payable to
affiliates.
CSSC had an agreement with an unaffiliated program supplier allowing all
cable systems managed by or affiliated with CSSC to offer certain programming to
their subscribers. The contract was for a ten-year period and required minimum
yearly payments escalating to approximately $13.4 million in 1994. Each of the
cable systems offering this program service to its subscribers under the
agreement, including the Related Partnerships, paid its proportionate share of
the minimum yearly payment based on relative subscriber levels. Charges to the
Related Partnerships, included in technical expenses, in the years of 1994, 1993
and 1992 in respect of this agreement were approximately $2.4 million, $2.3
million and $2.3 million, respectively.
See 'The Transactions -- Interests of Certain Persons in the Transactions;
Conflicts of Interest' for a description of the transactions relating to the
Dolan Loan. The Partnership accrued approximately $80,000, $147,000 and $127,000
of interest on the Dolan Loan and unpaid interest thereon in the first six
months of 1995 and years of 1994 and 1993, respectively. Cumulative accrued
unpaid interest, amounting to approximately $1,213,000, $1,133,000 and $986,000
at June 30, 1995, December 31, 1994 and 1993, respectively, is included in
amounts due to partners.
See 'The Transactions -- Interests of Certain Persons in the Transactions;
Conflicts of Interest' for a description of the transactions relating to the
Century Note.
See 'The Transactions -- Interests of Certain Persons in the Transactions;
Conflicts of Interest' for a description of the transactions relating to the
reimbursement of expenses to Cablevision provided under the Management
Agreement. See 'The Transactions -- Interests of Certain Persons in the
Transactions; Conflicts of Interest' for a description of the transactions
relating to the subordinated loans from Cablevision to the Partnership. The
Partnership accrued approximately $1.1 million, $2.0
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million and $2.2 million of interest on amounts owing to Cablevision in the
first six months of 1995 and years of 1994 and 1993, respectively.
At June 30, 1995, and at December 31, 1994 and 1993, the total net amount
owed Cablevision, including accrued interest, amounted to approximately $25.2
million, $24.3 million and $22.1 million, respectively (of which approximately
$25.5 million, $24.4 million and $22.3 million, respectively, is subordinated to
the bank debt) and is included in amounts due to partners. At June 30, 1995 and
at December 31, 1994 and 1993 the net amount owed certain programming and other
affiliates was $0.7 million, $0.5 million and $0.5 million, respectively.
PREFERRED EQUITY CONTRIBUTIONS. See 'The Transactions -- Interests of
Certain Persons in the Transactions; Conflicts of Interest' for a description of
the transactions relating to the Preferred Equity. At June 30, 1995,
approximately $117.7 million of cumulative distributions on all Preferred Equity
were unpaid. As described above in 'The Transactions -- Background of the
Transactions -- Uncertainties as to the Preferred Equity,' there are
uncertainties relating to whether the Preferred Equity is entitled to its Full
Contractual Rights.
POTENTIAL CONFLICTS RELATING TO THE GENERAL PARTNERS
Dolan and the principal officers of Cablevision and various affiliates of
the Related Partnerships are subject to certain potential conflicts of interest
with the Related Partnerships. These potential conflicts include, but are not
limited to, the following:
BUSINESS OPPORTUNITIES. It is not presently intended that the Related
Partnerships engage in businesses, whether or not related to cable television,
other than in the City of Boston and the Town of Brookline. Dolan, CSSC,
Cablevision and their affiliates may from time to time be presented with
business opportunities that would be suitable for the Related Partnerships,
Cablevision and other affiliates of the Related Partnerships in which Dolan and
his family have varying interests. Except for expansions of existing systems
within the same county or an adjacent county, Dolan has agreed to offer
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. Under this restriction, prior to Cablevision's rejection
of its right of first refusal, Dolan is only permitted to offer the Related
Partnerships the opportunity to invest in a cable television system if such
cable television system is in the Boston or Brookline metropolitan areas.
SERVICES RENDERED TO AFFILIATES AND OTHER ENTITIES. Dolan and the principal
officers of Cablevision are engaged in numerous activities with affiliated and
unaffiliated entities which significantly limit the time they are able to devote
to the Related Partnerships' affairs. CSSC and Cablevision also provide
management services for other affiliates.
To the extent that Dolan and the principal officers of Cablevision perform
management services for other companies (including Cablevision), they may have
conflicts of interest in allocating their time, services and functions between
the Related Partnerships and such other entities. Dolan and the principal
officers of Cablevision devote as much of their time to the business of the
Related Partnerships as is reasonably required to fulfill the duties of their
offices. However, any conflicts as to demand on such time are resolved in favor
of Cablevision. Dolan and the principal officers of Cablevision are aware of
such potential conflicts and attempt to alleviate them whenever possible,
although the potential for such conflicts cannot be eliminated under the
existing structure of the Related Partnerships.
CONTRACTS WITH AFFILIATES. The Related Partnerships purchase certain
premium television program services provided by various programming companies in
which Cablevision has an interest. Such services are purchased at rates not
negotiated on an arm's-length basis but which are comparable to those charged to
similarly situated third parties. Pursuant to affiliation agreements with these
companies, the Related Partnerships' subscribers receive American Movie Classics
Company, Bravo and SportsChannel programming and other services. The Related
Partnerships expended approximately $0.5 million and $0.4 million for the six
months ended June 30, 1995 and 1994, respectively, under the terms of such
agreements with affiliates.
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In order to take advantage of cost savings attributable to the combined
purchasing power of CSSC and its affiliates, CSSC purchased a premium
programming service from an unaffiliated program supplier. CSSC made such
service available to the Related Partnerships at CSSC's cost in return for the
Related Partnerships' assumption of a portion of CSSC obligations under its
agreement with such unaffiliated program supplier. For the years ended December
31, 1994 and 1993, an aggregate of $2.4 million and $2.3 million, respectively,
was expended by the Related Partnerships to or on behalf of CSSC for such
premium programming service.
The Partnership also may, from time to time, enter into other arrangements
with affiliates for the joint purchase or lease of equipment. The terms of any
such agreements will not be fixed pursuant to arm's-length negotiations but are
expected to be at least as favorable as arrangements which could be made with
third parties.
MANAGEMENT PROJECTIONS
The following table sets forth certain projected financial information
provided by management of the Partnership to the General Partners and
PaineWebber in connection with their consideration of the Transactions. See
' -- Recommendations of the General Partners; Fairness of the Transactions.' The
Partnership does not publicly disclose projected financial information as to
future revenues, earnings or cash flows. The following projections were not
prepared in compliance with published guidelines of the Commission or the
American Institute of Certified Public Accountants regarding forward-looking
information or generally accepted accounting principles. The following
projections are being provided solely because such information was provided to
the General Partners and PaineWebber.
The following projections necessarily make a variety of operating
assumptions, as described below. The probable outcome of all of such assumptions
are difficult to predict with certainty and in many cases are beyond the control
of the Partnership, the General Partners, the Special Committee and Cablevision.
While the Partnership's management felt that such assumptions were reasonable
when made, they may no longer be accurate. The projections were prepared in the
second quarter of 1995 and, except, as described below, have not been revised to
reflect, among other things, the results of the Transactions or any regulatory
changes, actual financial results of the Partnership since such date, revised
prospects for the Partnership's businesses, changes in general business and
economic conditions or any other transactions or events that have occurred or
that may occur and that were not anticipated at the time such projections were
prepared. The projections included herein are not necessarily indicative of
current values or future performance, which may be significantly more favorable
or less favorable than as set forth below, and should not be regarded as
representations that such values or performances will be achieved as indicated
or at all. There can be no assurance that the results of operations reflected in
any of the projections will be realized or that actual results will not be
significantly different from those projected. Because of these inherent
uncertainties, none of the Partnership, the General Partners, the Special
Committee, Cablevision or any other person assumes any responsibility for the
accuracy of the projected outcomes of the projections set forth below, and the
inclusion of such projected information in this Consent Solicitation
Statement/Prospectus should not be regarded as an indication that the
Partnership, the General Partners, the Special Committee or Cablevision consider
such projected outcomes to be accurate or reliable. Limited Partners are
cautioned not to rely on these projections in determining whether to consent to
the Incorporation or Merger.
Neither the Partnership's nor Cablevision's independent accountants have
examined, reviewed or compiled any of the following projections or expressed any
conclusion or provided any other form of assurance with respect to such
projections and accordingly assume no responsibility for such projections.
OPERATING ASSUMPTIONS FOR PROJECTIONS
The following projections necessarily make a number of assumptions,
including the following material operating assumptions:
1. Cash Flow was forecasted to increase at a compounded annual growth rate
of 7.3% from 1994 to 2002. This compares to a compounded average annual growth
rate of 14.7% from 1988 to 1993. Because
133
<PAGE>
the Systems are now substantially fully built and cable re-regulation has been
instituted (see 'Cable Regulation'), the Systems' cash flow growth was
forecasted to slow in the coming years.
2. The Partnership forecasts that it will be unable to meet the repayment
terms on its bank debt under the Loan Agreement at December 31, 1995. The
projection assumes that the Partnership would refinance its bank debt in 1995
through 2002 and repay its debt based on the cash flow generated each year.
There can be no assurance that the banks would agree to such renegotiation or
what the terms of any such renegotiated agreement would be. After payment in
full of the Loan Agreement, available cash was assumed to be used to pay down
subordinated debt.
3. Interest expense is a function of the assumed interest rates in the
forecast and the mandatory repayments required under the Loan Agreement. The
assumed interest rates under the Loan Agreement from 1994 to 2002 were
forecasted to be: 7.13%, 7.50%, 8.00%, 8.25%, 8.75% and 9.00% thereafter,
respectively. Interest expense on Affiliate Obligations continues to accrue at
the historical rates and unpaid interest was compounded quarterly.
4. Capital Expenditures were assumed to be made primarily for maintenance
purposes and are forecasted as follows: $7 million in 1995, $8 million in 1996,
$8.3 million in 1997, $8.5 million in 1998, $8.7 million in 1999, $8.9 million
in 2000, $9.1 million in 2001 and $9.4 million in 2002.
5. Management fees were accrued at 3 1/2% of total revenues pursuant to the
Partnership's and Brookline's management agreements with CSSC.
6. Depreciation and amortization expense was based on current tax code
provisions for tangible and intangible assets.
134
<PAGE>
CABLEVISION OF BOSTON
SOURCE AND USE OF FUNDS
(DOLLARS IN THOUSANDS)
1994-2002
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000 2001 2002
ACTUAL FCST FCST FCST FCST FCST FCST FCST FCST
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOURCES OF CASH
Opening available cash........... $1,715 $ 3,581 $ 290 $ 253 $ 272 $ 239 $ 310 $ 254 $ 228
Cash flow from operations........ 17,463 17,537 18,000 19,440 22,191 24,234 26,265 28,385 30,639
Borrowing under Loan Agreement... 3,000 2,250 0 0 0 0 0 0 0
Other............................ 2,269 601 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- -------
Total sources................ 24,447 23,969 18,290 19,693 22,463 24,473 26,575 28,639 30,867
USES OF CASH
Interest expense
Bank Interest and Fees........... 4,263 5,901 4,182 3,767 3,209 2,233 896 52 0
Principal Payments
Loan Agreement amortization...... 8,250 10,700 5,800 7,400 10,500 13,200 16,500 1,150 0
Paydown other/sub. debt.......... 331 0 0 0 0 0 0 18,100 21,300
------- ------- ------- ------- ------- ------- ------- ------- -------
Total principal payments..... 8,581 10,700 5,800 7,400 10,500 13,200 16,500 19,250 21,300
Other uses
Capital expenditures............. 8,022 7,078 8,055 8,255 8,515 8,730 8,925 9,110 9,350
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Uses................... 20,866 23,679 18,037 19,422 22,224 24,163 26,321 28,412 30,650
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending cash...................... $3,581 $ 290 $ 253 $ 272 $ 239 $ 310 $ 254 $ 226 $ 217
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
CABLEVISION OF BOSTON
GAAP PROFIT & LOSS STATEMENT
1994-2002
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 2000 2001 2002
ACTUAL FCST FCST FCST FCST FCST FCST FCST FCST
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flow.......................... $17,463 $17,537 $18,000 $19,440 $22,191 $24,234 $26,265 $28,385 $30,639
Less: Management fees.............. (2,092 ) (2,247) (2,511) (2,715) (2,915) (3,159) (3,392) (3,638) (3,895)
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating cash flow (net of mgmt.
fee)(1).......................... 15,371 15,290 15,489 16,725 19,276 21,075 22,873 24,747 26,744
Less: Depreciation &
amortization................. 8,428 8,795 7,650 6,961 6,746 5,034 5,895 6,452 7,375
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings before interest &
miscellaneous expenses........... 6,943 6,495 7,839 9,764 12,530 16,041 16,978 18,295 19,369
------- ------- ------- ------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Loan Agreement (inc. fees) (net of
int. income)..................... 4,263 5,901 4,182 3,767 3,209 2,233 896 52 0
HBO Note (CSSC).................... 423 482 553 634 728 835 959 550 0
Management fee interest............ 1,533 2,690 3,468 4,361 5,347 6,394 7,603 8,993 10,588
Dolan Loan......................... 147 167 192 220 252 290 332 191 0
Cablevision advances............... 2,072 2,659 2,949 3,271 3,628 4,025 4,464 4,563 2,682
Capital lease/other................ 301 0 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest expense........... 8,739 11,899 11,344 12,253 13,164 13,777 14,255 14,348 13,270
------- ------- ------- ------- ------- ------- ------- ------- -------
MISCELLANEOUS, NET................. 307 0 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).................. $(2,103) $(5,404) $(3,505) $(2,488) $ (634) $ 2,264 $ 2,723 $ 3,947 $ 6,099
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
- ------------
(1) Defined as operating income plus amortization and depreciation.
135
<PAGE>
CABLEVISION SYSTEMS CORPORATION
BUSINESS
Cablevision is one of the largest operators of cable television systems in
the United States, with approximately 2,753,000 subscribers in 19 states as of
June 30, 1995 based on the number of basic subscribers in systems which
Cablevision manages and which it owns or in which it has investments (including
the Related Partnerships). Cablevision also has ownership interests in companies
that produce and distribute national and regional programming services and
provide advertising sales services for the cable television industry.
Cablevision was formed in 1985 to effect a reorganization of its predecessors.
For financing purposes, Cablevision is structured as a restricted group
(collectively, the 'Cablevision Restricted Group'), consisting of Cablevision
Systems Corporation and certain of its subsidiaries, including Cablevision of
New York City ('CNYC'), and an unrestricted group of subsidiaries, consisting
primarily of V Cable, Inc. ('V Cable'), Cablevision MFR, Inc. ('Cablevision
MFR') and Rainbow Programming Holdings, Inc. (including Rainbow Advertising
Sales Corporation ('Rainbow Advertising' and together 'Rainbow Programming')).
In addition, Cablevision has an unrestricted group of investments, consisting of
investments in A-R Cable Services, Inc. ('A-R Cable'), U.S. Cable Television
Group, L.P. ('U.S. Cable'), Cablevision of Framingham Holdings, Inc. ('CFHI'),
A-R Cable Partners, the Partnership and Cablevision of Newark. As discussed
above under 'Risk Factors', the Cablevision of Chicago system, which was managed
by Cablevision and includes approximately 91,000 subscribers, was sold in August
1995 and is no longer managed by Cablevision. Cablevision's unrestricted
subsidiaries and investments are collectively referred to herein as the
'Cablevision Unrestricted Group.' The Cablevision Restricted Group and each
member of the Cablevision Unrestricted Group that operates cable television
systems are individually and separately financed. The indebtedness of V Cable
and A-R Cable is non-recourse to Cablevision, other than with respect to the
capital stock of such entities owned by Cablevision. Except as set forth below
under 'Programming Services,' Rainbow Programming does not have external
financing and its cash requirements have been financed to date by the
Cablevision Restricted Group, by sales of equity interests in the programming
business and in the case of one of the programming businesses through separate
external debt financing. See 'Cablevision Management's Discussion and
Analysis -- Liquidity and Capital Resources' for a discussion of the
restrictions on investments by the Cablevision Restricted Group and certain
other matters.
CABLE TELEVISION. The cable television systems that are majority owned and
managed by Cablevision ('Cablevision's cable television systems') served
approximately 1,866,000 subscribers as of June 30, 1995 in New York, Ohio,
Connecticut, New Jersey, Michigan and Massachusetts. In addition, Cablevision
has non-majority investments in and manages cable television systems which
served approximately 887,000 subscribers as of June 30, 1995 in Alabama,
Arkansas, Florida, Illinois, Kansas, Kentucky, Maine, Massachusetts,
Mississippi, Missouri, New Jersey, New York, North Carolina, Oklahoma,
Pennsylvania and Tennessee. Cablevision's cable television systems have
generally been characterized by relatively high revenues per subscriber ($37.14
for June 1995) and ratios of premium service units to basic subscribers (1.7:1
for June 1995). In calculating revenue per subscriber, Cablevision includes only
recurring service revenues and excludes installation charges and certain other
revenues such as advertising, pay-per-view and home shopping revenues.
The cable television operations in the Cablevision Restricted Group (other
than those of Cablevision of NYC) (such operations, the 'Cablevision Core
Restricted Group') served approximately 950,000 subscribers as of June 30, 1995
primarily on Long Island, New York, in Connecticut (principally Fairfield
County), in northern New Jersey, in Westchester County, New York and in
Cleveland, Ohio. The revenue per subscriber and ratio of premium service units
to basic subscribers for cable television systems in the Cablevision Core
Restricted Group for June 1995 were $37.82 and 1.5:1, respectively.
The cable television operations of the Cablevision Unrestricted Group are
conducted through Cablevision's unrestricted subsidiaries, V Cable and
Cablevision MFR, through its unrestricted investments, consisting of the Related
Partnerships, A-R Cable, U.S. Cable, CFHI, A-R Cable Partners
136
<PAGE>
and Cablevision of Newark. If the Merger is consummated, the businesses of the
Related Partnerships will become part of the Cablevision Restricted Group.
In August 1994, Cablevision MFR, a wholly-owned subsidiary of Cablevision,
acquired substantially all of the assets of Monmouth Cablevision Associates,
L.P. ('Monmouth Cable') and Riverview Cablevision Associates, L.P. ('Riverview
Cable') consisting of cable television systems in New Jersey. Also in August
1994, CFHI, a corporation jointly-owned by Cablevision and E.M. Warburg Pincus
Investors, L.P., acquired substantially all of the assets of Framingham
Cablevision Associates, L.P. ('Framingham Cable') consisting of cable television
systems in Massachusetts. Additionally, in June 1994, a partnership comprised of
subsidiaries of Cablevision and E.M. Warburg, Pincus & Co. Inc. completed the
purchase of certain assets of Nashoba Communications, a group of three limited
partnerships that operate three cable television systems in Massachusetts. See
'Cablevision Systems Corporation -- Business' in the Cablevision Form 10-K.
V Cable was formed by Cablevision on February 17, 1989 and served
approximately 372,000 subscribers as of June 30, 1995, principally in the
suburbs of Cleveland, Ohio and on Long Island. The revenue per subscriber and
ratio of premium service units to basic subscribers for V Cable's systems for
June 1995 were $31.10 and 1.0:1, respectively. As described under
'Business -- Consolidated Cable Affiliates -- V Cable' in the Cablevision Form
10-K, Cablevision consummated a significant restructuring and reorganization
involving V Cable and U.S. Cable (the '1992 V Cable Reorganization') on December
31, 1992. See also the Cablevision Form 8-K for a description of certain
transactions involving V Cable.
In July 1992, Cablevision acquired from Dolan, Cablevision's Chairman and
then-Chief Executive Officer and the Managing General Partner of the
Partnership, substantially all of Cablevision of NYC, a cable television system
which is under development in The Bronx and in parts of Brooklyn, New York.
Prior to the acquisition, Cablevision had a 15% interest in Cablevision of NYC.
Dolan remains a partner in Cablevision of NYC with a 1% interest and the right
to certain preferential payments. See 'Business -- Consolidated Cable
Affiliates -- Cablevision of New York City' in the Cablevision Form 10-K. In
October 1994, Cablevision of NYC became part of the Restricted Group. As of June
30, 1995 Cablevision of NYC passed approximately 912,000 homes and served
approximately 371,000 subscribers. Construction of the systems in The Bronx and
in Brooklyn has been substantially completed. Cablevision expects that the
remaining costs to complete the construction of the Cablevision of NYC systems
will be financed by cash flow generated from the operations of Cablevision of
NYC and the amounts available under Cablevision's Credit Agreement. See
'Management's Discussion and Analysis -- Liquidity and Capital
Resources -- Cablevision of NYC' in the Cablevision Form 10-K.
PROGRAMMING SERVICES. Cablevision conducts its programming activities
through Rainbow Programming, its wholly-owned subsidiary and member of the
Unrestricted Group, and through subsidiaries of Rainbow Programming in
partnership with certain unaffiliated entities, including National Broadcasting
Company, Inc. ('NBC') and Liberty Media Corporation ('Liberty'). Rainbow
Programming's businesses include eight regional SportsChannel services, four
national entertainment services (American Movie Classics Company ('AMCC'), Bravo
Network ('Bravo'), MuchMusic ('MM') and the Independent Film Channel ('IFC')),
News 12 Long Island (a regional news service serving Long Island) and the
national backdrop sports services of Prime SportsChannel Networks ('Prime
Sports-Channel'). Rainbow Programming also owns an interest in Madison Square
Garden Corporation (discussed below). Rainbow Programming's SportsChannel
services provide regional sports programming to the New York, Philadelphia, New
England, Chicago, Cincinnati, Cleveland, San Francisco and Florida areas. AMCC
is a national program service featuring classic, unedited and non-colorized
films from the 1930s through the 1970s. Bravo is a national program service
offering international films and performing arts programs, including jazz,
dance, classical music, opera and theatrical programs. See
'Business -- Programming Operations -- General' in the Cablevision Form 10-K. MM
is a Canadian music service featuring music primarily from Canadian artists. IFC
is a national program service that airs independent films made outside the
traditional Hollywood system.
In July 1994, Rainbow Programming purchased Liberty's 50% interest in AMCC
for a purchase price of approximately $181.0 million pursuant to a buy-sell
procedure set forth in the Partnership Agreement of AMCC. In July 1995, Rainbow
Programming purchased NBC's interest in SportsChannel
137
<PAGE>
(New York) Associates and Rainbow News 12 Company for an aggregate purchase
price of approximately $95.5 million, and, effective as of such date,
consolidated the results of operations of SportsChannel (New York) Associates
and Rainbow News 12 Company with those of Cablevision. See 'Cablevision Systems
Corporation -- Business -- Programming Services' in the Cablevision Form 10-K.
On March 10, 1995, MSG Holdings, L.P. ('Holdings'), a partnership between a
subsidiary of Rainbow Programming and a subsidiary of ITT Corporation, acquired
Madison Square Garden Corporation ('MSG') in a transaction in which MSG was
merged with and into Holdings. MSG owns the Madison Square Garden Arena and the
adjoining Paramount Theater, the New York Rangers professional hockey team, the
New York Knicks professional basketball team and the Madison Square Garden
Network, a sports programming network with over five million subscribers. See
'Cablevision Systems Corporation -- Business -- Programming Services' in the
Cablevision Form 10-K.
Rainbow Programming has the option until March 10, 1996 to (i) acquire
interests in MSG Holdings from ITT sufficient to equalize the interests of ITT
and Rainbow Programming in MSG Holdings, (ii) maintain its investment at the
initial level, or (iii) require ITT to purchase 50% of Rainbow Programming's
initial interest in MSG Holdings at the price paid by Rainbow Programming for
such interest plus an adjustment for Rainbow Programming's share of MSG
Holdings' operating income after interest expense, if any, following the closing
of the acquisition of MSG. Rainbow Programming has not determined which
alternative it will pursue. See 'Business -- Programming Services' in the
Cablevision Form 10-K.
Advertising Services. Rainbow Advertising sells advertising time to
national, regional and local advertisers on behalf of Cablevision's cable
television systems and the SportsChannel and News 12 programming services, as
well as on behalf of unaffiliated cable television systems.
138
<PAGE>
CABLEVISION PRO FORMA FINANCIAL INFORMATION
The following condensed pro forma consolidated balance sheet as of June 30,
1995 presents Cablevision's financial position as adjusted to give effect to the
Merger and the proposed transactions involving V Cable, Inc. ('V Cable') set
forth in the Cablevision Form 8-K (the 'Proposed V Cable Transactions'), as if
they had occurred as of that date. The following condensed pro forma
consolidated statement of operations for the year ended December 31, 1994
presents Cablevision's consolidated results of operations as adjusted to give
effect to (i) the acquisition (the 'AMCC Acquisition') of partnership interests
in American Movie Classics Company ('AMCC'), (ii) the acquisition of
substantially all of the assets of Monmouth Cablevision Associates ('Monmouth
Cable'), Riverview Cablevision Associates, L.P. ('Riverview Cable') and
Framingham Cablevision Associates Limited Partnership ('Framingham Cable'),
(iii) the Merger, and (iv) the Proposed V Cable Transactions as if the
acquisition of interests in AMCC, the acquisition of Monmouth Cable, Riverview
Cable and Framingham Cable, the Merger and the Proposed V Cable Transactions had
occurred at the beginning of the period presented. The following condensed pro
forma consolidated statement of operations for the six months ended June 30,
1995 presents Cablevision's consolidated results of operations as adjusted to
give effect to the Merger and the Proposed V Cable Transactions as if the Merger
and the Proposed V Cable Transactions had occurred at the beginning of the
period presented. The condensed pro forma consolidated financial statements
should be read in conjunction with the notes thereto and the historical
consolidated financial statements and notes thereto incorporated herein by
reference. The pro forma financial information is not necessarily indicative of
what the actual financial position or results of operations of Cablevision would
have been had the transactions occurred on the dates indicated nor does it
purport to indicate the future results of operations or the future financial
condition of Cablevision.
139
<PAGE>
CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROPOSED V
CABLEVISION CABLE PRO FORMA CABLEVISION PRO FORMA
HISTORICAL TRANSACTIONS* CABLEVISION OF BOSTON* AS ADJUSTED
----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 23,487 $ 236 (1) $ 19,723 $ 5,967 (4) $ 22,690
(4,000)(2) (3,000)(5)
Accounts receivable, trade........................... 71,406 331 (1) 71,737 2,165 (4) 73,902
Notes and other receivables.......................... 17,872 502 (1) 18,374 601 (4) 18,975
Prepaid expenses and other current assets............ 13,256 464 (1) 13,720 470 (4) 14,190
Property, plant and equipment, net................... 916,312 103,604 (1) 1,019,916 35,863 (4) 1,055,779
Investments in and advances to affiliates............ 182,080 324 (1) 182,404 (17,462)(4) 164,942
Feature film inventory............................... 151,113 151,113 151,113
Intangible assets, net............................... 795,631 133,610 (3) 929,241 114,188 (5) 1,042,204
(1,225)(6)
Deferred financing, interest expense and other costs,
net................................................ 83,711 (33,617)(2) 50,094 1,000 (5) 51,094
----------- ----------- ------------- ----------- -----------
$ 2,254,868 $ 201,454 $ 2,456,322 $ 138,567 $2,594,889
----------- ------------- ------------- ----------- -----------
----------- ------------- ------------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable..................................... $ 117,203 $ 9,381 (1) 126,584 $ 9,286 (4) $ 135,870
Accrued expenses..................................... 213,562 10,690 (1) 224,252 9,186 (4) 233,438
Accounts payable to affiliates....................... 27,577 27,577 665 (4) 28,242
Feature film rights payable.......................... 131,026 131,026 131,026
Bank debt............................................ 1,499,762 1,499,762 80,773 (5) 1,580,535
Senior debt.......................................... 880,888 215,000 (1) 595,888 595,888
(500,000)(2)
Subordinated debentures.............................. 623,571 623,571 623,571
Subordinated notes payable........................... 141,268 141,268 141,268
Obligation to related party.......................... 190,212 190,212 190,212
Capital lease obligations and other debt............. 10,241 10,241 2,048 (4) 12,289
----------- ------------- ------------- ----------- -----------
3,835,310 (264,929) 3,570,381 101,958 3,672,339
----------- ------------- ------------- ----------- -----------
Deficit investment in affiliates..................... 436,321 436,321 436,321
----------- -----------
Stockholders' deficiency:
Preferred stock.................................... 2 5 (2) 7 7
Common stock....................................... 238 238 6 (5) 244
Par value in excess of capital contributed......... (71,888) 499,995 (2) 428,107 37,828 (5) 464,710
(1,225)(6)
Accumulated deficit................................ (1,941,878) (33,617)(2) (1,975,495) (1,975,495)
----------- ------------- ----------- ----------- ------------
(2,013,526) 466,383 (1,547,143) 36,609 (1,510,534)
Less, treasury stock, at cost (50,000 shares)........ (3,237) (3,237) (3,237)
----------- ------------- ----------- ----------- -----------
(2,016,763) 466,383 (1,550,380) 36,609 (1,513,771)
----------- ------------- ----------- ----------- -----------
$ 2,254,868 $ 201,454 $ 2,456,322 $ 138,567 $2,594,889
----------- ------------- ----------- ----------- -----------
----------- ------------- ----------- ----------- -----------
</TABLE>
- ------------
* See Note A of Notes to Condensed Pro Forma Consolidated Financial Statements.
140
<PAGE>
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS*
------------------------------------------
MONMOUTH
CABLE,
RIVERVIEW
AMERICAN CABLE AND PROPOSED V
CABLEVISION MOVIE FRAMINGHAM CABLE PRO FORMA CABLEVISION
HISTORICAL CLASSICS CABLE TRANSACTIONS CABLEVISION OF BOSTON*
----------- -------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues............ $ 837,169 $50,951 (7) $ 47,286 (13) $ 71,960 (19) $ 1,007,366 $59,239 (24)
----------- -------- ---------- ------------ ----------- -----------
Operating expenses:
Technical............. 302,885 16,262 (7) 15,127 (13) 29,674 (19) 363,948 26,749 (24)
Selling, general and
administrative...... 195,942 16,105 (7) 9,199 (13) 20,776 (19) 239,135 17,119 (24)
(859)(11) (2,028)(16) (2,092)(25)
Restructuring
charge.............. 4,306 4,306
Depreciation and
amortization........ 271,343 142 (7) 12,488 (13) 41,861 (19) 360,012 8,428 (24)
10,827 (12) 27,273 (14) (3,922)(23) 11,038 (25)
----------- -------- ---------- ------------ ----------- -----------
774,476 42,477 62,059 88,389 967,401 61,242
----------- -------- ---------- ------------ ----------- -----------
Operating profit
(loss)............ 62,693 8,474 (14,773) (16,429) 39,965 (2,003)
Other income (expense):
Interest expense...... (263,299) (1,510)(7) (4,657)(13) (24,195)(19) (259,040) (8,955)(24)
(7,615)(9) (11,093)(15) 47,323 (20) 1,552 (26)
6,006 (22)
Interest income....... 1,518 305 (7) 59 (13) 236 (19) 2,118 216 (24)
Share of affiliates'
net loss............ (82,864) (4,304)(10) (521)(17) 8,594 (19) (79,367)
(272)(18)
Write off of deferred
financing costs..... (9,884) (9,884)
Loss on redemption of
debt................ (7,088) (7,088)
Provision for
preferential payment
to related party.... (5,600) (5,600)
Minority interest..... (3,429) (4,321)(8) (7,750)
Miscellaneous, net.... (7,198) (23)(7) (131)(13) (1,280)(19) (8,632) (307)(24)
----------- -------- ---------- ------------ ----------- -----------
Loss before
extraordinary item.... (315,151) (8,994) (31,388) 20,255 (335,278) (9,497)
Extraordinary item:
Loss on redemption of
debt................ (40,457)(20) (40,457)
----------- -------- ---------- ------------ ----------- -----------
Net loss................ (315,151) (8,994) (31,388) (20,202) (375,735) (9,497)
Preferred stock dividend
requirement........... (6,385) (43,403)(21) (49,788)
----------- -------- ---------- ------------ ----------- -----------
Net loss applicable to
common shareholders... $(321,536) $(8,994) $(31,388) $(63,605) $ (425,523) $(9,497)
----------- -------- ---------- ------------ ----------- -----------
----------- -------- ---------- ------------ ----------- -----------
Loss per common share
before extraordinary
item.................. $ (13.72)
Extraordinary item...... --
-----------
Net loss per common
share................. $ (13.72)
-----------
-----------
Average number of common
shares outstanding (in
thousands)............ 23,444 23,444 593 (24)
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
<S> <C>
Net Revenues............ $1,066,605
-----------
Operating expenses:
Technical............. 390,697
Selling, general and
administrative...... 254,162
Restructuring
charge.............. 4,306
Depreciation and
amortization........ 379,478
-----------
1,028,643
-----------
Operating profit
(loss)............ 37,962
Other income (expense):
Interest expense...... (266,443)
Interest income....... 2,334
Share of affiliates'
net loss............ (79,367)
Write off of deferred
financing costs..... (9,884)
Loss on redemption of
debt................ (7,088)
Provision for
preferential payment
to related party.... (5,600)
Minority interest..... (7,750)
Miscellaneous, net.... (8,939)
-----------
Loss before
extraordinary item.... (344,775)
Extraordinary item:
Loss on redemption of
debt................ (40,457)
-----------
Net loss................ (385,232)
Preferred stock dividend
requirement........... (49,788)
-----------
Net loss applicable to
common shareholders... $ (435,020)
-----------
-----------
Loss per common share
before extraordinary
item.................. $ (16.42)
Extraordinary item...... (1.68)
-----------
Net loss per common
share................. $ (18.10)
-----------
-----------
Average number of common
shares outstanding (in
thousands)............ 24,037
-----------
-----------
</TABLE>
- ------------
* See Note B of Notes to Condensed Pro Forma Consolidated Financial Statements.
141
<PAGE>
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PROPOSED
CABLEVISION V CABLE PRO FORMA CABLEVISION
HISTORICAL TRANSACTIONS* CABLEVISION OF BOSTON* PRO FORMA
----------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Revenues........................................ $ 509,135 $ 37,892(27) $ 547,027 $30,671(32) $ 577,698
----------- ------------- ----------- ----------- ---------
Operating expenses:
Technical......................................... 193,243 16,596(27) 209,839 14,334(32) 224,173
Selling, general and administrative............... 131,611 11,004(27) 142,615 9,510(32) 151,035
(1,090)(33)
Depreciation and amortization..................... 159,537 19,560(27) 177,479 4,421(32) 187,419
(1,618)(31) 5,519(33)
----------- ------------- ----------- ----------- ---------
484,391 45,542 529,933 32,694 562,627
----------- ------------- ----------- ----------- ---------
Operating profit (loss)......................... 24,744 (7,650) 17,094 (2,023) 15,071
Other income (expense):
Interest expense.................................. (155,318) (12,642)(27) (133,922) (5,397)(32) (137,566)
30,477(28) 1,753(34)
3,561(30)
Interest income................................... 790 38(27) 828 162(32) 990
Share of affiliates' net loss..................... (52,692) 2,840(27) (49,852) (49,852)
Write off of deferred financing costs............. (2,888) (2,888) (2,888)
Provision for preferential payment to related
party........................................... (2,800) (2,800) (2,800)
Minority interest................................. (4,276) (4,276) (4,276)
Miscellaneous, net................................ (2,999) (237)(27) (3,236) (89)(32) (3,325)
----------- ------------- ----------- ----------- ---------
Net loss............................................ (195,439) 16,387 (179,052) (5,594) (184,646)
Preferred stock dividend requirement................ (4,918) (21,075)(29) (25,993) (25,993)
----------- ------------- ----------- ----------- ---------
Net loss applicable to common shareholders.......... $(200,357) $ (4,688) $(205,045) $(5,594) $(210,639)
----------- ------------- ----------- ----------- ---------
----------- ------------- ----------- ----------- ---------
Net loss per common share........................... $ (8.45) $ (8.67)
----------- ---------
----------- ---------
Average number of common shares outstanding (in
thousands)........................................ 23,710 23,710 593(32) 24,303
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
- ------------
* See Note C of Notes to Condensed Pro Forma Consolidated Financial Statements.
142
<PAGE>
Note A -- Notes to Condensed Pro Forma Balance Sheet as of June 30, 1995
PROPOSED V CABLE TRANSACTIONS
(1) As a result of the proposed acquisition of 80% of the partnership interests
in U.S. Cable not already owned by V Cable to be effected in connection
with the Proposed V Cable Transactions, the assets and liabilities of U.S
Cable will be combined with Cablevision's consolidated balance sheet
amounts. The adjustments referenced by this Note (1) reflect the
consolidation of such amounts as of the balance sheet date.
(2) In connection with the Proposed V Cable Transactions, Cablevision will
redeem the outstanding preferred stock on the books of U.S. Cable for
$4,000,000 and will issue $500,000,000 of its preferred stock to GECC. The
proceeds from this issuance will be used to repay $450,000,000 of V Cable
and/or VC Holding debt to GECC and provide V Cable with $50,000,000 to make
a preferred capital contribution to U.S. Cable, which will repay an
equivalent amount of its debt to GECC. Deferred interest expense and
financing costs of $33,617,000 related to V Cable's assumption of U.S.
Cable's debt in the 1992 V Cable Reorganization will be written off in
connection with the repayment of such debt.
(3) Represents the excess ($133,610,000) of the purchase price of U.S. Cable
over the value of the net liabilities acquired.
CABLEVISION OF BOSTON MERGER
(4) As a result of the Merger, the assets and liabilities purchased will be
combined with Cablevision's consolidated balance sheet amounts. The
adjustments referenced by this Note (4) reflect the consolidation of such
amounts as of the balance sheet date.
(5) Represents (a) the total cost of interests in the Partnership not owned by
Cablevision to be paid by the issuance of Class A Common Stock of
Cablevision valued at $37,834,000, (b) estimated transaction costs of
$2,000,000 and financing costs of $1,000,000, (c) bank borrowings of
$80,773,000 to be used to refinance the Partnership's bank debt and accrued
interest thereon of $61,106,000 and repay amounts owed to Mr. Dolan
aggregating $19,667,000 for management fees, loans, accrued interest
thereon of $61,106,000 and repay amounts owed to Mr. Dolan aggregating
$19,667,000 for management fees, loans, accrued interest, thereon and
preferred equity and (d) the excess ($114,188,000) of the purchase price
over the value of the net liabilities acquired.
(6) Represents the amount paid to Mr. Dolan for his general partnership
interest and the assumption of his share of the excess liabilities over net
assets of the Partnership ($1,225,000) (such amount to be charged to par
value in excess of capital contributed). Interests in the Dolan-owned
assets and liabilities are recorded in the pro forma balance sheet at the
Partnership's historical cost.
Note B -- Notes to Condensed Pro Forma Consolidated Statement of Operations for
the Year Ended December 31, 1994
AMERICAN MOVIE CLASSICS COMPANY ACQUISITION
(7) As a result of the AMCC Acquisition, which was consummated on July 11,
1994, the results of operations of AMCC are combined with Cablevision's
consolidated results of operations. The adjustments referenced by this Note
(7) reflect the consolidation of such amounts for the period January 1,
1994 through July 10, 1994.
(8) Represents the 25.1% minority partnership interest in the results of
operations of AMCC owned by NBC and Liberty Media Corporation.
(9) Represents interest expense, at 8.0% per annum, on the $181,903,000 of debt
incurred by Cablevision to fund the purchase of the additional approximate
50% interest in AMCC. NBC will not share in this expense.
143
<PAGE>
Note B -- Notes to Condensed Pro Forma Consolidated Statement of Operations for
the Year Ended December 31, 1994 -- (Continued)
(10) Represents the income of AMCC previously recorded by Cablevision using the
equity method of accounting.
(11) Represents the elimination of management fees paid to the former partner by
AMCC. In connection with the purchase of the approximate 50% interest in
AMCC, Cablevision also purchased the right to receive such fees in the
future.
(12) Represents the amortization, based on an average 10-year life, of the
excess cost over fair value of assets acquired resulting from the purchase
of the additional approximate 50% interest in AMCC. NBC will not share in
this expense.
MONMOUTH CABLE, RIVERVIEW CABLE AND FRAMINGHAM CABLE ACQUISITION
(13) As a result of the acquisition of Monmouth Cable and Riverview Cable, which
was consummated on August 8, 1994, the results of operations of Monmouth
Cable and Riverview Cable are combined with Cablevision's consolidated
results of operations. The adjustments referenced by this Note (13) reflect
the consolidation of such amounts for the period January 1, 1994 through
August 7, 1994.
(14) Represents the depreciation and amortization, based on an average 10-year
life, of the step-up in property, plant and equipment, franchise costs and
the excess cost over fair value of assets acquired of $39,761,000 for the
period, offset by the elimination of pre-acquisition depreciation and
amortization of $12,488,000.
(15) Represents interest expense of $15,750,000 attributable to $237,800,000 of
bank borrowings (interest expense of $10,444,000 at a 7.32% interest rate);
$132,158,000 of 6% senior subordinated notes (interest expense of
$4,758,000); $9,110,000 of a 6% indemnification note (interest expense of
$328,000); and amortization of deferred finance costs of $220,000 offset by
pre-acquisition interest expense of $4,657,000 incurred by Monmouth Cable
and Riverview Cable.
(16) Represents the elimination of management fees of $2,378,000 paid to former
general partners by Monmouth Cable and Riverview Cable and the elimination
of an adjustment ($350,000) made in the first half of 1994 to reduce prior
period overaccruals of franchise fees.
(17) As a result of the acquisition of Framingham Cable, which was consummated
on August 8, 1994, by Cablevision and Warburg Pincus, a 30% Pre-Payout
Interest in the results of Framingham Cable will be combined with
Cablevision's consolidated results of operations. The adjustment referenced
by this Note (17) reflects the 30% Pre-Payout Interest for the period
January 1, 1994 through August 7, 1994.
(18) Represents Cablevision's 30% share of reduced costs for Framingham Cable
management fees of $56,000, offset by additional expenses relating to the
Framingham Cable acquisition for depreciation and amortization of $249,000
and interest of $79,000.
PROPOSED V CABLE TRANSACTIONS
(19) As a result of the proposed acquisition of 80% of the partnership interests
in U.S. Cable not already owned by V Cable to be effected in connection
with the Proposed V Cable Transactions, the results of operations of U.S.
Cable will be combined with Cablevision's consolidated results of
operations. The adjustments referenced by this Note (19) reflect the
consolidation of such amounts for the year ended December 31, 1994 and the
elimination of Cablevision's share of losses in U.S. Cable previously
recorded on the equity basis.
(20) Represents the reduction in interest expense, at an average interest rate
of 10.5%, resulting from the net repayment of $450,000,000 of V Cable
and/or VC Holding debt from the proceeds of the issuance of the preferred
stock in the Proposed V Cable Transactions. In addition, Cablevision will
144
<PAGE>
Note B -- Notes to Condensed Pro Forma Consolidated Statement of Operations for
the Year Ended December 31, 1994 -- (Continued)
write off deferred interest and financing costs of $40,457,000 in
connection with the repayment of U.S. Cable debt assumed by V Cable in
the 1992 V Cable Reorganization.
(21) Represents the dividends payable to GECC on the preferred stock to be
issued in the Proposed V Cable Transactions. This amount does not take into
account any gross up required to be paid to a holder of preferred stock
failing to obtain a dividends received deduction.
(22) Represents the reduction in interest expense, at an average interest rate
of 12.0%, resulting from the repayment of $50,000,000 of U.S. Cable debt
from the proceeds of the issuance of preferred stock and certain reductions
in U.S. Cable's debt resulting from the Proposed V Cable Transactions.
(23) Represents the depreciation and amortization, based on an average 10-year
life, of the step-up in property, plant and equipment, franchise costs and
the excess cost over fair value of assets acquired of $37,939,000 for the
period, offset by the elimination of pre-acquisition depreciation and
amortization of $41,861,000.
CABLEVISION OF BOSTON MERGER
(24) As a result of the Merger (and related issuance of approximately 593,000
shares of the Company's Class A Common Stock), the results of operations of
the Partnership will be combined with Cablevision's consolidated results of
operations. The adjustments referenced by this Note (24) reflect the
consolidation of such amounts for the year ended December 31, 1994.
(25) Represents the amortization, based on an average 10-year life, of the
excess cost over fair value of assets acquired of $11,296,000 for the
period, offset by the elimination of amortization of previous intangibles
of $258,000 and the elimination from selling, general and administrative
expenses of management fees payable by the Partnership to Cablevision
Systems Services Corporation ($2,092,000).
(26) Represents interest expense of $7,188,000 attributable to $80,773,000 of
bank debt (8.9% interest rate) reduced by pre-acquisition interest expense
of $8,740,000 incurred by the Partnership on its bank debt and debt owed to
Mr. Dolan and Cablevision.
Note C -- Notes to Condensed Pro Forma Consolidated Statement of Operations for
the Six Months Ended June 30, 1995
PROPOSED V CABLE TRANSACTIONS
(27) As a result of the proposed acquisition of 80% of the partnership interests
in U.S. Cable not already owned by V Cable to be effected in connection
with the Proposed V Cable Transactions, the results of operations of U.S.
Cable will be combined with Cablevision's consolidated results of
operations. The adjustments referenced by this Note (27) reflect the
consolidation of such amounts for the six months ended June 30, 1995 and
the elimination of the Company's share of losses in U.S. Cable previously
recorded on the equity basis.
(28) Represents the reduction in interest expense of $23,672,000, at an average
interest rate of 10.6%, resulting from the net repayment of $450,000,000 of
V Cable and/or VC Holding debt from the proceeds of the issuance of the
preferred stock in the Proposed V Cable Transactions. In addition,
amortization of deferred interest and financing costs of $6,805,000 is
eliminated in connection with the repayment of U.S. Cable debt assumed by V
Cable in the 1992 V Cable Reorganization. Because the write off of deferred
interest and financing costs related to this transaction has been reflected
in the Condensed Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1994, no such write off has been made in the
Condensed Pro Forma Consolidated Statement of Operations for the six months
ended June 30, 1995.
145
<PAGE>
Note C -- Notes to Condensed Pro Forma Consolidated Statement of Operations for
the Six Months Ended June 30, 1995 -- (Continued)
(29) Represents the dividends payable to GECC on the preferred stock to be
issued in the Proposed V Cable Transactions. This amount does not take into
account any gross up required to be paid to a holder of preferred stock
failing to obtain a dividends received deductions.
(30) Represents the reduction interest expense, at an average interest rate of
11.6%, resulting from the repayment of $50,000,000 of U.S. Cable debt from
the proceeds of the issuance of preferred stock and certain reductions in
U.S. Cable's debt resulting from the Proposed V Cable Transactions.
(31) Represents the depreciation and amortization, based on an average 10-year
life, of the step-up in property, plant and equipment, franchise costs and
the excess cost over fair value of assets acquired of $17,942,000 for the
period, offset by the elimination of pre-acquisition depreciation and
amortization of $19,560,000.
CABLEVISION OF BOSTON MERGER
(32) As a result of the Merger (and related issuance of approximately 593,000
shares of the Company's Class A Common Stock), the results of operations of
the Partnership will be combined with Cablevision's consolidated results of
operations. The adjustments referenced by this Note (32) reflect the
consolidation of such amounts for the six months ended June 30, 1995.
(33) Represents the amortization, based on an average 10-year life, of the
excess cost over fair value of assets acquired of $5,648,000 for the
period, offset by the elimination of amortization of previous intangibles
of $129,000 and the elimination from selling, general and administrative
expenses of management fees payable by the Partnership to Cablevision
Systems Services Corporation ($1,090,000).
(34) Represents interest expense of $3,565,000 attributable to $80,773,000 of
bank debt (8.9% interest rate) reduced by pre-acquisition interest expense
of $5,318,000 incurred by the Partnership on its bank debt and debt owed to
Mr. Dolan and Cablevision.
146
<PAGE>
CERTAIN COMPARATIVE DATA
The following table presents book value per common share or Unit (as
appropriate), cash dividends declared per share or cash distributions declared
per Unit (as appropriate) and net loss per share or Unit (as appropriate): (i)
on an historical basis for Cablevision and the Partnership; (ii) on a pro forma
basis for Cablevision, giving effect to the Merger and the other transactions
set forth under 'Cablevision Pro Forma Financial Information' (assuming the
Merger and such other transactions had been effective for all periods
presented); and (iii) on a pro forma equivalent basis per Unit for the
Partnership, assuming the Merger and the other transactions set forth under
'Cablevision Pro Forma Financial Information' had been effective for all periods
presented. Pro forma per share amounts are based on a price for Cablevision
Class A Common Stock of $58.23, which would have been the Average Cablevision
Stock Price if the Merger had been consummated on October 17, 1995.
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
<S> <C>
Book Value:
Cablevision:
Historical book value per share.............................................................. $(84.77)
Pro forma book value per share............................................................... $(62.03)
Partnership:
Historical book value per Unit............................................................... $(34,565.22)
Pro forma equivalent book value per Unit(1).................................................. $ (9,427.54)
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1995 1994
---------------- -------------
<S> <C> <C>
Cash Dividends/Distributions:
Cablevision:
Historical cash dividends per share....................................... -0- -0-
Pro forma cash dividends per share........................................ -0- -0-
Partnership:
Historical cash distributions per Unit.................................... -0- -0-
Pro forma equivalent cash distributions per Unit(1)....................... -0- -0-
Net loss:
Cablevision:
Historical net loss per share............................................. $ (8.45) $ (13.72)
Pro forma net loss per share.............................................. $ (10.33) $ (18.10)
Partnership:
Historical net loss per Unit.............................................. $ (717.76) $ (517.27)
Pro forma equivalent net loss per Unit(1)................................. $(1,776.76) $ (3,113.20)
</TABLE>
- ------------
(1) Partnership pro forma equivalent per Unit data is computed by multiplying
Cablevision's pro forma per share data (giving effect to the Merger and the
other transactions set forth under 'Cablevision Pro Forma Financial
Information') by the approximately 172 shares of Cablevision Class A Common
Stock that would have been received by the Unaffiliated Limited Partners in
respect of each Unit had the Merger been consummated on October 17, 1995.
147
<PAGE>
CABLE REGULATION
1984 CABLE ACT. In 1984, Congress enacted the Cable Communications Policy
Act of 1984 (the '1984 Cable Act'), which set uniform national guidelines for
cable regulation under the Communications Act of 1934. While several of the
provisions of the 1984 Cable Act have been amended or superseded by the 1992
Cable Act, described below, other provisions of the 1984 Cable Act, including
principal provisions relating to the franchising of cable television systems,
remain in place. The 1984 Cable Act authorizes states or localities to franchise
cable television systems but sets limits on their franchising powers. It sets a
ceiling on cable franchise fees of 5% of gross revenues and prohibits localities
from requiring cable operators to carry specific programming services. The 1984
Cable Act protects cable operators seeking franchise renewals by limiting the
factors a locality may consider and requiring a due process hearing before
denial. The 1984 Cable Act does not, however, prevent another cable operator
from being authorized to build a competing system. The 1992 Cable Act prohibits
franchising authorities from granting exclusive cable franchises and from
unreasonably refusing to award an additional competitive franchise.
The 1984 Cable Act allows localities to require free access to public,
educational or governmental channels, but sets limits on the number of
commercial leased access channels cable television operators must make available
for potentially competitive services. The 1984 Cable Act prohibits obscene
programming and requires the sale or lease of devices to block programming
considered offensive.
1992 CABLE ACT. On October 5, 1992, Congress enacted the Cable Television
Consumer Protection and Competition Act of 1992 (the '1992 Cable Act') which
represents a significant change in the regulatory framework under which cable
television systems operate.
After the effective date of the 1984 Cable Act, and prior to the enactment
of the 1992 Cable Act, rates for cable services were unregulated for
substantially all of the Related Partnerships' Systems and Cablevision's cable
television systems. The 1992 Cable Act reintroduced rate regulation for certain
services and equipment provided by most cable systems in the United States,
including those provided by the Related Partnerships' Systems and substantially
all of Cablevision's cable television systems. Only cable systems facing
'effective competition' from multichannel video programming distributors
offering service to at least 50% of the households in a particular operator's
franchise area and actually providing service to 15% of the households in the
franchise area are exempt from rate regulation under the 1992 Cable Act. On
April 1, 1993, the FCC adopted rules implementing the rate regulation provisions
of the 1992 Cable Act.
The 1992 Cable Act requires each cable system to establish a basic service
package consisting, at a minimum, of all local broadcast signals and all
non-satellite delivered distant broadcast signals that the cable system wishes
to carry, and all public, educational and governmental access programming. The
rates for the basic service package are subject to regulation by local
franchising authorities. Under the FCC's April 1, 1993 rate regulation rules, a
cable operator whose per channel rates as of September 30, 1992 exceeded an FCC
established benchmark was required to reduce its per channel rates for the basic
service package by up to 10% unless it could justify higher rates on the basis
of its costs. On February 22, 1994, after reconsideration, the FCC ordered a
further reduction of 7% in rates for the basic service tier in effect on
September 30, 1992, for an overall reduction of 17% from those rates. The amount
of this 17% decrease that is below a new per channel benchmark need not be
implemented pending completion of FCC studies of the costs of below-benchmark
cable systems. Franchise authorities (local municipalities or state cable
television regulators) are also empowered to regulate the rates charged for the
installation and lease of the equipment used by subscribers to receive the basic
service package (including a converter box, a remote control unit and, if
requested by a subscriber, an addressable converter box or other equipment
required to access programming offered on a per channel or per program basis),
including equipment that may also be used to receive other packages of
programming, and the installation and monthly use of connections for additional
television sets. The FCC's rules require franchise authorities to regulate rates
for equipment and connections for additional television sets on the basis of an
actual cost formula developed by the FCC, plus a return of 11.25%. No additional
charge is permitted for the delivery of regulated services to additional sets
unless the operator incurs additional programming costs in connection with the
delivery of such services to multiple sets.
148
<PAGE>
The FCC may, in response to complaints by a subscriber, municipality or
other governmental entity, reduce the rates for cable programming service
packages other than the basic service package (i.e. 'cable programming services
tiers') if it finds that such rates are unreasonable. The FCC will in response
to complaints also regulate, on the basis of actual cost, the rates for
equipment used only to receive these higher packages. Services offered on a per
channel or per program basis and packages of such services that were offered
prior to April 1, 1993 are not subject to rate regulation by either
municipalities or the FCC. The FCC on February 22, 1994 adopted criteria to
assess whether other packages of 'a la carte' or per channel offerings created
after April 1, 1993 should be regulated as a tier of services by the FCC or
should be treated as unregulated offerings.
The regulations adopted by the FCC on April 1, 1993, including the original
rate benchmarks, became effective on September 1, 1993. The new rate regulations
adopted by the FCC on February 22, 1994, including the new benchmarks, became
effective in May, 1994.
The FCC's rules provide that, unless a cable operator can justify higher
rates on the basis of its costs, increases in the rates charged by the operator
for the basic service package or any other regulated package of service may not
exceed an inflation indexed amount, plus increases in certain costs beyond the
cable operator's control, such as taxes, franchise fees and increased
programming costs that exceed the inflation index. A cable operator may not pass
through to subscribers any amounts paid by the operator on or before October 6,
1994, to broadcast stations for the retransmission of their signals. Increases
in retransmission fees above those in effect on that day may be passed through
to subscribers. As part of the implementation of its rate regulations, the FCC
froze all cable service rates until May 15, 1994 and provided cable operators
with the option to defer refund liabilities by continuing rates in effect until
July 15, 1994. The Related Partnerships and Cablevision elected to defer their
refund liabilities.
On February 22, 1994, the FCC adopted guidelines for cost-of-service
showings that establish a regulatory framework pursuant to which a cable
television operator may attempt to justify rates in excess of the benchmarks.
Such justification would be based upon (i) the operator's costs in operating a
cable television system (including certain operating expenses, depreciation and
taxes) and (ii) a return on the investment the operator has made to provide
regulated cable television services in such system (such investment being
referred to as its 'ratebase,' which includes working capital and certain costs
associated with the construction of such system). The guidelines (1) create a
rebuttable presumption that excludes from a cable television operator's ratebase
any 'excess acquisition costs' (equal to the excess of the purchase price for a
cable television system over the original construction cost of such system, or
its book value at the time of acquisition), (2) include in the ratebase the
costs associated with certain intangibles such as franchise rights and customer
lists, and (3) set a uniform rate of return for regulated cable television
service of 11.25% after taxes. The interim guidelines originally included a
'productivity offset feature' that could reduce otherwise justifiable rate
increases based on a claimed increase in a cable television system's operational
efficiencies. The FCC dropped this proposal in September 1994.
On November 10, 1994, the FCC amended its policy regarding rate regulation
of packages of a la carte services. The FCC ruled that all packages of a la
carte services would be subject to its regulatory authority, but expressly
disclaimed any intent to regulate traditional packages of premium movie services
and 'grandfathered' a la carte packages created prior to April 1, 1993. The
Commission also authorized operators, subject to certain conditions, to offer
so-called New Product Tiers ('NPTs') at prices they elect, so long as such NPTs
do not contain channels that were offered on regulated service tiers as of
September 30, 1994. With respect to packages of a la carte services created
between April 1, 1993 and September 30, 1994, the Commission has generally
determined that such packages may be treated as NPTs if they contain six or
fewer channels.
The FCC, in addition to revising its rules governing a la carte channels,
also on November 10, 1994 revised its regulations governing the manner in which
cable operators may charge subscribers for new channels added to cable
programming services tiers. The FCC instituted a three-year flat fee mark-up
plan for charges relating to new channels added to cable programming services
tiers in addition to the present formula for calculating the permissible rate
for new services. Commencing on January 1, 1995, operators may charge for new
channels added to cable programming services tiers added after May 14,
149
<PAGE>
1994 at a markup of up to 20 cents per channel over actual programming costs,
but may not make adjustments to monthly rates for these new services totaling
more than $1.20, plus an additional 30 cents solely for programming license
fees, per subscriber over the first two years of the three-year period. Cable
operators may charge an additional 20 cents in the third year only for channels
added in that year. Cable operators electing to use the 20 cent per channel
adjustment may not take a 7.5% mark-up on programming cost increases, which is
permitted under the FCC's current rate regulations. The FCC requested further
comment on whether cable operators should continue to receive the 7.5% mark-up
on increases in license fees on existing programming services.
Under the 1992 Cable Act, systems may not require subscribers to purchase
any service package other than the basic service package as a condition of
access to video programming offered on a per channel or per program basis. Cable
systems are allowed up to ten years to the extent necessary to implement the
necessary technology to facilitate this access. The Systems are currently
capable of implementing the technology mandated by the 1992 Cable Act.
In addition, the 1992 Cable Act (i) requires cable programmers under
certain circumstances to offer their programming to present and future
competitors of cable television such as multichannel multipoint distribution
services ('MMDS'), satellite master antenna systems ('SMATV') and direct
broadcast satellite systems operators and prohibits new exclusive contracts with
program suppliers without FCC approval, (ii) directs the FCC to set standards
for limiting the number of channels that a cable television system operator
could program with programming services controlled by such operator, (iii) bars
municipalities from unreasonably refusing to grant additional competitive
franchises, (iv) requires cable television operators to carry ('Must Carry') all
local broadcast stations (including home shopping broadcast stations) or, at the
option of a local broadcaster, to obtain the broadcaster's prior consent for
retransmission of its signal ('Retransmission Consent'), (v) requires cable
television operators to obtain the consent of any non-local broadcast station
prior to retransmitting its signal and (vi) regulates the ownership by cable
operators of other media such as MMDS and SMATV. In connection with clause (ii)
above concerning limitations on affiliated programming, the FCC has established
a 40% limit on the number of channels of a cable television system that can be
occupied by programming services in which the system operator has an
attributable interest and a national limit of 30% on the number of households
that any cable company can serve. A Federal district court has found the
national limit on the number of households that can be served by a cable
operator to be unconstitutional and the effect of this limitation has been
stayed pending review by a Federal appeals court. In connection with clause (iv)
above concerning retransmission of a local broadcaster's signals, a substantial
number of local broadcast stations are currently carried by the Related
Partnerships' Systems and Cablevision's cable television systems and have
elected to negotiate with the Related Partnerships and Cablevision for
Retransmission Consent. Although the Related Partnerships and Cablevision have
obtained Retransmission Consent agreements with all broadcast stations they
currently carry, a number of these agreements are temporary in nature and the
potential remains for discontinuation of carriage if an agreement is not
ultimately reached.
The FCC has imposed new regulations under the 1992 Cable Act in the areas
of customer service, technical standards, equal employment opportunity, privacy,
rates for leased access channels, obscenity and indecency, disposition of a
customer's home wiring and compatibility between cable systems and other
consumer electronic equipment such as 'cable ready' television sets and
videocassette recorders.
A number of lawsuits have been filed in federal court challenging the
constitutionality of various provisions of the 1992 Cable Act. A challenge to
the constitutionality of the 1992 Cable Act's Must Carry rules was denied by a
federal court in April 1993. On appeal, the United States Supreme Court returned
this decision to the lower court for further proceedings. Most other challenged
provisions of the 1992 Cable Act have been upheld at the federal district court
level, including provisions governing rate regulation and retransmission
consent, but an appeal to the U.S. Court of Appeals for the District of Columbia
Circuit of that decision has been filed. Neither the Partnership nor Cablevision
can predict the outcome of any of the foregoing litigation affecting the 1992
Cable Act. The material provisions of the 1992 Cable Act remain in effect during
the pendency of the litigation. In a separate challenge to the FCC's rate
regulation scheme under the 1992 Cable Act, a Federal appeals court upheld the
material aspects of the rate regulation scheme.
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IMPACT OF PENDING TELECOMMUNICATIONS LEGISLATION ON FCC CABLE RATE
REGULATION. Both the U.S. Senate and the House of Representatives have passed
legislation that would significantly relax cable rate regulation. The Senate
bill would modify the 1992 Cable Act's definition of 'effective competition' to
deregulate all cable rates, including basic service rates, whenever a telephone
company begins to offer comparable video programming services to subscribers in
a cable operator's franchise area. The Senate bill also limits the FCC's ability
to regulate rates for non-basic services offered by an operator not subject to
'effective competition' only to instances in which an operator's rates for such
services substantially exceed the national average. The regulation of rates for
basic services offered by an operator not subject to 'effective competition'
would remain unchanged.
The House bill would deregulate all non-basic rates as soon as a telephone
company has been authorized to construct video dialtone facilities or has been
authorized by the FCC or local franchising authorities to provide video
programming to subscribers in the operator's franchise area by any means. The
House bill also would deregulate non-basic rates in all franchise areas 15
months after the date of enactment.
The differences between the Senate- and House-passed bills must be
reconciled before the legislation would become law. Neither the Partnership nor
Cablevision can at this point predict whether the legislation ultimately will be
enacted into law or the final form the legislation may take.
In December 1994, the Federal Communications Commission's Cable Services
Bureau (the 'Bureau') issued an order (the 'Order') holding that the
Partnership's Family Cable programming package should have been subject to rate
regulation as of September 1, 1993. If the Order were to have been sustained on
appeal by the FCC, it would have required the Partnership to reduce the rates it
charges for its basic service tier and for its Metro Service package of
programming services. The Order also stated that the Partnership would have been
liable for refunds on account of the Order, for the difference between the rates
charged for these service packages and the rates that would have been charged
for them if Family Cable had been considered a regulated offering as of
September 1, 1993.
The Partnership filed a motion to ask the Bureau to reconsider its Order.
In February 1995, the Bureau ordered a stay of the Order pending resolution of
the Partnership's motion for reconsideration. In April 1995, the FCC tentatively
agreed to terms proposed by the Partnership that would resolve issues raised by
the Order and pending rate complaints against the Partnership. Under the terms,
the Partnership would not be required to make any further reduction in rates or
any additional subscriber refunds. On August 7, 1995, the FCC issued an order
adopting the terms proposed by the Partnership.
OTHER FCC REGULATION. In addition to the rules and regulations promulgated
by the FCC under the 1984 Cable Act and the 1992 Cable Act, the FCC has
promulgated other rules affecting the Related Partnerships and Cablevision. FCC
rules require that cable systems black out certain network and sports
programming on imported distant broadcast signals upon request. The FCC also
requires that cable systems delete syndicated programming carried on distant
signals upon the request of any local station holding the exclusive right to
broadcast the same program within the local television market and, in certain
cases, upon the request of the copyright owner of such programs. These rules
affect the diversity and cost of the Related Partnerships' and Cablevision's
programming options for their cable television systems.
FCC regulation also includes matters regarding restrictions on origination
and cablecasting by cable system operators; application of the rules governing
political broadcasts; customer service; home wiring and limitations on
advertising contained in nonbroadcast children's programming.
Implementing provisions of the 1993 Budget Act, the FCC has adopted
requirements for payment of annual 'regulatory fees.' For 1994, cable television
systems are required to pay regulatory fees of $0.37 per subscriber, which may
be passed on to subscribers as 'external cost' adjustments to basic cable
service. This fee will be increased to $0.49 per subscriber for 1995. Fees are
also assessed for other licenses, including licenses for business radio, cable
television relay systems ('CARS') and earth stations, which, however, may not be
collected directly from subscribers.
The FCC has the authority to regulate utility company rates for cable
rental of pole and conduit space. States can establish preemptive regulations in
this area, and Massachusetts, the state in which the Related Partnerships'
Systems operate, has done so. The FCC's technical guidelines for signal leakage
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became substantially more stringent in July 1990 requiring upgrading
expenditures by the Related Partnerships and Cablevision (which required
expenditures have been made). Two-way radio stations, microwave-relay stations
and satellite earth stations used by the Related Partnerships' and Cablevision's
cable television systems are licensed by the FCC.
Numerous federal court decisions, including several at the appeals court
level, have agreed with challenges to the constitutionality of the existing
statutory ban on telephone company ownership of cable systems. These rulings
apply to telephone company ownership of cable systems in several states in which
Cablevision owns systems. The Partnership also owns cable systems in the
geographic area to which the ruling applies. Similar lawsuits have been filed in
several other states in which Cablevision owns systems. Legislation to repeal
this ban, subject to certain regulatory requirements, has passed both the U.S.
Senate and House of Representatives; repeal has also been endorsed by the
Clinton Administration. These bills also would permit a telephone company to
acquire an in-region cable operator in certain small markets, under certain
circumstances. The bills would also, inter alia, preempt state and
locally-imposed barriers to the provision of intrastate and interstate
telecommunications services by the Partnership, Cablevision and other cable
systems operators, in competition with local telephone companies. The House of
Representatives and the Senate have passed legislation accomplishing these
changes in the law. There are differences between the Senate- and House-passed
bills which must be reconciled before the legislation could be enacted into law.
Neither the Partnership nor Cablevision can predict whether the legislation will
be enacted into law or the final form that the legislation may take.
In July 1992, the FCC voted to authorize additional competition to cable
television by video programmers using broadband common carrier facilities
constructed by telephone companies. The FCC allowed telephone companies to take
ownership interests of up to 5% in such programmers. The FCC also reaffirmed an
earlier holding, recently upheld on appeal by a federal court, that the
programmers using such a telephone company-provided 'video dialtone' system
would not need to obtain a state or municipal franchise. Several telephone
companies have sought approval from the FCC to build such 'video dialtone'
systems. Such a system has been proposed in Boston and Brookline as well as in
several other communities in which Cablevision currently holds a cable
franchise. Several of these systems have been approved by the FCC, but none in
areas in which the Related Partnerships hold cable systems. Such a system has
been proposed in several communities in which Cablevision currently holds a
cable franchise.
In January 1993, the FCC proposed establishing a new local multipoint
distribution service ('LMDS,' sometimes referred to as 'cellular cable') in the
virtually unused 28 Ghz band of the electromagnetic spectrum that could be used
to offer multichannel video in competition with cable systems, as well as
two-way communications services. The FCC has proposed issuing two LMDS licenses
per market, using auctions or lotteries to select licensees. Suite 12 Group, the
originator of this service, currently holds an experimental license and has
constructed a video transmission service using the 28 Ghz band in a portion of
an affiliate's service area.
FEDERAL COPYRIGHT REGULATION. There are no restrictions on the number of
distant broadcast television signals that cable television systems can import,
but cable systems are required to pay copyright royalty fees to receive a
compulsory license to carry them. The United States Copyright Office has
increased the royalty fee from time to time. The FCC has recommended to Congress
the abolition of the compulsory licenses for cable television carriage of
broadcast signals. Any such action by Congress could adversely affect the
Related Partnerships' and Cablevision's ability to obtain such programming and
could increase the cost of such programming.
CABLE TELEVISION CROSS-MEDIA OWNERSHIP LIMITATIONS. The 1984 Cable Act
prohibits any person or entity from owning broadcast television and cable
properties in the same market. The 1984 Cable Act also bars co-ownership of
telephone companies and cable television systems operating in the same service
areas, with limited exceptions for rural areas. The FCC may also expand the
rural exemption for telephone companies offering cable service within their
service areas. The FCC has modified its rule that formerly barred the commercial
broadcasting networks (NBC, CBS and ABC) from owning cable television systems.
The FCC rule does not allow the networks to acquire cable systems in markets in
which they already own a broadcast station, and sets limitations on the
percentage of homes that can be
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passed, both nationally and locally, by network-owned cable systems. The 1992
Cable Act imposed limits on new acquisitions of SMATV or MMDS systems by cable
operators in their franchise areas. There is no federal bar to newspaper
ownership of cable television systems. The Related Partnerships and Cablevision
do not have any prohibited cross-ownership interests. The telecommunications
legislation pending in the Senate would eliminate the statutory cross-ownership
limitations. The House bill, however, would retain the statutory cross-ownership
limitation and the statutory limitation on ownership of SMATV and MMDS systems.
STATE AND MUNICIPAL REGULATION OF CABLE TELEVISION. Regulatory
responsibility for essentially local aspects of the cable business such as
franchisee selection, system design and construction, safety and consumer
services remains with either state or local officials and, in some
jurisdictions, with both. The 1992 Cable Act expands the factors that a
franchising authority can consider in deciding whether to renew a franchise and
limits the damages for certain constitutional claims against franchising
authorities for their franchising activities. State and local franchising
jurisdiction is not unlimited, however, and must be exercised consistently with
the provisions of the 1984 Cable Act and the 1992 Cable Act. Among the more
significant restrictions that the 1984 Cable Act imposes on the regulatory
jurisdiction of local franchising authorities is a 5% ceiling on franchise fees
and mandatory renegotiation of certain franchise requirements if warranted by
changed circumstances.
Massachusetts has adopted legislation which specifically empowers state and
local governing bodies to issue cable television licenses and to regulate
various aspects of the cable television business. Massachusetts law establishes
a Community Antenna Television Commission (the 'Television Commission') and
empowers the Television Commission to promulgate rules and regulations to guide
localities in the regulation of cable television franchises. Material provisions
of the Massachusetts statute regulating cable television are incorporated in the
Boston and Brookline Licenses. Before any changes in these licenses become
final, a public hearing on such changes may be requested by the licensing
authorities, the Related Partnerships, or 500 voters of the locality of the
license. Massachusetts state rate regulations were superseded by the 1984 Cable
Act and the 1992 Cable Act. See ' -- 1984 Cable Act' and ' -- 1992 Cable Act'
above.
The 1992 Cable Act authorizes state and local franchise authorities to
regulate the basic cable service rates of certain cable television systems,
including the Boston and Brookline Systems, consistent with FCC regulations. In
its report and order on rate regulation, the FCC determined that the Television
Commission is the 'franchising authority' for the purposes of carrying out rate
regulation. The Television Commission notified the FCC of its intention to
exercise this authority consistent with the FCC's regulations and adopted
regulations stating that the Television Commission will regulate basic service
tier and equipment rates either at the request of a local franchising authority
or at its own initiative if it finds such regulation to be 'in the public
interest.' The Television Commission has adopted procedures for rate regulation
that require adjudicatory hearing procedures for determination of 'benchmark'
rates as well as for cost of service regulation. Pursuant to these procedures,
the Television Commission conducted hearings on the initial basic services rates
of the Related Partnerships' Systems. A decision on these rates was issued in
May 1994 and the Related Partnerships filed an appeal to the FCC which is
pending. In addition, the Television Commission has established a pilot program
to authorize up to six cities or towns to conduct rate regulation subject to
review by the Television Commission. The City of Boston has been chosen to
participate in the pilot program.
A Massachusetts statute enacted at the end of 1991 authorizes cable
television companies to enter multiple dwelling units to construct and install
cable television facilities. This entry is subject to the right of the property
owner to seek reasonable compensation for the occupation of property by such
facilities pursuant to the state eminent domain statute and reasonable
restrictions to protect the safety or appearance of buildings.
The Massachusetts cable television statute also requires written municipal
consent to any transfer of a cable television license or transfer of control of
a cable television licensee. Such consent may not be arbitrarily or unreasonably
withheld, and review is limited to the financial, technical, managerial, legal,
and character qualifications of the transferee. Such consent is required to be
obtained in connection with the consummation of the Transactions.
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The Television Commission has adopted billing and termination of service
rules. These rules require that written disclosure of all billing practices and
rates, including rates for all available levels of service, be provided to a
customer prior to subscription. Prior notification of rate changes, retiering of
services offered, and substantial changes in the number or type of programming
services must be given to the Television Commission, the franchising authority,
and all affected subscribers 30 days prior to institution. The rules prescribe
bill formats and set standards for advance billing, late charges, termination of
service and disconnect and downgrade charges, require that local procedures be
established for resolution of billing disputes, and provide for optional
Television Commission arbitration of such disputes.
The Television Commission has also proposed rules that set specific
timetables for the franchise renewal procedures established in the 1984 Cable
Act, but has not yet adopted regulations in this area, and is not expected to
adopt the proposed rules.
DESCRIPTION OF CABLEVISION CAPITAL STOCK
Cablevision is authorized to issue 80,000,000 shares of capital stock, of
which 50,000,000 shares are Cablevision Class A Common Stock, par value $.01 per
share, 20,000,000 shares are Cablevision Class B Common Stock, par value $.01
per share and 10,000,000 shares are Preferred Stock, par value $.01 per share.
CABLEVISION CLASS A COMMON STOCK AND CABLEVISION CLASS B COMMON STOCK
All shares of Cablevision common stock currently outstanding are fully paid
and non-assessable, not subject to redemption and without preemptive or other
rights to subscribe for or purchase any proportionate part of any new or
additional issues of stock of any class or of securities convertible into stock
of any class.
VOTING. Holders of Cablevision Class A Common Stock are entitled to one
vote per share. Holders of Cablevision Class B Common Stock are entitled to ten
votes per share. All actions submitted to a vote of stockholders are voted on by
holders of Cablevision Class A Common Stock and Cablevision Class B Common Stock
voting together as a single class, except for the election of directors and as
otherwise set forth below. With respect to the election of directors, holders of
Cablevision Class A Common Stock will vote as a separate class and be entitled
to elect 25% of the total number of directors constituting the whole Cablevision
Board of Directors (the 'Cablevision Class A Directors') and, if such 25% is not
a whole number, then the holders of Cablevision Class A Common Stock will be
entitled to elect the nearest higher whole number of directors that is at least
25% of the total number of directors. Holders of Cablevision Class B Common
Stock, voting as a separate class, will be entitled to elect the remaining
directors.
If, however, on the record date for any stockholder meeting at which
directors are to be elected, the number of outstanding shares of Cablevision
Class A Common Stock is less than 10% of the total number of outstanding shares
of both classes of common stock, the holders of Cablevision Class A Common Stock
and Cablevision Class B Common Stock will vote together as a single class with
respect to the election of directors and the holders of Cablevision Class A
Common Stock will not have the right to elect 25% of the total number of
directors but will have one vote per share for all directors and the holders of
Cablevision Class B Common Stock will have ten votes per share for all
directors.
If, on the record date for any stockholder meeting at which directors are
to be elected, the number of outstanding shares of Cablevision Class B Common
Stock is less than 12 1/2% of the total number of outstanding shares of both
classes of common stock, then the holders of Cablevision Class A Common Stock,
voting as a separate class, would continue to elect a number of Cablevision
Class A Directors equal to 25% of the total number of directors constituting the
whole Cablevision Board of Directors and, in addition, would vote together with
the holders of Cablevision Class B Common Stock to elect the remaining directors
to be elected at such meeting, with the holders of Cablevision Class A Common
Stock entitled to one vote per share and the holders of Cablevision Class B
Common Stock entitled to ten votes per share.
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In addition, the affirmative vote or consent of the holders of at least
66 2/3% of the outstanding shares of Cablevision Class B Common Stock, voting
separately as a class, is required for the authorization or issuance of any
additional shares of Cablevision Class B Common Stock and for any amendment,
alteration or repeal of any provisions of Cablevision's Restated Certificate of
Incorporation which would affect adversely the powers, preferences or rights of
the Cablevision Class B Common Stock. The Cablevision Restated Certificate of
Incorporation does not provide for cumulative voting.
CONVERSION. The Cablevision Class A Common Stock has no conversion rights.
The Cablevision Class B Common Stock is convertible into Cablevision Class A
Common Stock in whole or in part at any time and from time to time on the basis
of one share of Cablevision Class A Common Stock for each share of Cablevision
Class B Common Stock.
DIVIDENDS. Holders of Cablevision Class A Common Stock and Cablevision
Class B Common Stock are entitled to receive dividends equally on a per share
basis if and when such dividends are declared by the Board of Directors of
Cablevision from funds legally available therefor. No dividend may be declared
or paid in cash or property on shares of either Cablevision Class A Common Stock
or Cablevision Class B Common Stock unless the same dividend is paid
simultaneously on each share of the other class of common stock. In the case of
any stock dividend, holders of Cablevision Class A Common Stock are entitled to
receive the same percentage dividend (payable in shares of Cablevision Class A
Common Stock) as holders of Cablevision Class B Common Stock receive (payable in
shares of Cablevision Class B Common Stock). On June 14, 1994, Cablevision's
stockholders approved an amendment to Cablevision's certificate of incorporation
to permit the distribution of shares of capital stock of any Cablevision
subsidiary to Cablevision common stockholders that differ to the extent that the
Cablevision common stock differs as to voting rights and rights in connection
with certain dividends.
LIQUIDATION. Holders of Cablevision Class A Common Stock and Cablevision
Class B Common Stock share with each other on a ratable basis as a single class
in the net assets of Cablevision available for distribution in respect of
Cablevision Class A Common Stock and Cablevision Class B Common Stock in the
event of liquidation.
OTHER TERMS. Neither the Cablevision Class A Common Stock nor the
Cablevision Class B Common Stock may be subdivided, consolidated, reclassified
or otherwise changed unless contemporaneously therewith the other class of
shares is subdivided, consolidated, reclassified or otherwise changed in the
same proportion and in the same manner.
In any merger, consolidation or business combination the consideration to
be received per share by holders of either Cablevision Class A Common Stock or
Cablevision Class B Common Stock must be identical to that received by holders
of the other class of common stock, except that in any such transaction in which
shares of capital stock are distributed, such shares may differ as to voting
rights only to the extent that voting rights now differ between Cablevision
Class A Common Stock and Cablevision Class B Common Stock.
RESTRICTIONS ON OWNERSHIP. Transfer of shares of Cablevision Class A Common
Stock or Cablevision Class B Common Stock which could result in a change of
control of Cablevision may require the approval of state agencies or local
franchising authorities in certain states in which Cablevision operates.
TRANSFER AGENT. Cablevision's transfer agent and registrar for the
Cablevision Class A Common Stock is Mellon Securities Trust Company.
CABLEVISION PREFERRED STOCK
The authorized preferred stock of Cablevision consists of (i) 200,000
shares of Series B Cumulative Convertible Preferred Stock, $.01 par value and
$100 liquidation value per share (the 'Cablevision Series B Preferred Stock'),
none of which are outstanding, (ii) 112,500 shares of Series C Cumulative
Preferred Stock, $.01 par value and $100 liquidation value per share (the
'Cablevision Series C Preferred Stock'), of which 110,622 shares were
outstanding at March 31, 1995, (iii) 112,500 shares of Series D Cumulative
Preferred Stock, $.01 par value and $100 liquidation value per share, none of
which are outstanding (the 'Cablevision Series D Preferred Stock'), (iv) 100,000
shares of Series E Redeemable Exchangeable Convertible Preferred Stock, $.01 par
value and $1,000 liquidation
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preference per share (the 'Series E Preferred Stock'), 100,000 of which are
outstanding at March 31, 1995, (v) 100,000 shares of Series F Redeemable
Preferred Stock, $.01 par value and $1,000 liquidation preference per share,
none of which are outstanding (the 'Series F Preferred Stock'), and (vi)
4,500,000 shares of 11 3/4% Series G Redeemable Exchangeable Preferred Stock,
$.01 par value and $100 initial liquidation preference per share, 2,500,000
shares of which were issued on September 26, 1995 and are outstanding (the
'Series G Preferred Stock' and the Cablevision Series B Preferred Stock,
Cablevision Series C Preferred Stock, Cablevision Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
are hereinafter sometimes collectively referred to as the 'Cablevision Preferred
Stock'). The Cablevision Series A Preferred Stock, $.01 par value, was cancelled
by the Board of Directors of Cablevision on February 2, 1988. Cablevision does
not expect to issue any Series B Preferred Stock. The Series D Preferred Stock
is issuable upon conversion of the Series C Preferred Stock. Cablevision expects
to redeem the Series E Preferred Stock on November 2, 1995. The Series F
Preferred Stock is issuable upon conversion of the Series E Preferred Stock.
Cablevision does not expect to issue any Series F Preferred Stock.
The holders of Cablevision Series B Preferred Stock are entitled, when
declared by the Cablevision Board of Directors, to dividends at the time legally
available at the annual rate of $12.00 per share prior and in preference to any
declaration of payment of any dividend on the common stock of Cablevision. The
holders of Cablevision Series C Preferred Stock and Cablevision Series D
Preferred Stock are entitled, when declared by the Cablevision Board of
Directors, to dividends at the time legally available at the annual rate of
$8.00 per share prior and in preference to any declaration of payment of any
dividend on the common stock of Cablevision. The holders of the Series E
Preferred Stock and the Series F Preferred Stock are entitled, when declared by
the Board of Directors, to dividends at the time legally available at the
floating rate of LIBOR plus 2.50% payable prior and in preference to any
declaration of payment of any dividend on the common stock of Cablevision.
Dividends on the Series E Preferred Stock and Series F Preferred Stock are
payable, at Cablevision's option, either in cash or registered shares of Class A
Common Stock with a value equalling 105% of the required dividend. The right to
dividends on shares of Cablevision Preferred Stock are cumulative. In the event
of any liquidation, dissolution or winding up of Cablevision, the holders of
Cablevision Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock are entitled to receive a preferential amount equal to $100 for
each share of Cablevision Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock held plus all dividends (whether or not earned or
declared) accrued and unpaid on such shares of Cablevision Preferred Stock to
the date of final distribution in preference to any such distribution to the
holders of the common stock of Cablevision. In the event of any liquidation,
dissolution or winding up of the Registrant, the holders of Series E Preferred
Stock and Series F Preferred Stock are entitled to receive a preferential amount
equal to $1,000 for each share of Series E Preferred Stock and Series F
Preferred Stock held plus all dividends (whether or not earned or declared)
accrued and unpaid on such shares of Preferred Stock to the date of final
distribution in preference to any such distribution to the holders of the common
stock of Cablevision.
Cablevision at its option may, but shall not be required to, redeem, at any
time and from time to time, on not less than 30 days nor more than 60 days prior
notice, any or all of the shares of Cablevision Series B Preferred Stock then
outstanding at a price of $100 per share plus all dividends (whether or not
earned or declared) accrued and unpaid on the shares of Cablevision Series B
Preferred Stock to the date fixed for redemption (the 'Cablevision Series B
Preferred Stock Redemption Price'). During the period ending 30 years from the
date of authorization, no such redemption may be made unless the closing price
per share of the Cablevision Class A Common Stock on any 20 trading days within
a period of 30 consecutive trading days preceding the date of the notice of
redemption was at least 150% of the conversion price of the Cablevision Series B
Preferred Stock. Commencing 30 years from the date of authorization, the
Cablevision Series B Preferred Stock may be redeemed at the Cablevision Series B
Preferred Stock Redemption Price at any time.
At any time and from time to time commencing on December 31, 1997, the
holders of Cablevision Series C Preferred Stock and Cablevision Series D
Preferred Stock may require Cablevision to redeem, upon 30 days notice to
Cablevision, any or all of the shares of Cablevision Series C Preferred Stock
and Cablevision Series D Preferred Stock then outstanding at a price equal to
the lesser of (i) $100 per share or (ii) the present value of $100, discounted
from December 31, 2007 to the date of such
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redemption, plus, in each case, all dividends (whether or not earned or
declared) accrued and unpaid on the shares of Cablevision Series C Preferred
Stock and Cablevision Series D Preferred Stock to the date fixed for redemption
(the 'Cablevision Series C Preferred Stock and Cablevision Series D Preferred
Stock Redemption Price'). Cablevision may, at its option, upon notice to the
holders requesting redemption within 20 days of such holders' notice to
Cablevision, convert all or part of such shares of Cablevision Series C
Preferred Stock into Cablevision Class B Common Stock and all or part of such
shares of Cablevision Series D Preferred Stock into Cablevision Class A Common
Stock. Cablevision at its option may, but shall not be required to, redeem, at
any time and from time to time after December 31, 1997, on not less than 30 days
nor more than 60 days prior notice, any or all of the shares of Cablevision
Series C Preferred Stock and Cablevision Series D Preferred Stock then
outstanding at the Cablevision Series C Preferred Stock and Cablevision Series D
Preferred Stock Redemption Price.
At any time and from time to time until three days prior to a redemption by
Cablevision, any holder of Cablevision Series B Preferred Stock may elect to
convert such shares into that number of shares of Cablevision Class A Common
Stock determined by dividing $100 plus an amount equal to all dividends (whether
or not earned or declared) accrued or unpaid on any shares of Cablevision Series
B Preferred Stock being converted by $19.575. If Cablevision elects to convert
any shares of Cablevision Series C Preferred Stock or Cablevision Series D
Preferred Stock after a demand for redemption by such holders, the number of
shares to be issued by Cablevision shall be calculated by dividing the
applicable Cablevision Series C Preferred Stock and Cablevision Series D
Preferred Stock Redemption Price by the average of the market price of a share
of Cablevision Class A Common Stock for the 30 trading days preceding the date
on which Cablevision gives notice of its election to convert such shares.
Holders of Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock have no voting rights except as to which they may be entitled
under the laws of the State of Delaware.
Cablevision may, at its option, on not less than 30 days' nor more than 60
days' prior notice, redeem any or all of the shares of Series E Preferred Stock
or Series F Preferred Stock, at a redemption price, payable in cash, equal to
$1,000 per share plus all dividends (whether or not earned or declared) accrued
and unpaid on the shares of the Series E Preferred Stock or Series F Preferred
Stock to the date fixed for redemption. Cablevision has given such notice with
respect to the Series E Preferred Stock and expects to redeem the Series E
Preferred Stock on October 26, 1995.
The Series G Preferred Stock, with respect to dividends and distributions
upon the liquidation, winding-up and dissolution of Cablevision, ranks (i)
senior to all classes of Common Stock and each other class of capital stock or
series of preferred stock established by the Board of Directors (except as set
forth below) which does not expressly provide that it ranks senior to the Series
G Preferred Stock as to dividends and distributions upon the liquidation,
winding-up and dissolution of Cablevision (collectively referred to as 'Junior
Stock'); (ii) on a parity with the Series B Preferred Stock, Series C Preferred
Stock (after the Series E Preferred Stock is no longer outstanding), Series D
Preferred Stock and any other class of capital stock or series of preferred
stock issued by Cablevision established after the initial issuance of the Series
G Preferred Stock by the Board of Directors, the terms of which expressly
provide that such class or series will rank on a parity with the Series G
Preferred Stock as to dividends and distributions upon the liquidation,
winding-up and dissolution of Cablevision (collectively referred to as 'Parity
Securities'); and (iii) junior to the Series C Preferred Stock (so long as the
Series E Preferred Stock is outstanding), the Series E Preferred Stock, the
Series F Preferred Stock and each class of capital stock or series of preferred
stock issued by Cablevision established after the initial issuance of the Series
G Preferred Stock by the Board of Directors, the terms of which specifically
provide that such class or series will rank senior to the Series G Preferred
Stock as to dividends and distributions upon the liquidation, winding-up and
dissolution of Cablevision (collectively referred to as 'Senior Securities').
The holders of Series G Preferred Stock are entitled, when declared by the
Board of Directors, to dividends at the annual rate of 11 3/4% per share of
Series G Preferred Stock. The right to dividends on the Series G Preferred Stock
is cumulative (whether or not earned or declared). Before October 1, 2000,
dividends may, at the option of Cablevision, be paid either in cash or fully
paid and non-assessable shares of Series G Preferred Stock with an aggregate
liquidation preference equal to the amount of such dividend. On and after
October 1, 2000, dividends may only be paid in cash. If any dividend (or portion
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thereof) payable on any dividend payment date on or after October 1, 2000 is not
paid in full in cash on the dividend payment date therefor, the amount of such
dividend that is payable and that is not paid in cash on such date will increase
at the rate of 11 3/4% per annum from such dividend payment date until paid in
full.
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities for any period unless full
cumulative dividends shall have been paid or set apart for such payment on the
Series G Preferred Stock. If full dividends are not so paid, the Series G
Preferred Stock shall share dividends pro rata with the Parity Securities.
Subject to certain exceptions set forth in the Certificate of Designations for
the Series G Preferred Stock, no dividends may be paid or set apart for such
payment on Junior Stock (except dividends on Junior Stock in additional shares
of Junior Stock), and no Junior Stock may be repurchased, redeemed or otherwise
retired nor may funds be set apart for payment with respect thereto, if full
dividends have not been paid on the Series G Preferred Stock.
Cablevision may redeem the Series G Preferred Stock at any time after
October 1, 2002, in whole or in part, at certain redemption prices. In addition,
Cablevision may redeem shares of Series G Preferred Stock at any time before
October 1, 1998 at a redemption price per share equal to the liquidation
preference of $100, plus accrued and unpaid dividends plus a premium of $10 per
share, out of the net proceeds of the sale of Junior Stock to a strategic equity
investor or a public offering of Class A Common Stock. Furthermore, Cablevision
may, at its option, prior to October 1, 2002, redeem the Series G Preferred
Stock at any time within 180 days, at certain redemption prices, after a Change
of Control (as defined in the Certificate of Designations for the Series G
Preferred Stock). On October 1, 2007, Cablevision will be required to redeem all
outstanding shares of Series G Preferred Stock.
On or after January 1, 1996, Cablevision may, at its option, on any
scheduled dividend payment date, exchange the Series G Preferred Stock for
Cablevision's 11 3/4% Senior Subordinated Debentures due 2007.
In the event of any liquidation, dissolution or winding-up of Cablevision,
holders of Series G Preferred Stock will be entitled to receive a preferential
amount equal to $100 per share, plus all accrued and unpaid dividends thereon to
the date fixed for liquidation, dissolution or winding-up of Cablevision
(including an amount equal to a prorated dividend from the last dividend payment
date to the date fixed for liquidation, dissolution or winding-up), before any
distribution is made on any Junior Stock. If upon any voluntary or involuntary
liquidation, dissolution or winding-up of Cablevision, the amounts payable with
respect to the Series G Preferred Stock and all other Parity Securities are not
paid in full, the holders of the Series G Preferred Stock and the Parity
Securities will share equally and ratably in any distribution of assets of
Cablevision in proportion to the full liquidation preference to which each is
entitled. After payment of the full amount of the liquidation preferences to
which they are entitled, the holders of shares of Series G Preferred Stock will
not be entitled to any further participation in any distribution of assets of
Cablevision.
Holders of the Series G Preferred Stock will have no voting rights with
respect to general corporate matters except as provided by law or as set forth
in the Certificate of Designations therefor. The Certificate of Designations for
the Series G Preferred Stock provides that if (a) dividends on the Series G
Preferred Stock are in arrears and unpaid (and if after October 1, 2000, such
dividends are not paid in cash) for six quarterly periods (whether or not
consecutive), or (b) Cablevision fails to discharge its redemption obligation to
redeem the Series G Preferred Stock on October 1, 2007, then the number of
directors constituting the Board of Directors will be adjusted to permit the
holders of the majority of the then outstanding Series G Preferred Stock, voting
as a class, to elect a director. Such voting rights will continue until such
time as all dividends in arrears on the Series G Preferred Stock are paid in
full (and in the case of dividends payable after October 1, 2000, paid in cash)
and any failure, breach or default referred to in clause (b) is remedied, at
which time the term of the directors elected pursuant to the provisions of this
paragraph shall terminate. Each such event described in clauses (a) and (b)
above is referred to herein as a 'Voting Rights Triggering Event.'
The Certificate of Designations for the Series G Preferred Stock also
provides that Cablevision will not authorize any class of Senior Securities
without the affirmative vote or consent of holders of at least a majority of the
shares of Series G Preferred Stock then outstanding, voting or consenting, as
the case
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may be, separately as one class. Cablevision may not amend the Certificate of
Designations for the Series G Preferred Stock so as to affect adversely the
specified rights, preferences, privileges or voting rights of holders of shares
of the Series G Preferred Stock, or authorize the issuance of any additional
shares of Series G Preferred Stock, without the affirmative vote or consent of
the holders of at least a majority of the outstanding shares of Series G
Preferred Stock, voting or consenting, as the case may be, as one class.
Without the affirmative vote or consent of the holders of a majority of the
issued and outstanding shares of Series G Preferred Stock, Cablevision may not
consolidate or merge with or into, or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets to, any person
unless: (a) the entity formed by such consolidation or merger (if other than
Cablevision) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made shall be a corporation organized or
existing under the laws of the United States or any State thereof or the
District of Columbia; (b) the Series G Preferred Stock shall be converted into
or exchanged for and shall become shares of such successor, transferee or
resulting corporation, having in respect of such successor, transferee or
resulting corporation the same powers, preferences and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereon, that the Series G Preferred Stock had immediately prior to
such transactions; and (c) immediately after giving effect to such transaction,
no Voting Rights Triggering Event shall have occurred or be continuing.
Notwithstanding the foregoing, Cablevision may consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, any person if Cablevision makes adequate
provision (i) prior to October 1, 2002, to redeem the Series G Preferred Stock
after a Change of Control (as defined in the Certificate of Designations for the
Series G Preferred Stock) or (ii) on or after October 1, 2002, to redeem the
Series G Preferred Stock at the applicable redemption price set forth in the
Certificate of Designations for the Series G Preferred Stock.
Upon redemption or conversion, shares of Cablevision Preferred Stock shall
be cancelled. Holders of Cablevision Preferred Stock have no preemptive or other
rights to subscribe for or purchase any proportionate part of any new or
additional issues of stock of any class or of securities convertible into stock
of any class.
FEES AND EXPENSES
Except as described below, each party will bear its own expenses, costs and
fees (including the fees of attorneys, auditors and appraisers, costs of
printing and mailing the Incorporation and Merger Consents, this Consent
Solicitation Statement/Prospectus and other documents, financial advisory fees,
investment banking fees, travel expenses and all other fees related to the
preparatory work for the Transactions) in connection with the Transactions, and,
except as provided below, Cablevision and the Partnership shall each be
responsible for half of the costs of the preparation and execution of the Merger
Agreement, and the preparation of the Incorporation and Merger Consents, this
Consent Solicitation Statement/Prospectus and other documents.
If the Merger is consummated, Cablevision has agreed to bear all of the
Partnership's and Boston Sub's expenses, costs and fees (including the fees of
attorneys, auditors and appraisers, costs of printing and mailing the Merger and
Incorporation Consents, this Consent Solicitation Statement/Prospectus and other
documents, financial advisory fees, investment banking fees, travel expenses and
all other fees related to the preparatory work for the Transactions) in
connection with the Transactions, including the preparation and execution of the
Merger Agreement and compliance therewith, and the preparation of the Merger and
Incorporation Consents, this Consent Solicitation Statement/Prospectus and other
documents.
Cablevision has also generally agreed to bear all costs and expenses in
connection with the solicitation of consents to the Incorporation and Merger if
either the Incorporation or Merger is not approved. If the Merger is not
consummated, the Partnership shall bear all of the Partnership's other expenses,
costs and fees, subject to reimbursement, as set forth below. If the
Incorporation is rejected by the Limited Partners, Cablevision has generally
agreed to reimburse the Partnership promptly upon request for a percentage of
such other expenses, costs and fees equal to (i) the total amount of such
expenses, costs and fees multiplied by (ii) a fraction the numerator of which is
the number of Units
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entitled to vote that did not vote in favor of the Incorporation and the
denominator of which is the total number of Units entitled to vote that are
outstanding on the Incorporation Expiration Date. In addition, if the
Incorporation is approved by the Limited Partners but the Merger is rejected by
the Limited Partners, Cablevision generally has agreed to reimburse the
Partnership promptly upon request for a percentage of such other expenses, costs
and fees equal to (i) the total amount of such expenses, costs and fees
multiplied by (ii) a fraction the numerator of which is the number of Units
entitled to vote that did not vote in favor of the Merger and the denominator of
which is the total number of Units entitled to vote that are outstanding on the
Merger Expiration Date. If the Merger is not consummated, Cablevision is only
required to bear expenses as provided above to the extent that certain
provisions of the California Corporations Code would have required the General
Partners or Cablevision to bear such expenses if such provisions were applicable
to the Transactions. The General Partners believe, based on review of the
California Corporations Code, that Cablevision will be required to bear the
expenses of the Partnership as provided above if the Merger is not consummated.
Cablevision has agreed to pay all of the Partnership's and Boston Sub's
costs and expenses relating to the Transactions if the Merger Agreement is
terminated by Cablevision because it determines that the Incorporation or Merger
is not in the best interests of Cablevision's public stockholders or if the
Merger Agreement is terminated because of a material breach of the Merger
Agreement by a member of the Cablevision Group. The Partnership has agreed to
pay all of Cablevision's, the Partnership's and Boston Sub's costs and expenses
relating to the Transactions (other than solicitation costs, which will
generally be borne by Cablevision as described above) if the Merger Agreement is
terminated by either General Partner because the General Partners determine that
the Merger is not in the best interests of the unaffiliated Limited Partners and
the Partnership or if the Merger Agreement is terminated by Cablevision because
of a material breach of the Merger Agreement by a member of the GP Group.
The estimated fees and expenses for the Transactions are itemized below.
<TABLE>
<S> <C>
SEC registration fee................................................................................ $ 18,953
ASE listing fee..................................................................................... 15,300
Fee to PaineWebber for fairness opinion............................................................. 725,000
Fee to DLJ for fairness opinion..................................................................... 400,000
Fee to D.F. King & Co., Inc. for solicitation fees and expenses..................................... 7,500
Fees to Agent and Distribution Agent................................................................ 7,500
Legal fees and expenses............................................................................. 3,250,000
Printing costs...................................................................................... 40,000
Accounting fees..................................................................................... 125,000
Miscellaneous....................................................................................... 10,747
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Total............................................................................................... $4,600,000
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</TABLE>
LEGAL MATTERS
The validity of the issuance of the shares of Cablevision Class A Common
Stock offered by Cablevision will be passed upon for Cablevision by Sullivan &
Cromwell, New York, New York. The federal income tax consequences of the
Incorporation not followed by the Merger will be passed upon for the General
Partners by Debevoise & Plimpton, New York, New York. The federal income tax
consequences of the Incorporation, the Merger and Liquidation will be passed
upon for the General Partners by Debevoise & Plimpton, New York, New York. The
federal income tax consequences of the Incorporation and Merger will be passed
upon for Cablevision by Sullivan & Cromwell, New York, New York. Certain
Massachusetts tax consequences will be passed upon for the Partnership by Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts, special
Massachusetts counsel to the Partnership.
EXPERTS
The consolidated financial statements of Cablevision and its subsidiaries
as of December 31, 1994 and 1993 and for each of the years in the three-year
period ended December 31, 1994 that are incorporated by reference in this
Consent Solicitation Statement/Prospectus have been incorporated herein by
reference in reliance upon the report of KPMG Peat Marwick LLP, independent
certified
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public accountants, incorporated herein by reference, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements and schedules of A-R Cable Services,
Inc. and its subsidiaries as of December 31, 1994 and 1993 and for each of the
years in the three-year period ended December 31, 1994 that are incorporated by
reference in this Consent Solicitation Statement/Prospectus have been
incorporated herein by reference in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of the Partnership as of December 31,
1994 and 1993 and for each of the years in the three-year period ended December
31, 1994 that are included in this Consent Solicitation Statement/Prospectus
have been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, included herein, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of American Movie Classics Company as of and for
the years ended December 31, 1993 and 1992 that are included in this Consent
Solicitation Statement/Prospectus have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
included herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Monmouth Cablevision Associates, Riverview
Cablevision Associates, L.P. and Framingham Cablevision Associates, Limited
Partnership, each as of and for the years ended December 31, 1993 and 1992 that
are included in this Consent Solicitation Statement/Prospectus have been
included herein in reliance upon the report of Deloitte & Touche LLP,
independent auditors, included herein, and upon the authority of said firm as
experts in accounting and auditing.
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GLOSSARY
This Glossary section defines certain key terms used in this Consent
Solicitation State-ment/Prospectus:
Affiliate Claims. Outstanding subordinated debt and advances, management
fees and accrued and unpaid interest thereon held by members of the GP Group and
the Cablevision Group.
Agent. Bank of Boston, the agent for the collection and tabulation of the
Incorporation Consents and the escrow agent for the Merger Consents.
ASE. The American Stock Exchange.
Assets. Substantially all of the assets held by the Partnership prior to
the consummation of the Incorporation, including the Boston System and the
Partnership's 99% limited partnership interest in Brookline.
Average Cablevision Stock Price. The arithmetic average of the closing
price per share of the Cablevision Class A Common Stock on the ASE for the 20
trading days ending on the second trading day prior to the Effective Date.
Banks. The lenders under the Original Loan Agreement and the Loan
Agreement.
Boston License. The 15-year, nonexclusive franchise issued by the City of
Boston in 1982 and expiring in 1997 and presently held by the Partnership.
Boston Sub. The new corporation established as the Incorporation vehicle
and a wholly-owned subsidiary of the Partnership.
Boston Sub Shares. The shares of common stock of Boston Sub.
Boston System. The Partnership's cable television system in the City of
Boston.
Brookline. Cablevision of Brookline Limited Partnership, a Massachusetts
limited partnership of which 99% is held by the Partnership as its limited
partner and 1% is held by Dolan and CSBrC as general partners.
Brookline License. The 15-year nonexclusive franchise issued by the Town of
Brookline in 1982 and expiring in 1997 presently held by Brookline.
Brookline System. Brookline's cable television system in the Town of
Brookline.
Cablevision. Cablevision Systems Corporation, a Delaware corporation.
Cablevision Class A Common Stock. Class A Common Stock, par value $0.01 per
share, of Cablevision.
Cablevision Class B Common Stock. Class B Common Stock, par value $0.01 per
share, of Cablevision.
Cablevision Finance. Cablevision Finance Limited Partnership, a
wholly-owned subsidiary of Cablevision.
Cablevision Finance Full Contractual Rights. The rights conferred on
Cablevision Finance pursuant to the terms of the instruments relating to the
Preferred Equity held by it, including (i) the right to payment of the full
amounts contributed to the Partnership in respect of its Preferred Equity; (ii)
any unpaid cumulative distributions at the rate of 15% per annum, compounded
semi-annually; (iii) the right to a payment of (i) and (ii) out of funds legally
available for distribution to Partners, prior to any distribution to Partners;
and (iv) the right to receive 20% of all amounts available for post-Payout
distributions.
Cablevision Governing Documents. Cablevision's Restated Certificate of
Incorporation and By-Laws.
The Cablevision Group. Cablevision and its subsidiaries. Only Cablevision
and Cablevision Finance, however, hold liabilities of or interests in the
Partnership.
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Cablevision Special Committee. A special committee of the Board of
Directors of Cablevision, composed entirely of directors of Cablevision who were
elected by holders of Cablevision's Class A Common Stock and who are not
employees of Cablevision.
Code. The Internal Revenue Code of 1986, as amended.
Commission. The Securities and Exchange Commission.
Consent Solicitation Statement/Prospectus. This Consent Solicitation
Statement/Prospectus.
CSBC. Cablevision Systems Boston Corporation, a Massachusetts corporation
wholly-owned by Dolan, and a General Partner of the Partnership.
CSBrC. Cablevision Systems Brookline Corporation, a Delaware corporation
wholly-owned by Dolan, and a General Partner of Brookline.
CSSC. Cablevision Systems Services Corporation, a New York corporation
wholly-owned by Dolan that, among other things, provides management services to
the Related Partnerships.
CSSC Full Contractual Rights. The rights conferred on CSSC pursuant to the
terms of the instruments relating to the Preferred Equity held by it, including
(i) the right to payment of the full amounts contributed to the Partnership in
respect of its Preferred Equity; (ii) any unpaid cumulative distributions
thereon at the rate of 15% per annum, compounded semi-annually; and (iii) the
right to payment of (i) and (ii) out of funds legally available for distribution
to Partners, prior to any distribution to Partners. The right to payment of (i)
is subordinate to the payment of the full amounts contributed to the Partnership
in respect of Cablevision Finance's Preferred Equity.
DGCL. The Delaware General Corporation Law.
DLJ. Donaldson Lufkin & Jenrette Securities Corporation.
Dolan. Charles F. Dolan, the managing general partner of the Partnership
and Brookline and the Chairman of Cablevision.
Dolan Loan. A subordinated loan of $2.7 million due September 30, 1990 made
to the Partnership by Dolan in 1988.
Effective Time. The time of the filing of a certificate of merger with
respect to the Merger with the Secretary of State of the State of Delaware in
accordance with the DGCL.
Exchange Act. The Securities Exchange Act of 1934, as amended.
Exchange Units. The units of limited partnership interests in the
Partnership arising from the six-for-one split of the Original Units.
FCC. The Federal Communications Commission.
FTC. The Federal Trade Commission.
Full Contractual Rights. Cablevision Finance Full Contractual Rights and
CSSC Full Contractual Rights.
General Partners. The two general partners of the Partnership, Dolan and
CSBC.
The GP Group. The General Partners and their affiliates, other than any
member of the Cablevision Group. Only Dolan, CSBC and CSSC, however, hold
liabilities of, or interest in, the Partnership.
HBO. Home Box Office, Inc.
HBO Note. A 14% subordinated demand note evidencing the Related
Partnerships' liability to HBO.
Incorporation. The transfer of the Assets and all of the liabilities of the
Partnership to Boston Sub. Boston Sub is a wholly-owned subsidiary of the
Partnership. Accordingly, after the consummation of the Incorporation and prior
to the consummation of the Merger, the Partnership will hold all the outstanding
stock in Boston Sub as its sole asset.
Incorporation Concessions. The following concessions agreed to by members
of the Cablevision Group and the GP Group in connection with the consummation of
the Incorporation: (i) the reduction,
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effective from and after the date of the Incorporation, in the rate of
cumulative distributions on the Preferred Equity from 15% to 10%; and (ii) the
10% reduction in the aggregate amount of the then unpaid cumulative
distributions on the Preferred Equity.
Incorporation Consent. Limited Partners' consent and approval of the
Incorporation by completing, signing and dating the requisite form.
Incorporation Expiration Date. 5:00 p.m., New York time, on November 21,
1995, as extended from time to time.
IRS. The Internal Revenue Service.
Limited Partners. The investors holding one or more Units in the
Partnership.
Limited Partners Allocation. Cablevision Class A Common Stock with an
expected market value (based on the Average Cablevision Stock Price) of
approximately $40.0 million (or approximately $10,000 per Unit held by Limited
Partners other than Cablevision, and $9,000 per Unit held by Cablevision), less
$10,000 times the number of Units as to which appraisal rights are perfected,
allocated to the Limited Partners in the Liquidation as provided in the Merger
Agreement.
Liquidation. The dissolution and liquidation of the Partnership immediately
after the consumma-tion of the Merger.
Loan Agreement. The existing loan agreement among the Partnership and the
Banks, as amended. Presently the Fourth Amended and Restated Loan Agreement,
dated as of September 30, 1991, as amended, is in effect.
Majority of the Limited Partners. Limited Partners who are not affiliates
of the General Partners then entitled to 50% or more of the Net Profits and Net
Losses (as defined in the Partnership Agreement) of the Partnership allocated to
all such unaffiliated Limited Partners.
Merger. The merger of a wholly-owned subsidiary of Cablevision with and
into Boston Sub pursuant to which the Partnership will receive shares of
Cablevision Class A Common Stock in exchange for shares of capital stock of
Boston Sub.
Merger Agreement. The Acquisition Agreement and Plan of Merger and
Reorganization Relating to Cablevision of Boston Limited Partnership, dated as
of June 14, 1994, among Cablevision, the Partnership and certain other parties.
Merger Consent. Limited Partners' consent and approval of the Merger
Agreement and the Merger by completing, signing and dating the requisite form.
Merger Expiration Date. 5:00 p.m., New York time, on November 28, 1995, as
extended from time to time.
MULPA. The Uniform Limited Partnership Act of the Commonwealth of
Massachusetts.
New Units. The additional 575 units of Limited Partnership interests in the
Partnership issued in 1983.
1984 Cable Act. The Cable Communications Policy Act of 1984.
1992 Cable Act. The Cable Television Consumer Protection and Competition
Act of 1992.
Original Holder. A Limited Partner who is an individual and who is an
original holder of a Unit.
Original Loan Agreement. The Amended and Restated Loan Agreement, dated
December 15, 1982, between the Partnership and the Banks.
Original Units. The 575 units of Limited Partnership interests in the
Partnership sold pursuant to the Private Offering Memorandum, dated October 8,
1982.
PaineWebber. PaineWebber Incorporated, New York, New York, the independent
financial advisor to the General Partners.
Partners. The General Partners and the Limited Partners.
Partners Allocation. Cablevision Class A Common Stock with an expected
market value (based on the Average Cablevision Stock Price) of approximately
$40.4 million, less $10,000 times the number of
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Units for which appraisal rights are perfected, allocated to the Partners in the
Liquidation as provided in the Merger Agreement.
Partnership. Cablevision of Boston Limited Partnership, a Massachusetts
limited partnership.
Partnership Agreement. The Partnership's Articles of Limited Partnership,
as amended to date.
Payout. The date on which the Limited Partners, in the aggregate, are
distributed the amount of their original investment in the partnership.
Preferred Equity. Preferred equity in the Partnership.
Preferred Equity Allocation. The amount allocated to the Preferred Equity
Interests in the Liquidation as provided in the Merger Agreement.
Preferred Equity Interests. The face amount of the Preferred Equity and the
cumulative distributions thereon.
Registration Statement. This registration statement on Form S-4.
Related Partnerships. Collectively, the Partnership and Brookline.
Securities Act. The Securities Act of 1933, as amended.
Subsequent Holder. A Limited Partner who acquired his interest in the
Partnership through a purchase or other transfer from a prior Limited Partner.
Transactions. Collectively, the Incorporation and the Merger.
Units. Collectively, the Exchange Units and the New Units.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
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CABLEVISION OF BOSTON LIMITED PARTNERSHIP AND CONSOLIDATED COMPANY:
Independent Auditor's Report............................................................................... F-3
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1994 and 1993............................................... F-4
Consolidated Statements of Operations, Years Ended December 31, 1994, 1993 and 1992................... F-5
Consolidated Statements of Partners' Deficiency, Years Ended December 31, 1994, 1993 and 1992......... F-6
Consolidated Statements of Cash Flows, Years Ended December 31, 1994, 1993 and 1992................... F-7
Notes to Consolidated Financial Statements............................................................ F-8
Interim Unaudited Consolidated Financial Statements:
Consolidated Statements of Operations, Six Months Ended June 30, 1995 and 1994........................ F-16
Consolidated Balance Sheet, June 30, 1995............................................................. F-17
Consolidated Statement of Partners' Deficiency, Six Months Ended June 30, 1995........................ F-18
Consolidated Statements of Cash Flows, Six Months Ended June 30, 1995 and 1994........................ F-19
Notes to Consolidated Financial Statements............................................................ F-20
MONMOUTH CABLEVISION ASSOCIATES:
Independent Auditor's Report............................................................................... F-23
Financial Statements:
Balance Sheets, December 31, 1993 and 1992............................................................ F-24
Statements of Operations, Years Ended December 31, 1993 and 1992...................................... F-25
Statements of Cash Flows, Years Ended December 31, 1993 and 1992...................................... F-26
Statements of Partners' Deficiency, Years Ended December 31, 1993 and 1992............................ F-27
Notes to Financial Statements......................................................................... F-28
Interim Unaudited Financial Statements:
Balance Sheet, June 30, 1994.......................................................................... F-35
Statement of Operations, Six Months Ended June 30, 1994............................................... F-36
Statement of Partners' Deficiency, Six Months Ended June 30, 1994..................................... F-37
Statement of Cash Flows, Six Months Ended June 30, 1994............................................... F-38
RIVERVIEW CABLEVISION ASSOCIATES, L.P.:
Independent Auditor's Report............................................................................... F-39
Financial Statements:
Balance Sheets, December 31, 1993 and 1992............................................................ F-40
Statements of Operations, Years Ended December 31, 1993 and 1992...................................... F-41
Statements of Cash Flows, Years Ended December 31, 1993 and 1992...................................... F-42
Statements of Partners' Deficiency, Years Ended December 31, 1993 and 1992............................ F-43
Notes to Financial Statements......................................................................... F-44
Interim Unaudited Financial Statements:
Balance Sheet, June 30, 1994.......................................................................... F-50
Statement of Operations, Six Months Ended June 30, 1994............................................... F-51
Statement of Partners' Deficiency, Six Months Ended June 30, 1994..................................... F-52
Statement of Cash Flows, Six Months Ended June 30, 1994............................................... F-53
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP:
Independent Auditor's Report............................................................................... F-54
Financial Statements:
Balance Sheets, December 31, 1993 and 1992............................................................ F-55
Statements of Operations, Years Ended December 31, 1993 and 1992...................................... F-56
Statements of Partners' Deficiency, Years Ended December 31, 1993 and 1992............................ F-57
Statements of Cash Flows, Years Ended December 31, 1993 and 1992...................................... F-58
Notes to Financial Statements......................................................................... F-59
</TABLE>
F-1
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<TABLE>
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Interim Unaudited Financial Statements:
Balance Sheet, June 30, 1994.......................................................................... F-64
Statement of Operations, Six Months Ended June 30, 1994............................................... F-65
Statement of Partners' Deficiency, Six Months Ended June 30, 1994..................................... F-66
Statement of Cash Flows, Six Months Ended June 30, 1994............................................... F-67
AMERICAN MOVIE CLASSICS COMPANY (A GENERAL PARTNERSHIP):
Independent Auditor's Report............................................................................... F-68
Financial Statements:
Balance Sheets, December 31, 1993, 1992 and 1991...................................................... F-69
Statements of Income, Years Ended December 31, 1993, 1992 and 1991.................................... F-70
Statements of Partners' Capital (Deficiency), Years Ended December 31, 1993, 1992 and 1991............ F-71
Statements of Cash Flows, Years Ended December 31, 1993, 1992 and 1991................................ F-72
Notes to Financial Statements......................................................................... F-73
Interim Unaudited Financial Statements:
Balance Sheet, June 30, 1994.......................................................................... F-78
Statement of Operations, Six Months Ended June 30, 1994............................................... F-79
Statement of Partners' Deficiency, Six Months Ended June 30, 1994..................................... F-80
Statement of Cash Flows, Six Months Ended June 30, 1994............................................... F-81
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Cablevision of Boston Limited Partnership
We have audited the accompanying consolidated balance sheets of Cablevision
of Boston Limited Partnership and Consolidated Company as of December 31, 1994
and 1993, and the related consolidated statements of operations, partners'
deficiency and cash flows for each of the years in the three-year period ended
December 31, 1994. 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
of Boston Limited Partnership and Consolidated Company at December 31, 1994 and
1993, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1994 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Jericho, New York, March 10, 1995,
except as to Note 11, which is as of
April 14, 1995
F-3
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents (including restricted amounts of $2,220 and $3,130)........... $ 5,801 $ 4,845
Accounts receivable:
Subscribers (less allowance for doubtful accounts of $321 and $297)................ 2,294 2,616
Other.............................................................................. 945 612
Plant and equipment, net................................................................ 36,991 37,175
Deferred financing, acquisition and development costs (less accumulated amortization of
$3,581 and $3,214).................................................................... 2,180 1,722
Deposits and other assets............................................................... 477 597
--------- ---------
$ 48,688 $ 47,567
--------- ---------
--------- ---------
LIABILITIES AND PARTNERS' DEFICIENCY
Accounts payable........................................................................ $ 9,062 $ 7,351
Accrued liabilities:
Interest........................................................................... 1,478 1,408
Franchise fees..................................................................... 1,081 1,010
Insurance.......................................................................... 1,605 1,754
Payroll and related benefits....................................................... 2,408 2,119
Other.............................................................................. 2,822 1,518
Accounts payable to affiliates, net..................................................... 27,095 23,072
Amounts due to partners................................................................. 25,477 23,081
Bank debt............................................................................... 63,000 68,250
Capitalized lease obligations........................................................... 103 434
Subscriber deposits..................................................................... 2,220 3,130
--------- ---------
Total liabilities.................................................................. 136,351 133,127
--------- ---------
Commitments and contingencies
Preferred equity contributions.......................................................... 50,300 50,300
--------- ---------
Partners' deficiency:
General partners................................................................... (1,727) (1,706)
Limited partners (4,025 units outstanding)......................................... (136,236) (134,154)
--------- ---------
Total partners' deficiency......................................................... (137,963) (135,860)
--------- ---------
$ 48,688 $ 47,567
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Revenues........................................................................ $59,766 $58,081 $ 53,948
Less provision for subscriber refunds...................................... 527 -- --
------- ------- --------
Net revenues.......................................................... 59,239 58,081 53,948
------- ------- --------
Operating expenses:
Technical (including affiliate amounts of $846, $1,149, and $1,094)........ 26,749 26,675 23,901
Selling, general and administrative (including affiliate amounts of $4,042,
$3,956, and $3,541)...................................................... 17,119 16,673 15,444
Depreciation and amortization.............................................. 8,428 12,533 18,451
------- ------- --------
52,296 55,881 57,796
------- ------- --------
Operating income (loss)............................................... 6,943 2,200 (3,848)
Other income (expense):
Interest expense (including affiliate amounts of $4,175, $4,039, and
$3,793).................................................................. (8,955) (8,913) (9,076)
Interest income............................................................ 216 171 106
Miscellaneous, net......................................................... (307) (250) (180)
------- ------- --------
Net loss........................................................................ $(2,103) $(6,792) $(12,998)
------- ------- --------
------- ------- --------
Net loss allocated to:
General partners........................................................... (21) (68) (130)
Limited partners........................................................... (2,082) (6,724) (12,868)
------- ------- --------
Net Loss.............................................................. $(2,103) $(6,792) $(12,998)
------- ------- --------
------- ------- --------
Net loss per limited partnership unit (4,025 units)............................. $ (517) $(1,671) $ (3,197)
------- ------- --------
------- ------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Balance December 31, 1991.................................................... $(1,508) $(114,562) $(116,070)
Net loss..................................................................... (130) (12,868) (12,998)
--------- --------- ---------
Balance December 31, 1992.................................................... (1,638) (127,430) (129,068)
Net loss..................................................................... (68) (6,724) (6,792)
--------- --------- ---------
Balance December 31, 1993.................................................... (1,706) (134,154) (135,860)
Net loss..................................................................... (21) (2,082) (2,103)
--------- --------- ---------
Balance December 31, 1994.................................................... (1,727) (136,236) (137,963)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................. $ (2,103) $ (6,792) $(12,998)
-------- -------- --------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization....................................... 8,428 12,533 18,451
(Gain) loss on disposal of equipment................................ (21) (3) 15
Amortization of deferred financing costs............................ 109 108 107
Changes in assets and liabilities:
Decrease (increase) in accounts receivable -- subscribers...... 322 (562) 59
Decrease (increase) in accounts receivable -- other............ (333) (221) 10
Decrease (increase) in deposits and other assets............... 120 (146) (76)
Increase in accounts payable................................... 1,711 1,322 210
Increase in accrued liabilities................................ 1,585 1,025 354
Increase in accounts payable to affiliates, net................ 4,023 3,591 2,003
Increase (decrease) in subscriber deposits..................... (910) (401) 208
-------- -------- --------
Total adjustments......................................... 15,034 17,246 21,341
-------- -------- --------
Net cash provided by operating activities................. 12,931 10,454 8,343
-------- -------- --------
Cash flows from investing activities:
Capital expenditures..................................................... (8,022) (8,664) (9,254)
Net change in restricted cash............................................ 910 401 (208)
Proceeds from sale of equipment.......................................... 57 438 14
-------- -------- --------
Net cash used in investing activities..................... (7,055) (7,825) (9,448)
-------- -------- --------
Cash flows from financing activities:
Advances from partner.................................................... 2,396 1,515 2,244
Additions to bank debt................................................... 5,000 3,750 5,000
Repayment of bank debt................................................... (10,250) (6,750) (5,500)
Additions to deferred financing, acquisition and development costs............ (825) (90) (30)
Payment of capital lease obligations..................................... (331) (570) (450)
-------- -------- --------
Net cash provided by (used in) financing activities....... (4,010) (2,145) 1,264
-------- -------- --------
Net increase in unrestricted cash and cash equivalents........................ 1,866 484 159
Unrestricted Cash and cash equivalents at beginning of year................... 1,715 1,231 1,072
-------- -------- --------
Unrestricted Cash and cash equivalents at end of year......................... $ 3,581 $ 1,715 $ 1,231
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
1. The Company
Cablevision of Boston Limited Partnership (the 'Company') is a
Massachusetts limited partnership organized in 1981 for the purpose of
constructing and operating a cable television system in the City of Boston,
Massachusetts (the 'City'). The partnership will terminate December 31, 2050,
unless earlier termination occurs as provided in the partnership agreement, as
amended (the 'Partnership Agreement').
The limited partnership consists of two general partners (one individual
who is the managing general partner and one corporation, which is owned by the
managing general partner) and two categories of limited partners. The corporate
general partner contributed the provisional license to the Company. The final
license (the 'Boston License') was granted to the Company in December 1982. The
individual general partner holds directly or indirectly a 1% prepayout general
partnership interest and a 23.5% postpayout general partnership interest in the
Company. Cablevision Systems Corporation ('CSC'), a corporation which is
controlled by the individual general partner of the Company, is a limited
partner of the Company. A second category of limited partners contributed cash
totaling $39,959. In 1984, CSC purchased for $2,538 an approximate 7% prepayout
(4.2% postpayout) interest in this second category of limited partners; for its
financial assistance to the Company, CSC also received a 16.5% postpayout
partnership interest in the Company giving CSC a 20.7% postpayout interest in
the aggregate. The partners participate in the profits and losses in accordance
with the Partnership Agreement.
The Company has a 99% limited partnership interest in Cablevision of
Brookline Limited Partnership ('Brookline') which owns and operates a cable
television system in the Town of Brookline, Massachusetts (the 'Town'). The
managing general partner of Brookline is the same as that of the Company. The
individual general partner of the Company holds a 1% general partnership
interest in Brookline.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and Brookline. All significant intercompany balances and transactions have been
eliminated in consolidation. The Company and Brookline are collectively referred
to as the 'Related Companies' and are subject to common financing arrangements.
Revenue Recognition
The Related Companies recognize revenues as cable television services are
provided to subscribers.
Plant and Equipment
Plant and equipment, including construction materials, are recorded 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.
Deferred Acquisition and Development Costs
Costs incurred to acquire cable television franchises and expenses incurred
during the initial development period were deferred until the date the first
subscriber was connected. Such costs are being amortized on a straight-line
basis over the remaining life of the 15-year franchise.
F-8
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(CONTINUED)
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized on a straight-line
basis over the term to maturity of the related debt.
Income Taxes
The Related Companies operate as limited partnerships. Accordingly, their
taxable income or loss is includable in the tax returns of the partners and no
provision for income taxes is made on the books of the Related Companies. At
December 31, 1994, the carrying amount of net assets for financial statement
purposes was greater than their tax bases by approximately $15,048.
Restricted Cash
In accordance with the provisions of the Boston License, cash received as
deposits from subscribers is restricted from use in the general operations of
the Company.
Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all 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 $4,601, $4,730 and $5,412 during the years ended
December 31, 1994, 1993 and 1992, respectively. During 1992, the Company's
noncash investing and financing activities included capital lease obligations of
approximately $608 incurred when the Company entered into leases for new
equipment.
3. Plant and Equipment
Plant and equipment consist of the following items, which are depreciated
on a straight-line basis over the estimated useful lives shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- ESTIMATED
1994 1993 USEFUL LIVES
-------- -------- --------------
<S> <C> <C> <C>
Cable television transmission and distribution systems:
Converters....................................................... $ 24,305 22,690 4 years
Headends......................................................... 5,714 5,677 9 years
Distribution systems............................................. 150,901 145,800 10 years
Program, service and test equipment.............................. 4,769 4,620 4 years
Construction in progress (including materials and supplies)...... 338 239
Furniture and fixtures................................................ 721 679 10 years
Office equipment...................................................... 2,231 2,148 5 years
Vehicles.............................................................. 4,155 3,896 4 to 5 years
Leasehold improvements................................................ 1,702 1,689 Term of lease
-------- --------
194,836 187,438
Less accumulated depreciation and amortization........................ 157,845 150,263
-------- --------
$ 36,991 $ 37,175
-------- --------
-------- --------
</TABLE>
F-9
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(CONTINUED)
4. Debt
Bank Debt
On September 30, 1991, the Company entered into the Fourth Amended and
Restated Loan Agreement (the 'Loan Agreement') with a group of banks (The
Toronto-Dominion Bank Trust Company as Agent Bank). The Loan Agreement permits
maximum bank indebtedness, including letters of credit, of $69,000 at December
31, 1994, incorporates semi-annual commitment reductions and matures on June 30,
1999. As of December 31, 1994 the Company had borrowed $63,000 under the Loan
Agreement, and approximately $224 was restricted for certain letters of credit
issued for the Company. Borrowings under the Loan Agreement bear interest at
varying rates above the Agent Bank's base rate, CD or LIBOR rate, depending on
the ratio of senior debt to cash flow, as defined in the Loan Agreement. The
Company is required to fix interest rates on a portion of its bank debt through
maturity but has obtained a waiver until June 30, 1995. At December 31, 1994,
the weighted average interest rate on all bank indebtedness approximated 7.1%.
Amounts payable during the five years subsequent to December 31, 1994 under
the Loan Agreement amount to $8,000 in 1995; $17,000 in 1996; $16,000 in 1997;
$14,000 in 1998; and $8,000 in 1999.
Substantially all of the assets of the Related Companies have been pledged
to secure borrowings under the Loan Agreement.
The Loan Agreement contains various restrictive covenants, among which are
the maintenance of certain financial ratios, limitations regarding certain
transactions by the Company, and limitations on levels of permitted capital
expenditures. The Company was in compliance with all of the covenants of the
Loan Agreement at December 31, 1994.
5. Leases
Operating Leases
The Related Companies lease certain vehicles and office, production and
transmission facilities under terms of leases expiring at various dates through
1998. The leases provide for fixed annual rentals plus the payment of certain
real estate taxes and other costs. In addition, the Related Companies rent space
on utility poles in their operations. The Related Companies' pole-rental
agreements are for varying terms and management anticipates renewals as they
expire. Rent expense for the years ended December 31, 1994, 1993 and 1992 was
approximately $1,881, $1,561 and $1,494, respectively.
The minimum future annual rentals as of December 31, 1994 for
noncancellable operating leases, including pole rentals through 1999, and
thereafter, at rates currently in force were approximately: 1995, $1,393; 1996,
$1,383; 1997, $1,305; 1998, $895; 1999, $331; thereafter, $0.
6. Affiliate Transactions
The Related Companies have management services agreements with Cablevision
Systems Services Corporation ('CSSC'), a corporation wholly-owned by the
individual general partner of the Related Companies. These agreements provide
for the payment of a fee, in addition to expense reimbursement, equal to 3 1/2%
of gross receipts until Payout is achieved, 5% thereafter until two times
Payout, and 6% thereafter. 'Payout' means the date on which the limited partners
are distributed the amount of their original investment. These agreements are
renewable indefinitely at the option of CSSC. Payment of such fees (together
with accrued interest) is subject to a subordination agreement with the
Company's banks. The Loan Agreement permits a maximum of $5,700 of subordinated
debt and management fees
F-10
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(CONTINUED)
and interest thereon to be repaid. In 1992, an aggregate of $1,500 representing
interest on unpaid management fees was paid, thereby reducing the maximum amount
permitted to be paid on subordinated debt and management fees to $4,200.
Interest accrues on the unpaid balance at the Company's borrowing rate plus 1%.
Salaries and expenses attributable to management services may be reimbursed by
the Company subject to certain limitations under the Loan Agreement. Pursuant to
these agreements, selling, general and administrative expenses include
approximately, $2,092, $2,069 and $1,928 for management fees payable to CSSC in
1994, 1993 and 1992, respectively. For 1994, 1993 and 1992, the Related
Companies accrued approximately $1,533, $1,360 and $1,349, respectively, for
interest on unpaid management fees.
During March of 1986, CSSC assumed approximately $2,009 of the Related
Companies' liability to Home Box Office, Inc., in exchange for the Related
Companies' 14% subordinated note, payable on demand. During 1990, $1,900 of this
note was exchanged for preferred equity (see Note 7). Payment of this note and
accrued interest thereon is subject to a subordination agreement with the
Company's banks. Interest accrues on the unpaid balance of interest at the rate
of 14% per year. At December 31, 1994 and 1993, the unpaid balance of the note
plus accrued interest amounted to $3,265 and $2,842. Interest accrued on this
note in 1994, 1993, and 1992 amounted to approximately $423, $370 and $321,
respectively.
At December 31, 1994 and 1993, the total amount owing CSSC, including
accrued interest, was approximately $26,589 and $22,541, respectively, and is
included in accounts payable to affiliates in the accompanying consolidated
balance sheets.
CSSC has an agreement with an unaffiliated program supplier allowing all
cable systems managed by or affiliated with CSSC to offer certain programming to
their subscribers. The contract is for a ten-year period and requires minimum
yearly payments escalating to approximately $13,399 in 1994. Each of the cable
systems offering this program service to its subscribers under the agreement,
including the Related Companies, pays its proportionate share of the minimum
yearly payment based on relative subscriber levels. Charges to the Related
Companies, included in technical expenses, in 1994, 1993, and 1992 in respect of
the agreement were approximately $2,366, $2,317, and $2,303, respectively.
During 1994, 1993 and 1992, CSC or its affiliates provided the Related
Companies with certain programming and incurred expenses on behalf of the
Related Companies (pursuant to an agreement with CSSC which authorizes CSC to
render management and administrative services to the Related Companies). Amounts
included in technical expenses for certain programming provided by these
affiliates were $846, $1,149, and $1,094, during 1994, 1993 and 1992,
respectively. Amounts included in selling, general and administrative expenses
for administrative services provided by CSC were $1,950, $1,887, and $1,613,
during 1994, 1993 and 1992, respectively. In addition, prior to 1988, CSC made
secured subordinated loans to the Company. Loans from CSC bear interest at a
rate of 10.5% compounded semi-annually and are due on demand. The Company
accrued approximately $2,072, $2,182, and $2,012, of interest on amounts owing
to CSC in 1994, 1993 and 1992, respectively. At December 31, 1994, the total
principal payable to CSC on such loans amounted to $5,700 and cumulative accrued
interest thereon aggregated $14,616.
At December 31, 1994 and 1993, the total amount owed CSC, net of current
receivables, including the loans and accrued interest mentioned above, amounted
to approximately $24,344 and $22,095, respectively (of which approximately
$24,381 and $22,309 is subordinated to the bank debt) and is included in amounts
due to partners in the accompanying consolidated balance sheets. At December 31,
1994 and 1993 the net amount owed certain programming and other affiliates was
$506 and $531, respectively, which is included in accounts payable to affiliates
in the accompanying consolidated balance sheets.
F-11
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(CONTINUED)
In 1988, the individual general partner of the Company made a subordinated
loan to the Company of $2,700 due September 30, 1990 with interest at 14%. As of
December 31, 1990, the entire principal balance of the Loan had been exchanged
for preferred equity (see Note 7). Payment of the loan and accrued interest
thereon was subject to a subordination agreement with the Company's banks.
Interest accrues on the unpaid balance of interest at the rate of 14% per year.
The Company accrued approximately $147, $127 and $111 of interest on this
subordinated loan and unpaid interest thereon in 1994, 1993 and 1992,
respectively. Cumulative accrued unpaid interest, amounting to approximately
$1,133 and $986 at December 31, 1994 and 1993, respectively, is included in
amounts due to partners in the accompanying consolidated balance sheets.
7. Preferred Equity Contributions
Pursuant to a financing plan described in a memorandum provided to the
limited partners of the Company in April 1985, Cablevision Finance Limited
Partnership ('Cablevision Finance'), a wholly-owned subsidiary of CSC, exchanged
$8,000, $29,994 and $7,706 in 1988, 1986 and 1985, respectively, of advances and
accrued interest thereon for preferred equity in the Company in return for (i)
cumulative distributions equal to an annual rate of 15% (compounded
semi-annually) on its investment, (ii) the right to a priority return of the
equity investment and any amounts of unpaid cumulative distributions whenever
the Company has funds available for distribution to partners within the limits
permitted by the Loan Agreement, and (iii) the right to receive 20% of all
amounts available for postpayout distribution. In 1990 and 1989, the individual
general partner of the Company exchanged $2,450 and $2,150, respectively, of
advances and a subordinated note for preferred equity in the Company having the
same terms as Cablevision Finance's preferred equity except that the individual
general partner of the Company does not have a right to share in any amounts
available for postpayout distribution. At December 31, 1994 and 1993,
approximately $105,994 and $84,947, respectively, of cumulative unpaid
distributions are not reflected in the accompanying consolidated financial
statements.
8. Benefit Plans
The Related Companies and other affiliates of CSC were participants in a
defined contribution pension plan covering substantially all employees of CSC
and its affiliates. The Related Companies contributed three percent of eligible
employees' annual compensation, as defined, and employees could voluntarily
contribute up to ten percent of their annual compensation.
Effective January 1, 1993, the Board of Directors of CSC approved the
adoption of an amended and restated Pension and 401(K) Savings Plan, in part to
permit employees of CSC and its affiliates to make contributions to the plan on
a pre-tax salary reduction basis in accordance with the provisions of Section
401(K) of the Internal Revenue Code, and to introduce new investment options
under the plan. The Related Companies contribute 1 1/2% of eligible employees'
annual compensation, as defined, to the defined contribution portion of the plan
(the 'Pension Plan') and an equivalent amount to the Section 401(K) portion of
the plan (the 'Savings Plan'). Employees may voluntarily contribute up to 15% of
eligible compensation, subject to certain restrictions, to the Savings Plan,
with an additional matching contribution by the Related Companies of 1/4 of 1%
for each 1% contributed by the employee, up to a maximum contribution by the
Related Companies of 1/2 of 1% of eligible base pay. Employee contributions are
fully vested as are employer base contributions to the Savings Plan. Employer
contributions to the Pension Plan and matching contributions to the Savings Plan
become vested in years three through seven. Pension expense for 1994, 1993 and
1992 was approximately $227, $311, and $200, respectively.
F-12
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(CONTINUED)
9. Commitments
Pursuant to the terms of the Boston License, as amended, an independent
nonprofit corporation known as the Boston Community Access and Programming
Foundation, Inc. (the 'Foundation') manages access to designated system channels
by community groups and individuals. The Company is obligated to pay minimum
fees to the Foundation in the amount of $650 per year, subject to certain
adjustments. Approximately $932, $939, and $761 was paid in 1994, 1993 and 1992,
respectively, under this agreement.
Brookline funds an independent, nonprofit corporation, the Brookline
Community Trust, Inc. (the 'Community Trust'), established for the purpose of
managing access by community groups and individuals to designated Brookline
System channels, facilities and equipment. The Community Trust is funded by a
series of annual grants made by increasing to approximately $106 due in each of
1993 through 1997. The aggregate 15-year contribution will be approximately
$1,400. Payments to the Community Trust amounted to approximately $106, $106 and
$92 in 1994, 1993 and 1992, respectively.
The Company does not provide postretirement benefits to any of its
employees.
10. Recent Development
On June 14, 1994, CSC and the Company entered into an agreement which is
designed to give CSC full ownership of the Company. The agreement provides for
the acquisition by CSC of the interests of the Company which it does not already
own in a series of transactions. CSC and the Company have filed with the
Securities and Exchange Commission a Consent Solicitation Statement/Prospectus
with respect to the proposed transactions.
Each of the transactions is subject to a number of conditions, including
the approval by the limited partners of the Company who are unaffiliated with
the general partners of the Company. Consummation of the transactions would
result in the limited partners in the Company receiving CSC Class A Common Stock
with an expected aggregate market value of approximately $40,000 (approximately
$10,000 per unit of limited partnership interest in the Company). This amount
represents 100% of the per unit amounts originally invested in the Company by
each unaffiliated limited partner.
11. FCC Matters
In October 1992, the Congress of the United States passed the Cable
Television Consumer Protection and Competition Act of 1992 (the '1992 Cable
Act') which among other matters, provides for the regulation of basic and
certain other cable programming services. In April 1993, the Federal
Communications Commission ('FCC') adopted regulations governing rates for basic
and certain other cable programming services which became effective September 1,
1993. Under the provisions of these regulations, certain revenues derived from
cable television are determined under either a 'benchmark' or 'cost of service'
method. Effective September 1, 1993 the Company's systems had set their rates
using the benchmark method which compares the Company's rates to those which are
in effect at cable systems deemed to face effective competition by the FCC.
In February 1994 and November 1994, the FCC significantly modified the
September 1993 rate regulations. These modifications were designed to further
reduce subscriber rates and most annual basic and cable programming service rate
increases (other than per-event and per-channel services), as well as to provide
cable television system operators financial incentive to introduce new
programming services. Although management implemented the rules in a manner it
believed to be consistent with the regulations promulgated by the FCC, on
December 22, 1994, the FCC's Cable Services Bureau (the
F-13
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(CONTINUED)
'Bureau') issued an order holding that the Company's Family Cable programming
package, which is currently offered on an unregulated basis, should have been
subject to rate regulation as of September 1, 1993. If the order is sustained on
appeal, it would require the Company to reduce the rates it charges for its
basic service tier and for its Metro Service package of programming services.
The Bureau's order also states that the Company would be liable for refunds, on
account of the order, for the difference between the rates charged for these
service packages and the rates that would have been charged for them if Family
Cable had been considered a regulated offering as of September 1, 1993.
The Company has filed a motion to ask the Bureau to reconsider its order.
On February 24, 1995, the Bureau ordered a stay of its order pending resolution
of the Company's motion for reconsideration. In April 1995, the FCC tentatively
agreed to terms proposed by the Company that would resolve issues raised by the
order and pending rate complaints against the Company. Under the terms, the
Company would not be required to make any further reduction in rates or any
additional subscriber refunds. The terms are subject to comment by certain
affected parties. The Company provided for refunds in 1994 of approximately $527
in compliance with a rate order made by the City of Boston.
12. Legal Proceedings
On October 5, 1994, the Company, was named as defendant in a complaint
against the Company, CSC, Charles F. Dolan, and other affiliates, primarily
relating to CSC's agreement with the Company to acquire the assets of the
Company in a series of transactions contemplated by an acquisition agreement and
plan of merger and reorganization among the parties named as defendants in the
complaint.
The action was brought on behalf of a purported class consisting of owners
of partnership units in the Company and seeks (i) to enjoin the proposed
transactions (or alternatively to rescind such proposed transactions if they are
not enjoined); (ii) compensatory damages; (iii) a declaratory judgment that
holders of preferred equity interests in the Company are not entitled to
cumulative distributions that have accrued thereon; (iv) an accounting to the
Company and its limited partners for all its operations to date; (v) a
declaration that the Company and other defendants have committed or aided and
abetted breaches of fiduciary duty; (vi) disbursements and costs of suit.
The Company, along with the other defendants, intends to defend the action
vigorously.
The Company is party to various other lawsuits, some involving substantial
amounts, arising in the ordinary course of its operations. Management does not
believe that the ultimate outcome of the lawsuit described above and other
lawsuits will have a material adverse impact on the financial position of the
Company.
F-14
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(CONTINUED)
13. Tax Information (Unaudited)
The following represents a reconciliation of the losses allocated to the
partners for financial reporting purposes and that utilized for tax purposes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------ ------- --------
<S> <C> <C> <C>
Losses allocated to partners for financial reporting purposes.................. $2,103 $ 6,792 $ 12,998
Depreciation and amortization adjustments for tax purposes..................... 406 (4,367) (11,512)
Other.......................................................................... 1,491 (3,038) (1,818)
------ ------- --------
Tax (income) loss allocable to partners........................................ $4,000 $ (613) $ (332)
------ ------- --------
------ ------- --------
Tax (income) loss allocated to general partners................................ $2,058 $(1,045) $ (318)
------ ------- --------
------ ------- --------
Tax (income) loss allocated to limited partners................................ $1,942 $ 1,658 $ 650
------ ------- --------
------ ------- --------
Tax (income) loss allocation per limited partnership unit...................... $ 483 $ 412 $ 161
------ ------- --------
------ ------- --------
</TABLE>
The Company's and Brookline's partnership agreements allocate partnership
income or loss 1% to general partners and 99% to the limited partners, subject
to certain adjustments. The Brookline partnership agreement further provides
that to the extent net losses are allocable to the limited partners which reduce
their capital accounts below zero, such net losses for income tax reporting
purposes will be allocated to the general partners. Future net profits of
Brookline will consequently first be allocated to the general partners to the
extent of any additional net losses allocated to them as a result of the above.
Subsequent net profits of Brookline will be allocated 1% to the general partners
and 99% to the limited partners. In 1985, cumulative net losses allocated to the
Brookline limited partners reduced their capital accounts to zero. As a result,
subsequent net losses of the Brookline partnership were allocated entirely to
the general partners for income tax reporting purposes.
F-15
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Revenues -- net............................................................................. $30,671 $29,713
-------- --------
Operating expenses:
Technical.............................................................................. 14,334 13,442
Selling, general and administrative.................................................... 9,510 8,462
Depreciation and amortization.......................................................... 4,421 4,022
-------- --------
28,265 25,926
-------- --------
Operating profit.................................................................. 2,406 3,787
-------- --------
Other expense:
Interest expense, net.................................................................. (5,235) (3,923)
Miscellaneous.......................................................................... (89) (92)
-------- --------
(5,324) (4,015)
-------- --------
Net income (loss)................................................................. $(2,918) $ (228)
-------- --------
-------- --------
Net income (loss) allocated to:
General partners....................................................................... (29) (2)
Limited partners....................................................................... (2,889) (226)
-------- --------
Net income (loss)................................................................. $(2,918) $ (228)
-------- --------
-------- --------
Net income (loss) per limited partnership unit (4,025 units)................................ $ (718) $ (56)
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1995
-----------
(UNAUDITED)
<S> <C>
ASSETS
Cash and cash equivalents (including restricted amounts of $2,015)................................... $ 5,967
Accounts receivable:
Subscribers (less allowance for doubtful accounts of $354)...................................... 2,165
Other........................................................................................... 601
Plant and equipment, net........................................................................ 35,863
Deferred financing, acquisition and other costs (less accumulated amortization of $3,765)....... 2,031
Deposits and other assets....................................................................... 470
---------
$ 47,097
---------
---------
LIABILITIES AND PARTNERS' DEFICIENCY
Accounts payable..................................................................................... $ 9,286
Accrued liabilities:
Interest........................................................................................ 1,428
Franchise fees.................................................................................. 1,212
Payroll and related benefits.................................................................... 3,274
Insurance....................................................................................... 1,557
Other........................................................................................... 2,821
Accounts payable to affiliates, net.................................................................. 29,642
Amounts due to partners.............................................................................. 26,410
Bank debt............................................................................................ 60,000
Capitalized lease obligations........................................................................ 33
Subscriber deposits.................................................................................. 2,015
---------
Total liabilities.......................................................................... 137,678
---------
Preferred equity contribution........................................................................ 50,300
---------
Partners' deficiency:
General partners................................................................................ (1,756)
Limited partners (4,025 units outstanding)...................................................... (139,125)
---------
Total partners' deficiency................................................................. (140,881)
---------
$ 47,097
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIENCY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- --------- ---------
<S> <C> <C> <C>
Balance December 31, 1994.................................................... $ (1,727) $(136,236) $(137,963)
Net Loss -- six months ended June 30, 1995.............................. (29) (2,889) (2,918)
-------- --------- ---------
Balance June 30, 1995........................................................ $ (1,756) $(139,125) $(140,881)
-------- --------- ---------
-------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................................ $(2,918) $ (228)
------- -------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization...................................................... 4,421 4,022
Amortization of deferred financing................................................. 55 55
Gain on disposal of equipment...................................................... (82) (24)
Change in assets and liabilities:
Decrease in accounts receivable subscribers................................... 129 212
Decrease (increase) in accounts receivable other.............................. 344 (220)
Decrease in deposits and other assets......................................... 7 147
Increase in accounts payable.................................................. 224 916
Increase in accrued liabilities............................................... 898 427
Increase in accounts payable to affiliates, net............................... 2,547 1,913
Decrease in subscriber deposits............................................... (205) (454)
------- -------
Total adjustments........................................................ 8,338 6,994
------- -------
Net cash provided by operating activities................................ 5,420 6,766
------- -------
Cash flows provided by (used in) investing activities:
Capital expenditures.................................................................... (3,370) (2,655)
Change in restricted cash............................................................... 205 454
Proceeds from sale of equipment......................................................... 288 31
------- -------
Net cash used in investing activities.................................... (2,877) (2,170)
------- -------
Cash flows from financing activities:
Advances from partner................................................................... 933 1,306
Proceeds from bank debt................................................................. 1,000 750
Reduction of bank debt.................................................................. (4,000) (5,000)
Additions to deferred financing, acquisition and development costs...................... (35) (625)
Repayment of capital lease obligations.................................................. (70) (211)
------- -------
Net cash used in financing activities.................................... (2,172) (3,780)
------- -------
Net increase in unrestricted cash and equivalents............................................ 371 816
Unrestricted cash and equivalents at beginning of year....................................... 3,581 1,715
------- -------
Unrestricted cash and equivalents at end of period........................................... $ 3,952 $ 2,531
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Principles of Consolidation
The consolidated financial statements include the accounts of Cablevision
of Boston Limited Partnership and its subsidiary, Cablevision of Brookline
Limited Partnership ('Brookline'). All significant intercompany balances and
transactions have been eliminated in consolidation. The above companies are
collectively referred to as the 'Company' or the 'Related Companies' and are
subject to common financing arrangements.
Note 2. Basis of Presentation
The accompanying unaudited consolidated financial statements 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 3. Responsibility for Interim Financial Statements
The consolidated financial statements as of June 30, 1995 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 unaudited consolidated financial statements presented herein should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
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, 1995.
Note 4. 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 $2,894,000 and $2,357,000 for the six months ended June 30, 1995
and 1994, respectively.
Note 5. Preferred Equity Contribution
Prior to 1989, Cablevision Finance Limited Partnership ('Cablevision
Finance'), a wholly-owned subsidiary of Cablevision Systems Corporation ('CSC'),
exchanged $45,700,000 of advances and accrued interest thereon for preferred
equity in the Company in return for (i) cumulative distributions equal to an
annual rate of 15% (compounded semi-annually) on its investment, (ii) the right
to a priority return of the equity investment and any amounts of unpaid
cumulative distributions whenever the Company has funds available for
distribution to partners within the limits permitted by the Company's loan
agreements, as amended, and (iii) the right to receive 20% of all amounts
available for postpayout distribution(s). As of June 30, 1995, Cablevision
Systems Services Corporation ('CSSC'), a corporation wholly-owned by the
individual general partner of the Company, had exchanged $4,600,000 of advances
for preferred equity having the same terms as Cablevision Finance's preferred
equity except that CSSC does not have a right to share in any amounts available
for postpayout distribution(s). At June 30, 1995, approximately $117,680,000 of
cumulative distributions were unpaid.
F-20
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 6. Recent Developments
On June 14, 1994, CSC, of which Charles F. Dolan ('Dolan') is the Chairman
and principal stockholder, and the Company entered into an agreement which is
designed to give CSC full ownership of the Company. The agreement provides for
the acquisition by CSC of the interests in the Company which it does not already
own in a series of transactions. CSC and the Company have filed with the
Securities and Exchange Commission a Consent Solicitation Statement/ Prospectus
with respect to the proposed transactions.
Each of the transactions is subject to a number of conditions, including
the approval by the limited partners of the Company who are unaffiliated with
the general partners of the Company. Consummation of the transactions would
result in (i) Dolan and Cablevision Systems Boston Corporation, the general
partners of the Company, receiving CSC Class A Common Stock aggregating
approximately $404,000 and cash aggregating approximately $18.9 million
(calculated as of December 31, 1994) from CSC; (ii) CSC and its affiliates
(other than the Company's general partners and their affiliates) receiving CSC
Class A Common Stock aggregating approximately $51.6 million (calculated as of
December 31, 1994) and assumption of indebtedness aggregating approximately
$37.8 million (calculated as of December 31, 1994); and (iii) the unaffiliated
limited partners in the Company receiving CSC Class A Common Stock with an
expected aggregate market value of approximately $37.25 million (approximately
$10,000 per unit of limited partnership interest in the Company). CSC owns 282
units of limited partnership interest and employees of CSC manage the operations
of the Company. The approximately $10,000 worth of CSC Class A Common Stock to
be received by each unaffiliated limited partner represents 100% of the per unit
amounts originally invested in the Company by each such unaffiliated limited
partner.
On October 5, 1994, the Company, Brookline and Cablevision of Boston, Inc.,
a wholly-owned subsidiary of the Company, were named as defendants in a
purported class action filed in Massachusetts Superior Court filed by Joel G.
Lippe against them and CSC, Dolan, Cablevision Systems Boston Corporation,
Cablevision Systems Brookline Corporation, CSSC, Cablevision Finance, and COB,
Inc. primarily relating to CSC's agreement with the Company to acquire the
assets of the Company in a series of transactions contemplated by an acquisition
agreement and plan of merger and reorganization among the parties named as
defendants in the complaint.
The action alleges breaches of fiduciary duty against certain defendants
and aiding and abetting breaches of fiduciary duty by other defendants in
connection with the issuance of the Company's preferred equity interests
allegedly in violation of the Company's Articles of Limited Partnership and in
connection with the negotiation of the proposed transactions, and seeks, among
other things (i) a declaration that the defendants have breached their fiduciary
duties to the Company's limited partners or aided and abetted such breaches of
fiduciary duties, (ii) a declaration that it would be a breach of fiduciary duty
for the defendants to cause the Company to pay themselves any distributions on
the Company's preferred equity interests because the preferred equity interests
were unlawfully issued to defendants, (iii) an order that the defendants provide
an accounting to the Company and limited partners for the Company's operations
prior to any liquidation, (iv) a preliminary and permanent injunction against
consummation of the proposed transactions, (v) rescission of the proposed
transactions if they are consummated or rescissory damages if they cannot be
rescinded, and (vi) compensatory damages. All defendants have answered the
complaint and intend to defend the action vigorously.
F-21
<PAGE>
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
AND CONSOLIDATED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 7. FCC Matters
On December 22, 1994, the FCC's Cable Services Bureau (the 'Bureau') issued
an order holding that the Company's Family Cable programming package, which was
offered on an unregulated basis, should have been subject to rate regulation as
of September 1, 1993. If the order were to have been sustained on appeal by the
FCC, it would have required the Company to reduce the rates it charges for its
basic service tier and for its Metro Service package of programming services.
The Bureau's order also stated that the Company would have been liable for
refunds, on account of the order, for the difference between the rates charged
for these service packages and the rates that would have been charged for them
if Family Cable had been considered a regulated offering as of September 1,
1993.
The Company filed a motion to ask the Bureau to reconsider its order. In
February 1995 the Bureau ordered a stay of its order pending resolution of the
Company's motion for reconsideration. In April 1995, the FCC tentatively agreed
to terms proposed by the Company that would resolve issues raised by the order
and pending rate complaints against the Company. Under the terms, the Company
would not be required to make any further reduction in rates or any additional
subscriber refunds. On August 7, 1995, the FCC issued an order adopting the
terms proposed by the Company.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Monmouth Cablevision Associates:
We have audited the accompanying financial statements of Monmouth
Cablevision Associates (a limited partnership) as of December 31, 1993 and 1992,
and for the years then ended, listed in the foregoing table of contents. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these 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, such financial statements present fairly, in all
material respects, the financial position of the Partnership at December 31,
1993 and 1992, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey,
April 28, 1994
(June 3, 1994 as to Note 9)
F-23
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
------------ ------------
<S> <C> <C>
Cash and cash equivalents........................................................ $ 492,872 $ 826,865
Accounts receivable, net of allowance for doubtful accounts of $111,249 in 1993
and $110,744 in 1992........................................................... 1,859,974 1,503,384
Prepaid expenses and other assets................................................ 476,380 458,909
Due from affiliate (Note 3)...................................................... 508,958 305,793
Investment in cable television systems, net of accumulated depreciation (Note
5)............................................................................. 36,067,056 35,045,261
Investment in Riverview Cablevision Associates, L.P. (Note 4).................... --
Cable television franchise costs, net of accumulated amortization of $58,944,243
in 1993 and $52,450,213 in 1992 ............................................... 16,432,757 22,845,688
Cost in excess of fair value of net assets acquired, net of accumulated
amortization of $3,280,932 in 1993 and $2,710,326 in 1992...................... 8,130,027 8,700,633
Deferred charges, primarily debt acquisition costs, net of accumulated
amortization of $654,884 in 1993 and $538,141 in 1992.......................... 498,495 615,238
------------ ------------
Total assets................................................................ $ 64,466,519 $ 70,301,771
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' DEFICIENCY
Liabilities:
Accounts payable and accrued expenses....................................... $ 6,489,060 $ 5,101,955
Due to affiliates (Note 3).................................................. 673,932 1,006,412
Debt (Note 6).................................................................... 100,100,000 112,120,355
------------ ------------
Total liabilities........................................................... 107,262,992 118,228,722
Commitments and Contingencies (Note 8)
------------ ------------
Partners' deficiency (Note 2).................................................... (42,796,473) (47,926,951)
------------ ------------
Total liabilities and partners' deficiency.................................. $ 64,466,519 $ 70,301,771
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-24
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Operating Revenues:
Basic subscriber fees......................................................... $39,229,478 $36,093,447
Premium programming fees...................................................... 13,311,270 13,261,159
Other......................................................................... 4,035,739 3,985,931
----------- -----------
56,576,487 53,340,537
----------- -----------
Operating Expenses (Note 3):
Programming................................................................... 13,988,883 13,616,096
Service....................................................................... 3,649,429 3,164,450
Selling, general and administrative........................................... 9,179,673 8,606,326
Management fees (Note 3)...................................................... 3,555,541 3,336,560
Depreciation and amortization................................................. 15,882,575 18,689,862
----------- -----------
46,256,101 47,413,294
----------- -----------
Operating Income......................................................... 10,320,386 5,927,243
Other income (expenses):
Interest expense.............................................................. (5,034,807) (6,584,051)
Gain on disposal of equipment................................................. 72,814 21,582
Other income (expense), net................................................... (227,915) (189,506)
----------- -----------
Net income (loss).................................................................. $ 5,130,478 $ (824,732)
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-25
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. $ 5,130,478 $ (824,732)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................ 15,882,575 18,689,862
Amortization of deferred charges......................................... 116,742 116,743
Gain on sale of equipment................................................ (72,814) (21,582)
Increase (decrease) in accounts payable and accrued expenses............. 1,387,106 (1,290,893)
(Increase) decrease in prepaid expenses and other assets................. (17,471) 662,149
Increase in due from affiliates.......................................... (203,165) (135,006)
(Increase) decrease in accounts receivable, net.......................... (356,590) 89,015
(Decrease) increase in due to affiliates................................. (332,480) 378,072
----------- -----------
Net cash provided by operating activities........................... 21,534,381 17,663,628
----------- -----------
Cash flows used in investing activities:
Capital expenditures.......................................................... (10,503,695) (8,624,087)
Increase in cable television franchise costs.................................. (81,099) (15,407)
Proceeds from sale of equipment............................................... 736,775 58,868
----------- -----------
Net cash used in investing activities............................... (9,848,019) (8,580,626)
----------- -----------
Cash flows used in financing activities:
Principal payments on debt.................................................... (12,020,355) (9,187,442)
----------- -----------
Net cash used in financing activities............................... (12,020,355) (9,187,442)
----------- -----------
Net decrease in cash and cash equivalents.......................................... (333,993) (104,440)
----------- -----------
Cash and cash equivalents at beginning of year..................................... 826,865 931,305
----------- -----------
----------- -----------
Cash and cash equivalents at end of year........................................... $ 492,872 $ 826,865
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during period for interest.......................................... $ 4,087,981 $ 6,923,054
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-26
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ------------ ------------
<S> <C> <C> <C>
Partners' deficiency, January 1, 1992............................... $(757,303) $(46,344,916) $(47,102,219)
Net loss............................................................ (8,247) (816,485) (824,732)
--------- ------------ ------------
Partners' deficiency, December 31, 1992............................. (765,550) (47,161,401) (47,926,951)
Net income.......................................................... 51,305 5,079,173 5,130,478
--------- ------------ ------------
Partners' deficiency, December 31, 1993............................. $(714,245) $(42,082,228) $(42,796,473)
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
See notes to financial statements.
F-27
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
1. Summary of Significant Accounting Policies
Formation of the Partnership
In 1978, the Monmouth Cablevision Associates (MCA or the 'Partnership')
limited partnership agreement was filed in the State of New Jersey. The term of
the limited partnership continues until terminated as provided for in the Second
Amended and Restated Agreement and Certificate of Limited Partnership (the
'Agreement'). MCA is engaged in the operation of cable television systems.
Investment in Cable Television Systems
Investment in cable television systems is stated at cost. Depreciation is
provided primarily by accelerated methods for additions prior to 1993. In 1993,
the Partnership changed its method of depreciating additions to the cable
television system to the straight-line method. The effect was to increase net
income by approximately $537,000. The estimated useful lives of the assets range
from four to twenty years.
Investment in Riverview Cablevision Associates, L.P.
MCA is a limited partner in Riverview Cablevision Associates, L.P. (RCA).
The Partnership owns, on a 'Pre Participation Basis' as defined in the
Partnership Agreement, approximately 29.90% of RCA. The investment is accounted
for using the equity method which is further discussed in Note 4.
Cable Television Franchise Costs
Costs incurred in obtaining cable television franchises are deferred and
amortized over the term of the franchise, which ranges from four to twelve
years, using the straight-line method.
Deferred Charges
Costs incurred to obtain financing for the Partnership are deferred and
amortized on a straight-line basis, over the term of the related debt.
Cost in Excess of Fair Value of Net Assets Acquired
The cost in excess of fair value of net assets acquired is being amortized
on the straight-line method over a twenty-year period.
Income Taxes
No provision has been made for income taxes, since such taxes are the
liability of the individual partners.
Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Capitalized Contract Labor
Contract labor charges associated with reconnecting new subscribers in
previously serviced homes are capitalized.
F-28
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Organization of the Partnership
The Partnership consists of the following:
General partners:
Cable Management of Monmouth, Inc. (CM)
Sutton Capital Associates of Monmouth, Inc. (SCM)
Joel Goldblatt (JG)
Limited partners:
Class B: Landmark Management, Inc. (Landmark)
Class E: Other Limited Partners
Class F: Other Limited Partners
Class J: Other Limited Partners
Class O: Other Limited Partners
The partners will generally share in income and loss in the following
manner:
<TABLE>
<CAPTION>
BEFORE AFTER
'PARTICIPATION 'PARTICIPATION
CHANGE' CHANGE'
--------------- ---------------
<S> <C> <C>
General Partners................................................ 1.00000% 33.34384%
Class B Limited Partner......................................... -- 11.11395%
Class E Limited Partners........................................ 45.41336% 18.18401%
Class F Limited Partners........................................ 27.06593% 10.83749%
Class J Limited Partners........................................ 10.57536% 10.57536%
Class O Limited Partners........................................ 15.94535% 15.94535%
</TABLE>
The 'Participation Change' will occur when the amounts distributed by the
Partnership to the Class E and Class F Limited Partners equal the amounts set
forth in the Agreement. Additional information regarding the allocation of
income and loss, distributions of cash, and gain, loss and distribution on
liquidation (including a sale of substantially all Partnership assets), as
defined, is set forth in the Agreement.
3. Related Party Transactions
Management, Operation and Financial Service Agreements
The Partnership entered into an agreement with CM under which CM provides
management and operational services for a fee of $18,000 annually or 3% of
adjusted gross revenues, as defined, whichever is greater. The Agreement has no
fixed expiration date. Expenses of $1,471,134 and $1,375,232 for the years ended
December 31, 1993 and 1992, respectively, have been included in the accompanying
financial statements. The Partnership owed CM $120,553 and $111,196 at December
31, 1993 and 1992, respectively.
The Partnership entered into an agreement with SCM to provide management
and financial services for a fee of $14,400 annually or 2% of adjusted gross
revenues, as defined, whichever is greater. The Agreement has no fixed
expiration date. Expenses of $983,157 and $919,225 for the years ended
F-29
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
December 31, 1993 and 1992, respectively, have been included in the accompanying
financial statements. The Partnership owed SCM $80,569 and $74,331 at December
31, 1993 and 1992, respectively.
The Partnership entered into an agreement with Landmark to provide
management and financial services for a fee of $7,200 annually or 1% of adjusted
gross revenues, as defined, whichever is greater. The Agreement has no fixed
expiration date. Expenses of $491,578 and $459,610 for the years ended December
31, 1993 and 1992, respectively, have been included in the accompanying
financial statements. The Partnership owed Landmark $40,284 and $37,165 at
December 31, 1993 and 1992, respectively.
Management Agreement
Effective January 1, 1988, the Partnership entered into an employment
agreement with JG to serve as general manager. The Agreement may be terminated
at the Partnership's option, and provides for compensation of 2.5% of the
Operating Cash Flow of the Partnership, as defined, but no less than $115,000
per year. The general manager's compensation charged to MCA for the years ended
December 1993 and 1992 and the related allocation is as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Operating expenses.................................................... $ 86,250 $ 87,179
Management fees....................................................... 609,672 582,493
-------- --------
Total....................................................... $695,922 $669,672
-------- --------
-------- --------
</TABLE>
The Partnership owed JG $144,078 and $-0- at December 31, 1993 and 1992,
respectively. The term of the employment agreement expired December 31, 1990.
However, the Partnership and JG have agreed that the provisions of the
employment agreement will remain effective pending the completion of a new
agreement.
Programming Expenses
The Partnership has an agreement with SCATV, Inc. (an affiliate of SCM) to
purchase Home Box Office (HBO) and Cinemax services. As a result of this, the
Partnership participates in certain favorable volume discounts available to
SCATV, Inc. and pays an administrative service charge to SCATV, Inc. Expenses of
$3,561,125 and $3,375,953 for the years ended December 31, 1993 and 1992,
respectively, have been included in the accompanying financial statements under
the agreement. The Partnership owed SCATV, Inc. $288,448 and $783,720 at
December 31, 1993 and 1992, respectively.
Common Costs
The Partnership shares certain common costs, primarily payroll and
construction costs, with RCA. MCA allocated $521,474 and $471,521 for the years
ended December 31, 1993 and 1992, respectively, to RCA and RCA owes MCA $457,023
and $290,532 as of December 31, 1993 and 1992, respectively. It is management's
intention to settle any balances at least annually.
F-30
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
4. Investment in RCA
Condensed financial information as of and for the years ended December 31,
1993 and 1992 pertaining to RCA is as follows:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Total assets (principally investment in cable television systems and
cable television franchise costs)...................................... $26,507,470 $30,997,197
Partners' deficiency..................................................... 10,646,811 10,026,620
Revenues................................................................. 21,792,358 21,379,835
Operating income......................................................... 2,469,777 1,965,093
----------- -----------
Net loss................................................................. $ 620,191 $ 1,458,458
----------- -----------
----------- -----------
</TABLE>
The excess of the cost of the Partnership's investment in RCA over its
share in the related underlying equity in net assets of RCA was attributed to
certain assets. The excess totaled $4,737,335 and was allocated as follows:
<TABLE>
<S> <C>
Investment in cable television systems.................................................... $ 360,038
Cable television franchise costs.......................................................... 1,800,187
Cost in excess of fair value of net assets acquired....................................... 2,577,110
----------
Total........................................................................... $4,737,335
----------
----------
</TABLE>
Such amounts were amortized over the then remaining useful lives of four to
six years. In accordance with the equity method of accounting, MCA only
recognized equity in net loss of RCA to the extent of their investment in RCA
because MCA is not committed to provide further financial support for RCA and,
therefore, its investment in RCA is $-0- at December 31, 1993 and 1992. MCA's
cumulative proportionate share of RCA's losses not recognized totaled $3,225,885
at December 31, 1993.
5. Investment in Cable Television System
Investment in cable television system at December 31, consists of the
following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Land..................................................................... $ 1,130,742 $ 1,130,742
Buildings................................................................ 2,881,047 2,689,895
Distribution system and equipment........................................ 88,087,359 81,731,958
Transportation equipment................................................. 1,672,763 1,616,079
Other property and equipment............................................. 8,722,044 7,664,806
----------- -----------
102,493,955 94,833,480
----------- -----------
----------- -----------
Less accumulated depreciation............................................ 69,605,057 61,844,479
----------- -----------
----------- -----------
32,888,898 32,989,001
----------- -----------
----------- -----------
Construction in progress................................................. 3,178,158 2,056,260
----------- -----------
Investment in cable television system -- net............................. $36,067,056 $35,045,261
----------- -----------
----------- -----------
</TABLE>
F-31
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
6. Debt
Debt at December 31 consists of the following:
<TABLE>
<CAPTION>
MATURITY INTEREST RATE 1993 1992 FINAL
- --------------- ------------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Loan agreement LIBOR + 1% $100,100,000 $112,100,000 1998 (a)
Other 8.5 -- 14% -- 20,355 1994
------------ -----------
Total $100,100,000 $112,120,355
------------ -----------
------------ -----------
</TABLE>
Under the terms of the loan agreement, all assets of the Partnership are
pledged as collateral. Additionally, the debt is secured by a pledge of the
general and limited partner interests, MCA's investment in RCA, and a pledge of
all the stock of the corporate general partners. Certain limited partners have,
under Direct Liability Agreements, assumed liability for a portion of the
outstanding indebtedness. The LIBOR rate at December 31, 1993 was 3.375%.
a. On March 31, 1988, the Partnership entered into a loan agreement with
National Westminister Bank USA (NAT WEST), as agent, for $135,000,000.
As of December 31, 1993, the Partnership has drawn down (net of
repayments) $100,100,000 under the loan agreement. The loan agreement
provides for payment of 3/8 of 1% per annum as a commitment fee, payable
quarterly on the unused balance of the credit agreement. The loan
commitment has reduced quarterly commencing on June 30, 1991 until final
maturity on March 31, 1998 in accordance with the credit agreement. The
Partnership is allowed to select interest rate pricing options which are
based upon prime, LIBOR or certificate of deposit rates plus an
applicable margin as set forth in the loan agreement.
Annual maturities on debt at December 31, 1993 are as follows (for purposes
of this table, it has been assumed that debt under the NAT WEST credit line
agreement will not exceed the amount outstanding at December 31, 1993):
<TABLE>
<S> <C>
1994................................................................ $ 4,418,750
1995................................................................ 22,275,000
1996................................................................ 28,687,500
1997................................................................ 35,437,500
1998................................................................ 9,281,250
------------
Total debt.......................................................... $100,100,000
------------
------------
</TABLE>
Interest Rate Protection
The Partnership has also entered into interest rate protection agreements
with various financial institutions. For the years ended December 31, 1993 and
1992, the Partnership incurred expenses of $226,223 and $1,436,408,
respectively, relating to these agreements. Such agreements provide for interest
cap rates as follows:
<TABLE>
<CAPTION>
PERIOD COVERED INTEREST
AMOUNT THROUGH CAP RATE
- ----------- ---------------- ---------
<S> <C> <C>
$22,500,000 January 28, 1996 7.00%
25,000,000 May 7, 1996 7.00%
</TABLE>
F-32
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
Restrictive Covenants
Under the terms of the debt agreements, the Partnership is restricted in
its ability to incur additional indebtedness and must comply with certain
covenants, including: maintaining specified levels of debt service coverage, as
defined; not exceeding maximum ratios of senior debt to annualized operating
cash flow; and not exceeding the maximum level of capital expenditures.
7. Income Taxes
As a result of the Partnership redeeming certain limited partners'
interests and utilizing different depreciation methods for income tax and
financial reporting purposes, the basis in investment in cable television
systems is different for financial reporting purposes and income tax purposes.
As a result, the net depreciated cost of investment in cable television systems
for income tax purposes is $31,729,751 and $30,193,572 at December 31, 1993 and
1992, respectively.
As a result of the Partnership redeeming certain limited partners'
interests, the basis in cable television franchise costs is different for
financial reporting purposes and income tax purposes. The amortized cost of
cable television franchise costs for income tax purposes is $6,466,299 and
$9,598,972 at December 31, 1993 and 1992, respectively.
8. Commitments and Contingencies
The Partnership is obligated under various operating leases through 1995.
Future minimum rental payments under operating leases at December 31, 1993 are
as follows:
<TABLE>
<S> <C>
1994.................................................................... $192,920
1995.................................................................... 203,920
--------
Total future minimum rental payments.......................... $396,840
</TABLE>
Rent expense for the years ended December 31, 1993 and 1992 was $191,443
and $147,689, respectively.
The Partnership received a letter of inquiry from the Federal
Communications Commission (FCC) regarding the sale of remote control devices. In
order to comply with the provisions of the 1992 Cable Television Consumer
Protection and Competition Act, the Partnership eliminated monthly charges for
remote control units and billed customers for the sale of the used remote
control units. The total amount billed for the sale of the remote control units
was $635,000. The FCC received a complaint which charges that the Partnership
violated the negative option billing provisions of the Act. Management believes
that although it is not feasible to determine the outcome of this matter at this
time, its resolution will not materially impact the Company's operations.
Pursuant to the authority granted under the Cable Television Consumer
Protection Act of 1992 (the '1992 Cable Act'), the FCC established maximum
allowable rates for certain cable television services and equipment. The FCC's
regulations require rates for equipment to be cost-based, and require reasonable
rates for regulated cable television services to be established based on, at the
election of the cable television operator, either application of the FCC's
benchmarks or a cost-of-service showing pursuant to standards adopted by the
FCC. The FCC's regulation called for a reduction of cable television service
rates in effect on September 30, 1992 of up to 10%, effective September 1, 1993.
In September 1993, the Partnership adjusted its rates to comply with the
regulations using the FCC's benchmarks.
On March 30, 1994, the FCC modified its existing benchmark methodology to
require, absent a successful cost-of-service showing, reductions of
approximately 17% in the rates for regulated services
F-33
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
in effect on September 30, 1992, adjusted for inflation, channel modifications,
equipment costs, and increases in certain operating costs. The modified
benchmarks and regulations are generally designed to cause an additional 7%
reduction in the rates for regulated cable services in addition to the rate
reductions implemented by the Partnership in September 1993 under the prior FCC
benchmarks and regulations. The FCC also adopted interim regulations to govern
cost-of-service showings by cable operators, establishing an industry wide
11.25% after tax rate of return and a rebuttable presumption that acquisition
costs above original historic book value of tangible assets should be excluded
from the rate base. To the extent that the Partnership's rates are found to
exceed the reasonable rate determined within the guidelines of the new
regulations, the rates will be subject to 'rollbacks' and, in some cases,
refunds. At December 31, 1993, the Partnership anticipates and has accrued
approximately $124,000 of refunds for the four months ended December 31, 1993 as
a result of implementing the new regulations. In July 1994, the Partnership
intends to further reduce the rates for regulated services to comply with the
modified benchmarks and regulations. Management believes that the FCC's new
regulations will not have a material adverse impact on the Partnership's
operations in future periods.
9. Sale of Cable Television System
In October 1993, the Partnership entered into an agreement (as amended
through June 3, 1994) to sell its cable television system and substantially all
related assets to Cablevision MFR, Inc., a wholly-owned subsidiary of
Cablevision Systems Corporation for $288,857,500.
The consideration consists of $183,098,900 in cash, $6,820,000 in an
indemnification escrow note and a $98,938,600 four year senior subordinated note
paying 6% per year semi-annually in years one through three and 8% per year
semi-annually in year four. The $6,820,000 indemnification escrow note will
secure the accuracy of the Partnership's warranties and representations for a
period of fifteen months following the closing. After this period, the
indemnification escrow note will convert to a senior subordinated note
containing the same terms and conditions as the $98,938,600 note. Both notes
have an initial maturity date on the fourth anniversary of the closing date,
however, such maturity date may be extended to the ninth anniversary of the
closing date under certain limited circumstances.
The Partnership anticipates closing costs for legal fees, brokerage fees,
and other costs to approximate $7,700,000. The Partnership anticipates the
closing to be not later than August 8, 1994, subject to the receipt of all
approvals necessary to consummate the transaction.
_____________________
F-34
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
BALANCE SHEET
JUNE 30, 1994 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents.......................................................................... $ 2,643,030
Accounts receivable, net of allowance for doubtful accounts of $136,298............................ 2,076,172
Prepaid expenses and other assets.................................................................. 386,986
Due from affiliate................................................................................. 317,028
Investment in cable television systems, net of accumulated depreciation............................ 35,514,805
Cable television franchise costs, net of accumulated amortization of $61,589,283................... 13,794,871
Cost in excess of fair value of net assets acquired, net of accumulated amortization of
$3,566,230....................................................................................... 7,844,729
Deferred charges, primarily debt acquisition costs, net of accumulated amortization of $713,256.... 440,121
-----------
Total assets............................................................................. $63,017,742
-----------
-----------
LIABILITIES AND PARTNERS' DEFICIENCY
Liabilities:
Accounts payable and accrued expenses......................................................... $ 5,796,552
Deferred credit -- Deposit on Sale of Assets.................................................. 6,948,062
Due to affiliates............................................................................. 744,133
Debt.......................................................................................... 88,100,000
-----------
Total liabilities........................................................................ 101,588,747
-----------
Partners' deficiency............................................................................... (38,571,005)
-----------
Total liabilities and partners' deficiency............................................... $63,017,742
-----------
-----------
</TABLE>
F-35
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
1994
-----------
<S> <C>
Operating revenues:
Basic subscriber fee.......................................................................... $19,171,560
Premium programming fees...................................................................... 6,906,082
Other......................................................................................... 2,698,483
-----------
28,776,125
-----------
Operating expenses:
Programming................................................................................... 7,173,311
Service....................................................................................... 1,805,521
Selling, general and administrative........................................................... 5,962,963
Depreciation and amortization................................................................. 7,050,294
-----------
21,992,089
-----------
Operating income (expenses):....................................................................... 6,784,036
Income expense................................................................................ (2,485,356)
Gain on deposal of equipment.................................................................. 76,776
Other income (expense), net................................................................... (149,988)
-----------
Net income......................................................................................... $ 4,225,468
-----------
-----------
</TABLE>
F-36
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
STATEMENTS OF PARTNERS' DEFICIENCY
SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ------------ ------------
<S> <C> <C> <C>
Partners' deficiency, January 1, 1994............................... $(714,245) $(42,082,228) $(42,796,473)
Net income.......................................................... 42,255 4,183,213 4,225,468
--------- ------------ ------------
Partners' deficiency, June 30, 1994................................. $(671,990) $(37,899,015) $(38,571,005)
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
F-37
<PAGE>
MONMOUTH CABLEVISION ASSOCIATES
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
1994
------------
<S> <C>
Cash flows from operating activities:
Net income................................................................................... $ 4,225,468
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................... 7,050,294
Amortization of deferred charges........................................................ 58,373
Gain on sale of equipment............................................................... (76,776)
Decrease in accounts payable and accrued expenses....................................... (692,508)
Decrease in prepaid expenses and other assets........................................... 89,394
Decrease in due from affiliates......................................................... 191,930
Increase in accounts receivable, net.................................................... (216,198)
Increase in due to affiliates........................................................... 70,201
------------
Net cash provided by operating activities.......................................... 10,700,178
------------
Cash flows used in investing activities:
Capital expenditures......................................................................... (3,567,704)
Increase in cable television franchise costs................................................. (7,154)
Proceeds from sale of equipment.............................................................. 76,776
------------
Net cash used in investing activities.............................................. (3,498,082)
------------
Cash flows used in financing activities:
Proceeds from sale of system................................................................. 6,948,062
Principal payments on debt................................................................... (12,000,000)
------------
Net cash used in financing activities.............................................. (5,051,938)
------------
Net increase in cash and cash equivalents......................................................... 2,150,158
------------
Cash and cash equivalents at beginning of period.................................................. 492,872
------------
Cash and cash equivalents at end of year.......................................................... $ 2,643,030
------------
------------
Supplemental disclosure of cash flow information:
Cash paid during period for interest......................................................... $ 1,014,573
------------
------------
</TABLE>
F-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Riverview Cablevision Associates, L.P.:
We have audited the accompanying financial statements of Riverview
Cablevision Associates, L.P. (a limited partnership) as of December 31, 1993 and
1992, and for the years then ended, listed in the foregoing table of contents.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these 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, such financial statements present fairly, in all material
respects, the financial position of the Partnership at December 31, 1993 and
1992, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey,
April 28, 1994
(June 3, 1994 as to Note 8)
F-39
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents......................................................... $ 3,610,800 $ 3,130,567
Accounts receivable, net of allowance for doubtful accounts of $57,452 in 1993 and
$30,823 in 1992................................................................. 520,977 727,844
Prepaid expenses and other assets................................................. 215,822 124,274
Investment in cable television systems, net of accumulated depreciation (notes 4
and 5).......................................................................... 13,250,608 14,928,031
Cable television franchise costs, net of accumulated amortization of $23,652,036
in 1993 and $20,517,286 in 1992................................................. 8,345,486 11,370,814
Cost in excess of fair value of net assets acquired, net of accumulated
amortization of $699,722 in 1993 and $607,340 in 1992........................... 224,093 316,475
Deferred charges, primarily debt acquisition costs, net of accumulated
amortization of $888,149 in 1993 and $828,641 in 1992........................... 339,684 399,192
------------ ------------
Total assets................................................................. $ 26,507,470 $ 30,997,197
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' DEFICIENCY
Liabilities:
Accounts payable and accrued expenses........................................ $ 2,556,230 $ 2,288,185
Due to affiliates (Note 3)................................................... 748,051 735,632
Debt (Note 5)................................................................ 33,850,000 38,000,000
------------ ------------
Total liabilities....................................................... 37,154,281 41,023,817
Commitments and Contingencies (Note 6)
Partners' deficiency (Note 2)..................................................... (10,646,811) (10,026,620)
------------ ------------
Total liabilities and partners' deficiency........................................ $ 26,507,470 $ 30,997,197
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-40
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Operating Revenues:
Basic subscriber fees......................................................... $14,474,565 $13,428,094
Premium programming fees...................................................... 5,783,636 6,598,277
Other......................................................................... 1,534,157 1,353,464
----------- -----------
21,792,358 21,379,835
----------- -----------
Operating expenses (Note 3):
Programming................................................................... 5,538,078 5,667,349
Service....................................................................... 1,633,592 1,628,470
Selling, general and administrative........................................... 4,208,719 4,002,035
Management fees (Note 3)...................................................... 1,067,827 1,050,798
Depreciation and amortization................................................. 6,874,365 7,066,090
----------- -----------
19,322,581 19,414,742
----------- -----------
Operating income................................................................... 2,469,777 1,965,093
Other income (expenses):
Interest expense.............................................................. (2,988,608) (3,242,791)
Interest, dividends and other income, net..................................... 113,597 49,806
(Loss) gain on disposal of equipment.......................................... (153,369) 10,320
Other income (expense), net................................................... (61,588) (240,886)
----------- -----------
Net loss........................................................................... $ (620,191) $(1,458,458)
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-41
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................................... $ (620,191) $(1,458,458)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization............................................... 6,874,365 7,066,090
Amortization of deferred charges............................................ 59,508 27,617
Loss (gain) on disposal of equipment........................................ 153,369 (10,320)
Increase in due to affiliates............................................... 12,419 254,860
Decrease in accounts receivable............................................. 206,867 69,098
(Increase) decrease in prepaid expense...................................... (91,548) 125,981
(Increase) decrease in accounts payable and accrued expenses................ 268,045 (411,763)
---------- ----------
Net cash provided by operating activities.............................. 6,862,834 5,663,105
---------- ----------
Cash flows used in investing activities:
Proceeds from sale of equipment.................................................. 430,201 25,517
Capital expenditures............................................................. (2,553,380) (2,450,885)
Increase in cable television franchise costs..................................... (109,422) (1,256)
---------- ----------
Net cash used in investing activities.................................. (2,232,601) (2,426,624)
---------- ----------
Cash flows used in financing activities:
Principal payments on debt....................................................... (4,150,000) (826,936)
---------- ----------
Net cash used in financing activities.................................. (4,150,000) (826,936)
Net increase in cash and cash equivalents............................................. 480,233 2,409,545
Cash and cash equivalents at beginning of year........................................ 3,130,567 721,022
---------- ----------
Cash and cash equivalents at end of year.............................................. $3,610,800 $3,130,567
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................................... $2,913,909 $3,270,144
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
F-42
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
LIMITED PARTNERS
GENERAL ---------------------------------------
PARTNERS CLASS A CLASS B CLASS C TOTAL
----------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Partners' Deficiency, January 1,
1992................................. $(2,614,490) $(5,253,292) $ (700,480) $ 100 $ (8,568,162)
Net loss............................... (29,169) (1,261,129) (168,160) -- (1,458,458)
----------- ----------- ----------- --------- ------------
Partners' deficiency, December 31,
1992................................. (2,643,659) (6,514,421) (868,640) 100 (10,026,620)
Net loss............................... (12,404) (536,279) (71,508) -- (620,191)
----------- ----------- ----------- --------- ------------
Partners' deficiency, December 31,
1993................................. $(2,656,063) $(7,050,700) $ (940,148) $ 100 $(10,646,811)
----------- ----------- ----------- --------- ------------
----------- ----------- ----------- --------- ------------
</TABLE>
See notes to financial statements.
F-43
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
1. Summary of Significant Accounting Policies
Formation of the Partnership
In 1986, the Riverview Cablevision Associates, L.P. (RCA or the
'Partnership') limited partnership agreement was filed in the State of Delaware.
The term of the limited partnership continues until December 31, 2006, unless
earlier terminated as provided in the Amended and Restated Agreement of Limited
Partnership (the 'Agreement'). In 1986, RCA acquired certain assets for cash
aggregating $43,500,000, and commenced operations. RCA is engaged in the
operation of a cable television system.
Investment in Cable Television System
Investment in cable television system is stated at cost. Depreciation is
provided on the straight-line method over the estimated useful lives of the
assets ranging from four to fifteen years.
Cable Television Franchise Costs
Costs incurred in obtaining cable television franchises are deferred.
Amortization over the life of the franchise, which ranges from nine to eleven
years, using the straight-line method, is provided for each franchise at the
time the particular system becomes operational.
Deferred Charges
Deferred debt acquisition costs, consisting of costs incurred to obtain
financing for the Partnership, are amortized on a straight-line basis, over the
life of the related debt, starting with the commencement of borrowings.
Cost in Excess of Fair Value of Net Assets Acquired
The cost in excess of fair value of net assets acquired is being amortized
on the straight-line method over a ten-year period.
Income Taxes
No provision has been made for income taxes, since such taxes are the
liability of the individual partners.
Capitalized Contract Labor
Contract labor charges associated with reconnecting new subscribers in
previously serviced homes are capitalized.
Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
F-44
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Organization of the Partnership
The Partnership consists of the following:
General partners:
Riverview Cablevision Inc. (RCI)
Joel Goldblatt (JG)
Limited partners:
Class A: Other Limited Partners
Class B: Monmouth Cablevision Associates (A Limited Partnership)
(MCA)
Class C: Goldman, Sachs & Co.
Net income and losses and available cash, as defined (other than from
capital transactions) are generally allocated in the following manner: General
Partners, 2%; Class A Limited Partners, 86.47%; and the Class B Limited Partner,
11.53%. Net income and loss allocations will change upon the recovery by the
Class A Limited Partners of their investment and will thereafter be: General
Partners, 17%; Class A Limited Partners, 66.18%; the Class B Limited Partner,
11.82%; and the Class C Limited Partner, 5%. Additionally, net income and loss
allocations will change upon the recovery by the Class A Limited Partners of
four times their investment and will thereafter be: General Partners, 25.5%:
Class A Limited Partners, 57.35%; the Class B Limited Partner, 12.15%; and the
Class C Limited Partner, 5%. However, any allocation of net losses which would
cause or increase a deficit balance in a Partners' capital account should be
reallocated among the partners as set forth in the Agreement.
Allocations of net income and losses and cash distributions resulting from
capital transactions are set forth in the Agreement.
In accordance with the terms of the Agreement, and at any time prior to May
31, 1993, the general partners may request that the partners make additional
capital contributions in proportion to their respective initial capital
contributions. However, such additional contributions are limited to ten percent
of each partner's initial contribution. No additional capital contributions were
requested through May 31, 1993.
3. Related Party Transactions
Management and Operational Agreements
The Partnership entered into an agreement with RCI under which RCI provides
management and operational services for a fee of 2 1/2% of operating revenue
plus 5% of operating cash flow, as defined. The Agreement has no fixed
expiration date. Expenses of $1,067,827 and $1,050,798 in 1993 and 1992,
respectively, have been included in the accompanying financial statements. The
Partnership owed RCI $164,255 and $183,838 at December 31, 1993 and 1992,
respectively.
Programming Expenses
The Partnership has an agreement with SCATV, Inc. (SCATV), an affiliate of
one of the general partners, to purchase Home Box Office and Cinemax services.
As a result of this, the Partnership participates in certain favorable volume
discounts available to SCATV and pays an administrative service charge to SCATV.
Expenses of $1,599,245 and $1,666,686 in 1993 and 1992, respectively, have
F-45
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
been included in the accompanying financial statements. The Partnership owed
SCATV $125,816 and $260,808 at December 31, 1993 and 1992, respectively.
Common Costs
The Partnership shares certain common costs, such as payroll and
construction costs with MCA. The Partnership owed MCA $457,023 and $290,532 at
December 31, 1993 and 1992, respectively. It is management's intention to settle
any balances at least annually.
4. Investment in Cable Television System
Investment in cable television system at December 31, 1993 and 1992
consists of the following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Buildings................................................................ $ 1,849,663 $ 1,815,826
Distribution system and equipment........................................ 27,371,293 25,808,417
Transportation equipment................................................. 728,012 573,425
Other property and equipment............................................. 2,048,772 1,679,079
----------- -----------
$31,997,740 $29,876,747
----------- -----------
----------- -----------
Less accumulated depreciation............................................ 20,154,600 16,832,145
----------- -----------
$11,843,140 $13,044,602
----------- -----------
----------- -----------
Construction in progress................................................. 1,407,468 1,883,429
----------- -----------
Investment in cable television system -- net............................. $13,250,608 $14,928,031
----------- -----------
----------- -----------
</TABLE>
5. Debt
Debt at December 31, 1993 and 1992 consists of the following:
<TABLE>
<CAPTION>
INTEREST RATE 1993 1992 FINAL MATURITY
------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Credit loan............................ LIBOR + 1% $15,000,000 $15,000,000 1999(a)
Notes payable.......................... 9.75% 9,850,000 14,000,000 1995(b)
Note payable........................... 10.58% 9,000,000 9,000,000 1998(b)
----------- -----------
Total.................................. $33,850,000 $38,000,000
----------- -----------
----------- -----------
</TABLE>
Under the terms of the debt agreements, all assets of the Partnership and
the general and limited partnership interests are pledged as collateral under an
intercreditor agreement. The LIBOR rate at December 31, 1993 was 3.375%.
a. In 1991, the Partnership entered into a credit agreement with Bankers Trust
Company for $23,000,000. The agreement provides for a commitment fee between
3/8 and 1/4 of 1% per annum on the unused balance. The Partnership is allowed
to select various interest rate pricing options. The loan balance shall be
reduced quarterly commencing on December 31, 1995 until final maturity on
June 30, 1999 in accordance with the credit agreement. Pursuant to the terms
of the credit agreement, the partnership is restricted with respect to the
availability and use of the facility.
b. In 1988, the Partnership entered into a Note Purchase and Exchange Agreement
('Note Agreement') with the Mutual Life Insurance Company of New York. During
1994, Mutual Life Insurance Company of New York assigned the Note Agreement
to AUSA Life Insurance Company. Pursuant to the Note Agreement, the
Partnership issued $14,000,000 in 9.75% notes and $9,000,000
F-46
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
in 10.58% notes. The 9.75% notes are payable in semi-annual installments of
$3,200,000 with a final payment of $3,450,000 on June 1, 1995. The 10.58%
notes are payable in installments of $3,000,000 in 1996, $3,000,000 in 1997,
and a final payment of $3,000,000 on September 1, 1998.
Annual maturities on the above debt at December 31 are as follows:
<TABLE>
<CAPTION>
1994................................................................. $ 6,400,000
<S> <C>
1995................................................................. 4,989,000
1996................................................................. 6,076,500
1997................................................................. 7,615,500
1998................................................................. 8,769,000
-----------
Total debt........................................................... $33,850,000
-----------
-----------
</TABLE>
Interest Rate Protection
The Partnership has also entered into interest rate protection agreements
with various financial institutions. For the years ended December 31, 1993 and
1992, the Partnership incurred expenses of $15,191 and $8,250, respectively,
relating to these agreements. Such agreements provide for interest cap rates on
three month LIBOR rates.
<TABLE>
<CAPTION>
PERIOD COVERED INTEREST
AMOUNT THROUGH CAP RATE
- ---------- ----------------- --------
<S> <C> <C>
$2,500,000 January 28, 1996 7.00%
4,000,000 May 7, 1996 7.00%
</TABLE>
Restrictive Covenants
Under the terms of the debt agreements, the Partnership is restricted in
its ability to incur additional indebtedness and must comply with certain
covenants, including: maintaining specified levels of annual Operating Cash Flow
and 'constructive cash make' (annualized quarterly Operating Cash Flow), as
defined; maximum ratios of Senior Debt to Operating Cash Flow; minimum ratios of
Operating Cash Flow to Debt Service; and not exceeding the maximum level of
capital expenditures as such amounts are defined in the debt agreement. As of
December 31, 1993, RCA was not in compliance with certain financial covenants
included in the terms of the debt agreements. RCA has obtained waivers from
Bankers Trust Company and AUSA Life Insurance Company for those covenants. Based
on current projections, the Partnership anticipates that the annual cash flow
for 1994 will not be sufficient to meet certain of its debt covenants, and
therefore it will request waivers from its lenders.
6. Commitments and Contingencies
The Partnership is obligated under operating leases for office, outdoor
advertising and warehouse space expiring in 1996. These leases provide for
additional rentals based on certain escalation clauses.
F-47
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
Future minimum rental payments under operating leases at December 31, 1993
are as follows:
<TABLE>
<S> <C>
1994.................................................................... $245,288
1995.................................................................... 227,288
1996.................................................................... 175,840
1997.................................................................... 105,600
1998.................................................................... 88,000
--------
Total future minimum rental payments.................................... $842,016
--------
--------
</TABLE>
Rent expense for the years ended December 31, 1993 and 1992 was $293,659
and $158,668, respectively.
Pursuant to the authority granted under the Cable Television Consumer
Protection Act of 1992 (the '1992 Cable Act'), the FCC established maximum
allowable rates for certain cable television services and equipment. The FCC's
regulations require rates for equipment to be cost-based, and require reasonable
rates for regulated cable television services to be established based on, at the
election of the cable television operator, either application of the FCC's
benchmarks or a cost-of-service showing pursuant to standards adopted by the
FCC. The FCC's regulation called for a reduction of cable television service
rates in effect at September 30, 1992 of up to 10%, effective September 1, 1993.
In September 1993, the Partnership adjusted its rates to comply with the
regulations using the FCC's benchmarks.
On March 30, 1994, the FCC modified its existing benchmark methodology to
require, absent a successful cost-of-service showing, reductions of
approximately 17% in the rates for regulated services in effect on September 30,
1992, adjusted for inflation, channel modifications, equipment costs, and
increases in certain operating costs. The modified benchmarks and regulations
are generally designed to cause an additional 7% reduction in the rates for
regulated cable services in addition to the rate reductions implemented by the
Partnership in September 1993 under the prior FCC benchmarks and regulations.
The FCC also adopted interim regulations to govern cost-of-service showings by
cable operators, establishing an industry wide 11.25% after tax rate of return
and a rebuttable presumption that acquisition costs above original historic book
value of tangible assets should be excluded from the rate base. To the extent
that the Partnership's rates are found to exceed the reasonable rate determined
within the guidelines of the new regulations, the rates will be subject to
'rollbacks' and, in some cases, refunds. At December 31, 1993, the Partnership
anticipates and has accrued approximately $25,000 of refunds for the four months
ended December 31, 1993 a result of implementing the new regulations. In July
1994, the Partnership intends to further reduce the rates for regulated services
to comply with the modified benchmarks and regulations. Management believes that
the FCC's new regulations will not have a material adverse impact on the
Partnership's operations and cash flows in future periods.
7. Income Taxes
The Partnership uses different methods of depreciation for financial
reporting purposes and income tax purposes. As a result, the depreciated cost of
investment in cable television system for income tax purposes is $10,495,110 and
$11,152,445 at December 31, 1993 and 1992, respectively.
As a result of the Internal Revenue Service examination, the basis in cable
television franchise costs and method of amortization of these costs is
different for financial reporting purposes and income tax purposes beginning in
1992. The amortized cost of cable television and franchise costs for income tax
purposes is $6,093,046 and $8,973,662 at December 31, 1993 and 1992,
respectively.
F-48
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
8. Sale of Cable Television System
In October 1993, the Partnership entered into an agreement (as amended
through June 3, 1994) to sell its cable television system and substantially all
related assets to Cablevision MFR, Inc., a wholly-owned subsidiary of
Cablevision Systems Corporation for $96,986,300.
The consideration consists of $61,477,000 in cash, $2,290,000 in an
indemification escrow note and a $33,219,300 four year senior subordinated note
paying 6% per year semi-annually in years one through three and 8% per year
semi-annually in year four. The $2,290,000 indemnification escrow note will
secure the accuracy of the Partnership's warranties and representations for a
period of fifteen months following the closing. After this period, the
indemnification escrow note will convert to a senior subordinated note
containing the same terms and conditions as the $33,219,300 note. Both notes
have an initial maturity date on the fourth anniversary of the closing date,
however, such maturity date may be extended to the ninth anniversary of the
closing date under certain limited circumstances.
The Partnership anticipates closing costs for legal fees, brokerage fees,
and other costs to approximate $2,300,000. The Partnership anticipates the
closing to be not later than August 8, 1994, subject to the receipt of all
approvals necessary to consummate the transaction.
_____________________
F-49
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
BALANCE SHEET
JUNE 30, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 1994
------------
<S> <C>
Cash and cash equivalents......................................................................... $ 4,703,725
Accounts receivable, net of allowance for doubtful accounts of $104,212........................... 557,049
Prepaid expenses and other assets................................................................. 227,144
Investment in cable television systems, net of accumulated depreciation........................... 12,444,428
Cable television franchise costs, net of accumulated amortization of $25,219,242.................. 6,795,282
Cost in excess of fair value of net assets acquired, net of accumulated amortization of
$745,916........................................................................................ 177,899
Deferred charges, primarily debt acquisition costs, net of accumulated amortization of $178,520... 309,930
------------
Total assets............................................................................ $ 25,215,457
------------
------------
LIABILITIES AND PARTNERS' DEFICIENCY
Liabilities:
Accounts payable and accrued expenses........................................................ $ 2,223,281
Due to affiliates............................................................................ 521,234
Deferred credit -- Deposit on sale of assets................................................. 2,332,907
Debt......................................................................................... 30,650,000
------------
Total liabilities....................................................................... 35,727,422
------------
Partners' deficiency.............................................................................. (10,511,965)
------------
Total liabilities and partners' deficiency.............................................. $ 25,215,457
------------
------------
</TABLE>
F-50
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1994
-----------
<S> <C>
Operating revenues:
Basic subscriber fees......................................................................... $ 6,521,625
Premium programming fees...................................................................... 2,820,633
Other......................................................................................... 1,176,055
-----------
10,518,313
-----------
Operating expenses:
Programming................................................................................... 2,805,650
Service....................................................................................... 777,501
Selling, general and administrative........................................................... 2,223,898
Depreciation and amortization................................................................. 3,224,370
-----------
9,031,419
-----------
Operating income before other income (expenses):................................................... 1,486,894
Other income (expenses):
Income expense................................................................................ (1,346,449)
Interest, dividends and other income, net..................................................... 51,880
(Loss) gain on disposal of equipment.......................................................... (2,625)
Other income (expense), net................................................................... (54,854)
-----------
Net income......................................................................................... $ 134,846
-----------
-----------
</TABLE>
F-51
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
STATEMENT OF PARTNERS' DEFICIENCY
SIX MONTHS ENDED JUNE 30, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
LIMITED PARTNERS
GENERAL -----------------------------------
PARTNERS CLASS A CLASS B CLASS C TOTAL
----------- ----------- --------- ------- ------------
<S> <C> <C> <C> <C> <C>
Partners' deficiency, January 1, 1994....... $(2,656,063) $(7,050,700) $(940,148) $ 100 $(10,646,811)
Net income.................................. 2,697 116,601 15,548 -- 134,846
----------- ----------- --------- ------- ------------
Partners' deficiency, June 30, 1994......... $(2,653,366) $(6,934,099) $(924,600) $ 100 $(10,511,965)
----------- ----------- --------- ------- ------------
----------- ----------- --------- ------- ------------
</TABLE>
F-52
<PAGE>
RIVERVIEW CABLEVISION ASSOCIATES, L.P.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1994
-----------
<S> <C>
Cash flows from operating activities:
Net income.................................................................................... $ 134,846
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................ 3,224,370
Amortization of deferred charges......................................................... 29,754
Loss on disposal of equipment............................................................ 2,625
Decrease in due to affiliates............................................................ (226,817)
Increase in accounts receivable.......................................................... (36,071)
Increase in prepaid expense.............................................................. (11,322)
Decrease in accounts payable and accrued expenses........................................ (332,949)
-----------
Net cash provided by operating activities........................................... 2,784,436
-----------
Cash flows used in investing activities:
Capital expenditures.......................................................................... (807,416)
Franchise renewal costs....................................................................... (17,002)
-----------
Net cash used in investing activities............................................... (824,418)
-----------
Cash flows used in financing activities:
Proceeds from sale of cable system............................................................ 2,332,907
Principal payments on debt.................................................................... (3,200,000)
-----------
Net cash used in financing activities............................................... (867,093)
-----------
Net increase in cash and cash equivalents..................................................... 1,092,925
-----------
Cash and cash equivalents at beginning of period.............................................. 3,610,800
-----------
Cash and cash equivalents at end of year........................................................... $ 4,703,725
-----------
Supplemental disclosure of cash flow information:
Cash paid during the year for;
interest................................................................................. $ 1,316,695
-----------
-----------
</TABLE>
F-53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Framingham Cablevision Associates, Limited Partnership
We have audited the accompanying financial statements of Framingham
Cablevision Associates, Limited Partnership as of December 31, 1993 and 1992,
and for the years then ended, listed in the foregoing table of contents. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these 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, such financial statements present fairly, in all material
respects, the financial position of the Partnership at December 31, 1993 and
1992, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
April 28, 1994
(June 3, 1994 as to Note 8)
F-54
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
NOTES 1993 1992
----- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash....................................................................... $ 305,255 $ 237,264
Accounts receivable, net of allowance for doubtful accounts of $105,819 in
1993 and $103,590 in 1992................................................ 654,050 314,184
Prepaid expenses and other assets.......................................... 85,486 33,307
Investment in cable television system, net of accumulated depreciation..... 4 4,575,975 5,431,424
Cable television franchise costs, net of accumulated amortization of
$16,362,500 in 1993 and $12,792,500 in 1992.............................. 10,112,500 13,682,500
Deferred charges, net of accumulated amortization of $241,610 in 1993 and
$188,894 in 1992......................................................... 67,905 120,621
Cost in excess of fair value of net assets acquired, net of accumulated
amortization of $905,404 in 1993 and $707,860 in 1992.................... 905,382 1,102,926
----------- -----------
Total assets..................................................... $16,706,553 $20,922,226
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' DEFICIENCY
Liabilities:
Debt.................................................................. 5 $24,561,612 $25,711,612
Accounts payable and accrued expenses................................. 466,055 519,366
Due to affiliates..................................................... 3 1,906,429 1,420,288
----------- -----------
Total liabilities................................................ 26,934,096 27,651,266
Commitments and Contingencies (Note 6)
Partners' Deficiency....................................................... (10,227,543) (6,729,040)
----------- -----------
Total liabilities and partners' deficiency....................... $16,706,553 $20,922,226
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-55
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
NOTES 1993 1992
----- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Basic subscriber fees................................................. $ 4,287,778 $ 4,013,477
Premium programming fees.............................................. 2,302,970 2,308,135
Other................................................................. 957,446 846,957
----------- -----------
7,548,194 7,168,569
----------- -----------
Operating expenses:
Programming........................................................... 3 1,825,126 1,760,444
Service............................................................... 478,356 465,173
Selling, general and administrative................................... 1,652,551 1,496,385
Management fees....................................................... 3 377,410 358,428
Depreciation and amortization......................................... 5,029,363 5,002,200
----------- -----------
9,362,806 9,082,630
----------- -----------
Operating loss............................................................. (1,814,612) (1,914,061)
----------- -----------
Other expenses (income):
Interest expense...................................................... 1,691,596 1,965,020
Other income.......................................................... (7,705) (233)
----------- -----------
1,683,891 1,964,787
----------- -----------
Net loss................................................................... $(3,498,503) $(3,878,848)
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-56
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ------------ ------------
<S> <C> <C> <C>
Partners' deficiency, January 1, 1992............................... $ (28,502) $ (2,821,690) $ (2,850,192)
Net Loss............................................................ (38,789) (3,840,059) (3,878,848)
--------- ------------ ------------
Partners' deficiency, December 31, 1992............................. (67,291) (6,661,749) (6,729,040)
Net Loss............................................................ (34,984) (3,463,519) (3,498,503)
--------- ------------ ------------
Partners' deficiency, December 31, 1993............................. $(102,275) $(10,125,268) $(10,227,543)
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
See notes to financial statements.
F-57
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................................... $(3,498,503) $(3,878,848)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................ 5,029,363 5,002,200
Gain on sale of equipment................................................ (7,444) --
Change in assets and liabilities:
Increase in accounts receivable..................................... (339,866) (76,706)
Increase in prepaid expenses and other assets....................... (52,179) (2,747)
Decrease in accounts payable and accrued expenses................... (53,311) (125,770)
Increase in due to affiliates....................................... 486,141 441,327
----------- -----------
Net cash provided by operating activities...................... 1,564,201 1,359,456
----------- -----------
Cash flows used in investing activities:
Proceeds from sale of equipment............................................... 133,333 --
Capital expenditures.......................................................... (479,543) (325,105)
----------- -----------
Net cash used in investing activities.......................... (346,210) (325,105)
----------- -----------
Cash flows used in financing activities:
Proceeds from borrowings...................................................... -- 29,588
Principal payments on debt.................................................... (1,150,000) (1,150,000)
----------- -----------
Net cash used in financing activities.......................... (1,150,000) (1,120,412)
----------- -----------
Net increase (decrease) in cash.................................................... 67,991 (86,061)
Cash, beginning of year............................................................ 237,264 323,325
----------- -----------
----------- -----------
Cash, end of year.................................................................. $ 305,255 $ 237,264
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Interest paid................................................................. $ 1,603,697 $ 1,855,852
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-58
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
1. Organization and Description of Operations
Framingham Cablevision Associates, Limited Partnership (the 'Partnership')
is a Delaware limited partnership formed on January 19, 1989 to apply for and/or
acquire franchises and cable systems and to directly or indirectly hold, own,
construct and operate such franchises and cable systems. The term of the limited
partnership continues until December 31, 2009, unless earlier terminated as
provided in the Amended and Restated Agreement of Limited Partnership (the
'Agreement'). Framingham Cablevision Inc. ('FCI'), the general partner, made a
capital contribution of $111,111 and the limited partners contributed
$11,000,000. In accordance with the terms of the Agreement, and at any time
prior to December 31, 1996, FCI may request that the partners make additional
capital contributions in proportion to their respective initial capital
contributions. However, such additional contributions are limited to ten percent
of each partner's initial contribution.
Net income and losses and available cash, as defined, (other than from
capital transactions) are generally allocated in the following manner: 1% to FCI
and 99% to the limited partners. Net income and loss allocations will change
upon the recovery by the limited partners of their capital contributions and
will thereafter be: 28.21% to FCI and 71.79% to the limited partners.
Additionally, net income and loss allocations will change upon the recovery by
the limited partners of four times their capital contributions and will
thereafter be: 50% to FCI and 50% to the limited partners. However, any
allocation of net losses which would cause or increase a deficit balance in a
partner's capital account shall be reallocated among the partners as set forth
in the Agreement.
Allocations of net income and loss and cash distributions resulting from
capital transactions are set forth in the Agreement.
2. Summary of Significant Accounting Policies
Investment in Cable Television System
Investment in cable television system is stated at cost. Depreciation is
provided on the straight-line method over the estimated useful lives of the
assets ranging from four to ten years.
Cable Television Franchise Costs
Costs incurred in obtaining the cable television franchise are deferred and
amortized over the life of the franchise, which expires on July 24, 1998, using
the straight-line method.
Deferred Charges
Deferred debt acquisition costs, consisting of costs incurred to obtain
financing for the Partnership, are amortized on a straight-line basis, over the
life of the related debt starting with the commencement of borrowings.
Deferred organization costs include legal fees and other closing costs
associated with the formation of the Partnership, and are amortized on a
straight-line basis over a five-year period.
Cost in Excess of Fair Value of Net Assets Acquired
The cost in excess of fair value of net assets acquired is being amortized
on the straight-line method over the life of the related franchise.
F-59
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
Income Taxes
No provision has been made for income taxes since such taxes are the
liability of the individual partners.
3. Related Party Transactions
Management and Operational Agreements
The Partnership entered into an agreement with FCI under which FCI provides
management and operational services for a fee of 5% of operating revenues, as
defined. The agreement has no fixed expiration date. Management fee expenses of
$377,410 and $358,428 for the years ended December 31, 1993 and 1992,
respectively, have been included in the accompanying financial statements.
Interest on management fees are $92,307 and $68,084 for the years ended 1993 and
1992. Such amounts are included in interest expense in the accompanying
statement of operations. The Partnership owed FCI $1,802,255 and $1,332,538 at
December 31, 1993 and 1992, respectively. Payment of such fees has been deferred
pursuant to the Partnership's Revolving Credit and Loan Agreement with National
Westminster Bank USA, as agent.
Programming Expenses
The Partnership has an agreement with SCATV, Inc. (SCATV), an affiliate of
the general partner, to purchase Home Box Office (HBO) and Cinemax services. As
a result of this arrangement, the Partnership participates in certain favorable
volume discounts available to SCATV and pays an administrative service charge to
SCATV. The Partnership owed SCATV $73,198 and $87,750 at December 31, 1993 and
1992, respectively.
4. Investment in Cable Television System
Investment in cable television system at December 31, 1993 and 1992
consists of the following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Distribution system and equipment................................. $8,947,208 $8,840,376
Transportation equipment.......................................... 130,306 117,645
Other property and equipment...................................... 458,215 335,669
---------- ----------
9,535,729 9,293,690
---------- ----------
---------- ----------
Less accumulated depreciation..................................... 4,959,754 3,862,266
---------- ----------
Investment in cable television system -- net...................... $4,575,975 $5,431,424
---------- ----------
---------- ----------
</TABLE>
5. Debt
Issuance of Debt
On June 7, 1989, the Partnership entered into a Revolving Credit and Term
Loan Agreement (the 'Debt Agreement') of $20,000,000 and $7,000,000,
respectively, with National Westminster Bank USA ('Nat West'), as agent.
The Partnership is allowed to select various interest rate pricing options.
As of December 31, 1993 and 1992, the Partnership has drawn down
$17,000,000 and $18,150,000, respectively, of the revolving credit facility. At
year end 1993 and 1992, the revolving credit facility was
F-60
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
bearing interest at LIBOR + 2.00% and LIBOR + 2.50%, respectively. The Debt
Agreement also provides for payment of 1/2 of 1% per annum as a commitment fee,
payable quarterly on the unused balance of the revolving credit facility. The
Debt Agreement requires quarterly principal payments ranging from $125,000 to
$287,000 commencing on September 30, 1992 until June 30, 1995 when the
outstanding balance is due.
As of December 31, 1993 and 1992, the term loan was bearing interest at
LIBOR + 5%. The Partnership has the option of (1) paying in cash all accrued
interest on the term loan or (2) paying in cash, interest at the rate of Prime,
LIBOR + 1% or certificate of deposit + 1 1/4%, whichever is applicable, and
deferring all other accrued interest. As of December 31, 1993 and 1992, payment
of $561,612 of accrued interest has been deferred. The term loan is to be
repaid, including any deferred and compounded interest on June 30, 1995.
At December 31, 1993 and 1992, the prime rate was 6.0% and the LIBOR rate
was 3.3125% and 3.4375%, respectively.
Annual maturities on the above debt based upon the amounts outstanding at
December 31, 1993 are as follows:
<TABLE>
<S> <C>
1994................................................................. $ 575,000
1995................................................................. 23,986,612
-----------
Total debt...................................................... $24,561,612
-----------
-----------
</TABLE>
Under the terms of the Debt Agreement, the debt is collateralized by liens
on all the assets of the Partnership. Furthermore, the partners have pledged
their Partnership interests as security for the debt.
Restrictive Covenants
Under the terms of the Debt Agreement, the Partnership must comply with
certain covenants, including: maintaining specified levels of operating cash
flow ('OCF'), as defined; not exceeding maximum ratios of outstanding debt to
OCF; maintaining minimum ratios of OCF to interest expense; and not exceeding
the maximum level of capital expenditures or incurring additional indebtedness.
As of December 31, 1993 the Partnership was not in compliance with certain
financial covenants included in the terms of the Debt Agreement. The Partnership
has obtained waivers from Nat West for those covenants. Based on current
projections, the Partnership anticipates that the annual cash flow for 1994 will
not be sufficient to meet certain of its debt covenants, and therefore it will
request waivers from Nat West.
Additional Fee Agreement
Under an Additional Fee Agreement dated June 7, 1989, commencing June 30,
1995 and ending December 31, 1995, or in the event of a sale of substantially
all the assets of the Partnership, Nat West is entitled to a fee equal to 2 1/2%
of the value of the system adjusted by, among other things, capital
contributions and outstanding debt, as further specified in the agreement.
6. Commitments and Contingencies
The Partnership is obligated under an operating lease for its office and
warehouse space expiring in October and September, 1997, respectively. Future
minimum rental payments under these operating leases at December 31, 1993 are as
follows:
F-61
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<S> <C>
1994.................................................................... $113,306
1995.................................................................... 113,306
1996.................................................................... 114,586
1997.................................................................... 95,060
--------
Total future minimum rental payments............................... $436,258
--------
--------
</TABLE>
Rent expense for the years ending December 31, 1993 and 1992 was $110,457
and $107,806, respectively.
Pursuant to the authority granted under the Cable Television Consumer
Protection Act of 1992 (the '1992 Cable Act'), the FCC established maximum
allowable rates for certain cable television services and equipment. The FCC's
regulations require rates for equipment to be cost-based, and require reasonable
rates for regulated cable television services to be established based on, at the
election of the cable television operator, either application of the FCC's
benchmarks or a cost-of-service showing pursuant to standards adopted by the
FCC. The FCC's regulation called for a reduction of cable television service
rates in effect on September 30, 1992 of up to 10%, effective September 1, 1993.
In September 1993, the Partnership adjusted its rates to comply with the
regulations using the FCC's benchmarks.
On March 30, 1994, the FCC modified its existing benchmark methodology to
require, absent a successful cost-of-service showing, reductions of
approximately 17% in the rates for regulated services in effect on September 30,
1992, adjusted for inflation, channel modifications, equipment costs, and
increases in certain operating costs. The modified benchmarks and regulations
are generally designed to cause an additional 7% reduction in the rates for
regulated cable services in addition to the rate reductions implemented by the
Partnership in September 1993 under the prior FCC benchmarks and regulations.
The FCC also adopted interim regulations to govern cost-of-service showings by
cable operators, establishing an industry wide 11.25% after tax rate of return
and a rebuttable presumption that acquisition costs above original historic book
value of tangible assets should be excluded from the rate base. To the extent
that the Partnership's rates are found to exceed the reasonable rate determined
within the guidelines of the new regulations, the rates will be subject to
'rollbacks' and, in some cases, refunds. In July 1994, the Partnership intends
to further reduce rates for regulated services to comply with the modified
benchmarks and regulations. Management believes that any adjustments to the
rates subject to refunds will not be significant, and that the FCC's new
regulations will not have a material adverse impact on the Partnership's
operations and cash flows in future periods.
7. Income Taxes
The Partnership uses different methods of depreciation for financial
reporting and income tax purposes. As a result, the depreciated cost of
investment in cable television system for income tax purposes is $2,670,679 at
December 31, 1993 and $3,403,834 at December 31, 1992.
8. Sale of System
In October 1993, the Partnership entered into an agreement (as amended
through June 3, 1994) to sell its cable television system and substantially all
related assets to Cablevision of Framingham Holdings, Inc., (as assignee of
Cablevision MFR, Inc.), a subsidiary of Cablevision Systems Corporation, for
$37,506,200.
The consideration consists of $27,774,100 in cash, $890,000 in an
indemnification escrow note and a $8,842,100 four year senior subordinated note
paying 6.25% per year semi-annually in years one through three and 8.25% per
year semi-annually in year four. The $890,000 indemnification escrow note will
secure the accuracy of the Partnership's warranties and representations for a
period of fifteen months following the closing. After this period, the
indemnification escrow note will convert to a senior
F-62
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
subordinated note containing the same terms and conditions as the $8,842,100
note. Both notes have an initial maturity date on the fourth anniversary of the
closing date; however, such maturity date may be extended to the ninth
anniversary date of the closing under certain limited circumstances.
The Partnership anticipates closing costs for legal fees, brokerage fees,
and other costs to approximate $980,000. The Partnership anticipates the closing
to be no later than August 8, 1994, subject to the receipt of all approvals
necessary to consummate the transaction.
______________________
F-63
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
BALANCE SHEET
JUNE 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 1994
------------
<S> <C>
Cash and cash equivalents......................................................................... $ 907,416
Accounts receivable, net of allowance for doubtful accounts of $94,057............................ 581,354
Prepaid expenses and other assets................................................................. 58,652
Investment in cable television systems, net of accumulated depreciation........................... 4,023,203
Cable television franchise costs, net of accumulated amortization of $18,022,500.................. 8,452,500
Cost in excess of fair value of net assets acquired, net of accumulated amortization of
$1,004,176...................................................................................... 806,610
Deferred charges, primarily debt acquisition costs, net of accumulated amortization of $267,396... 202,659
------------
Total assets............................................................................ $ 15,032,394
------------
------------
LIABILITIES AND PARTNERS' DEFICIENCY
Liabilities:
Accounts payable and accrued expenses........................................................ $ 557,017
Deferred credit -- Deposit on sale of assets................................................. 906,595
Due to affiliates............................................................................ 2,121,521
Debt......................................................................................... 23,061,612
------------
Total liabilities....................................................................... 26,646,745
------------
Partners' deficiency.............................................................................. (11,614,351)
------------
Total liabilities and partners' deficiency.............................................. $ 15,032,394
------------
------------
</TABLE>
F-64
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1994
-----------
<S> <C>
Operating revenues:
Basic subscriber fees......................................................................... $ 2,100,309
Premium programming fees...................................................................... 1,145,675
Other......................................................................................... 483,238
-----------
3,729,222
-----------
Operating expenses:
Programming................................................................................... 921,792
Service....................................................................................... 311,969
Selling, general and administrative........................................................... 785,916
Depreciation and amortization................................................................. 2,257,627
-----------
4,277,304
-----------
Operating loss..................................................................................... (548,082)
Income expense................................................................................ (838,726)
-----------
Net loss........................................................................................... $(1,386,808)
-----------
-----------
</TABLE>
F-65
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES (A LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' DEFICIENCY
SIX MONTHS ENDED JUNE 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ------------ ------------
<S> <C> <C> <C>
Partners' deficiency, January 1, 1994............................... $(102,275) $(10,125,268) $(10,227,543)
Net loss............................................................ (13,868) (1,372,940) (1,386,808)
--------- ------------ ------------
Partners' deficiency, June 30, 1994................................. $(116,143) $(11,498,208) $(11,614,351)
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
F-66
<PAGE>
FRAMINGHAM CABLEVISION ASSOCIATES, LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
1994
-----------
<S> <C>
Cash flows from operating activities:
Net loss...................................................................................... $(1,386,808)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization............................................................ 2,257,627
Increase in accounts payable and accrued expenses........................................ 90,962
Decrease in prepaid expenses and other assets............................................ 26,834
Decrease in accounts receivable, net..................................................... 72,696
Increase in due to affiliates............................................................ 215,092
-----------
Net cash provided by operating activities........................................... 1,276,403
-----------
Cash flows used in investing activities:
Capital expenditures.......................................................................... (96,023)
Proceeds from sale of equipment............................................................... 15,186
-----------
Net cash used in investing activities............................................... (80,837)
-----------
Cash flows used in financing activities:
Proceeds from sale of system.................................................................. 906,595
Principal payments on debt.................................................................... (1,500,000)
-----------
Net cash used in financing activities............................................... (593,405)
-----------
Net increase in cash and cash equivalents..................................................... 602,161
-----------
Cash and cash equivalents at beginning of period.............................................. 305,255
-----------
Cash and cash equivalents at end of year........................................................... $ 907,416
-----------
Supplemental disclosure of cash flow information:
Cash paid during period for interest.......................................................... $ 779,561
-----------
-----------
</TABLE>
F-67
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
American Movie Classics Company
We have audited the accompanying balance sheets of American Movie Classics
Company (a general partnership) as of December 31, 1993 and 1992, and the
related statements of income, partners' capital (deficiency) and cash flows for
each of the years in the three-year period ended December 31, 1993. These
financial statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the financial position of American Movie Classics
Company at December 31, 1993 and 1992, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1993 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Jericho, New York
March 4, 1994
F-68
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 9,030 $ 333
Trade accounts receivable (less allowance for doubtful accounts of $2,677 and
$1,148)............................................................................. 9,151 5,823
Trade accounts receivable-affiliates................................................. 3,720 3,014
Prepaid expenses and other current assets............................................ 278 315
Feature film inventory............................................................... 19,230 22,197
-------- --------
Total current assets............................................................ 41,409 31,682
Property and equipment, net............................................................... 1,106 957
Long-term feature film inventory.......................................................... 89,021 52,470
Film and program agreements (less accumulated amortization of $7,171 and $6,148).......... -- 1,023
Affiliation agreements (less accumulated amortization of $3,267 and $2,799)............... -- 468
Deferred financing costs (less accumulated amortization of $213 and $71).................. 640 782
Deferred transmission costs (less accumulated amortization of $87 and $4)................. 913 996
-------- --------
$133,089 $ 88,378
-------- --------
-------- --------
LIABILITIES AND PARTNERS' DEFICIENCY
Current liabilities:
Bank debt-current.................................................................... $ 3,025 $ 7,975
Accounts payable..................................................................... 561 343
Accrued licensing fees............................................................... 3,969 3,595
Accrued payroll and related benefits................................................. 1,901 1,496
Accrued management fees.............................................................. 807 943
Other accrued expenses............................................................... 4,183 2,624
Accounts payable-affiliates.......................................................... 2,527 2,347
Accrued feature film rights payable.................................................. 26,157 22,490
-------- --------
Total current liabilities....................................................... 43,130 41,813
Bank debt-long term....................................................................... 44,000 50,025
Long-term feature film rights payable..................................................... 73,940 47,146
-------- --------
Total liabilities............................................................... 161,070 138,984
Commitments and contingencies
Partners' deficiency................................................................. (27,981) (50,606)
-------- --------
$133,089 $ 88,378
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Revenues (including affiliate amounts of $21,582, $17,577 and $24,664)........... $87,618 $69,715 $62,980
------- ------- -------
Operating expenses:
Technical (including affiliate amounts of $4,139, $3,309 and $4,407)........ 34,884 29,048 23,671
Selling, general and administrative (including affiliate amounts of $5,547,
$4,480 and $4,456)........................................................ 25,093 21,532 20,093
Depreciation and amortization............................................... 1,791 1,728 1,727
------- ------- -------
61,768 52,308 45,491
------- ------- -------
Operating income....................................................... 25,850 17,407 17,489
------- ------- -------
Other income (expense):
Interest income............................................................. 190 170 567
Interest expense............................................................ (3,294) (1,884) (277)
Miscellaneous, net.......................................................... (121) (17) (21)
------- ------- -------
(3,225) (1,731) 269
------- ------- -------
Net income.................................................................. $22,625 $15,676 $17,758
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RPE LIBERTY NBC TOTAL
------- -------- ------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1991............................................ $ 9,521 $ 11,039 $ -- $ 20,560
Sale of partnership interest................................... (5,345) -- 5,345 --
Net income..................................................... 5,024 8,879 3,855 17,758
Distributions.................................................. (6,650) (13,300) (6,650) (26,600)
------- -------- ------- --------
Balance, December 31, 1991.......................................... 2,550 6,618 2,550 11,718
Net income..................................................... 3,919 7,838 3,919 15,676
Distributions.................................................. (19,500) (39,000) (19,500) (78,000)
------- -------- ------- --------
Balance, December 31, 1992.......................................... (13,031) (24,544) (13,031) (50,606)
Net income..................................................... 5,656 11,313 5,656 22,625
------- -------- ------- --------
Balance, December 31, 1993.......................................... $(7,375) $(13,231) $(7,375) $(27,981)
------- -------- ------- --------
------- -------- ------- --------
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 22,625 $ 15,676 $ 17,758
-------- -------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 1,791 1,728 1,727
Amortization of discount on notes payable........................... -- -- 238
Amortization of deferred financing costs............................ 142 71 --
Amortization of deferred transmission costs......................... 83 4 --
Changes in assets and liabilities:
Trade accounts receivable...................................... (3,328) (1,814) 1,054
Trade accounts receivable -- affiliates........................ (706) 1,722 (1,602)
Prepaid expenses and other current assets...................... 37 (6) (226)
Feature film inventory......................................... (33,584) (29,326) 5,245
Deferred transmission costs.................................... -- (500) (500)
Deposits and other assets...................................... -- -- 93
Accounts payable and accrued liabilities....................... 2,420 (603) 283
Accounts payable -- affiliates................................. 180 932 (2)
Feature film rights payable.................................... 30,461 30,478 (7,854)
-------- -------- --------
Total adjustments......................................... (2,504) 2,686 (1,544)
-------- -------- --------
Net cash provided by operating activities................. 20,121 18,362 16,214
-------- -------- --------
Cash flows used by investing activities:
Capital expenditures..................................................... (449) (506) (202)
-------- -------- --------
Cash flows from financing activities:
Partners' capital distributions.......................................... -- (78,000) (26,600)
Repayment of bank debt and notes payable................................. (16,975) (8,000) (1,628)
Proceeds from bank debt.................................................. 6,000 66,000 --
Additions to deferred financing costs.................................... -- (853) --
-------- -------- --------
Net cash used in financing activities..................... (10,975) (20,853) (28,228)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.......................... 8,697 (2,997) (12,216)
Cash and cash equivalents at beginning of year................................ 333 3,330 15,546
-------- -------- --------
Cash and cash equivalents at end of year...................................... $ 9,030 $ 333 $ 3,330
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. The Company
American Movie Classics Company (the 'Company') is a general partnership
organized as of January 1, 1987, under the provisions of the New York State
Partnership Law to produce, market and distribute the American Movie Classics
service (the 'Service') to the pay television industry. The partnership will
terminate January 1, 2086 unless earlier termination occurs as provided for in
the partnership agreement.
The general partners of the Company are Rainbow Program Enterprises
('RPE'), a limited partnership, a subsidiary of the National Broadcasting
Company, Inc. ('NBC') and Liberty Media, Inc. ('Liberty'). RPE is indirectly
substantially wholly-owned by Rainbow Programming Holdings, Inc. ('RPH'). RPH is
wholly-owned by Cablevision Systems Corporation ('CSC'). The Company is 50%
owned by Liberty and 25% owned each by RPE and NBC, with RPE being the managing
general partner.
The partnership agreement of the Company contains a provision allowing any
partner to commence a buy-sell procedure by establishing a stated value for the
Company's partnership interests. On August 2, 1993, RPE received a notice from
Liberty initiating the buy-sell procedure and setting a stated value of $390
million, subject to certain working capital adjustments, for all of the
partnership interests in the Company, including the debt associated with such
interests. Liberty also valued at $5 million (subject to the same buy-sell
procedure) the transmission services and production facility agreement dated
January 1, 1987 between Rainbow Network Communications and the partnership and
all management and consulting fee obligations of the partnership existing at the
closing. On September 16, 1993, RPE notified its partners that it had elected to
purchase Liberty's 50% interest in the Company. The consummation of the purchase
of Liberty's 50% interest in the Company is subject to a number of conditions
and is expected to occur in 1994. The purchase of Liberty's interest in the
partnership will trigger a clause in Liberty's affiliation agreement that states
that continued affiliation with the Company will only be required for an
additional three year period commencing with the sale date.
The Company is in the process of developing a new programming service named
Romance Classics which will operate as a separate division. This service, which
is scheduled to launch in February, 1995, will provide additional cable
television programming featuring films with a romantic theme.
2. Summary of Significant Accounting Policies
Film Telecast Rights
The Company accounts for telecast rights of feature film inventory in
accordance with Financial Accounting Standards Board Statement No. 63,
'Financial Reporting by Broadcasters' ('FAS 63'). Accordingly, rights acquired
under license agreements along with the related obligations are recorded at the
contract value. Costs are amortized based on either a per subscriber cost for
each airing or on the straight-line method based upon the intended number of
days to be aired. 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.
The balance sheet at December 31, 1992 has been adjusted to reflect the
classification of film telecast rights and the related obligation in accordance
with FAS 63. Previously, the total amount of rights costs and the corresponding
total liability were classified as a current asset or liability, respectively,
when a film or group of films first became available for airing. The effect of
this adjustment was to decrease current assets by $5,096,000 and decrease
current liabilities by $2,443,000 at December 31, 1992.
F-73
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Amounts payable during the five years subsequent to December 31, 1993
related to the feature film rights amount to $26,157,000 in 1994, $12,042,000 in
1995, $7,978,000 in 1996, $6,749,000 in 1997, and $6,934,000 in 1998.
Property and Equipment
Property and equipment are carried at cost and depreciated on the
straight-line basis over the estimated useful lives of the assets or, with
respect to leasehold improvements, amortized over the lesser of the lease term
or the assets' useful lives.
Film, Program and Affiliation Agreements
Costs previously allocated to film, program and affiliation agreements were
amortized on the straight-line basis, over a seven-year period.
Deferred Financing Costs
Costs incurred in obtaining debt are deferred and amortized, on the
straight-line basis, over the life of the related debt.
Deferred Transmission Costs
Deferred transmission costs represent prepayments required to secure
satellite transponder space on a new satellite and are being amortized to
technical expense over the projected life (approximately 12 years) of the
satellite (See Note 5).
Income Taxes
The Company operates as a general partnership; accordingly, its taxable
income or loss is included in the tax returns of the individual partners, and no
provision for income taxes is made on the books of the Company.
Revenue Recognition
The Company recognizes revenues when programming services are provided to
cable television systems ('Cable Affiliates') or other pay television operators.
The Company's Cable Affiliates are located throughout the United States.
One Cable Affiliate individually represents greater than 5% of the Company's
1993 revenues. At December 31, 1993, one Cable Affiliate individually accounted
for greater than 5% of the accounts receivable balance.
Cash Flows
The Company considers temporary cash investments with original maturities
of three months or less at the time of purchase to be cash equivalents. During
the years ended December 31, 1993, 1992 and 1991, the Company paid cash interest
expense of $3,290,000, $1,520,000 and $277,000, respectively.
F-74
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ ESTIMATED
1993 1992 USEFUL LIVES
---------- ---------- --------------
<S> <C> <C> <C>
Origination equipment..................................... $ 732,000 $ 596,000 7 years
Machinery and equipment................................... 790,000 647,000 5 to 8 years
Furniture and fixtures.................................... 535,000 461,000 3 to 8 years
Leasehold improvements.................................... 446,000 350,000 Life of lease
---------- ----------
$2,503,000 $2,054,000
---------- ----------
Less accumulated depreciation and amortization............ 1,397,000 1,097,000
---------- ----------
$1,106,000 $ 957,000
---------- ----------
---------- ----------
</TABLE>
4. Bank Debt
On June 26, 1992, the Company entered into a loan agreement (the 'Loan
Agreement') with a group of banks (with the Toronto Dominion Bank as Lead Bank).
The Loan Agreement, which permits maximum borrowings of $70,000,000 and matures
on June 30, 1998, is comprised of a $55,000,000 term loan and a $15,000,000
revolver. At December 31, 1993, there were no borrowings under the revolver and
an outstanding balance of $47,025,000 under the term loan. Borrowings under the
Loan Agreement bear interest at varying rates above the Lead Bank's base, CD or
LIBOR rate depending on the ratio of debt to cash flow, as defined in the Loan
Agreement. The Company has entered into an interest rate swap agreement on a
notional amount of $20,000,000 under which the Company pays a fixed rate and
receives a variable rate. The interest rate swap agreement expires on October 6,
1997. The Company is exposed to credit loss in the event of nonperformance by
the other parties to the interest rate swap agreement; however, the Company does
not anticipate nonperformance by the counterparties. At December 31, 1993 and
1992, the weighted average interest rate on bank indebtedness approximated 5.60%
and 5.76%, respectively. The Company incurred approximately $853,000 of costs in
connection with the Loan Agreement. Substantially all of the assets of the
Company have been pledged to secure the borrowings under the Loan Agreement.
Amounts payable during the five years subsequent to December 31, 1993 under
the Loan Agreement amount to $3,025,000 in 1994, $7,975,000 in 1995, $16,995,000
in 1996, $12,980,000 in 1997 and $6,050,000 in 1998, plus any amounts
outstanding under the Revolver.
The Loan Agreement contains various restrictive covenants with which the
Company was in compliance at December 31, 1993. During 1992, substantially all
of the bank loan proceeds were distributed to the partners on the basis of their
respective ownership percentage interests, thereby resulting in a partners'
capital deficiency at December 31, 1993 and 1992.
5. Affiliate Transactions
The Company provides programming to the pay television industry under
contracts called affiliation agreements. Revenues earned under affiliation
agreements with companies owned or affiliated with CSC and Liberty for the years
ended December 31, 1993, 1992 and 1991, were approximately $21,582,000,
$17,577,000 and $24,664,000, respectively. Such revenue amounts are calculated
at varying rates per the contract agreements.
The Company has agreements, which expire in 1997, with CSC and Liberty for
these companies to provide management services. Each of the agreements provide
for the payment, in addition to expense
F-75
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
reimbursement, of a fee equal to 1.75% of the Company's gross revenues, as
defined. Pursuant to the terms of these agreements, the Company was charged
management fees of $2,958,000, $2,456,000 and $2,232,000 in 1993, 1992 and 1991,
respectively.
Rainbow Network Communications ('RNC'), an affiliate of the Company,
provides certain transmission and production services to the Company. The
Company was charged approximately $4,421,000, $3,552,000 and $4,626,000 in 1993,
1992 and 1991, respectively, for these services. In addition, to secure
transponder space on a new satellite that would transmit the Service, the
Company made pre-launch payments of $500,000 each in 1992 and 1991. The payments
were made to RNC who leases the transponder space directly from the supplier.
The satellite was successfully launched in late 1992.
Liberty, as part of the buy-sell procedure, has offered to terminate the
management service agreement with the Company and the transmission services and
production facilities agreement for $5 million.
RPH provides the Company with certain administrative services. The Company
was charged approximately $2,449,000, $2,093,000 and $2,007,000 in 1993, 1992
and 1991, respectively, for these services.
The Company provides certain administrative, creative and production
services to various affiliates. For the years ended December 31, 1993, 1992 and
1991, $927,000, $1,061,000 and $793,000, respectively, was charged to such
affiliates for these services.
Various affiliates provide the Company with certain administrative,
creative and production services and office facilities. The Company was charged
approximately $785,000, $749,000 and $791,000, for the years ended December 31,
1993, 1992, and 1991, respectively, for these services.
6. Pension Plan
CSC with its affiliates, including the Company, maintained a defined
contribution pension plan covering substantially all of the Company's and its
affiliates' employees. The Company contributed 3% of eligible employees' annual
compensation (as defined), and employees could voluntarily contribute up to 10%
of their annual compensation. The cost associated with this plan was
approximately $94,000 and $76,000 for the years ended December 31, 1992 and
1991, respectively.
Effective January 1, 1993, the Board of Directors of Cablevision approved
the adoption of an amended and restated Pension and 401(K) savings plan (the
'Plan'), in part to permit participants to make contributions to the Plan on a
pre-tax salary reduction basis in accordance with the provisions of Section
401(K) of the Internal Revenue Code, and to introduce new investment options
under the Plan. The Company contributes 1 1/2% of eligible employees' annual
compensation, as defined, to the defined contribution portion of the Plan (the
'Pension Plan') and an equivalent amount to the Section 401(K) portion of the
Plan (the 'Savings Plan'). Employees may voluntarily contribute up to 15% of
eligible compensation, subject to certain restrictions, to the Savings Plan,
with an additional matching contribution by the Company of 1/4 of 1% for each 1%
contributed by the employee, up to a maximum contribution by the Company of 1/2
of 1% of eligible base pay. Employee contributions are fully vested as are
employer base contributions to the Savings Plan. Employer contributions to the
Pension Plan and matching contributions to the Savings Plan become vested in
years three through seven. The cost associated with this amended plan was
approximately $120,000 for the year ended December 31, 1993.
The Company does not provide any postretirement benefits to its employees.
F-76
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
7. Leases
The Company leases certain facilities under operating lease agreements
which expire at various dates through 1995. Total rent expense paid to third
parties amounted to approximately $110,000, $131,000 and $106,000 for the years
ended December 31, 1993, 1992 and 1991, respectively. The following is a
schedule of future minimum payments for operating leases as of December 31,
1993:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- ------------------------------------------------------------------------
<S> <C>
1994.......................................................... $ 74,000
1995.......................................................... 38,000
--------
Total minimum lease payments.................................. $112,000
--------
--------
</TABLE>
8. Legal Matters
Broadcast Music, Inc. ('BMI'), an organization which licenses the
performance of the musical compositions of its affiliated composers, authors and
publishers, has alleged that the Company and certain of its affiliates need a
license to exhibit programs containing musical compositions in BMI's catalog and
that continued use requires a license. The Company had a license from BMI
through 1989. On June 24, 1992, the Company and BMI entered into a written
license agreement covering the period January 1, 1990 through June 30, 1993
which agreement was extended through June 30, 1994 by amendment to the license
agreement.
The American Society of Composers, Authors and Publishers (ASCAP), another
organization which licenses the performance of the musical compositions of its
members, has also alleged that the Company and certain of its affiliates need a
license to exhibit programs containing musical compositions in its catalog and
that continued use requires a license. The subject of the fees to be paid to
ASCAP and the manner in which they will be paid has been submitted to a Federal
Rate Court in New York and is still pending. By submitting the matter to the
Federal Rate Court, the Company and certain of its affiliates have been licensed
by ASCAP for periods subsequent to July 25, 1989. An interim fee was set by the
Federal Rate Court at $0.15 per viewing subscriber per year for periods
subsequent to March 6, 1989. The Company believes this rate was set by the Court
in error and should have been set at 0.3% of gross revenues. ASCAP has agreed to
payment based on 0.3%. The interim fee is subject to adjustment when a final
decision is reached by the Federal Rate Court. In addition, ASCAP has sought
payments for license fees for part or all of the period from January 1, 1986 to
March 6, 1989.
SESAC, another organization which licenses the performance of the musical
compositions of its members, has alleged that the Company has exhibited programs
containing musical compositions in its catalog. The Company and SESAC have
reached agreement on programming containing SESAC music pursuant to which the
Company will pay $60,000, of which $30,000 will be allocated to other
affiliates, in consideration of a release for musical composition in SESAC's
catalog used by the Company and its affiliates.
Management does not believe the outcome of these matters will have a
material adverse effect on the financial position of the Company.
F-77
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
BALANCE SHEET
JUNE 30, 1994 (DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents.................................................................... $ 12,610
Trade accounts receivable, (less allowance for doubtful accounts of $2,347).................. 13,624
Trade accounts receivable -- affiliates...................................................... 4,279
Prepaid expenses and other current assets.................................................... 383
Feature film inventory....................................................................... 9,587
------------
Total current assets.................................................................... 40,483
Property and equipment, net....................................................................... 1,160
Long-term feature film inventory.................................................................. 127,669
Deferred financing costs (less accumulated amortization of $284).................................. 569
Deferred transmission costs (less accumulated amortization of $128).......................... 872
------------
$ 170,753
------------
------------
LIABILITIES AND PARTNERS' DEFICIENCY
Current liabilities:
Accounts payable............................................................................. $ 474
Accrued licensing fees............................................................................ 3,494
Accrued payroll and related benefits......................................................... 1,604
Accrued management fees...................................................................... 880
Other accrued expenses....................................................................... 9,871
Accounts payable -- affiliates............................................................... 1,754
Accrued feature film rights payable.......................................................... 8,895
Bank debt -- current......................................................................... 5,500
------------
Total current liabilities............................................................... 32,472
Bank debt -- long term............................................................................ 40,013
Long-term feature film rights payable............................................................. 110,044
------------
Total liabilities....................................................................... 182,529
------------
Commitment and contingencies
Partners' deficiency......................................................................... (11,776)
------------
$ 170,753
------------
------------
</TABLE>
F-78
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
STATEMENT OF INCOME
PERIOD FROM JANUARY 1, 1994 TO JUNE 30, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Revenues, net.......................................................................................... $49,199
-------
Operating expenses:
Technical......................................................................................... 16,532
Selling, general and administrative............................................................... 15,175
Depreciation and amortization..................................................................... 136
-------
31,843
-------
Operating income............................................................................. 17,356
-------
Other income (expense):
Interest income................................................................................... 284
Interest expense.................................................................................. (1,420)
Miscellaneous, net................................................................................ (15)
-------
(1,151)
-------
$16,205
-------
-------
</TABLE>
F-79
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
STATEMENT OF PARTNERS' DEFICIENCY
PERIOD FROM JANUARY 1, 1994 TO JUNE 30, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RPE LIBERTY NBC TOTAL
------- -------- ------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1994............................................. $(7,375) $(13,231) $(7,375) $(27,981)
Net income........................................................... 4,051 8,103 4,051 16,205
------- -------- ------- --------
Balance, June 30, 1994............................................... $(3,324) $ (5,128) $(3,324) $(11,776)
------- -------- ------- --------
------- -------- ------- --------
</TABLE>
F-80
<PAGE>
AMERICAN MOVIE CLASSICS COMPANY
(A GENERAL PARTNERSHIP)
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1994 TO JUNE 30, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................................................... $ 16,205
------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................................ 136
Amortization of deferred financing........................................................... 71
Amortization of deferred transmission costs.................................................. 41
Changes in assets and liabilities:
Trade accounts receivable............................................................... (4,473)
Trade accounts receivable related parties............................................... (559)
Prepaid expenses and other current assets............................................... (105)
Feature film inventory.................................................................. (29,005)
Accounts payable and accrued liabilities................................................ 4,902
Accounts payable -- related parties..................................................... (773)
Feature film rights payable............................................................. 18,842
------------
Total adjustments.................................................................. (10,923)
------------
Net cash provided by operating activities.......................................... 5,282
------------
Cash flows used by investing activities:
Capital expenditures......................................................................... (190)
------------
Cash flows from financing activities:
Repayment of bank debt....................................................................... (1,512)
------------
Net increase in cash and cash equivalents.................................................... 3,580
Cash and cash equivalents at beginning of period............................................. 9,030
------------
Cash and cash equivalents at end of period........................................................ $ 12,610
------------
------------
</TABLE>
F-81
<PAGE>
APPENDIX A
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
212 713-2000
[LOGO]
October 17, 1995
Charles F. Dolan
CABLEVISION SYSTEMS BOSTON CORPORATION
AS GENERAL PARTNERS OF CABLEVISION
OF BOSTON LIMITED PARTNERSHIP
28 Travis Street
Boston, Massachusetts 02134
Gentlemen:
Cablevision of Boston Limited Partnership (the 'Partnership') is seeking
the consent of its limited partners (the 'Limited Partners') to (i) the transfer
of substantially all of the Partnership's assets and liabilities to a new
corporation ('Boston Sub') that will be a wholly-owned subsidiary of the
Partnership (the 'Incorporation') and (ii) the merger (the 'Merger') of Boston
Sub with a wholly-owned subsidiary of Cablevision Systems Corporation
('Cablevision') in which the Partnership will receive shares of Class A Common
Stock of Cablevision (the 'Cablevision Class A Common Stock') for its interest
in the stock of Boston Sub. The Merger is conditioned upon the consummation of
the Incorporation. After consummation of the Merger, the Partnership will
liquidate (the 'Liquidation') and the Cablevision Class A Common Stock received
by the Partnership in the Merger will be distributed to the partners of the
Partnership and the holders of the Partnership's preferred equity. The
Partnership has entered into an agreement (the 'Merger Agreement') with
Cablevision to effect the Merger, which is subject, among other things, to the
approval by the Limited Partners of each of the proposals related thereto.
Consummation of both the Incorporation and the Merger (collectively, the
'Transactions') would result in each of the Limited Partners not affiliated with
the general partners of the Partnership or with Cablevision ('Unaffiliated
Limited Partners') receiving in the Liquidation Cablevision Class A Common Stock
with an expected market value of approximately $10,000 for each unit (a 'Unit')
of limited partnership interest held by such Unaffiliated Limited Partner. The
market value of the Cablevision Class A Common Stock to be received by such
Unaffiliated Limited Partners will be based on an average market value of the
Cablevision Class A Common Stock for the 20 trading days ending on the second
day prior to the effective date of the Merger (the 'Average Cablevision Stock
Price'). The exact number of shares of Cablevision Class A Common Stock to be
distributed and the value thereof would depend on the timing of the Transactions
and certain other factors. If the Incorporation is approved and consummated and
the Merger is not consummated, the Partnership will not liquidate and the
Limited Partners will not receive any distributions absent further action on the
part of the general partners of the Partnership (the 'General Partners') and the
Limited Partners. The Incorporation is not conditioned upon obtaining consents
from the Limited Partners to the approval of the Merger. Each of the
Transactions is subject to the separate consent and approval of the Limited
Partners (other than the Limited Partners affiliated with the General Partners)
entitled to 50% or more of the net profits and net losses of the Partnership
allocated to such Limited Partners.
A-1
<PAGE>
PaineWebber
You have asked us whether or not, in our opinion, the consideration to be
received in the Liquidation by Unaffiliated Limited Partners is fair, from a
financial point of view, to such Unaffiliated Limited Partners.
In arriving at the opinion set forth below, we have:
<TABLE>
<CAPTION>
<S> <C>
(i) reviewed the preliminary Consent Solicitation Statement/Prospectus dated as of September 18, 1995 to
be filed with the Securities and Exchange Commission (the 'Prospectus');
(ii) reviewed the Merger Agreement;
(iii) reviewed both the Partnership's and Cablevision's filings under the Securities Exchange Act of 1934
as amended, including Annual Reports on Form 10-K for the three years ended December 31, 1994
and Quarterly Reports on Form 10-Q for the quarter ended June 30, 1995;
(iv) reviewed certain operating and financial information furnished by managment of each of Cablevision and
the Partnership relating to the business, properties, financial condition, results of operations and
prospects of Cablevision and the Partnership;
(v) reviewed certain financial ratios of Cablevision and the Partnership;
(vi) conducted discussions with members of senior management of Cablevision and the Partnership with
respect to the business, properties, financial condition, results of operations and prospects of
Cablevision and the Partnership;
(vii) reviewed certain financial and business information and analyses specifically prepared by management
of Cablevision and the Partnership in connection with the Transactions relating to the assets and
operations of Cablevision and the Partnership;
(viii) reviewed certain financial projections prepared by management of each of Cablevision and the
Partnership relating to Cablevision and the Partnership;
(ix) reviewed the historical market prices and trading volumes of Cablevision Class A Common Stock;
(x) analyzed public information with respect to certain other entities that we deemed to be generally
comparable to Cablevision and the Partnership;
(xi) considered the financial terms of selected recent business combinations which we considered to be
generally comparable to the Merger; and
(xii) conducted such other financial studies, analyses and investigations as we deemed appropriate.
</TABLE>
A-2
<PAGE>
PaineWebber
In the course of preparing our opinion, we have relied upon the accuracy
and completeness of the financial and other information provided by Cablevision
and the Partnership and the assurances of the management of Cablevision and the
Partnership that they are unaware of any information or factors regarding
Cablevision or the Partnership that would make the information supplied to us
incomplete or misleading. We did not assume any responsibility to undertake any
independent verification of such information or any independent appraisal or
evaluation of any of the assets or earnings of Cablevision or the Partnership.
Our opinion is based on conditions as they existed and could be evaluated on the
date hereof. We have assumed that the final prospectus with respect to the
Transactions will contain information and data substantially similar to that in
the Prospectus. We have not considered the tax effects to the Limited Partners
of the Transactions or any other transaction. We have not analyzed the relative
rights of the Limited Partners as limited partners of the Partnership to the
rights of the Limited Partners as holders of Cablevision Class A Common Stock.
Our analysis did not take into account any of the effects of the Incorporation.
We did not recommend the amount of the consideration to be received by any
Limited Partner, which was determined through negotiations between the General
Partners and Cablevision. We were not authorized to nor did we solicit third
parties who might be interested in making an investment in or acquiring the
Partnership or all or part of its assets. We have assumed that all conditions to
the Merger will be satisfied, including without limitation, that the
Incorporation will have been effected. We have also assumed that the Limited
Partners will receive as a distribution in the Liquidation Cablevision Class A
Stock with an aggregate Average Cablevision Stock Price of $40.0 million and
that, upon such distribution, the Limited Partners will not be subject to any
other liabilities of the Partnership.
We have been directed by the General Partners to assume for purposes of our
analysis that the holders of the preferred equity in the Partnership (the
'Preferred Equity') are entitled to receive in the Liquidation an amount at
least equal to $80 million in respect of the face amount of the Preferred Equity
and cumulative ditributions thereon (the 'Preferred Equity Interest') in the
absence of the agreed upon reductions as described in the Prospectus. We have
not attempted to reach an independent conclusion as to the amounts due in
respect of the Preferred Equity Interest. We note that the
Prospectus indicates that there is uncertainty as to the amounts due in respect
of the Preferred Equity Interest. Our analysis does not take into account that
the holders of the Preferred Equity could be found to be entitled to receive
less than $80 million. We further note that the holders of such Preferred Equity
have agreed to accept an amount less than $80 million in connection with the
Merger and subsequent Liquidation. Additionally, we have not relied upon any
legal opinion advising us as to the amounts due in respect of the Preferred
Equity, although we understand that the General Partners have received legal
advice with respect to such issues. We note that the General Partners' stated
belief that it is more likely than not that holders of the Preferred Equity
would be held to be entitled to receive an amount at least equal to $80 million
in the absence of the agreed upon reductions was limited to the Liquidation.
Our opinion does not address the relative merits of the Transactions and
any other transactions or other business strategies discussed by the General
Partners as alternatives to the Transactions or the decision of the General
Partners to proceed with the Transactions. Our opinion does not constitute a
recommendation to any Limited Partner as to how such Limited Partner should vote
on the Transactions.
A-3
<PAGE>
PaineWebber
We assume no responsibility to revise or update our opinion if there is a
change in (i) the financial condition or prospects of the Partnership or
Cablevision from that disclosed or projected in the information we reviewed as
set forth above; (ii) general, economic or market conditions; or (iii) the stock
price of Cablevision Class A Common Stock. We assumed that there has been no
material change in the Partnership's or Cablevision's assets, financial
condition, results of operations, business or prospects since the date of the
last financial statements made available to us.
Richard H. Hochman, who was a managing director of PaineWebber Incorporated
on the date we were retained to deliver our opinion, is a director of
Cablevision and during the past two years received $57,500 for his services as
such. Mr. Hochman owns six Units.
We have not addressed the fairness of the consideration to be received by
any particular Limited Partner. Without limiting the generality of anything else
contained herein, we have not been requested to, and do not, express any opinion
regarding the fairness of (i) the Incorporation to any party; (ii) the
consideration to be received in the Merger and the subsequent Liquidation by the
General Partners, Cablevision or any of their respective affiliates, including
any consideration received in their capacity as a Limited Partner; (iii) the
allocation of the consideration to the holders of Preferred Equity relative to
the holders of other interests in the Partnership; (iv) the relative allocation
of the consideration among the partners of the Partnership under the Partnership
Agreement; or (v) the consideration to be received by the Limited Partners who
elect to exercise dissenter's rights. We also express no opinion as to the price
at which the Cablevision Class A Common Stock will trade after consummation of
the Merger and the distribution of such stock in the Liquidation.
In rendering this opinion we have not been engaged to act as an agent or
fiduciary of the Partnership or the holders of interests in the Partnership, and
the Partnership has expressly waived any duties or liabilities we may have to
the holders of interests in the Partnership or any other third party.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the consideration to be received in the Liquidation by
the Unaffiliated Limited Partners is fair, from a financial point of view, to
such Unaffiliated Limited Partners.
Very truly yours,
PAINEWEBBER INCORPORATED
/s/ PAINEWEBBER INCORPORATED
A-4
<PAGE>
APPENDIX B
[Conformed Copy]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED COMPOSITE
ACQUISITION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Relating To
CABLEVISION OF BOSTON LIMITED PARTNERSHIP
Dated as of June 14, 1994
As Amended as of June 14, 1995 and September 14, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS .................................................................. 1
ARTICLE I
The Transactions; Closing; Effective Time
1.1. The Incorporation...................................................... 2
1.2. The Merger............................................................. 3
1.3. The Stock Sale......................................................... 3
1.4. The Preferred Equity Sale.............................................. 4
1.5. Closing ......................................................... 4
1.6. Effective Time......................................................... 4
1.7. Dissolution and Liquidation
of the Partnership................................................... 5
1.8. Appraisal Rights....................................................... 5
ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1. Certificate of Incorporation........................................... 6
2.2. The By-Laws............................................................ 6
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1. Officers and Directors................................................. 6
ARTICLE IV
Conversion of Shares at Effective Time
4.1. Conversion of Shares of Boston Sub Common
Stock ............................................................... 6
4.2. Anti-Dilution Provisions............................................... 8
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ARTICLE V
Representations and Warranties
5.1. Representations and Warranties
of Dolan............................................................. 8
5.1.1. Title to Shares, etc........................................... 8
5.1.2. Authority for Agreements....................................... 9
5.1.3. No Conflicts, etc.............................................. 9
5.1.4. Corporate Status............................................... 9
5.1.5. Capitalization................................................. 10
5.1.6. Litigation..................................................... 10
5.1.7. Financial Advisor; Brokers, Finders............................ 10
5.1.8. CSBrC.......................................................... 10
5.1.9. No Material Adverse Change, etc................................ 11
5.2. Representations and Warranties
of the Partnership .................................................. 11
5.2.1. Authority for Agreements....................................... 11
5.2.2. No Conflicts, etc.............................................. 11
5.2.3. Corporate and Partnership Power................................ 12
5.2.4. Status of Partnership.......................................... 12
5.2.5. Subsidiaries................................................... 12
5.2.6. Partnership Reports, etc....................................... 12
5.2.7. Litigation; No Default......................................... 14
5.2.8. Title to Assets; Liens......................................... 15
5.2.9. Landlords' Consents, etc....................................... 15
5.2.10. No Default..................................................... 15
5.2.11. Franchise Agreements........................................... 15
5.2.12. Franchises..................................................... 15
5.2.13. ERISA.......................................................... 16
5.2.14. Taxes.......................................................... 16
5.2.15. Fairness Opinion............................................... 16
5.3. Representations and Warranties
of Cablevision....................................................... 16
5.3.1. Corporate Status............................................... 16
5.3.2. Limited Partnership Status..................................... 16
5.3.3. Authority for Agreements....................................... 17
5.3.4. No Conflicts, etc.............................................. 17
5.3.5. Authorized Capital of Cablevision
and Merger Sub............................................... 17
5.3.6. Cablevision Reports; Financial
Statements................................................... 18
5.3.7. Litigation..................................................... 20
5.3.8. Purchase for Investment........................................ 20
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5.3.9. Financial Advisor; Brokers, Finders............................ 21
5.3.10. Fairness Opinion............................................... 21
ARTICLE VI
Covenants
6.1. Covenants of the General Partners
and the Partnership.................................................. 21
6.1.1. Filings and Authorizations..................................... 21
6.1.2. Partnership Credit Agreement................................... 22
6.1.3. Limited Partners' Approval..................................... 22
6.1.4. Stockholder Approval........................................... 22
6.1.5. SEC Filings.................................................... 22
6.1.6. Boston Sub Shares.............................................. 23
6.1.7. Affiliates Agreements.......................................... 23
6.1.8. Incorporation.................................................. 23
6.1.9. Other Actions.................................................. 24
6.2. Covenants of the Buyer................................................. 24
6.2.1. Filings and Authorizations..................................... 24
6.2.2. Amendment to CSC Credit Agreement.............................. 24
6.2.3. SEC Filings.................................................... 24
6.2.4. Other Filings.................................................. 25
6.2.5. Stock Exchange Listing......................................... 25
6.2.6. Other Actions.................................................. 25
ARTICLE VII
Conditions Precedent
7.1. Conditions Precedent to Each Party's
Obligations.......................................................... 25
7.1.1. Consummation of Incorporation.................................. 25
7.1.2. Limited Partner Approval....................................... 26
7.1.3. Cable Approvals................................................ 26
7.1.4. Amendment to Partnership
Credit Agreement............................................. 26
7.1.5. Amendment to CSC Credit Agreement.............................. 26
7.1.6. No Injunction, etc............................................. 26
7.1.7. Brookline Amendments........................................... 26
7.1.8. Consents....................................................... 26
7.1.9. Proxy Statement/Prospectus..................................... 27
7.1.10. Blue Sky Approvals............................................. 27
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7.1.11. Stock Exchange Listing......................................... 27
7.1.12. Purchase of CSBrC Shares....................................... 27
7.1.13. The Preferred Equity Sale...................................... 27
7.1.14. The Merger Restructuring Agreement............................. 27
7.2 Conditions to Obligations of Cablevision............................... 27
7.2.1. Representations, Performance, etc.............................. 27
7.2.2. Appraisal Rights............................................... 28
7.2.3. No Material Adverse Change..................................... 28
7.2.4. Opinion of Counsel............................................. 28
7.3 Conditions to Obligations of the
General Partners and the Partnership................................. 29
7.3.1. Representations, Performance, etc.............................. 29
7.3.2. No Material Adverse Change..................................... 29
7.3.3. Opinion of Counsel............................................. 29
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent.......................................... 30
8.2. Termination after the First Anniversary
of this Agreement.................................................... 30
8.3. Termination by Cablevision, the Partnership
or the General Partners if not Approved
by Unaffiliated Limited Partners..................................... 30
8.4. Special Termination Rights............................................. 30
8.5. Termination Upon Breach by Dolan Entity
or Cablevision Company............................................... 31
8.6. Effect of Termination.................................................. 31
ARTICLE IX
Definitions, Miscellaneous
9.1. Definition of Certain Terms............................................ 31
9.2. Survival of Representations and
Warranties........................................................... 37
9.3. Indemnification........................................................ 37
9.4. Expenses............................................................... 39
9.5. Further Assurances..................................................... 42
9.6. Severability........................................................... 42
9.7. Notices................................................................ 42
9.8. Miscellaneous.......................................................... 44
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9.8.1. Headings....................................................... 44
9.8.2. Entire Agreement............................................... 44
9.8.3. Counterparts................................................... 44
9.8.4. Governing Law.................................................. 44
9.8.5. Assignment..................................................... 44
9.8.6. No Third Party Beneficiaries................................... 45
9.8.7. Amendment; Waivers............................................. 45
9.8.8. No Effect on Preferred Equity.................................. 45
ANNEXES
ANNEX I Incorporation Restructuring Agreement
ANNEX II Calculation of Reductions
ANNEX III Merger Restructuring Agreement
ANNEX IV Brookline Sale Agreement
ANNEX V Brookline Partnership Agreement Amendment
ANNEX VI Appraisal Rights
SCHEDULES
Schedule 5.3.4 Cablevision Conflicts
Schedule 7.2.4 Form of Opinion of Debevoise & Plimpton
Schedule 7.3.3 Form of Opinion of Cablevision General
Counsel
DISCLOSURE LETTERS
Dolan Disclosure Letter
Partnership Disclosure Letter
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ACQUISITION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
ACQUISITION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(hereinafter called the 'Agreement'), dated as of June 14, 1994, among
CABLEVISION OF BOSTON LIMITED PARTNERSHIP, a Massachusetts limited partnership
(the 'Partnership'), CABLEVISION OF BOSTON, INC., a Delaware corporation wholly
owned by the Partnership ('Boston Sub'), CHARLES F. DOLAN, a general partner of
the Partnership ('Dolan'), CABLEVISION SYSTEMS BOSTON CORPORATION, a
Massachusetts corporation wholly owned by Dolan ('CSBC' and, together with
Dolan, the 'General Partners'), CABLEVISION SYSTEMS CORPORATION, a Delaware
corporation ('Cablevision'), COB, Inc., a Delaware corporation and a wholly
owned subsidiary of Cablevision ('Merger Sub'), CABLEVISION SYSTEMS SERVICES
CORPORATION, a Delaware corporation and an affiliate of Dolan ('CSSC'), and
CABLEVISION FINANCE LIMITED PARTNERSHIP, a New York limited partnership wholly
owned by Cablevision ('Finance LP').
RECITALS
WHEREAS, the Partnership owns and operates a cable television
system in the City of Boston, Massachusetts (the 'Boston System');
WHEREAS, Dolan and CSBC are the general partners of the
Partnership and each owns 1/2% of the partnership interests in the Partnership;
WHEREAS, the Partnership owns 99% of the partnership interests
in Cablevision of Brookline Limited Partnership, a Massachusetts limited
partnership ('Brookline'), which owns and operates a cable television system in
Brookline, Massachusetts (the 'Brookline System' and, together with the Boston
System, the 'Systems'), and Dolan and Cablevision Systems Brookline Corporation,
a Delaware corporation wholly-owned by Dolan ('CSBrC') are the general partners
of , and each owns 1/2% of the partnership interests in, Brookline;
WHEREAS, the Partnership owns all of the outstanding capital
stock of Boston Sub;
WHEREAS, Cablevision and the Partnership wish to enter into an
agreement providing for the merger of Merger Sub with and into Boston Sub so
that, following such merger, Cablevision will own all of the outstanding stock
of Boston Sub;
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WHEREAS, the parties intend the Merger to be a reorganization
pursuant to Section 368(a) of the Internal Revenue Code of 1986, as amended;
WHEREAS, immediately prior to the Merger, CSSC wishes to sell
to Finance LP, and Finance LP wishes to acquire from CSSC, all of CSSC's
Preferred Equity in the Partnership as set forth more fully herein;
WHEREAS, immediately prior to the Merger, Dolan wishes to sell
to Cablevision, and Cablevision wishes to acquire from Dolan, all of the
outstanding capital stock of CSBrC as set forth more fully herein; and
WHEREAS, Cablevision, Finance LP, CSSC and Dolan hold certain
claims and interests in the Partnership relating to subordinated debt, advances,
management fees, Preferred Equity and accrued and unpaid dividends and
distributions thereon, and such parties wish to settle such interests in
connection with the Merger.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein the
parties hereto hereby agree as follows:
ARTICLE I
The Transactions; Closing; Effective Time
1.1. The Incorporation. Prior to the Closing Date (as defined
in Section 1.5), the Partnership shall have transferred to Boston Sub all of the
assets and liabilities of the Boston System and of the Partnership (other than
cash and cash equivalents in an amount reasonably necessary to pay the expenses
of the Partnership in connection with the transactions contemplated by this
Agreement and not exceeding $100,000, which cash and cash equivalents will be
segregated and held apart for such purpose and are hereinafter referred to as
the 'Expense Reserve Fund') in exchange for all of the issued and outstanding
capital stock of Boston Sub. All such transferred assets are hereinafter
referred to as the 'Boston Assets' and all such transferred liabilities are
hereinafter referred to as the 'Boston Liabilities.' The incorporation of Boston
Sub and the exchange referred to in this Section 1.1 are hereinafter referred to
as the 'Incorporation.' Contemporaneous with the consummation of the
Incorporation, the Partnership, Finance LP, Cablevision, CSSC and Dolan shall
enter into the Incorporation Restructuring Agreement in substantially the
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form of Annex I hereto (the 'Incorporation Restructuring Agreement') providing
for (a) the reduction, effective from and after the date of the Incorporation,
in the rate of cumulative distributions on the Preferred Equity of the
Partnership from 15% per annum to 10% per annum, (b) a 10% reduction in the
aggregate amount of cumulative distributions on the Preferred Equity owed by the
Partnership to CSSC and Finance LP as of the date that the Incorporation
Restructuring Agreement is executed, (c) the assignment by CSSC to Finance LP of
a portion of the outstanding accrued and unpaid cumulative distributions with
respect to its Preferred Equity in the amount determined as provided in the
Incorporation Restructuring Agreement and (d) the release of the Partnership
from all obligations with respect to all Boston Liabilities owed to such parties
upon the assumption thereof by Boston Sub in the Incorporation.
1.2. The Merger. Subject to the terms and conditions of this
Agreement and in accordance with the Delaware General Corporation Law (the
'DGCL'), at the Effective Time (as defined in Section 1.6) Merger Sub shall be
merged with and into Boston Sub and the separate corporate existence of Merger
Sub shall thereupon cease (the 'Merger'). Boston Sub shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the 'Surviving
Corporation') and shall continue to be incorporated under and governed by the
laws of the State of Delaware. The Merger shall have the effects specified in
the DGCL. Contemporaneous with the Closing (as defined in Section 1.5), the
Partnership, Brookline, Cablevision, Finance LP, Boston Sub and CSSC shall enter
into the Merger Restructuring Agreement substantially in the form of Annex III
(the 'Merger Restructuring Agreement') hereto providing for (i) a reduction in
the outstanding amount of the cumulative distributions on the Preferred Equity
held by Finance LP in the amount determined pursuant to the formula described in
Annex II, (ii) the assignment by CSSC to Cablevision of a portion of the
outstanding management fees, interest on management fees and interest on
subordinated debt in the amount determined pursuant to Annex II, (iii) the
payment of the outstanding subordinated debt and advances, management fees and
accrued and unpaid interest thereon held by CSSC, Dolan and Finance LP and (iv)
termination of the Management Agreements between the Partnership and CSSC and
Brookline and CSSC.
1.3. The Stock Sale. Subject to the terms and conditions of
this Agreement, (i) at the Closing Dolan shall sell to Cablevision or its
designee, and Cablevision or its designee shall acquire from Dolan, all of the
outstanding capital stock of CSBrC (the 'CSBrC Stock') for an aggregate
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consideration of $100.00, and (ii) contemporaneous with the Closing, Dolan and
Cablevision shall enter into the Brookline Sale Agreement substantially in the
form of Annex IV hereto (the 'Brookline Sale Agreement') (x) granting
Cablevision a right of first refusal in Dolan's 0.5% general partnership
interest in Brookline and a right to acquire such interest on the earlier to
occur of Dolan's death and January 1, 2002 at the greater of $10,000 and the
book value of such interest (the 'Call Price'), (y) granting Dolan's estate a
right to put such interest to Cablevision at the Call Price, and (z) granting
Dolan the right to put such interest to Cablevision at the greater of the prices
ranging from $4.8 million in 1994 to $10,000 in 2002 and the Call Price in the
event of a Change of Control (as defined in the Brookline Sale Agreement) of
Cablevision or Brookline. The sale of stock provided for in this Section 1.3 is
hereinafter referred to as the 'Stock Sale.' In connection with and as a
condition to the Stock Sale, Dolan shall cause Brookline to execute an amendment
to the Brookline Partnership Agreement substantially in the form of Annex V
hereto.
1.4. The Preferred Equity Sale. Subject to the terms and
conditions of this Agreement, immediately prior to the Closing CSSC shall sell
to Finance LP, and Finance LP shall acquire from CSSC, all of CSSC's Preferred
Equity (including cumulative distributions thereon after giving effect to the
reductions and the assignment pursuant to the Incorporation Restructuring
Agreement) in the Partnership (the 'Transferred Preferred Equity') for an
aggregate cash consideration of $4.6 million. The sale of Preferred Equity
provided for in this Section 1.4 is hereinafter referred to as the 'Preferred
Equity Sale.'
1.5. Closing. The closing of the Merger and the Stock Sale
(the 'Closing') shall take place (i) at the offices of Sullivan & Cromwell, 125
Broad Street, New York, New York 10004, at 10:00 A.M. on the first business day
on which the last to be fulfilled or waived of the conditions set forth in
Article VII hereof shall be fulfilled or waived in accordance with this
Agreement or (ii) at such other place and time and/or on such other date as the
parties hereto may agree. The date upon which the Closing occurs is herein
called the 'Closing Date.'
1.6. Effective Time. As soon as practicable following the
Closing, the Company and Merger Sub will cause a Certificate of Merger to be
executed, acknowledged and filed with the Secretary of State of the State of
Delaware as provided in Section 251 of the DGCL (the 'Certificate of Merger').
The Merger shall become effective at the time at
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which the Certificate of Merger has been duly filed with the Secretary of State
of the State of Delaware and such time is hereinafter referred to as the
'Effective Time.'
1.7. Dissolution and Liquidation of the Partnership. As soon
as practicable following the Effective Time, the General Partners will cause the
dissolution and liquidation of the Partnership (the 'Dissolution and
Liquidation') pursuant to Article XI of the Partnership Agreement. The priority
of distributions in the Dissolution and Liquidation shall be as set forth in the
Partnership Agreement and the Merger Restructuring Agreement. In the Dissolution
and Liquidation, Limited Partners (other than Cablevision and its subsidiaries)
will not receive fractional shares. Instead, fractional shares will be
aggregated for each Limited Partner and, if there is a fractional share after
such aggregation, such fractional share will be rounded up to the next whole
number. Cablevision and Finance LP hereby agree that in the Liquidation and
Dissolution, they and their subsidiaries will be distributed such lesser number
of shares of Cablevision Class A Stock in respect of their limited partnership
interests as is necessary to effect the rounding of shares of Cablevision Class
A Stock distributed to Limited Partners other than Cablevision and its
subsidiaries. Finance LP and the Partnership hereby agree that the consideration
distributed to Finance LP in the Liquidation and Dissolution in respect of its
Preferred Equity shall consist of the Preferred Equity Shares issued in the
Merger to the Partnership in respect of the Preferred Equity and the accumulated
distributions thereon as such distributions are reduced in accordance with the
Incorporation Restructuring Agreement and the Merger Restructuring Agreement
(the amount of such Preferred Equity and such distributions as so reduced, the
'Preferred Equity Amount'). In the Dissolution and Liquidation, Cablevision and
its subsidiaries in respect of their Units shall not be entitled to receive more
than (i) the number of shares of Cablevision Class A Stock obtained by adding
the number obtained by dividing the sum of $2,538,000 by the Average Cablevision
Stock Price minus (ii) the number of shares of Cablevision Class A Stock
necessary to effect the rounding of shares of Cablevision Class A Stock
distributed to Limited Partners other than Cablevision and its subsidiaries, as
set forth in this Section 1.7.
1.8. Appraisal Rights. Cablevision agrees that, in connection
with the Liquidation, Cablevision shall grant appraisal rights to the limited
partners of the Partnership, to the extent and pursuant to the procedures set
forth in Annex VI hereto.
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ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1. Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of Merger Sub in effect immediately prior to the
Effective Time, until duly amended, except that the name of the Surviving
Corporation in said Certificate of Incorporation shall be 'Cablevision of
Boston, Inc.'
2.2. The By-Laws. At the Effective Time, the By-Laws of the
Surviving Corporation shall be the By-Laws of Merger Sub in effect immediately
prior to the Effective Time, until duly amended.
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1. Officers and Directors. The directors and officers of
Merger Sub at the Effective Time shall, from and after the Effective Time, be
the directors and officers, respectively, of the Surviving Corporation until
their successors shall have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and By-Laws.
ARTICLE IV
Conversion of Shares at Effective Time
4.1. Conversion of Shares of Boston Sub Common Stock. (a) At
the Effective Time, all of the shares of the common stock, par value $.01 per
share ('Boston Sub Shares'), of Boston Sub issued and outstanding immediately
prior to the Effective Time (other than Boston Sub Shares, if any, owned by
Cablevision, Merger Sub or any other subsidiary of Cablevision (collectively,
the 'Cablevision Companies') and Boston Sub Shares held in Boston Sub's treasury
immediately prior to the Effective Time) shall, by virtue of the Merger and
without any action on the part of the Partnership, as the holder thereof, be
converted in the aggregate into the right to receive the Merger
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Consideration. For purposes of this Agreement, the 'Merger Consideration' shall
mean the number of shares of Cablevision Class A Common Stock, par value $.01
per share ('Cablevision Class A Stock'), obtained by adding (x) the number
obtained by dividing the sum of $40,371,718 (less $10,000 times the number of
Units with respect to which the appraisal rights granted pursuant to Section 1.8
hereof have been perfected) by the Average Cablevision Stock Price and (y) the
number obtained by dividing the Preferred Equity Amount by the Average
Cablevision Stock Price (the 'Preferred Equity Shares'), rounded up to the next
whole share. The 'Average Cablevision Stock Price' shall mean the arithmetic
average of the closing price per share of the Cablevision Class A Stock for the
20 trading days ending on the second trading day prior to the Effective Time,
subject to adjustment in the event of payment in such 20 trading day period of
any dividend or other distribution of cash, assets or other property other than
regular dividend payments on Cablevision's Series C Preferred Stock, par value
$0.01 per share (the 'Cablevision Series C Preferred'). The closing price per
share for each day shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the American Stock
Exchange or, if the Cablevision Class A Stock is not listed or admitted to
trading on such Exchange, on the principal national securities exchange on which
the Cablevision Class A Stock is listed or admitted to trading or, if not listed
or admitted to trading on any national securities exchange, on the National
Association of Securities Dealers Automated Quotations National Market System
or, if the Cablevision Class A Stock is not listed or admitted to trading on any
national securities exchange or quoted on such National Market System, the
average of the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected from time to time
by Cablevision for that purpose. No fractional shares shall be issued pursuant
to the Merger.
(b) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder thereof, all Boston Sub Shares issued and
outstanding immediately prior to the Effective Time (other than Boston Sub
Shares owned by the Cablevision Companies) shall cease to be outstanding, shall
be cancelled and cease to exist, and the Partnership, as the holder of a
certificate formerly representing Boston Sub Shares, shall thereafter cease to
have any rights with respect to such Boston Sub Shares, except the right to
receive, without interest, the Merger Consideration.
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(c) Each Boston Sub Share issued and outstanding at the
Effective Time and owned by any of the Cablevision Companies, and each Boston
Sub Share issued and held in Boston Sub's treasury at the Effective Time, by
virtue of the Merger and without any action on the part of the holder thereof,
shall cease to be outstanding and shall be cancelled without payment of any
consideration therefor and shall cease to exist, and each holder of a
certificate representing any such Boston Sub Shares shall cease to have any
rights with respect to such Boston Sub Shares.
(d) At the Effective Time, each share of Common Stock, par
value $.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall remain outstanding and as a result of the Merger shall
thereafter constitute all of the issued and outstanding shares of the capital
stock of the Surviving Corporation.
4.2. Anti-Dilution Provisions. In the event that, between the
first day of the 20 day trading period referred to in Section 4.1 and the
Effective Time, Cablevision changes the number of shares of Cablevision Class A
Stock issued and outstanding as a result of a stock split, reverse stock split,
stock dividend, recapitalization, spin-off or other similar extraordinary
transaction, the number of shares of Cablevision Class A Stock to be issued in
the Merger shall be appropriately adjusted, taking into account the extent to
which such transaction or event has already been reflected in the computation of
the Average Cablevision Stock Price. The required adjustments shall be as agreed
to by the Partnership and Cablevision.
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of Dolan. Dolan represents
and warrants to Cablevision and Merger Sub that, except as set forth in the
Dolan Disclosure Letter:
5.1.1. Title to Shares, etc. Dolan owns, beneficially and of
record, the CSBrC Stock, free and clear of any Liens, and upon the
delivery of and payment therefor at the Closing as provided for in this
Agreement, Cablevision or its designee(s) will acquire good and
marketable title thereto, free and clear of any Liens other than any
Lien created by Cablevision or its designee(s).
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5.1.2. Authority for Agreements. Each of Dolan, CSBC, CSSC and
CSBrC has the legal capacity to execute and deliver the Transaction
Documents to which it is a party, to perform its obligations under the
Transaction Documents and to consummate the Transactions to which it is
a party. The execution and delivery of the Transaction Documents to
which Dolan, CSBC, CSBrC or CSSC is a party, and the consummation of
the Transactions to which any of them is a party, have been duly
authorized by all appropriate corporate or other action on the part of
Dolan, CSBC, CSBrC and CSSC, as the case may be. The Transaction
Documents to which Dolan, CSBC, CSSC and CSBrC are parties have been or
will be duly executed and delivered by Dolan, CSBC, CSSC and/or CSBrC,
as the case may be, and constitute or will, when executed, constitute
valid and legally binding obligations of such party, enforceable
against such party in accordance with the terms of such Transaction
Documents.
5.1.3. No Conflicts, etc. The execution and delivery of the
Transaction Documents by Dolan, CSBC, CSSC and CSBrC and the
consummation of the Transactions by Dolan, CSBC, CSSC and CSBrC will
not conflict with or result in any violation of or default under (i)
any provision of the certificate of incorporation or by-laws of CSBC,
CSSC or CSBrC or, (ii) except as to any Franchise, as to which no
representation or warranty is made in this Section 5.1.3, any mortgage,
indenture, lease, agreement or other instrument, permit, concession,
grant, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Dolan except, as to this
subsection (ii) only, any such conflict, violation or default as would
not adversely affect the ability of Dolan, CSBC, CSSC or CSBrC to
perform its obligations under this Agreement or any other Transaction
Document.
5.1.4. Corporate Status. Each of CSBC, CSSC and CSBrC is a
corporation duly incorporated, validly existing and in good standing
under the laws of the state of its incorporation with full corporate
power and authority to own its assets and carry on its business as now
conducted. CSBrC is qualified to do business in all jurisdictions in
which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have a
material adverse effect on its business, financial condition or
operations. CSBrC does not have any liabilities that are not also
liabilities of Brookline,
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other than immaterial franchise tax liability and other immaterial tax
liabilities.
5.1.5. Capitalization. (a) The authorized and outstanding
capital stock of CSBrC is as set forth in the Dolan Disclosure Letter.
All outstanding shares of CSBrC as set forth in the Dolan Disclosure
Letter have been duly authorized and validly issued and are fully paid
and non-assessable.
(b) There are no preemptive or similar rights on the part of
any holders of any class of securities of CSBrC. No options, warrants,
conversion or other rights, agreements or commitments of any kind
obligating CSBrC, contingently or otherwise, to issue or sell any
shares of its capital stock or any securities convertible into or
exchangeable for any such shares, are outstanding, and no authorization
therefor has been given. There are no outstanding contractual
obligations of CSBrC to repurchase, redeem or otherwise acquire any
outstanding shares of its capital stock.
(c) CSBrC has no subsidiaries.
5.1.6. Litigation. There is no judicial or administrative
action, suit, proceeding or investigation pending or, to the best of
Dolan's knowledge, threatened against Dolan, CSBC, CSSC or CSBrC which
involves the validity of any Transaction Document, of any amount
payable in respect of, or which relates in any way to, any outstanding
security of, interest in or claim of Cablevision, Finance LP or any
other Cablevision Company or any Dolan Entity against the Partnership,
Brookline or Boston Sub, or of any action taken or to be taken by Dolan
in connection with the Transaction Documents or the consummation of the
Transactions.
5.1.7. Financial Advisor; Brokers, Finders. None of the Dolan
Entities has retained any financial advisor, broker or finder or other
similar consultant other than PaineWebber Incorporated ('PaineWebber')
in connection with the transactions contemplated hereby so as to give
rise to any claim against Cablevision or Merger Sub for any financial
advisory, brokerage or finder's commission, fee or similar
compensation.
5.1.8. CSBrC. The representations and warranties in Section
5.2.7, 5.2.8, 5.2.10, 5.2.13 and 5.2.14 are true and correct as to
CSBrC and shall be applied
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mutatis mutandis to CSBrC as if such provisions were set forth in full
in this Section 5.1.8.
5.1.9. No Material Adverse Change, etc. Since December 31,
1993, there has been no material adverse change in the financial
condition or operations or the business of CSBrC (it being understood
that no representation or warranty with respect to any Cable Act
Effects is made in this Section 5.1.9).
5.2. Representations and Warranties of the Partnership. Except
as set forth in the Partnership Disclosure Letter, the Partnership represents
and warrants to Cablevision and Merger Sub as follows:
5.2.1. Authority for Agreements. Each of the Partnership,
Brookline and Boston Sub has the legal capacity to execute and deliver
the Transaction Documents to which it is a party, to perform its
obligations under the Transaction Documents and to consummate the
Transactions to which it is a party. The execution and delivery of the
Transaction Documents to which the Partnership, Brookline or Boston Sub
is a party, and subject, in the case of the Partnership and Boston Sub,
to the approval of each of the Incorporation and the Merger by the
Limited Partners who are not affiliated with Dolan or CSSC as provided
in the Partnership Agreement, the consummation of the Transactions to
which any of them is a party, have been duly authorized by all
appropriate corporate or partnership action on the part of the
Partnership, Brookline or Boston Sub, as the case may be. The
Transaction Documents have been or will be duly executed and delivered
by such entities and constitute or, when executed will constitute,
valid and legally binding obligations of such entities, enforceable
against such entities in accordance with the terms of such Transaction
Documents.
5.2.2. No Conflicts, etc. The execution and delivery of the
Transaction Documents by the Partnership, Brookline and Boston Sub and,
subject, in the case of the consummation of the Transactions by the
Partnership and Boston Sub, to the approval of each of the
Incorporation and the Merger by the Limited Partners who are not
affiliated with Dolan or CSSC as provided in the Partnership Agreement,
the consummation of the Transactions by the Partnership, Brookline and
Boston Sub will not conflict with or result in any violation of or
default under any provision of the Partnership Agreement, the Brookline
Partnership
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Agreement, the Certificate of Incorporation or Bylaws of Boston Sub or
any provision of any Franchise. Except as set forth on the Partnership
Disclosure Letter, no consent, license, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Authority or other third party is required on the part of
any such entities in connection with the execution and delivery by any
such entities of any Transaction Document or the consummation by any
such entities of the Transactions.
5.2.3. Corporate and Partnership Power. Each of the
Partnership, Brookline and Boston Sub (a) has all requisite corporate
or partnership power, as the case may be, and has all material
governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being conducted; and
(b) is qualified to do business in all jurisdictions in which the
nature of the business conducted by it makes such qualification
necessary and where failure so to qualify would have a material adverse
effect on its business, financial condition or operations.
5.2.4. Status of Partnership. The Partnership is a limited
partnership duly organized and validly existing under the laws of the
Commonwealth of Massachusetts.
5.2.5. Subsidiaries. None of the Partnership, Brookline and
Boston Sub has any subsidiaries, except that (i) Boston Sub is a wholly
owned subsidiary of the Partnership, (ii) the Partnership has a 99%
limited partnership interest in Brookline and (iii) the Partnership has
a 99.8% general partnership interest in Boston Transport Company, a
Massachusetts general partnership ('Boston Transport').
5.2.6. Partnership Reports, etc. (a) The Partnership has
delivered to Cablevision copies of (i) each registration statement,
Report on Form 8-K and proxy statement prepared by it since December
31, 1993, (ii) the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1993 and the Partnership's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994, each in the form filed
with the Securities and Exchange Commission (the 'SEC'), and (iii) all
other reports filed with the SEC since December 31, 1993 (collectively,
the 'Partnership Reports'). As of their respective dates, the
Partnership Reports did not contain any untrue
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statements of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the Partnership Reports (including the
related notes and schedules) fairly presents, in all material respects,
the consolidated financial position of the Partnership and its
subsidiaries (including Brookline) as of its date and each of the
consolidated statements of income and of changes in financial position
included in or incorporated by reference into the Partnership Reports
(including any related notes and schedules) fairly presents the results
of operations, retained earnings and changes in financial position, as
the case may be, of the Partnership and its subsidiaries for the
periods set forth therein (subject, in the case of unaudited
statements, to normal year-end audit adjustments), in each case in
accordance with generally accepted accounting principles consistently
applied during the periods involved, except as may be noted therein.
(b) The Partnership and Brookline did not have on
December 31, 1993 any material contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred
to or reflected or provided for in the balance sheet, including the
notes thereto, of the Partnership as at said date. Since December 31,
1993, there has been no material adverse change in the financial
condition or operations or the business of the Partnership and
Brookline from that set forth in the Partnership Reports (it being
understood that no representation or warranty with respect to any Cable
Act Effects is made in this Section 5.2.6(b)). Immediately prior to the
Effective Date, Boston Sub will have no liabilities that were not
liabilities of the Partnership immediately prior to the Incorporation,
except for (i) liabilities that are immaterial organizational
liabilities or immaterial franchise tax liabilities and (ii)
liabilities that are incurred in the ordinary course of business by
Boston Sub as a result of the operation of, and are not material to,
the Partnership's and Brookline's business after the Incorporation.
(c) Insofar as relating to the General Partners, the
Partnership or any of their respective
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subsidiaries (other than Cablevision and any of its subsidiaries) is
concerned (i) the Registration Statement on Form S-4 to be filed with
the SEC by Cablevision in connection with the issuance of Cablevision
Class A Stock in the Merger (the 'Consent Solicitation
Statement/Prospectus') will not, at the time the Consent Solicitation
Statement/Prospectus and each amendment and supplement thereto, if any,
becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Consent Solicitation
Statement/Prospectus and any amendment or supplement thereto and any
supplemental soliciting materials will not, from the date of mailing of
the Consent Solicitation Statement/Prospectus to the Limited Partners
through the effective date of the consent solicitation for the Merger,
contain any statement which, at the time and in the light of the
circumstances under which such statement is made, is false or
misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any communication with
respect to the solicitation of a consent relating to the Incorporation
or the Merger which has become false or misleading.
5.2.7. Litigation; No Default. There are no legal or arbitral
proceedings or any proceedings by or before any governmental or
regulatory authority or agency, pending or (to the knowledge of the
General Partners or the Partnership) threatened in writing against the
Partnership, Brookline or Boston Sub which are reasonably likely,
individually or in the aggregate, to have a material adverse effect on
the financial condition, operations or business of the Partnership,
CSBrC, Brookline and Boston Sub, taken as a whole, or which involves
the validity of any Transaction Document, of any amount payable in
respect of, or which relates in any way to, any outstanding security
of, interest in or claim of Cablevision, Finance LP or any other
Cablevision Company or any Dolan Entity against the Partnership,
Brookline or Boston Sub, or any action taken or to be taken by the
Partnership, Brookline or Boston Sub in connection with the Transaction
Documents or the consummation of the Transactions. None of the
Partnership, Brookline or Boston Sub is in default under or in
violation of or with respect to any law, rule, regulation, order, writ,
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injunction or decree of any court, arbitrator, governmental commission,
bureau or other regulatory authority, which default or violation,
individually or in the aggregate, is reasonably likely to have a
material adverse effect on the financial condition, operations or
business of the Partnership, Brookline and Boston Sub, taken as a
whole, or the ability of the Partnership, Brookline or Boston Sub to
perform its respective obligations under any such Transaction Document
to which it is a party or to consummate the Transactions.
5.2.8. Title to Assets; Liens. Each of the Partnership,
Brookline and Boston Sub have good title to its properties and assets
free and clear of all Liens, except Permitted Liens.
5.2.9. Landlords' Consents, etc. None of the respective
landlords under the leases referred to in the Partnership Disclosure
Letter (the 'Leases') or the owners of the premises referred to in such
Leases has any title to or ownership interest in any personal property,
equipment, office furniture or trade fixtures of the Partnership,
Brookline or Boston Sub on the premises referred to in such Leases, and
no consent of any such landlord is required in connection with the
removal of any such personal property, equipment, office furniture or
trade fixture.
5.2.10. No Default. None of the Partnership, Brookline or
Boston Sub is in default in the payment or performance or observance of
any contract, agreement or other instrument to which any of them is a
party or by which any of them or their respective properties or assets
may be bound, which individually or together with all other such
defaults would have a material adverse effect on the financial
condition, operations or business of the Partnership, CSBrC, Brookline
and Boston Sub, taken as a whole.
5.2.11. Franchise Agreements. Each Franchise Agreement is in
full force and effect.
5.2.12. Franchises. No approval, application, filing,
registration, consent or other action of any local, state or federal
authority is required to enable either the Partnership, Brookline or
Boston Sub to operate under the Franchises except for the approvals
identified in the Partnership Disclosure Letter.
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5.2.13. ERISA. The Dolan Entities and the ERISA Affiliates
have fulfilled their obligations under the minimum funding standards of
ERISA and the Code with respect to each Plan, all material required
contributions and material required installments under ERISA or the
Code have been made to each Plan on or before their due date, and the
Dolan Entities are in compliance in all material respects with the
currently applicable provisions of ERISA and the Code. Since December
22, 1987, no amendment has been adopted to any Plan which pursuant to
Section 307 of ERISA or Section 401(a)(29) of the Code will result in
the loss of tax-exempt status of the trust of which such Plan is a part
unless the Partnership or an ERISA Affiliate timely provides security
to the Plan in accordance with the provisions of such Sections. None of
the Dolan Entities nor any ERISA Affiliate has incurred any material
liability to the PBGC or any Plan or Multiemployer Plan other than for
payment of accrued premiums or contributions in the ordinary course.
5.2.14. Taxes. Each of the Partnership, Brookline and Boston
Sub has filed all United States Federal income tax returns and all
other material tax returns which are required to be filed by it and has
paid all taxes shown on such returns to be due and has otherwise paid
all of its taxes currently due and payable.
5.2.15. Fairness Opinion. The General Partners have obtained
from PaineWebber a fairness opinion, dated as of a date reasonably
proximate to the date of this Agreement, that the consideration to be
received by the unaffiliated Limited Partners in the Liquidation is
fair, from a financial point of view, to the unaffiliated Limited
Partners.
5.3. Representations and Warranties of Cablevision.
Cablevision represents and warrants to the Dolan Entities as follows:
5.3.1. Corporate Status. Each of Cablevision and Merger Sub is
a corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware.
5.3.2. Limited Partnership Status. Finance LP is a limited
partnership duly organized and validly existing under the laws of the
State of New York.
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5.3.3. Authority for Agreements. Each of Cablevision, Finance
LP and Merger Sub has the corporate or partnership power to execute and
deliver the Transaction Documents to which it is a party, to perform
its obligations thereunder and to consummate the Transactions to which
it is a party. The execution and delivery of the Transaction Documents
to which any Cablevision Company is a party, and the consummation of
the Transactions to which it is a party, have been duly authorized by
all appropriate corporate or partnership action. The Transaction
Documents to which any Cablevision Company is a party have been or will
be duly executed and delivered by such Cablevision Company and
constitute or will, when executed, constitute valid and legally binding
obligations of such Cablevision Company, enforceable against such
Cablevision Company in accordance with the terms of such Transaction
Document.
5.3.4. No Conflicts, etc. The execution and delivery of the
Transaction Documents and the consummation of the Transactions will not
conflict with or result in any violation of or default under (i) any
provision of the certificate of incorporation or by-laws of any
Cablevision Company or, (ii) except as set forth in Schedule 5.3.4, any
mortgage, indenture, lease, agreement or other instrument, permit,
concession, grant, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to any
Cablevision Company, except, in the case of this subsection (ii), for
any such conflict, violation or default as would not adversely affect
any Cablevision Company's ability to perform its obligations under this
Agreement or any other Transaction Document or consummate the
Transactions or have a material adverse effect on the financial
condition, operations or business of the Cablevision Companies taken as
a whole. Except as specified in Schedule 5.3.4., no consent, license,
approval, order or authorization of, or registration, declaration or
filing with, any Governmental Authority or other third party is
required on the part of any of the Cablevision Companies in connection
with the execution and delivery of any of the Transaction Documents, or
the consummation of the Transactions to which it is a party.
5.3.5. Authorized Capital of Cablevision and Merger Sub. As of
the date hereof and except as set forth in the Disclosure Letter, the
authorized capital stock of Cablevision consists of: (i) 50,000,000
shares
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of Cablevision Class A Common Stock of which, (A) as of April 1, 1994,
10,912,922 shares were issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, Cablevision's
Certificate of Incorporation or By-Laws or any agreement to which
Cablevision is a party or by which Cablevision is bound, (B) as of
April 1, 1994, 50,000 shares were held in the treasury of Cablevision,
(C) as of May 26, 1994, 2,123,695 shares were reserved for future
issuance pursuant to Cablevision's Amended and Restated Employee Stock
Plan and its predecessor plans (the 'Stock Plan'), (D) as of April 1,
1994, 12,411,532 shares were reserved for future issuance upon
conversion of Cablevision Class B Common Stock, (E) as of April 1,
1994, 112,500 shares were reserved for issuance upon redemption of
Cablevision Series C Preferred (F) 5,000,000 shares were reserved for
issuance upon conversion of Cablevision's Series E Preferred Stock, par
value $0.01 per share (the 'Cablevision Series E Preferred'); (ii)
20,000,000 shares of Cablevision Class B Common Stock, of which, as of
April 1, 1994, 12,411,532 shares were issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, Cablevision's
Certificate of Incorporation or By-Laws or any agreement to which
Cablevision is a party or by which Cablevision is bound; and (iii)
10,000,000 shares of Preferred Stock, par value $0.01 per share, of
Cablevision, of which as of April 1, 1994, 110,622 shares of
Cablevision Series C Preferred were issued and outstanding and 100,000
shares of Cablevision Series E Preferred were issued and outstanding,
and all of which are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute,
Cablevision's Certificate of Incorporation or By-Laws or any agreement
to which Cablevision is a party or by which Cablevision is bound. As of
the date hereof, the authorized capital stock of Merger Sub consists of
1,000 shares of capital stock, of which 100 shares are issued and
outstanding, all of which are duly authorized, validly issued, fully
paid and nonassessable.
5.3.6. Cablevision Reports; Financial Statements. (a)
Cablevision has delivered to the General Partners and the Partnership
copies of (i) each registration statement, Report on Form 8-K and proxy
statement prepared by it since December 31, 1993, (ii) Cablevision's
Annual Report on Form 10-K for the year
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ended December 31, 1993, the Amendment to Cablevision's Annual Report
on Form 10-K/A for the year ended December 31, 1993 and Cablevision's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994,
each in the form (including exhibits and any amendments thereto) filed
with the SEC, and (iii) all other reports filed with the SEC since
December 31, 1993 (collectively, the 'Cablevision Reports'). As of
their respective dates, the Cablevision Reports did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made,
not misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the Cablevision Reports (including the
related notes and schedules) fairly presents, in all material respects,
the consolidated financial position of Cablevision and its subsidiaries
as of its date and each of the consolidated statements of income and of
changes in financial position included in or incorporated by reference
into the Cablevision Reports (including any related notes and
schedules) fairly presents the results of operations, retained earnings
and changes in financial position, as the case may be, of Cablevision
and its subsidiaries for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments
material in amount or effect), in each case in accordance with
generally accepted accounting principles consistently applied during
the periods involved, except as may be noted therein.
(b) Cablevision did not have on December 31, 1993, any
material contingent liabilities, liabilities for taxes, unusual forward
or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided
for in the balance sheet, including the notes thereto, of Cablevision
as at said date. Since December 31, 1993, there has been no material
adverse change in the financial condition or operations or the business
of Cablevision from that set forth in the Cablevision Reports (it being
understood that no representation or warranty with respect to any Cable
Act Effects is made in this Section 5.3.6(b)).
(c) Insofar as information relating to Cablevision or its
subsidiaries is concerned, (i) the Consent Solicitation
Statement/Prospectus will not, at the time the Consent Solicitation
Statement/Prospectus
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and each amendment and supplement thereto, if any, becomes effective
under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii)
the Consent Solicitation Statement/Prospectus and any amendment or
supplement thereto and any supplemental soliciting materials will not,
from the date of mailing the Consent Solicitation Statement/Prospectus
to the Limited Partners through the Effective Time, contain any
statement which, at the time and in the light of the circumstances
under which such statement is made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in
order to make the statements therein not false or misleading or
necessary to correct any communication with respect to the solicitation
of a consent relating to the Incorporation or the Merger which has
become false or misleading.
5.3.7. Litigation. There is no judicial or administrative
action, suit, proceeding or investigation pending or, to the best of
Cablevision's knowledge, threatened which involves the validity of any
of the Transaction Documents, of any amount payable in respect of, or
which relates in any way to, any outstanding security of, interest in
or claim of Cablevision, Finance LP or any Cablevision Company or any
Dolan Entity against the Partnership, Brookline or Boston Sub, or of
any action taken or to be taken by any Cablevision Company in
connection with any of the Transaction Documents or the consummation of
the transactions contemplated thereby. Cablevision is not in default
under or in violation of or with respect to any law, rule, regulation,
order, writ, injunction or decree of any court, arbitrator,
governmental commission, bureau or other regulatory authority, which
default or violation, individually or in the aggregate, is reasonably
likely to have a material adverse effect on the financial condition,
operations or business of the Cablevision Companies, taken as a whole,
or adversely affect the ability of any Cablevision Company to perform
its obligations under any Transaction Document or to consummate the
Transactions.
5.3.8. Purchase for Investment. Cablevision or its designee
(which is Finance LP, in the case of CSSC's Preferred Equity) is
acquiring Boston Sub, the CSBrC Shares and CSSC's Preferred Equity
solely for investment, with no present intention to resell any such
securities and acknowledges that such securities
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have not been registered pursuant to the Securities Act or any other
applicable securities laws, and may not be transferred in the absence
of such registration or an exemption therefrom.
5.3.9. Financial Advisor; Brokers, Finders. Cablevision has
not retained any financial advisor, broker, finder or other similar
consultant in connection with the Transactions contemplated hereby so
as to give rise to any claim against any Dolan Entity for any financial
advisory, brokerage or finder's commission, fee or similar
compensation.
5.3.10. Fairness Opinion. Cablevision has obtained from
Donaldson Lufkin & Jenrette Securities Corporation an opinion, dated as
of the date of this Agreement, that the consideration to be paid by
Cablevision in the Merger pursuant to this Agreement is fair to
Cablevision from a financial point of view.
ARTICLE VI
Covenants
6.1. Covenants of the General Partners and the Partnership.
6.1.1. Filings and Authorizations. (a) Each of the General
Partners and the Partnership will, as promptly as practicable, file or
supply, or cause to be filed or supplied, all applications,
notifications and information required to be filed or supplied by it
pursuant to Applicable Law in connection with the execution and
delivery of the Transaction Documents and the consummation of the
Transactions, including filings with the City of Boston and the City of
Brookline, and will use its reasonable efforts to obtain, or cause to
be obtained, all consents, licenses, approvals, orders or
authorizations listed in the Dolan Disclosure Letter, the Partnership
Disclosure Letter or Schedule 5.3.4 or otherwise referred to in Section
6.1.8.
(b) The General Partners and the Partnership will
coordinate and cooperate with Cablevision in exchanging such
information, supplying such assistance and information and executing
such instruments, documents, conveyances and assurances as may be
reasonably requested by Cablevision in connection with
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Cablevision's satisfaction of its obligations under Section 6.2.1.
6.1.2. Partnership Credit Agreement. On or prior to the
effective date of the Incorporation, each of the General Partners and
the Partnership will use all reasonable efforts to obtain an amendment
to the Partnership Credit Agreement in form and substance reasonably
satisfactory to Cablevision and the Partnership which provides for the
assignment of such agreement to Boston Sub and which contains such
other provisions as may be contemplated in the waiver and consent to
the Incorporation received in December 1993 from the Banks under the
Partnership Credit Agreement.
6.1.3. Limited Partners' Approval. Other than as provided in
Section 8.5, the General Partners and the Partnership will take,
consistent with applicable law and the Partnership Agreement, all
action necessary to commence and consummate the consent solicitations
relating to the Incorporation and the Merger as promptly as practicable
after the Consent Solicitation Statement/Prospectus is declared
effective; provided, that the General Partners and the Partnership
shall have received the written opinion of PaineWebber, dated no more
than five business days prior to the effective date of the Consent
Solicitation Statement/Prospectus, that the consideration to be
received by the unaffiliated Limited Partners in the Liquidation is
fair, from a financial point of view, to the unaffiliated Limited
Partners. Other than as provided in Section 8.5, the General Partners
shall recommend approval of the Incorporation and adoption and approval
of this Agreement and the Merger and the Partnership shall take all
lawful action to solicit such approval, provided that neither General
Partner shall be required to take or refrain from taking any actions
that would violate his or its fiduciary duties to the Limited Partners
as determined by him or it on the basis of advice received from his or
its outside counsel.
6.1.4. Stockholder Approval. The Partnership as the sole
stockholder of Boston Sub shall adopt and approve this Agreement and
the Merger if and when the same are adopted and approved by the Limited
Partners.
6.1.5. SEC Filings. The General Partners and the Partnership
shall cooperate with Cablevision to prepare and file promptly with the
SEC the Consent Solicitation Statement/Prospectus. The Partnership will
file with
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the SEC all periodic and other documents and reports required to be
filed on or prior to the Effective Time.
6.1.6. Boston Sub Shares. From the date hereof until the
Effective Time, the Partnership shall at all times be the sole
stockholder of Boston Sub and there shall be no transfers of any Boston
Sub Shares.
6.1.7. Affiliates Agreements. Prior to the Effective Time, the
Partnership shall deliver to Cablevision a list of names and addresses
of those persons who were, in its opinion, at the effective time of the
consent solicitation relating to the Merger, 'affiliates' of the
Partnership within the meaning of Rule 145 (each such person, together
with each person identified below, an 'Affiliate') under the Securities
Act that will acquire shares of Cablevision Class A Common Stock in
connection with the Merger and Liquidation. The General Partners and
the Partnership shall exercise their reasonable efforts to deliver or
cause to be delivered to Cablevision, prior to the Effective Time, from
each of the Affiliates of the Partnership (other than a Cablevision
Company) identified in the foregoing list an affiliate's letter dated
as of the Closing Date in customary form and reasonably acceptable to
Cablevision.
6.1.8. Incorporation. The Partnership shall have no obligation
to consummate the Incorporation if one or more of the following
conditions has not been satisfied or waived by the Partnership: (i)
Limited Partners who are not affiliates of the General Partners
entitled to 50% or more of the Partnership's Net Profits and Net Losses
(as defined in the Partnership Agreement) shall consent to the
Incorporation, (ii) all permits, orders, approvals and consents of,
notices to, and registrations and filings with the City of Boston and
the Town of Brookline required to be obtained in order to consummate
the Incorporation and the Merger shall have been received and shall be
in effect, (iii) the Partnership Credit Agreement shall be amended to
permit the transfer of the Boston System assets to Boston Sub, the
assumption by Boston Sub of the Partnership's obligations under the
Partnership Credit Agreement and the release of the Partnership from
its obligations under the Partnership Credit Agreement, (iv) there
shall not be in effect any order, injunction, decree or judgment of any
court or Governmental Authority, and there shall not be pending or
threatened any action or proceeding by any Governmental Authority
before any court or administrative body, to restrain, enjoin or
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otherwise prevent the consummation of the Incorporation or the Merger
or to recover any damages or obtain other relief as a result of such
Transaction, or (v) all material consents to the Incorporation and the
Merger required by any Governmental Authority (other than those
consents delivered pursuant to clause (ii) above) or under any
agreement or contract to which the Partnership or Brookline is a party
or by which it is bound have been received and shall be in effect.
6.1.9. Other Actions. The Dolan Entities, subject to the terms
and conditions of this Agreement, will take all steps reasonably
necessary to consummate each of the Transactions.
6.2. Covenants of the Buyer.
6.2.1. Filings and Authorizations. (a) Cablevision will and
will cause Merger Sub to, as promptly as practicable, file or supply,
or cause to be filed or supplied, all applications, notifications and
information required to be filed or supplied by it pursuant to
Applicable Law in connection with the execution and delivery of the
Transaction Documents by Cablevision and Merger Sub and the
consummation of the Transactions to which they are parties, including
filings with the City of Boston and the City of Brookline, and will use
its reasonable efforts to obtain, or cause to be obtained, all
consents, licenses, approvals, orders or authorizations listed in the
Dolan Disclosure Letter, the Partnership Disclosure Letter or Schedule
5.3.4.
(b) Cablevision will, and will cause Merger Sub to,
coordinate and cooperate with the General Partners and the Partnership
in exchanging such information, supplying such assistance and
information and executing such instruments, documents, conveyances and
assurances as may be reasonably requested in connection with the
satisfaction by the General Partners and the Partnership of their
obligations under Section 6.1.1.
6.2.2. Amendment to CSC Credit Agreement. Cablevision will use
its reasonable efforts to amend the CSC Credit Agreement to permit the
consummation of the Transactions.
6.2.3. SEC Filings. Cablevision shall cooperate with the
Partnership to prepare and file promptly with the SEC the Consent
Solicitation Statement/Prospectus.
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Cablevision will file with the SEC all periodic and other documents and
reports required to be filed on or prior to the Effective Time.
6.2.4. Other Filings. Cablevision shall use its reasonable
efforts to obtain all necessary state securities law or 'Blue Sky'
permits and approvals required to carry out the Transactions and the
Partnership agrees to furnish all information concerning the
Partnership as may be reasonably requested in connection with any such
action, provided, however, that nothing in this Section 6.2.4 or
elsewhere in this Agreement shall require Cablevision to agree to (i)
amend its certificate of incorporation or by-laws in any way, or (ii)
enter into any other agreement or arrangement (other than the
Transaction Documents), or make any undertakings, in connection with
obtaining any such permits or approvals or otherwise performing its
obligations under this Agreement.
6.2.5. Stock Exchange Listing. Cablevision shall use its
reasonable efforts to cause Cablevision Class A Stock to be issued in
the Merger to be approved for listing on the American Stock Exchange,
subject in each case to official notice of issuance, prior to the
Closing Date and shall use its reasonable efforts to obtain any
consents or approvals required in connection therewith.
6.2.6. Other Actions. Cablevision, subject to the terms and
conditions of this Agreement, will take all other steps reasonably
necessary to consummate each of the Transactions.
ARTICLE VII
Conditions Precedent
7.1. Conditions Precedent to Each Party's Obligations. The
respective obligations of each of the parties hereto to consummate the
Transactions are subject to the fulfillment (or written waiver by each party) of
each of the following conditions:
7.1.1. Consummation of Incorporation. The Incorporation shall
have been duly consummated and the Incorporation Restructuring
Agreement shall have been duly executed and delivered by the parties
thereto.
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7.1.2. Limited Partner Approval. This Agreement shall have
been duly adopted and approved by the Limited Partners of the
Partnership and by the Partnership as the sole stockholder of Boston
Sub, in accordance with applicable law, the Partnership Agreement and
the certificate of incorporation and by-laws of Boston Sub.
7.1.3. Cable Approvals. All permits, orders, approvals and
consents of, notices to, and registrations and filings with the City of
Boston and the Town of Brookline, which are required to transfer the
Franchise Agreements and the Franchises in connection with the
consummation of the Transactions shall have been obtained or made and
all such permits, orders, approvals and consents shall be effective and
shall not have been suspended, revoked or stayed.
7.1.4. Amendment to Partnership Credit Agreement. The
Partnership Credit Agreement shall have been amended as contemplated by
Section 6.1.2 in form and substance reasonably satisfactory to both
Cablevision and the Partnership.
7.1.5. Amendment to CSC Credit Agreement. The CSC Credit
Agreement shall have been amended as contemplated by Section 6.2.2. in
form and substance reasonably satisfactory to Cablevision.
7.1.6. No Injunction, etc. Consummation of the Transactions
shall not have been restrained, enjoined or otherwise prohibited by any
order, injunction, decree or judgment of any court or Governmental
Authority, and no such action or proceeding shall be pending or
threatened on the Closing Date before any court or administrative body
to restrain, enjoin or otherwise prevent the consummation of the
Transactions or to recover any damages or obtain other relief as a
result of such Transactions.
7.1.7. Brookline Amendments. The Amendment to the Brookline
Partnership Agreement as set forth in Annex V hereto and the Brookline
Sale Agreement shall have been duly and validly executed and delivered
by each of the parties thereto.
7.1.8. Consents. Any material consents to the Transactions
required by any Governmental Authority (other than those consents
delivered pursuant to Section 7.1.3) or under any agreement or contract
to
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which any party hereto is a party or is bound shall have been obtained
and delivered to the parties hereto.
7.1.9. Proxy Statement/Prospectus. The Consent Solicitation
Statement/Prospectus shall have become effective under the Securities
Act and no stop order suspending the effectiveness of the Consent
Solicitation Statement/Prospectus shall have been issued and no
proceedings for that purpose shall have been initiated or be threatened
by the SEC.
7.1.10. Blue Sky Approvals. Cablevision and the Partnership
shall have received all state securities and 'Blue Sky' permits and
other authorizations necessary to consummate the Transactions.
7.1.11. Stock Exchange Listing. The shares of Cablevision
Class A Stock issuable to the Partnership pursuant to this Agreement
shall have been authorized for listing on the American Stock Exchange
upon official notice of issuance.
7.1.12. Purchase of CSBrC Shares. At the Closing Dolan shall
have tendered all of the CSBrC Shares for purchase and Cablevision
shall have purchased such shares, as provided in Section 1.3.
7.1.13. The Preferred Equity Sale. Finance LP shall have
purchased from CSSC, and CSSC shall have sold to Finance LP, all of
CSSC's Preferred Equity as provided in Section 1.4.
7.1.14. The Merger Restructuring Agreement. The Merger
Restructuring Agreement shall have been duly and validly executed by
each of the parties thereto and Cablevision shall have paid to the
Dolan Entities all amounts due pursuant to such agreement.
7.2. Conditions to Obligations of Cablevision. The obligation
of Cablevision to consummate the Transactions to which it is a party shall be
subject to the fulfillment (or written waiver by Cablevision) on or prior to the
Closing Date of the following additional conditions, which the General Partners
and the Partnership agree to use their reasonable efforts to cause to be
fulfilled:
7.2.1. Representations, Performance, etc. The representations
and warranties of Dolan contained in Section 5.1 and the Partnership
contained in Section 5.2 shall be true and correct in all material
respects at and as of the date hereof and on and as of
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the Closing Date with the same effect as though made on and as of the
Closing Date, except (a) as affected by the transactions contemplated
hereby, (b) to the extent that any representation or warranty is made
as of a specific date, in which case such representation or warranty
shall be true and correct in all material respects as of such specified
date, or (c) insofar as any representation or warranty relates to the
business of the Partnership, the Systems or the Partnership's assets or
liabilities, such representation or warranty shall, from and after the
Incorporation, relate to such business, Systems, assets or liabilities
as owned by Boston Sub (to the extent required or permitted by this
Agreement to be transferred to Boston Sub). The General Partners and
the Partnership (or Boston Sub, if appropriate) shall have duly
performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with
by them prior to or on the Closing Date. To the extent that any
agreement of the Partnership can only be effectively performed, or any
condition can only be satisfied, by Boston Sub following the
Incorporation, the General Partners and the Partnership agree to cause
Boston Sub to perform such agreement or to take all reasonable steps to
perform such condition prior to the Merger. The General Partners and
the Partnership (or Boston Sub, if appropriate) shall have delivered to
Cablevision a certificate, dated the Closing Date and signed by such
entity, to the effect set forth above in this Section 7.2.1.
7.2.2. Appraisal Rights. Holders of not more than 200 units of
Limited Partnership interest of the Partnership (other than such units
held by Cablevision and its affiliates) shall have exercised their
appraisal rights pursuant to Section 1.8 of this Agreement.
7.2.3. No Material Adverse Change. Between the date of this
Agreement and the Closing Date, there shall have been no material
adverse change in the business, operations or condition (financial or
otherwise) of the Partnership, Boston Sub and Brookline, taken as a
whole, provided that no Cable Act Effect singly or in the aggregate
shall constitute a material adverse effect for purposes of this Section
7.2.3.
7.2.4. Opinion of Counsel. Cablevision shall have received an
opinion, dated the Closing Date, from
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Debevoise & Plimpton, counsel to the General Partners and the
Partnership, substantially to the effect set forth in Schedule 7.2.4 to
Cablevision.
7.3. Conditions to Obligations of the General Partners and the
Partnership. The obligations of the General Partners and the Partnership to
consummate the Transactions to which they are parties shall be subject to the
fulfillment (or written waiver by the General Partners and the Partnership) on
or prior to the Closing Date of the following additional conditions, which
Cablevision agrees to use its reasonable efforts to cause to be fulfilled:
7.3.1. Representations, Performance, etc. The representations
and warranties of Cablevision contained in Section 5.3 hereof shall be
true and correct in all material respects at and as of the date hereof
and on and as of the Closing Date with the same effect as though made
at and as of such time, except (a) as affected by the Transactions or
(b) to the extent that any representation or warranty is made as of a
specific date, in which case such representation or warranty shall be
true and correct in all material respects as of such specified date.
Cablevision shall have duly performed and complied in all material
respects with all agreements and conditions required by this Agreement
to be performed or complied with by it or any other Cablevision Company
prior to or on the Closing Date. Cablevision shall have delivered to
the General Partners and the Partnership a certificate dated the
Closing Date and signed by an officer of Cablevision to the effect set
forth above in this Section 7.3.1.
7.3.2. No Material Adverse Change. Between the date of this
Agreement and the Closing Date, there shall have been no material
adverse change in the business, operations or condition (financial or
otherwise) of Cablevision provided that no Cable Act Effect shall
singly or in the aggregate constitute a material adverse effect for
purposes of this Section 7.3.2.
7.3.3. Opinion of Counsel. The General Partners and the
Partnership shall have received an opinion, dated the Closing Date,
from the General Counsel of Cablevision, substantially to the effect
set forth in Schedule 7.3.3 to the General Partners and the
Partnership.
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ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, before or after the approval by the Limited Partners of the Incorporation
or the Merger, by the mutual consent of Cablevision and the General Partners on
behalf of the Partnership.
8.2. Termination after December 31, 1995. Cablevision, the
General Partners or the Partnership may terminate this Agreement by written
notice to the other parties after December 31, 1995 if the Merger shall not have
been consummated pursuant hereto, unless such date is extended by the mutual
written consent of the parties hereto.
8.3. Termination by Cablevision, the Partnership or the
General Partners if not Approved by Unaffiliated Limited Partners. This
Agreement may be terminated and the Merger may be abandoned by action of
Cablevision, the Partnership or the General Partners if the approval of the
Limited Partners of the Partnership to the Incorporation or the Merger required
by Section 7.1 shall not have been obtained by the relevant consent solicitation
expiration date (including any extensions thereof).
8.4. Termination upon Breach. This Agreement may be terminated
and the Merger may be abandoned (i) by Cablevision upon a material breach by a
Dolan Entity of this Agreement if such breach shall continue unremedied for a
period of 30 days after written notice of such breach is given to the Dolan
Entities by Cablevision, provided, that a breach of a representation or warranty
under Section 5.2 of this Agreement shall not be the basis for termination as
provided in this Section 8.4(i) if such breach was known to any executive
officer (other than Dolan) of Cablevision on the date hereof, or (ii) by the
Partnership or the General Partners upon a material breach by a Cablevision
Company of this Agreement if such breach shall continue unremedied for a period
of 30 days after written notice of such breach is given to Cablevision by the
Partnership or the General Partners, provided, that a breach of a representation
or warranty of any Cablevision Company contained in this Agreement shall not be
the basis for termination as provided in this Section 8.4 (ii) if such breach
was known to Dolan or any officer of CSBC or CSBrC on the date hereof.
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8.5. Special Termination Rights. In addition to the right to
terminate this Agreement pursuant to Section 8.1, 8.2, 8.3 and 8.4, this
Agreement may be terminated at any time prior to the consummation of the
Incorporation (i) by Cablevision, if Cablevision determines that the
Incorporation or the Merger is not in the best interests of its public
stockholders, or (ii) by the General Partners, if the General Partners determine
that the Incorporation or the Merger is not in the best interests of the Limited
Partners who are not affiliates of the General Partners, and the Partnership.
8.6. Effect of Termination. In the event of the termination of
this Agreement pursuant to the provisions of Section 8.1, 8.2, 8.3, 8.4 or 8.5,
this Agreement shall become void and have no effect, without any liability in
respect of this Agreement on the part of any party hereto, or any of its
directors, officers, employees, agents, consultants, representatives or
stockholders, to any other party to this Agreement, except (a) for any liability
resulting from such party's willful breach of this Agreement and (b) for the
obligations of the parties under Section 9.3 and Section 9.4.
ARTICLE IX
Definitions, Miscellaneous
9.1. Definition of Certain Terms. As used in this Agreement
and the Annexes and Schedules hereto, the following terms shall have the
following meanings:
Affiliate: means as to any Person, any other Person that
controls, is controlled by, or is under common control with such
Person.
Affiliate Claims: as defined in the Consent Solicitation
Statement/Prospectus.
Applicable Law: means all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common law),
rules, regulations, ordinances or orders of any Governmental Authority,
(ii) Governmental Approvals and (iii) orders, decisions, judgments,
awards and decrees of or agreements with any Governmental Authority.
Average Cablevision Stock Price: as defined in Section 4.1.
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Boston Assets: as defined in Section 1.1.
Boston Liabilities: as defined in Section 1.1.
Boston Sub: as defined in the Recitals.
Boston Sub Share: as defined in Section 4.1.
Boston System: as defined in the Recitals.
Boston Transport: as defined in Section 5.2.5.
Brookline: as defined in the Recitals.
Brookline Sale Agreement: as defined in Section 1.3.
Brookline Systems: as defined in the Recitals.
Cable Act: means the Cable Television Consumer Protection Act
of 1992 and the rules and regulations promulgated thereunder from time
to time.
Cable Act Effects: (i) reductions in existing rates and
charges and projected rates and charges, or rebates, refunds or similar
payments, resulting from the regulation of rates and charges as
provided for or contemplated by the Cable Act; (ii) changes required in
billing and collection practices as provided for or contemplated by the
Cable Act; (iii) programming, compensation payments and other business
changes and charges resulting from the 'must carry' and 'retransmission
consent' provisions of the Cable Act; (iv) increased competition
resulting from the Cable Act, including from the program access
requirements thereof; (v) changes in franchise award and renewal
practices as provided for in or contemplated by the Cable Act; (vi)
costs and technological and business changes resulting from compliance
with the equal employment opportunity, customer service, consumer
protection, customer privacy, home wiring, equipment compatibility and
technical standards provisions of the Cable Act; (vii) costs and
liabilities resulting from the provisions governing indecent and
obscene programming in or contemplated by the Cable Act; and (viii)
other effects directly resulting from the Cable Act.
Cablevision Class A Stock: as defined in Section 4.1.
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Cablevision Companies: as defined in Section 4.1.
Cablevision Reports: as defined in Section 5.3.6.
Cablevision Series C Preferred: as defined in Section 4.1.
California Partnership Roll-up Rules: Sections 25014.5 -
25014.7 of the California Corporations Code.
Certificate of Merger: as defined in Section 1.6.
Closing: as defined in Section 1.4.
Closing Date: as defined in Section 1.4.
Code: as defined in Section 1.01 of the Partnership Credit
Agreement.
Consent Solicitation Statement/Prospectus: as defined in
Section 5.2.6(c).
CSBC: as defined in the Recitals.
CSBrC: as defined in the Recitals.
CSBrC Stock: as defined in Section 1.3.
CSC Credit Agreement: The Third Amended and Restated Credit
Agreement, dated as of June 24, 1992 and amended by Amendment No. 1,
dated as of August 4, 1992, and Amendment No. 2 and Waiver, dated as of
November 8, 1993, among Cablevision, the banks parties thereto, Bank of
Montreal, Chicago Branch, The Bank of New York, The Bank of Nova Scotia
and The Canadian Imperial Bank of Commerce, as Co-Agents, and Toronto
Dominion (Texas), Inc., as Agent.
CSSC: as defined in the Recitals.
DGCL: as defined in Section 1.1.
Dissolution and Liquidation: as defined in Section 1.7.
Dolan Disclosure Letter: the disclosure letter, dated the date
of this Agreement, that is delivered by Dolan to Cablevision and Merger
Sub at the time of execution and delivery of this Agreement identifying
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exceptions to the representations and warranties made by Dolan pursuant
to Section 5.1.
Dolan Entity: Dolan, CSSC, CSBC, CSBrC, Boston
Sub, the Partnership and Brookline.
Effective Time: as defined in Section 1.6.
ERISA: as defined in Section 10.01 of the
Partnership Credit Agreement.
ERISA Affiliate: as defined in Section 10.01 of the
Partnership Credit Agreement; provided, that for the purposes of this
Agreement, ERISA Affiliate shall not include any Cablevision Company.
Expense Reserve Fund: as defined in Section 1.1.
Finance LP: as defined in the Recitals.
Franchise Agreements: the franchise agreements between the
Town of Brookline and Brookline and between the City of Boston and the
Partnership granting the Franchises.
Franchises: the franchises granted by the City of Boston and
the Town of Brookline to construct, operate and maintain cable
television systems in the City of Boston and the Town of Brookline.
Governmental Approval: an authorization, consent, approval,
permit, license or exemption of, registration or filing with, or report
or notice to, any Governmental Authority.
Governmental Authority: any nation or government, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, without
limitation, any government authority, agency, department, board,
commission or instrumentality of the United States, any State of the
United States or any political subdivision thereof.
Incorporation: as defined in Section 1.1.
Incorporation Restructuring Agreement: as defined in Section
1.1.
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Indebtedness: as defined in the Partnership Credit Agreement,
as such definition is in effect on the date hereof.
Leases: as defined in Section 5.2.8.
Lien: any lien, pledge, charge, security interest, title
retention agreement, adverse claim, option or other third party
interest or claim.
Limited Partner: as defined in the Recitals.
Losses: as defined in Section 9.3(a).
Merger: as defined in Section 1.2.
Merger Consideration: as defined in Section 4.1.
Merger Restructuring Agreement: as defined in Section 1.2.
Merger Sub: as defined in the Recitals.
Multiemployer Plan: as defined in Section 10.01 of the
Partnership Credit Agreement.
Partnership Agreement: the Second Amended and Restated
Articles of Limited Partnership of Cablevision of Boston Limited
Partnership, dated as of March 30, 1984, as amended by the First
Amendment dated September 28, 1984.
Partnership Credit Agreement: the Fourth Amended and Restated
Loan Agreement, dated as of September 30, 1991, as amended, among the
Partnership, the Lenders named therein, and The Toronto-Dominion Bank
Trust Company, as Agent.
Partnership Disclosure Letter: The disclosure letter, dated
the date of this Agreement, that is delivered by the Partnership to
Cablevision and Merger Sub of the time of execution and delivery of
this Agreement identifying exceptions to the representations and
warranties made by the Partnership pursuant to Section 5.2.
Partnership Expenses: as defined in Section 9.4(c).
Partnership Reports: as defined in Section 5.2.6.
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Partnership Solicitation Costs: as defined in Section 9.4(b).
PBGC: as defined in Section 10.01 of the Part- nership Credit
Agreement.
Person: any natural person, firm, partnership, association,
corporation, trust or Governmental Authority.
Permitted Liens: as defined in Section 10.01 of the
Partnership Credit Agreement.
Plan: as defined in Section 10.01 of the Partnership Credit
Agreement.
Preferred Equity: the interests in the Partnership represented
by the Agreement, dated September 30, 1985, between Finance LP and the
Partnership and the Agreement, dated June 29, 1989, between CSSC and
the Partnership.
Preferred Equity Amount: as defined in Section 1.7.
Preferred Equity Sale: as defined in Section 1.4.
Preferred Equity Shares: as defined in Section 4.1.
SEC: the United States Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as amended.
Stock Sale: as defined in Section 1.3.
Surviving Corporation: as defined in Section 1.2.
Systems: as defined in the Recitals.
Termination Related Losses: as defined in Section 9.3(a).
Transaction Documents: this Agreement, the Certificate of
Merger, the Incorporation Restructuring Agreement, the Merger
Restructuring Agreement, the Brookline Sale Agreement and the Brookline
Partnership Agreement Amendment, and the other documents delivered in
connection with the foregoing.
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Transactions: shall mean the transactions contemplated by the
Transaction Documents including, without limitation, the Incorporation,
the Merger, the Stock Sale, the Preferred Equity Sale and the
Dissolution and Liquidation.
Transferred Preferred Equity: as defined in Section 1.4.
Units: shall mean units of limited partnership interest of the
Partnership.
9.2. Survival of Representations and Warranties. The
representations and warranties contained in this Agreement shall terminate (i)
in the event of and upon the termination of this Agreement pursuant to Section
8.1 or (ii) upon the Closing.
9.3. Indemnification. (a) Whether or not any of the
Transactions are consummated, Cablevision hereby agrees to indemnify the General
Partners and hold the General Partners harmless from and against, and shall
reimburse them on demand for, any and all losses, damages, liabilities, claims,
demands, deficiencies, judgments, settlements, whether or not arising out of
third-party claims, including without limitation the reasonable fees and
expenses of counsel and other related costs and expenses, but excluding any
fees, costs and expenses covered in Section 9.4 hereof ('Losses') resulting from
or arising out of the Transactions, including but not limited to (i) all
liabilities of the Partnership and Brookline in connection with the Transactions
and (ii) all liabilities whatsoever to Limited Partners in connection with the
Transactions; provided, that Cablevision shall not be required by this Agreement
to indemnify either of the General Partners (1) for Termination Related Losses
(as hereinafter defined) in the event that this Agreement shall be terminated
(I) by Cablevision pursuant to Section 8.4 as a result of any breach of this
Agreement by either of the General Partners, acting in their individual or
corporate capacity, as the case may be, and not in their capacity as a general
partner of the Partnership or Brookline, or (II) by the General Partners or the
Partnership for reasons other than a breach of this Agreement by a Cablevision
Company, or (2) for any Losses (A) related to any amounts payable by the
Partnership to either of the General Partners with respect to any Affiliate
Claim or Preferred Equity or (B) subject to Section 9.3(b), related in any way
to any outstanding security of or interest in the Partnership. 'Termination
Related Losses' are (i) any Losses resulting from the termination of this
Agreement and (ii) in the case of a
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termination under Section 8.4, Losses related to the breach of this Agreement
which gave rise to the termination. If (i) this Agreement is terminated by the
General Partners pursuant to Section 8.5 and (ii) any of the General Partners or
the Partnership shall enter into an agreement within 12 months from the date of
such termination providing for the sale or disposition of all or substantially
all of the equity interests in, or assets of, the Partnership (or Boston Sub if
the Incorporation has occurred), then the General Partners shall promptly
reimburse Cablevision for any amounts paid to such General Partners pursuant to
Section 9.3(a) hereof and the indemnity provided under Section 9.3(a) shall
terminate.
(b) From and after the Effective Time, Cablevision shall
indemnify the General Partners and hold the General Partners harmless from and
against, and shall reimburse them for, any and all Losses resulting from or
arising out of acting as a general partner of the Partnership or Brookline
(whether before or after the Effective Time) or as an officer or director of
Boston Sub, including but not limited to (i) liabilities, obligations and
commitments of the Partnership and Brookline, (ii) Boston Liabilities and (iii)
liabilities, obligations and commitments whatsoever to the partners of the
Partnership and Brookline, provided that Cablevision shall not indemnify the
General Partners for any Losses related to (A) any indebtedness owed by
Brookline to the Partnership as of the date of this Agreement, provided, that
the foregoing limitation shall not apply from and after any time Dolan ceases to
be a general partner of Brookline for any reason and (B) any amounts payable to
either of the General Partners with respect to any Affiliate Claim or Preferred
Equity (but nothing in this clause (B) shall in any way abrogate or impair the
obligations of Cablevision under the Merger Restructuring Agreement).
(c) If a claim by a third party is made against a party
indemnified pursuant to this Section 9.3, and if such indemnified party intends
to seek indemnity with respect thereto under this Section 9.3, the indemnified
party shall promptly notify the indemnifying party of such claim; provided that
the failure of the indemnified party to notify the indemnifying party of any
such claim shall not relieve the indemnifying party of its obligations under
this Section 9.3, except to the extent the indemnifying party is actually
prejudiced by such failure. In case any action or proceeding including any such
claim is brought against the indemnified party, the indemnifying party shall be
entitled to participate therein and to assume the defense thereof with counsel
reasonably satisfactory to the indemnified
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party to the extent it may wish; provided that in the event the indemnifying
party so assumes the defense, the indemnified party shall still have the right
to employ separate counsel at its own expense in any such action and to
participate in the defense thereof. Without the prior written consent of the
indemnified party, which consent shall not unreasonably be withheld, the
indemnifying party will not consent to the entry of any judgment or enter into
any settlement of any such claim which does not include as an unconditional term
thereof the giving by the claimant or plaintiff thereof to such indemnified
party of a release from any and all liability in respect of such claim or
litigation. The indemnified party will not enter into any settlement or pay
(except pursuant to a final court order or judgment) any such claim without the
prior written consent of the indemnifying party, which consent shall not
unreasonably be withheld. Notwithstanding the foregoing, the indemnified party
shall have the right to pay or settle any such claim, provided that in such
event it shall waive any right to indemnity therefor by the indemnifying party
or parties.
(d) Notwithstanding any other provision hereof, (i)
Cablevision shall not indemnify a General Partner under this Section 9.3 for any
action taken or any failure to act by such General Partner, acting in their
individual or corporate capacity, as the case may be, and not in their capacity
as a general partner of the Partnership or Brookline, after the date of this
Agreement if such action or failure to act is in breach of any provision hereof
or if such action or inaction constituted a willful violation of law and (ii)
Cablevision shall not indemnify the General Partners under this Section 9.3 for
any failure of the General Partners to liquidate the Partnership in a manner
consistent with the Consent Solicitation Statement/Prospectus or this Agreement,
unless such manner of liquidation is required by any applicable order,
injunction, decree or judgment of any Governmental Authority.
(e) Notwithstanding the statutory or common law liability of a
general partner for the obligations of a partnership, the General Partners shall
not be liable for any breach of the representations, warranties or covenants of
the Partnership set forth in the Agreement, it being expressly agreed that all
such liabilities shall be satisfied only from the assets of the Partnership.
9.4. Expenses. (a) Except as may otherwise expressly provided
in this Section 9.4, each party shall bear all of its expenses, costs and fees
(including the fees
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of attorneys, auditors and appraisers, financial advisory fees, investment
banking fees, travel expenses and all other fees related to the preparatory work
of the Transactions) in connection with the Transactions. Whether or not the
Transactions contemplated hereby are consummated and except as may otherwise
expressly provided in this Section 9.4, the parties agree that Cablevision and
the Partnership shall each be responsible for one-half of the costs of the
preparation, printing and mailing the consents to the Incorporation and Merger,
the Consent Solicitation Statement/Prospectus and other documents, and for the
costs of the preparation and execution of this Agreement.
(b) If the Incorporation or the Merger is not approved by the
Limited Partners: (i) Cablevision shall bear all costs in connection with the
solicitation of consents to the Incorporation and the Merger ('Partnership
Solicitation Costs') to the extent but only to the extent a general partner or
sponsor would be required pursuant to Section 25014.7(g) of the California
Corporations Code to pay such costs if the provisions of the California
Partnership Roll-up Rules had been applicable to the Transactions, and if not so
required, the Partnership shall bear such costs; and (ii) the Partnership shall
bear all other Partnership Expenses, subject to possible reimbursement as
provided in Section 9.4(e).
(c) If the Merger is consummated, Cablevision shall bear all
of the Partnership's and Boston Sub's expenses, costs and fees (including the
fees of attorneys, auditors and appraisers, costs of printing and mailing the
consents to the Merger, the Consent Solicitation Statement/Prospectus and other
documents, financial advisory fees, investment banking fees, travel expenses and
all other fees related to the preparatory work of the Transactions) in
connection with the Transactions, including the preparation and execution of
this Agreement and compliance herewith, and the preparation of the consents to
the Incorporation and the Merger, the Consent Solicitation Statement/Prospectus
and other documents, but not including any other costs that would have otherwise
been incurred by the Partnership or Boston Sub in the ordinary course of
business ('Partnership Expenses').
(d) If the Incorporation is rejected by the Limited Partners,
subject to the last sentence of this Section 9.4(d), then, in addition to any
reimbursement obligation Cablevision may have under Section 9.4(b), Cablevision
shall reimburse the Partnership for the percentage of Partnership Expenses equal
to (i) the total amount of such Partnership Expenses multiplied by (ii) a
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<PAGE>
fraction the numerator of which is the number of units of limited partnership
interest in the Partnership ('Units') entitled to vote that did not vote in
favor of the Incorporation and the denominator of which is the total number of
Units entitled to vote that are outstanding on the date for the expiration of
the solicitation of consents to the Incorporation. If the Incorporation is
approved by the Limited Partners but the Merger is rejected by the Limited
Partners, then, in addition to any reimbursement obligation Cablevision may have
under Section 9.4(b), Cablevision shall reimburse the Partnership for the
percentage of Partnership Expenses equal to (i) the total amount of Partnership
Expenses multiplied by (ii) a fraction the numerator of which is the number of
Units entitled to vote that did not vote in favor of the Merger and the
denominator of which is the total number of Units entitled to vote that are
outstanding on the date of the expiration of the solicitation of consents to the
Merger promptly upon request. Cablevision shall only reimburse the Partnership
pursuant to this Section 9.4(d) to the extent but only to the extent the rights
of Limited Partners would otherwise be presumed not to be protected under
Section 25104.7(e) of the California Corporations Code by reason of the
Partnership paying such costs if the provisions of the California Partnership
Roll-up Rules had been applicable to the Transactions; otherwise, the
Partnership shall bear such costs.
(e) Notwithstanding any other provision of this Section 9.4,
(i) in the event that (A) either General Partner terminates this Agreement
pursuant to the provisions of Section 8.5 or (B) Cablevision terminates this
Agreement pursuant to Section 8.4 because of a breach of this Agreement by any
Dolan Entity, each Dolan Entity shall bear all of its own, and the Partnership
and Boston Sub shall jointly and severally be responsible for Cablevision's,
expenses, costs and fees (including the fees of attorneys, auditors and
appraisers, costs of preparing, printing and mailing the Consent Solicitation
Statement/Prospectus and other documents, financial advisory fees, investment
banking fees, independent committee expenses, travel expenses and all other fees
related to the preparatory work of the Transactions) in connection with the
Transactions, (ii) in the event that (A) Cablevision terminates this Agreement
pursuant to the provisions of Section 8.5 or (B) the General Partners or the
Partnership terminate this Agreement pursuant to Section 8.4 because of a breach
of this Agreement by a Cablevision Company, each of Cablevision, Merger Sub and
Finance LP shall bear its own expenses and shall jointly and severally be
responsible for the Partnership Solicitation Costs and Partnership Expenses, and
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<PAGE>
(iii) if the Incorporation and the Merger occur, any expenses, costs and fees of
the Partnership and Boston Sub shall be satisfied first from the Expense Reserve
Fund before any amounts are required to be paid under this Section 9.4 by any
Cablevision Company and, if the Expense Reserve Fund exceeds all such expenses,
costs and fees, the excess shall promptly be paid over by the Partnership to
Boston Sub and shall not, in any event, be distributed in the Liquidation,
provided that, if the Merger is not consummated because of the failure of any
condition to the consummation thereof to be satisfied (other than as a result of
a breach of this Agreement), then each party shall bear its own expenses (except
as otherwise provided in Section 9.4(b) and this Section 9.4(e)).
9.5. Further Assurances. From time to time after the Closing,
each of the parties hereto will execute and deliver, or cause to be executed and
delivered, such documents as the other parties may reasonably request in order
to more effectively consummate the sale by the Dolan Entities of, and vest in
Cablevision (or its designee) or the Surviving Corporation good title in, any of
the property that is the subject of the Transactions and to give effect to the
transactions contemplated hereby and thereby.
9.6. Severability. If any provision of this Agreement is
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering the provision in question inoperative or unenforceable
in any other case or circumstance, or of rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable, unless to
give effect to any such remaining provision or provisions would frustrate the
purpose and intention of the parties hereunder. The invalidity of any one or
more phrases, sentences, clauses, sections or subsections of this Agreement
shall not affect the remaining portions of this Agreement.
9.7. Notices. All notices, requests, demands and other
communications made in connection with this Agreement shall be in writing and
shall be (a) mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or (b) transmitted by hand delivery or telecopy,
addressed as follows:
(i) if to Cablevision, Merger Sub, Finance LP or the Surviving
Corporation,
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<PAGE>
Cablevision Systems Corporation
One Media Crossways
Woodbury, New York 11797
Telecopy: (516) 496-1780
Telephone: (516) 496-1500
Attention: William Bell
with copies to:
Cablevision Systems Corporation
One Media Crossways
Woodbury, New York 11797
Telecopy: (516) 496-1780
Telephone: (516) 496-1500
Attention: General Counsel
and to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Telecopy: (212) 558-3588
Telephone: (212) 558-4000
Attention: John P. Mead
(ii) if to Dolan, CSBC, CSSC, the Partnership or Merger Sub,
c/o Cablevision Systems Corporation
One Media Crossways
Woodbury, New York 11797
Telecopy: (516) 496-1780
Telephone: (516) 496-1500
Attention: Charles F. Dolan
with copies to:
Cablevision Systems Corporation
One Media Crossways
Woodbury, New York 11797
Telecopy: (516) 364-4592
Telephone: (516) 496-1136
Attention: William F. Frewin
-43-
<PAGE>
and to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telecopy: (212) 909-6836
Telephone: (212) 909-6000
Attention: Richard D. Bohm
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
9.8. Miscellaneous.
9.8.1. Headings. The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
9.8.2. Entire Agreement. This Agreement, together with the
Schedules, constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof, except for any
agreement which specifically states that it is not subject to this
Section 9.8.2. The only representations and warranties made by the
parties hereto with respect to the subject matter hereof are the
representations and warranties contained in this Agreement.
9.8.3. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and both of
which shall together constitute one and the same instrument.
9.8.4. Governing Law. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the
laws of the State of New York.
9.8.5. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns, provided, that the
parties hereto shall not assign any of their respective rights or
obligations under this Agreement except (a) as specifically provided
herein with respect to a designee of Cablevision, or (b) with the prior
written consent of the other parties hereto.
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<PAGE>
9.8.6. No Third Party Beneficiaries. Nothing in this Agreement
shall confer any rights upon any person or entity other than the
parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns, except that the provisions of Section
1.8 shall be enforceable by the Limited Partners.
9.8.7. Amendment; Waivers. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing and duly executed by the party
against whom enforcement of the amendment, modification, discharge or
waiver is sought.
9.8.8. No Effect on Preferred Equity. The parties hereto agree
that nothing contained in this Agreement or any other Transaction
Document or in the Consent Solicitation Statement/Prospectus shall have
any effect on the rights of any affiliate of Cablevision under the
Letter Agreement, dated as of September 30, 1985, between Finance LP
and the Partnership or on the rights of CSSC under the Letter
Agreement, dated June 29, 1989, between CSSC and the Partnership,
except as expressly provided in the Incorporation Restructuring
Agreement and the Merger Restructuring Agreement.
[Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
CABLEVISION OF BOSTON LIMITED
PARTNERSHIP
By: CHARLES F. DOLAN,
as General Partner
/s/ Charles F. Dolan
----------------------------------------
Charles F. Dolan
By: CABLEVISION SYSTEMS BOSTON
CORPORATION, as General Partner
By: /s/ Charles F. Dolan
---------------------------------
Name: Charles F. Dolan
Title: Chairman
CHARLES F. DOLAN
/s/ Charles F. Dolan
----------------------------------------
CABLEVISION SYSTEMS BOSTON CORPORATION
By: /s/ Charles F. Dolan
---------------------------------
Name: Charles F. Dolan
Title: Chairman
CABLEVISION SYSTEMS CORPORATION
By: /s/ William J. Bell
----------------------------------------
Name: William J. Bell
Title: Vice Chairman
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<PAGE>
CABLEVISION OF BOSTON, INC.
By: /s/ William J. Bell
----------------------------------------
Name: William J. Bell
Title: Vice Chairman
COB, INC.
By: /s/ William J. Bell
----------------------------------------
Name: William J. Bell
Title: Vice Chairman
CABLEVISION SYSTEMS
SERVICES CORPORATION
By: /s/ Charles F. Dolan
----------------------------------------
Name: Charles F. Dolan
Title: President
CABLEVISION FINANCE
LIMITED PARTNERSHIP
By: CABLEVISION SYSTEMS CORPORATION,
as General Partner
By: /s/ William J. Bell
--------------------------------
Name: William J. Bell
Title: Vice Chairman
-47-
<PAGE>
ANNEX I TO MERGER AGREEMENT
INCORPORATION RESTRUCTURING AGREEMENT
INCORPORATION RESTRUCTURING AGREEMENT (hereinafter called the
'Agreement'), dated as of ________ __, 1994, among CABLEVISION OF BOSTON LIMITED
PARTNERSHIP, a Massachusetts limited partnership (the 'Partnership'),
CABLEVISION SYSTEMS CORPORATION, a Delaware corporation ('Cablevision'), CHARLES
F. DOLAN ('Dolan'), CABLEVISION SYSTEMS SERVICES CORPORATION, a Delaware
corporation wholly-owned by Dolan ('CSSC'), and CABLEVISION FINANCE LIMITED
PARTNERSHIP, a New York limited partnership wholly-owned by Cablevision
('Finance LP').
RECITALS
WHEREAS, the Partnership owns and operates a cable television
system in the City of Boston, Massachusetts (the 'Boston System');
WHEREAS, Cablevision, Finance LP, CSSC and Dolan hold certain
claims and interests in the Partnership relating to subordinated debt, advances,
management fees, preferred equity interests and accrued and unpaid interest and
distributions thereon, all of which claims, and the current outstanding amounts
thereof, are set forth on Exhibit A to this Agreement (all such claims are
collectively referred to herein as the 'Affiliate Claims and Interests');
WHEREAS, such preferred equity interests in the Partnership
(collectively, the 'Preferred Equity') are held by Finance LP and CSSC;
WHEREAS, contemporaneously with the execution of this
Agreement, the Partnership is transferring to Cablevision of Boston, Inc., a
Delaware corporation wholly-owned by the Partnership ('Boston Sub'),
substantially all of its assets and all of its liabilities (the 'Boston
Liabilities') and Boston Sub is assuming all such Boston Liabilities (such
incorporation of Boston Sub and such asset and liability transfers are
hereinafter referred to as the 'Incorporation');
WHEREAS, it is a condition precedent to the consummation of
the Incorporation that (x) Cablevision, Finance LP, CSSC and Dolan (i) release
the Partnership from certain specified liabilities with respect to all Boston
Liabilities owed to such parties upon the assumption thereof by Boston
<PAGE>
Sub in the Incorporation and (ii) make certain adjustments to the amount of the
accrued and unpaid distributions on their Preferred Equity in connection with
the consummation of the Incorporation and (y) CSSC assign to Finance LP a
portion of the accrued and unpaid cumulative distributions with respect to its
Preferred Equity which will remain due to CSSC from the Partnership after giving
effect to this Agreement in order to make proportionate the effect of the
reductions to CSSC's and Finance LP's Preferred Equity which are being agreed to
in connection with the Incorporation; and
WHEREAS, because Cablevision, Finance LP, CSSC and Dolan
desire to cause the occurrence of the Incorporation to facilitate a subsequent
merger involving Boston Sub and for certain other reasons, such parties are
willing to provide the releases and to make the adjustments to the Preferred
Equity provided for by this Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
Restructuring and Releases
1.1. Reduction in Rate of Return on Preferred Equity. (a)
Finance LP. From and after the consummation of the Incorporation, the per annum
interest rate provided for in the first sentence of the third full paragraph of
the Letter Agreement, dated as of September 30, 1985, between Finance LP and the
Partnership (the 'Finance LP Letter Agreement'), in respect of the net amount of
the Cash Infusion (as such term is defined in the Finance LP Letter Agreement)
shall be reduced from 15% to 10%. Except as so amended, the Finance LP Letter
Agreement shall remain in full force and effect.
(b) CSSC. From and after the consummation of the
Incorporation, the per annum interest rate provided for in the first sentence of
the third paragraph of the Letter Agreement, dated as of June 29, 1989, between
CSSC and the Partnership (the 'CSSC Letter Agreement'), in respect of the net
amount of the Cash Infusion (as such term is defined in the CSSC Letter
Agreement) shall be reduced from 15% to 10%. Except as so amended, the CSSC
Letter Agreement shall remain in full force and effect.
-2-
<PAGE>
1.2. Certain Reductions to the Preferred Equity. (a) Finance
LP. Finance LP represents and warrants to the Partnership that Exhibit B hereto
sets forth a complete and correct listing of the outstanding amount of each of
its Affiliate Claims and Interests, including the face amount of its Preferred
Equity and all accrued and unpaid distributions thereon, in each case as of
__________, 1994. Finance LP agrees that effective upon the consummation of the
Incorporation, the amount of the accrued and unpaid distributions on its
Preferred Equity shall be reduced by $_______, from $_______ to $_______, and
the amount so reduced shall be deemed forgiven. Finance LP hereby
unconditionally and irrevocably releases and forever discharges, effective upon
the Incorporation, each of the Partnership and Boston Sub from any obligation it
would otherwise have to make any payments or take any other action in respect of
such released amount.
(b) CSSC. CSSC represents and warrants that Exhibit C hereto
sets forth a complete and correct listing of the outstanding amount of each of
its Affiliate Claims and Interests, including the face amount of its Preferred
Equity and all accrued and unpaid distributions thereon, in each case as of
___________, 1994. CSSC agrees that effective upon the consummation of the
Incorporation, the amount of the accrued and unpaid distributions on its
Preferred Equity shall be reduced by $_______, from $_______ to $_______ (such
remaining amount, the 'Remaining CSSC Amount'), and the amount so reduced shall
be deemed forgiven. CSSC hereby unconditionally and irrevocably releases and
forever discharges, effective upon the Incorporation, each of the Partnership
and Boston Sub from any obligation it would otherwise have to make any payments
or take any other action in respect of such released amount.
1.3. Assignment of Accrued and Unpaid Distributions on the
Preferred Equity. Effective upon the consummation of the Incorporation and
the reductions provided for in Section 1.2 of this Agreement, CSSC
irrevocably and unconditionally assigns to Finance LP the right to receive
$_______* of the Remaining CSSC Amount.
- --------
* This amount shall be determined by subtracting from the GP Allocation (as
defined below) the amount of the reduction in CSSC's Preferred Equity
distributions provided in Section 1.2(b) ($403,000 as of March 31, 1994). The
GP Allocation shall be determined by multiplying the GP Group Percentage (as
defined in Annex II to the Merger Agreement) (17.64% as of March 31, 1994) as
of the end of the month immediately preceding the date of the Incorporation
by the aggregate amount of the reduction in Preferred Equity distributions
provided in Section 1.2 ($8,995,000 as of March 31, 1994). As of March 31,
1994, the GP Allocation was $1,587,000 and the amount to be provided in
Section 1.3 was $1,183,000. Dollar amounts used in this footnote have been
rounded to the nearest thousand.
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<PAGE>
1.4. Release of the Partnership. Upon the consummation of the
Incorporation, each of Cablevision, Dolan, CSSC and Finance LP, on behalf of
itself and all persons or entities claiming by or through it, does hereby
unconditionally release and forever discharge the Partnership, its past and
present agents, attorneys and divisions, from any and all manner of actions,
causes of action, suits, claims, counterclaims, cross claims, defenses and
demands whatsoever, arising from any and all debts, demands, agreements,
contracts, judgments, accounts, claims and liabilities whatsoever which are
being assumed by Boston Sub in connection with the Incorporation; it being
understood and agreed that, in the case of CSSC and Finance LP, the foregoing
release and discharge in this Section 1.4 does not apply to any claims they may
have in respect of their Preferred Equity, and in the case of Dolan and any
person claiming by, through or under him, the foregoing release and discharge in
this Section 1.4 does not apply to any rights he or such person has to receive
any indemnification from the Partnership.
ARTICLE II
Miscellaneous
2.1. Further Assurances. From time to time after the date
hereof, each of the parties hereto will execute and deliver, or cause to be
executed and delivered, such documents as the other parties may reasonably
request in order to more effectively give effect to the agreements contemplated
hereby.
2.2. Entire Agreement. This Agreement, together with the
Exhibits hereto, constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
-4-
<PAGE>
2.3. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
2.4. Governing Law. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the laws of
the State of New York.
2.5. Amendment; Waivers. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
CABLEVISION OF BOSTON LIMITED
PARTNERSHIP
By
------------------------------------------
CABLEVISION SYSTEMS
CORPORATION
By
------------------------------------------
------------------------------------------
Charles F. Dolan
CABLEVISION SYSTEMS
SERVICES CORPORATION
By
------------------------------------------
Title:
CABLEVISION FINANCE
LIMITED PARTNERSHIP
By CABLEVISION SYSTEMS CORPORATION,
as General Partner
By
------------------------------------------
Title:
-6-
<PAGE>
ANNEX II TO MERGER AGREEMENT
Formula for Allocating Reductions in Cumulative
Distributions on Preferred Equity held by Finance LP
(Dollar amounts at March 31, 1994
have been rounded to the nearest thousand)
Step 1 Add, as of the close of business on the date prior to the Closing
Date, for the Dolan Entities:
- Unpaid subordinated debt of the Partnership ('Subordinated
Debt') held by the Dolan Entities ('GP Group Subordinated
Debt') ($109,000 at March 31, 1994)
- Unpaid interest on Subordinated Debt at the contractually
provided rate owed to the Dolan Entities ($3,853,000 at
March 31, 1994)
- Unpaid management fees ('Management Fees') owed to the Dolan
Entities by the Partnership ($14,519,000 at March 31, 1994)
- Unpaid interest on Management Fees at the contractually
provided rate owed to the Dolan Entities ('GP Group Management
Fees') $5,969,000 at March 31, 1994)
- Preferred Equity held by the Dolan Entities (prior to its
transfer to Cablevision Finance in connection with the
Transactions) ('GP Group Preferred Equity') ($4,600,000 at
March 31, 1994)
- Cumulative unpaid distributions on the GP Group Preferred
Equity at the contractually provided rate ($4,034,000 at
March 31, 1994)
The total amount so obtained is the 'GP Group Base Claims'
($33,084,000 as of March 31, 1994)
Step 2 Add, as of the close of business on the date prior to the Closing
Date, for Cablevision Companies:
- Unpaid advances to the Partnership by any Cablevision Company
and unpaid subordinated debt of the Partnership held by a
Cablevision Company plus interest thereon at the contractually
provided rate ($22,823,000 at March 31, 1994)
<PAGE>
- Preferred Equity held by Cablevision Companies (prior to the
transfer of the GP Group Preferred Equity by CSSC to
Cablevision Finance in connection with the Transactions)
('Cablevision Preferred Equity') ($45,700,000 at March 31,
1994)
- Cumulative unpaid distributions on the Cablevision Preferred
Equity at the contractually provided rate ($85,912,000 at
March 31, 1994)
The total amount so obtained is the 'Cablevision Base Claims'
($154,435,000 at March 31, 1994)
Step 3 Add the GP Group Base Claims and the Cablevision Base Claims -- the
amount so obtained is the 'Total Base Claims' ($187,519,000 at March
31, 1994)
Step 4 Divide the GP Group Base Claims by the Total Base Claims -- the amount
so obtained is the 'GP Group Percentage' (17.64% at March 31, 1994)
Step 5 Divide the Cablevision Base Claims by the Total Base Claims -- the
amount so obtained is the 'Cablevision Percentage' (82.36% at March
31, 1994)
Step 6 Subtract from $169,628,282 the total amount required to be paid to
repay in full all amounts of any nature owing under, and required for
full repayment, under the Partnership Credit Agreement as of the
Closing Date -- the amount so obtained is the 'Balance Available'.
Step 7 Multiply the GP Group Percentage by the Balance Available -- the
amount so obtained is the 'GP Group Amount'.
Step 8 Multiply the Cablevision Percentage by the Balance Available -- the
amount so obtained is the 'Cablevision Amount'.
Step 9 From the GP Group Amount shall be subtracted (i) GP Group Subordinated
Debt (ii) GP Group Preferred Equity (calculated without regard to the
Preferred Equity Sale) and (iii) GP Group Management Fees and the
negative amount obtained is the 'Management Fee Deficit
-2-
<PAGE>
Allocation'. There shall be transferred to Cablevision by the Dolan
Entities, all accumulated interest on GP Group Subordinated Debt, all
accrued interest on GP Group Management Fees and Management Fees in an
amount equal to the Management Fee Deficit Allocation (the total
amount so transferred is the 'Transferred Amount').
Step 10 From the Cablevision Amount shall be subtracted unpaid advances and
unpaid subordinated debt owing to Cablevision Companies, the
Transferred Amount, and the Cablevision Preferred Equity (computed
without regard to the Preferred Equity Sale). The amount so obtained
shall be the amount of Cumulative Preferred Equity Distributions
which, together with the Cablevision Preferred Equity (computed after
giving effect to the Preferred Equity Sale), will be paid in the
Liquidation by the issuance of Cablevision Class A Stock. All other
cumulative Preferred Equity distributions will be reduced to zero and
deemed forgiven pursuant to the Merger Restructuring Agreement.
----------
The actual computation of the foregoing as of March 31, 1994
is set forth in the Consent Solicitation Statement/Prospectus under the heading
'Calculation of Allocation of Consideration' and such illustrative table may be
referred to in interpreting this Annex II.
-3-
<PAGE>
ANNEX III TO MERGER AGREEMENT
MERGER RESTRUCTURING AGREEMENT
MERGER RESTRUCTURING AGREEMENT (hereinafter called the
'Agreement'), dated as of ________ __, 1994, among CABLEVISION OF BOSTON LIMITED
PARTNERSHIP, a Massachusetts limited partnership (the 'Partnership'),
CABLEVISION SYSTEMS CORPORATION, a Delaware corporation ('Cablevision'),
CABLEVISION OF BOSTON, INC., a Delaware corporation wholly-owned by the
Partnership ('Boston Sub'), CABLEVISION OF BROOKLINE LIMITED PARTNERSHIP, a
Massachusetts limited partnership ('Brookline'), CABLEVISION SYSTEMS SERVICES
CORPORATION, a Delaware corporation ('CSSC'), and CABLEVISION FINANCE LIMITED
PARTNERSHIP ('Finance LP'), a New York limited partnership.
RECITALS
WHEREAS, the Partnership owns and operates a cable television
system in the City of Boston, Massachusetts (the 'Boston System');
WHEREAS, prior to the execution of this Agreement, the
Partnership has transferred substantially all of its assets and all of its
liabilities (the 'Boston Liabilities') to Boston Sub, and Boston Sub has assumed
all such Boston Liabilities;
WHEREAS, Finance LP and CSSC hold certain claims against
Boston Sub relating to subordinated debt, advances, management fees and accrued
and unpaid interest thereon, all of which claims, and the current outstanding
amounts there-of, are set forth on Part I of Exhibit A to this Agreement (all
such claims are collectively referred to herein as the 'Affiliate Claims');
WHEREAS, prior to the execution of this Agreement, Finance LP
and CSSC held certain preferred equity interests in the Partnership
(collectively, the 'Preferred Equity');
WHEREAS, contemporaneously with the execution of this
Agreement, CSSC is selling to Finance LP and Finance LP is acquiring from CSSC,
all of CSSC's Preferred Equity and COB, Inc. ('COB'), a Delaware corporation
wholly-owned by Cablevision, is merging with and into Boston Sub (such merger of
COB with and into Boston Sub is hereinafter referred to as the 'Merger')
pursuant to the Acquisition Agreement and Plan of Merger and Reorganization,
dated as of June 14, 1994, among the Partnership, Boston Sub, Charles F.
<PAGE>
Dolan, Cablevision Systems Boston Corporation, Cablevision, COB, CSSC and
Finance LP (the 'Merger Agreement');
WHEREAS, it is a condition to the consummation of the Merger
that (x) Finance LP accept certain reductions of the amount of the accrued and
unpaid distributions on its Preferred Equity, (y) (i) Boston Sub and CSSC and
(ii) Brookline and CSSC terminate certain management agreements between such
parties, and (z) CSSC assign to Finance LP a portion of the consideration CSSC
would otherwise receive in the Merger in order to make proportionate the effect
of the reductions to CSSC's and Finance LP's Preferred Equity which are being
agreed to in connection with the Merger; and
WHEREAS, because the Partnership, Boston Sub, Brookline,
Finance LP and CSSC desire to effect the consummation of the Merger, such
parties are willing to make the adjustments and enter into the other agreements
provided for hereby.
NOW, THEREFORE, for good and valuable consideration, the
receipt of and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
Restructuring
1.1. Certain Reductions to the Preferred Equity of Finance LP.
Finance LP represents and warrants to the Partnership that (i) the face amount
of its Preferred Equity, including all of the Preferred Equity it is acquiring
from CSSC on the date hereof, is $__________ and (ii) the amount of all of the
accrued and unpaid distributions on all such Preferred Equity on the date hereof
is $__________. Finance LP agrees that effective upon the consummation of the
Merger, the amount of the accrued and unpaid distributions on all such Preferred
Equity (including all of the Preferred Equity it is acquiring from CSSC on the
date hereof) shall be reduced by $_______, from $_______ to $_______, the amount
so reduced shall be deemed forgiven and no additional distributions shall
hereafter accrue. Effective upon the Merger and Finance LP's receipt from the
Partnership of the consideration in respect of the Preferred Equity Amount (as
such term is defined in the Merger Agreement), Finance LP hereby unconditionally
and irrevocably releases and forever discharges each of the Partnership, Boston
Sub and COB from any obligation it would otherwise have to make any payments or
take any other action
-2-
<PAGE>
in respect of all such eliminated accrued and unpaid contributions on the
Preferred Equity.
1.2. Assignment of Interest on Management Fees. CSSC hereby
irrevocably and unconditionally assigns to Finance LP the right to receive (x)
$_______ in accrued and unpaid interest on management fees and subordinated debt
which CSSC is entitled to receive from Boston Sub in connection with the
consummation of the Merger and (y) $______ of the management fees which CSSC is
entitled to receive from Boston Sub in connection with the consummation of the
Merger (collectively, the 'Assigned Amounts'), and Boston Sub hereby agrees
that, effective upon the consummation of the Merger, the Assigned Amounts shall
be paid to Finance LP by the creation of intercompany indebtedness owing from
Boston Sub to Finance LP.
1.3. Satisfaction of Affiliate Claims. Each of the parties
hereto understands and agrees that in connection with the consummation of the
Merger, each of Finance LP and CSSC shall receive from Cablevision the
applicable consideration set forth on Part II of Exhibit A to this Agreement in
respect of its respective Affiliate Claims.
ARTICLE II
Termination of Management Agreements
2.1. Termination of Boston Management Agreement. Each of
Boston Sub and CSSC hereby agrees that, effective upon the consummation of the
Merger, all of the terms and provisions of the Amended and Restated Agreement,
dated as of the 30th day of March 1984, by and between CSSC and the Partnership
(the 'Partnership Management Agreement') shall terminate and have no further
force or effect.
2.2. Termination of Brookline Management Agreement. Each of
Brookline and CSSC hereby agrees that, effective upon the consummation of the
Merger, all of the terms and provisions of the Agreement, dated as of the 28th
day of December 1983, by and between CSSC and Brookline shall terminate and be
of no further force or effect.
-3-
<PAGE>
ARTICLE III
Miscellaneous
3.1. Further Assurances. From time to time after the date
hereof, each of the parties hereto will execute and deliver, or cause to be
executed and delivered, such documents as the other parties may reasonably
request in order to more effectively give effect to the transactions
contemplated hereby.
3.2. Entire Agreement. This Agreement, together with the
Exhibits hereto, constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
3.3. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
3.4. Governing Law. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the laws of
the State of New York.
3.5. Amendment; Waivers. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
CABLEVISION OF BOSTON LIMITED
PARTNERSHIP
By
------------------------------------------
CABLEVISION OF BROOKLINE
LIMITED PARTNERSHIP
By
------------------------------------------
CABLEVISION SYSTEMS
CORPORATION
By
------------------------------------------
CABLEVISION OF BOSTON, INC.
By
------------------------------------------
------------------------------------------
Charles F. Dolan
CABLEVISION SYSTEMS
SERVICES CORPORATION
By
------------------------------------------
Title:
-5-
<PAGE>
CABLEVISION FINANCE
LIMITED PARTNERSHIP
By CABLEVISION SYSTEMS CORPORATION,
as General Partner
By
------------------------------------------
Title:
-6-
<PAGE>
ANNEX IV TO MERGER AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BROOKLINE SALE AGREEMENT
Relating To
0.5% General Partnership Interest in
CABLEVISION OF BROOKLINE LIMITED PARTNERSHIP
Dated as of _______ __, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS .................................................................. 1
ARTICLE I
The Transactions
1.1. Cablevision's Right to Purchase
Dolan's Brookline General
Partnership Interest................................................. 2
1.2. Dolan's Put............................................................ 3
1.3. Closing with Respect to the Right of
First Refusal, the Acquisition Right
or Dolan's Put....................................................... 5
ARTICLE II
Representations and Warranties
2.1. Representations and Warranties of
the Dolan............................................................ 6
2.1.1. Title to Dolan's Brookline
General Partnership Interest................................. 6
2.1.2. Authority for Agreement........................................ 6
2.1.3. No Conflicts, etc.............................................. 6
2.1.4. Litigation..................................................... 6
2.2. Representations and Warranties
of Cablevision....................................................... 7
2.2.1. Corporate Status............................................... 7
2.2.2. Authority for Agreement........................................ 7
2.2.3. No Conflicts, etc.............................................. 7
2.2.4. Litigation..................................................... 7
ARTICLE III
Definitions, Miscellaneous
3.1. Definition of Certain Terms............................................ 8
3.2. Miscellaneous.......................................................... 8
3.2.1. Headings....................................................... 8
3.2.2. Entire Agreement............................................... 8
3.2.3. Counterparts................................................... 8
3.2.4. Governing Law.................................................. 8
3.2.5. Assignment..................................................... 8
3.2.6. No Third Party Beneficiaries................................... 8
3.2.7. Amendment; Waivers............................................. 9
-i-
<PAGE>
BROOKLINE SALE AGREEMENT
BROOKLINE SALE AGREEMENT (hereinafter called this 'Agreement'),
dated as of _______ __, 1994, among CHARLES F. DOLAN ('Dolan') and CABLEVISION
SYSTEMS CORPORATION, a Delaware corporation ('Cablevision').
RECITALS
WHEREAS, each of Cablevision and Dolan entered into an Acquisition
Agreement and Plan of Merger and Reorganization, dated as of June __, 1994 (the
'Merger Agreement'), among Cablevision of Boston Limited Partnership, a
Massachusetts limited partnership (the 'Partnership'), and the other parties
named therein;
WHEREAS, the Partnership owns 99% of the partnership interests in
Cablevision of Brookline Limited Partnership, a Massachusetts limited
partnership ('Brookline'), which owns and operates a cable television system in
Brookline, Massachusetts;
WHEREAS, Dolan and Cablevision Systems Brookline Corporation, a
Delaware corporation wholly-owned by Dolan ('CSBrC'), are the general partners
of, and each owns 0.5% of the partnership interests in, Brookline; and
WHEREAS, upon consummation of the transactions contemplated by the
Merger Agreement, Cablevision shall own, either directly or through a
wholly-owned subsidiary, the 99% partnership interest and all of the capital
stock of CSBrC and Dolan shall continue to own his 0.5% partnership interest in
Brookline ('Dolan's Brookline General Partnership Interest');
WHEREAS, in connection with the transactions contemplated by the
Merger Agreement, Dolan and Cablevision wish to enter into this Agreement
granting Cablevision and Dolan or his estate, as the case may be, certain rights
to acquire (in the case of Cablevision) or to sell (in the case of Dolan or his
estate) Dolan's 0.5% partnership interest in Brookline, on the terms and
conditions set forth more fully herein.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein the
parties hereto hereby agree as follows:
<PAGE>
ARTICLE I
The Transactions
1.1. Cablevision's Right to Purchase Dolan's Brookline General
Partnership Interest. (a) Dolan hereby grants to Cablevision a right of first
refusal (the 'Right of First Refusal') to purchase Dolan's Brookline General
Partnership Interest upon the terms and conditions set forth in this Section
1.1(a). Dolan shall only be permitted to transfer Dolan's Brookline General
Partnership Interest in whole, but not in part. Dolan shall not have the right
to sell or otherwise alienate Dolan's Brookline General Partnership Interest
without first offering to Cablevision a right to purchase Dolan's Brookline
General Partnership Interest, all on the terms hereinafter set forth.
(i) Dolan must offer Dolan's Brookline General Partnership
Interest to Cablevision by means of a written notice (an 'Offer Notice')
delivered to Cablevision. The Offered Interest shall be offered to
Cablevision at a price and upon terms no less favorable to Cablevision than
those which Dolan is willing to accept from a bona fide third party
purchaser pursuant to a bona fide offer from such third party purchaser (a
'Bona Fide Offer'); provided, however, that regardless of the terms of the
Bona Fide Offer, Dolan's Brookline General Partnership Interest shall be
offered to Cablevision on terms that permit Cablevision one hundred and
twenty (120) days within which to complete the purchase. The Offer Notice
shall include a statement setting forth the identity of, and the price and
terms offered by, such third party for the purchase of Dolan's Brookline
General Partnership Interest. In any case where a Bona Fide Offer has been
made in respect of Dolan's Brookline General Partnership Interest in
conjunction with other property, the price in respect of Dolan's Brookline
General Partnership Interest shall be the Allocated Interest Offer Price,
as defined below. The 'Allocated Interest Offer Price' shall mean (A) if
the proposal or agreement contemplating such sale specifically allocates a
portion of the purchase price for all property covered thereby to Dolan's
Brookline General Partnership Interest, unless such allocation is
unreasonable, such allocated purchase price, as certified to Cablevision by
Dolan or (B) if the proposal or agreement contemplating such sale does not
contain a specific allocation to Dolan's Brookline General Partnership
Interest, or if the provisions of clause (A) above shall be inapplicable,
an amount equal to the product of the purchase price for all such property
and a fraction, the numerator of which is equal to the Fair Market Value
(as defined below) of Dolan's General Partnership Interest and the
denominator of which is equal to the Fair Market Value of all such property
to be sold, as certified to Cablevision by Dolan. As used herein, 'Fair
Market Value' shall mean the price at which a willing seller would sell and
a willing
-2-
<PAGE>
buyer would buy such property having full knowledge of the facts, and
assuming each party acts on an arm's-length basis with the expectation of
concluding the purchase or sale within a reasonable time. In any case where
there is a dispute as to the Fair Market Value of any property, such
dispute shall be determined by an appraiser selected jointly by Cablevision
and Dolan or, if Cablevision and Dolan are not able to agree on the
selection of an appraiser, each of Dolan and Cablevision shall select an
appraiser and the appraisers so selected shall select another appraiser,
which shall determine the Fair Market Value of the property in question.
(ii) Dolan's General Partnership Interest shall be offered to
Cablevision for a period of ninety (90) days. Within ninety (90) days after
receipt of the Offer Notice, Cablevision shall accept, in whole and not in
part, or reject such offer for Dolan's General Partnership Interest by
delivering a notice in writing to Dolan.
(iii) If Dolan's General Partnership Interest has not been accepted and
Cablevision has not delivered a writing in which it has refused to exercise
its Right of First Refusal, then Dolan may, within one hundred and fifty
(150) days of the date of the Offer Notice, transfer Dolan's General
Partnership Interest to such third party at a price not less than the
price, and on terms no more favorable to the third party than those,
contained in the Bona Fide Offer and the Offer Notice. If Dolan's General
Partnership Interest is not so disposed of within such 150-day period on
the terms and conditions set forth in the Offer Notice, then Dolan shall,
before disposing of Dolan's Brookline General Partnership Interest, again
be obligated to provide the Right of First Refusal set forth in this
Section 1.1(a).
(b) In addition to the rights set forth in paragraph (a) of this
Section 1.1, Dolan hereby grants to Cablevision a right to acquire (the
'Acquisition Right') Dolan's Brookline General Partnership Interest upon the
earlier to occur of Dolan's death and January 1, 2002 at the greater of $10,000
and the book value of Dolan's Brookline General Partnership Interest on the date
of such transfer (the 'Call Price').
1.2. Dolan's Put. Cablevision hereby agrees that, (i) upon Dolan's
death, Dolan's estate shall have a right to sell to Cablevision and Cablevision
shall have the obligation to purchase from Dolan ('Dolan's Put') Dolan's
Brookline General Partnership Interest at the Call Price or (ii) in the event of
a Cablevision Change in Control or a Brookline Change in Control (in each case,
as defined below), Dolan shall have the right to sell to Cablevision and
Cablevision shall have the obligation to purchase from Dolan Dolan's Brookline
General Partnership Interest at the
-3-
<PAGE>
greater of the Call Price or the applicable price (the 'Put Price') set forth
below:
Date of Cablevision
or Brookline
Change in Control Put Price
------------------ ---------
Year ending [ ]*, 1994 $4,800,000
Year ending [ ]*, 1995 4,400,000
Year ending [ ]*, 1996 3,900,000
Year ending [ ]*, 1997 3,400,000
Year ending [ ]*, 1998 2,900.000
Year ending [ ]*, 1999 2,300,000
Year ending [ ]*, 2000 1,600,000
Year ending [ ]*, 2001 800,000
Year ending [ ]*, 2002 10,000
For purposes hereof, a 'Cablevision Change in Control' shall occur
if (a) the following shall have occurred: (i) a transaction is consummated, (x)
which is approved by the holders of at least a majority of the outstanding
shares of Class A Common Stock, par value $0.01 per share, of Cablevision
('Class A Common Stock') or (y) in which a majority of the holders of Class A
Common Stock (other than Dolan and any member of the Dolan Group (as defined
below)) transfer their shares of Class A Common Stock to any Person other than
Dolan or any member of the Dolan Group and (ii) (A) any Person other than Dolan
or any member of the Dolan Group acquires beneficial ownership (as such term is
defined in Section 13(d) of the Securities Exchange Act of 1934) of 50% or more
of the outstanding shares of Class A Common Stock, (B) such Person acquires
securities representing more than 50% of the voting power of Cablevision and (C)
Dolan and the Dolan Group collectively cease to own beneficially and of record,
a number of shares of Cablevision capital stock sufficient to enable Dolan and
the Dolan Group to elect a majority of the members of the Board of Directors of
Cablevision or (b) a transaction or series of related transactions is
consummated (i) in which any Person (other than Cablevision, Dolan or any member
of the Dolan Group, any trustee or other fiduciary holding securities under an
employee benefit plan of Cablevision, or any corporation owned, directly or
indirectly, by the Cablevision stockholders in substantially the same
proportions as their ownership of stock of Cablevision) is or becomes the
'beneficial owner' (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended), directly or indirectly, of securities of Cablevision
representing 50% or more of the combined voting power of Cablevision's then
outstanding securities eligible to vote and (ii) to which the requirements of
- --------
* Insert date on which the Merger is consummated.
-4-
<PAGE>
Section VII of Paragraph (A) of Article Fourth of the Certificate of
Incorporation of Cablevision are applicable and have been satisfied. For
purposes hereof, 'Dolan Group' means (i) Charles F. Dolan, any spouse, child,
child of a spouse or parent (in each of the foregoing instances, whether natural
or adopted), and any other intestate distributee, heir or legatee of Charles F.
Dolan; (ii) any legal representative, guardian or conservator of any of the
persons described in clause (i) above; (iii) the intestate estate of any of the
persons described in clause (i) above; (iv) The Dolan Family Foundation, a New
York not-for-profit corporation; and (v) any trust of which there are no
principal beneficiaries other than any of the persons or entities described in
clauses (i) - (iv) above or any partnership or corporation of which there are no
partners or stockholders other than the persons described in clauses (i) - (iv)
above.
For purposes hereof, a 'Brookline Change in Control' shall occur
if a transaction is consummated pursuant to which substantially all of the
assets, or substantially all of the limited partnership interests of Brookline
or the general partnership interests of Brookline held directly or indirectly by
Cablevision are acquired by any Person other than Dolan or any member of the
Dolan Group or Cablevision or of its subsidiaries (collectively, the 'Dolan
Affiliates').
1.3. Closing with Respect to the Right of First Refusal, the
Acquisition Right or Dolan's Put. Any exercise of the Right of First Refusal,
the Acquisition Right or Dolan's Put pursuant to this Article I shall be
effected by written notice (the 'Notice') to the other party hereto, which
notice shall contain the Allocated Interest Offer Price, the Call Price or the
Put Price, as applicable, and the date and time of the closing of the
transaction, which closing shall occur at the offices of Cablevision or such
other location as the parties may agree in writing within 30 days of the date of
such Notice, or as soon thereafter as is reasonably practicable after obtaining
any required approvals. Each of Cablevision and Dolan agree to use each of its
and his reasonable efforts to obtain any such required approvals as promptly as
practicable. On such date, Dolan or his estate, as the case may be, shall
deliver to Cablevision an assignment of Dolan's Brookline General Partnership
Interest and Cablevision shall deliver to Dolan or his estate, as the case may
be, the Allocated Interest Offer Price, the Call Price or the Put Price, as
applicable, in immediate by available funds.
-5-
<PAGE>
ARTICLE II
Representations and Warranties
2.1. Representations and Warranties of Dolan. Dolan represents
and warrants to Cablevision as follows:
2.1.1. Title to Dolan's Brookline General Partnership Interest.
Dolan owns and at the closing of the transaction provided for in Section
1.1 and 1.2, as the case may be, will own, beneficially and of record,
Dolan's Brookline General Partnership Interest, free and clear of any
Liens.
2.1.2. Authority for Agreement. Dolan has the legal capacity to
execute and deliver this Agreement, to perform his obligations hereunder,
and to consummate the transactions contemplated hereby. This Agreement has
been executed and delivered by Dolan, and constitutes a valid and legally
binding obligation of Dolan, enforceable against Dolan in accordance with
its terms.
2.1.3. No Conflicts, etc. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will
not conflict with or result in any violation of or default under (i) any
provision of the Agreement of Limited Partnership of Brookline or, (ii)
except as to the franchise granted by the Town of Brookline to construct,
operate and maintain the cable television system in the Town of Brookline,
as to which no representation or warranty is made in this Section 2.1.3,
any mortgage, indenture, lease, agreement or other instrument, permit,
concession, grant, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Dolan except, as to this
subsection (ii) only, any such conflict, violation or default as would not
adversely affect the ability of Dolan to perform its obligations under this
Agreement or consummate the Transactions contemplated hereby. No consent,
license, approval, order or authorization of, or registration, declaration
or filing with, any Governmental Authority (an 'Approval') or other third
party is required on the part of Dolan in connection with the execution and
delivery of this Agreement, or the consummation of the transactions
contemplated hereby (other than any necessary Approvals required from the
Federal Communications Commission and the Town of Brookline and any filings
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and any other necessary regulatory approvals in connection with
the transfer of Dolan's General Partnership Interests).
2.1.4. Litigation. There is no judicial or administrative
action, suit, proceeding or investigation pending or, to the best of
Dolan's knowledge, threatened against Dolan, which involves
-6-
<PAGE>
the validity of this Agreement or of any action taken or to be taken by
Dolan in connection therewith or the consummation of the transactions
contemplated hereby.
2.2. Representations and Warranties of Cablevision.
Cablevision represents and warrants to Dolan as follows:
2.2.1. Corporate Status. Cablevision is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware.
2.2.2. Authority for Agreement. Cablevision has the corporate
power to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by all
appropriate corporate action. This Agreement has been duly executed and
delivered by Cablevision and constitutes the valid and legally binding
obligation of Cablevision, enforceable against Cablevision in accordance
with its terms.
2.2.3. No Conflicts, etc. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will
not conflict with or result in any violation of or default under (i) any
provision of the Certificate of Incorporation or By-laws of Cablevision or
(ii) any mortgage, indenture, lease, agreement or other instrument, permit,
concession, grant, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Cablevision, except, as to
this subsection (ii) only, for any such conflict, violation or default as
would not adversely affect Cablevision's ability to perform its obligations
under this Agreement or consummate the Transactions contemplated hereby or
have a material adverse effect on the financial condition, operations or
business of Cablevision. No consent, license, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Authority or other third party is required on the part of
Cablevision in connection with the execution and delivery of this
Agreement, or the consummation of the transactions contemplated hereby
(other than any necessary Approvals required from the Federal
Communications Commission and the Town of Brookline and any filings
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and any other necessary regulatory approvals in connection with
the transfer of Dolan's General Partnership Interests).
2.2.4. Litigation. There is no judicial or administrative
action, suit, proceeding or investigation pending or, to the best of
Cablevision's knowledge, threatened which involves the validity of this
Agreement or of any action taken or to be taken
-7-
<PAGE>
by Cablevision in connection herewith or the consummation of the
transactions contemplated hereby.
ARTICLE III
Definitions, Miscellaneous
3.1. Definition of Certain Terms. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Merger Agreement.
3.2. Miscellaneous.
3.2.1. Headings. The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
3.2.2. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof, except for the Merger Agreement and any agreement which
specifically states that it is not subject to this Section 3.2.2. The only
representations and warranties made by the parties hereto with respect to
the subject matter hereof are the representations and warranties contained
in this Agreement.
3.2.3. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and both of which
shall together constitute one and the same instrument.
3.2.4. Governing Law. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the laws
of the State of New York.
3.2.5. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns, provided, however, that
the parties hereto shall not assign any of their respective rights or
obligations under this Agreement except with the prior written consent of
the other parties hereto.
3.2.6. No Third Party Beneficiaries. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties
hereto and their respective heirs, executors, administrators, successors
and permitted assigns.
-8-
<PAGE>
3.2.7. Amendment; Waivers. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing and duly executed by the party against
whom enforcement of the amendment, modification, discharge or waiver is
sought.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first above written.
--------------------------------------------
Charles F. Dolan
CABLEVISION SYSTEMS CORPORATION
By
------------------------------------------
Name:
Title:
-9-
<PAGE>
ANNEX V TO MERGER AGREEMENT
SECOND AMENDMENT TO ARTICLES OF LIMITED
PARTNERSHIP ESTABLISHING
CABLEVISION OF BROOKLINE LIMITED PARTNERSHIP
This SECOND AMENDMENT TO ARTICLES OF LIMITED PARTNERSHIP
ESTABLISHING CABLEVISION OF BROOKLINE LIMITED PARTNERSHIP, dated as of , 1994
(this 'Amendment'), by and among Charles F. Dolan ('Dolan'), Cablevision Systems
Brookline Corporation, a Delaware corporation wholly-owned by Dolan ('CSBrC'),
and Cablevision of Boston, Inc., a Delaware corporation ('CBInc.'), hereby
amends the Articles of Limited Partnership Establishing Cablevision of Brookline
Limited Partnership, made as of the 1st day of June 1983 by and among Dolan,
CSBrC and Cablevision of Boston Limited Partnership, as limited partner
('Boston'), as amended by the Amendment Agreement of Cablevision of Brookline
Limited Partnership, dated April 14, 1992, among Dolan, CSBrC and Boston (the
'Articles of Limited Partnership'). Any terms not defined in this Amendment
shall have the meanings ascribed to them in the Articles of Limited Partnership.
RECITALS
WHEREAS, CBInc. is a limited partner of and owns 99% of the
partnership interests in Cablevision of Brookline Limited Partnership
('Brookline');
WHEREAS, Dolan and CSBrC are the general partners of, and own
partnership interests in, Brookline;
WHEREAS, contemporaneous with the execution of this Amendment,
COB, Inc. ('Merger Sub'), a Delaware corporation wholly- owned by Cablevision
Systems Corporation, a Delaware corporation ('Cablevision'), is merging with and
into CBInc. (the 'Merger');
WHEREAS, contemporaneous with the Merger, Dolan will sell to
Cablevision of Brookline, Inc., a wholly-owned subsidiary of Cablevision
('Brookline Inc.'), and Brookline, Inc. will acquire from Dolan, all of the
outstanding capital stock of CSBrC; and
WHEREAS, contemporaneous with the Merger and sale of CSBrC,
Dolan wishes to resign as the Managing General Partner of Brookline and CSBrC
wishes to become the Managing General Partner of Brookline;
WHEREAS, in connection with the Merger and sale of CSBrC,
Dolan and Cablevision wish to enter into the Brookline Sale Agreement, dated as
of __________ __, 1994, among Dolan and Cablevision, a copy of which is attached
as Exhibit A hereto), which would grant Cablevision and Dolan or his estate, as
the case
<PAGE>
may be, certain rights to acquire (in the case of Cablevision) or to sell (in
the case of Dolan or his estate) Dolan's 1/2% partnership interest in
Brookline;
NOW, THEREFORE, in consideration of the mutual promises and
covenants made herein and of the mutual benefits to be derived herefrom, the
parties hereto hereby agree as follows:
1. Amendments to the Articles of Limited Partnership. (a)
Section 7.1(a) of the Articles of Limited Partnership is hereby amended and
restated to read in its entirety as follows:
(a) Except as otherwise provided pursuant to Paragraph 7.9 of
this Article VII, and until such time as the provisions of paragraph 6.5 of
Article VI hereof shall be applicable, the net profits, net losses,
investment tax and other credits, if any, and Cash Flow of the Partnership
(hereinafter collectively referred to as 'P & L Items') of the Partnership
shall be allocated among the partners for each taxable year of the
Partnership as follows:
Dolan 0.5%
CSBrC 0.5%
CB 99%
(b) Section 8.4 of the Articles of Limited Partnership is
hereby amended and restated to read in its entirety as follows:
'CSBrC shall serve as the Managing General Partner
(hereinafter referred to as the 'Managing General Partner') of the
Partnership for a term commencing on ____________ __, 1994 and continuing
for one year, and thereafter from year to year unless and until the
General Partners voting in accordance with the provisions of Paragraph
8.6 of this Article VIII shall appoint a successor or Co-Managing General
Partner or determine to conduct the Partnership operations without a
Managing General Partner.'
(c) Sections 8.11 and 8.12 of the Articles of Limited
Partnership are hereby amended by deleting the word 'Dolan' wherever it appears
therein and substituting in its place the words 'the Managing General Partner.'
(d) Section 9.2 of the Articles of Limited Partnership is
hereby amended by adding the following sentence to the end thereof:
'Notwithstanding anything in Paragraph 9.1 or this Paragraph 9.2 to the
contrary, Dolan may resign as a General Partner of the Partnership and
may sell, transfer and assign all or any part of his interest as a
General Partner of the Partnership to Cablevision Systems Corporation
('Cablevision') or its designee
-2-
<PAGE>
as provided under the terms of the Brookline Sale Agreement, dated as of
____________ __, 1994 (the 'Brookline Sale Agreement'), among Dolan and
Cablevision, as the same may be amended from time to time.'
(e) Section 9.3 of the Articles of Limited Partnership is
hereby amended by adding the following sentence to the end thereof:
'Notwithstanding the provisions of Paragraph 9.1 and this Paragraph 9.3,
Dolan and Dolan's heirs, successors and legal representatives may sell,
transfer and assign all or any part of his interest in the Partnership
to Cablevision or its designee as provided under the terms of the
Brookline Sale Agreement, as the same may be amended from time to time.'
(f) Section 9.6 of the Articles of Limited Partnership is
hereby amended by adding the following sentence to the end thereof:
'Notwithstanding the foregoing, Dolan shall have the right to retire or
withdraw from the Partnership upon the sale, transfer or assignment of
all or any part of his interest in the Partnership to Cablevision or its
designee as provided under the terms of the Brookline Sale Agreement, as
the same may be amended from time to time.'
2. Entire Agreement. This Amendment, together with the
Exhibits hereto, constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
3. Counterparts. This Amendment may be executed in several
counterparts, each of which shall be deemed an original and both of which shall
together constitute one and the same instrument.
4. Governing Law. This Amendment shall be governed in all
respects, including as to validity, interpretation and effect, by the laws of
the Commonwealth of Massachusetts.
5. Amendment; Waivers. No amendment, modification or discharge
of this Amendment, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought.
6. Articles of Limited Partnership. Except as expressly set
forth herein, the Articles of Limited Partnership shall remain in full force and
effect.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment
as of the date first above written.
GENERAL PARTNERS:
--------------------------------------------
Charles F. Dolan
CABLEVISION SYSTEMS BROOKLINE
CORPORATION
By
------------------------------------------
Title:
LIMITED PARTNER:
CABLEVISION OF BOSTON, INC.
By
------------------------------------------
Title:
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<PAGE>
ANNEX VI TO MERGER AGREEMENT
Appraisal Rights
Capitalized terms used in this Annex VI shall have the
meanings set forth in the Acquisition Agreement and Plan of Merger and
Reorganization Relating to Cablevision of Boston Limited Partnership, dated as
of June 14, 1994.
Cablevision agrees that, upon consummation of the Merger and
subject to the limitations set forth below, dissenting Limited Partners will
have the right to receive compensation for their Units based upon an appraisal
of the value of the assets of the Partnership immediately prior to the Merger
(and without giving consideration to any expectancy of the Merger) performed by
a qualified appraiser unaffiliated with Cablevision or the General Partners,
less any remaining liabilities of the Partnership and less all prior claims to
the assets of the Partnership (including Preferred Equity), in each case as of
the date of and immediately prior to the Merger. The appraisal of the assets
shall be made as if the assets were sold in an orderly manner in a reasonable
period of time less the cost of sale and shall be made otherwise in a manner
consistent with industry practice.
The appraised value will not give effect to any of the
reductions in unpaid cumulative distributions on Preferred Equity agreed to by
Cablevision Finance in the Merger Restructuring Agreement and the appraiser will
instead deduct the full value of the Preferred Equity, including the full
contractual amount of unpaid cumulative distributions thereon, before
determining the appraised value of the Units. If the appraised value of the
Units is less than the value of the Cablevision Class A Stock provided for in
the Liquidation for Limited Partners who do not exercise their appraisal rights,
Limited Partners seeking appraisal will be entitled to receive only the lower
appraised value of their Units. In the event of an appraisal, no payment will be
made in respect of Units for which appraisal rights are exercised until there is
a determination of the appraised value as provided herein and no interest will
be paid in respect of such appraised value. Compensation to dissenting Limited
Partners will be in the form of Cablevision Class A Stock valued at the
arithmetic average of the closing sale price per share of such securities on the
American Stock Exchange over the 20 trading days immediately following the
Merger.
THE RIGHT OF APPRAISAL WILL BE LOST IF THE FOLLOWING
PROCEDURAL REQUIREMENTS ARE NOT FOLLOWED EXACTLY. IF THE RIGHT OF APPRAISAL IS
LOST, THE LIMITED PARTNER WILL RECEIVE THE AMOUNT OF CABLEVISION CLASS A COMMON
STOCK PROVIDED FOR IN THE MERGER AND THE LIQUIDATION.
<PAGE>
Before the Merger. If any holder of Units elects to exercise
his or her right to dissent from the Merger and demands appraisal, such holder
must satisfy each of the following conditions:
1. A Limited Partner electing to exercise appraisal rights must deliver a
written demand for appraisal of his or her Units to the Agent at Proxy
Department, Bank of Boston, P.O. Box 1628, Boston, Massachusetts
02105-9903, which written demand must be received by the Agent prior to
the Merger Expiration Date (as defined in the Consent Solicitation
Statement/Prospectus). To be effective, such demand must (i) identify
the number of Units held by such Limited Partner for which appraisal
is being sought, (ii) set forth the identity of the Limited Partner
with reasonable specificity (including the identity of any controlled or
controlling persons or entities) and (iii) state that it is such
person's intention to demand the appraisal of his or her Units.
2. Such Limited Partner must not vote in favor of the Merger or the
Incorporation. If a Limited Partner returns a signed Incorporation
Consent or Merger Consent but does not specify a vote against the
Incorporation or Merger, as the case may be, or a direction to abstain,
the Incorporation Consent or Merger Consent will be voted in favor of
the Incorporation or Merger, as the case may be, which will have the
effect of waiving that Limited Partner's appraisal rights.
Only the Limited Partner of record of Units is entitled to
seek appraisal of the fair value of the Units registered in such Limited
Partner's name. To be effective, the demand for appraisal must be executed by or
for the Limited Partner of record, fully and correctly, as such Limited
Partner's name appears in the Partnership's books. Beneficial owners of Units
whose Units are held of record by another person should instruct the record
holder to follow the procedures outlined herein if such persons wish to seek an
appraisal with respect to their Units.
If the Units are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, the demand must be made in that
capacity, and if the Units are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand must be made for all owners of
record. An authorized agent, including one of two or more joint owners, may
execute the demand for
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<PAGE>
appraisal for a holder of record; however, such agent must (i) identify the
record owner or owners; (ii) expressly state, in such demand, that the agent is
acting as agent for the record owner or owners of such Units; and (iii) provide
the Agent with reasonable documentation supporting such authorized agent's
authority. A record holder, such as a broker, who holds Units as a nominee for
several beneficial owners, some of whom desire to demand appraisal, must
exercise appraisal rights on behalf of each beneficial owner who desires to
demand appraisal with respect to the Units held for each such beneficial owner.
In such case, the written demand should set forth the number of Units covered
thereby. Where the number of Units is not expressly stated, the demand will be
presumed to cover all Units outstanding in the name of such record owner.
After the Merger. A Limited Partner who has demanded appraisal
rights in accordance with the procedures set forth above will not receive any
shares of Cablevision Class A Common Stock in the Liquidation unless such holder
withdraws his or her demand during the first 30 days after the date of the
approval of the Merger by delivering written notice thereof to Cablevision,
attention: Robert S. Lemle, One Media Crossways, Woodbury, New York 11797. Any
Limited Partner who has demanded appraisal and withdraws his or her demand or
loses his or her right to appraisal as provided below within such 30-day period
will receive and accept from Cablevision, and Cablevision shall issue to such
Limited Partner, the same number of shares of Cablevision Class A Stock per Unit
as was issued in the Liquidation, and will thereafter waive any right to
appraisal.
A Limited Partner will effectively lose his or her right of
appraisal if either (i) such Limited Partner withdraws his or her demand for
appraisal or (ii) no written request for appraisal is delivered to and received
by the Agent within 30 days after the date on which the Agent mails a notice to
the Limited Partners that the Merger has been consummated (the 'Merger Notice
Date'), except that any attempt to withdraw not made within 30 days after the
date of the approval of the Merger requires the approval of Cablevision. The
Merger Notice Date shall not be more than 30 days after the Effective Date.
If any Limited Partner who has properly exercised his or her
appraisal rights delivers a written request for appraisal to the Agent prior to
the Merger Expiration Date, Cablevision shall, within 120 days following the
Effective Date, engage an independent appraiser to conduct the appraisal.
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<PAGE>
From and after the Effective Date, a Limited Partner who has
perfected appraisal rights hereunder shall cease to have any rights as a Limited
Partner other than the right to receive the appraised value of his or her Units
hereunder or, if such Limited Partner withdraws his or her demand for, or loses
his or her right to, appraisal, the right to receive Cablevision Class A Common
Stock as provided above, and shall waive any rights under the Partnership
Agreement.
All written requests for appraisal shall be addressed to the
Agent at Proxy Department, Bank of Boston, P.O. Box 1628, Boston, Massachusetts
02105-9903, with a copy to: Robert S. Lemle, Executive Vice President, General
Counsel and Secretary of Cablevision at Cablevision's principal executive
offices located at One Media Crossways, Woodbury, New York 11797. It is the
responsibility of the Limited Partners wishing to dissent to ensure that a
written request for appraisal is received by the Agent within such 30-day
request period.
No fractional shares shall be issued under Section 1.8 of the
Agreement or this Annex VI. Instead, fractional shares will be rounded to the
nearest whole number.
The cost of the appraisal shall be borne by Cablevision.
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